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1 Indicates Matter Stricken 2 Indicates New Matter 3 4 COMMITTEE AMENDMENT AMENDED AND 5 ADOPTED 6 March 19, 2013 7 8 S. 143 9 10 Introduced by Senators Malloy, Ford, Massey, Hayes and 11 S. Martin 12 13 S. Printed 3/19/13--S. 14 Read the first time January 8, 2013. 15

[143-1] 1 2 3 4 5 6 7 8 9 A BILL 10 11 TO AMEND ARTICLES 1, 2, 3 AND 4 OF TITLE 62, 12 CODE OF LAWS OF SOUTH CAROLINA, 1976, 13 RELATING TO THE SOUTH CAROLINA PROBATE 14 CODE, SO AS TO, AMONG OTHER THINGS, DEFINE 15 THE JURISDICTION OF THE PROBATE CODE, TO 16 DETERMINE INTESTATE SUCCESSION, TO PROVIDE 17 FOR THE PROCESS OF EXECUTING A WILL, TO 18 PROVIDE FOR THE PROCESS TO PROBATE AND 19 ADMINISTER A WILL, AND TO PROVIDE FOR LOCAL 20 AND FOREIGN PERSONAL REPRESENTATIVES; AND 21 TO AMEND ARTICLES 6 AND 7 OF TITLE 62, 22 RELATING TO THE SOUTH CAROLINA PROBATE 23 CODE, SO AS TO PROVIDE FOR THE GOVERNANCE 24 OF NONPROBATE TRANSFERS, AND TO AMEND THE 25 SOUTH CAROLINA TRUST CODE. 26 Amend Title To Conform 27 28 Be it enacted by the General Assembly of the State of South 29 Carolina: 30 31 SECTION 1. Articles 1, 2, 3 and 4 of Title 62 of the 1976 32 Code are amended to read: 33 34 “Article 1 35 36 General Provisions, Definitions, and Probate Jurisdiction Of 37 Court 38 39 Part 1

[143] 2 1 2 Short Title, Construction, General Provisions 3 4 Section 621100. (a) Except as otherwise provided, this 5 Code takes effect July 1, 1987. 6 (b) Except as provided elsewhere in this Code, on the 7 effective date of this Code: 8 (1) the Code applies to any estates of decedents dying 9 thereafter; 10 (2) the procedural provisions of the Code apply to any 11 proceedings in court then pending or thereafter commenced 12 regardless of the time of the death of decedent except to the 13 extent that in the opinion of the court the former procedure 14 should be made applicable in a particular case in the interest 15 of justice or because of infeasibility of application of the 16 procedure of this Code; 17 (3) every personal representative, including a person 18 administering an estate of a minor or incompetent holding an 19 appointment on that date, continues to hold the appointment 20 but has only the powers conferred by this Code and is subject 21 to the duties imposed with respect to any act occurring or 22 done thereafter; 23 (4) an act done before the effective date in any 24 proceeding and any accrued right is not impaired by this 25 Code. Unless otherwise provided in the Code, a substantive 26 right in the decedent’s estate accrues in accordance with the 27 law in effect on the date of the decedent’s death. If a right is 28 acquired, extinguished, or barred upon the expiration of a 29 prescribed period of time which has commenced to run by 30 the provisions of any statute before the effective date, the 31 provisions remain in force with respect to that right; 32 (5) a rule of construction or presumption provided in 33 this code applies to multipleparty accounts opened before the 34 effective date unless there is a clear indication of a contrary 35 intent. 36 (c) Section 622502 is effective for all wills executed after 37 June 27, 1984, whether the testator dies before or after July 1, 38 1987. 39

[143] 3 1 Section 621101. Sections 621101 et seq. shall be known 2 and may be cited as the South Carolina Probate Code. 3 References in Sections 621101 et seq. to the term ‘Code’, 4 unless the context clearly indicates otherwise, shall mean the 5 South Carolina Probate Code. 6 7 Section 621102. (a) This Code shall be liberally 8 construed and applied to promote its underlying purposes and 9 policies. 10 (b) The underlying purposes and policies of this Code are: 11 (1) to simplify and clarify the law concerning the affairs 12 of decedents, missing persons, protected persons, minors, and 13 incapacitated persons; 14 (2) to discover and make effective the intent of a 15 decedent in the distribution of his property; 16 (3) to promote a speedy and efficient system for 17 liquidating the estate of the decedent and making distribution 18 to his successors; 19 (4) to facilitate use and enforcement of certain trusts; 20 (5) to make uniform the law among the various 21 jurisdictions. 22 23 Section 621103. Unless displaced by the particular 24 provisions of this Code, the principles of law and equity 25 supplement its provisions. 26 27 Section 621104. If any provision of this Code or the 28 application thereof to any person or circumstances is held 29 invalid, the invalidity shall not affect other provisions or 30 applications of the Code which can be given effect without 31 the invalid provision or application and to this end the 32 provisions of this Code are declared to be severable. 33 34 Section 621105. This Code is a general act intended as a 35 unified coverage of its subject matter and no part of it shall 36 be deemed impliedly repealed by subsequent legislation if it 37 can reasonably be avoided. 38

[143] 4 1 Section 621106. Whenever fraud has been perpetrated in 2 connection with any proceeding or in any statement filed 3 under this Code or if fraud is used to avoid or circumvent the 4 provisions or purposes of this Code, any person injured 5 thereby may: (i) obtain appropriate relief against the 6 perpetrator of the fraud or and (ii) restitution from any person 7 (other than a bona fide purchaser) benefiting from the fraud, 8 whether innocent or not, but only to the extent of any benefit 9 received. Any proceeding must be commenced within two 10 years after the discovery of the fraud, but no proceeding may 11 be brought against one not a perpetrator of the fraud later 12 than five years after the time of commission of the fraud. 13 This section has no bearing on remedies relating to fraud 14 practiced on a decedent during his lifetime which affects the 15 succession of his estate. 16 17 REPORTER’S COMMENT 18 By virtue of this section, the sixyear period of limitation 19 provided by Section 153530(7) of the 1976 Code for actions 20 for relief on the ground of fraud is reduced, with respect to 21 fraud perpetrated in connection with proceedings and 22 statements filed under this Code, or to circumvent its 23 provisions or purposes. Under this section, actions for relief 24 on the ground of fraud must be brought within two years 25 after discovery of the fraud. In no event, however, may an 26 action be brought against one not the perpetrator of the fraud 27 (such as an innocent party benefiting from the fraud) later 28 than five years after the commission of the fraud. 29 The last sentence of this section, however, excepts from this 30 section actions ‘relating to fraud practiced on a decedent 31 during his lifetime which affect the succession of his estate’ 32 such as fraud inducing the execution or revocation of a will. 33 There is some general authority for the proposition that one 34 who is damaged by fraud which interferes with the making of 35 a will may maintain an action for damages against the person 36 who commits the fraud, 79 Am. Jur. 2d, Wills Section 414. 37 In cases involving direct contest of wills which are allegedly 38 the result of fraud, however, the provisions of Section 39 623108 would be applicable and a formal probate proceeding

[143] 5 1 would have to be commenced within the later of twelve 2 months from the informal probate or three years from the 3 decedent’s death, at which time the allegations of fraud 4 would be considered. 5 The 2013 amendment clarified that any person injured by 6 the effects of fraud may (i) obtain relief against the 7 perpetrator of the fraud and (ii) restitution from any other 8 person (other than a bona fide purchaser) benefitting from the 9 fraud. 10 11 Section 621107. In proceedings under this Code the South 12 Carolina Rules of Evidence in courts of general jurisdiction, 13 including any relating to simultaneous deaths, are applicable 14 unless specifically displaced by the Code. In addition, the 15 following rules relating to determination of death and status 16 are applicable: 17 (1) A certified or authenticated copy of a death certificate 18 purporting to be issued by an official or agency of the place 19 where the death purportedly occurred is prima facie proof of 20 the fact, place, date and time of death, and the identity of the 21 decedent. 22 (2) A certified or authenticated copy of any record or 23 report of a governmental agency, domestic or foreign, that a 24 person is missing, detained, dead, or alive is prima facie 25 evidence of the status and of the dates, circumstances, and 26 places disclosed by the record or report. 27 (3) A person who is absent for a continuous period of five 28 years, during which he has not been heard from, and whose 29 absence is not satisfactorily explained after diligent search or 30 inquiry, is presumed to be dead. His death is presumed to 31 have occurred at the end of the period unless there is 32 sufficient evidence for determining that death occurred 33 earlier. 34 35 REPORTER’S COMMENT 36 This section states that the rules of evidence that apply in 37 circuit court also apply in probate court proceedings unless 38 specifically displaced by provisions of the South Carolina 39 Probate Code. The 2011 Amendment removed those

[143] 6 1 sections related to evidence as to the status of death, and 2 these provisions have been incorporated into §621507 of the 3 Uniform Simultaneous Death Act. See §§621500 to 621510 4 for the Uniform Simultaneous Death Act. 5 6 Section 621108. For the purpose of granting consent or 7 approval with regard to the acts or accounts of a personal 8 representative or trustee, including relief from liability or 9 penalty for failure to post bond, or to perform other duties, 10 and for purposes of consenting to modification or termination 11 of a trust or to deviation from its terms, the sole holder or all 12 coholders of a presently exercisable general power of 13 appointment, including one in the form of a power of 14 amendment or revocation, are deemed to act for beneficiaries 15 to the extent their interests (as objects, takers in default, or 16 otherwise) are subject to the power. The term ‘presently 17 exercisable general power of appointment’ includes a 18 testamentary general power of appointment having no 19 conditions precedent to its exercise other than the death of 20 the holder, the validity of the holder’s last will and testament, 21 and the inclusion of a provision in the will sufficient to 22 exercise this power. 23 24 REPORTER’S COMMENT 25 This section allows one who is the holder of a presently 26 exercisable ‘general power of appointment’ (which, in this 27 context, means one having the power to take absolute 28 ownership of property to himself, either by appointment, by 29 amendment, or by revocation) to agree to actions taken by a 30 personal representative or by a trustee, to consent to the 31 modification or termination of a trust or a deviation from its 32 terms, and, thereby, to bind the beneficiaries whose interests 33 are subject to the power. 34 35 Section 621109. Unless expressly provided otherwise in a 36 written employment agreement, the creation of an 37 attorneyclient relationship between a lawyer and a person 38 serving as a fiduciary shall not impose upon the lawyer any 39 duties or obligations to other persons interested in the estate,

[143] 7 1 trust estate, or other fiduciary property, even though fiduciary 2 funds may be used to compensate the lawyer for legal 3 services rendered to the fiduciary. This section is intended to 4 be declaratory of the common law and governs relationships 5 in existence between lawyers and persons serving as 6 fiduciaries as well as such relationships hereafter created. 7 8 REPORTER’S COMMENTS 9 This section was enacted and intended to clarify to whom an 10 attorney representing a fiduciary owes a duty: unless a 11 written employment agreement expressly provides otherwise, 12 the attorney for a fiduciary owes a duty only to the fiduciary 13 and not to any other person. Thus, this section confirms that 14 an attorney for the fiduciary does not owe any duty or 15 obligation to a beneficiary of the estate for which the 16 fiduciary serves; there is no direct or vicarious duty owed by 17 the attorney to a beneficiary without an express written 18 agreement to the contrary. Moreover, the attorney for the 19 fiduciary owes no duty to the fiduciary estate or property. 20 The attorney effectively represents the fiduciary and not the 21 fiduciary estate. The rule of this section applies even if the 22 fiduciary pays the attorney from the estate for which the 23 fiduciary serves. The section is expressly declarative of the 24 common law and applies to attorneyclient relationships 25 existing before and after the enactment of this section. 26 27 Section 621110. Whenever an attorneyclient relationship 28 exists between a lawyer and a fiduciary, communications 29 between the lawyer and the fiduciary shall be subject to the 30 attorneyclient privilege unless waived by the fiduciary, even 31 though fiduciary funds may be used to compensate the 32 lawyer for legal services rendered to the fiduciary. The 33 existence of a fiduciary relationship between a fiduciary and 34 a beneficiary does not constitute or give rise to any waiver of 35 the privilege for communications between the lawyer and the 36 fiduciary. 37 38 REPORTER’S COMMENT

[143] 8 1 This section was enacted and intended to: (i) expressly reject 2 the concept of a ‘fiduciary exception’ to any attorneyclient 3 privilege; (ii) encourage full disclosure by the fiduciary to 4 the lawyer to further the administration of justice; and (iii) 5 foster confidence between a fiduciary and his lawyer that will 6 lead to a trusting and open attorneyclient dialogue. See 7 Estate of Kofsky, 487 Pa. 473 (1979). This section also 8 expressly rejects the holding set forth in the case of Riggs 9 Natl. Bank v. Zimmer, 355 A.2d 709 (Del. Ch. 1976) 10 (trustee’s invocation of the attorneyclient privilege does not 11 shield document from disclosure to trust beneficiaries) as 12 applied by the Court in Floyd v. Floyd, 365 S.C. 56, 615 13 S.E.2d 465 (Ct. App. 2005). 14 15 Section 621111. In a formal proceeding, the court, as 16 justice and equity may require, may award costs and 17 expenses, including reasonable attorney’s fees, to any party, 18 to be paid by another party or from the estate that is the 19 subject of the controversy. 20 21 REPORTER’S COMMENT 22 This section was enacted to clarify the probate court’s 23 authority to award costs and expenses. See §6271004 for a 24 similar provision in the South Carolina Trust Code. 25 26 Part 2 27 28 Definitions 29 30 Section 621201. Subject to additional definitions 31 contained in the subsequent articles which are applicable to 32 specific articles or parts, and unless the context otherwise 33 requires, in this Code: 34 (1) ‘Application’ means a written request to the probate 35 court for an order. An application does not require a 36 summons and is not governed by or subject to the rules of 37 civil procedure adopted for the circuit court. 38 (2) ‘Beneficiary’, as it relates to trust beneficiaries, 39 includes a person who has any present or future interest,

[143] 9 1 vested or contingent, and also includes the owner of an 2 interest by assignment or other transfer and, as it relates to a 3 charitable trust, includes any person entitled to enforce the 4 trust. 5 (3) ‘Child’ includes any individual entitled to take as a 6 child under this Code by intestate succession from the parent 7 whose relationship is involved and excludes any person who 8 is only a stepchild, a foster child, a grandchild, or any more 9 remote descendant. 10 (4) ‘Claims’, in respect to estates of decedents and 11 protected persons, includes liabilities of the decedent or 12 protected person whether arising in contract, in tort, or 13 otherwise, and liabilities of the estate which arise at or after 14 the death of the decedent or after the appointment of a 15 conservator, including funeral expenses and expenses of 16 administration. The term does not include estate or 17 inheritance taxes, or demands or disputes regarding title of a 18 decedent or protected person to specific assets alleged to be 19 included in the estate. 20 (5) ‘Court’ means the court or branch having jurisdiction 21 in matters as provided in this Code. 22 (6) ‘Conservator’ means a person who is appointed by a 23 court to manage the estate of a protected person. 24 (7) ‘Devise’, when used as a noun, means a testamentary 25 disposition of real or personal property, including both devise 26 and bequest as formerly used, and when used as a verb, 27 means to dispose of real or personal property by will. 28 (8) ‘Devisee’ means any person designated in a will to 29 receive a devise. In the case of a devise to an existing trust 30 or trustee, or to a trustee on trust described by will, the trust 31 or trustee is the devisee and the beneficiaries are not 32 devisees. 33 (9) ‘Disability’ means cause for a protective order as 34 described by Section 625401. 35 (10) ‘Distributee’ means any person who has received 36 property of a decedent from his personal representative other 37 than as creditor or purchaser. A testamentary trustee is a 38 distributee only to the extent of distributed assets or 39 increment thereto remaining in his hands. A beneficiary of a

[143] 10 1 testamentary trust to whom the trustee has distributed 2 property received from a personal representative is a 3 distributee of the personal representative. For purposes of 4 this provision, ‘testamentary trustee’ includes a trustee to 5 whom assets are transferred by will, to the extent of the 6 devised assets. 7 (11) ‘Estate’ includes the property of the decedent, trust, or 8 other person whose affairs are subject to this Code as 9 originally constituted and as it exists from time to time 10 during administration. 11 (12) ‘Exempt property’ means that property of a decedent’s 12 estate which is described in Section 622401. 13 (12A)(13) ‘Expense of administration’ includes 14 commissions of personal representatives, fees and 15 disbursements of attorneys, fees of appraisers, and such other 16 expenses that are reasonably incurred in the administration of 17 the estate. 18 (14) ‘Fair market value’ is the price that property would 19 sell for on the open market that would be agreed on between 20 a willing buyer and a willing seller, with neither being 21 required to act, and both having reasonable knowledge of the 22 relevant facts. 23 (13)(15) ‘Fiduciary’ includes personal representative, 24 guardian, conservator, and trustee. 25 (14)(16) ‘Foreign personal representative’ means a 26 personal representative of another jurisdiction. 27 (15)(17) ‘Formal proceedings’ means actions commenced 28 by the filing of a summons and petition with the probate 29 court and service of the summons and petition upon the 30 interested persons. Formal proceedings are governed by and 31 subject to the rules of civil procedure adopted for the circuit 32 court courts and other rules of procedure in this title. 33 (16)(18) ‘Guardian’ means a person appointed by the court 34 as guardian who has qualified as a guardian of an 35 incapacitated person pursuant to testamentary or court 36 appointment, but excludes one who is merely a guardian ad 37 litem or a statutory guardian. 38 (16A)(19) ‘General power of appointment’ means any 39 power that would cause income to be taxed to the fiduciary in

[143] 11 1 his individual capacity under Section 678 of the Internal 2 Revenue Code and any power that would be a general power 3 of appointment, in whole or in part, under Section 2041(a)(2) 4 or 2514(c) of the Internal Revenue Code. 5 (17)(20) ‘Heirs’ means those persons, including the 6 surviving spouse, who are entitled under the statute of 7 intestate succession to the property of a decedent. 8 (18)(21) ‘Incapacitated person’ is as defined in Section 9 625101. 10 (19)(22) ‘Informal proceedings’ means those commenced 11 by application and conducted without notice to interested 12 persons by the court for probate of a will or appointment of a 13 personal representative. Informal proceedings are not 14 governed by or subject to the rules of civil procedure adopted 15 for the circuit court. 16 (20)(23) ‘Interested person’ includes heirs, devisees, 17 children, spouses, creditors, beneficiaries, and any others 18 having a property right in or claim against a trust estate or the 19 estate of a decedent, ward, or protected person which may be 20 affected by the proceeding. It also includes persons having 21 priority for appointment as personal representative and other 22 fiduciaries representing interested persons. The meaning as 23 it relates to particular persons may vary from time to time 24 and must be determined according to the particular purposes 25 of, and matter involved in, any proceeding. 26 (21)(24) ‘Issue’ of a person means all his lineal 27 descendants whether natural or adoptive of all generations, 28 with the relationship of parent and child at each generation 29 being determined by the definitions of child and parent 30 contained in this Code. 31 (22)(25) ‘Lease’ includes an oil, gas, or other mineral 32 lease. 33 (23)(26) ‘Letters’ includes letters testamentary, letters of 34 guardianship, letters of administration, and letters of 35 conservatorship. 36 (24)(27) ‘Minor’ means a person who is under eighteen 37 years of age, excluding a person under the age of eighteen 38 who is married or emancipated as decreed by the family 39 court.

[143] 12 1 (25)(28) ‘Mortgage’ means any conveyance, agreement, or 2 arrangement in which real property is used as security. 3 (26)(29) ‘Nonresident decedent’ means a decedent who 4 was domiciled in another jurisdiction at the time of his death. 5 (27)(30) ‘Organization’ includes a corporation, 6 government or governmental subdivision or agency, business 7 trust, estate, trust, partnership or association, two or more 8 persons having a joint or common interest, or any other legal 9 entity. 10 (28)(31) ‘Parent’ includes any person entitled to take, or 11 who would be entitled to take if the child died without a will, 12 as a parent under this Code by intestate succession from the 13 child whose relationship is in question and excludes any 14 person who is only a stepparent, foster parent, or 15 grandparent. 16 (29)(32) ‘Person’ means an individual, a corporation, an 17 organization, or other legal entity business trust, estate, trust, 18 partnership, limited liability company, association, joint 19 venture, government or governmental subdivision, agency, or 20 instrumentality, public corporation, or any other legal or 21 commercial entity. 22 (30)(33) ‘Personal representative’ includes executor, 23 administrator, successor personal representative, special 24 administrator, and persons who perform substantially the 25 same function under the law governing their status. 26 ‘General personal representative’ excludes special 27 administrator. 28 (31)(34) ‘Petition’ means a complaint as defined in the 29 rules of civil procedure adopted for the circuit court. A 30 petition requires a summons and is governed by and subject 31 to the rules of civil procedure adopted for the circuit court 32 and other rules of procedure in this title. 33 (35) ‘Probate estate’ means the decedent’s property passing 34 under the decedent’s will plus the decedent’s property 35 passing by intestacy. 36 (32)(36) ‘Proceeding’ includes action at law and suit in 37 equity.

[143] 13 1 (33)(37) ‘Property’ includes both real and personal 2 property or any interest therein and means anything that may 3 be the subject of ownership. 4 (34)(38) ‘Protected person’ is as defined in Section 5 625101. 6 (35)(39) ‘Protective proceeding’ is as defined in Section 7 625101. 8 (40) ‘SCACR’ means the South Carolina Appellate Court 9 Rules. 10 (36)(41) ‘Security’ includes any note, stock, treasury stock, 11 bond, debenture, evidence of indebtedness, certificate of 12 interest, or participation in an oil, gas, or mining title or lease 13 or in payments out of production under such a title or lease, 14 collateral trust certificate, transferable share, voting trust 15 certificate or, in general, any interest or instrument 16 commonly known as a security or any certificate of interest 17 or participation, any temporary or interim certificate, receipt 18 or certificate of deposit for, or any warrant or right to 19 subscribe to or purchase, any of the foregoing. 20 (36A)(42) ‘Security interest’ means any conveyance, 21 agreement, or arrangement in which personal property is 22 used as security. 23 (37)(43) ‘Settlement’ in reference to a decedent’s estate 24 includes the full process of administration, distribution, and 25 closing. 26 (38)(44) ‘Special administrator’ means a personal 27 representative as described by Sections 623614 through 28 623618. 29 (39)(45) ‘State’ includes any means a state of the United 30 States, the District of Columbia, the Commonwealth of 31 Puerto Rico, the United States Virgin Islands, a federally 32 recognized Indian tribe, or and any territory or insular 33 possession subject to the legislative authority jurisdiction of 34 the United States. 35 (40) ‘Stepchild’ with reference to any person means one 36 who is the child, natural or adopted, of such person’s spouse 37 but who is not the child, natural or adopted, of such person. 38 (41)(46) ‘Successor personal representative’ means a 39 personal representative, other than a special administrator,

[143] 14 1 who is appointed to succeed a previously appointed personal 2 representative. 3 (42)(47) ‘Successors’ means those persons, other than 4 creditors, who are entitled to property of a decedent under his 5 will or this Code. 6 (43)(48) ‘Testacy proceeding’ means a formal proceeding 7 to establish a will or determine intestacy. 8 (44)(49) ‘Trust’ includes any express trust, private or 9 charitable, with additions thereto, wherever and however 10 created. It also includes a trust created or determined by 11 judgment or decree under which the trust is to be 12 administered in the manner of an express trust. ‘Trust’ 13 excludes other constructive trusts, and it excludes resulting 14 trusts, conservatorships, personal representatives, trust 15 accounts as defined in Article 6 (Sections 626101 et seq.), 16 custodial arrangements pursuant to the South Carolina 17 Uniform Gifts to Minors Act, Article 5, Chapter 5, Title 63, 18 business trusts providing for certificates to be issued to 19 beneficiaries, common trust funds, voting trusts, security 20 arrangements, liquidation trusts, and trusts for the primary 21 purpose of paying debts, dividends, interest, salaries, wages, 22 profits, pensions, or employee benefits of any kind, and any 23 arrangement under which a person is nominee or escrowee 24 for another. 25 (45)(50) ‘Trustee’ includes an original, additional, or 26 successor trustee, whether or not appointed or confirmed by 27 court. 28 (46)(51) ‘Ward’ is as defined in Section 625101. 29 (47)(52) ‘Will’ includes codicil and any testamentary 30 instrument which merely appoints an executor or revokes or 31 revises another will. 32 33 REPORTER’S COMMENT 34 The definitions set out in this section are applicable 35 throughout this Code. Of interest is the definition of ‘claims’ 36 in item (4) which includes claims arising out of tort. 37 Also see Sections 624101, 625101, and 626101 for additional 38 definitions for Articles 4, 5, and 6.

[143] 15 1 The 2010 amendment revised certain definitions in Section 2 621201, i.e., ‘application’ in item (1), ‘formal proceedings’ 3 in item (17), ‘informal proceedings’ in item (22), ‘petition’ in 4 item (34), and ‘testacy proceeding’ in item (48), as well as 5 other relevant sections throughout the Probate Code, to 6 clarify that the law requires a summons in formal 7 proceedings and the rules of civil procedure adopted for the 8 circuit court and other rules of procedure in this title apply to 9 and govern formal proceedings in probate court. See S.C. 10 Code §§1423280, 621304, and Rules 1 and 81, SCRCP; also 11 see, Weeks v. Drawdy, 495 S.E. 2d 454 (Ct. App. 1997) (the 12 rules of probate court governing procedure address only a 13 limited number of issues and in the absence of a specific 14 probate court rule, the rules of civil procedure applicable in 15 the court of common pleas shall be applied in the probate 16 court unless to do so would be inconsistent with the 17 provisions of the Code). 18 Prior to the 2010 amendments, certain confusion existed 19 regarding the requirement of a summons in a formal 20 proceeding and how the South Carolina Rules of Civil 21 Procedure apply to formal proceedings in the probate court. 22 The 2010 amendments in this section and throughout other 23 portions of the Probate Code are intended to minimize such 24 confusion and to expressly clarify that a ‘formal proceeding’ 25 is commenced by a summons and petition and governed by 26 the rules of civil procedure adopted for the circuit court and 27 other rules of procedure in this title, and that an ‘application’ 28 does not require a summons and is not governed by or 29 subject to the rules of civil procedure adopted for the circuit 30 court. Where applicable and appropriate, the 2010 31 amendments expand the matters in which an application may 32 be utilized. 33 The 2013 amendment added definitions for ‘Fair Market 34 Value’ and ‘Probate Estate’. The 2013 amendment also 35 made changes to the definitions of ‘Guardian’, ‘Person’, and 36 ‘State’. The definition of ‘Stepchild’ has been removed as a 37 result of changes to Section 622103(6). 38 39 Part 3

[143] 16 1 2 Scope, Jurisdiction, and Courts 3 4 Section 621301. Except as otherwise provided in this 5 Code, this Code applies to (1) the affairs and estates of 6 decedents, missing persons, and persons to be protected 7 domiciled in this State, (2) the property of nonresidents 8 located in this State or property coming into the control of a 9 fiduciary who is subject to the laws of this State, (3) 10 incapacitated persons and minors in this State, (4) 11 survivorship and related accounts in this State, and (5) trusts 12 subject to administration in this State. 13 14 REPORTER’S COMMENT 15 This section merely states that this Code applies to matters 16 having a connection to this State by reason of a person’s 17 domicile or the situs of property. 18 19 Section 621302. (a) To the full extent permitted by the 20 Constitution, and except as otherwise specifically provided, 21 the probate court has exclusive original jurisdiction over all 22 subject matter related to: 23 (1) estates of decedents, including the contest of wills, 24 construction of wills, determination of property in which the 25 estate of a decedent or a protected person has an interest , and 26 determination of heirs and successors of decedents and 27 estates of protected persons; 28 (2) protection of minors, except that jurisdiction over 29 the care, custody, and control of the persons of minors is 30 governed by Section 625201 and incapacitated persons, 31 including the mortgage and sale of personal and real property 32 owned by minors or incapacitated persons as well as gifts 33 made pursuant to the South Carolina Uniform Gifts to 34 Minors Act, Article 5, Chapter 5, Title 63, except that 35 jurisdiction for approval of settlement of claims in favor of or 36 against minors or incapacitated persons is governed by 37 Section 625433 subject to Part 7, Article 5, and excluding 38 jurisdiction over the care, custody, and control of a person or 39 minor:

[143] 17 1 (i) protective proceedings and guardianship 2 proceedings under Article 5; 3 (ii) gifts made pursuant to the South Carolina 4 Uniform Gifts to Minors Act under Article 5, Chapter 5, Title 5 63; 6 (3) trusts, inter vivos or testamentary, including the 7 appointment of successor trustees; 8 (4) the issuance of marriage licenses, in form as 9 provided by the Bureau of Vital Statistics of the Department 10 of Health and Environmental Control; record, index, and 11 dispose of copies of marriage certificates; and issue certified 12 copies of the licenses and certificates; 13 (5) the performance of the duties of the clerk of the 14 circuit and family courts of the county in which the probate 15 court is held when there is a vacancy in the office of clerk of 16 court and in proceedings in eminent domain for the 17 acquisition of rightsofway by railway companies, canal 18 companies, governmental entities, or public utilities when the 19 clerk is disqualified by reason of ownership of or interest in 20 lands over which it is sought to obtain the rightsofway; and 21 (6) the involuntary commitment of persons suffering 22 from mental illness, mental retardation, alcoholism, drug 23 addiction, and active pulmonary tuberculosis. 24 (b) The court’s jurisdiction over matters involving 25 wrongful death or actions under the survival statute is 26 concurrent with that of the circuit court and extends only to 27 the approval of settlements as provided in Sections 155141 28 and 155142 and to the allocation of settlement proceeds 29 among the parties involved in the estate. 30 (c) The probate court has jurisdiction to hear and 31 determine issues relating to paternity, commonlaw marriage, 32 and interpretation of marital agreements in connection with 33 estate, trust, guardianship, and conservatorship actions 34 pending before it, concurrent with that of the family court, 35 pursuant to Section 633530. 36 (d) Notwithstanding the exclusive jurisdiction of the 37 probate court over the foregoing matters, any action or 38 proceeding filed in the probate court and relating to the 39 following subject matters, on motion of a party, or by the

[143] 18 1 court on its own motion, made not later than ten days 2 following the date on which all responsive pleadings must be 3 filed, must be removed to the circuit court and in these cases 4 the circuit court shall proceed upon the matter de novo: 5 (1) formal proceedings for the probate of wills and for 6 the appointment of general personal representatives; 7 (2) construction of wills; 8 (3) actions to try title concerning property in which the 9 estate of a decedent or protected person asserts an interest; 10 (4) trusts matte rs involving the internal or external 11 affairs of trusts as provided in Section 627201, excluding 12 matters involving the establishment of a ‘special needs trust’ 13 as described in Article 5; 14 (5) actions in which a party has a right to trial by jury 15 and which involve an amount in controversy of at least five 16 thousand dollars in value; and 17 (6) actions concerning gifts made pursuant to the South 18 Carolina Uniform Gifts to Minors Act, Article 5, Chapter 5, 19 Title 63. 20 (e) The removal to the circuit court of an action or 21 proceeding within the exclusive jurisdiction of the probate 22 court applies only to the particular action or proceeding 23 removed, and the probate court otherwise retains continuing 24 exclusive jurisdiction. 25 (f) Notwithstanding the exclusive jurisdiction of the 26 probate court over the matters set forth in subsections (a) 27 through (c), if an action described in subsection (d) is 28 removed to the circuit court by motion of a party, or by the 29 probate court on its own motion, the probate court may, in its 30 discretion, remove any other related matter or matters which 31 are before the probate court to the circuit court if the probate 32 court finds that the removal of such related matter or matters 33 would be in the best interest of the estate or in the interest of 34 judicial economy. For any matter removed by the probate 35 court to the circuit court pursuant to this subsection, the 36 circuit court shall proceed upon the matter de novo. 37 38 REPORTER’S COMMENT

[143] 19 1 This section clearly states the subject matter jurisdiction of 2 the probate court. It should be noted that the probate court 3 has ‘exclusive original jurisdiction’ over the matters 4 enumerated in this section. This means, when read with 5 other Code provisions (such as subsection (c) of this section 6 and Section 623105), that matters within the original 7 jurisdiction of the probate court must be brought in that 8 court, subject to certain provisions made for removal to the 9 circuit court by the probate court or on motion of any party. 10 The language of this section is similar to Section 14231150 11 of the 1976 Code, which, in item (a), provides that probate 12 judges are to have jurisdiction as provided in Sections 13 621301 and 621302, and other applicable sections of this 14 South Carolina Probate Code. 15 The 2013 amendments added ‘determination of property in 16 which the estate of a decedent or protected person has an 17 interest’ to subsection (a)(1), substantially rewrote 18 subsections (a)(2), (d)(3), and (d)(4), and added subsection 19 (f), which allows the probate court to remove any pending 20 matter to circuit court in the event a party or the court 21 removes a related matter pursuant to subsection (d), even if 22 that pending matter is not otherwise covered by the removal 23 provisions of (d). 24 25 Section 621303(a) Subject to the provisions of Section 26 623201, where a proceeding under this Code could be 27 maintained in more than one place in South Carolina, the 28 court in which the proceeding is first commenced has the 29 exclusive right to proceed. 30 (b) If proceedings concerning the same estate, protected 31 persons, ward, or trust are commenced in more than one 32 court of South Carolina, the court in which the proceeding 33 was first commenced shall continue to hear the matter, and 34 the other courts shall hold the matter in abeyance until the 35 question of venue is decided, and, if the ruling court 36 determines that venue is properly in another court, it shall 37 transfer the proceeding to the other court. 38 (c) If a court finds that, in the interest of justice, a 39 proceeding or a file should be located in another court of

[143] 20 1 probate in South Carolina, the court making the finding may 2 transfer the proceeding or file to the other court. 3 (d) If a court transfers venue of a proceeding or file to a 4 court in another county, venue for that proceeding or file, and 5 any subsequent matters concerning that proceeding or file, 6 including appeals, shall be retained by the county to which 7 the venue has been transferred. 8 (e) If a probate court judge is disqualified from matters 9 concerning a proceeding or a file, and venue has not been 10 transferred to another county, a special probate court judge 11 appointed for that proceeding or file has all of the powers and 12 duties appertaining to the probate court judge of the county 13 where the proceeding or file commenced, and venue for any 14 subsequent matters concerning that proceeding or file, 15 including appeals, remains with the county where that 16 proceeding or file commenced. 17 18 REPORTER’S COMMENTS 19 This section provides that, where a proceeding could be held 20 in more than one county under Section 623201, the probate 21 court in which the proceeding is first commenced has the 22 exclusive right to proceed. If proceedings are commenced in 23 more than one probate court, the court in which the 24 proceeding was first commenced must continue to hear the 25 matter unless it decides that venue is properly in another 26 county, in which event it is to transfer the matter to that other 27 county. Section 623201 relates to testacy or appointment 28 proceedings after death and grants venue to the county of the 29 decedent’s domicile or, if the decedent was not domiciled in 30 this State, to any county in which his property was located. 31 This section also provides that venue with respect to a 32 nonresident’s estate could be in any county where he owned 33 property. The 2013 amendment clarified that, when venue of 34 a proceeding or file is transferred to another county, 35 subsequent matters concerning that proceeding or file, 36 including appeals, shall be retained by the county to which 37 venue has been transferred. If a special probate judge is 38 appointed because a probate judge is disqualified and recused 39 from hearing a proceeding or an entire file , venue remains

[143] 21 1 with the county where the proceeding or file commenced, 2 unless a probate court otherwise transfers venue. 3 4 5 Section 621304. The South Carolina Rules of Civil 6 Procedure (SCRCP) adopted for the circuit court and other 7 rules of procedure in this title govern formal proceedings 8 pursuant to this title. A formal proceeding is a ‘civil action’ 9 as defined in Rule 2, SCRCP, and must be commenced as 10 provided in Rule 3, SCRCP. 11 12 REPORTER’S COMMENT 13 The 2010 amendment revised and essentially rewrote Section 14 621304 in order to clarify that ‘formal proceedings’ are 15 governed by and subject to the rules of civil procedure 16 adopted for the circuit court [SCRCP] and other rules of 17 procedure in this title and that the SCRCP also govern formal 18 proceedings and commencement of same. See 2010 19 amendments to certain definitions in S.C. Code §621201 and 20 also see §§1423280, 621304, and Rules 1 and 81, SCRCP; 21 see also, Weeks v. Drawdy, 495 S.E. 2d 454 (Ct. App. 1997) 22 (the rules of probate court governing procedure address only 23 a limited number of issues and in the absence of a specific 24 probate court rule, the rules of civil procedure applicable in 25 the court of common pleas shall be applied in the probate 26 court unless to do so would be inconsistent with the 27 provisions of the Code). 28 29 Section 621305. The court shall keep a record for each 30 decedent, ward, protected person, or trust involved in any 31 document which may be filed with the court under this Code, 32 including petitions and applications, demands for notices or 33 bonds, and of any orders or responses relating thereto by the 34 probate court, and establish and maintain a system for 35 indexing, filing, or recording which is sufficient to enable 36 users of the records to obtain adequate information. Upon 37 payment of the fees required by law, the clerk must issue 38 certified copies of any probated wills, letters issued to 39 personal representatives, or any other record or paper filed or

[143] 22 1 recorded. Certificates relating to letters must show the date 2 of appointment. 3 4 REPORTER’S COMMENT 5 This section requires that the probate court keep a record of 6 all matters filed with the court and that records be so indexed 7 and filed as to make them useful to those examining them. 8 Further, the court is required to issue certified copies of 9 documents on file. 10 This section does not go into the detail of Sections 14231100 11 and 14231130 of the 1976 Code which list in some detail the 12 records which must be kept by the probate court. These 13 sections are not incompatible with Section 621305. Probate 14 Court Rule 1, pertaining to a calendar and to books denoting 15 titles of all cases and transactions therein, is not disturbed by 16 this section. 17 18 Section 621306. (a) If duly demanded, a party is entitled 19 to trial by jury in any proceeding involving an issue of fact in 20 an action for the recovery of money only or of specific real or 21 personal property, unless waived as provided in the rules of 22 civil procedure for the courts of this State. The right to trial 23 by jury exists in, but is not limited to, formal proceedings in 24 favor of the probate of a will or contesting the probate of a 25 will. 26 (b) If there is no right to trial by jury under subsection (a) 27 or the right is waived, the court in its discretion may call a 28 jury to decide any issue of fact, in which case the verdict is 29 advisory only. 30 (c) The method of drawing, summoning, and 31 compensating jurors under this section shall be within the 32 province of the county jury commission and shall be 33 governed by Chapter 7 of, Title 14 of the 1976 Code relating 34 to juries in circuit courts. 35 36 REPORTER’S COMMENT 37 This section confers a right to trial by jury in the probate 38 court in the same kinds of proceedings in which the right to 39 jury trial exists in the circuit court, namely, proceedings

[143] 23 1 involving an issue of fact in an action for the recovery of 2 money only or of specific real or personal property, Section 3 152360 of the 1976 Code. If no right to trial by jury exists, 4 the court may impanel a jury to decide any issue or fact on an 5 advisory basis. 6 Chapter 7, Title 14 of the 1976 Code, relating to juries in the 7 circuit court, governs the method of drawing, summoning, 8 and compensating jurors. 9 10 Section 621307. The acts and orders which this Code 11 specifies as performable by the court may be performed 12 either by the judge or by a person, including one or more 13 clerks, designated by the judge by a written order filed and 14 recorded in the office of the court. 15 16 Section 621308. Except as provided in subsection (g) 17 (1), appeals from the probate court must be to the circuit 18 court and are governed by the following rules: 19 (a) A person interested in a final order, sentence, or 20 decree of a probate court and considering himself injured by 21 it may appeal to the circuit court in the same county, subject 22 to the provisions of Section 621303. The notice of intention 23 to appeal to the circuit court must be filed in the office of the 24 circuit court and in the office of the probate court and a copy 25 served on all parties not in default within ten days after 26 receipt of written notice of the appealed from order, sentence, 27 or decree of the probate court. The grounds of appeal must 28 be filed in the office of the probate court and a copy served 29 on all parties within fortyfive days after receipt of written 30 notice of the order, sentence, or decree of the probate court. 31 (b) Within thirty days after the grounds of appeal has been 32 filed in the office of the probate court, as provided in 33 subsection (a), the probate court shall make a return to the 34 appellate court of the testimony, proceedings, and judgment 35 and file it in the appellate court. Upon final disposition of 36 the appeal, all papers included in the return must be 37 forwarded to the probate court fortyfive days after receipt of 38 written notice of the order, sentence, or decree of the probate 39 court, the appellant must file with the clerk of the circuit

[143] 24 1 court a Statement of Issues on Appeal (in a format described 2 in Rule 208(b)(1)(B), SCACR) with proof of service and a 3 copy served on all parties. 4 (c) Where a transcript of the testimony and proceedings in 5 the probate court was prepared, the appellant shall, within ten 6 days after the date of service of the notice of intention to 7 appeal, make satisfactory arrangements with the court or 8 court reporter for furnishing the transcript. If the appellant 9 has not received the transcript within fortyfive days after 10 receipt of written notice of the order, sentence, or decree of 11 the probate court, the appellant may make a motion to the 12 circuit court for an extension to serve and file the parties’ 13 briefs and Designations of Matter to be Included in the 14 Record on Appeal, as provided in subsections (d) and (e). 15 (d) Within thirty days after service of the Statement of 16 Issues on Appeal, all parties to the appeal shall serve on all 17 other parties to the appeal a Designation of Matter to be 18 Included in the Record on Appeal (in a format described in 19 Rule 209, SCACR) and file with the clerk of the circuit court 20 one copy of the Designation of Matter to be Included in the 21 Record on Appeal with proof of service. 22 (e) At the same time appellant serves his Designation of 23 Matter to be Included in the Record on Appeal, the appellant 24 shall serve one copy of his brief on all parties to the appeal, 25 and file with the clerk of the circuit court one copy of the 26 brief with proof of service. The appellant’s brief shall be in a 27 format described in Rule 208(b)(1), SCACR. Within thirty 28 days after service of the appellant’s brief, respondent shall 29 serve one copy of his brief on all parties to the appeal, and 30 file with the clerk of the circuit court one copy of the brief 31 with proof of service. The respondent’s brief shall be in a 32 format described in Rule 208(b)(2), SCACR. Appellant may 33 file and serve a brief in reply to the brief of respondent. If a 34 reply brief is prepared, appellant shall, within ten days after 35 service of respondent’s brief, serve one copy of the reply 36 brief on all parties to the appeal and file with the clerk of 37 circuit court one copy of the reply brief with proof of service. 38 The appellant’s reply brief shall be in a format described in 39 Rule 208(b)(3), SCACR.

[143] 25 1 (f) Within thirty days after service of the respondent’s 2 brief, the appellant shall serve a copy of the Record on 3 Appeal (in a format described in subsections (c), (e), (f) and 4 (g) of Rule 210, SCACR, except that the Record of Appeal 5 need not comply with the requirements of Rule 267, SCACR) 6 on each party who has served a brief and filed with the clerk 7 of the circuit court one copy of the Record on Appeal with 8 proof of service. 9 (g) Except as provided in this section, no party is required 10 to comply with any other requirements of the South Carolina 11 Appellate Court Rules. Upon final disposition of the appeal, 12 all exhibits filed separately (as described in Rule 210(f), 13 SCACR), but not included in the Record on Appeal, must be 14 forwarded to the probate court. 15 (h) When an appeal according to law is taken from any 16 sentence or decree of the probate court, all proceedings in 17 pursuance of the order, sentence, or decree appealed from 18 shall cease until the judgment of the circuit court, court of 19 appeals, or Supreme Court is had. If the appellant, in 20 writing, waives his appeal before the entry of the judgment, 21 proceedings may be had in the probate court as if no appeal 22 had been taken. 23 (di) When the return has been filed in The circuit court, as 24 provided in subsection (b), the court of appeals, or Supreme 25 Court shall hear and determine the appeal according to the 26 rules of law. The hearing must be strictly on appeal and no 27 new evidence may be presented. 28 (ej) The final decision and judgment in cases appealed, as 29 provided in this code, shall be certified to the probate court 30 by the circuit court, court of appeals, or Supreme Court, as 31 the case may be, and the same proceedings shall be had in the 32 probate court as though the decision had been made in the 33 probate court. Within fortyfive days after receipt of written 34 notice of the final decision and judgment in cases appealed, 35 the prevailing party shall provide a copy of such decision and 36 judgment to the probate court. 37 (fk) A judge of a probate court must not be admitted to 38 have any voice in judging or determining an appeal from his 39 decision or be permitted to act as attorney or counsel.

[143] 26 1 (gl) If the parties not in default consent either in writing or 2 on the record at a hearing in the probate court, a party to a 3 final order, sentence, or decree of a probate court who 4 considers himself injured by it may appeal directly to the 5 Supreme Court, and the procedure for the appeal must be 6 governed by the South Carolina Appellate Court Rules. 7 8 REPORTER’S COMMENTS 9 This section provides that appeals from the probate court are 10 to the circuit court. Under Section 621308(i), any appeal 11 from the probate court is strictly on the record. 12 The 2013 amendments to this section were intended to 13 clarify the process for appeals from the probate court. With 14 these changes, (i) the form for the Statement of Issues on 15 Appeal follows that form set forth in Rule 208(b)(1)(B); (ii) 16 the use of briefs is specifically contemplated and the form of 17 the briefs follows that set forth in Rule 208, SCACR; (iii) the 18 appellant bears the burden of preparing the record on appeal; 19 and (iv) the prevailing party bears the burden of providing 20 the probate court with a copy of the final decision and 21 judgment from the circuit court, court of appeals, or Supreme 22 Court. While the 2013 amendments do incorporate certain 23 provisions of the SCACR, paragraph (g) clarifies that not all 24 provisions of the SCACR apply to appeals from probate 25 court to circuit court. 26 27 28 Section 621309. The judges of the probate court shall be 29 elected by the qualified electors of the respective counties for 30 the term of four years in the manner specified by Section 31 14231020. 32 33 REPORTER’S COMMENT 34 This section does not disturb Section 14231040 of the 1976 35 Code which requires that a probate judge or an associate 36 judge must be a qualified elector of the county in which he is 37 to be a judge. 38 39 Part 4

[143] 27 1 2 Notice, Parties, and Representation 3 in Estate Litigation and other matters 4 5 Section 621401. (a) If notice of a hearing on any petition 6 is required and, except for specific notice requirements as 7 otherwise provided, the petitioner shall cause notice of the 8 time and place of hearing of any petition to be given to any 9 interested person or his attorney if he has appeared by 10 attorney or requested that notice be sent to his attorney. 11 Notice shall be given: 12 (1) by mailing a copy thereof at least twenty days 13 before the time set for the hearing by certified, registered, or 14 ordinary first class mail addressed to the person being 15 notified at the post office address given in his demand for 16 notice, if any, or at his office or place of residence, if known; 17 (2) by delivering a copy thereof to the person being 18 notified personally at least twenty days before the time set for 19 the hearing; or 20 (3) if the address or identity of any person is not known 21 and cannot be ascertained with reasonable diligence by 22 publishing a copy thereof in the same manner as required by 23 law in the case of the publication of a summons for an absent 24 defendant in the court of common pleas. 25 (b) The court for good cause shown may provide for a 26 different method or time of giving notice for any hearing. 27 (c) Proof of the giving of notice shall be made on or 28 before the hearing and filed in the proceeding. 29 (d) Notwithstanding a provision to the contrary, the notice 30 provisions in this section do not, and are not intended to, 31 constitute a summons that is required for a petition. 32 33 REPORTER’S COMMENT 34 This section provides that, where notice of hearing on a 35 petition is required, the petitioner shall give notice to any 36 interested person or his attorney (1) by mailing at least 37 twenty days in advance of the hearing, or (2) by personal 38 delivery at least twenty days in advance of the hearing, or (3)

[143] 28 1 if the person’s address or identity is not known and cannot be 2 ascertained, by publication as in the court of common pleas. 3 Under this Code, when a petition is filed with the court, the 4 court is to fix a time and place of hearing and it is then the 5 responsibility of the petitioner to give notice as provided in 6 Section 621401. See, for example, Sections 623402 and 7 623403. 8 The 2010 amendment added subsection (d) to clarify and 9 avoid confusion that previously existed regarding the notice 10 provisions in this section. The effect of the 2010 amendment 11 was intended to make it clear that the notice provisions in 12 this section are not intended to and do not constitute a 13 summons, which is required for a petition in formal 14 proceedings. See 2010 amendments to certain definitions in 15 S.C. Code §621201 and also see §§1423280, 621304, and 16 Rules 1 and 81, SCRCP. 17 18 Section 621402. A person, including a guardian ad litem, 19 conservator, or other fiduciary, may waive notice by a 20 writing signed by him or his attorney and filed in the 21 proceeding. 22 23 Section 621403. In formal proceedings involving trusts or 24 estates of decedents, minors, protected persons, or 25 incapacitated persons and in judicially supervised settlements 26 the following apply: 27 (1) Interests to be affected must be described in pleadings 28 that give reasonable information to owners by name or class 29 by reference to the instrument creating the interests or in 30 other appropriate manner. 31 (2) Persons are bound by orders binding others in the 32 following cases: 33 (i) Orders binding the sole holder or all coholders of a 34 power of revocation or a presently exercisable general power 35 of appointment, including one in the form of a power of 36 amendment, bind other persons to the extent their interests 37 (as objects, takers in default, or otherwise) are subject to the 38 power.

[143] 29 1 (ii) To the extent there is no conflict of interest between 2 them or among persons represented, orders binding a 3 conservator bind the person whose estate he controls; orders 4 binding a guardian bind the ward if no conservator of his 5 estate has been appointed; orders binding a trustee bind 6 beneficiaries of the trust in proceedings to probate a will 7 establishing or adding to a trust to review the acts or accounts 8 of a prior fiduciary and in proceedings involving creditors or 9 other third parties; and orders binding a personal 10 representative bind persons interested in the undistributed 11 assets of a decedent’s estate in actions or proceedings by or 12 against the estate. If there is no conflict of interest and no 13 conservator or guardian has been appointed, a person may 14 represent his minor or unborn issue. 15 (iii) A minor or unborn or unascertained person who is 16 not otherwise represented is bound by an order to the extent 17 his interest is adequately represented by another party having 18 a substantially identical interest in the proceeding. 19 (3) Service of summons, petition, and notice is required as 20 follows: 21 (i) Service of summons, petition, and notice must be 22 given to every interested person or to one who can bind an 23 interested person as described in (2)(i) or (2)(ii) above. 24 Service of summons and petition upon, as well as notice, may 25 be given both to a person and to another who may bind him. 26 (ii) Service upon and notice is given to unborn or 27 unascertained persons who are not represented under (2)(i) or 28 (2)(ii) above by giving notice to all known persons whose 29 interests in the proceedings are substantially identical to 30 those of the unborn or unascertained persons. 31 (4) At any point in a proceeding, a court may appoint a 32 guardian ad litem to represent the interest of a minor, an 33 incapacitated, unborn, or unascertained person, or a person 34 whose identity or address is unknown, if the court determines 35 that representation of the interest otherwise would be 36 inadequate. If not precluded by conflict of interests, a 37 guardian ad litem may be appointed to represent several 38 persons or interests. The court shall set out its reasons for

[143] 30 1 appointing a guardian ad litem as a part of the record of the 2 proceeding. 3 4 REPORTER’S COMMENT 5 This section applies to formal proceedings and judicially 6 supervised settlements. It provides that in certain specified 7 instances a person will be bound by orders which are binding 8 on others. Subitem (i) of item (2) provides that an order 9 which is binding upon the person or persons holding a power 10 of revocation or a general power of appointment will bind 11 others, such as objects or takers in default, to the extent that 12 their interests are subject to the power. This would mean that 13 an order which is binding on one who has discretion will 14 bind those in whose favor he might act. 15 Absent a conflict of interest, subitem (ii) of item (2) provides 16 that orders binding a conservator or guardian are binding on 17 the protected person. In certain limited instances, orders 18 binding on a trustee or a personal representative are binding 19 on beneficiaries and interested persons. Further, under 20 subitem (iii) of item (2) an unborn or unascertained person is 21 bound by orders affecting persons having a substantially 22 identical interest. These provisions facilitate proceedings by 23 limiting multiplicity of parties. 24 Item (4) permits the court at any point in a proceeding to 25 appoint a guardian ad litem to represent a minor, an 26 incapacitated person, an unborn or unascertained person, or 27 one whose identity or address is unknown if the court 28 determines that representation of that interest would 29 otherwise be inadequate. Accordingly, in a proceeding 30 where there are adult parties having the same interest as the 31 minor or incapacitated person, the court may not deem it 32 necessary to appoint a guardian ad litem if it appears that the 33 common interest will be adequately represented. In the case 34 of minors, the appointment of a guardian ad litem (or an 35 attorney having the powers and duties of a guardian ad litem) 36 is discretionary with the court. However, this Code does 37 require that notice of the proceeding be given to adults 38 presumably having an interest in the minor’s welfare, such as

[143] 31 1 the person having care and custody of the minor, parent(s), or 2 nearest adult relatives. 3 The 2010 amendment revised subsections (1) and (3) to 4 clarify procedure for a formal proceeding, which requires a 5 summons and petition to commence a formal proceeding. 6 See 2010 amendments to certain definitions in S.C. Code 7 §621201 and also see §§1423280, 621304, and Rules 1 and 8 81, SCRCP. The 2010 amendment also revised subsection 9 (2)(ii) to delete ‘parent’ and replace it with ‘person,’ so that 10 it is consistent with the remainder of that subsection and also 11 delete ‘child’ and replace it with ‘issue’ to be broader and 12 more inclusive. 13 14 Part 5 15 16 Uniform Simultaneous Death Act 17 18 Section 621500. This part may be cited as the ‘Uniform 19 Simultaneous Death Act’. 20 21 REPORTER’S COMMENT 22 The 2013 amendment made significant changes to Part 5. 23 Prior to the 2013 amendment, Part 5 did not include a 120 24 hour survival requirement similar to §622104. The revisions 25 to Part 5 now incorporate a default 120 hour survival 26 requirement for testate and intestate decedents as well as for 27 nonprobate transfers, subject to the exceptions set forth in 28 §621506. 29 30 Section 621501. This part may be cited as the ‘Uniform 31 Simultaneous Death Act’. For purposes of this part: 32 (1) ‘Coowners with right of survivorship’ includes joint 33 tenants in a joint tenancy with right of survivorship, joint 34 tenants in a tenancy in common with right of survivorship, 35 tenants by the entireties, and other coowners of property or 36 accounts held under circumstances that entitle one or more to 37 the whole of the property or account on the death of the other 38 or others.

[143] 32 1 (2) ‘Governing instrument’ means a deed, will, trust, 2 insurance or annuity policy, account with POD designation, 3 pension, profitsharing, retirement, or similar benefit plan, 4 instrument creating or exercising a power of appointment or 5 a power of attorney, or a dispositive, appointive, or 6 nominative instrument of any similar type. 7 (3) ‘Payor’ means a trustee, insurer, business entity, 8 employer, government, governmental agency, subdivision, or 9 instrumentality, or any other person authorized or obligated 10 by law or a governing instrument to make payments. 11 12 Section 621502. When the title to property or the 13 devolution thereof depends upon priority of death and there 14 is no sufficient evidence that the persons have died otherwise 15 than simultaneously the property of each person shall be 16 disposed of as if he had survived, except as provided 17 otherwise in this part [Sections 621501 et seq.]. (a) Except as 18 otherwise provided by this Code, where the title to property, 19 the devolution of property, the right to elect an interest in 20 property, or any other right or benefit depends upon an 21 individual’s survivorship of the death of another individual, 22 an individual who is not established by clear and convincing 23 evidence to have survived the other individual by at least one 24 hundred twenty hours is deemed to have predeceased the 25 other individual. 26 (b) If the language of the governing instrument disposes 27 of property in such a way that two or more beneficiaries are 28 designated to take alternatively by reason of surviving each 29 other and it is not established by clear and convincing 30 evidence that any such beneficiary has survived any other 31 beneficiary by at least one hundred twenty hours, the 32 property shall be divided into as many equal shares as there 33 are alternative beneficiaries, and these shares shall be 34 distributed respectively to each such beneficiary’s estate. 35 (c) If the language of the governing instrument disposes 36 of property in such a way that it is to be distributed to the 37 member or members of a class who survived an individual, 38 each member of the class will be deemed to have survived 39 that individual by at least one hundred twenty hours unless it

[143] 33 1 is established by clear and convincing evidence that the 2 individual survived the class member or members by at least 3 one hundred twenty hours. 4 5 Section 621503. When two or more beneficiaries are 6 designated to take successively by reason of survivorship 7 under another person’s disposition of property and there is no 8 sufficient evidence that these beneficiaries have died 9 otherwise than simultaneously, the property thus disposed of 10 shall be divided into as many equal portions as there are 11 successive beneficiaries and these portions shall be 12 distributed respectively to those who would have taken in the 13 event that each designated beneficiary had survived. Except 14 as otherwise provided by this Code, for purposes of a 15 provision of a governing instrument that relates to an 16 individual surviving an event, including the death of another 17 individual, an individual who is not established by clear and 18 convincing evidence to have survived the event by at least 19 one hundred twenty hours is deemed to have predeceased the 20 event. 21 22 Section 621504. When there is no sufficient evidence that 23 two joint tenants or tenants by the entirety have died 24 otherwise than simultaneously, the property so held shall be 25 distributed one half as if one had survived and one half as if 26 the other had survived. If there are more than two joint 27 tenants and all of them have so died, the property shall be so 28 distributed in the proportion that one bears to the whole 29 number of joint tenants. Except as otherwise provided by 30 this Code, if: 31 (a) it is not established by clear and convincing evidence 32 that one of two coowners with right of survivorship survived 33 the other coowner by at least one hundred twenty hours, 34 onehalf of the property passes as if one had survived by at 35 least one hundred twenty hours and onehalf as if the other 36 had survived by at least one hundred twenty hours; 37 (b) there are more than two coowners and it is not 38 established by clear and convincing evidence that at least one 39 of them survived the others by at least one hundred twenty

[143] 34 1 hours, the property passes to the estates of each of the 2 coowners in the proportion that one bears to the whole 3 number of coowners. 4 5 REPORTER’S COMMENT 6 This section applies to property or accounts held by 7 coowners with right of survivorship. As defined in §621501, 8 the term ‘coowners with right of survivorship’ includes 9 multipleparty accounts with right of survivorship. 10 11 Section 621505. When the insured and the beneficiary in 12 a policy of life or accident insurance have died and there is 13 no sufficient evidence that they have died otherwise than 14 simultaneously, the proceeds of the policy shall be 15 distributed as if the insured had survived the beneficiary. 16 Notwithstanding any other provisions of the Code, solely for 17 the purpose of determining whether a decedent is entitled to 18 any right or benefit that depends on surviving the death of a 19 decedent’s killer under Section 622803, the killer is deemed 20 to have predeceased the decedent, and the decedent is 21 deemed to have survived the killer by at least one hundred 22 twenty hours, or any greater survival period required of the 23 decedent under the killer’s will or other governing 24 instrument, unless it is established by clear and convincing 25 evidence that the killer survived the victim by at least one 26 hundred twenty hours. 27 28 Section 621506. This part shall not apply to the 29 distribution of the property of a person who died prior to 30 April 3, 1948. Survival by one hundred twenty hours is not 31 required if any of the following apply: 32 (1) the governing instrument contains language dealing 33 explicitly with simultaneous deaths or deaths in a common 34 disaster and that language is operable under the facts of the 35 case; 36 (2) the governing instrument expressly indicates that an 37 individual is not required to survive an event, including the 38 death of another individual, by any specified period or 39 expressly requires the individual to survive the event for a

[143] 35 1 specified period; but survival of the event or the specified 2 period must be established by clear and convincing evidence; 3 (3) the imposition of a one hundred twenty hour 4 requirement of survival would cause a nonvested property 5 interest or a power of appointment to be invalid under other 6 provisions of the Code; but survival must be established by 7 clear and convincing evidence; 8 (4) the application of a one hundred and twenty hour 9 requirement of survival to multiple governing instruments 10 would result in an unintended failure or duplication of a 11 disposition; but survival must be established by clear and 12 convincing evidence; 13 (5) the application of a one hundred twenty hour 14 requirement of survival would deprive an individual or the 15 estate of an individual of an otherwise available tax 16 exemption, deduction, exclusion, or credit, expressly 17 including the marital deduction, resulting in the imposition of 18 a tax upon a donor or a decedent’s estate, other person, or 19 their estate, as the transferor of any property. ‘Tax’ includes 20 any federal or state gift, estate or inheritance tax; 21 (6) the application of a one hundred twenty hour 22 requirement of survival would result in an escheat . 23 24 REPORTER’S COMMENT 25 The 2013 amendment rewrote this section. 26 Subsection (1). Subsection (1) provides that the 120hour 27 requirement of survival is inapplicable if the governing 28 instrument ‘contains language dealing explicitly with 29 simultaneous deaths or deaths in a common disaster and that 30 language is operable under the facts of the case.’ The 31 application of this provision is illustrated by the following 32 example. 33 Example. G died leaving a will devising her entire estate 34 to her husband, H, adding that ‘in the event he dies before I 35 do, at the same time that I do, or under circumstances as to 36 make it doubtful who died first,’ my estate is to go to my 37 brother Melvin. H died about 38 hours after G’s death, both 38 having died as a result of injuries sustained in an automobile 39 accident.

[143] 36 1 Under this section, G’s estate passes under the alternative 2 devise to Melvin because H’s failure to survive G by 120 3 hours means that H is deemed to have predeceased G. The 4 language in the governing instrument does not, under 5 subsection (1), nullify the provision that causes H, because of 6 his failure to survive G by 120 hours, to be deemed to have 7 predeceased G. Although the governing instrument does 8 contain language dealing with simultaneous deaths, that 9 language is not operable under the facts of the case because 10 H did not die before G, at the same time as G, or under 11 circumstances as to make it doubtful who died first. 12 Subsection (2). Subsection (2) provides that the 120hour 13 requirement of survival is inapplicable if ‘the governing 14 instrument expressly indicates that an individual is not 15 required to survive an event, including the death of another 16 individual, by any specified period or expressly requires the 17 individual to survive the event for a stated period.’ 18 Mere words of survivorship in a governing instrument do 19 not expressly indicate that an individual is not required to 20 survive an event by any specified period. If, for example, a 21 trust provides that the net income is to be paid to A for life, 22 remainder in corpus to B if B survives A, the 120hour 23 requirement of survival would still apply. B would have to 24 survive A by 120 hours. If, however, the trust expressly 25 stated that B need not survive A by any specified period, that 26 language would negate the 120hour requirement of survival. 27 Language in a governing instrument requiring an 28 individual to survive by a specified period also renders the 29 120hour requirement of survival inapplicable. Thus, if a will 30 devises property ‘to A if A survives me by 30 days,’ the 31 express 30day requirement of survival overrides the 120hour 32 survival period provided by this Act. 33 Subsection (4). Subsection (4) provides that the 120hour 34 requirement of survival is inapplicable if ‘the application of 35 this section to multiple governing instruments would result in 36 an unintended failure or duplication of a disposition.’ The 37 application of this provision is illustrated by the following 38 example.

[143] 37 1 Example. Pursuant to a common plan, H and W executed 2 mutual wills with reciprocal provisions. Their intention was 3 that a $50,000 charitable devise would be made on the death 4 of the survivor. To that end, H’s will devised $50,000 to the 5 charity if W predeceased him. W’s will devised $50,000 to 6 the charity if H predeceased her. Subsequently, H and W 7 were involved in a common accident. W survived H by 48 8 hours. 9 Were it not for subsection (4), not only would the 10 charitable devise in W’s will be effective, because H in fact 11 predeceased W, but the charitable devise in H’s will would 12 also be effective, because W’s failure to survive H by 120 13 hours would result in her being deemed to have predeceased 14 H. Because this would result in an unintended duplication of 15 the $50,000 devise, subsection (4) provides that the 120hour 16 requirement of survival is inapplicable. Thus, only the 17 $50,000 charitable devise in W’s will is effective. 18 Subsection (4) also renders the 120hour requirement of 19 survival inapplicable had H and W died in circumstances in 20 which it could not be established by clear and convincing 21 evidence that either survived the other. In such a case, an 22 appropriate result might be to give effect to the common plan 23 by paying half of the intended $50,000 devise from H’s 24 estate and half from W’s estate. 25 Under subsection (5), if the application of the 120hour 26 survival requirement would cause the loss of an available tax 27 exemption, deduction, exclusion, or credit, creating a 28 federal or State gift, estate or inheritance tax, the 120hour 29 survival requirement will not be applied. Additionally, under 30 subsection (6), the 120hour survival requirement is not 31 applicable if it would cause an escheat. 32 33 Section 621507. This part [Sections 621501 et seq.] shall 34 not apply in the case of wills, living trusts, deeds, or contracts 35 of insurance wherein provision has been made for 36 distribution of property different from the distribution that 37 would otherwise be made under the provisions of this part 38 [Sections 621501 et seq.]. In addition to the South Carolina

[143] 38 1 Rules of Evidence, the following rules relating to a 2 determination of death and status apply: 3 (1) Death occurs when an individual is determined to be 4 dead under the Uniform Determination of Death Act, Section 5 4443460. 6 (2) A certified or authenticated copy of a death certificate 7 purporting to be issued by an official or agency of the place 8 where the death purportedly occurred is prima facie proof of 9 the fact, place, date and time of death, and the identity of the 10 decedent. 11 (3) A certified or authenticated copy of any record or 12 report of a governmental agency, domestic or foreign, that a 13 person is missing, detained, dead, or alive is prima facie 14 evidence of the status and of the dates, circumstances, and 15 places disclosed by the record or report. 16 (4) In the absence of prima facie evidence of death under 17 subsection (2) or (3), the fact of death may be established by 18 clear and convincing evidence, including circumstantial 19 evidence. 20 (5) A person whose death is not established under the 21 preceding paragraphs who is absent for a continuous period 22 of five years, during which he has not been heard from, and 23 whose absence is not satisfactorily explained after diligent 24 search or inquiry, is presumed to be dead. His death is 25 presumed to have occurred at the end of the period unless 26 there is sufficient evidence for determining that death 27 occurred earlier. 28 (6) In the absence of evidence disputing the time of death 29 stated on a document described in subsection (2) or (3), a 30 document described in subsection (2) or (3) that states a time 31 of death one hundred twenty hours or more after the time of 32 death of another person, however the time of death of the 33 other person is determined, establishes by clear and 34 convincing evidence that the person survived the other 35 person by one hundred twenty hours. 36 37 REPORTER’S COMMENT 38 The 2013 amendment rewrote this section. This section 39 incorporates the provisions of former Section 621107.

[143] 39 1 2 Section 621508. This part [Sections 621501 et seq.] 3 shall be so construed and interpreted as to effectuate its 4 general purpose to make uniform the law in those states 5 which enact substantially identical laws. (1) A payor or other 6 third party is not liable for having made a payment or 7 transferred an item of property or any other benefit to a 8 person designated in a governing instrument who, under this 9 part, is not entitled to the payment or item of property, or for 10 having taken any other action in good faith reliance on the 11 person’s apparent entitlement under the terms of the 12 governing instrument, before the payor or other third party 13 received written notice of a claimed lack of entitlement under 14 this part. A payor or other third party is liable for a payment 15 made or other action taken after the payor or other third party 16 received written notice of a claimed lack of entitlement under 17 this part. 18 (2) Written notice of a claimed lack of entitlement under 19 subsection (1) must be mailed to the payor’s or other third 20 party’s main office or home by registered or certified mail, 21 return receipt requested, or served upon the payor or other 22 third party in the same manner as a summons in a civil 23 action. Upon receipt of written notice of a claimed lack of 24 entitlement under this part, a payor or other third party may 25 pay any amount owed or transfer or deposit any item of 26 property, other than tangible personal property, held by it to 27 or with the court having jurisdiction of the probate 28 proceedings relating to the decedent’s estate, or if no 29 proceedings have been commenced, to or with the court 30 having jurisdiction of probate proceedings relating to 31 decedents’ estates located in the county of the decedent’s 32 residence. The court shall hold the funds or item of property 33 and, upon its determination under this part, shall order 34 disbursement in accordance with the determination. 35 Payments, transfers, or deposits made to or with the court 36 discharge the payor or other third party from all claims for 37 the value of amounts paid to or items of property transferred 38 to or deposited with the court.

[143] 40 1 (3) A person who purchases property for value and 2 without notice, or who receives a payment or other item of 3 property in partial or full satisfaction of a legally enforceable 4 obligation, is not obligated under this part to return the 5 payment, item of property, or benefit, and is not liable under 6 this part for the amount of the payment or the value of the 7 item of property or benefit. However, a person who, not for 8 value, receives a payment, item of property, or any other 9 benefit to which the person is not entitled under this part is 10 obligated to return the payment, item of property, or benefit, 11 or is personally liable for the amount of the payment or the 12 value of the item of property or benefit, to the person who is 13 entitled to it under this part. 14 15 Section 621509. This part [Sections 621501 et seq.] shall 16 be so construed and interpreted as to effectuate its general 17 purpose to make uniform the law in those states which enact 18 substantially identical laws. 19 20 REPORTER’S COMMENT 21 Prior to the 2013 amendment this section was previously 22 Section 621508. 23 24 Article 2 25 26 Intestate Succession and Wills 27 28 Part 1 29 30 Intestate Succession 31 32 Section 622101. Any part of the estate of a decedent not 33 effectively disposed of by his will passes to his heirs as 34 prescribed in the following sections of this Code. 35 36 REPORTER’S COMMENT 37 Section 622101 establishes intestate succession as the 38 method of disposition of any part of a decedent’s estate not 39 effectively disposed of by his will, as under Sections 622501

[143] 41 1 and 622602. It applies both in cases of total intestacy and in 2 cases of partial intestacy. See Sections 621201(11) and 3 621201(35) for this Code’s definition of the estate governed 4 by Section 622101 as to intestate succession. 5 6 Section 622102. The intestate share of the surviving 7 spouse is: 8 (1) if there is no surviving issue of the decedent, the entire 9 intestate estate; 10 (2) if there are surviving issue, onehalf of the intestate 11 estate. 12 13 REPORTER’S COMMENT 14 Section 622102 defines the intestate share of the decedent’s 15 surviving spouse (which term is in turn defined by Section 16 622802) by limiting the persons with whom the surviving 17 spouse must share any part of the intestate estate to the 18 decedent’s surviving issue, i.e., if no issue survive, the 19 spouse takes all, and, in case issue do survive, the spouse 20 takes onehalf of the intestate estate. Section 622102 draws 21 no distinction between cases of single child survival and 22 multiple child survival. 23 A husband or wife who desires to leave his or her surviving 24 spouse more or less than the share provided by this section 25 and to leave to other persons more or less than would 26 otherwise be available to them may do so by executing a will. 27 28 Section 622103. The part of the intestate estate not 29 passing to the surviving spouse under Section 622102, or the 30 entire estate if there is no surviving spouse, passes as 31 follows: 32 (1) to the issue of the decedent: if they are all of the same 33 degree of kinship to the decedent they take equally, but if of 34 unequal degree then those of more remote degree take by 35 representation; 36 (2) if there is no surviving issue, to his parent or parents 37 equally; 38 (3) if there is no surviving issue or parent, to the issue of 39 the parents or either of them by representation;

[143] 42 1 (4) if there is no surviving issue, parent or issue of a 2 parent, but the decedent is survived by one or more 3 grandparents or issue of grandparents, half of the estate 4 passes to the paternal grandparents if both survive, or to the 5 surviving paternal grandparent, or to the issue of the paternal 6 grandparents if both are deceased, the issue taking equally if 7 they are all of the same degree of kinship to the decedent, but 8 if of unequal degree those of more remote degree take by 9 representation; and the other half passes to the maternal 10 relatives in the same manner; but if there be no surviving 11 grandparent or issue of grandparent on either the paternal or 12 the maternal side, the entire estate passes to the relatives on 13 the other side in the same manner as the half; 14 (5) if there is no surviving issue, parent or issue of a 15 parent, grandparent or issue of a grandparent, but the 16 decedent is survived by one or more greatgrandparents or 17 issue of greatgrandparents, half of the estate passes to the 18 surviving paternal greatgrandparents in equal shares, or to the 19 surviving paternal greatgrandparent if only one survives, or 20 to the issue of the paternal greatgrandparents if none of the 21 greatgrandparents survive, the issue taking equally if they are 22 all of the same degree of kinship to the decedent, but if of 23 unequal degree those of more remote degree take by 24 representation; and the other half passes to the maternal 25 relatives in the same manner; but if there be no surviving 26 greatgrandparent or issue of a greatgrandparent on either the 27 paternal or the maternal side, the entire estate passes to the 28 relatives on the other side in the same manner as the half; 29 (6) if there is no surviving issue, parent or issue of a 30 parent, grandparent or issue of a grandparent, 31 greatgrandparent or issue of a greatgrandparent, but the 32 decedent is survived by one or more stepchildren or issue of 33 stepchildren, the estate passes to the surviving stepchildren 34 and to the issue of any deceased stepchildren; if they are all 35 of the same degree of stepkinship to the decedent they take 36 equally, but if of unequal degree then those of more remote 37 degree take by representation. 38 39 REPORTER’S COMMENT

[143] 43 1 Section 622103 defines the intestate shares of persons, other 2 than the surviving spouse, in that part of the intestate estate 3 not passing to the surviving spouse under Section 622102. 4 Subsection (1) of Section 622103 gives preference to the 5 decedent’s issue as against all others, except the surviving 6 spouse (see Section 622102). 7 Where the surviving issue who are heirs are all of the same 8 degree of kinship to the decedent, they take per capita, i.e., in 9 equal shares. Where the surviving issue who are heirs are of 10 unequal degrees, they take per capita with per capita 11 representation, i.e., those in the nearest degree take per 12 capita, equal shares, as before, while those in the more 13 remote degrees take, by representation, the equal share which 14 their deceased ancestor in the nearest degree would have 15 taken had he survived the decedent. Such issue in more 16 remote degrees take their deceased ancestor’s equal share, in 17 turn, per capita with per capita representation. This section, 18 read together with Section 622106, minimizes the occurrence 19 of unequal distributions among members of the same 20 generation. 21 For an example of issue taking per capita with per capita 22 representation, suppose death is indicated by parentheses 23 and: 24 1. (X) dies intestate: 25 2. predeceased by two children, (A) and (B): 26 3. survived by two grandchildren, A’s child C, and B’s child 27 D, and predeceased by one grandchild, B’s child (E): 28 4. predeceased by two greatgrandchildren, E’s children (F) 29 and (G): 30 5. and survived by three greatgreat grandchildren F’s child H, 31 and G’s children I and J. 32 Under Section 622103(1), the number of issue, in the nearest 33 degree of kinship having surviving members, counting both 34 those who survive and those who predecease leaving issue 35 surviving, determines the basic shares. In this example, 36 ‘thirds’ go to each of the living grandchildren C and D and, 37 collectively, to the issue of the predeceased grandchild E. In 38 turn, E’s ‘third’ is divided among his issue in the same 39 manner; and the number of his issue, in the nearest degree

[143] 44 1 having surviving members, determines the further shares, 2 which are, in this example, ‘thirds’ of E’s ‘third’, or ‘ninths’ 3 which go to H, I, and J. Under Section 622103(1), the 4 preexistence of A, B, F, and G is ignored because no member 5 of their respective degrees of kinship survived the decedent. 6 Subsection (2) of Section 622103 allocates the entire intestate 7 estate to the parents of the decedent if there is neither a 8 surviving spouse nor any surviving issue. 9 Subsection (3) of Section 622103 apportions the entire 10 intestate estate, by representation, among the issue of the 11 parents of the decedent only if the decedent leaves neither 12 spouse nor issue nor parents. All issue of parents of the 13 decedent, however remotely related to the decedent they may 14 be, share by representation. For example, a grandnephew of 15 decedent, related through a brother and nephew of decedent, 16 themselves both predeceased, takes by representation and is 17 not excluded by the survival of another brother or of another 18 nephew of decedent. 19 All issue of the decedent’s parents take under Section 20 622103(3) by representation so that half blood heirs are 21 treated the same as whole blood heirs. 22 Subsections (4) and (5) of Section 622103 apply in cases in 23 which the decedent is survived by neither spouse, nor issue, 24 nor parents, nor issue of parents, but is survived by 25 grandparents or their issue (then the entire intestate estate is 26 distributed to them under subsection (4)), or the decedent is 27 survived neither by grandparents nor their issue but by 28 greatgrandparents or their issue (then the entire intestate 29 estate is distributed to them under subsection (5)). Persons, 30 even more remotely related to decedent, the socalled 31 ‘laughing heirs,’ do not share at all. 32 33 Section 622104. Any person who fails to survive the 34 decedent by one hundred twenty hours is deemed to have 35 predeceased the decedent for purposes of Section 622401 and 36 intestate succession, and the decedent’s heirs are determined 37 accordingly. If the time of death of the decedent or of the 38 person who would otherwise be an heir, or the times of death 39 of both, cannot be determined, and it cannot be established

[143] 45 1 that the person who would otherwise be an heir has survived 2 the decedent by one hundred twenty hours, it is deemed that 3 the person failed to survive for the required period. This 4 section is not to be applied where its application would result 5 in a taking of the intestate estate by the State under Section 6 621105. (1) For purposes of intestate succession, homestead 7 allowance, and exempt property, and except as otherwise 8 provided in subsection (2): 9 (a) an individual who was born before a decedent’s 10 death but who fails to survive the decedent by one hundred 11 twenty hours is deemed to have predeceased the decedent. If 12 it is not established that an individual who was born before 13 the decedent’s death survived the decedent by one hundred 14 twenty hours, it is deemed that the individual failed to 15 survive for the required period. 16 (b) an individual who was in gestation at a decedent’s 17 death is deemed to be living at the decedent’s death if the 18 individual lives one hundred twenty hours after birth. If it is 19 not established that an individual who was in gestation at the 20 decedent’s death lived one hundred twenty hours after birth, 21 it is deemed that the individual failed to survive for the 22 required period. 23 (2) This section does not apply if it would result in a 24 taking of the intestate estate by the state under Section 25 622105. 26 27 REPORTER’S COMMENT 28 Section 622104 makes clear that survival for the 120 hours is 29 a condition for benefit of intestate succession, the homestead 30 allowance, and the exempt property exclusion; the 31 amendment clarifies that an infant in gestation must survive 32 for 120 hours following birth. 33 34 Section 622105. If there is no taker under the provisions 35 of this article [Sections 622101 et seq.], the intestate estate 36 passes to the State of South Carolina. 37 38 REPORTER’S COMMENT

[143] 46 1 Section 622105 provides for escheat of an intestate estate to 2 the State of South Carolina whenever there are no heirs as 3 prescribed in Sections 622102 and 622103, as affected by 4 other sections of this Article 2, i.e., whenever neither spouse 5 nor greatgrandparents of decedent, nor issue thereof, survive 6 decedent. The procedures regulating escheat to the State are 7 embodied in Sections 271910, et seq., of the 1976 Code. 8 9 10 Section 622106. If representation is called for by this 11 Code, the estate is divided into as many equal shares as there 12 are surviving heirs in the nearest degree of kinship and 13 deceased persons in the same degree who left issue who 14 survive the decedent, each surviving heir in the nearest 15 degree receiving one share and the share of each deceased 16 person in the same degree being divided among his issue in 17 the same manner. If an interest created by intestate 18 succession is disclaimed, the beneficiary is not treated as 19 having predeceased the decedent for purposes of determining 20 the generation at which the division of the estate is to be 21 made. 22 23 REPORTER’S COMMENT 24 Section 622106 defines the division of an intestate estate, 25 among the heirs’ respective shares, by ‘representation,’ i.e., 26 as an equal division among the nearest surviving kin, with 27 the issue of any equally near but predeceased kin taking their 28 ancestor’s share in the same manner, by representation. For 29 an example of the application of Section 622106, see the 30 Comment to Section 622103(1). 31 32 Section 622107. Relatives of the half blood inherit the 33 same share they would inherit if they were of the whole 34 blood. 35 36 REPORTER’S COMMENT 37 These rules of this section are carried over into the 38 construction of wills’ dispositions by Section 622609. 39

[143] 47 1 Section 622108. Issue of the decedent (but no other 2 persons) conceived before his death but born within ten 3 months thereafter inherit as if they had been born in the 4 lifetime of the decedent. 5 6 REPORTER’S COMMENT 7 Section 622108 codifies South Carolina case law establishing 8 the right of an afterborn child of an intestate decedent to 9 inherit. Pearson v. Carlton, 18 S.C. 47 (1882). This section 10 expands the principle to benefit other issue of the intestate 11 decedent, more remotely related than his children, e.g., 12 grandchildren. The section further expressly excepts 13 collateral relatives of the decedent from the principle’s 14 operation. 15 16 Section 622109. If, for purposes of intestate succession, a 17 relationship of parent and child must be established to 18 determine succession by, through, or from a person: 19 (1) From the date the final decree of adoption is entered, 20 and except as otherwise provided in Section 6391120, an 21 adopted person is the child of an adopting parent and not of 22 the natural parents except that adoption of a child by the 23 spouse of a natural parent has no effect on the relationship 24 between the child and that natural parent. 25 (2) In cases not covered by (1), a person born out of 26 wedlock is a child of the mother. That person is also a child 27 of the father if: 28 (i) the natural parents participated in a marriage 29 ceremony before or after the birth of the child, even though 30 the attempted marriage is void; or 31 (ii) the paternity is established by an adjudication 32 commenced before the death of the father or within the later 33 of eight months after the death of the father or six months 34 after the initial appointment of a personal representative of 35 his estate and, if after his death, by clear and convincing 36 proof, except that the paternity established under this subitem 37 (ii) is ineffective to qualify the father or his kindred to inherit 38 from or through the child unless the father has openly treated 39 the child as his and has not refused to support the child.

[143] 48 1 (3) A person is not the child of a parent whose parental 2 rights have been terminated under Section 6372580 of the 3 1976 Code, except that the termination of parental rights is 4 ineffective to disqualify the child or its kindred to inherit 5 from or through the parent. 6 7 REPORTER’S COMMENT 8 Section 622109 concerns intestate succession as affected by 9 adoptions of persons, by births out of wedlock, and by the 10 termination of parental rights. However, this section’s 11 definition of the parentchild relationship is imported by 12 references in Sections 621201(3) defining ‘child’, 13 621201(24) defining ‘issue’, and 621201(31) defining 14 ‘parent’, and in Section 622609 construing class gift and 15 family relationship terminology into the meanings of such 16 terms and terminology as used throughout this Code and also 17 in testators’ wills. See Sections 622102, 622103, 622106, 18 622302, 622401, 622402, 622603, and 622609. 19 The rule of general applicability of Section 622109(1) is that 20 upon adoption the adopted person’s intestacy relationships 21 with all his natural relatives are severed, but are supplanted 22 by newly established intestacy relationships with all of his 23 adopted relatives. 24 However, the general rule does not apply to cases of adoption 25 of adults. Rather, the intestacy relationships of the parties are 26 left undisturbed by the adoption decree, unless a court finds it 27 to be in the best interests of the persons involved to apply the 28 general rule. 29 To cover the case of the marriage of a child’s natural parent 30 to a person who adopts the child, Section 622109(1) provides 31 that adoption does not sever the adopted child’s intestacy 32 relationship with ‘that’ natural parent. Adoption does, 33 however, sever the adopted child’s intestacy relationship with 34 the ‘other’ natural parent, i.e., the natural parent not married 35 to the person adopting the child. 36 Subsection (2) of Section 622109 relates to the taking in 37 intestacy by, through, or from persons born out of wedlock. 38 It does not purport to declare such illegitimate children to be 39 legitimate. No part of the prior South Carolina law,

[143] 49 1 establishing the legitimacy of a child, is meant to be affected 2 by Section 622109(2). The bases for a finding of legitimacy, 3 i.e., either birth to validly married parents, whether validly 4 ceremonially married or married as at common law, or birth 5 to parents covered by one of the legitimation statutes, 6 Sections 20130, 20140, 20150, 20160, 20180, and 20190 of 7 the 1976 Code, remains as under prior law; and, of course, 8 such legitimate children bear intestacy relationships with 9 their relatives. 10 Section 622109(2) merely establishes intestacy relationships 11 between illegitimate children and their maternal and paternal 12 relatives. 13 The rule set forth in Section 622109(2)(i) relates to the 14 establishment of the illegitimate child’s intestacy relationship 15 with his father, whenever the father and mother have been 16 ceremonially married, albeit invalidly so. 17 Section 622109(2)(ii) allows an illegitimate child to inherit 18 from and through his father if paternity is established by an 19 adjudication commenced either before the father’s death or 20 within six months thereafter. A standard higher than usual, 21 clear and convincing proof is required to be met in an 22 adjudication commenced after, but not in an adjudication 23 before, the father’s death. 24 The imposition of a required adjudication and a higher 25 standard of proof upon illegitimate children seeking to inherit 26 from their fathers, as compared with legitimate children not 27 similarly burdened, should pass constitutional muster under 28 the decision of Lalli v. Lalli, 439 U.S. 259 (1978). Section 29 622109(2)(ii) precludes the father and his kindred from 30 inheriting from or through the child unless the father has 31 openly treated the child as his and has not refused to support 32 the child. 33 Subsection (3) of Section 622109, on intestacy relationships 34 following the termination of parental rights, is meant to 35 conform with Section 6372590 of the 1976 Code, cutting the 36 parent off from the child’s intestate estate, but not cutting the 37 child off from the parent’s intestate estate. 38

[143] 50 1 Section 622110. If a person dies intestate as to all his 2 estate, property which he gave in his lifetime to an heir is 3 treated as an advancement against the latter’s share of the 4 estate only if declared in a contemporaneous writing signed 5 by the decedent or acknowledged in a writing signed by the 6 heir to be an advancement. For this purpose, the property 7 advanced is valued as of the time the heir came into 8 possession or enjoyment of the property or as of the time of 9 death of the decedent, whichever first occurs. If the recipient 10 of the property fails to survive the decedent, the property 11 shall be taken into account in computing the intestate share to 12 be received by the recipient’s issue, unless the declaration or 13 acknowledgment provides otherwise. 14 15 REPORTER’S COMMENT 16 Section 622110 concerns the effect on intestate succession of 17 lifetime gifts made by the intestate to donees who are his 18 prospective heirs. The section charges such lifetime gifts, as 19 advancements, against the intestate share of the doneeheir, 20 but only if, first, the intestate dies wholly intestate, i.e., 21 without a will disposing of any part of his estate. See Section 22 622610 on satisfaction for a rule analogous to the rule of 23 advancements but operative in the event of succession under 24 a will. 25 Such gifts are treated as advancements under Section 622110 26 only if, second, they are contemporaneously declared by the 27 intestate or acknowledged by the donee, in writing, to be 28 advancements. 29 If the donee predeceases the intestate, but issue of the donee 30 survive as heirs of the intestate, Section 622110 charges the 31 ancestor’s lifetime gifts as advancements against the intestate 32 share of the issueheirs, again, only if there is a total intestacy 33 and the abovementioned writing exists but not if the writing 34 provides that the lifetime gifts to the ancestor are not to be 35 treated as advancements to such issue. 36 Section 622110 applies to lifetime gifts made to any of the 37 heirs of the intestate, a class of donees broader than the 38 former law’s language ‘child or issue of the intestate.’ See 39 Section 621201(20) defining ‘heirs’.

[143] 51 1 Section 622110 values the advancement at the earlier of the 2 donee’s actual receipt of the gift or the intestate’s death, 3 resulting in most cases in a valuation at the date of the gift 4 rather than at the date of death. 5 6 Section 622111. A debt owed to the decedent is not 7 charged against the intestate share of any person except the 8 debtor. If the debtor fails to survive the decedent, the debt is 9 not taken into account in computing the intestate share of the 10 debtor’s issue. 11 12 REPORTER’S COMMENT 13 Section 622111 qualifies the personal representative’s right 14 and obligation of retainer, i.e., to offset or charge the 15 amounts of debts owed to the decedent against the shares of 16 successors to his estate, as provided for in Section 623903. 17 Section 622111 limits such charge’s effects so that they 18 affect only the debtor’s share and not also the intestate shares 19 of the debtor’s issue. This codifies South Carolina case law. 20 See Stokes v. Stokes, 62 S.C. 346, 40 S.E. 662 (1902), 21 where the debt of a predeceased brother of the intestate was 22 not charged against the brother’s children’s intestate shares. 23 24 Section 622112. No person is disqualified to take as an 25 heir because he, or a person through whom he claims, is or 26 has been an alien. 27 28 REPORTER’S COMMENT 29 Section 622112 allows an individual to inherit property even 30 though he, or a person through whom he claims, is or has 31 been an alien. This was the prior South Carolina law 32 notwithstanding the mandate of Article 3, Section 35 of the 33 South Carolina Constitution (1895) and the provisions of 34 former Sections 271330 and 271340 of the 1976 Code, 35 limiting alien ownership of South Carolina land to five 36 hundred thousand acres, the last obviously unrealistic as an 37 effective limit at approximately twentyeight miles square. 38

[143] 52 1 Section 622113. A person who is related to the decedent 2 through two lines of relationship is entitled to only a single 3 share based on the relationship which would entitle him to 4 the larger share. 5 6 REPORTER’S COMMENT 7 Section 622113 precludes possibility of a person related to 8 the decedent through two lines of relationship, adopted and 9 natural or either, from inheriting other than through the single 10 line which will entitle him to the larger share. 11 12 Section 622114. Notwithstanding any other provision of 13 law, if the parents of the deceased would be the intestate 14 heirs pursuant to Section 622103(2), upon the service of a 15 summons, petition and notice by motion of either parent or 16 any other party of potential interest based upon the decedent 17 having died intestate, the probate court may deny or limit 18 either or both parent’s entitlement for a share of the proceeds 19 if the court determines, by a preponderance of the evidence, 20 that the parent or parents failed to reasonably provide support 21 for the decedent as defined in Section 63520 and did not 22 otherwise provide for the needs of the decedent during his or 23 her minority. If the court makes such a determination as to a 24 parent or parents, the parent shall be a disqualified parent. 25 The proceeds, or portion of the proceeds, that a disqualified 26 parent would have taken shall pass as though the disqualified 27 parent had predeceased the decedent. 28 29 REPORTER’S COMMENT 30 The 2013 amendment makes clear that an action under this 31 section must be commenced by the service of a Summons, 32 Petition and Notice by either parent or any other party of 33 potential interest; the amendment defines a disqualified 34 parent as a parent found by the court by a preponderance of 35 the evidence not to have reasonably have provided support 36 for the deceased child; the amendment clarifies that the 37 portion, or all , as the court determines, of the intestate share 38 denied to the disqualified parent shall pass as if the 39 disqualified parent had predeceased the child.

[143] 53 1 2 Part 2 3 4 Elective Share of Surviving Spouse 5 6 Section 622201. (a) If a married person domiciled in this 7 State dies, the surviving spouse has a right of election to take 8 an elective share of onethird of the decedent’s probate estate, 9 as computed under Section 622202, the share to be satisfied 10 as detailed in Sections 622206 and 622207 and, generally, 11 under the limitations and conditions hereinafter stated. 12 (b) If a married person not domiciled in this State dies, the 13 right, if any, of the surviving spouse to take an elective share 14 in property in this State is governed by the law of the 15 decedent’s domicile at death. 16 (c) ‘Surviving spouse’, as used in this Part, is as defined 17 in Section 622802. 18 19 REPORTER’S COMMENT 20 See Section 622802 for the definition of ‘spouse’ which 21 controls in this part. 22 Under the common law, a widow was entitled to dower 23 which was a life estate in a fraction of lands of which her 24 husband was seized of an estate of inheritance at any time 25 during the marriage. The South Carolina Supreme Court in 26 Boan v. Watson, 281 S.C. 516, 316 S.E.2d 401 (1984) 27 declared that dower was unconstitutional as a violation of the 28 equal protection clauses of the South Carolina and United 29 States Constitutions. South Carolina, like other states, 30 substitutes an elective share in the whole estate for dower and 31 the widower’s common law right of curtesy. 32 33 Section 622202. (a) For purposes of this Part, probate 34 estate means the decedent’s property passing under the 35 decedent’s will plus the decedent’s property passing by 36 intestacy, reduced by funeral and administration expenses 37 and enforceable claims. 38 (b) Except as provided in Section 627401(c) with respect 39 to a revocable inter vivos trust found to be illusory, the

[143] 54 1 elective share shall apply only to the decedent’s probate 2 estate. 3 4 REPORTER’S COMMENT 5 The 2013 amendment does not change the definition of 6 ‘probate estate,’ a term with a settled meaning. As defined, 7 the ‘probate estate’ to which the elective share is applicable 8 is actually the net probate estate, after the probate estate is 9 reduced by funeral and administration expenses and 10 enforceable claims. 11 The 2013 amendment adds a new subparagraph (b), which 12 takes into account and leaves unchanged the provisions of 13 Section 627401(c) of the South Carolina Trust Code. SCTC 14 Section 627401(c) is the statutory descendant of former 15 SCPC Section 627112, which was enacted after the Siefert 16 decision, Seifert v. Southern Nat’l Bank of South Carolina , 17 305 S.C. 353, 409 S.E.2d 337 (1991). Seifert found that the 18 revocable trust before the court was ‘illusory’ and, even 19 though not a part of the settlor/decedent’s probate estate, 20 assets owned by the trust were nevertheless subject to the 21 elective share. The amendment means to leave intact Section 22 627401(c), including the possibility that assets owned by a 23 revocable inter vivos trust found not to be illusory are not 24 subject to the elective share. The amendment clarifies that the 25 only nonprobate assets subject to the elective share in South 26 Carolina are assets in a revocable trust found to be illusory 27 under Section 677401(c). 28 The intent of the amendment is to clarify and provide 29 certainty with respect to all other of a decedent’s nonprobate 30 assets, which by this amendment are not subject to the 31 elective share in South Carolina. 32 The amendment expressly rejects the concept of the 33 ‘augmented estate’ as the multiplicand of the onethird 34 elective share entitlement. This rejection is in keeping with 35 and continues the intent of the drafters of the elective share 36 statute as originally effective in 1987, whose comment to this 37 section stated ‘This section rejects the ‘augmented estate’ 38 concept promulgated by the drafters of the Uniform Probate 39 Code as unnecessarily complex.’ The latest concept of

[143] 55 1 ‘augmented estate’ promulgated by the drafters of the 2 Uniform Probate Code is more onerous and complex than the 3 version rejected in 1987. 4 The revised Uniform Probate Code last promulgated by the 5 National Conference of Commissioners on Uniform State 6 Laws, as well as statutes adopted in some states (for example, 7 North Carolina) have extended the reach of the statutory 8 spousal share or elective share to nonprobate assets. The 9 property to which the surviving electing spouse is entitled to 10 receive a portion is referred to as the augmented estate. 11 The effective and expeditious administration of decedents’ 12 estates would be virtually impossible if nonprobate assets 13 owned by persons not subject to the personal jurisdiction of 14 any South Carolina court are subject to disgorgement by 15 reason of the elective share. A similar problem presently 16 exists in estates in South Carolina where an equitable 17 apportionment of the estate tax imposes on the personal 18 representative the duty of collecting the proportionate share 19 of tax from recipients of nonprobate property. Current laws 20 provide no efficient, cost effective means to reach these 21 assets in the hands of persons outside the range of existing 22 long arm statutes. 23 24 Section 622203. The right of election of the surviving 25 spouse may be exercised only during his lifetime by him or 26 by his duly appointed attorney in fact. In the case of a 27 protected person, the right of election may be exercised only 28 by order of the court in which protective proceedings as to 29 his property are pending. 30 31 REPORTER’S COMMENT 32 See Section 625101 for definitions of protected person and 33 protective proceedings. 34 35 Section 622204. (A) The rights of a surviving spouse to 36 an elective share, homestead allowance, and exempt 37 property, or any of them, may be waived, wholly or partially, 38 before or after marriage, by a written contract, agreement, or 39 waiver voluntarily signed by the waiving party after fair and

[143] 56 1 reasonable disclosures to the waiving party of the other 2 party’s property and financial obligations have been given in 3 writing. 4 (B) Unless it provides to the contrary, a waiver of all 5 rights in the property or estate of a present or prospective 6 spouse or a complete property settlement entered into after or 7 in anticipation of separation or divorce is a waiver of all 8 rights to elective share, homestead allowance, and exempt 9 property by each spouse in the property of the other and a 10 disclaimer by each of all benefits which would otherwise 11 pass to him from the other by intestate succession or by 12 virtue of the provisions of a will executed before the waiver 13 or property settlement. 14 15 REPORTER’S COMMENT 16 The right to homestead allowance is conferred by Article 1, 17 Chapter 41, Title 15 of the 1976 Code, and exempt property 18 by Section 622401. The right to disclaim interests passing by 19 testate or intestate succession is recognized by Section 20 622801. The provisions of this section, permitting a spouse 21 or prospective spouse to waive all statutory rights in the other 22 spouse’s property, seem desirable in view of the common and 23 commendable desire of parties to second and later marriages 24 to ensure that property derived from prior spouses passes at 25 death to the issue of the prior spouses instead of to the newly 26 acquired spouse. The operation of a property settlement as a 27 waiver and disclaimer takes care of the situation which arises 28 when a spouse dies while a divorce suit is pending. 29 30 Section 622205. (a) The surviving spouse may elect to 31 take his an elective share in the probate estate by filing in the 32 court and serving upon the personal representative, if any, a 33 summons and petition for the elective share within the later 34 of (1) eight months after the date of death, (2) or within six 35 months after the informal or formal probate of the decedent’s 36 will, or (3) thirty days after a surviving spouse is served with 37 a summons and petition to set aside an informal probate or to 38 modify or vacate an order for formal probate of decedent’s 39 will, whichever limitation last expires.

[143] 57 1 (b) The surviving spouse shall give notice of the time and 2 place set for the hearing on the elective share claim to the 3 personal representative and to distributees and recipients of 4 portions of the probate estate whose interests will be 5 adversely affected by the taking of the elective share. 6 (c) The surviving spouse may withdraw or reduce his 7 demand for an elective share at any time before entry of a 8 final determination by the court. 9 (d) After notice and hearing, the court shall determine the 10 amount of the elective share and shall order its payment from 11 the assets of the probate estate or by contribution as set out in 12 Sections 622206 and 622207. 13 (e) The order or judgment of the court for payment or 14 contribution may be enforced as necessary in other courts of 15 this State or other jurisdictions. 16 17 REPORTER’S COMMENT 18 The 2010 amendment revised subsection (a) by deleting 19 “mailing or delivering” and replacing it with “serving upon” 20 and also adding “summons and” to clarify that a summons 21 and petition are required to commence a formal proceeding, 22 including a formal proceeding for elective share. See 2010 23 amendments to certain definitions in S.C. Code §621201 and 24 also see §§1423280, 621304, and Rules 1 and 81, SCRCP. 25 The 2013 amendment revised the time limit within which the 26 surviving spouse may claim an elective share. 27 28 Section 622206. A surviving spouse is entitled to benefits 29 provided under or outside of the decedent’s will, by any 30 homestead allowance, by Section 622401, whether or not he 31 elects to take an elective share, but such amounts as pass 32 under the will or by intestacy, by any homestead allowance, 33 and by Section 622401 are to be charged against the elective 34 share pursuant to Section 622207(a). 35 36 REPORTER’S COMMENT 37 This election does not result in a loss of benefits under, 38 outside, or against the will (in the absence of renunciation) 39 but (to the extent that such gifts are part of the estate) they

[143] 58 1 are charged against the elective share under Sections 622201, 2 622202, and 622207(a). 3 4 Section 622207. (a) In the proceeding for an elective 5 share, all property, including any beneficial interest, which 6 passes or has passed to the surviving spouse, under the 7 decedent’s will or by intestacy, by a homestead allowance, 8 and by Section 622401, or which would have passed to the 9 spouse but was renounced, or which is contained in a trust 10 created by the decedent’s will or a trust as described in 11 Section 627401(c) in which the spouse has a beneficial 12 interest, is applied first to satisfy the elective share and to 13 reduce contributions due from other recipients of transfers 14 included in the probate estate. or would have passed to the 15 surviving spouse, but was renounced or disclaimed, must be 16 applied first to satisfy the elective share and to reduce any 17 contributions due from other recipients of transfers included 18 in the probate estate, so long as the property is passed to the 19 surviving spouse: 20 (1) under the decedent’s will; 21 (2) by intestacy; 22 (3) by a homestead allowance; 23 (4) by Section 622401; 24 (5) by a beneficiary designation in life insurance 25 policies; 26 (6) by a beneficiary designation of an Individual 27 Retirement Account, qualified retirement plan, or annuity; 28 (7) in a trust created by the decedent’s will; or 29 (8) in a revocable inter vivos trust created by the 30 decedent. 31 (b) A beneficial interest that passes or has passed to a 32 surviving spouse under the decedent’s will includes: 33 (1) an interest as a beneficiary in a trust created by the 34 decedent’s will; or 35 (2) an interest as a beneficiary in property passing under 36 the decedent’s will to an inter vivos trust created by the 37 decedent.; and

[143] 59 1 (3) an interest as a beneficiary in property contained at 2 the decedent’s death in a revocable inter vivos trust found to 3 be illusory,as provided in Section 627401(c). 4 (c)(1) For purposes of this subsection provision, the value 5 of the electing spouse’s beneficial interest in property which 6 qualifies or would have qualified for the federal estate tax 7 marital deduction pursuant to Section 2056 of the Internal 8 Revenue Code, as amended, or, if the federal estate tax is not 9 applicable at the decedent’s death, would have qualified for 10 the federal estate tax marital deduction pursuant to Section 11 2056 of the Internal Revenue Code, as amended, and in effect 12 on December 31, 2009, must be computed at the full value of 13 the qualifying property. Qualifying for these purposes must 14 be determined without regard to whether an election has been 15 made to treat the property as qualified terminable interest 16 property. 17 (2) The value of this qualifying property shall be the 18 value at the date of death as finally determined in the 19 decedent’s estate tax proceedings, or if there is no federal 20 estate tax proceeding, as shown on the inventory and 21 appraisement or as determined by the court. The personal 22 representative must choose assets, in order of abatement 23 pursuant to Section 623902, to satisfy the elective share, 24 using the fair market value at the date of distribution. The 25 elective share is pecuniary in nature. 26 (3) The electing spouse who is the income beneficiary 27 of a trust, the value of which is treated, or could be treated, as 28 qualifying property, shall have the right to require a 29 conversion of the income trust to a total return unitrust as 30 defined in the South Carolina Uniform Principal and Income 31 Act. 32 (b) (d)In choosing assets to fund the elective share, 33 Remaining remaining property of the probate estate is 34 applied so that liability for the balance of the elective share 35 of the surviving spouse is satisfied from the probate estate, 36 with devises abating in accordance with Section 623902. 37 38 REPORTER’S COMMENT

[143] 60 1 The 2013 amendment changes substantively the method of 2 calculation of the elective share in South Carolina. Under 3 the law prior to this amendment, nonprobate assets passing to 4 the surviving spouse were not offset against the elective 5 share. Under the amendment, the amount of the probate 6 estate subject to the elective share is reduced by the value of 7 nonprobate assets passing to the spouse at the death of the 8 decedent. Including the value of nonprobate assets passing to 9 the surviving spouse at the death of the decedent in the 10 calculation of the elective share imposes on the personal 11 representative the duty to ascertain the value of those 12 nonprobate assets as well as the duty to verify that the assets 13 in fact pass to the surviving spouse. Probate courts may 14 require that nonprobate assets be identified sufficiently on the 15 inventory and appraisement to enable the calculation to be 16 made. The amendment makes clear that the nonprobate 17 assets are applied first to satisfy the elective share before 18 assets from the probate estate are applied in satisfaction. The 19 amendment clarifies and makes certain that property passing 20 directly to the surviving spouse in a revocable inter vivos 21 trust, including a beneficial interest, will satisfy the elective 22 share. The amendment eliminates the concern that property 23 had to ‘pass under the will’ first in order to be applied in 24 satisfaction of the elective share. 25 The amendment leaves unchanged the law that the value of 26 the electing spouse’s beneficial interest in any property 27 which qualifies for the federal estate tax marital deduction 28 pursuant to Section 2056 of the Internal Revenue Code, as 29 amended (or, if the federal estate tax is not applicable at the 30 decedent’s death, would have qualified for the federal estate 31 tax marital deduction pursuant to Section 2056 of the Internal 32 Revenue Code, as amended, in effect on December 31, 33 2009), must be computed at the full value of any such 34 qualifying property. Two comments are relevant here. First, 35 the future of the federal estate tax is at best uncertain. The 36 federal estate tax law in effect on December 31, 2009, as it 37 pertained to the qualification for the federal estate tax marital 38 deduction, was settled law, familiar to laymen and 39 practitioners alike. Consequently, incorporation of the

[143] 61 1 qualification requirements for the federal estate tax marital 2 deduction then in effect, particularly with respect to the so 3 called ‘QTIP’ marital trust, is the measure least likely to 4 cause confusion and error. Next, in rejecting the ‘augmented 5 estate’ while at the same time continuing to credit at full 6 value the assets in an income only QTIP trust, this section 7 takes into account the possibility that the consequences to a 8 surviving spouse in the present and projected economy could 9 be harsh as well as changes to South Carolina law since 10 1987, including adoption of the South Carolina version of the 11 Uniform Prudent Investor Act (Section 627933), predicated 12 on Modern Portfolio Theory. Recognizing that simple, 13 income only trusts may be disappointing and inadequate, the 14 2013 amendment provides that the electing spouse who is the 15 beneficiary of an income trust, the value of which is treated 16 (or could be treated) as qualifying property, shall have the 17 right to require a conversion of the income trust to a total 18 return unitrust as defined in the South Carolina Uniform 19 Principal and Income Act. 20 The 2013 amendment clarifies that the value of such 21 qualifying property shall be the value at the date of death as 22 finally determined in the decedent’s estate tax proceedings, 23 or if there is no federal estate tax proceeding, as shown on 24 the inventory and appraisement or as determined by the 25 court. Generally this is fair market value. The amendment 26 makes clear, first, that in satisfying the elective share, probate 27 assets will be valued at date of distribution values; second, 28 the amendment provides that the elective share is pecuniary 29 in nature and not fractional. This is less burdensome and 30 requires revaluation only of assets in kind used to fund the 31 elective share. Although the law prior to the 2013 32 amendment may have been unclear about whether the 33 elective share was fractional or pecuniary, the treatment of 34 the elective share as pecuniary will be clear prospectively 35 from the effective date of the amendment. 36 The amendment leaves unchanged the order of abatement 37 within the probate estate. 38 39 Part 3

[143] 62 1 2 Spouse and Children Unprovided for in Wills 3 4 Section 622301. (a) If a testator fails to provide by will 5 for his surviving spouse who married the testator after the 6 execution of the will, the omitted spouse, upon compliance 7 with the provisions of subsection (c), shall receive the same 8 share of the estate he would have received if the decedent left 9 no will unless: 10 (1) it appears from the will that the omission was 11 intentional; or 12 (2) the testator provided for the spouse by transfer 13 outside the will and the intent that the transfer be in lieu of a 14 testamentary provision is shown by statements of the testator 15 or from the amount of the transfer or other evidence. 16 (b) In satisfying a share provided by this section, the 17 devises made by the will abate as provided in Section 18 623902. 19 (c) The spouse may claim a share as provided by this 20 section by filing in the court and mailing or delivering to 21 serving upon the personal representative, if any, a claim 22 summons and petition for such share within the later of (1) 23 eight months after the date of death, (2) or within six months 24 after the informal or formal probate of the decedent’s will, or 25 (3) thirty days after the omitted spouse is served with a 26 summons and petition to set aside an informal probate or to 27 modify or vacate an order for formal probate of decedent’s 28 will whichever limitation last expires. The spouse shall give 29 notice of the time and place set for the hearing on the omitted 30 spouse claim to the personal representative and to 31 distributees and recipients of portions of the probate estate 32 whose interests will be adversely affected by the taking of the 33 share. 34 35 REPORTER’S COMMENT 36 Section 622301 sets aside an intestate share for any surviving 37 spouse who is married to a testator after the execution of a 38 will which omits provision for the spouse, unless the 39 omission was intentional or the spouse was otherwise

[143] 63 1 provided for outside of and intentionally in lieu of a will’s 2 provisions. Compare the set aside for omitted afterborn 3 children under Section 622302. The testator’s intentions may 4 be shown on the face of the will or by his statements 5 concerning or from the amount of or from other evidence 6 concerning the nontestamentary transfer. 7 Section 622301 does not totally revoke the will; rather, 8 Section 622301 merely abates the will’s devises to the extent 9 necessary to satisfy the spouse’s intestate share. Compare 10 Section 622507, effecting a partial revocation of a will’s 11 provisions to the extent that they benefit a spouse divorced 12 from testator after execution of the will, and otherwise 13 providing that no change of circumstances, e.g., marriage, 14 revokes a will by operation of law. 15 The spouse’s protection accorded by Section 622301 16 presumably may be waived. See Section 622801. The 2013 17 amendment revised the time limit within which an omitted 18 spouse may claim a share of the estate. 19 20 Section 622302. (a) If a testator fails to provide in his 21 will for any of his children born or adopted after the 22 execution of his will, the omitted child, upon compliance 23 with subsection (d), receives a share in the estate equal in 24 value to that which he would have received if the testator had 25 died intestate unless: 26 (1) it appears from the will that the omission was 27 intentional; or 28 (2) when the will was executed the testator had one or 29 more children and devised substantially all his estate to his 30 spouse; or 31 (3) the testator provided for the child by transfer outside 32 the will and the intent that the transfer be in lieu of a 33 testamentary provision is shown by statements of the testator 34 or from the amount of the transfer or other evidence. 35 (b) If, at the time of execution of the will the testator fails 36 to provide in his will for a living child solely because he 37 believes that child to be dead, the child, upon compliance 38 with subsection (d), receives a share in the estate equal in

[143] 64 1 value to that which he would have received if the testator had 2 died intestate. 3 (c) In satisfying a share provided by this section, the 4 devises made by the will abate as provided in Section 5 623902. 6 (d) The child, and his guardian or conservator acting for 7 him, may claim a share as provided by this section by filing 8 in the court and mailing or delivering to serving upon the 9 personal representative, if any, a claim summons and petition 10 for such share within the later of (1) eight months after the 11 date of death, (2) or within six months after the informal or 12 formal probate of the decedent’s will, or (3) thirty days after 13 the omitted child is served with a summons and petition to 14 set aside an informal probate or to modify or vacate an order 15 for formal probate of a decedent’s will whichever limitation 16 last expires. The child, and his guardian or conservator acting 17 for him, shall give notice of the time and place set for the 18 hearing on the omitted child claim to the personal 19 representative and to distributees and recipients of portions of 20 the probate estate whose interests will be adversely affected 21 by the taking of the share. 22 23 REPORTER’S COMMENT 24 Section 622302 sets aside an intestate share for any surviving 25 child who either was unprovided for because he was thought 26 to be dead at the execution of a will or is born to or adopted 27 by a testator after the execution of a will which omits 28 provision for the child; but, in the case of the afterborn child, 29 he does not take a set aside if the omission was intentional, or 30 if the child was otherwise provided for outside of and 31 intentionally in lieu of a will’s provisions. Compare the set 32 aside for omitted spouses under Section 622301. The 33 testator’s intentions may be shown on the face of the will or 34 by his statements concerning or from the amount of or from 35 other evidence concerning the nontestamentary transfer. 36 The 2013 amendment addressed afterborn children by 37 providing that a will devising substantially all of a testator’s 38 estate to his spouse is valid against the claim of a child 39 omitted under such will regardless of whether the will was

[143] 65 1 executed by the decedent before or after the child was born 2 or adopted. It also revised the time limit under which an 3 omitted child may claim a share of the estate. 4 5 Part 4 6 7 Exempt Property 8 9 Section 622401. The surviving spouse of a decedent who 10 was domiciled in this State is entitled from the estate to a 11 value not exceeding five twentyfive thousand dollars in 12 excess of any security interests therein in household 13 furniture, automobiles, furnishings, appliances, and personal 14 effects. If there is no surviving spouse, minor or dependent 15 children of the decedent are entitled jointly to the same value. 16 If encumbered chattels are selected and if the value in excess 17 of security interests, plus that of other exempt property, is 18 less than five twentyfive thousand dollars, or if there is not 19 five twentyfive thousand dollars worth of exempt property in 20 the estate, the spouse or children are entitled to other assets 21 of the estate, if any, to the extent necessary to make up the 22 five twentyfive thousand dollar value. Rights to exempt 23 property and assets needed to make up a deficiency of 24 exempt property have priority over all claims against the 25 estate except claims described in Section 623805(a)(1). 26 These rights are in addition to any right of homestead and 27 personal property exemption otherwise granted by law but 28 are chargeable against and not in addition to any benefit or 29 share passing to the surviving spouse or children by the will 30 of the decedent unless otherwise provided, by intestate 31 succession, or by the elective share. Any surviving spouse or 32 minor or dependent children of the decedent who fails to 33 survive the decedent by one hundred twenty hours is deemed 34 to have predeceased the decedent for purposes of this section. 35 36 REPORTER’S COMMENT 37 Section 622401 sets aside an unencumbered twentyfive 38 thousand dollars worth of exempt personal property to a 39 domiciliary decedent’s surviving spouse or minor or

[143] 66 1 dependent children. Claimants must survive the decedent by 2 one hundred twenty hours in order to qualify under Section 3 622401. 4 Section 622401 sets aside the indicated amount free of the 5 claims of both the unsecured creditors of the decedent’s 6 estate (a creditors’ claim exemption) and the decedent’s 7 will’s named beneficiaries, i.e., notwithstanding any 8 provisions in the will to the contrary (a mandatory set aside). 9 While the mandatory set aside is chargeable against and not 10 in addition to any provisions in the will or in intestacy in 11 favor of the spouse or children, unless otherwise provided in 12 the will, Section 622401 provides that the mandatory set 13 aside and creditors’ claim exemption is to be in addition to 14 and not chargeable against any right of homestead allowance, 15 i.e., real property exemption, and personal property 16 exemption, available to the decedent’s survivors pursuant to 17 Section 154130 of the 1976 Code, and otherwise. 18 For a discussion of which of these exemptions apply to a 19 decedent’s estate, see (Scholtec v. Estate of Reeves, 327 S.C. 20 551, 490 S.E. 2d 603 (S.C. App. 1997). 21 22 Section 622402. (a) If the estate is otherwise sufficient, 23 property specifically devised is not used to satisfy rights to 24 exempt property. Subject to this restriction, the surviving 25 spouse, the guardians or conservators of the minor children, 26 or children who are adults may select property of the estate 27 as exempt property. The personal representative may make 28 these selections if the surviving spouse, the children, or the 29 guardians or conservators of the minor children are unable or 30 fail to do so within a reasonable time or if there are no 31 guardians or conservators of the minor children. The 32 personal representative may execute an instrument or deed of 33 distribution to establish the ownership of property taken as 34 exempt property. The personal representative or any 35 interested person aggrieved by any selection, determination, 36 payment, proposed payment, or failure to act under this 37 section may make application to the court for appropriate 38 relief.

[143] 67 1 (b) The surviving spouse or the minor or dependent child, 2 and the minor’s guardian or conservator acting for him, as 3 the case may be, may claim a share of exempt property as 4 provided in this part by filing in the court and mailing or 5 delivering to the personal representative, if any, a claim for 6 such share within eight months after the date of death, or 7 within six months after the probate of the decedent’s will, 8 whichever limitation last expires. 9 10 REPORTER’S COMMENT 11 Section 622402 governs the administration of the exempt 12 property provisions of Section 622401. 13 The 2010 amendment revised subsection (a) by deleting 14 “petition” and replacing it with “make application,” so that 15 the personal representative or any interested person as 16 referred to in this section can make application to the probate 17 court. Unlike a petition, an application does not require a 18 summons or petition. See 2010 amendments to certain 19 definitions in §621201(1). 20 21 Section 622403. All moneys monies paid for insurance, 22 compensation, or pensions by the United States of America 23 to the executors, administrators, or heirsatlaw of any 24 deceased veteran who served during any ‘period of war’ as 25 determined in reference to pension entitlement under 38 26 U.S.C. 1521, 1541 and 1542 and the regulations issued 27 thereunder, and of the SpanishAmerican War, World War I, 28 or World War II whose estate is administered in this State for 29 insurance, compensation, or pensions is hereby declared to be 30 exempt from the claims of any and all creditors of such 31 deceased veteran. 32 33 REPORTER’S COMMENT 34 The 2013 amendment exempts monies paid for insurance, 35 compensation, or pensions by the United States of America 36 to the executors, administrators, or heirsatlaw of any 37 deceased veteran who served during any ‘period of war’ as 38 that term is defined under federal regulations. Prior to

[143] 68 1 amendment the protection did not cover veterans of conflicts 2 after World War II. 3 4 Part 5 5 6 Wills 7 8 Section 622501. A person An individual who is of sound 9 mind and who is not a minor as defined in Section 10 621201(24)(27) may make a will. 11 12 REPORTER’S COMMENT 13 Section 622501 allows any individual of sound mind who is 14 not a minor to make a will. An individual is not a minor if 15 the individual is either (1) at least eighteen, (2) married, or 16 (3) emancipated. An individual may make a will of his or 17 her ‘estate.’ The estate which may be so devised is defined in 18 item (11) of Section 621201 as ‘property’, in turn defined in 19 item (37) of Section 621201 as both real and personal and 20 ‘anything that may be the subject of ownership.’ No 21 distinction on the question of capacity to make a will is 22 drawn by Section 622501 between men and women or 23 between citizens and aliens. 24 Section 622501 is not meant to reverse the South Carolina 25 law with respect to tenants in fee simple conditional, Jones v. 26 Postell, 16 S.C.L. 92 (Harp. L. )(1824), and tenants in joint 27 tenancies with express provisions for right of survivorship, 28 Davis v. Davis, 223 S.C. 182, 75 S.E.2d 46 (1963). In both 29 cases the law disabled such tenants from passing their estates 30 by will. The spirit, if not the letter, of this Code’s provisions 31 is opposed to the grant of any such novel right to devise. 32 Tenants who hold real property in joint tenancies lacking 33 express survivorship provisions may devise their interest in 34 such real property. In the absence of a will such tenant’s 35 interest in such real property will pass in intestacy. See 36 Section 622804. 37 The elaborate body of case law developed in the 38 application of former Sections 21710, et seq., will continue 39 to supply guidance in the application of Section 622501.

[143] 69 1 That case law concerns the matters of sufficient testamentary 2 intent, Madden v. Madden, 237 S.C. 629, 118 S.E.2d 443 3 (1961), C. & S. Nat. Bank of S. C. v. Roach, 239 S.C. 291, 4 122 S.E.2d 644 (1961), including conditional wills, S. Alan 5 Medlin, The Law of Wills and Trusts (S.C. Bar 2002) 6 Section 305; and sufficient mental capacity, Lee’s Heirs v. 7 Lee’s Executor, 15 S.C.L. 183 (4 McC. L.) (1827), Hellams 8 v. Ross, 268 S.C. 284, 233 S.E.2d 98 (1977), Medlin, supia 9 at Section 301.2; as well as the effect of undue influence, 10 Farr v. Thompson, 25 S.C.L. 37 (Cheves L.) (1839); 11 Thompson v. Farr, 28 S.C.L. 93 (1 Sp. L.) (1842); O’Neall 12 v. Farr, 30 S.C.L. 80 (1 Rich. L.) (1844), Mock v. Dowling, 13 266 S.C. 274, 222 S.E.2d 773 (1976), Calhoun v. Calhoun, 14 277 S.C. 527, 290 S.E.2d 415 (1982), Medlin, supra at 15 Section 301.4; and the burdens of proof applicable and the 16 presumptions of fact available with respect to mental 17 capacity and undue influence, Havird v. Schissell, 252 S.C. 18 404, 166 S.E.2d 801 (1969), Medlin, supra at Sections 301.2, 19 301.4. The developed South Carolina case law also covers 20 the matters of mistake in the execution of wills, Ex Parte 21 King, 132 S.C. 63, 128 S.E. 850 (1925), Medlin, supra at 22 Section 301.2; and fraud as it affects the making of wills. 23 24 Section 622502. Except as provided for writings within 25 Section 622512 and wills within Section 622505, every will, 26 shall be: 27 (1) in writing; 28 (2) signed by the testator or signed in the testator’s name 29 by some other person individual in the testator’s presence 30 and by his the testator’s direction,; and 31 (3) shall be signed by at least two persons individuals 32 each of whom witnessed either the signing or the testator’s 33 acknowledgment of the signature or of the will. 34 35 REPORTER’S COMMENT 36 Section 622502 specifies the usual requirements for the valid 37 formal execution of every will: a writing signed by the 38 testator, or for him by another, and also signed by two 39 witnesses, witnessing either the testator’s signing or his

[143] 70 1 acknowledgment of either his signature or the will. All of 2 these formalities were required by prior South Carolina law, 3 formerly Sections 21720 and 21750 of the 1976 code, which, 4 however, further required that three witnesses sign and that 5 they do so in the presence of the testator and of each other. 6 The required number of witnesses is reduced from three to 7 two with respect to all wills executed after June 27, 1984, the 8 effective date of South Carolina’s first statute recognizing the 9 device of the selfproving will affidavit, formerly Section 10 217615 of the 1976 code, embodied in Section 622503 of this 11 Code. That statute might have been read by some testators to 12 allow for the valid execution and attestation of a will by only 13 two witnesses. As the policy of this Code is to require just 14 two witnesses at testation, it appears advisable to bring 15 within the Code’s protection any testators whose wills were 16 attested by but two witnesses between June 28, 1984, and the 17 effective date of this Code. Section 622502 requires neither 18 subscription of the testator’s signature, i.e., that it appear at 19 the end of the will, nor publication of the will, i.e., the 20 testator’s announcement to the witnesses that the document is 21 his will, nor a specific request by the testator that the 22 witnesses attest and sign. Each of these practices is, 23 however, customary and unobjectionable. 24 This Code does not recognize the holographic method of 25 execution of a will, i.e., dispensing with the witnesses but 26 requiring that the whole will be cast in the testator’s 27 handwriting and that it be signed by him. Such a will is not 28 valid in South Carolina, unless specifically by valid outstate 29 execution or outstate probate, which special rules are to be 30 found at Sections 622505, 623303(c) and (d), and 623408 of 31 this Code. Further, this Code recognizes neither soldiers’ 32 and mariners’ wills of personalty nor nuncupative wills of 33 personalty, i.e., oral wills. 34 The effect of Section 622502 is that every will must be in 35 an integrated writing, signed and witnessed as described, 36 except only as provided in Sections 622505 (written wills 37 duly executed elsewhere) and 622512 (writings disposing of 38 tangible personal property). 39

[143] 71 1 Section 622503. (a) Any will may be simultaneously 2 executed, attested, and made selfproved. The selfproof shall 3 be effective upon the acknowledgment by the testator and the 4 affidavit of at least one witness, each made before an officer 5 authorized to administer oaths under the laws of the state 6 where execution occurs and evidenced by the officer’s 7 certificate, under official seal, in the following form or in a 8 similar form showing the same intent: 9 I, ______, the testator, sign my name to this instrument 10 this ___ day of ______, 19 20___, and being first duly 11 sworn, do hereby declare to the undersigned authority that I 12 sign and execute this instrument as my last will and that I 13 sign it willingly (or willingly direct another to sign for me), 14 that I execute it as my free and voluntary act for the purposes 15 therein expressed, and that I am eighteen years of age or 16 older (or if under the age of eighteen, am married or 17 emancipated as decreed by a family court), of sound mind, 18 and under no constraint or undue influence. 19 We, ______and ______, the witnesses, sign our 20 names to this instrument, and at least one of us, being first 21 duly sworn, does hereby declare, generally and to the 22 undersigned authority, that the testator signs and executes 23 this instrument as his last will and that he signs it willingly 24 (or willingly directs another to sign for him), and that each of 25 us, in the presence and hearing of the testator, hereby signs 26 this will as witness to the testator’s signing, and that to the 27 best of our knowledge the testator is eighteen years of age or 28 older (or if under the age of eighteen, was married or 29 emancipated as decreed by a family court), of sound mind, 30 and under no constraint or undue influence. 31 (b) An attested will may at any time subsequent to its 32 execution be made selfproved by the acknowledgment 33 thereof by the testator and the affidavit of at least one 34 witness, each made before an officer authorized to administer 35 oaths under the laws of the state where the acknowledgment 36 occurs and evidenced by the officer’s certificate, under the 37 official seal, attached, or annexed to the will in the following 38 form or in a similar form showing the same intent:

[143] 72 1 The State of ______County of ______We, 2 ______and ______, the testator and at least one of 3 the witnesses, respectively, whose names are signed to the 4 attached or foregoing instrument, being first duly sworn, do 5 hereby declare to the undersigned authority that the testator 6 signed and executed the instrument as his last will and that he 7 had signed willingly (or willingly directed another to sign for 8 him), and that he executed it as his free and voluntary act for 9 the purposes therein expressed, and that each of the 10 witnesses, in the presence and hearing of the testator, signed 11 the will as witness and to the best of his knowledge the 12 testator was at that time eighteen years of age or older (or if 13 under the age of eighteen, was married or emancipated as 14 decreed by a family court), of sound mind, and under no 15 constraint or undue influence. 16 (c) A witness to any will who is also an officer authorized 17 to administer oaths under the laws of this State may notarize 18 the signature of the other witness of the will in the manner 19 provided by this section. 20 21 REPORTER’S COMMENT 22 Section 622503 provides for an expediting feature for the 23 proof of wills. The selfproved will is a will into which an 24 affidavit has been incorporated, signed by the testator, the 25 witnesses and a notary, declaring the due execution of the 26 will, the testamentary capacity of the testator and the absence 27 of undue influence worked upon the testator. Probate of a 28 selfproved will is freed of the requirement of producing the 29 available testimony of such witnesses to the due execution of 30 the will, as otherwise required by Sections 623405 and 31 623406 of this Code as to formal testacy proceedings. 32 The testator’s affidavit may be drafted into the 33 testimonium clause of the will so that his one signature 34 suffices for both the execution of the will and the execution 35 of his affidavit. Similarly, the witnesses’ affidavit may be 36 drafted into their attestation clause, requiring each of them to 37 sign only once. Section 622503 (a). Alternatively, under 38 Section 622503(b), a will may be drafted with traditional 39 testimonium and attestation clauses, requiring the signatures

[143] 73 1 of the testator and the witnesses, respectively, with the 2 affidavits of the testator and of the witnesses drafted as one, 3 but separated from the testimonium and attestation clauses, 4 and thus requiring each of such persons to sign a second 5 time. The Section 622503(b) form may be attached to a will 6 executed simultaneously with the affidavit or, more to the 7 point, a will executed at any time prior to the execution of the 8 affidavit, even one executed prior to the enactment of this 9 statute. 10 Section 622503 makes a will selfproved if affidavits in 11 ‘substantially’ the form of those set forth in the section are 12 executed. Therefore, neither merely formal variations, nor 13 the subscription of the will and of the affidavit by more than 14 two witnesses, nor the failure of one or more of the witnesses 15 to sign the affidavit should frustrate the selfproof of the will 16 by way of the affidavit, that is, at least not insofar as the 17 proof of the will depends upon the testimony of the witnesses 18 who do sign the affidavit. 19 20 Section 622504. (a) No A subscribing witness to any will, 21 testament, or codicil may be held is not incompetent to attest or 22 prove the same by reason of any devise, legacy, or bequest therein 23 in favor of such the witness, the witness’s spouse, or the witness’s 24 issue or the husband or wife of such witness, by reason of any 25 appointment therein of such witness or the husband or wife of such 26 witness to any office, trust, or duty, or by reason of any charge 27 therein of debts to any part of the estate in favor of such witness as 28 creditor. Any If there are two disinterested witnesses to a will in 29 addition to the interested witness, then such the devise, legacy, or 30 bequest is valid and effectual, if otherwise effective. so, but unless 31 there are two other and disinterested witnesses then so far as the 32 property, estate, or interest so devised or bequeathed exceeds in 33 value any property, estate, or interest to which such witness or the 34 husband or wife of such witness would be entitled upon the failure 35 to establish such will, testament, or codicil, If there are not two 36 disinterested witnesses to a will in addition to an interested 37 witness, then such the devise, legacy, or bequest is null and void to 38 the extent of such the value of the excess property, estate, or 39 interest so devised over the value of the property, estate or interest 40 to which the witness, the witness’s spouse, or the witness’ issue 41 would be entitled upon the failure to establish the will. The voided

[143] 74 1 portion of the devise shall pass by intestacy in accordance with 2 Section 622101 et seq., provided the share of the interested 3 witness, the witness’s spouse, or the witness’ issue shall not 4 increase due to the devise passing by intestacy. 5 (b) A subscribing witness to any will is not incompetent 6 to attest or prove the will by reason of any appointment 7 within the will of the witness, the witness’s spouse, or the 8 witness’s issue to any office, trust, or duty. The Any such 9 appointment of a witness, a witness’s spouse, or a witness’s 10 issue is valid, if otherwise so, and the person individual so 11 appointed, in such case, is entitled by law to take or receive 12 any commissions or other compensation on account thereof. 13 (c) A subscribing witness to any will is not incompetent 14 to attest or prove the will by reason of any charge within the 15 will of debts to any part of the estate in favor of the witness, 16 the witness’s spouse, or the witness’s issue as creditor. 17 18 REPORTER’S COMMENT 19 The purpose of this section is to remove from the interested 20 witness any benefit to the witness from the will that the 21 witness would not otherwise receive so that the witness can 22 be used to prove the will. 23 An ‘interested witness’ is an individual (1) who is named 24 as a devisee in the testator’s will; (2) whose spouse is named 25 as a devisee in the testator’s will, or (3) whose issue are 26 named as devisees in the testator’s will. 27 28 Section 622505. A written will is valid if: 29 (a) it is executed in compliance with Section 622502 30 either at the time of execution or at the date of the testator’s 31 death; or 32 (b) if its execution complies with the law at the time of 33 execution of either (1) the place where the will is executed, 34 or (2) the place where the testator is domiciled at the time of 35 execution or at the time of death. 36 37 REPORTER’S COMMENT 38 Section 622505 specifies the extraordinary requirements, 39 alternative to the usual requirements of Section 622502 of

[143] 75 1 this Code, for the valid formal execution of a will: a writing 2 executed in compliance with the law applicable at the time of 3 the will’s execution (not that at the time of the testator’s date 4 of death), of the place (whether South Carolina or 5 elsewhere): (1) where the will is executed; (2) where the 6 testator is domiciled at the time of the will’s execution; or (3) 7 where the testator is domiciled at the time of his death. 8 The policy of Section 622505, the effectuation of the 9 testator’s intention to duly execute his will in accordance 10 with the law as he may understand it at the date of the will’s 11 execution is furthered by the definition of the applicable law 12 for purposes of Section 622505 as that at the time of 13 execution and as that of any of several different mentioned 14 places. 15 The wills of all decedents, domiciliary or otherwise, are 16 covered by this section and may benefit thereby. 17 One further alternative to this Code’s provisions for valid 18 instate execution under Section 622502 and valid outstate 19 execution under Section 622505 exists in its provisions for 20 probate in South Carolina of a will already validly probated 21 outstate; see Sections 623303(c) and (d) and 623408. 22 23 Section 622506. (a) A will or any part thereof is 24 revoked: 25 (1) by executing a subsequent will which that revokes 26 the prior previous will or part expressly or by inconsistency; 27 or 28 (2) by being burned, torn, canceled, obliterated, or 29 destroyed, with the intent and for the purpose of revoking it 30 by the testator or by another person in his the testator’s 31 presence and by his the testator’s direction. 32 (b) If a subsequent will does not expressly revoke a previous 33 will, the execution of the subsequent will wholly revokes the 34 previous will by inconsistency if the testator intended the 35 subsequent will to replace rather than supplement the previous 36 will. 37 (1) The testator is presumed to have intended a subsequent 38 will to replace rather than to supplement a previous will if the 39 subsequent will makes a complete disposition of the testator’s 40 estate. If this presumption arises and is not rebutted by clear and

[143] 76 1 convincing evidence, the previous will is revoked and only the 2 subsequent will is operative on the testator’s death. 3 (2) The testator is presumed to have intended a 4 subsequent will to supplement rather than replace a previous 5 will if the subsequent will does not make a complete 6 disposition of the testator’s estate. If this presumption arises 7 and is not rebutted by clear and convincing evidence, the 8 subsequent will revokes the previous will only to the extent 9 the subsequent will is inconsistent with the previous will and 10 each will is fully operative on the testator’s death to the 11 extent they are not inconsistent. 12 13 REPORTER’S COMMENT 14 Section 622506 specifies the broad requirements for the valid 15 intentional revocation of a will and of any part of a will: 16 either (1) a subsequent will, defined in Section 621201(52) of 17 this Code, acting expressly or by implication on the will 18 being revoked, or (2) a physical act affecting the will being 19 revoked. 20 The elaborate body of case law developed in the 21 application of former Section 217210 will continue to supply 22 guidance in the application of Section 622506. S. Alan 23 Medlin, The Law of Wills and Trusts (S.C. Bar 2002) 24 Sections 310, 310.1. That case law stressed the necessity to 25 meet the statute’s requirements in order to effect a 26 revocation, Madden v. Madden, 237 S.C. 629, 118 S.E.2d 27 443 (1961); distinguished intended revocations from the 28 accidental inclusion of express language of revocation in 29 subsequent wills, Owens v. Fahnestock, 110 S.C. 130, 96 30 S.E. 557 (1918), and the accidental destruction of wills, such 31 accidents involving no revocation in the eyes of the law 32 unless, perhaps, the accident was later confirmed as an 33 intended revocation, Davis v. Davis, 214 S.C. 247, 52 34 S.E.2d 192 (1949). It distinguished unmistaken, 35 unconditional revocations from cases of dependent relative 36 revocation, i.e., mistaken revocations, not effective as 37 revocations at law, Pringle v. McPherson’s Executors, 4 38 S.C.L. 279 (2 Brev.) (1809), Johnson v. Brailsford, 2 Nott 39 and McC. 272 (S.C. 1820) Charleston Library Society v. C.

