A no-contest clause, sometimes called an in terrorem clause, is a condition in a trust that prevents beneficiaries from challenging the trust’s terms. In simpler terms, it is a condition that takes away a beneficiary’s inheritance if they contest the trust in court.
Why add a no-contest clause?
While it may seem severe, including a no-contest clause in your trust can offer several benefits. It can:
- Deter frivolous challenges to the trust
- Help preserve the trust creator’s intentions
- Reduce potential family conflicts over inheritances
- Potentially save time and money by avoiding lengthy legal proceedings
However, no-contest clauses aren’t without drawbacks. They can be difficult to interpret and enforce. There’s also potential for unintended consequences, like disinheriting a beneficiary who had valid concerns. It’s crucial to weigh these pros and cons carefully with an attorney when considering this clause for your trust.
When are no-contest clauses enforceable in California?
Under current state law, the court can only enforce a no-contest clause in three specific situations:
- Direct contests brought without probable cause: A “direct contest” is a legal challenge claiming the trust is invalid due to factors like forgery, lack of capacity or undue influence. This means that if a beneficiary has a reasonable basis to challenge the trust, then the no-contest clause will not be enforceable.
- Challenges to the trust creator’s ownership of property: This refers to claims that the trust creator didn’t actually own the assets they put in the trust. A beneficiary who disputes the ownership of assets included in the trust may lose their designated share.
- Creditor claims against the trust: Creditor claims are requests for payment made by people or entities to whom the trust creator owed money. If a beneficiary pursues such a claim, then they may forfeit their inheritance.
If you’re creating a trust with a no-contest clause, it’s crucial to use clear and precise language. Vague terms can lead to confusion and potential legal battles.
For beneficiaries, it’s important to understand what actions might trigger the clause. If you have concerns about a trust, consider seeking legal advice before taking any action that may count as a contest or challenge.
Make informed decisions
No-contest clauses can come with significant consequences. Whether you’re creating a trust or are a beneficiary with concerns, a consultation with an attorney can help clarify your options.
