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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 statute 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 Recent judicial decisions embrace an outdated distinction between a contract and a trust agreement and therefore reach inequitable results.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. You can also find sample arbitration clauses in the ACTEC article, Resolving Disputes with Ease and Grace.