CHAPTER 55-2
DUTIES AND LIABILITIES OF TRUSTEES
55-2-1 Trustee's obligation of good faith.
55-2-2 Trustee not to use property for his own benefit--Profit of trustee from use of property, extent of liability.
55-2-3 Transactions involving interest of trustee adverse to beneficiary prohibited--Exceptions.
55-2-4 Trustee's influence not to be used for his advantage.
55-2-5 Trustee not to assume a trust adverse to the interest of beneficiary.
55-2-6 Adverse interest of trustee--Information to beneficiary--Removal of trustee.
55-2-7 Fraud against beneficiary of trust.
55-2-8 Presumption against trustee.
55-2-9 Liability of trustee mingling trust property with his own.
55-2-10 Measure of liability for unauthorized use or disposal of trust property--Intent to serve interest of beneficiary.
55-2-11 Liability for acts of cotrustee.
55-2-12 Liability and duties of successor trustee for agreements, contracts or actions of predecessor fiduciary.
55-2-13 Notice to qualified beneficiaries of existence of trust--Written directions--Variation of right of a beneficiary to be informed--Confidentiality of trust information.
55-2-13.1 Information to be provided to excluded fiduciaries--Liability limits of trustee.
55-2-14 Duty to provide information regarding revocable trust and its administration.
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.
55-2-16 Action that may not be taken by restricted trustee may be taken by another unrestricted trustee.
55-2-17 Conditions under which beneficiary has power to change trustees.
55-2-18 Exercise of power to distribute income or principal by written instrument--Notice to beneficiaries of first trust.
55-2-19 Exercise of power to distribute income or principal considered exercise of power of appointment.
55-2-20 Impermissible use of power.
55-2-21 Trustee's right to distribute income or principal in trust arising under law or terms of first trust not abridged.
55-2-22 Fiduciary duty to determine that substituted property is of equivalent value.
55-2-23 Reliance of excluded fiduciaries and trustees on tax information.
55-2-24 Notice to beneficiaries and other interested parties.
55-2-1. Trustee's obligation of good faith.
In all matters connected with his trust a trustee is bound to act in the highest good faith toward his beneficiary and may not obtain any advantage therein over the latter by the slightest misrepresentation, concealment, threat, or adverse pressure of any kind.
Source: SDC 1939, § 59.0106.
55-2-2. Trustee not to use property for his own benefit--Profit of trustee from use of property, extent of liability.
A trustee may not in any manner use or deal with the trust property for his own profit or for any other purpose unconnected with the trust.
If he does so, he may, at the option of the beneficiary, be required to account for all profits thereby made or to pay the value of the use of the trust property, and if he has disposed thereof, to replace it with its fruits or to account for its proceeds with interest.
Source: SDC 1939, § 59.0107.
55-2-3. Transactions involving interest of trustee adverse to beneficiary prohibited--Exceptions.
Neither a trustee nor any of his agents may take part in any transaction concerning the trust in which he or anyone for whom he acts as agent has an interest, present or contingent, adverse to that of his beneficiary, except as follows:
(1) When the beneficiary does have the capacity to contract and, with a full knowledge of the motives of the trustee and of all other facts concerning the transaction which might affect his own decision and without the use of any influence on the part of the trustee, permits the trustee to do so;
(2) When the beneficiary does not have the capacity to contract but the circuit court, upon the like information of the facts, grants the like permission;
(3) When some of the beneficiaries have the capacity to contract and some do not have it and the former grant permission for themselves and the circuit court for the latter in the manner above prescribed; or
(4) When the instrument creating the trust expressly grants permission to the trustee to buy, sell or lease property for the trust from or to the trust.
Source: SDC 1939, § 59.0108; SL 1981, ch 354, § 1.
55-2-4. Trustee's influence not to be used for his advantage.
A trustee may not use the influence which his position gives him to obtain any advantage from his beneficiary.
Source: SDC 1939, § 59.0109.
55-2-5. Trustee not to assume a trust adverse to the interest of beneficiary.
No trustee so long as he remains in the trust may undertake another trust adverse in its nature to the interest of his beneficiary in the subject of the trust without the consent of the latter.
Source: SDC 1939, § 59.0110.
55-2-6. Adverse interest of trustee--Information to beneficiary--Removal of trustee.
If a trustee acquires any interest or becomes charged with any duty adverse to the interest of his beneficiary in the subject of the trust, he must immediately inform the latter thereof and may be at once removed.
Source: SDC 1939, § 59.0111.
55-2-7. Fraud against beneficiary of trust.
Every violation of the provisions of §§ 55-2-1 to 55-2-6, inclusive, is a fraud against the beneficiary of the trust.
Source: SDC 1939, § 59.0112.
