In a recent decision, a California court found that an arbitration provision in a living trust could not be enforced when the beneficiaries were disputing the validity of the trust document. McArthur v. McArthur was a case of first impression in California and is important for all those with a trust to understand that an arbitration provision may not be valid.

In 2001, Frances McArthur created the Frances E. McArthur 2001 Living Trust providing that her estate would be divided equally among her three daughters. In 2011, the trust was amended giving one daughter a larger share of Frances’ estate, named that same daughter as co-trustee, and added a “Christian Dispute Resolution” clause requiring mediation and arbitration for any dispute arising out of  the trust.

Soon after the amendments were made, Frances died. One daughter who received a smaller share of her mother’s estate filed a lawsuit claiming elder abuse against the daughter receiving the larger share. A motion to compel arbitration was filed, and the trial court denied the motion because an arbitration clause that requires arbitration for a dispute requires consent among all parties, such as in a binding agreement.

On appeal, the Court found that arbitration clauses generally require the consent of all parties involved. Although an arbitration clause has been found valid in a CC&R of a HOA even though the homeowner did not actually consent to the CC&R, the Court found that ultimately the homeowner consented to purchasing a property with a CC&R and should have known about the arbitration provision.

The Court found that a beneficiary of a trust did not consent to the arbitration provision found in the trust. Although a trust can be interpreted similar to a contract; however, California law generally finds a contractual relationship between the settlor and trustee not with the beneficiaries.

Thus the Court found that a beneficiary alleging a trust was not valid was not compelled to submit to arbitration but could continue the dispute in court. This case has an important effect on beneficiaries disputing the validity of the trust; however, it is also limited because an arbitration clause may still be enforceable for other disputes.