Introduction. While Section 807 clarifies the trustee’s ability to delegate duties and powers to an agent, Section 808 introduces a new concept to Minnesota law: the “directed trust.” In a directed trust, the trustee is required to follow the direction of an “investment trust advisor,” a “distribution trust advisor,” or a “trust protector,” and the trustee has no legal responsibility or liability for decisions it is directed to make by one of these individuals. The proposed language is based on a recently-enacted Illinois statute, with a few additions from the statutes of Delaware and South Dakota. The new Trust Code also adds and clarifies the role and the powers of a trust protector. These powers include removing and replacing the trustee, modifying or terminating the trust, and advising the trustee on distributions to beneficiaries. A trust protector allows the trust to adapt to changing circumstances without the need for court intervention.
Directing Party. The directing party continues to be a fiduciary of the Trust subject to the same duties and standards applicable to a Trustee, unless the governing instrument provides otherwise. However, the instrument may not relieve or exonerate a directing party from the duty to act, or withhold acting, as the directing party in good faith reasonably believes is in the best interests of the Trust.
Excluded Fiduciary. The Trust Code authorizes trust provisions providing that an “excluded fiduciary” shall accept and follow directions from an “investment trust advisor,” “distribution trust advisor” or “trust protector” (“directing parties”) and shall be relieved of liability or responsibility for doing so. This allows the settlor of the Trust to divide the Trustee’s role into several discrete functions. The statute also provides that an excluded fiduciary shall have no duty to make recommendations or to warn the beneficiaries with respect to any such directions, except in cases of willful misconduct by the excluded fiduciary.
Trust Protector. For the first time in Minnesota, the statute introduces the concept of a trust protector, and provides that a trust protector may be granted authority to do any one or more of the following (this list is non-exclusive; a trust protector may be given other powers by the governing instrument):
- Modify or amend the governing instrument for tax reasons;
- Increase, decrease, or otherwise modify the interests of any beneficiaries;
- Modify the terms of any power of appointment, but not to the extent of granting a beneficial interest to any individual, class of individuals, or other parties not specifically provided for under the trust instrument;
- Remove and appoint trustees, investment trust advisors, distribution trust advisors, other directing parties, investment committee members, or distribution committee members;
- Terminate the trust and determine how the trustee shall distribute the trust property to be consistent with the purposes of the trust;
- Change the situs of the trust and/or its governing law;
- Appoint successor trust protectors;
- Interpret terms of the trust instrument at the request of the trustee;
- Advise the trustee on matters concerning a beneficiary; and
- Amend or modify the governing instrument to take advantage of laws governing restraints on alienation, distribution of trust property, or to improve the administration of the trust.
Conclusion. Directed Trusts can be useful, for example, in handling Trust investments that the Trustee would otherwise need special assistance to administer. Such assets might include a concentrated investment, a closely-held business, commercial real estate, art, or other specific asset categories that may fall outside the normal range of fiduciary investing. These may also be commonly useful for settlor’s that wish to retain control of the investments, or alternatively wish to have financial advisor, independent of the Trustee, continue to make those decisions. Note, however, that if the grantor will be the investment advisor, certain restrictions need to be drafted into the Trust instrument so that the Trust assets are not included in the grantor’s taxable estate upon death. With or without the directed Trust provisions, a Trust protector can adapt the Trust to unforeseen circumstances and add flexibility to long-term Irrevocable Trusts.
This blog article is the fourth of a six-part series focused on Minnesota's new trust code. Below are links to other articles from this series:
Part One - "New trust code adopted by Minnesota" https://www.hjlawfirm.com/blog/221-new-trust-code-adopted-by
Part Two - "Unchanged provisions"
Part Three - "Decanting"
Please stay tuned for future postings in this series!