THE FOLLOWING IS A TRANSCRIPT OF THIS VIDEO. FOR MORE INFORMATION, CLICK HERE

This is Stewart Albertson with Albertson and Davidson, and I want to talk to you about an issue that we do see from time to time called advances on inheritance. Advances on inheritance are essentially a loan that mom or dad makes to one child. They don’t want to be unfair in giving that loan to one of their children when they have several other children. So they basically tell the person they made the loan to, well that is an advance on your inheritance so that when I die, you’re going to have to take that into account based upon whatever your share of my estate is.

There’s a real problem with advances on inheritance though because the probate code has some technical requirements that must be met to qualify as an advance on inheritance. Otherwise, that payment of money from a parent to a child will be looked at as a gift.  If it’s a gift that makes a big difference because when the estate is distributed after mom and dad have passed away it’ll be distributed equally between all of the children without taking into account the “loan” that was made to one of the children during lifetime.

So how can you tell the difference between an advance on inheritance and a gift? The advance on inheritance can be proven in three primary ways. There’s actually a fourth way, but that gets a little complicated. If you really want to look into this, you can go to Probate Code section 21135, and you can read how you establish an advance on inheritance there.

Generally, the way you prove an advance on inheritance is:

  1. The trust or will terms themselves have in there saying, I’m giving $100,000 loan to my son Johnny, and when I die, this counts as part of his inheritance at the time he receives his ultimate distribution. That’s the first way that an advance on inheritance can be included and be supported by the evidence.
  2. The next way you can establish an advance on inheritance is did your mom or dad have a writing outside the trust or will that simply says: I hereby am making a loan to Johnny and after I die, that should be considered as part of his inheritance for distribution purposes. That would be the second way that you can establish an advance on inheritance.
  3. The third way is you have Johnny acknowledged in a writing that he’s already receiving some of his inheritance by way of a loan prior to mom and dad passing.

If you have any of those three, chances are you can establish an advance on inheritance.

As you can see, this is not always easy to do. If there is money that is given to one child, a lot of money, say several hundreds of thousands of dollars to one child and not to the other, and there’s nothing to establish an advance on inheritance, what is the argument the child makes who received the money during the parents’ lifetime? And that is, it was a gift. If it’s a gift, it won’t be chargeable against their share of the estate. It won’t be an advance on inheritance.

 

THE FOLLOWING IS A TRANSCRIPT OF THIS VIDEO. FOR MORE INFORMATION, CLICK HERE

This is Keith A. Davidson from Albertson and Davidson. In this video, I want to talk to you about the differences between Wills and Trusts. A lot of times people think that Wills and Trusts are the same thing, that they’re the same type of documents, and they really aren’t. Wills and Trusts are very different, and so let’s start with a discussion of Wills, and then we’ll talk about Trusts and you can see the differences between the two documents.

Wills are testamentary documents, and what that means is they only come into effect, they only actually are created, upon somebody’s death. Now you go ahead and create the Will and write it down and sign it prior to death, but it doesn’t operate until after death. For Wills, there’s a lot of what we call formalities that you have to follow.

To have a valid Will, you have to have it in writing. It has to be signed by the person who’s creating the Will, and a typewritten Will has to be witnessed by two witnesses, or it has to be in the testator’s own handwriting. That’s what we call a holographic Will. If you don’t meet those formalities when you create a Will, then the Will simply isn’t going to be valid. That’s something that is unique to Will’s. You’re not going to have that with Trust.

After somebody passes away, a Will cannot operate over their assets until you take that Will to court and you have the court admit the Will to probate. That’s where the court decides whether the Will is valid or not, and until the Will is admitted to probate, nothing can happen with that Will. You can’t administer it. You can’t manage the decedents assets. It has to go through this court process in order to operate and then the Will ultimately will dictate how the assets pass out of probate and to the beneficiaries who are intended to receive them. And that’s generally how a Will works.

