Counterclaims in Minnesota Trust and Estate Disputes

What counts as a counterclaim in a trust or estate dispute?

A counterclaim is your own claim against the person who started the dispute, asserted in the same proceeding. A defense argues that the other side should lose; a counterclaim asks the court to give you something, such as money, the return of property, or a trustee’s removal.

The civil rules allow a counterclaim to go further than the original claim. Under Minn. R. Civ. P. 13.03, a counterclaim “may claim relief exceeding in amount or different in kind from that sought in the pleading of the opposing party.” Under Rule 13.02, it need not even be related: “A pleading may state as a counterclaim any claim against an opposing party not arising out of the transaction that is the subject matter of the opposing party’s claim.” In an ordinary civil lawsuit between family members, a sibling sued over a parent’s car can answer with an unrelated claim against the sibling who sued, such as an unpaid loan.

Labels matter less than substance. Under Minn. R. Civ. P. 8.03, “When a party has mistakenly designated a defense as a counterclaim or a counterclaim as a defense, the court, on such terms as justice may require, shall treat the pleading as if there had been a proper designation.”

How do counterclaims work in a Minnesota trust petition?

A Minnesota trust dispute usually begins with a petition to the district court, not a summons and complaint. Any interested person, including the trustee or a beneficiary, may petition, and each petition leads to a court order setting a hearing and to notice given by an interested person.

Under Minn. Stat. § 501C.0201, “An interested person may petition the district court and invoke its jurisdiction,” and the term interested person “includes an acting trustee, any person named as successor trustee under the trust instrument, any person seeking court appointment as trustee whether or not named in the trust instrument, a beneficiary, a creditor, and any other person having a property or other right in or claim against the assets of the trust.” The trustee and the beneficiaries are on that list, so either one may petition the court. The matters a petition can raise, listed in Minn. Stat. § 501C.0202, include “(8) to require a trustee to account”, “(5) to approve payment of the trustee’s, attorney, or accountant fees, or any other fees to be charged against the trust”, and “(19) to redress a breach of trust”.

The petition “shall specify whether the interested person is invoking the jurisdiction of the district court as an in rem proceeding or as an in personam proceeding,” and “In the absence of a designation of an in rem or an in personam proceeding by the petitioner, the district court’s in rem jurisdiction is invoked.” That choice decides how notice is given and who is bound. Under Minn. Stat. § 501C.0203, subd. 1, “Upon the filing of a petition under the district court’s in rem jurisdiction by an interested person, the court shall, by order, fix a time and place for a hearing” on that petition. Notice of that hearing goes out a minimum period before the hearing that the statute sets. The order for hearing is published “one time in a legal newspaper for the county in which the petition is filed.” It is also mailed to the current trustees and qualified beneficiaries whose identity is known and whose location is known or reasonably ascertainable. Under subdivision 2, notice of an in personam petition goes to the current trustees and the qualified beneficiaries “in the same manner as set forth under Rule 4 of the Rules of Civil Procedure by serving a copy of the order for hearing and the petition,” also a minimum period before the hearing, unless they waive it in writing. Under Minn. Stat. § 501C.0204, subd. 1, an in rem order “is binding in rem upon the trust estate and all interested persons, including without limitation all beneficiaries, vested or contingent, even though unascertained or not in being.” Under subdivision 2, an in personam order “is binding on (1) a party who is served with notice of the judicial proceeding, (2) a party who appears in the judicial proceeding, and (3) any other party who may be bound by such parties as described in sections 501C.0301 to 501C.0305.” Both subdivisions provide that “An appeal from an order which, in effect, determines the petition may be taken by any party after service by any party of written notice of its filing as provided under the Rules of Appellate Procedure.” Both also set a separate outside period, counted from the filing of the order, for when no notice is served. I suggest reading the current text of § 501C.0204 and the appellate rules the day an order is filed, because the appeal period can start to run from that filing.

