Who Decides Who Gets the Family Jewels: Mediation of Trusts and Estate Disputes
By Lawrence H. Hoover, Jr.
Trusts & Estates Newsletter, Fall 1996
Early assumptions had it that mediation was sometimes a useful process for disputes arising from divorce and separation. Then we realized that mediation could work in just about any setting where the parties had the capacity and the relative power to make informed decisions. But aren’t there particular kinds of cases where mediation has a special edge? The purpose of this article is to examine the benefits of mediation that are especially relevant to the trusts and estates field.
Many of the reasons which prompted divorce and separation related disputes to be referred to mediation are valid in trusts and estates disputes. The parties involved in these disputes are usually related and have an interest in preserving, if not improving, this relationship. The issues are often complex and have significant tax implications which litigation or adversarial negotiation cannot or do not address effectively. Suspicion and blame are huge barriers to the development of full and honest information sharing. And, the “cognitive biases” of the parties lead to distortion and misinterpretation of what information is exchanged. Time and money are always factors. And, it is critical that the parties themselves control the outcome of issues that have deep emotional, spiritual, or psychological impact on them and their families.
To analyze this more thoroughly, I will examine a variety of trusts and estates disputes and comment on the unique contribution that mediation has to offer. In doing so I will offer some illustrations from my own law and mediation practice. I will then conclude by offering some suggestions about the referral of trusts and estates cases to get the most out of what mediation has to offer.
Will Contests, Renunciation, and Interpretation
Will contests, renunciation of a will by a surviving spouse, and will interpretation cases are among the most complex and difficult to litigate or negotiate. The allegation that the testator did not have the capacity to make a will or was unduly influenced bring out the worst in family members who have different interests and an inability to work with each other. Scripted depositions or testimony, personal or professional, promoting a particular point of view usually increases hostility and blame. A more open ended dialogue in mediation can shed useful light on the issues driving the dispute. It can also reveal, for example, that the testator, in an effort to please everybody, was telling each family member what she wanted to hear.
Renunciation of a will by a surviving spouse presents unique issues which are not dealt with effectively by the adversarial system. The apparent rationale for renouncing a will and claiming the elective share of the augmented estate is financial but this often masks longstanding personal conflicts between family members, especially where step-children/step-parent relationships are involved. In this setting the complexity of computing the augmented estate, which requires inquiry into all gifts made during the marriage, both to the spouse and to others, is staggering.
Will interpretation cases arise primarily where there is a holographic or poorly drafted will or codicil. Determining the testator’s intention, usually in a setting where there are competing interests among beneficiaries, usually family members, typically intensifies the barriers to a negotiated settlement (suspicion and blame) and is grist for the litigation mill.
In all these settings mediation can offer a process that allows for the empowering of the parties otherwise paralyzed by their emotions and the constraints of the adversarial process. In most cases they become more aware of their capacity to deal effectively with their situation and can negotiate on the basis of their real interests. At the same time they begin to recognize the situation of their adversary, which is often the beginning of a restored relationship.
Co-Fiduciary and Fiduciary/Beneficiary Disputes
Impasse between or among co-fiduciaries is a problem that mediation is uniquely equipped to deal with. Family members named by a testator to carry out his/her wishes usually work well together. But when they do not, usually because of serious communication problems, mediation facilitates communication. This is especially useful for the attorney for the estate, who is in an awkward position to advise the client. (Who is the client?) A trusts and estates attorney recently told me about a case where he represented the estate and each of three co-executors had hired attorneys who were slugging it out in court. He was uncomfortable about his role (or non-role) in the litigation.
Conflicts between fiduciaries and beneficiaries are not infrequent. Typically, a fiduciary is also one of the beneficiaries and does or fails to do something that a beneficiary objects to. This often surfaces on review of a partial or final accounting (or on the failure of the fiduciary to make one).
In such a case the Commissioner of Accounts can informally facilitate a negotiated settlement, but if the parties are gearing up for a hearing before the Commissioner or a subsequent court proceeding or do not have access to the Commissioner (e.g., inter vivos trust), mediation could be the process of choice. Circumstances that might call for mediation include reimbursement of expenditures by the fiduciary for the decedent’s benefit during his/her lifetime; payment to the fiduciary as caregiver to the decedent; maintenance expenses for real estate.
Corporate fiduciaries are not immune to conflict. Beneficiaries of a trust sometimes complain about a trust officer being either too generous or too stingy in the disbursement of trust funds. Chronic complaints could translate into a formal claim or lawsuit or at best poor public relations. Mediation is a low risk way to clear up misperceptions and prevent conflict escalation.
Fiduciary/Attorney In Fact and Estate Planning Disputes
Disputes between the fiduciary and the attorney in fact during the decedent’s lifetime are legendary. The attorney in fact may have sold assets covered by a specific bequest or devise, may have transferred assets to himself with or without the alleged blessing or direction of the decedent, or may have refused to make or made an incomplete accounting of assets under his control, to cite some common examples. Not only can the facts be quite complex and elusive, but the law lacks clarity on some of the relevant issues. And, you are normally dealing again with family members who do not get along and whose egos tend to drive the disputes whether or not the legal authority is relatively clear. Feelings of powerlessness and self-absorption which are common in this setting can be effectively dealt with in mediation.
