3.2.1 Required in Every Case Involving Extended Discretion
This was also the conclusion of Professor Halbach in his seminal 1961 article: that “reasonableness” was, in fact, required in every case involving extended discretion, but usually the courts framed the discussion under “the state of mind contemplated by the settlor” standard:[I]n numerous cases the trustee’s ‘absolute’ or ‘controlled’ discretion has been overturned on much the same ground as that on which simple discretions have often been upset – typically, unreasonably small payments to the beneficiary. Such cases can be interpreted as coming within the Restatement formulation requiring the trustee to act in the ‘state of mind’ … contemplated by the settlor, ‘and the modern opinions, almost without exception, have expressed their results in these terms when interfering with the trustee’s judgment. Even though language in the decisions tends to perpetuate the Restatement’s wording of the rule, any distinction between the test of reasonableness and the state-of-mind test is difficult to discern from the holdings of these cases. In fact, the requirements set out in the dicta of some cases, phrased in terms of requiring ‘reasonable judgment’ and ‘sound discretion,’ go far in obliterating any such distinction.  Edward C. Halbach, Jr., “Problems of Discretion in Discretionary Trusts,” 61 Colum. L Rev. 1425, 1429 (1961), Professor Halbach’s article followed the Restatement (Second) of Trusts by two years but collects and discusses cases that largely substantiate the discussion of the enforcement of discretionary trusts contained in § 50 of the Restatement (Third) of Trusts. That this is so, of course, should come as no surprise as Professor Halbach is its Reporter. The cases that Professor Halbach discusses in his article should put to rest any suggestion that the Restatement (Third) of Trusts radically departed from existing law in this regard.