What does it mean for a trustee to have so-called “absolute discretion” with regard to their trustee powers?

The term “absolute discretion” is an oxymoron. Absolute discretion is not absolute; it does not allow the trustee to do whatever he pleases.

Without careful advice from a qualified attorney, a layperson acting as trustee can easily get himself into trouble.

Let us explore what absolute discretion really means.

A trustee with “sole and absolute” discretion is not required to act as a reasonably prudent man would under similar circumstances, but still must act reasonably, in good faith, and not arbitrarily.

That is, the trustee is not held to the objective legal standard that requires acting prudently under the relevant circumstances.

Removing the objective standard thus allows the trustee more freedom to use his independent judgment and to consider a broader range of possible actions.

“Absolute discretion” will justify the trustee’s decision as to the manner in which the trustee has decided in good faith to further the purpose of the trust.

Naturally, a trustee should still consult with professionals to seek professional input; he may decide that it is best to follow professional guidance.

Stated in terms of what absolute discretion does not allow: a trustee with absolute discretion cannot do whatever he pleases but must consider foremost the purpose of the trust, and then exercise his own independent judgment in order to arrive at a good faith decision.

Thus, “absolute discretion” will not protect a trustee who is irresponsible and who fails to exercise absolute discretion reasonably.

A trustee must always take personal responsibility for his actions. Simply following the wishes of a beneficiary without exercising independent judgment, would be irresponsible of a trustee, and may land him in trouble.

Consider, for example, a special needs trust.

The trustee has absolute discretion over whether, when, and how much to distribute for the supplemental care or support of a special needs beneficiary, not otherwise met by government benefits.

Absolute discretion is necessary here to preserve eligibility by preventing certain trust assets from being counted as available resources to the beneficiary.

The trust’s stated purpose is thus to supplement and not to replace needs-based government benefits (such as SSI and Medi-Cal).

The trustee may reasonably decide not to pay for medical services that are covered by Medi-Cal because the trust is not meant to replace government benefits.

In a special needs trust, it is unquestionably wrong for the same trustee to give cash distributions to the special needs beneficiary, because the trust is intended to prevent cash distributions to a person who is unable to manage their own finances.

Doing so would also likely disqualify the beneficiary from government benefits and defeat the trust’s other purpose.

Taking actions that defeat the purpose of the trust is a breach of trust for which the trustee could be held accountable by a beneficiary.

Lastly, a trustee who abuses his absolute discretion can be replaced by the court upon petition by the beneficiary.

Sometimes the trust will even allow for trustee to be removed by a trust protector who is named in the trust as having the authority to replace a poorly performing trustee.

Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 First St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235. Visit his Web site at www.dennisfordhamlaw.com.

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