Lineback by Hutchens v. Stout

• Decision Date: 04 February 1986
• Docket Number: No. 8523SC284,8523SC284
• Citation: 339 S.E.2d 103,79 N.C.App. 292
• Parties: Anita Douglas LINEBACK by her Guardian ad Litem, Sara L. HUTCHENS v. June Douglas STOUT.
• Court: North Carolina Court of Appeals

Page 103

339 S.E.2d 103

79 N.C.App. 292

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

No. 8523SC284.

Court of Appeals of North Carolina.

Feb. 4, 1986.

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 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.]

Id.

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 provisions--the 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...