ARTICLE: Including an Arbitration Clause in Trust Agreements

Including an Arbitration Clause in Trust Agreements

Are you curious about creating a trust as part of your estate plan? If so, you may have many questions. Among them may concern what might happen in the future if the person you name as trustee has a disagreement with the trust beneficiaries. Who will settle a dispute? How much would a dispute cost the trust? There may be no single answer for these questions, but for grantors who wish to avoid the possibility that trust assets could be spent down on legal fees in this type of dispute, including an arbitration clause in the trust agreement may be a possibility.

An arbitration clause means that if there is any dispute concerning the trust assets, access of beneficiaries to the assets, or the purposes for which assets may be used, the trustee and the beneficiary or beneficiaries will submit the dispute to an arbitrator, rather than going to court and engaging in litigation. Arbitration is a private method of dispute resolution in which an arbitrator makes a binding decision on what to do after hearing from both sides.

Over the past couple of decades, federal courts have demonstrated favorability toward arbitration clauses in general. With respect to arbitration clauses in estate plans and trust agreements specifically, the American College of Trust and Estate Counsel’s Arbitration Task Force has promoted arbitration clauses as more efficient and less costly than trust litigation. It is, however, up to individual states as to whether all arbitration clauses will be considered enforceable, so you may wish to ask your estate planning attorney about case law in the state in which you will create your trust.

The pros of arbitration can include lower costs relative to litigation and privacy of any dispute between the trustee and beneficiaries. You may also choose an arbitrator experienced in complex estate planning matters, while a regular judge may not specialize in this area.

The downside may be that an arbitrator has a lot of power, and there may be a limited appeal process, which means that even if an arbitrator makes a decision that either the trustee or the beneficiary is sure the grantor would not have approved, they may not have a way to fight it. The privacy that can be beneficial also limits the ability to ensure the decision is fair.

If you are considering establishing a trust, our office can help establish a trust agreement that best protects you and your loved ones while establishing trust terms that are in alignment with your goals for the future. Please contact our office to schedule an appointment.

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We at Roth Elder Law, PLLC, believe in providing services in a way that clients can easily understand and meaningfully participate in designing and maintaining their estate plan for their loved ones, as well as be assured that their plan will be administered according to their wishes.