This blog addresses the question whether executors can make an interim distribution contingent on beneficiaries signing releases. The authors examine how the judge in Brighter v. Brighter case dealt with this situation.
In a will, the deceased names a person to be his representative when he dies. That person is called an executor or an estate trustee. The job of the estate trustee includes collecting the assets, paying debts, keeping records and distributing the estate.
Sometimes an estate trustee will want to give money to beneficiaries before the estate has been fully dealt with. This is called an interim distribution. Before doing this, the executor has to ask herself some questions. Will there be enough money left to pay taxes? Professional fees, ongoing expenses, including the estate trustee’s own compensation? Only at that point, is it responsible for the executor to make an interim distribution.
Before the executor makes an interim distribution, she will likely do one of two things. One option is seeking a formal accounting. That’s when an estate trustee goes to court to have a judge approve all of her record keeping and bills paid. Better known as a passing of accounts. And this will include seeking approval of the estate trustee’s compensation for the work she’s done up to that point. Another option is an informal accounting. The estate trustee will show the beneficiaries her accounts, and ask the beneficiaries to sign a release before she makes any distribution.
Getting the release is the easier, less expensive option so both trustees and beneficiaries often prefer this option. But, can the executor refuse to give a beneficiary his share of the estate if that beneficiary refuses to sign a release?
In the Brighter case, two of the beneficiaries signed the release and got their money. One beneficiary refused, and he did not get his money from the estate trustee. The court decided to override the trustee’s discretion and required that the interim distribution take place. The judge may have felt that the trustee had acted in bad faith because she was attempting to extort a release from the beneficiary. Or the judge may have felt that the executor breached the trustee’s duty of fairness, by giving two of the beneficiaries their money and not giving the last one his money because he refused to sign the release.
While the case law is clear that it is within a beneficiaries right to refuse to sign a release, there are some cases where judges praise executors for doing an informal accounting and asking for releases. And there are other cases where a judge will order the executor to make an interim distribution without receiving a release. When the beneficiary refuses to provide a release, it is prudent for the estate trustee to commence an application to pass his or her accounts or at the very least, bring an application to court for directions.
My name is Brad Phillips. Every case is decided on its own facts. Our firm has a lot of experience handling these sorts of cases, and it’s important to remember that a short video is no replacement for getting proper legal advice from a competent lawyer. If you enjoyed this presentation, please see the blog “The Extoring Executor” written by my colleagues. And if you have any questions regarding this case or this issue, you’re welcome to give me a call.