Particularly during the last several decades, arbitration has become a relatively popular dispute resolution mechanism. Particularly in commercial settings, arbitration often offers an efficient and even cost-effective means of moving forward and putting the dispute in the rear-view mirror. Arbitration also offers a level of privacy that the parties come to appreciate. Unlike a civil action in court, an arbitration proceeding is ordinarily closed to the public. In states like Texas, which allow arbitration of at least some sorts of probate and estate disputes, some high net-worth individuals are adding arbitration clauses to their trust documents. While arbitration isn’t for everyone, many estate and probate experts say such clauses should at least be considered.
Courts in many states have disfavored arbitration clauses in trust documents. The rationale is that in most cases, only the settlor – the person making the trust – has signed the agreement and that one should not be bound by an arbitration agreement unless one has actually agreed to the limitation of one’s rights. Yet the Supreme Court of Texas, in Rachel v. Reitz, 403 S.W. 3d 840 (Tex. 2013), held that such clauses can be valid. While the beneficiary typically doesn’t sign the trust instrument, the Supreme Court indicated that, depending upon the specific facts of the case, the beneficiary’s consent could be supplied by the “direct-benefits” rule.
The Court indicated that, under a direct-benefits theory, a beneficiary’s acceptance of the benefits of the trust constituted the assent required to form an enforceable agreement to arbitrate. Since the settlor had intended for any dispute to be determined by arbitration, the Court indicated Texas law would strive to enforce the trust instrument according to the settlor’s intentions.
Probate and estate legal experts point to a number of potential benefits from arbitration clauses. They include:
Some legal experts say that there is generally only limited review of an arbitration decision. In this regard, many courts are quite reluctant to overturn an arbitrator’s decision. Moreover, since the arbitrator is not necessarily bound by rules of evidence and procedure, he or she may not develop a record that can adequately be reviewed by a court. Some experts say arbitration gives each party just “one bite at the apple.”
Legal experts point out that the direct-benefits rule applies only in those instances in which the beneficiary has actually accepted benefits. Where a party seeks not to accept benefits from a Will, but rather to contest it altogether, the Rachel decision might not force the party into arbitration, even if a strong arbitration clause is contained in the Will.
Whether one should include an arbitration clause within a Trust or Will involves a combination of complex legal issues. Where a dispute has arisen regarding the administration of an estate or regarding the handling of a trust instrument, the trustee and beneficiaries need to weigh their options carefully.
The arbritration attorneys at Romano & Sumner have more than 20 years of combined experience providing expert legal assistance to clients concerning estate and trust disputes. We have successfully represented parties contesting Texas Wills and have provided skilled representation to beneficiaries and trustees in the handling of family Trust instruments. We have the extensive litigation experience to take your case as far as necessary. At Romano & Sumner, we pride ourselves not only upon our professionalism, but also upon our client service. Our arbitration lawyers know that each situation is unique. We keep our clients well informed as to the status of their case. We complete the work within the allotted time frame. We return phone calls within one business day. Call us at 281-242-0995 or complete our online contact form.
Romano & Sumner, PLLC
