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The Wacky World of Releases and Waivers: How to Overturn a Release in a California Trust or Will Lawsuits…

Many times a Trustee wants the Trust beneficiaries to sign a waiver of accounting and release of liability before any Trust distributions are made. It is understandable (from the Trustee’s perspective) that he wants to prevent any future lawsuits before all the Trust money is distributed. But do waivers and releases really work?

In a word: no. Unless, that is, the Trustee (1) fully discloses all material facts before obtaining a beneficiary’s signature on a release, and (2) does not condition a Trust distribution upon receipt of a release. (See Probate Code section 16464).

Trustees are in a powerful position and they have the ability, if they choose, to make all sorts of demands on beneficiaries before making Trust distributions. And if the Trust is funded with a good amount of assets, the beneficiaries are likely to sign whatever they must to get the assets to which they are entitled, but that can lead to some unfair results and the law presumes that a release signed without full knowledge of all material facts is not valid. Similarly, a release signed under threat of not receiving Trust assets is not valid either.

We have had a number of cases where waivers and releases were easily set aside in favor of a complaining beneficiary because the Trustee failed to treat the beneficiary fairly (or at least that’s how it looked to the court).

If you want to receive a valid consent and release, then there are a few things you have to do first. The most important part of any release is disclosure of information. The more the beneficiaries know about the Trust and the Trust transactions before the waiver and release is signed, the better. Share all the financial documents, account statements, and similar financial paperwork with the beneficiaries as it substantially helps increase the future validity of any waiver or release.

Next, never threaten to withhold Trust assets pending a signature on a waiver or release. Better yet, make a preliminary distribution from the trust before even discussing a waiver and release. By making a distribution, you prove that there is no withholding of assets occurring in your case. That does not mean that you distribute ALL the Trust assets. It is customary for the Trustee to retain a reasonable reserve of Trust assets.

Finally, if you cannot obtain a waiver and release, then file your Trust accounting with the court and obtain a court order. Once the court approves your accounting, no beneficiary can later complain about the actions you took as Trustee (at least not as to any transactions disclosed in the accounting and report you file with the Court).

In my humble opinion, I always prefer a Court approved accounting over a waiver and release because it is virtually impossible to set aside a court order once the appeal period expires. Whereas, setting aside a waiver or release is always a question of fact, so you never really know for certain if the release is a sure thing or not until the court rules.