Legal Memorandum: Intent of the Settlor

Issue: In Minnesota, may trustees withold a discretionary distribution of trust principal that was determined to be in accordance with the settlor’s intent and approved by the court?

It has long been the law of this state that the settlor’s intent shall prevail if not inconsistent with the law.  In re Ordean’s Will, 195 Minn. 120, 125, 261 N.W. 706, 708 (1935). Courts will not substitute their own judgment for the judgment of trustees given discretionary powers.  In re Briggs’ Estate, 27 A.2d 430, 433 (Pa. Super. Ct. 1942.)

When a testator creates a future interest through a trust, that interest does not lapse when the beneficiary dies after the testator but before termination of an intermediate estate.  In re Trust Under Will of Holt, 491 N.W.2d 25, 29 (Minn Ct. App. 1992.) 

In United States v. O’Shaughnessy, 517 N.W. 2d 574 (Minn. 1994), the Internal Revenue Service was attempting to reach assets that may or may not have ever reached the beneficiary.  Id. at 576.  The court held that a creditor may not reach assets that the beneficiary has no control over.  Id. at 578. 

Equity will intervene to prevent the trustee’s exercise of discretion in a manner that would frustrate the true intent of the settlor.  In re Hansen’s Estate, 344 Pa. 12, 15, 23 A.2d 886, 887 (1942).

See also In re Trust of  Warner, 275 Minn. 174, 145 N.W.2d 542, 546 (1966), for the proposition that the statutory procedure followed in petitioning the Court did not create a vested property right.  Warner deals […]