In general, a trustee’s duties are to administer the trust; specifically to hold, administer and distribute the assets of the trust estate in accordance with the trust agreement and applicable law. Various statutory provisions, portions of which are set forth below, add detail to those basics.
501C.0801 DUTY TO ADMINISTER TRUST.
Upon acceptance of a trusteeship, the trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries, and in accordance with this chapter and all other applicable law.
501C.0802 DUTY OF LOYALTY.
(a) A trustee owes a duty of loyalty to the beneficiaries. A trustee shall not place the trustee’s own interests above those of the beneficiaries.
(b) Subject to the rights of persons dealing with or assisting the trustee as provided in section 501C.1012, a sale, encumbrance, or other transaction involving the investment or management of trust property entered into by the trustee for the trustee’s own personal account or which is otherwise affected by a conflict between the trustee’s fiduciary and personal interests is voidable by a beneficiary affected by the transaction unless:
(1) the transaction was authorized by the terms of the trust;
(2) the transaction was approved by the court;
(3) the beneficiary did not commence a judicial proceeding within the time allowed by section 501C.1005;
(4) the beneficiary consented to the trustee’s conduct, ratified the transaction, or released the trustee in compliance with section 501C.1009; or
(5) the transaction involves a contract entered into or claim acquired by the trustee before the person became a trustee.
(c) A sale, encumbrance, or other transaction involving the investment or management of trust property is presumed to be affected by a conflict between personal and fiduciary interests if it is entered into by the trustee with:
(1) the trustee’s spouse;
(2) the trustee’s descendants, siblings, parents, or their spouses;
(3) an agent or an attorney of the trustee; or
(4) a corporation or other person or enterprise in which the trustee, or a person who owns a significant interest in the trustee, has an interest that might affect the trustee’s best judgment.
(d) This section does not preclude the following transactions, if fair to the beneficiaries:
(1) an agreement between a trustee and a beneficiary relating to the appointment or compensation of the trustee;
(2) payment of reasonable compensation to the trustee;
(3) a transaction between a trust and another trust, decedent’s estate, or conservatorship of which the trustee is a fiduciary or in which a beneficiary has an interest;
(4) a deposit of trust money in a regulated financial service institution operated by the trustee; or
(5) an advance by the trustee of money for the protection of the trust.
(e) The court may appoint a special fiduciary to make a decision with respect to any proposed transaction that might violate this section if entered into by the trustee.
If a trust has two or more beneficiaries, the trustee shall administer the trust impartially, giving due regard to the beneficiaries’ respective interests.
501C.0804 PRUDENT ADMINISTRATION.
A trustee shall administer the trust as a prudent person would, by considering the purposes, terms, and distribution requirements of the trust and all relevant circumstances. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.
501C.0807 DELEGATION BY TRUSTEE.
(a) A trustee may delegate to any person, even if the person is associated with the trustee, duties and powers that a prudent trustee of comparable skills could properly delegate under the circumstances. The trustee shall exercise reasonable care, skill, and caution in:
(1) selecting an agent;
(2) establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust; and
(3) periodically reviewing the agent’s actions in order to monitor the agent’s performance and that the agent is acting in compliance with the terms of the delegation.
(b) In performing a delegated function, an agent owes a duty to the trustee to exercise reasonable care to comply with the terms of the delegation. This duty shall be enforced by the trustee.
(c) A trustee who complies with paragraphs (a) and (b) is not liable to the beneficiaries or to the trust for an action of the agent to whom the function was delegated.
(d) By accepting a delegation of powers or duties from the trustee of a trust that is subject to the laws of this state, an agent submits to the jurisdiction of the courts of this state.
501C.0809 CONTROL, PROTECTION, AND DELIVERY OF TRUST PROPERTY.
(a) A trustee shall take reasonable steps to compel a former trustee or other person to deliver the trust’s tangible personal property and evidence of ownership of other trust property to the trustee.
(b) A trustee shall take reasonable steps to take control of and protect the trust property, except that this duty does not apply to, and the trustee is not responsible for, items of tangible personal property that are property of a trust revocable by the settlor and that are not in the possession or control of the trustee.
501C.0810 RECORD KEEPING AND IDENTIFICATION OF TRUST PROPERTY.
(a) A trustee shall keep adequate records of the administration of the trust.
