4.3 Eliminating the Categories under the UTC and Restatement (Third)
As noted above, the Restatement (Third) of Trusts and the Uniform Trust Code eliminated the distinction between support and discretionary trusts, generally treating a support trust “as a discretionary trust with a standard.” This approach drew some heated debate. 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). Such criticism has drawn pronounced refutation. Kevin D. Millard, Rights of Trust Beneficiaries Under the Uniform Trust Code, 34 ACTEC L.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) and Richard E. Davis, Uniform Trust Code and SNTS; Should UTC Be Feared, Embraced or Ignored?, 5 NAELA J. 13, 49 (2009):
Most of the UTC is non-controversial. Furthermore, in most situations it strengthens the protections afforded to beneficiaries of spendthrift and SNTs. Attacks on the effect of UTC adoption on SNTs by critics contain numerous unsupported statements, mischaracterizations and misinformation about the UTC and about American trust law in general. Most states have developed a significant amount of case law defining the relationships between trustee and beneficiary. The few post-enactment UTC decisions dealing with Medicaid eligibility that have appeared, together with the 2009 POMS (Program Operations Manual System of the Social Security Administration) provisions, have done nothing to change that. The changes made by the UTC are founded on sound public policy and do nothing to undermine SNT planning.