Why not mediate trust and estate disputes?

"Discourage litigation. Persuade your neighbors to compromise whenever you can. Point out to them how the nominal winner is often a real loser – in fees, expenses and waste of time."

                                                                                --       Abraham Lincoln   1850

Lincoln’s words are doubly true today. Our society is beset with litigation - and all too often, there are no winners, except, perhaps, the lawyers. The time for Alternative Dispute Resolution (ADR), the private resolution of disputes outside of court, has come. There are two main forms of ADR - arbitration and mediation.

In arbitration the dispute is submitted to a third party, the arbitrator, who renders a decision after hearing arguments and reviewing evidence presented in a less formal and more expeditious fashion than in court. In binding arbitration, the parties are bound by the arbitrator’s decision. In non-binding arbitration, the parties can go to court for a trial if unsatisfied with their results.

In mediation an experienced neutral party attempts to assist the parties to air their concerns, understand each other’s point of view, and find a common ground. No decision is rendered; the mediator facilitates the parties’ arriving at their own solution.

Both litigation and arbitration seek a winner and a loser and are adversarial procedures - usually further alienating the parties from each other . Many professionals believe that only through mediation is it possible to resolve the dispute and at the same time achieve reconciliation - restoring and improving the relations between the parities.

Because of the possibility of reconciliation, mediation is an excellent approach for family disputes, including disputes over estates and inheritances.

Mediation in Estate Settlement

The death of a family members often sets the stage for conflict within the family. As John Gromala and David Gage point out in the November 2000 issue of Trusts and Estates: "Where estates are concerned, intricacies of fact and law can combine with emotion, misperceptions, and complicated family dynamics to form a highly combustible mixture. Mediation can put out the fires before they consume both money and family harmony."

The traditional method of settling disputes that arise in estate administration is the litigation process from the formal pleading and response, trial and appeal. This can be extremely time-consuming and astonishingly expensive. As a result of the litigation process, family relationships can be completely destroyed or left in tatters. Not only is the inheritance consumed by fees, but the family is consumed by anger and hatred.

Mediation has been widely used in divorce and child custody disputes but few jurisdictions look to mediation in disputes involving wills and trusts. The time has come to give these disputants the same chance at resolving issues and maintaining family relationships. There is nothing to stop disputants from seeking mediation privately. Parties to any dispute can seek mediation. Lawyers need to be alerted to the possibility of seeking this kind of resolution and trained away from the immediate reaction of pursuing claims in court. (A friend remarked that it takes 10 times longer to train a lawyer to be a mediator than to train anyone else; the adversarial approach must be unlearned.)

We hope that the courts will move toward recommending, or even requiring mediation before setting hearing dates.

In mediation the parties control the process, and there is no risk of an adverse decision, since the mediator does not render a decision or judgement. Nothing said during the mediation can be used as evidence later at trial. The process is completely confidential and solutions can be arrived at that could not be ordered by the court as legal or equitable remedies - for example, an opportunity to air grievances or receive and apology.

Mediation in Estate Planning

Estate planning aims at the transfer of wealth from one generation to another in a way which minimizes taxes and maximizes economic gain. At bottom, it usually involves parents making gifts to their children, grandchildren or charities. The problem is that while many clients spend hours with attorneys, accountants and financial advisors crafting an estate plan, they spend no time with their intended beneficiaries explaining what they have done and why. After Mom and Dad are gone, the family acrimony begins - brother sues brother and sisters stop talking to one another for years.

Since your typical (dysfunctional) family has trouble communicating about day to day activities such as what to have for dinner, perhaps it is no surprise that the typical family cannot and does not communicate about dying, property division, and settling estates. Nevertheless, communicating the plan and addressing the issues before death is the best gift you can give your beneficiaries.

It is not bad manners to talk about the estate plan, and it will not make matters worse. What makes matters worse is, leaving the children to fight it out after Mom and Dad are both gone. If you are afraid to tell your kids what your estate plan is you are leaving them a legacy of acrimony. A mediator will recognize that it is up to Mom and Dad what they do with their assets and that they want all family members to feel as good as possible about the estate plan and not feel cheated or disappointed. Bringing all the parties together can ensure that hidden agendas are brought out into the open, get the most buy-in from the parties and get the best protection against the plan being contested.

Mediation is not family therapy. It is a short-term process aimed at resolving a dispute while attempting to preserve family relationships. It depends on opening lines of communication and coming up with solutions.

Mediation can also be used to discuss long term care issues with parents, to determine how siblings can equitably share the responsibility of helping aging parents, and how to deal with caregivers and medical personnel.

