Trust and estate disputes can be among the most unpleasant and difficult to settle.
Of course some may more closely resemble commercial disputes – an action for breach of trust, for example, where it is suggested that poor investment returns are due to some fault on the part of the trustees.
But others may effectively be a fight between family members, often after years of distrust and attrition, fought out on the battle ground of the trust or estate. Unlike most commercial disputes they carry a high degree of emotional charge, sometimes a degree of irrationality and almost always a powerful belief of holding the moral high ground.
Those which may be most intractable arise on succession, whether in the context of a trust or an estate, and the difficulties of finding resolution are exacerbated by the grief or bitterness, disappointment or unfairness felt by one or more parties. The tension and unpleasantness can be as acute as in a heavily- fought divorce, particularly if the dispute is essentially between siblings.
The other factors which make them difficult to resolve include the number of parties involved, the presence of beneficiaries who cannot represent themselves (children, unborn beneficiaries, those who have lost capacity and unascertained beneficiaries), the possible application of different jurisdictions’ laws giving rise to a wider than usual range of possible results and the level of costs which may have built up since the dispute commenced.
There are, undoubtedly, trust or succession disputes which cannot be resolved without the Court’s assistance, such as a declaration of validity, construction, rectification or variation, although it may be that the process may be less contentious and costly if the parties can at least decide to adopt a rational and proportionate manner in which to put their respective arguments to the Court.
Ironically however some of these qualities of trust and succession disputes that make them so difficult to settle, may, for those cases where a court decision is not imperative, make mediation among the most successful ways of achieving a consensual outcome.
The reasons for this are wide-ranging and include the following:
The scale of the likely costs in relation to the potential benefit
Trust and succession or probate disputes can be notoriously expensive. This is usually because of the scale of the enquiry but can be exacerbated by the way the parties conduct the litigation.
Of course if children and others who cannot represent themselves would be affected by the outcome and no-one has been appointed (by the trust deed, will or the court in some jurisdictions) to represent them and settle if in their best interest the result of any settlement process will only bind if the Court sanctions it. So, in the case of mediation where children, incapacitated adults or future beneficiaries would be affected, any resolution agreed between the parties can only be conditional upon the approval of the Court, which is unlikely to be given unless the interests of those who cannot represent themselves has been properly considered and catered for.
Many such disputes are about modest to medium size estates. If the costs were to be payable out of the estate (on the basis that the dispute was the ‘fault’ of the testator) the estate could be exhausted or seriously depleted. If the losing party is likely to bear not only his/her own costs but also a significant proportion of the costs of other parties, the impact can be life-changing.
If the reality of this unfortunate costs impact is understood at the outset the advantages of early mediation may be better appreciated.
At the other end of the scale eye-watering sums can be – and regularly are – spent by wealthy litigants on cross border succession disputes and trust litigation. Take for example the recent Grand View v Wong (1) litigation in Bermuda. The trial lasted 80 days. It was an all-or-nothing dispute: at its simplest (and it was clearly far from simple) the issue was whether it was permissible for the trustees to have appointed the entirety of a trust with the settlors’ family as beneficiaries to a newly- added beneficiary – a purpose trust for charitable purposes. As noted later in this article all-or-nothing cases present significant opportunities for a mediated solution, not least when the costs and risks of litigating are factored in.
The certainty of getting the dispute finished
Even for the wealthiest of antagonists where costs are a non- issue litigation has another, very significant cost: the stress and uncertainty of long, drawn out litigation.
Parties may be concentrating on a trial disposing of the issue at the heart of the litigation. Of course it may do. But particularly where there are large sums at stake and deep pockets it may only be the start and the case may proceed to an appeal court and possibly another level of appeal beyond that. Years may pass before the issue is finally resolved, leaving parties in a state of uncertainty and unable to plan their lives freely meanwhile.
