Tuesday, March 18, 2014
Arbitration clauses are a hot button issue when discussing if they should be included and mandatory in trusts. Proponents claim that this will speed up the process and reduce costs because it will require beneficiaries to arbitrate their disputes instead of taking them to court. Opponents of the mandatory arbitration clauses say those clauses prevent the beneficiaries from enforcing their rights.
There are not many jurisdictions that have weighed in on the issue of whether arbitration clauses should be mandatory in trusts. In McArthur v. McArthur (March 11, 2014, A137133), a California Appellate Court held that an arbitration clause in a trust was not enforceable against a beneficiary attacking the trust documents validity. The court reasoned that the clause did not apply because the beneficiary had not received any benefit from the trust document, so future courts may find that a beneficiary can be held to the clause for claims on trust distributions once they accept the trust instrument that gave them their share.
See Jeffrey Merriam-Rehwald, California Weighs In: No Mandatory Arbitration For Dispute Over Validity of Trust Instrument, JD Supra, Mar. 14, 2014.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.