ENTITLED An Act to modify certain provisions related to trusts.
Be it enacted by the Legislature of the State of South Dakota:
Section 1. That 55-3-24 be AMENDED.
55-3-24. Modification or termination of trust--Notice to fiduciaries--Distribution of property.
An irrevocable trust may be modified or terminated by judicial action or by written agreement entered into by all beneficiaries, if continuance of the trust on its existing terms is not necessary to carry out a material purpose. Whether or not continuance of the trust on its existing terms is necessary to carry out a material purpose, an irrevocable trust may be modified or terminated by judicial action or by written agreement by the trustor and all beneficiaries. Upon termination of a trust under this section, the trustee shall distribute the trust property in accordance with the trustor's probable intention or in any other manner as agreed by all the beneficiaries. No person is required to seek court affirmation of a nonjudicial settlement agreement made pursuant to this section. The provisions of chapter 55-18 apply to this section.
Thirty days prior to the effective date of a modification or termination of a trust under this section, the trustor or beneficiaries shall provide notice in writing of the modification or termination, including a copy of the modification or termination, to all fiduciaries as defined in subdivision 21-22-1(3) serving as of the date of the notice. The modification or termination shall be effective no earlier than thirty days after the notice is given, unless the notice is waived.
Section 2. That 55-3-5 be AMENDED.
55-3-5. Trustee to follow declaration of trust--Modifications.
A trustee shall fulfill the purposes of the trust as declared at its creation, or as subsequently amended, and shall follow all the directions of the trustor given at that time, except as modified. For purposes of modifications by consent of all parties interested and modifications upon approval by the court, the provisions of chapter 55-18 apply to such modifications.
Section 3. That 55-18-1 be AMENDED.
55-18-1. Definitions.
Terms used in this chapter mean:
(1) "Bind" or "bound," to consent, receive notice or service of process, approve, agree, object, resist, waive, or demand for or as a person with the same binding and conclusive effect as if the person represented had;
(2) "Conflict of interest," a situation in which a representative's interest in the trust causes a significant likelihood that a reasonable person would disregard a representative's duty to a represented beneficiary. A conflict of interest, however, excludes (i) any adversity, conflict or opposed interests substantially unrelated to the representative's interest in the trust; (ii) any past situation which is not likely to re-occur; and (iii) any conflict of interest which falls short of a material conflict of interest;
(3) "Co-representative," more than one simultaneously acting representative of the same class pursuant to 55-18-9, as when co-guardians are acting:
(4) "Conservator," a person appointed pursuant to chapter 29A-5 or equivalent provisions of another jurisdiction's laws including a temporary conservator, a guardian ad litem, and a limited conservator;
(5) "Fiduciary," a person defined by subdivision 21-22-1(3), except as used in 55-18-17;
(6) "Guardian," a person appointed pursuant to chapter 29A-5 or equivalent provisions of another jurisdiction's laws including a temporary guardian and a limited guardian;
(7) "Incapacitated" or "incapacity," lacking the capacity to meaningfully understand the matter in question because of a mental or physical impairment;
(8) "Interest," a beneficial interest as defined by subdivision 55-1-24(1) but including the holder of a power of appointment, and any power to remove or replace a fiduciary or a representative;
(9) "Interested beneficiary," a person who, on the date the person's qualification is determined:
(a) Is a current distributee or permissible distributee of trust income or principal;
(b) Would be a distributee or permissible distributee of trust income or principal if the interests of the current distributees terminated on that date;
(c) Would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date;
(d) Holds a power of appointment; or
(e) Would hold a power of appointment if the interests of the current distributees terminated on that date or the interests of the persons currently holding a power of appointment under this subdivision terminated on that date;
(10) "Knows" or "knowingly," actual knowledge of the fact in question;
(11) "Minor," any person who has not attained the age of eighteen. The term includes a minor with an incapacity;
(12) "Nonjudicial settlement," an agreement, release, or other action whether or not approved by a court, which may include, without limitation:
(a) The interpretation or construction of the terms of a trust;
(b) The approval of any fiduciary's report or accounting;
(c) Direction to any fiduciary to refrain from performing a particular act or the grant to a fiduciary of any necessary or desirable power;
(d) The resignation or appointment of any fiduciary;
(e) The determination of a fiduciary or a representative's compensation;
(f) The transfer of a trust's principal place of administration or situs;
(g) The liability of any fiduciary's action or omission relating to a trust;
(h) Partial or final settlement agreements regarding a trust or its administration; or
(i) The modification, amendment, reformation, or termination of a trust;
(13) "Notice" or "notifies," notice provided personally, by mail, postage prepaid, addressed to the person's last known post office address, or electronically in accordance with 15-6-5(d);
(14) "Notifier," a person who is undertaking notice or proposing consent with regard to a matter concerning a trust;
(15) "Power of appointment," a power defined by 55-1-12;
(16) "Proceeding," any judicial or nonjudicial trust proceeding, accounting, termination, modification, reformation, decanting, settlement, nonjudicial settlement, and any proceeding conducted pursuant to chapter 21-22 or title 29A which concerns a trust;
(17) "Protected person," a person other than a minor for whom a guardian or conservator is appointed;
(18) "Reasonably available," with respect to a person, that the person can be identified and located with the exercise of reasonable diligence;
(19) "Representative," a person who may bind another person pursuant to 55-18-9;
(20) "Trust," an express inter vivos or testamentary trust;
(21) "Uninterested beneficiary," a beneficiary other than an interested beneficiary.
