Why consider including an arbitration clause in your estate planning documents?
Updated: Sep 1, 2021
When creating estate planning documents, one of your core concerns is likely reducing unnecessary expenses (especially traditional litigation expenses) and ensuring your assets go to whom you chose in your estate planning documents. Unfortunately, it is not uncommon for disputes among beneficiaries to arise, for a variety of reasons, such as breach of trust, mishandling trust assets or undue influence. These types of disputes can get very costly – potentially draining assets of the estate in the process. This leaves your chosen fiduciary to determine how best to avoid potential disputes. This is of particular importance because some disputes are funded by your assets meant for your beneficiaries. A popular solution many people consider is adding a “no contest” clause to these documents, which would penalize beneficiaries if they challenged a provision of a will or trust. Florida expressly prohibits these no-contest (or in terrorem) clauses, making them unenforceable.
An increasingly popular way to reduce litigation expenses is including an arbitration clause in your estate planning documents. However, arbitration clauses in estate planning documents are not a new phenomenon. In fact, in 1799, George Washington included a detailed arbitration clause is his own will. Arbitration can provide cost savings, efficient resolution, flexibility, control, and finality.
Arbitration is a form of alternative dispute resolution. It is a private process where interested parties submit the dispute to a neutral arbitrator, who hears arguments and evidence and ultimately decides the outcome of the dispute. The decision is binding and legally enforceable unless both sides decide that the arbitration is non-binding. While there is some disagreement among states as to the enforceability of arbitration clauses in estate planning documents, Florida is one of several states that has expressly made these clauses enforceable,  meaning there should be no issue having an arbitration clause enforced, unlike an in terrorem clause.
So, why is it a good idea to consider adding an arbitration clause in your estate planning documents? Firstly, arbitration is widely touted as a less expensive alternative to traditional litigation. Trust disputes can be costly and unpredictable in traditional litigation. However, if a dispute arises in a case where arbitration is required in the estate planning documents, it could cost far less to arbitrate a dispute than to litigate it. The reason arbitration is less costly is because arbitration is typically quicker and more streamlined. Discovery is shorter and more limited in arbitration proceedings than traditional litigation. In fact, for many disputes American Arbitration Association (“AAA”) gives the arbitrator the authority to order discovery to be as limited or extensive as she or he sees fit. Importantly, as the settlor/testator, you can choose the scope of discovery in your documents. Furthermore, arbitration has limited grounds for appeals (which in traditional litigation can become extremely expensive and timely) and for that reason, have a high degree of finality. Many judicial systems are overburdened with hearings and trials and due to that, disputes take longer to resolves. This can lead to your beneficiaries not receiving their bequests in a reasonable time frame as planned by your documents. While every dispute is different, arbitration can be a good way to limit the expenses used and time spent in resolving a dispute.
Coupled with the above, arbitration also allows the parties to mutually agree on the procedure of the arbitration, such as discovery, disclosures, motions, and evidence to be considered. This makes the process incredibly flexible and tailored to each situation’s dispute. For example, depositions can be a costly discovery mechanism that take several hours of preparation and time taking testimony. However, if properly drafted, an estate planning document can limit depositions or even dispense with them all together. Because the parties are free (or the you are free) to decide their own mutually agreeable procedures, arbitration can also more informal, allow the parties to schedule meetings/hearings in a more convenient or comfortable forum, at a time that works best for all sides. This informality can also ease tensions between the parties. Furthermore, the rules of evidence in an arbitration are more relaxed than in traditional litigation, therefore it is easier to admit evidence.
Another important advantage to arbitration is the ability for the parties to choose their arbitrator. In traditional litigation, a judge is randomly assigned to a case without a say from the parties. This judge could have years of experience handling complex probate or trust issues or could be relatively new, it is the luck of the draw. Being able to choose an arbitrator allows for a higher degree of fairness between the parties. Furthermore, if your estate is particularly complex or if the dispute at issue is complicated, it can be a huge advantage to be able to pick an arbitrator who is well versed in the issues at hand and has the time to commit to entrenching his or herself in your case. You can even include our choice of arbitrator in your estate plan.
Lastly, arbitration is a private and confidential process, as opposed to traditional litigation. Arbitration is not a matter of public record and therefore family or beneficiary disputes are out of the public eye allowing the dispute to stay private. Furthermore, this also means that the documents associated with the arbitration, such as financial documents, wills, associated bank accounts are also not subject to public record.
With all the above advantages, it is key that your arbitration clause is carefully drafted. If properly drafted, you can have extensive control over how any disputes regarding your estate will be decided, from the scope of the discovery to the arbitrator who decides the dispute. If the clause is carelessly drafted, the advantages of arbitration may become inconsequential. If you are looking to create estate planning documents, or if you are a part of an already arisen dispute, we here at Law Offices of Jennifer Grant are here to help!