CHAPTER 55-1B
DIRECTED TRUSTS
55-1B-1 Definition of terms.
55-1B-1.1 Governing instrument may provide trust advisor or trust protector with powers and immunities of trustee.
55-1B-2 Liability limits of excluded fiduciary--Relief from obligations for excluded fiduciary--Burden of proof in action against excluded fiduciary.
55-1B-3 Death of grantor.
55-1B-4 Trust advisor as fiduciary.
55-1B-5 Excluded fiduciary's liability for loss if trust protector appointed.
55-1B-6 Powers and discretions of trust protector.
55-1B-7 Submission to court jurisdiction--Effect on trust advisor or trust protector.
55-1B-8 Powers of trust protector incorporated by reference in will or trust instrument.
55-1B-9 Investment trust advisor or distribution trust advisor provided for in trust instrument.
55-1B-10 Powers and discretions of investment trust advisor.
55-1B-11 Powers and discretions of distribution trust advisor.
55-1B-12 Powers and discretions of family advisor.
55-1B-1. Definition of terms.
Terms used in this chapter mean:
(1) "Instrument," any revocable or irrevocable trust document created inter vivos or testamentary or any custodial account agreement whether such document or agreement was created prior to, on, or after July 1, 1997;
(2) "Trust protector," any person whose appointment as protector is provided for in the instrument. Such person may not be considered to be acting in a fiduciary capacity except to the extent the governing instrument provides otherwise. However, a protector shall be considered acting in a fiduciary capacity to the extent that the person exercises the authority of an investment trust advisor or a distribution trust advisor;
(3) "Trust advisor," either an investment trust advisor or a distribution trust advisor or, in the case of a custodial account, a custodial account owner or the owner's designee;
(4) "Fiduciary," a trustee or custodian under any instrument, an executor, administrator, or personal representative of a decedent's estate, or any other party, including a trust advisor, a trust protector, or a trust committee, who is acting in a fiduciary capacity for any person, trust, or estate;
(5) "Excluded fiduciary," any fiduciary excluded from exercising certain powers under the instrument which powers may be exercised by the grantor, custodial account owner, trust advisor, trust protector, trust committee, or other persons designated in the instrument;
(6) "Investment trust advisor," a fiduciary, given authority by the instrument to exercise all or any portions of the powers and discretions set forth in § 55-1B-10;
(7) "Distribution trust advisor," a fiduciary, given authority by the instrument to exercise all or any portions of the powers and discretions set forth in § 55-1B-11;
(8) "Custodial account," an account, established by a party with a bank as defined in 26 U.S.C. 408(n), as of January 1, 2006, or with another person approved by the Internal Revenue Service as satisfying the requirements to be a nonbank trustee or a nonbank passive trustee set forth in U.S. Treasury Regulations promulgated under 26 U.S.C. 408, that is governed by an instrument concerning the establishment or maintenance, or both, of an individual retirement account, qualified retirement plan, Archer medical savings account, health savings account, Coverdell education savings account, or any similar retirement or savings vehicle permitted under the Internal Revenue Code of 1986, as of January 1, 2006;
(9) "Custodial account owner," any party who establishes a custodial account; or has the power to designate the beneficiaries or appoint the custodian of the custodial account; or otherwise is the party who possesses the power to direct the investment, disposition, or retention of any assets in the custodial account or name an authorized designee to effect the same;
(10) "Family advisor," any person whose appointment is provided for in the governing instrument or by court order who is authorized to consult with or advise a fiduciary with regard to fiduciary or nonfiduciary matters and actions, and who may also be authorized by the governing instrument or court order to otherwise act in a nonfiduciary capacity.
Source: SL 1997, ch 280, § 1; SL 2005, ch 260, § 2; SL 2006, ch 248, § 1; SL 2008, ch 257, § 9; SL 2011, ch 212, § 3; SL 2016, ch 231, § 15; SL 2017, ch 204, § 15; SL 2018, ch 275, § 22.
55-1B-1.1. Governing instrument may provide trust advisor or trust protector with powers and immunities of trustee.
Any governing instrument providing for a trust advisor or trust protector may also provide such trust advisor or trust protector with some, none, or all of the rights, powers, privileges, benefits, immunities, or authorities available to a trustee under South Dakota law or under the governing instrument. Unless the governing instrument provides otherwise, a trust advisor or trust protector has no greater liability to any person than would a trustee holding or benefiting from the rights, powers, privileges, benefits, immunities, or authority provided or allowed by the governing instrument to such trust advisor or trust protector.
