Updated January 6, 2014: The California Supreme Court reversed in Donkin v Donkin on December 26, 2013. The court held that the no contest clause was unenforceable under current law and the proposed petition would not violate the no contest clause under former law.
Updated June 13, 2012: The California Supreme Court granted review in Donkin v Donkin on June 13, 2012 (S202210).
Talk about a Catch-22: By checking if a no contest clause in their parents’ trust applies under former law, the daughters actually made the clause applicable! The Second District Court of Appeal has recently made the odd holding that no contest clauses in trust documents that are unenforceable under current law can still be enforced. See Donkin v Donkin (Mar. 23, 2012, B228704) 2012 Cal App Lexis 340.
In Donkin, Husband and Wife created a revocable trust. Their children were the primary beneficiaries of the trust after their deaths. The trust provided that, on the death of either settlor, the trustee would divide the trust into a survivor’s trust and a decedent’s trust, which would become irrevocable.
But that’s not what happened. Husband died in 2002 and Wife amended the trust to replace the above provision with one that gave the trustees “complete discretion whether to keep the assets of the trust estate intact.” After Wife’s death in 2005, Son and his wife became trustees of the trust.
The trust contained a no-contest clause, and the amendment added a no-contest clause to the asset distribution provision. The trust also specified that any controversy between the trustees and any beneficiary involving the construction of the trust must be submitted to arbitration.
In 2009, Daughters filed a safe harbor petition under former Prob C §21320 to determine whether the filing of a proposed petition to compel an accounting, to remove the successor trustees, and for distribution of a portion of the trust assets would violate the no-contest clauses.
In 2010, the trial court ruled that the proposed petition would not violate the no-contest clause, but the court of appeal reversed. It held that former law applied under the general transition provision in Prob C §3, and that the proposed petition would violate the no-contest clause.
The former law was repealed operative January 1, 2010, for all instruments that became irrevocable on or after January 1, 2001. Prob C §21315. The former law seemed like it was dead and gone, but clearly it’s not, at least for cases filed before 2010.
Under current law (Prob C §§21310–21315), a no-contest clause is generally enforceable only with respect to a “direct contest” brought without probable cause on specified grounds, which do not appear in this case. If the trial court had dismissed the safe harbor petition, as it should have done, Daughters could have filed their proposed petition without regard to the no-contest clause in the trust or the amendment.
Note that the arbitration clause also may be unenforceable under the court of appeal decision in Diaz v Bukey (review granted Aug. 10, 2011, S194150; superseded opinion at 195 CA4th 315, 125 CR3d 610).
For an in-depth discussion of the decision, see the April issue of CEB Estate Planning and California Probate Reporter. For more on no-contest clauses, see California Estate Planning §6.21. Also check out Trust and Probate Litigation, chapter 5.
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