Trusts typically provide the trustee with guidance as to how they should exercise their discretion in making distribution to the trust beneficiaries. The guidance is often expressed as a variation of one of two models – – unlimited/absolute discretion, or discretion based on an ascertainable standard. A common example of unlimited discretion is, “My trustee may pay to or for the benefit of the beneficiary as much of the net income and principal of the trust as my trustee, in its sole and absolute discretion, may determine advisable for any purpose.” An example of discretion based on an ascertainable standard is, “My trustee may pay to or for the benefit of the beneficiary as much of the net income and principal of the trust as my Trustee determines is necessary or advisable for the beneficiary’s education, health, maintenance and support.”
The distinction between the two distribution models is significant for reasons that extend beyond the mere distribution itself. The purpose of this article is to outline and explain the consequences of the choice of distribution standards used in a trust document.
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