The first major revision of Minnesota trust law in a generation will take effect next year. The new Chapter 501C, which incorporates many features of the Uniform Trust Code, seeks to fill in the blanks in the state’s 1989 statute and to make Minnesota more competitive in an ever-changing trust landscape.
[Editor’s note: An abridged version of this article appeared in the print edition of the July 2015 issue of Bench & Bar of Minnesota.]
The current statutory framework for Minnesota trust law embodied in Minnesota Chapter 501B became a part of Minnesota law in 1989. This chapter replaced Chapter 501 and its predecessors, parts of which trace their origins to Minnesota territorial days. The goal of the 1989 legislation was to modernize Minnesota statutory trust law, update the role of the courts, and clarify the governance of charitable trusts, among other changes. Since its passage, Chapter 501B was modified only a few times to add such features as the Certificate of Trust/Affidavit of Trustee, the Prudent Investor Act, and updated procedures for removal and replacement of trustees. Until relatively recently, there may have been little reason to make a large number of changes to the chapter passed in 1989.
Yet in the intervening years, there have been many changes that affect the way trust law and related disciplines are practiced. In 1989, the practice was primarily a local one in which those serving as trustees were generally local trust departments at national and state banks and individuals. Today the practice has taken on a national, or even international, scope. Trustees are located throughout the country or outside the United States. The local nature of the practice has all but changed permanently. Given this backdrop, it became significantly more important for Minnesota to modernize its statutory trust law to keep up with these industry developments.
In 2000, the Uniform Law Commission (NCUSSL) promulgated the Uniform Trust Code (UTC). While this uniform law has been modified on a couple of occasions, the most recent changes were made in 2005. Around that time, the Probate and Trust Law Section of the Minnesota State Bar Association (MSBA) began to examine whether or not Minnesota should adopt the uniform act in order to modernize Minnesota law. Given the magnitude of the project, however, the section decided to adopt only certain provisions of the UTC. As a result, some portions of the UTC found their way into current Minnesota trust statutes.
Since its introduction, the UTC, as modified, has been adopted by 30 states (now including Minnesota) and the District of Columbia. In some states there were few alterations made to the UTC; in others, there have been many changes to the original text. Some, such as South Dakota, have studied the UTC and chosen not to adopt it. South Dakota currently has arguably the most liberal trust law in the country and has tried to develop a national business focus around its approach to trust law.
In 2008 and 2009, the Probate and Trust Law Section began to consider an in-depth study of the UTC. It was responding to a growing concern that the UTC would be introduced in Minnesota. Given the breadth of the UTC and the amount of time that it would take to study it, it was widely believed that the section would not be able to do so effectively. In the spring of 2010, the section authorized the formation of a group to undertake a comprehensive study of Minnesota trust law and the UTC to see what changes to Minnesota law would be beneficial. The section also wanted to determine whether some part—or all, or none—of the UTC should be proposed to the Minnesota Legislature.
Following this decision, a group of attorneys was formed to undertake this task. All were chosen as a result of their background, experience, and skill with Minnesota trust law. Some of the committee members came from large Twin Cities law firms, some came from small firms in the Twin Cities, and several others worked for corporate trust departments. One lawyer came from outstate Minnesota and one previously served on the Hennepin County Probate Court bench. One unique feature of the committee was the inclusion of attorneys with trust litigation backgrounds. This was done in view of the broad effect of a new Minnesota statutory trust law on the way such matters are litigated. It also recognized the substantial growth in litigation within this practice area. The trust litigation aspect of the committee was integrated by having one litigation attorney serve as a full member of the committee at large. This representation also occurred on each subcommittee where a litigation representative would bring the litigation perspective to the subcommittee’s work.
At the beginning of this undertaking, the committee was charged with responsibility for reviewing current Minnesota law as well as the UTC in its most current form. Each of these statutory frameworks contains approximately 100 sections. The committee was also charged with responsibility for determining whether there were other aspects of trust law that should be incorporated within Minnesota’s statutory framework. These included the use of trusts for asset protection and trust decanting, which will be discussed below. Ultimately the committee decided to address only the subject of trust decanting as well as the modernizing of Minnesota’s power of appointment statute, which forms the basis for trust decanting.
