No contest clauses are included in wills and trusts to discourage dissatisfied beneficiaries from challenging the document’s validity. Because enforcement of these clauses results in disinheritance, the California Probate Code limits their applicability. But what happens when a beneficiary defends a trust amendment that is found to be invalid? Can the defense of an invalid amendment be deemed a contest of the original trust?
The California Court of Appeal held last month in Key v. Tyler (2019) 34 Cal.App.5th 505 that a beneficiary’s defense of an invalid amendment to a trust, if made without probable cause, indeed can trigger a no contest clause and result in disinheritance. The court also confirmed that anti-SLAPP motions can be filed against petitions to enforce no contest clauses, a topic we have written on previously.
Court Finds that Daughter Unduly Influences Mother to Amend Trust
Thomas Plott and Elizabeth Plott (“Elizabeth”) owned a successful family nursing home business and established a trust in 1999. Thomas passed away in 2003. The Plotts had three daughters, including Sarah Key (“Key”) and Elizabeth Tyler (“Tyler”).
Tyler, was vice-president of operations for the Plott family nursing home business as well as a partner of her own law firm in Los Angeles, which provided legal services to the business. Elizabeth depended on Tyler for information related to the business and for legal advice. In 2006, Tyler began pressuring Elizabeth into amending the trust to be more favorable to Tyler.
Tyler was ultimately successful. In 2007, Elizabeth signed an amendment which radically altered the distribution of the trust assets. While the pre-2007 trust split $72 million equally between the three daughters, the 2007 amended version gave Key a lump sum amount of $1 million and split the business assets 65 percent to Tyler and 35 percent to the third sister. In addition, the amendment gave Tyler everything in the family residence and forgave a $2.5 million debt owed by Tyler to the marital trust.
Elizabeth was not diagnosed with dementia until 2010 and she passed in 2011.
Key brought a suit to challenge the 2007 amendment, which Tyler defended. After a 17-day trial, the Los Angeles Superior Court sided with Key and found the amendment invalid due to Tyler’s exertion of undue influence upon her mother. Tyler unsuccessfully appealed that ruling.
Court of Appeal Confirms Anti-SLAPP Motion Can Be Asserted Against Petition to Enforce a No Contest Clause
Key then sought to disinherit Tyler by filing a petition to enforce the original trust’s no contest clause against Tyler for her defense of the amendment. In response, Tyler filed an anti-SLAPP motion to strike Key’s petition on the basis that it infringed on Tyler’s right to engage in protected speech (i.e., to participate in litigation). Key objected, arguing that anti-SLAPP motions cannot be asserted against petitions to enforce a no contest clause.
The Superior Court in Los Angeles County permitted the anti-SLAPP motion and shifted the burden to Key to prove that her petition to enforce the no contest clause was likely to be successful. On this the court held that Key could not meet her burden because the defense of an invalid amendment was not a “direct contest” to the original trust.
Key appealed, and the Court of Appeal confirmed that anti-SLAPP motions may be brought against no contest clause enforcement petitions. Among other things, the court found the anti-SLAPP statute was consistent enough with the Probate Code for it to be applicable, that the anti-SLAPP statutory scheme did not create an exception relating to Probate Code proceedings, and that even if there were good reasons for anti-SLAPP motions to not apply in the probate context, it was up to the Legislature to make that decision.
The “Plott” Thickens: Defense of Invalid Amendment Triggered No Contest Clause
The Court of Appeal then turned to the issue of whether Key had shown that her no contest clause petition would likely prevail – i.e., whether Tyler’s defense of the invalid amendment likely constituted a direct contest to the trust.
The court began its analysis by noting that Probate Code section 21310 defines a “direct contest” as one that “alleges the invalidity of a protected instrument or one or more of its terms” on one of several specifically-enumerated grounds, including revocation, which the court construed to include revocation through amendment.
Applying this definition, the court reasoned that Tyler’s defense of the 2007 amendment was a direct contest because Tyler was asserting that the terms of the original trust were invalidated (or revoked) by the 2007 amendment. In other words, Tyler’s defense of the amendment, had it been successful, would have invalidated sections of the original trust and replaced them with the amendment versions, and therefore was a contest of the terms of the original trust.
In coming to this conclusion, the court held that a direct contest can be triggered even when the beneficiary does not initiate an action against the trust, stating that “it does not matter that Tyler’s attempt to enforce the spurious amendment through judicial proceedings began with a petition filed by Key.”
The court did note, however, that Tyler might be able to demonstrate she had “probable cause,” within the meaning of Probate Code section 21311(b), to defend the 2007 amendment, so she may yet be able to avoid the effect of the no contest clause.
The Legislature in 2008 revised the no contest clause statutory framework, generally narrowing the enforceable scope of no contest clauses. Key v. Tyler arguably upends that framework by extending the reach of no contest clauses to the defense of will and trust instruments that amend prior estate planning documents. The potential enforcement of no contest clauses now should factor into the initial and ongoing case assessment of will/trust proponents as well as contestants.
Consider that in Key v. Tyler, if Tyler had been successful, then Key would have been subject to the no contest clause and could have lost her $1 million gift. Key apparently considered this, gauged the strength of her case, and took the risk. If Tyler had known that she could be disinherited for defending the amendment, would she have gone to trial on its validity?