A Trust is very different because most people create what we call a living Trust. In legal terms, we would call that an inter-vivos Trust, meaning that it’s created during your lifetime and it actually operates during your lifetime. So the Trustee of your living Trust can manage your assets, can make management decisions over those assets, and it operates even if you lose capacity. That’s different from a Will because the Will never helps you if you lose capacity, but a Trust does. And then after you passed the Trustee can administer that Trust without having to go to court.

Trust don’t require any court oversight in order to be administered. And in order to create a Trust, all you have to do is have something in writing and signed. You don’t technically even need to have it notarized, although most Trusts are notarized and they probably should be, but that’s not a legal requirement that they be notarized.

Trusts tend to be a lot more flexible because you can leave your assets to your children or your beneficiaries, and you can have all sorts of flexibility in how you leave your assets to them. So, you can leave something in a child’s Trust that holds their assets until a certain age, or you can leave something to your grandchild and also hold that until they reach a certain age. There’s all sorts of flexibility that you can build into your Trust that is much harder to do under a Will because the Will has to go to court and through the probate process in order to be administered.

So that is some differences between a Will and a Trust, and I think you’ll see that they’re very different documents.

Another year is in the books, and on the web for us thanks to our blog.  We wrote quite a few articles again this year, but there are a few stand-outs among them. The following list represents our twelve most popular articles (and our personal favorites too):

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1. Form Interrogatory 15.1: Show Me your Facts.  Decsribed as a “procedural 2 x 4”, form interrogatory 15.1 gets broken down into an understandable form by partner Stewart R. Albertson.  A very popular video on an underappreciated interrogatory.

2.  The Best (Private) Trustee in the World!  We spend a good deal of time discussing what Trustees do wrong in administering a Trust estate.  But it’s nice to stop and pay tribute to those Trustees who do right.  I have the pleasure of represnting one very good private Trustee–in fact he’s the best private Trustee in the world–I guarantee it!

3. The Empty Will: Why a California Will or Trust May Not Control Your Assets After Death.   Not much passes under a California Will these days, yet we spend so much time talking about Wills.  This article helps decipher what passes under a California Will and what does not.

4. 5 Tips for Aspiring and Accomplished Lawyers.  This is one of my personal favorites, a guest post from our friend and colleague, Mike Hackard, with Hackard Law in Sacramento, CA.  Mike is an experienced attorney with over 35 years of experience and he shared some great tips with us for aspiring and accomplished lawyers.  Thank you Mike!

5. Video Series.  We did more videos this year, and we have more in the works for 2013.  All of our videos seem to be very popular.  Stewart and I assume it’s becuase of our good looks, but our staff seems to think it’s the good information we provide in the videos.  Well whatever the reason, our videos made the top 12 list for 2012.

6. AeroFlow Windscreen for my BMW R1200GS.  What do BMW motocycles and the law have in common?  Nothing at all.  But Stewart’s post on his BMW motorcycle was interesting and a popular source of conversation. 

7. When to Fight for your Right to Privacy: A Three Part Series.  It should be no secret that you have a right to privacy–even in our digital world.  California’s Constitutional Right to Privacy gets some discussion in our three-part series on the subject.  You have to know your rights, know when to fight for them, and know when not to fight for them.

8. When a Beneficiary “Can’t Get No Satisfaction”: How to Remove a California Trustee in 3 “Easy” Steps…  “Easy” is a relative term, of course.  But it never hurts to think positively and discuss how to go about removing a Trustee, if that needs to occur, as if it were easy.  

9. 5 Essential Elements for a Slam Dunk Case.  A personal favorite of mine, the notion of a “slam dunk” case.  Everyone has a slam dunk case, or so they think.  But until the stars align, and you have the 5 essential elements on your side, your case may not be such a sure thing after all.

10. What You Need to Know When an Estate Plan Goes Awry.  Attorneys never make mistakes, right?  Wrong.  Sometimes even attorneys can make mistakes, and when those mistakes damage an otherwise well intentioned estate plan there may be some legal recourse to pursue.  This post discusses some of the strategies to successfully navigate an attorney malpactice case.

