CONFLICT-OF-INTEREST-INFECTED VIRTUAL REPRESENTATIVES AND A CURE.
I. INTRODUCTION 2 II. DISCUSSION 2 A. VIRTUAL REPRESENTATION MEETS FUTURE INTERESTS 6 B. Two PRINCIPAL VARIETIES OF VIRTUAL REPRESENTATION STATUTES 12 C. VIRTUAL REPRESENTATION EVOLUTION 13 1. The Old South Dakota Virtual Representation Statutes 15 2. The Uniform Trust Code 18 3. The New South Dakota Virtual Representation Statutes 20 D. A PROPOSED FLOWCHART 29 E. SIX ILLUSTRATIONS 33 1. Conrad Cop's ILIT 33 2. Malika Mall's Testamentary Trust 34 3. Vidor Votive's IDGT 35 4. Winnifred West's DAPT 37 5. Yolanda Young's RLT 39 6. Zander Zinc's SLAT 41 III. CONCLUSION 42
South Dakota has revolutionized the field of virtual representation in the context of trust proceedings. The standard rule stretching far back into history is that a representative of a trust beneficiary who has a conflict of interest cannot adequately represent the beneficiary, nullifying the notice that was undertaken. (1) This defect undermined the ability to achieve finality in any proceeding conducted under the virtual representation framework. South Dakota's recent legislation reverses that rule and cures that defect. It provides that representatives with a conflict of interest may nevertheless bind the persons that they represent. (2) Often a person carrying out notice in a trust proceeding (a "notifier") will be unaware of a representative's conflict of interest. The new legislation ensures that the proceeding will be effective in spite of an unknown conflict. To ensure due process requirements are satisfied, additional safeguards offset this extension of virtual representation. (3) By granting res judicata effect to trust proceedings--both judicial and non-judicial--which utilize virtual representation frameworks even where a representative is infected with a disqualifying conflict of interest, the aims of finality and assurance in trust proceedings have been achieved. This article reveals an unpacking of South Dakota's virtual representation revolution by outlining the doctrines of representation and reviewing the evolution of virtual representation in its historical context.
We should begin with the general rules: First, in trust litigation involving third parties, the trustee can represent and bind the trust and all of its beneficiaries. (4) By third party trust litigation, I mean, for example, circumstances such as where the trust has entered into an agreement with a third party and the other party has breached the agreement. (5) In these circumstances, the trustee may maintain a suit against the buyer. (6) These kinds of circumstances might be termed "fiduciary representation" where the trustee makes a decision (as a fiduciary) which affects all of the beneficiaries, but the beneficiaries themselves are not necessary parties to the decree or settlement. (7) Where the trust is resolving matters with third parties, the trustee speaks for the trust. (8) As the Restatement (Third) of Trusts confirms, "A trustee may maintain a proceeding against a third party on behalf of the trust and its beneficiaries." (9) As the legal owner of trust property--including choses in action--the trustee is the proper party to bring any action against third parties on behalf of the trust and its beneficiaries. (10) "A trustee," as South Dakota law frames it, "is a general agent for the trust property." (11) As such, when a trustee acts, those acts "bind the trust properly to the same extent as the acts of an agent bind his principal." (12)
Second, in internal trust matters, both the trustee and the trust beneficiaries are necessary parties. (13) Internal trust matters might include a proposal to modify a trust, to remedy a breach by the trustee, or to approve a trustee's past (e.g., an accounting) or proposed actions. Here, the trustee cannot bind the beneficiaries; indeed, the interests of the trustee and the interests of beneficiaries may be opposed. (14) Thus, in internal trust matters--those between beneficiaries, or, more commonly, between the trustee and the beneficiaries--the beneficiaries become necessary or indispensable parties. (15) The well-known Bogert treatise on trusts emphasizes: "Beneficiaries (including remainder beneficiaries, those whose interests are contingent or created by settlement agreement, and those who are designated to take in default of an exercise of a power of appointment), often are necessary or indispensable parties[.]" (16) The failure to join or notice a beneficiary either results in a decree which is ineffective against the omitted beneficiary or--worse--a finding that the court simply lacked jurisdiction to decide the issue, rendering the decree ineffective against everyone. (17) The requirement of joining all of the beneficiaries is especially problematic with minor beneficiaries or beneficiaries whose identities cannot yet be ascertained with certainty. One option is appointing a guardian ad litem to represent those beneficiaries. (18) Alternatively, of course, if a conservator is acting, the conservator might bind the minor or impaired beneficiary by representing that person's interests. (19) Other representatives might also be considered. (20) A second option is "virtual representation" where notice on one party with a similar interest to another party has the effect of binding the similarly situated unnoticed party. (21) In South Dakota, both representation and virtual representation are often grouped under the umbrella term "virtual representation" since the statutes encompassing both concepts were titled the "Virtual Representation Statutes" in the code. (22) Today, the new chapter is similarly titled "Virtual Representation", although it includes representation and virtual representation concepts as well. (23)
Virtual representation refers to trust beneficiary notice, consent, input, and opposition by proxy on account of the substantial similarity of interests between the noticed beneficiary and the non-noticed beneficiary. (24) Similarity of interests is key to the adequacy of representation. (25) As one court described it, "Thus, where it appears that a particular party, though not before the court in person, is so far represented by others that his interests receive actual and efficient protection, the decree may be held to be binding upon him." (26) The effectiveness of virtual representation--the binding nature of the decree on a beneficiary who had not been made a party--depended upon two concerns: the adequacy of the representation (or similarity or interests) and the absence of hostility or conflicts between the non-noticed beneficiary and the noticed beneficiary virtually representing her. (27)
In the sections which follow, I will map the evolution of representation and virtual representation back to 18th century England. (28) Two primary varieties of virtual representation will be sketched: vertical and horizontal. (29) The common law rules of virtual representation were restated by the American Law Institute in the 1930s, then re-codified and expanded by New York in 1967. (30) Next, I will summarize the 1998 South Dakota statutes modeled on the New York statutes. (31) I will briefly summarize the Uniform Trust Code provisions addressing representation. (32) And I will summarize the 2017 revamping of representation by South Dakota. (33) Finally, I will articulate a proposed flowchart for working through a representation problem and provide several illustrations. (34)
A. VIRTUAL REPRESENTATION MEETS FUTURE INTERESTS
Virtual representation was a common law doctrine arising out of notice issues when future interests were at issue. (35) It was first recognized in England in the 1700s as courts began to relax the necessary parties rule where it was impossible, as a practical matter, to notice everyone. (36) American courts recognized the sensibility of virtual representation beginning about the time of the American Civil War. (37) For example, practical difficulties arose in creditor claims in probate proceedings where numerous creditors asserted claims against the estate. (38) Courts developed a rule that the final decree directing creditor payments could discharge the executor and bind absent creditors who appeared thereafter, given the similarity of the creditors' interests. (39)
Future interests often involve notice challenges. Consider, for example, if O has conveyed Blackacre "to A for life then to A's living children" where A currently has two children, B and C, ages seven and eleven. If a quiet title, foreclosure, or eminent domain proceeding is commenced regarding Blackacre, A (who holds a life estate) must be served with notice. (40) But what about the contingent remaindermen? (41) Three problems are present. First, B and C are minors. Who can speak for them? Second, the identity of the persons who will take the remainder interest at A's death are currently unascertained. It may be B and C; it may be only B if C predeceases A. Third, the remaindermen may include additional children of A as yet unborn. For example, A may have an additional child, D who will become a contingent remainderman at birth. How can D--or additional unborns E, F, and G--participate in the proceedings? Moreover, must they participate in order to give preclusive effect to the judgment that is ultimately entered?
It's worth noting that the relative importance of the interests of the contingent remaindermen can be affected by the type of legal issue presented and the ages and circumstances of the parties. These kinds of circumstances can have both practical and legal import. For example, to continue with our example introduced in the foregoing paragraph, if A is 99-years-old, it's very unlikely that A will have additional children, although it is still legally possible. This legal truism is referred to as "the fertile octogenarian" future interests discourse; the law presumes that any living person may have children. (42) Today this legal truism has greater practical truth since the advent of adoption (which did not exist at common law (43)) and the growing prevalence of posthumously conceived children of a deceased father's preserved genetic material. (44) The "unborn widow" is another such doctrine--it is illustrated by the case of where O devises to A's widow where A is living and married to W; since W could die and A could remarry a young lass who was not even born when O devised. (45) The potential unborn widow, like the fertile octogenarian, creates problems with the Rule against Perpetuities in jurisdictions which retain it as well as notice conundrums even in jurisdictions which--like South Dakota--don't. (46)
Thus, the age, fertility, and health of a life tenant can, as practical matters, affect the relative importance and value of the various individuals' interests in Blackacre, although they may not have any effect on the legal importance of their interests for purposes of notice. (47) The particular legal matter involved can also shade matters, both legally and practically. (48) If, for example, eminent domain proceedings are commenced only against the remainder, then A's life estate is irrelevant, and the remainder interests--even though contingent--are the only ones affected. Or consider a deed reformation which asserts that the life estate is not properly held by A but rather A's twin brother, the confusingly named AA. In that case, only A's estate is legally in play. Similarly, the wrongful harvest of grain or timber on Blackacre might be a tort action which affects only or mostly A, depending on the particular jurisdiction's balancing of present and future interests in the products of the soil. (49) The particulars of the matter in question can have direct relevance on the issue of who must be noticed.
Consider again O's conveyance of Blackacre "to A for life then to A's living children." With some forethought, O might be tempted to revise his gift, as she considers the possibility that one or more of A's children would predecease A leaving issue surviving. O does not want to exclude these persons (A's grandchildren) from his bounty, simply because they lost a parent. And so before delivery of the deed, O revises it to read: "to A for life then to A's children and the issue of any such child who predeceases A per stirpes." (50) This gift is more sensible, if a bit more wordy, as it accounts for O's objectives in providing for the issue of any adult children of A who predecease A leaving descendants of their own who survive. This more sensible gift creates an ever-widening array of notice concerns, however.
Assume again that A is currently living and has two minor children, B and C. As before, we have one unborn/ascertained class represented by A's unborn children. However, now we also have a second class of unborn/unascertained individuals: B's and C's unborn children--and their unborn children--the unborn of the unborn--and so on. Even in a sensible gift which, by the way, conforms to the Rule against Perpetuities, a host of difficult-to-notice persons have interests in Blackacre. Some of those interests would be valued at greater or lesser amounts, taking into account the life tenant's probable life expectancy. (51) Some of those interests--such as the contingent interests of the unborn great great grandchild of seven-year-old B--are exceedingly remote. The initial solution would be to petition the court to appoint a guardian ad litem to represent the minors and the unborn. (52) If their interests were opposed in the context of the matter in question, a different ad litem would represent their respective interests. (53) Virtual representation responds to the concern that appointing guardians ad litem is not always an efficient process, especially where the matter is one not already venued before a court. (54)
Similar concerns can be present in conservatorship matters: the conservator may wish to obtain the protections of a court-approved accounting or judicially approved sale of the protected person's property. (55) If the protected person is a disabled adult with three adult children, notice of an accounting or proposed sale could be provided to them as the closest family members and probable heirs. (56) The conservator who obtains court approval but fails to properly notice one of the children runs the risk that the unnoticed child will later complain and not be barred by res judicata or other preclusive principles. (57) Where notice was properly carried out to the three adult children, the conservator may be surprised if a grandchild of the protected person wants to re-litigate a matter already approved by the court. The grandchild may argue that she is not bound by the prior judicial orders because she was not noticed. (58) Virtual representation, if applicable, may bar the grandchild's complaint. (59)
Today, the notice challenges inherent in future and concurrent interests are present with greater frequency in trusts than in real property or guardianships. (60) Nearly every trust involves present and future interests in varying degrees of concreteness and remoteness. This, then, is the tension resolved by virtual representation: On the one hand, a trust beneficiary cannot be bound by a judgment in litigation involving her trust without notice. (61) On the other, as Drake Law School's Professor Emeritus "Marty" Begleiter has emphasized, it is "absolutely necessary that such controversies be settled without undue delay and in a manner that binds all the beneficiaries." (62) Generally, virtual representation permits a beneficiary with a substantially identical interest to bind another trust beneficiary (such as a minor, disabled, or unborn beneficiary, or simply a beneficiary who cannot be located) so long as there is no conflict of interest. (63) The doctrinal framework for virtual representation is based on a similarity of economic interests and the presumption "that the representor in pursuing his own economic self-interest must necessarily protect the rights of the representees having the same interest." (64) These doctrines do not identify the necessary or interested parties in a particular matter, but rather who may properly represent others for purpose of res judicata. (65)
B. Two PRINCIPAL VARIETIES OF VIRTUAL REPRESENTATION
As representation evolved, wider arrays of representative parties became recognized in trust proceedings. Traditionally, for example, the only proper representatives of a minor trust beneficiary would be a court-appointed attorney, a guardian ad litem, or a conservator. (66) A parent could not represent a minor child's interests in most cases. (67) Representation in trust proceedings has, over time, expanded, to allow parents (or only one parent) to represent a child's interests, for guardians to fill the role of conservators, and even for caregivers and UTMA custodians to bind minor beneficiaries. (68)
Virtual representation has similarly broadened over the centuries. Two primary varieties can be identified: horizontal virtual representation and vertical virtual representation. Horizontal virtual representation allows one competent member of a class to represent other members of that same class. (69) For example, in a trust directing the trustee to distribute to an individual's children at some future date where currently only one child (age 21) has been born, that child could virtually represent the other unborn members of the class--his unborn siblings. (70) Vertical virtual representation, on the other hand, permits certain trust beneficiaries to represent future successive interests. (71) For example, in a trust directing the trustee to distribute income to A for life, then to B for life, then remainder to C, A may be allowed to represent B since they have the same interest: an equitable life estate in trust income. (72) Or in a trust directing the remainder to be distributed to C if C is then living, otherwise to a charity, C may be permitted to represent the charity since they have the same interest: alternative contingent remainders. (73)
C. VIRTUAL REPRESENTATION EVOLUTION
Virtual representation can be traced back to probate cases in eighteenth century England. (74) The Chancery courts in England crafted the "impossibility exception" to the general rule that all necessary parties must be joined in an action. (75) The doctrine relaxed the rules of notice and joinder when strict compliance was, at least as a practical matter, impossible. (76) A nineteenth century United States Supreme Court decision can even be found on point. (77) By the 1930s, the doctrine had sufficiently developed in the case law for it to be recognized in the first Restatement of Property. (78) The Restatement touched on virtual representation in six separate sections. (79) It recognized the same tension at the heart of virtual representation: protection of the property rights versus efficient and orderly management of those rights:
An orderly administration of justice requires that the owner of an interest shall have a day in court before a claim affecting his interest effectively secures judicial sanction. But an efficient administration of justice also requires that the presentation and final adjudication of controversies shall not be postponed indefinitely. (80)
The 1936 version of the Restatement was largely framed to take account of future interests in property (e.g., a life estate and remainder in Blackacre), and it considered future equitable interests in trusts only briefly. It drew a distinction between representing a living person's interests and unborn person's interests. (81) Generally, the Restatement confirmed, a trustee's acts and decisions bind the beneficiaries of the trustee's trust. (82) If the trustee errs, for example, in agreeing to an unfair lease agreement as to trust realty, the beneficiaries cannot void the agreement but may state a cause of action against their trustee. (83) The Restatement also recognized that some proceedings may be binding on "the affected thing itself such as a tax lien foreclosure. (84) The Restatement would void consent by one party insofar as it bound another if the noticed party acted with "hostility" towards the represented person. (85) It acknowledged that state law could largely if not entirely displace and replace the common law rules it attempted to articulate. (86)
New York's attempt to codify virtual representation in 1967 (with 1981 amendments) took the form of section 315 of the New York Surrogate's Court Procedure Act. (87) In practice, courts applying the act would typically appoint a guardian ad litem to represent unrepresented interests except where it was clear that the economic interests of the represented and the represented were identical. (88) In Estate of Borax, for example, the trustee was carrying out an accounting. (89) The trust provided for income distributions to an adult until the individual reached the age of 35, where the trust would then terminate and distribute the remainder to the individual--or, if the individual had predeceased, to his issue per stirpes. (90) The individual (James) was thirty-two-years-old and had a one-year-old infant son (Hugh). (91) The trial court held that although the father could represent the son under section 315, that the representation may be inadequate and that a guardian ad litem ought to be appointed for Hugh. (92) If the trustee had improperly paid out interest distributions to James that actually should have been retained as principal, "clearly James, the recipient of the moneys, cannot adequately represent the infant to whose financial interest it would be to say that these payment should not have been made." (93)
1. The Old South Dakota Virtual Representation Statutes
Between 1998 and 2017, South Dakota relied on virtual representation statutes which had been modeled on New York's Act. (94) During the nineteen years the eight statutes were in effect, not a single reported decision construed or applied them, but they were utilized with great frequency by practitioners in South Dakota. (95) The aim of the virtual representation statutes was that a "decree or order... is binding and conclusive on all persons upon whom service of process is not required." (96) The statutes were imperfect. They did not clearly delineate between judicial and non-judicial proceedings. (97) And the application of the virtual representation statues was limited to proceedings where "all persons interested in an estate or trust are required to be served or their consent is required." (98) Puzzlingly, in a proceeding where less than all the persons interested were required to be served, the statutes seemingly had no application. (99) Thus, if one takes the statutory text at face value, where a release was needed from one minor beneficiary or one class of minor beneficiaries, only a conservatorship or guardian ad litem appointment would have been appropriate because the virtual representation statutes were not available. (100)
One statute specifically addressed probate proceedings regarding a testamentary instrument. (101) It deemed beneficiaries to have "the same interest, whether or not their respective interests are in income or principal or in both" where they are beneficiaries of the same trust or "if they have a common interest in proving or disproving the instrument offered for probate[.]" (102) Another statute required notice to the South Dakota Department of Social Services "in any matter where an interested party may owe a debt to the department[.]" (103) Since the tense of "may" included both present and future tenses, it included individuals who may--at some future date--qualify for South Dakota Medicaid (and thus, at least arguably, anyone even if they were not currently a South Dakota resident or even a U.S. resident, could at some future date establish South Dakota residency and qualify for Medicaid assistance). (104)
