Disputes between beneficiaries and trustees are often difficult and emotionally charged situations. Trustee removal litigation has traditionally been the go-to solution for resolving these conflicts. However, another legal option is available for resolving disputes that can be more effective, less costly, and less time consuming.
Mediation is a voluntary process where a neutral third person helps facilitate a conversation between the parties in a trustee agreement. This process is also the preferred alternative dispute resolution (ADR) tool among estate disputes attorneys in Des Moines for achieving a mutually beneficial outcome out of court.
Today, let’s examine the traditional approach to removing fiduciaries and compare it to using mediation when grounds arise for discharging a trustee.
Reasons for Ousting Trustees
Beneficiaries can petition the District Courts of Iowa to remove and replace a trustee for various reasons. One common ground occurs when a fiduciary fails to properly manage the trust assets or doesn’t perform as defined in the trust document. Poor performance and mismanagement would include commingling funds, making poor investment decisions, or failing to distribute assets to beneficiaries on time.
Another reason for removing a trustee arises when evidence of fraud or tortious misconduct exists. When fiduciaries embezzle trust assets, perform self-dealing acts, or participate in other unethical behavior that goes against the best interests of the beneficiaries, they usually find themselves defending a removal and restitution lawsuit.
Ultimately, the courts determine whether the trustee’s actions or inactions warrant their removal in fiduciary litigation. In Iowa, the six most common grounds for removing estate trustees from their positions include the following:
- Breach of fiduciary duty – trustees who violate their legal obligation under Iowa Trust Code to act in the best interests of the beneficiaries and the terms of the trust.
- Incapacity or illness – fiduciaries who cannot fulfill their duties due to physical or mental limitations.
- Fraud – persons who engage in illegal acts such as embezzlement, forgery, or misrepresentation.
- Failure to communicate with beneficiaries – a trustee’s failure to provide beneficiaries with estate accountings or responses to beneficiary inquiries.
- Conflict of interest and self-dealing – fiduciaries who use trust assets to conduct transactions that benefit themselves rather than the beneficiaries’ best interests.
- Mismanagement of trust assets – trustee failure to invest or distribute assets according to the trust document.
Traditional Trustee Removal Process
Removing an estate trustee is a complex and expensive legal process that requires compliance with state law and court procedures. The following list summarizes the general steps involved in ousting a trustee in Iowa in District Court:
- Identify removal grounds: Before initiating the removal process, beneficiaries must identify the grounds for removal (i.e., fraud, mismanagement, conflict of interest).
- File a petition: Beneficiaries must retain an expert trustee removal litigator to register a complaint with the court in the jurisdiction where the trust sits. Their petitions should include the grounds for removal, the name of the fiduciary, and the relief sought.
- Serve notice: Complainants must serve notice of the petition on the trustee and any interested parties, such as other beneficiaries or creditors.
- Pretrial discovery: An expensive civil procedure where parties exchange evidence information, file pretrial motions, depose witnesses, and attend settlement conferences.
- Attend trial: Judicial process where both parties present evidence and arguments to prove or disprove the trustee’s actions warrant removal.
- Post-trial order enforcement: When the court orders the removal of a trustee, beneficiaries must follow strict procedures to enforce the order and appoint a successor trustee.
- Transfer assets: After order enforcement, beneficiaries must transfer estate property to the successor trustee, who will thereafter control the trust and distribute assets according to the trust document.
You may have noted that the trustee removal process is both complex and costly. But beneficiaries may avoid these drawbacks by engaging in more efficient ADR solutions for resolving conflicts.
Mediation in Trustee Removal Conflicts
Mediation is a form of ADR that beneficiaries can use to resolve disputes with their trustees. The process involves a neutral third party, known as a mediator, who facilitates communication and negotiation among parties to reach a mutually acceptable resolution.
Mediation is often cost-effective and an efficient alternative to spending months in court to achieve the same outcome. In addition, mediation can preserve the relationships between beneficiaries and trustees and help parties maintain privacy during removal proceedings.
However, this ADR method may not be appropriate when a significant power imbalance exists between parties or when the grounds for removal are criminal in nature or non-negotiable.
Benefits of Using Mediation Instead of Suing for Removal
Let’s take a closer look at the advantages of mediation when fiduciary removal becomes necessary:
- Cost-effective – hiring a professional to mediate issues between trustees and beneficiaries is generally less expensive than paying the legal fees and court costs associated with trustee removal litigation.
- Faster resolution – parties can schedule mediation sessions more quickly than court proceedings and trials, which can take months or even years to calendar.
- Preserves relationships – mediation helps maintain relationships between beneficiaries and trustees by resolving disputes in a collaborative and non-confrontational manner.
- Confidentiality – court proceedings are public, but mediation is entirely confidential. This benefit can help preserve privacy when the parties involved prefer non-disclosure of family or estate matters.
- Control over the outcome – a judge decides the outcome in trustee removal litigation. However, mediation allows beneficiaries and trustees to have more control and a contribution in the results, which can lead to creative and mutually beneficial solutions for all parties involved.
Finally, mediation may prevent the need to remove a trustee. The process allows the parties to discuss their concerns and interests collaboratively in a non-confrontational, confidential, and safe environment, which can help parties find common ground and mutually acceptable solutions.
What Happens During a Trustee Removal Mediation Session
During mediation, the parties in a trust agreement and their legal counsel meet the neutral third-party mediator, who begins the session with an opening statement. Here, he/she explains the ground rules and procedures for the meeting. The mediator may then ask each party to describe their concerns and interests in the dispute.
The mediator thereafter facilitates a discussion between the complainants to identify areas of agreement and disagreement and ask open-ended questions to help them explore their concerns and interests to find common ground.
Once the parties have identified areas of understanding, the mediator can help them develop a plan for resolving the dispute. This may involve the trustee agreeing to take specific actions, such as providing an accounting of trust assets or changing the investment strategy to address the beneficiaries’ concerns.
If the parties can reach a mutually acceptable resolution, the mediator usually drafts a written accord that outlines the terms of the settlement. If the parties cannot reach an agreement, they may choose to end the mediation session and pursue other options, such as litigation.
When it comes to removing a trustee, beneficiaries have two options: litigation or mediation. While litigation may be necessary in some cases, it can be a lengthy and expensive process that can strain relationships between beneficiaries and trustees.
Mediation, on the other hand, can provide a mutual and amiable forum for resolving disputes. It’s a cost-effective, efficient, and confidential method for reaching an acceptable resolution for all parties. However, this ADR process may be inappropriate for resolving certain conflicts.
Ultimately, beneficiaries and trustees should carefully consider their options and ask their trustee removal litigator whether pursuing mediation is a viable alternative for solving their legal matter.