11. When is a Trust like a Will?  Appellate Court Confuses Capacity Rules for California Trust Amendments.  The California Courts of Appeal don’t often make new law in the area of Trusts and Wills.  But when they do, we often wished they hadn’t.  Case in point, Anderson vs. Hunt where the Appeallate Court took an already confusing area of the law and made it more confusinger (yes “confusinger” a new term coined for the first time right here).  

12. Trustee: Do Not Pass Go, Do Not Collect $200.  Another appellate court case, Thorne vs. Reed, where a Trustee is told his pay is zero–one of few areas where you can have legal servitude.  If a Trust says Trustee compensation is zero, then that’s what it is.  Seems fair enough, unless you’re the Trustee!   

There you have it, the top 12 post for 2012.  We hope you enjoy these posts along with all our other articles.  We look forward to bringing you more useful and interesting Trust and Estate information for 2013.

Happy New Year!    

I get calls every week from California Trust, Last Will, and Estate beneficiaries complaining that they can’t get their brother or sister, who is the Trustee and Executor of their parents’ estate plan, to provide copies of the parents’ estate plan after the parents have died.

I usually suggest the following. First, send a letter to the Trustee and Executor politely requesting the entire Trust, including amendments, and Last Will for both parents. Include the following language in the letter: 

A.         Please Provide True Copy of California Will

Under California Probate Code Section 8200, you, as Executor of Mom’s and Dad’s estates, are required to deliver mom’s and dad’s Last Wills to the County Superior Court where mom and dad died within 30 days of mom’s and dad’s respective deaths. Please note, if I am damaged by your failure to deliver moms’ and dad’s Last Wills to the Superior Court you will be liable for my damages. (See Probate Code section 8200(b).)

As you are required to deliver the Wills to the Superior Court, you should have no objection in providing me with true copies at this time. If you do not provide me with a true copy of the Wills I will have no choice but to file a petition in the Probate Court requesting the Court to order you to provide me with true copies of the Wills. Please note, if I’m forced to file a petition, I will request that the Court order you to pay for the attorneys’ fees and costs associated with my petition. I hope I am not required to file a petition and you will simply provide me with true copies of the Wills on or before DATE. 

B.         Please Provide True Copy of California Trust

Under California Probate Code Section 16061.7, you, as Trustee of Mom’s and Dad’s Trust, are required to provide all beneficiaries of the Trust and all of Mom’s and Dad’s heirs with a true copy of the Trust documents, including any amendments, 60 days after Mom’s and Dad’s respective deaths.

As you are required to provide Mom’s and Dad’s Trust after 60 days of their respective deaths you should have no objection in providing me with true copies of the Trust, and any amendments, at this time. If you do not provide me with a true copy of Mom’s and Dad’s Trust, and any amendments, I will have no choice but to file a petition in the Probate Court requesting the Court to order you to provide me with a true copy. Please note, if I’m forced to file a petition, I will request that the Court order you to pay for the attorneys’ fees and costs associated with my petition. I hope I am not required to file a petition and you will simply provide me, as an heir and/or beneficiary of the Trust, a true copy of the Trust, and any amendments, on or before DATE.

If you include the above-referenced language in your letter to the Trustee, more times than not you will be successful in getting the Trustee to turn over the Trust and Will documents.

If the Trustee still refuses to provide the Will and Trust, then you must seek help from the Probate Court to force the Trustee and Executor to hand over these documents. I will explain in a future post how you get the Court’s help for obtaining these documents. 

In April 2009 I weighed 216 pounds. I’m 6’1” so I didn’t consider myself to be overweight. In fact, at this time, I was riding my road bike 60 to 90 miles per week, and even competed in the L.A./Kaiser triathlon the year before. But my diet was terrible. I ate way too much food—including the wrong types of food. I had gained approximately 30 pounds (mostly fat) since I graduated college in 1999. It’s a true statement—“you can out eat any exercise program.”

