OSBA Council of Delegates to consider proposal

The Ohio State Bar Association Council of Delegates Screening Committee will meet April 11, 2014, at 10 a.m. at OSBA Headquarters in Columbus to consider the reports and recommendations of committees and sections that had been submitted for consideration by the Council of Delegates. The full Council of Delegates will meet April 30, 2014, at 1:30 p.m. at the Hyatt Regency Hotel in Columbus in conjunction with the OSBA Annual Convention.

Report of the Estate Planning, Trust and Probate Law Section
To the Council of Delegates:
The Estate Planning, Trust and Probate Law (“EPTPL”) Section hereby respectfully requests your favorable consideration of a legislative proposal.  That proposal, the substance and rationale for which is described in further detail below, may be summarized as follows:
To add ORC section 5802.04 so as to clarify and confirm when the terms of a trust may direct that the trustee and/or beneficiaries must settle disputes by arbitration.
            Respectfully submitted,
            John D. Clark, Arbitration Sub-Committee, Chair
            Michael Cooney, Chair of EPTPL

Proposed statute
R. C. 5802.04 Arbitration of trust disputes.—
(A) A provision in the terms of a trust, excluding a testamentary trust, requiring the arbitration of disputes, other than disputes of the validity of all or a part of a trust, between or among the beneficiaries and a fiduciary under the trust, or any combination of such persons or entities, is enforceable.

(B) Unless otherwise specified in the terms of the trust, a trust provision requiring arbitration shall be presumed to require binding arbitration under Ohio Revised Code Chapter 2711.

Summary and rationale for proposal:
Ohio courts have applied a presumption favoring arbitration when the claim in dispute falls within the scope of the arbitration provision. See, e.g., Williams v. Aetna Fin. Co., 83 Ohio St.3d 464, 470. Arbitration agreements are generally favored in the law as a less costly and more efficient method of settling disputes. Vanyo v. Clear Channel Worldwide, 156 Ohio App.3d 706 (8th Dist. 2004), citing Gerig v. Kahn, 95 Ohio St.3d 478 (2002); Kelm v. Kelm, 92 Ohio St.3d 223 (2001). Nevertheless, the courts have reiterated that because arbitration is a matter of contract, a court should not compel a party to arbitrate a dispute that he has not agreed to arbitrate. Shumaker v. Saks, Inc., Cuyahoga App. No. 86098, 2005-Ohio-4391, citing Teramar Corp. v. Rodier Corp., 40 Ohio App.3d 39 (1987); ABM Farms v. Woods, 81 Ohio St.3d 498 (1998).

Courts in several states have found ways to deny a trust settlor's intent of mandating arbitration of disputes despite clear language in the document - citing that a trust is not a contract; and thus, beneficiaries cannot be bound to the arbitration provision included in the trust.

In response to those court decisions, Florida and Arizona each passed legislation to uphold the requirement of arbitration in a will or trust. In an effort to remain consistent with those states, the proposed Ohio law does not permit alternative dispute resolution provisions to apply when determining the validity of the instrument itself. The law would apply only to disputes involving administration among trustees and beneficiaries.

Currently, ORC Section 5801.10(H) provides that if a Private Settlement Agreement contains a provision requiring binding arbitration of any disputes arising under the agreement, then that arbitration provision is enforceable.

However, the OSBA Section on Estate Planning, Trust and Probate Law determined that arbitration for disputes involving wills and testamentary trusts should not be required. Rather, those disputes should be before the probate court, which should retain jurisdiction. Because inter vivos trusts do not require administration before the court, the settlor of such trust should be permitted to determine the method of alternative dispute resolution in the terms of the trust itself, in order for greater confidentiality and efficiency. A fundamental tenant of trust law allows a trust settlor to put terms and conditions on how and when a beneficiary inherits; including the existence of a no contest clause, which if violated could remove such beneficiary. Consequently, a trust provision in which the trust settlor requires a beneficiary to arbitrate disputes regarding administration, and not validity of the trust itself, should be viewed as a condition precedent to the beneficiary accepting assets from the trust.



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