1.1                          A bill for an act 
  1.2             relating to trusts; making changes to the uniform 
  1.3             principal and income act; simplifying the antilapse 
  1.4             law; amending Minnesota Statutes 2000, sections 
  1.5             144.225, subdivision 7; 501B.60, by adding a 
  1.6             subdivision; 501B.61, subdivision 2; 501B.62, 
  1.7             subdivision 1; 501B.63, subdivision 2; 501B.64; 
  1.8             501B.68; 501B.69; and 524.6-301; proposing coding for 
  1.9             new law in Minnesota Statutes, chapters 501B; and 524; 
  1.10            repealing Minnesota Statutes 2000, sections 501B.66; 
  1.11            501B.70; and 524.2-603. 
  1.12  BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.13     Section 1.  Minnesota Statutes 2000, section 144.225, 
  1.14  subdivision 7, is amended to read: 
  1.15     Subd. 7.  [CERTIFIED COPY OF BIRTH OR DEATH CERTIFICATE.] 
  1.16  The state or local registrar shall issue a certified copy of a 
  1.17  birth or death certificate or a statement of no record found to 
  1.18  an individual upon the individual's proper completion of an 
  1.19  attestation provided by the commissioner: 
  1.20     (1) to a person who has a tangible interest in the 
  1.21  requested certificate.  A person who has a tangible interest is: 
  1.22     (i) the subject of the certificate; 
  1.23     (ii) a child of the subject; 
  1.24     (iii) the spouse of the subject; 
  1.25     (iv) a parent of the subject; 
  1.26     (v) the grandparent or grandchild of the subject; 
  1.27     (vi) any other descendant of a grandparent of the subject; 
  1.28     (vii) the party responsible for filing the certificate; 
  2.1      ~~(vii)~~ (viii) the legal custodian ~~or~~, guardian, or 
  2.2   conservator of the subject; 
  2.3      ~~(viii)~~ (ix) a personal representative ~~of the estate of the~~ 
  2.4   ~~subject or~~ upon verification on oath or affirmation by the 
  2.5   personal representative that the certified copy is needed for 
  2.6   the proper administration of the estate; 
  2.7      (x) a successor of the subject, as defined in section 
  2.8   524.1-201, if the subject is deceased; 
  2.9      ~~(ix) a representative authorized by a person under clauses~~ 
  2.10  ~~(1) to (3);~~ (xi) a trustee of a trust upon verification on oath 
  2.11  or affirmation by the trustee that the certified copy is needed 
  2.12  for the proper administration of the trust; or 
  2.13     ~~(x)~~ (xii) a person or entity who demonstrates that a 
  2.14  certified copy of the certificate is necessary for the 
  2.15  determination or protection of a personal or property right, 
  2.16  pursuant to rules adopted by the commissioner; 
  2.17     (2) to any local, state, or federal governmental agency 
  2.18  upon request if the certified certificate is necessary for the 
  2.19  governmental agency to perform its authorized duties.  An 
  2.20  authorized governmental agency includes the department of human 
  2.21  services, the department of revenue, and the United States 
  2.22  Immigration and Naturalization Service; ~~or~~ 
  2.23     (3) to an attorney at law duly licensed to practice upon 
  2.24  verification on oath or affirmation by the attorney at law that 
  2.25  the certified copy is needed for a lawful purpose; 
  2.26     (4) pursuant to a court order issued by a court of 
  2.27  competent jurisdiction.  For purposes of this section, a 
  2.28  subpoena does not constitute a court order; or 
  2.29     (5) a representative authorized by a person under clauses 
  2.30  (1) to (4). 
  2.31     Sec. 2.  Minnesota Statutes 2000, section 501B.60, is 
  2.32  amended by adding a subdivision to read: 
  2.33     Subd. 3.  [STANDARDS FOR EXERCISE.] In exercising a power 
  2.34  to adjust under section 501B.70 or a discretionary power of 
  2.35  administration regarding a matter within the scope of sections 
  2.36  501B.59 to 501B.76, a fiduciary shall administer the trust or 
  3.1   estate impartially, based on what is fair and reasonable to all 
  3.2   of the beneficiaries, except to the extent that the terms of the 
  3.3   trust or the will clearly manifest an intention that the 
  3.4   fiduciary shall or may favor one or more of the beneficiaries.  
  3.5   A determination in accordance with sections 501B.59 to 501B.76 
  3.6   is presumed to be fair and reasonable to all of the 
  3.7   beneficiaries. 
