Probate & Trust Law Section Conference Manual ... - Minnesota CLE

appropriate charge-back scheme. This case illustrates clearly both the pros and cons of
broad, flexible charge-back language. The benefit is that the trustee was not tied to any
particular charge-back method and could determine what was best based on
circumstances many decades after the trust was created. The downside was that the
beneficiaries’ disagreement cost them money and strained relationships that would have
been avoided if the trust had a clear-cut formula.
2. Taking into Account Loans to Heirs and Beneficiaries. As noted above, loans to
trust and estate beneficiaries are generally treated as assets of the trust or estate.
Often, the client wishes to forgive such loans, but to equalize the amounts left to
the beneficiaries to take into account the loan forgiveness. Such provisions must
be drafted with great care to address the following issues:
a. If the document refers to debt of beneficiaries outstanding at the
applicable date, it may exclude debt that has been discharged in
bankruptcy, or that has become unenforceable because of a limitations
period. But see In Re Marjorie Q. Ward Rev Trust, 265 P.3d 1260 (Mt.
2011) holding that a discharge of a debt in a Chapter 7 bankruptcy did not
take precedence over a trust provision providing for a reduction in the
borrower’s equal share of a residuary trust distribution of any indebtedness
owed to the grantor at the time of her death. A cause of action against the
maker of a demand note accrues on the date of the note unless a contrary
intention is shown on the face of the note and an action on the note is
barred unless brought within six years of its date. Troup v. Rozman,
286 Minn. 88, 90, 174 N.W.2d 694, 696 (1970); Minn. Stat. §541.05,
subd. 1(1). An acknowledgement of a debt tolls the statute of limitations
on the debt and starts it running anew on the date of the acknowledgement.
Windschitl v. Windschitl, 579 N.W.2d 499, 501 (Minn. Ct. App. 1998).
b. Even an enforceable loan may have a value for estate tax purposes that is
well below the face amount. In the case of a note that is worthless because
of the obligor’s insolvency, the obligor’s receipt of an inheritance because
of the holder’s death is not to be considered in determining the note’s
estate tax value. Estate of Harper v. Commissioner, 11 T.C. 717 (1948),
(acq., 1949-1 C.B. 2); PLR 9240003 (6/17/1992).
c. The Minnesota Court of Appeals in In Re Rev. Trust of Polly F. Shank,
A10-0045 (2010) held that the following trust language was ambiguous in
reversing and remanding a district court grant of summary judgment:
“ Allocation of remaining trust assets – The
remaining trust assets both principal and income not
effectively disposed of under the preceding
provisions of this instrument (such remaining trust
assets being hereinafter referred to as the “trust
fund”) shall be distributed in equal shares to my
sons, John M. Shank, Jr., and Lawrence C. Shank,
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