Saturday, February 29, 2020
W. Cameron McCullock and Michelle Rosenblatt recently published an Article entitled, Drafting & Enforcing Arbitration Clauses in Wills, Trusts & Settlement Agreements, Est. Plan. & Cmty. Prop. L.J., Vol. 12 Book 1 (Fall 2019). Provided below is the introduction to the Article.
Estate and trust litigation can pose a greater risk to family wealth than the current tax regime under which most estates are not subject to transfer taxes. Specifically, there is always the possibility that an estate plan will be subject to attack, whether on a legitimate basis, out of frustration, or confusion with the plan. The description in Charles Dickens' Bleak House of legal proceedings involving conflicting wills dragging on for generations remains appropriate: "Innumerable children have been born into the cause; innumerable young people have married into it; innumerable old people have died out of it. Scores of persons have deliriously found themselves made parties...without knowing how or why; whole families have inherited legendary hatreds with the suit."
Dickens' story, although an extremem example of heirs not receiving their intended inheritance, encapsulates the worst of trust and estate litigation. The authors finds that trust and estate dispures are less common in families who start discussions about wealth early and often, who have chosen to be transparent about the source and preservation of their wealth, and who do not have fissured familial relationships. However, when disputes arise in those instances, the question becomes how to effectively address such disputes.
Over the last century, arbitration has established itself as one of the most popular means for resolving commerical disputes. It is no wonder that commentators and planners have been talking about arbitration as method of resolving trust and estate disputes for some time. Notably, George Washington, a forefather in more ways than one, included in is 1799 Will a clause providing that any disputes should be decided by three impartial individuals who, "unfetter by Law, or legal constructions" would decide the matter. However, the practice of including arbitration provisions in estate planning documents failed to gain must traction until recently. Part of the issue was that few courts around the country enforced arbitration provisions in trust agreements or wills. In 2007, a shift began to occur as some states began enacting statutes authorizing arbitration in trust or will disputes - to fate, Texas has not joined their ranks. In 2009, the International Chamber of Commerce released its first arbitration clauses. in 2012, the American Arbitration Association (AAA) followed suit and released arbitration rules for wills and trusts. In 2013, the Texas Supreme Court jumped into the fray by ruling that an arbitration clause in an inter vivos trust intrument was valid and enforceable. The decision opened the door to the widespread use of arbitration in trust and estate disputes.
Now, Texas fiduciary litigation attorneys (including one of the authors) see a casual approach to the inclusion of arbitration clauses in wills and trusts when the planner - and more importantly, the settlor - has given no real throught to the consequences of including the provision. Many thought to the consequences of including the provision. Many well-intentioned estate planning attorneys now include arbitration provisions in their estate planning documents regardless of whether it actually saves time, money, or discourages litigation. An attorney at a recent CLE presentation suggested that:
…[t]he arbitration provision should be included in the basic form so that 'the planner would be reminded to discuss it with the client' ... In many cases, if not most, rather than reminding the planner to discuss the option with the client, the provision receives little attention or explanation other than a stock mention of the supposed benefits.
An estate planning lawyer needs to give genuine consideration as to why an arbitration provision is included in a document and what benefit, if any, the arbitration provision will provide.
In this paper, the authors examine whether, how, and when it makes sense to include arbitration clauses in estate planning documents.