What You Need To Know About The MN Trust Code For Drafters Part II: Default & Mandatory Rules

/ December 1, 2015

Trustee Certificate - iStockA trust instrument, under the new Minnesota Trust Code (“MN Trust Code”) in Minn. Chapter 501C, can be drafted* in a multitude of manners to convey the settlor’s intentions. The terms of the trust instrument can be drafted contrary to certain provisions in the MN Trust Code. Such terms of the trust instrument will govern the actions and authority of the trustee(s) and the rights and interests of the beneficiaries rather than any relevant provision of the MN Trust Code.

However, there are several rules under the MN Trust Code that are deemed “default and mandatory” and cannot be changed by the terms of the trust instrument. The MN Trust Code lists twelve default and mandatory rules under Minn. Stat. §501C.0105. The twelve items are:

  1. The requirements for creating a trust;
  2. The duty of the trustee to act in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries;
  3. The requirement that a trust and its terms must be for the benefit of its beneficiaries, and that the trust has a purpose that is lawful, not contrary to public policy and is possible to achieve;
  4. The power of the court to modify or terminate a trust as provided for under the MN Trust Code;
  5. The effect of a spendthrift provision and the rights of certain creditors and assignees to reach a trust as provided for in the MN Trust Code;
  6. The power of the court to require, dispense with, or modify or terminate a bond;
  7. The power of the court to adjust a trustee’s compensation specified in the terms of the trust, which is unreasonably low or high;
  8. The effect of an exculpatory term as provided for in Minn. Stat. §501C.1008;
  9. The rights of a person other than a trustee or beneficiary as provided for in Minn. Stat. §§501C.10101013;
  10. The periods of limitation for commencing a judicial proceeding;
  11. The power of the court to take such action and exercise such jurisdiction as may be necessary in the interests of justice; and
  12. The subject-matter jurisdiction of the court and venue for commencing a proceeding as provided in the MN Trust Code.

It is important to note that even if the terms of a trust instrument are drafted contrary to any of the twelve items listed above, such terms will be unenforceable and the relevant provisions of the MN Trust Code will control. To ensure a trust instrument is drafted properly, consult with an estate planning attorney

*While a trust may be created orally, it is highly advisable to have a written trust agreement.