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III Trust Arbitration as a Matter of National Law, 6 Arbitration and the United States Uniform Trust Code

David M English

From: Arbitration of Trust Disputes: Issues in National and International Law

Edited By: SI Strong, Tony Molloy (Consultant Editor)

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 07 June 2023

Arbitrability — Arbitral agreements — Arbitral tribunals — Arbitrators

(p. 143) Arbitration and the United States Uniform Trust Code

I.  Introduction

6.01  The Uniform Trust Code (UTC) is the first effort by the Uniform Law Commission (ULC) to provide individual states in the United States with a comprehensive model for codifying their law on trusts.1 Completed in 2000, the UTC has since been enacted in thirty-one states and the District of Columbia.2 Yet, the UTC deals with the subject of arbitration of trust disputes in only a limited way. This chapter describes the reasons for this limited coverage but also how in the future the UTC might be amended to deal with arbitration more comprehensively.

II.  Arbitration and the UTC

6.02  Arbitration can be a useful technique for resolving disputes among beneficiaries, between beneficiaries and trustees, and between co-trustees. Arbitration of trust disputes has long been available if all of the parties voluntarily agree to arbitration. The difficulty has been in enforcing provisions in trust agreements that (p. 144) mandate arbitration. Based on the view that arbitration of trust disputes can only be required if all parties agree to arbitration, the US courts have been reluctant to enforce such provisions.3

6.03  When the UTC was completed in 2000, the law on arbitration of trust disputes, which is only partially developed today, was even less developed. The first state statute providing for the mandatory enforcement of arbitration provisions in trust instruments was not enacted until 2007.4 The first widely reported case dealing with the enforcement of arbitration provisions in trust instruments was not decided until 2004.5 The first major law review article on the enforcement of arbitration provisions in trust instruments did not appear until 2007.6 The drafters of the UTC therefore concluded that it was premature to consider adding a provision mandating the enforcement of arbitration clauses in trusts. In 2009, the Joint Editorial Board for Uniform Trust and Estate Acts (JEB), the oversight committee for trust and estate matters within the ULC, again confirmed that the time was not yet ripe to draft a statute mandating enforcement.7

6.04  But the increasing volume of activity concerning trust arbitration that has occurred in recent years suggests that it is time for the ULC to take another look at the issue. At least five US states have enacted statutes providing for the enforcement of arbitration provisions in trust instruments: Florida (enacted 2007);8 Arizona (enacted 2008);9 Missouri and New Hampshire (enacted 2014);10 and South Dakota (enacted 2015).11 In 2006, a committee of the American College of Trust and Estate Counsel (ACTEC), a leading organization of estate planning attorneys, completed a model statute that mandates enforcement of arbitration (p. 145) provisions in trust instruments.12 There is also a growing number of cases testing the enforcement of arbitration provisions.13 Finally, the law review literature on this issue has burgeoned.14

6.05  Uniform acts are not static but are often periodically revised to respond to changing conditions. For example, the Uniform Guardianship and Protective Proceedings Act, originally approved as Article V of the Uniform Probate Code in 1969, was substantially amended in 1982, again in 1997, and this author is chairing a drafting committee that is revising it again.15 The UTC, which was approved in 2000, has been amended in minor respects, but all but one of these amendments were made in the first five years following approval and were either technical in nature or responded to immediate political concerns that were impeding enactment.16

(p. 146) 6.06  Recognizing the possible need for more substantial revisions, the JEB has appointed a committee, of which this author is a member, to assess whether a more comprehensive update is needed.17 Arbitration of trust disputes is on the list of issues to be considered.18 But even if the committee recommends that a drafting committee be appointed, amendment of the UTC will not happen soon. Before a drafting committee can be appointed, one or more of the four current trusts and estates-related drafting projects need to be completed in order to free up sufficient personnel and other resources.19

6.07  Although the UTC does not specifically authorize the enforcement of arbitration provisions in trust instruments, it does contain a number of provisions that facilitate arbitration if arbitration is chosen by the parties voluntarily or if the arbitration provision is enforceable under other law. First, the UTC specifically authorizes a trustee to ‘resolve a dispute concerning the interpretation of the trust or its administration by mediation, arbitration, or other procedure for alternative dispute resolution’.20 Although a trustee would have such authority whether or not this language was included in the UTC,21 expressly including a power is reassuring to those who might have doubts.

