As end users of Florida's court system, trusts and estates lawyers know all too well the negative consequences of an underfunded judiciary. What may not be as clearly apparent is that our clients do have the power to largely "opt out" of the public court system. How? Think alternative dispute resolution or ADR. In Florida there are no jury trials in contested probate or trust proceedings, so these cases lend themselves to privately funded and managed ADR mechanisms, including mandatory arbitration.
F.S. 731.401: Statutory Authorization of Mandatory Arbitration Clauses in Wills & Trusts:
The trouble with arbitration clauses in wills and trusts is that historically it was unclear if a client could impose mandatory arbitration on the beneficiaries of his or her estate/trust. In Florida this uncertainty was eliminated in 2007 with the adoption of F.S. 731.401, expressly authorizing mandatory arbitration clauses in wills and trusts (which I wrote about here). In that blog post I also discussed a few sample arbitration clauses for wills and trusts, including the sample clause published by the American Arbitration Association or AAA (click here) and the sample clauses provided in an ACTEC article entitled Resolving Disputes with Ease and Grace.
Making Arbitration Clauses Work in Real Life: Think Rules and Procedure:
What's difficult about drafting effective arbitration clauses is incorporating a set of rules and procedures the parties and their arbitrators can rely on to resolve disputes privately, promptly and economically. One option is to draft these rules yourself and include them in your wills and trusts. I don't like that approach. First, a complete set of arbitration rules can run for dozens of pages, making it impractical to include them in a will or trust agreement. More importantly, I'm an expert in trusts and estates law, not arbitration law. The better alternative is to incorporate by reference a pre-existing set of arbitration rules tailored for wills and trusts that also include all of the generally applicable "best practices" an arbitration specialist would draft for. Ideally, you'd also want to incorporate a set of arbitration rules that gets revised from time to time to keep up with evolving arbitration norms and legal requirements.
To my knowledge the only publicly-available arbitration rules meeting all of these requirements are the rules published by AAA. Which is why I keep up with their rules and was interested to learn that effective June 1, 2012 they'd been amended and re-published. Here's an excerpt from the introduction to the PDF version of AAA's new Wills and Trusts Arbitration Rules and Mediation Procedures:
Every year billions of dollars are administered by executors and trustees. Wills, transferring property to beneficiaries, are the most frequently used instruments, but family trusts, charitable trusts, and commercial trusts are growing in use and scope. Occasionally, disputes arise over whether those funds are being properly administered and whether the governing will or trust is being interpreted correctly by the fiduciary. . . . Many of these disputes can be resolved by the use of mediation or arbitration, processes that provide parties with an alternative means to resolve their disputes. . . . Arbitration is an effective way to resolve these disputes privately, promptly, and economically, utilizing as the arbitrator a lawyer or lawyers with substantial experience in the area of wills, trusts and estates.
. . . The AAA Wills and Trusts Arbitration Rules and Mediation Procedures provide that the arbitrator, at his or her discretion, may provide for the protection of unrepresented parties, including the use of a guardian ad litem to represent any minor, incapacitated, or unborn beneficiary . A written reasoned award is required under the AAA Wills and Trusts Rules. Testators or settlors can require that future disputes be arbitrated by inserting the following clause into their wills and trusts in most jurisdictions.
Opting out of the public court system:
From my perspective there are two chief selling points for mandatory arbitration clauses in trusts and wills. First, if your arbitration clause is properly drafted, your case gets decided by a specialized trusts and estates lawyer (or lawyers) with real-life experience handling complex estate matters (usually 10+ years) vs. a randomly assigned state-court judge, who almost never has any private-practice experience dealing with complex estate matters (most judges are former prosecutors). Second, by privatizing the process the parties can, to the extent permitted by F.S. 731.401 (and there are limitations), opt out of the dysfunctions inherent to an overworked and underfunded state court system. This second point is what tips the scales for me.
In 1994 Yale Law professor John H. Langbein reviewed Undue Influence: The Epic Battle for the Johnson & Johnson Fortune, by David Margolick. In his book Margolick reported on a will contest litigated in New York City's probate court system involving heirs to the Johnson & Johnson pharmaceutical fortune of J. Seward Johnson, Sr., who died at age eighty-seven in 1983. The case was litigated by the best T&E legal talent from some of the largest, most well-regarded Wall Street firms. And yet, if you believe Margolick's reporting, a dysfunctional court system personified by the judge overseeing the case, Surrogate Marie Lambert, resulted in an ugly spectacle demeaning all involved. As famed NYC attorney William D. Zabel wrote here, "the parties decided to settle. The Will was, to put it charitably, totally rewritten by the contestants. The result: any resemblance to Seward Johnson’s actual last Will seemed purely coincidental."
In Prof. Langbein's review of Margolick's book, published as Will Contests, 103 Yale L.J. 2039 (1994), he lambasts the estate planners involved in the Johnson & Johnson case for not anticipating the dysfunctions inherent to many of our probate court systems.
There have long been difficulties in staffing the American probate bench, and some of the people who serve there-such as Surrogate Marie Lambert, whose partisanship disfigured the trial of the Seward Johnson estate-are menacing. Margolick supplies a chilling collection of instances of Lambert's incessant one-sidedness and impropriety. (E.g., 313, 407, 424, 479, 486, 494, 523-24, 546-47, 564, 568, 576, 585) He leaves open the question of whether she was looking to be bribed (459, 550) or whether her prejudgment was merely gratuitous.
I would not wish to imply that Marie Lambert typifies the American probate bench, or that competent and devoted judges are not to be found in American probate courts. Occasionally, splendid figures such as James Wade in Denver or Floyd Probst in Atlanta grace the probate bench. My point is simply that the integrity and ability of the American probate bench has so often been found wanting that confidence in the predictability and correctness of adjudication in these courts has been impaired. Americans can only look with envy to the esteemed and meritocratic chancery bench that conducts probate adjudication in English and Commonwealth jurisdictions.
The risk of error or worse in American probate adjudication is not adequately offset by the prospect of appellate review. Because the presumption of correctness that attaches to the trial court's findings of fact is so difficult to overcome on appeal, Marie Lambert had little to fear. She was virtually a potentate. . . . Indeed, Margolick asserts that in New York, Marie Lambert was thought to be especially immune from oversight on account of the perverse financial incentives of the appellate judges. In previous scrapes, “the judges of the Appellate Division, her ostensible superiors, went easy on her; once they left the bench, they wanted appointments” (314) to guardianships or other lucrative posts that, especially in New York, are treated as patronage plums within the gift of the surrogate.
Incorporating mandatory arbitration clauses in our wills and trusts is one way of anticipating the dysfunctions inherent to many of our probate court systems and planning accordingly. Arbitration may not be perfect, but at least you get some say in who your judge is and what his or her minimum qualifications are. And in the arbitration process (which is privately funded) you also have a fighting chance of getting your arbitrator to actually read your briefs and invest the time and energy needed to thoughtfully evaluate the complex tax, state law and family dynamics underlying these cases (a luxury that's all but impossible in a state court system that forces judges to juggle hundreds of cases at a time with little or no support). The alternative to a privately financed and managed arbitration proceeding is a public court system that usually works, but not always. And when it does fall short, it's not just bad, it's ugly.