CHAPTER 281
(HB 1288)
Trustee may distribute income or principal of a trust.
ENTITLED, An Act to
permit trustees to decant a trust under certain circumstances.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF SOUTH DAKOTA:
Section
1.
Unless the terms of the instrument expressly provide otherwise, a trustee who has
discretionary authority, under the terms of a testamentary instrument or irrevocable inter vivos trust
agreement, to make a distribution of income or principal to, or for the benefit of, one or more
beneficiaries of a trust (the "first trust"), may instead exercise such authority by appointing all or
part of the income or principal subject to the power in favor of a trustee of a trust (the "second
trust") under an instrument other than that under which the power to distribute is created or under
the same instrument, in the event that the trustee of the first trust decides that 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. However, the following
apply:
(1) The second trust has as beneficiaries only one or more of those beneficiaries of the first
trust to or for whom a discretionary distribution may be made from the first trust and
who are proper objects of the exercise of the power, or one or more of those other
beneficiaries of the first trust to or for whom a distribution of income or principal may
have been made in the future from the first trust at a time or upon the happening of an
event specified under the first trust;
(2) No trustee of the first trust may:
(a) Exercise such authority to make a distribution from the first trust if the trustee is
a beneficiary of the first trust, or if any beneficiary may change the trustees of the
first trust, unless the exercise of such authority is for health, education,
maintenance, or support; or
(b) Exercise such authority to the extent that doing so would have the effect either
of (i) increasing the distributions that can be made in the future from the second
trust to the trustee of the first trust or to a beneficiary who may change the
trustees of the first trust, or (ii) removing restrictions on discretionary
distributions imposed by the agreement under which the first trust was created,
except that in either case participating in a change that is needed for the health,
education, maintenance, or support of any such beneficiary is permitted;
(3) 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 and become
distributable no later than the date upon which such interest would have vested and
become distributable under the terms of the governing instrument for the first trust;
(4) The exercise of such authority does not reduce any income interest of any income
beneficiary of 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; and
(5) 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.
Section
2.
Any action that may not be taken by a trustee of the first trust by reason of the
restrictions in subdivision (2) of section 1 of this Act may instead be taken by any other trustee of
the first trust who is not so restricted, or, if none, by the next available party who can be a
successor trustee and who is not so restricted. The second trust may be a trust created or
administered under the laws of any jurisdiction, within or without the United States.
Section
3.
For the purposes of section 1 of this Act, a beneficiary shall be considered to have
the power to "change the trustees" if he or she can name himself or herself as a trustee or can
remove a trustee and replace that trustee with a new trustee who is the beneficiary or who is related
or subordinate (as defined in
§
672 of the I.R.C.) to the beneficiary.
Section
4.
The exercise of the power to distribute the income or principal of the trust under
section 1 of this Act shall be by an instrument in writing, signed and acknowledged by the trustee
and filed with the records of the trust.
Section
5.
The exercise of the power to distribute the income or principal of the trust under
section 1 of this Act shall be considered the exercise of a power of appointment (other than a
power to appoint to the trustee, the trustee's creditors, the trustee's estate, or the creditors of the
trustee's estate).
Section
6.
The power under section 1 of this Act may not be exercised to suspend the power
to alienate trust property or extend the first trust beyond any applicable termination date under the
terms of the instrument of the first trust or the permissible period of any rule against perpetuities
applicable to the first trust.
Section
7.
No provision of this Act may be construed to abridge the right of any trustee who
has power to distribute income or principal in further trust which arises under statute or common
law.
Section
8.
That
§
55-4-38
be amended to read as follows:
55-4-38.
Unless the terms of the trust refer to this section and provide otherwise, a power
,
including the power to make a distribution to another trust under section 1 of this Act, that is
exercisable by or attributable to a person, other than the settlor, in such person's capacity as a
trustee to make discretionary distribution of either principal or income:
(1)
To or for the benefit of himself or herself
shall be
is
exercisable by the person only for
the person's health, education, maintenance, and support in the person's accustomed
manner of living; or
(2)
To or for the benefit of others,
may not be
is not
exercisable to discharge any of the
person's own legal obligations.
Signed March 5, 2007