[143] 77 1 & S. Nat. Bank, 200 S.C. 96, 20 S.E.2d 623 (1942), Stevens 2 v. Royalls, 223 S.C. 510, 77 S.E.2d 198 (1953). It allowed 3 partial revocations by either one of the two broad methods of 4 revocation, Brown v. Brown, 91 S.C. 101, 74 S.E. 135 5 (1912). It gave effect to revocations by implication from the 6 inconsistency between the provisions of the will being 7 revoked and the subsequent will and also determined whether 8 any such inconsistency existed, Starratt v. Morse, 332 F. 9 Supp. 1038 (D.S.C. 1971) and Werber v. Moses, 117 S.C. 10 157, 108 S.E. 396 (1921). It governed revocations by 11 physical act, including those accomplished ‘by another 12 person in his (the testator’s) presence and by his direction,’ 13 Means v. Moore, 16 S.C.L. 314 (Harp. L.) (1824), and those 14 rebuttably presumed to have occurred in cases of mutilated 15 wills, Johnson v. Brailsford, supra, and in cases of missing 16 wills, Lowe v. Fickling, 207 S.C. 442, 36 S.E.2d 293 17 (1945). 18 19 Section 622507. If after executing a will the testator is divorced 20 or his marriage annulled or his spouse is a party to a valid 21 proceeding concluded by an order purporting to terminate all 22 marital property rights or confirming equitable distribution 23 between spouses, the divorce or annulment or order revokes any 24 disposition or appointment of property including beneficial 25 interests made by the will to the spouse, any provision conferring a 26 general or special power of appointment on the spouse, and any 27 nomination of the spouse as executor, trustee, conservator, or 28 guardian, unless the will expressly provides otherwise. Property 29 prevented from passing to a spouse because of revocation by 30 divorce or annulment or order passes as if the spouse failed to 31 survive the decedent, and other provisions conferring some power 32 or office on the spouse are interpreted as if the spouse failed to 33 survive the decedent. If provisions are revoked solely by this 34 section, they are revived by testator’s remarriage to the former 35 spouse. For purposes of this section, divorce or annulment or 36 order means any divorce or annulment or order which would 37 exclude the spouse as a surviving spouse within the meaning of 38 subsections (b) and (c) of Section 622802. A decree of separate 39 maintenance which does not terminate the status of husband and 40 wife is not a divorce for purposes of this section. No change of

[143] 78 1 marital or parental circumstances other than as described in this 2 section revokes a will. (a) In this section: 3 (1) ‘Disposition or appointment of property’ includes a 4 transfer of an item of property or any other benefit to a beneficiary 5 designated in a governing instrument. 6 (2) ‘Divorce or annulment’ means any divorce or annulment 7 or declaration of invalidity of a marriage or other event that would 8 exclude the spouse as a surviving spouse in accordance with 9 Section 622802. It also includes a court order purporting to 10 terminate all marital property rights or confirming equitable 11 distribution between spouses unless they are living together as 12 husband and wife at the time of the decedent’s death. A decree of 13 separate maintenance that does not terminate the status of husband 14 and wife is not a divorce for purposes of this section. 15 (3) ‘Divorced individual’ includes an individual whose 16 marriage has been annulled. 17 (4) ‘Governing instrument’ means an instrument executed 18 by the divorced individual before the divorce or annulment of the 19 individual’s marriage to the individual’s former spouse including, 20 but not limited to wills, revocable inter vivos trusts, powers of 21 attorney, life insurance beneficiary designations, annuity 22 beneficiary designations, retirement plan beneficiary designations 23 and transfer on death accounts. 24 (5) ‘Revocable’ with respect to a disposition, appointment, 25 provision, or nomination, means one under which the divorced 26 individual, at the time of the divorce or annulment, was alone 27 empowered, by law or under the governing instrument, to cancel 28 the designation in favor of the divorced individual’s former 29 spouse, whether or not the divorced individual was then 30 empowered to designate the divorced individual in place of the 31 divorced individual’s former spouse and whether or not the 32 divorced individual then had the capacity to exercise the power. 33 (b) No change of circumstances other than those described in 34 this section and in Section 622803 effects a revocation. 35 (c) Except as provided by the express terms of a 36 governing instrument, a court order, or a contract relating to 37 the division of the marital estate made between the divorced 38 individuals before or after the marriage, divorce or 39 annulment, the divorce or annulment of a marriage: 40 (1) revokes any revocable: 41 (i) disposition or appointment of property or 42 beneficiary designation made by a divorced individual to the

[143] 79 1 divorced individual’s former spouse in a governing 2 instrument; 3 (ii) provision in a governing instrument conferring a 4 general or nongeneral power of appointment on the divorced 5 individual’s former spouse; or 6 (iii) nomination in a governing instrument, nominating 7 a divorced individual’s former spouse to serve in any 8 fiduciary or representative capacity, including a personal 9 representative, trustee, conservator, agent, attorney in fact or 10 guardian; 11 (2) severs the interests of the former spouses in property 12 held by them at the time of the divorce or annulment as joint 13 tenants with the right of survivorship so that the share of the 14 decedent passes as the decedent’s property and the former 15 spouse has no rights by survivorship. This provision applies 16 to joint tenancies in real and personal property, joint and 17 multipleparty accounts in banks, savings and loan 18 associations, credit unions, and other institutions, and any 19 other form of coownership with survivorship incidents. 20 (d) A severance under subsection (c)(2) does not affect 21 any thirdparty interest in property acquired for value and in 22 good faith reliance on an apparent title by survivorship in the 23 survivor of the former spouses unless a writing declaring the 24 severance has been noted, registered, filed, or recorded in 25 records appropriate to the kind and location of the property 26 which are relied upon, in the ordinary course of transactions 27 involving the property, as evidence of ownership. 28 (e) Provisions of a governing instrument and nomination 29 in a fiduciary or representative capacity that are revoked by 30 this section are given effect as if the former spouse 31 predeceased the decedent. 32 (f) Provisions revoked solely by this section are revived 33 by the divorced individual’s remarriage to the former spouse 34 or by a nullification of the divorce or annulment. 35 (g)(1) A payor or other third party is not liable for having 36 made a payment or transferred an item of property or any 37 other benefit to a beneficiary designated in a governing 38 instrument affected by a divorce, annulment, or remarriage, 39 or for having taken any other action in good faith reliance on

[143] 80 1 the validity of the governing instrument, before the payor or 2 other third party received written notice of the divorce, 3 annulment, or remarriage. A payor or other third party is 4 liable for a payment made or other action taken after the 5 payor or other third party received written notice of a claimed 6 forfeiture or revocation under this section. 7 (2) Written notice of the divorce, annulment, or 8 remarriage under subsection (g)(1) must be mailed to the 9 payor’s or other third party’s main office or home by 10 registered or certified mail, return receipt requested, or 11 served upon the payor or other third party in the same 12 manner as a summons in a civil action. Upon receipt of 13 written notice of the divorce, annulment, or remarriage, a 14 payor or other third party may pay any amount owed or 15 transfer or deposit any item of property held by it to or with 16 the court having jurisdiction. The court shall hold the funds 17 or item of property and, upon its determination under this 18 section, shall order disbursement or transfer in accordance 19 with the determination. Payments, transfers, or deposits made 20 to or with the court discharge the payor or other third party 21 from all claims for the value of amounts paid to or items of 22 property transferred to or deposited with the court. 23 (h)(1) A person who purchases property from a former 24 spouse or any other person for value and without notice, or 25 who receives from a former spouse or any other person a 26 payment or other item of property in partial or full 27 satisfaction of a legally enforceable obligation, is neither 28 obligated under this section to return the payment, item of 29 property, or benefit nor is liable under this section for the 30 amount of the payment or the value of the item of property or 31 benefit. However, a person who, not for value, receives a 32 payment, item of property, or any other benefit to which that 33 person is not entitled under this section is obligated to return 34 the payment, item of property, or benefit, or is personally 35 liable for the amount of the payment or the value of the item 36 of property or benefit, to the person who is entitled to it 37 under this section. 38 (2) If this section or any part of this section is 39 preempted by federal law with respect to a payment, an item

[143] 81 1 of property, or any other benefit covered by this section, a 2 person who, not for value, receives a payment, item of 3 property, or any other benefit to which that person is not 4 entitled under this section is obligated to return that payment, 5 item of property, or benefit, or is personally liable for the 6 amount of the payment or the value of the item of property or 7 benefit, to the person who would have been entitled to it were 8 this section or part of this section not preempted. 9 10 REPORTER’S COMMENT 11 The 2013 amendment expands this section to cover life 12 insurance and retirement plan beneficiary designations, 13 transfer on death accounts, and other revocable dispositions 14 to the former spouse that the divorced individual established 15 before the divorce or annulment. This section effectuates a 16 decedent’s presumed intent: without a contrary indication by 17 the decedent, a former spouse will not receive any probate or 18 nonprobate transfer as a result of the decedent’s death. 19 20 Section 622508. (a) If a subsequent will that wholly 21 revoked a previous will is thereafter revoked by a revocatory 22 act The revocation by acts under Section 622506(a)(2) of a 23 the previous will remains revoked unless it is revived. will 24 made subsequent to a former will, where the subsequent will 25 would have revoked the former will if the subsequent will 26 had remained effective at the death of the testator, shall not 27 revive or make effective any former will unless it The 28 previous will is revived if it appears by clear, cogent, and 29 convincing evidence that the testator intended to revive or 30 make effective the former previous will. 31 (b) If a subsequent will that partly revoked a previous will 32 is thereafter revoked by a revocatory act under Section 33 622506(a)(2), a revoked part of the previous will is revived 34 unless it appears by clear and convincing evidence that the 35 testator did not intend the revoked part to take effect as 36 executed. 37 (c) The revocation by a third will under Section 38 622506(1) of a will made subsequent to a former will, where 39 the subsequent will would have revoked the former will if the

[143] 82 1 subsequent will had remained effective at the death of the 2 testator, shall not revive or make effective any former will 3 except If a subsequent will that revoked a previous will in 4 whole or in part is thereafter revoked by another, later will, 5 the previous will remains revoked in whole or in part, unless 6 it or its revoked part is revived. The previous will or its 7 revoked part is revived to the extent it appears from the terms 8 of the third later will that the testator intended the former 9 previous will to take effect. 10 11 REPORTER’S COMMENT 12 Section 622508 addresses the question whether the revival of 13 a former and revoked will is intended and will be effected by 14 the revocation of a subsequent and revoking will, either by 15 physical act or by way of the execution of yet a third will 16 revoking the subsequent will. 17 The 2013 amendment distinguishes between the revocation of a 18 subsequent will that effects a complete revocation or a partial 19 revocation of a previous will. 20 There is a presumption against revival where the subsequent will 21 wholly revokes the previous will. The presumption against revival 22 is intended to be heightened by the requirement of ‘clear and 23 convincing evidence’ to rebut it. 24 There is a presumption in favor of revival (of the revoked part or 25 parts of the previous will) where a subsequent will partially 26 revoked the previous will. The justification is that where the 27 subsequent will only partially revoked the previous will, the 28 subsequent will is only a codicil to the previous will and the 29 testator should know that the previous will has continuing effect. 30 31 Section 622509. Any writing in existence when a will is 32 executed may be incorporated by reference if the language of 33 the will manifests this intent and describes the writing 34 sufficiently to permit its identification. 35 36 REPORTER’S COMMENT 37 Section 622509 permits incorporation by reference in a will 38 of a separate writing, in existence at the date of the execution 39 of the will, if both the intent to incorporate and the 40 identification of the writing appear in the language of the

[143] 83 1 will. However, Section 622509 does not require that the will 2 describe the writing as existent and requires only that the 3 writing be described ‘sufficiently to permit its identification.’ 4 Compare Section 622512 which allows a writing not 5 sufficiently incorporated by reference into a will, as under 6 Section 622509, to affect the will’s dispositions in certain 7 cases. 8 9 Section 622510. (a)(A) A devise or bequest, the validity 10 of which is determinable by the law of this State, may be 11 made by a will to the trustee of a trust established or to be 12 established by the testator or by the testator and some other 13 person or by some other person (including a funded or 14 unfunded life insurance trust, although the trustor has 15 reserved any or all rights of ownership of the insurance 16 contracts) if to a trust is valid so long as: 17 (1) the trust is identified in the testator’s will and its 18 terms are set forth in: 19 (a) a written instrument (other than a will) executed 20 before, or concurrently with, or after the execution of the 21 testator’s will but not later than the testator’s death; or 22 (b) in the valid last will of a person another individual 23 who has predeceased the testator; (regardless of the 24 existence, size, or character of the corpus of the trust). The 25 devise is not invalid because the trust is amendable or 26 revocable, or because the trust was amended after the 27 execution of the will or after the death of the testator. 28 (B) The trust is not required to have a trust corpus other than 29 the expectancy of receiving the testator’s devise. 30 (C) The devise is not invalid because the trust is 31 amendable or revocable, or because the trust was amended 32 after the execution of the will or after the death of the 33 testator. 34 (D) Unless the testator’s will provides otherwise, the 35 property so devised: 36 (1) is not deemed to be held under a testamentary trust 37 of the testator but becomes a part of the trust to which it is 38 given; and

[143] 84 1 (2) shall be administered and disposed of in accordance 2 with the provisions of the instrument or will setting forth the 3 terms of the trust, including any amendments thereto made 4 before or after the death of the testator; (regardless of 5 whether made before or after the execution of the testator’s 6 will), and, if the testator’s will so provides, including any 7 amendments to the trust made after the death of the testator. 8 (E) Unless the testator’s will provides otherwise, a 9 revocation or termination of the trust before the death of the 10 testator causes the devise to lapse. 11 (b)(F) Death benefits of any kind, including but not limited 12 to proceeds of life insurance policies and payments under an 13 employees’ trust, or contract of insurance purchased by such 14 a trust, forming part of a pension, stockbonus or profitsharing 15 plan, or under a retirement annuity contract, may be paid to 16 the trustee of a trust established by the insured, employee, or 17 annuitant or by some other person if the trust is in existence 18 at the death of the insured, employee, or annuitant, it is 19 identified and its terms are set forth in a written instrument, 20 and such death benefits shall be administered and disposed of 21 in accordance with the provisions of the instrument setting 22 forth the terms of the trust including any amendments made 23 thereto before the death of the insured, employee, or 24 annuitant and, if the instrument so provides, including any 25 amendments to the trust made after the death of the insured, 26 employee, or annuitant. It shall not be necessary to the 27 validity of any such trust instrument, whether revocable or 28 irrevocable, that it have a trust corpus other than the right of 29 the trustee to receive such death benefits. 30 (c)(G) Death benefits of any kind, including but not limited 31 to proceeds of life insurance policies and payments under an 32 employees’ trust, or contract of insurance purchased by such 33 a trust, forming part of a pension, stockbonus, or 34 profitsharing plan, or under a retirement annuity contract, 35 may be paid to a trustee named, or to be named, in a will 36 which is admitted to probate as the last will of the insured or 37 the owner of the policy, or the employee covered by such 38 plan or contract, as the case may be, whether or not such will 39 is in existence at the time of such designation. Upon the

[143] 85 1 admission of such will to probate, and the payment thereof to 2 the trustee, such death benefits shall be administered and 3 disposed of in accordance with the provisions of the 4 testamentary trust created by the will as they exist at the time 5 of the death of the testator. Such payments shall be deemed 6 to pass directly to the trustee of the testamentary trust and 7 shall not be deemed to have passed to or be receivable by the 8 executor of the estate of the insured, employee, or annuitant. 9 (d)(H) In the event no trustee makes proper claim to the 10 proceeds payable as provided in subsections (b)(F) and (c) 11 (G) of this section from the insurance company or the obligor 12 within a period of one year after the date of the death of the 13 insured, employee, or annuitant, or if satisfactory evidence is 14 furnished to the insurance company or other obligor within 15 such one year period that there is or will be no trustee to 16 receive the proceeds, payment must be made by the executors 17 or administrators of the person making such designations, 18 unless otherwise provided by agreement. 19 (e)(I) Death benefits payable as provided in subsections 20 (b)(F) and (c)(G) of this section shall not be subject to the 21 debts of the insured, employee, or annuitant nor to transfer or 22 estate taxes to any greater extent than if such proceeds were 23 payable to the beneficiary of such trust and not to the estate 24 of the insured, employee, or annuitant. 25 (f)(J) Such death benefits payable as provided in 26 subsections (b)(F) and (c)(G) of this section so held in trust 27 may be commingled with any other assets which may 28 properly come into such trust. 29 30 REPORTER’S COMMENT 31 This section allows a receptacle trust to be executed after the 32 execution of the testator’s will, and makes clear that the trust does 33 not have to have a corpus other than the expectancy of receiving 34 the testator’s devise. 35 36 Section 622511. A will may dispose of property by 37 reference to acts and events which that have significance 38 apart from their effect upon the dispositions made by the 39 will, whether they occur before or after the execution of the

[143] 86 1 will or before or after the testator’s death. The execution or 2 revocation of a will of another person is such an event. 3 4 REPORTER’S COMMENT 5 Under Section 622511, acts and events extraneous to a will 6 are allowed to affect the will’s dispositions if they have some 7 significance apart from their effect upon the will’s 8 dispositions. The acts or events, including the execution or 9 revocation of another person’s will, might occur either before 10 or after the dates of either the execution of the will or the 11 testator’s death and yet be given such effect. 12 Compare Section 622512 which in certain cases allows an 13 act extraneous to a will to affect the will’s dispositions 14 although the act has no independent significance. 15 16 Section 622512. A will may refer to a written statement or 17 list to dispose of items of tangible personal property not 18 otherwise specifically disposed of by the will, other than 19 money, evidences of indebtedness, documents of title (as 20 defined in Section 361201(15)), securities (as defined in 21 Section 368102(1)(A)), and property used in trade or 22 business. To be admissible under this section as evidence of 23 the intended disposition, the writing must either be in the 24 handwriting of the testator or be signed by him the testator 25 and must describe the items and the devisees with reasonable 26 certainty. The writing may be referred to as one to be in 27 existence at the time of the testator’s death; it may be 28 prepared before or after the execution of the will; it may be 29 altered by the testator after its preparation; and it may be a 30 writing which that has no significance apart from its effect 31 upon the dispositions made by the will. 32 33 REPORTER’S COMMENT 34 Section 622512 relaxes the normal application of the rules of 35 incorporation by reference, Section 622509, and of facts of 36 independent significance, Section 622511, all in favor of the 37 special case of extraneous writings, either in the testator’s 38 handwriting or signed by the testator, referred to in the 39 testator’s will, and which dispose of certain items of tangible

[143] 87 1 personal property. They are given effect, albeit they are 2 neither required to be in existence at the date when the will is 3 executed nor to have independent significance. They may be 4 altered by the testator at any time. 5 Black’s Law Dictionary defines ‘tangible personal 6 property’ as including coin collections; therefore, coin 7 collections may be items disposed of in a tangible personal 8 property memorandum. Vehicles and boats are also tangible 9 personal property. 10 11 Part 6 12 13 Construction 14 15 Section 622601. (A) The intention of a testator as 16 expressed in his the testator’s will controls the legal effect of 17 his the testator’s dispositions. The rules of construction 18 expressed in the succeeding sections of this part apply unless 19 a contrary intention is indicated by the will. 20 (B) Notwithstanding subsection (A), the court may reform 21 the terms of the will, even if unambiguous, to conform the 22 terms to the testator’s intention if it is proved by clear and 23 convincing evidence that the testator’s intent and the terms of 24 the will were affected by a mistake of fact or law, whether in 25 expression or inducement. 26 27 REPORTER’S COMMENT 28 Section 622601 states the first principle of the construction of 29 wills, that the testator’s intention as expressed in the will 30 controls, a codification of South Carolina case law. See 31 King v. S.C. Tax Comm., 253 S.C. 246, 173 S.E.2d 92 32 (1970). Only in the absence of expression in the will of the 33 testator’s intention do the rules of construction of this Part (6) 34 control. 35 Subsection (B) tracks Uniform Probate Code Reformation to 36 Correct Mistakes to give probate judges statutory authority to 37 reform a will’s terms when there is clear and convincing evidence 38 of a mistake (for example, in husband/wife wills where the 39 attorney mistakenly forgets to change the name of the devisee from

[143] 88 1 wife to husband in wife’s will). Additionally, subsection (B) 2 mirrors Section 627415 in the Trust Code. 3 4 Section 622602. A will is construed to pass all property 5 which the testator owns at his the testator’s death including 6 property acquired after the execution of the will and all 7 property acquired by the testator’s estate after the testator’s 8 death. 9 10 REPORTER’S COMMENT 11 Section 622602 establishes the general rule that an 12 ambiguous will is construed to pass all property owned at the 13 testator’s date of death, if at all possible to do so. Thus is 14 stated the South Carolina law’s presumption against 15 intestacy. See MacDonald v. Fagan, 118 S.C. 510, 111 S.E. 16 793 (1922). 17 Property specifically described in the will presents no 18 problem; it is property not specifically described which 19 raises the question answered by this section’s rule. 20 Provisions referring generally to classes of property of the 21 decedent, without specification of the items of such property, 22 are construed to refer to all items within the scope of their 23 general reference, whether the items were acquired before or 24 after the execution of the will. However, items of property 25 not within the scope of reference of any general provision 26 contained in the will do not pass under that will; they pass in 27 intestacy, regardless of when they were acquired by the 28 testator. Cornelson v. Vance, 220 S.C. 47, 66 S.E.2d 421, 29 426 (1951). 30 This section also expresses the particular rule that 31 afteracquired property is to be treated the same as property 32 owned at the execution of the will even if that property is 33 acquired by the testor’s estate after the testater’s death. 34 35 Section 622603. (A) Unless a contrary intent appears in 36 the will, if a devisee, who is a greatgrandparent or a lineal 37 descendant of a greatgrandparent of the testator is dead at the 38 time of execution of the will, fails to survive the testator, or is 39 treated as if he predeceased the testator, the issue of the

[143] 89 1 deceased devisee who survive the testator take in place of the 2 deceased devisee and if they are all of the same degree of 3 kinship to the devisee they take equally, but if of unequal 4 degree then those of more remote degree take by 5 representation. 6 (B) One who would have been a devisee under a class gift 7 if he had survived the testator is treated as a devisee for 8 purposes of this section whether his death occurred before or 9 after the execution of the will. 10 (C) Words of survivorship in a devise to an individual ‘if 11 he survives me,’ or to ‘my surviving children,’ are, in the 12 absence of additional evidence, a sufficient indication of an 13 intent contrary to the application of subsections (A) and (B). 14 15 REPORTER’S COMMENT 16 The antilapse rule of Section 622603 applies unless the 17 decedent’s will provides otherwise and unless lifetime gifts 18 to a devisee satisfy his devise under Section 622610. The 19 rule preserves some devises which otherwise would be void 20 or would lapse because of the failure of the devisees to 21 survive to take the devise. The rule saves only devises to 22 persons who are related to the testator as or through the 23 testator’s greatgrandparents, whether they are individually 24 named in the devise, or merely described by class 25 terminology, and whether they predecease the will’s 26 execution or the testator’s date of death or they are merely 27 treated as predeceasing his death, as under the Uniform 28 Simultaneous Death Act, Sections 621501 et seq., or as 29 under Section 622801 respecting devisees who renounce 30 their succession rights, or as under Section 622803 respecting 31 devisees who feloniously and intentionally kill their testators. 32 Those of the devisee’s issue, defined by Section 621201(24) 33 who survive the testator take the devise in place of the 34 devisee; they take among themselves per capita with per 35 capita representation, as in intestate succession under Section 36 622106 (see Reporter’s Comments to Sections 622106 and 37 622103(1)). 38 Section 622603 unifies in one antilapse rule the simplified 39 and expanded protection of those related to the testator as or

[143] 90 1 through his greatgrandparents and it also clarifies and 2 expands the coverage of the antilapse rule, applying it to 3 class gifts as well as to void devises. 4 The 2013 amendment added a presumption that words of 5 survivorship are sufficient indication that the testator does not 6 intend the antilapse section to apply. 7 8 Section 622604. (a)(A) Except as provided in Section 9 622603, if a devise other than a residuary devise fails for any 10 reason it becomes a part of the residue. 11 (b)(B) Except as provided in Section 622603 if the residue 12 is devised to two or more persons, and the share of one of the 13 residuary devisees that fails for any reason, his share passes 14 to the other residuary devisee, or to other residuary devisees 15 in proportion to their interests in the residue. 16 17 REPORTER’S COMMENT 18 The proresiduary antifailure rule of Section 622604 applies to 19 a failed devise unless the decedent’s will provides otherwise, 20 Section 622601, as by substituting other takers for the failed 21 devise, and unless the antilapse rule of Section 622603 22 applies to preserve the otherwise failed devise. 23 The rule preserves from intestacy devises failing for any 24 reason, e.g., because of the indefiniteness of the devise, 25 illegality, a violation of any Rule Against Perpetuities, 26 incapacity of the devisee, or the failure of the devisee to 27 survive to take the devise, including treatment of such 28 devisee as being predeceased, as under the Uniform 29 Simultaneous Death Act, Sections 621501 et seq., and under 30 Sections 622801 and 622803. The rule passes the failed 31 devise to such of the residuary devisees whose devises do not 32 fail, if any, who take proportionately in place of the devisee 33 with respect to whom the devise failed. The rule of Section 34 622604 applies whether the failed devise is preresiduary, 35 subsection (A), or residuary, subsection (B). 36 37 Section 622605. (a)(A) If the testator intended a specific 38 devise of certain securities rather than the equivalent value 39 thereof, the specific devisee is entitled only to:

[143] 91 1 (1) as much of the devised securities as is a part of the 2 testator’s estate at the time of the testator’s death; 3 (2) any additional or other securities of the same entity 4 organization owned by the testator by reason of action 5 initiated by the entity organization or any successor, related 6 or acquiring organization excluding any acquired by exercise 7 of purchase options; 8 (3) securities of another entity organization owned by 9 the testator as a result of a merger, consolidation, 10 reorganization, or other similar action initiated by the entity 11 organization or any successor, related or acquiring 12 organization; 13 (4) any additional securities of the entity organization 14 owned by the testator as a result of a plan of reinvestment if 15 it is a regulated investment company in the organization. 16 (b)(B) Distributions in cash declared prior to death with 17 respect to a specifically devised security not provided for in 18 subsection (a)(A) are not part of the specific devise. 19 20 REPORTER’S COMMENTS 21 Section 622605 establishes the rule that a specific devise, i.e., 22 not merely a devise of equivalent value, of securities, defined 23 at Section 621201(41), is construed to pass only certain 24 related securities, owned by the testator at his death, and 25 listed in Section 622605(A), and not to pass any other related 26 securities or distributions of record before the death of the 27 testator not so listed, Section 622605(B), unless the 28 decedent’s will provides otherwise, Section 622601. For the 29 generally applicable nonademption rule see Section 622606. 30 See Section 627908(A) concerning distributions of record 31 after the death of testator. 32 The specific devise carries out with it as much of the 33 securities specifically referred to as remain owned by the 34 testator at his death, Section 622605(A)(1), codifying South 35 Carolina case law. See Gist v. Craig, 142 S.C. 407, 141 S.E. 36 26 (1927) and Watson v. Watson, 231 S.C. 247, 95 S.E.2d 37 266 (1956) (identified specifically devised proceeds not 38 adeemed).

[143] 92 1 Also carried out with the specific devise are additional 2 securities of both entities other than the organization issuing 3 the specifically devised securities, owned by the testator as a 4 result of merger or the like, Section 622605(A)(3), and of the 5 organization itself, Section 622605(A)(2), in either case 6 owned by the testator by reason of actions initiated by the 7 organization, Sections 622605(A)(2) and (A)(3), and not 8 initiated by testator himself. Additional securities received 9 by the testator in mergers, name changes, stock splits and 10 stock dividends, and spinoffs of subsidiaries, more 11 representing change in the form of ownership of the 12 specifically devised securities than change in the substance of 13 that which is owned, and none at the initiative of the testator, 14 are here bulked with and carried out with the specifically 15 devised securities themselves, as is likely to be intended by 16 the testator. 17 Not carried out with the specific devise are additional 18 securities of the organization itself owned by the testator by 19 reason of his exercise of purchase options, i.e., at the 20 initiative of the testator, Section 622605(A)(2), and thus not 21 to be bulked with the specifically devised securities, the 22 testator himself having failed to do so by the route, open to 23 but not taken by him, of amending his will. This is consistent 24 with South Carolina case law, Rogers v. Rogers, 67S.C. 168, 25 45 S.E. 176 (1903), notwithstanding the case of Rasor v. 26 Rasor, 173 S.C. 365, 175 S.E. 545 (1934), a case not of a 27 specific devise but rather of a devise of equivalent value of 28 certain securities. 29 However, there are carried out with the specifically 30 devised securities of an organization any additional securities 31 resulting from a plan of reinvestment in the organization. 32 These are owned also at the initiative of the testator, but are 33 bulked with the specifically devised securities because the 34 testator himself has practically done so by his assent to the 35 plan of reinvestment. 36 The rule of Section 622605(B) that distributions not 37 provided for in Section 622605(A) are not carried out with 38 the specifically devised securities is, as the residual rule in 39 this Code’s scheme, consistent with the general rule of South

[143] 93 1 Carolina case law, Bailey v. Wagner, 21 S.C. Eq. 1, 8, 10 (2 2 Strob. Eq.) (1848) (proceeds of sale of adeemed specific 3 bequest not carried out); Rogers v. Rogers, supra, Pinson v. 4 Pinsom, 150 S.C. 368, 148 S.E. 211 (1928), and Rikard v. 5 Miller, 231 S.C. 98, 107, 97 S.E.2d 257 (1957) (identified 6 proceeds of collection or sale of adeemed specific bequests 7 not carried out); and Stanton v. David, 193 S.C. 108, 7 8 S.E.2d 852 (1940), and Taylor v. Goddard, 265 S.C. 327, 9 218 S.E.2d 246 (1975) (nor unidentified proceeds). 10 The 2013 amendment substituted the word ‘organization’ for 11 ‘entity’ because ‘organization’ is defined in the probate code at 12 Section 621201(30). The amendment also added ‘successor, 13 related, or acquiring organization’ to contemplate multiple changes 14 in title of securities between the testator’s acquisition of the 15 security and the testator’s death. The amendment eliminated ‘if it 16 is a regulated investment company’ from (A)(4). The amendment 17 added the words ‘in cash’ to subsection (B) to clarify that 18 distributions made in cash do not fall within subsection (A) while 19 distributions of other securities do fall within subsection (A). 20 Finally, the amendment added the word ‘declared’ to subsection 21 (B) to clarify that the cash distributions declared before death do 22 not pass as part of the devise regardless of whether they are paid 23 before or after death. 24 25 Section 622606. (a) Where a portion of property 26 specifically devised is no longer owned by the testator at the 27 time of death, A specific devisee has the right to the 28 remaining specifically devised property in the testator’s 29 estate at the testator’s death and to: 30 (1) any balance of the purchase price (together with any 31 mortgage or other security interest) owing from owed by a 32 purchaser to the testator at the testator’s death by reason of 33 sale of the property; 34 (2) any amount of a condemnation award for the taking 35 of the property unpaid at the testator’s death; 36 (3) any proceeds unpaid at the testator’s death on fire or 37 casualty insurance on or on other recovery for injury to the 38 property; 39 (4) any property owned by the testator at his death and 40 acquired as a result of foreclosure, or obtained in lieu of

[143] 94 1 foreclosure, of the security for a specifically devised 2 obligation. 3 (b) If specifically devised property is sold or mortgaged 4 by a conservator or by an agent acting within the authority of 5 a durable power of attorney for an incapacitated principal, or 6 if a condemnation award or insurance proceeds are or 7 recovery for injury to the property is paid to a conservator as 8 a result of condemnation, fire, or casualty or to an agent 9 acting within the authority of a durable power of attorney for 10 an incapacitated principal, the specific devisee has the right 11 to a general pecuniary devise equal to the net sale price, the 12 amount of the unpaid loan, the condemnation award, or the 13 insurance proceeds, or the recovery. This subsection does 14 not apply if subsequent to the sale, condemnation, or 15 casualty, it is adjudicated that the disability of the testator has 16 ceased and the testator survives the adjudication by one year. 17 (c) The right of the specific devisee under this subsection 18 (b) is reduced by the value of any right he has under 19 subsection (a). 20 (d) F or purposes of references in subsection (b) to a 21 conservator, subsection (b) does not apply if after the sale, 22 mortgage, condemnation, casualty or recovery, it was adjudicated 23 that the testator’s disability ceased and the testator survived the 24 adjudication for at least one year. 25 (e) For purposes of references in subsection (b) to an 26 agent acting within the authority of a durable power of 27 attorney for an incapacitated principal, (i) ‘incapacitated 28 principal’ means a principal who is an incapacitated person, 29 (ii) no adjudication of incapacity before death is necessary, 30 and (iii) the acts of an agent within the authority of a durable 31 power of attorney are presumed to be for an incapacitated 32 principal. 33 34 REPORTER’S COMMENT 35 Section 622606 establishes the rule that a specific devise of 36 any property, including securities also governed by Section 37 622605, is construed to pass, not only as much of the 38 specifically devised property as remains at testator’s death, 39 but also the proceeds of sale, subsection (a)(1), and 40 condemnation, subsection (a)(2), of the property, and the [143] 95 1 proceeds of policies of insurance against fire or casualty to 2 the property, subsection (a)(3), but only if such proceeds are 3 yet unpaid to the testator at the testator’s death, Section 4 622606(a), or if such proceeds have been paid to an agent 5 acting within the authority of a durable power of attorney or 6 to a conservator, defined at Section 621201(6), of the testator 7 during the testator’s life, provided less than one year 8 separates the death of the testator and a prior adjudication 9 that his disability had ceased, Section 622606(b). Further, a 10 specific devise of a secured obligation passes the products of 11 foreclosure, or settlement in lieu of foreclosure, of such 12 security, Section 622606(a)(4). Section 622606 applies 13 unless the decedent’s will provides otherwise, Section 14 622601. 15 The 2013 amendment adds the provisions regarding an 16 agent acting within the authority of a durable power of 17 attorney 18 19 Section 622607. A specific devise passes subject to any 20 mortgage, pledge, security interest or other lien existing at 21 the date of death, without right of exoneration, regardless of a 22 general directive in the will to pay debts. 23 24 REPORTER’S COMMENT 25 Section 622607 establishes a rule of construction that specific 26 devises pass not exonerated of but subject to any related 27 security interests, unless the decedent’s will provides 28 otherwise, Section 622601. 29 See Section 623814 empowering the personal representative 30 to pay an encumbrance under some circumstances; the last 31 sentence of that section makes it clear that such payment 32 does not increase the right of the specific devisee. The 33 present section governs the substantive rights of the devisee. 34 For the rule as to exempt property, see Section 622401. 35 36 Section 622608. A general residuary clause in a will, or a 37 will making general disposition of all of the testator’s 38 property, does not exercise a power of appointment held by 39 the testator unless specific reference is made to the power or

[143] 96 1 there is some other indication of intention to include the 2 property subject to the power. 3 4 REPORTER’S COMMENT 5 Section 622608 follows the common law rule of construction 6 that, unless the decedent’s will provides otherwise, Sections 7 622601 and 622608, general dispositive provisions in a will 8 do not pass property subject to the testator’s powers of 9 appointment. 10 11 Section 622609. Half bloods, adopted persons, and 12 persons born out of wedlock are included in class gift 13 terminology and terms of relationship in accordance with 14 rules for determining relationships for purposes of intestate 15 succession, but a person born out of wedlock is not treated as 16 the child of the father unless the person is openly and 17 notoriously so treated by the father. 18 19 REPORTER’S COMMENT 20 Section 622609 establishes the meaning of terms of family 21 relationship, as used in wills, as including the meaning which 22 such terms have for purposes of intestate succession by 23 certain persons under Part l of Article 2, unless the 24 decedent’s will provides otherwise, Section 622601. Hence, 25 references to ‘children’, ‘issue’, or ‘heirs’, and the like, are 26 read to include or exclude half blood and adopted persons 27 and persons born out of wedlock according to the rules of 28 Sections 622103(3) and 622107, half bloods, 622109(1), 29 adopted persons, 622109(2), persons born out of wedlock, 30 622112, aliens, and 622113, twice related persons, at least 31 those who are otherwise implicated by mention in Section 32 622609. 33 Half Blood: 34 Section 622107 generally treats half bloods just as whole 35 bloods in the event of intestacy; hence, Section 622609 36 would generally treat them without discrimination in the 37 construction of wills. Adopted Persons: 38 Section 622109(1) generally treats adopted persons as natural 39 born members of their adoptive families in the event of

[143] 97 1 intestacy, as would Section 622609 generally treat them in 2 the construction of wills. 3 Persons Born Out of Wedlock: 4 Section 622109(2) treats persons born out of wedlock just as 5 legitimate persons in the event of the intestacy of their 6 mothers, as would Section 622609 treat them in the 7 construction of wills. Section 622109 treats persons born out 8 of wedlock just as legitimate persons in the event of the 9 intestacy of their fathers, but only in cases of ceremonial 10 marriage of the person’s parents even if the attempted 11 marriage was void, Section 622109(2)(i), or in cases of 12 adjudication of the father’s paternity, Section 622109(2)(ii), 13 and so would Section 622609 treat them in the construction 14 of wills but for its additional proviso that the person born out 15 of wedlock is treated as the child of the father only if the 16 father himself openly and notoriously so treated him. 17 18 Section 622610. (a) Property which a testator gave in his 19 the testator’s lifetime to a person is treated as a satisfaction of 20 a devise to that person in whole or in part, only if: 21 (i) the will provides for deduction of the lifetime 22 gift;, or 23 (ii) the testator declares declared in a contemporaneous 24 writing that the gift is to be deducted from the devise; or 25 (iii) is in satisfaction of the devise, or the devisee 26 acknowledges acknowledged in writing that the gift is in 27 satisfaction of the devise or that its value is to be deducted 28 from the value of the devise. 29 (b) For purpose of partial satisfaction, property given 30 during lifetime is valued as of the time the devisee came into 31 possession or enjoyment of the property or as of the time of 32 death of the testator at the testator’s death, whichever occurs 33 first. 34 (c) If the devisee fails to survive the testator, the gift is 35 treated as a full or partial satisfaction of the devise, as 36 appropriate, in applying Sections 622603 and 622604, unless 37 the testator’s contemporaneous writing provides otherwise. 38 39 REPORTER’S COMMENT

[143] 98 1 Section 622610 concerns the effect on testate succession of 2 lifetime gifts made by the testator to persons who are also 3 devisees under his will. The section establishes a rule of 4 construction which charges such lifetime gifts, in 5 satisfaction, against the will’s devise, but only if either they 6 are declared thus to be in satisfaction, either by the will or by 7 the testator, contemporaneously in writing, or they are thus 8 acknowledged by the devisee, again in writing. If the devisee 9 predeceases the testator, but issue of the devisee survive as 10 beneficiaries of the antilapse provision of this Code, Section 11 622603, then Sections 622610 and 622603 read together 12 charge the ancestor’s lifetime gifts in satisfaction against the 13 devise to the issue, again, however, only if the 14 abovementioned writing exists. 15 Section 622610 values the satisfaction at the earlier of the 16 devisee’s actual receipt of the gift or the testator’s date of 17 death, resulting in most cases in a valuation at the date of the 18 gift rather than at the date of death. 19 See Section 622110 on advancements, for a rule analogous to 20 the rule of satisfaction, but operative in the event of intestacy. 21 The 2013 amendment added subsection (c) to provide that 22 if a devisee fails to survive the testator and the devisee’s 23 descendants take under 622603 and if this devise is reduced 24 with respect to the devisee, it shall automatically be reduced 25 with respect to the devisee’s descendants. 26 Consider Section 622606 as it relates to ademption. 27 28 Section 622611. A devise of land is construed to pass an 29 estate in fee simple, regardless of the absence of words of 30 limitation in the devise. 31 32 Section 622612. The personal representative, trustee, or 33 any affected beneficiary under a will, trust, or other 34 instrument of a decedent who dies or did die after December 35 31, 2009, and before January 1, 2011, may bring a 36 proceeding to determine the decedent’s intent when the will, 37 trust, or other instrument contains a formula that is based on 38 the federal estate tax or generationskipping tax. The

[143] 99 1 proceeding must be commenced within twelve months 2 following the death of the decedent. 3 4 Part 7 5 6 Contractual Arrangements Relating to Death 7 8 Section 622701. A contract to make a will or devise, or to 9 revoke a will or devise, or not to revoke a will or devise, or to 10 die intestate, if executed after the effective date of this act, 11 can be established only by (1) provisions of a will of the 12 decedent stating material provisions of the contract; (2) an 13 express reference in a will of the decedent to a contract and 14 extrinsic evidence proving the terms of the contract; or (3) a 15 writing signed by the decedent evidencing the contract and 16 extrinsic evidence proving the terms of the contract. The 17 execution of a joint will or mutual wills does not create a 18 presumption of a contract not to revoke the will or wills. 19 20 REPORTER’S COMMENT 21 Section 622701 allows the proof of a contract binding a 22 decedent and concerning the succession to his estate, testate 23 or intestate, only by way of some signed writing, either (1) 24 his written, signed will containing the material provisions of 25 the contract; (2) his written, signed will containing an 26 express reference to the contract (extrinsic evidence proving 27 its terms); or (3) a writing other than a will but signed by the 28 decedent and containing evidence of the contract (allowing 29 extrinsic evidence to prove its terms). The section’s 30 requirement of a signed writing to prove such contracts is 31 meant to apply only prospectively, leaving the prior South 32 Carolina law in effect retrospectively. 33 Noting that the only concern of Section 622701 is with the 34 proof of contracts concerning succession, it should be 35 recognized that the prior South Carolina law, concerning the 36 formation of such contracts and the effects of such contracts’ 37 formation and the breach thereof, remains intact. See S. Alan 38 Medlin, The Law of Wills and Trusts (S.C. Bar 2002) 39 Sections 341, 342; W. Brown, Note: Specific Performance

[143] 100 1 of Oral Contracts to Devise, 17 S.C.L. Rev. 540 (1965); and 2 T. Stubbs, Oral Contracts to Make Wills, IX Selden Soc. 3 Y.B. Part III, 10 (1948). 4 The policies basing Section 622701 and Sections 622502 5 (execution of wills), 622506 (revocation of wills), and 6 622509 (incorporation of other matter by reference in wills) 7 are the same. All of these sections are aimed at protecting 8 the integrity of the process of succession to the estates of 9 decedents in accordance with their own true wills. Each of 10 these sections requires that the decedent’s will be expressed 11 either in some writing or by way of a physical act done to 12 some writing; the writings are required in the expectation of 13 increasing the reliability of the proof of the decedent’s true 14 will. See K. Walsh, Note: The Statute of Frauds’ Lifetime 15 and Testamentary Provisions: Safeguarding Decedents’ 16 Estates, 50 Ford. L. Rev. 239 (1981) (hereinafter Walsh). 17 Section 32310(4) of the 1976 Code does require contracts 18 concerning land to be ‘in writing and signed by the party to 19 be charged therewith.’ Accordingly, contracts concerning 20 the succession to land as an asset of a decedent’s estate were, 21 Brown v. Golightly, 106 S.C. 519, 91 S.E. 869 (1917), 22 White v. McKnight, 146 S.C. 59, 143 S.E. 552 (1928), and 23 will yet be required to be in writing and signed by the 24 decedent, i.e., ‘by the party to be charged therewith (only in 25 the sense that to charge the personal representative or other 26 successor or assign of the decedent is to charge the decedent 27 himself).’ 28 In addition, prior South Carolina case law was said to 29 require that contracts concerning succession be proved by 30 ‘clear, cogent, and convincing evidence.’ Caulder v. Knox, 31 251 S.C. 337, 346, 162 S.E.2d 262 (1968), Brown v. 32 Graham, 242 S.C. 491, 131 S.E.2d 421 (1963). While 33 Section 2701 fails to codify the stated higher standard of 34 proof per se, the provision’s requirement of a signed writing 35 is consistent with the spirit of the former higher standard of 36 proof and perpetuates its intended effect. 37 Further, Section 622701 provides that no presumption of 38 the existence of a contract concerning succession arises from 39 the mere execution of mutual wills or of a joint will. And

[143] 101 1 while there is South Carolina authority, relying on the 2 reciprocating nature of the terms of a joint will, together with 3 surrounding family circumstances, for the satisfaction by 4 implication of the clear, cogent, and convincing evidentiary 5 standard as to the existence of a contract not to revoke the 6 joint will, in a case in which the joint will failed to actually 7 express an agreement of nonrevocability, Pruitt v. Moss, 271 8 S.C. 305, 247 S.E.2d 324 (1978), Section 622701 seems to 9 preclude the establishment of any such contract of 10 nonrevocability where the material provision thereof, i.e., the 11 promise not to revoke, is not expressed in the joint will and 12 the joint will otherwise fails to expressly refer to the contract. 13 Extrinsic evidence is freely admissible under Section 622701 14 to prove the important terms of a contract whose mere 15 existence is proved by a signed writing. However, as a brake 16 on the provision’s liberality with respect to extrinsic 17 evidence, Section 191120 of the 1976 Code, the ‘Dead 18 man’s’ statute, will continue to limit the admissibility of that 19 extrinsic evidence which is subject to its application, this 20 notwithstanding the enactment of Section 622701. See 21 Brown v. Golightly, supra. 22 Section 622701 avoids the problems, both that of the 23 possibly uneven application of the stated higher standard of 24 proof of contracts concerning succession and that of the 25 questionable breadth of application of the several preexisting 26 Statutes of Frauds provisions as to contracts concerning 27 succession, quite simply by establishing a signed writing 28 requirement specifically applicable to all such contracts. 29 Presumably Section 622701 will be construed as preempting 30 the field, rendering all other such statutory and case law 31 provisions inapplicable to such contracts in the future. 32 However, it may be questioned whether Section 622701 33 should not be subject, in its operation, to the familiar legal 34 and equitable exceptions to the operation of the other Statutes 35 of Frauds provisions. See Section 621103 and Walsh, supra, 36 at 258270. These include the remedies of restitution of 37 monies advanced and the imposition of a constructive trust to 38 force the restitution of other specific assets advanced by the 39 promisee on an oral contract, and the effects of part

[143] 102 1 performance of the oral contract by the promisee as well as 2 equitable and promissory estoppel, either matter binding the 3 promissor to the oral contract notwithstanding any applicable 4 Statute of Frauds. One case has reached such a conclusion 5 after the enactment of Section 622701. See Satcher v. 6 Satcher, 351 S.C. 477, 570 S.E. 2d 535 (S.C. App. 2002). See 7 also White v. McKnight, supra, Turnipseed v. Sirrine, supra 8 57 S.C. at 578, Riddle v. George, 181 S.C. 360, 187 S.E. 9 524 (1936), Bruce v. Moon, 57 S.C. 60, 35 S.E. 415 (1900). 10 See W. Brown, Note: Specific Performance of Oral 11 Contracts to Devise, 17 S.C.L. Rev. 540 (1965). 12 For the enforcement of a contract concerning succession 13 while the testator is still alive, see Wright v. Trask, 329 S.C. 14 170, 495 S.E. 2d 222 (S.C. App. 1997). 15 16 Part 8 17 18 General Provisions 19 20 Section 622801. (a) In addition to any methods available 21 under existing law, statutory or otherwise, if a person (or his 22 executor, administrator, successor, personal representative, 23 special administrator, guardian, attorneyinfact, trustee, 24 committee, conservator, or his other fiduciary or agent who 25 performs substantially similar functions under the law 26 governing his status, acting with or without the approval of a 27 specific court order and with or without the receipt of 28 consideration for the act), as a disclaimant, makes a 29 disclaimer as defined in Section 12161910 of the 1976 Code, 30 with respect to any transferor’s transfer (including transfers 31 by any means whatsoever, lifetime and testamentary, 32 voluntary and by operation of law, initial and successive, by 33 grant, gift, trust, contract, intestacy, wrongful death, elective 34 share, forced share, homestead allowance, exempt property 35 allowance, devise, bequest, beneficiary designation, 36 survivorship provision, exercise and nonexercise of a power, 37 and otherwise) to him of any interest in, including any power 38 with respect to, property, or any undivided portion thereof,

[143] 103 1 the interest, or such portion, is considered never to have been 2 transferred to the disclaimant. 3 (b) The right to disclaim exists notwithstanding any 4 limitation on the disclaimant’s interest in the nature of a 5 spendthrift provision or similar restriction. 6 (c) The right to disclaim is barred by the disclaimant’s 7 written waiver of the right. 8 (d) Unless the transferor has provided otherwise in the 9 event of a disclaimer, the disclaimed interest shall be 10 transferred (or fail to be transferred, as the case may be) as if 11 the disclaimant had predeceased the date of effectiveness of 12 the transfer of the interest; the disclaimer shall relate back to 13 that date of effectiveness for all purposes; and any future 14 interest which is provided to take effect in possession or 15 enjoyment after the termination of the disclaimed interest 16 shall take effect as if the disclaimant had predeceased the 17 date on which he or she as the taker of the disclaimed interest 18 became finally ascertained and the disclaimed interest 19 became indefeasibly vested; provided, that an interest 20 disclaimed by a disclaimant who is the spouse of a decedent, 21 the transferor of the interest, may pass by any further process 22 of transfer to such spouse, notwithstanding the treatment of 23 the transfer of the disclaimed interest as if the disclaimant 24 had predeceased. 25 (e) The date of effectiveness of the transfer of the 26 disclaimed interest is (1) as to transfers by intestacy, 27 wrongful death, elective share, forced share, homestead 28 allowance, exempt property allowance, devise and bequest, 29 the date of death of the decedent transferor of, or that of the 30 donee of a testamentary power of appointment (whether 31 exercised or not exercised) with respect to, the interest, as the 32 case may be, and (2) as to all other transfers, the date of 33 effectiveness of the instrument, contract, or act of transfer. 34 (f) It is the intent of the legislature of the State of South 35 Carolina by this provision to clarify the laws of this State 36 with respect to the subject matter hereof in order to ensure 37 the ability of persons to disclaim interests in property without 38 the imposition of federal and state estate, inheritance, gift, 39 and transfer taxes. This provision is to be interpreted and

[143] 104 1 construed in accordance with, and in furtherance of, that 2 intent. 3 (g) With the court’s approval, a personal representative, 4 trustee, or similar fiduciary may disclaim any one or more of 5 the powers granted to the personal representative, trustee, or 6 similar fiduciary. Any disclaimer must be made by written 7 instrument in the manner provided in subsection (a) and has 8 the same effect as in subsection (d). The disclaimer of a 9 power may be made binding on any successor fiduciary, if 10 the disclaiming fiduciary so declares when making the 11 disclaimer. This section applies to disclaimers of any interest 12 in or power over property, whenever created, and, in addition 13 to other methods, is the means by which a disclaimer may be 14 made under the laws of this State. 15 (b) For purpose of this section: 16 (1) ‘Disclaimer’ means any writing which disclaims, 17 renounces, declines, or refuses an interest in or power over 18 property. 19 (2) ‘Disclaimant’ means the person to whom a 20 disclaimed interest or power would have passed had the 21 disclaimer not been made. 22 (3) ‘Disclaimed interest’ means the interest that would 23 have passed to the disclaimant had the disclaimer not been 24 made. 25 (4) ‘Fiduciary’ means a personal representative, trustee, 26 agent acting under a power of attorney, guardian, 27 conservator, or other person authorized to act as a fiduciary 28 with respect to the property of another person. 29 (c)(1) A person may disclaim, in whole or in part, any 30 interest in or power over property, including a power of 31 appointment. 32 (2) Unless barred, a disclaimer must be made within a 33 reasonable time after the disclaimant acquires actual 34 knowledge of the interest. A disclaimer is conclusively 35 presumed to have been made within a reasonable time if 36 made within nine months after the date of effectiveness of the 37 transfer as determined under subsection (d)(3). 38 (3) To be effective, a disclaimer must be: 39 (i) in writing;

[143] 105 1 (ii) declare the writing as a disclaimer; 2 (iii) describe the interest or power disclaimed; and 3 (iv) be delivered to the transferor of the interest, the 4 transferor’s fiduciary, the holder of the legal title to or the 5 person in possession of the property to which the interest 6 relates, or a court that would have jurisdiction over such 7 interest or subject matter. A disclaimer of a power must be 8 delivered as if the power disclaimed were an interest in 9 property. Delivery of a disclaimer may be made by personal 10 delivery, firstclass mail, or any other method that results in 11 its receipt. A disclaimer sent by firstclass mail shall be 12 deemed to have been delivered on the date it is postmarked. 13 (4) A disclaimer is not a transfer, assignment, or release 14 if made within a reasonable time after the disclaimant 15 acquires actual knowledge of the interest and if not otherwise 16 barred. 17 (5) A barred disclaimer is ineffective as a disclaimer 18 under this section. A disclaimer is barred by any of the 19 following conditions occurring before the disclaimer 20 becomes effective: 21 (i) the disclaimant waived in writing the right to 22 disclaim; 23 (ii) the disclaimant accepted the interest sought to be 24 disclaimed; 25 (iii) the disclaimant voluntarily assigned, conveyed, 26 encumbered, pledged, transferred, or directed the interest 27 sought to be disclaimed or has contracted to do so; or 28 (iv) a judicial sale of the interest sought to be 29 disclaimed has occurred. 30 (6) A disclaimer is not barred by a spendthrift provision 31 or similar restriction on transfer or the right to disclaim 32 imposed by the creator of the interest in or power over the 33 property; 34 (7) A disclaimer is not barred by a disclaimant’s 35 financial condition, whether or not insolvent, and a 36 disclaimer that complies with this section is not a fraudulent 37 transfer under the laws of this State;

[143] 106 1 (8) A disclaimer, in whole or in part, of the future 2 exercise of a power held in a fiduciary capacity is not barred 3 by its previous exercise; 4 (9) A disclaimer, in whole or in part, of the future 5 exercise of a power not held in a fiduciary capacity is not 6 barred unless the power is exercisable in favor of a 7 disclaimant. 8 (10) Unless a disclaimer is barred, a disclaimer treated as 9 a qualified disclaimer pursuant to Internal Revenue Code 10 Section 2518 is effective as a disclaimer under this section. 11 (d)(1) If a disclaimant makes a disclaimer with respect to 12 any transferor’s transfer (including transfers by any means 13 whatsoever, lifetime and testamentary, voluntary and by 14 operation of law, initial and successive, by grant, gift, trust, 15 contract, intestacy, wrongful death, elective share, forced 16 share, homestead allowance, exempt property, devise, 17 bequest, beneficiary designation, survivorship provision, 18 exercise and nonexercise of a power, and otherwise) to the 19 disclaimant of any interest in, including any power with 20 respect to, property, or any undivided portion thereof, the 21 interest, or such portion, is considered never to have been 22 transferred to the disclaimant. 23 (2) Unless the transferor has provided otherwise in the 24 event of a disclaimer, the disclaimed interest shall be 25 transferred (or fail to be transferred), as if the disclaimant had 26 predeceased the date of effectiveness of the transfer of the 27 interest. The disclaimer shall relate back to that date of 28 effectiveness for all purposes, and any future interest which 29 is provided to take effect in possession or enjoyment after the 30 termination of the disclaimed interest shall take effect as if 31 the disclaimant had predeceased the date on which he or she 32 as the taker of the disclaimed interest became finally 33 ascertained and the disclaimed interest became indefeasibly 34 vested. Provided, that an interest disclaimed by a disclaimant 35 who is the spouse of a decedent, the transferor of the interest, 36 may pass by any further process of transfer to such spouse, 37 notwithstanding the treatment of the transfer of the 38 disclaimed interest as if the disclaimant had predeceased.

[143] 107 1 (3) The date of effectiveness of the transfer of the 2 disclaimed interest is (i) as to transfers by intestacy, wrongful 3 death, elective share, forced share, homestead allowance, 4 exempt property allowance, and devise and bequest, the date 5 of death of the decedent transferor, or that of the donee of a 6 testamentary power of appointment (whether exercised or not 7 exercised) with respect to, the interest, as the case may be, 8 and (ii) as to all other transfers, the date of effectiveness of 9 the instrument, contract, or act of transfer. 10 (e)(1) If and to the extent an instrument creates a fiduciary 11 relationship and expressly grants the fiduciary the right to 12 disclaim, the fiduciary may disclaim, in whole or in part, any 13 interest in or power over property, including a power of 14 appointment. If there is no instrument expressly granting the 15 fiduciary the right to disclaim, the fiduciary’s right to 16 disclaim shall be determined by the laws of this State 17 applicable to that fiduciary relationship. 18 (2) If a trustee disclaims an interest in property that 19 otherwise would have become trust property, the disclaimed 20 interest does not become trust property. 21 (3) A fiduciary may disclaim a power held in a 22 fiduciary capacity. If the power has not been previously 23 exercised, the disclaimer takes effect as of the time the 24 instrument creating the power became irrevocable. If the 25 power has been previously exercised, the disclaimer takes 26 effect immediately after the last exercise of the power. The 27 disclaimer of a fiduciary power may be made binding on any 28 successor fiduciary if the disclaimer so provides. 29 (4) If no conservator or guardian has been appointed, a 30 parent may disclaim on behalf of that parent’s minor child 31 and unborn issue, in whole or in part, any interest in or power 32 over property which the minor child or unborn issue is to 33 receive as a result of another disclaimer, but only if the 34 disclaimed interest or power does not pass outright to that 35 parent as a result of the disclaimer. 36 (f) A fiduciary or other person having custody of the 37 disclaimed interest is not liable for any otherwise proper 38 distribution or other disposition made without actual notice 39 of the disclaimer or, if the disclaimer is barred pursuant to

[143] 108 1 subsection (c)(5), for any otherwise proper distribution or 2 other disposition made in reliance on the disclaimer, if the 3 distribution or disposition is made without actual knowledge 4 of the facts constituting the bar of the right to disclaim. 5 6 REPORTER’S COMMENTS 7 Section 622801 provides for the state law effectiveness of the 8 disclaimer of transfers by way of succession to the estates of 9 decedents and otherwise. It affects transfers by will as well 10 as transfers through intestate estates. Section 622801 also 11 regulates the method by which a disclaimer must be made in 12 order to be effective, its nature, timeliness, formal execution 13 and delivery, and also the effect of a disclaimer on the further 14 disposition of the interest renounced. 15 The purpose of the enactment of Section 622801 is to 16 establish the state property law basis for the recognition of 17 the effectiveness of such disclaimers. The antilapse statutes, 18 Sections 622603 and 627606, apply to cases of disclaimers of 19 gifts under wills and interests in revocable trusts unless the 20 transferor provides otherwise. 21 22 Section 622802. (a) A person An individual who is 23 divorced from the decedent or whose marriage to the 24 decedent has been annulled is not a surviving spouse unless, 25 by virtue of a subsequent marriage, he the individual is 26 married to the decedent at the time of death. A decree of 27 separate maintenance which that does not terminate the status 28 of husband and wife is not a divorce for purposes of this 29 section. 30 (b) For purposes of Parts 1, 2, 3, and 4 of Article 2 31 [Sections 622101 et seq., 622201 et seq., 622301 et seq., and 32 622401 et seq.] and of Section 623203, a surviving spouse 33 does not include: 34 (1) a person an individual who obtains or consents to a 35 final decree or judgment of divorce from the decedent or an 36 annulment of their marriage, which decree or judgment is not 37 recognized as valid in this State, unless they subsequently 38 participate in a marriage ceremony purporting to marry each

[143] 109 1 to the other, or subsequently live together as husband and 2 wife at the time of the decedent’s death; 3 (2) a person an individual who, following a an invalid 4 decree or judgment of divorce or annulment obtained by the 5 decedent, participates in a marriage ceremony with a third 6 person; or 7 (3) a person an individual who was a party to a valid 8 proceeding concluded by an order purporting to terminate all 9 marital property rights or confirming equitable distribution 10 between spouses unless they are living together as husband 11 and wife at the time of the decedent’s death; or. 12 (4) a person an individual claiming to be a common law 13 spouse who has not been established to be a common law 14 spouse by an adjudication commenced before the death of the 15 decedent or within the later of eight months after the death of 16 the decedent or six months after the initial appointment of a 17 personal representative; if the action is commenced after the 18 death of the decedent, proof must be by clear and convincing 19 evidence. 20 (c) A divorce or annulment is not final until signed by the 21 court and filed in the office of the clerk of court. 22 23 REPORTER’S COMMENT 24 Section 622802 provides, with respect to the capacity of a 25 putative surviving spouse to take by way of succession to the 26 estate of a decedent, whether testate or intestate, for the 27 effects of (1) a divorce, (2) an annulment, (3) a decree of 28 separate maintenance, and (4) an order terminating marital 29 property rights, or confirming equitable distribution between 30 spouses, in cases in which any such event affects the 31 marriage of the decedent to the putative surviving spouse. 32 Valid Divorce and Annulment. 33 Under Section 622802(a), a valid divorce or a valid 34 annulment deprives the putative spouse of the status of 35 surviving spouse of the decedent and the capacity to take as 36 such in succession to the decedent’s estate under this Code, 37 i.e., by way of provisions in favor of a ‘surviving spouse,’ 38 whether found in the decedent’s will, Parts 5 and 6 of Article 39 2, or in the intestacy statute, Section 622102, or in the

[143] 110 1 provision for an elective share, Section 622201 et. seq., or in 2 the provision for an omitted spouse, Section 622301, or in 3 that for a spouse with respect to exempt property, Section 4 622401. However, the issuance of a decree of separate 5 maintenance, not terminating the marital status, has no such 6 effect. It should be apparent that a valid divorce or 7 annulment must always have deprived the former spouse of 8 the status of spouse of the decedent for purposes of 9 succession. 10 Marital Conditions Other than Divorce or Annulment. 11 Under Section 622802(b), any one of the following, an 12 order terminating marital property rights, or confirming 13 equitable distribution between spouses, subsection (3), a 14 divorce or an annulment not recognized as valid in South 15 Carolina if the putative spouse obtained or consented to it, 16 subsection (1), or subsequent to it he or she participated in a 17 marriage ceremony with some third person, subsection (2), 18 deprives the putative spouse of the status of surviving spouse 19 of the decedent; but, under Section 622802(b) itself, the 20 deprivation is only for the purposes of succession to the 21 decedent’s estate in intestacy, as a spouse with respect to an 22 elective share as an omitted spouse, as a spouse with respect 23 to exempt property, and as a spouse in line for appointment 24 as an administrator in intestacy, i.e., as under Parts 1, 2, 3, 25 and 4 of Article 2 and under Section 623203. 26 However, under Section 622507, such an order, a divorce 27 or annulment, whether valid or invalid as under Section 28 622802(b) has the additional effect of revoking, by operation 29 of law, so much of the decedent’s will as affects the putative 30 spouse. Section 622507 refers to Section 622802 for the 31 definition of divorce and annulment. 32 Perhaps other marital conditions, not valid as divorces or 33 annulments and not detailed in Section 622802(b), will 34 continue by the common law to estop a putative spouse from 35 claiming as a surviving spouse. See Section 621103. 36 Further, matters of succession not within the coverage of 37 Sections 622802(b) and 622507 will continue to be governed 38 by the prior South Carolina law, e.g., recovery under the 39 Wrongful Death Act, Section 155120 of the 1976 Code. See

[143] 111 1 Folk v. U.S., 102 F. Supp. 736 (W.D.S.C. 1952), and see 2 Lytle v. Southern Ry.Carolina Division, 171, S.C. 221, 171 3 S.E. 42 (1933) and Lytle v. Southern Ry.Carolina Division, 4 152 S.C. 161, 149 S.E. 692 (1929). 5 Both Sections 622802 and 622507 provide for the 6 exceptional case of the subsequent marriage of the decedent 7 to the putative spouse, those sections being rendered 8 inapplicable to such a case. 9 The 2013 amendment clarifies that an individual who 10 undergoes a divorce that is either invalid or not recognized in 11 South Carolina will be considered a surviving spouse if the 12 individual is living as husband and wife with the decedent at 13 the time of decedent’s death. 14 15 Section 622803. (a) A surviving spouse, heir, or devisee 16 An individual who feloniously and intentionally kills the 17 decedent is not entitled to any benefits under the decedent’s 18 will, trust of which the decedent is a grantor or under this 19 article with respect to the decedent’s estate, including, but 20 not limited to, an intestate share, an elective share, an omitted 21 spouse’s share or child’s share, a homestead allowance, and 22 exempt property, and the estate of the decedent passes as if 23 the killer had predeceased the decedent. Property appointed 24 by the will of the decedent to or for the benefit of the killer 25 passes as if the killer had predeceased the decedent. 26 (b) Any joint tenant who feloniously and intentionally 27 kills another joint tenant thereby effects a severance of the 28 interest of the decedent so that the share of the decedent 29 passes as his the decedent’s property and the killer has no 30 rights by survivorship. This provision applies to joint 31 tenancies in real and personal property, joint and 32 multipleparty accounts in banks, savings and loan 33 associations, credit unions, and other institutions, and any 34 other form of coownership with survivorship incidents. 35 (c) A named beneficiary of a bond, life insurance policy, 36 retirement plan, annuity, or other contractual arrangement 37 who feloniously and intentionally kills the principal obligee 38 or the person individual upon whose life the policy is issued 39 is not entitled to any benefit under the bond, policy,

[143] 112 1 retirement plan, annuity, or other contractual arrangement, 2 and it becomes payable as though the killer had predeceased 3 the decedent. 4 (d) Any other acquisition of property or interest by the 5 killer shall be treated in accordance with the principles of this 6 section. A beneficiary whose interest is increased as a result 7 of feloniously and intentionally killing shall be treated in 8 accordance with the principles of this section. 9 (e) The felonious and intentional killing of the decedent 10 revokes the nomination of the killer in a will or other 11 document nominating or appointing the killer to serve in any 12 fiduciary capacity or representative capacity, including, but 13 not limited to, as personal representative, trustee, agent or 14 guardian. 15 (f) A final judgment of by conviction, or guilty plea 16 establishing criminal accountability of felonious and intentional 17 killing the decedent is conclusive conclusively establishes that the 18 convicted individual feloniously and intentionally killed the 19 decedent for purposes of this section. In the absence of a 20 conviction of felonious and intentional killing such final judgment 21 the court, may determine by a preponderance of evidence whether 22 the killing was felonious and intentional for purposes of this 23 section upon the petition of an interested person, must determine 24 whether, upo n the preponderance of the evidence standard, the 25 individual would be found responsible for the felonious and 26 intentional killing of the decedent. If the court determines that, 27 under that standard, the individual would be responsible for the 28 felonious and intentional killing of the decedent, the determination 29 conclusively establishes that individual as the decedent’s killer for 30 purposes of this section. 31 (f)(g) This section does not affect the rights of any person 32 who, before rights under this section have been adjudicated, 33 purchases from the killer, for value and without notice, 34 property which the killer would have acquired except for this 35 section, but the killer is liable for the amount of the proceeds 36 or the value of the property. Any insurance company, bank, 37 or other obligor making payment according to the terms of its 38 policy or obligation is not liable by reason of this section 39 unless prior to payment it has received at its home office or 40 principal address written notice of a claim under this section.

[143] 113 1 (g)(h) For purposes of this section, the killer is considered 2 to have predeceased the decedent if the killer dies within one 3 hundred twenty hours after feloniously and intentionally 4 killing the decedent. If an individual feloniously and 5 intentionally kills the decedent, and if the killer dies within 6 one hundred twenty hours of the decedent’s death, then the 7 decedent shall be deemed to have survived the killer for 8 purposes of distributing the killer’s estate, including, but not 9 limited to, property passing by intestacy, the killer’s will, any 10 trust of which the killer is a grantor, joint tenancy with right 11 of survivorship and benefits payable under a life insurance 12 policy, retirement plan, annuity or other contractual 13 arrangemen t. 14 15 REPORTER’S COMMENT 16 Section 622803, subsections (a) through (e), governs the 17 effects of the proof of a putative successor’s felonious and 18 intentional killing of a decedent upon whose death some 19 matter of succession depends. Under this Code, such a killer 20 is disabled from taking the succession and the succession 21 proceeds as if the killer had predeceased the decedent. Under 22 Section 622803(f), a final judgment of conviction or a guilty 23 plea of felonious and intentional killing conclusively invokes 24 the operation of Section 622803, but the lack of a conviction 25 is no bar to invocation of the provision where the killing is 26 proved by the preponderance of the evidence. 27 At common law, according to the maxim that ‘no one shall 28 be permitted to profit by his own ... wrong,’ Smith v. Todd, 29 155 S.C. 323, 152 S.E. 506 (1930), those, who were by the 30 preponderance of the evidence, Smith v. Todd, supra, 31 proven to have feloniously, Smith v. Todd, supra; and 32 Keels v. Atlantic Coast Line R. Co., 159 S.C. 520, 157 S.E. 33 834 (1931), and intentionally, i.e., maliciously and not 34 merely recklessly or involuntarily, Leggette v. Smith, 226 35 S.C. 403, 85 S.E.2d 576 (1955), but see Fowler v. Fowler, 36 242 S.C. 252, 254, 130 S.E.2d 568 (1963), killed another, 37 were disabled from taking in succession to their victim, 38 whether by their being named as the beneficiary of a policy 39 of life insurance on their victim, Smith v. Todd, supra, or of

[143] 114 1 employment death benefits with respect to their victim, 2 Keels, supra, or by their taking in intestacy from their 3 victim, or otherwise, Leggette v. Smith, supra. The maxim 4 applied and the civilly proven killer was disabled from taking 5 notwithstanding that on the criminal side he had been 6 convicted of involuntary manslaughter, Keels, supra, or had 7 been acquitted of crime, Leggette v. Smith, supra. . 8 Former Section 21150 of the 1976 Code was enacted, 9 importantly, in supplementation of the common law maxim 10 disabling a killer from taking in succession to his victim, and 11 was enacted merely in order to establish a conclusive 12 presumption of the disablement of the killer in the single 13 specified case of his criminal court conviction of an unlawful 14 killing, Sections 16310 and 16350 of the 1976 Code and 15 Rasor v. Rasor, 173 S.C. 365, 175 S.E. 545 (1934), 16 presumably because of the higher standard of proof bound to 17 have been imposed in that proceeding; not including 18 coroner’s convictions, Smith v. Todd, supra, nor including, 19 of course, complete acquittals, Leggette v. Smith, supra, nor 20 involuntary manslaughter convictions, Keels, supra, 21 Sections 16350 and 16360 of the 1976 Code, but, perhaps, 22 including other reckless homicide convictions, Section 23 5652910 of the 1976 Code, unlawful albeit unintended, i.e., 24 nonmalicious and involuntary. See Fowler v. Fowler, supra, 25 at 254 and C. Karesh, Survey of South Carolina Law, 8 26 S.C.L.Q. 150 (1955) and E. McCrackin, 27 InheritanceUnintentional Killing, 7 S.C.L.Q. 475 (1955). 28 The thrust of Section 622803 is meant to encompass not 29 only the intended unlawful killing cases covered by former 30 Section 21150 of the 1976 Code, but also the cases left to the 31 common law maxim. See Section 622803(d). Perhaps the 32 common law maxim retains some validity, as under Section 33 621103, with respect to cases of killings or of succession, not 34 covered by Section 622803, if any. For instance, perhaps the 35 common law maxim will yet apply to deprive unintended but 36 reckless homicides of the benefits of the Wrongful Death 37 Act, Sections 155110, 155120 of the 1976 Code et seq. See 38 Fowler v. Fowler, supra at 254 but compare Leggette v. 39 Smith, supra.

[143] 115 1 Under Section 622803, subsections (a) through (d), the 2 effect of the proving of the killing is not only to disable the 3 killer from taking in succession but also to redirect the 4 succession so that the matter proceeds as if the killer had 5 predeceased the decedent. 6 Section 622803(g) provides for the protection, from the 7 claims of the takers on the redirected succession, of obligors 8 who pay benefits to a killer without notice of such claims and 9 also for the protection, from such claims, of purchasers from 10 a killer, for value and without notice, who purchase before 11 the adjudication of such claims. 12 In protecting the killer’s subsequent purchasers, for value 13 and without notice, Section 622803(g), having first 14 established the theoretical base that the killer is deprived by 15 his crime of all legal title in the property which the killer 16 would have acquired except for this section, the interest then, 17 however, accords to the killer’s subsequent purchasers, for 18 value and without notice, in whom presumably later mere 19 equitable title arises, the kind of protection against the claims 20 of the earlier legal title claimants, i.e., those who take the 21 redirected succession under Section 2803. Thus, Section 22 622803(g) carves out a further statutory exception to the 23 common law rule of priority. 24 25 Section 622804. When any person individual is seized or 26 possessed of any real property held in joint tenancy at the 27 time of his the individual’s death, the joint tenancy is deemed 28 to have been severed by the death of the joint tenant and the 29 real property is distributable as a tenancy in common unless 30 the instrument which creates the joint tenancy in real 31 property, including any instrument in which one person 32 individual conveys to himself and one or more other persons, 33 or two or more persons convey to themselves, or to 34 themselves and another or others, expressly provides for a 35 right of survivorship, in which case the severance does not 36 occur. While other methods for the creation of a joint 37 tenancy in real property may be utilized, an express provision 38 for a right of survivorship is conclusively considered to have 39 occurred if the will or instrument of conveyance contains the

[143] 116 1 names of the devisees or grantees followed by the words ‘as 2 joint tenants with right of survivorship and not as tenants in 3 common’. 4 5 REPORTER’S COMMENT 6 Section 622804 is incorporated into Article 2 in order to 7 integrate particularly with Sections 622101 and 622501 the 8 South Carolina law on the effects of the establishment of a 9 joint tenancy in real property, with and without express 10 provision for right of survivorship, on the succession to a 11 decedent joint tenant’s interest in such real property by, 12 respectively, the surviving joint tenants or the decedent’s 13 testate or intestate successors. The case law developed in 14 South Carolina in the application of former Section 21350 of 15 the 1976 Code and its predecessor statutes, recodified as 16 Section 622804, continues to apply. 17 18 Section 622805. (A) For purposes of this article, tangible 19 personal property in the joint possession or control of the 20 decedent and the surviving spouse at the time of the 21 decedent’s death is presumed to be owned by the decedent 22 and the decedent’s spouse in joint tenancy with right of 23 survivorship if ownership is not evidenced otherwise by a 24 certificate of title, bill of sale, or other writing. This 25 presumption does not apply to property: 26 (1) acquired by either spouse before marriage; 27 (2) acquired by either spouse by gift or inheritance 28 during the marriage; 29 (3) used by the decedent spouse in a trade or business in 30 which the surviving spouse has no interest; 31 (4) held for another; or 32 (5) specifically devised in a will or devised in a written 33 statement or list disposing of tangible personal property 34 pursuant to Section 622512. 35 (B) The presumption created in this section may be 36 overcome by a preponderance of the evidence demonstrating 37 that ownership was held other than in joint tenancy with right 38 of survivorship. 39

[143] 117 1 Section 622806. To achieve the testator’s tax objectives, 2 the personal representative or any interested person may file 3 a summons and petition requesting the court, after notice and 4 a hearing, to issue an order modifying the terms of a 5 testator’s will in a manner not contrary to the testator’s 6 probable intent. The court may provide that the modification 7 has retroactive effect. 8 9 REPORTER’S COMMENT 10 The 2013 amendment added this section with provisions 11 similar to Section 627416. 12 13 Part 9 14 15 Delivery and Suppression of Wills 16 17 Section 622901. (a) Every executor, devisee, legatee, 18 trustee, guardian, attorney, or other After the death of a 19 testator, a person having in his possession, custody, or 20 control any last of a will and testament, including any codicil 21 or codicils thereto, of the testator shall deliver such will, any 22 person dying must within thirty days after of actual notice or 23 knowledge of the testator’s death of the testator deliver such 24 last will and testament, including any codicil or codicils 25 thereto, to the judge of the probate court having jurisdiction 26 to admit the same to probate and or to a person named as 27 personal representative in the will who shall deliver the will 28 to the judge of the probate court. Upon receipt of the will, 29 the such judge of probate shall file the same in his probate 30 court and if proceedings for the probate are not begun within 31 thirty days he must the judge shall publish a notice of such 32 delivery and filing in one of the newspapers in his the county 33 of the probate court for fifteen days once a week for three 34 consecutive weeks. Any executor, devisee, legatee, guardian, 35 attorney, or other person who fails to deliver to the judge of 36 the probate court having jurisdiction to admit it to probate 37 any last will and testament, including any codicil or codicils 38 thereto, upon conviction must be punished as for a 39 misdemeanor.

[143] 118 1 (b) Any person who intentionally or fraudulently destroys, 2 suppresses, conceals, or fails to deliver the will to the judge 3 of the probate court having jurisdiction to admit it to probate 4 any last will and testament, including any codicil or codicils 5 thereto, for the purpose and with the intent to prevent the 6 institution of proceedings for its probate shall, upon 7 conviction thereof, be punished by a fine of not more than 8 five hundred dollars or by imprisonment for not more than 9 one year, or both, in the discretion of the court is liable to any 10 person aggrieved for any damages that may be sustained by 11 such action or inaction. 12 ( c) Any person who intentionally or fraudulently destroys, 13 suppresses, conceals, or fails to deliver the will to the judge 14 of the probate court having jurisdiction to admit it to probate, 15 after being ordered by the court in a proceeding brought for 16 the purpose of compelling delivery, is subject to a penalty for 17 contempt of court. 18 19 REPORTER’S COMMENT 20 Section 622901 requires a custodian of a will, who has actual 21 notice or knowledge of the testator’s death, to deliver the will 22 to the probate court or to the personal representative named 23 in the will. 24 25 Article 3 26 27 Probate of Wills and Administration 28 29 Part 1 30 31 General Provisions 32 33 Section 623101. The power of a person to leave property 34 by will and the rights of creditors, devisees, and heirs to his 35 property are subject to the restrictions and limitations 36 contained in this Code to facilitate the prompt settlement of 37 estates, including the exercise of the powers of the personal 38 representative. Upon the death of a person, his real property 39 devolves to the persons to whom it is devised by his last will

[143] 119 1 or to those indicated as substitutes for them in cases 2 involving lapse, renunciation, or other circumstances 3 affecting the devolution of testate estates, or in the absence of 4 testamentary disposition, to his heirs, or to those indicated as 5 substitutes for them in cases involving renunciation or other 6 circumstances affecting the devolution of intestate estates, 7 subject to the purpose of satisfying claims as to exempt 8 property rights and the rights of creditors, and the purposes 9 of administration, particularly the exercise of the powers of 10 the personal representative under Sections 623709, 623710, 11 and 623711, and his personal property devolves, first, to his 12 personal representative, for the purpose of satisfying claims 13 as to exempt property rights and the rights of creditors, and 14 the purposes of administration, particularly the exercise of 15 the powers of the personal representative under Sections 16 623709, 623710, and 623711, and, at the expiration of three 17 years after the decedent’s death, if not yet distributed by the 18 personal representative, his personal property devolves to 19 those persons to whom it is devised by will or who are his 20 heirs in intestacy, or their substitutes, as the case may be, just 21 as with respect to real property. 22 23 REPORTER’S COMMENT 24 Real property devolves to the devisees or substitutes, under 25 decedent’s will, or to his heirs or substitutes, in an intestate 26 estate, at the death of the owner whereas personal property 27 devolves at the expiration of three years after decedent’s 28 death if not yet distributed by the personal representative. 29 As to devolution of real property, see Sections 623711 and 30 623715 concerning certain powers of the personal 31 representative over real estate. 32 The devolution of personal property to devisees or heirs is 33 expressly made subject to other provisions of this Code 34 regarding exempt property, the rights of creditors, and the 35 administration of estates. Further, the power (and fiduciary 36 obligation) of the personal representative to apply personal 37 property to the benefit of creditors and others interested in 38 the estate is provided for in Section 623711. Only if the 39 property is not required to protect the rights of creditors or

[143] 120 1 others does it devolve with no affirmative act of transfer of 2 title by distribution being necessary. Thus, under the system 3 of this Code and the provisions of this section, title to 4 personal property devolves to devisees or heirs, but subject to 5 exempt property provisions and the power to shift title to the 6 personal representative where required in administration and 7 to protect the rights of creditors or others. 8 9 Section 623102. Except as provided in Section 6231201 10 and except as to a will that has been admitted to probate in 11 another jurisdiction which is filed as provided in Article 4, to 12 be effective to prove the transfer of any property or to 13 nominate an executo a personal representative, a will must be 14 declared to be valid by an order of informal probate by the 15 court or an adjudication of probate by the court. 16 17 REPORTER’S COMMENT 18 A duly executed, unrevoked will must be declared to be valid 19 by order of informal probate or an adjudication of probate in 20 order to be effective to prove the transfer of any property or 21 to nominate an executor, with one exception, the affidavit 22 procedures authorized for collection of estates worth less 23 than twentyfive thousand dollars. Section 6231201. The 24 time limitations on probate proceedings to establish testacy 25 are stated in Section 623108. 26 27 Section 623103. Except as otherwise provided in this 28 article [Sections 623101 et seq.] and in Article 4 [Sections 29 624101 et seq.], to acquire the powers and undertake the 30 duties and liabilities of a personal representative of a 31 decedent, a person must be appointed by order of the court, 32 qualify, and be issued letters. Administration of an estate is 33 commenced by the issuance of letters. 34 35 REPORTER’S COMMENT 36 Before one acquires the status of personal representative, he 37 must be appointed by the court, qualify, and be issued letters. 38 Failure to secure appointment by one who possesses the

[143] 121 1 goods of a decedent makes him liable as executor in his own 2 wrong, Sections 623619, 623620, 623621. 3 The exceptions provided in Article 4 permit a personal 4 representative appointed in another state to collect certain 5 assets in this State, Sections 624201 through 624203, and to 6 exercise the powers of a local personal representative, if no 7 local administration or application is pending in this State, by 8 filing authenticated copies of his appointment and any will 9 and any bond, Sections 624204, 624205. 10 For ‘qualification,’ see Section 623601; for ‘letters,’ see 11 Section 621305; for the time of accrual of duties and powers 12 of personal representative, see Section 623701. 13 Section 623108 imposes time limitations on appointment 14 proceedings. 15 16 Section 623104. No claim may be filed against the 17 estate of a decedent and no proceeding to enforce a claim 18 against the estate of a decedent or his successors may be 19 revived or commenced before the appointment of a personal 20 representative, except as provided in Section 623804(b)(1). 21 After the appointment and until distribution, all proceedings 22 and actions to enforce a claim against the estate are governed 23 by the procedure prescribed by this article [Sections 623101 24 et seq.]. After distribution, a creditor whose claim has not 25 been barred may recover from the distributees as provided in 26 Section 6231004 or from a former personal representative 27 individually liable as provided in Section 6231005. This 28 section has no application to a proceeding by a secured 29 creditor of the decedent to enforce his right to his security 30 except as to any deficiency judgment which might be sought 31 therein. 32 33 REPORTER’S COMMENT 34 This section requires creditors of decedents to assert their 35 claims against a duly appointed personal representative. 36 Notice to creditors, time limitations, payment of claims, and 37 other provisions relating to creditors’ claims are in Part 8 of 38 Article 3. Creditors are interested persons who may seek 39 appointment either in informal proceedings for appointment

[143] 122 1 of a personal representative, Section 623301, or in formal 2 proceedings for appointment, Section 623414. A creditor 3 may seek appointment as personal representative and has 4 priority for appointment if no other interested person has 5 applied for appointment within fortyfive days after death, 6 Section 623203, and may do so at any time within ten years 7 of decedent’s death, Section 623108. If a personal 8 representative has been appointed and has closed the estate 9 under circumstances which leave a creditor’s claim unbarred 10 and unpaid, the creditor may recover from the distributees, 11 Section 6231004, or from the former personal representative 12 individually liable for breach of fiduciary duty as provided in 13 Sections 623807 and 6231003, subject to the limitations of 14 Section 6231005. A secured creditor is not affected by this 15 section except as to any deficiency judgment sought. A 16 secured creditor is not required to assert his claim against the 17 personal representative of the deceased debtor; however, the 18 secured creditor who wishes to enforce a claim for 19 deficiency, even if unliquidated or only potential, is required 20 to comply with the claims provisions of this section and Part 21 8 of this article. The 2013 amendment to Section 623104 22 relates to the process for a creditor seeking appointment as 23 personal representative. Pursuant to Section 623804(1)(b), a 24 creditor seeking appointment must attach a written statement 25 of its claim to the application or petition for appointment. 26 27 Section 623105. Persons interested in decedents’ estates 28 may apply to the court for determination in the informal 29 proceedings provided in this article [Sections 623101 et seq.], 30 and may petition the court for orders in formal proceedings 31 within the court’s jurisdiction including but not limited to 32 those described in this article. 33 34 Section 623106. In proceedings within the jurisdiction of 35 the court where notice is required by this Code or by rule, 36 and in proceedings to construe probated wills or determine 37 heirs which concern estates that have not been and cannot 38 now be opened for administration, interested persons may be 39 bound by the orders of the court in respect to property in or

[143] 123 1 subject to the laws of this State by notice in conformity with 2 Section 621401. An order is binding as to all who are given 3 notice of the proceeding though less than all interested 4 persons are notified. 5 6 REPORTER’S COMMENT 7 The notice provisions of this section cover all proceedings 8 within the exclusive jurisdiction of the probate court where 9 notice is required by this Code or by rule. Notice provisions 10 also apply to proceedings to construe probated wills or to 11 determine heirs in an intestate estate which has not been and 12 cannot be opened for administration due to time limitations. 13 Thus, this section and the exceptions to the time limitations 14 of Section 623108 make it clear that proceedings to construe 15 a probated will or to determine heirs of intestates may be 16 commenced more than ten years after death. Notice may be 17 given to less than all interested persons but is binding upon 18 only those who are given notice. 19 For the time and method of giving notice, see Section 20 621401; and waiver of notice, Section 621402. 21 22 Section 623107. Unless administration under Part 5 23 [Sections 623501 et seq.] is involved, (1) each proceeding 24 before the court is independent of any other proceeding 25 involving the same estate; (2) petitions for formal orders of 26 the court may combine various requests for relief in a single 27 proceeding if the orders sought may be finally granted 28 without delay, but, except as required for proceedings which 29 are particularly described by other sections of this article 30 [Sections 623101 et seq.], no petition is defective because it 31 fails to embrace all matters which might then be the subject 32 of a final order; (3) proceedings for probate of wills or 33 adjudications of no will may be combined with proceedings 34 for appointment of personal representatives; and (4) a 35 proceeding for appointment of a personal representative is 36 concluded by an order making or declining the appointment. 37 38 REPORTER’S COMMENT

[143] 124 1 This section and the other provisions of this article are 2 designed to establish a flexible system of administration of 3 decedents’ estates which permits interested persons to 4 determine the extent to which matters relating to estates 5 become the subjects of judicial orders. 6 Administration under Part 5, Sections 623501, et seq., is a 7 single proceeding for judicial determination of testacy, 8 priority, and qualification for appointment as personal 9 representative and administration and settlement of 10 decedents’ estates. Section 623107 applies to all other 11 proceedings except those which are particularly described in 12 other sections of this article. With the exceptions stated, 13 proceedings for probate of wills and adjudication of intestacy 14 may be combined with proceedings for appointment of 15 personal representatives. Jurisdiction over interested persons 16 is facilitated by Sections 623106 and 623602. Venue is 17 determined by Section 623201. 18 Except in circumstances which permit appointment of a 19 special administrator, Section 623614, a personal 20 representative may not be appointed unless the will to which 21 the requested appointment relates has been formally or 22 informally probated, Sections 623308, 623402, and 623414. 23 24 Section 623108. No informal probate or appointment 25 proceeding or formal testacy or appointment proceeding, 26 other than a proceeding to probate a will previously probated 27 at the testator’s domicile and appointment proceedings 28 relating to an estate in which there has been a prior 29 appointment, may be commenced more than ten years after 30 the decedent’s death, except (1) if a previous proceeding was 31 dismissed because of doubt about the fact of the decedent’s 32 death, appropriate probate, appointment, or testacy 33 proceedings may be maintained at any time thereafter upon a 34 finding that the decedent’s death occurred prior to the 35 initiation of the previous proceeding and the applicant or 36 petitioner has not delayed unduly in initiating the subsequent 37 proceeding and if that previous proceeding was commenced 38 within the time limits of this section; (2) appropriate probate, 39 appointment, or testacy proceedings may be maintained in

[143] 125 1 relation to the estate of an absent, disappeared, or missing 2 person for whose estate a conservator has been appointed, at 3 any time within three years after the conservator becomes 4 able to establish the death of the protected person; and (3) a 5 proceeding to contest an informally probated will and to 6 secure appointment of the person with legal priority for 7 appointment in the event the contest is successful may be 8 commenced within the later of eight months from the 9 informal probate or one year from the decedent’s death. If no 10 informal probate and no formal testacy proceedings are 11 commenced within ten years after the decedent’s death, and 12 no proceedings under (2) above are commenced within the 13 applicable period of three years, it is incontestable that the 14 decedent left no will and that the decedent’s estate passes by 15 intestate succession. These limitations do not apply to 16 proceedings to construe probated wills or determine heirs of 17 an intestate. In cases under (1) or (2) above, the date on 18 which a testacy or appointment proceeding is properly 19 commenced is deemed to be the date of the decedent’s death 20 for purposes of other limitations provisions of this Code 21 which relate to the date of death. 22 (A)(1) No informal probate or appointment proceeding or 23 formal testacy or appointment proceeding, other than a 24 proceeding to probate a will previously probated at the 25 testator’s domicile and appointment proceedings relating to 26 an estate in which there has been a prior appointment, may be 27 commenced more than ten years after the decedent’s death. 28 (2) Notwithstanding any other provision of this section: 29 (a) if a previous proceeding was dismissed because of 30 doubt about the fact of the decedent’s death, appropriate 31 probate, appointment, or testacy proceedings may be 32 maintained at any time upon a finding that the decedent’s 33 death occurred prior to the initiation of the previous 34 proceeding and the applicant or petitioner has not delayed 35 unduly in initiating the subsequent proceeding and if that 36 previous proceeding was commenced within the time limits 37 of this section; 38 (b) appropriate probate, appointment, or testacy 39 proceedings may be maintained in relation to the estate of an

[143] 126 1 absent, disappeared, or missing person for whose estate a 2 conservator has been appointed, at any time within three 3 years after the conservator becomes able to establish the 4 death of the protected person; and 5 (c) a proceeding to contest an informally probated 6 will and to secure appointment of the person with legal 7 priority for appointment in the event the contest is successful 8 may be commenced within eight months from informal 9 probate or one year from the decedent’s death, whichever is 10 later. 11 (B) If no informal probate and no formal testacy 12 proceedings are commenced within ten years after the 13 decedent’s death, and no proceedings under subsection (A) 14 (2)(b) are commenced within the applicable period of three 15 years, it is incontestable that the decedent left no will and that 16 the decedent’s estate passes by intestate succession. These 17 limitations do not apply to proceedings to construe probated 18 wills or determine heirs of an intestate. In proceedings 19 commenced under subsection (A)(2)(a) or (A)(2)(b), the date 20 on which a testacy or appointment proceeding is properly 21 commenced is deemed to be the date of the decedent’s death 22 for purposes of other limitations provisions of this Code 23 which relate to the date of death. 24 25 REPORTER’S COMMENT 26 This section establishes a time limitation of ten years after a 27 decedent’s death for commencement of any proceeding to 28 determine whether a decedent died testate or for commencing 29 administration of his estate, with the following exceptions: 30 (1) a proceeding to probate a will previously probated in 31 testator’s domicile; 32 (2) appointment proceedings relating to an estate in which 33 there has been a prior appointment; 34 (3) if a previous proceeding was dismissed because of 35 doubt about the fact of death, and if decedent’s death in fact 36 occurred prior to commencement of the previous proceeding, 37 and if there has been no undue delay in commencing the 38 subsequent proceeding;

[143] 127 1 (4) if the decedent was a protected person, as an absent, 2 disappeared, or missing person for whose estate a 3 conservator has been appointed, and if the proceeding is 4 commenced within three years after the conservator is able to 5 establish the death of the protected person; or 6 (5) a proceeding to contest an informally probated will 7 and appointment if the contest is successful, may be 8 commenced within the later of eight months from informal 9 probate or one year from the decedent’s death. 10 These limitations do not apply to proceedings to construe 11 wills or to determine heirs of an intestate. 12 If no will is probated within ten years from death, or within 13 the time permitted by one of the exceptions, this section 14 makes the assumption of intestacy final. 15 If a will has been probated informally within ten years, this 16 section makes the informal probate conclusive within one 17 year from death or eight months from informal probate, 18 whichever is later. The limitation period prescribed applies 19 to all persons including those under disability. 20 Interested persons can protect themselves against changes 21 within the period of doubt concerning whether a person died 22 testate or intestate by commencing at an earlier date a formal 23 proceeding, Sections 623401, 623402. 24 Protection to a personal representative appointed after 25 informal probate of a will or informally issued letters of 26 administration, but which is subject to change in a 27 subsequent formal proceeding commenced within the 28 limitations prescribed, is afforded under Section 623703. 29 Distributees who receive distributions from an estate 30 before the expiration of the period remain potentially liable 31 to those determined to be entitled in properly commenced 32 formal proceedings, Section 623909, 6231006. 33 Purchasers from the personal representative or a distributee 34 may be protected without regard to whether the period has 35 run, Sections 623714, 623910. 36 Creditors’ claims are barred against the personal 37 representative, heirs, and devisees after one year from date of 38 death in any event. Section 623803(a). 39

[143] 128 1 Section 623109. The running of any statute of limitations 2 on a cause of action belonging to a decedent which had not 3 been barred as of the date of his death is suspended during 4 the eight months following the decedent’s death but resumes 5 thereafter unless otherwise tolled. 6 7 REPORTER’S COMMENT 8 Any statute of limitations running on a decedent’s cause of 9 action surviving decedent, which had not been barred at 10 decedent’s death, is tolled for eight months after decedent’s 11 death. This section has the effect of extending the running of 12 a statute of limitations with respect to a cause of action 13 surviving decedent for eight months from the time when it 14 would have run, if the action had not been barred at 15 decedent’s death. 16 For the tolling or suspension of any statute of limitations 17 running on a cause of action against decedent for the eight 18 months following decedent’s death, see Section 623802. 19 20 Part 2 21 22 Venue for Probate and Administration; Priority to 23 Administer; Demand for Notice 24 25 Section 623201. (a) Venue for the first informal or 26 formal testacy or appointment proceedings after a decedent’s 27 death is: 28 (1) in the county where the decedent had his domicile at 29 the time of his death; or 30 (2) if the decedent was not domiciled in this State, in 31 any county where property of the decedent was located at the 32 time of his death. 33 (b) Venue for all subsequent proceedings within the 34 exclusive jurisdiction of the court is in the place where the 35 initial proceeding occurred, unless the initial proceeding has 36 been transferred as provided in Section 621303 or (c) of this 37 section. 38 (c) If the first proceeding was informal, on application of 39 an interested person and after notice to the proponent in the

[143] 129 1 first proceeding, the court, upon finding that venue is 2 elsewhere, may transfer the proceeding and the file to the 3 other court. 4 (d) For the purpose of aiding determinations concerning 5 location of assets which may be relevant in cases involving 6 nondomiciliaries, a debt, other than one evidenced by 7 investment or commercial paper or other instrument in favor 8 of a nondomiciliary, is located where the debtor resides or, if 9 the debtor is a person other than an individual, at the place 10 where it has its principal office. Commercial paper, 11 investment paper, and other instruments are located where 12 the instrument is. An interest in property held in trust is 13 located where the trustee may be sued. 14 15 REPORTER’S COMMENT 16 Venue for the first informal or formal testacy and 17 appointment proceedings and subsequent proceedings is 18 established in Section 623201. For domiciliaries, venue is 19 the county of domicile. For decedents not domiciled in this 20 State, venue is in any county where property of the decedent 21 was located. 22 If proceedings concerning the same estate are commenced in 23 more than one court of this State, the court in which the 24 proceeding was first commenced makes the finding of proper 25 venue, Sections 623201, 621303. Upon finding that venue is 26 elsewhere, the court in which the first proceeding was filed 27 may transfer the proceeding to some other court, Section 28 623201(c). Where a proceeding could be maintained in more 29 than one court in this State, the court in which the first 30 proceeding was commenced has the exclusive right to 31 proceed or to transfer, Section 621303. 32 33 Section 623202. If conflicting claims as to the domicile of 34 a decedent are made in a formal testacy or appointment 35 proceeding commenced in this State, and in a testacy or 36 appointment proceeding after notice pending at the same time 37 in another state, the court of this State must stay, dismiss, or 38 permit suitable amendment in, the proceeding here unless it 39 is determined that the local proceeding was commenced

[143] 130 1 before the proceeding elsewhere. The determination of 2 domicile in the proceeding first commenced must be 3 accepted as determinative in the proceeding in this State. 4 5 REPORTER’S COMMENT 6 Conflicting claims of domicile arising in a formal testacy or 7 appointment proceeding in a court of this State and a testacy 8 or appointment proceeding after notice pending in another 9 state are resolved by the court in which the first proceeding 10 was commenced. 11 12 Section 623203. (a) Whether the proceedings are formal 13 or informal, persons who are not disqualified have priority 14 for appointment in the following order: 15 (1) the person with priority as determined by a probated 16 will including a person nominated by a power conferred in a 17 will; 18 (2) the surviving spouse of the decedent who is a 19 devisee of the decedent; 20 (3) other devisees of the decedent; 21 (4) the surviving spouse of the decedent; 22 (5) other heirs of the decedent regardless of whether the 23 decedent died intestate and determined as if the decedent 24 died intestate (for the purposes of determining priority under 25 this item, any heirs who could have qualified under items (1), 26 (2), (3), and (4) of subsection (a) are treated as having 27 predeceased the decedent); 28 (6) fortyfive days after the death of the decedent, any 29 creditor complying with the requirements of Section 30 623804(1)(b); 31 (7) four months after the death of the decedent, upon 32 application by the South Carolina Department of Revenue, a 33 person suitable to the court. 34 (8) Unless a contrary intent is expressed in the 35 decedent’s will, a person with priority under subsection (a) 36 may nominate another, who shall have the same priority as 37 the person making the nomination, except that a person 38 nominated by the testator to serve as personal representative

[143] 131 1 or successor personal representative shall have a higher 2 priority than a person nominated pursuant to this item. 3 (b) An objection to an appointment can be made only in 4 formal proceedings. In case of objection the priorities stated 5 in (a) apply except that: 6 (1) if the estate appears to be more than adequate to 7 meet exemptions and costs of administration but inadequate 8 to discharge anticipated unsecured claims, the court, on 9 petition of creditors, may appoint any qualified person; 10 (2) in case of objection to appointment of a person other 11 than one whose priority is determined by will by an heir or 12 devisee appearing to have a substantial interest in the estate, 13 the court may appoint a person who is acceptable to heirs and 14 devisees whose interests in the estate appear to be worth in 15 total more than half of the probable distributable value or, in 16 default of this accord, any suitable person. 17 (c) Conservators of the estates of protected persons or, if 18 there is no conservator, any guardian for the protected person 19 or the custodial parent of a minor, except a court appointed 20 guardian ad litem of a minor or incapacitated person may 21 exercise the same right to be appointed as personal 22 representative, to object to another’s appointment, or to 23 participate in determining the preference of a majority in 24 interest of the heirs and devisees that the protected person or 25 ward would have if qualified for appointment. 26 (d) Appointment of one who does not have priority may 27 be made in formal or informal proceedings. Before 28 appointing one without priority, the court must determine 29 that those having priority, although given notice of the 30 proceedings, have failed to request appointment or to 31 nominate another for appointment, and that administration is 32 necessary. If the administration is necessary, appointment of 33 one who has equal or lower priority may be made as follows 34 within the discretion of the court: 35 (1) informally if all those of equal or higher priority 36 have filed a writing with the court renouncing the right to 37 serve and nominating the same person in his place; or 38 (2) in the absence of agreement, informally in 39 accordance with the requirements of Section 623310; or

[143] 132 1 (3) in formal proceedings. 2 (e) No person is qualified to serve as a personal 3 representative who is: 4 (1) under the age of eighteen; 5 (2) a person whom the court finds unsuitable in formal 6 proceedings; 7 (3) with respect to the estate of any person domiciled in 8 this State at the time of his death, a corporation created by 9 another state of the United States or by any foreign state, 10 kingdom or government, or a corporation created under the 11 laws of the United States and not having a business in this 12 State, or an officer, employee, or agent of such foreign 13 corporation, whether the officer, employee, or agent is a 14 resident or a nonresident of this State, if such officer, 15 employee, or agent is acting as personal representative on 16 behalf of such corporation; 17 (4) a probate judge for an estate of any person within 18 his jurisdiction, except as provided in Section 6231202A ; 19 however, a probate judge may serve as a personal 20 representative of the estate of a family member if the service 21 does not interfere with the proper performance of the probate 22 judge’s official duties and the estate must be transferred to 23 another county for administration. For purposes of this 24 subsection, ‘family member’ means a spouse, parent, child, 25 brother, sister, aunt, uncle, niece, nephew, motherinlaw, 26 fatherinlaw, soninlaw, daughterinlaw, grandparent, or 27 grandchild. 28 (f) A personal representative appointed by a court of the 29 decedent’s domicile has priority over all other persons except 30 where the decedent’s will nominates different persons to be 31 personal representatives in this State and in the state of 32 domicile. The domiciliary personal representative may 33 nominate another, who shall have the same priority as the 34 domiciliary personal representative. 35 (g) This section governs priority for appointment of a 36 successor personal representative but does not apply to the 37 selection of a special administrator. 38 (h) If it comes to the knowledge of a probate judge that 39 any person within his jurisdiction has died leaving an estate

[143] 133 1 upon which no application has been made for appointment or 2 no personal representative appointed or no will offered for 3 probate or appointment granted, he must, immediately after 4 the lapse of four months from the death of such person, 5 notify the South Carolina Department of Revenue thereof 6 together with his opinion as to whether or not any part of the 7 estate is likely to be taxable.” 8 9 REPORTER’S COMMENT 10 The priorities of the right to appointment as personal 11 representative or successor personal representative (but not 12 special administrator, Sections 623203(b), 623615) are, in 13 order, a person determined by a probated will, a spouse who 14 is a devisee, other devisees, a spouse who is not a devisee, 15 other heirs, and, after fortyfive days after death, a creditor, 16 Section 623203(a). Objections to appointment can be made 17 only in formal proceedings, Section 623203(b). 18 Conservators or guardians of protected persons may exercise 19 the same right to nominate for or object to appointment 20 which the protected person would have if qualified, Section 21 623203(c). Persons disqualified include persons under age 22 eighteen, those found unsuitable by the court, and foreign 23 corporations not having a place of business in this State, 24 Section 623203(e). 25 The 2010 amendment revised subsection (d) to eliminate 26 certain language as to ‘priority resulting from renunciation or 27 waiver,’ and adding ‘or informal’ proceedings. The prior 28 version of subsection (d) provided for only a formal 29 proceeding. The 2010 amendment allows one who does not 30 have priority to pursue either a formal proceeding (requiring 31 summons and petition) or an informal proceeding (does not 32 require summons and petition) for appointment. See Section 33 623310 for informal appointments to one who does not have 34 priority. See 2010 amendments for certain definitions in 35 §621201. 36 The 2013 amendment to Section 623203(6) relates to the 37 process for a creditor seeking appointment as personal 38 representative. Pursuant to Section 623804(1)(b), a creditor

[143] 134 1 seeking appointment must attach a written statement of the 2 claim to the application or petition for appointment. 3 4 Section 623204. Any interested person desiring notice of 5 any order or filing pertaining to a decedent’s estate may file a 6 demand for notice with the court at any time after the death 7 of the decedent stating the name of the decedent, the nature 8 of his interest in the estate, and the demandant’s address or 9 that of his attorney. The demand for notice shall expire one 10 year from the date of filing with the court. The clerk shall 11 mail a copy of the demand to the personal representative if 12 one has been appointed. After filing of a demand, the 13 personal representative must give a copy of the demanded 14 filing to the demandant or his attorney. If the demand is a 15 demand for a hearing, then the personal representative must 16 comply with no order or filing to which the demand relates 17 may be made or accepted without notice as prescribed in 18 Section 621401 to the demandant or his attorney. The 19 validity of an order which is issued or filing which is 20 accepted without compliance with this requirement is not 21 affected by the error, but the petitioner receiving the order or 22 the person making the filing may be liable for any damage 23 caused by the absence of notice. The requirement of notice 24 arising from a demand under this provision may be waived in 25 writing by the demandant and ceases upon the termination of 26 his interest in the estate. 27 28 REPORTER’S COMMENT 29 Interested persons may file a demand for notice, requiring 30 notice to be given to them or their attorneys. The 2013 31 amendment clarifies that a court may issue an order and 32 accept a filing while a demand for notice is effective. 33 As to the method and time of giving the notice referred to, 34 see Section 621401. 35 36 Part 3 37 38 Informal Probate and Appointment Proceedings 39

[143] 135 1 Section 623301. (a) Applications for informal probate or 2 informal appointment shall be directed to the court, and 3 verified by the applicant to be accurate and complete to the 4 best of his knowledge and belief as to the following 5 information: 6 (1) Every application for informal probate of a will or 7 for informal appointment of a personal representative, other 8 than a special or successor representative, shall contain the 9 following: 10 (i) a statement of the interest of the applicant; 11 (ii) the name, and date of death of the decedent, his 12 age, and the county and state of his domicile at the time of 13 death, and the names and addresses of the spouse, children, 14 heirs (regardless of whether the decedent died intestate and 15 determined as if the decedent died intestate) and devisees, 16 and the ages of any who are minors so far as known or 17 ascertainable with reasonable diligence by the applicant; 18 (iii) if the decedent was not domiciled in the State at 19 the time of his death, a statement showing venue; 20 (iv) a statement identifying and indicating the address 21 of any personal representative of the decedent appointed in 22 this State or elsewhere whose appointment has not been 23 terminated; 24 (v) a statement indicating whether the applicant has 25 received a demand for notice, or is aware of a demand for 26 notice of any probate or appointment proceeding concerning 27 the decedent that may have been filed in this State or 28 elsewhere; and 29 (vi) that the time limit for informal probate or 30 appointment as provided in this article has not expired either 31 because ten years or less has passed since the decedent’s 32 death, or, if more than ten years from death have passed, 33 circumstances as described by Section 623108 authorizing 34 tardy probate or appointment have occurred;. 35 (vii)such further information as may be prescribed by 36 the South Carolina Department of Revenue pursuant to 37 Sections 1215510 and 1215540 of the 1976 Code.

[143] 136 1 (2) An application for informal probate of a will shall 2 state the following in addition to the statements required by 3 (1): 4 (i) that the original of the decedent’s last will is in 5 the possession of the court, or accompanies the application, 6 or that an authenticated copy of a will probated in another 7 jurisdiction accompanies the application; 8 (ii) that the applicant, to the best of his knowledge, 9 believes the will to have been validly executed; 10 (iii) that after the exercise of reasonable diligence, the 11 applicant is unaware of any instrument revoking the will, and 12 that the applicant believes that the instrument which is the 13 subject of the application is the decedent’s last will. 14 (3) An application for informal appointment of a 15 personal representative to administer an estate under a will 16 shall describe the will by date of execution and state the time 17 and place of probate or the pending application or petition for 18 probate. The application for appointment shall adopt the 19 statements in the application or petition for probate and state 20 the name, address, and priority for appointment of the person 21 whose appointment is sought. 22 (4) An application for informal appointment of an 23 administrator in intestacy must state the name and address of 24 the person whose appointment is sought and must state in 25 addition to the statements required by item (1): 26 (i) that after the exercise of reasonable diligence, 27 the applicant is unaware of any unrevoked testamentary 28 instrument relating to property having a situs in this State 29 under Section Section 621301 or a statement why any such 30 instrument of which he may be aware is not being probated; 31 (ii) the priority of the person whose appointment is 32 sought and the names of any other persons having a prior or 33 equal right to the appointment under Section 623203. 34 (5) An application for appointment of a personal 35 representative to succeed a personal representative appointed 36 under a different testacy status shall refer to the order in the 37 most recent testacy proceeding, state the name and address of 38 the person whose appointment is sought and of the person

[143] 137 1 whose appointment will be terminated if the application is 2 granted, and describe the priority of the applicant. 3 (6) An application for appointment of a personal 4 representative to succeed a personal representative who has 5 tendered a resignation as provided in Section 623610(c), or 6 whose appointment has been terminated by death or removal, 7 shall adopt the statements in the application or petition which 8 led to the appointment of the person being succeeded except 9 as specifically changed or corrected, state the name and 10 address of the person who seeks appointment as successor, 11 and describe the priority of the applicant. 12 (7) The court may probate a will without appointing a 13 personal representative. 14 (b) By verifying an application for informal probate, or 15 informal appointment, the applicant submits personally to the 16 jurisdiction of the court in any proceeding for relief from 17 fraud relating to the application, or for perjury, that may be 18 instituted against him. 19 20 REPORTER’S COMMENT 21 This section prescribes the contents of the application for the 22 informal probate of a will or for the informal appointment of 23 a personal representative. The proofs and findings required 24 for issuance of any order of informal probate or informal 25 appointment are contained in Sections 623303 and 623308. 26 This section requires that the application be verified, 27 623301(a) and (b). The application is a part of the public 28 record. Persons injured by deliberately false representation 29 may invoke remedies for fraud without any specified time 30 limit (See Article 1). 31 This section allows the court to probate a will without 32 appointing a personal representative. Further, it allows the 33 court to appoint a personal representative without notice. 34 35 Section 623302. Upon receipt of an application requesting 36 informal probate of a will, the court, upon making the 37 findings required by Section 623303, shall issue a written 38 statement of informal probate. Informal probate is 39 conclusive as to all persons until superseded by an order in a

[143] 138 1 formal testacy proceeding. No defect in the application or 2 procedure relating thereto which leads to informal probate of 3 a will renders the probate void. 4 5 REPORTER’S COMMENT 6 ‘Informal Probate’ is designed to keep the vast majority of 7 wills, which are simple and generate no controversy, from 8 becoming involved in truly judicial proceedings. An order of 9 informal probate makes the will operative and may be the 10 only official action concerning its validity. The order is 11 subjected to the safeguards which seem appropriate to this 12 transaction. 13 14 Section 623303. (a) In an informal proceeding for original 15 probate of a will, the court shall determine whether: 16 (1) the application is complete; 17 (2) the applicant has made oath or affirmation that the 18 statements contained in the application are true to the best of 19 his knowledge and belief; 20 (3) the applicant appears from the application to be an 21 interested person as defined in Section 621201(20); 22 (4) on the basis of the statements in the application, 23 venue is proper; 24 (5) an original, duly executed and apparently unrevoked 25 will is in the court’s possession; 26 (6) any notice required by Section 623204 has been 27 given and that the application is not within Section 623304; 28 (7) it appears from the application that the time limit for 29 original probate has not expired. 30 (b) The application shall be denied if it indicates that a 31 personal representative has been appointed in another county 32 of this State or except as provided in subsection (d) below, if 33 it appears that this or another will of the decedent has been 34 the subject of a previous probate order. 35 (c) A will which appears to have the required signatures 36 and which contains an attestation clause showing that 37 requirements of execution under Section 622502 or 622505 38 have been met shall be probated without further proof. In 39 other cases, the court may assume execution if the will

[143] 139 1 appears to have been properly executed, or he may accept a 2 sworn statement or affidavit of any person having knowledge 3 of the circumstances of execution, whether or not the person 4 was a witness to the will. 5 (d) Informal probate of a will which has been previously 6 probated elsewhere may be granted at any time upon written 7 application by any interested person, together with deposit of 8 an authenticated copy of the will and of the statement 9 probating it from the office or court where it was first 10 probated. 11 (e) A will from a place which does not provide for 12 probate of a will after death and which is not eligible for 13 probate under subsection (a) above, may be probated in this 14 State upon receipt by the court of a duly authenticated copy 15 of the will and a duly authenticated certificate of its legal 16 custodian that the copy filed is a true copy and that the will 17 has become operative under the law of the other place. A will 18 of a nonresident decedent which has not been probated and is 19 not eligible for probate under subsection (a)(5) may 20 nevertheless be probated in this State upon receipt by the 21 court of a copy of the will authenticated as true by its legal 22 custodian together with the legal custodian’s certificate that 23 the will is not ineligible for probate under the law of the other 24 place. 25 26 REPORTER’S COMMENT 27 This section lists the proofs and findings required to be made 28 by the court as a part of an order of informal probate. 29 The purpose of subparagraph (c) of the section is to permit 30 the informal probate of a will which, from a simple 31 attestation clause, appears to have been executed properly. It 32 is not necessary that the will be notarized or selfproved. If 33 the will has been made selfproved under Section 622503 it 34 will of course ‘appear’ to be well executed and will include 35 the recitals necessary for ease of probate under this section. 36 This section does not require that the court examine one or 37 both of the subscribing witnesses to the will. Any interested 38 person who desires more rigorous proof of due execution 39 may commence a formal testacy proceeding.

[143] 140 1 Note the provision of subparagraph (b) that informal probate 2 is generally unavailable if there has been a previous probate 3 of this or another will, unless, as under subparagraph (d), 4 ancillary probate is desired. 5 6 Section 623304. Applications for informal probate which 7 relate to one or more of a known series of testamentary 8 instruments (other than a will and its codicils), the latest of 9 which does not expressly revoke the earlier, shall be 10 declined. 11 12 REPORTER’S COMMENT 13 The court is required to decline applications for informal 14 probate in the circumstances specified in this section where a 15 formal proceeding with notice and hearing would provide a 16 desirable safeguard. 17 18 Section 623305. If the court is not satisfied that a will is 19 entitled to be probated in informal proceedings because of 20 failure to meet the requirements of Sections 623303 and 21 623304 or any other reason, he may decline the application. 22 A declination of informal probate is not an adjudication and 23 does not preclude formal probate proceedings. 24 25 REPORTER’S COMMENT 26 This section confers upon the court the discretion to deny 27 probate to an instrument even though all of the statutory 28 requirements have arguably been met. The denial of an 29 application for informal probate does not give rise to a right 30 of appeal. The proponent of the will is left with the option of 31 initiating a formal testacy proceeding. 32 33 Section 623306. (a) The moving party must give notice 34 as described by Section 621401 of his application for 35 informal probate to any person demanding it pursuant to 36 Section 623204, and to any personal representative of the 37 decedent whose appointment has not been terminated. No 38 other notice of informal probate is required.

[143] 141 1 (b) If an informal probate is granted, within thirty days 2 thereafter the applicant shall give written information of the 3 probate to the heirs (determined as if the decedent died 4 intestate) and devisees. The information must include the 5 name and address of the applicant, the date of execution of 6 the will, and any codicil thereto, the name and location of the 7 court granting the informal probate, and the date of the 8 probate. The information must be delivered or sent by 9 ordinary mail to each of the heirs and devisees whose address 10 is reasonably available to the applicant. No duty to give 11 information is incurred if a personal representative is 12 appointed who is required to give the written information 13 required by Section 623705. An applicant’s failure to give 14 information as required by this section is a breach of his duty 15 to the heirs and devisees but does not affect the validity of 16 the probate. 17 18 REPORTER’S COMMENT 19 The party seeking informal probate of a will (who may or 20 may not be seeking informal appointment as personal 21 representative) must give notice of his application for 22 informal probate, presumably at the time he makes his 23 application. The notice must be given to any personal 24 representative of the decedent whose appointment has not 25 been terminated, and to any other person who demands 26 notice pursuant to Section 623204. Section 623204 27 prescribes that a person demanding notice under that section 28 must have ‘a financial or property interest.’ The notice must 29 be in conformity with Section 621401, which provides that a 30 notice may be given by certified, registered, or ordinary first 31 class mail, by personal service, or if the address or identity of 32 the person sought to be notified cannot be ascertained, by 33 publication. 34 As to notice after informal probate is granted, the 35 requirement in subsection (b) of giving written information 36 of the probate to heirs and devisees is unnecessary if a 37 personal representative is appointed who is required to give 38 the written information required by Section 623705. This 39 latter section provides that every personal representative

[143] 142 1 except any special administrator must give written 2 information of his appointment to heirs and devisees. The 3 information requirement of Section 623306(b) is effectively 4 limited to those circumstances where an informal probate is 5 granted but no personal representative is appointed. The 6 term ‘heirs and devisees’ appears to encompass not only 7 those persons who take by virtue of a probated will, but also 8 those persons who would have been the decedent’s heirs had 9 he died intestate. 10 11 Section 623307. (a) Upon receipt of an application for 12 informal appointment of a personal representative other than 13 a special administrator as provided in Section 623614, the 14 court, after making the findings required by Section 623308, 15 shall appoint the applicant subject to qualification and 16 acceptance; provided, that if the decedent was a nonresident, 17 the court shall delay the order of appointment until thirty 18 days have elapsed since death unless the personal 19 representative appointed at the decedent’s domicile is the 20 applicant, or unless the decedent’s will directs that his estate 21 be subject to the laws of this State. 22 (b) The status of a personal representative and the powers 23 and duties pertaining to the office are fully established by 24 informal appointment. An appointment, and the office of 25 personal representative created thereby, is subject to 26 termination as provided in Sections 623608 through 623612, 27 but is not subject to retroactive vacation. 28 29 REPORTER’S COMMENT 30 This section and those that follow establish the mechanism 31 for informal appointment of a personal representative. 32 The thirty day waiting period in the case of a nonresident 33 decedent is designed to permit the first appointment to be at 34 the decedent’s domicile and presumably, to allow the 35 domiciliary personal representative to then seek appointment 36 in this State. 37 38 Section 623308. (a) In informal appointment 39 proceedings, the court must determine whether:

[143] 143 1 (1) the application for informal appointment of a 2 personal representative is complete; 3 (2) the applicant has made oath or affirmation that the 4 statements contained in the application are true to the best of 5 his knowledge and belief; 6 (3) the applicant appears from the application to be an 7 interested person as defined in Section 621201(20); 8 (4) on the basis of the statements in the application, 9 venue is proper; 10 (5) any will to which the requested appointment relates 11 has been formally or informally probated; but this 12 requirement does not apply to the appointment of a special 13 administrator; 14 (6) any notice required by Section 623204 has been 15 given; 16 (7) from the statements in the application, the person 17 whose appointment is sought has priority entitling him to the 18 appointment. 19 (b) Unless Section 623612 controls, the application must 20 be denied if it indicates that a personal representative who 21 has not filed a written statement of resignation as provided in 22 Section 623610(c) has been appointed in this or another 23 county of this State, that (unless the applicant is the 24 domiciliary personal representative or his nominee) the 25 decedent was not domiciled in this State and that a personal 26 representative whose appointment has not been terminated 27 has been appointed by a court in the state of domicile, or that 28 other requirements of this section have not been met. 29 30 REPORTER’S COMMENTS 31 Subsection (a) sets out those findings required of the court in 32 an order of informal appointment of a personal 33 representative. Of particular importance is the finding that 34 any will to which the requested appointment relates has been 35 formally or informally probated. As noted in the comment to 36 Section 623301, this Code allows the court to probate a will 37 without appointing a personal representative. However, the 38 effect of subsection (a) is that while the court may probate a 39 will without appointing the personal representative

[143] 144 1 designated in that will, it cannot informally appoint the 2 personal representative without a prior formal or informal 3 probate of the will to which the personal representative’s 4 appointment relates. 5 The court must enter a finding that the person appears to 6 have priority entitling him to appointment. Section 623203 7 establishes priority among persons seeking appointment as 8 personal representative. 9 Subsection (b) sets out certain circumstances in which the 10 application must be denied. The first such circumstance is 11 where another personal representative has been appointed in 12 this or another county of this State, except under the special 13 situation of Section 623612. The second such circumstance 14 is in the case of a nondomiciliary decedent. Here, the section 15 is designed to prevent informal appointment of a personal 16 representative in this State when a personal representative 17 has been previously appointed at the decedent’s domicile. 18 Sections 624201, 624204, and 624205 may make local 19 appointment unnecessary. 20 21 Section 623309. If the court is not satisfied that a 22 requested informal appointment of a personal representative 23 should be made because of failure to meet the requirements 24 of Sections 623307 and 623308 or, for any other reason, he 25 may decline the application. A declination of informal 26 appointment is not an adjudication and does not preclude 27 appointment in formal proceedings. 28 29 REPORTER’S COMMENT 30 Because the appointment of a personal representative confers 31 broad powers over the assets of the decedent’s estate, the 32 authority granted the court to deny the appointment for 33 unclassified reasons is an important safeguard. 34 35 Section 623310. The moving party must give notice as 36 described by Section 621401 of his intention to seek an 37 appointment informally: (1) to any person demanding it 38 pursuant to Section 623204; and (2) to any person having a 39 prior or equal right to appointment not waived in writing and

[143] 145 1 filed with the court. No other notice of an informal 2 appointment proceeding is required. The applicant must give 3 notice of his intention to seek an appointment informally to 4 any person having equal right to appointment not waived in 5 writing and filed with the court. The notice shall state that, if 6 no objection or nomination of another or no competing 7 application or petition for appointment is filed with the court 8 within thirty days from mailing of the application and notice, 9 the applicant may be appointed informally as the personal 10 representative. If an objection, nomination, application, or 11 petition is filed within the thirty day period, the court shall 12 decline the initial application pursuant to Section 623309. 13 The court may require the formal proceedings to appoint 14 someone of equal or lesser priority. 15 16 REPORTER’S COMMENT 17 This section requires that the party seeking informal 18 appointment must give notice to any person having equal 19 right to appointment. It provides a fortyfive day period in 20 which a person with equal right of appointment may respond. 21 22 Section 623311. If an application for informal 23 appointment indicates the existence of a possible unrevoked 24 testamentary instrument which may relate to property subject 25 to the laws of this State, and which is not filed for probate in 26 this court, the court shall decline the application. 27 28 REPORTER’S COMMENT 29 This section is the counterpart of Section 623304. Section 30 623301(a)(4) requires that an applicant for informal 31 appointment make certain representations concerning the 32 existence of any unrevoked testamentary instrument. If any 33 such instrument is not being offered for probate by the 34 applicant, nor has been otherwise offered for probate, the 35 court must decline the application for informal appointment. 36 This section is a necessary safeguard against the abuse of the 37 informal process. 38 39 Part 4

[143] 146 1 2 Formal Testacy and Appointment Proceedings 3 4 Section 623401. A formal testacy proceeding is litigation 5 to determine whether a decedent left a valid will. A formal 6 testacy proceeding must be commenced by an interested 7 person filing and serving a summons and a petition as 8 described in Section 623402(a) in which he requests that the 9 court, after notice and hearing, enter an order probating a 10 will, or a petition to set aside an informal probate of a will or 11 to prevent informal probate of a will which is the subject of a 12 pending application, or a petition in accordance with Section 13 623402(b) for an order that the decedent died intestate. 14 A petition may seek formal probate of a will without 15 regard to whether the same or a conflicting will has been 16 informally probated. A formal testacy proceeding may, but 17 need not, involve a request for appointment of a personal 18 representative. 19 During the pendency of a formal testacy proceeding, the 20 court shall not act upon any application for informal probate 21 of any will of the decedent or any application for informal 22 appointment of a personal representative of the decedent. 23 Unless a petition in a formal testacy proceeding also 24 requests confirmation of the previous informal appointment, 25 a previously appointed personal representative, after receipt 26 of notice of the commencement of a formal probate 27 proceeding, must refrain from exercising his power to make 28 any further distribution of the estate during the pendency of 29 the formal proceeding. A petitioner who seeks the 30 appointment of a different personal representative in a formal 31 proceeding also may request an order restraining the acting 32 personal representative from exercising any of the powers of 33 his office and requesting the appointment of a special 34 administrator. In the absence of a request, or if the request is 35 denied, the commencement of a formal proceeding has no 36 effect on the powers and duties of a previously appointed 37 personal representative other than those relating to 38 distribution. 39

[143] 147 1 REPORTER’S COMMENT 2 This section establishes the formal testacy proceeding and 3 prescribes the effect of a formal proceeding on an informal 4 probate proceeding. The word ‘testacy’ as used in this 5 section encompasses any determination with respect to the 6 testacy status of the decedent including that the decedent died 7 without a will. See Section 621201 (48). Although not 8 specifically listed, the six uses for a formal testacy 9 proceeding are: (1) an original proceeding to secure probate 10 of a will; (2) a proceeding to corroborate a previous informal 11 probate; (3) a proceeding to block a pending application for 12 informal probate or to prevent informal application from 13 occurring thereafter; (4) a proceeding to contradict a 14 previous order of informal probate; (5) a proceeding to 15 secure a declaratory judgment of intestacy or partial intestacy 16 and a determination of heirs; (6) a proceeding to probate a 17 will that has been lost, destroyed, or is otherwise unavailable. 18 The pendency of an action under this section automatically 19 suspends any informal probate proceeding. Unless the 20 petitioner requests confirmation of a previous informal 21 appointment, a formal testacy proceeding suspends the 22 personal representative’s power of distribution but has no 23 effect on the representative’s other powers. If the petitioner 24 seeks the appointment of a different personal representative, 25 the court may further restrain the representative’s powers, 26 specifying the court’s power over representatives. See also 27 Sections 623607 and 623611. It should be noted that a 28 ‘distribution’ does not include a payment of claims. See 29 Section 621121(10) for the definition of ‘distributee’ and 30 Section 623807 regarding payment of claims. 31 Under this section, any interested person may initiate a 32 formal testacy proceeding. See Section 621201 (23) for the 33 definition of ‘interested person.’ 34 A formal testacy proceeding need not follow an informal 35 proceeding and can be commenced without regard to whether 36 a personal representative has been appointed. 37 The representative’s power of distribution is automatically 38 suspended upon the representative’s receipt of notice of the 39 proceeding. If there is a contest over who should serve, the

[143] 148 1 court has the discretion to restrict further the representative’s 2 power. 3 The 2010 amendment deleted ‘may’ and replaced it with 4 ‘must’ and added ‘and serving a summons’ to clarify that a 5 summons and petition are required to commence a formal 6 proceeding, including a formal testacy proceeding. See 2010 7 amendments to certain definitions in S.C. Code §621201 and 8 also see §§1423280, 621304, and Rules 1 and 81, SCRCP. 9 10 Section 623402. (a) Petitions for formal probate of a 11 will, or for adjudication of intestacy with or without request 12 for appointment of a personal representative, must be 13 directed to the court, request a judicial order after notice and 14 hearing, and contain further statements as indicated in this 15 section. A petition for formal probate of a will: 16 (1) requests an order as to the testacy of the decedent in 17 relation to a particular instrument which may or may not 18 have been informally probated and determining the heirs; 19 (2) contains the statements required for informal 20 applications as stated in the seven six subitems under Section 21 623301(a)(1), and the statements required by subitems (ii) 22 and (iii) of Section 623301(a)(2); 23 (3) states whether the original of the last will of the 24 decedent is in the possession of the court or accompanies the 25 petition. 26 If the original will is neither in the possession of the court 27 nor accompanies the petition and no authenticated copy of a 28 will probated in another jurisdiction accompanies the 29 petition, the petition also must state the contents of the will, 30 and indicate that it is lost, destroyed, or otherwise 31 unavailable. 32 (b) A petition for adjudication of intestacy and 33 appointment of an administrator in intestacy must request a 34 judicial finding and order that the decedent left no will and 35 determining the heirs, contain the statements required by (1) 36 and (4) of Section 623301(a) and indicate whether 37 administration under Part 5 [Sections 623501 et seq.] is 38 sought. A petition may request an order determining 39 intestacy and heirs without requesting the appointment of an

[143] 149 1 administrator, in which case, the statements required by 2 subitem (ii) of Section 623301(a)(4) above may be omitted. 3 4 REPORTER’S COMMENT 5 An interested person who petitions the court for a formal 6 testacy proceeding must comply with the requirements of this 7 section concerning the contents of the petition. Regardless of 8 whether the formal testacy proceeding concerns a testate or 9 intestate decedent, the petitioner must request an order 10 determining the decedent’s heirs. Requiring the 11 determination of heirship precludes later questions that might 12 arise at the time of distribution. If formal probate of a will is 13 requested, the petition must provide the court with 14 information concerning the location of the original will. If 15 the original is ‘lost, destroyed, or otherwise unavailable, the 16 petition must contain the terms of the missing will. The 17 petition should indicate whether administration under Part 5 18 of this article is desired. Once a formal testacy proceeding 19 has been initiated, notice must be given as specified in 20 Section 623403. 21 If a formal order of appointment is sought because of a 22 dispute over who should serve, Section 623414 describes the 23 appropriate procedure. 24 25 Section 623403. (a) Upon commencement of a formal 26 testacy proceeding or at any time after that, the court shall fix 27 a time and place of hearing. Notice must be given in the 28 manner prescribed by Section 621401 by the petitioner to the 29 persons herein enumerated and to any additional person who 30 has filed a demand for notice under Section 623204. The 31 following persons must be properly served with summons 32 and petition: the surviving spouse, children, and other heirs 33 of the decedent (regardless of whether the decedent died 34 intestate and determined as if the decedent died intestate), the 35 devisees, and personal representatives named in any will that 36 is being, or has been, probated, or offered for informal or 37 formal probate in the county, or that is known by the 38 petitioner to have been probated, or offered for informal or

[143] 150 1 formal probate elsewhere, and any personal representative of 2 the decedent whose appointment has not been terminated. 3 (b) If it appears by the petition or otherwise that the fact 4 of the death of the alleged decedent may be in doubt, or on 5 the written demand of any interested person, a copy of the 6 summons, petition, and notice of the hearing on the petition 7 shall be sent by registered mail to the alleged decedent at his 8 last known address. The court shall direct the petitioner to 9 report the results of, or make and report back concerning, a 10 reasonably diligent search for the alleged decedent in any 11 manner that may seem advisable, including any or all of the 12 following methods: 13 (1) by inserting in one or more suitable periodicals a 14 notice requesting information from any person having 15 knowledge of the whereabouts of the alleged decedent; 16 (2) by notifying law enforcement officials and public 17 welfare agencies in appropriate locations of the 18 disappearance of the alleged decedent; 19 (3) by engaging the services of an investigator. 20 The costs of any search so directed shall be paid by the 21 petitioner if there is no administration or by the estate of the 22 decedent in case there is administration. 23 24 REPORTER’S COMMENT 25 Section 623403(a) specifies those persons to whom notice of 26 a formal testacy proceeding must be given. If another will 27 has been or is being offered for probate within the county, 28 those persons named in that will must be notified. The 29 petitioner is not required to determine whether another will 30 has been probated or offered for probate in other counties, 31 but if the petitioner has actual knowledge of such a will, the 32 devisees and executors named therein must be notified. 33 If the notice which is given does not fully comply with the 34 requirements of this section, that defect is not necessarily 35 fatal to the validity of an order. Section 623106 provides that 36 an order is valid as to those given notice though less than all 37 interested persons were given notice. Section 6231001(b) 38 allows the court to confirm or amend as it affects those

[143] 151 1 persons who were not notified of the formal testacy 2 proceeding. 3 Section 623403(b) sets out the additional steps which must 4 be taken if the fact of the decedent’s death is in doubt. In 5 addition to giving notice to the alleged decedent, the 6 petitioner must make a ‘reasonably diligent search’ for that 7 individual. The court is to determine whether the search has 8 been sufficiently diligent in light of the circumstances. In the 9 event the alleged decedent is in fact alive or if the court is not 10 convinced of the death of the alleged decedent, the petitioner 11 is responsible for the costs of the search. In the event the 12 court finds the alleged decedent is dead, the estate of that 13 decedent will bear the cost of the search. 14 The 2010 amendment revised subsection (a) to add ‘or at 15 any time after that,’ to delete Notice at the beginning of the 16 third sentence and replacing it with ‘The following persons’ 17 and also including the requirement for a summons and 18 petition. The 2010 amendment also revised subsection (b) to 19 clarify that a summons and petition are required to 20 commence a formal proceeding, including a formal testacy 21 proceeding. See 2010 amendments to certain definitions in 22 S.C. Code §621201 and also see §§1423280, 621304, and 23 Rules 1 and 81, SCRCP. 24 25 Section 623404. Any party to a formal proceeding who 26 opposes the probate of a will for any reason shall state in his 27 pleadings his objections to probate of the will. 28 29 REPORTER’S COMMENT 30 In order to object to the formal probate of a will, the 31 objections must be stated in a pleading. The filing of such a 32 response makes the proceeding a contested matter, and a 33 hearing must be held in accordance with Section 623406. 34 35 Section 623405. If a petition in a testacy proceeding is 36 unopposed, the court may order probate or intestacy on the 37 strength of the pleadings if satisfied that the conditions of 38 Section 623409 have been met or conduct a hearing in open 39 court and require proof of the matters necessary to support

[143] 152 1 the order sought. If evidence concerning execution of the 2 will is necessary, the affidavit (including an affidavit of 3 selfproof executed in compliance with Section 622503) or 4 testimony of one of any attesting witnesses to the instrument 5 is sufficient. If the affidavit or testimony of an attesting 6 witness is not available, execution of the will may be proved 7 by other evidence or affidavit. 8 9 REPORTER’S COMMENT 10 If proper notice has been given and no objection has been 11 stated in a pleading, the proceeding is an uncontested one. 12 The court may enter relief on the pleadings alone and without 13 a hearing if the court finds that the alleged decedent is dead, 14 venue is proper, and the proceeding is a timely one. Even in 15 the absence of an objection, the court may require a hearing 16 and evidence concerning the execution of the will. In the 17 latter case, the section provides that the affidavit or testimony 18 of one or more witnesses is sufficient proof of such 19 execution. 20 Section 1423330 establishes a mechanism for the judge to 21 receive the deposition of an attesting witness who lives at a 22 distance from the court. Under Section 623405, the court is 23 given more flexibility in considering evidence of proof of 24 execution of the will in an uncontested proceeding. 25 26 Section 623406. (a) If evidence concerning execution of 27 an attested will which is not selfproved is necessary in 28 contested cases, the testimony of at least one of the attesting 29 witnesses is required. Such testimony is not required if: (1) 30 no attesting witness is within the State; (2) no attesting 31 witness is competent to testify; (3) no attesting witness can 32 be found; or (4) all attesting witnesses are otherwise unable 33 to testify. Due execution of an attested will may be proved 34 by other evidence. 35 (b) If the will is selfproved, compliance with signature 36 requirements for execution and other requirements of 37 execution are presumed subject to rebuttal, without the 38 testimony of any witness upon filing the will and the 39 acknowledgment and affidavits annexed or attached thereto,

[143] 153 1 unless there is proof of fraud or forgery affecting the 2 acknowledgment or affidavit. In a contested case in which 3 the proper execution of a will is at issue: 4 (1) if the will is selfproved pursuant to Section 622503, 5 the will satisfies the requirements for execution, subject to 6 rebuttal, without the testimony of any attesting witness, upon 7 filing the will and the acknowledgment and affidavits 8 annexed or attached to it; 9 (2) if the will is notarized pursuant to Section 622503(c), 10 but not selfproved, there is a rebuttable presumption that the 11 will satisfies the requirements for execution upon filing the 12 will; 13 (3) if the will is witnessed pursuant to Section 622502, but 14 not notarized or selfproved, the testimony of at least one of 15 the attesting witnesses is required to establish proper 16 execution if the witness is within this state, competent, and 17 able to testify. Proper execution may be established by other 18 evidence, including an affidavit of an attesting witness. An 19 attestation clause that is signed by the attesting witnesses 20 raises a rebuttable presumption that the events recited in the 21 clause occurred. 22 23 REPORTER’S COMMENT 24 In the event an objection to a formal testacy proceeding has 25 been received, the evidence necessary to prove the will 26 depends upon whether the will is selfproved or notarized. If 27 the will is not selfproved or notarized, testimony of at least 28 one attesting witness is required. Compliance with the 29 selfproving procedure of Section 622503 gives rise to a 30 rebuttable presumption that the will was properly executed, 31 and the testimony of attesting witnesses is not required. The 32 presumption does not extend to other grounds of attack, such 33 as undue influence, lack of testamentary intent or capacity, 34 fraud, duress, mistake, or revocation. 35 36 Section 623407. In contested cases, petitioners who seek 37 to establish intestacy have the burden of establishing prima 38 facie proof of death, venue, and heirship. Proponents of a 39 will have the burden of establishing prima facie proof of due

[143] 154 1 execution in all cases and, if they are also petitioners, prima 2 facie proof of death and venue. Contestants of a will have 3 the burden of establishing undue influence, fraud, duress, 4 mistake, revocation, or lack of testamentary intent or 5 capacity. Parties have the ultimate burden of persuasion as to 6 matters with respect to which they have the initial burden of 7 proof. If a will is opposed by the petition for probate of a 8 later will revoking the former, it must be determined first 9 whether the later will is entitled to probate, and if a will is 10 opposed by a petition for a declaration of intestacy, it must be 11 determined first whether the will is entitled to probate. 12 13 REPORTER’S COMMENT 14 In all contested formal testacy proceedings, the petitioner 15 bears the burden of proving death and venue. If the 16 petitioner is attempting to establish that the decedent died 17 intestate, he must also prove heirship. Any person asserting 18 that a will is valid bears the burden of proving due execution. 19 This section also specifies the order of proof when two wills 20 are offered and the later will purports to revoke the earlier. 21 Proof of the later will is considered first, and an earlier will 22 cannot be probated unless the later will is found to be invalid. 23 24 Section 623408. A final order of a court of another state 25 determining testacy, or the validity or construction of a will 26 made in a proceeding involving notice to and an opportunity 27 for contest by all interested persons, must be accepted as 28 determinative by the courts of this State if it includes, or is 29 based upon, a finding that the decedent was domiciled at his 30 death in the state where the order was made. 31 32 REPORTER’S COMMENT 33 This section makes it incumbent upon the local court to give 34 full faith and credit to final orders of courts in another 35 jurisdiction in the United States determining testacy or the 36 validity or construction of a will regardless of whether the 37 parties before the local court were personally before the 38 foreign court. However, the foreign proceeding must have

[143] 155 1 provided the requisite notice and opportunity for contest or 2 construction for the resulting order to be binding locally. 3 This section does not apply unless the foreign proceeding has 4 been previously concluded. If a local proceeding is 5 concluded before completion of the foreign formal 6 proceedings, local law will control. 7 If there is a contest concerning the decedent’s domicile in 8 formal proceedings commenced in different jurisdictions, 9 Section 623202 applies. 10 Local courts are bound by the foreign court’s determination 11 of the validity or construction of the will so long as this 12 determination is part of a final order. 13 14 Section 623409. Upon proof of service of the summons 15 and petition, and after any hearing and notice that may be 16 necessary, if the court finds that the testator is dead, venue is 17 proper, and that the proceeding was commenced within the 18 limitation prescribed by Section 623108, it shall determine 19 the decedent’s domicile at death, his heirs (regardless of 20 whether the decedent died intestate and determined as if the 21 decedent died intestate), and his state of testacy. Any will 22 found to be valid and unrevoked must be formally probated. 23 Termination of any previous informal appointment of a 24 personal representative, which may be appropriate in view of 25 the relief requested and findings, is governed by Section 26 623612. The petition must be dismissed or appropriate 27 amendment allowed if the court is not satisfied that the 28 alleged decedent is dead. A will from a place which does not 29 provide for probate of a will after death may be proved for 30 probate in this State by a duly authenticated certificate of its 31 legal custodian that the copy introduced is a true copy and 32 that the will has become effective is not ineligible for probate 33 under the law of the other place. 34 35 REPORTER’S COMMENT 36 This section governs the scope and content of the formal 37 testacy order. Every order must contain the court’s findings 38 regarding whether the alleged decedent is dead, the 39 decedent’s domicile at death, whether venue is proper, and

[143] 156 1 whether the proceeding is a timely one. Regardless of 2 whether the decedent is alleged to have died intestate, the 3 order must contain a determination of heirs and testacy. If 4 the court is not convinced of the alleged decedent’s death, the 5 court may dismiss the proceeding or it may permit 6 amendment of the proceeding so as to make it a proceeding 7 to protect the estate of a missing and therefore ‘disabled’ 8 person under Article 5. Provision is made for proof of a will 9 from a foreign jurisdiction which does not provide for 10 probate of wills. 11 The 2010 amendment revised this section to delete ‘After 12 the time required for any notice has expired, upon’ at the 13 beginning and replace it with ‘Upon’ proof of ‘service of the 14 summons and petition’ and also included the notice 15 requirement for any hearing. The foregoing amendment was 16 intended to clarify that a summons and petition are required 17 to commence a formal proceeding, including a formal testacy 18 proceeding. See 2010 amendments to certain definitions in 19 S.C. Code §621201 and also see §§1423280, 621304, and 20 Rules 1 and 81, SCRCP. 21 22 Section 623410. (A) If two or more instruments are 23 offered for probate before a final order is entered in a formal 24 testacy proceeding, more than one instrument may be 25 probated if neither expressly revokes the other or contains 26 provisions which work a total revocation by implication. If 27 more than one instrument is probated, the order shall indicate 28 what provisions control in respect to the nomination of an 29 executor, if any. The order may, but need not, indicate how 30 any provisions of a particular instrument are affected by the 31 other instrument. 32 (B) After a final order in a testacy proceeding has been 33 entered, no petition for probate of any other instrument of the 34 decedent may be entertained, except incident to a petition to 35 vacate or modify a previous probate order and subject to the 36 time limits of Section 623412. 37 38 REPORTER’S COMMENT

[143] 157 1 An order in a formal testacy proceeding ends the time within 2 which it is possible to probate afterdiscovered wills, though 3 subject to the provisions for vacation or modification of that 4 order under Sections 623412 and 623413. While a 5 determination of heirs is not barred by the ten year limitation 6 under Section 623108, a judicial determination of heirs in a 7 final order is conclusive unless the order is vacated or 8 modified. 9 Under this section the court may admit more than one will 10 to probate if the court in the exercise of its sound discretion 11 determines that the instruments can be construed together. 12 13 Section 623411. If it becomes evident in the course of a 14 formal testacy proceeding that, though one or more 15 instruments are entitled to be probated, the decedent’s estate 16 is or may be partially intestate, the court shall enter an order 17 to that effect. 18 19 Section 623412. Subject to appeal and subject to vacation 20 as provided herein and in Section 623413, a formal testacy 21 order under Sections 623409 through 623411, including an 22 order that the decedent left no valid will and determining 23 heirs, is final as to all persons with respect to all issues 24 concerning the decedent’s estate that the court considered or 25 might have considered incident to its rendition relevant to the 26 question of whether the decedent left a valid will, and to the 27 determination of heirs, except that: 28 (1) The court shall entertain a petition for modification or 29 vacation of its order and probate of another will of the 30 decedent if it is shown that the proponents of the lateroffered 31 will were unaware of its existence at the time of the earlier 32 proceeding or were unaware of the earlier proceeding and 33 were given no notice thereof, except by publication. 34 (2) If intestacy of all or part of the estate has been 35 ordered, the determination of heirs of the decedent may be 36 reconsidered if it is shown that one or more persons were 37 omitted from the determination and it is also shown that the 38 persons were unaware of their relationship to the decedent,

[143] 158 1 were unaware of his death, or were given no notice of any 2 proceeding concerning his estate, except by publication. 3 (3) A petition for vacation under either (1) or (2) above 4 must be filed prior to the earlier of the following time limits: 5 (i) If a personal representative has been appointed for 6 the estate, the time of entry of any order approving final 7 distribution of the estate. 8 (ii) Whether or not a personal representative has been 9 appointed for the estate of the decedent, the time prescribed 10 by Section 623108 when it is no longer possible to initiate an 11 original proceeding to probate a will of the decedent. 12 (iii) Twelve months after the entry of the order sought to 13 be vacated. 14 (4) The order originally rendered in the testacy proceeding 15 may be modified or vacated, if appropriate under the 16 circumstances by the order of probate of the lateroffered will 17 or the order redetermining heirs. 18 (5) The finding of the fact of death is conclusive as to the 19 alleged decedent only if notice of the hearing on the petition 20 in the formal testacy proceeding was sent by registered or 21 certified mail addressed to the alleged decedent at his last 22 known address and the court finds that a search under Section 23 623403(b) was made. If the alleged decedent is not dead, 24 even if notice was sent and search was made, he may recover 25 estate assets in the hands of the personal representative. In 26 addition to any remedies available to the alleged decedent by 27 reason of any fraud or intentional wrongdoing, the alleged 28 decedent may recover any estate or its proceeds from 29 distributees that is in their hands, or the value of distributions 30 received by them, to the extent that any recovery from 31 distributees is equitable in view of all of the circumstances. 32 33 REPORTER’S COMMENT 34 This section establishes the exceptions to the res judicata 35 effect of a formal testacy order. If a decedent’s will has been 36 probated and a final order issued, the court may modify or 37 vacate the order only if: (1) the proponents of a lateroffered 38 will had no knowledge of the existence of the will at the time 39 of the proceeding; or (2) the proponents of the later will did

[143] 159 1 not have actual knowledge of the earlier proceeding and were 2 given no notice of it other than by publication. If the final 3 order determined that all or a part of the estate was intestate, 4 that order may be vacated or modified only if the petitioner 5 can establish: (1) that one or more heirs were omitted and (2) 6 that the omitted heir or heirs had no knowledge of their status 7 as an heir, that they were unaware the decedent had died, or 8 that they were given no notice of the proceeding other than 9 by publication. 10 Section 623412(3) prescribes the time limits for filing a 11 petition for vacation under this section. The petition must be 12 filed prior to the earlier of the following: (1) in an estate 13 where a personal representative has been appointed, the entry 14 of an order approving final distribution; (2) the tenyear 15 ultimate time limit under Section 623108; or (3) twelve 16 months from the entry of the formal testacy order. The 17 individual submitting a petition for vacation bears the burden 18 of proving that modification or vacation of the order is 19 ‘appropriate under the circumstances.’ 20 This section also specifies the procedure to be followed when 21 an alleged decedent is discovered to be alive subsequent to a 22 final order finding the fact of death. In such a situation, the 23 alleged decedent may recover assets retained by the personal 24 representative. The heirs and distributees may be required to 25 restore the ‘estate or its proceeds’ if it is ‘equitable in view of 26 all the circumstances.’ 27 28 Section 623413. For good cause shown, an order in a 29 formal testacy proceeding may be modified or vacated within 30 the time allowed for appeal. 31 32 REPORTER’S COMMENT 33 This section deals with the modification or vacation of an 34 order during the pendency of an appeal or within the time 35 allowed for appeal. Broadly speaking, the power to vacate or 36 modify an order under Section 623412 provides the court 37 with a means of dealing with facts not before the court during 38 the proceeding. Section 623413 gives the court the option of

[143] 160 1 reconsidering its decision although it has no new evidence 2 before it. 3 4 Section 623414. (a) A formal proceeding for 5 adjudication regarding the priority or qualification of one 6 who is an applicant for appointment as a personal 7 representative, or of one who previously has been appointed 8 a personal representative in informal proceedings, if an issue 9 concerning the testacy of the decedent is or may be involved, 10 is governed by Section 623402, as well as by this section. In 11 other cases, the petition shall contain or adopt the statements 12 required by Section 623301(a)(1) and describe the question 13 relating to priority or qualification of the personal 14 representative which is to be resolved. If the proceeding 15 precedes any appointment of a personal representative, it 16 shall stay any pending informal appointment proceedings as 17 well as any commenced thereafter. If the proceeding is 18 commenced after appointment, the previously appointed 19 personal representative, after receipt of notice thereof, shall 20 refrain from exercising any power of administration except as 21 necessary to preserve the estate or unless the court orders 22 otherwise. 23 (b) After service of the summons and petition to interested 24 persons, including all persons interested in the administration 25 of the estate as successors under the applicable assumption 26 concerning testacy, any previously appointed personal 27 representative and any person having or claiming priority for 28 appointment as a personal representative, the court shall 29 determine who is entitled to appointment under Section 30 623203, make a proper appointment, and, if appropriate, 31 terminate any prior appointment found to have been improper 32 as provided in cases of removal under Section 623611. 33 34 REPORTER’S COMMENT 35 If there is a question concerning the priority or qualifications 36 of a personal representative, the issue may be combined with 37 a request for the determination of testacy in a petition for a 38 formal testacy proceeding. However, the formal appointment 39 of a personal representative can be considered alone. If the

[143] 161 1 proceeding under this section is combined with a formal 2 testacy proceeding, the petition must not only comply with 3 the requirements of a petition for formal testacy, but must 4 also describe the issue regarding appointment. Once a 5 proceeding has been initiated under this section alone, the 6 court must receive a petition which complies with the 7 requirements of Section 623402 and describes the issue 8 regarding appointment. Once initiated, a proceeding under 9 this section stays any pending informal appointment 10 proceedings. If a representative had been appointed prior to 11 this proceeding, the filing of a petition under this section 12 automatically restraints all of the representative’s powers 13 which are not necessary to preserve the estate. Under this 14 section, service of the summons and petition must be given to 15 all interested persons as defined in subparagraph (b). 16 Formal proceedings concerning appointment should be 17 distinguished from administration under Part 5. The former 18 includes any proceeding after notice involving a request for 19 an appointment. Administration under Part 5 begins with a 20 formal proceeding and may be requested in addition to a 21 ruling concerning testacy or appointment, but it is descriptive 22 of a special proceeding with a different scope and purpose 23 than those concerned merely with establishing the bases for 24 an administration. A personal representative appointed in a 25 formal proceeding may or may not be subject to 26 administration under Part 5. Procedures for securing the 27 appointment of a new personal representative after a previous 28 assumption as to testacy under Section 623612 may be 29 informal or related to pending formal proceedings concerning 30 testacy. 31 When an order authorizing appointment is issued, the 32 personal representative must then comply with Section 33 623601 et seq., concerning bond requirements. 34 The 2010 amendment revised subsection (b) to delete 35 ‘notice’ and replace it with ‘service of the summons and 36 petition’ to clarify that a summons and petition are required 37 to commence a formal proceeding, including a formal 38 proceeding concerning appointment of a personal 39 representative as referred to in this section. See 2010

[143] 162 1 amendments to certain definitions in S.C. Code §621201 and 2 also see §§1423280, 621304, and Rules 1 and 81, SCRCP. 3 4 Part 5 5 6 Administration Under Part 5 7 8 Section 623501. Administration under Part 5 [Sections 9 623501 et seq.] is a single in rem proceeding to secure 10 complete administration and settlement of a decedent’s estate 11 under the continuing authority of the court which extends 12 until entry of an order approving distribution of the estate and 13 discharging the personal representative or other order 14 terminating the proceeding. A personal representative under 15 Part 5 [Sections 623501 et seq.] is responsible to the court, as 16 well as to the interested parties persons, and is subject to 17 directions concerning the estate made by the court on its own 18 motion or on the motion of any interested party. Except as 19 otherwise provided in this part, or as otherwise ordered by 20 the court, a personal representative under Part 5 [Sections 21 623501 et seq.] has the same duties and powers as a personal 22 representative who is not subject to administration under Part 23 5 [Sections 623501 et seq.]. 24 25 REPORTER’S COMMENT 26 This section and the following sections of this part describe 27 an optional procedure for settling an estate in one continuous 28 proceeding in the court. The proceeding is a single ‘in rem’ 29 action designed to secure complete administration and 30 settlement of a decedent’s estate when it is desired to make 31 sure that every step in probate is adjudicated with notice and 32 hearing. If administration under Part 5 is not requested or 33 ordered, there may be no compelling reason to employ all the 34 available formal proceedings in the administration of an 35 estate. 36 37 Section 623502. A petition for administration under Part 5 38 [Sections 623501 et seq.] may be filed by any interested 39 person or by a personal representative at any time, a prayer

[143] 163 1 for administration under Part 5 [Sections 623501 et seq.] may 2 be joined with a petition in a testacy or appointment 3 proceeding, or the court may order administration under Part 4 5 [Sections 623501 et seq.] on its own motion. If the testacy 5 of the decedent and the priority and qualification of any 6 personal representative have not been adjudicated previously, 7 the petition for administration under Part 5 [Sections 623501 8 et seq.] shall include the matters required of a petition in a 9 formal testacy proceeding and the notice requirements and 10 procedures applicable to a formal testacy proceeding apply. 11 If not previously adjudicated, the court shall adjudicate the 12 testacy of the decedent and questions relating to the priority 13 and qualifications of the personal representative in any case 14 involving a request for administration under Part 5 [Sections 15 623501 et seq.], even though the request for administration 16 under Part 5 [Sections 623501 et seq.] may be denied. After 17 service of the summons and petition and upon notice to 18 interested persons, the court shall order administration under 19 Part 5 [Sections 623501 et seq.] of a decedent’s estate: (1) if 20 the decedent’s will directs administration under Part 5 21 [Sections 623501 et seq.], it shall be ordered unless the court 22 finds that circumstances bearing on the need for 23 administration under Part 5 [Sections 623501 et seq.] have 24 changed since the execution of the will and that there is no 25 necessity for administration under Part 5 [Sections 623501 et 26 seq.]; (2) if the decedent’s will directs no administration 27 under Part 5 [Sections 623501 et seq.], then administration 28 shall be ordered only upon a finding that it is necessary for 29 protection of persons interested in the estate; or (3) in other 30 cases if the court finds that administration under Part 5 31 [Sections 623501 et seq.] is necessary under the 32 circumstances. 33 34 REPORTER’S COMMENT 35 Under this section any ‘interested person’ or the personal 36 representative may request administration under Part 5, or the 37 probate court may order it on its own motion. If the 38 decedent’s will directs such administration it must be ordered 39 unless the court finds circumstances have changed since

[143] 164 1 execution of the will. Likewise, where the will directs no 2 such administration, it will be ordered only if the court finds 3 it is necessary for protection of interested persons. 4 Even though it is possible that a request for administration 5 under Part 5 may be made after a determination of testacy 6 has been made, this section requires the petition for such 7 administration to include matters necessary to put the issue of 8 testacy before the court. The result is that the question of 9 testacy will be adjudicated. 10 While administration under Part 5 compels a judicial 11 settlement of an estate there are other sections which grant a 12 judicial review and settlement. This fact leads to the 13 conclusion that administration under Part 5 will be valuable 14 primarily when there is some advantage in a single judicial 15 proceeding which will adjudicate all major points involved in 16 an estate settlement. 17 The 2010 amendment revised this section to add ‘service 18 of the summons and petition and upon’ in the fourth sentence 19 to clarify that a summons and petition and notice of any 20 hearing are required for a formal proceeding for 21 administration under Part 5. See 2010 amendments to certain 22 definitions in S.C. Code §621201 and also see §§1423280, 23 621304, and Rules 1 and 81, SCRCP. 24 25 Section 623503. (a) The pendency of a proceeding for 26 administration under Part 5 [Sections 623501 et seq.] of a 27 decedent’s estate stays action on any informal application 28 then pending or thereafter filed. 29 (b) If a will has been previously probated in informal 30 proceedings, the effect of the filing of a petition for 31 administration under Part 5 [Sections 623501 et seq.] is as 32 provided for formal testacy proceedings by Section 623401. 33 (c) After service of the summons and petition upon the 34 personal representative and notice of the filing of a petition 35 for administration under Part 5 [Sections 623501 et seq.], a 36 personal representative who has been appointed previously 37 shall not exercise his power to distribute any estate. The 38 filing of the petition does not affect his other powers and

[143] 165 1 duties unless the court restricts the exercise of any of them 2 pending full hearing on the petition. 3 4 REPORTER’S COMMENT 5 This section deals with the effect of administration under Part 6 5 on other proceedings. Primarily pendency of such 7 administration does two things: (1) it stays action on any 8 informal proceedings and (2) it prohibits the personal 9 representative from exercising his power to distribute the 10 estate. However, the filing of the petition does not otherwise 11 affect the powers and duties of the personal representative 12 unless the court restricts the exercise of such power. 13 In regard to the effect of such action on the personal 14 representative’s ability to create good title in a purchaser of 15 estate assets, it should be noted that such a power is not 16 hampered by the fact that the personal representative may 17 breach a duty created by statute or otherwise. However, the 18 personal representative may be held for contempt of court. 19 In any event, the pendency of the proceeding could be 20 recorded as is usual under a lis pendens. 21 The 2010 amendment deleted ‘he has received’ and added 22 ‘service of the summons and petition upon the personal 23 representative and’ to the first sentence to clarify that a 24 summons and petition are required to commence a formal 25 proceeding, including a formal proceeding under Part 5. See 26 2010 amendments to certain definitions in S.C. Code 27 §621201 and also see §§1423280, 621304, and Rules 1 and 28 81, SCRCP. 29 30 Section 623504. Unless restricted by the court, a personal 31 representative under Part 5 [Sections 623501 et seq.] has, 32 without interim orders approving exercise of a power, all 33 powers of personal representatives under this Code, but he 34 shall not exercise his power to make any distribution of the 35 estate without prior order of the court. Any other restriction 36 on the power of a personal representative which may be 37 ordered by the court must be endorsed on his letters of 38 appointment and any court certification thereof, and unless so

[143] 166 1 endorsed is ineffective as to persons dealing in good faith 2 with the personal representative. 3 4 REPORTER’S COMMENT 5 This section acknowledges that the powers of a personal 6 representative in an administration under Part 5 are the same 7 as in any other administration unless restricted by the court 8 and endorsed on the letters of appointment. If not so 9 endorsed, the restrictions are ineffective as to persons dealing 10 with the estate in good faith. The practical effect of this 11 provision is to require persons dealing with the personal 12 representative to examine the representative’s letters. 13 14 Section 623505. Unless otherwise ordered by the court, 15 administration under Part 5 [Sections 623501 et seq.] is 16 terminated by order in accordance with time restrictions, 17 notices, and contents of orders prescribed for proceedings 18 under Section 6231001. Interim orders approving or 19 directing partial distributions or granting other relief may be 20 issued by the court at any time during the pendency of an 21 administration under Part 5 [Sections 623501 et seq.] on the 22 application of the personal representative or any interested 23 person. 24 25 REPORTER’S COMMENT 26 This section requires additional notice for a closing order. 27 The requirement for notice of interim orders is left to the 28 discretion of the court except to the extent such notice is 29 required by other sections, see e.g. Section 623204, which 30 entitles any interested person to notice of any interim order. 31 32 Part 6 33 34 Personal Representative; Appointment, 35 Control, and Termination of Authority 36 37 Section 623601. Prior to receiving letters, a personal 38 representative shall qualify by filing with the appointing

[143] 167 1 court any required bond and a statement of acceptance of the 2 duties of the office. 3 4 REPORTER’S COMMENT 5 This and related sections of this part describe details and 6 conditions of appointment which apply to all personal 7 representatives without regard to whether the appointment 8 proceeding involved is formal or informal, or whether the 9 personal representative is subject to administration under Part 10 5. Section 621305 authorizes issuance of copies of letters 11 and prescribes their content. The section should be read with 12 Section 623504 which directs endorsement on letters and any 13 court certification of any restrictions of powers of an 14 administrator under Part 5. 15 No formal oath is required of a personal representative. 16 17 Section 623602. By accepting appointment, a personal 18 representative submits personally to the jurisdiction of the 19 court in any proceeding relating to the estate that may be 20 instituted by any interested person. Notice of any proceeding 21 shall be delivered to the personal representative, or mailed to 22 him by ordinary first class mail at his address as listed in the 23 application or petition for appointment or as thereafter 24 reported to the court and to his address as then known to the 25 petitioner. 26 27 REPORTER’S COMMENT 28 Except for personal representatives appointed pursuant to 29 Section 623502, appointees are not deemed to be officers of 30 the appointing court or to be parties in one continuous 31 judicial proceeding that extends until final settlement. See 32 Section 623107. 33 In order to prevent a personal representative who might make 34 himself unavailable to service within the State from affecting 35 the power of the appointing court to enter valid orders 36 affecting him, each appointee is required to consent in 37 advance to the personal jurisdiction of the court in any 38 proceeding relating to the estate that may be instituted 39 against him. The section requires that he be given notice of

[143] 168 1 any such proceeding, which, when considered in the light of 2 the responsibility he has undertaken, should make the 3 procedure sufficient to meet the requirements of due process. 4 5 Section 623603. (A) Except as may be required pursuant 6 to Section 623605 or upon the appointment of a special 7 administrator, a personal representative is not required to file 8 a bond if: 9 (1) all heirs and devisees agree to waive the bond 10 requirement; 11 (2) the personal representative is the sole heir or 12 devisee; 13 (3) the personal representative is a state agency, bank, 14 or trust company, unless the will expressly requires a bond; 15 or 16 (4) the personal representative is named in the will, 17 unless the will expressly requires a bond. 18 If, pursuant to Section 623203(a), the court appoints as 19 personal representative a nominee of a personal 20 representative named in a will, the court may in its discretion 21 decide not to require bond. 22 (B) Where a bond is required of the personal 23 representative or administrator of an estate by law or by the 24 will, it may be waived under the following conditions: 25 (1) the personal representative or administrator by 26 affidavit at the time of applying for appointment as such 27 certifies to the court that the gross value of the estate will be 28 less than twenty thousand dollars, that the assets of the 29 probate estate are sufficient to pay all claims against the 30 estate, and that the personal representative or administrator 31 agrees to be personally liable to any beneficiary or other 32 person having an interest in the estate for any negligence or 33 intentional misconduct in the performance of his duties as 34 personal representative or administrator; and 35 (2) all known beneficiaries and other persons having an 36 interest in the estate execute a written statement on a form 37 prescribed by the court that they agree to the bond being 38 waived. This form must be filed with the court 39 simultaneously with the affidavit required by item (1) above.