  3.8      Sec. 3.  Minnesota Statutes 2000, section 501B.61, 
  3.9   subdivision 2, is amended to read: 
  3.10     Subd. 2.  [PRINCIPAL DEFINED.] "Principal" means the 
  3.11  property set aside by the owner or the person legally empowered 
  3.12  so that it is held in trust eventually to be delivered to a 
  3.13  remainderperson while the return or use of the principal is in 
  3.14  the meantime taken or received by or held for accumulation for 
  3.15  an income beneficiary.  Principal includes: 
  3.16     (1) consideration received by the trustee on the sale or 
  3.17  other transfer of principal, on repayment of a loan, or as a 
  3.18  refund, replacement, or change in the form of principal; 
  3.19     (2) proceeds of property taken on eminent domain 
  3.20  proceedings; 
  3.21     (3) proceeds of insurance on property forming part of the 
  3.22  principal, except proceeds of insurance on a separate interest 
  3.23  of an income beneficiary; 
  3.24     (4) stock dividends, receipts on liquidation of a 
  3.25  corporation, and other corporate distributions as provided in 
  3.26  section 501B.64; 
  3.27     (5) receipts from the disposition of corporate securities 
  3.28  as provided in section 501B.65; 
  3.29     (6) royalties and other receipts from disposition of 
  3.30  natural resources as provided in sections 501B.67 and 501B.68; 
  3.31     (7) receipts from other principal subject to depletion as 
  3.32  provided in section 501B.69; 
  3.33     (8) profit resulting from a change in the form of 
  3.34  principal, except as provided in section 501B.70 on 
  3.35  underproductive property; 
  3.36     (9) receipts from disposition of underproductive property 
  4.1   as provided in section 501B.70; ~~and~~ 
  4.2      (10) allowances for depreciation established under sections 
  4.3   501B.66 and 501B.71, subdivision 1, clause (2); and 
  4.4      (11) gain or loss, including the purchase premium, if any, 
  4.5   from the grant of an option to buy or sell property of the 
  4.6   trust, whether or not the trust owns the property when the 
  4.7   option is granted. 
  4.8      Sec. 4.  Minnesota Statutes 2000, section 501B.62, 
  4.9   subdivision 1, is amended to read: 
  4.10     Subdivision 1.  [GENERAL RULE.] An income beneficiary is 
  4.11  entitled to income from the date specified in the trust 
  4.12  instrument or, if none is specified, from the date an asset 
  4.13  becomes subject to the trust.  In the case of an asset that 
  4.14  becomes subject to a trust because of ~~a will~~ the death of any 
  4.15  person, it becomes subject to the trust as of the date of the 
  4.16  death of ~~the testator~~ the person or ~~date of receipt in the~~ 
  4.17  ~~estate~~, if later, the date the estate or trust becomes entitled 
  4.18  to such asset if acquired after the death of the person, even 
  4.19  though there is an intervening period of administration of ~~the~~ 
  4.20  ~~testator's~~ an estate or trust during which the beneficiary may 
  4.21  have no right to a distribution of the income. 
  4.22     Sec. 5.  Minnesota Statutes 2000, section 501B.63, 
  4.23  subdivision 2, is amended to read: 
  4.24     Subd. 2.  [INCOME.] Unless the will or trust instrument 
  4.25  provides otherwise, income from the assets of a decedent's 
  4.26  estate after the death of the testator and before 
  4.27  distribution and income from the assets of a trust after an 
  4.28  income interest in a trust terminates, including income from 
  4.29  property used to discharge liabilities, must be determined in 
  4.30  accordance with the rules applicable to a trustee and 
  4.31  distributed as follows: 
  4.32     (1) to specific devisees or to any beneficiary who is to 
  4.33  receive specific property from a trust, the income from the 
  4.34  property devised or distributed to them respectively, less 
  4.35  property taxes, ordinary repairs, interest, and other expenses 
  4.36  of management and operation of the property, and less an 
  5.1   appropriate portion of taxes imposed on income, excluding taxes 
  5.2   on capital gains, that accrue during the period of 
  5.3   administration or after an income interest in a trust 
  5.4   terminates; 
  5.5      (2) to a devisee or to any beneficiary who receives a 
  5.6   pecuniary amount outright, the interest or any other amount 
  5.7   provided by the will, the terms of the trust instrument or 
  5.8   applicable law from income determined in accordance with the 
  5.9   rules applicable to a trustee or, to the extent income is 
  5.10  insufficient, from principal.  If a beneficiary is to receive a 
  5.11  pecuniary amount outright from a trust after an income interest 
  5.12  ends and no interest or other amount is provided for by the 
  5.13  terms of the trust instrument or applicable law, the trustee 
  5.14  shall distribute the interest or other amount to which the 
  5.15  beneficiary would be entitled under applicable law if the 
  5.16  pecuniary amount were required to be paid under a will; 
  5.17     (3) to all other devisees or beneficiaries, except devisees 
  5.18  of pecuniary devises not in trust, the balance of the 
  5.19  income determined in accordance with the rules applicable to a 
  5.20  trustee, less the balance of property taxes, ordinary repairs, 
  5.21  interest, and other expenses of management and operation of all 
  5.22  property from which the estate or trust is entitled to income, 
  5.23  and taxes imposed on income, excluding taxes on capital gains, 
  5.24  that accrue during the period of administration or after an 
  5.25  income interest terminates, in proportion to their respective 
  5.26  interests in the undistributed assets of the estate or trust 
  5.27  computed at times of distribution on the basis of inventory 
  5.28  value.  
