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Key: (1) language to be deleted (2) new language

  
    
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                            CHAPTER 314-H.F.No. 1998 
                  An act to trusts; regulating the investment and 
                  management of trust assets; providing standards; 
                  amending Minnesota Statutes 1994, sections 48.38, 
                  subdivision 6; 48.84; 317A.161, subdivision 24; 
                  525.56, subdivision 4; and 529.06; proposing coding 
                  for new law in Minnesota Statutes, chapter 501B; 
                  repealing Minnesota Statutes 1994, sections 501B.10; 
                  and 501B.11. 
        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
           Section 1.  Minnesota Statutes 1994, section 48.38, 
        subdivision 6, is amended to read: 
           Subd. 6.  It may invest all moneys received by it in trust, 
        in authorized securities, and shall be responsible to the owner 
        or cestui que trust for the validity, regularity, quality, 
        value, and genuineness of these investments and securities at 
        the time made and for the safekeeping of these securities and 
        the evidences thereof.  When special directions are given in any 
        order, judgment, decree, will, or other written instrument as to 
        the particular manner or the particular class or kind of 
        securities or property in which any investment shall be made, it 
        shall follow this direction and, in such case, it shall not be 
        further responsible by reason of the performance of the trust.  
           It may, in its discretion, retain and continue any 
        investment and security or securities coming into its possession 
        in any fiduciary capacity.  For the faithful discharge of its 
        duties and the discharge of its trust, it shall be entitled to 
        reasonable compensation or such amount as has been or may be 
        agreed upon by the parties and all necessary expenses, with 
        legal interest thereon.  
           In the absence of an express prohibition in the trust 
        instrument, the trustee may acquire and retain securities of any 
        open-end or closed-end management type investment company or 
        investment trust registered under the Federal Investment Company 
        Act of 1940.  The fact that the banking institution, or any 
        affiliate of the banking institution, is providing services to 
        the investment company or trust as investment advisor, sponsor, 
        broker, distributor, custodian, transfer agent, registrar, or 
        otherwise, and receiving compensation for the services shall not 
        preclude the trustee from investing in the securities of that 
        investment company or trust.  The banking institution shall 
        disclose to all current income beneficiaries of the trust the 
        rate, formula, and method of the compensation.  This paragraph 
        does not alter the degree of care and judgment required of 
        trustees by section 501B.10, subdivision 1 501B.151. 
           No compensation or commission paid or agreed to be paid to 
        it for the negotiation of any loan or the execution of any trust 
        shall be deemed interest within the meaning of the law, nor 
        shall any excess thereof over the legal rate be deemed usury.  
           Sec. 2.  Minnesota Statutes 1994, section 48.84, is amended 
        to read: 
           48.84 [CORPORATE TRUSTEE; TRUST FUNDS, INVESTMENT, 
        COMMINGLING.] 
           Any trust company or state bank which is permitted to 
        exercise trust powers under the provisions of sections 48.37 to 
        48.47 inclusive may invest all moneys received by it in trust in 
        authorized securities, and shall be responsible to the owner or 
        cestui que trust for the validity, regularity, quality, value, 
        and genuineness of these investments and securities so made, and 
        for the safekeeping of the securities and evidences thereof.  In 
        the absence of an express prohibition in the trust instrument, 
        the trustee may acquire and retain securities of any open-end or 
        closed-end management type investment company or investment 
        trust registered under the Federal Investment Company Act of 
        1940.  The fact that the banking institution, or any affiliate 
        of the banking institution, is providing services to the 
        investment company or trust as investment advisor, sponsor, 
        broker, distributor, custodian, transfer agent, registrar, or 
        otherwise, and receiving compensation for the services shall not 
        preclude the trustee from investing in the securities of that 
        investment company or trust.  The banking institution shall 
        disclose to all current income beneficiaries of the trust the 
        rate, formula, and method of the compensation.  This paragraph 
        does not alter the degree of care and judgment required of 
        trustees by section 501B.10, subdivision 1 501B.151.  When 
        special directions are given in any order, judgment, decree, 
        will, or other written instrument as to the particular manner or 
        the particular class or kind of securities or property in which 
        any investment shall be made, it shall follow such directions, 
        and in such case it shall not be further responsible by reason 
        of the performance of such trust.  In all other cases it may 
        invest funds held in any trust capacity in authorized securities 
        using its best judgment in the selection thereof, and shall be 
        responsible for the validity, regularity, quality, and value 
        thereof at the time made, and for their safekeeping.  Whether it 
        be the sole trustee or one of two or more cotrustees, it may 
        invest in fractional parts of, as well as in whole, securities, 
        or may commingle funds for investment.  If it invests in 
        fractional parts of securities or commingles funds for 
        investment, all of the fractional parts of such securities, or 
        the whole of the funds so commingled shall be owned and held by 
        the trust company or state bank in its several trust capacities, 
        and it shall be liable for the administration thereof in all 
        respects as though separately invested; provided, that not more 
        than $100,000, at the cost price of such investments, shall be 
        so invested for any one trust at any one time in fractional 
        parts or as commingled funds for investment by a trust company 
        or state bank having capital and surplus of less than $500,000, 
        unless the authority to invest in fractional parts or as 
        commingled funds be given in the order, judgment, decree, will, 
        or other written instrument governing such trust.  Funds so 
        commingled for investment shall be designated collectively as a 
        common trust fund.  Such trust company or state bank shall 
        maintain such common trust fund in conformity with the rules and 
        regulations prevailing from time to time of that federal 
        governmental agency which regulates the collective investment of 
        trust funds by national banks.  It may, in its discretion, 
        retain and continue any investment and security or securities 
        coming into its possession in any fiduciary capacity.  The 
        foregoing shall apply as well whether a corporate trustee is 
        acting alone or with an individual cotrustee.  
