QUESTION: When can a receipt and release form for a trustee be invalidated by a beneficiary?
ANSWER: A receipt and release form is generally valid and may protect the trustee from liability but it may also be invalidated if it was induced by improper conduct on behalf of the trustee or where, at the time of the release, the beneficiary did not know of his or her rights or know of the material facts relating to any breach.
DISCUSSION: A beneficiary’s release of a trustee in Oregon from liability for breach of trust is valid so long as it does not violate the provisions of ORS 130.730 or ORS 130.840.
These statutes provide that a trustee is not liable to a beneficiary for a breach of trust if the beneficiary consented to the conduct, released the trustee from liability, or ratified the transaction. ORS 130.730(3)(a)(b); ORS 130.840(1)(2). Such provisions are intended to address the circumstance in which the trustee is reluctant to make a distribution until the beneficiary approves, but where the beneficiary will not approve unless the assets are distributed to him.
A release will be invalid, however, if it was induced by improper conduct on behalf of the trustee or if the beneficiary was unaware of his rights or of material facts relating to the breach. ORS 130.730(3)(a)(b). Factors considered in determining whether the release was valid include: 1) adequacy of disclosure; 2) whether the beneficiary was financially or legally incapable; 3) whether the beneficiary was represented; and 4) whether the trustee engaged in improper conduct.
ORS 130.835 provides that an exculpatory clause included within a trust is unenforceable if it relieves a trustee from liability for a breach committed in bad-faith or with reckless indifference to the purposes of the trust or interests of the beneficiaries. ORS 130.835(1)(a). Moreover, if the trustee drafted the clause, it is presumptively the result of abuse and is thus invalid. ORS 130.835(2). However, this presumption disappears if: 1) the settlor was represented by independent counsel who reviewed the exculpatory clause; or 2) the trustee proves that the clause is fair under the circumstances and that the clause’s existence and contents were adequately communicated to the settlor. ORS 130.835(2)(b).
In considering whether an exculpatory clause within a trust is fair, courts consider: 1) the extent of the prior relationship between the settlor and the trustee; 2) whether the settlor received independent advice; 3) the sophistication of the settlor with respect to business and fiduciary matters; 4) the trustee’s reasons for inserting the clause; and 5) the scope of the particular provision inserted.
Exculpatory clauses contained within trusts will be enforced so long as they are fair and do not eliminate the trustee’s liability completely. Mest v. Dugan, 101 Or App 196, 199-200, 790 P2d 38 (1990).
