2011-2012 Bill 1243: S.C. Probate Code - South Carolina Legislature Online

1 South Carolina General Assembly 2 119th Session, 2011-2012 3 4 S. 1243 5 6 STATUS INFORMATION 7 8 General Bill 9 Sponsors: Senators McConnell, Malloy, Rose, Land and L. Martin 10 Document Path: l:\council\bills\nbd\11974dg12.docx 11 12 Introduced in the Senate on February 22, 2012 13 Currently residing in the Senate Committee on Judiciary 14 15 Summary: S.C. Probate Code 16 17 18 HISTORY OF LEGISLATIVE ACTIONS 19 20 Date Body Action Description with journal page number 21 2/22/2012 Senate Introduced and read first time ( Senate Journalpage 4) 22 2/22/2012 Senate Referred to Committee on Judiciary ( Senate Journalpage 4) 23 2/29/2012 Senate Referred to Subcommittee: Malloy (ch), Ford, Knotts, Massey, S.Martin 24 3/12/2012 Scrivener's error corrected 25 26 27 VERSIONS OF THIS BILL 28 29 2/22/2012 30 3/12/2012 31 1 2 3 4 5 6 7 8 9 A BILL 10 11 TO AMEND TITLE 62, CODE OF LAWS OF SOUTH 12 CAROLINA, 1976, RELATING TO THE SOUTH CAROLINA 13 PROBATE CODE, SO AS TO, AMONG OTHER THINGS, 14 DEFINE THE JURISDICTION OF THE PROBATE CODE, TO 15 DETERMINE INTESTATE SUCCESSION, TO PROVIDE FOR 16 THE PROCESS OF EXECUTING A WILL, TO PROVIDE FOR 17 THE PROCESS TO PROBATE AND ADMINISTER A WILL, 18 TO PROVIDE FOR LOCAL AND FOREIGN PERSONAL 19 REPRESENTATIVES, TO PROVIDE FOR THE PROTECTION 20 OF PERSONS WITH DISABILITIES, TO PROVIDE FOR THE 21 GOVERNANCE OF NONPROBATE TRANSFERS, AND TO 22 AMEND THE SOUTH CAROLINA TRUST CODE; AND TO 23 AMEND CHAPTER 6, TITLE 27, RELATING TO THE RULE 24 AGAINST PERPETUITIES, SO AS TO PROVIDE THAT NO 25 RULE AGAINST PERPETUITIES SHALL BE IN FORCE IN 26 THIS STATE. 27 28 Be it enacted by the General Assembly of the State of South 29 Carolina: 30 31 SECTION 1. Title 62 of the 1976 Code is amended to read: 32 33 34 “Article 1 35 36 General Provisions, Definitions, and Probate Jurisdiction Of Court 37 38 Part 1 39 40 Short Title, Construction, General Provisions 41[1243] 2 1 Section 621100. (a) Except as otherwise provided, this Code 2 takes effect July 1, 1987. 3 (b) Except as provided elsewhere in this Code, on the effective 4 date of this Code: 5 (1) the Code applies to any estates of decedents dying 6 thereafter; 7 (2) the procedural provisions of the Code apply to any 8 proceedings in court then pending or thereafter commenced 9 regardless of the time of the death of decedent except to the extent 10 that in the opinion of the court the former procedure should be 11 made applicable in a particular case in the interest of justice or 12 because of infeasibility of application of the procedure of this 13 Code; 14 (3) every personal representative, including a person 15 administering an estate of a minor or incompetent holding an 16 appointment on that date, continues to hold the appointment but 17 has only the powers conferred by this Code and is subject to the 18 duties imposed with respect to any act occurring or done 19 thereafter; 20 (4) an act done before the effective date in any proceeding 21 and any accrued right is not impaired by this Code. Unless 22 otherwise provided in the Code, a substantive right in the 23 decedent’s estate accrues in accordance with the law in effect on 24 the date of the decedent’s death. If a right is acquired, 25 extinguished, or barred upon the expiration of a prescribed period 26 of time which has commenced to run by the provisions of any 27 statute before the effective date, the provisions remain in force 28 with respect to that right; 29 (5) a rule of construction or presumption provided in this 30 code applies to multipleparty accounts opened before the effective 31 date unless there is a clear indication of a contrary intent. 32 (c) Section 622502 is effective for all wills executed after June 33 27, 1984, whether the testator dies before or after July 1, 1987. 34 35 Section 621101. Sections 621101 et seq. shall be known and 36 may be cited as the South Carolina Probate Code. References in 37 Sections 621101 et seq. to the term ‘Code’, unless the context 38 clearly indicates otherwise, shall mean the South Carolina Probate 39 Code. 40 41 Section 621102. (a) This Code shall be liberally construed and 42 applied to promote its underlying purposes and policies. 43 (b) The underlying purposes and policies of this Code are: [1243] 3 1 (1) to simplify and clarify the law concerning the affairs of 2 decedents, missing persons, protected persons, minors, and 3 incapacitated persons; 4 (2) to discover and make effective the intent of a decedent in 5 the distribution of his property; 6 (3) to promote a speedy and efficient system for liquidating 7 the estate of the decedent and making distribution to his 8 successors; 9 (4) to facilitate use and enforcement of certain trusts; 10 (5) to make uniform the law among the various jurisdictions. 11 12 Section 621103. Unless displaced by the particular provisions of 13 this Code, the principles of law and equity supplement its 14 provisions. 15 16 SECTION 621104. If any provision of this Code or the 17 application thereof to any person or circumstances is held invalid, 18 the invalidity shall not affect other provisions or applications of the 19 Code which can be given effect without the invalid provision or 20 application and to this end the provisions of this Code are declared 21 to be severable. 22 23 Section 621105. This Code is a general act intended as a unified 24 coverage of its subject matter and no part of it shall be deemed 25 impliedly repealed by subsequent legislation if it can reasonably be 26 avoided. 27 28 Section 621106. Whenever fraud has been perpetrated in 29 connection with any proceeding or in any statement filed under 30 this Code or if fraud is used to avoid or circumvent the provisions 31 or purposes of this Code, any person injured thereby may: (i) 32 obtain appropriate relief against the perpetrator of the fraud or and 33 (ii) restitution from any person (other than a bona fide purchaser) 34 benefiting from the fraud, whether innocent or not, but only to the 35 extent of any benefit received. Any proceeding must be 36 commenced within two years after the discovery of the fraud, but 37 no proceeding may be brought against one not a perpetrator of the 38 fraud later than five years after the time of commission of the 39 fraud. This section has no bearing on remedies relating to fraud 40 practiced on a decedent during his lifetime which affects the 41 succession of his estate. 42 43 REPORTER’S COMMENTS [1243] 4 1 By virtue of this section, the sixyear period of limitation provided 2 by Section 153530(7) of the 1976 Code for actions for relief on the 3 ground of fraud is reduced, with respect to fraud perpetrated in 4 connection with proceedings and statements filed under this Code, 5 or to circumvent its provisions or purposes. Under this section, 6 actions for relief on the ground of fraud must be brought within 7 two years after discovery of the fraud. In no event, however, may 8 an action be brought against one not the perpetrator of the fraud 9 (such as an innocent party benefiting from the fraud) later than five 10 years after the commission of the fraud. 11 The last sentence of this section, however, excepts from this 12 section actions ‘relating to fraud practiced on a decedent during his 13 lifetime which affect the succession of his estate’ such as fraud 14 inducing the execution or revocation of a will. There is some 15 general authority for the proposition that one who is damaged by 16 fraud which interferes with the making of a will may maintain an 17 action for damages against the person who commits the fraud, 79 18 Am. Jur. 2d, Wills Section 414. In cases involving direct contest 19 of wills which are allegedly the result of fraud, however, the 20 provisions of Section 623108 would be applicable and a formal 21 probate proceeding would have to be commenced within the later 22 of twelve months from the informal probate or three years from the 23 decedent’s death, at which time the allegations of fraud would be 24 considered. 25 The 2012 amendment clarified that any person injured by the 26 effects of fraud may (i) obtain relief against the perpetrator of the 27 fraud and (ii) restitution from any other person (other than a bona 28 fide purchaser) benefitting from the fraud. 29 30 Section 621107. In proceedings under this Code the South 31 Carolina Rules of Evidence in courts of general jurisdiction, 32 including any relating to simultaneous deaths, are applicable 33 unless specifically displaced by the Code. In addition, the 34 following rules relating to determination of death and status are 35 applicable: 36 (1) A certified or authenticated copy of a death certificate 37 purporting to be issued by an official or agency of the place where 38 the death purportedly occurred is prima facie proof of the fact, 39 place, date and time of death, and the identity of the decedent. 40 (2) A certified or authenticated copy of any record or report of 41 a governmental agency, domestic or foreign, that a person is 42 missing, detained, dead, or alive is prima facie evidence of the[1243] 5 1 status and of the dates, circumstances, and places disclosed by the 2 record or report. 3 (3) A person who is absent for a continuous period of five 4 years, during which he has not been heard from, and whose 5 absence is not satisfactorily explained after diligent search or 6 inquiry, is presumed to be dead. His death is presumed to have 7 occurred at the end of the period unless there is sufficient evidence 8 for determining that death occurred earlier. 9 10 REPORTER’S COMMENTS 11 12 This section states that the rules of evidence that apply in circuit 13 court also apply in probate court proceedings unless specifically 14 displaced by provisions of the South Carolina Probate Code. The 15 2011 Amendment removed those sections related to evidence as to 16 the status of death, and these provisions have been incorporated 17 into §621507 of the Uniform Simultaneous Death Act. See 18 §§621500 to 621510 for the Uniform Simultaneous Death Act. 19 20 Section 621108. For the purpose of granting consent or approval 21 with regard to the acts or accounts of a personal representative or 22 trustee, including relief from liability or penalty for failure to post 23 bond, or to perform other duties, and for purposes of consenting to 24 modification or termination of a trust or to deviation from its 25 terms, the sole holder or all coholders of a presently exercisable 26 general power of appointment, including one in the form of a 27 power of amendment or revocation, are deemed to act for 28 beneficiaries to the extent their interests (as objects, takers in 29 default, or otherwise) are subject to the power. The term 30 ‘presently exercisable general power of appointment’ includes a 31 testamentary general power of appointment having no conditions 32 precedent to its exercise other than the death of the holder, the 33 validity of the holder’s last will and testament, and the inclusion of 34 a provision in the will sufficient to exercise this power. 35 36 REPORTER’S COMMENTS 37 This section allows one who is the holder of a presently 38 exercisable ‘general power of appointment’ (which, in this context, 39 means one having the power to take absolute ownership of 40 property to himself, either by appointment, by amendment, or by 41 revocation) to agree to actions taken by a personal representative 42 or by a trustee, to consent to the modification or termination of a[1243] 6 1 trust or a deviation from its terms, and, thereby, to bind the 2 beneficiaries whose interests are subject to the power. 3 4 Section 621109. Unless expressly provided otherwise in a 5 written employment agreement, the creation of an attorneyclient 6 relationship between a lawyer and a person serving as a fiduciary 7 shall not impose upon the lawyer any duties or obligations to other 8 persons interested in the estate, trust estate, or other fiduciary 9 property, even though fiduciary funds may be used to compensate 10 the lawyer for legal services rendered to the fiduciary. This 11 section is intended to be declaratory of the common law and 12 governs relationships in existence between lawyers and persons 13 serving as fiduciaries as well as such relationships hereafter 14 created. 15 16 Section 621110. Whenever an attorneyclient relationship exists 17 between a lawyer and a fiduciary, communications between the 18 lawyer and the fiduciary shall be subject to the attorneyclient 19 privilege unless waived by the fiduciary, even though fiduciary 20 funds may be used to compensate the lawyer for legal services 21 rendered to the fiduciary. The existence of a fiduciary relationship 22 between a fiduciary and a beneficiary does not constitute or give 23 rise to any waiver of the privilege for communications between the 24 lawyer and the fiduciary. 25 26 REPORTER’S COMMENTS 27 This section was enacted and intended to: (i) expressly reject the 28 concept of a ‘fiduciary exception’ to any attorneyclient privilege; 29 (ii) encourage full disclosure by the fiduciary to the lawyer to 30 further the administration of justice; and (iii) foster confidence 31 between a fiduciary and his lawyer that will lead to a trusting and 32 open attorneyclient dialogue. See Estate of Kofsky, 487 Pa. 473 33 (1979). This section also expressly rejects the holding set forth in 34 the case of Riggs Natl. Bank v. Zimmer, 355 A.2d 709 (Del. Ch. 35 1976)(trustee’s invocation of the attorneyclient privilege does not 36 shield document from disclosure to trust beneficiaries) as applied 37 by the Court in Floyd v. Floyd, 365 S.C. 56, 615 S.E.2d 465 (Ct. 38 App. 2005). 39 40 Section 621111. In a formal proceeding, the court, as justice and 41 equity may require, may award costs and expenses, including 42 reasonable attorney’s fees, to any party, to be paid by another party 43 or from the estate that is the subject of the controversy.[1243] 7 1 2 REPORTER’S COMMENTS 3 This section was enacted to clarify the probate court’s authority to 4 award costs and expenses. See §6271004 for a similar provision in 5 the South Carolina Trust Code. 6 7 Part 2 8 9 Definitions 10 11 Section 621201. Subject to additional definitions contained in 12 the subsequent articles which are applicable to specific articles or 13 parts, and unless the context otherwise requires, in this Code: 14 (1) ‘Application’ means a written request to the probate court 15 for an order. An application does not require a summons and is 16 not governed by or subject to the rules of civil procedure adopted 17 for the circuit court. 18 (2) ‘Beneficiary’, as it relates to trust beneficiaries, includes a 19 person who has any present or future interest, vested or contingent, 20 and also includes the owner of an interest by assignment or other 21 transfer and, as it relates to a charitable trust, includes any person 22 entitled to enforce the trust. 23 (3) ‘Child’ includes any individual entitled to take as a child 24 under this Code by intestate succession from the parent whose 25 relationship is involved and excludes any person who is only a 26 stepchild, a foster child, a grandchild, or any more remote 27 descendant. 28 (4) ‘Claims’, in respect to estates of decedents and protected 29 persons, includes liabilities of the decedent or protected person 30 whether arising in contract, in tort, or otherwise, and liabilities of 31 the estate which arise at or after the death of the decedent or after 32 the appointment of a conservator, including funeral expenses and 33 expenses of administration. The term does not include estate or 34 inheritance taxes, or demands or disputes regarding title of a 35 decedent or protected person to specific assets alleged to be 36 included in the estate. 37 (5) ‘Court’ means the court or branch having jurisdiction in 38 matters as provided in this Code. 39 (6) ‘Conservator’ means a person who is appointed by a court 40 to manage the estate of a protected person. 41 (7) ‘Devise’, when used as a noun, means a testamentary 42 disposition of real or personal property, including both devise and[1243] 8 1 bequest as formerly used, and when used as a verb, means to 2 dispose of real or personal property by will. 3 (8) ‘Devisee’ means any person designated in a will to receive 4 a devise. In the case of a devise to an existing trust or trustee, or to 5 a trustee on trust described by will, the trust or trustee is the 6 devisee and the beneficiaries are not devisees. 7 (9) ‘Disability’ means cause for a protective order as described 8 by Section 625401. 9 (10) ‘Distributee’ means any person who has received property 10 of a decedent from his personal representative other than as 11 creditor or purchaser. A testamentary trustee is a distributee only 12 to the extent of distributed assets or increment thereto remaining in 13 his hands. A beneficiary of a testamentary trust to whom the 14 trustee has distributed property received from a personal 15 representative is a distributee of the personal representative. For 16 purposes of this provision, ‘testamentary trustee’ includes a trustee 17 to whom assets are transferred by will, to the extent of the devised 18 assets. 19 (11) ‘Estate’ includes the property of the decedent, trust, or 20 other person whose affairs are subject to this Code as originally 21 constituted and as it exists from time to time during administration. 22 (12) ‘Exempt property’ means that property of a decedent’s 23 estate which is described in Section 622401. 24 (12A)(13) ‘Expense of administration’ includes commissions 25 of personal representatives, fees and disbursements of attorneys, 26 fees of appraisers, and such other expenses that are reasonably 27 incurred in the administration of the estate. 28 (14) ‘Fair market value’ is the price that property would sell for 29 on the open market that would be agreed on between a willing 30 buyer and a willing seller, with neither being required to act, and 31 both having reasonable knowledge of the relevant facts. 32 (13)(15) ‘Fiduciary’ includes personal representative, guardian, 33 conservator, and trustee. 34 (14)(16) ‘Foreign personal representative’ means a personal 35 representative of another jurisdiction. 36 (15)(17) ‘Formal proceedings’ means actions commenced by 37 the filing of a summons and petition with the probate court and 38 service of the summons and petition upon the interested persons. 39 Formal proceedings are governed by and subject to the rules of 40 civil procedure adopted for the circuit court courts and other rules 41 of procedure in this title. 42 (16)(18) ‘Guardian’ means a person appointed by the court as 43 guardian who has qualified as a guardian of an incapacitated[1243] 9 1 person pursuant to testamentary or court appointment, but excludes 2 one who is merely a guardian ad litem or a statutory guardian. 3 (16A)(19) ‘General power of appointment’ means any power 4 that would cause income to be taxed to the fiduciary in his 5 individual capacity under Section 678 of the Internal Revenue 6 Code and any power that would be a general power of 7 appointment, in whole or in part, under Section 2041(a)(2) or 8 2514(c) of the Internal Revenue Code. 9 (17)(20) ‘Heirs’ means those persons, including the surviving 10 spouse, who are entitled under the statute of intestate succession to 11 the property of a decedent. 12 (18)(21) ‘Incapacitated person’ is as defined in Section 625101. 13 (19)(22) ‘Informal proceedings’ means those commenced by 14 application and conducted without notice to interested persons by 15 the court for probate of a will or appointment of a personal 16 representative. Informal proceedings are not governed by or 17 subject to the rules of civil procedure adopted for the circuit court. 18 (20)(23) ‘Interested person’ includes heirs, devisees, children, 19 spouses, creditors, beneficiaries, and any others having a property 20 right in or claim against a trust estate or the estate of a decedent, 21 ward, or protected person which may be affected by the 22 proceeding. It also includes persons having priority for 23 appointment as personal representative and other fiduciaries 24 representing interested persons. The meaning as it relates to 25 particular persons may vary from time to time and must be 26 determined according to the particular purposes of, and matter 27 involved in, any proceeding. 28 (21)(24) ‘Issue’ of a person means all his lineal descendants 29 whether natural or adoptive of all generations, with the relationship 30 of parent and child at each generation being determined by the 31 definitions of child and parent contained in this Code. 32 (22)(25) ‘Lease’ includes an oil, gas, or other mineral 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 years 37 of age, excluding a person under the age of eighteen who is 38 married or emancipated as decreed by the family court. 39 (25)(28) ‘Mortgage’ means any conveyance, agreement, or 40 arrangement in which real property is used as security. 41 (26)(29) ‘Nonresident decedent’ means a decedent who was 42 domiciled in another jurisdiction at the time of his death. [1243] 10 1 (27)(30) ‘Organization’ includes a corporation, government or 2 governmental subdivision or agency, business trust, estate, trust, 3 partnership or association, two or more persons having a joint or 4 common interest, or any other legal entity. 5 (28)(31) ‘Parent’ includes any person entitled to take, or who 6 would be entitled to take if the child died without a will, as a 7 parent under this Code by intestate succession from the child 8 whose relationship is in question and excludes any person who is 9 only a stepparent, foster parent, or grandparent. 10 (29)(32) ‘Person’ means an individual, a corporation, an 11 organization, or other legal entity business trust, estate, trust, 12 partnership, limited liability company, association, joint venture, 13 government or governmental subdivision, agency, or 14 instrumentality, public corporation, or any other legal or 15 commercial entity. 16 (30)(33) ‘Personal representative’ includes executor, 17 administrator, successor personal representative, special 18 administrator, and persons who perform substantially the same 19 function under the law governing their status. ‘General personal 20 representative’ excludes special administrator. 21 (31)(34) ‘Petition’ means a complaint as defined in the rules of 22 civil procedure adopted for the circuit court. A petition requires a 23 summons and is governed by and subject to the rules of civil 24 procedure adopted for the circuit court and other rules of procedure 25 in this title. 26 (35) ‘Probate estate’ means the decedent’s property passing 27 under the decedent’s will plus the decedent’s property passing by 28 intestacy. 29 (32)(36) ‘Proceeding’ includes action at law and suit in equity. 30 (33)(37) ‘Property’ includes both real and personal property or 31 any interest therein and means anything that may be the subject of 32 ownership. 33 (34)(38) ‘Protected person’ is as defined in Section 625101. 34 (35)(39) ‘Protective proceeding’ is as defined in Section 35 625101. 36 (40) ‘SCACR’ means the South Carolina Appellate Court Rules. 37 (36)(41) ‘Security’ includes any note, stock, treasury stock, 38 bond, debenture, evidence of indebtedness, certificate of interest, 39 or participation in an oil, gas, or mining title or lease or in 40 payments out of production under such a title or lease, collateral 41 trust certificate, transferable share, voting trust certificate or, in 42 general, any interest or instrument commonly known as a security 43 or any certificate of interest or participation, any temporary or[1243] 11 1 interim certificate, receipt or certificate of deposit for, or any 2 warrant or right to subscribe to or purchase, any of the foregoing. 3 (36A)(42) ‘Security interest’ means any conveyance, 4 agreement, or arrangement in which personal property is used as 5 security. 6 (37)(43) ‘Settlement’ in reference to a decedent’s estate 7 includes the full process of administration, distribution, and 8 closing. 9 (38)(44) ‘Special administrator’ means a personal 10 representative as described by Sections 623614 through 623618. 11 (39)(45) ‘State’ includes any means a state of the United States, 12 the District of Columbia, the Commonwealth of Puerto Rico, the 13 United States Virgin Islands, a federally recognized Indian tribe, or 14 and any territory or insular possession subject to the legislative 15 authority jurisdiction of the United States. 16 (40) ‘Stepchild’ with reference to any person means one who is 17 the child, natural or adopted, of such person’s spouse but who is 18 not the child, natural or adopted, of such person. 19 (41)(46) ‘Successor personal representative’ means a personal 20 representative, other than a special administrator, who is appointed 21 to succeed a previously appointed personal representative. 22 (42)(47) ‘Successors’ means those persons, other than creditors, 23 who are entitled to property of a decedent under his will or this 24 Code. 25 (43)(48) ‘Testacy proceeding’ means a formal proceeding to 26 establish a will or determine intestacy. 27 (44)(49) ‘Trust’ includes any express trust, private or 28 charitable, with additions thereto, wherever and however created. 29 It also includes a trust created or determined by judgment or 30 decree under which the trust is to be administered in the manner of 31 an express trust. ‘Trust’ excludes other constructive trusts, and it 32 excludes resulting trusts, conservatorships, personal 33 representatives, trust accounts as defined in Article 6 (Sections 34 626101 et seq.), custodial arrangements pursuant to the South 35 Carolina Uniform Gifts to Minors Act, Article 5, Chapter 5, Title 36 63, business trusts providing for certificates to be issued to 37 beneficiaries, common trust funds, voting trusts, security 38 arrangements, liquidation trusts, and trusts for the primary purpose 39 of paying debts, dividends, interest, salaries, wages, profits, 40 pensions, or employee benefits of any kind, and any arrangement 41 under which a person is nominee or escrowee for another. 42 (45)(50) ‘Trustee’ includes an original, additional, or successor 43 trustee, whether or not appointed or confirmed by court. [1243] 12 1 (46)(51) ‘Ward’ is as defined in Section 625101. 2 (47)(52) ‘Will’ includes codicil and any testamentary 3 instrument which merely appoints an executor or revokes or 4 revises another will. 5 6 REPORTER’S COMMENTS 7 The definitions set out in this section are applicable throughout this 8 Code. Of interest is the definition of ‘claims’ in item (4) which 9 includes claims arising out of tort. 10 Also see Sections 624101, 625101, and 626101 for additional 11 definitions for Articles 4, 5, and 6. 12 The 2010 amendment revised certain definitions in Section 13 621201, i.e., ‘application’ in item (1), ‘formal proceedings’ in item 14 (17), ‘informal proceedings’ in item (22), ‘petition’ in item (34), 15 and ‘testacy proceeding’ in item (48), as well as other relevant 16 sections throughout the Probate Code, to clarify that the law 17 requires a summons in formal proceedings and the rules of civil 18 procedure adopted for the circuit court and other rules of procedure 19 in this title apply to and govern formal proceedings in probate 20 court. See S.C. Code §§1423280, 621304, and Rules 1 and 81, 21 SCRCP; also see, Weeks v. Drawdy, 495 S.E. 2d 454 (Ct. App. 22 1997) (the rules of probate court governing procedure address only 23 a limited number of issues and in the absence of a specific probate 24 court rule, the rules of civil procedure applicable in the court of 25 common pleas shall be applied in the probate court unless to do so 26 would be inconsistent with the provisions of the Code). 27 Prior to the 2010 amendments, certain confusion existed 28 regarding the requirement of a summons in a formal proceeding 29 and how the South Carolina Rules of Civil Procedure apply to 30 formal proceedings in the probate court. The 2010 amendments in 31 this section and throughout other portions of the Probate Code are 32 intended to minimize such confusion and to expressly clarify that a 33 ‘formal proceeding’ is commenced by a summons and petition and 34 governed by the rules of civil procedure adopted for the circuit 35 court and other rules of procedure in this title, and that an 36 ‘application’ does not require a summons and is not governed by 37 or subject to the rules of civil procedure adopted for the circuit 38 court. Where applicable and appropriate, the 2010 amendments 39 expand the matters in which an application may be utilized. 40 The 2012 amendment added definitions for ‘Fair Market Value’ 41 and ‘Probate Estate’. The 2012 amendment also made changes to 42 the definitions of ‘Guardian’, ‘Person’, and ‘State’. The definition[1243] 13 1 of ‘Stepchild’ has been removed as a result of changes to Section 2 622103(6). 3 4 Part 3 5 6 Scope, Jurisdiction, and Courts 7 8 Section 621301. Except as otherwise provided in this Code, this 9 Code applies to (1) the affairs and estates of decedents, missing 10 persons, and persons to be protected domiciled in this State, (2) the 11 property of nonresidents located in this State or property coming 12 into the control of a fiduciary who is subject to the laws of this 13 State, (3) incapacitated persons and minors in this State, (4) 14 survivorship and related accounts in this State, and (5) trusts 15 subject to administration in this State. 16 17 REPORTER’S COMMENTS 18 This section merely states that this Code applies to matters having 19 a connection to this State by reason of a person’s domicile or the 20 situs of property. 21 22 Section 621302. (a) To the full extent permitted by the 23 Constitution, and except as otherwise specifically provided, the 24 probate court has exclusive original jurisdiction over all subject 25 matter related to: 26 (1) estates of decedents, including the contest of wills, 27 construction of wills, determination of property in which the estate 28 of a decedent or a protected person has an interest , and 29 determination of heirs and successors of decedents and estates of 30 protected persons; 31 (2) protection of minors, except that jurisdiction over the 32 care, custody, and control of the persons of minors is governed by 33 Section 625201 and incapacitated persons, including the mortgage 34 and sale of personal and real property owned by minors or 35 incapacitated persons as well as gifts made pursuant to the South 36 Carolina Uniform Gifts to Minors Act, Article 5, Chapter 5, Title 37 63, except that jurisdiction for approval of settlement of claims in 38 favor of or against minors or incapacitated persons is governed by 39 Section 625433 subject to Part 7, Article 5, and excluding 40 jurisdiction over the care, custody, and control of a person or 41 minor: 42 (i) protective proceedings and guardianship proceedings 43 under Article 5; [1243] 14 1 (ii) gifts made pursuant to the South Carolina Uniform 2 Gifts to Minors Act under Article 5, Chapter 5, Title 63; 3 (3) trusts, inter vivos or testamentary, including the 4 appointment of successor trustees; 5 (4) the issuance of marriage licenses, in form as provided by 6 the Bureau of Vital Statistics of the Department of Health and 7 Environmental Control; record, index, and dispose of copies of 8 marriage certificates; and issue certified copies of the licenses and 9 certificates; 10 (5) the performance of the duties of the clerk of the circuit 11 and family courts of the county in which the probate court is held 12 when there is a vacancy in the office of clerk of court and in 13 proceedings in eminent domain for the acquisition of rightsofway 14 by railway companies, canal companies, governmental entities, or 15 public utilities when the clerk is disqualified by reason of 16 ownership of or interest in lands over which it is sought to obtain 17 the rightsofway; and 18 (6) the involuntary commitment of persons suffering from 19 mental illness, mental retardation, alcoholism, drug addiction, and 20 active pulmonary tuberculosis. 21 (b) The court’s jurisdiction over matters involving wrongful 22 death or actions under the survival statute is concurrent with that 23 of the circuit court and extends only to the approval of settlements 24 as provided in Sections 155141 and 155142 and to the allocation 25 of settlement proceeds among the parties involved in the estate. 26 (c) The probate court has jurisdiction to hear and determine 27 issues relating to paternity, commonlaw marriage, and 28 interpretation of marital agreements in connection with estate, 29 trust, guardianship, and conservatorship actions pending before it, 30 concurrent with that of the family court, pursuant to Section 31 633530. 32 (d) Notwithstanding the exclusive jurisdiction of the probate 33 court over the foregoing matters, any action or proceeding filed in 34 the probate court and relating to the following subject matters, on 35 motion of a party, or by the court on its own motion, made not 36 later than ten days following the date on which all responsive 37 pleadings must be filed, must be removed to the circuit court and 38 in these cases the circuit court shall proceed upon the matter de 39 novo: 40 (1) formal proceedings for the probate of wills and for the 41 appointment of general personal representatives; 42 (2) construction of wills; [1243] 15 1 (3) actions to try title concerning property in which the 2 estate of a decedent or protected person asserts an interest; 3 (4) trusts matte rs involving the internal or external affairs of 4 trusts as provided in Section 627201, excluding matters involving 5 the establishment of a ‘special needs trust’ as described in Article 6 5; 7 (5) actions in which a party has a right to trial by jury and 8 which involve an amount in controversy of at least five thousand 9 dollars in value; and 10 (6) actions concerning gifts made pursuant to the South 11 Carolina Uniform Gifts to Minors Act, Article 5, Chapter 5, Title 12 63. 13 (e) The removal to the circuit court of an action or proceeding 14 within the exclusive jurisdiction of the probate court applies only 15 to the particular action or proceeding removed, and the probate 16 court otherwise retains continuing exclusive jurisdiction. 17 (f) Notwithstanding the exclusive jurisdiction of the probate 18 court over the matters set forth in subsections (a) through (c), if an 19 action described in subsection (d) is removed to the circuit court 20 by motion of a party, or by the probate court on its own motion, 21 the probate court may, in its discretion, remove any other related 22 matter or matters which are before the probate court to the circuit 23 court if the probate court believes the removal of such related 24 matter or matters would be in the best interest of the estate or in 25 the interest of judicial economy. For any matter removed by the 26 probate court to the circuit court pursuant to this subsection, the 27 circuit court shall proceed upon the matter de novo. 28 29 REPORTER’S COMMENTS 30 This section clearly states the subject matter jurisdiction of the 31 probate court. It should be noted that the probate court has 32 ‘exclusive original jurisdiction’ over the matters enumerated in this 33 section. This means, when read with other Code provisions (such 34 as subsection (c) of this section and Section 623105), that matters 35 within the original jurisdiction of the probate court must be 36 brought in that court, subject to certain provisions made for 37 removal to the circuit court by the probate court or on motion of 38 any party. 39 The language of this section is similar to Section 14231150 of the 40 1976 Code, which, in item (a), provides that probate judges are to 41 have jurisdiction as provided in Sections 621301 and 621302, and 42 other applicable sections of this South Carolina Probate Code. [1243] 16 1 The 2012 amendments added ‘determination of property in 2 which the estate of a decedent or protected person has an interest’ 3 to subsection (a)(1), substantially rewrote subsections (a)(2), (d) 4 (3), and (d)(4), and added subsection (f), which allows the probate 5 court to remove any pending matter to circuit court in the event a 6 party or the court removes a related matter pursuant to subsection 7 (d), even if that pending matter is not otherwise covered by the 8 removal provisions of (d). 9 10 Section 621303. (a) Subject to the provisions of Section 11 623201, where a proceeding under this Code could be maintained 12 in more than one place in South Carolina, the court in which the 13 proceeding is first commenced has the exclusive right to proceed. 14 (b) If proceedings concerning the same estate, protected 15 persons, ward, or trust are commenced in more than one court of 16 South Carolina, the court in which the proceeding was first 17 commenced shall continue to hear the matter, and the other courts 18 shall hold the matter in abeyance until the question of venue is 19 decided, and, if the ruling court determines that venue is properly 20 in another court, it shall transfer the proceeding to the other court. 21 (c) If a court finds that, in the interest of justice, a proceeding 22 or a file should be located in another court of probate in South 23 Carolina, the court making the finding may transfer the proceeding 24 or file to the other court. 25 26 REPORTER’S COMMENTS 27 This section provides that, where a proceeding could be held in 28 more than one county under Section 623201, the probate court in 29 which the proceeding is first commenced has the exclusive right to 30 proceed. If proceedings are commenced in more than one probate 31 court, the court in which the proceeding was first commenced must 32 continue to hear the matter unless it decides that venue is properly 33 in another county, in which event it is to transfer the matter to that 34 other county. Section 623201 relates to testacy or appointment 35 proceedings after death and grants venue to the county of the 36 decedent’s domicile or, if the decedent was not domiciled in this 37 State, to any county in which his property was located. 38 This section also provides that venue with respect to a 39 nonresident’s estate could be in any county where he owned 40 property. 41 42 Section 621304. The South Carolina Rules of Civil Procedure 43 (SCRCP) adopted for the circuit court and other rules of procedure[1243] 17 1 in this title govern formal proceedings pursuant to this title. A 2 formal proceeding is a ‘civil action’ as defined in Rule 2, SCRCP, 3 and must be commenced as provided in Rule 3, SCRCP. 4 5 REPORTER’S COMMENTS 6 The 2010 amendment revised and essentially rewrote Section 7 621304 in order to clarify that ‘formal proceedings’ are governed 8 by and subject to the rules of civil procedure adopted for the circuit 9 court [SCRCP] and other rules of procedure in this title and that 10 the SCRCP also govern formal proceedings and commencement of 11 same. See 2010 amendments to certain definitions in S.C. Code 12 §621201 and also see §§1423280, 621304, and Rules 1 and 81, 13 SCRCP; see also, Weeks v. Drawdy, 495 S.E. 2d 454 (Ct. App. 14 1997) (the rules of probate court governing procedure address only 15 a limited number of issues and in the absence of a specific probate 16 court rule, the rules of civil procedure applicable in the court of 17 common pleas shall be applied in the probate court unless to do so 18 would be inconsistent with the provisions of the Code). 19 20 Section 621305. The court shall keep a record for each 21 decedent, ward, protected person, or trust involved in any 22 document which may be filed with the court under this Code, 23 including petitions and applications, demands for notices or bonds, 24 and of any orders or responses relating thereto by the probate 25 court, and establish and maintain a system for indexing, filing, or 26 recording which is sufficient to enable users of the records to 27 obtain adequate information. Upon payment of the fees required 28 by law, the clerk must issue certified copies of any probated wills, 29 letters issued to personal representatives, or any other record or 30 paper filed or recorded. Certificates relating to letters must show 31 the date of appointment. 32 33 REPORTER’S COMMENTS 34 This section requires that the probate court keep a record of all 35 matters filed with the court and that records be so indexed and 36 filed as to make them useful to those examining them. Further, the 37 court is required to issue certified copies of documents on file. 38 This section does not go into the detail of Sections 14231100 and 39 14231130 of the 1976 Code which list in some detail the records 40 which must be kept by the probate court. These sections are not 41 incompatible with Section 621305. Probate Court Rule 1, 42 pertaining to a calendar and to books denoting titles of all cases 43 and transactions therein, is not disturbed by this section. [1243] 18 1 2 Section 621306. (a) If duly demanded, a party is entitled to 3 trial by jury in any proceeding involving an issue of fact in an 4 action for the recovery of money only or of specific real or 5 personal property, unless waived as provided in the rules of civil 6 procedure for the courts of this State. The right to trial by jury 7 exists in, but is not limited to, formal proceedings in favor of the 8 probate of a will or contesting the probate of a will. 9 (b) If there is no right to trial by jury under subsection (a) or 10 the right is waived, the court in its discretion may call a jury to 11 decide any issue of fact, in which case the verdict is advisory only. 12 (c) The method of drawing, summoning, and compensating 13 jurors under this section shall be within the province of the county 14 jury commission and shall be governed by Chapter 7 of, Title 14 of 15 the 1976 Code relating to juries in circuit courts. 16 17 REPORTER’S COMMENTS 18 This section confers a right to trial by jury in the probate court in 19 the same kinds of proceedings in which the right to jury trial exists 20 in the circuit court, namely, proceedings involving an issue of fact 21 in an action for the recovery of money only or of specific real or 22 personal property, Section 152360 of the 1976 Code. If no right to 23 trial by jury exists, the court may impanel a jury to decide any 24 issue or fact on an advisory basis. 25 Chapter 7, Title 14 of the 1976 Code, relating to juries in the 26 circuit court, governs the method of drawing, summoning, and 27 compensating jurors. 28 29 Section 621307. The acts and orders which this Code specifies 30 as performable by the court may be performed either by the judge 31 or by a person, including one or more clerks, designated by the 32 judge by a written order filed and recorded in the office of the 33 court. 34 35 Section 621308. Except as provided in subsection (g)(1), 36 appeals from the probate court must be to the circuit court and are 37 governed by the following rules: 38 (a) A person interested in a final order, sentence, or decree of a 39 probate court and considering himself injured by it may appeal to 40 the circuit court in the same county. The notice of intention to 41 appeal to the circuit court must be filed in the office of the circuit 42 court and in the office of the probate court and a copy served on all 43 parties not in default within ten days after receipt of written notice[1243] 19 1 of the appealed from order, sentence, or decree of the probate 2 court. The grounds of appeal must be filed in the office of the 3 probate court and a copy served on all parties within fortyfive days 4 after receipt of written notice of the order, sentence, or decree of 5 the probate court. 6 (b) Within thirty days after the grounds of appeal has been 7 filed in the office of the probate court, as provided in subsection 8 (a), the probate court shall make a return to the appellate court of 9 the testimony, proceedings, and judgment and file it in the 10 appellate court. Upon final disposition of the appeal, all papers 11 included in the return must be forwarded to the probate court 12 fortyfive days after receipt of written notice of the order, sentence, 13 or decree of the probate court, the appellant must file with the 14 clerk of the circuit court a Statement of Issues on Appeal (in a 15 format described in Rule 208(b)(1)(B), SCACR) with proof of 16 service and a copy served on all parties. 17 (c) Where a transcript of the testimony and proceedings in the 18 probate court was prepared, the appellant shall, within ten days 19 after the date of service of the notice of intention to appeal, make 20 satisfactory arrangements with the court or court reporter for 21 furnishing the transcript. If the appellant has not received the 22 transcript within fortyfive days after receipt of written notice of the 23 order, sentence, or decree of the probate court, the appellant may 24 make a motion to the circuit court for an extension to serve and file 25 the parties’ briefs and Designations of Matter to be Included in the 26 Record on Appeal, as provided in subsections (d) and (e). 27 (d) Within thirty days after service of the Statement of Issues 28 on Appeal, all parties to the appeal shall serve on all other parties 29 to the appeal a Designation of Matter to be Included in the Record 30 on Appeal (in a format described in Rule 209, SCACR) and file 31 with the clerk of the circuit court one copy of the Designation of 32 Matter to be Included in the Record on Appeal with proof of 33 service. 34 (e) At the same time appellant serves his Designation of Matter 35 to be Included in the Record on Appeal, the appellant shall serve 36 one copy of his brief on all parties to the appeal, and file with the 37 clerk of the circuit court one copy of the brief with proof of 38 service. The appellant’s brief shall be in a format described in 39 Rule 208(b)(1), SCACR. Within thirty days after service of the 40 appellant’s brief, respondent shall serve one copy of his brief on all 41 parties to the appeal, and file with the clerk of the circuit court one 42 copy of the brief with proof of service. The respondent’s brief 43 shall be in a format described in Rule 208(b)(2), SCACR.[1243] 20 1 Appellant may file and serve a brief in reply to the brief of 2 respondent. If a reply brief is prepared, appellant shall, within ten 3 days after service of respondent’s brief, serve one copy of the reply 4 brief on all parties to the appeal and file with the clerk of circuit 5 court one copy of the reply brief with proof of service. The 6 appellant’s reply brief shall be in a format described in Rule 7 208(b)(3), SCACR. 8 (f) Within thirty days after service of the respondent’s brief, 9 the appellant shall serve a copy of the Record on Appeal (in a 10 format described in subsections (c), (e), (f) and (g) of Rule 210, 11 SCACR, except that the Record of Appeal need not comply with 12 the requirements of Rule 267, SCACR) on each party who has 13 served a brief and filed with the clerk of the circuit court one copy 14 of the Record on Appeal with proof of service . 15 (g) Except as provided in this section, no party is required to 16 comply with any other requirements of the South Carolina 17 Appellate Court Rules. Upon final disposition of the appeal, all 18 exhibits filed separately (as described in Rule 210(f), SCACR), but 19 not included in the Record on Appeal, must be forwarded to the 20 probate court . 21 (h) When an appeal according to law is taken from any 22 sentence or decree of the probate court, all proceedings in 23 pursuance of the order, sentence, or decree appealed from shall 24 cease until the judgment of the circuit court, court of appeals, or 25 Supreme Court is had. If the appellant, in writing, waives his 26 appeal before the entry of the judgment, proceedings may be had 27 in the probate court as if no appeal had been taken. 28 (di) When the return has been filed in The circuit court, as 29 provided in subsection (b), the court of appeals, or Supreme Court 30 shall hear and determine the appeal according to the rules of law. 31 The hearing must be strictly on appeal and no new evidence may 32 be presented. 33 (ej) The final decision and judgment in cases appealed, as 34 provided in this code, shall be certified to the probate court by the 35 circuit court, court of appeals, or Supreme Court, as the case may 36 be, and the same proceedings shall be had in the probate court as 37 though the decision had been made in the probate court. Within 38 fortyfive days after receipt of written notice of the final decision 39 and judgment in cases appealed, the prevailing party shall provide 40 a copy of such decision and judgment to the probate court. 41 (fk) A judge of a probate court must not be admitted to have 42 any voice in judging or determining an appeal from his decision or 43 be permitted to act as attorney or counsel. [1243] 21 1 (gl) If the parties not in default consent either in writing or on 2 the record at a hearing in the probate court, a party to a final order, 3 sentence, or decree of a probate court who considers himself 4 injured by it may appeal directly to the Supreme Court, and the 5 procedure for the appeal must be governed by the South Carolina 6 Appellate Court Rules. 7 8 REPORTER’S COMMENTS 9 This section provides that appeals from the probate court are to the 10 circuit court. Under Section 621308(i), any appeal from the 11 probate court is strictly on the record. 12 The 2012 amendments to this section were intended to clarify 13 the process for appeals from the probate court. With these 14 changes, (i) the form for the Statement of Issues on Appeal follows 15 that form set forth in Rule 208(b)(1)(B); the use of briefs is 16 specifically contemplated and the form of the briefs follows that 17 set forth in Rule 208, SCACR; (iii) the appellant bears the burden 18 of preparing the record on appeal; and (iv) the prevailing party 19 bears the burden of providing the probate court with a copy of the 20 final decision and judgment from the circuit court, court of 21 appeals, or Supreme Court. While the 2012 amendments do 22 incorporate certain provisions of the SCACR, paragraph (g) 23 clarifies that not all provisions of the SCACR apply to appeals 24 from probate court to circuit court. 25 26 Section 621309. The judges of the probate court shall be elected 27 by the qualified electors of the respective counties for the term of 28 four years in the manner specified by Section 14231020. 29 30 REPORTER’S COMMENTS 31 This section does not disturb Section 14231040 of the 1976 Code 32 which requires that a probate judge or an associate judge must be a 33 qualified elector of the county in which he is to be a judge. 34 35 Part 4 36 37 Notice, Parties, and Representation 38 in Estate Litigation and other matters 39 40 Section 621401. (a) If notice of a hearing on any petition is 41 required and, except for specific notice requirements as otherwise 42 provided, the petitioner shall cause notice of the time and place of 43 hearing of any petition to be given to any interested person or his[1243] 22 1 attorney if he has appeared by attorney or requested that notice be 2 sent to his attorney. Notice shall be given: 3 (1) by mailing a copy thereof at least twenty days before the 4 time set for the hearing by certified, registered, or ordinary first 5 class mail addressed to the person being notified at the post office 6 address given in his demand for notice, if any, or at his office or 7 place of residence, if known; 8 (2) by delivering a copy thereof to the person being notified 9 personally at least twenty days before the time set for the hearing; 10 or 11 (3) if the address or identity of any person is not known and 12 cannot be ascertained with reasonable diligence by publishing a 13 copy thereof in the same manner as required by law in the case of 14 the publication of a summons for an absent defendant in the court 15 of common pleas. 16 (b) The court for good cause shown may provide for a different 17 method or time of giving notice for any hearing. 18 (c) Proof of the giving of notice shall be made on or before the 19 hearing and filed in the proceeding. 20 (d) Notwithstanding a provision to the contrary, the notice 21 provisions in this section do not, and are not intended to, constitute 22 a summons that is required for a petition. 23 24 REPORTER’S COMMENTS 25 This section provides that, where notice of hearing on a petition is 26 required, the petitioner shall give notice to any interested person or 27 his attorney (1) by mailing at least twenty days in advance of the 28 hearing, or (2) by personal delivery at least twenty days in advance 29 of the hearing, or (3) if the person’s address or identity is not 30 known and cannot be ascertained, by publication as in the court of 31 common pleas. 32 Under this Code, when a petition is filed with the court, the court 33 is to fix a time and place of hearing and it is then the responsibility 34 of the petitioner to give notice as provided in Section 621401. See, 35 for example, Sections 623402 and 623403. 36 The 2010 amendment added subsection (d) to clarify and avoid 37 confusion that previously existed regarding the notice provisions in 38 this section. The effect of the 2010 amendment was intended to 39 make it clear that the notice provisions in this section are not 40 intended to and do not constitute a summons, which is required for 41 a petition in formal proceedings. See 2010 amendments to certain 42 definitions in S.C. Code §621201 and also see §§1423280, 43 621304, and Rules 1 and 81, SCRCP.[1243] 23 1 2 Section 621402. A person, including a guardian ad litem, 3 conservator, or other fiduciary, may waive notice by a writing 4 signed by him or his attorney and filed in the proceeding. 5 6 Section 621403. In formal proceedings involving trusts or 7 estates of decedents, minors, protected persons, or incapacitated 8 persons and in judicially supervised settlements the following 9 apply: 10 (1) Interests to be affected must be described in pleadings that 11 give reasonable information to owners by name or class by 12 reference to the instrument creating the interests or in other 13 appropriate manner. 14 (2) Persons are bound by orders binding others in the following 15 cases: 16 (i) Orders binding the sole holder or all coholders of a 17 power of revocation or a presently exercisable general power of 18 appointment, including one in the form of a power of amendment, 19 bind other persons to the extent their interests (as objects, takers in 20 default, or otherwise) are subject to the power. 21 (ii) To the extent there is no conflict of interest between 22 them or among persons represented, orders binding a conservator 23 bind the person whose estate he controls; orders binding a 24 guardian bind the ward if no conservator of his estate has been 25 appointed; orders binding a trustee bind beneficiaries of the trust 26 in proceedings to probate a will establishing or adding to a trust to 27 review the acts or accounts of a prior fiduciary and in proceedings 28 involving creditors or other third parties; and orders binding a 29 personal representative bind persons interested in the undistributed 30 assets of a decedent’s estate in actions or proceedings by or against 31 the estate. If there is no conflict of interest and no conservator or 32 guardian has been appointed, a person may represent his minor or 33 unborn issue. 34 (iii) A minor or unborn or unascertained person who is not 35 otherwise represented is bound by an order to the extent his 36 interest is adequately represented by another party having a 37 substantially identical interest in the proceeding. 38 (3) Service of summons, petition, and notice is required as 39 follows: 40 (i) Service of summons, petition, and notice must be given 41 to every interested person or to one who can bind an interested 42 person as described in (2)(i) or (2)(ii) above. Service of summons[1243] 24 1 and petition upon, as well as notice, may be given both to a person 2 and to another who may bind him. 3 (ii) Service upon and notice is given to unborn or 4 unascertained persons who are not represented under (2)(i) or (2) 5 (ii) above by giving notice to all known persons whose interests in 6 the proceedings are substantially identical to those of the unborn or 7 unascertained persons. 