When a Trustee's Arbitration Agreement Binds the Beneficiary
Trust administration often involves disputes: disagreements over distributions, investment decisions, accountings, or fee arrangements. Some trustees include arbitration agreements in trust documents or impose them as conditions of participation in the trust. A recent Mississippi Court of Appeals decision, Pittman v. Charles Schwab & Co., illuminates an important question for beneficiaries: when does a trustee's arbitration agreement bind you, and do you have the right to litigate trust disputes in court?
The Pittman Decision
In Pittman v. Charles Schwab & Co. (COA No. 2024-CA-00619-COA, decided 2024), the court addressed whether trust beneficiaries could be bound by an arbitration agreement entered into by a corporate trustee (Charles Schwab) for custodial services. The beneficiaries sought to bring claims against the trustee for breach of fiduciary duty; the trustee moved to compel arbitration under the agreement it had signed with the account custodian.1
The court applied traditional third-party beneficiary analysis: a non-signatory (here, the beneficiary) can be bound by an arbitration agreement if the beneficiary is a third-party beneficiary of the underlying contract. The analysis turns on whether the contracting parties intended to benefit the third party and whether the third-party beneficiary status is clear and unambiguous in the contract language.
Standing and the Beneficiary's Right to Sue
Critically, the Pittman court recognized that beneficiaries have standing to sue for breach of fiduciary duty—a long-established principle. The question is not whether beneficiaries can sue, but whether a particular arbitration clause (which the trustee signed, not the beneficiary) extends to bind them.
This principle applies broadly in estate and trust litigation: beneficiaries are not parties to the trust agreement, but they have a direct economic interest in the trust's assets and the trustee's performance. They therefore have standing to challenge a trustee's actions that harm that interest. The fiduciary duty owed by the trustee to the beneficiary is a legal relationship that arises from the trust itself, not from any contract between trustee and beneficiary.2
Where disputes arise—for instance, a trustee's allegedly excessive fees, self-dealing investments, or failure to make distributions—the beneficiary typically may pursue either a suit for damages or a petition for removal of the trustee and surcharge (recovery of improper distributions or losses). Arbitration agreements that purport to bar this remedy must be express and unambiguous.
Practical Applications and Drafting Caution
Trustees sometimes attempt to impose arbitration requirements on beneficiaries as a condition of trust participation or distribution. This practice raises enforceability concerns. If the arbitration agreement was signed only by the trustee (or is found in the trust instrument itself without the beneficiary's subsequent ratification), a court may not enforce it against an objecting beneficiary on the grounds that the beneficiary was not a party and is not clearly an intended third-party beneficiary.3
However, if the trust document explicitly requires beneficiaries to resolve disputes through arbitration as a condition of distribution, courts are more likely to enforce such provisions—provided they do not eliminate the beneficiary's core remedies (removal and surcharge). Some jurisdictions require that arbitration agreements be clearly conspicuous and not buried in boilerplate language.
Practical Takeaway
If you are a beneficiary named in a trust and the trustee asserts that an arbitration agreement binds you, carefully review the underlying agreement. Ask whether you signed it; whether it is in the trust instrument itself; and whether it is drafted clearly enough that a court would find you were an intended beneficiary. If disputes arise, consult with a trust litigation attorney promptly. The trustee bears the burden of proving that the arbitration agreement applies to you, and this burden is not lightly met.