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Trust's Arbitration Provision Does Not Compel Beneficiaries That Are not a Party To Such Agreement

Arbitration is a resolution technique in which a dispute is resolved by an impartial adjudicator outside the court system; and wherein the parties to the dispute agree to be bound by the adjudicator's decision. Arbitration is generally a favored method of resolving disputes as it is less costly, however, it requires the existence of a contract. Persons who are not a party to an agreement to arbitrate cannot be compelled to submit to an arbitration procedure.

In the case of Diaz v. Bukey (195 Cal.App.4th 315 (2011)), two sisters were the beneficiary of a trust that contained an arbitration provision. One of the beneficiaries petitioned to remove her sister as trustee of their parents' trust. The trustee responds by seeking to compel arbitration as stipulated in the trust documents. Neither of the sisters were a party to any arbitration agreement, accordingly, the California Court of Appeal held that beneficiaries of a trust who did not agree to arbitrate disputes may not be compelled to do so.

Stay tuned for more on this topic on our subsequent blog.

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

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