[143] 169 1 A creditor for purposes of this item (2) is not considered a 2 person having an interest in the estate. 3 The provisions of this subsection (B) are supplemental and 4 in addition to any other provisions of law permitting the 5 waiving or reducing of a bond. Any bond required by 6 Section 623605 may not be waived under the provisions of 7 this section. 8 9 REPORTER’S COMMENT 10 A bond is required of any personal representative who is not 11 named in a will, including an administrator in intestacy and a 12 special administrator, whether in probate or in intestacy, 13 whether resident or nonresident, but excluding corporate 14 fiduciaries not required to be bonded. However, bond is not 15 required for a personal representative who is the sole heir or 16 devisee. Moreover, all heirs and devisees can agree to waive 17 any bond requirement. A bond is not required of any 18 personal representative who is named in a will, unless 19 appointed as a special administrator or unless the will or 20 some interested person under Section 623605, requires a 21 bond. 22 23 Section 623604. If bond is required and the provisions of 24 the will or order do not specify the amount, unless stated in 25 his application or petition, the person qualifying shall file a 26 statement under oath with the court indicating his best 27 estimate of the value of the personal estate of the decedent 28 and of the income expected from the personal estate during 29 the next year, and he shall execute and file a bond with the 30 court, or give other suitable security, in an amount not less 31 than the estimate. The court shall determine that the bond is 32 duly executed by a corporate surety, or one or more 33 individual sureties whose performance is secured by pledge 34 of personal property, mortgage on real property, or other 35 adequate security. The court may permit the amount of the 36 bond to be reduced by the value of assets of the estate 37 deposited with a domestic financial institution (as defined in 38 Section 626101) in a manner that prevents their unauthorized 39 disposition. Upon application by the personal representative

[143] 170 1 or another interested person or upon the court’s own motion, 2 the court may increase or reduce the amount of the bond, 3 release sureties, dispense with security or securities, or 4 permit the substitution of another bond with the same or 5 different sureties or dispense with the bond. 6 7 REPORTER’S COMMENT 8 This section permits estimates of value needed to fix the 9 amount of any required bond. A consequence of this 10 procedure is that estimates of value of estates are not required 11 to appear in the petition and applications which will attend 12 every administered estate. Hence, a measure of privacy that 13 is not possible under most existing procedures may be 14 achieved. 15 Release of sureties was formerly interpreted to mean that the 16 probate court might release a surety if he petitioned for relief 17 and established that he reasonably believes himself to be in 18 danger of suffering a loss on account of his suretyship. See 19 Bellinger v. United States Fidelity Co., 115 S.C. 469, 106 20 S.E. 470 (1921); and McKay v. Donald, 8 Rich. 311 (42 21 S.C.L. 331) (1855). Section 623604 is more flexible and 22 should not be construed so narrowly as to permit release of 23 sureties only on the limited basis available at prior law. 24 The 2010 amendment deleted ‘On petition of’ at the 25 beginning of the last sentence and added ‘Upon application 26 by’ to allow the personal representative or another interested 27 person to make application to the probate court regarding 28 bond matters as outlined in this section. Unlike a petition, an 29 application does not require a summons or petition. See 30 §621201(1). The 2010 amendment also added ‘upon the 31 court’s own motion’ in the last sentence. 32 33 Section 623605. Any person apparently having an interest 34 in the estate worth in excess of one five thousand dollars, or 35 any creditor having a claim in excess of one five thousand 36 dollars, may make a written demand that a personal 37 representative give bond. The demand must be filed with the 38 court and a copy mailed to the personal representative, if 39 appointment and qualification have occurred. Thereupon,

[143] 171 1 bond is required in an amount determined by the court as 2 sufficient to protect the interest of the person or creditor 3 demanding bond, but the requirement ceases if the person or 4 creditor demanding bond ceases to have an interest in the 5 estate worth in excess of one five thousand dollars or a claim 6 in excess of one five thousand dollars. After he has received 7 notice and until the filing of the bond or cessation of the 8 requirement of bond, the personal representative shall refrain 9 from exercising any powers of his office except as necessary 10 to preserve the estate or to pay the person or creditor 11 demanding bond. Failure of the personal representative to 12 meet a requirement of bond by giving suitable bond within 13 thirty days after receipt of notice is cause for his removal and 14 appointment of a successor personal representative unless 15 good cause is shown for the delay. 16 17 REPORTER’S COMMENT 18 The demand for bond described in this section may be made 19 in a petition or application for appointment of a personal 20 representative, or may be made after a personal 21 representative has been appointed. The mechanism for 22 compelling bond is designed to function without unnecessary 23 judicial involvement. If demand for bond is made in a formal 24 proceeding, the judge can determine the amount of bond to 25 be required with due consideration for all circumstances. If 26 demand is not made in formal proceedings, methods for 27 computing the amount of bond are provided by statute so that 28 demand can be complied with without resort to judicial 29 proceedings. The information which a personal 30 representative is required by Section 623705 to give each 31 beneficiary includes a statement concerning whether bond 32 has been required. Section 623605 is consistent with the 33 general policy of this Code to minimize the formalities of 34 estate administration unless interested parties ask for specific 35 protection. 36 37 Section 623606. (a) The following requirements and 38 provisions apply to any bond required by this part:

[143] 172 1 (1) Bonds shall name the judge of the court as obligee 2 for the benefit of the persons interested in the estate and shall 3 be conditioned upon the faithful discharge by the fiduciary of 4 all duties according to law. 5 (2) Unless otherwise provided by the terms of the 6 approved bond, sureties are jointly and severally liable with 7 the personal representative and with each other. The address 8 of sureties shall be stated in the bond. 9 (3) By executing an approved bond of a personal 10 representative, the surety consents to the jurisdiction of the 11 court which issued letters to the primary obligor in any 12 proceedings pertaining to the fiduciary duties of the personal 13 representative and naming the surety as a party. Notice of 14 any proceeding shall be delivered to the surety or mailed to 15 him by registered or certified mail at his address as listed 16 with the court where the bond is filed and to his address as 17 then known to the petitioner. 18 (4) On petition of a successor personal representative, 19 any other personal representative of the same decedent, or 20 any interested person, a proceeding in the court may be 21 initiated against a surety for breach of the obligation of the 22 bond of the personal representative. 23 (5) The bond of the personal representative is not void 24 after the first recovery but may be proceeded against from 25 time to time until the whole penalty is exhausted. 26 (b) No action or proceeding may be commenced against 27 the surety on any matter as to which an action or proceeding 28 against the primary obligor is barred by adjudication or 29 limitation. 30 31 REPORTER’S COMMENT 32 This section provides for the terms and conditions of bonds 33 to be furnished by personal representatives. It provides that 34 the judge of the court is the obligee of the bond and that the 35 sureties are jointly and severally liable if they consent to the 36 jurisdiction of the court by executing the bond. 37 38 Section 623607. (a) Upon application of any interested 39 person who appears to have an interest in the estate, the court

[143] 173 1 by temporary order may restrain a personal representative 2 from performing specified acts of administration, 3 disbursement or distribution, or exercise of any powers or 4 discharge of any duties of his office, or make any other order 5 to secure proper performance of his duty, if it appears to the 6 court that the personal representative otherwise may take 7 some action which would jeopardize unreasonably the 8 interest of the applicant or of some other interested person. 9 Persons with whom the personal representative may transact 10 business may be made parties. 11 (b) The matter shall be set for hearing within ten days or 12 at such other times as the parties may agree. Notice as the 13 court directs shall be given to the personal representative and 14 his attorney of record, if any, and to any other parties named 15 defendant in the petition application. 16 17 REPORTER’S COMMENT 18 This section provides that a person who appears to have an 19 interest in an estate may petition the court for an order to 20 restrain a personal representative from performing acts of 21 administration if it appears to the court that the personal 22 representative may take some action which would jeopardize 23 the interest of the applicant or some other interested person. 24 The matter must be set for hearing on the restraining order 25 within ten days or at such other time as the parties may agree. 26 There is also a provision for notice which must be given to 27 the personal representative, his attorney, and to any other 28 parties named defendant in the petition. 29 The 2010 amendment deleted ‘On petition’ at the 30 beginning of this section and replaced it with ‘Upon 31 application’ so that any person who appears to have an 32 interest in the estate can make application to the probate 33 court to restrain a personal representative. Unlike a petition, 34 an application does not require a summons or petition. See 35 2010 amendments to certain definitions in §621201(1). 36 37 Section 623608. Termination of appointment of a 38 personal representative occurs as indicated in Sections 39 623609 to 623612, inclusive. Termination ends the right and

[143] 174 1 power pertaining to the office of personal representative as 2 conferred by this Code or any will, except that a personal 3 representative, at any time prior to distribution or until 4 restrained or enjoined by court order, may perform acts 5 necessary to protect the estate and may deliver the assets to a 6 successor representative. Termination does not discharge a 7 personal representative from liability for transactions or 8 omissions occurring before termination, or relieve him of the 9 duty to preserve assets subject to his control, to account 10 therefor, and to deliver the assets. Termination does not 11 affect the jurisdiction of the court over the personal 12 representative, but terminates his authority to represent the 13 estate in any pending or future proceeding. 14 15 REPORTER’S COMMENT 16 ‘ Termination,’ as defined by this Section and Sections 17 623609 through 623612 provide definiteness respecting when 18 the rights and powers of a personal representative (who may 19 or may not be discharged of duty and liability by court order) 20 terminate. An order of the court entered under Sections 21 6231001 may terminate the appointment of and discharge a 22 personal representative. 23 It is to be noted that this section does not relate to jurisdiction 24 over the estate in proceedings which may have been 25 commenced against the personal representative prior to 26 termination. In such cases, a substitution of successor or 27 special representative should occur if the plaintiff desires to 28 maintain his action against the estate. 29 30 Section 623609. The death of a personal representative or 31 the appointment of a conservator for the estate or guardian 32 for the person of a personal representative, terminates his 33 appointment. Until appointment and qualification of a 34 successor or special representative to replace the deceased or 35 protected representative, the representative of the estate of 36 the deceased or protected personal representative, if any, has 37 the duty to protect the estate possessed and being 38 administered by his decedent or ward at the time his 39 appointment terminates, has the power to perform acts

[143] 175 1 necessary for protection, and shall account for and deliver the 2 estate assets to a successor or special personal representative 3 upon his appointment and qualification. 4 5 REPORTER’S COMMENT 6 This section deals with the termination of a representative by 7 death or disability. The personal representative of the 8 disabled or deceased representative will sometimes succeed 9 to the duties and powers of the office. 10 11 Section 623610. (a) Unless otherwise provided, an order 12 closing an estate as provided in Section 6231001 terminates 13 an appointment of a personal representative and relieves the 14 personal representative’s attorney of record of any further 15 duties to the court. 16 (b) A personal representative may resign his position by 17 filing a written statement of resignation with the court and 18 providing twenty days’ written notice to the persons known 19 to be interested in the estate. If no one applies or petitions 20 for appointment of a successor representative within the time 21 indicated in the notice, the filed statement of resignation is 22 ineffective as a termination of appointment and in any event 23 is effective only upon the appointment and qualification of a 24 successor representative and delivery of the assets to him. 25 When the resignation is effective, the personal 26 representative’s attorney of record shall be relieved of any 27 further duties to the court. 28 29 REPORTER’S COMMENT 30 Under subparagraph (a) a formal closing immediately 31 terminates the authority of a personal representative. 32 Subparagraph (b) allows resignation of a personal 33 representative. 34 The more informal process for resignation coupled with the 35 comparative ease of securing appointment of a successor, see 36 Sections 623613 through 623618, infra, facilitates the 37 substitution of personal representatives. 38

[143] 176 1 Section 623611. (a) A person interested in the estate may 2 petition for removal of a personal representative for cause at 3 any time. Upon filing of the petition, the court shall fix a 4 time and place for hearing. Notice shall be given by the 5 petitioner to the personal representative, and to other persons 6 as the court may order. Except as otherwise ordered as 7 provided in Section 623607, after service of the summons 8 and petition upon the personal representative and receipt of 9 notice of removal proceedings, the personal representative 10 shall not act except to account, to correct maladministration, 11 or preserve the estate. If removal is ordered, the court also 12 shall direct by order the disposition of the assets remaining in 13 the name of, or under the control of, the personal 14 representative being removed. 15 (b) Cause for removal exists when removal would be in 16 the best interests of the estate, or if it is shown that a personal 17 representative or the person seeking his appointment 18 intentionally misrepresented material facts in the proceedings 19 leading to his appointment, or that the personal representative 20 has disregarded an order of the court, has become incapable 21 of discharging the duties of his office, or has mismanaged the 22 estate or failed to perform any duty pertaining to the office. 23 Unless the decedent’s will directs otherwise, a personal 24 representative appointed at the decedent’s domicile, incident 25 to securing appointment of himself or his nominee as 26 ancillary personal representative, may obtain removal of 27 another who was appointed personal representative in this 28 State to administer local assets. 29 (c) The termination of appointment under this section 30 shall relieve the personal representative’s attorney of record 31 of any further duties to the court. 32 33 REPORTER’S COMMENT 34 This section deals with the termination of a personal 35 representative by removal for cause. Any interested person 36 may petition the court for the removal of a representative 37 although notice and hearing are required. 38 The 2010 amendment added ‘service of the summons and 39 petition upon the personal representative and’ in the fourth

[143] 177 1 sentence to clarify that a summons and petition are required 2 to commence a formal proceeding, including a formal 3 proceeding to remove a personal representative. See 2010 4 amendments to certain definitions in S.C. Code §621201 and 5 also see §§1423280, 621304, and Rules 1 and 81, SCRCP. 6 7 Section 623612. Except as otherwise ordered in formal 8 proceedings, the probate of a will subsequent to the 9 appointment of a personal representative in intestacy or under 10 a will which is superseded by formal probate of another will, 11 or the vacation of an informal probate of a will subsequent to 12 the appointment of the personal representative thereunder, 13 does not terminate the appointment of the personal 14 representative although his powers may be reduced as 15 provided in Section 623401. Termination occurs upon 16 appointment in informal or formal appointment proceedings 17 of a person entitled to appointment under the later 18 assumption concerning testacy. If no request for new 19 appointment is made within thirty days after expiration of 20 time for appeal from the order in formal testacy proceedings, 21 or from the informal probate, changing the assumption 22 concerning testacy, the previously appointed personal 23 representative upon request may be appointed personal 24 representative under the subsequently probated will, or as in 25 intestacy as the case may be. 26 27 REPORTER’S COMMENT 28 This section and Section 623401 describe the relationship 29 between formal or informal proceedings. The basic 30 assumption of both sections is that an appointment, with 31 attendant powers of management, is separable from the basis 32 of appointment; i.e., intestate or testate?; what will is the 33 last will? Hence, a previously appointed personal 34 representative continues in spite of formal or informal 35 probate that may give another a prior right to serve as 36 personal representative. But, if the testacy status is changed 37 in formal proceedings, the petitioner also may request 38 appointment of the person who would be entitled to serve if 39 his assumption concerning the decedent’s will prevails.

[143] 178 1 Provision is made for a situation where all interested persons 2 are content to allow a previously appointed personal 3 representative to continue to serve even though another has a 4 prior right because of a change relating to the decedent’s 5 will. It is not necessary for the continuing representative to 6 seek a reappointment under the new assumption for Section 7 623703 is broad enough to require him to administer the 8 estate as intestate, or under the later probated will, if either 9 status is established after he was appointed. Under Section 10 623403, notice of a formal testacy proceeding is required to 11 be given to any previously appointed personal representative. 12 Hence, the testacy status cannot be changed without notice to 13 a previously appointed personal representative. 14 15 Section 623613. Parts 3 and 4 of this article [Sections 16 623301 et seq. and Sections 623401 et seq.] govern 17 proceedings for appointment of a personal representative to 18 succeed one whose appointment has been terminated. After 19 appointment and qualification, a successor personal 20 representative may be substituted in all actions and 21 proceedings to which the former personal representative was 22 a party, and no notice, process, or claim which was given or 23 served upon the former personal representative need be given 24 to or served upon the successor in order to preserve any 25 position or right the person giving the notice or filing the 26 claim may thereby have obtained or preserved with reference 27 to the former personal representative. Except as otherwise 28 ordered by the court, the successor personal representative 29 has the powers and duties in respect to the continued 30 administration which the former personal representative 31 would have had if his appointment had not been terminated. 32 33 REPORTER’S COMMENT 34 This section provides that all powers and authority of the 35 initial representative pass to the successor personal 36 representative unless the court provides otherwise. 37 38 Section 623614. A special administrator may be 39 appointed:

[143] 179 1 (1) informally by the court on the application of an 2 interested person when necessary: 3 (a) to protect the estate of a decedent prior to the 4 appointment of a general personal representative or if a prior 5 appointment has been terminated as provided in Section 6 623609; or 7 (b) for a creditor of the decedent’s estate to institute any 8 proceeding under Section 623803(c); or 9 (c) to take appropriate actions involving estate assets. 10 (2) in a formal proceeding by order of the court on the 11 petition of any interested person and finding, after notice and 12 hearing, that appointment is necessary to preserve the estate 13 or to secure its proper administration including its 14 administration in circumstances where a general personal 15 representative cannot or should not act. If it appears to the 16 court that an emergency exists, appointment may be ordered 17 without notice. 18 19 REPORTER’S COMMENT 20 Appointment of a special administrator would enable the 21 estate to participate in a transaction which the general 22 personal representative could not, or should not, handle 23 because of conflict of interest. If a need arises because of 24 temporary absence or anticipated incapacity for delegation of 25 the authority of a personal representative, the problem may 26 be handled without judicial intervention by use of the 27 delegation powers granted to personal representatives by 28 Section 623715(19). 29 30 Section 623615. (a) If a special administrator is to be 31 appointed pending the probate of a will which is the subject 32 of a pending application or petition for probate, the person 33 named executor in the will shall be appointed if available and 34 qualified. 35 (b) In other cases, any proper person may be appointed 36 special administrator. 37 38 REPORTER’S COMMENT

[143] 180 1 In some areas of the country, particularly where wills cannot 2 be probated without full notice and hearing, appointment of 3 special administrators pending probate is sought almost 4 routinely. The objective of this section is to reduce the 5 likelihood that contestants will be encouraged to file contests 6 as early as possible simply to gain some advantage via 7 having a person who is sympathetic to their cause appointed 8 special administrator. Hence, it seems reasonable to prefer 9 the named executor as special administrator where he is 10 otherwise qualified. 11 12 Section 623616. A special administrator appointed by the 13 court in informal proceedings pursuant to Section 623614(1) 14 has the duty to collect and manage the assets of the estate, to 15 preserve them, to account therefor, and to deliver them to the 16 general personal representative upon his qualification. The 17 special administrator has the power of a personal 18 representative under this Code necessary to perform his 19 duties. 20 21 REPORTER’S COMMENT 22 Duties of the special administrator are provided throughout 23 this particular section, although the power to distribute assets 24 is specifically omitted. 25 26 Section 623617. A special administrator appointed by 27 order of the court in any formal proceeding has the power of 28 a general personal representative except as limited in the 29 appointment and duties as prescribed in the order. The 30 appointment may be for a specified time, to perform 31 particular acts, or on other terms as the court may direct. 32 33 REPORTER’S COMMENT 34 In formal proceedings in which a special administrator is 35 appointed, the powers of a special administrator are the same 36 as those of a personal representative except in the instance 37 where the powers are limited by the court. 38

[143] 181 1 Section 623618. The appointment of a special 2 administrator terminates in accordance with the provisions of 3 the order of appointment or on the appointment of a general 4 personal representative. In other cases, the appointment of a 5 special administrator is subject to termination as provided in 6 Sections 623608 through 623611. 7 8 REPORTER’S COMMENT 9 Appointment of a special administrator would terminate 10 according to the provisions of the order of appointment. 11 12 Section 623619. Any person who shall obtain, receive, 13 and have any goods or debts of any decedent or a release or 14 other discharge of any debt or duty that belonged to the 15 decedent upon any fraud or without such valuable 16 consideration as shall amount to the value of the same goods 17 or debts or near thereabouts (except it be in or toward 18 satisfaction of some just and principal debt of the value of the 19 same goods or debts to him owing by the decedent at the time 20 of his decease) shall be charged and chargeable as executor 21 of his own wrong, so far as such goods and debts coming to 22 his hands or whereof he is released or discharged by such 23 administrator will satisfy, deducting, nevertheless, to and for 24 himself allowance of all just, due, and principal debts upon 25 good consideration without fraud owing to him by the 26 decedent at the time of his decease and all other payments 27 made by him which lawful personal representatives may and 28 ought to have and pay by the laws and statutes of this State. 29 Any person who obtains, receives, or possesses property of 30 whatever kind, belonging to the decedent, by means of fraud 31 or without paying valuable consideration equivalent to the 32 value of the property, shall be charged and chargeable as 33 executor of his own wrong (executor de son tort) with respect 34 to the goods and debts. The value of the property is charged 35 to the executor de son tort. Likewise, the value of the 36 property shall be deducted from any distribution or payment 37 of any claim or commission to which the executor de son tort 38 is entitled from the estate. 39

[143] 182 1 REPORTER’S COMMENT 2 This section defines as an executor de son tort any person 3 who by fraud or without valuable consideration obtains assets 4 of a decedent without appointment as his personal 5 representative, charging him with liability therefor. 6 7 Section 623620. The judge of probate of the county in 8 which a deceased person may have died may, either of his 9 own accord or at the instance of any creditor or other person 10 interested in the estate of the deceased, cite before him such 11 person as, neither being appointed personal representative 12 nor having obtained administration of the effects of such 13 deceased person, shall nevertheless possess himself of the 14 goods, chattels, rights, and credits of such person deceased 15 and, upon such person being cited as aforesaid, the judge of 16 probate shall require of him a discovery and account of all 17 and singular the goods, chattels, rights, and credits of the 18 deceased and shall proceed to decree against him for the 19 value of the estate and effects of the deceased which he may 20 have wasted or which may have been lost by his illegal 21 interference, charging him as executors of their own wrong 22 are made liable at common law as far as assets shall have 23 come into his hands. Acting sua sponte or upon the petition 24 of any interested person, the probate judge of the county in 25 which a deceased person was domiciled at the time of his 26 death may order the executor de son tort to account for the 27 property in his possession. Upon a finding that the property 28 has been converted, wasted or otherwise damaged through 29 improper interference, the court may assess damages 30 including attorney’s fees and costs in the amount determined 31 by the court not to exceed the value of the property charged 32 to the executor de son tort. 33 34 REPORTER’S COMMENT 35 This section provides that the probate judge may cite before 36 him the executor de son tort and require him to account for 37 the deceased’s property. It also enables the probate judge to 38 enter a decree against the executor de son tort for any

[143] 183 1 property of the deceased that he has wasted or has lost by his 2 illegal interference. 3 4 Section 623621. Every personal representative of any 5 person who, as executor in his own wrong, shall waste or 6 convert any goods, chattels, estate, or assets of any person 7 deceased to his own use shall be liable and chargeable in the 8 same manner as his testator or intestate would have been if 9 he had been living. The rights of the probate court and 10 interested parties set forth in Section 623620 shall survive the 11 death of the executor de son tort. 12 13 REPORTER’S COMMENT 14 This section provides that the estate of an executor de son 15 tort may be liable for the waste or conversion committed by 16 the executor de son tort. 17 18 Part 7 19 20 Duties and Powers of Personal Representatives 21 22 Section 623701. The duties and powers of a personal 23 representative commence upon his appointment. The powers 24 of a personal representative relate back in time to give acts 25 by the person appointed which are beneficial to the estate 26 occurring prior to appointment the same effect as those 27 occurring thereafter. Prior to appointment, a person named 28 executor personal representative in a will may protect 29 property of the decedent’s estate and carry out written 30 instructions of the decedent relating to his body, funeral, and 31 burial arrangements. A personal representative may ratify 32 and accept acts on behalf of the estate done by others where 33 the acts would have been proper for a personal 34 representative. 35 36 REPORTER’S COMMENT 37 The authority of a personal representative relates back to 38 death upon appointment and stems from his appointment.

[143] 184 1 The personal representative may ratify acts done by others 2 prior to appointment. 3 4 Section 623702. A person to whom general letters are 5 issued first has exclusive authority under the letters until his 6 appointment is terminated or modified. If, through error, 7 general letters are afterwards issued to another, the first 8 appointed representative may recover any property of the 9 estate in the hands of the representative subsequently 10 appointed, but the acts of the latter done in good faith before 11 notice of the first letters are not void for want of validity of 12 appointment. 13 14 REPORTER’S COMMENT 15 This section provides that a person to whom letters are issued 16 has exclusive authority until the appointment is terminated or 17 modified. It also allows the personal representative to 18 recover any property in the hands of a second erroneously 19 appointed representative. 20 21 Section 623703. (a) A personal representative is a 22 fiduciary who shall observe the standards of care applicable 23 to trustees as described by Section 627804. A personal 24 representative has a duty to settle and distribute the estate of 25 the decedent in accordance with the terms of a probated and 26 effective will and this code, and as expeditiously and 27 efficiently as is consistent with the best interests of the estate. 28 He shall use the authority conferred upon him by this code, 29 the terms of the will, and any order in proceedings to which 30 he is party for the best interests of successors to the estate. 31 (b) A personal representative shall not be surcharged for 32 acts of administration or distribution if the conduct in 33 question was authorized at the time. Subject to other 34 obligations of administration, an informally probated will is 35 authority to administer and distribute the estate according to 36 its terms. Upon expiration of the relevant claim period, an 37 order of appointment of a personal representative, whether 38 issued in informal or formal proceedings, is authority to 39 distribute apparently intestate assets to the heirs of the

[143] 185 1 decedent if, at the time of distribution, the personal 2 representative is not aware has not received actual notice of a 3 pending testacy proceeding, a proceeding to vacate an order 4 entered in an earlier testacy proceeding, a formal proceeding 5 questioning his appointment or fitness to continue, or a 6 proceeding for administration under Part 5. Nothing in this 7 section affects the duty of the personal representative to 8 administer and distribute the estate in accordance with the 9 rights of claimants, the surviving spouse, any minor and 10 dependent children, and any pretermitted child of the 11 decedent as described elsewhere in this Code. 12 (c) Except as to proceedings which do not survive the 13 death of the decedent, a personal representative of a decedent 14 domiciled in this State at his death has the same standing to 15 sue and be sued in the courts of this State and the courts of 16 any other jurisdiction as his decedent had immediately prior 17 to death. 18 19 REPORTER’S COMMENT 20 This section is especially important because it states the basic 21 theory underlying the duties and powers of the personal 22 representative. The personal representative is classified as a 23 fiduciary and must adhere to the ‘prudent person’ rule 24 provided for trustees by Section 627804. In general the 25 personal representative is required to settle and distribute the 26 estate as fast and efficiently as possible for the best interest 27 of the estate. The section holds the power of distribution as 28 the most significant power the personal representative 29 performs. Finally, the section grants a personal 30 representative the same standing to sue and be sued in the 31 courts of this State and any other jurisdiction as the decedent 32 had immediately prior to his death, except as to proceedings 33 which do not survive the decedent’s death. 34 The 2010 amendment, in subsection (a), changed the 35 reference from Section 627933 to Section 627804, which was 36 made necessary by the adoption of the South Carolina Trust 37 Code. 38

[143] 186 1 Section 623704. A personal representative shall proceed 2 expeditiously with the settlement and distribution of a 3 decedent’s estate under the supervision of the court, as 4 follows: 5 (a) Immediately after his appointment he shall publish the 6 notice to creditors required by Section 623801. 7 (b) Within ninety days after his appointment he shall file 8 with the court the inventory and appraisement required by 9 Section 623706. 10 (c) Upon the expiration of the relevant period, as set forth 11 in Section 623807, the personal representative shall proceed 12 to allow or disallow claims and pay the claims allowed 13 against the estate, as provided in Section 623807. 14 (d) Upon the expiration of the relevant period, as set forth 15 in Section 6231001, the personal representative shall file the 16 account accounting, proposal for distribution, petition for 17 settlement of the estate, proofs required by Section 6231001, 18 and proof of publication of notice to creditors. 19 (e) Within the time set forth in Section 623806(a), serve 20 upon all claimants a notice stating that their claim has been 21 allowed or disallowed pursuant to that section. 22 (f) The time periods stated herein for completing the 23 above requirements are not intended to supplant any other 24 time periods stated elsewhere in this Code. The court may on 25 its own motion, or on the motion of the personal 26 representative or of any interested person, extend the time for 27 completing any of the requirements of administration 28 contained in Article 3 [Section 6231001, et seq.] including 29 any of the above requirements, and especially including the 30 requirement to account, under Section 6231001, in cases of 31 estates which remain significantly unadministered as of the 32 expiration of the relevant time period, either as to the 33 marshalling of assets or as to the allowance of claims. 34 (f)(g) If a personal representative or trustee neglects or 35 refuses to comply with any provision of Section 623706 he is 36 liable to a penalty of one thousand dollars for each separate 37 failure or neglect and the official bond of the personal 38 representative or trustee is liable therefor. This penalty must 39 be recovered by the South Carolina Department of Revenue

[143] 187 1 for the use of the State and an action for the recovery thereof 2 may be brought by the Department of Revenue in any court 3 of competent jurisdiction and, upon collection, must be paid 4 into the state treasury. But the department, upon good cause 5 shown, may, in its discretion, excuse the penalty or any part 6 thereof he is subject to the contempt power of the court. The 7 probate court, after a hearing and any notice the court may 8 require, may issue its order imposing the sentence, fine, or 9 penalty as it sees fit and remove the personal representative 10 and appoint another personal representative. 11 12 REPORTER’S COMMENT 13 This section requires the personal representative to proceed 14 expeditiously with the settlement and distribution of the 15 estate. It further provides that the settlement and distribution 16 are under the court’s supervision. Where informal 17 procedures are in effect, the section does not impose any 18 burdens on the personal representative other than those of 19 Part 5 and of any other pertinent provision of Article 3, 20 requiring or permitting such direct court supervision. 21 22 Section 623705. Not later than thirty days after his 23 appointment every personal representative, except any 24 special administrator, shall give information of his 25 appointment to the heirs (regardless of whether the decedent 26 died intestate and determined as if the decedent died 27 intestate) and devisees, including, if there has been no formal 28 testacy proceeding and if the personal representative was 29 appointed on the assumption that the decedent died intestate, 30 the devisees in any will mentioned in the application for 31 appointment of a personal representative. The information 32 must be delivered or sent by ordinary mail to each of the 33 heirs and devisees whose address is reasonably available to 34 the personal representative. The duty does not extend to 35 require information to persons who have been adjudicated in 36 a prior formal testacy proceeding to have no interest in the 37 estate. The information must include the name and address 38 of the personal representative, indicate that it is being sent to 39 persons who have or may have some interest in the estate

[143] 188 1 being administered, indicate whether bond has been filed, 2 and describe the court where papers relating to the estate are 3 on file. The personal representative’s failure to give this 4 information is a breach of his duty to the persons concerned 5 but does not affect the validity of his appointment, his 6 powers, or other duties. A personal representative may 7 inform other persons of his appointment by delivery or 8 ordinary first class mail. 9 10 REPORTER’S COMMENT 11 This section requires the personal representative to inform of 12 his appointment those persons who appear to have an interest 13 in the estate as it is being administered. Such notice must be 14 given within thirty days of his appointment. The notice may 15 be sent through ordinary mail. The notice must include the 16 personal representative’s name and address, indicate that the 17 information is being sent to all those who might have an 18 interest in the estate and whether a bond was required and 19 where the papers relating to the estate are filed. The notice 20 should not be confused with the notice requirements relating 21 to litigation. 22 23 Section 623706. (A) Within ninety days after his 24 appointment, a personal representative, who is not a special 25 administrator or a successor to another representative who 26 has previously discharged this duty, shall: 27 (1) prepare an inventory and appraisement of probate 28 property owned by the decedent at the time of his death, 29 together with such other information as may be required by 30 the South Carolina Department of Revenue, listing it with 31 reasonable detail, and indicating as to each listed item, its fair 32 market value as of the date of the decedent’s death, and the 33 type and amount of any encumbrance that may exist with 34 reference to any item; 35 (2) file the original of the inventory and appraisement 36 with the court; and 37 (3) mail a copy of the filed inventory and appraisement 38 to interested persons who request it have filed a demand for

[143] 189 1 notice of the filing of the inventory pursuant to Section 2 623204. 3 (B) Within ninety days of a demand by an interested 4 person for an inventory of nonprobate property, the personal 5 representative shall: 6 (1) prepare a list of the property owned by the decedent 7 at the time of his death that is not probate property, so far as 8 is known to the personal representative which may, at the 9 discretion of the personal representative, include the value 10 and nature of the decedent’s interest in the property on the 11 date of the decedent’s death; 12 (2) mail a copy of the list to each interested person who 13 has requested the list; and 14 (3) file proof of the mailing with the probate court. 15 (C) The court, upon application of the personal 16 representative, may extend the time for filing or making the 17 either the inventory and appraisement or list of nonprobate 18 property provided for in this section. 19 20 REPORTER’S COMMENT 21 This section requires the personal representative within 22 ninety days after his appointment to file an inventory and 23 appraisement listing the fair market value of each probate 24 asset as of the decedent’s date of death. He must list the type 25 and amount of any encumbrances. He is also required to 26 mail copies to interested persons who request it. 27 The 2013 amendment requires the personal representative 28 to provide a list of nonprobate property to any interested 29 person who claims it. The list of nonprobate property does 30 not have to include information about the value and nature of 31 the property, although the personal representative at his 32 discretion may include information about the value and 33 nature of the property. 34 The court may upon application extend the time for filing. 35 36 Section 623707. The personal representative may obtain a 37 qualified and disinterested appraiser to assist him in 38 ascertaining the fair market value as of the date of the 39 decedent’s death of any asset the value of which may be

[143] 190 1 subject to reasonable doubt. Different persons may be 2 employed to appraise different kinds of assets included in the 3 estate. The names and addresses of any appraiser must be 4 indicated on the inventory and appraisement or by 5 supplemental inventory and appraisement with the item or 6 items he appraised. Each appraiser shall execute the 7 inventory, stating thereon the item or items he appraised. On 8 motion application of any interested person, the court may 9 require that one or more qualified appraisers be appointed to 10 ascertain the fair market value of all or any part of the estate 11 or may approve one or more qualified appraisers. 12 13 REPORTER’S COMMENT 14 This section allows the personal representative to employ 15 expert appraisers and also authorizes the court to require the 16 appointment of expert appraisers upon application by any 17 interested person. 18 19 Section 623708. If any property not included in the 20 original inventory and appraisement comes to the knowledge 21 of a personal representative or if the personal representative 22 learns that the value or description indicated in the original 23 inventory for any item is erroneous or misleading, he shall 24 make submit a supplementary, amended or corrected 25 inventory or appraisement showing the market value as of the 26 date of the decedent’s death of the new item or the revised 27 market value or descriptions, and the appraisers or other data 28 relied upon, if any, and file it with the court, restating the 29 unchanged information from the original inventory and 30 appraisement and furnish copies thereof or information 31 thereof to persons who receive the original inventory, and to 32 interested persons interested in who have requested or 33 demanded the new information. 34 35 Section 623709. Except as otherwise provided by a 36 decedent’s will, every personal representative has a right to, 37 and shall take possession or control of, the decedent’s 38 property, except that any real property or tangible personal 39 property may be left with or surrendered to the person

[143] 191 1 presumptively entitled thereto unless or until, in the judgment 2 of the personal representative, possession of the property by 3 him will be necessary for purposes of administration. The 4 request by a personal representative for delivery of any 5 property possessed by an heir or devisee is conclusive 6 evidence, in any action against the heir or devisee for 7 possession thereof, that the possession of the property by the 8 personal representative is necessary for purposes of 9 administration. The personal representative shall pay taxes 10 on, and take all steps reasonably necessary for the 11 management, protection, and preservation of, the estate in his 12 possession. He may maintain an action to recover possession 13 of property or to determine the title thereto. 14 15 REPORTER’S COMMENT 16 Section 623101 provides that title to real and personal 17 property devolves on death or thereafter to heirs or devisees 18 ‘subject ... to administration.’ Section 623711 vests in the 19 personal representative a power over title to real and personal 20 property during administration. This section deals with the 21 personal representative’s duty and right to possess assets, real 22 and personal. It proceeds from the assumption that it is 23 desirable wherever possible to avoid disruption of the 24 possession of the decedent’s assets by his heirs or devisees. 25 But if the personal representative considers it advisable he 26 may take possession and his judgment is made conclusive. It 27 is likely that the personal representative’s judgment could be 28 questioned in a later action but this possibility should not 29 interfere with the personal representative’s administrative 30 authority as it relates to possession of the estate. 31 32 Section 623710. The property liable for the payment of 33 unsecured debts of a decedent includes all property 34 transferred by him by any means which is in law void or 35 voidable as against his creditors, and subject to prior liens, 36 the right to recover this property, so far as necessary for the 37 payment of unsecured debts of the decedent, is exclusively in 38 the personal representative. 39

[143] 192 1 REPORTER’S COMMENT 2 This section authorizes the personal representative to recover 3 any property transferred by the decedent in a transaction 4 which would be void or voidable against creditors. 5 6 Section 623711. (a) Until termination of his appointment 7 or unless otherwise provided in Section 623910, a personal 8 representative has the same power over the title to property 9 of the estate that an absolute owner would have, in trust 10 however, for the benefit of the creditors and others interested 11 in the estate. Except as otherwise provided in subsection (b), 12 this power may be exercised without notice, hearing, or order 13 of court. 14 (b) Except where the will of the decedent authorizes to the 15 contrary, a personal representative may not sell real property 16 of the estate except as authorized pursuant to the procedure 17 procedures described in Sections 623911 or Section Sections 18 6231301 et seq. and shall refrain from selling tangible or 19 intangible personal property of the estate (other than 20 securities regularly traded on national or regional exchanges 21 and produce, grain, fiber, tobacco, or other merchandise of 22 the estate for which market values are readily ascertainable) 23 having an aggregate value of five ten thousand dollars or 24 more without prior order of the court which may be issued 25 upon application of the personal representative and after 26 notice or consent as the court deems appropriate. 27 (c) If the will of a decedent devises real property to a 28 personal representative or authorizes a personal 29 representative to sell real property (the title to which was not 30 devised to the personal representative), then subject to 31 Section 623713, the personal representative, acting in trust 32 for the benefit of the creditors and others other interested 33 persons in the estate, may execute a deed in favor of a 34 purchaser for value, who takes title to the real property in 35 accordance with the provisions of Section 623910(b)(B). 36 37 REPORTER’S COMMENT 38 This section grants a personal representative the same power 39 over title to property that an absolute owner would have, in

[143] 193 1 trust, however, for the benefit of creditors and others 2 interested in the estate. This power over title is limited in 3 two respects. First, except where the will provides to the 4 contrary, an order from the probate court must be obtained 5 before personal property having an aggregate value in excess 6 of ten thousand dollars may be sold. Secondly, and again 7 except where the will provides to the contrary, the 8 representative cannot exercise the power to sell real property 9 unless he follows the mechanism of Section 623911 or 10 Section 6231301 et seq. 11 Under this section, Section 623101, and Section 623709, 12 title to personal property (as well as real property) devolves 13 at or soon after death to heirs and devisees, and not to the 14 personal representative. Further, the representative can 15 exercise power over the title to real property (as well as 16 personal property) subject to limitations. 17 18 Section 623712. If the exercise of power concerning the 19 estate is improper, the personal representative is liable to 20 interested persons for damage or loss resulting from breach 21 of his fiduciary duty to the same extent as a trustee of an 22 express trust. The rights of purchasers and others dealing 23 with a personal representative shall be determined as 24 provided in Sections 623713 and 623714. 25 26 REPORTER’S COMMENT 27 This section provides that the personal representative is liable 28 for his acts and omissions and for any breach of duty to the 29 same extent as the trustee of an express trust. The rights of 30 purchasers and others dealing with the personal 31 representative are governed by the next two sections. 32 Additionally, this section should be read in conjunction with 33 Sections 623607 and 623611, the first of which deals with an 34 interested party obtaining an order restraining the personal 35 representative from performing a specified act or exercising a 36 specified power and the second of which deals with the right 37 of an interested party to petition for the removal of the 38 personal representative. 39

[143] 194 1 Section 623713. Any sale or encumbrance to the personal 2 representative, his spouse, agent or attorney, or any 3 corporation or trust in which he has a substantial beneficial 4 interest, or any transaction which is affected by a substantial 5 conflict of interest on the part of the personal representative, 6 is voidable by any person interested in the estate except one 7 who has consented after fair disclosure unless: 8 (1) the will or a contract entered into by the decedent 9 expressly authorized the transaction; or 10 (2) the transaction is approved by the court after notice to 11 interested persons. 12 13 REPORTER’S COMMENT 14 This section provides that certain actions of a personal 15 representative are voidable. Exceptions to the general rule 16 are provided in the event the will or a contract entered into by 17 the decedent expressly authorizes the transaction or if the 18 transaction is approved by the probate court after notice to 19 interested parties. Presumptively, a broad authorization in 20 the will of a decedent for his personal representative to deal 21 with himself in both a fiduciary and an individual capacity 22 would not fall under the first exception which is limited to 23 ‘the transaction’ and must, therefore, be held to require 24 authorization for a specific transaction. 25 The general principles of law pertaining to a bona fide 26 purchaser for value will protect the title to property in the 27 hands of such a purchaser who obtained it without notice of 28 the conflict of interest or act of selfdealing. 29 30 Section 623714. A person who in good faith either assists 31 a personal representative or deals with him for value is 32 protected as if the personal representative properly exercised 33 his power. The fact that a person knowingly deals with a 34 personal representative does not alone require the person to 35 inquire into the existence of a power or the propriety of its 36 exercise. Except for restrictions on powers of personal 37 representatives under Part 5 [Sections 623501 et seq.] which 38 are endorsed on letters as provided in Section 623504, no 39 provision in any will or order of court purporting to limit the

[143] 195 1 power of a personal representative is effective except as to 2 persons with actual knowledge thereof. A person is not 3 bound to see to the proper application of estate assets paid or 4 delivered to a personal representative. The protection here 5 expressed extends to instances in which some procedural 6 irregularity or jurisdictional defect occurred in proceedings 7 leading to the issuance of letters, including a case in which 8 the alleged decedent is found to be alive. The protection here 9 expressed is not by substitution for that provided by 10 comparable provisions of the laws relating to commercial 11 transactions and laws simplifying transfers of securities by 12 fiduciaries. 13 14 REPORTER’S COMMENT 15 This section is designed to provide protection to persons who 16 deal with a personal representative. Persons dealing with 17 representatives generally are not charged with the duty to 18 inquire into any restrictions pertaining to the exercise of 19 powers by such personal representative. Any person dealing 20 with a representative under Part 5 will be charged with 21 knowledge of the restrictions upon exercise of power set 22 forth in the letters. 23 For example, a bona fide purchaser for value dealing with a 24 representative will be completely protected with respect to 25 claims by interested parties. However, the personal 26 representative will be liable to persons interested in the estate 27 if his dealings with such bona fide purchaser were 28 inconsistent with directions set forth in the will or other 29 restrictions imposed by order of the probate court. However, 30 if such a purchaser had actual knowledge of any such 31 restrictions, then this section will not provide protection to 32 such purchaser; instead, he is subject to having title to the 33 property acquired from the personal representative declared 34 void upon the petition of some interested party. 35 36 Section 623715. Except as restricted or otherwise 37 provided by the will or by an order in a formal proceeding 38 and subject to the restrictions imposed in Section 623711(b) 39 and to the priorities stated in Section 623902, a personal

[143] 196 1 representative, acting reasonably for the benefit of the 2 interested persons, may properly: 3 (1) retain assets owned by the decedent pending 4 distribution or liquidation including those in which the 5 representative is personally interested or which are otherwise 6 improper for trust investment; 7 (2) receive assets from fiduciaries or other sources; 8 (3) perform, compromise, or refuse performance of the 9 decedent’s contracts that continue as obligations of the estate, 10 as he may determine under the circumstances. In performing 11 enforceable contracts by the decedent to convey or lease 12 land, the personal representative, among other possible 13 courses of action, may: 14 (i) execute and deliver a deed of conveyance for cash 15 payment of all sums remaining due or the purchaser’s note 16 for the sum remaining due secured by a mortgage or deed of 17 trust on the land; or 18 (ii) deliver a deed in escrow with directions that the 19 proceeds, when paid in accordance with the escrow 20 agreement, be paid to the successors of the decedent, as 21 designated in the escrow agreement. 22 Execution and delivery of a deed pursuant to this 23 subsection affects title to the subject real property to the same 24 extent as execution and delivery of a deed by the personal 25 representative in other cases authorized by this Code.; 26 (4) satisfy written charitable pledges of the decedent 27 irrespective of whether the pledges constituted binding 28 obligations of the decedent or were properly presented as 29 claims, if in the judgment of the personal representative the 30 decedent would have wanted the pledges completed under 31 the circumstances; 32 (5) if funds are not needed to meet debts and expenses 33 currently payable and are not immediately distributable, 34 deposit or invest liquid assets of the estate, including monies 35 received from the sale of other assets, in federally insured 36 interestbearing accounts, readily marketable secured loan 37 arrangements or other prudent investments which would be 38 reasonable for use by trustees generally;

[143] 197 1 (6) subject to the restrictions imposed in Section 2 623711(b), acquire or dispose of an asset, including land in 3 this or another state, for cash or on credit, at public or private 4 sale; and manage, develop, improve, exchange, partition, 5 change the character of, or abandon an estate asset; 6 (7) make ordinary or extraordinary repairs or alterations in 7 buildings or other structures, demolish any improvements, 8 raze existing, or erect new party walls or buildings; 9 (8) satisfy and settle claims and distribute the estate as 10 provided in this Code; 11 (9) enter for any purpose into a lease as lessor or lessee, 12 with or without option to purchase or renew, but not for a 13 term extending beyond the period of administration and, with 14 respect to a lease with option to purchase, subject to the 15 restrictions imposed in Section 623711(b); 16 (10) enter into a lease or arrangement for exploration and 17 removal of minerals or other natural resources or enter into a 18 pooling or unitization agreement; 19 (11) vote stocks or other securities in person or by general 20 or limited proxy; 21 (12) pay calls, assessments, and other sums chargeable or 22 accruing against or on account of securities, unless barred by 23 the provisions relating to claims; 24 (13) hold a security in the name of a nominee or in other 25 form without disclosure of the interest of the estate but the 26 personal representative is liable for any act of the nominee in 27 connection with the security so held; 28 (14) insure the assets of the estate against damage, loss, and 29 liability and himself against liability as to third persons; 30 (15) effect a fair and reasonable compromise with any 31 debtor or obligor, or extend, renew, or in any manner modify 32 the terms of any obligation owing to the estate. If the 33 personal representative holds a mortgage, pledge, lien, or 34 other security interest upon property of another persons, he 35 may, in lieu of foreclosure, accept a conveyance or transfer 36 of encumbered assets from the owner thereof in satisfaction 37 of the indebtedness secured by lien;

[143] 198 1 (16) pay taxes, assessments, compensation of the personal 2 representative, and other expenses incident to the 3 administration of the estate; 4 (17) sell, or exercise stock subscription or conversion 5 rights; consent, directly or through a committee or other 6 agent, to the reorganization, consolidation, merger, 7 dissolution, or liquidation of a corporation or other business 8 enterprise; 9 (18) allocate items of income or expense to either estate 10 income or principal, as permitted or provided by law; 11 (19) employ persons, including attorneys, auditors, 12 investment advisors, or agents, even if they are associated 13 with the personal representative, to advise or assist the 14 personal representative in the performance of his 15 administrative duties; act without independent investigation 16 upon their recommendations; and instead of acting 17 personally, employ one or more agents to perform any act of 18 administration, whether or not discretionary; 19 (20) prosecute or defend claims, or proceedings in any 20 jurisdiction for the protection of the estate and of the personal 21 representative in the performance of his duties; 22 (21) subject to the restrictions imposed in Section 23 623711(b), sell, mortgage, or lease any real or personal 24 property of the estate or any interest therein for cash, credit, 25 or for part cash and part credit, and with or without security 26 for unpaid balances; 27 (22) continue any unincorporated business or venture in 28 which the decedent was engaged at the time of his death (i) in 29 the same business form for a period of not more than four 30 months from the date of appointment of a general personal 31 representative if continuation is a reasonable means of 32 preserving the value of the business including good will; (ii) 33 in the same business form for any additional period of time 34 that may be approved by order of the court in a formal 35 proceeding to which the persons interested in the estate are 36 parties; or (iii) throughout the period of administration if the 37 business is incorporated by the personal representative and if 38 none of the probable distributees of the business who are

[143] 199 1 competent adults object to its incorporation and retention in 2 the estate; 3 (23) make payment in cash or in kind, or partly in cash and 4 partly in kind, upon any division or distribution of the estate 5 (including the satisfaction of any pecuniary distribution) 6 without regard to the income tax basis of any specific 7 property allocated to any beneficiary and value and appraise 8 any asset and distribute such asset in kind at its appraised 9 value.; 10 (24) with the approval of the probate court or the circuit 11 court, compromise and settle claims and actions for wrongful 12 death, pain and suffering or both, and all claims and actions 13 based on causes of actions surviving, to personal 14 representatives, arising, asserted, or brought under or by 15 virtue of any statute or act of this State, any state of the 16 United States, the United States, or any foreign country.; 17 (25) donate a qualified conservation easement or fee simple 18 gift of land for conservation on any real property of the 19 decedent in order to obtain the benefit of the estate tax 20 exclusion allowed under Internal Revenue Code Section 21 2031(c) as defined in Section 12640(A), and the state income 22 tax credit allowed under Section 1263515, if the personal 23 representative has the written consent of all of the heirs, 24 beneficiaries, and devisees whose interests are affected by 25 the donation. Upon petition of the personal representative, 26 the probate court may consent on behalf of any unborn, 27 unascertained, or incapacitated heirs, beneficiaries, or 28 devisees whose interests are affected by the donation after 29 determining that the donation of the qualified real property 30 interest shall not adversely affect them or would most likely 31 be agreed to by them if they were before the court and 32 capable of consenting. A guardian ad litem must be 33 appointed to represent the interest of any unborn, 34 unascertained, or incapacitated persons. Similarly, and for 35 the same purposes and under the same conditions, mutatis 36 mutandis, a trustee may make such a donation for the settlor.; 37 (26) The personal representative has the power to access 38 the decedent’s files and accounts in electronic format,

[143] 200 1 including the power to obtain the decedent’s user names and 2 passwords. 3 4 REPORTER’S COMMENT 5 The purpose of this section is to grant personal 6 representatives a broad array of powers reasonably necessary 7 for the proper administration of an estate. The purpose of 8 this section is to set forth in some detail the powers which a 9 personal representative may exercise with respect to the 10 estate and without the necessity of obtaining an order from 11 the probate court in order to do so. Note the introductory 12 provision that the representative may exercise his powers, 13 including the power of sale, only within the restrictions of 14 Section 623711(b) (see the comments to that section, supra.). 15 16 Section 623716. A successor personal representative has 17 the same power and duty as the original personal 18 representative to complete the administration and distribution 19 of the estate, as expeditiously as possible, but he shall not 20 exercise any power expressly made personal to the executor 21 named in the will. 22 23 REPORTER’S COMMENT 24 This section provides that a successor personal representative 25 has the same powers and duties imposed upon the original 26 personal representative except any such powers or duties 27 which are expressly made personal to the original personal 28 representative named in the will. 29 30 Section 623717. If two or more persons are appointed 31 corepresentatives and unless the will provides otherwise, the 32 concurrence of all is required on all acts connected with the 33 administration and distribution of the estate. This restriction 34 does not apply when any corepresentative receives and 35 receipts for property due the estate, when the concurrence of 36 all cannot readily be obtained in the time reasonably 37 available for emergency action necessary to preserve the 38 estate, or. When a corepresentative has been delegated to act 39 for the others, written notice of the delegation signed by the

[143] 201 1 others and setting forth the duties delegated must be filed 2 with the court. Persons dealing with a corepresentative if 3 actually unaware that another has been appointed to serve 4 with him or if advised by the personal representative with 5 whom they deal that he has authority to act alone for any of 6 the reasons mentioned herein, are as fully protected as if the 7 persons with whom they dealt had been the sole personal 8 representative. 9 10 REPORTER’S COMMENT 11 This section provides that all corepresentatives are required 12 to unanimously consent to any matter pertaining to the 13 administration and distribution of the estate except when any 14 corepresentative receives and receipts for property due the 15 estate, when an emergency arises and action is necessary in 16 order to preserve the estate or when the corepresentatives 17 have delegated the right to act to one or more of their 18 number. 19 This section absolves any person dealing with one 20 corepresentative for any excesses committed by such 21 corepresentative in the exercise of his duty to the extent that 22 such person dealing with the corepresentative is unaware that 23 the existence of other corepresentatives or has been advised 24 by such corepresentative that he has the authority to so act. 25 The thrust of this section is to protect such a person dealing 26 with a corepresentative and to eliminate the need for such 27 person to inquire into the validity of the actions taken by 28 such corepresentative. However, the rules pertaining to 29 administration under Part 5 would have the effect of at least 30 requiring a person dealing with a personal representative to 31 determine whether or not the letters granted by the probate 32 court restrict the actions of the representative. That being the 33 case, it would seem that a person exercising due diligence in 34 determining whether or not there is an administration under 35 Part 5 would necessarily come across the fact that more than 36 one representative has been appointed by the probate court to 37 represent the estate. That leads to the inescapable fact that a 38 person dealing with the representative of an estate who 39 exercises due diligence would necessarily come across the

[143] 202 1 existence of additional corepresentatives and would, 2 therefore, not be able to rely upon the protections purportedly 3 granted to him as stated above, unless such corepresentative 4 represents in some fashion that he has the authority to act for 5 all other corepresentatives. See the third sentence of Section 6 623714 in connection with the purchaser’s implicit duty to 7 inquire into the authority of a representative to act on behalf 8 of the estate. 9 10 Section 623718. Unless the terms of the will otherwise 11 provide, every power exercisable by personal 12 corepresentatives may be exercised by the one or more 13 remaining after the appointment of one or more is terminated 14 and, if one of two or more nominated as coexecutors is not 15 appointed, those appointed may exercise all the powers 16 incident to the office. 17 18 REPORTER’S COMMENT 19 This section merely provides that remaining 20 corepresentatives will have full authority to act if one or 21 more of their number loses the capacity to so act by reason of 22 death or other termination of appointment as a personal 23 representative. 24 25 Section 623719. (a) Unless otherwise approved by the 26 court for extraordinary services, a personal representative 27 shall receive for his care in the execution of his duties a sum 28 from the probate estate funds not to exceed five percent of 29 the appraised value of the personal property of the probate 30 estate plus the sales proceeds of real property of the probate 31 estate received on sales directed or authorized by will or by 32 proper court order, except upon sales to the personal 33 representative as purchaser. The minimum commission 34 payable is fifty dollars, regardless of the value of the personal 35 property of the estate. 36 (b) Additionally, a personal representative may receive 37 not more than five percent of the income earned by the 38 probate estate in which he acts as fiduciary. No such 39 additional commission is payable by an estate if the probate

[143] 203 1 judge determines that a personal representative has acted 2 unreasonably in the accomplishment of the assigned duties, 3 or that unreasonable delay has been encountered. 4 (c) The provisions of this section do not apply in a case 5 where there is a contract providing for the compensation to 6 be paid for such services, or where the will otherwise directs, 7 or where the personal representative qualified to act before 8 June 28, 1984. 9 (d) A personal representative also may renounce his right 10 to all or any part of the compensation. A written 11 renunciation of fee may be filed with the court. 12 (e) If more than one personal representative is serving an 13 estate, the court in its discretion shall apportion the 14 compensation among the personal representatives, but the 15 total compensation for all personal representatives of an 16 estate must not exceed the maximum compensation 17 allowable under subsections (a) and (b) for an estate with a 18 sole personal representative. 19 (f) For purposes of this section, ‘probate estate’ means 20 the decedent’s property passing under the decedent’s will 21 plus the decedent’s property passing by intestacy. This 22 subsection is intended to be declaratory of the law and 23 governs the compensation of personal representatives 24 currently serving and personal representatives serving at a 25 later time. 26 27 REPORTER’S COMMENT 28 Unless provided otherwise by contract, by the will or by the 29 personal representative’s renunciation, his compensation is 30 limited to sums equal to five percent of personal property and 31 five percent of sold real property, in the normal course, plus 32 five percent of income on invested monies, unless the probate 33 court disapproves. The probate court may set fees for less 34 than the stated limits. The probate court may set fees higher 35 than the stated limits if the court determines the personal 36 representative provided extraordinary service. 37 38 Section 623720. If any personal representative or person 39 nominated as personal representative defends or prosecutes

[143] 204 1 any proceeding in good faith, whether successful or not, he is 2 entitled to receive from the estate his necessary expenses and 3 disbursements including reasonable attorneys’ fees incurred. 4 5 REPORTER’S COMMENT 6 If any personal representative in good faith prosecutes or 7 defends an action, he is entitled to reimbursement from the 8 estate for reasonable expenses as well as reasonable attorney 9 fees. 10 11 Section 623721. (a) After notice to all interested persons, 12 on petition of an interested person or on appropriate motion if 13 administration is under Part 5 [Sections 623501 et seq.], the 14 propriety of employment of any person by a personal 15 representative including any attorney, auditor, investment 16 advisor, or other specialized agent or assistant, the 17 reasonableness of the compensation of any person so 18 employed, or the reasonableness of the compensation 19 determined by the personal representative for his own 20 services, may be reviewed by the court. Any person who has 21 received excessive compensation from an estate for services 22 rendered may be ordered to make appropriate refunds. 23 (b) Upon the settlement of their accounts by personal 24 representatives the court shall allow each appraiser appointed 25 by the court a reasonable daily fee for each day spent on 26 appraising the property of the estate and also mileage at the 27 same rate that members of state boards, commissions, and 28 committees receive for each mile actually traveled in going 29 to and from the place where the property ordered to be 30 appraised is situated. In determining the reasonableness of 31 the fee to each appraiser the court shall consider the value of 32 the estate, the actual time consumed by the appraisers in the 33 performance of their duties, and other such circumstances 34 and conditions surrounding the appraisal as the court deems 35 appropriate. 36 37 REPORTER’S COMMENT

[143] 205 1 This section allows a personal representative to seek prior 2 approval of the probate court before an agent or advisor is 3 hired. 4 5 Part 8 6 7 Creditors’ Claims 8 9 Section 623801. (a) Unless notice has already been given 10 under this section, a personal representative upon his 11 appointment shall must publish a notice to creditors once a 12 week for three successive weeks in a newspaper of general 13 circulation in the county announcing his appointment and 14 address and notifying creditors of the estate to present their 15 claims within eight months after the date of the first 16 publication of the notice or be forever barred. 17 (b) A personal representative may give written notice by 18 mail or other delivery to any creditor, notifying the creditor 19 to present his claim within eight months from one year of the 20 published notice as provided in (a) above, decedent’s death, 21 or within sixty days from the mailing or other delivery of 22 such notice, whichever is later earlier, or be forever barred. 23 Written notice is the notice described in (a) above or a 24 similar notice. 25 (c) The personal representative is not liable to any 26 creditor or to any successor of the decedent for giving or 27 failing to give notice under this section. 28 (d) Notwithstanding subsections (a) and (b), notice to 29 creditors under this section is not required if a personal 30 representative is not appointed to administer the decedent’s 31 estate during the one year period following the death of the 32 decedent. 33 34 REPORTER’S COMMENT 35 This section provides for the publication of notice and for the 36 delivery of notice to creditors at the discretion of the personal 37 representative. The notice is published once a week for three 38 successive weeks in a paper of general circulation in the

[143] 206 1 county. There is no requirement that demands be duly 2 attested. 3 4 Section 623802. (a) Unless an estate is insolvent, the 5 personal representative, with the consent of all successors 6 whose interests would be affected, may waive any defense of 7 limitations available to the estate. If the defense is not 8 waived, no claim which was barred by any statute of 9 limitations at the time of the decedent’s death shall be 10 allowed or paid. 11 (b) The running of any statute of limitations measured 12 from some other event than death or the giving of notice to 13 creditors is suspended during the eight months following the 14 decedent’s death but resumes thereafter as to claims not 15 barred pursuant to the sections which follow. 16 (c) For purposes of any statute of limitations, the proper 17 presentation of a claim under Section 623804 is equivalent to 18 commencement of a proceeding on the claim. 19 20 REPORTER’S COMMENT 21 This section provides for waiver of and the suspension of the 22 running of any statute of limitations, measured from some 23 event other than death and notice to creditors, during the 24 eight months following the decedent’s death, resuming 25 thereafter. 26 27 Section 623803. (a) All claims against a decedent’s 28 estate which arose before the death of the decedent, including 29 claims of the State and any political subdivision thereof, 30 whether due or to become due, absolute or contingent, 31 liquidated or unliquidated, founded on contract, tort, or other 32 legal basis, if not barred earlier by other another statute of 33 limitations, or nonclaim statute; are barred against the estate, 34 the personal representative, and the decedent’s heirs and 35 devisees, and nonprobate transferees of the decedent,; unless 36 presented within the earlier of the following dates: 37 (1) one year after the decedent’s death; or 38 (2) within the time provided by Section 623801(b) for 39 creditors who are given actual notice, and within the time

[143] 207 1 provided in Section 623801(a) for all creditors barred by 2 publication; provided, claims. 3 (b) A claim described in subsection (a) which is barred by 4 the nonclaim statute at of the decedent’s domicile before the 5 giving of notice to creditors barred in this State are also is 6 barred in this State. 7 (b)(c) All claims against a decedent’s estate which arise at 8 or after the death of the decedent, including claims of the 9 State and any subdivision thereof, whether due or to become 10 due, absolute or contingent, liquidated or unliquidated, 11 founded on contract, tort, or other legal basis, are barred 12 against the estate, the personal representative, and the heirs 13 and devisees of the decedent, unless presented as follows: 14 (1) a claim based on a contract with the personal 15 representative within eight months after performance by the 16 personal representative is due; or 17 (2) any other claim, within the later of eight months 18 after it arises, or the time specified in subsection (a)(1). 19 (c)(d) Nothing in this section affects or prevents shall be 20 construed as placing a limitation on the time for: 21 (1) any commencing a proceeding to enforce any a 22 mortgage, pledge, lien, or other security interest upon 23 property of the estate; or 24 (2) to the limits of the insurance protection only, any 25 commencing a proceeding to establish liability of the 26 decedent or the personal representative for which he is 27 protected by liability insurance; or 28 (3) collection of collecting compensation for services 29 rendered and to the estate or reimbursement for expenses 30 advanced by the personal representative or by the attorney or 31 accountant for the personal representative of the estate. 32 33 REPORTER’S COMMENT 34 Under this section, claims encompass those that are due or to 35 become due, absolute or contingent, liquidated or 36 unliquidated, founded on contract, tort, or other legal basis. 37 The claims are then divided into those which arose before the 38 death of the decedent and those which arise at or after the 39 death of the decedent.

[143] 208 1 Claims arising before death, unless barred by other statutes of 2 limitation, are barred unless presented as follows: (1) for 3 those creditors not barred by publication within the earlier of 4 one year following date of death or sixty days from any 5 actual notice; and (2) for those creditors barred by 6 publication within the earlier of one year from date of death 7 or eight months from any publication. Also, if a claim is 8 barred by the nonclaim statute of the decedent’s domicile 9 before the first publication for claims in this State, it is also 10 barred in this State. 11 Claims arising at or after death must be presented as 12 follows: (1) if against the personal representative, within 13 eight months after his performance is due; (2) otherwise, 14 within eight months after the claim arises. 15 The limitations of Section 623803 do not apply to 16 proceedings to enforce mortgages, pledges, or other liens 17 upon property of the estate, or proceedings to establish 18 liability of the decedent or the personal representative for 19 which there is liability insurance. 20 21 Section 623804. Claims against a decedent’s estate may 22 must be presented as follows: 23 (1)(a) The claimant may deliver or mail to the personal 24 representative a written statement of the claim indicating its 25 basis, the name and address of the claimant, and the amount 26 claimed, and must file a written statement of the claim, in the 27 form prescribed by rule, with the clerk of the probate court in 28 which the decedent’s estate is under administration. The 29 claim is deemed considered presented on upon the first to 30 occur of receipt filing of the written statement of claim by the 31 personal representative or the filing of the claim with the 32 court. If a claim is not yet due, the date when it will become 33 due must be stated. If the claim is contingent or 34 unliquidated, the nature of the uncertainty must be stated. If 35 the claim is secured, the security must be described. Failure 36 to describe correctly fully the security, the nature of any 37 uncertainty, and the due date of a claim not yet due does not 38 invalidate the presentation made.

[143] 209 1 (b) In addition to the requirements in subsection (1)(a), 2 a creditor seeking appointment as personal representative 3 pursuant to Section 623203(a)(6) must attach the written 4 statement of the claim to the application or petition for 5 appointment; for purposes of Section 623803. The claim is 6 considered to be presented when the application or petition 7 for appointment is filed with the written statement of the 8 claim attached. 9 (2) The Subject to subsection (5), once a claim is 10 presented in accordance with subsection (1), a claimant may 11 at any time thereafter commence a legal proceeding against 12 the personal representative by the filing of a summons and 13 petition for allowance of claim or complaint in any court 14 where the personal representative may be subjected to 15 jurisdiction, to obtain payment of his claim against the estate, 16 but the commencement of the proceeding must occur within 17 the time limited for presenting the claim, and the claimant 18 must file a written statement of the claim as in (1) above, 19 with the clerk of the probate court. No presentation of claim 20 is required in regard to matters claimed in proceedings 21 against the decedent which were pending at the time of his 22 death seeking payment of the claim by the decedent’s estate, 23 and serving the same upon the personal representative. If the 24 legal proceeding is not commenced in the probate court, the 25 claimant must provide written notice to the probate court in 26 which the decedent’s estate is under administration that a 27 legal proceeding has commenced for allowance of the claim, 28 setting forth the court in which the legal proceeding is 29 pending. Thereafter, the probate court shall not authorize the 30 closing of the decedent’s estate until the legal proceeding has 31 ended. 32 (3) If a claim is presented under subsection (1), no 33 proceeding thereon may be commenced more than thirty days 34 after the personal representative has mailed a notice of 35 disallowance with warning of the impending bar; but, in the 36 case of a claim which is not presently due or which is 37 contingent or unliquidated, the personal representative may 38 consent to an extension of the thirtyday period, or to avoid 39 injustice the court, on petition presented to the court prior to

[143] 210 1 the expiration of such thirtyday period, may order an 2 extension of the thirtyday period, but in no event may the 3 extension run beyond the applicable statute of limitations. In 4 lieu of the procedure provided in subsections (1) and (2), and 5 subject to subsection (6), a claimant may commence a legal 6 proceeding against the personal representative, by the filing 7 of a summons and petition for allowance of claim or 8 complaint in any court where the personal representative may 9 be subjected to jurisdiction, seeking payment of his claim by 10 the estate, and serving the same upon the personal 11 representative. The commencement of the legal proceeding 12 under this subsection must occur within the time limit for 13 presenting the claim as set forth in Section 623803. If the 14 legal proceeding is not commenced in the probate court, the 15 claimant must file a written statement of the claim with the 16 probate court in which the decedent’s estate is under 17 administration providing substantially the same information 18 as the statement in subsection (1), along with a statement that 19 a legal proceeding to enforce the claim has commenced, and 20 identifying the court where the proceeding is pending. 21 Thereafter, the probate court shall not permit the closing of 22 the decedent’s estate until the legal proceeding has ended. 23 (4) Notwithstanding any other provision of this section, 24 no presentation of a claim is required in regard to matters 25 claimed in proceedings against the decedent which were 26 pending at the time of the decedent’s death. 27 (5) Notwithstanding any other provision of this section, 28 no proceeding for enforcement or allowance of a claim or 29 collection of a debt may be commenced more than thirty days 30 after the personal representative has mailed a notice of 31 disallowance or partial disallowance of the claim in 32 accordance with the provisions of Section 623806. However, 33 in the case of a claim which is not presently due or which is 34 contingent or unliquidated, the personal representative may 35 consent to an extension of the thirty day period, or to avoid 36 injustice the court, on petition presented to the court prior to 37 the expiration of the thirtyday period, may order an extension 38 of the thirtyday period, but in no event shall the extension run 39 beyond the applicable statute of limitations.

[143] 211 1 (6) Notwithstanding any other provision of this section, 2 no claim against a decedent’s estate may be presented or 3 legal action commenced against a decedent’s estate prior to 4 the appointment of a personal representative to administer the 5 decedent’s estate. 6 (7) (A) A legal proceeding pending on the date of a 7 decedent’s death in which the decedent was a necessary party 8 shall be suspended until a personal representative is 9 appointed to administer the decedent’s estate, unless a court 10 otherwise orders. 11 (B) Pursuant to Section 623104, this subsection does 12 not apply to a proceeding by a secured creditor of a decedent 13 to enforce the secured creditor’s right to its security. It does 14 apply to a proceeding for a deficiency judgment against a 15 decedent or the estate of a decedent.” 16 17 REPORTER’S COMMENTS 18 This section establishes the mechanism for presenting claims. 19 The claim may be delivered to the personal representative 20 and must be filed with the court. Certain information must 21 be included for claims not yet due, contingent, unliquidated, 22 and secured claims. In lieu of presenting a claim, a 23 proceeding may be commenced against a personal 24 representative in any appropriate court, but the 25 commencement must occur within the time for presenting 26 claims. No claim is required in matters which were pending 27 at the time of decedent’s death. Actions on claims must be 28 commenced within the thirty days after the personal 29 representative has mailed a notice of disallowance, but the 30 personal representative or the court may consent prior to the 31 expiration of the thirty-day period to extensions that do not 32 run beyond the applicable statute of limitations. The 2013 33 amendment requires a creditor seeking appointment to attach 34 a written statement of its claim to the application or petition 35 for appointment. Allowing a creditor to present a claim in 36 this manner creates an exception to the general rule of 37 Section 623104 and Section 623804(6), otherwise precluding 38 the presentation of a claim prior to the appointment of a 39 personal representative. The 2013 amendment further

[143] 212 1 clarifies that, as earlier stated in Section 623104, an in rem 2 proceeding by a secured creditor is not suspended until a 3 personal representative is appointed, unless that proceeding 4 includes an action for a deficiency judgment against a 5 decedent or his estate. . 6 7 Section 623805. (a) If the applicable assets of the estate 8 are insufficient to pay all claims in full, the personal 9 representative shall make payment in the following order: 10 (1) costs and expenses of administration, including 11 attorney’s fees, and reasonable funeral expenses; 12 (2) debts and taxes with preference under federal law; 13 (2)(i)(3) reasonable and necessary medical and 14 expenses, hospital expenses, and personal care expenses of 15 the last illness of the decedent, including compensation of 16 persons attending the decedent prior to death; 17 (ii) medical assistance paid under Title XIX State 18 Plan for Medical Assistance as provided for in Section 19 437460; 20 (3) debts and taxes with preference under federal law; 21 (4) debts and taxes with preference under other laws of 22 this State, in the order of their priority, including medical 23 assistance paid under Title XIX State Plan for Medical 24 Assistance as provided for in Section 437460; 25 (5) all other claims. 26 (b) Except as is provided under subsection (a)(4) above, 27 no preference shall be given in the payment of any claim 28 over any other claim of the same class, and a claim due and 29 payable shall not be entitled to a preference over claims not 30 due. 31 (c) Any person advancing or lending money to a 32 decedent’s estate for the payment of a specific claim shall, to 33 the extent of the loan, have the same priority for payment as 34 the claimant paid with the proceeds of the loan. 35 36 REPORTER’S COMMENT 37 This section sets up the classification of claims where the 38 assets of the estate are insufficient to pay all claims in full.

[143] 213 1 Claims due and payable are not entitled to a preference over 2 claims not due. 3 4 Section 623806. (a) As to claims presented in the 5 manner described in Section 623804(1) within the time limit 6 prescribed in Section 623803, within sixty days after the 7 presentment of the claim, or within fourteen months after the 8 death of the decedent, whichever is later, the personal 9 representative may mail must serve upon the claimant a 10 notice to any claimant stating that the claim has been allowed 11 or disallowed in whole or in part. Service of such notice 12 shall be by United States mail, personal service, or otherwise 13 as permitted by rule and a copy of the notice shall by filed 14 with the probate court along with proof of delivery setting 15 forth the date of mailing or other service on the claimant. A 16 notice of disallowance or partial disallowance of a claim 17 must contain a warning that the claim will be barred to the 18 extent disallowed unless the claimant commences a 19 proceeding for allowance of the claim in accordance with 20 Section 623804(2) within thirty days of the mailing or other 21 service of the notice of disallowance or partial disallowance. 22 If, after allowing or disallowing a claim, the personal 23 representative changes his decision concerning the claim, he 24 shall notify the claimant. The personal representative may 25 not change a disallowance of a claim after the time for the 26 claimant to file a petition for allowance or to commence a 27 proceeding on the claim has run and the claim has been 28 barred. Every claim which is disallowed in whole or in part 29 by the personal representative is barred so far as not allowed 30 unless the claimant files a petition for allowance in the court 31 or commences a proceeding for allowance of the claim in 32 accordance with Section 623804(2) not later than thirty days 33 after the mailing or other service against the personal 34 representative not later than thirty days after the mailing of 35 the notice of disallowance or partial allowance if the notice 36 warns the claimant of the impending bar. It is the 37 responsibility of the personal representative to notify the 38 claimant if a claim is disallowed disallowance by the 39 personal representative. For good cause shown, the court

[143] 214 1 may reasonably extend the time for filing the notice of 2 allowance or disallowance of a properly filed claim. 3 (b) Upon service of the summons and petition of the 4 personal representative or of a claimant in a proceeding for 5 the purpose, the court may allow in whole or in part any 6 claim or claims presented to the personal representative or 7 filed with the court in due time and not barred by subsection 8 (a) of this section. Notice of hearing in this proceeding shall 9 be given to the claimant, the personal representative, and 10 those other persons interested in the estate as the court may 11 direct by order entered at the time the proceeding is 12 commenced. The personal representative of a decedent’s 13 estate may commence a proceeding to obtain probate court 14 approval of the allowance, in whole or part, of any claim or 15 claims presented in the manner described in Section 16 623804(1), within the time limit prescribed in Section 17 623803, and not barred by subsection (a). The proceeding 18 may be commenced by the filing of a summons and petition 19 with the probate court, and service of the same upon the 20 claimant or claimants whose claims are in issue; and such 21 other interested parties as the probate court may direct by 22 order entered at the time the proceeding is commenced. 23 Notice of hearing on the petition shall be given to interested 24 parties in accordance with Section 621401. 25 (c) A judgment in a proceeding in another court against a 26 personal representative to enforce a claim against a 27 decedent’s estate is an allowance of the claim. Upon 28 obtaining such a judgment a claimant must file a certified 29 copy of its judgment with the probate court in which the 30 decedent’s estate is being administered. 31 (d) Unless otherwise provided in any judgment in another 32 court entered against the personal representative and except 33 from claims under 62-3803, allowed claims bear interest at 34 the legal rate (as determined according to Section 35 343120(A)) for the period commencing thirty days upon the 36 later of fourteen months after the time for original 37 presentation of the claim has expired unless based on a 38 contract making a provision for interest, in which case they 39 bear interest in accordance with that provision date of the

[143] 215 1 decedent’s death or the last date upon which the claim could 2 have been properly presented under Section 623803; unless 3 based on a contract making a provision for interest, in which 4 case the claim bears interest in accordance with the terms of 5 the contract 6 (e) Allowance of a claim is evidence the personal 7 representative accepts the claim as a valid debt of the 8 decedent’s estate. Allowance of a claim may not be 9 construed to imply the estate will have sufficient assets with 10 which to pay the claim. 11 12 REPORTER’S COMMENT 13 This section provides the procedure by which the personal 14 representative acts on claims and claimants react to 15 disallowed claims. Within thirty days after the mailing of 16 notice of disallowance, if the notice warns of the impending 17 bar, a claimant must commence a proceeding against the 18 personal representative. This relates to claims allowed in 19 whole or in part. A claimant has thirty days to react to a 20 disallowed claim. A judgment in a proceeding in another 21 court to enforce a claim constitutes an allowance of a claim. 22 Unless otherwise provided, or unless interest is based upon 23 contract, allowed claims bear interest at the legal rate 24 commencing thirty days after the time for original 25 presentation of the claims has expired. 26 The personal representative or the claimant may begin an 27 action in the court for allowance of the claim. This gives the 28 court jurisdiction over any claim or claims presented to the 29 personal representative or filed with the court. 30 The 2010 amendment added ‘service of’ and ‘summons 31 and’ in the first sentence to clarify that a summons and 32 petition are required to commence a formal proceeding, 33 including a formal proceeding for allowance of claims. See 34 2010 amendments to certain definitions in S.C. Code 35 §621201 and also see §§1423280, 621304, and Rules 1 and 36 81, SCRCP. The 2010 amendment also added ‘of hearing’ 37 after ‘Notice’ in the last sentence to clarify the notice of 38 hearing requirements referred to in §621401.

[143] 216 1 The 2013 amendment defines allowance and imposes an 2 affirmative duty on the personal representative to either allow 3 or disallow a claim within time frames imposed by the code. 4 Under the 2013 amendment, unless the court approves an 5 extension of time, the personal representative must either 6 allow or disallow all properly presented claims and serve 7 notice of the allowance or disallowance of the claim on the 8 claimant within the later of sixty days from the presentment 9 of the claim and fourteen months from the date of the 10 decedent’s death. 11 Service of the notice of allowance or disallowance can be 12 made by mail or some other form of delivery. If a notice of 13 disallowance is sent by mail, the thirty day period for filing a 14 petition for allowance of claim, starts to run on the date of 15 mailing. 16 A claim can be allowed, disallowed, or allowed in part and 17 disallowed in part. The code does not establish a penalty for 18 failure of the personal representative to comply with the 19 requirement to notify the claimant, but instead relies on the 20 authority of the probate court to remove a personal 21 representative for failure to perform his duties under the 22 code. 23 The 2013 amendment imposes on a person obtaining a 24 judgment against an estate in a court other than the probate 25 court an obligation to provide the probate court with a 26 certified copy of the judgment. 27 The 2013 amendment modifies the interest rules in regard 28 to the properly presented claims against the decedent’s estate. 29 Interest on a claim begins to run upon the later of fourteen 30 months after the decedent’s death or the last day upon which 31 the claim could be properly presented, unless the claim is 32 based on a contract providing for interest. 33 The 2013 amendment requires that interested persons be 34 notified of hearings on petitions for allowance of claim. 35 36 Section 623807. (a) Upon the expiration of the 37 applicable time limitation provided in Section 623803 for the 38 presentation of claims, the personal representative shall 39 proceed to pay the claims allowed against the estate in the

[143] 217 1 order of priority prescribed, after making provision for 2 homestead, for exempt property under Section 622401, for 3 claims already presented which have not yet been allowed or 4 whose allowance has been appealed, and for unbarred claims 5 which may yet be presented, including costs and expenses of 6 administration. By petition to the court in a proceeding for 7 the purpose, or by appropriate motion if the administration is 8 under Part 5, a claimant whose claim has been allowed but 9 not paid as provided herein may secure an order directing the 10 personal representative to pay the claim to the extent that 11 funds of the estate are available for the payment. Prior to the 12 closing of the estate and no later than fourteen months after 13 the decedent’s death, the personal representative must 14 proceed to pay the claims allowed against the estate in the 15 order of priority prescribed; and after making provision for 16 the homestead, for exempt property under Section 622401, 17 for claims already presented which have not been allowed or 18 whose disallowance is the subject of a legal proceeding, or 19 the time to file such a proceeding has not expired, and for 20 unbarred claims which may yet be presented, including costs 21 and expenses of administration. Upon application of the 22 personal representative and for good cause shown, the 23 probate court may extend the time for payment of creditor 24 claims. 25 (b) Upon the expiration of the applicable time limitation 26 provided in Section 623803 for the presentation of claims, 27 any claimant whose claim has been allowed, or partially 28 allowed, under Section 623806 may petition the probate 29 court, or file an appropriate motion if the administration is 30 under Part 5, for an order directing the personal 31 representative to pay the claim, to the extent allowed, and to 32 the extent assets of the estate are available for payment 33 without impairing the ability of the personal representative to 34 fulfill the other obligations of the decedent’s estate. 35 (c) The personal representative at any time may pay any 36 just claim which has not been barred, with or without formal 37 presentation, but he is personally liable to any other claimant 38 whose claim is allowed and who is injured by such payment 39 if:

[143] 218 1 (1) the payment was made before the expiration of the 2 time limit stated in subsection (a) set forth in Section 623803 3 for the presentation of a claim, and the personal 4 representative failed to require the payee to give adequate 5 security for the refund of any of the payment necessary to 6 pay other claimants; or 7 (2) the payment was made, due to the negligence or 8 wilful fault of the personal representative, in such manner as 9 to deprive the injured claimant of his priority. 10 11 REPORTER’S COMMENT 12 This provides a remedy for a claimant whose claim has been 13 allowed but has not been paid. Under Section 623807(c), a 14 personal representative is liable for claims paid out of order. 15 16 Section 623808. (a) Unless otherwise provided in the 17 contract, a personal representative is not individually liable 18 on a contract properly entered into in his fiduciary capacity in 19 the course of administration of the estate unless he fails to 20 reveal his representative capacity or identify the estate in the 21 contract. 22 (b) A personal representative is individually liable for 23 obligations arising from ownership or control of the estate or 24 for torts committed in the course of administration of the 25 estate only if he is personally at fault. 26 (c) Claims based on contracts entered into by a personal 27 representative in his fiduciary capacity, on obligations arising 28 from ownership or control of the estate or on torts committed 29 in the course of estate administration may be asserted against 30 the estate by proceeding against the personal representative 31 in his fiduciary capacity, whether or not the personal 32 representative is individually liable therefor. 33 (d) Issues of liability as between the estate and the 34 personal representative individually may be determined in a 35 proceeding for accounting, surcharge, or indemnification or 36 other appropriate proceeding. 37 38 REPORTER’S COMMENT

[143] 219 1 This section clarifies that the personal representative is not 2 individually liable for contracts properly entered into in his 3 fiduciary capacity on obligations arising from ownership or 4 control of the estate. He is liable for torts committed in the 5 course of his administration only if he is personally at fault. 6 It also provides for a variety of appropriate proceedings to 7 determine the issues of liability between the estate and the 8 personal representative. 9 10 Section 623809. Payment of a secured claim is upon the 11 basis of the amount allowed if the creditor surrenders his 12 security; otherwise, payment is upon the basis of one of the 13 following: 14 (1) if the creditor exhausts his security before receiving 15 payment, upon the amount of the claim allowed less the fair 16 market value of the security as agreed by the parties, or as 17 determined by the court; or 18 (2) if the creditor does not have the right to exhaust his 19 security or has not done so, upon the amount of the claim 20 allowed less the value of the security determined by 21 converting it into money according to the terms of the 22 agreement pursuant to which the security was delivered to 23 the creditor, or by the creditor and personal representative by 24 agreement, arbitration, compromise, or litigation. 25 26 REPORTER’S COMMENT 27 This provides for payment of allowed secured claims in full 28 if the security is surrendered by the creditor. 29 Where the creditor exhausts his security before receiving 30 payment, he receives the claim allowed less the fair market 31 value of security as agreed or determined by the court. 32 If the security has not been exhausted, the creditor is paid the 33 amount of the claim less the value of the security if covered. 34 35 Section 623810. (a) If a claim which will become due at 36 a future time or a contingent or unliquidated claim becomes 37 due or certain before the distribution of the estate, and if the 38 claim has been allowed or established by a proceeding, it is

[143] 220 1 paid in the same manner as presently due and absolute claims 2 of the same class. 3 (b) In other cases the personal representative or, on 4 petition of the personal representative or the claimant in a 5 special proceeding for the purpose, the court may provide for 6 payment as follows: 7 (1) if the claimant consents, he may be paid the present 8 or agreed value of the claim, taking any uncertainty into 9 account; 10 (2) arrangement for future payment, or possible 11 payment, on the happening of the contingency or on 12 liquidation may be made by creating a trust, giving a 13 mortgage or other security interest, obtaining a bond or 14 security from a distributee, or otherwise. 15 16 REPORTER’S COMMENT 17 This provides various arrangements by which the personal 18 representative can secure future payment of claims which are 19 not due, contingent, or unliquidated. 20 21 Section 623811. In allowing a claim, the personal 22 representative may deduct any counterclaim which the estate 23 has against the claimant. In determining a claim against an 24 estate, a court shall reduce the amount allowed by the amount 25 of any counterclaims allowed and, if such counterclaims 26 exceed the claim, render a judgment against the claimant in 27 the amount of the excess. A counterclaim, liquidated or 28 unliquidated, may arise from a transaction other than that 29 upon which the claim is based. A counterclaim may give rise 30 to relief exceeding in amount or different in kind from that 31 sought in the claim. 32 33 REPORTER’S COMMENT 34 This provides for the reduction of a claim against the estate 35 by any counterclaim, liquidated or unliquidated. 36 37 Section 623812. No execution may issue upon nor may 38 any levy be made against any property of the estate under 39 any judgment against a decedent or a personal representative,

[143] 221 1 but this section shall not be construed to prevent the 2 enforcement of mortgages, pledges, liens, or other security 3 interests upon real or personal property in an appropriate 4 proceeding. 5 6 REPORTER’S COMMENT 7 This prohibits executions and levies against property of the 8 estate under judgments against the decedent or the personal 9 representative, but excepts enforcement of mortgages, 10 pledges, and liens in appropriate proceedings. 11 12 Section 623813. When a claim against the estate has been 13 presented in any manner, the personal representative may, if 14 it appears for the best interest of the estate, compromise the 15 claim, whether due or not due, absolute or contingent, 16 liquidated or unliquidated. 17 18 REPORTER’S COMMENT 19 This section gives the personal representative the authority to 20 compromise claims in the best interests of the estate. The 21 consent of the probate judge is not necessary. 22 23 Section 623814. If any assets of the estate are 24 encumbered by mortgage, pledge, lien, or other security 25 interest, the personal representative may pay the 26 encumbrance or any part thereof, renew, or extend any 27 obligation secured by the encumbrance or convey or transfer 28 the assets to the creditor in satisfaction of his lien, in whole 29 or in part, whether or not the holder of the encumbrance has 30 presented a claim, if it appears to be for the best interest of 31 the estate. Payment of an encumbrance does not increase the 32 share of the distributee entitled to the encumbered assets 33 unless the distributee is entitled to exoneration. 34 35 REPORTER’S COMMENT 36 This gives the personal representative essential authority to 37 deal with encumbered assets. 38

[143] 222 1 Section 623815. (a) All assets of estates being 2 administered in this State are subject to all claims, 3 allowances, and charges existing or established against the 4 personal representative wherever appointed. 5 (b) If the estate either in this State or as a whole is 6 insufficient to cover all family exemptions and allowances 7 determined by the law of the decedent’s domicile, prior 8 charges and claims, after satisfaction of the exemptions, 9 allowances, and charges, each claimant whose claim has been 10 allowed either in this State or elsewhere in administrations of 11 which the personal representative is aware, is entitled to 12 receive payment of an equal proportion of his claim. If a 13 preference or security in regard to a claim is allowed in 14 another jurisdiction but not in this State, the creditor so 15 benefited is to receive dividends from local assets only upon 16 the balance of his claim after deducting the amount of the 17 benefit. 18 (c) In case the family exemptions and allowances, prior 19 charges, and claims of the entire estate exceed the total value 20 of the portions of the estate being administered separately 21 and this State is not the state of the decedent’s last domicile, 22 the claims allowed in this State shall be paid their proportion 23 if local assets are adequate for the purpose, and the balance 24 of local assets shall be transferred to the domiciliary personal 25 representative. If local assets are not sufficient to pay all 26 claims allowed in this State the amount to which they are 27 entitled, local assets shall be marshaled so that each claim 28 allowed in this State is paid its proportion as far as possible, 29 after taking into account all dividends on claims allowed in 30 this State from assets in other jurisdictions. 31 32 REPORTER’S COMMENT 33 This section deals with various matters related to the 34 payment of claims where there is administration in more than 35 one state. As to the order of priorities of payment of claims, 36 local creditors are not preferred over creditors in the 37 decedent’s domicile. 38

[143] 223 1 Section 623816. The estate of a nonresident decedent 2 being administered by a personal representative appointed in 3 this State shall, if there is a personal representative of the 4 decedent’s domicile willing to receive it, be distributed to the 5 domiciliary personal representative for the benefit of the 6 successors of the decedent unless: (1) by virtue of the 7 decedent’s will, if any, and applicable choice of law rules, 8 the successors are identified pursuant to the local law of this 9 State without reference to the local law of the decedent’s 10 domicile; (2) the personal representative of this State, after 11 reasonable inquiry is unaware of the existence or identity of a 12 domiciliary personal representative; or (3) the court orders 13 otherwise in a proceeding for a closing order under Section 14 6231001 or incident to the closing of an administration under 15 Part 5 [Sections 623501 et seq.]. In other cases, distribution 16 of the estate of a decedent shall be made in accordance with 17 the other parts of this article [Sections 623101 et seq.]. 18 19 REPORTER’S COMMENT 20 The estate of a nonresident decedent being administered in 21 this State is, upon conclusion of the local administration, paid 22 over to the domiciliary personal representative. 23 24 Part 9 25 26 SPECIAL PROVISIONS RELATING TO DISTRIBUTION 27 28 Section 623901. In the absence of administration, the 29 devisees are entitled to the estate in accordance with the 30 terms of a probated will and the heirs in accordance with the 31 laws of intestate succession. Devisees may establish title by 32 the probated will to devised property. Persons entitled to 33 property by exemption or intestacy may establish title thereto 34 by proof of the decedent’s ownership, his death, and their 35 relationship to the decedent. Successors take subject to all 36 charges incident to administration, including the claims of 37 creditors and subject to the rights of others resulting from 38 abatement, retainer, advancement, and ademption, and 39 elective share.

[143] 224 1 2 REPORTER’S COMMENT 3 This section governs the rights of heirs and devisees when 4 the administrator of an estate is not able to proceed for one 5 reason or another or in the absence of administration. This 6 section provides that in the absence of administration the 7 rights of the heirs or devisees will be established by the laws 8 of intestate succession or by the terms of a probated will. 9 Without an administration, heirs and devisees take the 10 property subject to charges, such as charges incident to 11 administration and creditors’ claims. In addition, successors 12 in title are ‘subject to the rights of others’ which may result 13 from ‘abatement, retainer, advancement, ademption and 14 elective share.’ 15 16 Section 623902. (a) Except as provided in subsection 17 (b), and except as provided in connection with the share of 18 the surviving spouse who elects to take an elective share, 19 shares of distributees abate, without any preference or 20 priority as between real and personal property, in the 21 following order: (1) property not disposed of by the will; (2) 22 residuary devises; (3) general devises; (4) specific devises. 23 For purposes of abatement, a general devise charged on any 24 specific property or fund is a specific devise to the extent of 25 the value of the property on which it is charged, and upon the 26 failure or insufficiency of the property on which it is charged, 27 a general devise to the extent of the failure or insufficiency. 28 Abatement within each classification is in proportion to the 29 amounts of property each of the beneficiaries would have 30 received if full distribution of the property had been made in 31 accordance with the terms of the will. 32 (b) If the will expresses an order of abatement, or if the 33 testamentary plan or the express or implied purpose of the 34 devise would be defeated by the order of abatement stated in 35 subsection (a), as, for instance, in case the will was executed 36 before the effective date of this Code, the shares of the 37 distributees abate as may be found necessary to give effect to 38 the intention of the testator.

[143] 225 1 (c) If the subject of a preferred devise is sold or used 2 incident to administration, abatement shall be achieved by 3 appropriate adjustments in, or contribution from, other 4 interests in the remaining assets. 5 6 REPORTER’S COMMENT 7 The purpose of Section 623902 is to provide a defined order 8 in which assets of an estate are used or applied for the 9 payment of debts, in the absence of intent by the testator that 10 an alternate order of abatement be used. The design of this 11 section is to insure that the testator’s intent, whether 12 expressed or implied by the terms of the will, would be given 13 first priority in the order of abatement. The section is to be 14 used only to resolve doubts as to the testator’s intent, rather 15 than defeating his purpose. 16 Under this section, there is no distinction made with regard to 17 the character of the assets. A devise encompasses any 18 testamentary passage of property, whether real estate or 19 personalty. Within classifications, abatement will be prorata. 20 21 Section 623903. The amount of a liquidated indebtedness 22 of a successor to the estate if due, or its present value if not 23 due, shall be offset against the successor’s interest; but the 24 successor has the benefit of any defense which would be 25 available to him in a direct proceeding for recovery of the 26 debt. 27 28 REPORTER’S COMMENT 29 This section provides that if the amount of liquidated 30 indebtedness of a successor to the estate is due, then the 31 personal representative is to offset any devise to that 32 successor by the amount of the liquidated indebtedness. In 33 the event the indebtedness is liquidated but not yet due, the 34 representative can use the present value of the indebtedness 35 to offset that amount against the devise to the successor. 36 37 Section 623905. A provision in a will purporting to 38 penalize any interested person for contesting the will or 39 instituting other proceedings relating to the estate is

[143] 226 1 unenforceable if probable cause exists for instituting 2 proceedings. 3 4 Section 623906. (a) Unless a contrary intention is 5 indicated by the will, such as the grant to the personal 6 representative of a power of sale, the distributable assets of a 7 decedent’s estate must be distributed in kind to the extent 8 possible through application of the following provisions: 9 (1) A specific devisee is entitled to distribution of the 10 thing devised to him, and a spouse or child who has selected 11 particular assets of an estate as provided in Section 622401 12 shall receive the items selected. 13 (2) Any devise payable in money may be satisfied by 14 value in kind provided: 15 (i) the person entitled to the payment has not 16 demanded payment in cash; 17 (ii) the property distributed in kind is valued at fair 18 market value as of the date of its distribution; and 19 (iii) no residuary devisee has requested that the asset 20 in question remain a part of the residue of the estate. 21 (3) For the purpose of valuation under paragraph item 22 (2), securities regularly traded on recognized exchanges, if 23 distributed in kind, are valued at the price for the last sale of 24 like securities traded on the business day prior to distribution, 25 or if there was no sale on that day, at the median between 26 amounts bid and offered at the close of that day. Assets 27 consisting of sums owed the decedent or the estate by solvent 28 debtors as to which there is no known dispute or defense are 29 valued at the sum due with accrued interest or discounted to 30 the date of distribution. For assets which do not have readily 31 ascertainable values, a valuation as of a date not more than 32 thirty days prior to the date of distribution, if otherwise 33 reasonable, controls. For purposes of facilitating distribution, 34 the personal representative may ascertain the value of the 35 assets as of the time of the proposed distribution in any 36 reasonable way, including the employment of qualified 37 appraisers, even if the assets may have been previously 38 appraised.

[143] 227 1 (4) The personal property of the residuary estate must 2 be distributed in kind if there is no objection to the proposed 3 distribution and it is practicable to distribute undivided 4 interests. Subject to the provisions of Section 623711(b), in 5 other cases, personal property of the residuary estate may be 6 converted into cash for distribution. 7 (b) After the probable charges against the estate are 8 known, the personal representative may mail or deliver a 9 proposal for distribution to all persons who have a right to 10 object to the proposed distribution, notifying such persons of 11 the pending termination of the right to object to the proposed 12 distribution. The right of any distributee to object to the 13 proposed distribution on the basis of the kind or value of 14 asset he is to receive, if not waived earlier in writing, 15 terminates if he fails to object in writing received by the 16 personal representative within thirty days after mailing or 17 delivery of the proposal. 18 (c) When a personal representative or a trustee is 19 empowered under the will or trust of a decedent to satisfy a 20 pecuniary bequest, devise, or transfer in trust, in kind with 21 assets at their value for federal estate tax purposes, the 22 fiduciary, in order to implement the bequest, devise, or 23 transfer in trust, shall, unless the governing instrument 24 provides otherwise, distribute assets, including cash, fairly 25 representative of appreciation or depreciation in the value of 26 all property thus available for distribution in satisfaction of 27 the pecuniary bequest, devise, or transfer. 28 (d) Personal representatives and trustees are authorized to 29 enter into agreements with beneficiaries and with 30 governmental authorities, agreeing to make distribution in 31 accordance with the terms of Section 623906 for any purpose 32 which they consider to be in the best interests of the estate, 33 including the purpose of protecting and preserving the federal 34 estate tax marital deduction as applicable to the estate, and 35 the guardian or conservator of a surviving beneficiary or the 36 personal representative of a deceased beneficiary is 37 empowered to enter into such agreements for and on behalf 38 of the beneficiary or the deceased beneficiary.

[143] 228 1 (e) The provisions of Section 623906 are not intended to 2 change the present laws applicable to fiduciaries, but are 3 statements of the fiduciary principles applicable to these 4 fiduciaries and are declaratory of these laws. 5 6 REPORTER’S COMMENT 7 Section 623906(a) establishes a preference for distributions 8 ‘in kind.’ 9 Section 623906(a) sets out the rights of the three classes of 10 successors specific devisees (623906(a)(1)), general 11 pecuniary devisees (623906(a)(2)), and residuary devisees 12 (623906(a)(3)). 13 As to specific devisees, Section 623906(a)(1) provides that 14 the specific devisee is entitled to the thing devised to him. 15 Section 623906(a)(2) authorizes the personal representative 16 to make ‘in kind’ distributions to satisfy devises payable in 17 money (general pecuniary devises) provided (1) the devisee 18 has not demanded payment in cash, (2) the property is fairly 19 valued as of the date of distribution under Section 623906(a) 20 (3) and, (3) a residuary devisee has not requested that the 21 asset remain part of the residue estate. 22 Residuary devisees are to receive ‘in kind’ distribution 23 provided (1) there is no objection to the proposed distribution 24 and (2) it is practicable to distribute undivided interests. 25 Section 623906(b) provides that the personal representative 26 may submit a proposal for distribution to all parties in 27 interest. This section effectively eliminates the interested 28 party’s right to object to the distribution if he fails to object 29 to the plan in writing within thirty days from receipt of the 30 proposal. 31 The 2013 amendment added to 623906(b) the requirement 32 of notice of deadline to object to proposed distribution. 33 34 Section 623907. (A) If distribution in kind is made, 35 whether real or personal property, the personal representative 36 must execute an instrument or a deed of distribution with 37 respect to real property and such other necessary or 38 appropriate instrument of conveyance with respect to 39 personal property, assigning, transferring, or releasing the

[143] 229 1 assets to the distributee as evidence of the distributee’s title 2 to the property. 3 (B) If the decedent dies intestate or devises real property 4 to a distributee, the personal representative’s execution of a 5 deed of distribution of real property constitutes a release of 6 the personal representative’s power over the title to the real 7 property, which power is equivalent to that of an absolute 8 owner, in trust, however, for the benefit of the creditors and 9 others interested in the estate, provided by Section 10 623711(a). The deed of distribution affords the distributee 11 and his purchasers or encumbrancers the protection provided 12 in Sections 623908 and 623910. 13 (C) If the decedent devises real property to a personal 14 representative, either in a specific or residuary devise, the 15 personal representative’s execution of a deed of distribution 16 of the real property constitutes a transfer of the title to the 17 real property from the personal representative to the 18 distributee, as well as a release of the personal 19 representative’s power over the title to the real property, 20 which power is equivalent to that of an absolute owner, in 21 trust, however, for the benefit of the creditors and others 22 interested in the estate, provided by Section 623711(a). The 23 deed of distribution affords the distributee, and his 24 purchasers or encumbrancers, the protection provided in 25 Sections 623908 and 623910. 26 (D) The personal representative’s execution of an 27 instrument or deed of distribution of personal property 28 constitutes a transfer of the title to the personal property from 29 the personal representative to the distributee, as well as a 30 release of the personal representative’s power over the title to 31 the personal property, which power is equivalent to that of an 32 absolute owner, in trust, however, for the benefit of the 33 creditors and others interested in the estate, provided by 34 Section 623711(a). 35 36 REPORTER’S COMMENT 37 This section provides that evidence of distribution ‘in kind’ 38 will be in the form of an instrument or deed of distribution 39 which the personal representative will give to the

[143] 230 1 distributees. This instrument serves as a transfer of the 2 interest an estate had in an asset or assets. Sections 623907 3 should be read in conjunction with Sections 623908 through 4 623910 to determine rights of distributees and purchasers 5 therefrom. In addition the personal representative may use 6 this instrument as a release under Section 623709 where the 7 representative determines that certain assets of the decedent’s 8 estate should be left in the possession of the party who would 9 ultimately receive these assets by way of distribution ‘in 10 kind.’ 11 The 2013 amendments revised subsection (a) to provide 12 that, while a deed of distribution is required for real property, 13 with respect to personal property the personal representative 14 may execute an appropriate instrument evidencing the 15 conveyance of title. 16 17 Section 623908. Proof that a distributee has received an 18 instrument or deed of distribution of assets in kind whether 19 real or personal property, or payment in distribution, from a 20 personal representative is conclusive evidence that the 21 distributee has succeeded to the interest of the estate in the 22 distributed assets, as against all persons interested in the 23 estate, except that the personal representative may recover 24 the assets or their value if the distribution was improper. An 25 improper distribution includes, but is not limited to, those 26 instances where the instrument or deed of distribution is 27 found to be inconsistent with the provisions of the will or 28 statutes governing intestacy. 29 30 REPORTER’S COMMENT 31 Section 623908 contemplates that all actions for 32 overpayment to a devisee be funneled through the personal 33 representative. 34 35 Section 623909. Unless the distribution or payment no 36 longer can be questioned because of adjudication, estoppel, 37 or limitation, a distributee of property improperly distributed 38 or paid, or a claimant who was improperly paid, is liable to 39 return the property improperly received and its income since

[143] 231 1 distribution if he has the property. If he does not have the 2 property, then he is liable to return the value as of the date of 3 disposition of the property improperly received and its 4 income and gain received by him. 5 6 REPORTER’S COMMENT 7 This section provides that an innocent distributee does not 8 have the protection of a bona fide purchaser. The purpose of 9 Section 623909 is to shift questions concerning propriety of 10 distribution from fiduciary to distributees. It should be 11 remembered that a distribution under Section 623703 may be 12 ‘authorized at the time’ but may still be improper under this 13 section. 14 The provisions of Sections 623909 and 623910 establish the 15 proposition that liability follows the property. 16 17 Section 623910. (A) If property distributed in kind 18 (whether real or personal property) or a mortgage or other 19 security interest therein is acquired for value by a purchaser 20 from or lender to a distributee who has received an 21 instrument or deed of distribution from the personal 22 representative, or is so acquired by a purchaser from or 23 lender to a transferee from such distributee, the purchaser or 24 lender takes title free of rights of any interested person in the 25 estate and incurs no personal liability to the estate, or to any 26 interested persons, whether or not the distribution was proper 27 or supported by court order or the authority of the personal 28 representative was terminated before execution of the 29 instrument or deed. This section protects a purchaser from or 30 lender to a distributee who, as personal representative, has 31 executed a deed of distribution to himself, as well as a 32 purchaser from or lender to any other distributee or his 33 transferee. To be protected under this provision, a purchaser 34 or lender need not inquire whether a personal representative 35 acted properly in making the distribution in kind, even if the 36 personal representative and the distributee are the same 37 person, or whether the authority of the personal 38 representative had terminated before the distribution. Any 39 recorded instrument described in this section on which the

[143] 232 1 appropriate documentary or revenue stamps are affixed deed 2 recording fee prescribed by Chapter 24, Title 12, has been 3 paid, and which has been recorded is prima facie evidence 4 that the transfer sale was made for value. 5 (B) If a will devises real property to a personal 6 representative or authorizes a personal representative to sell 7 real property (the title to which was not devised to the 8 personal representative), a purchaser for value who receives a 9 deed from the personal representative takes title to the real 10 property free of rights of any heirs or devisees or other 11 interested person in the estate and incurs no personal liability 12 to the estate or to any heir or devisee or other interested 13 person in the estate. The purchaser is protected whether or 14 not the sale was proper and regardless of whether the heirs or 15 devisees to whom title devolved pursuant to Section 623101 16 executed or consented to the deed, because the personal 17 representative exercises the power of sale in trust, for the 18 benefit of ; however, creditors, and others interested in the 19 estate, who have a right of recourse against the personal 20 representative under Section 623712 if the sale constitutes a 21 breach of the personal representative’s fiduciary duty. This 22 section protects a purchaser of real property from a personal 23 representative who has title to the real property or who has 24 sold real property to the purchaser pursuant to an 25 authorization in the will. To be protected under this 26 provision, a purchaser need not inquire whether a personal 27 representative acted properly in making the sale, even if the 28 personal representative and the purchaser are the same 29 person, or whether the authority of the personal 30 representative had terminated before the sale. Any recorded 31 instrument described in this section on which the appropriate 32 documentary or revenue stamps are affixed deed recording 33 fee prescribed by Chapter 24, Title 12 has been paid, and 34 which has been recorded is prima facie evidence that the sale 35 was made for value. 36 37 REPORTER’S COMMENT 38 Section 623910 provides that an instrument of distribution 39 (as defined in Section 623907) is an essential element in the

[143] 233 1 chain of title to ensure that purchasers or lenders from or to a 2 distributee would have good title. 3 4 Section 623911. For purposes of this section, ‘interested 5 heirs or devisees’ means those heirs or devisees who are 6 entitled to an interest in the real or personal property that is 7 subject to partition pursuant to this section. When two or 8 more heirs or devisees are entitled to distribution of 9 undivided interests in any personal or real property of the 10 estate, the personal representative or one or more of the 11 interested heirs or devisees may petition the court prior to the 12 closing of the estate, to make partition. After service of 13 summons and petition and after notice to the interested heirs 14 or devisees, the court shall partition the property in kind if it 15 can be fairly and equitably partitioned in kind. If not subject 16 to fair and equitable partition in kind, the court shall direct 17 the personal representative to sell the property and distribute 18 the proceeds the manner provided in this section. 19 (1) The court shall partition the property in kind if it can 20 be fairly and equitably partitioned in kind. 21 (2) If the property cannot be fairly and equitably 22 partitioned in kind, the court shall direct the personal 23 representative to sell the property and distribute the proceeds 24 subject to the following provisions of this item. 25 (a) The court shall provide for the nonpetitioning 26 interested heirs or devisees who wish to purchase the 27 property to notify the court of that interest no later than ten 28 days prior to the date set for a hearing on the partition. The 29 nonpetitioning interested heirs or devisees shall be allowed to 30 purchase the interests in the property as provided in this 31 section whether default has been entered against them or not. 32 (b) In the circumstances described in subitem (a) of this 33 section, and in the event the interested heirs or devisees 34 cannot reach agreement as to the price, the value of the 35 interest or interests to be sold shall be determined by one or 36 more competent appraisers, as the court shall approve, 37 appointed for that purpose by the court. The appraisers 38 appointed pursuant to this section shall make their report in 39 writing to the court within thirty days after their appointment.

[143] 234 1 The costs of the appraisers appointed pursuant to this section 2 shall be taxed as a part of the cost of court to those seeking to 3 purchase the interests of the heirs or devisees in the property 4 described in the petition for partition. 5 (c) In the event that the interested heirs or devisees 6 object to the value of the property interests as determined by 7 the appointed appraisers, those heirs or devisees shall have 8 ten days from the date of filing of the report to file written 9 notice of objection to the report and request a hearing before 10 the court on the value of the interest or interests. An 11 evidentiary hearing limited to the proposed valuation of the 12 property interests of the interested heirs or devisees shall be 13 conducted, and an order as to the valuation of the interests of 14 the interested heirs and devisees shall be issued. 15 (d) After the valuation of the interests in the property is 16 completed as provided in subitems (b) or (c) of this item, the 17 interested heirs or devisees seeking to purchase the interests 18 of the other interested heirs or devisees shall have fortyfive 19 days to pay into the court the price set as the value of those 20 interests to be purchased, in such shares and proportions as 21 the court shall determine. Upon the payment and approval of 22 it by the court, the court shall direct the personal 23 representative to execute and deliver the proper instruments 24 transferring title to the purchasers. 25 (e) In the event that the interested heirs or devisees 26 seeking to purchase the partitioned property fail to pay the 27 purchase price as provided in subitem (d) of this item, the 28 court shall proceed according to the traditional practices of 29 circuit courts in partition sales. 30 31 REPORTER’S COMMENT 32 This section makes provision for the probate court to 33 partition personal property. 34 The 2010 amendment added ‘service of summons and 35 petition and after’ in the second sentence to clarify that a 36 summons and petition are required to commence a formal 37 proceeding, including a formal proceeding for purpose of 38 distribution and to make partition. See 2010 amendments to

[143] 235 1 certain definitions in S.C. Code §621201 and also see 2 §§1423280, 621304, and Rules 1 and 81, SCRCP. 3 Under the 2013 amendment Section 623911 has been 4 rewritten to provide a method of partition in probate court 5 comparable to the procedure in circuit court pursuant to 6 section 156125. 7 8 Section 623912. Subject to the rights of creditors and 9 taxing authorities, competent successors may agree among 10 themselves to alter the interests, shares, or amounts to which 11 they are entitled under the will of the decedent, or under the 12 laws of intestacy, in any way that they provide in a written 13 contract executed by all who are affected by its provisions. 14 The personal representative shall abide by the terms of the 15 agreement subject to his obligation to administer the estate 16 for the benefit of creditors, to pay all taxes and costs of 17 administration, and to carry out the responsibilities of his 18 office for the benefit of any successors of the decedent who 19 are not parties. Personal representatives of decedents’ estates 20 are not required to see to the performance of trusts if the 21 trustee thereof is another person who is willing to accept the 22 trust. Accordingly, trustees of a testamentary trust are 23 successors for the purposes of this section. Nothing herein 24 relieves trustees of any duties owed to beneficiaries of trusts. 25 26 REPORTER’S COMMENT 27 Section 623912 sanctions settlement agreements among 28 successors allowing them to vary the distributions of an 29 estate, whether testate or intestate, without the necessity of 30 seeking court approval. 31 32 Section 623913. (a) Before distributing to a trustee, the 33 personal representative may require that the trust be 34 registered if the state in which it is to be administered 35 provides for registration and that the trustee inform the 36 beneficiaries as provided in Section 627813. 37 (b) If the trust instrument does not excuse the trustee from 38 giving bond, the personal representative may petition the 39 appropriate court to require that the trustee post bond if he

[143] 236 1 apprehends that distribution might jeopardize the interests of 2 persons who are not able to protect themselves, and he may 3 withhold distribution until the court has acted. 4 (c) No inference of negligence on the part of the personal 5 representative shall be drawn from his failure to exercise the 6 authority conferred by subsections (a) and (b). 7 8 REPORTER’S COMMENT 9 This section gives the right to the personal representative to 10 require a trustee to register where the state law allows for 11 registration. In addition this section permits the 12 representative to require that a trustee post a bond unless the 13 trust document provides otherwise. 14 This section grants powers to the representative to withhold 15 distributions to a trust where the representative feels that the 16 beneficiaries may not be informed of the existence of the 17 trust or when the representative has doubts as to the 18 capability and competency of the trustee or of the trustee’s 19 intention to hold the funds without profit to himself. 20 Under this section, testamentary trustees would enjoy the 21 status of a devisee, distributee, and successor. 22 23 Section 623914. (a) If after the expiration of eight 24 months from the appointment of the personal representative 25 of a decedent it appears to the satisfaction of the court by 26 whom the appointment was granted that the personal 27 representative of the estate is unable to ascertain the 28 whereabouts of a person entitled to be heir or devisee of the 29 estate or whether a person who, if living, would be entitled as 30 heir or devisee of this estate is dead or alive, the court may 31 issue a notice addressed to all persons interested in the estate 32 as heirs or devisees calling on the person whose whereabouts 33 or the fact of whose death is unknown, his personal 34 representatives, or heirs or devisees, to appear before the 35 court on a certain day and hour as specified in this notice and 36 to show cause why the personal representative should not be 37 ordered to distribute the estate as if the person whose 38 whereabouts or the fact of whose death is unknown had died 39 before the decedent, and notifying all persons entitled to the

[143] 237 1 estate as heir or devisee, or otherwise, to appear on a 2 designated day and time before the court to intervene for 3 their interest in the estate. The day fixed in the notice, on 4 which cause must be shown, must not be less than one month 5 after the date of the first publication of the notice. 6 (b) The notice must be published once a week for three 7 successive weeks in a newspaper published in the county in 8 which the court is held. The court has the right, in its 9 discretion, to order the notice to be published once a week for 10 three successive weeks in one other newspaper published in 11 another place most likely to give notice to interested persons. 12 (c) The publication of the notice as prescribed in 13 subsection (b) must be proved by filing with the court copies 14 of the newspapers containing the publication of the notice 15 and or the affidavit of the publishers or printers of the 16 respective newspapers. 17 (d) At the time fixed in the notice for cause to be shown, 18 due proof of publication having been made and filed as 19 required by subsection (c), if no person appears as required, 20 the court must decree distribution of the estate to be made as 21 if the person whose whereabouts or the fact of whose death is 22 unknown had died before the decedent. Distribution by the 23 personal representative is a full and complete discharge to the 24 personal representative. 25 (e) At the time fixed in the notice for cause to be shown, 26 due proof of publication having been made and filed as 27 required by subsection (c), if the person whose whereabouts 28 or the fact of whose death was unknown appears, all further 29 proceedings must be discharged. 30 (f) If the identity of the person appearing is disputed by 31 the personal representative, an heir or devisee of the decedent 32 or the legal representatives of an heir or devisee, the court 33 must proceed to hear and determine the controversy. If the 34 controversy is determined against the person appearing, 35 distribution of the estate must be made as prescribed in 36 subsection (d); but if the controversy is determined in favor 37 of the party appearing, he is considered to be the person 38 whose whereabouts or the fact of whose death was unknown.

[143] 238 1 The determination in either case is subject to appeal as 2 provided in Section 621308. 3 (g) At the expiration of the time fixed in the notice for 4 cause to be shown, due proof of publication having been 5 made and filed as required by subsection (c), if a person 6 appears claiming to be heir, devisee, or personal 7 representative of the person whose whereabouts or the fact of 8 whose death is unknown or to be otherwise entitled to his 9 estate and claiming a distributive share in the decedent’s 10 estate, the court shall proceed to hear and determine whether 11 the person whose whereabouts or the fact of whose death is 12 unknown died before or after the decedent, and if the 13 determination is that the person whose whereabouts or the 14 fact of whose death is unknown died before the decedent, 15 distribution of the decedent’s estate must be made 16 accordingly; but if the court determines that the person 17 whose whereabouts or the fact of whose death is unknown 18 died after the death of the decedent, the distributive share of 19 the person must be paid and delivered by the personal 20 representative to the person legally entitled to receive it, the 21 determination in either case, is subject to appeal as provided 22 in Section 621308. 23 (h) Instead of the procedure required in this section, an 24 unclaimed devise or intestate share of one hundred five 25 thousand dollars or less may be paid or transferred by the 26 personal representative to the South Carolina State Treasurer. 27 28 REPORTER’S COMMENT 29 Section 623914 provides that the distributive share to a 30 missing heir, devisee, or claimant must be paid to the 31 conservator of the missing person or, if there is no 32 conservator, to the State Treasurer, to become part of the 33 escheat fund. This section sets aside the assets belonging to a 34 missing person. 35 The 2013 amendment revised subsection (c) to permit 36 proof of publication by either filing with the court copies of 37 the newspaper itself or an affidavit of the publisher or printer 38 of the newspaper. The de minimus amount in subsection (h)

[143] 239 1 now includes an intestate share and has been increased to 2 $5000. 3 4 Section 623915. A personal representative may discharge 5 his obligation to distribute to any person under legal 6 disability by distributing to his conservator or any other 7 person authorized by this Code or otherwise to give a valid 8 receipt and discharge for the distribution. 9 10 REPORTER’S COMMENT 11 Section 623915 provides that the personal representative will 12 be absolved if he distributes to a conservator of a disabled or 13 incompetent distributee. 14 15 Section 623916. (a) For purposes of this section: 16 (1) ‘Estate’ means the gross estate of a decedent as 17 determined for the purpose of federal estate tax and the estate 18 tax payable to this State. 19 (2) ‘Person’ means any individual, partnership, 20 association, joint stock company, corporation, government, 21 political subdivision, governmental agency, or local 22 governmental agency. 23 (3) ‘Persons interested in the estate’ means any person 24 entitled to receive, or who has received, from a decedent or 25 by reason of the death of a decedent any property or interest 26 therein included in the decedent’s estate. It includes a 27 personal representative, conservator, and trustee. 28 (4) ‘State’ means any state, territory, or possession of 29 the United States, the District of Columbia, and the 30 Commonwealth of Puerto Rico. 31 (5) ‘Tax’ means the federal estate tax and the basic and 32 any additional estate tax imposed by the State of South 33 Carolina and interest and penalties imposed in addition to the 34 tax. 35 (6) ‘Fiduciary’ means personal representative or trustee. 36 (b)(1) Unless the will otherwise provides, the tax shall be 37 apportioned among all persons interested in the estate. The 38 apportionment is to be made in the proportion that the value 39 of the interest of each person interested in the estate bears to

[143] 240 1 the total value of the interests of all persons interested in the 2 estate. The values used in determining the tax are to be used 3 for that purpose. If the decedent’s will directs a method of 4 apportionment of tax different from the method described in 5 this Code, the method described in the will controls. To the 6 extent that a provision of a decedent’s will expressly and 7 unambiguously directs the apportionment of an estate tax, the 8 tax must be apportioned accordingly. 9 (2) Any portion of an estate tax not apportioned 10 pursuant to item (1) must be apportioned in accordance with 11 any provision of a revocable trust of which the decedent was 12 the settlor which expressly and unambiguously directs the 13 apportionment of an estate tax. If conflicting apportionment 14 provisions appear in two or more revocable trust instruments, 15 the provision in the most recently dated instrument prevails. 16 For purposes of this item: 17 (A) a trust is revocable if it was revocable 18 immediately after the trust instrument was executed, even if 19 the trust subsequently becomes irrevocable; and 20 (B) the date of an amendment to a revocable trust 21 instrument is the date of the amended instrument only if the 22 amendment contains an apportionment provision. 23 (3) Any tax not apportioned in items (1) or (2) shall be 24 apportioned among all persons interested in the estate. The 25 apportionment is to be made in the proportion that the value 26 of the interest of each person interested in the estate bears to 27 the total value of the interests of all persons interested in the 28 estate. The values used in determining the tax are to be used 29 for that purpose. If pursuant to items (1) and (2) the 30 decedent’s will or revocable trust directs a method of 31 apportionment of tax different from the method described in 32 this Code, the method described in the will or revocable trust 33 controls. 34 (c)(1) The court in which venue lies for the administration 35 of the estate of a decedent, on petition for the purpose, may 36 determine the apportionment of the tax. 37 (2) If the court finds that it is inequitable to apportion 38 interest and penalties in the manner provided in subsection

[143] 241 1 (b), because of special circumstances, it may direct 2 apportionment thereof in the manner it finds equitable. 3 (3) If the court finds that the assessment of penalties 4 and interest assessed in relation to the tax is due to delay 5 caused by the negligence of the fiduciary, the court may 6 charge him with the amount of the assessed penalties and 7 interest. 8 (4) In any action to recover from any person interested 9 in the estate the amount of the tax apportioned to the person 10 in accordance with this Code, the determination of the court 11 in respect thereto shall be prima facie correct. 12 (5) The expenses reasonably incurred by the fiduciary 13 and by any other person interested in the estate in connection 14 with the determination of the amount and apportionment of 15 the tax shall be apportioned as provided in subsection (b) and 16 charged and collected as a part of the tax apportioned. If the 17 court finds it is inequitable to apportion the expenses as 18 provided in subsection (b), it may direct apportionment 19 thereof equitably. 20 (d)(1) The personal representative or other person in 21 possession of the property of the decedent required to pay the 22 tax may withhold from any property distributable to any 23 person interested in the estate, upon its distribution to him, 24 the amount of tax attributable to his interest. If the property 25 in possession of the personal representative or other person 26 required to pay the tax and distributable to any person 27 interested in the estate is insufficient to satisfy the 28 proportionate amount of the tax determined to be due from 29 the person, the personal representative or other person 30 required to pay the tax may recover the deficiency from the 31 person interested in the estate. If the property is not in the 32 possession of the personal representative or the other person 33 required to pay the tax, the personal representative or the 34 other person required to pay the tax may recover from any 35 person interested in the estate the amount of the tax 36 apportioned to the person in accordance with this section. 37 (2) If property held by the personal representative is 38 distributed prior to final apportionment of the tax, the 39 distributee shall provide a bond or other security for the

[143] 242 1 apportionment liability in the form and amount prescribed by 2 the personal representative. 3 (e)(1) In making an apportionment, allowances shall be 4 made for any exemptions granted, any classification made of 5 persons interested in the estate, and for any deductions and 6 credits allowed by the law imposing the tax. 7 (2) Any exemption or deduction allowed by reason of 8 the relationship of any person to the decedent or by reason of 9 the purposes of the gift inures to the benefit of the person 10 bearing such relationship or receiving the gift; but if an 11 interest is subject to a prior present interest which is not 12 allowable as a deduction, the tax apportionable against the 13 present interest shall be paid from principal. 14 (3) Any deduction for property previously taxed and 15 any credit for gift taxes or death taxes of a foreign country 16 paid by the decedent or his estate inures to the proportionate 17 benefit of all persons liable to apportionment. 18 (4) Any credit for inheritance, succession, or estate 19 taxes or taxes in the nature thereof applicable to property or 20 interest includable in the estate, inures to the benefit of the 21 persons or interests chargeable with the payment thereof to 22 the extent proportionately that the credit reduces the tax. 23 (5) To the extent that property passing to or in trust for 24 a surviving spouse or any charitable, public, or similar 25 purpose is not an allowable deduction for purposes of the tax 26 solely by reason of an inheritance tax or other death tax 27 imposed upon and deductible from the property, the property 28 is not included in the computation provided for in subsection 29 (b) hereof, and to that extent no apportionment is made 30 against the property. The sentence immediately preceding 31 does not apply to any case if the result would be to deprive 32 the estate of a deduction otherwise allowable under Section 33 2053(d) of the Internal Revenue Code of 1954, as amended, 34 of the United States, relating to deduction for state death 35 taxes on transfers for public, charitable, or religious uses. 36 (f) No interest in income and no estate for years or for life 37 or other temporary interest in any property or fund is subject 38 to apportionment as between the temporary interest and the 39 remainder. The tax on the temporary interest and the tax, if

[143] 243 1 any, on the remainder is chargeable against the corpus of the 2 property or funds subject to the temporary interest and 3 remainder. 4 (g) Neither the personal representative nor other person 5 required to pay the tax is under any duty to institute any 6 action to recover from any person interested in the estate the 7 amount of the tax apportioned to the person until the 8 expiration of the three months next following final 9 determination of the tax. A personal representative or other 10 person required to pay the tax who institutes the action within 11 a reasonable time after the three months’ period is not subject 12 to any liability or surcharge because any portion of the tax 13 apportioned to any person interested in the estate was 14 collectible at a time following the death of the decedent but 15 thereafter became uncollectible. If the personal 16 representative or other person required to pay the tax cannot 17 collect from any person interested in the estate the amount of 18 the tax apportioned to the person, the amount not recoverable 19 shall be equitably apportioned among the other persons 20 interested in the estate who are subject to apportionment. 21 (h) A personal representative acting in another state or a 22 person required to pay the tax domiciled in another state may 23 institute an action in the courts of this State and may recover 24 a proportionate amount of the federal estate tax, of an estate 25 tax payable to another state or of a death duty due by a 26 decedent’s estate to another state, from a person interested in 27 the estate who is either domiciled in this State or who owns 28 property in this State subject to attachment or execution. For 29 the purposes of the action, the determination of 30 apportionment by the court having jurisdiction of the 31 administration of the decedent’s estate in the other state is 32 prima facie correct. 33 34 REPORTER’S COMMENT 35 Section 623916(b) establishes a true apportionment of estate 36 taxes among all takers, whether they be probate or 37 nonprobate, unless a will or revocable trust states otherwise. 38 The 2013 amendment incorporates into the South Carolina 39 Probate Code the Uniform Estate Tax Apportionment Act as

[143] 244 1 revised in 2003 (UETAA or new UETAA). The new UETAA 2 replaces the Uniform Probate Code’s former estate tax 3 apportionment provision (Section 3916), which incorporated 4 into the Uniform Probate Code the former UETAA. The new 5 UPC apportionment statute is actually 15 sections (although a 6 couple are blank, marked ‘reserved’) and with comments 7 extending for more than 20 pages. 8 Before the 2013 amendment, this statute did not 9 specifically allow a variance from the statutory 10 apportionment by revocable trust, only by will. The 2013 11 amendment requires a specific and unambiguous direction 12 for the payment and allows it in a will or in a revocable trust. 13 Per the UPC comments, a general direction to pay debts from 14 the residue does not meet this standard. 15 16 Part 10 17 18 Closing Estates 19 20 Section 6231001. (a) Within one year after the date of 21 the first publication of notice to creditors, (or if a state or 22 federal estate tax return was filed, within ninety days after 23 the receipt of a state or federal estate tax closing letter, 24 whichever is later), the later of: (i) The expiration of the 25 applicable time limitation for any creditor to commence a 26 proceeding contesting a disallowance of a claim pursuant to 27 Section 623806(a); the time when all legal proceedings 28 commenced for allowance of a claim have ended in 29 accordance with Sections 623804 and 623806; and (iii) if a 30 state or federal estate tax return was filed, within ninety days 31 after the receipt or a state or federal estate tax closing letter, 32 whichever is later, a personal representative must shall file 33 with the court: 34 (1) a full account accounting in writing of his 35 administration, unless the accounting is waived pursuant to 36 subsection (e); 37 (2) a proposal for distribution of assets not yet 38 distributed, unless the proposal for distribution of assets is 39 waived pursuant to subsection (e);

[143] 245 1 (3) an application for settlement of the estate to 2 consider the final account accounting or approve an 3 accounting and distribution and adjudicate the final 4 settlement and distribution of the estate; and 5 (4) proof that a notice of right to demand hearing and 6 copies of the account accounting, the proposal for 7 distribution, and the application for settlement of the estate 8 have been sent to all interested persons including all creditors 9 or other claimants of whom the personal representative is 10 aware whose claims are neither paid nor barred, unless the 11 notice of right to demand hearing is waived pursuant to 12 subsection (e). 13 (b) If the personal representative does not timely perform 14 his duties under pursuant to subsection (a), and all interested 15 persons have not waived the requirement pursuant to 16 subsection (e), any an interested person may petition for an 17 order compelling the personal representative to perform his 18 duties under pursuant to subsection (a). The court may issue 19 an order requiring the personal representative to perform his 20 duties under After notice and hearing in accordance with 21 Section 621401, the court may issue an order requiring the 22 personal representative to perform his duties pursuant to 23 subsection (a). 24 (c) After thirty days from the filing by the personal 25 representative of proof that a notice of right to demand 26 hearing has been sent to all persons entitled to such the notice 27 under pursuant to subsection (a), or at any time after the 28 filing of the application of settlement if notice of right to 29 demand hearing has been waived pursuant to subsection (e), 30 the court may enter an order or orders approving settlement 31 and directing or approving distribution of the estate, 32 terminating the appointment of the personal representative, 33 and discharging the personal representative from further 34 claim or demand of any interested person. However, if any 35 an interested person files with the court a written demand for 36 hearing within thirty days after the personal representative 37 files proof that a notice of right to demand hearing has been 38 sent to all persons entitled to such the notice under pursuant 39 to subsection (a), the court may enter its order or orders only

[143] 246 1 after notice to all interested persons in accordance with 2 Section 621401 and hearing. 3 (d) If one or more heirs or devisees were omitted as 4 parties in, or were not given notice of, a previous formal 5 testacy proceeding, the court, on proper petition for an order 6 of complete settlement of the estate under pursuant to this 7 section, and after notice of hearing to the omitted or 8 unnotified persons and other interested parties determined to 9 be interested on the assumption that the previous order 10 concerning testacy is conclusive as to those given notice of 11 the earlier proceeding, may determine testacy as it affects the 12 omitted persons and confirm or alter the previous order of 13 testacy as it affects all interested persons as appropriate in the 14 light of the new proofs. In the absence of objection by an 15 omitted or unnotified person, evidence received in the 16 original testacy proceeding constitutes prima facie proof of 17 due execution of any a will previously admitted to probate, or 18 of the fact that the decedent left no valid will if the prior 19 proceedings determined this fact. 20 (e) Notwithstanding the provisions of this section, a 21 personal representative shall not be required to file an 22 accounting in writing of his administration, a proposal for 23 distribution of assets not yet distributed, or a notice of right 24 to demand hearing if and to the extent these filings are 25 waived by all interested persons. 26 27 REPORTER’S COMMENT 28 Section 6231001 describes procedures for obtaining orders of 29 complete settlement of an estate. 30 The closing process under Section 6231001(a) requires 31 notice to all interested parties including unpaid creditors. 32 The court upon application may order or approve an 33 accounting, may interpret the terms of the will, direct or 34 approve distribution of estate assets, discharge the personal 35 representative, and close the estate. Such a discharge of the 36 personal representative terminates his authority. The 37 personal representative or any other interested person may 38 petition for an order of complete settlement under this section 39 after the claim period has expired, but a devisee may not seek

[143] 247 1 such an order until a year has elapsed from the issuance of 2 the appointment of the representative. 3 The 2010 amendment revised subsections (3) and (4) to 4 conform to current practice allowing the personal 5 representative to pursue informal proceedings to close the 6 estate by filing an application rather than a petition. Unlike a 7 petition, an application does not require a summons or 8 petition. See 2010 amendments to certain definitions in S.C. 9 Code §621201 (1). The 2010 amendment also revised 10 subsection (4)(c ) to delete ‘on appropriate conditions, 11 determining testacy, determining the persons entitled to 12 distribution of the estate, and, as circumstances require,’ and 13 adding ‘in accordance with Section 621401 in the last 14 sentence to clarify procedure. The 2010 amendment added 15 ‘of hearing’ in subsection (d) to clarify the notice of hearing 16 requirements referred to in §621401. 17 The 2013 amendment clarifies that all interested persons 18 may waive the filings otherwise required by Section 19 6231001(a)(1), (2), or (4). 20 21 Section 6231002. No final account accounting of a 22 fiduciary shall be allowed by the probate court unless such 23 account shows, and the judge of such court finds, that all 24 taxes imposed by the provisions of Chapter 6 of, Title 12 25 upon such fiduciary, which have become payable, have been 26 paid, and that all taxes which may become due are secured by 27 bond, deposit, or otherwise. The certificate of the South 28 Carolina Department of Revenue and the receipt for the 29 amount of the tax therein certified shall be conclusive as to 30 the payment of the tax to the extent of such certificate. 31 32 REPORTER’S COMMENT 33 Section 6231002 precludes the court’s approval of a final 34 accounting by a fiduciary without a finding that the taxes 35 imposed by Chapter 6, Title 12, have been paid. 36 37 Section 6231003. No final account accounting of a 38 personal representative in any probate proceeding who is 39 required to file a federal estate tax return may be allowed and

[143] 248 1 approved by the court before whom the proceeding is 2 pending unless the court finds that the any tax imposed on 3 the property by Chapter 16 of, Title 12, including applicable 4 interest, has been paid in full or that no such tax is due. 5 6 REPORTER’S COMMENT 7 Section 6231002 precludes the court’s approval of a final 8 accounting by a fiduciary without a finding that the taxes 9 imposed by Chapter 16, Title 12, have been paid. 10 11 Section 6231004. After assets of an estate have been 12 distributed and subject to Section 6231006, an undischarged 13 claim not barred may be prosecuted in a proceeding against 14 one or more distributees. No distributee shall be liable to 15 claimants for amounts received as exempt property or for 16 amounts in excess of the value of his distribution as of the 17 time of distribution. As between distributees, each shall bear 18 the cost of satisfaction of unbarred claims as if the claim had 19 been satisfied in the course of administration. Any 20 distributee who shall have failed to notify other distributees 21 of the demand made upon him by the claimant in sufficient 22 time to permit them to join in any proceeding in which the 23 claim was asserted against him loses his right of contribution 24 against other distributees. 25 26 REPORTER’S COMMENT 27 Section 6231004 allows a creditor of an estate to pursue 28 assets distributed against one or more distributees. A 29 distributee’s liability to a claimant is for amounts received as 30 distributions in excess of exempt property but no more than 31 the value of the property received, valued as of the time of 32 the distribution. 33 A distributee has a right of contribution against other 34 distributees if he gives timely notice to the distributees so 35 that they can participate in the proceedings under which the 36 claimant is asserting his claim. 37 38 Section 6231005. Unless previously barred by 39 adjudication and except as provided in the any accounting,

[143] 249 1 the rights of successors and of creditors whose claims have 2 not otherwise been barred against the personal representative 3 for breach of fiduciary duty are barred unless a proceeding to 4 assert the same is commenced within six months after the 5 filing of the account, proposal for distribution of the estate, 6 petition application for settlement of the estate, and proofs 7 required by Section 6231001. The rights thus barred do not 8 include rights to recover from a personal representative for 9 fraud, misrepresentation, or inadequate disclosure related to 10 the settlement of the decedent’s estate. 11 12 REPORTER’S COMMENT 13 The 2013 amendment conforms this section to changes to 14 31001, allowing waiver of accounting and proposal for 15 distribution. 16 17 Section 6231006. Unless previously adjudicated in a 18 formal testacy proceeding or in a proceeding settling the 19 accounts of a personal representative or otherwise barred, the 20 claim of any claimant to recover from a distributee who is 21 liable to pay the claim, and the right of any heir or devisee, or 22 of a successor personal representative acting in their behalf, 23 to recover property improperly distributed or the value 24 thereof from any distributee is forever barred at the later of 25 (i) if a claim by a creditor of the decedent, at one year after 26 the decedent’s death, and (ii) any other claimant and any heir 27 or devisee, at the later of three years after the decedent’s 28 death or one year after the time of distribution thereof. This 29 section does not bar an action to recover property or value 30 received as the result of fraud. 31 32 REPORTER’S COMMENT 33 Section 6231006 creates a statute of limitations for claims 34 against distributees by creditors or other persons claiming to 35 be entitled to distribution from the estate. The time 36 limitation provided for heirs and devisees or claimants other 37 than creditors is three years after the decedent’s death or, for 38 creditors, one year after the time of the distribution thereof.

[143] 250 1 As in Section 6231005, this section does not create a time 2 bar for any action to recover property received as a result of 3 fraud. 4 5 Section 6231007. After his appointment has terminated, 6 the personal representative, his sureties, or any successor of 7 either, upon the filing of a verified application showing, so 8 far as is known by the applicant, that no action concerning 9 the estate is pending in any court, is entitled to receive a 10 certificate from the court that the personal representative 11 appears to have fully administered the estate in question. 12 The certificate evidences discharge of any lien on any 13 property given to secure the obligation of the personal 14 representative in lieu of bond or any surety, but does not 15 preclude action against the personal representative or the 16 surety. 17 18 REPORTER’S COMMENT 19 Under Section 6231007, after termination of the personal 20 representative’s appointment, and upon the filing of an 21 application showing that no action is pending concerning the 22 estate, the personal representative or his sureties may obtain 23 from the court a certificate to the effect that the personal 24 representative appears to have fully administered the estate. 25 A certificate issued by the court affects a release of any 26 security given in connection with the personal 27 representative’s bond, but does not prevent an action against 28 the personal representative or his surety. 29 30 Section 6231008. If other property of the estate is 31 discovered after an estate has been settled and the personal 32 representative discharged or for other good cause, the court 33 upon application of any interested person and upon notice as 34 it directs may appoint the same or a successor personal 35 representative to administer the subsequently opened estate. 36 If a new appointment is made, unless the court orders 37 otherwise, the provisions of this Code apply as appropriate; 38 but no claim previously barred may be asserted in the 39 subsequent administration.

[143] 251 1 2 REPORTER’S COMMENT 3 Section 6231008 provides a procedure for reopening an 4 estate following discharge of the personal representative. 5 Such a supplemental or subsequent administration of a 6 decedent’s estate would be required if other property of the 7 estate is discovered after the personal representative’s 8 discharge. Upon petition of an interested party and upon 9 notice as required by the court, the court may reappoint the 10 former personal representative or a different person to 11 administer the subsequently discovered assets. 12 In administering the subsequently discovered assets, the 13 procedure of this Code would apply as appropriate, except 14 that previously barred claims could not be asserted in the 15 subsequent administration. 16 The 2010 amendment deleted ‘petition’ and replaced it 17 with ‘application’ to allow any interested person to make 18 application for a subsequent administration. Unlike a 19 petition, an application does not require a summons or 20 petition. See 2010 amendments to certain definitions in 21 §621201. 22 23 Part 11 24 25 Compromise of Controversies 26 27 Section 6231101. A compromise of a controversy as to 28 admission to probate of an instrument offered for formal 29 probate as the will of a decedent, the construction, validity, 30 or effect of a probated will, the rights or interests in the estate 31 of the decedent, of a successor, or the administration of the 32 estate, if approved by the court after hearing, is binding on all 33 the parties including those unborn, unascertained, or who 34 could not be located. An approved compromise is binding 35 even though it may affect a trust or an inalienable interest. A 36 compromise does not impair the rights of creditors or of 37 taxing authorities who are not parties to it. A compromise 38 approved pursuant to this section is not a settlement of a 39 claim subject to the provisions of Section 625433.

[143] 252 1 2 REPORTER’S COMMENT 3 Section 6231101 provides that compromises of controversies 4 regarding estates can be made binding on interested parties 5 by court confirmation. 6 Such controversies would include disagreements regarding 7 the admission to probate of and instrument as the will of the 8 decedent, the construction, validity, and effect of a probated 9 will, the rights of successors to decedent’s estate, and the 10 personal representative’s administration of the estate. 11 Approval of the compromise agreement is by order of the 12 probate court following a formal proceeding. The order 13 confirming the agreement is binding upon parties to the 14 proceeding, and is binding upon unborn or unascertained 15 persons and upon persons who could not be located. 16 After court confirmation, the agreement is binding even 17 though the agreement affects a trust contained in an 18 instrument separate from decedent’s will, and even though it 19 affects an unalienable right. 20 The agreement as confirmed by the court is not binding on 21 creditors of the estate or trust estate, or on taxing authorities, 22 unless they are parties to the agreement. 23 The 2010 amendment deleted ‘in a formal proceeding in’ 24 and replaced the foregoing with ‘by’ and deleted ‘for that 25 purpose’ and replaced it with ‘after hearing.’ The intention 26 of the amendment was to require court approval in an 27 informal proceeding after hearing. See § 6231102 regarding 28 application procedure for approval of compromise and 29 certain agreements. 30 31 Section 6231102. The procedure for securing court 32 approval of a compromise is as follows: 33 (1) The terms of the compromise shall be set forth in an 34 agreement in writing which shall be executed by all 35 competent persons and parents acting for any minor child 36 having beneficial interests or having claims which will or 37 may be affected by the compromise. Execution is not 38 required by any person whose identity cannot be ascertained

[143] 253 1 or whose whereabouts is unknown and cannot reasonably be 2 ascertained. 3 (2) Any interested person, including the personal 4 representative or a trustee, then may submit the agreement to 5 the court for its approval and for execution by the personal 6 representative, the trustee of every affected testamentary 7 trust, and other fiduciaries and representatives. 8 (3) Upon application to the court and after notice to all 9 interested persons or their representatives, including the 10 personal representative of the estate and all affected trustees 11 of trusts, the court, if it finds that the contest or controversy is 12 in good faith and that the effect of the agreement upon the 13 interests of persons represented by fiduciaries or other 14 representatives is just and reasonable, shall make an order 15 approving the agreement and directing all fiduciaries subject 16 to its jurisdiction to execute the agreement. Minor children 17 represented only by their parents may be bound only if their 18 parents join with other competent persons in execution of the 19 compromise. Upon the making of the order and the 20 execution of the agreement, all further disposition of the 21 estate is in accordance with the terms of the agreement. 22 23 REPORTER’S COMMENT 24 Section 6231102 provides the procedure by which 25 agreements for compromise of estate controversies are 26 confirmed by the probate court. 27 Subsection (1) requires the agreement be in written form 28 setting forth all of the terms of the compromise. The 29 agreement must be signed by all persons having a beneficial 30 interest in or claim against the estate, whose interest or claim 31 is affected by the agreement. If an interested party is a 32 minor, the agreement may be executed on his behalf by his 33 parent. 34 Execution of the agreement is not required by unknown 35 parties or by parties whose whereabouts are unknown or 36 cannot reasonably be ascertained. The agreement should 37 clearly specify the effect of the compromise on the minors, 38 on unknown parties, and on unlocated parties. Subsection (2) 39 would imply that the agreement is not to be signed by the

[143] 254 1 personal representative or trustees of the affected 2 testamentary trust prior to submission of the agreement to the 3 probate court, but the agreement should specify the proposed 4 effect on the personal representative and affected trusts. 5 Subsection (2) requires submission of the agreement to the 6 probate court for approval. The application for approval may 7 be made by an interested party or by the personal 8 representative. The application would request approval of 9 the agreement and would request an order directing or 10 permitting the personal representative and the trustee of an 11 affected testamentary trust to execute the agreement. 12 Pursuant to subsection (3), a hearing after notice to all 13 interested parties is conducted by the probate judge. In 14 addition to parties to the agreement, the personal 15 representative and trustees of affected trusts must be notified 16 of the hearing. 17 The advocates of the agreement must prove to the court that a 18 controversy existed in good faith among the interested 19 parties. This requirement is to avoid sham arrangements 20 designed to prejudice unknown parties or parties whose 21 addresses are unknown but would be bound by an order 22 confirming the agreement. 23 The advocates of the agreement must prove that the effect of 24 the agreement on persons, including minors and 25 incompetents represented by fiduciaries or other 26 representatives, is fair, equitable, and reasonable. 27 Upon such proof to the court, the court will by order approve 28 the agreement and will direct the personal representative and 29 all fiduciaries subject to the court’s jurisdiction to execute the 30 agreement. 31 The agreement as confirmed by the court will govern further 32 disposition of the decedent’s estate in accordance with the 33 terms of the agreement. Subsection (3) further provides that 34 minor children who are represented only by their parents may 35 be bound only if their parents executed the agreement with 36 other competent persons. In the event this requirement 37 cannot be met, execution of the agreement on behalf of the 38 minor could be made binding if by a court appointed 39 guardian.