I was in court one day in April 2009. For some reason I noticed that many of the older litigators were overweight (some were really overweight). It scared me as I was headed down this same path. I immediately made a decision to get into great shape—from both a fitness and diet standpoint.

After coming across Tony Horton’s infomercial, I started doing P90X at the end of April 2009, and started making healthier food choices. Six months later, I dropped from 216 pounds to 204 pounds. I still didn’t like what I saw around my mid-section. In April 2010 I was down to 198 pounds. I continued doing P90X religiously, and closely monitored my diet. In April 2011 I was down to 195 pounds. 195 pounds was still not where I wanted to be—my overall goal in April 2009 was to get back to the 186 pounds I weighted when I was in the U.S. Army at 21 years old.

In July 2011, I started following certain fitness gurus to find out what I needed to do to drop those last few pounds of fat. I was overwhelmed with all the advice and fads out there. Over the past few weeks I have pared down who I follow, and implemented many of these “guru’s” suggestions into my fitness and diet routines, primarily Brad Pilon, Rusty Moore, and Martin Berkhan. Within in a few short weeks I dropped those last few stubborn pounds of fat, reaching my goal weight of 186 pounds. 

Here’s a list of the fitness gurus I currently follow:

Brad Pilon: You can find Brad at his blog and on Twitter. Brad’s advice regarding intermittent fasting sounds wrong at first. We’ve all been told we need to eat six small meals a day to lose fat and maintain muscle. Brad says “no” to the six small means and recommends intermittent fasting two times a week. He wrote a book about it, Eat Stop Eat. (Yes his book costs $39.95, which is the same cost as 10 Big Macs—a bargain in my opinion.) Look at Brad’s physical appearance on his blog. Does it look like he’s lost muscle from intermittent fasting?

Rusty Moore: You can find Rusty at his blog, The Fitness Black Book, and on Twitter. This is one of the first blogs I read regularly—and still do. Rusty gives great advice, and there’s lots of free content on his blog. He has a book as well, Visual Impact Muscle Building, which I believe costs $47. Again, a bargain compared to how much we spend on unhealthy foods each week. Rusty’s advice in a nutshell is to follow Brad Pilon’s Eat Fast Eat diet, and at same time train in a fasted state. You can find lots of useful ideas and advice on his blog. I’ve been training in a fasted state for the past four weeks and dropped those last few stubborn pounds of fat. It really worked for me.  

Martin Berkhan: You can find Martin at his blog, Leangains.com, and on Twitter. Martin’s Leangains Guide is full of great advice. I’ve switched between Brad Pilon’s Eat Fast Eat and Martin’s recommendations in his Leangains Guide. Martin is also an advocate of fasted training. Martin adds supplement advice to his training recommendations. Primarily, Martin recommends taking 10 grams of BCAAs (Branch Chain Amino Acids) prior to training, and several hours after training is completed. The BCAAs provide the muscles with protein and allow you to still train in a fasted state. Just watch the fat melt away after a few sessions of training in a fasted state.   

P90X/Tony Horton: Where would I be without Tony Horton? I still do P90X a few times a week, mostly for cardio training. If you are out of shape a little—or even a lot—give P90X a try. Tony is great at motivating you and teaching you how to modify the workouts until you are ready to “Bring It.” You can order P90X here. (Yes, I know it costs $140. But how much did you spend on pizza last year?) You can also follow Tony on Twitter.

Stewart R. Albertson is an attorney in Riverside, California. Stewart helps people in the areas of Trust, Estate, and Probate litigation. You can find Stewart at his website, blog, and on Twitter.