55-2-8. Presumption against trustee.
All transactions between a trustee and his beneficiary during the existence of the trust or while the influence acquired by the trustee remains, by which he obtains any advantage from his beneficiary, are presumed to be entered into by the latter without sufficient consideration and under undue influence.
Source: SDC 1939, § 59.0113.
55-2-9. Liability of trustee mingling trust property with his own.
A trustee who willfully and unnecessarily mingles the trust property with his own so as to constitute himself in appearance its absolute owner is liable for its safety in all events.
Source: SDC 1939, § 59.0114.
55-2-10. Measure of liability for unauthorized use or disposal of trust property--Intent to serve interest of beneficiary.
A trustee who uses or disposes of the trust property in any manner not authorized by the trust but in good faith and with intent to serve the interest of the beneficiary is liable only to make good whatever is lost to the beneficiary by his error.
Source: SDC 1939, § 59.0115.
55-2-11. Liability for acts of cotrustee.
A trustee is responsible for the wrongful acts of a cotrustee to which he consented or which by his negligence he enabled the latter to commit, but for no others.
Source: SDC 1939, § 59.0116.
55-2-12. Liability and duties of successor trustee for agreements, contracts or actions of predecessor fiduciary.
Unless otherwise provided in the trust agreement, a successor trustee:
(1) Is not individually liable for actions or inactions of a predecessor fiduciary, including agreements, contracts accountings, records, distributions, investments, modifications, reformations, or other acts entered into by its predecessor fiduciary; and
(2) Does not have a duty to:
(a) Confirm or validate such predecessor fiduciary's actions or inactions;
(b) Confirm the validity of the trust agreement; or
(c) Prosecute or seek redress for any action or inaction by the predecessor fiduciary.
Source: SL 1991, ch 229, § 2; SL 2021, ch 207, § 10.
55-2-13. Notice to qualified beneficiaries of existence of trust--Written directions--Variation of right of a beneficiary to be informed--Confidentiality of trust information.
(1) Except as otherwise provided by the terms of a trust instrument governing a revocable trust and subject to § 55-2-14, a trustee has no duty to notify the qualified beneficiaries of the trust's existence.
(2) Except as otherwise provided by the terms of a trust instrument governing an irrevocable trust or otherwise directed in writing by the trustor, trust advisor, or trust protector, the trustee shall:
(a) Notify the qualified beneficiaries of the trust's existence and of the right of the qualified beneficiary to request a copy of the trust instrument pertaining to the qualified beneficiary's interest in the trust within sixty days after the trustee has accepted trusteeship of the trust, or within sixty days after the date the trustee acquires knowledge that a formerly revocable trust has become irrevocable;
(b) Promptly furnish to the qualified beneficiary a copy of the trust instrument upon request by the qualified beneficiary; and
(c) Promptly respond to a qualified beneficiary's request for information related to the administration of the trust, unless the request is unreasonable under the circumstances.
(3) The trustor, trust advisor, or trust protector, may, by the terms of the governing instrument, or by providing written directions to the trustee, expand, restrict, eliminate, or otherwise modify the rights of beneficiaries to information relating to a trust. Unless otherwise stated in the governing instrument, the direction of the trustor controls in the event of a conflict among written directions provided to the trustee pursuant to this section. The trustee incurs no liability for a loss or otherwise for relying upon the written directions, including an instance when the governing instrument of an irrevocable trust does not expressly authorize an expansion, restriction, or other modification of the rights of beneficiaries to information relating to a trust.
The terms of a trust instrument governing an irrevocable trust or written directions provided pursuant to this section may expand, restrict, eliminate, or otherwise vary the right of a beneficiary to be informed of the beneficiary's interest in a trust indefinitely or for a period of time, for example:
(a) A period of time related to the age of a beneficiary;
(b) A period of time related to the lifetime of either a trustor or spouse of a trustor, or both;
(c) A period of time related to a term of years or specific date; and
(d) A period of time related to a specific event that is certain to occur.
(4) The terms of the governing instrument or written directions provided pursuant to this section may authorize either the trustor, trust advisor, or trust protector to appoint a representative as provided in subdivisions 55-18-9(11) and (12) for the purpose of being informed, on behalf of the beneficiary, of the beneficiary's interest in a trust for the period of time that the right of a beneficiary to be informed about a beneficiary's interest is restricted or eliminated pursuant to this section.
(5) The written directions of the trustor, whether made in the governing instrument or by separate written directions made pursuant to the governing instrument or this section, control and remain in effect upon the death of the trustor until or unless modified or revoked by a trust advisor or trust protector as permitted by the governing instrument or the trustor's written directions in effect at the time of the trustor's death. Subject to subsection (3), the written directions of a trust advisor or trust protector remain in effect until or unless a trust advisor or trust protector revokes the written directions by providing a writing to that effect to the trustee.
