Effective July 1, 2007, Florida became the first state in the nation to pass legislation expressly authorizing mandatory arbitration clauses in all wills and trusts. The new statute is F.S. 731.401, and it provides as follows:

731.401 Arbitration of disputes.—

(1) A provision in a will or trust requiring the arbitration of disputes, other than disputes of the validity of all or a part of a will or trust, between or among the beneficiaries and a fiduciary under the will or trust, or any combination of such persons or entities, is enforceable.

(2) Unless otherwise specified in the will or trust, a will or trust provision requiring arbitration shall be presumed to require binding arbitration under chapter 682, the Revised Florida Arbitration Code. If an arbitration enforceable under this section is governed under chapter 682, the arbitration provision in the will or trust shall be treated as an agreement for the purposes of applying chapter 682.

The legislative Staff Analysis for this statute doesn’t say much. If you’re looking for the analytical thinking underlying this new legislation, what you’ll want to read is the ACTEC Arbitration Task Force Report.

So far Florida’s arbitration statute has received a good amount of well-deserved praise. See Making Arbitration Truly Mandatory by Michael P. Bruyere & Meghan D. Marino.

Florida recently became the first state to adopt a law that makes the mandatory arbitration clauses in trust documents truly mandatory. This landmark legislation has the potential to provide a solution to a dilemma now experienced in every other U.S. jurisdiction: while mandatory arbitration clauses offer great benefits, there’s no guarantee they’ll actually be enforced.

Mandatory arbitration is often good for everyone involved in a trust dispute. Grantors are assured that their private lives remain out of the courts and therefore free from public exposure. Trustees can protect trust assets, while limiting their liability, thus reducing the overall cost of trust administration. Beneficiaries can avoid the emotional damage and cost of protracted litigation. And the public doesn’t have to fund a legal process in which the wealthy battle over their trust funds.

Unfortunately, most states’ laws fail to guarantee that courts will enforce trusts’ mandatory arbitration clauses. Recent judicial decisions embrace an outdated distinction between a contract and a trust agreement and therefore reach inequitable results.

The best solution is for all state legislatures to follow Florida’s lead and pass legislation that secures for their citizens the benefits offered by mandatory arbitration of trust disputes.

Two of the Florida attorneys instrumental in passage of this legislation, Bruce M. Stone and Robert W. Goldman, also co-authored a 2005 ACTEC article discussing mandatory arbitration clauses in wills and trusts entitled Resolving Disputes with Ease and Grace.  The ACTEC article does a good job of summarizing the pros and cons of arbitration, concluding that arbitration is likely “ideal” in the following circumstances:

  1. Fee disputes, including fiduciary and legal fees
  2. Prudent investing disputes
  3. Document construction
  4. Principal and income disputes, including adjustment powers
  5. Trust terminations or severances
  6. Accounting disputes
  7. Declaratory relief in general

Sample Arbitration Clauses:

Sample clauses are often the best way to understand in concrete terms how a general concept gets applied in the real world. At my firm we use the Lawgic drafting software (which is excellent), and rely on their form of arbitration clause (which I helped develop).

You can also find sample arbitration clauses in the 2005 ACTEC article:  Resolving Disputes with Ease and Grace.

And last but not least, another drafting resource is AAA’s Wills and Trusts Arbitration Rules and Mediation Procedures. AAA provides a sample arbitration clause of their own and their rules help flesh out the issues you can expect to come up in this kind of arbitration proceeding. Here’s an excerpt from the introduction to the AAA rules:

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.