Jonathan G. Blattmachr, a partner at Milbank, Tweed, Hadley & McCoy LLP, has published "Reducing Estate and Trust Litigation Through Disclosure, In Terrorem Clauses, Mediation and Arbitration" in the Cardozo Journal of Conflict Resolution, 9 Cardozo J. Conflict Resol. 237 (2008).
He suggests six methods to reduce the risk of litigation with respect to trust and estate matters:
1. Advise Inheritors of Inheritance Plans. Especially when children of the decedent are treated unequally, will contests and litigation arise from disappointed feelings of entitlement. Telling the children ahead of time what their shares will be may avoid a later dispute. Blattmachr even suggests that one could enter into a contract (for consideration) with such a person that he or she will not object to the validity of the document. (Of course, as Blattmachr says, "advising a child that he or she will not receive an equal share may have adverse effects even if it prevents litigation after death." You think?)
2. Use a Revocable Trust in Lieu of a Will. Since a revocable trust can be funded and operate during lifetime, it is difficult to contest on the grounds that the individual was unaware of its terms. When the Settlor of the trust dies, there is no need to begin a court proceeding to "prove" the validity of the trust, such as there is for a will.
3, Use an Irrevocable Trust in Lieu of a Will or Revocable Trust. An irrevocable trust is even less likely, in Blattmachr’s view, to be challenged than a revocable trust. Irrevocable trusts can be drafted in such a way so that transfers of property to them are not completed gifts. Alternatively, making a transfer that is a completed gift, paying gift tax, and filing a gift tax return disclosing details may be additional evidence that the transfer was truly intended. Again, Blattmachr believes that a lifetime trust that is significantly funded is less likely to be challenged.
4. Use an In Terrorem Clause. If the testator lives in a state that will enforce it, an in terrorem clause (or disinheritance clause) could be used. Or the testator could direct that his will be probated in a state that does enforce such clauses. A lot of trust and estate litigation is not about the validity of the document, it is about its interpretation or about actions taken by the fiduciary. In order to reduce this type of litigation, an in terrorem clause can cause a forfeiture of a beneficiairy’s interest if such a challenge is made.
5. Use Mediation or Arbitration Provisons. Arbitration or mediaiton cannot be used with respect to the challenge of a document’s validity unless the parties agree to it. Using an in terrorem clause to cause forfeiture if the parties will not participate can be used. This could stop claims that are filed only to harass other beneficiaries or to delay distributions to others. Another approach would be having the parties enter into a contract agreeing to arbitration before the transfer.
6. Use a Conidtion Precedent to a Beqeust as an Alternative Method of Causing Participation in Mediation or Arbitration. Since a person cannot be forced to participate in arbitration or mediation unless the law provides for enforcement, consideration must be given to how to get parties to use these methods. One can use the carrot instead of the stick. Parties can be gvien a benefit if they consent to use arbitration or mediation instead of resorting to court.