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.

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

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.