Resolving Disputes in Estates with ADR

Staying Out of the Courtroom

Preventing and resolving disputes concerning your estate may be one of the most important functions of your estate plan.  The reason is simple.  Disputes are perhaps the greatest risk to both your financial wealth, and your family.  Families are naturally resilient, and can recover from most any trouble.  But when family members sue each other, the family as a unit is destroyed.

It has been our experience that keeping families and estates out of the courtroom not only saves time and money, it saves families.  For this reason, for many decades we have required disputes involving Wills and Trusts to be resolved through an ADR device we call the Integrity Agreement.  We make compliance with the mandatory ADR provisions a condition for participating in the Trust.  A Trustee or Beneficiary who violates the mandatory ADR provisions is automatically and immediately removed from the Trust for all purposes the same as if they are deceased.  They can subsequently be reinstated with the consent of the other parties to the Trust if they cease the violating action and reimburse the Trust for the cost of enforcing the ADR provisions.

Parents who are concerned that their children may contest their wishes or litigate against siblings have come to us expressly for the purpose of obtaining this kind of law suit avoidance.

Even for those who seek legal counsel for “asset protection” – we ask the question:  who are the most likely people to bring litigation against you?  The answer is, sadly, family members.  A crucial aspect of any comprehensive risk management or asset protection plan is establishing a mechanism to prevent or resolve conflicts outside the courtroom.

This is why the use of mandatory ADR provisions is a fundamental part of all our legal planning.  This is why we employ the Integrity Agreement not only in estate planning, but in business planning as well.

The Integrity Agreement

The Integrity Agreement is a four stage progressive dispute avoidance and resolution process.  The goal is to fix the problem at the earliest stage possible.  The stages are:

• Notice and Communication – the parties are obligated to make problems known, rather then letting them fester and boil until they burst and splatter the family with noxious fluids.  Amazingly enough, letting people know there is an issue and giving them a chance to fix it works more often than not.  Most problems get resolved at this stage.  Those that don’t, move to the next level.
• Negotiation – the Integrity Agreement establishes a format for non-threatening negotiation.  One of the unique elements of this is that each party must state what the other party wants, in words the other party will accept.  We have found that many disputes are rooted in either speaking different languages, or in phrasing simple issues in insulting terms.  When the actual problem is expressed in non-inflammatory terms, the parties are able to see and come to a resolution.
• Mediation – this is when an outsider is brought in to coach or counsel the parties to a resolution.  Often this will be a subject matter expert in the particular area of conflict.  Most litigation ends up settling after spending huge amounts exchanging insults and hurtful allegations.  Introducing mediation into the process early on, gets to the solution faster and with less cost.
• Arbitration – this is like a trial, only faster, easier, and less expensive.  It has been our experience that even when paying the arbitrators the ultimate expense is reduced because the fees go to problem solvers (arbitrators) instead of to attorneys who often have a financial incentive to drag things out.

There are a number of professional organizations that offer mediation and arbitration dispute resolution services.  Increasingly, such dispute resolution proceedings are handled virtually by video conference.

Why Use ADR for Dispute Resolution

The history of dispute resolution in estates is as long and bloody as the history of war.  In the past, sovereigns and devisees alike conquered by sword and intrigue.  Eventually, as the Rule of Law took precedent, physical violence was replaced with legal violence, and the Courtroom became the battle ground.  The bloodletting of armies was superseded by the bloodletting of legal fees.  As classic novels like Charles Dickens’s Bleak House made clear, no matter the outcome for the parties, the lawyers always profit from litigation.

At the present intersection of history, another transformation in dispute resolution is underway.  Litigation is expensive and time consuming.  Not only are less expensive and faster options available, but consumers have greater access to information.  People discover the options, and shop for the best deal.  This has given rise to the increased use of Alternative Dispute Resolution (“ADR”) in resolving disputes involving Trusts and estates.

In general ADR is the use of non-judicial private contractual procedures for deciding disputed matters instead of litigation in traditional courts.  ADR can take a variety of forms including mediation or arbitration.

ADR works.  It is faster.  It costs less.  It is more flexible.  And, it is less volatile.  The bottom line is, compared to litigation, ADR is a more effective, efficient, faster, lower cost, and adaptable procedure for resolving disputes in estates.

A New World Invention

As it turns out, the idea of using ADR to resolve disputes in estates is neither new nor on the fringe.  It is one of the original products of the New World, and a new country.  One of the earliest known examples is found in  George Washington’s Last Will and Testament, which has the following clause:

. . . having endeavoured to be plain, and explicit in all Devises—even at the expence of prolixity, perhaps of tautology, I hope, and trust, that no disputes will arise concerning them; but if, contrary to expectation, the case should be otherwise from the want of legal expression, or the usual technical terms, or because too much or too little has been said on any of the Devises to be consonant with law, My Will and direction expressly is, that all disputes (if unhappily any should arise) shall be decided by three impartial and intelligent men, known for their probity and good understanding; two to be chosen 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 constructions, declare their sense of the Testators intention; and such decision is, to all intents and purposes to be as binding on the Parties as if it had been given in the Supreme Court of the United States.

As it turns out, the Father of the U.S. is also the Father of ADR.

The Code Catches Up

George Washington wanted his intent to be determined “unfettered by Law”.  This illustrates an important concept.  ADR does not require a government grant of authority or license to be used of compelled.  It arises by the private rights of individuals to do as they wish with their own property.  Wills and Trusts likewise are an exercise of one of those “inalienable rights” that do not require permission from a government authority to compel the use of ADR to resolve disputes in the administration of an estate.

Sadly, too many lawyers and courts don’t know this.  If they can’t find a statute that expressly authorizes an act, some believe it is not permitted.  In a free society, the opposite is true.  Everything not prohibited is permitted.  In order to give comfort to those practioners and courts who need permission to act, many states have adopted statutes that specifically recognize the right to employ ADR in the interpretation and administration of Wills and Trust.  To be clear, the right to use ADR does not arise by statute, but is recognized by statute.

The Uniform Trust Code in its many variations as adopted expressly recognizes that Trust may compel the use of ADR.  Most states have now adopted the Uniform Trust Code, and the count continues to rise.  For example, in Arizona, A.R.S. 14-10205 provides:

A trust instrument may provide mandatory, exclusive and reasonable procedures to resolve issues between the trustee and interested persons or among interested persons with regard to the administration or distribution of the trust.

Because the grantor or person creating the Trust can decide what will happen with the Trust property, ADR can be compelled and required even if the beneficiaries and other parties to the Trust do not sign an agreement to that effect.

Regardless of statutory acknowledgement, the use of ADR in resolving Trust disputes is ubiquitous.    Trust disputes (and mandatory ADR) know no borders, and occur in every jurisdiction where Trusts are used for estate planning.

So What?

If avoiding litigation and family conflict is one of the goals and purposes of your estate planning, seek out attorneys who are familiar with this process, and make sure appropriate mandatory ADR provisions are included in your Trust.  This is one of the things we check for when we provide complimentary Trust and Will reviews.  Let us know if litigation avoidance is something that concerns you.