When a minor or disabled individual had an interest in a trust matter, notice was governed by a ladder of priorities. (105) First, if another trust beneficiary had "the same interest as a person under disability" then service on the disabled individual (presumably whether disabled on account of disability or minority) was not required. (106) Otherwise, notice could be served on the individual's conservator. (107) If the individual was a minor, notice could be served on the minor's guardian if one had been appointed, otherwise on the natural parents (i.e., both of them), otherwise (oddly) on the minor's adoptive parents. (108) I say oddly because the statute seemingly contemplated serving biological parents of an adoptive child to the exclusion of the adoptive parents. (109) If the minor had no adoptive parents who could be served with notice, then a "person responsible for or who has assumed responsibility for the minor's care or custody" could be served. (110) Finally, for disabled adults, if no conservator had been appointed, nor any agent under durable power of attorney, nor guardian, nor trustee managing a portion of the adult's estate, then a caregiver could be noticed. (111)
The most opaque provisions of the prior virtual representation statutes provided that where an interest in a trust "has been limited" in particular ways that "it is not necessary to serve any other person." (112) Those circumstances were limited to three particular situations. In those situations in which it was permissible to notify alternative persons:
(1) In any contingency to the persons who shall compose a certain class upon the happening of a future event, then on the persons in being who would constitute the class if such event had happened immediately before the commencement of the proceeding; (2) To a person who is a party to the proceeding and the same interest has been further limited upon the happening of a future event to a class of persons described in terms of their relationship to such a party, then on the party to the proceeding; (3) To unborn or unascertained persons, none of such persons.... (113)
If, however, no person "in being" does not share the same interest as the unborn or unascertained persons, then a court was required to appoint a guardian ad litem to represent those persons. (114) No alternative provision for non-judicial proceedings was articulated. (115) Presumably, the other provisions of the statute applied equally to judicial and non-judicial proceedings. (116)
Finally, the old South Dakota virtual representation statutes provided: "If an interest in an estate or trust has been limited to a person who is a party to the proceeding and the same interest has been further limited upon the happening of a future event to any other person, it is not necessary to serve such other person." (117)
Where the proceeding was before a court, information was required to be provided in the petition with regards to persons upon whom notice could be dispensed with under the statutes. (118) No parallel requirement was articulated for non-judicial proceedings. (119) The statutes also failed to clarify the meaning of "limited" or "further limited" as the terms were used repeatedly. (120) The statutes had application both under title 55 (trusts) and title 29A (probate and guardianships). (121)
2. The Uniform Trust Code
The Uniform Trust Code (or UTC) was approved by the Uniform Law Commissioners in 2000. (122) It represented the culmination of more than a decade of efforts to bring more uniformity to the law of trusts. (123) The Uniform Trust Code's representation rules were preceded by an earlier uniform act with a trust representation framework, the Uniform Trustees Accounting Act. (124) That Act was critically received and is now essentially obsolete. (125) The drafting of the UTC took seven years. (126) Before the UTC, comprehensive trust statutes could be found in only a handful of states and secondary sources, such as the Restatements, and failed to address many recurring questions. (127) The UTC has now been adopted in thirty-two states plus the District of Columbia. (128) Its impact, therefore, has been--and is--significant. Indeed, its impact has even reached South Dakota, as a non-UTC state, on account of frequent analyses by the South Dakota Supreme Court which makes reference to UTC provisions. (129)
The UTC's Article 3 is comprised of five sections and is titled "Representation" as it includes coverage of both virtual representation and representation of beneficiaries by fiduciaries such as personal representatives and conservators. (130) The first section is introductory and articulates the coverage and basic effect of the Article. All of the provisions of the Article are subject to modification, expansion, and restriction, by the terms of the governing trust instrument. (131) Thus, the Representation chapter represents a set of "default" and not "mandatory" trust provisions. (132)
The UTC provides that trust beneficiaries who are minors, incapacitated, unborn, unascertained, or missing, may be represented by a person without a conflict of interest who has "a substantially identical interest with respect to the particular question or dispute[.]" (133) The holder of a general power of appointment may represent the permissible appointees and takers in default of the power's exercise so long as there is no conflict of interest. (134) Conflicts of interest may exist even when the beneficial interests are identical. (135) Section 303 provides a list of fiduciary representations which are permissible (e.g., a conservator representing the protected person; an agent representing a principal; and also a parent representing a minor/unborn child where neither a conservator nor guardian is appointed). (136) Courts retain the ability to appoint a representative in judicial proceedings. (137) Limitations are placed on the representation of a settlor. (138)
3. The New South Dakota Virtual Representation Statutes
South Dakota's new virtual representation statutes were enacted in 2017, a work product of the South Dakota Governor's Task Force on Trust Administration Review and Reform. (139) The new virtual representation statutes--unlike the old statutes--no longer have overlapping application to probate and guardianship matters. (140) The statutes also lack any application to legal future interests, such as a contingent remainder in Blackacre. (141) Common law virtual representation would have to be applied to future or concurrent interests in realty. (142) The new statutes were codified at chapter 55-18. (143) They are comprised of twenty-six sections. (144) The principal innovations of the act lie in its considerations of the role of the representative--the person who has the ability to bind a trust beneficiary. (145) The act clarifies that a person who is carrying out notice or seeking consent in regards to a trust matter must set forth information with respect to representatives, the persons the representative represents, and the authority under which they can bind others. (146) In any non-judicial proceeding, the notifier must also notify representatives that--if they choose to--they have the option of declining to act as a representative. (147) Representatives are specifically permitted to refuse to act as a representative. (148) Beneficiaries, too, are permitted to opt out of representation by a representative. (149)
Although representatives are not deemed to be fiduciaries in most circumstances, they can be liable for acting dishonestly or having an improper motive. (150) On account of these responsibilities to act fairly on behalf of the beneficiaries they represent, they are entitled to reasonable compensation. (151) Representatives also have a duty to identify any conflicts of interest of which they are aware. (152) However, when a conflict of interest is present, the representative may nevertheless bind those persons that the representative represents, at a cost of liability when the representative has acted knowingly. (153) Thus, the act widens the net of virtual representation, curing a number of proceedings that might otherwise be defective on account of an undiscovered conflict of interest, at a cost to the representative with a conflict of interest who knowingly fails to resolve it. (154) The act also defines a conflict of interest with greater specificity than the Restatements or Uniform Trust Code to mean "a situation in which a representative's interest in the trust causes a significant likelihood that a reasonable person would disregard a representative's duty to a represented beneficiary." (155) Where a representative desires court approval absolving her of any potential liability, a procedure for judicial approval is available. (156)
Section 55-18-9 is the heart of the new South Dakota virtual representation statues and is worth quoting here in full:
Persons who may bind others are as follows:
(1) Except as provided in subdivision 55-18-20(2), (157) a conservator may bind a minor or protected person; (2) A guardian may bind the minor or protected person if no conservator of the minor or protected person has been appointed; (3) A parent may bind the parent's minor or unborn child if no conservator or guardian for the child has been appointed; (4) A person who has assumed responsibility for a minor child's care or custody may bind the child if no conservator or guardian for the child has been appointed and neither parent is living; (5) A trustee responsible for the management of all or a significant portion of the estate of an incapacitated individual other than a minor may bind the individual if no conservator or guardian for the individual has been appointed; (6) A custodian under chapter 55-10A (158) or equivalent provisions of another jurisdiction's laws who is responsible for all or a significant portion of the estate of a minor may bind the minor if no conservator or guardian for the minor has been appointed; (7) An individual who has assumed responsibility for an incapacitated individual other than a minor, including a spouse of an incapacitated individual, may bind the individual if no conservator or guardian for the individual has been appointed and no agent has authority to act with respect to the matter in question, but an individual who is an employee of any assisted living, hospital, surgery center, nursing home, adult foster care, adult day care, or any other custodial care institution where the incapacitated person is residing or receiving services may not act as a representative pursuant to this subdivision; (8) Except as provided in subdivision 55-18-20(l), (159) an agent having authority to act with respect to the matter in question may bind the principal if the principal is incapacitated or not reasonably available; (9) When a trust is a beneficiary of a trust, the trustee of the trust which is a beneficiary may bind the trust and the beneficiaries thereof without regard to whether the trust has yet been funded or the trustee has begun acting as trustee; (10) When a decedent's estate is a beneficiary of a trust, the personal representative of the estate may bind the estate and the persons interested in the estate; (11) Except as provided in [section] 55-18-23, (160) a person designated in the governing instrument to represent another person or class of persons may bind that person or class of persons; (12) Except as provided in [section] 55-18-23, (161) if a fiduciary or other person is authorized by the terms of the governing instrument to appoint a representative and the authorized fiduciary or other person appoints a representative in writing, the representative may bind the person or class of persons identified in the appointment; (13) Unless otherwise adequately represented pursuant to the foregoing provisions of this section, a minor, incapacitated individual, unborn individual, or a person who is not reasonably available, may be bound by a person having a substantially identical interest with respect to the matter in question; (14) A person described in subsection 55-18-1(9)(a)162 may bind beneficiaries described in subsection 55-18-1(9)(b) and (c), (163) if, with respect to the matter in question: (a) The person agrees in writing to serve as a representative for the represented beneficiary either with regard to a particular matter, for a particular period of time, generally in any matter or future matter, or for an indefinite period of time; (b) The interests of the person are substantially identical to the interests of the represented beneficiary; and (c) The person does not have a conflict of interest; (164) (15) A person described in subsection 55-18-1(9)(d) (165) may bind beneficiaries described in subsection 55-18-l(9)(e); (166) (16) A court representative appointed pursuant to [section] 55-18-19 may bind the person that the representative represents; and (17) Without diminishing the authority of an attorney to act on behalf of the attorney's client, an attorney representing a person may bind the person that the attorney represents within the scope of the attorney's representation. When more than one class of persons may act as a representative, such as where persons may act under different subdivisions of this section, the notifier has discretion in selecting which class of representatives bind the person represented, except as otherwise provided in the governing instrument. The governing instrument may provide that representatives acting pursuant to subdivisions (11) and (12) may act to the exclusion of any other class or classes of representatives, in certain circumstances, or in all circumstances, other than representatives acting pursuant to subdivisions (16) and (17). (168)
Where co-representatives are acting, both must be notified except as to parents and persons who have assumed care and responsibilities for a represented beneficiary. (169) Limitations on a representative's ability to bind a settlor are also set forth, mirroring here, the Uniform Trust Code and the old virtual representation statutes. (170) Required notice on the South Dakota Department of Social Services as to beneficiaries who may be Medicaid recipients has also been streamlined and narrowed. (171)
South Dakota's statutory chapter 55-18 (titled "Virtual Representation" by the Code Commission) expands notifier options and clarifies notification procedures. (172) It also remedies the primary deficit with representation principles prior to its enactment: the possibility that notice will later be deemed inadequate because of a lurking conflict of interest or hostility problem of which the notifier was unaware. It's difficult to overstate the seriousness of this deficit. (173) Trustees expect finality and res judicata protections for their accountings, trust reformations, and settlement agreements so long as they have complied with the rubrics of codified representation principles. (174) Indeed, finality and certainty is a prerequisite to the essential efficiency prerequisites to a functioning world of trust administration. (175) Yet because the law required as a condition of effective representation the absence of a conflict of interest, any proceeding--especially non-judicial proceedings--which incorporated notice on representatives could be at risk to being undone upon the discovery of a conflict of interest. (176) As Professor Karen Boxx and attorney Katie Groblewski have explained, the traditional view of virtual representation is that non-fiduciary representatives owe no duties and accordingly must be free from conflicts of interest in order to bind trust beneficiaries:
Virtual representatives do not owe fiduciary duties to their represented parties and are not subject to court review. There is no liability ascribed to a virtual representative if, after binding action is taken by the representative, the represented party does not like or approve of the result. The concept behind virtual representation has always been that the representing party's self-interested involvement will adequately represent the interests of the represented party, as long as their interests in the matter align. Instead of imposing liability on the representative, the virtual representation is generally inapplicable if the interest represented was not sufficiently protected. Whether virtual representation is adequate rests upon whether the representative acted in "hostility to the interest" of the person represented. Hostility can be shown by the representative's affirmative conduct demonstrating adversity to the represented party's interests. The more modern interpretation of "hostility" in the context of virtual representation is the existence of a conflict of the economic interests of the representative and the represented party. The disqualifying hostility (or conflict) is normally to be determined at the time that representation would otherwise occur, since the use of virtual representation is essentially a jurisdictional concept. It is therefore imperative that the determination of whether a conflict exists between the representative and the represented party or parties be made to ensure that the representation is effective and correspondingly, that the resolution of the dispute is binding, or the delivery of notice or information is proper. (177)
Representation of beneficiaries by trustees, agents, guardians, conservators, and executors works very differently because they are fiduciaries. (178) Liability is imposed based upon the fiduciary standard of care and duty of loyalty. (179) As a result, disqualification based on hostility or a conflict of interest is unnecessary because the disserved represented beneficiary would have a cause of action against the fiduciary. Similarly, court-appointed representatives in a judicial trust proceeding are subject to court oversight and correction. (180) When some trust beneficiaries represent other trust beneficiaries under virtual representation, however, the possibility of an unidentified conflict of interest undermining the finality of the proceedings represents a serious shortcoming.
To remedy this shortcoming, the new South Dakota statutes provide that notice is effective notwithstanding a conflict of interest. (181) Extending virtual representation in this way runs the risk of offending due process requirements. (182) To bridge the "due process gap" that might otherwise result, additional safeguards are deployed: The representative must be made to understand that they are indeed acting in a representative capacity. (183) And representatives are granted a reasonable measure of liability exposure for ignoring a conflict. (184) Non-fiduciary representatives are nudged slightly towards duties of care and loyalty. Although they are not typically fiduciaries, the slight expansion of duties and potential liability permits effective representation when a notifier is unaware of a representative's conflict of interest. (185) Representatives are also saddled with the duty of disclosing the existence of a conflict of interest. (186) This set of duties is a small price for ensuring the finality that is typically desired. (187) It is accompanied with an immunity for trustees who rely on the codified representation and virtual representation procedures. (188)
D. A PROPOSED FLOWCHART
The standard approach that I would recommend in working through a virtual representation problem is to consider the following flowchart which contains twelve steps. In brief, the notifier should first identify all the persons who must be notified, identify representatives, apply virtual representation, and lastly consider any problems with the representatives identified.
1. Identify who needs to be noticed. Who must be noticed varies depending on the circumstances. (189) Typically, trustees must always be noticed. (190) Consider also whether any successor trustees, trust protectors, trust directors, family advisors, creditors, or other outside parties merit notice under the circumstances. (191) 2. Identify the "interested beneficiaries" in the trust. (192) This question will generate an initial list of persons who must be noticed. There are four classes of persons who qualify as interested beneficiaries: (193) (a) A person to whom the trustee could or must currently distribute income or principal (a "current distributee"); (b) A person who would become a current distributee if (i) the interests of the current distributees terminated today; or (ii) the trust terminated today; (c) Any person holding a power of appointment (194); and (d) Any person who would hold a power of appointment (a "current POA") if (i) the interests of the current distributees terminated today; or (ii) the interests of the current POAs terminated today. (195) 3. Consider whether the Department of Social Services must be noticed. (196) 4. Consider whether the attorney general must be noticed. (197) 5. Consider, within a judicial proceeding, whether any beneficiary has demanded notice. (198) 6. Ask whether any additional beneficiaries must be noticed pursuant to requirements in text of the trust instrument. (199) 7. Exclude any otherwise interested beneficiaries for whom notice is not required (because they are unascertained, etc.). (200) 8. As to the interested beneficiaries for whom notice is required, identify any representatives who may bind them. (201) For example, a parent may bind a minor beneficiary. (202) The full text of section 55-18-9 reprinted above in the body of this article lists the options. (203) With a few exceptions, a notifier has the discretion of selecting representatives from the list when more than one option is available. (204) 9. Identify problems with the representatives who have been identified. This can include any known conflicts of interest for the representatives. (205) Representatives who have affirmatively refused to act, who have been removed, for whom a represented person has given notice, or for whom a court has found an inadequacy--cannot act as representatives. (206) And a caregiver cannot act as a representative when the individual is employed by a facility (such as a nursing home) caring for the beneficiary. (207) 10.Consider any additional beneficiaries who must or ought to be noticed. (208) For example, if a trustee is proposing to reduce the distributions of a future beneficiary who would not otherwise receive notice pursuant to the Virtual Representation statutes, such a beneficiary should nevertheless receive notice of the proposal. (209) 11. Prepare a proper notification recital. (210) The recital gives information regarding representatives and may provide a time period of at least three days in which representatives may decline to act. (211) The recital should then be provided to the various representatives. (212) 12. Carry out the notice. (213)
E. SIX ILLUSTRATIONS
In this section, I will articulate six illustrative fact patterns involving representation and virtual representation concerns and outline their resolution under the new South Dakota statutes. Each involves a hypothetical South Dakota client's estate plan. These hypotheticals are entirely fictional and any correlation to actual events or individuals is coincidental and unintentional.
