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Legal Memorandum: Increase in the Value of Stock Investments

Issue: Under South Dakota law, does an increase in the value of stock investments constitute income or an increase in corpus to a trust?

Area of Law: Insurance Law
Keywords: Value of stock investments; Corpus to a trust
Jurisdiction: South Dakota, Washington
Cited Cases: 930 P.2d 627; 131 P.2d 164; 117 N.W.2d 57
Cited Statutes: None
Date: 07/01/2007

An important consideration here is the fact that at least part of the increase in value of the life insurance policies relates to profitable stock market investments.  Generally speaking, an increase in market value of securities held in trust is corpus, not income.  See generally W.W. Allen, Annotation, Rights of Life Tenant and Remaindermen Inter Se Respecting Increase, Gains, and Enhanced Values of the Estate, 76 A.L.R.2d 162, § 8 (1961 & Supp. 2007) (citing cases).  In Lynn v. City of Longview, 131 P.2d 164 (Wash. 1942), the court specifically declared that “‘all increase in the value of a trust fund derived from investment or reinvestment’ belongs to, and becomes a part of, the corpus of the trust estate in the absence of some specification to the contrary in the instrument creating the trust or in the provisions of [a] statute.”  Id. § 3.  It is possible that the South Dakota statute could suggest a contrary result here.   

Various U.S. courts have held that proceeds from stocks that have increased in value are part of the corpus of a trust, rather than income distributable to the income beneficiary.  See generally id. § 8 (citing In re Trust Estate of Holmes, 930 P.2d 627 (Kan. Ct. App. 1997) (holding that gains from the sale of stock, that was the trust corpus, were also corpus and did not become income, absent specific trust language granting the trustee broad powers to invade the corpus; the sale of […]

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