(b) A trustee shall keep trust property separate from the trustee’s own property.
(c) If the trustee maintains records clearly indicating the respective interests, a trustee may invest as a whole the property of two or more separate trusts.
501C.0811 ENFORCEMENT AND DEFENSE OF CLAIMS.
(a) A trustee shall take reasonable steps to redress a breach of trust known to the trustee to have been committed by a former trustee.
(b) A trustee shall take reasonable steps to enforce claims of the trust known to the trustee and to defend claims against the trust.
501C.0813 DUTY TO INFORM AND REPORT.
(a) A trustee shall keep the qualified beneficiaries of an irrevocable trust reasonably informed about the administration of the trust and of the material facts necessary to protect their interests. Unless unreasonable under the circumstances, a trustee shall promptly respond to a beneficiary’s request for information related to the administration of an irrevocable trust.
(b) A settlor may provide, by an express provision in the trust instrument, that paragraph (a) shall not apply to the administration of a trust during any period when the trustee is required by the terms of the trust to keep the settlor or another person, including one or more beneficiaries of the trust or a representative of a beneficiary, reasonably informed about the administration of the trust and of the material facts necessary to protect the beneficiaries’ interests. A trustee shall promptly respond to such person’s requests for information related to the administration of the trust. Unless the terms of the trust provide otherwise, any person to whom trust administration information is furnished shall have standing to enforce the trust but acts in a nonfiduciary capacity and has no duty or responsibility to enforce the trust or to take any other action with respect to the information furnished. If a settlor has, by an express provision in the trust instrument, prohibited a trustee from sharing information with beneficiaries, including but not limited to accountings, a trustee shall have the right to seek judicial approval by filing a petition with the court. Such petition shall comply with the notice provisions of section 501C.0203.
(c) A beneficiary may waive the right to information otherwise required to be furnished under paragraph (a). A beneficiary may withdraw any such waiver previously given. Any waiver or withdrawal of a waiver must be made by notice delivered to the trustee.
501C.0814 DISCRETIONARY POWERS; TAX SAVINGS.
(a) Notwithstanding the breadth of discretion granted to a trustee in the terms of the trust, including the use of such terms as “absolute,” “sole,” or “uncontrolled,” the trustee must exercise a discretionary power in good faith, in accordance with the terms and purposes of the trust and, in the best interests of the beneficiaries.
(b) Subject to paragraph (d), and unless the terms of the trust expressly indicate that this paragraph does not apply:
(1) a person other than a settlor who is a beneficiary and trustee of a trust that confers on the trustee a power to make discretionary distributions to or for the trustee’s personal benefit may exercise the power only in accordance with an ascertainable standard; and
(2) a trustee may not exercise a power to make discretionary distributions to satisfy a legal obligation of support that the trustee personally owes another person.
(c) A power that is limited or prohibited by paragraph (b) may be exercised by a majority of the remaining trustees whose exercise of the power is not so limited or prohibited. If the power of all trustees is so limited or prohibited, the court may appoint a special fiduciary with authority to exercise the power, or all of the trustees, acting by unanimous agreement, may appoint a special fiduciary with authority to exercise the power. A special fiduciary appointed by the other trustees may not be related to or subordinate to any trustee within the meaning of section 672(c) of the Internal Revenue Code.
(d) Paragraph (b) does not apply to:
(1) a power held by the settlor’s spouse who is the trustee of a trust for which a marital deduction, as defined in section 2056(b)(5) or 2523(e) of the Internal Revenue Code of 1986, as in effect on January 1, 2016, or as later amended, was previously allowed;
(2) any trust during any period that the trust may be revoked or amended by its settlor;
(3) a trust if contributions to the trust qualify for the annual exclusion under section 2503(c) of the Internal Revenue Code of 1986, as in effect on January 1, 2016, or as later amended;
(4) a trust created on or before May 14, 1993, if the entire principal of the trust would be included in the gross estate of the trustee for federal estate tax purposes if the trustee had died on May 14, 1993, without regard to any power described in paragraph (a);
(5) a trust created on or before May 14, 1993, if no part of the principal of the trust would be included in the gross estate of the trustee for federal estate tax purposes if the trustee had died on May 14, 1993, without exercising the power; or
(6) a trust created on or before May 14, 1993, if (i) the trust is not exempt from the generation-skipping transfer tax under chapter 13 of the Internal Revenue Code of 1986, as amended through December 31, 1992, because of Public Law 99-514, section 1433(b) to (d); (ii) there would be a taxable termination with respect to the assets held in the trust if the trustee and all beneficiaries of the trust who are assigned to the trustee’s generation or a higher generation had died on May 14, 1993; and (iii) the trust would have an inclusion ratio, as defined in section 2642(c) of the Internal Revenue Code of 1986, as amended through December 31, 1992, of one with respect to the taxable termination.