[143] 255 1 The 2010 amendment revised subsection (3) to delete 2 ‘After’ at the beginning and replaces it with ‘Upon 3 application to the court and after’ to allow application to the 4 probate court to secure court approval of a compromise. 5 Unlike a petition, an application does not require a summons 6 or petition. See 2010 amendments to certain definitions in 7 §621201. 8 9 Part 12 10 11 Collection of Personal Property by Affidavit and Summary 12 Administration Procedure for Small Estates 13 14 Section 6231201. (a) Thirty days after the death of a 15 decedent, any person indebted to the decedent or having 16 possession of tangible personal property or an instrument 17 evidencing a debt, obligation, stock, or chose in action 18 belonging to the decedent shall make payment of the 19 indebtedness or deliver the tangible personal property or the 20 instrument evidencing the debt, obligation, stock, or chose in 21 action to a person claiming to be the successor of the 22 decedent upon being presented an affidavit made by or on 23 behalf of the successor. Before this affidavit may be 24 presented to collect the decedent’s personal property, it must: 25 (1) state that the value of the entire probate estate (the 26 decedent’s property passing under the decedent’s will plus 27 the decedent’s property passing by intestacy), wherever 28 located, less liens and encumbrances, does not exceed ten 29 twentyfive thousand dollars; 30 (2) state that thirty days have elapsed since the death of 31 the decedent; 32 (3) state that no application or petition for the 33 appointment of a personal representative is pending or has 34 been granted in any jurisdiction; 35 (4) state that the claiming successor, which for the 36 purposes of this section includes a person who remitted 37 payment for reasonable funeral expenses, is entitled to 38 payment or delivery of the property;

[143] 256 1 (5) be approved and countersigned by the probate judge 2 of the county of the decedent’s residence domicile at the time 3 of his death, or if the decedent was not domiciled in this 4 State, in the county in which the property of the decedent is 5 located, and only upon the judge’s satisfaction that the 6 successor is entitled to payment or delivery of the property; 7 and 8 (6) be filed in the probate court for the county of the 9 decedent’s domicile at the time of his death, or, if the 10 decedent was not domiciled in this State, in the county in 11 which property of the decedent is located. 12 (b) A transfer agent of any security shall change the 13 registered ownership on the books of a corporation from the 14 decedent to the successor or successors upon the presentation 15 of an affidavit as provided in subsection (a). 16 17 REPORTER’S COMMENT 18 Section 6231201 provides for a simplified handling of small 19 estates of twentyfive thousand dollars or less through the use 20 of an affidavit. The small estate affidavit may be used 21 starting thirty days after the death of the decedent if the entire 22 estate of the decedent, wherever located, after deduction of 23 liens and encumbrances, does not exceed twentyfive 24 thousand dollars. The affiant must state that the value of the 25 estate does not exceed twentyfive thousand dollars, that thirty 26 days have elapsed since the decedent’s death, that no person 27 has applied for appointment as, or has been appointed as, 28 personal representative in any jurisdiction, and that the 29 affiant as successor to the decedent is entitled to payment or 30 delivery of the property. 31 Upon presentment of such an affidavit, holders of property 32 of the decedent, or persons obligated to the decedent, must 33 transfer the property, or discharge their debt, to the successor. 34 Stock transfer agents in subparagraph (6) are directed to 35 transfer stock based on such affidavits. 36 The small estate affidavit cannot be used to transfer title to 37 real estate and it cannot be used by creditors of the estate to 38 reach assets of the estate.

[143] 257 1 The 2013 amendment increases the size of the estate in 2 which a small estate affidavit can be utilized to twentyfive 3 thousand dollars, establishes that a person who advances 4 reasonable funeral expenses is a successor for purposes of 5 this section regardless of his status as an heir or devisee, and 6 clarifies which probate court must approve and record the 7 affidavit. 8 9 Section 6231202. The person paying, delivering, 10 transferring, or issuing personal property or the evidence 11 thereof pursuant to affidavit is discharged and released to the 12 same extent as if he dealt with a personal representative of 13 the decedent. He is not required to see to the application of 14 the personal property or evidence thereof or to inquire into 15 the truth of any statement in the affidavit. If any person to 16 whom an affidavit is delivered refuses to pay, deliver, 17 transfer, or issue any personal property or evidence thereof, it 18 may be recovered or its payment, delivery, transfer, or 19 issuance compelled upon proof of their right in a proceeding 20 brought for the purpose by or on behalf of the persons 21 entitled thereto. Any person who receives or is presented 22 with a valid affidavit executed pursuant to Section 6231201 23 and who has not received actual written notice of its 24 revocation or termination must not fail to deliver the property 25 identified in the affidavit, provided it contains the following 26 provision. ‘No person who may act in reliance on this 27 affidavit shall incur any liability to the estate of the 28 decedent.’ Any person to whom payment, delivery, transfer, 29 or issuance is made is answerable and accountable therefor to 30 any personal representative of the estate or to any other 31 person having a superior right. 32 33 REPORTER’S COMMENT 34 Section 6231202 discharges and releases any person who 35 transfers personal property of a decedent or who pays his 36 debt to the decedent pursuant to the small estate affidavit 37 pursuant to Section 6231201 to the same extent he would 38 have been released from liability had he dealt with a 39 courtappointed personal representative of the decedent. The

[143] 258 1 person so released is not required to inquire into the accuracy 2 of the affidavit nor to insure the proper application of the 3 personal property by the successor. 4 This section creates a liability in the recipient of property 5 through the use of an affidavit to any personal representative 6 of the estate and to any person having a superior right, 7 including creditors of the decedent or of the estate, or other 8 successors of the decedent. 9 The 2013 amendment requires the person receiving or 10 presented with the affidavit to deliver the property identified 11 in the affidavit if the affidavit contains the quoted language, 12 unless that person has received actual written notice of the 13 affidavit’s revocation or termination. 14 15 Section 6231203. (a) If it appears from the inventory 16 and appraisal that the value of the entire probate estate (the 17 decedent’s property passing under the decedent’s will plus 18 the decedent’s property passing by intestacy), less liens and 19 encumbrances, does not exceed ten twentyfive thousand 20 dollars and exempt property, costs and expenses of 21 administration, reasonable funeral expenses, and reasonable 22 and necessary medical and hospital expenses of the last 23 illness of the decedent, the personal representative, after 24 giving publishing notice to creditors required by pursuant to 25 Section 623801, but without giving additional notice to 26 creditors, may immediately disburse and distribute the estate 27 to the persons entitled thereto and file a closing statement as 28 provided in Section 6231204. 29 (b) If it appears from an appointment proceeding that (1) 30 the appointed personal representative, individually or in the 31 capacity of a fiduciary, is either the sole devisee under the 32 probated will of a testate decedent or the sole heir of an 33 intestate decedent, or (2) the appointed personal 34 representatives, individually or in their capacity as a 35 fiduciary, are the sole devisees under the probated will of a 36 testate decedent or the sole heirs of an intestate decedent, the 37 personal representative, after giving publishing notice to 38 creditors as required by under Section 623801, but without 39 giving additional notice to creditors may immediately

[143] 259 1 disburse and distribute the estate to the persons entitled 2 thereto and file a closing statement as provided in Section 3 6231204. 4 5 REPORTER’S COMMENT 6 Sections 6231203 and 6231204 provide for an expedited 7 administration by a personal representative. Under Section 8 6231203, if the personal representative determines after 9 inventory and appraisal that: (1) the estate assets, after 10 deduction of liens and encumbrances, do not exceed the total 11 of twentyfive thousand dollars, plus exempt property, plus 12 costs and expenses of administration, reasonable funeral 13 expenses, and medical and hospital expenses of the 14 decedent’s last illness, or (2) that the sole personal 15 representative is also the sole heir or devisee of the decedent 16 or that corepresentatives are all of the only heirs or devisees 17 of the decedent, then the personal representative may 18 immediately pay the administration, funeral, medical, and 19 hospital expenses and distribute the balance to distributees. 20 Other than the publication of notice under Section 623801, 21 additional notice to creditors of this election is not required. 22 Following the disbursement of the assets, the personal 23 representative would file the closing statement required by 24 Section 6231204. 25 26 Section 6231204. (a) Unless prohibited by order of the 27 court and except for estates being administered under Part 5 28 (Sections 623501 et seq.), a after filing an inventory with the 29 court, and paying any court fees due, the personal 30 representative may close an estate administered under the 31 summary procedures of Section 6231203 by filing with the 32 court, at any time after disbursement and distribution of the 33 estate, a verified statement stating that: 34 (1) either 35 (i) to the best knowledge of the personal 36 representative, the value of the entire probate estate (the 37 decedent’s property passing under the decedent’s will plus 38 the decedent’s property passing by intestacy), less liens and 39 encumbrances, did not exceed ten twentyfive thousand

[143] 260 1 dollars and exempt property, costs, and expenses of 2 administration, reasonable funeral expenses, and reasonable 3 and necessary medical and hospital expenses of the last 4 illness of the decedent; or 5 (ii) the estate qualifies for summary administration 6 according to the provisions of subsection (b) of Section 7 6231203; 8 (2) the personal representative has fully administered 9 the estate by disbursing and distributing it to the persons 10 entitled thereto; 11 (3) the personal representative has sent a copy of the 12 closing statement to all distributees of the estate and to all 13 creditors or other claimants of whom he the personal 14 representative is aware and whose claims are neither paid nor 15 barred and has furnished a full account in writing of his 16 administration to the distributees whose interests are affected. 17 (b) If no unresolved claims, actions or proceedings 18 involving the personal representative are pending in the any 19 court one year after the closing statement is filed date of the 20 decedent’s death, the appointment of the personal 21 representative terminates. 22 23 REPORTER’S COMMENT 24 Section 6231204 provides the procedure for closing the estate 25 following the disbursement and distribution of assets 26 pursuant to Section 6231203. The procedure would not be 27 used if prohibited by the probate court or if the estate was in 28 administration under Part 5. 29 The personal representative would file with the probate 30 court his verified statement stating that: (1) to the best of his 31 knowledge the estate assets do not exceed the limitations in 32 or would qualify as a summary administrator according to the 33 requirements described in Section 6231203; (2) he has 34 disbursed and distributed the assets to the proper persons, he 35 has sent a copy of the closing statement to the distributees, 36 unpaid creditors, and claimants whose claims are not barred, 37 and he has sent to all distributees a written account of his 38 administration of the estate.

[143] 261 1 If no action regarding the estate is pending one year after 2 the date of the decedent’s death, the court will terminate the 3 appointment of the personal representative who filed the 4 closing statement. 5 6 Part 13 7 8 Sale of Real Estate by Probate Court to Pay Debts 9 10 Section 6231301. The provisions of this Part are hereby 11 declared to be the only procedure for the sale of lands by the 12 court, except where the will of the decedent authorizes to the 13 contrary. 14 15 Section 6231302. The court may, as herein provided, 16 authorize the sale of the real estate property of such deceased 17 person a decedent. 18 19 REPORTER’S COMMENT 20 Section 6231302 establishes the circumstances under which 21 the probate court has the power to sell the land of the 22 decedent. 23 24 Section 6231303. At any time after the qualification of the 25 personal representative, on application petition to the court 26 by an interested person requesting the sale of real estate 27 property of the deceased decedent, a summons shall be issued 28 to the personal representative (if not the petitioner), the heirs 29 or devisees of the estate at law of the decedent (if the 30 decedent died intestate or the time to challenge a will 31 admitted to probate has not expired), the devisees under the 32 decedent’s will (if any), any person who has properly 33 presented a claim against the estate which remains 34 unresolved, any interested person effected by the proceeding, 35 and any other person as required by the court in its discretion. 36 37 REPORTER’S COMMENT 38 Section 6231303 specifies the process by which an action for 39 the sale of real estate is commenced. The action is

[143] 262 1 commenced by a petition filed after qualification of the 2 personal representative. The petition may be filed by an 3 interested person. 4 Upon filing of the petition, Section 6231303 provides that 5 a summons will be issued to the specified interested persons. 6 7 Section 6231304. The form of such summons must be in 8 like form as summonses for civil actions in the circuit courts. 9 10 Section 6231305. To such summons a copy of the petition 11 must be attached and copies of the summons and petition 12 served on the personal representative (if not the petitioner), 13 the heirs or devisees, and any other at law of the decedent (if 14 the decedent died intestate or the time to challenge a will 15 admitted to probate has not expired), the devisees under the 16 decedent’s will (if any), any person who has properly 17 presented a claim against the estate which remains 18 unresolved, any interested person effected by the proceeding, 19 and any other interested person as required by the court in its 20 discretion, in like manner as summonses and complaints are 21 served in civil actions in the circuit courts. If there are 22 minors the court shall appoint guardians ad litem who must 23 be served with copies of the summons and petition and the 24 appointment, and who must acknowledge acceptance of such 25 guardian endorsed on the their appointment as guardians ad 26 litem to the probate court prior to being served with the 27 summons and petition. Nothing herein contained precludes 28 any of the parties interested in the proceeding from accepting 29 service of the summons and petition or from and consenting 30 to the sale as prayed for in the petition. 31 32 REPORTER’S COMMENT 33 This section provides for the manner of service of the 34 summons and petition and incorporates by reference the 35 methods of service of summons and complaints in civil 36 actions in the circuit courts. This section further provides for 37 appointment of guardian ad litem to represent minors and 38 specifies that the guardian ad litem will be served with copies 39 of the summons and petition. A copy of the order appointing

[143] 263 1 the guardian ad litem and a statement of the guardian to serve 2 must be endorsed on the petition. This section further 3 provides that any of the parties may accept service of the 4 summons and petition and may also consent to the sale 5 prayed for in the petition. 6 7 Section 6231306. The sheriffs of the several counties in 8 this State are required to serve all processes which may be 9 issued, if so ordered by the court under the provisions of this 10 Part, for which they shall receive the same fees as are 11 allowed them by law for similar services, which must be paid 12 from the proceeds of sale or by the petitioner. 13 14 REPORTER’S COMMENT 15 Section 6231306 provides for service of the summons and 16 petition within the State of South Carolina by the sheriffs of 17 the various counties in which interested parties are located. 18 This section specifies that the sheriffs’ fees for service shall 19 be as in other circumstances and are to be paid by the 20 petitioner or from the proceeds of the sale. 21 22 Section 6231307. If there is any party who resides beyond 23 the limits of this State or whose residence is unknown and 24 who does not consent in writing to the sale, the court may 25 authorize publication of the summons as provided by this 26 Code and if such party does not appear and show sufficient 27 cause within the time named in the summons the court shall 28 enter of record his consent as confessed and proceed with the 29 sale. 30 31 REPORTER’S COMMENT 32 This section provides for service of the summons and petition 33 by publication on interested parties who are not residents of 34 South Carolina or whose addresses are unknown. If the party 35 consented to the sale, service would not be required. If the 36 party after such service did not appear or answer, the probate 37 judge will enter of record his consent by default. 38

[143] 264 1 Section 6231308. Upon the filing of the petition, the 2 petitioner shall file in the office of the clerk of the circuit 3 court a notice of pendency of action authorized by Sections 4 151110 to 151150 and upon the filing of such notice it has 5 the same force and effect as notice of pendency of action 6 filed in an action in the circuit court. 7 8 REPORTER’S COMMENT 9 This section prescribes the filing of a notice of pendency of 10 action, or lis pendens, by the probate judge in the office of 11 the clerk of court for the county in which the land is located, 12 at the time the petition is filed, pursuant to Sections 151110 13 to 151150. Such filing will eliminate from consideration by 14 the court any party who acquires subsequent to the filing of 15 the notice a lien upon or an interest for value in the land. 16 17 Section 6231309. The time to answer or otherwise respond 18 by motion to the a summons and petition is at least thirty 19 days from the date of service. Should the personal 20 representative (if not the petitioner) or any of the heirs or 21 devisees, or other parties, if any, desire to answer or 22 otherwise respond by motion it must be in writing and the 23 court shall in regular order, as in the case of other litigated 24 cases, proceed to determine the issues made by petition, 25 subsequent pleadings, and motions and if the court decides 26 that the real estate for sale of real property of a decedent is 27 the same as the time to answer in any civil litigation case. 28 Interested persons who wish to file an answer or return to the 29 petition must do so in writing in the same manner as an 30 answer to a complaint in other civil litigation cases. In 31 addition the court may hear motions and accept such 32 subsequent pleadings as would be heard or accepted in other 33 civil litigation cases. After the filing and service of the 34 summons and petition and the time for filing responsive 35 pleadings has elapsed, the court will convene a hearing on 36 the merits of the petition. If based on the evidence presented 37 at the hearing the court finds the real property should be sold 38 it shall then, in its discretion, either (a) order the personal 39 representative to sell the same at private sale upon such terms

[143] 265 1 and conditions as the court may impose; or (b) proceed to 2 sell the same upon the next or some subsequent convenient 3 sales day after publishing a notice of such sale three weeks 4 prior thereto in some paper published in the county. Upon 5 the sale being made, after the payment of the costs and 6 expenses thereof, the court shall pay proceeds of the sale will 7 be paid over to the personal representative the net proceeds 8 of such sale. The personal representative shall administer 9 such proceeds in like manner as proceeds of personal 10 property coming into his hands. Nothing in this part may be 11 construed to abridge homestead exemptions. Notice of 12 hearings in regard to the petition will be provided to 13 interested persons in accordance with Section 621401. 14 15 REPORTER’S COMMENT 16 Section 6231309 incorporates the rules of civil litigation to 17 determine the time limits to file an answer or return to the 18 petition. Following this period, the probate judge would 19 schedule a hearing of the case. 20 If the probate judge determines that the land should be sold 21 in accordance with the petition, he would either order a 22 private sale or schedule a public auction of the land. The 23 notice of the sale must be published once a week for three 24 weeks during the three weeks preceding the sale in a 25 newspaper published in the county of the probate court. 26 Following the sale, the net proceeds of the sale will be paid 27 over to the personal representative for distribution in 28 accordance with law as if it were personal property originally 29 belonging to the estate. 30 Section 6231309 further provides that the proceedings are not 31 to abridge the rights of homestead exemption in the land. 32 The 2010 amendment revised this section to delete ‘for 33 return’ in the first sentence and replace it with ‘to answer or 34 otherwise respond by motion to the summons and petition, 35 delete ‘make a return’ and replace it with ‘answer or 36 otherwise respond by motion,’ add ‘subsequent pleadings,’ 37 and delete ‘return’ and replace it with ‘motions’ in the second 38 sentence The foregoing 2010 amendment is intended to 39 clarify that an answer or other response to a summons and

[143] 266 1 petition must be served in an action to sell real estate, which 2 is a formal proceeding as referred to in §621201(17). 3 The amendments to this section in 2013 were largely 4 clarifying revisions, and did not change substantive law. All 5 answers to the petition must be in writing and served on the 6 petitioner and other parties in the same manner as an answer 7 to a complaint in circuit court, and within the same time 8 limits as would apply in circuit court. Further, the same rules 9 apply as to motions in the case of a petition for sale of real 10 property of a decedent as apply in circuit court to answers. 11 Consequently, as in circuit court, answers may not be due 12 while certain motions are pending, and the same rules for 13 amending petitions and answers would apply. 14 The 2013 amendments added the requirement that all 15 interested persons be served with notice of hearings 16 regarding a petition to sell real property of a decedent in 17 accordance with Section 621401. 18 19 Section 6231310. The regular bond of the personal 20 representative must protect the creditors, heirs, devisees, or 21 other interested persons, if any, in the handling of the 22 proceeds of sale by the personal representative, but in case no 23 such bond has been given, the court shall may require the 24 giving of a bond by such personal representative as provided 25 in Sections 623603, 623604, and 623605. 26 27 REPORTER’S COMMENT 28 Section 6231310 provides that the regular bond of the 29 personal representative protects claimants to the proceeds of 30 the sale. If no bond has been filed previously, the personal 31 representative may be required to file one pursuant to 32 Sections 623603 and 623605. If a bond has previously been 33 filed, the personal representative may be required to increase 34 the amount of the bond. 35 The 2013 amendment gives the court discretion to require 36 bond. 37 38 Section 6231311. The court shall file and keep the original 39 petition with due proof of service thereon and all original

[143] 267 1 papers connected with the sale and shall require from such 2 personal representative his final account showing the 3 distribution of the funds received by him. 4 5 REPORTER’S COMMENT 6 Section 6231311 requires the filing and preserving in the 7 probate court of all original documents relating to the action 8 for the sale of the land including the petition, proofs of 9 service, and order. 10 This section further requires the personal representative file a 11 final accounting to document the distribution of the proceeds 12 of sale of the land. 13 14 Section 6231312. In case any lands of the deceased subject 15 to the lien of any judgment, mortgage, or other lien is sold 16 under the provisions of this Part the court may enter a release 17 of the lands so sold upon the records in the office of the clerk 18 of court or register of deeds of the county from the lien of 19 such judgment, mortgage, or other lien and in case such 20 mortgage, judgment, or other lien debt has been paid in full 21 out of the proceeds of the sale of such lands the court may 22 have cancellation of the same entered on the record thereof. 23 The foregoing does not relieve any judgment, mortgage, or 24 other lien creditor of the duty, as provided otherwise by law, 25 of releasing or canceling such liens. Each release satisfaction 26 or cancellation provided for herein must refer by proper 27 notation to the file number of such estate in the court. The 28 provisions of this section do not apply when the order of sale 29 directs the sale of any lands which must be sold subject to 30 any existing mortgage, judgment, or other lien, but only 31 when such lands are sold freed and discharged from all such 32 liens. 33 34 REPORTER’S COMMENT 35 This section provides that the probate judge must file in the 36 offices of the clerk of court and of the register of mesne 37 conveyances releases of the land sold from the lien of any 38 mortgage, judgment, or other lien on said land. If the lien 39 claim is paid in full from the proceeds of sale, the probate

[143] 268 1 judge will file a cancellation of the lien. Such filing of 2 releases by the probate judge will not be required if such 3 releases are timely filed by the lien claimants. Such releases 4 by the probate judge must make reference to the probate 5 court file number for the estate. 6 This section specifies that releases must also be filed by 7 the lien claimants even if a release has been filed by the 8 probate judge. 9 This section further provides that the probate judge may sell 10 the land subject to any existing lien on the land, and, in 11 which case, no release from the lien would be required. 12 13 Article 4 14 15 Local and Foreign Personal Representatives; Ancillary 16 Administration 17 18 Part 1 19 20 Definitions 21 22 Section 624101. In this article [Sections 624101 et seq.]: 23 (1) ‘Local administration’ means administration by a 24 personal representative appointed in this State pursuant to 25 appointment proceedings described in Article 3 [Sections 26 623101 et seq.]. 27 (2) ‘Local personal representative’ includes any personal 28 representative appointed in this State pursuant to 29 appointment proceedings described in Article 3 [Sections 30 623101 et seq.] and excludes foreign personal representatives 31 who acquire the power of a local personal representative 32 pursuant to Section 624205. 33 (3) ‘Resident creditor’ means a person domiciled in, or 34 doing business in, this State who is, or could be, a claimant 35 against an estate of a nonresident decedent. 36 37 REPORTER’S COMMENT 38 Section 624101 defines ‘local administration’ and ‘local 39 personal representative’ in order to distinguish ‘local’ matters

[143] 269 1 from that matter covered by Article 4, the ‘foreign personal 2 representative’ and his administrative acts in South Carolina 3 undertaken on the strength of his ‘foreign administration,’ 4 without his appointment in South Carolina pursuant to 5 Article 3 of this Code. Section 621201 includes definitions 6 of ‘foreign personal representative’, ‘personal 7 representative’, and ‘nonresident decedent’. 8 9 Part 2 10 11 Powers of Foreign Personal Representatives 12 13 Section 624201. At any time after the expiration of sixty 14 days from the death of a nonresident decedent, any person 15 indebted to the estate of the nonresident decedent or having 16 possession or control of personal property, or of an 17 instrument evidencing a debt, obligation, stock, or chose in 18 action belonging to the estate of the nonresident decedent 19 may pay the debt, deliver the personal property, or the 20 instrument evidencing the debt, obligation, stock, or chose in 21 action, to the domiciliary foreign personal representative of 22 the nonresident decedent upon being presented with proof of 23 his appointment and an affidavit made by or on behalf of the 24 representative stating: 25 (1) the date of the death of the nonresident decedent; 26 (2) that no local administration, or application or petition 27 therefor, is pending in this State; 28 (3) that the domiciliary foreign personal representative is 29 entitled to payment or delivery. 30 31 REPORTER’S COMMENT 32 Sections 624201, 624202, and 624203 must be read, together 33 with Section 624206, as providing a means, less cumbersome 34 than those provided by Sections 624204 and 624205 and by 35 Section 624207, for the unification and simplification of the 36 administration of multistate estates in the hands of the 37 domiciliary foreign personal representatives of nonresident 38 decedents. These sections allow the domiciliary foreign 39 personal representative to collect estate assets in South

[143] 270 1 Carolina without requiring local appointment (Section 2 624201), while protecting debtors of the estate against double 3 payment (Section 624202) and also protecting resident 4 creditors of the estate from nonpayment (Section 624203). 5 See Section 625431 for a provision similarly allowing the 6 collection of the assets of a nonresident protected person by 7 his domiciliary foreign conservator. 8 Sections 624201 and 624202 preserve the domiciliary foreign 9 personal representative’s power to collect estate assets in 10 South Carolina from debtors willing to make voluntary 11 payment on the strength of his foreign appointment, and also 12 preserve the corresponding effect, the full discharge of the 13 debtor, resulting from the payment. 14 These sections by their terms apply only to estates of 15 nonresident decedents and allow for payment only to the 16 domiciliary, not to any ancillary, foreign personal 17 representative. Presumably, an ancillary personal 18 representative is empowered to collect assets only in the state 19 of his appointment. The debtor’s good faith reliance on the 20 foreign personal representative’s proof of appointment and 21 affidavit, inaccurately showing that the decedent was a 22 nonresident of South Carolina and that the personal 23 representative was appointed as a domiciliary personal 24 representative, should protect the debtor under Section 25 624202. These sections apply even if local administration is 26 actually pending or applied for, as long as the foreign 27 personal representative supplies the documentation detailed 28 in Section 624201 and the debtor has no actual notice of the 29 pending local administration. Section 624202 requires only 30 good faith of the debtor who receives that documentation; 31 his release then depends solely on his making payment to the 32 foreign personal representative. See Section 624206. 33 These sections apply even though interested persons, 34 including estate creditors, are domiciled in, or doing business 35 in, South Carolina. Such creditors are protected under 36 Section 624203. 37 These sections apply to the collection of all debts owed to 38 and tangible and intangible personal property owned by the 39 estate. Section 623201(d) refers to the location of tangible

[143] 271 1 personal property and intangible personal property which 2 may be evidenced by an instrument. Transfers of securities 3 are covered by these sections as well as by Sections 35710, 4 et seq. the Uniform Act for Simplification of Fiduciary 5 Security Transfers. 6 Section 624201 provides for a waiting period of sixty days 7 from the death of the decedent before payment can be made 8 with the expectation of an immediate discharge of the debtor. 9 Presumably, having made payment before the expiration of 10 the period, a debtor will be discharged at the expiration of the 11 period if he would have been discharged had he then paid, 12 but, for example, not if, in the meantime, a local 13 administration has come to the attention of the debtor. 14 See Section 12161150 for estate tax duties and liabilities 15 imposed on personal representatives. 16 17 Section 624202. Payment or delivery made in good faith 18 on the basis of the proof of authority and affidavit releases 19 the debtor or person having possession of the personal 20 property or of the instrument evidencing a debt, obligation, 21 stock, or chose in action to the same extent as if payment or 22 delivery had been made to a local personal representative. 23 24 REPORTER’S COMMENT 25 See Comment to Section 624201. 26 27 Section 624203. Payment or delivery under Section 28 624201 may not be made if a resident creditor of the 29 nonresident decedent has given written notice to the debtor of 30 the nonresident decedent or the person having possession of 31 the personal property or of the instrument evidencing a debt, 32 obligation, stock, or chose in action belonging to the 33 nonresident decedent that the debt should not be paid nor the 34 property delivered to the domiciliary foreign personal 35 representative. 36 37 REPORTER’S COMMENT 38 For the context of Section 624203, see comment to Section 39 624201. Section 624203 provides a means by which a

[143] 272 1 resident creditor of the decedent can attempt to protect 2 himself from nonpayment of his debt, resulting from assets of 3 the estate being removed from South Carolina by a 4 domiciliary foreign personal representative. The creditor 5 simply notifies the debtors of the decedent not to pay their 6 debts under Sections 624201 and 624202. The notice must 7 be in writing, thereby excluding constructive notice. Section 8 624203 provides for a mechanism protective of resident 9 creditors, while Section 624202 deprives of such protection 10 resident creditors who fail to give notice under Section 11 624203. 12 13 Section 624204. If no local administration or application 14 or petition therefor is pending in this State, a domiciliary 15 foreign personal representative may file with a court in this 16 State in a county in which property belonging to the decedent 17 is located, authenticated copies of his appointment, and of the 18 will, if any, and of any official bond he has given, which 19 bond shall name the court in this State as coobligee on such 20 bond. The filing of a bond shall not be required unless the 21 court in its discretion orders it. 22 23 REPORTER’S COMMENT 24 Sections 624204 and 624205 must be read, together with 25 Section 624206, as providing a means, additional to those of 26 Sections 624201 through 624203 and of Section 624207, for 27 the unification and simplification of the administration of 28 multistate estates, without requiring the local appointment of 29 a personal representative. Predicated on no local 30 administration having been instituted, the domiciliary foreign 31 personal representative, who files with the court the 32 documents required by Section 624204, obtains under 33 Section 624205 all of the powers of a local personal 34 representative. See Article 3 for the powers of local personal 35 representatives. 36 37 Section 624205. A domiciliary foreign personal 38 representative who has complied with Section 624204 may 39 exercise as to assets (including real and personal property) in

[143] 273 1 this State all powers of a local personal representative and 2 may maintain actions and proceedings in this State subject to 3 any conditions imposed upon nonresident parties generally. 4 5 REPORTER’S COMMENT 6 See comment to Section 624204. 7 8 Section 624206. The power of a domiciliary foreign 9 personal representative under Section 624201 or 624205 10 shall be exercised only if there is no administration or 11 application therefor pending in this State. An application or 12 petition for local administration of the estate terminates the 13 power of the foreign personal representative to act under 14 Section 624205, but the local court may allow the foreign 15 personal representative to exercise limited powers to preserve 16 the estate. No person who, before receiving actual notice of 17 a pending local administration, has changed his position in 18 reliance upon the powers of a foreign personal representative 19 shall be prejudiced by reason of the application or petition 20 for, or grant of, local administration. The local personal 21 representative is subject to all duties and obligations which 22 have accrued by virtue of the exercise of the powers by the 23 foreign personal representative and may be substituted for 24 him in any action or proceedings in this State. 25 26 REPORTER’S COMMENT 27 Section 624206 limits the powers of foreign personal 28 representatives, under both Sections 624201, et seq., and 29 624204, et seq., to cases in which no local administration is 30 pending, with provision, however, for court approved 31 exercise of limited powers to preserve the estate, for 32 protection of any person acting in reliance upon these 33 sections and without actual notice of a pending local 34 administration, and for subjection of the local personal 35 representative to the obligations accrued by the foreign 36 personal representative under these sections. See Article 3 37 for provisions concerning local administration. 38

[143] 274 1 Section 624207. In respect to a nonresident decedent, the 2 provisions of Article 3 [Sections 623101 et seq.] govern (1) 3 proceedings, if any, in a court of this State for probate of the 4 will, appointment, removal, supervision, and discharge of the 5 local personal representative, and any other order concerning 6 the estate; and (2) the status, powers, duties, and liabilities of 7 any local personal representative and the rights of claimants, 8 purchasers, distributees, and others in regard to a local 9 administration. The initiation of a proceeding under Article 10 3 (Sections 623101 et seq.) is the appropriate procedure for 11 an ancillary administration relating to the real property of a 12 nonresident decedent located in this State and is an 13 alternative to the procedures available to a foreign personal 14 representative under Sections 624201 through 624206. 15 16 REPORTER’S COMMENT 17 The purpose of this section is to direct attention to Article 3 18 for sections controlling ancillary, i.e., local administration of 19 estates of nonresident decedents. See in particular Sections 20 623101, 623201, 623202, 623203, 623307(a), 623308, 21 623611(b), 623803(a), 623815, and 623816. Section 624207 22 and Article 3 must be read as providing an alternative to the 23 procedures available to a foreign personal representative 24 under Sections 624201 through 624206. 25 26 Part 3 27 28 Jurisdiction Over Foreign Personal Representatives 29 30 Section 624301. A foreign personal representative 31 submits personally to the jurisdiction of the courts of this 32 State in any proceeding relating to the estate by (1) filing 33 authenticated copies of his appointment as provided in 34 Section 624204, (2) receiving payment of money or taking 35 delivery of personal property under Section 624201, or (3) 36 doing any act as a personal representative in this State which 37 would have given the State jurisdiction over him as an 38 individual. Jurisdiction under (2) is limited to the money or 39 value of personal property collected.

[143] 275 1 2 REPORTER’S COMMENT 3 Sections 624301 and 624302 assert the South Carolina 4 courts’ jurisdiction over foreign personal representatives, not 5 appointed in South Carolina pursuant to Article 3. 6 Jurisdiction is asserted in the circumstances, under Section 7 624301, of the foreign personal representative’s acting (1) 8 under Section 624204 of this Code, (2) under Section 624201 9 of this Code, or (3) within the state in a manner which would 10 have subjected him, as an individual, to the state’s 11 jurisdiction, and, under Section 624302, (4) of the decedent’s 12 having been subject to the courts’ jurisdiction immediately 13 prior to his death. The words ‘courts of this state’ are 14 sufficient under federal legislation to include a federal court 15 having jurisdiction in South Carolina. 16 A foreign personal representative appointed at the decedent’s 17 domicile has priority for appointment in any local 18 administration. See Section 623203(g). Once appointed as 19 local personal representative, he remains subject to the 20 jurisdiction of the appointing court under Section 623602. 21 22 Section 624302. In addition to jurisdiction conferred by 23 Section 624301, a foreign personal representative is subject 24 to the jurisdiction of the courts of this State to the same 25 extent that his decedent was subject to jurisdiction 26 immediately prior to death. 27 28 REPORTER’S COMMENT 29 For the context of Section 624302, see comment to Section 30 624301. Section 624302 subjects the foreign personal 31 representative to jurisdiction on the basis of his decedent’s 32 immediate predeath condition or activities, whether the 33 decedent was domiciled, doing business, or maintaining his 34 principal place of business in South Carolina (see Section 35 362802 Code) of the 1976 Code or engaged in conduct 36 encompassed in South Carolina’s ‘longarm’ statutes (see 37 Sections 362803, 155130, 155140, and 159350, et seq.). As 38 to survival of causes of action, see Sections 15590, 155110, 39 et seq., and 3511520 of the 1976 Code.

[143] 276 1 Uniform Commercial Code Section 362801 might be read to 2 subject a personal representative ‘whether or not a citizen or 3 domiciliary of this State,’ including a foreign personal 4 representative, to the jurisdiction of the South Carolina 5 courts. Section 624302 settles any doubt as to the foreign 6 personal representative’s immunity from suit. 7 Section 624302 should be read with Sections 155130 and 8 155140 as augmenting and simplifying the process available 9 to persons involved in South Carolina in automobile 10 accidents also involving deceased nonresident motorists. 11 Section 624302 allows for suit directly against the foreign 12 personal representative. 13 14 Section 624303. (a) Service of process may be made 15 upon the foreign personal representative by registered or 16 certified mail, addressed to his last reasonably ascertainable 17 address, requesting a return receipt signed by addressee only. 18 Notice by ordinary first class mail is sufficient if registered or 19 certified mail service to the addressee is unavailable. Service 20 may be made upon a foreign personal representative in the 21 manner in which service could have been made under other 22 laws of this State on either the foreign personal 23 representative or his decedent immediately prior to death. 24 (b) If service is made upon a foreign personal 25 representative as provided in subsection (a), he shall be 26 allowed thirty days within which to appear or respond. 27 28 REPORTER’S COMMENT 29 Section 624303 provides for service of process upon a 30 foreign personal representative, first, either by registered or 31 by certified mail, with return receipt requested, if available 32 under postal regulations; second, by ordinary first class mail, 33 where registered or certified mail is unavailable; and, third, 34 by any means available under other laws of South Carolina 35 for service on the decedent (or on the foreign personal 36 representative himself) immediately prior to the decedent’s 37 death. For service on the decedent, see Sections 362804, et 38 seq., for service of process in support of personal jurisdiction 39 under the ‘longarm’ provisions of the Uniform Commercial

[143] 277 1 Code, Sections 362801, et seq. See Sections 159350, et seq., 2 for substituted service of process in South Carolina on the 3 statutorily designated agents of nonresident motorists, motor 4 carriers, aircraft operators, vessel operators, certain traveling 5 shows, nonresident directors of domestic corporations, 6 nonresident trustees of inter vivos trusts, and nonresident 7 individual fiduciaries. 8 See Sections 621401 through 621403 of this Code for the 9 general notice provisions of this Code. 10 11 Part 4 12 13 Judgments and Personal Representatives 14 15 Section 624401. An adjudication rendered in any 16 jurisdiction in favor of or against any personal representative 17 of the estate is as binding on the local personal representative 18 as if he were a party to the adjudication; provided, however, 19 that notice and the opportunity to defend must be given to the 20 local representative in order that the judgment be 21 collectible.” 22 23 REPORTER’S COMMENT 24 For the determinative effect of domiciliary foreign orders 25 determining testacy or the validity of a will and of 26 domiciliary certificates of the efficacy of a will, see Section 27 623408 and 623409. 28 29 SECTION 2. Article 6 and 7 of the 1976 Code are amended 30 to read: 31 32 “Article 6 33 34 Nonprobate Transfers 35 36 Part 1 37 38 MultipleParty Accounts Definitions and General Provisions 39

[143] 278 1 Section 626101. In this subpart [Sections 626101 et seq.], 2 unless the context otherwise requires: 3 (1) ‘Account’ means a contract of deposit of funds 4 between a depositor and a financial institution, and includes a 5 checking account, savings account, certificate of deposit, 6 share account, and other like arrangement arrangements. 7 (2) ‘Agent’ means a person authorized to make account 8 transactions for a party. 9 (3) ‘Beneficiary’ means a person named in a trust account 10 as one for whom a party to the account is named as trustee as 11 one to whom sums on deposit in an account are payable on 12 request after the death of all parties or for whom a party is 13 named as the trustee. 14 (3)(4) ‘Financial institution’ means any organization 15 authorized to do business under state or federal laws relating 16 to financial institutions, including, without limitation, banks 17 and trust companies, savings banks, building and loan 18 associations, savings and loan companies or associations, and 19 credit unions and includes a bank, trust company, savings 20 bank, building and loan association, savings and loan 21 company or association, and credit union. 22 (4) ‘Joint account’ means an account payable on request 23 to one or more of two or more parties (whether ‘and’, ‘or’, 24 ‘and/or’, or any other designation), whether or not mention is 25 made of any right of survivorship. 26 (5) A ‘MultipleParty account’ is any of the following 27 types of account: (i) a joint account, (ii) a P.O.D. account, or 28 (iii) a trust account. It does not include accounts established 29 for deposit of funds of a partnership, joint venture, or other 30 association for business purposes, or accounts controlled by 31 one or more persons as the duly authorized agent or trustee 32 for a corporation, unincorporated association, charitable or 33 civic organization, or a regular fiduciary or trust account 34 where the relationship is established other than by deposit 35 agreement means an account payable on request to one or 36 more of two or more parties, whether or not a right of 37 survivorship is mentioned including, but not limited to, joint 38 accounts or POD accounts.

[143] 279 1 (6) ‘Net contribution’ of a party to a joint account as of 2 any given time is means the sum of all deposits thereto to an 3 account made by or for him the party, less all withdrawals 4 made by or for him which have not been paid to or applied to 5 the use of any other party, plus a prorata share of any interest 6 or dividends included in the current balance. The term 7 includes, in addition, any proceeds of deposit life insurance 8 added to the account by reason of the death of the party 9 whose net contribution is in question payments from the 10 account made to or for the party which have not been paid to 11 or applied to the use of another party and a proportionate 12 share of any charges deducted from the account, plus a 13 proportionate share of any interest or dividends earned, 14 whether or not included in the current balance. The term 15 includes deposit life insurance proceeds added to the account 16 by reason of death of the party whose net contribution is in 17 question. 18 (7) ‘Party’ means a person who, by the terms of the an 19 account, has a present right, subject to request, to payment 20 from a multipleparty the account other than as a beneficiary 21 or agent. A P.O.D. payee or beneficiary of a trust account is 22 a party only after the account becomes payable to him by 23 reason of his surviving the original payee or trustee. Unless 24 the context otherwise requires, it includes a guardian, 25 conservator, personal representative, or assignee, including 26 an attaching creditor, of a party. It also includes a person 27 identified as a trustee of an account for another whether or 28 not a beneficiary is named, but it does not include any named 29 beneficiary unless he has a present right of withdrawal. 30 (8) ‘Payment’ of sums on deposit includes withdrawal, 31 payment on check or other directive of to a party, and any 32 pledge of sums on deposit by a party and any setoff, or 33 reduction or other disposition of all or part of an account 34 pursuant or third person pursuant to a check or other request, 35 and a pledge of sums on deposit by a party, or a setoff, 36 reduction, or other disposition of all or part of an account 37 pursuant to a pledge.

[143] 280 1 (9) ‘Proof of death’ includes a death certificate or record 2 or report which is prima facie proof of death under Section 3 621107 621507. 4 (10) ‘P.O.D. account’ means an account payable on request 5 to one person during his lifetime and on his death to one or 6 more P.O.D. payees, or to one or more persons during their 7 lifetimes and on the death of all of them to one or more 8 P.O.D. payees designation’ means the designation of: (i) a 9 beneficiary in an account payable on request to one party 10 during the party’s lifetime and on the party’s death to one or 11 more beneficiaries, or to one or more parties during their 12 lifetimes and on death of all of them to one or more 13 beneficiaries, or (ii) a beneficiary in an account in the name 14 of one or more parties as trustee for one or more beneficiaries 15 if the relationship is established by the terms of the account 16 and there is no subject of the trust other than the sums on 17 deposit in the account, whether or not payment to the 18 beneficiary is mentioned. 19 (11) ‘P.O.D. payee’ means a person designated on a P.O.D. 20 account as one to whom the account is payable on request 21 after the death of one or more persons ‘Receive’ as it relates 22 to notice to a financial institution, means receipt in the office 23 or branch office of the financial institution in which the 24 account is established, but if the terms of the account require 25 notice at a particular place, in the place required. 26 (12) ‘Request’ means a proper request for withdrawal, or a 27 check or order for payment, which complies with all 28 conditions of the account, including special requirements 29 concerning necessary signatures and regulations of the 30 financial institution; but if the financial institution conditions 31 withdrawal or payment on advance notice, for purposes of 32 this part the request for withdrawal or payment is treated as 33 immediately effective and a notice of intent to withdraw is 34 treated as a request for withdrawal complying with all terms 35 of the account, including special requirements concerning 36 necessary signatures and regulations of the financial 37 institution. However, for purposes of this subpart, if terms of 38 the account condition payment on advance notice, a request

[143] 281 1 for payment is treated as immediately effective and a notice 2 of intent to withdraw is treated as a request for payment. 3 (13) ‘Sums on deposit’ means the balance payable on a 4 multipleparty account including interest, and dividends 5 earned, whether or not included in the current balance, and in 6 addition any deposit life insurance proceeds added to the 7 account by reason of the death of a party. 8 (14) ‘Trust account’ means an account in the name of one 9 or more parties as trustee for one or more beneficiaries where 10 the relationship is established by the form of the account and 11 the deposit agreement with the financial institution and there 12 is no subject of the trust other than the sums on deposit in the 13 account; it is not essential that payment to the beneficiary be 14 mentioned in the deposit agreement. A trust account does 15 not include a regular trust account under a testamentary trust 16 or a trust agreement which has significance apart from the 17 account, or a fiduciary account arising from a fiduciary 18 relationship such as attorneyclient. 19 (15) ‘Withdrawal’ includes payment to a third person 20 pursuant to check or other directive of a party ‘Terms of the 21 account’ includes the deposit agreement and other terms and 22 conditions, including the form, of the contract of deposit. 23 24 REPORTER’S COMMENT 25 This and the sections that follow are designed to reduce 26 certain questions concerning many forms of multipleperson 27 accounts. A ‘payable on death’ designation and an ‘agency’ 28 designation are also authorized for both singleparty and 29 multipleparty accounts. An agent (paragraph (2)) may not be 30 a party. The agency designation must be signed by all parties, 31 and the agent is the agent of all parties. See Section 626105 32 (designation of agent). 33 A ‘beneficiary’ of a party (paragraph (3)) may be a POD 34 beneficiary. See paragraph (10) (‘POD designation’ defined). 35 The definition of ‘beneficiary’ refers to a ‘person,’ who may 36 be an individual, corporation, organization, or other legal 37 entity Thus, a church, trust company, family corporation, or 38 other entity, as well as any individual, may be designated as a 39 beneficiary.

[143] 282 1 The term ‘multipleparty account’ (paragraph 5) is used in this 2 part in a broad sense to include any account having more 3 than one owner with a present interest in the account. Thus, 4 an account may be a ‘multipleparty account’ within the 5 meaning of this part regardless of whether the terms of the 6 account refer to it as ‘joint tenancy’ or as ‘tenancy in 7 common,’ regardless of whether the parties named are 8 coupled by ‘or’ or ‘and,’ and regardless of whether any 9 reference is made to survivorship rights, whether expressly or 10 by abbreviation such as JTWROS or JT TEN. Survivorship 11 rights in a multipleparty account are determined by the terms 12 of the account, by statute and by the intent of the party, and 13 survivorship is not a necessary incident of a multipleparty 14 account. See Section 626202 (rights at death). 15 ‘ Net contribution’ as defined in paragraph (6) has no 16 application to the financial institutiondepositor relationship. 17 Rather, it is relevant only to controversies that may arise 18 between parties to a multipleparty account. See Section 19 626201 (ownership during lifetime). 20 Under paragraph (7), a ‘party’ is a person with a present right 21 to payment from an account. Therefore, present owners of a 22 multipleparty account are parties, as is the present owner of 23 an account with a POD designation. The beneficiary of an 24 account with a POD designation is not a party, but is entitled 25 to payment only on the death of all parties. An agent with 26 the right of withdrawal on behalf of a party is not itself a 27 party. A person claiming on behalf of a party such as a 28 guardian or conservator, or claiming the interest of a party 29 such as a creditor, is not itself a party, and the right of such a 30 person to payment is governed by general law other than this 31 part. 32 Various signature requirements may be involved in order to 33 meet the payment requirements of the account. A ‘request’ 34 (paragraph (12)) involves compliance with these 35 requirements. A party is one to whom an account is presently 36 payable without regard to whose signature may be required 37 for a ‘request.’ 38

[143] 283 1 Section 626102. The provisions of Sections 626103 to 2 626105 concerning beneficial ownership as between parties, 3 or as between parties and P.O.D. payees or beneficiaries of 4 multipleparty accounts, are relevant only to controversies 5 between these persons and their creditors and other 6 successors, and have no bearing on the power of withdrawal 7 of these persons as determined by the terms of account 8 contracts. The provisions of Sections 626108 to 626113 9 govern the liability of financial institutions who make 10 payments pursuant thereto and their setoff rights. This article 11 does not apply to: (i) an account established for a partnership, 12 joint venture, or other organization for a business purpose, 13 (ii) an account controlled by one or more persons as an agent 14 or trustee for a corporation, unincorporated association, or 15 charitable or civic organization, or (iii) a fiduciary or trust 16 account in which the relationship is established other than by 17 the terms of the account. 18 19 REPORTER’S COMMENT 20 The reference to a fiduciary or trust account in item (iii) includes a 21 regular trust account under a testamentary trust or a trust agree- 22 ment that has significance apart from the account, and a fiduciary 23 account arising from a fiduciary relation such as attorneyclient. 24 25 Section 626103. (a) A joint account belongs, during the 26 lifetime of all parties, to the parties in proportion to the net 27 contributions by each to the sums on deposit, unless there is 28 clear and convincing evidence of a different intent. 29 (b) A P.O.D. account belongs to the original payee during 30 his lifetime and not to the P.O.D. payee or payees; if two or 31 more parties are named as original payees, during their 32 lifetimes rights as between them are governed by subsection 33 (a) of this section. 34 (c) Unless a contrary intent is manifested by the terms of 35 the account or the deposit agreement or there is clear and 36 convincing evidence of an irrevocable trust, a trust account 37 belongs beneficially to the trustee during his lifetime, and if 38 two or more parties are named as trustee on the account, 39 during their lifetimes beneficial rights as between them are

[143] 284 1 governed by subsection (a) of this section. If there is an 2 irrevocable trust, the account belongs beneficially to the 3 beneficiary. (a) An account may be for a single party or 4 multiple parties. A multipleparty account may be with or 5 without a right of survivorship between the parties. Subject to 6 Section 626202(c), either a singleparty account or a 7 multipleparty account may have a POD designation, an 8 agency designation, or both. 9 (b) An account established after January 1, 2014, whether 10 in the form prescribed in Section 626104 or in any other 11 form, is either a singleparty account or a multipleparty 12 account, with or without right of survivorship, and with or 13 without a POD designation or an agency designation, within 14 the meaning of this subpart, and is governed by this article. 15 16 REPORTER’S COMMENT 17 In the case of an account established after the effective date 18 of this part that is not in substantially the form provided in 19 Section 626104, the account is governed by the provisions of 20 this part applicable to the type of account that most nearly 21 conforms to the depositor’s intent. See Section 626104 22 (forms). 23 Thus, a tenancy in common account established before or 24 after the effective date of this part would be classified as a 25 ‘multipleparty account’ for purposes of this part. See Section 26 62 6101(5) (‘multipleparty account’ defined). On death of a 27 party there would not be a right of survivorship since the 28 tenancy in common title would be treated as a multipleparty 29 account without right of survivorship. See Section 626202(c). 30 It should be noted that a POD designation may not be made 31 in a multipleparty account without right of survivorship. See 32 Sections 62 6101(10) (‘POD designation’ defined), 626104 33 (forms), and 626202 (rights at death). 34 35 Section 626104. (a) Sums remaining on deposit at the 36 death of a party to a joint account belong to the surviving 37 party or parties as against the estate of the decedent unless 38 there is a writing filed with the financial institution at the 39 time the account is created (or subsequently as provided

[143] 285 1 under Section 626105) which indicates a different intention. 2 If there are two or more surviving parties, their respective 3 ownerships during lifetime shall be in proportion to their 4 previous ownership interests under Section 626103 5 augmented by an equal share for each survivor of any interest 6 the decedent may have owned in the account immediately 7 before his death; and the right of survivorship continues 8 between the surviving parties. 9 (b) If the account is a P.O.D. account: 10 (1) on death of one of two or more original payees the 11 rights to any sums remaining on deposit are governed by 12 subsection (a); 13 (2) on death of the sole original payee or of the survivor 14 of two or more original payees, any sums remaining on 15 deposit belong to the P.O.D. payee or payees if surviving, or 16 to the survivor of them if one or more die before the original 17 payee; if two or more P.O.D. payees survive, there is no 18 right of survivorship in the event of death of a P.O.D. payee 19 thereafter unless the terms of the account or deposit 20 agreement expressly provide for survivorship between them. 21 (c) If the account is a trust account: 22 (1) on death of one of two or more trustees, the right to 23 any sums remaining on deposit are governed by subsection 24 (a); 25 (2) on death of the sole trustee or the survivor of two or 26 more trustees, any sums remaining on deposit belong to the 27 person or persons named as beneficiaries, if surviving, or to 28 the survivor of them if one or more die before the trustee, 29 unless there is clear evidence of a contrary intent; if two or 30 more beneficiaries survive, there is no right of survivorship 31 in event of death of any beneficiary thereafter unless the 32 terms of the account on deposit agreement expressly provide 33 for survivorship between them. 34 (d) In other cases, the death of any party to a multiple 35 party account has no effect on beneficial ownership on the 36 account other than to transfer the rights of the decedent as 37 part of his estate. 38 (e) A right to survivorship arising from the express terms 39 of the account or under this section, a beneficiary designation

[143] 286 1 in a trust account, or a P.O.D. payee designation, cannot be 2 changed by will; however, a party who owns a joint account 3 under the provisions of Section 626103(a) may effect such 4 change by will to the extent of his ownership if the will 5 contains clear and convincing evidence of his intent to do so. 6 (f) The provisions of Section 626104(a), (b), and (c) are 7 applicable to all multipleparty accounts created subsequent to 8 the effective date of this section, and unless there is clear and 9 convincing evidence of a different intention at the time the 10 account was created, to all multipleparty accounts created 11 prior to the effective date of this section. A contract of 12 deposit that contains provisions in substantially the following 13 form establishes the type of account provided, and the 14 account is governed by the provisions of this subpart 15 applicable to an account of that type: 16 17 ‘ UNIFORM SINGLEOR MULTIPLEPARTY ACCOUNT 18 FORM 19 20 PARTIES [Name One or More Parties]: 21 ______22 23 24 OWNERSHIP [Select One And Initial]: 25 26 __SINGLEPARTY ACCOUNT 27 28 29 __MULTIPLEPARTY ACCOUNT 30 Parties own account in proportion to net contributions unless 31 there is clear and convincing evidence of a different intent. 32 33 RIGHTS AT DEATH [Select One And Initial]: 34 35 If SingleParty Account is chosen above, choose one of 36 following: 37

[143] 287 1 __SINGLEPARTY ACCOUNT 2 At death of party, ownership passes as part of party’s estate. 3 4 __SINGLEPARTY ACCOUNT WITH POD (PAY ON 5 DEATH) DESIGNATION 6 [Name One Or More Beneficiaries]: 7 ______8 9 At death of party, ownership passes to POD beneficiaries and 10 is not part of party’s estate. 11 12 If MultipleParty Account is chosen above, choose one of 13 following: 14 15 __MULTIPLEPARTY ACCOUNT WITH RIGHT OF 16 SURVIVORSHIP 17 18 At death of party, ownership passes to surviving parties. The 19 last surviving party owns the entire account. (Note: This can 20 be overridden by clear and convincing evidence of a contrary 21 intent.) 22 23 __MULTIPLEPARTY ACCOUNT WITH RIGHT OF 24 SURVIVORSHIP AND POD (PAY ON DEATH) 25 DESIGNATION 26 [Name One Or More Beneficiaries]: 27 ______28 29 At death of last surviving party, ownership passes to POD 30 beneficiaries and is not part of last surviving party’s estate. 31 32 __MULTIPLEPARTY ACCOUNT WITHOUT RIGHT OF 33 SURVIVORSHIP 34 At death of party, deceased party’s ownership passes as part 35 of deceased party’s estate.

[143] 288 1 2 DESIGNATION OF AGENT FOR ACCOUNT [Optional] 3 Agents may make account transactions for parties but have 4 no ownership or rights at death unless named as POD 5 beneficiaries. 6 [To Add Agency Designation To Account, Name One Or 7 More Agents]: 8 ______9 10 [Select One And Initial]: 11 ______AGENCY DESIGNATION SURVIVES 12 DISABILITY OR INCAPACITY OF PARTIES 13 14 ______AGENCY DESIGNATION TERMINATES ON 15 DISABILITY OR INCAPACITY OF PARTIES’ 16 17 (b) A contract of deposit that does not contain provisions 18 in substantially the form provided in subsection (a) is 19 governed by the provisions of this article applicable to the 20 type of account that most nearly conforms to the depositor’s 21 intent. 22 23 REPORTER’s COMMENT 24 This section provides short forms for single and 25 multipleparty accounts which, if used, bring the accounts 26 within the terms of this part. A financial institution that uses 27 the statutory form language in its accounts is protected in 28 acting in reliance on the form of the account. See also 29 Section 626306 (discharge). 30 The forms provided in this section enable a person establishing a 31 multipleparty account to state expressly in the account whether 32 there are to be survivorship rights between the parties. The account 33 forms permit greater flexibility than traditional account designa- 34 tions. 35 An account that is not substantially in the form provided in 36 this section is nonetheless governed by this part. See Section 37 626103 (types of account; existing accounts). 38 [143] 289 1 Section 626105. The provisions of Section 626104 as to 2 rights of survivorship are determined by the form of the 3 account at the death of a party. This form may be altered by 4 written order given by a party to the financial institution to 5 change the form of the account or to stop or vary payment 6 under the terms of the account. The order or request must be 7 signed by a party, received by the financial institution during 8 the party’s lifetime, and not countermanded by other written 9 order of the same party during his lifetime. By a writing 10 signed by all parties, the parties may designate as agent of all 11 parties on an account a person other than a party. Unless the 12 terms of an agency designation provide that the authority of 13 the agent terminates on disability or incapacity of a party, the 14 agent’s authority survives disability and incapacity. The 15 agent may act for a disabled or incapacitated party until the 16 authority of the agent is terminated. Death of the sole party 17 or last surviving party terminates the authority of an agent. 18 The designated agent on an account is authorized to make all 19 transactions on the account that the party can make, 20 including, but not limited to, closing the account. An agent 21 serving under a durable power of attorney can change, 22 modify, or revoke an agent designated on an account. 23 24 REPORTER’S COMMENT 25 An agent has no beneficial interest in the account. See Section 26 626201 (ownership during lifetime). The agency relationship is 27 governed by the general law of agency of the state, except to the 28 extent this part provides express rules, including the rule that the 29 agency survives the disability or incapacity of a party. 30 A financial institution may make payments at the direction of 31 an agent notwithstanding disability, incapacity, or death of 32 the party, subject to receipt of a stop notice. Section 626306 33 (discharge); see also Section 626304 (payment to designated 34 agent). 35 The rule of subsection (b) applies to agency designations on 36 all types of accounts, including nonsurvivorship as well as 37 survivorship forms of multipleparty accounts. 38 39 Section 626106. Any transfers resulting from the 40 application of Section 626104 are effective by reason of the [143] 290 1 account contracts involved and this statute and are not to be 2 considered as testamentary or subject to Articles 1 through 4 3 [Sections 621101 thru 624101 et seq.] except as a 4 consequence of, and to the extent directed by, Section 5 626107. The provisions of Part 2 concerning beneficial 6 ownership as between parties or as between parties and 7 beneficiaries apply only to controversies between those 8 persons and their creditors and other successors, and do not 9 apply to the right of those persons to payment as determined 10 by the terms of the account. Part 3 governs the liability and 11 setoff rights of financial institutions that make payments 12 pursuant to it. 13 14 Section 626107. Subject to the provisions contained in 15 Section 623916, no multipleparty account is effective against 16 an estate of a deceased party to transfer to a survivor sums 17 needed to pay debts, taxes, and expenses of administration, if 18 other assets of the estate are insufficient; a surviving party, 19 P.O.D. payee, or beneficiary who receives payment from a 20 multipleparty account after the death of a deceased party is 21 liable to account to his personal representative for amounts 22 the decedent owned beneficially immediately before his 23 death to the extent necessary to discharge the claims and 24 charges mentioned above remaining unpaid after application 25 of the decedent’s estate. No proceeding to assert this liability 26 may be commenced unless the personal representative has 27 received a written demand by a creditor of the decedent, and 28 no proceeding may be commenced later than two years 29 following the death of the decedent. Sums recovered by the 30 personal representative must be administered as part of the 31 decedent’s estate. This section does not affect the right of a 32 financial institution to make payment on multipleparty 33 accounts according to the terms thereof or make it liable to 34 the estate of a deceased party unless before payment the 35 institution has been served with an order of the probate court. 36 37 Section 626108. Financial institutions may enter into 38 multipleparty accounts to the same extent that they may enter 39 into singleparty accounts. Any multipleparty account may be

[143] 291 1 paid, on request, to any one or more of the parties, unless a 2 contrary intent is manifested by the terms of the account or 3 the deposit agreement. A financial institution may not be 4 required to inquire as to the source of funds received for 5 deposit to a multipleparty account, or to inquire as to the 6 proposed application of any sum withdrawn from an account, 7 for purposes of establishing net contributions. 8 9 Section 626109. Unless a contrary intent is manifested by 10 the terms of the account or the deposit agreement, any sums 11 in a joint account may be paid, on request, to any party 12 without regard to whether any other party is incapacitated or 13 deceased at the time the payment is demanded; but payment 14 may not be made to the personal representative or heirs of a 15 deceased party unless proofs of death are presented to the 16 financial institution showing that the decedent was the last 17 surviving party or unless there is no right of survivorship 18 under Section 626104. 19 20 Section 626110. Unless a contrary intent is manifested by 21 the terms of the account or the deposit agreement, any P.O.D. 22 account may be paid, on request, to any original party to the 23 account. Payment may be made, on request, to the P.O.D. 24 payee or to the personal representative or heirs of a deceased 25 P.O.D. payee upon presentation to the financial institution of 26 proof of death showing that the P.O.D. payee survived all 27 persons named as original payees. Payment may be made to 28 the personal representative or heirs of a deceased original 29 payee if proof of death is presented to the financial institution 30 showing that his decedent was the survivor of all other 31 persons named on the account either as an original payee or 32 as P.O.D. payee. 33 34 Section 626111. Unless a contrary intent is manifested by 35 the terms of the account or the deposit agreement, any trust 36 account may be paid, on request, to any trustee. Unless the 37 financial institution has received written notice that the 38 beneficiary has a vested interest not dependent upon his 39 surviving the trustee, payment may be made to the personal

[143] 292 1 representative or heirs of a deceased trustee if proof of death 2 is presented to the financial institution showing that his 3 decedent was the survivor of all other persons named on the 4 account either as trustee or beneficiary. Payment may be 5 made, on request, to the beneficiary or to the personal 6 representative or heirs of a deceased beneficiary upon 7 presentation to the financial institution of proof of death 8 showing that the beneficiary or beneficiaries survived all 9 persons named as trustees. 10 11 Section 626112. Payment made pursuant to Section 12 626108, 626109, 626110, or 626111 discharges the financial 13 institution from all claims for amounts so paid whether or not 14 the payment is consistent with the beneficial ownership of 15 the account as between parties, P.O.D. payees, or 16 beneficiaries, or their successors. The protection here given 17 does not extend to payments made after a financial institution 18 has received written notice from any party able to request 19 present payment to the effect that withdrawals in accordance 20 with the terms of the account should not be permitted. 21 Unless the notice is withdrawn by the person giving it, the 22 successor of any deceased party must concur in any demand 23 for withdrawal if the financial institution is to be protected 24 under this section. No other notice or any other information 25 shown to have been available to a financial institution shall 26 affect its right to the protection provided here. The 27 protection here provided shall have no bearing on the rights 28 of parties in disputes between themselves or their successors 29 concerning the beneficial ownership of funds in, or 30 withdrawn from, multipleparty accounts. 31 32 Section 626113. Without qualifying any other statutory 33 right to setoff or lien and subject to any contractual 34 provision, if a party to a multipleparty account is indebted to 35 a financial institution, the financial institution has a right to 36 setoff against the account in which the party has or had 37 immediately before his death a present right of withdrawal. 38 The amount of the account subject to setoff is that proportion 39 to which the debtor is, or was immediately before his death,

[143] 293 1 beneficially entitled, and in the absence of proof of net 2 contributions, to an equal share with all parties having 3 present rights of withdrawal. 4 5 Part 2 6 7 Provisions Relating to Effect of Death 8 9 Section 626201. (a) Any of the following provisions in 10 an insurance policy, contract of employment, bond, 11 mortgage, or other security interest, promissory note, deposit 12 agreement, pension plan, trust agreement, conveyance, or any 13 other written instrument otherwise effective as a contract, 14 gift, conveyance, or trust is deemed to be nontestamentary, 15 and this Code does not invalidate the instrument or any 16 provision: 17 (1) that money or other benefits theretofore due to, 18 controlled, or owned by a decedent shall be paid after his 19 death to a person designated by the decedent in either the 20 instrument or a separate writing, including a will, executed at 21 the same time as the instrument or subsequently; 22 (2) that any money due or to become due under the 23 instrument shall cease to be payable in event of the death of 24 the promisee or the promissor before payment or demand; or 25 (3) that any property which is the subject of the 26 instrument shall pass to a person designated by the decedent 27 in either the instrument or a separate writing, including a 28 will, executed at the same time as the instrument or 29 subsequently. 30 (b) Nothing in this section limits the rights of creditors 31 under other laws of this State. 32 33 Part 2 34 35 Ownership as Between Parties and Others 36 37 Section 626201. (A) During the lifetime of all parties, an 38 account belongs to the parties in proportion to the net

[143] 294 1 contribution of each to the sums on deposit, unless there is 2 clear and convincing evidence of a different intent. 3 (B) A beneficiary in an account having a POD designation 4 has no right to sums on deposit during the lifetime of any 5 party. 6 (C) An agent in an account with an agency designation has 7 no beneficial right to sums on deposit. 8 9 REPORTER’S COMMENT 10 This section reflects the assumption that a person who 11 deposits funds in an account normally does not intend to 12 make an irrevocable gift of all or any part of the funds 13 represented by the deposit. Rather, the person usually intends 14 no present change of beneficial ownership. The section 15 permits parties to accounts to be as definite, or as indefinite, 16 as they wish in respect to the matter of how beneficial 17 ownership should be apportioned between them. 18 The assumption that no present change of beneficial 19 ownership is intended may be disproved by showing that a 20 gift was intended. For example, under subsection (b) it is 21 presumed that the beneficiary of a POD designation has no 22 present ownership interest during lifetime. However, it is 23 possible that in the case of a POD designation in trust form 24 an irrevocable gift was intended. 25 It is important to note that the section is limited to ownership 26 of an account while parties are alive. Section 626202 27 prescribes what happens to beneficial ownership on the death 28 of a party. 29 The section does not undertake to describe the situation 30 between parties if one party withdraws more than that party 31 is then entitled to as against the other party. Sections 626301 32 and 626306 protect a financial institution in that 33 circumstance without reference to whether a withdrawing 34 party may be entitled to less than that party withdraws as 35 against another party. Rights between parties in this situation 36 are governed by general law other than this part. 37 The theory of these sections is that the basic relationship of 38 the parties is that of individual ownership of values 39 attributable to their respective deposits and withdrawals, and

[143] 295 1 not equal and undivided ownership that would be an incident 2 of joint tenancy. 3 4 Section 626202. (a) Except as otherwise provided in this sub- 5 part, on death of a party sums on deposit in a multipleparty ac- 6 count belong to the surviving party or parties. If two or more par- 7 ties survive and one is the surviving spouse of the decedent, the 8 amount to which the decedent, immediately before death, was ben- 9 eficially entitled under Section 626201 belongs to the surviving 10 spouse. If two or more parties survive and none is the surviving 11 spouse of the decedent, the amount to which the decedent, immedi- 12 ately before death, was beneficially entitled under Section 626201 13 belongs to the surviving parties in equal shares, and augments the 14 proportion to which each survivor, immediately before the dece- 15 dent’s death, was beneficially entitled under Section 626201, and 16 the right of survivorship continues between the surviving parties. 17 (b) In an account with a POD designation: 18 (1) on death of one of two or more parties, the rights in 19 sums on deposit are governed by subsection (a); 20 (2) on death of the sole party or the last survivor of two 21 or more parties, sums on deposit belong to the surviving 22 beneficiary or beneficiaries. If two or more beneficiaries 23 survive, sums on deposit belong to them in equal and 24 undivided shares, and there is no right of survivorship in the 25 event of death of a beneficiary thereafter. If no beneficiary 26 survives, sums on deposit belong to the estate of the last 27 surviving party. 28 (c) Sums on deposit in a singleparty account without a 29 POD designation, or in a multipleparty account that, by the 30 terms of the account, is without right of survivorship, are not 31 affected by death of a party, but the amount to which the 32 decedent, immediately before death, was beneficially entitled 33 under Section 626201 is transferred as part of the decedent’s 34 estate. A POD designation in a multipleparty account without 35 right of survivorship is ineffective. For purposes of this 36 section, designation of an account as a tenancy in common 37 establishes that the account is without right of survivorship. 38 (d) The ownership right of a surviving party or 39 beneficiary, or of the decedent’s estate, in sums on deposit is 40 subject to requests for payment made by a party before the

[143] 296 1 party’s death, whether paid by the financial institution before 2 or after death, or unpaid. The surviving party or beneficiary, 3 or the decedent’s estate, is liable to the payee of an unpaid 4 request for payment. The liability is limited to a 5 proportionate share of the amount transferred under this 6 section, to the extent necessary to discharge the request for 7 payment. 8 9 REPORTER’S COMMENT 10 The effect of subsection (a) is to make an account payable to 11 one or more of two or more parties a survivorship 12 arrangement unless a nonsurvivorship arrangement is 13 specified in the terms of the account. 14 The account characteristics described in this section must be 15 determined by reference to the form of the account and the 16 impact of Sections 626103 and 626104 on the admissibility 17 of extrinsic evidence tending to confirm or contradict 18 intention as signaled by the form. 19 20 Section 626203. (a) Rights at death of a party under 21 Section 626202 are determined by the terms of the account at 22 the death of the party. A party may alter the terms of the 23 account by a notice signed by the party and given to the 24 financial institution to change the terms of the account or to 25 stop or vary payment under the terms of the account. To be 26 effective the notice must be received by the financial 27 institution during the party’s lifetime. 28 (b) A right of survivorship arising from the express terms 29 of the account under Section 626202 may be altered by clear 30 and convincing evidence, including but not limited to express 31 provisions in a will. 32 (c) A multipleparty account of husband and wife is 33 presumed to be joint with right of survivorship unless clear 34 and convincing evidence shows survivorship was not the 35 intent of the party. 36 37 REPORTER’S COMMENT 38 Under this section, rights of parties and beneficiaries are 39 determined by the type of account at the time of death. It is

[143] 297 1 to be noted that only a ‘party’ may give notice blocking the 2 provisions of Section 626202 (rights at death). ‘Party’ is 3 defined by Section 626101(7). Thus, if there is an account 4 with a POD designation in the name of A and B with C as 5 beneficiary, C cannot change the right of survivorship 6 because C has no present right to payment and hence is not a 7 party. 8 9 Section 626204. A transfer resulting from the application of 10 Section 626202 is effective by reason of the terms of the account 11 involved and this part and is not testamentary or subject to Articles 12 1 through 4 (estate administration) unless there is clear and con- 13 vincing evidence that the deceased party did not intend for the ac- 14 count to be joint with right of survivorship. 15 16 REPORTER’S COMMENT 17 The purpose of classifying the transactions contemplated by 18 this part as nontestamentary is to bolster the explicit 19 statement that their validity as effective modes of transfers on 20 death is not to be determined by the requirements for wills. 21 22 Section 626205. Subject to the provisions contained in Section 23 623916, no multipleparty account is effective against an estate of a 24 deceased party to transfer to a survivor sums needed to pay debts, 25 taxes, and expenses of administration, if other assets of the estate 26 are insufficient. A surviving party or beneficiary who receives 27 payment from a multipleparty account after the death of a deceased 28 party is liable to account to his personal representative for amounts 29 the decedent owned beneficially immediately before his death to 30 the extent necessary to discharge the claims and charges men- 31 tioned above remaining unpaid after application of the decedent’s 32 estate. No proceeding to assert this liability may be commenced 33 unless the personal representative has received a written demand 34 by a creditor of the decedent, and no proceeding may be com- 35 menced later than one year following the death of the decedent. 36 Sums recovered by the personal representative must be adminis- 37 tered as part of the decedent’s estate. This section does not affect 38 the right of a financial institution to make payment on multiplepar- 39 ty accounts according to the terms of the account or make it liable 40 to the estate of a deceased party unless, before payment, the insti- 41 tution has been served with an order of the probate court.

[143] 298 1 2 REPORTER’S COMMENT 3 Section 626205, in derogation of the survivorship rights 4 established in Sections 626202 through 626204, establishes 5 in the estate of a deceased party a limited beneficial 6 ownership of the funds on deposit in a multipleparty account, 7 limited, however, to the payment of debts, taxes, and the 8 expenses of administration of the estate of the deceased 9 party, and existing only if other assets of that estate are 10 insufficient to that purpose, only up to the amount to which 11 the deceased party was beneficially entitled prior to death, 12 and only if a creditor’s claim proceeding is brought within 13 one year of the deceased party’s death. 14 15 Part 3 16 17 Protection of Financial Institutions 18 19 Section 626301. A financial institution may enter into a 20 contract of deposit for a multipleparty account to the same 21 extent it may enter into a contract of deposit for a singleparty 22 account, and may provide for a POD designation and an 23 agency designation in either a singleparty account or a 24 multipleparty account. A financial institution need not 25 inquire as to the source of a deposit to an account or as to the 26 proposed application of a payment from an account. 27 28 REPORTER’S COMMENT 29 Section 626301 is substantially the same as prior law under 30 former S.C. Code Section 626108, with the additional 31 reference to POD and agency designations. The provisions 32 governing payment on request of one or more parties, 33 previously covered in former S.C. Code Section 626108, is 34 now found in S.C. Code Section 626302. 35 The provisions of this subpart relate only to protection of a 36 financial institution that makes payment as provided in the 37 subpart. Nothing in this subpart affects the beneficial rights 38 of persons to sums on deposit or paid out. Ownership as

[143] 299 1 between parties, and others, is governed by Subpart 2. See 2 Section 626106 (applicability of subpart). 3 4 Section 626302. A financial institution, on request, may 5 pay sums on deposit in a multipleparty account: 6 (1) to one or more of the parties, whether or not another 7 party is disabled, incapacitated, or deceased when payment is 8 requested and whether or not the party making the request 9 survives another party; 10 (2) to the personal representative of a deceased party, if 11 proof of death is presented to the financial institution 12 showing that the deceased party was the survivor of all other 13 persons named on the account either as a party or 14 beneficiary, unless the account is without right of 15 survivorship under Section 626202; or 16 (3) in accordance with a court order directing the payment 17 of the sums on deposit. 18 19 REPORTER’S COMMENT 20 Section 626302 expands upon former 626108 and recognizes 21 multiple party accounts may be paid on request to one or 22 more parties. Subsection (2) is a departure from prior law in 23 that it does not contain the former provision providing for 24 payment to heirs or devisees if there is no personal 25 representative. Now, in such a circumstance, Subsection (3) 26 allows for payment in accordance with a court order. Section 27 626302 is consistent with the result of Trotter v. First Federal 28 Sav. and Loan Ass’n, 298 S.C. 85, 378 S.E.2d 267 (Ct. App. 29 1989), which recognized that a bank was authorized to make 30 a payment from a joint account to satisfy the debt of one of 31 the signatories, even though the other (nonconsenting) 32 signatory had contributed the funds to the account. 33 A financial institution that makes payment on proper 34 request under this section is protected unless the financial 35 institution has received written notice not to. Section 626306 36 (discharge). Paragraph (1) applies to both a multipleparty 37 account with right of survivorship and a multipleparty 38 account without right of survivorship (including an account 39 in tenancy in common form). Paragraph (2) is limited to a

[143] 300 1 multipleparty account with right of survivorship; payment to 2 the personal representative or heirs or devisees of a deceased 3 party to an account without right of survivorship is governed 4 by the general law of the state relating to the authority of 5 such persons to collect assets alleged to belong to a decedent. 6 7 Section 626303. A financial institution, on request, may 8 pay sums on deposit in an account with a POD designation: 9 (1) to one or more of the parties, whether or not another 10 party is disabled, incapacitated, or deceased when the 11 payment is requested and whether or not a party survives 12 another party; 13 (2) to the beneficiary or beneficiaries, if proof of death is 14 presented to the financial institution showing that the 15 beneficiary or beneficiaries survived all persons named as 16 parties; 17 (3) to the personal representative of a deceased party, if 18 proof of death is presented to the financial institution 19 showing that the deceased party was the survivor of all other 20 persons named on the account either as a party or 21 beneficiary; or 22 (4) in accordance with a court order directing the payment 23 of the sums on deposit. 24 25 REPORTER’S COMMENT 26 Section 626303 is substantially the same as prior 626110, 27 with the addition of Subsection (4) which allows payment in 28 accordance with a court order. 29 A financial institution that makes payment on proper request 30 under this section is protected unless the financial institution 31 has received written notice not to. See Section 626306 32 (discharge). Payment to the personal representative of a 33 deceased beneficiary who would be entitled to payment 34 under paragraph (2) is governed by the general law of the 35 state relating to the authority of such persons to collect assets 36 alleged to belong to a decedent. 37 38 Section 626304. A financial institution, on request of an agent 39 under an agency designation for an account, may pay to the agent

[143] 301 1 sums on deposit in the account, whether or not a party is disabled, 2 incapacitated, or deceased when the request is made or received, 3 and whether or not the authority of the agent terminates on the dis- 4 ability or incapacity of a party. 5 6 REPORTER’S COMMENT 7 Section 626304 is new and recognizes the ability to pay to an 8 agent under an agency designation. Designation of an agent 9 is governed by S.C. Code Section 626105 and this section is 10 in accordance with the concept of adding a nonparty agent to 11 an account, as commonly provided in account agreements. 12 Section 626304 is consistent with former S.C. Code Section 13 626111 governing payments of a trust account to a trustee, 14 though this section is broader in that the definition of agent 15 under S.C. Code Section 622101(2) includes any ‘person 16 authorized to make account transactions for a party.’ 17 This section is intended to protect a financial institution that 18 makes a payment pursuant to an account with an agency 19 designation even though the agency may have terminated at 20 the time of the payment due to disability, incapacity, or death 21 of the principal. The protection does not apply if the financial 22 institution has received notice under Section 626306 not to 23 make payment or notice that the agency has terminated. This 24 section applies whether or not the agency survives the party’s 25 disability or incapacity under Section 62 6105 (designation of 26 agent). 27 28 Section 626305. If a financial institution is required or permitted 29 to make payment pursuant to this subpart to a minor designated as 30 a beneficiary, payment shall be made as ordered by the court or 31 may be made in accordance with Section 625103. 32 33 SOUTH CAROLINA COMMENTS 34 Section 626305 is intended to avoid the need for a 35 guardianship or other protective proceeding in situations 36 where the Uniform Gifts to Minors Act may be used. 37 38 Section 626306. (a) Payment made pursuant to this subpart in ac- 39 cordance with the terms of the account discharges the financial in- 40 stitution from all claims for amounts so paid, whether or not the

[143] 302 1 payment is consistent with the beneficial ownership of the account 2 as between parties, beneficiaries, or their successors. Payment may 3 be made whether or not a party, beneficiary, or agent is disabled, 4 incapacitated, or deceased when payment is requested, received, or 5 made. 6 (b) Protection under this section does not extend to 7 payments made after a financial institution has received 8 written notice from a party, or from an agent under a durable 9 power of attorney or a conservator for a party, or from the 10 personal representative of a deceased party, or surviving 11 spouse of a deceased party, to the effect that payments in 12 accordance with the terms of the account, including one 13 having an agency designation, should not be permitted, and 14 the financial institution has had a reasonable opportunity to 15 act on it when the payment is made. Unless the notice is 16 withdrawn by the person giving it, the successor of any 17 deceased party must concur in a request for payment if the 18 financial institution is to be protected under this section. 19 Unless a financial institution has been served with process or 20 a court order in an action or proceeding, no other notice or 21 other information shown to have been available to the 22 financial institution affects its right to protection under this 23 section. 24 (c) A financial institution that receives written notice 25 pursuant to this section or otherwise has reason to believe 26 that a dispute exists as to the rights of the parties may refuse, 27 without liability, to make payments in accordance with the 28 terms of the account. 29 (d) Protection of a financial institution under this section 30 does not affect the rights of parties in disputes between 31 themselves or their successors concerning the beneficial 32 ownership of sums on deposit in accounts or payments made 33 from accounts. 34 35 REPORTER’S COMMENT 36 The provision of subsection (a) protecting a financial 37 institution for payments made after the death, disability, or 38 incapacity of a party is a specific elaboration of the general 39 protective provisions of this section and is drawn from 40 Uniform Commercial Code Section 4405. [143] 303 1 Knowledge of disability, incapacity, or death of a party 2 does not affect payment on request of an agent, whether or 3 not the agent’s authority survives disability or incapacity. See 4 Section 62 6304 (payment to designated agent). But under 5 subsection (b), the financial institution may not make 6 payments on request of an agent after it has received written 7 notice not to, whether because the agency has terminated or 8 otherwise. 9 10 Section 626307. Without qualifying any other statutory right to 11 setoff or lien and subject to any contractual provision, if a party to 12 a multipleparty account is indebted to a financial institution, the fi- 13 nancial institution has a right to setoff against the account in which 14 the party has or had immediately before his death a present right of 15 withdrawal. The amount of the account subject to setoff is that pro- 16 portion to which the debtor is, or was immediately before his 17 death, beneficially entitled, and in the absence of proof of net con- 18 tributions, to an equal share with all parties having present rights 19 of withdrawal. 20 21 REPORTER’S COMMENT 22 Section 626307 is substantially similar to former S.C. Code 23 §626113. As with former Section 626113, Section 626307 24 allows the financial institution, as creditor of a party, to set 25 off in its own favor an amount from a multiple party account 26 to cover the indebtedness of that party. This Section is in 27 addition to any other statutory, common law, or contractual 28 remedies, liens or rights of setoff. 29 30 Article 7 31 32 South Carolina Trust Code 33 34 Part 1 35 36 General Provisions and Definitions 37 38 39 GENERAL COMMENT

[143] 304 1 The South Carolina version of the Uniform Trust Code is 2 referred to as the South Carolina Trust Code or sometimes 3 the SCTC or sometimes the Code throughout this Article. 4 The Uniform Trust Code is sometimes referred to as the 5 UTC. The South Carolina Probate Code, South Carolina 6 Code Ann. Section 621100 et seq., is sometimes referred to 7 as the SCPC. The sections of the South Carolina Trust Code 8 are codified at Title 62, Article 7 and consequently are a part 9 of the comprehensive South Carolina Probate Code. 10 Depending on context, general references to “Article” in the 11 UTC Comments may correlate to “Part” in the SCTC. 12 As with the UTC, the SCTC is primarily a default statute. 13 Most of the Code’s provisions can be overridden in the terms 14 of the trust. The provisions not subject to override are 15 scheduled in Section 627105(b). These include the duty of a 16 trustee to act in good faith and with regard to the purposes of 17 the trust, public policy exceptions to enforcement of 18 spendthrift provisions, the requirements for creating a trust, 19 and the authority of the court to modify or terminate a trust 20 on specified grounds. 21 The remainder of the article specifies the scope of the 22 Code (Section 627102), provides definitions (Section 23 627103), and collects provisions of importance not amenable 24 to codification elsewhere in the SCTC. Sections 627106 and 25 627107 focus on the sources of law that will govern a trust. 26 Section 627106 clarifies that despite the Code’s 27 comprehensive scope, not all aspects of the law of trusts have 28 been codified. The SCTC is supplemented by the common 29 law of trusts and principles of equity. Section 627 107 30 addresses selection of the jurisdiction or jurisdictions whose 31 laws will govern the trust. A settlor, absent overriding public 32 policy concerns, is free to select the law that will determine 33 the meaning and effect of a trust’s terms. 34 Changing a trust’s principal place of administration is 35 sometimes desirable, particularly to lower a trust’s state 36 income tax. Such transfers are authorized in Section 627108. 37 The trustee, following notice to the “qualified beneficiaries,” 38 defined in Section 627103(12), may without approval of 39 court transfer the principal place of administration to another

[143] 305 1 State or country if a qualified beneficiary does not object and 2 if the transfer is consistent with the trustee’s duty to 3 administer the trust at a place appropriate to its purposes, its 4 administration, and the interests of the beneficiaries. The 5 settlor, if minimum contacts are present, may also designate 6 the trust’s principal place of administration. 7 Sections 627104 and 627109 through 627111 address 8 procedural issues. Section 627104 specifies when persons, 9 particularly persons who work in organizations, are deemed 10 to have acquired knowledge of a fact. Section 627109 11 specifies the methods for giving notice and excludes from the 12 Code’s notice requirements persons whose identity or 13 location is unknown and not reasonably ascertainable. 14 Section 627110 allows beneficiaries with remote interests to 15 request notice of actions, such as notice of a trustee 16 resignation, which are normally given only to the qualified 17 beneficiaries. 18 Section 627111 ratifies the use of nonjudicial settlement 19 agreements. While the judicial settlement procedures may be 20 used in all court proceedings relating to the trust, the 21 nonjudicial settlement procedures will not always be 22 available. The terms of the trust may direct that the 23 procedures not be used, or settlors may negate or modify 24 them by specifying their own methods for obtaining 25 consents. Also, a nonjudicial settlement may include only 26 terms and conditions a court could properly approve. 27 Section 627112 provides that South Carolina’s specific 28 rules on construction of wills, whatever they may be, also 29 apply to the construction of trusts. 30 31 32 Section 627101. This article may be cited as the South 33 Carolina Trust Code. In this article, unless the context 34 clearly indicates otherwise, ‘Code’ shall mean means the 35 South Carolina Trust Code. 36 37 Section 627102. This article applies to express trusts, 38 charitable or noncharitable, and trusts created pursuant to a 39 statute, judgment, or decree that requires the trust to be

[143] 306 1 administered in the manner of an express trust. The term 2 ‘express trust’ includes both testamentary and inter vivos 3 trusts, regardless of whether the trustee is required to account 4 to the probate court, and includes, but is not limited to, all 5 trusts defined in Section 621201(49). This article does not 6 apply to constructive trusts, resulting trusts, conservatorships 7 administered by conservators as defined in Section 8 621201(6), administration of decedent’s estates, all multiple 9 party accounts referred to in Section 626101 et seq., custodial 10 arrangements, business trusts providing for certificates to be 11 issued to beneficiaries, common trust funds, voting trusts, 12 security arrangements, liquidation trusts, and trusts for the 13 primary purpose of paying debts, dividends, interest, salaries, 14 wages, profits, pensions, or employee benefits of any kind, or 15 any arrangement under which a person is nominee or 16 escrowee for another. 17 18 REPORTER’S COMMENT 19 This section provides a concise statement of the positive 20 inclusion of express trusts within the scope of the SCTC. 21 South Carolina has another comprehensive statement of the 22 scope of applicable South Carolina trust law, contained in the 23 definition paragraph of the South Carolina Probate Code 24 Section 621201(49), which contains an expanded statement 25 of the inclusion of express trusts and further contains detailed 26 statements of the trusts and trust type arrangements that are 27 excluded from the scope. This statement is now included in 28 Section 627102 with reference to Section 621201(49). 29 Former Section 627702(1), in the South Carolina Uniform 30 Trustee’s Powers Act, which was repealed by the SCTC, also 31 contained a comprehensive statement of applicable South 32 Carolina trust law. 33 Excluded from the Code’s coverage are resulting and 34 constructive trusts, which are not express trusts but remedial 35 devices imposed by law. For the requirements for creating 36 an express trust and the methods by which express trusts are 37 created, see Sections 627401 and 627402. The Code does 38 not attempt to distinguish express trusts from other legal 39 relationships with respect to property, such as agencies and

[143] 307 1 contracts for the benefit of third parties. For the distinctions, 2 see Restatement (Third) of Trusts Sections 2, 5 (Tentative 3 Draft No. 1, approved 1996); Restatement (Second) of Trusts 4 Sections 2, 516C (1959). 5 The SCTC is directed primarily at trusts that arise in an 6 estate planning or other donative context, but express trusts 7 can arise in other contexts. For example, a trust created 8 pursuant to a divorce action would be included, even though 9 such a trust is not donative but is created pursuant to a 10 bargainedfor exchange. Commercial trusts come in 11 numerous forms, including trusts created pursuant to a state 12 business trust act and trusts created to administer specified 13 funds, such as to pay a pension or to manage pooled 14 investments. Commercial trusts are often subject to 15 specialpurpose legislation and case law, which in some 16 respects displace the usual rules stated in this Code. See John 17 H. Langbein, The Secret Life of the Trust: The Trust as an 18 Instrument of Commerce, 107 Yale L.J. 165 (1997). 19 Express trusts also may be created by means of court 20 judgment or decree. Examples include trusts created to hold 21 the proceeds of personal injury recoveries and trusts created 22 to hold the assets of a protected person in a conservatorship 23 proceeding. 24 25 Section 627103. In this article: 26 (1) ‘Action,’ with respect to an act of a trustee, includes a 27 failure to act. 28 (2) ‘Beneficiary’ means a person that: 29 (A) has a present or future beneficial interest in a trust, 30 vested or contingent; or 31 (B) in a capacity other than that of trustee, holds a 32 power of appointment over trust property; or 33 (C) In the case of a charitable trust, has the authority to 34 enforce the terms of the Trust. 35 (3) ‘Charitable trust’ means a trust, or portion of a trust, 36 created for a charitable purpose described in Section 37 627405(a). 38 (4) ‘Conservator’ means a person appointed by the court 39 to administer the estate of a protected person.

[143] 308 1 (5) ‘Environmental law’ means a federal, state, or local 2 law, rule, regulation, or ordinance relating to protection of 3 the environment. 4 (6) ‘Guardian’ means a person appointed by the court to 5 make decisions regarding the support, care, education, health, 6 and welfare of a minor or adult individual. The term does 7 not include a guardian ad litem or a statutory guardian. 8 (7) ‘Interests of the beneficiaries’ means the beneficial 9 interests provided in the terms of the trust. 10 (8) ‘Jurisdiction’, with respect to a geographic area, 11 includes a State or country. 12 (9) ‘Person’ means an individual, corporation, business 13 trust, estate, trust, partnership, limited liability company, 14 association, joint venture, government, governmental 15 subdivision, agency, or instrumentality, public corporation, 16 or any other legal or commercial entity. 17 (10) ‘Power of withdrawal’ means a presently exercisable 18 general power of appointment other than a power exercisable 19 by a trustee which is limited by an ascertainable standard, or 20 which is exercisable by another person only upon consent of 21 the trustee or the person holding an adverse interest. 22 (11) ‘Property’ means anything that may be the subject of 23 ownership, whether real or personal, legal or equitable, or 24 any interest therein. 25 (12) ‘Qualified beneficiary’ means a living beneficiary 26 who, on the date the beneficiary’s qualification is 27 determined: 28 (A) is a distributee or permissible distributee of trust 29 income or principal; 30 (B) would be a distributee or permissible distributee of 31 trust income or principal if the interests of the distributees 32 described in subparagraph (A) terminated on that date, but 33 the termination of those interests would not cause the trust to 34 terminate; or 35 (C) would be a distributee or permissible distributee of 36 trust income or principal if the trust terminated on that date. 37 (13) ‘Revocable’, as applied to a trust, means revocable by 38 the settlor without the consent of the trustee or a person 39 holding an adverse interest.

[143] 309 1 (14) ‘Settlor’ means a person, including a testator, who 2 creates, or contributes property to, a trust. If more than one 3 person creates or contributes property to a trust, each person 4 is a settlor of the portion of the trust property attributable to 5 that person’s contribution except to the extent another person 6 has the power to revoke or withdraw that portion. Neither the 7 possession of, nor the lapse, release, or waiver of a power of 8 withdrawal shall cause a holder of the power to be deemed to 9 be a settlor of the trust, and property subject to such power is 10 not susceptible to the power holder’s creditors. 11 (15) ‘Spendthrift provision’ means a term of a trust which 12 restrains both voluntary and involuntary transfer of a 13 beneficiary’s interest. 14 (16) ‘State’ means a State of the United States, the District 15 of Columbia, Puerto Rico, the United States Virgin Islands, 16 or any territory or insular possession subject to the 17 jurisdiction of the United States. The term includes an Indian 18 tribe or band recognized by federal law or formally 19 acknowledged by a State. 20 (17) ‘Terms of a trust’ means the manifestation of the 21 settlor’s intent regarding a trust’s provisions as expressed in 22 the trust instrument or as may be established by other 23 evidence that would be admissible in a judicial proceeding. 24 (18) ‘Trust instrument’ means an instrument executed by 25 the settlor that contains terms of the trust, including any 26 amendments thereto. 27 (19) ‘Trustee’ includes an original, additional, and 28 successor trustee, and a cotrustee, whether or not appointed 29 or confirmed by a court. 30 (20) ‘Ascertainable standard’ means an ascertainable 31 standard relating to a trustee’s individual’s health, education, 32 support, or maintenance within the meaning of Section 33 2041(b)(1)(A) or 2514(c)(1) of the Internal Revenue Code, as 34 amended. 35 (21) ‘Distributee’ means any person who receives property 36 of a trust from a trustee, other than as creditor or purchaser. 37 (22) ‘Interested person’ or ‘interested party’ means any 38 person or party deemed to be a necessary or proper party

[143] 310 1 under Rule 19 of the South Carolina Rules of Civil 2 Procedure. 3 (23) ‘Internal Revenue Code’ means the Internal Revenue 4 Code, as amended from time to time. Each reference to a 5 provision of the Internal Revenue Code shall include any 6 successor or amendment thereto. 7 (24) ‘Serious breach of trust’ means either: a single act that 8 causes significant harm or involves flagrant misconduct, or a 9 series of smaller breaches, none of which individually justify 10 removal when considered alone, but which do so when 11 considered together. 12 (25) ‘Permissible distributee’ means any person who or 13 which on the date of qualification as a beneficiary is eligible 14 to receive current distributions of property of a trust from a 15 trustee, other than as a creditor or purchaser. 16 (26) ‘Trust investment advisor’ is a person, committee of 17 persons, or entity who is or who are given authority by the 18 terms of a trust instrument to direct, consent to or disapprove 19 a trustee’s actual or proposed investment decisions. 20 (27) ‘Trust protector’ is a person, committee of persons or 21 entity who is or who are designated as a trust protector whose 22 appointment is provided for in the trust instrument. 23 The terms and definitions contained in the South Carolina 24 Probate Code that do not conflict with the terms defined in 25 this section shall remain in effect for the South Carolina 26 Trust Code. 27 28 REPORTER’S COMMENT 29 There are a number of definitions in Section 627103 referred 30 to throughout the South Carolina Trust Code that have no 31 equivalent in other portions of the South Carolina Code. 32 These include “Action,” “Charitable trust,” “Environmental 33 law,” “Interests of the beneficiaries,” “Jurisdiction,” “Power 34 of withdrawal,” “Qualified beneficiary,” “Revocable,” 35 “Settlor,” “Spendthrift provision,” “Terms of a trust,” and 36 “Trust instrument.” In the interest of uniformity, such terms 37 are included in the South Carolina Trust Code except as 38 noted below.

[143] 311 1 A definition of “action” (paragraph (1)) is included for 2 drafting convenience, to avoid having to clarify in the 3 numerous places in the SCTC where reference is made to an 4 “action” by the trustee that the term includes a failure to act. 5 “Beneficiary” (paragraph (2)) refers only to a beneficiary 6 of a trust as defined in the SCTC. In addition to living and 7 ascertained individuals, beneficiaries may be unborn or 8 unascertained. Pursuant to Section 627402(c), a trust is valid 9 only if a beneficiary can be ascertained now or in the future. 10 The term “beneficiary” includes not only beneficiaries who 11 received their interests under the terms of the trust but also 12 beneficiaries who received their interests by other means, 13 including by assignment, exercise of a power of appointment, 14 resulting trust upon the failure of an interest, gap in a 15 disposition, operation of an antilapse statute upon the 16 predecease of a named beneficiary, or upon termination of 17 the trust. The fact that a person incidentally benefits from the 18 trust does not mean that the person is a beneficiary. For 19 example, neither a trustee nor persons hired by the trustee 20 become beneficiaries merely because they receive 21 compensation from the trust. See Restatement (Third) of 22 Trusts Section 48 cmt. c (Tentative Draft No. 2, approved 23 1999); Restatement (Second) of Trusts Section 126 cmt. c 24 (1959). 25 While the holder of a power of appointment is not 26 necessarily considered a trust beneficiary under the common 27 law of trusts, holders of powers are classified as beneficiaries 28 under the SCTC. Holders of powers are included on the 29 assumption that their interests are significant enough that 30 they should be afforded the rights of beneficiaries. A power 31 of appointment as used in state trust law and this Code is as 32 defined in state property law and not federal tax law although 33 there is considerable overlap between the two definitions. 34 A power of appointment is authority to designate the 35 recipients of beneficial interests in property. See 36 Restatement (Second) of Property: Donative Transfers 37 Section 11.1 (1986). A power is either general or nongeneral 38 and either presently exercisable or not presently exercisable. 39 A general power of appointment is a power exercisable in

[143] 312 1 favor of the holder of the power, the power holder’s 2 creditors, the power holder’s estate, or the creditors of the 3 power holder’s estate. See Restatement (Second) of 4 Property: Donative Transfers Section 11.4 (1986). All other 5 powers are nongeneral. A power is presently exercisable if 6 the power holder can currently create an interest, present or 7 future, in an object of the power. A power of appointment is 8 not presently exercisable if exercisable only by the power 9 holder’s will or if its exercise is not effective for a specified 10 period of time or until occurrence of some event. See 11 Restatement (Second) of Property: Donative Transfers 12 Section 11.5 (1986). Powers of appointment may be held in 13 either a fiduciary or nonfiduciary capacity. The definition of 14 “beneficiary” excludes powers held by a trustee but not 15 powers held by others in a fiduciary capacity. 16 Under Section 627302, the holder of a testamentary 17 general power of appointment may represent and bind 18 persons whose interests are subject to the power. 19 The definition of “beneficiary” includes only those who 20 hold beneficial interests in the trust. Because a charitable 21 trust is not created to benefit ascertainable beneficiaries but 22 to benefit the community at large (see Section 627405(a)), 23 persons receiving distributions from a charitable trust are not 24 beneficiaries as that term is defined in this Code. However, 25 pursuant to Section 627110(b), charitable organizations 26 expressly designated to receive distributions under the terms 27 of a charitable trust, even though not beneficiaries as defined, 28 are granted the rights of qualified beneficiaries under the 29 Code. 30 The SCTC leaves certain issues concerning beneficiaries to 31 the common law. Any person with capacity to take and hold 32 legal title to intended trust property has capacity to be a 33 beneficiary. See Restatement (Third) of Trusts Section 43 34 (Tentative Draft No. 2, approved 1999); Restatement 35 (Second) of Trusts Sections 116119 (1959). Except as 36 limited by public policy, the extent of a beneficiary’s interest 37 is determined solely by the settlor’s intent. See Restatement 38 (Third) of Trusts Section 49 (Tentative Draft No. 2, approved 39 1999); Restatement (Second) of Trusts Sections 127128

[143] 313 1 (1959). While most beneficial interests terminate upon a 2 beneficiary’s death, the interest of a beneficiary may devolve 3 by will or intestate succession the same as a corresponding 4 legal interest. See Restatement (Third) of Trusts Section 5 55(1) (Tentative Draft No. 2, approved 1999); Restatement 6 (Second) of Trusts Sections 140, 142 (1959). 7 Under the SCTC, when a trust has both charitable and 8 noncharitable beneficiaries only the charitable portion 9 qualifies as a “charitable trust” (paragraph (3)). The great 10 majority of the Code’s provisions apply to both charitable 11 and noncharitable trusts without distinction. The distinctions 12 between the two types of trusts are found in the requirements 13 relating to trust creation and modification. Pursuant to 14 Sections 627405 and 627413 of the SCTC, a charitable trust 15 must have a charitable purpose and charitable trusts may be 16 modified or terminated under the doctrine of equitable 17 deviation. Although South Carolina courts have previously 18 refused to recognize the doctrine of cy pres (see Section 19 627413 comment), a charitable trust in South Carolina could 20 be modified or terminated under the doctrine of equitable 21 deviation. Also, Section 627411 allows a noncharitable trust 22 to, in certain instances, be terminated by its beneficiaries 23 while charitable trusts do not have beneficiaries in the usual 24 sense. To the extent of these distinctions, a splitinterest trust 25 is subject to two sets of provisions, one applicable to the 26 charitable interests, the other the noncharitable. 27 Subsection (4) reflects the definition of “conservator” 28 contained in South Carolina Probate Code Section 29 621201(6).See the definition of “guardian” (paragraph (6)). 30 To encourage trustees to accept and administer trusts 31 containing real property, the SCTC contains several 32 provisions designed to limit exposure to possible liability for 33 violation of “environmental law” (paragraph (5)). Section 34 627701(c)(2) authorizes a nominated trustee to investigate 35 trust property to determine potential liability for violation of 36 environmental law or other law without accepting the 37 trusteeship. Section 627816(13) grants a trustee 38 comprehensive and detailed powers to deal with property 39 involving environmental risks. Section 6271010(b)

[143] 314 1 immunizes a trustee from personal liability for violation of 2 environmental law arising from the ownership and control of 3 trust property. 4 Under the SCTC, a “guardian” (paragraph (6)) makes 5 decisions with respect to personal care; a “conservator” 6 (paragraph (4)) manages property. The terminology used in 7 the SCTC is that employed in Article V of the South Carolina 8 Probate Code. Further, the South Carolina Probate Code 9 (Section 621201(18)) specifically excludes “a statutory 10 guardian” and this modification was incorporated into the 11 SCTC definition. 12 The phrase “interests of the beneficiaries” (paragraph (7)) 13 is used with some frequency in the SCTC. The definition 14 clarifies that the interests are as provided in the terms of the 15 trust and not as determined by the beneficiaries. Section 16 627108 dictates that a trustee is under a continuing duty to 17 administer the trust at a place appropriate to the interests of 18 the beneficiaries. Section 627706(b) conditions certain of the 19 grounds for removing a trustee on the court’s finding that 20 removal of the trustee will best serve the interests of the 21 beneficiaries. Section 627801 requires the trustee to 22 administer the trust in the interests of the beneficiaries, and 23 Section 627802 makes clear that a trustee may not place its 24 own interests above those of the beneficiaries. Section 25 627808(d) requires the holder of a power to direct who is 26 subject to a fiduciary obligation to act with regard to the 27 interests of the beneficiaries. Section 6271002(b) may 28 impose greater liability on a cotrustee who commits a breach 29 of trust with reckless indifference to the interests of the 30 beneficiaries. Section 6271008 invalidates an exculpatory 31 term to the extent it relieves a trustee of liability for breach of 32 trust committed with reckless indifference to the interests of 33 the beneficiaries. 34 “Jurisdiction” (paragraph (8)), when used with reference to 35 a geographic area, includes a state or country but is not 36 necessarily so limited. Its precise scope will depend on the 37 context in which it is used. “Jurisdiction” is used in Sections 38 627107 and 627403 to refer to the place whose law will 39 govern the trust. The term is used in Section 627108 to refer

[143] 315 1 to the trust’s principal place of administration. The term is 2 used in Section 627816 to refer to the place where the trustee 3 may appoint an ancillary trustee and to the place in whose 4 courts the trustee can bring and defend legal proceedings. 5 The definition of “property” (paragraph (11)) is intended to 6 be as expansive as possible and to encompass anything that 7 may be the subject of ownership. Included are choses in 8 action, claims, and interests created by beneficiary 9 designations under policies of insurance, financial 10 instruments, and deferred compensation and other retirement 11 arrangements, whether revocable or irrevocable. Any such 12 property interest is sufficient to support creation of a trust. 13 See Section 627401 comment. 14 Due to the difficulty of identifying beneficiaries whose 15 interests are remote and contingent, and because such 16 beneficiaries are not likely to have much interest in the 17 daytoday affairs of the trust, the SCTC uses the concept of 18 “qualified beneficiary” (paragraph (12)) to limit the class of 19 beneficiaries to whom certain notices must be given or 20 consents received. The definition of qualified beneficiaries is 21 used in Section 627705 to define the class to whom notice 22 must be given of a trustee resignation. The term is used in 23 Section 627813 to define the class to be kept informed of the 24 trust’s administration. Section 627417 requires that notice be 25 given to the qualified beneficiaries before a trust may be 26 combined or divided. Actions which may be accomplished 27 by the consent of the qualified beneficiaries include the 28 appointment of a successor trustee as provided in Section 29 627704. Prior to transferring a trust’s principal place of 30 administration, SCTC Section 627108(e) (UTC Section 31 108(d)) requires that the trustee give at least 60 days notice to 32 the qualified beneficiaries. 33 The qualified beneficiaries consist of the beneficiaries 34 currently receiving a distribution from the trust together with 35 those who might be termed the firstline remaindermen. 36 These are the beneficiaries who would receive distributions 37 were the event triggering the termination of a beneficiary’s 38 interest or of the trust itself to occur on the date in question. 39 Such a terminating event will typically be the death or deaths

[143] 316 1 of the beneficiaries currently eligible to receive the income. 2 Should a qualified beneficiary be a minor, incapacitated, or 3 unknown, or a beneficiary whose identity or location is not 4 reasonably ascertainable, the representation and virtual 5 representation principles of Part 3 may be employed, 6 including the possible appointment by the court of a 7 representative to represent the beneficiary’s interest. 8 The qualified beneficiaries who take upon termination of 9 the beneficiary’s interest or of the trust can include takers in 10 default of the exercise of a power of appointment. The term 11 can also include the persons entitled to receive the trust 12 property pursuant to the exercise of a power of appointment. 13 Because the exercise of a testamentary power of appointment 14 is not effective until the testator’s death and probate of the 15 will, the qualified beneficiaries do not include appointees 16 under the will of a living person. Nor would the term include 17 the objects of an unexercised inter vivos power. 18 Charitable trusts and trusts for a valid noncharitable 19 purpose do not have beneficiaries in the usual sense. 20 However, certain persons, while not technically beneficiaries, 21 do have an interest in seeing that the trust is enforced. 22 Section 627110 expands the definition of qualified 23 beneficiaries to encompass this wider group. UTC Section 24 110 grants the rights of qualified beneficiaries to the attorney 25 general of the state and charitable organizations expressly 26 designated to receive distributions under the terms of a 27 charitable trust; SCTC Section 627110 grants the rights of 28 qualified beneficiaries only to charitable organizations 29 expressly designated to receive distributions under the terms 30 of a charitable trust. Section 627110 also grants the rights of 31 qualified beneficiaries to persons appointed by the terms of 32 the trust or by the court to enforce a trust created for an 33 animal or other noncharitable purpose. 34 The definition of “revocable” (paragraph (13)) clarifies 35 that revocable trusts include only trusts whose revocation is 36 substantially within the settlor’s control. The consequences 37 of classifying a trust as revocable are many. The SCTC 38 contains provisions relating to liability of a revocable trust 39 for payment of the settlor’s debts (Section 627505), the

[143] 317 1 standard of capacity for creating a revocable trust (Section 2 627601), the procedure for revocation (Section 627602), the 3 subjecting of the beneficiaries’ rights to the settlor’s control 4 (Section 627603), the period for contesting a revocable trust 5 (Section 627604), the power of the settlor of a revocable trust 6 to direct the actions of a trustee (Section 627808(a)), notice 7 to the qualified beneficiaries upon the settlor’s death (Section 8 627813(b)), and the liability of a trustee of a revocable trust 9 for the obligations of a partnership of which the trustee is a 10 general partner (Section 6271011(d)). 11 The definition of “settlor” (paragraph (14)) refers to the 12 person who creates, or contributes property to, a trust, 13 whether by will, selfdeclaration, transfer of property to 14 another person as trustee, or exercise of a power of 15 appointment. For the requirements for creating a trust, see 16 Section 627401. Determining the identity of the “settlor” is 17 usually not an issue. The same person will both sign the trust 18 instrument and fund the trust. Ascertaining the identity of 19 the settlor becomes more difficult when more than one 20 person signs the trust instrument or funds the trust. The fact 21 that a person is designated as the “settlor” by the terms of the 22 trust is not necessarily determinative. For example, the 23 person who executes the trust instrument may be acting as 24 the agent for the person who will be funding the trust. In that 25 case, the person funding the trust, and not the person signing 26 the trust instrument, will be the settlor. Should more than 27 one person contribute to a trust, all of the contributors will 28 ordinarily be treated as settlors in proportion to their 29 respective contributions, regardless of which one signed the 30 trust instrument. See Section 627602(b). 31 In the case of a revocable trust employed as a will 32 substitute, gifts to the trust’s creator are sometimes made by 33 placing the gifted property directly into the trust. To 34 recognize that such a donor is not intended to be treated as a 35 settlor, the definition of “settlor” excludes a contributor to a 36 trust that is revocable by another person or over which 37 another person has a power of withdrawal. Thus, a parent 38 who contributes to a child’s revocable trust would not be 39 treated as one of the trust’s settlors. The definition of settlor

[143] 318 1 would treat the child as the sole settlor of the trust to the 2 extent of the child’s proportionate contribution 3 Ascertaining the identity of the settlor is important for a 4 variety of reasons. It is important for determining rights in 5 revocable trusts. See Sections 627505(a)(1), (3) (creditor 6 claims against settlor of revocable trust), 627602 (revocation 7 or modification of revocable trust), and 627604 (limitation on 8 contest of revocable trust). It is also important for 9 determining rights of creditors in irrevocable trusts. See 10 Section 627505(a)(2) (creditors of settlor can reach 11 maximum amount trustee can distribute to settlor). While the 12 settlor of an irrevocable trust traditionally has no continuing 13 rights over the trust except for the right under Section 627411 14 to terminate the trust with the beneficiaries’ consent, the 15 SCTC also authorizes the settlor of an irrevocable trust to 16 petition for removal of the trustee and to enforce or modify a 17 charitable trust. See Sections 627405(c) (standing to enforce 18 charitable trust), 627413 (South Carolina, doctrine of 19 equitable deviation), and 627706 (removal of trustee). 20 “Spendthrift provision” (paragraph (15)) means a term of a 21 trust which restrains the transfer of a beneficiary’s interest, 22 whether by a voluntary act of the beneficiary or by an action 23 of a beneficiary’s creditor or assignee, which at least as far as 24 the beneficiary is concerned, would be involuntary. A 25 spendthrift provision is valid under the SCTC only if it 26 restrains both voluntary and involuntary transfer. For a 27 discussion of this requirement and the effect of a spendthrift 28 provision in general, see Section 627502. The insertion of a 29 spendthrift provision in the terms of the trust may also 30 constitute a material purpose sufficient to prevent termination 31 of the trust by agreement of the beneficiaries under Section 32 627411, although the Code does not presume this result. 33 “Terms of a trust” (paragraph (17)) is a defined term used 34 frequently in the SCTC. While the wording of a written trust 35 instrument is almost always the most important determinant 36 of a trust’s terms, the definition is not so limited. Oral 37 statements, the situation of the beneficiaries, the purposes of 38 the trust, the circumstances under which the trust is to be 39 administered, and, to the extent the settlor was otherwise

[143] 319 1 silent, rules of construction, all may have a bearing on 2 determining a trust’s meaning. See Restatement (Third) of 3 Trusts Section 4 cmt. a (Tentative Draft No. 1, approved 4 1996); Restatement (Second) of Trusts Section 4 cmt. a 5 (1959). If a trust established by order of court is to be 6 administered as an express trust, the terms of the trust are 7 determined from the court order as interpreted in light of the 8 general rules governing interpretation of judgments. See 9 Restatement (Third) of Trusts Section 4 cmt. f (Tentative 10 Draft No. 1, approved 1996). 11 A manifestation of a settlor’s intention does not constitute 12 evidence of a trust’s terms if it would be inadmissible in a 13 judicial proceeding in which the trust’s terms are in question. 14 See Restatement (Third) of Trusts Section 4 cmt. b (Tentative 15 Draft No. 1, approved 1996); Restatement (Second) of Trusts 16 Section 4 cmt. b (1959). See also Restatement (Third) 17 Property: Donative Transfers Sections 10.2, 11.111.3 18 (Tentative Draft No. 1, approved 1995). For example, South 19 Carolina has chosen to recognize the creation of an oral trust, 20 Section 627407. Evidence otherwise relevant to determining 21 the terms of a trust may also be excluded under other 22 principles of law, such as the parol evidence rule. 23 “Trust instrument” (paragraph (18)) is a subset of the 24 definition of “terms of a trust” (paragraph (17)), referring to 25 only such terms as are found in an instrument executed by 26 the settlor. Section 627403 provides that a trust is validly 27 created if created in compliance with the law of the place 28 where the trust instrument was executed. Pursuant to Section 29 627604(a)(2), the contest period for a revocable trust can be 30 shortened by providing the potential contestant with a copy 31 of the trust instrument plus other information. UTC Section 32 813(b)(1) and SCTC Section 627813(b) requires that the 33 trustee upon request furnish a beneficiary with a copy of the 34 trust instrument. To allow a trustee to administer a trust with 35 some dispatch without concern about liability if the terms of 36 a trust instrument are contradicted by evidence outside of the 37 instrument, Section 6271006 protects a trustee from liability 38 to the extent a breach of trust resulted from reasonable 39 reliance on those terms. Section 6271013 allows a trustee to

[143] 320 1 substitute a certification of trust in lieu of providing a third 2 person with a copy of the trust instrument. Section 3 6271106(a)(4) provides that unless there is a clear indication 4 of a contrary intent, rules of construction and presumptions 5 provided in the SCTC apply to trust instruments executed 6 before the effective date of the Code. 7 The definition of “trustee” (paragraph (19)) includes not 8 only the original trustee but also an additional and successor 9 trustee as well as a cotrustee. Section 621201 of the South 10 Carolina Probate Code contains the language “whether or not 11 appointed or confirmed by court” and the South Carolina 12 Trust Code retains that language. Because the definition of 13 trustee includes trustees of all types, any trustee, whether 14 original or succeeding, single or cotrustee, has the powers of 15 a trustee and is subject to the duties imposed on trustees 16 under the SCTC. Any natural person, including a settlor or 17 beneficiary, has capacity to act as trustee if the person has 18 capacity to hold title to property free of trust. See 19 Restatement (Third) of Trusts Section 32 (Tentative Draft 20 No. 2, approved 1999); Restatement (Second) of Trusts 21 Section 89 (1959). State banking statutes normally impose 22 additional requirements before a corporation can act as 23 trustee. 24 Subsections (21) (defining “distributee”), (25) (defining 25 “permissible distributee”), (26) (defining “Trust Investment 26 Advisor”), and (27) (defining “Trust Protector”) are South 27 Carolina additions to the UTC. 28 The South Carolina version of Section 627103 expresses 29 the intent that the definitions contained in the South Carolina 30 Probate Code that are not otherwise defined within the South 31 Carolina Trust Code and that do not conflict with the 32 definitions contained in the South Carolina Trust Code shall 33 continue to apply to the law governing trusts in South 34 Carolina. 35 36 Section 627104. (a) Subject to subsection (b), a person 37 has knowledge of a fact if the person: 38 (1) has actual knowledge of it; 39 (2) has received a notice or notification of it; or

[143] 321 1 (3) from all the facts and circumstances known to the 2 person at the time in question, has reason to know it. 3 (b) An organization that conducts activities through 4 employees has notice or knowledge of a fact involving a trust 5 only from the time the information was received by an 6 employee having responsibility to act for the trust, or would 7 have been brought to the employee’s attention if the 8 organization had exercised reasonable diligence. An 9 organization exercises reasonable diligence if it maintains 10 reasonable routines for communicating significant 11 information to the employee having responsibility to act for 12 the trust and there is reasonable compliance with the routines. 13 Reasonable diligence does not require an employee of the 14 organization to communicate information unless the 15 communication is part of the individual’s regular duties or 16 the individual knows a matter involving the trust would be 17 materially affected by the information. 18 19 REPORTER’S COMMENT 20 This section specifies when a person is deemed to know a 21 fact. Subsection (a) states the general rule. Subsection (b) 22 provides a special rule dealing with notice to organizations. 23 Pursuant to subsection (a), a fact is known to a person if the 24 person had actual knowledge of the fact, received notification 25 of it, or had reason to know of the fact’s existence based on 26 all of the circumstances and other facts known to the person 27 at the time. Under subsection (b), notice to an organization is 28 not necessarily achieved by giving notice to a branch office. 29 Nor does the organization necessarily acquire knowledge at 30 the moment the notice arrives in the organization’s 31 mailroom. Rather, the organization has notice or knowledge 32 of a fact only when the information is received by an 33 employee having responsibility to act for the trust, or would 34 have been brought to the employee’s attention had the 35 organization exercised reasonable diligence. 36 “Know” is used in its defined sense in Sections 627109 37 (methods and waiver of notice), 627305 (appointment of 38 representative), 627604(b) (limitation on contest of revocable 39 trust), 6271009 (nonliability of trustee upon beneficiary’s

[143] 322 1 consent, release, or ratification), and 6271012 (protection of 2 person dealing with trustee). But as to certain actions, a 3 person is charged with knowledge of facts the person would 4 have discovered upon reasonable inquiry. See Section 5 6271005 (limitation of action against trustee following report 6 of trustee). 7 This section is based on Uniform Commercial Code 8 Section 1202 (2000 Annual Meeting Draft). 9 10 Section 627105. (a) Except as otherwise provided in the 11 terms of the trust, this article governs the duties and powers 12 of a trustee, relations among trustees, and the rights and 13 interests of a beneficiary. 14 (b) The terms of a trust prevail over any provision of this 15 article except: 16 (1) the requirements for creating a trust; 17 (2) the duty of a trustee to act in good faith and in 18 accordance with the purposes of the trust; 19 (3) the requirement that a trust and its terms be for the 20 benefit of its beneficiaries, and that the trust have a purpose 21 that is lawful and possible to achieve; 22 (4) the power of the court to modify or terminate a trust 23 under Sections 627410 through 627416; 24 (5) the effect of a spendthrift provision and the rights of 25 certain creditors and assignees to reach a trust as provided in 26 Part 5; 27 (6) the limitations on the ability of a settlor’s agent 28 under a power of attorney to revoke, amend, or make 29 distributions from a revocable trust pursuant to Section 30 627602(e) 627602A; 31 (7) the power of the court under Section 627708(b) to 32 adjust a trustee’s compensation specified in the terms of the 33 trust which is unreasonably low or high; 34 (8) the effect of an exculpatory term under Section 35 6271008; 36 (9) the rights under Sections 6271010 through 6271013 37 of a person other than a trustee or beneficiary; 38 (10) periods of limitation for commencing a judicial 39 proceeding;

[143] 323 1 (11) the power of the court to take such action and 2 exercise such jurisdiction as may be necessary in the interests 3 of justice; and 4 (12) the subject matter jurisdiction of the court and venue 5 for commencing a proceeding as provided in Sections 6 627201 and 627204. 7 8 REPORTER’S COMMENT 9 Section 627105(a) begins with the premise that the 10 provisions of the South Carolina Trust Code govern trusts 11 when the terms of a trust do not otherwise direct. While this 12 Code provides numerous procedural rules on which a settlor 13 may wish to rely, the settlor is generally free to override 14 these rules and to prescribe the conditions under which the 15 trust is to be administered. However, subsection (b) lists 16 eleven separate requirements that may not be waived and will 17 be controlled by the terms of the SCTC irrespective of the 18 terms of the trust. 19 With only limited exceptions, the duties and powers of a 20 trustee, relations among trustees, and the rights and interests 21 of a beneficiary are as specified in the terms of the trust. 22 Subsection (b) lists the items not subject to override in the 23 terms of the trust. 24 Subsection (b)(1) confirms that the requirements for a 25 trust’s creation, such as the necessary level of capacity and 26 the requirement that a trust have a legal purpose, are 27 controlled by statute and common law, not by the settlor. For 28 the requirements for creating a trust, see Sections 627401 29 through 409. Subsection (b)(10) makes clear that the settlor 30 may not reduce any otherwise applicable period of 31 limitations for commencing a judicial proceeding. See 32 Sections 627604 (period of limitations for contesting validity 33 of revocable trust), and 6271005 (period of limitation on 34 action for breach of trust). Similarly, a settlor may not so 35 negate the responsibilities of a trustee that the trustee would 36 no longer be acting in a fiduciary capacity. Subsection (b)(2) 37 provides that the terms may not eliminate a trustee’s duty to 38 act in good faith and in accordance with the purposes of the 39 trust. Subsection (b)(3) provides that the terms may not

[143] 324 1 eliminate the requirement that a trust and its terms must be 2 for the benefit of the beneficiaries. Subsection (b)(3) also 3 provides that the terms may not eliminate the requirement 4 that the trust have a purpose that is lawful and possible to 5 achieve. Subsection (b)(2)(3) are echoed in Sections 627404 6 (trust and its terms must be for benefit of beneficiaries; trust 7 must have a purpose that is lawful and possible to achieve), 8 627801 (trustee must administer trust in good faith, in 9 accordance with its terms and purposes and the interests of 10 the beneficiaries), 627802(a) (trustee must administer trust 11 solely in interests of the beneficiaries), 627814 (trustee must 12 exercise discretionary power in good faith and in accordance 13 with its terms and purposes and the interests of the 14 beneficiaries), and 6271008 (exculpatory term unenforceable 15 to extent it relieves trustee of liability for breach of trust 16 committed in bad faith or with reckless indifference to the 17 purposes of the trust and the interests of the beneficiaries). 18 SCTC Section 627404 does not include the words “not 19 contrary to public policy,” found in UTC Section 404, 20 recognizing that existing South Carolina law would 21 invalidate trusts that are contrary to public policy. 22 The UTC provides that the terms of a trust may not deny a 23 court authority to take such action as necessary in the 24 interests of justice, including requiring that a trustee furnish 25 bond. UTC Subsections (b)(6), (13). The SCTC does not 26 include the UTC version of subsection 105(b)(6). Section 27 627702 of the South Carolina Trust Code provides the 28 situations for which the trustee must provide bond. 29 UTC subsection (b)(14) and SCTC subsection (b)(12) 30 similarly provides that such provisions cannot be altered in 31 the terms of the trust. The power of the court to modify or 32 terminate a trust under Sections 627410 through 627416 is 33 not subject to variation in the terms of the trust. Subsection 34 (b)(4). However, all of these Code sections involve 35 situations which the settlor could have addressed had the 36 settlor had sufficient foresight. These include situations 37 where the purpose of the trust has been achieved, a mistake 38 was made in the trust’s creation, or circumstances have arisen 39 that were not anticipated by the settlor.

[143] 325 1 Section 627813 imposes a general obligation to keep the 2 beneficiaries informed as well as several specific notice 3 requirements. UTC Subsections (b)(8) and (b)(9) specify 4 limits on the settlor’s ability to waive these information 5 requirements. The South Carolina Trust Code does not 6 include the UTC version of subsections 105(b)(8)(9). 7 In conformity with traditional doctrine, the SCTC limits 8 the ability of a settlor to exculpate a trustee from liability for 9 breach of trust. The limits are specified in Section 6271008. 10 UTC Subsection (b)(10) and SCTC Subsection (b)(8) of this 11 section provide a crossreference. Similarly, subsection (b)(7) 12 provides a crossreference to Section 708(b), which limits the 13 binding effect of a provision specifying the trustee’s 14 compensation. 15 Finally, UTC subsection (b)(11) and SCTC subsection (b) 16 (9) clarify that a settlor is not free to limit the rights of third 17 persons, such as purchasers of trust property. Subsection (b) 18 (5) clarifies that a settlor may not restrict the rights of a 19 beneficiary’s creditors except to the extent a spendthrift 20 restriction is allowed as provided in Part 5. 21 2001 Amendment. By amendment in 2001, subsection (b) 22 (3), (8) and (9) were revised to read as above. The language 23 in subsection (b)(3) “that the trust have a purpose that is 24 lawful and possible to achieve” is new. This addition 25 clarifies that the settlor may not waive this common law 26 requirement, which is codified in the Code at Section 27 627404. SCTC Section 627404 does not include the words 28 “not contrary to public policy,” found in UTC Section 404, 29 recognizing that existing South Carolina law would 30 invalidate trusts that are contrary to public policy. As a 31 result, SCTC subsection (b)(3) does not include the words 32 “not contrary to public policy.” 33 The SCTC does not include the UTC version of 34 Subsections 105 (b)(8) (9) thus the 2001 Amendment which 35 applies to Subsections 105 (b)(8)(9) is not applicable. 36 2010 Amendment to the SCTC. The 2010 amendment 37 added subsection (b)(6) relating to limitations on a settlor’s 38 agent; and redesignated former subsections (b)(6) through (b) 39 (11) as subsections (b)(7) through (b)(12), respectively.

[143] 326 1 2 Section 627106. The common law of trusts and principles 3 of equity supplement this article, except to the extent 4 modified by this article or another statute of this State. 5 6 REPORTER’S COMMENT 7 The SCTC codifies those portions of the law of express trusts 8 that are most amenable to codification. The Code is 9 supplemented by the common law of trusts, including 10 principles of equity, particularly as articulated in the 11 Restatement of Trusts, Restatement (Third) of Property: 12 Wills and Other Donative Transfers, and the Restatement of 13 Restitution. The common law of trusts is not static but 14 includes the contemporary and evolving rules of decision 15 developed by the courts in exercise of their power to adapt 16 the law to new situations and changing conditions. It also 17 includes the traditional and broad equitable jurisdiction of the 18 court, which the Code in no way restricts. 19 The statutory text of the SCTC is also supplemented by 20 these Comments, which, like the Comments to any Uniform 21 Act, may be relied on as a guide for interpretation. See 22 Acierno v. Worthy Bros. Pipeline Corp., 656 A.2d 1085, 23 1090 (Del. 1995) (interpreting Uniform Commercial Code); 24 Yale University v. Blumenthal, 621 A.2d 1304, 1307 (Conn. 25 1993) (interpreting Uniform Management of Institutional 26 Funds Act); 2 Norman Singer, Statutory Construction Section 27 52.05 (6th ed. 2000); Jack Davies, Legislative Law and 28 Process in a Nutshell Section 554 (2d ed. 1986). See also 29 South Carolina Probate Code Section 621103. 30 31 Section 627107. The meaning and effect of the terms of a 32 trust are determined by: 33 (1) the law of the jurisdiction designated in the terms of 34 the trust; or 35 (2) in the absence of a controlling designation in the terms 36 of the trust, the law of the jurisdiction having the most 37 significant relationship to the matter at issue. 38 39 REPORTER’S COMMENT

[143] 327 1 This section provides rules for determining the law that will 2 govern the meaning and effect of particular trust terms. The 3 law to apply to determine whether a trust has been validly 4 created is determined under Section 627403. 5 Under prior South Carolina law, there was no statutory 6 counterpart to this section; common law principles 7 controlled. 8 Paragraph (1) allows a settlor to select the law that will 9 govern the meaning and effect of the terms of the trust. The 10 jurisdiction selected need not have any other connection to 11 the trust. The settlor is free to select the governing law 12 regardless of where the trust property may be physically 13 located, whether it consists of real or personal property, and 14 whether the trust was created by will or during the settlor’s 15 lifetime. This section does not attempt to specify the strong 16 public policies sufficient to invalidate a settlor’s choice of 17 governing law. These public policies will vary depending 18 upon the locale and may change over time. See, however, 19 Russell v. Wachovia Bank, 353 S.C. 208, 578 S.E.2d 329 20 (2003), in which the South Carolina Supreme Court cited 21 language from the Restatement (Second) of Conflict of Laws 22 Sections 268270 (1971) in adopting a rule similar to that of 23 SCTC Section 107. 24 Paragraph (2) provides a rule for trusts without governing 25 law provisions the meaning and effect of the trust’s terms 26 are to be determined by the law of the jurisdiction having the 27 most significant relationship to the matter at issue. Factors to 28 consider in determining the governing law include the place 29 of the trust’s creation, the location of the trust property, and 30 the domicile of the settlor, the trustee, and the beneficiaries. 31 See Restatement (Second) of Conflict of Laws Sections 270 32 cmt. c and 272 cmt. d (1971). Other more general factors 33 that may be pertinent in particular cases include the relevant 34 policies of the forum, the relevant policies of other interested 35 jurisdictions and degree of their interest, the protection of 36 justified expectations and certainty, and predictability and 37 uniformity of result. See Restatement (Second) of Conflict of 38 Laws Section 6 (1971). Usually, the law of the trust’s 39 principal place of administration will govern administrative

[143] 328 1 matters and the law of the place having the most significant 2 relationship to the trust’s creation will govern the dispositive 3 provisions. 4 This section is consistent with and was partially patterned 5 on the Hague Convention on the Law Applicable to Trusts 6 and on their Recognition, signed on July 1, 1985. Like this 7 section, the Hague Convention allows the settlor to designate 8 the governing law. Hague Convention art. 6. Absent a 9 designation, the Convention provides that the trust is to be 10 governed by the law of the place having the closest 11 connection to the trust. Hague Convention art. 7. The 12 Convention also lists particular public policies for which the 13 forum may decide to override the choice of law that would 14 otherwise apply. These policies are protection of minors and 15 incapable parties, personal and proprietary effects of 16 marriage, succession rights, transfer of title and security 17 interests in property, protection of creditors in matters of 18 insolvency, and, more generally, protection of third parties 19 acting in good faith. Hague Convention art. 15. 20 For the authority of a settlor to designate a trust’s principal 21 place of administration, see UTC Section 108(a) or SCTC 22 Section 627108(b). Because SCTC Section 627108 includes 23 an additional paragraph not in the UTC, which is at SCTC 24 Section 627108(a), the reference to UTC Section 108(a) in 25 the UTC Comment is appropriate for SCTC Section 26 627108(b). 27 28 Section 627108. (a) Unless otherwise designated by the 29 terms of a trust, the principal place of administration of a 30 trust is the trustee’s usual place of business where the records 31 pertaining to the trust are kept, or at the trustee’s residence if 32 he has no such place of business. In the case of cotrustees, 33 the principal place of administration, if not otherwise 34 designated in the trust instrument, is: 35 (1) the usual place of business of the corporate trustee if 36 there is but one corporate cotrustee, or 37 (2) the usual place of business or residence of the 38 individual trustee who is a professional fiduciary if there is

[143] 329 1 but one such person and no corporate cotrustee, and 2 otherwise 3 (3) the usual place of business or residence of any of the 4 cotrustees as agreed upon by them. 5 (b) Without precluding other means for establishing a 6 sufficient connection with the designated jurisdiction, terms 7 of a trust designating the principal place of administration are 8 valid and controlling if: 9 (1) a trustee’s principal place of business is located in 10 or a trustee is a resident of the designated jurisdiction; or 11 (2) all or part of the administration occurs in the 12 designated jurisdiction. 13 (c) A trustee is under a continuing duty to administer the 14 trust at a place appropriate to its purposes, its administration, 15 and the interests of the beneficiaries. 16 (d) Without precluding the right of the court to order, 17 approve, or disapprove a transfer, the trustee, in furtherance 18 of the duty prescribed by subsection (c), may transfer the 19 trust’s principal place of administration to another State or to 20 a jurisdiction outside of the United States. 21 (e) Unless otherwise designated in the trust, the trustee 22 shall notify the qualified beneficiaries of a proposed transfer 23 of a trust’s principal place of administration not less than 60 24 ninety days before initiating the transfer. The notice of 25 proposed transfer must include: 26 (1) the name of the jurisdiction to which the principal 27 place of administration is to be transferred; 28 (2) the address and telephone number at the new 29 location at which the trustee can be contacted; 30 (3) an explanation of the reasons for the proposed 31 transfer; 32 (4) the date on which the proposed transfer is 33 anticipated to occur; and 34 (5) the date, not less than 60 ninety days after the giving 35 of the notice, by which the qualified beneficiary must notify 36 the trustee of an objection to the proposed transfer. 37 (f) The authority of a trustee under this section to transfer 38 a trust’s principal place of administration terminates if a 39 qualified beneficiary notifies the trustee of an objection to the

[143] 330 1 proposed transfer on or before the date specified in the 2 notice. 3 (g) In connection with a transfer of the trust’s principal 4 place of administration, the trustee may transfer some or all 5 of the trust property to a successor trustee designated in the 6 terms of the trust or appointed pursuant to Section 627704. 7 8 REPORTER’S COMMENT 9 This section prescribes rules relating to a trust’s principal 10 place of administration. Locating a trust’s principal place of 11 administration will ordinarily determine which court has 12 primary if not exclusive jurisdiction over the trust. It may 13 also be important for other matters, such as payment of state 14 income tax or determining the jurisdiction whose laws will 15 govern the trust. See Section 627107 comment. 16 Because of the difficult and variable situations sometimes 17 involved, the SCTC does not attempt to further define 18 principal place of administration. A trust’s principal place of 19 administration ordinarily will be the place where the trustee 20 is located. Determining the principal place of administration 21 becomes more difficult, however, when cotrustees are 22 located in different states or when a single institutional 23 trustee has trust operations in more than one state. In such 24 cases, other factors may become relevant, including the place 25 where the trust records are kept or trust assets held, or in the 26 case of an institutional trustee, the place where the trust 27 officer responsible for supervising the account is located. 28 Under the SCTC, the fixing of a trust’s principal place of 29 administration will determine where the trustee and 30 beneficiaries have consented to suit (Section 627202), and 31 the rules for locating venue within a particular state (Section 32 627204). It may also be considered by a court in another 33 jurisdiction in determining whether it has jurisdiction, and if 34 so, whether it is a convenient forum. 35 Because SCTC Section 627108 includes an additional 36 paragraph not in the UTC, which is at SCTC Section 37 627108(a), the references to the subsections of UTC Section 38 108 in the UTC Comment have been adjusted 39 correspondingly for SCTC Section 627108.

[143] 331 1 SCTC Section 627108(a) incorporates the provisions of 2 former SCPC Section 627202 (which dealt with venue), 3 except SCTC subsection 108(a) is not limited to matters of 4 venue. 5 A settlor expecting to name a trustee or cotrustees with 6 significant contacts in more than one state may eliminate 7 possible uncertainty about the location of the trust’s principal 8 place of administration by specifying the jurisdiction in the 9 terms of the trust. Under UTC subsection (a) and SCTC 10 subsection (b), a designation in the terms of the trust is 11 controlling if (1) a trustee is a resident of or has its principal 12 place of business in the designated jurisdiction, or (2) all or 13 part of the administration occurs in the designated 14 jurisdiction. Designating the principal place of 15 administration should be distinguished from designating the 16 law to determine the meaning and effect of the trust’s terms, 17 as authorized by Section 627107. A settlor is free to 18 designate one jurisdiction as the principal place of 19 administration and another to govern the meaning and effect 20 of the trust’s provisions. 21 UTC Subsection (b) and SCTC subsection (c) provide that 22 a trustee is under a continuing duty to administer the trust at a 23 place appropriate to its purposes, its administration, and the 24 interests of the beneficiaries. “Interests of the beneficiaries,” 25 defined in Section 627103(7), means the beneficial interests 26 provided n the terms of the trust. Ordinarily, absent a 27 substantial change or circumstances, the trustee may assume 28 that the original place of administration is also the 29 appropriate place of administration. The duty to administer 30 the trust at an appropriate place may also dictate that the 31 trustee not move the trust. 32 UTC Subsections (c)(f) and SCTC subsections (d)(g) 33 provide a procedure for changing the principal place of 34 administration to another state or country. Such changes are 35 often beneficial. A change may be desirable to secure a 36 lower state income tax rate, or because of relocation of the 37 trustee or beneficiaries, the appointment of a new trustee, or a 38 change in the location of the trust investments. The 39 procedure for transfer specified in this section applies only in

[143] 332 1 the absence of a contrary provision in the terms of the trust. 2 See Section 627105. To facilitate transfer in the typical case, 3 where all concur that a transfer is either desirable or is at 4 least not harmful, a transfer can be accomplished without 5 court approval unless a qualified beneficiary objects. To 6 allow the qualified beneficiaries sufficient time to review a 7 proposed transfer, the trustee must give the qualified 8 beneficiaries at least 60 days prior notice of the transfer. 9 Notice must be given not only to qualified beneficiaries as 10 defined in Section 627103(12) but also to those granted the 11 rights of qualified beneficiaries under Section 627110. To 12 assure that those receiving notice have sufficient information 13 upon which to make a decision, minimum contents of the 14 notice are specified. If a qualified beneficiary objects, a 15 trustee wishing to proceed with the transfer must seek court 16 approval. 17 SCTC Section 627108(e), which corresponds to UTC 18 subsection 108(d), adds to the UTC version the introductory 19 phrase “unless otherwise designated in the trust.” 20 In connection with a transfer of the principal place of 21 administration, the trustee may transfer some or all of the 22 trust property to a new trustee located outside of the state. 23 The appointment of a new trustee may also be essential if the 24 current trustee is ineligible to administer the trust in the new 25 place. UTC Subsection (f) and SCTC subsection (g) clarifies 26 that the appointment of the new trustee must comply with the 27 provisions on appointment of successor trustees as provided 28 in the terms of the trust or under Section 627704. Absent an 29 order of succession in the terms of the trust, Section 30 627704(c) provides the procedure for appointment of a 31 successor trustee of a noncharitable trust, and Section 32 627704(d) the procedure for appointment of a successor 33 trustee of a charitable trust. 34 While transfer of the principal place of administration will 35 normally change the governing law with respect to 36 administrative matters, a transfer does not normally alter the 37 controlling law with respect to the validity of the trust and 38 the construction of its dispositive provisions. See 5A Austin

[143] 333 1 W. Scott & William F. Fratcher, The Law of Trusts Section 2 615 (4th ed. 1989). 3 4 Section 627109. (a) Notice to a person under this article 5 or the sending of a document to a person under this article 6 must be accomplished in a manner reasonably suitable under 7 the circumstances and likely to result in receipt of the notice 8 or document. Permissible methods of notice or for sending a 9 document include firstclass mail, personal delivery, delivery 10 to the person’s last known place of residence or place of 11 business, or a properly directed electronic message. 12 (b) Notice otherwise required under this article or a 13 document otherwise required to be sent under this article 14 need not be provided to a person whose identity or location is 15 unknown to and not reasonably ascertainable by the trustee. 16 (c) Notice under this article or the sending of a document 17 under this article may be waived by the person to be notified 18 or sent the document. 19 (d) If notice of a hearing on any petition is required and, 20 except for specific notice requirements as otherwise 21 provided, the petitioner shall cause notice of the time and 22 place of hearing of any petition to be given to any interested 23 person or his attorney if he has appeared by attorney or 24 requested that notice be sent to his attorney. Notice shall be 25 given: 26 (1) by mailing a copy thereof at least twenty days 27 before the time set for the hearing by certified, registered, or 28 ordinary first class mail addressed to the person being 29 notified at the post office address given in his request for 30 notice, if any, or at his office or place of residence, if known: 31 (2) by delivering a copy thereof to the person being 32 notified personally at least twenty days before the time set for 33 the hearing; or 34 (3) if the address or identity of any person is not known 35 and cannot be ascertained with reasonable diligence by 36 publishing a copy thereof in the same manner as required by 37 law in the case of the publication of a summons for an absent 38 defendant in the court of common pleas.

[143] 334 1 (e) The court for good cause shown may provide for a 2 different method or time of giving notice for any hearing. 3 (f) Proof of the giving of notice shall be made on or 4 before the hearing and filed in the proceeding. 5 6 REPORTER’S COMMENT 7 Subsection (a) clarifies that notices under the SCTC may be 8 given by any method likely to result in its receipt by the 9 person to be notified. The specific methods listed in the 10 subsection are illustrative, not exhaustive. Subsection (b) 11 relieves a trustee of responsibility for what would otherwise 12 be an impossible task, the giving of notice to a person whose 13 identity or location is unknown and not reasonably 14 ascertainable by the trustee. The section does not define 15 when a notice is deemed to have been sent or delivered or 16 person deemed to be unknown or not reasonably 17 ascertainable, the drafters preferring to leave this issue to the 18 enacting jurisdiction’s rules of civil procedure. 19 Under the SCTC, certain actions can be taken upon 20 unanimous consent of the beneficiaries or qualified 21 beneficiaries. See Sections 627411 (termination of 22 noncharitable irrevocable trust) and 627704 (appointment of 23 successor trustee). UTC Subsection (b) of this section only 24 authorizes waiver of notice. A consent required from a 25 beneficiary in order to achieve unanimity is not waived 26 because the beneficiary is missing. But the fact a beneficiary 27 cannot be located may be a sufficient basis for a substitute 28 consent to be given by another person on the beneficiary’s 29 behalf under the representation principles of Part 3. 30 In a nonjudicial context, SCTC Section 627109(b) does not 31 require notification of a person whose identity or location is 32 unknown or cannot be reasonably ascertainable. 33 To facilitate administration, subsection (c) allows waiver 34 of notice by the person to be notified or sent the document. 35 Among the notices and documents to which this subsection 36 can be applied are notice of a proposed transfer of principal 37 place of administration (UTC Section 108(d) and SCTC 38 Section 627108(e)) or of a trustee’s report (Section 39 627813(e)). This subsection also applies to notice to

[143] 335 1 qualified beneficiaries of a proposed trust combination or 2 division (Section 627417), of a temporary assumption of 3 duties without accepting trusteeship (Section 627701(c)(1)), 4 and of a trustee’s resignation (Section 627705(a)(1)). 5 Notices under the SCTC are nonjudicial. 6 Previous South Carolina law had no precise counterpart. 7 However, the South Carolina Probate Code contains various 8 provisions respecting notice. The general notice section, 9 SCPC Section 621401 provides that notice of a hearing or 10 other petition shall be delivered at least twenty (20) days 11 before the time set for the hearing by certified, registered, or 12 ordinary first class mail, or by delivering a copy to the person 13 being notified at least twenty (20) days before the time set for 14 hearing. That section also provides for the service of notice 15 of hearing by publication if the address or identity of the 16 person cannot be ascertained with reasonable diligence. 17 SCTC Section 627109(d) differs from the UTC version and 18 incorporates the substance of SCPC Section 621401. 19 The SCTC adds Subsections 627109(e) and (f), which are 20 not in UTC Section 109. 21 22 Section 627110. (a) Whenever notice to qualified 23 beneficiaries of a trust is required under this article, the 24 trustee must also give notice to any other beneficiary who has 25 sent the trustee a request for notice. 26 (b) A charitable organization expressly designated to 27 receive distributions under the terms of a charitable trust has 28 the rights of a qualified beneficiary under this article if the 29 charitable organization, on the date the charitable 30 organization’s qualification is being determined: 31 (A) is a distributee or permissible distributee of trust 32 income or principal; 33 (B) would be a distributee or permissible distributee of 34 trust income or principal upon the termination of the interests 35 of other distributees or permissible distributees then 36 receiving or eligible to receive distributions; or 37 (C) would be a distributee or permissible distributee of 38 trust income or principal if the trust terminated on that date.

