SB 100

26.464.16  101st Legislative Session  100
                                      2026 South Dakota Legislature
                                               Senate Bill 100
                                                     ENROLLED
                                               AN ACT
ENTITLED An Act to revise provisions related to trusts.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF SOUTH DAKOTA:
Section 1. That a NEW SECTION be added to chapter 55-1:
             Unless the terms of the governing instrument expressly provide that a trustor may
   not be reimbursed by a trust for the trustor's personal income tax liability, if the trustor
   is treated under 26 U.S.C. §§ 671 to 678, inclusive (January 1, 2026), as the owner of all
   or part of the trust, the trustee, other than a trustee who is the trustor or a person who
   is a related or subordinate party with respect to the trustor within the meaning of 26
   U.S.C. § 672(c) (January 1, 2026), may, in the trustee's sole discretion, or at the direction
   or with the consent of a trust advisor or trust protector, who, in either case, is not the
   trustor or a person who is a related or subordinate party with respect to the trustor, pay
   directly to any taxing authority, or reimburse the person liable for, any tax imposed by a
   taxing authority on the person by reason of the person being treated as the owner of all
   or any portion of the trust property pursuant to 26 U.S.C. §§ 671 to 678, inclusive
   (January 1, 2026).
             If there is a policy of insurance on the trustor's life held in the trust, the cash value
   of the policy, or the proceeds of any loan secured by an interest in the policy may not be
   used to reimburse the trustor or to pay an appropriate taxing authority on the trustor's
   behalf.
             The power to make payments to, or for the benefit of, the trustor under this
   section, or the trustee's, trust advisor's, or trust protector's decision to exercise or direct
   the exercise of the power in favor of the trustor, may not cause the trustor to be treated
   as a beneficiary of the trust for purposes of § 55-1-36.1 or any other law of this state.
             The provisions of this section do not apply if the application of this section would
   disqualify a trust for, or reduce the amount of, a marital or charitable deduction otherwise
   available to any person for state or federal income, gift, or estate tax purposes.
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            A trustee, trust advisor, or trust protector is not liable to any person for the exercise
   of, or the direction or consent to exercise, the power to reimburse or not reimburse a
   trustor for tax payable by the trustor pursuant to this section. The exercise of, or the
   direction or consent to exercise, the power to reimburse or not reimburse a trustor for tax
   payable by the trustor pursuant to this section is not a breach of fiduciary duty to any
   person.
            This section applies only to trusts created on or after July 1, 2026, and to any trust
   for which the principal place of administration is moved to this state on or after July 1,
   2026.
            For purposes of this section, the term "trustor" includes a trustor, settlor,
   trustmaker, or any person treated under 26 U.S.C. §§ 671 to 678, inclusive (January 1,
   2026), as the owner of all or part of the trust.
Section 2. That § 55-2-15 be AMENDED:
            55-2-15. 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 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 the discretion to appoint and distribute assets to the
   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;
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            (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 subsections (a) and (b);
   (2)      A restricted trustee of the first trust may not exercise 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 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 beneficiary, is permitted, or to a
                   trust pursuant to 42 U.S.C. § 1396p(d)(4) (January 1, 2025);
   (3)      A restricted trustee of the first trust may not exercise 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 the
            trustee or beneficiary, as the case may be, under the first trust, unless the exercise
            of 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 the person;
   (5)      In the case of any trust contributions that have been treated as gifts qualifying for
            the exclusion from gift tax described in 26 U.S.C. § 2503(b) (January 1, 2026), by
            reason of the application of 26 U.S.C. § 2503(c) (January 1, 2026), the governing
            instrument for the second trust must provide that the beneficiary's remainder
            interest vests no later than the date upon which the interest would have vested
            under the terms of the governing instrument for the first trust;
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   (6)      The exercise of 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 26 U.S.C. § 2056 or 2523 (January 1, 2026) or for state tax purposes
                   under any comparable provision of applicable state law;
            (b)    A charitable remainder trust under 26 U.S.C. § 664 (January 1, 2026); or
            (c)    A grantor retained annuity or unitrust trust under 26 U.S.C. § 2702
                   (January 1, 2026);
   (7)      The exercise of 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 authority, the beneficiary's power of withdrawal is unchanged with
            respect to the trust property;
   (8)      The exercise of authority is not prohibited by a spendthrift clause or by a provision
            in the governing instrument, which prohibits amendment or revocation of the trust;
   (9)      Any appointment made by a trustee is 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 the person is a trust beneficiary.
