A few highlights of new Minnesota laws, effective January 1, 2016

Non-Judicial Settlement Agreements

Some individuals may be ‘stuck’ with Irrevocable trusts that no longer meet the intended goals of their trust. Or perhaps the goals themselves no longer make sense in light of changed circumstances.  The new Minnesota Trust Code allows more flexibility for trusts to be altered or terminated by agreement between all current and remainder beneficiaries without court involvement. There are still cases when court approval is required (or just prudent) in order to alter a Trust, but the options for non-judicial settlement agreements (agreements by beneficiaries outside of court) is greatly expanded in a way that may help some of your clients.

Note: There are tax issues to be considered if the Settlor (trust creator) of an Irrevocable Trust is a party to the settlement agreement, so it is important to proceed with caution if the Settlor is still alive.

Directed Trustees

The new Trust law specifically allows for Directed Trustees in Minnesota. Specifically, the law allows for the appointment of a Trust Protector, a Distribution Trust Advisor, or an Investment Trust Advisor.  The trust document must be drafted in such a way that allows for the appointment of these experts.

This is a big change in Minnesota Law.  The appointment of a Distribution Trust Advisor (DTA), or an Investment Trust Advisor (ITA) allows the person creating a Trust to appoint experts to “direct” the trustee, who may be a family member, on such things as investments and trust distributions, thus relieving the Trustee of liability for the decisions of the experts while ensuring the most informed decisions possible are made.  The trust advisors are held to a fiduciary standard with respect to the trust beneficiaries.

An Investment Trust Advisor may be especially useful when a client holds a concentration of a certain stock or holding within a Trust.  After the client’s death, the successor Trustee would generally be required to diversify the portfolio according to the Prudent Investor standard.  By having an ITA appointed, he or she may simply direct the trustee to maintain the concentration if that makes sense for the particular trust beneficiaries.  The trustee is then relieved of the duty to comply with the ‘prudent investor’ rule, and the most informed person on the topic – the investment advisor – is making the decisions on the investments. Please see the redacted section of Minnesota Statute section 501C.0808 at the end of this article for more information and detail on ITA powers.

Capacity

The new law clarifies some capacity issues.  First, it is now clear that the capacity required to create a Revocable Trust is the same as that for creating a Will.  This makes sense because Revocable Trusts are often used as Will substitutes.  That standard is: the person must understand “the nature, situation, and extent of his property and the claims of others on his bounty or his remembrance, and he is able to hold the things in his mind long enough to form a rational judgment concerning them” Matter of Estate of Congdon, 309 N.W.2d 261, 266 (Minn. 1981).

Second, it is now clear that the capacity for creating an Irrevocable Trust is the same as that for making a gift or contract, which is a higher standard than for making a Will.  The person must “have an ability to reasonably comprehend the nature and effect of the act and the business being transacted. In re Estate of Nordorf, 364 N.W.2d 877, 880 (Minn. App. 1985). The more complicated the transaction, the higher level of capacity is necessary.

These are important but positive changes. If you would like more information, please contact:

Shannon Hooley Enright at 651.351.2111 or senright@eckberglammers.com or

Katie Kranz at 715.808.8835 or kkranz@eckberglammers.com.


Minnesota Statutes Section 501C.0808:

Subd. 2.Powers of investment trust advisor.

An investment trust advisor may be designated in the governing instrument of a trust. The powers of an investment trust advisor may be exercised or not exercised in the sole and absolute discretion of the investment trust advisor, and are binding on all other persons, including but not limited to each beneficiary, fiduciary, excluded fiduciary, and any other party having an interest in the trust. The governing instrument may use the title "investment trust advisor" or any similar name or description demonstrating the intent to provide for the office and function of an investment trust advisor. Unless the terms of the governing instrument provide otherwise, the investment trust advisor has the authority to:

  • direct the trustee with respect to the retention, purchase, transfer, assignment, sale, or encumbrance of trust property and the investment and reinvestment of principal and income of the trust;
  • direct the trustee with respect to all management, control, and voting powers related directly or indirectly to trust assets, including but not limited to voting proxies for securities held in trust;
  • select and determine reasonable compensation of one or more advisors, managers, consultants, or counselors, including the trustee, and to delegate to them any of the powers of the investment trust advisor in accordance with section 501C.0807; and
  • determine the frequency and methodology for valuing any asset for which there is no readily available market value.

Trust Protectors may be given authority to adapt the trust document as needed over time by interpreting provisions, changing trust situs and removing and appointing Trustees, among other duties.  All of these go a long way to making Irrevocable trusts more flexible and adaptable as the family needs require.

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