Abstract

This article provides a brief and practical introduction to mandatory arbitration of internal trust disputes in the United States. Because trust law is a matter of individual state concern, there is a no single ‘US law’ of trust arbitration. Research shows that individual US states have demonstrated a great deal of diversity in how they deal with trust arbitration. New developments are also arising all the time, sometimes reversing previously established principles of law and sometimes charting entirely new territory.

Mandatory trust arbitration is a matter of growing concern and interest in numerous countries around the world, including the United States. However, it would be incorrect to speak of a single ‘US law’ of trust arbitration, since trusts in the United States are primarily governed by individual state, rather than federal, law.1 There is no requirement that the various states attempt to harmonize matters arising under state law, meaning that different US states can and will adopt different approaches to the arbitration of trusts.

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Although principles of federalism allow individual states to act independently in matters reserved to the states, local lawmakers are aware of the benefits of consistency in matters of trust law. To that end, expert working groups have promulgated various model laws on trusts,2 whereas judges traditionally consider case law from other US jurisdictions as a matter of persuasive precedent, particularly when faced with a novel issue. Consistency across state lines could also be achieved in this field as a matter of arbitration law, as would be the case if the Federal Arbitration Act (FAA) were found to control matters involving trust arbitration.3 Although commentators have claimed that most trusts in the United States involve interstate commerce and therefore fall within the confines of the FAA,4 individual courts have split as to whether state or federal arbitration law should apply to trust arbitration.5 However, no state or federal court has analysed this issue in detail yet, since parties to the various disputes have thus far agreed on the applicable law.

At this point, most US states allow trustees to enter into arbitration agreements concerning a variety of internal and external trust disputes.6 These procedures are relatively uncontroversial.7 Instead, the primary concern in the United States involves the use of mandatory arbitration provisions found in the trust itself. This type of procedure raises a number of jurisprudential difficulties similar to those experienced in other common law jurisdictions.8 A growing number of US states have considered these types of provisions judicially or legislatively, making the United States an excellent proving ground to test for various approaches. Although it is impossible to discuss all of these developments at length,9 this article nevertheless provides a brief practical introduction to the law regarding mandatory trust arbitration in the United States.

When considering these issues, it is useful to distinguish between: (i) states with legislation explicitly permitting arbitration of trust disputes through inclusion of a provision in the trust itself; (ii) states with legislation explicitly permitting arbitration of trust disputes but without reference to provisions found in the trust itself; and (iii) states without legislation concerning trust arbitration. Each is discussed separately below.

States with legislation explicitly permitting arbitration through inclusion of a provision in the trust itself

The easiest situation to describe involves jurisdictions that have enacted a statute recognizing the validity of an arbitration provision found in a trust. Two US states have done so to date.

Florida was the first state to address mandatory trust arbitration legislatively, enacting a provision in 2007 indicating that:

  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 s. 44.104.10

While the Florida statute includes a carve-out for challenges to the trust itself,11 the range of arbitrable matters nevertheless appears relatively broad. However, the precise scope of this legislation is somewhat unclear, since no cases have yet been decided under this provision.

Arizona was the second state to address this issue legislatively. This statute, which was specifically enacted in 2008 to overturn one of the best-known trust arbitration cases to come out of the United States in recent years, Schoneberger v Oelze,12 indicates that:

[a] trust instrument may provide mandatory, exclusive and reasonable procedures to resolve issues between the trustee and interested persons or among interested persons with regard to the administration or distribution of the trust.13

The Arizona Court of Appeals considered this provision in 2011 in Jones v Fink, concluding that the statute is to be construed broadly to include:

any matter involving the trust’s administration, including a request for instructions and an action to declare rights.14

The court in Jones also held that the trust arbitration statute has eliminated any need for consent to act as a precondition to arbitration under Arizona law.15 So long as the arbitration provision:

provides reasonable procedures and a dispute arises concerning the administration and distribution of the trust,

arbitration will act as:

the mandatory and exclusive avenue for resolving that dispute, regardless of whether the interested parties agreed to those provisions.16

Although the decision in Jones is unpublished and therefore of limited precedential value,17 it provides a useful description of how far Arizona has come since the now-superseded decision in Schoneberger.18

States with legislation explicitly permitting arbitration of trust disputes but without reference to provisions found in the trust itself

Only two US states have enacted legislation specifically addressing arbitration provisions in trusts. However, a far greater number of states provide for trust arbitration without making reference to arbitral provisions found in the trust itself.19 While the precise language used varies from jurisdiction to jurisdiction, one of the more widely adopted approaches is found in the Uniform Trust Code (UTC), a model enactment that has been adopted in whole or in part by 24 US states.20

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Section 111 of the UTC indicates that:

interested persons may enter into a binding nonjudicial settlement agreement with respect to any matter involving a trust,

so long as doing so does:

not violate a material purpose of the trust and include[] terms and conditions that could be properly approved by the court under this [Code] or other applicable law.21

The scope of arbitrable matters is quite broad, including, among other things:

  1. the interpretation or construction of the terms of the trust;

  2. the approval of a trustee’s report or accounting;

  3. direction to a trustee to refrain from performing a particular act or the grant to a trustee of any necessary or desirable power;

  4. the resignation or appointment of a trustee and the determination of a trustee’s compensation;

  5. transfer of a trust’s principal place of administration; and

  6. liability of a trustee for an action relating to the trust.22

A number of these items relate to internal matters of trust construction and administration and thus expand the concept of arbitrability beyond mere contract concerns to key issues of substantive trust law. This is very helpful, since it recognizes that arbitrators are capable of resolving complex trust-related controversies.23

