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Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

The Revolution Continues: Toward greater modernization and uniformity in trust and estate law

Fifty years ago, each state had its own rules and procedures for probating a decedent’s estate.1 The probate process in Minnesota and most other states had changed little for generations and needed modernization.2 The 1969 promulgation of the Uniform Probate Code (UPC)3 upset the status quo, and after some initial opposition the Minnesota Legislature enacted a UPC statute in 1974 on the recommendation of a Minnesota State Bar Association committee.4 Other states followed suit. The UPC has now been adopted in large part by 18 states, and every state has adopted at least some portions of the UPC.5

The UPC is a product of the Uniform Law Commission (ULC),6 an organization formed 126 years ago to promote uniformity in areas of state law where uniformity is desirable.7 The ULC membership consists of volunteer attorneys appointed in the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, and the United States Virgin Islands.8 These commissioners study proposals for new uniform laws and draft legislation in public meetings open to any interested stakeholder.

The body charged with reviewing the UPC and other trust and estate legislation and keeping it current is known as the Joint Editorial Board for Uniform Trust and Estate Acts (JEB).9 JEB members are appointed by the ULC, by the American College of Trust and Estate Counsel (ACTEC), and by the American Bar Association Section of Real Property, Trust and Estate Law.10 The JEB also appoints liaisons from the National College of Probate Judges and the American Association of Law Schools.11 Following JEB recommendations, the ULC periodically drafts and promulgates amendments to the UPC, most of which have been adopted in Minnesota.

After the success of the UPC, the JEB was responsible for a torrent of uniform trust and estate acts. These included the Uniform International Wills Act in 1977, the Uniform Estate Tax Apportionment Act in 1982, an innovative act on succession without administration in 1983, a major update to the UPC’s guardianship provisions in 1982, a revised Uniform Transfers to Minors Act in 1986 and the similar Uniform Custodial Trust Act in 1987, new acts governing nonprobate transfers of financial accounts and securities in 1989, the Uniform Prudent Investor Act in 1994, and uniform acts governing powers of attorney in 1979 and 1988.

In 1997, co-author Robert Stein delivered the Joseph Trachtman Lecture to the American College of Trust and Estate Counsel (ACTEC), which was subsequently published in The Probate Lawyer.12 He described the wave of new statutory trust and estate law after so many years of little change as a uniform laws revolution in trust and estate law. This revolution continued into the 21st century, beginning with the Uniform Trust Code (UTC) in 2000—the first comprehensive codification of the law of trusts—that has now been adopted in 33 states, including Minnesota. The UTC was followed by:

  • a revised Uniform Estate Tax Apportionment Act in 2003;
  • a revised Uniform Power of Attorney Act and the Uniform Prudent Management of Institutional Funds Act in 2006;
  • significant amendments to the UPC and the Uniform Principal and Income Act in 2008;
  • an act allowing nonprobate transfers of real property in 2009;
  • the Uniform Powers of Appointment Act in 2013;
  • the Uniform Fiduciary Access to Digital Assets Act in 2014;
  • the Uniform Trust Decanting Act in 2015;
  • the Uniform Directed Trust Act and the Uniform Guardianship, Conservatorship, and Other Protective Arrangements Act in 2017; and, finally
  • the Uniform Fiduciary Income and Principal Act last year. 

Obviously, the revolutionary fervor to codify and modernize the law of trusts and estates through uniform laws shows no sign of abating.

The case for uniformity is stronger than ever. Estate planning can involve family members residing in many states and trusts sited in foreign jurisdictions. Clients move more frequently and sometimes own property in several states. Digital assets such as photos and documents stored on remote servers do not always respect traditional jurisdictional boundaries.

Moreover, the law is evolving faster than in previous generations. Today’s estate planning attorneys routinely draft trusts that creatively divide a trustee’s traditional duties among several parties who serve in specialized roles. Advanced discretionary techniques like decanting and adjusting between principal and income interests allow for greater flexibility to adapt to unforeseen future events. The ULC has answered these challenges by incorporating modern trends into its uniform trust and estate laws, allowing state legislatures to respond to the rapidly evolving legal environment.

The remainder of this article will discuss several recent uniform trust and estate acts not yet adopted in Minnesota.