(e) This section does not apply to a power exercisable in a capacity other than as a trustee.
(f) If a distribution to a beneficiary is subject to the exercise of the trustee’s discretion, whether or not the terms of a trust include a standard to guide the trustee in making distributions, then the interest is neither a property interest nor an enforceable right, but a mere expectancy.
501C.0815 GENERAL POWERS OF TRUSTEE.
(a) A trustee, without authorization by the court, may exercise:
(1) powers conferred by the terms of the trust; and
(2) except as limited by the terms of the trust:
(i) all powers over the trust property which an unmarried competent owner has over individually owned property;
(ii) any other powers appropriate to achieve the proper investment, management, and distribution of the trust property; and
(iii) any other powers conferred by this chapter.
(b) The exercise of a power is subject to the fiduciary duties prescribed by this chapter.
501C.0816 SPECIFIC POWERS OF TRUSTEE.
Without limiting the authority conferred by section 501C.0815, a trustee may:
(1) collect trust property and accept or reject additions to the trust property from a settlor or another person;
(2) acquire or sell property, for cash or on credit, at public or private sale;
(3) exchange, partition, or otherwise change the character of trust property;
(4) deposit trust money in an account in a regulated financial service institution;
(5) borrow money, with or without security, and mortgage or pledge trust property for a period within or extending beyond the duration of the trust;
(6) with respect to an interest in a preexisting or newly created joint venture, proprietorship, partnership, limited liability company, business trust, corporation, or other form of business or enterprise, continue the business or other enterprise, or create a new business or other enterprise, even though such business or enterprise may exist for a period extending beyond the duration of the trust, and take any action that may be taken by shareholders, members, or property owners, including merging, dissolving, or otherwise changing the form of business organization or contributing additional capital;
(7) with respect to stocks or other securities, exercise the rights of an absolute owner, including the right to:
(i) vote, or give proxies to vote, with or without power of substitution, or enter into or continue a voting trust agreement;
(ii) hold a security in the name of a nominee or in other form without disclosure of the trust so that title may pass by delivery;
(iii) pay calls, assessments, and other sums chargeable or accruing against the securities, and sell or exercise stock subscription or conversion rights; and
(iv) deposit the securities with a depository or other regulated financial service institution;
(8) with respect to an interest in real property, construct or make ordinary or extraordinary repairs to, alterations to, or improvements in, buildings or other structures, demolish improvements, raze existing or erect new party walls or buildings, subdivide or develop land, dedicate land to public use or grant public or private easements, and make or vacate plats and adjust boundaries;
(9) enter into a lease for any purpose as lessor or lessee, including a lease or other arrangement for exploration and removal of natural resources, with or without the option to purchase or renew, for a period within or extending beyond the duration of the trust;
(10) grant an option involving a sale, lease, or other disposition of trust property or acquire an option for the acquisition of property, including an option exercisable beyond the duration of the trust, and exercise an option so acquired;
(11) insure the property of the trust against damage or loss, and insure the trustee and the trustee’s agents and beneficiaries against liability arising from the administration of the trust;
(12) abandon or decline to administer property of no value or of insufficient value to justify its collection or continued administration;
(13) with respect to possible liability for violation of environmental law:
(i) inspect or investigate property the trustee holds or has been asked to hold, or property owned or operated by an organization in which the trustee holds or has been asked to hold an interest, for the purpose of determining the application of environmental law with respect to the property;
(ii) take action to prevent, abate, or otherwise remedy any actual or potential violation of any environmental law affecting property held directly or indirectly by the trustee, whether taken before or after the assertion of a claim or the initiation of governmental enforcement;
(iii) decline to accept property into trust or disclaim any power with respect to property that is or may be burdened with liability for violation of environmental law;
(iv) compromise claims against the trust which may be asserted for an alleged violation of environmental law; and
(v) pay the expense of any inspection, review, abatement, or remedial action to comply with environmental law;