1. Conrad Cop's IL1T
Conrad Cop is a uniformed police officer from Ordway, South Dakota. Conrad creates an irrevocable life insurance trust. (214) The trust provides for "Crummey withdrawal rights" for Robb and discretionary health and maintenance distributions for Robb, remainder to Robb's son Burp, who is now an infant. (215) ACME Bank, the trustee, wishes to increase its trustee fees. Robb objects, but ACME sweetens the deal and offers a below-market rate home loan to Robb if he consents individually and on behalf of baby Burp. Zip Zoop, the trust protector, is unaware of these shenanigans and prepares a proposed change to ACME's compensation, notifying Robb individually and as a representative of Burp. Robb does not resist the proposal, although he thinks it's wrong, because he desires the below-market loan from ACME and doesn't care much for his colicky infant Burp.
Zoop has no duty to provide notice of Robb's conflict of interest because Zoop is unaware of it. (216) The increase in ACME's compensation proposal, therefore, has been correctly undertaken. However, ACME has breached its fiduciary obligations to the beneficiaries with the "side deal" with Robb. (217) Robb has also acted dishonestly and with an improper motive in binding Burp. (218) Such collusion would expose Robb to liability, but it will not undermine the effectiveness of the notification as to infant Burp. Robb has a conflict of interest as a representative of Burp. (219) Thus, both Robb and the trustee have liability exposure and Burp's minority will typically toll the statute of limitations until he reaches majority. (220) Although a representative would not typically be exposed to liability for how they carried out their representative role, the possibility of liability represents support for expanding the reach of virtual representation; it helps compensate for what might otherwise be characterized as a shortcut around due process requirements. (221)
2. Malika Mall's Testamentary Trust
Malika Mall is a corn and soybean farmer from Olivet, South Dakota. Malika's will provided for the creation of a testamentary trust which directs the trustee to expend income from trust investments on her grandchildren's college expenses. Malika died several years ago. Her trust provides, in relevant part:
Upon the trustee's determination that all my grandchildren have completed their college education, the trustee shall distribute all of the principal and accumulated income to famed comedian Rodney Dangerfield.
There are ten current living grandchildren, half of whom are minors. Sadly, Rodney Dangerfield died in 2004. One of the beneficiaries believes that the trustee should be removed for unfitness. (222) Who must the beneficiary notice when he files his petition asking the court to remove the trustee?
This is a tough one. The current beneficiaries are of three varieties: the minor grandchildren, the adult grandchildren, and the unborn grandchildren. These are dealt with easily enough. But what about the remainderman? Is it Dangerfield's estate? His issue? His issue as of Dangerfield's death or as of the future date of Malika Mall's Trust terminating? Or did the remainder gift lapse and vest in Malika Mall's estate? (223) Anti-lapse principles indicate that the gift lapsed. (224) Therefore, no notice to Dangerfield, his issue, or his issue would be required.
One might wonder whether the issue is all that important. So long as the court has jurisdiction to hear the claim, how important is it that the remainderman may not be bound by an order removing (or not removing) the trustee? If it is simple enough to notice Rodney Dangerfield's estate and Malika Mall's estate, then there is little reason why not to do so if there is any uncertainty as to whether anti-lapse rules apply, such as if we are dealing with an inter vivos trust rather than a testamentary trust. (225) And if it's simple enough to identify and notice Dangerfield's issue, a few extra postage stamps are relatively inexpensive. But any risk that the remainderman (whomever that may be) will later seek to avoid the court's decree for lack of notice may be a manageable one, since it seems both remote and unlikely. (226)
3. Vidor Votive's IDGT
Vidor Votive, of Orient, South Dakota, created an irrevocable trust for his two adult children and their descendants in perpetuity nearly a quarter of a century ago. This "dynasty trust" functions as what is known as an intentionally defective grantor trust (IDGT) during Vidor's lifetime. (227) The trust provides for discretionary income distributions to Vidor's children, then, upon their deaths, discretionary income distributions for their living descendants will commence. Upon the death of the last descendant, the trustee may appoint the remainder to a charity selected by the trustee. Vidor is now in his nineties and his children, Joe-Bob and Sue-Ann are in their sixties. Joe-Bob has one son, Conrad, who is under a guardianship with Joe-Bob as his guardian. Sue-Ann has one adult child, Dee. The trustee is Vidor's cousin, Orcn Ohms. Oren has been a very naughty trustee. A year ago, he borrowed $100,000 from the trust and now he claims that he cannot repay the loan. Through counsel, Oren proposes a settlement agreement whereby Oren will resign as trustee and repay the trust $100 in exchange for a full release of the claims occasioned by his wrongdoing.
Who are the interested parties to Oren's non-judicial settlement proposal? The "interested beneficiaries" are (1) the current distributees, Joe-Bob and Sue-Ann, along with (2) the distributees who could receive distributions upon the termination of Joe-Bob's and Sue-Ann's interests, Conrad and Dee. (228) None of the unborn beneficiaries need be noticed. (229) The potential charitable remainder beneficiary? Those are both difficult to ascertain and potential appointees, and therefore no notice to them is required. (230) However, query whether notice to the Attorney General of the state is required on account of the trust possibly being categorized as a "charitable trust." (231)
Since Conrad has a guardian, Joe-Bob, Joe-Bob may consent to the settlement proposal (or reject it) on Conrad's behalf. (232) Note here that although representatives are not considered to be fiduciaries by virtue of acting as a representative, this does not diminish the fiduciary obligations of a guardian. Thus, if Joe-Bob consents to the settlement proposal on Conrad's behalf, he will be held to a fiduciary standard in doing so because he is acting as a guardian, not a mere representative. (233) Sue-Ann, by contrast, can act as a representative for her daughter Dee as her parent if Dee is a minor. (234) Sue-Ann, as a parent-representative, will not necessarily be held to a fiduciary standard, as would, for example, a guardian. (235)
4. Winnifred West's DAPT
A few years ago, Winnifred West of Osceola, South Dakota, created an irrevocable asset protection trust naming herself as the initial beneficiary with remainder interests for her children (whether biological or adopted). (236) The trust will terminate after Winnifred West's death if her children have all reached the age of fifty. If Winnifred dies before then, the trust will continue until the youngest living child reaches his or her fiftieth birthday. During Winnifred's lifetime, the trustee may distribute income and principal for Winnifred's support; after Winnifred's death, the same discretionary standard governs distributions to Winnifred's children if the youngest is not yet fifty years old.
Winnifred's children are all in their thirties when Winnifred and her spouse decide to adopt an infant, Biff, with Down's syndrome. Winnifred and her partner (who is also the trustee) would like to preserve Biff's eligibility for means-tested programs like SSI and Medicaid and are rightly concerned about the effect of Winnifred's trust. (237) To that end, Winnifred proposes a trust amendment which would provide:
Upon Winnifred's death, the trustee shall distribute a fractional share of the trust estate to the trustee of the Biff Supplemental Needs Trust (herein, the BSNT) if Biff is then living. The fractional share shall have a numerator of one and a divisor equal to the number of Winnifred's children then living. The trustee of the BSNT may distribute to or for the benefit of Biff in the trustee's sole discretion so as not to displace Biff's eligibility for means-tested programs. The resources of BSNT shall not be an available resource for Biff. Upon Biff's death, the remainder shall be distributed in equal shares to Biff's then-living siblings.
A separate provision would also remove Biff as a discretionary beneficiary from the contingent continuing "pot trust" for his siblings. (238) Winnifred has never informed her children of the existence of the trust and would like to carry out the amendment without notifying any of them. (239) Winnifred may represent Biff as a minor. (240) But whether Winnifred may also represent her adult children and whether Winnifred must notify the South Dakota Department of Social Services (DSS) are closer questions.
As to DSS, notice must be given whenever an interested beneficiary "may owe a debt to the department" for Medicaid long-term care services. (241) The use of the word "may" is ambiguous in several senses. Is it employed in the present sense only? That is, does it mean to refer to a beneficiary who may currently be subject to a Medicaid lien (that it, someone who has received Medicaid benefits)? Or does it include a beneficiary who may at some future date qualify for South Dakota Medicaid, receive benefits, and accrue a lien? If the latter, how likely must it be that Medicaid eligibility would occur? At the furthest limits, it is conceivable that Li Keqiang, the Premier of the People's Republic of China, might quit his job, move to the United States, become a resident of South Dakota, spend through his personal fortune, be diagnosed with dementia, enter a long term care facility, apply for, and begin receiving South Dakota Medicaid benefits. (242) Upon receiving South Dakota long term care Medicaid benefits, he would owe a debt to the department by virtue of the "estate recovery" program. (243) If Li Keqiang is an interested beneficiary of your trust, then he is arguably a person who may owe a debt to DSS. He may, although it is extremely unlikely.
A clarifying sentence, added in 2017 now provides: "An interested beneficiary is not considered a person who may owe a debt to the department solely on account of the person's residence in the state." (244) Li Keqiang is currently a resident of the People's Republic of China. Therefore, he cannot be construed as a person who may owe a DSS debt in the future under the revised language. State residence plus at least one additional factor is required. Even if he moved to South Dakota and established residency, this alone is still insufficient to trigger a required notice to DSS. At least one additional indicator beyond South Dakota residency is required, such as a likelihood of long term care needs on account of a diagnosis of Parkinson's or resources at or near the Medicaid eligibility thresholds--or both. If DSS is not noticed when it should have been, it is unclear whether this deprived the proceeding of jurisdiction entirely or only as to DSS. The latter is more likely.
What about whether Winnifred may represent her adult children? As a current distributee, Winnifred can represent the future distributees if three requirements are satisfied:
1. She must agree in writing to serve as a representative; 2. Her interests must be substantially identical to the interests of her adult children; and 3. She must not have a conflict of interest. (245)
The first requirement is straightforward. The second--that her interests be "substantially identical" to those of her adult children--must take account of the definition of "interests." An "interest" means a "beneficial interest" in the trust. (246) It means a "distribution interest or a remainder interest." (247) While Winnifred's beneficial interest is not identical to her children's successive interests, they are similar: Hers is a lifetime interest; theirs is a future under-50 interest plus a contingent remainder. Yet in view of the particular matter in question, the impact of the proposed trust amendment on these beneficial interests seems quite similar, even "substantially identical." (248) Although no conflict of interest is presented by the facts, it might be emphasized that in the context of this particular representative framework that the absence of a conflict of interest is mandatory. (249) In this context, the infection of a conflict of interest on a representative remains uncured; the notice on the infected representative would be ineffective to bind the represented party. (250)
5. Yolanda Young's RLT
Yolanda Young, a grain elevator owner from Opal, South Dakota, executed a revocable living trust ten years ago. Yolanda's estate plan utilizes a "pourover will" along with a revocable "living" trust and she has re-titled her assets in the trust out of a desire to avoid having to probate her estate upon her death. (251) Sadly, a few years ago, Yolanda was diagnosed with dementia and now resides in a care facility in relatively nearby Spearfish, South Dakota. Her impairments have rendered her unable to make decisions about her care or assets, but her niece Elena acts as her agent under a durable power of attorney for financial and healthcare decisions. (252) A local bank, Cowboy Bank and Trust, acts as successor trustee under her revocable trust.
Yolanda is unmarried and childless. Her trust directs her trustee to distribute the trust assets upon Yolanda's death to five nieces, Elena and her four sisters, or to their issue per stirpes if one or more of them predecease Yolanda. The trust also contains provisions to manage assets in trust for anyone who would otherwise receive a distribution when they're under the age of twenty-five. Last month, one of the five nieces, Candy, was sentenced to life imprisonment for first degree murder. Candy has one infant daughter, Denise. Elena believes that in these circumstances, Yolanda would prefer that Candy be bypassed in favor of Denise--that the trust should be amended to re-direct Candy's inheritance to baby Denise. Elena wonders if she can undertake a trust amendment as Yolanda's agent.
An agent for an incapacitated principal may act as a representative. (253) However, for Elena to represent Yolanda as a settlor, an agent can only act "to the extent expressly authorized by the power of attorney with specific reference to the trust and expressly authorized by the terms of the governing instrument." (254) Both Yolanda's trust and the power of attorney fail to expressly authorize an agent to amend the trust and the trust fails to provide for alternative means of amendment (such as by a trust protector). (255) Accordingly, only by being appointed as her aunt's conservator and then petitioning the court for authority to modify the trust may Elena proceed with a trust reformation. (256)
6. Zander Zinc's SLAT
Zander Zinc, a very successful poet from Owanka, South Dakota, created an irrevocable $6 million trust for his spouse, Marilyn Manson. (257) The trust named Bob's Bank, N.A. as trustee and provided that the trustee shall distribute all income to Marilyn for life, with the remainder distributed to Axl if he is then living, otherwise to B.J. Thomas or his issue per stirpes. B.J. Thomas currently has three adult children. Bob's Bank recently issued a press release indicating that it was increasing its trustee fees to 10% because it cares less about fiduciary responsibilities than earning a nice profit (yes, the press release actually says that). Marilyn files a petition to remove Bob's Bank and replace it with ACME Bank and Trust, which is a much more reasonable and fiduciary duties-oriented trustee. (258)
Two points should be made here. The first is that although B.J. Thomas' three adult children need not be given notice under the South Dakota Virtual Representation statutes, there's little harm in doing so. (259) Indeed, the notifier is immunized from notifying beneficiaries who technically need not be noticed. (260) Some commentary suggests that the shortcuts offered by representation and virtual representation are only constitutionally available when notice would otherwise be difficult, expensive, or cumbersome. (261) Noticing more beneficiaries than strictly required by the virtual representation chapter is good insurance against later constitutionally-oriented attacks on the sufficiency of the notice. (262)
Second, let's assume that Marilyn suspects that because Axl is a shareholder in Bob's Bank that he will resist the petition and cause unnecessary legal expenses if he is noticed. Assuming that the trustee removal and replacement proceedings are kept secret from Axl, the court issues an order removing Bob's Bank and appointing ACME as successor trustee. Later, Axl learns of the court's decision. Furious, Axl moves the court for relief, arguing that the court either lacked jurisdiction over the trustee question entirely or that at least that Axl cannot be bound by it.
The court, in my view, will be more attracted to the second option--a ruling that the trust beneficiaries who had notice and an opportunity to be heard ought to be bound--but not Axl. However, note the nature of the court's decision to remove and replace the trustee. As a practical matter, there's no way to allow ACME to serve as the successor trustee as to Axl but no one else. The only way to actually accomplish that, it would seem, would be to divide the trust corpus into separate trusts with ACME as trustee for one and Bob's Bank as the trustee for the other. (263) While this is probably within the inherent powers of a court of equity, if the beneficiaries object, it would be very unlikely that the court would carry through with any such plan. (264) I would predict that the court would bypass these nettlesome problems and simply hold a hearing on Axl's assertion that Bob's Bank ought not to be removed. If the court determines that Axl's assertion is groundless, then how to navigate the issue becomes moot: ACME will simply serve as trustee. But if the decision is otherwise (let's say that Axl establishes that Bob's Bank quickly withdrew its silly press release), then the court really would have to rule that the earlier failure to notice Axl deprived the court of jurisdiction entirely.
The doctrine of virtual representation in the trust context was originally based on the following premise:
[T]hat there is some party before the court whose interests in the issue to be decided are so identical with, or so closely similar to, the interests of the absent person, that in protecting his own interests the representative party will bring forward such matter and take such action that, as a necessary by-product, the court will have before it an adequate presentation of the interests which the absent person has in common with him. (265)
Similarity of interests, therefore, formed the basis for the doctrine, and still does, although the doctrine is no longer so limited. A parallel requirement to similarity of interests is the absence of hostility. When absent persons are bound by the actions of others, fundamental notions of fairness dictate that at a minimum those representatives, whose actions or inactions may affect others' interests, be informed of the fact that their inactivity or affirmative consent may in fact bind others. South Dakota's new representation and virtual representation statutes help ensure this kind of notification and broaden the efficiencies and finalities to be achieved in trust matters when the doctrine is correctly applied.
THOMAS E. SIMMONS ([dagger])
([dagger]) Associate Professor, University of South Dakota School of Law. An early draft of this paper (titled "Introducing Virtual Representation") was presented at the First Annual Forum hosted by the South Dakota Trust Association in coordination with the American Bankers Association in October, 2017, in Sioux Falls, South Dakota.
(1.) See In re Estate of Sage, 283 N.Y.S.2d 442, 443-44 (Sur. Ct. 1967) (holding that a parent-beneficiary had a conflict of interest prohibiting his representation of his infant son-beneficiary in a trust accounting proceeding). See also, e.g., Morrow v. Vinevillc United Methodist Church, 489 S.E.2d 310, 313-14 (Ga. Ct. App. 1997) (concluding that appointment of a representative to represent all trust beneficiaries violated a dissenting trust beneficiary's due process rights).
(2.) S.D.C.L. [section]55-18-13 (Supp. 2018).
(3.) U.S. CONST, amend. XIV, [section] 1; S.D. CONST. VI [section] 2. See also infra Part II.D (describing the additional safeguards which compensate for the extension of virtual representation finality to situations where the representative has a conflict of interest).
(4.) RESTATEMENT (THIRD) OF TRUSTS [section] 107(1) (2012).