           Sec. 3.  Minnesota Statutes 1994, section 317A.161, 
        subdivision 24, is amended to read: 
           Subd. 24.  [MAY INVEST TRUST PROPERTY.] Except where the 
        trust instrument prescribes otherwise, a corporation may invest 
        trust property or its proceeds in accordance with section 
        501B.10 501B.151. 
           Sec. 4.  [501B.151] [INVESTMENT AND MANAGEMENT OF TRUST 
        ASSETS.] 
           Subdivision 1.  [PRUDENT INVESTOR RULE.] (a) Except as 
        otherwise provided in subsection (b), a trustee who invests and 
        manages trust assets shall comply with the prudent investor rule 
        set forth in this section. 
           (b) The prudent investor rule, a default rule, may be 
        expanded, restricted, eliminated, or otherwise altered by the 
        provisions of a trust.  A trustee is not liable to a beneficiary 
        to the extent that the trustee acted in reasonable reliance on 
        the provisions of the trust. 
           Subd. 2.  [STANDARD OF CARE; PORTFOLIO STRATEGY; RISK AND 
        RETURN OBJECTIVES.] (a) A trustee shall invest and manage trust 
        assets as a prudent investor would, by considering the purposes, 
        terms, distribution requirements, and other circumstances of the 
        trust.  In satisfying this standard, the trustee shall exercise 
        reasonable care, skill, and caution. 
           (b) A trustee's investment and management decisions 
        respecting individual assets must be evaluated not in isolation 
        but in the context of the trust portfolio as a whole and as a 
        part of an overall investment strategy having risk and return 
        objectives reasonably suited to the trust. 
           (c) The circumstances that a trustee may consider in making 
        investment decisions include, without limitation, the following: 
           (1) general economic conditions; 
           (2) the possible effect of inflation; 
           (3) the expected tax consequences of investment decisions 
        or strategies; 
           (4) the role that each investment or course of action plays 
        within the overall trust portfolio; 
           (5) the expected total return from income and the 
        appreciation of capital; 
           (6) other resources of the beneficiaries known to the 
        trustee, including earning capacity; 
           (7) needs for liquidity, regularity of income, and 
        preservation or appreciation of capital; and 
           (8) an asset's special relationship or special value, if 
        any, to the purposes of the trust or to one or more of the 
        beneficiaries if consistent with the trustee's duty of 
        impartiality. 
           (d) A trustee may invest in any kind of property or type of 
        investment consistent with the standards of this section. 
           (e) A trustee who has special skills or expertise, or is 
        named trustee in reliance upon the trustee's representation that 
        the trustee has special skills or expertise, has a duty to use 
        those special skills or expertise. 
           Subd. 3.  [DIVERSIFICATION.] A trustee shall diversify the 
        investments of the trust unless the trustee reasonably 
        determines that, because of special circumstances, the purposes 
        of the trust are better served without diversifying. 
           Subd. 4.  [DUTIES AT INCEPTION OF TRUSTEESHIP.] Within a 
        reasonable time after accepting a trusteeship or receiving trust 
        assets, a trustee shall review the trust assets and make and 
        implement decisions concerning the retention and disposition of 
        assets, in order to bring the trust portfolio into compliance 
        with the purposes, terms, distribution requirements, and other 
        circumstances of the trust, and with the requirements of this 
        section. 
           Subd. 5.  [INVESTMENT COSTS.] In investing and managing 
        trust assets, a trustee may only incur costs that are 
        appropriate and reasonable in relation to the assets, the 
        purposes of the trust, and the skills of the trustee. 
           Subd. 6.  [REVIEWING COMPLIANCE.] Compliance with the 
        prudent investor rule is determined in light of the facts and 
        circumstances existing at the time of a trustee's decision or 
        action and not by hindsight.  The prudent investor rule is a 
        test of conduct and not of resulting performance. 
