No estate planner wants litigation over the estate plan she drafted. Settlors want their plans implemented as written and would likely abhor public disagreements over their capacity and assets.
The litigation explosion burdening the probate court system is fueled by a demographic reality (the baby boomers approaching old age, along with many blended families) and real or perceived unfair treatment of heirs. Discovery in these family battles often includes years of financial, medical and other records, second-guessing settlor house repair and health care decisions, contested administrative fees and expenses, and hearings on testamentary capacity and undue influence.
The heirs’ differing “fairness filters” are often triggered by the settlor herself, who promises the same chest of drawers to several heirs, and tells the heirs what they want to hear to be accommodating and not “rock the boat” of family dynamics. The use of self-help remedies among fiduciaries and heirs often fuels disputes, as do misunderstandings of complex estate and tax laws.
No insurance against litigation is available, but estate planners can take action to reduce the risk of challenges. Those risk-reduction practices could include: mediation clauses in estate planning documents, especially with no contest clauses; lifetime approval of the plan by the Probate Court; and encouraging mediation during the settlor’s lifetime.
Requiring mediation as the primary dispute resolution method in trusts and wills could reduce claims in all probate estates. For one thing, the inclusion of the clause may be evidence of the settlor’s intent for private, consensual dispute resolution generally, rather than protracted litigation. For a thorough discussion of advantages and disadvantages of mediation clauses and terms to include, see Leaving More than Money: Mediation Clauses in Estate Planning Documents, by Lela Love and Stuart Sterk. More often than not, litigation is triggered by failures of communication and misunderstandings, which are likely more resolvable in mediation than litigation.
There is an increased incentive to include a mediation clause in estate plans containing no-contest clauses, because the omitted heir has little to lose by bringing litigation. In spite of the settlor’s intent, no-contest clauses are not an absolute bar to suit. The omitted heir can raise issues of the construction of the trust, fraud, undue influence, lack of testamentary capacity, and breach of fiduciary duty. Because Courts are favorably inclined to enforce mediation clauses, the use of mediation as a condition precedent to any contest will likely be enforceable. In view of the high settlement rate in mediations, the inclusion of the clause increases the likelihood of resolution.
Court-Approved Testamentary Capacity
The often-litigated settlor’s testamentary capacity and undue influence can be addressed by using the Lifetime Approval process in RSA 564-B: 4-406(d). The process allows the settlor, while living, to obtain a Court Order that her trust is valid. Compared with the emotional and economic cost of most probate litigation, the protection provided by section 4-406(d) is worth considering if there are questions about the settlor’s capacity and the settlor can satisfy the statutory validation process.
While helpful, this process does not provide a shield against capacity challenges regarding lifetime gifts, the inventory, the accounting, administrative expenses and performance by the fiduciaries. If the plan is changed after the court order, the protection evaporates.
“Bleak House” litigation is likely avoidable, however. Paired with or separate from a statutory lifetime approval process, the settlor can hold a family mediation facilitated by an experienced probate mediator to reduce misunderstandings and disputes post-death. The mediator creates a safe, confidential environment in which the trusted advisor/estate planner serves as an advocate for the settlor’s voice. At the end of the family meetings, the heirs agree to accept the plan as enforceable, waive claims and litigation is avoided.
Estate planners add value by helping the settlor decide whether their family is well suited to lifetime mediation, balanced against the possibility of a spend-down of the settlor’s assets in litigation. If the settlor’s intent is truly paramount, then a private mediation is likely more in line with a settlor’s intentions than public litigation.
Rarely does a settlor believe (or is willing to admit) that her estate plan will trigger a fight among her heirs. A settlor may naively assume that the survivors will amicably sort out these conflicts. Although it is unlikely that any settlor would prefer family disharmony, many settlors may be unwilling to engage openly and honestly with their family later in their lives. If they fear the mediation may be unsuccessful, they may decide to leave the surprises for when they are not around.
A mediation clause in the estate planning documents, holding lifetime mediation with or separate from the Lifetime Approval process, may help to reduce the possibility of probate litigation. While mediation is no panacea – there is no guarantee that an agreement will be reached – the chances for such agreement increase substantially, allowing for the settlor’s wishes to be carried out and the plans to be implemented as written by the estate planner.
Printed in the NH Bar News October 2017