Jan 1, 2006 12:00 PM, By Alexander A. Bove, Jr., partner, Bove & Langa, P.C., Boston

By: By Alexander A. Bove, Jr., partner, Bove & Langa, P.C., Boston

Upon accepting a trust, a trustee may be given a non-binding letter of wishes by the settlor.¹ Such statements are designed to offer trustees of discretionary trusts some guidance in the exercise of their discretion. (For a typical letter of wishes, see “How a Letter of Wishes Might Read,” p. 49).

When written by a non-attorney settlor, these letters may contain inconsistencies and raise questions. Yet they can be immensely helpful to trustees seeking to ascertain the settlor's state of mind and purposes in establishing the discretionary trust. Unfortunately, letters of wishes are rarely written and most discretionary trusts themselves provide trustees with little guidance. Usually such trusts either say nothing about what the trustee should consider in exercising its discretion, or contain the typical “ascertainable standard” (for example, that the trustee may make distributions for a beneficiary's “health, education, maintenance, and support”). This general language, while helpful for income and/or estate tax purposes,² tells the trustee little if anything about the settlor's actual wishes and gives the trustee extremely broad discretion to determine what falls under those categories. Occasionally, trusts will contain more liberal standards, such as “comfort” or “happiness.” When these “standards” are accompanied (as they typically are by habit or custom, if nothing else) by words modifying (that is to say, enlarging) the trustee's discretion, such as “sole,” “absolute,” “unfettered” or “uncontrolled” (discretion), the presence of a standard becomes almost moot. Those words modifying the trustee's discretion allow the trustee to act unreasonably when exercising its discretion, so long as it does not act in bad faith, for an improper purpose, or with an improper motive.³

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