The committee began its work in earnest in June 2010 and concluded its initial work in May 2013. This was followed by the issuance of a report and recommendations for changes to Minnesota trust law. During the course of its meetings, the committee went through the entire Uniform Trust Code and comparable provisions addressed within Minnesota trust law. During the initial review, the committee’s general approach was to retain as much of current Minnesota law as practical and supplement it with provisions of the Uniform Trust Code where such additions would improve our trust law. However, upon a second review, the committee became convinced that while it was important to maintain many aspects of current Minnesota trust law, adoption of many provisions from the work of the uniform law commissioners would represent substantial improvements to Minnesota trust law and answer many questions left unanswered by our current statutes.
During the second review, it also became clear that while changes to Minnesota trust law would have the most profound effect on those who practice trust law, many other practice areas would also be affected by the changes that were being studied. Practice areas such as real property, nonprofit entities, banking law and trust litigation would be affected by adoption of a new trust chapter.
Throughout the summer and fall of 2013, a great deal of effort went into editing the draft of the new statute and entertaining discussions with other groups that would be affected by a new law. In late 2013, the bar association determined that the vetting process had not been fully completed. It asked the committee to continue the process and return to them a year later following a resolution of all outstanding issues.
In early 2014, our committee met to work through a number of issues raised by other groups and reached resolution of most of those issues. We attempted to resolve some issues raised by the non-profit committee. However, given opposition by the Minnesota Attorney General’s Office, these changes did not appear in the final draft of the bill. We appeared again before the bar association in December 2014, having resolved the issues with other interested parties and gained the support of the association for the new trust law.
In the spring of 2015, hearings were held before a House and Senate committee, where we gained approval of our draft as written. The bill was submitted for votes on the floor of the House and Senate in February and early March 2015. The governor signed the bill (SF578) on March 19, 2015. As discussed below, the effective date of the new law has been deferred until January 1, 2016, in order to allow sufficient time for practitioners, the courts, and others who would be affected by the new legislation to learn about the changes.
The new trust law will appear in a new chapter, 501C. The chapter is organized into 13 articles. Of these, three represent recodifications of other statutes that appear in Chapter 501B. These are Article 9 – the Prudent Investor Act (currently, Minn. Stat. §501B.151), Article 11 – the Uniform Principal and Income Act (currently, Minn. Stat. §§501B.59 – .76), and Article 12, which contains eight miscellaneous sections from Chapter 501B. The most important of these sections appears in Minn. Stat. §501C.1205, which covers the subject of supplemental needs trusts and special needs trusts. In addition to Chapter 501C, the new law includes a new Chapter 502 that updates the law on powers of appointment and specifically includes the new section on decanting, which will appear in Minn. Stat. §502.851. The remainder of this article will provide a summary of the key provisions of the new trust sections contained in Chapter 501C, as well as the new Chapter 502, which governs powers of appointment and decanting.
One of the new features of the statute is to add 20 definitions that apply to the new trust chapter. Chapter 501B did not include any definitions in the trust chapter. Instead, practitioners were forced to rely on definitions that appeared in the Probate Code, or the Restatement of Trusts, Second, or case law. The definitions provide assistance in understanding the new law. Perhaps the most important defined term is “qualified beneficiary.” This term will define the class of beneficiaries who are entitled to notice and who must participate in both nonjudicial and judicial procedures. The term can also include the attorney general with respect to a charitable trust having its principal place of administration in the state.
Another important feature of the first article of the new chapter is to set forth various default and mandatory rules that cannot be overcome by language in the trust instrument. Features that cannot be overridden include (1) the duty of the trustee to act in good faith, (2) the power of the court to modify or terminate a trust, (3) the effect of a spendthrift provision, (4) the effect of an exculpatory term, (5) the period of limitations for commencing a judicial proceeding, and (6) the power of the court to take actions and exercise such jurisdiction over the trust as may be necessary.
