"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

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. People need alternative means for resolving disputes.

Mediation, as a means of dispute resolution, is widely used in divorce and child custody disputes and is becoming more common in general civil litigation matters. There is a growing interest in using mediation to solve disputes related to wills and trusts.

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.

Arbitration is the private, judicial determination of a dispute, by an independent third party. An arbitration hearing may involve the use of an individual arbitrator or a tribunal. A tribunal may consist of any number of arbitrators though some legal systems insist on an odd number for obvious reasons of wishing to avoid a tie. The disputing parties hand over their power to decide the dispute to the arbitrator(s). Arbitration is an alternative to court action, and generally, just as final and binding (unlike mediation is generally non-binding).

Arbitration is a growing field, providing a way of settling disputes without resort to the public courts, which are perceived by many litigants to be a broken system. Arbitration provides a way to "opt out" of the court system with its attendant delays, crowded dockets, and expense. The parties can have more control over the process and they can also choose a neutral with relevant experience.

Mediation Contrasted with Litigation and Arbitration

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

A mediator is not a therapist and does not act like one. But a mediator can provide for an airing of differences before they reach critical mass for an explosion. While there is no technical legal requirement that a mediator be a lawyer, considering the complex property law and tax issues presented in the trusts and estates field, a lawyer is likely the most effective mediator. The mediator must be able to assess the relative strengths and weaknesses of the parties’ arguments and must be completely independent with respect to all the parties.

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 judgment. 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 an apology.

Mediation in Estate Settlement

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

While widely used in divorce and child custody disputes, 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.

Here are two examples of situations where mediation can be used:

(1) A beneficiary who believes he or she should get a bigger share of the estate may have only one alternative in the courts: invalidating the will and even that may not bring the desired result. Not only is this difficult to do and causes dissatisfied beneficiaries to mount will contests when there really is insufficient evidence for such a case, but also there are limited opportunities to reach a different result. Usually, as a result of litigation, either the will is valid or it isn’t. Through mediation an accommodation could be reached.

(2) Current family structures have created family relationships that are not adequately addressed by existing law. In addition to blended families with children who are "yours, mine and ours," there are same sex adoptions, children of single parents, and children born of surrogate mothers and artificial insemination. There are a host of issues here that could be worked out through mediation.

 Mediation in Trustee-Beneficiary Disputes

Who has not heard beneficiaries complaining about trustees? Often beneficiaries are critical of the trustee’s investments, the trustee’s exercise (or non-exercise) of its discretionary powers, the trustee’s unresponsiveness. Often the beneficiary does not understand the restrictions on the trustee’s actions, and the trustee fails to communicate effectively. The trustee- beneficiary relationship can begin to resemble the caricature presented in the old TV sitcom starring Lucille Ball as Lucy Carmichael who is always conniving against Mr. Mooney (played by Gale Gordon), the trust officer who administered her deceased husband’s trust.

Many disputes of this nature can be solved by mediation before the parties’ positions become polarized in litigation. When the trustee’s exercise of discretion is involved, mediation is the best answer. Seldom can a trustee be forced to exercise discretion and seldom can a beneficiary be reconciled to a steady diet of "no" from the trustee for every request.

Family settlements are favored by the law in probate matters. Courts generally enforce these settlement agreement in the absence of fraud. States where the Uniform Trust Act with its provisions for virtual representation and non-judicial settlement agreements has been adopted provide an excellent environment for trustee-beneficiary dispute resolution through agreements reached via mediation.

Mediation in Estate Planning

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, family. 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 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 that can be given to 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 Mom and Dad are afraid to tell the kids what they’ve done in their estate plan, they are leaving a legacy of acrimony. A mediator will recognize that it is up to Mom and Dad to determine what they will do with their assets and that Mom and Dad 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.

Mom and Dad need to be shown that spending some time and money now on a process of mediation can save thousands of dollars later and, more importantly, can preserve family relationships that are more precious than money.

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 care givers and medical personnel. Disputed guardianships are perfect for mediation – nothing is worse than the public airing of dirty linen that a contested guardianship hearing brings out. 
 

