3.1.1 Good Faith Test

When applying the good faith test, courts looked to whether the trustee exercised his or her discretion “reasonably.” Thus, in ordinary situations, a trustee must exercise his or her discretion in “good faith” and “reasonably.” Reasonableness is generally viewed as an objective standard – something that a court could review and opine upon.[1] It would seem obvious that both “good faith” and “reasonableness” should be measured – in all cases – by the overall intent of the settler:

Even when the trustee has discretion, however, the court will not permit him to abuse the discretion. This ordinarily means that so long as he acts not only in good faith and from proper motives, but also within the bounds of reasonable judgment, the court will not interfere; but the court will interfere when he acts outside the bounds of reasonable judgment.[2] [1] For tort liability, for example, reasonable care and a reasonable person standard is used that is free from subjective interpretation: “The [reasonable person] standard … must be an objective and external one, rather than that of the individual judgment, good or bad, of the particular individual … [The standard] affords a formula by which, so far as possible, a uniform standard may be maintained.” Restatement (Second) of Torts § 283 cmt. c (1965). See Kristin Harlow, “Applying the Reasonable Person Standard to Psychosis: How Tort Law Unfairly Burdens Adults with Mental Illness,” 68 Ohio L.J. 1733 (2007).

[2] 3 Austin Wakeman Scott, The Law of Trusts § 187 (3d ed. 1967).