Estate Trustees May Not Extort Releases From Beneficiaries
Sometimes a well-meaning (or not-so-well-meaning) estate trustee will try to circumvent the formal requirement of passing the estate's accounts by asking the beneficiaries to sign a consent or release approving what the trustee has done. Taking this step can be prudent as it can save the estate the legal costs involved with formally passing the accounts. However, an estate trustee cannot hold a distribution hostage in an effort to compel a beneficiary to sign a release before obtaining his or her distribution.
The case of Brighter v Brighter Estate illustrates this point. The deceased named her daughter Katherine trustee and left each of her three children $5,000 with the residue of the estate to go to her husband. As her husband had predeceased her, the residue was also divided equally between the three children. The primary estate asset was the home the deceased had lived in. It was decided that the home would be sold to Fred for a set price minus real estate commission. The remaining beneficiary, Alan, objected claiming that the house was improperly valued and the estimated real estate commission was inflated. The house was sold and Katherine wrote to Alan advising that the estate could be distributed. She further advised that he would have to sign a release to get his distribution. Alan refused. At the passing of accounts, the court sided with Alan. It stated:
[9] "An executor's duty is to carry out the instructions contained in the will, which in this case was to distribute the residue equally among the three children of the testatrix. The executor has no right to hold any portion of the distributable assets hostage in order to extort from a beneficiary an approval or release of the executor's performance of duties as trustee, or the executor's compensation or fees. It is quite proper for an executor (or trustee, to use the current expression) to accompany a payment with a release which the beneficiary is requested to execute. But it is quite another matter for the trustee to require execution of the release before making the payment; that is manifestly improper."
In determining who should be responsible Alan's costs in objecting to Katherine's behaviour, the court continued "the non-payment by the executrix of her brother Alan's share of residue was an egregious failure to discharge her duty as trustee,.
The Lesson for Trustees: Katherine's pressure technique was costly. Not only was she required to pay Alan's costs but she was also responsible for her legal costs in her personal capacity. It is crucial to remember that as an executor or estate trustee you are not acting in your own interest but rather in the interests of the beneficiaries. You may not force a beneficiary to approve your actions.
The Lesson for Beneficiaries: While a trustee may request approval of their actions, they may not compel it. If you feel pressured to sign a release or consent, seek legal advice.
Brighter v Brighter Estate, 1998 CarswellOnt 3113 (ON Gen. Div.)
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