Release of Trustee Liability

July 15, 2011

Release of Trustee Liability

Donald G. Bellows (“Donald”) appealed from a trial court’s denial of his motion to compel further accounting of his deceased mother’s trust by his brother (“Frederick”) who was Trustee.  Bellows v. Bellows (06/09/2011) A128875.  Initially, Donald filed a Petition in Probate Court under Probate Code §17200 seeking an accounting.  The court ordered an accounting and distribution of ½ of the Trust assets to Donald within 10 days.  A check was sent, which Donald’s attorney rejected because part of the itemized deductions was $13,000 in fees to Frederick’s attorney and a claim that $12,000 was not accounted for.

Frederick’s attorney responded with a new check which included approximately half of the fees, a denial that any other funds existed, and a provision that this was “provided there is no petition forthcoming . . . .”  The check noted that he is “authorized to negotiate the check when he has signed and returned the enclosed receipt of final distribution.

Donald cashed the check, but did not sign approving the accounting; and later filed a motion to compel compliance with the court’s earlier order and for a complete accounting and documentation.  The Trial Court found that by negotiating the check there was an “Accord and Satisfaction.”  Donald, in essence, had agreed to the terms on the check.

The Appellate Court discussed Commercial Code §3311 regarding an accord and satisfaction and then reviewed Probate Code §16004.5(a) which prohibits the trustee from requiring “a beneficiary to relieve the trustee of liabilities as a condition of making distribution of payment . . . if the distribution of payment is required by the trust instrument.”

Important to note, however, is that Subdivision (b) adds that “this section may not be construed as affecting the trustee’s right to: . . . (2) Seek a voluntary release or discharge of a trustee’s liability from the beneficiary. . . . (4)Withhold any portion of an otherwise required distribution that is reasonably in dispute. (5) Seek court or beneficiary approval of an accounting of trust activities.

The Appellate Court held that accord and satisfaction did not apply because it was not “for a sum to settle an unliquidated claim.”  The fees may have been questioned, but the distribution amount was based upon Frederick’s own accounting.

The Appellate Court found that (b)(2) and (b)(5) of 16004.5 did not apply because they allow for a voluntary release or discharge.  A release or discharge as a condition for a payment the beneficiary is entitled to “is in no sense voluntary” and “would render subdivision (a) entirely meaningless.”

So, you cannot require a release of liability before distribution of undisputed distributions; but, you can seek (a) voluntary approval of an accounting or (b) court approval of an accounting.

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John T. Anderson, Section Chair
Certified Specialist in Probate, Trust and Estate Planning
By the California State Bar Board of Legal Specialization

Copyright © 2011 by John T. Anderson

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