Some questions may arise as to whether the UTC makes certain issues subject to the exclusive jurisdiction of the court. For example, statements indicating that:

[a]ny interested person may request the court to approve a nonjudicial settlement agreement, to determine whether the representation as provided in [Article] 3 was adequate, and to determine whether the agreement contains terms and conditions the court could have properly approved24

could be read as barring arbitrators from rendering a consent award (ie an award based on a settlement agreement).25 Jurisdictional provisions such as these are often challenging, since they can be read either as a prohibition on the resolution of certain issues in all other fora, judicial or arbitral, or simply as a prohibition on the resolution of those issues in any court other than the court named in the statute (typically the probate or chancery court).26 While detailed consideration of exclusive jurisdiction provisions is beyond the scope of this article, parties should avoid making any assumptions about how a court will interpret such statutes.27

As useful as Section 111 of the UTC is, it fails in one important regard, namely in describing the manner in which trust arbitration can be invoked. Indeed, the drafters of the UTC were purposefully vague when it came to identifying who could enter into these sorts of nonjudicial agreements,28 simply defining the term ‘interested persons’ as:

persons whose consent would be required in order to achieve a binding settlement were the settlement to be approved by the court.29

As a result, the UTC provides no definitive answer to the question of whether a settlor can require nonjudicial resolution of disputes arising under the trust through inclusion of an arbitration provision in the trust or whether it is only the trustee who has the power to enter into arbitration agreements at some point after the trust has been created.

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To some extent, only allowing trustees to enter into arbitration agreements would seem somewhat in tension with the UTC’s broad approach to arbitrability, since internal trust concerns are most effectively addressed through an arbitration provision in the trust itself rather than a post-dispute agreement concluded by the trustee. While trustees could attempt to enter into individual arbitration agreements with potential parties to an internal dispute after the creation of the trust but before a dispute arises, that approach is logistically and jurisprudentially difficult.30

Other sections of the UTC are equally unhelpful in resolving this issue. For example, Section 816(23) states that a trustee may:

resolve a dispute concerning the interpretation of the trust or its administration by mediation, arbitration, or other procedure for alternative dispute resolution.31

However, this provision is equally ambiguous, in that it can be read as suggesting either that only a trustee has the ability to enter into arbitration under Section 111 (since the powers listed in Section 816 as devolving to trustees are a compilation of specific powers listed elsewhere) or that persons other than the trustee may have the ability to enter into arbitration under Section 111 (since the powers listed in Section 816 are not said to be exclusive to the trustee).32 This issue does not seem to have been judicially considered yet, although one factor in favour of the settlor’s ability to mandate arbitration of internal trust disputes is found in the commentary to Section 816, which states that:

[s]ettlors wishing to encourage use of alternate dispute resolution may draft to provide it.33

Although the UTC constitutes a significant step forward with regard to the arbitrability of internal trust disputes, some state statutes go even further. For example, Washington and Idaho have both enacted provisions indicating that:

[t]he ‘matters’ that may be addressed and resolved through a nonjudicial procedure are broadly defined and include any issue, question, or dispute involving: (i) the determination of any class of creditors, devisees, legatees, heirs, next of kin, or other persons interested in an estate, trust, nonprobate asset, or with respect to any other asset or property interest passing at death; (ii) the direction of a personal representative or trustee to do or to abstain from doing any act in a fiduciary capacity; (iii) the determination of any question arising in the administration of an estate or trust or with respect to any nonprobate assets or any other asset or property interest passing at death, including, without limitation, questions relating to the construction of wills, trusts, community property agreements, or other writings, a change of personal representative or trustee, a change of the situs of a trust, an accounting from a personal representative or trustee, or the determination of fees for a personal representative or trustee; (iv) the grant to a personal representative or trustee of any necessary or desirable power not otherwise granted in the governing instrument or given by law; and (v) the amendment, reformation, or conformation of a will or trust instrument to comply with statutes and regulations of the Internal Revenue Code in order to achieve qualification for deductions, elections, and other tax requirements.34

These statutes obviously go beyond what the UTC contemplates in terms of arbitrable concerns. However, the Washington and Idaho statutes suffer from the same problem that the UTC did, namely ambiguity with respect to who may invoke arbitration and how.35 Although it would again seem incongruous to permit arbitration of such a wide range of internal matters without providing an appropriate mechanism by which to invoke such proceedings (ie a mandatory arbitration provision in the trust itself), no court has yet considered whether these statutes permit arbitration based on a clause found in the trust itself.

States without legislation concerning trust arbitration

The third category of states to consider involves jurisdictions that have not addressed trust arbitration by statute. While there is some perception that precedent in this area of law is ‘thin and underdeveloped’,36 research shows a growing amount of case law concerning mandatory trust arbitration, even if many of these decisions have not been widely publicized within the trust bench and bar.37 These opinions can be separated into three different categories: (i) older decisions that once acted as significant stumbling blocks to the arbitration of trust disputes but that have recently been abrogated either judicially or legislatively, (ii) contemporary cases considering whether an arbitration provision in a trust is enforceable under the relevant arbitration statute, and (iii) recent opinions discussing whether an arbitral tribunal can hear claims relating to the incapacity of the settlor. Each line of cases is considered separately below.

