Arbitration Clauses Included in Trust Instruments

Many settlors of trusts include arbitration clauses in the trust instrument to help prevent litigation. However, many courts find these clauses unenforceable. In Rachal v. Reitz, a Texas court addressed the enforceability of an arbitration clause located in a trust instrument.

In that case, the beneficiary’s father (deceased) had created a trust and included an arbitration clause in the instrument. The court’s sole issue was whether or not the clause was enforceable. The court found the clause unenforceable because it was not contained in a contract between the beneficiary and the trustee. The court reasoned that an arbitration clause must meet the foundational contractual elements of offer, acceptance, and meeting of the minds.

For more information on litigation surrounding arbitration clauses, see Samantha Weissbluth and Simon Johnson, Keeping Trusts Out of Court, Trusts and Estate, Oct. 19, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.