Minnesota’s impartiality statute is one sentence, and the last eight words of it are the entire doctrine. Minn. Stat. § 501C.0803:
If a trust has two or more beneficiaries, the trustee shall administer the trust impartially, giving due regard to the beneficiaries’ respective interests.
Beneficiaries read “impartially” and hear “equally.” Trustees sometimes read it the same way and try to split everything down the middle, which is how a trustee ends up breaching the duty while trying to comply with it. The statute does not say equal. It says respective — and in most trusts the respective interests are deliberately, structurally unequal. A widow entitled to income for life and three stepchildren entitled to whatever is left do not have equal interests, and a trustee who treats them as though they do has substituted its own estate plan for the settlor’s.
Impartiality is the duty to weigh unequal interests honestly. It is a duty about process and reasoning, and it is enforceable precisely because the reasoning can be examined.
When does the duty attach at all?
On one condition: “If a trust has two or more beneficiaries.” A single-beneficiary trust has no impartiality problem, because there is no one to be impartial between.
But “two or more beneficiaries” counts across time, not just across the room. A trust with one current income beneficiary and one remainder beneficiary has two beneficiaries for purposes of § 501C.0803, and that is the configuration in which the duty actually gets litigated. The conflict is not between two people standing in the same position; it is between the person receiving money now and the person who receives what is left.
Minnesota states the same duty a second time, in the principal-and-income article, in terms that name the parties. Section 501C.1102, subd. 1: “A trust must be administered with due regard to the respective interests of income beneficiaries and remainderpersons.”
The blended-family structure that produces most of these disputes
The recurring fact pattern is not exotic. A settlor in a second marriage leaves a trust that pays income to the surviving spouse for life, with the remainder to the settlor’s children from a first marriage. Frequently the surviving spouse is also the trustee, or a co-trustee, or holds the power to remove and replace the trustee.
Now look at what each side economically wants:
- The income beneficiary wants yield — bonds, dividend-paying stocks, rental income, high current distributions. The spouse is often in her seventies or eighties and has no interest in a portfolio optimized for a twenty-year horizon she will not see.
- The remainder beneficiaries want growth and preservation — equities, low distributions, minimal principal invasion. Every dollar distributed is a dollar they do not receive, and every year of high-yield, low-growth investing erodes what is left.
These are not bad-faith positions. They are the positions the instrument assigned them, and the trustee sitting between them cannot satisfy both — which is exactly why the statute imposes a duty of reasoning rather than a duty of outcome. The conflict sharpens when the stepchildren and the surviving spouse are close in age, when the trust holds an illiquid asset — a farm, a cabin, a closely held company — or when the yield is low enough that “income” and “what the spouse needs to live on” have stopped being the same number. Where the spouse is also the trustee, the arrangement carries a loyalty problem on top of an impartiality problem.
Why impartiality and the prudent investor rule are the same problem
They are not two duties that happen to conflict. Modern portfolio investing is what created the conflict.
Under Minnesota’s Prudent Investor Act, § 501C.0901, subd. 2(b), a trustee’s decisions “must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.” Subdivision 3 requires diversification unless the trustee “reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.” A trustee complying with those provisions invests for total return — the combination of income and appreciation — because that is what prudent portfolio management means.
But the trust instrument almost certainly says the spouse receives “income.” Once the portfolio is built for total return, the accounting concept of income stops tracking the economics. A trustee can be perfectly prudent and simultaneously starve the income beneficiary, or can chase yield to fund the spouse and quietly destroy the remainder.
Section 501C.0901 anticipates this in two places. Subdivision 2(c) lists circumstances a trustee may consider, including “(5) the expected total return from income and the appreciation of capital”; “(6) other resources of the beneficiaries known to the trustee, including earning capacity”; and “(7) needs for liquidity, regularity of income, and preservation or appreciation of capital.” Clause (6) is the one trustees underuse: a spouse with substantial assets outside the trust is in a different position from one without, and the statute says the trustee may take that into account.
And clause (8) contains the express cross-reference: 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 of the beneficiaries if consistent with the trustee’s duty of impartiality.” That proviso is a trap for the trustee who keeps the family cabin because one beneficiary loves it. Holding an illiquid, non-income-producing asset for the benefit of the remainder, while the income beneficiary goes without, is the exact use of clause (8) the proviso forbids.
