A South Dakota circuit court can consider the validity of a trust in a petition for judicial supervision under SDCL chapter 21-22. The South Dakota Supreme Court, in the June 2020 opinion In re Russell I. Carver Trust, reversed the South Dakota circuit court’s dismissal of a trust challenge filed within a petition for judicial supervision.
The Facts of The Case
Russell Carver created a revocable trust and power of attorney on October 11, 2001. Russell named his wife, Norma, as his agent and as successor trustee. Russell named his stepson-in-law, Kenneth, as a successor trustee in the event of Norma’s death.
Under the trust, Russell left his estate to Norma. If Norma predeceased Russell, then Russell’s estate would go equally to his children, stepchildren and the surviving children of his stepson Wayne. Norma died on May 16, 2012.
2012 First Amendment
In August 2012, Russell amended his trust. He named Kenneth as successor trustee, and provided that his estate would be distributed “in equal shares to [his] living children and stepchildren, the issue of any deceased child to take the share of their parent by right of representation.”
February 2016 Second Amendment and Power of Attorney
In February 2016, Russell revoked the first amendment and named Edwin Jenkins, his son-in-law, as his first successor trustee. The second amendment also provided that only Russell’s biological children would have the authority, along with a concurring opinion of a licensed psychologist, to determine whether Russell is at any time incapacitated or has an impaired ability to transact ordinary business.
Prior to the second amendment, Kenneth had arranged for Russell to be examined by two medical professionals. The professionals determined that Russell was incompetent to manage his own affairs. In response, Tom, Russell’s son, obtained another medical examination. Tom’s medical professional determined that Russell had the capacity to make his own decisions.
Also in February 2016, Russell executed a new power of attorney naming Tom as his agent for healthcare decisions and Edwin as his agent for financial matters.
May 2016 Lawsuit
In May 2016, Russel filed a declaratory relief lawsuit requesting a declaration that he had capacity to make his own financial and healthcare decisions and manage his affairs, and that the 2016 Power of Attorney was valid.
June 2016 Third Amendment
Russell amended his trust again in June 2016. The third amendment disinherited his stepdaughter Kelli (Kenneth’s wife) and indicated that he omitted Kelli because he believed she and Kenneth had refused to follow his wishes in managing his affairs.
January 2017 Fourth Amendment
The fourth amendment was executed by Russell in June 2017 and disinherited all of his stepchildren (and their children) and directed that Russell’s estate be distributed equally to his children Tom Carver, Carolyn Jenkins, and by right of representation to June Carver (his son Kit’s wife).
The Petition For Judicial Supervision
Russell died in March 2017. Within one year of his death, Kelli and Kenneth (the McFarlands) filed a petition with the circuit court under SDCL chapter 21-22 to assume judicial supervision of the Trust.
In addition to their request that the court assume supervision, the McFarlands requested that the court determine the validity of the 2012 amended trust. They specifically noted that the trust had been amended three times after 2012, but alleged the invalidity of those amendments.
Edwin filed a motion for judgment on the pleadings. Edwin argued that the trust challenge was time barred because petitioners failed to timely commence a judicial proceeding to challenge the validity of the trust as required by SDCL 55-4-57(a)(1).
The court granted Edwin’s motion, ruling that a petition for judicial supervision is not sufficient to commence a challenge to the validity of a trust. Instead, the South Dakota circuit court determined that the McFarlands were required to commence their trust challenge by service of summons within one year after Russell’s death.
The circuit court dismissed the portion of the McFarlands’ petition requesting declaratory relief.
What Is the Statute of Limitations For A Trust Challenge In South Dakota?
