3.2 Reasonableness Standard

In practice, however, the courts impose a reasonableness standard regardless of whether the discretion is extended or absolute despite the early treatment in the first two Restatements:

The authorities do not appear to support the Restatement position that there is no requirement of reasonableness in the exercise of a power granted in the trustee’s absolute discretion. Most courts have held that the exercise of an absolute power is subject to the court’s review and determination as to whether the power had been unreasonably exercised by the trustee.[1]

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It would appear that the difference in the attitude of the courts towards “simple” discretionary powers, on the one hand, and “absolute” or “uncontrolled” discretionary powers, on the other hand, is one of degree rather than kind. The courts appear more likely to find an abuse of a simple discretionary power than an abuse of an absolute or uncontrolled discretionary power. In addition to the commonly recognized factors used to determine whether there has been an abuse of discretion, a standard of reasonableness has been applied by the courts in judging the exercise of a discretionary power (whether simple or absolute), a standard implied from the settlor’s intent and the purposes expressed in the trust instrument. With respect to court review of discretionary powers, this standard is consistent with the standard of care and skill of a prudent man and is based upon established fiduciary standards and principles.