(5.) E.g., Hawkins v. Voss, 29 N.E.3d 1233 (111. Ct. App. 2015) (involving a trustee's suit against an auctioneer for breach of contract). But see First Nat. Bank of Maryland v. Dep't of Health and Mental Hygiene, 399 A.2d 891, 897 (Md. Ct. App. 1979) (asserting that although "a trustee does not usually stand for his cestui que trust in a suit respecting trust property, so that both trustee and beneficiary arc necessary parties in such an action, there are exceptions"). See also, e.g., Kerrison v. Stewart, 93 U.S. 155, 161-62 (1876) (holding that the trustee may represent the beneficiaries in a suit by a stranger to invalidate the trust).
(6.) Another example of a "third party" trust proceeding would be where the government brings eminent domain proceedings against the trustee as owner of real property held in trust. Brevard Cty. v. Ramsey, 658 So.2d 1190, 1196(Fla. Ct. App. 1995). Seealso, e.g., Litwin v. Ryan, 27 A.3d71, 75 (Conn. Ct. App. 2011) (denying a beneficiary's right to intervene in an action where her interests were represented by the estate's executrix).
(7.) Martin D. Begleitcr, Serve the Cheerleader--Serve the World: An Analysis of Representation in Estate and Trust Proceedings and Under the Uniform Trust Code and Other Modern Trust Codes, 43 REAL PROP. TR. & EST. L.J. 311, 316-17 (2008). "Whether the representative is a trustee, guardian, conservator, executor, administrator, or representative of a class, the judgment binds those beneficially interested." Smith v. Bishop, 187 N.E.2d 217, 220(111. 1962)(Schaefer, J., dissenting) (citations omitted).
(8.) RESTATEMENT OF PROP.: FUTURE INTERESTS [section] 181 cmt. a. (1936). "[l]t is part of a trustee's task to act for the beneficiaries in their relations to third persons concerning the subject matter of the trust." Id.
(9.) RESTATEMENT (THIRD) OF TRUSTS [section] 107(1) (2012).
(10.) Id. cmt. b.
(11.) S.D.C.L. [section] 55-3-7 (2012). See also, e.g., Matter of Ziegler, 596 N.Y.S. 2d 963, 966-67 (Sur. Ct. 1993) (holding that a trustee represents the beneficiaries of her trust notwithstanding any conflict of interest). "The trustee's responsibility to the beneficiary is different in scope, duty and concept from that of a virtual representor." Id. at 967.
(12.) Id. See also S.D.C.L. [section] 55-1A-24 (2012) (providing that "[a] trustee may enter into contracts binding upon his trust"); S.D.C.L. [section] 55-1A-25 (2012) (providing that "[a] trustee may pay. compromise, contest, submit to arbitration, or otherwise settle any and all claims in favor of or against his trust"); S.D.C.L. [section] 55-1A-32 (Supp. 2018) (providing that trustees "may prosecute or defend actions, claims or proceedings for the protection of trust assets").
(13.) E.g., Walter v. Drayson, 538 F.3d 1244, 1250 (9th Cir. 2008) (affirming dismissal for lack of diversity jurisdiction where a breach of fiduciary duty claim required the addition of a non-diverse third trustee as a necessary party); Auslen v. Super. Ct. of San Francisco, 377 P.2d 72, 74 (Cal. 1962) (en banc) (reasoning that where a beneficiary attempts to establish the degree of his interest in a trust fund, the other persons having interests therein are indispensable parties). See generally Mason v. Eldred, 73 U.S. 231, 239 (1867) (reciting the general rule "that no one shall be personally bound until he has had his day in court").
(14.) See GEORGE GLEASON BOGERT, GEORGE TAYLOR BOGERT, AND AMY MORRIS HESS, BOGERT'S TRUSTS AND TRUSTEES [section] 593 (2018) [hereinafter BOGERT] ("The trustee is appointed for the purpose of performing acts beneficial to the beneficiary and not for the purpose of conceding the beneficiary's rights in any way.").
(15.) See In re Putignano's Estate, 368 N.Y.S.2d 420, 424 (Sur. Ct. 1975) ("The whole theory underlying the doctrine [of virtual representation] is similarity of economic interests."). "It is presumed that the representor in pursuing his own economic self-interest must necessarily protect the rights of the representees having the same interest." Id. See also Charles Looker, Virtual Representation, 34 BROOK. L. REV. 395, 396 (1968) ("Representation can be operative with respect to remainders to (a) unborn remaindermen, (b) living 'next of kin' of a living person, living members of a class, (c) living members of a class, (d) alternative related remaindermen, or (e) alternative unrelated remaindermen.").
(16.) BOGERT, supra note 14, [section] 967. The Bogert's treatise here is speaking of notice relative to a trust accounting. Id. Different notice requirements may be applicable in different types of internal trust proceedings. See. e.g., id. [section] 519 (explaining trustee removal) and [section] 991 (explaining trust reformation). In addition to beneficiaries and takers in default of a power of appointment, "cotrustees, representatives of deceased cotrustees, representatives of deceased or incapacitated beneficiaries" and the surety on the trustee's bond" may also be necessary parties. Id. [section] 967.
(17.) Estate of Lacy, 54 Cal. App. 3d 172, 182, 190-91 (1975). "The general rule is that a judgment or decree rendered in a matter where a legally incompetent party is not represented is merely erroneous and therefore voidable rather than void." Gale B. Wilhelm, David R. Hermenze, and Patricia L.R. Fowler, The Role of the Guardian ad litem and Probate Proceedings, 65 CONN. B.J. 462, 464 (1991) [hereinafter Wilhelm]. But see. e.g., Hess v. Hess, 135 N.E. 231 (N.Y. 1922). In Hess, Justice Crane (with Justice Cardozo and his brethren concurring) set aside the title of an innocent third party purchaser based on a determination a prior proceeding vesting title in the seller was invalid. Id. at 234. The court reasoned that the virtual representation of contingent remaindermen (grandchildren) by vested remaindermen (their parents) was inadequate. Id. at 233-34.
(18.) E.g., In re West's Estate, 284 N.W. 565, 569-70 (Wis. 1939) (explaining that the consent of a guardian ad litem to trustee accounts binds the infant beneficiaries); In re Silver's Will, 340 N. Y.S.2d 335, 339 (Sur. Ct. 1973) (noting that a conflict of interest is "a consequence never present where representation is by a guardian ad litem."). Cf. Jenkins v. Whyte, 62 Md. 427, 432-33 (1884) (noting that where accounts were approved without representation of infant beneficiaries, it not binding on them). See also generally Martin D. Begleiter, The Guardian Ad Litem in Estate Proceedings, 20 WILLAMETTE L. REV. 643 (1984) (discussing guardians ad litem in trust and estate proceedings).
(19.) S.D.C.L. [section] 55-18-9(l)-(2) (Supp. 2018) (allowing a conservator to bind a minor or protected person or, if none is appointed, a guardian). The term "conservator" in the context of the Virtual Representation chapter, includes a guardian ad litem. S.D.C.L. [section] 55-18-1(4) (Supp. 2018).
(20.) E.g., S.D.C.L. [section] 55-18-9(3) (Supp. 2018) (listing parents as representatives); S.D.C.L. [section] 55-18-9(4) (Supp. 2018) (noting caregivers as representatives); S.D.C.L. [section] 55-18-9(5) (Supp. 2018) (demonstrating trustees managing a significant portion of an incapacitated person's wealth as representatives).
(21.) See Weberpals v. Jenny, 133 N.E. 62, 65 (Ill. 1921) (explaining that "[w]here it appears that a particular party, though not before the court in person, is so far represented by others that his interests receive actual and efficient protection" that notice requirements are relieved); Kendall v. Crawford, 77 S.W. 364, 365 (Ky. 1903) (citations omitted) (explaining that where "there be ever so many contingent limitations of a trust, it is an established rule that it is sufficient to bring the trustees before the court, together with him in whom the first remainder of inheritance is vested; and all that may come after will be bound by the decree"); Johnston v. Johnston, 276 S.W. 776, 779 (Tex. App. 1925) (emphasizing that "courts are not required to withhold jurisdiction... because of a contingency that others might come into existence at some future date who would have an interest in the property and who would not be bound by the decree entered because they were not parties and, therefore, had no representation"). Occasionally, older authority speaks of the ability to bind non-parties by commonality in terms of privity. See, e.g., Kendall, 77 S.W. at 364 (citation omitted) ("If several remainders are limited by the same deed, this creates a privity between the person in remainder and all those who may come after him."). Nowadays, considerations of privity are typically limited to claim preclusion issues. See Taylor v. Sturgell, 553 U.S. 880, 894 n.8 (2008) (explaining that privity is now "used more broadly, as a way to express the conclusion that nonparty preclusion is appropriate on any ground."); Richards v. Jefferson Cty., 517 U.S. 793, 798 (1996) (noting how "the term 'privity' is now used to describe various relationships between litigants that would not have come within the traditional definition of that term."); Elbert v. Carter, No. 16-4077, 2018 WL 2024762, at *3 (8th Cir. May 1, 2018) (invoking privity, reversing a dismissal based on claim preclusion principles, and reasoning that where a plaintiff "seeks to hold the former Doe defendants individually liable, it cannot be said that those defendants' interests are so closely related to the [original] defendants, or that their interests are so nearly identical, that it would be fair to treat them as the same parties.") (citations omitted); In re Marriage of Dilick, No. 14-17-00848-CV, 2018 WL 1866029, at *6 (Tex. App. Apr. 19,2018) (reciting privity requirements and rejecting a partner's attempt to claim standing to pursue his partnership's appeal as a "deemed party" under virtual representation principles).
(22.) See S.D.C.L. [section] 55-3-31 (2012) (repealed 2017) (providing that the now replaced set of eight statutes governing representation and virtual representation shall be known as the "Virtual Representation Statutes").
(23.) Compare S.D.C.L. ch. 55-18 (Supp. 2018) (enumerating definitions and functional provisions of virtual representation legislation in South Dakota) with UNIF. TRUST CODE Art. 3 (2010) (titled "Representation") cmt. (explaining that the Uniform Trust Code's Article 3 "deals with representation of beneficiaries, both representation by fiduciaries (personal representatives, trustees, guardians, and conservators), and what is known as virtual representation.") (emphasis added). See also Karen E. Boxx & Katie S. Groblewski, Washington Trust Laws' Extreme Makeover: Blending with the Uniform Trust Code and Taking Reform Further with Innovations in Notice, Situs, and Representation, 88 WASH. L. REV. 813, 858 (2013) (identifying "three different categories of representation, namely, virtual representation, fiduciary representation, and court-appointed representation").
(24.) See M. Read Moore, Finality in Probate and Trust Proceedings-Making Your Judgments Stick. 9 PROB. & PROP. 21, 22 (1995) ("Virtual representation allows representation of contingent but unborn or unascertained beneficiaries by beneficiaries who participate in the proceeding if the interests of the beneficiaries are identical and the court's judgment or order will affect them in the same manner."). "It is the identity of interests which is of a paramount importance in determining the applicability of the doctrine of virtual representation." Industrial Generating Co. v. Jenkins,410 S.W.2d 658, 661 (Tex. Ct. App. 1966) (citation omitted). "Under the doctrine of virtual representation a person who is not formally made a party to an in rem proceeding by service of process, is nevertheless bound by the judgment because he is 'represented' by other individuals who are served[.]" Looker, supra note 15, at 396.
(25.) See, e.g., In re Trigger's Estate, 319 N.Y.S.2d 792, 793 (Sur. Ct. 1971) ("One who is presently interested in the income of a trust and has also expectant interests in principal does not have 'the same interest' as one who has no interest whatever in income but only in the principal."). Cf. In re Putignano's Estate, 368 N.Y.S.2d 420, 426 (Sur. Ct. 1975) (reasoning that the test should not be whether representor and representee have the "same interest" but rather the adequacy of representation).
(26.) Hale v. Hale, 33 N.E. 858, 867 (Ill. 1893).
(27.) See Indian Head Nat. Bank v. Theriault, 69 A.2d 226, 229 (N.H. 1949) (reasoning that a minor beneficiary could be represented by his father/beneficiary with regards to improvident trustee dealings claims but not as to whether the trustee had made improper distributions to the father); Estate of Bingham, 411 N.Y.S.2d 516, 517-18 (Sur. Ct. 1978) (holding that deceased son as co-fiduciary could not adequately represent his minor children); Matter of Will of Maxwell, 704 A.2d49, 57-58 (N.J. Super. Ct. App. Div. 1997) (ruling that conflict of interest between current and remainder beneficiaries required the appointment of an independent guardian ad litem). See also Keith G. Galitz, Note, Infectious Invalidity and Virtual Representation, 20 BAYLOR L. REV. 479, 481 (1968) (contrasting issue and outcome conflicts of interest approaches to virtual representation problems involving Rule against Perpetuities violations).
(28.) See infra Part II.A (discussing virtual representation and future interest).
(29.) See infra Part II.B (discussing two varieties of virtual representation).
(30.) See infra Part II.C (outlining the Restatement of Property's representation provisions and New York's 1967 codification).
(31.) See infra Part II.C.1 (discussing the old South Dakota virtual representation statutes).
(32.) See infra Part II.C.2 (discussing the Uniform Trust Code provisions).
(33.) See infra Part II.C.3 (discussing the new South Dakota virtual representation statutes).
(34.) See infra Part II.D, E (proposing a flowchart and several illustrations).
(35.) See Moore, supra note 24, at 22 (opining that "virtual representation should be available even absent a statute, because it is an established common law principle."). See also, e.g., Estate of Lange, 383 A.2d 1130, 1140 (N.J. 1978) (allowing certain beneficiaries "to represent the entire class of potential takers, but only in the absence of any demonstrable conflict of interest or other hostility between the presumptive takers and the other members of the class sought to be represented."); Beyer v. First Nat'l Bank, 843 P.2d 53, 62 (Colo. App. 1992) (applying Lange).
(36.) R. Jason Richards, Richards v. Jefferson County: The Supreme Court Stems the Crimson Tide of Res Judicata, 38 SANTA CLARA L. REV. 691, 706 (1998). See also Robert C. Bone, Rethinking the "Day in Court" Ideal and Nonparty Preclusion, 67 N.Y.U. L. REV. 193, 207 (1992) (speculating that virtual representation's origins can be traced to recognizing a tenant-in-tail's power to destroy subsequent interests and thereby bind remaindermen). For an early New York decision, see generally Mead v. Mitchell, 17 N.Y. 210 (1858) (applying virtual representation to unborns in a partition action). For an early Virginia decision, see generally Baylor's Lessee v. Dejarnette, 54 Va. (13 Gratt.) 152 (1856) (holding that a decree bound unnoticed unborns).
(37.) See Geoffrey C. Hazard, Jr., John L. Gedid & Stephen Sowle, An Historical Analysis of the Binding Effect of Class Suits, 146 U. PA. L. REV. 1849, 1909-10 (1998) (identifying "The State Cases: 1860-1940").
(38.) See id. at 1866 (explaining that this sort of case typically "involved a bill in behalf of all creditors or all legatees for an accounting and for payment of debts or legacies out of the estate of the debtor or decedent."). See also, e.g., David v. Frowd, 1 My. & K. 200, 207, 39 Eng. Rep. 657, 658 (M.R. 1833) (intoning, in this context, that "it is fitting that some definite limit should be put to litigation, and it is better that some hardship should be sustained in a particular instance, where a decision, though erroneous, is not open to redress by the ordinary course of appeal, than that general uncertainty should prevail").
(39.) Hazard, Gedid & Sowle, supra note 37, at 1866-74.
(40.) Future interests deemed too remote might not share in a condemnation award from a state's exercise of eminent domain powers over property bifurcated into present and future estates. See RESTATEMENT OF PROPERTY [section] 53 (1936) (characterizing a fee simple determinable as equivalent to fee simple absolute for purposes of a condemnation award). See also generally B. Glenn, Annot, Rights in Condemnation Award where Land Taken was Subject to Possible Rights of Reverter or Re-Entry, 81 A.L.R.2d 568, 569 (1962) (considering future interests in eminent domain contexts).
(41.) See Reedy v. Johnson's Estate, 26 So.2d 685, 686-87 (Miss. 1946) (en banc) (holding that remaindermen are necessary parties to a proceeding wherein the life tenants request an order directing deviation from the settlor's plan for farm management).
(42.) See Jesse Dukcminier, The Uniform Statutory Rule against Perpetuities: Ninety Years in Limbo, 34 UCLA L. REV. 1023, 1069 (1987) (noting that Rule against Perpetuities reform was motivated by "scorn on the absurdities of the Rule--the fertile octogenarian").
(43.) In re Estate of Edwards, 335 S.E.2d 39, 41 (N.C. Ct. App. 1985) (citations omitted).
(44.) See generally Benjamin C. Carpenter, Sex Post Facto: Advising Clients Regarding Posthumous Conception, 38 ACTEC L.J. 187, 197-200 (2014) (discussing the rights of posthumously conceived children). See also Lane v. Taylor, 152 S.W.2d 271, 274-75 (Ky. Ct. App. 1941) (recognizing the validity of remainder interests in a man's children even though the man is currently childless).
(45.) See Lawrence W. Waggoner, Perpetuities Reform, 81 MICH. L. REV. 1718, 1742-45 (1983) (discussing the unborn widow problem).
(46.) See S.D.C.L. [section] 43-5-8 (2004) (enacted by S.D. SESS. L. 1983, ch. 304, [section] 4) (repealing the common law Rule against Perpetuities).
(47.) E.g., Nat'l Bank of Commerce in Memphis v. U.S., 288 F. Supp. 391. 392 (W.D. Tenn. 1968) (noting the difficulty in valuing a remainder interest which follows a life estate); Appeal of Shippen, 80 Pa. 391, 396 (Pa. 1876) (emphasizing that life expectancy tables are relevant to determining the value of a life estate but that "[a] consumptive or diseased man does not stand on the same plane as one of the same age in vigorous health.").