Set piece litigation on a large scale also has the tendency to spawn satellite litigation. Such litigation can drain resources, energy and be an unwelcome distraction.
Mediation, however difficult and even where the result is conditional upon the approval of the court should, if successful, bring about resolution months or years earlier than litigation.
The need to express the merits of one’s case to someone independent
Parties often think this someone is the Judge: that their day (or months, in the case of some trust disputes) in court will enable them to put forward all the nuances of their case (as it may) and, most importantly that they will be able to express the strength of their position when they are giving evidence in chief.
That, of course, makes several assumptions:
1. that their advocate will emphasise the points that the party instructing them thinks are most important. Hopefully a discussion will have taken place about this in advance and the points on which a party places great weight but which their counsel thinks may not help will have been ironed out. But the party may still feel aggrieved that they have not been put forward, just in case they might have helped;
2. in England & Wales at least the parties don’t have the luxury of giving evidence in chief. This means that a party will not have the opportunity to tell their story in the witness box before the opponent’s counsel cross examines them. Indeed, apart from taking the oath/affirming and confirming that their witness statement is theirs the first thing they will have to do is to answer some particularly difficult question put to them by their opponent’s counsel.
While the focus of facilitative mediation will be on finding a solution rather than determining the rights and wrongs of the situation it will be important for the parties in a highly emotional situation to feel that their views of the merits have been heard and understood. In trust and estate mediation there is perhaps a higher than usual likelihood of both or all parties feeling that not only the merits but also the moral high ground is held by them. Even if the mediator gently challenges that assumption at a later stage in the process should it continue to be an obstacle to progress, the fact that a party has been listened to in a non-judgemental way should help to pave the way for discussion as to a solution.
The chance to save a relationship
The fact that mediation can present the chance to preserve a relationship or at least prevent complete breakdown is not unique to trust and estate mediation: it can often be an important and powerful factor in commercial mediation between parties who have a long- standing relationship and would wish to be able to work together in the future.
But it can be a particularly important factor in a trust and estate mediation: it may be the final attempt to avoid irreparable breakdown of family relations or to repair a relationship between beneficiaries and trustees.
The opportunity to acknowledge emotions and say sorry
Some or all of the parties may consider that the other parties are simply tone deaf when it comes to considering their (eminently justifiable) case. It is often vital to a party to a messy and highly personal dispute that someone understands how they feel about the toxic situation which often develops when disappointment arises at a time of grief. This might be addressed to a limited extent by a judge but the focus of his/ her attention will be to determine the facts and apply the law to the facts. It may not provide the emotional acknowledgment which parties often desperately need.
The dispute may have its origin in a childhood (or later) incident – which may be major or appear of little significance – but which has become of central importance to a party. Where a party realises that a sibling/child is struggling with a particular incident or series of incidents which they might have handled better the acknowledgement that they could have done so or a heart-felt apology can open the way for a resolution and in the occasional heart-warming situation, a reconciliation.
A mediator with experience of these disputes will know how important it is to listen and acknowledge the hurt, grief and other emotions which have arisen. Indeed, in some cases progress will be severely inhibited until a party (or more than one party) feels that such acknowledgement has occurred. Once a party believes they are understood the opportunity for discussion and imaginative solutions can be explored and in some cases, the impossible become possible.
The opportunity to say sorry does not only arise in a dispute between family members (although its effect may be most powerful in that context): it can also be effective where a trustee or executor is being criticised.
The chance to acknowledge that the situation is not ideal/is unfair
Both/all parties to a dispute may consider that they have been placed in an unenviable position, often by a deceased parent or other relative or some event outside their control. Of course, some may feel that this has disadvantaged them more than other parties to the mediation and expect them to acknowledge as much and work to address any unfairness.
But if at its heart the dispute is the result of a situation which was not of any party’s making it may help for all parties to agree that is the case, so opening up the possibility of working towards a joint solution.