  5.29  For purposes of this subdivision, an income interest in a trust 
  5.30  terminates upon the occurrence of any event which causes the 
  5.31  right of a person to receive mandatory or discretionary 
  5.32  distributions of income from the trust to end. 
  5.33     Sec. 6.  Minnesota Statutes 2000, section 501B.64, is 
  5.34  amended to read: 
  5.35     501B.64 [~~CORPORATE~~ ENTITY DISTRIBUTIONS.] 
  5.36     Subdivision 1.  [DISTRIBUTION OF OWNERSHIP INTERESTS; 
  6.1   SHARES; STOCK SPLITS; STOCK DIVIDENDS; SUBSCRIPTION RIGHTS.] 
  6.2   Distributions of shares of a distributing corporation~~, including~~ 
  6.3   ~~distributions in the form of a stock split or stock dividend,~~ 
  6.4   ~~are principal.  A shareholder's right to subscribe to shares or~~ 
  6.5   ~~other securities of the distributing corporation and the~~ 
  6.6   ~~proceeds of any sale of that right are principal~~ or similar 
  6.7   equity ownership interests in noncorporate entities, including 
  6.8   distributions in the form of or equivalent to a stock split or 
  6.9   stock dividend, are principal.  An entity owner's right to 
  6.10  subscribe to shares, ownership interests, or other securities of 
  6.11  the distributing entity and the proceeds of any sale of that 
  6.12  right are principal. 
  6.13     Subd. 2.  [~~CALL OF SHARES; MERGER; LIQUIDATION~~ REDEMPTION; 
  6.14  MERGER; REORGANIZATION; LIQUIDATION.] Subject to subdivisions 3 
  6.15  and 4, and except to the extent that the ~~corporation~~ entity 
  6.16  indicates that some part of ~~a corporate~~ an entity distribution 
  6.17  is a settlement of preferred or guaranteed corporate dividends 
  6.18  or distribution preferences based upon a return on invested 
  6.19  capital accrued under the governing instrument since the trustee 
  6.20  ~~became a stockholder~~ acquired the related ownership interest or 
  6.21  is in lieu of an ordinary cash dividend~~, a corporate~~ or similar 
  6.22  distribution from current earnings of the entity, an entity 
  6.23  distribution is principal if the distribution is pursuant to: 
  6.24     (1) redemption of the ownership interest or a call of 
  6.25  shares; 
  6.26     (2) a merger, consolidation, reorganization, or other plan 
  6.27  by which assets of the ~~corporation~~ entity are acquired by 
  6.28  another ~~corporation~~ entity; or 
  6.29     (3) a total or partial liquidation of the ~~corporation~~ 
  6.30  entity, including a distribution the ~~corporation~~ entity 
  6.31  indicates is a distribution in total or partial liquidation or 
  6.32  distribution of assets, other than cash, pursuant to a court 
  6.33  decree or final administrative order by a government agency 
  6.34  ordering distribution of the particular assets. 
  6.35     Subd. 3.  [REGULATED INVESTMENT COMPANY; REAL ESTATE 
  6.36  INVESTMENT TRUST.] Distributions made from ordinary income by a 
  7.1   regulated investment company or by a trust qualifying and 
  7.2   electing to be taxed under federal law as a real estate 
  7.3   investment trust are income.  All other distributions made by 
  7.4   the company or trust, including distributions from capital 
  7.5   gains, depreciation, or depletion, whether in the form of cash 
  7.6   or an option to take new stock or cash or an option to purchase 
  7.7   additional shares, are principal. 
  7.8      Subd. 4.  [DISTRIBUTIONS FROM PASS-THROUGH ENTITIES.] 
  7.9   Distributions from pass-through entities shall be allocated 
  7.10  between income and principal as reasonably and equitably 
  7.11  determined by the trustee.  This subdivision shall apply for any 
  7.12  accounting period during which an entity is a pass-through 
  7.13  entity for any portion of such accounting period.  In making its 
  7.14  determination, the trustee may consider the following: 
  7.15     (1) characterization of income, distributions, and 
  7.16  transactions in financial or other information received from the 
  7.17  entity, including financial statements and tax information; 
  7.18     (2) whether the entity completed a significant capital 
  7.19  transaction outside of the ordinary course of business that the 
  7.20  trustee believes has resulted in a distribution to the owners of 
  7.21  the entity in the nature of a partial liquidating distribution; 
  7.22     (3) the extent to which the burden for income tax with 
  7.23  respect to the income of the entity is to be paid by the trustee 
  7.24  out of trust assets or by the beneficiaries of the trust; 
  7.25     (4) the net amount of distributions from such entity 
  7.26  available to the trustee after estimating or accounting for tax 
  7.27  payments by the trustee or distributions to beneficiaries for 
  7.28  the purpose of paying taxes on income earned by such entity; 
  7.29     (5) whether distributions appear to be made out of or 
  7.30  contributed to by income earned by the entity and subjected to 
  7.31  income taxes in a prior accounting period which may include 
  7.32  accounting periods prior to the date the trustee acquired the 
  7.33  related ownership interest; 
  7.34     (6) whether the entity is consistently a pass-through 
  7.35  entity during multiple accounting periods or a change to or from 
  7.36  being a pass-through entity has or will occur in accounting 
  8.1   periods preceding or subsequent to the current accounting 
  8.2   period; 
  8.3      (7) if the trust owns a controlling interest or total 
  8.4   interest in an entity, the trustee may reasonably allocate 
  8.5   distributions between income and principal and not necessarily 
  8.6   as if such business interest were owned by the trust as a 
  8.7   proprietorship; and 
  8.8      (8) such other facts and circumstances as the trustee 
  8.9   reasonably considers relevant to such determination. 
