Enforceability of Arbitration Clauses

If you are a parent of more than one child, you are most likely aware that siblings usually do one thing very well with each other...squabble! And if you are keenly aware of this during your lifetime, just imagine how much worse it may be after your death when they do not agree with how the trustees are handling your estate.

One method of trying to contain tensions when there are trust disputes is to draft an Arbitration Clause into the trust documents. Using a clause such as this can force all parties to deal with their disputes privately through arbitration as opposed to using the probate court. Obviously, going this route would save a substantial amount of time and money for the trust. Which is probably one of the main goals of setting up this clause in the first place. No parent wants their hard earned assets being squandered away on court costs. And don't want family disputes being made public either.

If you decide to use an arbitration clause you will need to make sure that it is enforceable. A recent California case between two sisters highlights this issue. Sister B did not like how Sister A was accounting for the trust assets and filed a petition to have her removed as trustee. Sister A in return tried to have the petition dismissed due to a mandatory arbitration clause. However, the trial court overruled the dismissal on grounds that the arbitration was unenforceable because Sister B was not a party to it and had never signed a contract agreeing to arbitration. The appeals court also agreed.

If you decide to have a mandatory arbitration clause drafted into your trust make sure that you consult with a professional Trust Attorney. They can draft the proper agreements that must be signed by the beneficiaries as a condition to receiving any distributions under the trust.

*This blog entry was not written by an Attorney and should not be constituted as professional legal advice.

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