No contest clauses generally are not enforceable against beneficiaries of California trusts when there is “probable cause” to challenge the trust instrument.
Yet the probable cause safe harbor may disappear if the contest is untimely. That’s the upshot of Meiri v. Shamtoubi (2022) ___ Cal.App.5th ____, a Court of Appeal opinion issued last week.
An untimely contest of a trust instrument that contains a no contest clause may have a boomerang effect by disqualifying the contestant from receiving any benefit from the trust.
Parents Create a Trust
Iraj and Tale Shamtoumbi, who were married for nearly six decades, created a family trust to benefit themselves and ultimately their four children.
They amended their trust to adjust for lifetime loans and/or gifts made to two of the children, including their daughter Minoo Meiri. They included a standard no contest clause in the trust instrument.
For an overview of no contest clauses, see our prior post here. Notably, the clauses only have teeth if the contestant has something to lose, i.e., if the contestant is completely disinherited, they have no benefit jeopardized by enforcement of the clause.
Daughter Challenges Her Reduced Share
After Iraj passed in 2016, Minoo challenged the trust instruments. In her petition, Minoo claimed that her siblings had conspired to cause Iraj to change the trust to disfavor her. Minoo argued that Iraj was mentally incapacitated and the victim of undue influence.
Yet Minoo’s claims were subject to a statute of limitations under California Probate Code sections 16061.7 and 16061.8. The 120-day period began to run in 2018 when Tale, as surviving spouse and trustee, served her children with a notice of trust administration.
Minoo, who apparently received the notice advising her of the statute of limitations, was almost four months late in filing suit.
Under Probate Code section 21311, no contest clauses are enforceable against “direct contests” filed without “probable cause.”
A “direct contest” alleges the invalidity of a trust instrument based on mental incapacity undue influence or other specified grounds. As section 21310 explains, “probable cause” exists” when “at the time of filing a contest, the facts known to the contestant would cause a reasonable person to believe that there is a reasonable likelihood that the requested relief will be granted after an opportunity for further investigation or discovery.”
California law thus aims to strike a balance by discouraging weak contests while not penalizing contestants who have strong claims.
A probate judge in Los Angeles County Superior Court, in response to a petition for instructions filed by Tale, found that Minoo had forfeited her interest in the trust by filing an untimely contest. Since the statute of limitations plainly applied, Minoo lacked probable cause to seek to invalidate the trust instrument, i.e., she could not reasonably believe that she would defeat the statute of limitations.
The Court of Appeal agreed with the probate judge, concluding that the statute of limitations can and should be applied. The court rejected various arguments asserted by Minoo, finding that even procedural bars to relief may establish a lack of probable cause for purposes of sections 21310 and 21311.
Minoo thus lost both the litigation and any inheritance she eventually would receive under the trust, the value of which was not revealed in the opinion.
Beware of statute of limitations defenses when filing trust contests! While a beneficiary may be disappointed to learn that they will receive less than they feel is “fair,” an untimely contest jeopardizes any share that may remain.
Potential contestants who receive a notice of trust administration under section 16061.7 should consult with a lawyer well before the 120-day period runs about whether to pursue a contest, including the risks associated with any no contest clause. Compliance with the statute of limitations might be excused under special circumstances such as where the trustee assures the beneficiary that the no contest clause will not be enforced.