Source: SL 2011, ch 212, § 4.
55-1B-2. Liability limits of excluded fiduciary--Relief from obligations for excluded fiduciary--Burden of proof in action against excluded fiduciary.
An excluded fiduciary is not liable, either individually or as a fiduciary, for any of the following:
(1) Any loss that results from compliance with a direction of the trust advisor, including any loss from the trust advisor breaching fiduciary responsibilities or acting beyond the trust advisor's scope of authority;
(2) Any loss that results from a failure to take any action proposed by an excluded fiduciary that requires a prior authorization of the trust advisor if that excluded fiduciary timely sought but failed to obtain that authorization;
(3) Any loss that results from any action or inaction, except for gross negligence or willful misconduct, when an excluded fiduciary is required, pursuant to the trust agreement or any other reason, to assume the role of trust advisor or trust protector;
(4) Any loss that results from relying upon any trust advisor for valuation of trust assets; or
(5) Any loss that results from any tax filing made or tax position taken based on the recommendations or instructions received from a tax preparer or professional used by the excluded fiduciary at the direction of the grantor or of another trust fiduciary.
Any excluded fiduciary is also relieved from any obligation to independently value trust assets, to review or evaluate any direction from a distribution trust advisor, or to perform investment or suitability reviews, inquiries, or investigations or to make recommendations or evaluations with respect to any investments to the extent the trust advisor had authority to direct the acquisition, disposition, or retention of the investment. If the excluded fiduciary offers such communication to the trust advisor, trust protector, or any investment person selected by the investment trust advisor, such action does not constitute an undertaking by the excluded fiduciary to monitor or otherwise participate in actions within the scope of the advisor's authority or to constitute any duty to do so.
Any excluded fiduciary is also relieved of any duty to communicate with or warn or apprise any beneficiary or third party concerning instances in which the excluded fiduciary would or might have exercised the excluded fiduciary's own discretion in a manner different from the manner directed by the trust advisor or trust protector.
Absent contrary provisions in the governing instrument, the actions of the excluded fiduciary (such as any communications with the trust advisor and others and carrying out, recording, and reporting actions taken at the trust advisor's direction) pertaining to matters within the scope of authority of the trust advisor or trust protector constitute administrative actions taken by the excluded fiduciary solely to allow the excluded fiduciary to perform those duties assigned to the excluded fiduciary under the governing instrument, and such administrative actions do not constitute an undertaking by the excluded fiduciary to monitor, participate, or otherwise take any fiduciary responsibility for actions within the scope of authority of the trust advisor or trust protector.
Nothing in subdivision (2) imposes an obligation or liability with respect to a custodian of a custodial account.
In an action against an excluded fiduciary pursuant to the provisions of this section, the burden to prove the matter by clear and convincing evidence is on the person seeking to hold the excluded fiduciary liable.
Source: SL 1997, ch 280, § 2; SL 2006, ch 248, § 2; SL 2009, ch 252, § 13; SL 2011, ch 212, § 1; SL 2012, ch 233, § 5; SL 2016, ch 231, § 16; SL 2018, ch 275, § 23; SL 2020, ch 206, § 7; SL 2021, ch 207, § 15.
55-1B-3. Death of grantor.
An excluded fiduciary may continue to follow the direction of the trust advisor upon the incapacity or death of the grantor if the instrument so allows.
Source: SL 1997, ch 280, § 3.
55-1B-4. Trust advisor as fiduciary.
If one or more trust advisors are given authority by the terms of a governing instrument to direct, consent to, or disapprove a fiduciary's investment or distribution decisions, or proposed investment or distribution decisions, such trust advisors shall be considered to be fiduciaries when exercising such authority. For investment decisions, so long as there is at least one fiduciary exercising the authority of the investment advisor pursuant to § 55-1B-10 for the investment, except in the cases of willful misconduct or gross negligence by the fiduciary investment advisor in the selection or monitoring of the nonfiduciary trust advisors, the governing instrument may provide that such other trust advisors acting pursuant to this section are not acting in a fiduciary capacity. Similarly, for distribution decisions, so long as there is at least one fiduciary exercising the authority of the distribution advisor pursuant to § 55-1B-11 for the distribution, except in the case of willful misconduct or gross negligence by the fiduciary distribution advisor in the selection or monitoring of the nonfiduciary trust advisors, the governing instrument may provide that such other trust advisors acting pursuant to this section are not acting in a fiduciary capacity.
