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Beneficiaries' Rights and No Contest Clauses in Trusts

Beneficiaries' Rights and No Contest Clauses in Trusts

Many times, clients plan ahead and have an experienced lawyer draft an estate plan which includes a trust. The clients then duly transfer their assets into the trust. As a result, when they die, their heirs do not have to go through the California probate process because their property will be distributed by their named successor trustee pursuant to their wishes as outlined in the trust. Unfortunately, there can be problems after the loved one dies.

Frequently, a successor trustee does not understand that he or she has a fiduciary obligation to the beneficiaries of the trust to follow the decedent's wishes as outlined in the trust. Instead, the successor trustee acts like the assets of the trust are there to do with as they please. Even worse, many times trustees threaten beneficiaries that if they complain about how the trust is being administered, the trust gives them the right to cut out the complaining beneficiary. The successor trustee points to what is called a "no-contest" clause in the trust as authority for their behavior. As detailed below, the trustee has no such right or power.

What is a no-contest clause?

A no-contest clause basically states that if any person challenges the trust (or will) he or she will be treated as if he or she predeceased i.e. died before the decedent and therefore will take nothing. Typical grounds for challenging a trust (or will) include allegations that the trust was a product of undue influence or that the decedent lacked capacity to understand the trust documents.

Do courts enforce no-contest clauses?

Yes, but only in certain circumstances. Under current law, the only time that a court will enforce a no-contest clause is when the contesting party brought the challenge without probable cause. In effect, unless a challenge is deemed frivolous by the court, the court will not enforce a no-contest clause. As such, a challenge brought in good faith and with evidentiary support will not result in forfeiture by the challenging party.

If a beneficiary requests a trustee for information regarding a trust, is that considered a contest?

No. The Probate Code specifically provides that a beneficiary of a trust is entitled to information regarding the acts of a trustee and his or her administration of a trust.

If a beneficiary brings a petition to enforce the terms of the trust, is that a contest?

No. The trustee has an obligation to administer the trust in the interest of all of the beneficiaries. Many times, the trustee does not do so. He or she may refuse to give information about trust assets or accountings. The trustee may favor some beneficiaries over others by, for example, allowing a beneficiary to live in trust property rent-free. These are all improper acts. As such, a beneficiary has a right to demand that the trustee live up to his or her duties under the trust. Moreover, seeking court assistance to force a trustee to perform his or her duties does not invoke the no-contest clause of a trust.

If you are a beneficiary of a trust, and you suspect the trustee is acting improperly, contact Finlay Law Group, APC to speak with an experienced attorney who will evaluate your situation and give you sold legal advice regarding enforcement of your rights as a beneficiary of a trust. Do not let a trustee scare you or bully you into thinking that if you speak up, you will lose your rights under the Trust. The law has been written to protect your rights as a beneficiary so contact Finlay Law Group, APC today.

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