As noted, under the Common Law a beneficiary has the right to enforce his or her rights to a distribution from a discretionary trust. Historically, this right of enforcement was described as a right to force the trustee to act “in a state of mind which it was contemplated by the settlor that he should act.” The First National Court described the right to force a distribution from a discretionary trust upon a showing “that the trustees have acted arbitrary, dishonestly, or from an improper motive in denying the beneficiary the funds sought,” citing both Bogert and the Restatement (Second). Elsewhere, the Maryland Court of Appeals has stated that the trustee’s exercise, or non-exercise, of the power to distribute from a discretionary trust must be “honestly and reasonably exercised.” Despite the position of the first two Restatements of Trusts, the Common Law always gave the Equity Court oversight of a trustee’s exercise of discretion to assure that it was handled reasonably to implement the settlor’s intent. That a trustee must act “reasonably” means that there is an objective standard by which the Court can judge the trustee’s actions. This is the basis of the description of a beneficiary’s rights to enforcement of a discretionary trust by the Restatement (Third) of Trusts. It is not a departure from existing law, it is a clearer statement of existing law.
Nationally, the cases involving supplemental needs trusts break down into one of three categories of approaching the trust to determine whether the assets of such a trust can be an available resource – (i) a traditional searching for settlor intent, (ii) a balancing of the competing interests, or (iii) an enforcement of a public policy restricting government benefits regardless of settlor intent:
The case law from the various states offers three quite different answers whether discretionary trusts can be held liable for the support costs of an institutionalized beneficiary. An apt analogy might be three parallel rivers each carving a distinct channel. First, some courts approach the issue as merely a standard problem in the interpretation of trust language in which the parties differ as to the degree of authority granted by the settlor to the trustee. For these courts, the path to “justice” is to carry out the intent of the settlor. Most courts that have used this analysis have held that the trust was not liable for the costs of institutionalization. If the court finds, however, that the settlor intended that the trust support the beneficiary, then the trust will be held liable even if the beneficiary resides in a state institution. If the settlor created a “discretionary trust” and yet intended the trust to provide minimum support, the court may require the trustee to assist the beneficiary even though state support is available. If courts choose to follow this rather narrow route and rely solely upon interpretation of the trust language, then over time discretionary trusts should have little trouble avoiding the costs of institutionalization. Drafters of trusts can insert language to the effect that it is the settlor’s intent that the trustee consider alternative support sources (including governmental assistance) in the application of his discretionary distribution power. The trust might even contain explicit instructions that the trustee apply the trust assets in a way calculated to supplement rather than supplant governmental assistance. In short, in jurisdictions where the enforcement of trust language is paramount and the interest of the state as the creditor is irrelevant, then the sagacious trust drafter may successfully employ discretionary trusts.
A second judicial approach is one of balancing the competing interests. These courts do not see the problem as a narrow one of mere interpretation of trust language since a finding of discretionary trustee power does not end the discussion. They are troubled by the prospect of an individual receiving state assistance while enjoying the status of being the beneficiary of a trust. To these courts, it is significant that the state is the creditor who must bear the burden of support if the trustee fails to assist the beneficiary. The courts’ solution is to balance the intent of the settlor against the legitimate state interest in reimbursement. While the outcome of this balancing is not altogether certain, in general, the courts have favored the right of the trustee to refuse to assist the beneficiary and to resist state attempts at reimbursement. Typical is the New York case of Estate of Escher, in which the court held that (a) the testator would prefer the state to support the beneficiary, and (b) to invade the trust would not benefit the beneficiary but only exhaust the trust assets and destroy the testator’s intent. Hence, the trust could not be held liable.