  8.10     Subd. 5.  [OTHER DISTRIBUTIONS.] Except as provided in 
  8.11  subdivisions 1, 2, ~~and~~ 3, and 4, all ~~corporate~~ distributions 
  8.12  from entities are income.  "~~Corporate~~ Entity distributions" 
  8.13  includes cash dividends, distributions of or rights to subscribe 
  8.14  to shares or securities or obligations of ~~corporations~~ entities 
  8.15  other than the distributing ~~corporation~~ entity, and the proceeds 
  8.16  of the rights or property distributions.  Except as provided in 
  8.17  subdivisions 1, 2 ~~and~~, 3, and 4, if the 
  8.18  distributing ~~corporation~~ entity gives ~~a stockholder~~ the owner of 
  8.19  an ownership interest an option to receive a distribution either 
  8.20  in cash or in ~~its own shares~~ an ownership interest in such 
  8.21  entity, the distribution chosen is income. 
  8.22     Subd. ~~5~~ 6.  [RELIANCE ON STATEMENTS.] The trustee may rely 
  8.23  on a statement of the distributing ~~corporation~~ entity as to a 
  8.24  fact relevant under a provision of sections 501B.59 to 501B.76 
  8.25  concerning the source or character of dividends or distributions 
  8.26  of corporate assets. 
  8.27     Subd. 7.  [DEFINITIONS.] The definitions in this 
  8.28  subdivision apply to this section. 
  8.29     (a) [ENTITY.] "Entity" means a corporation, partnership, 
  8.30  limited liability company, regulated investment company, real 
  8.31  estate investment trust, common or collective trust fund, or any 
  8.32  other organization in which a trustee has an interest other than 
  8.33  a trust or estate governed by any other provision of this act.  
  8.34     (b) [PASS-THROUGH ENTITY.] "Pass-through entity" means any 
  8.35  entity that passes through income, loss, deductions, credits, 
  8.36  and other tax attributes to the owners of an interest in such 
  9.1   entity under the Internal Revenue Code in such manner that such 
  9.2   owner is directly subject to income taxation on all or any part 
  9.3   of the income of the entity (whether or not the pass through of 
  9.4   such tax attributes are related to distributions from the 
  9.5   entity), including, but not limited to, S corporations, 
  9.6   partnerships, limited liability companies or limited liability 
  9.7   partnerships. 
  9.8      Sec. 7.  [501B.665] [SOLE PROPRIETORSHIPS.] 
  9.9      Subdivision 1.  [SEPARATE ACCOUNT.] A trustee who conducts 
  9.10  a business or other activity as a sole proprietor may establish 
  9.11  and maintain a separate account for the transactions of such 
  9.12  business or other activity, whether or not its assets are 
  9.13  segregated from other trust assets, if the trustee determines 
  9.14  that it is in the best interest of all the beneficiaries to 
  9.15  establish such a separate account instead of accounting for such 
  9.16  business or other activity as part of the trust's general 
  9.17  accounting records. 
  9.18     (a) A trustee who establishes a separate account for a 
  9.19  business or other activity shall determine the extent to which 
  9.20  its net cash receipts shall be retained in the separate account 
  9.21  for working capital, the acquisition or replacement of fixed 
  9.22  assets, and other reasonably foreseeable needs of the business 
  9.23  or activity or shall be transferred out of the separate account 
  9.24  and accounted for as principal or income in the trust's general 
  9.25  accounting records as the trustee reasonably and equitably 
  9.26  determines.  If a trustee sells assets of the business or other 
  9.27  activity, other than in the ordinary course of the business or 
  9.28  activity, and determines that any portion of the amount received 
  9.29  is no longer required in the conduct of the business the trustee 
  9.30  shall transfer such portion out of the separate account and 
  9.31  shall account for such portion as principal in the trust's 
  9.32  general accounting records. 
  9.33     (b) A trustee may not account separately for a traditional 
  9.34  securities portfolio to avoid the provisions of sections 501B.59 
  9.35  to 501B.76 that otherwise apply to securities. 
