The Supreme Court of Texas recently considered whether beneficiaries of a trust may be bound by an arbitration provision in a trust instrument. Although the Court based its opinion on the Texas Arbitration Act, its reasoning provides some insight into how courts in other jurisdictions might resolve similar issues in the future.
The facts of the underlying dispute are straightforward: the settlor of the trust named his sons as sole beneficiaries, designating himself as trustee, with the attorney who prepared the trust designated as successor trustee upon the settlor’s death. Several years later, one of the beneficiaries filed a court action against the successor trustee, alleging that he had misappropriated trust assets and failed to provide the beneficiaries an accounting of such assets as required by law. The trustee denied the allegations and moved to compel arbitration pursuant to the Texas Arbitration Act (TAA) based upon the trust’s arbitration provision, which provided that arbitration “shall be the sole and exclusive remedy”. The trust agreement expressly bound the Grantor, Trustees, and beneficiaries, and each of their respective heirs and successors.