Case Notes: Arbitration Clauses in Wills

Analyzing Hollingsworth v. Swales

Background

Arbitration clauses often invoke very acute responses and polarizing views. While much the negative media about such clauses focuses on commercial transactions and a disparity of power between contracting parties, there can often be a different dynamic when it comes to relationships (and “agreements” to arbitrate) between private fiduciaries and/or the parties to whom they owe duties. But, could this dynamic still be of a nature that invites litigation, even where an arbitration clause is in place?

Many of the disputes regarding arbitration clauses relate to whether they are enforceable to begin with, as the “acceptance” of such clauses is often in question. Recent high-profile cases with Disney and Uber called into question the methods of “acceptance” – with Disney claiming acceptance at the time of a Disney+ streaming subscription and Uber claiming acceptance at the time of placing an Uber Eats order. Which brings us to a broader issue we will not answer in full today, because it is largely state-specific. The issue in question is whether an arbitration clause within a will, or trust, is enforceable against beneficiaries who have a dispute?

The problem in these scenarios is the unilateral nature of wills and trusts. Beneficiaries do not countersign wills and trusts, meaning there can be no formal or ceremonial acceptance as we would see with a contract. So how is this issue of acceptance, or assent, handled in these non-contractual scenarios? This is an issue that is sure to gain steam in the coming years, and it is was an issue recently addressed by the Texas Court of Appeals in Hollingsworth v. Swales, No. 10-23-00018-CV (Tex. Ct. App. February 13, 2025).

Facts

This case involved a joint revocable trust, which granted the surviving settlor a testamentary general power of appointment over the survivor’s subtrust created at the death of the first settlor. The decedent as surviving settlor exercised this power in his will, thus triggering a “dispute” between the decedent’s children and grandchildren regarding the interpretation of the clause in the will exercising such power.

Both the children and grandchildren filed actions seeking declarations construing the exercise of the power of appointment – the first by the children in the district court and the second by the grandchildren after jurisdiction was transferred to the probate court upon motion by the grandchildren.

In response to the grandchildren’s action, the children filed a motion to compel enforcement of an arbitration clause in the will. The trial court denied this motion to compel, and the children appealed.

Analysis on Appeal

The arbitration clause in question provided, in part (emphasis added):

Despite any other provision of this instrument or in my overall estate plan, arbitration as provided herein shall be the sole and exclusive remedy for the resolution of any dispute of any kind involving this Will (including any trust established hereunder), including any kind of action brought against the Executor or Trustee for any matter, including a breach of fiduciary duty, and even if a claim is brought in good faith and with just cause. …

… By accepting any benefit under this instrument or by attempting to enforce any right created by this instrument, a beneficiary agrees to be bound by this arbitration provision himself or herself and for those minor, unborn, or unascertained beneficiaries or parties who derive their interests in a trust established by this instrument from and through that beneficiary.

The Texas Supreme Court had previously taken up the issue of the enforceability of arbitration clauses in Rachal v. Reitz, 403 S.W.3d 840 (Tex. 2013). In Rachal, the Texas Supreme Court analyzed the Texas Arbitration Act’s requirement of an “agreement” and determined that this doesn’t have to mean a just written agreement but can also mean any action of mutual consent. In the context of a trust, mutual assent could be inferred where one accepts the benefits of the trust and/or seeks to enforce its terms.

Considering this mutual assent requirement in the context of the will in the present case, the Court quickly dispensed of this requirement noting:

It is undisputed that the Grandchildren have already taken benefits under the Will. Thus, they have performed under the Will, and mutuality of the arbitration agreement under the Will has been met. Consequently, the arbitration agreement is valid.

Thus, the question arose as to whether the dispute as to the scope of the decedent’s exercise of the testamentary power of appointment in his will was within the scope of disputes for which arbitration was mandatory in the will’s arbitration clause. Although the assets subject to the dispute were outside of the will itself, the clause exercising the power of appointment was within the will and affected such assets. Thus, the dispute related to the Court’s construction of the will itself and was thus within the scope of the arbitration clause.

This conclusion itself raised the question of exclusivity of venue and method of dispute resolution. The grandchildren argued that Texas Estate Code Section 32.001 gives the probate court exclusive jurisdiction over matters such as this, specifically instructing that all such disputes must be booth filed and “heard” in the probate court. However, the Court contrasted this with the Texas Arbitration Act which expressly excludes certain agreements from arbitration, with probate matters not being one of the express exclusions. From there, the Court considered that the probate court still has jurisdiction over the confirmation and enforcement of the arbitration award – meaning that the probate court technically discharges its duty to “hear” the case on the back end since arbitration is only part of the probate proceeding.