  9.36     Subd. 2.  [OTHER INCOME OR LOSSES.] If a trustee does not 
 10.1   maintain a separate account for a business or other activity 
 10.2   conducted as a sole proprietorship, the net profits of the sole 
 10.3   proprietorship in any fiscal or calendar year, as reasonably and 
 10.4   equitably determined by the trustee, shall be allocated to 
 10.5   income while any net loss in such year shall be charged to 
 10.6   principal and shall not be carried into any other fiscal or 
 10.7   calendar year for purposes of calculating net income. 
 10.8      Sec. 8.  Minnesota Statutes 2000, section 501B.68, is 
 10.9   amended to read: 
 10.10     501B.68 [TIMBER.] 
 10.11     Subdivision 1.  [NET RECEIPTS.] If a part of the principal 
 10.12  consists of land from which merchantable timber may be removed, 
 10.13  the net receipts from taking the timber from the land must be 
 10.14  allocated ~~in accordance with what is reasonable and equitable in~~ 
 10.15  ~~view of the interests of those entitled to income as well as of~~ 
 10.16  ~~those entitled to principal.  The amount allocated to principal~~ 
 10.17  ~~must be presumed to be reasonable and equitable if it is neither~~ 
 10.18  ~~substantially more nor less than the amount allowable as a~~ 
 10.19  ~~deduction for depletion, amortization, depreciation, or similar~~ 
 10.20  ~~costs under the Internal Revenue Code of 1986.~~ as follows:  
 10.21     (1) to income to the extent that the amount of timber 
 10.22  removed from the land during the accounting period does not 
 10.23  exceed the rate of growth of the timber; 
 10.24     (2) to principal to the extent that the amount of timber 
 10.25  removed from the land during the accounting period exceeds the 
 10.26  rate of growth of the timber or the net receipts are from the 
 10.27  sale of standing timber; 
 10.28     (3) to or between income and principal if the net receipts 
 10.29  are from the lease of timberland or from a contract to cut 
 10.30  timber from land owned by a trust, by determining the amount of 
 10.31  timber removed from the land under the lease or contract and 
 10.32  applying the rules in paragraphs (1) or (2); or 
 10.33     (4) to principal to the extent that advance payments, 
 10.34  bonuses, and other payments are not allocated pursuant to 
 10.35  paragraphs (1), (2), or (3).  
 10.36     Subd. 2.  [DEPLETION.] In determining net receipts to be 
 11.1   allocated pursuant to subdivision 1, a trustee shall deduct and 
 11.2   transfer to principal a reasonable amount for depletion. 
 11.3      Subd. 3.  [SCOPE.] This section applies whether or not 
 11.4   timber was harvested from the property before it became subject 
 11.5   to the trust. 
 11.6      Sec. 9.  Minnesota Statutes 2000, section 501B.69, is 
 11.7   amended to read: 
 11.8      501B.69 [ANNUITIES, QUALIFIED AND NONQUALIFIED EMPLOYEE 
 11.9   COMPENSATION, RETIREMENT PLANS AND OTHER PROPERTY SUBJECT TO 
 11.10  DEPLETION.] 
 11.11     Except as provided in sections 501B.67 and 501B.68, if part 
 11.12  of the principal consists of property subject to depletion, 
 11.13  including leaseholds, patents, copyrights, royalty rights, ~~and~~ 
 11.14  rights to receive payments on a contract for deferred 
 11.15  compensation qualified and nonqualified employer retirement 
 11.16  plans, individual retirement accounts, and annuities, the 
 11.17  receipts from the property must be allocated in accordance with 
 11.18  what is reasonable and equitable in view of the interests of 
 11.19  those entitled to income as well as of those entitled to 
 11.20  principal.  The trustee may determine the allocation based on a 
 11.21  fixed percentage of each payment, an amortization of the 
 11.22  inventory value of the series of payments, or, if the individual 
 11.23  retirement account, pension, profit-sharing, stock-bonus, or 
 11.24  stock-ownership plan consists of segregated and identifiable 
 11.25  assets, the trustee may apply the provisions of sections 501B.59 
 11.26  to 501B.76 to the receipts in the account or plan in order to 
 11.27  characterize the payments received during a trust accounting 
 11.28  period.  To the extent that a payment is characterized by the 
 11.29  payer as interest or a dividend or a payment made in lieu of 
 11.30  interest or a dividend, a trustee shall allocate it to income.  
 11.31  The amount allocated to principal is presumed to be reasonable 
 11.32  and equitable if it is neither substantially more nor less than 
 11.33  the amount allowable as a deduction for depletion, amortization, 
 11.34  depreciation, or similar costs under the Internal Revenue Code 
 11.35  of 1986.  
