South Dakota law lets trustees manage trust assets under set rules

A trustee may move distributable income or property into a second trust, or change the first trust to create one. This applies when a trustee has discretion to distribute income or property to one or more beneficiaries. The second trust may benefit only people who are beneficiaries of the first trust, including people who may receive distributions later. A trustee who is also a beneficiary, or can be replaced by a beneficiary, faces limits on actions that could benefit them or loosen distribution limits, subject to stated exceptions. Before acting, the trustee must consider the first trust’s purposes, the second trust’s terms, and the effects of the transfer. If a trustee changes the first trust to create the second, the trustee must give qualified beneficiaries at least 20 days’ written notice unless they waive it in writing.

A trustee may pay a trustor’s personal income tax bill from the trust or reimburse the person who paid it. The rule covers a trustor, including a person treated as the owner of trust property for tax purposes. The trustor must be treated as the owner of some or all of the trust for tax purposes, and the trust terms must not expressly bar reimbursement. The trustee may act at their own discretion or with direction or consent from an eligible trust advisor or protector; the trustor and related or subordinate parties cannot serve in those roles. Money from a life insurance policy on the trustor held by the trust cannot be used for these payments. The payment power cannot reduce an available marital or charitable tax deduction. This rule applies to trusts created on or after July 1, 2026, and to trusts whose main place of administration moves to South Dakota on or after that date.

A lifetime distribution from a trust generally does not count as an advance on a beneficiary’s later share unless written terms say it does. These rules cover lifetime gifts from revocable trusts and discretionary distributions from irrevocable trusts to beneficiaries other than the trustor. For a revocable trust, the trustor or beneficiary must say in writing that the gift counts as an advance, or that it should be considered when dividing the trust after the trustor’s death. For a discretionary distribution from an irrevocable trust, the trustee, distribution advisor, or beneficiary must say so in writing, or the trust terms must call for equalizing distributions. A distribution that counts as an advance is included when dividing the trust estate, whether or not the recipient survives until that division; its value is measured when the beneficiary takes possession or enjoyment.

A lawyer representing a fiduciary generally owes duties to that client, and the client’s talks with the lawyer remain private unless the client waives that protection. These rules apply when a lawyer represents someone serving as a fiduciary for an estate, trust, or other property held for others. A written agreement may provide otherwise about the lawyer’s duties to others interested in the estate or trust. A beneficiary’s right to accountings or other information does not by itself waive the privilege.

A creditor seeking to undo a trust transfer as fraudulent must meet the filing deadline and prove the claim by clear and convincing evidence. These deadlines apply to a creditor’s claim that a trustor fraudulently transferred assets to a trust. A creditor whose claim predates the transfer must sue within two years after the transfer or, in qualifying cases, within six months after discovering or being able to discover it, whichever is later. A creditor whose claim arises after the transfer must sue within two years after the transfer. A transfer is treated as discovered when a public record is filed; personal-property transfer documents must be filed in the specified South Dakota county. The filing periods run from the transfer or, for qualifying earlier creditors, from when the transfer was or reasonably could have been discovered.