9.4 UTC Approach
The Uniform Trust Code uses different language from that of the Restatement (Third), although there is debate whether it is really dissimilar in effect. Section 814 of the UTC (2005) provides that: “Notwithstanding the breadth of discretion granted to a trustee in the terms of the trust, including the use of such terms as ‘absolute’, ‘sole’, or ‘uncontrolled’, the trustee shall exercise a discretionary power in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries.” The Commissioners choice of a “good faith” standard tracked their understanding of existing case law and was designed not to impose a “reasonableness” standard:
“Under these standards, whether the trustee has a duty in a given situation to make a distribution depends on the exact language used, whether the standard grants discretion and its breadth, whether this discretion is coupled with a standard, whether the beneficiary has other available resources, and, more broadly, the overriding purposes of the trust. For example, distilling the results of scores of cases, the Restatement (Third) of Trusts concludes that there is a presumption that the ‘trustee’s discretion should be exercised in a manner that will avoid either disqualifying the beneficiary for other benefits or expending trust funds for purposes for which public funds would otherwise be available.’ Restatement (Third) of Trusts Section 50 cmt. e & Reporter’s Notes (Tentative Draft No. 2, 1999).
Subsection (a) requires a trustee exercise a discretionary power in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries. Similar to Restatement (Second) of Trusts Section 187 (1959), subsection (a) does not impose an obligation that a trustee’s decision be within the bounds of a reasonable judgment, although such an interpretive standard may be imposed by the courts if the document adds a standard whereby the reasonableness of the trustee’s judgment can be tested. Restatement (Second) of Trusts Section 187 cmt. f (1959).
The obligation of a trustee to act in good faith is a fundamental concept of fiduciary law although there are different ways that it can be expressed. Sometimes different formulations appear in the same source. Scott, in his treatise on trusts, states that the court will not interfere with the trustee’s exercise of discretion if the trustee ‘acts in good faith and does not act capriciously,’ but Scott then states that the trustee will interfere if the trustee ‘acts dishonestly or in good faith, or where he acts from an improper motive.’ 3 Austin W. Scott & William F. Fratcher, The Law of Trusts Section 187.2 (4th Ed. 1988).
Sometimes different formulations are used in the same case:[If] the ‘sole discretion’ vested in and exercised by the trustees in this case . . . were exercised fraudulently, in bad faith or in an abuse of discretion, it is subject to . . . review. Whether good faith has been exercised, or whether fraud, bad faith or an abuse of discretion has been committed is always subject to consideration by the court upon appropriate allegations and proof. In re Ferrall’s Estate, 258 P.2d 1009 (Cal. 1953).
Section 504 of the UTC largely eliminates the traditional distinction between a discretionary trust and a support trust.