(48.) See F. Carlisle Roberts, Virtual Representation in Actions Affecting Future Interests, 30 ILL. L. REV. 580, 582 (1936) (observing "the vital question in determining whether the presence of one party will amount to a virtual representation of another person who is not a party, so as to bind the absent person, is the similarity of their interests--their interests, not in the property, but in respect to the issue in the proceeding.") (emphasis added).
(49.) E.g., Finely v. McClure, 567 P.2d 851, 855 (Kan. 1977) (determining that estate of life tenant prevailed over remainderman where life tenant had leased farmland but died after crop was planted but before it was harvested); Hollerich v. Gronbach, 96 N.E.2d 354, 360 (Ill. App. Ct. 1950) (holding that remaindermen were entitled to proceeds from the sale of real property).
(50.) The meaning of "per stirpes" (or "by the root") is explained by the South Dakota probate code:
If a governing instrument calls for property to be distributed "by representation" or "per stirpes," the property is divided into as many equal shares as there are (i) children of the designated ancestor who survived the distribution date, if any, and (ii) children of the designated ancestor who failed to survive the distribution date but who left descendants who survived the distribution date. Each surviving child is allocated one share. The share of each child who failed to survive the distribution date but who left descendants who survived the distribution date is allocated in the same manner, with subdivision repeating at each succeeding generation until the share is fully allocated among surviving descendants.
S.D.C.L. [section] 29A-2-709(a) (2004).
(51.) See The Valuation of Future Interests in Estate and Inheritance Taxation, 47 YALE L. J. 1354, 1357 n.23 (1938) (discussing different valuation methods).
(52.) See S.D.C.L. [section] 15-6-17(c) (2014) (directing courts to "appoint a guardian ad litem for a minor or incompetent person not otherwise represented in an action"); In re Guardianship of Petrik, 544 N. W.2d
(388.) 391 (S.D. 19%) (citation omitted) ('The duty of a court-appointed guardian ad litem of a minor is to the court and not to the parents of a minor.").
(53.) "Should there be several persons or interests requiring the appointment of a guardian ad litem, or a class of persons, a single guardian may represent all such interested parties unless dual representation is precluded by conflict of interest." Wilhelm, supra note 17, at 463. But see In re Guardianship of Lauderdale, 549 P.2d 42, 46 (Wash. Ct. App. 1976) (explaining that a lawyer could not act as guardian ad litem for several minors where their interests were not substantially similar); Aaron Bruggeman, Superintendence Rule 48: Standardizing the Guardian ad litem System in Ohio Courts, 39 CAP. U. L. REV. 463, 478 (2011) (emphasizing that "guardians ad litem should properly determine if a conflict of interest exists and notify the court as soon as practicable").
(54.) See Katheleen R. Guzman, Dependent Disclaimers, 42 ACTEC L.J. 159, 200 n.158 (2016) (noting that virtual representation's "theoretical underpinnings include the tense dual recognition that while all necessary parties must be before the court to determine their rights, prompt, final, and binding issue resolution is valuable for the judicial process").
(55.) See S.D.C.L. [section] 29A-5-408 (2004 & Supp. 2018) (addressing annual conservatorship accountings); S.D.C.L. [section] 29A-5-412 (2004 & Supp. 2018) (providing that hearings to approve proposed sale of property where its fair market value cannot be readily ascertained).
(56.) See S.D.C.L. [section][section] 29A-5-412, 29A-5-410 (2004) (setting forth notice requirements for a hearing to approve a conservator's proposed sale of property). Previously, South Dakota law incorporated its Virtual Representation Statutes into its probate code, including guardianship and conservatorship proceedings. See infra note 100 (highlighting guardianship/conservatorship notice provisions). However, that link was severed in 2017. See S.D.C.L. [section] 29A-1-102 (2004 & Supp. 2018) (amended by SL 2017, ch. 208, [section] 37) (amending state law with explicit reference to the South Dakota Uniform Probate Code). A replacement set of representation and virtual representation rules for title 29A modeled on Uniform Probate Code section 1-403 has been proposed by your author but not yet approved by the South Dakota Bar Association. UNIF. PROB. CODE [section] 1-403 (amended 2010). The proposed replacement rules, which only apply within judicial proceedings, to be codified at S.D.C.L. [section] 29A-1-403 would provide:
S.D.C.L. [section] 29A-1-403. PLEADINGS; WHEN PARTIES BOUND; NOTICE. Except as provided in South Dakota Codified Law title 55, in proceedings involving decedents, minors, protected persons, or incapacitated persons, the following rules apply: (1) Interests to be affected must be described in pleadings that give reasonable information to owners by name or class, by reference to the instrument creating the interests or in another appropriate manner. (2) A person is bound by an order binding another in the following cases: (A) An order binding the sole holder or all co-holders of a power of revocation or a presently exercisable general power of appointment, including one in the form of a power of amendment, binds other persons to the extent their interests as objects, takers in default, or otherwise are subject to the power. (B) To the extent there is no conflict of interest between them or among persons represented: (i) An order binding a conservator binds the protected person or minor whose estate the conservator controls; (ii) An order binding a guardian binds the protected person or minor if no conservator has been appointed; (iii) An order binding a trustee binds beneficiaries of the trust in proceedings to probate a will establishing or adding to a trust, to review the acts or accounts of a former fiduciary, and in proceedings involving creditors or other third parties; (iv) An order binding a personal representative binds persons interested in the undistributed assets of a decedent's estate in actions or proceedings by or against the estate; and (v) An order binding a sole holder or all co-holders of a general testamentary power of appointment binds other persons to the extent their interests as objects, takers in default, or otherwise are subject to the power. (C) Unless otherwise represented, a minor or an incapacitated, unborn, or unascertained person is bound by an order to the extent the person's interest is adequately represented by another party having a substantially identical interest in the proceeding. (3) If no conservator or guardian has been appointed, a parent may represent a minor child. (4) Notice is required as follows; (A) The notice prescribed by [section] 29A-1-401 must be given to every interested person or to one who can bind an interested person as described in paragraph (2)(A) or (B). Notice may be given both to a person and to another who may bind the person. (B) Notice is given to unborn or unascertained persons who are not represented under paragraph (2)(A) or (B) by giving notice to all known persons whose interests in the proceedings are substantially identical to those of the unborn or unascertained persons. (5) At any point in a proceeding, a court may appoint a guardian ad litem to represent the interest of a minor, an incapacitated, unborn, or unascertained person, or a person whose identity or address is unknown, if the court determines that representation of the interest otherwise would be inadequate. If not precluded by conflict of interests, a guardian ad litem may be appointed to represent several persons or interests. The court shall state its reasons for appointing a guardian ad litem as a part of the record of the proceeding.
Memorandum from author to the Real Property Probate and Trust Law Section of the South Dakota Bar Association (Mar. 17, 2017) (on file with author).
(57.) See, e.g., Guardianship of Slakmon, 83 Cal. App. 3d 224, 235 (1978) (emphasizing that failure to comply with notice requirements "should properly result in denial of res judicata effect otherwise provided interim conservatorship orders").
(58.) In re Horn's Estates, 280 N.W. 142, 145 (Mich. 1938) (citations omitted). Cf. In re Guardianship of Rudonick, 456 P.2d 96, 103 (Wash. 1969) (holding that notice on guardian ad litem but not the ward still functions as res judicata as to a guardian's ad litem $150 fee).
(59.) UNIF. PROB. CODE [section] 1-403 (amended 2010).
(60.) See Lewis M. Simes, The Policy Against Perpetuities, 103 U. PA. L. REV. 707, 721 (1955) (explaining that "in America, future interests are nearly always equitable interests in trusts"). See also Goodloe v. Woods, 80 S.E. 108, 112 (Va. 1913) (ruling that the doctrine does not apply to concurrent property interests); infra Part II.B (distinguishing between horizontal and vertical virtual representation).
(61.) Barber v. Barber, 837 P.2d 714, 717-18 (Alaska 1992). See generally Barber v. Barber, 143 S.E. 469 (N.C. 1928) (discussing a much earlier virtual representation case that arose in North Carolina). Much in the way of virtual representation precepts derives from class actions. See Cont'l Cas. Co. v. Huizar, 740 S.W.2d 429, 431 (Tex. 1987) (Kilgarlin, J., concurring) (stating "[i]n its original sense, 'representation.' or as it is sometimes called, 'virtual representation,' was limited to situations involving class actions...") (abrogated on other grounds in Kramer v. Kastleman, 508 S.W.3d 211 (Tex. 2017); Bone, supra note 36, 211 n.54 (noting the class action virtual representation doctrine). See also Debra Lyn Bassett, Just Go Away: Representation, Due Process, and Preclusion in Class Actions, 2009 B.Y.U.L. REV. 1079, 1096-1114 (2009) (summarizing claim preclusion doctrines).
(62.) Begleiter, supra note 7, at 318.
(63.) Susan T. Bart and Lyman W. Welch, State Statutes on Virtual Representation--A New State Survey, 35 ACTEC J. 368, 368 (2010). See also Susan T. Bart and Lyman W. Welch, New Law Promotes Private Trust-Administration Agreements, 97 ILL. B.J. 562, 583 (2009) (claiming that codification of representation and virtual representation principles "facilitate[s] nonjudicial settlement agreements"). Missing parties may be bound by judgments with notice by publication taking the place of actual notice. S.D.C.L. [section] 15-9-7 (2015). Like an ad litem appointment, this solution may have application in a trust proceeding, but virtual representation doctrines can provide alternatives to notice by publication. See also, e.g., S.D.C.L. [section] 55-4-58 (2012) (discussing notice by publication to unknown creditors of a trust which was revocable at the settlor's death).
(64.) Begleiter, supra note 7, at 319. See also BOGERT, supra note 14, [section] 967 (2017) (citations omitted) (explaining that "the rights of unascertained or unborn persons who may possibly later become beneficiaries also may be protected by treating them as represented by living beneficiaries with identical or substantially identical interests").
(65.) See BOGERT, supra note 14, [section] 967 (citing UNIF. TRUST CODE [section]111, cmt. (2010)) (noting that the UTC does not include a precise definition of "interested persons" on account of the wide variety of matters which may arise). See also, e.g., S.D.C.L. [section] 21-22-1(1) (Supp. 2018) (defining a "beneficiary" for purposes of notice requirements); In re Marvin M. Schwan Charitable Found., 880 N.W.2d 88,94-95 (S.D. 2016) (construing the definition prior to its 2017 amendment). See also S.D.C.L. [section] 21-22-7 (Supp. 2018) (limiting standing to object to dispensing with court supervision to those beneficiaries "with a substantial interest in the trust").
(66.) See S.D.C.L. [section] 15-6-17(c) (2015) (governing guardians ad litem); S.D.C.L. [section] 29A-5-201 et seq. (2004) (outlining the procedures for appointing a minor's conservator).
(67.) See infra note 234 (discussing a parent's representation of a child).
(68.) Infra Part II.C.3.
(69.) Boxx & Groblewski, supra note 23. at 862.
(70.) RESTATEMENT (FIRST) OF PROP: FUTURE INTERESTS [section] 181 (b) (1936).
(71.) Boxx & Groblewski, supra note 23, at 863.
(72.) See Small v. Bellamy, 143 N.E. 831, 832 (Mass. 1924) (concluding that a "will created an equitable life estate").
(73.) A second variety of vertical representation required that "the future beneficiaries bear some relation to the beneficiary who would be the representative." Boxx & Groblewski, supra note 23, at 862. The representatives must "be a surviving spouse or domestic partner, distributee, heir, issue, or other kindred of the beneficiary" where their trusts interests were the same. Id. "Note that through the use of this section, a living, competent adult may be virtually represented." Id. at 863.
(74.) Begleiter, supra note 7, at 319. See, e.g., JESSE DUKEMINIER, ET AL., PROPERTY 283 (8th ed. 2014) (noting that where O has conveyed "to A for life, then to B and her heirs if B survives A, and if B does not survive A to C and his heirs" that B and C "have alternative contingent remainders") (emphasis in original).
(75.) Begleiter, supra note 7, at 319.
(76.) See, e.g., Hazard, supra note 37, at 1866-74 (unearthing the origins of virtual representation doctrine in creditor and legatee bills in probates with potentially numerous interested parties).
(77.) Smith v. Swormstedt, 57 U.S. 288 (1853).
(78.) RESTATEMENT (FIRST) OF PROP.: FUTURE INTERESTS [section][section] 180-86(1936). These sections were organized under chapter twelve of the Restatement titled "Protection of Future Interests Resulting from Requirements for Judicial Action Binding upon Such Interests." Id.
(80.) Id. atpt. II ch. 12 Introductory Note.
(81.) Id. at [section] 181 (governing protections for living persons); [section] 183 (protections for unborn persons). See also Future Interests in Federal Courts: Virtual Representation and the Rules of Civil Procedure, 69 YALE L.J. 816, 824 n.46 (1960) (examining the Restatement's provisions) [hereinafter Future Interests].
(82.) See RESTATEMENT (FIRST) OF PROP.: FUTURE INTERESTS [section] 181(a) (providing that where the trustee is joined, the trustee represents her beneficiaries).
(83.) See Begleiter, supra note 7, at 316 (terming this "fiduciary representation").
(84.) RESTATEMENT (FIRST) OF PROP.: FUTURE INTERESTS [section] 180(c); id. cmt. a.
(85.) Id. at [section] 185. Disqualifying hostility exists where the person acted in collusion with another party to a proceeding "in a manner making it unlikely that he would honestly and fully present the facts and contentions best calculated to protect his own interest" and that of the represented party. Id. cmt. d. Hostility can also be shown on account of "opposing economic advantages, or prior relations" between the persons. Id. See also RESTATEMENT (SECOND) OF JUDGMENTS [section] 42 (1982) cmt. f (acknowledging that "[w]hile collusion and inadequate diligence or vigor by a representative are logically distinct from conflict of interest on his part, as a practical matter the two will often coalesce").
(86.) RESTATEMENT (FIRST) OF PROP.: FUTURE INTERESTS [section] 180(d). See also RESTATEMENT (SECOND) OF JUDGMENTS [section] 41 (summarizing representation doctrines such as a conservator on behalf of a protected person); RESTATEMENT (SECOND) OF JUDGMENTS [section] 42 (summarizing class representation and other representation).
(87.) N.Y. SURR. CT. PROC. ACT LAW [section] 315 (West 1981).
(88.) Begleiter, supra note 7, at 327.
(89.) In re Estate of Borax, 303 N.Y.S.2d 739, 740 (Sur. Ct. 1969).
(93.) Id. at 741. See also, e.g., Matter of Will of Maxwell, 704 A.2d 49, 59 (N.J. Super. Ct. App. Div. 1997) (holding that trustee had a duty to assure the appointment of a guardian ad litem where a conflict of interest between the current and remainder beneficiaries was obvious). But see In re March's Estate, 6 A.2d 478, 482 (N.J. Orphans' Ct. 1939) (holding that failure to appoint an ad litem for infant beneficiaries was not grounds for vacating a decree). Cf. Jenkins v. Whyte, 62 Md. 427, 435 (Md. 1884) (reasoning that accounts approved without representation of infant beneficiaries by an ad litem was not binding on them).
(94.) E-mail from Patrick Goetzinger, Gunderson, Palmer, Nelson & Ashmore, LLP, to Thomas E. Simmons (May 7, 2018, 9:42 p.m. CST) (on file with author). S.D.C.L. [section][section] 55-3-31 to-38 (2012) (enacted by S.D. SESS. L. 1998, ch. 282, [section] 12-19) (repealed by S.D. SESS. L. 2017, ch. 208, [section] 36); N.Y. SURROGATE COURT PROCEDURE ACT [section] 315 (2017). The New York statutes--like South Dakota's old virtual representation statues--were organized into eight parts. Id. See Orrin G. Judd, Some Phases of Practice in Inter Vivos Trust Accountings in New York, 42 COLUM. L. REV. 207 (1942) (providing commentary on New York's pre-1967 virtual representation statutes).
(95.) E-mail from Terry Prendergast, Davenport, Evans, Hurwitz & Smith, LLP, to Thomas E. Simmons (May 7, 2018, 9:22 a.m. CST) (on file with author).
(96.) S.D.C.L. [section] 55-3-36 (2012) (repealed 2017). See also S.D.C.L. [section] 55-3-38 (2012) (repealed 2017) (providing that "the consent of all beneficiaries upon whom service of process would be required in a judicial proceeding... shall be binding and conclusive upon all such persons upon whom service would not be required" under the virtual representation statutes).
(97.) See S.D.C.L. [section][section] 55-3-31 to-38 (repealed 2017) (repealing sections of South Dakota law previously known as the "Virtual Representation Statutes").
(98.) S.D.C.L. [section] 55-3-31 (2012) (repealed 2017) (emphasis added).
(100.) See S.D.C.L. [section] 29A-5-201 (2004) (governing the appointment of a conservator for a minor); S.D.C.L. [section] 15-6-17(c) (2014) (governing guardian ad litem appointments). Seemingly, South Dakota's old virtual representation statutes were also unavailable in trust accountings since only current distributees are required to be noticed, not "all beneficiaries." S.D.C.L. [section] 55-3-45 (Supp. 2018) (releasing a trustee as to "all beneficiaries of the trust" where an accounting is provided to the "distribution beneficiar[ies]"). New York's section 315 suffers from the same flaw. See N.Y. SURR. CT. PROC. ACT [section] 315(1) (West 2018) (providing that the statute "shall apply in any proceeding in which all persons interested in the estate are required to be served"). New York's "[s]ection 315 applies by its terms to all proceedings involving future interests in which all persons interested in the estate [or trust] arc otherwise required to be served with process." Looker, supra note 15, at 400-01 (emphasis added).