 11.36     Sec. 10.  [501B.705] [TRUSTEE'S POWER TO ADJUST.] 
 12.1      Subdivision 1.  [POWER TO ADJUST.] A trustee may adjust 
 12.2   between principal and income to the extent the trustee considers 
 12.3   necessary to comply with section 501B.60, subdivision 3, after 
 12.4   applying section 501B.60, subdivisions 1 and 2, if the trustee 
 12.5   invests and manages the trust assets as a prudent investor and 
 12.6   the terms of the trust describe the amount that may or must be 
 12.7   distributed to a beneficiary by referring to the trust's income. 
 12.8      Subd. 2.  [FACTORS TO CONSIDER.] In deciding whether and to 
 12.9   what extent to exercise the power conferred by subdivision 1, a 
 12.10  trustee shall consider all factors relevant to the trust and its 
 12.11  beneficiaries, including, but not limited to, the following 
 12.12  factors: 
 12.13     (1) the nature, purpose, and expected duration of the 
 12.14  trust; 
 12.15     (2) the intent of the settlor; 
 12.16     (3) the identity and circumstances of the beneficiaries; 
 12.17     (4) the needs for liquidity, regularity of income, and 
 12.18  preservation and appreciation of capital; 
 12.19     (5) the assets held in the trust; the extent to which they 
 12.20  consist of financial assets, interests in closely held 
 12.21  enterprises, tangible and intangible personal property, or real 
 12.22  property; the extent to which an asset is used by a beneficiary; 
 12.23  and whether an asset was purchased by the trustee or received 
 12.24  from the settlor; 
 12.25     (6) the net amount allocated to income under the other 
 12.26  sections of this act and the increase or decrease in the value 
 12.27  of the principal assets, which the trustee may estimate as to 
 12.28  assets for which market values are not readily available; 
 12.29     (7) whether and to what extent the terms of the trust give 
 12.30  the trustee the power to invade principal or accumulate income 
 12.31  or prohibit the trustee from invading principal or accumulating 
 12.32  income, and the extent to which the trustee has exercised a 
 12.33  power from time to time to invade principal or accumulate 
 12.34  income; 
 12.35     (8) the actual and anticipated effect of economic 
 12.36  conditions on principal and income and effects of inflation and 
 13.1   deflation; 
 13.2      (9) the anticipated tax consequences of an adjustment; 
 13.3      (10) the income return (determined without regard to 
 13.4   adjustments under this section) during the accounting period 
 13.5   from other trusts with similar purposes. 
 13.6      Subd. 3.  [LIMITATION ON TRUSTEE'S POWER.] A trustee may 
 13.7   not make an adjustment: 
 13.8      (1) that diminishes the income interest in a trust that 
 13.9   requires all of the income to be paid at least annually to a 
 13.10  spouse and for which an estate tax or gift tax marital deduction 
 13.11  would be allowed or allowable, in whole or in part, if the 
 13.12  trustee did not have the power to make the adjustment; 
 13.13     (2) that reduces the actuarial value of the income interest 
 13.14  in a trust to which a person transfers property with the intent 
 13.15  to qualify for a gift tax exclusion; 
 13.16     (3) that changes the amount payable to a beneficiary as 
 13.17  fixed annuity or a fixed fraction of the value of the trust 
 13.18  assets; 
 13.19     (4) from any amount that is permanently set aside for 
 13.20  charitable purposes under a will or the terms of a trust unless 
 13.21  both income and principal are so set aside; provided, however, 
 13.22  that the foregoing limitation shall not apply to any such trust 
 13.23  created prior to the enactment of this section to the extent the 
 13.24  trustee receives amounts during the accounting period which 
 13.25  would, under the provisions of section 501B.70 prior to the 
 13.26  enactment of this section, have been allocated to income; 
 13.27     (5) if possessing or exercising the power to make an 
 13.28  adjustment causes an individual to be treated as owner of all or 
 13.29  part of the trust for income tax purposes and the individual 
 13.30  would not be treated as the owner if the trustee did not possess 
 13.31  the power to make adjustment; 
 13.32     (6) if possessing or exercising the power to make an 
 13.33  adjustment causes all or part of the trust assets to be included 
 13.34  for estate tax purposes in the estate of an individual who has 
 13.35  the power to remove or appoint the trustee, or both, and the 
 13.36  assets would not be included in the estate of the individual if 
 14.1   the trustee did not possess the power to make an adjustment; 
 14.2      (7) if the trustee is a beneficiary of the trust; or 
 14.3      (8) if the trustee is not a beneficiary, but the adjustment 
 14.4   would benefit the trustee directly or indirectly. 
 14.5      Subd. 4.  [COTRUSTEE MAY EXERCISE POWER.] If the provisions 
 14.6   of subdivision 3, clause (5), (6), (7), or (8), apply to a 
 14.7   trustee and there is more than one trustee, a cotrustee to whom 
 14.8   the provision does not apply may make the adjustment unless the 
 14.9   exercise of the power by the remaining trustee or trustees is 
 14.10  not permitted by the terms of the trust. 