(6) Any beneficiary may waive the right to the notice or information otherwise required to be furnished under this section and, with respect to future reports and other information, may withdraw a waiver previously given.
(7) Before providing information to any qualified beneficiary, a fiduciary may require that any such qualified beneficiary or beneficiaries be bound by the same duty of confidentiality that binds the fiduciary. If trust information is sought through service of a subpoena on a fiduciary, the fiduciary may petition the court for an order that makes disclosure of trust information contingent upon the receiving party being bound by reasonable conditions to ensure the protection of confidentiality of trust information by the receiving party.
(8) The change in the identity of a trustee, occurring as the result of a mere name change or a merger, consolidation, combination, or reorganization of a trustee, does not require notice.
(9) For the purposes of this section, the term, qualified beneficiary, means a beneficiary that is an entity then in existence or an individual who is twenty-one years of age or older and who, on the date the beneficiary's qualification is determined:
(a) Is a 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 distributees terminated on that date; or
(c) Would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date.
However, if the distributee is then unknown because a person holds a power to change the distributee, the trustee shall give notice only to the holder of the power.
(10) For purposes of this section, the term, trust advisor, and the term, trust protector, are defined as provided in § 55-1B-1.
(11) The provisions of this section are effective for trusts created, amended, or restated after June 30, 2002, except as otherwise directed by the trustor, trust protector, trust advisor, or other fiduciary designated by the terms of the trust. For trusts created before July 1, 2002, a trustee has no duty at common law or otherwise to notify a qualified beneficiary of the trust's existence unless otherwise directed by the trustor. The provisions of this paragraph do not apply if otherwise directed by the trustor, trust protector, trust advisor, or other fiduciary designated by the terms of the trust.
Source: SL 2002, ch 100, § 15; SL 2007, ch 247, § 8; SL 2008, ch 257, § 10; SL 2009, ch 252, § 16; SL 2010, ch 232, § 1; SL 2011, ch 212, § 8; SL 2017, ch 204, § 17; SL 2017, ch 208, § 30; SL 2018, ch 275, § 25; SL 2020, ch 206, § 12; SL 2023, ch 161, § 7.
55-2-13.1. Information to be provided to excluded fiduciaries--Liability limits of trustee.
A trust advisor, trust protector, or other fiduciary designated by the terms of the trust shall keep each excluded fiduciary designated by the terms of the trust reasonably informed about:
(1) The administration of the trust with respect to any specific duty or function being performed by the trust advisor, trust protector, or other fiduciary to the extent that the duty or function would normally be performed by the excluded fiduciary or to the extent that providing such information to the excluded fiduciary is reasonably necessary for the excluded fiduciary to perform its duties; and
(2) Any other material information that the excluded fiduciary would be required to disclose to the qualified beneficiaries, regardless of whether the terms of the trust relieve the excluded fiduciary from providing such information to the qualified beneficiaries pursuant to § 55-2-13.
The limitation of the liability of the excluded fiduciary is not affected by the performance of the actions required above or the failure of a trust advisor, trust protector, or other fiduciary designated pursuant to the terms of the governing instrument, to perform any such actions.
Source: SL 2023, ch 161, § 8.
55-2-14. Duty to provide information regarding revocable trust and its administration.
A trustee of a revocable trust:
(1) Subject to subdivision 3 below, shall keep the settlor reasonably informed of the trust and its administration;
(2) Unless otherwise provided in the trust instrument, does not have a duty to inform a trust beneficiary of the trust and its administration, other than the settlor or, if the trustor is an incapacitated person, the trustor's designated agent;
(3) Unless otherwise provided in the trust instrument, if the trustee obtains actual knowledge that the settlor of a revocable trust is an incapacitated person and has no designated agent, the trustee may in its sole discretion keep each interested trust beneficiary, who, if the settlor were then deceased, would be a current trust beneficiary, reasonably informed of the trust and its administration. Notwithstanding the provisions of the trust instrument, upon good cause shown, the court may order the trustee to keep other beneficiaries reasonably informed of the trust and its administration.
Source: SL 2007, ch 247, § 9.
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 55-18, at least twenty days prior to the effective date of the trustee's exercise of the power.
This section applies to any trust administered under 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; SL 2011, ch 212, § 10; SL 2012, ch 233, § 4; SL 2013, ch 239, § 16; SL 2017, ch 204, § 18; SL 2021, ch 207, § 4.
55-2-16. Action that may not be taken by restricted trustee may be taken by another unrestricted trustee.
Any action that may not be taken by a trustee of the first trust by reason of the restrictions in subdivision 55-2-15(2) 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.