The general statute of limitations for a trust challenge in South Dakota is one year from the settlor’s death. SDCL 55-4-57(a)(1) sets forth a series of events that could trigger the deadline and states:
(a) A judicial proceeding to contest whether a revocable trust or any amendment thereto, or an irrevocable trust was validly created may not be commenced later than the first to occur of:
(1) One year after the settlor’s death;
(2) Sixty days after the trustee, trust advisor, trust protector, or the settlor sent the person who is contesting the trust a copy of the trust instrument and a notice informing the person of the trust’s existence, of the trustee’s name and address, and of the time allowed for commencing a proceeding;
(3) Upon notice of entry of an order of adjudication of the trust’s validity as a result of a petition filed before the settlor’s death by any fiduciary of the trust or the settlor of a trust;
(4) Upon notice of entry of an order of any other adjudication of the trust’s validity or the date the person’s right to contest was precluded by consent or other limitation;
(5) The last date a petition for review of a will could be filed under South Dakota law, if the trust was revocable at the settlor’s death and the trust was specifically referred to in the settlor’s last will; or
(6) Upon notice of entry of a court’s order approving a conservator’s proposal to create a trust or amendment thereto if the trust or trust amendment was created pursuant to and in conformity with § 29A-5-419 or 29A-5-420.
In this case, the one year from death limitations period applied.
Can A South Dakota Trust Challenge Be Initiated Under SDCL Chapter 21-22?
In this case, the parties disputed whether a claim challenging the validity of a trust can be included in a petition for judicial supervision under SDCL chapter 21-22, governing administration of trust estates.
Edwin contends that a challenge to the validity of a trust “is not properly the subject of a petition for administrative supervision” under SDCL 21-22-9 because that statute pertains to trust administration.
Edwin relied on the Wintersteen case, where the South Dakota Supreme Court indicated that a beneficiary’s challenge to a trust amendment did “not involve matters relevant to the management and disposal of the Trust as envisioned by SDCL 21-22-13.”
However, in Wintersteen, a widow failed to assert her trust challenge within one year after the settlor’s death. The widow argued that her challenge could be filed any time under SDCL 21-22-13, and the court disagreed, concluding that SDCL 55-4-57(a)’s one-year time limitation controlled.
The South Dakota Supreme Court clarified:
Lest there be any confusion stemming from our discussion in Wintersteen, we now clarify that a challenge to the validity of a trust may be included in a petition filed under SDCL chapter 21-22, so long as the trust challenge is commenced in a timely manner under SDCL 55-4-57(a).
How Do You Commence A Judicial Proceeding Under SDCL 55-4-57(a)?
The South Dakota Supreme Court determined that a judicial proceeding under SDCL 55-4-57(a) can be commenced by filing a petition. Nothing in SDCL 55-4-57(a) directs that a civil action be commenced by personal service of summons as provided in the rules of civil procedure.
In Wintersteen, the court examined the phrase “judicial proceeding” as contemplated in SDCL 55-4-57(a) and noted the definition:
Any proceeding wherein judicial action is invoked and taken. Any proceeding to obtain such remedy as the law allows. . . . A general term for proceedings relating to, practiced in, or proceeding from, a court of justice. . . . A proceeding wherein there are parties, who have opportunity to be heard, and wherein the tribunal proceeds either to a determination of facts upon evidence or of law upon proved or conceded facts.
The South Dakota Supreme Court also noted that the filing of a petition commences a will contest, which is one of the proceedings enumerated under SDCL 55-4-57(a).
The process to commence a will contest is essentially identical to the procedure set forth in SDCL 21-22-9.
The South Dakota Supreme Court summarized its opinion:
Because a circuit court may consider the validity of a trust in a petition for judicial supervision under SDCL chapter 21-22, the McFarlands’ petition, filed pursuant to SDCL 21-22-9, which included a request that the circuit court determine the validity of the various trust amendments, properly commenced a judicial proceeding as contemplated by SDCL 55-4-57(a). The McFarlands’ trust challenge was timely because they filed their petition within the one-year timeframe after Russell’s death. Therefore, the circuit court erred when it dismissed the portion of the McFarlands’ petition requesting that the circuit court determine the validity of the trust or its amendments.