[143] 336 1 (c) A person appointed to enforce a trust created for the 2 care of an animal or another noncharitable purpose as 3 provided in Section 627408 or 627409 has the rights of a 4 qualified beneficiary under this article. 5 6 REPORTER’S COMMENT 7 Former South Carolina law had no statutory counterpart. 8 Under the SCTC, certain notices need be given only to the 9 “qualified” beneficiaries. For the definition of “qualified 10 beneficiary,” see Section 627103(12). Among these notices 11 are notice of a transfer of the trust’s principal place of 12 administration (UTC Section 108(d) and SCTC Section 13 627108(e)), notice of a trust division or combination (Section 14 627417), notice of a trustee resignation (Section 627705(a) 15 (1)), and notice of a trustee’s annual report (Section 16 627813(c)). Subsection (a) of this section authorizes other 17 beneficiaries to receive one or more of these notices by filing 18 a request for notice with the trustee. 19 Under the Code, certain actions, such as the appointment 20 of a successor trustee, can be accomplished by the consent of 21 the qualified beneficiaries. See, e.g., Section 627704 (filling 22 vacancy in trusteeship). Subsection (a) addresses only 23 notice, not required consent. A person who requests notice 24 under subsection (a) does not thereby acquire a right to 25 participate in actions that can be taken only upon consent of 26 the qualified beneficiaries. 27 Charitable trusts do not have beneficiaries in the usual 28 sense. However, certain persons, while not technically 29 beneficiaries, do have an interest in seeing that the trust is 30 enforced. In the case of a charitable trust, this includes the 31 state’s attorney general and charitable organizations 32 expressly designated to receive distributions under the terms 33 of the trust. Under subsection (b), charitable organizations 34 expressly designated in the terms of the trust to receive 35 distributions and who would qualify as a qualified 36 beneficiary were the trust noncharitable, are granted the 37 rights of qualified beneficiaries. Because the charitable 38 organization must be expressly named in the terms of the 39 trust and must be designated to receive distributions,

[143] 337 1 excluded are organizations that might receive distributions in 2 the trustee’s discretion but that are not named in the trust’s 3 terms. Requiring that the organization have an interest 4 similar to that of a beneficiary of a private trust also denies 5 the rights of a qualified beneficiary to organizations holding 6 remote interests. For further discussion of the definition of 7 “qualified beneficiary,” see Section 627103 comment. 8 Subsection (c) similarly grants the rights of qualified 9 beneficiaries to persons appointed by the terms of the trust or 10 by the court to enforce a trust created for an animal or other 11 trust with a valid purpose but no ascertainable beneficiary. 12 For the requirements for creating such trusts, see Sections 13 627408 and 627409. 14 Section 627110 does not include a counterpart to UTC 15 subsection 110(d), in the 2004 UTC Amendments, which 16 gives the state Attorney General the rights of a qualified 17 beneficiary in certain cases. See, however, SCTC Section 18 627405, which provides certain rights and powers to the 19 South Carolina Attorney General. 20 Subsection (d) does not limit other means by which the 21 attorney general or other designated official can enforce a 22 charitable trust. 23 24 Section 627111. (a) For purposes of this section, 25 ‘interested persons’ means persons whose consent would be 26 required in order to achieve a binding settlement were the 27 settlement to be approved by the court. 28 (b) Interested persons may enter into a binding 29 nonjudicial settlement agreement with respect to only the 30 following trust matters: 31 (1) the approval of a trustee’s report or accounting; 32 (2) direction to a trustee to perform or refrain from 33 performing a particular administrative act or the grant to a 34 trustee of any necessary or desirable administrative power; 35 (3) the resignation or appointment of a trustee and the 36 determination of a trustee’s compensation; 37 (4) transfer of a trust’s principal place of 38 administration; and

[143] 338 1 (5) liability of a trustee for an action relating to the 2 trust. 3 (c) Any interested person may request the court to 4 approve a nonjudicial settlement agreement, to determine 5 whether the representation as provided in Part 3 was 6 adequate, and to determine whether the agreement contains 7 terms and conditions the court could have properly approved. 8 9 REPORTER’S COMMENT 10 While the SCTC recognizes that a court may intervene in the 11 administration of a trust to the extent its jurisdiction is 12 invoked by interested persons or otherwise provided by law 13 (see Section 627201(a)), resolution of disputes by nonjudicial 14 means is encouraged. This section facilitates the making of 15 such agreements by giving them the same effect as if 16 approved by the court. To achieve such certainty, however, 17 subsection (c) requires that the nonjudicial settlement must 18 contain terms and conditions that a court could properly 19 approve. Under this section, a nonjudicial settlement cannot 20 be used to produce a result not authorized by law, such as to 21 terminate a trust in an impermissible manner. 22 Trusts ordinarily have beneficiaries who are minors; 23 incapacitated, unborn or unascertained. Because such 24 beneficiaries cannot signify their consent to an agreement, 25 binding settlements can ordinarily be achieved only through 26 the application of doctrines such as virtual representation or 27 appointment of a guardian ad litem, doctrines traditionally 28 available only in the case of judicial settlements. The effect 29 of this section and the SCTC more generally is to allow for 30 such binding representation even if the agreement is not 31 submitted for approval to a court. For the rules on 32 representation, including appointments of representatives by 33 the court to approve particular settlements, see Part 3. 34 The fact that the trustee and beneficiaries may resolve a 35 matter nonjudicially does not mean that beneficiary approval 36 is required. For example, a trustee may resign pursuant to 37 Section 627705 solely by giving notice to the qualified 38 beneficiaries, a living settlor, and any cotrustees. But a 39 nonjudicial settlement between the trustee and beneficiaries

[143] 339 1 will frequently prove helpful in working out the terms of the 2 resignation. 3 Because of the great variety of matters to which a 4 nonjudicial settlement may be applied, this section does not 5 attempt to precisely define the “interested persons” whose 6 consent is required to obtain a binding settlement as provided 7 in subsection (a). However, the consent of the trustee would 8 ordinarily be required to obtain a binding settlement with 9 respect to matters involving a trustee’s administration, such 10 as approval of a trustee’s report or resignation. 11 12 Section 627112. The rules of construction that apply in 13 this State to the interpretation of and disposition of property 14 by will also apply as appropriate to the interpretation of the 15 terms of a trust and the disposition of the trust property. 16 17 REPORTER’S COMMENT 18 This section is patterned after Restatement (Third) of Trusts 19 Section 25(2) and comment e (Tentative Draft No. 1, 20 approved 1996), although this section, unlike the 21 Restatement, also applies to irrevocable trusts. The 22 revocable trust is used primarily as a will substitute, with its 23 key provision being the determination of the persons to 24 receive the trust property upon the settlor’s death. Given this 25 functional equivalence between the revocable trust and a 26 will, the rules for interpreting the disposition of property at 27 death should be the same whether the individual has chosen a 28 will or revocable trust as the individual’s primary estate 29 planning instrument. Over the years, the legislatures of the 30 States and the courts have developed a series of rules of 31 construction reflecting the legislative or judicial 32 understanding of how the average testator would wish to 33 dispose of property in cases where the will is silent or 34 insufficiently clear. Few legislatures have yet to extend these 35 rules of construction to revocable trusts, and even fewer to 36 irrevocable trusts, although a number of courts have done so 37 as a matter of judicial construction. See Restatement (Third) 38 of Trusts Section 25, Reporter’s Notes to cmt. d and e 39 (Tentative Draft No. 1, approved 1996).

[143] 340 1 Because of the wide variation among the States on the 2 rules of construction applicable to wills, this Code does not 3 attempt to prescribe the exact rules to be applied to trusts but 4 instead adopts the philosophy of the Restatement that the 5 rules applicable to trusts ought to be the same, whatever 6 those rules might be. 7 Rules of construction are not the same as constructional 8 preferences. A constructional preference is general in nature, 9 providing general guidance for resolving a wide variety of 10 ambiguities. An example is a preference for a construction 11 that results in a complete disposition and avoids illegality. 12 Rules of construction, on the other hand, are specific in 13 nature, providing guidance for resolving specific situations or 14 construing specific terms. Unlike a constructional 15 preference, a rule of construction, when applicable, can lead 16 to only one result. See Restatement (Third) of Property: 17 Donative Transfers Section 11.3 and cmt. b (Tentative Draft 18 No. 1, approved 1995). 19 Rules of construction attribute intention to individual 20 donors based on assumptions of common intention. Rules of 21 construction are found both in enacted statutes and in judicial 22 decisions. Rules of construction can involve the meaning to 23 be given to particular language in the document, such as the 24 meaning to be given to “heirs” or “issue.” Rules of 25 construction also address situations the donor failed to 26 anticipate. These include the failure to anticipate the 27 predecease of a beneficiary or to specify the source from 28 which expenses are to be paid. Rules of construction can 29 also concern assumptions as to how a donor would have 30 revised donative documents in light of certain events 31 occurring after execution. These include rules dealing with 32 the effect of a divorce and whether a specific devisee will 33 receive a substitute gift if the subject matter of the devise is 34 disposed of during the testator’s lifetime. 35 The most direct counterpart in the law of wills is South 36 Carolina Probate Code Section 622601 (Rules of 37 Construction and Presumption). That section provides that 38 the testator’s intent controls the legal effect of his 39 dispositions, and it refers to succeeding sections, which

[143] 341 1 contain some, but not all, rules of construction with respect to 2 wills. Other will construction rules are left to the common 3 law in South Carolina. As to construction of wills, see S. 4 Alan Medlin, The Law of Wills and Trusts, Volume 1, Estate 5 Planning in South Carolina (2002) at Section 330 et seq. 6 South Carolina Trust Code Section 627112 is in part 7 analogous to SCPC Sections 621102 and 621103. SCPC 8 Section 621102, entitled “Purposes; Rule of Construction,” 9 provides for a liberal interpretation of the SCPC in 10 furtherance of the policies set forth in that section. SCPC 11 Section 621103 provides that the provisions of the SCPC 12 supplement existing principles of law and equity. 13 14 Part 2 15 16 Judicial Proceedings 17 18 GENERAL COMMENT 19 This article addresses selected issues involving jurisdiction 20 and venue. This article is not intended to provide 21 comprehensive coverage of procedure with respect to trusts. 22 These issues are better addressed elsewhere, for example in 23 the State’s rules of civil procedure or as provided by court 24 rule. 25 Section 627201 makes clear that the jurisdiction of the 26 court is available as invoked by interested persons or as 27 otherwise provided by law. Proceedings involving the 28 administration of a trust normally will be brought in the court 29 at the trust’s principal place of administration. Section 30 627202 provides that the trustee and beneficiaries are deemed 31 to have consented to the jurisdiction of the court at the 32 principal place of administration as to any matter relating to 33 the trust. 34 There is significant overlap between Part 2 of the SCTC 35 covering judicial proceedings and former Part II under 36 Article 7 of the South Carolina Probate Code. To promote 37 consistency and familiarity with existing South Carolina law 38 and practice, the relevant South Carolina Probate Code 39 language has been maintained whenever possible under this

[143] 342 1 part of the South Carolina Trust Code. Additionally, several 2 separate statutes formerly under the South Carolina Probate 3 Code regarding court jurisdiction of trusts have been 4 consolidated into a single section herein. 5 6 Section 627201. (a) Subject to the provisions of Section 7 621302(d), the probate court has exclusive jurisdiction of 8 proceedings initiated by interested parties concerning the 9 internal affairs of trusts. These proceedings must be formal 10 as defined by Section 621201(17) but consent petitions are 11 not subject to the requirements of formal proceedings. 12 Proceedings that may be maintained pursuant to this section 13 are those concerning the administration and distribution of 14 trusts, the declaration of rights, and the determination of 15 other matters involving trustees and beneficiaries of trusts. 16 These include, but are not limited to, proceedings to: 17 (1) ascertain beneficiaries, determine a question arising 18 in the administration or distribution of a trust including 19 questions of construction of trust instruments, instruct 20 trustees, and determine the existence or nonexistence of any 21 immunity, power, privilege, duty, or right; 22 (2) review and settle interim or final accounts; 23 (3) review the propriety of employment of a person by a 24 trustee including an attorney, auditor, investment advisor or 25 other specialized agent or assistant, and the reasonableness of 26 the compensation of a person so employed, and the 27 reasonableness of the compensation determined by the 28 trustee for his own services. A person who has received 29 excessive compensation from a trust may be ordered to make 30 appropriate refunds. The provisions of this section do not 31 apply to the extent there is a contract providing for the 32 compensation to be paid for the trustee’s services or if the 33 trust directs otherwise; and 34 (4) appoint or remove a trustee. 35 (b) A proceeding under this section does not result in 36 continuing supervisory proceedings. The management and 37 distribution of a trust estate, submission of accounts and 38 reports to beneficiaries, payment of trustee’s fees and other 39 obligations of a trust, acceptance and change of trusteeship,

[143] 343 1 and other aspects of the administration of a trust shall 2 proceed expeditiously consistent with the terms of the trust, 3 free of judicial intervention and without order, approval, or 4 other action of any court, subject to the jurisdiction of the 5 court as invoked by interested parties or as otherwise 6 exercised as provided by law or by the terms of the trust. 7 (c) The probate court has concurrent jurisdiction with the 8 circuit courts of this State of actions and proceedings 9 concerning the external affairs of trusts. These include, but 10 are not limited to, the following proceedings: 11 (1) determine the existence or nonexistence of trusts 12 created other than by will; 13 (2) actions by or against creditors or debtors of trusts; 14 and 15 (3) other actions and proceedings involving trustees and 16 third parties; 17 (d) The probate court has concurrent jurisdiction with the 18 circuit courts of this State over attorney’s fees. Attorney’s 19 fees may be set at a fixed or hourly rate or by contingency 20 fee. 21 (e) The court will not, over the objection of a party, 22 entertain proceedings under this section involving a trust 23 registered or having its principal place of administration in 24 another state, unless: (1) when all appropriate parties 25 could not be bound by litigation in the courts of the state 26 where the trust is registered or has its principal place of 27 administration; or 28 (2) when the interests of justice otherwise would 29 seriously be impaired. 30 The court may condition a stay or dismissal of a proceeding 31 under this section on the consent of any party to jurisdiction 32 of the state in which the trust is registered or has its principal 33 place of business, or the court may grant a continuance or 34 enter any other appropriate order. 35 36 REPORTER’S COMMENT 37 Section 627201(a) grants exclusive subject matter 38 jurisdiction to the probate court of interested parties’ 39 proceedings concerning the internal affairs of trusts. The

[143] 344 1 subsection provides two illustrative and nonexclusive lists of 2 such proceedings. The lists have this in common: all items 3 on both lists are matters of dispute primarily between and 4 among the trustees and the beneficiaries of trusts, i.e., matters 5 internal to trust administration, and are not matters 6 immediately involving third parties, such as creditors and 7 debtors of trusts. Compare the actions and proceedings 8 concerning the external affairs of trusts, which are the subject 9 matter of Section 627204. See also the specific coverage of 10 proceedings concerning a trustee’s compensation, Section 11 627205, and for this State’s Uniform Declaratory Judgments 12 Act, see Section 1555310 of the 1976 Code et seq., especially 13 Section 155350. 14 Section 627201(b) makes it clear that no single proceeding 15 in the probate court concerning the internal affairs of a trust 16 will have the effect of subjecting the administration of the 17 trust to later continuous supervision by the probate court. 18 SCTC subsections 627201(a) and (b) incorporate former 19 South Carolina Probate Code Section 627201 regarding the 20 Probate Court’s exclusive jurisdiction over the internal 21 affairs of trusts. Subsection (a)(3) has been taken from 22 former South Carolina Probate Code Section 627205. Such 23 exclusive jurisdiction is subject to Section 621302(d) of the 24 South Carolina Probate Code regarding a party’s right to 25 remove a proceeding to the circuit court. 26 Subsections (c) and (d) are taken from former South 27 Carolina Probate Code Section 627204(A). 28 Subsection (e) is taken from former South Carolina 29 Probate Code Section 627203. 30 Subsection (e) refers to a trust’s “principal place of 31 administration” which is addressed under South Carolina 32 Trust Code Section 627108. 33 Whereas the Uniform Trust Code encourages resolution of 34 disputes without resort to courts through options such as 35 nonjudicial settlements authorized by Section 111, the South 36 Carolina Trust Code limits nonjudicial settlements to 37 specified matters set forth in Section 627111, thereby 38 generally maintaining the practice requiring court 39 involvement for resolution of trust disputes.

[143] 345 1 Subsection (a) makes clear that the court’s jurisdiction may 2 be invoked even absent an actual dispute. Traditionally, 3 courts in equity have heard petitions for instructions and have 4 issued declaratory judgments if there is a reasonable doubt as 5 to the extent of the trustee’s powers or duties. The court will 6 not ordinarily instruct trustees on how to exercise discretion, 7 however. See Restatement (Second) of Trusts Section 187, 8 259 (1959). This section does not limit the court’s equity 9 jurisdiction. 10 11 Section 627202. (a) By accepting the trusteeship of a 12 trust having its principal place of administration in this State 13 or by moving the principal place of administration to this 14 State, the trustee submits personally to the jurisdiction of the 15 courts of this State regarding any matter involving the trust. 16 (b) With respect to their interests in the trust, the 17 beneficiaries of a trust having its principal place of 18 administration in this State are subject to the jurisdiction of 19 the courts of this State regarding any matter involving the 20 trust. By accepting a distribution from such a trust, the 21 recipient submits personally to the jurisdiction of the courts 22 of this State regarding any matter involving the trust. 23 (c) This section does not preclude other methods of 24 obtaining jurisdiction over a trustee, beneficiary, or other 25 person receiving property from the trust. 26 27 REPORTER’S COMMENT 28 There was no corresponding statute under the South Carolina 29 Probate Code prior to the enactment of the SCTC. 30 This section clarifies that the courts of the principal place 31 of administration have jurisdiction to enter orders relating to 32 the trust that will be binding on both the trustee and 33 beneficiaries. A trust’s “principal place of administration” is 34 addressed in SCTC Section 627108. Consent to jurisdiction 35 does not dispense with any required notice, however. With 36 respect to jurisdiction over a beneficiary, the Comment to 37 Uniform Probate Code Section 7103, upon which portions of 38 this section are based, is instructive:

[143] 346 1 It also seems reasonable to require beneficiaries to go to 2 the seat of the trust when litigation has been instituted there 3 concerning a trust in which they claim beneficial interests, 4 much as the rights of shareholders of a corporation can be 5 determined at a corporate seat. The settlor has indicated a 6 principal place of administration by its selection of a trustee 7 or otherwise, and it is reasonable to subject rights under the 8 trust to the jurisdiction of the Court where the trust is 9 properly administered. 10 The jurisdiction conferred over the trustee and 11 beneficiaries by this section does not preclude jurisdiction by 12 courts elsewhere on some other basis. Furthermore, the fact 13 that the courts in a new State acquire jurisdiction under this 14 section following a change in a trust’s principal place of 15 administration does not necessarily mean that the courts of 16 the former principal place of administration lose jurisdiction, 17 particularly as to matters involving events occurring prior to 18 the transfer. 19 The jurisdiction conferred by this section is limited. 20 Pursuant to subsection (b), until a distribution is made, 21 jurisdiction over a beneficiary is limited to the beneficiary’s 22 interests in the trust. Personal jurisdiction over a beneficiary 23 is conferred only upon the making of a distribution. 24 Subsection (b) also gives the court jurisdiction over other 25 recipients of distributions. This would include individuals 26 who receive distributions in the mistaken belief they are 27 beneficiaries. 28 For a discussion of jurisdictional issues concerning trusts, 29 see 5A Austin W. Scott & William F. Fratcher, The Law of 30 Trusts Sections 556573 (4th ed. 1989). 31 32 Section 627203. RESERVED. 33 34 Section 627204. (a) Except as otherwise provided in 35 subsection (b), venue for a judicial proceeding involving a 36 trust is in the county of this State in which the trust’s 37 principal place of administration is or will be located and, if 38 the trust is created by will and the estate is not yet closed, in

[143] 347 1 the county in which the decedent’s estate is being 2 administered. 3 (b) If a trust has no trustee, venue for a judicial 4 proceeding for the appointment of a trustee is in a county in 5 which any trust property is located or the county where the 6 last trustee had its principal place of administration, and if 7 the trust is created by will, in the county in which the 8 decedent’s estate was or is being administered. 9 (c) If proceedings concerning the same trust could be 10 maintained in more than one place in South Carolina, the 11 court in which the proceeding is first commenced has the 12 exclusive right to proceed. 13 (d) If proceedings concerning the same trust are 14 commenced in more than one court of South Carolina, the 15 court in which the proceeding was first commenced shall 16 continue to hear the matter, and the other courts shall hold 17 the matter in abeyance until the question of venue is decided, 18 and, if the ruling court determines that venue is properly in 19 another court, it shall transfer the proceeding to the other 20 court. 21 (e) If a court finds that, in the interest of justice, a 22 proceeding or file concerning a trust should be in another 23 court in South Carolina, the court making the finding may 24 transfer the proceeding or file to the other court. If a court 25 transfers venue of a proceeding concerning a trust to a court 26 in another county, venue for that proceeding, and any 27 subsequent matters concerning that proceeding, including 28 appeals, shall be retained by the county to which the venue 29 has been transferred. 30 (f) If a probate court judge is disqualified from matters 31 concerning a trust proceeding, and venue has not been 32 transferred to another county, a special probate court judge 33 appointed for that proceeding has all of the powers and duties 34 appertaining to the probate court judge of the county where 35 the proceeding commenced, and venue for any subsequent 36 matters concerning that proceeding, including appeals, 37 remains with the county where that proceeding or file 38 commenced. 39

[143] 348 1 REPORTER’S COMMENT 2 South Carolina Trust Code subsections 627204 (a) and (b) 3 are taken from former South Carolina Probate Code Section 4 627202 and incorporate provisions of UTC Section 204. 5 SCTC subsections (c), (d), and (e) are taken from former 6 South Carolina Probate Code Section 621303 and do not 7 incorporate UTC provisions. A trust’s “principal place of 8 administration” is addressed in SCTC Section 627108. 9 SCTC Section 627204 differs significantly from UTC 10 Section 204. 11 The 2013 amendment clarified that, when venue of a trust 12 proceeding is transferred to another county, subsequent 13 matters concerning that proceeding, including appeals, shall 14 be retained by the county to which venue has been 15 transferred. If a special probate judge is appointed because a 16 probate judge is disqualified and recused from hearing a trust 17 proceeding, venue remains with the county where the 18 proceeding or file commenced, unless a probate court 19 otherwise transfers venue. 20 21 Part 3 22 23 Representation 24 25 GENERAL COMMENT 26 This article deals with representation of beneficiaries, both 27 representation by fiduciaries (personal representatives, 28 trustees, guardians, and conservators), and what is known as 29 virtual representation. 30 There is significant overlap between Part 3 of the South 31 Carolina Trust Code covering judicial proceedings and South 32 Carolina Probate Code provisions concerning representation 33 of others. To promote consistency and familiarity with 34 existing South Carolina law and practice, the relevant South 35 Carolina Probate Code language has been maintained 36 whenever possible under this part of the South Carolina Trust 37 Code. 38 Section 627301 is the introductory section, laying out the 39 scope of the article. The representation principles of this

[143] 349 1 article have numerous applications under this Code. The 2 representation principles of the article apply for purposes of 3 settlement of disputes, whether by a court or nonjudicially. 4 They apply for the giving of required notices. They apply for 5 the giving of consents to certain actions. 6 Sections 627302 through 305 cover the different types of 7 representation. Section 627302 deals with representation by 8 the holder of a general testamentary power of appointment. 9 Section 627303 deals with representation by a fiduciary, 10 whether of an estate, trust, conservatorship, or guardianship. 11 The section also allows a parent without a conflict of interest 12 to represent and bind a minor or unborn issue. Section 13 627304 is the virtual representation provision. It provides for 14 representation of and the giving of a binding consent by 15 another person having a substantially identical interest with 16 respect to the particular issue. Section 627305 authorizes the 17 court to appoint a representative to represent the interests of 18 unrepresented persons or persons for whom the court 19 concludes the other available representation might be 20 inadequate. 21 The provisions of this article are subject to modification in 22 the terms of the trust. Settlors are free to specify their own 23 methods for providing substituted notice and obtaining 24 substituted consent. 25 26 Section 627301. (a) For purposes of this part, 27 ‘beneficiary representative’ refers to a person who may 28 represent and bind another person concerning the affairs of 29 trusts. 30 (b) Notice to a beneficiary representative has the same 31 effect as if notice were given directly to the represented 32 person. Notice of a hearing on any petition in a judicial 33 proceeding must be given pursuant to Section 627109(d). 34 (c) The consent of a beneficiary representative is binding 35 on the person represented unless the person represented 36 objects to the representation before the consent would 37 otherwise have become effective. 38 (d) Except as otherwise provided in Sections 627411 and 39 627602, a person who under this part may represent a settlor

[143] 350 1 who lacks capacity may receive notice and give a binding 2 consent on the settlor’s behalf. 3 (e) In judicial proceedings, orders binding a beneficiary 4 representative under this part bind the person(s) represented 5 by that beneficiary representative. 6 7 REPORTER’S COMMENT 8 This section applies to both judicial and nonjudicial matters 9 involving trusts. Nonjudicial matters may include, for 10 example, the transfer of a trust’s principal place of business, 11 a proposed trust combination or division, a trustee’s 12 resignation, appointment of a successor trustee by consent, a 13 trustee’s resignation, and the consent to, release of, or 14 affirmance of a trustee’s actions. See SCTC Section 627111. 15 Subsection (a) defines the terms “beneficiary 16 representative” for purposes of this part in an effort to avoid 17 confusion between the SCTC term “representative” and the 18 familiar term “personal representative” under the South 19 Carolina Probate Code. 20 Subsection (b) of South Carolina Trust Code Section 21 627301 confirms that notice of a hearing on a petition in a 22 judicial proceeding must be given in the manner prescribed 23 under SCTC Section 627109(d). However, this section does 24 not expressly address the manner of commencing a judicial 25 proceeding. 26 Subsection (c) deals with the effect of a consent, whether 27 by actual or virtual representation. Subsection (c) may be 28 used to facilitate consent of the beneficiaries to modification 29 or termination of a trust, with or without the consent of the 30 settlor (Section 627411), agreement of the qualified 31 beneficiaries on appointment of a successor trustee of a 32 noncharitable trust (Section 627704(c)(2)), and a 33 beneficiary’s consent to or release or affirmance of the 34 actions of a trustee (Section 6271009). A consent by a 35 beneficiary representative bars a later objection by the person 36 represented, but a consent is not binding if the person 37 represented raises an objection prior to the date the consent 38 would otherwise become effective. The possibility that a 39 beneficiary might object to a consent given on the

[143] 351 1 beneficiary’s behalf will not be germane in many cases 2 because the person represented will be unborn or 3 unascertained. However, the representation principles of this 4 article will sometimes apply to adult and competent 5 beneficiaries. 6 Subsection (d) addressing a person who may represent an 7 incapacitated settlor specifically references the possibility of 8 additional requirements imposed under Section 627411 9 regarding modification or termination of noncharitable 10 irrevocable trusts by consent and Section 627602 addressing 11 revocation or amendment of revocable trusts. 12 Subsection (e) confirms that orders in a judicial proceeding 13 binding a beneficiary representative bind the person(s) 14 represented by that beneficiary representative. 15 16 Section 627302. To the extent there is no conflict of 17 interest between the holder of a presently exercisable general 18 power of appointment and the persons represented with 19 respect to the particular question or dispute, the holder may 20 represent and bind persons whose interests, as permissible 21 appointees, takers in default, or otherwise, are subject to the 22 power. The term ‘ presently exercisable general power of 23 appointment’ includes a testamentary general power of 24 appointment having no conditions precedent to its exercise 25 other than the death of the holder, the validity of the holder’s 26 last Will and Testament, and the inclusion of a provision in 27 the Will sufficient to exercise this power. 28 29 REPORTER’S COMMENT 30 This section tracks the language of current South Carolina 31 Probate Code Section 621108 which defines the term 32 “presently exercisable general power of appointment.” This 33 section does not extend the substitute representation under 34 this section to limited or nongeneral powers of appointment 35 (which are also not covered under South Carolina Probate 36 Code Section 621108). 37 It specifies the circumstances under which a holder of a 38 general testamentary power of appointment may receive 39 notices on behalf of and otherwise represent and bind persons

[143] 352 1 whose interests are subject to the power, whether as 2 permissible appointees, takers in default, or otherwise. Such 3 representation is allowed except to the extent there is a 4 conflict of interest with respect to the particular matter or 5 dispute. Typically, the holder of a general testamentary 6 power of appointment is also a life income beneficiary of the 7 trust, oftentimes of a trust intended to qualify for the federal 8 estate tax marital deduction. See I.R.C. Section 2056(b)(5). 9 Without the exception for conflict of interest, the holder of 10 the power could act in a way that could enhance the holder’s 11 income interests to the detriment of the appointees or takers 12 in default, whomever they may be. 13 14 Section 627303. (a) To the extent there is no conflict of 15 interest between the following beneficiary representatives 16 and the person represented or among those being represented 17 with respect to a particular question or dispute: 18 (1) a conservator may represent and bind the estate that 19 the conservator controls to the extent of the powers and 20 authority conferred upon conservators generally or by court 21 order; 22 (2) a guardian may represent and bind the ward if a 23 conservator of the ward’s estate has not been appointed to the 24 extent of the powers and authority conferred upon guardians 25 generally or by court order; 26 (3) an agent may represent and bind the principal to the 27 extent the agent has authority to act with respect to the 28 particular question or dispute; 29 (4) a trustee may represent and bind the beneficiaries of 30 the trust with respect to questions or disputes involving the 31 trust; 32 (5) a personal representative of a decedent’s estate may 33 represent and bind persons interested in the estate with 34 respect to questions or disputes involving the decedent’s 35 estate; and, 36 (6) a person may represent and bind the person’s minor 37 or unborn issue if a conservator or guardian for the issue has 38 not been appointed.

[143] 353 1 (b) The order in which the beneficiary representatives are 2 listed above sets forth the priority each such beneficiary 3 representative has relative to the others. In any judicial 4 proceeding or upon petition to the court, the court for good 5 cause may appoint a beneficiary representative having lower 6 priority or a person having no priority. 7 8 REPORTER’S COMMENT 9 This section allows for representation of persons by their 10 fiduciaries (conservators, guardians, agents, trustees, and 11 personal representatives). Representation is not available if 12 the fiduciary or parent is in a conflict position with respect to 13 the particular matter or dispute, however. A typical conflict 14 would be where the fiduciary or parent seeking to represent 15 the beneficiary is either the trustee or holds an adverse 16 beneficial interest. 17 South Carolina Probate Code Section 621403 is the 18 counterpart to South Carolina Trust Code Section 627303. 19 The SCTC, however, adds representation by an agent on 20 behalf of the principal under Subsection (a)(3). 21 The authority of a conservator or guardian under this 22 section is subject to the authority conferred upon 23 conservators and guardians generally under provisions of the 24 South Carolina Probate Code or by court order, it not being 25 the intent herein to enlarge a conservator’s or guardian’s 26 powers otherwise. 27 Subsection (a)(2) authorizes a guardian to bind and 28 represent a ward if a conservator of the ward’s estate has not 29 been appointed. Granting a guardian authority to represent 30 the ward with respect to interests in the trust can avoid the 31 need to seek appointment of a conservator. Under the South 32 Carolina Trust Code, a “conservator” is appointed by the 33 court to manage the ward’s property, a “guardian” to make 34 decisions with respect to the ward’s personal affairs. See 35 Section 627103. 36 Subsection (a)(3) authorizes an agent to represent a 37 principal only to the extent the agent has authority to act with 38 respect to the particular question or dispute. Pursuant to 39 Sections 627411 and 627602, an agent may represent a

[143] 354 1 settlor with respect to the amendment, revocation or 2 termination of the trust only to the extent this authority is 3 expressly granted either in the trust or the power. Otherwise, 4 depending on the particular question or dispute, a general 5 grant of authority in the power may be sufficient to confer 6 the necessary authority. 7 Subsection (b) prioritizes the right to act as substitute 8 representative where more than one such representation may 9 apply. 10 11 Section 627304. Unless otherwise represented, a minor, 12 incapacitated, or unborn individual, or a person whose 13 identity or location is unknown and not reasonably 14 ascertainable, may be represented by and bound by another 15 having a substantially identical interest with respect to the 16 particular question or dispute, but only to the extent there is 17 no conflict of interest between the beneficiary representative 18 and the person represented and provided the interest of the 19 person represented is adequately represented by the 20 beneficiary representative. 21 22 REPORTER’S COMMENT 23 This section authorizes a person with a substantially identical 24 interest with respect to a particular question or dispute to 25 represent and bind an otherwise unrepresented minor, 26 incapacitated or unborn individual, or person whose location 27 is unknown and not reasonably ascertainable. This section 28 extends the doctrine of virtual representation to 29 representation of minors and incapacitated individuals. This 30 section does not apply to the extent there is a conflict of 31 interest between the beneficiary representative and the person 32 represented by the beneficiary representative, consistent with 33 current South Carolina Probate Code Section 621403(2)(iii). 34 Typically, the interests of the beneficiary representative 35 and the person represented will be identical. A common 36 example would be a trust providing for distribution to the 37 settlor’s children as a class, with an adult child being able to 38 represent the interests of children who are either minors or 39 unborn. Exact identity of interests is not required, only

[143] 355 1 substantial identity with respect to the particular question or 2 dispute. Whether such identity is present may depend on the 3 nature of the interest. For example, a presumptive 4 remaindermen may be able to represent alternative 5 remaindermen with respect to approval of a trustee’s report 6 but not with respect to interpretation of the remainder 7 provision or termination of the trust. Even if the beneficial 8 interests of the beneficiary representative and person 9 represented are identical, representation is not allowed in the 10 event of conflict of interest. The beneficiary representative 11 may have interests outside of the trust that are adverse to the 12 interest of the person represented, such as a prior relationship 13 with the trustee or other beneficiaries. 14 South Carolina Probate Code Section 621403(2)(iii) is the 15 current counterpart to this Section 627304. However, the 16 South Carolina Trust Code adds an incapacitated person to 17 the list of those who may be represented by another person 18 under this section. 19 20 Section 627305. At any point in a judicial proceeding, a 21 court may appoint a guardian ad litem to represent the 22 interest of a minor, an incapacitated, unborn, or 23 unascertained person, or a person whose identity or address is 24 unknown, if the court determines that representation of the 25 interest otherwise would be inadequate. If not precluded by 26 conflict of interests, a guardian ad litem may be appointed to 27 represent several persons or interests. The court shall set out 28 its reasons for appointing a guardian ad litem as a part of the 29 record of the proceeding. 30 31 REPORTER’S COMMENT 32 Whereas the Uniform Trust Code encourages nonjudicial 33 settlements and authorizes court appointment of a 34 representative to act like a guardian ad litem but without 35 ongoing court involvement, South Carolina expressly limits 36 the scope of nonjudicial settlements to those matters 37 specified in Section 627111 and follows current practice for 38 the appointment of guardians ad litem and ongoing court

[143] 356 1 involvement pursuant to South Carolina Probate Code 2 Section 621403(4). 3 4 Part 4 5 6 Creation, Validity, Modification, and Termination of Trusts 7 8 Section 627401. (a)(1) A trust described in Section 627102

9 may be created by:

10 (1)(i) transfer of property to another person as trustee 11 during the settlor’s lifetime or by will or other disposition 12 taking effect upon the settlor’s death; 13 (2)(ii) written declaration signed by the owner of 14 property that the owner holds identifiable property as trustee; 15 or 16 (3)(iii)exercise of a power of appointment in favor of a 17 trustee. 18 (2) To be valid, a trust of real property, created by 19 transfer in trust or by declaration of trust, must be proved by 20 some writing signed by the party creating the trust. A 21 transfer in trust of personal property does not require written 22 evidence, but must be proven by clear and convincing 23 evidence, pursuant to Section 627407. 24 (b) When any conveyance shall be made of any lands or 25 tenements by which a trust or confidence shall or may arise 26 or result by the implication or construction of law or be 27 transferred or extinguished by act or operation of law, such 28 trust or confidence shall be of like force and effect as it 29 would have been without Section 627401(a) A trust that 30 arises by act or operation of law does not require the 31 existence of a writing. 32 (c) A revocable inter vivos trust may be created either by 33 declaration of trust or by a transfer of property and is not 34 rendered invalid because the settler retains substantial control 35 over the trust including, but not limited to, (i) a right of 36 revocation, (ii) substantial beneficial interests in the trust, or 37 (iii) the power to control investments or reinvestments. This

[143] 357 1 subsection does not prevent a finding that a revocable inter 2 vivos trust, enforceable for other purposes, is illusory for 3 purposes of determining a spouse’s elective share rights 4 pursuant to Article 2, Title 62. A finding that a revocable 5 inter vivos trust is illusory and thus invalid for purposes of 6 determining a spouse’s elective share rights pursuant to 7 Article 2, Title 62 does not render that revocable inter vivos 8 trust invalid, but allows inclusion of the trust assets as part of 9 the probate estate of the settlor only for the purpose of 10 calculating the elective share. In that event, the trust property 11 that passes or has passed to the surviving spouse, including a 12 beneficial interest of the surviving spouse in that trust 13 property, must be applied first to satisfy the elective share 14 and to reduce contributions due from other recipient of 15 transfers including the probate estate, and the trust assets are 16 available for satisfaction of the elective share only to any 17 remaining extent necessary pursuant to Section 622207. 18 19 REPORTER’S COMMENT 20 This section is based on Restatement (Third) of Trusts 21 Section 10 (Tentative Draft No. 1, approved 1996), and 22 Restatement (Second) of Trusts Section 17 (1959). Under 23 the methods specified for creating a trust in this section, a 24 trust is not created until it receives property. For what 25 constitutes an adequate property interest, see Restatement 26 (Third) of Trusts Sections 4041 (Tentative Draft No. 2, 27 approved 1999); Restatement (Second) of Trusts Sections 28 7486 (1959). The property interest necessary to fund and 29 create a trust need not be substantial. A revocable 30 designation of the trustee as beneficiary of a life insurance 31 policy or employee benefit plan has long been understood to 32 be a property interest sufficient to create a trust. See Section 33 627103(11) (“property” defined). Furthermore, the property 34 interest need not be transferred contemporaneously with the 35 signing of the trust instrument. A trust instrument signed 36 during the settlor’s lifetime is not rendered invalid simply 37 because the trust was not created until property was 38 transferred to the trustee at a much later date, including by 39 contract after the settlor’s death. A pourover devise to a

[143] 358 1 previously unfunded trust is also valid and may constitute the 2 property interest creating the trust. See Unif Testamentary 3 Additions to Trusts Act Section 1 (1991), codified at 4 Uniform Probate Code Section 2511 and SCPC Section 5 622510 (pourover devise to trust valid regardless of 6 existence, size, or character of trust corpus). See also 7 Restatement (Third) of Trusts Section 19 (Tentative Draft 8 No. 1, approved 1996). 9 Section 62-7-401(a) provides different methods to create a 10 trust, creating a distinction between third-party-trusteed trusts 11 in subsection (a)(1)(i) and self-trusteed trusts in subsection 12 (a)(1)(ii). Subsection (a)(1)(i) provides that, if a third party is 13 to serve as trustee, transfer of property to that other person, 14 whether during life or at death, is sufficient to create a trust; 15 no writing is required. 16 Subsection (a)(1)(ii) requires that, if the settlor is also to be 17 the trustee, then some written declaration signed by the 18 settlor is required to create the trust. Such a declaration need 19 not be a trust agreement, but can be some written evidence 20 signed by the settlor sufficient to establish that the settlor 21 intended to hold the property in trust. 22 While this section refers to transfer of property to a trustee, 23 a trust can be created even though for a period of time no 24 trustee is in office. See Restatement (Third) of Trusts 25 Section 2 cmt. g (Tentative Draft No. 1, approved 1996); 26 Restatement (Second) of Trusts Section 2 cmt. i (1959). A 27 trust can also be created without notice to or acceptance by a 28 trustee or beneficiary. See Restatement (Third) of Trusts 29 Section 14 (Tentative Draft No. 1, approved 1996); 30 Restatement (Second) of Trusts Sections 3536 (1959). 31 The methods set out in Section 627401 are not the 32 exclusive methods to create a trust as recognized by Section 33 627102. A trust can also be created by a promise that 34 creates enforceable rights in a person who immediately or 35 later holds these rights as trustee. See Restatement (Third) of 36 Trusts Section 10(e) (Tentative Draft No. 1, approved 1996). 37 A trust thus created is valid notwithstanding that the trustee 38 may resign or die before the promise is fulfilled. Unless 39 expressly made personal, the promise can be enforced by a

[143] 359 1 successor trustee. For examples of trusts created by means of 2 promises enforceable by the trustee, see Restatement (Third) 3 of Trusts Section 10 cmt. g (Tentative Draft No. 1, approved 4 1996); Restatement (Second) of Trusts Sections 14 cmt. h, 26 5 cmt. n (1959). 6 PreSCTC South Carolina law made a distinction between 7 trusts for personal property and trusts in land. Trusts in 8 personal property could be proved, as well as created, by 9 parol declarations. See Harris v. Bratton, 34 S.C. 259. 13 10 S.E. 447 (1891). On the other hand, for a trust of any “land, 11 tenements, or hereditaments” to be valid, former South 12 Carolina Probate Code Section 627101 mandated that the 13 trust be proved by a writing signed by the party creating the 14 trust. An exception to the requirement of a writing to 15 establish a trust in land was found in former SCPC Section 16 627103 for trusts arising by operation of law, such as 17 resulting and constructive trusts. Because the SCTC applies 18 only to express trusts and not to trusts implied in law 19 (Section 627102), Sections 627401(a)(1)(i) and (1)(ii) codify 20 existing law that trusts of real property must be established 21 by a writing, transfers in trust of personal property do not 22 have the same requirement, and trusts containing real 23 property that arise by operation of law do not require 24 evidence of writing to be valid. 25 Former SCPC Section 627112 has been retained as SCTC 26 Section 627401(c). Former SCPC Section 627112 was 27 enacted after the Siefert decision, Seifert v. Southern Nat’l 28 Bank of South Carolina, 305 S.C. 353, 409 S.E. 2d 337 29 (1991), to clarify that the settlor’s retention of substantial 30 control over a trust, such as a right to revoke, does not render 31 that trust invalid. 32 While a trust created by will may come into existence 33 immediately at the testator’s death and not necessarily only 34 upon the later transfer of title from the personal 35 representative, Section 627701 makes clear that the 36 nominated trustee does not have a duty to act until there is an 37 acceptance of the trusteeship, express or implied. To avoid 38 an implied acceptance, a nominated testamentary trustee who 39 is monitoring the actions of the personal representative but

[143] 360 1 who has not yet made a final decision on acceptance should 2 inform the beneficiaries that the nominated trustee has 3 assumed only a limited role. The failure so to inform the 4 beneficiaries could result in liability if misleading conduct by 5 the nominated trustee causes harm to the trust beneficiaries. 6 See Restatement (Third) of Trusts Section 35 cmt. b 7 (Tentative Draft No 2, approved 1999). 8 While this section confirms the familiar principle that a 9 trust may be created by means of the exercise of a power of 10 appointment (paragraph ((a)(1)(iii)), this Code does not 11 legislate comprehensively on the subject of powers of 12 appointment but addresses only selected issues. See Section 13 627302 (representation by holder of general testamentary 14 power of appointment). For the law on powers of 15 appointment generally, see Restatement (Second) of 16 Property: Donative Transfers Sections 11.124.4 (1986); 17 Restatement (Third) of Property: Wills and Other Donative 18 Transfers (in progress). 19 20 Section 627402. (a) A trust is created only if: 21 (1) the settlor has capacity to create a trust; 22 (2) the settlor indicates an intention to create the trust; 23 (3) the trust has a definite beneficiary or is: 24 (A) a charitable trust; 25 (B) a trust for the care of an animal, as provided in 26 Section 627408; or 27 (C) a trust for a noncharitable purpose, as provided in 28 Section 627409; 29 (4) the trustee has duties to perform; and 30 (5) the same person is not the sole trustee and sole 31 current and future beneficiary. 32 (b) If the trust agreement is in writing, the trust instrument 33 may be signed by the settler or in the settlor’s name by some 34 other person in the settlor’s presence and by the settlor’s 35 direction. 36 (c) A beneficiary is definite if the beneficiary can be 37 ascertained now or in the future, subject to any applicable 38 rule against perpetuities.

[143] 361 1 (c)(d) A power in a trustee to select a beneficiary from an 2 indefinite class is valid. If the power is not exercised within 3 a reasonable time, the power fails and the property subject to 4 the power passes to the persons who would have taken the 5 property had the power not been conferred. 6 (d)(e) For purposes of Section 627402(a)(5), if a person 7 holds legal title to property in a fiduciary capacity and also 8 has an equitable or beneficial title in the same property, 9 either by transfer, by declaration, or by operation of law, no 10 merger of the legal and equitable titles shall occur unless: 11 (1) the fiduciary is the sole fiduciary and is also the sole 12 current and future beneficiary; and 13 (2) the legal title and the equitable title are of the same 14 quality and duration. 15 If either one of these conditions is not met, no merger may 16 occur and the fiduciary relationship does not terminate. 17 18 REPORTER’S COMMENT 19 Subsection (a) codifies the basic requirements for the 20 creation of a trust. To create a valid trust, the settlor must 21 indicate an intention to create a trust. See Restatement 22 (Third) of Trusts Section 13 (Tentative Draft No. 1, approved 23 1996); Restatement (Second) of Trusts Section 23 (1959). 24 But only such manifestations of intent as are admissible as 25 proof in a judicial proceeding may be considered. See 26 Section 627103(17) (“terms of a trust” defined). 27 To create a trust, a settlor must have the requisite mental 28 capacity. To create a revocable or testamentary trust, the 29 settlor must have the capacity to make a will. To create an 30 irrevocable trust, the settlor must have capacity during 31 lifetime to transfer the property free of trust. See Section 32 627601 (capacity of settlor to create revocable trust), and see 33 generally Restatement (Third) of Trusts Section 11 34 (Tentative Draft No. 1, approved 1996); Restatement 35 (Second) of Trusts Sections 1822 (1959); and Restatement 36 (Third) of Property: Wills and Other Donative Transfers 37 Section 8.1 (Tentative Draft No. 3, 2001). 38 Subsection (a)(3) requires that a trust, other than a 39 charitable trust, a trust for the care of an animal, or a trust for

[143] 362 1 another valid noncharitable purpose, have a definite 2 beneficiary. While some beneficiaries will be definitely 3 ascertained as of the trust’s creation, subsection (c) 4 recognizes that others may be ascertained in the future as 5 long as this occurs within the applicable perpetuities period. 6 The definite beneficiary requirement does not prevent a 7 settlor from making a disposition in favor of a class of 8 persons. Class designations are valid as long as the 9 membership of the class will be finally determined within the 10 applicable perpetuities period. For background on the 11 definite beneficiary requirement, see Restatement (Third) of 12 Trusts Sections 4446 (Tentative Draft No. 2, approved 1999); 13 Restatement (Second) of Trusts Sections 112122 (1959). 14 Subsection (a)(4) recites standard doctrine that a trust is 15 created only if the trustee has duties to perform. See 16 Restatement (Third) of Trusts Section 2 (Tentative Draft No. 17 1, approved 1996); Restatement (Second) of Trusts Section 2 18 (1959). Trustee duties are usually active, but a validating 19 duty may also be passive, implying only that the trustee has 20 an obligation not to interfere with the beneficiaries’ 21 enjoyment of the trust property. Such passive trusts, while 22 valid under this Code, may be terminable under the Statute of 23 Uses. See Restatement (Third) of Trusts Section 6 (Tentative 24 Draft No. 1, approved 1996); Restatement (Second) of Trusts 25 Sections 6772 (1959). 26 Subsection (a)(5) addresses the doctrine of merger, which, 27 as traditionally stated, provides that a trust is not created if 28 the settlor is the sole trustee and sole beneficiary of all 29 beneficial interests. The SCTC modifies the UTC by adding 30 the phrase “current and future” to UTC subsection (a)(5). 31 The doctrine of merger has been inappropriately applied by 32 the courts in some jurisdictions to invalidate selfdeclarations 33 of trust in which the settlor is the sole life beneficiary but 34 other persons are designated as beneficiaries of the 35 remainder. The doctrine of merger is properly applicable 36 only if all beneficial interests, both life interests and 37 remainders, are vested in the same person, whether in the 38 settlor or someone else. An example of a trust to which the 39 doctrine of merger would apply is a trust of which the settlor

[143] 363 1 is sole trustee, sole beneficiary for life, and with the 2 remainder payable to the settlor’s probate estate. On the 3 doctrine of merger generally, see Restatement (Third) of 4 Trusts Section 69 (Tentative Draft No. 3, 2001); Restatement 5 (Second) of Trusts Section 341 (1959). 6 Subsection (d) allows a settlor to empower the trustee to 7 select the beneficiaries even if the class from whom the 8 selection may be made cannot be ascertained. Such a 9 provision would fail under traditional doctrine; it is an 10 imperative power with no designated beneficiary capable of 11 enforcement. Such a provision is valid, however, under both 12 this Code and the Restatement, if there is at least one person 13 who can meet the description. If the trustee does not exercise 14 the power within a reasonable time, the power fails and the 15 property will pass by resulting trust. See Restatement (Third) 16 of Trusts Section 46 (Tentative Draft No. 2, approved 1999). 17 See also Restatement (Second) of Trusts Section 122 (1959); 18 Restatement (Second) of Property: Donative Transfers 19 Section 12.1 cmt. a (1986). 20 No similar statutory provisions existed under South 21 Carolina law prior to the enactment of the SCTC, except that 22 former SCPC Section 627603(A)(3) specified the 23 requirements for merger of equitable and legal title. Former 24 Section 627603(A)(3) has been retained as subsection (e). 25 South Carolina case law provides that, for a trust to exist, 26 certain elements must be present, including a declaration 27 creating the trust, a trust res, and designated beneficiaries. 28 See Whetstone v. Whetstone, 309 S.C. 227, 23132, 420 29 S.E.2d 877, 879 (Ct. App. 1992). The declaration of trust has 30 to be in writing when the trust property includes realty. See 31 Id. If the declaration of trust is in writing, the SCTC allows 32 the grantor to sign the trust agreement, but also allows, under 33 Section 627402 (b), the grantor to direct a third party to sign 34 on the grantor’s behalf and in the grantor’s presence. 35 The Supreme Court has found that, with respect to the 36 spousal elective share, a revocable inter vivos trust that 37 conferred only custodial powers on the trustee, and that 38 expressly barred the trustee from exercising any powers of 39 sale, investment, or reinvestment during the settlor’s lifetime

[143] 364 1 without the settlor’s consent, was illusory and invalid. See 2 Seifert v. Southern Nat. Bank of South Carolina, 409 S.E.2d 3 337, 305 S.C. 353 (1991). Former SCPC Section 627112 4 was subsequently enacted and is retained at SCTC Section 5 627401(c). 6 7 Section 627403. A trust not created by will is validly 8 created if its creation complies with the law of the 9 jurisdiction in which the trust instrument was executed, or the 10 law of the jurisdiction in which, at the time of creation: 11 (1) the settlor was domiciled, had a place of abode, or was 12 a national; 13 (2) a trustee was domiciled or had a place of business; or 14 (3) any trust property was located. 15 16 REPORTER’S COMMENT 17 The validity of a trust created by will is ordinarily determined 18 by the law of the decedent’s domicile. No such certainty 19 exists with respect to determining the law governing the 20 validity of inter vivos trusts. Generally, at common law a 21 trust was created if it complied with the law of the state 22 having the most significant contacts to the trust. Contacts for 23 making this determination include the domicile of the trustee, 24 the domicile of the settlor at the time of trust creation, the 25 location of the trust property, the place where the trust 26 instrument was executed, and the domicile of the beneficiary. 27 See 5A Austin Wakeman Scott & William Franklin Fratcher, 28 The Law of Trusts Sections 597, 599 (4th ed. 1987). 29 Furthermore, if the trust has contacts with two or more states, 30 one of which would validate the trust’s creation and the 31 other of which would deny the trust’s validity, the tendency 32 is to select the law upholding the validity of the trust. See 5A 33 Austin Wakeman Scott &.William Franklin Fratcher, The 34 Law of Trusts 600 (4th ed. 1987). 35 Former South Carolina Probate Code Section 627106 36 recognized religious, educational, or charitable trusts validly 37 created in the Settlor’s state of domicile where a beneficiary 38 or object of the trust resided or was located in South

[143] 365 1 Carolina. The remainder of this SCTC section appears to 2 have no prior South Carolina statutory equivalent. 3 Section 627403 is comparable to South Carolina Probate 4 Code Section 622505 recognizing the validity of wills 5 executed in compliance with the law of a variety of places 6 where the testator had a significant contact, but expands the 7 possible jurisdictions beyond those allowed for a valid will. 8 Section 627403 extends the common law rule by validating 9 a trust if its creation complies with the law of any of a variety 10 of states in which the settlor or trustee had significant 11 contacts. Pursuant to Section 627403, a trust not created by 12 will is validly created if its creation complies with the law of 13 the jurisdiction in which the trust instrument was executed, or 14 the law of the jurisdiction in which, at the time of creation 15 the settlor was domiciled, had a place of abode, or was a 16 national; the trustee was domiciled or had a place of 17 business; or any trust property was located. 18 The section does not supersede local law requirements for 19 the transfer of real property, such that title can be transferred 20 only by recorded deed. 21 22 Section 627404. A trust may be created only to the 23 extent its purposes are lawful, not contrary to public policy, 24 and possible to achieve. A trust and its terms must be for the 25 benefit of its beneficiaries. 26 27 REPORTER’S COMMENT 28 For an explication of the requirement that a trust must not 29 have a purpose that is unlawful, see Restatement (Third) of 30 Trusts Sections 2730 (Tentative Draft No. 2, approved 1999); 31 Restatement (Second) of Trusts Sections 5965 (1959). A 32 trust with a purpose that is unlawful is invalid. Depending on 33 when the violation occurred, the trust may be invalid at its 34 inception or it may become invalid at a later date. The 35 invalidity may also affect only particular provisions. 36 Generally, a trust has a purpose, which is illegal if (1) its 37 performance involves the commission of a criminal or 38 tortious act by the trustee; (2) the settlor’s purpose in creating 39 the trust was to defraud creditors or others; or (3) the

[143] 366 1 consideration for the creation of the trust was illegal. See 2 Restatement (Third) of Trusts Section 28 cmt. a (Tentative 3 Draft No. 2, approved 1999); Restatement (Second) of Trusts 4 Section 60 cmt. a (1959. The 2013 amendment included the 5 words “not contrary to public policy” because existing 6 common law invalidates trusts that violate public policy. 7 Pursuant to Section 627402(a), a trust must have an 8 identifiable beneficiary unless the trust is of a type that does 9 not have beneficiaries in the usual sense, such as a charitable 10 trust or, as provided in Sections 627408 and 627409, trusts 11 for the care of an animal or other valid noncharitable 12 purpose. The general purpose of trusts having identifiable 13 beneficiaries is to benefit those beneficiaries in accordance 14 with their interests as defined in the trust’s terms. The 15 requirement of this section that a trust and its terms be for the 16 benefit of its beneficiaries, which is derived from 17 Restatement (Third) of Trusts Section 27(2) (Tentative Draft 18 No. 2, approved 1999), implements this general purpose. 19 While a settlor has considerable latitude in specifying how a 20 particular trust purpose is to be pursued, the administrative 21 and other nondispositive trust terms must reasonably relate to 22 this purpose and not divert the trust property to achieve a 23 trust purpose that is invalid, such as one which is frivolous or 24 capricious. 25 See Restatement (Third) of Trusts Section 27 cmt. b 26 (Tentative Draft No. 2, approved 1999). 27 Section 627412(b), which allows the court to modify 28 administrative terms that are impracticable, wasteful, or 29 impair the trust’s administration, is a specific application of 30 the requirement that a trust and its terms be for the benefit of 31 the beneficiaries. The fact that a settlor suggests or directs an 32 unlawful or other inappropriate means for performing a trust 33 does not invalidate the trust if the trust has a substantial 34 purpose that can be achieved by other methods. See 35 Restatement (Third) of Trusts Section 28 cmt. e (Tentative 36 Draft No. 2, approved 1999). 37 There was no South Carolina statutory provision that 38 correlated with SCTC Section 627404. South Carolina case 39 law has been consistent with Section 627404 in refusing to

[143] 367 1 impose an express trust, resulting trust, or constructive trust 2 on property in favor of a transferor attempting to impose a 3 trust on property he transferred to the transferee, when the 4 facts indicate no written agreement between them existed, the 5 transferor had a fraudulent purpose for the transfers, and the 6 transferee committed no fraud or deceit. See Settlemeyer v. 7 McCluney, 359 S.C. 317, 596 S.E.2d 514 (S.C. Ct. App. 8 2004); All v. Prillaman, 200 S.C. 279, 20 S.E.2d 741 (S.C. 9 1942). “The law will not permit a party to deliberately put his 10 property out of his control for a fraudulent purpose, and then, 11 through intervention of a court of equity, regain the same 12 after his fraudulent purpose has been accomplished” All v. 13 Prillaman, 200 S.C. 279, 308, 20 S.E.2d 741, 753, quoting 14 Jolly v. Graham, 78 N.E. 919, 920 (Ill. 1906). See also Colin 15 McK. Grant Home V. Medlock, 292 S.C. 466, 349 S.E.2d 16 655 (Ct. App. 1987), involving a charitable trust, in which 17 the equitable doctrine of equitable deviation was used to 18 eliminate the racial restrictions from a charitable trust’s 19 requirements. See also Buck v. Toler, 146 S.C. 294, 141 S.E. 20 1 (1928), in which a testamentary trust that violated the rule 21 against perpetuities and that was determined to have been 22 created by the testatrix merely to tie up the property was 23 found to be void. 24 25 Section 627405. (a) A charitable trust may be created for 26 the relief of distress or poverty, the advancement of 27 education or religion, the promotion of health, scientific, 28 literary, benevolent, governmental or municipal purposes, or 29 other purposes, the achievement of which purposes is 30 beneficial to the community. 31 (b) If the terms of a charitable trust do not indicate a 32 particular charitable purpose or beneficiary, the court may 33 select one or more charitable purposes or beneficiaries. The 34 selection must be consistent with the settlor’s intention to the 35 extent it can be ascertained. 36 (c) The settlor of a charitable trust, the trustee, and the 37 Attorney General, among others may maintain a proceeding 38 to enforce the trust.

[143] 368 1 (d) Unless otherwise required by statute or by rule or 2 regulation of the Attorney General, the trustees of charitable 3 trusts shall not be required to file with the Attorney General 4 any copies of trusts instruments or reports concerning the 5 activities of charitable trusts. 6 (e) The Attorney General may make such rules and 7 regulations relating to the information to be contained with 8 the filing of a trust as may be required. 9 (f) All trustees of any trust governed by the laws of this 10 State whose governing instrument does not expressly provide 11 that this section shall not apply to such trust are required to 12 act or to refrain from acting so as not to subject the trust to 13 the taxes imposed by Sections 4941, 4942, 4943, 4944, or 14 4945 of the Internal Revenue Code, or corresponding 15 provisions of any subsequent United States internal revenue 16 law. 17 (g) Nothing contained in Sections 3331150 and 3331151 18 may be construed to cause a forfeiture or reversion of any of 19 the property of a trust which is subject to such Sections, or to 20 make the purposes of the trust impossible of 21 accomplishment. 22 23 REPORTER’S COMMENT 24 The required purposes of a charitable trust specified in 25 subsection (a) restate the wellestablished categories of 26 charitable purposes listed in Restatement (Third) of Trusts 27 Section 28 (Tentative Draft No. 3, approved 2001), and 28 Restatement (Second) of Trusts Section 368 (1959), which 29 ultimately derive from the Statute of Charitable Uses, 43 30 Eliz. I, c.4 (1601). The directive to the courts to validate 31 purposes the achievement of which are beneficial to the 32 community has proved to be remarkably adaptable over the 33 centuries. The drafters concluded that it should not be 34 disturbed. 35 South Carolina Trust Code Section 627405 adds “distress” 36 to the Uniform Trust Code version, to cover disasters or 37 sudden catastrophes in addition to “poverty.” The SCTC also 38 adds “scientific, literary and benevolent” to the UTC version.

[143] 369 1 Practically, the specified charitable purposes will be identical 2 to Internal Revenue Code Section 501 (c)(3). 3 Charitable trusts are subject to the restriction in Section 4 627404 that a trust purpose must be legal. This would 5 include trusts that involve invidious discrimination. See 6 Restatement (Third) of Trusts Section 28 cmt. f (Tentative 7 Draft No. 3, approved 2001). 8 Under subsection (b), a trust that states a general charitable 9 purpose does not fail if the settlor neglected to specify a 10 particular charitable purpose or organization to receive 11 distributions. The court may instead validate the trust by 12 specifying particular charitable purposes or recipients, or 13 delegate to the trustee the framing of an appropriate scheme. 14 See Restatement (Second) of Trusts Section 397 cmt. d 15 (1959). Subsection (b) of this section is a corollary to 16 Section 413, which states the doctrine of cy pres. Under 17 Section 627413(a), a trust with a particular charitable 18 purpose which is impracticable or impossible to achieve does 19 not necessarily fail. The court must instead apply the trust 20 property in a manner consistent with the settlor’s charitable 21 purposes to the extent they can be ascertained. 22 Subsection (b) does not apply to the longestablished estate 23 planning technique of delegating to the trustee the selection 24 of the charitable purposes or recipients. In that case, judicial 25 intervention to supply particular terms is not necessary to 26 validate the creation of the trust. The necessary terms instead 27 will be supplied by the trustee. See Restatement (Second) of 28 Trusts Section 396 (1959). Judicial intervention under 29 subsection (b) will become necessary only if the trustee fails 30 to make a selection. See Restatement (Second) of Trusts 31 Section 397 cmt. d (1959). Pursuant to Section 627110(b), 32 the charitable organizations selected by the trustee would not 33 have the rights of qualified beneficiaries under this Code 34 because they are not expressly designated to receive 35 distributions under the terms of the trust. 36 Section 627405(b) must be read in conjunction with SCTC 37 Sections 627404 and 627413. SCTC Section 627413 38 incorporates the doctrine of equitable deviation from South

[143] 370 1 Carolina common law. See the South Carolina Comment to 2 SCTC Section 627413. 3 SCTC Section 627405(c) adds “the trustee and the 4 Attorney General” to those who may maintain a proceeding 5 to enforce the trust under the UTC version. 6 Former South Carolina Probate Code Sections 627501 7 through 627507, Part 5 of Article 7 of Title 62, covered 8 charitable trusts. These sections are revised and incorporated 9 in SCTC Section 627405. 10 SCPC Section 627501 required individual trustees of 11 certain charitable trusts to file a copy of the trust with the 12 Attorney General. Section 627405(d) makes this initial filing 13 applicable to all charitable trusts, subject to certain 14 exceptions. 15 SCPC Section 627502 required that certain charitable 16 trusts file annual reports with the attorney general. 17 SCPC Section 627505 exempted many charitable trusts 18 from the filing requirements of Part Five: 19 “… trusts or trustees of the following: Churches, 20 cemeteries, orphanages operated in conjunction with 21 churches, hospitals, colleges, or universities, or school 22 districts, nor shall it apply to banking institutions which act 23 as trustees under the supervision of the State Board of 24 Financial Institutions or under the supervision of federal 25 banking agencies.” 26 SCPC Sections 627502 and 627505 are repealed. The 27 exemption is anachronistic. SCTC Section 627405(d) 28 requires that every charitable trust make an initial filing at 29 inception with the Attorney General, subject to certain 30 exceptions. 31 SCPC Section 627504 is retained at Section 627405(e), 32 empowering the Attorney General to issue regulations to 33 require further reporting from charitable trusts. 34 SCPC Section 627506 incorporated the prohibited 35 transaction provisions applicable to private foundations and 36 charitable trusts into every trust and is retained in SCTC 37 Section 627405(f). (Existing Section 3331150 applies the 38 restrictions to notforprofit South Carolina corporations.)

[143] 371 1 SCPC Section 627507 made clear that incurring an excise 2 tax for violation of the prohibited transaction provisions will 3 not result in trust termination, and is retained in Section 4 627405(g). 5 South Carolina expressly rejects the portion of the UTC 6 Comment which makes “public policy” or “invidious 7 discrimination” a basis to find that a trust violates Section 8 627404. 9 South Carolina common law does not allow enforcement 10 of a trust for an unlawful purpose. South Carolina’s existing 11 case law is sufficient to prohibit discrimination in a 12 charitable trust. 13 Contrary to Restatement (Second) of Trusts Section 391 14 (1959), subsection (c) grants a settlor standing to maintain an 15 action to enforce a charitable trust. The grant of standing to 16 the settlor does not negate the right of the state attorney 17 general or persons with special interests to enforce either the 18 trust or their interests. For the law on the enforcement of 19 charitable trust, see Susan N. Gary, Regulating the 20 Management of Charities: Trust Law, Corporate Law, and 21 Tax Law, 21 U. Hawaii L. Rev. 593 (1999). 22 23 Section 627406. A trust is voidable to the extent its 24 creation was induced by fraud, duress, or undue influence. 25 26 REPORTER’S COMMENT 27 This section is a specific application of Restatement (Third) 28 of Trusts Section 12 (Tentative Draft No. 1, approved 1996), 29 and Restatement (Second) of Trusts Section 333 (1959), 30 which provide that a trust can be set aside or reformed on the 31 same grounds as those which apply to a transfer of property 32 not in trust, among which include undue influence, duress, 33 and fraud, and mistake. This section addresses undue 34 influence, duress, and fraud. For reformation of a trust on 35 grounds of mistake, see Section 627415. See also 36 Restatement (Third) of Property: Wills and Other Donative 37 Transfers Section 8.3 (Tentative Draft No. 3, approved 38 2001), which closely tracks the language above. Similar to a

[143] 372 1 will, the invalidity of a trust on grounds of undue influence, 2 duress, or fraud may be in whole or in part. 3 The South Carolina version of this section changes the 4 word “void” to “voidable” to eliminate any suggestion that a 5 trust might be void ab initio or that the trustee’s actions 6 might be invalid even though taken in good faith and before 7 any determination that the trust is void. 8 Third parties dealing with the trustee of a voidable trust 9 will be protected by South Carolina Trust Code Section 10 6271012. 11 This section is similar to present South Carolina law 12 regarding the validity of wills. 13 14 Section 627407. Except as otherwise required by statute, 15 a trust need not be evidenced by a trust instrument. The 16 creation of an oral trust and its terms may be established only 17 by clear and convincing evidence. 18 19 REPORTER’S COMMENT 20 While it is always advisable for a settlor to reduce a trust to 21 writing, the SCTC follows established law in recognizing 22 oral trusts. Such trusts are viewed with caution, however. 23 This section is in accordance with existing South Carolina 24 law requiring oral trusts to be proved by clear and convincing 25 evidence. However, South Carolina statutory law has 26 consistently required that the declaration or creation of trusts 27 in lands, tenements or hereditaments be manifested and 28 proved by some writing such as a trust agreement or last will. 29 Absent such a writing, the trust would be void, per former 30 South Carolina Probate Code Section 627101 et seq. 31 Historically, a distinction has been made between the 32 creation of the trust and the conveyance of real property 33 thereto, but the writing must manifest a previous trust. This 34 section no longer distinguishes between trusts funded with 35 real estate from those funded with personalty. Both must be 36 established by clear and convincing evidence. See Beckham 37 v. Short, 380 S.E. 2d 826 (S.C. 1989). 38 Absent some specific statutory provision, such as a Statute 39 of Frauds provision requiring that transfers of real property

[143] 373 1 be proved by writing, a trust need not be evidenced by a 2 writing. 3 For the Statute of Frauds generally, see Restatement 4 (Second) of Trusts Sections 4052 (1959). For a description 5 of what the writing must contain, assuming that a writing is 6 required, see Restatement (Third) of Trusts Section 22 7 (Tentative Draft No. 1, approved 1996); Restatement 8 (Second) of Trusts Section 4649 (1959). For a discussion of 9 when the writing must be signed, see Restatement (Third) of 10 Trusts Section 23 (Tentative Draft No. 1, approved 1996); 11 Restatement (Second) of Trusts Section 4142 (1959). For the 12 law of oral trusts, see Restatement (Third) of Trusts Section 13 20 (Tentative Draft No. 1, approved 1996); Restatement 14 (Second) of Trusts Sections 4345 (1959). 15 South Carolina Trust Code Section 627401(a)(2) requires a 16 writing to create a declaration of trust (a selftrusteed trust). 17 18 Section 627408. (a) A trust may be created to provide for 19 the care of an animal or animals alive or in gestation during 20 the settlor’s lifetime, whether or not alive at the time the trust 21 is created. The trust terminates upon the death of the last 22 surviving animal. 23 (b) A trust authorized by this section may be enforced by 24 a person appointed in the terms of the trust or, if no person is 25 so appointed, by a person appointed by the court. A person 26 concerned for the welfare of the animal may request the court 27 to appoint a person to enforce the trust or to remove a person 28 appointed. 29 (c) Property of a trust authorized by this section may be 30 applied only to its intended use, except to the extent the court 31 determines that the value of the trust property exceeds the 32 amount required for the intended use. Except as otherwise 33 provided in the terms of the trust, property not required for 34 the intended use must be distributed to the settlor, if then 35 living, otherwise to the settlor’s successors in interest. 36 37 REPORTER’S COMMENT 38 This section and the next section of the Code validate so 39 called honorary trusts. Unlike honorary trusts created

[143] 374 1 pursuant to the common law of trusts, which are arguably no 2 more than powers of appointment, the trusts created by this 3 and the next section are valid and enforceable. For a 4 discussion of the common law doctrine, see Restatement 5 (Third) of Trusts Section 47 (Tentative Draft No. 2, approved 6 1999); Restatement (Second) of Trusts Section 124 (1959). 7 This section addresses a particular type of honorary trust, 8 the trust for the care of an animal. Section 627409 specifies 9 the requirements for trusts without ascertainable beneficiaries 10 that are created for other noncharitable purposes. A trust for 11 the care of an animal may last for the life of the animal. 12 While the animal will ordinarily be alive on the date the trust 13 is created, an animal may be added as a beneficiary after that 14 date as long as the addition is made prior to the settlor’s 15 death. Animals in gestation but not yet born at the time of 16 the trust’s creation may also be covered by its terms. A trust 17 authorized by this section may be created to benefit one 18 designated animal or several designated animals. 19 South Carolina Trust Code Section 627408 differs in 20 several minor ways from the uniform version. Two 21 provisions found in the UTC Comment have been added to 22 the body of Section 627408(a): (1) that the trust can benefit 23 animals alive during the settlor’s lifetime, regardless of 24 whether they are alive at the time the trust is created, and (2) 25 that animals in gestation at the settlor’s death can be included 26 in the trust. Surplus language in the UTC has also been 27 omitted from the SCTC version. 28 Subsection (b) addresses enforcement. SCTC Section 29 627408(b) modifies the UTC version, attempting to clarify 30 that a person need be concerned only for an animal’s welfare 31 to petition the court. That person does not have to have a 32 legally cognizable interest in the animal. Noncharitable 33 trusts ordinarily may be enforced by their beneficiaries. 34 Charitable trusts may be enforced by the State’s attorney 35 general or by a person deemed to have a special interest. See 36 Restatement (Second) of Trusts Section 391 (1959). But at 37 common law, a trust for the care of an animal or a trust 38 without an ascertainable beneficiary created for a

[143] 375 1 noncharitable purpose was unenforceable because there was 2 no person authorized to enforce the trustee’s obligations. 3 Sections 627408 and 627409 close this gap. The intended 4 use of a trust authorized by either section may be enforced by 5 a person designated in the terms of the trust or, if none, by a 6 person appointed by the court. In either case, Section 7 627110(b) grants to the person appointed the rights of a 8 qualified beneficiary for the purpose of receiving notices and 9 providing consents. If the trust is created for the care of an 10 animal, a person with an interest in the welfare of the animal 11 has standing to petition for an appointment. The person 12 appointed by the court to enforce the trust should also be a 13 person who has exhibited an interest in the animal’s welfare. 14 The concept of granting standing to a person with a 15 demonstrated interest in the animal’s welfare is derived from 16 the Uniform Guardianship and Protective Proceedings Act, 17 which allows a person interested in the welfare of a ward or 18 protected person to file petitions on behalf of the ward or 19 protected person 20 Subsection (c) addresses the problem of excess funds. If 21 the court determines that the trust property exceeds the 22 amount needed for the intended purpose and that the terms of 23 the trust do not direct the disposition, a resulting trust is 24 ordinarily created in the settlor or settlor’s successors in 25 interest. See Restatement (Third) of Trusts Section 47 26 (Tentative Draft No. 2, approved 1999); Restatement 27 (Second) of Trusts Section 124 (1959). Successors in interest 28 include the beneficiaries under the settlor’s will, if the settlor 29 has a will, or in the absence of an effective will provision, the 30 settlor’s heirs. The settlor may also anticipate the problem of 31 excess funds by directing their disposition in the terms of the 32 trust. The disposition of excess funds is within the settlor’s 33 control: See Section 627105(a). While a trust for an animal 34 is usually not created until the settlor’s death; subsection (a) 35 allows such a trust to be created during the settlor’s lifetime. 36 Accordingly, if the settlor is still living, subsection (c) 37 provides for distribution of excess funds to the settlor, and 38 not to the settlor’ s successors in interest.

[143] 376 1 Should the means chosen not be particularly efficient, a 2 trust created for the care of an animal can also be terminated 3 by the trustee or court under Section 627414. Termination of 4 a trust under that section, however, requires that the trustee or 5 court develop an alternative means for carrying out the trust 6 purposes. See Section 627414(c). 7 This section and the next section are suggested by Section 8 2907 of the Uniform Probate Code, but much of this and the 9 following section is new. 10 A trust created under this section would not be recognized 11 under former South Carolina law. Thus, this section creates a 12 new concept for South Carolina. 13 14 Section 627409. Except as otherwise provided in this 15 section or by another statute, the following rules apply: 16 (1) A trust may be created for a noncharitable purpose 17 without a definite or definitely ascertainable beneficiary or 18 for a noncharitable but otherwise valid purpose to be selected 19 by the trustee. The trust may not be enforced for more than 20 the period allowed under the South Carolina Uniform 21 Statutory Rule Against Perpetuities (S.C. Code Section 22 27610 et. seq.) any rule against perpetuities applicable under 23 South Carolina law, except for the care and maintenance of a 24 cemetery or cemetery plots, graves, mausoleums, columbaria, 25 grave markers, or monuments. 26 (2) A trust authorized by this section may be enforced by 27 a person appointed in the terms of the trust or, if no person is 28 so appointed, by a person appointed by the court. 29 (3) Property of a trust authorized by this section may be 30 applied only to its intended use, except to the extent the court 31 determines that the value of the trust property exceeds the 32 amount required for the intended use. Except as otherwise 33 provided in the terms of the trust, property not required for 34 the intended use must be distributed to the settlor, if then 35 living, otherwise to the settlor’s successors in interest. 36 37 REPORTER’S COMMENT 38 South Carolina Trust Code Section 627409 had no exact 39 statutory counterpart under prior South Carolina law,

[143] 377 1 although this Section continues South Carolina’s allowance 2 of trusts for the perpetual care of cemetery plots as set forth 3 in S. C. Code Section 27570. 4 This section authorizes two types of trusts without 5 ascertainable beneficiaries; trusts for general but 6 noncharitable purposes, and trusts for a specific 7 noncharitable purpose other than the care of an animal, on 8 which see Section 627408. Examples of trusts for general 9 noncharitable purposes include a bequest of money to be 10 distributed to such objects of benevolence as the trustee 11 might select. Unless such attempted disposition was 12 interpreted as charitable, at common law the disposition was 13 honorary only and did not create a trust. Under this section, 14 however, the disposition is enforceable as a trust for a period 15 of up to the maximum allowed under any applicable state 16 rule against perpetuities. 17 The most common example of a trust for a specific 18 noncharitable purpose is a trust for the care of a cemetery 19 plot. The rule against perpetuities limitation does not apply 20 to cemeteries, cemetery plots, grave sites, mausoleums, 21 columbaria, grave markers, or monuments. 22 Perpetual care cemeteries are addressed in Title 40, 23 Chapter 8, Sections 408110 et.seq. 24 For the requirement that a trust, particularly the type of 25 trust authorized by this section, must have a purpose that is 26 not capricious, see Section 627404 Comment. For examples 27 of the types of trusts authorized by this section, see 28 Restatement (Third) of Trusts Section 47 (Tentative Draft 29 No. 2, approved 1999), and Restatement (Second) of Trusts 30 Section 62 cmt. W and Section 124 (1959). The case law on 31 capricious purposes is collected in 2 Austin W. Scott & 32 William F. Fratcher, The Law of Trusts Section 124.7 (4th 33 ed. 1987). 34 This section is similar to Section 627408, although less 35 detailed. Much of the Comment to Section 627408 also 36 applies to this section. 37 38 Section 627410. (a) In addition to the methods of 39 termination prescribed by Sections 627411 through 627414, a

[143] 378 1 trust terminates to the extent the trust is revoked or expires 2 pursuant to its terms. 3 (b) A proceeding to approve or disapprove a proposed 4 modification or termination under Sections 627411 through 5 627416, or trust combination or division under Section 6 627417, may be commenced by a trustee or beneficiary, and 7 a proceeding to approve or disapprove a proposed 8 modification or termination under Section 627411 may be 9 commenced by the settlor. The settlor of a charitable trust as 10 well as the Attorney General, among others, may maintain a 11 proceeding to modify the trust under Section 627413. 12 13 REPORTER’S COMMENT 14 South Carolina Trust Code Section 627410 provides for the 15 modification or termination of trusts and refers to the more 16 specific provisions of Sections 627411 through 627 417. 17 This SCTC Section does not adopt the provisions of Uniform 18 Trust Code Section 627410, calling for termination of the 19 trust when “no purpose of the trust remains to be achieved, or 20 the purposes of the trust have become unlawful, contrary to 21 public policy, or impossible to achieve.” These may be 22 grounds to terminate a trust under the SCTC, but only upon 23 appropriate notice to interested parties and an opportunity for 24 a hearing. A declaratory judgment may be sought to 25 determine if the trust has terminated. 26 27 Section 627411. (a) A noncharitable irrevocable trust 28 may be modified or terminated with court approval upon 29 consent of the settlor and all beneficiaries, even if the 30 modification or termination is inconsistent with a material 31 purpose of the trust. A settlor’s power to consent to a trust’s 32 modification or termination may be exercised by an agent 33 under a power of attorney only to the extent expressly 34 authorized by the power of attorney or the terms of the trust; 35 by the settlor’s conservator with the approval of the court 36 supervising the conservator if an agent is not so authorized; 37 or by the settlor’s guardian with the approval of the court 38 supervising the guardianship if an agent is not so authorized 39 and a conservator has not been appointed.

[143] 379 1 (b) A noncharitable irrevocable trust may be terminated 2 upon consent of all beneficiaries if the court concludes that 3 continuance of the trust is not necessary to achieve any 4 material purpose of the trust. A noncharitable irrevocable 5 trust may be modified upon consent of all of the beneficiaries 6 if the court concludes that modification is not inconsistent 7 with a material purpose of the trust. 8 (c) Upon termination of a trust under subsection (a) or (b), 9 the trustee shall distribute the trust property as ordered by the 10 court. 11 (d) If not all of the beneficiaries consent to a proposed 12 modification or termination of the trust under subsection (a) 13 or (b), the modification or termination may be approved by 14 the court if the court is satisfied that: 15 (1) if all of the beneficiaries had consented, the trust 16 could have been modified or terminated under this section; 17 and 18 (2) the interests of a beneficiary who does not consent 19 will be adequately protected. 20 21 REPORTER’S COMMENT 22 This section describes the circumstances in which 23 termination or modification of a noncharitable irrevocable 24 trust may be compelled by the beneficiaries, with or without 25 the concurrence of the settlor, but with court approval. For 26 provisions governing modification or termination of trusts 27 without the need to seek beneficiary consent, see Sections 28 627412 (modification or termination due to unanticipated 29 circumstances or inability to administer trust effectively), 30 627414 (termination or modification of uneconomic 31 noncharitable trust), and 627416 (modification to achieve 32 settlor’s tax objectives). If the trust is revocable by the 33 settlor, the method of revocation specified in Section 627602 34 applies. South Carolina Trust Code Section 627411(a) adds 35 the phrase “with court approval” to the first sentence of the 36 Uniform Trust Code version and the phrase “modification or” 37 to the second sentence of the UTC version. The SCTC omits 38 UTC subsection 411(c), which provided that a spendthrift 39 provision would not be presumed to constitute a material

[143] 380 1 purpose of the trust. SCTC Section 627411(c) substitutes the 2 phrase “as ordered by the court” to the UTC version of 3 subsection (d) for the phrase “as agreed by the beneficiaries.” 4 Subsection (a) provides the requirements for termination or 5 modification by the beneficiaries with the concurrence of the 6 settlor. Subsection (b) provides the requirements for 7 termination or modification by unanimous consent of the 8 beneficiaries without the concurrence of the settlor. The 9 rules on trust modification and termination in subsections (a) 10 (b) carries forward the Claflin rule, first stated in the famous 11 case of Claflin v. Claflin, 20 N.E. 454 (Mass. 1889). 12 Subsection (c) directs how the trust property is to be 13 distributed following a termination under either subsection 14 (a) or (b). Subsection (d) creates a procedure for judicial 15 approval of a proposed termination or modification when the 16 consent of less than all of the beneficiaries is available. 17 Under this section, a trust may be modified or terminated 18 over a trustee’s objection. However, pursuant to Section 19 627410, the trustee has standing to object to a proposed 20 termination or modification. 21 The settlor’s right to join the beneficiaries in terminating or 22 modifying a trust under this section does not rise to the level 23 of a taxable power. See Treas. Reg. Section 20.20381(a)(2). 24 No gift tax consequences result from a termination as long as 25 the beneficiaries agree to distribute the trust property in 26 accordance with the value of their proportionate interests. 27 The provisions of Part 3 on representation, virtual 28 representation and the appointment and approval of 29 representatives appointed by the court apply to the 30 determination of whether all beneficiaries have signified 31 consent under this section. The authority to consent on 32 behalf of another person, however, does not include authority 33 to consent over the other person’s objection. See Section 34 627301(c). Regarding the persons who may consent on 35 behalf of a beneficiary, see Sections 627302 through 627305. 36 A consent given by a representative is invalid to the extent 37 there is a conflict of interest between the representative and 38 the person represented. If virtual or other form of 39 representation is unavailable, Section 627305 of the Code

[143] 381 1 permits the court to appoint a representative who may give 2 the necessary consent to the proposed modification or 3 termination on behalf of the minor, incapacitated, unborn, or 4 unascertained beneficiary. The ability to use virtual and 5 other forms of representation to consent on a beneficiary’s 6 behalf to a trust termination or modification has not 7 traditionally been part of the law, although there are some 8 notable exceptions. Compare Restatement (Second) Section 9 337(1) (1959) (beneficiary must not be under incapacity), 10 with Hatch v. Riggs National Bank, 361 F.2d 559 (D.C. Cir. 11 1966) (guardian ad litem authorized to consent on 12 beneficiary’s behalf). 13 Subsection (a) also addresses the authority of an agent, 14 conservator, or guardian to act on a settlor’s behalf. 15 Consistent with Section 627602 on revocation or 16 modification of a revocable trust, the section assumes that a 17 settlor, in granting an agent general authority, did not intend 18 for the agent to have authority to consent to the termination 19 or modification of a trust, authority that could be exercised to 20 radically alter the settlor’s estate plan. In order for an agent 21 to validly consent to a termination or modification of the 22 settlor’s revocable trust, such authority must be expressly 23 conveyed either in the power or in the terms of the trust. 24 Subsection (a), however, does not impose restrictions on 25 consent by a conservator or guardian, other than prohibiting 26 such action if the settlor is represented by an agent. The 27 section instead leaves the issue of a conservator’s or 28 guardian’s authority to local law. Many conservatorship 29 statutes recognize that termination or modification of the 30 settlor’s trust is a sufficiently important transaction that a 31 conservator should first obtain the approval of the court 32 supervising the conservatorship. See, e.g., Unif Probate 33 Code Section 5411(a)(4). Because the SCTC uses the term 34 “conservator” to refer to the person appointed by the court to 35 manage an individual’s property (see Section 627103(4)), a 36 guardian may act on behalf of a settlor under this section 37 only if a conservator has not been appointed. 38 Subsection (a) is similar to Restatement (Third) of Trusts 39 Section 65(2) (Tentative Draft No. 3, approved 2001), and

[143] 382 1 Restatement (Second) of Trusts Section 338(2) (1959), both 2 of which permit termination upon joint action of the settlor 3 and beneficiaries. Unlike termination by the beneficiaries 4 alone under subsection (b), termination with the concurrence 5 of the settlor does not require a finding that the trust no 6 longer serves a material purpose. No finding of failure of 7 material purpose is required because all parties with a 8 possible interest in the trust’s continuation, both the settlor 9 and beneficiaries, agree there is no further need for the trust. 10 Restatement Third goes further than subsection (b) of this 11 section and Restatement Second, however, in also allowing 12 the beneficiaries to compel termination of a trust that still 13 serves a material purpose if the reasons for termination 14 outweigh the continuing material purpose. 15 Subsection (b), similar to Restatement Third but not 16 Restatement Second, allows modification by beneficiary 17 action. The beneficiaries may modify any term of the trust if 18 the modification is not inconsistent with a material purpose 19 of the trust. Restatement Third, though, goes further than 20 this Code in also allowing the beneficiaries to use trust 21 modification as a basis for removing the trustee if removal 22 would not be inconsistent with a material purpose of the 23 trust. Under the Code, however, Section 627706 is the 24 exclusive provision on removal of trustees. Section 25 627706(b)(4) recognizes that a request for removal upon 26 unanimous agreement of the qualified beneficiaries is a factor 27 for the court to consider, but before removing the trustee the 28 court must also find that such action best serves the interests 29 of all the beneficiaries, that removal is not inconsistent with a 30 material purpose of the trust, and that a suitable cotrustee or 31 successor trustee is available. Compare Section 627706(b) 32 (4), with Restatement (Third) Section 65 cmt. f (Tentative 33 Draft No. 3, approved 2001). 34 The requirement that the trust no longer serve a material 35 purpose before it can be terminated by the beneficiaries does 36 not mean that the trust has no remaining function. In order to 37 be material, the purpose remaining to be performed must be 38 of some significance:

[143] 383 1 Material purposes are not readily to be inferred. A finding of 2 such a purpose generally requires some showing of a 3 particular concern or objective on the part of the settlor, such 4 as concern with regard to the beneficiary’s management 5 skills, judgment, or level of maturity. Thus, a court may look 6 for some circumstantial or other evidence indicating that the 7 trust arrangement represented to the settlor more than a 8 method of allocating the benefits of property among multiple 9 beneficiaries, or a means of offering to the beneficiaries (but 10 not imposing on them) a particular advantage. Sometimes, of 11 course, the very nature or design of a trust suggests its 12 protective nature or some other material purpose. 13 Restatement (Third) of Trusts Section 65 cmt. d (Tentative 14 Draft No. 3, approved 2001). 15 Subsection (c) recognizes that, once termination has been 16 approved, how the trust property is to be distributed is solely 17 for the court to decide. 18 No similar statutory provisions existed under prior South 19 Carolina law. 20 Under South Carolina case law, a court has the power to 21 alter or modify an irrevocable trust to effectuate the intent of 22 the settler, but it is the duty of the courts to preserve, not 23 destroy, trusts. See Chiles v. Chiles, 270 S.C. 379, 242 24 S.E.2d 426 (S.C. 1978). When a settler sought modification 25 of an irrevocable trust without the consent of the 26 beneficiaries, the court would modify the trust to effectuate 27 the settlor’s intent only when some exigency or emergency 28 made the modification indispensable to the preservation of 29 the trust. See Chiles. 30 Under existing South Carolina case law, a spendthrift trust 31 cannot be terminated by agreement of all beneficiaries when 32 the purpose of the trust is to provide an income stream for 33 life or until the trust fund was exhausted, since to do so 34 would defeat a material purpose of the trust. See Germann v. 35 New York Life Insurance Co, 286 S.C. 34 , 331 S.E.2d 36 385(S.C..App. 1985). 37 38 Section 627412. (a) The court may modify the 39 administrative or dispositive terms of a trust or terminate the

[143] 384 1 trust if, because of circumstances not anticipated by the 2 settlor, modification or termination will further the purposes 3 of the trust. To the extent practicable, the modification must 4 be made in accordance with the settlor’s probable intention. 5 (b) The court may modify the administrative terms of a 6 trust if continuation of the trust on its existing terms would 7 be impracticable or wasteful or impair the trust’s 8 administration. 9 (c) Upon termination of a trust under this section, the 10 trustee shall distribute the trust property as ordered by the 11 court. 12 13 REPORTER’SCOMMENT 14 This section broadens the court’s ability to apply equitable 15 deviation to terminate or modify a trust. South Carolina 16 Trust Code Section 627412(a) conceptually broadens the 17 traditional authority of the court to modify trust provisions 18 because of unanticipated circumstances, especially with 19 respect to dispositive provisions. Subsection (a) is similar to 20 Restatement (Third) of Trusts Section 66(1) (Tentative Draft 21 No. 3, approved 2001), except that this section, unlike the 22 Restatement, does not impose a duty on the trustee to petition 23 the court if the trustee is aware of circumstances justifying 24 judicial modification. The purpose of the “equitable 25 deviation” authorized by subsection (a) is not to disregard the 26 settlor’s intent but to modify inopportune provisions to 27 effectuate better the settlor’s broader purposes. Among other 28 things, equitable deviation may be used to modify 29 administrative or dispositive terms due to the failure to 30 anticipate economic change or the incapacity of a 31 beneficiary. For numerous illustrations, see Restatement 32 (Third) of Trusts Section 66 cmt. b (Tentative Draft No. 3, 33 approved 2001). While it is necessary that there be 34 circumstances not anticipated by the settlor before the court 35 may grant relief under subsection (a), the circumstances may 36 have been in existence when the trust was created. This 37 section thus complements Section 627415, which allows for 38 reformation of a trust based on mistake of fact or law at the 39 creation of the trust.

[143] 385 1 Subsection (b) broadens the court’s ability to modify the 2 administrative terms of a trust. The standard under 3 subsection (b) is similar to the standard for applying 4 equitable deviation to a charitable trust. See Section 5 627413(a). Just as a charitable trust may be modified if its 6 particular charitable purpose becomes impracticable or 7 wasteful, so can the administrative terms of any trust, 8 charitable or noncharitable. Subsections (a) and (b) are not 9 mutually exclusive. Many situations justifying modification 10 of administrative terms under subsection (a) will also justify 11 modification under subsection (b). Subsection (b) is also an 12 application of the requirement in Section 627404 that a trust 13 and its terms must be for the benefit of its beneficiaries. See 14 also Restatement (Third) of Trusts Section 27(2) & cmt. b 15 (Tentative Draft No. 2, approved 1999). Although the settlor 16 is granted considerable latitude in defining the purposes of 17 the trust, the principle that a trust have a purpose which is for 18 the benefit of its beneficiaries precludes unreasonable 19 restrictions on the use of trust property. An owner’s freedom 20 to be capricious about the use of the owner’s own property 21 ends when the property is impressed with a trust for the 22 benefit of others. See Restatement (Second) of Trusts 23 Section 124 cmt. g (1959). Thus, attempts to impose 24 unreasonable restrictions on the use of trust property will fail. 25 See Restatement (Third) of Trusts Section 27 Reporter’s 26 Notes to cmt. b (Tentative Draft No. 2, approved 1999). 27 Subsection (b), unlike subsection (a), does not have a direct 28 precedent in the common law, but various states have 29 adopted such a measure by statute. See, e.g., Mo. Rev. Stat. 30 Section 456.590.1. 31 Modification under this section, because it does not require 32 beneficiary action, is not precluded by a spendthrift 33 provision. 34 South Carolina Trust Code Section 627412(c) modifies the 35 uniform version to provide that, upon termination, trust 36 property is to be distributed as ordered by the court. 37

[143] 386 1 Section 627413. (a) Except as otherwise provided in 2 Subsection (b), if a particular charitable purpose becomes 3 unlawful, impracticable, impossible to achieve, or wasteful: 4 (1) the trust does not fail, in whole or in part; 5 (2) the trust property does not revert to the settlor or the 6 settlor’s successors in interest; and 7 (3) the court may deviate from the terms of the trust to 8 modify or terminate the trust by directing that the trust 9 property be applied or distributed, in whole or in part, in a 10 manner consistent with the settlor’s charitable intent. 11 (b) A provision in the terms of a charitable trust that 12 would result in distribution of the trust property to a 13 noncharitable beneficiary prevails over the power of the court 14 under subsection (a) to modify or terminate the trust only if, 15 when the provision takes effect: 16 (1) the trust property is to revert to the settlor and the 17 settlor is still living; or 18 (2) fewer than the number of years allowed under the 19 South Carolina Uniform Statutory Rule Against Perpetuities, 20 (S.C. Code Section 27610 et seq.) any rule against 21 perpetuities applicable under South Carolina law, have 22 elapsed since the date of the trust’s creation. 23 24 REPORTER’S COMMENT 25 This section clarifies and codifies in part existing South 26 Carolina law that recognizes “equitable deviation,” which is 27 the power of a court in certain situations to change the 28 provisions of a charitable trust. 29 South Carolina has long recognized the doctrine of 30 equitable deviation, which permits a court of equity to 31 deviate from the strict terms of a trust when changed 32 conditions render the accomplishment of the charitable 33 purpose impossible or impracticable. Subsection (a) codifies 34 the court’s inherent authority to apply equitable deviation. 35 The power may be applied to modify an administrative or 36 dispositive term. The court may order the trust terminated 37 and distributed to other charitable entities. 38 When the Section 627413 was enacted, the words “cy 39 pres” in the Uniform Trust Code version were deleted and

[143] 387 1 replaced with language referring to equitable deviation 2 because South Carolina courts have refused to recognize the 3 doctrine of cy pres. See e.g.. Mars v. Gilbert, 93 S.C. 455, 77 4 S.E. 131 (S.C. 1913) (expressly rejecting the doctrine of 5 equitable cy pres. but making clear that literal compliance 6 with the terms of a will is not always required when the 7 conditions have changed). See also All Saints Parish, 8 Waccamaw, a South Carolina nonprofit corporation, a/k/a 9 The Episcopal Church of All Saints and a/k/a The Vestry and 10 Church Wardens of the Episcopal Church of All Saints 11 Parish, 358 S.C. 209, 595 S.E. 2d 253 (Ct. App 2004), rev’d 12 on other grounds, 385 S. C. 428, 685 S.E. 2d 163 (2009). 13 Although Section 627413 changes the references from cy 14 pres in the UTC version to equitable deviation terminology, 15 Section 627413 is otherwise taken verbatim from the UTC 16 (except for a slight modification in the manner of referring to 17 the rule against perpetuities). Consequently, the substantive 18 provisions of UTC section 413 are exactly the same as those 19 in Section 627413. 20 21 Section 627414. (a) After notice to the qualified 22 beneficiaries, and without court approval, the trustee of a 23 trust consisting of trust property having a total value less than 24 one hundred thousand dollars may terminate the trust if the 25 trustee concludes that the value of the trust property is 26 insufficient to justify the cost of administration. 27 (b) The court may modify or terminate a trust or remove 28 the trustee and appoint a different trustee if it determines that 29 the value of the trust property is insufficient to justify the 30 cost of administration. 31 (c) Upon termination of a trust under this section, the 32 trustee shall distribute the trust property as ordered by the 33 court or, if the court does not specify the manner of 34 distribution, or if no court approval is required, in a manner 35 consistent with the purposes of the trust. 36 (d) This section does not apply to an easement for 37 conservation or preservation. 38 39 REPORTER’S COMMENT

[143] 388 1 Subsection (a) assumes that a trust with a value of $100,000 2 or less is sufficiently likely to be inefficient to administer that 3 a trustee should be able to terminate it without the expense of 4 a judicial termination proceeding. Also, in subsection (c) a 5 phrase added to the uniform version clarifies that the court 6 may specify how the trust assets should be distributed e.g., 7 in cases when the court is involved in a termination under 8 subsection (b). 9 Because subsection (a) is a default rule, a settlor is free to 10 set a higher or lower figure or to specify different procedures 11 or to prohibit termination without a court order. See Section 12 627105. 13 Subsection (b) allows the court to modify or terminate a 14 trust if the costs of administration would otherwise be 15 excessive in relation to the size of the trust. The court may 16 terminate a trust under this section even if the settlor has 17 forbidden it. See Section 627105(b)(4). Judicial termination 18 under this subsection may be used whether or not the trust is 19 larger or smaller than $100,000. 20 When considering whether to terminate a trust under either 21 subsection (a) or (b), the trustee or court should consider the 22 purposes of the trust. Termination under this Section is not 23 always wise. Even if administrative costs may seem 24 excessive in relation to the size of the trust, protection of the 25 assets from beneficiary mismanagement may indicate that the 26 trust be continued. The court may be able to reduce the costs 27 of administering the trust by appointing a new trustee. 28 Upon termination of a trust under this section, subsection 29 (c) requires that the trust property be distributed in a manner 30 consistent with the purposes of the trust. In addition to 31 outright distribution to the beneficiaries, Section 627816(21) 32 authorizes payment to be made by a variety of alternate 33 payees. Distribution under this section will typically be 34 made to the qualified beneficiaries in proportion to the 35 actuarial value of their interests. 36 If the trustee or cotrustee is a beneficiary and would 37 receive part or all of the trust assets upon termination of a 38 trust under subsection (a), then the trustee’s power to

[143] 389 1 terminate is subject to the limitations in SCTC Section 2 627814. 3 Even though not accompanied by the usual trappings of a 4 trust, the creation and transfer of an easement for 5 conservation or preservation will frequently create a 6 charitable trust. The organization to whom the easement was 7 conveyed will be deemed to be acting as trustee of what will 8 ostensibly appear to be a contractual or property 9 arrangement. Because of the fiduciary obligation imposed, 10 the termination or substantial modification of the easement 11 by the “trustee” could constitute a breach of trust. The 12 drafters of the Uniform Trust Code concluded that easements 13 for conservation or preservation are sufficiently different 14 from the typical cash and securities found in small trusts that 15 they should be excluded from this section, and subsection (d) 16 so provides. Most creators of such easements, it was 17 surmised, would prefer that the easement be continued 18 unchanged even if the easement, and hence the trust, has a 19 relatively low market value. For the law of conservation 20 easements, see Restatement (Third) of Property: Servitudes 21 Section 1.6 (2000). 22 While this Section is not directed principally at honorary 23 trusts, it may be so applied. See Sections 627408 and 24 627409. 25 Because termination of a trust under this Section is 26 initiated by the trustee or ordered by the court, termination is 27 not precluded by a spendthrift provision. 28 Subsection (a) had no counterpart in prior South Carolina 29 law, though a trust document might contain similar 30 provisions. 31 32 Section 627415. The court may reform the terms of a 33 trust, even if unambiguous, to conform the terms to the 34 settlor’s intention if it is proved by clear and convincing 35 evidence that both the settlor’s intent what the settlor’s 36 intention was and that the terms of the trust were affected by 37 a mistake of fact or law, whether in expression or 38 inducement. 39

[143] 390 1 REPORTER’S COMMENT 2 There was no comparable South Carolina statutory provision 3 authorizing a court to reform an unambiguous trust to 4 conform to the settlor’s intent. 5 South Carolina Trust Code Section 627415 would permit 6 the introduction of parol evidence to show the settlor’s intent 7 and the existence of a mistake of fact or law, provided that 8 the evidence is clear and convincing to protect against the 9 possibility of unreliable or fraudulent evidence. This section 10 permits consideration of evidence relevant to the settlor’s 11 intention even when contradicted by the plain meaning of the 12 words in the instrument. 13 This section applies whether the mistake is one of 14 expression or one of inducement. A mistake of expression 15 occurs when the terms of the trust misstate the settlor’s 16 intention, fail to include a term that was intended to be 17 included, or include a term that was not intended to be 18 excluded. A mistake in the inducement occurs when the 19 terms of the trust accurately reflect what the settlor intended 20 to be included or excluded but this intention was based on a 21 mistake of fact or law. See Restatement (Third) of Property: 22 Donative Transfers Section 12.1 cmt. i (Tentative Draft No. 23 1, approved 1995). Mistakes of expression are frequently 24 caused by scriveners’ errors while mistakes of inducement 25 often trace to errors of the settlor. 26 Reformation is different from resolving an ambiguity. 27 Resolving an ambiguity involves the interpretation of 28 language already in the instrument. Reformation, on the 29 other hand, may involve the addition of language not 30 originally in the instrument, or the deletion of language 31 originally included by mistake, if necessary to conform the 32 instrument to the settlor’s intent. Because reformation may 33 involve the addition of language to the instrument, or the 34 deletion of language that may appear clear on its face, 35 reliance on extrinsic evidence is essential. To guard against 36 the possibility of unreliable or contrived evidence in such 37 circumstance, the higher standard of clear and convincing 38 proof is required. See Restatement (Third) of Property:

[143] 391 1 Donative Transfers Section 12.1 cmt. e (Tentative Draft No. 2 1, approved 1995). 3 In determining the settlor’s original intent, the court may 4 consider evidence relevant to the settlor’s intention even 5 though it contradicts an apparent plain meaning of the text. 6 The objective of the plain meaning rule, to protect against 7 fraudulent testimony, is satisfied by the requirement of clear 8 and convincing proof. See Restatement (Third) of Property: 9 Donative Transfers Section 12.1 cmt. d and Reporter’s Notes 10 (Tentative Draft No. 1, approved 1995). See also John H. 11 Langbein & Lawrence W. Waggoner, Reformation of Wills 12 on the Ground of Mistake: Change of Direction in American 13 Law?, 130 U. Pa. L. Rev. 521 (1982). 14 For further discussion of the rule of this section and its 15 application to illustrative cases, see Restatement (Third) of 16 Property: Donative Transfers Section 12.1 cmts. and 17 Reporter’s Notes (Tentative Draft No. 1, approved 1995). 18 The 2013 amendment better conforms the language of this 19 section to the language of the Restatement (Third) of 20 Property provision on which this section is based. 21 22 Section 627416. To achieve the settlor’s tax objectives, 23 the court may modify the terms of a trust in a manner that is 24 not contrary to the settlor’s probable intention. The court 25 may provide that the modification has retroactive effect. 26 27 REPORTER’S COMMENT 28 This section is copied from Restatement (Third) of Property: 29 Donative Transfers Section 12.2 (Tentative Draft No. 1, 30 approved 1995). “Modification” under this section is to be 31 distinguished from the “reformation” authorized by Section 32 627415. Reformation under Section 627415 is available 33 when the terms of a trust fail to reflect the donor’s original, 34 particularized intention. The mistaken terms are then 35 reformed to conform to this specific intent. The modification 36 authorized here allows the terms of the trust to be changed to 37 meet the settlor’s taxsaving objective as long as the resulting 38 terms, particularly the dispositive provisions, are not 39 inconsistent with the settlor’s probable intent. The

[143] 392 1 modification allowed by this subsection is similar in concept 2 to the equitable deviation doctrine for charitable trusts (see 3 Section 627413), and the deviation doctrine for unanticipated 4 circumstances (see Section 627412). 5 There was no South Carolina statutory provision that 6 correlates with this Section. Former Section 627211 of the 7 South Carolina Probate Code provided for division or 8 consolidation of trusts, provided that the consolidation or 9 division was not inconsistent with the intent of the trustor, 10 the action would facilitate trust administration, and the action 11 would be in the best interests of all beneficiaries and not 12 materially impair their interests. See South Carolina Trust 13 Code Section 627417. 14 Whether a modification made by the court under this 15 section will be recognized under federal tax law is a matter of 16 federal law. Absent specific statutory or regulatory authority, 17 binding recognition is normally given only to modifications 18 made prior to the taxing event, for example, the death of the 19 testator or settlor in the case of the federal estate tax. See 20 Rev. Rul. 73142, 19731 C.B. 405. Among the specific 21 modifications possibly authorized by the Internal Revenue 22 Code or Service include the revision of splitinterest trusts to 23 qualify for the charitable deduction, modification of a trust 24 for a noncitizen spouse to become eligible as a qualified 25 domestic trust, and the splitting of a trust to utilize better the 26 exemption from generationskipping tax. 27 For further discussion of the rule of this section and the 28 relevant case law, see Restatement (Third) of Property: 29 Donative Transfers Section 12.2 cmts. and Reporter’s Notes 30 (Tentative Draft No. 1, approved 1995). 31 South Carolina case law indicates that the courts will not 32 allow a beneficiary’s interest to be negated if the beneficiary 33 objects, regardless of the tax benefit desired. See Chiles v. 34 Chiles, 270 S.C. 379, 242 S.E.2d 426 (S.C. 1978) (the 35 Supreme Court reversed, with respect to the one appellant 36 only, the lower court’s extinguishment of certain 37 noncharitable beneficiaries’ interests to vest a charitable 38 contribution deduction for federal estate tax purposes). 39

[143] 393 1 Section 627417. After notice to the qualified 2 beneficiaries, a trustee may combine two or more trusts into a 3 single trust or divide a trust into two or more separate trusts, 4 if the result does not impair rights of any beneficiary or 5 adversely affect achievement of the purposes of the trust. 6 7 REPORTER’S COMMENT 8 This section expands former South Carolina Probate Code 9 Section 627211, which allowed the division or consolidation 10 of trusts only with court approval when such action was not 11 authorized by the trust instrument and is subject to contrary 12 provision in the terms of the trust. Many trust instruments 13 and standardized estate planning forms include 14 comprehensive provisions governing combination and 15 division of trusts. Except for the requirement that the 16 qualified beneficiaries receive advance notice of a proposed 17 combination or division, this section is similar to 18 Restatement (Third) of Trusts Section 68 (Tentative Draft 19 No. 3, approved 2001). 20 This section allows a trustee to combine two or more trusts 21 even though their terms are not identical. Typically the trusts 22 to be combined will have been created by different members 23 of the same family and will vary on only insignificant details, 24 such as the presence of different perpetuities savings periods. 25 The more the dispositive provisions of the trusts to be 26 combined differ from each other the more likely it is that a 27 combination would impair some beneficiary’s interest, hence 28 the less likely that the combination can be approved. 29 Combining trusts may prompt more efficient trust 30 administration and is sometimes an alternative to terminating 31 an uneconomic trust as authorized by Section 627414. 32 Administrative economies promoted by combining trusts 33 include a potential reduction in trustees’ fees, particularly if 34 the trustee charges a minimum fee per trust, the ability to file 35 one trust income tax return instead of multiple returns, and 36 the ability to invest a larger pool of capital more effectively. 37 Particularly if the terms of the trust are identical, available 38 administrative economies may suggest that the trustee has a

[143] 394 1 responsibility to pursue a combination. See Section 627805 2 (duty to incur only reasonable costs). 3 Division of trusts is often beneficial and, in certain 4 circumstances, almost routine. Division of trusts is frequently 5 undertaken due to a desire to obtain maximum advantage of 6 exemptions available under the federal generationskipping 7 tax. While the terms of the trusts which result from such a 8 division are identical, the division will permit differing 9 investment objectives to be pursued and allow for 10 discretionary distributions to be made from one trust and not 11 the other. Given the substantial tax benefits often involved, a 12 failure by the trustee to pursue a division might in certain 13 cases be a breach of fiduciary duty. The opposite could also 14 be true if the division is undertaken to increase fees or to fit 15 within the small trust termination provision. See Section 16 627414. 17 This section authorizes a trustee to divide a trust even if the 18 trusts that result are dissimilar. Conflicts among 19 beneficiaries, including differing investment objectives, often 20 invite such a division, although as in the case with a proposed 21 combination of trusts, the more the terms of the divided trusts 22 diverge from the original plan, the less likely it is that the 23 settlor’s purposes would be achieved and that the division 24 could be approved. 25 This section does not require that a combination or division 26 be approved either by the court or by the beneficiaries. 27 Prudence may dictate, however, that court approval under 28 Section 627410 be sought and beneficiary consent obtained 29 whenever the terms of the trusts to be combined or the trusts 30 that will result from a division differ substantially one from 31 the other. For the provisions relating to beneficiary consent, 32 or ratification of a transaction, or release of trustee from 33 liability, see Section 6271009. 34 While the consent of the beneficiaries is not necessary 35 before a trustee may combine or divide trusts under this 36 section, advance notice to the qualified beneficiaries of the 37 proposed combination or division is required. This is 38 consistent with Section 627813, which requires that the 39 trustee keep the qualified beneficiaries reasonably informed

[143] 395 1 of trust administration, including the giving of advance 2 notice to the qualified beneficiaries of several specified 3 actions that may have a major impact on their interests. 4 Numerous States have enacted statutes authorizing division 5 of trusts, either by trustee action or upon court order. For a 6 list of these statutes, see Restatement (Third) Property: 7 Donative Transfers Section 12.2 Statutory Note (Tentative 8 Draft No. 1, approved 1995). Combination or division has 9 also been authorized by the courts in the absence of 10 authorizing statute. See, e.g., In re Will of Marcus, 552 11 N.Y.S. 2d 546 (Surr. Ct. 1990) (combination); In re Heller 12 Inter Vivos Trust, 613 N.Y.S. 2d 809 (Surr. Ct. 1994) 13 (division); and BankBoston v. Marlow, 701 N.E. 2d 304 14 (Mass. 1998) (division). 15 For a provision authorizing a trustee, in distributing the 16 assets of the divided trust, to make nonprorata distributions, 17 see Section 627816(22). 18 19 Section 627418. (a) When any person shall be seized of 20 any lands, tenements, rents, reversions, remainders, or other 21 hereditaments to the use, confidence, or trust of any other 22 person or of any body politic by reason of any bargain, sale, 23 feoffment, covenant, contract, agreement, will, or otherwise, 24 the person or body politic that shall have such use, 25 confidence, or trust, in fee simple, fee tail, for term of life or 26 for years or otherwise or any use, confidence, or trust in 27 remainder or reversion, shall be deemed and adjudged in 28 lawful seizing, estate and possession of and in such lands, 29 tenements, rents, reversions, remainders, and hereditaments, 30 with their appurtenances, to all intents, constructions, and 31 purposes in law of and in such like estates as they shall have 32 in use, trust, or confidence of or in them. 33 (b) When several persons shall be jointly seized of any 34 lands, tenements, rents, reversions, remainders, or other 35 hereditaments to the use, confidence, or trust of any of them 36 that be so jointly seized, such person or persons who shall 37 have any such use, confidence, or trust in any such lands, 38 tenements, rents, reversions, remainders, or hereditaments 39 shall have such estate, possession, and seizing of and in such

[143] 396 1 lands, tenements, rents, reversions, remainders, and other 2 hereditaments only to him or them that shall have any such 3 use, confidence, or trust, in like nature, manner, form, 4 condition, and course as he or they had before in the use, 5 confidence, or trust of such lands, tenements, or 6 hereditaments, saving and reserving to all and singular 7 persons and bodies politic, their heirs and successors, other 8 than such person or persons who are seized of such lands, 9 tenements, or hereditaments to any use, confidence, or trust, 10 all such right, title, entry, interest, possession, rents, and 11 action as they or any of them had or might have had without 12 this section and also saving to all and singular those persons 13 and their heirs who are seized to any use all such former 14 right, title, entry, interest, possession, rents, customs, 15 services, and action as they or any of them might have had to 16 his or their own proper use in or to any lands, tenements, 17 rents, or hereditaments whereof they are seized to any other 18 use, anything contained in this chapter to the contrary 19 notwithstanding. 20 21 REPORTER’S COMMENT 22 There is no counterpart to this section in the Uniform Trust 23 Code. 24 South Carolina Trust Code Subsections 627418(a) and (b) 25 retain and incorporate former South Carolina Probate Code 26 Sections 627107 and 627108. 27 28 Part 5 29 30 Creditors’ Claims; Spendthrift and Discretionary Trusts 31 General Comment 32 This article addresses the validity of a spendthrift provision 33 and the rights of creditors, both of the settlor and 34 beneficiaries, to reach a trust to collect a debt. Sections 35 627501 and 627502 state the general rules. To the extent that 36 a trust is protected by a spendthrift provision, a beneficiary’s 37 creditor may not reach the beneficiary’s interest until 38 distribution is made by the trustee. To the extent not 39 protected by a spendthrift provision, however, the creditor

[143] 397 1 can reach the beneficiary’s interest subject to the court’s 2 power to limit the relief. Section 627503 lists the categories 3 of creditors whose claims are not subject to a spendthrift 4 restriction. Sections 627504 through 627507 address special 5 categories in which the rights of a beneficiary’s creditors are 6 the same whether or not the trust contains a spendthrift 7 provision. Section 627504 deals with discretionary trusts and 8 trusts for which distributions are subject to a standard. 9 Section 627505 covers creditor claims against a settlor, 10 whether the trust is revocable or irrevocable, and if 11 revocable, whether the claim is made during the settlor’s 12 lifetime or incident to the settlor’s death. Section 627506 13 provides a creditor with a remedy if a trustee fails to make a 14 mandated distribution within a reasonable time. Section 15 627507 clarifies that although the trustee holds legal title to 16 trust property, that property is not subject to the trustee’s 17 personal debts. 18 The provisions of this article relating to the validity and 19 effect of a spendthrift provision and the rights of certain 20 creditors and assignees to reach the trust may not be modified 21 by the terms of the trust. See Section 627105(b)(5). 22 This article does not supersede state exemption statutes nor 23 any fraudulent transfer statutes, which, when applicable, 24 invalidates any type of gratuitous transfer, including transfers 25 into trust. 26 27 Section 627501. (a) Except as provided in subsection 28 (b), the court may authorize a creditor or assignee of the 29 beneficiary to reach the beneficiary’s interest by attachment 30 of present or future distributions to or for the benefit of the 31 beneficiary or other means. The court may limit the award to 32 such relief as is appropriate under the circumstances. 33 (b) This section shall not apply and a trustee shall have no 34 liability to any creditor of a beneficiary for any distributions 35 made to or for the benefit of the beneficiary to the extent a 36 beneficiary’s interest: 37 (1) is protected by a spendthrift provision, or 38 (2) is a discretionary trust interest as referred to in S.C. 39 Code Section 627504.

[143] 398 1 2 REPORTER’S COMMENT 3 Absent a valid spendthrift provision, a creditor may reach the 4 interest of a beneficiary the same as any other of the 5 beneficiary’s assets. This does not necessarily mean that the 6 creditor can collect all distributions made to the beneficiary. 7 Other creditor law of the State may limit the creditor to a 8 specified percentage of a distribution. This section does not 9 prescribe the procedures for reaching a beneficiary’s interest 10 or of priority among claimants, leaving those issues to the 11 State’s law on creditor rights. The section does clarify, 12 however, that an order obtained against the trustee, whatever 13 state procedure may have been used, may extend to future 14 distributions whether made directly to the beneficiary or to 15 others for the beneficiary’s benefit. By allowing an order to 16 extend to future payments, the need for the creditor 17 periodically to return to court will be reduced. 18 A creditor typically will pursue a claim by serving an order 19 on the trustee attaching the beneficiary’s interest. Assuming 20 that the validity of the order cannot be contested, the trustee 21 will then pay to the creditor instead of to the beneficiary any 22 payments the trustee would otherwise be required to make to 23 the beneficiary, as well as discretionary distributions the 24 trustee decides to make. The creditor may also, in theory, 25 force a judicial sale of a beneficiary’s interest. 26 Because proceedings to satisfy a claim are equitable in 27 nature, the second sentence of this section ratifies the court’s 28 discretion to limit the award as appropriate under the 29 circumstances. In exercising its discretion to limit relief, the 30 court may appropriately consider the support needs of a 31 beneficiary and the beneficiary’s family. See Restatement 32 (Third) of Trusts Section 56 cmt. e (Tentative Draft No. 2, 33 approved 1999). 34 The case law in South Carolina was uncertain as to the 35 effectiveness and application of the spendthrift provision but 36 appears to indicate that a spendthrift provision operated 37 against only income interests but not principal interests. See 38 S. Alan Medlin, The Law of Wills and Trusts, Vol. I. Estate 39 Planning in South Carolina, Section 508.2(a), p. 519 (2002).

[143] 399 1 Older cases seem to allow a cessor clause to prevent the 2 voluntary or involuntary alienation of the beneficiary’s 3 interest. See S. Alan Medlin, supra. This Section avoids the 4 confusion regarding the effectiveness and application of the 5 spendthrift provision and also clarifies and broadens the laws 6 in South Carolina so that a spendthrift provision operates as a 7 restraint against both income and principal interests, except 8 as otherwise provided in the following sections of the SCTC. 9 Section 627501 provides additional protection not only for 10 spendthrift interests, but also for interests in discretionary 11 trusts as referred to in S. C. Code Section 627504. 12 Discretionary trusts do not have to rely on spendthrift 13 language for a beneficiary’s present or future interest in the 14 trust to be exempt from creditor attachment. 15 For a definition of discretionary trust, resort should be 16 made to the South Carolina common law. See generally 17 Heath v. Bishop, 25 S. C. Eq. (4 Rich. Eq.) 446 (S.C. 1851); 18 Collins v. Collins, 219 S.C. 1. 63 S.E. 2d 811 (S.C.1951); see 19 also Sarlin v. Sarlin, 312 S. C. 27, 430 S. E. 2d 530 (S.C. 20 App. 1993); Page v. Page, 243 S. C. 312, 133 S. E. 2d 829 21 (S.C. 1963). 22 23 Section 627502. (a) A spendthrift provision is valid only 24 if it restrains both voluntary and involuntary transfer of a 25 beneficiary’s interest. 26 (b) A term of a trust providing that the interest of a 27 beneficiary is held subject to a ‘spendthrift trust’, or words of 28 similar import, is sufficient to restrain both voluntary and 29 involuntary transfer of the beneficiary’s interest. 30 (c) A beneficiary may not transfer an interest in a trust in 31 violation of a valid spendthrift provision and, except as 32 otherwise provided in this article, a creditor or assignee of 33 the beneficiary may not reach the interest or a distribution by 34 the trustee before its receipt by the beneficiary. 35 36 REPORTER’S COMMENT 37 Under this section, a settlor has the power to restrain the 38 transfer of a beneficiary’s interest, regardless of whether the 39 beneficiary has an interest in income, in principal, or in both.

[143] 400 1 Unless one of the exceptions under this article applies, a 2 creditor of the beneficiary is prohibited from attaching a 3 protected interest and may only attempt to collect directly 4 from the beneficiary after payment is made. This section is 5 similar to Restatement (Third) of Trusts Section 58 6 (Tentative Draft No. 2, approved 1999), and Restatement 7 (Second) of Trusts Sections 152153 (1959). For the 8 definition of spendthrift provision, see Section 627103(15). 9 For a spendthrift provision to be effective under this Code, 10 it must prohibit both the voluntary and involuntary transfer of 11 the beneficiary’s interest, that is, a settlor may not allow a 12 beneficiary to assign while prohibiting a beneficiary’s 13 creditor from collecting, and vice versa. See Restatement 14 (Third) of Trusts Section 58 cmt. b (Tentative Draft No. 2, 15 approved 1999). See also Restatement (Second) of Trusts 16 Section 152(2) (1959). A spendthrift provision valid under 17 this Code will also be recognized as valid in a federal 18 bankruptcy proceeding. See 11 U.S.C. Section 541(c)(2). 19 Subsection (b), which is derived from Texas Property Code 20 Section 112.035(b), allows a settlor to provide maximum 21 spendthrift protection simply by stating in the instrument that 22 all interests are held subject to a “spendthrift trust” or words 23 of similar effect. 24 A disclaimer, because it is a refusal to accept ownership of 25 an interest and not a transfer of an interest already owned, is 26 not affected by the presence or absence of a spendthrift 27 provision. Most disclaimer statutes expressly provide that 28 the validity of a disclaimer is not affected by a spendthrift 29 protection. See, e.g., Unif. Probate Code Section 2801(a) 30 and SCPC Section 622801(c)(6). Releases and exercises of 31 powers of appointment are also not affected because they are 32 not transfers of property. See Restatement (Third) of Trusts 33 Section 58 cmt. c (Tentative Draft No. 2, approved 1999). 34 A spendthrift provision is ineffective against a beneficial 35 interest retained by the settlor. See Restatement (Third) of 36 Trusts Section 58(2) (Tentative Draft No. 2, approved 1999). 37 This is a necessary corollary to Section 627505(a)(2), which 38 allows a creditor or assignee of the settlor to reach the 39 maximum amount that can be distributed to or for the

[143] 401 1 settlor’s benefit. This right to reach the trust applies whether 2 or not the trust contains a spendthrift provision. 3 A valid spendthrift provision makes it impossible for a 4 beneficiary to make a legally binding transfer, but the trustee 5 may choose to honor the beneficiary’s purported assignment. 6 The trustee may recommence distributions to the beneficiary 7 at anytime. The beneficiary, not having made a binding 8 transfer, can withdraw the beneficiary’s direction but only as 9 to future payments. See Restatement (Third) of Trusts 10 Section 58 cmt. d (Tentative Draft No. 2, approved 1999); 11 Restatement (Second) of Trusts Section 152 cmt. i (1959). 12 For discussion of the treatment of spendthrift provisions in 13 South Carolina, see Comment to SCTC Section 627501. 14 15 Section 627503. (a) In this section, ‘child’ includes any 16 person for whom an order or judgment for child support has 17 been entered in this or another State. 18 (b) Even if a trust contains a spendthrift provision, a 19 beneficiary’s child who has a judgment or court order against 20 the beneficiary for support or maintenance may obtain from a 21 court an order attaching present or future distributions to or 22 for the benefit of the beneficiary. 23 (c) The exception in subsection (b) is unenforceable 24 against a special needs trust, supplemental needs trust, or 25 similar trust established for a disabled person if the 26 applicability of such a provision could invalidate such a 27 trust’s exemption from consideration as a countable resource 28 for Medicaid or Supplemental Security Income (SSI) 29 purposes or if the applicability of such a provision has the 30 effect or potential effect of rendering such disabled person 31 ineligible for any program of public benefit, including, but 32 not limited to, Medicaid and SSI. 33 34 REPORTER’S COMMENT 35 This section exempts the claims of certain categories of 36 creditors from the effects of a spendthrift restriction. 37 The exception in subsection (b) for judgments or orders to 38 support a beneficiary’s child is in accord with Restatement 39 (Third) of Trusts Section 59(a) (Tentative Draft No. 2,

[143] 402 1 approved 1999), Restatement (Second) of Trusts Section 2 157(a) (1959), and numerous state statutes. It is also 3 consistent with federal bankruptcy law, which exempts such 4 support orders from discharge. South Carolina Trust Code 5 Section 627503(b), however, eliminates the exceptions 6 contained in Uniform Trust Code Section 503 for a 7 beneficiary’s spouse or former spouse who has a judgment or 8 court order against the beneficiary for support or 9 maintenance as well as a judgment creditor who has provided 10 services for the protection of a beneficiary’s interest in a 11 spendthrift trust. The effect of this exception is to permit the 12 claimant for unpaid support to attach present or future 13 distributions that would otherwise be made to the 14 beneficiary. Distributions subject to attachment include 15 distributions required by the express terms of the trust, such 16 as mandatory payments of income, and distributions the 17 trustee has otherwise decided to make, such as through the 18 exercise of discretion. Subsection (b), unlike Section 19 627504, does not authorize the child claimant to compel a 20 distribution from the trust. Section 627504 authorizes a child 21 claimant to compel a distribution to the extent the trustee has 22 abused a discretion or failed to comply with a standard for 23 distribution. 24 Subsection (b) refers both to “support” and “maintenance” 25 in order to accommodate differences among the states in 26 terminology employed. No difference in meaning between 27 the two terms is intended. 28 The definition of “child” in subsection (a) accommodates 29 the differing approaches states take to defining the class of 30 individuals eligible for child support, including such issues as 31 whether support can be awarded to stepchildren. However 32 the state making the award chooses to define “child” will be 33 recognized under this Code, whether the order sought to be 34 enforced was entered in the same or different state. 35 South Carolina has eliminated the exceptions found in 36 UTC Section 503 (b) and (c) certain judgment creditors and 37 for a claim made by the State of South Carolina or the United 38 States to the extent a state or federal law provides for any 39 such claim. Thus, under the SCTC, the only exception to a

[143] 403 1 spendthrift trust will be for a beneficiary’s child who has a 2 judgment or court order against the beneficiary for support or 3 maintenance. South Carolina also adds a new subsection (c), 4 not found in the UTC, which makes clear that the exception 5 in subsection (b) for child support shall be unenforceable 6 against a special or supplemental needs trusts under the 7 circumstances described in subsection (c). Unlike 8 Restatement (Third) of Trusts Section 59(2) (Tentative Draft 9 No. 2, approved 1999), and Restatement (Second) of Trusts 10 Section 157(b) (1959), this Code does not create an exception 11 to the spendthrift restriction for creditors who have furnished 12 necessary services or supplies to the beneficiary. There is 13 also no exception for tort claimants. For a discussion of the 14 exception for tort claims, which has not generally been 15 recognized, see Restatement (Third) of Trusts Section 59 16 Reporter’s Notes to cmt. a (Tentative Draft No. 2, approved 17 1999). For a discussion of other exceptions to a spendthrift 18 restriction, recognized in some States, see George G. Bogert 19 & George T. Bogert, The Law of Trusts and Trustees Section 20 224 (Rev. 2d ed. 1992); and 2A Austin W. Scott & William 21 F. Fratcher, The Law of Trusts Sections 157157.5 (4th ed. 22 1987). 23 24 Section 627504. (a) In this section, ‘child’ includes any 25 person for whom an order or judgment for child support has 26 been entered in this or another state. 27 (b) Except as otherwise provided in subsection (c), a 28 creditor of a beneficiary may not compel a distribution from 29 a trust in which the beneficiary has a discretionary trust 30 interest, even if: 31 (1) the discretion is expressed in the form of a standard 32 of distribution; or 33 (2) the trustee has abused the discretion. 34 (c) To the extent a trustee has not complied with a 35 standard of distribution or has abused a discretion: 36 (1) a distribution may be ordered by the court to satisfy 37 a judgment or court order against the beneficiary for support 38 or maintenance of the beneficiary’s child; and

[143] 404 1 (2) the court shall direct the trustee to pay to the child 2 such amount as is equitable under the circumstances but not 3 more than the amount the trustee would have been required 4 to distribute to or for the benefit of the beneficiary had the 5 trustee complied with the standard or not abused the 6 discretion. 7 (d) This section does not limit the right of a beneficiary to 8 maintain a judicial proceeding against a trustee for an abuse 9 of discretion or failure to comply with a standard for 10 distribution; provided, however, this right may not be 11 exercised by a creditor of the beneficiary. 12 (e) Whether or not a trust contains a spendthrift provision, 13 a creditor of a beneficiary may not compel a distribution 14 from insurance proceeds payable to the trustee as beneficiary 15 to the extent state law exempts such insurance proceeds from 16 creditors’ claims. 17 (f) A creditor of a beneficiary who is also a trustee or 18 cotrustee may not reach the trustee’s beneficial interest or 19 otherwise compel a distribution if the trustee’s discretion to 20 make distributions for the trustee’s own benefit is limited by 21 an ascertainable standard. 22 23 REPORTER’S COMMENT 24 South Carolina Trust Code Section 627504 eliminates the 25 exceptions allowed under Uniform Trust Code Section 504 26 for judgments or court orders in favor of a beneficiary’s 27 spouse or former spouse. As with SCTC Section 627503, the 28 only exception will be for a beneficiary’s child who has a 29 judgment or court order against the beneficiary for support or 30 maintenance. However, a child’s claim against a 31 discretionary trust interest will be limited to those cases 32 where a trustee has not complied with a standard of 33 distribution or has abused a discretion. 34 This section addresses the ability of a beneficiary’s 35 creditor to reach the beneficiary’s discretionary trust interest, 36 whether or not the exercise of the trustee’s discretion is 37 subject to a standard. This section, similar to the 38 Restatement, eliminates the distinction between discretionary 39 and support trusts, unifying the rules for all trusts fitting

[143] 405 1 within either of the former categories. See Restatement 2 (Third) of Trusts Section 60 Reporter’s Notes to cmt. a 3 (Tentative Draft No. 2, approved 1999). 4 This section could have limited application. Pursuant to 5 Section 627502, the effect of a valid spendthrift provision, 6 where applicable, is to prohibit a creditor from collecting on 7 a distribution prior to its receipt by the beneficiary. Only if 8 the trust is not protected by a spendthrift provision, or if the 9 creditor falls within one of the exceptions to spendthrift 10 enforcement created by Section 627503, does this section 11 become relevant. 12 For a discussion of the definition of “child” in subsection 13 (a), see Section 627503 Comment. 14 Subsection (b), which establishes the general rule, forbids 15 a creditor from compelling a distribution from the trust, even 16 if the trustee has failed to comply with the standard of 17 distribution or has abused a discretion. Under subsection (d), 18 the power to force a distribution due to an abuse of discretion 19 or failure to comply with a standard belongs solely to the 20 beneficiary. Under Section 627814(a), a trustee must always 21 exercise a discretionary power in good faith and with regard 22 to the purposes of the trust and the interests of the 23 beneficiaries. 24 Subsection (c) creates an exception for support claims of a 25 child who has a judgment or order against a beneficiary for 26 support or maintenance. While a creditor of a beneficiary 27 generally may not assert that a trustee has abused a discretion 28 or failed to comply with a standard of distribution, such a 29 claim may be asserted by the beneficiary’s child enforcing a 30 judgment or court order against the beneficiary for unpaid 31 support or maintenance. The court must direct the trustee to 32 pay the child such amount as is equitable under the 33 circumstances but not in excess of the amount the trustee was 34 otherwise required to distribute to or for the benefit of the 35 beneficiary. Before fixing this amount, the court having 36 jurisdiction over the trust should consider that in setting the 37 respective support award, the family court has already 38 considered the respective needs and assets of the family. The 39 SCTC does not prescribe a particular procedural method for

[143] 406 1 enforcing a judgment or order against the trust, leaving that 2 matter to local collection law. 3 The South Carolina Trust Code adds to the UTC version 4 the proviso at the end of subsection (d), which prevents a 5 beneficiary’s creditor from enforcing on behalf of the 6 beneficiary the beneficiary’s right, to the extent it exists, to 7 maintain a judicial proceeding against a trustee for an abuse 8 of discretion or failure to comply with a standard of 9 distribution. 10 South Carolina’s version of subsection (e), not found in the 11 UTC, ensures that even if there is no spendthrift provision, 12 insurance proceeds remain exempt from creditors’ claims 13 pursuant to S. C. Code Section 386340 et seq. and other 14 relevant state laws. 15 16 Section 627505. (a) Whether or not the terms of a trust 17 contain a spendthrift provision, the following rules apply: 18 (1) During the lifetime of the settlor, the property of a 19 revocable trust is subject to claims of the settlor’s creditors. 20 (2) With respect to an irrevocable trust, a creditor or 21 assignee of the settlor may reach the maximum amount that 22 can be distributed to or for the settlor’s benefit. If a trust has 23 more than one settlor, the amount the creditor or assignee of 24 a particular settlor may reach may not exceed the settlor’s 25 interest in the portion of the trust attributable to that settlor’s 26 contribution. 27 (3) After the death of a settlor, and subject to the 28 settlor’s right to direct the source from which liabilities will 29 be paid, and except to the extent state or federal law exempts 30 any property of the trust from claims, costs, expenses, or 31 allowances, the property of a held in a revocable trust that 32 was revocable at the time of the settlor’s death is subject to 33 claims of the settlor’s creditors, costs of administration of the 34 settlor’s estate, the expenses of the settlor’s funeral and 35 disposal of remains, and statutory allowances to a surviving 36 spouse and children to the extent the settlor’s probate estate 37 is inadequate to satisfy those claims, costs, expenses, and 38 allowances, unless barred by Section 623801 et seq. 39 (b) For purposes of this section,:

[143] 407 1 (1) a beneficiary who is a trustee of a trust, but who is 2 not the settlor of the trust, cannot be treated in the same 3 manner as the settlor of a revocable trust if the 4 beneficiarytrustee’s power to make distributions to the 5 beneficiarytrustee is limited by an ascertainable standard 6 related to the beneficiarytrustee’s health, education, 7 maintenance, or and support; 8 (2) the assets in a trust that are attributable to a 9 contribution to an inter vivos marital deduction trust 10 described in either Section 2523(e) or (f) of the Internal 11 Revenue Code of 1986, after the death of the spouse of the 12 settlor of the inter vivos marital deduction trust are deemed to 13 have been contributed by the settlor’s spouse and not by the 14 settlor. 15 16 REPORTER’S COMMENT 17 Subsection (a)(1) states what is now a well accepted 18 conclusion, that a revocable trust is subject to the claims of 19 the settlor’s creditors while the settlor is living. See 20 Restatement (Third) of Trusts Section 25 cmt. a (Tentative 21 Draft No. 1, approved 1996). Such claims were not allowed 22 at common law, however. See Restatement (Second) of 23 Trusts Section 330 cmt. o (1959). Because a settlor usually 24 also retains a beneficial interest that a creditor may reach 25 under subsection (a)(2), the common law rule, were it 26 retained in this Code, would be of little significance. See 27 Restatement (Second) of Trusts Section 156(2) (1959). 28 Subsection (a)(2), which is based on Restatement (Third) 29 of Trusts Section 58(2) and cmt. e (Tentative Draft No. 2, 30 approved 1999), and Restatement (Second) of Trusts Section 31 156 (1959), follows traditional doctrine in providing that a 32 settlor who is also a beneficiary may not use the trust as a 33 shield against the settlor’s creditors. The drafters of the 34 Uniform Trust Code concluded that traditional doctrine 35 reflects sound policy. Consequently, the drafters rejected the 36 approach taken in States like Alaska and Delaware, both of 37 which allow a settlor to retain a beneficial interest immune 38 from creditor claims. See Henry J. Lischer, Jr., Domestic 39 Asset Protection Trusts: Pallbearers to Liability, 35 Real

[143] 408 1 Prop. Prob. & Tr. J. 479 (2000); John E. Sullivan, III, 2 Gutting the Rule Against SelfSettled Trusts: How the 3 Delaware Trust Law Competes with Offshore Trusts, 23 Del. 4 J. Corp. L. 423 (1998). The SCTC confirms this policy. 5 Under the Code, whether the trust contains a spendthrift 6 provision or not, a creditor of the settlor may reach the 7 maximum amount that the trustee could have paid to the 8 settlorbeneficiary. If the trustee has discretion to distribute 9 the entire income and principal to the settlor, the effect of this 10 subsection is to place the settlor’s creditors in the same 11 position as if the trust had not been created. For the 12 definition of “settlor,” see Section 627103(14). 13 This section does not address possible rights against a 14 settlor who was insolvent at the time of the trust’s creation or 15 was rendered insolvent by the transfer of property to the 16 trust. This subject is instead left to the State’s law on 17 fraudulent transfers. A transfer to the trust by an insolvent 18 settlor might also constitute a voidable preference under 19 federal bankruptcy law. 20 Subsection (a)(3) recognizes that a revocable trust is 21 usually employed as a will substitute. As such, the trust 22 assets, following the death of the settlor, should be subject to 23 the settlor’s debts and other charges. However, under SCTC 24 627505(a)(3), only assets held in a revocable trust at the time 25 of the settlor’s death will be subject to creditor’s claims. 26 Assets transferred to a revocable trust following the settlor’s 27 death will not become subject to creditor’s claims as a result 28 of the transfer. For example, life insurance proceeds and 29 cash surrender values that would be exempt under the terms 30 of the trust pursuant to §386340 or §386590 would maintain 31 the exempt status if payable to the trust. Also, in accordance 32 with traditional doctrine, the assets of the settlor’s probate 33 estate must normally first be exhausted before the assets of 34 the revocable trust can be reached. This section does not 35 attempt to address the procedural issues raised by the need 36 first to exhaust the decedent’s probate estate before reaching 37 the assets of the revocable trust. Nor does this section 38 address the priority of creditor claims or liability of the 39 decedent’s other nonprobate assets for the decedent’s debts

[143] 409 1 and other charges. Subsection (a)(3), however, does ratify 2 the typical pourover will, revocable trust plan. As long as the 3 rights of the creditor or family member claiming a statutory 4 allowance are not impaired, the settlor is free to shift liability 5 from the probate estate to the revocable trust. Regarding 6 other issues associated with potential liability of nonprobate 7 assets for unpaid claims, see Section 6102 of the Uniform 8 Probate Code, which was added to that Code in 1998. 9 Upon the lapse, release, or waiver of a power of 10 withdrawal, the property formerly subject to the power will 11 normally be subject to the claims of the power holder’s 12 creditors and assignees the same as if the power holder were 13 the settlor of a now irrevocable trust. Pursuant to subsection 14 (a)(2), a creditor or assignee of the power holder generally 15 may reach the power holder’s entire beneficial interest in the 16 trust, whether or not distribution is subject to the trustee’s 17 discretion. The Uniform Trust Code does not address 18 creditor issues with respect to property subject to a special 19 power of appointment or a testamentary general power of 20 appointment. For creditor rights against such interests, see 21 Restatement (Property) Second: Donative Transfers Sections 22 13.1 3.7 (1986). 23 24 Section 627506. Whether or not a trust contains a 25 spendthrift provision, a creditor or assignee of a beneficiary 26 may reach a mandatory distribution of income or principal, 27 including a distribution upon termination of the trust, if the 28 trustee has not made the distribution to the beneficiary within 29 a reasonable time after the designated distribution date. For 30 purposes of this section, a mandatory distribution is a 31 distribution where the trustee has no discretion in 32 determining whether the distribution shall be made or the 33 amount or timing of such distribution. 34 35 REPORTER’S COMMENT 36 The effect of a spendthrift provision is generally to insulate 37 totally a beneficiary’s interest until a distribution is made and 38 received by the beneficiary. See Section 627502. But this 39 section, along with several other sections in this article,

[143] 410 1 recognizes exceptions to this general rule. Whether a trust 2 contains a spendthrift provision or not, a trustee should not 3 be able to avoid creditor claims against a beneficiary by 4 refusing to make a distribution required to be made by the 5 express terms of the trust. On the other hand, a spendthrift 6 provision would become largely a nullity were a 7 beneficiary’s creditors able to attach all required payments as 8 soon as they became due. This section reflects a compromise 9 between these two competing principles. A creditor can reach 10 a mandatory distribution, including a distribution upon 11 termination, if the trustee has failed to make the payment 12 within a reasonable time after the designated distribution 13 date. Following this reasonable period, payments mandated 14 by the express terms of the trust are in effect being held by 15 the trustee as agent for the beneficiary and should be treated 16 as part of the beneficiary’s personal assets. 17 South Carolina Trust Code Section 627506 adds to the 18 Uniform Trust Code version of Section 506 a definition of 19 “mandatory distribution” to prevent the South Carolina 20 section from being interpreted to require distributions from 21 discretionary trusts as referred to in SCTC Section 627504. 22 Common examples of mandatory distributions are found in 23 qualified terminable interest property trusts, charitable 24 remainder trusts, and grantor retained trusts, when the trustee 25 is required to make a distribution annually of a sum certain. 26 This section is similar to Restatement (Third) of Trusts 27 Section 58 cmt. d (Tentative Draft No. 2, approved 1999). 28 29 Section 627507. Trust property is not subject to personal 30 obligations of the trustee, even if the trustee becomes 31 insolvent or bankrupt. 32 33 REPORTER’S COMMENTS 34 Because the beneficiaries of the trust hold the beneficial 35 interest in the trust property and the trustee holds only legal 36 title without the benefits of ownership, the creditors of the 37 trustee have only a personal claim against the trustee. See 38 Restatement (Third) Section 5 cmt. k (Tentative Draft No. 1, 39 approved 1996); Restatement (Second) of Trusts Section 12

[143] 411 1 cmt. a (1959). Similarly, a personal creditor of the trustee 2 who attaches trust property to satisfy the debt does not 3 acquire title as a bona fide purchaser even if the creditor is 4 unaware of the trust. See Restatement (Second) of Trusts 5 Section 308 (1959). The protection afforded by this section is 6 consistent with that provided by the Bankruptcy Code. 7 Property in which the trustee holds legal title as trustee is not 8 part of the trustee’s bankruptcy estate. 11 U.S.C. Section 9 541(d). 10 The exemption of the trust property from the personal 11 obligations of the trustee is the most significant feature of 12 AngloAmerican trust law by comparison with the devices 13 available in civil law countries. A principal objective of the 14 Hague Convention on the Law Applicable to Trusts and on 15 their Recognition is to protect the AngloAmerican trust with 16 respect to transactions in civil law countries. See Hague 17 Convention art. 11. See also Henry Hansmann & Ugo Mattei, 18 The Functions of Trust Law: A Comparative Legal and 19 Economic Analysis, 73 N.Y.U. L. Rev. 434 (1998); John H. 20 Langbein, The Secret Life of the Trust: The Trust as an 21 Instrument of Commerce, 107 Yale L.J. 165, 17980 (1997). 22 23 Part 6 24 25 Revocable Trusts 26 27 General Comment 28 This article deals with issues of significance not totally 29 settled under prior law. Because of the widespread use in 30 recent years of the revocable trust as an alternative to a will, 31 this short article is one of the more important articles of the 32 Code. This article and the other articles of the Code treat the 33 revocable trust as the functional equivalent of a will. Section 34 627601 provides that the capacity standard for wills applies 35 in determining whether the settlor had capacity to create a 36 revocable trust. Section 627602, after providing that a trust 37 is presumed revocable unless stated otherwise, prescribes the 38 procedure for revocation or amendment, whether the trust 39 contains one or several settlors. Section 627603 provides

[143] 412 1 that while a trust is revocable and the settlor has capacity, the 2 rights of the beneficiaries are subject to the settlor’s control. 3 Section 627604 prescribes a statute of limitations on contest 4 of revocable trusts. 5 Sections 627601 and 627604, because they address 6 requirements relating to creation and contest of trusts, are not 7 subject to alteration or restriction in the terms of the trust. 8 See Section 627105. Sections 627602 and 627603, by 9 contrast, are not so limited and are fully subject to the 10 settlor’s control. 11 12 Section 627601. The capacity required to create, amend, 13 revoke, or add property to a revocable trust, or to direct the 14 actions of the trustee of a revocable trust, is the same as that 15 required to make a will. 16 17 REPORTER’S COMMENT 18 This section is patterned after Restatement (Third) of Trusts 19 Section 11(1) (Tentative Draft No. 1, approved 1996). The 20 revocable trust is used primarily as a will substitute, with its 21 key provision being the determination of the persons to 22 receive the trust property upon the settlor’s death. To 23 solidify the use of the revocable trust as a device for 24 transferring property at death, the settlor usually also 25 executes a pourover will. The use of a pourover will assures 26 that property not transferred to the trust during life will be 27 combined with the property the settlor did manage to convey. 28 Given this primary use of the revocable trust as a device for 29 disposing of property at death, the capacity standard for wills 30 rather than that for lifetime gifts should apply. The 31 application of the capacity standard for wills does not mean 32 that the revocable trust must be executed with the formalities 33 of a will. There are no execution requirements under this 34 Code for a trust not created by will, and a trust not containing 35 real property may be created by an oral statement. See 36 Section 627407 and comment. See SCTC Section 627401, 37 which requires a writing for a selftrusteed declaration of 38 trust.

[143] 413 1 The SCTC does not explicitly spell out the standard of 2 capacity necessary to create other types of trusts, although 3 Section 627402 does require that the settlor have capacity. 4 This section includes a capacity standard for creation of a 5 revocable trust because of the uncertainty in the case law and 6 the importance of the issue in modern estate planning. No 7 such uncertainty exists with respect to the capacity standard 8 for other types of trusts. To create a testamentary trust, the 9 settlor must have the capacity to make a will. To create an 10 irrevocable trust, the settlor must have the capacity that 11 would be needed to transfer the property free of trust. See 12 generally Restatement (Third) of Trusts Section 11 13 (Tentative Draft No. 1, approved 1996); Restatement (Third) 14 of Property: Wills and Other Donative Transfers Section 8.1 15 (Tentative Draft No. 3, approved 2001). 16 South Carolina Probate Code Section 622501 provides that 17 a person who is “of sound mind and who is not a minor as 18 defined in Section 622201(27) may make a will.” Section 19 622201(27) defines a minor as a person under eighteen 20 excluding persons under eighteen who are married or 21 emancipated by court decree. The test for mental capacity is 22 whether the person has the capability to know (1) his estate, 23 (2) the objects of his affections, and (3) to whom he wishes 24 to give his property. The capacity to understand as opposed 25 to actual knowledge or understanding is sufficient. It is a 26 lower standard than that required to sign a deed or contract. 27 Weeks v. Drawdy, 329 S.C. 251, 495 S.E.2d 454 (S.C. 28 Ct.App. 1997); McCollum v. Banks, et al., 213 S.C. 476, 50 29 S.E.2d 199 (S.C. 1948). 30 A higher degree of capacity is required to execute an 31 irrevocable trust. The settlor must have the mental capacity 32 to understand the nature of the trust and its probable 33 consequences. Macauley, et al. v. Wachovia Bank, et al., 34 351 S.C. 287, 569 S.E.2d 371 (S.C. Ct.App. 2002). 35 There was no prior statutory counterpart to this Section. 36 As a practical matter, the relatively common use of pour 37 over wills in conjunction with minimally funded revocable 38 trusts indicates that the measure of capacity for execution of

[143] 414 1 the trust is the same as that for a will. See Bowles v. 2 Bradley, 219 S.C. 377, 461 S.E.2d 811 (S.C. 1995). 3 4 Section 627602. (a) Unless the terms of a trust expressly 5 provide that the trust is irrevocable, the settlor may revoke or 6 amend the trust. This subsection does not apply to a trust 7 created under an instrument executed before the effective 8 date of this article. 9 (b) If a revocable trust is created or funded by more than 10 one settlor: 11 (1) to the extent the trust consists of community 12 property, the trust may be revoked by either spouse acting 13 alone but may be amended only by joint action of both 14 spouses; and 15 (2) to the extent the trust consists of property other than 16 community property, each settlor may revoke or amend the 17 trust with regard to the portion of the trust property 18 attributable to that settlor’s contribution; and 19 (3) upon the revocation or amendment of the trust by 20 fewer than all of the settlors, the trustee shall promptly notify 21 the other settlors of the revocation or amendment. 22 (c) The settlor may revoke or amend a revocable trust: 23 (1) by substantial compliance with a method provided 24 in the terms of the trust; or 25 (2) if the terms of the trust do not provide a method or 26 the method provided in the terms is not expressly made 27 exclusive, by: 28 (A) a later will or codicil that expressly refers to the 29 trust, manifesting clear and convincing evidence of the 30 settlor’s intent; or 31 (B) by oral statement to the trustee if the trust was 32 created orally; or 33 (C) any other written method, other than a later will or 34 codicil, delivered to the trustee and manifesting clear and 35 convincing evidence of the settlor’s intent. 36 (d) Upon revocation of a revocable trust, the trustee shall 37 deliver the trust property as the settlor directs. 38 (e) A settlor’s powers with respect to revocation, 39 amendment, or distribution of trust property may be

[143] 415 1 exercised by an agent under a power of attorney only to the 2 extent expressly authorized by the terms of the trust or the 3 power of attorney provided the exercise of the power does 4 not alter the designation of beneficiaries to receive the 5 property on the settlor’s death under the settlor’s existing 6 estate plan. RESERVED 7 (f) A conservator of the settlor or, if no conservator has 8 been appointed, a guardian of the settlor may exercise a 9 settlor’s powers with respect to revocation, amendment, or 10 distribution of trust property only with the approval of the 11 court supervising the conservatorship or guardianship and 12 with regard to the requirements of Section 625408 (3)(c). 13 (g) A trustee who does not know that a trust has been 14 revoked or amended is not liable to the settlor or settlor’s 15 successors in interest for distributions made and other actions 16 taken on the assumption that the trust had not been amended 17 or revoked. 18 19 REPORTER’S COMMENT 20 South Carolina Trust Code Section 627602(a) is a departure 21 from former South Carolina law, which presumed that a trust 22 was irrevocable unless a power of revocation was validly 23 reserved and that, if a particular method of revocation was 24 specified, it must be strictly followed. Where the right to 25 revoke was reserved and no particular mode was specified, 26 any mode sufficiently showing an intention to revoke was 27 effective. See Peoples National Bank of Greenville v. Peden 28 et al., 229 S.E. 2d 163 (S.C. 1956), citing to 4 Bogert on 29 Trusts and Trustees Section 996 and 54 Am. Jur. Section 77 30 on Trusts. Likewise, a settlor had to expressly reserve the 31 right to modify a trust. First Carolinas Joint Stock Land 32 Bank v. Deschamps, et al., 171 S. C. 466 172 S.E. 622 (S.C. 33 1934). 34 The South Carolina Supreme Court has noted that there are 35 some exceptions to the general rule that a trust cannot be 36 revoked or modified unless such a power is expressly 37 reserved in the trust instrument, such as mistake. Chiles v. 38 Chiles, et al., 20 S. C. 379, 242 S.E. 2d 426 (S.C. 1978), 39 citing to the Restatement 2d of Trusts Section 330(2).

