The Use of Mediation in Estate Planning: A Preemptive Strike Against Potential Litigation

by John Gromala
May 1999 John Gromala
Introduction
Use of an independent mediator during the planning process can help estate planners improve client satisfaction, reduce the probability of family litigation and avoid malpractice claims. The goal of retaining a mediator in estate planning is to prevent a future problem rather than to solve an existing dispute. If there is current conflict among family members, only mediation offers the probability of a solution that includes reconciliation. This article will focus primarily on family dynamics involved in planning and preparation of wills and trusts. The same anxieties are present when planning conservatorships, guardianships, powers of attorney (financial & health), prenuptial and postnuptial agreements.

My experience in mediating will and trust contests, and disputes during administration of wills and trusts, indicates that clients' failure to disclose seemingly unimportant, embarrassing or confidential information during the planning stage requires their estate planners to work with incomplete and/or erroneous family information. Occasionally potential clients who discuss estate planning with an attorney do not return. While the attorney may think the people went to another professional, they may have simply made a passive decision to ignore the complex emotional issues raised during the initial interview.

Most planning cases will not include heirs as active participants. However, it is dangerous to assume that a “happily married” couple is communicating well about the division of their estate. It is even more dangerous to assume a couple about to be married has discussed the terms of a prenuptial agreement at arms length. Persons with close relationships may have a great reluctance to bring up sensitive topics between or among themselves. Multiple marriages inject many additional issues. Avoidance of conflict by ignoring it is considered a virtue by many people. They gloss over sensitive areas to preserve ostensible harmony. Unfortunately, glossing over a problem today invariably spawns a greater conflict tomorrow.

A mediator does not represent anyone, has no allegiance to any party, gives no advice, makes no decisions and has no conflicts of interest. There are no constraints on the mediator's ability to speak in confidence with each person.

Example

Let me share an example where attorneys brought in a mediator. A family with an eight figure estate and several adult children had labored through two years of planning. The parents sought input from their family since each child had considerable financial expertise and a substantial estate. The parents and each child retained and conferred with their own experts (attorneys, accountants and financial advisors). The experts corresponded among themselves and their proposals were circulated among the family. Everyone understood the concepts being presented. Each attorney spent much time with her or his client, and family members had many conferences, but the family was not communicating effectively.

By the time a mediator was retained, the family was close to open warfare. Each family member suspected the others of conniving to gain advantage. This suspicion was within and between generations and was affecting spousal relations. The proposed plans had great technical merit as regards tax minimization, but the lines of communication between and among attorneys and clients (dictated by conflict rules) did not provide a vehicle for the family members' real interests to become known to each other and their advisors. As a result, each professional was working with pieces of a different puzzle. They were unable to put the pieces together since each had a different concept of how the final picture should look. Spouses and siblings had "non-monetary" needs that were either obfuscated or couched in "dollar" demands. Satisfying the dollar demand failed to satisfy the emotional need.

One such hidden issue involved a family business run by the father with considerable help from his youngest son, Bob. The father wanted to recognize Bob's contribution by giving the enterprise to him. Bob hated the business, wanted no part of it, but never told his father because of the great sentimental value his father attached to it. The business was taking too much of Bob's time, to the detriment of his own business and his relations with his wife and children. The father was continuing the business because he believed Bob loved it and would want to inherit it. He had absolutely no emotional ties to the business. Once father and son could discuss the issue the solution was self evident.

Within three months the mediator forwarded to the attorneys a memorandum of understanding signed by all family members. By communicating with everyone on an individual basis, in small groups and in the large family group the mediator was able to develop a complete picture of the family's needs. After conferring with his clients and their accountants the parents' attorney prepared documents for an estate plan that satisfied the desires, interests and needs of the entire family.

Confidentiality

Most jurisdictions provide broad protection to mediation proceedings including prohibiting the mediator from testifying if there is subsequent litigation. Oral and written admissions, offers, notes, etc. made during mediation cannot be used in litigation. California has codified the confidential nature of mediation proceedings in CCP 1775 et. seq. and Evidence Code sections 703.5, 1152.5, 1152.6. Most mediators describe the bounds of confidentiality in a mediation agreement. There is no risk to the parties participating in mediation, whether it be in the planning stages or in a contested proceeding. They maintain control over their destiny by participating in the mediation process.