One of my first litigation cases was against attorney Thomas W. Dominick in San Bernardino County Probate Court. Tom is one of the best estate and trust litigators in California. To say the least, I was scared. The issue in that case revolved around whether my client had a right to his girlfriend’s real property after her death. She promised my client the property during her lifetime and he had spent money on the property, but nothing was in writing and the two were never legally married. I remember being frustrated that I could not find a legal doctrine to support my client’s claim after his girlfriend died. I was shocked that there appeared to be no real protection for long-term nonmarital partners after the death of the other partner. I ended up alleging several causes of action that were weak at best (i.e. oral promise to enforce trust in real property, quiet title, specific performance, constructive trust, and unjust enrichment—known generally as Marvin claims based on a case of the same name). Unfortunately, these claims must be brought within one year of the decedent’s date of death or they are forever time barred under the statute of limitations applied to decedents’ estates. And, the girlfriend’s family waited over eight years to file a petition for probate, knowing all the while that my client continued to live in what he believed was his house (the eight year time-frame made most of my client’s claims moot).

But I had equity on my side as my client had lived with his girlfriend for almost 30 years and he had invested his own money into the home over the years. Thankfully, the case settled after Thomas and I worked out a settlement, on behalf of our respective clients, which allowed my client to occupy the home for his lifetime.

A recent Court decision would have made my job much easier in the above-referenced case.  In McMackin v. Ehrheart (decided April 8, 2011) Presiding Justice Robert M. Mallano, writing for California’s Second Appellate District, Division One, discussed (as a matter of first impression) whether a Marvin claim based on a decedent’s promise to leave her nonmarital partner a life estate in real property requires the nonmarital partner to file a lawsuit within one year of her partners death, and if so, whether the doctrine of equitable estoppel can be applied to preclude assertion of the one year statute of limitations. The court concluded that the Marvin claim is governed by a one year statute of limitations, but that, depending on the circumstances of each case, the doctrine of equitable estoppel may be applied to preclude a party from asserting the one year statute of limitations. 

The pertinent facts of McMackin established that nonmarital partners—Hugh and Patricia—lived together in Patricia’s home from 1987 to 2004. Hugh was never on title to Patricia’s home, but continued to occupy her home after her death. More than three years after Patricia’s death, her children filed a petition for probate, which would effectively kick Hugh out of the home leaving him with no interest in Patricia’s estate. In reply, Hugh filed a lawsuit alleging that Patricia had promised him a life estate in the home upon her death in consideration for 17 years of his “love, affection, care and companionship.” Hugh argued that the one year statute of limitations did not apply. Of course Patricia’s daughters argued that the limitation statute applied (as three years had passed). In response, Hugh argued that even if the one year statute of limitations applies, the doctrine of equitable estoppel precluded Patricia’s daughters from using it against him. The court of appeal agreed, stating the one year statute of limitation applies, but that equitable estoppel may preclude the daughters from raising it as a defense. The court of appeal then sent the case back to the trial court for determination of these issues.

Overall, McMackin is a great case to review if you run into nonmarital partner estate issues. Justice Mallano did a great job in articulating the legal analysis pertaining to Code of Civil Procedure section 366.3 and the doctrine of equitable estoppel. I think this case will be used as more people choose to live together rather than get married. Of course all of the Marvin claim messes can be avoided by proper estate planning (i.e. creating California trusts and wills).

Fifty years ago, most assets passed from an individual who died to his or her family by way of Probate (by Will or Intestacy both of which require Probate). Probate is a strict, expensive and time-consuming Court process that must be completed before assets can ultimately being transferred to family members.

But today, we own assets differently than we did fifty years ago. Most of us have bank accounts, retirement accounts, life insurance, and perhaps Living Trusts. These four types of assets (or financial vehicles) constitute the core of the so-called “Nonprobate Transfers” or “Will Substitutes”, meaning each of these assets pass outside Probate if properly designated.

California law expressly allows these Nonprobate Transfer assets to pass outside the probate process, even though these assets do not comply with the formal requirements for execution of a Will (read more about the Formalities and Intentionalities of Will creation.) Accordingly, individuals can rely on beneficiary designation forms that identify who gets his or her bank accounts, life insurance, and retirement accounts at his or her death without regard to what a Will states. As a result, with proper planning, an individual’s entire estate can pass at death to his or her family members outside of the Probate system. In fact, this is one of the primary reasons why estate planners created Revocable Trust—to avoid Probate altogether.

