Tuesday, March 25, 2014

When Is a Manditory Arbitration Clause in a Trust Enforceable? California Court Offers Answer

The California appellate court recently addressed the issue of whether an arbitration clause in a trust can bind a beneficiary. The case, McArthur v. McArthur, involves a dispute between two sisters, Pamela and Kristi. Their mother created a trust naming them as equal beneficiaries. Shortly before her death, she amended the trust to give a great portion to Kristi. She also added a clause requiring arbitration of disputes involving the trust. After the mother's death, Pamela sued Kristi, alleging that the amendment was invalid because of Kristi's undue influence and elder abuse. Kristi responded by invoking the arbitration clause. The trial court held that the clause did not bind Pamela because she was not a signatory to the arbitration agreement.

The appellate court affirmed the trial court by taking its reasoning one step further. No only was Pamela not a signatory to the agreement, she "ha[d] not accepted benefits under the 2011 Trust nor ha[d] she attempted
to enforce rights under the amended trust instrument." Since Pamela had not claimed any benefits under the agreement or indicated any assent to it, the arbitration agreement did not bind her. The Court also rejected Kristi's argument that public policy, as demonstrated by national trends, favors arbitration in trust disputes. Said the Court, "These are arguments best addressed to the Legislature, not to this court. . . . [W]hatever the national trend might be, Kristi fails to demonstrate that any other jurisdiction would compel arbitration under the facts of this case, where the beneficiary has not either expressly or implicitly sought the benefits of a trust instrument containing the disputed arbitration provision."

The Elder Law Prof Blog has a more in-depth discussion of the case and some of its implications.

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