Even with sole and absolute discretion to distribute income and principal, a trustee's discretion is bounded by what principle?

• A. Court must approve all distributions.
• B. The income must be distributed equally.
• C. The sole discretion means no further limits.
• D. The duty of good faith with a view to the trust purpose and beneficiaries' interests.

Answer: (D)

Discretionary power in a trust isn’t unlimited. Even when a trustee has sole and absolute discretion to distribute income and principal, that discretion is bounded by a fiduciary duty to act in good faith and to advance the trust’s purpose while considering the beneficiaries’ interests. In practice, this means the trustee must exercise distributions for the benefit of the beneficiaries and in line with what the trust was created to achieve, avoiding self-dealing, caprice, or any action that conflicts with the trust’s goals. Courts generally defer to the trustee’s business judgment, but they can intervene if a distribution is made in bad faith or contrary to the trust’s terms and purpose. This duty to act with good faith and with a view to the trust and its beneficiaries is what keeps discretionary power from becoming arbitrary.