(101.) S.D.C.L. [section] 55-3-34 (2012) (repealed 2017).
(103.) S.D.C.L. [section] 55-3-31 (repealed 2017).
(104.) Id. See Thomas E. Simmons, Decanting and Its Alternatives: Remodeling and Revamping Irrevocable Trusts, 55 S.D. L. REV. 253, 278 (2010) (explaining that under the now replaced language "cautious attorneys [would] read the DSS notice sentence to require notice to DSS even in non-judicial reformations where no beneficiary is currently a Medicaid recipient since the beneficiaries 'may' owe a debt to DSS at some time in the future").
(105.) S.D.C.L. [section] 55-3-35 (2012) (repealed 2017).
(109.) Id. "If the person under a disability is a minor... [then notice is required upon] the natural parents, or if there are no natural parents alive, then upon the adoptive parent or parents of the minor." Id.
(112.) S.D.C.L. [section] 55-3-32 (2012) (repealed 2017). See also In re Estate of Putignano, 368 N.Y.S.2d 420, 426 (Sur. Ct. 1975) (applying the "further limited" language from the New York virtual representation statutes); Lawrence B. Rodman and Leroy E. Rodman, Virtual Representation: Some Possible Extensions, 6 REAL PROP. PROB. & TR. J. 281, 287 (1971) (construing the "further limited" language). Rodman and Rodman suggest that the implication of "the statutory phrase 'has been further limited' which qualifies the words 'same interest'" might be "that the very same interest owned by [one beneficiary] must be the one limited to the person he will represent." Id. at 287. Under Rodman and Rodman's reasoning, "one member of a class may not represent another member of the same class, because although they have the same economic interest deriving from a common grant, they do not own an interest in the same share of the grant." Id. See also supra Part II.B (contrasting horizontal and vertical virtual representation).
(113.) S.D.C.L. [section] 55-3-32 (repealed 2017).
(117.) S.D.C.L. [section] 55-3-33 (2012) (repealed 2017).
(118.) S.D.C.L. [section]55-3-37 (2012) (repealed 2017). The petition was required to highlight "to the court information with respect to the persons interested in the estate upon whom service may be dispensed with, the nature of the interests of such persons, and the basis upon which service may be dispensed with" as well as "whether the fiduciary or any other person has discretion to affect the present or future beneficial enjoyment of the estate" as well as "the discretion possessed and, if exercised." Id.
(120.) See S.D.C.L. [section] 55-3-32 (2012) (repealed 2017) (employing the "further limited" language). See also supra note 112 (assessing the "further limited" language).
(121.) See S.D.C.L. [section] 29A-1-102 (2004) (providing that the probate and guardianship codes contained within chapter 29A included the (old) Virtual Representation Statutes). That statute stated that the "code also includes [section][section] 55-3-31 to 55-3-38, inclusive." Id. (emphasis supplied). See also S.D.C.L. [section] 29A-1-101 (2004) (confirming that "code" refers to "Chapters 29A-1 to 29A-6, inclusive."). But the sentence from section 29A-1-102 which incorporated the Virtual Representation statutes into the probate and guardianship codes was deleted in 2017. S.D.C.L. [section] 29A-1-102 (Supp. 2018) (amended by S.D. SESS. L. 2017, ch. 208, [section]37).
(122.) David M. English, The Uniform Trust Code (2000), 12 KOREN EST. TAX & PERS. FIN. PLAN. UPDATE (Dec. 2012). "Amendments to the Code were approved by the Commissioners in Summers 2001, 2003 and 2004 and by the Commissioners' Executive Committee in January 2005 and are primarily, but not always, technical in nature." Id.
(124.) See, e.g., UNIF. TRUSTEES ACCOUNTING ACT [section] 9 (NAT'L CONFERENCE OF COMM'RS ON UNIF. STATE LAWS 1936) (providing for representation of unborn and infants by other members of a class); George Bogert, The Proposed Uniform Trustees' Accounting Act, 21 CORNELL L.Q. 529, 548-51 (1936) (considering criticisms of the draft act).
(125.) See BOGERT, supra note 14, at [section] 973 (explaining that the Uniform Trustees Accounting Act was adopted in five states but today only remains partially in effect in three); Philip H. Wile, Judicial Assistance in the Administration of California Trusts, 14 STAN. L. REV. 231, 250 n.75 (1962) (noting that the Act was "critically received").
(126.) David M. English, The Uniform Trust Code (2000): Significant Provisions and Policy Issues, 67 MO. L. REV. 143, 145 (2002) [hereinafter English, UTC Provisions].
(127.) David M. English, Uniform Trust Code (2000), 2000 A.L.I.-A.B.A. 205, 210 (2000). Professor English, the reporter for the UTC, explained how "comprehensive trust statutes are already in effect in several states." Id. "Notable examples include California, Georgia, Indiana, and Texas." Id. The UTC was influenced by a 1986 California statute "which was used by the drafting committee as its initial model." Id.
(128.) UNIF. LAW COMM'N, LEGIS. FACT SHEET--TRUST CODE (last visited May 16, 2018), http://uniformlaws.org/LegislativeFactShect.aspx?title=Trust%20Code. Prior to the Uniform Trust Code, there was the Uniform Trusts Act of 1937, but it was adopted in just six states (including South Dakota where many of its provisions remain in South Dakota Codified Law chapter 55-4) and "despite its name, [it] was not an attempt to create a comprehensive body of uniform trust law." C. Shawn O'Donnell, Note, Exploring the Tennessee Uniform Trust Code, 38 U. MEM. L. REV. 489, 495 n.26 (2008) (citing UNIF. TRUST CODE (UNIF. LAW. COMM'N 2005) (prefatory note)).
(129.) See In re The Elizabeth A. Briggs Revocable Living Tr., 2017 SD 40, [paragraph]9, 898 N.W.2d 465,469 (referring to UTC [section] 604 to construe a similar South Dakota statute governing limitations periods for contesting the validity of a trust); In re Tr. Fund Created Under Terms of Last Will and Testament of Joseph Baumbart, 2015 SD 65, [paragraph] 35, 868 N.W.2d 568, 577 (analyzing UTC [section] 706 comments on a "serious breach of trust" by a trustee); In re Donald Hyde Tr., 2014 SD 99, [paragraph] 18, 858 N.W.2d 333, 339-340 (observing that UTC [section] 602(c) allows a will to amend a revocable trust in certain circumstances, but that South Dakota has not adopted an analogous provision).
(130.) UNIF. TRUST CODE art. 3 cmt. (UNIF. LAW COMM'N 2010).
(131.) Id. atart. 3 cmt., [section] 105.
(132.) See English, UTC Provisions, supra note 126, at 155 ("Nearly all of the [Uniform Trust] Code's provisions are subject to override by the terms of the trust.").
(133.) UNIF. TRUST CODE [section] 304 cmt. (UNIF. LAW COMM'N 2010). Cf. UNIF. PROB. CODE [section] 1-403(2)(ii) (2008) (requiring that the representation be adequate); RESTATEMENT (FIRST) OF PROP.: FUTURE INTERESTS [section][section] 181, 185 (1936) (providing that virtual representation is inapplicable where the interest is not sufficiently protected).
(134.) UNIF. TRUST CODE [section] 302(2010).
(135.) See English, UTC Provisions, supra note 126, at 159 n. 98 (citing RESTATEMENT (FIRST) OF PROP.: FUTURE INTERESTS [section] 185 cmt. d (1936)) ("Even if the beneficial interests of the representative and person represented are identical, representation is not allowed in the event of conflict of interest. The representative may have interests outside of the trust that are adverse to the interest of the person represented, such as a prior relationship with the trustee or other beneficiaries.").
(136.) UNIF. TRUST CODE [section]303 (2010).
(137.) UNIF. TRUST CODE [section] 305 (2010). See, e.g., Shire v. Unknown/Undiscovered Heirs, 907 N.W.2d 263, 270 (Neb. 2018) (acknowledging, under Nebraska's UTC, that "while the court could... [permit] any unknown beneficiaries to be represented and bound by the unanimous consent of the known beneficiaries..." to a proposed trust modification, the trustee could--and did--move for the appointment of a representative for them).
(138.) UNIF. TRUST CODE [section] 301(c)-(d) (2010). See also infra Part II.E.5 (describing a hypothetical fact pattern involving settlor representation).
(139.) S.D.C.L. ch. 55-18 (Supp. 2018). See Al W. King, III and Pierce H. McDowell, III, A Bellweather of Modern Trust Concepts: A Historical Review of South Dakota 's Powerful Trust Laws, 62 S.D. L. REV. 266, 266 n. 4 (2017) (providing a history of the Governor's Trust Task Force). Your author was the principal drafter of the 2017 virtual representation statutes, although any legislation arising out of the task force's work is a collaborative effort.
(140.) See S.D.C.L. [section] 29A-1-102 (Supp. 2018) (providing that "This [probate/guardianship] code also includes [section] 55-3-31 to 55-3-38, inclusive"). Those code sections (i.e., [section][section] 55-3-31 to 55-3-38) represent the old South Dakota Virtual Representation Statutes which were repealed and replaced with the new chapter 55-18. See supra note 121 (summarizing these revisions). The incorporation of those old statutes into the probate code was also repealed and--thus far--not replaced. See supra note 56 (reprinting a proposed replacement section).
(141.) See S.D.C.L. [section] 55-18-2 (Supp. 2018) (restricting the application of chapter 55-18 to "any proceeding involving any person interested in a trust.").
(142.) See, e.g., Masonic Widows' and Orphans' Home and Infirmary v. Hieatt Bros., 247 S.W. 34, 36 (K.y. Ct. App. 1923) (applying common law virtual representation to contingent remaindermen in real property). Your author has been unable to locate any reported South Dakota Supreme Court decision applying virtual representation doctrines or statutes. There are some decisions which apply nonparty claim preclusion principles, though not involving trusts or estates. See, e.g., Ruple v. City of Vermillion, 714 F.2d 860, 862 (8th Cir. 1983) (dismissing a second lawsuit raising similar claims with additional defendants where the "newly named defendants are in privity with those who were defendants in the state court... [insofar as] they are so closely related to the state-court defendants, and their interests are so nearly identical, that it is fair to treat them as the same parties for purposes of determining the preclusive effect of the state-court judgment"); Yankton Sioux Tribe v. U.S. Dep't of Health & Hum. Servs., 496 F.Supp.2d 1044, 1055 (D.S.D. 2007) (Piersol, J.) (dismissing a second lawsuit with new individual tribal member plaintiffs where "the Tribe and Golus in Yankton I were the virtual representatives of Drapeau [insofar as] Golus and Drapeau's interests are identical, as they are both members of the Tribe and both have an interest in keeping the emergency room open at the Wagner 1HS Facility").
(143.) S.D.C.L. ch. 55-18.
(145.) See S.D.C.L. [section] 55-18-1(19) (Supp. 2018) (defining a representative); S.D.C.L. 55-18-17 (Supp. 2018) (describing the role of a representative).
(146.) S.D.C.L. [section] 55-18-10 (Supp. 2018). Cf. S.D.C.L. [section] 55-3-37 (2012) (repealed 2017) (summarized, supra at note 118).
(148.) S.D.C.L. [section] 55-18-11 (Supp. 2018).
(149.) S.D.C.L. [section] 55-18-4(4) (Supp. 2018); S.D.C.L. [section] 55-18-7 (Supp. 2018). See also, e.g., Brams Tr. #2 v. Haydon, 266 S.W.3d 307, 311 (Mo. Ct. App. 2008) (noting that Missouri's UTC allows representation in trust proceedings "unless the person represented objects to the representation") (quoting MO. REV. STAT. [section] 456.3-301.2). That UTC provides: "The consent of a person who may represent and bind another person under this [article] is binding on the person represented unless the person represented objects to the representation before the consent would otherwise have become effective." UNIF. TRUST CODE [section] 301(b) (2010).
(150.) S.D.C.L. [section] 55-18-17 (Supp. 2018). "A representative is not a fiduciary solely by reason of being a representative unless otherwise ordered by the court, expressly affirmed in writing by the representative, or provided in the governing instrument." Id.
(151.) S.D.C.L. [section] 55-18-18 (Supp. 2018).
(152.) S.D.C.L. [section] 55-18-14 (Supp. 2018). Similarly, the notifier has a duty to give notice of conflicts of interest which come to her attention. S.D.C.L. [section] 55-18-15 (Supp. 2018).
(153.) S.D.C.L. [section]55-18-13 (Supp. 2018).
(155.) S.D.C.L. [section] 55-18-1(2) (Supp. 2018). Cf. UNIF. TRUST CODE [section][section] 302-304 (2010) (conditioning the effectiveness of representation on the absence of a conflict of interest but failing to define a conflict of interest); RESTATEMENT (THIRD) OF TRUSTS [section] 97 illus. 8 (2012) (providing an example of a conflict of interest "between a life-income beneficiary and a trustee with a partial interest in the remainder" where the trustee has made improper investments). See also RESTATEMENT (FIRST) OF PROPERTY: FUTURE INTERESTS [section] 185 (1936) (implying the rejection of a conflict of interest inquiry but requiring that the representative not act "in hostility to the interest of the person" he represents). See also, e.g., Matter of Ziegler, 596 N.Y.S.2d 963, 968 (Sur. Ct. 1993) (rejecting the assertion of a disqualifying conflict of interest). The Restatement of Property indicates that "opposing economic advantages, or prior relations between the representative" and the represented beneficiary is circumstantial evidence of hostility. RESTATEMENT (FIRST) OF PROPERTY: FUTURE INTERESTS [section] 185 cmt. d (1936). The author anticipates a statutory amendment for S.D.C.L. [section] 55-18-1(2) to be introduced in the 2019 legislative session which would provide additional clarity to the definition of a conflict of interest by excluding (i) any adversity, conflict, or opposed interests which are substantially unrelated to the representative's interest in the trust; (ii) a past situation which is not likely to re-occur; and (iii) any conflict of interest which falls short of a material conflict of interest.
(156.) S.D.C.L. [section] 55-18-12 (Supp. 2018).
(157.) Subdivision 55-18-20(2) provides special rules governing the settlor under a conservatorship in a revocable trust amendment scenario. S.D.C.L. [section] 55-18-20(2) (Supp. 2018). See also infra Part II.F.5 (describing a hypothetical settlor virtual representation fact pattern).
(158.) Chapter 55-10A is South Dakota's version of the Uniform Transfers to Minors Act (or UTMA). S.D.C.L. ch. 55-10A (2012); UNIF. TRANSFERS TO MINORS ACT (1986). A "custodian" is a person designated to care for and control a minor's custodial property. S.D.C.L. [section][section] 55-10A-1(4), 55-10A-14 (2012). See also generally Jani Mauer, Uniform Transfers to Minors Act Accounts--Progress, Potential, and Pitfalls, 28 NOVA L. REV. 745 (2004) (reviewing UTMA).
(159.) Subdivision 55-18-20(1) provides special rules governing an incapacitated settlor with an agent or attorney-in-fact in a revocable trust amendment scenario. S.D.C.L. [section] 55-18-20(1) (Supp. 2018). See also infra Part II.E.5 (describing a hypothetical settlor virtual representation fact pattern).
(160.) Section 55-18-23 explains that where a governing instrument designates a person to represent another person or class of persons, such a representative may not do so while serving as trustee or cotrustee of the trust. S.D.C.L. [section] 55-18-23 (Supp. 2018). The governing instrument may override this default rule but only by express language. Id.
(162.) A person described by subsection 55-18-1(9)(a) means a "current distributee or permissible distributee of trust income or principal." S.D.C.L. [section] 55-18-9(a) (Supp. 2018). My term for these persons would be "first tier beneficiaries."
(163.) Beneficiaries described in subsection 55-18-l(9)(b)-(c) mean "second tier beneficiaries" (the author's term); beneficiaries who would be distributees or permissible distributees if the trust terminated or the interests of the current distributees terminated on the date a person's qualification to serve as a representative is determined. S.D.C.L. [section] 55-18-1 (9)(b)-(c) (Supp. 2018). In other words, the current beneficiaries may represent the second tier beneficiaries but only if the requirements of subsection 14(a)-(c) are met. S.D.C.L. [section] 55-18-9(14) (Supp. 2018).
(164.) See S.D.C.L. [section] 55-18-1(2) (Supp. 2018) (defining a "conflict of interest" as "a situation in which a representative's interest in the trust causes a significant likelihood that a reasonable person would disregard a representative's duty to a represented beneficiary").
(165.) A person described by subsection 55-18-1 (9)(d) means someone holding a power of appointment. S.D.C.L. [section] 55-18-1(9)(d) (Supp. 2018). 1 would term these persons "first tier POA-holders."
(166.) Beneficiaries described in subsection 55-18-1(9)(e) mean "second tier POA-holders" (the author's term); persons who would hold a power of appointment if the interests of the current distributees or persons holding current powers of appointment terminated on the date a person's qualification to serve as a representative is determined. S.D.C.L. [section] 55-18-1(9)(e) (Supp. 2018). In other words, the current POA-holders may represent the second tier POA-holders (if any) without any additional requirements such as those imposed on first tier beneficiaries representing second tier beneficiaries. S.D.C.L. [section] 55-18-9(15) (Supp. 2018). Cf. S.D.C.L. [section] 55-18-9(14) (Supp. 2018) (imposing additional requirements for first tier beneficiary representatives).
