Some trust instruments contain provisions requiring disputes to be resolved through arbitration rather than ordinary court proceedings. When a disagreement develops, trustees and beneficiaries may wonder whether such a provision prevents them from seeking relief in probate court.

The answer depends on the trust language, applicable law, the nature of the dispute, and whether the affected parties are legally bound by the provision.

What Arbitration Means

Arbitration is a private dispute-resolution procedure in which an arbitrator hears evidence and issues a decision. Depending on the agreement and governing rules, an arbitration award may be binding and subject to limited judicial review.

Unlike mediation, arbitration does not necessarily depend on the parties reaching a voluntary agreement.

Arbitration may offer procedural flexibility, but it can also involve substantial administrative fees, arbitrator compensation, discovery disputes, and legal expenses.

Is a Trust Beneficiary Bound?

An important question is whether a beneficiary who never signed the trust instrument can be required to arbitrate.

California courts distinguish between contractual arbitration agreements and provisions appearing in testamentary or trust instruments. A settlor's direction to arbitrate does not necessarily operate as an enforceable agreement against every beneficiary.

The particular claims and conduct of the parties can matter. For example, an arbitration provision may present different issues where a beneficiary separately agreed to arbitrate a dispute.

Which Claims Are Covered?

Even when an arbitration agreement is enforceable, its scope must be considered. A provision addressing interpretation of trust language may not necessarily cover every claim alleging fiduciary misconduct, fraud, or other wrongdoing.

The trustee should also consider whether parties whose interests would be affected are participating in the proceeding.

Arbitration Versus Probate Court

Probate courts possess statutory authority over numerous trust disputes. Arbitration cannot automatically eliminate that authority simply because the instrument contains an arbitration provision.

Parties should evaluate enforceability before incurring significant expenses or assuming that an arbitration demand prevents court involvement.

Key takeaways

• A trust arbitration provision is not automatically enforceable against every beneficiary.

• The scope of the provision and the nature of the claims require separate analysis.

• Arbitration may involve substantial costs and limited opportunities for judicial review.

California trust arbitration clause disputes may create procedural issues before the underlying disagreement is ever reached. Families throughout Southern California should have the relevant language reviewed before selecting a forum.

This article provides general information, not legal advice. For questions concerning California trust arbitration clauses, call Westlake Law Group at (818) 444-2022. 30699 Russell Ranch Road, North Building, Suite 210, Westlake Village, California. Virtual consultations are available throughout Southern California.

Educational links:

• https://leginfo.legislature.ca.gov/faces/codes.xhtml

• https://selfhelp.courts.ca.gov/