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Cases that have been recently abrogated

The current surge in interest in mandatory trust arbitration makes it seem as if the procedure is relatively new. However, these issues have been discussed at various times in the past, often in connection with the publication of an opinion touching on a particularly relevant probate issue.38 Interestingly, several of these cases have recently been abrogated either judicially or legislatively, even though they once acted as significant stumbling blocks to the arbitration of trust disputes.

The most well known of these recent reversals involves Schoneberger v Oelze, an Arizona Court of Appeals case that was frequently cited for the proposition that an arbitration provision in a trust is not enforceable because a trust is not a contract.39 However, the Arizona legislature overturned the decision by statute in 2008, creating a pro-arbitration environment that has subsequently won judicial approval in Arizona.40

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Another case that was frequently cited in the United States as curtailing the arbitration of trust disputes was In re Jacobovitz’ Will, a New York state court decision from 1968 that stood for the proposition that wills (and, by extension, trusts) were non-arbitrable as a matter of public policy.41 However, In re Jacobovitz’ Will has recently been called into question by In re Blumenkrantz, which allowed the arbitration of internal trust matters.42

A similar philosophical shift has also been seen in Michigan. For years, Meredith’s Estate, a 1936 decision from the Supreme Court of Michigan, was read as prohibiting trust arbitration on the grounds that trust disputes are in rem proceedings.43 However, Meredith’s Estate has been superseded by implication by In re Nestorovski Estate, which concluded that an arbitration proceeding did not improperly oust the court of its jurisdiction over probate concerns.44 This demonstrates that although the in rem nature of trust proceedings can be considered problematic in the United States and elsewhere, it need not be fatal to arbitration of trust disputes.45

Cases arising under the relevant arbitration statute

Because arbitration is ‘a creature of contract’,46 arbitration agreements typically must either be contained within a contractual document or independently meet the necessary contractual criteria.47 These requirements, which are typically located in arbitration statutes, can create difficulties for trust arbitration, since trusts are typically only signed by the settlor, not by other parties, and often do not involve the exchange of consideration.48 Several US states have recently addressed issues relating to the contractual nature of trusts and arbitration.

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For example, in Diaz v Bukey, the California Court of Appeal (Second District) considered whether a dispute between a trustee and a beneficiary can be made subject to arbitration pursuant to a provision in the trust itself.49 In this case, the defendants claimed that plaintiffs should not be allowed to accept some of the benefits under a trust without accepting all of the trust provisions, including the arbitration clause, under either a third-party beneficiary or an equitable estoppel theory. The court denied the defendants’ motion to compel arbitration on both grounds, holding that the arbitration provision was unenforceable because, in the court’s view, the California Arbitration Act requires arbitration agreements to be contracts or contained within a contract and a trust is not a contract under California law.50

In reaching its conclusion, the court in Diaz considered the Arizona Court of Appeals decision in Schoneberger v Oelze, even though Schoneberger had subsequently been superseded by statute and the Arizona arbitration statute at issue in Schoneberger was quite different than the California arbitration provision.51 For example, the Arizona statute cited by the court in Diaz refers to:

[a] written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration

whereas the California statute merely refers to:

[a] written agreement to submit to arbitration an existing controversy or a controversy thereafter.52

Although the California Court of Appeals failed to address the difference between an ‘agreement’ and a ‘contract’, that distinction has been considered critical by other authorities.53

The decision in Diaz has been appealed to the California Supreme Court, with a decision expected in early 2013. Under the California Rules of Court, the appellate decision is considered ‘depublished’ and has no precedential value until the California Supreme Court acts.54

Diaz is not the only California decision relating to mandatory trust arbitration. Roehl v Ritchie is another Court of Appeals case, albeit from a different district (the Fourth District).55 This case, which considered certain problems associated with a series of arbitral awards rendered by an arbitrator who was dealing with an accounting issue under a trust, gave rise to no difficulties concerning the enforceability of the arbitration provision in question, even though that provision was contained in the trust itself. Although the court in Diaz attempted to limit the scope of Roehl v Ritchie on the grounds that none of the parties in Roehl had apparently objected to the use of arbitration, the decision still stands and can be used for a variety of purposes, including the arbitrability of internal trust concerns including interim accountings.56 Of course, it is possible that the California Supreme Court will address Roehl when it discusses Diaz, so parties should stay abreast of developments.

California is not the only US state to consider contract-based defences to mandatory trust arbitration. The Court of Appeals of Texas was also recently asked to consider the enforceability of an arbitration provision found in a trust in Rachal v Reitz.57 In a divided decision, the Court of Appeals, sitting en banc, decided that a trust is not a contract and that the arbitration provision in question was therefore invalid.58 Interestingly, the Texas Arbitration Act, like the California Arbitration Act, only mentions an ‘arbitration agreement’ rather than an arbitration ‘contract’, a point that the four dissenting judges thought was significant.59 This decision has been appealed to the Texas Supreme Court, with argument due in fall 2012 and final disposition anticipated in late 2012 or early 2013.60 A related case involving the same defendant is also awaiting a decision from the Texas Supreme Court.61

Contract-related claims regarding mandatory trust arbitration have also been heard in US federal court, although the issue was decided as a matter of state, rather than federal, law.62 Thus, for example, the federal district court for the Southern District Court of Mississippi considered whether a lack of consideration made an arbitration provision in a trust unenforceable in New South Federal Savings Bank v Anding.63 According to the court:

[m]utuality of obligations is not required for a contract to be enforceable under Mississippi law. Accordingly, this court is not persuaded that the agreement to arbitrate contained in the Deed of Trust is deficient.64

This is an interesting approach for a court to take, since it relies on contract law, as opposed to trust or arbitration law. This analysis suggests that any US state that does not require contracts to reflect mutual consideration might be able to uphold arbitration provisions in trusts.65

New South Federal Savings Bank v Anding is interesting for a second reason. In this case, the defendant asserted another contract defence relating to the arbitration provision, namely procedural and substantive unconscionability.66 While the court in New South Federal Savings Bank found those claims to be unavailing under Mississippi state law, unconscionability is one of the primary means of opposing an arbitration provision in the United States.67 Therefore, parties to a trust arbitration should be prepared to address such issues in the future.