The civil rules fit trust petitions imperfectly. Minn. R. Civ. P. 81.01 provides that “These rules do not govern pleadings, practice and procedure in the statutory and other proceedings listed in Appendix A insofar as they are inconsistent or in conflict with the rules.” Appendix A carries a note that “Certain sections and chapters listed in this Appendix may have been repealed or renumbered”, and it lists “Proceedings relating to trusts” under section numbers from an earlier trust statute. Because of that mismatch, I suggest presenting every claim you have about the trust’s administration in a petition of your own. That is safer than placing a claim only in an objection to the other side’s petition or counting on a separate lawsuit later. Under § 501C.0203, your own petition carries its own order for hearing and notice.

What claims can a beneficiary bring against a trustee?

A beneficiary’s main counterclaim is breach of trust: under Minn. Stat. § 501C.1001, “A violation by a trustee of a duty the trustee owes to a beneficiary is a breach of trust.” The court can order the trustee to pay, restore property, account, step aside, or give up compensation.

The remedies in § 501C.1001 include orders to “(3) compel the trustee to redress a breach of trust by paying money, restoring property, or other means”, to “(8) reduce or deny compensation to the trustee”, and to “impose a lien or a constructive trust on trust property, or trace trust property wrongfully disposed of and recover the property or its proceeds.” A constructive trust lets the court follow trust property into the hands of someone who should not have it. The money measure is in Minn. Stat. § 501C.1002: the trustee is liable for the greater of “(1) the amount required to restore the value of the trust property and trust distributions to what they would have been had the breach not occurred” or “(2) the profit the trustee made by reason of the breach.” When more than one trustee is liable, the trustees may owe each other contribution or indemnity, covered in the next section.

Provisions that can support these counterclaims include these:

• Loyalty. Under Minn. Stat. § 501C.0802, “A trustee shall not place the trustee’s own interests above those of the beneficiaries.” Under the statute, “a sale, encumbrance, or other transaction involving the investment or management of trust property entered into by the trustee for the trustee’s own personal account or which is otherwise affected by a conflict between the trustee’s fiduciary and personal interests is voidable by a beneficiary affected by the transaction unless” one of the statute’s listed exceptions applies, such as authorization in the trust terms or court approval. The statute presumes a conflict when such a transaction is entered into with the trustee’s spouse; “the trustee’s descendants, siblings, parents, or their spouses”; an agent or an attorney of the trustee; or “a corporation or other person or enterprise in which the trustee, or a person who owns a significant interest in the trustee, has an interest that might affect the trustee’s best judgment.” That presumption matters when the trust owns part of a family company the trustee also runs.
• Information. Under Minn. Stat. § 501C.0813, “A trustee shall keep the qualified beneficiaries of an irrevocable trust reasonably informed about the administration of the trust and of the material facts necessary to protect their interests.” It adds: “Unless unreasonable under the circumstances, a trustee shall promptly respond to a beneficiary’s request for information related to the administration of an irrevocable trust.” The trust instrument can replace that duty by express provision. The replacement applies during a period when the trust terms require the trustee to keep the settlor or another person, including one or more beneficiaries, reasonably informed instead.
• Removal. Under Minn. Stat. § 501C.0706, “The settlor, a cotrustee, or a beneficiary may petition the court to remove a trustee,” and one ground is that “the trustee has committed a serious breach of trust”.

More on a Minnesota trust beneficiary’s rights.

What can a trustee claim in response?

A trustee facing a beneficiary’s petition can petition the court to approve the accounts, reimburse expenses, confirm compensation, and award fees from the trust. Those are the trustee’s counterclaims, and each one depends on records showing what was spent and why.