Let’s take an example, Stewart owns the following assets:

  • a home worth $400,000;
  • a rental property worth $350,000;
  • two bank accounts totaling $60,000;
  • a retirement account totaling $500,000; and
  • life insurance with a death benefit of $1 million.

Stewart’s total estate is worth $2,310,000. If Stewart’s estate passes by a Will or Intestacy, it must go through the Probate system. The attorney’s fees on this size of an estate would result in fees of approximately $40,000 (read more on how Probate fees are calculated.)

On the other hand, Stewart’s entire estate could pass by way of Nonprobate Transfers (also known as Will Substitutes), as follows:

  • Stewart’s (i) home and (ii) rental property are owned by his Living Trust, which designates the beneficiaries of his home and rental property.
  • Stewart’s (i) bank accounts, (ii) retirement account, and (iii) life insurance have “beneficiary designation” cards filled out designating who gets these assets on Stewart’s death.

Now Stewart’s entire estate passes outside of the Probate Court process.

Ultimately, these types of Nonprobate Transfers (or Will Substitutes) function as a private system of transferring assets at death—usually requiring less time, fewer rules, and a lower cost than Probate requires.

How does the estate tax affect you? Likely, it does not affect a majority of us in the last few days of 2010. But it may begin to impact more of us, beginning January 1, 2011, if Congress does not pass the current tax-cut extension package recently negotiated by President Obama and the Republicans.

Writing for the LA Times, Lisa Mascaro and Michael Muskal report that liberal Democrats in the House of Representatives are protesting the proposed estate tax provisions of President Obama’s negotiated package. Without any action by Congress, the estate tax will return to its 2001 rates beginning January 1, 2011. The 2001 rates have a flat tax up to 55% of any net estate value over $1 million. For example, under the 2001 estate tax rates, an individual’s net estate of $2 million would likely incur an estate tax of approximately $500,000.

Under President Obama’s negotiated plan, individuals would receive a $5 million exclusion amount that would pass tax-free to heirs and beneficiaries, or if married $10 million would pass tax-free. Any amount over $5 million per person would incur a flat tax of 35%. For example, under this plan an individual’s net estate of $6 million would likely incur an estate tax of approximately $350,000 (because the first $5 million is tax-free, and the remaining $1 million is taxed at a flat tax of 35%). Additionally, under the plan, if a married couple had a net estate of $12 million, then the first $10 million would pass tax-free, and the remaining $2 million would be subject to a flat tax of approximately $700,000 (assuming the married couple properly set up an estate plan to ensure both $5 million exclusion amounts could be used).

In contrast, under the House Democrats plan, individuals would receive a $3.5 million exclusion amount, and married couples a $7 million exclusion amount, and the any amount over those values would be subject to a flat tax of 45%. Using the same examples under the President’s and the Republican’s plan (referenced above) evidences the differing estate tax impact between the two plans: An individual with a net estate of $6 million would likely incur an estate tax of approximately $1.125 million under the House Democrats plan. A couple with a net estate of $12 million would likely incur an estate tax of approximately $2.250 million.

There is not much time to fix the estate tax before the Republicans take control of Congress on January 4, 2011. Hopefully a package will be passed before January 1, 2011 so individuals will know how they may be impacted by the estate tax.

Marc Alexander’s and William M. Hensley’s outstanding blog on California attorney’s fees recently commented on Estate of Fernandez, where Justice O’Leary discussed the difference between “ordinary” and “extraordinary” attorney’s fees in the probate arena.

So, what is the difference between “ordinary” and “extraordinary” attorney’s fees that you pay an attorney to “probate” your loved ones estate?

