Benefits and Disadvantages of Addressing Trusts and Estates Conflicts at Different Times on the Estate Planning Continuum
Edited by Judith Stalk
This chapter compares the benefits and disadvantages of addressing conflicts during the estate planning process, post mortem or leaving conflicts to the current default approach of estates litigation from the vantage point of the testator, heirs, disinherited/contesting parties, trustees and the attorneys and other estate planning professionals who represent them.
There are significant testator benefits when issues of conflict are resolved during the estate planning process such as peace of mind in knowing there will be greater likelihood of family harmony after he/she passes and the comfort of knowing the estate will go to the intended beneficiaries and heirs without being diminished by significant attorneys fees or expensive and emotionally destructive litigation.
Despite the benefit of resolving conflicts during the estate planning process, approximately 80% of the attorneys and other estate planning professionals I’ve met opine that it is in the testator’s best interest to avoid creating worse family conditions than existed before the estate planning process. If conflicts are raised and not resolved the testator is at risk of prolonged unhappiness.
Other reasons for not addressing conflicts during the estate planning process include the fact that conditions change over time and testators change their estate plans and amend trusts. Problematic conditions that existed when a trust was first created may change for the better.
Most testators prefer to “Let the next generation deal with it.” “Some testators never would go to their estate planning professional if they knew it would lead to trouble.”2 However, including a mechanism in estate planning documents to deal with post mortem conflict can help prevent estates litigation.
For prospective beneficiaries there is a huge benefit to resolve conflicts during the estate planning process. Especially when there are unique issues such as a family business, the potential for jointly owned property or if there are children / step-children / step-parent relationships. A family-owned business is at great risk of failure in future generations if there is no succession plan developed during the owner-testator’s lifetime. Likewise, throwing children into a jointly-owned property “partnership” can cause strife which might be avoided by opening discussion during the estate planning process. More than 30% of contested matters in probate court are brought by children and step-children against each other and against surviving step-parents.
Unresolved conflicts impact everyone in the family, strife that can lead to the destruction of family relationships.
Disinherited or Contesting Party’s Perspective
The disinherited or contesting party may have an incentive to resolve a contest as soon as possible. Whatever money is received is “found money, a gift, that the disinherited never would have received except for going through the trouble to attempt to get it.”3
There is a special incentive for contesting parties to resolve or mediate a dispute before the running of a statutory deadline for filing a contested matter. Resolving a claim or conflict before filing a petition avoids the risk of the judge declaring a violation of a will or trust’s no contest provision and forfeiture of any gift, not withstanding a “Safe Harbor” petition.4
The message: “The contesting party wants to get a bite of the apple as soon as possible pre-litigation.”5 This presents a golden opportunity for early mediation and resolution.
Successor Trustee’s Perspective
The testator who selects as trustee a person who is an heir or beneficiary may, under certain circumstances, subject that person to accusations of undue influence or other legal theory that might place the gift at risk. A successor trustee who anticipates potential conflict and prefers not to serve may feel they have a target on their back.6 Claims by potential competing trustees, might be averted by designating an independent professional fiduciary.
Post mortem may be too late to deal with these successor trustee issues which may devolve into estates litigation. As a mediator I frequently hear claims of competing petitioners who each believe they should be trustee.
Attorney’s Perspective Representing Each Player
The attorney representing any of the players ultimately needs to understand the client’s needs and interests. This may sound very basic, but from my perspective as mediator, I see many attorneys who may not have an understanding of this.
The proactive estate planning professional navigates treacherous waters by addressing a client’s relational estate in order to unearth potential post mortem conflicts and by encouraging the testator to deal with them during the estate planning process. Many attorneys I’ve encountered have said it is very gratifying to resolve these conflicts during the estate planning process, thus providing their testator clients peace of mind. A substantial majority of attorneys at workshops said the risk of not resolving conflicts during estate planning exceeds the benefit. Further, those attorneys report that their testator clients prefer to “Let the next generation deal with the problems.” These attorneys are concerned that this could produce a very unhappy client who would terminate the attorney client relationship, or worse.
When representing an heir or beneficiary, the attorney may find client interests include the obvious, such as preserving the largest amount of a gift as possible, (“Show me the money. Beneficiaries are like cockroaches. They don’t come out until the lights go out.”7) as well as emotionally driven internal conflicts, such as unresolved anger and frustration from events during childhood (“I was three years old when my sister was born and my life has been miserable ever since. That was 57 years ago.”8)
Regardless of which player an attorney represents and at what point on the estate planning continuum, there is tension for the attorney about counseling the client to resolve a conflict early and quickly vs. taking the time necessary to gather all information possible, particularly as to total assets involved in the estate. Resolving a conflict before all assets are determined places the attorney at risk of a claim by the client against the attorney.
What is the incentive for an attorney representing an heir to resolve the matter earlier when doing so may result in a smaller fee? “What is most beneficial to the attorney and what makes most ethical sense and what makes good business sense? Having a client who pays your bill and does not sue you.”9 Resolving conflicts earlier, when there is sufficient information to counsel the client, provides a less financially and emotionally costly outcome to the client. A satisfied client is the best source of referral of new clients.
The attorney representing a contesting party may be incentivized to settle early. Often this attorney is on a contingency fee so the sooner the contest is resolved the higher effective hourly rate is earned for his/her time. If the contesting party’s claim is highly questionable, there is great incentive for the attorney on a contingency fee to settle as soon as possible, rather than spending the time and money to prepare for a risky trial.
A small percentage of disputed trust and estate matters are tried in court. The important question is at what point on the continuum of conflict are these disputes resolved? Generally, the sooner the resolution the less costly to the client in financial and emotional terms. However, attorneys from around California have cautioned that every case and every circumstance is different.
Next: Chapter 8: If there were a meeting during the estate planning process or post mortem in an attempt to resolve conflicts, what would the legal and ethical requirements be for such a meeting?
- 1. Copyright 2009 by Paul Fisher
- 2. Attorney at the San Fernando Valley Estate Planning Council workshop.
- 3. Attorney at Alameda County Bar Association workshop.
- 4. Attorney at Beverly Hills Estate Planning Council workshop.
- 5. Attorney at Long Beach Estate Planning Council workshop.
- 6. Attorney Fresno County Bar Association workshop.
- 7. Attorney at the San Diego County Bar Association workshop.
- 8. Attorney at the Alameda County Bar Association workshop.
- 9. Attorney at San Mateo County Bar Association workshop.