Wednesday, November 1, 2006
No-Contest Clause Providing for Group Forfeiture Permissible—C.A
By TINA BAY, Staff Writer
A no-contest clause in a testamentary trust stating that one beneficiary’s contest voids bequests as to an entire class of beneficiaries does not violate public policy, this district’s Court of Appeal ruled yesterday.
Considering what it said was a question of first impression, Div. One reversed an order by Los Angeles Superior Court Judge Joseph E. Di Loreto striking such a clause.
A testamentary trust established by Robert Wells for the benefit of his five children provided that on his death, three of his daughters—Robyn Rae Tunstall, Judith Ann Conner and Dianne Jean Morton—would receive $50,000 apiece, while his daughter Elizabeth Wells and son Robert Wells Jr. would receive all other assets.
When drafted, the trust contained a standard no-contest clause stating that any beneficiary who contested the trust would be specifically disinherited.
Robert Wells amended the no-contest clause in February 2004 to provide that if either Tunstall, Conner or Morton was the contesting beneficiary, the gifts to all three of them would be revoked.
After his death, Elizabeth Wells was designated trustee and Tunstall filed an action challenging the amended no-contest clause. Conner and Morton later joined Tunstall’s petition solely to determine whether the no-contest clause applied to them if she contested the trust.
At the October 2005 hearing, Tunstall argued that the clause was punitive and against public policy, designed to keep a whole class of beneficiaries from challenging the trust.
Di Loreto agreed, noting the clause seemed to be mean-spirited and potentially allowed any one of Wells’ sisters to revoke the other two sisters’ gifts out of spite, collusion with Wells, or other ill motives.
Writing for the court, Justice Frances Rothschild said that even if the clause opened the possibility of improper collusion between Wells and any one sister, it did not mandate or actively encourage it.
“By giving each of Elizabeth’s sisters a bequest along with the group forfeiture clause, the Trust gives each a substantial incentive not to contest the will that is similar to but stronger than what the same bequests with a standard no-contest clause would provide,” she wrote. “That human deviousness can devise a way to interfere with this legitimate purpose does not necessarily make the clause improper.”
Moreover, the trustor’s clearly-expressed intent to treat three of his daughters as a group was based on his superior knowledge of internal family dynamics, to which the court should defer, the justice said.
The amended no-contest clause did not improperly prevent or discourage Wells’ sisters from raising public policy claims, as they had done, or challenging her exercise of fiduciary power, Rothschild added.
“Underlying the various specific grounds to void the no contest clause that [Tunstall] identifies—risk of collusion, overbreadth, denial of due process—is her basic position that [the] forfeiture provision simply is not fair and therefore is against public policy,” the justice observed. “But what to some might seem unfair does not necessarily violate public policy.”
Justices Robert M. Mallano and Los Angeles Superior Court Judge Frank Jackson, sitting by assignment, concurred in the opinion.
The case is Tunstall v. Wells, B188711.
Copyright 2006, Metropolitan News Company