Case Law Update: Arbitration
The settlor in Rachal v. Reitz, 347 S.W.3d 305 (Tex. Ct. App. 2011), included a provision in his trust requiring the beneficiaries to arbitrate any dispute with the trustees. Both the trial and appellate courts held that this provision was unenforceable. The court held that a person cannot be compelled to arbitrate a dispute if the person did not agree to relinquish the person’s ordinary right to litigate. The court also found that the beneficiary is merely a recipient of equitable title to property and not a party to the trust instrument. The court further stated that a trust is not an agreement or contract, but is, instead, a conveyance of property coupled with a split of legal and equitable title with the imposition of fiduciary duties on the trustee. A four judge dissent argued that the settlor’s intent for disputes to be arbitrated should prevail and that the beneficiaries were benefiting from the trust and thus “agreed” to the trust even though the trust is not a contract.
Special thanks to William P. LaPiana (Rita and Joseph Solomon Professor of Wills, Trusts,and Estates, New York Law School) for sending me this case law update.