Can a Last Will and Testament Require that Beneficiaries Arbitrate their Disputes?: In a case of First Impression, New Jersey Court says No.

Whether a Testator can compel beneficiaries of an Estate to arbitrate potential disputes regarding the enforcement, interpretation, and administration of a Last Will and Testament by including a mandatory arbitration provision is a novel legal issue which, until recently, had not been considered by the courts in New Jersey. For those hoping that an arbitration provision could be used when drafting a Last Will and Testament to bar litigation in court and thereby reduce the possible time and expense of estate disputes, a recent New Jersey decision dashed such hopes and held that arbitration provisions in a will are unenforceable.

In the case of In Re Estate of Hekemian, the plaintiff, Richard E. Hekemian, one of the Decedent’s four sons and a beneficiary of his Estate, filed a lawsuit seeking compensation from two of his brothers, Peter S. Hekemian and Edward G. Imperatore, in their capacities as Co-Executors of their late father’s Estate. Upon notice of the litigation, the defendants filed a motion to compel arbitration based on an arbitration provision in the Decedent’s Will. In turn, the plaintiff opposed the motion claiming that the arbitration provision in the will is invalid under New Jersey.

While noting that the State of New Jersey, as a matter of public policy, generally favors arbitration as a dispute resolution mechanism, the New Jersey Superior Court determined that an arbitration provision in a Decedent’s Last Will and Testament was unenforceable. The court began its analysis by noting the hallmark principle that a testator’s intent should be honored and upheld. To wit, the court cited to the statute at N.J.S.A. 3B:3-33.1 which states that “the intention of a testator as expressed in his will controls the legal effects of his dispositions”.

Nevertheless, the court compared a mandatory arbitration clause, which would compel arbitration and prevent litigation within the courts, with an “in terrorem” clause, also known as a “no-contest” clause. An “in terrorem” clause generally provides that a beneficiary will lose their beneficial interest in an estate, or suffer a reduction of their interest in an estate, if they challenge a will. The court noted that an “in terrorem” clause is generally unenforceable where the litigant has “probable cause” to challenge the Last Will and Testament. In the case of In re Estate of Hekemain, the court determined the plaintiff had a reasonable, good faith basis and the legal grounds to challenge the administration due to his role as beneficiary of the Estate and his right to receive an accounting following failure of the defendants “to keep the Plaintiff appraised of the affairs of the Estate”.

Next, the Court also applied state contract law to analyze the arbitration provision. It found that the parties challenging a will did not mutually assent to the arbitration clause because they were not involved in the preparation of the will. Finding the arbitration provision to be unenforceable, the court noted that a Last Will and Testament is an expression of the Testator’s testamentary intent. Continuing, the court explained that the beneficiary of an estate cannot be compelled to arbitrate because “a will is not a contract or an agreement of consensual understanding between two parties”. Highlighting the recognized importance of a litigant’s right to sue in court, the court further noted that the arbitration provision under consideration did not a) inform the litigant of his right to sue and b) did not give the litigant a “clear and unambiguous” opportunity to waive the right to sue in court; both of which are generally required to enforce arbitration provisions under the traditional principles of contract law.

In short, despite the many cases in New Jersey favoring arbitration in general, and the “strong preference” towards enforcing arbitration agreements under both state and federal law, at least in the context of a will contest, at least one New Jersey court has now held that a mandatory arbitration provision under a Last Will and Testament is unenforceable regardless of the Testator’s expressed “testamentary intent” mandating arbitration.