The new act vastly expands the use of nonjudicial settlement agreements. Under current law, a nonjudicial settlement agreement may be used only in six circumstances. The new act would expand the use of nonjudicial settlement agreements to include all subject matters which are listed for court determination in §501C.0202. In this case, the term “interested persons” is a defined term for purposes of the section governing nonjudicial settlement agreements only. The new term defines who must be a party to a nonjudicial settlement agreement in order for it to be binding. For a nonjudicial settlement agreement to be valid, it must not violate a material purpose of the trust and must include provisions that could be properly approved by a court. The new provision also incorporates the concepts of representation as to who may be bound by such an agreement. These concepts will be discussed in more detail below.
Perhaps the most unique feature of the new statute will be the creation of a dual track for court jurisdiction in judicial proceedings. Under current and prior Minnesota law, the basis of jurisdiction for court proceedings is in rem. However, the basis of jurisdiction under the UTC is in personam jurisdiction. The creation of a dual track will put Minnesota in a unique position among the states that have adopted the UTC.
The primary difference between the two approaches is that in an in rem proceeding, the court has jurisdiction over the property of the trust, and its orders are binding upon all parties with an interest in the trust who received a mailed notice, or, in certain circumstances, were covered by a published notice. In an in rem proceeding, the court may represent the interests of a minor or incapacitated person for whom no conservator has been appointed or other defined persons, unless the court chooses to appoint a representative for such person’s interests. In in personam jurisdiction, the parties are bound by a court order if they are served with notice under the Rules of Civil Procedure. Jurisdiction is not based upon a published notice. However, the concepts of representation can apply to make an order of the court binding upon a represented party.
The statute broadly defines who can bring a proceeding seeking judicial relief. In the petition, an “interested person” (which is defined for purposes of the judicial proceedings article) must state whether the person is invoking the court’s jurisdiction as an in rem proceeding or as an in personam proceeding. In the absence of a designation, the default will be an in rem proceeding. The new law also contains procedures for converting an in personam proceeding to an in rem proceeding in certain circumstances.
The list of the court’s authority remains essentially the same. Minn. Stat. §501C.0202 incorporates the provisions that currently appear in Minn. Stat. §501B.16. A couple of additional subjects were included in this list based upon provisions in the UTC.
In a matter commenced as an in rem proceeding, the procedures contained in current Chapter 501B have not changed in any material way. If a qualified beneficiary is a minor or incapacitated person, notice must be given to a representative acting on behalf of such beneficiary in accordance with the new representation provisions. In the case of in personam jurisdiction, service of the notice must be given to the current trustees and the qualified beneficiaries in the manner set forth under Rule 4 of the Rules of Civil Procedure. Notice to a qualified beneficiary who is a minor or an incapacitated person must be provided in the same manner as set forth for in rem jurisdiction.
The new statutes include specific provisions regarding the binding effect of orders, whether in an in rem proceeding or an in personam proceeding, and how an appeal may be taken under each approach. It also contains provisions governing court-supervised trusts. Essentially, there are no material changes under this section from current law. The new article contains a long-arm statute for use with in personam proceedings. Finally, the rules governing venue remain essentially unchanged.
The new statute expands the concept of representation under which a person may take actions to bind the interest of another person based upon certain relationships that exist between the representative and the represented party. There are five basic principles governing representation. First, notice to a person who may be represented by another is treated as though the notice were given to the represented person. Second, the consent of a person who may be represented by another person is binding upon the represented person unless an objection is made before the consent becomes effective. Third, except in limited circumstances, one who represents a settlor who lacks capacity may receive notice or give binding consent on the settlor’s behalf. Fourth, in the context of termination or modification of a trust under §411, the settlor may not represent and bind a beneficiary. Fifth, the new statute contains a special provision regarding representation where a person is designated to receive information from a trustee concerning the administration of the trust and material facts necessary to protect the beneficiary’s interest. In such an instance, the person is treated as a representative for purposes of the statutes of limitation expressed in 501C.1005.