Conflicting Needs and Conflicts of Interest

The statistical data clients give to their attorneys are usually comprehensive and accurate, but hidden interests and suppressed emotional needs of clients are seldom fully disclosed in the presence of one another. The accepted mode of representing clients with potential conflicts of interest may interfere with an attorney's ability to get all the information required to determine a client's real interests and needs. For example one spouse usually will not raise an issue known to be distasteful to the other in the other's presence. People about to be married are often in a state of euphoria, and they may view a prenuptial agreement through "rose colored glasses." Each one may have an understanding based on a different perspective. In like manner parents may make assumptions concerning their adult children's desires that have little relation to their children's actual needs. Children may make assumptions about each other and their parents based on emotion. This could result in a plan, based in part, on flawed assumptions. Such an oversight could result in future litigation and may be the basis for a malpractice claim.

Prior to the era of specialization and stringent conflict rules, much estate planning was done by attorneys who knew their clients and families. Like the "family doctor," the attorney was aware of the family's trials, tribulations, successes and failures. In that climate it was common for attorneys to counsel spouses without discussing the possibility of a conflict of interest. The primary focus was on preparing a plan satisfactory to both, through an in-depth interview with both spouses.

Today, many families have children who are the issue of more than one marriage or relationship and this creates the potential for conflicts of interest. How can a fair plan be developed? Equal is not always equitable. Each family's history, interests and needs, as well as assets and taxes, must be considered when designing a plan for their future.

The probability of a conflict of interest is present in many estate plans. Often, spouses are advised to have separate attorneys; individual financial advisors may be recommended. If they decline separate counsel they may be required to sign a "consent to joint representation." Either choice makes married couples uneasy because they do not see themselves as adversaries. The emphasis on differences may cause new or additional stress in the marriage. It can also cause them to abort the estate planning process.

Having a “consent to joint representation” or suggesting separate attorneys may satisfy ethical requirements (and concern over malpractice exposure) without satisfying the real need of clients for a plan that satisfies their joint desires. This need may be lost when each party communicates through a different lawyer and is suppressed if using the same counselor. If the clients elect to use the same attorney, he or she cannot have separate confidential discussions with each of them. Use of a mediator provides the attorney with a way to be professionally ethical without sacrificing the clarity that is achieved when one person has separate discussions with each interested party.

Role of Mediator

A mediator recognizes the attorney's lead role and will not question the advice given by an attorney. The mediator's role is to assist attorneys in fulfilling their responsibility to craft a plan that will accomplish the testamentary desires of the attorneys' clients. The mediator confers, on a confidential basis, with each person separately and with the parties jointly. Only information that is authorized to be disclosed by each person will be shared with others. The mediation process can provide attorneys, accountants and financial advisors with valuable information about the clients' subjective interests and needs that should be addressed in the estate plan.

A mediator explains the process to each spouse. Joint meetings and individual conferences are scheduled as appropriate. Others are interviewed only with client and attorney approval. The mediator helps the parties face and resolve important subjective issues that otherwise would continue to fester because they were not disclosed to, and thus not addressed by, the attorneys. Mediation assists the attorneys in collecting all segments of the family puzzle.

A mediator does not need to be an expert in estate planning, but does need to be familiar with its basic principles and terminology. Expertise in the mediation process and the unique ability to talk with each person, in confidence, makes the mediator a valuable member of the estate planning team. The mediator helps the parties bring conflicting interests to the surface and helps to resolve them; a mediator does not give advice. Mediation builds on latent goodwill. It is the catalyst used to transform disparate messages into a meaningful collage. The estate planners use their expertise to integrate this information with other data in developing the plan.

Many people mistakenly think of a "mediator" as an arbitrator. Attorneys should explain to their clients that a mediator is a facilitator, not a fact finder or decision maker. The mediator helps the parties peel off emotional overlays and accept reality. None of the planning professionals (attorneys, accountants and financial advisors) can fill the need to speak separately and confidentially with each interested party.

Complexities of Family Relations

The number of family members and advisors participating in the example cited earlier created an unusually complex case. However, the family dynamics in less complicated situations are very similar. For example, a child working in the family business may have expectations that have not been discussed with parents or siblings. The child's spouse may expect even more. Control and succession in a family business are issues waiting to explode if not properly addressed early on. Also, a child who provides years of care for a sick parent may expect a larger share of the estate. Property acquired and children born during multiple marriages inject many additional issues. These are only a few examples that pose a high potential for litigation which can be avoided through early mediation.