The opportunity to find a non-binary solution
Some cases inevitably have a binary outcome – a will or trust is either valid or invalid. The result is that the parties may face spending a great deal in costs as well as suffering the stress and anxiety of litigation in achieving all or nothing.
Mediation can enable the parties to find a solution which does not entail 100% success or failure. It can take into account litigation risk (which exists, whatever the merits), the advantages of not having a court case hanging over the parties for months or years and the certainty of significant expense, whatever the result.
The parties’ respective views as to the merits of their own position will undoubtedly influence their approach to a compromise but once the risks, including as to irrecoverable costs are accepted and factored in it should reduce the gap between the parties. Each party may be invited by the mediator to apply their assessment of the risk factor to their optimal financial outcome and then deduct their likely irrecoverable costs. The sum between the parties will then be considerably less than at the outset and it may become easier to find a solution which divides the estate between them in some agreed proportion or with different assets passing to different members of the family. At the very least the sum represented by the risk factor and irrecoverable costs could form the basis for an offer.
The opportunity to find certainty where there is an almost infinite range of possible outcomes
At the opposite end of the spectrum from a judicial binary outcome is a case where the situation is so complex that no-one really knows what the possible outcomes might be.
Take for example a conflict of laws situation affecting succession or a trust. There are so many variables: which Court will end up seized with the matter, which law will apply to which issues and how those different laws will interact. The level to which the testator/settlor was free to dispose of his assets by will or on trust may differ considerably according to which law or laws are applied.
Or take the example of an issue which has not yet been determined by the Court in the relevant jurisdiction, or indeed anywhere. This was the position in the recent case of Representation of Rawlinson & Hunter Trustees SA re Z Trusts (2) in Jersey where the issue was whether the first and succeeding trustees should share the pain of accepting reduced fees and expenses where the trust was insolvent or the first should be paid in priority to the others. The resulting litigation (which is not yet concluded) will have diminished the fund from which either result can be funded.
The ability to find an imaginative way out
While the views of the parties as to what might be an acceptable compromise will, at the outset of any mediation be shaped by the pleadings or the letter of claim and response a good mediator will encourage them to think widely as to all possible outcomes for settlement.
So, for example parties fixated on a financial carve up might end up deciding that a trust with two or more sub funds or a segregation with two new trustees might be a solution. A probate or succession dispute might be resolved by assets passing down a generation or one party taking financial investments and another real estate. The possibilities are as wide as the parties’ imaginations permit, subject of course to ensuring that the interests of those who cannot represent themselves are protected.
The tax opportunities of a tailor-made solution
The process of finding a solution rather than concentrating on the case as put by the opposing parties may be assisted by an appreciation that the status quo is tax laden and a solution could be found which is tax efficient, so freeing up resources which can assist a resolution. Take, for example a situation where charities might or might not benefit under a will. Benefitting them to an agreed extent (provided of course that the charity officers are satisfied that it is appropriate for them on legal advice, to accept such a compromise in the interest of their charities, could enable the balance or a significant proportion of the remainder of the estate to pass to family members or other taxable beneficiaries Inheritance Tax free. Tax considerations can also help to unlock a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (the ‘1975 Act’).
The certainty of a solution versus the uncertainty of a discretionary award
Where the relief sought is a discretionary one – such as a 1975 Act claim – decided cases will assist the parties to appreciate the parameters likely to apply to their case. But the outcome will turn on its own facts and the Judge’s appreciation of them, both as to the amount (if any) of the provision made for the applicant and the method by which it is to be delivered (for example, outright provision, transfer of property or a life interest.)
This adds an additional level of uncertainty as to the outcome, thus making a consensual solution on terms that all parties can live with more appealing.
Here too tax can play a very important part in making a deal more acceptable. A life interest determinable at the end of a sufficiently long period in favour of a spouse of the deceased may have a significant impact on the Inheritance Tax bill which would otherwise be payable and so free up the possibility of some capital provision out of/contributed to by the tax saving.