Unlike courts which rely upon a strict trust language interpretation, courts which look to a “balancing of interests test” open the door to the public policy issue of the right of the state to reimbursement for the cost of institutionalization. Here, the intent of the settlor is not a polestar. Other constellations compete for primacy. If, in the end, the testator’s intent prevails, it is only because the justification for state reimbursement has not yet won the day. Perhaps if the argument were recast in the form of more modest demands, the courts might be persuaded. The state, for example, rather than claiming complete reimbursement and eventual exhaustion of the trust assets, might ask only for reimbursement up to the amount required for the cost of noninstitutionalization support. Suppose the cost of institutionalization was $1000 per month, but the state asked for only $450 per month from the trust on the theory that $450 per month would have supported the beneficiary had he not lived in a state hospital. The medical expenses, the cost of habilitation, and the extraordinary costs of institutional maintenance could be borne by the state, while the trust could pay an amount equal to the “normal,” noninstitutionalized cost of independent living. That, after all, is what the settlor anticipated: the trust would pay the support costs of an independent, noninstitutionalized beneficiary. If the trustee would have paid $450 a month to support a noninstitutionalized beneficiary, then arguably the trustee should not be allowed to refuse the same amount of support when the beneficiary is institutionalized. The settlor’s intent would be honored since he expected the trust to support the beneficiary if he were unable to support himself. It should be irrelevant to either the settlor or the trustee whether the support payments are made to a rooming house or to a state hospital.
While prorating the beneficiary’s costs of support between a trust and the state might not appeal to a court that prefers strict construction of trust language, it should be attractive to one which believes that a discretionary trust cannot serve as an absolute haven for a trustee’s discretionary judgment. Since the court would be attempting to balance society’s interests against those of the settlor, the court ought to be receptive to a solution that appears to ration justice between the parties. Were such a solution employed, the trust could avoid exhaustion of its principal and thereby remain in existence, perhaps to assist a later deinstitutionalized beneficiary. The state would not go away empty handed and might be content with the old saw that “something is better than nothing.”
The third judicial approach has been to eschew any balancing of interests and to look solely to the anomaly (at least to these courts) of a trust beneficiary being supported by the state. If a resident of a state institution is the beneficiary of a trust, then the beneficiary “owns” something of value. Because state law requires reimbursement from institutional residents, the trust beneficiary is indebted to the state. Since the trust represents value that belongs to the beneficiary, the trust in turn is liable to reimburse the state.
The issue is not one of mere statutory interpretation, however. State statutes that require reimbursement speak of the “estate” of the recipient, which is not a self-defining term. The court’s definition of an “estate” is therefore critically dependent upon the court’s view about the propriety of a trust beneficiary receiving state services. The justification for holding a trust liable is the public policy argument that the state is a unique creditor since it is the provider of last resort. An individual’s right to these state services arises out of poverty, not out of a mere desire for free support. As such, all other support sources ought to be exhausted prior to turning to the state. A discretionary trust is perceived, not as a legitimate manner of effecting the settlor’s intent, but as an attempt to shirk the costs of institutionalization. As a policy matter, assets available to support the beneficiary cannot be hidden behind the mantel of a trustee’s discretionary authority.
Professor Frolik classifies the First National approach as fitting into the second category of balancing competing interests. But that is not really the holding of the First National Court. The trust in the First National case was a hybrid, somewhere between support and discretionary: distributions “in (the trustees’) absolute and uncontrolled discretion … for her maintenance, comfort and support.” The First National Court saw its task as determining settlor intent from the text set forth in the instrument. If the settlor intended a support trust, then the funds were available to reimburse the government for its assistance. On the other hand, if the settlor intended a discretionary trust, the funds were not able to be reached by the state. At base, the Court’s role was to determine settlor intent: “[O]ur task becomes one of ascertaining, from the four corners of the will, which form of trust the testatrix-settlor intended to create.” In Maryland, whether a supplemental needs trust will be breached to pay for governmentally supplied services to a disabled beneficiary depends on whether the settlor intended to create a support trust or a discretionary trust – it depends, in other words, on ascertaining, then following settlor intent. Presumably, a trust instrument giving extended discretion to the trustee (“absolute” or “unlimited” discretion) that also states that the trust is intended to supplement, but not replace, governmental assistance meets the First National test. Whether a trustee is bound to follow that direction “reasonably” ought not change the character of the trust.