Cases concerning the incapacity of the settlor

Although Diaz v Bukey and Rachal v Reitz have garnered a significant amount of attention within the trust industry, there is another line of cases that has not received as much notice, even though the matters discussed are of equal importance to trust arbitration. The issue here is whether a claim that the settlor was incapable of making a trust can invalidate an arbitration provision found in a trust.

Decisions relating to other aspects of trust law suggest that claims of undue influence, lack of capacity, fraud, duress, and mistake in the making of a trust are just as likely to result in the invalidation of the entire trust as they are to lead the court to sever the offending provision.68 Indeed, one California court appears to have adopted precisely this type of all-or-nothing approach after it was:

faced with an arbitration agreement in which no single provision [could] be stricken to remove the unconscionable taint. 69

Because the impropriety was said to be infused throughout the arbitration agreement, the court struck the arbitration provision in its entirety.70

The problem with this approach is that it could allow parties routinely to invalidate arbitration provisions found in trusts simply by claiming a lack of capacity. The arbitral community recognized years ago that the effectiveness of the arbitral regime would be put in jeopardy if parties could avoid arbitration simply by alleging that incapacity, fraud, duress, forgery, or mistake not only invalidated the substantive agreement but also impeached any arbitration agreement located within the underlying contract.71 As a result, courts in the United States and elsewhere developed the principle of separability, which in general terms states that challenges to the validity or existence of the contract in which an arbitration agreement is found do not affect the validity or existence of the arbitration agreement itself.72

While the basic principle of separability can be stated succinctly, the doctrine’s precise parameters vary somewhat according to local law. Some jurisdictions take the view that the only time a claim will be heard by a court is if the party challenges the validity of the arbitration agreement itself (as opposed to the document in which the agreement is found) or if the party has specifically given the issue of validity to the court.73

Case law regarding separability under the FAA is particularly complicated.74 The analysis begins with the US Supreme Court decision in Prima Paint Corp v Flood & Conklin Manufacturing Co, which held that:

claims of fraudulent inducement, directed at the underlying contract and capable of rendering it voidable, [do] not impeach the arbitration clause contained in that contract.75

This means that the dispute regarding the validity of the arbitration agreement can be arbitrated along with the substantive claim. The Supreme Court extended this basic principle in Buckeye Check Cashing Inc v Cardegna to:

cases involving claims that the underlying contract was void or illegal.76

Thus:

a challenge to the validity of the contract as a whole, and not specifically to the arbitration clause, must go to the arbitrator.77

Although Buckeye Check Cashing expressly held that the analysis was to be the same regardless of whether the underlying contract was said to be void or voidable:

[lower] U.S. courts have adopted different approaches to the effects of the separability presumption depending on whether (a) the validity, legality, or continued effectiveness of the underlying contract is challenged; or (b) the existence of the underlying contract is challenged.78

The first category of cases—which includes matters concerning fraudulent inducement as well as fraud, illegality, lack of consideration and mistake—can be heard by the arbitrator.79 The second category of cases—which involves challenges to the existence of the underlying contract—are more difficult, since Buckeye Cashing only addressed contract validity and not the question of whether any agreement between the parties was ever concluded.80 As it currently stands, no consensus in the United States exists as to whether:

claims of lack of capacity or authority, directed at the underlying contract, also necessarily impeach the associated agreement to arbitrate.81

This makes it very difficult to anticipate how US judges will or should address issues relating to the alleged incapacity of the settlor in cases involving mandatory trust arbitration.82 Only a few courts have addressed this issue, but the decisions already diverge.

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So far, three alternatives appear to exist. First, some courts take the view that the standard separability analysis does not apply to trust disputes. For example, Spahr v Secco considered what effect, if any, the alleged mental incapacity of the settlor might have on the arbitration of a dispute related to the trust.83 Ultimately, the court concluded that:

the analytical formula developed in Prima Paint cannot be applied with precision when a party contends that an entire contract containing an arbitration provision is unenforceable because he or she lacked the mental capacity to enter into the contract. Unlike a claim of fraud in the inducement, which can be directed at individual provisions in a contract, a mental capacity challenge can logically be directed only at the entire contract.84

Because challenges based on lack of mental capacity:

naturally go[] to both the entire contract and the specific agreement to arbitrate in the contract,

the decision was that disputes based on mental incapacity should be heard in court, not in arbitration.85

Although the arbitration provision in question in Spahr was in an external agreement rather than the trust itself, the decision is instructive as to how capacity issues may be addressed in internal disputes. Notably, if the approach in Spahr were allowed to stand, it would negate the concept of separability in trust disputes.86 Courts adopting this view would likely not only refuse to enforce an arbitration provision found in a trust whenever a challenge was made to the mental capacity of the settlor, they would also refuse to order arbitration of trust disputes in cases involving duress and forgery. However, Spahr was handed down prior to the US Supreme Court’s decision in Buckeye Cashing and may therefore no longer be good law.87