Can a settlor direct the trustee to favor one beneficiary?
Yes, and Minnesota says so in unusually direct terms. Section 501C.1102, subd. 3:
In exercising a power to adjust under section 501C.1112 or a discretionary power of administration regarding a matter within the scope of sections 501C.1101 to 501C.1118, a fiduciary shall administer the trust or estate impartially, based on what is fair and reasonable to all of the beneficiaries, except to the extent that the terms of the trust or the will clearly manifest an intention that the fiduciary shall or may favor one or more of the beneficiaries. A determination in accordance with sections 501C.1101 to 501C.1118 is presumed to be fair and reasonable to all of the beneficiaries.
Two things follow. First, a settlor who wants the surviving spouse preferred should say so clearly — “the trustee shall prefer the interests of my spouse over the interests of the remainder beneficiaries and may exhaust the trust for my spouse’s benefit” is a sentence that resolves years of future argument. A trust that merely grants broad discretion has not clearly manifested that intention.
Second, the last sentence of subd. 3 is a real safe harbor: an allocation made in accordance with the Principal and Income Act is presumed fair and reasonable. Subdivision 2 adds a companion protection — where the instrument gives the trustee discretion in crediting receipts or charging expenditures, “no inference of imprudence or partiality arises from the fact that the trustee has made an allocation contrary to sections 501C.1101 to 501C.1118.”
But a preference clause is not a blank check. Section 501C.0105(b) makes several floors non-waivable, including “(2) the duty of a trustee to act in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries” and “(3) the requirement that a trust and its terms be for the benefit of its beneficiaries, and that the trust have a purpose that is lawful, not contrary to public policy, and possible to achieve.” And § 501C.0814(a) speaks directly to broad discretionary language:
Notwithstanding the breadth of discretion granted to a trustee in the terms of the trust, including the use of such terms as “absolute,” “sole,” or “uncontrolled,” the trustee must exercise a discretionary power in good faith, in accordance with the terms and purposes of the trust and, in the best interests of the beneficiaries.
Broad discretionary language is not a defense in Minnesota. Section 501C.0814(a) names the drafting words specifically — “absolute,” “sole,” or “uncontrolled” — in order to say that none of them does what people think it does.
The fix for the income-versus-remainder conflict — and the trap in it
Minnesota’s structural answer is the trustee’s power to adjust between principal and income, Minn. Stat. § 501C.1112. Subdivision 1 lets a trustee adjust “to the extent the trustee considers necessary to comply with section 501C.1102, subdivision 3, after applying section 501C.1102, subdivisions 1 and 2,” on two conditions: the trustee invests and manages the assets as a prudent investor, and the terms of the trust describe the amount that may or must be distributed to a beneficiary “by referring to the trust’s income.” The power exists precisely so that prudent total-return investing does not silently disinherit the current beneficiary.
Subdivision 2 supplies ten factors, including the nature, purpose, and expected duration of the trust; the intent of the settlor; the identity and circumstances of the beneficiaries; the needs for liquidity, regularity of income, and preservation and appreciation of capital; the composition of the assets and “whether an asset was purchased by the trustee or received from the settlor”; the anticipated tax consequences of an adjustment; and the investment return under current economic conditions from other portfolios meeting fiduciary requirements. Working those factors on paper is what an impartiality file looks like.
Subdivision 6 protects the power from careless drafting: terms that limit adjustment “do not affect the application of this section unless it is clear from the terms of the trust that the terms are intended to deny the trustee the power of adjustment conferred by subdivision 1.”
Now the trap. Subdivision 3 prohibits an adjustment in seven situations, and two of them are the blended-family structure itself: a trustee may not make an adjustment “(6) if the trustee is a beneficiary of the trust; or (7) if the trustee is not a beneficiary, but the adjustment would benefit the trustee directly or indirectly.”
So the surviving spouse serving as her own trustee cannot use the statute’s principal remedy for her own problem. The bar is symmetric, and worth stating precisely: it disqualifies any trustee who is a beneficiary from making an adjustment, whichever direction that trustee’s interest runs. A child of the first marriage serving as trustee is disqualified on the same clause, for the same reason — being a beneficiary — not because of anything about declining to adjust. Nothing in subdivision 3 compels an adjustment or penalizes a trustee for leaving the allocation alone, which is why the disqualification is felt almost entirely by the beneficiary-trustee who wants one. This surprises families constantly, and it is worth knowing before the trust is drafted rather than after.
