Arbitration clauses in trusts can be tricky. The enforceability of these clauses often depends on state laws and legal interpretations. Here's a breakdown of a case that sheds light on this issue.

The A.F. Reitz Trust Case

Andrew Francis Reitz created the A.F. Reitz Trust in 2000. He named his sons, James and John, as the sole beneficiaries. Andrew served as the initial trustee. The trust included an arbitration clause stating that all disputes involving the trust should go to arbitration.

When Andrew passed away, Hal Rachal, Jr., the attorney who drafted the trust, became the successor trustee.

The Dispute Over Trust Management

In 2009, John Reitz sued Rachal. John accused him of misappropriating trust assets and failing to provide proper accounting. He also sought Rachal's removal as trustee. Along with seeking damages, John requested a temporary injunction.

Rachal argued that the trust's arbitration clause required the case to go through arbitration. However, the trial court and appellate court rejected this argument. They ruled the arbitration clause unenforceable in this situation.

The Texas Arbitration Act Changes the Outcome

The case reached the Texas Supreme Court, which reversed the lower courts' decisions. The Court held that the arbitration clause was enforceable under the Texas Arbitration Act (TAA). It found that an arbitration clause in an inter vivos trust can bind beneficiaries. This decision clarified that beneficiaries must abide by arbitration provisions if the trust includes clear language about arbitration.

What This Means for Trusts in Texas

This ruling sets an important precedent for arbitration clauses in trusts. If properly written, these clauses can enforce arbitration for disputes involving beneficiaries and trustees.

Should You Include Arbitration Clauses in Your Estate Plan?

Before including an arbitration clause in a trust or will, consult an experienced estate planning attorney. Proper language is crucial to ensure the clause is enforceable under Texas law. Without precise drafting, disputes could still end up in court.

How We Can Help

At Peterson Law Group, our Texas trust attorneys explain your options, fiduciary duties, and the probate process. We ensure your documents meet Texas legal standards and help you plan with confidence.

If you're in Texas, contact us today at 979-703-7014. Let us guide you through creating a trust that protects your assets and reduces disputes.