Releases and Family Settlement Agreements in Trust & Estate Litigation
Although settlement agreements can be beneficial, they do not come without risk. “In Austin Trust Co. v. Houren an agreement contained language in a release that barred the parties from bringing future claims.”
Below is a brief background on the case:
Following the death of their father, the beneficiaries of an estate realized that their distributions would be delayed until a federal estate tax return had been filed. Seeking to speed up the distribution process, the beneficiaries entered into a family settlement agreement (“FSA”) with all interested parties. The FSA was negotiated by the parties, who acknowledged that they were either represented by counsel, or consciously chose not to be represented by counsel.
The FSA contained a release that, among other things, released all claims for breach of fiduciary duty. The exact language in the agreement releases read as follows: “any and all liability arising from any and all Claims,” including “claims of any form of sole contributory, concurrent, gross, or other negligence, undue influence, duress, breach of fiduciary duty, or other misconduct” and defined “covered activities” to include “(1) the formation, operation, management, or administration of the Estate,…or the Trusts, (2) the distribution of any property or asset of or by…the Estate,…or the Trusts, (3) any actions taken (or not taken) in reliance upon this Agreement or the facts listed in Article I,” (4) “any Claims related to, based upon, or made evident in the Disclosures,” and (5) “any Claims related to, based upon, or made evident in the facts set forth in Article I.”
The FSA was signed on June 10, 2015. In early 2016, the executor of the estate filed the federal estate tax return, which did not list an alleged $37 million debt as either an asset or a liability. Austin Trust sent a demand letter seeking repayment of the alleged debt, which the executor rejected. Austin Trust claimed a breach of fiduciary duty, and the executor asserted that this duty had been released. The trial court agreed, and an appeal followed.
In Austin Co., the court had to determine whether the release agreement was valid before it addressed whether the executor breached a fiduciary duty. The court listed six factors that it considered in deciding whether to affirm the settlement agreement. The court determined that the release was valid and did not have to decide whether a fiduciary duty was breached.
Though settlement agreements can be beneficial, parties should exercise great caution and diligence before execution a settlement agreement.
See Releases and Family Settlement Agreements in Trust & Estate Litigation, Freeman Law, 2021.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.