8 (4) At any point in a proceeding, a court may appoint a 9 guardian ad litem to represent the interest of a minor, an 10 incapacitated, unborn, or unascertained person, or a person whose 11 identity or address is unknown, if the court determines that 12 representation of the interest otherwise would be inadequate. If 13 not precluded by conflict of interests, a guardian ad litem may be 14 appointed to represent several persons or interests. The court shall 15 set out its reasons for appointing a guardian ad litem as a part of 16 the record of the proceeding. 17 18 REPORTER’S COMMENTS 19 This section applies to formal proceedings and judicially 20 supervised settlements. It provides that in certain specified 21 instances a person will be bound by orders which are binding on 22 others. Subitem (i) of item (2) provides that an order which is 23 binding upon the person or persons holding a power of revocation 24 or a general power of appointment will bind others, such as objects 25 or takers in default, to the extent that their interests are subject to 26 the power. This would mean that an order which is binding on one 27 who has discretion will bind those in whose favor he might act. 28 Absent a conflict of interest, subitem (ii) of item (2) provides that 29 orders binding a conservator or guardian are binding on the 30 protected person. In certain limited instances, orders binding on a 31 trustee or a personal representative are binding on beneficiaries 32 and interested persons. Further, under subitem (iii) of item (2) an 33 unborn or unascertained person is bound by orders affecting 34 persons having a substantially identical interest. These provisions 35 facilitate proceedings by limiting multiplicity of parties. 36 Item (4) permits the court at any point in a proceeding to appoint a 37 guardian ad litem to represent a minor, an incapacitated person, an 38 unborn or unascertained person, or one whose identity or address 39 is unknown if the court determines that representation of that 40 interest would otherwise be inadequate. Accordingly, in a 41 proceeding where there are adult parties having the same interest 42 as the minor or incapacitated person, the court may not deem it 43 necessary to appoint a guardian ad litem if it appears that the[1243] 25 1 common interest will be adequately represented. In the case of 2 minors, the appointment of a guardian ad litem (or an attorney 3 having the powers and duties of a guardian ad litem) is 4 discretionary with the court. However, this Code does require that 5 notice of the proceeding be given to adults presumably having an 6 interest in the minor’s welfare, such as the person having care and 7 custody of the minor, parent(s), or nearest adult relatives. 8 The 2010 amendment revised subsections (1) and (3) to clarify 9 procedure for a formal proceeding, which requires a summons and 10 petition to commence a formal proceeding. See 2010 amendments 11 to certain definitions in S.C. Code §621201 and also see 12 §§1423280, 621304, and Rules 1 and 81, SCRCP. The 2010 13 amendment also revised subsection (2)(ii) to delete ‘parent’ and 14 replace it with ‘person,’ so that it is consistent with the remainder 15 of that subsection and also delete ‘child’ and replace it with ‘issue’ 16 to be broader and more inclusive. 17 18 Part 5 19 20 Uniform Simultaneous Death Act 21 22 Section 621500. This part may be cited as the ‘Uniform 23 Simultaneous Death Act’. 24 25 REPORTER’S COMMENT 26 The 2012 amendment made significant changes to Part 5. Prior to 27 the 2012 amendment, Part 5 did not include a 120 hour survival 28 requirement similar to §622104. The revisions to Part 5 now 29 incorporate a default 120 hour survival requirement for testate and 30 intestate decedents as well as for nonprobate transfers, subject to 31 the exceptions set forth in §621506. 32 33 Section 621501. This part may be cited as the ‘Uniform 34 Simultaneous Death Act’. For purposes of this part: 35 (1) ‘Coowners with right of survivorship’ includes joint tenants 36 in a joint tenancy with right of survivorship, joint tenants in a 37 tenancy in common with right of survivorship, tenants by the 38 entireties, and other coowners of property or accounts held under 39 circumstances that entitle one or more to the whole of the property 40 or account on the death of the other or others. 41 (2) ‘Governing instrument’ means a deed, will, trust, insurance 42 or annuity policy, account with POD designation, pension, 43 profitsharing, retirement, or similar benefit plan, instrument[1243] 26 1 creating or exercising a power of appointment or a power of 2 attorney, or a dispositive, appointive, or nominative instrument of 3 any similar type. 4 (3) ‘Payor’ means a trustee, insurer, business entity, employer, 5 government, governmental agency, subdivision, or instrumentality, 6 or any other person authorized or obligated by law or a governing 7 instrument to make payments. 8 9 Section 621502. When the title to property or the devolution 10 thereof depends upon priority of death and there is no sufficient 11 evidence that the persons have died otherwise than simultaneously 12 the property of each person shall be disposed of as if he had 13 survived, except as provided otherwise in this part [Sections 14 621501 et seq.]. (a)Except as otherwise provided by this Code, 15 where the title to property, the devolution of property, the right to 16 elect an interest in property, or any other right or benefit depends 17 upon an individual’s survivorship of the death of another 18 individual, an individual who is not established by clear and 19 convincing evidence to have survived the other individual by at 20 least one hundred twenty hours is deemed to have predeceased the 21 other individual. 22 (b) If the language of the governing instrument disposes of 23 property in such a way that two or more beneficiaries are 24 designated to take alternatively by reason of surviving each other 25 and it is not established by clear and convincing evidence that any 26 such beneficiary has survived any other beneficiary by at least one 27 hundred twenty hours, the property shall be divided into as many 28 equal shares as there are alternative beneficiaries, and these shares 29 shall be distributed respectively to each such beneficiary’s estate. 30 (c) If the language of the governing instrument disposes of 31 property in such a way that it is to be distributed to the member or 32 members of a class who survived an individual, each member of 33 the class will be deemed to have survived that individual by at 34 least one hundred twenty hours unless it is established by clear and 35 convincing evidence that the individual survived the class member 36 or members by at least one hundred twenty hours. 37 38 Section 621503. When two or more beneficiaries are designated 39 to take successively by reason of survivorship under another 40 person’s disposition of property and there is no sufficient evidence 41 that these beneficiaries have died otherwise than simultaneously, 42 the property thus disposed of shall be divided into as many equal 43 portions as there are successive beneficiaries and these portions[1243] 27 1 shall be distributed respectively to those who would have taken in 2 the event that each designated beneficiary had survived. Except as 3 otherwise provided by this Code, for purposes of a provision of a 4 governing instrument that relates to an individual surviving an 5 event, including the death of another individual, an individual who 6 is not established by clear and convincing evidence to have 7 survived the event by at least one hundred twenty hours is deemed 8 to have predeceased the event. 9 10 Section 621504. When there is no sufficient evidence that two 11 joint tenants or tenants by the entirety have died otherwise than 12 simultaneously, the property so held shall be distributed one half 13 as if one had survived and one half as if the other had survived. If 14 there are more than two joint tenants and all of them have so died, 15 the property shall be so distributed in the proportion that one bears 16 to the whole number of joint tenants. Except as otherwise 17 provided by this Code, if: 18 (a) it is not established by clear and convincing evidence that 19 one of two coowners with right of survivorship survived the other 20 coowner by at least one hundred twenty hours, onehalf of the 21 property passes as if one had survived by at least one hundred 22 twenty hours and onehalf as if the other had survived by at least 23 one hundred twenty hours; 24 (b) there are more than two coowners and it is not established 25 by clear and convincing evidence that at least one of them survived 26 the others by at least one hundred twenty hours, the property 27 passes to the estates of each of the coowners in the proportion that 28 one bears to the whole number of coowners. 29 30 REPORTER’S COMMENT 31 This section applies to property or accounts held by coowners with 32 right of survivorship. As defined in §621501, the term ‘coowners 33 with right of survivorship’ includes multipleparty accounts with 34 right of survivorship. 35 36 Section 621505. When the insured and the beneficiary in a 37 policy of life or accident insurance have died and there is no 38 sufficient evidence that they have died otherwise than 39 simultaneously, the proceeds of the policy shall be distributed as if 40 the insured had survived the beneficiary. Notwithstanding any 41 other provisions of the Code, solely for the purpose of determining 42 whether a decedent is entitled to any right or benefit that depends 43 on surviving the death of a decedent’s killer under Section 622803,[1243] 28 1 the killer is deemed to have predeceased the decedent, and the 2 decedent is deemed to have survived the killer by at least one 3 hundred twenty hours, or any greater survival period required of 4 the decedent under the killer’s will or other governing instrument, 5 unless it is established by clear and convincing evidence that the 6 killer survived the victim by at least one hundred twenty hours. 7 8 Section 621506. This part shall not apply to the distribution of 9 the property of a person who died prior to April 3, 1948. Survival 10 by one hundred twenty hours is not required if any of the following 11 apply: 12 (1) the governing instrument contains language dealing 13 explicitly with simultaneous deaths or deaths in a common disaster 14 and that language is operable under the facts of the case; 15 (2) the governing instrument expressly indicates that an 16 individual is not required to survive an event, including the death 17 of another individual, by any specified period or expressly requires 18 the individual to survive the event for a specified period; but 19 survival of the event or the specified period must be established by 20 clear and convincing evidence; 21 (3) the imposition of a one hundred twenty hour requirement of 22 survival would cause a nonvested property interest or a power of 23 appointment to be invalid under other provisions of the Code; but 24 survival must be established by clear and convincing evidence; 25 (4) the application of a 120hour requirement of survival to 26 multiple governing instruments would result in an unintended 27 failure or duplication of a disposition; but survival must be 28 established by clear and convincing evidence; 29 (5) the application of a one hundred twenty hour requirement 30 of survival would deprive an individual or the estate of an 31 individual of an otherwise available tax exemption, deduction, 32 exclusion, or credit, expressly including the marital deduction, 33 resulting in the imposition of a tax upon a donor or a decedent’s 34 estate, other person, or their estate, as the transferor of any 35 property. ‘Tax’ includes any federal or state gift, estate or 36 inheritance tax; 37 (6) the application of a one hundred twenty hour requirement 38 of survival would result in an escheat . 39 40 REPORTER’S COMMENT 41 The 2012 amendment rewrote this section. 42 Subsection (1). Subsection (1) provides that the 120hour 43 requirement of survival is inapplicable if the governing instrument[1243] 29 1 ‘contains language dealing explicitly with simultaneous deaths or 2 deaths in a common disaster and that language is operable under 3 the facts of the case.’ The application of this provision is 4 illustrated by the following example. 5 Example. G died leaving a will devising her entire estate to her 6 husband, H, adding that ‘in the event he dies before I do, at the 7 same time that I do, or under circumstances as to make it doubtful 8 who died first,’ my estate is to go to my brother Melvin. H died 9 about 38 hours after G’s death, both having died as a result of 10 injuries sustained in an automobile accident. 11 Under this section, G’s estate passes under the alternative devise 12 to Melvin because H’s failure to survive G by 120 hours means 13 that H is deemed to have predeceased G. The language in the 14 governing instrument does not, under subsection (1), nullify the 15 provision that causes H, because of his failure to survive G by 120 16 hours, to be deemed to have predeceased G. Although the 17 governing instrument does contain language dealing with 18 simultaneous deaths, that language is not operable under the facts 19 of the case because H did not die before G, at the same time as G, 20 or under circumstances as to make it doubtful who died first. 21 Subsection (2). Subsection (2) provides that the 120hour 22 requirement of survival is inapplicable if ‘the governing instrument 23 expressly indicates that an individual is not required to survive an 24 event, including the death of another individual, by any specified 25 period or expressly requires the individual to survive the event for 26 a stated period.’ 27 Mere words of survivorship in a governing instrument do not 28 expressly indicate that an individual is not required to survive an 29 event by any specified period. If, for example, a trust provides that 30 the net income is to be paid to A for life, remainder in corpus to B 31 if B survives A, the 120hour requirement of survival would still 32 apply. B would have to survive A by 120 hours. If, however, the 33 trust expressly stated that B need not survive A by any specified 34 period, that language would negate the 120hour requirement of 35 survival. 36 Language in a governing instrument requiring an individual to 37 survive by a specified period also renders the 120hour requirement 38 of survival inapplicable. Thus, if a will devises property ‘to A if A 39 survives me by 30 days,’ the express 30day requirement of 40 survival overrides the 120hour survival period provided by this 41 Act. 42 Subsection (4). Subsection (4) provides that the 120hour 43 requirement of survival is inapplicable if ‘the application of this[1243] 30 1 section to multiple governing instruments would result in an 2 unintended failure or duplication of a disposition.’ The application 3 of this provision is illustrated by the following example. 4 Example. Pursuant to a common plan, H and W executed 5 mutual wills with reciprocal provisions. Their intention was that a 6 $50,000 charitable devise would be made on the death of the 7 survivor. To that end, H’s will devised $50,000 to the charity if W 8 predeceased him. W’s will devised $50,000 to the charity if H 9 predeceased her. Subsequently, H and W were involved in a 10 common accident. W survived H by 48 hours. 11 Were it not for subsection (4), not only would the charitable 12 devise in W’s will be effective, because H in fact predeceased W, 13 but the charitable devise in H’s will would also be effective, 14 because W’s failure to survive H by 120 hours would result in her 15 being deemed to have predeceased H. Because this would result in 16 an unintended duplication of the $50,000 devise, subsection (4) 17 provides that the 120hour requirement of survival is inapplicable. 18 Thus, only the $50,000 charitable devise in W’s will is effective. 19 Subsection (4) also renders the 120hour requirement of survival 20 inapplicable had H and W died in circumstances in which it could 21 not be established by clear and convincing evidence that either 22 survived the other. In such a case, an appropriate result might be 23 to give effect to the common plan by paying half of the intended 24 $50,000 devise from H’s estate and half from W’s estate. 25 Under subsection (5), if the application of the 120hour survival 26 requirement would cause the loss of an available tax exemption, 27 deduction, exclusion, or credit, creating a federal or State gift, 28 estate or inheritance tax, the 120hour survival requirement will 29 not be applied. Additionally, under subsection (6), the 120hour 30 survival requirement is not applicable if it would cause an escheat. 31 32 Section 621507. This part [Sections 621501 et seq.] shall not 33 apply in the case of wills, living trusts, deeds, or contracts of 34 insurance wherein provision has been made for distribution of 35 property different from the distribution that would otherwise be 36 made under the provisions of this part [Sections 621501 et seq.]. In 37 addition to the South Carolina Rules of Evidence, the following 38 rules relating to a determination of death and status apply: 39 (1) Death occurs when an individual is determined to be dead 40 under the Uniform Determination of Death Act, Section 4443460. 41 (2) A certified or authenticated copy of a death certificate 42 purporting to be issued by an official or agency of the place where[1243] 31 1 the death purportedly occurred is prima facie proof of the fact, 2 place, date and time of death, and the identity of the decedent. 3 (3) A certified or authenticated copy of any record or report of 4 a governmental agency, domestic or foreign, that a person is 5 missing, detained, dead, or alive is prima facie evidence of the 6 status and of the dates, circumstances, and places disclosed by the 7 record or report. 8 (4) In the absence of prima facie evidence of death under 9 subsection (2) or (3), the fact of death may be established by clear 10 and convincing evidence, including circumstantial evidence. 11 (5) A person whose death is not established under the 12 preceding paragraphs who is absent for a continuous period of five 13 years, during which he has not been heard from, and whose 14 absence is not satisfactorily explained after diligent search or 15 inquiry, is presumed to be dead. His death is presumed to have 16 occurred at the end of the period unless there is sufficient evidence 17 for determining that death occurred earlier. 18 (6) In the absence of evidence disputing the time of death 19 stated on a document described in subsection (2) or (3), a 20 document described in subsection (2) or (3) that states a time of 21 death one hundred twenty hours or more after the time of death of 22 another person, however the time of death of the other person is 23 determined, establishes by clear and convincing evidence that the 24 person survived the other person by one hundred twenty hours. 25 26 REPORTER’S COMMENT 27 The 2012 amendment rewrote this section. This section 28 incorporates the provisions of former Section 621107. 29 30 Section 621508. This part [Sections 621501 et seq.] shall be 31 so construed and interpreted as to effectuate its general purpose to 32 make uniform the law in those states which enact substantially 33 identical laws. (1) A payor or other third party is not liable for 34 having made a payment or transferred an item of property or any 35 other benefit to a person designated in a governing instrument 36 who, under this part, is not entitled to the payment or item of 37 property, or for having taken any other action in good faith 38 reliance on the person’s apparent entitlement under the terms of 39 the governing instrument, before the payor or other third party 40 received written notice of a claimed lack of entitlement under this 41 part. A payor or other third party is liable for a payment made or 42 other action taken after the payor or other third party received 43 written notice of a claimed lack of entitlement under this part.[1243] 32 1 (2) Written notice of a claimed lack of entitlement under 2 subsection (1) must be mailed to the payor’s or other third party’s 3 main office or home by registered or certified mail, return receipt 4 requested, or served upon the payor or other third party in the same 5 manner as a summons in a civil action. Upon receipt of written 6 notice of a claimed lack of entitlement under this part, a payor or 7 other third party may pay any amount owed or transfer or deposit 8 any item of property, other than tangible personal property, held by 9 it to or with the court having jurisdiction of the probate 10 proceedings relating to the decedent’s estate, or if no proceedings 11 have been commenced, to or with the court having jurisdiction of 12 probate proceedings relating to decedents’ estates located in the 13 county of the decedent’s residence. The court shall hold the funds 14 or item of property and, upon its determination under this part, 15 shall order disbursement in accordance with the determination. 16 Payments, transfers, or deposits made to or with the court 17 discharge the payor or other third party from all claims for the 18 value of amounts paid to or items of property transferred to or 19 deposited with the court. 20 (3) A person who purchases property for value and without 21 notice, or who receives a payment or other item of property in 22 partial or full satisfaction of a legally enforceable obligation, is not 23 obligated under this part to return the payment, item of property, or 24 benefit, and is not liable under this part for the amount of the 25 payment or the value of the item of property or benefit. However, 26 a person who, not for value, receives a payment, item of property, 27 or any other benefit to which the person is not entitled under this 28 part is obligated to return the payment, item of property, or benefit, 29 or is personally liable for the amount of the payment or the value 30 of the item of property or benefit, to the person who is entitled to it 31 under this part. 32 33 Section 621509. This part [Sections 621501 et seq.] shall be so 34 construed and interpreted as to effectuate its general purpose to 35 make uniform the law in those states which enact substantially 36 identical laws. 37 38 REPORTER’S COMMENT 39 Prior to the 2012 amendment this section was previously Section 40 621508. 41 42 Section 621510. (a) This part [Sections 621501 et seq.] takes 43 effect January 1, 2013.[1243] 33 1 (b) On the effective date of this part [Sections 621501 et seq.] : 2 (1) an act done before the effective date in any proceeding 3 and any accrued right is not impaired by this part. If a right is 4 acquired, extinguished, or barred upon the expiration of a 5 prescribed period of time that has commenced to run by the 6 provisions of any statute before the effective date, the provisions 7 remain in force with respect to that right; and 8 (2) a ny rule of construction or presumption provided in this 9 part applies to multipleparty accounts opened before the effective 10 date unless there is a clear indication of a contrary intent. 11 12 Article 2 13 14 Intestate Succession and Wills 15 16 Part 1 17 18 Intestate Succession 19 20 Section 622101. Any part of the estate of a decedent not 21 effectively disposed of by his will passes to his heirs as prescribed 22 in the following sections of this Code. 23 24 REPORTER’S COMMENTS 25 Section 622101 establishes intestate succession as the method of 26 disposition of any part of a decedent’s estate not effectively 27 disposed of by his will, as under Sections 622501 and 622602. It 28 applies both in cases of total intestacy and in cases of partial 29 intestacy. See Sections 621201(11) and 621201(35) for this 30 Code’s definition of the estate governed by Section 622101 as to 31 intestate succession. 32 33 Section 622102. The intestate share of the surviving spouse is: 34 (1) if there is no surviving issue of the decedent, the entire 35 intestate estate; 36 (2) if there are surviving issue, onehalf of the intestate estate. 37 38 REPORTER’S COMMENTS 39 Section 622102 defines the intestate share of the decedent’s 40 surviving spouse (which term is in turn defined by Section 41 622802) by limiting the persons with whom the surviving spouse 42 must share any part of the intestate estate to the decedent’s 43 surviving issue, i.e., if no issue survive, the spouse takes all, and,[1243] 34 1 in case issue do survive, the spouse takes onehalf of the intestate 2 estate. Section 622102 draws no distinction between cases of 3 single child survival and multiple child survival. 4 A husband or wife who desires to leave his or her surviving spouse 5 more or less than the share provided by this section and to leave to 6 other persons more or less than would otherwise be available to 7 them may do so by executing a will. 8 9 Section 622103. The part of the intestate estate not passing to 10 the surviving spouse under Section 622102, or the entire estate if 11 there is no surviving spouse, passes as follows: 12 (1) to the issue of the decedent: if they are all of the same 13 degree of kinship to the decedent they take equally, but if of 14 unequal degree then those of more remote degree take by 15 representation; 16 (2) if there is no surviving issue, to his parent or parents 17 equally; 18 (3) if there is no surviving issue or parent, to the issue of the 19 parents or either of them by representation; 20 (4) if there is no surviving issue, parent or issue of a parent, but 21 the decedent is survived by one or more grandparents or issue of 22 grandparents, half of the estate passes to the paternal grandparents 23 if both survive, or to the surviving paternal grandparent, or to the 24 issue of the paternal grandparents if both are deceased, the issue 25 taking equally if they are all of the same degree of kinship to the 26 decedent, but if of unequal degree those of more remote degree 27 take by representation; and the other half passes to the maternal 28 relatives in the same manner; but if there be no surviving 29 grandparent or issue of grandparent on either the paternal or the 30 maternal side, the entire estate passes to the relatives on the other 31 side in the same manner as the half; 32 (5) if there is no surviving issue, parent or issue of a parent, 33 grandparent or issue of a grandparent, but the decedent is survived 34 by one or more greatgrandparents or issue of greatgrandparents, 35 half of the estate passes to the surviving paternal greatgrandparents 36 in equal shares, or to the surviving paternal greatgrandparent if 37 only one survives, or to the issue of the paternal greatgrandparents 38 if none of the greatgrandparents survive, the issue taking equally if 39 they are all of the same degree of kinship to the decedent, but if of 40 unequal degree those of more remote degree take by 41 representation; and the other half passes to the maternal relatives 42 in the same manner; but if there be no surviving greatgrandparent 43 or issue of a greatgrandparent on either the paternal or the maternal[1243] 35 1 side, the entire estate passes to the relatives on the other side in the 2 same manner as the half; 3 (6) if there is no surviving issue, parent or issue of a parent, 4 grandparent or issue of a grandparent, greatgrandparent or issue of 5 a greatgrandparent, but the decedent is survived by one or more 6 stepchildren or issue of stepchildren, the estate passes to the 7 surviving stepchildren and to the issue of any deceased 8 stepchildren; if they are all of the same degree of stepkinship to 9 the decedent they take equally, but if of unequal degree then those 10 of more remote degree take by representation. 11 12 REPORTER’S COMMENTS 13 Section 622103 defines the intestate shares of persons, other than 14 the surviving spouse, in that part of the intestate estate not passing 15 to the surviving spouse under Section 622102. 16 Subsection (1) of Section 622103 gives preference to the 17 decedent’s issue as against all others, except the surviving spouse 18 (see Section 622102). 19 Where the surviving issue who are heirs are all of the same degree 20 of kinship to the decedent, they take per capita, i.e., in equal 21 shares. Where the surviving issue who are heirs are of unequal 22 degrees, they take per capita with per capita representation, i.e., 23 those in the nearest degree take per capita, equal shares, as before, 24 while those in the more remote degrees take, by representation, the 25 equal share which their deceased ancestor in the nearest degree 26 would have taken had he survived the decedent. Such issue in 27 more remote degrees take their deceased ancestor’s equal share, in 28 turn, per capita with per capita representation. This section, read 29 together with Section 622106, minimizes the occurrence of 30 unequal distributions among members of the same generation. 31 For an example of issue taking per capita with per capita 32 representation, suppose death is indicated by parentheses and: 33 1. (X) dies intestate: 34 2. predeceased by two children, (A) and (B): 35 3. survived by two grandchildren, A’s child C, and B’s child D, 36 and predeceased by one grandchild, B’s child (E): 37 4. predeceased by two greatgrandchildren, E’s children (F) and 38 (G): 39 5. and survived by three greatgreat grandchildren F’s child H, and 40 G’s children I and J. 41 Under Section 622103(1), the number of issue, in the nearest 42 degree of kinship having surviving members, counting both those 43 who survive and those who predecease leaving issue surviving,[1243] 36 1 determines the basic shares. In this example, ‘thirds’ go to each of 2 the living grandchildren C and D and, collectively, to the issue of 3 the predeceased grandchild E. In turn, E’s ‘third’ is divided among 4 his issue in the same manner; and the number of his issue, in the 5 nearest degree having surviving members, determines the further 6 shares, which are, in this example, ‘thirds’ of E’s ‘third’, or 7 ‘ninths’ which go to H, I, and J. Under Section 622103(1), the 8 preexistence of A, B, F, and G is ignored because no member of 9 their respective degrees of kinship survived the decedent. 10 Subsection (2) of Section 622103 allocates the entire intestate 11 estate to the parents of the decedent if there is neither a surviving 12 spouse nor any surviving issue. 13 Subsection (3) of Section 622103 apportions the entire intestate 14 estate, by representation, among the issue of the parents of the 15 decedent only if the decedent leaves neither spouse nor issue nor 16 parents. All issue of parents of the decedent, however remotely 17 related to the decedent they may be, share by representation. For 18 example, a grandnephew of decedent, related through a brother and 19 nephew of decedent, themselves both predeceased, takes by 20 representation and is not excluded by the survival of another 21 brother or of another nephew of decedent. 22 All issue of the decedent’s parents take under Section 622103(3) 23 by representation so that half blood heirs are treated the same as 24 whole blood heirs. 25 Subsections (4) and (5) of Section 622103 apply in cases in which 26 the decedent is survived by neither spouse, nor issue, nor parents, 27 nor issue of parents, but is survived by grandparents or their issue 28 (then the entire intestate estate is distributed to them under 29 subsection (4)), or the decedent is survived neither by grandparents 30 nor their issue but by greatgrandparents or their issue (then the 31 entire intestate estate is distributed to them under subsection (5)). 32 Persons, even more remotely related to decedent, the socalled 33 ‘laughing heirs,’ do not share at all. 34 35 Section 622104. Any person who fails to survive the decedent 36 by one hundred twenty hours is deemed to have predeceased the 37 decedent for purposes of Section 622401 and intestate succession, 38 and the decedent’s heirs are determined accordingly. If the time of 39 death of the decedent or of the person who would otherwise be an 40 heir, or the times of death of both, cannot be determined, and it 41 cannot be established that the person who would otherwise be an 42 heir has survived the decedent by one hundred twenty hours, it is 43 deemed that the person failed to survive for the required period.[1243] 37 1 This section is not to be applied where its application would result 2 in a taking of the intestate estate by the State under Section 3 621105. (1) For purposes of intestate succession, homestead 4 allowance, and exempt property, and except as otherwise provided 5 in subsection (2): 6 (a) an individual who was born before a decedent’s death 7 but who fails to survive the decedent by one hundred twenty hours 8 is deemed to have predeceased the decedent. If it is not established 9 that an individual who was born before the decedent’s death 10 survived the decedent by one hundred twenty hours, it is deemed 11 that the individual failed to survive for the required period. 12 (b) an individual who was in gestation at a decedent’s death 13 is deemed to be living at the decedent’s death if the individual 14 lives one hundred twenty hours after birth. If it is not established 15 that an individual who was in gestation at the decedent’s death 16 lived one hundred twenty hours after birth, it is deemed that the 17 individual failed to survive for the required period. 18 (2) This section does not apply if it would result in a taking of 19 the intestate estate by the state under Section 622105. 20 21 REPORTER’S COMMENTS 22 Section 622104 makes clear that survival for the 120 hours is a 23 condition for benefit of intestate succession, the homestead 24 allowance, and the exempt property exclusion; the amendment 25 clarifies that an infant in gestation must survive for 120 hours 26 following birth. 27 28 Section 622105. If there is no taker under the provisions of this 29 article [Sections 622101 et seq.], the intestate estate passes to the 30 State of South Carolina. 31 32 REPORTER’S COMMENTS 33 Section 622105 provides for escheat of an intestate estate to the 34 State of South Carolina whenever there are no heirs as prescribed 35 in Sections 622102 and 622103, as affected by other sections of 36 this Article 2, i.e., whenever neither spouse nor greatgrandparents 37 of decedent, nor issue thereof, survive decedent. The procedures 38 regulating escheat to the State are embodied in Sections 271910, et 39 seq., of the 1976 Code. 40 41 42 Section 622106. If representation is called for by this Code, the 43 estate is divided into as many equal shares as there are surviving[1243] 38 1 heirs in the nearest degree of kinship and deceased persons in the 2 same degree who left issue who survive the decedent, each 3 surviving heir in the nearest degree receiving one share and the 4 share of each deceased person in the same degree being divided 5 among his issue in the same manner. If an interest created by 6 intestate succession is disclaimed, the beneficiary is not treated as 7 having predeceased the decedent for purposes of determining the 8 generation at which the division of the estate is to be made. 9 10 REPORTER’S COMMENTS 11 Section 622106 defines the division of an intestate estate, among 12 the heirs’ respective shares, by ‘representation,’ i.e., as an equal 13 division among the nearest surviving kin, with the issue of any 14 equally near but predeceased kin taking their ancestor’s share in 15 the same manner, by representation. For an example of the 16 application of Section 622106, see the Comment to Section 17 622103(1). 18 19 Section 622107. Relatives of the half blood inherit the same 20 share they would inherit if they were of the whole blood. 21 22 REPORTER’S COMMENTS 23 These rules of this section are carried over into the construction of 24 wills’ dispositions by Section 622609. 25 26 Section 622108. Issue of the decedent (but no other persons) 27 conceived before his death but born within ten months thereafter 28 inherit as if they had been born in the lifetime of the decedent. 29 30 REPORTER’S COMMENTS 31 Section 622108 codifies South Carolina case law establishing the 32 right of an afterborn child of an intestate decedent to inherit. 33 Pearson v. Carlton, 18 S.C. 47 (1882). This section expands the 34 principle to benefit other issue of the intestate decedent, more 35 remotely related than his children, e.g., grandchildren. The section 36 further expressly excepts collateral relatives of the decedent from 37 the principle’s operation. 38 39 Section 622109. If, for purposes of intestate succession, a 40 relationship of parent and child must be established to determine 41 succession by, through, or from a person: 42 (1) From the date the final decree of adoption is entered, and 43 except as otherwise provided in Section 6391120, an adopted[1243] 39 1 person is the child of an adopting parent and not of the natural 2 parents except that adoption of a child by the spouse of a natural 3 parent has no effect on the relationship between the child and that 4 natural parent. 5 (2) In cases not covered by (1), a person born out of wedlock is 6 a child of the mother. That person is also a child of the father if: 7 (i) the natural parents participated in a marriage ceremony 8 before or after the birth of the child, even though the attempted 9 marriage is void; or 10 (ii) the paternity is established by an adjudication 11 commenced before the death of the father or within the later of 12 eight months after the death of the father or six months after the 13 initial appointment of a personal representative of his estate and, if 14 after his death, by clear and convincing proof, except that the 15 paternity established under this subitem (ii) is ineffective to qualify 16 the father or his kindred to inherit from or through the child unless 17 the father has openly treated the child as his and has not refused to 18 support the child. 19 (3) A person is not the child of a parent whose parental rights 20 have been terminated under Section 6372580 of the 1976 Code, 21 except that the termination of parental rights is ineffective to 22 disqualify the child or its kindred to inherit from or through the 23 parent. 24 25 REPORTER’S COMMENTS 26 Section 622109 concerns intestate succession as affected by 27 adoptions of persons, by births out of wedlock, and by the 28 termination of parental rights. However, this section’s definition 29 of the parentchild relationship is imported by references in 30 Sections 621201(3) defining ‘child’, 621201(24) defining ‘issue’, 31 and 621201(31) defining ‘parent’, and in Section 622609 32 construing class gift and family relationship terminology into the 33 meanings of such terms and terminology as used throughout this 34 Code and also in testators’ wills. See Sections 622102, 622103, 35 622106, 622302, 622401, 622402, 622603, and 622609. 36 The rule of general applicability of Section 622109(1) is that upon 37 adoption the adopted person’s intestacy relationships with all his 38 natural relatives are severed, but are supplanted by newly 39 established intestacy relationships with all of his adopted relatives. 40 However, the general rule does not apply to cases of adoption of 41 adults. Rather, the intestacy relationships of the parties are left 42 undisturbed by the adoption decree, unless a court finds it to be in 43 the best interests of the persons involved to apply the general rule. [1243] 40 1 To cover the case of the marriage of a child’s natural parent to a 2 person who adopts the child, Section 622109(1) provides that 3 adoption does not sever the adopted child’s intestacy relationship 4 with ‘that’ natural parent. Adoption does, however, sever the 5 adopted child’s intestacy relationship with the ‘other’ natural 6 parent, i.e., the natural parent not married to the person adopting 7 the child. 8 Subsection (2) of Section 622109 relates to the taking in intestacy 9 by, through, or from persons born out of wedlock. It does not 10 purport to declare such illegitimate children to be legitimate. No 11 part of the prior South Carolina law, establishing the legitimacy of 12 a child, is meant to be affected by Section 622109(2). The bases 13 for a finding of legitimacy, i.e., either birth to validly married 14 parents, whether validly ceremonially married or married as at 15 common law, or birth to parents covered by one of the legitimation 16 statutes, Sections 20130, 20140, 20150, 20160, 20180, and 20190 17 of the 1976 Code, remains as under prior law; and, of course, such 18 legitimate children bear intestacy relationships with their relatives. 19 Section 622109(2) merely establishes intestacy relationships 20 between illegitimate children and their maternal and paternal 21 relatives. 22 The rule set forth in Section 622109(2)(i) relates to the 23 establishment of the illegitimate child’s intestacy relationship with 24 his father, whenever the father and mother have been ceremonially 25 married, albeit invalidly so. 26 Section 622109(2)(ii) allows an illegitimate child to inherit from 27 and through his father if paternity is established by an adjudication 28 commenced either before the father’s death or within six months 29 thereafter. A standard higher than usual, clear and convincing 30 proof is required to be met in an adjudication commenced after, 31 but not in an adjudication before, the father’s death. 32 The imposition of a required adjudication and a higher standard of 33 proof upon illegitimate children seeking to inherit from their 34 fathers, as compared with legitimate children not similarly 35 burdened, should pass constitutional muster under the decision of 36 Lalli v. Lalli, 439 U.S. 259 (1978). Section 622109(2)(ii) 37 precludes the father and his kindred from inheriting from or 38 through the child unless the father has openly treated the child as 39 his and has not refused to support the child. 40 Subsection (3) of Section 622109, on intestacy relationships 41 following the termination of parental rights, is meant to conform 42 with Section 6372590 of the 1976 Code, cutting the parent off[1243] 41 1 from the child’s intestate estate, but not cutting the child off from 2 the parent’s intestate estate. 3 4 Section 622110. If a person dies intestate as to all his estate, 5 property which he gave in his lifetime to an heir is treated as an 6 advancement against the latter’s share of the estate only if declared 7 in a contemporaneous writing signed by the decedent or 8 acknowledged in a writing signed by the heir to be an 9 advancement. For this purpose, the property advanced is valued as 10 of the time the heir came into possession or enjoyment of the 11 property or as of the time of death of the decedent, whichever first 12 occurs. If the recipient of the property fails to survive the 13 decedent, the property shall be taken into account in computing the 14 intestate share to be received by the recipient’s issue, unless the 15 declaration or acknowledgment provides otherwise. 16 17 REPORTER’S COMMENTS 18 Section 622110 concerns the effect on intestate succession of 19 lifetime gifts made by the intestate to donees who are his 20 prospective heirs. The section charges such lifetime gifts, as 21 advancements, against the intestate share of the doneeheir, but 22 only if, first, the intestate dies wholly intestate, i.e., without a will 23 disposing of any part of his estate. See Section 622610 on 24 satisfaction for a rule analogous to the rule of advancements but 25 operative in the event of succession under a will. 26 Such gifts are treated as advancements under Section 622110 only 27 if, second, they are contemporaneously declared by the intestate or 28 acknowledged by the donee, in writing, to be 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 share 32 of the issueheirs, again, only if there is a total intestacy and the 33 abovementioned writing exists but not if the writing provides that 34 the lifetime gifts to the ancestor are not to be treated as 35 advancements to such issue. 36 Section 622110 applies to lifetime gifts made to any of the heirs of 37 the intestate, a class of donees broader than the former law’s 38 language ‘child or issue of the intestate.’ See Section 621201(20) 39 defining ‘heirs’. 40 Section 622110 values the advancement at the earlier of the 41 donee’s actual receipt of the gift or the intestate’s death, resulting 42 in most cases in a valuation at the date of the gift rather than at the 43 date of death. [1243] 42 1 2 Section 622111. A debt owed to the decedent is not charged 3 against the intestate share of any person except the debtor. If the 4 debtor fails to survive the decedent, the debt is not taken into 5 account in computing the intestate share of the debtor’s issue. 6 7 REPORTER’S COMMENTS 8 Section 622111 qualifies the personal representative’s right and 9 obligation of retainer, i.e., to offset or charge the amounts of debts 10 owed to the decedent against the shares of successors to his estate, 11 as provided for in Section 623903. Section 622111 limits such 12 charge’s effects so that they affect only the debtor’s share and not 13 also the intestate shares of the debtor’s issue. This codifies South 14 Carolina case law. See Stokes v. Stokes, 62 S.C. 346, 40 S.E. 662 15 (1902), where the debt of a predeceased brother of the intestate 16 was not charged against the brother’s children’s intestate shares. 17 18 Section 622112. No person is disqualified to take as an heir 19 because he, or a person through whom he claims, is or has been an 20 alien. 21 22 REPORTER’S COMMENTS 23 Section 622112 allows an individual to inherit property even 24 though he, or a person through whom he claims, is or has been an 25 alien. This was the prior South Carolina law notwithstanding the 26 mandate of Article 3, Section 35 of the South Carolina 27 Constitution (1895) and the provisions of former Sections 271330 28 and 271340 of the 1976 Code, limiting alien ownership of South 29 Carolina land to five hundred thousand acres, the last obviously 30 unrealistic as an effective limit at approximately twentyeight miles 31 square. 32 33 Section 622113. A person who is related to the decedent 34 through two lines of relationship is entitled to only a single share 35 based on the relationship which would entitle him to the larger 36 share. 37 38 REPORTER’S COMMENTS 39 Section 622113 precludes possibility of a person related to the 40 decedent through two lines of relationship, adopted and natural or 41 either, from inheriting other than through the single line which will 42 entitle him to the larger share. 43[1243] 43 1 Section 622114. Notwithstanding any other provision of law, if 2 the parents of the deceased would be the intestate heirs pursuant to 3 Section 622103(2), upon the service of a summons, petition and 4 notice by motion of either parent or any other party of potential 5 interest based upon the decedent having died intestate, the probate 6 court may deny or limit either or both parent’s entitlement for a 7 share of the proceeds if the court determines, by a preponderance 8 of the evidence, that the parent or parents failed to reasonably 9 provide support for the decedent as defined in Section 63520 and 10 did not otherwise provide for the needs of the decedent during his 11 or her minority. If the court makes such a determination as to a 12 parent or parents, the parent shall be a disqualified parent. The 13 proceeds, or portion of the proceeds, that a disqualified parent 14 would have taken shall pass as though the disqualified parent had 15 predeceased the decedent. 16 17 REPORTER’S COMMENT 18 The 2012 amendment makes clear that an action under this section 19 must be commenced by the service of a Summons, Petition and 20 Notice by either parent or any other party of potential interest; the 21 amendment defines a disqualified parent as a parent found by the 22 court by a preponderance of the evidence not to have reasonably 23 have provided support for the deceased child; the amendment 24 clarifies that the portion, or all , as the court determines, of the 25 intestate share denied to the disqualified parent shall pass as if the 26 disqualified parent had predeceased the child. 27 28 Part 2 29 30 Elective Share of Surviving Spouse 31 32 Section 622201. (a) If a married person domiciled in this State 33 dies, the surviving spouse has a right of election to take an elective 34 share of onethird of the decedent’s probate estate, as computed 35 under Section 622202, the share to be satisfied as detailed in 36 Sections 622206 and 622207 and, generally, under the limitations 37 and conditions hereinafter stated. 38 (b) If a married person not domiciled in this State dies, the 39 right, if any, of the surviving spouse to take an elective share in 40 property in this State is governed by the law of the decedent’s 41 domicile at death. 42 (c) ‘Surviving spouse’, as used in this Part, is as defined in 43 Section 622802. [1243] 44 1 2 REPORTER’S COMMENTS 3 See Section 622802 for the definition of ‘spouse’ which controls in 4 this part. 5 Under the common law, a widow was entitled to dower which was 6 a life estate in a fraction of lands of which her husband was seized 7 of an estate of inheritance at any time during the marriage. The 8 South Carolina Supreme Court in Boan v. Watson, 281 S.C. 516, 9 316 S.E.2d 401 (1984) declared that dower was unconstitutional as 10 a violation of the equal protection clauses of the South Carolina 11 and United States Constitutions. South Carolina, like other states, 12 substitutes an elective share in the whole estate for dower and the 13 widower’s common law right of curtesy. 14 15 Section 622202. (a) For purposes of this Part, probate estate 16 means the decedent’s property passing under the decedent’s will 17 plus the decedent’s property passing by intestacy, reduced by 18 funeral and administration expenses and enforceable claims. 19 (b) Except as provided in Section 627401(c) with respect to a 20 revocable inter vivos trust found to be illusory, the elective share 21 shall apply only to the decedent’s probate estate. 22 23 REPORTER’S COMMENTS 24 The 2012 amendment does not change the definition of ‘probate 25 estate,’ a term with a settled meaning. As defined, the ‘probate 26 estate’ to which the elective share is applicable is actually the net 27 probate estate, after the probate estate is reduced by funeral and 28 administration expenses and enforceable claims. 29 The 2012 amendment adds a new subparagraph (b), which takes 30 into account and leaves unchanged the provisions of Section 31 627401(c) of the South Carolina Trust Code. SCTC Section 32 627401(c) is the statutory descendant of former SCPC Section 33 627112, which was enacted after the Siefert decision, Seifert v. 34 Southern Nat’l Bank of South Carolina , 305 S.C. 353, 409 S.E.2d 35 337 (1991). Seifert found that the revocable trust before the court 36 was ‘illusory’ and, even though not a part of the settlor/decedent’s 37 probate estate, assets owned by the trust were nevertheless subject 38 to the elective share. The amendment means to leave intact Section 39 627401(c), including the possibility that assets owned by a 40 revocable inter vivos trust found not to be illusory are not subject 41 to the elective share. The amendment clarifies that the only 42 nonprobate assets subject to the elective share in South Carolina[1243] 45 1 are assets in a revocable trust found to be illusory under Section 2 677401(c). 3 The intent of the amendment is to clarify and provide certainty 4 with respect to all other of a decedent’s nonprobate assets, which 5 by this amendment are not subject to the elective share in South 6 Carolina. 7 The amendment expressly rejects the concept of the ‘augmented 8 estate’ as the multiplicand of the onethird elective share 9 entitlement. This rejection is in keeping with and continues the 10 intent of the drafters of the elective share statute as originally 11 effective in 1987, whose comment to this section stated ‘This 12 section rejects the ‘augmented estate’ concept promulgated by the 13 drafters of the Uniform Probate Code as unnecessarily complex.’ 14 The latest concept of ‘augmented estate’ promulgated by the 15 drafters of the Uniform Probate Code is more onerous and 16 complex than the version rejected in 1987. 17 The revised Uniform Probate Code last promulgated by the 18 National Conference of Commissioners on Uniform State Laws, as 19 well as statutes adopted in some states (for example, North 20 Carolina) have extended the reach of the statutory spousal share or 21 elective share to nonprobate assets. The property to which the 22 surviving electing spouse is entitled to receive a portion is referred 23 to as the augmented estate. 24 The effective and expeditious administration of decedents’ 25 estates would be virtually impossible if nonprobate assets owned 26 by persons not subject to the personal jurisdiction of any South 27 Carolina court are subject to disgorgement by reason of the 28 elective share. A similar problem presently exists in estates in 29 South Carolina where an equitable apportionment of the estate tax 30 imposes on the personal representative the duty of collecting the 31 proportionate share of tax from recipients of nonprobate property. 32 Current laws provide no efficient, cost effective means to reach 33 these assets in the hands of persons outside the range of existing 34 long arm statutes. 35 36 SECTION 622203. The right of election of the surviving 37 spouse may be exercised only during his lifetime by him or by his 38 duly appointed attorney in fact. In the case of a protected person, 39 the right of election may be exercised only by order of the court in 40 which protective proceedings as to his property are pending. 41 42 REPORTER’S COMMENTS [1243] 46 1 See Section 625101 for definitions of protected person and 2 protective proceedings. 3 4 SECTION 622204. (A) The rights of a surviving spouse to an 5 elective share, homestead allowance, and exempt property, or any 6 of them, may be waived, wholly or partially, before or after 7 marriage, by a written contract, agreement, or waiver voluntarily 8 signed by the waiving party after fair and reasonable disclosures to 9 the waiving party of the other party’s property and financial 10 obligations have been given in writing. 11 (B) Unless it provides to the contrary, a waiver of all rights in 12 the property or estate of a present or prospective spouse or a 13 complete property settlement entered into after or in anticipation of 14 separation or divorce is a waiver of all rights to elective share, 15 homestead allowance, and exempt property by each spouse in the 16 property of the other and a disclaimer by each of all benefits which 17 would otherwise pass to him from the other by intestate succession 18 or by virtue of the provisions of a will executed before the waiver 19 or property settlement. 20 21 REPORTER’S COMMENTS 22 The right to homestead allowance is conferred by Article 1, 23 Chapter 41, Title 15 of the 1976 Code, and exempt property by 24 Section 622401. The right to disclaim interests passing by testate 25 or intestate succession is recognized by Section 622801. The 26 provisions of this section, permitting a spouse or prospective 27 spouse to waive all statutory rights in the other spouse’s property, 28 seem desirable in view of the common and commendable desire of 29 parties to second and later marriages to ensure that property 30 derived from prior spouses passes at death to the issue of the prior 31 spouses instead of to the newly acquired spouse. The operation of 32 a property settlement as a waiver and disclaimer takes care of the 33 situation which arises when a spouse dies while a divorce suit is 34 pending. 