 14.11     Subd. 5.  [RELEASE OF POWER.] A trustee may release the 
 14.12  entire power conferred by subdivision 1 or may release only the 
 14.13  power to adjust from income to principal or to adjust from 
 14.14  principal to income if the trustee is uncertain about whether 
 14.15  possessing or exercising the power will cause a result described 
 14.16  in subdivision 3, clause (1), (2), (3), (4), (5), (6), or (8), 
 14.17  or if the trustee determines that possessing or exercising the 
 14.18  power will or may deprive the trust of a tax benefit or impose a 
 14.19  tax burden not described in subdivision 3.  The release may be 
 14.20  permanent or for a specified period, including a period measured 
 14.21  by the life of an individual. 
 14.22     Subd. 6.  [POWER MAY BE NEGATED BY SPECIFIC 
 14.23  REFERENCE.] Terms of a trust that limit the power of a trustee 
 14.24  to make an adjustment between principal and income do not affect 
 14.25  the application of this section unless it is clear from the 
 14.26  terms of the trust that the terms are intended to deny the 
 14.27  trustee the power of adjustment conferred by subdivision 1 of 
 14.28  this section. 
 14.29     Subd. 7.  [NO DUTY TO ADJUST; REMEDY.] Nothing in this 
 14.30  section is intended to create or imply a duty to make an 
 14.31  adjustment, and a trustee is not liable for not considering 
 14.32  whether to make an adjustment or for choosing not to make an 
 14.33  adjustment.  In a proceeding with respect to the trustee's 
 14.34  nonexercise of the power to make an adjustment from principal to 
 14.35  income (or with respect to the trustee's failure to make a 
 14.36  greater adjustment from principal to income), the sole remedy is 
 15.1   to direct or deny an adjustment (or greater adjustment) from 
 15.2   principal to income. 
 15.3      Subd. 8.  [NOTICE OF DETERMINATION.] A trustee may give 
 15.4   notice of a proposed action regarding a matter governed by this 
 15.5   section as provided in this subdivision.  For purposes of this 
 15.6   subdivision, a proposed action includes a course of action and a 
 15.7   determination not to take action. 
 15.8      (a) The trustee shall mail notice of the proposed action to 
 15.9   all adult beneficiaries who are receiving, or are entitled to 
 15.10  receive, income under the trust or to receive a distribution of 
 15.11  principal if the trust were terminated at the time the notice is 
 15.12  given.  Notice may be given to any other beneficiary. 
 15.13     (b) The notice of proposed action shall state that it is 
 15.14  given pursuant to this subdivision and shall state all of the 
 15.15  following: 
 15.16     (1) the name and mailing address of the trustee; 
 15.17     (2) the name and telephone number of a person who may be 
 15.18  contacted for additional information; 
 15.19     (3) a description of the action proposed to be taken and an 
 15.20  explanation of the reasons for the action; 
 15.21     (4) the time within which objections to the proposed action 
 15.22  can be made, which shall be at least 30 days from the mailing of 
 15.23  the notice of proposed action; and 
 15.24     (5) the date on or after which the proposed action may be 
 15.25  taken or is effective. 
 15.26     (c) A beneficiary may object to the proposed action by 
 15.27  mailing a written objection to the trustee at the address stated 
 15.28  in the notice of proposed action within the time period 
 15.29  specified in the notice of proposed action. 
 15.30     (d) If a trustee does not receive a written objection to 
 15.31  the proposed action from the beneficiary within the applicable 
 15.32  period, the trustee is not liable for an action regarding a 
 15.33  matter governed by this chapter to a beneficiary if: 
 15.34     (1) the beneficiary is an adult (or is a minor with a duly 
 15.35  appointed conservator of the estate) and the notice is mailed to 
 15.36  such adult beneficiary or conservator at the address determined 
 16.1   by the trustee after reasonable diligence; 
 16.2      (2) the beneficiary is an adult (or is a minor with a duly 
 16.3   appointed conservator of the estate) and such adult beneficiary 
 16.4   or conservator receives actual notice; 
 16.5      (3) the beneficiary is not an adult and has no duly 
 16.6   appointed conservator of the estate and an adult having a 
 16.7   substantially identical interest and having no conflicting 
 16.8   interest receives actual notice; 
 16.9      (4) the beneficiary (or the conservator of the estate of a 
 16.10  minor beneficiary) consents in writing to the proposed action 
 16.11  either before or after such action is taken; or 
 16.12     (5) the beneficiary is not an adult and has no duly 
 16.13  appointed conservator of the estate and an adult having a 
 16.14  substantially identical interest and having no conflicting 
 16.15  interest consents in writing to the proposed action either 
 16.16  before or after such action is taken. 
