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What you need to know about arbitration clauses

Estate planning is necessary and important, but it is also sometimes a stressful endeavor when you are trying to ensure all your loved ones are cared for. Drafting a trust or will is the best way to provide financial protection to your family after you pass, but it is important that the directions you stipulate will be followed. Including an arbitration clause in your estate plan is one way to attempt to ensure this.

Arbitration clauses function by requiring all parties who may dispute the content of a will or trust to go through a mandatory arbitration proceeding to resolve it. These clauses are becoming increasingly popular in estate plans, but you should be aware of the following factors before including it in yours: 

May be unenforceable

According to the American Bar Association, the legal enforceability of arbitration clauses is questionable when it comes to wills and trusts. Several reasons exist for this. Because the decedent writes the will or trust prior to passing, and beneficiaries are typically not given the opportunity to review or approve it, her or his consent to the terms of an arbitration clause is questionable at best.

Can help resolve disputes

Even though an arbitration clause may not be legally enforceable in an easy way, it may still achieve its intended function by providing an opportunity to resolve disputes without litigation. If a beneficiary contests the assets he or she is given per the terms of a will or trust, an arbitration clause can provide a resolution by allowing the dispute to be discussed and mediated until it is resolved.

Subject to litigation

Even though arbitration clauses provide an outlet for resolution in the event that a will or trust is contested, they may be subject to litigation and thus rendered irrelevant. Because beneficiaries do not necessarily consent to the terms of the clause, a beneficiary may pursue litigation to contest both the terms of the estate plan and the stipulations of the clause.

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