35 36 Section 622205. (a) The surviving spouse may elect to take his 37 elective share in the probate estate by filing in the court and 38 serving upon the personal representative, if any, a summons and 39 petition for the elective share within eight months after the date of 40 death or within six months after the probate of the decedent’s will 41 thirty days after service upon the surviving spouse of a summons 42 and petition contesting the will, whichever limitation last expires. [1243] 47 1 (b) The surviving spouse shall give notice of the time and place 2 set for hearing to the personal representative and to distributees 3 and recipients of portions of the probate estate whose interests will 4 be adversely affected by the taking of the elective share. 5 (c) The surviving spouse may withdraw or reduce his demand 6 for an elective share at any time before entry of a final 7 determination by the court. 8 (d) After notice and hearing, the court shall determine the 9 amount of the elective share and shall order its payment from the 10 assets of the probate estate or by contribution as set out in Sections 11 622206 and 622207. 12 (e) The order or judgment of the court for payment or 13 contribution may be enforced as necessary in other courts of this 14 State or other jurisdictions. 15 16 REPORTER’S COMMENTS 17 The 2010 amendment revised subsection (a) by deleting “mailing 18 or delivering” and replacing it with “serving upon” and also adding 19 “summons and” to clarify that a summons and petition are required 20 to commence a formal proceeding, including a formal proceeding 21 for elective share. See 2010 amendments to certain definitions in 22 S.C. Code §621201 and also see §§1423280, 621304, and Rules 1 23 and 81, SCRCP. 24 25 Section 622206. A surviving spouse is entitled to benefits 26 provided under or outside of the decedent’s will, by any homestead 27 allowance, by Section 622401, whether or not he elects to take an 28 elective share, but such amounts as pass under the will or by 29 intestacy, by any homestead allowance, and by Section 622401 are 30 to be charged against the elective share pursuant to Section 31 622207(a). 32 33 REPORTER’S COMMENTS 34 This election does not result in a loss of benefits under, outside, or 35 against the will (in the absence of renunciation) but (to the extent 36 that such gifts are part of the estate) they are charged against the 37 elective share under Sections 622201, 622202, and 622207(a). 38 39 Section 622207. (a) In the proceeding for an elective share, all 40 property, including beneficial interest, which passes or has passed 41 to the surviving spouse under the decedent’s will or by intestacy, 42 by a homestead allowance, and by Section 622401, or which 43 would have passed to the spouse but was renounced, or which is[1243] 48 1 contained in a trust created by the decedent’s will or a trust as 2 described in Section 627401(c) in which the spouse has a 3 beneficial interest, is applied first to satisfy the elective share and 4 to reduce contributions due from other recipients of transfers 5 included in the probate estate. A beneficial interest that passes or 6 has passed to a surviving spouse under the decedent’s will includes 7 an interest as a beneficiary in a trust created by the decedent’s will 8 or an interest as a beneficiary in property passing under the 9 decedent’s will to an inter vivos trust created by the decedent. For 10 purposes of this subsection, the value of the electing spouse’s 11 beneficial interest in property which qualifies or would have 12 qualified for the federal estate tax marital deduction pursuant to 13 Section 2056 of the Internal Revenue Code, as amended and in 14 effect on December 31, 2009, must be computed at the full value 15 of the qualifying property. Qualifying for these purposes must be 16 determined without regard to whether an election has been made to 17 treat the property as qualified terminable interest property. 18 (b) Remaining property of the probate estate is applied so that 19 liability for the balance of the elective share of the surviving 20 spouse is satisfied from the probate estate with devises abating in 21 accordance with Section 623902. In the proceeding for an elective 22 share, all property, including any beneficial interests, which passes 23 or has passed to the surviving spouse must be applied first to 24 satisfy the elective share and to reduce any contributions due from 25 other recipients of transfers included in the probate estate, so long 26 as the property is passed to the surviving spouse: 27 (1) under the decedent’s will; 28 (2) by intestacy; 29 (3) by the homestead allowance; 30 (4) by Section 622401; 31 (5) by beneficiary designation of any life insurance; 32 (6) by beneficiary designation of any Individual Retirement 33 Account or qualified retirement plan, or annuity; 34 (7) which would have passed to the spouse but was 35 renounced or disclaimed; 36 (8) which is contained in a trust created by the decedent’s 37 will; or 38 (9) which is contained in a trust as described in Section 39 627401(c). 40 (b) A beneficial interest that passes or has passed to a surviving 41 spouse under the decedent’s will includes: 42 (1) an interest as a beneficiary in a trust created by the 43 decedent’s will; [1243] 49 1 (2) an interest as a beneficiary in property passing under the 2 decedent’s will to an inter vivos trust created by the decedent; and 3 (3) an interest as a beneficiary in property contained at the 4 decedent’s death in a trust described in Section 627401(c). 5 (c)(1) For purposes of this section, the value of the electing 6 spouse’s beneficial interest in any property which qualifies for the 7 federal estate tax marital deduction pursuant to Section 2056 of the 8 Internal Revenue Code, as amended, or, if the federal estate tax is 9 not applicable at the decedent’s death, would have qualified for the 10 federal estate tax marital deduction pursuant to Section 2056 of the 11 Internal Revenue Code, as amended, in effect on December 31, 12 2009, must be computed at the full value of any such qualifying 13 property. Qualifying for these purposes must be determined 14 without regard to whether an election has been made to treat the 15 property as qualified terminable interest property. 16 (2) The value of such qualifying property shall be the value 17 at the date of death as finally determined in the decedent’s estate 18 tax proceedings, or if there is no federal estate tax proceeding, as 19 shown on the inventory and appraisement or as determined by the 20 court. The personal representative may choose assets, in order of 21 abatement pursuant to Section 623902, to satisfy the elective share, 22 using the fair market value at the date of distribution. The elective 23 share is pecuniary in nature. 24 (3) The electing spouse who is the income beneficiary of a 25 trust, the value of which is treated, or could be treated, as 26 qualifying property, shall have the right to require a conversion of 27 the income trust to a total return unitrust as defined in Section 28 627904B(12) and in accordance with Section 627940N. 29 (d) In choosing assets to fund the elective share, remaining 30 property of the probate estate is so applied so that liability for the 31 balance of the elective share of the surviving spouse is satisfied 32 from the probate estate, with devises abating in accordance with 33 Section 623902. 34 35 REPORTER’S COMMENT 36 37 The 2012 amendment rewrites this section entirely and changes 38 substantively the method of calculation of the elective share in 39 South Carolina. 40 Under the law prior to this amendment, nonprobate assets 41 passing to the surviving spouse were not credited against the 42 elective share. Under the amendment, the amount of the probate 43 estate subject to the elective share is reduced by the value of[1243] 50 1 nonprobate assets passing to the spouse at the death of the 2 decedent. Including the value of nonprobate assets passing to the 3 surviving spouse at the death of the decedent in the calculation of 4 the elective share imposes on the personal representative the duty 5 to ascertain the value of those nonprobate assets as well as the duty 6 to verify that the assets in fact pass to the surviving spouse. 7 Probate Courts may require that nonprobate assets be identified 8 sufficiently on the Inventory and appraisement to enable the 9 calculation to be made. The amendment makes clear that the 10 nonprobate assets are applied first to satisfy the elective share 11 before assets from the probate estate are applied in satisfaction. 12 The amendment clarifies and makes certain that property 13 passing directly to the surviving spouse in a revocable inter vivos 14 trust, including a beneficial interest, will satisfy the elective share. 15 The amendment eliminates the concern that property had to ‘pass 16 under the will’ first in order to be applied in satisfaction of the 17 elective share. 18 The amendment leaves unchanged the law that the value of the 19 electing spouse’s beneficial interest in any property which 20 qualifies for the federal estate tax marital deduction pursuant to 21 Section 2056 of the Internal Revenue Code, as amended (or, if the 22 federal estate tax is not applicable at the decedent’s death , would 23 have qualified for the federal estate tax marital deduction pursuant 24 to Section 2056 of the Internal Revenue Code, as amended, in 25 effect on December 31, 2009), must be computed at the full value 26 of any such qualifying property. Two comments are relevant here. 27 First, the future of the federal estate tax is at best uncertain. The 28 federal estate tax law in effect on December 31, 2009, as it 29 pertained to the qualification for the federal estate tax marital 30 deduction, was settled law, familiar to laymen and practitioners 31 alike. Consequently, incorporation of the qualification 32 requirements for the federal estate tax marital deduction then in 33 effect, particularly with respect to the so called ‘QTIP’ marital 34 trust, is the measure least likely to cause confusion and error. Next, 35 in rejecting the ‘augmented estate’ while at the same time 36 continuing to credit at full value the assets in an income only QTIP 37 trust, this section takes into account the possibility that the 38 consequences to a surviving spouse in the present and projected 39 economy could be harsh as well as changes to South Carolina law 40 since 1987, including adoption of the Prudent Investor Act (SCTC 41 Section 627933), predicated on Modern Portfolio Theory. 42 Recognizing that simple, income only trusts may be disappointing 43 and inadequate, the 2012 amendment provides that the electing[1243] 51 1 spouse who is the beneficiary of an income trust, the value of 2 which is treated (or could be treated) as qualifying property, shall 3 have the right to require a conversion of the income trust to a total 4 return unitrust as defined in Section 627904B(12) and in 5 accordance with Section 627940N. 6 The 2012 amendment makes clear that the value of such 7 qualifying property shall be the value at the date of death as finally 8 determined in the decedent’s estate tax proceedings, or if there is 9 no federal estate tax proceeding, as shown on the Inventory and 10 Appraisement or as determined by the court. Generally this is fair 11 market value. The amendment makes clear, first, that in satisfying 12 the elective share, probate assets will be valued at date of 13 distribution values; second, the amendment provides that the 14 elective share is pecuniary in nature and not fractional. This is less 15 burdensome and requires revaluation only of assets in kind used to 16 fund the elective share. Although the law prior to the 2012 17 amendment may have been unclear about whether the elective 18 share was fractional or pecuniary, the treatment of the elective 19 share as pecuniary will be clear prospectively from the effective 20 date of the amendment. 21 The amendment leaves unchanged the order of abatement within 22 the probate estate. 23 24 Part 3 25 26 Spouse and Children Unprovided for in Wills 27 28 Section 622301. (a) If a testator fails to provide by will for his 29 surviving spouse who married the testator after the execution of 30 the will, the omitted spouse, upon compliance with the provisions 31 of subsection (c), shall receive the same share of the estate he 32 would have received if the decedent left no will unless: 33 (1) it appears from the will that the omission was intentional; 34 or 35 (2) the testator provided for the spouse by transfer outside 36 the will and the intent that the transfer be in lieu of a testamentary 37 provision is shown by statements of the testator or from the 38 amount of the transfer or other evidence. 39 (b) In satisfying a share provided by this section, the devises 40 made by the will abate as provided in Section 623902. 41 (c) The spouse may claim a share as provided by this section 42 by filing in the court and mailing or delivering to serving upon the 43 personal representative, if any, a claim summons and petition for[1243] 52 1 such share within eight months after the date of death or within six 2 months after the probate of the decedent’s will, whichever 3 limitation last expires. The spouse shall give notice of the time and 4 place set for hearing to the personal representative and to 5 distributees and recipients of portions of the probate estate whose 6 interests will be adversely affected by the taking of the share. 7 8 REPORTER’S COMMENTS 9 Section 622301 sets aside an intestate share for any surviving 10 spouse who is married to a testator after the execution of a will 11 which omits provision for the spouse, unless the omission was 12 intentional or the spouse was otherwise provided for outside of and 13 intentionally in lieu of a will’s provisions. Compare the set aside 14 for omitted afterborn children under Section 622302. The 15 testator’s intentions may be shown on the face of the will or by his 16 statements concerning or from the amount of or from other 17 evidence concerning the nontestamentary transfer. 18 Section 622301 does not totally revoke the will; rather, Section 19 622301 merely abates the will’s devises to the extent necessary to 20 satisfy the spouse’s intestate share. Compare Section 622507, 21 effecting a partial revocation of a will’s provisions to the extent 22 that they benefit a spouse divorced from testator after execution of 23 the will, and otherwise providing that no change of circumstances, 24 e.g., marriage, revokes a will by operation of law. 25 The spouse’s protection accorded by Section 622301 presumably 26 may be waived. See Section 622801. 27 28 Section 622302. (a) If a testator fails to provide in his will for 29 any of his children born or adopted after the execution of his will, 30 the omitted child, upon compliance with subsection (d), receives a 31 share in the estate equal in value to that which he would have 32 received if the testator had died intestate unless: 33 (1) it appears from the will that the omission was intentional; 34 or 35 (2) when the will was executed the testator had one or more 36 children and devised substantially all his estate to his spouse; or 37 (3) the testator provided for the child by transfer outside the 38 will and the intent that the transfer be in lieu of a testamentary 39 provision is shown by statements of the testator or from the 40 amount of the transfer or other evidence. 41 (b) If, at the time of execution of the will the testator fails to 42 provide in his will for a living child solely because he believes that 43 child to be dead, the child, upon compliance with subsection (d),[1243] 53 1 receives a share in the estate equal in value to that which he would 2 have received if the testator had died intestate. 3 (c) In satisfying a share provided by this section, the devises 4 made by the will abate as provided in Section 623902. 5 (d) The child, and his guardian or conservator acting for him, 6 may claim a share as provided by this section by filing in the court 7 and mailing or delivering to serving upon the personal 8 representative, if any, a claim summons and petition for such share 9 within eight months after the date of death or within six months 10 after the probate of the decedent’s will, whichever limitation last 11 expires. The child, and his guardian or conservator acting for him, 12 shall give notice of the time and place set for hearing to the 13 personal representative and to distributees and recipients of 14 portions of the probate estate whose interests will be adversely 15 affected by the taking of the share. 16 17 REPORTER’S COMMENTS 18 Section 622302 sets aside an intestate share for any surviving child 19 who either was unprovided for because he was thought to be dead 20 at the execution of a will or is born to or adopted by a testator after 21 the execution of a will which omits provision for the child; but, in 22 the case of the afterborn child, he does not take a set aside if the 23 omission was intentional, or if the child was otherwise provided 24 for outside of and intentionally in lieu of a will’s provisions. 25 Compare the set aside for omitted spouses under Section 622301. 26 The testator’s intentions may be shown on the face of the will or 27 by his statements concerning or from the amount of or from other 28 evidence concerning the nontestamentary transfer. 29 The 2012 amendment addresses afterborn children by providing 30 that a will devising substantially all of a testator’s estate to his 31 spouse is valid against the claim of a child omitted under such will 32 regardless of whether the will was executed by the decedent before 33 or after the child was born or adopted. 34 35 Part 4 36 37 Exempt Property 38 39 Section 622401. The surviving spouse of a decedent who was 40 domiciled in this State is entitled from the estate to a value not 41 exceeding five twentyfive thousand dollars in excess of any 42 security interests therein in household furniture, automobiles, 43 furnishings, appliances, and personal effects. If there is no[1243] 54 1 surviving spouse, minor or dependent children of the decedent are 2 entitled jointly to the same value. If encumbered chattels are 3 selected and if the value in excess of security interests, plus that of 4 other exempt property, is less than five twentyfive thousand 5 dollars, or if there is not five twentyfive thousand dollars worth of 6 exempt property in the estate, the spouse or children are entitled to 7 other assets of the estate, if any, to the extent necessary to make up 8 the five twentyfive thousand dollar value. Rights to exempt 9 property and assets needed to make up a deficiency of exempt 10 property have priority over all claims against the estate except 11 claims described in Section 623805(a)(1). These rights are in 12 addition to any right of homestead and personal property 13 exemption otherwise granted by law but are chargeable against and 14 not in addition to any benefit or share passing to the surviving 15 spouse or children by the will of the decedent unless otherwise 16 provided, by intestate succession, or by the elective share. Any 17 surviving spouse or minor or dependent children of the decedent 18 who fails to survive the decedent by one hundred twenty hours is 19 deemed to have predeceased the decedent for purposes of this 20 section. 21 22 REPORTER’S COMMENTS 23 Section 622401 sets aside an unencumbered twentyfive thousand 24 dollars worth of exempt personal property to a domiciliary 25 decedent’s surviving spouse or minor or dependent children. 26 Claimants must survive the decedent by one hundred twenty hours 27 in order to qualify under Section 622401. 28 Section 622401 sets aside the indicated amount free of the claims 29 of both the unsecured creditors of the decedent’s estate (a 30 creditors’ claim exemption) and the decedent’s will’s named 31 beneficiaries, i.e., notwithstanding any provisions in the will to the 32 contrary (a mandatory set aside). 33 While the mandatory set aside is chargeable against and not in 34 addition to any provisions in the will or in intestacy in favor of the 35 spouse or children, unless otherwise provided in the will, Section 36 622401 provides that the mandatory set aside and creditors’ claim 37 exemption is to be in addition to and not chargeable against any 38 right of homestead allowance, i.e., real property exemption, and 39 personal property exemption, available to the decedent’s survivors 40 pursuant to Section 154130 of the 1976 Code, and otherwise. 41 For a discussion of which of these exemptions apply to a 42 decedent’s estate, see (Scholtec v. Estate of Reeves, 327 S.C. 551, 43 490 S.E. 2d 603 (S.C. App. 1997).[1243] 55 1 2 Section 622402. (a) If the estate is otherwise sufficient, 3 property specifically devised is not used to satisfy rights to exempt 4 property. Subject to this restriction, the surviving spouse, the 5 guardians or conservators of the minor children, or children who 6 are adults may select property of the estate as exempt property. 7 The personal representative may make these selections if the 8 surviving spouse, the children, or the guardians or conservators of 9 the minor children are unable or fail to do so within a reasonable 10 time or if there are no guardians or conservators of the minor 11 children. The personal representative may execute an instrument 12 or deed of distribution to establish the ownership of property taken 13 as exempt property. The personal representative or any interested 14 person aggrieved by any selection, determination, payment, 15 proposed payment, or failure to act under this section may make 16 application to the court for appropriate relief. 17 (b) The surviving spouse or the minor or dependent child, and 18 the minor’s guardian or conservator acting for him, as the case 19 may be, may claim a share of exempt property as provided in this 20 part by filing in the court and mailing or delivering to the personal 21 representative, if any, a claim for such share within eight months 22 after the date of death, or within six months after the probate of the 23 decedent’s will, whichever limitation last expires. 24 25 REPORTER’S COMMENTS 26 Section 622402 governs the administration of the exempt property 27 provisions of Section 622401. 28 The 2010 amendment revised subsection (a) by deleting 29 “petition” and replacing it with “make application,” so that the 30 personal representative or any interested person as referred to in 31 this section can make application to the probate court. Unlike a 32 petition, an application does not require a summons or petition. 33 See 2010 amendments to certain definitions in §621201(1). 34 35 Section 622403. All moneys monies paid for insurance, 36 compensation, or pensions by the United States of America to the 37 executors, administrators, or heirsatlaw of any deceased veteran 38 who served during any ‘period of war’ as determined in reference 39 to pension entitlement under 38 U.S.C. 1521, 1541 and 1542 and 40 the regulations issued thereunder, and of the SpanishAmerican 41 War, World War I, or World War II whose estate is administered 42 in this State for insurance, compensation, or pensions is hereby[1243] 56 1 declared to be exempt from the claims of any and all creditors of 2 such deceased veteran. 3 4 REPORTER’S COMMENT 5 The 2012 amendment exempts monies paid for insurance, 6 compensation, or pensions by the United States of America to the 7 executors, administrators, or heirsatlaw of any deceased veteran 8 who served during any ‘period of war’ as that term is defined 9 under federal regulations. Prior to amendment the protection did 10 not cover veterans of conflicts after World War II. 11 12 Part 5 13 14 Wills 15 16 Section 622501. A person An individual who is of sound mind 17 and who is not a minor as defined in Section 621201(24)(27) may 18 make a will. 19 20 REPORTER’S COMMENTS 21 Section 622501 allows any individual of sound mind who is not a 22 minor to make a will. An individual is not a minor if the 23 individual is either (1) at least eighteen, (2) married, or (3) 24 emancipated. An individual may make a will of his or her ‘estate.’ 25 The estate which may be so devised is defined in item (11) of 26 Section 621201 as ‘property’, in turn defined in item (37) of 27 Section 621201 as both real and personal and ‘anything that may 28 be the subject of ownership.’ No distinction on the question of 29 capacity to make a will is drawn by Section 622501 between men 30 and women or between citizens and aliens. 31 Section 622501 is not meant to reverse the South Carolina law 32 with respect to tenants in fee simple conditional, Jones v. Postell, 33 16 S.C.L. 92 (Harp. L. )(1824), and tenants in joint tenancies with 34 express provisions for right of survivorship, Davis v. Davis, 223 35 S.C. 182, 75 S.E.2d 46 (1963). In both cases the law disabled such 36 tenants from passing their estates by will. The spirit, if not the 37 letter, of this Code’s provisions is opposed to the grant of any such 38 novel right to devise. 39 Tenants who hold real property in joint tenancies lacking 40 express survivorship provisions may devise their interest in such 41 real property. In the absence of a will such tenant’s interest in 42 such real property will pass in intestacy. See Section 622804.[1243] 57 1 The elaborate body of case law developed in the application of 2 former Sections 21710, et seq., will continue to supply guidance 3 in the application of Section 622501. That case law concerns the 4 matters of sufficient testamentary intent, Madden v. Madden, 237 5 S.C. 629, 118 S.E.2d 443 (1961), C. & S. Nat. Bank of S. C. v. 6 Roach, 239 S.C. 291, 122 S.E.2d 644 (1961), including 7 conditional wills, S. Alan Medlin, The Law of Wills and Trusts 8 (S.C. Bar 2002) Section 305; and sufficient mental capacity, 9 Lee’s Heirs v. Lee’s Executor, 15 S.C.L. 183 (4 McC. L.) (1827), 10 Hellams v. Ross, 268 S.C. 284, 233 S.E.2d 98 (1977), Medlin, 11 supia at Section 301.2; as well as the effect of undue influence, 12 Farr v. Thompson, 25 S.C.L. 37 (Cheves L.) (1839); Thompson 13 v. Farr, 28 S.C.L. 93 (1 Sp. L.) (1842); O’Neall v. Farr, 30 14 S.C.L. 80 (1 Rich. L.) (1844), Mock v. Dowling, 266 S.C. 274, 15 222 S.E.2d 773 (1976), Calhoun v. Calhoun, 277 S.C. 527, 290 16 S.E.2d 415 (1982), Medlin, supra at Section 301.4; and the 17 burdens of proof applicable and the presumptions of fact available 18 with respect to mental capacity and undue influence, Havird v. 19 Schissell, 252 S.C. 404, 166 S.E.2d 801 (1969), Medlin, supra at 20 Sections 301.2, 301.4. The developed South Carolina case law 21 also covers the matters of mistake in the execution of wills, Ex 22 Parte King, 132 S.C. 63, 128 S.E. 850 (1925), Medlin, supra at 23 Section 301.2; and fraud as it affects the making of wills. 24 25 Section 622502. Except as provided for writings within Section 26 622512 and wills within Section 622505, every will, shall be: 27 (1) in writing; 28 (2) signed by the testator or signed in the testator’s name by 29 some other person individual in the testator’s presence and by his 30 the testator’s direction,; and 31 (3) shall be signed by at least two persons individuals each of 32 whom witnessed either the signing or the testator’s 33 acknowledgment of the signature or of the will. 34 35 REPORTER’S COMMENTS 36 Section 622502 specifies the usual requirements for the valid 37 formal execution of every will: a writing signed by the testator, or 38 for him by another, and also signed by two witnesses, witnessing 39 either the testator’s signing or his acknowledgment of either his 40 signature or the will. All of these formalities were required by 41 prior South Carolina law, formerly Sections 21720 and 21750 of 42 the 1976 code, which, however, further required that three 43 witnesses sign and that they do so in the presence of the testator[1243] 58 1 and of each other. The required number of witnesses is reduced 2 from three to two with respect to all wills executed after June 27, 3 1984, the effective date of South Carolina’s first statute 4 recognizing the device of the selfproving will affidavit, formerly 5 Section 217615 of the 1976 code, embodied in Section 622503 of 6 this Code. That statute might have been read by some testators to 7 allow for the valid execution and attestation of a will by only two 8 witnesses. As the policy of this Code is to require just two 9 witnesses at testation, it appears advisable to bring within the 10 Code’s protection any testators whose wills were attested by but 11 two witnesses between June 28, 1984, and the effective date of this 12 Code. Section 622502 requires neither subscription of the 13 testator’s signature, i.e., that it appear at the end of the will, nor 14 publication of the will, i.e., the testator’s announcement to the 15 witnesses that the document is his will, nor a specific request by 16 the testator that the witnesses attest and sign. Each of these 17 practices is, however, customary and unobjectionable. 18 This Code does not recognize the holographic method of 19 execution of a will, i.e., dispensing with the witnesses but 20 requiring that the whole will be cast in the testator’s handwriting 21 and that it be signed by him. Such a will is not valid in South 22 Carolina, unless specifically by valid outstate execution or outstate 23 probate, which special rules are to be found at Sections 622505, 24 623303(c) and (d), and 623408 of this Code. Further, this Code 25 recognizes neither soldiers’ and mariners’ wills of personalty nor 26 nuncupative wills of personalty, i.e., oral wills. 27 The effect of Section 622502 is that every will must be in an 28 integrated writing, signed and witnessed as described, except only 29 as provided in Sections 622505 (written wills duly executed 30 elsewhere) and 622512 (writings disposing of tangible personal 31 property). 32 33 Section 622503. (a) Any will may be simultaneously executed, 34 attested, and made selfproved. The selfproof shall be effective 35 upon the acknowledgment by the testator and the affidavit of at 36 least one witness, each made before an officer authorized to 37 administer oaths under the laws of the state where execution 38 occurs and evidenced by the officer’s certificate, under official 39 seal, in the following form or in a similar form showing the same 40 intent: 41 I, ______, the testator, sign my name to this instrument this 42 ___ day of ______, 19___, and being first duly sworn, do 43 hereby declare to the undersigned authority that I sign and execute[1243] 59 1 this instrument as my last will and that I sign it willingly (or 2 willingly direct another to sign for me), that I execute it as my free 3 and voluntary act for the purposes therein expressed, and that I am 4 eighteen years of age or older (or if under the age of eighteen, am 5 married or emancipated as decreed by a family court), of sound 6 mind, and under no constraint or undue influence. 7 We, ______and ______, the witnesses, sign our names 8 to this instrument, and at least one of us, being first duly sworn, 9 does hereby declare, generally and to the undersigned authority, 10 that the testator signs and executes this instrument as his last will 11 and that he signs it willingly (or willingly directs another to sign 12 for him), and that each of us, in the presence and hearing of the 13 testator, hereby signs this will as witness to the testator’s signing, 14 and that to the best of our knowledge the testator is eighteen years 15 of age or older (or if under the age of eighteen, was married or 16 emancipated as decreed by a family court), of sound mind, and 17 under no constraint or undue influence. 18 (b) An attested will may at any time subsequent to its 19 execution be made selfproved by the acknowledgment thereof by 20 the testator and the affidavit of at least one witness, each made 21 before an officer authorized to administer oaths under the laws of 22 the state where the acknowledgment occurs and evidenced by the 23 officer’s certificate, under the official seal, attached, or annexed to 24 the will in the following form or in a similar form showing the 25 same intent: 26 The State of ______County of ______We, ______27 and ______, the testator and at least one of the witnesses, 28 respectively, whose names are signed to the attached or foregoing 29 instrument, being first duly sworn, do hereby declare to the 30 undersigned authority that the testator signed and executed the 31 instrument as his last will and that he had signed willingly (or 32 willingly directed another to sign for him), and that he executed it 33 as his free and voluntary act for the purposes therein expressed, 34 and that each of the witnesses, in the presence and hearing of the 35 testator, signed the will as witness and to the best of his knowledge 36 the testator was at that time eighteen years of age or older (or if 37 under the age of eighteen, was married or emancipated as decreed 38 by a family court), of sound mind, and under no constraint or 39 undue influence. 40 (c) A witness to any will who is also an officer authorized to 41 administer oaths under the laws of this State may notarize the 42 signature of the other witness of the will in the manner provided by 43 this section. [1243] 60 1 2 REPORTER’S COMMENTS 3 Section 622503 provides for an expediting feature for the proof of 4 wills. The selfproved will is a will into which an affidavit has 5 been incorporated, signed by the testator, the witnesses and a 6 notary, declaring the due execution of the will, the testamentary 7 capacity of the testator and the absence of undue influence worked 8 upon the testator. Probate of a selfproved will is freed of the 9 requirement of producing the available testimony of such 10 witnesses to the due execution of the will, as otherwise required by 11 Sections 623405 and 623406 of this Code as to formal testacy 12 proceedings. 13 The testator’s affidavit may be drafted into the testimonium 14 clause of the will so that his one signature suffices for both the 15 execution of the will and the execution of his affidavit. Similarly, 16 the witnesses’ affidavit may be drafted into their attestation clause, 17 requiring each of them to sign only once. Section 622503 (a). 18 Alternatively, under Section 622503(b), a will may be drafted with 19 traditional testimonium and attestation clauses, requiring the 20 signatures of the testator and the witnesses, respectively, with the 21 affidavits of the testator and of the witnesses drafted as one, but 22 separated from the testimonium and attestation clauses, and thus 23 requiring each of such persons to sign a second time. The Section 24 622503(b) form may be attached to a will executed simultaneously 25 with the affidavit or, more to the point, a will executed at any time 26 prior to the execution of the affidavit, even one executed prior to 27 the enactment of this statute. 28 Section 622503 makes a will selfproved if affidavits in 29 ‘substantially’ the form of those set forth in the section are 30 executed. Therefore, neither merely formal variations, nor the 31 subscription of the will and of the affidavit by more than two 32 witnesses, nor the failure of one or more of the witnesses to sign 33 the affidavit should frustrate the selfproof of the will by way of the 34 affidavit, that is, at least not insofar as the proof of the will 35 depends upon the testimony of the witnesses who do sign the 36 affidavit. 37 38 Section 622504. (a) No A subscribing witness to any will, 39 testament, or codicil may be held is not incompetent to attest or 40 prove the same by reason of any devise, legacy, or bequest therein 41 in favor of such witness, such witness’s spouse, or such witness’s 42 issue or the husband or wife of such witness, by reason of any 43 appointment therein of such witness or the husband or wife of such[1243] 61 1 witness to any office, trust, or duty, or by reason of any charge 2 therein of debts to any part of the estate in favor of such witness as 3 creditor. Any If there are two disinterested witnesses to a will in 4 addition to the interested witness, then such devise, legacy, or 5 bequest is valid and effectual, if otherwise effective. so, but unless 6 there are two other and disinterested witnesses then so far as the 7 property, estate, or interest so devised or bequeathed exceeds in 8 value any property, estate, or interest to which such witness or the 9 husband or wife of such witness would be entitled upon the failure 10 to establish such will, testament, or codicil, If there are not two 11 disinterested witnesses to a will in addition to an interested 12 witness, then such devise, legacy, or bequest is null and void to the 13 extent of such the value of the excess property, estate, or interest 14 so devised over the value of the property, estate or interest to 15 which such witness, such witness’s spouse, or such witness’ issue 16 would be entitled upon the failure to establish such will. The 17 voided portion of such devise shall pass by intestacy in accordance 18 with Section 622101 et seq., provided the share of the interested 19 witness, such witness’s spouse, or such witness’ issue shall not 20 increase due to the devise passing by intestacy. 21 (b) A subscribing witness to any will is not incompetent to 22 attest or prove the will by reason of any appointment within the 23 will of such witness, such witness’s spouse, or such witness’s issue 24 to any office, trust, or duty. The Any such appointment of a 25 witness, a witness’s spouse, or a witness’s issue is valid, if 26 otherwise so, and the person individual so appointed, in such case, 27 is entitled by law to take or receive any commissions or other 28 compensation on account thereof. 29 (c) A subscribing witness to any will is not incompetent to 30 attest or prove the will by reason of any charge within the will of 31 debts to any part of the estate in favor of such witness, such 32 witness’s spouse, or such witness’s issue as creditor. 33 34 REPORTER’S COMMENTS 35 The purpose of this section is to remove from the interested 36 witness any benefit to the witness from the will that the witness 37 would not otherwise receive so that the witness can be used to 38 prove the will. 39 An ‘interested witness’ is an individual (1) who is named as a 40 devisee in the testator’s will; (2) whose spouse is named as a 41 devisee in the testator’s will, or (3) whose issue are named as 42 devisees in the testator’s will. 43[1243] 62 1 Section 622505. A written will is valid if: 2 (a) it is executed in compliance with Section 622502 either at 3 the time of execution or at the date of the testator’s death; or 4 (b) if its execution complies with the law at the time of 5 execution of either (1) the place where the will is executed, or (2) 6 the place where the testator is domiciled at the time of execution or 7 at the time of death. 8 9 REPORTER’S COMMENTS 10 Section 622505 specifies the extraordinary requirements, 11 alternative to the usual requirements of Section 622502 of this 12 Code, for the valid formal execution of a will: a writing executed 13 in compliance with the law applicable at the time of the will’s 14 execution (not that at the time of the testator’s date of death), of 15 the place (whether South Carolina or elsewhere): (1) where the 16 will is executed; (2) where the testator is domiciled at the time of 17 the will’s execution; or (3) where the testator is domiciled at the 18 time of his death. 19 The policy of Section 622505, the effectuation of the testator’s 20 intention to duly execute his will in accordance with the law as he 21 may understand it at the date of the will’s execution is furthered by 22 the definition of the applicable law for purposes of Section 622505 23 as that at the time of execution and as that of any of several 24 different mentioned places. 25 The wills of all decedents, domiciliary or otherwise, are covered 26 by this section and may benefit thereby. 27 One further alternative to this Code’s provisions for valid instate 28 execution under Section 622502 and valid outstate execution under 29 Section 622505 exists in its provisions for probate in South 30 Carolina of a will already validly probated outstate; see Sections 31 623303(c) and (d) and 623408. 32 33 Section 622506. (a) A will or any part thereof is revoked: 34 (1) by executing a subsequent will which that revokes the 35 prior previous will or part expressly or by inconsistency; or 36 (2) by being burned, torn, canceled, obliterated, or 37 destroyed, with the intent and for the purpose of revoking it by the 38 testator or by another person in his the testator’s presence and by 39 his the testator’s direction. 40 (b) If a subsequent will does not expressly revoke a previous 41 will, the execution of the subsequent will wholly revokes the 42 previous will by inconsistency if the testator intended the[1243] 63 1 subsequent will to replace rather than supplement the previous 2 will. 3 (1) The testator is presumed to have intended a subsequent 4 will to replace rather than to supplement a previous will if the 5 subsequent will makes a complete disposition of the testator’s 6 estate. If this presumption arises and is not rebutted by clear and 7 convincing evidence, the previous will is revoked and only the 8 subsequent will is operative on the testator’s death. 9 (2) The testator is presumed to have intended a subsequent 10 will to supplement rather than replace a previous will if the 11 subsequent will does not make a complete disposition of the 12 testator’s estate. If this presumption arises and is not rebutted by 13 clear and convincing evidence, the subsequent will revokes the 14 previous will only to the extent the subsequent will is inconsistent 15 with the previous will and each will is fully operative on the 16 testator’s death to the extent they are not inconsistent. 17 18 REPORTER’S COMMENTS 19 Section 622506 specifies the broad requirements for the valid 20 intentional revocation of a will and of any part of a will: either (1) 21 a subsequent will, defined in Section 621201(52) of this Code, 22 acting expressly or by implication on the will being revoked, or (2) 23 a physical act affecting the will being revoked. 24 The elaborate body of case law developed in the application of 25 former Section 217210 will continue to supply guidance in the 26 application of Section 622506. S. Alan Medlin, The Law of Wills 27 and Trusts (S.C. Bar 2002) Sections 310, 310.1. That case law 28 stressed the necessity to meet the statute’s requirements in order to 29 effect a revocation, Madden v. Madden, 237 S.C. 629, 118 S.E.2d 30 443 (1961); distinguished intended revocations from the 31 accidental inclusion of express language of revocation in 32 subsequent wills, Owens v. Fahnestock, 110 S.C. 130, 96 S.E. 557 33 (1918), and the accidental destruction of wills, such accidents 34 involving no revocation in the eyes of the law unless, perhaps, the 35 accident was later confirmed as an intended revocation, Davis v. 36 Davis, 214 S.C. 247, 52 S.E.2d 192 (1949). It distinguished 37 unmistaken, unconditional revocations from cases of dependent 38 relative revocation, i.e., mistaken revocations, not effective as 39 revocations at law, Pringle v. McPherson’s Executors, 4 S.C.L. 40 279 (2 Brev.) (1809), Johnson v. Brailsford, 2 Nott and McC. 272 41 (S.C. 1820) Charleston Library Society v. C. & S. Nat. Bank, 200 42 S.C. 96, 20 S.E.2d 623 (1942), Stevens v. Royalls, 223 S.C. 510, 43 77 S.E.2d 198 (1953). It allowed partial revocations by either one[1243] 64 1 of the two broad methods of revocation, Brown v. Brown, 91 S.C. 2 101, 74 S.E. 135 (1912). It gave effect to revocations by 3 implication from the inconsistency between the provisions of the 4 will being revoked and the subsequent will and also determined 5 whether any such inconsistency existed, Starratt v. Morse, 332 F. 6 Supp. 1038 (D.S.C. 1971) and Werber v. Moses, 117 S.C. 157, 7 108 S.E. 396 (1921). It governed revocations by physical act, 8 including those accomplished ‘by another person in his (the 9 testator’s) presence and by his direction,’ Means v. Moore, 16 10 S.C.L. 314 (Harp. L.) (1824), and those rebuttably presumed to 11 have occurred in cases of mutilated wills, Johnson v. Brailsford, 12 supra, and in cases of missing wills, Lowe v. Fickling, 207 S.C. 13 442, 36 S.E.2d 293 (1945). 14 15 Section 622507. If after executing a will the testator is divorced 16 or his marriage annulled or his spouse is a party to a valid 17 proceeding concluded by an order purporting to terminate all 18 marital property rights or confirming equitable distribution 19 between spouses, the divorce or annulment or order revokes any 20 disposition or appointment of property including beneficial 21 interests made by the will to the spouse, any provision conferring a 22 general or special power of appointment on the spouse, and any 23 nomination of the spouse as executor, trustee, conservator, or 24 guardian, unless the will expressly provides otherwise. Property 25 prevented from passing to a spouse because of revocation by 26 divorce or annulment or order passes as if the spouse failed to 27 survive the decedent, and other provisions conferring some power 28 or office on the spouse are interpreted as if the spouse failed to 29 survive the decedent. If provisions are revoked solely by this 30 section, they are revived by testator’s remarriage to the former 31 spouse. For purposes of this section, divorce or annulment or 32 order means any divorce or annulment or order which would 33 exclude the spouse as a surviving spouse within the meaning of 34 subsections (b) and (c) of Section 622802. A decree of separate 35 maintenance which does not terminate the status of husband and 36 wife is not a divorce for purposes of this section. No change of 37 marital or parental circumstances other than as described in this 38 section revokes a will. (a) In this section: 39 (1) ‘Disposition or appointment of property’ includes a 40 transfer of an item of property or any other benefit to a beneficiary 41 designated in a governing instrument. 42 (2) ‘Divorce or annulment’ means any divorce or annulment 43 or declaration of invalidity of a marriage or other event that would[1243] 65 1 exclude the spouse as a surviving spouse in accordance with 2 Section 622802. It also includes a court order purporting to 3 terminate all marital property rights or confirming equitable 4 distribution between spouses unless they are living together as 5 husband and wife at the time of the decedent’s death. A decree of 6 separate maintenance that does not terminate the status of husband 7 and wife is not a divorce for purposes of this section. 8 (3) ‘Divorced individual’ includes an individual whose 9 marriage has been annulled. 10 (4) ‘Governing instrument’ means an instrument executed 11 by the divorced individual before the divorce or annulment of the 12 individual’s marriage to the individual’s former spouse including, 13 but not limited to wills, revocable inter vivos trusts, powers of 14 attorney, life insurance beneficiary designations, annuity 15 beneficiary designations, retirement plan beneficiary designations 16 and transfer on death accounts. 17 (5) ‘Revocable’ with respect to a disposition, appointment, 18 provision, or nomination, means one under which the divorced 19 individual, at the time of the divorce or annulment, was alone 20 empowered, by law or under the governing instrument, to cancel 21 the designation in favor of the divorced individual’s former 22 spouse, whether or not the divorced individual was then 23 empowered to designate the divorced individual in place of the 24 divorced individual’s former spouse and whether or not the 25 divorced individual then had the capacity to exercise the power. 26 (b) No change of circumstances other than those described in 27 this section and in Section 622803 effects a revocation. 28 (c) Except as provided by the express terms of a governing 29 instrument, a court order, or a contract relating to the division of 30 the marital estate made between the divorced individuals before or 31 after the marriage, divorce or annulment, the divorce or annulment 32 of a marriage: 33 (1) revokes any revocable: 34 (i) disposition or appointment of property or beneficiary 35 designation made by a divorced individual to the divorced 36 individual’s former spouse in a governing instrument; 37 (ii) provision in a governing instrument conferring a 38 general or nongeneral power of appointment on the divorced 39 individual’s former spouse; or 40 (iii) nomination in a governing instrument, nominating a 41 divorced individual’s former spouse to serve in any fiduciary or 42 representative capacity, including a personal representative, 43 trustee, conservator, agent, attorney in fact or guardian;[1243] 66 1 (2) severs the interests of the former spouses in property 2 held by them at the time of the divorce or annulment as joint 3 tenants with the right of survivorship so that the share of the 4 decedent passes as the decedent’s property and the former spouse 5 has no rights by survivorship. This provision applies to joint 6 tenancies in real and personal property, joint and multipleparty 7 accounts in banks, savings and loan associations, credit unions, 8 and other institutions, and any other form of coownership with 9 survivorship incidents. 10 (d) A severance under subsection (c)(2) does not affect any 11 thirdparty interest in property acquired for value and in good faith 12 reliance on an apparent title by survivorship in the survivor of the 13 former spouses unless a writing declaring the severance has been 14 noted, registered, filed, or recorded in records appropriate to the 15 kind and location of the property which are relied upon, in the 16 ordinary course of transactions involving such property, as 17 evidence of ownership. 18 (e) Provisions of a governing instrument and nomination in a 19 fiduciary or representative capacity that are revoked by this section 20 are given effect as if the former spouse predeceased the decedent. 21 (f) Provisions revoked solely by this section are revived by the 22 divorced individual’s remarriage to the former spouse or by a 23 nullification of the divorce or annulment. 24 (g)(1) A payor or other third party is not liable for having made 25 a payment or transferred an item of property or any other benefit to 26 a beneficiary designated in a governing instrument affected by a 27 divorce, annulment, or remarriage, or for having taken any other 28 action in good faith reliance on the validity of the governing 29 instrument, before the payor or other third party received written 30 notice of the divorce, annulment, or remarriage. A payor or other 31 third party is liable for a payment made or other action taken after 32 the payor or other third party received written notice of a claimed 33 forfeiture or revocation under this section. 34 (2) Written notice of the divorce, annulment, or remarriage 35 under subsection (g)(1) must be mailed to the payor’s or other 36 third party’s main office or home by registered or certified mail, 37 return receipt requested, or served upon the payor or other third 38 party in the same manner as a summons in a civil action. Upon 39 receipt of written notice of the divorce, annulment, or remarriage, a 40 payor or other third party may pay any amount owed or transfer or 41 deposit any item of property held by it to or with the court having 42 jurisdiction. The court shall hold the funds or item of property and, 43 upon its determination under this section, shall order disbursement[1243] 67 1 or transfer in accordance with the determination. Payments, 2 transfers, or deposits made to or with the court discharge the payor 3 or other third party from all claims for the value of amounts paid to 4 or items of property transferred to or deposited with the court. 5 (h)(1) A person who purchases property from a former spouse 6 or any other person for value and without notice, or who receives 7 from a former spouse or any other person a payment or other item 8 of property in partial or full satisfaction of a legally enforceable 9 obligation, is neither obligated under this section to return the 10 payment, item of property, or benefit nor is liable under this 11 section for the amount of the payment or the value of the item of 12 property or benefit. However, a person who, not for value, receives 13 a payment, item of property, or any other benefit to which that 14 person is not entitled under this section is obligated to return the 15 payment, item of property, or benefit, or is personally liable for the 16 amount of the payment or the value of the item of property or 17 benefit, to the person who is entitled to it under this section. 18 (2) If this section or any part of this section is preempted by 19 federal law with respect to a payment, an item of property, or any 20 other benefit covered by this section, a person who, not for value, 21 receives a payment, item of property, or any other benefit to which 22 that person is not entitled under this section is obligated to return 23 that payment, item of property, or benefit, or is personally liable 24 for the amount of the payment or the value of the item of property 25 or benefit, to the person who would have been entitled to it were 26 this section or part of this section not preempted. 27 28 REPORTER’S COMMENTS 29 The 2012 amendment expands this section to cover life insurance 30 and retirement plan beneficiary designations, transfer on death 31 accounts, and other revocable dispositions to the former spouse 32 that the divorced individual established before the divorce or 33 annulment. This section effectuates a decedent’s presumed intent: 34 without a contrary indication by the decedent, a former spouse will 35 not receive any probate or nonprobate transfer as a result of the 36 decedent’s death. 37 38 Section 622508. (a) If a subsequent will that wholly revoked a 39 previous will is thereafter revoked by a revocatory act The 40 revocation by acts under Section 622506(a)(2) of a the previous 41 will remains revoked unless it is revived. will made subsequent to 42 a former will, where the subsequent will would have revoked the 43 former will if the subsequent will had remained effective at the[1243] 68 1 death of the testator, shall not revive or make effective any former 2 will unless it The previous will is revived if it appears by clear, 3 cogent, and convincing evidence that the testator intended to 4 revive or make effective the former previous will. 5 (b) If a subsequent will that partly revoked a previous will is 6 thereafter revoked by a revocatory act under Section 622506(a)(2), 7 a revoked part of the previous will is revived unless it appears by 8 clear and convincing evidence that the testator did not intend the 9 revoked part to take effect as executed. 10 (c) The revocation by a third will under Section 622506(1) of a 11 will made subsequent to a former will, where the subsequent will 12 would have revoked the former will if the subsequent will had 13 remained effective at the death of the testator, shall not revive or 14 make effective any former will except If a subsequent will that 15 revoked a previous will in whole or in part is thereafter revoked by 16 another, later will, the previous will remains revoked in whole or 17 in part, unless it or its revoked part is revived. The previous will 18 or its revoked part is revived to the extent it appears from the terms 19 of the third later will that the testator intended the former previous 20 will to take effect. 