Five Common TEDRA Disputes in High-Asset Estates
For families with substantial wealth, estate planning is often designed to prevent disputes. Trusts are carefully drafted. Assets are placed into entities or trusts. Professional fiduciaries may be appointed to manage property. Succession plans are developed for family businesses.
Yet even the best planning cannot eliminate one fundamental problem: people can disagree. When significant wealth is involved, those disagreements can become complicated very quickly. In Washington, many of these disputes can be addressed through the state’s Trust and Estate Dispute Resolution Act, commonly known as TEDRA.
TEDRA provides a framework for resolving a wide variety of disputes involving trusts, estates, and fiduciaries. For families dealing with substantial or complicated assets, understanding the types of disputes that can arise is often more important than understanding the mechanics of the statute itself.
Five types of disputes commonly arise when family wealth and estate administration collide.
1. Disputes Over Distributions
One of the most common sources of conflict is also one of the most basic: Who gets what, and when?
Trust documents frequently give trustees some degree of discretion over distributions. That discretion may be broad or may be constrained by specific standards in the trust instrument. Either way, beneficiaries may have very different expectations about what the trustee should do.
The disagreement can become particularly contentious when beneficiaries have competing interests. For example, one beneficiary may be receiving distributions while another believes the trustee is improperly withholding distributions from them. These disputes can raise questions about the interpretation of the trust, the scope of the trustee’s discretion, and whether the trustee has properly exercised its fiduciary duties.
In a high-value trust, the stakes can be enormous. A disagreement over a distribution that might seem relatively minor in an ordinary estate can become a dispute involving hundreds of thousands or millions of dollars.
TEDRA can provide a mechanism for bringing these disputes before the court and seeking appropriate relief, rather than leaving the parties to an increasingly hostile cycle of demands, accusations, and unanswered questions.
2. Disputes Over Valuable Estate Assets
High-asset estates frequently include property that cannot be divided into equal shares, such as a family business, a commercial real estate portfolio, or a family ranch owned for generations.
The beneficiaries may agree that the asset is valuable but disagree completely about what should happen to it. One beneficiary may want to sell. Another may want to keep the asset in the family. A third may want to take the asset in exchange for receiving less of the estate’s other assets.
These disagreements can quickly generate additional disputes over the asset’s value, whether it should be retained or sold, how it should be distributed, and how it should be managed pending sale or distribution. Valuation disputes are particularly challenging because there may be no single objectively correct answer. Closely held businesses, agricultural property, investment entities, and other specialized assets can have dramatically different values depending on the assumptions used.
A fiduciary faced with competing beneficiary demands may need court guidance before taking action. Likewise, a beneficiary who believes an asset is being improperly valued or administered may need judicial intervention to protect their interests. The larger the estate, the more expensive it can become to get this wrong.
3. Disputes Over Fiduciary Decisions
Trustees and personal representatives have substantial responsibilities. They must administer assets, comply with governing documents, communicate with beneficiaries as required, and act consistently with their fiduciary obligations and the law.
But fiduciaries have to make decisions, and sometimes beneficiaries disagree with those decisions. For example, a trustee may decide to retain an investment that a beneficiary believes should be sold. A personal representative may decide to sell real estate rather than distribute it. A trustee may decline to make a requested distribution. A fiduciary may hire professionals, incur expenses, or pursue a particular strategy for managing estate assets.
Because disagreement alone does not establish that a fiduciary breached a duty, these disputes often require careful analysis of the governing documents and the fiduciary’s legal obligations before litigation is pursued.
TEDRA can provide a forum for resolving that disagreement, including circumstances in which a party seeks instructions or other relief concerning the administration of a trust or estate. The goal is not necessarily to prove that someone acted badly. Sometimes the goal is simply to obtain a definitive answer about what should happen next.
4. Disputes Over Information and Accountings
Information can become surprisingly valuable in a family wealth dispute.
Beneficiaries may want to know how assets are being managed, what expenses have been incurred, what distributions have been made, or how the fiduciary arrived at a particular decision. A fiduciary may believe it has provided everything required or may have legitimate concerns about the scope and timing of a beneficiary’s requests.
Once the parties stop trusting each other, even routine requests for information can become contentious.
These disputes matter because information often determines what happens next. A beneficiary cannot meaningfully evaluate a potential breach of fiduciary duty without knowing what the fiduciary has done. At the same time, a fiduciary may be reluctant to turn over extensive information solely because a beneficiary demands it. A dispute over information may therefore become the first stage of a much larger TEDRA proceeding—or help the parties avoid one altogether.
5. Disputes Between Beneficiaries
Not every estate dispute arises between a beneficiary and the fiduciary. Sometimes the primary conflict is among the beneficiaries themselves. Family members may have different financial circumstances, different relationships with the decedent, and very different ideas about what their inheritance should look like.
One sibling may have worked in the family’s business for twenty years. Another may have received financial assistance during the parent’s lifetime. A third may live across the country and have little interest in continuing to own the family’s real estate. An estate plan may attempt to account for these differences, but the beneficiaries may nevertheless disagree about whether the result is fair.
As noted above, those disagreements become particularly difficult when the estate contains assets that cannot easily be divided. At that point, the dispute may involve not only the interpretation of the estate plan but also questions about how the assets should be managed or ultimately distributed.
TEDRA can provide a means of resolving those disputes without requiring every disagreement to become a separate lawsuit.
Resolving the Dispute Before It Consumes the Estate
The unfortunate reality is that litigation involving a substantial estate can become expensive very quickly. And unlike an ordinary commercial dispute, estate litigation often involves people who will still be related after the lawsuit ends. That makes early resolution particularly valuable.
Washington’s TEDRA framework provides parties with mechanisms for addressing disputes involving trusts and estates, including opportunities to resolve disagreements through agreement rather than requiring every issue to be litigated to judgment. In the right circumstances, that can allow beneficiaries and fiduciaries to reach a negotiated resolution while preserving substantial estate assets and reducing the personal cost of the dispute.
But successful resolution generally requires understanding the underlying legal and financial issues first. A trustee negotiating with beneficiaries needs to understand the scope of the trustee’s authority. A beneficiary considering a challenge needs to understand both the rights they may have and the limits of those rights. And when millions of dollars are at stake, everyone involved needs to understand the financial consequences of the available options.
For families and professional fiduciaries dealing with substantial assets, the most important question may not be whether a dispute can be litigated. It may be whether the dispute can be identified and addressed before the cost of the conflict begins consuming the very wealth the estate was designed to preserve. The legal professionals at Beresford Booth have the knowledge and experience to help resolve even the most fraught family disputes. Reach out to us today at info@beresfordlaw.com or (425) 776-4100 to discuss how we may assist you.