Under Minn. Stat. § 501C.0709, a trustee is entitled to be reimbursed out of the trust property for “(1) expenses that were properly incurred in the administration of the trust” and “(2) expenses that were not properly incurred in the administration of the trust, to the extent necessary to prevent unjust enrichment of the trust”, with interest as appropriate. The same section adds that “An advance by the trustee of money for the protection of the trust gives rise to a lien against trust property to secure reimbursement with reasonable interest.” A trustee who paid the property taxes on a family cabin out of pocket can claim that lien if the court finds the payment was an advance of money for the protection of the trust.

Compensation comes next. Under Minn. Stat. § 501C.0708, “If the terms of a trust do not specify the trustee’s compensation, a trustee is entitled to compensation that is reasonable under the circumstances.” The court can cut it, too: § 501C.1001 lets the court “(8) reduce or deny compensation to the trustee” when it finds a breach.

Fees are discretionary. Under Minn. Stat. § 501C.1004, “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.” That award can go to the trustee or to the beneficiary who brought the claims.

Where there are cotrustees, a sued trustee can also turn to the others: under § 501C.1002, “If more than one trustee is liable for a breach of trust, a trustee is entitled to contribution or indemnity from the other trustee or trustees as the court may determine.” A trustee’s best evidence for all of these claims is the paper trail kept during administration. That is why trustee record keeping matters long before a dispute.

How does the counterclaim rule work in a Minnesota probate estate?

Minnesota’s probate code gives the estate its own counterclaim rule. When a creditor or family member presents a claim against the estate, the personal representative may subtract what that claimant owes the estate, and a court can enter judgment against the claimant for any excess.

Minn. Stat. § 524.3-811 provides: “In allowing a claim the personal representative may deduct any counterclaim which the estate has against the claimant. In determining a claim against an estate a court shall reduce the amount allowed by the amount of any counterclaims and, if the counterclaims exceed the claim, render a judgment against the claimant in the amount of the excess.” The counterclaim does not have to grow out of the same dealings: “A counterclaim, liquidated or unliquidated, may arise from a transaction other than that upon which the claim is based.” A child who presents a claim for caregiving can therefore face a counterclaim for money taken from the parent’s account. For a caregiving claim above the dollar threshold in Minn. Stat. § 524.3-806, the court rather than the personal representative allows it. Under that section, “Any claim in excess of $3,000 for personal services rendered by an individual to the decedent including compensation of persons attending the decedent during a last illness” is among the claims that “may be allowed only in compliance with subsection (b).” The court then reduces the amount allowed by any counterclaims.

A related rule reaches heirs and beneficiaries who owe the decedent money. Under Minn. Stat. § 524.3-903, “The amount of a noncontingent indebtedness of a successor to the estate if due, or its present value if not due, shall be offset against the successor’s interest; but the successor has the benefit of any defense which would be available to the successor in a direct proceeding for recovery of the debt.”

The claimant’s side has time limits at two stages. Under Minn. Stat. § 524.3-803, claims against a decedent’s estate “are barred against the estate, the personal representative, and the heirs and devisees of the decedent, unless presented as follows,” within the periods that section sets. Under § 524.3-806, “Every claim which is disallowed in whole or in part by the personal representative is barred so far as not allowed unless the claimant files a petition for allowance in the court or commences a proceeding against the personal representative” within the period that section sets, once the personal representative mails a notice of disallowance that warns of the bar. A claimant who receives that notice should read the current statute for the deadline that day.

What claims can heirs bring against a personal representative?

An heir or beneficiary can hold a personal representative to the same standard as a trustee. “If the exercise of power concerning the estate is improper, the personal representative is liable to interested persons for damage or loss resulting from breach of fiduciary duty to the same extent as a trustee of an express trust,” under Minn. Stat. § 524.3-712. That breach claim has a time bar of its own once the estate is closed. Under Minn. Stat. § 524.3-1005, unless previously barred by adjudication and except as provided in the closing statement, the rights of successors “against the personal representative for breach of fiduciary duty are barred unless a proceeding to assert the same is commenced” within the period that section sets after the filing of the closing statement. The bar does not include “rights to recover from a personal representative for fraud, misrepresentation, or inadequate disclosure related to the settlement of the decedent’s estate.”