Although the Maryland Trust Code preserves the categorization of trusts as either “mandatory” or “discretionary,” the Uniform Trust Code, which obliterates the distinction, does not alter present law so to jeopardize supplemental needs trusts:
Many supplemental needs trusts are drafted specifically to enable the beneficiary to qualify for Medicaid or other public assistance and to provide the beneficiary with amounts other than for the beneficiary’s basic support. Such a trust would typically preclude the trustee from making distributions for the beneficiary’s basic support needs and authorize the trustee to make distributions for the beneficiary’s supplemental needs–that is, to make distributions for non-essentials such as travel, vacations, cultural activities, private (as opposed to shared) institutional housing, elective medical care, etc. There is substantial and consistent case law holding that the assets of such trusts are not considered available resources for Medicaid qualification purposes; moreover, the result is codified by statute in many jurisdictions. The UTC will have no effect on the continued effectiveness of such trusts for this purpose. Under section 814(a), the trustee is required to carry out the terms of the trust in good faith; if the trust terms prohibit distributions for the beneficiary’s basic support needs, the UTC will require adherence to this prohibition.
Next, consider a trust expressly intended to be a supplemental needs trust. To what extent will such a trust be considered an available resource for Medicaid purposes, and what effect, if any, will the UTC have on that result? In general, a trust under which the trustee is required to make distribution for the beneficiary’s basic support needs will be considered an available resource for Medicaid qualification purposes. The UTC will have no bearing on the treatment of such trusts. On the other hand, in general a wholly discretionary trust without a support standard will not be considered an available resource for Medicaid purposes. As discussed earlier, the UTC should not enhance a beneficiary’s ability to compel distributions from such trusts; thus the UTC should not adversely affect the effectiveness of wholly discretionary trusts for purposes of Medicaid qualification.
A more difficult issue is the Medicaid treatment of third-party trusts in which the trustee is granted discretion in making distributions for the beneficiary’s support. Putting aside the effect that the UTC may have on this question, the case law concerning such trusts is inconsistent, with some cases holding that the trust assets are an available resource for Medicaid qualification purposes, and others holding that they are not. The cases turn on the court’s interpretation of the settlor’s intent and thus the outcome of any particular case is largely fact-driven. The UTC should have little, if any, effect on the outcome of these cases, although for several reasons it may help somewhat for those seeking to qualify for public assistance. First, as earlier discussed, the UTC treats support trusts as discretionary, thereby limiting a beneficiary’s ability to compel distributions. Second, under a 2005 amendment, the comment to section 814 cites with approval language from the Restatement (Third) to the effect that, in exercising its discretion, a trustee should do so in a manner that avoids disqualifying the beneficiary for public benefits. In a borderline case, the comment to section 814 may help produce a favorable interpretation of the language of a discretionary trust that also includes a support standard. 
Again, to the extent that settlor intent drives the outcome, careful drafting will immunize a supplemental needs trust. Restatement (Second) of Trusts § 187.
 First Nat. Bank of Md. v. Dept. Health and Mental Hygiene, 284 Md. 720, 399 A.2d 891 (1979).
 Waesche v. Rizzuto, 224 Md. 573, 587, 168 A.2d 871, 877 (1961) (emphasis added.).
 Restatement (Third) of Trusts §50. See pages __ through __ hereof for a detailed treatment of this issue.
 Lawrence A. Folik, “Discretionary Trusts for a Disabled Beneficiary: A Solution or Trap for the Unwary?”, 46 U. Pitt. L. Rev. 335, 363-4 (1985); Also see Carol Ann Mooney, “Discretionary Trusts: An Estate Plan to Supplement Public Assistance for Disabled Persons,” 25 Ariz. L. Rev. 939 (1983); Joseph A. Rosenberg, “Supplemental Needs Trusts for People with Disabilities: the Development of a Private Trust in the Public Interest,” 10 B.U. Pub. Int. L. J. 91 (2000).
 First Nat. Bank of Md. v. Dept. Health and Mental Hygiene, 284 Md. 720, 722, 399 A.2d 891, 892 (1979).
 The proposed Maryland Trust Act would define a trust like the one in the First National case as involving discretionary, not mandatory, distribution provisions. Md. Trust Act § 14.5-103(F), (M) and (W).
 Robert T. Danforth, “Article Five of the UTC and the Future of Creditors’ Rights in Trusts,” 27 Cardozo L. Rev. 2551, 2589-90 (2006); Also see Richard E. Davis, “Uniform Trust Code and SNTS: Should UTC Be Feared, Embraced or Ignored?”, 5 NAELA J. 13 (2009).