Why trustees ask for releases
It is very common for an estate trustee to request that a beneficiary sign a ‘release’ before the estate trustee pays a distribution to the beneficiary. The reason that estate trustees request a release is to have certainty that the beneficiary agrees with how the estate has been administered and agrees not to sue the estate trustee in the future.
However, a trustee is not obliged to secure a release from any or all beneficiaries. A trustee can distribute the estate to one or more beneficiaries without a signed release. Often, securing a release is simply not worth the time and cost when balanced against the likelihood that the beneficiary will sue the estate trustee in the future. For instance, most estate trustees do not require a release from themselves when they are both trustee and beneficiary.
The significance of a release
A release is a binding contract, which bars the signer from suing the person that they have released. An estate trustee should require a signed release when it makes sense to be prudent and to document the acceptance of the beneficiary of the administration. A beneficiary should sign a release when they are satisfied, and should not sign a release unless they are satisfied with the estate accounts that they have received (either because they have received full accounts that they approve of, or because they do not require accounts from this trustee).
The alternative to a release: passing accounts
An estate trustee is not entitled to ‘hold the beneficiaries hostage’ and refuse to make any distribution unless the beneficiaries sign a release. If one beneficiary will not consent to the release, the estate trustee can still distribute some or all of the estate to beneficiaries who have signed. Ultimately, unless all beneficiaries sign releases the estate trustee should decide to either finalize the estate without releases or the estate trustee should pass their accounts; the estate trustee should not simply sit in limbo indefinitely.
Similarly, if beneficiaries are not content with the estate accounting or compensation claimed by the estate trustee (or other conduct of the estate trustee), and the estate trustee has not moved to pass their accounts, then the beneficiaries should seek a Court order that compels the estate trustee to pass their accounts.
Often the best way for a trustee to deal with an uncooperative or unreasonable beneficiary is simply to pass their accounts. Extended correspondence with a recalcitrant beneficiary is often expensive and unproductive, and corresponding delays in finalizing the estate are unfair to other beneficiaries. Approval of the trustee’s accounts by the Court trumps the need for any approval or release from any beneficiary.
Passing of accounts is not free, but done properly by experienced counsel is often not nearly as expensive as many people believe. The cost and delay of a passing of accounts is often used as a threat to compel beneficiaries to accept what they have been offered. Beneficiaries are not obliged to submit to this threat, because they are entitled as of right to proper accounts. The initial cost to prepare proper accounts and file them with the Court is a cost of the estate, and should not be charged back to a beneficiary.
Learn more about passing accounts.
The contents of a release
It is important to draft releases carefully and clearly.
The release should address:
- Who is granting the release (the “Releasor”) – usually, in this context, a beneficiary
- Who is receiving the release (the “Releasee”) – the estate trustee
- The date
- The reason the release is being granted (identify the estate)
- The scope of the release: what the release does and does not cover. In particular:
- Are potential future claims released?
- Are unknown claims released?
- Is the release only up to a certain period of time or an interim stage in the estate, or is it final?
- Is there a ‘carve out’ for performance of specific steps in the future (such as payment of an interim distribution)?
Signing Releases
It is very important to read a release carefully and ensure that you fully understand it before signing. A signed release is a binding contract and very difficult to set aside.
A release needs to be signed by the Releasor (beneficiary). It can be signed electronically.
A release does not need to be signed by the Releasee (the trustee) although this is common.
It is common to require that the signature of the Releasor be witnessed, but there is no formal legal requirement for a witness. Witnessing is a useful step to impress on the signatory the significance of the document. Also, the witness can provide evidence that the document was signed by the named party if the signatory ever tries to recant. Usually, the witness can be any adult. A person is not disqualified from acting as a witness because they are related to the signatory or because they are also a beneficiary of the estate.
There is no formal legal requirement in Ontario for a release to be notarized, but different rules apply for documents used in other jurisdictions which have civil law systems.
Ontario now recognizes various forms of electronic signatures for the formation of binding contracts. Accordingly, while in the past it was very common to require multiple original copies of a Release each with a ‘wet signature’ couriered to the various parties, this is no longer a requirement. Absent good reason to the contrary, a scan sent by email should be quicker, more cost-effective, and sufficient in most cases.