55-4-58. Presentation of claims against property of trust revocable at settlor's death. (a) After the death of a settlor, and subject to the settlor's right to direct the source from which liabilities will be paid, the property of a trust that was revocable at the settlor's death is subject to claims of the settlor's creditors, costs of administration of the settlor's estate, the expenses of the settlor's funeral and disposal of remains, and statutory allowances to a surviving spouse and children to the extent the settlor's probate estate is inadequate to satisfy those claims, costs, and expenses.

(b) A trustee may:

(1) If the trustee has knowledge of a creditor or potential creditor, provide written notice to the creditor or potential creditor at their last known address, advising the creditor that a claim may not be paid if the creditor fails to present a claim within sixty days of the date of such notice; and

(2) For all unknown creditors and all creditors which the trustee, in good faith, is unable to locate, publish notice to such creditors once a week for three successive weeks in a legal newspaper in the county:

(A) Where the settlor was last a resident if the deceased settlor was a resident of South Dakota; or

(B) Where the principal administration of the trust takes place if the deceased settlor was a nonresident of South Dakota.

The published notice shall state that creditors of a deceased settlor must present their claim within four months after the date of the first publication of the notice or any claim or collection efforts which otherwise could have been asserted or enforced against the trust or assets thereof may be barred.

For purposes of this section, a trustee has knowledge of a creditor or potential creditor if the trustee is aware that the creditor has demanded payment from the settlor or the settlor's estate.

(c) Creditors of the deceased settlor who are given written notice or receive notice by publication are barred if no claim is filed within the applicable period.

(d) Claims by a creditor of a deceased settlor may be presented to the trustee by any of the following three methods:

(1) The creditor may deliver or mail to the trustee a written statement of the claim indicating its basis, the name and address of the creditor, and the amount claimed;

(2) If the trust is court-supervised, the creditor may file a written statement of the claim with the clerk of courts and mail or deliver a copy thereof to the trustee. The claim is deemed presented on the first to occur of the receipt of the written statement of claim by the trustee, or the filing of the claim with the clerk of courts; or

(3) The creditor may commence a proceeding against the trust in any court where the trustee may be subject to jurisdiction, to obtain payment of the claim. Such a claim is deemed presented on the date the proceeding is commended.

(e) If a claim is not yet due, the date when it will become due shall be stated in the written statement of the claim. If the claim is contingent or unliquidated, the nature of the uncertainty shall be described. If the claim is secured, the nature of the security shall be described. Failure to describe correctly the nature of the security or uncertainty, or the due date of a claim not yet due, does not invalidate the presentation.

(f) No presentation of claim is required in regard to matters claimed in proceedings against a settlor which were pending at the time of the death of the settlor in any court.

(g) No trustee may incur liability for a nonnegligent or nonwillful failure to give notice to a particular creditor.

(h) If the applicable assets of the trust that are otherwise subject to the claim of an unbarred creditor are insufficient to pay the claim in full, the trustee shall make payment in the following order:

(1) Costs and expenses relating to administration of the trust or estate;

(2) Reasonable funeral expenses of the settlor;

(3) Debts and taxes with preference under federal law;

(4) Debts and taxes with preference under other laws of this state;

(5) All other claims.

(i) In paying claims of a deceased settlor, the trustee shall give no preference in the payment of any claim over any other claim of the same class, and a claim due and payable is not entitled to a preference over claims not yet due except as to claims which are compromised in part or in full.

(j) Upon the death of the settlor of a trust that was revocable at the settlor's death, the trustee may proceed to pay creditor claims with the trust property in accordance with the terms of the trust and this section. The trustee is not subject to liability for doing so unless:

(1) The trustee knows of a pending proceeding contesting the validity of the trust or regarding a creditor's claim; or

(2) A potential contestant or creditor has notified the trustee of a possible proceeding to contest the trust or regarding a creditor's claim, and a proceeding is commenced within sixty days after the contestant sent the notification.

However, the trustee may pay creditor claims without liability so long as the trustee determines that, at the time of the determination, the assets of the trust are reasonably adequate to allow for payment of the claim in view of the type of proceeding, the amount at issue, and the likelihood of its probable success.

(k) A creditor who has received a payment from the trustee, if it is later determined to have been invalid, or wrongfully paid under this section, is liable to return any payment received to the trustee. If the creditor refuses to return the payment, the creditor may be liable for all costs, including attorney's fees, incurred for the recovery of the payment.

(l) Except as to creditors barred by publication or by written notice, the statute of limitations provisions of §§ 29A-3-802(b) and 29A-3-803(a)(3) apply.

(m) Nothing in this section requires a trustee to give notice to a secured creditor of a settlor, nor diminish the rights of a secured creditor under applicable law.

Source: SL 2010, ch 232, § 12.