What is an irrevocable trust

Are There Limits to a Trustee’s Absolute Discretion?

Even though the settlor of a trust may provide that the trustee has “absolute discretion,” or “sole and unfettered discretion,” the trustee must still act reasonably and may be liable to the beneficiaries if he abuses his discretion.

In Mesler v. Holly, 318 So.2d 530 (Fla. 2d DCA 1975) the settlor created a trust naming Ray Gussler and Elaine Holly as co-trustees. The trust provided that upon the settlor’s death, the co-trustees may in their absolute discretion distribute as much of the principal to the lifetime beneficiary Elaine Holly as the co-trustees deem necessary to maintain Ms. Holly’s standard of living.

The plaintiff remainder beneficiaries of the trust filed a complaint alleging that Ms. Holly was a trustee and the sole lifetime beneficiary, that the trustees had not furnished any accountings or reports of their administration of the trust to the remaindermen, and that the trustees’ invasions of principal for Ms. Holly were not confined to reasonable limits. The trustees responded that their “absolute discretion” was all-inclusive; and the trial court agreed and dismissed the complaint.

The appellate court reversed and held that plaintiffs stated a cause of action against the trustees for abuse of discretion. The court stated:

To begin with, even though a grant of ‘absolute discretion’ to a fiduciary is very broad, it does not relieve a trustee from the exercise of good faith or from being judicious in his administration of the trust, which administration is always subject to review by the court in appropriate instances. Likewise, a trustee is always subject to accountability to remaindermen where discretion is improperly, arbitrarily or capriciously exercised.

The court concluded that even an unlimited power of invasion of principal is “subject to implied limitations to protect the remaindermen.” Similarly, the court in Rachins v. Minassian, 251 So.3d 919 (Fla. 4th DCA 2018) held:

In sum, Florida law is clear that the wife’s unlimited power to invade the Family Trust is subject to implied limitations to protect beneficiaries with an interest in any property that might remain in the Family Trust upon the wife’s death.

The above cases show that even though the settlor may provide that the trustee has sole and absolute discretion, the trustee’s actions are always subject to review by the court for an abuse of discretion, and subject to accountability to remainder beneficiaries.