QUESTION: Can a trustee require a beneficiary to sign a receipt and release form?
ANSWER: Under Oregon law, it is likely that trustee can require a beneficiary to sign a receipt and release form so long as the beneficiary does not have a valid reason to object to the signing. (See prior Wealthlawblog.com article.)
Case law suggests that a trustee may insist that a beneficiary execute a release where doing so is reasonable under the circumstances. See Masters v. Bissett, 101 Or App 163, 790 P2d 16 (1990).
In Masters, for example, the trustee conditioned the distribution of trust assets upon the beneficiaries’ execution of a document that would release him from any further claim arising out of the administration of the trust. Id.at 171. The beneficiaries, however, refused to sign the release because they were aware that the trustee had paid himself fees that he was not entitled to under the trust agreement. Id. The court determined that the demand for release was unreasonable under the circumstances. Id. The fact that the court considered whether the demand was reasonable, however, suggests that a trustee may compel a beneficiary to sign a release where it seems fair to do so.
Likewise, in First Midwest Bank/Joliet v. Dempsey, 157 Ill App 3d 307, 509 NE 2d 791 (1987), a trustee bank refused to distribute the trust property after the beneficiary refused to sign a receipt and release form in order to conclude the bank’s accounting. Id.at 310. The court concluded that the trustee’s action in withholding distribution to the beneficiary after the trust had terminated was proper. Id.at 315. One of the trustee’s privileges is to be compensated in its position as trustee, and it has a right to a determination of the propriety of its accounts before making a final distribution. Id. Thus, the trustee’s refusal to distribute the trust property without first receiving a receipt and release form was not willful and was within its rights as trustee. Id.
In contrast, other jurisdictions have held that a trustee’s refusal to release funds held by the trust until the beneficiary signs a release constitutes duress or coercion. See Ingram v. Lewis, 37 F2d 259, 263 (10th Cir. 1930) (stating that “it is legal duress for a trustee to refuse to turn over property to his beneficiary rightfully entitled thereto, except upon condition of signing a release.”); Kinney v. Lindgren, 26 NE 2d 471, 474 (Ill 1940) (holding that a release is ineffective if the trustee demands the release as a prerequisite to making a distribution to which the beneficiary is otherwise entitled).
Additionally, Oregon does not have a statute that prohibits the trustee from insisting that a beneficiary sign a release. In California, this action is specifically prohibited by Cal. Prob. Code § 16004.5(a). Because Oregon expressly allows for receipt and release forms, and because Oregon does not have a statute prohibiting the trustee from requiring the beneficiary to sign this type of form, there is indication that a trustee may compel this action.