Trust Litigation Issue: Considering the Use of Mandatory Arbitration Clauses

Trust litigation battles can not only be expensive and time-consuming; they may also lead to lasting damage in relationships between family and friends and expose private family problems to the public.  In general, it’s preferable to find a way to resolve trust-related disputes before they become a drawn-out court battle.

A recent article from WealthManagement.com discusses the possibility of using mandatory arbitration clauses in trust agreements in order to reduce the chances of a trust conflict turning into a costly and damaging trial in court.

One issue to consider is the enforceability of arbitration clauses.  According to a decision (Rachal v. Reitz) reached recently by the Texas Supreme Court, these clauses can be enforceable.  In this case, two brothers were the only beneficiaries of their father’s trust; when their father was alive, he was the trustee, but after his death the role was taken on by an attorney who had written up the trust.  One of the brothers sued this attorney for mismanaging the trust assets and failing to give an account of the status of these assets.

However, the trust agreement included an arbitration provision.  Though lower courts didn’t see this as enforceable, the Texas Supreme Court judged that it was.

Should you use a mandatory arbitration clause?

Not all issues that arise from a trust dispute are easily resolvable through arbitration.  Before writing any such clause into a trust agreement, it’s best to consult with attorneys not only about the enforceability of the clause but also about the usefulness of arbitration in your specific circumstances.

An attorney can also help you weigh the likelihood of a trust dispute, given the extent and complexity of the assets and the individuals named as beneficiaries; some circumstances are potentially more fraught with the possibility of litigation than others.  Are there any beneficiaries who would see it as advantageous to push for litigation? In contrast, who would benefit from arbitration?

Discuss different scenarios with the attorneys at Ford + Bergner  to get a better picture of what issues could arise.  And as much as possible, try to work out any issues between trustees and beneficiaries before drawing up the trust; as much as you can, keep loved ones and other trusted people involved with what’s going on throughout the whole process.