The statute contains special rules describing the relationships in which representation can occur. These include a holder of a general power of appointment, a conservator, an agent, a trustee and a personal representative. It also covers representation of a minor or unborn child by a parent where no conservator has been appointed. The statute also clarifies which parent has representation rights where the parents disagree about a decision affecting the minor or unborn child. In effect, the new statute contains tie-breaking provisions.
One of the noteworthy provisions in the representation sections is that the role of the court in an in rem proceeding regarding its representation of certain parties remains unchanged from that contained in current Minn. Stat. §501B.19.
Creation, Validity, Modification and Termination of Trusts
The new act contains specific requirements for the creation of a trust. These are contained in §501C.0402. Of significance, the capacity of the settlor to create an irrevocable trust is the same as that required to transfer property by gift. The statute specifies that in order to establish a revocable trust, capacity is determined under a different set of requirements that will be discussed below. The document must also express an intention to create a trust that has a definite beneficiary. As to this latter requirement, however, there are two principal exceptions. First, a charitable trust is not required to have a definite beneficiary. Second, this requirement does not apply to certain trusts under §409. These include memorial trusts or trusts for the perpetual care of a gravesite. Such trusts may not be enforced beyond 21 years.
The section governing these requirements also incorporates some provisions from current Chapter 501B. First, the provisions of Minn. Stat. §501B.13 that overrule the Julian case are incorporated. Under these provisions, where the settlor, trustee and beneficiary of a trust are all the same individual, there is not a merger of the interests that would cause a trust to become invalid. The statute also incorporates the provisions of §501B.02, which prohibits passive trusts in Minnesota.
The most important provisions in Article 4 govern modification and termination of trusts. The new statute allows modifications for specific situations, such as unanticipated circumstances or inability to administer the trust effectively, uneconomic trusts, reformations to correct mistakes, and modifications to achieve the settlor’s tax objectives. However, among these provisions, the most significant is contained in §501C.0411, which largely incorporates the provisions of the Restatement of Trusts, Second, authorizing modifications or terminations of non-charitable irrevocable trusts by consent.
The two principal ways this can be accomplished are by the consent of the settlor and all of the beneficiaries, or by the beneficiaries with court approval. In the case of the settlor and beneficiaries agreeing to a trust modification or termination, there is no requirement that the result be consistent with the material purposes of the trust. In the instance of the beneficiaries taking action, the result must be consistent with the material purposes of the trust. However, in an interesting provision in the statute, a court is not precluded from modifying or terminating a trust that contains spendthrift provisions.
Where a modification or termination is sought by the beneficiaries, the court may still approve such a modification or termination where not all the beneficiaries consent. But in order to do so, the court must find that (1) the trust could have been modified or terminated under this section if all the beneficiaries had consented, and (2) that the interests of a beneficiary who did not consent would be adequately protected.
It is noteworthy that there are a couple of tax issues that must be considered before a modification or termination is sought. In the case where a settlor’s consent is required, one must be careful to consider implications under §§2036 and 2038 of the Internal Revenue Code. When the committee reviewed this issue, one private letter ruling was discovered that supported the settlor’s participation in the procedure to modify or terminate a trust, but the issue is not without some risk. Also, in the case of disproportionate distribution of the trust assets where the beneficiaries have sought a termination, there may be potential gift tax issues that must also be considered carefully before proceeding.
The final section in Article 4 essentially incorporates the provisions regarding merger and division of trusts in a manner similar to that which is provided in Minn. Stat. §501B.15.
The article that addresses spendthrift trusts and creditors’ claims in the Minnesota UTC essentially incorporates current Minnesota law. We did not adopt various provisions that appear in the UTC. As a result, Minnesota’s long-standing spendthrift law, which provides substantial protections against invasion of trusts by trust beneficiaries, remains in place. Such provisions can restrict both voluntary and involuntary transfers of a beneficiary’s interest. The general rule is stated in Minn. Stat. §501C.0502(d). In addition, a creditor of a beneficiary may not compel a distribution that is subject to the trustee’s discretion.
