Beneficiaries and Estate Trustees: What’s in your Release?

Beneficiaries and Estate Trustees: What’s in your Release?

Brian Gillingham*
Posted March 3, 2014 Category: Individuals/Families

Estate Trustees are permitted to seek the court’s approval of their administration by bringing an application to pass their accounts pursuant to the Rules of Civil Procedure.  Despite the availability of this method to obtain formal court approval, it is common practice for Estate Trustees to instead obtain a release from beneficiaries prior to making a distribution of Estate assets. Although less formal than a court order, releases operate to discharge an Estate Trustee by contract law and can result in significant cost savings.

In the recent decision of Sheard Estate, 2013 ONSC 7729, Justice Mesbur considered the binding effect of such releases.

Mrs. Sheard passed away on December 28, 2007.  During the administration of the Estate, the Estate Trustees made two interim distributions of the Estate’s assets.  At the time of the second interim distribution in September 2009, the beneficiaries were asked—and agreed—to sign a release. The release contained an acknowledgement that the beneficiaries had received a full and adequate accounting of the administration of the Estate from the date of the testator’s death through to the date of the second interim distribution.  It also contained an express waiver of any right of the beneficiaries to request further accounts and included a formal provision to dispense with their ability to seek a passing of accounts.

A third interim distribution was planned for December 2012 and the beneficiaries were asked to sign a release to cover the period from September 2009 to June 2012.  The beneficiaries refused to sign this second release.

The Estate Trustees brought an application to pass their accounts from the date of the second interim distribution to June 2012.  In response to the application, the beneficiaries filed a notice of objection and sought a complete set of accounts from the date of death onwards.

The Court held that the beneficiaries could not seek an accounting for a period for which they had already released the executors.  The beneficiaries would first need to amend the motion to seek an order to set aside the signed releases.

The beneficiaries amended the motion and sought to set aside the releases on three grounds:  first, suggesting they were signed without “consideration” (a legal requirement of any contract); second, they did not reflect an intention to be bound; and finally, they were asked to sign the releases by the solicitor for the Estate, without independent legal advice.

Justice Mesbur considered the submissions made by the beneficiaries and found that the releases were valid in each instance.  First, the releases were signed under seal and therefore executed with consideration.  Second, the court found no evidence to suggest that the beneficiaries did not intend to be legally bound by what they had signed.  In reaching this conclusion, the court placed significant weight on the fact that the documents were formal in nature and contained legal language.  Finally, Justice Mesbur held that, while it might have been better for the Estate Trustee’s lawyer to suggest independent legal advice to the beneficiaries, the failure to do so was not fatal to the releases’ enforceability.

The Sheard Estate decision confirms the legitimate use of releases by Estate Trustees as an alternative to having to pass formal accounts before the courts.  Of course, as suggested by this decision, the releases must comply with law to serve as a binding substitute to the Court process.

Wills and Estates, Litigation, Brian Gillingham

Brian Gillingham*
Posted March 3, 2014 Category: Individuals/Families

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