In 1981, Byron and Muriel Grimm created a joint living trust, naming their children Carol McIndoe and Sharon Olivos as 40 percent beneficiaries each, with the remaining 20 percent of assets split among the grandchildren.

After Byron’s death in 1988, the original trust was divided into an amendable survivor’s trust for Muriel and an exempt trust, which could not be amended or revoked. The purpose was to create so-called A-B trusts to take advantage of the federal estate tax exemption and the marital exemption for assets left to a surviving spouse.

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Muriel amended her survivor’s trust six times after Byron’s death. The Fifth Amendment removed daughter Sharon as a beneficiary of widow Muriel’s survivor’s trust, giving her share to James McIndoe, Carol’s husband.

After suffering from Alzheimer’s disease for many years, Muriel died in 2003. Sharon brought this lawsuit asserting Muriel executed the last two amendments to the living trust while incapacitated and unduly influenced by Carol and James.

But Carol argued such a lawsuit violates the “no contest clause” in the original living trust so Sharon must forfeit her interest in the non-amendable exempt trust.

If you were the judge would you rule Sharon’s lawsuit challenging the living-trust amendments, alleging Muriel was incapacitated and unduly influenced by Carol and James, violates the “no contest clause?”

The judge said no!

No-contest clauses in wills and living trusts, the judge began, are favored by courts to discourage lawsuits by dissatisfied heirs. Such clauses usually prohibit the challenger from receiving any assets of the deceased if such a contest lawsuit is filed, he noted.

However, this case is different because Sharon’s lawsuit asks the court to decide if her challenge to Muriel’s amendments to the survivor’s trust will forfeit Sharon’s interest in the non-amendable exempt trust, the judge explained.

This lawsuit is not a challenge to the original living trust, which included a “no contest clause,” he explained. Rather, it is a challenge to the validity of Muriel’s amendments to her survivor’s trust, he noted. Therefore, Sharon’s lawsuit does not violate the no-contest clause, which would forfeit her interest in the exempt trust, the judge ruled.

Based on the 2005 California Court of Appeals decision in McIndoe v. Olivos, 33 Cal.Rptr.3d 689.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

***

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