4.2 The Support/Discretionary Trust Distinction in Maryland
An illustration of the use – and elasticity – of these categories in Maryland occurs in First National Bank of Maryland v. Department of Health and Mental Hygiene. In that case, a trust was established for the benefit of the testatrix’s daughter who resided in Spring Grove Hospital for over twenty years. The terms of the trust document would probably be characterized by Bogert as a “hybrid”: (“My trustees … shall pay from time to time the net income and so much of the principal as they, in their absolute and uncontrolled discretion, may determine, to my daughter, Annesley Bond Baugh, or, in their absolute and uncontrolled discretion, may apply the same for her maintenance, comfort or support.”) The trustees refused to invade principal to pay Spring Grove Hospital thus forcing the shortfall to the state of Maryland.
The First National Court saw the classification of the trust as either support or discretionary as determinative:
The paramount issue now before us is whether the trust principal may be charged with the costs of the care of Annesley Bond Baugh. The answer to this question, in turn, depends on which of two commonly recognized types of trusts the testatrix intended to create, that is, whether by the fifth item of her will she intended to establish a support trust or a discretionary trust.
A support trust, it is generally recognized, is one that provides that “the trustee shall pay or apply only so much of the income and principal or either as is necessary for the education or support of the beneficiary . . . ,” thereby barring the beneficiary from transferring his interest and precluding his creditors from reaching it. Restatement (Second) of Trusts s 154 (1957); Accord, G.G. Bogert & G.T. Bogert, The Law of Trusts and Trustees s 229, at 726 (2d ed. 1965); 2 A. Scott, The Law of Trusts s 154, at 1176 (3d ed. 1967). If this trust were entirely for the support of Miss Baugh, however, she could, by showing the trustees have abused their discretion, compel them to make any payment reasonably necessary for that purpose, Offutt v. Offutt, 204 Md. 101, 110, 102 A.2d 554, 559 (1954) (quoting Restatement of Trusts s 128, Comment e (1935)); likewise, this Court has recognized that when a supplier of necessaries the State in this case has a claim against the beneficiary of a support trust, the interest of the beneficiary in the trust can be reached to compel payment for the required items or services. Safe Deposit & Tr. Co. v. Robertson, 192 Md. 653, 660, 65 A.2d 292, 295 (1949) (quoting Restatement of Trusts s 157 (1935)); See Pole v. Pietsch, 61 Md. 570, 573-74 (1884).
In contrast, if, by direction of the settlor, all or any part of the trust assets can be totally withheld from the beneficiary by the trustees then, to the extent it can be so retained, a discretionary trust would be created. The Restatement of Trusts, Second, sets forth the definition and incidents of a discretionary trust as follows:
(I)f by the terms of a trust it is provided that the trustee shall pay to or apply for a beneficiary only so much of the income and principal or either as the trustee in his uncontrolled discretion shall see fit to pay or apply, a transferee or creditor of the beneficiary cannot compel the trustee to pay any part of the income or principal. (Restatement (Second) of Trusts s 155(1) (1957).)
Accord, G.G. Bogert & G.T. Bogert, Supra, s 228, at 717, 720-21; 2 A. Scott, Supra, s 155, at 1180. Thus, payment cannot be compelled out of a discretionary trust unless it is shown that the trustees have acted arbitrarily, dishonestly, or from an improper motive in denying the beneficiary the funds sought. Restatement (Second) of Trusts s 128, Comment d (1957); See Offutt v. Offutt, supra, 204 Md. at 110, 102 A.2d at 558.
The Court then determined that the trust was a discretionary trust, at least as to corpus, regardless of the modifying language.