The emotional issues present in a family owned or a closely held business create the climate for litigation after death of the entrepreneur or partner. These issues are often ignored or minimized by the spouses and partners during estate planning. Clients with such illiquid assets need assistance from mediation during estate planning, and certainly after the death of the testator or trustor if the problems were not addressed during the planning phase.

Mediation during the planning stage may help spouses to discuss sensitive areas and to avoid future conflict. It can increase the probability of full disclosure since each person knows he or she can speak with the mediator in strict confidence.

A mediator can help all parties and their advisors find hidden issues. It is often difficult for one spouse or sibling to explain the interests and needs of others. The nature of family relations can foster many hidden agendas and suppressed emotions. Poor communications and misconceptions may cause people of goodwill to become antagonists. If not addressed, hidden issues can become buried mines waiting to explode. Mediation can expedite the estate planning process. It helps to eliminate the need for foot dragging by a family member who cannot live with a proposal but does not want to be seen as an obstructionist.

Need For Mediation

Whenever a potential conflict of interest requires separate counsel or a “consent to joint representation,” clients should be advised about the benefits of a skilled mediator. The mediator's work may dispel or confirm and resolve the conflict. In either case, a mediator will help planners identify underlying emotional issues so they can better address the family's spectrum of concerns. Even if a conflict of interest is not apparent, a mediator may be advisable in large estates. The mediator might uncover a latent conflict or bring out information that will prevent a conflict from developing. The attorneys, invariably, will receive information through mediation that will be beneficial in developing a viable plan. At the very least, the attorneys will have a better record that their advice and plan documents correctly address the desire of their clients.

Mediation also works well in resolving problems during Probate and Trust administration. Relations between executors or trustees and beneficiaries can turn sour because of different priorities. Often differences are in perception rather than substance. A mediator can help the parties clear up areas of ambiguity and aid them in developing a plan of interaction that will promote all their interests. As a result executors and trustees may no longer dread the beneficiaries' phone calls and beneficiaries may be happier while making fewer calls to the fiduciaries.

Courts are not charged with working out reasonable solutions to heirship contests or disputes over administration of wills and trusts. Judges listen to scripted testimony and make decisions. The results may be cumbersome, with little relief to any party. If the goal is a solution rather than a finding of fault, mediation is the best means to achieve the goal.

Conclusion

The services of a mediator should be considered if any of the following scenarios are present:

  • mentally or physically challenged child
  • economic disparity among heirs
  • divorce and multiple marriages
  • inherited or other separate property
  • a child who is caring for a parent
  • testator is either very indecisive or dogmatic
  • entrepreneurial or closely held business.

Mediation in conflict resolution is a profession in its adolescence. Mediation in estate planning is in its infancy. During the past decade trial lawyers have recognized the important role mediation can have in providing a better service for their clients. It is time for the Estate Planning Bar to consider recommending professional mediators as part of the scope and quality of service they offer their clients. Estate planners have an opportunity to help estate planning mediation develop in a manner most useful to clients and professionals. Dialogue between estate planners and mediators as well as continuing education seminars focusing on mediation in estate planning should be a high priority.

Attorneys, whose clients have the benefit of mediation, will have more satisfied clients and a reduced risk of malpractice claims. Failure to use a mediator may increase the probability of criticism, misunderstanding and future litigation. The use of a mediator will help to assure a result that is equitable, realistic and acceptable to the key parties, be it estate planning or settlement.

Biography


John A. Gromala, J.D., has more than 30 years of experience in transactional law and estate planning. He practices exclusively as a mediator in all aspects of trusts, wills, and conservatorship disputes (www.mediation-adr.com/gromala). He has given seminars for attorneys, business people, and mediators in the United States and Europe. His roles while practicing law included Fellow, American College of Trust and Estate Counsel; Member, Executive Committee—Estate Planning, Trust & Probate Law Section, California State Bar; and President, Humboldt County Bar Association. He is the West Coast Director of Business Mediation Associates.

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Website: www.mediation-adr.com/gromala

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