Trust Decanting Requirements in South Dakota

At a glance

Requirements one by one

South Dakota now states distribution and modification routes

South Dakota Codified Laws § 55-2-15 authorizes appointment of part or all discretionary income or principal to a second-trust trustee, independently or with court approval. The trustee may make an actual distribution to one or more second trusts or modify the first trust to create a second trust, with or without an actual transfer. A modification may be treated as a new trust requiring retitling or as a continuation requiring none. SDCL § 55-2-21 preserves separate statutory, common-law, and instrument-based further-trust powers.

South Dakota administration supplies the state connection

Section 55-2-15 applies to any trust administered under South Dakota law, including one whose governing jurisdiction was transferred into the state. An express contrary instrument term controls. A generic spendthrift, no-amendment, or no-revocation clause does not itself bar exercise. The section states no separate trust-creation date, property-location, irrevocability, testamentary, or settlor-residency condition.

Trustee discretion is required, with a restricted-trustee substitute

The trustee must have discretion to distribute income or principal under the governing instrument, whether or not a standard restricts it. Before acting, the trustee must determine that appointment is necessary or desirable after weighing the first trust's purposes, the second trust's terms, and the distribution's consequences.

Sections 55-2-15 to § 55-2-17 treat a beneficiary-trustee—and a trustee removable and replaceable by a beneficiary with self, related, or subordinate persons—as restricted. The restricted trustee cannot make the specified self-benefiting or distribution-expanding changes without a health, education, maintenance, or support limit. An unrestricted cotrustee or next available unrestricted successor may instead exercise the power.

South Dakota uses one broad discretion route with conflict limits

Section 55-2-15 does not create expanded and limited statutory tracks. Any discretionary income or principal authority qualifies, and the statute does not require that an outright distribution be currently available. The HEMS rule instead limits a restricted trustee's self-benefit or increased-distribution change. Removing first-trust distribution restrictions is allowed only with a HEMS limit or through the identified § 1396p(d)(4) trust exception.

Beneficiaries stay inside the first-trust class, but appointment powers may expand

The second trust's beneficiaries must be one or more current or future first- trust beneficiaries eligible at the stated time or event. Section 55-2-15 then permits an appointment power for a second-trust beneficiary who was also a first- trust beneficiary; that power may reach the holder, creditors, estate, estate creditors, or any other person. SDCL § 55-2-19 separately characterizes the trustee's exercise as a power of appointment excluding the trustee and the trustee's creditor and estate classes.

Structure and jurisdiction are flexible, but perpetuities limits follow

A decanting may distribute to one or more second trusts or create the second trust by modification. Under § 55-2-16, an unrestricted substitute may use a second trust created or administered in any jurisdiction. SDCL § 55-2-20 bars suspending alienation or extending the first trust beyond any perpetuities period applicable to it.

Tax, withdrawal, and special-needs protections are targeted

Section 55-2-15 protects a § 2503(c) remainder vesting date; income interests in marital-deduction, charitable-remainder, and grantor-retained annuity or unitrust trusts; and a beneficiary's presently exercisable withdrawal power unless it is unchanged. Restricted-trustee limits depend on the specified U.S. tax nexus, and the statute permits the identified special-needs-trust exception to a carried- forward distribution restriction. It states no separate compensation, exculpation, indemnification, or general charitable-notice rule.

Notice depends on whether the trustee modifies or distributes

For an actual-distribution exercise, § 55-2-18 says the trustee may give written pre-effective-date notice, applying Chapter 55-18, to persons entitled to notice and an affected trust-instrument copy under § 55-2-13. A copy of the exercise and second-trust agreement satisfies that optional notice. SDCL § 55-2-13(1)-(11) generally uses age-21-or-existing-entity qualified beneficiaries in three distribution horizons, subject to the trust and written directions.

For an exercise structured as a first-trust modification, current § 55-2-15 overrides that optional rule: the trustee gives qualified beneficiaries at least 20 days' advance written notice under Chapter 55-18 unless they provide written waivers. Neither route states an affirmative beneficiary-consent condition or a fixed objection period.

The instrument has three formalities and court review is branch-specific

Section 55-2-18 requires a written exercise signed and acknowledged by the trustee and filed with the trust's records. Section 55-2-15 allows independent exercise or court approval. For discretion with no standard or a standard not creating a support interest, review is limited to § 55-1-43's dishonesty, improper-motive, or duty-to-act grounds. Other review follows § 55-1-42, which includes unreasonableness for mandatory or support interests. The decanting sections state no saving rule, defect effect, special limitations period, or reliance defense.

What trips people up

• The 20-day mandatory notice applies when decanting is structured as a modification. Section 55-2-18's notice remains optional for an ordinary actual-distribution exercise.
• A restricted trustee is not merely a trustee who is personally a beneficiary; the definition also reaches a trustee subject to a beneficiary's qualifying self/related/subordinate replacement power.
• South Dakota's no-perpetuities rules cannot be assumed for every first trust. Section 55-2-20 expressly carries forward any perpetuities limit that does apply to the first trust.

Common questions

Must property actually be retitled after a modification?

Not always. Section 55-2-15 lets the trustee treat the modified second trust as a continuation of the first trust for titling, in which case retitling is not needed. New-trust treatment instead contemplates a transfer.

May a beneficiary receive a broader power of appointment?

Yes. A beneficiary of both trusts may receive a power reaching the holder, creditors, estate, estate creditors, or another person, even if that appointee is not a trust beneficiary. The direct second-trust beneficiary class itself remains limited by § 55-2-15(1).

Is advance court approval required?

No. Section 55-2-15 permits the trustee to act independently or with court approval. A later review uses the statutory discretionary or mandatory/support standard described above.

Statutes and sources

• S.D. Codified Laws §§ 55-2-13, 55-2-15 to -21 — authority, structure, beneficiaries, restricted trustees, tax and withdrawal limits, notice, exercise formalities, perpetuities, and preserved powers. South Dakota Legislature (accessed 2026-09-19).
• S.D. Codified Laws §§ 55-1-42 to -43 — mandatory/support and discretionary court-review standards. South Dakota Legislature (accessed 2026-09-19).