Personal Injury, Probate, Employment, & Complex Litigation


Can a Trustee Make Me Release Them of Liability to Receive My Gifts?

Trustees are often in a tough spot. Probate Code section 16062 requires a Trustee to give an accounting to each beneficiary when the Trust is terminated, which occurs when the last of the Trust assets are distributed. However, a beneficiary can sue the Trustee for compensation for breach of trust for up to three years after receiving the accounting (Probate Code section 16460).

As a result, if the Trustee distributes all of the Trust assets, they are vulnerable for three years without protection from attack against their actions as Trustee. This reasonably terrifies Trustees. As a result, most Trustee’s try to condition distribution upon release of liability.

However, Probate Code section 16004.5 makes it illegal for the Trustee to condition the distribution of Trust assets conditioned on the beneficiary signing a release of liability. This makes sense. You do not want to allow a Trustee who acted badly hold distribution as ransom. However, the legislature recognizes the tension the Trustee feels and as a result, Probate Code section 16604.5 carves out an exception. The Trustee may hold on to a reasonably reserve amount to pay for the upcoming costs of administering the Trust. This includes an amount to pay for attorney’s fees to defend the Trustee’s actions.

As a result, a technique you will see Trustee’s employ is to distribute the vast majority of assets but hang on to a significant portion of the assets to ensure there are funds available to them to defend themselves and state they will not release the remaining funds until a release is signed. However, Trustees often overreach and withhold more than is necessary and by doing so, they violate Probate Code section 16604.5.