The 2015 Minnesota State Legislature has revised and restated an important trust instruction statute regularly used by financial institutions administering trusts in the state of Minnesota to seek court authority and guidance in the administration of their rights and powers. Specifically, Minn. Stat. 501B.16 et seq., known as the statute for Trust Instruction Proceedings (TIP) or the "TIP Statute" is being re-enacted as part of the state's new Uniform Trust Code, which governs trusts generally. The revised statute, if signed into law by Governor Dayton, will go into effect on January 1, 2016.
In recent years, the TIP statute has been an increasingly important tool for financial institutions that have a trust office in Minnesota or administer corporate trusts in Minnesota. It allows these institutions to obtain judicial approval of discretionary actions that might otherwise be second-guessed or to obtain approval for actions that need to be performed but are not expressly provided for in the governing trust documents. The court is given broad powers to assist corporate trustees located in Minnesota who are faced with a dilemma about how to proceed in the circumstances that have arisen, especially when those circumstances were not anticipated when the trust documentation was originally drafted, or when the technical requirements for the action are not met but the action is beneficial to the trust beneficiaries—usually the holders of notes, bonds, or certificates representing an investment.
The TIP statute is being revised to provide petitioners with the option of proceeding based upon in rem or personal jurisdiction. In rem jurisdiction is generally available in Minnesota when trust assets are located or deemed to be located in Minnesota, bearing in mind that intangible assets are deemed to be located where the trustee is located. The revisions also expand the parties in interest who may seek instructions or participate in TIP proceedings.
Importantly, in its general scope provisions, the new statute clarifies that corporate trustees located in Minnesota may use the TIP portion of Minnesota's Uniform Trust Code but are not subject to its provisions generally, which are intended to apply to traditional trustees of personal trusts. As such, the new law expressly recognizes that financial institutions serving in corporate trustee capacities to facilitate financing transactions are not subject to the general fiduciary duties of most traditional trustees.
The statute defines a corporate trust agreement as "any indenture, pooling and servicing agreement, collateral agency agreement, or other contractual arrangement that establishes an express trust either before or upon the occurrence of an event of default and was entered into with a trustee as a party to facilitate a commercial transaction for the issuance of debt or equity securities or for the creation of other similar rights or interests, whether or not the securities are subject to any securities laws, including but not limited to the Trust Indenture Act of 1939, as amended." This view follows modern case law where corporate trustees are only held accountable for the express contractual rights and powers that they have undertaken under the governing trust documents and are not held to all other general notions of trust law that were developed in the context of traditional trust relationships.
The extent to which some traditional trust law principles may apply to corporate trustees is continuing to develop in legal precedents. In addition, the Trust Indenture Act of 1939, as amended, may be applicable to corporate trust indentures covered by that law.
View the Minnesota Uniform Trust Code bill passed by the Senate and the House.
- Sections 501C.0201 through 501C.0208 of the revised statute relate to Trust Instruction Proceedings.
- The bill (S.F. 578) was approved by the Senate on March 4, 2015, and by the House on March 16, 2015.
Maslon regularly represents financial institutions acting in various corporate trustee capacities in a wide variety of matters, including Trust Instruction Proceedings. We are monitoring this legislation and will post further updates as they become available. Please contact us with any related questions you may have.