           Subd. 7.  [LANGUAGE INVOKING STANDARD.] The following terms 
        or comparable language in the provisions of a trust, unless 
        otherwise limited or modified, authorizes any investment or 
        strategy permitted under this section:  "investments permissible 
        by law for investment of trust funds," "legal investments," 
        "authorized investments," "using the judgment and care under the 
        circumstances then prevailing that persons of prudence, 
        discretion, and intelligence exercise in the management of their 
        own affairs, not in regard to speculation but in regard to the 
        permanent disposition of their funds, considering the probable 
        income as well as the probable safety of their capital," 
        "prudent man rule," "prudent trustee rule," "prudent person 
        rule," and "prudent investor rule." 
           Subd. 8.  [DISPOSAL OF PROPERTY.] Unless the trust 
        instrument or a court order specifically directs otherwise, a 
        trustee need not dispose of any property, real, personal, or 
        mixed, or any kind of investment, in the trust, however 
        acquired, until the trustee determines in the exercise of a 
        sound discretion that it is advisable to dispose of the 
        property.  Nothing in this subdivision excuses the trustee from 
        the duty to exercise discretion at reasonable intervals and to 
        determine at those intervals the advisability of retaining or 
        disposing of property. 
           Subd. 9.  [NO LIMITATION ON POWERS OF COURT.] This section 
        does not restrict the power of a court of proper jurisdiction to 
        permit a trustee to deviate from the terms of a will, agreement, 
        court order, or other instrument relating to the acquisition, 
        investment, reinvestment, exchange, retention, sale, or 
        management of trust property. 
           Subd. 10.  [TRUSTEES DEFINED.] As used in this section, 
        "trustee" means individual trustees and corporations having 
        trust powers acting under wills, agreements, court orders, and 
        other instruments, whether existing on the effective date of 
        this section or made at a later time. 
           Subd. 11.  [INVESTMENT COMPANIES.] (a) In the absence of an 
        express prohibition in the trust instrument, the trustee may 
        acquire and retain securities of any open-end or closed-end 
        management type investment company or investment trust 
        registered under the Federal Investment Company Act of 1940.  
        The fact that a trustee which is a banking institution, as 
        defined in section 48.01, subdivision 2, or any affiliate of a 
        trustee which is a banking institution, is providing services to 
        the investment company or trust as investment advisor, sponsor, 
        broker, distributor, custodian, transfer agent, registrar, or 
        otherwise, and receiving compensation for the services shall not 
        preclude the trustee from investing in the securities of that 
        investment company or trust.  A trustee which is a banking 
        institution shall disclose to all current income beneficiaries 
        of the trust the rate, formula, and method of the compensation. 
           (b) This subdivision does not alter the degree of care and 
        judgment required of trustees under this section. 
           Subd. 12.  [APPLICATION TO EXISTING TRUSTS.] This section 
        applies to trusts existing on and created after its effective 
        date.  As applied to trusts existing on its effective date, this 
        section governs only decisions or actions occurring after that 
        date. 
           Subd. 13.  [SHORT TITLE.] This section may be cited as the 
        "Minnesota prudent investor act." 
           Sec. 5.  [501B.152] [AGENTS OF TRUSTEE.] 
           (a) Unless prohibited or otherwise restricted by the terms 
        of the trust instrument, a trustee may delegate to any person, 
        even if the person is associated with the trustee, any trust 
        function that a prudent person of comparable skills could 
        properly delegate under the circumstances.  The trustee shall 
        exercise reasonable care, skill, and caution in: 
           (1) selecting an agent; 
           (2) establishing the scope and terms of the delegation, 
        consistent with the purposes and terms of the trust; and 
           (3) periodically reviewing the agent's actions in order to 
        monitor the agent's performance and compliance with the terms of 
        the delegation. 
           (b) In performing a delegated trust function, an agent owes 
        a duty to the trust to comply with the terms of the delegation 
        and to act in a manner consistent with the purposes and terms of 
        the trust.  This duty shall be enforced by the trustee. 
           (c) A trustee who complies with the requirements of 
        paragraph (a) is not liable to the beneficiaries or to the trust 
        for the decisions or actions of the agent to whom the trust 
        function was delegated. 
           (d) By accepting the delegation of a trust function from 
        the trustee of a trust that is subject to the laws of this 
        state, an agent submits to the jurisdiction of the courts of 
        this state. 