Minnesota’s strong policy on spendthrift trusts includes some limited exceptions where the creditor has a claim against a settlor of a revocable trust. It also provides creditors some rights when mandatory distributions have been retained by the trustee for an unduly long period of time.
While there was significant consideration of creating exceptions that would allow a trust to be invaded for child support or spousal maintenance, these arguments were ultimately rejected. As a result, the sections of the UTC establishing these rights were not adopted.
The new statute addresses two significant changes related to revocable trusts. First, the capacity required for a person to make a revocable trust is the same as the capacity to make a will. This section largely recognizes that many people use revocable trusts as substitutes for wills. Therefore, the different capacity standard did not make sense. As noted above, the standard to make an irrevocable trust is higher than the standard to make a revocable trust.
The other significant change in this article involves the time period for a person to contest the validity of a revocable trust. Under the new law, a judicial proceeding to contest the validity of a trust instrument may be commenced on the earlier of three years after the settlor’s death or 120 days after the trustee has provided the person a copy of the trust instrument and a notice informing the person of the shortened time period to contest the trust instrument, as well as the trustee’s name and address. Practitioners will now need to decide, following the death of a settlor, whether they wish to notify parties where there may be a risk of a contest or wait for the three-year limitation period to expire.
The article also addresses the fundamentals for revoking or amending a revocable trust and now includes the ability to have a tangible personal property list that is incorporated by reference in a revocable trust instrument. While many practitioners have used tangible personal property lists with revocable trusts in the past—and have treated the list as an amendment of the trust instrument when the settlor alone may amend the trust—this now clarifies the procedure, which is essentially the same as that covered under the will statute in Minn. Stat. §524.2-513.
Office of Trustee
Article 7 of the new trust act covers many subjects concerning a trustee. These include the method by which a trusteeship may be accepted or declined, trustees’ bonds, appointment of successor trustees, resignation of trustees, removal of trustees, and compensation of trustees.
The most significant change in this article appears in §703. This section provides that where there are co-trustees who are unable to reach a unanimous decision, they may take action by a majority vote. The concept is also expanded to include situations where a co-trustee is unavailable to exercise powers as a result of absence, illness, or other temporary incapacity. Where prompt action is required in such a case, the remaining co-trustees or a majority of them may act for the trust.
This section also authorizes trustees to delegate authority to co-trustees. It also provides protection for a co-trustee who does not participate in a decision or who dissents from the action taken by the majority of trustees, so long as the dissenting co-trustee provides notice to any other co-trustee of the dissent at or before the time an action is taken.
Duties and Powers of the Trustee
The new trust law codifies certain common law duties of a trustee at the beginning of Article 8. These include the duty to administer the trust, the duty of loyalty, the duty of impartiality, and the duty of prudent administration. Due to the language in §501C.0106, the common law and principles of equity supplement these new statutory duties of the trustee.
A wholly new concept in Minnesota trust law is the directed trust. The article includes several new concepts, which include an investment trust advisor, a distribution trust advisor, and a trust protector. These new roles are referred to as a directing party. Another new concept in this section is an excluded fiduciary. So long as an excluded fiduciary acts in accordance with the governing instrument and complies with the directions that are provided to them by a directing party, they are not liable to the trust beneficiaries. Unless the governing instrument provides otherwise, an excluded fiduciary does not have a duty to “monitor, review, inquire, investigate, recommend, evaluate, or warn” with respect to the directions that are provided by a directing party. This is true even if the excluded fiduciary disagrees with the directions that they are provided.
The benefit of this new section is that it will allow trustees to hire the necessary expertise to provide advice on investments and distributions and know that they are protected when following this advice. In addition, the powers of a trust protector are expansive and are set forth in Subd. 4 of §501C.0808.
