This paper explores one state’s use of a radical alternative dispute resolution act in the area of wills and trusts. While the primary focus of this paper is to explore a unique Washington law –the Trust and Estate Dispute Resolution Act (TEDRA) – it is important to note that similar, if not identical sets of statutes exist in other states. TEDRA was passed in 1999 as a means for providing for mandatory alternative dispute resolution in the area of trusts and estates, namely mediation, arbitration, or private agreement between the parties. Recently, Idaho passed a nearly identical Act and these provisions have the potential to have mass appeal in other jurisdictions.
This paper provides an overview of the central provisions of TEDRA as they impact the intent of the testator or settlor and also presents a brief outline of the issue and problems which may arise from the application of TEDRA. TEDRA is a truly fascinating example of one state legislature’s radical use of Alternative Dispute Resolution (ADR), allowing interested persons to come to private agreements, outside of any court supervision, and essentially rewrite the will or trust in order to come to a distribution they find satisfactory. In doing so, the parties are allowed to undo expensive estate plans and violate the intent of the testator, which has always been a highly valued and fundamental element of testamentary freedom. Despite the benefits to using ADR in probate matters, this article plays the devil’s advocate to expose the fact that where states have gone to the extreme and adopted innovative and expansive ADR statutes, flaws in drafting potentially allow unintended results for the estate of a decedent and allow frustration of the original intent of the testator. Overall, these unintended consequences can have a negative impact in the area of trust and estate litigation as well as estate planning. This paper concludes with proposed solutions to protecting the intent of the testator and mitigating against extreme ADR provisions.
Idaho TEDRA Statutes Pertinant to Famikly Agreements in Estate Planning & I.C. § 15-8-103 § 15-8-205 § 15-8-303 § 15-8-305
Selected Provisions of the Idaho Trust and Estate Dispute Resolution Act:
The definitions in this section apply throughout this chapter unless the context clearly requires otherwise:
(1) “Matter” includes any issue, question, or dispute involving:
(a) The determination of any class of creditors, devisees, legatees, heirs, next of kin, or other persons interested in an estate, trust, nonprobate asset, or with respect to any other asset or property interest passing at death;
(b) The direction of a personal representative or trustee to do or to abstain from doing any act in a fiduciary capacity;
(c) The determination of any question arising in the administration of an estate or trust, or with respect to any nonprobate asset, or with respect to any other asset or property interest passing at death, that may include, without limitation, questions relating to:
(i) The construction of wills, trusts, devolution agreements, and other writings;
(ii) A change of personal representative or trustee;
(iii) A change of the situs of a trust;
(iv) An accounting from a personal representative or trustee; or
(v) The determination of fees for a personal representative or trustee;
(d) The grant to a personal representative or trustee of any necessary or desirable power not otherwise granted in the governing instrument or given by law;
(e) The amendment, reformation, or conformation of a will or a trust instrument to comply with statutes and regulations of the United States internal revenue service in order to more efficiently allocate exemptions or to achieve qualification for deductions, elections, and other tax requirements including, but not limited to, the qualification of any gift thereunder for the benefit of a surviving spouse who is not a citizen of the United States for the estate tax marital deduction permitted by federal law, including the addition of mandatory governing instrument requirements for a qualified domestic trust under section 2056A of the Internal Revenue Code, the qualification of any gift thereunder as a qualified conservation easement as permitted by federal law, or the qualification of any gift for the charitable estate tax deduction permitted by federal law, including the addition of mandatory governing instrument requirements for a charitable remainder trust; and
(f) With respect to any nonprobate asset, or with respect to any other asset or property interest passing at death, including actual joint tenancy property, property subject to a devolution agreement, or assets subject to a pay on death or transfer on death designation:
(i) The ascertaining of any class of creditors or others for purposes of section 15-6-107, Idaho Code;
(ii) The ordering of a custodian of any of the decedent’s records relating to a nonprobate asset to do or abstain from doing any particular act with respect to those records;
(iii) The determination of any question arising in the administration of a nonprobate asset under section 15-6-107, Idaho Code;
(iv) The determination of any questions relating to the abatement, rights of creditors, or other matter relating to the administration, settlement, or final disposition of a nonprobate asset under title 15, Idaho Code; and
(v) The resolution of any matter referencing this chapter, including a determination of any questions relating to the ownership or distribution of an individual retirement account on the death of the spouse of the account holder as contemplated by section 11-604A(6), Idaho Code;
(g) The resolution of any other matter that could affect the nonprobate asset. … (4) “Persons interested in the estate or trust” means the trustor, if living, all persons beneficially interested in the estate or trust, persons holding powers over the trust or estate assets, the attorney general in the case of any charitable trust where the attorney general would be a necessary party to judicial proceedings concerning the trust, and any personal representative or trustee of the estate or trust.
15-8-205. Application of Doctrine of Virtual Representation.
(1) This section is intended to adopt the common law concept of virtual representation. This section supplements the common law relating to the doctrine of virtual representation and the provisions of section 15-1403, Idaho Code, and shall not be construed as limiting the application of that common law doctrine or the provisions of section 15-1-403, Idaho Code. (2) Any notice requirement in this chapter is satisfied if notice is given as follows:
(a) Where an interest in an estate, trust, or nonprobate asset, or an interest that may be affected by a power of attorney, has been given to persons who comprise a certain class upon the happening of a certain event, notice may be given to the living persons who would constitute the class if the event had happened immediately before the commencement of the proceedings requiring notice, and the persons shall virtually represent all other members of the class;
(b) Where an interest in an estate, trust, or nonprobate asset, or an interest that may be affected by a power of attorney, has been given to a living person, and the same interest, or a share in it, is to pass to the surviving spouse or to persons who are, or might be, the distributees, heirs, issue, or other kindred of that living person upon the happening of a future event, notice may be given to that living person, and the living person shall virtually represent the surviving spouse, distributees, heirs, issue, or other kindred of the person; and
(c) Except as otherwise provided in this subsection
(2), where an interest in an estate, trust, or nonprobate asset, or an interest that may be affected by a power of attorney, has been given to a person or a class of persons, or both, upon the happening of any future event, and the same interest or a share of the interest is to pass to another person or class of persons, or both, upon the happening of an additional future event, notice may be given to the living person or persons who would take the interest upon the happening of the first event, and the living person or persons shall virtually represent the persons and classes of persons who might take upon the happening of the additional future event.
