SOUTH DAKOTA PRUDENT INVESTOR RULE
2019 South Dakota Codified Laws
Title 55 – Fiduciaries and Trusts
Chapter 05 – Investment And Management Powers Of Fiduciaries
55-5-6. Standards for investing and managing assets. The trustee shall invest and manage trust assets as a prudent investor would considering the purposes, terms, distribution requirements, and other circumstances of the trust. This standard requires the exercise of reasonable care, skill, and caution and shall be applied to investments not in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment strategy that should incorporate risk and return objectives reasonably suitable to the trust.
Source: SL 1995, ch 271, § 6.
55-5-7. Prudent investor rule. No specific investment or course of action is, taken alone, prudent or imprudent. The trustee may invest in every kind of property and type of investment, subject to this chapter. The prudent investor rule is a test of conduct and not of resulting performance. The prudent investor rule may be expanded, restricted, eliminated, or otherwise altered by the terms of the trust instrument or court order. Unless expanded, restricted, eliminated, or otherwise altered by the terms of the trust instrument or a court order, the trustee’s investment decisions and actions shall be judged in terms of the trustee’s reasonable judgment regarding the anticipated effect on the trust portfolio as a whole under the facts and circumstances prevailing at the time of the decision or action. No trustee is liable to a beneficiary to the extent that the trustee acted in reliance on the provisions of the trust instrument or court order.
Source: SL 1995, ch 271, § 7; SL 2009, ch 252, § 30; SL 2010, ch 232, § 13.
55-5-8. Diversification of investments. The trustee shall diversify the investments of the trust unless, under the circumstances, the trustee reasonably believes it is in the interests of the beneficiaries and furthers the purposes of the trust not to diversify. Regardless of concentration or lack of diversification, the trustee need not diversify if the trust instrument or court order allows or directs retention of assets forming part of the trust corpus and no trustee is liable to a beneficiary to the extent that the trustee acted in reliance on the provisions of the trust instrument or court order. If a trust instrument or court order allows or directs a fiduciary to invest in a specific investment, type of investment, or investment concentration, no trustee is liable to a beneficiary to the extent that the trustee acted in reliance on the provisions of the trust instrument or court order.
Source: SL 1995, ch 271, § 8; SL 2006, ch 243, § 9; SL 2009, ch 252, § 31; SL 2010, ch 232, § 14.
55-5-9. Review of assets upon acceptance of trusteeship–Basis for disposition or retention of assets–Interest in closely held entity. The trustee shall, within a reasonable time after the acceptance of the trusteeship, review trust assets and make and implement decisions concerning the retention and disposition of original pre-existing investments in order to conform to the provisions of this section. The trustee’s decision to retain or dispose of an asset may properly be influenced by the asset’s special relationship or value to the purposes of the trust or to some or all of the beneficiaries, consistent with the trustee’s duty of impartiality. If a trust owns an interest in a closely held entity, and the trust agreement, or other document signed by the settlor or signed by a majority of the current income or principal beneficiaries, if the settlor is deceased, provides that the trustee has no duty to inquire or review the activities of the closely held entity, no trustee is liable to a beneficiary to the extent that the trustee acted in reliance on the provisions of the trust or court order. For purposes of this section, the term, closely held entity, means any entity in which the following persons in aggregate own at least twenty percent of the entity:
(1) The settlor;
(2) The settlor’s grandparents or their descendants;
(3) The settlor’s spouse; or
(4) Any trust created by anyone of the aforementioned persons.
If a trust was in existence on or before July 1, 2012, and a collateral document relieved the trustee of the duty to inquire or review the activities of a closely held entity as provided in this section, then the trustee may elect to have this section apply upon providing sixty days written notice of the election to the settlor or to the current income or principal beneficiaries if the settlor is deceased.
Source: SL 1995, ch 271, § 9; SL 2009, ch 252, § 32; SL 2012, ch 233, § 22.
55-5-10. Investment strategy–Productivity judged by whole portfolio. The trustee shall pursue an investment strategy that considers both the reasonable production of income and safety of capital, consistent with the trustee’s duty of impartiality and the purpose of the trust. Whether investments are underproductive or overproductive of income shall be judged by the portfolio as a whole and not as to any particular asset.
Source: SL 1995, ch 271, § 10.