6.08  Second and far more importantly, the UTC extends the concept of representation to non-judicial settlement agreements.22 Achieving binding settlements among the beneficiaries in disputes involving family trusts can be difficult. The beneficiaries are often minors, adults who lack capacity, or even persons who are not yet born. To bind such beneficiaries to a settlement agreement, others must be empowered to act on their behalf. That is the function of rules on representation. The UTC recognizes several different categories of representation. First, it provides that the holders of certain types of powers of appointment may represent and bind those whose interests are subject to the power;23 second, it provides that fiduciaries such as guardians or agents under powers of attorney may represent and bind the persons for whom they are acting;24 and third, it provides for what is known as virtual representation, under (p. 147) which an otherwise unrepresented beneficiary may be represented and bound by another beneficiary having a substantially identical interest in the trust.25

6.09  Concepts of representation are not new. The Uniform Probate Code, approved in 1969, contains a detailed although less comprehensive set of representation rules.26 The more significant difference is that under both the UPC and the common law, representation was available only in judicial proceedings.27 Under the UTC, the ability to use representation also extends to non-judicial settlements.28 Because the beneficiaries of a family trust are usually not limited solely to competent adults, under both the UPC and common law, an arbitration award would almost always have to be approved by the court in order to bind otherwise unrepresented beneficiaries. Under the UTC, court approval of a settlement may be requested but is not required.29

6.10  The UTC also contains a helpful but non-exclusive list of the issues that may be resolved by non-judicial settlement, which by extension would also apply to arbitration. The listed matters are (1) the interpretation or construction of the terms of the trust; (2) the approval of a trustee’s report or accounting; (3) direction to a trustee to refrain from performing a particular act or the grant to a trustee of any necessary or desirable power; (4) the resignation or appointment of a trustee and the determination of a trustee’s compensation; (5) transfer of a trust’s principal place of administration; and (6) liability of a trustee for an action relating to the trust.30 The scope of matters that may be resolved by non-judicial settlement is not unlimited, however. The beneficiaries and trustee are not free to enter into a settlement that is without a legal basis. Any settlement must be consistent with a material purpose of the trust and contain terms and conditions that a court could approve.31 This does not mean that the local court would have approved the settlement. In fact, the parties may elect a non-judicial settlement agreement because of uncertainty on how the local court might rule or even if they believe that the local court might rule contrary to the parties’ wishes.32

(p. 148) 6.11  Any statute that the ULC might draft should consider the different types of trust arbitration. One category is disputes solely among the beneficiaries, such as over the interpretation of the trust’s beneficial provisions. A second category of potentially arbitrable matters is disputes between the trustee and beneficiaries. Sometimes the issue concerns the interpretation of the trust instrument to determine the scope of the trustee’s authority. Sometimes the issue is whether the trustee has committed a breach of fiduciary duty. A third category is disputes between co-trustees who disagree over how to administer the trust. Because of the wide variety of matters that might be resolved by non-judicial means, the drafters of the UTC elected not to specifically list the ‘interested persons’ who must agree to a non-judicial settlement agreement. Rather, who falls within this class will depend on the context of the particular dispute.33 The list might include the beneficiaries as a whole, only certain of the beneficiaries, the beneficiaries and trustee as a group, or only the co-trustees.

6.12  Any statute that the ULC might draft should also take cognizance of the five state statutes mandating enforcement of arbitration provisions in trust instruments as well as developments internationally.34 Four of these US states (Arizona, Florida, Missouri, and New Hampshire) have enacted these statutes as part of their version of the UTC. All five statutes exclude disputes concerning a trust’s validity from the reach of a mandatory arbitration provision.35 Two of the state statutes (Florida36 and South Dakota37) clarify that the arbitration must be conducted in accordance with the procedures under the state’s general arbitration statute. The Missouri statute also extends to enforcement of provisions mandating mediation,38 as do the Arizona and New Hampshire statutes,39 which provide for enforcement of ‘reasonable procedures’ for resolving issues or disputes.

