Modification or Termination of Noncharitable Irrevocable Trusts in Minnesota

By definition, an irrevocable trust cannot be amended, modified, changed, revoked, or terminated. However, the Minnesota Trust Code grants probate courts authority to alter noncharitable irrevocable trusts in specific circumstances. Before the Trust Code was implemented in 2016, Minnesota statutes did not provide guidance to probate courts for modification or termination of trusts.

The governing statutory provisions are found at Minn. Stat. §§ 501C.0410 – 501C.0417. There are eight different sets of circumstances in which Minnesota probate courts have authority to modify or terminate a noncharitable irrevocable trust:

• Consent of the settlor and all beneficiaries
• Consent of all beneficiaries
• Unanticipated circumstances
• Inability to administer a trust effectively
• Noneconomic trusts (costs of administration not justified by value of the trust property)
• Correction of mistake of fact or law
• Achievement of settlor's tax objectives
• Combination or division of trusts

Charitable irrevocable trusts are subject to different rules than noncharitable trusts.

Modification or Termination By Consent

If the settlor (creator) of a trust and all beneficiaries agree, the probate court may grant termination or modification of a noncharitable irrevocable trust. Modification by consent can be granted even if it is inconsistent with a material purpose of the trust.

For purposes of a consent modification or termination by consent of the settlor and beneficiaries, the settlor’s consent may be exercised by:

• An agent under a power of attorney, if the terms of the trust or the power of attorney specifically authorize the action; or
• The conservator of the settlor, with approval of the court supervising the conservatorship, if an agent is not authorized to consent; or
• The guardian of the settlor, with approval of the court supervising the guardianship, if an agent is not authorized to consent and a conservator has not been appointed.

If all beneficiaries consent to modification or termination of a trust, the court may grant the request if these specific findings are made:

• For termination of a trust, the court must find that continuing the trust is not necessary to accomplish any material purpose of the trust.
• For modification of a trust, the court must determine that modification is not inconsistent with a material purpose of the trust.

If all beneficiaries do not consent to a proposed modification or termination, the court may still approve the request if the judge finds that:

• The interests of the non-consenting beneficiary will be adequately protected; and
• The request for modification or termination would have been granted under the statutory requirements (above) if all beneficiaries had consented.

Spendthrift provisions in a trust do not preclude the court from modifying or terminating a trust. If a trust is terminated by consent, the trustee distributes the trust property according to agreement of the beneficiaries.

Unanticipated Circumstances / Inability to Administer Trust

The probate court has authority to terminate a trust or modify administrative or dispositive terms of a trust, if the court determines that “because of circumstances not anticipated by the settlor, modification or termination will further the purposes of the trust.” The modification must be accomplished in accordance with the settlor’s probable intent to the extent practicable.

In addition, the probate court has authority to modify administrative terms of a trust when continuing the trust under its terms “would be impracticable or wasteful or impair the trust’s administration.”

If a trust is terminated under these provisions, the trust property is distributed as determined by the court’s order.

Uneconomic Trusts

If a trust has a value of less than $50,000, and the trustee concludes that the trust property value does not justify the costs of administration, the trustee can request termination of the trust. Qualified beneficiaries must be notified.

If the probate court determines that the value of trust property does not justify the costs of administration, the court has the authority to modify or terminate the trust, or remove the trustee and appoint a different trustee.

This provision does not apply to an easement for conservation or preservation. If a trust is terminated under this provision, the property is distributed in accordance with the purposes of the trust.

Reformation to Correct Mistakes

Even if the terms of a trust are not ambiguous, the probate court has the authority to modify the terms of the trust if “clear and convincing evidence” proves:

• The nature of the settlor’s intent; and
• That the trust terms were affected by “affected by a mistake of fact or law, whether in expression or inducement.”

Modification to Achieve Settlor’s Tax Objectives

If not contrary to the settlor’s probable intention, the court has authority to modify the terms of a trust to achieve the settlor’s tax objectives. The court can give the modification retroactive effect.

Combination and Division of Trusts

A trustee is permitted combine multiple trusts into one or divide a single trust into multiple trusts. Qualified beneficiaries must be notified. The result of the combination or division cannot adversely affect achieving the purposes of the trust or negatively impact the rights of any beneficiary.

Termination of a Trust

In addition to specific situations in which a trust can be modified, the Trust Code provides that a trust terminates when:

• It expires or is revoked according to the trust terms;
• The purposes of the trust have all been achieved; or
• The purposes of the trust have become illegal, contrary to public policy, or impossible to accomplish.

Who Can Petition for Modification or Termination of a Trust?

The Trust Code provides that a trustee or beneficiary may petition the probate court to modify or terminate a trust or for combination or division of trusts. Where modification or termination is by consent, the settlor (creator of the trust) may also initiate the petition.

A proceeding under any of these provisions begins with a petition filed in probate court, asking the court to grant the modification or termination. The request is a formal court proceeding. The judge will hold a hearing, at which documentary evidence and witness testimony in support of the petition will be introduced. The evidence must establish the factual and legal basis for the request.

The petition is a type of trust litigation. In some circumstances, the request may be opposed. Whether or not there is opposition, a petition to modify or terminate a trust should only be filed with the assistance of an experienced trust litigation attorney. The proceeding is not one that a trustee, beneficiary, or the settlor should attempt to navigate on his or her own behalf.

Talk With a Minnesota Trust and Probate Litigation Attorney

At the Dave Burns Law Office, a focus of my practice is trust and probate litigation, including petitions for modification or termination of a trust. I work with trustees, settlors, and beneficiaries of trusts and estates.

If you are a trustee, beneficiary, or settlor needing assistance with a trust modification or termination matter, 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.