The standard of care is set out in Minn. Stat. § 524.3-703: “A personal representative is a fiduciary who shall observe the standards of care in dealing with the estate assets that would be observed by a prudent person dealing with the property of another.” Three other remedies can be sought with a breach claim:

• Removal. Under Minn. Stat. § 524.3-611, “A person interested in the estate may petition for removal of a personal representative for cause at any time,” and “Cause for removal exists when removal is in the best interests of the estate,” among other grounds the section lists.
• Refund of excessive pay. Under Minn. Stat. § 524.3-721, the court may review the personal representative’s compensation and the compensation of the agents the personal representative hired, and “Any person who has received excessive compensation from an estate for services rendered may be ordered to make appropriate refunds.”
• Will contest. If the dispute is over the will itself, Minn. Stat. § 524.3-407 places the burden on the challenger: “Contestants of a will have the burden of establishing lack of testamentary intent or capacity, undue influence, fraud, duress, mistake or revocation.”

The personal representative’s own litigation costs are protected when the defense is in good faith. Under Minn. Stat. § 524.3-720, “Any personal representative or person nominated as personal representative who defends or prosecutes any proceeding in good faith, whether successful or not, or any interested person who successfully opposes the allowance of a will, is entitled to receive from the estate necessary expenses and disbursements including reasonable attorneys’ fees incurred.” More on handling a personal representative’s misconduct.

When does Rule 13 force a counterclaim into a civil lawsuit?

Some trust and estate fights are ordinary civil lawsuits, such as a personal representative’s suit against a relative to recover property. In those cases Rule 13.01 applies: a non-tort claim you already have that arises out of the same transaction must be stated in your answer, while a tort claim may be brought separately.

The probate court can hear these cases. Under Minn. Stat. § 524.3-105, “The court has concurrent jurisdiction of any other action or proceeding concerning a succession or to which an estate, through a personal representative, may be a party, including actions to determine title to property alleged to belong to the estate.” Once a summons and complaint are served, Minn. R. Civ. P. 13.01 governs: “A pleading shall state as a counterclaim any claim which at the time of serving the pleading the pleader has against any opposing party, if it arises out of the transaction that is the subject matter of the opposing party’s claim,” subject to the rule’s exceptions for claims needing absent third parties and claims already pending in another case.

Minnesota reads “transaction” narrowly. “We hold therefore that the word “transaction” as used in Rule 13.01 does not embrace claims in tort,” the Minnesota Supreme Court wrote in House v. Hanson, 72 N.W.2d 874 (Minn. 1955), a car-collision case in which a defendant who had not counterclaimed later sued separately. A claim on a loan agreement or a promissory note to the decedent is a contract claim, so it can be compulsory when it arises out of the transaction behind the suit. Whether a particular claim between family members is a tort is a question the court decides on the facts pleaded, so I suggest including any related claim in the answer.

Missing a claim is not always final. Under Rule 13.05, “A claim which either matured or was acquired by the pleader after serving a pleading may, by leave of court, be presented as a counterclaim by supplemental pleading.” Under Rule 13.06, “When a pleader fails to set up a counterclaim through oversight, inadvertence, or excusable neglect, or when justice requires, the pleader may, by leave of court, set up the counterclaim by amendment.”

What defenses can defeat a counterclaim against a trustee?

A beneficiary’s counterclaim against a trustee can fail on a prior release, an exculpation clause, the statutory time bar, or the absence of any breach at all. Each one turns on documents, so the trustee’s reports and the beneficiary’s signed papers are the evidence to gather first.

