Proper Trust Accounting in Minnesota

What is a proper trust accounting in Minnesota?

Under Minnesota trust code, a trustee of a revocable or irrevocable trust, in Minnesota, must conduct a “trust accounting” and serve the same upon any beneficiaries or other “interested parties” of the trust. (As an aside, I will not go into what the term “interested parties” means in the context of this article).

Minnesota Rule of General Practice, Form 417.02

Minnesota rule 417 provides a general outline for trustees and their attorneys to follow. Specifically, the rule provide, in pertinent part, that:

Rule 417.02 Annual Account

Every trustee subject to the continuing supervision of the district court shall file an annual account, duly verified, of the trusteeship with the court administrator within 60 days after the end of each accounting year. Such accounts may be submitted on form 417.02 appended to these rules, and shall contain the following:

(a) Statements of the total inventory or carrying value and of the total fair market value of the assets of the trust principal as of the beginning of the accounting period. In cases where a previous account has been rendered, the totals used in these statements shall be the same as those used for the end of the last preceding accounting period.

(b) A complete itemized inventory of the assets of the trust principal as of the end of the accounting period, showing both the inventory or carrying value of each asset and also the fair market value thereof as of such end of the accounting period, unless, because such value is not readily ascertainable or for other sufficient reason, this provision cannot reasonably be complied with. Where the fair market value of any item at the end of the accounting period is not used, a notation of such fact and the reason therefor shall be indicated on the account.

(c) An itemized statement of all income transactions during the period of such account.

(d) A summary statement of all income transactions during the period of such account, including the totals of distributions of income to beneficiaries and the totals of trustees’ fees and attorneys’ fees charged to income.

(e) An itemized statement of all principal transactions during the period of such account.

See the rule in its entirety for further details.

As you can see, the rule on trust accounting is specific as to what is required. Now, it should be noted that not every trustee is “subject to the continuing supervision of the district court.” Indeed, one of the main benefits of trusts is lack of court involvement and no Minnesota probate. However, as the rule indicates, sometimes trustee are under court supervision – thus a mandatory accounting.

I would argue that the a trustee should always be conducting an accounting of his/her actions. Whether under court supervision or not, it is important that all trustees take their ethical duties as “fiduciaries” very seriously. The trustee is serving on behalf of the other heirs and/or beneficiaries of the trust. Any misstep or mistake can create liability for the actions of the trustee.

Itemized Inventory | Minnesota Trust Law

As the rule indicates, an “itemized inventory” of trust “assets” should be drafted and served upon the beneficiaries. What does an “itemized inventory” mean? No, it does not mean counting the deceased’s spoons and personal property. The law, generally, refers to “assets” as those major assets that belonged to the deceased. These assets can included, but are not limited to: retirements accounts, bank accounts, real property (homes), insurance, investments, and any other financial interest.

If you have any questions, whatesoever, what this might mean, you should consult with an experienced trust administration attorney. Failure to do so could very much be to your detriment.

Limitation of Action Against the Trustee | Minnesota Trust Law

It is important to note, again, that a trustee could be held liability for intentional or, perhaps, unintentional actions taken during the trust administration. One common example of “failing to take action” is failure to file the proper tax returns for the deceased. I will not get into the numerous mistakes I have seen people make when they are not working with a trust attorney. That is a subject for another article.

However, assuming that the trustee has done what he/she was supposed to do, Minnesota trust law law does apply a sort of “statute of limitations” to limit the time-frame for potential actions against the trustee. This law is codified under Minnesota Statute 501C.1005 – appropriately titled “limitation of action against the trustee.”

In pertinent part, the statute states that:

(a) A beneficiary may not commence a judicial proceeding against a trustee more than three years after the date the beneficiary or a representative of the beneficiary was sent a report that adequately disclosed the existence of a potential claim.

Note the “report” as contained in the above language. Suffice is to say that every trustee should file this report with any supervising court and/or send copies to trust beneficiaries. This is a good way to limit the time limitation for actions against the trustees. Again, a good trust attorney should go over this “report” with trustees.

Minnesota Trust Administration Lawyers

Joseph M. Flanders and Flanders Law Firm LLC have years of experience helping clients navigate revocable trusts and trust administration in Minnesota.

For more information, contact the trust administration law firm at 612-424-0398.