Do “No-Contest” Clauses Protect a Will or Trust from Challenge?

A “no-contest” clause is a common provision included in wills and trusts that is meant to dissuade a beneficiary from contesting the testator’s intent.  A standard no contest clause generally states that a beneficiary who challenges a will or trust will receive nothing, or have their share drastically reduced to a nominal amount, such as one dollar.

The key to an effective no-contest clause is to offer enough incentive.  In other words, a would-be-challenger must receive enough under the will or trust instrument to have something meaningful to lose.  If the incentivizing bequest is too small, the clause will be of little help. For example, an heir who receives a small bequest in the context of very large estate will likely be more inclined to risk losing it for a chance to have a much larger share.  In an estate of many millions, involving heirs of considerable means, no-contest bequests may need to be quite large – perhaps millions of dollars – to effectively counter an unwanted challenge, especially where emotions may be running high.

Often beneficiaries will review a will or a trust with a no-contest clause and conclude that they must accept the terms, or risk losing their inheritance.  In turn, testators and grantors generally assume that no-contest clauses in their estate planning documents will always be enforced. However, a “no-contest” clause does not always mean that no contest is possible.

Washington Usually Respects No-Contest Clause

In general, Washington courts respect no-contest clauses.  For instance, in In re Estate of Rathbone, 190 Wn.2d 332 (2018), the Washington Supreme Court upheld the validity of a no-contest clause as well as a nonintervention clause in a will, where the testator had included a broadly worded no-contest provision and also specifically named the beneficiary who was likely to challenge.  Although the trial court and appellate court held that courts were allowed to interpret the provisions of the will and thereby permitted the anticipated challenge to proceed, the Washington Supreme Court reversed the lower court decisions, stating that courts should show restraint when the testator’s intent is so clearly stated.

It is important to note, however, that the Washington Supreme Court said its holding in Rathbone was supported by the particular facts of the case, where a son was specifically named in the will as a potential challenger. Therefore, the decision is probably better viewed as strongly encouraging judicial restraint from interpretation, not a blanket statement that all no-contest clauses are per se enforceable in Washington.  In fact, the case law reveals that such clauses are not enforced in all circumstances.

When There Are Exceptions

Washington courts have held that a “no contest clause is inoperable if the challenger brings his or her contest in good faith and with probable cause.”  In re Estate of Primiani, 2017 Wash.App. LEXIS 1019, *16 (Div. 3) (unpublished decision); see also, In re Estate of Chappell, 127 Wash. 638, 646, 221 P. 336 (1923); In re Estate of Kubick, 9 Wn. App. 413, 513 P.2d 76 (1973); and In re Estate of Mumby, 97 Wn.App. 385 (1999). In practice, this means generally that a challenge will be respected and not result in disinheritance, when the plaintiff has proceeded under the guidance of an attorney, provided they have fairly and fully disclosed all of the material facts and the contest.

In addition, a no-contest clause may be drafted in such a way to afford some flexibility, allowing enforcement in certain circumstances – for instance, if there has been a breach of fiduciary duty.  A challenge may be permitted also if it is brought forward on public policy grounds.

Careful Consideration and Review is Critical

Regardless of the side you’re on, careful consideration should be given to the specific language of no-contest provision, the nature and size of bequest that is at risk, and the character and inclinations of the persons involved.

Finally, it is important to note that the enforcement of no-contest clauses is jurisdictional, with some jurisdictions, such as Oregon, enforcing no-contest clauses more strictly and others like Washington being less strict.

To learn more about your situation, please contact Eric Stoll, David Petteys, or Jeannie Osgood at (206) 456-6697, or via email at info@stollpetteys.com.

Disclaimer: this article is for informational purposes only and is not intended to constitute legal advice. Your receipt of this update and/or use of the information presented herein does not create an attorney-client relationship between the recipient or user and our firm or any of its attorneys. We strongly recommend seeking the advice of a qualified attorney to address these and any other legal issues or concerns. Thank you.

The City of Seattle’s Regulation of Short-Term Rental Properties: What owners and operators need to know.

If you own or operate a short-term rental property within the City of Seattle, you may be impacted by the City’s 2018 ordinance regulating such short-term rental properties. Examples of short-term rentals are those rented through short-term rental “platforms” such as Airbnb and VRBO. The ordinance limits the number of short-term rental properties that an individual owner may operate within the city’s territorial limits and imposes additional licensing and registration requirements on owners and operators of such properties.  Effective January 1, 2019, if you legally operated one or more short-term rental properties prior to September 30, 2017, with limited exception, you are limited to three short-term rental properties within city limits, including your primary residence if it is rented out on a short-term basis. If your short term-rental became operational after September 30, 2017, you are limited to only one short-term rental, in addition to your primary residence.  Owners and operators will be required to license their short term-rental properties with the City’s Department of Finance and Administrative Services beginning on January 2, 2019. The license fee is $75 per unit and must be renewed annually.

If you own or operate a short-term rental property that is not your primary residence, you must also register that property under the city’s rental registration and inspection (“RRIO”) program, which is administered by the Department of Construction and Inspections.  Registration for the RRIO program is available now. Prior to registration, we recommend you carefully review the RRIO Checklist to ensure that your property complies with the RRIO ordinance. Note that once your property has been registered, it will be subject to inspection at any time.