(167.) Section 55-18-19 explains that "if the court determines that a person cannot be adequately represented by a representative, the court may order... the appointment of a court representative or a replacement court representative to bind the person." S.D.C.L. [section] 55-18-19 (Supp. 2018).
(168.) S.D.C.L. [section]55-18-9 (Supp. 2018).
(169.) S.D.C.L. [section] 55-18-6 (Supp. 2018). See also S.D.C.L. [section] 55-18-1(3) (2012 & Supp. 2018) (defining a "co-representative").
(170.) S.D.C.L. [section] 55-18-20 (Supp. 2018).
(171.) Compare S.D.C.L. [section] 55-3-31 (2012) (repealed 2017) (requiring notice to the Department of Social Services "in any matter where an interested party may owe a debt to the department") with S.D.C.L. [section] 55-18-8 (Supp. 2018) (limiting notice to the Department with regards to "interested" beneficiaries and clarifying that a "beneficiary is not considered a person who may owe a debt to the department solely on account of the person's residence in this state").
(172.) S.D.C.L. ch. 55-18 (Supp. 2018). The New York statutory analogue also utilizes the term virtual representation although it extends both to representation and virtual representation matters. N.Y. SURR. CT. PROC. ACT LAW [section] 315 (West 2018).
(173.) See Matter of Silver, 340 N.Y.S.2d 335, 339 (Sur. Ct. 1973) (observing that "virtual representation never assures the same finality as does representation by a guardian ad litem" because of the possibility of a conflicted representation). See also Future Interests, supra note 81, at 821 n.27 (unearthing "the rule that representation is inadequate if the best possible representative of the absent parties is not joined.") (emphasis added) (citations omitted).
(174.) See, e.g., Downey v. Seib, 78 N.E. 66, 67 (N.Y. 1906) (ruling title unmarketable where infertile life tenant's earlier quiet title action had been ineffective as to her unborn children-remaindermen). See also infra note 205 (discussing Downey v. Seib); Hess v. Hess, 135 N.E. 231, 234 (N.Y. 1922) (setting aside the title of an innocent third party purchaser following a life tenant's action to obtain her dower where contingent remaindermen were not made parties). See also, e.g., Matter of Balfe, 49 N.Y.S.2d 882 (N.Y. Sur. 1944) (involving an unsuccessful 1944 attack on a 1934 accounting decree holding an assertion that notice on unborn parties was inadequate), aff'd, 57 N.Y.S.2d 136 (N.Y. App. Div. 1945), aff'd, 68 N.E.2d 56 (N.Y. 1946).
(175.) See Boxx & Groblewski, supra note 23, at 861 (explaining that statutory virtual representation was enacted "[i]n order to reduce court congestion and save time and money for the interested parties"); English, UTC Provisions, supra note 126, at 158 ("The UTC strives to keep administration of trusts outside of the courts.").
(176.) See UNIF. TRUST CODE [section] 303 (2010) (conditioning the effectiveness of representation on "the extent [to which] there is no conflict of interest between the representative and the person represented or among those being represented with respect to a particular question or dispute).
(177.) Boxx & Groblewski, supra note 23, at 858-59. See also WASH. REV. CODE ANN. [section] 11.96A. 120(4) (2013) (requiring as a condition of representation that the representative not have a conflict of interest).
(178.) See, e.g., 2 Nat'l Place, L.L.C. v. Reiner, 99 A.3d 1171, 1177 (Conn. App. Ct. 2014) ("Fiduciaries appear in a variety of forms, including agents, partners, lawyers, directors, trustees, executors, receivers, bailees and guardians."). Fiduciaries must exercise "a high degree of diligence and due care... and are required to exercise the utmost good faith in all transactions." Case v. Murdock, 488 N.W.2d 885, 890 (S.D. 1992) (citations omitted) (considering corporate officer and director positions). See also Roberts, supra note 48, at 581 (explaining that a "guardian ad litem is the judicially created alter ego of his ward, whose sole and affirmative duty is to protect the ward's interests"). "In order to prevent trustees from 'all temptation and to prevent any possible injury to the beneficiary, the rule against a trustee dividing his loyalties must be enforced with "uncompromising rigidity." '"In re Trust Fund Created Under Terms of Last Will and Testament of Baumbart, 2015 SD 65, [paragraph] 32, 868 N.W.2d 568, 577 (quoting Nat'l Lab. Rel. Bd v. Amax Coal Co., a Div. of Amax, Inc., 453 U.S. 322, 329-30 (1981) (quoting Meinhard v. Salmon, 164 N.E. 545, 546 (N.Y. 1928) (Cardozo, C.J.)).
(179.) Boxx & Groblewski, supra note 23, at 859, 867. When a fiduciary is "a representative, such a fiduciary must meet fiduciary standards of care, or risk suit for breach of fiduciary duty by or on behalf of the principal." Id. at 859.
(180.) Id. at 859. "Liability in the context of court-appointed representatives is... different because they are subject to court review, and are appointed with specific powers according to statutory schemes which may provide for liability (or a release therefrom)." Id.
(181.) S.D.C.L. [section] 55-18-13 (Supp. 2018). "A representative with a conflict of interest with respect to the matter in question may bind the person that the representative represents...." Id. (emphasis added).
(182.) See Barber v. Barber, 837 P.2d 714, 717 (Alaska 1992) (finding that an "interest as a contingent beneficiary was sufficiently definite to warrant constitutional protection"). But see Boxx & Groblewski, supra note 23, at 865 (noting that the decision in the "Barber case does not specifically address whether virtual representation of a competent, adult beneficiary is in and of itself a violation of due process"). See also Jack L. Johnson, Due or Voodoo Process: Virtual Representation as a Justification for the Preclusion of a Nonparty Claim, 68 TUL. L. REV. 1303, 1305-06 (1994) (noting "[t]he doctrine of virtual representation potentially violates traditional rules of due process by denying nonparties their rightful day in court"); Victor Petrescu, Note, Crash and Burn: Taylor v. Sturgell 's Radical Redefinition of the Virtual Representation Doctrine, 64 U. MIAMI L. REV. 735, 736 (2010) (emphasizing that virtual representation's "benefits of efficiency, consistency, and finality, benefits which must be weighed against due process concerns"). But see In re Silver's Will, 340 N.Y.S.2d 335, 338 (Sur. Ct. 1973) (proclaiming that "there is no question of the constitutionality of the [New York 1967 virtual representation] statute under substantive or procedural due process standards"); Matter of Mersereau, 135 N.E. 909, 909 (N.Y. 1922) (per curiam) (synopsis only) (upholding New York's pre-1967 virtual representation law). Cf. Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 319-20 (1950) (Jackson, J.) (holding New York's common fund accounting statute unconstitutional as to known beneficiaries where notice was only by publication). See also Cavett v. Peterson, 688 P.2d 52, 57-58 (Okla. 1984) (reasoning that contingent remainders receive no due process protections and arc "subject to legislative control").
(183.) See S.D.C.L. [section] 55-18-10 (Supp. 2018) (requiring disclosure to representatives). See also S.D.C.L. [section] 55-18-14 (Supp. 2018) (requiring representatives to disclose known conflicts of interest); S.D.C.L. [section] 55-18-18 (Supp. 2018) (allowing reasonable compensation for representatives).
(184.) See S.D.C.L. [section] 55-18-13 (noting the "cause of action that the represented person may have against a representative who acts knowingly" in ignoring a conflict of interest). See also S.D.C.L. [section] 55-18-17 (Supp. 2018) (immunizing representatives unless they act dishonestly, with an improper motive, or they fail to act when under a duty to do so).
(185.) See S.D.C.L. [section] 55-18-17 (providing that "[a] representative is not a fiduciary solely by reason of being a representative").
(186.) S.D.C.L. [section]55-18-14.
(187.) See Taylor v. Sturgell, 553 U.S. 880, 900 (2008) (considering virtual representation as applied to claim preclusion arguments in the context of an FOIA request). The court reasoned, in that context:
Our second reason for rejecting a broad doctrine of virtual representation rests on the limitations attending nonparty preclusion based on adequate representation. A party's representation of a nonparty is "adequate" for preclusion purposes only if, at a minimum: (1) The interests of the nonparty and her representative are aligned; and (2) either the party understood herself to be acting in a representative capacity or the original court took care to protect the interests of the nonparty. In addition, adequate representation sometimes requires (3) notice of the original suit to the persons alleged to have been represented.
Id. (internal citations omitted) (emphasis added). "Taylor v. Sturgell rejected claim preclusion against a nonparty plaintiff based on a notion that the nonparty received 'virtual representation' by a different plaintiff in a first action." Elbert v. Carter, 733 F. App'x 317, 324(8th Cir. 2018)(Colloton, J., concurring in part and dissenting in part). See also Robert E. Kohn, Due Process of Law in Private Civil Litigation: Is There Anything New to Say About it? (Yes, There is.), FED. LAW. 58, 59 (June 2013) (explaining that "[j]udgments in class actions and other 'representative' proceedings cannot bind absentees except in narrow circumstances" identified in Taylor v. Sturgell). South Dakota's virtual representation statutes help ensure the adequacy of representation in the trust beneficiary context by, inter alia, making it more likely that a representative understands her role as a representative. See S.D.C.L. [section] 55-18-10 (Supp. 2018) (requiring disclosures to representatives).
(188.) S.D.C.L. [section] 55-18-26 (Supp. 2018). Immunity for trustees and other fiduciaries must fall within a safe harbor requiring that they did not "knowingly disregard the lack of a representative's authority...." Id.
(189.) See, e.g., S.D.C.L. [section] 55-3-24 (Supp. 2018) (allowing modification of an irrevocable trust "upon the consent... of all of the beneficiaries") (emphasis added); S.D.C.L. [section] 55-4-32 (2012) (allowing a court to relieve a trustee of duties "upon notice to the beneficiaries"); S.D.C.L. [section] 55-2-13 (Supp. 2018) (requiring trustee notice to "qualified beneficiaries" (a defined term) of the existence of a trust). Compare S.D.C.L [section] 55-15-2(2) (2012) (requiring notice of a conversion to a unitrust to the trustor, the persons currently eligible for distributions, and living beneficiaries who would be eligible for distributions if those persons were deceased) with S.D.C.L. [section] 55-2-18 (Supp. 2018) (deeming notice to beneficiaries of a trustee's election to "decant" optional).
(190.) E.g., S.D.C.L. [section] 21-22-18 (Supp. 2018) (requiring notice "upon fiduciaries" (a defined term which includes trustees).
(191.) See S.D.C.L. ch. 55-1B (2012) (describing trust protectors and trust advisors); S.D.C.L. [section] 55-1B-12 (Supp. 2018) (describing family advisors).
(192.) S.D.C.L. [section] 55-18-1(9) (Supp. 2018).
(194.) See generally Sheldon F. Kurtz, Powers of Appointment Under the 1990 Uniform Probate Code: What Was Done--What Remains to be Done, 55 ALB. L. REV. 1151, 1153-60 (1992) (urging the extension of representation to include non-conflicted holders of non-general and testamentary powers since the donee effectively controls the outcome for both). Professor Guzman explains the operation of powers of appointment:
A power of appointment is effectively nothing more than a donor's grant of a power to a donee to choose who should take the property subject to the power's terms. The power is "general" if it can be exercised by the donee/ "power holder" in favor of that donee or her creditors, or that donee's estate or its creditors; "non-general" (or "special") if these potential appointees are excluded from the permissible class. Again depending on its terms, a power may be exercisable by the donee presently or only at death. Technically, the objects of appointment hold but an expectancy in the subject property, as they will only take if an actual appointment to them is made by the donee. By contrast, any takers in default of that appointment hold a vested property interest, albeit one subject to divestment depending on the donee's conduct. Guzman, supra note 54, at 200-01 n. 160 (internal citations omitted).
(195.) S.D.C.L. [section] 55-18-1(9).
(196.) S.D.C.L. [section] 55-18-8 (Supp. 2018).
(197.) S.D.C.L. ch. 55-9 (2012). This chapter suggests that the attorney general need only be noticed as a party in cy pres matters involving charitable trusts. S.D.C.L. [section][section] 55-9-3 to-5 (2012). However, this chapter fails to clarify when a trust is "charitable." Cf. In re Geppert's Estate, 59 N.W.2d 727, 729-30 (S.D. 1953) (noting that with charitable trusts, trust property is devoted to purposes which are beneficial to the community). Is a dynastic trust which terminates when there are no living descendants of the settlor and distributes to a charity selected by the trustee "charitable" for purposes of attorney general joinder? It's unclear. The attorney general does exercise its authority to "enforce" charitable trusts more generally than the cy pres statutes may suggest. S.D.C.L. [section] 55-9-5 (2012). See also, e.g., In re Marvin M. Schwan Charitable Found., 2016 SD 45, [paragraph] 1, 880 N.W.2d 88, 89 (involving the attorney general's petition for dismissal of a petition for court supervision of a charitable trust); Banner Health Sys. v. Long, 2003 SD 60, [paragraph] 3, 663 N.W.2d 242, 244 (involving the attorney general's resistance to a nonprofit corporation's asset sale plan). But see In re Reese Tr., 2009 SD 111, [paragraph] 10 n.4, 776 N.W.2d 832, 835 n.4 (noting that "The attorney general's role [in cy pres] has... been codified..."). See also Craig Kaufman, Comment, Sympathy for the Devil's Advocate: Assisting the Attorney General When Charitable Matters Reach the Courtroom, 40 REAL PROP. PROB. & TR. J. 705,720 (2006) ("In practice, American courts have left supervision of charitable trusts to the attorney general precisely because the public is the ultimate beneficiary of all charities, notwithstanding the specific nature of the bequest").
(198.) S.D.C.L. [section] 55-18-7 (Supp. 2018). In 2018, this statute was amended to narrow mandatory notice to a beneficiary who has demanded notice to judicial proceeding contexts after commencement of the proceedings. 2018 S.D. Sess. Laws ch. 275 [section] 33, 523.
(199.) S.D.C.L. [section] 55-18-23 (Supp. 2018). "A governing instrument may require additional notification or consent than otherwise required by law." Id. Any "trust agreement may contain its own requirements of 'virtual representation' by providing (for example) that the accounts of the trustees should be conclusively settled by the written agreement of certain specified income beneficiaries or remaindermen." Looker, supra note 15, at 396 n.4 (citing "inconclusive cases" in support). This idea can also be seen in drafters of trusts with withdrawal rights for minors, identifying in the trust agreement representatives of the minors who may receive notice and determine whether to exercise a right on behalf of a minor. See Bradley E.S. Fogel, The Emperor Does Not Need New Clothes-The Expanding Use of "Naked" Crummey Withdrawal Powers to Obtain Federal Gift Tax Annual Exclusions, 73 TUL. L. REV. 555, 571-76 (1998) (summarizing non-guardian authority to exercise withdrawal rights). It might be emphasized, however, that the drafter who exercises the power to draft virtual representation as she chooses could theoretically go too far for due process purposes.
(200.) S.D.C.L. [section] 55-18-5 (Supp. 2018). No notice is required from:
(1) An unborn individual; (2) An unascertained person; (3) The potential appointee of a power of appointment; (4) The potential taker in default of'a general power of appointment; (5) An uninterested beneficiary; and (6) A person bound by a representative.
Id. An "uninterested beneficiary" means any beneficiary "other than an interested beneficiary." S.D.C.L. [section] 55-18-1(21) (Supp. 2018). See also S.D.C.L. [section] 55-18-1(9) (Supp. 2018) (defining "interested beneficiary").
(201.) S.D.C.L. [section] 55-18-9 (Supp. 2018).
(202.) Compare S.D.C.L. [section][section] 55-18-6, -9(3) (Supp. 2018) ("A parent may bind the parent's minor or unborn child if no conservator or guardian for the child has been appointed[.]") with 18A CHARLES ALAN WRIGHT, ARTHUR R. MILLER, ET AL., FEDERAL PRACTICE AND PROCEDURE [section] 4459 (3d ed. 2018) ("A close family relationship to a party ordinarily is not enough to bind a nonparty to a judgment.").
(203.) See supra Part II.C.3. (reprinting S.D.C.L. [section] 55-18-9 (Supp. 2018)).
(204.) See S.D.C.L. [section] 55-18-9 (Supp. 2018) (providing that where "more than one class of persons may act as a representative" that "the notifier has discretion in selecting which class of representatives" to utilize). But see, e.g., S.D.C.L. [section] 55-18-9(2) (Supp. 2018) (allowing a guardian to represent a beneficiary only if a conservator has not been appointed); S.D.C.L. [section] 55-18-9(3) (Supp. 2018) (allowing a parent to bind a minor child only if neither a conservator nor a guardian has been appointed); S.D.C.L. [section] 55-18-9(7) (Supp. 2018) (allowing a caregiver to bind a beneficiary only if neither an agent under a power of attorney nor a guardian/conservator have been appointed).