Uniform Trust Decanting Act (UTDA)

The recently adopted Minnesota Trust Code13 includes provisions on “decanting,” the term used for distributions of trust assets into another trust with different terms (as wine is decanted from the bottle to another vessel).14 But the Minnesota decanting law differs in several ways from the Uniform Trust Decanting Act.

One major distinction involves which rules to apply to which trusts. Both the Minnesota law and the UTDA provide two sets of rules governing decanting: a stricter set of rules for trustees with limited discretion and a more lenient set of rules for trustees with greater discretion. Trustees in the former category may decant for administrative purposes but generally may not alter beneficial interests. The UTDA defines the trustee’s level of discretion differently than current Minnesota law, meaning some trustees who would be subject to the more lenient set of rules under the UTDA are subject to the more restrictive rules under Minnesota law.

To elaborate, the Minnesota Trust Code defines “unlimited discretion” as the unlimited power to distribute principal.15 Any trustee without unlimited discretion is subject to the stricter set of rules; the trustee may decant, but all beneficial interests under the new trust must closely mirror those in the original trust. Contrast this with the UTDA structure: The UTDA has a similar set of restrictive rules for trustees with “limited distributive discretion” and a more lenient set of rules for trustees with “expanded distributive discretion.”16 A trustee with limited distributive discretion is defined as one subject to one of two familiar standards based in federal tax law: an “ascertainable standard” or a “reasonably definite standard.”17 On balance, fewer trustees would be subject to the stricter set of decanting rules under the UTDA. 

The UTDA also includes an express exception for special needs trusts.18 Even trustees with limited distributive discretion can decant to a special needs trust if it will benefit the beneficiary with a disability and all other beneficial interests remain unchanged.

There are other distinctions as well. The UTDA provides a series of savings provisions that can rescue an otherwise defective decanting when the decanting fiduciary commits an error.19 This helps insure against potentially adverse tax consequences and avoid lawsuits alleging a breach of the duty of care. 

Finally, the UTDA includes a liability shield for successor trustees that rely on an apparently valid decanting executed by a previous trustee.20 Without this provision, professional fiduciaries may be reluctant to assume responsibility for a previously decanted trust. With it, the successor fiduciary will be held blameless while the original fiduciary remains responsible for its actions.

Uniform Directed Trust Act (UDTA)21

Another area where Minnesota law diverges from uniform law involves directed trusts. The Minnesota trust code includes provisions governing the use of directed trusts,22 but they could be substantially improved by adopting the UDTA.

A fundamental difference between the UDTA and Minnesota law involves terminology. The Minnesota statute defines three types of directing parties (distribution trust advisor, investment trust advisor, and trust protector) and assigns default duties to each type.23 This statutory approach will cause confusion if the drafter of a trust uses a different title for a directing party or assigns duties different from those anticipated by the statute. This is very likely to be the case when the drafter was unfamiliar with the Minnesota statute, either because the drafter practices out of state or because the trust predates the 2015 law. Subdivision 10 of the Minnesota law on directed trusts attempts to solve this problem by providing for application to “all existing and future trusts that appoint or provide for a directing party, including but not limited to a party granted power or authority effectively comparable in substance to that of a directing party as provided in this section.”24 This creates issues of fact that could lead to avoidable disputes.

The UDTA takes a much simpler approach. The act defines a “trust director” as any person, other than a trustee, who is granted a power over the trust (with certain exclusions) regardless of the person’s title under the terms of the trust.25 Moreover, a trust director has no default duties under the UDTA. Instead, the terms of the trust control, and the statute grants authority to exercise any further power appropriate to the exercise of a power granted in the trust instrument.26 For example, a trust director granted a power by the settlor to direct investment of trust assets could also appropriately choose a broker to manage trades or bring suit for noncompliance with an investment direction.

The UDTA approach is preferable because of its simplicity, and also because it removes any ambiguity about the scope of a trust director’s duties. The terms of the trust control—period. Drafters of trust instruments may use different titles from those specified in the Minnesota statute, or assign different duties, with full confidence that the settlor’s intended division of duties will be legally enforceable.

Another advantage of the UDTA is its application of a state’s rules governing trustees to trust directors. The common law is unclear with respect to a trust director’s acceptance of office, obligation to post a security bond, statutes of limitation for liability, compensation, resignation, removal, and the appointment of successors to fill vacancies. The UDTA provides a simple solution: It incorporates the enacting state’s current law governing trustees and applies it equally to similarly situated trust directors.27 There are no equivalent provisions in the Minnesota statute.

