Trusts - Discretion of Trustee

In re Estate of Dillard, 98 S.W.3d 386 (Tex. App.—Amarillo 2003, no pet. h.).

Settlor granted Trustee of a testamentary trust the ability to make distributions of principal to Beneficiary (who happened to be the same person as Trustee) if Beneficiary “in the discretion of the Trustee, * * * should be in need of additional funds for maintenance and support.” Trustee/Beneficiary claimed that his discretion was not limited to situations where his other resources were inadequate. Both the trial and appellate court disagreed.

The court held that the trust was not ambiguous and that Settlor’s intent was clear that principal distributions were allowed only if Beneficiary actually needed the additional funds for maintenance and support. The trust did not give Trustee “utter discretion to do that which the trustee may care to at any given moment. * * * [Trustee] must exercise [discretion] only after considering the beneficiary’s needs, age, condition, separate resources, the size of the trust estate, health, and the like.” In re Estate of Dillard at 395.

Moral: A support trust should clearly indicate whether the trust “may,” “must,” or “may not” consider the beneficiary's other resources in determining whether to make a distribution. In other words, is the trust to provide a minimum level of support and anything the beneficiary has or acquires is irrelevant, or is the trust to provide a safety net if the beneficiary’s other resources and income are inadequate?