New Minnesota Trust Code What Might It Mean For You?

Some of the normal questions asked in this situation include: what are my responsibilities if I accept, what is my liability, and will there be other trustees of the trust? Article 7 of the new law addresses many of the duties and responsibilities of a trustee.

A. What can and can’t I do as a trustee?

A trustee of a trust has great authority and conversely many duties. Previously, powers granted to a trustee had to be specifically listed or incorporated by reference into the trust document. However, the new law enumerates certain powers that are conferred automatically without having to list such powers in the trust document. The new law also codifies many duties that existed under prior Minnesota law, including the duty to administer the trust (follow terms of trust), the duty of loyalty (put beneficiaries’ interests first), the duty of impartiality (can’t favor one beneficiary), the duty of prudent administration (exercise reasonable care), and the “prudent investor rule” (invest and manage as a prudent investor would – diversify and don’t speculate).

B. What is my liability as a trustee?

If a trustee breaches one of the duties listed above, it may result in liability to the trustee. When a trustee gets sued, it is usually by a beneficiary and often relates to the trustee’s investment decisions or distribution decisions. The new law provides some potentially reduced liability for lawsuits relating to breach of trust duties. The time period during which a beneficiary may sue for breach of trust is shortened (from 6 years to 3 years), if a trustee sends a report to the beneficiary that adequately discloses the existence of a potential claim. Moreover, the new law permits a new type of trust called a “directed trust” which will allow a trustee to hire experts to provide advice on investments and distributions and know they are protected when the advice is followed. For a layperson asked to act as a trustee, this type of trust could significantly limit liability.

C.

Another change under the new law is that when co-trustees are unable to reach a unanimous decision, they may now take action by a majority vote. Under prior law, trustees were required to act unanimously. Notably, this provision does not remedy the situation where two trustees cannot agree (a court would have to resolve such disagreement). The new law also permits a trustee to delegate authority to other co-trustees and provides protection for a co-trustee who does not participate in a decision or who dissents from the action taken by the majority if notice is provided by the dissenting trustee prior to the action.

2. My sibling is trustee of our mother’s trust and is taking trust assets, what can I do?

The new law provides that a court has the power to take actions and exercise such jurisdiction over the trust as is necessary. Therefore, a lawsuit could be initiated in a court with proper venue. However, as is the case with any litigation, if the case can be settled out of court, the parties (the trust and beneficiaries) will save a lot of money. The new law greatly expands the opportunities in which a nonjudicial settlement agreement can be utilized. A nonjudicial settlement is a binding agreement executed by all parties outside of a court proceeding. Under the old law, only six circumstances existed where a nonjudicial settlement agreement could be utilized – and now there are at least 24 circumstances (Minn. Stat. §501C.0202).

If I am creating a trust, do I have to transfer assets to the trust immediately?

The new law changes the common law requirement that to create a trust, property must be transferred to the trustee contemporaneous to execution of the trust instrument. The new law permits a trust to be created if the person creating the trust has the capacity to transfer property, indicates an intention to create the trust (normally in the trust document), the trust names a definite beneficiary, and the trustee has duties to perform.

3. My child is a spendthrift, does he have to know he is the beneficiary of my trust?

The general rule is that the trustee has an obligation to inform all beneficiaries of an irrevocable trust about the administration of the trust and all material facts a beneficiary would need to know to protect their interests. However, under the new law, a settlor may opt out of the general rule by specifically stating in the trust instrument that the rule does not apply and naming another person that the trustee must keep informed.

This article describes just a few of the important provisions included in the new Minnesota Trust Code. If you or a family member is considering creating a trust or has questions regarding the administration of a trust, it is important that you speak with an estate planning attorney. D

Mia E. Thibodeau is an attorney with Fryberger, Buchanan, Smith & Frederick, P.A., and practices in the areas of family law, estate planning, real estate and municipal law.

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