When adjudicating trust disputes, the equity court, unlike the arbitrator, is duty-bound to act, sua sponte if necessary, in vindication of the lawful intentions of settlors. See my April 20, 2022, JDSUPRA posting. The equity court is the steward of settlor intent. It cannot be said, however, that arbitrators of trust disputes are, at least not when it comes to taking seriously the intentions of settlors who are deceased or otherwise not before them. For that reason alone, it is hard to see why a prospective settlor who comes to appreciate, via serious consultation with his or her counsel or otherwise, that arbitrators are generally not concerned with settlor intent, at least not sua sponte, would ever opt for arbitration over adjudication. Certainly the mandatory arbitration clause does not belong in a trust-scrivener’s standard boilerplate. Even the very enforceability of such clauses is not always certain. See my May 16, 2022, JDSUPRA posting.
While defending settlor intent is perhaps the most compelling reason for eschewing the mandatory arbitration clause, there are other reasons as well. (1) All interested trust beneficiaries, to include the unborn, the unascertained, and the incapacitated, are entitled to independent representation, whether it be an arbitration or an adjudication. (2) A nonjudicial mediation or arbitration of a breach-of-fiduciary-duty trust dispute of which the actions of an incumbent trustee are the focus is at best awkward and at worst problematic and costly. (3) There is limited opportunity to appeal trust arbitration decisions. (4) Arbitration can sometimes be more costly than litigation. These reservations about the utility of arbitrating trust disputes are fleshed out in §8.44 of Loring and Rounds: A Trustee’s Handbook (2022), which section is reproduced in its entirety in the appendix immediately below. The 2022 Edition of the Handbook is available for purchase at https://law-store.wolterskluwer.com/s/product/loring-rounds-a-trustees-handbook-2022e-misb/01t4R00000OVWE4QAP.