There has been considerable discussion regarding including arbitration clauses in estate planning documents over recent years. Some estate and trust attorneys are actively pushing for the inclusion of such clauses. Recently, an Arkansas Appellate Court held that an arbitration provision in a trust, if enforceable at all, would not be enforced to determine the validity of a trust document – in this case a trust amendment.[1]
The decedent’s revocable trust already provided an arbitration clause, but just before his death, he signed a trust amendment expanding the arbitration clause to purportedly cover all disputes and be binding on all trustees and beneficiaries.
The trust originally had provided that its assets would be available after the decedent’s death to pay for college tuition, a vehicle, and monthly distributions to his grandchildren. The trust amendment, signed 17 days before he died, made the tuition payments discretionary instead of mandatory. When the grandchildren sued to obtain tuitions payments, the car, and the monthly distributions, they argued that the trust amendment was the product of undue influence. The trustees responded by seeking to enforce the arbitration provision. The trial court rejected the trustees’ motion.
On appeal, the Arkansas Court of Appeals affirmed the trial court. The Appellate Court held that the dispute concerned the validity of the trust amendment itself, and that is not something that can be determined by arbitration. It further stated that the determination of the validity of the trust amendment is within the province of the trial court irrespective of the arbitration provision contained in the trust and the trust amendment.
The court went on to discuss that arbitration provisions in estate planning documents represent a new and developing area of the law and that there is little case law addressing the matter. It also pointed out that a trust document is not a contract and there is no meeting of the minds as would be found in a contract. Therefore, the court refused to apply carte balance contract and arbitration principles but did discuss whether a trust (as opposed to a contract) could contain an arbitration provision.
After finding that Arkansas law was silent on the subject, the court discussed a Model Act proposed by a task force from the American College of Trust and Estate Counsel (ACTEC) in 2004. While the Model Act did make trust and will provisions requiring arbitration of disputes between trustees and beneficiaries enforceable, it limited the scope of such provisions. The Model Act did not require arbitration provisions to govern disputes relating to the validity of the trust document itself.
The court discussed several states that have adopted some version of the Model Act and other states that have addressed arbitration clauses in estate planning documents In doing so, the court determined that there was a common theme among these states that “arbitration provisions within a trust agreement cannot compel arbitration to determine the validity of the trust.”[2] Accordingly, the Arkansas Appellate Court affirmed the trial court’s order denying the trustees’ motion to compel arbitration.
While arbitration clauses may become more and more popular as the law evolves, it appears likely that the enforceability of arbitration clauses will be somewhat limited and will not be held to apply to determinations of the validity of the trust documents.
[1] Gibbons v. Anderson, 575 S.W.3d, 144 (Ark.App. 2019).
[2] Id. at 150.
