Is a No-Contest Clause Enforced in Nevada?
When drafting a will or trust, I’m often asked about no-contest provisions. Clients want to make sure that their will and trust have such clauses. The purpose is obviously to discourage a future contest or other interference with the administration of the will or trust.
So, is a no-contest clause enforced in Nevada? In short, yes, a court in Nevada will enforce a no-contest clause. Nevada Revised Statute 137.005 requires that the no-contest clause found in a will be enforced, subject to certain limitations. Public policy tries to enforce the testator’s intent when creating the will.
However, as mentioned, there are limitations to enforcement of the no-contest clause, as well as competing public policies. In order to know whether a particular clause will be enforced, you need to understand the restrictions. It is also important to understand what situations such a clause can cover.
Competing Public Policy
The purpose of a will is to establish what the testator (person the creates the will) intended with regards to his or her estate, including distribution, administration, etc. Since the testator will normally be deceased when the will is presented to a court for validation, such as in a probate proceeding, the will itself become the best evidence of the testator’s intent.
There is a strong public policy that favors enforcing the testator’s intent, so the court is directed to enforce the no-contest clause. However, there is the competing public policy that does not favor forteitures. So the no-contest clause is to be “strictly construed by the court.” This means that the court is not to extend the clause “beyond the plain meaning” of what the no-contest clause actually states.
So while the court will normally try to interpret the no-contest clause to carry out the testator’s intent, the court is usually reluctant to go beyond the clear and unambiguous language of the provision. Also, the statute expressly prohibits extrinsic evidence from being admitted to help establish the testator’s intent. It is important that the no-contest clause be clearly drafted.
Eliminating or Reducing a Beneficiary’s Share
There are two ways to make a beneficiary think twice about contesting a will or otherwise interfering with the estate administration. One is to eliminate the beneficiaries bequest altogether. The other is to severely reduce the bequest to, say, $10 or $100. We often reduce the bequest to $1, which some feel is more effective, if not humorous, than leaving the offending party with nothing.
What Conduct can Trigger a No-Contest Clause?
The no-contest clause is likely to be triggered when a beneficiary engages in some conduct that is prohibited in the will. The will should clearly state what conduct can cause the use of the no-contest clause.
For example, and most obvious, would be when a beneficiary brings a formal court action to contest the validity of the will. Perhaps the beneficiary feels that the testator was acting under the undue influence of someone else or was incapacitated at the time the will wall made.
However, the statute is broader than that.
State law, specifically NRS 137.005(2), allows the will to prohibit “conduct which is unrelated to the will itself, including, without limitation:
(1) The commencement of civil litigation against the testator’s probate estate or family members;
(2) Interference with the administration of a trust or a business entity;
(3) Efforts to frustrate the intent of the testator’s power of attorney; and
(4) Efforts to frustrate the designation of beneficiaries related to a nonprobate transfer by the testator.”
Clear Intent of the No-Contest Clause
While the court wants to enforce the intent of the person making the will, the court will only do so to the extent that the testator’s intent is “clear and unambiguous.” What does it mean to be clear and unambiguous?
As discussed above, a will may prohibit more than just a formal will contest. But in order to prohibit other conduct, the language of the no-contest clause should clearly express the type of conduct to which the provision is intended to apply.
For example, a clause may state that “if any beneficiary under this Will, in any manner, directly or indirectly, contests or attacks this Will or any of its provisions, any share or interest in my Estate given to that contesting beneficiary under this Will is revoked and shall be disposed of in the same manner provided herein as if that contesting beneficiary had predeceased me.”
While this is sufficient to be enforced against a beneficiary that brings a formal contest to invalidate part or all of the will, it probably is not clear enough to be enforced against a beneficiary that brings a lawsuit against the estate for some other reason, or interferes with a related trust’s or business entity’s administration.
So it is important that the no-contest language be broad enough to expressly include other conduct of a beneficiary that interferes with the administration of the estate or trust of the testator, or tries to invalidate the designation by the testator of beneficiaries on a nonprobate asset, such as a pay-on-death designation on a bank account.
When will the No-Contest Clause Not Be Enforced?
Even a well drafted no-contest clause cannot prevent all lawsuits. Sometimes a beneficiary has no choice but to bring an action against the personal representative of the estate in order to make the personal representative do what he is supposed to.
Consequently, the law specifically states that “a devisee’s share must not be reduced or eliminated because of any action taken by the devisee seeking only to:
(a) Enforce the terms of the will or any document referenced in or affected by the will;
(b) Enforce the devisee’s legal rights in the probate proceeding;
(c) Obtain court instruction with respect to the proper administration of the estate or the construction or legal effect of the will or the provisions thereof; or
(d) Enforce the fiduciary duties of the personal representative.”
So if you are a personal representative of an estate, keep in mind that if a beneficiary brings an action merely to enforce his or her rights under the will or to make certain you, as the personal representative, are doing what you are supposed to, such will not trigger the no-contest clause.
In addition, the court will not reduce or eliminate the beneficiary’s share of the estate under the no-contest clause if “the legal action is instituted and maintained in good faith and based on probable cause that would have led a reasonable person, properly informed and advised, to conclude that the will is invalid.” NRS 135.005(4).
No-Contest Clause in Trusts
There are two basic types of trusts: inter vivos and testamentary. An inter vivos trust is also referred to as a living trust since it is created during one’s life. They normally contain no-contest provisions also. I have another post discussing the enforceability of no-contest clauses in trusts.
A testamentary trust is a trust that is created by one’s will. At the end of the probate administration, the estate assets, or a portion of the assets, are distributed to the trust that is created in the will.
The testator of the will is considered the settlor of the testamentary trust. Assuming that the will does not expressly state otherwise, the no-contest clause in the will that creates the testamentary trust will also apply to the trust.
No-contest clauses are an important part of any well drafted will and trust. Such a clause needs to be clear and unambiguous regarding what the testator’s intent is as to the types of actions that are prohibited and will result in a beneficiary’s share of the estate being reduced or eliminated all together.