Estate planning disputes can also benefit from mediation. Issues arising out of multiple marriages and control and succession in a family business, for example, can present serious problems for the planning attorney as well as the family. This is a cutting edge area for mediation because these planning issues rarely end up in litigation. What often happens is that a family will engage in a multi-generational planning effort, but the same old problems between and among family members will arise, making it impossible to proceed with problem-solving, tax-saving, planning decisions. Conflict avoidance then takes over, nothing gets done, and everybody loses, materially and relationally, except the IRS.
Several cases from my law and mediation practice may help in reality testing these concepts. To preserve anonymity, I have changed names and non-essential facts.
First Case: What the Sam Hill is Going On?
The three sons of an intestate decedent, Sam Hill, requested that I qualify as administrator of their father’s estate. They said there had been lots of conflict and tension during their dad’s life, often between them and their dad but also between the two older sons and their stepmother, Edna, who survived. They said a truce had been declared when their dad died and they were working together managing the small beef cattle and farming operation and eight small tracts of real estate owned entirely by the decedent. They had consulted an attorney, as had Edna, and they all knew that Edna was entitled to one-third, the three children two-thirds. They had decided that Edna would get the residence property, but early discussions about the rest were not productive.
I agreed to qualify as administrator, explaining that I could not represent any of them individually, and that I would assess the situation and see if a consensus could be reached about how to divide the assets. I mentioned the possibility of mediation if they got stuck.
During the assessment I found that some of the cattle on the main tract of land were owned by Sam, some by Edna, and while some were clearly identified there was ambiguity as to the rest. The same was true of the farm equipment, tools, feed, etc. As I probed for more information the lines began to be drawn and tensions mounted. Stories from the past were repeated to support positions which were becoming more and more fixed and adversarial.
The parties agreed to mediation, although I could see that they were not psychologically committed to taking responsibility to resolve these issues; they wanted me to do it. I engaged a colleague who had a family counseling and mediation practice. Edna, the three sons, and I, as administrator of the estate, participated in three mediated sessions, with the parties being encouraged to get independent legal advice at any time.
The family dynamics emerged pretty quickly. The main struggle was between the oldest son and his stepmother. The turning point was during the third session when the oldest son, after storming around the table, finally was able to accept the fact that it was up to this family, with all its blame filled history, to settle the matter and move on.
At the same time there seemed to be a growing, if reluctant, recognition on the older son’s part, as well as the rest of the family, of how the others saw the situation. The details were not too difficult to work out.
The Second Case: Setting the Table
Dave Roadcap was 80 when he died. He was survived by his daughter, Myrtle, married with three children, and Irvin, Martha, and Bill, children of his deceased son, Landon. All but Bill lived within sight of each other in a small rural community in Rockingham County. Irvin, the oldest of Landon’s children and the one that was closest to his grandfather, Dave, was named executor. Dave left his estate to Myrtle and the three children of his deceased son, Landon, per stirpes.
I heard about this case from the Commissioner of Accounts who said that Irvin’s first accounting was challenged by Myrtle on several points, among which was the wrongful expenditure of estate funds for improving decedent’s real estate. As the Commissioner was considering holding a hearing on the complaints, he found that Irvin, as executor, had filed an action against Myrtle, demanding an accounting for the two and one half years she had served as attorney in fact for the decedent.
The mediation took more than three months and a total of seven sessions of two to three hours each. It took the better part of three sessions to decide who had a place at the table. These sessions were frustrating and very important to the ultimate resolution. Each conflict which arose over who was to be at the table (all the beneficiaries, the spouses of the parties, Myrtle’s daughter who had helped her as power of attorney?) gave us an opportunity to help the parties understand that it was their case and their responsibility, including the decision about who was to be at the table, and that they could handle it all. It also gave us a chance to understand the personalities and styles of the principal antagonists, Myrtle and Irvin. Myrtle was laid back, disorganized, and had poor records of her activities as attorney in fact. Irvin was high energy, well organized, a stickler for detail, and in need of lots of time and information to make a decision.
The process was slow and painful, but eventually successful in not only resolving the issues raised by the pending litigation but in reaching an agreed final settlement of all the estate issues. Once we realized what it would take for Irvin (a slow, detail oriented, painstaking process) we were able to focus more efficiently on Myrtle, who needed lots of help from her bridge-building daughter and her attorney to understand and get through the process. We talked openly about these realities and ultimately Myrtle and Irvin began to recognize the other’s needs and begrudgingly acknowledge them.
Many of the same dynamics that make mediation the process of choice for separating and divorcing couples are present in trusts and estates cases. And the ethical and practical complexities that exist for attorneys representing fiduciaries add an additional advantage to the use of the mediation process. Early intervention would allow many of these trusts and estates cases to be resolved before the lines are so sharply drawn. And attorneys representing fiduciaries or beneficiaries are well positioned to refer cases to mediation early on.
It is time for the trusts and estates bar to consider the expanded use of mediation. This would include a discussion of the responsibility for advising a client about the availability and appropriateness of mediation. It would also focus attention on the special skills and strategies needed to represent a client in mediation.
Reprinted with permission from the Virginia State Bar.