[143] 416 1 Most states follow the rule that a trust is presumed 2 irrevocable absent evidence of contrary intent. See 3 Restatement (Second) of Trusts Section 330 (1959). 4 California, Iowa, Montana, Oklahoma, and Texas presume 5 that a trust is revocable. The South Carolina Trust Code 6 endorses this minority approach, but only for trusts created 7 after its effective date. This Code presumes revocability 8 when the instrument is silent because the instrument was 9 likely drafted by a nonprofessional, who intended the trust as 10 a will substitute. The most recent revision of the 11 Restatement of Trusts similarly reverses the former approach. 12 A trust is presumed revocable if the settlor has retained a 13 beneficial interest. See Restatement (Third) of Trusts Section 14 63 cmt. c (Tentative Draft No. 3, approved 2001). Because 15 professional drafters habitually spell out whether or not a 16 trust is revocable, subsection (a) will have limited 17 application. 18 A power of revocation includes the power to amend. An 19 unrestricted power to amend may also include the power to 20 revoke a trust. See Restatement (Third) of Trusts Section 63 21 cmt. g (Tentative Draft No. 3, approved 2001); Restatement 22 (Second) of Trusts Section 331 cmt. g & h (1959). 23 Subsection (b), which is similar to Restatement (Third) of 24 Trusts Section 63 cmt. k (Tentative Draft No. 3, approved 25 2001), provides default rules for revocation or amendment of 26 a trust having several settlors. The settlor’s authority to 27 revoke or modify the trust depends on whether the trust 28 contains community property. To the extent the trust contains 29 community property, the trust may be revoked by either 30 spouse acting alone but may be amended only by joint action 31 of both spouses. The purpose of this provision, and the 32 reason for the use of joint trusts in community property 33 states, is to preserve the community character of property 34 transferred to the trust. While community property does not 35 prevail in a majority of states, contributions of community 36 property to trusts created in noncommunity property states 37 does occur. This is due to the mobility of settlors, and the 38 fact that community property retains its community character 39 when a couple moves from a community to a noncommunity

[143] 417 1 state. For this reason, subsection (b), and its provision on 2 contributions of community property, should be enacted in 3 all states, whether community or noncommunity. 4 With respect to separate property contributed to the trust, 5 or all property of the trust if none of the trust property 6 consists of community property, subsection (b) provides that 7 each settlor may revoke or amend the trust as to the portion 8 of the trust contributed by that settlor. The inclusion of a rule 9 for contributions of separate property does not mean that the 10 use of joint trusts should be encouraged. The rule is included 11 because of the widespread use of joint trusts in 12 noncommunity property states in recent years. Due to the 13 desire to preserve the community character of trust property, 14 joint trusts are a necessity in community property states. 15 Unless community property will be contributed to the trust, 16 no similarly important reason exists for the creation of a joint 17 trust in a noncommunity property state. Joint trusts are often 18 poorly drafted, confusing the dispositive provisions of the 19 respective settlors. Their use can also lead to unintended tax 20 consequences. See Melinda S. Merk, Joint Revocable Trusts 21 for Married Couples Domiciled in CommonLaw Property 22 States, 32 Real Prop. Prob. & Tr. J. 345 (1997). 23 Subsection (b) does not address the many technical issues 24 that can arise in determining the settlors’ proportionate 25 contribution to a joint trust. Most problematic are 26 contributions of jointlyowned property. In the case of joint 27 tenancies in real estate, each spouse would presumably be 28 treated as having made an equal contribution because of the 29 right to sever the interest and convert it into a tenancy in 30 common. This is in contrast to joint accounts in financial 31 institutions, ownership of which in most states is based not 32 on fractional interest but on actual dollar contribution. See, 33 e.g., Unif. Probate Code Section 6211. Most difficult may be 34 determining a contribution rule for entireties property. In 35 Holdener v. Fieser, 971 S.W. 2d 946 (Mo. Ct. App. 1998), 36 the court held that a surviving spouse could revoke the trust 37 with respect to the entire interest but did not express a view 38 as to revocation rights while both spouses were living.

[143] 418 1 Subsection (b)(3) requires that the other settlor or settlors 2 be notified if a joint trust is revoked by less than all of the 3 settlors. Notifying the other settlor or settlors of the 4 revocation or amendment will place them in a better position 5 to protect their interests. If the revocation or amendment by 6 less than all of the settlors breaches an implied agreement 7 not to revoke or amend the trust, those harmed by the action 8 can sue for breach of contract. If the trustee fails to notify 9 the other settlor or settlors of the revocation or amendment, 10 the parties aggrieved by the trustee’s failure can sue the 11 trustee for breach of trust. 12 Subsection (c), which is similar to Restatement (Third) of 13 Trusts Section 63 cmt. h & i (Tentative Draft No. 3, approved 14 2001), specifies the method of revocation and amendment. 15 Revocation of a trust differs fundamentally from revocation 16 of a will. Revocation of a will, because a will is not effective 17 until death, cannot affect an existing fiduciary relationship. 18 With a trust, however, because a revocation will terminate an 19 already existing fiduciary relationship, there is a need to 20 protect a trustee who might act without knowledge that the 21 trust has been revoked. There is also a need to protect 22 trustees against the risk that they will misperceive the 23 settlor’s intent and mistakenly assume that an informal 24 document or communication constitutes a revocation when 25 that was not in fact the settlor’s intent. To protect trustees 26 against these risks, drafters habitually insert provisions 27 providing that a revocable trust may be revoked only by 28 delivery to the trustee of a formal revoking document. Some 29 courts require strict compliance with the stated formalities. 30 Other courts, recognizing that the formalities were inserted 31 primarily for the trustee’s and not the settlor’s benefit, will 32 accept other methods of revocation as long as the settlor’s 33 intent is clear. See Restatement (Third) of Trusts Section 63 34 Reporter’s Notes to cmt. hj (Tentative Draft No. 3, approved 35 2001). 36 This Code tries to effectuate the settlor’s intent to the 37 maximum extent possible while at the same time protecting a 38 trustee against inadvertent liability. While notice to the 39 trustee of a revocation is good practice, this section does not

[143] 419 1 make the giving of such notice a prerequisite to a trust’s 2 revocation. To protect a trustee who has not been notified of 3 a revocation or amendment, subsection (f) provides that a 4 trustee who does not know that a trust has been revoked or 5 amended is not liable to the settlor or settlor’s successors in 6 interest for distributions made and other actions taken on the 7 assumption that the trust, as unamended, was still in effect. 8 However, to honor the settlor’s intent, subsection (c) 9 generally honors a settlor’s clear expression of intent even if 10 inconsistent with stated formalities in the terms of the trust. 11 Under subsection (c), the settlor may revoke or amend a 12 revocable trust by substantial compliance with the method 13 specified in the terms of the trust or by a later will or codicil 14 or any other method manifesting clear and convincing 15 evidence of the settlor’s intent. Only if the method specified 16 in the terms of the trust is made exclusive is use of the other 17 methods prohibited. Even then, a failure to comply with a 18 technical requirement, such as required notarization, may be 19 excused as long as compliance with the method specified in 20 the terms of the trust is otherwise substantial. 21 While revocation of a trust will ordinarily continue to be 22 accomplished by signing and delivering a written document 23 to the trustee, other methods, such as a physical act or an oral 24 statement coupled with a withdrawal of the property, might 25 also demonstrate the necessary intent. These less formal 26 methods, because they provide less reliable indicia of intent, 27 will often be insufficient, however. The method specified in 28 the terms of the trust is a reliable safe harbor and should be 29 followed whenever possible. 30 Revocation or amendment by will is mentioned in 31 subsection (c) not to encourage the practice but to make clear 32 that it is not precluded by omission. See Restatement (Third) 33 of Property: Will and Other Donative Transfers Section 7.2 34 cmt. e (Tentative Draft No. 3, approved 2001), which 35 validates revocation or amendment of will substitutes by later 36 will. Situations do arise, particularly in deathbed cases, 37 where revocation by will may be the only practicable 38 method. In such cases, a will, a solemn document executed 39 with a high level of formality, may be the most reliable

[143] 420 1 method for expressing intent. A revocation in a will 2 ordinarily becomes effective only upon probate of the will 3 following the testator’s death. For the cases, see Restatement 4 (Third) of Trusts Section 63 Reporter’s Notes to cmt. hi 5 (Tentative Draft No. 3, approved 2001). 6 A residuary clause in a will disposing of the estate 7 differently than the trust is alone insufficient to revoke or 8 amend a trust. The provision in the will must either be 9 express or the will must dispose of specific assets contrary to 10 the terms of the trust. The substantial body of law on 11 revocation of Totten trusts by will offers helpful guidance. 12 The authority is collected in William H. Danne, Jr., 13 Revocation of Tentative (“Totten”) Trust of Savings Bank 14 Account by Inter Vivos Declaration or Will, 46 A.L.R. 3d 15 487 (1972). 16 Subsection (c) does not require that a trustee concur in the 17 revocation or amendment of a trust. Such a concurrence 18 would be necessary only if required by the terms of the trust. 19 If the trustee concludes that an amendment unacceptably 20 changes the trustee’s duties, the trustee may resign as 21 provided in Section 627705. 22 As to SCTC Section 627602(c), although prior South 23 Carolina case law required strict compliance with method of 24 revocation provided by the terms of the trust, the courts 25 would recognize a valid revocation as long as it was clear 26 that the settlor had exercised every right within his power to 27 revoke the trust and if notice requirements which were 28 strictly for the benefit of the trustee were waived by the 29 trustee. Peoples National Bank of Greenville v. Peden et al., 30 229 S.C. 167, 92 S.E. 2d 163 (S.C. 1956). SCTC subsection 31 (c)(2) differs from the UTC version by requiring a writing to 32 revoke or amend a trust unless the trust was created orally. 33 Under prior South Carolina case law, if the power to 34 revoke was not expressly reserved in a trust, the terms of a 35 later will could not control the disposition of property under a 36 previously executed trust document. Bonney v. Granger, et 37 al., 292 S.C. 308, 356 S.E. 2d 138 (S.C. Ct. App. 1987). If 38 the right to revoke was reserved and no particular method of 39 revocation was specified, a revocable trust could be revoked

[143] 421 1 by a testamentary devise of the corpus of the trust. Whether 2 a will impliedly revoked a revocable trust was a question of 3 intention. Peoples National Bank of Greenville v. Peden et 4 al., 229 S.C. 167, 92 S.E. 2d 163 (S.C. 1956), citing to 54 5 Am Jur. Section 77. A residuary clause was insufficient to 6 revoke or amend a trust. First Carolinas Joint Stock Land 7 Bank v. Deschamps, et al., 171 S.C. 466, 172 S.E. 622 8 (S.C.1934). 9 See SCTC Section 627401, which requires a writing for 10 the creation of selftrusteed declarations of trust. 11 Subsection (d), providing that upon revocation the trust 12 property is to be distributed as the settlor directs, codifies a 13 provision commonly included in revocable trust instruments. 14 Prior South Carolina case law required a trustee upon 15 termination of a trust to distribute the assets to the 16 beneficiaries or to their nominee. Beaty Trust Co. v. S. C. 17 Tax Com., 278 S.C. 113, 292 S.E. 2d 788 (S.C. 1982). There 18 was no prior South Carolina law that addressed the 19 responsibility of the trustee in regard to a revocable trust. 20 A settlor’s power to revoke is not terminated by the 21 settlor’s incapacity. The power to revoke may instead be 22 exercised by an agent in accordance with Section 627602.1. 23 Subsection (f) addresses the authority of a conservator or 24 guardian to revoke or amend a revocable trust. Under the 25 South Carolina Trust Code, a “conservator” is appointed by 26 the court to manage the ward’s party, a “guardian” to make 27 decisions with respect to the ward’s personal affairs. See 28 Section 627103. Consequently, subsection (f) authorizes a 29 guardian to exercise a settlor’s power to revoke or amend a 30 trust only if a conservator has not been appointed. 31 In South Carolina, the probate court, acting through a 32 conservator, exercises control over the estate and affairs of an 33 incapacitated person in regard to trusts. Acting through the 34 conservator, the court may create, amend or fund, but not 35 revoke (unless amendment could be construed so broadly as 36 to constitute a right to revoke), a revocable trust. In 37 exercising these powers, the court must consider the estate 38 plan and the terms of any revocable trust of which the 39 incapacitated person is settlor.

[143] 422 1 If a conservator has not been appointed, subsection (f) 2 authorizes a guardian to exercise a settlor’s power to revoke 3 or amend the trust upon approval of the court supervising the 4 guardianship. The court supervising the guardianship will 5 need to determine whether it can grant a guardian authority to 6 revoke a revocable trust under local law or whether it will be 7 necessary to appoint a conservator for that purpose. 8 9 Section 627602A. (a) An agent acting pursuant to a 10 power of attorney may exercise the following powers of the 11 settlor with respect to a revocable trust only to the extent 12 expressly authorized by the terms of the trust or the power of 13 attorney: 14 (1) revocation of the trust; 15 (2) amendment of the trust; 16 (3) additions to the trust; 17 (4) direction to dispose of property of the trust; 18 (5) creation of the trust, notwithstanding the provisions 19 of Section 627402(a)(1) and (2). 20 (b) An agent acting pursuant to a power of attorney may 21 exercise the following powers of the settlor with respect to an 22 irrevocable trust only to the extent expressly authorized by 23 the terms of the trust or the power of attorney: 24 (1) additions to the trust; 25 (2) creation of the trust, notwithstanding the provisions 26 of Section 627402(a)(1) and (2). 27 (c) The exercise of the powers described in subsection (a) 28 and (b) shall not alter the amount of property beneficiaries 29 are to receive on the settlor’s death under the settlor’s 30 existing will or other estate planning documents or in the 31 absence thereof in accordance with the law of intestate 32 succession. 33 34 REPORTER’S COMMENT 35 This section replaces former SCTC Section 627602(e) and 36 expands agent powers with respect to a revocable trust. 37 Subsection (a) expands the powers found in the Uniform 38 Trust Code and former Section 627602(e) which authorized 39 an agent under a power of attorney to revoke, amend, or

[143] 423 1 distribute property from a revocable trust of the principal. 2 Subsection (a) adds to these powers the authorization of an 3 agent of the settlor to create or add to a revocable trust. 4 Subsection (b) revises the limitations of the former Section 5 627602(e) that prohibited an agent from deviating from the 6 settlor’s estate plan by stating that there shall be no deviation 7 in regard to the amount of property beneficiaries are to 8 receive from the settlor’s will or in the absence thereof from 9 the law of intestate succession. 10 11 Section 627603. While a trust is revocable, rights of the 12 beneficiaries are subject to the control of, and the duties of 13 the trustee are owed exclusively to, the settlor. 14 15 REPORTER’S COMMENT 16 This section has the effect of postponing enforcement of the 17 rights of the beneficiaries of a revocable trust until the death 18 of the settlor or other person holding the power to revoke the 19 trust. This section thus recognizes that the settlor of a 20 revocable trust is in control of the trust and should have the 21 right to enforce the trust. 22 Pursuant to this section, the duty under Section 627813 to 23 inform and report to beneficiaries is owed to the settlor of a 24 revocable trust as long as the settlor has capacity. 25 The beneficiaries are entitled to request information 26 concerning the trust and the trustee must provide the 27 beneficiaries with annual trustee reports and whatever other 28 information may be required under Section 627813. 29 However, because this section may be freely overridden in 30 the terms of the trust, a settlor is free to deny the 31 beneficiaries these rights, even to the point of directing the 32 trustee not to inform them of the existence of the trust. Also, 33 should an incapacitated settlor later regain capacity, the 34 beneficiaries’ rights will again be subject to the settlor’s 35 control. The cessation of the settlor’s control upon the 36 settlor’s incapacity or death does not mean that the 37 beneficiaries may reopen transactions the settlor approved 38 while having capacity.

[143] 424 1 Typically, the settlor of a revocable trust will also be the 2 sole or primary beneficiary of the trust. Upon the settlor’s 3 incapacity, any right of action the settlortrustee may have 4 against the trustee for breach of fiduciary duty will pass to 5 the settlor’s agent or conservator. 6 Prior South Carolina law addressed the trustee’s duty of 7 loyalty to the beneficiaries of the trust. See e.g., Ramage v. 8 Ramage, 283 S.C. 239, 322 S.E. 2d 22 (S.C. Ct. App. 1984). 9 SCTC Section 627603 omits the language found in the UTC 10 2004 Amendments expressly providing that a trust is 11 revocable only while the settlor has the capacity to revoke. 12 13 Section 627604. (a) A person must commence a judicial 14 proceeding to contest the validity of a trust that was 15 revocable at the settlor’s death within the earlier of: 16 (1) one year after the settlor’s death; or 17 (2) one hundred twenty days after the trustee sent the 18 person a copy of the trust instrument and a notice informing 19 the person of the trust’s existence, of the trustee’s name and 20 address, and of the time allowed for commencing a 21 proceeding. 22 (b) Upon the death of the settlor of a trust that was 23 revocable at the settlor’s death, the trustee may proceed to 24 distribute the trust property in accordance with the terms of 25 the trust. The trustee is not subject to liability for doing so 26 unless: 27 (1) the trustee knows of a pending judicial proceeding 28 contesting the validity of the trust; or 29 (2) a potential contestant has notified the trustee of a 30 possible judicial proceeding to contest the trust and a judicial 31 proceeding is commenced within one hundred twenty days 32 after the contestant sent the notification. 33 (c) A beneficiary of a trust that is determined to have been 34 invalid is liable to return any distribution received. 35 36 REPORTER’S COMMENT 37 This section provides finality to the question of when a 38 contest of a revocable trust may be brought. The section is 39 designed to allow an adequate time in which to bring a

[143] 425 1 contest while at the same time permitting the expeditious 2 distribution of the trust property following the settlor’s death. 3 A trust can be contested on a variety of grounds. For 4 example, the contestant may allege that no trust was created 5 due to lack of intent to create a trust or lack of capacity (see 6 Section 627402), that undue influence, duress, or fraud was 7 involved in the trust’s creation (see Section 627406), or that 8 the trust had been revoked or modified (see Section 627602). 9 A “contest” is an action to invalidate all or part of the terms 10 of the trust or of property transfers to the trustee. An action 11 against a beneficiary or other person for intentional 12 interference with an inheritance or gift, not being a contest, is 13 not subject to this section. For the law on intentional 14 interference, see Restatement (Second) of Torts Section 774B 15 (1979). Nor does this section preclude an action to determine 16 the validity of a trust that is brought during the settlor’s 17 lifetime, such as a petition for a declaratory judgment, if such 18 action is authorized by other law. See Section 627106 19 (SCTC supplemented by common law of trusts and principles 20 of equity). 21 This section applies only to a revocable trust that becomes 22 irrevocable by reason of the settlor’s death. A trust that 23 became irrevocable by reason of the settlor’s lifetime release 24 of the power to revoke is outside its scope. A revocable trust 25 does not become irrevocable upon a settlor’s loss of capacity. 26 Pursuant to Section 627602 and 627602.1, the power to 27 revoke may be exercised by the settlor’s agent, conservator, 28 or guardian, or personally by the settlor if the settlor regains 29 capacity. 30 Subsection (a) specifies a time limit on when a contest can 31 be brought. A contest is barred upon the first to occur of two 32 possible events. The maximum possible time for bringing a 33 contest is one year from the settlor’s death. This should 34 provide potential contestants with ample time in which to 35 determine whether they have an interest that will be affected 36 by the trust, even if formal notice of the trust is lacking. The 37 oneyear period is derived from Section 623108, under which 38 the contest of an informally probate will must occur by the

[143] 426 1 later of one year from death or eight months after informal 2 probate 3 A trustee who wishes to shorten the contest period may do 4 so by giving notice. Subsection (a)(2) bars a contest by a 5 potential contestant 120 days after the date the trustee sent 6 that person a copy of the trust instrument and informed the 7 person of the trust’s existence, of the trustee’s name and 8 address, and of the time allowed for commencing a contest. 9 The 120 day period in subsection (a)(2) is subordinate to the 10 oneyear bar in subsection (a)(1). A contest is automatically 11 barred one year after the settlor’s death even if notice is sent 12 by the trustee less than 120 days prior to the end of that 13 period. 14 Because only a small minority of trusts are actually 15 contested, trustees should not be restrained from making 16 distributions because of concern about possible liability 17 should a contest later be filed. Absent a protective statute, a 18 trustee is ordinarily absolutely liable for misdelivery of the 19 trust assets, even if the trustee reasonably believed that the 20 distribution was proper. See Restatement (Second) of Trusts 21 Section 226 (1959). Subsection (b) addresses liability 22 concerns by allowing the trustee, upon the settlor’s death, to 23 proceed expeditiously to distribute the trust property. The 24 trustee may distribute the trust property in accordance with 25 the terms of the trust until and unless the trustee receives 26 notice of a pending judicial proceeding contesting the 27 validity of the trust, or until notified by a potential contestant 28 of a possible contest, followed by its filing within 120 days. 29 Even though a distribution in compliance with subsection 30 (b) discharges the trustee from potential liability, subsection 31 (c) makes the beneficiaries of what later turns out to have 32 been an invalid trust liable to return any distribution received. 33 Issues as to whether the distribution must be returned with 34 interest, or with income earned or profit made are not 35 addressed in this section but are left to the law of restitution. 36 For purposes of notices under this section, the substitute 37 representation principles of Part 3 are applicable. The notice 38 by the trustee under subsection (a)(2) or by a potential 39 contestant under subsection (b)(2) must be given in a manner

[143] 427 1 reasonably suitable under the circumstances and likely to 2 result in its receipt. See Section 627109(a). 3 This section does not address possible liability for the 4 debts of the deceased settlor or a trustee’s possible liability to 5 creditors for distributing trust assets. For possible liability of 6 the trust, see Section 627505(a)(3) and Comment 7 For statutory limitations periods applicable to wills, see 8 South Carolina Probate Code Section 623108. 9 For statutory limitations periods applicable to claims of 10 beneficiaries against the trustee, see SCTC Section 6271005. 11 12 Section 627605. A provision in a revocable trust 13 purporting to penalize any interested person for contesting 14 the validity of the trust or instituting other proceedings 15 relating to the trust is unenforceable if probable cause exists 16 for instituting proceedings. 17 18 REPORTER’S COMMENT 19 This Section is analogous to South Code Probate Code 20 Section 623905, which is applicable to wills. 21 22 Section 627606. (A) Unless the trust expressly provides 23 otherwise, if the beneficiary under a revocable trust, who is a 24 greatgrandparent or a lineal descendant of a greatgrandparent 25 of the settlor, is dead at the time of execution of the trust, 26 fails to survive the settlor, or is treated as if he predeceased 27 the settlor, the issue of the deceased beneficiary who 28 survived the settlor take in place of the deceased beneficiary 29 and if they are all of the same degree of kinship to the 30 beneficiary they take equally, but if of unequal degree then 31 those of more remote degree take by representation. One 32 who would have been a beneficiary under a class gift if he 33 had survived the settlor is treated as a beneficiary for 34 purposes of this section whether his death occurred before or 35 after the execution of the trust. 36 (B) Except as provided in subsection (A), if the 37 disposition of any real or personal property under a revocable 38 trust fails for any reason, this property becomes a part of the 39 residue of the trust.

[143] 428 1 (C) Except as provided in subsection (A), if the residue 2 under a revocable trust is distributed to two or more persons 3 and the share of one of the residuary beneficiaries fails for 4 any reason, his share passes to the other residuary beneficiary 5 or to other residuary beneficiaries in proportion to their 6 interests in the residue. 7 8 REPORTER’S COMMENT 9 This Section retains and incorporates former South Carolina 10 Probate Code Section 627113 (except for the deletion of the 11 words “inter vivos” when used to describe the trust and the 12 addition of the introductory “Unless the trust expressly 13 provides otherwise”) and is analogous to SCPC Section 14 622603 applicable to wills. 15 16 Section 627607. If after executing a revocable trust the 17 settlor is divorced or his the marriage annulled or his the 18 spouse is a party to a valid proceeding concluded by an order 19 purporting to terminate all marital property rights or 20 confirming equitable distribution between the spouses, the 21 divorce or annulment or order revokes any disposition or 22 appointment of property including beneficial interests made 23 by such trust to the spouse, any provision conferring a 24 general or special power of appointment on the spouse, and 25 any nomination of the spouse as trustee, unless the trust 26 expressly provides otherwise. Property prevented from 27 passing to a spouse because of revocation by divorce or 28 annulment or order passes as if the spouse failed to survive 29 the settlor, and other provisions conferring some power or 30 office on this spouse are interpreted as if the spouse failed to 31 survive the settlor. If these provisions for the spouse are 32 revoked solely by this section, they are revived by the 33 settlor’s remarriage to the former spouse. For purposes of 34 this section, divorce or annulment or order means any 35 divorce or annulment or order which would exclude the 36 spouse as a surviving spouse within the meaning of 37 subsections (a) and (b) of Section 622802. A decree of 38 separate maintenance which does not terminate the status of 39 husband and wife is not a divorce for purposes of this

[143] 429 1 section. No change of marital or parental circumstances 2 other than as described in this section revokes a disposition to 3 a spouse in a revocable trust. 4 5 REPORTER’S COMMENT 6 This Section retains and incorporates South Carolina Probate 7 Code Section 627114 (except for the deletion of the words 8 “inter vivos” when used to describe the trust) and is 9 consistent with SCPC Section 622507. 10 11 Part 7 12 13 Office of Trustee 14 15 General Comment 16 This article contains a series of default rules dealing with 17 the office of trustee. Sections 627701 and 627702 address 18 the process for getting a trustee into office, including the 19 procedures for indicating an acceptance and whether bond 20 will be required. Section 627703 addresses cotrustees, 21 permitting the cotrustees to act by majority action and 22 specifying the extent to which one trustee may delegate to 23 another. Sections 627704 through 627707 address changes 24 in the office of trustee, specifying the circumstances when a 25 vacancy must be filled, the procedure for resignation, the 26 grounds for removal, and the process for appointing a 27 successor. Sections 627708 and 627709 prescribe the 28 standards for determining trustee compensation and 29 reimbursement for expenses advanced. 30 Except for the court’s authority to order bond, all of the 31 provisions of this article are subject to modification in the 32 terms of the trust. See Section 627105. 33 34 Section 627701. (a) Except as otherwise provided in 35 subsection (c), a person designated as trustee accepts the 36 trusteeship: 37 (1) by substantially complying with a method of 38 acceptance provided in the terms of the trust; or

[143] 430 1 (2) if the terms of the trust do not provide a method or 2 the method provided in the terms is not expressly made 3 exclusive, by accepting delivery of the trust property, 4 exercising powers or performing duties as trustee, or 5 otherwise indicating acceptance of the trusteeship. 6 (b) A person designated as trustee who has not yet 7 accepted the trusteeship may reject the trusteeship. A 8 designated trustee who does not accept the trusteeship within 9 a reasonable time after knowing of the designation is deemed 10 to have rejected the trusteeship. 11 (c) A person designated as trustee, without accepting the 12 trusteeship, may: 13 (1) act to preserve the trust property if, within a 14 reasonable time after acting, the person sends a rejection of 15 the trusteeship to the settlor or, if the settlor is dead or lacks 16 capacity, to a qualified beneficiary; and 17 (2) inspect or investigate trust property to determine 18 potential liability under environmental or other law or for any 19 other purpose. 20 21 REPORTER’S COMMENT 22 This section, which specifies the requirements for a valid 23 acceptance of the trusteeship, implicates many of the same 24 issues that arise in determining whether a trust has been 25 revoked. Consequently, the two provisions track each other 26 closely. Compare Section 627701(a), with Section 27 627602(c) (procedure for revoking or modifying trust). 28 Procedures specified in the terms of the trust are recognized, 29 but only substantial, not literal compliance is required. A 30 failure to meet technical requirements, such as notarization of 31 the trustee’s signature, does not result in a failure to accept. 32 Ordinarily, the trustee will indicate acceptance by signing the 33 trust instrument or signing a separate written instrument. 34 However, this section validates any other method 35 demonstrating the necessary intent, such as by knowingly 36 exercising trustee powers, unless the terms of the trust make 37 the specified method exclusive. This section also does not 38 preclude an acceptance by estoppel. For general background 39 on issues relating to trustee acceptance and rejection, see

[143] 431 1 Restatement (Third) of Trusts Section 35 (Tentative Draft 2 No. 2, approved 1999); Restatement (Second) of Trusts 3 Section 102 (1959). Consistent with Section 627201(b), 4 which emphasizes that continuing judicial supervision of a 5 trust is the rare exception, not the rule, the SCTC does not 6 require that a trustee qualify in court. 7 To avoid the inaction that can result if the person 8 designated as trustee fails to communicate a decision either 9 to accept or to reject the trusteeship, subsection (b) provides 10 that a failure to accept within a reasonable time constitutes a 11 rejection of the trusteeship. What will constitute a reasonable 12 time depends on the facts and circumstances of the particular 13 case. A major consideration is possible harm that might 14 occur if a vacancy in a trusteeship is not filled in a timely 15 manner. A trustee’s rejection normally precludes a later 16 acceptance but does not cause the trust to fail. See 17 Restatement (Third) of Trusts Section 35 cmt. c (Tentative 18 Draft No. 2, approved 1999). Regarding the filling of a 19 vacancy in the event of a rejection, see Section 627704. 20 A person designated as trustee who decides not to accept 21 the trusteeship need not provide a formal rejection, but a 22 clear and early communication is recommended. The 23 appropriate recipient of the rejection depends upon the 24 circumstances. Ordinarily, it would be appropriate to 25 communicate the rejection to the person who informed the 26 designee of the proposed trusteeship. If judicial proceedings 27 involving the trust are pending, the rejection could be filed 28 with the court. In the case of a person named as trustee of a 29 revocable trust, it would be appropriate to communicate the 30 rejection to the settlor. In any event, it would be best to 31 inform a beneficiary with a significant interest in the trust 32 because that beneficiary might be more motivated than others 33 to seek appointment of a new trustee. 34 Subsection (c)(1) makes clear that a nominated trustee may 35 act expeditiously to protect the trust property without being 36 considered to have accepted the trusteeship. However, upon 37 conclusion of the intervention, the nominated trustee must 38 send a rejection of office to the settlor, if living and 39 competent, otherwise to a qualified beneficiary.

[143] 432 1 Because of the potential liability that can inhere in 2 trusteeship, subsection (c)(2) allows a person designated as 3 trustee to inspect the trust property without accepting the 4 trusteeship. The condition of real property is a particular 5 concern, including possible tort liability for the condition of 6 the premises or liability for violation of state or federal 7 environmental laws such as CERCLA, 42 U.S.C. Section 8 9607. For a provision limiting a trustee’s personal liability 9 for obligations arising from ownership or control of trust 10 property, see Section 6271010(b). 11 South Carolina had no prior statutory counterpart. 12 Generally, at common law, “in an express trust, a trustee 13 must agree to serve as trustee because of the attendant duties 14 and potential liability.” S. Alan Medlin, The Law of Wills 15 and Trusts, Vol. 1, Estate Planning in South Carolina (2002) 16 at Section 502, citing Anderson v. Earle, 9 S.C. 460 (S.C. 17 1878). 18 19 Section 627702. (a) A trustee shall provide bond to 20 secure the performance of the trustee’s duties if: 21 (1) the terms of the governing instrument require the 22 trustee to provide bond; 23 (2) a beneficiary requests the trustee to provide bond 24 and the court finds the request to be reasonable; or 25 (3) the court finds that it is necessary for the trustee to 26 provide bond in order to protect the interests of the 27 beneficiaries who are not able to protect themselves and 28 whose interests otherwise are not adequately represented. 29 However, in no event shall bond be required of a trustee, 30 including a trustee appointed by the court, if the governing 31 instrument directs otherwise. On petition of the trustee or 32 other interested person, the court may excuse a requirement 33 of bond, reduce the amount of the bond, release the surety, or 34 permit the substitution of another bond with the same or 35 different sureties. 36 (b) If bond is required, it shall be filed in the court in the 37 place in which the trust has its principal place of 38 administration in amounts and with sureties and liabilities 39 consistent with the requirements of South Carolina Code

[143] 433 1 Sections 623604 relating to bonds of personal 2 representatives. 3 4 REPORTER’S COMMENT 5 South Carolina Trust Code Section 627702 differs 6 significantly from the Uniform Trust Code version of Section 7 702. SCTC Section 627702 is in accord with former South 8 Carolina Probate Code Section 627304, providing that a 9 trustee will not normally be required to post bond. 10 11 Section 627703. (a) Cotrustees who are unable to reach a 12 unanimous decision may act by majority decision. 13 (b) If a vacancy occurs in a cotrusteeship, the remaining 14 cotrustees may act for the trust. 15 (c) A cotrustee must participate in the performance of a 16 trustee’s function unless the cotrustee is unavailable to 17 perform the function because of absence, illness, 18 disqualification under other law, or other temporary 19 incapacity or the cotrustee has properly delegated the 20 performance of the function to another trustee. 21 (d) If a cotrustee is unavailable to perform duties because 22 of absence, illness, disqualification under other law, or other 23 temporary incapacity, and prompt action is necessary to 24 achieve the purposes of the trust or to avoid injury to the trust 25 property, the remaining cotrustee or a majority of the 26 remaining cotrustees may act for the trust. 27 (e) A trustee may not delegate to a cotrustee the 28 performance of a function the settlor reasonably expected the 29 trustees to perform jointly. Unless a delegation was 30 irrevocable, a trustee may revoke a delegation previously 31 made. 32 (f) Except as otherwise provided in subsection (g), a 33 trustee who does not join in an action of another trustee is not 34 liable for the action. 35 (g) Each trustee shall exercise reasonable care to: 36 (1) prevent a cotrustee from committing a serious 37 breach of trust; and 38 (2) compel a cotrustee to redress a serious breach of 39 trust.

[143] 434 1 (h) A dissenting trustee who joins in an action at the 2 direction of the majority of the trustees and who notified any 3 cotrustee of the dissent at or before the time of the action is 4 not liable for the action unless the action is a serious breach 5 of trust. 6 7 REPORTER’S COMMENT 8 This section contains most but not all of the Code’s 9 provisions on cotrustees. Other provisions relevant to 10 cotrustees include Sections 627704 (vacancy in trusteeship 11 need not be filled if cotrustee remains in office), 627705 12 (notice of resignation must be given to cotrustee), 627706 13 (lack of cooperation among cotrustees as ground for 14 removal), 627707 (obligations of resigning or removed 15 trustee), 627813 (reporting requirements upon vacancy in 16 trusteeship), and 6271013 (authority of cotrustees to 17 authenticate documents. 18 Cotrustees are appointed for a variety of reasons. Having 19 multiple decisionmakers serves as a safeguard against 20 eccentricity or misconduct. Cotrustees are often appointed to 21 gain the advantage of differing skills, perhaps a financial 22 institution for its permanence and professional skills, and a 23 family member to maintain a personal connection with the 24 beneficiaries. On other occasions, cotrustees are appointed to 25 make certain that all family lines are represented in the trust’s 26 management. 27 Cotrusteeship should not be called for without careful 28 reflection. Division of responsibility among cotrustees is 29 often confused, the accountability of any individual trustee is 30 uncertain, obtaining consent of all trustees can be 31 burdensome, and, unless an odd number of trustees is named, 32 deadlocks requiring court resolution can occur. Potential 33 problems can be reduced by addressing division of 34 responsibilities in the terms of the trust. Like the other 35 sections of this article, this section is freely subject to 36 modification in the terms of the trust. See Section 627105. 37 Much of this section is based on comparable provisions of 38 the Restatement of Trusts, although with extensive 39 modifications. Reference should also be made to ERISA

[143] 435 1 Section 405 (29 U.S.C. Section 1105), which in recent years 2 has been the statutory base for the most significant case law 3 on the powers and duties of cotrustees. 4 Subsection (a) is in accord with Restatement (Third) of 5 Trusts Section 39 (Tentative Draft No.2, approved 1999), 6 which rejects the common law rule, followed in earlier 7 Restatements, requiring unanimity among the trustees of a 8 private trust. See Restatement (Second) of Trusts Section 9 194 (1959). This section is consistent with the prior 10 Restatement rule applicable to charitable trusts, which 11 allowed for action by a majority of trustees. See Restatement 12 (Second) of Trusts Section 383 (1959). Under subsection 13 (b), a majority of the remaining trustees may act for the trust 14 when a vacancy occurs in a cotrusteeship. Section 627704 15 provides that a vacancy in a cotrusteeship need be filled only 16 if there is no trustee remaining in office. 17 Subsections (b) and (d) provide for the proper 18 administration of the trust in the event a cotrustee is 19 unavailable or temporarily incapacitated. Subsection (c) 20 compels a cotrustee to participate in the trustee’s function or 21 delegate such a duty unless excused by “absence, illness, 22 disqualification under the law, or other temporary 23 incapacity.” Other laws under which a cotrustee might be 24 disqualified include federal securities law and the ERISA 25 prohibited transactions rules. 26 Subsection (e) addresses the extent to which a trustee may 27 delegate the performance of functions to a cotrustee. The 28 standard differs from the standard for delegation to an agent 29 as provided in Section 627807 because the two situations are 30 different. Section 627807, which is identical to Section 9 of 31 the Uniform Prudent Investor Act, recognizes that many 32 trustees are not professionals. Consequently, trustees should 33 be encouraged to delegate functions they are not competent 34 to perform. Subsection (e) is premised on the assumption 35 that the settlor selected cotrustees for a specific reason and 36 that this reason ought to control the scope of a permitted 37 delegation to a cotrustee. Subsection (e) prohibits a trustee 38 from delegating to another trustee functions the settlor 39 reasonably expected the trustees to perform jointly. The

[143] 436 1 exact extent to which a trustee may delegate functions to 2 another trustee in a particular case will vary depending on the 3 reasons the settlor decided to appoint cotrustees. The better 4 practice is to address the division of functions in the terms of 5 the trust, as allowed by Section 627105. Subsection (e) is 6 based on language derived from Restatement (Second) of 7 Trusts Section 171 (1959). This section of the Restatement 8 Second, which applied to delegations to both agents and 9 cotrustees, was superseded, as to delegation to agents, by 10 Restatement (Third) of Trusts: Prudent Investor Rule Section 11 171 (1992). 12 By permitting the trustees to act by a majority, this section 13 contemplates that there may be a trustee or trustees who 14 might dissent. The safeguard for a dissenting cotrustee is 15 sprinkled throughout subsections (f), (g) and (h), Subsection 16 (f) provides for a limitation on liability for a nonjoining 17 cotrustee, but that limitation on liability is tempered in 18 subsection (g) by providing that a trustee must exercise 19 “reasonable care”. Under subsection (g), a trustee may not 20 passively dissent to an improper action by a cotrustee. 21 Subsection (h) protects a dissenting cotrustee who joins in an 22 action at the direction of the majority and notifies any 23 cotrustee of his dissent. Subsection (h) does not require the 24 dissent to be in writing. Further, under subsections (g) and 25 (h) together, a cotrustee cannot dissent and thereafter remain 26 passive for actions by the majority of cotrustees amounting to 27 a “serious breach of trust.” The dissenting trustee must 28 exercise “reasonable care” to correct the conduct of the 29 cotrustee(s). The responsibility to take action against a 30 breaching cotrustee codifies the substance of Sections 184 31 and 224 of the Restatement (Second) of Trusts (1959). 32 33 Section 627704. (a) A vacancy in a trusteeship occurs if: 34 (1) a person designated as trustee rejects the trusteeship; 35 (2) a person designated as trustee cannot be identified 36 or does not exist; 37 (3) a trustee resigns; 38 (4) a trustee is disqualified or removed; 39 (5) a trustee dies; or

[143] 437 1 (6) a guardian or conservator is appointed for an 2 individual serving as trustee. 3 (b) If one or more cotrustees remain in office, a vacancy 4 in a trusteeship need not be filled. A vacancy in a trusteeship 5 must be filled if the trust has no remaining trustee. 6 (c) A vacancy in a trusteeship of a noncharitable trust that 7 is required to be filled must be filled in the following order of 8 priority: 9 (1) by a person designated in the terms of the trust to 10 act as successor trustee; 11 (2) by a person appointed by unanimous agreement of 12 the qualified beneficiaries; or 13 (3) by a person appointed by the court. 14 (d) A vacancy in a trusteeship of a charitable trust that is 15 required to be filled must be filled in the following order of 16 priority: 17 (1) by a person designated in the terms of the trust to 18 act as successor trustee; 19 (2) by a person selected by the charitable organizations 20 expressly designated to receive distributions under the terms 21 of the trust if the Attorney General concurs in the selection; 22 or 23 (3) by a person appointed by the court. 24 (e) Whether or not a vacancy in a trusteeship exists or is 25 required to be filled, the court may appoint an additional 26 trustee or special fiduciary whenever the court considers the 27 appointment necessary for the administration of the trust. 28 The procedure for such appointment and the notice 29 requirement shall be the same as set forth for special 30 administrators under South Carolina Code Section 623614. 31 32 REPORTER’S COMMENT 33 This section provides a definition for a vacancy in a 34 trusteeship and the procedure for appointment of a successor 35 trustee if no provisions for dealing with these matters are set 36 forth in the trust. See also Sections 627701 (accepting or 37 declining trusteeship), 627705 (resignation), and 627706 38 (removal). Good drafting practice suggests that the terms of 39 the trust deal expressly with the problem of vacancies,

[143] 438 1 naming successors and specifying the procedure for filling 2 vacancies. This section applies only if the terms of the trust 3 fail to specify a procedure. 4 Subsection (a) provides a list of matters causing a vacancy 5 in trusteeship. The disqualification of a trustee referred to in 6 subsection (a)(4) would include a financial institution whose 7 right to engage in trust business has been revoked or 8 removed. Such disqualification might also occur if the trust’s 9 principal place of administration is transferred to a 10 jurisdiction in which the trustee, whether an individual or 11 institution, is not qualified to act. 12 Subsection (b) grants authority to the remaining trustee(s) 13 for the administration of the trust following a vacancy. If a 14 vacancy in the cotrusteeship is not filled, Section 627703 15 authorizes the remaining cotrustees to continue to administer 16 the trust. However, as provided in subsection (e), the court, 17 exercising its inherent equity authority, may always appoint 18 additional trustees if the appointment would promote better 19 administration of the trust. See Restatement (Third) of Trusts 20 Section 34 cmt. a (Tentative Draft No. 2, approved 1999); 21 Restatement (Second) of Trusts Section 108 cmt. a (1959). 22 Subsection (c) provides a procedure for filling a vacancy in 23 trusteeship if such a vacancy is required to be filled. 24 Vacancies in this context could arise when the sole remaining 25 trustee no longer is available to serve or the trust requires 26 cotrustees and only one is named in the trust. Subsection (c) 27 provides priority of succession of trustees in a noncharitable 28 trust. Absent an effective provision in the terms of the trust, 29 subsection (c)(2) permits a vacancy in the trusteeship to be 30 filled, without the need for court approval, by a person 31 selected by unanimous agreement of the qualified 32 beneficiaries. An effective provision in the terms of the trust 33 for the designation of a successor trustee includes a 34 procedure under which the successor trustee is selected by a 35 person designated in those terms. Pursuant to Section 36 627705(a)(1), the qualified beneficiaries may also receive the 37 trustee’s resignation. If a trustee resigns following notice as 38 provided in Section 627705, the trust may be transferred to a 39 successor appointed pursuant to subsection (c)(2) of this

[143] 439 1 section, all without court involvement. A nonqualified 2 beneficiary who is displeased with the choice of the qualified 3 beneficiaries may petition the court for removal of the trustee 4 under Section 627706. 5 If the qualified beneficiaries fail to make an appointment, 6 subsection (c)(3) authorizes the court to fill the vacancy. In 7 making the appointment, the court should consider the 8 objectives and probable intention of the settlor, the 9 promotion of the proper administration of the trust, and the 10 interests and wishes of the beneficiaries. See Restatement 11 (Third) of Trusts Section 34 cmt. f (Tentative Draft No. 2, 12 approved 1999); Restatement (Second) of Trusts Section 108 13 cmt. d (1959). 14 Subsection (d) provides for priority of succession in a 15 charitable trust. These sections provide a method for the 16 vacancy to be filled without court approval. Subsection (d) 17 includes the language added by the 2004 Amendments to the 18 UTC, dealing with the concurrence of the Attorney General. 19 If the attorney general does not concur in the selection, 20 however, or if the trust does not designate a charitable 21 organization to receive distributions, the vacancy may be 22 filled only by the court. 23 Subsection (e) provides for a court appointed special 24 trustee or “special fiduciary” if necessary for the 25 “administration of the trust.” The provisions of subsection 26 (e) are unqualified and provide “whether or not a vacancy in 27 a trusteeship exists or is required to be filled” the court has 28 authority to appoint such an additional trustee. Such a trustee 29 would have the authority provided by the court in its order of 30 appointment. If the order of appointment contains no 31 limitations, the additional trustee would succeed to the full 32 powers of a trustee under the trust. 33 In the case of a revocable trust, the appointment of a 34 successor will normally be made directly by the settlor. As 35 to the duties of a successor trustee with respect to the actions 36 of a predecessor, see Section 627812. 37 38 Section 627705. (a) A trustee may resign:

[143] 440 1 (1) upon at least 30 days notice in writing to the 2 qualified beneficiaries, the settlor, if living, and all 3 cotrustees; or 4 (2) with the approval of the court. 5 (b) In approving a resignation, the court may issue orders 6 and impose conditions reasonably necessary for the 7 protection of the trust property. 8 (c) Any liability of a resigning trustee or of any sureties 9 on the trustee’s bond for acts or omissions of the trustee is 10 not discharged or affected by the trustee’s resignation. 11 12 REPORTER’S COMMENT 13 This section rejects the common law rule that a trustee may 14 resign only with permission of the court, and goes further 15 than the Restatements, which allow a trustee to resign with 16 the consent of the beneficiaries. See Restatement (Third) of 17 Trusts Section 36 (Tentative Draft No. 2, approved 1999); 18 Restatement (Second) of Trusts Section 106 (1959). 19 Concluding that the default rule ought to approximate 20 standard drafting practice, the drafting committee provided in 21 subsection (a) that a trustee may resign by giving notice to 22 the qualified beneficiaries, a living settlor, and any cotrustee. 23 A resigning trustee may also follow the traditional method 24 and resign with approval of the court. 25 Restatement (Third) of Trusts Section 36 cmt. d (Tentative 26 Draft No. 2, approved 1999), and Restatement (Second) of 27 Trusts Section 106 cmt. b (1959), provide, similar to 28 subsection (c), that a resignation does not release the 29 resigning trustee from potential liabilities for acts or 30 omissions while in office. The act of resignation can give 31 rise to liability if the trustee resigns for the purpose of 32 facilitating a breach of trust by a cotrustee. See Ream v. 33 Frey, 107 F.3d 147 (3rd Cir. 1997). 34 Regarding the residual responsibilities of a resigning 35 trustee until the trust property is delivered to a successor 36 trustee, see Section 627707. 37 In the case of a revocable trust, because the rights of the 38 qualified beneficiaries are subject to the settlor’s control (see

[143] 441 1 Section 627603), resignation of the trustee is accomplished 2 by giving notice to the settlor instead of the beneficiaries. 3 Section 627705(a)(1) adds to the Uniform Trust Code 4 version of Section 705 the words “in writing” after “notice” 5 for clarification, as a writing is the reasonable and customary 6 choice for notification. 7 This Section incorporates some of the provisions of former 8 South Carolina Probate Code Section 627705, except that 9 this Section introduces a thirty (30) day written notice 10 provision for resignation. The former South Carolina statute 11 allowed the Trustee to resign if the document so provided, all 12 beneficiaries consented, or the court approved the 13 resignation. Subsection (c) makes clear that a mere 14 resignation does not terminate a trustee’s liability. 15 16 Section 627706. (a) For the reasons set forth in 17 subsection (b), the settlor, a cotrustee, or a beneficiary may 18 request the court to remove a trustee, or a trustee may be 19 removed by the court on its own initiative. 20 (b) The court may remove a trustee if: 21 (1) the trustee has committed a serious breach of trust; 22 (2) lack of cooperation among cotrustees substantially 23 impairs the administration of the trust; 24 (3) because of unfitness, unwillingness, or persistent 25 failure of the trustee to administer the trust effectively, the 26 court determines that removal of the trustee best serves the 27 interests of the beneficiaries; or 28 (4) there has been a substantial change of circumstances 29 or removal is requested by all of the qualified beneficiaries, 30 the court finds that removal of the trustee best serves the 31 interests of all of the beneficiaries and is not inconsistent 32 with a material purpose of the trust, and a suitable cotrustee 33 or successor trustee is available. 34 (c) Pending a final decision on a request to remove a 35 trustee, or in lieu of or in addition to removing a trustee, the 36 court may order such appropriate relief under Section 37 6271001(b) as may be necessary to protect the trust property 38 or the interests of the beneficiaries. 39

[143] 442 1 REPORTER’S COMMENT 2 This section sets forth the grounds for removal of a trustee. 3 Subsection (a), contrary to the common law, grants the 4 settlor of The right to petition for removal does not give the 5 settlor of an irrevocable trust any other rights, such as the 6 right to an annual report or to receive other information 7 concerning administration of the trust. The right of a 8 beneficiary to petition for removal does not apply to a 9 revocable trust while the settlor has capacity. Pursuant to 10 Section 627603(a), while a trust is revocable and the settlor 11 has capacity, the rights of the beneficiaries are subject to the 12 settlor’s exclusive control. 13 For clarification, Section 627706(a) adds to the Uniform 14 Trust Code version the words “for the reasons set forth in 15 subsection (b).” The UTC Comment makes clear that a 16 beneficiary’s rights under a revocable trust are subject to 17 those of the settlor. 18 Trustee removal may be regulated by the terms of the trust. 19 See Section 627105. In fashioning a removal provision for 20 an irrevocable trust, the drafter should be cognizant of the 21 danger that the trust may be included in the settlor’s federal 22 gross estate if the settlor retains the power to be appointed as 23 trustee or to appoint someone who is not independent. See 24 Rev. Rul. 9558, 19952 C.B. 191. 25 Subsection (b) lists the grounds for removal of the trustee. 26 The grounds for removal are similar to those found in 27 Restatement (Third) of Trusts Section 37 cmt. a (Tentative 28 Draft No. 2, approved 1999). A trustee may be removed for 29 untoward action, such as for a serious breach of trust, but the 30 section is not so limited. A trustee may also be removed 31 under a variety of circumstances in which the court 32 concludes that the trustee is not best serving the interests of 33 the beneficiaries. The term “interests of the beneficiaries” 34 means the beneficial interests as provided in the terms of the 35 trust, not as defined by the beneficiaries. See Section 36 627103(7). Removal for conduct detrimental to the interests 37 of the beneficiaries is a wellestablished standard for removal 38 of a trustee. See Restatement (Third) of Trusts Section 37

[143] 443 1 cmt. d (Tentative Draft No. 2, approved 1999); Restatement 2 (Second) of Trusts Section 107 cmt. a (1959). 3 Subsection (b)(1), consistent with Restatement (Third) of 4 Trusts Section 37 cmt. a and g (Tentative Draft No. 2, 5 approved 1999), makes clear that not every breach of trust 6 justifies removal of the trustee. The breach must be 7 “serious.” A serious breach of trust may consist of a single 8 act that causes significant harm or involves flagrant 9 misconduct. A serious breach of trust may also consist of a 10 series of smaller breaches, none of which individually justify 11 removal when considered alone, but which do so when 12 considered together. A particularly appropriate circumstance 13 justifying removal of the trustee is a serious breach of the 14 trustee’s duty to keep the beneficiaries reasonably informed 15 of the administration of the trust or to comply with a 16 beneficiary’s request for information as required by Section 17 627813. Failure to comply with this duty may make it 18 impossible for the beneficiaries to protect their interests. It 19 may also mask more serious violations by the trustee. 20 “Serious breach of trust” is defined in SCTC Subsection 21 627103(24). 22 The lack of cooperation among trustees justifying removal 23 under subsection (b)(2) need not involve a breach of trust. 24 The key factor is whether the administration of the trust is 25 significantly impaired by the trustees’ failure to agree. 26 Removal is particularly appropriate if the naming of an even 27 number of trustees, combined with their failure to agree, has 28 resulted in deadlock requiring court resolution. The court 29 may remove one or more or all of the trustees. If a cotrustee 30 remains in office following the removal, under Section 31 627704 appointment of a successor trustee is not required. 32 Subsection (b)(2) deals only with lack of cooperation 33 among cotrustees, not with friction between the trustee and 34 beneficiaries. Friction between the trustee and beneficiaries 35 is ordinarily not a basis for removal. However, removal 36 might be justified if a communications breakdown is caused 37 by the trustee or appears to be incurable. See Restatement 38 (Third) of Trusts Section 37 cmt. a (Tentative Draft No. 2, 39 approved 1999).

[143] 444 1 Subsection (b)(3) authorizes removal for a variety of 2 grounds, including unfitness, unwillingness, or persistent 3 failure to administer the trust effectively. Removal in any of 4 these cases is allowed only if it best serves the interests of the 5 beneficiaries. For the definition of “interests of the 6 beneficiaries,” see Section 627103(7). “Unfitness” may 7 include not only mental incapacity but also lack of basic 8 ability to administer the trust. Before removing a trustee for 9 unfitness the court should consider the extent to which the 10 problem might be cured by a delegation of functions the 11 trustee is personally incapable of performing. 12 “Unwillingness” includes not only cases where the trustee 13 refuses to act but also a pattern of indifference to some or all 14 of the beneficiaries. See Restatement (Third) of Trusts 15 Section 37 cmt. a (Tentative Draft No. 2, approved 1999). A 16 “persistent failure to administer the trust effectively” might 17 include a longterm pattern of mediocre performance, such as 18 consistently poor investment results when compared to 19 comparable trusts. 20 It has traditionally been more difficult to remove a trustee 21 named by the settlor than a trustee named by the court, 22 particularly if the settlor at the time of the appointment was 23 aware of the trustee’s failings. See Restatement (Third) of 24 Trusts Section 37 cmt. f (Tentative Draft No. 2, approved 25 1999); Restatement (Second) of Trusts Section 107 cmt. fg 26 (1959). Because of the discretion normally granted to a 27 trustee, the settlor’s confidence in the judgment of the 28 particular person whom the settlor selected to act as trustee is 29 entitled to considerable weight. This deference to the 30 settlor’s choice can weaken or dissolve if a substantial 31 change in the trustee’s circumstances occurs. To honor a 32 settlor’s reasonable expectations, subsection (b)(4) lists a 33 substantial change of circumstances as a possible basis for 34 removal of the trustee. Changed circumstances justifying 35 removal of a trustee might include a substantial change in the 36 character of the service or location of the trustee. A 37 corporate reorganization of an institutional trustee is not itself 38 a change of circumstances if it does not affect the service 39 provided the individual trust account. Before removing a

[143] 445 1 trustee on account of changed circumstances, the court must 2 also conclude that removal is not inconsistent with a material 3 purpose of the trust, that it will best serve the interests of the 4 beneficiaries, and that a suitable cotrustee or successor 5 trustee is available. 6 Subsection (b)(4) also contains a specific but more limited 7 application of Section 627411. Section 627411 allows the 8 beneficiaries by unanimous agreement to compel 9 modification of a trust if the court concludes that the 10 particular modification is not inconsistent with a material 11 purpose of the trust. Subsection (b)(4) of this section 12 similarly allows the qualified beneficiaries to request 13 removal of the trustee if the designation of the trustee was 14 not a material purpose of the trust. Before removing the 15 trustee the court must also find that removal will best serve 16 the interests of the beneficiaries and that a suitable cotrustee 17 or successor trustee is available. 18 Subsection (c) authorizes the court to intervene pending a 19 final decision on a request to remove a trustee. Among the 20 relief that the court may order under Section 6271001(b) is 21 an injunction prohibiting the trustee from performing certain 22 acts and the appointment of a special fiduciary to perform 23 some or all of the trustee’s functions. Pursuant to Section 24 6271004, the court may also award attorney’s fees as justice 25 and equity may require. 26 27 Section 627707. (a) Unless a cotrustee remains in office 28 or the court otherwise orders, and until the trust property is 29 delivered to a successor trustee or other person entitled to it, 30 a trustee who has resigned or been removed has the duties of 31 a trustee and the powers necessary to protect the trust 32 property. 33 (b) A trustee who has resigned or been removed shall 34 proceed expeditiously to deliver the trust property within the 35 trustee’s possession to the cotrustee, successor trustee, or 36 other person entitled to it. 37 38 REPORTER’S COMMENT

[143] 446 1 This section addresses the continuing authority and duty of a 2 resigning or removed trustee. This section is comparable to 3 South Carolina Probate Code Sections 623608 through 4 623611 concerning the termination of a personal 5 representative. Subject to the power of the court to make 6 other arrangements or unless a cotrustee remains in office, a 7 resigning or removed trustee has continuing authority until 8 the trust property is delivered to a successor. If a cotrustee 9 remains in office, there is no reason to grant a resigning or 10 removed trustee any continuing authority, and none is 11 granted under this section. In addition, if a cotrustee remains 12 in office, the former trustee need not submit a final trustee’s 13 report. See Section 627813(c). 14 There is ample authority in the SCTC for the appointment 15 of a special fiduciary, an appointment which can avoid the 16 need for a resigning or removed trustee to exercise residual 17 powers until a successor can take office. See Sections 18 627704(e) (court may appoint additional trustee or special 19 fiduciary whenever court considers appointment necessary 20 for administration of trust), 627705(b) (in approving 21 resignation, court may impose conditions necessary for 22 protection of trust property), 627706(c) (pending decision on 23 petition for removal, court may order appropriate relief), and 24 6271001(b)(5) (to remedy breach of trust, court may appoint 25 special fiduciary as necessary to protect trust property or 26 interests of beneficiary). 27 If the former trustee has died, the SCTC does not require 28 that the trustee’s personal representative wind up the 29 deceased trustee’s administration. Nor is a trustee’s 30 conservator or guardian required to complete the former 31 trustee’s administration if the trustee’s authority terminated 32 due to an adjudication of incapacity. However, to limit the 33 former trustee’s liability, the personal representative, 34 conservator or guardian may submit a trustee’s report on the 35 former trustee’s behalf as authorized by Section 627813(c). 36 Otherwise, the former trustee remains liable for actions taken 37 during the trustee’s term of office until liability is otherwise 38 barred. 39

[143] 447 1 Section 627708. (a) If the terms of a trust do not specify 2 the trustee’s compensation, a trustee is entitled to 3 compensation that is reasonable under the circumstances. 4 (b) If the terms of a trust specify the trustee’s 5 compensation, the trustee is entitled to be compensated as 6 specified, but the court may allow more or less compensation 7 if: 8 (1) the duties of the trustee are substantially different 9 from those contemplated when the trust was created; or 10 (2) the compensation specified by the terms of the trust 11 would be unreasonably low or high. 12 13 REPORTER’S COMMENT 14 This section incorporates and clarifies the provisions of 15 current South Carolina law for determination of trustee fees. 16 Former South Carolina Probate Code Section 627205 17 required the trustee to return the excess part of any fee 18 determined to be unreasonable by the court. 19 Subsection (a) establishes a standard of reasonable 20 compensation. Relevant factors in determining this 21 compensation, as specified in the Restatement, include the 22 custom of the community; the trustee’s skill, experience, and 23 facilities; the time devoted to trust duties; the amount and 24 character of the trust property; the degree of difficulty, 25 responsibility and risk assumed in administering the trust, 26 including in making discretionary distributions; the nature 27 and costs of services rendered by others; and the quality of 28 the trustee’s performance. See Restatement (Third) of Trusts 29 Section 38 cmt. c (Tentative Draft No. 2, approved 1999); 30 Restatement (Second) of Trusts Section 242 cmt. b (1959). 31 In setting compensation, the services actually performed 32 and responsibilities assumed by the trustee should be closely 33 examined. A downward adjustment of fees may be 34 appropriate if a trustee has delegated significant duties to 35 agents, such as the delegation of investment authority to 36 outside managers. See Section 627807 (delegation by 37 trustee). On the other hand, a trustee with special skills, such 38 as those of a real estate agent, may be entitled to extra 39 compensation for performing services that would ordinarily

[143] 448 1 be delegated. See Restatement (Third) of Trusts Section 38 2 cmt. d (Tentative Draft No. 2, approved 1999); Restatement 3 (Second) of Trusts Section 242 cmt. d (1959). 4 Because “trustee” as defined in Section 627103(19) 5 includes not only an individual trustee but also cotrustees, 6 each trustee, including a cotrustee, is entitled to reasonable 7 compensation under the circumstances. The fact that a trust 8 has more than one trustee does not mean that the trustees 9 together are entitled to more compensation than had either 10 acted alone. Nor does the appointment of more than one 11 trustee mean that the trustees are eligible to receive the 12 compensation in equal shares. The total amount of the 13 compensation to be paid and how it will be divided depend 14 on the totality of the circumstances. Factors to be considered 15 include the settlor’s reasons for naming more than one trustee 16 and the level of responsibility assumed and exact services 17 performed by each trustee. Often the fees of cotrustees will 18 be in the aggregate higher than the fees for a single trustee 19 because of the duty of each trustee to participate in 20 administration and not delegate to a cotrustee duties the 21 settlor expected the trustees to perform jointly. See 22 Restatement (Third) of Trusts Section 38 cmt. i (Tentative 23 Draft No. 2, approved 1999). The trust may benefit in such 24 cases from the enhanced quality of decisionmaking resulting 25 from the collective deliberations of the trustees. 26 Financial institution trustees normally base their fees on 27 published fee schedules. Published fee schedules are subject 28 to the same standard of reasonableness under the SCTC as 29 are other methods for computing fees. The courts have 30 generally upheld published fee schedules but this is not 31 automatic. Among the more litigated topics is the issue of 32 termination fees. Termination fees are charged upon 33 termination of the trust and sometimes upon transfer of the 34 trust to a successor trustee. Factors relevant to whether the 35 fee is appropriate include the actual work performed; whether 36 a termination fee was authorized in the terms of the trust; 37 whether the fee schedule specified the circumstances in 38 which a termination fee would be charged; whether the 39 trustee’s overall fees for administering the trust from the date

[143] 449 1 of the trust’s creation, including the termination fee, were 2 reasonable; and the general practice in the community 3 regarding termination fees. Because significantly less work 4 is normally involved, termination fees are less appropriate 5 upon transfer to a successor trustee than upon termination of 6 the trust. For representative cases, see Cleveland Trust Co. 7 v. Wilmington Trust Co., 258 A.2d 58 (Del. 1969); In re 8 Trusts Under Will of Dwan, 371 N.W. 2d 641 (Minn. Ct. 9 App. 1985); Mercer v. Merchants National Bank, 298 A.2d 10 736 (N.H. 1972); In re Estate of Payson, 562 N.Y.S. 2d 329 11 (Surr. Ct. 1990); In re Indenture Agreement of Lawson, 607 12 A. 2d 803 (Pa. Super. Ct. 1992); In re Estate of Ischy, 415 13 A.2d 37 (Pa. 1980); Memphis Memorial Park v. Planters 14 National Bank, 1986 Tenn. App. LEXIS 2978 (May 7, 1986); 15 In re Trust of Sensenbrenner, 252 N.W. 2d 47 (Wis. 1977). 16 This Code does not take a specific position on whether 17 dual fees may be charged when a trustee hires its own law 18 firm to represent the trust. For a discussion, see Ronald C. 19 Link, Developments Regarding the Professional 20 Responsibility of the Estate Administration Lawyer: The 21 Effect of the Model Rules of Professional Conduct, 26 Real 22 Prop. Prob. & Tr. J. 1, 2238 (1991). 23 Subsection (b) permits the terms of the trust to override the 24 reasonable compensation standard, subject to the court’s 25 inherent equity power to make adjustments downward or 26 upward in appropriate circumstances. Compensation 27 provisions should be drafted with care. Common questions 28 include whether a provision in the terms of the trust setting 29 the amount of the trustee’s compensation is binding on a 30 successor trustee, whether a dispositive provision for the 31 trustee in the terms of the trust is in addition to or in lieu of 32 the trustee’s regular compensation, and whether a dispositive 33 provision for the trustee is conditional on the person 34 performing services as trustee. See Restatement (Third) of 35 Trusts Section 38 cmt. a (Tentative Draft No. 2, approved 36 1999); Restatement (Second) of Trusts Section 242 cmt. f 37 (1959). 38 Compensation may be set by agreement. A trustee may 39 enter into an agreement with the beneficiaries for lesser or

[143] 450 1 increased compensation, although an agreement increasing 2 compensation is not binding on a nonconsenting beneficiary. 3 See Section 627111(b) (matters that may be the resolved by 4 nonjudicial settlement). See also Restatement (Third) of 5 Trusts Section 38 cmt. f (Tentative Draft No. 2, approved 6 1999); Restatement (Second) of Trusts Section 242 cmt. i 7 (1959). A trustee may also agree to waive compensation and 8 should do so prior to rendering significant services if 9 concerned about possible gift and income taxation of the 10 compensation accrued prior to the waiver. See Rev. Rul. 11 66167, 19661 C.B. 20. See also Restatement (Third) of 12 Trusts Section 38 cmt. g (Tentative Draft No. 2, approved 13 1999); Restatement (Second) of Trusts Section 242 cmt. j 14 (1959). 15 Section 627816(15) grants the trustee authority to fix and 16 pay its compensation without the necessity of prior court 17 review, subject to the right of a beneficiary to object to the 18 compensation in a later judicial proceeding. Allowing the 19 trustee to pay its compensation without prior court approval 20 promotes efficient trust administration but does place a 21 significant burden on a beneficiary who believes the 22 compensation is unreasonable. To provide a beneficiary with 23 time to take action, and because of the importance of 24 trustee’s fees to the beneficiaries’ interests, Section 62-7- 25 813(b)(4) requires a trustee to provide the qualified 26 beneficiaries with advance notice of any change in the 27 method or rate of the trustee’s compensation. Failure to 28 provide such advance notice constitutes a breach of trust, 29 which, if sufficiently serious, would justify the trustee’s 30 removal under Section 627706. 31 Under Sections 627925 and 627926 of the South Carolina 32 Uniform Principal and Income Act, onehalf of a trustee’s 33 regular compensation is charged to income and the other half 34 to principal. Chargeable to principal are fees for acceptance, 35 distribution, or termination of the trust, and fees charged on 36 disbursements made to prepare property for sale. 37

[143] 451 1 Section 627709. (a) A trustee is entitled to be reimbursed 2 out of the trust property, with interest at the legal rate as 3 appropriate, for: 4 (1) expenses that were properly incurred in the 5 administration of the trust; and 6 (2) to the extent necessary to prevent unjust enrichment 7 of the trust, expenses that were not properly incurred in the 8 administration of the trust. 9 (b) An advance by the trustee of money for the protection 10 of the trust gives rise to a lien against trust property to secure 11 reimbursement with reasonable interest. 12 (c) A prospective trustee is entitled to be reimbursed from 13 trust property for expenses reasonably incurred by the 14 prospective trustee pursuant to Section 627701(c) to protect 15 or investigate the trust assets before deciding whether or not 16 to accept the trusteeship. 17 18 A trustee has the authority to expend trust funds as 19 necessary in the administration of the trust, including 20 expenses incurred in the hiring of agents. See Sections 21 627807 (delegation by trustee) and 627816(15) (trustee to 22 pay expenses of administration from trust). 23 Subsection (a)(1) clarifies that a trustee is entitled to 24 reimbursement from the trust for incurring expenses within 25 the trustee’s authority. The trustee may also withhold 26 appropriate reimbursement for expenses before making 27 distributions to the beneficiaries. See Restatement (Third) of 28 Trusts Section 38 cmt. b (Tentative Draft No. 2, approved 29 1999); Restatement (Second) of Trusts Section 244 cmt. b 30 (1959). A trustee is ordinarily not entitled to reimbursement 31 for incurring unauthorized expenses. Such expenses are 32 normally the personal responsibility of the trustee. 33 As provided in subsection (a)(2), a trustee is entitled to 34 reimbursement for unauthorized expenses only if the 35 unauthorized expenditures benefited the trust. The purpose 36 of this provision, which is derived from Restatement 37 (Second) of Trusts Section 245 (1959), is not to ratify the 38 unauthorized conduct of the trustee, but to prevent unjust 39 enrichment of the trust. Given this purpose, a court, on

[143] 452 1 appropriate grounds, may delay or even deny reimbursement 2 for expenses which benefited the trust. Appropriate grounds 3 include: (1) whether the trustee acted in bad faith in incurring 4 the expense; (2) whether the trustee knew that the expense 5 was inappropriate; (3) whether the trustee reasonably 6 believed the expense was necessary for the preservation of 7 the trust estate; (4) whether the expense has resulted in a 8 benefit; and (5) whether indemnity can be allowed without 9 defeating or impairing the purposes of the trust. See 10 Restatement (Second) of Trusts Section 245 cmt. g (1959). 11 Subsection (b) implements Section 627802(h)(5), which 12 creates an exception to the duty of loyalty for advances by 13 the trustee for the protection of the trust if the transaction is 14 fair to the beneficiaries. Former South Carolina Probate 15 Code Section 627704(18) empowered the trustee “to advance 16 money for the protection of the trust, and for all expenses, 17 losses, and liability sustained in the administration of the 18 trust or because of the holding or ownership of any trust 19 assets, for which advances with any interest the trustee has a 20 lien on the trust assets as against the beneficiary . . . .” 21 Reimbursement under this section may include attorney’s 22 fees and expenses incurred by the trustee in defending an 23 action. However, a trustee is not ordinarily entitled to 24 attorney’s fees and expenses if it is determined that the 25 trustee breached the trust. See 3A Austin W. Scott & 26 William F. Fratcher, The Law of Trusts Section 245 (4th ed. 27 1988). 28 29 Part 8 30 31 Duties and Powers of Trustee 32 33 General Comment 34 This article states the fundamental duties of a trustee and 35 lists the trustee’s powers. The duties listed are not new, but 36 how the particular duties are formulated and applied has 37 changed over the years. This Part was drafted where 38 possible to conform with the South Carolina Uniform 39 Prudent Investor Act. The South Carolina Prudent Investor

[143] 453 1 Act prescribes a trustee’s responsibilities with respect to the 2 management and investment of trust property. The SCTC 3 also addresses a trustee’s duties with respect to distribution to 4 beneficiaries. 5 Because of the widespread adoption of the Uniform 6 Prudent Investor Act, it was decided not to disassemble and 7 fully integrate the Prudent Investor Act into the Uniform 8 Trust Code. Instead, states enacting the Uniform Trust Code 9 were encouraged to recodify their version of the Prudent 10 Investor Act by reenacting it as Part 9 of this Code rather 11 than leaving it elsewhere in their statutes. Where the 12 Uniform Trust Code and Uniform Prudent Investor Act 13 overlap, states were advised to enact the provisions of this 14 Part and not enact the duplicative provisions of the Prudent 15 Investor Act. Sections of this article which overlap with the 16 Prudent Investor Act are Sections 627802 (duty of loyalty), 17 627803 (impartiality), 627805 (costs of administration), 18 627806 (trustee’s skills), and 627807 (delegation). For more 19 complete instructions on how states were advised to enact the 20 Uniform Prudent Investor Act as part of this Code, see the 21 General Comment to Article 9. South Carolina followed the 22 advice of the Uniform Code drafters by including the South 23 Carolina Prudent Investor Act as Sections 627901 through 24 627932 of the SCTC. 25 All of the provisions of this Part may be overridden in the 26 terms of the trust except for certain aspects of the trustee’s 27 duty to act in good faith, in accordance with the purposes of 28 the trust, and for the benefit of the beneficiaries (see Section 29 627105(b)(2)(3)). 30 31 Section 627801. Upon acceptance of a trusteeship, the 32 trustee shall administer the trust in good faith, in accordance 33 with its terms and purposes and the interests of the 34 beneficiaries, and in accordance with this article. 35 36 REPORTER’S COMMENT 37 This section confirms that a primary duty of a trustee is to 38 follow the terms and purposes of the trust and to do so in 39 good faith.

[143] 454 1 This section describes a trustee’s broad and general duty of 2 good faith and establishes that a nominated or proposed 3 trustee owes no duty to the beneficiary unless and until the 4 trusteeship is accepted. See former South Carolina Probate 5 Code Section 627301 (a trustee has a general duty to 6 administer the trust expeditiously for the benefit of the 7 beneficiaries) and Section 627305 (a trustee is under a 8 continuing duty to administer the trust according to the 9 objectives of the trustor); Sarlin v. Sarlin, 312 S.C. 27, 430 10 S.E.2d 530 (S.C. Ct. App. 1993) (a trustee’s discretion must 11 be exercised in good faith, consistent with the primary 12 purpose(s) of the trust). 13 There was no prior South Carolina case law regarding the 14 principle that there is no duty owed to beneficiaries without 15 acceptance of the trust by the proposed trustee; however, 16 there is general common law to that effect. Restatement, 17 Second, Trusts Section 169. 18 19 Section 627802. (a) A trustee shall administer the trust 20 solely in the interests of the beneficiaries. 21 (b) Subject to the rights of persons dealing with or 22 assisting the trustee as provided in Section 6271012, a sale, 23 encumbrance, or other transaction involving the investment 24 or management of trust property entered into by the trustee 25 for the trustee’s own personal account or which is otherwise 26 affected by a conflict between the trustee’s fiduciary and 27 personal interests is voidable by a beneficiary affected by the 28 transaction unless: 29 (1) the transaction was authorized by the terms of the 30 trust; 31 (2) the transaction was approved by the court; 32 (3) the beneficiary did not commence a judicial 33 proceeding within the time allowed by Section 6271005; 34 (4) the beneficiary consented to the trustee’s conduct, 35 ratified the transaction, or released the trustee in compliance 36 with Section 6271009; or 37 (5) the transaction involves a contract entered into or 38 claim acquired by the trustee before the person became or 39 contemplated becoming trustee.

[143] 455 1 (c) A sale, encumbrance, or other transaction involving 2 the investment or management of trust property is presumed 3 to be affected by a conflict between personal and fiduciary 4 interests if it is entered into by the trustee with: 5 (1) the trustee’s spouse; 6 (2) the trustee’s descendants, siblings, parents, or their 7 spouses; 8 (3) an agent or attorney of the trustee; 9 (4) a corporation or other person or enterprise in which 10 the trustee has such a substantial interest that it might affect 11 the trustee’s best judgment; and 12 (5) a corporation or other person or enterprise which 13 has such a substantial interest in the trustee that it might 14 affect the trustee’s best judgment. 15 (d) A transaction between a trustee and a beneficiary that 16 does not concern trust property but that occurs during the 17 existence of the trust or while the trustee retains significant 18 influence over the beneficiary and from which the trustee 19 obtains an advantage is voidable by the beneficiary unless the 20 trustee establishes that the transaction was fair to the 21 beneficiary. 22 (e) A transaction not concerning trust property in which 23 the trustee engages in the trustee’s individual capacity 24 involves a conflict between personal and fiduciary interests if 25 the transaction concerns an opportunity properly belonging to 26 the trust. 27 (f) An investment by a trustee in securities of an 28 investment company or investment trust to which the trustee, 29 or its affiliate, provides services in a capacity other than as 30 trustee is not presumed to be affected by a conflict between 31 personal and fiduciary interests if the investment otherwise 32 complies with the prudent investor rule of Part 9. The trustee 33 may be compensated by the investment company or 34 investment trust for providing those services out of fees 35 charged to the trust if the trustee at least annually notifies the 36 persons entitled under Section 627813 to receive a copy of 37 the trustee’s annual report of the rate and method by which 38 the compensation was determined.

[143] 456 1 (g) In voting shares of stock or in exercising powers of 2 control over similar interests in other forms of enterprise, the 3 trustee shall act in the best interests of the beneficiaries. If 4 the trust is the sole owner of a corporation or other form of 5 enterprise, the trustee shall elect or appoint directors or other 6 managers who will manage the corporation or enterprise in 7 the best interests of the beneficiaries. 8 (h) This section does not preclude the following 9 transactions, if fair to the beneficiaries: 10 (1) an agreement between a trustee and a beneficiary 11 relating to the appointment or compensation of the trustee; 12 (2) payment of reasonable compensation to the trustee; 13 (3) a transaction between a trust and another trust, 14 decedent’s estate, or conservatorship of which the trustee is a 15 fiduciary or in which a beneficiary has an interest; 16 (4) a deposit of trust money in a regulated 17 financialservice institution operated by the trustee; or 18 (5) an advance by the trustee of money for the 19 protection of the trust. 20 (i) The court may appoint a special fiduciary to make a 21 decision with respect to any proposed transaction that might 22 violate this section if entered into by the trustee. 23 24 REPORTER’S COMMENT 25 Section 627802(a) sets forth the Trustee’s particular duty of 26 loyalty owed to beneficiaries. See former South Carolina 27 Probate Code Section 627301, which states that a trustee has 28 a general duty to administer the trust “for the benefit of the 29 beneficiaries . . . .” South Carolina case law provided 30 similarly. See McNeil v. Morrow, 30 S.C. Eq. (9 Rich.Cas.) 31 172 (S.C. 1832); Cartee v. Lesley, 290 S.C. 333, 350 S.E.2d 32 388 (S.C. 1986); Yates v. Yates, 292 S.C. 49, 354 S.E.2d 800 33 (S.C. Ct. App. 1987). 34 Section 627802(b) states the general rule governing trust 35 property transactions affected by the trustee’s conflict of 36 interest. Such a transaction is voidable by a beneficiary 37 unless one of the stated exceptions is shown to apply. 38 Regarding the general power of a beneficiary to void a 39 conflict of interest transaction, see former SCPC Section

[143] 457 1 627706, which implied such a power. In the analogous 2 situation of a personal representative’s conflict of interest 3 transaction, SCPC Section 623713 provides that any 4 transaction affected by “a substantial conflict of interest” is 5 voidable unless (1) the decedent’s will or contract expressly 6 authorized the transaction, or (2) the transaction is approved 7 by the court after notice. 8 In general, transactions involving trustee self dealing 9 (selling trust property to trustee individually or buying 10 property, as trustee, from himself individually) are voidable 11 by beneficiaries without regard to good faith and fair 12 consideration. See Zimmerman v. Harmon, 25 S.C. Eq. (4 13 Rich. Eq.)165 (S.C.1851) and McCants v. Bee, 6 S.C. Eq. (1 14 McCord Eq.) 383 (S.C. 18). Also, see Restatement, Second, 15 Trusts Section 170, comments b. and h. on subsection (1). 16 In subsection (b)(1), the first exception to the “voidable” 17 rule provides that a beneficiary may not automatically void a 18 conflict of interest transaction if the transaction is authorized 19 by the terms of the trust. Former SCPC Section 627706 20 implicitly provided for that exception. If the transaction was 21 authorized by the trust agreement, it could be assumed that 22 the court would approve the transaction. There is no prior 23 South Carolina case law directly on point regarding 24 authorization in the trust agreement for the conflict of interest 25 transaction. However, there is general common law to that 26 effect. The most commonly recognized exception to the duty 27 of loyalty rule is where the settlor expressly or impliedly 28 approved of the conflict of interest position or transaction. 29 George Gleason Bogert and George Taylor Bogert, The Law 30 of Trusts and Trustees, Section 543 (Rev. 2d ed. 1993) 31 (where the testator/settlor created the conflict situation when 32 his will or trust was drawn, by naming a particular person as 33 personal representative/trustee who, after the opening of the 34 estate/trust, would be exposed to a conflict between personal 35 and representational interests, there is an implied exemption 36 from the duty of loyalty, absent fraud or bad faith on the 37 party of the fiduciary.) 38 Subsection (b)(2) provides the second exception to the 39 “voidable” rule: a beneficiary may not automatically void a

[143] 458 1 conflict of interest transaction if the transaction is approved 2 by the court. Former SCPC Section 627706 provided that 3 conflict of interest transactions could be approved by the 4 court. Prior South Carolina case law provided similarly. 5 Sollee v. Croft, 28 S.C. Eq. (7 Rich. Eq.) (S.C. 1854) (the 6 court may permit a conflict of interest transaction.) Also, see 7 Restatement, Second, Trusts Section 170, comment f. on 8 subsection (1); Honeywell v. Dominick, 223 S.C. 365, 75 9 S.E.2d 59 (S.C. 1953) (notwithstanding the general rule 10 prohibiting a trustee from buying trust property at his own 11 sale, the court may approve such a transaction upon finding a 12 justifiable exception). 13 Subsection (b)(3), the third exception to the “voidable” 14 rule, provides that a beneficiary’s right to void a conflict of 15 interest transaction is subject to the limitation periods in 16 SCTC Section 6271005. Former SCPC Section 627307 17 provided that claims against a trustee for breach of trust 18 could be commenced within one year after receipt of final 19 account disclosing the matter (actual disclosure) and in no 20 event more than three years after a beneficiary’s receipt of a 21 final account or statement, regardless of disclosure 22 (constructive disclosure). See Moyer v. M.S. Bailey & Son, 23 347 S.C. 353, 555 S.E.2d 406 (S.C. Ct. App. 2001) (applying 24 the provisions of former SCPC Section 627307). See also 25 Rembert v. Gressette, 318 S.C. 519, 458 S.E.2d 552 (S.C. Ct. 26 App. 1995) (beneficiaries may lose claims against trustees 27 due to laches). 28 Subsection (b)(4) contains the fourth exception to the 29 “voidable” rule, providing that the transaction is not voidable 30 by the beneficiary if the beneficiary consents to, ratifies, or 31 releases the trustee with regard to the transaction as set forth 32 in SCTC Section 6271009. Former SCPC Section 627307 33 implied that beneficiaries could consent to a breach; see also 34 SCPC Section 623713, governing personal representatives, 35 which provides that a beneficiary’s right to void a conflict 36 transaction may be lost by consent. See Byrd v. King, 245 37 S.C. 247, 140 S.E.2d 158 (S.C. 1965), applying Restatement, 38 Second, Trusts Section 216, holding that a beneficiary may 39 not hold the trustee liable for breach of trust if the beneficiary

[143] 459 1 consented to the trustee’s act or omission. The comments to 2 Restatement Section 216 set forth numerous factsensitive 3 applications of the rule. 4 Subsection (b)(5), the fifth exception to the “voidable” 5 rule, provides that a transaction contracted for prior to the 6 person becoming trustee or before he contemplated becoming 7 trustee is not automatically voidable by a beneficiary. There 8 was no prior SC statutory or case law counterpart. 9 Whereas Section 627802(b) applies an irrebuttable 10 presumption to void certain conflict of interest transactions, 11 Section 627802(c) applies a rebuttable presumption of 12 voidability for transactions involving trust property entered 13 into with persons who have close business or personal ties 14 with the trustee. There was no prior South Carolina statutory 15 counterpart. See ScottishAmerican Mtg. Co. v. Clowney, 70 16 S.C. 229, 49 S.E. 569 (S.C. 1904) (sale of trust property by 17 trustee to trustee’s spouse is voidable at the option of the 18 beneficiary). Restatement, Second, Trusts Section 170 19 provides that a transaction with the trustee’s spouse can be 20 set aside as though it was made with the trustee himself. Id., 21 comment, e. to subsection (4). A transaction with a 22 nonspouse person who “is related to the trustee” makes the 23 transaction suspicious but not ipso facto improper. Id. 24 SCTC subsection (c)(4) substitutes certain language for 25 that in the UTC version and adds subsection (c)(5), not found 26 in UTC Section 802, to clarify that the “interest,” either “of” 27 or “in” the trustee, must be “substantial” in order that such 28 “interest” “might affect the best judgment of the trustee.” 29 This is consistent with Scott on Trusts, Secs. 170.10 13 and 30 the corresponding sections of the Restatement of Trusts. 31 Subsection (d) addresses transactions between the trustee 32 and a beneficiary that do not involve trust property. 33 Subsection (d) creates a presumption that the trustee abused 34 the confidential relationship, thereby requiring the trustee to 35 rebut the presumption with evidence that the transaction was 36 fair to the beneficiary. There was no South Carolina statutory 37 counterpart. See Guinyard v. Atkins, 282 S.C. 61, 317 38 S.E.2d 137 (S.C. Ct. App. 1984) (transactions between a 39 trustee and beneficiaries may be sustained where there is

[143] 460 1 clear affirmative proof of fair consideration, perfect candor, 2 and absence of advantage.) Guinyard involved a trust 3 property transaction, but arguably would also apply to a 4 nontrust property transaction between trustee and 5 beneficiary. Restatement, Second, Trusts Section 170(2) 6 permits transactions of the type described in subsection (d) 7 only if the trustee satisfies the heightened standard of fairness 8 and full disclosure. 9 Subsection (e) allows a beneficiary to void a transaction 10 involving nontrust property entered into by the trustee 11 personally if the transaction constituted an opportunity 12 belonging to the trust. There was no South Carolina statutory 13 or case law counterpart. See, however, Restatement, Second, 14 Trusts Section 170, comment k. to subsection (1). 15 Subsection (f) creates an exception to the nofurtherinquiry 16 rule for trustee investments in mutual funds, and allows 17 trustees to take additional compensation for services 18 provided to the investment company, subject to a duty of 19 disclosure and subject to the duties imposed by the Prudent 20 Investor Act. See Part 9. There was no prior South Carolina 21 case law counterpart. Subsection (f) includes the word 22 “otherwise” found in the 2004 Amendments to UTC Section 23 802. 24 Subsection (g) makes share voting or other exercise of 25 entity control by a trustee a fiduciary function. Former 26 SCPC Section 627704(c)(3), (13), (14), (15), and (26) 27 provides for trustee powers with respect to entity control. 28 The exercise of said powers was subject to the prudent man 29 rule and had to be exercised in the best interest of the 30 beneficiary and consistent with the purposes of the trust. See 31 Weston v. Weston, 210 S.C. 1, 41 S.E.2d 372 (S.C. 1947) (it 32 is the duty of the trustee in voting shares of corporate stock to 33 act in the best interests of the beneficiary). 34 Subsection (h) sets forth exceptions to the duty of loyalty, 35 which apply if the transaction was fair to the beneficiary. 36 Subsection (h)(1) and (2) provides that a trustee is free to 37 contract with the beneficiary about the terms of appointment 38 and compensation. Subsection (h)(3) permits transactions 39 involving the trust with other fiduciary estates in which the

[143] 461 1 trustee is also the fiduciary or in which the beneficiary of the 2 trust has an interest. Subsection (h)(4) permits the trustee to 3 deposit trust assets in a financial institution operated by the 4 trustee. Subsection (h)(5) permits the trustee to advance 5 money for the protection of the trust. There was no prior 6 South Carolina statute on the subject of a trustee’s ability to 7 contract with a beneficiary about terms of appointment and 8 compensation. Former SCPC Section 627205 permitted a 9 trustee to fix his own fees (if not governed by the trust 10 instrument) subject to the right of the beneficiary to object. 11 Former SCPC Section 627704(c)(4) permitted transactions of 12 the type described in subsection (h)(3). Former SCPC 13 Section 677704(6) permitted transactions of the type 14 described in subsection (h)(4). Former SCPC Section 15 677704(c)(18) permitted transactions of the type described in 16 subsection (h)(5). There was no South Carolina case law 17 counterpart. 18 Subsection (i) confirms that the court may appoint a 19 special fiduciary to act with respect to any transaction that 20 might violate the duty of loyalty if entered into by the trustee. 21 There was no South Carolina statutory or case law 22 counterpart. 23 24 Section 627803. If a trust has two or more beneficiaries, 25 the trustee shall act impartially in investing, managing, and 26 distributing the trust property, giving due regard to the 27 beneficiaries’ respective interests. 28 29 REPORTER’S COMMENT 30 The duty of impartiality is an important aspect of the duty of 31 loyalty. Former SCPC Section 627302(F)(2), retained and 32 incorporated in Part 9, provided similarly. Former SCPC 33 Sections 627301 and 627305 set forth the general duties of 34 administering the trust for the benefit of the beneficiaries and 35 according to the objectives of the settlor. In Johnson v. 36 Thornton, 264 S.C. 252, 214 S.E.2d 124 (S.C. 1975), the 37 court recognized the existence of a trustee’s duty to deal 38 impartially with two or more beneficiaries. See also 39 Restatement, Second, Trusts Section 183.

[143] 462 1 2 Section 627804. A trustee shall administer the trust as a 3 prudent person would, by considering the purposes, terms, 4 distributional requirements, and other circumstances of the 5 trust. In satisfying this standard, the trustee shall exercise 6 reasonable care, skill, and caution. 7 8 REPORTER’S COMMENT 9 The duty to administer a trust with prudence is a fundamental 10 duty of the trustee. Former SCPC Section 627702(2) defined 11 a prudent man as a trustee whose exercise of judgment and 12 care complies with the requirements of former Section 13 627302, which is retained and incorporated in Part 9. 14 A settlor who wishes to modify the standard of care 15 specified in this section is free to do so, but there is a limit. 16 Section 6271008 prohibits a settlor from exculpating a trustee 17 from liability for breach of trust committed in bad faith or 18 with reckless indifference to the purposes of the trust or to 19 the interests of the beneficiaries. 20 21 Section 627805. In administering a trust, the trustee may 22 incur only costs that are reasonable in relation to the trust 23 property, the purposes of the trust, and the skills of the 24 trustee. 25 26 REPORTER’S COMMENT 27 This section is consistent with the South Carolina Prudent 28 Investor Act, Section 627933, and is consistent with the rules 29 concerning costs in Restatement (Third) of Trusts: Prudent 30 Investor Rule Section 227(c)(3) (1992). For related rules 31 concerning compensation and reimbursement of trustees, see 32 Sections 627708 and 627709. The duty not to incur 33 unreasonable costs applies when a trustee decides whether 34 and how to delegate to agents, as well as to other aspects of 35 trust administration. In deciding whether and how to 36 delegate, the trustee must be alert to balancing projected 37 benefits against the likely costs. To protect the beneficiary 38 against excessive costs, the trustee should also be alert to 39 adjusting compensation for functions which the trustee has

[143] 463 1 delegated to others. The obligation to incur only necessary 2 or appropriate costs of administration has long been part of 3 the law of trusts. See Restatement (Second) of Trusts Section 4 188 (1959). 5 Former SCPC Section 627302(F)(3), retained and 6 incorporated in Part 9, provided similarly. 7 8 Section 627806. A trustee who has special skills or 9 expertise, or is named trustee in reliance upon the trustee’s 10 representation that the trustee has special skills or expertise, 11 shall use those special skills or expertise. 12 13 REPORTER’S COMMENT 14 This section is similar to Restatement (Second) of Trusts 15 Section 174 (1959), and consistent with the South Carolina 16 Prudent Investor Act, Section 627933. 17 Former SCPC Section 627302(C)(6), retained and 18 incorporated in Part 9, provided similarly. 19 20 Section 627807. (a) A trustee may delegate duties and 21 powers that a prudent trustee of comparable skills could 22 properly delegate under the circumstances. The trustee shall 23 exercise reasonable care, skill, and caution in: 24 (1) selecting an agent; 25 (2) establishing the scope and terms of the delegation, 26 consistent with the purposes and terms of the trust; and 27 (3) periodically reviewing the agent’s actions in order 28 to monitor the agent’s performance and compliance with the 29 terms of the delegation. 30 (b) In performing a delegated function, an agent owes a 31 duty to the trust to exercise reasonable care to comply with 32 the terms of the delegation. 33 (c) A trustee who complies with subsection (a) is not 34 liable to the beneficiaries or to the trust for an action of the 35 agent to whom the function was delegated. 36 (d) By accepting a delegation of powers or duties from the 37 trustee of a trust that is subject to the law of this State, an 38 agent submits to the jurisdiction of the courts of this State. 39

[143] 464 1 REPORTER’S COMMENT 2 This section permits trustees to delegate various aspects of 3 trust administration to agents, subject to the standards of the 4 section. Former SCPC Section 627302(H)(1), retained and 5 incorporated in Part 9, provided similarly. The language is 6 derived from Section 9 of the Uniform Prudent Investor Act. 7 See also John H. Langbein, Reversing the Nondelegation 8 Rule of Trust Investment Law, 59 Mo. L. Rev. 105 (1994) 9 (discussing prior law). 10 This section encourages and protects the trustee in making 11 delegations appropriate to the facts and circumstances of the 12 particular trust. Whether a particular function is delegable is 13 based on whether it is a function that a prudent trustee might 14 delegate under similar circumstances. For example, 15 delegating some administrative and reporting duties might be 16 prudent for a family trustee but unnecessary for a corporate 17 trustee. 18 This section applies only to delegation to agents, not to 19 delegation to a cotrustee. For the provision regulating 20 delegation to a cotrustee, see Section 627703. 21 22 Section 627808. (a) While a trust is revocable, the 23 trustee may follow a direction of the settlor that is contrary to 24 the terms of the trust. 25 (b) If the terms of a trust confer upon a person other than 26 the settlor of a revocable trust power to direct certain actions 27 of the trustee, the trustee shall act in accordance with an 28 exercise of the power unless the attempted exercise is 29 manifestly contrary to the terms of the trust or the trustee 30 knows the attempted exercise would constitute a serious 31 breach of a fiduciary duty that the person holding the power 32 owes to the beneficiaries of the trust. 33 (c) The terms of a trust may confer upon a trustee or other 34 person a power to direct the modification or termination of 35 the trust. 36 (d) A person, other than a beneficiary, who holds a power 37 to direct is presumptively a fiduciary who, as such, is 38 required to act in good faith with regard to the purposes of 39 the trust and the interests of the beneficiaries. The holder of

[143] 465 1 a power to direct is liable for any loss that results from 2 breach of a fiduciary duty. 3 4 REPORTER’S COMMENT 5 Subsection (a) is an application of Section 627603(a), which 6 provides that a revocable trust is subject to the settlor’s 7 exclusive control. Because of the settlor’s degree of control, 8 subsection (a) of this section authorizes a trustee to rely on a 9 direction from the settlor even if it is contrary to the terms of 10 the trust. The direction of the settlor might be regarded as an 11 amendment of the trust. 12 Subsections (b)(d) ratify the use of trust protectors and 13 advisers. Subsections (b) and (d) are based in part on 14 Restatement (Second) of Trusts Section 185 (1959). 15 Subsection (c) is similar to Restatement (Third) of Trusts 16 Section 64(2) (Tentative Draft No. 3, approved 2001). 17 “Advisers” have long been used for certain trustee functions, 18 such as the power to direct investments or manage a 19 closelyheld business. “Trust protector,” a term largely 20 associated with offshore trust practice, is more recent and 21 usually connotes the grant of greater powers, sometimes 22 including the power to amend or terminate the trust. 23 Subsection (c) ratifies the recent trend to grant third persons 24 such broader powers. See SCTC Sections 627818 and 25 627819. 26 A power to direct must be distinguished from a veto 27 power. A power to direct involves action initiated and within 28 the control of a third party. The trustee usually has no 29 responsibility other than to carry out the direction when 30 made. But if a third party holds a veto power, the trustee is 31 responsible for initiating the decision, subject to the third 32 party’s approval. A trustee who administers a trust subject to 33 a veto power occupies a position akin to that of a cotrustee 34 and is responsible for taking appropriate action if the third 35 party’s refusal to consent would result in a serious breach of 36 trust. See Restatement (Second) of Trusts Section 185 cmt. g 37 (1959); Section 703(g) (duties of cotrustees). 38 Frequently, the person holding the power is directing the 39 investment of the holder’s own beneficial interest. Such

[143] 466 1 selfdirected accounts are particularly prevalent among trusts 2 holding interests in employee benefit plans or individual 3 retirement accounts. See ERISA Section 404(c) (29 U.S.C. 4 Section 1104(c)). But for the type of donative trust which is 5 the primary focus of this Code, the holder of the power to 6 direct is frequently acting on behalf of others. In that event 7 and as provided in subsection (d), the holder is presumptively 8 acting in a fiduciary capacity with respect to the powers 9 granted and can be held liable if the holder’s conduct 10 constitutes a breach of trust, whether through action or 11 inaction. Like a trustee, liability cannot be imposed if the 12 holder has not accepted the grant of the power either 13 expressly or informally through exercise of the power. See 14 Section 627701. 15 Powers to direct are most effective when the trustee is not 16 deterred from exercising the power by fear of possible 17 liability. On the other hand, the trustee does have overall 18 responsibility for seeing that the terms of the trust are 19 honored. For this reason, subsection (b) imposes only 20 minimal oversight responsibility on the trustee. A trustee 21 must generally act in accordance with the direction. A 22 trustee may refuse the direction only if the attempted exercise 23 would be manifestly contrary to the terms of the trust or the 24 trustee knows the attempted exercise would constitute a 25 serious breach of a fiduciary duty owed by the holder of the 26 power to the beneficiaries of the trust. 27 The provisions of this section may be altered in the terms 28 of the trust. See Section 627105. A settlor can provide that 29 the trustee must accept the decision of the power holder 30 without question. Or a settlor could provide that the holder 31 of the power is not to be held to the standards of a fiduciary. 32 A common technique for assuring that a settlor continues to 33 be taxed on all of the income of an irrevocable trust is for the 34 settlor to retain a nonfiduciary power of administration. See 35 I.R.C. Section 675(4). 36 There was no prior South Carolina statutory or case law 37 counterpart. 38

[143] 467 1 Section 627809. A trustee shall take reasonable steps to 2 take control of and protect the trust property. 3 4 REPORTER’S COMMENT 5 This section codifies the substance of Sections 175 and 176 6 of the Restatement (Second) of Trusts (1959). The duty to 7 take control of and safeguard trust property is an aspect of 8 the trustee’s duty of prudent administration as provided in 9 Section 627804. See also Sections 627816(1) (power to 10 collect trust property), 627816(11) (power to insure trust 11 property), and 627816(12) (power to abandon trust property). 12 The duty to take control normally means that the trustee must 13 take physical possession of tangible personal property and 14 securities belonging to the trust, and must secure payment of 15 any choses in action. See Restatement (Second) of Trusts 16 Section 175 cmt. a, c & d (1959). This section, like the other 17 sections in this article, is subject to alteration by the terms of 18 the trust. See Section 627105. For example, the settlor may 19 provide that the spouse may occupy the settlor’s former 20 residence rent free, in which event the spouse’s occupancy 21 would prevent the trustee from taking possession. 22 There was no prior South Carolina statutory or case law 23 counterpart. 24 25 Section 627810. (a) A trustee shall keep adequate 26 records of the administration of the trust. 27 (b) A trustee shall keep trust property separate from the 28 trustee’s own property. 29 (c) Except as otherwise provided in subsection (d), a 30 trustee shall cause the trust property to be designated so that 31 the interest of the trust, to the extent feasible, appears in 32 records maintained by a party other than a trustee or 33 beneficiary. 34 (d) If the trustee maintains records clearly indicating the 35 respective interests, a trustee may invest as a whole the 36 property of two or more separate trusts. 37 38 REPORTER’S COMMENT

[143] 468 1 The duty to keep adequate records stated in subsection (a) is 2 implicit in the duty to act with prudence (Section 627804) 3 and the duty to report to beneficiaries (Section 627813). For 4 an application, see Green v. Lombard, 343 A. 2d 905, 911 5 (Md. Ct. Spec. App. 1975). See also Restatement (Second) 6 of Trusts Sections 172, 174 (1959). This Section is related to 7 Section 627813, which requires the trustee to keep the 8 beneficiaries reasonably informed about the administration of 9 the trust. 10 Subsection (c) allows the trustee to maintain assets in 11 nominee name rather than holding individual assets in the 12 name of the trustee. 13 Subsection (d) allows a trustee to use the property of two 14 or more trusts to make joint investments. This allows the use 15 of common trust funds or mutual funds which can be an 16 economical method of managing assets of the trust. 17 18 Section 627811. A trustee shall take reasonable steps to 19 enforce claims of the trust and to defend claims against the 20 trust. 21 22 REPORTER’S COMMENT 23 This section does not impose any new duties upon trustees. It 24 has been held in South Carolina that a trustee who fails to 25 collect upon a debt owed the trust, or to make an effort to do 26 so, is liable to the trust. Neely v. Peoples Bank of Anderson, 27 133 S.C. 43, 130 S.E. 550 (S.C. 1925). See also former 28 SCPC Section 627704(c)(19), which provided that a trustee 29 had the power to pay or contest claims, settle claims by or 30 against the trust, and to release claims owned by the trust, 31 which is similar to Section 627816(14). 32 33 Section 627812. Unless directed otherwise by the court or 34 by the trust instrument, a successor trustee appointed by the 35 court or by the trust instrument succeeds to all the powers, 36 duties, and discretionary authority given to the predecessor 37 trustee. Upon reasonable request, a successor trustee is 38 entitled to a statement of the accounts of the trust from a 39 predecessor trustee. A successor trustee may accept the

[143] 469 1 account rendered and shall be under no duty to examine the 2 acts or omissions of the predecessor trustee and shall not be 3 liable for failure to seek redress for any act or omission of the 4 predecessor trustee. The trustee of a testamentary trust may 5 accept the account rendered by a personal representative and 6 shall be under no duty to examine the acts or omissions of the 7 predecessor personal representative and shall not be liable for 8 failure to seek redress for any act or omission of the 9 predecessor personal representative. 10 11 REPORTER’S COMMENT 12 Section 627812 does not adopt Uniform Trust Code Section 13 812. Instead, Section 627812 retains and incorporates former 14 SCPC Section 627707(c). Section 627703 has provisions 15 similar to former SCPC Section 627707(a), (b), and (d). 16 17 Section 627813. (a)A trustee shall keep the qualified 18 beneficiaries of the trust reasonably informed about the 19 administration of the trust and of the material facts necessary 20 for them to protect their interests. Unless unreasonable under 21 the circumstances, a trustee shall promptly respond to a 22 beneficiary’s request for information related to the 23 administration of the trust. 24 (b) A trustee: 25 (1) upon request of a beneficiary, shall promptly furnish 26 to the beneficiary a copy of the trust instrument; 27 (2) within 60 days after accepting a trusteeship, shall 28 notify the qualified beneficiaries of the acceptance and of the 29 trustee’s name, address, and telephone number; 30 (3) within 60 days after the date the trustee acquires 31 knowledge of the creation of an irrevocable trust, or the date 32 the trustee acquires knowledge that a formerly revocable trust 33 has become irrevocable, whether by the death of the settlor or 34 otherwise, shall notify the qualified beneficiaries of the 35 trust’s existence, of the identity of the settlor or settlors, of 36 the right to request a copy of the trust instrument, and of the 37 right to a trustee’s report as provided in subsection (c); and

[143] 470 1 (4) shall notify the qualified beneficiaries in advance of 2 any change in the method or rate of the trustee’s 3 compensation. 4 (c) A trustee shall send to the distributees or permissible 5 distributees of trust income or principal, and to other 6 qualified or nonqualified beneficiaries who request it, at least 7 annually and at the termination of the trust, a report of the 8 trust property, liabilities, receipts, and disbursements, 9 including the source and amount of the trustee’s 10 compensation, a listing of the trust assets and, if feasible, 11 their respective market values. Upon a vacancy in a 12 trusteeship, unless a cotrustee remains in office, a report must 13 be sent to the qualified beneficiaries by the former trustee. A 14 personal representative, conservator, or guardian may send 15 the qualified beneficiaries a report on behalf of a deceased or 16 incapacitated trustee. 17 (d) A beneficiary may waive the right to a trustee’s report 18 or other information otherwise required to be furnished under 19 this section. A beneficiary, with respect to future reports and 20 other information, may withdraw a waiver previously given. 21 (e) SubSections (b)(2) and (b)(3) of this section apply 22 only to a trustee who accepts a trusteeship on or after the 23 effective date of this article, to an irrevocable trust created on 24 or after the effective date of this article, and to a revocable 25 trust which becomes irrevocable on or after the effective date 26 of this article. Unless the terms of a trust expressly provide 27 otherwise, while a trust is revocable the trustee’s duties under 28 this section are owed exclusively to the settlor. 29 (b) Unless the terms of a trust expressly provide 30 otherwise, a trustee who accepts a trusteeship or undertakes 31 the administration of an irrevocable trust created on or after 32 the effective date of this article, or of a revocable trust which 33 becomes irrevocable whether by the death of the settlor or by 34 the terms of the trust on or after the effective date of this 35 article, shall: 36 (1) within ninety days after the trustee accepts a 37 trusteeship or undertakes administration of an irrevocable 38 trust or a revocable trust that has become irrevocable whether 39 by the death of the settlor or by the terms of the trust, notify

[143] 471 1 the qualified beneficiaries, as defined in Section 627103(12), 2 of: 3 (A) the existence of the trust; 4 (B) the identity of the settlor or settlers; 5 (C) the trustee’s name, address and telephone number; 6 (D) the right to request in writing a copy of the trust 7 instrument; and 8 (E) the right to request in writing a copy of any 9 trustee’s report described in (c)(1) below; 10 (2) throughout the administration of the trust, keep the 11 distributees and the permissible distributes, as defined in 12 Section 627103(21) and (25), reasonably informed about the 13 administration of the trust and of the material facts necessary 14 for them to protect their interests, provided that the 15 attorneyclient privilege between the trustee and the trustee’s 16 attorney is not violated; 17 (3) upon the reasonable written request of a beneficiary, 18 other than a qualified beneficiary, unless unreasonable under 19 the circumstances, provide to the beneficiary a copy of the 20 trust instrument redacted to include only those provisions of 21 the trust that are relevant to the beneficiary’s interest in the 22 trust, as the trustee determines and, unless unreasonable 23 under the circumstances, respond to a beneficiary’s written 24 request for information related to the administration of the 25 trust; 26 (4) notify the distributees and permissible distributees 27 in advance of any change in the method or rate of the 28 trustee’s compensation; and 29 (5) notwithstanding any of the above, not be required to 30 notify any beneficiary in advance of transactions relating to 31 the trust property. 32 (c) Unless the terms of a trust expressly provide 33 otherwise, a trustee who accepts a trusteeship or undertakes 34 the administration of an irrevocable trust created on or after 35 the effective date of this article, or of a revocable trust which 36 becomes irrevocable on or after the effective date of this 37 article, shall: 38 (1) have a continuing duty to:

[143] 472 1 (A) keep the distributees and permissible distributees, 2 or other qualified beneficiaries who request information in 3 writing, reasonably informed as to the administration of the 4 trust; and 5 (B) send annually, and upon the termination of the 6 trust, a written report of the trust property which may be in 7 any format which provides the distributees and permissible 8 distributees, or other qualified beneficiaries who have 9 requested in writing, with information necessary to protect 10 their interests. The report may include a copy of the 11 fiduciary income tax return, or copies of bank or brokerage 12 statements, or an informal list of assets and if feasible, the 13 market values of those assets, the liabilities, the receipts and 14 the disbursements, including the source and amount of the 15 trustee’s compensation; 16 (2) upon resignation of the trustee and unless a 17 cotrustee remains in office, send a written report as described 18 in (c)(1) to the distributees and permissible distributees; and 19 in the case of the death or incapacity of a trustee, the report 20 may be sent by the trustee’s personal representative, 21 conservator or guardian. 22 (d) To the extent that there is no conflict of interest, the 23 trustee’s duties to inform and report under subsections (b) 24 and (c) are deemed satisfied if the information and report are 25 given to the beneficiary’s representative as described in 26 Sections 627302 through 627305. 27 (e) Any distributee or permissible distributee may waive 28 the right to a trustee’s report and other information described 29 under this section and, with respect to future reports and 30 other information, withdraw a waiver previously given. 31 32 REPORTER’S COMMENT 33 The 2013 Amendments completely revise the previous 34 version of 627813 and more clearly define the duties of the 35 trustee to inform and report as well as the classes of 36 beneficiaries to whom initial duty to inform, qualified 37 beneficiaries are entitled to receive information as provided 38 in subsection (b)(1); thereafter, only distributees and 39 permissible distributees have the right to receive information

[143] 473 1 as provided in subsections (b)(2) and (b)(4); and under (b)(3) 2 a nonqualified beneficiary may receive only a redacted copy 3 of a trust agreement and only upon request. In regard to the 4 duty to report, subsection (c)(1) provides that the distributees 5 and permissible distributees have the right to receive a report 6 as described therein. Other qualified beneficiaries may 7 receive the report only upon written request and nonqualified 8 beneficiaries are not entitled to a report. 9 10 Section 627814. (a) Notwithstanding the breadth of 11 discretion granted to a trustee in the terms of the trust, 12 including the use of such terms as ‘absolute’, ‘sole’, or 13 ‘uncontrolled’, the trustee shall exercise a discretionary 14 power in good faith and in accordance with the terms and 15 purposes of the trust and the interests of the beneficiaries. 16 (b) A power whose exercise is limited or prohibited by 17 subsection (c) may be exercised by a majority of the 18 remaining trustees whose exercise of the power is not so 19 limited or prohibited. If the power of all trustees is so limited 20 or prohibited, the court may appoint a special fiduciary with 21 authority to exercise the power. 22 (c) Subject to subsection (d), and unless the application of 23 this section is clearly and convincingly negated in the will, 24 the trust document, terms of the trust, or a written instrument 25 appointing a fiduciary, expressly indicating that a rule in this 26 subsection does not apply, any power conferred upon the 27 fiduciary, in his capacity as a fiduciary (and not including 28 any power conferred upon him in his capacity as a 29 beneficiary), which would, except for this section, constitute, 30 in whole or in part, a general power of appointment cannot be 31 exercised by him in favor of himself, his estate, his creditors, 32 or the creditors of his estate. 33 (1) The fiduciary can, however, exercise the power in 34 favor of someone other than himself, his estate, his creditors 35 and the creditors of his estate. 36 (2) If a power comes within subsection (c) and the 37 power is conferred upon two or more fiduciaries, it can be 38 exercised by the fiduciary or the fiduciaries who are not

[143] 474 1 disqualified from exercising the power as if they were the 2 only fiduciary or fiduciaries. 3 (3) If all of the serving fiduciaries are disqualified from 4 exercising a power, the court that would have jurisdiction to 5 appoint a fiduciary under the instrument, if there were no 6 fiduciary currently serving, shall exercise, or shall appoint a 7 special fiduciary whose only power is to exercise the power 8 that cannot be exercised by the other fiduciaries by reason of 9 subsection (c). 10 (4) A trustee may not exercise a power to make 11 discretionary distributions to satisfy a legal obligation of 12 support that the trustee personally owes another person. 13 (d) Subsection (c) does not apply to: 14 (1) a power held by the settlor’s spouse who is the 15 trustee of a trust for which a marital deduction, as defined in 16 Section 2056(b)(5) or 2523(e) of the Internal Revenue Code, 17 as amended, was previously allowed; 18 (2) any trust during any period that the trust may be 19 revoked or amended by its settlor; or 20 (3) a trust if contributions to the trust qualify for the 21 annual exclusion under Section 2503(c) of the Internal 22 Revenue Code as amended. 23 24 REPORTER’S COMMENT 25 The corresponding statute under the former South Carolina 26 law was SCPC Section 627603. The intent of both former 27 SCPC Section 627603 and current SCTC Section 627814 is 28 to avoid inadvertent income tax and estate tax consequences 29 that might result under certain circumstances where a 30 beneficiary is also serving as a trustee. 31 The introductory language to subsection (A) of former 32 SCPC Section 627603 appears to be more demonstrative than 33 the corresponding language of Uniform Trust Code Section 34 814(b). Consequently, current SCTC Section 627814 35 incorporates that introductory clause from former SCPC 36 Section 627603(A) that current SCTC Section 627814 does 37 not limit the intent and protection of former SCPC Section 38 627603.

[143] 475 1 Former SCPC Section 627603 also limited certain 2 fiduciary powers so that the trustee was not deemed to have a 3 general power of appointment. A corresponding clause was 4 not expressly contained in the UTC version of Section 814. 5 Thus, the appropriate language from former SCPC Section 6 627603 is included at current SCTC Section 627814(c). 7 Despite the breadth of discretion purportedly granted by 8 the wording of a trust, no grant of discretion to a trustee, 9 whether with respect to management or distribution, is ever 10 absolute. A grant of discretion establishes a range within 11 which the trustee may act. The greater the grant of 12 discretion, the broader the range. Pursuant to subsection (a), 13 a trustee’s action must always be in good faith, with regard to 14 the purposes of the trust, and in accordance with the trustee’s 15 other duties, including the obligation to exercise reasonable 16 skill, care and caution. See Sections 627801 (duty to 17 administer trust) and 627804 (duty to act with prudence). 18 The standard stated in subsection (a) applies only to powers 19 which are to be exercised in a fiduciary as opposed to a 20 nonfiduciary capacity. Regarding the standards for 21 exercising discretion and construing particular language of 22 discretion, see Restatement (Third) of Trusts Section 50 23 (Tentative Draft No. 2, approved 1999); Restatement 24 (Second) of Trusts Section 187 (1959). See also Edward C. 25 Halbach, Jr., Problems of Discretion in Discretionary Trusts, 26 61 Colum. L. Rev. 1425 (1961). An abuse by the trustee of 27 the discretion granted in the terms of the trust is a breach of 28 trust that can result in surcharge. See Section 6271001(b) 29 (remedies for breach of trust). 30 Subsections (b) through (d) rewrite the terms of a trust that 31 might otherwise result in adverse estate and gift tax 32 consequences to a beneficiarytrustee. This Trust Code does 33 not generally address the subject of tax curative provisions. 34 These are provisions that automatically rewrite the terms of 35 trusts that might otherwise fail to qualify for probable 36 intended tax benefits. Such provisions, because they apply to 37 all trusts using or failing to use specified language, are often 38 overbroad, applying not only to trusts intended to qualify for 39 tax benefits but also to smaller trust situations where taxes

[143] 476 1 are not a concern. Enacting taxcurative provisions also 2 requires special diligence by state legislatures to make certain 3 that these provisions are periodically amended to account for 4 the frequent changes in federal tax law. Furthermore, many 5 failures to draft with sufficient care may be correctable by 6 including a tax savings clause in the terms of the trust or by 7 seeking modification of the trust using one or more of the 8 methods authorized by Sections 627411 through 627417. 9 Notwithstanding these reasons, the unintended inclusion of 10 the trust in the beneficiarytrustee’s gross estate is a frequent 11 enough occurrence that this Code addresses it. It is also a 12 topic on which numerous states have enacted corrective 13 statutes. 14 A tax curative provision differs from a statute such as 15 Section 627416 of this Code, which allows a court to modify 16 a trust to achieve an intended tax benefit. Absent 17 Congressional or regulatory authority authorizing the specific 18 modification, a lower court decree in state court modifying a 19 trust is controlling for federal estate tax purposes only if the 20 decree was issued before the taxing event, which in the case 21 of the estate tax would be the decedent’s death. See Rev. 22 Rul. 73142, 19731 C.B. 405. There is specific federal 23 authority authorizing modification of trusts for a number of 24 reasons (see Comment to UTC Section 416) but not on the 25 specific issues addressed in this section. Subsections (b) 26 through (d), by interpreting the original language of the trust 27 instrument in a way that qualifies for intended tax benefits, 28 obviates the need to seek a later modification of the trust. 29 QTIP marital trusts are subject to this section. QTIP trusts 30 qualify for the marital deduction only if so elected on the 31 federal estate tax return. Excluding a QTIP for which an 32 election has been made from the operation of this section 33 would allow the terms of the trust to be modified after the 34 settlor’s death. By not making the QTIP election, an 35 otherwise unascertainable standard would be limited. By 36 making the QTIP election, the trustee’s discretion would not 37 be curtailed. This ability to modify a trust depending on 38 elections made on the federal estate tax return could itself

[143] 477 1 constitute a taxable power of appointment resulting in 2 inclusion of the trust in the surviving spouse’s gross estate. 3 The exclusion of the Section 2503(c) minors trust is 4 necessary to avoid loss of gift tax benefits. While preventing 5 a trustee from distributing trust funds in discharge of a legal 6 obligation of support would keep the trust out of the trustee’s 7 gross estate, such a restriction might result in loss of the gift 8 tax annual exclusion for contributions to the trust, even if the 9 trustee were otherwise granted unlimited discretion. See 10 Rev. Rul. 69345, 19691 C.B. 226. 11 12 Section 627815. (a) A trustee, without authorization by 13 the court, may exercise: 14 (1) powers conferred by the terms of the trust; and 15 (2) except as limited by the terms of the trust: 16 (A) all powers over the trust property which an 17 unmarried competent owner has over individually owned 18 property; 19 (B) any other powers appropriate to achieve the 20 proper investment, management, and distribution of the trust 21 property; and 22 (C) any other powers conferred by this part. 23 (b) The exercise of a power is subject to the fiduciary 24 duties prescribed by this part. 25 26 REPORTER’S COMMENT 27 This section is intended to grant trustees the broadest 28 possible powers, but to be exercised always in accordance 29 with the duties of the trustee and any limitations stated in the 30 terms of the trust. This broad authority is denoted by granting 31 the trustee the powers of an unmarried competent owner of 32 individually owned property, unlimited by restrictions that 33 might be placed on it by marriage, disability, or cotenancy. 34 A power differs from a duty. A duty imposes an obligation 35 or a mandatory prohibition. A power, on the other hand, is a 36 discretion, the exercise of which is not obligatory. The 37 existence of a power, however created or granted, does not 38 speak to the question of whether it is prudent under the 39 circumstances to exercise the power.

[143] 478 1 Former SCPC Section 627704 contained the default 2 powers that were available to all trustees when the trust 3 instrument did not provide specific powers. Former SCPC 4 Section 627704 granted general powers that a prudent person 5 would perform incident to the collection, preservation, 6 management, use and distribution of the trust estate, and it 7 also contained various specific powers. SCTC Section 8 627815 broadens the former SCPC list of powers that apply 9 to all trustees by stating that a trustee has all of the powers 10 over trust property that an individual has over his own 11 property. 12 13 Section 627816. Without limiting the authority conferred 14 by Section 627815, a trustee may: 15 (1) collect trust property and accept or reject additions to 16 the trust property from a settlor or any other person; 17 (2) acquire or sell property, for cash or on credit, at public 18 or private sale; 19 (3) exchange, partition, or otherwise change the character 20 of trust property; 21 (4) deposit trust money in accountsall types including 22 margin accountsin a regulated financialservice institution; 23 (5) borrow money, with or without security, and mortgage 24 or pledge trust property for a period within or extending 25 beyond the duration of the trust; 26 (6) with respect to an interest in a proprietorship, 27 partnership, limited liability company, business trust, 28 corporation, or other form of business or enterprise, create 29 and/or continue a business or other enterprise and take any 30 action that may be taken by shareholders, members, or 31 property owners, including merging, dissolving, or otherwise 32 changing the form of business organization or contributing 33 additional capital; 34 (7) with respect to stocks or other securities, exercise the 35 rights of an absolute owner, including the right to: 36 (A) vote, or give proxies to vote, with or without power 37 of substitution, or enter into or continue a voting trust 38 agreement;

[143] 479 1 (B) hold a security in the name of a nominee or in other 2 form without disclosure of the trust so that title may pass by 3 delivery; 4 (C) pay calls, assessments, and other sums chargeable or 5 accruing against the securities, and sell or exercise stock 6 subscription or conversion rights; and 7 (D) deposit the securities with a depositary or other 8 regulated financial service institution; 9 (8) with respect to an interest in real property, construct, 10 or make ordinary or extraordinary repairs to, alterations to, or 11 improvements in, buildings or other structures, demolish 12 improvements, raze existing or erect new party walls or 13 buildings, subdivide or develop land, dedicate land to public 14 use or grant public or private easements, including by way of 15 example qualified conservation and façade easements, and 16 make or vacate plats and adjust boundaries; 17 (9) enter into a lease for any purpose as lessor or lessee, 18 including a lease or other arrangement for exploration and 19 removal of natural resources, with or without the option to 20 purchase or renew, for a period within or extending beyond 21 the duration of the trust; 22 (10) grant an option involving a sale, lease, or other 23 disposition of trust property or acquire an option for the 24 acquisition of property, including an option exercisable 25 beyond the duration of the trust, and exercise an option so 26 acquired; 27 (11) insure the property of the trust against damage or loss 28 and insure the trustee, the trustee’s agents, and beneficiaries 29 against liability arising from the administration of the trust; 30 (12) abandon or decline to administer property of no value 31 or of insufficient value to justify its collection or continued 32 administration; 33 (13) with respect to possible liability for violation of 34 environmental law: 35 (A) inspect or investigate property the trustee holds or 36 has been asked to hold, or property owned or operated by an 37 organization in which the trustee holds or has been asked to 38 hold an interest, for the purpose of determining the

[143] 480 1 application of environmental law with respect to the 2 property; 3 (B) take action to prevent, abate, or otherwise remedy 4 any actual or potential violation of any environmental law 5 affecting property held directly or indirectly by the trustee, 6 whether taken before or after the assertion of a claim or the 7 initiation of governmental enforcement; 8 (C) decline to accept property into trust or disclaim any 9 power with respect to property that is or may be burdened 10 with liability for violation of environmental law; 11 (D) compromise claims against the trust which may be 12 asserted for an alleged violation of environmental law; and 13 (E) pay the expense of any inspection, review, 14 abatement, or remedial action to comply with environmental 15 law; 16 (14) pay or contest any claim, settle a claim by or against 17 the trust, and release, in whole or in part, a claim belonging 18 to the trust; 19 (15) pay taxes, assessments, compensation of the trustee 20 and of employees and agents of the trust, and other expenses 21 incurred in the administration of the trust; 22 (16) exercise elections with respect to federal, state, and 23 local taxes; 24 (17) select a mode of payment under any employee benefit 25 or retirement plan, annuity, or life insurance payable to the 26 trustee, exercise rights thereunder, including exercise of the 27 right to indemnification for expenses and against liabilities, 28 and take appropriate action to collect the proceeds; 29 (18) make loans out of trust property, including loans to a 30 beneficiary on terms and conditions the trustee considers to 31 be fair and reasonable under the circumstances, and the 32 trustee has a lien on future distributions for repayment of 33 those loans; 34 (19) pledge trust property to guarantee loans made by 35 others to the beneficiary; 36 (20) appoint a trustee to act in another jurisdiction with 37 respect to trust property located in the other jurisdiction, 38 confer upon the appointed trustee all of the powers and duties

[143] 481 1 of the appointing trustee, require that the appointed trustee 2 furnish security, and remove any trustee so appointed; 3 (21) pay an amount distributable to a beneficiary who is 4 under a legal disability or who the trustee reasonably believes 5 is incapacitated, by paying it directly to the beneficiary or 6 applying it for the beneficiary’s benefit, or by: 7 (A) paying it to the beneficiary’s agent under a Power of 8 Attorney, to the beneficiary’s conservator or, if the 9 beneficiary does not have a conservator, to the beneficiary’s 10 guardian; 11 (B) paying it to the beneficiary’s custodian under the 12 Uniform Gifts or Transfers to Minors Act or custodial trustee 13 under the Uniform Custodial Trust Act, and, for that purpose, 14 creating a custodianship or custodial trust; 15 (C) if the trustee does not know of an agent under a 16 Power of Attorney, conservator, guardian, custodian, or 17 custodial trustee, paying it to an adult relative or other person 18 having legal or physical care or custody of the beneficiary, to 19 be expended on the beneficiary’s behalf; or 20 (D) managing it as a separate fund on the beneficiary’s 21 behalf, subject to the beneficiary’s continuing right to 22 withdraw the distribution; 23 (22) on distribution of trust property or the division or 24 termination of a trust, make distributions in divided or 25 undivided interests, allocate particular assets in proportionate 26 or disproportionate shares, value the trust property for those 27 purposes, and adjust for resulting differences in valuation; 28 (23) resolve a dispute concerning the interpretation of the 29 trust or its administration by mediation, arbitration, or other 30 procedure for alternative dispute resolution; 31 (24) prosecute or defend an action, claim, or judicial 32 proceeding in any jurisdiction to protect trust property and 33 the trustee in the performance of the trustee’s duties; 34 (25) sign and deliver contracts and other instruments that 35 are useful to achieve or facilitate the exercise of the trustee’s 36 powers; and 37 (26) on termination of the trust, exercise the powers 38 appropriate to wind up the administration of the trust and 39 distribute the trust property to the persons entitled to it.

[143] 482 1 (27) allocate items of income or expense to either trust 2 income or principal, as permitted or provided by the trust 3 instrument and applicable law, but this power shall not be 4 construed as prescribing the method of accounting for 5 principal and income; 6 (28) to divide any trust into separate shares or separate 7 trusts or to create separate trusts if the trustee reasonably 8 deems it appropriate and the division or creation is consistent 9 with the settlor’s intent and facilitates the trust’s 10 administration without defeating or impairing the interests of 11 the beneficiaries. 12 13 REPORTER’S COMMENT 14 This section enumerates specific powers commonly included 15 in trust instruments and in trustee powers legislation. All the 16 powers listed are subject to alteration in the terms of the trust. 17 See Section 627105. The powers listed are also subsumed 18 under the general authority granted in Section 627815(a)(2) 19 to exercise all powers over the trust property which an 20 unmarried competent owner has over individually owned 21 property, and any other powers appropriate to achieve the 22 proper management, investment, and distribution of the trust 23 property. The powers listed add little of substance not already 24 granted by Section 627815 and powers conferred elsewhere 25 in the Code. While the Committee drafting the Uniform Trust 26 Code discussed dropping the list of specific powers, it 27 concluded that the demand of third parties to see language 28 expressly authorizing specific transactions justified retention 29 of a detailed list. 30 As provided in Section 627815(b), the exercise of a power 31 is subject to fiduciary duties except as modified in the terms 32 of the trust. The fact that the trustee has a power does not 33 imply a duty that the power must be exercised. 34 Many of the powers listed in this section are similar to the 35 powers listed in Section 3 of the Uniform Trustees’ Powers 36 Act (1964). Several are new, however, and other powers 37 drawn from that Act have been updated. The powers 38 enumerated in this section may be divided into categories. 39 Certain powers, such as the powers to acquire or sell

[143] 483 1 property, borrow money, and deal with real estate, securities, 2 and business interests, are powers that any individual can 3 exercise. Other powers, such as the power to collect trust 4 property, are by their very nature only applicable to trustees. 5 Other specific powers, particularly those listed in other 6 sections of the SCTC, modify a trustee duty that would 7 otherwise apply. See, e.g., Sections 627802(h) (exceptions to 8 duty of loyalty) and 627810(d) (joint investments as 9 exception to earmarking requirement). 10 Paragraph (1) authorizes a trustee to collect trust property 11 and collect or decline additions to the trust property. The 12 power to collect trust property is an incident of the trustee’s 13 duty to administer the trust as provided in Section 627801. 14 The trustee has a duty to enforce claims as provided in 15 Section 627811, the successful prosecution of which can 16 result in collection of trust property. Pursuant to Section 17 627812, the trustee also has a duty to collect trust property 18 from a former trustee or other person holding trust property. 19 For an application of the power to reject additions to the trust 20 property, see Section 627816(13) (power to decline property 21 with possible environmental liability). 22 Paragraph (2) authorizes a trustee to sell trust property, for 23 cash or on credit, at public or private sale. Under the 24 Restatement, a power of sale is implied unless limited in the 25 terms of the trust. Restatement (Third) of Trusts: Prudent 26 Investor Rule Section 190 (1992). In arranging a sale, a 27 trustee must comply with the duty to act prudently as 28 provided in Section 627804. This duty may dictate that the 29 sale be made with security. 30 Paragraph (4) authorizes a trustee to deposit funds in an 31 account in a regulated financialservice institution. This 32 includes the right of a financial institution trustee to deposit 33 funds in its own banking department as authorized by Section 34 627802(h)(4). South Carolina Trust Code Section 627816 35 subsection (4) added “in accounts” to the UTC version and 36 expressly provides for the deposit of money in “all types” of 37 accounts, and specifically references the inclusion of “margin 38 accounts.”

[143] 484 1 Paragraph (5) authorizes a trustee to borrow money. Under 2 the Restatement, the sole limitation on such borrowing is the 3 general obligation to invest prudently. See Restatement 4 (Third) of Trusts: Prudent Investor Rule Section 191 (1992). 5 Language clarifying that the loan may extend beyond the 6 duration of the trust was added to negate an older view that 7 the trustee only had power to encumber the trust property for 8 the period that the trust was in existence. 9 Paragraph (6) authorizes the trustee to continue, contribute 10 additional capital to, or change the form of a business. Any 11 such decision by the trustee must be made in light of the 12 standards of prudent investment stated in Section 627933. 13 SCTC Section 627816 subsection (6) added language to the 14 UTC version which authorizes a trustee to “create” a 15 business. 16 Paragraph (7), regarding powers with respect to securities, 17 codifies and amplifies the principles of Restatement (Second) 18 of Trusts Section 193 (1959). 19 Paragraph (9), authorizing the leasing of property, negates 20 the older view, reflected in Restatement (Second) of Trusts 21 Section 189 cmt. c (1959), that a trustee could not lease 22 property beyond the duration of the trust. Whether a longer 23 term lease is appropriate is judged by the standards of 24 prudence applicable to all investments. 25 Paragraph (10), authorizing a trustee to grant options with 26 respect to sales, leases or other dispositions of property, 27 negates the older view, reflected in Restatement (Second) of 28 Trusts Section 190 cmt. k (1959), that a trustee could not 29 grant another person an option to purchase trust property. 30 Like any other investment decision, whether the granting of 31 an option is appropriate is a question of prudence under the 32 standards of Part 9. 33 Paragraph (11), authorizing a trustee to purchase insurance, 34 empowers a trustee to implement the duty to protect trust 35 property. See Section 627809. The trustee may also insure 36 beneficiaries, agents, and the trustee against liability, 37 including liability for breach of trust. 38 Paragraph (13) is one of several provisions in the SCTC 39 designed to address trustee concerns about possible liability

[143] 485 1 for violations of environmental law. This paragraph collects 2 all the powers relating to environmental concerns in one 3 place even though some of the powers, such as the powers to 4 pay expenses, compromise claims, and decline property, 5 overlap with other paragraphs of this section (decline 6 property, paragraph (1); compromise claims, paragraph (14); 7 pay expenses, paragraph (15)). See Sections 627701(c)(2) 8 (designated trustee may inspect property to determine 9 potential violation of environmental or other law or for any 10 purpose) and 6271010(b) (trustee not personally liable for 11 violation of environmental law arising from ownership or 12 control of trust property). 13 Paragraph (14) authorizes a trustee to pay, contest, settle, 14 or release claims. Section 627811 requires that a trustee need 15 take only “reasonable” steps to enforce claims, meaning that 16 a trustee may release a claim not only when it is 17 uncollectible, but also when collection would be 18 uneconomic. See Restatement (Second) of Trusts Section 192 19 (1959) (power to compromise, arbitrate and abandon claims). 20 Paragraph (15), among other things, authorizes a trustee to 21 pay compensation to the trustee and agents without prior 22 approval of court. Regarding the standard for setting trustee 23 compensation, see Section 627708. See also Section 627709 24 (repayment of trustee expenditures). 25 Paragraph (16) authorizes a trustee to make elections with 26 respect to taxes. The SCTC leaves to other law the issue of 27 whether the trustee, in making such elections, must make 28 compensating adjustments in the beneficiaries’ interests. 29 Paragraph (17) authorizes a trustee to take action with 30 respect to employee benefit or retirement plans, or annuities 31 or life insurance payable to the trustee. Typically, these will 32 be beneficiary designations which the settlor has made 33 payable to the trustee, but this Code also allows the trustee to 34 acquire ownership of annuities or life insurance. 35 Paragraphs (18) and (19) allow a trustee to make loans to a 36 beneficiary or to guarantee loans of a beneficiary upon such 37 terms and conditions as the trustee considers fair and 38 reasonable. The determination of what is fair and reasonable 39 must be made in light of the fiduciary duties of the trustee

[143] 486 1 and the purposes of the trust. Frequently, a trustee will make 2 loans to a beneficiary which might be considered less than 3 prudent in an ordinary commercial sense although of great 4 benefit to the beneficiary and which help carry out the trust 5 purposes. If the trustee requires security for the loan to the 6 beneficiary, adequate security under this paragraph may 7 consist of a charge on the beneficiary’s interest in the trust. 8 See Restatement (Second) of Trusts Section 255 (1959). 9 However, the interest of a beneficiary subject to a spendthrift 10 restraint may not be pledged as security for a loan. See 11 Section 627502. 12 Paragraph (20) authorizes the appointment of ancillary 13 trustees in jurisdictions in which the regularly appointed 14 trustee is unable or unwilling to act. Normally, an ancillary 15 trustee will be appointed only when there is a need to manage 16 real estate located in another jurisdiction. This paragraph 17 allows the regularly appointed trustee to select the ancillary 18 trustee and to confer on the ancillary trustee such powers and 19 duties as may be necessary. The appointment of ancillary 20 trustees is a topic which a settlor may wish to address in the 21 terms of the trust. 22 Paragraph (21) authorizes a trustee to make payments to 23 another person for the use or benefit of a beneficiary who is 24 under a legal disability or who the trustee reasonably believes 25 is incapacitated. Although an adult relative or other person 26 receiving funds is required to spend it on the beneficiary’s 27 behalf, it is preferable that the trustee make the distribution to 28 a person having more formal fiduciary responsibilities. For 29 this reason, payment may be made to an adult relative only if 30 the trustee does not know of a conservator, guardian, 31 custodian, or custodial trustee capable of acting for the 32 beneficiary. South Carolina Trust Code Section 627816 33 subsections (21) (A) & (C) added the phrase “agent under a 34 power of attorney” to the UTC version. It is important for 35 the practioner to be cautious of SCPC Section 625501, which 36 may provide for a priority payee under these subsections. 37 Paragraph (22) authorizes a trustee to make nonprorata 38 distributions and allocate particular assets in proportionate or 39 disproportionate shares. This power provides needed

[143] 487 1 flexibility and lessens the risk that a nonprorata distribution 2 will be treated as a taxable sale. 3 Paragraph (23) authorizes a trustee to resolve disputes 4 through mediation or arbitration. In representing 5 beneficiaries and others in connection with arbitration or 6 mediation, the representation principles of Part 3 may be 7 applied. Settlors wishing to encourage use of alternate 8 dispute resolution may draft to provide it. For sample 9 language, see American Arbitration Association, Arbitration 10 Rules for Wills and Trusts (1995). 11 Paragraph (24) authorizes a trustee to prosecute or defend 12 an action. As to the propriety of reimbursement for attorney’s 13 fees and other expenses of an action or judicial proceeding, 14 see Section 627709 and Comment. See also Section 627811 15 (duty to defend actions). 16 Paragraph (26), which is similar to Section 344 of the 17 Restatement (Second) of Trusts (1959), clarifies that even 18 though the trust has terminated, the trustee retains the powers 19 needed to wind up the administration of the trust and 20 distribute the remaining trust property. 21 South Carolina Trust Code Section 627816 added to the 22 UTC version subsections (27) and (28) to retain and 23 incorporate specific powers the trustee had under former 24 South Carolina law but which were not specifically included 25 in the Uniform Trust Code version. 26 27 Section 627816A. (a) Unless the terms of the 28 instrument expressly provide otherwise, a trustee with the 29 discretion to make distributions of principal or income to or 30 for the benefit of one or more beneficiaries of a trust, the 31 original trust, may exercise that discretion by appointing all 32 or part of the property subject to that discretion in favor of 33 another trust for the benefit of one or more of those 34 beneficiaries, the second trust. This power may be exercised 35 without the approval of a court, but court approval is 36 necessary if the terms of the original trust expressly prohibit 37 the exercise of such power or require court approval. 38 (b) The trustee of the original trust may exercise this 39 power whether or not there is a current need to distribute

[143] 488 1 principal or income under any standard provided in the 2 original trust. The trustee’s special power to appoint trust 3 principal or income in further trust under this section 4 includes the power to create the second trust. 5 (c) The second trust may be a trust created under the same 6 trust instrument as the original trust or under a different trust 7 instrument, and the trustee of the second trust may be either 8 the trustee of the original trust or another trustee. 9 (d) The terms of the second trust are subject to the 10 following requirements: 11 (1) The beneficiaries of the second trust may include 12 only beneficiaries of the original trust. 13 (2) A beneficiary who has only a future beneficial 14 interest, vested or contingent, in the original trust cannot 15 have the future beneficial interest accelerated to a present 16 interest in the second trust. 17 (3) The terms of the second trust may not contain any 18 provision nor reduce any fixed income, annuity, or unitrust 19 interest of a beneficiary in the assets of an original trust 20 document if the inclusion of the provision or reduction in the 21 original trust document would have disqualified any assets of 22 the original trust for any federal or state income, estate, or 23 gift tax deduction received on account of any assets of the 24 original trust, or if the inclusion of the provision or reduction 25 in the original trust would have reduced the amount of any 26 federal or state income, estate, or gift tax deduction received. 27 In addition, the terms of the second trust may not reduce any 28 retained interest of a beneficiary of the original trust if the 29 interest is a qualified interest under Internal Revenue Code 30 Section 2702. 31 (4) If contributions to the original trust have been 32 excluded from the gift tax by the application of Internal 33 Revenue Code Section 2503(b) and Section 2503(c), then the 34 second trust shall provide that the beneficiary’s remainder 35 interest in the contributions shall vest and become 36 distributable no later than the date upon which the interest 37 would have vested and become distributable under the terms 38 of the original trust.

[143] 489 1 (5) If a beneficiary of the original trust has a power of 2 withdrawal over trust property, then either: 3 (A) the terms of the second trust must provide a 4 power of withdrawal in the second trust identical to the 5 power of withdrawal in the original trust; or 6 (B) sufficient trust property must remain in the 7 original trust to satisfy the outstanding power of withdrawal. 8 (6) If the power to distribute principal or income in the 9 original trust is subject to an ascertainable standard, then the 10 power to distribute income or principal in the second trust 11 must be subject to the same ascertainable standard as in the 12 original trust and must be exercisable in favor of the same 13 beneficiaries as in the original trust. 14 (7) The second trust may confer a power of 15 appointment upon a beneficiary of the original trust to whom 16 or for the benefit of whom the trustee has the power to 17 distribute principal or income of the original trust. The 18 permissible appointees of the power of appointment 19 conferred upon a beneficiary may include persons who are 20 not beneficiaries of the original or second trust. 21 (e) A trustee may not exercise the power to appoint 22 principal or income under subsection (a) of this section if the 23 trustee is a beneficiary of the original trust, but the remaining 24 cotrustee or a majority of the remaining cotrustees may act 25 for the trust. If all the trustees are beneficiaries of the 26 original trust, then the court may appoint a special fiduciary 27 with authority to exercise the power to appoint principal or 28 income under subsection (a) of this section. 29 (f) The exercise of the power to appoint principal or 30 income under subsection (a) of this section: 31 (1) is considered the exercise of a power of 32 appointment, other than a power to appoint to the trustee, the 33 trustee’s creditors, the trustee’s estate or the creditors of the 34 trustee’s estate; 35 (2) does not result in the trustee or cotrustees of the 36 original trust being considered the settlor of the second trust; 37 (3) is not prohibited by a spendthrift provision or by a 38 provision in the trust instrument that prohibits amendment or 39 revocation of the trust.

[143] 490 1 (g) To effect the exercise of the power to appoint principal 2 or income under subsection (a) of this section, all of the 3 following apply: 4 (1) The exercise of the power to appoint must be made 5 by an instrument in writing, signed and acknowledged by the 6 trustee, setting forth the manner of the exercise of the power, 7 including the terms of the second trust, and the effective date 8 of the exercise of the power. The instrument must be filed 9 with the records of the original trust. 10 (2) The trustee shall give written notice to all qualified 11 beneficiaries of the original trust, at least ninety days prior to 12 the effective date of the exercise of the power to appoint, of 13 the trustee’s intention to exercise the power. The notice must 14 include a copy of the instrument described in subitem (1) of 15 this subsection. 16 (3) If all qualified beneficiaries waive the notice period 17 by a signed written instrument delivered to the trustee, the 18 trustee’s power to appoint principal or income is exercisable 19 after notice is waived by all qualified beneficiaries, 20 notwithstanding the effective date of the exercise of the 21 power. 22 (h) The provisions of this section shall not be construed to 23 create or imply a duty of the trustee to exercise the power to 24 distribute principal or income, or to create an inference of 25 impropriety made as a result of a trustee not exercising the 26 power to appoint principal or income conferred under 27 subsection (a) of this section. The provisions of this section 28 shall not be construed to abridge the right of any trustee who 29 has a power to appoint property in further trust that arises 30 under the terms of the original trust or under any other 31 section of this article or under another provision of law or 32 under common law. The terms of an original trust may 33 modify or waive the notice requirements under subsection 34 (g), reduce or increase restrictions on altering the interests of 35 beneficiaries under subsection (d), and may otherwise 36 contain provisions that are inconsistent with the requirements 37 of this section. 38 (i) A trustee or beneficiary may commence a 39 proceeding to approve or disapprove a proposed exercise of

[143] 491 1 the trustee’s special power to appoint to another trust 2 pursuant to subsection (a) of this section. 3 (j) The provisions of Section 627109 regarding notices 4 and the sending of documents to persons under this article 5 apply for the purposes of notices and the sending of 6 documents under this section. 7 8 REPORTER’S COMMENT 9 Providing decanting authority to a trustee, authority to 10 appoint the property of an original trust to a second trust, 11 provides a nonjudicial method for modifying an irrevocable 12 trust when doing so would be in the best interests of the 13 beneficiaries or in furtherance of the purposes of the trust. 14 Some examples of how decanting authority might be used by 15 a trustee include: modifying the administrative or 16 substantive provisions of a trust to account for a change in 17 law, combining trusts to reduce administrative costs, limiting 18 the authority of interested trustees, correcting scrivener’s 19 errors, and conforming the distribution provisions of a trust 20 to the requirements of a special needs trust. 21 Subsection (a) authorizes a trustee with discretion to make 22 distributions of principal or income to or for the benefit of 23 one or more beneficiaries of the original trust to exercise that 24 discretion by appointing all or part of such property to a 25 second trust. This authority may be exercised whether the 26 original trust grants the trustee absolute discretion over 27 distributions or whether the trustee’s discretion is limited by 28 an ascertainable standard. 29 Subsections (b) and (c) affirm the broad decanting 30 authority intended to be afforded to trustees to eliminate the 31 uncertainty that was faced by trustees exercising decanting 32 authority in reliance solely on common law principles. 33 Subsection (b) provides that the trustee may exercise the 34 power to decant whether or not there is a current need to 35 distribute property under any standard provided in the 36 original trust, for example, by decanting property from an 37 original trust that limits distributions to an ascertainable 38 standard to a second trust to promote administration of the 39 trust or preservation of trust property. But see subdivision

[143] 492 1 (d)(6), which prevents a trustee from exercising decanting 2 authority to eliminate an ascertainable standard limiting the 3 trustee’s discretion in the original trust document. 4 Subsection (d) provides certain requirements for the terms 5 of the second trust. Subdivisions (d)(1) and (d)(2) prevent a 6 trustee from exercising decanting authority to add 7 beneficiaries to the second trust who were not beneficiaries 8 of the original trust or accelerate the interest of a beneficiary 9 with only a future interest in the original trust to a present 10 interest under the second trust. Subdivision (d)(3) and (d)(4) 11 restrict a trustee’s ability to modify terms of an original trust 12 or a beneficiary’s fixed interest in the trust if the original 13 trust qualified for certain tax benefits. Under subdivision (d) 14 (5), a trustee is required to preserve a beneficiary’s power of 15 withdrawal over trust property; the trustee may do so by 16 either maintaining sufficient trust property in the original 17 trust to satisfy the beneficiary’s power of withdrawal, or by 18 providing the beneficiary with an identical power of 19 withdrawal under the terms of the second trust. Subdivision 20 (d)(6) prevents a trustee from modifying any ascertainable 21 standard governing the trustee’s power to make distributions 22 under the terms of the original trust. Subdivision (d)(7) 23 provides that the terms of the second trust may grant a power 24 of appointment to a beneficiary of the original trust 25 exercisable in favor of persons who are not beneficiaries of 26 the original or second trust. 27 The remaining provisions of the statute address procedural 28 concerns, including notice requirements and the procedure 29 for decanting if the trustee is a beneficiary of the original 30 trust. Subsection (e) prevents a trustee with a beneficial 31 interest in the original trust from exercising the authority to 32 decant, while preserving the ability to decant in 33 circumstances where all trustees have an interest in the trust. 34 Subsection (f) provides that the trustee’s power to decant is 35 considered the exercise of a special power of appointment, 36 does not result in the trustee being treated as the settlor of the 37 second trust, and is not prohibited by a spendthrift provision 38 or a provision prohibiting amendment or revocation of the 39 original trust. Subsection (g) provides the procedural

[143] 493 1 requirements for effecting a decanting, including the requisite 2 notice and the beneficiaries’ ability to waive the notice 3 period. Subsection (h) affirms that the provisions of section 4 627816A do not create an affirmative duty in the trustee to 5 exercise the special power to appoint, limit the trustee’s 6 decanting authority derived from some other source, or 7 nullify any decanting provisions included in an original trust 8 that are inconsistent with the provisions of this section. 9 Subsection (i) allows either a trustee or beneficiary to seek 10 court approval or disapproval of a proposed exercise of the 11 decanting power, and subsection (j) incorporates the notice 12 provisions of SCTC section 627109. 13 14 Section 627817. (a) Upon termination or partial 15 termination of a trust, the trustee may send to the 16 beneficiaries a proposal for distribution. The right of any 17 beneficiary to object to the proposed distribution terminates 18 if the beneficiary does not notify the trustee of an objection 19 within 30 days after the proposal was sent but only if the 20 proposal informed the beneficiary of the right to object and 21 of the time allowed for objection. 22 (b) Upon the occurrence of an event terminating or 23 partially terminating a trust, the trustee shall proceed 24 expeditiously to distribute the trust property to the persons 25 entitled to it, subject to the right of the trustee to retain a 26 reasonable reserve for the payment of debts, expenses, and 27 taxes. 28 (c) A release by a beneficiary of a trustee from liability 29 for breach of trust is invalid to the extent: 30 (1) it was induced by improper conduct of the trustee; 31 or 32 (2) the beneficiary, at the time of the release, did not 33 know of the beneficiary’s rights or of the material facts 34 relating to the breach. 35 36 REPORTER’S COMMENT 37 SCPC Section 623906(b), which provides for a proposal for 38 distribution by a personal representative, is analogous to this 39 SCTC Section 627817(a).