6.13  Finally, cognizance should be taken of the ACTEC Task Force Report.40 The Report contains two alternative model statutes. Neither limits the issues subject to arbitration. The simpler version clarifies that the arbitration must be conducted in accordance with the procedures in the enacting state’s general arbitration statute.41 (p. 149) The alternate model statute is much more elaborate, directly incorporating those procedures into the model statute itself.42

III.  Conclusion

6.14  The use of mandatory arbitration provisions in trusts is increasing, and it can be expected that additional state statutes mandating enforcement will be enacted. At its best, arbitration provides for the speedy resolution of disputes in front of an expert and impartial arbitrator. At its worst, arbitration can disadvantage parties, such as trust beneficiaries, who are not familiar with arbitration procedures. Furthermore, there is no right of appeal, not all arbitrators are necessarily impartial, and rights to discovery are limited.43 But it is the author’s belief that arbitration of trust disputes is here to stay and that its use will only grow. The challenge to the ULC is to design an arbitration provision, either in the UTC or elsewhere, that will most likely lead to results that are both efficient and fair.


1  For a detailed analysis of the Uniform Trust Code (UTC), see David M English, ‘The Uniform Trust Code (2000): Significant Provisions and Policy Issues’ (2002) 67 Missouri Law Review 143.

2  For the list of enacting jurisdictions, see Uniform Law Commission, Legislative Fact Sheet—Trust Code, <www.uniformlaws.org/LegislativeFactSheet.aspx?title=Trust%20Code>. For the text of the UTC, see Uniform Trust Code (last revised or amended in 2010), <www.uniformlaws.org/shared/docs/trust_code/UTC_Final_rev2014.pdf> (hereinafter UTC).

3  For a sampling of recent cases, see (n 13). See also Mary F Radford, ‘Trust Arbitration in United States Courts’ in SI Strong (ed), Arbitration of Trust Disputes: Issues in National and International Law (Oxford University Press 2016) paras 8.01–8.69; SI Strong, ‘Arbitration of Trust Disputes: Two Bodies of Law Collide’ (2012) 45 Vanderbilt Journal of Transnational Law 1157, 1157–248 (hereinafter Strong, Two Bodies Collide) (listing additional cases).

4  The first state was Florida in 2007. Fla Stat s 731.401; Lee-ford Tritt, ‘Legislative Approaches to Trust Arbitration in the United States’ in SI Strong (ed), Arbitration of Trust Disputes: Issues in National and International Law (Oxford University Press 2016) paras 7.01–7.71 (discussing the Florida statute and other US legislation).

5  Schoenberger v Oelze, 96 P3d 1078 (Ariz Ct App 2004), superseded by statute, Ariz Rev Stat Ann s 14-10205, as recognized in Jones v Fink, 2011 WL 601598 (Ariz Ct App 2011).

6  Michael P Bruyere and Meghan D Marino, ‘Mandatory Arbitration Provisions: A Powerful Tool to Prevent Contentious and Costly Trust Litigation, But Are They Enforceable’ (2007) 42 Real Property, Probate and Trust Journal 351. There were earlier discussions in the professional literature. See Daniel Bent, ‘My Bequest to My Beneficiaries: Years of Contentious, Family Splitting Litigation’ (2004) 8 Hawai‘i Bar Journal 28; Steven M Fast, ‘Structuring Trusts to Avoid Beneficiary Dissatisfaction’ (2001) SG012 ALI-ABA 29, 36–37.

7  See Memorandum from Thomas Gallanis to Joint Editorial Board for Uniform Trust and Estate Acts (25 September 2009), <www.uniformlaws.org/Shared/Minutes/JEBUTEA092509mn.pdf>.