Section 4. That 55-2-15 be AMENDED.
55-2-15. Trustee authorized to distribute income or principal from first trust may appoint all or part in favor of trustee of second trust--Restrictions--Power of appointment to beneficiary of second trust.
Unless the terms of the governing instrument expressly provide otherwise, if a trustee has discretion under the terms of a governing instrument to make a distribution of income or principal to or for the benefit of one or more beneficiaries of a trust (the "first trust"), whether or not restricted by any standard, then the trustee, independently or with court approval, may exercise such discretion by appointing part or all of the income or principal subject to the discretion in favor of a trustee of a second trust (the "second trust") under a governing instrument separate from the governing instrument of the first trust. Before exercising its discretion to appoint and distribute assets to a second trust, the trustee of the first trust shall determine whether the appointment is necessary or desirable after taking into account the purposes of the first trust, the terms and conditions of the second trust, and the consequences of the distribution. For the purposes of this section, a trustee of the first trust is a restricted trustee if either the trustee is a beneficiary of the first trust or if a beneficiary of the first trust has a power to change the trustees within the meaning of 55-2-17. In addition, the following apply to all appointments made under this section:
(1) The second trust may only have as beneficiaries one or more of the beneficiaries of the first trust:
(a) To or for whom a discretionary distribution of income or principal may be made from the first trust; or
(b) To or for whom a distribution of income or principal may be made in the future from the first trust at a time or upon the happening of an event specified under the first trust; or
(c) Both (a) and (b);
(2) No restricted trustee of the first trust may exercise such authority over the first trust to the extent that doing so could have the effect of:
(a) Benefiting the restricted trustee as a beneficiary of the first trust, unless the exercise of such authority is limited by an ascertainable standard based on or related to health, education, maintenance, or support; or
(b) Removing restrictions on discretionary distributions to a beneficiary imposed by the governing instrument under which the first trust was created, except that a provision in the second trust which limits distributions by an ascertainable standard based on or related to the health, education, maintenance, or support of any such beneficiary is permitted, or to a trust established pursuant to 42 U.S.C. 1396(p)(d)(4);
(3) No restricted trustee of the first trust may exercise such authority over the first trust to the extent that doing so would have the effect of increasing the distributions that can be made from the second trust to the restricted trustees of the first trust or to a beneficiary who may change the trustees of the first trust within the meaning of 55-2-17 compared to the distributions that can be made to such trustee or beneficiary, as the case may be, under the first trust, unless the exercise of such authority is limited by an ascertainable standard based on or related to health, education, maintenance, or support;
(4) The provisions of subdivisions (2) and (3) only apply to restrict the authority of a trustee if either a trustee, or a beneficiary who may change the trustee, is a United States citizen or domiciliary under the Internal Revenue Code, or the trust owns property that would be subject to United States estate or gift taxes if owned directly by such a person;
(5) In the case of any trust contributions which have been treated as gifts qualifying for the exclusion from gift tax described in 2503(b) of the Internal Revenue Code of 1986, by reason of the application of I.R.C. 2503(c), the governing instrument for the second trust shall provide that the beneficiary's remainder interest shall vest no later than the date upon which such interest would have vested under the terms of the governing instrument for the first trust;
(6) The exercise of such authority may not reduce any income interest of any income beneficiary of any of the following trusts:
(a) A trust for which a marital deduction has been taken for federal tax purposes under I.R.C. 2056 or 2523 or for state tax purposes under any comparable provision of applicable state law;
(b) A charitable remainder trust under I.R.C. 664; or
(c) A grantor retained annuity or unitrust trust under I.R.C. 2702;
(7) The exercise of such authority does not apply to trust property subject to a presently exercisable power of withdrawal held by a trust beneficiary to whom, or for the benefit of whom, the trustee has authority to make distributions, unless after the exercise of such authority, the beneficiary's power of withdrawal is unchanged with respect to the trust property;
(8) The exercise of such authority is not prohibited by a spendthrift clause or by a provision in the governing instrument that prohibits amendment or revocation of the trust;
(9) Any appointment made by a trustee shall be considered a distribution by the trustee pursuant to the trustee's distribution powers and authority; and
(10) If the trustee's distribution discretion is not subject to a standard, or if the trustee's distribution discretion is subject to a standard that does not create a support interest, then the court may review the trustee's determination or any related appointment only pursuant to 55-1-43. Any other court review of the trustee's determination or any related appointment may be made only pursuant to 55-1-42.
Notwithstanding the foregoing provisions of this section, the governing instrument of the second trust may grant a power of appointment to one or more of the beneficiaries of the second trust who are beneficiaries of the first trust. The power of appointment may include the power to appoint trust property to the holder of the power of appointment, the holder's creditors, the holder's estate, the creditors of the holder's estate, or any other person, whether or not that person is a trust beneficiary.
Furthermore, notwithstanding the provisions of this section or 55-2-18 or 55-2-19, a trustee may also exercise the power described in those sections by modifying the first trust without an actual distribution of property, in which case the second trust is the modified first trust. In exercising the power described by the preceding sentence of this section, a trustee shall notify all beneficiaries of the trust, in writing applying chapter