Trustee Discretion: How wide is it

The Bermuda Supreme Court case of In the matter of the R Trust (2019) SC 36 has been described in other commentary as one of a growing number in which the exercise of discretion by trustees of discretionary trusts is being examined. It is in our opinion an area of the law ripe for development.

The context in which the examination occurred in In the matter of the R Trust was a Public Trustee v Cooper application for the court’s blessing of the trustee’s decision. The judgment in the case throws some light on the question: What does a trustee of a discretionary trust need to show to satisfy the court in an application for the court’s approval where its decision goes against what the settlor expressed in his letter of wishes?

As the case acknowledges, the granting of the court’s approval protects the trustee from a claim by a disappointed beneficiary that the trustee acted in breach of trust. The court requires therefore that it be provided with full and frank disclosure of all relevant information relating to the exercise of its discretion. It is uncontroversial that the trustee must take into account all relevant considerations; disregard irrelevant matters; and arrive at a decision which a reasonable trustee could properly come to.

Where the law appears to be somewhat hazy is the degree to which the trustee must also demonstrate that its decision was a rational exercise of its discretion. It was contended in In the matter of the R Trust that there is such a requirement; if not generally, at least where the trustee’s decision goes against the settlor’s expressed wishes. The court disagreed with this proposition; but went on to find that in any event the trustee’s decision was a rational exercise of its discretion.

It remains to be seen in future cases whether the law remains as expressed in the Bermuda Supreme Court’s decision leaving the field relatively wide open to the trustee in the exercise of its discretion; or whether the field is narrowed by the requirements of a demonstration of rationality; at least where the decision goes against the wishes of the settlor.

CHW regularly act for trustees and beneficiaries on matters pertaining to Bermuda law.

For further information, please contact David Kessaram (This email address is being protected from spambots. You need JavaScript enabled to view it.) or Matthew Watson (This email address is being protected from spambots. You need JavaScript enabled to view it.).

This publication is for general guidance only and does not constitute definitive advice.