The Texas Supreme Court recently held that an arbitration provision in a trust was binding on the beneficiary of the trust and he had to arbitrate, not litigate, his dispute with the trustee. The case arose out of a trust that Andrew Francis Reitz created in 2000 for the benefit of his two sons. Mr. Reitz was the original trustee of the trust and upon his death in 2009, his attorney, Hal Rachal, Jr., became the trustee. In the trust Mr. Reitz stated that: ". . . I intend that as to any dispute of any kind involving this Trust . . . arbitration as provided herein shall be the sole and exclusive remedy. . . ."
When one of Mr. Reitz’s sons, John, sued Mr. Rachal, the trustee, in probate court, the trustee asked the court to compel arbitration. The Probate Court Number Two of Dallas County, Texas, denied the motion and the Dallas Court of Appeals affirmed the ruling.
The Texas Supreme Court, however, held that because John had accepted the benefits of his father’s trust and sought to enforce its terms he was obligated to arbitrate his claims against the trustee.
While there remains much debate over whether arbitration is more efficient and less expensive than litigation, it appears that its use to resolve disputes over trusts containing arbitration clauses is here to stay. And, as more estate planning attorneys discuss the pros and cons of arbitration with their clients, arbitration provisions in trusts (and perhaps wills too) are likely to become more common place.
Rachel v. Reitz, No. 11-0708 (May 3, 2013).