One of the main reasons people choose to use a trust for their estate planning is the desire to avoid probate (i.e., court proceedings) and thereby preserve privacy. In the normal course, there is nothing that prevents trust litigation. Happily, Utah has a law designed to do just that.
Let’s first review the fact that estate plans which are Will-based and the “plans” of those who fail to plan are in instances most bound for probate court. In contrast, estate planning that utilizes properly established, maintained and fully-funded trusts does not require court involvement. But just because a judge/court is not required to administer a trust, a disgruntled heir or some other party will generally have the ability to institute a court case to raise questions or claims relating to the trust or trust assets.
On April 1, 2013, Governor Gary Herbert signed H.B. 332, which then became Utah Code 75-1-312. That statute authorizes parties to have their lawyer draft a Trust which includes mandatory alternative dispute resolution language, requiring any questions or claims to be resolved outside of court proceedings. So, for example, under that statute, a Will or Trust can require that a question or claim appertaining thereto be resolved by binding arbitration instead of by a judge. Utah Code Section 75-1-312 is pretty short and sweet. Here is the full text of the statute:
75-1-312 Alternative resolution of disputes.
(1) A will, trust, or power of attorney may include a provision, enforceable by a court, that requires the resolution of disputes between or among beneficiaries and fiduciaries of the will, trust, or power of attorney, or any combination of those persons or entities, outside of a court of record.
(2) The resolution of disputes outside the court may include any procedure, writing, or agreement, not contrary to or prohibited by law, found or referred to in a will, trust, or power of attorney, the purpose of which is to resolve disputes between or among the beneficiaries and fiduciaries of a will, trust, or power of attorney, or any combination of those persons or entities, outside of a court of record.
(3) Unless terms in a dispute resolution procedure, writing, or agreement require binding
arbitration, nothing in the writing or agreement shall prevent beneficiaries or fiduciaries, upon satisfaction of the required terms of the dispute resolution procedure, writing, or agreement, from seeking resolution of unresolved disputes in a court of record.
Please be aware that this law is neither self-executing nor mandatorily applicable to all trust agreements. On the contrary, as of today, there are likely comparatively very few trust agreements which utilize this law. Why? To have the benefits of this statute and its related court-prevention benefits, the trust agreement must include language that requires an alternative dispute resolution procedure instead of litigation. Ideally, the trust agreement would cite the statute and incorporate the same by reference into the terms of the trust agreement.
Having reviewed and rewritten many trust agreements drafted by other attorneys over the years, I note that VERY FEW attorneys seem to know about the existence of this law. I have never read a trust agreement written by another attorney which utilizes the same. Of course, I have reviewed only a tiny fraction of existing trust agreements. Even so, it is without question that the benefits of this 2013 law have not yet become part of the “boilerplate” provisions of estate planning attorneys (or other attorneys who write trust agreements) in the State of Utah.
When I write a trust agreement, I always include the “opt-in” reference to Utah Code 75-1-312 and normally appoint the Trust Advisor as the first option to serve as the mediator, arbitrator, and ultimate decisionmaker when it comes to resolving questions and disputes about the trust and related parties and assets. A Trust Advisor, sometimes also referred to as a Trust Protector, is usually a neutral third party who stands ready to assist the Trustee in administering the trust per the terms of the trust agreement and the expressed intentions of the trust maker. While there are undoubtedly many other ways to utilize the benefits of the statute, I have found this use of the Trust Advisor/Trust Protector to work well in almost all instances. We will talk more about Trust Advisors another time.
But, you might ask, doesn’t the statute apply equally to Trusts, Wills, and Powers of Attorney? If so, why have I not mentioned Wills and Powers of Attorney in this discussion? Very astute observation and question. First, this post is already long enough..:) Second, and more to the point, Wills must be probated. Probate means court proceeding. Therefore, if you are already in court probating a Will, I don’t see much benefit in having an alternative dispute resolution procedure (i.e., outside of court process) in that context. Powers of Attorney are last-resort options in my opinion, so while there may be some benefits of utilizing this ADR statute in a Power of Attorney, I tend to suggest that my clients not use Powers of Attorney when they have other options. Also, the Uniform Power of Attorney Act, as of 2016, which instituted a Statutory Power of Attorney form in Utah does not make any reference to Utah Code 75-1-312.
To me, Utah Code 75-1-312 is one of the best-kept secrets when it comes to drafting and administering trust agreements in the State of Utah. If you have a trust, and your trust agreement doesn’t utilize this nifty law to ensure that your trust stays out of court, perhaps you should send a copy of the statute to your estate planning attorney and ask for his or her opinion as to the prudence of updating your trust agreement to include the same going forward.