• Consent, release, or ratification. Under Minn. Stat. § 501C.1009, “A beneficiary’s consent to a trustee’s conduct, release of the trustee from liability for the trustee’s conduct, or ratification of the trustee’s conduct is binding unless” either “(1) the consent, release, or ratification of the beneficiary was induced by improper conduct of the trustee” or “(2) at the time of the consent, release, or ratification, the beneficiary did not know of the beneficiary’s rights or of the material facts relating to the trustee’s conduct and the trustee did know of the material facts relating to the trustee’s conduct.” A beneficiary receipt and release signed at distribution is one such document.
• Exculpation clause. Under Minn. Stat. § 501C.1008, a trust term relieving the trustee of liability is unenforceable to the extent it “(1) relieves the trustee of liability for breach of trust committed in bad faith or with reckless indifference to the purposes of the trust or the interests of the beneficiaries” or “(2) was inserted as the result of an abuse by the trustee of a fiduciary or confidential relationship to the settlor.”
• Time bar. A beneficiary’s claim is barred after a set period counted from the date “the beneficiary or a representative of the beneficiary was sent a report that adequately disclosed the existence of a potential claim,” under Minn. Stat. § 501C.1005. Otherwise, the statute sets a longer outside limit. That limit runs from the first to occur of the trustee’s removal, resignation, or death; the termination of the beneficiary’s interest in the trust; or the termination of the trust. “A report adequately discloses the existence of a potential claim if it provides sufficient information so that the beneficiary or representative knows of the potential claim or should have inquired into its existence.” The periods are in the statute. I suggest reading its current text the day a report arrives, because the shorter period runs from the date the report was sent.
• No breach. Under Minn. Stat. § 501C.1003, “Absent a breach of trust, a trustee is not liable for a loss or depreciation in the value of trust property or for not having made a profit.” A falling market is not, by itself, a claim.

What does a weak counterclaim cost in trust and estate litigation?

A counterclaim without evidence can bring sanctions and leave you with your own fees. It can also cost you part of the other side’s fees, because a fee award “from the trust” is paid out of the fund every beneficiary shares. It can also end whatever working relationship the family still has.

Every filing carries a certification. Under Minn. Stat. § 549.211, subd. 2, the person presenting a pleading certifies, after a reasonable inquiry, that “(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation” and that “(3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery”, among other certifications. Under subdivision 3, after notice and a reasonable opportunity to respond, the court may “impose an appropriate sanction upon the attorneys, law firms, or parties that have violated subdivision 2 or are responsible for the violation,” and under subdivision 5 the sanction may include, when warranted for effective deterrence, “an order directing payment to the movant of some or all of the reasonable attorney fees and other expenses incurred as a direct result of the violation.” More on sanctions for frivolous claims.

The fee statute also cuts both ways. Under § 501C.1004, the court “may award costs and expenses, including reasonable attorney fees, to any party from the trust.” When the trust pays both sides, a beneficiary who wins a small counterclaim may still see the trust, and the beneficiary’s own share of it, shrink by more than the recovery. When the trust or estate owns a family business, a long fight can also distract the people running it. Before filing, I suggest comparing the likely recovery with both sides’ likely fees, because that comparison shows whether a counterclaim is worth its cost.

When Does a Counterclaim Make Sense?

A counterclaim in a Minnesota trust or estate dispute can be the right response when the other side’s petition or claim leaves you with a real grievance. Examples include a trustee who took too much in fees, a sibling who owes the estate money, or expenses you advanced that the trust never repaid. Chapters 501C and 524 supply most of the claims, the probate code’s § 524.3-811 lets the estate offset what a claimant owes, and Rule 13.01 governs the related claims in a civil lawsuit. A counterclaim filed to pressure family members can backfire through sanctions and fee awards that come out of the shared fund. If you would like me to analyze a planned counterclaim, email me at aaron@aaronhall.com with a brief description. I can tell you which claims the record supports, where each one belongs, and how its likely cost compares with what it could recover. I start an intake and conflict check before you send confidential documents, such as the petition or the trust instrument. More on these disputes is on my trust and estate litigation page.