In addition to the City’s license and registration requirements, owners and operators of short-term rental properties must register with the Washington State Department of Revenue and collect and remit retail sales tax and applicable lodging taxes on their rental charges. In some instances, property owners may choose to use the services of a property manager or an online marketplace or “platform” for booking and tax collection purposes. Additionally, gross income derived from such rentals is subject to the state’s business and occupation (B&O) tax, which is a gross receipts tax imposed directly on the owner or operator.

If you have any questions or concerns about the City’s regulation of short-term rental properties, please contact David Petteys or Eric Stoll at (206) 456-6697, or via email at info@stollpetteys.com.

Washington’s Uniform Common Interest Ownership Act: What is it, what does it do, and how will it impact you?

What is WUCIOA?

Washington recently enacted the Washington Uniform Common Interest Ownership Act (“WUCIOA” or “Act”), which was signed by the Governor and is effective as of July 1, 2018. The Act, which is codified at Chapter 64.90 RCW, et seq., constitutes Washington’s first comprehensive regulatory regime that is generally applicable to most condominiums, housing cooperatives, subdivisions, and other common interest communities currently recognized and regulated by Washington law.

The 134-page Act consists of 110 sections that impose a detailed overlay of rules governing the creation, operation and governance of most condominiums, housing cooperatives, subdivisions, and other common interest communities such as planned developments. The Act’s provisions apply prospectively to all common interest ownership arrangements that fall within the Act’s definition of common interest community created on or after July 1, 2018.

What does WUCIOA do?

WUCIOA’s provisions are intended to provide a comprehensive and uniform framework of rules with respect to establishing, operating, and governing common interest communities such as condominiums, housing cooperatives, subdivisions, planned developments and similar arrangements that include common ownership of real property. Historically, these various forms of common ownership arrangements were each subject to separate statutory provisions, resulting in substantial variations in the way they were regulated under Washington law. As of July 1, 2018, all of these various forms of common ownership will largely be treated in a more consistent manner under the regulatory regime established by the Act.

How will WUCIOA affect real estate development?

The impact of WUCIOA will vary depending on the particular type of common ownership interest:

    • Condominiums: The existing Condominium Act (Chapter 64.34 RCW) will no longer apply to any condominiums formed on or after July 1, 2018. While WUCIOA varies from the Condominium Act in a number of ways, the basic framework governing the formation, organization, management, and resale of condominiums under the Act are very similar to the rules imposed by the existing Condominium Act in most respects. Importantly, the Act maintains the implied warranties of quality set forth in the existing Condominium Act, which expose developers to substantial liability for damages and attorneys’ fees for construction defect claims.
    • Housing Cooperatives: WUCIOA establishes comprehensive regulations for housing cooperatives formed on or after July 1, 2018, which is a significant departure from the state’s historical treatment of housing cooperatives, which were virtually unregulated under existing Washington law. While the Act imposes rules for new housing cooperatives that mirror the rules applicable to condominiums, except for the implied warranties of quality imposed on condominium developers, which are not extended to cooperatives.
    • Subdivisions: The provisions of the Act are generally applicable to all subdivisions (including short subdivisions and unit lot subdivisions) created pursuant to a declaration recorded on or after July 1, 2018. Importantly, the Act expressly exempts subdivisions containing twelve or fewer lots, but only if (i) the subdivision is not subject to any future development rights; and (ii) the declaration expressly provides that the annual average assessment shall not exceed $300 while the developer retains control of the subdivision association, unless a greater amount is approved by a super-majority of unit owners.
  • Homeowners’ Associations: Among other things, the Act generally requires that a common interest community establish a homeowners’ association prior to conveyance of any parcels or units to a purchaser. The association may be organized as a corporation or limited liability company. The Act contains detailed rules pertaining to the governance and operation of homeowners’ associations,  

Pro-Tip: Any condominium or subdivision declaration recorded on or after July 1, 2018 should be carefully reviewed to evaluate whether it fully complies with the Act’s provisions. Fortunately, the consequences of non-compliance can often be cured or mitigated by recording an amended declaration, particularly if the amended declaration is recorded in a timely manner. Please seek the advice of an attorney if you have any questions or concerns about a recently recorded or soon-to-be recorded subdivision declaration.

Conclusion

WUCIOA is a complex and important addition to Washington real estate law – it imposes a wide array of detailed requirements and obligations that will likely have a significant impact and impose new risks with respect to virtually all residential condominiums created on or after the Act’s effective date. For other types of residential real estate development involving an element of common ownership, such as subdivisions and housing cooperatives, the Act establishes an entirely new regulatory framework that real estate developers, architects, brokers, surveyors, attorneys, and other real estate professionals will need to become familiar with in order to minimize unnecessary costs and exposure to liability.

To learn more about the Act and its implications, please contact David A. Petteys at (206) 876-7828, or via email at david@stollpetteys.com.

Disclaimer: this update is for informational purposes only and is not intended to constitute legal advice. Your receipt of this update and/or use of the information presented herein does not create an attorney-client relationship between the recipient or user and our firm or any of its attorneys. We strongly recommend seeking the advice of a qualified attorney to address these and any other legal issues or concerns. Thank you.