21 22 REPORTER’S COMMENTS 23 Section 622508 addresses the question whether the revival of a 24 former and revoked will is intended and will be effected by the 25 revocation of a subsequent and revoking will, either by physical 26 act or by way of the execution of yet a third will revoking the 27 subsequent will. 28 The 2012 amendment distinguishes between the revocation of a 29 subsequent will that effects a complete revocation or a partial 30 revocation of a previous will. 31 There is a presumption against revival where the subsequent will 32 wholly revokes the previous will. The presumption against revival 33 is intended to be heightened by the requirement of ‘clear and 34 convincing evidence’ to rebut it. 35 There is a presumption in favor of revival (of the revoked part or 36 parts of the previous will) where a subsequent will partially 37 revoked the previous will. The justification is that where the 38 subsequent will only partially revoked the previous will, the 39 subsequent will is only a codicil to the previous will and the 40 testator should know that the previous will has continuing effect. 41 42 Section 622509. Any writing in existence when a will is 43 executed may be incorporated by reference if the language of the[1243] 69 1 will manifests this intent and describes the writing sufficiently to 2 permit its identification. 3 4 REPORTER’S COMMENTS 5 Section 622509 permits incorporation by reference in a will of a 6 separate writing, in existence at the date of the execution of the 7 will, if both the intent to incorporate and the identification of the 8 writing appear in the language of the will. However, Section 9 622509 does not require that the will describe the writing as 10 existent and requires only that the writing be described 11 ‘sufficiently to permit its identification.’ 12 Compare Section 622512 which allows a writing not sufficiently 13 incorporated by reference into a will, as under Section 622509, to 14 affect the will’s dispositions in certain cases. 15 16 Section 622510. (a)(A) A devise or bequest, the validity of 17 which is determinable by the law of this State, may be made by a 18 will to the trustee of a trust established or to be established by the 19 testator or by the testator and some other person or by some other 20 person (including a funded or unfunded life insurance trust, 21 although the trustor has reserved any or all rights of ownership of 22 the insurance contracts) if to a trust is valid so long as: 23 (1) the trust is identified in the testator’s will and its terms 24 are set forth in: 25 (a) a written instrument (other than a will) executed 26 before, or concurrently with, or after the execution of the testator’s 27 will but not later than the testator’s death; or 28 (b) in the valid last will of a person another individual 29 who has predeceased the testator; (regardless of the existence, size, 30 or character of the corpus of the trust). The devise is not invalid 31 because the trust is amendable or revocable, or because the trust 32 was amended after the execution of the will or after the death of 33 the testator. 34 (B) The trust is not required to have a trust corpus other than 35 the expectancy of receiving the testator’s devise. 36 (C) The devise is not invalid because the trust is amendable or 37 revocable, or because the trust was amended after the execution of 38 the will or after the death of the testator. 39 (D) Unless the testator’s will provides otherwise, the property 40 so devised: 41 (1) is not deemed to be held under a testamentary trust of the 42 testator but becomes a part of the trust to which it is given; and[1243] 70 1 (2) shall be administered and disposed of in accordance with 2 the provisions of the instrument or will setting forth the terms of 3 the trust, including any amendments thereto made before or after 4 the death of the testator; (regardless of whether made before or 5 after the execution of the testator’s will), and, if the testator’s will 6 so provides, including any amendments to the trust made after the 7 death of the testator. 8 (E) Unless the testator’s will provides otherwise, a revocation 9 or termination of the trust before the death of the testator causes 10 the devise to lapse. 11 (b)(F) Death benefits of any kind, including but not limited to 12 proceeds of life insurance policies and payments under an 13 employees’ trust, or contract of insurance purchased by such a 14 trust, forming part of a pension, stockbonus or profitsharing plan, 15 or under a retirement annuity contract, may be paid to the trustee 16 of a trust established by the insured, employee, or annuitant or by 17 some other person if the trust is in existence at the death of the 18 insured, employee, or annuitant, it is identified and its terms are set 19 forth in a written instrument, and such death benefits shall be 20 administered and disposed of in accordance with the provisions of 21 the instrument setting forth the terms of the trust including any 22 amendments made thereto before the death of the insured, 23 employee, or annuitant and, if the instrument so provides, 24 including any amendments to the trust made after the death of the 25 insured, employee, or annuitant. It shall not be necessary to the 26 validity of any such trust instrument, whether revocable or 27 irrevocable, that it have a trust corpus other than the right of the 28 trustee to receive such death benefits. 29 (c)(G) Death benefits of any kind, including but not limited to 30 proceeds of life insurance policies and payments under an 31 employees’ trust, or contract of insurance purchased by such a 32 trust, forming part of a pension, stockbonus, or profitsharing plan, 33 or under a retirement annuity contract, may be paid to a trustee 34 named, or to be named, in a will which is admitted to probate as 35 the last will of the insured or the owner of the policy, or the 36 employee covered by such plan or contract, as the case may be, 37 whether or not such will is in existence at the time of such 38 designation. Upon the admission of such will to probate, and the 39 payment thereof to the trustee, such death benefits shall be 40 administered and disposed of in accordance with the provisions of 41 the testamentary trust created by the will as they exist at the time 42 of the death of the testator. Such payments shall be deemed to 43 pass directly to the trustee of the testamentary trust and shall not be[1243] 71 1 deemed to have passed to or be receivable by the executor of the 2 estate of the insured, employee, or annuitant. 3 (d)(H) In the event no trustee makes proper claim to the 4 proceeds payable as provided in subsections (b)(F) and (c)(G) of 5 this section from the insurance company or the obligor within a 6 period of one year after the date of the death of the insured, 7 employee, or annuitant, or if satisfactory evidence is furnished to 8 the insurance company or other obligor within such one year 9 period that there is or will be no trustee to receive the proceeds, 10 payment must be made by the executors or administrators of the 11 person making such designations, unless otherwise provided by 12 agreement. 13 (e)(I) Death benefits payable as provided in subsections (b)(F) 14 and (c)(G) of this section shall not be subject to the debts of the 15 insured, employee, or annuitant nor to transfer or estate taxes to 16 any greater extent than if such proceeds were payable to the 17 beneficiary of such trust and not to the estate of the insured, 18 employee, or annuitant. 19 (f)(J) Such death benefits payable as provided in subsections 20 (b)(F) and (c)(G) of this section so held in trust may be 21 commingled with any other assets which may properly come into 22 such trust. 23 24 REPORTER’S COMMENTS 25 This section allows a receptacle trust to be executed after the 26 execution of the testator’s will, and makes clear that the trust does 27 not have to have a corpus other than the expectancy of receiving 28 the testator’s devise. 29 30 Section 622511. A will may dispose of property by reference to 31 acts and events which that have significance apart from their effect 32 upon the dispositions made by the will, whether they occur before 33 or after the execution of the will or before or after the testator’s 34 death. The execution or revocation of a will of another person is 35 such an event. 36 37 REPORTER’S COMMENTS 38 Under Section 622511, acts and events extraneous to a will are 39 allowed to affect the will’s dispositions if they have some 40 significance apart from their effect upon the will’s dispositions. 41 The acts or events, including the execution or revocation of 42 another person’s will, might occur either before or after the dates[1243] 72 1 of either the execution of the will or the testator’s death and yet be 2 given such effect. 3 Compare Section 622512 which in certain cases allows an act 4 extraneous to a will to affect the will’s dispositions although the 5 act has no independent significance. 6 7 Section 622512. A will may refer to a written statement or list to 8 dispose of items of tangible personal property not otherwise 9 specifically disposed of by the will, other than money, evidences 10 of indebtedness, documents of title (as defined in Section 11 361201(15)), securities (as defined in Section 368102(1)(A)), and 12 property used in trade or business. To be admissible under this 13 section as evidence of the intended disposition, the writing must 14 either be in the handwriting of the testator or be signed by him the 15 testator and must describe the items and the devisees with 16 reasonable certainty. The writing may be referred to as one to be 17 in existence at the time of the testator’s death; it may be prepared 18 before or after the execution of the will; it may be altered by the 19 testator after its preparation; and it may be a writing which that 20 has no significance apart from its effect upon the dispositions 21 made by the will. 22 23 REPORTER’S COMMENTS 24 Section 622512 relaxes the normal application of the rules of 25 incorporation by reference, Section 622509, and of facts of 26 independent significance, Section 622511, all in favor of the 27 special case of extraneous writings, either in the testator’s 28 handwriting or signed by the testator, referred to in the testator’s 29 will, and which dispose of certain items of tangible personal 30 property. They are given effect, albeit they are neither required to 31 be in existence at the date when the will is executed nor to have 32 independent significance. They may be altered by the testator at 33 any time. 34 Black’s Law Dictionary defines ‘tangible personal property’ as 35 including coin collections; therefore, coin collections may be items 36 disposed of in a tangible personal property memorandum. 37 Vehicles and boats are also tangible personal property. 38 39 Part 6 40 41 Construction 42[1243] 73 1 Section 622601. (A) The intention of a testator as expressed in 2 his the testator’s will controls the legal effect of his the testator’s 3 dispositions. The rules of construction expressed in the succeeding 4 sections of this part apply unless a contrary intention is indicated 5 by the will. 6 (B) Notwithstanding subsection (A), the court may reform the 7 terms of the will, even if unambiguous, to conform the terms to the 8 testator’s intention if it is proved by clear and convincing evidence 9 that the testator’s intent and the terms of the will were affected by 10 a mistake of fact or law, whether in expression or inducement. 11 12 REPORTER’S COMMENTS 13 Section 622601 states the first principle of the construction of 14 wills, that the testator’s intention as expressed in the will controls, 15 a codification of South Carolina case law. See King v. S.C. Tax 16 Comm., 253 S.C. 246, 173 S.E.2d 92 (1970). Only in the absence 17 of expression in the will of the testator’s intention do the rules of 18 construction of this Part (6) control. 19 Subsection (B) tracks Uniform Probate Code Reformation to 20 Correct Mistakes to give probate judges statutory authority to 21 reform a will’s terms when there is clear and convincing evidence 22 of a mistake (for example, in husband/wife wills where the 23 attorney mistakenly forgets to change the name of the devisee from 24 wife to husband in wife’s will). Additionally, subsection (B) 25 mirrors Section 627415 in the Trust Code. 26 27 Section 622602. A will is construed to pass all property which 28 the testator owns at his the testator’s death including property 29 acquired after the execution of the will and all property acquired 30 by the testator’s estate after the testator’s death. 31 32 REPORTER’S COMMENTS 33 Section 622602 establishes the general rule that an ambiguous will 34 is construed to pass all property owned at the testator’s date of 35 death, if at all possible to do so. Thus is stated the South Carolina 36 law’s presumption against intestacy. See MacDonald v. Fagan, 37 118 S.C. 510, 111 S.E. 793 (1922). 38 Property specifically described in the will presents no problem; it 39 is property not specifically described which raises the question 40 answered by this section’s rule. Provisions referring generally to 41 classes of property of the decedent, without specification of the 42 items of such property, are construed to refer to all items within 43 the scope of their general reference, whether the items were[1243] 74 1 acquired before or after the execution of the will. However, items 2 of property not within the scope of reference of any general 3 provision contained in the will do not pass under that will; they 4 pass in intestacy, regardless of when they were acquired by the 5 testator. Cornelson v. Vance, 220 S.C. 47, 66 S.E.2d 421, 426 6 (1951). 7 This section also expresses the particular rule that afteracquired 8 property is to be treated the same as property owned at the 9 execution of the will even if that property is acquired by the 10 testor’s estate after the testater’s death. 11 12 Section 622603. (A) Unless a contrary intent appears in the 13 will, if a devisee, who is a greatgrandparent or a lineal descendant 14 of a greatgrandparent of the testator is dead at the time of 15 execution of the will, fails to survive the testator, or is treated as if 16 he predeceased the testator, the issue of the deceased devisee who 17 survive the testator take in place of the deceased devisee and if 18 they are all of the same degree of kinship to the devisee they take 19 equally, but if of unequal degree then those of more remote degree 20 take by representation. 21 (B) One who would have been a devisee under a class gift if he 22 had survived the testator is treated as a devisee for purposes of this 23 section whether his death occurred before or after the execution of 24 the will. 25 (C) Words of survivorship in a devise to an individual ‘if he 26 survives me,’ or to ‘my surviving children,’ are, in the absence of 27 additional evidence, a sufficient indication of an intent contrary to 28 the application of subsections (A) and (B). 29 30 REPORTER’S COMMENTS 31 The antilapse rule of Section 622603 applies unless the decedent’s 32 will provides otherwise and unless lifetime gifts to a devisee 33 satisfy his devise under Section 622610. The rule preserves some 34 devises which otherwise would be void or would lapse because of 35 the failure of the devisees to survive to take the devise. The rule 36 saves only devises to persons who are related to the testator as or 37 through the testator’s greatgrandparents, whether they are 38 individually named in the devise, or merely described by class 39 terminology, and whether they predecease the will’s execution or 40 the testator’s date of death or they are merely treated as 41 predeceasing his death, as under the Uniform Simultaneous Death 42 Act, Sections 621501 et seq., or as under Section 622801 43 respecting devisees who renounce their succession rights, or as[1243] 75 1 under Section 622803 respecting devisees who feloniously and 2 intentionally kill their testators. Those of the devisee’s issue, 3 defined by Section 621201(24) who survive the testator take the 4 devise in place of the devisee; they take among themselves per 5 capita with per capita representation, as in intestate succession 6 under Section 622106 (see Reporter’s Comments to Sections 7 622106 and 622103(1)). 8 Section 622603 unifies in one antilapse rule the simplified and 9 expanded protection of those related to the testator as or through 10 his greatgrandparents and it also clarifies and expands the 11 coverage of the antilapse rule, applying it to class gifts as well as 12 to void devises. 13 The 2012 amendment added a presumption that words of 14 survivorship are sufficient indication that the testator does not 15 intend the antilapse section to apply. 16 17 Section 622604. (a)(A) Except as provided in Section 622603, 18 if a devise other than a residuary devise fails for any reason it 19 becomes a part of the residue. 20 (b)(B) Except as provided in Section 622603 if the residue is 21 devised to two or more persons, and the share of one of the 22 residuary devisees that fails for any reason, his share passes to the 23 other residuary devisee, or to other residuary devisees in 24 proportion to their interests in the residue. 25 26 REPORTER’S COMMENTS 27 The proresiduary antifailure rule of Section 622604 applies to a 28 failed devise unless the decedent’s will provides otherwise, 29 Section 622601, as by substituting other takers for the failed 30 devise, and unless the antilapse rule of Section 622603 applies to 31 preserve the otherwise failed devise. 32 The rule preserves from intestacy devises failing for any reason, 33 e.g., because of the indefiniteness of the devise, illegality, a 34 violation of any Rule Against Perpetuities, incapacity of the 35 devisee, or the failure of the devisee to survive to take the devise, 36 including treatment of such devisee as being predeceased, as under 37 the Uniform Simultaneous Death Act, Sections 621501 et seq., 38 and under Sections 622801 and 622803. The rule passes the failed 39 devise to such of the residuary devisees whose devises do not fail, 40 if any, who take proportionately in place of the devisee with 41 respect to whom the devise failed. The rule of Section 622604 42 applies whether the failed devise is preresiduary, subsection (A), 43 or residuary, subsection (B). [1243] 76 1 2 Section 622605. (a)(A) If the testator intended a specific devise 3 of certain securities rather than the equivalent value thereof, the 4 specific devisee is entitled only to: 5 (1) as much of the devised securities as is a part of the 6 testator’s estate at the time of the testator’s death; 7 (2) any additional or other securities of the same entity 8 organization owned by the testator by reason of action initiated by 9 the entity organization or any successor, related or acquiring 10 organization excluding any acquired by exercise of purchase 11 options; 12 (3) securities of another entity organization owned by the 13 testator as a result of a merger, consolidation, reorganization, or 14 other similar action initiated by the entity organization or any 15 successor, related or acquiring organization; 16 (4) any additional securities of the entity organization owned 17 by the testator as a result of a plan of reinvestment if it is a 18 regulated investment company in the organization. 19 (b)(B) Distributions in cash declared prior to death with respect 20 to a specifically devised security not provided for in subsection (a) 21 (A) are not part of the specific devise. 22 23 REPORTER’S COMMENTS 24 Section 622605 establishes the rule that a specific devise, i.e., not 25 merely a devise of equivalent value, of securities, defined at 26 Section 621201(41), is construed to pass only certain related 27 securities, owned by the testator at his death, and listed in Section 28 622605(A), and not to pass any other related securities or 29 distributions of record before the death of the testator not so listed, 30 Section 622605(B), unless the decedent’s will provides otherwise, 31 Section 622601. For the generally applicable nonademption rule 32 see Section 622606. See Section 627908(A) concerning 33 distributions of record after the death of testator. 34 The specific devise carries out with it as much of the securities 35 specifically referred to as remain owned by the testator at his 36 death, Section 622605(A)(1), codifying South Carolina case law. 37 See Gist v. Craig, 142 S.C. 407, 141 S.E. 26 (1927) and Watson 38 v. Watson, 231 S.C. 247, 95 S.E.2d 266 (1956) (identified 39 specifically devised proceeds not adeemed). 40 Also carried out with the specific devise are additional securities 41 of both entities other than the entity issuing the specifically 42 devised securities, owned by the testator as a result of merger or 43 the like, Section 622605(A)(3), and of the entity itself, Section[1243] 77 1 622605(A)(2), in either case owned by the testator by reason of 2 actions initiated by the entity, Sections 622605(A)(2) and (A)(3), 3 and not initiated by testator himself. Additional securities received 4 by the testator in mergers, name changes, stock splits and stock 5 dividends, and the like, more representing change in the form of 6 ownership of the specifically devised securities than change in the 7 substance of that which is owned, and none at the initiative of the 8 testator, are here bulked with and carried out with the specifically 9 devised securities themselves, as is likely to be intended by the 10 testator. 11 Not carried out with the specific devise are additional securities 12 of the entity itself owned by the testator by reason of his exercise 13 of purchase options, i.e., at the initiative of the testator, Section 14 622605(A)(2), and thus not to be bulked with the specifically 15 devised securities, the testator himself having failed to do so by the 16 route, open to but not taken by him, of amending his will. This is 17 consistent with South Carolina case law, Rogers v. Rogers, 67S.C. 18 168, 45 S.E. 176 (1903), notwithstanding the case of Rasor v. 19 Rasor, 173 S.C. 365, 175 S.E. 545 (1934), a case not of a specific 20 devise but rather of a devise of equivalent value of certain 21 securities. 22 However, there are carried out with the specifically devised 23 securities of an organization any additional securities resulting 24 from a plan of reinvestment in the organization. These are owned 25 also at the initiative of the testator, but are bulked with the 26 specifically devised securities because the testator himself has 27 practically done so by his assent to the plan of reinvestment. 28 The rule of Section 622605(B) that distributions not provided 29 for in Section 622605(A) are not carried out with the specifically 30 devised securities is, as the residual rule in this Code’s scheme, 31 consistent with the general rule of South Carolina case law, Bailey 32 v. Wagner, 21 S.C. Eq. 1, 8, 10 (2 Strob. Eq.) (1848) (proceeds of 33 sale of adeemed specific bequest not carried out); Rogers v. 34 Rogers, supra, Pinson v. Pinsom, 150 S.C. 368, 148 S.E. 211 35 (1928), and Rikard v. Miller, 231 S.C. 98, 107, 97 S.E.2d 257 36 (1957) (identified proceeds of collection or sale of adeemed 37 specific bequests not carried out); and Stanton v. David, 193 S.C. 38 108, 7 S.E.2d 852 (1940), and Taylor v. Goddard, 265 S.C. 327, 39 218 S.E.2d 246 (1975) (nor unidentified proceeds). 40 The 2012 amendment substituted the word ‘organization’ for 41 ‘entity’ because ‘organization’ is defined in the probate code at 42 Section 621201(30). The amendment also added ‘successor, 43 related, or acquiring organization’ to contemplate multiple changes[1243] 78 1 in title of securities between the testator’s acquisition of the 2 security and the testator’s death. The amendment eliminated ‘if it 3 is a regulated investment company’ from (A)(4). The amendment 4 added the words ‘in cash’ to subsection (B) to clarify that 5 distributions made in cash do not fall within subsection (A) while 6 distributions of other securities do fall within subsection (A). 7 Finally, the amendment added the word ‘declared’ to subsection 8 (B) to clarify that the cash distributions declared before death do 9 not pass as part of the devise regardless of whether they are paid 10 before or after death. 11 12 Section 622606. (a) Where a portion of property specifically 13 devised is no longer owned by the testator at the time of death, A 14 specific devisee has the right to the remaining specifically devised 15 property in the testator’s estate at the testator’s death and to: 16 (1) any balance of the purchase price (together with any 17 mortgage or other security interest) owing from owed by a 18 purchaser to the testator at the testator’s death by reason of sale of 19 the property; 20 (2) any amount of a condemnation award for the taking of 21 the property unpaid at the testator’s death; 22 (3) any proceeds unpaid at the testator’s death on fire or 23 casualty insurance on or on other recovery for injury to the 24 property; 25 (4) any property owned by the testator at his death and 26 acquired as a result of foreclosure, or obtained in lieu of 27 foreclosure, of the security for a specifically devised obligation. 28 (b) If specifically devised property is sold or mortgaged by a 29 conservator or by an agent acting within the authority of a durable 30 power of attorney for an incapacitated principal, or if a 31 condemnation award or insurance proceeds are or recovery for 32 injury to the property is paid to a conservator as a result of 33 condemnation, fire, or casualty or to an agent acting within the 34 authority of a durable power of attorney for an incapacitated 35 principal, the specific devisee has the right to a general pecuniary 36 devise equal to the net sale price, the amount of the unpaid loan, 37 the condemnation award, or the insurance proceeds, or the 38 recovery. This subsection does not apply if subsequent to the sale, 39 condemnation, or casualty, it is adjudicated that the disability of 40 the testator has ceased and the testator survives the adjudication by 41 one year. 42 (c) The right of the specific devisee under this subsection (b) is 43 reduced by the value of any right he has under subsection (a).[1243] 79 1 (d) F or purposes of references in subsection (b) to a 2 conservator, subsection (b) does not apply if after the sale, 3 mortgage, condemnation, casualty or recovery, it was adjudicated 4 that the testator’s disability ceased and the testator survived the 5 adjudication for at least one year. 6 (e) For purposes of references in subsection (b) to an agent 7 acting within the authority of a durable power of attorney for an 8 incapacitated principal, (i) ‘incapacitated principal’ means a 9 principal who is an incapacitated person, (ii) no adjudication of 10 incapacity before death is necessary, and (iii) the acts of an agent 11 within the authority of a durable power of attorney are presumed to 12 be for an incapacitated principal. 13 14 REPORTER’S COMMENTS 15 Section 622606 establishes the rule that a specific devise of any 16 property, including securities also governed by Section 622605, is 17 construed to pass, not only as much of the specifically devised 18 property as remains at testator’s death, but also the proceeds of 19 sale, subsection (a)(1), and condemnation, subsection (a)(2), of the 20 property, and the proceeds of policies of insurance against fire or 21 casualty to the property, subsection (a)(3), but only if such 22 proceeds are yet unpaid to the testator at the testator’s death, 23 Section 622606(a), or if such proceeds have been paid to an agent 24 acting within the authority of a durable power of attorney or to a 25 conservator, defined at Section 621201(6), of the testator during 26 the testator’s life, provided less than one year separates the death 27 of the testator and a prior adjudication that his disability had 28 ceased, Section 622606(b). Further, a specific devise of a secured 29 obligation passes the products of foreclosure, or settlement in lieu 30 of foreclosure, of such security, Section 622606(a)(4). Section 31 622606 applies unless the decedent’s will provides otherwise, 32 Section 622601. 33 The 2012 amendment adds the provisions regarding an agent 34 acting within the authority of a durable power of attorney 35 36 Section 622607. A specific devise passes subject to any 37 mortgage, pledge, security interest or other lien existing at the date 38 of death, without right of exoneration, regardless of a general 39 directive in the will to pay debts. 40 41 REPORTER’S COMMENTS 42 Section 622607 establishes a rule of construction that specific 43 devises pass not exonerated of but subject to any related security[1243] 80 1 interests, unless the decedent’s will provides otherwise, Section 2 622601. 3 See Section 623814 empowering the personal representative to pay 4 an encumbrance under some circumstances; the last sentence of 5 that section makes it clear that such payment does not increase the 6 right of the specific devisee. The present section governs the 7 substantive rights of the devisee. 8 For the rule as to exempt property, see Section 622401. 9 10 Section 622608. A general residuary clause in a will, or a will 11 making general disposition of all of the testator’s property, does 12 not exercise a power of appointment held by the testator unless 13 specific reference is made to the power or there is some other 14 indication of intention to include the property subject to the power. 15 16 REPORTER’S COMMENTS 17 Section 622608 follows the common law rule of construction that, 18 unless the decedent’s will provides otherwise, Sections 622601 19 and 622608, general dispositive provisions in a will do not pass 20 property subject to the testator’s powers of appointment. 21 22 Section 622609. Half bloods, adopted persons, and persons born 23 out of wedlock are included in class gift terminology and terms of 24 relationship in accordance with rules for determining relationships 25 for purposes of intestate succession, but a person born out of 26 wedlock is not treated as the child of the father unless the person is 27 openly and notoriously so treated by the father. 28 29 REPORTER’S COMMENTS 30 Section 622609 establishes the meaning of terms of family 31 relationship, as used in wills, as including the meaning which such 32 terms have for purposes of intestate succession by certain persons 33 under Part l of Article 2, unless the decedent’s will provides 34 otherwise, Section 622601. Hence, references to ‘children’, 35 ‘issue’, or ‘heirs’, and the like, are read to include or exclude half 36 blood and adopted persons and persons born out of wedlock 37 according to the rules of Sections 622103(3) and 622107, half 38 bloods, 622109(1), adopted persons, 622109(2), persons born out 39 of wedlock, 622112, aliens, and 622113, twice related persons, at 40 least those who are otherwise implicated by mention in Section 41 622609. 42 Half Blood: [1243] 81 1 Section 622107 generally treats half bloods just as whole bloods in 2 the event of intestacy; hence, Section 622609 would generally 3 treat them without discrimination in the construction of wills. 4 Adopted Persons: 5 Section 622109(1) generally treats adopted persons as natural born 6 members of their adoptive families in the event of intestacy, as 7 would Section 622609 generally treat them in the construction of 8 wills. 9 Persons Born Out of Wedlock: 10 Section 622109(2) treats persons born out of wedlock just as 11 legitimate persons in the event of the intestacy of their mothers, as 12 would Section 622609 treat them in the construction of wills. 13 Section 622109 treats persons born out of wedlock just as 14 legitimate persons in the event of the intestacy of their fathers, but 15 only in cases of ceremonial marriage of the person’s parents even 16 if the attempted marriage was void, Section 622109(2)(i), or in 17 cases of adjudication of the father’s paternity, Section 622109(2) 18 (ii), and so would Section 622609 treat them in the construction of 19 wills but for its additional proviso that the person born out of 20 wedlock is treated as the child of the father only if the father 21 himself openly and notoriously so treated him. 22 23 Section 622610. (a) Property which a testator gave in his the 24 testator’s lifetime to a person is treated as a satisfaction of a devise 25 to that person in whole or in part, only if: 26 (i) the will provides for deduction of the lifetime gift;, or 27 (ii) the testator declares declared in a contemporaneous 28 writing that the gift is to be deducted from the devise; or 29 (iii) is in satisfaction of the devise, or the devisee 30 acknowledges acknowledged in writing that the gift is in 31 satisfaction of the devise or that its value is to be deducted from 32 the value of the devise. 33 (b) For purpose of partial satisfaction, property given during 34 lifetime is valued as of the time the devisee came into possession 35 or enjoyment of the property or as of the time of death of the 36 testator at the testator’s death, whichever occurs first. 37 (c) If the devisee fails to survive the testator, the gift is treated 38 as a full or partial satisfaction of the devise, as appropriate, in 39 applying Sections 622603 and 622604, unless the testator’s 40 contemporaneous writing provides otherwise. 41 42 REPORTER’S COMMENTS [1243] 82 1 Section 622610 concerns the effect on testate succession of 2 lifetime gifts made by the testator to persons who are also devisees 3 under his will. The section establishes a rule of construction which 4 charges such lifetime gifts, in satisfaction, against the will’s 5 devise, but only if either they are declared thus to be in 6 satisfaction, either by the will or by the testator, 7 contemporaneously in writing, or they are thus acknowledged by 8 the devisee, again in writing. If the devisee predeceases the 9 testator, but issue of the devisee survive as beneficiaries of the 10 antilapse provision of this Code, Section 622603, then Sections 11 622610 and 622603 read together charge the ancestor’s lifetime 12 gifts in satisfaction against the devise to the issue, again, however, 13 only if the abovementioned writing exists. 14 Section 622610 values the satisfaction at the earlier of the 15 devisee’s actual receipt of the gift or the testator’s date of death, 16 resulting in most cases in a valuation at the date of the gift rather 17 than at the date of death. 18 See Section 622110 on advancements, for a rule analogous to the 19 rule of satisfaction, but operative in the event of intestacy. 20 The 2012 amendment added subsection (c) to provide that if a 21 devisee fails to survive the testator and the devisee’s descendants 22 take under 622603 and if this devise is reduced with respect to the 23 devisee, it shall automatically be reduced with respect to the 24 devisee’s descendants. 25 Consider Section 622606 as it relates to ademption. 26 27 Section 622611. A devise of land is construed to pass an estate 28 in fee simple, regardless of the absence of words of limitation in 29 the devise. 30 31 Section 622612. The personal representative, trustee, or any 32 affected beneficiary under a will, trust, or other instrument of a 33 decedent who dies or did die after December 31, 2009, and before 34 January 1, 2011, may bring a proceeding to determine the 35 decedent’s intent when the will, trust, or other instrument contains 36 a formula that is based on the federal estate tax or 37 generationskipping tax. The proceeding must be commenced 38 within twelve months following the death of the decedent. 39 40 Part 7 41 42 Contractual Arrangements Relating to Death 43[1243] 83 1 Section 622701. A contract to make a will or devise, or to 2 revoke a will or devise, or not to revoke a will or devise, or to die 3 intestate, if executed after the effective date of this act, can be 4 established only by (1) provisions of a will of the decedent stating 5 material provisions of the contract; (2) an express reference in a 6 will of the decedent to a contract and extrinsic evidence proving 7 the terms of the contract; or (3) a writing signed by the decedent 8 evidencing the contract and extrinsic evidence proving the terms of 9 the contract. The execution of a joint will or mutual wills does not 10 create a presumption of a contract not to revoke the will or wills. 11 12 REPORTER’S COMMENTS 13 Section 622701 allows the proof of a contract binding a decedent 14 and concerning the succession to his estate, testate or intestate, 15 only by way of some signed writing, either (1) his written, signed 16 will containing the material provisions of the contract; (2) his 17 written, signed will containing an express reference to the contract 18 (extrinsic evidence proving its terms); or (3) a writing other than a 19 will but signed by the decedent and containing evidence of the 20 contract (allowing extrinsic evidence to prove its terms). The 21 section’s requirement of a signed writing to prove such contracts is 22 meant to apply only prospectively, leaving the prior South 23 Carolina law in effect retrospectively. 24 Noting that the only concern of Section 622701 is with the proof 25 of contracts concerning succession, it should be recognized that the 26 prior South Carolina law, concerning the formation of such 27 contracts and the effects of such contracts’ formation and the 28 breach thereof, remains intact. See S. Alan Medlin, The Law of 29 Wills and Trusts (S.C. Bar 2002) Sections 341, 342; W. Brown, 30 Note: Specific Performance of Oral Contracts to Devise, 17 31 S.C.L. Rev. 540 (1965); and T. Stubbs, Oral Contracts to Make 32 Wills, IX Selden Soc. Y.B. Part III, 10 (1948). 33 The policies basing Section 622701 and Sections 622502 34 (execution of wills), 622506 (revocation of wills), and 622509 35 (incorporation of other matter by reference in wills) are the same. 36 All of these sections are aimed at protecting the integrity of the 37 process of succession to the estates of decedents in accordance 38 with their own true wills. Each of these sections requires that the 39 decedent’s will be expressed either in some writing or by way of a 40 physical act done to some writing; the writings are required in the 41 expectation of increasing the reliability of the proof of the 42 decedent’s true will. See K. Walsh, Note: The Statute of Frauds’[1243] 84 1 Lifetime and Testamentary Provisions: Safeguarding Decedents’ 2 Estates, 50 Ford. L. Rev. 239 (1981) (hereinafter Walsh). 3 Section 32310(4) of the 1976 Code does require contracts 4 concerning land to be ‘in writing and signed by the party to be 5 charged therewith.’ Accordingly, contracts concerning the 6 succession to land as an asset of a decedent’s estate were, Brown 7 v. Golightly, 106 S.C. 519, 91 S.E. 869 (1917), White v. 8 McKnight, 146 S.C. 59, 143 S.E. 552 (1928), and will yet be 9 required to be in writing and signed by the decedent, i.e., ‘by the 10 party to be charged therewith (only in the sense that to charge the 11 personal representative or other successor or assign of the decedent 12 is to charge the decedent himself).’ 13 In addition, prior South Carolina case law was said to require 14 that contracts concerning succession be proved by ‘clear, cogent, 15 and convincing evidence.’ Caulder v. Knox, 251 S.C. 337, 346, 16 162 S.E.2d 262 (1968), Brown v. Graham, 242 S.C. 491, 131 17 S.E.2d 421 (1963). While Section 2701 fails to codify the stated 18 higher standard of proof per se, the provision’s requirement of a 19 signed writing is consistent with the spirit of the former higher 20 standard of proof and perpetuates its intended effect. 21 Further, Section 622701 provides that no presumption of the 22 existence of a contract concerning succession arises from the mere 23 execution of mutual wills or of a joint will. And while there is 24 South Carolina authority, relying on the reciprocating nature of the 25 terms of a joint will, together with surrounding family 26 circumstances, for the satisfaction by implication of the clear, 27 cogent, and convincing evidentiary standard as to the existence of 28 a contract not to revoke the joint will, in a case in which the joint 29 will failed to actually express an agreement of nonrevocability, 30 Pruitt v. Moss, 271 S.C. 305, 247 S.E.2d 324 (1978), Section 31 622701 seems to preclude the establishment of any such contract 32 of nonrevocability where the material provision thereof, i.e., the 33 promise not to revoke, is not expressed in the joint will and the 34 joint will otherwise fails to expressly refer to the contract. 35 Extrinsic evidence is freely admissible under Section 622701 to 36 prove the important terms of a contract whose mere existence is 37 proved by a signed writing. However, as a brake on the 38 provision’s liberality with respect to extrinsic evidence, Section 39 191120 of the 1976 Code, the ‘Dead man’s’ statute, will continue 40 to limit the admissibility of that extrinsic evidence which is subject 41 to its application, this notwithstanding the enactment of Section 42 622701. See Brown v. Golightly, supra. [1243] 85 1 Section 622701 avoids the problems, both that of the possibly 2 uneven application of the stated higher standard of proof of 3 contracts concerning succession and that of the questionable 4 breadth of application of the several preexisting Statutes of Frauds 5 provisions as to contracts concerning succession, quite simply by 6 establishing a signed writing requirement specifically applicable to 7 all such contracts. Presumably Section 622701 will be construed 8 as preempting the field, rendering all other such statutory and case 9 law provisions inapplicable to such contracts in the future. 10 However, it may be questioned whether Section 622701 should 11 not be subject, in its operation, to the familiar legal and equitable 12 exceptions to the operation of the other Statutes of Frauds 13 provisions. See Section 621103 and Walsh, supra, at 258270. 14 These include the remedies of restitution of monies advanced and 15 the imposition of a constructive trust to force the restitution of 16 other specific assets advanced by the promisee on an oral contract, 17 and the effects of part performance of the oral contract by the 18 promisee as well as equitable and promissory estoppel, either 19 matter binding the promissor to the oral contract notwithstanding 20 any applicable Statute of Frauds. One case has reached such a 21 conclusion after the enactment of Section 622701. See Satcher v. 22 Satcher, 351 S.C. 477, 570 S.E. 2d 535 (S.C. App. 2002). See also 23 White v. McKnight, supra, Turnipseed v. Sirrine, supra 57 S.C. at 24 578, Riddle v. George, 181 S.C. 360, 187 S.E. 524 (1936), Bruce 25 v. Moon, 57 S.C. 60, 35 S.E. 415 (1900). See W. Brown, Note: 26 Specific Performance of Oral Contracts to Devise, 17 S.C.L. Rev. 27 540 (1965). 28 For the enforcement of a contract concerning succession while 29 the testator is still alive, see Wright v. Trask, 329 S.C. 170, 495 30 S.E. 2d 222 (S.C. App. 1997). 31 32 Part 8 33 34 General Provisions 35 36 Section 622801. (a) In addition to any methods available under 37 existing law, statutory or otherwise, if a person (or his executor, 38 administrator, successor, personal representative, special 39 administrator, guardian, attorneyinfact, trustee, committee, 40 conservator, or his other fiduciary or agent who performs 41 substantially similar functions under the law governing his status, 42 acting with or without the approval of a specific court order and 43 with or without the receipt of consideration for the act), as a[1243] 86 1 disclaimant, makes a disclaimer as defined in Section 12161910 of 2 the 1976 Code, with respect to any transferor’s transfer (including 3 transfers by any means whatsoever, lifetime and testamentary, 4 voluntary and by operation of law, initial and successive, by grant, 5 gift, trust, contract, intestacy, wrongful death, elective share, 6 forced share, homestead allowance, exempt property allowance, 7 devise, bequest, beneficiary designation, survivorship provision, 8 exercise and nonexercise of a power, and otherwise) to him of any 9 interest in, including any power with respect to, property, or any 10 undivided portion thereof, the interest, or such portion, is 11 considered never to have been transferred to the disclaimant. 12 (b) The right to disclaim exists notwithstanding any limitation 13 on the disclaimant’s interest in the nature of a spendthrift provision 14 or similar restriction. 15 (c) The right to disclaim is barred by the disclaimant’s written 16 waiver of the right. 17 (d) Unless the transferor has provided otherwise in the event of 18 a disclaimer, the disclaimed interest shall be transferred (or fail to 19 be transferred, as the case may be) as if the disclaimant had 20 predeceased the date of effectiveness of the transfer of the interest; 21 the disclaimer shall relate back to that date of effectiveness for all 22 purposes; and any future interest which is provided to take effect 23 in possession or enjoyment after the termination of the disclaimed 24 interest shall take effect as if the disclaimant had predeceased the 25 date on which he or she as the taker of the disclaimed interest 26 became finally ascertained and the disclaimed interest became 27 indefeasibly vested; provided, that an interest disclaimed by a 28 disclaimant who is the spouse of a decedent, the transferor of the 29 interest, may pass by any further process of transfer to such 30 spouse, notwithstanding the treatment of the transfer of the 31 disclaimed interest as if the disclaimant had predeceased. 32 (e) The date of effectiveness of the transfer of the disclaimed 33 interest is (1) as to transfers by intestacy, wrongful death, elective 34 share, forced share, homestead allowance, exempt property 35 allowance, devise and bequest, the date of death of the decedent 36 transferor of, or that of the donee of a testamentary power of 37 appointment (whether exercised or not exercised) with respect to, 38 the interest, as the case may be, and (2) as to all other transfers, the 39 date of effectiveness of the instrument, contract, or act of transfer. 40 (f) It is the intent of the legislature of the State of South 41 Carolina by this provision to clarify the laws of this State with 42 respect to the subject matter hereof in order to ensure the ability of 43 persons to disclaim interests in property without the imposition of[1243] 87 1 federal and state estate, inheritance, gift, and transfer taxes. This 2 provision is to be interpreted and construed in accordance with, 3 and in furtherance of, that intent. 4 (g) With the court’s approval, a personal representative, 5 trustee, or similar fiduciary may disclaim any one or more of the 6 powers granted to the personal representative, trustee, or similar 7 fiduciary. Any disclaimer must be made by written instrument in 8 the manner provided in subsection (a) and has the same effect as in 9 subsection (d). The disclaimer of a power may be made binding 10 on any successor fiduciary, if the disclaiming fiduciary so declares 11 when making the disclaimer. This section applies to disclaimers of 12 any interest in or power over property, whenever created, and is 13 the exclusive means by which a disclaimer may be made under the 14 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 disclaimed 20 interest or power would have passed had the disclaimer not been 21 made. 22 (3) ‘Disclaimed interest’ means the interest that would have 23 passed to the disclaimant had the disclaimer not been made. 24 (4) ‘Fiduciary’ means a personal representative, trustee, 25 agent acting under a power of attorney, guardian, conservator, or 26 other person authorized to act as a fiduciary with respect to the 27 property of another person. 28 (c)(1) A person may disclaim, in whole or in part, any interest 29 in or power over property, including a power of appointment. 30 (2) Unless barred, a disclaimer must be made within a 31 reasonable time after the disclaimant acquires actual knowledge of 32 the interest. A disclaimer is conclusively presumed to have been 33 made within a reasonable time if made within nine months after 34 the date of effectiveness of the transfer as determined under 35 subsection (d)(3). 36 (3) To be effective, a disclaimer must be: 37 (i) in writing; 38 (ii) declare the writing as a disclaimer; 39 (iii) describe the interest or power disclaimed; and 40 (iv) be delivered to the transferor of the interest, the 41 transferor’s fiduciary, the holder of the leagal title to or the person 42 in possession of the property to which the interest relates, or a 43 court that would have jurisdiction over such interest or subject[1243] 88 1 matter. A disclaimer of a power must be delivered as if the power 2 disclaimed were an interest in property. Delivery of a disclaimer 3 may be made by personal delivery, firstclass mail, or any other 4 method that results in its receipt. A disclaimer sent by firstclass 5 mail shall be deemed to have been delivered on the date it is 6 postmarked. 7 (4) A disclaimer is not a transfer, assignment, or release if 8 made within a reasonable time after the disclaimant acquires actual 9 knowledge of the interest and if not otherwise barred. 10 (5) A barred disclaimer is ineffective as a disclaimer under 11 this section. A disclaimer is barred by any of the following 12 conditions occurring before the disclaimer becomes effective: 13 (i) the disclaimant waived in writing the right to disclaim; 14 (ii) the disclaimant accepted the interest sought to be 15 disclaimed; 16 (iii) the disclaimant voluntarily assigned, conveyed, 17 encumbered, pledged, transferred, or directed the interest sought to 18 be disclaimed or has contracted to do so; or 19 (iv) a judicial sale of the interest sought to be disclaimed 20 has occurred. 21 (6) A disclaimer is not barred by any of the following 22 conditions: 23 (i)by a spendthrift provision or similar restriction on 24 transfer or the right to disclaim imposed by the creator of the 25 interest in or power over the property; 26 (ii) by the disclaimant’s financial condition, whether or 27 not insolvent and a disclaimer that complies with this section is not 28 a fraudulent transfer under the laws of this State; 29 (iii) a disclaimer, in whole or in part, of the future exercise 30 of a power held in a fiduciary capacity is not barred by its previous 31 exercise; 32 (iv) a disclaimer, in whole or in part, of the future exercise 33 of a power not held in a fiduciary capacity is not barred unless the 34 power is exercisable in favor of the disclaimant. 35 (7) Unless a disclaimer is barred, a disclaimer treated as a 36 qualified disclaimer pursuant to Internal Revenue Code Section 37 2518 is effective as a disclaimer under this section. 38 (d)(1) If a disclaimant makes a disclaimer with respect to any 39 transferor’s transfer (including transfers by any means whatsoever, 40 lifetime and testamentary, voluntary and by operation of law, 41 initial and successive, by grant, gift, trust, contract, intestacy, 42 wrongful death, elective share, forced share, homestead 43 allowance, exempt property, devise, bequest, beneficiary[1243] 89 1 designation, survivorship provision, exercise and nonexercise of a 2 power, and otherwise) to the disclaimant of any interest in, 3 including any power with respect to, property, or any undivided 4 portion thereof, the interest, or such portion, is considered never 5 to have been transferred to the disclaimant. 6 (2) Unless the transferor has provided otherwise in the event 7 of a disclaimer, the disclaimed interest shall be transferred (or fail 8 to be transferred), as if the disclaimant had predeceased the date of 9 effectiveness of the transfer of the interest. The disclaimer shall 10 relate back to that date of effectiveness for all purposes, and any 11 future interest which is provided to take effect in possession or 12 enjoyment after the termination of the disclaimed interest shall 13 take effect as if the disclaimant had predeceased the date on which 14 he or she as the taker of the disclaimed interest became finally 15 ascertained and the disclaimed interest became indefeasibly vested. 16 Provided, that an interest disclaimed by a disclaimant who is the 17 spouse of a decedent, the transferor of the interest, may pass by 18 any further process of transfer to such spouse, notwithstanding the 19 treatment of the transfer of the disclaimed interest as if the 20 disclaimant had predeceased. 21 (3) The date of effectiveness of the transfer of the disclaimed 22 interest is (i) as to transfers by intestacy, wrongful death, elective 23 share, forced share, homestead allowance, exempt property 24 allowance, devise and bequest, the date of death of the decedent 25 transferor, or that of the donee of a testamentary power of 26 appointment (whether exercised or not exercised) with respect to, 27 the interest, as the case may be, and (ii) as to all other transfers, the 28 date of effectiveness of the instrument, contract, or act of transfer. 29 (e)(1) If and to the extent an instrument creates a fiduciary 30 relationship and expressly grants the fiduciary the right to 31 disclaim, the fiduciary may disclaim, in whole or in part, any 32 interest in or power over property, including a power of 33 appointment. If there is no instrument expressly granting the 34 fiduciary the right to disclaim, the fiduciary’s right to disclaim 35 shall be determined by the laws of this State applicable to that 36 fiduciary relationship. 37 (2) If a trustee disclaims an interest in property that 38 otherwise would have become trust property, the disclaimed 39 interest does not become trust property. 40 (3) A fiduciary may disclaim a power held in a fiduciary 41 capacity. If the power has not been previously exercised, the 42 disclaimer takes effect as of the time the instrument creating the 43 power became irrevocable. If the power has been previously[1243] 90 1 exercised, the disclaimer takes effect immediately after the last 2 exercise of the power. The disclaimer of a fiduciary power may be 3 made binding on any successor fiduciary if the disclaimer so 4 provides. 5 (4) If no conservator or guardian has been appointed, a 6 parent may disclaim on behalf of that parent’s minor child and 7 unborn issue, in whole or in part, any interest in or power over 8 property which the minor child or unborn issue is to receive as a 9 result of another disclaimer, but only if the disclaimed interest or 10 power does not pass outright to that parent as a result of the 11 disclaimer. 12 (f) A fiduciary or other person having custody of the 13 disclaimed interest is not liable for any otherwise proper 14 distribution or other disposition made without actual notice of the 15 disclaimer or, if the disclaimer is barred pursuant to subsection (c) 16 (5), for any otherwise proper distribution or other disposition made 17 in reliance on the disclaimer, if the distribution or disposition is 18 made without actual knowledge of the facts constituting the bar of 19 the right to disclaim. 20 21 REPORTER’S COMMENTS 22 Section 622801 provides for the state law effectiveness of the 23 disclaimer of transfers by way of succession to the estates of 24 decedents and otherwise. It affects transfers by will as well as 25 transfers through intestate estates. 26 Section 622801 also regulates the method by which a disclaimer 27 must be made in order to be effective, its nature, timeliness, formal 28 execution and delivery, and also the effect of a disclaimer on the 29 further disposition of the interest renounced. 30 The purpose of the enactment of Section 622801 is to establish 31 the state property law basis for the recognition of the effectiveness 32 of such disclaimers 33 The antilapse statute, Section 622603, applies to cases of 34 disclaimers of gifts under wills unless the transferor provides 35 otherwise. 