Other judges appear inclined to adopt the standard separability analysis, as in Regions Bank v Britt, which involved whether and to what extent an arbitral tribunal could consider trust-related claims that purportedly affected a party’s statutory succession rights.88 Although this challenge was not based on the alleged incapacity of the settlor, it did attack the underlying validity or existence of the trust in which the arbitration provision was found.89 Ultimately, the court found that the issue could and more properly should be heard in arbitration, based on the rule in Prima Paint.90

A third approach to the issue of separability is seen in Weizmann Institute of Science v Neschis, which considered whether and to what extent an arbitral award rendered in Liechtenstein should be given preclusive effect in a US court proceeding involving claims that were very similar to those determined in the arbitration.91 One of the issues raised in the arbitration involved the mental capacity of the settlor, who was alleged to have been suffering from Alzheimer’s disease at the time he established several foundations (‘stiftung’), which are Liechtenstein’s version of a trust.92 The arbitration provision in question was located in the charter establishing the foundation.93

At no point did the court in Weizmann Institute take the position that issues of settlor capacity could not be heard in arbitration. Instead, the judge refused to hear argument on matters relating to the mental capacity of the settlor, based on principles of collateral estoppel.94 This suggests that a per se rule barring arbitration of trust disputes involving the mental capacity of the settlor would not necessarily be appropriate, despite the analysis in Spahr v Secco.95

Weizmann Institute stands for another important principle, namely that US courts will uphold foreign arbitral awards arising out of trust-related arbitration in the same way that they do awards arising out of other types of civil or commercial arbitration.96 While this one decision does not bind the entirety of the United States, the strong pro-arbitration policy espoused by US courts, particularly in cases involving international arbitration, suggests that foreign awards will be granted significant deference, even if they arise out of an arbitration provision found in a trust.97 Indeed, no less an authority than the US Supreme Court has stated that the:

concerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce the parties’ agreement, even assuming that a contrary result would be forthcoming in a domestic context.98

Conclusion

As the preceding shows, the law regarding mandatory trust arbitration in the United States is not as ‘thin and underdeveloped’ as some commentators believe.99 Instead, there are numerous judicial and legislative authorities in a variety of individual US states. Nevertheless, trust arbitration in the United States stands at something of a crossroads, with several closely watched cases currently under review. Although the decisions will not constitute binding precedent in other states, they may be considered persuasive authority elsewhere in the nation.

As the law in this area develops, courts and legislatures will need to address a number of key concerns. For example, it will soon become necessary to determine whether and to what extent mandatory trust arbitration is governed by the FAA. Placing trust arbitration under the control of federal law will likely eliminate many of the inconsistencies that currently exist across state lines. However, such a move may also calcify the development of this area of law, making it more difficult for new innovations to arise.

At some point, courts will also need to determine whether the UTC permits mandatory trust arbitration. Although states are free to interpret their own legislation in any way that they wish, judges often try to achieve consistency with other jurisdictions when interpreting statutes based on a model act. Therefore, a few well-placed precedents could help establish some degree of predictability among the 24 states that have adopted the UTC in whole or in part.

Finally, US courts need to consider whether and to what extent precedents relating to personal trusts also apply to commercial trusts, since there is some debate in the US trust community as to the extent to which the two kinds of trusts are or should be treated similarly.100 While this issue has not been raised herein, it is quite relevant, since over 90 per cent of the money that has been held in trust in the United States in recent years has been held in commercial trusts rather than personal trusts.101 As a result, some commentators believe that:

the role of trusts in intrafamily wealth transfers is today ‘relatively trivial’,

particularly when compared to the ‘enormously important’ role of trusts in the business context.102 It may very well be that arbitration relating to commercial trusts is more akin to arbitration relating to other commercial matters and thus may be more amenable to the strong pro-arbitration policy that exists in the United States.103 However, this intriguing and important topic will have to be taken up at a different point.

The author, who is admitted to practice as an attorney in New York and Illinois and as a solicitor in England and Wales, is Senior Fellow at the Center for the Study of Dispute Resolution and Associate Professor of Law at the University of Missouri, as well as a member of the American Law Institute (ALI) Consultative Groups for the Restatement (Third) of Trusts and the Restatement (Third) of the U.S. Law of International Commercial Arbitration. This article was completed while the author was the Henry G. Schermers Fellow at the Hague Institute for the Internationalisation of Law (HiiL) and the Netherlands Institute for Advanced Study in the Humanities and Social Sciences (NIAS), and the author gratefully acknowledges the support of both institutions.

