New York Estate Planning & Elder Law Blog
In the recent case of Boyle v. Anderson, the Virginia Supreme Court issued what has the potential to be an influential decision about arbitration statements found in trusts.
The Story Behind the Case
Before his death, a man established an inter Vivos irrevocable trust that he intended to be divided into three portions. One third was to be given to the man’s daughter, one to his son, and one to the children of the third child. After the man’s death, his daughter became both the trust’s beneficiary and trustee. The trust included an unambiguous arbitration clause that stated any dispute that is not amicably resolved through mediation or any other method should be resolved through arbitration.
The man’s widow who was also the estate’s administration filed a complaint against the daughter claiming the daughter breached her duties as a trustee. The complaint requests the daughter’s removal or alternatively requests that she follow the trust’s terms. The daughter responded by filing a motion to require arbitration. The widow opposed arbitration and argued that the trust was not a contract and that she did not agree to use arbitration to resolve the disagreement.
The Legal Proceedings
The circuit court denied the motion to require arbitration. The daughter then filed an appeal under a Virginia law that authorizes appeals from orders denying an application to require arbitration under the law. An appellate court later found that the trial court had erroneously ruled the trust agreement did not constitute a qualifying statement under the Virginia Arbitration Act. The appellate court also found that the trial court had erroneously decided a trust agreement with mandatory arbitration provisions did not constitute a written agreement under the Act.
The Virginia Supreme focused on the narrow issue of whether Virginia’s Uniform Arbitration Act requires enforcement of a trust’s arbitration clause. The court found that the Act requires arbitration for written agreements to submit a dispute to arbitration. The court ultimately held that trusts are not contracts and as a result that the Uniform Arbitration Act did not require arbitration as a result. The Virginia Supreme Court also found that a trust’s beneficiary is not a party to an agreement to arbitrate and that provisions of the Act require arbitration when a written arbitration agreement does not apply. Consequently, the court affirmed the judgment.
Obstacles Created by Arbitration Clauses
Various reasons exist to reconsider placing an arbitration clause in a trust. Some negative repercussions that can occur after placing arbitration clauses in trusts include:
- The enforceability of arbitration clauses in trusts as this case highlights is uncertain. As a result, if your loved ones end up in a dispute that could lead to arbitration, utilizing this clause will create an additional for the opposing sides to argue.
- Finding a party who can act as an adequate arbitrator is challenging. The right arbitrator plays a critical role in successful arbitration, which makes this an important issue. Unless you have someone specific in mind, you will have to leave this aspect of the trust statement open to be decided on by your loved ones.
- Arbitration has the potential to end up costing more than litigation.
- The outcome of decisions that proceed through arbitration is often much less predictable than litigation.