Source: SL 2007, ch 281, § 2.
55-2-17. Conditions under which beneficiary has power to change trustees.
For the purposes of § 55-2-15, a beneficiary shall be considered to have the power to "change the trustees" if he or she can, alone or with others, 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.
Source: SL 2007, ch 281, § 3; SL 2009, ch 252, § 18.
55-2-18. Exercise of power to distribute income or principal by written instrument--Notice to beneficiaries of first trust.
The exercise of the power to distribute the income or principal of the trust under § 55-2-15 shall be by an instrument in writing, signed and acknowledged by the trustee and filed with the records of the trust. The trustee of the first trust may notify the beneficiaries of the first trust, in writing, prior to the effective date of the trustee's exercise of the power under § 55-2-15 (applying chapter 55-18). A copy of the exercise of this authority and the second trust agreement shall satisfy this notice provision. For the purposes of this section, the term, beneficiaries, means those persons who would be entitled to notice and a copy of the first trust instrument under § 55-2-13.
Source: SL 2007, ch 281, § 4; SL 2009, ch 252, § 19; SL 2013, ch 239, § 17; SL 2017, ch 208, § 31.
55-2-19. Exercise of power to distribute income or principal considered exercise of power of appointment.
The exercise of the power to distribute the income or principal of the trust under § 55-2-15 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).
Source: SL 2007, ch 281, § 5.
55-2-20. Impermissible use of power.
The power under § 55-2-15 may not be exercised to suspend the power to alienate trust property or extend the first trust beyond the permissible period of any rule against perpetuities applicable to the first trust.
Source: SL 2007, ch 281, § 6; SL 2011, ch 212, § 9.
55-2-21. Trustee's right to distribute income or principal in trust arising under law or terms of first trust not abridged.
No provision of §§ 55-2-15 to 55-2-20, inclusive, 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, common law, or the terms of the first trust.
Source: SL 2007, ch 281, § 7; SL 2009, ch 252, § 20.
55-2-22. Fiduciary duty to determine that substituted property is of equivalent value.
Notwithstanding the terms of a trust instrument, if a settlor has a power to substitute property of equivalent value, a trustee has a fiduciary duty to determine that the substituted property is of equivalent value, prior to allowing the substitution.
Source: SL 2009, ch 252, § 21.
55-2-23. Reliance of excluded fiduciaries and trustees on tax information.
An excluded fiduciary as defined in § 55-1B-1 who receives tax information regarding an asset or entity owned by the trust, any trustee of a trust that holds an asset or entity owned by the trust but who does not manage the asset or entity, and any trustee who receives tax information from the settlor, the settlor's agents, or other individuals regarding matters that have tax implications to the trust or trust beneficiaries, may rely, without liability, on tax information it receives in any of the above situations. By way of example, if a trustee holds in trust a limited liability company interest but does not manage the limited liability company, the trustee may rely, without limitation, on any tax information received from the manager of the limited liability company or its accountant or agents.
The tax information that a trustee may rely on in the above situations may include the following:
(1) The accuracy of any information reported on a tax return;
(2) A copy of a tax return provided by the tax return preparer or the taxpayer filing the return;
(3) The representation of another fiduciary or tax advisor who filed or prepared a tax return as to the amount of any item reported on that return;
(4) The settlor's representation whether or not a gift or generation skipping transfer tax form has ever been filed as well as how much of the respective exemptions have been utilized; or
(5) The direction from the grantor's or settlor's tax advisors based upon any contribution or distribution, or both, for the appropriate tax filings.
An entity, for purposes of this section, shall be defined as set out in subdivisions 47-34A-101(6) and 47-34A-101(13).
This section applies to any trust in existence on or created on or after July 1, 2012.
Source: SL 2012, ch 233, § 21.
55-2-24. Notice to beneficiaries and other interested parties.
Except as otherwise provided by chapter 21-22, § 55-4-58, or by the terms of a governing instrument, and in addition to the methods of notice allowed or mandated by title 15, notice to beneficiaries and other persons interested in a trust pursuant to § 55-2-13 or otherwise may be carried out by means of any of the following methods:
(1) By delivery to the person, to the person's last known address, or to an address supplied by the person;
(2) By U.S. mail, postage prepaid, addressed to the person at the person's last known address, or to an address supplied by the person;
(3) By facsimile to a facsimile number of such person;
(4) By electronic communication, as defined by subdivision 55-19-1(12); or
(5) By posting on or sending to an electronic network or site accessible via the internet, mobile application, computer, mobile device, tablet, or any other electronic device, together with separate notice of the posting provided to the person in conformity with subdivisions (1), (2), (3), or (4) of this section.
Source: SL 2023, ch 161, § 9.