            A trustee’s power described in this section may be exercised by either an actual
   distribution of property to one or more second trusts or by modifying the terms of the first
   trust to create the second trust with or without an actual distribution. If the power is
   exercised by modifying the terms of the first trust, the trustee may treat the second trust
   created by the modification as a new trust, in which case property of the first trust would
   be transferred to the second trust, or treat the second trust as a continuation of the first
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   trust, for titling purposes, in which case property of the first trust would not need to be
   retitled.
            In the case of an exercise of the power that is structured as a trustee's modification
   of the first trust, notwithstanding § 55-2-18, the trustee shall provide at least twenty days'
   advance written notice to the qualified beneficiaries, applying chapter 55-18, unless the
   trustee receives written waivers of the notice from the qualified beneficiaries.
            The trustee's power, which is described in and constrained by this section, remains
   separate and distinct from trust reformation or termination under §§ 55-3-24 to 55-3-26,
   inclusive, 55-3-28, and other provisions of law allowing trust modifications.
            This section applies to any trust administered under the laws of this state, including
   a trust for which the governing jurisdiction is transferred to this state.
Section 3. That a NEW SECTION be added to chapter 55-3:
            Property given from a revocable trust during the trustor's lifetime to a trust
   beneficiary other than the trustor, whether the beneficiary holds a vested or contingent
   interest, is not treated as an advancement against the beneficiary's share, unless the
   trustor declared in a writing, or the beneficiary acknowledged in writing, that the gift is an
   advancement; or the trustor's writing or the beneficiary's written acknowledgment
   otherwise indicates that the gift is to be considered when computing the division and
   distribution of the trust estate following the death of the trustor.
            A distribution from an irrevocable trust at the discretion of a trustee, or as directed
   by a distribution trust advisor, is not treated as an advancement against the beneficiary's
   share unless the trustee or distribution trust advisor declares in writing, or the beneficiary
   acknowledged in writing, that the distribution is an advancement; or the governing
   instrument indicates that discretionary distributions are equalized within or between
   classes of beneficiaries and are considered when computing the division or distributions
   from the trust.
            Regardless of whether the recipient of the property survives the trust division or
   distribution, the property treated as an advancement herein is considered in computing
   the division and distribution of the trust estate, unless otherwise provided by the
   governing instrument or in writing by the trustee, distribution trust advisor or beneficiary,
   in accordance with this section.
            For purposes of this section, property advanced is valued as of the time the
   beneficiary came into possession or enjoyment of the property.
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Section 4. That § 55-4-33 be AMENDED:
            55-4-33. If a trustee violates any of the provisions of this chapter, the trustee
   may be removed and denied compensation in whole or in part, and any beneficiary,
   cotrustee, or successor trustee may treat the violation as a breach of trust. Until the
   cessation of compensation is ordered by a court, a trustee is entitled to fees and expenses.
Section 5. That a NEW SECTION be added to chapter 55-4:
            Unless expressly provided otherwise in a written agreement, the creation of an
   attorney-client relationship between an attorney and a person serving as a fiduciary does
   not impose upon the attorney any duties or obligations to other persons interested in the
   estate, trust estate, or other fiduciary property, even though fiduciary moneys may be
   used to compensate the attorney for legal services rendered to the fiduciary, or even if a
   beneficiary is entitled to accountings or other information regarding the estate, trust
   estate, or fiduciary property.
