Trustee distribution discretion: Lessons from litigation

Recent litigation provides valuable guidance on what information trustees may – or must – consider in making distribution decisions.

Investigating beneficiary resources

The trust instrument is the guide star in determining appropriate distributions, but trustees also must determine what outside facts, such as other resources available to a beneficiary, should be considered. In Bosch v. Kirkby, an Illinois court upheld a trustee’s denial of distributions to pay for nursing home care where the beneficiary had over one million dollars in other assets. In Bosch, the language of the trust provided that the trustee was required to consider all other means available to a beneficiary in making distributions.

In Morton v. Glenview State Bank, another court upheld the trustee’s refusal to make distributions to a beneficiary who declined to submit personal financial disclosures where the language of the trust provided that the trustee was authorised, but not required, to consider the other financial resources available to a beneficiary.

Even where trust agreements are silent on considering other resources, trustees are still permitted to require financial disclosures from beneficiaries. In In re Linda Lee Ward Trust Agreement, a Nevada court ruled that a trustee was permitted to ask for financial information to determine the beneficiary’s support needs even where the trust agreement did not expressly authorise consideration of other resources.

Duty to investigate

In some circumstances, the trustee has a duty to conduct an investigation to determine a beneficiary’s support needs. In Bildner v. Bildner, a New York court found that a trustee had acted with reckless indifference by repeatedly denying educational expense requests without making any effort to ascertain the beneficiary’s financial condition. The Court distinguished its ruling from another New York case where the trustee’s denial of distributions for educational expenses was appropriate because the beneficiary had sufficient funds in a college savings account.

Best practices

Trustees should actively engage beneficiaries in collaborative discussions about budgets, needs, and resources. Courts give deference to the trustee in making discretionary decisions, and that deference correctly extends to a trustee’s determination that they need information about the beneficiary’s other resources in order to administer the trust. Trustees are not forced to make distribution decisions in a vacuum.

---

Levenfeld Pearlstein Partner Robin D. Maher handles complex trust, estate, and fiduciary-related litigation, and advises trustees on fiduciary risk management, beneficiary relations, and the discharge of fiduciary duties. Robin is a Fellow with the American College of Trust and Estate Counsel (ACTEC).