(14) pay or contest any claim, settle a claim by or against the trust, and release, in whole or in part, a claim belonging to the trust;
(15) pay taxes, assessments, compensation of the trustee and of employees and agents of the trust, and other expenses incurred in the administration of the trust;
(16) exercise elections or choose not to exercise elections with respect to federal, state, and local taxes;
(17) select a mode of payment under any employee benefit or retirement plan, annuity, or life insurance payable to the trustee, exercise rights thereunder, including exercise of the right to indemnification for expenses and against liabilities, and take appropriate action to collect the proceeds;
(18) make loans out of trust property, including loans to a beneficiary on terms and conditions the trustee considers to be fair and reasonable under the circumstances, and the trustee has a lien on future distributions for repayment of those loans;
(19) appoint a trustee to act in another jurisdiction with respect to trust property located in the other jurisdiction, confer upon the appointed trustee all of the powers and duties of the appointing trustee, require that the appointed trustee furnish security, and remove any trustee so appointed;
(20) pay an amount distributable to a beneficiary who is under a legal disability or who the trustee reasonably believes is incapacitated, by paying it directly to the beneficiary or applying it for the beneficiary’s benefit, or by:
(i) paying it to the beneficiary’s conservator or, if the beneficiary does not have a conservator, the beneficiary’s guardian;
(ii) paying it to the beneficiary’s custodian under chapter 527, the Uniform Transfers to Minors Act, or to the custodial trustee under chapter 529, the Uniform Custodial Trust Act, and, for that purpose, creating a custodianship or custodial trust;
(iii) if the trustee does not know of a conservator, guardian, custodian, or custodial trustee, paying it to an attorney-in-fact, an adult relative, or another person having legal or physical care or custody of the beneficiary, to be expended on the beneficiary’s behalf; or
(iv) managing it as a separate fund on the beneficiary’s behalf, subject to the beneficiary’s continuing right to withdraw the distribution;
(21) on distribution of trust property or the division or termination of a trust, make distributions in divided or undivided interests, allocate particular assets in proportionate or disproportionate shares, value the trust property for those purposes, and adjust for resulting differences in valuation;
(22) resolve a dispute concerning the interpretation of the trust or its administration by mediation, arbitration, or other procedure for alternative dispute resolution;
(23) prosecute or defend an action, claim, or judicial proceeding in any jurisdiction to protect trust property and the trustee in the performance of the trustee’s duties;
(24) enter into contracts and other instruments that are useful to achieve or facilitate the exercise of the trustee’s powers;
(25) on termination of the trust, exercise the powers appropriate to wind up the administration of the trust and distribute the trust property to the persons entitled to it;
(26) acquire an undivided interest in a trust asset in which the trustee, in a trust capacity, holds an undivided interest;
(27) create reserves out of income for depreciation, obsolescence, or amortization, or for depletion in mineral or timber properties;
(28) hold two or more trusts or parts of trusts created by the same instrument, as an undivided whole, without separation between the trusts or parts of trusts, if the separate trusts or parts of trusts have undivided interests and if no holding defers the vesting of an estate in possession or otherwise;
(29) create or join in the creation of a joint venture, partnership, limited liability company, business trust, corporation, or other form of business or enterprise, continue the business or other enterprise, and take any action that may be taken by shareholders, members, or property owners, including merging, dissolving, or otherwise changing the form of business organization or contributing additional capital; and
(30) with respect to all trust property, hold the property in the name of a nominee without disclosure of the trust.
501C.0817 DISTRIBUTION UPON TERMINATION.
(a) Upon termination or partial termination of a trust, the trustee may send to the beneficiaries a proposal for distribution. The right of any beneficiary to object to the proposed distribution terminates if the beneficiary does not notify the trustee of an objection within 30 days after the proposal was sent but only if the proposal informed the beneficiary of the right to object and of the time allowed for objection.
(b) Upon the occurrence of an event terminating or partially terminating a trust, the trustee shall proceed expeditiously to distribute the trust property to the persons entitled to it, subject to the right of the trustee to retain a reasonable reserve for the payment of debts, expenses, and taxes and to secure a right of reimbursement if the reserve is inadequate.
