Can an arbitration clause in a trust keep you out of court?

The situation

A parent dies. The trust is administered by a sibling, a family friend, or a professional trustee. Something looks wrong — an accounting that never arrives, a distribution that keeps slipping, an asset that has quietly changed hands. You raise it. And you are told that the trust document contains an arbitration clause, so the matter cannot go before a judge at all.

It is a discouraging thing to be told, and it is meant to be. Arbitration is private. There is no public docket, no jury, and the arbitrator is paid — often by the side with the money to pay.

Why the clause was thought to work

Arbitration statutes — the Federal Arbitration Act and the Virginia Uniform Arbitration Act — compel parties to honor an agreement to arbitrate. Both are built around the enforcement of contracts. So the trustee's argument runs: the trust is the governing instrument, it contains the clause, therefore the clause binds.

What the Supreme Court of Virginia decided

It rejected that. On a case of first impression argued by Cloyd Allen Smith, the Court held that a trust is not a contract enforceable under either statute.

The reasoning follows from what a trust actually is. A contract is a bargain between parties who each agreed to its terms. A trust is a unilateral instrument — the person who created it set the terms, and the beneficiary signed nothing. You cannot be held to a bargain you were never party to.

What it means in practice

• You keep the courtroom. A trustee cannot use a clause in the instrument to move your challenge into private arbitration.
• You keep the public record. Filings are docketed. Conduct that a trustee would prefer stayed private does not automatically stay private.
• The leverage shifts. A fiduciary who expected a quiet, paid forum is instead facing discovery and, ultimately, a jury.

If you have been told otherwise

Some trustees, and some lawyers, have not caught up with this. If you have been told an arbitration clause forecloses your claim in Virginia, that advice is worth a second look.

Virginia also sets deadlines for challenging an instrument or an accounting, and they can be shorter than families expect — so the second look is worth taking sooner rather than later.