Subdivision 4 supplies the workaround: where clause (4), (5), (6), or (7) disables a trustee and there is more than one trustee, “a cotrustee to whom the provision does not apply may make the adjustment unless the exercise of the power by the remaining trustee or trustees is not permitted by the terms of the trust.” That is a drafting instruction. A trust that names a beneficiary as sole trustee and expects adjustments to happen has designed a machine with a missing part.
A parallel restriction runs through discretionary distributions. Section 501C.0814(b)(1) provides that a person other than a settlor who is both beneficiary and trustee, and who holds a power to make discretionary distributions for the trustee’s own benefit, “may exercise the power only in accordance with an ascertainable standard” — and § 501C.0814(c) allows the remaining trustees, or a special fiduciary appointed by the court or by the trustees, to exercise a power paragraph (b) limits. Paragraph (d) carves out several situations, the first being “a power held by the settlor’s spouse who is the trustee of a trust for which a marital deduction, as defined in section 2056(b)(5) or 2523(e) of the Internal Revenue Code of 1986, as in effect on January 1, 2016, or as later amended, was previously allowed.” Whether a trust falls inside that carve-out is a question for tax counsel. The point is that both the rule and its exceptions have to be checked before a beneficiary-trustee exercises discretion in her own favor.
What a trustee should actually do — and what a beneficiary can force
The most important sentence in this area, for a trustee, is § 501C.1112, subd. 7: “Nothing in this section is intended to create or imply a duty to make an adjustment, and a trustee is not liable for not considering whether to make an adjustment or for choosing not to make an adjustment.” The same subdivision limits the remedy: in a proceeding about nonexercise of the power to adjust from principal to income, “the sole remedy is to direct or deny an adjustment (or greater adjustment) from principal to income.”
Read that carefully before assuming a starved income beneficiary has a damages claim for failure to adjust. Under subd. 7 the claim is for an order directing the adjustment — not for money. The damages theory, if there is one, has to be built on § 501C.0803, on the prudent investor rule, or on some other duty, not on the failure to exercise § 501C.1112.
That is also why a beneficiary’s practical leverage is informational. Section 501C.0813(a) requires a trustee to keep qualified beneficiaries of an irrevocable trust “reasonably informed about the administration of the trust and of the material facts necessary to protect their interests,” and the allocation between income and principal, the yield the trustee is targeting, and whether adjustment was ever considered are all material facts. What that duty does and does not require is the starting point for building an impartiality claim.
For the trustee, § 501C.1112, subd. 8 is the procedure worth using. A trustee may mail a notice of proposed action — and a proposed action expressly “includes a course of action and a determination not to take action.” The notice goes to all adult beneficiaries receiving or entitled to receive income, or entitled to receive principal if the trust terminated then, and it must state the trustee’s name and address, a contact person, “a description of the action proposed to be taken and an explanation of the reasons for the action,” an objection period “which must be at least 30 days from the mailing of the notice of proposed action,” and the date on or after which the proposed action may be taken or is effective. If no written objection arrives within the period, subdivision 8(e) protects the trustee from liability in the listed circumstances. If an objection does arrive, subdivision 8(f) allows either side to petition — and “a beneficiary objecting to the proposed action has the burden of proof as to whether the trustee’s proposed action should not be performed.”
That burden allocation is the reason to use the notice. A trustee who proposes, explains, and waits has shifted the burden onto the objector. A trustee who simply acts has not.
The observation
Impartiality claims are won and lost on documents that either exist or do not. The trustee who can produce a written analysis — the beneficiaries’ respective interests as the instrument defines them, the § 501C.0901, subd. 2(c) circumstances considered, the § 501C.1112, subd. 2 factors weighed, and either an adjustment or a reasoned decision not to adjust, noticed under subd. 8 — has a defensible file whatever the outcome. The trustee who has been quietly favoring whichever beneficiary calls most often has a problem no amount of even-handed intention will fix, because § 501C.0803 does not ask whether the trustee meant well. It asks whether the trustee gave due regard to interests the settlor made unequal on purpose.