           Sec. 6.  Minnesota Statutes 1994, section 525.56, 
        subdivision 4, is amended to read: 
           Subd. 4.  [DUTIES OF GUARDIAN OR CONSERVATOR OF THE 
        ESTATE.] The court may appoint a guardian of the estate if it 
        determines that all the powers and duties listed in this 
        subdivision are needed to provide for the needs of the 
        incapacitated person.  The court may appoint a conservator of 
        the estate if it determines that a conservator is necessary to 
        provide for the needs of the incapacitated person through the 
        exercise of some, but not all, of the powers and duties listed 
        in this subdivision.  The duties and powers of a guardian or 
        those which the court may grant to a conservator include, but 
        are not limited to: 
           (1) The duty to pay the reasonable charges for the support, 
        maintenance, and education of the ward or conservatee in a 
        manner suitable to the ward's or conservatee's station in life 
        and the value of the estate.  Nothing herein contained shall 
        release parents from obligations imposed by law for the support, 
        maintenance, and education of their children.  The guardian or 
        conservator has no duty to pay for these requirements out of 
        personal funds.  Wherever possible and appropriate, the guardian 
        or conservator should meet these requirements through 
        governmental benefits or services to which the ward or 
        conservatee is entitled, rather than from the ward's or 
        conservatee's estate.  Failure to satisfy the needs and 
        requirements of this clause shall be grounds for removal, but 
        the guardian or conservator shall have no personal or monetary 
        liability; 
           (2) The duty to pay out of the ward's or conservatee's 
        estate all just and lawful debts of the ward or conservatee and 
        the reasonable charges incurred for the support, maintenance, 
        and education of the ward's or conservatee's spouse and 
        dependent children and, upon order of the court, pay such sum as 
        the court may fix as reasonable for the support of any person 
        unable to earn a livelihood who is legally entitled to support 
        from the ward or conservatee; 
           (3) The duty to possess and manage the estate, collect all 
        debts and claims in favor of the ward or conservatee, or, with 
        the approval of the court, compromise them, institute suit on 
        behalf of the ward or conservatee and represent the ward or 
        conservatee in any court proceedings, and invest all funds not 
        currently needed for the debts and charges named in clauses (1) 
        and (2) and the management of the estate, in accordance with the 
        provisions of sections 48.84 and 501B.10, subdivision 1 
        501B.151, or as otherwise ordered by the court.  The standard of 
        a fiduciary shall be applicable to all investments by a guardian 
        or conservator.  A guardian or conservator shall also have the 
        power to purchase certain contracts of insurance as provided in 
        section 50.14, subdivision 14, clause (b); 
           (4) Where a ward or conservatee has inherited an undivided 
        interest in real estate, the court, on a showing that it is for 
        the best interest of the ward or conservatee, may authorize an 
        exchange or sale of the ward's or conservatee's interest or a 
        purchase by the ward or conservatee of any interest other heirs 
        may have in the real estate.  
           Sec. 7.  Minnesota Statutes 1994, section 529.06, is 
        amended to read: 
           529.06 [GENERAL DUTIES OF CUSTODIAL TRUSTEE.] 
           (a) If appropriate, a custodial trustee shall register or 
        record the instrument vesting title to custodial trust property. 
           (b) If the beneficiary is not incapacitated, a custodial 
        trustee shall follow the directions of the beneficiary in the 
        management, control, investment, or retention of the custodial 
        trust property.  In the absence of effective contrary direction 
        by the beneficiary while not incapacitated, the custodial 
        trustee shall observe the standard of care set forth in section 
        501B.10 501B.151.  However, a custodial trustee, in the 
        custodial trustee's discretion, may retain any custodial trust 
        property received from the transferor. 
           (c) Subject to subsection (b), a custodial trustee shall 
        take control of and collect, hold, manage, invest, and reinvest 
        custodial trust property. 
           (d) A custodial trustee at all times shall keep custodial 
        trust property of which the custodial trustee has control, 
        separate from all other property in a manner sufficient to 
        identify it clearly as custodial trust property of the 
        beneficiary.  Custodial trust property, the title to which is 
        subject to recordation, is so identified if an appropriate 
        instrument so identifying the property is recorded, and 
        custodial trust property subject to registration is so 
        identified if it is registered, or held in an account in the 
        name of the custodial trustee, designated in substance:  "as 
        custodial trustee for ........ (name of beneficiary) under the 
        Minnesota uniform custodial trust act." 
           (e) A custodial trustee shall keep records of all 
        transactions with respect to custodial trust property, including 
        information necessary for the preparation of tax returns, and 
        shall make the records and information available at reasonable 
        times to the beneficiary or legal representative of the 
        beneficiary. 
           Sec. 8.  [REPEALER.] 
           Minnesota Statutes 1994, sections 501B.10; and 501B.11, are 
        repealed. 
           Sec. 9.  [EFFECTIVE DATE.] 
           Sections 1 to 8 are effective January 1, 1997. 
           Presented to the governor March 14, 1996 
           Signed by the governor March 15, 1996, 11:50 a.m.