Written on January 25, 2013 – 7:43 am | by Laura West
I thought that I would circle back to my series of blogs on estate planning words and phrases to look at some additional words and phrases that sometimes can raise questions.
For example, often the provisions of discretionary trusts provide that the trustees have the power to engage in certain activities (such as making distributions to beneficiaries) in the exercise of their discretion. Often the term “discretion” in this context is modified, in that the trustees are empowered to engage in the activity in the exercise of an “absolute discretion”, an “unfettered discretion” or an “uncontrolled discretion”.
A question that often arises is if the term “absolute” discretion is used, does it mean that the trustees’ exercise of discretion is truly absolute, such that it is immune from challenge by beneficiaries or review by the courts?
Although the language of the trust instrument will always be relevant, in short the answer is no, in that the beneficiaries may still be able to challenge the exercise of absolute discretion by the trustees and apply to court for relief. The beneficiaries’ challenge could be on the basis that the exercise of discretion was contrary to the provisions of the trust instrument. Alternatively, because trustees, when exercising a discretionary power (including an absolute discretionary power), must still adhere to certain fiduciary obligations at law, the challenge could be on the basis that the trustees failed to satisfy such fiduciary obligations when exercising the discretionary power.
I will continue with more blogs about estate planning words and phrases in the future and I invite readers to send me more suggestions for future words and phrases to discuss.