A Trustee's Fiduciary Duty to Meet Discretionary Beneficiary Needs?

Does a trustee have a fiduciary duty to meet a discretionary beneficiary’s needs? If you were to read the petitioner’s reply brief filed ahead of the 2019 decision of the Supreme Court of the United States in North Carolina Department of Revenue v. The Kimberley Rice Kaestner 1992 Family Trust, 139 S. Ct. 2213 (2019), you might be mistaken for thinking so. Although that decision concerned the limits of a state’s power to tax a trust, an interesting aside of more general import was whether a trustee’s “absolute discretion” to make distributions is tempered by a fiduciary duty to meet a discretionary beneficiary’s needs. This is in circumstances where a trust deed confers such a discretion, but also attempts to direct a trustee to be “liberal” in the exercise of that discretion and to “meet the needs” of the discretionary beneficiaries. While there is no doubt that a trustee’s discretion is guided by certain fiduciary duties, the purpose of this note is to briefly explore whether a trustee must also be guided by a particular fiduciary duty to meet a discretionary beneficiary’s needs.

The petitioner in Kaestner relied on an unreported Surrogates Court of King’s County, New York decision, In re Andrew C., 2017 WL 6821717 (N.Y. Sur. Ct. 2017), which concerned the appointment of a guardian for an intellectually disabled and impecunious person. Relevantly, it came to light during the appointment process that a trust had been settled several years ago for this person’s benefit, but no distributions had been made and, perhaps more egregiously, no guardian was made aware of its existence. The Surrogates Court noted that it is “unacceptable for trustees to simply sit back and do nothing until a request is made”. Instead, it was thought that trustees have “an affirmative duty to inquire with diligence into the quality [of a beneficiary’s] life and to apply trust income towards significantly improving it”. While these statements are certainly correct in the sense that trustees typically have a duty to account (which, for example, often includes a positive duty to inform beneficiaries of the existence of an interest and the terms on which that interest is derived) (Schmidt v. Rosewood Trust [2003] UKPC 26, [2003] 2 AC 709) and a general duty to consider the interests of the beneficiaries and act in their best interests (Cowan v. Scargill [1985] Ch 270; [1984] 2 All ER 750), there is no subsequent general duty to meet a discretionary beneficiary’s needs. Any such general duty is much too broad and would entirely usurp a trustees otherwise absolute discretion as to distributions in circumstances where a trustee must also weigh other competing duties.

There are certainly situations where a trustee’s failure to provide distributions may be cause for concern, especially if a particularly deserving or indigent beneficiary makes a request that is unreasonably denied. But more often than not, even if a beneficiary is particularly deserving or indigent, a trustee must weigh such a request against many other considerations, such as the terms of the trust deed, the size and type of the trust assets, and the interests of other beneficiaries, including those not yet born. These are simple but fundamental points that bear remembering when individual or corporate trustees are considering matters of disclosure and distributions.

James Anson-Holland is an LLM Candidate at New York University, where he attends with the assistance of a Dean’s Graduate Award.