Thus, the probate court’s denial of the children’s motion to compel arbitration relating to the interpretation of the will was reversed and remanded.

Key Points for Practitioners

Because this case is Texas-specific, it is difficult to take away anything specific beyond the broader question of mutual asset or acceptance. As mentioned above, the enforceability of arbitration clauses in trusts and wills can have nuances between states.

That being said, language matters. While not part of the Hollingsworth ruling, the Rachal court focused on the intent of the settlor in requiring arbitration as a sole and exclusive remedy. This perhaps is an even more important distinction between arbitration clauses in wills and trusts versus such clauses in commercial contracts and agreements. Why? Because the language within the 4 corners of a will or trust is a presumptive statement of intent, unless ambiguous or determined to be the result of a mistake. As we will see below, this can get us into trouble.

This intent principle ties into the mutual assent or acceptance requirement, as this requirement usually calls into question the “intent” of the person against whom the arbitration clause is being enforced. Many of these cases involve surprises or “gotchas” where a party to a commercial transaction clicked to accept in a situation where the law imposes upon them the duty to know what they are signing. In this situation, one can fruitlessly claim that they had no intent to be bound by the arbitration clause. This is not the case in a will or trust, however, as the intent that matters is solely that of the testator or settlor. There is no way a beneficiary can indicate their intent to be bound, unless or until they actually seek to enforce the will or trust. In this vein, we find the principle and question of when exactly a benefit is received from a will or trust as well – which may also relate to parallel questions in this vein (such as with a qualified disclaimer).

Of course, this raises the broader intent of what is covered by the arbitration clause. Does it capture all disputes relating to the instrument itself? Does it require specific action against the fiduciary named in the instrument, or might it relate to an action involving fiduciaries or parties outside of the instrument whose actions or omissions might be covered by the instrument in question? Could there be public policy reasons to deny the application of arbitration clauses in certain scenarios, such as provision of child support that might be affected by the terms of a trust? An interesting corollary to this is found in no-contest clauses, where the scope of the conduct covered by the no-contest clause is an important element that is often disputed.

Tying these two together – arbitration clauses and no-contest clauses – we find some common practice pointers. Artful drafting is key, to reduce the risk of ambiguities in the interpretation of the clause when it comes to identifying who is affected and which specific actions or disputes are covered. It goes without saying that reliance on boilerplate is not recommended. And while the inclusion of an arbitration clause within an instrument itself is often presumed to be an expression of intent, the blanket inclusion of arbitration clauses in all wills and trusts by an attorney or firm perhaps weakens that argument. Of course, in some states, no-contest clauses can be statutorily unenforceable or have a reasonable cause defense to enforcement of the clause. This might not be the case with an arbitration clause which, as noted in the example cited above, can be enforced even in an action having “just cause” and the interpretation of which might be based on commercial law instead of trust-specific or probate-specific law.

Which brings us to the opposite conundrum from above when it comes to a unilateral instrument like a will or trust. The client technically has a duty to read their will or trust before signing it or at least to know what is in it – much like a party to a bilateral contract. But, they may not know that an arbitration clause has been included, and even if they read the entire instrument, they may not be sophisticated enough to identify and/or determine the purpose and scope of an arbitration clause. Informed consent may be an important protection for practitioners including such a clause in their documents, especially in states or scenarios where a practitioner might owe a duty to the intended beneficiaries of the client. Why is this important?

In a sense, arbitration clauses (like no-contest clauses) can either invite additional litigation themselves, or can have a chilling effect on necessary action to enforce a beneficiary’s rights or administer a trust. For example, let’s say a trustee takes the initiative to file a motion for instructions or a declaration as to how a trust is to be interpreted from a ministerial perspective. Could beneficiaries then use the arbitration clause to gum up the works and force the trustee to follow the interpretation of a “friendly” arbitrator who is paid for by one of the beneficiaries who seeks to benefit from a certain interpretation? After all, this wasn’t necessarily a “dispute” on its face – at least at inception.

These are all theoretical questions and hypotheticals, but if nothing else perhaps we can read this case not as a green flag for arbitration clauses but instead as a cautionary tale about a classic adage in any legal dispute – that being right won’t stop someone from using the legal system to challenge whether you are right.