55-5-11. Circumstances considered in investment decisions. The circumstances that the trustee may consider in making investment decisions include, without limitation, the general economic conditions, the possible effect of inflation, the expected tax consequences of investment decisions or strategies, the role each investment or course of action plays within the overall portfolio, the expected total return, including both income yield and appreciation of capital, and the duty to incur only reasonable and appropriate costs. The trustee may consider related trusts and the assets of beneficiaries when making investment decisions.
Source: SL 1995, ch 271, § 11.
55-5-12. Precedence of express provisions of trust instrument. The provisions of this chapter may be expanded, restricted, eliminated, or otherwise altered by express provisions of the trust instrument. The trustee is not liable to a beneficiary for the trustee’s reasonable and good faith reliance on those express provisions.
Source: SL 1995, ch 271, § 12.
55-5-13. Court authority over trustee. Nothing in this chapter abrogates or restricts the power of an appropriate court in proper cases to direct or permit the trustee to deviate from the terms of the trust instrument or to direct or permit the trustee to take, or to restrain the trustee from taking, any action regarding the making or retention of investments.
Source: SL 1995, ch 271, § 13.
55-5-14. Authorization language. The following terms or comparable language in the investment powers and related provisions of a trust instrument, unless otherwise limited or modified by that instrument, authorize any investment or strategy permitted under this chapter: “investments permissible by law for investment of trust funds,” “legal investment,” “authorized investments,” “using the judgment and care under the circumstances then prevailing that men of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to the speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital,” “prudent man rule,” “prudent person rule.”
Source: SL 1995, ch 271, § 14.
55-5-15. Applicability of chapter. This chapter applies to all existing and future trusts, but only as to actions or inactions occurring after July 1, 1995.
Source: SL 1995, ch 271, § 15.
55-5-16. Delegation of responsibilities to others. A trustee has a duty to personally perform the responsibilities of the trusteeship except as a prudent person might delegate those responsibilities to others. In deciding whether, to whom, and in what manner to delegate fiduciary authority in the administration of a trust, and thereafter in monitoring agents, the trustee may seek the prior approval for the delegation from the settlor, or if the settlor is deceased, the majority of the current income or principal beneficiaries, or from the court. If such approval is given in writing by either the settlor, or if the settlor is deceased, the majority of the current income or principal beneficiaries, or by the court, the trustee is not liable for the acts of the person to whom the authority is delegated except in the cases of willful misconduct or gross negligence by the delegating trustee in the selection or monitoring of the agent.
Source: SL 1996, ch 284, § 3; SL 1998, ch 282, § 42; SL 2011, ch 212, § 2; SL 2018, ch 275, § 27.
55-5-17. Duties of trustee with respect to life insurance–Notice to settlor. (a) Unless otherwise required by the terms of the trust instrument or court order, no trustee of a trust, with respect to acquiring, retaining, or disposing of a contract of insurance or holding one or more insurance contracts upon the life of the settlor, or the lives of the settlor and the settlor’s spouse, has the following duties:
(1) To determine whether any such contract is or remains a proper investment;
(2) To investigate the financial strength or changes in the financial strength of the life insurance company;
(3) To make a determination of whether to exercise any policy options available under any such contract;
(4) To make a determination of whether to diversify any such contract relative to one another or to other assets, if any, administered by the trustee;
(5) To inquire about changes in the health or financial condition of the insured or insured’s relative to any such contract; or
(6) To vote, or give proxies to vote, on corporate matters.
A trustee of a revocable or an irrevocable trust, or of either a directed trust pursuant to chapter 55-1B or a delegated trust pursuant to § 55-5-16, is not liable to the beneficiaries of the trust or to any other party for any loss arising from the absence of those duties upon the trustee.
(b) The trustee of a trust described under subsection (a) of this section which was established prior to the effective date of this section, shall notify the settlor in writing that, unless the settlor provides written notice to the contrary to the trustee within sixty days of the trustee’s notice, the provisions of subsection (a) of this section shall apply to the trust. Subsection (a) of this section does not apply if, within sixty days of the trustee’s notice, the settlor notifies the trustee that subsection (a) does not apply.
Source: SL 2010, ch 232, § 15; SL 2012, ch 233, § 27; SL 2014, ch 226, § 5.