As far as the estate planning documents themselves go, it is entirely possible to include provisions that require the parties to submit disputes to arbitration rather than resort to the courts. Many arbitration texts point out that George Washington’s will contained such a provision:

"That all disputes (if unhappily they should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; two to be chose by the disputants each having the choice of one, and the third by those two - which three men thus chosen shall, unfettered by law or legal construction, declare their sense of the Testator’s intention; and such decision is, to all intents and purposes, to be as binding as if it had been given in the Supreme Court of the United States."

Much is at risk in estate planning, and the most important is not estate taxes. The most important factors are the beneficiaries, their lives and their relationships - in other words, your family.

Women are Better Estate Planners

Dan was a single guy living at home with his father and working in the
family business. When he found out he was going to inherit a fortune when
his sickly father died, he decided he needed a wife with whom to share
his fortune.

One evening at an investment club meeting he spotted the most beautiful
woman he had ever seen. Her natural beauty took his breath away. "I may
look like just an ordinary man," he said to her, "but in just a few years,
my father will die, and I'll inherit 20 million dollars."

Impressed, the woman obtained his business card and three days later, she
became his stepmother.

Women are so much better at estate planning than men.

 

Blogging credit to Greg Herman-Giddens at North Carolina Estate Planning Blog.

 

Shirtsleeves to Shirtsleeves in Three Generations

“The father buys, the son builds, the grandchild sells, and his son begs.” 
                                                                        - Scottish Proverb

 

There is an old saying, “shirtsleeves to shirtsleeves in three generations.” which means that the older generation started with nothing, worked hard and amassed wealth, and by the time their great-grandchildren are in charge, the family is back where they started, with nothing.

GenSpring Family Offices developed a game for its clients called “Shirtsleeves to Shirtsleeves" - its sort of like monopoly and is a way for wealthy parents to begin the conversation with children about money. Each player starts with $25 million. The object of the game is to get through the third generation and still have money left. ( I wonder if this is a learning experience for the children or for the parents?)

U.S. Trust, Bank of America Private Wealth Management sponsored a ground-breaking new study, released in June 2008, called"Protecting the Family Fortune." The study examines the wealth planning strategies and practices — and the behavioral traits that drive them — of ultra-affluent global family business owners.

The study found that while three-quarters of owners of family businesses valued at $300 million or more had succession plans, only 38% had actually implemented them. Further, the study showed that most individuals with succession plans in place are not focusing on tax mitigation issues (73%), even though nearly all participants (93%) reported a desire to lower the tax burden associated with transferring the business.

According to the study, almost nine out of 10 (89%) business owners were "very" or "extremely
concerned" about protecting the family's wealth, but nearly three quarters (73%) of them do not have asset protection plans in place.

Over three quarters (78%) of owners have personal estate plans. However, 89 percent have not updated them after a life-changing event such as marriage, birth or death rendering the plan obsolete.

More than half (54%) of the study participants lacking estate plans reported difficulty dealing with their own mortality, and one quarter (25%) cited a lack of time as reasons for not creating a plan.

"Most family business owners do have basic succession, trust and estate plans; however, too often, they are sitting on shelves gathering dust. Not only do these families need to act on implementing and updating their wealth planning strategies, they need more sophisticated strategies to better protect their wealth," said Mindy Rosenthal, managing director of Campden's North American Business and co-author of the research.

The U.S. Trust survey found that the majority of owners of ultra-high-net-worth family businesses have inadequate business succession, asset protection and estate planning. These families are highly successful in their businesses, but they are much less successful when it comes to passing their companies from one generation to the next. Only 15 percent of family-owned companies last past the second generation.

What’s wrong with this picture? These business owners are bright, articulate, talented, wealthy - why are they missing the boat? There are many hurdles to be overcome, most of them emotional. First, the business owner has to face his own mortality. The next hurdle is the fear of giving up control. Many people know they must do something to reduce taxes but fear giving control of assets to children. Most people want it both ways - they want to retain complete unfettered control over all their assets and also pay no estate taxes. There are techniques that permit transfer of value while retaining significant control and there are ways to protect funds. Learning about these approaches is part of the estate planning process.

Tough family decisions are another emotional stumbling block. Is there a divorce looming for one of the children? Is one of the grandchildren autistic? Will you or your spouse remarry? Who is going to control the family business after the parents are dead? Are any of the children capable of running it? Facing these issues can be so painful that they are avoided indefinitely. Then a real mess is left behind. Avoiding the problem doesn’t make it go away

Facing tough decisions like these is hard. The estate planning attorney can give you options and choices, but ultimately the tough decisions are yours to make. Do you really want to have someone else make these decisions for you after you are dead? Worse, do you want your family to be torn apart with the fighting over your estate?