Another new concept contained in this chapter is set forth in §813. Paragraph (a) contains the general rule that the trustee has an obligation to inform the qualified beneficiaries of an irrevocable trust concerning the administration of the trust as well as material facts that the beneficiaries need to know to protect their interests. However, a new concept is contained in paragraph (b). This paragraph allows a settlor to eliminate the obligation of the trustee to inform the beneficiaries about the administration of the trust or material facts related thereto where (1) the trust contains an express limitation that the provisions of paragraph (a) do not apply, and (2) the trustee is required to keep either the settlor or another person advised about the trust administration. The other person may be one or more of the beneficiaries of the trust. It is also noteworthy that a person who receives information concerning the administration of a trust under this section is not deemed to be a fiduciary and has no duty to inform the beneficiaries about the information received.
This new section will provide a settlor some control over who receives information when the settlor wishes to limit the dissemination of such information. For example, where a trust is set up for the benefit of a grandchild who is a spendthrift, a settlor may determine that the information can be provided to another person, rather than to the beneficiary. While this section may be controversial in some respects, it does provide a settlor more control over the beneficiaries’ knowledge of a trust that the settlor has established.
Article 8 also contains the trustees’ powers. While the powers are quite similar to those currently contained in Minn. Stat. §501B.81, there is one significant difference between the powers in Chapter 501B and those set forth in the new chapter: Under Chapter 501B, the powers had to be incorporated by reference in the trust instrument. Under the new law, the trustee’s powers are automatically granted to a trustee without a reference to the statute. As a result, if there are powers contained in the new §501C.0816 that the settlor does not wish to grant, they will need to be specifically eliminated in the trust instrument.
Liability of Trustees
The initial sections in Article 10 of the new law provide the remedies for a breach of trust. These include damages for breach.
One noteworthy change appearing in this article concerns the statute of limitations that applies to an action against a trustee. This section retains the current six-year statute of limitations. However, where a beneficiary has been provided a “report” that adequately discloses to the beneficiary the existence of a potential claim, then the statute of limitations is reduced to three years after the date when the beneficiary was provided the report. While the UTC reduces the statute of limitations in such an instance to one year, the committee did not believe that such a period of time was sufficient and thus set the time limit at three years.
One other important feature in this article is that the certificate of trust and affidavit of trustee that are used in real property transactions appear in sections 1012 and 1013. While there are very minor changes to these statutes, they are substantially the same as those appearing in current Minn. Stat. §§501B.56 and .57.
Application and Construction of New Trust Code
The new trust law will apply to all trusts created before, on, or after the effective date of the new statute. The statute contains an exception to this rule as to trust instruments executed before the effective date where there is a clear indication of a contrary intent expressed in the terms of the trust instrument.
The new statute also will apply to all judicial proceedings commenced on or after the effective date of the new statute. As to judicial proceedings concerning trusts commenced before the effective date, the new law applies unless the court finds that the application of a particular provision would substantially interfere with the judicial proceedings or unfairly prejudice the parties’ rights.
While the new statute contains these limited exceptions, the general purpose of this approach is to apply the new law to all trusts, whenever created, and to all judicial proceedings unless the exceptions apply.
Decanting represents another new addition to Minnesota trust law. It is not part of the UTC, but Minnesota becomes the 23rd state to adopt the concept. Actually, the name is quite apt. The concept behind decanting is that where a trustee has discretion to distribute income and principal from a trust, such trustee can “pour over” all or a part of such rights into a newly created trust for the benefit of such beneficiary.
When we began to develop Minnesota’s version of decanting, we developed a two-track method for its application. When we were well into the process, New York became the first state to actually adopt a two-track method for decanting. The first track addresses when the trustee has absolute or very broad discretion to make distributions, while the other track describes the trustee’s option to decant when the discretion is more limited, such as it would be under a HEMS standard.
Essentially, decanting is an exercise of a special power that fits under the power of appointment statute. As we drafted the new decanting statute, we decided to place it within a new chapter dealing with powers of appointment. Minnesota Chapter 502 addresses this subject, but the statute had not been meaningfully changed since the 1960s. As the committee deliberated, we determined that Chapter 502 should be modernized.