1. There are, of course, exceptions to this general rule. For example, federal law governs issues regarding pension trusts governed by the Employee Retirement Income Security Act (ERISA). See 29 USC s 1103 (2010) (indicating that ‘all assets of an employee benefit plan shall be held in trust’).
2. See National Conference of Commissioners on Uniform State Laws (NCCUSL), Uniform Statutory Trust Entity Act, approved 9–16 July 2009 <http://www.law.upenn.edu/bll/archives/ulc/ubta/2009final.htm> accessed 20 May 2012; NCCUSL, Uniform Trust Code (2000), last revised or amended in 2005 <http://www.law.upenn.edu/bll/archives/ulc/uta/2005final.htm> accessed 20 May 2012.
3. See 9 USC ss 1–307 (2012).
4. D Horton, ‘The Federal Arbitration Act and Testamentary Instruments’ (2012) 90 North Carolina Law Review __.
5. A number of courts appear to apply state arbitration laws, typically without discussion about the potential applicability of the FAA. See 9 USC ss 1–307 (2012); Diaz v Bukey 125 Cal Rptr 3d 610, 612 (Cal Ct App 2011), petition for review granted, 257 P 3d 1129 (2011); Rachal v Reitz 347 SW 3d 305, 308 (Tex App - Dallas 2011, petition granted). However, other courts apply the FAA. See New South Federal Savings Bank v Anding, 414 F Supp 2d 636, 639 (SD Miss 2005); In re Blumenkrantz, 824 NYS 2d 884, 887 (Sur Ct Nassau Co 2006). Although a detailed discussion of choice of law concerns is beyond the scope of this article, parties should be aware that the issue does not turn on where the dispute is heard. State arbitration law can be used in federal court, and federal arbitration law can be used in state court.
6. See nn 10–34 and accompanying text. Although precise definitions vary, this article will consider internal trust disputes to address matters relating to the inner workings of the trust and involving controversies between some or all of the various parties to a trust, including trustees, protectors and/or beneficiaries, while external trust disputes will be considered to arise out of contractual relationships between the trust and unrelated third parties and thus invoke matters that are entirely external to the trust itself. See P Buckle and C Olsen, ‘Trust Disputes and ADR’ (2008) 14 Trusts & Trustees 649, 651; T Wüstemann, ‘Arbitration of Trust Disputes’ in C Müller (ed) New Developments in International Commercial Arbitration 2007 (2007) 33, 38.
7. SI Strong, ‘Arbitration of Trust Disputes: Two Bodies of Law Collide’ (2012) 45 Vanderbilt Journal of Transnational Law __.
8. ibid.
9. Further reading is available. See American College of Trust and Estate Counsel (ACTEC), Arbitration Task Force Report (September 2006) <http://www.mnbar.org/sections/probate-trust/ACTEC%20Arbitration%20Task%20Force%20Report-2006.pdf> accessed 20 May 2012; MP Bruyere and MD Marino, ‘Mandatory Arbitration Provisions: A Powerful Tool to Prevent Contentious and Costly Trust Litigation, But Are They Enforceable? (2007) 42 Real Property, Probate and Trust Journal 351; Horton (n 4); E Katzen, ‘Arbitration Clauses in Wills and Trusts: Defining the Parameters for Mandatory Arbitration of Wills and Trusts’ (2011) 24 Quinnipiac Probate Law Journal 118; BA Logstrom, ‘Arbitration in Estate and Trust Disputes: Friend or Foe?’ (2005) 30 American College of Trust and Estate Counsel Law Journal 266; BA Logstrom and others, ‘Resolving Disputes With Ease and Grace’ (2005) 31 American College of Trust and Estate Counsel Law Journal 235; GE Mautner and HLG Orr, ‘A Brave New World: Nonjudicial Dispute Resolution Procedures Under the Uniform Trust Code and Washington’s and Idaho’s Trust and Estate Dispute Resolution Acts’ (2009) 35 American Counsel Trust and Estate Counsel Law Journal 159; SW Murphy, ‘Enforceable Arbitration Clauses in Wills and Trusts: A Critique’ (2011) 26 Ohio State Journal on Dispute Resolution 627; Strong, Two Bodies Collide (n 7); SI Strong, ‘Empowering Settlors: How Proper Language Can Increase the Enforceability of a Mandatory Arbitration Provision in a Trust’ (2012) 47 Real Property, Trust and Estate Law Journal __; SI Strong, ‘Mandatory Arbitration of Internal Trust Disputes: Improving Arbitrability and Enforceability Through Proper Procedural Choices’ (2012) 28 Arbitration International __.
10. Fla Stat Ann s 731.401 (2011); see also ibid s 44.104.
11. Challenges to the trust often involve claims based on undue influence, lack of capacity, fraud, duress, forgery or mistake. Some states bar such disputes from arbitration altogether while other jurisdictions analyse the issue under the arbitral principle of separability. See nn 71–95 and accompanying text.
12. See Schoneberger v Oelze, 96 P 3d 1078, 1082-83 (Ariz Ct App 2004), superseded by statute, Ariz Rev Stat Ann s 14-10205 (2011) [Ariz Stat], as recognized in Jones v Fink, No CA-SA 10-0262, 2011 WL 601598 (Ariz Ct App 22 February 2011). Schoneberger is discussed further below. See nn 39 and 40, 51 and accompanying text.
13. Ariz Stat (n 12) s 14-10205.
14. Jones (n 12) *3 (emphasis omitted).
15. ibid, *2.
16. ibid.
17. See Ariz R Sup Ct 111(c); Ariz R Civ App Pro 28(c).
