How Much Discretion Should Your Vermont Trustee Have?

Trusts play a central role in many well-designed estate plans, offering flexibility, control, and long-term asset management. If you have decided to incorporate a trust into your planning, one of the most consequential choices you will make is selecting a trustee. Equally important is determining how much authority that trustee should have when carrying out your wishes. Granting too little discretion can render a trust rigid and ineffective, while granting too much can expose the trust to mismanagement or outcomes you never intended. To help you strike the right balance, the Essex Junction attorneys at Unsworth LaPlante, PLLC discuss how much discretion to give your Vermont Trustee.

Trust Basics

Understanding the fundamentals of how trusts operate provides a useful starting point. A trust is a legal arrangement in which one person or entity holds and manages property for the benefit of another. The person who creates the trust is commonly referred to as the Settlor, Grantor, or Trustor. That individual transfers assets into the trust and appoints a Trustee to manage those assets according to the terms set forth in the trust document. The beneficiaries are the individuals or entities who benefit from the trust and may include family members, charitable organizations, or other designated recipients. Vermont law requires that every trust have at least one beneficiary, although there is no limit on the number of beneficiaries a trust may include.

Types of Trusts

Trusts are generally categorized as either testamentary or living trusts. A testamentary trust is created through a provision in a Will and does not take effect until the Settlor’s death. Because it becomes operational only after probate, its administration is closely tied to the terms of the Will. A living trust, by contrast, is established during the Settlor’s lifetime. Living trusts are further divided into revocable and irrevocable forms. A revocable living trust allows the Settlor to amend or terminate the trust during life, retaining significant control over both assets and terms. An irrevocable trust, once established and funded, cannot be changed or revoked without court approval or express authority granted within the document itself. Each of these trust structures carries different implications for Trustee authority and discretion.

Understanding a Trust Agreement

The trust document serves as the Trustee’s instruction manual. It outlines how assets should be invested, when and how distributions should be made, and the overall purpose of the trust. Trustees are legally obligated to follow these instructions and must act in accordance with fiduciary duties imposed under Vermont law. Those duties include loyalty to the beneficiaries, prudent management of trust assets, and adherence to the trust’s stated objectives. A trustee may not deviate from the trust terms unless a provision is unlawful, impossible to perform, or so unreasonable that a court intervenes.

Trustee Discretion

Despite careful drafting, no trust document can anticipate every circumstance that may arise during administration. Trustees are often required to exercise judgment when unexpected issues emerge, such as changes in a beneficiary’s financial needs, fluctuations in investment markets, or evolving tax laws. For this reason, the practical issue is not whether a Trustee should have discretion, but rather how much discretion is appropriate given the nature of the trust and its intended purpose.

The type of trust and the goals behind its creation strongly influence the level of discretion a Trustee should possess. A testamentary trust established for minor children often requires substantial flexibility. Children’s needs change over time, educational opportunities vary, and health or support considerations may arise that were not foreseeable at the time the trust was drafted. In such cases, granting the Trustee broader discretion allows for responsive decision-making that serves the beneficiaries’ best interests as they mature.

A revocable living trust used as part of an incapacity plan also typically calls for meaningful Trustee discretion. In these arrangements, the Settlor often serves as the initial Trustee and names a trusted individual or professional as successor Trustee. If the successor steps in due to incapacity, that Trustee may need latitude to manage assets, pay expenses, and make decisions quickly without seeking court approval. Flexibility in this context supports continuity and avoids unnecessary disruption during an already difficult period.

Other types of trusts demand a more restrained approach. Irrevocable trusts designed for asset protection, tax planning, or Medicaid eligibility often require tightly controlled distribution standards. Excessive discretion in these trusts can undermine their effectiveness by exposing assets to creditors or disqualifying beneficiaries from public benefits. Special needs trusts provide a clear example. These trusts are intended to supplement, not replace, government assistance. If a Trustee has unfettered authority to distribute funds, those distributions may be treated as available resources, jeopardizing a beneficiary’s eligibility for essential programs.

Careful drafting becomes especially important when balancing Trustee discretion with accountability. Trust language can include objective standards for distributions, such as health, education, maintenance, and support, while still allowing the Trustee some judgment in applying those standards. Additional safeguards may include requiring periodic accounting, appointing a trust protector, or dividing responsibilities between an individual Trustee and a corporate co-trustee.

Do You Have Questions about How Much Discretion to Give Your Vermont Trustee?

For more information, please attend one of our upcoming FREE webinars. If you have additional questions or concerns about how much discretion to give your Vermont Trustee, contact an experienced Essex Junction estate planning attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.