Nonjudicial Settlement Agreements Under the Minnesota Trust Code

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The rules for nonjudicial settlement agreements relating to Minnesota trusts changed substantially on January 1, 2016, when the new Minnesota Trust Code became effective. The law, which generally reflects the Uniform Trust Code, modernized the state’s trust law, provides more structure and flexibility for trusts, and brings Minnesota in line with national trends. One of the significant changes relates to what types of matters can be included in a binding nonjudicial settlement agreement.

Availability of Nonjudicial Settlement Agreements for Minnesota Trusts

Under the prior law, a nonjudicial settlement agreement could be used only in limited circumstances, including: approval of an accounting, resignation of a trustee, setting trustee compensation, transfer of the trust’s situs, and termination of a non-charitable trust with a fair market value of less than $50,000.

The updated provisions permit a much wider range of non-contested issues to be settled in an out-of-court agreement by the trustee and beneficiaries, thereby reducing trust administration costs in many situations. Under the new Trust Code, interested persons are allowed to enter into a binding nonjudicial settlement agreement regarding any matter involving a trust, as long as the agreement “does not violate a material purpose of the trust” and “could be properly approved by the court under this chapter or other applicable law.

The statute includes a non-exclusive list of examples of matters that a settlement agreement can cover:

  • Interpretation or construction of trust terms;
  • Approval of a trustee accounting or report;
  • Grant of specific power(s) to the trustee;
  • Direction to the trustee to refrain from a particular action;
  • Appointment or resignation of a trustee;
  • Determination of trustee compensation;
  • Change of the principal place of administration of the trust;
  • Extent of liability of a trustee for actions relating to the trust.

Minnesota probate courts have broad authority over trusts under Section 501C.0202 of the Trust Code. Since any matter that could be approved by the court is now permitted to be addressed in a settlement agreement — as long as it is consistent with the material purpose of the trust — the new provision permits a much wider range of possible topics to be addressed in a nonjudicial settlement agreement than those enumerated in the statute. Examples of other terms that may be modified by a binding agreement include:

  • Revising administrative procedures to conform with rules imposed by corporate fiduciaries;
  • Providing for further succession of trustees;
  • Accounting for unanticipated circumstances affecting a beneficiary, such as special needs, drug abuse, or divorce.

Probate Court Review of Nonjudicial Settlement Agreements

While the statute now permits nonjudicial settlement agreements to include a greater range of matters, the law does provide a mechanism for seeking court review of a nonjudicial settlement agreement. Any interested person may request that the court approve a nonjudicial agreement for the purpose of determining:

  • Whether statutory-based representation of individuals was adequate (such as representation by fiduciaries and parents, a holder of a general power, or a court-appointed representative); and
  • Whether the agreement contains provisions that the court could have properly approved, as required by the statute.

As defined in the Trust Code, interested persons who can request court review of a nonjudicial settlement agreement include:

  • An acting trustee, a successor trustee named in the trustee instrument, or person seeking appointment as trustee whether or not named in the trust instrument;
  • A beneficiary;
  • A creditor;
  • A person with a property or other right in or claim against trust assets;
  • A fiduciary representing an interested person;
  • A person acting in a representative capacity under specific provisions of the Trust Code;
  • Other persons authorized to act under specific sections of the Trust Code.

In any particular case, the probate court has the authority to determine the meaning of interested personwith regard to the petition before the court.

Based on these statutory provisions, if an interested person has reason to believe that terms of a nonjudicial settlement agreement may be invalid, that person has the ability to file a petition in probate court requesting court review of the agreement. Circumstances for filing a petition could include claiming that the nonjudicial settlement agreement is inconsistent with a material purpose of the trust or that it contains provisions that the court could not properly approve under the Trust Code.

Challenging a Nonjudicial Settlement Agreement

Trust litigation — including a dispute over a nonjudicial settlement agreement — is by very its nature difficult and complicated. Resolving disagreements about administration of a trust requires thorough knowledge the complex laws governing trusts, as well as experience with Minnesota probate court processes and practices. Understanding the intricate and often close, long-standing relationships of everyone involves is also essential to finding a resolution, whether it’s through informal negotiation or aggressive litigation.

Trust disputes and litigation in the Minneapolis and St. Paul probate courts are a focus of my practice at The Dave Burns Law Office. I represent trustees, beneficiaries, fiduciaries, creditors, and other parties who have an interest in a trust. As an experienced probate litigation attorney, I understand the law and have a deep appreciation for the sensitivity and complexity of trust administration disputes. I am always dedicated to protecting my clients’ interests and vigorously advocating for them.

If you are facing a situation involving a nonjudicial settlement agreement, I will be able to conduct an objective analysis of the circumstances and provide sound advice about whether litigation is a viable course to pursue. Having an informed legal opinion can help you identify your goals, ascertain the causes for the dispute, and decide the best course to pursue.

I welcome you to contact me at (612) 677-8351 or by emailing dave@daveburnslaw.com. I work with clients throughout the Twin Cities metro area and am available to meet with clients in both Minneapolis and St. Paul.

Categories: Litigation, Probate