36 37 Section 622802. (a) A person An individual who is divorced 38 from the decedent or whose marriage to the decedent has been 39 annulled is not a surviving spouse unless, by virtue of a subsequent 40 marriage, he the individual is married to the decedent at the time of 41 death. A decree of separate maintenance which that does not 42 terminate the status of husband and wife is not a divorce for 43 purposes of this section. [1243] 91 1 (b) For purposes of Parts 1, 2, 3, and 4 of Article 2 [Sections 2 622101 et seq., 622201 et seq., 622301 et seq., and 622401 et seq.] 3 and of Section 623203, a surviving spouse does not include: 4 (1) a person an individual who obtains or consents to a final 5 decree or judgment of divorce from the decedent or an annulment 6 of their marriage, which decree or judgment is not recognized as 7 valid in this State, unless they subsequently participate in a 8 marriage ceremony purporting to marry each to the other, or 9 subsequently live together as husband and wife at the time of the 10 decedent’s death; 11 (2) a person an individual who, following a an invalid decree 12 or judgment of divorce or annulment obtained by the decedent, 13 participates in a marriage ceremony with a third person; or 14 (3) a person an individual who was a party to a valid 15 proceeding concluded by an order purporting to terminate all 16 marital property rights or confirming equitable distribution 17 between spouses unless they are living together as husband and 18 wife at the time of the decedent’s death; or. 19 (4) a person an individual claiming to be a common law 20 spouse who has not been established to be a common law spouse 21 by an adjudication commenced before the death of the decedent or 22 within the later of eight months after the death of the decedent or 23 six months after the initial appointment of a personal 24 representative; if the action is commenced after the death of the 25 decedent, proof must be by clear and convincing evidence. 26 (c) A divorce or annulment is not final until signed by the 27 court and filed in the office of the clerk of court. 28 29 REPORTER’S COMMENTS 30 Section 622802 provides, with respect to the capacity of a putative 31 surviving spouse to take by way of succession to the estate of a 32 decedent, whether testate or intestate, for the effects of (1) a 33 divorce, (2) an annulment, (3) a decree of separate maintenance, 34 and (4) an order terminating marital property rights, or confirming 35 equitable distribution between spouses, in cases in which any such 36 event affects the marriage of the decedent to the putative surviving 37 spouse. 38 Valid Divorce and Annulment. 39 Under Section 622802(a), a valid divorce or a valid annulment 40 deprives the putative spouse of the status of surviving spouse of 41 the decedent and the capacity to take as such in succession to the 42 decedent’s estate under this Code, i.e., by way of provisions in 43 favor of a ‘surviving spouse,’ whether found in the decedent’s will,[1243] 92 1 Parts 5 and 6 of Article 2, or in the intestacy statute, Section 2 622102, or in the provision for an elective share, Section 622201 3 et. seq., or in the provision for an omitted spouse, Section 622301, 4 or in that for a spouse with respect to exempt property, Section 5 622401. However, the issuance of a decree of separate 6 maintenance, not terminating the marital status, has no such effect. 7 It should be apparent that a valid divorce or annulment must 8 always have deprived the former spouse of the status of spouse of 9 the decedent for purposes of succession. 10 Marital Conditions Other than Divorce or Annulment. 11 Under Section 622802(b), any one of the following, an order 12 terminating marital property rights, or confirming equitable 13 distribution between spouses, subsection (3), a divorce or an 14 annulment not recognized as valid in South Carolina if the putative 15 spouse obtained or consented to it, subsection (1), or subsequent to 16 it he or she participated in a marriage ceremony with some third 17 person, subsection (2), deprives the putative spouse of the status of 18 surviving spouse of the decedent; but, under Section 622802(b) 19 itself, the deprivation is only for the purposes of succession to the 20 decedent’s estate in intestacy, as a spouse with respect to an 21 elective share as an omitted spouse, as a spouse with respect to 22 exempt property, and as a spouse in line for appointment as an 23 administrator in intestacy, i.e., as under Parts 1, 2, 3, and 4 of 24 Article 2 and under Section 623203. 25 However, under Section 622507, such an order, a divorce or 26 annulment, whether valid or invalid as under Section 622802(b) 27 has the additional effect of revoking, by operation of law, so much 28 of the decedent’s will as affects the putative spouse. Section 29 622507 refers to Section 622802 for the definition of divorce and 30 annulment. 31 Perhaps other marital conditions, not valid as divorces or 32 annulments and not detailed in Section 622802(b), will continue by 33 the common law to estop a putative spouse from claiming as a 34 surviving spouse. See Section 621103. Further, matters of 35 succession not within the coverage of Sections 622802(b) and 36 622507 will continue to be governed by the prior South Carolina 37 law, e.g., recovery under the Wrongful Death Act, Section 155120 38 of the 1976 Code. See Folk v. U.S., 102 F. Supp. 736 (W.D.S.C. 39 1952), and see Lytle v. Southern Ry.Carolina Division, 171, S.C. 40 221, 171 S.E. 42 (1933) and Lytle v. Southern Ry.Carolina 41 Division, 152 S.C. 161, 149 S.E. 692 (1929). [1243] 93 1 Both Sections 622802 and 622507 provide for the exceptional 2 case of the subsequent marriage of the decedent to the putative 3 spouse, those sections being rendered inapplicable to such a case. 4 The 2012 amendment clarifies that an individual who undergoes 5 a divorce that is either invalid or not recognized in South Carolina 6 will be considered a surviving spouse if the individual is living as 7 husband and wife with the decedent at the time of decedent’s 8 death. 9 10 Section 622803. (a) A surviving spouse, heir, or devisee An 11 individual who feloniously and intentionally kills the decedent is 12 not entitled to any benefits under the decedent’s will, trust of 13 which the decedent is a grantor or under this article with respect to 14 the decedent’s estate, including, but not limited to, an intestate 15 share, an elective share, an omitted spouse’s share or child’s share, 16 a homestead allowance, and exempt property, and the estate of the 17 decedent passes as if the killer had predeceased the decedent. 18 Property appointed by the will of the decedent to or for the benefit 19 of the killer passes as if the killer had predeceased the decedent. 20 (b) Any joint tenant who feloniously and intentionally kills 21 another joint tenant thereby effects a severance of the interest of 22 the decedent so that the share of the decedent passes as his the 23 decedent’s property and the killer has no rights by survivorship. 24 This provision applies to joint tenancies in real and personal 25 property, joint and multipleparty accounts in banks, savings and 26 loan associations, credit unions, and other institutions, and any 27 other form of coownership with survivorship incidents. 28 (c) A named beneficiary of a bond, life insurance policy, 29 retirement plan, annuity, or other contractual arrangement who 30 feloniously and intentionally kills the principal obligee or the 31 person individual upon whose life the policy is issued is not 32 entitled to any benefit under the bond, policy, retirement plan, 33 annuity, or other contractual arrangement, and it becomes payable 34 as though the killer had predeceased the decedent. 35 (d) Any other acquisition of property or interest by the killer 36 shall be treated in accordance with the principles of this section. A 37 beneficiary whose interest is increased as a result of feloniously 38 and intentionally killing shall be treated in accordance with the 39 principles of this section. 40 (e) The felonious and intentional killing of the decedent 41 revokes the nomination of the killer in a will or other document 42 nominating or appointing the killer to serve in any fiduciary[1243] 94 1 capacity or representative capacity, including, but not limited to, as 2 personal representative, trustee, agent or guardian. 3 (f) A final judgment of by conviction, or guilty plea 4 establishing criminal accountability of felonious and intentional 5 killing the decedent is conclusive conclusively establishes that the 6 convicted individual feloniously and intentionally killed the 7 decedent for purposes of this section. In the absence of a 8 conviction of felonious and intentional killing such final judgment 9 the court, may determine by a preponderance of evidence whether 10 the killing was felonious and intentional for purposes of this 11 section upon the petition of an interested person, must determine 12 whether, upo n the preponderance of the evidence standard, the 13 individual would be found responsible for the felonious and 14 intentional killing of the decedent. If the court determines that, 15 under that standard, the individual would be responsible for the 16 felonious and intentional killing of the decedent, the determination 17 conclusively establishes that individual as the decedent’s killer for 18 purposes of this section. 19 (f)(g) This section does not affect the rights of any person who, 20 before rights under this section have been adjudicated, purchases 21 from the killer, for value and without notice, property which the 22 killer would have acquired except for this section, but the killer is 23 liable for the amount of the proceeds or the value of the property. 24 Any insurance company, bank, or other obligor making payment 25 according to the terms of its policy or obligation is not liable by 26 reason of this section unless prior to payment it has received at its 27 home office or principal address written notice of a claim under 28 this section. 29 (g)(h) For purposes of this section, the killer is considered to 30 have predeceased the decedent if the killer dies within one hundred 31 twenty hours after feloniously and intentionally killing the 32 decedent. If an individual feloniously and intentionally kills the 33 decedent, and if the killer dies within one hundred twenty hours of 34 the decedent’s death, then the decedent shall be deemed to have 35 survived the killer for purposes of distributing the killer’s estate, 36 including, but not limited to, property passing by intestacy, the 37 killer’s will, any trust of which the killer is a grantor, joint tenancy 38 with right of survivorship and benefits payable under a life 39 insurance policy, retirement plan, annuity or other contractual 40 arrangemen t. 41 42 REPORTER’S COMMENTS [1243] 95 1 Section 622803, subsections (a) through (e), governs the effects of 2 the proof of a putative successor’s felonious and intentional killing 3 of a decedent upon whose death some matter of succession 4 depends. Under this Code, such a killer is disabled from taking the 5 succession and the succession proceeds as if the killer had 6 predeceased the decedent. Under Section 622803(f), a final 7 judgment of conviction or a guilty plea of felonious and intentional 8 killing conclusively invokes the operation of Section 622803, but 9 the lack of a conviction is no bar to invocation of the provision 10 where the killing is proved by the preponderance of the evidence. 11 At common law, according to the maxim that ‘no one shall be 12 permitted to profit by his own ... wrong,’ Smith v. Todd, 155 S.C. 13 323, 152 S.E. 506 (1930), those, who were by the preponderance 14 of the evidence, Smith v. Todd, supra, proven to have 15 feloniously, Smith v. Todd, supra; and Keels v. Atlantic Coast 16 Line R. Co., 159 S.C. 520, 157 S.E. 834 (1931), and intentionally, 17 i.e., maliciously and not merely recklessly or involuntarily, 18 Leggette v. Smith, 226 S.C. 403, 85 S.E.2d 576 (1955), but see 19 Fowler v. Fowler, 242 S.C. 252, 254, 130 S.E.2d 568 (1963), 20 killed another, were disabled from taking in succession to their 21 victim, whether by their being named as the beneficiary of a policy 22 of life insurance on their victim, Smith v. Todd, supra, or of 23 employment death benefits with respect to their victim, Keels, 24 supra, or by their taking in intestacy from their victim, or 25 otherwise, Leggette v. Smith, supra. The maxim applied and the 26 civilly proven killer was disabled from taking notwithstanding that 27 on the criminal side he had been convicted of involuntary 28 manslaughter, Keels, supra, or had been acquitted of crime, 29 Leggette v. Smith, supra. . 30 Former Section 21150 of the 1976 Code was enacted, 31 importantly, in supplementation of the common law maxim 32 disabling a killer from taking in succession to his victim, and was 33 enacted merely in order to establish a conclusive presumption of 34 the disablement of the killer in the single specified case of his 35 criminal court conviction of an unlawful killing, Sections 16310 36 and 16350 of the 1976 Code and Rasor v. Rasor, 173 S.C. 365, 37 175 S.E. 545 (1934), presumably because of the higher standard of 38 proof bound to have been imposed in that proceeding; not 39 including coroner’s convictions, Smith v. Todd, supra, nor 40 including, of course, complete acquittals, Leggette v. Smith, 41 supra, nor involuntary manslaughter convictions, Keels, supra, 42 Sections 16350 and 16360 of the 1976 Code, but, perhaps, 43 including other reckless homicide convictions, Section 5652910 of[1243] 96 1 the 1976 Code, unlawful albeit unintended, i.e., nonmalicious and 2 involuntary. See Fowler v. Fowler, supra, at 254 and C. Karesh, 3 Survey of South Carolina Law, 8 S.C.L.Q. 150 (1955) and E. 4 McCrackin, InheritanceUnintentional Killing, 7 S.C.L.Q. 475 5 (1955). 6 The thrust of Section 622803 is meant to encompass not only the 7 intended unlawful killing cases covered by former Section 21150 8 of the 1976 Code, but also the cases left to the common law 9 maxim. See Section 622803(d). Perhaps the common law maxim 10 retains some validity, as under Section 621103, with respect to 11 cases of killings or of succession, not covered by Section 622803, 12 if any. For instance, perhaps the common law maxim will yet 13 apply to deprive unintended but reckless homicides of the benefits 14 of the Wrongful Death Act, Sections 155110, 155120 of the 1976 15 Code et seq. See Fowler v. Fowler, supra at 254 but compare 16 Leggette v. Smith, supra. 17 Under Section 622803, subsections (a) through (d), the effect of 18 the proving of the killing is not only to disable the killer from 19 taking in succession but also to redirect the succession so that the 20 matter proceeds as if the killer had predeceased the decedent. 21 Section 622803(g) provides for the protection, from the claims of 22 the takers on the redirected succession, of obligors who pay 23 benefits to a killer without notice of such claims and also for the 24 protection, from such claims, of purchasers from a killer, for value 25 and without notice, who purchase before the adjudication of such 26 claims. 27 In protecting the killer’s subsequent purchasers, for value and 28 without notice, Section 622803(g), having first established the 29 theoretical base that the killer is deprived by his crime of all legal 30 title in the property which the killer would have acquired except 31 for this section, the interest then, however, accords to the killer’s 32 subsequent purchasers, for value and without notice, in whom 33 presumably later mere equitable title arises, the kind of protection 34 against the claims of the earlier legal title claimants, i.e., those who 35 take the redirected succession under Section 2803. Thus, Section 36 622803(g) carves out a further statutory exception to the common 37 law rule of priority. 38 39 Section 622804. When any person individual is seized or 40 possessed of any real property held in joint tenancy at the time of 41 his the individual’s death, the joint tenancy is deemed to have been 42 severed by the death of the joint tenant and the real property is 43 distributable as a tenancy in common unless the instrument which[1243] 97 1 creates the joint tenancy in real property, including any instrument 2 in which one person individual conveys to himself and one or 3 more other persons, or two or more persons convey to themselves, 4 or to themselves and another or others, expressly provides for a 5 right of survivorship, in which case the severance does not occur. 6 While other methods for the creation of a joint tenancy in real 7 property may be utilized, an express provision for a right of 8 survivorship is conclusively considered to have occurred if the will 9 or instrument of conveyance contains the names of the devisees or 10 grantees followed by the words ‘as joint tenants with right of 11 survivorship and not as tenants in common’. 12 13 REPORTER’S COMMENTS 14 Section 622804 is incorporated into Article 2 in order to integrate 15 particularly with Sections 622101 and 622501 the South Carolina 16 law on the effects of the establishment of a joint tenancy in real 17 property, with and without express provision for right of 18 survivorship, on the succession to a decedent joint tenant’s interest 19 in such real property by, respectively, the surviving joint tenants or 20 the decedent’s testate or intestate successors. The case law 21 developed in South Carolina in the application of former Section 22 21350 of the 1976 Code and its predecessor statutes, recodified as 23 Section 622804, continues to apply. 24 25 Section 622805. (A) For purposes of this article, tangible 26 personal property in the joint possession or control of the decedent 27 and the surviving spouse at the time of the decedent’s death is 28 presumed to be owned by the decedent and the decedent’s spouse 29 in joint tenancy with right of survivorship if ownership is not 30 evidenced otherwise by a certificate of title, bill of sale, or other 31 writing. This presumption does not apply to property: 32 (1) acquired by either spouse before marriage; 33 (2) acquired by either spouse by gift or inheritance during 34 the marriage; 35 (3) used by the decedent spouse in a trade or business in 36 which the surviving spouse has no interest; 37 (4) held for another; or 38 (5) specifically devised in a will or devised in a written 39 statement or list disposing of tangible personal property pursuant 40 to Section 622512. 41 (B) The presumption created in this section may be overcome 42 by a preponderance of the evidence demonstrating that ownership 43 was held other than in joint tenancy with right of survivorship.[1243] 98 1 2 Section 622806. To achieve the testator’s tax objectives, the 3 court may modify the terms of the testator’s will in a manner that 4 is not contrary to the testator’s probable intention. The court may 5 provide that the modification has retroactive effec t. 6 7 REPORTER’S COMMENTS 8 The 2012 amendment added this section with provisions similar to 9 Section 627416. 10 11 Part 9 12 13 Delivery and Suppression of Wills 14 15 Section 622901. (a) Every executor, devisee, legatee, trustee, 16 guardian, attorney, or other After the death of a testator, a person 17 having in his possession, custody, or control any last of a will and 18 testament, including any codicil or codicils thereto, of the testator 19 shall deliver such will, any person dying must within thirty days 20 after of actual notice or knowledge of the testator’s death of the 21 testator deliver such last will and testament, including any codicil 22 or codicils thereto, to the judge of the probate court having 23 jurisdiction to admit the same to probate and or to a person named 24 as personal representative in the will who shall deliver the will to 25 the judge of the probate court. Upon receipt of the will, the such 26 judge of probate shall file the same in his probate court and if 27 proceedings for the probate are not begun within thirty days he 28 must the judge shall publish a notice of such delivery and filing in 29 one of the newspapers in his the county of the probate court for 30 fifteen days once a week for three consecutive weeks. Any 31 executor, devisee, legatee, guardian, attorney, or other person who 32 fails to deliver to the judge of the probate court having jurisdiction 33 to admit it to probate any last will and testament, including any 34 codicil or codicils thereto, upon conviction must be punished as for 35 a misdemeanor. 36 (b) Any person who intentionally or fraudulently destroys, 37 suppresses, conceals, or fails to deliver the will to the judge of the 38 probate court having jurisdiction to admit it to probate any last will 39 and testament, including any codicil or codicils thereto, for the 40 purpose and with the intent to prevent the institution of 41 proceedings for its probate shall, upon conviction thereof, be 42 punished by a fine of not more than five hundred dollars or by 43 imprisonment for not more than one year, or both, in the discretion[1243] 99 1 of the court is liable to any person aggrieved for any damages that 2 may be sustained by such action or inaction. 3 ( c) Any person who intentionally or fraudulently destroys, 4 suppresses, conceals, or fails to deliver the will to the judge of the 5 probate court having jurisdiction to admit it to probate, after being 6 ordered by the court in a proceeding brought for the purpose of 7 compelling delivery, is subject to a penalty for contempt of court. 8 9 REPORTER’S COMMENT 10 Section 622901 requires a custodian of a will, who has actual 11 notice or knowledge of the testator’s death, to deliver the will to 12 the probate court or to the personal representative named in the 13 will. 14 15 Article 3 16 17 Probate of Wills and Administration 18 19 Part 1 20 21 General Provisions 22 23 Section 623101. The power of a person to leave property by will 24 and the rights of creditors, devisees, and heirs to his property are 25 subject to the restrictions and limitations contained in this Code to 26 facilitate the prompt settlement of estates, including the exercise of 27 the powers of the personal representative. Upon the death of a 28 person, his real property devolves to the persons to whom it is 29 devised by his last will or to those indicated as substitutes for them 30 in cases involving lapse, renunciation, or other circumstances 31 affecting the devolution of testate estates, or in the absence of 32 testamentary disposition, to his heirs, or to those indicated as 33 substitutes for them in cases involving renunciation or other 34 circumstances affecting the devolution of intestate estates, subject 35 to the purpose of satisfying claims as to exempt property rights and 36 the rights of creditors, and the purposes of administration, 37 particularly the exercise of the powers of the personal 38 representative under Sections 623709, 623710, and 623711, and 39 his personal property devolves, first, to his personal representative, 40 for the purpose of satisfying claims as to exempt property rights 41 and the rights of creditors, and the purposes of administration, 42 particularly the exercise of the powers of the personal 43 representative under Sections 623709, 623710, and 623711, and, at[1243] 100 1 the expiration of three years after the decedent’s death, if not yet 2 distributed by the personal representative, his personal property 3 devolves to those persons to whom it is devised by will or who are 4 his heirs in intestacy, or their substitutes, as the case may be, just 5 as with respect to real property. 6 7 REPORTER’S COMMENTS 8 Real property devolves to the devisees or substitutes, under 9 decedent’s will, or to his heirs or substitutes, in an intestate estate, 10 at the death of the owner whereas personal property devolves at the 11 expiration of three years after decedent’s death if not yet 12 distributed by the personal representative. 13 As to devolution of real property, see Sections 623711 and 623715 14 concerning certain powers of the personal representative over real 15 estate. 16 The devolution of personal property to devisees or heirs is 17 expressly made subject to other provisions of this Code regarding 18 exempt property, the rights of creditors, and the administration of 19 estates. Further, the power (and fiduciary obligation) of the 20 personal representative to apply personal property to the benefit of 21 creditors and others interested in the estate is provided for in 22 Section 623711. Only if the property is not required to protect the 23 rights of creditors or others does it devolve with no affirmative act 24 of transfer of title by distribution being necessary. Thus, under the 25 system of this Code and the provisions of this section, title to 26 personal property devolves to devisees or heirs, but subject to 27 exempt property provisions and the power to shift title to the 28 personal representative where required in administration and to 29 protect the rights of creditors or others. 30 31 Section 623102. Except as provided in Section 6231201 and 32 except as to a will that has been admitted to probate in another 33 jurisdiction which is filed as provided in Article 4, to be effective 34 to prove the transfer of any property or to nominate an executo a 35 personal representative, a will must be declared to be valid by an 36 order of informal probate by the court or an adjudication of 37 probate by the court. 38 39 REPORTER’S COMMENTS 40 A duly executed, unrevoked will must be declared to be valid by 41 order of informal probate or an adjudication of probate in order to 42 be effective to prove the transfer of any property or to nominate an 43 executor, with one exception, the affidavit procedures authorized[1243] 101 1 for collection of estates worth less than twentyfive thousand 2 dollars. Section 6231201. The time limitations on probate 3 proceedings to establish testacy are stated in Section 623108. 4 5 Section 623103. Except as otherwise provided in this article 6 [Sections 623101 et seq.] and in Article 4 [Sections 624101 et 7 seq.], to acquire the powers and undertake the duties and liabilities 8 of a personal representative of a decedent, a person must be 9 appointed by order of the court, qualify, and be issued letters. 10 Administration of an estate is commenced by the issuance of 11 letters. 12 13 REPORTER’S COMMENTS 14 Before one acquires the status of personal representative, he must 15 be appointed by the court, qualify, and be issued letters. Failure to 16 secure appointment by one who possesses the goods of a decedent 17 makes him liable as executor in his own wrong, Sections 623619, 18 623620, 623621. 19 The exceptions provided in Article 4 permit a personal 20 representative appointed in another state to collect certain assets in 21 this State, Sections 624201 through 624203, and to exercise the 22 powers of a local personal representative, if no local administration 23 or application is pending in this State, by filing authenticated 24 copies of his appointment and any will and any bond, Sections 25 624204, 624205. 26 For ‘qualification,’ see Section 623601; for ‘letters,’ see Section 27 621305; for the time of accrual of duties and powers of personal 28 representative, see Section 623701. 29 Section 623108 imposes time limitations on appointment 30 proceedings. 31 32 Section 623104. No claim can be filed against the estate of a 33 decedent and no proceeding to enforce a claim against the estate of 34 a decedent or his successors may be revived or commenced before 35 the appointment of a personal representative. After the 36 appointment and until distribution, all proceedings and actions to 37 enforce a claim against the estate are governed by the procedure 38 prescribed by this article [Sections 623101 et seq.]. After 39 distribution, a creditor whose claim has not been barred may 40 recover from the distributees as provided in Section 6231004 or 41 from a former personal representative individually liable as 42 provided in Section 6231005. This section has no application to a 43 proceeding by a secured creditor of the decedent to enforce his[1243] 102 1 right to his security except as to any deficiency judgment which 2 might be sought therein. 3 4 REPORTER’S COMMENTS 5 This section requires creditors of decedents to assert their claims 6 against a duly appointed personal representative. Notice to 7 creditors, time limitations, payment of claims, and other provisions 8 relating to creditors’ claims are in Part 8 of Article 3. Creditors are 9 interested persons who may seek appointment either in informal 10 proceedings for appointment of a personal representative, Section 11 623301, or in formal proceedings for appointment, Section 12 623414. A creditor may seek appointment as personal 13 representative, and has priority for appointment if no other 14 interested person has applied for appointment within fortyfive days 15 after death, Section 623203, and may do so at any time within ten 16 years of decedent’s death, Section 623108. 17 If a personal representative has been appointed and has closed the 18 estate under circumstances which leave a creditor’s claim unbarred 19 and unpaid, the creditor may recover from the distributees, Section 20 6231004, or from the former personal representative individually 21 liable for breach of fiduciary duty as provided in Sections 623807 22 and 6231003, subject to the limitations of Section 6231005. 23 A secured creditor is not affected by this section except as to any 24 deficiency judgment sought. A secured creditor is not required to 25 assert his claim against the personal representative of the deceased 26 debtor; however, the secured creditor who wishes to enforce a 27 claim for deficiency, even if unliquidated or only potential, is 28 required to comply with the claims provisions of this section and 29 Part 8 of this article. 30 31 Section 623105. Persons interested in decedents’ estates may 32 apply to the court for determination in the informal proceedings 33 provided in this article [Sections 623101 et seq.], and may petition 34 the court for orders in formal proceedings within the court’s 35 jurisdiction including but not limited to those described in this 36 article. 37 38 Section 623106. In proceedings within the jurisdiction of the 39 court where notice is required by this Code or by rule, and in 40 proceedings to construe probated wills or determine heirs which 41 concern estates that have not been and cannot now be opened for 42 administration, interested persons may be bound by the orders of 43 the court in respect to property in or subject to the laws of this[1243] 103 1 State by notice in conformity with Section 621401. An order is 2 binding as to all who are given notice of the proceeding though 3 less than all interested persons are notified. 4 5 REPORTER’S COMMENTS 6 The notice provisions of this section cover all proceedings within 7 the exclusive jurisdiction of the probate court where notice is 8 required by this Code or by rule. Notice provisions also apply to 9 proceedings to construe probated wills or to determine heirs in an 10 intestate estate which has not been and cannot be opened for 11 administration due to time limitations. Thus, this section and the 12 exceptions to the time limitations of Section 623108 make it clear 13 that proceedings to construe a probated will or to determine heirs 14 of intestates may be commenced more than ten years after death. 15 Notice may be given to less than all interested persons but is 16 binding upon only those who are given notice. 17 For the time and method of giving notice, see Section 621401; and 18 waiver of notice, Section 621402. 19 20 Section 623107. Unless administration under Part 5 [Sections 21 623501 et seq.] is involved, (1) each proceeding before the court is 22 independent of any other proceeding involving the same estate; 23 (2) petitions for formal orders of the court may combine various 24 requests for relief in a single proceeding if the orders sought may 25 be finally granted without delay, but, except as required for 26 proceedings which are particularly described by other sections of 27 this article [Sections 623101 et seq.], no petition is defective 28 because it fails to embrace all matters which might then be the 29 subject of a final order; (3) proceedings for probate of wills or 30 adjudications of no will may be combined with proceedings for 31 appointment of personal representatives; and (4) a proceeding for 32 appointment of a personal representative is concluded by an order 33 making or declining the appointment. 34 35 REPORTER’S COMMENTS 36 This section and the other provisions of this article are designed to 37 establish a flexible system of administration of decedents’ estates 38 which permits interested persons to determine the extent to which 39 matters relating to estates become the subjects of judicial orders. 40 Administration under Part 5, Sections 623501, et seq., is a single 41 proceeding for judicial determination of testacy, priority, and 42 qualification for appointment as personal representative and 43 administration and settlement of decedents’ estates. Section[1243] 104 1 623107 applies to all other proceedings except those which are 2 particularly described in other sections of this article. With the 3 exceptions stated, proceedings for probate of wills and 4 adjudication of intestacy may be combined with proceedings for 5 appointment of personal representatives. Jurisdiction over 6 interested persons is facilitated by Sections 623106 and 623602. 7 Venue is determined by Section 623201. 8 Except in circumstances which permit appointment of a special 9 administrator, Section 623614, a personal representative may not 10 be appointed unless the will to which the requested appointment 11 relates has been formally or informally probated, Sections 623308, 12 623402, and 623414. 13 14 Section 623108. No informal probate or appointment 15 proceeding or formal testacy or appointment proceeding, other 16 than a proceeding to probate a will previously probated at the 17 testator’s domicile and appointment proceedings relating to an 18 estate in which there has been a prior appointment, may be 19 commenced more than ten years after the decedent’s death, except 20 (1) if a previous proceeding was dismissed because of doubt about 21 the fact of the decedent’s death, appropriate probate, appointment, 22 or testacy proceedings may be maintained at any time thereafter 23 upon a finding that the decedent’s death occurred prior to the 24 initiation of the previous proceeding and the applicant or petitioner 25 has not delayed unduly in initiating the subsequent proceeding and 26 if that previous proceeding was commenced within the time limits 27 of this section; (2) appropriate probate, appointment, or testacy 28 proceedings may be maintained in relation to the estate of an 29 absent, disappeared, or missing person for whose estate a 30 conservator has been appointed, at any time within three years 31 after the conservator becomes able to establish the death of the 32 protected person; and (3) a proceeding to contest an informally 33 probated will and to secure appointment of the person with legal 34 priority for appointment in the event the contest is successful may 35 be commenced within the later of eight months from the informal 36 probate or one year from the decedent’s death. If no informal 37 probate and no formal testacy proceedings are commenced within 38 ten years after the decedent’s death, and no proceedings under (2) 39 above are commenced within the applicable period of three years, 40 it is incontestable that the decedent left no will and that the 41 decedent’s estate passes by intestate succession. These limitations 42 do not apply to proceedings to construe probated wills or 43 determine heirs of an intestate. In cases under (1) or (2) above, the[1243] 105 1 date on which a testacy or appointment proceeding is properly 2 commenced is deemed to be the date of the decedent’s death for 3 purposes of other limitations provisions of this Code which relate 4 to the date of death. 5 (A)(1) No informal probate or appointment proceeding or 6 formal testacy or appointment proceeding, other than a proceeding 7 to probate a will previously probated at the testator’s domicile and 8 appointment proceedings relating to an estate in which there has 9 been a prior appointment, may be commenced more than ten years 10 after the decedent’s death. 11 (2) Notwithstanding any other provision of this section: 12 (a) if a previous proceeding was dismissed because of 13 doubt about the fact of the decedent’s death, appropriate probate, 14 appointment, or testacy proceedings may be maintained at any 15 time upon a finding that the decedent’s death occurred prior to the 16 initiation of the previous proceeding and the applicant or petitioner 17 has not delayed unduly in initiating the subsequent proceeding and 18 if that previous proceeding was commenced within the time limits 19 of this section; 20 (b) appropriate probate, appointment, or testacy 21 proceedings may be maintained in relation to the estate of an 22 absent, disappeared, or missing person for whose estate a 23 conservator has been appointed, at any time within three years 24 after the conservator becomes able to establish the death of the 25 protected person; and 26 (c) a proceeding to contest an informally probated will 27 and to secure appointment of the person with legal priority for 28 appointment in the event the contest is successful may be 29 commenced within eight months from informal probate or one 30 year from the decedent’s death, whichever is later. 31 (B) If no informal probate and no formal testacy proceedings 32 are commenced within ten years after the decedent’s death, and no 33 proceedings under subsection (A)(2)(b) are commenced within the 34 applicable period of three years, it is incontestable that the 35 decedent left no will and that the decedent’s estate passes by 36 intestate succession. These limitations do not apply to proceedings 37 to construe probated wills or determine heirs of an intestate. In 38 proceedings commenced under subsection (A)(2)(a) or (A)(2)(b), 39 the date on which a testacy or appointment proceeding is properly 40 commenced is deemed to be the date of the decedent’s death for 41 purposes of other limitations provisions of this Code which relate 42 to the date of death. 43[1243] 106 1 REPORTER’S COMMENTS 2 This section establishes a time limitation of ten years after a 3 decedent’s death for commencement of any proceeding to 4 determine whether a decedent died testate or for commencing 5 administration of his estate, with the following exceptions: 6 (1) a proceeding to probate a will previously probated in 7 testator’s domicile;. 8 (2) appointment proceedings relating to an estate in which 9 there has been a prior appointment;. 10 (3) if a previous proceeding was dismissed because of doubt 11 about the fact of death, and if decedent’s death in fact occurred 12 prior to commencement of the previous proceeding, and if there 13 has been no undue delay in commencing the subsequent 14 proceeding;. 15 (4) if the decedent was a protected person, as an absent, 16 disappeared, or missing person for whose estate a conservator has 17 been appointed, and if the proceeding is commenced within three 18 years after the conservator is able to establish the death of the 19 protected person; or. 20 (5) a proceeding to contest an informally probated will and 21 appointment if the contest is successful, may be commenced 22 within the later of eight months from informal probate or one year 23 from the decedent’s death. 24 These limitations do not apply to proceedings to construe wills or 25 to determine heirs of an intestate. 26 If no will is probated within ten years from death, or within the 27 time permitted by one of the exceptions, this section makes the 28 assumption of intestacy final. 29 If a will has been probated informally within ten years, this 30 section makes the informal probate conclusive within one year 31 from death or eight months from informal probate, whichever is 32 later. The limitation period prescribed applies to all persons 33 including those under disability. 34 Interested persons can protect themselves against changes within 35 the period of doubt concerning whether a person died testate or 36 intestate by commencing at an earlier date a formal proceeding, 37 Sections 623401, 623402. 38 Protection to a personal representative appointed after informal 39 probate of a will or informally issued letters of administration, but 40 which is subject to change in a subsequent formal proceeding 41 commenced within the limitations prescribed, is afforded under 42 Section 623703. [1243] 107 1 Distributees who receive distributions from an estate before the 2 expiration of the period remain potentially liable to those 3 determined to be entitled in properly commenced formal 4 proceedings, Section 623909, 6231006. 5 Purchasers from the personal representative or a distributee may be 6 protected without regard to whether the period has run, Sections 7 623714, 623910. 8 Creditors’ claims are barred against the personal representative, 9 heirs, and devisees after one year from date of death in any event. 10 Section 623803(a). 11 12 Section 623109. The running of any statute of limitations on a 13 cause of action belonging to a decedent which had not been barred 14 as of the date of his death is suspended during the eight months 15 following the decedent’s death but resumes thereafter unless 16 otherwise tolled. 17 18 REPORTER’S COMMENTS 19 Any statute of limitations running on a decedent’s cause of action 20 surviving decedent, which had not been barred at decedent’s death, 21 is tolled for eight months after decedent’s death. This section has 22 the effect of extending the running of a statute of limitations with 23 respect to a cause of action surviving decedent for eight months 24 from the time when it would have run, if the action had not been 25 barred at decedent’s death. 26 For the tolling or suspension of any statute of limitations running 27 on a cause of action against decedent for the eight months 28 following decedent’s death, see Section 623802. 29 30 Part 2 31 32 Venue for Probate and Administration; Priority to Administer; 33 Demand for Notice 34 35 Section 623201. (a) Venue for the first informal or formal 36 testacy or appointment proceedings after a decedent’s death is: 37 (1) in the county where the decedent had his domicile at the 38 time of his death; or 39 (2) if the decedent was not domiciled in this State, in any 40 county where property of the decedent was located at the time of 41 his death. 42 (b) Venue for all subsequent proceedings within the exclusive 43 jurisdiction of the court is in the place where the initial proceeding[1243] 108 1 occurred, unless the initial proceeding has been transferred as 2 provided in Section 621303 or (c) of this section. 3 (c) If the first proceeding was informal, on application of an 4 interested person and after notice to the proponent in the first 5 proceeding, the court, upon finding that venue is elsewhere, may 6 transfer the proceeding and the file to the other court. 7 (d) For the purpose of aiding determinations concerning 8 location of assets which may be relevant in cases involving 9 nondomiciliaries, a debt, other than one evidenced by investment 10 or commercial paper or other instrument in favor of a 11 nondomiciliary, is located where the debtor resides or, if the debtor 12 is a person other than an individual, at the place where it has its 13 principal office. Commercial paper, investment paper, and other 14 instruments are located where the instrument is. An interest in 15 property held in trust is located where the trustee may be sued. 16 17 REPORTER’S COMMENTS 18 Venue for the first informal or formal testacy and appointment 19 proceedings and subsequent proceedings is established in Section 20 623201. For domiciliaries, venue is the county of domicile. For 21 decedents not domiciled in this State, venue is in any county where 22 property of the decedent was located. 23 If proceedings concerning the same estate are commenced in more 24 than one court of this State, the court in which the proceeding was 25 first commenced makes the finding of proper venue, Sections 26 623201, 621303. Upon finding that venue is elsewhere, the court 27 in which the first proceeding was filed may transfer the proceeding 28 to some other court, Section 623201(c). Where a proceeding could 29 be maintained in more than one court in this State, the court in 30 which the first proceeding was commenced has the exclusive right 31 to proceed or to transfer, Section 621303. 32 33 Section 623202. If conflicting claims as to the domicile of a 34 decedent are made in a formal testacy or appointment proceeding 35 commenced in this State, and in a testacy or appointment 36 proceeding after notice pending at the same time in another state, 37 the court of this State must stay, dismiss, or permit suitable 38 amendment in, the proceeding here unless it is determined that the 39 local proceeding was commenced before the proceeding 40 elsewhere. The determination of domicile in the proceeding first 41 commenced must be accepted as determinative in the proceeding 42 in this State. 43[1243] 109 1 REPORTER’S COMMENTS 2 Conflicting claims of domicile arising in a formal testacy or 3 appointment proceeding in a court of this State and a testacy or 4 appointment proceeding after notice pending in another state are 5 resolved by the court in which the first proceeding was 6 commenced. 7 8 Section 623203. (a) Whether the proceedings are formal or 9 informal, persons who are not disqualified have priority for 10 appointment in the following order: 11 (1) the person with priority as determined by a probated will 12 including a person nominated by a power conferred in a will; 13 (2) the surviving spouse of the decedent who is a devisee of 14 the decedent; 15 (3) other devisees of the decedent; 16 (4) the surviving spouse of the decedent; 17 (5) other heirs of the decedent regardless of whether the 18 decedent died intestate and determined as if the decedent died 19 intestate (for the purposes of determining priority under this item, 20 any heirs who could have qualified under items (1), (2), (3), and 21 (4) of subsection (a) are treated as having predeceased the 22 decedent); 23 (6) fortyfive days after the death of the decedent, any 24 creditor; 25 (7) four months after the death of the decedent, upon 26 application by the South Carolina Department of Revenue, a 27 person suitable to the court. 28 (8) Unless a contrary intent is expressed in the decedent’s 29 will, a person with priority under subsection (a) may nominate 30 another, who shall have the same priority as the person making the 31 nomination, except that a person nominated by the testator to serve 32 as personal representative or successor personal representative 33 shall have a higher priority than a person nominated pursuant to 34 this item. 35 (b) An objection to an appointment can be made only in formal 36 proceedings. In case of objection the priorities stated in (a) apply 37 except that: 38 (1) if the estate appears to be more than adequate to meet 39 exemptions and costs of administration but inadequate to discharge 40 anticipated unsecured claims, the court, on petition of creditors, 41 may appoint any qualified person; 42 (2) in case of objection to appointment of a person other 43 than one whose priority is determined by will by an heir or devisee[1243] 110 1 appearing to have a substantial interest in the estate, the court may 2 appoint a person who is acceptable to heirs and devisees whose 3 interests in the estate appear to be worth in total more than half of 4 the probable distributable value or, in default of this accord, any 5 suitable person. 6 (c) Conservators of the estates of protected persons or, if there 7 is no conservator, any guardian for the protected person or the 8 custodial parent of a minor, except a court appointed guardian ad 9 litem of a minor or incapacitated person may exercise the same 10 right to be appointed as personal representative, to object to 11 another’s appointment, or to participate in determining the 12 preference of a majority in interest of the heirs and devisees that 13 the protected person or ward would have if qualified for 14 appointment. 15 (d) Appointment of one who does not have priority may be 16 made in formal or informal proceedings. Before appointing one 17 without priority, the court must determine that those having 18 priority, although given notice of the proceedings, have failed to 19 request appointment or to nominate another for appointment, and 20 that administration is necessary. If the administration is necessary, 21 appointment of one who has equal or lower priority may be made 22 as follows within the discretion of the court: 23 (1) informally if all those of equal or higher priority have 24 filed a writing with the court renouncing the right to serve and 25 nominating the same person in his or her place; or 26 (2) in the absence of agreement, informally in accordance 27 with the requirements of Section 623310; or 28 (3) in formal proceedings. 29 (e) No person is qualified to serve as a personal representative 30 who is: 31 (1) under the age of eighteen; 32 (2) a person whom the court finds unsuitable in formal 33 proceedings; 34 (3) with respect to the estate of any person domiciled in this 35 State at the time of his death, a corporation created by another state 36 of the United States or by any foreign state, kingdom or 37 government, or a corporation created under the laws of the United 38 States and not having a business in this State, or an officer, 39 employee, or agent of such foreign corporation, whether the 40 officer, employee, or agent is a resident or a nonresident of this 41 State, if such officer, employee, or agent is acting as personal 42 representative on behalf of such corporation; [1243] 111 1 (4) a probate judge for an estate of any person within his 2 jurisdiction, except as provided in Section 6231202A ; however, a 3 probate judge may serve as a personal representative of the estate 4 of a family member if the service does not interfere with the proper 5 performance of the probate judge’s official duties and the estate 6 must be transferred to another county for administration. For 7 purposes of this subsection, ‘family member’ means a spouse, 8 parent, child, brother, sister, aunt, uncle, niece, nephew, 9 motherinlaw, fatherinlaw, soninlaw, daughterinlaw, grandparent, 10 or grandchild. 11 (f) A personal representative appointed by a court of the 12 decedent’s domicile has priority over all other persons except 13 where the decedent’s will nominates different persons to be 14 personal representatives in this State and in the state of domicile. 15 The domiciliary personal representative may nominate another, 16 who shall have the same priority as the domiciliary personal 17 representative. 18 (g) This section governs priority for appointment of a 19 successor personal representative but does not apply to the 20 selection of a special administrator. 21 (h) If it comes to the knowledge of a probate judge that any 22 person within his jurisdiction has died leaving an estate upon 23 which no application has been made for appointment or no 24 personal representative appointed or no will offered for probate or 25 appointment granted, he must, immediately after the lapse of four 26 months from the death of such person, notify the South Carolina 27 Department of Revenue thereof together with his opinion as to 28 whether or not any part of the estate is likely to be taxable. 29 30 REPORTER’S COMMENTS 31 The priorities of the right to appointment as personal 32 representative or successor personal representative (but not special 33 administrator, Sections 623203(b), 623615) are, in order, a person 34 determined by a probated will, a spouse who is a devisee, other 35 devisees, a spouse who is not a devisee, other heirs, and, after 36 fortyfive days after death, a creditor, Section 623203(a). 37 Objections to appointment can be made only in formal 38 proceedings, Section 623203(b). Conservators or guardians of 39 protected persons may exercise the same right to nominate for or 40 object to appointment which the protected person would have if 41 qualified, Section 623203(c). Persons disqualified include persons 42 under age eighteen, those found unsuitable by the court, and[1243] 112 1 foreign corporations not having a place of business in this State, 2 Section 623203(e). 3 The 2010 amendment revised subsection (d) to eliminate certain 4 language as to ‘priority resulting from renunciation or waiver,’ and 5 adding ‘or informal’ proceedings. The prior version of subsection 6 (d) provided for only a formal proceeding. The 2010 amendment 7 allows one who does not have priority to pursue either a formal 8 proceeding (requiring summons and petition) or an informal 9 proceeding (does not require summons and petition) for 10 appointment. See section 623310 for informal appointments to one 11 who does not have priority. See 2010 amendments to certain 12 definitions in §621201. 13 14 Section 623204. Any interested person desiring notice of any 15 order or filing pertaining to a decedent’s estate may file a demand 16 for notice with the court at any time after the death of the decedent 17 stating the name of the decedent, the nature of his interest in the 18 estate, and the demandant’s address or that of his attorney. The 19 demand for notice shall expire one year from the date of filing with 20 the court. The clerk shall mail a copy of the demand to the 21 personal representative if one has been appointed. After filing of a 22 demand, the personal representative must give a copy of the 23 demanded filing to the demandant or his attorney. If the demand is 24 a demand for a hearing, then the personal representative must 25 comply with no order or filing to which the demand relates may be 26 made or accepted without notice as prescribed in Section 621401 27 to the demandant or his attorney. The validity of an order which is 28 issued or filing which is accepted without compliance with this 29 requirement is not affected by the error, but the petitioner 30 receiving the order or the person making the filing may be liable 31 for any damage caused by the absence of notice. The requirement 32 of notice arising from a demand under this provision may be 33 waived in writing by the demandant and ceases upon the 34 termination of his interest in the estate. 35 36 REPORTER’S COMMENTS 37 Interested persons may file a demand for notice, requiring notice to 38 be given to them or their attorneys. The 2012 amendment clarifies 39 that a court may issue an order and accept a filing while a demand 40 for notice is effective. 41 As to the method and time of giving the notice referred to, see 42 Section 621401. 43[1243] 113 1 Part 3 2 3 Informal Probate and Appointment Proceedings 4 5 Section 623301. (a) Applications for informal probate or 6 informal appointment shall be directed to the court, and verified by 7 the applicant to be accurate and complete to the best of his 8 knowledge and belief as to the following information: 9 (1) Every application for informal probate of a will or for 10 informal appointment of a personal representative, other than a 11 special or successor representative, shall contain the following: 12 (i) a statement of the interest of the applicant; 13 (ii) the name, and date of death of the decedent, his age, 14 and the county and state of his domicile at the time of death, and 15 the names and addresses of the spouse, children, heirs (regardless 16 of whether the decedent died intestate and determined as if the 17 decedent died intestate) and devisees, and the ages of any who are 18 minors so far as known or ascertainable with reasonable diligence 19 by the applicant; 20 (iii) if the decedent was not domiciled in the State at the 21 time of his death, a statement showing venue; 22 (iv) a statement identifying and indicating the address of 23 any personal representative of the decedent appointed in this State 24 or elsewhere whose appointment has not been terminated; 25 (v) a statement indicating whether the applicant has 26 received a demand for notice, or is aware of a demand for notice of 27 any probate or appointment proceeding concerning the decedent 28 that may have been filed in this State or elsewhere; and 29 (vi) that the time limit for informal probate or appointment 30 as provided in this article has not expired either because ten years 31 or less has passed since the decedent’s death, or, if more than ten 32 years from death have passed, circumstances as described by 33 Section 623108 authorizing tardy probate or appointment have 34 occurred;. 