When people pass away, what they hoped would be an easy process following their death has the potential to become anything but that. The property accumulated during a lifetime needs to be distributed in a relatively short time according to the terms of a will, trust, or beneficiary designation (or according to the applicable state statute for those who die without a will). Probate is often a necessary step in accomplishing the disposition of the deceased’s property. It is nearly impossible for anyone to cover the disposition of each and every item on their death because many items are not easily divided. This is especially true for household items such as furniture and pictures. Occasionally, items that were in the house before death are no longer there after death, which can lead to awkward conversations. This is where mediation can become a useful tool.
There are two aspects of human nature that can exacerbate the potential for conflict. First, it is easier to tell someone what they want to hear than to be forthright. Second, we tend to hear what we want to hear. As a result, there may have been conversations between the decedent and one of the children that are contrary to the wording in the will. Even worse, a mother may have had separate conversations with different children in which she “promised” the same thing to both. Adding to the emotional trauma of death is the short time in which funeral and burial decisions must be made. The decedent’s wishes may have changed over time, and the children may have heard different wishes from the deceased parent. Unfortunately, the one person who could set the record straight is no longer available to talk to. In short, it is easy to see why disputes often arise during the administration of an estate.
The likelihood for probate disputes is encountering a “perfect storm” due to the confluence of three recent factors. First, more wealth is being transferred from the older generation to the younger generation than at any point in history. Second, we are encountering new family dynamics because the decedent’s children are often spread out around the country rather than remaining at home. Finally, the inheritance from one’s parents is now viewed less as a windfall and more as part of the child’s retirement plan.
Mediating a probate dispute, however, has unique challenges. There is the grief factor due to the passing of the parent(s). There are family issues not usually present in a business dispute. And, tax issues can arise and be very important. These unique challenges are discussed below.
It usually takes several months after the decedent’s passing (and often longer) before probate disputes become ripe for mediation. This is because it takes some time for a Personal Representative to be appointed to administer the estate and then an additional period for the Personal Representative to start exercising his or her authority. Even so, the loss of what typically is the last surviving parent is an emotionally painful event that does not quickly dissipate.
Involvement of Family (Often from Birth)
Many business and personal injury disputes revolve around financial issues among parties that have no social relationship. Probate disputes are often just the opposite. Not only do the parties know each other, but they usually have known each other since birth. I have found it common among beneficiaries that there are unresolved issues relating from childhood. Those unresolved issues may be unstated but often need to be uncovered to make progress toward a mediation settlement. For example, a common issue is perceived favoritism toward one child by a now deceased parent.
I vividly recall a mediation involving two children from the husband’s prior marriage, two children from the wife’s prior marriage, and two children of the marriage. When the father’s daughter of the first marriage was getting married, the father drove out of state to attend. After arrival, he was told by the daughter that he was unwelcome at the wedding. The other four children naturally carried a grudge toward their stepsister.
With some probing during the mediation, I learned that the daughter would have loved to have had her father attend the wedding, but her mother told her in no uncertain terms that her father was not to attend. It turned out that the father had begun his relationship with his second wife while still married to the first wife. The first wife was extremely bitter and never wanted to see her ex-husband again. The daughter was closer to her mother and was put in the untenable situation of having to choose between her mother and father as to who would attend the wedding. As the mediator, I was allowed to share this with the other children and I believe this softened some of the animosity that existed between them.
Multitude of Tax Issues
Many probates have significant tax issues lurking in the background. There may be income tax issues, step up (or down) in income tax basis issues, and estate tax issues. In certain circumstances, the parties can structure their mediation settlement in such a way as to reduce some of these taxes. In essence, it may be possible to reduce the tax burden and have that “additional money” be enough to bridge the financial differences between the parties.
Benefits of Mediation
The probate court or other relevant forum needs to apply the law to the facts to reach a correct legal decision on the case. For example, there may be three roughly equal parcels of real estate to be divided among three children who do not get along, or between other beneficiaries named in the decedent’s will. The correct legal result might be that each beneficiary becomes a one-third owner of each of the three properties. This could lead to continuing friction as they disagree over the management and use of the properties. By using mediation, it may be possible to have each child or beneficiary become the full owner of one of three properties, reducing the chance for conflict and letting each one move forward independent of the others. Similarly, the court may be constrained in some property distributions that result in higher taxes than might apply if the parties were able to structure their own settlement. There is no free path to avoid taxes that normally apply, but if there is a legal basis for the settlement, significant tax savings may result.
A mediator can help guide parties to reach their own settlement. The parties in a disputed probate often carry extra baggage because of grief, longstanding inter personal relationships, and the absence of the one party who often could resolve the dispute. In addition, tax issues often permeate the dispute. The mediator who can successfully meet these challenges may be able to achieve a rewarding experience for all included.
John McGown, Jr. is an Of Counsel attorney at Hawley Troxell and a member of the Tax, Estate Planning, and Probate group. John has particularly enjoyed the opportunity to mediate probate disputes and has been a Fellow of the American College of Trust and Estate Counsel since 1997.
*Article published in the May 2013 edition of The Advocate.