In 2016, the Minnesota legislature undertook a major overhaul of the state’s trust laws to address some of the more common issues that arise in the administration of modern trusts. One of the issues addressed concerned the frequently vexing problem of whether and when trust assets should be used to pay for the legal fees incurred when a trustee’s acts or decisions are challenged by a beneficiary or third party. Under Minnesota common law, the circumstances allowing a person to be awarded his or her fees from the trust corpus were fairly limited. Such an award required the party seeking fees to establish, among other things, that he or she was a “necessary party to the litigation,” and that the litigation was brought to “resolve the meaning and legal effect of ambiguous language used by the settlor of the trust instrument.” In re Atwood’s Trust, 35 N.W.2d 736, 740 (Minn. 1949); see also In re Campbell’s Trust, 258 N.W.2d 856, 867-68 (Minn. 1977) (emphasizing that “Atwood . . . holds that the trust instruments in dispute must be sufficiently ambiguous” to support an attorney-fee award).
In the 2016 changes to the trust laws, the legislature appeared to significantly broaden the common law standard for the award of attorneys’ fees in trustee cases. As stated in the statute:
In a judicial proceeding involving the administration of a trust, the court, as justice and equity may require, may award costs and expenses, including reasonable attorney fees, to any party from the trust that is the subject of the judicial proceeding.
Minn. Stat. § 501C.1004.
Under this new statutory standard, it appeared that a court was free to issue an attorneys’ fee award to any party in any judicial proceeding involving the administration of a trust, “as justice and equity may require.” The question remained, however, how this new standard would work if it conflicted with the more restrictive common law standard. In other words, could the court award fees from the trust if the claim did not relate to ambiguous language used by the settlor of the trust instrument? The Court of Appeals had an opportunity to address that issue in the recently decided case of In re Jorgenson Family Trust Agreement dated March 12, 2001, A23-1627, LEXIS 331 (Minn. Ct. App. July 22, 2024) (“In re Jorgenson“).
Facts of the Case
In re Jorgenson involved a family trust created in 2001 by Michael Jorgenson and his ex-wife, Sharlene, to provide income for themselves and an inheritance for their adult children. Id. at *3. The primary asset in the trust was a 300-acre parcel leased for farming. In 2020, the then-trustee of the Trust, Bremmer Bank, petitioned the court for authority to pursue a $680,000 drain-tile project on the property. When the district court rejected that petition as too costly, Bremmer proposed a less costly plan, and Michael objected, asking that the request be denied, that Bremer be removed as the trustee, and that his attorneys’ fees be paid by the trust while Bremer be required to pay its own attorneys’ fees. Sharlene opposed the fee request, contending that Bremer, not the trust, should pay Michael’s attorneys’ fees. Ultimately, the district court removed Bremer as trustee, appointed a successor professional trustee, and ordered the trust to pay Michael’s legal fees and costs.
Court of Appeals Decision
On appeal, Sharlene argued for reversal on grounds that the district court applied the incorrect legal standard to decide Michael’s fee request. Specifically, she argued that the district court was required to apply the narrow common-law standard governing a beneficiary’s entitlement to attorneys’ fees, and because the underlying drain-tile dispute did not turn on any ambiguous trust language, it was not the type of dispute that warranted an award of attorneys’ fees.
The Court of Appeals disagreed, finding that the legislature “instituted a broad, different standard” when it passed Minn. Stat. § 501C.1004. See Id. at *7. The Court stated:
Our remaining question therefore—one we easily answer—is whether section 501C.1004 modifies the common law. It plainly does. Under Atwood’s common-law standard, among other requirements, a beneficiary could obtain attorney fees from the trust only in disputes over ambiguous trust-instrument language. But under the trust code, any party may be entitled to attorney fees in trust disputes without limit by subject matter, based only on whether the district court concludes that justice and equity require the award. The statute changes rather than mirrors the common-law standard of attorney fees for beneficiaries and third parties.
Id. at *7.
The court then stated its position: “‘[T]he common law of trusts . . . supplements[s] this [trust] chapter except to the extent modified by this chapter or another law of this state.’ . . . Paraphrased succinctly, the trust code rather than the common law applies whenever the trust statutes modify the common law.”
Impact of the Decision
In re Jorgenson is a published decision and, therefore, unless reversed or modified by the Minnesota Supreme Court, it can be considered and used by courts faced with similar issues in the future. As such, it can be conclusively assumed going forward that “Section 501C.1004, not the common law, governs a beneficiary’s ability to recover attorney fees from trust assets.” Id. at *9. This clarifies and enlarges the circumstances when attorneys’ fees may be assessed in trust disputes, which will likely lead to more attorneys’ fee claims being raised (and awarded) in future Minnesota trust disputes.
For more information about this case or to discuss trusts, estate planning, probate, or any type of dispute in those areas, please reach out to Pat Rooney or David Ness.
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