8  Fla Stat s 731.401.

9  Ariz Rev Stat Ann s 14-10205, applied in Jones v Fink, 2011 WL 601598 (Ariz Ct App 2011).

10  Mo Rev Stat s 456.2-205; NH Rev Stat s 564-B:1-111A.

11  SD Codified Laws s 55-1-54.

12  American College of Trust and Estate Counsel, Arbitration Task Force Report 27–33 (18 September 2006) (hereinafter ACTEC Report). See also Robert W Goldman, ‘ACTEC’s Simplified Trial Resolution Option with Model Laws and Clauses’ in SI Strong (ed), Arbitration of Trust Disputes: Issues in National and International Law (Oxford University Press 2016) paras 4.01–4.43; SI Strong, ‘Institutional Approaches to Trust Arbitration: Comparing the AAA, ACTEC, ICC, and DIS Trust Arbitration Regimes’ in SI Strong (ed), Arbitration of Trust Disputes: Issues in National and International Law (Oxford University Press 2016) paras 5.01–5.135 (hereinafter Strong, Institutional Approaches).

13  See eg Schoneberger v Oelze, 96 P3d 1078 (Ariz Ct App 2004) (holding the arbitration provision not enforceable), superseded by statute, Ariz Rev Stat Ann s 14-10205, as recognized in Jones v Fink, 2011 WL 601598 (Ariz Ct App 2011); In re Colomiris, 894 A2d 408 (DC App Ct 2006) (holding the arbitration provision not enforceable); McArthur v McArthur, 168 Cal Rptr 3d 785 (Cal Ct App 2014) (holding the arbitration provision not enforceable); Rachel v Reitz, 403 SW 3d 840 (Tex 2013) (holding the arbitration provision enforceable). Numerous other cases exist, although they have not been widely discussed in the literature. Although no final decision was reached, the California Court of Appeals also denied enforcement in Diaz v Bukey, 125 Cal Rptr 3d 610 (Cal Ct App 2011), review granted and opinion superseded by Diaz v Bukey, 257 P3d 1129 (Cal 2011), and case transferred by Diaz v Bukey, 287 P3d 67 (Cal 2011). However, the decision of the California Court of Appeals in Diaz is no longer considered valid pursuant to California procedural law. For additional cases, see Radford (n 3) paras 8.01–8.69; Strong, Two Bodies Collide (n 3) 1157–248.

14  See Jessica Beess und Chrostin, ‘Mandatory Arbitration Clauses in Donative Instruments: A Taxonomy of Disputes and Type-Differential Analysis’ (2014) 49 Real Property, Trust and Estate Law Journal 397 (2014); Bruyere and Marino (n 6); David Horton, ‘The Federal Arbitration Act and Testamentary Instruments’ (2012) 90 North Carolina Law Review 1027; Erin Katzen, ‘Arbitration Clauses in Wills and Trusts’ (2011) 24 Quinnipiac Probate Law Journal 118; Strong, Two Bodies Collide (n 3) 1157; SI Strong, ‘Empowering Settlors: How Proper Language Can Increase the Enforceability of a Mandatory Arbitration Provision in a Trust’ (2012) 47 Real Property, Trust and Estate Law Journal 275; SI Strong, ‘Mandatory Arbitration of Internal Trust Disputes: Improving Arbitrability and Enforceability Through Proper Procedural Choices’ (2012) 28 Arbitration International 591; Stephen Wills Murphy, ‘Enforceable Arbitration Clauses in Wills and Trusts: A Critique’ (2011) 26 Ohio State Journal on Dispute Resolution 627; Rachel M Hirshberg, Note, ‘You Can’t Have Your Trust and Defeat It Too; Why Mandatory Arbitration Provisions in Trusts Are Enforceable and Why State Courts Are Getting It Wrong’ 2013 Journal of Dispute Resolution 213.

15  For a discussion, see David M English, ‘Amending the Uniform Guardianship and Protective Proceedings Act to Implement the Standards and Recommendations of the Third National Guardianship Summit’ (2016) 12 NAELA Journal 33.

