Legal Memorandum: Increase in Value of Insurance Policies

Issue: Under the South Dakota Revised Principal & Income Act, is an income beneficiary or the trust beneficiary entitled to the increase in value of the insurance policies?

Area of Law: Insurance Law
Keywords: Value of the insurance policies; Income beneficiary or the trust beneficiary
Jurisdiction: South Dakota
Cited Cases: None
Cited Statutes: S.D. Codified Laws § 55-13-3(a), § 55-13-3(b), § 55-13-7, § 55-13-7(a)(3), § 55-13-7(b), § 55-13-7(c)
Date: 07/01/2007


The South Dakota Revised Principal and Income Act, which applies to the interpretation of trust instruments, defines “income” as “the return in money or property derived from the use of principal.”  S.D. Codified Laws § 55-13-3(a) (2006).  Section 55-13-3 provides a list of examples of income, none of which is particularly dispositive of the present issue.  The Act also defines “principal” to include property that “has been set aside by the owner or the person legally empowered so that it is held in trust eventually to be delivered to a remainderman while the return or use of the principal is in the meantime taken or received by or held for accumulation for an income beneficiary.”  Id. § 55-13-3(b). 

More specifically, § 55-13-7 of the Act provides that the increase in value of certain trust property is distributable as income.  That section states that, “[u]nless otherwise provided in the trust instrument, an increase in the value of the following investments owned by any trust is distributable as income when it becomes available for distribution:  . . . (3) A life insurance contract before the death of the insured[.]”  Id. § 55-13-7(a)(3).  For the purposes of this section, the increase in value is “available for distribution” as income “only if the trustee receives cash on account of the investment.”  Id. § 55-13-7(b).  The statute further specifically directs that the increase in value of assets listed therein, including a life insurance contract, “is distributable to the beneficiary who was the […]

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