In looking at other approaches, we determined that the New York approach was best. While the powers of appointment chapter has its own set of definitions set out in Minn. Stat. §501.81, decanting also has its own set of definitions that are contained in Minn. Stat. §502.851. These include the new concepts of “an appointed trust” and “an invaded trust.” The new statute also defines the “unlimited discretion” that would be required to use the procedures outlined in the first track. This term, which is tied to estate tax concepts under the Internal Revenue Code, means such things as “best interest, welfare, comfort, or happiness.” The statute goes on to set out the requirements of each track under subds. 3 and 4. In the case of unlimited discretion, the trustee may appoint assets to a new trust that benefits one, more than one or all of the current beneficiaries of the invaded trust to the exclusion of any one or more of the current beneficiaries. The successor and remainder beneficiaries of the new trust may be none, one, more than one, or all of the successor remainder beneficiaries of the new trust.
In the case of a trustee without unlimited discretion, the beneficiaries of the new trust must be the same as the current beneficiaries of the invaded trust, and the successor and remainder beneficiaries must also remain the same. Where the trustee’s discretion is not unlimited, the trustee’s discretion to distribute income and principal must apply the same standard as that of the invaded trust.
When a trustee exercises the discretion to decant, the trustee acts as a fiduciary and must act in the best interest of one or more of the objects of the exercise of the power.
One key element of the Minnesota statute, which differs from some states, is the requirement for notice. The new statute defines each person who is entitled to notice under this provision. The exercise of the power to decant must be preceded by written notice that is signed, dated and acknowledged by the authorized trustee. The power to decant then becomes effective 60 days after the date of delivery of the notice. However, the statute permits the period to be shortened where each person entitled to notice either agrees to an earlier effective date or waives the right to object to the exercise of the decanting power.
Another feature of the new law is that the trustee may proceed without the consent of the settlor or the persons interested in the invaded trust and without court approval. However, a trustee desiring to obtain court approval may do so. The new statute also indicates that a trustee is not under any duty to exercise this power.
The new statute also contains a number of prohibitions in subd. 15. These include (1) that the trustee may not reduce, limit or modify the beneficiary’s current right to a mandatory distribution of income or principal, (2) may not decrease the trustee’s liability, or indemnify or exonerate a trustee from liability, for failing to act prudently in the exercise of the power, (3) extending the term of the appointed trust beyond the permitted rule against perpetuities that applies to the invaded trust, and (4) acting in a manner that would jeopardize a deduction or exclusion for estate tax purposes, qualification of a transfer as a direct skip under the generation-skipping tax law, or any other specific tax benefit for income, gift, estate or generation-skipping transfer purposes.
Finally, the new decanting statute applies to any trust governed under the laws of this state, including a trust whose governing law was changed to this state, unless the terms of the invaded trust expressly provide otherwise.
The effective date of the new Minnesota trust chapter, Chapter 501C of Minnesota Statutes, is January 1, 2016.
The new act fills in many blanks that our current law does not address. It answers many questions that the current statutes do not resolve. While Chapter 501B represented a significant advance in Minnesota trust law when it was adopted in 1989, the new statute will permit us to practice trust law with more clarity and to compete in the ever-changing trust landscape in the 21st century. It provides us more flexibility and adds a number of new tools to allow trust practitioners to address their clients’ needs more effectively.
As we learn about the new statute over the coming months and begin to practice with it in 2016, we will be able to better judge how successful we have been on the journey that we began about five years ago.
CHRISTOPHER HUNT is a shareholder of Fredrikson & Byron, P.A. and a member of its Estate Planning/Probate Department. He practices in the areas of estate planning, probate and trust administration, estate and gift taxation and related areas of real estate law. He is a fellow of the American College of Trust and Estate Counsel (ACTEC) and the current Minnesota state chair. He recently chaired a special committee of the MSBA Probate and Trust Law Section that drafted Minnesota’s new trust law.