Rachal v. Reitz, 347 S.W.3d 305 (Tex. App.--Dallas 2011), reversed.
Click here to read the summary of the Texas Supreme Court opinion.
Settlor 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. 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 beneficiary is
merely a recipient of equitable title to property and not a party to the
trust instrument. A trust is a conveyance of property coupled with a
split of legal and equitable title and the imposition of fiduciary
duties on the trustee. A trust is an not agreement or contract.
Note: 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.
Note: At least one state (Arizona) authorizes settlors to mandate
arbitration or other alternative dispute resolution methods as long as
the method is reasonable.
Moral: An arbitration clause in a trust is unenforceable unless the
beneficiary expressly consents to this provision.