Trust and Estate Disputes

It is not news that our society is becoming more and more litigious, nor that our laws have become more and more complex. As a result, disputes concerning the construction (what a will or trust term means and whether specific terms are valid) and administration (what the grantor (or decedent) intended to have happen) of wills and trusts are arising more and more frequently. Handling such disputes requires both knowledge of the substantive laws governing trusts and estates, and a thorough familiarity with the rules of evidence and procedure. Additionally, as more and more trust and estate disputes are mediated or arbitrated, your lawyers should also have ADR (Alternative Dispute Resolution) experience.

Trustees and personal representatives (or executors) are fiduciaries and, as such, a number of duties are imposed upon them. The term “fiduciary duties” includes not just specific duties imposed by law, but also the way in which a fiduciary acts in general. Put simply, fiduciaries must comply with the highest standards of conduct. Among the obligations owed to beneficiaries and legatees by fiduciaries are the:

  • Duty of Loyalty.   The fiduciary must not use his position to benefit himself at the expense of the beneficiaries of the estate or trust. Further, he may not put himself in a position in which his self-interest conflicts with his obligation to protect the interests of the people entitled to the assets of the trust or estate. In other words, the fiduciary stands in the place of the grantor or decedent, and owes his undivided loyalty to the beneficiaries of the will or trust.
  • Duty of Disclosure.   The fiduciary must disclose all material facts to the beneficiaries of the trust or estate. This duty goes beyond the typical obligation to maintain accounts, and encompasses all material information the trustee or personal representative becomes aware of in her fiduciary capacity.
  • Duty of Reasonable Care.   The fiduciary must exercise at least the degree of care that a reasonably prudent person would devote to her own affairs. Many disputes arise with respect to this duty because beneficiaries frequently have differing views regarding what is reasonable or prudent and what is not. For example, in the context of investment strategy for trust assets, what is prudent to one beneficiary may be viewed as too conservative by some other beneficiary (and too risky by yet a third).
A breach of any of these duties can give rise to time-consuming, and potentially costly disputes. Are there things fiduciaries can do to minimize the risk of litigation?
 

Reducing the Risk of Litigation

  • It is important that the warning signs of an impending dispute not be ignored. Disagreements over the administration of a trust or estate should be aired early, before positions harden and sides are drawn.  Consistent with our firm’s philosophy that litigation should be the dispute resolution method of last resort, we encourage beneficiaries to meet regularly so that lines of communication remain open and grievances can be discussed calmly and rationally.
  • We also strongly recommend that parties to disputes consider alternative methods of dispute resolution such as mediation and arbitration. More so than in the commercial context, trust and estate disputes often include a heightened emotional aspect because “family baggage” is present. Old disagreements between family members can color the approach adopted for resolving what might otherwise be a narrow dispute that can be quickly resolved. Further, there are heightened concerns about privacy when family matters are involved. Few people, when thinking clearly, want their personal disputes aired in public, and emotions can affect the parties’ ability to analyze a dispute objectively. Allowing a neutral mediator to discuss the matter with the parties in an informal setting can be particularly important in this context. It is also frequently important that family relationships be preserved to the extent possible. Early mediation of disputes allows the parties a non-threatening yet structured forum for communication amongst themselves.
Disagreements over the administration of a trust or estate should be aired early, before positions harden and sides are drawn.  Consistent with our firm’s philosophy that litigation should be the dispute resolution method of last resort, we encourage beneficiaries to meet regularly so that lines of communication remain open and grievances can be discussed calmly and rationally.

We are pleased that, because of our extensive international estate planning and dispute resolution reputation, we have been asked by the International Trust Companies Association ( “ITCA”) to draft model legislation that, once enacted, will ensure that in many countries trust and estate disputes are mediated or arbitrated before being litigated.

Do not infer from our support for ADR that some matters should not end up in court, only that we believe parties to trust and estate disputes should attempt to resolve disagreements informally before initiating litigation.  The cost and uncertainty inherent in litigation does not lend itself to resolving what are frequently disputes among members of the same family.  That said, when court is the right place to be, we have the experience and the resources to present a client’s position in the clearest, most persuasive way possible.