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By: Scott Grossman on August 16th, 2022

Trustee Duties: Five exceptions for your Trustee seeking a release of liability waiver

Has your Trustee tried to relieve themselves of liability before distributing the Trust? Are you wondering if that’s even allowed? What red flags should you watch to ensure your Trustee is not taking advantage of the Trust? And what are the five exceptions for your Trustee seeking a release of liability waiver?

Here at The Grossman Law Firm, we have educated our clients on their rights as beneficiaries and Trustee duties. Informing them of the red flags to watch out for and what to do when you are in an inheritance dispute. As a beneficiary, it is essential to notice red flags. What to do after you spot them? And what is your best option to ensure your inheritance dispute goes as smoothly as possible?

In this article and video, you will gain insight on: 

  • What are some red flags if your Trustee is seeking a release of liability waiver? 
  • What are the five exceptions for your Trustee seeking a release of liability waiver? 
  • Do you know the basics of proper trust administration?

What are some red flags for seeking a release of liability waiver? 

It’s too familiar for clients to come to us because they are about to receive a trust distribution. Yet, before the Trustee writes a check or distributes property, the Trustee requires them to sign a liability waiver. 

Having to sign a release of liability waiver is often a red flag for beneficiaries. It is a warning sign when the Trustee has not accounted for you or provided you with meaningful financial information about the trust administration.

When looking at California’s Trust Law, the law states that a trustee may not require a beneficiary to relieve the Trustee of liability as a condition for making a distribution or payment to, or for the benefit of, the beneficiary if the trust instrument requires the distribution or payment. 

Though this statement might not be the most straightforward, it bars the Trustee from requiring you to sign a release of liability before you get your inheritance. 

It’s essential to note this applies when the Trustee is required to make a distribution to you by the terms of the Trust. If the Trustee requires you to waive liability to get your distribution, the Trustee has breached their fiduciary duty to you. 

What are the five exceptions for your Trustee seeking a release of liability waiver? 

The short answer is yes. It’s essential to know there are some exceptions to this law, and not all situations prevent the Trustee from seeking a release of liability. Here are the five exceptions for seeking a release of liability waiver. 

(1) Maintain a reserve of money for reasonably foreseen or unforeseen expenses, including, but not limited to, taxes, debts, Trustee and accounting fees, and costs and expenses of Trust Administration. 

You may disagree with the Trustee about what a reasonable amount is, but ideally, the Trustee does have the ability to keep a reserve for these defined purposes.

(2) Seek a voluntary release or discharge of a Trustee’s liability from the beneficiary.

The question here is whether the release is genuinely voluntary.  

You have to use some social skills to figure this one out. Suppose the Trustee has accounted for or has provided you with enough financial information that you genuinely understand what they’ve done during trust administration. In that case, that’s a good sign that the request is voluntary. If the Trustee isn’t making threats or seeking anything else in return, that’s another good sign the demand for a release of liability is voluntary.

(3) Require indemnification, compensation for harm or loss, against a claim by a person or entity other than a beneficiary entitled by the Trust’s terms to a distribution. That may reasonably arise due to distribution.

The only reason a trustee asks you for indemnification, or compensation for harm or loss, is that the distribution made is the subject of someone else’s claim. For example, suppose the Trustee is distributing a house with a mortgage. Further, the Trustee might ask you to reimburse them against any claim by the lender because of the existing liability in the form of the mortgage.

(4) Withhold any portion of an otherwise required distribution that is reasonably disputed.

During trust administration, the beneficiaries may disagree about who should receive specific property or a certain percentage of the trust estate. While this dispute is ongoing, it may also be clear that certain parts of the estate aren’t disputed. It’s appropriate and not a breach of the Trustee’s fiduciary duties for the Trustee to distribute the undisputed part of the Trust while retaining the disputed portion.

(5) Seek court or beneficiary approval of accounting of trust activities.

A trustee is not breaching their fiduciary duty by petitioning the court to approve their account or asking the beneficiaries to approve their account before making a distribution.  

If you consider how this law is written, it follows common sense. If you are required to receive something from the Trust, then the Trustee can’t hold up that distribution to benefit themselves by getting a release of liability.

On the other hand, the Trustee is retaining some portion of the trust property because a third party is making a claim. The beneficiaries are fighting among themselves, or the Trustee has provided the required financial information and asked the court or the heirs to approve their account. That way, the Trustee can lawfully retain trust property.

Do you know the basics of proper trust administration?

Please review our articles on the Beneficiary’s Rights in CaliforniaSuccessor Trustee Tax-Related Duties, and Removing a Trustee in California. If you would still like some more information on Trust Litigation and removing a trustee, check out our complete Overview of California Trust Litigation, available on our website. And if you have more questions about your rights as a Beneficiary and what you should know moving forward.

Still, having trouble? Have any questions or want to talk to someone about your case? Please give us a call or fill out our Get Help Now form.

If this aligns with what’s happening to you, it’s best to reach out as soon as possible. The longer you take, the more damage your Trust could take. Please call us at (888) 443-6590, and we would be more than happy to see if we can assist you.