(c) A release by a beneficiary of a trustee from liability for breach of trust is invalid to the extent it was induced by improper conduct of the trustee.
501C.0901 INVESTMENT AND MANAGEMENT OF TRUST ASSETS.§
Subdivision 1.Prudent investor rule.
(a) Except as otherwise provided in paragraph (b), a trustee who invests and manages trust assets shall comply with the prudent investor rule set forth in this section.
(b) The prudent investor rule, a default rule, may be expanded, restricted, eliminated, or otherwise altered by the trust instrument. A trustee is not liable to a beneficiary to the extent that the trustee acted in reasonable reliance on the trust instrument.§
Subd. 2.Standard of care; portfolio strategy; risk and return objectives.
(a) A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.
(b) A trustee’s investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.
(c) The circumstances that a trustee may consider in making investment decisions include, without limitation, the following:
(1) general economic conditions;
(2) the possible effect of inflation;
(3) the expected tax consequences of investment decisions or strategies;
(4) the role that each investment or course of action plays within the overall trust portfolio;
(5) the expected total return from income and the appreciation of capital;
(6) other resources of the beneficiaries known to the trustee, including earning capacity;
(7) needs for liquidity, regularity of income, and preservation or appreciation of capital; and
(8) an asset’s special relationship or special value, if any, to the purposes of the trust or to one or more of the beneficiaries if consistent with the trustee’s duty of impartiality.
(d) A trustee may invest in any kind of property or type of investment consistent with the standards of this section.
(e) A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee’s representation that the trustee has special skills or expertise, has a duty to use those special skills or expertise.§
A trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.§
Subd. 4.Duties at inception of trusteeship.
Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the purposes, terms, distribution requirements, and other circumstances of the trust, and with the requirements of this section.§
Subd. 5.Investment costs.
In investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, the purposes of the trust, and the skills of the trustee.§
Subd. 6.Reviewing compliance.
Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustee’s decision or action and not by hindsight. The prudent investor rule is a test of conduct and not of resulting performance.§
Subd. 7.Language invoking standard.
The following terms or comparable language in the trust instrument, unless otherwise limited or modified, authorizes any investment or strategy permitted under this section: “investments permissible by law for investment of trust funds,” “legal investments,” “authorized investments,” “using the judgment and care under the circumstances then prevailing that persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital,” “prudent man rule,” “prudent trustee rule,” “prudent person rule,” and “prudent investor rule.”§
Subd. 8.Disposal of property.
Unless the trust instrument or a court order specifically directs otherwise, a trustee need not dispose of any property, real, personal, or mixed, or any kind of investment, in the trust, however acquired, until the trustee determines in the exercise of a sound discretion that it is advisable to dispose of the property. Nothing in this subdivision excuses the trustee from the duty to exercise discretion at reasonable intervals and to determine at those intervals the advisability of retaining or disposing of property.§
Subd. 9.No limitation on powers of court.
This section does not restrict the power of a court of proper jurisdiction to permit a trustee to deviate from the terms of a will, agreement, court order, or other instrument relating to the acquisition, investment, reinvestment, exchange, retention, sale, or management of trust property.§
Subd. 10.Investment companies.
(a) In the absence of an express prohibition in the trust instrument, the trustee may acquire and retain securities of any open-end or closed-end management type investment company or investment trust registered under the Federal Investment Company Act of 1940. The fact that a trustee that is a banking institution, as defined in section 48.01, subdivision 2, or any affiliate of a trustee that is a banking institution, is providing services to the investment company or trust as investment advisor, sponsor, broker, distributor, custodian, transfer agent, registrar, or otherwise, and receiving compensation for the services shall not preclude the trustee from investing in the securities of that investment company or trust. A trustee that is a banking institution shall disclose to all current income beneficiaries of the trust the rate, formula, and method of the compensation.
(b) This subdivision does not alter the degree of care and judgment required of trustees under this section.§
Subd. 11.Application to existing trusts.
This section applies to trusts existing on and created after January 1, 1997. As applied to trusts existing on January 1, 1997, this section governs only decisions or actions occurring after that date.§
Subd. 12.Short title.
This section may be cited as the “Minnesota Prudent Investor Act.”