Madgett Law, LLC
We work the income-versus-remainder fight from both sides in Minnesota trusts — surviving spouses whose income has quietly disappeared into a growth portfolio, remainder beneficiaries watching a life tenant consume a trust that was supposed to reach them, and trustees caught between the two who need the § 501C.1112 analysis done and noticed properly. If you are drafting rather than fighting, the two questions worth settling now are whether the instrument clearly states a preference and whether the trustee you have named is disabled from adjusting under § 501C.1112, subd. 3. Call 612-470-6529 or send us a message.
Sources: Minn. Stat. § 501C.0803 (Impartiality) — entire section (duty attaches if a trust has two or more beneficiaries; administer impartially, giving due regard to the beneficiaries’ respective interests). Minn. Stat. § 501C.1102 (Duty of Trustee as to Receipts and Expenditure) — subd. 1 (administration with due regard to the respective interests of income beneficiaries and remainderpersons; ordering of trust terms, the Act, and reasonable-and-equitable administration), subd. 2 (no inference of imprudence or partiality from a discretionary allocation contrary to §§ 501C.1101 to 501C.1118), subd. 3 (impartial administration based on what is fair and reasonable to all beneficiaries, except to the extent the terms clearly manifest an intention to favor one or more beneficiaries; determinations in accordance with the Act are presumed fair and reasonable). Minn. Stat. § 501C.1112 (Trustee’s Power to Adjust) — subd. 1 (power to adjust; prudent-investor and income-reference preconditions), subd. 2(1)–(10) (factors), subd. 3(6)–(7) (no adjustment if the trustee is a beneficiary, or if the adjustment would benefit the trustee directly or indirectly), subd. 4 (cotrustee to whom the disability does not apply may adjust), subd. 6 (limiting terms do not negate the power unless clearly intended to deny it), subd. 7 (no duty to adjust; no liability for not considering or not adjusting; sole remedy for nonexercise from principal to income is to direct or deny an adjustment), subd. 8(a) (proposed action includes a determination not to take action), 8(b) (who receives notice), 8(c)(1)–(5) (required contents, including an objection period of at least 30 days from mailing), 8(e) (protection from liability absent written objection), 8(f) (objecting beneficiary bears the burden of proof). Minn. Stat. § 501C.0901 (Minnesota Prudent Investor Act) — subd. 2(b) (portfolio as a whole), subd. 2(c)(5)–(8) (total return; other resources of the beneficiaries including earning capacity; liquidity, regularity of income, and preservation or appreciation of capital; an asset’s special relationship or special value “if consistent with the trustee’s duty of impartiality”), subd. 3 (diversification unless the trustee reasonably determines special circumstances). Minn. Stat. § 501C.0814 — para. (a) (discretion described as “absolute,” “sole,” or “uncontrolled” still must be exercised in good faith, in accordance with the terms and purposes of the trust and in the best interests of the beneficiaries), para. (b)(1) (beneficiary-trustee’s power to distribute for the trustee’s own benefit limited to an ascertainable standard), para. (c) (remaining trustees or a special fiduciary may exercise a limited power), para. (d)(1) (carve-out for a power held by the settlor’s spouse who is trustee of a trust for which a marital deduction under I.R.C. § 2056(b)(5) or § 2523(e) was previously allowed). Minn. Stat. § 501C.0105(b)(2)–(3) (mandatory good-faith duty; requirement that a trust and its terms be for the benefit of its beneficiaries). Minn. Stat. § 501C.0813(a) (duty to keep qualified beneficiaries of an irrevocable trust reasonably informed about the administration and the material facts necessary to protect their interests). All statutory text retrieved from the Minnesota Office of the Revisor of Statutes (2025 edition); no pending-amendment banner appeared on any section cited, and the Revisor history for § 501C.0803 shows 2015 Minn. Laws ch. 5, art. 8, § 3 with no later amendment. The Internal Revenue Code sections named in § 501C.0814(d)(1) are quoted as they appear in the Minnesota statute; no federal tax authority was independently retrieved and nothing here is tax advice. No Minnesota appellate decision is cited in this article. This article is general legal information about Minnesota law, not legal or tax advice, and reading it does not create an attorney–client relationship. Whether a trustee has administered a particular trust impartially depends on the instrument, the portfolio, and the record. No outcome is promised or implied.