35 (vii) such further information as may be prescribed by the 36 South Carolina Department of Revenue pursuant to Sections 37 1215510 and 1215540 of the 1976 Code. 38 (2) An application for informal probate of a will shall state 39 the following in addition to the statements required by (1): 40 (i) that the original of the decedent’s last will is in the 41 possession of the court, or accompanies the application, or that an 42 authenticated copy of a will probated in another jurisdiction 43 accompanies the application; [1243] 114 1 (ii) that the applicant, to the best of his knowledge, 2 believes the will to have been validly executed; 3 (iii) that after the exercise of reasonable diligence, the 4 applicant is unaware of any instrument revoking the will, and that 5 the applicant believes that the instrument which is the subject of 6 the application is the decedent’s last will. 7 (3) An application for informal appointment of a personal 8 representative to administer an estate under a will shall describe 9 the will by date of execution and state the time and place of 10 probate or the pending application or petition for probate. The 11 application for appointment shall adopt the statements in the 12 application or petition for probate and state the name, address, and 13 priority for appointment of the person whose appointment is 14 sought. 15 (4) An application for informal appointment of an 16 administrator in intestacy must state the name and address of the 17 person whose appointment is sought and must state in addition to 18 the statements required by (1): 19 (i) that after the exercise of reasonable diligence, the 20 applicant is unaware of any unrevoked testamentary instrument 21 relating to property having a situs in this State under Section 22 Section 621301 or a statement why any such instrument of which 23 he may be aware is not being probated; 24 (ii) the priority of the person whose appointment is sought 25 and the names of any other persons having a prior or equal right to 26 the appointment under Section 623203. 27 (5) An application for appointment of a personal 28 representative to succeed a personal representative appointed under 29 a different testacy status shall refer to the order in the most recent 30 testacy proceeding, state the name and address of the person whose 31 appointment is sought and of the person whose appointment will 32 be terminated if the application is granted, and describe the priority 33 of the applicant. 34 (6) An application for appointment of a personal 35 representative to succeed a personal representative who has 36 tendered a resignation as provided in Section 623610(c), or whose 37 appointment has been terminated by death or removal, shall adopt 38 the statements in the application or petition which led to the 39 appointment of the person being succeeded except as specifically 40 changed or corrected, state the name and address of the person 41 who seeks appointment as successor, and describe the priority of 42 the applicant. [1243] 115 1 (7) The court may probate a will without appointing a 2 personal representative. 3 (b) By verifying an application for informal probate, or 4 informal appointment, the applicant submits personally to the 5 jurisdiction of the court in any proceeding for relief from fraud 6 relating to the application, or for perjury, that may be instituted 7 against him. 8 9 REPORTER’S COMMENTS 10 This section prescribes the contents of the application for the 11 informal probate of a will or for the informal appointment of a 12 personal representative. The proofs and findings required for 13 issuance of any order of informal probate or informal appointment 14 are contained in Sections 623303 and 623308. This section 15 requires that the application be verified, 623301(a) and (b). The 16 application is a part of the public record. Persons injured by 17 deliberately false representation may invoke remedies for fraud 18 without any specified time limit (See Article 1). 19 This section allows the court to probate a will without appointing a 20 personal representative. Further, it allows the court to appoint a 21 personal representative without notice. 22 23 Section 623302. Upon receipt of an application requesting 24 informal probate of a will, the court, upon making the findings 25 required by Section 623303, shall issue a written statement of 26 informal probate. Informal probate is conclusive as to all persons 27 until superseded by an order in a formal testacy proceeding. No 28 defect in the application or procedure relating thereto which leads 29 to informal probate of a will renders the probate void. 30 31 REPORTER’S COMMENTS 32 ‘Informal Probate’ is designed to keep the vast majority of wills, 33 which are simple and generate no controversy, from becoming 34 involved in truly judicial proceedings. An order of informal 35 probate makes the will operative and may be the only official 36 action concerning its validity. The order is subjected to the 37 safeguards which seem appropriate to this transaction. 38 39 Section 623303. (a) In an informal proceeding for original 40 probate of a will, the court shall determine whether: 41 (1) the application is complete; [1243] 116 1 (2) the applicant has made oath or affirmation that the 2 statements contained in the application are true to the best of his 3 knowledge and belief; 4 (3) the applicant appears from the application to be an 5 interested person as defined in Section 621201(20); 6 (4) on the basis of the statements in the application, venue is 7 proper; 8 (5) an original, duly executed and apparently unrevoked will 9 is in the court’s possession; 10 (6) any notice required by Section 623204 has been given 11 and that the application is not within Section 623304; 12 (7) it appears from the application that the time limit for 13 original probate has not expired. 14 (b) The application shall be denied if it indicates that a 15 personal representative has been appointed in another county of 16 this State or except as provided in subsection (d) below, if it 17 appears that this or another will of the decedent has been the 18 subject of a previous probate order. 19 (c) A will which appears to have the required signatures and 20 which contains an attestation clause showing that requirements of 21 execution under Section 622502 or 622505 have been met shall be 22 probated without further proof. In other cases, the court may 23 assume execution if the will appears to have been properly 24 executed, or he may accept a sworn statement or affidavit of any 25 person having knowledge of the circumstances of execution, 26 whether or not the person was a witness to the will. 27 (d) Informal probate of a will which has been previously 28 probated elsewhere may be granted at any time upon written 29 application by any interested person, together with deposit of an 30 authenticated copy of the will and of the statement probating it 31 from the office or court where it was first probated. 32 (e) A will from a place which does not provide for probate of a 33 will after death and which is not eligible for probate under 34 subsection (a) above, may be probated in this State upon receipt by 35 the court of a duly authenticated copy of the will and a duly 36 authenticated certificate of its legal custodian that the copy filed is 37 a true copy and that the will has become operative under the law of 38 the other place. A will of a nonresident decedent which has not 39 been probated and is not eligible for probate under subsection (a) 40 (5) may nevertheless be probated in this State upon receipt by the 41 court of a copy of the will authenticated as true by its legal 42 custodian together with the legal custodian’s certificate that the 43 will is not ineligible for probate under the law of the other place. [1243] 117 1 2 REPORTER’S COMMENTS 3 This section lists the proofs and findings required to be made by 4 the court as a part of an order of informal probate. 5 The purpose of subparagraph (c) of the section is to permit the 6 informal probate of a will which, from a simple attestation clause, 7 appears to have been executed properly. It is not necessary that the 8 will be notarized or selfproved. If the will has been made 9 selfproved under Section 622503 it will of course ‘appear’ to be 10 well executed and will include the recitals necessary for ease of 11 probate under this section. This section does not require that the 12 court examine one or both of the subscribing witnesses to the will. 13 Any interested person who desires more rigorous proof of due 14 execution may commence a formal testacy proceeding. 15 Note the provision of subparagraph (b) that informal probate is 16 generally unavailable if there has been a previous probate of this or 17 another will, unless, as under subparagraph (d), ancillary probate is 18 desired. 19 20 Section 623304. Applications for informal probate which relate 21 to one or more of a known series of testamentary instruments 22 (other than a will and its codicils), the latest of which does not 23 expressly revoke the earlier, shall be declined. 24 25 REPORTER’S COMMENTS 26 The court is required to decline applications for informal probate 27 in the circumstances specified in this section where a formal 28 proceeding with notice and hearing would provide a desirable 29 safeguard. 30 31 Section 623305. If the court is not satisfied that a will is entitled 32 to be probated in informal proceedings because of failure to meet 33 the requirements of Sections 623303 and 623304 or any other 34 reason, he may decline the application. A declination of informal 35 probate is not an adjudication and does not preclude formal 36 probate proceedings. 37 38 REPORTER’S COMMENTS 39 This section confers upon the court the discretion to deny probate 40 to an instrument even though all of the statutory requirements have 41 arguably been met. The denial of an application for informal 42 probate does not give rise to a right of appeal. The proponent of[1243] 118 1 the will is left with the option of initiating a formal testacy 2 proceeding. 3 4 Section 623306. (a) The moving party must give notice as 5 described by Section 621401 of his application for informal 6 probate to any person demanding it pursuant to Section 623204, 7 and to any personal representative of the decedent whose 8 appointment has not been terminated. No other notice of informal 9 probate is required. 10 (b) If an informal probate is granted, within thirty days 11 thereafter the applicant shall give written information of the 12 probate to the heirs (determined as if the decedent died intestate) 13 and devisees. The information must include the name and address 14 of the applicant, the date of execution of the will, and any codicil 15 thereto, the name and location of the court granting the informal 16 probate, and the date of the probate. The information must be 17 delivered or sent by ordinary mail to each of the heirs and devisees 18 whose address is reasonably available to the applicant. No duty to 19 give information is incurred if a personal representative is 20 appointed who is required to give the written information required 21 by Section 623705. An applicant’s failure to give information as 22 required by this section is a breach of his duty to the heirs and 23 devisees but does not affect the validity of the probate. 24 25 REPORTER’S COMMENTS 26 The party seeking informal probate of a will (who may or may not 27 be seeking informal appointment as personal representative) must 28 give notice of his application for informal probate, presumably at 29 the time he makes his application. The notice must be given to any 30 personal representative of the decedent whose appointment has not 31 been terminated, and to any other person who demands notice 32 pursuant to Section 623204. Section 623204 prescribes that a 33 person demanding notice under that section must have ‘a financial 34 or property interest.’ The notice must be in conformity with 35 Section 621401, which provides that a notice may be given by 36 certified, registered, or ordinary first class mail, by personal 37 service, or if the address or identity of the person sought to be 38 notified cannot be ascertained, by publication. 39 As to notice after informal probate is granted, the requirement in 40 subsection (b) of giving written information of the probate to heirs 41 and devisees is unnecessary if a personal representative is 42 appointed who is required to give the written information required 43 by Section 623705. This latter section provides that every[1243] 119 1 personal representative except any special administrator must give 2 written 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 term 6 ‘heirs and devisees’ appears to encompass not only those persons 7 who take by virtue of a probated will, but also those persons who 8 would have been the decedent’s heirs had he died intestate. 9 10 Section 623307. (a) Upon receipt of an application for 11 informal appointment of a personal representative other than a 12 special administrator as provided in Section 623614, the court, 13 after making the findings required by Section 623308, shall 14 appoint the applicant subject to qualification and acceptance; 15 provided, that if the decedent was a nonresident, the court shall 16 delay the order of appointment until thirty days have elapsed since 17 death unless the personal representative appointed at the 18 decedent’s domicile is the applicant, or unless the decedent’s will 19 directs that his estate be subject to the laws of this State. 20 (b) The status of a personal representative and the powers and 21 duties pertaining to the office are fully established by informal 22 appointment. An appointment, and the office of personal 23 representative created thereby, is subject to termination as 24 provided in Sections 623608 through 623612, but is not subject to 25 retroactive vacation. 26 27 REPORTER’S COMMENTS 28 This section and those that follow establish the mechanism for 29 informal appointment of a personal representative. 30 The thirty day waiting period in the case of a nonresident decedent 31 is designed to permit the first appointment to be at the decedent’s 32 domicile and presumably, to allow the domiciliary personal 33 representative to then seek appointment in this State. 34 35 Section 623308. (a) In informal appointment proceedings, the 36 court must determine whether: 37 (1) the application for informal appointment of a personal 38 representative is complete; 39 (2) the applicant has made oath or affirmation that the 40 statements contained in the application are true to the best of his 41 knowledge and belief; 42 (3) the applicant appears from the application to be an 43 interested person as defined in Section 621201(20); [1243] 120 1 (4) on the basis of the statements in the application, venue is 2 proper; 3 (5) any will to which the requested appointment relates has 4 been formally or informally probated; but this requirement does 5 not apply to the appointment of a special administrator; 6 (6) any notice required by Section 623204 has been given; 7 (7) from the statements in the application, the person whose 8 appointment is sought has priority entitling him to the 9 appointment. 10 (b) Unless Section 623612 controls, the application must be 11 denied if it indicates that a personal representative who has not 12 filed a written statement of resignation as provided in Section 13 623610(c) has been appointed in this or another county of this 14 State, that (unless the applicant is the domiciliary personal 15 representative or his nominee) the decedent was not domiciled in 16 this State and that a personal representative whose appointment 17 has not been terminated has been appointed by a court in the state 18 of domicile, or that other requirements of this section have not 19 been met. 20 21 REPORTER’S COMMENTS 22 Subsection (a) sets out those findings required of the court in an 23 order of informal appointment of a personal representative. Of 24 particular importance is the finding that any will to which the 25 requested appointment relates has been formally or informally 26 probated. As noted in the comment to Section 623301, this Code 27 allows the court to probate a will without appointing a personal 28 representative. However, the effect of subsection (a) is that while 29 the court may probate a will without appointing the personal 30 representative designated in that will, it cannot informally appoint 31 the personal representative without a prior formal or informal 32 probate of the will to which the personal representative’s 33 appointment relates. 34 The court must enter a finding that the person appears to have 35 priority entitling him to appointment. Section 623203 establishes 36 priority among persons seeking appointment as personal 37 representative. 38 Subsection (b) sets out certain circumstances in which the 39 application must be denied. The first such circumstance is where 40 another personal representative has been appointed in this or 41 another county of this State, except under the special situation of 42 Section 623612. The second such circumstance is in the case of a 43 nondomiciliary decedent. Here, the section is designed to prevent[1243] 121 1 informal appointment of a personal representative in this State 2 when a personal representative has been previously appointed at 3 the decedent’s domicile. Sections 624201, 624204, and 624205 4 may make local appointment unnecessary. 5 6 Section 623309. If the court is not satisfied that a requested 7 informal appointment of a personal representative should be made 8 because of failure to meet the requirements of Sections 623307 and 9 623308 or, for any other reason, he may decline the application. A 10 declination of informal appointment is not an adjudication and 11 does not preclude appointment in formal proceedings. 12 13 REPORTER’S COMMENTS 14 Because the appointment of a personal representative confers 15 broad powers over the assets of the decedent’s estate, the authority 16 granted the court to deny the appointment for unclassified reasons 17 is an important safeguard. 18 19 Section 623310. The moving party must give notice as 20 described by Section 621401 of his intention to seek an 21 appointment informally: (1) to any person demanding it pursuant 22 to Section 623204; and (2) to any person having a prior or equal 23 right to appointment not waived in writing and filed with the court. 24 No other notice of an informal appointment proceeding is required. 25 The applicant must give notice of his intention to seek an 26 appointment informally to any person having equal right to 27 appointment not waived in writing and filed with the court. The 28 notice shall state that, if no objection or nomination of another or 29 no competing application or petition for appointment is filed with 30 the court within fortyfive days from mailing of the application and 31 notice, the applicant may be appointed informally as the personal 32 representative. If an objection, nomination, application, or petition 33 is filed within the fortyfive day period, the court shall decline the 34 initial application pursuant to Section 623309. The court can 35 require the formal proceedings to appoint someone of equal or 36 lesser priority. 37 38 REPORTER’S COMMENTS 39 This section requires that the party seeking informal appointment 40 must give notice to any person having equal right to appointment. 41 It provides a fortyfive day period in which a person with equal 42 right of appointment may respond. 43[1243] 122 1 Section 623311. If an application for informal appointment 2 indicates the existence of a possible unrevoked testamentary 3 instrument which may relate to property subject to the laws of this 4 State, and which is not filed for probate in this court, the court 5 shall decline the application. 6 7 REPORTER’S COMMENTS 8 This section is the counterpart of Section 623304. Section 9 623301(a)(4) requires that an applicant for informal appointment 10 make certain representations concerning the existence of any 11 unrevoked testamentary instrument. If any such instrument is not 12 being offered for probate by the applicant, nor has been otherwise 13 offered for probate, the court must decline the application for 14 informal appointment. This section is a necessary safeguard 15 against the abuse of the informal process. 16 17 Part 4 18 19 Formal Testacy and Appointment Proceedings 20 21 Section 623401. A formal testacy proceeding is litigation to 22 determine whether a decedent left a valid will. A formal testacy 23 proceeding must be commenced by an interested person filing and 24 serving a summons and a petition as described in Section 25 623402(a) in which he requests that the court, after notice and 26 hearing, enter an order probating a will, or a petition to set aside an 27 informal probate of a will or to prevent informal probate of a will 28 which is the subject of a pending application, or a petition in 29 accordance with Section 623402(b) for an order that the decedent 30 died intestate. 31 A petition may seek formal probate of a will without regard to 32 whether the same or a conflicting will has been informally 33 probated. A formal testacy proceeding may, but need not, involve 34 a request for appointment of a personal representative. 35 During the pendency of a formal testacy proceeding, the court 36 shall not act upon any application for informal probate of any will 37 of the decedent or any application for informal appointment of a 38 personal representative of the decedent. 39 Unless a petition in a formal testacy proceeding also requests 40 confirmation of the previous informal appointment, a previously 41 appointed personal representative, after receipt of notice of the 42 commencement of a formal probate proceeding, must refrain from 43 exercising his power to make any further distribution of the estate[1243] 123 1 during the pendency of the formal proceeding. A petitioner who 2 seeks the appointment of a different personal representative in a 3 formal proceeding also may request an order restraining the acting 4 personal representative from exercising any of the powers of his 5 office and requesting the appointment of a special administrator. 6 In the absence of a request, or if the request is denied, the 7 commencement of a formal proceeding has no effect on the powers 8 and duties of a previously appointed personal representative other 9 than those relating to distribution. 10 11 REPORTER’S COMMENTS 12 This section establishes the formal testacy proceeding and 13 prescribes the effect of a formal proceeding on an informal probate 14 proceeding. The word ‘testacy’ as used in this section 15 encompasses any determination with respect to the testacy status 16 of the decedent including that the decedent died without a will. 17 See Section 621201 (48). Although not specifically listed, the six 18 uses for a formal testacy proceeding are: (1) an original 19 proceeding to secure probate of a will; (2) a proceeding to 20 corroborate a previous informal probate; (3) a proceeding to block 21 a pending application for informal probate or to prevent informal 22 application from occurring thereafter; (4) a proceeding to 23 contradict a previous order of informal probate; (5) a proceeding 24 to secure a declaratory judgment of intestacy or partial intestacy 25 and a determination of heirs; (6) a proceeding to probate a will 26 that has been lost, destroyed, or is otherwise unavailable. 27 The pendency of an action under this section automatically 28 suspends any informal probate proceeding. Unless the petitioner 29 requests confirmation of a previous informal appointment, a 30 formal testacy proceeding suspends the personal representative’s 31 power of distribution but has no effect on the representative’s other 32 powers. If the petitioner seeks the appointment of a different 33 personal representative, the court may further restrain the 34 representative’s powers, specifying the court’s power over 35 representatives. See also Sections 623607 and 623611. It should 36 be noted that a ‘distribution’ does not include a payment of claims. 37 See Section 621121(10) for the definition of ‘distributee’ and 38 Section 623807 regarding payment of claims. 39 Under this section, any interested person may initiate a formal 40 testacy proceeding. See Section 621201 (23) for the definition of 41 ‘interested person.’ [1243] 124 1 A formal testacy proceeding need not follow an informal 2 proceeding and can be commenced without regard to whether a 3 personal representative has been appointed. 4 The representative’s power of distribution is automatically 5 suspended upon the representative’s receipt of notice of the 6 proceeding. If there is a contest over who should serve, the court 7 has the discretion to restrict further the representative’s power. 8 The 2010 amendment deleted ‘may’ and replaced it with ‘must’ 9 and added ‘and serving a summons’ to clarify that a summons and 10 petition are required to commence a formal proceeding, including 11 a formal testacy proceeding. See 2010 amendments to certain 12 definitions in S.C. Code §621201 and also see §§1423280, 13 621304, and Rules 1 and 81, SCRCP. 14 15 Section 623402. (a) Petitions for formal probate of a will, or 16 for adjudication of intestacy with or without request for 17 appointment of a personal representative, must be directed to the 18 court, request a judicial order after notice and hearing, and contain 19 further statements as indicated in this section. A petition for 20 formal probate of a will: 21 (1) requests an order as to the testacy of the decedent in 22 relation to a particular instrument which may or may not have been 23 informally probated and determining the heirs; 24 (2) contains the statements required for informal 25 applications as stated in the seven six subitems under Section 26 623301(a)(1), and the statements required by subitems (ii) and (iii) 27 of Section 623301(a)(2); 28 (3) states whether the original of the last will of the decedent 29 is in the possession of the court or accompanies the petition. 30 If the original will is neither in the possession of the court nor 31 accompanies the petition and no authenticated copy of a will 32 probated in another jurisdiction accompanies the petition, the 33 petition also must state the contents of the will, and indicate that it 34 is lost, destroyed, or otherwise unavailable. 35 (b) A petition for adjudication of intestacy and appointment of 36 an administrator in intestacy must request a judicial finding and 37 order that the decedent left no will and determining the heirs, 38 contain the statements required by (1) and (4) of Section 623301(a) 39 and indicate whether administration under Part 5 [Sections 623501 40 et seq.] is sought. A petition may request an order determining 41 intestacy and heirs without requesting the appointment of an 42 administrator, in which case, the statements required by subitem 43 (ii) of Section 623301(a)(4) above may be omitted. [1243] 125 1 2 REPORTER’S COMMENTS 3 An interested person who petitions the court for a formal testacy 4 proceeding must comply with the requirements of this section 5 concerning the contents of the petition. Regardless of whether the 6 formal testacy proceeding concerns a testate or intestate decedent, 7 the petitioner must request an order determining the decedent’s 8 heirs. Requiring the determination of heirship precludes later 9 questions that might arise at the time of distribution. If formal 10 probate of a will is requested, the petition must provide the court 11 with information concerning the location of the original will. If 12 the original is ‘lost, destroyed, or otherwise unavailable, the 13 petition must contain the terms of the missing will. The petition 14 should indicate whether administration under Part 5 of this article 15 is desired. Once a formal testacy proceeding has been initiated, 16 notice must be given as specified in Section 623403. 17 If a formal order of appointment is sought because of a dispute 18 over who should serve, Section 623414 describes the appropriate 19 procedure. 20 21 Section 623403. (a) Upon commencement of a formal testacy 22 proceeding or at any time after that, the court shall fix a time and 23 place of hearing. Notice must be given in the manner prescribed 24 by Section 621401 by the petitioner to the persons herein 25 enumerated and to any additional person who has filed a demand 26 for notice under Section 623204. The following persons must be 27 properly served with summons and petition: the surviving spouse, 28 children, and other heirs of the decedent (regardless of whether the 29 decedent died intestate and determined as if the decedent died 30 intestate), the devisees, and personal representatives named in any 31 will that is being, or has been, probated, or offered for informal or 32 formal probate in the county, or that is known by the petitioner to 33 have been probated, or offered for informal or formal probate 34 elsewhere, and any personal representative of the decedent whose 35 appointment has not been terminated. 36 (b) If it appears by the petition or otherwise that the fact of the 37 death of the alleged decedent may be in doubt, or on the written 38 demand of any interested person, a copy of the summons, petition, 39 and notice of the hearing on the petition shall be sent by registered 40 mail to the alleged decedent at his last known address. The court 41 shall direct the petitioner to report the results of, or make and 42 report back concerning, a reasonably diligent search for the alleged[1243] 126 1 decedent in any manner that may seem advisable, including any or 2 all of the following methods: 3 (1) by inserting in one or more suitable periodicals a notice 4 requesting information from any person having knowledge of the 5 whereabouts of the alleged decedent; 6 (2) by notifying law enforcement officials and public 7 welfare agencies in appropriate locations of the disappearance of 8 the alleged decedent; 9 (3) by engaging the services of an investigator. 10 The costs of any search so directed shall be paid by the 11 petitioner if there is no administration or by the estate of the 12 decedent in case there is administration. 13 14 REPORTER’S COMMENTS 15 Section 623403(a) specifies those persons to whom notice of a 16 formal testacy proceeding must be given. If another will has been 17 or is being offered for probate within the county, those persons 18 named in that will must be notified. The petitioner is not required 19 to determine whether another will has been probated or offered for 20 probate in other counties, but if the petitioner has actual 21 knowledge of such a will, the devisees and executors named 22 therein must be notified. 23 If the notice which is given does not fully comply with the 24 requirements of this section, that defect is not necessarily fatal to 25 the validity of an order. Section 623106 provides that an order is 26 valid as to those given notice though less than all interested 27 persons were given notice. Section 6231001(b) allows the court to 28 confirm or amend as it affects those persons who were not notified 29 of the formal testacy proceeding. 30 Section 623403(b) sets out the additional steps which must be 31 taken if the fact of the decedent’s death is in doubt. In addition to 32 giving notice to the alleged decedent, the petitioner must make a 33 ‘reasonably diligent search’ for that individual. The court is to 34 determine whether the search has been sufficiently diligent in light 35 of the circumstances. In the event the alleged decedent is in fact 36 alive or if the court is not convinced of the death of the alleged 37 decedent, the petitioner is responsible for the costs of the search. 38 In the event the court finds the alleged decedent is dead, the estate 39 of that decedent will bear the cost of the search. 40 The 2010 amendment revised subsection (a) to add ‘or at any 41 time after that,’ to delete Notice at the beginning of the third 42 sentence and replacing it with ‘The following persons’ and also 43 including the requirement for a summons and petition. The 2010[1243] 127 1 amendment also revised subsection (b) to clarify that a summons 2 and petition are required to commence a formal proceeding, 3 including a formal testacy proceeding. See 2010 amendments to 4 certain definitions in S.C. Code §621201 and also see §§1423280, 5 621304, and Rules 1 and 81, SCRCP. 6 7 Section 623404. Any party to a formal proceeding who opposes 8 the probate of a will for any reason shall state in his pleadings his 9 objections to probate of the will. 10 11 REPORTER’S COMMENTS 12 In order to object to the formal probate of a will, the objections 13 must be stated in a pleading. The filing of such a response makes 14 the proceeding a contested matter, and a hearing must be held in 15 accordance with Section 623406. 16 17 Section 623405. If a petition in a testacy proceeding is 18 unopposed, the court may order probate or intestacy on the 19 strength of the pleadings if satisfied that the conditions of Section 20 623409 have been met or conduct a hearing in open court and 21 require proof of the matters necessary to support the order sought. 22 If evidence concerning execution of the will is necessary, the 23 affidavit (including an affidavit of selfproof executed in 24 compliance with Section 622503) or testimony of one of any 25 attesting witnesses to the instrument is sufficient. If the affidavit 26 or testimony of an attesting witness is not available, execution of 27 the will may be proved by other evidence or affidavit. 28 29 REPORTER’S COMMENTS 30 If proper notice has been given and no objection has been stated in 31 a pleading, the proceeding is an uncontested one. The court may 32 enter relief on the pleadings alone and without a hearing if the 33 court finds that the alleged decedent is dead, venue is proper, and 34 the proceeding is a timely one. Even in the absence of an 35 objection, the court may require a hearing and evidence concerning 36 the execution of the will. In the latter case, the section provides 37 that the affidavit or testimony of one or more witnesses is 38 sufficient proof of such execution. 39 Section 1423330 establishes a mechanism for the judge to 40 receive the deposition of an attesting witness who lives at a 41 distance from the court. Under Section 623405, the court is given 42 more flexibility in considering evidence of proof of execution of 43 the will in an uncontested proceeding. [1243] 128 1 2 Section 623406. (a) If evidence concerning execution of an 3 attested will which is not selfproved is necessary in contested 4 cases, the testimony of at least one of the attesting witnesses is 5 required. Such testimony is not required if: (1) no attesting 6 witness is within the State; (2) no attesting witness is competent to 7 testify; (3) no attesting witness can be found; or (4) all attesting 8 witnesses are otherwise unable to testify. Due execution of an 9 attested will may be proved by other evidence. 10 (b) If the will is selfproved, compliance with signature 11 requirements for execution and other requirements of execution are 12 presumed subject to rebuttal, without the testimony of any witness 13 upon filing the will and the acknowledgment and affidavits 14 annexed or attached thereto, unless there is proof of fraud or 15 forgery affecting the acknowledgment or affidavit. In a contested 16 case in which the proper execution of a will is at issue: 17 (1) if the will is selfproved pursuant to Section 622503, the 18 will satisfies the requirements for execution, subject to rebuttal, 19 without the testimony of any attesting witness, upon filing the will 20 and the acknowledgment and affidavits annexed or attached to it; 21 (2) if the will is notarized pursuant to Section 622503(c), but 22 not selfproved, there is a rebuttable presumption that the will 23 satisfies the requirements for execution upon filing the will; 24 (3) if the will is witnessed pursuant to Section 622502, but not 25 notarized or selfproved, the testimony of at least one of the 26 attesting witnesses is required to establish proper execution if the 27 witness is within this state, competent, and able to testify. Proper 28 execution may be established by other evidence, including an 29 affidavit of an attesting witness. An attestation clause that is signed 30 by the attesting witnesses raises a rebuttable presumption that the 31 events recited in the clause occurred. 32 33 REPORTER’S COMMENTS 34 In the event an objection to a formal testacy proceeding has been 35 received, the evidence necessary to prove the will depends upon 36 whether the will is selfproved or notorized. If the will is not 37 selfproved or notorized, testimony of at least one attesting witness 38 is required. Compliance with the selfproving procedure of Section 39 622503 gives rise to a rebuttable presumption that the will was 40 properly executed, and the testimony of attesting witnesses is not 41 required. The presumption does not extend to other grounds of 42 attack, such as undue influence, lack of testamentary intent or 43 capacity, fraud, duress, mistake, or revocation. [1243] 129 1 2 Section 623407. In contested cases, petitioners who seek to 3 establish intestacy have the burden of establishing prima facie 4 proof of death, venue, and heirship. Proponents of a will have the 5 burden of establishing prima facie proof of due execution in all 6 cases and, if they are also petitioners, prima facie proof of death 7 and venue. Contestants of a will have the burden of establishing 8 undue influence, fraud, duress, mistake, revocation, or lack of 9 testamentary intent or capacity. Parties have the ultimate burden 10 of persuasion as to matters with respect to which they have the 11 initial burden of proof. If a will is opposed by the petition for 12 probate of a later will revoking the former, it must be determined 13 first whether the later will is entitled to probate, and if a will is 14 opposed by a petition for a declaration of intestacy, it must be 15 determined first whether the will is entitled to probate. 16 17 REPORTER’S COMMENTS 18 In all contested formal testacy proceedings, the petitioner bears the 19 burden of proving death and venue. If the petitioner is attempting 20 to establish that the decedent died intestate, he must also prove 21 heirship. Any person asserting that a will is valid bears the burden 22 of proving due execution. 23 This section also specifies the order of proof when two wills are 24 offered and the later will purports to revoke the earlier. Proof of 25 the later will is considered first, and an earlier will cannot be 26 probated unless the later will is found to be invalid. 27 28 Section 623408. A final order of a court of another state 29 determining testacy, or the validity or construction of a will made 30 in a proceeding involving notice to and an opportunity for contest 31 by all interested persons, must be accepted as determinative by the 32 courts of this State if it includes, or is based upon, a finding that 33 the decedent was domiciled at his death in the state where the 34 order was made. 35 36 REPORTER’S COMMENTS 37 This section makes it incumbent upon the local court to give full 38 faith and credit to final orders of courts in another jurisdiction in 39 the United States determining testacy or the validity or 40 construction of a will regardless of whether the parties before the 41 local court were personally before the foreign court. However, the 42 foreign proceeding must have provided the requisite notice and[1243] 130 1 opportunity for contest or construction for the resulting order to be 2 binding locally. 3 This section does not apply unless the foreign proceeding has been 4 previously concluded. If a local proceeding is concluded before 5 completion of the foreign formal proceedings, local law will 6 control. 7 If there is a contest concerning the decedent’s domicile in formal 8 proceedings commenced in different jurisdictions, Section 623202 9 applies. 10 Local courts are bound by the foreign court’s determination of the 11 validity or construction of the will so long as this determination is 12 part of a final order. 13 14 Section 623409. Upon proof of service of the summons and 15 petition, and after any hearing and notice that may be necessary, if 16 the court finds that the testator is dead, venue is proper, and that 17 the proceeding was commenced within the limitation prescribed by 18 Section 623108, it shall determine the decedent’s domicile at 19 death, his heirs (regardless of whether the decedent died intestate 20 and determined as if the decedent died intestate), and his state of 21 testacy. Any will found to be valid and unrevoked must be 22 formally probated. Termination of any previous informal 23 appointment of a personal representative, which may be 24 appropriate in view of the relief requested and findings, is 25 governed by Section 623612. The petition must be dismissed or 26 appropriate amendment allowed if the court is not satisfied that the 27 alleged decedent is dead. A will from a place which does not 28 provide for probate of a will after death may be proved for probate 29 in this State by a duly authenticated certificate of its legal 30 custodian that the copy introduced is a true copy and that the will 31 has become effective is not ineligible for probate under the law of 32 the other place. 33 34 REPORTER’S COMMENTS 35 This section governs the scope and content of the formal testacy 36 order. Every order must contain the court’s findings regarding 37 whether the alleged decedent is dead, the decedent’s domicile at 38 death, whether venue is proper, and whether the proceeding is a 39 timely one. Regardless of whether the decedent is alleged to have 40 died intestate, the order must contain a determination of heirs and 41 testacy. If the court is not convinced of the alleged decedent’s 42 death, the court may dismiss the proceeding or it may permit 43 amendment of the proceeding so as to make it a proceeding to[1243] 131 1 protect the estate of a missing and therefore ‘disabled’ person 2 under Article 5. Provision is made for proof of a will from a 3 foreign jurisdiction which does not provide for probate of wills. 4 The 2010 amendment revised this section to delete ‘After the 5 time required for any notice has expired, upon’ at the beginning 6 and replace it with ‘Upon’ proof of ‘service of the summons and 7 petition’ and also included the notice requirement for any hearing. 8 The foregoing amendment was intended to clarify that a summons 9 and petition are required to commence a formal proceeding, 10 including a formal testacy proceeding. See 2010 amendments to 11 certain definitions in S.C. Code §621201 and also see §§1423280, 12 621304, and Rules 1 and 81, SCRCP. 13 14 Section 623410. (A) If two or more instruments are offered 15 for probate before a final order is entered in a formal testacy 16 proceeding, more than one instrument may be probated if neither 17 expressly revokes the other or contains provisions which work a 18 total revocation by implication. If more than one instrument is 19 probated, the order shall indicate what provisions control in respect 20 to the nomination of an executor, if any. The order may, but need 21 not, indicate how any provisions of a particular instrument are 22 affected by the other instrument. 23 (B) After a final order in a testacy proceeding has been entered, 24 no petition for probate of any other instrument of the decedent may 25 be entertained, except incident to a petition to vacate or modify a 26 previous probate order and subject to the time limits of Section 27 623412. 28 29 REPORTER’S COMMENTS 30 An order in a formal testacy proceeding ends the time within 31 which it is possible to probate afterdiscovered wills, though subject 32 to the provisions for vacation or modification of that order under 33 Sections 623412 and 623413. While a determination of heirs is 34 not barred by the ten year limitation under Section 623108, a 35 judicial determination of heirs in a final order is conclusive unless 36 the order is vacated or modified. 37 Under this section the court may admit more than one will to 38 probate if the court in the exercise of its sound discretion 39 determines that the instruments can be construed together. 40 41 Section 623411. If it becomes evident in the course of a formal 42 testacy proceeding that, though one or more instruments are[1243] 132 1 entitled to be probated, the decedent’s estate is or may be partially 2 intestate, the court shall enter an order to that effect. 3 4 Section 623412. Subject to appeal and subject to vacation as 5 provided herein and in Section 623413, a formal testacy order 6 under Sections 623409 through 623411, including an order that the 7 decedent left no valid will and determining heirs, is final as to all 8 persons with respect to all issues concerning the decedent’s estate 9 that the court considered or might have considered incident to its 10 rendition relevant to the question of whether the decedent left a 11 valid will, and to the determination of heirs, except that: 12 (1) The court shall entertain a petition for modification or 13 vacation of its order and probate of another will of the decedent if 14 it is shown that the proponents of the lateroffered will were 15 unaware of its existence at the time of the earlier proceeding or 16 were unaware of the earlier proceeding and were given no notice 17 thereof, except by publication. 18 (2) If intestacy of all or part of the estate has been ordered, the 19 determination of heirs of the decedent may be reconsidered if it is 20 shown that one or more persons were omitted from the 21 determination and it is also shown that the persons were unaware 22 of their relationship to the decedent, were unaware of his death, or 23 were given no notice of any proceeding concerning his estate, 24 except by publication. 25 (3) A petition for vacation under either (1) or (2) above must 26 be filed prior to the earlier of the following time limits: 27 (i) If a personal representative has been appointed for the 28 estate, the time of entry of any order approving final distribution of 29 the estate. 30 (ii) Whether or not a personal representative has been 31 appointed for the estate of the decedent, the time prescribed by 32 Section 623108 when it is no longer possible to initiate an original 33 proceeding to probate a will of the decedent. 34 (iii) Twelve months after the entry of the order sought to be 35 vacated. 36 (4) The order originally rendered in the testacy proceeding may 37 be modified or vacated, if appropriate under the circumstances by 38 the order of probate of the lateroffered will or the order 39 redetermining heirs. 40 (5) The finding of the fact of death is conclusive as to the 41 alleged decedent only if notice of the hearing on the petition in the 42 formal testacy proceeding was sent by registered or certified mail 43 addressed to the alleged decedent at his last known address and the[1243] 133 1 court finds that a search under Section 623403(b) was made. If the 2 alleged decedent is not dead, even if notice was sent and search 3 was made, he may recover estate assets in the hands of the 4 personal representative. In addition to any remedies available to 5 the alleged decedent by reason of any fraud or intentional 6 wrongdoing, the alleged decedent may recover any estate or its 7 proceeds from distributees that is in their hands, or the value of 8 distributions received by them, to the extent that any recovery 9 from distributees is equitable in view of all of the circumstances. 10 11 REPORTER’S COMMENTS 12 This section establishes the exceptions to the res judicata effect of 13 a formal testacy order. If a decedent’s will has been probated and 14 a final order issued, the court may modify or vacate the order only 15 if: (1) the proponents of a lateroffered will had no knowledge of 16 the existence of the will at the time of the proceeding; or (2) the 17 proponents of the later will did not have actual knowledge of the 18 earlier proceeding and were given no notice of it other than by 19 publication. If the final order determined that all or a part of the 20 estate was intestate, that order may be vacated or modified only if 21 the petitioner can establish: (1) that one or more heirs were 22 omitted and (2) that the omitted heir or heirs had no knowledge of 23 their status as an heir, that they were unaware the decedent had 24 died, or that they were given no notice of the proceeding other than 25 by publication. 26 Section 623412(3) prescribes the time limits for filing a petition 27 for vacation under this section. The petition must be filed prior to 28 the earlier of the following: (1) in an estate where a personal 29 representative has been appointed, the entry of an order approving 30 final distribution; (2) the tenyear ultimate time limit under Section 31 623108; or (3) twelve months from the entry of the formal testacy 32 order. The individual submitting a petition for vacation bears the 33 burden of proving that modification or vacation of the order is 34 ‘appropriate under the circumstances.’ 35 This section also specifies the procedure to be followed when an 36 alleged decedent is discovered to be alive subsequent to a final 37 order finding the fact of death. In such a situation, the alleged 38 decedent may recover assets retained by the personal 39 representative. The heirs and distributees may be required to 40 restore the ‘estate or its proceeds’ if it is ‘equitable in view of all 41 the circumstances.’ 42[1243] 134 1 Section 623413. For good cause shown, an order in a formal 2 testacy proceeding may be modified or vacated within the time 3 allowed for appeal. 4 5 REPORTER’S COMMENTS 6 This section deals with the modification or vacation of an order 7 during the pendency of an appeal or within the time allowed for 8 appeal. Broadly speaking, the power to vacate or modify an order 9 under Section 623412 provides the court with a means of dealing 10 with facts not before the court during the proceeding. Section 11 623413 gives the court the option of reconsidering its decision 12 although it has no new evidence before it. 13 14 Section 623414. (a) A formal proceeding for adjudication 15 regarding the priority or qualification of one who is an applicant 16 for appointment as a personal representative, or of one who 17 previously has been appointed a personal representative in 18 informal proceedings, if an issue concerning the testacy of the 19 decedent is or may be involved, is governed by Section 623402, as 20 well as by this section. In other cases, the petition shall contain or 21 adopt the statements required by Section 623301(a)(1) and 22 describe the question relating to priority or qualification of the 23 personal representative which is to be resolved. If the proceeding 24 precedes any appointment of a personal representative, it shall stay 25 any pending informal appointment proceedings as well as any 26 commenced thereafter. If the proceeding is commenced after 27 appointment, the previously appointed personal representative, 28 after receipt of notice thereof, shall refrain from exercising any 29 power of administration except as necessary to preserve the estate 30 or unless the court orders otherwise. 31 (b) After service of the summons and petition to interested 32 persons, including all persons interested in the administration of 33 the estate as successors under the applicable assumption 34 concerning testacy, any previously appointed personal 35 representative and any person having or claiming priority for 36 appointment as a personal representative, the court shall determine 37 who is entitled to appointment under Section 623203, make a 38 proper appointment, and, if appropriate, terminate any prior 39 appointment found to have been improper as provided in cases of 40 removal under Section 623611. 41 42 REPORTER’S COMMENTS [1243] 135 1 If there is a question concerning the priority or qualifications of a 2 personal representative, the issue may be combined with a request 3 for the determination of testacy in a petition for a formal testacy 4 proceeding. However, the formal appointment of a personal 5 representative can be considered alone. If the proceeding under 6 this section is combined with a formal testacy proceeding, the 7 petition must not only comply with the requirements of a petition 8 for formal testacy, but must also describe the issue regarding 9 appointment. Once a proceeding has been initiated under this 10 section alone, the court must receive a petition which complies 11 with the requirements of Section 623402 and describes the issue 12 regarding appointment. Once initiated, a proceeding under this 13 section stays any pending informal appointment proceedings. If a 14 representative had been appointed prior to this proceeding, the 15 filing of a petition under this section automatically restraints all of 16 the representative’s powers which are not necessary to preserve the 17 estate. Under this section, service of the summons and petition 18 must be given to all interested persons as defined in subparagraph 19 (b). 20 Formal proceedings concerning appointment should be 21 distinguished from administration under Part 5. The former 22 includes any proceeding after notice involving a request for an 23 appointment. Administration under Part 5 begins with a formal 24 proceeding and may be requested in addition to a ruling 25 concerning testacy or appointment, but it is descriptive of a special 26 proceeding with a different scope and purpose than those 27 concerned merely with establishing the bases for an 28 administration. A personal representative appointed in a formal 29 proceeding may or may not be subject to administration under Part 30 5. Procedures for securing the appointment of a new personal 31 representative after a previous assumption as to testacy under 32 Section 623612 may be informal or related to pending formal 33 proceedings concerning testacy. 34 When an order authorizing appointment is issued, the personal 35 representative must then comply with Section 623601 et seq., 36 concerning bond requirements. 37 The 2010 amendment revised subsection (b) to delete ‘notice’ 38 and replace it with ‘service of the summons and petition’ to clarify 39 that a summons and petition are required to commence a formal 40 proceeding, including a formal proceeding concerning 41 appointment of a personal representative as referred to in this 42 section. See 2010 amendments to certain definitions in S.C. Code[1243] 136 1 §621201 and also see §§1423280, 621304, and Rules 1 and 81, 2 SCRCP. 3 4 Part 5 5 6 Administration Under Part 5 7 8 Section 623501. Administration under Part 5 [Sections 623501 9 et seq.] is a single in rem proceeding to secure complete 10 administration and settlement of a decedent’s estate under the 11 continuing authority of the court which extends until entry of an 12 order approving distribution of the estate and discharging the 13 personal representative or other order terminating the proceeding. 