PROBATE CORNER

By: David M. Garten, Esq.

ARTICLE: Limitations On A Trustee’s Absolute Discretion

Let’s cut to the chase: In Florida, there is no such thing as a trustee’s “absolute”, “sole”, or “uncontrolled” discretion. Irrespective of the scope of the discretion given to a trustee, the trustee must still exercise his discretionary power in good faith, in accordance with the terms and purposes of the trust, and in the interests of the beneficiaries. See §736.0814(1), F.S. This is a mandatory provision under the Trust Code; therefore, this statute controls over the terms of the Trust. See §736.0105(2)(b), F.S.

“It is contrary to sound policy, and a contradiction in terms, to permit the settlor to relieve a “trustee” of all accountability… Once it is determined that the authority over trust distributions is held in the role of trustee…, words such as “absolute” or “unlimited” or “sole and uncontrolled” are not interpreted literally. Even under the broadest grant of fiduciary discretion, a trustee must act honestly and in a state of mind contemplated by the settlor. Thus, the court will not permit the trustee to act in bad faith or for some purpose or motive other than to accomplish the purposes of the discretionary power.” See Restatement 3d of Trusts, §50, Comments & Illustrations.

So why expand the trustee’s discretion at all? The obvious reason is to make it more difficult to challenge the trustee’s actions/inactions. A grant of discretion establishes a range within which the trustee may act. The greater the grant of discretion, the broader the range. See UTC §814(a), Comment. As a result, the beneficiaries’ expectations as to a responsibility that is exercised with “sole discretion” should reasonably be more limited than those for a responsibility that is exercised under a higher standard. See Sepe v. City of Safety Harbor, 761 So. 2d 1182 (Fla. 2nd DCA 2000).

SETTLOR’S INTENT: The starting point in any analysis in determining the scope of the trustee’s discretion is to effectuate the settlor’s intent from the four corners of the trust. A court must strive to discern the intent of the settlor and give effect to his wishes. Ask: Is the settlor’s intent clear from the wording of the trust? If not, it may be necessary to resort to extrinsic evidence to aid in the construction of the trust. In such instance, it is generally recognized that evidence relating to the attendant facts and circumstances existing at the time of the execution of the trust and of which the settlor had knowledge may be admitted, not to vary nor to contradict any of the terms of the trust, but to explain or resolve the ambiguity and so to enable the court to effectuate the dispositive intent of the settlor. Although the testimony of the drafting attorney is admissible in latent ambiguity cases, such testimony is limited to the surrounding circumstances of the settlor when the trust was made and executed.

“Specific language, facts, and circumstances in a situation are properly to be considered in the process of interpretation, and may overcome, alter, or reinforce a particular presumption. Realistically, however, these factors often reveal little of a settlor’s actual intent. The settlor may have formed no intention on the matter at issue, or whatever intention may have existed might not have been ascertained by counsel or preserved in the drafting. In any event, the significance of particular facts and circumstances is often highly speculative, or they may cut both or several ways even if judicial opinions sometimes mention but one side. Furthermore, to be influenced by and draw meaning from subtle details of wording may well ignore the realities of how drafting is done, not to mention that the words were those of one whose work product suggests inattention to the particular issue or circumstances for which it has become necessary to discover, or attribute, an intention. Frequently, therefore, the most revealing and reliable guides for resolving these types of questions are the underlying or general purposes of the trust or provision in question. From these it may be deduced what objectives the settlor had in mind, and thus what intention might appropriately be attributed to the settlor on the matter at issue. Accordingly, rather than relying on speculation about the import of specific details of fact or wording, it is often more instructive to analyze the variety of beneficial interests and other provisions of the trust as a whole, with any other available evidence, in a broader effort to ascertain why the trust was created and what role the particular discretionary power was to play in the trust plan.” See Restatement 3d of Trusts, §50, Comments & Illustrations. See also Mesler v. Holly, 318 So. 2d 530 (Fla. 2nd DCA 1975) (the settlor’s intent is the polestar by which a trust instrument should be interpreted and construed).

