- The waiver and release problem
The Trustee wants to be done with the Trust administration and decides to have the beneficiaries sign a waiver and release so a final Trust distribution can be made. But waivers and releases are not always the best way to proceed in Trust matters because they can be challenged and overturned by a beneficiary after the Trust assets are distributed.
The law places a heavy burden on Trustees to ensure releases are not obtained unfairly. Since Trustees are in a position of power over beneficiaries (and control the purse strings of the Trust), any waiver or release obtained from a beneficiary in favor of a Trustee is suspect.
- How waivers and releases fail
For starters, Probate Code section 16004.5 states that any release that is conditioned on a beneficiary receiving an otherwise required Trust distribution is invalid. And that scenario happens all the time—a Trustee demands a signed release before making a distribution. That is a clear recipe for disaster because the release will fail and a future lawsuit will occur.
Furthermore, Probate Code section 16464, provides more ways in which to set aside a release, which include:
- the incapacity of the beneficiary,
- where a release was obtained by a bad act of the Trustee,
- where the release involves a bargain that is not “fair”, or
- where the beneficiary was not fully informed of his rights and all the necessary material facts.
That’s a lot of ways out of a release!
- So how do you properly end a Trust administration?
Since a release can be overturned many different ways, the best approach is to seek court approval of a Trust accounting because that closes the door to future lawsuits by the beneficiaries without any doubt. But if an accounting is out of the question, then at least approach a release in the best way possible.
First, never condition a release on the distribution of Trust assets. In fact, make a preliminary distribution of assets BEFORE asking for a release. That will prove that the Trust distribution was not conditioned on a distribution of Trust assets.
Second, have the beneficiary review the release with a lawyer of their choosing so they cannot complain later of not understanding the implications of the release.
Third, disclose as much information about the Trust and Trust assets to the beneficiary before asking for a release. Since a release can be set aside if the beneficiary was not fully informed of all rights and material facts, it is imperative that the Trustee disclose all known information to a beneficiary before asking for a release. And the disclosure should be done in writing so you have proof of what was disclosed.
- Don’t sign what you don’t understand
If you are a beneficiary and have been asked to sign a release or waiver under suspicious or unfair circumstances, do not sign anything until you have a lawyer review the release with you. This is especially true where the Trustee conditions a Trust distribution to you on your signing a waiver and release. While there are ways to overturn a release, you do not want to have the burden of doing so if you don’t have to.
- The bottom line
Court-approved accountings are the best protection a Trustee can have against later beneficiary lawsuits. But if you want to go the waiver and release route, at least be sure to follow the rules and create a waiver and release that is likely to be upheld if you are ever sued by a beneficiary in the future.