(205.) S.D.C.L. [section][section] 55-18-1(2) (Supp. 2018). For example, although typically unborn beneficiaries need not be noticed or represented per section 55-18-5(1), each situation ought to be assessed with care and particularity. In Downey v. Seib, for example, a father, desiring to deed his home to his daughter, Margaret, mistakenly conveyed a life estate to her, remainder to her children, but if none, then to her two brothers. Downey v. Seib, 78 N.E. 66, 66 (N.Y. 1906). The father died soon thereafter. Id. When the mistake was realized, the two brothers promptly quitclaimed their contingent remainders to Margaret. Id. Next, Margaret brought a deed reformation proceeding in order to vest herself with fee simple. Id. She named her two brothers and her mother as defendants and a judgment was entered in her favor. Id. Years later, Margaret sold the home but the buyer gave notice of rescission after reviewing the state of the title. Id. at 67. The buyer prevailed because of a notice flaw in the deed reformation proceeding. Id. at 67-68. Margaret was "not likely to become a mother owing to a structural defect in the organs of generation" the court explained. Id. Still, her unlikely contingent remaindermen-children could not have been virtually represented by Margaret's siblings because they relinquished their remainders by conveying them to Margaret before the proceedings were filed. Id. at 67. The brother's conveyances were "unselfish and well intended" but the conveyances left "no one to be made a party to the action to reform the deed, who represented unborn children...." Id. And clearly Margaret could not represent her children because their interests were directly opposed to one another: Margaret "was the very party who was trying to destroy" their remainder interests. Id. at 68. Downey v. Seib is an illustration of the thinking that must accompany any virtual representation analysis, lest finality be unattained.
(206.) S.D.C.L. [section] 55-18-4 (Supp. 2018).
(207.) S.D.C.L. [section] 55-18-9(7) (Supp. 2018). "An individual who has assumed responsibility for an incapacitated individual... may bind the individual... but an individual who is an employee of any assisted living, hospital, surgery center, nursing home, adult foster care, adult day care, or any other custodial care institution where the incapacitated person is residing or receiving services may not..." Id.
(208.) See S.D.C.L. [section] 55-18-25 (Supp. 2018) (immunizing a notifier from "undertaking any additional notification or seeking additional consent than required by law or the governing instrument") Cf. IDAHO CODE [section] 15-1-403(c)(1) (2018) ("Notice may be given both to a person and to another who may bind him."). See also David M. English, UTC Provisions, supra note 126 at 161 (cautioning that whenever a "conflict of interest is a possibility, the practitioner should consider requesting the court to appoint a guardian ad litem... to represent the otherwise unrepresented beneficiary").
(209.) See also S.D.C.L. [section] 55-18-5 (Supp. 2018) (enumerating circumstances under which no notice is required). Notwithstanding the general rule that no notice on any uninterested beneficiary is required, notice is required on "an uninterested beneficiary who does not have a substantially identical interest with one or more interested beneficiaries." Id. Also, notwithstanding the general rule that no notice on unborn and unascertained persons is required, if the application of chapter 55-18 results in no notice being provided to anyone, representatives of unborn or unascertained beneficiaries is required. Id. Consider, for example, a trustee who wishes to obtain beneficiary consent to a proposed trustee fee calculation modification where the trust is for the sole benefit of the descendants of Malia Ann Obama (who, as of the date of this article, has no children). Because all of the beneficiaries are unborn and unascertained, chapter 55-18 would allow the change to be binding on the beneficiaries without notice to anyone, but for section 55-18-5. S.D.C.L. [section] 55-18-5 (Supp. 2018). Therefore, the trustee will likely seek consent from Malia Ann Obama with an explanation that her consent to the trustee compensation change will bind her future children. See S.D.C.L. [section] 55-18-9(3) (Supp. 2018) (allowing a parent to "bind the parent's minor or unborn child"); S.D.C.L. [section] 55-18-10 (Supp. 2018) (requiring notice to the representative of (i) whom they represent; (ii) the authority (e.g., as parent) by which they represent a beneficiary; and (iii) notice that the representative can decline to act). See also S.D.C.L. [section] 55-18-11 (Supp. 2018) (outlining a representative's right to refuse to act as a representative).
(210.) S.D.C.L. [section]55-18-10.
(212.) See id. (requiring a notifier to "set forth information with respect to each representative, each person the representative represents, the authority by which each representative acts" and notice "that a representative may decline to act"); see also supra note 187 (discussing Taylor v. Sturgell's emphasis on the representative having "understood" herself to be acting as a representative on behalf of another person).
(213.) See. e.g., S.D.C.L. [section] 55-3-45 (Supp. 2018) (allowing trustee accountings to be provided by mail, electronically, or personally); S.D.C.L. [section] 21-22-18 (Supp. 2018) (allowing notice injudicial proceedings to be served by mail, electronically, or personally).
(214.) See Sebastian V. Grassi, Jr., Key Issues to Consider when Drafting Life Insurance Trusts, 31 EST. PLAN. 390 (Aug. 2004) (describing irrevocable life insurance trusts (ILITs) and Crummey powers).
(215.) See Crummey v. Comm'r, 397 F.2d 82 (9th Cir. 1968) (recognizing the gift tax benefits of withdrawal rights); Sebastian V. Grassi, Jr., Tax Aspects of Crummey Withdrawal Rights, 18 PRAC. TAX LAW. 21 (2003) (summarizing Crummey powers).
(216.) See S.D.C.L. [section] 55-18-13 (Supp. 2018) (providing that "[a] representative with a conflict of interest... may bind the person that the representative represents"); S.D.C.L. [section] 55-18-14 (Supp. 2018) (requiring that "a representative [who] knows that the representative has a conflict of interest... [to] timely disclose the nature of the conflict"); S.D.C.L. [section] 55-18-15 (Supp. 2018) (requiring a "notifier [who] knows that a representative has a conflict of interest... [to] timely disclose the nature of the conflict").
(217.) See S.D.C.L. [section] 55-2-3 (2012) (prohibiting a trustee from engaging in any trust transaction where his interests are adverse to a beneficiary's interests); Willers v. Wettestad, 510 N.W.2d 676, 680 (S.D. 1994); RESTATEMENT (THIRD) OF TRUSTS [section] 78(1) (2007) (confirming that "a trustee has a duty to administer the trust solely in the interest of the beneficiaries").
(218.) S.D.C.L. [section] 55-18-17 (Supp. 2018). Although a representative is not a fiduciary, a representative can be held liable under the South Dakota Virtual Representation statutes for acting dishonestly, acting with an "improper motive", or when the representative "fails, if under a duty to do so, to act." Id.
(219.) See S.D.C.L. [section] 55-18-1(2) (Supp. 2018) (defining a conflict of interest). See also Looker, supra note 15, at 403 (explaining that even where "the interests of the presumptive taker and the class sought to be represented appear identical, they may be adverse with respect to a particular issue in controversy").
(220.) S.D.C.L. [section] 15-2-22(1) (2014); Weegar v. Bakeburg, 527 N.W.2d 676, 678-79 (S.D. 1995).
(221.) See Matter of Ziegler, 596 N.Y.S.2d 963, 968 (Sur. Ct. 1993) (noting that "if the representor defaults or neglects his personal interest he is not liable to the representee").
(222.) See S.D.C.L. [section] 55-3-20 (2012) (providing that a court may remove a trustee who is unfit to execute his trust); RESTATEMENT (THIRD) OF TRUSTS [section] 37 cmt. e (2003) (noting that a trustee may be removed for unfitness).
(223.) See S.D.C.L. [section] 29A-2-603(a) (2004) ("Those descendants take by representation the property to which the devisee would have been entitled had the devisee survived the testator."). Assuming that Rodney Dangerfield was unrelated to Malika Mall, the devise fails because he died "after the will was executed and before the testator...." Id.
(225.) See In re Estate of Button, 490 P.2d 731, 734 (Wash. 1971) (applying anti-lapse to a revocable trust); Rochelle A. Smith, Note, Why Limit a Good Thing? A Proposal to Apply the California Antilapse Statute to Revocable Living Trusts, 43 HASTINGS L.J. 1391 (1992) (discussing the issue).
(226.) See Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 319 (1950) (reasoning that "the fact that the trust company has been able to give mailed notice to known beneficiaries at the time the common trust fund was established is persuasive that postal notification at the time of accounting would not seriously burden the plan").
(227.) See Bradley W. Lard, Low Interest Rate is High Time for Some Estate Planning Ideas, 42 EST. PLAN. 3, 3-4 (2015) (introducing intentionally defective grantor trusts (IDGTs)); John G. Shively, The Death of the Life in Being--The Required Federal Response to State Abolition of the Rule Against Perpetuities, 78 WASH. U. L.Q. 371 (2000) (discussing motivations behind dynasty trusts).
(228.) See S.D.C.L. [section] 55-18-1(9) (Supp. 2018) (defining "interested beneficiary").
(229.) S.D.C.L. [section]55-18-5(1) (Supp. 2018).
(230.) See S.D.C.L. [section] 55-18-5(3) (Supp. 2018) (providing that no potential appointee of a power of appointment need be noticed).
(231.) See S.D.C.L. [section] 55-9-3 (2012) (requiring notice to the attorney general in a cy pres proceeding). Chapter 55-9 fails to provide a definition for a charitable trust for purposes of requiring attorney general notice. Although one could read the notification requirements to the attorney general narrowly, the common law generally required attorney general notice in charitable trust proceedings in order to alleviate the difficulty with unascertainable charitable beneficiaries. See supra note 197 (highlighting the attorney general notice problem with charitable trusts under South Dakota's statutory chapter 55-9).
(232.) S.D.C.L. [section] 55-18-9(2) (Supp. 2018). "A guardian may bind the minor or protected person if no conservator of the minor or protected person has been appointed." Id.
(233.) See Matter of Guardianship of Larson, 1998 SD 51, [paragraph] 23, 579 N.W.2d 24, 29 (reciting that guardians are fiduciaries).
(234.) See S.D.C.L. [section] 55-18-9(3) (Supp. 2018) (allowing parents to bind minor children). At common law, parents were allowed to represent their children's interests in legal proceedings (that is, without the necessity of a guardian ad litem appointment) but only when the child's interests were being advocated as plaintiff, not defendant. Begleiter, supra note 7, at 365. The seeming reasoning for the distinction was that "[b]y bringing the action on behalf of the minor, a parent has shown--by paying a filing fee, hiring an attorney, etc.--a willingness to invest economically in the minor's action and, presumptively, to represent the minor adequately." Id.
(235.) See Maguire v. Holcomb, 523 N.E.2d 688, 690 (111. App. Ct. 1988) ("A fiduciary relationship is not limited to cases of trustee and cestui que trust, guardian and ward, attorney and client, and other recognized legal relationships, but extends to every possible case in which there is confidence reposed on one side and a resulting superiority and domination on the other.") (citation omitted).
(236.) See S.D.C.L. ch. 55-16 (2012 & Supp. 2018) (providing for asset protection trusts); Mark R. Krogstad and Matthew W. Van Heuvelen, Domestic Asset Protection Trusts: Examining the Effectiveness of South Dakota Asset Protection Trust Statutes for Removing Assets from a Settlor's Gross Estate, 61 S.D. L. REV. 378 (2016) (describing asset protection trusts under South Dakota law). "As American society has become increasingly litigious, interest has developed in asset-protection trusts ('APTs')--trusts in which the trustor can retain some potential benefits that cannot be reached by creditors." Richard W. Nenno, Planning with Domestic Asset-Protection Trusts: Part I, 40 REAL PROP. PROB. & TR. J. 263, 270 (2005). "A client now may create a domestic asset-protection trust ('DAPT') in Alaska, Delaware, Rhode Island, Nevada, Utah, or South Dakota." Id. at 271. Since Nenno's article, additional states have joined the DAPT bandwagon. See James J. White, Fraudulent Conveyances Masquerading As Asset Protection Trusts, 47 UCC L.J. 1 (2018) (noting that there are now seventeen DAPT states).
(237.) See generally Scott Gardner, Comment, Supplemental Needs Trusts: A Means to Conserve Family Assets and Provide Increased Quality of Life for the Disabled Family Member, 32 DuQ. L. REV. 555, 556 (1994) (exploring "the use of a Supplemental Needs Trust to provide for an increased quality of life for the disabled person without such trust being deemed as resources or income available for the purpose of determining eligibility for public assistance."); Abraham J. Perlstein, Comprehensive Future Care Planning for Disabled Beneficiaries, 27 EST. PLAN. 358, 362 (Oct. 2000) ("A major component in financial planning is the child's eligibility for government benefits.").
(238.) See John Terry, Structuring Wilis and Trusts, 2014 WL 7246987, at *11 (Thomson Reuters/Aspatore Nov. 2014) ("In a pot trust, the corpus is held by the trustee for the common well-being of all beneficiaries."). Alternatively, a separate trust or share for each beneficiary could be utilized. Id.
(239.) See RESTATEMENT (THIRD) OF TRUSTS [section] 82(1)(a) (2007) (requiring a trustee to promptly inform beneficiaries of the existence of a trust). Cf. S.D.C.L. [section] 55-2-13 (Supp. 2018) (governing trustee notice).
(240.) S.D.C.L. [section] 55-18-9(2) (Supp. 2018).
(241.) S.D.C.L. [section]55-18-8 (Supp. 2018).
(242.) See S.D. ADMIN. R. ch. 67:46:05 (2018) (explicating South Dakota long term care Medicaid eligibility rules).
(243.) See S.D. ADMIN. R. ch. 67:48:02 (2018) (outlining the estate recovery process); Ian S. Oppenheim and Alex L. Moschella, National Perspective on Expanded Estate Recovery: Case Law Analysis, Emerging Legislative Trends and Responsive Strategies for the Elder Law Attorney, 1 Nat'l. Ass'n Elder L. Att'y J. 7 (2005) (articulating an overview of the estate recovery rules).
(244.) S.D.C.L. [section]55-18-8.
(245.) S.D.C.L. [section] 55-18-9(14) (Supp. 2018).
(246.) S.D.C.L. [section] 55-18-1(8) (Supp. 2018).
(247.) Id; S.D.C.L. [section] 55-1-24(1) (2012).
(248.) See S.D.C.L. [section] 55-18-9( 14)(b) (Supp. 2018) (requiring the interests of the representative and represented beneficiary to be "substantially identical").
(249.) S.D.C.L. [section] 55-18-9(14) (Supp. 2018).
(251.) See generally John J. Barnosky, The Incredible Revocable Living Trust, 10 J. SUFFOLK ACAD. L. 1 (1995) (introducing the typical planning undertaken with a revocable living trust). "Typically, the living trust is funded by the grantor during lifetime by the transfer to the trust of virtually all of his or her assets." Id. at 3. "[V]rtually every estate plan involving the use of a living trust will also include a simple pourover will to pick up any assets which may not have been conveyed into the living trust...." Id. at 4.
(252.) See S.D.C.L. [section] 59-7-2.1 (Supp. 2018) (recognizing durable powers of attorney); S.D.C.L. [section] 59-7-2.5 (2015) (recognizing durable powers of attorney for health care decisions). See also generally Danica J. Brustkern, With Great Power Comes Great Culpability: Addressing Agency Costs in Durable Powers of Attorney, 50 REAL PROP. TR. & EST. L.J. 463 (2016) (considering financial powers of attorney).
(253.) S.D.C.L. [section] 55-18-9(7) (Supp. 2018).
(254.) S.D.C.L. [section] 55-18-20(1) (Supp. 2018). Cf. UNIF. TRUST CODE [section] 301 cmt. (2010) (explaining that section 301(c) of the UTC "requirfes] express authority in the power of attorney or approval of court before the settlor's agent, conservator or guardian may consent on behalf of the settlor to the termination or revocation of the settlor's revocable trust"). South Dakota law requires express authority for settlor-agent trust amendment authority in both the power of attorney instrument and the trust instrument. S.D.C.L. [section] 55-18-20(1). For example, if the trust provides, "The settlor's agent or successor agcnt(s) under a durable power of attorney instrument dated June 1, 2018, may amend, restate, or revoke this trust by a written instrument delivered to the trustee" and the power of attorney instrument states, "The agent has the authority to amend, restate, or revoke the Yolanda Young Revocable Living Trust under a declaration of trust dated June 1, 2018, on behalf of the principal as settlor" then--and only then--the agent may amend the revocable trust.
(255.) See. e.g., S.D.C.L. [section]55-1B-6(1), (5), (11) (Supp. 2018) (allowing for trust protectors to be granted the power to terminate or amend a trust in certain circumstances).
(256.) S.D.C.L. [section] 55-18-20(2) (Supp. 2018); S.D.C.L. [section] 29A-5-420 (2004). See, e.g., Matter of Guardianship of Nelson, 2017 SD 68, [paragraph][paragraph] 11-12, 903 N.W.2d 753, 756-57 (reviewing the standard for court authorization for a conservator to amend a will).
(257.) See Jay A. Soled, Spousal Lifetime Access Trusts, 26 EXPERIENCE 42 (2016) (describing spousal access trusts (SLATs)).
(258.) Cf. Davis v. U.S. Bank Nat. Ass'n, 243 S.W.3d 425 (Mo. Ct. App. 2007) (considering a motion to remove and replace a trustee to achieve cost savings on trustee fees).
(259.) S.D.C.L. [section]55-18-5(5) (Supp. 2018).
(260.) S.D.C.L. [section] 55-18-25 (Supp. 2018).
(261.) See Rodman & Rodman, supra note 112, at 289 (stating that "some showing of necessity is nonetheless required constitutionally to justify horizontal representation").
(262.) See Looker, supra note 15, at 406 (suggesting that "[w]here the contingent remaindermen are relatively few in number, of full age and available, the petitioner might well decide to join all these 'proper' (though not necessary) parties[.]").
(263.) See S.D.C.L. [section] 55-3-29 (2012) (allowing a trustee to divide a trust).
(264.) See Wayman v. Follansbee, 98 N.E. 21, 27 (III. 1912) ("There is no doubt of the power of a court of equity to order a trustee to pay or distribute to such beneficiaries as may be entitled thereto their respective shares of the estate and continue the trust as to other beneficiaries[.]").
(265.) Roberts, supra note 48, at 581.
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|Author:||Simmons, Thomas E.|
|Publication:||South Dakota Law Review|
|Date:||Mar 22, 2019|
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