18. Schoneberger had sharply curtailed the ability of a settlor to require arbitration through inclusion of an arbitration provision in the trust, based on the assertion that a trust is not a contract. See Schoneberger (n 12) 1082–3, superseded by statute, Ariz Stat (n 12) s 14-10205, as recognized in Jones (n 12); see also Strong, Two Bodies Collide (n 7) (discussing contractual and donative theories of trusts); nn 39, 40, 51 and accompanying text.
19. This second type of legislation has been in existence for decades in some states. See Bruyere and Marino (n 9) 355–6, 362; Horton (n 4) *7–10; Mautner and Orr (n 9) 159.
20. See UTC (n 2); NCCUSL, UTC Status <www.nccusl.org>.
21. UTC (n 2) s 111.
22. ibid, s 111(d); see also ibid cmt; Mautner and Orr (n 9) 161.
23. See Strong, Two Bodies Collide (n 7).
24. UTC (n 2) s 111(e).
25. Consent awards are permitted as a matter of arbitration law. See GB Born, International Commercial Arbitration (Kluwer Law International 2009) 2437–8.
26. See Strong, Two Bodies Collide (n 7); Strong, Procedures (n 9).
27. ibid.
28. See UTC (n 2) s 111, cmt.
29. ibid, s 111(a).
30. See Strong, Two Bodies Collide (n 7).
31. UTC (n 2) s 816(23).
32. See ibid ss 111, 816(23); see also ibid, s 816, cmt.
33. ibid, s 816(23), cmt (referring parties to the American Arbitration Association (AAA) Wills and Trust Arbitration Rules for sample language). For tips on drafting arbitration provisions in trusts governed by US law, see Strong, Drafting (n 9). For a discussion of the AAA Wills and Trust Arbitration Rules, see Strong, Procedures (n 9); see also AAA Wills and Trusts Arbitration Rules <http://www.adr.org> accessed 20 May 2012. There are reports that the AAA is currently in the process of revising the AAA Wills and Trusts Arbitration Rules.
34. Mautner and Orr (n 9) 163; see also Idaho Code Ann ss 15-8-101, 15-8-103 (2011); Wash Rev Code ss 11.96A.010, 11.96A.030 (2012).
35. See Idaho Code (n 34) s 15-8-101; Wash Code (n 34) s 11.96A.010.
36. Katzen (n 9) 118–19.
37. Several these cases are discussed herein, with additional references appearing in other articles written by the author. See Strong, Drafting (n 9); Strong, Procedures (n 9); Strong, Two Bodies Collide (n 7).
38. See AM Zack, ‘Arbitration: Step-child of Wills and Estates’ (1956) 11 Arbitration Journal 179; see also Blaine Covington Janin, ‘The Validity of Arbitration Provisions in Trust Instruments’ (1967) 55 California Law Review 521.
39. See Schoneberger (n 12), superseded by statute, Ariz Stat (n 12) s 14-10205, as recognized in Jones (n 12).
40. See Ariz Stat (n 12) s 14-10205; Jones (n 12).
41. See In re Jacobovitz’ Will, 295 NYS 2d 527, 529 (Sur Ct Nassau Co. 1968), superseded by implication by Blumenkrantz (n 5) 887.
42. See Blumenkrantz (n 5) 887 (upholding arbitration provision in agreement allowing for delegation of trustee’s investment duties and allowing arbitration of internal trust duties).
43. See Meredith’s Estate, 266 NW 351, 354, 356 (Mich 1936) (involving a will and a trust), superseded by implication by In re Nestorovski Estate, 769 NW 2d 720, 732 (Mich Ct App 2009). Meredith’s Estate generated a remarkably progressive dissenting opinion that espoused a broad view of arbitrability that would not be out of place today. See Meredith’s Estate (n 43) 357–9 (Sharpe J, dissenting), superseded by implication by Nestorovski (n 43).
44. See Nestorovski (n 43) 732 (dealing with stipulation to arbitrate rather than arbitration provision in the will itself).
45. See Strong, Procedures (n 9).
46. See TJ Stipanowich, ‘Arbitration and the Multiparty Dispute: The Search for Workable Solutions’ (1987) 72 Iowa Law Review 473, 476.
47. See Born (n 25) 640–2; Strong, Two Bodies Collide (n 7).
48. Difficulties relating to consideration could be overcome through application of the principle of conditional transfer, which is similar to the English doctrine of deemed acquiescence. See Strong, Two Bodies Collide (n 7).
49. Diaz (n 5).
50. See Cal Code Civ Pro s 1281 (2012) (stating ‘[a] written agreement to submit to arbitration an existing controversy or a controversy thereafter arising is valid, enforceable and irrevocable, save upon such grounds as exist for the revocation of any contract’); Diaz (n 5) 613–15.
51. See Diaz (n 5) 614–15 & n3; see also Schoneberger (n 12) 1082–3, superseded by statute, Ariz Stat (n 12) s 14-10205, as recognized in Jones (n 12). The California court claimed the provisions were similar, but that is not in fact the case.
52. See Diaz (n 5) 614–15 & n3 (emphasis added).
53. See Rachal (n 5) 312–13 (Murphy J, dissenting); Strong, Two Bodies Collide (n 7). Typically, a stand-alone agreement to arbitrate is made after a dispute has arisen, while an arbitration agreement contained within a contractual or other document is made at the time the parties enter into a contractual or other relationship (ie prior to the dispute) and addresses future disputes between the parties. See Strong, Drafting (n 9).
54. See Cal R Ct 8.1105(e)(1), 8.1115(b).
55. See Roehl v Ritchie, 54 Cal Rptr 3d 185 (Cal Ct App 2007), declined to extend by Diaz (n 5).
56. See Roehl (n 56) 185; see also Strong, Two Bodies Collide (n 7); Strong, Procedures (n 9).
57. Rachal (n 5) 310.
58. ibid, 311–12.
59. ibid, 313 (Murphy J, dissenting).
60. ibid, 310.
61. See Rachal v Letkiewicz, No 05-09-01396-CV, 2011 WL 2937440 (Tex App - Dallas 2011, petition granted).