14 A personal representative under Part 5 [Sections 623501 et seq.] is 15 responsible to the court, as well as to the interested parties persons, 16 and is subject to directions concerning the estate made by the court 17 on its own motion or on the motion of any interested party. Except 18 as otherwise provided in this part, or as otherwise ordered by the 19 court, a personal representative under Part 5 [Sections 623501 et 20 seq.] has the same duties and powers as a personal representative 21 who is not subject to administration under Part 5 [Sections 623501 22 et seq.]. 23 24 REPORTER’S COMMENTS 25 This section and the following sections of this part describe an 26 optional procedure for settling an estate in one continuous 27 proceeding in the court. The proceeding is a single ‘in rem’ action 28 designed to secure complete administration and settlement of a 29 decedent’s estate when it is desired to make sure that every step in 30 probate is adjudicated with notice and hearing. If administration 31 under Part 5 is not requested or ordered, there may be no 32 compelling reason to employ all the available formal proceedings 33 in the administration of an estate. 34 35 Section 623502. A petition for administration under Part 5 36 [Sections 623501 et seq.] may be filed by any interested person or 37 by a personal representative at any time, a prayer for 38 administration under Part 5 [Sections 623501 et seq.] may be 39 joined with a petition in a testacy or appointment proceeding, or 40 the court may order administration under Part 5 [Sections 623501 41 et seq.] on its own motion. If the testacy of the decedent and the 42 priority and qualification of any personal representative have not 43 been adjudicated previously, the petition for administration under[1243] 137 1 Part 5 [Sections 623501 et seq.] shall include the matters required 2 of a petition in a formal testacy proceeding and the notice 3 requirements and procedures applicable to a formal testacy 4 proceeding apply. If not previously adjudicated, the court shall 5 adjudicate the testacy of the decedent and questions relating to the 6 priority and qualifications of the personal representative in any 7 case involving a request for administration under Part 5 [Sections 8 623501 et seq.], even though the request for administration under 9 Part 5 [Sections 623501 et seq.] may be denied. After service of 10 the summons and petition and upon notice to interested persons, 11 the court shall order administration under Part 5 [Sections 623501 12 et seq.] of a decedent’s estate: (1) if the decedent’s will directs 13 administration under Part 5 [Sections 623501 et seq.], it shall be 14 ordered unless the court finds that circumstances bearing on the 15 need for administration under Part 5 [Sections 623501 et seq.] 16 have changed since the execution of the will and that there is no 17 necessity for administration under Part 5 [Sections 623501 et seq.]; 18 (2) if the decedent’s will directs no administration under Part 5 19 [Sections 623501 et seq.], then administration shall be ordered 20 only upon a finding that it is necessary for protection of persons 21 interested in the estate; or (3) in other cases if the court finds that 22 administration under Part 5 [Sections 623501 et seq.] is necessary 23 under the circumstances. 24 25 REPORTER’S COMMENTS 26 Under this section any ‘interested person’ or the personal 27 representative may request administration under Part 5, or the 28 probate court may order it on its own motion. If the decedent’s 29 will directs such administration it must be ordered unless the court 30 finds circumstances have changed since execution of the will. 31 Likewise, where the will directs no such administration, it will be 32 ordered only if the court finds it is necessary for protection of 33 interested persons. 34 Even though it is possible that a request for administration under 35 Part 5 may be made after a determination of testacy has been 36 made, this section requires the petition for such administration to 37 include matters necessary to put the issue of testacy before the 38 court. The result is that the question of testacy will be adjudicated. 39 While administration under Part 5 compels a judicial settlement of 40 an estate there are other sections which grant a judicial review and 41 settlement. This fact leads to the conclusion that administration 42 under Part 5 will be valuable primarily when there is some[1243] 138 1 advantage in a single judicial proceeding which will adjudicate all 2 major points involved in an estate settlement. 3 The 2010 amendment revised this section to add ‘service of the 4 summons and petition and upon’ in the fourth sentence to clarify 5 that a summons and petition and notice of any hearing are required 6 for a formal proceeding for administration under Part 5. See 2010 7 amendments to certain definitions in S.C. Code §621201 and also 8 see §§1423280, 621304, and Rules 1 and 81, SCRCP. 9 10 Section 623503. (a) The pendency of a proceeding for 11 administration under Part 5 [Sections 623501 et seq.] of a 12 decedent’s estate stays action on any informal application then 13 pending or thereafter filed. 14 (b) If a will has been previously probated in informal 15 proceedings, the effect of the filing of a petition for administration 16 under Part 5 [Sections 623501 et seq.] is as provided for formal 17 testacy proceedings by Section 623401. 18 (c) After service of the summons and petition upon the 19 personal representative and notice of the filing of a petition for 20 administration under Part 5 [Sections 623501 et seq.], a personal 21 representative who has been appointed previously shall not 22 exercise his power to distribute any estate. The filing of the 23 petition does not affect his other powers and duties unless the court 24 restricts the exercise of any of them pending full hearing on the 25 petition. 26 27 REPORTER’S COMMENTS 28 This section deals with the effect of administration under Part 5 on 29 other proceedings. Primarily pendency of such administration 30 does two things: (1) it stays action on any informal proceedings 31 and (2) it prohibits the personal representative from exercising his 32 power to distribute the estate. However, the filing of the petition 33 does not otherwise affect the powers and duties of the personal 34 representative unless the court restricts the exercise of such power. 35 In regard to the effect of such action on the personal 36 representative’s ability to create good title in a purchaser of estate 37 assets, it should be noted that such a power is not hampered by the 38 fact that the personal representative may breach a duty created by 39 statute or otherwise. However, the personal representative may be 40 held for contempt of court. In any event, the pendency of the 41 proceeding could be recorded as is usual under a lis pendens. 42 The 2010 amendment deleted ‘he has received’ and added 43 ‘service of the summons and petition upon the personal[1243] 139 1 representative and’ to the first sentence to clarify that a summons 2 and petition are required to commence a formal proceeding, 3 including a formal proceeding under Part 5. See 2010 4 amendments to certain definitions in S.C. Code §621201 and also 5 see §§1423280, 621304, and Rules 1 and 81, SCRCP. 6 7 Section 623504. Unless restricted by the court, a personal 8 representative under Part 5 [Sections 623501 et seq.] has, without 9 interim orders approving exercise of a power, all powers of 10 personal representatives under this Code, but he shall not exercise 11 his power to make any distribution of the estate without prior order 12 of the court. Any other restriction on the power of a personal 13 representative which may be ordered by the court must be 14 endorsed on his letters of appointment and any court certification 15 thereof, and unless so endorsed is ineffective as to persons dealing 16 in good faith with the personal representative. 17 18 REPORTER’S COMMENTS 19 This section acknowledges that the powers of a personal 20 representative in an administration under Part 5 are the same as in 21 any other administration unless restricted by the court and 22 endorsed on the letters of appointment. If not so endorsed, the 23 restrictions are ineffective as to persons dealing with the estate in 24 good faith. The practical effect of this provision is to require 25 persons dealing with the personal representative to examine the 26 representative’s letters. 27 28 Section 623505. Unless otherwise ordered by the court, 29 administration under Part 5 [Sections 623501 et seq.] is terminated 30 by order in accordance with time restrictions, notices, and contents 31 of orders prescribed for proceedings under Section 6231001. 32 Interim orders approving or directing partial distributions or 33 granting other relief may be issued by the court at any time during 34 the pendency of an administration under Part 5 [Sections 623501 et 35 seq.] on the application of the personal representative or any 36 interested person. 37 38 REPORTER’S COMMENTS 39 This section requires additional notice for a closing order. The 40 requirement for notice of interim orders is left to the discretion of 41 the court except to the extent such notice is required by other 42 sections, see e.g. Section 623204, which entitles any interested 43 person to notice of any interim order. [1243] 140 1 2 Part 6 3 4 Personal Representative; Appointment, 5 Control, and Termination of Authority 6 7 Section 623601. Prior to receiving letters, a personal 8 representative shall qualify by filing with the appointing court any 9 required bond and a statement of acceptance of the duties of the 10 office. 11 12 REPORTER’S COMMENTS 13 This and related sections of this part describe details and 14 conditions of appointment which apply to all personal 15 representatives without regard to whether the appointment 16 proceeding involved is formal or informal, or whether the personal 17 representative is subject to administration under Part 5. Section 18 621305 authorizes issuance of copies of letters and prescribes their 19 content. The section should be read with Section 623504 which 20 directs endorsement on letters and any court certification of any 21 restrictions of powers of an administrator under Part 5. 22 No formal oath is required of a personal representative. 23 24 Section 623602. By accepting appointment, a personal 25 representative submits personally to the jurisdiction of the court in 26 any proceeding relating to the estate that may be instituted by any 27 interested person. Notice of any proceeding shall be delivered to 28 the personal representative, or mailed to him by ordinary first class 29 mail at his address as listed in the application or petition for 30 appointment or as thereafter reported to the court and to his 31 address as then known to the petitioner. 32 33 REPORTER’S COMMENTS 34 Except for personal representatives appointed pursuant to Section 35 623502, appointees are not deemed to be officers of the appointing 36 court or to be parties in one continuous judicial proceeding that 37 extends until final settlement. See Section 623107. 38 In order to prevent a personal representative who might make 39 himself unavailable to service within the State from affecting the 40 power of the appointing court to enter valid orders affecting him, 41 each appointee is required to consent in advance to the personal 42 jurisdiction of the court in any proceeding relating to the estate that 43 may be instituted against him. The section requires that he be[1243] 141 1 given notice of any such proceeding, which, when considered in 2 the light of 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 to 6 Section 623605 or upon the appointment of a special administrator, 7 a personal representative is not required to file a bond if: 8 (1) all heirs and devisees agree to waive the bond 9 requirement; 10 (2) the personal representative is the sole heir or devisee; 11 (3) the personal representative is a state agency, bank, or 12 trust company, unless the will expressly requires a bond; or 13 (4) the personal representative is named in the will, unless 14 the will expressly requires a bond. 15 If, pursuant to Section 623203(a), the court appoints as personal 16 representative a nominee of a personal representative named in a 17 will, the court may in its discretion decide not to require bond. 18 (B) Where a bond is required of the personal representative or 19 administrator of an estate by law or by the will, it may be waived 20 under the following conditions: 21 (1) the personal representative or administrator by affidavit 22 at the time of applying for appointment as such certifies to the 23 court that the gross value of the estate will be less than twenty 24 thousand dollars, that the assets of the probate estate are sufficient 25 to pay all claims against the estate, and that the personal 26 representative or administrator agrees to be personally liable to any 27 beneficiary or other person having an interest in the estate for any 28 negligence or intentional misconduct in the performance of his 29 duties as personal representative or administrator; and 30 (2) all known beneficiaries and other persons having an 31 interest in the estate execute a written statement on a form 32 prescribed by the court that they agree to the bond being waived. 33 This form must be filed with the court simultaneously with the 34 affidavit required by item (1) above. A creditor for purposes of 35 this item (2) is not considered a person having an interest in the 36 estate. 37 The provisions of this subsection (B) are supplemental and in 38 addition to any other provisions of law permitting the waiving or 39 reducing of a bond. Any bond required by Section 623605 may 40 not be waived under the provisions of this section. 41 42 REPORTER’S COMMENTS [1243] 142 1 A bond is required of any personal representative who is not 2 named in a will, including an administrator in intestacy and a 3 special administrator, whether in probate or in intestacy, whether 4 resident or nonresident, but excluding corporate fiduciaries not 5 required to be bonded. However, bond is not required for a 6 personal representative who is the sole heir or devisee. Moreover, 7 all heirs and devisees can agree to waive any bond requirement. A 8 bond is not required of any personal representative who is named 9 in a will, unless appointed as a special administrator or unless the 10 will or some interested person under Section 623605, requires a 11 bond. 12 13 Section 623604. If bond is required and the provisions of the 14 will or order do not specify the amount, unless stated in his 15 application or petition, the person qualifying shall file a statement 16 under oath with the court indicating his best estimate of the value 17 of the personal estate of the decedent and of the income expected 18 from the personal estate during the next year, and he shall execute 19 and file a bond with the court, or give other suitable security, in an 20 amount not less than the estimate. The court shall determine that 21 the bond is duly executed by a corporate surety, or one or more 22 individual sureties whose performance is secured by pledge of 23 personal property, mortgage on real property, or other adequate 24 security. The court may permit the amount of the bond to be 25 reduced by the value of assets of the estate deposited with a 26 domestic financial institution (as defined in Section 626101) in a 27 manner that prevents their unauthorized disposition. Upon 28 application by the personal representative or another interested 29 person or upon the court’s own motion, the court may increase or 30 reduce the amount of the bond, release sureties, dispense with 31 security or securities, or permit the substitution of another bond 32 with the same or different sureties or dispense with the bond. 33 34 REPORTER’S COMMENTS 35 This section permits estimates of value needed to fix the amount of 36 any required bond. A consequence of this procedure is that 37 estimates of value of estates are not required to appear in the 38 petition and applications which will attend every administered 39 estate. Hence, a measure of privacy that is not possible under most 40 existing procedures may be achieved. 41 Release of sureties was formerly interpreted to mean that the 42 probate court might release a surety if he petitioned for relief and 43 established that he reasonably believes himself to be in danger of[1243] 143 1 suffering a loss on account of his suretyship. See Bellinger v. 2 United States Fidelity Co., 115 S.C. 469, 106 S.E. 470 (1921); 3 and McKay v. Donald, 8 Rich. 311 (42 S.C.L. 331) (1855). 4 Section 623604 is more flexible and should not be construed so 5 narrowly as to permit release of sureties only on the limited basis 6 available at prior law. 7 The 2010 amendment deleted ‘On petition of’ at the beginning 8 of the last sentence and added ‘Upon application by’ to allow the 9 personal representative or another interested person to make 10 application to the probate court regarding bond matters as outlined 11 in this section. Unlike a petition, an application does not require a 12 summons or petition. See §621201(1). The 2010 amendment also 13 added ‘upon the court’s own motion’ in the last sentence. 14 15 Section 623605. Any person apparently having an interest in the 16 estate worth in excess of one five thousand dollars, or any creditor 17 having a claim in excess of one five thousand dollars, may make a 18 written demand that a personal representative give bond. The 19 demand must be filed with the court and a copy mailed to the 20 personal representative, if appointment and qualification have 21 occurred. Thereupon, bond is required in an amount determined 22 by the court as sufficient to protect the interest of the person or 23 creditor demanding bond, but the requirement ceases if the person 24 or creditor demanding bond ceases to have an interest in the estate 25 worth in excess of one five thousand dollars or a claim in excess of 26 one five thousand dollars. After he has received notice and until 27 the filing of the bond or cessation of the requirement of bond, the 28 personal representative shall refrain from exercising any powers of 29 his office except as necessary to preserve the estate or to pay the 30 person or creditor demanding bond. Failure of the personal 31 representative to meet a requirement of bond by giving suitable 32 bond within thirty days after receipt of notice is cause for his 33 removal and appointment of a successor personal representative 34 unless good cause is shown for the delay. 35 36 REPORTER’S COMMENTS 37 The demand for bond described in this section may be made in a 38 petition or application for appointment of a personal 39 representative, or may be made after a personal representative has 40 been appointed. The mechanism for compelling bond is designed 41 to function without unnecessary judicial involvement. If demand 42 for bond is made in a formal proceeding, the judge can determine 43 the amount of bond to be required with due consideration for all[1243] 144 1 circumstances. If demand is not made in formal proceedings, 2 methods for computing the amount of bond are provided by statute 3 so that demand can be complied with without resort to judicial 4 proceedings. The information which a personal representative is 5 required by Section 623705 to give each beneficiary includes a 6 statement concerning whether bond has been required. Section 7 623605 is consistent with the general policy of this Code to 8 minimize the formalities of estate administration unless interested 9 parties ask for specific protection. 10 11 Section 623606. (a) The following requirements and 12 provisions apply to any bond required by this part: 13 (1) Bonds shall name the judge of the court as obligee for 14 the benefit of the persons interested in the estate and shall be 15 conditioned upon the faithful discharge by the fiduciary of all 16 duties according to law. 17 (2) Unless otherwise provided by the terms of the approved 18 bond, sureties are jointly and severally liable with the personal 19 representative and with each other. The address of sureties shall 20 be stated in the bond. 21 (3) By executing an approved bond of a personal 22 representative, the surety consents to the jurisdiction of the court 23 which issued letters to the primary obligor in any proceedings 24 pertaining to the fiduciary duties of the personal representative and 25 naming the surety as a party. Notice of any proceeding shall be 26 delivered to the surety or mailed to him by registered or certified 27 mail at his address as listed with the court where the bond is filed 28 and to his address as then known to the petitioner. 29 (4) On petition of a successor personal representative, any 30 other personal representative of the same decedent, or any 31 interested person, a proceeding in the court may be initiated 32 against a surety for breach of the obligation of the bond of the 33 personal representative. 34 (5) The bond of the personal representative is not void after 35 the first recovery but may be proceeded against from time to time 36 until the whole penalty is exhausted. 37 (b) No action or proceeding may be commenced against the 38 surety on any matter as to which an action or proceeding against 39 the primary obligor is barred by adjudication or limitation. 40 41 REPORTER’S COMMENTS 42 This section provides for the terms and conditions of bonds to be 43 furnished by personal representatives. It provides that the judge of[1243] 145 1 the court is the obligee of the bond and that the sureties are jointly 2 and severally liable if they consent to the jurisdiction of the court 3 by executing the bond. 4 5 Section 623607. (a) Upon application of any interested person 6 who appears to have an interest in the estate, the court by 7 temporary order may restrain a personal representative from 8 performing specified acts of administration, disbursement or 9 distribution, or exercise of any powers or discharge of any duties 10 of his office, or make any other order to secure proper performance 11 of his duty, if it appears to the court that the personal 12 representative otherwise may take some action which would 13 jeopardize unreasonably the interest of the applicant or of some 14 other interested person. Persons with whom the personal 15 representative may transact business may be made parties. 16 (b) The matter shall be set for hearing within ten days or at 17 such other times as the parties may agree. Notice as the court 18 directs shall be given to the personal representative and his 19 attorney of record, if any, and to any other parties named defendant 20 in the petition application. 21 22 REPORTER’S COMMENTS 23 This section provides that a person who appears to have an interest 24 in an estate may petition the court for an order to restrain a 25 personal representative from performing acts of administration if it 26 appears to the court that the personal representative may take some 27 action which would jeopardize the interest of the applicant or some 28 other interested person. The matter must be set for hearing on the 29 restraining order within ten days or at such other time as the parties 30 may agree. There is also a provision for notice which must be 31 given to the personal representative, his attorney, and to any other 32 parties named defendant in the petition. 33 The 2010 amendment deleted ‘On petition’ at the beginning of 34 this section and replaced it with ‘Upon application’ so that any 35 person who appears to have an interest in the estate can make 36 application to the probate court to restrain a personal 37 representative. Unlike a petition, an application does not require a 38 summons or petition. See 2010 amendments to certain definitions 39 in §621201(1). 40 41 Section 623608. Termination of appointment of a personal 42 representative occurs as indicated in Sections 623609 to 623612, 43 inclusive. Termination ends the right and power pertaining to the[1243] 146 1 office of personal representative as conferred by this Code or any 2 will, except that a personal representative, at any time prior to 3 distribution or until restrained or enjoined by court order, may 4 perform acts necessary to protect the estate and may deliver the 5 assets to a successor representative. Termination does not 6 discharge a personal representative from liability for transactions 7 or omissions occurring before termination, or relieve him of the 8 duty to preserve assets subject to his control, to account therefor, 9 and to deliver the assets. Termination does not affect the 10 jurisdiction of the court over the personal representative, but 11 terminates his authority to represent the estate in any pending or 12 future proceeding. 13 14 REPORTER’S COMMENTS 15 ‘ Termination,’ as defined by this Section and Sections 623609 16 through 623612 provide definiteness respecting when the rights 17 and powers of a personal representative (who may or may not be 18 discharged of duty and liability by court order) terminate. An 19 order of the court entered under Sections 6231001 may terminate 20 the appointment of and discharge a personal representative. 21 It is to be noted that this section does not relate to jurisdiction over 22 the estate in proceedings which may have been commenced against 23 the personal representative prior to termination. In such cases, a 24 substitution of successor or special representative should occur if 25 the plaintiff desires to maintain his action against the estate. 26 27 Section 623609. The death of a personal representative or the 28 appointment of a conservator for the estate or guardian for the 29 person of a personal representative, terminates his appointment. 30 Until appointment and qualification of a successor or special 31 representative to replace the deceased or protected representative, 32 the representative of the estate of the deceased or protected 33 personal representative, if any, has the duty to protect the estate 34 possessed and being administered by his decedent or ward at the 35 time his appointment terminates, has the power to perform acts 36 necessary for protection, and shall account for and deliver the 37 estate assets to a successor or special personal representative upon 38 his appointment and qualification. 39 40 REPORTER’S COMMENTS 41 This section deals with the termination of a representative by death 42 or disability. The personal representative of the disabled or[1243] 147 1 deceased representative will sometimes succeed to the duties and 2 powers of the office. 3 4 Section 623610. (a) Unless otherwise provided, an order 5 closing an estate as provided in Section 6231001 terminates an 6 appointment of a personal representative and relieves the personal 7 representative’s attorney of record of any further duties to the 8 court. 9 (b) A personal representative may resign his position by filing 10 a written statement of resignation with the court and providing 11 twenty days’ written notice to the persons known to be interested 12 in the estate. If no one applies or petitions for appointment of a 13 successor representative within the time indicated in the notice, the 14 filed statement of resignation is ineffective as a termination of 15 appointment and in any event is effective only upon the 16 appointment and qualification of a successor representative and 17 delivery of the assets to him. When the resignation is effective, the 18 personal representative’s attorney of record shall be relieved of 19 any further duties to the court. 20 21 REPORTER’S COMMENTS 22 Under subparagraph (a) a formal closing immediately terminates 23 the authority of a personal representative. Subparagraph (b) allows 24 resignation of a personal representative. 25 The more informal process for resignation coupled with the 26 comparative ease of securing appointment of a successor, see 27 Sections 623613 through 623618, infra, facilitates the substitution 28 of personal representatives. 29 30 Section 623611. (a) A person interested in the estate may 31 petition for removal of a personal representative for cause at any 32 time. Upon filing of the petition, the court shall fix a time and 33 place for hearing. Notice shall be given by the petitioner to the 34 personal representative, and to other persons as the court may 35 order. Except as otherwise ordered as provided in Section 623607, 36 after service of the summons and petition upon the personal 37 representative and receipt of notice of removal proceedings, the 38 personal representative shall not act except to account, to correct 39 maladministration, or preserve the estate. If removal is ordered, 40 the court also shall direct by order the disposition of the assets 41 remaining in the name of, or under the control of, the personal 42 representative being removed. [1243] 148 1 (b) Cause for removal exists when removal would be in the 2 best interests of the estate, or if it is shown that a personal 3 representative or the person seeking his appointment intentionally 4 misrepresented material facts in the proceedings leading to his 5 appointment, or that the personal representative has disregarded an 6 order of the court, has become incapable of discharging the duties 7 of his office, or has mismanaged the estate or failed to perform any 8 duty pertaining to the office. Unless the decedent’s will directs 9 otherwise, a personal representative appointed at the decedent’s 10 domicile, incident to securing appointment of himself or his 11 nominee as ancillary personal representative, may obtain removal 12 of another who was appointed personal representative in this State 13 to administer local assets. 14 (c) The termination of appointment under this section shall 15 relieve the personal representative’s attorney of record of any 16 further duties to the court. 17 18 REPORTER’S COMMENTS 19 This section deals with the termination of a personal representative 20 by removal for cause. Any interested person may petition the 21 court for the removal of a representative although notice and 22 hearing are required. 23 The 2010 amendment added ‘service of the summons and 24 petition upon the personal representative and’ in the fourth 25 sentence to clarify that a summons and petition are required to 26 commence a formal proceeding, including a formal proceeding to 27 remove a personal representative. See 2010 amendments to certain 28 definitions in S.C. Code §621201 and also see §§1423280, 29 621304, and Rules 1 and 81, SCRCP. 30 31 SECTION 623612. Except as otherwise ordered in formal 32 proceedings, the probate of a will subsequent to the appointment of 33 a personal representative in intestacy or under a will which is 34 superseded by formal probate of another will, or the vacation of an 35 informal probate of a will subsequent to the appointment of the 36 personal representative thereunder, does not terminate the 37 appointment of the personal representative although his powers 38 may be reduced as provided in Section 623401. Termination 39 occurs upon appointment in informal or formal appointment 40 proceedings of a person entitled to appointment under the later 41 assumption concerning testacy. If no request for new appointment 42 is made within thirty days after expiration of time for appeal from 43 the order in formal testacy proceedings, or from the informal[1243] 149 1 probate, changing the assumption concerning testacy, the 2 previously appointed personal representative upon request may be 3 appointed personal representative under the subsequently probated 4 will, or as in intestacy as the case may be. 5 6 REPORTER’S COMMENTS 7 This section and Section 623401 describe the relationship between 8 formal or informal proceedings. The basic assumption of both 9 sections is that an appointment, with attendant powers of 10 management, is separable from the basis of appointment; i.e., 11 intestate or testate?; what will is the last will? Hence, a 12 previously appointed personal representative continues in spite of 13 formal or informal probate that may give another a prior right to 14 serve as personal representative. But, if the testacy status is 15 changed in formal proceedings, the petitioner also may request 16 appointment of the person who would be entitled to serve if his 17 assumption concerning the decedent’s will prevails. Provision is 18 made for a situation where all interested persons are content to 19 allow a previously appointed personal representative to continue to 20 serve even though another has a prior right because of a change 21 relating to the decedent’s will. It is not necessary for the 22 continuing representative to seek a reappointment under the new 23 assumption for Section 623703 is broad enough to require him to 24 administer the estate as intestate, or under the later probated will, if 25 either status is established after he was appointed. Under Section 26 623403, notice of a formal testacy proceeding is required to be 27 given to any previously appointed personal representative. Hence, 28 the testacy status cannot be changed without notice to a previously 29 appointed personal representative. 30 31 Section 623613. Parts 3 and 4 of this article [Sections 623301 et 32 seq. and Sections 623401 et seq.] govern proceedings for 33 appointment of a personal representative to succeed one whose 34 appointment has been terminated. After appointment and 35 qualification, a successor personal representative may be 36 substituted in all actions and proceedings to which the former 37 personal representative was a party, and no notice, process, or 38 claim which was given or served upon the former personal 39 representative need be given to or served upon the successor in 40 order to preserve any position or right the person giving the notice 41 or filing the claim may thereby have obtained or preserved with 42 reference to the former personal representative. Except as 43 otherwise ordered by the court, the successor personal[1243] 150 1 representative has the powers and duties in respect to the continued 2 administration which the former personal representative would 3 have had if his appointment had not been terminated. 4 5 REPORTER’S COMMENTS 6 This section provides that all powers and authority of the initial 7 representative pass to the successor personal representative unless 8 the court provides otherwise. 9 10 Section 623614. A special administrator may be appointed: 11 (1) informally by the court on the application of an interested 12 person when necessary: 13 (a) to protect the estate of a decedent prior to the 14 appointment of a general personal representative or if a prior 15 appointment has been terminated as provided in Section 623609; 16 or 17 (b) for a creditor of the decedent’s estate to institute any 18 proceeding under Section 623803(c); or 19 (c) to take appropriate actions involving estate assets. 20 (2) in a formal proceeding by order of the court on the petition 21 of any interested person and finding, after notice and hearing, that 22 appointment is necessary to preserve the estate or to secure its 23 proper administration including its administration in circumstances 24 where a general personal representative cannot or should not act. 25 If it appears to the court that an emergency exists, appointment 26 may be ordered without notice. 27 28 REPORTER’S COMMENTS 29 Appointment of a special administrator would enable the estate to 30 participate in a transaction which the general personal 31 representative could not, or should not, handle because of conflict 32 of interest. If a need arises because of temporary absence or 33 anticipated incapacity for delegation of the authority of a personal 34 representative, the problem may be handled without judicial 35 intervention by use of the delegation powers granted to personal 36 representatives by Section 623715(19). 37 38 Section 623615. (a) If a special administrator is to be 39 appointed pending the probate of a will which is the subject of a 40 pending application or petition for probate, the person named 41 executor in the will shall be appointed if available and qualified. 42 (b) In other cases, any proper person may be appointed special 43 administrator. [1243] 151 1 2 REPORTER’S COMMENTS 3 In some areas of the country, particularly where wills cannot be 4 probated without full notice and hearing, appointment of special 5 administrators pending probate is sought almost routinely. The 6 objective of this section is to reduce the likelihood that contestants 7 will be encouraged to file contests as early as possible simply to 8 gain some advantage via having a person who is sympathetic to 9 their cause appointed special administrator. Hence, it seems 10 reasonable to prefer the named executor as special administrator 11 where he is otherwise qualified. 12 13 Section 623616. A special administrator appointed by the court 14 in informal proceedings pursuant to Section 623614(1) has the 15 duty to collect and manage the assets of the estate, to preserve 16 them, to account therefor, and to deliver them to the general 17 personal representative upon his qualification. The special 18 administrator has the power of a personal representative under this 19 Code necessary to perform his duties. 20 21 REPORTER’S COMMENTS 22 Duties of the special administrator are provided throughout this 23 particular section, although the power to distribute assets is 24 specifically omitted. 25 26 Section 623617. A special administrator appointed by order of 27 the court in any formal proceeding has the power of a general 28 personal representative except as limited in the appointment and 29 duties as prescribed in the order. The appointment may be for a 30 specified time, to perform particular acts, or on other terms as the 31 court may direct. 32 33 REPORTER’S COMMENTS 34 In formal proceedings in which a special administrator is 35 appointed, the powers of a special administrator are the same as 36 those of a personal representative except in the instance where the 37 powers are limited by the court. 38 39 Section 623618. The appointment of a special administrator 40 terminates in accordance with the provisions of the order of 41 appointment or on the appointment of a general personal 42 representative. In other cases, the appointment of a special[1243] 152 1 administrator is subject to termination as provided in Sections 2 623608 through 623611. 3 4 REPORTER’S COMMENTS 5 Appointment of a special administrator would terminate according 6 to the provisions of the order of appointment. 7 8 Section 623619. Any person who shall obtain, receive, and have 9 any goods or debts of any decedent or a release or other discharge 10 of any debt or duty that belonged to the decedent upon any fraud 11 or without such valuable consideration as shall amount to the value 12 of the same goods or debts or near thereabouts (except it be in or 13 toward satisfaction of some just and principal debt of the value of 14 the same goods or debts to him owing by the decedent at the time 15 of his decease) shall be charged and chargeable as executor of his 16 own wrong, so far as such goods and debts coming to his hands or 17 whereof he is released or discharged by such administrator will 18 satisfy, deducting, nevertheless, to and for himself allowance of all 19 just, due, and principal debts upon good consideration without 20 fraud owing to him by the decedent at the time of his decease and 21 all other payments made by him which lawful personal 22 representatives may and ought to have and pay by the laws and 23 statutes of this State. Any person who obtains, receives, or 24 possesses property of whatever kind, belonging to the decedent, by 25 means of fraud or without paying valuable consideration 26 equivalent to the value of the property, shall be charged and 27 chargeable as executor of his own wrong (executor de son tort) 28 with respect to the goods and debts. The value of the property is 29 charged to the executor de son tort. Likewise, the value of the 30 property shall be deducted from any distribution or payment of any 31 claim or commission to which the executor de son tort is entitled 32 from the estate. 33 34 REPORTER’S COMMENTS 35 This section defines as an executor de son tort any person who by 36 fraud or without valuable consideration obtains assets of a 37 decedent without appointment as his personal representative, 38 charging him with liability therefor. 39 40 Section 623620. The judge of probate of the county in which a 41 deceased person may have died may, either of his own accord or at 42 the instance of any creditor or other person interested in the estate 43 of the deceased, cite before him such person as, neither being[1243] 153 1 appointed personal representative nor having obtained 2 administration of the effects of such deceased person, shall 3 nevertheless possess himself of the goods, chattels, rights, and 4 credits of such person deceased and, upon such person being cited 5 as aforesaid, the judge of probate shall require of him a discovery 6 and account of all and singular the goods, chattels, rights, and 7 credits of the deceased and shall proceed to decree against him for 8 the value of the estate and effects of the deceased which he may 9 have wasted or which may have been lost by his illegal 10 interference, charging him as executors of their own wrong are 11 made liable at common law as far as assets shall have come into 12 his hands. Acting sua sponte or upon the petition of any interested 13 person, the probate judge of the county in which a deceased person 14 was domiciled at the time of his death may order the executor de 15 son tort to account for the property in his possession. Upon a 16 finding that the property has been converted, wasted or otherwise 17 damaged through improper interference, the court may assess 18 damages including attorney’s fees and costs in the amount 19 determined by the court not to exceed the value of the property 20 charged to the executor de son tort. 21 22 REPORTER’S COMMENTS 23 This section provides that the probate judge may cite before him 24 the executor de son tort and require him to account for the 25 deceased’s property. It also enables the probate judge to enter a 26 decree against the executor de son tort for any property of the 27 deceased that he has wasted or has lost by his illegal interference. 28 29 Section 623621. Every personal representative of any person 30 who, as executor in his own wrong, shall waste or convert any 31 goods, chattels, estate, or assets of any person deceased to his own 32 use shall be liable and chargeable in the same manner as his 33 testator or intestate would have been if he had been living. The 34 rights of the probate court and interested parties set forth in 35 Section 623620 shall survive the death of the executor de son tort. 36 37 REPORTER’S COMMENTS 38 This section provides that the estate of an executor de son tort may 39 be liable for the waste or conversion committed by the executor de 40 son tort. 41 42 Part 7 43[1243] 154 1 Duties and Powers of Personal Representatives 2 3 Section 623701. The duties and powers of a personal 4 representative commence upon his appointment. The powers of a 5 personal representative relate back in time to give acts by the 6 person appointed which are beneficial to the estate occurring prior 7 to appointment the same effect as those occurring thereafter. Prior 8 to appointment, a person named executor personal representative 9 in a will may protect property of the decedent’s estate and carry 10 out written instructions of the decedent relating to his body, 11 funeral, and burial arrangements. A personal representative may 12 ratify and accept acts on behalf of the estate done by others where 13 the acts would have been proper for a personal representative. 14 15 REPORTER’S COMMENTS 16 The authority of a personal representative relates back to death 17 upon appointment and stems from his appointment. The personal 18 representative may ratify acts done by others prior to appointment. 19 20 Section 623702. A person to whom general letters are issued 21 first has exclusive authority under the letters until his appointment 22 is terminated or modified. If, through error, general letters are 23 afterwards issued to another, the first appointed representative may 24 recover any property of the estate in the hands of the representative 25 subsequently appointed, but the acts of the latter done in good faith 26 before notice of the first letters are not void for want of validity of 27 appointment. 28 29 REPORTER’S COMMENTS 30 This section provides that a person to whom letters are issued has 31 exclusive authority until the appointment is terminated or 32 modified. It also allows the personal representative to recover any 33 property in the hands of a second erroneously appointed 34 representative. 35 36 Section 623703. (a) A personal representative is a fiduciary 37 who shall observe the standards of care applicable to trustees as 38 described by Section 627804. A personal representative has a duty 39 to settle and distribute the estate of the decedent in accordance 40 with the terms of a probated and effective will and this code, and 41 as expeditiously and efficiently as is consistent with the best 42 interests of the estate. He shall use the authority conferred upon 43 him by this code, the terms of the will, and any order in[1243] 155 1 proceedings to which he is party for the best interests of successors 2 to the estate. 3 (b) A personal representative shall not be surcharged for acts 4 of administration or distribution if the conduct in question was 5 authorized at the time. Subject to other obligations of 6 administration, an informally probated will is authority to 7 administer and distribute the estate according to its terms. Upon 8 expiration of the relevant claim period, an order of appointment of 9 a personal representative, whether issued in informal or formal 10 proceedings, is authority to distribute apparently intestate assets to 11 the heirs of the decedent if, at the time of distribution, the personal 12 representative is not aware has not received actual notice of a 13 pending testacy proceeding, a proceeding to vacate an order 14 entered in an earlier testacy proceeding, a formal proceeding 15 questioning his appointment or fitness to continue, or a proceeding 16 for administration under Part 5. Nothing in this section affects the 17 duty of the personal representative to administer and distribute the 18 estate in accordance with the rights of claimants, the surviving 19 spouse, any minor and dependent children, and any pretermitted 20 child of the decedent as described elsewhere in this Code. 21 (c) Except as to proceedings which do not survive the death of 22 the decedent, a personal representative of a decedent domiciled in 23 this State at his death has the same standing to sue and be sued in 24 the courts of this State and the courts of any other jurisdiction as 25 his decedent had immediately prior to death. 26 27 REPORTER’S COMMENTS 28 This section is especially important because it states the basic 29 theory underlying the duties and powers of the personal 30 representative. The personal representative is classified as a 31 fiduciary and must adhere to the ‘prudent person’ rule provided for 32 trustees by Section 627804. In general the personal representative 33 is required to settle and distribute the estate as fast and efficiently 34 as possible for the best interest of the estate. The section holds the 35 power of distribution as the most significant power the personal 36 representative performs. Finally, the section grants a personal 37 representative the same standing to sue and be sued in the courts of 38 this State and any other jurisdiction as the decedent had 39 immediately prior to his death, except as to proceedings which do 40 not survive the decedent’s death. 41 The 2010 amendment, in subsection (a), changed the reference 42 from Section 627933 to Section 627804, which was made 43 necessary by the adoption of the South Carolina Trust Code.[1243] 156 1 2 Section 623704. A personal representative shall proceed 3 expeditiously with the settlement and distribution of a decedent’s 4 estate under the supervision of the court, as 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 with 8 the court the inventory and appraisement required by Section 9 623706. 10 (c) Upon the expiration of the relevant period, as set forth in 11 Section 623807, the personal representative shall proceed to allow 12 or disallow claims and pay the claims allowed against the estate, as 13 provided in Section 623807. 14 (d) Upon the expiration of the relevant period, as set forth in 15 Section 6231001, the personal representative shall file the account 16 accounting, proposal for distribution, petition for settlement of the 17 estate, proofs required by Section 6231001, and proof of 18 publication of notice to creditors. 19 (e) Within the time set forth in Section 623806(a), serve upon 20 all claimants a notice stating that their claim has been allowed or 21 disallowed pursuant to that section. 22 (f) The time periods stated herein for completing the above 23 requirements are not intended to supplant any other time periods 24 stated elsewhere in this Code. The court may on its own motion, 25 or on the motion of the personal representative or of any interested 26 person, extend the time for completing any of the requirements of 27 administration contained in Article 3 [Section 6231001, et seq.] 28 including any of the above requirements, and especially including 29 the requirement to account, under Section 6231001, in cases of 30 estates which remain significantly unadministered as of the 31 expiration of the relevant time period, either as to the marshalling 32 of assets or as to the allowance of claims. 33 (f)(g) If a personal representative or trustee neglects or refuses 34 to comply with any provision of Section 623706 he is liable to a 35 penalty of one thousand dollars for each separate failure or neglect 36 and the official bond of the personal representative or trustee is 37 liable therefor. This penalty must be recovered by the South 38 Carolina Department of Revenue for the use of the State and an 39 action for the recovery thereof may be brought by the Department 40 of Revenue in any court of competent jurisdiction and, upon 41 collection, must be paid into the state treasury. But the 42 department, upon good cause shown, may, in its discretion, excuse 43 the penalty or any part thereof he is subject to the contempt power[1243] 157 1 of the court. The probate court, after a hearing and any notice the 2 court may require, may issue its order imposing the sentence, fine, 3 or penalty as it sees fit and remove the personal representative and 4 appoint another personal representative. 5 6 REPORTER’S COMMENTS 7 This section requires the personal representative to proceed 8 expeditiously with the settlement and distribution of the estate. It 9 further provides that the settlement and distribution are under the 10 court’s supervision. Where informal procedures are in effect, the 11 section does not impose any burdens on the personal representative 12 other than those of Part 5 and of any other pertinent provision of 13 Article 3, requiring or permitting such direct court supervision. 14 15 Section 623705. Not later than thirty days after his appointment 16 every personal representative, except any special administrator, 17 shall give information of his appointment to the heirs (regardless 18 of whether the decedent died intestate and determined as if the 19 decedent died intestate) and devisees, including, if there has been 20 no formal testacy proceeding and if the personal representative 21 was appointed on the assumption that the decedent died intestate, 22 the devisees in any will mentioned in the application for 23 appointment of a personal representative. The information must be 24 delivered or sent by ordinary mail to each of the heirs and devisees 25 whose address is reasonably available to the personal 26 representative. The duty does not extend to require information to 27 persons who have been adjudicated in a prior formal testacy 28 proceeding to have no interest in the estate. The information must 29 include the name and address of the personal representative, 30 indicate that it is being sent to persons who have or may have 31 some interest in the estate being administered, indicate whether 32 bond has been filed, and describe the court where papers relating 33 to the estate are on file. The personal representative’s failure to 34 give this information is a breach of his duty to the persons 35 concerned but does not affect the validity of his appointment, his 36 powers, or other duties. A personal representative may inform 37 other persons of his appointment by delivery or ordinary first class 38 mail. 39 40 REPORTER’S COMMENTS 41 This section requires the personal representative to inform of his 42 appointment those persons who appear to have an interest in the 43 estate as it is being administered. Such notice must be given[1243] 158 1 within thirty days of his appointment. The notice may be sent 2 through ordinary mail. The notice must include the personal 3 representative’s name and address, indicate that the information is 4 being sent to all those who might have an interest in the estate and 5 whether a bond was required and where the papers relating to the 6 estate are filed. The notice should not be confused with the notice 7 requirements relating to litigation. 8 9 Section 623706. (A) Within ninety days after his appointment, 10 a personal representative, who is not a special administrator or a 11 successor to another representative who has previously discharged 12 this duty, shall: 13 (1) prepare an inventory and appraisement of probate 14 property owned by the decedent at the time of his death, together 15 with such other information as may be required by the South 16 Carolina Department of Revenue, listing it with reasonable detail, 17 and indicating as to each listed item, its fair market value as of the 18 date of the decedent’s death, and the type and amount of any 19 encumbrance that may exist with reference to any item; 20 (2) file the original of the inventory and appraisement with 21 the court; and 22 (3) mail a copy of the filed inventory and appraisement to 23 interested persons who request it have filed a demand for notice of 24 the filing of the inventory pursuant to Section 623204. 25 (B) Within ninety days of a demand by an interested person for 26 an inventory of nonprobate property, the personal representative 27 shall: 28 (1) prepare a list of the property owned by the decedent at 29 the time of his death that is not probate property, so far as is 30 known to the personal representative which may, at the discretion 31 of the personal representative, include the value and nature of the 32 decedent’s interest in the property on the date of the decedent’s 33 death; 34 (2) mail a copy of the list to each interested person who has 35 requested the list; and 36 (3) file proof of the mailing with the probate court. 37 (C) The court, upon application of the personal representative, 38 may extend the time for filing or making the either the inventory 39 and appraisement or list of nonprobate property provided for in 40 this section. 41 42 REPORTER’S COMMENTS [1243] 159 1 This section requires the personal representative within ninety days 2 after his appointment to file an inventory and appraisement listing 3 the fair market value of each probate asset as of the decedent’s 4 date of death. He must list the type and amount of any 5 encumbrances. He is also required to mail copies to interested 6 persons who request it. 7 The 2012 amendment requires the personal representative to 8 provide a list of nonprobate property to any interested person who 9 claims it. The list of nonprobate property does not have to include 10 information about the value and nature of the property, although 11 the personal representative at his discretion may include 12 information about the value and nature of the property. 