Section 6. That a NEW SECTION be added to chapter 55-4:
            If an attorney-client relationship exists between an attorney and a fiduciary,
   communications between the attorney and the fiduciary are subject to the attorney-client
   privilege, unless waived by the fiduciary, even though fiduciary moneys may be used to
   compensate the attorney for legal services rendered to the fiduciary, or even if a
   beneficiary is entitled to accountings or other information regarding the estate, trust
   estate, or fiduciary property. The existence of a fiduciary relationship between a fiduciary
   and a beneficiary does not constitute or give rise to any waiver of the privilege for
   communications between the attorney and the fiduciary.
Section 7. That § 55-16-10 be AMENDED:
            55-16-10. A cause of action or claim for relief with respect to a fraudulent transfer
   of a settlor's assets under § 55-16-9 is extinguished unless the action under § 55-16-9 is
   brought by a creditor of the settlor who:
   (1)      Is a creditor of the settlor before the settlor's assets are transferred to the trust,
            and the action under § 55-16-9 is brought within the later of:
            (a)    Two years after the transfer is made; or
            (b)    Six months after the transfer is or reasonably could have been discovered
                   by the creditor if the creditor:
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                    (i)    Can demonstrate that the creditor asserted a specific claim against
                           the settlor before the transfer; or
                    (ii)   Files another action, other than an action under § 55-16-9, against
                           the settlor that asserts a claim based on an act or omission of the
                           settlor that occurred before the transfer, and the action described in
                           this sub-subsection is filed within two years after the transfer; or
   (2)       Becomes a creditor subsequent to the transfer into trust, and the action under
             § 55-16-9 is brought within two years after the transfer is made.
             In any action described in § 55-16-9, the burden to prove the matter by clear and
   convincing evidence is upon the creditor.
             A person is deemed to have discovered a transfer at the time a public record of the
   transfer is made, including the conveyance of an interest in real property, which is
   recorded in the appropriate public filing office where the property is located, the filing of
   a financing statement pursuant to chapter 57A-9, or the filing of a bill of sale or other
   transfer instrument regarding personal property.
             The filing of a bill of sale or other transfer instrument that conveys personal
   property to a trust governed by this chapter must be filed in an applicable public filing
   office.
             If the transferor is a natural person and is a resident of this state, the personal
   property transfer instrument must be recorded in the county in this state where the
   transferor maintains the transferor's principal residence.
             In all other cases, the personal property transfer instrument must be recorded in
   the county in this state where the trustee of the trust maintains a principal residence or
   principal place of business.
             This section, §§ 55-16-9, and 55-16-11 to 55-16-13, inclusive, are inseparably
   interwoven with substantive rights, and a deprivation of legal rights would result if another
   jurisdiction's contrary laws and regulations are applied to a claim or cause of action
   described therein.
Section 8. That § 55-17-5 be AMENDED:
             55-17-5. For purposes of the application of 26 U.S.C. § 1014(b)(6) (January 1,
   2026), a South Dakota special spousal trust is a trust established under the community
   property laws of this state, as set forth in this chapter.
             For purposes of this chapter,     "special spousal property" means community
   property. Community property that is classified by a jurisdiction other than this state and
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   transferred to a South Dakota special spousal trust retains its character as community
   property while in the trust. If the trust is revoked and property is transferred on revocation
   of the trust, the community property that is classified by a jurisdiction other than South
   Dakota retains its character as community property to the extent otherwise provided by
   the laws of this state.
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An Act to revise provisions related to trusts.
                                                     Received at this Executive Office
 I certify that the attached Act originated in       this _____ day of _____________,
 the:
                                                     2026 at ____________M.
 Senate as Bill No. 100
                                                     By
                       Secretary of the Senate  for the Governor
                                                                      The attached Act is hereby
                                                                  approved this ________ day of
                       President of the Senate  ______________, A.D., 2026
 Attest:
                                                                                        Governor
                       Secretary of the Senate
                                                     STATE OF SOUTH DAKOTA,
                                                                                               ss.
                                                     Office of the Secretary of State
                          Speaker of the House
                                                                    Filed ____________, 2026
 Attest:  at _________ o'clock __M.
                      Chief Clerk of the House  Secretary of State
 Senate Bill No. 100  By
 File No. ____  Asst. Secretary of State
 Chapter No. ______
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