16  The exception was Section 113, a provision dealing with insurable interests of trustees, which was added in 2010. For an explanation of the amendments, see the official comments to the following sections of the UTC (n 2) ss 103, 105, 110, 113, 301, 410, 411, 501, 503, 504, 506, 602, 603, 704, 705, 802, 813, 815, 1009.

17  See draft minutes of 2014 meeting (on file with author).

18  Email from Thomas Gallanis, JEB Executive Director, to author dated 21 August 2015 (on file with author).

19  The four projects are the revision of the Uniform Guardianship and Protective Proceedings Act (mentioned in note 15), the revision of the Uniform Principal and Income Act, the drafting of a Model Tribal Probate Code, and the drafting of a Uniform Act on Divided Trusteeship.

20  UTC (n 2) s 816(23).

21  ibid s 815(a)(2) (providing that a trustee may automatically exercise ‘all powers over the trust property which an unmarried competent owner has over individually owned property’).

22  For a discussion of the provisions of the UTC on representation and non-judicial settlement agreements, see English (n 1) 158–61. A comprehensive non-judicial resolution statute, differing in many details from the UTC, was enacted in the state of Washington in 1999. See Gail E Mautner and Heidi LG Orr, ‘A Brave New World: Nonjudicial Dispute Resolution Procedures Under the Uniform Trust Code and Washington’s and Idaho’s Trust and Estate Dispute Resolution Acts’ (2009) 35 ACTEC Law Journal 159.

23  UTC (n 2) s 302.

24  ibid s 303.

25  ibid s 304.

26  See Uniform Probate Code s 1-403 (1969), Uniform Law Commission, Probate Code, <www.uniformlaws.org/Act.aspx?title=Probate%20Code>.

27  ‘In formal proceedings involving trusts or estates of decedents, minors, or incapacitated person, and in judicially supervised settlements, the following rules apply.’ ibid. A ‘formal proceeding’ is a proceeding conducted before a judge. ibid s 1-201(17). For the common law, see Restatement (First) of Property ss 180–86 (1940). Representation is not addressed in the later versions of the Restatement of Property or in the Restatement of Trusts.

28  UTC (n 2) s 111(b) allows interested persons to enter into binding non-judicial settlement agreements with respect to any matter involving a trust. The term ‘interested persons’ is defined as persons whose consent would be required to achieve a binding judicial settlement, ibid s 111(a), which would include those who may represent beneficiaries under Article 3. See also ibid s 111 cmt.

29  ibid s 111(e).

30  ibid s 111(d).

31  ibid s 111(c).

32  This is in fact what happened in In re Frank, 910 NE 2d 523 (Ohio Ct App 2009). The trustee and beneficiaries first requested the court to dispense with a trustee bond, a request that the court denied. The trustee and beneficiaries then achieved the same result using a non-judicial settlement.

33  Similar variability is present in judicially resolved disputes. Section 111(a) of the UTC defines ‘interested persons’ as those whose consent would be required in order to achieve a binding settlement in a judicial proceeding.

34  Ariz Rev Stat Ann s 14-10205; Fla Rev Stat 731.401; Mo Rev Stat s 456.2-205; NH Rev Stat s 564-B:1-111A; SD Codified Laws s 55-1-54. See also Tritt (n 4) paras 7.01–7.71.

35  The Arizona statute does not expressly exclude disputes concerning validity but reaches the same result by limiting arbitrable matters to issues concerning trust administration or distribution. Ariz Rev Stat Ann s 14-10205.

36  Fla Stat Ann s 731.401(2).

37  SD Codified Laws s 55-1-54.

38  Mo Rev Stat s 456.2-205.1.

39  Ariz Rev Stat Ann s 14-10205; NH Rev Stat s 564-B:1-111A. See also Goldman (n 12) paras 4.01–4.43; Strong, Institutional Approaches (n 12) paras 5.01–5.135.

40  ACTEC Report (n 12).

41  ibid at 27–28.

42  ibid at 28–33.

43  For an article highlighting possible negatives to arbitration of trust disputes, see Katzen (n 14).