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Filing a Creditor's Claim May Violate No-Contest Clause in Living Trust or Will

Question

Becky B.
Almaden Valley

Dear Becky:

A no contest clause in a Living Trust or Will usually says basically if you contest the Trust or Will you and your children and their children get nothing-or maybe $1.00.

A recent case is especially interesting in this area of the law. The case is called Zwirn v. Schweizer, decided November 14, 2005. It is a case from Los Angeles.

In the Zwirn case, Willy Zwirn filed an action in court against Hanny Schweizer, the Successor Trustee of Aunt Frieda's Trust. Willy is a nephew of his Uncle Sam and Aunt Frieda Cwiren. Uncle Sam died in 1996 and Aunt Frieda died in 2003. Hanny Schweizer is the niece and blood relative of Aunt Frieda as well as the acting Successor Trustee of Aunt Frieda's Trust and the court-appointed executor of Aunt Frieda's probate estate.

Willy felt that he was very close to his uncle and aunt, that he lived with them after World War II and that they had even become his surrogate parents. Willy said in his law suit that Uncle Sam and Aunt Frieda over the years had told him and others that when they both died, that he, Willy, would receive 50% of Uncle Sam's share of all assets and that the remaining 50% would go to Aunt Frieda's blood relatives.

After Aunt Frieda died, Willy discovered that Aunt Frieda did not follow through with her promise to him. Instead, she near the end of her life changed her estate plan to favor her own blood relatives, giving certain specific gifts to them and leaving 75% of the rest ("residue" in legal jargon) to Hanny. The other 25% of the rest was to pass in trust with Willy to receive only the income from that fund and possibly discretionary payments from principal, but after Willy's passing the balance would pass to one of Aunt Frieda's grandnephews.

Willy was not too happy about this, so he filed a court petition asking for a determination as to whether his creditor's claims and prosecuting court actions based on those claims would violate the no contest clauses in Aunt Frieda's Will and Trust.

The Court of Appeal of the State of California for the Second Appellate District in Los Angeles held that Willy's proposed actions would violate the no contest clauses in the Trust and Will. Although sometimes it is permissible to file a creditor's claim without violating the no contest clauses, here the claim would go directly to the testator's (will maker) plan of distribution.

The Court of Appeal also said that to allow the creditor's claim in this case would in effect make meaningless no contest clauses, and that Willy's suit here would seek to "unravel by his creditor's claim" Aunt Frieda's estate plan.

The Court cited with approval the Estate of Davies case discussed a few months ago in this column. You can read that article by going to my website, www.almadenvalleylawyers.com. Click on Almaden Times Articles and then Estate Planning Articles. See the article titled, "No Contest Clauses May or May Not Apply-It Depends".

So, what can Almaden Times readers learn from this case? Several things, it seems to me, not in any particular order of priority. First, having your own legal counsel is essential. Second, often you cannot do indirectly what you cannot do directly. Third, if someone promises you a valuable asset in exchange for your caring for them, get it documented in a proper writing-with the assistance of your own attorney. Fourth, no contest clauses can be very effective.

You can read the Willy Zwirn v. Hanny Schweizer case for yourself by logging onto the following link: http://login.findlaw.com/scripts/callaw?dest=ca/caapp4th/slip/2005/b180714.html. This is the free FindLaw website. You may need to register first and put up with their spam and advertising later, but it may be worth it.

Good luck, Becky. I hope everything works out for you.

Donald J. DeVries
Almaden Valley