3.3.2 “Misinterpretation” Or “Abuse” of Discretion

Thus, where under § 187 of the Restatement (Second) a trustee’s exercise or non-exercise of a discretionary power is only subject to review upon a showing of “abuse,” now under § 50 of the Restatement (Third), a trustee may be second guessed by a court if the trustee’s exercise of a discretionary power was grounded in a “misinterpretation” or the “abuse” of the discretion, and “abuse” is broadly defined. In either event, the standard governing trustee conduct, regardless of whether such trustee enjoyed extended discretion, was never simply that of good faith alone but good faith in reasonably implementing the settlor’s intent for the benefit of the beneficiary.[1] [1] Critics of the approach adopted by the Restatement (Third) and the Uniform Trust Code perceived that there was a change from the common law of trusts and that this change exposed trust assets to heightened exposure to the claims of the beneficiaries’ creditors. Mark Merric & Steven J. Oshins, “Effect of the UTC on the Asset Protection of Spendthrift Trusts,” 31 Est. Plan. 375 (2004). This criticism has drawn pronounced refutation. Kevin D. Millard, “Rights of a Trust Beneficiaries Under the Uniform Trust Code,” 34 ACTEC J. 57, 63 (2008)(“[N]ote that the theory that a creditor could not reach the trust because the creditor stood in the shoes of the beneficiary and the beneficiary could not force distributions from the trust was flawed, because no matter how broadly worded the trustee’s discretion was, it was always subject to review by a court for abuse.”); Robert T. Danforth, “Article Five of the UTC and the Future of Creditors’ Rights in Trusts,” 27 Cardozo L. Rev. 2551, 2581 (2006)(“Implicit in the critics’ argument is the assertion that, by granting a trustee extended discretion, the trustee’s exercise of that discretion becomes essentially unreviewable. But this has never been true at common law. An essential principle of the common law of trusts is that a trustee’s exercise of discretion is always subject to judicial review, no matter how broadly the trustee’s discretion may be described…[T]hat will not be interpreted so as to relieve the trustee from an obligation to account for its discretionary judgments. Because a trustee is a fiduciary, it would be inconsistent with the concept of a trust to insulate a trustee’s exercise of discretion from all judicial review.”); Also see Alan Newman, “Spendthrift and Discretionary Trusts: Alive and Well Under the Uniform Trust Code,” 40 Real Prop., Prob. & Tr. J., 567, 601-618 (2005).