When applying the good faith test, courts looked to whether the trustee exercised his or her discretion “reasonably.” Thus, in ordinary situations, a trustee must exercise his or her discretion in “good faith” and “reasonably.” Reasonableness is generally viewed as an objective standard – something that a court could review and opine upon.[1] It would seem obvious that both “good faith” and “reasonableness” should be measured – in all cases – by the overall intent of the settler:
Even when the trustee has discretion, however, the court will not permit him to abuse the discretion. This ordinarily means that so long as he acts not only in good faith and from proper motives, but also within the bounds of reasonable judgment, the court will not interfere; but the court will interfere when he acts outside the bounds of reasonable judgment.[2][1] For tort liability, for example, reasonable care and a reasonable person standard is used that is free from subjective interpretation: “The [reasonable person] standard … must be an objective and external one, rather than that of the individual judgment, good or bad, of the particular individual … [The standard] affords a formula by which, so far as possible, a uniform standard may be maintained.” Restatement (Second) of Torts § 283 cmt. c (1965). See Kristin Harlow, “Applying the Reasonable Person Standard to Psychosis: How Tort Law Unfairly Burdens Adults with Mental Illness,” 68 Ohio L.J. 1733 (2007).
[2] 3 Austin Wakeman Scott, The Law of Trusts § 187 (3d ed. 1967).
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Now, delving into the concepts discussed in the provided article:
1. Good Faith Test: The good faith test is a crucial aspect of trust law, requiring trustees to exercise their discretion with a genuine and honest intention to fulfill the best interests of the trust and its beneficiaries. Courts often assess whether a trustee's actions align with the overall intent of the settler. In the context of the article, the good faith test serves as a foundational principle for evaluating a trustee's decision-making process.
2. Reasonableness Standard: The concept of reasonableness is central to trust law and is treated as an objective standard that can be assessed and reviewed by the court. In ordinary situations, a trustee is expected to exercise discretion reasonably, ensuring that their actions fall within the bounds of rational judgment. The article emphasizes that as long as a trustee acts in good faith, from proper motives, and within the realm of reasonable judgment, the court will not interfere. However, actions outside these bounds invite judicial intervention.
3. Objective Standard in Tort Liability: The article draws a parallel with tort liability, specifically highlighting the use of a reasonable person standard. This standard is characterized by objectivity and external evaluation, free from subjective interpretation. In tort law, particularly in cases involving liability, the Restatement (Second) of Torts is cited to emphasize the importance of an external and uniform standard for assessing conduct.
4. Tort Law and Reasonable Person Standard: The reasonable person standard in tort law is further explored, emphasizing its objectivity and externality. The standard aims to provide a uniform measure, detached from individual judgments, ensuring a fair and consistent evaluation of conduct. The citation of Kristin Harlow's work on applying the reasonable person standard to psychosis underscores the broad application of this concept in various legal contexts.
5. Limitations on Trustee Discretion: The article points out that even when a trustee has discretion, there are limitations to prevent the abuse of that discretion. As long as the trustee acts in good faith, with proper motives, and exercises reasonable judgment, the court typically refrains from interference. However, actions exceeding the bounds of reasonable judgment invite the court to intervene.
In conclusion, the article provides valuable insights into the principles of good faith, reasonableness, and the standards applied in trust law, drawing connections to related concepts in tort law. This expertise is crucial for individuals and entities navigating the intricate landscape of trusts and estates law.