 16.17     (e) If the trustee receives a written objection within the 
 16.18  applicable time period, either the trustee or a beneficiary may 
 16.19  petition the court to have the proposed action performed as 
 16.20  proposed, performed with modifications, or denied.  In the 
 16.21  proceeding, a beneficiary objecting to the proposed action has 
 16.22  the burden of proof as to whether the trustee's proposed action 
 16.23  should not be performed.  A beneficiary who has not objected is 
 16.24  not estopped from opposing the proposed action in the 
 16.25  proceeding.  If the trustee decides not to implement the 
 16.26  proposed action, the trustee shall notify the beneficiaries of 
 16.27  the decision not to take the action and the reasons for the 
 16.28  decision, and the trustee's decision not to implement the 
 16.29  proposed action does not itself give rise to liability to any 
 16.30  current or future beneficiary.  A beneficiary may petition the 
 16.31  court to have the action performed, and has the burden of proof 
 16.32  as to whether it should be performed. 
 16.33     (f) Nothing in this subdivision shall limit the right of a 
 16.34  trustee or beneficiary to petition the court pursuant to section 
 16.35  501B.16 for instructions as to any action, failure to act, or 
 16.36  determination not to act regarding a matter governed by this 
 17.1   section in the absence of notice as provided in this 
 17.2   subdivision.  In any such proceeding, any beneficiary filing 
 17.3   such a petition or objecting to a petition of the trustee has 
 17.4   the burden of proof as to any action taken, any failure to act, 
 17.5   or determination not to act, by the trustee. 
 17.6      Sec. 11.  Minnesota Statutes 2000, section 524.6-301, is 
 17.7   amended to read: 
 17.8      524.6-301 [DEFINITIONS.] 
 17.9      In sections 524.6-301 to 524.6-311: 
 17.10     (1) "Beneficiary form" means a registration of a security 
 17.11  which indicates the present owner of the security and the 
 17.12  intention of the owner regarding the person who will become the 
 17.13  owner of the security upon the death of the owner. 
 17.14     (2) "Register," including its derivatives, means to issue a 
 17.15  certificate showing the ownership of a certificated security or, 
 17.16  in the case of an uncertificated security, to initiate or 
 17.17  transfer an account showing ownership of securities. 
 17.18     (3) "Registering entity" means a person who originates or 
 17.19  transfers a security title by registration, and includes a 
 17.20  broker maintaining security accounts for customers and a 
 17.21  transfer agent or other person acting for or as an issuer of 
 17.22  securities. 
 17.23     (4) "Security" means a share, participation, or other 
 17.24  interest in property, in a business, or in an obligation of an 
 17.25  enterprise or other issuer, and includes a certificated 
 17.26  security, an uncertificated security, and a security account. 
 17.27     (5) "Security account" means (i) a reinvestment account 
 17.28  associated with a security, a securities account with a broker, 
 17.29  a cash balance in a brokerage account, cash, cash equivalents, 
 17.30  interest, earnings, or dividends earned or declared on a 
 17.31  security in an account, a reinvestment account, or a brokerage 
 17.32  account, whether or not credited to the account before the 
 17.33  owner's death, ~~or~~ (ii) an investment management or custody 
 17.34  account with a trust company or a trust division of a bank with 
 17.35  trust powers, including the securities in the account, a cash 
 17.36  balance in the account, and cash, cash equivalents, interest, 
 18.1   earnings, or dividends earned or declared on a security in the 
 18.2   account, whether or not credited to the account before the 
 18.3   owner's death, or (iii) a cash balance or other property held 
 18.4   for or due to the owner of a security as a replacement for or 
 18.5   product of an account security, whether or not credited to the 
 18.6   account before the owner's death.  
 18.7      Sec. 12.  [524.2-6031] [ANTILAPSE; DECEASED DEVISEE; CLASS 
 18.8   GIFTS; WORDS OF SURVIVORSHIP.] 
 18.9      Subdivision 1.  [DECEASED DEVISEE.] If a devisee who is a 
 18.10  grandparent or a lineal descendant of a grandparent of the 
 18.11  testator is dead at the time of execution of the will, fails to 
 18.12  survive the testator, or is treated as if he predeceased the 
 18.13  testator, the issue of the deceased devisee who survive the 
 18.14  testator by 120 hours take in place of the deceased devisee.  If 
 18.15  they are all of the same degree of kinship to the devisee, they 
 18.16  take equally.  If they are of unequal degree, those of more 
 18.17  remote degree take by representation.  One who would have been a 
 18.18  devisee under a class gift if he or she had survived the 
 18.19  testator is treated as a devisee for purposes of this section, 
 18.20  whether the death occurred before or after the execution of the 
 18.21  will. 
 18.22     Subd. 2.  [DEFINITION.] For the purposes of section 
 18.23  524.2-601, words of survivorship, such as in a devise to an 
 18.24  individual, "if he survives me," or in a class gift, to "my 
 18.25  surviving children," are a sufficient indication of an intent 
 18.26  contrary to the application of this section. 
 18.27     Sec. 13.  [REPEALER.] 
 18.28     Minnesota Statutes 2000, sections 501B.66; 501B.70; and 
 18.29  524.2-603 are repealed.