4.7 The Rights of Remainder Beneficiaries and Ascertainable Standards
A trustee, when exercising a distribution standard, must balance the needs of the current beneficiaries and the remaindermen. Indeed, this rule, characterized as a duty of impartiality informs the basis for the Uniform Trust Code and the Maryland Trust Code rules requiring information to be given to the current life beneficiary and, at least, to the first-line remaindermen. The duty of impartiality governs a trustee’s conduct regardless of the identity of the trustee, including when a trustee is also a beneficiary. Caver v. Caver, 176 Md. 171, 183, 4 A.2d 132, 138 (1939) (“As a trustee Mrs. Caver was under a duty to exercise her power to sell fairly and impartially for the equal benefit of all of the remaindermen and any grant of a gift, benefit or advantage to one remainderman at the expense of the others would constitute a breach of that duty.”) Restatement (Second) of Trusts § 183 (1957) (“When there are two or more beneficiaries of a trust, the trustee is under a duty to deal impartially with them.”); Restatement (Second) of Trusts § 232 (1957) (“If a trust is created for beneficiaries in succession, the trustee is under a duty to the successive beneficiaries to act with due regard to their respective interests.”); Restatement (Third) of Trusts § 79 (2005), gen. cmt. b. at 128-129 (“The duty of impartiality is an extension of the duty of loyalty to beneficiaries … In many modern trust situations, the trustee (or one or more co-trustees) will be a life beneficiary or perhaps a remainder beneficiary. In a case of this type, there will inevitably be some conflicts of interest that are approved, implicitly at least either by the settlor or through an appointment process that is authorized by the terms of the trust … In these circumstances there is, on the one hand, some inference of a preference for a confidence in the trustee-beneficiary but, on the other hand, a general recognition that a trustee-beneficiary’s conduct is to be closely scrutinized for abuse, including abuse by less than appropriate regard for the duty of impartially.” Internal references omitted.)
The exercise of a distribution power by a trustee (regardless of who is trustee) involves a fiduciary judgment which the Courts will oversee to prevent misinterpretation or abuse of the discretion:
§ 50. Enforcement and construction of discretionary interests.
(1) A discretionary power conferred upon the Trustee to determine the benefits of a Trust beneficiary is subject to judicial control only to prevent misinterpretation or abuse of the discretion by a Trustee.
(2) The benefits to which a beneficiary of a discretionary interest is entitled, and what may constitute an abuse of discretion by the Trustee depend on the terms of the discretion, including the proper construction of any accompanying standards, and on the settlor’s purposes in granting the discretionary power and in creating the Trust.
Restatement (Third) of Trusts § 50 (2001). In a word, the trustee abuses his or her discretion when he or she makes or fails to make a distribution contrary to the express terms of the trust:
[A]n abuse of discretion occurs when a trustee acts from an improper even though not dishonest motive, such as when the act is undertaken in good faith but for a purpose other than to further the purposes of the Trust or, more specifically, the purposes for which the power was granted … [A] discretionary power to make distributions for a beneficiary’s “support” does not permit the Trustee to make well-intentioned, even otherwise reasonable, distributions that are not support-related.
Restatement (Third) of Trusts § 87 cmt. c at 244 (2005). (Emphasis added.); Waesche v. Rizzuto, 224 Md. 573, 587; 168 A.2d 871, 877 (1961) (“A court of equity will not interfere in the exercise of the discretionary power conferred on the trustees provided that the power was honestly and reasonably exercised. However, it must appear that the trustees acted in good faith, having a proper regard to the wishes of the testator and to the nature and character of the trust reposed in them.”)
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