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Mandatory arbitration provisions may help

In 2007, the state of Florida became the first state to implement the mandatory arbitration clauses in trust litigation contexts. The process of arbitration is often less costly, more private and faster than prolonged court disputes. Mandatory arbitration has been implemented in commercial contracts for many decades. It is now that the same approach is being implemented in the world of trust agreements. The popularity of mandatory arbitration is still in its beginning stages.

However, in some states the arbitration clauses are still not enforceable under the Federal Arbitration Act because the creation of trust does not establish the assent of the beneficiary at the time the settlor signs the trust agreement. Estate administration may be then postponed. The decision to enforce the mandatory arbitration has been remanded for consideration or vacated by the courts in various states.

In recent past, no published decision in regards to the arbitration laws has been presented. The law remains open in a great numbers of states, and the language of Arbitration Act dictates the court's rulings in many cases. Written agreements to arbitrate play a major role in this type of legal settlements. At present, the validity of the trust can be challenged by the beneficiary.

Alternative tactics can be implemented to ensure that the settlor's wishes are carried through. One of them may be a requirement to have the arbitration agreement signed by the beneficiary. The provision may include a stipulation such as inability to receive any distributions from the trust until the agreement is accepted and signed. A no-contest clause is sometimes enforced when the beneficiary refuses to arbitrate and loses their rights to receive any benefits from the trust. An experienced family law attorney may be able to help with legal disputes and property division.

Source: WealthManagement.com, "Enforceability of Mandatory Arbitration Provisions in Trust Agreements", John T. Brooks, Jena L. Levin, December 30, 2013

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