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Absolute Discretion?

Written by on Sep 21, 2010| Posted in: Trust Litigation

“I’ve got the power!”

Does absolute discretion mean trustees can exercise their discretion absolutely?

The short answer is “no.”  

The longer answer requires the starting point to be – what does the trust say?  The settlor is the person who makes the trust and his or her intent is the polestar by which a trust should be interpreted and construed. 

So if the trust grants the trustee the absolute discretion to distribute money from the trust then isn’t the trust stating that the trustee can do no wrong when deciding what amount to distribute?  Well, not really.  A provision seemingly allowing the trustee to distribute whatever he or she wants to must be balanced with the rest of the document. In other words, a trustee cannot pluck a sentence or two out of a forty page document and rely upon it as his or her absolute authority to distribute all the trust money with impugnity, leaving the remaindermen beneficiaries holding the bag–in many cases an empty one.

The courts have balanced the trustee’s power or discretion to invade the trust principal with the trustee’s fiduciary obligation to the remaindermen beneficiaries. As stated by one court “even an unlimited power of invasion is subject to implied limitations to protect the remaindermen.” So while the trustee may be singing “I’ve got the power,” the second stanza sounds like “but not to the detriment of the final beneficiaries.”

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