Wednesday, November 2, 2011

Nevada Legislature Expands Applicability of "No Contest" Clauses

No contest clauses in a Trust and Will have been discussed previously in this blog. A no contest clause is a provision in a Trust or Will that provides that any beneficiary challenging the validity of the terms of the Trust or Will shall have his or her share reduced or eliminated. Nevada law has recognized the validity of no contest clauses with certain exceptions.

Along with these legal exceptions, many courts in the past have held that the actions of the beneficiary must directly relate to the Trust or Estate itself and/or an actual lawsuit must be filed in court in order for a no contest clause to be enforceable. The last session of the Nevada Legislature has expanded the existing law to make it clear that, with certain important exceptions, a beneficiary’s share may be reduced or eliminated under a no contest clause by conduct contrary to the express wishes of the Decedent as set forth in the Decedent’s Trust or Will. Under the new law, which is effective October 1, 2011, conduct by a beneficiary that could trigger a no contest clause may include, without limitation:

1. Conduct other than formal court action; and

2. Conduct which is unrelated to the Trust or Estate itself, including, without limitation:

a. The commencement of civil litigation against the Decedent’s Trust or probate Estate or family members;

b. Interference with the administration of another Trust or Estate or a business entity;

c. Efforts to frustrate the intent of the Decedent’s power of attorney; and

d. Efforts to frustrate the designation of beneficiaries related to a nonprobate transfer by the Decedent by operation of law or by operation of contract such as joint tenancy, payable on death designations, and contractual beneficiary designations.

However, the new law specifically states that a no contest clause will not be enforced if the beneficiary seeks only to:

1) Enforce the terms of the Trust or Will, any document referenced in or affected by the Trust or Will, or any other Trust or Will related document;

2) Enforce the beneficiary’s legal rights related to the Trust or Will, any document referenced in or affected by the Trust or Will, or any other Trust or Will related document;

3) Obtain a court ruling with respect to the construction or legal effect of the Trust or Will, any document referenced in or affected by the Trust or Will, or any other related Trust or Will.

Also a no contest clause is unenforceable, notwithstanding its terms, if the court finds that the challenge to the Trust or Will, any document referenced in or affected by the Trust or Will, or any other Trust or Will related document was made in good faith based on probable cause.

Except for these four exceptions, it is now clear under Nevada law that a beneficiary could see his or her share of the Trust or Estate reduced or eliminated via a no contest clause even though the actions of the beneficiary do not directly relate to the Trust or Estate itself and/or the beneficiary does not bring a formal action in court challenging the validity of the terms of the Trust or Will.

 - Attorney John Mugan

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