[143] 494 1 This section contains several provisions governing 2 distribution upon termination. Other provisions of the SCTC 3 relevant to distribution upon termination include Section 4 627816(26) (powers upon termination to windup 5 administration and distribution), and 6271005 (limitation of 6 action against trustee). 7 Subsection (a) addresses the dilemma that sometimes 8 arises when the trustee is reluctant to make distribution until 9 the beneficiary approves but the beneficiary is reluctant to 10 approve until the assets are in hand. The procedure made 11 available under subsection (a) facilitates the making of 12 nonprorata distributions. However, whenever practicable it is 13 normally better practice to obtain the advance written consent 14 of the beneficiaries to a proposed plan of distribution. 15 Subsection (b) recognizes that upon an event terminating 16 or partially terminating a trust, expeditious distribution 17 should be encouraged to the extent reasonable under the 18 circumstances. However, a trustee is entitled to retain a 19 reasonable reserve for payment of debts, expenses, and taxes. 20 Sometimes these reserves must be quite large, for example, 21 upon the death of the beneficiary of a QTIP trust that is 22 subject to federal estate tax in the beneficiary’s estate. Not 23 infrequently, a substantial reserve must be retained until the 24 estate tax audit is concluded several years after the 25 beneficiary’s death. 26 Subsection (c) is an application of Section 6271009. 27 Section 6271009 addresses the validity of any type of release 28 that a beneficiary might give. Subsection (c) is more limited, 29 dealing only with releases given upon termination of the 30 trust. Factors affecting the validity of a release include 31 adequacy of disclosure, whether the beneficiary had a legal 32 incapacity, and whether the trustee engaged in any improper 33 conduct. See Restatement (Second) of Trusts Section 216 34 (1959). 35 36 Section 627818. The powers and discretions of a trust 37 protector are as provided in the governing instrument and 38 may be exercised or not exercised, in the best interests of the 39 trust, in the sole and absolute discretion of the trust protector

[143] 495 1 and are binding on all other persons. These powers and 2 discretion may include, but are not limited to, the following: 3 (1) modify or amend the trust instrument to achieve 4 favorable tax status or respond to changes in the Internal 5 Revenue Code, state law, or the rulings and regulations 6 thereunder; 7 (2) increase or decrease the interests of any beneficiaries 8 to the trust; 9 (3) modify the terms of any power of appointment granted 10 by the trust. However, a modification or amendment may not 11 grant a beneficial interest to any individual or class of 12 individuals not specifically provided for under the trust 13 instrument; 14 (4) remove and appoint a trustee, trust advisor, investment 15 committee member, or distribution committee member; 16 (5) terminate the trust; 17 (6) veto or direct trust distributions; 18 (7) change situs or governing law of the trust, or both; 19 (8) appoint a successor trust protector; 20 (9) interpret terms of the trust instrument at the request of 21 the trustee; 22 (10) advise the trustee on matters concerning a beneficiary; 23 and 24 (11) amend or modify the trust instrument to take 25 advantage of laws governing restraints on alienation, 26 distribution of trust property, or the administration of the 27 trust. 28 The powers referenced in subitems (5), (6) and (11) may 29 be granted notwithstanding the provisions of Sections 30 627410 through 627412, inclusive. 31 32 REPORTER’S COMMENT 33 There was no prior South Carolina statutory case law 34 counterpart to this section. This section expands and defines 35 the powers of the trust protector. See comments to SCTC 36 Section 627808 (b) (d). 37 38 Section 627819. (a) Whenever a trust instrument 39 provides that a trustee is to follow the direction of a trust

[143] 496 1 investment advisor with respect to investment decisions or 2 distribution decisions, then, except to the extent that the trust 3 instrument provides otherwise, the trustee has no duty to: 4 (1) monitor the conduct of the trust investment advisor; 5 (2) provide advice to the trust investment advisor; or 6 (3) communicate with or warn or apprise any 7 beneficiary or third party concerning instances in which the 8 trustee would or might have exercised the trustee’s own 9 discretion in a manner different from the manner directed by 10 the advisor. 11 (b) Absent clear and convincing evidence to the contrary, 12 the actions of the trustee pertaining to matters within the 13 scope of the trust investment advisor’s authority, such as 14 confirming that the trust investment advisor’s directions have 15 been carried out and recording and reporting actions taken at 16 the trust investment advisor’s direction, are presumed to be 17 administrative actions taken by the trustee solely to allow the 18 trustee to perform those duties assigned to the trustee under 19 the governing instrument and these administrative actions are 20 not deemed to constitute an undertaking by the trustee to 21 monitor the trust investment advisor or otherwise participate 22 in actions within the scope of the trust investment advisor’s 23 authority. 24 (c) For purposes of this section, ‘investment decision’ 25 means, with respect to any investment, the retention, 26 purchase, sale, exchange, tender or other transaction affecting 27 the ownership thereof, or rights therein. 28 29 REPORTER’S COMMENT 30 There was no prior South Carolina statutory case law 31 counterpart to this section. This section defines the powers 32 of a trust investment advisor. 33 34 Part 9 35 36 South Carolina Uniform Principal and Income Act; 37 South Carolina Uniform Prudent Investor Act 38 PREFATORY NOTE 39

[143] 497 1 In 2001 South Carolina enacted as part of its version of the 2 Uniform Probate Code (“the South Carolina Probate Code or 3 SCPC”) the South Carolina Uniform Principal and Income 4 Act, Sections 627401 through 627432 (SCUP &IA). This is 5 South Carolina’s version of the Uniform Principal and 6 Income Act which had been recommended in 1997 by the 7 Uniform Law Commissioners (ULC) for enactment in all the 8 states. ULC’s 1997 Uniform Principal and Income Act 9 revised its original 1931 Uniform Principal and Income act 10 (the 1931 Act) and its 1962 Revised Uniform Principal and 11 Income Act (the 1962 Act). Likewise, 2001 SCUP&IA 12 revised South Carolina’s 1963 “Revised Uniform Principal 13 and Income Act”, Sections 627401 through 627421 (the 1963 14 SC Act). South Carolina did not enact ULC’s 1931 Act. 15 When in 2005 South Carolina enacted its version of ULC’s 16 recommended 2000 Uniform Trust Code as the South 17 Carolina Trust Code, SC Code Title 62, Article 7 (SCTC), 18 SCUP&IA was retained, renumbered and incorporated at 19 SCTC Sections 627901 through 932. Any reference 20 elsewhere in the South Carolina Code to former SCPC 21 Sections 627401 through 432 should now refer to SCTC 22 Sections 627901 through 932. 23 The 1997 revision by ULC of its original 1931 Uniform 24 Principal and Income Act (the 1931 Act) and its 1962 25 Revised Uniform Principal and Income Act (the 1962 Act) 26 and the subsequent 2001 revision by South Carolina of its 27 1963 Revised Uniform Principal and Income Act (1963 SC 28 Act) had two purposes: 29 (1) One purpose was to revise the 1931 and 1962 Acts and 30 the 1963 SC Act, respectively. Revision was needed to 31 support the now widespread use of the revocable living trust 32 as a will substitute by the 1990s, to change the rules in those 33 Acts that experience had shown needed to be changed, and to 34 establish new rules to cover situations not provided for in the 35 old Acts, including rules that apply to financial instruments 36 invented since 1962. 37 (2) The other purpose was to provide a means for 38 implementing the transition to an investment regime based on 39 principles embodied in the Uniform Prudent Investor Act,

[143] 498 1 especially the principle of investing for total return rather 2 than a certain level of “income” as traditionally perceived in 3 terms of interest, dividends, and rents. 4 Revision of the 1931 and 1962 Acts and the corresponding 5 1963 SC Act. 6 The prior Acts and revision of those Acts dealt with four 7 questions affecting the rights of beneficiaries: 8 (1) How is income earned during the probate of an estate 9 to be distributed to trusts and to persons who receive outright 10 bequests of specific property, pecuniary gifts, and the 11 residue? 12 (2) When an income interest in a trust begins (i.e., when a 13 person who creates the trust dies or when she transfers 14 property to a trust during life), what property is principal that 15 will eventually go to the remainder beneficiaries and what is 16 income? 17 (3) When an income interest ends, who gets the income 18 that has been received but not distributed, or that is due but 19 not yet collected, or that has accrued but is not yet due? 20 (4) After an income interest begins and before it ends, 21 how should its receipts and disbursements be allocated to or 22 between principal and income? 23 Changes in the traditional sections are of three types: new 24 rules that deal with situations not covered by the prior Acts, 25 clarification of provisions in the 1962 Act, and changes to 26 rules in the prior Acts. 27 New rules. Issues addressed by some of the more 28 significant new rules include: 29 (1) The application of the probate administration rules to 30 revocable living trusts after the settlor’s death and to other 31 terminating trusts. Sections 627905 through 909. 32 (2) The payment of interest or some other amount on the 33 delayed payment of an outright pecuniary gift that is made 34 pursuant to a trust agreement instead of a will when the 35 agreement does not provide for such a payment. Section 36 627905(3). 37 (3) The allocation of net income from partnership interests 38 acquired by the trustee other than from a decedent (the old

[143] 499 1 Acts deal only with partnership interests acquired from a 2 decedent). Section 627910. 3 (4) An “unincorporated entity” concept has been 4 introduced to deal with businesses operated by a trustee, 5 including farming and livestock operations, and investment 6 activities in rental real estate, natural resources, timber, and 7 derivatives. Section 627912. 8 (5) The allocation of receipts from discount obligations 9 such as zerocoupon bonds. Section 627915(B). 10 (6) The allocation of net income from harvesting and 11 selling timber between principal and income. Section 12 627921. 13 (7) The allocation between principal and income of 14 receipts from derivatives, options, and assetbacked securities. 15 Sections 627923 and 924. 16 (8) Disbursements made because of environmental laws. 17 Section 627926(A)(7). 18 (9) Income tax obligations resulting from the ownership 19 of S corporation stock and interests in partnerships. Section 20 627929. 21 (10) The power to make adjustments between principal and 22 income to correct inequities caused by tax elections or 23 peculiarities in the way the fiduciary income tax rules apply. 24 Section 627930. 25 26 Clarifications and changes in existing rules. A number of 27 matters provided for in the prior Acts have been changed or 28 clarified in this revision, including the following: 29 (1) An income beneficiary’s estate will be entitled to 30 receive only net income actually received by a trust before 31 the beneficiary’s death and not items of accrued income. 32 Section 627909. 33 (2) Income from a partnership is based on actual 34 distributions from the partnership, in the same manner as 35 corporate distributions. Section 627910. 36 (3) Distributions from corporations and partnerships that 37 exceed 20% of the entity’s gross assets will be principal 38 whether or not intended by the entity to be a partial 39 liquidation. Section 627910 (D)(2).

[143] 500 1 (4) Deferred compensation is dealt with in greater detail 2 in a separate section. Section 627918. 3 (5) The 1962 Act rule for “property subject to depletion,” 4 (patents, copyrights, royalties, and the like), which provides 5 that a trustee may allocate up to 5% of the asset’s inventory 6 value to income and the balance to principal, has been 7 replaced by a rule that allocates 90% of the amounts received 8 to principal and the balance to income. Section 627919. 9 (6) The percentage used to allocate amounts received 10 from oil and gas has been changed 90% of those receipts are 11 allocated to principal and the balance to income. Section 12 627920. 13 (7) The unproductive property rule has been eliminated 14 for trusts other than marital deduction trusts. Section 15 627922. 16 (8) Charging depreciation against income is no longer 17 mandatory, and is left to the discretion of the trustee. Section 18 627927. 19 20 Coordination with the Uniform Prudent Investor Act 21 The law of trust investment has been modernized. See 22 Uniform Prudent Investor Act (1994); Restatement (Third) of 23 Trusts: Prudent Investor Rule (1992) (hereinafter 24 Restatement of Trusts 3d: Prudent Investor Rule). Now it is 25 time to update the principal and income allocation rules so 26 the two bodies of doctrine can work well together. This 27 revision deals conservatively with the tension between 28 modern investment theory and traditional income allocation. 29 The starting point is to use the traditional system. If prudent 30 investing of all the assets in a trust viewed as a portfolio and 31 traditional allocation effectuate the intent of the settlor, then 32 nothing need be done. The Act, however, helps the trustee 33 who has made a prudent, modern portfoliobased investment 34 decision that has the initial effect of skewing return from all 35 the assets under management, viewed as a portfolio, as 36 between income and principal beneficiaries. The Act gives 37 that trustee a power to reallocate the portfolio return suitably. 38 To leave a trustee constrained by the traditional system 39 would inhibit the trustee’s ability to fully implement modern

[143] 501 1 portfolio theory. [Since the early 1990s when this Prefatory 2 Note and the following Comments were prepared by ULC, 3 Restatement of Trusts 3d has progressed significantly as 4 reported in the Forenote to Chapter 17 of what is now cited 5 as “Restatement Third, Trusts”: 6 The contents of this Chapter (Introduction and 7 Sections 9092) were approved at the American Law 8 Institute’s 1990 Annual Meeting and were originally 9 published as Sections 227229 of Restatement Third, 10 Trusts (Prudent Investor Rule) in 1992 [referred to 11 throughout this SCUP&IA Prefatory Note and the 12 following Comments as either “Restatement of Trusts 13 3d; Prudent Investor Rule” or simply “1992 14 Restatement”] 15 Therefore, appropriate reference to Chapter 17 (Introduction 16 and Sections 9092) of Restatement Third, Trusts is 17 suggested.] 18 As to modern investing see, e.g., the Preface to, terms of, 19 and Comments to the Uniform Prudent Investor Act (1994); 20 the discussion and reporter’s note by Edward C. Halbach, Jr. 21 in Restatement of Trusts 3d: Prudent Investor Rule; John H. 22 Langbein, The Uniform Prudent Investor Act and the Future 23 of Trust Investing, 81 Iowa L. Rev. 641 (1996); Bevis 24 Longstreth, Modern Investment Management and the Prudent 25 Man Rule (1986); John H. Langbein & Richard A. Posner, 26 The Revolution in Trust Investment Law, 62 A.B.A.J. 887 27 (1976); and Jeffrey N. Gordon, The Puzzling Persistence of 28 the Constrained Prudent Man Rule, 62 N.Y.U. L. Rev. 52 29 (1987). See also R.A. Brearly, An Introduction to Risk and 30 Return from Common Stocks (2d ed. 1983); Jonathan R. 31 Macey, An Introduction to Modern Financial Theory (2d ed. 32 1998). As to the need for principal and income reform see, 33 e.g., Joel C. Dobris, Real Return, Modern Portfolio Theory 34 and College, University and Foundation Decisions on Annual 35 Spending From Endowments: A Visit to the World of 36 Spending Rules, 28 Real Prop., Prob., & Tr. J. 49 (1993); 37 Joel C. Dobris, The Probate World at the End of the Century: 38 Is a New Principal and Income Act in Your Future?, 28 Real 39 Prop., Prob., & Tr. J. 393 (1993); and Kenneth L. Hirsch,

[143] 502 1 Inflation and the Law of Trusts, 18 Real Prop., Prob., & Tr. J. 2 601 (1983). See also, Jerold I. Horn, The Prudent Investor 3 Rule B, Impact on Drafting and Administration of Trusts, 20 4 ACTEC Notes 26 (Summer 1994). 5 6 Section 627901. Sections 627901 through 627932 of This 7 part may be cited as the South Carolina Uniform Principal 8 and Income Act. 9 10 Section 627902. As used in this part the South Carolina 11 Uniform Principal and Income Act: 12 (1) ‘Accounting period’ means a calendar year unless 13 another twelvemonth period is selected by a fiduciary. The 14 term includes a portion of a calendar year or other 15 twelvemonth period that begins when an income interest 16 begins or ends when an income interest ends. 17 (2) ‘Beneficiary’ includes, in the case of a decedent’s 18 estate, an heir, legatee, and devisee and, in the case of a trust, 19 an income beneficiary and a remainder beneficiary. 20 (3) ‘Fiduciary’ means a personal representative or a 21 trustee. The term includes an executor, administrator, 22 successor personal representative, special administrator, and 23 a person performing substantially the same function. 24 (4) ‘Income’ means money or property that a fiduciary 25 receives as current return from a principal asset. The term 26 includes a portion of receipts from a sale, exchange, or 27 liquidation of a principal asset, to the extent provided in 28 Section 627910 through Section 627924. 29 (5) ‘Income beneficiary’ means a person to whom net 30 income of a trust is or may be payable. 31 (6) ‘Income interest’ means the right of an income 32 beneficiary to receive all or part of net income, whether the 33 terms of the trust require it to be distributed or authorize it to 34 be distributed in the trustee’s discretion. 35 (7) ‘Mandatory income interest’ means the right of an 36 income beneficiary to receive net income that the terms of 37 the trust require the fiduciary to distribute. 38 (8) ‘Net income’ means the total receipts allocated to 39 income during an accounting period minus the disbursements

[143] 503 1 made from income during the period, plus or minus transfers 2 under this part the South Carolina Uniform Principal and 3 Income Act to or from income during the period. 4 (9) ‘Person’ means any individual, corporation, business 5 trust, estate, trust, partnership, limited liability company, 6 association, joint venture, or government, governmental 7 subdivision, agency, or instrumentality; or public 8 corporation, or other legal or commercial entity. 9 (10) ‘Principal’ means property held in trust for 10 distribution to a remainder beneficiary when the trust 11 terminates. 12 (11) ‘Remainder beneficiary’ means a person entitled to 13 receive principal when an income interest ends. 14 (12) ‘Terms of a trust’ means the manifestation of the 15 intent of a settlor or decedent with respect to the trust, 16 expressed in a manner that admits of its proof in a judicial 17 proceeding, whether by written or spoken words or by 18 conduct. 19 (13) ‘Trustee’ includes an original, additional, or successor 20 trustee, whether or not appointed or confirmed by a court. 21 22 REPORTER’S COMMENT 23 “Income beneficiary.” The definitions of income beneficiary 24 (Section 627902(5)) and income interest (Section 627902(6)) 25 cover both mandatory and discretionary beneficiaries and 26 interests. There are no definitions for “discretionary income 27 beneficiary” or “discretionary income interest” because those 28 terms are not used in the Act. 29 “Inventory value.” There is no definition for inventory 30 value in this Act because the provisions in which that term 31 was used in the 1962 Act and the 1963 SC Act have either 32 been eliminated (in the case of the underproductive property 33 provision) or changed in a way that eliminates the need for 34 the term (in the case of bonds and other money obligations, 35 property subject to depletion, and the method for determining 36 entitlement to income distributed from a probate estate). 37 “Net income.” The reference to “transfers under this Act 38 to or from income” means transfers made under Sections 39 627904(A), 921(A), 926(B), 927(B), 904(A) and 930.

[143] 504 1 “Terms of a trust.” This term was chosen in preference to 2 “terms of the trust instrument” (the phrase used in the 1962 3 Act and the 1963 SC Act) to make it clear that the Act 4 applies to oral trusts as well as those whose terms are 5 expressed in written documents. The definition is based on 6 the (1959) and the Restatement (Second) of Trusts Sec. 4 7 (Tent. Draft No. 1, 1996). Constructional preferences or 8 rules would also apply, if necessary, to determine the terms 9 of the trust. 10 11 Section 627903. (A) In allocating receipts and 12 disbursements to or between principal and income, and with 13 respect to any matter within the scope of Sections 627905 14 through 627909, a fiduciary: 15 (1) shall administer a trust or estate in accordance with 16 the terms of the trust or the will, even if there is a different 17 provision in this part the South Carolina Uniform Principal 18 and Income Act; 19 (2) may administer a trust or estate by the exercise of a 20 discretionary power of administration given to the fiduciary 21 by the terms of the trust or the will, even if the exercise of the 22 power produces a result different from a result required or 23 permitted by this part the South Carolina Uniform Principal 24 and Income Act; 25 (3) shall administer a trust or estate in accordance with 26 this part the South Carolina Uniform Principal and Income 27 Act if the terms of the trust or the will do not contain a 28 different provision or do not give the fiduciary a 29 discretionary power of administration; and 30 (4) shall add a receipt or charge a disbursement to 31 principal to the extent that the terms of the trust and this part 32 the South Carolina Uniform Principal and Income Act do not 33 provide a rule for allocating the receipt or disbursement to or 34 between principal and income. 35 (B) In exercising: 36 (1) the power to adjust pursuant to Section 627904(A); 37 (2) a discretionary power in connection with the 38 conversion or administration of a unitrust under Sections 39 627904B through Section 627904P; or

[143] 505 1 (3) a discretionary power of administration regarding a 2 matter within the scope of this part the South Carolina 3 Uniform Principal and Income Act, whether granted by the 4 terms of a trust, a will, or this part the South Carolina 5 Uniform Principal and Income Act, 6 a fiduciary shall administer a trust or estate impartially, based 7 on what is fair and reasonable to all of the beneficiaries, 8 except to the extent that the terms of the trust or the will 9 clearly manifest an intention that the fiduciary shall or may 10 favor one or more of the beneficiaries. A determination in 11 accordance with this part the South Carolina Uniform 12 Principal and Income Act is presumed to be fair and 13 reasonable to all of the beneficiaries. 14 15 REPORTER’S COMMENT 16 Prior Act. The rule in Section 627404(1) of the 1963 SC Act 17 is restated in Section 627903(a), without changing its 18 substance, to emphasize that this Act contains only default 19 rules and that provisions in the terms of the trust are 20 paramount. However, Section 627404(a) of the 1963 SC Act 21 applied only to the allocation of receipts and disbursements 22 to or between principal and income. In this Act, the first 23 sentence of Section 627903(A) states that it also applies to 24 matters within the scope of Sections 627905 through 627909. 25 Section 627903(A)(2) incorporates the rule in Section 26 627404(b) of the 1963 SC Act that a discretionary allocation 27 made by the trustee that is contrary to a rule in the Act should 28 not give rise to an inference of imprudence or partiality by 29 the trustee. 30 The Act deletes the language that appears at the end of 31 1963 SC Act Section 627404(a)(3) “and in view of the 32 manner in which men of ordinary prudence, discretion and 33 judgment would act in the management of their affairs” 34 because persons of ordinary prudence, discretion and 35 judgment, acting in the management of their own affairs do 36 not normally think in terms of the interests of successive 37 beneficiaries. If there is an analogy to an individual’s 38 decisionmaking process, it is probably the individual’s 39 decision to spend or to save, but this is not a useful guideline

[143] 506 1 for trust administration. No case has been found in which a 2 court has relied on the “prudent man” rule of the 1963 SC 3 Act. 4 Fiduciary discretion. The general rule is that if a 5 discretionary power is conferred upon a trustee, the exercise 6 of that power is not subject to control by a court except to 7 prevent an abuse of discretion. Restatement (Second) of 8 Trusts Sec 187. The situations in which a court will control 9 will control the exercise of a trustee’s discretion are 10 discussed in the comments to Sec 187. See also id. Sec 233 11 Comment p. 12 Questions for which there is no provision. Section 13 627903(A)(4) allocates receipts and disbursements to 14 principal when there is no provision for a different allocation 15 in the terms of the trust, the will, or the Act. This may occur 16 because money is received from a financial instrument not 17 available at the present time (inflationindexed bonds might 18 have fallen into this category had they been announced after 19 the Uniform Act was approved by the Commissioners on 20 Uniform State Laws) or because a transaction is of a type or 21 occurs in a manner not anticipated by the Drafting 22 Committee for the Uniform Act or the drafter of the trust 23 instrument. 24 Allocating to principal a disbursement for which there is 25 no provision in the Act or the terms of the trust preserves the 26 income beneficiary’s level of income in the year it is 27 allocated to principal, but thereafter will reduce the amount 28 of income produced by the principal. Allocating to principal 29 a receipt for which there is no provision will increase the 30 income received by the income beneficiary in subsequent 31 years, and will eventually, upon termination of the trust, also 32 favor the remainder beneficiary. Allocating these items to 33 principal implements the rule that requires a trustee to 34 administer the trust impartially, based on what is fair and 35 reasonable to both income and remainder beneficiaries. 36 However, if the trustee decides that an adjustment between 37 principal and income is needed to enable the trustee to 38 comply with Section 627903(B) after considering the return

[143] 507 1 from the portfolio as a whole, the trustee may make an 2 appropriate adjustment under Section 627904(A). 3 Duty of impartiality. Whenever there are two or more 4 beneficiaries, a trustee is under a duty to deal impartially 5 with them. Restatement of Trusts 3d: Prudent Investor Rule 6 Sec 183 (1992). This rule applies whether the beneficiaries’ 7 interests in the trust are concurrent or successive. If the 8 terms of the trust give the trustee discretion to favor one 9 beneficiary over another, a court will not control the exercise 10 of such discretion except to prevent the trustee from abusing 11 it. Id. Sec 183, Comment a. “The precise meaning of the 12 trustee’s duty of impartiality and the balancing of competing 13 interests and objectives inevitably are matters of judgment 14 and interpretation. Thus, the duty and balancing are affected 15 by the purposes, terms, distribution requirements, and other 16 circumstances of the trust, not only at the outset but as they 17 may change from time to time.” Id. Sec 232, Comment c. 18 The terms of a trust may provide that the trustee, or an 19 accountant engaged by the trustee, or a committee of persons 20 who may be family members or business associates, shall 21 have the power to determine what is income and what is 22 principal. If the terms of a trust provide that this Act 23 specifically or principal and income legislation in general 24 does not apply to the trust but fail to provide a rule to deal 25 with a matter provided for in this Act, the trustee has an 26 implied grant of discretion to decide the question. Section 27 627903(B) provides that the rule of impartiality applies in the 28 exercise of such a discretionary power to the extent that the 29 terms of the trust do not provide that one or more of the 30 beneficiaries are to be favored. The fact that a person is 31 named an income beneficiary or a remainder beneficiary is 32 not by itself an indication of partiality for that beneficiary. 33 34 Section 627904. (A) A trustee may adjust between 35 principal and income to the extent the trustee considers 36 necessary if the trustee invests and manages trust assets as a 37 prudent investor, the terms of the trust describe the amount 38 that may or must be distributed to a beneficiary by referring 39 to the trust’s income, and the trustee determines, after

[143] 508 1 applying the provisions in Section 627903(A), that the trustee 2 is unable to comply with Section 627903(B). In lieu of 3 exercising the power to adjust, the trustee may convert the 4 trust to a unitrust as permitted under Sections 627904A 5 through 627904P, in which case the unitrust amount becomes 6 the net income of the trust. 7 (B) In deciding whether and to what extent to exercise the 8 power of adjustment to adjust in subsection (A), a trustee 9 shall consider all factors relevant to the trust and its 10 beneficiaries, including, but not limited to: 11 (1) the nature, purpose, and expected duration of the 12 trust; 13 (2) the intent of the settlor; 14 (3) the identity and circumstances of the beneficiaries; 15 (4) the needs for liquidity, regularity of income, and 16 preservation and appreciation of capital; 17 (5) the assets held in the trust and the extent to which 18 they consist of financial assets, interests in closely held 19 enterprises, tangible and intangible personal property, or real 20 property and the extent to which an asset is used by a 21 beneficiary, and whether an asset was purchased by the 22 trustee or received from the settlor; 23 (6) the net amount otherwise allocated to income under 24 other sections of the South Carolina Uniform Principal and 25 Income Act and the increase or decrease in the value of the 26 principal assets, which the trustee may estimate as to assets 27 for which market values are not readily available; 28 (7) terms of the trust and whether and to what extent 29 they the terms of the trust give the trustee the power to 30 invade principal or accumulate income or prohibit the trustee 31 from invading principal or accumulating income, and the 32 extent to which the trustee has exercised a power from time 33 to time to invade principal or accumulate income; 34 (8) the actual and anticipated effect of economic 35 conditions on principal and income and effects of inflation 36 and deflation; and 37 (9) the anticipated tax consequences of an adjustment. 38 (C) A trustee may not make an adjustment:

[143] 509 1 (1) that diminishes the income interest in a trust that 2 requires all of the income to be paid at least annually to a 3 surviving spouse and for which an estate tax or gift tax 4 marital deduction is allowed, in whole or in part, if the 5 trustee did not have the power to make the adjustment, but 6 only to the extent that making such an adjustment would 7 cause adverse tax consequences under applicable tax laws 8 and regulations; 9 (2) that reduces the actuarial value of the income 10 interest in a trust to which a person transfers property with 11 the intent to qualify for a gift tax exclusion; 12 (3) that changes the amount payable to a beneficiary as 13 a fixed annuity or a fixed fraction of the value of the trust 14 assets; 15 (4) from any amount that is permanently set aside for 16 charitable purposes under a will or the terms of a trust unless 17 both income and principal are so set aside, but only to the 18 extent that making such an adjustment would cause adverse 19 tax consequences under applicable tax laws and regulations; 20 (5) if possessing or exercising the power to make an 21 adjustment is determinative in causing an individual to be 22 treated as the owner of all or part of the trust for income tax 23 purposes and the individual would not be treated as the 24 owner if the trustee did not possess the power to make an 25 adjustment; 26 (6) if possessing or exercising the power to make an 27 adjustment is determinative in causing all or part of the trust 28 assets to be included for estate tax purposes in the estate of 29 an individual who has the power to remove a trustee or 30 appoint a trustee, or both, and the assets would not be 31 included in the estate of the individual if the trustee did not 32 possess the power to make an adjustment; 33 (7) if the trustee is a beneficiary of the trust; or 34 (8) if the trustee is not a beneficiary, but the adjustment 35 benefits would benefit the trustee directly or indirectly, 36 except that a trustee may make an adjustment that also 37 benefits a beneficiary even if the terms of the trust provide 38 for trustee compensation as a percentage of the trust’s 39 income; or

[143] 510 1 (9) if the trust has been converted to, and is then 2 operating as a unitrust under Sections 627904B through 3 627904P. 4 (D) If subsection (C)(5), (6), (7), or (8) applies to a trustee 5 and there is more than one trustee, a cotrustee to whom the 6 provision does not apply may make the adjustment unless the 7 exercise of the power by the remaining trustee or trustees is 8 not permitted by the terms of the trust. 9 (E) A trustee may release the entire power of adjustment 10 in subsection (A) or may release only the power to adjust 11 from income to principal or the power to adjust from 12 principal to income if the trustee is uncertain about whether 13 possessing or exercising the power causes a result described 14 in subsection subsections (C)(1) through (6) or subsection 15 (C)(8) or if the trustee determines that possessing or 16 exercising the power will or may deprive the trust of a tax 17 benefit or impose a tax burden not contemplated in 18 subsection (C). The release may be permanent or for a 19 specified period, including a period measured by the life of 20 an individual. 21 (F) Terms of a trust that limit the power of a trustee to 22 make an adjustment between principal and income do not 23 affect the application of this section unless it is clear from the 24 terms of the trust that the terms are intended to deny the 25 trustee the power of adjustment to adjust in subsection (A). 26 27 REPORTER’S COMMENTS 28 Purpose and Scope of Provision. The purpose of Section 29 627904 is to enable a trustee to select investments using the 30 standards of a prudent investor without having to realize a 31 particular portion of the portfolio’s total return in the form of 32 traditional trust accounting income such as interest, 33 dividends, and rents. Section 627904(A) authorizes a trustee 34 to make adjustments between principal and income if three 35 conditions are met: (1) the trustee must be managing the trust 36 assets under the prudent investor rule; (2) the terms of the 37 trust must express the income beneficiary’s distribution 38 rights in terms of the right to receive “income” in the sense of 39 traditional trust accounting income; and (3) the trustee must

[143] 511 1 determine, after applying the rules in Section 627903(A) that 2 he is unable to comply with Section 627903(B). In deciding 3 whether and to what extent to exercise the power to adjust, 4 the trustee is required to consider the factors described in 5 Section 627904(B) but the trustee may not make an 6 adjustment in circumstances described in Section 627904(C). 7 Section 627904 does not empower a trustee to increase or 8 decrease the degree of beneficial enjoyment to which a 9 beneficiary is entitled under the terms of the trust; rather, it 10 authorizes the trustee to make adjustments between principal 11 and income that may be necessary if the income component 12 of a portfolio’s total return is too small or too large because 13 of investment decisions made by the trustee under the 14 prudent investor rule. The paramount consideration in 15 applying Section 627904(A) is the requirement in Section 16 627903(B) that “a fiduciary must administer a trust or estate 17 impartially, based on what is fair and reasonable to all of the 18 beneficiaries, except to the extent that the terms of the trust 19 or the will clearly manifest an intention that the fiduciary 20 shall or may favor one or more of the beneficiaries.” The 21 power to adjust is subject to control by the court to prevent 22 an abuse of discretion. Restatement (Second) of Trusts 23 Sec.187 (1959). See also id. Sections 183, 232, 233, 24 Comment p (1959). 25 Section 627904 will be important for trusts that are 26 irrevocable when a State adopts the prudent investor rule by 27 statute or judicial approval of the rule in Restatement of 28 Trusts 3d: Prudent Investor Rule. Wills and trust instruments 29 executed after the rule is adopted can be drafted to describe a 30 beneficiary’s distribution rights in terms that do not depend 31 upon the amount of trust accounting income, but to the extent 32 that drafters of trust documents continue to describe an 33 income beneficiary’s distribution rights by referring to trust 34 accounting income, Section 627904 will be an important tool 35 in trust administration. 36 Three conditions to the exercise of the power to adjust. 37 The first of the three conditions that must be met before a 38 trustee can exercise the power to adjust that the trustee 39 invest and manage trust assets as a prudent investor is

[143] 512 1 expressed in this Act by language derived from the Uniform 2 Prudent Investor Act (UPIA), but the condition will be met 3 whether the prudent investor rule applies because the UPIA 4 or other prudent investor legislation has been enacted, the 5 prudent investor rule has been approved by the courts, or the 6 terms of the trust require it. Even if a State’s legislature or 7 courts have not formally adopted the prudent investor rule, 8 the Restatement establishes the prudent investor rule as an 9 authoritative interpretation of the common law prudent man 10 rule, referring to the prudent investor rule as a “modest 11 reformulation of the Harvard College dictum and the basic 12 rule of prior Restatements.” Restatement of Trusts 3d: 13 Prudent Investor Rule, Introduction, at 5. As a result, there is 14 a basis for concluding that the first condition is satisfied in 15 virtually all States except those in which a trustee is 16 permitted to invest only in assets set forth in a statutory 17 “legal list.” 18 The second condition will be met when the terms of the 19 trust require all of the “income” to be distributed at regular 20 intervals; or when the terms of the trust require a trustee to 21 distribute all of the income, but permit the trustee to decide 22 how much to distribute to each member of a class of 23 beneficiaries; or when the terms of a trust provide that the 24 beneficiary shall receive the greater of the trust accounting 25 income and a fixed dollar amount (an annuity), or of trust 26 accounting income and a fractional share of the value of the 27 trust assets (a unitrust amount). If the trust authorizes the 28 trustee in its discretion to distribute the trust’s income to the 29 beneficiary or to accumulate some or all of the income, the 30 condition will be met because the terms of the trust do not 31 permit the trustee to distribute more than the trust accounting 32 income. 33 To meet the third condition, the trustee must first meet the 34 requirements of Section 627903(A), i.e., he must apply the 35 terms of the trust, decide whether to exercise the 36 discretionary powers given to the trustee under the terms of 37 the trust, and must apply the provisions of the Act if the 38 terms of the trust do not contain a different provision or give 39 the trustee discretion. Second, the trustee must determine the

[143] 513 1 extent to which the terms of the trust clearly manifest an 2 intention by the settlor that the trustee may or must favor one 3 or more of the beneficiaries. To the extent that the terms of 4 the trust do not require partiality, the trustee must conclude 5 that he is unable to comply with the duty to administer the 6 trust impartially. To the extent that the terms of the trust do 7 require or permit the trustee to favor the income beneficiary 8 or the remainder beneficiary, the trustee must conclude that 9 he is unable to achieve the degree of partiality required or 10 permitted. If the trustee comes to either conclusion that he is 11 unable to administer the trust impartially or that he is unable 12 to achieve the degree of partiality required or permitted he 13 may exercise the power to adjust under Section 627904(A). 14 Impartiality and productivity of income. The duty of 15 impartiality between income and remainder beneficiaries is 16 linked to the trustee’s duty to make the portfolio productive 17 of trust accounting income whenever the distribution 18 requirements are expressed in terms of distributing the trust’s 19 “income.” The 1962 Act and the 1963 SC Act imply that the 20 duty to produce income applies on an asset by asset basis 21 because the right of an income beneficiary to receive 22 “delayed income” from the sale proceeds of underproductive 23 property under Section 627415 of that Act arises if “any part 24 of principal ... has not produced an average net income of a 25 least one percent per year of its inventory value for more than 26 a year ... .” Under the prudent investor rule, “[t]o whatever 27 extent a requirement of income productivity exists, ... the 28 requirement applies not investment by investment but to the 29 portfolio as a whole.” Restatement of Trusts 3d: Prudent 30 Investor Rule Sec 227, Comment i, at 34. The power to 31 adjust under Section 627904(A) is also to be exercised by 32 considering net income from the portfolio as a whole and not 33 investment by investment. Section 627922(B) of this Act 34 eliminates the underproductive property rule in all cases 35 other than trusts for which a marital deduction is allowed; the 36 rule applies to a marital deduction trust if the trust’s assets 37 “consist substantially of property that does not provide the 38 spouse with sufficient income from or use of the trust

[143] 514 1 assets ...” in other words, the section applies by reference to 2 the portfolio as a whole. 3 While the purpose of the power to adjust in Section 4 627904(A) is to eliminate the need for a trustee who operates 5 under the prudent investor rule to be concerned about the 6 income component of the portfolio’s total return, the trustee 7 must still determine the extent to which a distribution must 8 be made to an income beneficiary and the adequacy of the 9 portfolio’s liquidity as a whole to make that distribution. 10 For a discussion of investment considerations involving 11 specific investments and techniques under the prudent 12 investor rule, see Restatement of Trusts 3d: Prudent Investor 13 Rule Sec 227, Comments kp. 14 Factors to consider in exercising the power to adjust. 15 Section 627904(B) requires a trustee to consider factors 16 relevant to the trust and its beneficiaries in deciding whether 17 and to what extent the power to adjust should be exercised. 18 Section 627933(C)(3) of the South Carolina Uniform Prudent 19 Investor Act (SCUPIA) sets forth circumstances that a trustee 20 is to consider in investing and managing trust assets. The 21 circumstances in Section 627933(C)(3) of the SCUPIA are 22 the source of the factors in paragraphs (3) through (6) and (8) 23 of Section 627904(B) (modified where necessary to adapt 24 them to the purposes of this Act) so that, to the extent 25 possible, comparable factors will apply to investment 26 decisions and decisions involving the power to adjust. If a 27 trustee who is operating under the prudent investor rule 28 decides that the portfolio should be composed of financial 29 assets whose total return will result primarily from capital 30 appreciation rather than dividends, interest, and rents, the 31 trustee can decide at the same time the extent to which an 32 adjustment from principal to income may be necessary under 33 Section 627904. On the other hand, if a trustee decides that 34 the risk and return objectives for the trust are best achieved 35 by a portfolio whose total return includes interest and 36 dividend income that is sufficient to provide the income 37 beneficiary with the beneficial interest to which the 38 beneficiary is entitled under the terms of the trust, the trustee

[143] 515 1 can decide that it is unnecessary to exercise the power to 2 adjust. 3 Assets received from the settlor. Section 627933(D) of 4 SCUPIA provides that “[a] trustee shall diversify the 5 investments of the trust unless the trustee reasonably 6 determines that, because of special circumstances, the 7 purposes of the trust are better served without diversifying.” 8 The special circumstances may include the wish to retain a 9 family business, the benefit derived from deferring 10 liquidation of the asset in order to defer payment of income 11 taxes, or the anticipated capital appreciation from retaining 12 an asset such as undeveloped real estate for a long period. 13 To the extent the trustee retains assets received from the 14 settlor because of special circumstances that overcome the 15 duty to diversify, the trustee may take these circumstances 16 into account in determining whether and to what extent the 17 power to adjust should be exercised to change the results 18 produced by other provisions of this Act that apply to the 19 retained assets. See Section 627904(B)(5); Uniform Prudent 20 Investor Act Sec 3, Comment, 7B U.L.A. 18, at 2526 (Supp. 21 1997); Restatement of Trusts 3d: Prudent Investor Rule Sec 22 229 and Comments ae. 23 Limitations on Section 627904 power to adjust. The 24 purpose of subsections (C)(1) through (4) is to preserve tax 25 benefits that may have been an important purpose for 26 creating the trust. Subsections (C)(5), (6), and (8) deny the 27 power to adjust in the circumstances described in those 28 subsections in order to prevent adverse tax consequences, 29 and subsection (C)(7) denies the power to adjust to any 30 beneficiary, whether or not possession of the power may 31 have adverse tax consequences. 32 Under subsection (C)(1), a trustee cannot make an 33 adjustment that diminishes the income interest in a trust that 34 requires all of the income to be paid at least annually to a 35 spouse and for which an estate tax or gift tax marital 36 deduction is allowed; but this subsection does not prevent the 37 trustee from making an adjustment that increases the amount 38 of income paid from a marital deduction trust to the spouse. 39 Subsection (C)(1) applies to a trust that qualifies for the

[143] 516 1 marital deduction because the spouse has a general power of 2 appointment over the trust, but it applies to a qualified 3 terminable interest property (QTIP) trust only if and to the 4 extent that the fiduciary makes the election required to obtain 5 the tax deduction. Subsection (C)(1) does not apply to a 6 socalled “estate” trust. This type of trust qualifies for the 7 marital deduction because the terms of the trust require the 8 principal and undistributed income to be paid to the surviving 9 spouse’s estate when the spouse dies; it is not necessary for 10 the terms of an estate trust to require the income to be 11 distributed annually. Reg. Sec 20.2056(c)2(b)(1)(iii). 12 Subsection (C)(3) applies to annuity trusts and unitrusts 13 with no charitable beneficiaries as well as to trusts with 14 charitable income or remainder beneficiaries; its purpose is to 15 make it clear that a beneficiary’s right to receive a fixed 16 annuity or a fixed fraction of the value of a trust’s assets is 17 not subject to adjustment under Section 627904(A). 18 Subsection (C)(3) does not apply to any additional amount to 19 which the beneficiary may be entitled that is expressed in 20 terms of a right to receive income from the trust. For 21 example, if a beneficiary is to receive a fixed annuity or the 22 trust’s income, whichever is greater, subsection (C)(3) does 23 not prevent a trustee from making an adjustment under 24 Section 627904(A) in determining the amount of the trust’s 25 income. 26 If subsection (C)(5), (6), (7), or (8), prevents a trustee from 27 exercising the power to adjust, subsection (D) permits a 28 cotrustee who is not subject to the provision to exercise the 29 power unless the terms of the trust do not permit the 30 cotrustee to do so. 31 Release of the power to adjust. Section 627904(E) permits 32 a trustee to release all or part of the power to adjust in 33 circumstances in which the possession or exercise of the 34 power might deprive the trust of a tax benefit or impose a tax 35 burden. For example, if possessing the power would 36 diminish the actuarial value of the income interest in a trust 37 for which the income beneficiary’s estate may be eligible to 38 claim a credit for property previously taxed if the beneficiary 39 dies within ten years after the death of the person creating the

[143] 517 1 trust, the trustee is permitted under subsection to release (E) 2 to release just the power to adjust from income to principal. 3 Trust terms that limit a power to adjust. Section 627904(F) 4 applies to trust provisions that limit a trustee’s power to 5 adjust. Since the power is intended to enable trustees to 6 employ the prudent investor rule without being constrained 7 by traditional principal and income rules, an instrument 8 executed before the adoption of this Act whose terms 9 describe the amount that may or must be distributed to a 10 beneficiary by referring to the trust’s income or that prohibit 11 the invasion of principal or that prohibit equitable 12 adjustments in general should not be construed as forbidding 13 the use of the power to adjust under Section 627904(A) if the 14 need for adjustment arises because the trustee is operating 15 under the prudent investor rule. Instruments containing such 16 provisions that are executed after the adoption of this Act 17 should specifically refer to the power to adjust if the settlor 18 intends to forbid its use. See generally, Joel C. Dobris, 19 Limits on the Doctrine of Equitable Adjustment in 20 Sophisticated Postmortem Tax Planning, 66 Iowa L. Rev. 21 273 (1981). 22 Examples. The following examples illustrate the 23 application of Section 627904: 24 Example (1) T is the successor trustee of a trust that 25 provides income to A for life, remainder to B. T has received 26 from the prior trustee a portfolio of financial assets invested 27 20% in stocks and 80% in bonds. Following the prudent 28 investor rule, T determines that a strategy of investing the 29 portfolio 50% in stocks and 50% in bonds has risk and return 30 objectives that are reasonably suited to the trust, but T also 31 determines that adopting this approach will cause the trust to 32 receive a smaller amount of dividend and interest income. 33 After considering the factors in Section 627904(B) T may 34 transfer cash from principal to income to the extent T 35 considers it necessary to increase the amount distributed to 36 the income beneficiary. 37 Example (2) T is the trustee of a trust that requires the 38 income to be paid to the settlor’s son C for life, remainder to 39 C’s daughter D. In a period of very high inflation, T

[143] 518 1 purchases bonds that pay doubledigit interest and determines 2 that a portion of the interest, which is allocated to income 3 under Section 627915 of this Act, is a return of capital. In 4 consideration of the loss of value of principal due to inflation 5 and other factors that T considers relevant, T may transfer 6 part of the interest to principal. 7 Example (3) T is the trustee of a trust that requires the 8 income to be paid to the settlor’s sister E for life, remainder 9 to charity F. E is a retired schoolteacher who is single and 10 has no children. E’s income from her social security, 11 pension, and savings exceeds the amount required to provide 12 for her accustomed standard of living. The terms of the trust 13 permit T to invade principal to provide for E’s health and to 14 support her in her accustomed manner of living, but do not 15 otherwise indicate that T should favor E or F. Applying the 16 prudent investor rule, T determines that the trust assets 17 should be invested entirely in growth stocks that produce 18 very little dividend income. Even though it is not necessary 19 to invade principal to maintain E’s accustomed standard of 20 living, she is entitled to receive from the trust the degree of 21 beneficial enjoyment normally accorded a person who is the 22 sole income beneficiary of a trust, and T may transfer cash 23 from principal to income to provide her with that degree of 24 enjoyment. 25 Example (4) T is the trustee of a trust that is governed by 26 the law of State X. The trust became irrevocable before State 27 X adopted the prudent investor rule. The terms of the trust 28 require all of the income to be paid to G for life, remainder to 29 H, and also give T the power to invade principal for the 30 benefit of G for “dire emergencies only.” The terms of the 31 trust limit the aggregate amount that T can distribute to G 32 from principal during G’s life to 6% of the trust’s value at its 33 inception. The trust’s portfolio is invested initially 50% in 34 stocks and 50% in bonds, but after State X adopts the prudent 35 investor rule T determines that, to achieve suitable risk and 36 return objectives for the trust, the assets should be invested 37 90% in stocks and 10% in bonds. This change increases the 38 total return from the portfolio and decreases the dividend and 39 interest income. Thereafter, even though G does not

[143] 519 1 experience a dire emergency, T may exercise the power to 2 adjust under Section 627904(A) to the extent that T 3 determines that the adjustment is from only the capital 4 appreciation resulting from the change in the portfolio’s asset 5 allocation. If T is unable to determine the extent to which 6 capital appreciation resulted from the change in asset 7 allocation or is unable to maintain adequate records to 8 determine the extent to which principal distributions to G for 9 dire emergencies do not exceed the 6% limitation, T may not 10 exercise the power to adjust. See Joel C. Dobris, Limits on 11 the Doctrine of Equitable Adjustment in Sophisticated 12 Postmortem Tax Planning, 66 Iowa L. Rev. 273 (1981). 13 Example (5) T is the trustee of a trust for the settlor’s child. 14 The trust owns a diversified portfolio of marketable financial 15 assets with a value of $600,000, and is also the sole 16 beneficiary of the settlor’s IRA, which holds a diversified 17 portfolio of marketable financial assets with a value of 18 $900,000. The trust receives a distribution from the IRA that 19 is the minimum amount required to be distributed under the 20 Internal Revenue Code, and T allocates 10% of the 21 distribution to income under Section 627918(C) of this Act. 22 The total return on the IRA’s assets exceeds the amount 23 distributed to the trust, and the value of the IRA at the end of 24 the year is more than its value at the beginning of the year. 25 Relevant factors that T may consider in determining whether 26 to exercise the power to adjust and the extent to which an 27 adjustment should be made to comply with Section 28 627903(B) include the total return from all of the trust’s 29 assets, those owned directly as well as its interest in the IRA, 30 the extent to which the trust will be subject to income tax on 31 the portion of the IRA distribution that is allocated to 32 principal, and the extent to which the income beneficiary will 33 be subject to income tax on the amount that T distributes to 34 the income beneficiary. 35 Example (6) T is the trustee of a trust whose portfolio 36 includes a large parcel of undeveloped real estate. T pays 37 real property taxes on the undeveloped parcel from income 38 each year pursuant to Section 627925(3). After considering 39 the return from the trust’s portfolio as a whole and other

[143] 520 1 relevant factors described in Section 627904(B), T may 2 exercise the power to adjust under Section 627904(A) to 3 transfer cash from principal to income in order to distribute 4 to the income beneficiary an amount that T considers 5 necessary to comply with Section 627903(B). 6 Example (7) T is the trustee of a trust whose portfolio 7 includes an interest in a mutual fund that is sponsored by T. 8 As the manager of the mutual fund, T charges the fund a 9 management fee that reduces the amount available to 10 distribute to the trust by $2,000. If the fee had been paid 11 directly by the trust, onehalf of the fee would have been paid 12 from income under Section 627925(1) and the other onehalf 13 would have been paid from principal under Section 14 627926(A)(1). After considering the total return from the 15 portfolio as a whole and other relevant factors described in 16 Section 627904(B), T may exercise its power to adjust under 17 Section 627904(A) by transferring $1,000, or half of the 18 trust’s proportionate share of the fee, from principal to 19 income. 20 21 Section 627904A. (A) A court may not change a 22 fiduciary’s decision, or order a fiduciary to change its 23 decision, to exercise or not to exercise a discretionary power 24 conferred by the South Carolina Uniform Principal and 25 Income Act unless it determines that the decision was an 26 abuse of the fiduciary’s discretion. A fiduciary’s decision is 27 not an abuse of discretion merely because the court would 28 have exercised the power in a different manner or would not 29 have exercised the power. 30 (B) The decisions subject to subsection (A) include, but 31 are not limited to, a determination: 32 (1) pursuant to Section 627904(A) of whether and to 33 what extent an amount should be transferred from principal 34 to income or from income to principal; and 35 (2) of the factors that are relevant to the trust and its 36 beneficiaries, the extent to which they are relevant, and the 37 weight, if any, to be given to the relevant factors, in deciding 38 whether and to what extent to exercise the power in Section 39 627904(A).

[143] 521 1 (C) If a court determines that a fiduciary has abused its 2 discretion, the court may place the income and remainder 3 beneficiaries in the positions they would have occupied if the 4 fiduciary had not abused its discretion, according to the 5 following rules: 6 (1) to the extent that the abuse of discretion has resulted 7 in no distribution to a beneficiary or in a distribution that is 8 too small, the court must order the fiduciary to distribute 9 from the trust to the beneficiary an amount that the court 10 determines will restore the beneficiary, in whole or in part, to 11 the beneficiary’s appropriate position; 12 (2) to the extent that the abuse of discretion has resulted 13 in a distribution to a beneficiary that is too large, the court 14 must place the beneficiaries, the trust, or both, in whole or in 15 part, in their appropriate positions by ordering the fiduciary 16 to withhold an amount from one or more future distributions 17 to the beneficiary who received the distribution that was too 18 large or ordering that beneficiary to return some or all of the 19 distribution to the trust; 20 (3) to the extent that the court is unable, after applying 21 items (1) and (2), to place the beneficiaries, the trust, or both, 22 in the positions they would have occupied if the fiduciary had 23 not abused its discretion, the court may order the fiduciary to 24 pay an appropriate amount from its own funds to one or more 25 of the beneficiaries or the trust, or both. 26 (D) Upon a petition by the fiduciary, the court having 27 jurisdiction over the trust or estate must determine whether a 28 proposed exercise or nonexercise by the fiduciary of a 29 discretionary power in the South Carolina Uniform Principal 30 and Income Act would result in an abuse of the fiduciary’s 31 discretion. If the petition describes the proposed exercise or 32 nonexercise of the power and contains sufficient information 33 to inform the beneficiaries of the reasons for the proposal, the 34 facts upon which the fiduciary relies, and an explanation of 35 how the income and remainder beneficiaries would be 36 affected by the proposed exercise or nonexercise of the 37 power, a beneficiary who challenges the proposed exercise or 38 nonexercise has the burden of establishing that it will result 39 in an abuse of discretion.

[143] 522 1 2 REPORTER’S COMMENTS 3 General. All of the discretionary powers in this 1997 Act are 4 subject to the normal rules that govern a fiduciary’s exercise 5 of discretion. Section 627904A codifies those rules for 6 purposes of the Act so that they will be readily apparent and 7 accessible to fiduciaries, beneficiaries, their counsel and the 8 courts if and when questions concerning such powers arise. 9 Section 627904A also makes clear that the normal rules 10 governing the exercise of a fiduciary’s powers apply to the 11 discretionary power to adjust conferred upon a trustee by 12 Section 627904(A). Discretionary provisions authorizing 13 trustees to determine what is income and what is principal 14 have been used in governing instruments for years; Section 2 15 of the 1931 Uniform Principal and Income Act recognized 16 that practice by providing that “the person establishing the 17 principal may himself direct the manner of ascertainment of 18 income and principal...or grant discretion to the trustee or 19 other person to do so....” Section 627903(A)(2) also 20 recognizes the power of a settlor to grant such discretion to 21 the trustee. Section 627904A applies to a discretionary 22 power granted by the terms of a trust or a will as well as the 23 power to adjust in Section 627904A. 24 Power to Adjust. The exercise of the power to adjust is 25 governed by a trustee’s duty of impartiality, which requires 26 the trustee to strike an appropriate balance between the 27 interests of the income and remainder beneficiaries. Section 28 627903(B) expresses this duty by requiring the trustee to 29 “administer a trust or estate impartially, based on what is fair 30 and reasonable to all of the beneficiaries, except to the extent 31 that the terms of the trust or the will clearly manifest an 32 intention that the fiduciary shall or may favor one or more of 33 the beneficiaries.” Because this involves the exercise of 34 judgment in circumstances rarely capable of perfect 35 resolution, trustees are not expected to achieve perfection; 36 they are, however, required to make conscious decisions in 37 good faith and with proper motives. 38 In seeking the proper balance between the interests of the 39 beneficiaries in matters involving principal and income, a

[143] 523 1 trustee’s traditional approach has been to determine the 2 settlor’s objectives from the terms of the trust, gather the 3 information needed to ascertain the financial circumstances 4 of the beneficiaries, determine the extent to which the 5 settlor’s objectives can be achieved with the resources 6 available in the trust, and then allocate the trust’s assets 7 between stocks and fixedincome securities in a way that will 8 produce a particular level or range of income for the income 9 beneficiary. The key element in this process has been to 10 determine the appropriate level or range of income for the 11 income beneficiary, and that will continue to be the key 12 element in deciding whether and to what extent to exercise 13 the discretionary power conferred by Section 627904(A). If 14 it becomes necessary for a court to determine whether an 15 abuse of the discretionary power to adjust between principal 16 and income has occurred, the criteria should be the same as 17 those that courts have used in the past to determine whether a 18 trustee has abused its discretion in allocating the trust’s assets 19 between stocks and fixedincome securities. 20 A fiduciary has broad latitude in choosing the methods and 21 criteria to use in deciding whether and to what extent to 22 exercise the power to adjust in order to achieve impartiality 23 between income beneficiaries and remainder beneficiaries or 24 the degree of partiality for one or the other that is provided 25 for by the terms of the trust or the will. For example, in 26 deciding what the appropriate level or range of income 27 should be for the income beneficiary and whether to exercise 28 the power, a trustee may use the methods employed prior to 29 the enactment of SCUP&IA in 2001 in deciding how to 30 allocate trust assets between stocks and fixedincome 31 securities; or may consider the amount that would be 32 distributed each year based on a percentage of the portfolio’s 33 value at the beginning or end of an accounting period, or the 34 average portfolio value for several accounting periods, in a 35 manner similar to a unitrust, and may select a percentage that 36 the trustee believes is appropriate for this purpose and use the 37 same percentage or different percentages in subsequent years. 38 The trustee may also use hypothetical portfolios of

[143] 524 1 marketable securities to determine an appropriate level or 2 range of income within which a distribution might fall. 3 An adjustment may be made prospectively at the beginning 4 of an accounting period, based on a projected return or range 5 of returns for a trust’s portfolio, or retrospectively after the 6 fiduciary knows the total realized or unrealized return for the 7 period; and instead of an annual adjustment, the trustee may 8 distribute a fixed dollar amount for several years, in a manner 9 similar to an annuity, and may change the fixed dollar 10 amount periodically. No inference of abuse is to be drawn if 11 a fiduciary uses different methods or criteria for the same 12 trust from time to time, or uses different methods or criteria 13 for different trusts for the same accounting period. 14 While a trustee must consider the portfolio as a whole in 15 deciding whether and to what extent to exercise the power to 16 adjust, a trustee may apply different criteria in considering 17 the portion of the portfolio that is composed of marketable 18 securities and the portion whose market value cannot be 19 determined readily, and may take into account a beneficiary’s 20 use or possession of a trust asset. 21 Under the prudent investor rule, a trustee is to incur costs 22 that are appropriate and reasonable in relation to the assets 23 and the purposes of the trust, and the same consideration 24 applies in determining whether and to what extent to exercise 25 the power to adjust. In making investment decisions under 26 the prudent investor rule, the trustee will have considered the 27 purposes, terms, distribution requirements, and other 28 circumstances of the trust for the purpose of adopting an 29 overall investment strategy having risk and return objectives 30 reasonably suited to the trust. A trustee is not required to 31 duplicate that work for principal and income purposes, and in 32 many cases the decision about whether and to what extent to 33 exercise the power to adjust may be made at the same time as 34 the investment decisions. To help achieve the objective of 35 reasonable investment costs, a trustee may also adopt policies 36 that apply to all trusts or to individual trusts or classes of 37 trusts, based on their size or other criteria, stating whether 38 and under what circumstances the power to adjust will be 39 exercised and the method of making adjustments; no

[143] 525 1 inference of abuse is to be drawn if a trustee adopts such 2 policies. 3 General rule. The first sentence of Section 627904A(A) is 4 from Restatement (Second) of Trusts Sec 187 and 5 Restatement (Third) of Trusts (Tentative Draft No. 2, 1999) 6 Sec 50(1). The second sentence of Section 627904A(A) 7 derives from Comment e to Sec 187 of the Second 8 Restatement and Comment b to Sec 50 of the Third 9 Restatement. 10 The reference in Section 627904A(A) to a fiduciary’s 11 decision to exercise or not to exercise a discretionary power 12 underscores a fundamental precept, which is that a fiduciary 13 has a duty to make a conscious decision about exercising or 14 not exercising a discretionary power. Comment b to Sec 50 15 of the Third Restatement states: 16 A court will intervene where the exercise of a power is left 17 to the judgment of a trustee who improperly fails to exercise 18 that judgment. Thus, even where a trustee has discretion 19 whether or not to make any payments to a particular 20 beneficiary, the court will interpose if the trustee, arbitrarily 21 or without knowledge of or inquiry into relevant 22 circumstances, fails to exercise the discretion. 23 Section 627904A(B) makes clear that the rule of 24 subsection (B) applies not only to the power conferred by 25 Section 627904A but also to the evaluation process required 26 by Section 627904A(B) in deciding whether and to what 27 extent to exercise the power to adjust. Under Section 28 627904A(B) a trustee is to consider all of the factors that are 29 relevant to the trust and its beneficiaries, including, to the 30 extent the trustee determines they are relevant, the nine 31 factors enumerated in Section 627904A(B). Section 32 627904A(B) derives from Section 627933(C)(3) of SCUPIA 33 which lists eight circumstances that a trustee shall consider, 34 to the extent they are relevant, in investing and managing 35 assets. The trustee’s decisions about what factors are 36 relevant for purposes of Section 627904A(B) and the weight 37 to be accorded each of the relevant factors are part of the 38 discretionary decisionmaking process. As such, these 39 decisions are not subject to change for the purpose of

[143] 526 1 changing the trustee’s ultimate decision unless the court 2 determines that there has been an abuse of discretion in 3 determining the relevancy and weight of these factors. 4 Remedy. The exercise or nonexercise of a discretionary 5 power under the act normally affects the amount or timing of 6 a distribution to the income or remainder beneficiaries. The 7 primary remedy under Section 627904A(C) for abuse of 8 discretion is the restoration of the beneficiaries and the trust 9 to the positions they would have occupied if the abuse had 10 not occurred. It draws on a basic principle of restitution that 11 if a person pays money to someone who is not intended to 12 receive it (and in a case to which this act applies, not 13 intended by the settlor to receive it in the absence of an abuse 14 of discretion by the trustee), that person is entitled to 15 restitution on the ground that the payee would be unjustly 16 enriched if he were permitted to retain the payment. See 17 Restatement of Restitution Sec 22 (1937). The objective is to 18 accomplish the restoration initially by making adjustments 19 between the beneficiaries and the trust to the extent possible; 20 to the extent that restoration is not possible by such 21 adjustments, a court may order the trustee to pay an amount 22 to one or more of the beneficiaries, the trust, or both the 23 beneficiaries and the trust. If the court determines that it is 24 not possible in the circumstances to restore them to their 25 appropriate positions, the court may provide other remedies 26 appropriate to the circumstances. The approach of Section 27 105(c) is supported by Comment b to Sec 50 of the Third 28 Restatement of Trusts: 29 When judicial intervention is required, a court may direct 30 the trustee to make or refrain from making certain payments; 31 issue instructions to clarify the standards or guidelines 32 applicable to the exercise of the power; or rescind the 33 trustee’s payment decisions, usually directing the trustee to 34 recover amounts improperly distributed and holding the 35 trustee liable for failure or inability to do so. 36 Advance determinations. Section 627904A(D) employs 37 the familiar remedy of the trustee’s petition to the court for 38 instructions. It requires the court to determine, upon a 39 petition by the fiduciary, whether a proposed exercise or

[143] 527 1 nonexercise of a discretionary power by the fiduciary of a 2 power conferred by the Act would be an abuse of discretion 3 under the general rule of Section 627904A. If the petition 4 contains the information prescribed in the second sentence of 5 subsection (D) the proposed action or inaction is presumed 6 not to result in an abuse, and a beneficiary who challenges 7 the proposal must establish that it will. 8 Subsection (D) is intended to provide a fiduciary the 9 opportunity to obtain an assurance of finality in a judicial 10 proceeding before proceeding with a proposed exercise or 11 nonexercise of a discretionary power. Its purpose is not, 12 however, to have the court instruct the fiduciary how to 13 exercise the discretion. 14 A fiduciary may also obtain the consent of the 15 beneficiaries to a proposed act or an omission to act, and a 16 beneficiary cannot hold the fiduciary liable for that act or 17 omission unless: 18 (a) the beneficiary was under an incapacity at the time of 19 such consent or of such act or omission; or 20 (b) the beneficiary, when he gave his consent, did not 21 know of his rights and of the material facts which the trustee 22 knew or should have known and which the trustee did not 23 reasonably believe that the beneficiary knew; or 24 (c) the consent of the beneficiary was induced by improper 25 conduct of the trustee. 26 Restatement (Second) of Trusts Sec 216. 27 If there are many beneficiaries, including some who are 28 incapacitated or unascertained, the fiduciary may prefer the 29 greater assurance of finality provided by a judicial 30 proceeding that will bind all persons who have an interest in 31 the trust. 32 33 Section 627904B. The definitions in this section apply to 34 Sections 627904C through 627904P. 35 (1) ‘Code’ means the Internal Revenue Code of 1986, as 36 amended from time to time, and any statutory enactment 37 successor to the Code; reference to a specific section of the 38 code in Sections 627904B through 627904P are considered a

[143] 528 1 reference also to any successor provision dealing with the 2 subject matter of that section of the Code. 3 (2) ‘Disinterested person’ means a person who is not a 4 related or subordinate party with respect to the person then 5 acting as trustee of the trust and excludes the settlor of the 6 trust and any interested trustee. 7 (3) ‘Express total return unitrust’ means a trust created by 8 the terms of a governing instrument requiring the distribution 9 at least annually of a unitrust amount equal to a fixed 10 percentage of not less than three percent nor more than five 11 percent a year of the net fair market value of the amounts of 12 the trust, valued at least annually. 13 (4) ‘Income trust’ means a trust, created by either an inter 14 vivos or a testamentary instrument, which directs or permits 15 the trustee to distribute the net income of the trust to one or 16 more persons, either in fixed proportions or in amounts or 17 proportions determined by the trustee, and regardless of 18 whether the trust directs or permits the trustee to distribute 19 principal of the trust to one or more of those persons. 20 (5) ‘Interested distributee’ means a living beneficiary who 21 is a distributee or permissible distributee of trust income or 22 principal who has the power to remove the existing trustee 23 and designate as successor a person who may be a related or 24 subordinate party with respect to that distributee. 25 (6) ‘Interested trustee’ means any of the following: 26 (a) an individual trustee who is a qualified beneficiary; 27 (b) a trustee who may be removed and replaced by an 28 interested distributee; 29 (c) an individual trustee whose legal obligation to 30 support a beneficiary may be satisfied by distributions of 31 income and principal of the trust. 32 (7) ‘Legal disability’ means a person under a legal 33 disability who is a minor, an incompetent or incapacitated 34 person, or an unborn individual, or whose identity or location 35 is unknown. 36 (8) ‘Qualified beneficiary’ means a qualified beneficiary 37 as defined in Section 627103(12). 38 (9) ‘Related or subordinate party’ means a related or 39 subordinate party as defined in Section 672(c) of the Code.

[143] 529 1 (10) ‘Representative’ means a person who may represent 2 and bind another as provided in Part 3 of this article, the 3 provisions of which apply for purposes of this section and 4 Sections 627904C through 627904P. 5 (11) ‘Settlor’ means an individual, including a testator, who 6 creates a trust. 7 (12) ‘Total return unitrust’ means an income trust that has 8 been converted under and meets the provisions of this section 9 and Section 627904C through 627904P. 10 (13) ‘Treasury regulations’ means the regulations, rulings, 11 procedures, notices, or other administrative pronouncements 12 issued by the Internal Revenue Service, as amended from 13 time to time. 14 (14) ‘Trustee’ means a person acting as trustee of the trust, 15 except as otherwise expressly provided in this section and 16 Sections 627904C through 627904P whether acting in that 17 person’s discretion or on the direction of one or more persons 18 acting in a fiduciary capacity. 19 (15) ‘Unitrust amount’ means an amount computed as a 20 percentage of the fair market value of the assets of the trust. 21 22 REPORTER’S COMMENTS 23 See comments after Section 62-7-904P. 24 25 Section 627904C.(A) A trustee, other than an interested 26 trustee, or, where two or more persons are acting as trustees, 27 a majority of the trustees who are not interested trustees (in 28 either case hereafter ‘trustee’) in the trustee’s sole discretion 29 and without court approval, may: 30 (1) convert an income trust to a total return unitrust; 31 (2) reconvert a total return unitrust to an income trust; 32 or 33 (3) change the percentage used to calculate the unitrust 34 amount or the method used to determine the fair market value 35 of the trust if all of the following apply: 36 (a) The trustee adopts a written policy for the trust 37 providing: 38 ( i) in the case of a trust being administered as an 39 income trust, that future distributions from the trust will be

[143] 530 1 unitrust amounts rather than net income as determined 2 pursuant to the South Carolina Uniform Principal and Income 3 Act; 4 (ii) in the case of a trust being administered as a 5 total return unitrust, that future distributions from the trust 6 will be net income rather than unitrust amounts; or 7 (iii) that the percentage used to calculate the unitrust 8 amount or the method used to determine the fair market value 9 of the trust will be changed as stated in the policy. 10 (b) The trustee gives written notice of its intention to 11 take the action, including copies of the written policy and 12 Sections 627904B through 627904P, to: 13 ( i) the settlor of the trust, if living; and 14 (ii) all persons who are the qualified beneficiaries 15 of the trust at the time the notice is given. If a qualified 16 beneficiary is under a legal disability, notice shall be given to 17 the representative of the qualified beneficiary if a 18 representative is available without court order. 19 (c) There is at least: 20 ( i) one qualified beneficiary described in Section 21 627103(12)(A) or (B) who is not under a legal disability or a 22 representative of a qualified beneficiary so described; or 23 (ii) one qualified beneficiary described in Section 24 627103(12)(C) who is not under a legal disability or a 25 representative of a qualified beneficiary so described. 26 (d) No person receiving notice of the trustee’s 27 intention to take the proposed action objects to the action 28 within ninety days after notice has been given. The objection 29 must be by written notice to the trustee. 30 (B) If there is no trustee of the trust other than an 31 interested trustee, the interested trustee or, where two or more 32 persons are acting as trustee and are interested trustees, a 33 majority of the interested trustees may, in its sole discretion 34 and without court approval: 35 (1) convert an income trust to a total return unitrust; 36 (2) reconvert a total return unitrust to an income trust; 37 or

[143] 531 1 (3) change the percentage used to calculate the unitrust 2 amount or the method used to determine the fair market value 3 of the trust if all of the following apply: 4 (a) The trustee adopts a written policy for the trust 5 providing: 6 ( i) in the case of a trust being administered as an 7 income trust, that future distributions from the trust will be 8 unitrust amounts rather than net income as determined 9 pursuant to the South Carolina Uniform Principal and Income 10 Act; 11 (ii) in the case of a trust being administered as a 12 total return unitrust, that future distributions from the trust 13 will be net income as determined pursuant to the South 14 Carolina Uniform Principal and Income Act rather than 15 unitrust amounts, or 16 (iii) that the percentage used to calculate the unitrust 17 amount or the method used to determine the fair market value 18 of the trust will be changed as stated in the policy. 19 (b) The trustee appoints a disinterested person who, 20 in its sole discretion but acting in a fiduciary capacity, 21 determines for the trustee: 22 ( i) the percentage to be used to calculate the 23 unitrust amount; 24 (ii) the method to be used in determining the fair 25 market value of the trust; and 26 (iii) which assets, if any, are to be excluded in 27 determining the unitrust amount. 28 (c) The trustee gives written notice of its intention to 29 take the action, including copies of the written policy and 30 Sections 627904B through 627904P and the determinations 31 of the disinterested person to: 32 ( i) the settlor of the trust, if living; and 33 (ii) all persons who are the qualified beneficiaries 34 of the trust at the time of the giving of the notice. If a 35 qualified beneficiary is under a legal disability, notice must 36 be given to the representative of the qualified beneficiary if a 37 representative is available without court order. 38 (d) There is at least:

[143] 532 1 ( i) one qualified beneficiary described in Section 2 627103(12)(A) or (B) or a representative of a beneficiary so 3 described; or 4 (ii) one qualified beneficiary described in Section 5 627103(12)(C) or a representative of a qualified beneficiary 6 so described. 7 (e) No person receiving notice of the trustee’s 8 intention to take the proposed action of the trustee objects to 9 the action or to the determination of the disinterested person 10 within ninety days after notice has been given. The objection 11 must be by written instrument delivered to the trustee. 12 (C) A trustee may act under subsection (A) or (B) of this 13 section with respect to a trust for which both income and 14 principal have been set aside permanently for charitable 15 purposes under the governing instrument and for which a 16 federal estate or gift tax deduction has been taken, if all of 17 the following apply: 18 (1) Instead of sending written notice to the persons 19 described in subsection (A)(3)(b) or subsection (B)(3)(b), as 20 the case may be, the trustee shall send written notice to each 21 charitable organization expressly designated to receive the 22 income of the trust under the governing instrument and, if no 23 charitable organization is expressly designated to receive all 24 of the income of the trust under the governing instrument, to 25 the Attorney General of this State. 26 (2) Subsection (A)(3)(d) or subsection (B)(3)(d) of this 27 subsection, as the case may be, does not apply to this action. 28 (3) In each taxable year, the trustee shall distribute the 29 greater of the unitrust amount or the amount required by 30 Section 4942 of the Code. 31 (D) The provisions of Section 627109 regarding notices 32 and the sending of documents to persons under this article 33 shall apply for purposes of notices and the sending of 34 documents under this section. 35 36 REPORTER’S COMMENTS 37 See comments after Section 62-7-904P. 38 39 Section 627904D. (A) If a trustee desires to:

[143] 533 1 (1) convert an income trust to a total return unitrust; 2 (2) reconvert a total return unitrust to an income trust; 3 or 4 (3) change the percentage used to calculate the unitrust 5 amount or the method used to determine the fair market value 6 of the trust assets but does not have the ability to or elects not 7 to do it under Section 627904C, the trustee may petition the 8 court for an order as the trustee considers appropriate. If 9 there is only one trustee of the trust and the trustee is an 10 interested trustee or if there are two or more trustees of the 11 trust and a majority of them are interested trustees, the court, 12 in its own discretion or on the petition of the trustee or 13 trustees or any person interested in the trust, may appoint a 14 disinterested person who, acting in a fiduciary capacity, shall 15 present information to the court as necessary to enable the 16 court to make its determinations under Sections 627904B 17 through 627904P. 18 (B) A qualified beneficiary or a representative of a 19 qualified beneficiary may request the trustee to: 20 (1) convert an income trust to a total return unitrust; 21 (2) reconvert a total return unitrust to an income trust; 22 or 23 (3) change the percentage used to calculate the unitrust 24 amount or the method used to determine the fair market value 25 of the trust. If the trustee does not take the action requested, 26 the qualified beneficiary or a representative of the qualified 27 beneficiary may petition the court to order the trustee to take 28 the action. 29 (C) All proceedings under this section must be conducted 30 as provided in Part 2 of this article. 31 32 REPORTER’S COMMENTS 33 See comments after Section 62-7-904P. 34 35 Section 627904E.(A) The fair market value of the trust 36 assets must be determined at least annually, using a valuation 37 date selected by the trustee in its discretion. The trustee, in 38 its discretion, may use an average of the fair market value on 39 the same valuation date for the current fiscal year and not

[143] 534 1 more than three preceding fiscal years, if the use of this 2 average appears desirable to the trustee to reduce the impact 3 of fluctuations in market value on the unitrust amount. 4 Assets for which a fair market value cannot be readily 5 ascertained must be valued using valuation methods as are 6 considered reasonable and appropriate by the trustee. Assets, 7 such as a residence or tangible personal property, used by the 8 trust beneficiary may be excluded by the trustee from the fair 9 market value for computing the unitrust amount. 10 (B) The percentage to be used by the trustee in 11 determining the unitrust amount must be a reasonable current 12 return from the trust, but not less than three percent nor more 13 than five percent, taking into account the intentions of the 14 settlor of the trust as expressed in the terms of the trust, the 15 needs of the beneficiaries, general economic conditions, 16 projected current earnings and appreciation for the trust 17 assets, and projected inflation and its impact on the trust. 18 (C) Following the conversion of an income trust to a total 19 return unitrust, the trustee: 20 (1) shall consider the unitrust amount as paid from net 21 accounting income determined as if the trust were not a 22 unitrust; 23 (2) shall then consider the unitrust amount as paid from 24 ordinary income not allocable to net accounting income; 25 (3) may, in the trustee’s discretion, consider the unitrust 26 amount as paid from net shortterm gain described in Section 27 1222(5) of the Code and then from net longterm capital gain 28 described in Section 1222(7) of the Code so long as the 29 discretionary power is exercised consistently and in a 30 reasonable and impartial manner, but the amount so paid 31 from net capital gains may not be greater than the excess of 32 the unitrust amount over the amount of distributable net 33 income as defined in Section 643(a) of the Code without 34 regard to Section 1.643(a)3(b) of the Treasury Regulations, 35 as amended from time to time; and 36 (4) shall then consider the unitrust amount as coming 37 from the principal of the trust. 38 39 REPORTER’S COMMENTS

[143] 535 1 See comments after Section 62-7-904P. 2 3 Section 627904F. In administering a total return unitrust, 4 the trustee may, in its sole discretion but subject to the terms 5 of the trust, determine: 6 (1) the effective date of the conversion; 7 (2) the timing of distributions, including provisions for 8 prorating a distribution for a short year in which a 9 beneficiary’s right to payments commences or ceases; 10 (3) whether distributions are to be made in cash or in kind 11 or partly in cash and partly in kind; 12 (4) if the trust is reconverted to an income trust, the 13 effective date of the reconversion; and 14 (5) any other administrative issues as may be necessary or 15 appropriate to carry out the purposes of Sections 627904B 16 through 627904P. 17 18 REPORTER’S COMMENTS 19 See comments after Section 62-7-904P. 20 21 Section 627904G. Conversion to a total return unitrust 22 under Sections 627904B through 627904P does not affect 23 any other provision of the terms of the trust, if any, regarding 24 distributions of principal. For purposes of Sections 627904B 25 through 627904P, the distribution of a unitrust amount is 26 considered a distribution of income and not of principal. 27 28 REPORTER’S COMMENTS 29 See comments after Section 62-7-904P. 30 31 Section 627904H. No trustee or disinterested person who 32 in good faith takes or fails to take any action under Sections 33 627904B through 627904P is liable to any person affected by 34 the action or inaction, regardless of whether the person 35 received written notice as provided in Sections 627904B 36 through 627904P and regardless of whether the person was 37 under a legal disability at the time of the delivery of the 38 notice. The exclusive remedy for any person affected by

[143] 536 1 such action or inaction is to obtain an order of the court 2 directing the trustee to: 3 (1) convert an income trust to a total return unitrust; 4 (2) reconvert from a total return unitrust to an income 5 trust; or 6 (3) change the percentage used to calculate the unitrust 7 amount. 8 9 REPORTER’S COMMENTS 10 See comments after Section 62-7-904P. 11 12 Section 627904I. Sections 627904B through 627904P 13 apply to all trusts in existence on, or created after the 14 effective date of Sections 627904A through 627904P unless: 15 (1) the governing instrument contains a provision clearly 16 expressing the settlor’s intention that the current beneficiary 17 or beneficiaries are to receive an amount other than a 18 reasonable current return from the trust; 19 (2) the trust is a trust described in Section 170(f)(2)(B), 20 Section 664(d), Section 2702(a)(3), or Section 2702(b) of the 21 Code; 22 (3) the trust is a trust under which any amount is, or has 23 been in the past, set aside permanently for charitable 24 purposes unless the income from the trust also is devoted 25 permanently to charitable purposes; or 26 (4) the governing instrument expressly prohibits use of 27 Sections 627904B through 627904P by specific reference to 28 Sections 627904B through 627904P or expressly states the 29 settlor’s intent that net income not be calculated as a unitrust 30 amount. 31 A provision in the terms of the trust that ‘the provisions of 32 Sections 627904B through 627904P of this part or any 33 corresponding provision of future law, must not be used in 34 the administration of this trust,’ or ‘the trustee shall not 35 determine the distributions to the income beneficiary as a 36 unitrust amount,’ or similar words reflecting that intent is 37 sufficient to preclude the use of Sections 627904B through 38 627904P. 39

[143] 537 1 REPORTER’S COMMENTS 2 See comments after Section 62-7-904P. 3 4 Section 627904J. RESERVED 5 6 Section 627904K. RESERVED 7 8 Section 627904L. RESERVED 9 10 Section 627904M. (A) The unitrust amount to be 11 distributed by the express total return unitrust may be 12 determined by the terms of the unitrust governing instrument 13 by reference to the net fair market value of the trust’s assets 14 determined annually or averaged on a multipleyear basis. 15 (B) The terms of an express total return unitrust governing 16 instrument may provide that: 17 (1) any assets of such a unitrust for which a fair market 18 value cannot be readily ascertained must be valued using 19 valuation methods that the trustee considers reasonable and 20 appropriate; 21 (2) any assets of such a unitrust, such as a residence 22 property or tangible personal property, used by the trust 23 beneficiary entitled to the unitrust amount may be excluded 24 by the trustee from the net fair market value for computing 25 the unitrust amount. 26 27 REPORTER’S COMMENTS 28 See comments after Section 62-7-904P. 29 30 Section 627904N. The distribution from an express total 31 return unitrust of a unitrust amount equal to a fixed 32 percentage of not less than three percent nor more than five 33 percent reasonably apportions between the income 34 beneficiaries and the remainder of the total return of an 35 express total return unitrust. 36 37 REPORTER’S COMMENTS 38 See comments after Section 62-7-904P. 39

[143] 538 1 Section 627904O. (A) The terms of an express total 2 return unitrust governing instrument may provide the method 3 similar to the method provided under Section 627904C for 4 changing the unitrust percentage or for converting from a 5 unitrust to an income trust or for a reconversion of an income 6 trust to a unitrust, or for all of these actions. 7 (B) If the terms of an express total return unitrust 8 governing instrument do not specifically or by reference to 9 Section 627904C grant a power to the trustee to change the 10 unitrust percentage or change to an income trust, the trustee 11 shall not have that power. 12 13 REPORTER’S COMMENTS 14 See comments after Section 62-7-904P. 15 16 Section 627904P. Unless the terms of the express total 17 return unitrust governing instrument specifically provide 18 otherwise, the trustee: 19 (A) shall consider the unitrust amount as paid from net 20 accounting income determined as if the trust were not a 21 unitrust; 22 (B) shall then consider the unitrust amount as paid from 23 ordinary income not allocable to net accounting income; 24 (C) may, in the trustee’s discretion, consider the unitrust 25 amount as paid from net shortterm gain described in Section 26 1222(5) of the Code and then from net longterm capital gain 27 described in Section 1222(7) of the Code so long as this 28 discretionary power is exercised consistently and in a 29 reasonable and impartial manner, but the amount so paid 30 from net capital gains may not be greater than the excess of 31 the unitrust amount over the amount of distributable net 32 income as defined in Section 643(a) of the Code without 33 regard to Section 1.643(a)3(b) of the Treasury Regulations; 34 and 35 (D) shall then consider the unitrust amount as coming 36 from the principal of the trust. 37 38 REPORTER’S COMMENTS

[143] 539 1 Background. The Uniform Prudent Investor Act (UPIA), 2 enacted in 1994 by the Uniform Law Commission (ULC), 3 embodies basic principles for an investment regime, 4 “especially the principle of investing for total return rather 5 than a certain level of ‘income’ as traditionally perceived in 6 terms of interest, dividends, and rents,” based on categories 7 of receipts Total return investing is established by the ULC 8 as the investment regime of a “prudent investor”, and UPIA 9 provides that trustees “shall invest and manage trust assets as 10 a prudent investor would” in default of contrary provisions in 11 the terms of the trust. There is a fundamental distinction, 12 however, between needs of trust income beneficiaries and 13 those of trust principal or remainder beneficiaries, which 14 affects the duty of trustees to administer trusts “impartially, 15 based on what is fair and reasonable to all of the 16 beneficiaries, except to the extent that the terms of the trust 17 or will clearly manifest an intention that the fiduciary 18 [trustee] shall or may favor one or more of the beneficiaries.” 19 These inherent conflicts could in any given situation make it 20 problematic for the trustee to comply with the duty of 21 impartiality. For example, in a low interest/low dividend 22 environment, a prudent investor investing for total return 23 would normally invest less for interest/dividend return and 24 more for capital gains return. The result: an income 25 beneficiary receives, for example, only a one percent return 26 for the year while the remainder beneficiary reaps the 27 rewards of the capital gains. Of course, the opposite would be 28 true in a doubledigit high interest/high dividend environment. 29 In neither case would the trustee’s conduct comply with its 30 duty of impartiality, nor would the results be fair and 31 reasonable for the respective beneficiaries affected. Realizing 32 this dilemma for trustees, the ULC addressed this issue in its 33 work on amending its 1962 Revised Uniform Principal and 34 Income Act. This work produced ULC’s 1997 Uniform 35 Principal and Income Act (UP&IA) which includes ULC’s 36 approach to providing assistance to trustees: the power to 37 adjust. South Carolina enacted versions of both UPIA (as 38 SCUPIA) and UP&IA (as SCUP&IA), effective on the same 39 date, July 18, 2001.

[143] 540 1 Alternate Approach. The power to adjust was not the only 2 approach considered to provide assistance to trustees. During 3 the late 1990s and early 2000s, some states began working 4 independently of the ULC on various versions of unitrust 5 powers for trustees. In the early 2000s, some states enacted 6 unitrust versions with no power to adjust or other ULC 7 provisions. Other states enacted versions of the UP&IA 8 incorporating their respective unitrust versions, thereby 9 having both the power to adjust and their respective unitrust 10 powers as options. No unitrust approach has ever been 11 included in the UP&IA. South Carolina did not include any 12 such unitrust option in 2001 when it enacted SCUP&IA. In 13 the years since 2001, however, the unitrust approach has 14 become increasingly recognized among the states as an 15 established alternative to the power to adjust, The 2013 16 South Carolina amendments adopted a unitust option, in 17 subsections 904A through 904P. 18 Purpose and Scope of Unitrust Option. The purpose of 19 Sections 627904B through 627904P is similar to that of 20 Section 627904 (power to adjust): to enable a trustee to select 21 investments using the standards of a prudent investor without 22 having to realize a particular portion of the portfolio’s total 23 return in the form of traditional trust accounting income 24 categories such as interest, dividends, and rents. 25 Section 627904C(A) authorizes a trustee who meets the 26 qualifications set forth in this section to: (1) convert an 27 income trust to a total return unitrust; (2) convert a total 28 return unitrust to an income trust; or (3) change the 29 percentage used to calculate the unitrust amount or the 30 method used to determine the fair market value of the trust if 31 all of the following apply: (a) The trustee adopts a written 32 policy for the trust that contains the three provisions that 33 follow numbered (i), (ii), and (iii); (b) The trustee gives 34 written notice of its intention to take the action, including 35 copies of the written policy and Sections 627904B through 36 627904P, to those persons described in the two provisions 37 that follow numbered (i) and (ii); (c) There is at least one 38 qualified beneficiary or a representative described in the two 39 provisions that follow numbered (i) and (ii); (d) No person

[143] 541 1 receiving notice of the trustee’s intention to take the 2 proposed action objects to the proposed action within ninety 3 days after notice has been given. An objection must be by 4 written notice to the trustee. Section 627904C(B) authorizes 5 an interested trustee or a majority of interested trustees (if 6 there is no trustee of the trust other than an interested trustee) 7 in its or their sole discretion and without court approval to: 8 (1) convert an income trust to a total return unitrust; (2) 9 convert a total return unitrust to an income trust; or (3) 10 change the percentage used to calculate the unitrust amount 11 or the method used to determine the fair market value of the 12 trust if all of the following apply: (a) The trustee adopts a 13 written policy for the trust that contains the three provisions 14 that follow numbered (i), (ii), and (iii); (b) The trustee 15 appoints a disinterested person who, in its sole discretion but 16 acting in its fiduciary capacity, determines for the trustee the 17 three items that follow numbered (i), (ii), and (iii); (c) The 18 trustee gives written notice of its intention to take the action, 19 include copies of the written policy and Sections 627904B 20 through 627904P and the determinations of the disinterested 21 person to those persons described in the two provisions that 22 follow numbered (i) and (ii); (d) There is at least one 23 qualified beneficiary or a representative described in the two 24 provisions that follow numbered (i) and (ii); (e) No person 25 receiving notice of the trustee’s intention to take the 26 proposed action of the trustee objects to the action or to the 27 determinations of the disinterested person within ninety days 28 after notice has been given. The objection must be by written 29 instrument delivered to the trustee. Section 627904C(C) 30 authorizes a trustee to act under subsection (A) or (B) of this 31 section with respect to a trust for which both income and 32 principal have been set aside permanently for charitable 33 purposes under the governing instrument and for which a 34 federal estate or gift tax deduction has been taken, if all of 35 the provisions in the three subsections that follow numbered 36 (1), (2), and (3) apply. Section 627904C(D) provides that the 37 provisions of Section 627109 regarding notices and the 38 sending of documents to persons under this article shall apply

[143] 542 1 for purposes of notices and the sending of documents under 2 this section. 3 Section 627904D(A) provides that if a trustee desires to: 4 (1) convert an income trust to a total return unitrust; (2) 5 convert a total return unitrust to an income trust; or (3) 6 change the percentage used to calculate the unitrust amount 7 or the method used to determine the fair market value of the 8 trust assets, but does not have the ability to or elects not to do 9 it under Section 627904C, the trustee may petition the court 10 for an order as the trustee considers appropriate. If there is 11 only one trustee of the trust and the trustee is an interested 12 trustee or if there are two or more trustees of the trust and a 13 majority of them are interested trustees, the court, in its own 14 discretion or on the petition of the trustee or trustees or any 15 person interested in the trust, may appoint a disinterested 16 person who, acting in a fiduciary capacity, shall present 17 information to the court as necessary to enable the court to 18 make its determinations under Sections 627904B through 19 627904P. Section 627904D(B) authorizes a qualified 20 beneficiary or a representative of a qualified beneficiary to 21 request the trustee to: (1) convert an income trust to a total 22 return unitrust; (2) convert a total return unitrust to an income 23 trust; or (3) change the percentage used to calculate the 24 unitrust amount or the method used to determine the fair 25 market value of the trust assets. If the trustee does not take 26 the action requested, the qualified beneficiary or a 27 representative of a qualified beneficiary may petition the 28 court to order the trustee to take the action. Section 29 627904D(C) provides that all proceedings under this section 30 must be conducted as provided in Part 2 of this article. 31 Section 627904E(A) requires that the fair market value of the 32 trust assets be determined at least annually, using a valuation date 33 selected by the trustee in its discretion, and that assets for which a 34 fair market value cannot be readily ascertained be valued using 35 valuation methods considered reasonable and appropriate by the 36 trustee. This section authorizes the trustee, in its discretion, to use 37 an average of the fair market value on the same valuation date for 38 the current fiscal year and not more than three preceding fiscal 39 years, if the use of this average appears desirable to the trustee to 40 reduce the impact of fluctuations in market value on the unitrust

[143] 543 1 amount and to exclude from the fair market value for computing 2 the unitrust amount assets such as a residence or tangible personal 3 property used by the trust beneficiary. Section 627904E(B) 4 requires that the percentage used in determining the unitrust 5 amount be a reasonable current return from the trust, in any event 6 not less than three percent nor more than five percent, taking into 7 account the intentions of the settlor of the trust as expressed in the 8 terms of the trust, the needs of the beneficiaries, general economic 9 conditions, projected current earnings and appreciation for the trust 10 assets, and projected inflation and its impact on the trust. Section 11 627904E(C) provides that, following the conversion of an income 12 trust to a total return unitrust, the trustee: (1) must consider the 13 unitrust amount as paid from net accounting income determined as 14 if the trust were not a unitrust; (2) must then consider the unitrust 15 amount as paid from ordinary income not allocable to net 16 accounting income; (3) may, in the trustee’s discretion, consider 17 the unitrust amount as paid from net shortterm gain described in 18 section 1222(5) of the Code and then from net longterm capital 19 gain described in section 1222(7) of the Code so long as the 20 discretionary power is exercised consistently and in a reasonable 21 and impartial manner, but the amount so paid from net capital 22 gains may not be greater than the excess of the unitrust amount 23 over the amount of distributable net income as defined in section 24 643(a) of the Code without regard to section 1.643(a)3(b) of the 25 Treasury Regulations, as amended from time to time; and (4) must 26 then consider the unitrust amount as coming from the principal of 27 the trust. 28 Section 627904F authorizes the trustee, in administering a 29 total return unitrust, to determine in its sole discretion but 30 subject to the provisions of the terms of the trust: (1) the 31 effective date of the conversion; (2) the timing of 32 distributions, including provisions for prorating a distribution 33 for a short year in which a beneficiary’s right to payments 34 commences or ceases; (3) whether distributions are to be 35 made in cash or in kind or partly in cash and partly in kind; 36 (4) if the trust is reconverted to an income trust, the effective 37 date of the reconversion; and (5) any other administrative 38 issues as may be necessary or appropriate to carry out the 39 purposes of Sections 627904B through 627904P. 40 Section 627904G clearly establishes that conversion to a total 41 return unitrust under Sections 627904B through 627904P shall not 42 affect any other provision of the terms of the trust, if any, [143] 544 1 regarding distributions of principal. For purposes of Sections 2 627904B through 627904P, the distribution of a unitrust amount is 3 considered a distribution of income and not of principal. 4 Section 627904H purports to establish evidence of good faith by 5 the trustee or any disinterested person who takes or fails to take 6 any action under Sections 627904B through 627904P as a 7 complete defense against liability to any person affected by such 8 action or inaction, regardless of whether the person received 9 written notice as provided in Sections 627904B through 627904P 10 and regardless of whether the person was under a legal disability at 11 the time of the delivery of the notice. The exclusive remedy for 12 any person affected by an action or inaction shall be to obtain an 13 order of the court directing the trustee (1) to convert an income 14 trust to a total return unitrust, (2) to reconvert from a total return 15 unitrust to an income trust, or (3) to change the percentage used to 16 calculate the unitrust amount. 17 Section 627904I addresses certain types of trusts and trust 18 provisions or other default circumstances which cause Sections 19 627904B through 627904P not to apply to such trusts. 20 Section 627904M(A) is the first of the four final sections that 21 address the express total return unitrust as distinguished from the 22 total return unitrust and the income trust. Each of these trusts is 23 included in the definitions section, 627904B where subsection (3) 24 provides: ‘Express total return unitrust’ means a trust created by 25 the terms of a governing instrument requiring the distribution at 26 least annually of a unitrust amount equal to a fixed percentage of 27 not less than three percent nor more than five percent a year of the 28 net fair market value of the assets of the trust, valued at least 29 annually. Note that this Section 627904M(A) provides in addition 30 to “annually”: “or averaged on a multiple year basis.” Section 31 627904M(B) authorizes the terms of such governing instrument to 32 provide that: (1) any assets of such a unitrust for which a fair 33 market value cannot be readily ascertained must be valued using 34 valuation methods that the trustee considers reasonable and 35 appropriate; and (2) any assets of such a unitrust, such as a 36 residence property or tangible personal property, used by the trust 37 beneficiary entitled to the unitrust amount may be excluded from 38 the net fair market value for computing the unitrust amount. 39 Section 627904N establishes South Carolina’s critically 40 important position on the effect of the distribution of such a 41 unitrust amount: “The distribution from an express total return 42 unitrust of a unitrust amount equal to a fixed percentage of not less 43 than three percent nor more than five percent reasonably [143] 545 1 apportions between the income beneficiaries and the 2 remaindermen the total return of an express total return unitrust” 3 (emphasis added). 4 Section 627904O(A) authorizes the terms of an express total 5 return unitrust governing instrument to provide the method similar 6 to the method provided under Section 627904C for changing the 7 unitrust percentage or for converting from a unitrust to an income 8 trust or for a reconversion of an income trust to a unitrust, or for all 9 of these actions. Section 627904O(B) denies a trustee the power to 10 change the unitrust percentage or change to an income trust if the 11 terms of an express total return unitrust governing instrument do 12 not specifically or by reference to Section 627904C grant such 13 power to that trustee. 14 Section 627904P provides that, unless the terms of the express 15 total return unitrust governing instrument specifically provide 16 otherwise, the trustee: (A) must consider the unitrust amount as 17 paid from net accounting income determined as if the trust were 18 not a unitrust; (B) must then consider the unitrust amount as paid 19 from ordinary income not allocable to net accounting income; (C) 20 may, in the trustee’s discretion, consider the unitrust amount as 21 paid from net shortterm gain described in section 1222(5) of the 22 Code and then from net longterm capital gain described in section 23 1222(7) of the Code so long as this discretionary power is 24 exercised consistently and in a reasonable and impartial manner, 25 but the amount so paid from net capital gains may not be greater 26 than the excess of the unitrust amount over the amount of 27 distributable net income as defined in section 643(a) of the Code 28 without regard to section 1.643(a)3(b) of the Treasury Regulations, 29 as amended from time to time; and (D) must then consider the 30 unitrust amount as coming from the principal of the trust. 31 Treasury Department and Internal Revenue Service (Treasury 32 and Service). The promulgation by the ULC of its 1994 UPIA and 33 1997 UP&IA and the developing interest of the states in these two 34 uniform laws, the 1997 UP&IA’s power to adjust, and the 35 alternative unitrust approach garnered Treasury and Internal 36 Revenue Service interest in the late 1990s. During that period, 37 there was a recognition that “state statutes are in the process of 38 changing traditional concepts of income and principal in response 39 to investment strategies that seek total positive return on trust 40 assets”. Considerable time and resources were devoted to 41 addressing the various tax issues raised which culminated in the 42 Treasury and the Service adopting 15 Treasury Regulations 43 amendments. The effect of these amendments was to conform the [143] 546 1 regulations to the changes referred to above. These amendments 2 were issued as final regulations generally effective January 2, 3 2004, and were published in 69 Federal Register No. 1, January 2, 4 2004, pp. 1322, 26 CFR Parts 1, 20, 25, and 26 [TD 9102] RIN 5 1545AX96. 6 The prefatory Summary, Background, and Explanation materials 7 published with the final regulations referred to above are 8 instructive, particularly the Service responses to many of the 9 comments on the original proposed regulations that were published 10 on February 15, 2001. Of the many Treasury and Service 11 positions expressed in these materials on various issues that arose 12 during this process, one of the more instructive of these appears on 13 page 16 under the heading “Trusts Qualifying for Gift and Estate 14 Tax Marital Deductions”: 15 The proposed regulations provide that a spouse will be treated as 16 entitled to receive all net income from a trust, as required for the 17 trust to qualify for the gift and estate tax marital deductions under 18 Sec. 20.2056(b)5(a)(1) of the Estate Tax Regulations Sec. 19 25.2523(e)1(f)(1) of the Gift Tax Regulations, if the trust is 20 administered under applicable state law that provides for a 21 reasonable apportionment between the income and remainder 22 beneficiaries of the total return of the trust and that meets the 23 requirements of Sec. 1.643(b)1. Thus, a spouse who, as the income 24 beneficiary, is entitled in accordance with the state statute and the 25 governing instrument to a unitrust amount of no less than 3% and 26 no more than 5% would be entitled to all the income from the trust 27 for purposes of qualifying the trust for the marital deduction. 28 Several commentators suggested that a trust that provides 29 for a unitrust payment to the spouse should satisfy the 30 income standard even in states that have not enacted 31 legislation defining income as a unitrust amount or providing 32 that a right to income may be satisfied by such a payment. 33 The income distribution requirement that must be satisfied 34 for a trust to qualify for the gift and estate tax marital 35 deductions ensures that the spouse receives what is 36 traditionally considered to be income from the assets held in 37 trust. As previously discussed, the IRS and the Treasury 38 Department believe that only if applicable state law has 39 authorized a departure from traditional concepts of income 40 and principal should such a departure be respected for 41 Federal tax purposes. A state statute specifically authorizing

[143] 547 1 certain unitrust amounts in satisfaction of an income 2 interest or certain powers to adjust in conformance with the 3 provisions of Sec.1.643(b)1 would meet this standard. 4 However, in the absence of a state statute, or, for example, a 5 decision of the highest court of the state applicable to all 6 trusts administered under that state’s law, the applicable state 7 law requirement will not be satisfied. 8 9 Section 627905. After a decedent dies, in the case of an 10 estate, or after an income interest in a trust ends, a fiduciary: 11 (1) of an estate or of a terminating income interest shall 12 determine the amount of net income and net principal 13 receipts received from property specifically given to a 14 beneficiary pursuant to Sections 627907 through 627930 15 which apply to trustees and the provisions of item (5). The 16 fiduciary shall distribute the net income and net principal 17 receipts to the beneficiary who is to receive the specific 18 property; 19 (2) shall determine the remaining net income of a 20 decedent’s estate or a terminating income interest pursuant to 21 Sections 627907 through 627930 which apply to trustees and 22 by: 23 (a) including in net income all income from property 24 used to discharge liabilities; 25 (b) paying from income or principal, in the fiduciary’s 26 discretion, fees of attorneys, accountants, and fiduciaries, 27 court costs and other expenses of administration, and interest 28 on death taxes; except that the fiduciary may pay those 29 expenses from income of property passing to a trust for 30 which the fiduciary claims an estate tax marital or charitable 31 deduction only to the extent that the payment of those 32 expenses from income does not cause the reduction or loss of 33 the deduction; and 34 (c) paying from principal all other disbursements made 35 or incurred in connection with the settlement of a decedent’s 36 estate or the winding up of a terminating income interest, 37 including debts, funeral expenses, disposition of remains, 38 family allowances, and death taxes and related penalties that

[143] 548 1 are apportioned to the estate or terminating income interest 2 by the will, the terms of the trust, or applicable law; 3 (3) shall distribute to a beneficiary who receives a 4 pecuniary amount outright the rate of interest or other 5 amount provided by the will or the terms of the trust. If the 6 will or the terms of the trust provide no interest amount, the 7 beneficiary of a pecuniary amount outright shall receive no 8 interest or other income on the bequest for one year after the 9 first appointment of a personal representative. Beginning 10 one year after the first appointment of a personal 11 representative, and notwithstanding any other provision of 12 law to the contrary, the beneficiary of a pecuniary amount 13 outright must be treated as any other beneficiary under item 14 (4). If a beneficiary is to receive a pecuniary amount outright 15 from a trust after an income interest ends and no interest or 16 other amount is provided for by the terms of the trust, the 17 fiduciary shall treat the pecuniary amount as if it were 18 required to be paid under a will and as if the payment were 19 being made beginning one year after the first appointment of 20 a personal representative; 21 (4) shall distribute the net income remaining after 22 distributions required by item (3) in the manner pursuant to 23 Section 627906 to all other beneficiaries, including a 24 beneficiary who receives a pecuniary amount in trust, even if 25 the beneficiary holds an unqualified power to withdraw 26 assets from the trust or other presently exercisable general 27 power of appointment over the trust; and 28 (5) may not reduce principal or income receipts from 29 property described in item (1) because of a payment pursuant 30 to Sections 627924 and 627925 to the extent that the will, the 31 terms of the trust, or applicable law requires the fiduciary to 32 make the payment from assets other than the property or to 33 the extent that the fiduciary recovers or expects to recover the 34 payment from a third party. The net income and principal 35 receipts from the property are determined by including all of 36 the amounts the fiduciary receives or pays with respect to the 37 property, whether those amounts accrued or became due 38 before, on, or after the date of a decedent’s death or an 39 income interest’s terminating event, and by making a

[143] 549 1 reasonable provision for amounts that the fiduciary believes 2 the estate or terminating income interest may become 3 obligated to pay after the property is distributed. 4 5 REPORTER’S COMMENT 6 Terminating income interests and successive income 7 interests. A trust that provides for a single income 8 beneficiary and an outright distribution of the remainder ends 9 when the income interest ends. A more complex trust may 10 have a number of income interests, either concurrent or 11 successive, and the trust will not necessarily end when one of 12 the income interests ends. For that reason, the Act speaks in 13 terms of income interests ending and beginning rather than 14 trusts ending and beginning. When an income interest in a 15 trust ends, the trustee’s powers continue during the winding 16 up period required to complete its administration. A 17 terminating income interest is one that has ended but whose 18 administration is not complete. 19 If two or more people are given the right to receive 20 specified percentages or fractions of the income from a trust 21 concurrently and one of the concurrent interests ends, e.g., 22 when a beneficiary dies, the beneficiary’s income interest 23 ends but the trust does not. Similarly, when a trust with only 24 one income beneficiary ends upon the beneficiary’s death, 25 the trust instrument may provide that part or all of the trust 26 assets shall continue in trust for another income beneficiary. 27 While it is common to think and speak of this (and even to 28 characterize it in a trust instrument) as a “new” trust, it is a 29 continuation of the original trust for a remainder beneficiary 30 who has an income interest in the trust assets instead of the 31 right to receive them outright. For purposes of this Act, this 32 is a successive income interest in the same trust. The fact 33 that a trust may or may not end when an income interest ends 34 is not significant for purposes of this Act. 35 If the assets that are subject to a terminating income 36 interest pass to another trust because the income beneficiary 37 exercises a general power of appointment over the trust 38 assets, the recipient trust would be a new trust; and if they 39 pass to another trust because the beneficiary exercises a

[143] 550 1 nongeneral power of appointment over the trust assets, the 2 recipient trust might be a new trust in some States (see 5A 3 Austin W. Scott & William F. Fratcher, The Law of Trusts 4 Sec 640, at 483 (4th ed. 1989)); but for purposes of this Act a 5 new trust created in these circumstances is also a successive 6 income interest. 7 Gift of a pecuniary amount. Section 627905(3) and (4) 8 provide different rules for an outright gift of a pecuniary 9 amount and a gift in trust of a pecuniary amount; this is the 10 same approach used in Section 627408(b)(2) of the 1963 SC 11 Act. 12 Interest on pecuniary amounts. Section 627905(3) 13 provides that the beneficiary of an outright pecuniary amount 14 is to receive the interest or other amount provided by 15 applicable law if there is no provision in the will or the terms 16 of the trust. Many States have no applicable law that 17 provides for interest or some other amount to be paid on an 18 outright pecuniary gift under an inter vivos trust; this section 19 provides that in such a case the interest or other amount to be 20 paid shall be the same as the interest or other amount 21 required to be paid on testamentary pecuniary gifts. This 22 provision is intended to accord gifts under inter vivos 23 instruments the same treatment as testamentary gifts. The 24 various state authorities that provide for the amount that a 25 beneficiary of an outright pecuniary amount is entitled to 26 receive are collected in Richard B. Covey, Marital Deduction 27 and Credit Shelter Dispositions and the Use of Formula 28 Provisions, App. B (4th ed. 1997). 29 Administration expenses and interest on death taxes. 30 Under Section 627905(2)(b) a fiduciary may pay 31 administration expenses and interest on death taxes from 32 either income or principal. An advantage of permitting the 33 fiduciary to choose the source of the payment is that, if the 34 fiduciary’s decision is consistent with the decision to deduct 35 these expenses for income tax purposes or estate tax 36 purposes, it eliminates the need to adjust between principal 37 and income that may arise when, for example, an expense 38 that is paid from principal is deducted for income tax

[143] 551 1 purposes or an expense that is paid from income is deducted 2 for estate tax purposes. 3 Interest on Estate Taxes. Under the 1963 Act, Section 4 627418(5) charges interest on estate and inheritance taxes to 5 principal. The 1931 Act has no provision. Section 6 627925(3) of this Act provides that, except to the extent 7 provided in Section 627905(2)(b) or (c), all interest must be 8 paid from income. 9 10 Section 627906.(A) Each beneficiary described in Section 11 627905(4) is entitled to receive a portion of the net income 12 equal to his fractional interest in undistributed principal 13 assets, using values as of the distribution date. If a fiduciary 14 makes more than one distribution of assets to beneficiaries to 15 whom this section applies, each beneficiary, including one 16 who does not receive part of the distribution, is entitled, as of 17 each distribution date, to the net income the fiduciary has 18 received after the date of death or terminating event or earlier 19 distribution date but has not distributed as of the current 20 distribution date. 21 (B) In determining a beneficiary’s share of net income, 22 the: 23 (1) beneficiary is entitled to receive a portion of the net 24 income equal to his fractional interest in the undistributed 25 principal assets immediately before the distribution date, 26 including assets that later may be sold to meet principal 27 obligations. 28 (2) fractional interest of the beneficiary in the 29 undistributed principal assets must be calculated without 30 regard to property specifically given to a beneficiary and 31 property required to pay pecuniary amounts not in trust. 32 (3) fractional interest of the beneficiary in the 33 undistributed principal assets must be calculated on the basis 34 of the aggregate value of those assets as of the distribution 35 date without reducing the value by any unpaid principal 36 obligation; and 37 (4) distribution date for purposes of this section may be 38 the date as of which the fiduciary calculates the value of the

[143] 552 1 assets if that date is reasonably near the date on which assets 2 are actually distributed. 3 (C) If a fiduciary does not distribute all of the collected 4 but undistributed net income to each person as of a 5 distribution date, the fiduciary shall maintain appropriate 6 records showing the interest of each beneficiary in that net 7 income. 8 (D) A trustee may apply the provisions of this section, to 9 the extent that the trustee considers it appropriate, to net gain 10 or loss realized after the date of death or terminating event or 11 earlier distribution date from the disposition of a principal 12 asset if this section applies to the income from the asset. 13 14 REPORTER’S COMMENT 15 Relationship to Prior Acts. Section 627906 retains the 16 concept in Section 627408(2) of the 1963 SC Act that the 17 residuary legatees of estates are to receive net income earned 18 during the period of administration on the basis of their 19 proportionate interests in the undistributed assets when 20 distributions are made. It changes the basis for determining 21 their proportionate interests by using asset values as of a date 22 reasonably near the time of distribution instead of inventory 23 values; it extends the application of these rules to 24 distributions from terminating trusts; and it extends these 25 rules to gain or loss realized from the disposition of assets 26 during administration, an omission in the 1962 Act that has 27 been noted by several commentators. See, e.g., Richard B. 28 Covey, Marital Deduction and Credit Shelter Dispositions 29 and the Use of Formula Provisions 91 (4th ed. 1998); 30 Thomas H. Cantrill, Fractional or Percentage Residuary 31 Bequests: Allocation of Postmortem Income, Gain and 32 Unrealized Appreciation, 10 Prob. Notes 322, 327 (1985). 33 34 Section 627907. (A) An income beneficiary is entitled to 35 net income from the date on which the income interest 36 begins. An income interest begins on the date specified in 37 the terms of the trust or, if no date is specified, on the date an 38 asset becomes subject to a trust or successive income interest. 39 (B) An asset becomes subject to a trust on the date:

[143] 553 1 (1) it is transferred to the trust, in the case of an asset 2 that is transferred to a trust during the transferor’s life; 3 (2) the testator dies, in the case of an asset that becomes 4 subject to a trust by reason of a will, even if there is an 5 intervening period of administration of the estate; or 6 (3) the individual dies, in the case of an asset that is 7 transferred to a fiduciary by a third party because of the death 8 of the individual. 9 (C) An asset becomes subject to a successive income 10 interest on the day after the preceding income interest ends, 11 as determined pursuant to subsection (D), even if there is an 12 intervening period of administration to wind up the preceding 13 income interest. 14 (D) An income interest ends on the day before an income 15 beneficiary dies or another terminating event occurs or on the 16 last day of a period during which there is no beneficiary to 17 whom a trustee may distribute income. 18 19 REPORTER’S COMMENT 20 Period during which there is no beneficiary. The purpose of 21 the second part of subsection (D) is to provide that, at the end 22 of a period during which there is no beneficiary to whom a 23 trustee may distribute income, the trustee must apply the 24 same apportionment rules that apply when a mandatory 25 income interest ends. This provision would apply, for 26 example, if a settlor creates a trust for grandchildren before 27 any grandchildren are born. When the first grandchild is 28 born, the period preceding the date of birth is treated as 29 having ended, followed by a successive income interest, and 30 the apportionment rules in Sections 627908 and 909 apply 31 accordingly if the terms of the trust do not contain different 32 provisions. 33 34 Section 627908. (A) A trustee shall allocate an income 35 receipt or disbursement, other than one subject to Section 36 627905(1), to principal if its due date occurs before a 37 decedent dies in the case of an estate or before an income 38 interest begins in the case of a trust or successive income 39 interest.

[143] 554 1 (B) A trustee shall allocate an income receipt or 2 disbursement to income if its due date occurs on or after the 3 date on which a decedent dies or an income interest begins 4 and it is a periodic due date. An income receipt or 5 disbursement must be treated as accruing from day to day if 6 its due date is not periodic or it has no due date. The portion 7 of the receipt or disbursement accruing before the date on 8 which a decedent dies or an income interest begins must be 9 allocated to principal and the balance must be allocated to 10 income. 11 (C) An item of income or an obligation is due on the date 12 the payer is required to make a payment. If a payment date is 13 not stated, there is no due date for the purposes of this part. 14 Distributions to shareholders or other owners from an entity 15 subject to Section 627910 are considered due on the date 16 fixed by the entity for determining who is entitled to receive 17 the distribution or, if no date is fixed, on the declaration date 18 for the distribution. A due date is periodic for receipts or 19 disbursements that must be paid at regular intervals under a 20 lease or an obligation to pay interest or if an entity 21 customarily makes distributions at regular intervals. 22 23 REPORTER’S COMMENT 24 Prior Acts. Professor Bogert stated that “Section 4 of the 25 [1962] Act makes a change with respect to the apportionment 26 of the income of trust property not due until after the trust 27 began but which accrued in part before the commencement 28 of the trust. It treats such income as to be credited entirely to 29 the income account in the case of a living trust, but to be 30 apportioned between capital and income in the case of a 31 testamentary trust. The [1931] Act apportions such income 32 in the case of both types of trusts, except in the case of 33 corporate dividends.” George G. Bogert, The Revised 34 Uniform Principal and Income Act, 38 Notre Dame Law. 50, 35 52 (1962). The 1962 Act also provided that an asset passing 36 to an inter vivos trust by a bequest in the settlor’s will is 37 governed by the rule that applies to a testamentary trust, so 38 that different rules apply to assets passing to an inter vivos

[143] 555 1 trust depending upon whether they were transferred to the 2 trust during the settlor’s life or by his will. 3 Having several different rules that apply to similar 4 transactions is confusing. In order to simplify administration, 5 Section 627908 of this Act applies the same rule to inter 6 vivos trusts (revocable and irrevocable), testamentary trusts, 7 and assets that become subject to an inter vivos trust by a 8 testamentary bequest. 9 Periodic payments. Under Section 627908 a periodic 10 payment is principal if it is due but unpaid before a decedent 11 dies or before an asset becomes subject to a trust, but the next 12 payment is allocated entirely to income and is not 13 apportioned. Thus, periodic receipts such as rents, dividends, 14 interest, and annuities, and disbursements such as the interest 15 portion of a mortgage payment, are not apportioned. This is 16 the original common law rule. Edwin A. Howes, Jr., The 17 American Law Relating to Income and Principal 70 (1905). 18 In trusts in which a surviving spouse is dependent upon a 19 regular flow of cash from the decedent’s securities portfolio, 20 this rule will help to maintain payments to the spouse at the 21 same level as before the settlor’s death. Under the 1962 Act, 22 the predeath portion of the first periodic payment due after 23 death was apportioned to principal in the case of a 24 testamentary trust or securities bequeathed by will to an inter 25 vivos trust. 26 Nonperiodic payments. Under the second sentence of 27 Section 627908(B) interest on an obligation that does not 28 provide a due date for the interest payment, such as interest 29 on an income tax refund, would be apportioned to principal 30 to the extent it accrues before a person dies or an income 31 interest begins unless the obligation is specifically given to a 32 devisee or remainder beneficiary, in which case all of the 33 accrued interest passes under Section 627905(1) to the person 34 who receives the obligation. The same rule applies to 35 interest on an obligation that has a due date but does not 36 provide for periodic payments. If there is no stated interest 37 on the obligation, such as a zero coupon bond, and the 38 proceeds from the obligation are received more than one year

[143] 556 1 after it is purchased or acquired by the trustee, the entire 2 amount received is principal under Section 627915. 3 4 Section 627909. (A) In this section, ‘undistributed 5 income’ means net income received before the date on which 6 an income interest ends. The term does not include an item 7 of income or expense that is due or accrued or net income 8 that has been added or must be added to principal under the 9 terms of the trust. 10 (B) When a mandatory income interest ends, the trustee 11 shall pay to a mandatory income beneficiary who survives 12 that date, or the estate of a deceased mandatory income 13 beneficiary whose death causes the interest to end, the 14 beneficiary’s share of the undistributed income that is not 15 disposed of under the terms of the trust, unless the 16 beneficiary has an unqualified power to revoke more than 17 five percent of the trust immediately before the income 18 interest ends. In that case, the undistributed income from the 19 portion of the trust that may be revoked must be added to 20 principal. 21 (C) When the obligation of a trustee to pay a fixed annuity 22 or a fixed fraction of the value of the trust assets ends, the 23 trustee shall prorate the final payment if, and to the extent, 24 required by applicable law to accomplish a purpose of the 25 trust or its settlor relating to income, gift, estate, or other tax 26 requirements. 27 28 REPORTER’S COMMENT 29 Prior Acts. Both the 1931 Act (Section 4) and the 1962 Act 30 (Section 4(d)) provided that a deceased income 31 beneficiary’s estate is entitled to the undistributed income. 32 The ULC Drafting Committee for the 1997 Act concluded 33 that this is probably not what most settlors would want, and 34 that, with respect to undistributed income, most settlors 35 would favor the income beneficiary first, the remainder 36 beneficiaries second, and the income beneficiary’s heirs last, 37 if at all. However, it decided not to eliminate this provision 38 to avoid causing disputes about whether the trustee should

[143] 557 1 have distributed collected cash before the income beneficiary 2 died. 3 Accrued periodic payments. Under the prior Acts, an 4 income beneficiary or his estate is entitled to receive a 5 portion of any payments, other than dividends, that are due or 6 that have accrued when the income interest terminates. The 7 last sentence of subsection (A) changes that rule by providing 8 that such items are not included in undistributed income. 9 The items affected include periodic payments of interest, 10 rent, and dividends, as well as items of income that accrue 11 over a longer period of time; the rule also applies to expenses 12 that are due or accrued. 13 Example Accrued periodic payments. The rules in 14 Sections 627908 and 909 work in the following manner: 15 Assume that a periodic payment of rent that is due on July 20 16 has not been paid when an income interest ends on July 30; 17 the successive income interest begins on July 31, and the rent 18 payment that was due on July 20 is paid on August 3. Under 19 Section 627908(A), the July 20 payment is added to the 20 principal of the successive income interest when received. 21 Under Section 627909(B), the entire periodic payment of rent 22 that is due on August 20 is income when received by the 23 successive income interest. Under Section 627909, neither 24 the income beneficiary of the terminated income interest nor 25 the beneficiary’s estate is entitled to any part of either the 26 July 20 or the August 20 payments because neither one was 27 received before the income interest ended on July 30. The 28 same principles apply to expenses of the trust. 29 Beneficiary with an unqualified power to revoke. The 30 requirement in subsection (B) to pay undistributed income to 31 a mandatory income beneficiary or his estate does not apply 32 to the extent the beneficiary has an unqualified power to 33 revoke more than five percent of the trust immediately before 34 the income interest ends. Without this exception, subsection 35 (B) would apply to a revocable living trust whose settlor is 36 the mandatory income beneficiary during her lifetime, even if 37 her will provides that all of the assets in the probate estate are 38 to be distributed to the trust.

[143] 558 1 If a trust permits the beneficiary to withdraw all or a part 2 of the trust principal after attaining a specified age and the 3 beneficiary attains that age but fails to withdraw all of the 4 principal that he is permitted to withdraw, a trustee is not 5 required to pay him or his estate the undistributed income 6 attributable to the portion of the principal that he left in the 7 trust. The assumption underlying this rule is that the 8 beneficiary has either provided for the disposition of the trust 9 assets (including the undistributed income) by exercising a 10 power of appointment that he has been given or has not 11 withdrawn the assets because he is willing to have the 12 principal and undistributed income be distributed under the 13 terms of the trust. If the beneficiary has the power to 14 withdraw 25% of the trust principal, the trustee must pay to 15 him or his estate the undistributed income from the 75% that 16 he cannot withdraw. 17 18 Section 627910. (A) In this section, ‘entity’ means a 19 corporation, partnership, limited liability company, regulated 20 investment company, real estate investment trust, common 21 trust fund, or other organization in which a trustee has an 22 interest other than a trust or estate subject to Section 627911, 23 a business or activity to which Section 627912 applies, or an 24 assetbacked security to which Section 627924 applies. 25 (B) Except as otherwise provided in this section, a trustee 26 shall allocate to income money received from an entity. 27 (C) A trustee shall allocate the following receipts from an 28 entity to principal: 29 (1) property other than money; 30 (2) money received in one distribution or a series of 31 related distributions in exchange for part or all of a trust’s 32 interest in the entity; 33 (3) money received in total or partial liquidation of the 34 entity; and 35 (4) money received from an entity that is a regulated 36 investment company or a real estate investment trust if the 37 money distributed is a capital gain dividend for federal 38 income tax purposes. 39 (D) Money is received in partial liquidation:

[143] 559 1 (1) to the extent that the entity, at or near the time of a 2 distribution, indicates that it is a distribution in partial 3 liquidation; or 4 (2) if the total amount of money and property received 5 in a distribution or series of related distributions is greater 6 than twenty percent of the entity’s gross assets of the entity, 7 as shown by the yearend financial statements immediately 8 preceding the initial receipt. 9 (E) Money is not received in partial liquidation, nor may it 10 be taken into account pursuant to subsection (D)(2), to the 11 extent that it does not exceed the amount of income tax that a 12 trustee or beneficiary must pay on taxable income of the 13 entity that distributes the money. 14 (F) A trustee may rely upon a statement made by an entity 15 about the source or character of a distribution if the statement 16 is made at or near the time of distribution by the board of 17 directors or other person or group of persons authorized to 18 exercise powers to pay money or transfer property 19 comparable to those of a corporation’s board of directors. 20 21 REPORTER’S COMMENT 22 Entities to which Section 627910 applies. The reference to 23 partnerships in Section 627910(A) is intended to include all 24 forms of partnerships, including limited partnerships, limited 25 liability partnerships, and variants that have slightly different 26 names and characteristics from State to State. The section 27 does not apply, however, to receipts from an interest in 28 property that a trust owns as a tenant in common with one or 29 more coowners, nor would it apply to an interest in a joint 30 venture if, under applicable law, the trust’s interest is 31 regarded as that of a tenant in common. 32 Capital gain dividends. If a capital gain dividend does not 33 include any net shortterm capital gain, cash received by a 34 trust because of a net shortterm capital gain is income under 35 this Act. 36 Reinvested dividends. If a trustee elects (or continues an 37 election made by its predecessor) to reinvest dividends in 38 shares of stock of a distributing corporation or fund, whether 39 evidenced by new certificates or entries on the books of the

[143] 560 1 distributing entity, the new shares would be principal. 2 Making or continuing such an election would be equivalent 3 to deciding under Section 627904 to transfer income to 4 principal in order to comply with Section 627903(B). 5 However, if the trustee makes or continues the election for a 6 reason other than to comply with Section 627903(B), e.g., to 7 make an investment without incurring brokerage 8 commissions, the trustee should transfer cash from principal 9 to income in an amount equal to the reinvested dividends. 10 Distribution of property. The 1963 SC Act describes a 11 number of types of property that would be principal if 12 distributed by a corporation. This becomes unwieldy in a 13 section that applies to both corporations and all other entities. 14 By stating that principal includes the distribution of any 15 property other than money, Section 627910 embraces all of 16 the items enumerated in the 1963 SC Act as well as any other 17 form of nonmonetary distribution not specifically mentioned 18 in that Act. 19 Partial liquidations. Under subsection (D)(1) any 20 distribution designated by the entity as a partial liquidating 21 distribution is principal regardless of the percentage of total 22 assets that it represents. If a distribution exceeds twenty 23 percent of the entity’s gross assets, the entire distribution is a 24 partial liquidation under subsection (D)(2) whether or not the 25 entity describes it as a partial liquidation. In determining 26 whether a distribution is greater than twenty percent of the 27 gross assets, the portion of the distribution that does not 28 exceed the amount of income tax that the trustee or a 29 beneficiary must pay on the entity’s taxable income is 30 ignored. 31 Other large distributions. A cash distribution may be quite 32 large (for example, more than ten percent but not more than 33 twenty percent of the entity’s gross assets) and have 34 characteristics that suggest it should be treated as principal 35 rather than income. For example, an entity may have 36 received cash from a source other than the conduct of its 37 normal business operations because it sold an investment 38 asset; or because it sold a business asset other than one held 39 for sale to customers in the normal course of its business and

[143] 561 1 did not replace it; or it borrowed a large sum of money and 2 secured the repayment of the loan with a substantial asset; or 3 a principal source of its cash was from assets such as mineral 4 interests, ninety percent of which would have been allocated 5 to principal if the trust had owned the assets directly. In such 6 a case, the trustee, after considering the total return from the 7 portfolio as a whole and the income component of that 8 return, may decide to exercise the power under Section 9 627904(A) to make an adjustment between income and 10 principal, subject to the limitations in Section 627904(C). 11 12 Section 627911. A trustee shall allocate to income an 13 amount received as a distribution of income from a trust or 14 an estate in which the trust has an interest other than a 15 purchased interest, and shall allocate to principal an amount 16 received as a distribution of principal from such a trust or 17 estate. If a trustee purchases an interest in a trust that is an 18 investment entity, or a decedent or donor transfers an interest 19 in such a trust to a trustee, Section 627910 or 627924 applies 20 to a receipt from the trust. 21 22 REPORTER’S COMMENT 23 Terms of the distributing trust or estate. Under Section 24 627903(A) a trustee is to allocate receipts in accordance with 25 the terms of the recipient trust or, if there is no provision, in 26 accordance with this Act. However, in determining whether 27 a distribution from another trust or an estate is income or 28 principal, the trustee should also determine what the terms of 29 the distributing trust or estate say about the distribution for 30 example, whether they direct that the distribution, even 31 though made from the income of the distributing trust or 32 estate, is to be added to principal of the recipient trust. Such 33 a provision should override the terms of this Act, but if the 34 terms of the recipient trust contain a provision requiring such 35 a distribution to be allocated to income, the trustee may have 36 to obtain a judicial resolution of the conflict between the 37 terms of the two documents. 38 Investment trusts. An investment entity to which the 39 second sentence of this Section 627911 applies includes a

[143] 562 1 mutual fund, a common trust fund, a business trust or other 2 entity organized as a trust for the purpose of receiving capital 3 contributed by investors, investing that capital, and managing 4 investment assets, including assetbacked security 5 arrangements to which Section 627924 applies. See John H. 6 Langbein, The Secret Life of the Trust: The Trust as an 7 Instrument of Commerce, 107 Yale L.J. 165 (1997). 8 9 Section 627912. (A) If a trustee who conducts a business 10 or other activity determines that it is in the best interest of all 11 the beneficiaries to account separately for the business or 12 activity instead of accounting for it as part of the general 13 accounting records of the trust, the trustee may maintain 14 separate accounting records for its transactions, whether or 15 not its assets are segregated from other trust assets. 16 (B) A trustee who accounts separately for a business or 17 other activity may determine the extent to which its net cash 18 receipts must be retained for working capital, the acquisition 19 or replacement of fixed assets, and other reasonably 20 foreseeable needs of the business or activity, and the extent 21 to which the remaining net cash receipts are accounted for as 22 principal or income in the trust’s general accounting records. 23 If a trustee sells assets of the business or other activity, other 24 than in the ordinary course of the business or activity, the 25 trustee shall account for the net amount received as principal 26 in the general accounting records of the trust to the extent the 27 trustee determines that the amount received is no longer 28 required in the conduct of the business. 29 (C) Activities for which a trustee may maintain separate 30 accounting records include: 31 (1) retail, manufacturing, service, and other traditional 32 business activities; 33 (2) farming; 34 (3) raising and selling livestock and other animals; 35 (4) management of rental properties; 36 (5) extraction of minerals and other natural resources; 37 (6) timber operations; and 38 (7) activities subject to Section 627923. 39

[143] 563 1 REPORTER’S COMMENT 2 Purpose and scope. The provisions in Section 627912 are 3 intended to give greater flexibility to a trustee who operates a 4 business or other activity in proprietorship form rather than 5 in a whollyowned corporation (or, where permitted by state 6 law, a singlemember limited liability company), and to 7 facilitate the trustee’s ability to decide the extent to which the 8 net receipts from the activity should be allocated to income, 9 just as the board of directors of a corporation owned entirely 10 by the trust would decide the amount of the annual dividend 11 to be paid to the trust. It permits a trustee to account for 12 farming or livestock operations, rental properties, oil and gas 13 properties, timber operations, and activities in derivatives and 14 options as though they were held by a separate entity. It is 15 not intended, however, to permit a trustee to account 16 separately for a traditional securities portfolio to avoid the 17 provisions of this Act that apply to such securities. 18 Section 627912 permits the trustee to account separately 19 for each business or activity for which the trustee determines 20 separate accounting is appropriate. A trustee with a 21 computerized accounting system may account for these 22 activities in a “subtrust”; an individual trustee may continue 23 to use the business and recordkeeping methods employed by 24 the decedent or transferor who may have conducted the 25 business under an assumed name. The intent of this section 26 is to give the trustee broad authority to select business 27 recordkeeping methods that best suit the activity in which the 28 trustee is engaged. 29 If a fiduciary liquidates a sole proprietorship or other 30 activity to which Section 627912 applies, the proceeds would 31 be added to principal, even though derived from the 32 liquidation of accounts receivable, because the proceeds 33 would no longer be needed in the conduct of the business. If 34 the liquidation occurs during probate or during an income 35 interest’s winding up period, none of the proceeds would be 36 income for purposes of Section 627905. 37 Separate accounts. A trustee may or may not maintain 38 separate bank accounts for business activities that are 39 accounted for under Section 627912. A professional trustee

[143] 564 1 may decide not to maintain separate bank accounts, but an 2 individual trustee, especially one who has continued a 3 decedent’s business practices, may continue the same 4 banking arrangements that were used during the decedent’s 5 lifetime. In either case, the trustee is authorized to decide to 6 what extent cash is to be retained as part of the business 7 assets and to what extent it is to be transferred to the trust’s 8 general accounts, either as income or principal. 9 10 Section 627913. A trustee shall allocate to principal: 11 (1) to the extent not allocated to income pursuant to this 12 part, assets received from a transferor during his lifetime, a 13 decedent’s estate, a trust with a terminating income interest, 14 or a payer under a contract naming the trust or its trustee as 15 beneficiary; 16 (2) money or other property received from the sale, 17 exchange, liquidation, or change in form of a principal asset, 18 including realized profit; 19 (3) amounts recovered from third parties to reimburse the 20 trust because of disbursements described in Section 21 627926(A)(7) or for other reasons to the extent not based on 22 the loss of income; 23 (4) proceeds of property taken by eminent domain, but a 24 separate award made for the loss of income with respect to an 25 accounting period during which a current income beneficiary 26 had a mandatory income interest is income; 27 (5) net income received in an accounting period during 28 which there is no beneficiary to whom a trustee may or must 29 distribute income; and 30 (6) other receipts as provided in Sections 627917 through 31 627924. 32 33 REPORTER’S COMMENT 34 Eminent domain awards. Even though the award in an 35 eminent domain proceeding may include an amount for the 36 loss of future rent on a lease, if that amount is not separately 37 stated, the entire award is principal. The rule is the same in 38 the 1931 and 1962 Acts and in the 1963 SC Act (Section 39 627406(2)).

[143] 565 1 2 Section 627914. To the extent that a trustee accounts for 3 receipts from rental property pursuant to this section, the 4 trustee shall allocate to income an amount received as rent of 5 real or personal property, including an amount received for 6 cancellation or renewal of a lease. An amount received as a 7 refundable deposit, including a security deposit or a deposit 8 applied as rent for future periods, must be added to principal 9 and held subject to the terms of the lease and is not available 10 for distribution to a beneficiary until the trustee’s contractual 11 obligations have been satisfied with respect to that amount. 12 13 REPORTER’S COMMENT 14 Application of Section 627912. This section applies to the 15 extent that the trustee does not account separately under 16 Section 627912 for the management of rental properties 17 owned by the trust. 18 Receipts that are capital in nature. A portion of the 19 payment under a lease may be a reimbursement of principal 20 expenditures for improvements to the leased property that is 21 characterized as rent for purposes of invoking contractual or 22 statutory remedies for nonpayment. If the trustee is 23 accounting for rental income under Section 627914, a 24 transfer from income to reimburse principal may be 25 appropriate under Section 627904 to the extent that some of 26 the “rent” is really a reimbursement for improvements. This 27 set of facts could also be a relevant factor for a trustee to 28 consider under Section 627904 (B) in deciding whether and 29 to what extent to make an adjustment between principal and 30 income under Section 627904(A) after considering the return 31 from the portfolio as a whole. 32 33 Section 627915. (A) An amount received as interest, 34 whether determined at a fixed, variable, or floating rate, on 35 an obligation to pay money to the trustee, including an 36 amount received as consideration for prepaying principal, 37 must be allocated to income without provision for 38 amortization of premium.

[143] 566 1 (B) A trustee shall allocate to principal an amount 2 received from the sale, redemption, or other disposition of an 3 obligation to pay money to the trustee more than one year 4 after it is purchased or acquired by the trustee, including an 5 obligation whose purchase price or value when it is acquired 6 is less than its value at maturity. If the obligation matures 7 within one year after it is purchased or acquired by the 8 trustee, an amount received in excess of its purchase price or 9 its value when acquired by the trust must be allocated to 10 income. 11 (C) This section does not apply to an obligation subject to 12 Section 627918, 627919, 627920, 627921, or 627924. 13 14 REPORTER’S COMMENT 15 Variable or floating interest rates. The reference in 16 subsection (A) to variable or floating interest rate obligations 17 is intended to clarify that, even though an obligation’s 18 interest rate may change from time to time based upon 19 changes in an index or other market indicator, an obligation 20 to pay money containing a variable or floating rate provision 21 is subject to this section and is not to be treated as a 22 derivative financial instrument under Section 627923. 23 Discount obligations. Subsection (B) applies to all 24 obligations acquired at a discount, including shortterm 25 obligations such as U.S. Treasury Bills, longterm obligations 26 such as U.S. Savings Bonds, zerocoupon bonds, and discount 27 bonds that pay interest during part, but not all, of the period 28 before maturity. Under subsection (B) the entire increase in 29 value of these obligations is principal when the trustee 30 receives the proceeds from the disposition unless the 31 obligation, when acquired, has a maturity of less than one 32 year. In order to have one rule that applies to all discount 33 obligations, this Act eliminates the provision in the 1962 Act 34 for the payment from principal of an amount equal to the 35 increase in the value of U.S. Series E bonds. 36 Subsection (B) also applies to inflationindexed bonds any 37 increase in principal due to inflation after issuance is 38 principal upon redemption if the bond matures more than one 39 year after the trustee acquires it; if it matures within one year,

[143] 567 1 all of the increase, including any attributable to an inflation 2 adjustment, is income. 3 Effect of Section 627904. In deciding whether and to what 4 extent to exercise the power to adjust between principal and 5 income granted by Section 627904(A) a relevant factor for 6 the trustee to consider is the effect on the portfolio as a whole 7 of having a portion of the assets invested in bonds that do not 8 pay interest currently. 9 10 Section 627916. (A) Except as otherwise provided in 11 subsection (B), a trustee shall allocate to principal the 12 proceeds of a life insurance policy or other contract in which 13 the trust or its trustee is named as beneficiary, including a 14 contract that insures the trust or its trustee against loss for 15 damage to, destruction of, or loss of title to a trust asset. The 16 trustee shall allocate dividends on an insurance policy to 17 income if the premiums on the policy are paid from income, 18 and to principal if the premiums are paid from principal. 19 (B) A trustee shall allocate to income proceeds of a 20 contract that insures the trustee against loss of occupancy or 21 other use by an income beneficiary, loss of income, or, 22 subject to Section 627912, loss of profits from a business. 23 (C) This section does not apply to a contract subject to 24 Section 627918. 25 26 Section 627917. If a trustee determines that an allocation 27 between principal and income required by Section 627918, 28 627919, 627920, 627921, or 627924 is insubstantial, the 29 trustee may allocate the entire amount to principal unless one 30 of the circumstances provided in Section 627904(C) applies 31 to the allocation. This power may be exercised by a cotrustee 32 in the circumstances provided in Section 627904(D) and may 33 be released for the reasons and in the manner provided in 34 Section 627904(E). An allocation is presumed to be 35 insubstantial if: 36 (1) the amount of the allocation increases or decreases net 37 income in an accounting period, as determined before the 38 allocation, by less than ten percent; or

[143] 568 1 (2) the value of the asset producing the receipt for which 2 the allocation is made is less than ten percent of the total 3 value of the assets of the trust at the beginning of the 4 accounting period. 5 6 REPORTER’S COMMENT 7 This section is intended to relieve a trustee from making 8 relatively small allocations while preserving the trustee’s 9 right to do so if an allocation is large in terms of absolute 10 dollars. 11 For example, assume that a trust’s assets, which include a 12 working interest in an oil well, have a value of $1,000,000; 13 the net income from the assets other than the working interest 14 is $40,000; and the net receipts from the working interest are 15 $400. The trustee may allocate all of the net receipts from 16 the working interest to principal instead of allocating ten 17 percent or $40, to income under Section 627920. If the net 18 receipts from the working interest are $35,000, so that the 19 amount allocated to income under Section 627920 would be 20 $3,500, the trustee may decide that this amount is sufficiently 21 significant to the income beneficiary that the allocation 22 provided for by Section 627920 should be made, even though 23 the trustee is still permitted under Section 627917 to allocate 24 all of the net receipts to principal because the $3,500 would 25 increase the net income of $40,000, as determined before 26 making an allocation under Section 627920 by less than ten 27 percent. Section 627917 will also relieve a trustee from 28 having to allocate net receipts from the sale of trees in a 29 small woodlot between principal and income. 30 While the allocation to principal of small amounts under 31 this section should not be a cause for concern for tax 32 purposes, allocations are not permitted under this section in 33 circumstances described in Section 627904 (C) to eliminate 34 claims that the power in this section has adverse tax 35 consequences. 36 37 Section 627918. (A) In this section: 38 (1) ‘Payment’ means a payment that a trustee may 39 receive over a fixed number of years or during the life of one

[143] 569 1 or more individuals because of services rendered or property 2 transferred to the payer in exchange for future payments. 3 The term includes a payment made in money or property 4 from the payer’s general assets or from a separate fund 5 created by the payer. For purposes of subsections (D), (E), 6 (F), and (G), the term also includes a payment from a 7 separate fund, regardless of the reason for the payment. 8 (2) ‘Separate fund’ includes a private or commercial 9 annuity, an individual retirement account, and a pension, 10 profitsharing, stockbonus, or stockownership plan. 11 (B) To the extent that a payment is characterized as 12 interest, a dividend, or a payment made instead of interest or 13 a dividend, a trustee shall allocate the payment to income. 14 The trustee shall allocate to principal the balance of the 15 payment and any other payment received in the same 16 accounting period that is not characterized as interest, a 17 dividend, or an equivalent payment. 18 (C) If part of a payment is not characterized as interest, a 19 dividend, or an equivalent payment, and all or part of the 20 payment is required to be made, a trustee shall allocate to 21 income ten percent of the part that is required to be made 22 during the accounting period and the balance to principal. If 23 a part of a payment is not required to be made or the payment 24 received is the entire amount to which the trustee is entitled, 25 the trustee shall allocate the entire payment to principal. For 26 purposes of this subsection, a payment is not ‘required to be 27 made’ to the extent that it is made because the trustee 28 exercises a right of withdrawal. 29 (D) Except as otherwise provided in subsection (E), 30 subsections (F) and (G) apply, and subsections (B) and (C) 31 do not apply, in determining the allocation of a payment 32 made from a separate fund to: 33 (1) a trust to which an election to qualify for a marital 34 deduction under Section 2056(b)(7) of the Internal Revenue 35 Code of 1986, as amended, has been made; or 36 (2) a trust that qualifies for the marital deduction under 37 Section 2056(b)(5) of the Internal Revenue Code of 1986, as 38 amended.