Source: SL 1997, ch 280, § 4; SL 2018, ch 275, § 24; SL 2021, ch 207, § 9.
55-1B-5. Excluded fiduciary's liability for loss if trust protector appointed.
If an instrument appoints a trust protector, the excluded fiduciary is not liable for any loss resulting from any action taken upon such trust protector's direction.
Source: SL 1997, ch 280, § 5.
55-1B-6. Powers and discretions of trust protector.
The powers and discretions of a trust protector are as provided in the governing instrument and may be exercised or not exercised, in the best interests of the trust, in the sole and absolute discretion of the trust protector and are binding on all other persons. The powers and discretion may include the following:
(1) Modify or amend the trust instrument to achieve favorable tax status or respond to changes in the Internal Revenue Code, state law, or the rulings and regulations thereunder;
(2) Increase or decrease the interests of any beneficiaries to the trust;
(3) Modify the terms of any power of appointment granted by the trust. However, a modification or amendment may not grant a beneficial interest to any individual or class of individuals not specifically provided for under the trust instrument;
(4) Remove and appoint a trustee, a fiduciary provided for in the governing trust instrument, trust advisor, investment committee member, or distribution committee member;
(5) Terminate the trust;
(6) Veto or direct trust distributions;
(7) Change situs or governing law of the trust, or both;
(8) Appoint a successor trust protector;
(9) Interpret terms of the trust instrument at the request of the trustee;
(10) Advise the trustee on matters concerning a beneficiary;
(11) Amend or modify the trust instrument to take advantage of laws governing restraints on alienation, distribution of trust property, or the administration of the trust;
(12) Reserved;
(13) Add to the trust an individual beneficiary or beneficiaries from a class of individuals identified in the governing instrument;
(14) Add to the trust a charitable beneficiary or beneficiaries from a class of charities identified in the trust instrument;
(15) Provide other powers and discretions in the governing instrument;
(16) Remove a representative as provided in subdivision 55-18-4(3);
(17) Appoint a representative as provided in subdivision 55-18-9(12); and
(18) Act as a representative as provided in subdivision 55-18-9(11).
In addition to the powers and discretions granted to the trust protector in the governing instrument, the trust protector may also exercise any of the powers and discretions granted to a trust protector under § 55-2-13 to the extent such exercise is not prohibited under the terms of the governing instrument.
The powers referenced in subdivisions (5), (6), and (11) may be granted notwithstanding the provisions of §§ 55-3-24 to 55-3-28, inclusive.
Source: SL 1997, ch 280, § 6; SL 2005, ch 260, § 3; SL 2009, ch 252, § 14; SL 2013, ch 239, § 20; SL 2016, ch 231, § 17; SL 2017, ch 208, § 29; SL 2020, ch 206, § 8.
55-1B-7. Submission to court jurisdiction--Effect on trust advisor or trust protector.
By accepting an appointment to serve as a trust advisor or trust protector of a trust that is subject to the laws of this State, the trust advisor or the trust protector submits to the jurisdiction of the courts of South Dakota even if investment advisory agreements or other related agreements provide otherwise, and the trust advisor or trust protector may be made a party to any action or proceeding if issues relate to a decision or action of the trust advisor or trust protector.
Source: SL 1997, ch 280, § 7.
55-1B-8. Powers of trust protector incorporated by reference in will or trust instrument.
Any of the powers enumerated in § 55-1B-6, as they exist at the time of the signing of a will by a testator or at the time of the signing of a trust instrument by a trustor, may be, by appropriate reference made thereto, incorporated in whole or in part in such will or trust instrument, by a clearly expressed intention of a testator of a will or trustor of a trust instrument.
Source: SL 2005, ch 260, § 4.
55-1B-9. Investment trust advisor or distribution trust advisor provided for in trust instrument.
A trust instrument governed by the laws of South Dakota may provide for a person to act as an investment trust advisor or a distribution trust advisor, respectively, with regard to investment decisions or discretionary distributions. Unless otherwise provided or restricted by the terms of the governing instrument, any person may simultaneously serve as a trust advisor and a trust protector.
Source: SL 2005, ch 260, § 5; SL 2017, ch 204, § 16.
55-1B-10. Powers and discretions of investment trust advisor.
