9.3 The Restatement (Third) Approach

The traditional standard for judicial review permitted intervention only to prevent abuse of discretion caused by trustees acting dishonestly, arbitrarily or because of improper motive. Restatement (Third) § 50 (2003) restates the test: “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 the trustee.” Comment b states that a court not to interfere “when that exercise (of the discretionary power) is reasonable and not based on an improper interpretation of the terms of the trust.” Terms creating “extended discretion” such as “absolute,” “unlimited,” or “sole and uncontrolled” “are not interpreted literally.   Even under the broadest grant of fiduciary discretion, a trustee must act honestly and in a state of mind contemplated by the settlor.” If the discretion is coupled with a standard (for the comfort, happiness, or whatever of a beneficiary), that standard will be seen as evidence of the settlor’s “purpose in granting the discretionary power” and therefore a guide for testing whether the trustee has acted reasonably. Under the Restatement (Third) “reasonableness” test, a court will ascertain the settlor’s purpose in setting up the trust, then decide whether the trustee was acting reasonably to accomplish those purposes.