Drafting for Mediation and Arbitration

As far as the estate planning documents themselves go, one can include provisions that require the parties to submit disputes to private mediation or arbitration rather than resort to the courts. Many 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."

The general principles of arbitration are (1) to obtain a fair resolution of disputes by an impartial third party without unnecessary expense or delay, (2) allow parties to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest, and (3) courts are not involved.

Arbitration is entered into by consent of the parties, either after the dispute arises, or by signing a contract that provides for arbitration of disputes. An example of a common contract with arbitration provisions is a typical account agreement with a stock broker where the account holder agrees that all disputes will be resolved by arbitration.

In the probate and trust context, the testator can direct arbitration, the parties can agree to arbitration in advance in a document (e.g. a deed of trust), the parties can agree to arbitration before litigation begins, or a court can direct it.

Will courts enforce an arbitration clause in a will or trust? John K. Boyce, III, in his article, "The Use of Arbitration Clauses in Estate and Trusts," Alternative Resolutions, The Newsletter of the State Bar of Texas, Vol 14, No. 4, pp. 19-20) states: "Today . . . .while arbitration provisions are becoming common, even ubiquitous, in certain kinds of business contracts, in construction contracts, and even in employment agreements, they still are not widely used in wills or inter vivos trusts, despite George Washington’s example and the wholehearted acceptance of arbitration at the state and federal level. . . . Beneficiaries under a will, trust, or similar instrument are almost never parties to the agreement and therefore are almost never in a position to have agreed to arbitration before a dispute arises. I believe that this is the reason we have not seen arbitration clauses used more widely in connection with wills and the like, despite the fact that the advantages arbitration offers are the same in a dispute arising under a trust as they are in a dispute arising under a contract, and despite the fact that these advantages are widely recognized."One of the solutions Boyce comes up with is to couple the arbitration clause with an in terrorem clause. For example, if a beneficiary refuses to arbitrate a dispute, he or she forfeits his or her interest in the estate or trust.

The American Arbitration Association provides a standard arbitration clause for incorporation in estate planning documents:

 "In order to save the cost of court proceedings and promote the prompt and final resolution of any dispute regarding the interpretation of my will (or my trust) or the administration of my estate or any trust under my will (or my trust), I direct that any such dispute shall be settled by arbitration administered by the American Arbitration Association under its Arbitration Rules for Wills and Trusts then in effect. Nevertheless the following matters shall not be arbitrable questions regarding my competency, attempts to remove a fiduciary, or questions concerning the amount of bond of a fiduciary. In addition, arbitration may be waived by all sui juris parties in interest."

"The arbitrator(s) shall be a practicing lawyer licensed to practice law in the state whose laws govern my will (or my trust) and whose practice has been devoted primarily to wills and trusts for at least ten years. The arbitrator(s) shall apply the substantive law (and the law of remedies, if applicable) of the state whose laws govern my will (or my trust). The arbitrator’s decision shall not be appealable to any court, but shall be final and binding on any and all persons who have or may have an interest in my estate or any trust under my will (or my trust), including unborn or incapacitated persons, such as minors or incompetents. Judgment on the arbitrator’s award may be entered in any court having jurisdiction thereof."

Jonathan Blattmachr provides suggested document provisions in his article, "Reducing Estate and Trust Litigation Through Disclosure, In Terrorem Clauses, Mediation and Arbitration." John Phillips, Scott Martinsen and Matthew Damon also provide extensive sample provisions for inclusion in estate planning documents in their article, "Analyzing the Potential for ADR in Estate Planning Instruments," Alternatives Vol. 24 No. 1, January 2006, p. 1 et. seq.

The rising costs of formal litigation and its many delays coupled with the increase in fiduciary litigation of all types make the use of mediation and arbitration in the settlement of trusts and estates disputes a valuable tool. Planning ahead for the use of alternative dispute resolution by adding directions for dispute resolution in estate planning documents is an important step in preparing for use of these tools.

Conclusion

The rising costs of formal litigation and its many delays coupled with the increase in fiduciary litigation of all types make the use of mediation and arbitration in the settlement of trusts and estates disputes a valuable tool. Planning ahead for the use of alternative dispute resolution by adding directions for dispute resolution in estate planning documents is an important step in preparing for use of these tools.