State Codes and Statutes

Statutes > South-dakota > Title-55 > Chapter-02 > Statute-55-2-15

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. 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 may have 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;
However, the provisions of subdivision (2) 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.
(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 no later than the date upon which such interest would have vested under the terms of the governing instrument for the first trust;
(4) 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 trust under I.R.C. § 2702;
(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, unless after the exercise of such authority, such beneficiary's power or withdrawal is unchanged with respect to the trust property;
(6) The exercise of such authority is not prohibited by a spendthrift clause or by a provision in the trust instrument that prohibits amendment or revocation of the trust.
This section applies to any trust governed by the laws of this state, including a trust whose governing jurisdiction is transferred to this state.

Source: SL 2007, ch 281, § 1; SL 2008, ch 257, § 11; SL 2009, ch 252, § 17.