62. A trust dispute may be heard in US federal court if the court can be found to have personal and subject matter jurisdiction over the matter. See SI Strong, ‘Jurisdictional Discovery in United States Federal Courts’ (2010) 67 Washington and Lee Law Review 489, 555–7. However, because trust and contract law are typically matters of state concern, the federal court will usually apply state substantive law in deciding the issue, unless the matter is one of the rare instances where federal law applies. See n 1. Typically—though not always—a federal court will rely on the FAA rather than a state arbitration statute, although questions regarding federal preemption of state arbitration statutes is somewhat complicated and beyond the scope of this article. See Volt Info Sciences v Board of Trustees of Leland Stanford Junior Univ, 489 US 468, 477–8 (1989); Born (n 25) 140–4.
63. See New South Federal Savings Bank (n 5) 643. This case involved an arbitration provision found in a deed of trust rider securing a loan relating to real property, an arrangement which some jurisdictions consider to be akin to a mortgage. See AM Hess and others, Bogert’s Trusts and Trustees, The Law of Trusts and Trustees (Thomson Reuters 2011) s 29. However, it has been said that ‘[m]ost of the rules that apply to ordinary trusts also apply to deeds of trust’. ibid.
64. New South Federal Savings Bank (n 5) 643.
65. Strong, Two Bodies Collide (n 7).
66. New South Federal Savings Bank (n 5) 644–5.
67. ibid; see also Born (n 25) 723–31.
68. See Katzen (n 9) 123–4 (claiming that ‘courts often void entire testamentary instruments, or, at a minimum, the dispositive sections’ when it is too difficult to separate clauses that were created through improper means from those that were not).
69. Flores v Transamerica Homefirst, Inc, 113 Cal Rptr 2d 376, 385 (Cal Ct App 2001).
70. ibid.
71. JDM Lew and others, Comparative International Commercial Arbitration (Kluwer Law International 2003) paras 6-9 to 6-22, 9-68 to 9-74.
72. ibid, paras 6-9 to 6-22.
73. Born (n 25) 322–43, 359–91.
74. All of the trust-related cases discussing these principles have arisen under the FAA. However, it is possible that a similar analysis could also apply as a matter of individual state law. See n 77.
75. Born (n 25) 363; see also Prima Paint Corp v Flood & Conklin Manufacturing Co, 388 US 395 (1967).
76. Born (n 25) 363; see also Buckeye Check Cashing v Cardegna, 546 US 440 (2006).
77. Buckeye Check Cashing (n 76) 449. This holding applies ‘regardless of whether the challenge is brought in state or federal court’. ibid.
78. Born (n 25) 365.
79. ibid 365–6. Notably, the decision to give the issue to the arbitral tribunal does not constitute a final determination of the allegation, since the arbitrators may ultimately decide that the challenge successfully impeaches the arbitration agreement. See ibid 365–9. Instead, this aspect of separability simply reflects a decision about jurisdictional competence and who—the court or the arbitrator—is to hear the argument about the substantive validity of the arbitration agreement. See ibid.
80. See ibid 370–71.
81. ibid 372.
82. See Horton (n 4) *47–9; Strong, Two Bodies Collide (n 7).
83. See Spahr v Secco, 330 F 3d 1266, 1268–9 (10th Cir 2003).
84. ibid, 1273 (citations omitted).
85. ibid.
86. ibid; see also Flores (n 69) 385; see nn 69–70.
87. See Buckeye Check Cashing (n 76) 440; Spahr (n 83) 1273.
88. See Regions Bank v Britt, No 4:09CV61TSL-LRA, 2009 WL 3766490, at *2 n2 (SD Miss 10 November 2009).
89. ibid.
90. ibid.
91. 421 F Supp 2d 654, 674-83 (SDNY 2005).
92. ibid, 665.
93. ibid, 664, 667–8.
94. ibid, 680 n 28.
95. ibid; see also Spahr (n 83) 1273.
96. Although Liechtenstein was not a state party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention, at the time Weizmann Institute was heard, Liechtenstein’s status has since changed. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 10 June 1958, 21 UST 2518, 330 UNTS 3 (commonly known as the New York Convention; New York Convention, Status <http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html> accessed 20 May 2012. The New York Convention is one of the most successful commercial treaties in the world, with over 146 state parties, and allows the easy and predictable enforcement of foreign arbitral awards. It is assumed that most foreign arbitral awards will be considered under this instrument, although there has been some debate as to whether and to what extent the New York Convention applies to trust arbitration. See Strong, Two Bodies Collide (n 7).
97. SI Strong, ‘Navigating the Borders Between International Commercial Arbitration and US Federal Courts: A Jurisprudential GPS’ (2012) Journal of Dispute Resolution __.
98. Mitsubishi Motors Corp v Soler Chrysler-Plymouth, Inc, 473 US 614, 629 (1985).
99. Katzen (n 9) 118–19.
100. Strong, Two Bodies Collide (n 7); Strong, Procedures (n 9).
101. JH Langbein, ‘The Secret Life of the Trust: The Trust as an Instrument of Commerce’ (1997) 107 Yale Law Journal 165, 166–7, 178.
102. H Christensen, ‘Foreign Trusts and Alternative Vehicles’ (18–19 August 2011), 1902 Practicing Law Institute/Corporations 323, s 1.
103. Strong, Two Bodies Collide (n 7); Strong, Procedures (n 9).