Discretionary Powers

A trust will typically contain provisions that give the trustee discretionary powers, that is, the power to use his or her own judgment in specific circumstances. The amount of discretion is strictly construed from the language in the trust document and the intent of the trustor. Be cautious, however, even if the trust provides sole, absolute or uncontrolled discretion, Courts still require the trustee to act within the fiduciary standards and not in bad faith or in disregard of the purposes of the trust. In other words, if the issue of a trustee's discretion is presented to the Court, the Judge will make a determination based on his or her own evaluation.

Unless limited by the terms of the trust, the trustee also has other statutory powers.

You should review the powers and limitations specified in the trust document, and also the powers listed in your jurisdiction's Probate Code. One area in which a trustee might be required to use discretion relates to determining the appropriate amount of income or principal to distribute to a beneficiary. For example, should a trustee give consideration to the beneficiary's outside financial resources when the trust is silent on that issue? There are differing opinions. However, some Courts have suggested that, if the trust does not state otherwise, the trustee should consider the beneficiary's outside resources.

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