The UDTA is similar to the Minnesota statute in other respects. Both apply the “willful misconduct” standard for holding directed trustees liable.28 A trustee who complies with the authorized direction of a trust director is not liable unless by doing so the trustee engages in willful misconduct. Instead, the trust director has the same liability as a trustee would under the same circumstances. Both the UDTA and the Minnesota statute impose a duty on a trust director to keep a trustee reasonably informed about actions that affect the trustee’s ability to perform its duties. But only the UDTA imposes a reciprocal duty on a trustee to keep a trust director reasonably informed as necessary.29

Finally, the drafters of the UDTA recognized that allocating liability among parties according to their duties is a reversal of the common law rule that holds co-trustees liable for each other’s actions. Reasoning that it makes little sense to have conflicting rules based on whether a person is given the title of trust director or co-trustee, the UDTA allows settlors the option to relieve individual co-trustees of duties and liabilities to the same extent they could relieve a trust director or directed trustee.30 The settlor must affirmatively elect this option, or the default common law rule applies.

Uniform Parentage Act (UPA 2017)

A new revision of the Uniform Parentage Act makes five changes to the law: 

(1) It ensures equal treatment of children born to same-sex couples by using gender-neutral language throughout; 

(2) It permits a court to extend certain legal rights to de facto parents who helped raise a child despite no biological relationship; 

(3) it allows the mother of a child born of sexual assault to terminate the father’s parental rights by order of the court; 

(4) it updates surrogacy provisions in line with recent legal developments; and 

(5) it gives children born using assisted reproductive technology limited rights to access medical and identifying information of the donors.31 

Minnesota adopted a previous version of the Uniform Parentage Act in 198032 and should enact these revisions. 

Uniform Power of Attorney Act (UPOAA)

This act helps prevent financial exploitation by restricting agents under a power of attorney (POA) from performing certain inherently risky acts (such as altering rights of survivorship or changing a beneficiary designation) unless the authority is expressly granted in the POA document.33 It also gives legal standing to a broad range of persons to ask a court to construe the terms of a power of attorney or review the agent’s conduct.34 Minnesota’s statute has no comparable provisions.

Uniform Fiduciary Principal and Income Act (UFPIA)

This is a newly revised and renamed version of the Uniform Principal and Income Act.35 Minnesota adopted the previous version in 2001.36 The revision allows conversion of an irrevocable income trust to a unitrust to allow for total-return investing when all interested parties consent.37

Uniform Recognition of Substitute Decision-Making Documents Act (URSDDA)

URSDDA allows for the cross-border recognition of powers of attorney—both for health care and for finances.38 The title recognizes that the documents are called by other names (e.g. health-care proxies, representation agreements) in other jurisdictions. This act is the result of a joint project between the ULC and the Uniform Law Conference of Canada, which has promulgated a similar law for Canadian provinces.39

Conclusion

The revolution in new uniform trust and estate laws continues. The ULC is drafting a new uniform act on electronic wills, which are currently permitted in three states and are being actively promoted to state legislatures by online vendors.40 Approval of the Uniform E-Wills Act is expected in July 2019. Another drafting project will address the rise of crowdfunding for informal charitable appeals.41 The drafting committee is considering who owns the funds for tax purposes, whether to impose fiduciary duties on the campaign organizer, and whether to regulate the use of excess funds raised once the original purpose for collection has been fulfilled. Final approval is expected in 2020.

The Minnesota Legislature has adopted dozens of uniform laws over the years. The uniform laws discussed here would improve the trust and estate law of Minnesota and should be evaluated for possible adoption in Minnesota as soon as possible.

 

ROBERT A. STEIN is Everett Fraser Professor of Law at the University of Minnesota Law School. He previously served as executive director and chief operating officer of the American Bar Association, and prior to that was dean of the University of Minnesota Law School.

BENJAMIN ORZESKE is chief counsel of the Uniform Law Commission.

 

Notes

1 Robert A. Stein, Probate Reformation: The Impact of the Uniform Laws, 23 Probate Lawyer 8 (1997). 

2 See id. at 8–10. See also Christopher Hunt, “A New Day in Minnesota Trust Law,” 72 Bench & B. Minn. (2015) (noting that until 1989, some provisions in Minnesota trust law had not been updated since the state was a territory). 

