The actions of an Estate Trustee can be approved in two ways: a formal passing of accounts where the Court approves the actions by the Estate Trustee, or, by having the beneficiaries sign a release.
Releases typically accompany a proposed interim and/or final distribution of an Estate. By signing the release, the beneficiary is approving the steps taken by the Estate Trustee up to the point of the distribution thereby releasing the Estate Trustee from any liability during that time period. With a signed release, the Estate avoids the costs associated with preparing and passing formal accounts.
But what if a beneficiary signs a release, only to realize later they shouldn't have?
In 2013, the Ontario courts considered what happens if a beneficiary signs a release only to realize at a later date they should not have done so, as improper steps were taken by the Estate Trustee. In Sheard Estate, 2013 ONSC 7729, the beneficiaries had signed two releases for two separate interim distributions by the Estate Trustee, thereby approving the Estate Trustee’s actions as well as his compensation. At the time of the final distribution, the beneficiaries refused to sign a final release and sought an accounting from the date of death. Effectively, the beneficiaries were seeking to challenge the Estate Trustee’s conduct from day one, despite having signed two releases covering periods of time well after that. The Court determined that to set aside a release, the beneficiaries had to commence their own proceeding (as opposed to being included in a response to an application to pass accounts). As an action had to be commenced within two years of signing the release under the Limitations Act, 2002, the beneficiaries were statute barred from seeking to set aside the releases signed more than two years earlier. The Court also noted that there was no authority referred to, to suggest that errors in the prior accounts would be sufficient to set aside a release. There was no evidence of duress or inability to obtain further information at the time the releases were signed. Finally, the Court held that the lack of independent legal advice for the beneficiaries was not grounds to set aside the releases.
In a more recent case, Williams v Crate, 2023 ONSC 4470, the Court was again asked, amongst other things, to set aside a release signed by the beneficiaries. An important distinguishing fact from the Sheard Estate case is that the Estate Trustee in Williams was also a lawyer who, in addition to acting for the Estate, provided advice to the beneficiaries regarding the Estate. When the Estate Trustee (lawyer) sought to have his work approved by the beneficiaries and his compensation of $300,000 paid (in addition to his legal bills), the beneficiaries signed the release he requested. The beneficiaries later sought to set aside the release on the basis that they did not understand the effect of the release, they had not received independent legal advice before signing (nor did the Estate Trustee recommend independent legal advice), and they believed that if they did not sign the release, they would not receive their inheritance. The Court held that the Estate Trustee owed a fiduciary duty to the beneficiaries. By not specifically advising the beneficiaries that they ought to seek independent legal advice before signing the release when he knew the beneficiaries were relying on his advice, the Court held that Estate Trustee breached his fiduciary duties by putting his self-interest of receiving significant compensation ahead of the beneficiaries’ interests. Additionally, the Estate Trustee failed to properly advise the beneficiaries that they need not sign the release in order to receive their inheritance. The Estate Trustee did not inform them and there was no evidence that they were otherwise aware that if they did not sign the release, the inheritance could still be released to them – the Estate Trustee would proceed to have his accounts formally passed. As the Courts have criticized with respect to the use of releases in other cases, the Court in Williams v. Crate commented that holding the inheritance as ransom for the signed Release was improper. The Court concluded that the release was not effective in this case and allowed the beneficiaries’ request to look at the conduct for the period covered by the release.
If you are asked to sign a release in order to receive an inheritance, before you regret it later, you should consider seeking independent legal advice of the effect of doing do as, although not impossible, it may be difficult to reverse the consequences of signing it.
