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Dispute-Proofing Your Estate Plan

It's common knowledge that we are at the leading edge of an avalanche of wealth transfer. Baby boomers in increasing numbers are heading into their retirement years and beyond. The succession of capital that will occur is unprecedented. In the recent past, we've also seen higher average annual divorce rates and lower rates of marriage than say 50 or even 25 years ago. Added to the mix of wealth transfer and blended, non-traditional and sometimes dysfunctional families is another topic we've written on periodically in the past--greater proportions of the population living in diminished states of capacity for extended periods of time, dependant on family and friends to act as their substitute decision makers. In certain families, any combination of these ingredients can be a recipe for a nasty and prolonged estate dispute and general fractiousness.

If you are concerned that a dispute could occur regarding your estate or personal care, you should consider ways to head off or resolve such disputes in your planning. Keep in mind that disagreements may arise not only among your beneficiaries, but also among executors and trustees as well as between the two groups.

Dispute prevention or minimization mechanisms could include naming an objective and independent executor or trustee in your will or trust. If more than two executors or trustees have been named, consider including a "majority rule" clause to break an impasse among them. If multiple executors or trustees are named, appointing people who get along and work well together is also critical--otherwise the administration can be turbulent from the outset.

Other tools that may minimize or prevent disagreements from erupting are ethical wills (a topic we blogged on in our November 25, 2014 post), family meetings, and letters of wishes. The first two tools allow the testator to explain to family members and other beneficiaries his/her reasoning and context for making certain decisions in the will. Letters of wishes can provide guidance to executors and trustees in making potentially contentious decisions.

Having the foresight to include various dispute resolution techniques and processes can be invaluable if a dispute should erupt. While courts can disallow provisions in a will that oust the court's jurisdiction to determine legal issues (such as validity and interpretation issues), as well as certain provisions that essentially threaten beneficiaries with losing their entitlement if they litigate certain legal issues relating to wills and trusts (in terrorem clauses) unless they are carefully drafted and meet certain legal requirements, there are other methods to consider.

For example, we often see disputes between siblings or other family members regarding the distribution of personal belongings--often driven not by the monetary value, but by the sentimental value attached to them. These disputes can often be avoided by including a detailed and fair bidding or other selection process. Similar provisions can be used for the purchase or distribution of family cottages and residences.

Umpire clauses enable a neutral party to make a final decision on certain matters in the event of a stalemate between trustees (or beneficiaries). A clause could also be included recommending that should there be a dispute, mediation or arbitration is to be employed as a means of settling it outside of the court process.

While mediation in Ontario is mandatory in estate dispute proceedings started in Toronto, Ottawa and Essex County, clauses in wills and trusts that make arbitration or mediation mandatory are problematic. Unlike arbitration clauses in contracts, in which each party expressly consents to the contract's provisions, beneficiaries of trusts and wills usually do not execute the documents or formally consent to be bound by the document's provisions.

It is interesting to note that in the United States there has been some recent movement towards accepting and enforcing mandatory arbitration clauses in estate planning documents. In 2007, for example, Florida became the first state to pass a law governing the enforcement of mandatory arbitration clauses in wills and trust agreements. This was followed by similar statutes in other states such as Arizona--which authorized a trust agreement to "provide mandatory, exclusive and reasonable procedures to resolve issues between the trustee and interested persons or among interested persons regarding the administration or distribution of the trust". In 2013, the Texas Supreme Court found a mandatory arbitration clause in an inter vivos trust enforceable against the beneficiaries.

Anticipating conflict and including carefully considered and drafted clauses to effectively head-off or resolve such disputes by non-judicial means are important components of a prudent, efficient and cost-effective estate plan. Dispute-proofing your estate planning is one further matter to consider and receive skilled advice on in the estate planning process.

- Jenny Hughes

Please watch for our next post, which looks at assisted dying and the recent Supreme Court of Canada decision in Carter v. Canada (Attorney General).

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. In particular, they are not intended to provide U.S. legal or tax advice. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.

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