The new Minnesota Trust Code is effective January 1, 2016 and applies to all trusts administrated under Minnesota law, including existing trusts. This significant law change modernizes Minnesota trust law and brings it in line with national trends by providing more structure and flexibility with such benefits as directed trusts, non-judicial settlement agreements, decanting and silent trusts. Below is a summary of some of the significant changes.
- Directed Trusts. The new Minnesota Trust Code allows a trust to be a “directed trust.” A directed trust is a trust in which the trustee is required to follow the direction of another specifically named trust advisor such as an investment trust advisor, distribution trust advisor, or trust protector. The trustee has no liability for actions it is directed to take by a named trust advisor or trust protector.
- Non-judicial Settlement Agreement. The new Minnesota Trust Code broadens the use of non-judicial settlement agreements by allowing trustees and trust beneficiaries to resolve issues or disputes without going to court. Under the old law, a non-judicial settlement agreement could be used only in limited circumstances, but under the new trust code, the trustees and beneficiaries can enter into a non-judicial settlement agreement for any purpose that could be properly approved by a court.
- Decanting and Flexibility for Irrevocable Trusts. The new Minnesota Trust Code allows for "decanting." The term comes from decanting wine, where wine is poured from one container into a new container leaving the sediment behind. Similar to that concept, decanting a trust involves transferring the trust assets into a new trust leaving undesirable provisions behind. Decanting is only available if the trustee is permitted to make discretionary distributions to beneficiaries. Decanting may be a useful tool to address unforeseen events occurring after a trust becomes irrevocable, including federal or state law changes, changes in a beneficiary’s circumstances or tax changes. Decanting can also be useful for updating a trust’s administrative provisions.
The trustee's ability to modify existing trusts in ways other than decanting has also expanded under the new Minnesota Trust Code. A trust may now be modified or terminated if the person who created the trust consents and all the trust beneficiaries consent. If the person who created the trust is no longer living, or does not consent to the change, trust modification or termination is still available.
- Silent Trusts. Sometimes referred to as “quiet trusts” or “secret trusts,” silent trusts are trusts that are not disclosed to the beneficiaries. Unless a trust contains an express provision to the contrary, under the new Minnesota Trust Code the trustee is required to keep all the “qualified beneficiaries” of a trust reasonably informed of trust activities. Trustees are typically required to send beneficiaries an annual trust accounting or trust account statements. In some cases qualified beneficiaries include individuals that may never receive any trust assets. The silent trust provisions, if expressly included in the trust, allow the person creating the trust the flexibility to determine who receives trust information. These provisions can help maintain privacy and manage the expectations of contingent beneficiaries who may never receive any trust property.
- Review Estate Plans. The new Minnesota Trust Code provides additional tools and flexibility that can improve trust administration. However, most of the benefits provided under the new Minnesota Trust Code must be expressly drafted into the trust instrument to be effective.