Lineback by Hutchens v. Stout

Annotate this Case

339 S.E.2d 103 (1986)

Anita Douglas LINEBACK by her Guardian ad Litem, Sara L. HUTCHENS v. June Douglas STOUT.

No. 8523SC284.

Court of Appeals of North Carolina.

February 4, 1986.

*106 Zachary, Zachary & Harding by Benjamin H. Harding, Jr., Yadkinville, for petitioner.

Pettyjohn, Molitoris & Connolly by H. Glenn Pettyjohn, Winston-Salem, for respondent.

WELLS, Judge.

Respondent argues that it was the testator's intention in Article IV of his will to create a discretionary trust wherein payments to petitioner were to be in the sole discretion of the trustee and that the superior court erred in ruling to the contrary. A discretionary trust is a trust wherein the trustee is given the discretion to determine whether and to what extent to pay or apply trust income or principal to or for the benefit of a beneficiary. Bogert, The Law of Trusts and Trustees § 228 (rev. 2d ed. 1979); Scott, The Law of Trusts §§ 128.3, 155 (3d ed. 1967). Accord N.C. Gen.Stat. § 36A-115(b)(1) (1984).[1] Under a true discretionary trust, the trustee may withhold the trust income and principal altogether from the beneficiary and the beneficiary, as well as the creditors and assignees of the beneficiary, cannot compel the trustee to pay over any part of the trust funds. Bogert, supra; Scott, supra, at § 155. A trust wherein the trustee has discretion only as to the time or method of making payments to or for the benefit of the beneficiary is not a true discretionary trust. Bogert, supra; Scott, supra.

Whether a trust is a discretionary one naturally depends upon the nature of the powers conferred upon the trustee, that is, whether the powers are mandatory or discretionary, and if discretionary, the extent of the discretion afforded the trustee. In determining the nature of the powers conferred upon a trustee, we are guided by the following:

The powers of a trustee are either mandatory or discretionary. A power is mandatory when it authorizes and commands the trustee to perform some positive act.... A power is discretionary when the trustee may either exercise it *107 or refrain from exercising it, ... or when the time, or manner, or extent of its exercise is left to his discretion. [Citations omitted.]

Woodard v. Mordecai, 234 N.C. 463, 67 S.E.2d 639 (1951). The court further explained:

The court will always compel the trustee to exercise a mandatory power.... It is otherwise, however, with respect to a discretionary power. The court will not undertake to control the trustee with respect to the exercise of a discretionary power, except to prevent an abuse by him of his discretion. The trustee abuses his discretion in exercising or failing to exercise a discretionary power if he acts dishonestly, or if he acts with an improper even though not a dishonest motive, or if he fails to use his judgment, or if he acts beyond the bounds of a reasonable judgment. [Citations omitted.]


Whether a power is mandatory or discretionary depends upon the intent of the settlor as evidenced by the terms of the trust. See Bogert, supra, at § 552; Scott, supra at § 187. The intent of a settlor is determined by the language he chooses to convey his thoughts, the purposes he seeks to accomplish and the situation of the parties benefitted by the trust. Davison v. Duke University, 282 N.C. 676, 194 S.E.2d 761 (1973). Use by the settlor of words of permission or option, or reference to the discretion of the trustee, in describing the trustee's power indicates that the settlor intended that the power be discretionary, whereas use of directive or commanding language indicates that a mandatory power was intended. See Bogert, supra, at § 552. Compare Woodard v. Mordecai, supra, and First National Bank of Catawba County v. Edens, 55 N.C.App. 697, 286 S.E.2d 818 (1982) (discretionary power) with Kuykendall v. Proctor, 270 N.C. 510, 155 S.E.2d 293 (1967) (mandatory duty). Where the power is discretionary, the extent of the discretion given the trustee may be enlarged by use of adjectives such as "absolute" and "uncontrolled." Davison v. Duke University, supra.

The language of the testamentary trust in the present case clearly indicates that the testator intended for the power given respondent as trustee to be discretionary. The testator, in granting respondent the power to distribute the trust income or principal, referred to the "sole judgment" or "discretion" of respondent six times. Such language is used both with reference to the net income and the principal of the trust, thus indicating that the testator intended for respondent to have discretion regarding the distribution of both. This is made particularly clear by the fact the testator referred to respondent's discretion twice in the first sentence of the trust provisionsthe first time possibly referring only to the trust principal but the second time apparently referring to both the net income and the principal of the trust. That respondent's power is discretionary is also shown by the fact the testator authorized respondent to pay the trust income or principal to or for the benefit of petitioner but did not command or require her to do so. Rather, the testator directed respondent to exercise her discretion regarding the distribution of the trust funds. The testator's use of the adjectives "absolute" and "uncontrolable" [sic] to describe the discretion vested in respondent further emphasizes the discretionary nature of the power granted respondent and evidences the testator's intent to vest wide discretion in respondent. To hold that respondent's power to distribute trust income or principal to petitioner is mandatory, as did the superior court in effect, we would have to ignore totally the references made by the testator to respondent's discretion in setting forth that power. This we cannot and will not do.

The language and terms of the trust further show that the discretion vested in respondent extends to whether and to what extent to pay the trust income or principal to or for the benefit of petitioner. The amount of trust income or principal to be expended for petitioner's benefit is to be *108 determined by respondent in her sole discretion. We emphasize, however, respondent's duty to exercise her judgment reasonably to carry out the intent of the testator. Woodard v. Mordecai, supra.

The terms of the trust also show that the testator intended for the trust funds to be used to supplement, rather than supplant, the financial assistance which petitioner was receiving from the Department of Social Services. Petitioner was receiving the Department's financial assistance at the time the testator executed his will. The testator was apparently referring to that assistance when he provided for respondent's consideration of "income available to [petitioner] from other sources" in determining whether to distribute trust principal to petitioner. Such provision certainly tends to show that the testator did not intend for the trust funds to be used as a substitute for the public assistance. Accord Zeoli v. Commissioner of Soc. Serv., 179 Conn. 83, 425 A.2d 553 (1979). The creation of the trust for "the lifetime" of petitioner and the provision for the distribution of the trust corpus remaining upon petitioner's death also reveal the testator's intent that the trust funds be used to provide supplemental, rather than total, support for petitioner. Accord Tidrow v. Dir., Mo. State Div. of Fam. Serv., 688 S.W.2d 9 (Mo.App.1985). These terms of the trust show that the testator intended and anticipated that the trust corpus might not be completely exhausted during petitioner's lifetime. Id. In order to effectuate this intent, respondent's power to distribute the trust funds to petitioner must be interpreted as discretionary. If respondent's power is interpreted as mandatory, the trust fund will be rapidly depleted and the testator's intent will be thwarted.

We conclude that the testamentary trust is a discretionary one and that therefore the superior court erred in requiring respondent to expend funds from the trust for the general welfare, support, maintenance and benefit of petitioner. The judgment of the superior court is


HEDRICK, C.J., and EAGLES, J., concur.


[1] G.S. 36A-115, which defines a discretionary trust, became effective on 1 October 1979 and applies only to trusts created on or after that date. 1979 N.C.Sess.Laws, ch. 180. Since the trust in the present case was created prior to 1 October 1979, it is not subject to the provisions of that statute.

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