EXERCISE OF DISCRETIONARY POWERS: After determining the scope of the trustee’s discretion, you need to review the trustee’s actions/inactions:

  • Did the trustee exercise his discretion in good faith? For example, in Estate of Herskowitz, 338 So. 2d 210 (Fla. 3rd DCA 1976), the court found that the trustee’s refusal to make support payments constitutes arbitrary and capricious conduct and “nothing more than a strategical ploy to wear down the guardian of the persons and natural mother.”
  • Did the trustee exercise his discretion in accordance with the terms and purposes of the trust?
  • Did the trustee exercise his discretion impartially among the trust beneficiaries? See §736.0803 (same). Did the trustee treat the beneficiaries even-handedly? See Friedman v. Friedman, 844 So. 2d 789 (Fla. 4th DCA 2003). In DeMello v. Buckman, 916 So. 2d 882 (Fla. 4th DCA 2005), the trustee was removed for making decisions with respect to the administration of the trust and disposition of its assets based upon her personal interests. In addition, special rules apply to discretionary decisions by a trustee who is also a beneficiary. See §736.0814(2), F.S.
  • Did the trustee consciously consider whether or not to exercise his discretion? The trustee can decide not to make a distribution, but he cannot fail to deliberate. The trustee cannot remain passive. A trustee breaches his duty to the beneficiary if he refuses to make a determination. The court will prevent the trustee from failing to act, either arbitrarily or from a misunderstanding of the trustee’s duty or authority. See Restatement 3d of Trusts, §50, Comments & Illustrations.
  • Did the trustee consider the beneficiary’s other assets? When the trustee has discretion regarding distribution of assets for a beneficiary’s health, education, maintenance, and support, uncertainty can arise regarding whether the trustee should consider other assets and income available to that beneficiary, such as the beneficiary’s own resources, when the trust does not require such consideration. In Florida, when a trustee has sole discretion to make a distribution, his request for information of outside sources of income is not an abuse of discretion where there is no evidence that he acted dishonestly, arbitrarily or from an improper motive. See NCNB Nat. Bank of Florida v. Shanaberger, 616 So. 2d 96 (Fla. 2d DCA 1993).
  • Did the trustee comply with all of his statutory duties? See §736.0801- §736.0817, F.S.

JUDICIAL REVIEW: “[A]lthough there is a field, often a wide field, within which the trustee may determine whether to act or not and when and how to act, beyond that field the court will control him. How wide that field is depends upon the terms of the trust, the nature of the power, and all the circumstances.” See DeMello v. Buckman, supra,citing Scott on Trusts. A trustee’s exercise of discretion is not subject to control by the court except to prevent an abuse of discretion. See NCNB Nat. Bank of Florida v. Shanaberger, supra. “A court shall not determine that a trustee abused its discretion merely because the court would have exercised the discretion in a different manner or would not have exercised the discretion.” See §736.0814(1), F.S. However, a court may be more inclined to find an abuse of discretion when “simple [or reasonable] discretion” and not “absolute discretion” is involved. See Bogert, Trusts and Trustees, §560 (2d ed. 1992).

Restatement (Second) of Trusts § 187 Comment d, lists the following six factors for determining whether a trustee has abused his discretion: (1) the extent of the discretion conferred upon the trustee by the terms of the trust; (2) the purposes of the trust; (3) the nature of the power; (4) the existence or non-existence, the definiteness or indefiniteness, of an external standard by which the reasonableness of the trustee’s conduct can be judged; (5) the motives of the trustee in exercising or refraining from exercising the power; (6) the existence or nonexistence of an interest in the trustee conflicting with that of the beneficiaries.

TRUSTEE’S SOLE DISCRETION: Reference to a trustee’s “sole discretion” and “binding and conclusive determinations,” though they ostensibly suggest an intent to dispense with judicial review entirely, are construed to signify an intent to limit the scope of judicial review of the trustee’s discretion in applying that standard. See In re Estate of Mayer, 176 Misc. 2d 562; 672 N.Y.S.2d 998 (Sur Ct. NY 1998). If the trustee has sole discretion, the courts will not find an abuse of discretion unless he acted with willful negligence or gross unfaithfulness, dishonestly, arbitrarily, or from an improper motive. See Griffin v Griffin, 463 So. 2d 569 (Fla. 1st DCA 1985); NCNB Nat. Bank of Florida v. Shanaberger, supra; American Cancer Soc., St. Louis Div. v. Hammerstein, 631 S.W.2d 858 (Mo App. 1981); Scott v. McDonald, 26 Cal. App. 5th 463, 237 Cal. Rptr. 3d 137 (Cal. App. 2018). This elevated standard is consistent with the UTC Comment: “the greater the grant of discretion, the broader the range.”