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

F. Family Business Succession. The drafter of a will or trust agreement for a
family business owner faces an additional set of issues, including the following:
1. Personal Representative and Trustee Selection. A family business owner
must be careful in selecting the personal representative of her estate and
the successor trustee of her revocable trust (or trusts under the will). In
addition to the normal estate and trust administration duties, the appointed
fiduciary will hold legal title to the client’s family business interests, and
may have voting control over the entity. The person selected should be
one who will be capable of stepping into the deceased (or disabled)
owner’s shoes and helping to manage the business in what may be a time
of crisis. It may be appropriate to appoint a different fiduciary to perform
this function during the period of administration of the client’s estate or
trust immediately after the client’s death, as compared to the person or
institution who will manage continuing trusts for children or other
beneficiaries.
2. Trustee Powers Provisions. If a trust under a client’s will or revocable
trust instrument is likely to be funded with family business interests, it is a
good idea to include provisions in the trust altering the duties of the trustee
with respect to diversification and prudent investment of trust assets. If no
such provisions are included, a trustee may feel (and may be) obligated to
liquidate the business rather than maintaining it as an asset of the trust.
a. Duty of Diversification. A trustee is normally under a duty to
diversify the investments of the trust so as to distribute the risk of
loss. III Scott, the Law of Trusts, §§ 228, 230.3; Restatement
(Third) of Trusts, § 227, § 229, comment d.; Minn. Stat. §
501B.151. The duty to diversify requires that the trustee not invest
an unreasonable proportion of the trust estate in a single security,
or even in a single type of security. Scott, § 228.
b. Prudent Investment. In addition to the duty to diversify, a trustee
has duties to invest and manage the trust assets as a prudent
investor would, in light of the purposes, terms distribution
requirements, and other circumstances of the trust, and to exercise
reasonable care, skill and caution. Restatement (Third) of Trusts, §
227; Minn. Stat. § 501B.151. In determining whether a particular
investment is appropriate, a trustee may consider “an asset’s
special relationship or special value, if any, to the purposes of the
trust or to one or more beneficiaries if consistent with the trustee’s
duty of impartiality.” Minn. Stat. § 501B.151, subd. 2(c)(8). In
many cases this would arguably provide authorization to retain a
family business interest, but the duty of impartiality may require at
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