Let’s take “ordinary” attorney’s fees first. California law sets the maximum amount an attorney may be paid for “probating” an estate (referred to as “ordinary fees” or “statutory fees”) as follows:

  • 4 % of the first $100,000 of estate value
  • 3 % of the next $100,000
  • 2 % of the next $800,000
  • 1 % of the next $9,000,000
  • ½ % of the next $15,000,000

Let’s take an example. If your parents’ estate (after they have both died) is worth $1,000,000, then the ordinary fee for probating your parents’ estate would be:

  • 4 % x $100,000 = $4,000
  • 3 % x $100,000 = $3,000
  • 2 % x $800,000 = $16,000

Thus, the ordinary fee would be $4,000 plus $3,000 plus $16,000 for a total ordinary fee of $23,000.

 “Extraordinary fees” are fees paid to an attorney probating an estate for extraordinary services—that is services that fall outside of the routine services required for a typical probate.   Extraordinary fees are based on:

(1)   the value of the estate,

(2)   the difficulty of the extraordinary tasks performed and time spent,

(3)   the results achieved, and

(4)   whether those results benefitted the estate.

Most extraordinary fees arise due to probate litigation (i.e., a Will Contest), the sale of real property, or handling difficult tax issues arising in a probate administration.

For example, if a Will Contest is filed by a beneficiary, lawyers will likely be retained to represent the estate and their fees will be paid as extraordinary fees—in addition to the ordinary fees.   

If the Will Contest litigation resulted in extraordinary attorneys’ fees of $30,000, then the total attorneys’ fees for the estate could equal $53,000, which is $23,000 for the ordinary fees and an additional $30,000 for the extraordinary fees. Of course the Probate Court would have to approve both the ordinary and extraordinary fees, but it is likely the Probate Court would approve such fees as outlined above.

No contest clauses were originally referred to as “In Terrorem” clauses. In Terrorem is Latin for “To Scare the Pants off my Beneficiaries”—loosely translated. And that’s what a no contest clause is supposed to do, prevent a trust or will contest by disinheriting a beneficiary who dares to contest the terms of the instrument.

California has a love-hate relationship with no contest clauses. And their application seems to be in constant flux. For example, prior to January 1, 2010, all no contest clauses were enforceable except for clauses that pertained to certain protected actions—such as challenging the actions of a trustee or filing a creditor’s claim. And the law allowed a beneficiary to receive an advanced ruling from the court (called Declaratory Relief) to determine that a proposed filing would or would not be a contest. The advanced ruling process allowed beneficiaries to test the waters before committing themselves to a filing that could later be deemed a contest.

That all changed effective January 1, 2010, when a new law came into effect that radically changed the application of no contest clauses in California—in the hopes of making them easier to apply. Let’s test that theory: under the new law, no contest clauses in wills and trust are generally unenforceable except certain narrowly defined actions. These narrowly defined actions include:

  • A direct contest against the instrument based on things like lack of capacity, undue influence, fraud, lack of proper signing,
  • Filing a petition to transfer title in property into or out of a trust or an estate, or 
  • Filing a creditor’s claim.

These actions only trigger the no contest clause if: the precise action is stated in the clause itself, and the action is brought without probable cause. Sound simple?

Furthermore, the advanced ruling procedure (the Declaratory Relief referenced above) has been abolished. So now beneficiaries must take their chances in filing a petition. If a beneficiary contests a trust or will and wins, then the no contest clause does not apply and the beneficiary is happy. If a beneficiary contests a trust or will and loses, the no contest clause may apply (if it falls into one of the three categories set forth above) and then the beneficiary must argue whether they brought their action with “probable cause.” If the beneficiary has probable cause, then no harm, no foul and the beneficiary is not disinherited. If there is no probable cause, the beneficiary loses all interests in the trust or will.

So what then constitutes “probable cause?” Impossible to say at this time because there have been no cases on this issues to date. But rest assured, case law will be coming because the new law is perfectly primed to result in voluminous litigation. Not the easy application the legislature was hoping for, but a good way to keep trust litigation attorneys fully employed.