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Trusts and Estates

Ca. Trs. & Estates Quarterly 2015, Volume 21, Issue 4

FIDUCIARIES (AND OTHERS) BEWARE—AN OVER-REACHING RELEASE MAY BE VOIDABLE

By Christopher D. Carico, Esq.* and Golnaz Yazdchi, Esq.**

I. INTRODUCTION

The majority of contested trust proceedings are resolved before trial, frequently as a result of a successful mediation between the parties. The settlement is often memorialized in a written agreement signed by all fiduciaries, beneficiaries, heirs, and other litigants. With the goal of bringing finality to present disputes and avoiding future ones, the settlement agreement often includes a broadly drafted general release. Usually, the general release in the settlement agreement purports to absolve the trustee (and the other parties) from past errors, omissions, breaches, and other wrongdoings. The general releases typically include language waiving the protections of Civil Code section 1542, intending to release all of the parties from existing claims that are not yet known or discovered by the parties at the time of signing the settlement agreement.

Despite the all-encompassing language, broadly drafted general releases may still have limited effectiveness for fiduciaries in light of Probate Code section 16464, subdivision (b). To enforce the release, the trustee will bear the burden of proving that the beneficiary was on "equal footing" with the trustee.1 In the event of a future dispute concerning the scope of the release, the trustee will have the burden of establishing that the beneficiary was aware of all material facts, the beneficiary had a full understanding of his or her legal rights and the settlement/release was fair and reasonable to the beneficiary.2 Where the trustee has failed to disclose material facts, or the release is economically unfair to a beneficiary not represented by counsel, the release may be voidable by the beneficiary through an action for rescission.3

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