The possibility of arbitrage between what one party wants and another is less concerned to secure
Often one party is emotionally attached to an item/property in a trust or estate. If other parties are less emotionally invested in that asset it may be that agreeing that it passes to the party who wants it most as part of a package will be a powerful way of assisting the negotiation.
This is particularly so if the claim which has been made/is possible to be made would not be likely to produce that outcome and so the recipient would be getting something they could not hope to achieve through litigation.
The ability to introduce a sense of reality
It is not uncommon for parties to a mediation to have only a vague idea of the cost, time and risks involved in the litigation which they are contemplating or which has started. A mediator noting a degree of unreality about the likely outcome can invite the parties to work out their worst and best case scenarios. This may promote a realisation that a consensual solution may be a better way forward.
The chance to avoid loss of confidentiality and reputational damage
The open justice movement seems to be becoming stronger in most Common Law jurisdictions. Cases involving family trusts with children and sensitive situations in matrimonial disputes are commonly heard in open court.
Hardly a week goes by without a such a dispute – often a probate dispute – being reported in the press. It doesn’t appear to matter that the parties are not celebrities. There seems to be an insatiable appetite to read stories about other families’ unhappy situations.
One of the significant advantages of mediation is the prospect of being able to resolve a dispute out of view of the press and the public. In mediations relating to trusts and succession disputes, with limited exceptions, what occurs during a mediation is confidential, whether it succeeds or fails. Only the fact that it took place can be referred to in any subsequent proceedings. (This is different from the position in family (matrimonial) mediation, which is governed by different rules. In family mediation, the agreement to mediate confirms that financial information provided by both participants during mediation is ‘open’ and portable and so can be referred to subsequently. Whilst all communications concerning the resolution of the issues remain confidential, financial disclosure is not confidential, and this would include any disclosure by trustees in relation to trust assets in the context of the divorce).
The parties themselves, the lawyers and the mediator will commit to strict obligations of confidentiality before the mediation commences.
They can also agree that, unless the settlement has to be approved by the Court its terms will be kept confidential.
No-one is suggesting that mediation is the panacea to the evils of litigation – far from it. As noted earlier there are many cases where the determination of the Court is required, not least because the issue affects the management of the trust/estate and the interests of future beneficiaries.
There are also cases which are notoriously difficult to mediate. An example is where one party is believed to have committed fraud. Particularly at an early stage before disclosure has been made, the other parties may consider that there is a likelihood that they could be taken advantage of and agree to resolve the matter in ignorance of the extent of the fraud. It may also limit the trust that other parties are prepared to put in the party believed to have committed a fraud to stand by their obligations under a settlement reached out of court.
Other examples include litigation with numerous parties, all with slightly different interests. Mediation is tough with two to four parties: if there are 50 parties it can become unwieldy.
Then there is the occasional case where a party suggests mediation to build up the other party’s hopes and then wear them down by intransigence at the mediation. The detrimental impact of such a mediation on those parties – their emotional and financial resilience – is hard to underestimate. Or a party may cynically decide to agree mediation with no intention of finding a solution but rather than to find out more about the other party’s position on a without prejudice basis and then use that knowledge in their case strategy.
Solicitors advising parties and mediators need to be acutely aware of these potential pitfalls. An experienced mediator will bring the mediation to a close if he or she thinks it is pointless or abusive, hopefully before too much emotional or other damage has been done.
But many trust and probate/succession disputes are capable of a consensual outcome or at least a narrowing of the issues between parties appreciating that mediation offers them a special, private environment in which to find a resolution with the assistance of a neutral, shuttle diplomat. The case may not settle on the day or even the week of the mediation but provided the parties are prepared to continue talking and the mediator to continue facilitating a significant number of mediations which do not result in resolution on the day settle not long thereafter.
A version of this article was originally published in the June 2022 issue of Trusts and Estates Law & Tax Journal.