The Supreme Court of California holds that a daughter's challenge to her mother's mental capacity to exercise powers under a family trust did not amount to an attack on the trust that would trigger the no contest clause. Johnson v. Greenelsh (Cal. No. S166747, Oct. 29, 2009).
In 1993, Walter and Florence Warren created the Warren Family Trust, naming themselves and their two children, William Warren and Kathryn Greenelsh, as co-trustees. Both children and Florence's son by a previous marriage, Robert Johnson, were named as remainder beneficiaries of the trust, which also contained a no contest clause barring distribution to any beneficiary who sought to set aside the trust or its provisions.
After William's death in 2003, Mrs. Warren appointed Mr. Johnson as her successor co-trustee, resigned as trustee, and then exercised a right under the trust to withdraw trust property for distribution to herself. Believing that her mother lacked the mental capacity to appoint Mr. Johnson as her succesor trustee or to withdraw trust funds, Ms. Greenelsh applied to the probate court for a determination as to whether a proposed petition to compel Mr. Johnson to arbitration to address the dispute would violate the no contest clause. Mr. Johnson opposed the petition and the petition was eventually denied by the court without prejudice.
Ms. Greenelsh subsequently sought a declaratory judgment that she was the sole trustee of the family trust. Mr. Johnson countered that the request violated the no contest clause by attempting to invalidate the provisions in the trust that gave Mrs. Warren the right to appoint a successor trustee. The probate court agreed with Mr. Johnson and denied the petition. Nevertheless, Ms. Greenelsh served a notice of arbitration on Mr. Johnson, to which he responded by petitioning the probate court to enforce the no contest clause, asserting that Ms. Greenelsh violated the clause by initiating arbitration to set aside his appointment and the withdrawal of the trust assets. The court granted Mr. Johnson's petition and Ms. Greenelsh appealed. An appeals court affirmed, finding that the arbitration initiated by Ms. Greenelsh directly attacked provisions in the trust in an attempt to change Mr. and Mrs. Warren's testamentary plan and thus violated the no contest clause. Ms. Greenelsh appealed again.
The Supreme Court of California reverses. Analogizing to cases in which a settlor withdrew trust assets as a result of fraud, duress or mistake, the court holds that Ms. Greenelsh's challenge to her mother's mental competence to appoint a successor trustee and to withdraw trust assets does not amount to an attack on the trust itself, which would trigger the no contest clause.
To download the full text of this decision in PDF format, go to: https://www.courtinfo.ca.gov/opinions/documents/S166747.PDF.
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