Mediation Clause to Prevent Estate Trust Litigation

By Michelle Profit

“The “Great Transfer”, over 30 trillion dollars in US wealth, is supposed to pass from baby boomers to their heirs in the coming decades, according to a study by the consulting firm Accenture. How contentious this transfer is, will be influenced by the ability of attorneys to draft wills that avoid litigation and minimize acrimony. Maryland attorneys may want to consider using mediation clauses in wills to promote the harmonious transfer of wealth between generations.”

The author goes on to discuss some limitations of mediation clauses…

“Currently, estate planners use ‘no contest’ clauses in wills to discourage disappointed heirs from suing the estate. These clauses give heirs bequests within the will, then state that if the heir challenges the will they will lose that inheritance.

Courts are reluctant to enforce these provisions, however, since they discourage parties from enforcing their rights. As a result, Maryland courts will not enforce a no contest clause brought by someone, who had probable cause or a legitimate reason to sue. And practitioners are reluctant to draft no contest clauses that cover challenges based on will construction. This would include challenges based on ambiguous language in the will, for example, not the size of inheritance. In contrast, mediation clauses can more readily be used to resolve disputes regarding the construction of a will, including cases of ambiguity relating to provisions in the will or estate plan documents.”

The article later explains the advantages and disadvantages of mediation clauses… 

“Mediation of estates and trust disputes also offers specific advantages, when successful, such as private resolution of a family dispute. In particular, the grounds for contesting a will can be extremely personal, such as alleging lack of mental capacity or undue influence. The confidential nature of mediation may be attractive to the client concerned with reputational risk and family privacy.

Mediation provisions have their limits, as well. Mediations are voluntary and not binding attempts to settle a dispute. Also, they are poor alternatives for testators, who want to exercise complete control over how their estate is distributed. For the testator who is using the will to mandate specific, rigid outcomes, the no contest clause does that better. On the other hand, mediation allows the heirs to mediate and possibly adjust distributions, outside of the testator’s control. Indeed, mediation might encourage the affected party to seek redress through this alternative procedure, if the forfeiture penalty does not exist. In addition, mediation clauses are ineffective for stopping plaintiffs with strong statutory rights. For example, a mediation clause is unlikely to persuade a widow to take less than the statutory, elective share provided by law.”

The article concludes with some considerations for drafting mediation clauses…

“If the client finds mediation a preferable dispute resolution mechanism for his/her estate, then the issue becomes drafting the clause to set the proper guidelines for the mediation. The clause may encourage an adjudicatory or collaborative process; set the scope, timing and nature of mediation; and create a selection process for mediators. In Maryland, where the Montgomery County Orphan’s Court, and Baltimore County Orphans Courts have court approved lists of mediators specializing in estates and trusts mediation, the will could require selection of a mediator from these panels or by unanimous consent of all parties. The public can obtain these lists of mediators, but must be wary that the rates charged by mediators privately are much, much higher than their rates for court ordered mediation, (court appointed mediator fees are $200 in Montgomery County). Finally, the will can make the mediation process voluntary or mandatory.

Clients may be able to encourage parties to engage in mediation with language similar to the typical no contest clause:

  • If any beneficiary of this will shall contest the validity of the will, or shall seek to modify any of its provisions, without first attempting to resolve disputes about the will’s validity or provisions through mediation, such person shall be deprived of all beneficial interest under the will, and the share of such person shall be distributed as if that person predeceased me without leaving issue.

There is also the possibility of including both types of provisions, mediation and no contest clauses in drafting. The will may require its executor to mediate any disputes regarding the will and allow parties to request mediation without triggering the no contest clause. If a party proceeds to litigation, however, that action then triggers the no contest clause leading to forfeiture. The client could also provide a multilayered alternative dispute approach backed by a no contest with forfeiture clause.  There could be an incentive to mediate, then an incentive to move to arbitration, with the understanding that the participant who agrees to arbitration will not be subject to forfeiting their bequest under the no contest clause.

Clients may prefer substituting or adding mediation clauses in estate planning documents for litigation avoidance, cost-savings, greater privacy, and preservation of family relationships. The client must be willing, however, to cede some control to the next generation.”

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