The powers and discretions of an investment trust advisor shall be as provided in the trust instrument and may be exercised or not exercised, in the best interests of the trust, in the sole and absolute discretion of the investment trust advisor and are binding on any other person and any other interested party, fiduciary, and excluded fiduciary. In addition to the powers and discretions granted to the investment trust advisor in the governing instrument, the investment trust advisor may also exercise any of the following powers and discretions to the extent such exercise is not prohibited under the terms of the governing instrument:
(1) Direct the trustee with respect to the retention, purchase, sale, exchange, tender, or other transaction affecting the ownership thereof or rights therein of trust investments. These powers include the pledge or encumbrance of trust property, lending of trust assets, either secured or unsecured, at terms defined by the investment trust advisor to any party including beneficiaries of the trust and the investment and reinvestment of principal and income of the trust;
(2) Vote proxies for securities held in trust;
(3) Select one or more investment advisers, managers, or counselors, including the trustee, and delegate to them any of its powers;
(4) Direct the trustee with respect to any additional powers and discretions over investment and management of trust assets provided in the governing instrument;
(5) Direct the trustee as to the value of nonpublicly traded trust investments;
(6) Direct the trustee as to any investment or management power referenced in chapter 55-1A; and
(7) Exercise the powers granted to an investment trust advisor in § 55-2-13.
Source: SL 2005, ch 260, § 6; SL 2012, ch 233, § 6; SL 2014, ch 226, § 17; SL 2020, ch 206, § 9.
55-1B-11. Powers and discretions of distribution trust advisor.
The powers and discretions of a distribution trust advisor over any discretionary distributions of income or principal, including distributions pursuant to an ascertainable standard or other criteria and appointments pursuant to § 55-2-15, shall be provided in the trust instrument and may be exercised or not exercised, in the best interests of the trust, in the sole and absolute discretion of the distribution trust advisor and are binding on any other person and any other interested party, fiduciary, and excluded fiduciary. Unless the terms of the governing instrument provide otherwise, then, in addition to the powers and discretions granted to the distribution trust advisor in the trust instrument, the distribution trust advisor shall direct the trustee with regard to all discretionary distributions to beneficiaries, may direct appointments pursuant to § 55-2-15, and may exercise any of the powers and discretions granted to a distribution trust advisor in § 55-2-13.
Source: SL 2005, ch 260, § 7; SL 2009, ch 252, § 15; SL 2011, ch 212, § 5; SL 2012, ch 233, § 7; SL 2020, ch 206, § 10.
55-1B-12. Powers and discretions of family advisor.
The powers and discretions of a family advisor are as provided in the governing instrument or by court order and may be exercised or not exercised, in the best interests of the trust, in the sole and absolute discretion of the family advisor. The powers and discretions may only include the following:
(1) Remove and appoint a trustee, a fiduciary provided for in the governing trust instrument, trust advisor, investment committee member, or distribution committee member;
(2) Appoint a trust protector, or a family advisor;
(3) Advise the trustee on matters concerning any beneficiary; receive trust accountings, investment reports, and other information from the trustee or to which a beneficiary is entitled; attend meetings whether in person or by any other means with the trustee, investment trust advisors, distribution trust advisors, or other advisors whether in person or by any means, electronic or otherwise; and to consult with a fiduciary regarding both fiduciary and nonfiduciary matters or actions, all without any power or discretion to take any action as a fiduciary; or
(4) Provide direction regarding notification of qualified beneficiaries pursuant to § 55-2-13.
A family advisor is not required to exercise any powers or discretions under any circumstances. Every action or inaction by a family advisor is a nonfiduciary action or inaction and a family advisor is absolutely excluded from liability to any other person for an action or inaction as a family advisor. A court may review a family advisor's exercise of the powers described in subdivisions (1), (2), and (4) only if the family advisor acts dishonestly or with an improper motive but may not review a family advisor's failure to exercise any powers. A reasonableness standard may not be applied to any action or inaction of a family advisor. Other than for the two circumstances listed above, a court has no jurisdiction to review a family advisor's action or inaction.
A family advisor is entitled to compensation as provided in the governing instrument. If the governing instrument does not provide for or establish compensation, a family advisor is entitled to reasonable compensation for the exercise of the powers and discretions granted to the family advisor pursuant to this chapter.
Source: SL 2016, ch 231, § 18; SL 2020, ch 206, § 11.
