South Dakota § 55-1-36.2 - Income tax reimbursement or payment--Excluded source--Effect--Liability--Fiduciary duty--Applicability.

§ 55-1-36.2. Income tax reimbursement or payment--Excluded source--Effect--Liability--Fiduciary duty--Applicability.

Unless the terms of the governing instrument expressly provide that a trustor may not be reimbursed by a trust for the trustor's personal income tax liability, if the trustor is treated under 26 U.S.C. §§ 671 to 678, inclusive (January 1, 2026), as the owner of all or part of the trust, the trustee, other than a trustee who is the trustor or a person who is a related or subordinate party with respect to the trustor within the meaning of 26 U.S.C. § 672(c) (January 1, 2026), may, in the trustee's sole discretion, or at the direction or with the consent of a trust advisor or trust protector, who, in either case, is not the trustor or a person who is a related or subordinate party with respect to the trustor, pay directly to any taxing authority, or reimburse the person liable for, any tax imposed by a taxing authority on the person by reason of the person being treated as the owner of all or any portion of the trust property pursuant to 26 U.S.C. §§ 671 to 678, inclusive (January 1, 2026).

If there is a policy of insurance on the trustor's life held in the trust, the cash value of the policy, or the proceeds of any loan secured by an interest in the policy may not be used to reimburse the trustor or to pay an appropriate taxing authority on the trustor's behalf.

The power to make payments to, or for the benefit of, the trustor under this section, or the trustee's, trust advisor's, or trust protector's decision to exercise or direct the exercise of the power in favor of the trustor, may not cause the trustor to be treated as a beneficiary of the trust for purposes of § 55-1-36.1 or any other law of this state.

The provisions of this section do not apply if the application of this section would disqualify a trust for, or reduce the amount of, a marital or charitable deduction otherwise available to any person for state or federal income, gift, or estate tax purposes.

A trustee, trust advisor, or trust protector is not liable to any person for the exercise of, or the direction or consent to exercise, the power to reimburse or not reimburse a trustor for tax payable by the trustor pursuant to this section. The exercise of, or the direction or consent to exercise, the power to reimburse or not reimburse a trustor for tax payable by the trustor pursuant to this section is not a breach of fiduciary duty to any person.

This section applies only to trusts created on or after July 1, 2026, and to any trust for which the principal place of administration is moved to this state on or after July 1, 2026.

For purposes of this section, the term "trustor" includes a trustor, settlor, trustmaker, or any person treated under 26 U.S.C. §§ 671 to 678, inclusive (January 1, 2026), as the owner of all or part of the trust.

Source: SL 2026, ch 198, § 1.