[143] 570 1 (E) Subsections (D), (F), and (G) do not apply if and to 2 the extent that the series of payments would, without the 3 application of subsection (D), qualify for the marital 4 deduction under Section 2056(b)(7)(C) of the Internal 5 Revenue Code of 1986, as amended. 6 (F) A trustee shall determine the internal income of each 7 separate fund for the accounting period as if the separate fund 8 were a trust subject to this act. Upon request of the surviving 9 spouse, the trustee shall demand that the person 10 administering the separate fund distribute the internal income 11 to the trust. The trustee shall allocate a payment from the 12 separate fund to income to the extent of the internal income 13 of the separate fund and distribute that amount to the 14 surviving spouse. The trustee shall allocate the balance of 15 the payment to principal. Upon request of the surviving 16 spouse, the trustee shall allocate principal to income to the 17 extent the internal income of the separate fund exceeds 18 payments made from the separate fund to the trust during the 19 accounting period. 20 (G) If a trustee cannot determine the internal income of a 21 separate fund but can determine the value of the separate 22 fund, the internal income of the separate fund is deemed to 23 equal four percent of the fund’s value, according to the most 24 recent statement of value preceding the beginning of the 25 accounting period. If the trustee can determine neither the 26 internal income of the separate fund nor the fund’s value, the 27 internal income of the fund is deemed to equal the product of 28 the interest rate and the present value of the expected future 29 payments, as determined under Section 7520 of the Internal 30 Revenue Code of 1986, as amended, for the month preceding 31 the accounting period for which the computation is made. 32 (H) This section does not apply to payments subject to 33 Section 627919. 34 35 REPORTER’S COMMENT 36 Scope. Section 627918 applies to amounts received under 37 contractual arrangements that provide for payments to a third 38 party beneficiary as a result of services rendered or property 39 transferred to the payer. While the right to receive such

[143] 571 1 payments is a liquidating asset of the kind described in 2 Section 627919 i.e., “an asset whose value will diminish or 3 terminate because the asset is expected to produce receipts 4 for a period of limited duration,” these payment rights are 5 covered separately in Section 627918 because of their special 6 characteristics. 7 Section 627918 applies to receipts from all forms of 8 annuities and deferred compensation arrangements, whether 9 the payment will be received by the trust in a lump sum or in 10 installments over a period of years. It applies to bonuses that 11 may be received over two or three years and payments that 12 may last for much longer periods, including payments from 13 an individual retirement account (IRA), deferred 14 compensation plan (whether qualified or not qualified for 15 special federal income tax treatment), and insurance renewal 16 commissions. It applies to a retirement plan to which the 17 settlor has made contributions, just as it applies to an annuity 18 policy that the settlor may have purchased individually, and it 19 applies to variable annuities, deferred annuities, annuities 20 issued by commercial insurance companies, and “private 21 annuities” arising from the sale of property to another 22 individual or entity in exchange for payments that are to be 23 made for the life of one or more individuals. The section 24 applies whether the payments begin when the payment right 25 becomes subject to the trust or are deferred until a future 26 date, and it applies whether payments are made in cash or in 27 kind, such as employer stock (inkind payments usually will 28 be made in a single distribution that will be allocated to 29 principal under the second sentence of subsection (C). 30 Prior Acts. Under Section 12 of the 1962 Act and Section 31 627414 of the 1963 SC Act, receipts from “rights to receive 32 payments on a contract for deferred compensation” are 33 allocated to income each year in an amount “not in excess of 34 5% per year” of the property’s inventory value. While “not 35 in excess of 5%” suggests that the annual allocation may 36 range from zero to five percent of the inventory value, in 37 practice the rule is usually treated as prescribing a five 38 percent allocation. The inventory value is usually the present 39 value of all the future payments, and since the inventory

[143] 572 1 value is determined as of the date on which the payment right 2 becomes subject to the trust, the inventory value, and thus the 3 amount of the annual income allocation, depends 4 significantly on the applicable interest rate on the decedent’s 5 date of death. That rate may be much higher or lower than 6 the average longterm interest rate. The amount determined 7 under the five percent formula tends to become fixed and 8 remain unchanged even though the amount received by the 9 trust increases or decreases. 10 Allocations Under Section 627918(B). Section 627918(B) 11 applies to plans whose terms characterize payments made 12 under the plan as dividends, interest, or payments in lieu of 13 dividends or interest. For example, some deferred 14 compensation plans that hold debt obligations or stock of the 15 plan’s sponsor in an account for future delivery to the person 16 rendering the services provide for the annual payment to that 17 person of dividends received on the stock or interest received 18 on the debt obligations. Other plans provide that the account 19 of the person rendering the services shall be credited with 20 “phantom” shares of stock and require an annual payment 21 that is equivalent to the dividends that would be received on 22 that number of shares if they were actually issued; or a plan 23 may entitle the person rendering the services to receive a 24 fixed dollar amount in the future and provide for the annual 25 payment of interest on the deferred amount during the period 26 prior to its payment. Under Section 627918(B) payments of 27 dividends, interest or payments in lieu of dividends or 28 interest under plans of this type are allocated to income; all 29 other payments received under these plans are allocated to 30 principal. 31 Section 627918(B) does not apply to an IRA or an 32 arrangement with payment provisions similar to an IRA. 33 IRAs and similar arrangements are subject to the provisions 34 in Section 627918(C). 35 Allocations Under Section 627918(C). The focus of 36 Section 627918, for purposes of allocating payments received 37 by a trust to or between principal and income, is on the 38 payment right rather than on assets that may be held in a fund 39 from which the payments are made. Thus, if an IRA holds a

[143] 573 1 portfolio of marketable stocks and bonds, the amount 2 received by the IRA as dividends and interest is not taken 3 into account in determining the principal and income 4 allocation except to the extent that the Internal Revenue 5 Service may require them to be taken into account when the 6 payment is received by a trust that qualifies for the estate tax 7 marital deduction (a situation that is provided for in Section 8 627918(D)). An IRA is subject to federal income tax rules 9 that require payments to begin by a particular date and be 10 made over a specific number of years or a period measured 11 by the lives of one or more persons. The payment right of a 12 trust that is named as a beneficiary of an IRA is not a right to 13 receive particular items that are paid to the IRA, but is 14 instead the right to receive an amount determined by dividing 15 the value of the IRA by the remaining number of years in the 16 payment period. This payment right is similar to the right to 17 receive a unitrust amount, which is normally expressed as an 18 amount equal to a percentage of the value of the unitrust 19 assets without regard to dividends or interest that may be 20 received by the unitrust. 21 An amount received from an IRA or a plan with a payment 22 provision similar to that of an IRA is allocated under Section 23 627918(C) which differentiates between payments that are 24 required to be made and all other payments. To the extent 25 that a payment is required to be made (either under federal 26 income tax rules or, in the case of a plan that is not subject to 27 those rules, under the terms of the plan), ten percent of the 28 amount received is allocated to income and the balance is 29 allocated to principal. All other payments are allocated to 30 principal because they represent a change in the form of a 31 principal asset; Section 627918 follows the rule in Section 32 627913(2) which provides that money or property received 33 from a change in the form of a principal asset be allocated to 34 principal. 35 Section 627918(C) produces an allocation to income that is 36 similar to the allocation under the 1962 Act formula and the 37 1963 SC Act formula if the annual payments are the same 38 throughout the payment period, and it is simpler to 39 administer. The amount allocated to income under Section

[143] 574 1 627918 is not dependent upon the interest rate that is used for 2 valuation purposes when the decedent dies, and if the 3 payments received by the trust increase or decrease from year 4 to year because the fund from which the payment is made 5 increases or decreases in value, the amount allocated to 6 income will also increase or decrease. 7 Marital Deduction Requirements. When an IRA or other 8 retirement arrangement (a “plan”) is payable to a marital 9 deduction trust, the IRS treats the plan as a separate property 10 interest that itself must qualify for the marital deduction. IRS 11 Revenue Ruling 200626 said that, as written, the prior 12 uniform act version of Section 627918 does not cause a trust 13 to qualify for the IRS’ safe harbors. Revenue Ruling 200626 14 was limited in scope to certain situations involving IRAs and 15 defined contribution retirement plans. Without necessarily 16 agreeing with the IRS’ position in that ruling, the revision to 17 this section is designed to satisfy the IRS’ safe harbor and to 18 address concerns that might be raised for similar assets. No 19 IRS pronouncements have addressed the scope of Code § 20 2056(b)(7)(C). 21 Subsection (F) requires the trustee to demand certain 22 distributions if the surviving spouse so requests. The safe 23 harbor of Revenue Ruling 200626 requires that the surviving 24 spouse be separately entitled to demand the fund’s income 25 (without regard to the income from the trust’s other assets) 26 and the income from the other assets (without regard to the 27 fund’s income). In any event, the surviving spouse is not 28 required to demand that the trustee distribute all of the fund’s 29 income from the fund or from other trust assets. Treas. Reg. 30 § 20.2056(b)5(f)(8). 31 Subsection (F) also recognizes that the trustee might not 32 control the payments that the trustee receives and provides a 33 remedy to the surviving spouse if the distributions under 34 subsection (d)(1) are insufficient. 35 Subsection (G) addresses situations where, due to lack of 36 information provided by the fund’s administrator, the trustee 37 is unable to determine the fund’s actual income. The 38 bracketed language is the range approved for unitrust 39 payments by Treas. Reg. § 1.643(b)1. In determining the

[143] 575 1 value for purposes of applying the unitrust percentage, the 2 trustee would seek to obtain the value of the assets as of the 3 most recent statement of value immediately preceding the 4 beginning of the year. For example, suppose a trust’s 5 accounting period is January 1 through December 31. If a 6 retirement plan administrator furnishes information annually 7 each September 30 and declines to provide information as of 8 December 31, then the trustee may rely on the September 30 9 value to determine the distribution for the following year. 10 For funds whose values are not readily available, subsection 11 (G) relies on Code Section 7520 valuation methods because 12 many funds described in Section 627918 are annuities, and 13 one consistent set of valuation principles should apply 14 whether or not the fund is, in fact, an annuity. 15 Application of Section 627904.Section 627904(A) of this 16 act gives a trustee who is acting under the prudent investor 17 rule the power to adjust from principal to income if, 18 considering the portfolio as a whole and not just receipts 19 from deferred compensation, the trustee determines that an 20 adjustment is necessary. See Example (5) in the comment 21 following Section 627904. 22 23 CODE COMMISSIONER’S COMMENT 24 25 For the effective dates and applicability of this section, see 26 Act 204 of 2012. 27 28 Section 627919. (A) In this section, ‘liquidating asset’ 29 means an asset whose value diminishes or terminates because 30 the asset is expected to produce receipts for a period of 31 limited duration. The term includes a leasehold, patent, 32 copyright, royalty right, and right to receive payments during 33 a period of more than one year under an arrangement that 34 does not provide for the payment of interest on the unpaid 35 balance. The term does not include a payment subject to 36 Section 627918, resources subject to Section 627920, timber 37 subject to Section 627921, an activity subject to Section 38 627923, an asset subject to Section 627924, or any asset for

[143] 576 1 which the trustee establishes a reserve for depreciation 2 pursuant to Section 627927. 3 (B) A trustee shall allocate to income ten percent of the 4 receipts from a liquidating asset and the balance to principal. 5 6 REPORTER’S COMMENT 7 Prior Acts. Section 11 of the 1962 Act (Section 627414 of 8 the 1963 SC Act) allocates receipts from “property subject to 9 depletion” to income in an amount “not in excess of 5%” of 10 the asset’s inventory value. The 1931 Act has a similar five 11 percent rule that applies when the trustee is under a duty to 12 change the form of the investment. The five percent rule 13 imposes on a trust the obligation to pay a fixed annuity to the 14 income beneficiary until the asset is exhausted. Under these 15 prior Acts the balance of each year’s receipts is added to 16 principal. A fixed payment can produce unfair results. The 17 remainder beneficiary receives all of the receipts from 18 unexpected growth in the asset, e.g., if royalties on a patent 19 or copyright increase significantly. Conversely, if the 20 receipts diminish more rapidly than expected, most of the 21 amount received by the trust will be allocated to income and 22 little to principal. Moreover, if the annual payments remain 23 the same for the life of the asset, the amount allocated to 24 principal will usually be less than the original inventory 25 value. For these reasons, Section 627919 abandons the 26 annuity approach under the five percent rule. 27 Lottery payments. The reference in subsection (A) to 28 rights to receive payments under an arrangement that does 29 not provide for the payment of interest includes state lottery 30 prizes and similar fixed amounts payable over time that are 31 not deferred compensation arrangements covered by Section 32 627918. 33 34 Section 627920. (A) To the extent that a trustee accounts 35 for receipts from an interest in minerals or other natural 36 resources pursuant to this section, the trustee shall allocate 37 them if: 38 (1) received as nominal delay rental or nominal annual 39 rent on a lease, a receipt must be allocated to income;

[143] 577 1 (2) received from a production payment, a receipt must 2 be allocated to income if and to the extent that the agreement 3 creating the production payment provides a factor for interest 4 or its equivalent. The balance must be allocated to principal; 5 (3) an amount received as a royalty, shutinwell 6 payment, takeorpay payment, bonus, or delay rental is more 7 than nominal, ninety percent must be allocated to principal 8 and the balance to income; 9 (4) an amount is received from a working interest or 10 any other interest not otherwise provided for in this 11 subsection, ninety percent of the net amount received must be 12 allocated to principal and the balance to income. 13 (B) An amount received on account of an interest in water 14 that is renewable must be allocated to income. If the water is 15 not renewable, ninety percent of the amount must be 16 allocated to principal and the balance to income. 17 (C) This part applies whether or not a decedent or donor 18 was extracting minerals, water, or other natural resources 19 before the interest became subject to the trust. 20 (D) If a trust owns an interest in minerals, water, or other 21 natural resources on the effective date of this part, the trustee 22 may allocate receipts from the interest as provided in this part 23 or in the manner used by the trustee before the effective date 24 of this part. If the trust acquires an interest in minerals, 25 water, or other natural resources after the effective date of 26 this part, the trustee shall allocate receipts from the interest as 27 provided in this part. 28 29 REPORTER’S COMMENT 30 Prior Acts. The 1962 Act and the 1963 SC Act allocate to 31 principal as a depletion allowance, twenty seven and onehalf 32 percent of the gross receipts, but not more than fifty percent 33 of the net receipts after paying expenses. Section 9 of the 34 1931 Act allocates all of the net proceeds received as 35 consideration for the “permanent severance of natural 36 resources from the lands” to principal. 37 Section 627920 allocates ninety percent of the net receipts 38 to principal and ten percent to income. A depletion provision 39 that is tied to past or present Code provisions is undesirable

[143] 578 1 because it causes a large portion of the oil and gas receipts to 2 be paid out as income. As wells are depleted, the amount 3 received by the income beneficiary falls drastically. 4 Allocating a larger portion of the receipts to principal enables 5 the trustee to acquire other income producing assets that will 6 continue to produce income when the mineral reserves are 7 exhausted. 8 Application of Sections 627912 and 917. This Section 9 627920 applies to the extent that the trustee does not account 10 separately for receipts from minerals and other natural 11 resources under Section 627912 or allocate all of the receipts 12 to principal under Section 627917. 13 Open mine doctrine. The purpose of Section 627920(C) is 14 to abolish the “open mine doctrine” as it may apply to the 15 rights of an income beneficiary and a remainder beneficiary 16 in receipts from the production of minerals from land owned 17 or leased by a trust. Instead, such receipts are to be allocated 18 to or between principal and income in accordance with the 19 provisions of this Act. For a discussion of the open mine 20 doctrine, see generally 3A Austin W. Scott & William F. 21 Fratcher, The Law of Trusts §239.3 (4th ed. 1988), and 22 Nutter v. Stockton, 626 P.2d 861 (Okla. 1981). 23 Effective date provision. Section 9(b) of the 1962 Act and 24 Section 4122(b) of the SC Act provide that the natural 25 resources provision does not apply to property interests held 26 by the trust on the effective date of the Act, which reflects 27 concerns about the constitutionality of applying a retroactive 28 administrative provision to interests in real estate, based on 29 the opinion in the Oklahoma case of Franklin v. Margay Oil 30 Corporation, 153 P.2d 486, 501 (Okla. 1944). Section 31 627920(D) permits a trustee to use either the method 32 provided for in this Act or the method used before the Act 33 takes effect. Lawyers in jurisdictions other than Oklahoma 34 may conclude that retroactivity is not a problem as to 35 property situated in their States, and this provision permits 36 trustees to decide, based on advice from counsel in States 37 whose law may be different from that of Oklahoma, whether 38 they may apply this provision retroactively if they conclude 39 that to do so is in the best interests of the beneficiaries.

[143] 579 1 If the property is in a State other than the State where the 2 trust is administered, the trustee must be aware that the law 3 of the property’s situs may control this question. The 4 outcome turns on a variety of questions: whether the terms of 5 the trust specify that the law of a State other than the situs of 6 the property shall govern the administration of the trust, and 7 whether the courts will follow the terms of the trust; whether 8 the trust’s asset is the land itself or a leasehold interest in the 9 land (as it frequently is with oil and gas property); whether a 10 leasehold interest or its proceeds should be classified as real 11 property or personal property, and if as personal property, 12 whether applicable state law treats it as a movable or an 13 immovable for conflict of laws purposes. See 5A Austin W. 14 Scott & William F. Fratcher, The Law of Trusts Sections 15 648, at 531, 533534; Sec 657, at 600 (4th ed. 1989). 16 17 Section 627921. (A) To the extent that a trustee accounts 18 for receipts from the sale of timber and related products 19 pursuant to this section, the trustee shall allocate the net 20 receipts to: 21 (1) income, to the extent that the amount of timber 22 removed from the land does not exceed the rate of growth of 23 the timber during the accounting periods in which a 24 beneficiary has a mandatory income interest; 25 (2) principal, to the extent that the amount of timber 26 removed from the land exceeds the rate of growth of the 27 timber or the net receipts are from the sale of standing 28 timber; 29 (3) or between income and principal, if the net receipts 30 are from the lease of timberland or from a contract to cut 31 timber from land owned by a trust, by determining the 32 amount of timber removed from the land under the lease or 33 contract and applying items (1) and (2); or 34 (4) principal, to the extent that advance payments, 35 bonuses, and other payments are not otherwise allocated 36 pursuant to this subsection. 37 (B) In determining net receipts to be allocated pursuant to 38 subsection (A), a trustee shall deduct and transfer to principal 39 a reasonable amount for depletion.

[143] 580 1 (C) This part applies whether or not a decedent or 2 transferor was harvesting timber from the property before it 3 became subject to the trust. 4 (D) If a trust owns an interest in timberland on the 5 effective date of this part, the trustee may allocate net 6 receipts from the sale of timber and related products as 7 provided in this part or in the manner used by the trustee 8 before the effective date of this part. If the trust acquires an 9 interest in timberland after the effective date of this part, the 10 trustee shall allocate net receipts from the sale of timber and 11 related products as provided in this part. 12 13 REPORTER’S COMMENT 14 Scope of section. The rules in Section 627921 are intended 15 to apply to net receipts from the sale of trees and byproducts 16 from harvesting and processing trees without regard to the 17 kind of trees that are cut or whether the trees are cut before or 18 after a particular number of years of growth. The rules apply 19 to the sale of trees that are expected to produce lumber for 20 building purposes, trees sold as pulpwood, and Christmas and 21 other ornamental trees. Subsection (A) applies to net receipts 22 from property owned by the trustee and property leased by 23 the trustee. The Act is not intended to prevent a tenant in 24 possession of the property from using wood that he cuts on 25 the property for personal, noncommercial purposes, such as a 26 Christmas tree, firewood, mending old fences or building 27 new fences, or making repairs to structures on the property. 28 Under subsection (A) the amount of net receipts allocated 29 to income depends upon whether the amount of timber 30 removed is more or less than the rate of growth. The method 31 of determining the amount of timber removed and the rate of 32 growth is up to the trustee, based on methods customarily 33 used for the kind of timber involved. 34 Application of Sections 627912 and 917. This Section 35 627921 applies to the extent that the trustee does not account 36 separately for net receipts from the sale of timber and related 37 products under Section 627912 or allocate all of the receipts 38 to principal under Section 627917. The option to account for 39 net receipts separately under Section 627912 takes into

[143] 581 1 consideration the possibility that timber harvesting operations 2 may have been conducted before the timber property became 3 subject to the trust, and that it may make sense to continue 4 using accounting methods previously established for the 5 property. It also permits a trustee to use customary 6 accounting practices for timber operations even if no 7 harvesting occurred on the property before it became subject 8 to the trust. 9 10 Section 627922. (A) If a marital deduction is allowed for 11 all or part of a trust whose assets consist substantially of 12 property that does not provide the surviving spouse with 13 sufficient income from or use of the trust assets, and if the 14 amounts that the trustee transfers from principal to income 15 pursuant to Section 627904 and distributes to the spouse 16 from principal pursuant to the terms of the trust are 17 insufficient to provide the spouse with the beneficial 18 enjoyment required to obtain the marital deduction, the 19 spouse may require the trustee to make property productive 20 of income, convert property within a reasonable time, or 21 exercise the power in Section 627904(A). The trustee may 22 decide which action or combination of actions to take. 23 (B) If subsection (A) is inapplicable, proceeds from the 24 sale or other disposition of an asset are principal without 25 regard to the amount of income the asset produces during any 26 accounting period. 27 28 REPORTER’S COMMENT 29 Prior Acts’ Conflict with the South Carolina Uniform 30 Prudent Investor Act. Section 627933(C)(2) of SCUPIA 31 provides that “[a] trustee’s investment and management 32 decisions respecting individual assets must be evaluated not 33 in isolation but in the context of the trust portfolio as a whole 34 ... .” The underproductive property provisions in Section 12 35 of the 1962 Act, Section 627415 of the 1963 SC Act, and 36 Section 11 of the 1931 Act give the income beneficiary a 37 right to receive a portion of the proceeds from the sale of 38 underproductive property as “delayed income.” In each Act 39 the provision applies on an asset by asset basis and not by

[143] 582 1 taking into consideration the trust portfolio as a whole, which 2 conflicts with the basic precept in Section 627933(C)(2) of 3 SCUPIA. Moreover, in determining the amount of delayed 4 income, the prior Acts do not permit a trustee to take into 5 account the extent to which the trustee may have distributed 6 principal to the income beneficiary, under principal invasion 7 provisions in the terms of the trust, to compensate for 8 insufficient income from the unproductive asset. Under 9 Section 627904(B)(7) of this Act, a trustee must consider 10 prior distributions of principal to the income beneficiary in 11 deciding whether and to what extent to exercise the power to 12 adjust conferred by Section 627904(A). 13 Duty to make property productive of income. In order to 14 implement SCUPIA, this Act abolishes the right to receive 15 delayed income from the sale proceeds of an asset that 16 produces little or no income, but it does not alter existing 17 state law regarding the income beneficiary’s right to compel 18 the trustee to make property productive of income. As the 19 law continues to develop in this area, the duty to make 20 property productive of current income in a particular 21 situation should be determined by taking into consideration 22 the performance of the portfolio as a whole and the extent to 23 which a trustee makes principal distributions to the income 24 beneficiary under the terms of the trust and adjustments 25 between principal and income under Section 627904 of this 26 Act. 27 Trusts for which the value of the right to receive income is 28 important for tax reasons may be affected by Reg. Sec 29 1.75203(b)(2)(v) Example (1), Sec 20.75203(b)(2)(v) 30 Examples (1) and (2), and Sec 25.75203(b)(2)(v) Examples 31 (1) and (2), which provide that if the income beneficiary does 32 not have the right to compel the trustee to make the property 33 productive, the income interest is considered unproductive 34 and may not be valued actuarially under those sections. 35 Marital deduction trusts. Subsection (A) draws on 36 language in Reg. Sec 20.2056(b)5(f)(4) and (5) to enable a 37 trust for a spouse to qualify for a marital deduction if 38 applicable state law is unclear about the spouse’s right to 39 compel the trustee to make property productive of income.

[143] 583 1 The trustee should also consider the application of Section 2 627904 of this Act and the provisions of Restatement of 3 Trusts 3d: Prudent Investor Rule Sec 240, at 186, app. Sec 4 240, at 252 (1992). Example (6) in the Comment to Section 5 627904 describes a situation involving the payment from 6 income of carrying charges on unproductive real estate in 7 which Section 627904 may apply. 8 Once the two conditions have occurred insufficient 9 beneficial enjoyment from the property and the spouse’s 10 demand that the trustee take action under this section the 11 trustee must act; but instead of the formulaic approach of 12 both the 1962 and the 1963 SC Acts which is triggered only 13 if the trustee sells the property, this Act permits the trustee to 14 decide whether to make the property productive of income, 15 convert it, transfer funds from principal to income, or to take 16 some combination of those actions. The trustee may rely on 17 the power conferred by Section 627904(A) to adjust from 18 principal to income if the trustee decides that it is not feasible 19 or appropriate to make the property productive of income or 20 to convert the property. Given the purpose of Section 21 627922 the power under Section 627904(A) would be 22 exercised to transfer principal to income and not to transfer 23 income to principal. 24 Section 627922 does not apply to a socalled “estate” trust, 25 which will qualify for the marital deduction, even though the 26 income may be accumulated for a term of years or for the life 27 of the surviving spouse, if the terms of the trust require the 28 principal and undistributed income to be paid to the surviving 29 spouse’s estate when the spouse dies. Reg. Sec 30 20.2056(c)2(b)(1)(iii). 31 32 Section 627923. (A) In this section, ‘derivative’ means a 33 contract or financial instrument or a combination of contracts 34 and financial instruments which gives a trust the right or 35 obligation to participate in some or all changes in the price of 36 a tangible or intangible asset or group of assets, or changes in 37 a rate, an index of prices or rates, or other market indicator 38 for an asset or a group of assets.

[143] 584 1 (B) To the extent that a trustee does not account pursuant 2 to Section 627912 for transactions in derivatives, the trustee 3 shall allocate to principal receipts from and disbursements 4 made in connection with those transactions. 5 (C) If a trustee grants an option to buy property from the 6 trust, whether or not the trust owns the property when the 7 option is granted, grants an option that permits another 8 person to sell property to the trust, or acquires an option to 9 buy property for the trust or an option to sell an asset owned 10 by the trust, and the trustee or other owner of the asset is 11 required to deliver the asset if the option is exercised, an 12 amount received for granting the option must be allocated to 13 principal. An amount paid to acquire the option must be paid 14 from principal. A gain or loss realized upon the exercise of 15 an option, including an option granted to a settlor of the trust 16 for services rendered, must be allocated to principal. 17 18 REPORTER’S COMMENT 19 Scope and application. It is difficult to predict how 20 frequently and to what extent trustees will invest directly in 21 derivative financial instruments rather than participating 22 indirectly through investment entities that may utilize these 23 instruments in varying degrees. If the trust participates in 24 derivatives indirectly through an entity, an amount received 25 from the entity will be allocated under Section 627910 and 26 not Section 627923. If a trustee invests directly in 27 derivatives to a significant extent, the expectation is that 28 receipts and disbursements related to derivatives will be 29 accounted for under Section 627912; if a trustee chooses not 30 to account under Section 627912. Section 627923(B) 31 provides the default rule. Certain types of option transactions 32 in which trustees may engage are dealt with in subsection (C) 33 to distinguish those transactions from ones involving options 34 that are embedded in derivative financial instruments. 35 Definition of “derivative.” “Derivative” is a difficult term 36 to define because new derivatives are invented daily as 37 dealers tailor their terms to achieve specific financial 38 objectives for particular clients. Since derivatives are 39 typically contractbased, a derivative can probably be devised

[143] 585 1 for almost any set of objectives if another party can be found 2 who is willing to assume the obligations required to meet 3 those objectives. 4 The most comprehensive definition of derivative is in the 5 Exposure Draft of a Proposed Statement of Financial 6 Accounting Standards titled “Accounting for Derivative and 7 Similar Financial Instruments and for Hedging Activities,” 8 which was released by the Financial Accounting Standards 9 Board (FASB) on June 20, 1996 (No. 162B). The definition 10 in Section 627923(A) is derived in part from the FASB 11 definition. The purpose of the definition in subsection (A) is 12 to implement the substantive rule in subsection (B) that 13 provides for all receipts and disbursements to be allocated to 14 principal to the extent the trustee elects not to account for 15 transactions in derivatives under Section 627912. As a 16 result, it is much shorter than the FASB definition, which 17 serves much more ambitious objectives. 18 A derivative is frequently described as including futures, 19 forwards, swaps and options, terms that also require 20 definition, and the definition in this Act avoids these terms. 21 FASB used the same approach, explaining in paragraph 65 of 22 the Exposure Draft: 23 The definition of derivative financial instrument in this 24 Statement includes those financial instruments generally 25 considered to be derivatives, such as forwards, futures, 26 swaps, options, and similar instruments. The Board 27 considered defining a derivative financial instrument by 28 merely referencing those commonly understood instruments, 29 similar to paragraph 5 of Statement 119, which says that “... a 30 derivative financial instrument is a futures, forward, swap, or 31 option contract, or other financial instrument with similar 32 characteristics.” However, the continued development of 33 financial markets and innovative financial instruments could 34 ultimately render a definition based on examples inadequate 35 and obsolete. The ULC , therefore, decided to base the 36 definition of a derivative financial instrument on a 37 description of the common characteristics of those 38 instruments in order to accommodate the accounting for 39 newly developed derivatives. (Footnote omitted.)

[143] 586 1 Marking to market. A gain or loss that occurs because the 2 trustee marks securities to market or to another value during 3 an accounting period is not a transaction in a derivative 4 financial instrument that is income or principal under the Act 5 only cash receipts and disbursements, and the receipt of 6 property in exchange for a principal asset, affect a trust’s 7 principal and income accounts. 8 Receipt of property other than cash. If a trustee receives 9 property other than cash upon the settlement of a derivatives 10 transaction, that property would be principal under Section 11 627913(2). 12 Options. Options to which subsection (C) applies include 13 an option to purchase real estate owned by the trustee and a 14 put option purchased by a trustee to guard against a drop in 15 value of a large block of marketable stock that must be 16 liquidated to pay estate taxes. Subsection (C) would also 17 apply to a continuing and regular practice of selling call 18 options on securities owned by the trust if the terms of the 19 option require delivery of the securities. It does not apply if 20 the consideration received or given for the option is 21 something other than cash or property, such as crossoptions 22 granted in a buysell agreement between owners of an entity. 23 24 Section 627924. (A) In this section, ‘assetbacked 25 security’ means an asset whose value is based upon the right 26 it gives the owner to receive distributions from the proceeds 27 of financial assets that provide collateral for the security. 28 The term includes an asset that gives the owner the right to 29 receive from the collateral financial assets only the interest or 30 other current return or only the proceeds other than interest or 31 current return. The term does not include an asset subject to 32 Section 627909 or 627918. 33 (B) If a trust receives a payment from interest or other 34 current return and from other proceeds of the collateral 35 financial assets, the trustee shall allocate to income the 36 portion of the payment which the payer identifies as being 37 from interest or other current return and shall allocate the 38 balance of the payment to principal.

[143] 587 1 (C) If a trust receives one or more payments in exchange 2 for the entire interest in an assetbacked security in one 3 accounting period, the trustee shall allocate the payments to 4 principal. If a payment is one of a series of payments that 5 results in the liquidation of the interest of the trust in the 6 security over more than one accounting period, the trustee 7 shall allocate ten percent of the payment to income and the 8 balance to principal. 9 10 REPORTER’S COMMENT 11 Scope of section. Typical assetbacked securities include 12 arrangements in which debt obligations such as real estate 13 mortgages, credit card receivables and auto loans are 14 acquired by an investment trust and interests in the trust are 15 sold to investors. The source for payments to an investor is 16 the money received from principal and interest payments on 17 the underlying debt. An assetbacked security includes an 18 “interest only” or a “principal only” security that permits the 19 investor to receive only the interest payments received from 20 the bonds, mortgages or other assets that are the collateral for 21 the assetbacked security, or only the principal payments 22 made on those collateral assets. An assetbacked security also 23 includes a security that permits the investor to participate in 24 either the capital appreciation of an underlying security or in 25 the interest or dividend return from such a security, such as 26 the “Primes” and “Scores” issued by Americus Trust. An 27 assetbacked security does not include an interest in a 28 corporation, partnership, or an investment trust described in 29 the Comment to Section 627911 whose assets consist 30 significantly or entirely of investment assets. Receipts from 31 an instrument that do not come within the scope of this 32 section or any other section of this Act would be allocated 33 entirely to principal under the rule in Section 627903(A)(4) 34 and the trustee may then consider whether and to what extent 35 to exercise the power to adjust in Section 627904 taking into 36 account the return from the portfolio as whole and other 37 relevant factors. 38

[143] 588 1 Section 627925. A trustee shall make the following 2 disbursements from income to the extent that they are not 3 disbursements subject to Section 627905(2)(b) or (c): 4 (1) onehalf of the regular compensation of the trustee and 5 of any person providing investment advisory or custodial 6 services to the trustee; 7 (2) onehalf of all expenses for accountings, judicial 8 proceedings, or other matters that involve both the income 9 and remainder interests; 10 (3) all of the other ordinary expenses incurred in 11 connection with the administration, management, or 12 preservation of trust property and the distribution of income, 13 including interest, ordinary repairs, regularly recurring taxes 14 assessed against principal, and expenses of a proceeding or 15 other matter that concerns primarily the income interest; and 16 (4) recurring premiums on insurance covering the loss of 17 a principal asset or the loss of income from or use of the 18 asset. 19 20 REPORTER’S COMMENT 21 Trustee fees. The regular compensation of a trustee or the 22 trustee’s agent includes compensation based on a percentage 23 of either principal or income or both. 24 Insurance premiums. The reference in paragraph (4) to 25 “recurring” premiums is intended to distinguish premiums 26 paid annually for fire insurance from premiums on title 27 insurance, each of which covers the loss of a principal asset. 28 Title insurance premiums would be a principal disbursement 29 under Section 627926(A)(5). 30 Regularly recurring taxes. The reference to “regularly 31 recurring taxes assessed against principal” includes all taxes 32 regularly imposed on real property and tangible and 33 intangible personal property. 34 35 Section 627926. (A) A trustee shall make the following 36 disbursements from principal: 37 (1) the remaining onehalf of the disbursements provided 38 in Section 627925(1) and (2);

[143] 589 1 (2) all of the trustee’s compensation calculated on 2 principal as a fee for acceptance, distribution, or termination, 3 and disbursements made to prepare property for sale; 4 (3) payments on the principal of a trust debt; 5 (4) expenses of a proceeding that concerns primarily 6 principal, including a proceeding to construe the trust or to 7 protect the trust or its property; 8 (5) premiums paid on a policy of insurance not 9 provided in Section 627925(4) of which the trust is the owner 10 and beneficiary; 11 (6) estate, inheritance, and other transfer taxes, 12 including penalties, apportioned to the trust; and 13 (7) disbursements related to environmental matters, 14 including reclamation, assessing environmental conditions, 15 remedying and removing environmental contamination, 16 monitoring remedial activities and the release of substances, 17 preventing future releases of substances, collecting amounts 18 from persons liable or potentially liable for the costs of those 19 activities, penalties imposed under environmental laws or 20 regulations and other payments made to comply with those 21 laws or regulations, statutory or common law claims by third 22 parties, and defending claims based on environmental 23 matters. 24 (B) If a principal asset is encumbered with an obligation 25 that requires income from that asset to be paid directly to the 26 creditor, the trustee shall transfer from principal to income an 27 amount equal to the income paid to the creditor in reduction 28 of the principal balance of the obligation. 29 30 REPORTER’S COMMENT 31 Environmental expenses. All environmental expenses are 32 payable from principal, subject to the power of the trustee to 33 transfer funds to principal from income under Section 34 627928. However, the ULC Drafting Committee decided 35 that it was not necessary to broaden this provision to cover 36 other expenditures made under compulsion of governmental 37 authority. See generally the annotation at 43 A.L.R.4th 1012 38 (Duty as Between Life Tenant and Remainderman with

[143] 590 1 Respect to Cost of Improvements or Repairs Made Under 2 Compulsion of Governmental Authority). 3 Environmental expenses paid by a trust are to be paid from 4 principal under Section 627926(A)(7) on the assumption that 5 they will usually be extraordinary in nature. Environmental 6 expenses might be paid from income if the trustee is carrying 7 on a business that uses or sells toxic substances, in which 8 case environmental cleanup costs would be a normal cost of 9 doing business and would be accounted for under Section 10 627912. In accounting under that Section, environmental 11 costs will be a factor in determining how much of the net 12 receipts from the business is trust income. Paying all other 13 environmental expenses from principal is consistent with this 14 Act’s approach regarding receipts when a receipt is not 15 clearly a current return on a principal asset, it should be 16 added to principal because over time both the income and 17 remainder beneficiaries benefit from this treatment. Here, 18 allocating payments required by environmental laws to 19 principal imposes the detriment of those payments over time 20 on both the income and remainder beneficiaries. 21 Under Sections 627928(A) and (B)(5) a trustee who makes 22 or expects to make a principal disbursement for an 23 environmental expense described in Section 627926(A)(7) is 24 authorized to transfer an appropriate amount from income to 25 principal to reimburse principal for disbursements made or to 26 provide a reserve for future principal disbursements. 27 The first part of Section 627926(A)(7) is based upon the 28 definition of an “environmental remediation trust” in Treas. 29 Reg. Sec 301.77014(e)(as amended in 1996). This is not 30 because the Act applies to an environmental remediation 31 trust, but because the definition is a useful and thoroughly 32 vetted description of the kinds of expenses that a trustee 33 owning contaminated property might incur. Expenses 34 incurred to comply with environmental laws include the cost 35 of environmental consultants, administrative proceedings and 36 burdens of every kind imposed as the result of an 37 administrative or judicial proceeding, even though the burden 38 is not formally characterized as a penalty.

[143] 591 1 Title proceedings. Disbursements that are made to protect 2 a trust’s property, referred to in Section 627926(A)(4) 3 include an “action to assure title” that is mentioned in Section 4 13(c)(2) of the 1962 Act and Section 627418(2) of the 1963 5 SC Act. 6 Insurance premiums. Insurance premiums referred to in 7 Section 627926(A)(5) include title insurance premiums. 8 They also include premiums on life insurance policies owned 9 by the trust, which represent the trust’s periodic investment 10 in the insurance policy. There is no provision in the 1962 or 11 1963 SC Act for life insurance premiums. 12 Taxes. Generationskipping transfer taxes are payable from 13 principal under Section 627926(A)(6). 14 15 Section 627927. (A) In this section, ‘depreciation’ means 16 a reduction in value due to wear, tear, decay, corrosion, or 17 gradual obsolescence of a fixed asset having a useful life of 18 more than one year. 19 (B) A trustee may transfer to principal a reasonable 20 amount of the net cash receipts from a principal asset that is 21 subject to depreciation, but may not transfer any amount for 22 depreciation: 23 (1) of that portion of real property used or available for 24 use by a beneficiary as a residence or of tangible personal 25 property held or made available for the personal use or 26 enjoyment of a beneficiary; 27 (2) during the administration of a decedent’s estate; or 28 (3) under this section if the trustee is accounting 29 pursuant to Section 627912 for the business or activity in 30 which the asset is used. 31 (C) An amount transferred to principal need not be held as 32 a separate fund. 33 34 REPORTER’S COMMENT 35 Prior Acts. The 1931 Act has no provision for depreciation. 36 Sections 13(a)(2) of the 1962 Act and 627417(2) of the 1963 37 SC Act provide that a charge shall be made against income 38 for “... a reasonable allowance for depreciation on property 39 subject to depreciation under generally accepted accounting

[143] 592 1 principles ... .” That provision has been resisted by many 2 trustees, who do not provide for any depreciation for a 3 variety of reasons. One reason relied upon is that a charge 4 for depreciation is not needed to protect the remainder 5 beneficiaries if the value of the land is increasing; another is 6 that generally accepted accounting principles may not require 7 depreciation to be taken if the property is not part of a 8 business. The Drafting Committee for the 1997 NCCUSL 9 Act concluded that the decision to provide for depreciation 10 should be discretionary with the trustee. The power to 11 transfer funds from income to principal that is granted by this 12 section is a “discretionary power of administration” referred 13 to in Section 627903(B) and in exercising the power a trustee 14 must comply with Section 627903(B). 15 One purpose served by transferring cash from income to 16 principal for depreciation is to provide funds to pay the 17 principal of an indebtedness secured by the depreciable 18 property. Section 627928(B)(4) permits the trustee to 19 transfer additional cash from income to principal for this 20 purpose to the extent that the amount transferred from 21 income to principal for depreciation is less than the amount 22 of the principal payments. 23 24 Section 627928. (A) If a trustee makes or expects to 25 make a principal disbursement described in this section, the 26 trustee may transfer an appropriate amount from income to 27 principal in one or more accounting periods to reimburse 28 principal or to provide a reserve for future principal 29 disbursements. 30 (B) A principal disbursement for purposes of this section 31 includes the following, but only to the extent that the trustee 32 has not been, and does not expect to be, reimbursed by a third 33 party: 34 (1) an amount chargeable to income but paid from 35 principal because it is unusually large, including 36 extraordinary repairs; 37 (2) a capital improvement to a principal asset, whether 38 in the form of changes to an existing asset or the construction 39 of a new asset, including special assessments;

[143] 593 1 (3) a disbursement made to prepare property for rental, 2 including tenant allowances, leasehold improvements, and 3 broker’s commissions; 4 (4) a periodic payment on an obligation secured by a 5 principal asset to the extent that the amount transferred from 6 income to principal for depreciation is less than the periodic 7 payments; and 8 (5) a disbursement described in Section 627926(A)(7). 9 (C) If the asset whose ownership gives rise to the 10 disbursements becomes subject to a successive income 11 interest after an income interest ends, a trustee may continue 12 to transfer amounts from income to principal as provided in 13 subsection (A). 14 15 REPORTER’S COMMENT 16 Prior Acts. The South Carolina sources of Section 627928 17 are: Section 627417(b) of the 1963 SC Act, which permits a 18 trustee to “regularize distributions,” if charges against 19 income are unusually large, by using “reserves or other 20 reasonable means” to withhold sums from income 21 distributions; and Section 627417(a)(2) of the 1963 SC Act, 22 which authorizes a trustee to establish an allowance for 23 depreciation out of income if principal is used for 24 extraordinary repairs and capital improvements. [Note, 25 however, that “special assessments” are not specifically 26 mentioned in Section 627417(a)(2) of the 1963 SC Act.] 27 Section 12(3) of the 1931 Act permits the trustee to spread 28 income expenses of unusual amount “throughout a series of 29 years.” Section 627928 of this Act contains a more detailed 30 enumeration of the circumstances in which this authority may 31 be used, and includes in subsection (B)(4) the express 32 authority to use income to make principal payments on a 33 mortgage if the depreciation charge against income is less 34 than the principal payments on the mortgage. 35 36 Section 627929. (A) A tax required to be paid by a 37 trustee based on receipts allocated to income must be paid 38 from income.

[143] 594 1 (B) A tax required to be paid by a trustee based on receipts 2 allocated to principal must be paid from principal, even if the 3 tax is called an income tax by the taxing authority. 4 (C) A tax required to be paid by a trustee on the trust’s 5 share of the taxable income of the entity must be paid: 6 (1) from income, to the extent that receipts from the 7 entity are allocated to income; 8 (2) from principal, to the extent that receipts from the 9 entity are allocated only to principal; 10 (3) proportionately from principal and income to the 11 extent that receipts from the entity are allocated to both 12 income and principal; and 13 (4) from principal to the extent that the tax exceeds the 14 total receipts from the entity. 15 (D) After applying subsections (A) through (C), the trustee 16 shall adjust income or principal receipts to the extent that the 17 trust’s taxes are reduced because the trust receives a 18 deduction for payments made to a beneficiary.” 19 20 REPORTER’S COMMENT 21 Taxes on Undistributed Entity Taxable Income. When a trust 22 owns an interest in a passthrough entity, such as a partnership 23 or “S” corporation, it must report its share of the entity’s 24 taxable income regardless of how much the entity distributes 25 to the trust. Whether the entity distributes more or less than 26 the trust’s tax on its share of the entity’s taxable income, the 27 trust must pay the taxes and allocate them between income 28 and principal. 29 Subsection (C) requires the trust to pay the taxes on its 30 share of an entity’s taxable income from income or principal 31 receipts to the extent that receipts from the entity are 32 allocable to each. This assures the trust a source of cash to 33 pay some or all of the taxes on its share of the entity’s 34 taxable income. Subsection (D) recognizes that, except in 35 the case of an Electing Small Business Trust (ESBT), a trust 36 normally receives a deduction for amounts distributed to a 37 beneficiary. Accordingly, subsection (D) requires the trust to 38 increase receipts payable to a beneficiary as determined

[143] 595 1 under subsection (C) to the extent the trust’s taxes are 2 reduced by distributing those receipts to the beneficiary. 3 Because the trust’s taxes and amounts distributed to a 4 beneficiary are interrelated, the trust may be required to 5 apply a formula to determine the correct amount payable to a 6 beneficiary. This formula should take into account that each 7 time a distribution is made to a beneficiary, the trust taxes are 8 reduced and amounts distributable to a beneficiary are 9 increased. The formula assures that after deducting 10 distributions to a beneficiary, the trust has enough to satisfy 11 its taxes on its share of the entity’s taxable income as reduced 12 by distributions to beneficiaries. 13 14 Example (1) Trust T receives a Schedule K1 from 15 Partnership P reflecting taxable income of $1 million. 16 Partnership P distributes $100,000 to T, which allocates the 17 receipts to income. Both Trust T and income Beneficiary B 18 are in the 35 percent tax bracket. 19 Trust T’s tax on $1 million of taxable income is $350,000. 20 Under subsection (C) T’s tax must be paid from income 21 receipts because receipts from the entity are allocated only to 22 income. Therefore, T must apply the entire $100,000 of 23 income receipts to pay its tax. In this case, Beneficiary B 24 receives nothing. 25 26 Example (2) Trust T receives a Schedule K1 from 27 Partnership P reflecting taxable income of $1 million. 28 Partnership P distributes $500,000 to T, which allocates the 29 receipts to income. Both Trust T and income Beneficiary B 30 are in the 35 percent tax bracket. 31 Trust T’s tax on $1 million of taxable income is $350,000. 32 Under subsection (C), T’s tax must be paid from income 33 receipts because receipts from P are allocated only to income. 34 Therefore, T uses $350,000 of the $500,000 to pay its taxes 35 and distributes the remaining $150,000 to B. The $150,000 36 payment to B reduces T’s taxes by $52,500, which it must 37 pay to B. But the $52,500 further reduces T’s taxes by 38 $18,375, which it also must pay to B. In fact, each time T

[143] 596 1 makes a distribution to B, its taxes are further reduced, 2 causing another payment to be due B. 3 4 Alternatively, T can apply the following algebraic formula 5 to determine the amount payable to B: 6 7 D = (CR*K)/(1R) 8 9 D = Distribution to income beneficiary 10 C = Cash paid by the entity to the trust 11 R = tax rate on income 12 K = entity’s K1 taxable income 13 14 Applying the formula to Example (2) above, Trust T must 15 pay $230,769 to B so that after deducting the payment, T has 16 exactly enough to pay its tax on the remaining taxable 17 income from P. 18 Taxable Income per K1 $1,000,000 19 Payment to beneficiary $230,769 [1] 20 Trust Taxable Income $769,231 21 35 percent tax $269,231 22 Partnership Distribution $500,000 23 Fiduciary’s Tax Liability ($269,231) 24 Payable to the Beneficiary $230,769 25 26 In addition, B will report $230,769 on his or her own 27 personal income tax return, paying taxes of $80,769. 28 Because Trust T withheld $269,231 to pay its taxes and B 29 paid $80,769 taxes of its own, B bore the entire $350,000 tax 30 burden on the $1 million of entity taxable income, including 31 the $500,000 that the entity retained that presumably 32 increased the value of the trust’s investment entity. 33 If a trustee determines that it is appropriate to do so, it 34 should consider exercising the discretion granted in Section 35 627930 to adjust between income and principal. 36 Alternatively, the trustee may exercise the power to adjust 37 under Section 627904 to the extent it is available and 38 appropriate under the circumstances, including whether a 39 future distribution from the entity that would be allocated to

[143] 597 1 principal should be reallocated to income because the income 2 beneficiary already bore the burden of taxes on the reinvested 3 income. In exercising the power, the trust should consider 4 the impact that future distributions will have on any current 5 adjustments. 6 7 [1] D = (CR*K)/(1R) = (500,000 – 350,000)/(1 .35) = 8 $230,769. (D is the amount payable to the income 9 beneficiary, K is the entity’s K1 taxable income, R is the 10 trust ordinary tax rate, and C is the cash distributed by the 11 entity) 12 13 Section 627930. (A) A fiduciary may make adjustments 14 between principal and income to offset the shifting of 15 economic interests or tax benefits between income 16 beneficiaries and remainder beneficiaries which arise from: 17 (1) elections and decisions, other than those provided in 18 subsection (B), that the fiduciary makes from time to time 19 regarding tax matters; 20 (2) an income tax or any other tax that is imposed upon 21 the fiduciary or a beneficiary as a result of a transaction 22 involving or a distribution from the estate or trust; or 23 (3) the ownership by an estate or trust of an interest in 24 an entity whose taxable income, whether or not distributed, is 25 includable in the taxable income of the estate, trust, or a 26 beneficiary. 27 (B) If the amount of an estate tax marital deduction or 28 charitable contribution deduction is reduced because a 29 fiduciary deducts an amount paid from principal for income 30 tax purposes instead of deducting it for estate tax purposes, 31 and as a result estate taxes paid from principal are increased 32 and income taxes paid by an estate, trust, or beneficiary are 33 decreased, each estate, trust, or beneficiary that benefits from 34 the decrease in income tax shall reimburse the principal from 35 which the increase in estate tax is paid. The total 36 reimbursement must equal the increase in the estate tax to the 37 extent that the principal used to pay the increase would have 38 qualified for a marital deduction or charitable contribution 39 deduction but for the payment. The proportionate share of

[143] 598 1 the reimbursement for each estate, trust, or beneficiary whose 2 income taxes are reduced must be the same as its 3 proportionate share of the total decrease in income tax. An 4 estate or trust shall reimburse principal from income. 5 6 REPORTER’S COMMENT 7 Discretionary adjustments. Section 627930(A) permits the 8 fiduciary to make adjustments between income and principal 9 because of tax law provisions. It would permit discretionary 10 adjustments in situations like these: (1) A fiduciary elects to 11 deduct administration expenses that are paid from principal 12 on an income tax return instead of on the estate tax return; (2) 13 a distribution of a principal asset to a trust or other 14 beneficiary causes the taxable income of an estate or trust to 15 be carried out to the distributee and relieves the persons who 16 receive the income of any obligation to pay income tax on 17 the income; or (3) a trustee realizes a capital gain on the sale 18 of a principal asset and pays a large state income tax on the 19 gain, but under applicable federal income tax rules the trustee 20 may not deduct the state income tax payment from the capital 21 gain in calculating the trust’s federal capital gain tax, and the 22 income beneficiary receives the benefit of the deduction for 23 state income tax paid on the capital gain. See generally Joel 24 C. Dobris, Limits on the Doctrine of Equitable Adjustment in 25 Sophisticated Postmortem Tax Planning, 66 Iowa L. Rev. 26 273 (1981). 27 Section 627930(A)(3) applies to a qualified Subchapter S 28 trust (QSST) whose income beneficiary is required to include 29 a pro rata share of the S corporation’s taxable income in his 30 return. If the QSST does not receive a cash distribution from 31 the corporation that is large enough to cover the income 32 beneficiary’s tax liability, the trustee may distribute 33 additional cash from principal to the income beneficiary. In 34 this case the retention of cash by the corporation benefits the 35 trust principal. This situation could occur if the corporation’s 36 taxable income includes capital gain from the sale of a 37 business asset and the sale proceeds are reinvested in the 38 business instead of being distributed to shareholders.

[143] 599 1 Mandatory adjustment. Section 627930(B) provides for a 2 mandatory adjustment from income to principal to the extent 3 needed to preserve an estate tax marital deduction or 4 charitable contributions deduction. It is derived from New 5 York’s EPTL Sec 111.2(A), which requires principal to be 6 reimbursed by those who benefit when a fiduciary elects to 7 deduct administration expenses on an income tax return 8 instead of the estate tax return. Unlike the New York 9 provision, Section 627930(B) limits a mandatory 10 reimbursement to cases in which a marital deduction or a 11 charitable contributions deduction is reduced by the payment 12 of additional estate taxes because of the fiduciary’s income 13 tax election. It is intended to preserve the result reached in 14 Estate of Britenstool v. Commissioner, 46 T.C. 711 (1966), in 15 which the Tax Court held that a reimbursement required by 16 the predecessor of EPTL Sec 111.2(A) resulted in the estate 17 receiving the same charitable contributions deduction it 18 would have received if the administration expenses had been 19 deducted for estate tax purposes instead of for income tax 20 purposes. Because a fiduciary will elect to deduct 21 administration expenses for income tax purposes only when 22 the income tax reduction exceeds the estate tax reduction, the 23 effect of this adjustment is that the principal is placed in the 24 same position it would have occupied if the fiduciary had 25 deducted the expenses for estate tax purposes, but the income 26 beneficiaries receive an additional benefit. For example, if 27 the income tax benefit from the deduction is $30,000 and the 28 estate tax benefit would have been $20,000, principal will be 29 reimbursed $20,000 and the net benefit to the income 30 beneficiaries will be $10,000. 31 Irrevocable grantor trusts. Under Sections 671679 of the 32 Internal Revenue Code (the “grantor trust” provisions), a 33 person who creates an irrevocable trust for the benefit of 34 another person may be subject to tax on the trust’s income or 35 capital gains, or both, even though the settlor is not entitled 36 to receive any income or principal from the trust. Because 37 this is now a wellknown tax result, many trusts have been 38 created to produce this result, but there also may be trusts 39 that are unintentionally subject to this rule. The Act does not

[143] 600 1 require or authorize a trustee to distribute funds from the trust 2 to the settlor in these cases because it is difficult to establish 3 a rule that applies only to trusts where this tax result is 4 unintended and does not apply to trusts where the tax result is 5 intended. Settlors who intend this tax result rarely state it as 6 an objective in the terms of the trust, but instead rely on the 7 operation of the tax law to produce the desired result. As a 8 result it may not be possible to determine from the terms of 9 the trust if the result was intentional or unintentional. Where 10 the drafter of such a trust wants the trustee to have the 11 authority to distribute principal or income to the settlor to 12 reimburse the settlor for taxes paid on the trust’s income or 13 capital gains, such a provision should be placed in the terms 14 of the trust. In some situations the Internal Revenue Service 15 may require that such a provision be placed in the terms of 16 the trust as a condition to issuing a private letter ruling. 17 Section 627931. In applying and construing this Uniform 18 Act, consideration must be given to the need to promote 19 uniformity of the law with respect to its subject matter among 20 states that enact it. 21 22 Section 627932. (A) A court must not change a 23 fiduciary’s decision to exercise or not to exercise a 24 discretionary power conferred by this part unless it 25 determines that the decision was an abuse of the fiduciary’s 26 discretion. A court shall not determine that a fiduciary 27 abused its discretion merely because the court would have 28 exercised the discretion in a different manner or would not 29 have exercised the discretion. 30 (B) The decisions subject to subsection (A) include a 31 determination: 32 (1) pursuant to Section 627904(A) of whether and to 33 what extent an amount should be transferred from principal 34 to income or from income to principal; and 35 (2) of the factors that are relevant to the trust and its 36 beneficiaries, the extent to which they are relevant, and the 37 weight, if any, to be given to the relevant factors, in deciding 38 whether and to what extent to exercise the power in Section 39 627904(A).

[143] 601 1 (C) If a court determines that a fiduciary has abused its 2 discretion, the remedy is to restore the income and remainder 3 beneficiaries to the positions they would have occupied if the 4 fiduciary had not abused its discretion, according to the 5 following rules: 6 (1) to the extent that the abuse of discretion has resulted 7 in no distribution to a beneficiary or a distribution that is too 8 small, the court must require the fiduciary to distribute from 9 the trust to the beneficiary an amount that the court 10 determines will restore the beneficiary, in whole or in part, to 11 his or her appropriate position; 12 (2) to the extent that the abuse of discretion has resulted 13 in a distribution to a beneficiary that is too large, the court 14 must restore the beneficiaries, the trust, or both, in whole or 15 in part, to their appropriate positions by requiring the 16 fiduciary to withhold an amount from one or more future 17 distributions to the beneficiary who received the distribution 18 that was too large or requiring that beneficiary to return some 19 or all of the distribution to the trust; 20 (3) to the extent that the court is unable, after applying 21 items (1) and (2), to restore the beneficiaries, the trust, or 22 both, to the positions they would have occupied if the 23 fiduciary had not abused its discretion, the court may require 24 the fiduciary to pay an appropriate amount from its own 25 funds to one or more of the beneficiaries or the trust, or both. 26 (D) Upon a petition by the fiduciary, the court having 27 jurisdiction over the trust or estate must determine whether a 28 proposed exercise or nonexercise by the fiduciary of a 29 discretionary power in this part results in an abuse of the 30 fiduciary’s discretion. If the petition describes the proposed 31 exercise or nonexercise of the power and contains sufficient 32 information to inform the beneficiaries of the reasons for the 33 proposal, the facts upon which the fiduciary relies, and an 34 explanation of how the income and remainder beneficiaries 35 are affected by the proposed exercise or nonexercise of the 36 power, a beneficiary who challenges the proposed exercise or 37 nonexercise has the burden of establishing that it will result 38 in an abuse of discretion. RESERVED 39

[143] 602 1 Part 9A 2 3 South Carolina Uniform Prudent Investor Act 4 5 General Comment 6 7 Effective July 18, 2001, South Carolina enacted as part of 8 its Uniform Probate Code (SCPC) the South Carolina 9 Uniform Prudent Investor Act (SCUPIA), Section 627302. 10 This is South Carolina’s version of the Uniform Prudent 11 Investor Act (UPIA) which was enacted and recommended in 12 1994 by the Uniform Law Commission (ULC) for enactment 13 in all the states. UPIA consists of 16 separate sections, the 14 first ten of which are each followed by a separate ULC 15 Comment; whereas, SCUPIA is a single section 16 (multisubsection) consolidation of (1) UPIA’s first ten 17 sections but without any of the ULC Comments, (2) two 18 other UPIA sections which have never had any comments 19 (Sections 12, “Uniformity of Application and Construction” 20 and 13, “Short Title”) and (3) two new subsections which are 21 not in UPIA and have never had any comments (SCUPIA 22 subsections (J) and (K)). The remaining four sections of 23 UPIA are not in SCUPIA and have never had any comments. 24 Thus, prior to 2005 SCUPIA had no ULC Comments. When 25 in 2005 South Carolina enacted its version of ULC’s 26 recommended 2000 Uniform Trust Code as the South 27 Carolina Trust Code (SCTC), SC Code Title 62, Article 7, 28 SCUPIA was retained, renumbered and incorporated at 29 SCTC Section 627933, but still without any ULC Comments. 30 Now, with this 2013 (or “current”) amendment, the ULC 31 Comments are consolidated into a single Comment drafted 32 specifically for South Carolina purposes and inserted 33 immediately following SCUPIA. Again, any reference 34 elsewhere in the South Carolina Code to former SCPC 35 Section 627302 should now refer to SCTC Section 627933. 36 When in 2005 SCUPIA was retained, renumbered and 37 incorporated at SCTC Section 627933, certain subsections of 38 SCUPIA as it had been originally enacted in 2001 (SCPC 39 Section 627302) were deleted as recommended by ULC

[143] 603 1 because they were duplicative of provisions in the newly 2 enacted SCTC: former SCPC Section 627302(C)(6), (F), and 3 (H). The correlative provisions of SCTC, which govern 4 investment, management, and distribution of trust assets (i.e., 5 trust administration), are broader in perspective than the 6 deleted SCPC subsections, which governed only investment 7 and management of trust assets. SCTC Section 627933(C) 8 (5)(c) retains and incorporates former SCPC Section 627602. 9 Over the quarter century from the late 1960’s to the early 10 1990s the investment practices of fiduciaries experienced 11 significant change. ULC’s Uniform Prudent Investor Act 12 (UPIA) undertakes to update trust investment law in 13 recognition of the alterations that have occurred in 14 investment practice. These changes have occurred under the 15 influence of a large and broadly accepted body of empirical 16 and theoretical knowledge about the behavior of capital 17 markets, often described as “modern portfolio theory.” 18 UPIA, now enacted in South Carolina as SCUPIA at 19 Section 627933, draws upon the revised standards for 20 prudent trust investment promulgated by the American Law 21 Institute in its Restatement (Third) of Trusts: Prudent 22 Investor Rule (1992) [hereinafter Restatement of Trusts 3d: 23 Prudent Investor Rule; also referred to as 1992 Restatement]. 24 [Since the early 1990’s when the uniform version of this 25 Prefatory Note and the following Comments were prepared 26 by ULC, Restatement of Trusts 3d has progressed 27 significantly as reported in the Forenote to Chapter 17 of 28 what is now cited as “Restatement Third, Trusts”: 29 The contents of this Chapter (Introduction and Sections 30 9092) were approved at the American Law Institute’s 1990 31 Annual Meeting and were originally published as Sections 32 227229 of Restatement Third, Trusts (Prudent Investor Rule) 33 in 1992 [referred to throughout this SCUPIA Prefatory Note 34 and the following Comments as either “Restatement of 35 Trusts 3d: Prudent Investor Rule” or simply “1992 36 Restatement”]. The “prudent investor rule” is incorporated 37 here without substantive change, with some updating of the 38 Reporter’s Notes, adaptation of crossreferences to reflect the 39 new numbering and content of other Trust Third Sections,

[143] 604 1 and adaptation of some wording to reflect the passage of time 2 and interim developments, particularly the widespread 3 substitution of prudentinvestor principles for prior law. 4 Therefore, appropriate reference to Chapter 17 (Introduction 5 and Sections 9092) of Restatement Third, Trusts is 6 suggested.] 7 Objectives of the Act. SCUPIA makes five fundamental 8 alterations in the former criteria for prudent investing. All are 9 to be found in the Restatement of Trusts 3d: Prudent Investor 10 Rule. 11 (1) The standard of prudence is applied to any investment 12 as part of the total portfolio, rather than to individual 13 investments. In the trust setting the term “portfolio” 14 embraces all the trust’s assets. SCUPIA Subsection (C)(2). 15 (2) The tradeoff in all investing between risk and return is 16 identified as the fiduciary’s central consideration. SCUPIA 17 Subsection (C)(2). 18 (3) All categoric restrictions on types of investments have 19 been abrogated; the trustee can invest in anything that plays 20 an appropriate role in achieving the risk/return objectives of 21 the trust and that meets the other requirements of prudent 22 investing. SCUPIA Subsection (C)(5)(a). 23 (4) The long familiar requirement that fiduciaries diversify 24 their investments has been integrated into the definition of 25 prudent investing. SCUPIA Subsection (D). 26 (5) The much criticized former rule of trust law forbidding 27 the trustee to delegate investment and management functions 28 has been reversed. Delegation is now permitted, subject to 29 safeguards. SCUPIA Subsection (J). 30 Literature. These changes in trust investment law have 31 been presaged in an extensive body of practical and scholarly 32 writing. See especially the discussion and reporter’s notes by 33 Edward C. Halbach, Jr., in Restatement of Trusts 3d: Prudent 34 Investor Rule (1992); see also Edward C. Halbach, Jr., Trust 35 Investment Law in the Third Restatement, 27 Real Property, 36 Probate & Trust J. 407 (1992); Bevis Longstreth, Modern 37 Investment Management and the Prudent Man Rule (1986); 38 Jeffrey N. Gordon, The Puzzling Persistence of the 39 Constrained Prudent Man Rule, 62 N.Y.U.L. Rev. 52 (1987);

[143] 605 1 John H. Langbein & Richard A. Posner, The Revolution in 2 Trust Investment Law, 62 A.B.A.J. 887 (1976); Note, The 3 Regulation of Risky Investments, 83 Harvard L. Rev. 603 4 (1970). A succinct account of the main findings of modern 5 portfolio theory, written for lawyers, is Jonathan R. Macey, 6 An Introduction to Modern Financial Theory (1991) 7 (American College of Trust & Estate Counsel Foundation). A 8 leading introductory text on modern portfolio theory is R.A. 9 Brealey, An Introduction to Risk and Return from Common 10 Stocks (2d ed. 1983). 11 Legislation. Most states have had legislation governing 12 trustinvestment law for many years. This Act promotes 13 uniformity of state law on the basis of the new consensus 14 reflected in the Restatement of Trusts 3d: Prudent Investor 15 Rule. Some states had already acted. California, Delaware, 16 Georgia, Minnesota, South Carolina, Tennessee, and 17 Washington revised their prudent investor legislation to 18 emphasize the totalportfolio standard of care in advance of 19 the 1992 Restatement. These statutes are extracted and 20 discussed in Restatement of Trusts 3d: Prudent Investor Rule 21 § 227, reporter’s note, at 6066 (1992). Although South 22 Carolina took such action in 1990 by amending SC Code 23 Section 627302, the South Carolina revision was not 24 extracted and discussed in the 1992 Restatement. 25 Remedies. This Act does not undertake to address issues of 26 remedy law or the computation of damages in trust matters. 27 Remedies are the subject of a reasonably distinct body of 28 doctrine. See generally Restatement (Second) of Trusts §§ 29 197226A (1959) [hereinafter cited as Restatement of Trusts 30 2d; also referred to as 1959 Restatement]. [With the 31 enactment of the South Carolina Trust Code in 2005, 32 however, remedies and damages for breach of trust are 33 addressed. SCTC Part 10.] 34 Implications for charitable and pension trusts. This Act is 35 centrally concerned with the investment responsibilities 36 arising under the private gratuitous trust, which is the 37 common vehicle for conditioned wealth transfer within the 38 family. Nevertheless, the prudent investor rule also bears on 39 charitable and pension trusts, among others. “In making

[143] 606 1 investments of trust funds the trustee of a charitable trust is 2 under a duty similar to that of the trustee of a private trust.” 3 Restatement of Trusts 2d § 389 (1959). The Employee 4 Retirement Income Security Act (ERISA), the federal 5 regulatory scheme for pension trusts enacted in 1974, absorbs 6 trustinvestment law through the prudence standard of ERISA 7 § 404(a)(1)(B), 29 U.S.C. § 1104(a). The Supreme Court has 8 said: “ERISA’s legislative history confirms that the Act’s 9 fiduciary responsibility provisions ‘codif[y] and mak[e] 10 applicable to [ERISA] fiduciaries certain principles 11 developed in the evolution of the law of trusts.’” Firestone 12 Tire & Rubber Co. v. Bruch, 489 U.S. 101, 11011 (1989) 13 (footnote omitted). 14 Other fiduciary relationships. The South Carolina Uniform 15 Prudent Investor Act (SCUPIA) regulates the investment 16 responsibilities of trustees. Other fiduciaries such as 17 executors, conservators, and guardians of the property 18 sometimes have responsibilities over assets that are governed 19 by the standards of prudent investment. It will often be 20 appropriate for states to adapt the law governing investment 21 by trustees under this Act to these other fiduciary regimes, 22 taking account of such changed circumstances as the 23 relatively short duration of most executorships and the 24 intensity of court supervision of conservators and guardians 25 in some jurisdictions. The present Act does not undertake to 26 adjust trustinvestment law to the special circumstances of the 27 state schemes for administering decedents’ estates or 28 conducting the affairs of protected persons. In South Carolina 29 two other SC Code sections have been enacted for this 30 purpose: 31 (1) Section 625414. 32 In the exercise of his powers, a conservator is to act as a 33 fiduciary and shall observe the standards of care 34 applicable to trustees as described by Section 627933 35 (SCUPIA). 36 (2) Section 623703 37 (a) A personal representative is a fiduciary who … shall 38 observe the standards of care as described by Section 39 627804.

[143] 607 1 (3) Both of these sections referred to Section 627933 2 (SCUPIA) until 2010 when Section 623703 was amended by 3 replacing Section 627933 with Section 627804. Prudent 4 administration 5 A trustee shall administer the trust as a prudent person 6 would, by considering the purposes, terms, distributional 7 requirements, and other circumstances of the trust. In 8 satisfying this standard, the trustee shall exercise reasonable 9 care, skill, and caution. 10 (4) The Comments to the SCTC point out that Section 11 627804 is “similar to” SCUPIA and recognizes that trust 12 “administration” includes a trustee’s “distribution to 13 beneficiaries” in addition to a trustee’s investment and 14 management of trust assets. 15 Although SCUPIA by its terms applies to trusts and not to 16 charitable corporations, the standards of the Act can be 17 expected to inform the investment responsibilities of 18 directors and officers of charitable corporations. As the 1992 19 Restatement observes, “the duties of the members of the 20 governing board of a charitable corporation are generally 21 similar to the duties of the trustee of a charitable trust.” 22 Restatement of Trusts 3d: Prudent Investor Rule § 379, 23 Comment b, at 190 (1992). See also id. § 389, Comment b, at 24 19091 (absent contrary statute or other provision, prudent 25 investor rule applies to investment of funds held for 26 charitable corporations). 27 It is interesting to note that the ULC did not mention, on 28 this investment point, in the 1994 UPIA Prefatory Note its 29 earlier 1972 Uniform Management of Institutional Funds Act 30 (UMIFA). This is probably explained by the following 31 contrary view expressed in the 1972 Comment following 32 UMIFA Section 6: 33 The section establishes a standard of care and prudence for 34 a member of a governing board. The standard is generally 35 comparable to that of a director of a business corporation 36 rather than that of a private trustee, but it is cast in terms of 37 the duties and responsibilities of a manager of a nonprofit 38 institution.

[143] 608 1 Officers of a corporation owe a duty of care and loyalty to 2 the corporation, and the more intimate the knowledge of the 3 affairs of the corporation the higher the standard of care. 4 Directors are obligated to act in the utmost good faith and to 5 exercise ordinary business care and prudence in all matters 6 affecting the management of the corporation. This is a 7 proper standard for the managers of a nonprofit institution, 8 whether or not it is incorporated. 9 Not until 2000 did South Carolina enact the South Carolina 10 Uniform Management of Institutional Funds Act 11 (SCUMIFA). Then in 2006 the ULC approved and 12 recommended the Uniform Prudent Management of 13 Institutional Funds Act (UPMIFA) which South Carolina 14 enacted in 2008 as the South Carolina Uniform Prudent 15 Management of Institutional Funds Act (SCUPMIFA), 16 Sections 34610 through 100. Many of SCUPIA’s provisions 17 are in SCUPMIFA which is described by ULC as “bringing 18 the law governing charitable institutions in line with modern 19 investment and expenditure practice”. 20 21 Section 627933. (A) This section may be cited as the 22 South Carolina Uniform Prudent Investor Act, or this act. 23 (B)(1) Except as otherwise provided in item (2) of this 24 subsection, a trustee who invests and manages trust assets 25 owes a duty to the beneficiaries of the trust to comply with 26 the prudent investor rule in this section act. 27 (2) The prudent investor rule is a default rule that may 28 be expanded, restricted, eliminated, or otherwise altered by 29 the provisions of a trust. A trustee is not liable to a 30 beneficiary to the extent that the trustee acted in reasonable 31 reliance on the provisions of the trust. 32 (C)(1) A trustee shall invest and manage trust assets as a 33 prudent investor would by considering the purposes, terms, 34 distribution requirements, and other circumstances of the 35 trust. In satisfying this standard, the trustee shall exercise 36 reasonable care, skill, and caution. 37 (2) A trustee’s investment and management decisions 38 respecting individual assets must be evaluated not in isolation 39 but in the context of the trust portfolio as a whole and as a

[143] 609 1 part of an overall investment strategy having risk and return 2 objectives reasonably suited to the trust. 3 (3) Among other circumstances provided in item (1) of 4 this subsection which a trustee shall consider in investing and 5 managing trust assets are such of the following as are 6 relevant to the trust or its beneficiaries: 7 (a) general economic conditions; 8 (b) the possible effect of inflation or deflation; 9 (c) the expected tax consequences of investment 10 decisions or strategies; 11 (d) the role that each investment or course of action 12 plays within the overall trust portfolio, including financial 13 assets, interests in closely held enterprises, tangible and 14 intangible personal property, and real property; 15 (e) the expected total return from income and the 16 appreciation of capital; 17 (f) other resources of the beneficiaries; 18 (g) needs for liquidity, regularity of income, and 19 preservation or appreciation of capital; and 20 (h) an asset’s special relationship or special value to 21 the purposes of the trust or to one or more of the 22 beneficiaries. 23 (4) A trustee shall make a reasonable effort to verify 24 facts relevant to the investment and management of trust 25 assets. 26 (5)(a) A trustee may invest in any kind of property or 27 type of investment consistent with the standards of this 28 section act. 29 (b) Nothing in this section act prohibits affiliate 30 investments if they otherwise comply with the standards of 31 this section act. For these purposes, ‘affiliate’ means an 32 entity that owns or is owned by the trustee, in whole or in 33 part, or is owned by the same entity that owns the trustee. 34 Affiliate investments include: 35 ( i) investment and reinvestment in the securities of 36 an openend or closedend management investment company 37 or of an investment trust registered under the Investment 38 Company Act of 1940, as amended. A bank or trustee, or 39 both of them, may invest in these securities even if the bank

[143] 610 1 or trustee, or an affiliate of the bank or trustee, provides 2 services to the investment company or investment trust such 3 as that of an investment advisor, custodian, transfer agent, 4 registrar, sponsor, distributor, manager, or otherwise, and 5 receives reasonable remuneration for those services; 6 (ii) retention of the securities into which corporate 7 securities owned by the trustee may be converted or which 8 may be derived as a result of merger, consolidation, stock 9 dividends, splits, liquidations, and similar procedures, and 10 the exercise by purchase or otherwise any rights, warrants, or 11 conversion features attaching to the securities; 12 (iii) purchase or other acquisition and retention of a 13 security underwritten by a syndicate, even if the trustee or its 14 affiliate participates or has participated as a member of the 15 syndicate, provided the trustee does not purchase the security 16 from itself, its affiliate, or from another member of the 17 underwriting syndicate, or its affiliate, pursuant to an implied 18 or express reciprocal agreement between the trustee, or its 19 affiliate, and the other member, or its affiliate, to purchase all 20 or part of each other’s underwriting participation 21 commitment within the syndicate. 22 (c) Notwithstanding any other provision of law, any 23 fiduciary holding securities in its fiduciary capacity, any 24 bank, trust company, or private banker holding securities as a 25 custodian or managing agent, and any bank, trust company, 26 or private banker holding securities as custodian for a 27 fiduciary, is authorized to deposit or arrange for the deposit 28 of such securities in a clearing corporation, (as defined in 29 Article 8 of the Uniform Commercial Code). When such 30 securities are so deposited, certificates representing securities 31 of the same class of the same issuer may be merged and held 32 in bulk in the name of the nominee of such clearing 33 corporation with any other such securities deposited in such 34 clearing corporation by any person regardless of the 35 ownership of such securities, and certificates of small 36 denomination may be merged into one or more certificates of 37 larger denomination. The records of such fiduciary and the 38 records of such bank, trust company, or private banker acting 39 as custodian, as managing agent or as custodian for a

[143] 611 1 fiduciary shall at all times show the name of the party for 2 whose account the securities are so deposited. Ownership of, 3 and other interests in, such securities may be transferred by 4 bookkeeping entry on the books of such clearing corporation 5 without physical delivery of certificates representing such 6 securities. A bank, trust company, or private banker so 7 depositing securities pursuant to this section shall be subject 8 to such regulations as in the case of statechartered 9 institutions, the Board of Financial Institutions, and, in the 10 case of national banking associations, The Comptroller of the 11 Currency may from time to time issue. A bank, trust 12 company, or private banker acting as custodian for a 13 fiduciary shall, on demand by the fiduciary, certify in writing 14 to the fiduciary the securities so deposited by such bank, trust 15 company, or private banker in such clearing corporation for 16 the account of such fiduciary. A fiduciary shall, on demand 17 by any party to a judicial proceeding for the settlement of 18 such fiduciary’s account or on demand by the attorney for 19 such party, certify in writing to such party the securities 20 deposited by such fiduciary in such clearing corporation for 21 its account as such fiduciary. This subsection shall apply to 22 any fiduciary holding securities in its fiduciary capacity, and 23 to any bank, trust company, or private banker holding 24 securities as a custodian, managing agent, or custodian for a 25 fiduciary, acting on April 17, 1973, or who thereafter may act 26 regardless of the date of the agreement, instrument, or court 27 order by which it is appointed and regardless of whether or 28 not such fiduciary, custodian, managing agent, or custodian 29 for a fiduciary owns capital stock of such clearing 30 corporation. 31 (6) [RESERVED] 32 (D) A trustee shall diversify the investments of the trust 33 unless the trustee reasonably determines that, because of 34 special circumstances, the purposes of the trust are better 35 served without diversifying. 36 (E) Within a reasonable time after accepting a trusteeship 37 or receiving trust assets, a trustee shall review the trust assets 38 and make and implement decisions concerning the retention 39 and disposition of assets in order to bring the trust portfolio

[143] 612 1 into compliance with the purposes, terms, distribution 2 requirements, and other circumstances of the trust and with 3 the requirements of this section act. 4 (F) [RESERVED] 5 (G) Compliance with the prudent investor rule is 6 determined in light of the facts and circumstances existing at 7 the time of a trustee’s decision or action and not by hindsight. 8 (H) [RESERVED] 9 (I) The following terms or comparable language in the 10 provisions of a trust, unless otherwise limited or modified, 11 authorize any investment or strategy permitted pursuant to 12 this section act: ‘investments permissible by law for 13 investment of trust funds’, ‘legal investments’, ‘authorized 14 investments’, ‘using the judgment and care under the 15 circumstances then prevailing that persons of prudence, 16 discretion, and intelligence exercise in the management of 17 their own affairs, not in regard to speculation but in regard to 18 the permanent disposition of their funds, considering the 19 probable income as well as the probable safety of their 20 capital’, ‘prudent man rule’, ‘prudent trustee rule’, ‘prudent 21 person rule’, and ‘prudent investor rule’. 22 (J)(1) Notwithstanding provisions of this section act to the 23 contrary, the duties of a trustee with respect to acquiring a 24 contract of insurance upon the life of the trustor or upon the 25 lives of the trustor and the trustor’s spouse, children, or 26 parents do not include a duty to: 27 (a) determine whether the contract is or remains a 28 proper investment; 29 (b) exercise policy options available under the 30 contract; or 31 (c) diversify the contract. 32 (2) The trustee is not liable to the beneficiaries of the 33 contract of insurance or to another party for loss arising from 34 this subsection. 35 (3) Except as specifically provided in the trust 36 instrument, the provisions of this subsection apply to a trust 37 established before or after the effective date of this 38 subsection and to a life insurance policy acquired by the 39 trustee before or after the effective date of this section act.

[143] 613 1 (K) This section act applies to ‘charitable remainder 2 trusts’. ‘Charitable remainder trust’ means a trust that 3 provides for a specified distribution at least annually for 4 either life or a term of years to one or more beneficiaries, at 5 least one of which is not a charity with an irrevocable 6 remainder interest to be held for the benefit of, or paid over 7 to, charity. 8 (L) This section act must be applied and construed to 9 effectuate its general purpose to make uniform the law with 10 respect to the subject of this section act among the States 11 enacting it. 12 13 REPORTER’S COMMENT 14 Subsection 627933(B): 15 Subsection 627933(B)(1) of the South Carolina Uniform 16 Prudent Investor Act (SCUPIA) imposes on trustees the 17 obligation of prudence in the conduct of investment functions 18 and identifies further subsections of SCUPIA that specify 19 the attributes of prudent conduct. 20 Origins. The prudence standard for trust investing traces 21 back to Harvard College v. Amory, 26 Mass. (9 Pick.) 446 22 (1830). Trustees should “observe how men of prudence, 23 discretion and intelligence manage their own affairs, not in 24 regard to speculation, but in regard to the permanent 25 disposition of their funds, considering the probable income, 26 as well as the probable safety of the capital to be invested.” 27 Id. at 461. 28 Prior legislation. The Model Prudent Man Rule Statute 29 (1942), sponsored by the American Bankers Association, 30 undertook to codify the language of the Amory case. See 31 Mayo A. Shattuck, The Development of the Prudent Man 32 Rule for Fiduciary Investment in the United States in the 33 Twentieth Century, 12 Ohio State L.J. 491, at 501 (1951); for 34 the text of the model act, which inspired many state statutes, 35 see id. at 50809. Another prominent codification of the 36 Amory standard is Uniform Probate Code § 7302 (1969), 37 which provides that “the trustee shall observe the standards 38 in dealing with the trust assets that would be observed by a

[143] 614 1 prudent man dealing with the property of another ...” [Italics 2 added.] 3 Congress has imposed a comparable prudence standard for 4 the administration of pension and employee benefit trusts in 5 the Employee Retirement Income Security Act (ERISA), 6 enacted in 1974. ERISA § 404(a)(1)(B), 29 U.S.C. § 1104(a), 7 provides that “a fiduciary shall discharge his duties with 8 respect to a plan solely in the interest of the participants and 9 beneficiaries and . . . with the care, skill, prudence, and 10 diligence under the circumstances then prevailing that a 11 prudent man acting in a like capacity and familiar with such 12 matters would use in the conduct of an enterprise of like 13 character and with like aims . . . .” [Italics added.] 14 Prior Restatement. The Restatement of Trusts 2d (1959) 15 also tracked the language of the Amory case: “In making 16 investments of trust funds the trustee is under a duty to the 17 beneficiary ... to make such investments and only such 18 investments as a prudent man would make of his own 19 property having in view the preservation of the estate and the 20 amount and regularity of the income to be derived . . . .” 21 Restatement of Trusts 2d § 227 (1959). 22 Objective standard. The concept of prudence in the judicial 23 opinions and legislation is essentially relational or 24 comparative. It resembles in this respect the “reasonable 25 person” rule of tort law. A prudent trustee behaves as other 26 trustees similarly situated would behave. The standard is, 27 therefore, objective rather than subjective. SCUPIA 28 subsections 627933(C) through (G) identify the main factors 29 that bear on prudent investment behavior. 30 Variation. Almost all of the rules of trust law are default 31 rules, that is, rules that the settlor may alter or abrogate. 32 SCUPIA subsection 627933(B)(2) carries forward this 33 traditional attribute of trust law. Traditional trust law also 34 allows the beneficiaries of the trust to excuse its 35 performance, when they are all capable and not misinformed. 36 Restatement of Trusts 2d § 216 (1959). 37 Subsection 627933(C) 38 SCUPIA subsection (C) is the heart of the Act. 39 Subsections (C)(1), (2) and (3) are patterned loosely on the

[143] 615 1 language of te Restatement of Trusts 3d: Prudent Investor 2 Rule § 227 (1992), and on the 1991 Illinois statute, 760 § 3 ILCS 5/5a (1992). Subsection (C)(6) is derived from 4 Uniform Probate Code § 7302 (1969). 5 Objective Standard. SCUPIA subsection (C)(1) carries 6 forward the relational and objective standard made familiar 7 in the Amory case, in earlier prudent investor legislation, and 8 in the Restatements. Early formulations of the prudent person 9 rule were sometimes troubled by the effort to distinguish 10 between the standard of a prudent person investing for 11 another and investing on his or her own account. The 12 language of SCUPIA subsection (C)(1), by relating the 13 trustee’s duty to “the purposes, terms, distribution 14 requirements, and other circumstances of the trust,” should 15 put such questions to rest. The standard is the standard of the 16 prudent investor similarly situated. 17 Portfolio Standard. SCUPIA subsection (C)(2) emphasizes 18 the consolidated portfolio standard for evaluating investment 19 decisions. An investment that might be imprudent standing 20 alone can become prudent if undertaken in sensible relation 21 to other trust assets, or to other nontrust assets. In the trust 22 setting the term “portfolio” embraces the entire trust estate. 23 Risk and Return. SCUPIA subsection (C)(2) also sounds 24 the main theme of modern investment practice, sensitivity to 25 the risk/return curve. See generally the works cited in the 26 Prefatory Note to this Act, under “Literature.” Returns 27 correlate strongly with risk, but tolerance for risk varies 28 greatly with the financial and other circumstances of the 29 investor, or in the case of a trust, with the purposes of the 30 trust and the relevant circumstances of the beneficiaries. A 31 trust whose main purpose is to support an elderly widow of 32 modest means will have a lower risk tolerance than a trust to 33 accumulate for a young scion of great wealth. 34 SCUPIA subsection (C)(2) of this Act follows Restatement 35 of Trusts 3d: Prudent Investor Rule § 227(a), which provides 36 that the standard of prudent investing “requires the exercise 37 of reasonable care, skill, and caution, and is to be applied to 38 investments not in isolation but in the context of the trust 39 portfolio and as a part of an overall investment strategy,

[143] 616 1 which should incorporate risk and return objectives 2 reasonably suitable to the trust.” 3 Factors Affecting Investment. SCUPIA subsection (C)(3) 4 points to certain of the factors that commonly bear on 5 risk/return preferences in fiduciary investing. This listing is 6 nonexclusive. Tax considerations, such as preserving the 7 stepped up basis on death under Internal Revenue Code § 8 1014 for lowbasis assets, have traditionally been 9 exceptionally important in estate planning for affluent 10 persons. Under the present recognition rules of the federal 11 income tax, taxable investors, including trust beneficiaries, 12 are in general best served by an investment strategy that 13 minimizes the taxation incident to portfolio turnover. See 14 generally Robert H. Jeffrey & Robert D. Arnott, Is Your 15 Alpha Big Enough to Cover Its Taxes?, Journal of Portfolio 16 Management 15 (Spring 1993). 17 Another familiar example of how tax considerations bear 18 upon trust investing: In a regime of passthrough taxation, it 19 may be prudent for the trust to buy lower yielding taxexempt 20 securities for highbracket taxpayers, whereas it would 21 ordinarily be imprudent for the trustees of a charitable trust, 22 whose income is tax exempt, to accept the lowered yields 23 associated with taxexempt securities. 24 When tax considerations affect beneficiaries differently, 25 the trustee’s duty of impartiality requires attention to the 26 competing interests of each of them. 27 Duty to Monitor. SCUPIA subsection (C)(1) through (4) 28 apply both to investing and managing trust assets. 29 “Managing” embraces monitoring, that is, the trustee’s 30 continuing responsibility for oversight of the suitability of 31 investments already made as well as the trustee’s decisions 32 respecting new investments. 33 Duty to Investigate. SCUPIA subsection (C)(4) carries 34 forward the traditional responsibility of the fiduciary investor 35 to examine information likely to bear importantly on the 36 value or the security of an investment for example, audit 37 reports or records of title. E.g., Estate of Collins, 72 Cal. 38 App. 3d 663, 139 Cal. Rptr. 644 (1977) (trustees lent on a 39 junior mortgage on unimproved real estate, failed to have

[143] 617 1 land appraised, and accepted an unaudited financial 2 statement; held liable for losses). 3 Abrogating Categoric Restrictions. SCUPIA subsection 4 (C)(5)(a) clarifies that no particular kind of property or type 5 of investment is inherently imprudent. Traditional trust law 6 was encumbered with a variety of categoric exclusions, such 7 as prohibitions on junior mortgages or new ventures. In some 8 states legislation created socalled “legal lists” of approved 9 trust investments. The universe of investment products 10 changes incessantly. Investments that were at one time 11 thought too risky, such as equities, or more recently, futures, 12 are now used in fiduciary portfolios. By contrast, the 13 investment that was at one time thought ideal for trusts, the 14 longterm bond, has been discovered to import a level of risk 15 and volatility in this case, inflation risk that had not been 16 anticipated. Accordingly, SCUPIA subsection (C)(5)(a) 17 follows Restatement of Trusts 3d: Prudent Investor Rule in 18 abrogating categoric restrictions. The Restatement says: 19 “Specific investments or techniques are not per se prudent or 20 imprudent. The riskiness of a specific property, and thus the 21 propriety of its inclusion in the trust estate, is not judged in 22 the abstract but in terms of its anticipated effect on the 23 particular trust’s portfolio.” Restatement of Trusts 3d: 24 Prudent Investor Rule § 227, Comment f, at 24 (1992). The 25 premise of SCUPIA subsection (C)(5)(a) is that trust 26 beneficiaries are better protected by the Act’s emphasis on 27 close attention to risk/return objectives as prescribed in 28 SCUPIA subsection (C)(2) than in attempts to identify 29 categories of investment that are per se prudent or imprudent. 30 The Act impliedly disavows the emphasis in older law on 31 avoiding “speculative” or “risky” investments. Low levels of 32 risk may be appropriate in some trust settings but 33 inappropriate in others. It is the trustee’s task to invest at a 34 risk level that is suitable to the purposes of the trust. 35 Professional Fiduciaries. 36 The ULC Drafting Committee declined the suggestion that 37 the Uniform Prudent Investor Act (UPIA) should create an 38 exception to the prudent investor rule (or to the 39 diversification requirement of UPIA Section 3) in the case of

[143] 618 1 smaller trusts. The Committee believes that UPIA 2 subsections 2(b) and (c) (SCUPIA subsections (C)(2) and (3) 3 emphasize factors that are sensitive to the traits of small 4 trusts. Furthermore, it is always open to the settlor of a trust 5 under UPIA subsection 1 (b) (SCUPIA subsection (B)(2)) to 6 reduce the trustee’s standard of care if the settlor deems such 7 a step appropriate. The official comments to the 1992 8 Restatement observe that pooled investments, such as mutual 9 funds and bank common trust funds, are especially suitable 10 for small trusts. Restatement of Trusts 3d: Prudent Investor 11 Rule § 227, Comments h, m, at 28, 51; reporter’s note to 12 Comment g, id. at 83. 13 Matters of Proof. Although virtually all express trusts are 14 created by written instrument, oral trusts are known, and 15 accordingly, this Act presupposes no formal requirement that 16 trust terms be in writing. When there is a written trust 17 instrument, modern authority strongly favors allowing 18 evidence extrinsic to the instrument to be consulted for the 19 purpose of ascertaining the settlor’s intent. See Uniform 20 Probate Code Sec. 2601 (1990), Comment; Restatement 21 (Third) of Property: Donative Transfers (Preliminary Draft 22 No. 2, ch. 11, Sept. 11, 1992). 23 Subsection 627933(D) 24 The language of this SCUPIA subsection derives from 25 Restatement of Trusts 2d § 228 (1959). ERISA insists upon a 26 comparable rule for pension trusts. ERISA § 404(a)(1)(C), 29 27 U.S.C. § 1104(a)(1)(C). Case law overwhelmingly supports 28 the duty to diversify. See Annot., Duty of Trustee to 29 Diversify Investments, and Liability for Failure to Do So, 24 30 A.L.R. 3d 730 (1969) & 1992 Supp. at 7879. 31 The 1992 Restatement of Trusts takes the significant step 32 of integrating the diversification requirement into the concept 33 of prudent investing. Section 227(b) of the 1992 Restatement 34 treats diversification as one of the fundamental elements of 35 prudent investing, replacing the separate section 228 of the 36 Restatement of Trusts 2d. The message of the 1992 37 Restatement, carried forward in SCUPIA subsection (D) is 38 that prudent investing ordinarily requires diversification.

[143] 619 1 Circumstances can, however, overcome the duty to 2 diversify. For example, if a taxsensitive trust owns an 3 underdiversified block of lowbasis securities, the tax costs of 4 recognizing the gain may outweigh the advantages of 5 diversifying the holding. The wish to retain a family business 6 is another situation in which the purposes of the trust 7 sometimes override the conventional duty to diversify. 8 Rationale for Diversification. “Diversification reduces 9 risk . . . [because] stock price movements are not uniform. 10 They are imperfectly correlated. This means that if one holds 11 a well diversified portfolio, the gains in one investment will 12 cancel out the losses in another.” Jonathan R. Macey, An 13 Introduction to Modern Financial Theory 20 (American 14 College of Trust and Estate Counsel Foundation, 1991). For 15 example, during the Arab oil embargo of 1973, international 16 oil stocks suffered declines, but the shares of domestic oil 17 producers and coal companies benefitted. Holding a broad 18 enough portfolio allowed the investor to set off, to some 19 extent, the losses associated with the embargo. 20 Modern portfolio theory divides risk into the categories of 21 “compensated” and “uncompensated” risk. The risk of 22 owning shares in a mature and wellmanaged company in a 23 settled industry is less than the risk of owning shares in a 24 startup hightechnology venture. The investor requires a 25 higher expected return to induce the investor to bear the 26 greater risk of disappointment associated with the startup 27 firm. This is compensated risk the firm pays the investor for 28 bearing the risk. By contrast, nobody pays the investor for 29 owning too few stocks. The investor who owned only 30 international oils in 1973 was running a risk that could have 31 been reduced by having configured the portfolio differently 32 to include investments in different industries. This is 33 uncompensated risk nobody pays the investor for owning 34 shares in too few industries and too few companies. Risk that 35 can be eliminated by adding different stocks (or bonds) is 36 uncompensated risk. The object of diversification is to 37 minimize this uncompensated risk of having too few 38 investments. “As long as stock prices do not move exactly 39 together, the risk of a diversified portfolio will be less than

[143] 620 1 the average risk of the separate holdings.” R.A. Brealey, An 2 Introduction to Risk and Return from Common Stocks 103 3 (2d ed. 1983). 4 There is no automatic rule for identifying how much 5 diversification is enough. The 1992 Restatement says: 6 “Significant diversification advantages can be achieved with 7 a small number of wellselected securities representing 8 different industries . . . . Broader diversification is usually to 9 be preferred in trust investing,” and pooled investment 10 vehicles “make thorough diversification practical for most 11 trustees.” Restatement of Trusts 3d: Prudent Investor Rule § 12 227, General Note on Comments eh, at 77 (1992). See also 13 Macey, supra, at 2324; Brealey, supra, at 11113. 14 Diversifying by Pooling. It is difficult for a small trust fund 15 to diversify thoroughly by constructing its own portfolio of 16 individually selected investments. Transaction costs such as 17 the roundlot (100 shares) trading economies make it 18 relatively expensive for a small investor to assemble a broad 19 enough portfolio to minimize uncompensated risk. For this 20 reason, pooled investment vehicles have become the main 21 mechanism for facilitating diversification for the investment 22 needs of smaller trusts. 23 Most states have legislation authorizing common trust 24 funds; see 3 Austin W. Scott & William F. Fratcher, The Law 25 of Trusts § 227.9, at 46365 n.26 (4th ed. 1988) (collecting 26 citations to state statutes). As of 1992, 35 states and the 27 District of Columbia had enacted the Uniform Common 28 Trust Fund Act (UCTFA) (1938), overcoming the rule 29 against commingling trust assets and expressly enabling 30 banks and trust companies to establish common trust funds. 7 31 Uniform Laws Ann. 1992 Supp. at 130 (schedule of adopting 32 states). The Prefatory Note to the UCTFA explains: “The 33 purposes of such a common or joint investment fund are to 34 diversify the investment of the several trusts and thus spread 35 the risk of loss, and to make it easy to invest any amount of 36 trust funds quickly and with a small amount of trouble.” 7 37 Uniform Laws Ann. 402 (1985). 38 Fiduciary Investing in Mutual Funds. Trusts can also 39 achieve diversification by investing in mutual funds. See

[143] 621 1 Restatement of Trusts 3d: Prudent Investor Rule, § 227, 2 Comment m, at 99100 (1992) (endorsing trust investment in 3 mutual funds). ERISA § 401(b)(1), 29 U.S.C. § 1101(b)(1), 4 expressly authorizes pension trusts to invest in mutual funds, 5 identified as securities “issued by an investment company 6 registered under the Investment Company Act of 1940 . . . .” 7 Subsection 627933(E) 8 SCUPIA subsection (E), requiring the trustee to dispose of 9 unsuitable assets within a reasonable time, is old law, 10 codified in Restatement of Trusts 3d: Prudent Investor Rule § 11 229 (1992), lightly revising Restatement of Trusts 2d § 230 12 (1959). The duty extends as well to investments that were 13 proper when purchased but subsequently become improper. 14 Restatement of Trusts 2d § 231 (1959). The same standards 15 apply to successor trustees, see Restatement of Trusts 2d § 16 196 (1959). 17 The question of what period of time is reasonable turns on 18 the totality of factors affecting the asset and the trust. The 19 1959 Restatement took the view that “ordinarily any time 20 within a year is reasonable, but under some circumstances a 21 year may be too long a time and under other circumstances a 22 trustee is not liable although he fails to effect the conversion 23 for more than a year.” Restatement of Trusts 2d § 230, 24 comment b (1959). The 1992 Restatement retreated from this 25 rule of thumb, saying, “No positive rule can be stated with 26 respect to what constitutes a reasonable time for the sale or 27 exchange of securities.” Restatement of Trusts 3d: Prudent 28 Investor Rule § 229, comment b (1992). 29 The criteria and circumstances identified in SCUPIA 30 subsection (C)(3) as bearing upon the prudence of decisions 31 to invest and manage trust assets also pertain to the prudence 32 of decisions to retain or dispose of inception assets under 33 this section. 34 Subsection 627933(G) 35 This subsection derives from the 1991 Illinois act, 760 36 ILCS 5/5(a)(2) (1992), which draws upon Restatement of 37 Trusts 3d: Prudent Investor Rule § 227, comment b, at 11 38 (1992). Trustees are not insurers. Not every investment or 39 management decision will turn out in the light of hindsight to

[143] 622 1 have been successful. Hindsight is not the relevant standard. 2 In the language of law and economics, the standard is ex 3 ante, not ex post. 4 Subsection 627933(I): 5 This provision meant to facilitate incorporation of the Act 6 by means of the formulaic language commonly used in trust 7 instruments. 8 9 Part 10 10 11 Liability of Trustees and Rights of Persons Dealing With 12 Trustee 13 14 15 General Comment 16 Sections 6271001 through 6271009 identify the remedies 17 for breach of trust, describe how money damages are to be 18 determined, and specify potential defenses. Section 6271001 19 lists the remedies for breach of trust and specifies when a 20 breach of trust occurs. A breach of trust occurs when the 21 trustee breaches one of the duties contained in Article 8 or 22 elsewhere in the Code. The remedies for breach of trust in 23 Section 6271001 are broad and flexible. Section 6271002 24 provides how money damages for breach of trust are to be 25 determined. The standard for determining money damages 26 rests on two principles: (1) the trust should be restored to the 27 position it would have been in had the harm not occurred; 28 and (2) the trustee should not be permitted to profit from the 29 trustee’s own wrong. Section 6271003 holds a trustee 30 accountable for profits made from the trust even in the 31 absence of a breach of trust. Section 6271004 reaffirms the 32 court’s power in equity to award costs and attorney’s fees as 33 justice requires. 34 Sections 6271005 through 6271009 deal with potential 35 defenses. Section 6271005 provides a statute of limitations 36 on actions against a trustee. Section 6271006 protects a 37 trustee who acts in reasonable reliance on the terms of a 38 written trust instrument. Section 6271007 protects a trustee 39 who has exercised reasonable care to ascertain the happening

[143] 623 1 of events that might affect distribution, such as a 2 beneficiary’s marriage or death. Section 6271008 describes 3 the effect and limits on the use of an exculpatory clause. 4 Section 6271009 deals with the standards for recognizing 5 beneficiary approval of acts of the trustee that might 6 otherwise constitute a breach of trust. 7 Sections 6271010 through 6271013 address trustee 8 relations with persons other than beneficiaries. The emphasis 9 is on encouraging third parties to engage in commercial 10 transactions to the same extent as if the property were not 11 held in trust. Section 6271010 negates personal liability on 12 contracts entered into by the trustee if the fiduciary capacity 13 was properly disclosed. The trustee is also relieved from 14 liability for torts committed in the course of administration 15 unless the trustee was personally at fault. Section 6271011 16 negates personal liability for contracts entered into by 17 partnerships in which the trustee is a general partner as long 18 as the fiduciary capacity was disclosed in the contract or 19 partnership certificate. Section 6271012 protects persons 20 other than beneficiaries who deal with a trustee in good faith 21 and without knowledge that the trustee is exceeding or 22 improperly exercising a power. Section 6271013 permits a 23 third party to rely on a certification of trust, thereby reducing 24 the need for a third party to request a copy of the complete 25 trust instrument. 26 Much of this Part is not subject to override in the terms of 27 the trust. The settlor may not limit the rights of persons other 28 than beneficiaries as provided in Sections 6271010 through 29 6271013, nor interfere with the court’s ability to take such 30 action to remedy a breach of trust as may be necessary in the 31 interests of justice. See Section 627105. 32 33 Section 6271001. (a) A violation by a trustee of a duty the 34 trustee owes to a beneficiary is a breach of trust. 35 (b) To remedy a breach of trust that has occurred or may 36 occur, the court may: 37 (1) compel the trustee to perform the trustee’s duties; 38 (2) enjoin the trustee from committing a breach of trust;

[143] 624 1 (3) compel the trustee to redress a breach of trust by 2 paying money, restoring property, or other means; 3 (4) order a trustee to account; 4 (5) appoint a special fiduciary to take possession of the 5 trust property and administer the trust; 6 (6) suspend the trustee; 7 (7) remove the trustee as provided in Section 627706; 8 (8) reduce or deny compensation to the trustee; 9 (9) subject to Section 6271012, void an act of the 10 trustee, impose a lien or a constructive trust on trust property, 11 or trace trust property wrongfully disposed of and recover the 12 property or its proceeds; or 13 (10) order any other appropriate relief. 14 15 REPORTER’S COMMENT 16 This section codifies the remedies available to rectify or to 17 prevent a breach of trust for violation of a duty owed to a 18 beneficiary. The duties that a trust might breach include those 19 contained in Part 8 in addition to those specified elsewhere in 20 the Code. 21 Although subsections (b)(2) through (b)(9) list specific 22 remedies, subsection (b)(10) provides a general statement of 23 available remedies, which essentially confirms broad 24 authority in the court to fashion an appropriate remedy for 25 breach of trust. 26 This section identifies the available remedies but does not 27 attempt to cover the refinements and exceptions developed in 28 case law. The availability of a remedy in a particular 29 circumstance will be determined not only by this Code but 30 also by the common law of trusts and principles of equity. 31 See Section 627106. 32 Beneficiaries and cotrustees have standing to bring a 33 petition to remedy a breach of trust. Following a successor 34 trustee’s acceptance of office, a successor trustee has 35 standing to sue a predecessor for breach of trust. See 36 Restatement (Second) of Trusts Section 200 (1959). A person 37 who may represent a beneficiary’s interest under Part 3 38 would have standing to bring a petition on behalf of the 39 person represented. In the case of a charitable trust, those

[143] 625 1 with standing include the state attorney general, a charitable 2 organization expressly designated to receive distributions 3 under the terms of the trust, and other persons with a special 4 interest. See Section 627110 & Restatement (Second) of 5 Trusts Section 391 (1959). A person appointed to enforce a 6 trust for an animal or a trust for a noncharitable purpose 7 would have standing to sue for a breach of trust. See Sections 8 627110(c), 627408, 627409. 9 Traditionally, remedies for breach of trust at law were 10 limited to suits to enforce unconditional obligations to pay 11 money or deliver chattels. See Restatement (Second) of 12 Trusts Section 198 (1959). Otherwise, remedies for breach of 13 trust were exclusively equitable, and as such, punitive 14 damages were not available and findings of fact were made 15 by the judge and not a jury. See Restatement (Second) of 16 Trusts Section 197 (1959). 17 The remedies identified in this section are derived from 18 Restatement (Second) of Trusts Section 199 (1959). The 19 reference to payment of money in subsection (b)(3) includes 20 liability that might be characterized as damages, restitution, 21 or surcharge. For the measure of liability, see Section 22 6271002. Subsection (b)(5) makes explicit the court’s 23 authority to appoint a special fiduciary, also sometimes 24 referred to as a receiver. See Restatement (Second) of Trusts 25 Section 199(d) (1959). The authority of the court to appoint a 26 special fiduciary is not limited to actions alleging breach of 27 trust but is available whenever the court, exercising its 28 equitable jurisdiction, concludes that an appointment would 29 promote administration of the trust. See Section 627704(e) 30 (special fiduciary may be appointed whenever court 31 considers such appointment necessary for administration). 32 Subsection (b)(8), which allows the court to reduce or deny 33 compensation, is in accord with Restatement (Second) of 34 Trusts Section 243 (1959). For the factors to consider in 35 setting a trustee’s compensation absent breach of trust, see 36 Section 627708 and Comment. In deciding whether to reduce 37 or deny a trustee compensation, the court may wish to 38 consider (1) whether the trustee acted in good faith; (2) 39 whether the breach of trust was intentional; (3) the nature of

[143] 626 1 the breach and the extent of the loss; (4) whether the trustee 2 has restored the loss; and (5) the value of the trustee’s 3 services to the trust. See Restatement (Second) of Trusts 4 Section 243 cmt. c (1959). 5 The authority under subsection (b)(9) to set aside wrongful 6 acts of the trustee is a corollary of the power to enjoin a 7 threatened breach as provided in subsection (b)(2). However, 8 in setting aside the wrongful acts of the trustee the court may 9 not impair the rights of bona fide purchasers protected under 10 Section 6271012. See Restatement (Second) of Trusts 11 Section 284 (1959). 12 13 Section 6271002. (a) A trustee who commits a breach of 14 trust is liable to the beneficiaries affected for the greater of: 15 (1) the amount required to restore the value of the trust 16 property and trust distributions to what they would have been 17 had the breach not occurred; or 18 (2) the profit the trustee made by reason of the breach. 19 (b) Except as otherwise provided in this subsection, if 20 more than one trustee is liable to the beneficiaries for a 21 breach of trust, a trustee is entitled to contribution from the 22 other trustee or trustees. A trustee is not entitled to 23 contribution if the trustee was substantially more at fault than 24 another trustee or if the trustee committed the breach of trust 25 in bad faith or with reckless indifference to the purposes of 26 the trust or the interests of the beneficiaries. A trustee who 27 received a benefit from the breach of trust is not entitled to 28 contribution from another trustee to the extent of the benefit 29 received. 30 31 REPORTER’S COMMENT 32 Subsection (a) is based on Restatement (Third) of Trusts: 33 Prudent Investor Rule Section 205 (1992). If a trustee 34 commits a breach of trust, the beneficiaries may either affirm 35 the transaction or, if a loss has occurred, hold the trustee 36 liable for the amount necessary to compensate fully for the 37 consequences of the breach. This may include recovery of 38 lost income, capital gain, or appreciation that would have 39 resulted from proper administration. Even if a loss has not

[143] 627 1 occurred, the trustee may not benefit from the improper 2 action and is accountable for any profit the trustee made by 3 reason of the breach. 4 For extensive commentary on the determination of 5 damages, traditionally known as trustee surcharge, with 6 numerous specific applications, see Restatement (Third) of 7 Trusts: Prudent Investor Rule Sections 205213 (1992). For 8 the use of benchmark portfolios to determine damages, see 9 Restatement (Third) of Trusts: Prudent Investor Rule 10 Reporter’s Notes to Sections 205 and 208211 (1992). On the 11 authority of a court of equity to reduce or excuse damages for 12 breach of trust, see Restatement (Second) of Trusts Section 13 205 cmt. g (1959). For purposes of this section and Section 14 6271003, “profit” does not include the trustee’s 15 compensation. A trustee who has committed a breach of trust 16 is entitled to reasonable compensation for administering the 17 trust unless the court reduces or denies the trustee 18 compensation pursuant to Section 6271001(b)(8). 19 Subsection (b) is based on Restatement (Second) of Trusts 20 Section 258 (1959). Cotrustees are jointly and severally 21 liable for a breach of trust if there was joint participation in 22 the breach. Joint and several liability also is imposed on a 23 nonparticipating cotrustee who, as provided in Section 24 627703(g), failed to exercise reasonable care (1) to prevent a 25 cotrustee from committing a serious breach of trust, or (2) to 26 compel a cotrustee to redress a serious breach of trust. Joint 27 and several liability normally carries with it a right in any 28 trustee to seek contribution from a cotrustee to the extent the 29 trustee has paid more than the trustee’s proportionate share of 30 the liability. Subsection (b), consistent with Restatement 31 (Second) of Trusts Section 258 (1959), creates an exception. 32 A trustee who was substantially more at fault or committed 33 the breach of trust in bad faith or with reckless indifference 34 to the purposes of the trust or the interests of the beneficiaries 35 is not entitled to contribution from the other trustees. 36 Determining degrees of comparative fault is a question of 37 fact. The fact that one trustee was more culpable or more 38 active than another does not necessarily establish that this 39 trustee was substantially more at fault. Nor is a trustee

[143] 628 1 substantially less at fault because the trustee did not actively 2 participate in the breach. See Restatement (Second) of Trusts 3 Section 258 cmt. e (1959). Among the factors to consider: (1) 4 Did the trustee fraudulently induce the other trustee to join in 5 the breach? (2) Did the trustee commit the breach 6 intentionally while the other trustee was at most negligent? 7 (3) Did the trustee, because of greater experience or 8 expertise, control the actions of the other trustee? (4) Did the 9 trustee alone commit the breach with liability imposed on the 10 other trustee only because of an improper delegation or 11 failure to properly monitor the actions of the cotrustee? See 12 Restatement (Second) of Trusts Section 258 cmt. d (1959). 13 14 Section 6271003. (a) A trustee is accountable to an 15 affected beneficiary for any profit made by the trustee arising 16 from the administration of the trust, even absent a breach of 17 trust. 18 (b) Absent a breach of trust, a trustee is not liable to a 19 beneficiary for a loss or depreciation in the value of trust 20 property or for not having made a profit. 21 22 REPORTER’S COMMENT 23 The principle on which a trustee’s duty of loyalty is premised 24 is that a trustee should not be allowed to use the trust as a 25 means for personal profit other than for routine compensation 26 earned. While most instances of personal profit involve 27 situations where the trustee has breached the duty of loyalty, 28 not all cases of personal profit involve a breach of trust. 29 Subsection (a), which holds a trustee accountable for any 30 profit made, even absent a breach of trust, is based on 31 Restatement (Second) of Trusts Section 203 (1959). A 32 typical example of a profit is receipt by the trustee of a 33 commission or bonus from a third party for actions relating to 34 the trust’s administration. See Restatement (Second) of 35 Trusts Section 203 cmt. a (1959). 36 A trustee is not an insurer. Similar to Restatement 37 (Second) of Trusts Section 204 (1959), subsection (b) 38 provides that absent a breach of trust a trustee is not liable for

[143] 629 1 a loss or depreciation in the value of the trust property or for 2 failure to make a profit. 3 For purposes of this section and Section 6271002, “profit” 4 does not include the trustee’s compensation. A trustee who 5 has committed a breach of trust is entitled to reasonable 6 compensation for administering the trust unless the court 7 reduces or denies the trustee compensation pursuant to 8 Section 6271001(b)(8). 9 10 Section 6271004. In a judicial proceeding involving the 11 administration of a trust, the court, as justice and equity may 12 require, may award costs and expenses, including reasonable 13 attorney’s fees, to any party, to be paid by another party or 14 from the trust that is the subject of the controversy. 15 16 REPORTER’S COMMENT 17 This section is similar to former South Carolina Probate 18 Code Section 627204 Paragraph (B) which granted to the 19 probate court concurrent jurisdiction with the circuit courts of 20 South Carolina over attorney’s fees. As that section states, 21 “Attorney’s fees may be set at a fixed or hourly rate or by 22 contingency fee.” SCTC Section 6271004 goes further by 23 codifying the power of the courts to award costs and 24 expenses. This section codifies the court’s historic authority 25 to award costs and fees, including reasonable attorney’s fees, 26 in judicial proceedings grounded in equity. The court may 27 award a party its own fees and costs from the trust. The court 28 may also charge a party’s costs and fees against another party 29 to the litigation. Generally, litigation expenses were at 30 common law chargeable against another party only in the 31 case of egregious conduct such as bad faith or fraud. With 32 respect to a party’s own fees, Section 627709 authorizes a 33 trustee to recover expenditures properly incurred in the 34 administration of the trust. The court may award a 35 beneficiary litigation costs if the litigation is deemed 36 beneficial to the trust. Sometimes, litigation brought by a 37 beneficiary involves an allegation that the trustee has 38 committed a breach of trust. On other occasions, the suit by 39 the beneficiary is brought because of the trustee’s failure to

[143] 630 1 take action against a third party, such as to recover property 2 properly belonging to the trust. For the authority of a 3 beneficiary to bring an action when the trustee fails to take 4 action against a third party, see Restatement (Second) of 5 Trusts Sections 281282 (1959). For the case law on the 6 award of attorney’s fees and other litigation costs, see 3 7 Austin W. Scott & William F. Fratcher, The Law of Trusts 8 Sections 188.4 (4th ed. 1988). 9 10 Section 6271005. (a) Unless previously barred by 11 adjudication, consent, or limitation, a beneficiary may not 12 commence a proceeding against a trustee for breach of trust 13 more than one year after the date the beneficiary or a 14 representative of the beneficiary was sent a report that 15 adequately disclosed the existence of a potential claim for 16 breach of trust. 17 (b) A report adequately discloses the existence of a 18 potential claim for breach of trust if it provides sufficient 19 information so that the beneficiary or representative knows of 20 the potential claim or should have inquired into its existence. 21 (c) If subsection (a) does not apply, a judicial proceeding 22 by a beneficiary or on behalf of a beneficiary against a 23 trustee for breach of trust must be commenced within three 24 years after the first to occur of: 25 (1) the removal, resignation, or death of the trustee; 26 (2) the termination of the beneficiary’s interest in the 27 trust; or 28 (3) the termination of the trust. 29 30 REPORTER’S COMMENT 31 This section is similar in content to former South Carolina 32 Probate Code Section 627307. Both sections establish a 33 statute of limitations especially applicable to trustees’ 34 liabilities to trust beneficiaries for breach of trust. SCTC 35 Section 6271005 sets the limit for commencing a proceeding 36 against a trustee for breach of trust at one year after receiving 37 a report from the trustee or its representative that provides 38 sufficient information so that the beneficiary or 39 representative should know of or be on inquiry notice about

[143] 631 1 the claim. In other cases, the threeyear limitation period 2 applies. 3 SCTC Section 6271005(a) does not adopt the Uniform 4 Trust Code requirement that, for the oneyear statute to 5 commence, the report inform the beneficiary of the 6 limitations period. SCTC Section 6271005(c) reduces the 7 UTC limitations period from five to three years. 8 The oneyear and threeyear limitations periods under this 9 section are not the only means for barring an action by a 10 beneficiary. A beneficiary may be foreclosed by consent, 11 release, or ratification as provided in Section 6271009. 12 Claims may also be barred by principles such as estoppel and 13 laches arising in equity under the common law of trusts. See 14 Section 627106. 15 The representative referred to in subsection (a) is the 16 person who may represent and bind a beneficiary as provided 17 in Part 3. During the time that a trust is revocable and the 18 settlor has capacity, the person holding the power to revoke 19 is the one who must receive the report. See Section 20 627603(a) (rights of settlor of revocable trust). 21 This section addresses only the issue of when the clock 22 will start to run for purposes of the statute of limitations. If 23 the trustee wishes to foreclose possible claims immediately, a 24 consent to the report or other information may be obtained 25 pursuant to Section 6271009. For the provisions relating to 26 the duty to report to beneficiaries, see Section 627813. 27 Subsection (a) applies only if the trustee has furnished a 28 report. The oneyear statute of limitations does not begin to 29 run against a beneficiary who has waived the furnishing of a 30 report as provided in Section 627813(e). 31 Subsection (c) is intended to provide some ultimate repose 32 for actions against a trustee. It applies to cases in which the 33 trustee has failed to report to the beneficiaries or the report 34 did not meet the disclosure requirements of subsection (b). It 35 also applies to beneficiaries who did not receive notice of the 36 report, whether personally or through representation. While 37 the threeyear limitations period will normally begin to run on 38 termination of the trust, it can also begin earlier. If a trustee 39 leaves office prior to the termination of the trust, the

[143] 632 1 limitations period for actions against that particular trustee 2 begins to run on the date the trustee leaves office. If a 3 beneficiary receives a final distribution prior to the date the 4 trust terminates, the limitations period for actions by that 5 particular beneficiary begins to run on the date of final 6 distribution. 7 If a trusteeship terminates by reason of death, a claim 8 against the trustee’s estate for breach of fiduciary duty 9 would, like other claims against the trustee’s estate, be barred 10 by a probate creditor’s claim statute even though the 11 statutory period prescribed by this section has not yet 12 expired. 13 This section does not specifically provide that the statutes 14 of limitations under this section are tolled for fraud or other 15 misdeeds, leaving the resolution of this question to other law 16 of the State. 17 18 Section 6271005A. (A) If a trust instrument provides that a 19 trustee is to follow the direction of a trust protector and the 20 trustee acts in accordance with such direction, then except in 21 cases of wilful misconduct on the part of the trustee so 22 directed, the trustee is not liable directly or indirectly from any 23 such act. 24 (B) If a trust instrument provides that a trustee is to make 25 decisions with the consent of a trust protector, then except in 26 cases of wilful misconduct or gross negligence on the part of 27 the trustee, the trustee is not liable for any loss resulting 28 directly or indirectly from any act taken or omitted as a result 29 of such trust protector’s failure to provide such consent after 30 having been requested to do so by the trustee. 31 (C) If the trust document provides for a trust protector and 32 the serving trust protector is unwilling or unable to serve or 33 continue to serve and there is no provision for a successor trust 34 protector, the then serving trustee may petition the court having 35 jurisdiction over the trust estate to appoint an individual or a 36 bank or trust company qualified to do business in the state of 37 the settlor’s domicile at the time of the settlor’s death as 38 successor trust protector.

[143] 633 1 (D) A trust protector, other than a beneficiary, is a fiduciary 2 with respect to each power granted to such trust protector. In 3 exercising a power or refraining from exercising any power, a 4 trust protector shall act in good faith and in accordance with the 5 terms and purposes of the trust. 6 (E) A trust protector is an excluded fiduciary with respect to 7 each power granted or reserved exclusively to any one or more 8 other trustees, trust advisors, or trust protectors. 9 10 Section 6271005B. (A) If a trust instrument provides that a 11 trustee is to follow the direction of a trust investment advisor, 12 and the trustee acts in accordance with such a direction, then 13 except in cases of wilful misconduct on the part of the trustee 14 so directed, the trustee is not liable directly or indirectly from 15 any such act. 16 (B) If a trust instrument provides that a trustee is to make 17 decisions with the consent of a trust investment advisor, then 18 except in cases of wilful misconduct or gross negligence on the 19 part of the trustee, the trustee shall not be liable directly or 20 indirectly from any act taken or omitted as a result of such trust 21 investment advisor’s failure to provide such consent after 22 having been requested to do so by the trustee. 23 (C) If a trust instrument provides for a trust investment 24 advisor and the serving trust investment advisor is unwilling or 25 unable to serve or continue to serve and there is no provision 26 for a successor trust investment advisor, the then serving 27 trustee may petition the court having jurisdiction over the trust 28 estate to appoint an individual or a bank or trust company 29 qualified to do business in the state of the settlor’s domicile at 30 the time of the settlor’s death as successor trust investment 31 advisor. 32 (D) A trust investment advisor, other than a beneficiary, is a 33 fiduciary with respect to each power granted to such trust 34 investment advisor. In exercising any power or refraining from 35 exercising any power, a trust investment advisor shall act in 36 good faith and in accordance with the terms and purposes of 37 the trust.

[143] 634 1 (E) A trust investment advisor is an excluded fiduciary with 2 respect to each power granted or reserved exclusively to any 3 one or more other trustees, trust advisors, or trust protectors. 4 5 Section 6271006. A trustee who acts in reasonable reliance 6 on the terms of the trust as expressed in the trust instrument 7 is not liable to a beneficiary for a breach of trust to the extent 8 the breach resulted from the reliance. 9 10 REPORTER’S COMMENT 11 Former South Carolina statutes and case law resembled 12 SCTC Section 6271006. Former South Carolina Probate 13 Code Section 627302(B)(2), retained and incorporated in Part 14 9, stated “[a] trustee is not liable to a beneficiary to the extent 15 that the trustee acted in reasonable reliance on the provisions 16 of the trust.” That section is part of the South Carolina 17 Uniform Prudent Investor Act, retained and incorporated in 18 Section 627933, which provides trustee guidelines for the 19 administration of trusts, and specifically relates to the 20 investment and management of trust assets. As a result, that 21 section arguably applies to only the investment and 22 management of the trust corpus. SCTC Section 6271006, 23 however, covers a broader scope because it does not contain 24 language limiting its application to investment and 25 management of trust assets. 26 Prior South Carolina case law could be interpreted to allow 27 trustees to rely not only on terms pertaining to investment 28 and management of the trust, but also to other terms 29 contained in the trust document. South Carolina courts have 30 held “[i]n ascertaining the Settlor’s intent, [a] court must 31 resort first to the language of the trust instrument . . . .” 32 Sarlin v. Sarlin, 312 S.C. 27, 29, 430 S.E. 2d 530, 532 (S.C. 33 Ct. App. 1993). One could infer that a trustee should follow 34 the same canons of interpretation as applied by the courts. 35 Additionally, former SCPC Section 627704 encouraged 36 trustees to perform without the assistance of the courts in 37 providing that “a trustee has the power to perform, without 38 court authorization, every act which a prudent man would 39 perform for the purpose of the trust . . . .” This combination

[143] 635 1 of case law and statutory law seems to hold (or at the very 2 least imply) that a trustee could reasonably rely on the terms 3 contained in the trust instrument for all types of provisions, 4 not only those pertaining to the investment and management 5 of trust assets. SCTC Section 6271006 provides more 6 certainty with respect to this issue. 7 It sometimes happens that the intended terms of the trust 8 differ from the apparent meaning of the trust instrument. 9 This can occur because the court, in determining the terms of 10 the trust, is allowed to consider evidence extrinsic to the trust 11 instrument. See Section 627103(17) (definition of “terms of 12 a trust”). Furthermore, if a trust is reformed on account of 13 mistake of fact or law, as authorized by Section 627415, 14 provisions of a trust instrument can be deleted or 15 contradicted and provisions not in the trust instrument may 16 be added. The concept of the “terms of a trust,” both as 17 defined in this Code and as used in the doctrine of 18 reformation, is intended to effectuate the principle that a trust 19 should be administered and distributed in accordance with 20 the settlor’s intent. However, a trustee should also be able to 21 administer a trust with some dispatch and without concern 22 that a reasonable reliance on the terms of the trust instrument 23 is misplaced. This section protects a trustee who so relies on 24 a trust instrument but only to the extent the breach of trust 25 resulted from such reliance. This section is similar to Section 26 627933(B)(2), which protects a trustee from liability to the 27 extent that the trustee acted in reasonable reliance on the 28 provisions of the trust. 29 This section protects a trustee only if the trustee’s reliance 30 is reasonable. For example, a trustee’s reliance on the trust 31 instrument would not be justified if the trustee is aware of a 32 prior court decree or binding nonjudicial settlement 33 agreement clarifying or changing the terms of the trust. 34 35 Section 6271007. If the happening of an event, including 36 marriage, divorce, performance of educational requirements, 37 or death, affects the administration or distribution of a trust, a 38 trustee who has exercised reasonable care to ascertain the

[143] 636 1 happening of the event is not liable for a loss resulting from 2 the trustee’s lack of knowledge. 3 4 REPORTER’S COMMENT 5 There was no prior South Carolina statute specifically 6 addressing the issue of a trustee’s duty to ascertain the 7 happening of events affecting the administration or 8 distribution of a trust. 9 Prior South Carolina case law essentially stated that a 10 trustee could be held liable for negligently failing to 11 investigate events affecting the status of a beneficiary’s rights 12 to distributions. See Rogers v. Herron, 226 S.C. 317, 85 13 S.E.2d 104 (S.C. 1954); see also First Union Nat. Bank of 14 South Carolina v. Soden, 511 S.E.2d 372 (Ct. App.1998) 15 (essentially applying the same standards to a remainder 16 beneficiary for failing to disclose her father’s remarriage). 17 SCTC Section 6271007 expressly provides protection from 18 liability for trustees who do exercise reasonable care. 19 20 Section 6271008. A term of a trust relieving a trustee of 21 liability for breach of trust is unenforceable to the extent that 22 it: 23 (a) relieves the trustee of liability for breach of trust 24 committed in bad faith or with reckless indifference to the 25 purposes of the trust or the interests of the beneficiaries; or 26 (b) was inserted as the result of an abuse by the trustee of 27 a fiduciary or confidential relationship to the settlor. 28 29 REPORTER’S COMMENT 30 Even if the terms of the trust attempt to completely exculpate 31 a trustee for the trustee’s acts, the trustee must always 32 comply with a certain minimum standard. As provided in 33 subsection (a), a trustee must always act in good faith with 34 regard to the purposes of the trust and the interests of the 35 beneficiaries. Subsection (a) is consistent with the standards 36 expressed in Sections 627105 and 627814(a), which, similar 37 to this section, place limits on the power of a settlor to negate 38 trustee duties. This section is also similar to Section 222 of 39 the Restatement (Second) of Trusts (1959), except that this

[143] 637 1 Code, unlike the Restatement, allows a settlor to exculpate a 2 trustee for a profit that the trustee made from the trust. 3 South Carolina Trust Code Section 6271008 does not 4 include Uniform Trust Code Section 1008(b) concerning 5 exculpatory terms drafted or caused to be drafted by the 6 trustee. 7 8 Section 6271009. (a) A trustee is not liable to a 9 beneficiary for breach of trust if the beneficiary consented to 10 the conduct constituting the breach, released the trustee from 11 liability for the breach, or ratified the transaction constituting 12 the breach, unless: 13 (1) the consent, release, or ratification of the beneficiary 14 was induced by improper conduct of the trustee; or 15 (2) at the time of the consent, release, or ratification, the 16 beneficiary did not have knowledge of the beneficiary’s 17 rights or of the material facts relating to the breach. 18 (b) No consideration is required for the consent, release or 19 ratification to be valid. 20 21 REPORTER’S COMMENT 22 This section is based on Sections 216 through 218 of the 23 Restatement (Second) of Trusts (1959). A consent, release, 24 or affirmance under this section may occur either before or 25 after the approved conduct. This section requires an 26 affirmative act by the beneficiary. A failure to object is not 27 sufficient. See Restatement (Second) of Trusts Section 216 28 cmt. a (1959). A consent is binding on a consenting 29 beneficiary although other beneficiaries have not consented. 30 See Restatement (Second) of Trusts Section 216 cmt. g 31 (1959). To constitute a valid consent, the beneficiary must 32 know of the beneficiary’s rights and of the material facts 33 relating to the breach. See Restatement (Second) of Trusts 34 Section 216 cmt. k (1959). If the beneficiary’s approval 35 involves a selfdealing transaction, the approval is binding 36 only if the transaction was fair and reasonable. See 37 Restatement (Second) of Trusts Sections 170(2), 216(3) & 38 cmt. n (1959).

[143] 638 1 An approval by the settlor of a revocable trust or by the 2 holder of a presently exercisable power of withdrawal binds 3 all the beneficiaries. See Section 627603. A beneficiary is 4 also bound to the extent an approval is given by a person 5 authorized to represent the beneficiary as provided in Part 3. 6 The South Carolina Trust Code adds Section 6271009(b) 7 not found in the Uniform Trust Code version. 8 9 Section 6271010. (a) Except as otherwise provided in the 10 contract, a trustee is not personally liable on a contract 11 properly entered into in the trustee’s fiduciary capacity in the 12 course of administering the trust if the trustee in the contract 13 disclosed the fiduciary capacity. 14 (b) A trustee is personally liable for torts committed in the 15 course of administering a trust, or for obligations arising 16 from ownership or control of trust property, including 17 liability for violation of environmental law, only if the trustee 18 is personally at fault. 19 (c) A claim based on a contract entered into by a trustee in 20 the trustee’s fiduciary capacity, on an obligation arising from 21 ownership or control of trust property, or on a tort committed 22 in the course of administering a trust, may be asserted in a 23 judicial proceeding against the trustee in the trustee’s 24 fiduciary capacity, whether or not the trustee is personally 25 liable for the claim. 26 (d) The question of liability as between the trust estate and 27 the trustee individually may be determined in a proceeding 28 for accounting, surcharge, or indemnification or other 29 appropriate proceeding. 30 31 REPORTER’S COMMENT 32 Section 6271010(b) is substantially similar to former South 33 Carolina Probate Code Section 627306(b). Section 34 6271010(b) could be viewed as expanding on a trustee’s 35 exemption from tort liability by its specific reference to 36 excluding trustees from liabilities arising from violation of 37 environmental laws. This specific exemption is not contained 38 in former SCPC Section 627306(b). It could be assumed, 39 however, that the general exemption for liability from torts

[143] 639 1 provided by former SCPC Section 627306(b) would cover 2 tort liabilities associated with environmental laws by virtue 3 of the all encompassing general reference to the term “torts.” 4 This assumption, however, is less than certain in light of the 5 Uniform Trust Code Comment to Section 1010, which 6 indicates that UTC subsection 6271010(b) was enacted in 7 response to particular concerns from trustees over this type of 8 liability. UTC Section 1010(c) essentially mirrors Section 9 627306(c) of the South Carolina Probate Code. 10 SCTC Section 6271010(d) retains and incorporates the 11 provisions of former SCPC Section 627306(d), not found in 12 the UTC version of Section 6271010. 13 14 Section 6271011. (a) Except as otherwise provided in 15 subsection (c) or unless personal liability is imposed in the 16 contract, a trustee who holds an interest as a general partner 17 in a general or limited partnership is not personally liable on 18 a contract entered into by the partnership after the trust’s 19 acquisition of the interest if the fiduciary capacity was 20 disclosed in the contract or in a statement previously filed 21 pursuant to the South Carolina versions of the Uniform 22 Partnership Act or Uniform Limited Partnership Act. 23 (b) Except as otherwise provided in subsection (c), a 24 trustee who holds an interest as a general partner is not 25 personally liable for torts committed by the partnership or for 26 obligations arising from ownership or control of the interest 27 unless the trustee is personally at fault. 28 (c) The immunity provided by this section does not apply 29 if an interest in the partnership is held by the trustee in a 30 capacity other than that of trustee or is held by the trustee’s 31 spouse or one or more of the trustee’s descendants, siblings, 32 or parents, or the spouse of any of them. 33 (d) If the trustee of a revocable trust holds an interest as a 34 general partner, the settlor is personally liable for contracts 35 and other obligations of the partnership as if the settlor were 36 a general partner. 37 38 REPORTER’S COMMENT

[143] 640 1 Section 6271011 protects a trustee from personal liability on 2 contracts that the trustee enters into on behalf of the trust. 3 Section 6271011 also absolves a trustee from liability for 4 torts committed in administering the trust unless the trustee 5 was personally at fault. It does not protect a trustee from 6 personal liability for contracts entered into or torts committed 7 by a general or limited partnership of which the trustee was a 8 general partner. That is the purpose of this section. 9 Subsection (a) protects the trustee from personal liability for 10 such partnership obligations whether the trustee signed the 11 contract or it was signed by another general partner. 12 Subsection (b) protects a trustee from personal liability for 13 torts committed by the partnership unless the trustee was 14 personally at fault. Protection from the partnership’s 15 contractual obligations is available under subsection (a) only 16 if the other party is on notice of the fiduciary relationship, 17 either in the contract itself or in the partnership certificate on 18 file. 19 Special protection is not needed for other business interests 20 that the trustee may own, such as an interest as a limited 21 partner, a membership interest in an LLC, or an interest as a 22 corporate shareholder. In these cases the nature of the entity 23 or the interest owned by the trustee carries with it its own 24 limitation on liability. 25 Certain exceptions apply. The section is not intended to be 26 used as a device for individuals or their families to shield 27 assets from creditor claims. Consequently, subsection (c) 28 excludes from the protections provided by this section 29 trustees who own an interest in the partnership in another 30 capacity or if an interest is owned by the trustee’s spouse or 31 the trustee’s descendants, siblings, parents, or the spouse of 32 any of them. 33 Nor can a revocable trust be used as a device for avoiding 34 claims against the partnership. Subsection (d) imposes 35 personal liability on the settlor for partnership contracts and 36 other obligations of the partnership the same as if the settlor 37 were a general partner. 38 There was no prior South Carolina statutory or case law 39 counterpart.

[143] 641 1 2 Section 6271012. (a) A person other than a beneficiary 3 who in good faith assists a trustee, or who in good faith and 4 for value deals with a trustee, without knowledge that the 5 trustee is exceeding or improperly exercising the trustee’s 6 powers is protected from liability as if the trustee properly 7 exercised the power. 8 (b) A person other than a beneficiary who in good faith 9 deals with a trustee is not required to inquire into the extent 10 of the trustee’s powers or the propriety of their exercise. 11 (c) A person who in good faith delivers assets to a trustee 12 need not ensure their proper application. 13 (d) A person other than a beneficiary who in good faith 14 assists a former trustee, or who in good faith and for value 15 deals with a former trustee, without knowledge that the 16 trusteeship has terminated is protected from liability as if the 17 former trustee were still a trustee. 18 (e) Comparable protective provisions of other laws 19 relating to commercial transactions or transfer of securities 20 by fiduciaries prevail over the protection provided by this 21 section. 22 23 REPORTER’S COMMENT 24 SCTC Section 6271012 is similar to former South Carolina 25 Probate Code Section 627708. SCTC Section 6271012 26 protects third parties who act in good faith in dealings with 27 trustees. While good faith is not defined in the South 28 Carolina Trust Code, definitions of good faith in the 29 commercial context should be consistent with the purpose of 30 this section, which is to treat commercial transactions with 31 trustees similar to other commercial transactions. In 32 addition, SCTC section 6271012 protects a third party who in 33 good faith deals with a former trustee without knowledge that 34 the trusteeship has terminated. 35 This section is derived from Section 7 of the Uniform 36 Trustee Powers Act. 37 Subsection (a) protects two different classes; persons other 38 than beneficiaries who assist a trustee with a transaction, and 39 persons other than beneficiaries who deal with the trustee for

[143] 642 1 value. As long as the assistance was provided or the 2 transaction was entered into in good faith and without 3 knowledge, third persons in either category are protected in 4 the transaction even if the trustee was exceeding or 5 improperly exercising the power. For the definition of 6 “know,” see Section 627104. 7 Subsection (b) confirms that a third party who is acting in 8 good faith is not charged with a duty to inquire into the 9 extent of a trustee’s powers or the propriety of their exercise. 10 The third party may assume that the trustee has the necessary 11 power. Consequently, there is no need to request or examine 12 a copy of the trust instrument. A third party who wishes 13 assurance that the trustee has the necessary authority instead 14 should request a certification of trust as provided in Section 15 6271013. Subsection (b)is intended to negate the rule, 16 followed by some courts, that a third party is charged with 17 constructive notice of the trust instrument and its contents. 18 The cases are collected in George G. Bogert & George T. 19 Bogert, The Law of Trusts and Trustees Section 897 (Rev. 2d 20 ed. 1995); and 4 Austin W. Scott & William F. Fratcher, The 21 Law of Trusts Section 297 (4th ed. 1989). 22 Subsection (c) protects any person, including a beneficiary, 23 who in good faith delivers property to a trustee. The standard 24 of protection in the Restatement is phrased differently 25 although the result is similar. Under Restatement (Second) 26 of Trusts Section 321 (1959), the person delivering property 27 to a trustee is liable if at the time of the delivery the person 28 had notice that the trustee was misapplying or intending to 29 misapply the property. 30 Subsection (d) extends the protections afforded by the 31 section to assistance provided to or dealings for value with a 32 former trustee. The third party is protected the same as if the 33 former trustee still held the office. 34 Subsection (e) clarifies that a statute relating to 35 commercial transactions controls whenever both it and this 36 section could apply to a transaction. Consequently, the 37 protections provided by this section are superseded by 38 comparable protective provisions of these other laws. The 39 principal statutes in question are the various articles of the

[143] 643 1 Uniform Commercial Code, including Article 8 on the 2 transfer of securities, as well as the Uniform Simplification 3 of Fiduciary Securities Transfer Act. 4 5 Section 6271013. (a) Instead of furnishing a copy of the 6 trust instrument to a person other than a beneficiary, the 7 trustee may furnish to the person a certification of trust 8 containing the following information: 9 (1) that the trust exists and the date the trust instrument 10 was executed; 11 (2) the identity of the settlor; 12 (3) the identity and address of the currently acting 13 trustee; 14 (4) the powers of the trustee which may make a 15 reference to the powers set forth in the South Carolina Trust 16 Code; 17 (5) the revocability or irrevocability of the trust and the 18 identity of any person holding a power to revoke the trust; 19 (6) the authority of cotrustees to sign or otherwise 20 authenticate and whether all or less than all are required in 21 order to exercise powers of the trustee; and 22 (7) the manner of taking title to trust property. 23 (b) A certification of trust may be signed or otherwise 24 authenticated by any trustee. 25 (c) A certification of trust must state that the trust has not 26 been revoked, modified, or amended in any manner that 27 would cause the representations contained in the certification 28 of trust to be incorrect. 29 (d) A certification of trust need not contain the dispositive 30 terms of a trust. 31 (e) A recipient of a certification of trust may require the 32 trustee to furnish copies of those excerpts from the original 33 trust instrument and later amendments which designate the 34 trustee and confer upon the trustee the power to act in the 35 pending transaction. 36 (f) A person who acts in reliance upon a certification of 37 trust without knowledge that the representations contained 38 therein are incorrect is not liable to any person for so acting 39 and may assume without inquiry the existence of the facts

[143] 644 1 contained in the certification. Knowledge of the terms of the 2 trust may not be inferred solely from the fact that a copy of 3 all or part of the trust instrument is held by the person relying 4 upon the certification. 5 (g) A person who in good faith enters into a transaction in 6 reliance upon a certification of trust may enforce the 7 transaction against the trust property as if the representations 8 contained in the certification were correct. 9 (h) A person making a demand for the trust instrument in 10 addition to a certification of trust or excerpts is liable for 11 damages if the court determines that the person did not act in 12 good faith in demanding the trust instrument. 13 (i) This section does not limit the right of a person to 14 obtain a copy of the trust instrument in a judicial proceeding 15 concerning the trust. 16 (j) In a transaction involving title to real property, the 17 certificate of trust must be executed and acknowledged in a 18 manner that permits its recordation in the Office of the 19 Register of Deeds or Clerk of Court in the county in which 20 the real property is located. 21 (k) The Certificate of Trust may be either in the form set 22 forth below or in any other form that satisfies the above 23 requirements. 24 Settlor: ______25 Name of Trust: ______26 Date of Trust: ______27 Current Trustee(s): ______28 Address of Trust: ______29 The undersigned trustee(s) does hereby confirm the existence 30 of the within described Trust and certify the following: 31 1. The undersigned is/are all of the currently serving 32 trustee(s). 33 2. The Trust is in full force and effect and has not been 34 revoked, terminated or otherwise amended in any manner 35 which would cause the representations in this Certification of 36 Trust to be incorrect. 37 3. The Trust is revocable/irrevocable. (If revocable, define 38 who can revoke the document).

[143] 645 1 4. The above designated trustee(s) is/are fully empowered to 2 act for said Trust and is/are properly exercising the trustee’s 3 authority under this Trust. No other trustee or other 4 individual or entity is required to execute any document for 5 the Trust. 6 5. The signature(s) of ______of the trustees is/are required 7 for any action taken on behalf of the Trust. (Define 8 signature requirements) 9 6. The proper manner for taking title to Trust property is: 10 [Name(s) of all current trustees], Trustee 11 [Name of trust], dated [Date of trust] 12 7. To the undersigned’s knowledge, there are no claims, 13 challenges of any kind, or cause of action alleged, which 14 contest or question the validity of the Trust or the trustee’s 15 authority to act for the Trust. 16 8. The trustee is authorized by the Trust Agreement to 17 ______. (State, synopsize, or 18 describe relevant powers.) 19 IN WITNESS THEREOF: the undersigned, being all of the 20 trustees, do hereby execute this Certificate of Trust this ___ 21 day of ______, 20__. 22 Witnesses: Trustee(s): 23 24 ______25 26 ______27 28 ______29 30 ______31 _____ 32 33 ______34 _____ 35 STATE OF SOUTH CAROLINA ) 36 ) ACKNOWLEDGMENT 37 COUNTY OF ______)

[143] 646 1 I,______, do hereby certify that trustee(s) 2 personally appeared before me this day and acknowledged 3 the due execution of the foregoing instrument. 4 Witness my hand and official seal this the day of ______, 5 20__ 6 (SEAL) 7 Notary Public for South Carolina 8 My Commission Expires: 9 10 REPORTER’S COMMENT 11 South Carolina Trust Code Section 6271013, which has no 12 prior South Carolina statutory counterpart, permits a third 13 party to request a certification of trust from the trustee. The 14 elements of a certification are set forth in this section, and a 15 third party may assume, without inquiry, the existence of 16 facts contained in the certification. A third party who in 17 good faith enters into a transaction in reliance upon the 18 certification may enforce the transaction as if the 19 representations contained in the certification were correct. 20 This section is also designed to protect the privacy of the 21 trust agreement and its beneficiaries, and under certain 22 circumstances, a third party may be liable for damages if he 23 demands a copy of the trust agreement in addition to the 24 certification. The SCTC adds subsection (k) to the UTC 25 version, providing a sample form certificate for use in South 26 Carolina. 27 28 Part 11 29 30 Miscellaneous Provisions 31 32 Section 6271101. In applying and construing this Uniform 33 Act article, consideration must be given to the need to 34 promote uniformity of the law with respect to its subject 35 matter among states that enact it its provisions. 36 37 REPORTER’S COMMENT 38 This is consistent with SCPC Section 621102, which 39 provides that one of the underlying purposes and policies of

[143] 647 1 the South Carolina Probate Code “is to make uniform the law 2 among the various jurisdictions.” See SCPC Section 3 621102(b)(5). 4 5 Section 6271102. The provisions of this article governing 6 the legal effect, validity, or enforceability of electronic 7 records or electronic signatures, and of contracts formed or 8 performed with the use of such records or signatures, 9 conform to the requirements of Section 102 of the Electronic 10 Signatures in Global and National Commerce Act (15 U.S.C. 11 Section 7002) and supersede, modify, and limit the 12 requirements of the Electronic Signatures in Global and 13 National Commerce Act. 14 15 REPORTER’S COMMENT 16 This section, which is being inserted in all Uniform Acts 17 approved in 2000 or later, preempts the federal Electronic 18 Signatures in Global and National Commerce Act. Section 19 102(a)(2)(B) of that Act provides that the federal law can be 20 preempted by a later statute of the State that specifically 21 refers to the federal law. The effect of this section, when 22 enacted as part of this Code, is to leave to state law the 23 procedures for obtaining and validating an electronic 24 signature. The SCTC does not require that any document be 25 in paper form, allowing all documents under this Code to be 26 transmitted in electronic form. A properly directed electronic 27 message is a valid method of notice under the Code as long 28 as it is reasonably suitable under the circumstances and likely 29 to result in receipt of the notice or document. See Section 30 627109(a). 31 32 Section 6271103. If any provision of this article or its 33 application to any person or circumstances is held invalid, the 34 invalidity does not affect other provisions or applications of 35 this article which can be given effect without the invalid 36 provision or application, and to this end the provisions of this 37 article are severable. 38 39 REPORTER’S COMMENT

[143] 648 1 The South Carolina Probate Code has a substantially 2 identical provision in SCPC Section 621104. 3 4 Section 6271106. (a) Except as otherwise provided in this 5 article, on the effective date of this article: 6 (1) this article applies to all trusts created before, on, or 7 after its effective date; 8 (2) this article applies to all judicial proceedings 9 concerning trusts commenced on or after its effective date; 10 (3) this article applies to judicial proceedings 11 concerning trusts commenced before its effective date unless 12 the court finds that application of a particular provision of 13 this article would substantially interfere with the effective 14 conduct of the judicial proceedings or prejudice the rights of 15 the parties, in which case the particular provision of this 16 article does not apply and the superseded law applies; 17 (4) subject to subsections (a)(5) and (b), any rule of 18 construction or presumption provided in this article applies to 19 trust instruments executed before the effective date of the 20 article unless there is a clear indication of a contrary intent in 21 the terms of the trust; and 22 (5) an act done and any right acquired or accrued before 23 the effective date of the article is not affected by this article. 24 Unless otherwise provided in this article, any right in a trust 25 accrues in accordance with the law in effect on the date of the 26 creation of a trust. 27 (b) If a right is acquired, extinguished, or barred upon the 28 expiration of a prescribed period that has commenced to run 29 under any other statute before the effective date of the article, 30 that statute continues to apply to the right even if it has been 31 repealed or superseded.” 32 33 REPORTER’S COMMENT 34 The SCTC is intended to have the widest possible effect 35 within constitutional limitations. Specifically, the Code 36 applies to all trusts whenever created, to judicial proceedings 37 concerning trusts commenced on or after its effective date, 38 and unless the court otherwise orders, to judicial proceedings 39 in progress on the effective date. In addition, any rules of

[143] 649 1 construction or presumption provided in the Code apply to 2 preexisting trusts unless there is a clear indication of a 3 contrary intent in the trust’s terms. By applying the Code to 4 preexisting trusts, the need to know two bodies of law will 5 quickly lessen. 6 This Code cannot be fully retroactive, however. 7 Constitutional limitations preclude retroactive application of 8 rules of construction to alter property rights under trusts that 9 became irrevocable prior to the effective date. Also, rights 10 already barred by a statute of limitation or rule under former 11 law are not revived by a possibly longer statute or more 12 liberal rule under this Code. Nor is an act done before the 13 effective date of the Code affected by the Code’s enactment. 14 The SCTC contains an additional effective date provision. 15 Pursuant to Section 627602(a), prior law will determine 16 whether a trust executed prior to the effective date of the 17 Code is presumed to be revocable or irrevocable. 18 The South Carolina Probate Code counterpart is SCPC 19 Section 621100, which has been subject to considerable 20 litigation in the years after the probate code’s enactment 21 effective July 1, 1987. Importantly, the intent to safeguard 22 preexisting rights is contained in SCTC Section 6271106 as it 23 is in SCPC Section 621100. SCPC Section 621100 draws a 24 dichotomy between procedural provisions of the SCPC (as in 25 SCPC Section 621100(b)(2)) and substantive rights in the 26 decedent’s estate, which are to be unimpaired. SCPC Section 27 621100(b)(4). 28 Rules of construction or presumption apply to trusts 29 executed before the effective date unless there is a clear 30 indication of a contrary intent in the terms of the trust. This 31 appears similar to SCPC Section 621100(b)(5). SCTC 32 Section 6271106(b), providing that any period of limitation 33 which had commenced to run before the effective date would 34 continue to apply, is a counterpart to SCPC Section 35 621100(b)(4), last sentence. SCTC subsection 6271106(a)(4) 36 makes clear that the application of a presumption or rule of 37 construction shall not disrupt accrued or acquired rights in 38 the trust, which are determined according to the law in effect 39 at the trust’s creation.

[143] 650 1 2 SECTION 3. If any section, subsection, paragraph, 3 subparagraph, sentence, clause, phrase, or word of this act is 4 for any reason held to be unconstitutional or invalid, such 5 holding shall not affect the constitutionality or validity of the 6 remaining portions of this act, the General Assembly hereby 7 declaring that it would have passed this act, and each and 8 every section, subsection, paragraph, subparagraph, sentence, 9 clause, phrase, and word thereof, irrespective of the fact that 10 any one or more other sections, subsections, paragraphs, 11 subparagraphs, sentences, clauses, phrases, or words hereof 12 may be declared to be unconstitutional, invalid, or otherwise 13 ineffective. 14 15 SECTION 4. (A) This act takes effect on January 1, 2014. 16 (B) Except as otherwise provided in this act, on the 17 effective date of this act: 18 (1) this act applies to any estates of decedents dying 19 thereafter and to all trusts created before, on, or after its 20 effective date; 21 (2) the act applies to all judicial proceedings concerning 22 estates of decedents and trusts commenced on or after its 23 effective date; 24 (3) this act applies to judicial proceedings concerning 25 estates of decedents and trusts commenced before its 26 effective date unless the court finds that application of a 27 particular provision of this act would substantially interfere 28 with the effective conduct of the judicial proceedings or 29 prejudice the rights of the parties, in which case the particular 30 provision of this act does not apply and the superseded law 31 applies; 32 (4) subject to item (B)(5) and subsection (C) of this 33 section, any rule of construction or presumption provided in 34 this act applies to governing instruments executed before the 35 effective date of the act unless there is a clear indication of a 36 contrary intent in the terms of the governing instrument; and 37 (5) an act done and any right acquired or accrued before 38 the effective date of the act is not affected by this act. Unless 39 otherwise provided in this act, any right in a trust accrues in

[143] 651 1 accordance with the law in effect on the date of the creation 2 of a trust and a substantive right in the decedent’s estate 3 accrues in accordance with the law in effect on the date of the 4 decedent’s death. 5 (C) If a right is acquired, extinguished, or barred upon the 6 expiration of a prescribed period that has commenced to run 7 under any other statute before the effective date of the act, 8 that statute continues to apply to the right even if it has been 9 repealed or superseded. 10 XX 11

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