3 Stein, supra note 1, at 8. 

4 Minn. Stat. §524.1-101 et seq. (1974) (adopting UPC provisions). 

5 See UPC Enactment Chart, Unif, Law Comm’n, http://www.uniformlaws.org/Shared/Docs/Probate%20Code/UPC%20Chart.pdf . 

6 Co-author Robert A. Stein has been a commissioner from Minnesota since 1973 and served as president of the ULC from 2009–2011.

7 About the ULC, Unif. Law. Comm’n, http://www.uniformlaws.org/Narrative.aspx?title=About%20the%20ULC. 

8 Frequently Asked Questions, Unif. Law Comm’n,  http://www.uniformlaws.org/Narrative.aspx?title=Frequently%20Asked%20Questions. 

9 Committees: Joint Editorial Board for Uniform Trust and Estate Acts, Unif. Law Comm’n, http://www.uniformlaws.org/Committee.aspx?title=Joint%20Editorial%20Board%20for%20Uniform%20Trust%20and%20Estate%20Acts. 

10 Probate Code Summary, Unif. Law Comm’n, http://www.uniformlaws.org/ActSummary.aspx?title=Probate%20Code. 

11 Uniform Law Commission Reference Book (Nat’l Conference of Comm’rs on Unif. State Laws eds., 2017–2018). 

12 Robert A. Stein, Joseph Trachtman Lecture, Probate Reformation: The Impact of the Uniform Laws, 23 Prob. Law. 10 (1997).

13 Minn. Stat. Ch. 502. 

14 Minn. Stat. §502.851 (2016). 

15 Id. §502.815(i) (“‘Unlimited discretion’ means the unlimited power to distribute principal. A power to distribute principal that includes words such as best interests, welfare, comfort, or happiness shall not be considered a limitation of the power to distribute principal.”). 

16 Unif. Trust Decanting Act §§11–12 (Unif. Law Comm’n 2015).

17 Id. §12(a) (“‘[L]imited distributive discretion’ means a discretionary power of distribution that is limited to an ascertainable standard or a reasonably definite standard.”); Id. § 2(2) (“‘Ascertainable standard’ means a standard relating to an individual’s health, education, support, or maintenance within the meaning of 26 U.S.C. Section 2041(b)(1)(A)[, as amended,] or 26 U.S.C. Section 2514(c)(1)[, as amended,] and any applicable regulations.”); Id. §2(21) (“‘Reasonably definite standard’ means a clearly measurable standard under which a holder of a power of distribution is legally accountable within the meaning of 26 U.S.C. Section 674(b)(5)(A)[, as amended,] and any applicable regulations.”). 

18 Id. §13(a).

19 Id. §§19, 22.

20 Id. §6.

21 Both co-authors served on the drafting committee for the Uniform Directed Trust Act.

22 Minn. Stat. §501C.0808 (2016). 

23 Id. 

24 Id. subdiv. 10. 

25 Unif. Directed Trust Act §2 (Unif. Law Comm’n 2017). For exclusions, see Id. §5.

26 Id. §6.

27 Id. §16.

28 Compare id. §9, with Minn. Stat. §501C.0808 (2016).

29 Unif. Directed Trust Act §2 (Unif. Law Comm’n 2017).

30 Id. §12.

31 Unif. Parentage Act Prefatory Note (Unif. Law Comm’n 2017). 

32 Minn. Stat. 257.51–.71(2016). 

33 Unif. Power of Attorney Act §201 (Unif. Law Comm’n 2006). 

34 Id. §116.

35 Unif. Fiduciary Income and Principal Act (Unif. Law Comm’n 2018). 

36 Minn. Stat. §501C.1113 (2016). 

37 Unif. Fiduciary Income and Principal Act §§301–309 (Unif. Law Comm’n 2018). 

38 Unif. Recognition of Substitute Decision-Making Documents Act (Unif. Law Comm’n 2014).

39 Id. Prefatory Note.

40 Committees: Electronic Wills, Unif. Law Comm’n, http://www.uniformlaws.org/Committee.aspx?title=Electronic%20Wills. 

41 Committees: Management of Funds Raised Through Crowdfunding Efforts, Unif. L. Comm’n, http://www.uniformlaws.org/Committee.aspx?title=Management%20of%20Funds%20Raised%20Through%20Crowdfunding%20Efforts/. 

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