Settlement Agreements are Not Trusts!

From Trust & Estate Prof Blog: the Georgia Court of Appeals held that an exculpatory clause in a settlement agreement and release is not a trust amendment.

Curtis Mayfield, Jr., the musician, had a trust that held, among other things, the rights to his body of work. The beneficiaries settled with the trustee, received a distribution, and executed a settlement agreement and release. As with all good settlement agreements, the beneficiaries released all claims against the trustee. The beneficiaries then brought a lawsuit against the trustee for fraud, negligence, etc. The trustee filed a motion to dismiss, referring to the release language in the settlement agreement. The trial court granted the motion to dismiss, holding that the release violated Georgia law prohibiting a trust instrument from relieving a trustee for their own breach of trust.

The court of appeal reversed. The settlement agreement was not a trust instrument, and thus trust law did not apply. The court held that the release of liability was valid for negligent acts, although it might not be valid for intentional acts, as such a release would violate public policy.

I realize this is GA, and not CA, law, but there are similiarities. The GA law relied on by the court in concluding that the settlement agreement was not a trust is essentially the same as CA law: intention to create a trust (Prob. Code section 15201); trust property (Prob. Code section 15202); a valid purpose (Prob. Code section 15203); and a beneficiary (Prob. Code section 15205). Settlement agreements don't fall into these categories and therefore are not trusts. So, trust law limiting the ability of a trustee to exculpate him or herself from liability does not apply to a settlement agreement.

So, there are two things to take away from this, even under California law: (1) settlement agreements are not trusts, and (2) releases of liaibility in settlement agreements are governed by contract law, not trust law.