(3) A party is not virtually represented by a person receiving notice if a conflict of interest involving the matter is known to exist between the notified person and the party. (4) An action taken by the court is conclusive and binding upon each person receiving actual or constructive notice or who is otherwise virtually represented.
15-2-208. Cost—Attorney’s Fees.
(1) Either the district court or the court on appeal may, in its discretion, order costs, including reasonable attorney’s fees, to be awarded to any party:
(a) From any party to the proceedings;
(b) From the assets of the estate or trust involved in the proceedings; or
(c) From any nonprobate asset that is the subject of the proceedings. The court may order the costs to be paid in such amount and in such manner as the court determines to be equitable.
(2) This section applies to all proceedings governed by this chapter including, but not limited to, proceedings involving trusts, decedent’s estates and properties, and guardianship matters. Except as provided in section 12-117, Idaho Code, this section shall not be construed as being limited by any other specific statutory provision providing for the payment of costs, unless such statute specifically provides otherwise.
The purpose of this part 3 is to provide a binding nonjudicial procedure to resolve matters through written agreements among the parties interested in the estate or trust. The procedure is supplemental to, and may not derogate from, any other proceeding or provision authorized by statute or the common law.
15-8-302. Binding Agreement.
Sections 15-8-301 through 15-8-305, Idaho Code, shall be applicable to the resolution of any matter, as defined in section 15-8-103, Idaho Code, other than matters subject to chapter 5, title 15, Idaho Code, or a trust for a minor or other incapacitated person created at its inception by the judgment or decree of a court unless the judgment or decree provides that sections 15-8-301 through 15-8-305, Idaho Code, shall be applicable. If all parties agree to a resolution of any such matter, then the agreement shall be evidenced by a written agreement signed by all parties.
Subject to the provisions of section 15-8-304, Idaho Code, the written agreement shall be binding and conclusive on all persons interested in the estate or trust. The agreement shall identify the subject matter of the dispute and the parties. If the agreement or a memorandum of the agreement is to be filed with the court under section 15-8-303, Idaho Code, the agreement may, but need not, include provisions specifically addressing jurisdiction, governing law, the waiver of notice of the filing and the discharge of any special representative who has acted with respect to the agreement.
If a party who virtually represents another person under section 15-8-205, Idaho Code, signs the agreement, then the party’s signature constitutes the signature of all persons whom the party virtually represents, and all the virtually represented persons shall be bound by the agreement.
15-8-303. Entry of Agreement with Court—Effect.
(1) Any party, or a party’s legal representative, may file the written agreement or a memorandum summarizing the written agreement with the court having jurisdiction over the estate or trust. However, if a special representative is a party to the written agreement, the agreement or a memorandum of its terms may not be filed within thirty (30) days of the agreement’s execution by all parties unless the written consent of the special representative is filed along with, or included within, the provision of such agreement or memorandum. The agreement or a memorandum of its terms may be filed after a special representative has commenced a proceeding under section 15-8-304, Idaho Code, only after the court has determined that the special representative has adequately represented and protected the parties represented. Failure to complete any action authorized or required under this subsection does not cause the written agreement to be ineffective and the agreement is nonetheless binding and conclusive on all persons interested in the estate or trust. (2) On filing the agreement or memorandum, the agreement will be deemed approved by the court and is equivalent to a final court order binding on all persons interested in the estate or trust.
15-8-305. Special Representative.
(1)(a) The personal representative or trustee may petition the court having jurisdiction over the matter for the appointment of a special representative to represent a person who is interested in the estate or trust and:
(i) Who is a minor;
(ii) Who is incompetent or disabled;
(iii) Who is yet unborn or unascertained; or
(iv) Whose identity or address is unknown. The petition may be heard by the court without notice. …
(1)(c) The special representative may enter into a binding agreement on behalf of the person or beneficiary. The special representative may be appointed for more than one (1) person or class of persons if the interests of such persons or class are not in conflict. The petition shall be verified. The petition and order appointing the special representative may be in the following forms: …
(3) The special representative must be a lawyer licensed to practice before the courts of this state, or an individual with special skills or training in the administration of estates or trusts. The special representative may not have an interest in the affected estate or trust, and may not be related to a person interested in the estate or trust. The special representative is entitled to reasonable compensation for services, which must be paid from the principal of the estate or trust whose beneficiaries are represented.
(4) The special representative shall be discharged from any responsibility and shall have no further duties with respect to the estate or trust or with respect to any person interested in the estate or trust, on the earlier of:
(a) The expiration of six (6) months from the date the special representative was appointed, unless the order appointing the special representative provides otherwise; or
(b) The execution of the written agreement by all parties or their virtual representatives.
(5) Any action against a special representative must be brought before the earlier of:
(a) One (1) year from the discharge of the special representative; or
(b) The entry of an order by a court of competent jurisdiction under section 15-8-304, Idaho Code, approving the written agreement executed by all interested parties in accordance with the provisions of section.