Trustee’s Consideration of Other Resources

Consider the following scenario. A trust instrument provides that the trustee is authorized, but not required, to distribute income and principal for a beneficiary’s health, support, maintenance, and education. The beneficiary, who has significant assets of her own, requests a distribution to pay for elective surgery. The trust agreement, as is commonly the case, says nothing about a beneficiary’s other resources (i.e., assets outside of the trust). In deciding whether to approve the trust distribution, must the trustee nonetheless consider whether the beneficiary has the means to pay for the surgery on her own? 

Generally, no. By default, under the Tennessee Trust Code the trustee is NOT required to consider a beneficiary’s other available resources before making a distribution.  However, an exception applies if:

  • The trust is a “support” trust (to be addressed in a future post), and
  • The beneficiary is the settlor’s spouse.

In that case, the trustee SHALL consider the beneficiary’s other resources.

The Tennessee Trust Code’s default rule is in keeping with the Restatement (Second) of Trusts. Section 128, comment e states:

It is a question of interpretation whether the beneficiary is entitled to support out of the trust fund even though he has other resources. The inference is that he is so entitled.

However, the statutory default is a departure from the “modern rule” found in the Restatement (Third) of Trusts:

It is important to ascertain whether a trustee, in determining the distributions to be made to a beneficiary under an objective standard (such as a support standard), (i) is required to take account of the beneficiary’s other resources, (ii) is prohibited from doing so, or (iii) is to consider the other resources but has some discretion in the matter. If the trust provisions do not address the question, the general rule of construction presumes the last of these.

See Section 50, comment e. This rejection of the Restatement (Third) of Trusts is intentional. The Tennessee Trust Code specifically states that courts shall not “rely on or give any persuasive value to” Section 50 or any comments related thereto. See T.C.A. § 35-15-106(b).

The default rule and exception are not mandatory. They apply “unless otherwise provided in the trust.” Rather than rely on the statute, a better approach is to state clearly in the trust instrument whether the trustee should consider a beneficiary’s other resources before making a distribution.

Source: T.C.A. §§ 35-15-814(a)(2)(B) and (A)

Posted by Joel D. Roettger, JD, LLM, EPLS

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