Article on Enforceable Arbitration Clauses in Wills
If the headlines are any indication, estate planning is frequently better at generating conflict than avoiding it. Former Playboy model Anna Nicole Smith fought for a decade over a purported $300 million gift from her late husband J. Howard Marshall. When Marshall died in 1995, after just one year of marriage to Smith, his will left nothing to his new bride. Smith promptly sued, arguing that Marshall’s son Pierce used fraud and undue influence to convince his father to cut Smith out of his will. After a series of lawsuits that bounced between bankruptcy, probate, and appellate courts, the will has been upheld. But the case lives on; the United States Supreme Court recently weighed in on the matter for the second time, and Chief Justice John *629 G. Roberts, Jr., writing for the majority, quoted Charles Dickens’ Bleak House to comment derisively on the length and complexity of the litigation.
Disputes over wills and trusts fall into two groups. In the first category, a party contests the validity of the instrument itself. Those contestants claim that the instrument was the result of fraud, duress, or a donor with diminished capacity. In the second category, a party admits the validity of the will or trust, but he disputes the proper interpretation or application of its terms. Both categories of disputes tax family finances and resources. As one scholar put it, they are “ironic and unfortunate:” A will or trust seeks seamless distribution of wealth between generations, but litigation strains family relationships and resources. Indeed, several aspects of American law remove obstacles to a dispute over a will or a trust. For example, such disputes are usually submitted to a jury to decide, and juries tend to side with a disinherited or disgruntled heir over a settlor or testator. Moreover, a plaintiff risks very little in bringing suit; a losing plaintiff need not pay the attorney’s fees of a successful defendant, and often the plaintiff’s attorney is paid through a contingency fee. And while a plaintiff may risk nothing in bringing suit, the trust or estate suffers a financial burden, win or lose: the*630 trust or estate itself pays for its share of the legal fees. Because of these features of American law, the party contesting the instrument has the upper hand. Therefore, trusts or estates often decide to quietly settle litigation rather than have the donor’s decisions dragged into the public eye. Indeed, Professor John H. Langbein noted that “the odor of the strike suit hangs heavily over this field.”
Even when parties admit the existence of a will or a trust, litigation can still drag on over the interpretation and administration of its terms. When Michael Jackson died in 2009, he left a tangled estate that commentators have referred to as an “economic stimulus package” or “lifetime annuity for . . . trust and estate lawyers.” Even the once-harmonious family of the late Martin Luther King, Jr. is not immune: two of his children have sued the third child, claiming that he stole from the estate, and the defendant has counterclaimed, arguing that the other two are improperly withholding documents and blocking a book deal. And in one less-publicized Florida case, a dispute over a trust lasted more than ten years.
Arbitration provides one method with which to avoid a protracted court battle and to settle disputes quickly, privately, and inexpensively. George Washington led the way in this regard; his will provided that any disputes that “unhappily” arose should be decided by three individuals, who would resolve the dispute “unfettered by Law, or legal constructions” and instead *631 based on “their sense of the Testators [sic] intention.” This amounted to an arbitration clause; Washington’s heirs would therefore be forced to bring their claims before private decisionmakers, rather than before the courts.
Arbitration offers other benefits to a donor who fears a contest. More than a decade ago, Professor Gary Spitko suggested that arbitration should be made available as a tool for donors who were concerned that their alternative lifestyles-such as homosexuality or a relationship with a younger partner-would bring about suspicion, perhaps even claims of undue influence or lack of capacity, from their family members. A heterosexual couple could get married, thereby preventing other family members from having standing to contest a will. However, if a testator is not legally allowed to marry the donee, then his or her family members often retain standing to challenge the will. Additionally, judges and juries usually decide contests consistently with majoritarian cultural norms, and hence the court system may be more likely *632to strike down a will or trust that reflects a counter-cultural norm. Spitko argued that donors should be able to specify a particular individual, who is neutral to the dispute but sympathetic to their alternative lifestyle, to settle future disputes fairly, without being overly affected by majoritarian cultural norms.
An arbitration provision in a will or trust is therefore an attractive alternative because it would force beneficiaries and fiduciaries to arbitrate their disputes. This article will refer to such a provision as a “donative arbitration clause.” However, a court would not enforce this type of provision in most jurisdictions. Beneficiaries and trustees do not sign the will or trust itself, and thus under current law those parties cannot be bound by any arbitration provision contained therein. A small group of commentators argue that such clauses should be enforceable, and a smaller group of states-Hawaii, Florida, and Arizona-have considered legislation *633 to that effect. This article will discuss the arguments of those commentators, analyze the legislation in the aforementioned states, and evaluate and critique those efforts.
This article analyzes the movement while it is still in its nascent stage. The article seeks to identify the myriad issues that courts and legislators should look to as they consider these clauses, and it seeks to give a framework for more thoughtful and deliberate consideration of the issue.
This analysis will be easier now, before the movement gains momentum and additional states enact statutes that enforce arbitration provisions in those instruments. State legislatures often change their laws to favor the settlor’s intent, in an effort to attract trust funds and their attendant management fees. Most prominently, many states have abolished or relaxed the Rule Against Perpetuities in the hopes of attracting more trust accounts. One study showed that this tactic was sucessful. Relaxing the Rule resulted in a dramatic shift of trust funds, increasing overall trust assets by 20% and average trust sizes by $200,000 in states that relaxed the Rule versus states that maintained it. Donative arbitration clauses should therefore be cafefully studied sooner rather than later.
*634 Some commentators have suggested that courts need not wait for statutory change to enforce donative arbitration clauses. Those commentators argue that courts can enforce these clauses under current statutory regimes. This article analyzes these arguments and concludes that such positions are initially compelling, but ultimately unsatisfactory.
Therefore, this article argues that the clauses can only be enforced through statutory change. The fact that these clauses can be enforced only after statutory enactments presents not a problem, but an opportunity. The enforcement of the clauses would implicate a broad range of issues, and therefore the clauses should not be taken lightly or enforced in haste. Enacting a statute that would make donative arbitration clauses enforceable would require the consideration of a number of factors. These factors include: who should have the final say as to whether a case is arbitrated; differences between forms of dispute resolution; differences between wills and trusts; and the rights of beneficiaries to access the judiciary.
This article proceeds in five parts. Part I describes current law regarding the enforceability of arbitration clauses in wills and trusts. Part II evaluates several theoretical justifications that would allow the enforcement of donative arbitration clauses under current statutes. Although these arguments are at times compelling, none presents a workable and properly tailored resolution to the issue. Thus, these arguments merely highlight the need to pursue statutory change. Therefore, Part III of this article analyzes current experiments in statutory reform, using original research of legislation and interviews of legislators and policymakers. Even where such statutes have been passed, they have only been a rough fix to the problem. Accordingly, Part IV of this article presents several useful distinctions to help guide state legislators and policymakers through the competing concerns inherent in a statute that would enforce arbitration clauses in wills and trusts. Finally, Part V lays out brief recommendations for legislators who may consider passing such a statute.
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