13 The court may upon application extend the time for filing. 14 15 Section 623707. The personal representative may obtain a 16 qualified and disinterested appraiser to assist him in ascertaining 17 the fair market value as of the date of the decedent’s death of any 18 asset the value of which may be subject to reasonable doubt. 19 Different persons may be employed to appraise different kinds of 20 assets included in the estate. The names and addresses of any 21 appraiser must be indicated on the inventory and appraisement or 22 by supplemental inventory and appraisement with the item or 23 items he appraised. Each appraiser shall execute the inventory, 24 stating thereon the item or items he appraised. On motion 25 application of any interested person, the court may require that one 26 or more qualified appraisers be appointed to ascertain the fair 27 market value of all or any part of the estate or may approve one or 28 more qualified appraisers. 29 30 REPORTER’S COMMENTS 31 This section allows the personal representative to employ expert 32 appraisers and also authorizes the court to require the appointment 33 of expert appraisers upon application by any interested person. 34 35 Section 623708. If any property not included in the original 36 inventory and appraisement comes to the knowledge of a personal 37 representative or if the personal representative learns that the value 38 or description indicated in the original inventory for any item is 39 erroneous or misleading, he shall make submit a supplementary, 40 amended or corrected inventory or appraisement showing the 41 market value as of the date of the decedent’s death of the new item 42 or the revised market value or descriptions, and the appraisers or 43 other data relied upon, if any, and file it with the court, restating[1243] 160 1 the unchanged information from the original inventory and 2 appraisement and furnish copies thereof or information thereof to 3 persons who receive the original inventory, and to interested 4 persons interested in who have requested or demanded the new 5 information. 6 7 Section 623709. Except as otherwise provided by a decedent’s 8 will, every personal representative has a right to, and shall take 9 possession or control of, the decedent’s property, except that any 10 real property or tangible personal property may be left with or 11 surrendered to the person presumptively entitled thereto unless or 12 until, in the judgment of the personal representative, possession of 13 the property by him will be necessary for purposes of 14 administration. The request by a personal representative for 15 delivery of any property possessed by an heir or devisee is 16 conclusive evidence, in any action against the heir or devisee for 17 possession thereof, that the possession of the property by the 18 personal representative is necessary for purposes of administration. 19 The personal representative shall pay taxes on, and take all steps 20 reasonably necessary for the management, protection, and 21 preservation of, the estate in his possession. He may maintain an 22 action to recover possession of property or to determine the title 23 thereto. 24 25 REPORTER’S COMMENTS 26 Section 623101 provides that title to real and personal property 27 devolves on death or thereafter to heirs or devisees ‘subject ... to 28 administration.’ Section 623711 vests in the personal 29 representative a power over title to real and personal property 30 during administration. This section deals with the personal 31 representative’s duty and right to possess assets, real and personal. 32 It proceeds from the assumption that it is desirable wherever 33 possible to avoid disruption of the possession of the decedent’s 34 assets by his heirs or devisees. But if the personal representative 35 considers it advisable he may take possession and his judgment is 36 made conclusive. It is likely that the personal representative’s 37 judgment could be questioned in a later action but this possibility 38 should not interfere with the personal representative’s 39 administrative authority as it relates to possession of the estate. 40 41 Section 623710. The property liable for the payment of 42 unsecured debts of a decedent includes all property transferred by 43 him by any means which is in law void or voidable as against his[1243] 161 1 creditors, and subject to prior liens, the right to recover this 2 property, so far as necessary for the payment of unsecured debts of 3 the decedent, is exclusively in the personal representative. 4 5 REPORTER’S COMMENTS 6 This section authorizes the personal representative to recover any 7 property transferred by the decedent in a transaction which would 8 be void or voidable against creditors. 9 10 Section 623711. (a) Until termination of his appointment or 11 unless otherwise provided in Section 623910, a personal 12 representative has the same power over the title to property of the 13 estate that an absolute owner would have, in trust however, for the 14 benefit of the creditors and others interested in the estate. Except 15 as otherwise provided in subsection (b), this power may be 16 exercised without notice, hearing, or order of court. 17 (b) Except where the will of the decedent authorizes to the 18 contrary, a personal representative may not sell real property of the 19 estate except as authorized pursuant to the procedure procedures 20 described in Sections 623911 or Section Sections 6231301 et seq. 21 and shall refrain from selling tangible or intangible personal 22 property of the estate (other than securities regularly traded on 23 national or regional exchanges and produce, grain, fiber, tobacco, 24 or other merchandise of the estate for which market values are 25 readily ascertainable) having an aggregate value of five ten 26 thousand dollars or more without prior order of the court which 27 may be issued upon application of the personal representative and 28 after notice or consent as the court deems appropriate. 29 (c) If the will of a decedent devises real property to a personal 30 representative or authorizes a personal representative to sell real 31 property (the title to which was not devised to the personal 32 representative), then subject to Section 623713, the personal 33 representative, acting in trust for the benefit of the creditors and 34 others other interested persons in the estate, may execute a deed in 35 favor of a purchaser for value, who takes title to the real property 36 in accordance with the provisions of Section 623910(b). 37 38 REPORTER’S COMMENTS 39 This section grants a personal representative the same power over 40 title to property that an absolute owner would have, in trust, 41 however, for the benefit of creditors and others interested in the 42 estate. This power over title is limited in two respects. First, 43 except where the will provides to the contrary, an order from the[1243] 162 1 probate court must be obtained before personal property having an 2 aggregate value in excess of ten thousand dollars may be sold. 3 Secondly, and again except where the will provides to the contrary, 4 the representative cannot exercise the power to sell real property 5 unless he follows the mechanism of Section 623911 or Section 6 6231301 et seq. 7 Under this section, Section 623101, and Section 623709, title to 8 personal property (as well as real property) devolves at or soon 9 after death to heirs and devisees, and not to the personal 10 representative. Further, the representative can exercise power over 11 the title to real property (as well as personal property) subject to 12 limitations. 13 14 Section 623712. If the exercise of power concerning the estate is 15 improper, the personal representative is liable to interested persons 16 for damage or loss resulting from breach of his fiduciary duty to 17 the same extent as a trustee of an express trust. The rights of 18 purchasers and others dealing with a personal representative shall 19 be determined as provided in Sections 623713 and 623714. 20 21 REPORTER’S COMMENTS 22 This section provides that the personal representative is liable for 23 his acts and omissions and for any breach of duty to the same 24 extent as the trustee of an express trust. The rights of purchasers 25 and others dealing with the personal representative are governed 26 by the next two sections. Additionally, this section should be read 27 in conjunction with Sections 623607 and 623611, the first of 28 which deals with an interested party obtaining an order restraining 29 the personal representative from performing a specified act or 30 exercising a specified power and the second of which deals with 31 the right of an interested party to petition for the removal of the 32 personal representative. 33 34 Section 623713. Any sale or encumbrance to the personal 35 representative, his spouse, agent or attorney, or any corporation or 36 trust in which he has a substantial beneficial interest, or any 37 transaction which is affected by a substantial conflict of interest on 38 the part of the personal representative, is voidable by any person 39 interested in the estate except one who has consented after fair 40 disclosure unless: 41 (1) the will or a contract entered into by the decedent expressly 42 authorized the transaction; or [1243] 163 1 (2) the transaction is approved by the court after notice to 2 interested persons. 3 4 REPORTER’S COMMENTS 5 This section provides that certain actions of a personal 6 representative are voidable. Exceptions to the general rule are 7 provided in the event the will or a contract entered into by the 8 decedent expressly authorizes the transaction or if the transaction 9 is approved by the probate court after notice to interested parties. 10 Presumptively, a broad authorization in the will of a decedent for 11 his personal representative to deal with himself in both a fiduciary 12 and an individual capacity would not fall under the first exception 13 which is limited to ‘the transaction’ and must, therefore, be held to 14 require authorization for a specific transaction. 15 The general principles of law pertaining to a bona fide purchaser 16 for value will protect the title to property in the hands of such a 17 purchaser who obtained it without notice of the conflict of interest 18 or act of selfdealing. 19 20 Section 623714. A person who in good faith either assists a 21 personal representative or deals with him for value is protected as 22 if the personal representative properly exercised his power. The 23 fact that a person knowingly deals with a personal representative 24 does not alone require the person to inquire into the existence of a 25 power or the propriety of its exercise. Except for restrictions on 26 powers of personal representatives under Part 5 [Sections 623501 27 et seq.] which are endorsed on letters as provided in Section 28 623504, no provision in any will or order of court purporting to 29 limit the power of a personal representative is effective except as 30 to persons with actual knowledge thereof. A person is not bound 31 to see to the proper application of estate assets paid or delivered to 32 a personal representative. The protection here expressed extends 33 to instances in which some procedural irregularity or jurisdictional 34 defect occurred in proceedings leading to the issuance of letters, 35 including a case in which the alleged decedent is found to be alive. 36 The protection here expressed is not by substitution for that 37 provided by comparable provisions of the laws relating to 38 commercial transactions and laws simplifying transfers of 39 securities by fiduciaries. 40 41 REPORTER’S COMMENTS 42 This section is designed to provide protection to persons who deal 43 with a personal representative. Persons dealing with[1243] 164 1 representatives generally are not charged with the duty to inquire 2 into any restrictions pertaining to the exercise of powers by such 3 personal representative. Any person dealing with a representative 4 under Part 5 will be charged with knowledge of the restrictions 5 upon exercise of power set forth in the letters. 6 For example, a bona fide purchaser for value dealing with a 7 representative will be completely protected with respect to claims 8 by interested parties. However, the personal representative will be 9 liable to persons interested in the estate if his dealings with such 10 bona fide purchaser were inconsistent with directions set forth in 11 the will or other restrictions imposed by order of the probate court. 12 However, if such a purchaser had actual knowledge of any such 13 restrictions, then this section will not provide protection to such 14 purchaser; instead, he is subject to having title to the property 15 acquired from the personal representative declared void upon the 16 petition of some interested party. 17 18 Section 623715. Except as restricted or otherwise provided by 19 the will or by an order in a formal proceeding and subject to the 20 restrictions imposed in Section 623711(b) and to the priorities 21 stated in Section 623902, a personal representative, acting 22 reasonably for the benefit of the interested persons, may properly: 23 (1) retain assets owned by the decedent pending distribution or 24 liquidation including those in which the representative is 25 personally interested or which are otherwise improper for trust 26 investment; 27 (2) receive assets from fiduciaries or other sources; 28 (3) perform, compromise, or refuse performance of the 29 decedent’s contracts that continue as obligations of the estate, as 30 he may determine under the circumstances. In performing 31 enforceable contracts by the decedent to convey or lease land, the 32 personal representative, among other possible courses of action, 33 may: 34 (i) execute and deliver a deed of conveyance for cash 35 payment of all sums remaining due or the purchaser’s note for the 36 sum remaining due secured by a mortgage or deed of trust on the 37 land; or 38 (ii) deliver a deed in escrow with directions that the 39 proceeds, when paid in accordance with the escrow agreement, be 40 paid to the successors of the decedent, as designated in the escrow 41 agreement. 42 Execution and delivery of a deed pursuant to this subsection 43 affects title to the subject real property to the same extent as[1243] 165 1 execution and delivery of a deed by the personal representative in 2 other cases authorized by this Code.; 3 (4) satisfy written charitable pledges of the decedent 4 irrespective of whether the pledges constituted binding obligations 5 of the decedent or were properly presented as claims, if in the 6 judgment of the personal representative the decedent would have 7 wanted the pledges completed under the circumstances; 8 (5) if funds are not needed to meet debts and expenses 9 currently payable and are not immediately distributable, deposit or 10 invest liquid assets of the estate, including monies received from 11 the sale of other assets, in federally insured interestbearing 12 accounts, readily marketable secured loan arrangements or other 13 prudent investments which would be reasonable for use by trustees 14 generally; 15 (6) subject to the restrictions imposed in Section 623711(b), 16 acquire or dispose of an asset, including land in this or another 17 state, for cash or on credit, at public or private sale; and manage, 18 develop, improve, exchange, partition, change the character of, or 19 abandon an estate asset; 20 (7) make ordinary or extraordinary repairs or alterations in 21 buildings or other structures, demolish any improvements, raze 22 existing, or erect new party walls or buildings; 23 (8) satisfy and settle claims and distribute the estate as 24 provided in this Code; 25 (9) enter for any purpose into a lease as lessor or lessee, with 26 or without option to purchase or renew, but not for a term 27 extending beyond the period of administration and, with respect to 28 a lease with option to purchase, subject to the restrictions imposed 29 in Section 623711(b); 30 (10) enter into a lease or arrangement for exploration and 31 removal of minerals or other natural resources or enter into a 32 pooling or unitization agreement; 33 (11) vote stocks or other securities in person or by general or 34 limited proxy; 35 (12) pay calls, assessments, and other sums chargeable or 36 accruing against or on account of securities, unless barred by the 37 provisions relating to claims; 38 (13) hold a security in the name of a nominee or in other form 39 without disclosure of the interest of the estate but the personal 40 representative is liable for any act of the nominee in connection 41 with the security so held; 42 (14) insure the assets of the estate against damage, loss, and 43 liability and himself against liability as to third persons; [1243] 166 1 (15) effect a fair and reasonable compromise with any debtor or 2 obligor, or extend, renew, or in any manner modify the terms of 3 any obligation owing to the estate. If the personal representative 4 holds a mortgage, pledge, lien, or other security interest upon 5 property of another persons, he may, in lieu of foreclosure, accept 6 a conveyance or transfer of encumbered assets from the owner 7 thereof in satisfaction of the indebtedness secured by lien; 8 (16) pay taxes, assessments, compensation of the personal 9 representative, and other expenses incident to the administration of 10 the estate; 11 (17) sell, or exercise stock subscription or conversion rights; 12 consent, directly or through a committee or other agent, to the 13 reorganization, consolidation, merger, dissolution, or liquidation of 14 a corporation or other business enterprise; 15 (18) allocate items of income or expense to either estate income 16 or principal, as permitted or provided by law; 17 (19) employ persons, including attorneys, auditors, investment 18 advisors, or agents, even if they are associated with the personal 19 representative, to advise or assist the personal representative in the 20 performance of his administrative duties; act without independent 21 investigation upon their recommendations; and instead of acting 22 personally, employ one or more agents to perform any act of 23 administration, whether or not discretionary; 24 (20) prosecute or defend claims, or proceedings in any 25 jurisdiction for the protection of the estate and of the personal 26 representative in the performance of his duties; 27 (21) subject to the restrictions imposed in Section 623711(b), 28 sell, mortgage, or lease any real or personal property of the estate 29 or any interest therein for cash, credit, or for part cash and part 30 credit, and with or without security for unpaid balances; 31 (22) continue any unincorporated business or venture in which 32 the decedent was engaged at the time of his death (i) in the same 33 business form for a period of not more than four months from the 34 date of appointment of a general personal representative if 35 continuation is a reasonable means of preserving the value of the 36 business including good will; (ii) in the same business form for 37 any additional period of time that may be approved by order of the 38 court in a formal proceeding to which the persons interested in the 39 estate are parties; or (iii) throughout the period of administration if 40 the business is incorporated by the personal representative and if 41 none of the probable distributees of the business who are 42 competent adults object to its incorporation and retention in the 43 estate; [1243] 167 1 (23) make payment in cash or in kind, or partly in cash and 2 partly in kind, upon any division or distribution of the estate 3 (including the satisfaction of any pecuniary distribution) without 4 regard to the income tax basis of any specific property allocated to 5 any beneficiary and value and appraise any asset and distribute 6 such asset in kind at its appraised value.; 7 (24) with the approval of the probate court or the circuit court, 8 compromise and settle claims and actions for wrongful death, pain 9 and suffering or both, and all claims and actions based on causes 10 of actions surviving, to personal representatives, arising, asserted, 11 or brought under or by virtue of any statute or act of this State, any 12 state of the United States, the United States, or any foreign 13 country.; 14 (25) donate a qualified conservation easement or fee simple gift 15 of land for conservation on any real property of the decedent in 16 order to obtain the benefit of the estate tax exclusion allowed 17 under Internal Revenue Code Section 2031(c) as defined in 18 Section 12640(A), and the state income tax credit allowed under 19 Section 1263515, if the personal representative has the written 20 consent of all of the heirs, beneficiaries, and devisees whose 21 interests are affected by the donation. Upon petition of the 22 personal representative, the probate court may consent on behalf of 23 any unborn, unascertained, or incapacitated heirs, beneficiaries, or 24 devisees whose interests are affected by the donation after 25 determining that the donation of the qualified real property interest 26 shall not adversely affect them or would most likely be agreed to 27 by them if they were before the court and capable of consenting. 28 A guardian ad litem must be appointed to represent the interest of 29 any unborn, unascertained, or incapacitated persons. Similarly, 30 and for the same purposes and under the same conditions, mutatis 31 mutandis, a trustee may make such a donation for the settlor.; 32 (26) The personal representative has the power to access the 33 decedent’s files and accounts in electronic format, including the 34 power to obtain the decedent’s user names and passwords. 35 36 REPORTER’S COMMENTS 37 The purpose of this section is to grant personal representatives a 38 broad array of powers reasonably necessary for the proper 39 administration of an estate. The purpose of this section is to set 40 forth in some detail the powers which a personal representative 41 may exercise with respect to the estate and without the necessity of 42 obtaining an order from the probate court in order to do so. Note 43 the introductory provision that the representative may exercise his[1243] 168 1 powers, including the power of sale, only within the restrictions of 2 Section 623711(b) (see the comments to that section, supra.). 3 4 Section 623716. A successor personal representative has the 5 same power and duty as the original personal representative to 6 complete the administration and distribution of the estate, as 7 expeditiously as possible, but he shall not exercise any power 8 expressly made personal to the executor named in the will. 9 10 REPORTER’S COMMENTS 11 This section provides that a successor personal representative has 12 the same powers and duties imposed upon the original personal 13 representative except any such powers or duties which are 14 expressly made personal to the original personal representative 15 named in the will. 16 17 Section 623717. If two or more persons are appointed 18 corepresentatives and unless the will provides otherwise, the 19 concurrence of all is required on all acts connected with the 20 administration and distribution of the estate. This restriction does 21 not apply when any corepresentative receives and receipts for 22 property due the estate, when the concurrence of all cannot readily 23 be obtained in the time reasonably available for emergency action 24 necessary to preserve the estate, or. When a corepresentative has 25 been delegated to act for the others, written notice of the 26 delegation signed by the others and setting forth the duties 27 delegated must be filed with the court. Persons dealing with a 28 corepresentative if actually unaware that another has been 29 appointed to serve with him or if advised by the personal 30 representative with whom they deal that he has authority to act 31 alone for any of the reasons mentioned herein, are as fully 32 protected as if the persons with whom they dealt had been the sole 33 personal representative. 34 35 REPORTER’S COMMENTS 36 This section provides that all corepresentatives are required to 37 unanimously consent to any matter pertaining to the administration 38 and distribution of the estate except when any corepresentative 39 receives and receipts for property due the estate, when an 40 emergency arises and action is necessary in order to preserve the 41 estate or when the corepresentatives have delegated the right to act 42 to one or more of their number. [1243] 169 1 This section absolves any person dealing with one corepresentative 2 for any excesses committed by such corepresentative in the 3 exercise of his duty to the extent that such person dealing with the 4 corepresentative is unaware that the existence of other 5 corepresentatives or has been advised by such corepresentative that 6 he has the authority to so act. The thrust of this section is to 7 protect such a person dealing with a corepresentative and to 8 eliminate the need for such person to inquire into the validity of 9 the actions taken by such corepresentative. However, the rules 10 pertaining to administration under Part 5 would have the effect of 11 at least requiring a person dealing with a personal representative to 12 determine whether or not the letters granted by the probate court 13 restrict the actions of the representative. That being the case, it 14 would seem that a person exercising due diligence in determining 15 whether or not there is an administration under Part 5 would 16 necessarily come across the fact that more than one representative 17 has been appointed by the probate court to represent the estate. 18 That leads to the inescapable fact that a person dealing with the 19 representative of an estate who exercises due diligence would 20 necessarily come across the existence of additional 21 corepresentatives and would, therefore, not be able to rely upon the 22 protections purportedly granted to him as stated above, unless such 23 corepresentative represents in some fashion that he has the 24 authority to act for all other corepresentatives. See the third 25 sentence of Section 623714 in connection with the purchaser’s 26 implicit duty to inquire into the authority of a representative to act 27 on behalf of the estate. 28 29 Section 623718. Unless the terms of the will otherwise provide, 30 every power exercisable by personal corepresentatives may be 31 exercised by the one or more remaining after the appointment of 32 one or more is terminated and, if one of two or more nominated as 33 coexecutors is not appointed, those appointed may exercise all the 34 powers incident to the office. 35 36 REPORTER’S COMMENTS 37 This section merely provides that remaining corepresentatives will 38 have full authority to act if one or more of their number loses the 39 capacity to so act by reason of death or other termination of 40 appointment as a personal representative. 41 42 Section 623719. (a) Unless otherwise approved by the court 43 for extraordinary services, a personal representative shall receive[1243] 170 1 for his care in the execution of his duties a sum from the probate 2 estate funds not to exceed five percent of the appraised value of the 3 personal property of the probate estate plus the sales proceeds of 4 real property of the probate estate received on sales directed or 5 authorized by will or by proper court order, except upon sales to 6 the personal representative as purchaser. The minimum 7 commission payable is fifty dollars, regardless of the value of the 8 personal property of the estate. 9 (b) Additionally, a personal representative may receive not 10 more than five percent of the income earned by the probate estate 11 in which he acts as fiduciary. No such additional commission is 12 payable by an estate if the probate judge determines that a personal 13 representative has acted unreasonably in the accomplishment of 14 the assigned duties, or that unreasonable delay has been 15 encountered. 16 (c) The provisions of this section do not apply in a case where 17 there is a contract providing for the compensation to be paid for 18 such services, or where the will otherwise directs, or where the 19 personal representative qualified to act before June 28, 1984. 20 (d) A personal representative also may renounce his right to all 21 or any part of the compensation. A written renunciation of fee 22 may be filed with the court. 23 (e) If more than one personal representative is serving an 24 estate, the court in its discretion shall apportion the compensation 25 among the personal representatives, but the total compensation for 26 all personal representatives of an estate must not exceed the 27 maximum compensation allowable under subsections (a) and (b) 28 for an estate with a sole personal representative. 29 (f) For purposes of this section, ‘probate estate’ means the 30 decedent’s property passing under the decedent’s will plus the 31 decedent’s property passing by intestacy. This subsection is 32 intended to be declaratory of the law and governs the 33 compensation of personal representatives currently serving and 34 personal representatives serving at a later time. 35 36 REPORTER’S COMMENTS 37 Unless provided otherwise by contract, by the will or by the 38 personal representative’s renunciation, his compensation is limited 39 to sums equal to five percent of personal property and five percent 40 of sold real property, in the normal course, plus five percent of 41 income on invested monies, unless the probate court disapproves. 42 The probate court may set fees for less than the stated limits. The 43 probate court may set fees higher than the stated limits if the court[1243] 171 1 determines the personal representative provided extraordinary 2 service. 3 4 Section 623720. If any personal representative or person 5 nominated as personal representative defends or prosecutes any 6 proceeding in good faith, whether successful or not, he is entitled 7 to receive from the estate his necessary expenses and 8 disbursements including reasonable attorneys’ fees incurred. 9 10 REPORTER’S COMMENTS 11 If any personal representative in good faith prosecutes or defends 12 an action, he is entitled to reimbursement from the estate for 13 reasonable expenses as well as reasonable attorney fees. 14 15 Section 623721. (a) After notice to all interested persons, on 16 petition of an interested person or on appropriate motion if 17 administration is under Part 5 [Sections 623501 et seq.], the 18 propriety of employment of any person by a personal 19 representative including any attorney, auditor, investment advisor, 20 or other specialized agent or assistant, the reasonableness of the 21 compensation of any person so employed, or the reasonableness of 22 the compensation determined by the personal representative for his 23 own services, may be reviewed by the court. Any person who has 24 received excessive compensation from an estate for services 25 rendered may be ordered to make appropriate refunds. 26 (b) Upon the settlement of their accounts by personal 27 representatives the court shall allow each appraiser appointed by 28 the court a reasonable daily fee for each day spent on appraising 29 the property of the estate and also mileage at the same rate that 30 members of state boards, commissions, and committees receive for 31 each mile actually traveled in going to and from the place where 32 the property ordered to be appraised is situated. In determining the 33 reasonableness of the fee to each appraiser the court shall consider 34 the value of the estate, the actual time consumed by the appraisers 35 in the performance of their duties, and other such circumstances 36 and conditions surrounding the appraisal as the court deems 37 appropriate. 38 39 REPORTER’S COMMENTS 40 This section allows a personal representative to seek prior approval 41 of the probate court before an agent or advisor is hired. 42 43 Part 8[1243] 172 1 2 Creditors’ Claims 3 4 Section 623801. (a) Unless notice has already been given 5 under this section, a personal representative upon his appointment 6 shall must publish a notice to creditors once a week for three 7 successive weeks in a newspaper of general circulation in the 8 county announcing his appointment and address and notifying 9 creditors of the estate to present their claims within eight months 10 after the date of the first publication of the notice or be forever 11 barred. 12 (b) A personal representative may give written notice by mail 13 or other delivery to any creditor, notifying the creditor to present 14 his claim within eight months from one year of the published 15 notice as provided in (a) above, decedent’s death, or within sixty 16 days from the mailing or other delivery of such notice, whichever 17 is later earlier, or be forever barred. Written notice is the notice 18 described in (a) above or a similar notice. 19 (c) The personal representative is not liable to any creditor or 20 to any successor of the decedent for giving or failing to give notice 21 under this section. 22 (d) Notwithstanding subsections (a) and (b), notice to creditors 23 under this section is not required if no personal representative is 24 appointed to administer the decedent’s estate during the oneyear 25 period following the death of the decedent. 26 27 REPORTER’S COMMENTS 28 This section provides for the publication of notice and for the 29 delivery of notice to creditors at the discretion of the personal 30 representative. The notice is published once a week for three 31 successive weeks in a paper of general circulation in the county. 32 There is no requirement that demands be duly attested. 33 34 Section 623802. (a) Unless an estate is insolvent, the personal 35 representative, with the consent of all successors whose interests 36 would be affected, may waive any defense of limitations available 37 to the estate. If the defense is not waived, no claim which was 38 barred by any statute of limitations at the time of the decedent’s 39 death shall be allowed or paid. 40 (b) The running of any statute of limitations measured from 41 some other event than death or the giving of notice to creditors is 42 suspended during the eight months following the decedent’s death[1243] 173 1 but resumes thereafter as to claims not barred pursuant to the 2 sections which follow. 3 (c) For purposes of any statute of limitations, the proper 4 presentation of a claim under Section 623804 is equivalent to 5 commencement of a proceeding on the claim. 6 7 REPORTER’S COMMENTS 8 This section provides for waiver of and the suspension of the 9 running of any statute of limitations, measured from some event 10 other than death and notice to creditors, during the eight months 11 following the decedent’s death, resuming thereafter. 12 13 Section 623803. (a) All claims against a decedent’s estate 14 which arose before the death of the decedent, including claims of 15 the State and any political subdivision thereof, whether due or to 16 become due, absolute or contingent, liquidated or unliquidated, 17 founded on contract, tort, or other legal basis, if not barred earlier 18 by other another statute of limitations, or nonclaim statute; are 19 barred against the estate, the personal representative, and the 20 decedent’s heirs and devisees, and nonprobate transferees of the 21 decedent,; unless presented within the earlier of the following 22 dates: 23 (1) one year after the decedent’s death; or 24 (2) within the time provided by Section 623801(b) for 25 creditors who are given actual notice, and within the time provided 26 in Section 623801(a) for all creditors barred by publication; 27 provided, claims. 28 (b) A claim described in subsection (a) which is barred by the 29 nonclaim statute at of the decedent’s domicile before the giving of 30 notice to creditors barred in this State are also is barred in this 31 State. 32 (b)(c) All claims against a decedent’s estate which arise at or 33 after the death of the decedent, including claims of the State and 34 any subdivision thereof, whether due or to become due, absolute or 35 contingent, liquidated or unliquidated, founded on contract, tort, or 36 other legal basis, are barred against the estate, the personal 37 representative, and the heirs and devisees of the decedent, unless 38 presented as follows: 39 (1) a claim based on a contract with the personal 40 representative within eight months after performance by the 41 personal representative is due; or 42 (2) any other claim, within the later of eight months after it 43 arises, or the time specified in subsection (a)(1). [1243] 174 1 (c)(d) Nothing in this section affects or prevents shall be 2 construed as placing a limitation on the time for: 3 (1) any commencing a proceeding to enforce any a 4 mortgage, pledge, lien, or other security interest upon property of 5 the estate; or 6 (2) to the limits of the insurance protection only, any 7 commencing a proceeding to establish liability of the decedent or 8 the personal representative for which he is protected by liability 9 insurance; or 10 (3) collection of collecting compensation for services 11 rendered and to the estate or reimbursement for expenses advanced 12 by the personal representative or by the attorney or accountant for 13 the personal representative of the estate. 14 15 REPORTER’S COMMENTS 16 Under this section, claims encompass those that are due or to 17 become due, absolute or contingent, liquidated or unliquidated, 18 founded on contract, tort, or other legal basis. The claims are then 19 divided into those which arose before the death of the decedent and 20 those which arise at or after the death of the decedent. 21 Claims arising before death, unless barred by other statutes of 22 limitation, are barred unless presented as follows: (1) for those 23 creditors not barred by publication within the earlier of one year 24 following date of death or sixty days from any actual notice; and 25 (2) for those creditors barred by publication within the earlier of 26 one year from date of death or eight months from any publication. 27 Also, if a claim is barred by the nonclaim statute of the decedent’s 28 domicile before the first publication for claims in this State, it is 29 also barred in this State. 30 Claims arising at or after death must be presented as follows: 31 (1) if against the personal representative, within eight months after 32 his performance is due; (2) otherwise, within eight months after 33 the claim arises. 34 The limitations of Section 623803 do not apply to proceedings 35 to enforce mortgages, pledges, or other liens upon property of the 36 estate, or proceedings to establish liability of the decedent or the 37 personal representative for which there is liability insurance. 38 39 Section 623804. Claims against a decedent’s estate may must be 40 presented as follows: 41 (1) The claimant may deliver or mail to the personal 42 representative a written statement of the claim indicating its basis, 43 the name and address of the claimant, and the amount claimed, and[1243] 175 1 must file a written statement of the claim, in the form prescribed 2 by rule, with the clerk of the probate court in which the decedent’s 3 estate is under administration. The claim is deemed presented on 4 upon the first to occur of receipt filing of the written statement of 5 claim by the personal representative or the filing of the claim with 6 the court. If a claim is not yet due, the date when it will become 7 due must be stated. If the claim is contingent or unliquidated, the 8 nature of the uncertainty must be stated. If the claim is secured, 9 the security must be described. Failure to describe correctly fully 10 the security, the nature of any uncertainty, and the due date of a 11 claim not yet due does not invalidate the presentation made. 12 (2) The Subject to item (5), once a claim is presented in 13 accordance with item (1), a claimant may at any time thereafter 14 commence a legal proceeding against the personal representative 15 by the filing of a summons and petition for allowance of claim or 16 complaint in any court where the personal representative may be 17 subjected to jurisdiction, to obtain payment of his claim against the 18 estate, but the commencement of the proceeding must occur within 19 the time limited for presenting the claim, and the claimant must 20 file a written statement of the claim as in (1) above, with the clerk 21 of the probate court. No presentation of claim is required in regard 22 to matters claimed in proceedings against the decedent which were 23 pending at the time of his death seeking payment of the claim by 24 the decedent’s estate, and serving the same upon the personal 25 representative. If the legal proceeding is not commenced in the 26 probate court, the claimant must provide written notice to the 27 probate court in which the decedent’s estate is under 28 administration that a legal proceeding has commenced for 29 allowance of the claim, setting forth the court in which the legal 30 proceeding is pending. Thereafter, the probate court shall not 31 permit the closing of the decedent’s estate until the legal 32 proceeding has ended. 33 (3) If a claim is presented under subsection (1), no proceeding 34 thereon may be commenced more than thirty days after the 35 personal representative has mailed a notice of disallowance with 36 warning of the impending bar; but, in the case of a claim which is 37 not presently due or which is contingent or unliquidated, the 38 personal representative may consent to an extension of the 39 thirtyday period, or to avoid injustice the court, on petition 40 presented to the court prior to the expiration of such thirtyday 41 period, may order an extension of the thirtyday period, but in no 42 event may the extension run beyond the applicable statute of 43 limitations. In lieu of the procedure provided in items (1) and (2),[1243] 176 1 and subject to item (6), a claimant may commence a legal 2 proceeding against the personal representative, by the filing of a 3 summons and petition for allowance of claim or complaint in any 4 court where the personal representative may be subjected to 5 jurisdiction, seeking payment of his claim by the estate, and 6 serving the same upon the personal representative. The 7 commencement of the legal proceeding under this item must occur 8 within the time limit for presenting the claim as set forth in Section 9 623803. If the legal proceeding is not commenced in the probate 10 court, the claimant must file a written statement of the claim with 11 the probate court in which the decedent’s estate is under 12 administration providing substantially the same information as the 13 statement in item (1), along with a statement that a legal 14 proceeding to enforce the claim has commenced, and identifying 15 the court where the proceeding is pending. Thereafter, the probate 16 court shall not permit the closing of the decedent’s estate until the 17 legal proceeding has ended. 18 (4) Notwithstanding any other provision of this section, no 19 presentation of a claim is required in regard to matters claimed in 20 proceedings against the decedent which were pending at the time 21 of the decedent’s death. 22 (5) Notwithstanding any other provision of this section, no 23 proceeding for enforcement or allowance of a claim or collection 24 of a debt may be commenced more than thirty days after the 25 personal representative has mailed a notice of disallowance or 26 partial disallowance of the claim in accordance with the provisions 27 of Section 623806. However, in the case of a claim which is not 28 presently due or which is contingent or unliquidated, the personal 29 representative may consent to an extension of the thirty day period, 30 or to avoid injustice the court, on petition presented to the court 31 prior to the expiration of the thirtyday period, may order an 32 extension of the thirtyday period, but in no event shall the 33 extension run beyond the applicable statute of limitations. 34 (6) Notwithstanding any other provision of this section, no 35 claim against a decedent’s estate may be presented or legal action 36 commenced against a decedent’s estate prior to the appointment of 37 a personal representative to administer the decedent’s estate. 38 (7) Any legal proceedings against or involving the decedent 39 and pending on the date of his death must be suspended until a 40 personal representative is appointed to administer the decedent’s 41 estate. 42 43 REPORTER’S COMMENTS [1243] 177 1 This section establishes the mechanism for presenting claims. The 2 claim may be delivered to the personal representative and must be 3 filed with the court. Certain information must be included for 4 claims not yet due, contingent, unliquidated, and secured claims. 5 In lieu of presenting a claim, a proceeding may be commenced 6 against a personal representative in any appropriate court, but the 7 commencement must occur within the time for presenting claims. 8 No claim is required in matters which were pending at the time of 9 decedent’s death. 10 Actions on claims must be commenced within the thirty days after 11 the personal representative has mailed a notice of disallowance, 12 but the personal representative or the court may consent prior to 13 the expiration of the thirtyday period to extensions which do not 14 run beyond the applicable statute of limitations. 15 16 Section 623805. Classification of claims. 17 18 (a) If the applicable assets of the estate are insufficient to pay 19 all claims in full, the personal representative shall make payment 20 in the following order: 21 (1) costs and expenses of administration, including 22 reasonable attorney’s fees, and; 23 (2) reasonable funeral expenses; 24 (3) debts and taxes with preference under federal law; 25 (2)(i)(4) reasonable and necessary medical and expenses, 26 hospital expenses, and personal care expenses of the last illness of 27 the decedent, including compensation of persons attending the 28 decedent prior to death; 29 (ii) medical assistance paid under Title XIX State Plan for 30 Medical Assistance as provided for in Section 437460; 31 (3) debts and taxes with preference under federal law; 32 (4)(5) debts and taxes with preference under other laws of 33 this State, in the order of their priority, including medical 34 assistance paid under Title XIX State Plan for Medical Assistance 35 as provided for in Section 437460; 36 (5)(6) all other claims. 37 (b) Except as is provided under subsection (a)(4)(5) above, no 38 preference shall be given in the payment of any claim over any 39 other claim of the same class, and a claim due and payable shall 40 not be entitled to a preference over claims not due. 41 (c) Any person advancing or lending money to a decedent’s 42 estate for the payment of a specific claim shall, to the extent of the[1243] 178 1 loan, have the same priority for payment as the claimant paid with 2 the proceeds of the loan. 3 4 REPORTER’S COMMENTS 5 This section sets up the classification of claims where the assets of 6 the estate are insufficient to pay all claims in full. Claims due and 7 payable are not entitled to a preference over claims not due. 8 9 Section 623806. (a) As to claims presented in the manner 10 described in Section 623804(1) within the time limit prescribed in 11 Section 623803, within sixty days after the presentment of the 12 claim, or within fourteen months after the death of the decedent, 13 whichever is later, the personal representative may mail must serve 14 upon the claimant a notice to any claimant stating that the claim 15 has been allowed or disallowed in whole or in part. Service of 16 such notice shall be by United States mail, personal service, or 17 otherwise as permitted by rule and a copy of the notice shall by 18 filed with the probate court along with proof of delivery setting 19 forth the date of mailing or other service on the claimant. A notice 20 of disallowance or partial disallowance of a claim must contain a 21 warning that the claim will be barred to the extent disallowed 22 unless the claimant commences a proceeding for allowance of the 23 claim in accordance with Section 623804(2) within thirty days of 24 the mailing or other service of the notice of disallowance or partial 25 disallowance. If, after allowing or disallowing a claim, the 26 personal representative changes his decision concerning the claim, 27 he shall notify the claimant. The personal representative may not 28 change a disallowance of a claim after the time for the claimant to 29 file a petition for allowance or to commence a proceeding on the 30 claim has run and the claim has been barred. Every claim which is 31 disallowed in whole or in part by the personal representative is 32 barred so far as not allowed unless the claimant files a petition for 33 allowance in the court or commences a proceeding for allowance 34 of the claim in accordance with Section 623804(2) not later than 35 thirty days after the mailing or other service against the personal 36 representative not later than thirty days after the mailing of the 37 notice of disallowance or partial allowance if the notice warns the 38 claimant of the impending bar. It is the responsibility of the 39 personal representative to notify the claimant if a claim is 40 disallowed disallowance by the personal representative. For good 41 cause shown, the court may reasonably extend the time for filing 42 the notice of allowance or disallowance of a properly filed claim. [1243] 179 1 (b) Upon service of the summons and petition of the personal 2 representative or of a claimant in a proceeding for the purpose, the 3 court may allow in whole or in part any claim or claims presented 4 to the personal representative or filed with the court in due time 5 and not barred by subsection (a) of this section. Notice of hearing 6 in this proceeding shall be given to the claimant, the personal 7 representative, and those other persons interested in the estate as 8 the court may direct by order entered at the time the proceeding is 9 commenced. The personal representative of a decedent’s estate 10 may commence a proceeding to obtain probate court approval of 11 the allowance, in whole or part, of any claim or claims presented in 12 the manner described in Section 623804(1), within the time limit 13 prescribed in Section 623803, and not barred by subsection (a). 14 The proceeding may be commenced by the filing of a summons 15 and petition with the probate court, and service of the same upon 16 the claimant or claimants whose claims are in issue; and such other 17 interested parties as the probate court may direct by order entered 18 at the time the proceeding is commenced. Notice of hearing on the 19 petition shall be given to interested parties in accordance with 20 Section 621401. 21 (c) A judgment in a proceeding in another court against a 22 personal representative to enforce a claim against a decedent’s 23 estate is an allowance of the claim. Upon obtaining such a 24 judgment a claimant must file a certified copy of its judgment with 25 the probate court in which the decedent’s estate is being 26 administered. 27 (d) Unless otherwise provided in any judgment in another court 28 entered against the personal representative and except from claims 29 under 3803(d), allowed claims bear interest at the legal rate (as 30 determined according to Section 343120(A)) for the period 31 commencing thirty days upon the later of fourteen months after the 32 time for original presentation of the claim has expired unless based 33 on a contract making a provision for interest, in which case they 34 bear interest in accordance with that provision date of the 35 decedent’s death or the last date upon which the claim could have 36 been properly presented under Section 623803; unless based on a 37 contract making a provision for interest, in which case the claim 38 bears interest in accordance with the terms of the contract 39 (e) Allowance of a claim is evidence the personal 40 representative accepts the claim as a valid debt of the decedent’s 41 estate. Allowance of a claim may not be construed to imply the 42 estate will have sufficient assets with which to pay the claim. 43[1243] 180 1 REPORTER’S COMMENTS 2 This section provides the procedure by which the personal 3 representative acts on claims and claimants react to disallowed 4 claims. Within thirty days after the mailing of notice of 5 disallowance, if the notice warns of the impending bar, a claimant 6 must commence a proceeding against the personal representative. 7 This relates to claims allowed in whole or in part. A claimant has 8 thirty days to react to a disallowed claim. A judgment in a 9 proceeding in another court to enforce a claim constitutes an 10 allowance of a claim. 11 Unless otherwise provided, or unless interest is based upon 12 contract, allowed claims bear interest at the legal rate commencing 13 thirty days after the time for original presentation of the claims has 14 expired. 15 The personal representative or the claimant may begin an action 16 in the court for allowance of the claim. This gives the courts 17 jurisdiction over any claim or claims presented to the personal 18 representative or filed with the court. 19 The 2010 amendment added ‘service of’ and ‘summons and’ in 20 the first sentence to clarify that a summons and petition are 21 required to commence a formal proceeding, including a formal 22 proceeding for allowance of claims. See 2010 amendments to 23 certain definitions in S.C. Code §621201 and also see §§1423280, 24 621304, and Rules 1 and 81, SCRCP. The 2010 amendment also 25 added ‘of hearing’ after ‘Notice’ in the last sentence to clarify the 26 notice of hearing requirements referred to in §621401. 27 The 2012 amendment defines allowance and imposes an 28 affirmative duty on the personal representative to either allow or 29 disallow a claim within time frames imposed by the code. 30 Under the 2012 amendment, unless the court approves an 31 extension of time, the personal representative must either allow or 32 disallow all properly presented claims and serve notice of the 33 allowance or disallowance of the claim on the claimant within the 34 later of sixty days from the presentment of the claim and fourteen 35 months from the date of the decedent’s death. 36 Service of the notice of allowance or disallowance can be made 37 by mail or some other form of delivery. If a notice of disallowance 38 is sent by mail, the thirty day period for filing a petition for 39 allowance of claim, starts to run on the date of mailing. 40 A claim can be allowed, disallowed, or allowed in part and 41 disallowed in part. The code does not establish a penalty for 42 failure of the personal representative to comply with the 43 requirement to notify the claimant, but instead relies on the[1243] 181 1 authority of the probate court to remove a personal representative 2 for failure to perform his duties under the code. 3 The 2012 amendment imposes on a person obtaining a judgment 4 against an estate in a court other than the probate court an 5 obligation to provide the probate court with a certified copy of the 6 judgment. 7 The 2012 amendment modifies the interest rules in regard to the 8 properly presented claims against the decedent’s estate. Interest on 9 a claim begins to run upon the later of fourteen months after the 10 decedent’s death or the last day upon which the claim could be 11 properly presented, unless the claim is based on a contract 12 providing for interest. 13 The 2012 amendment requires that interested persons be notified 14 of hearings on petitions for allowance of claim. 15 16 Section 623807. (a) Upon the expiration of the applicable time 17 limitation provided in Section 623803 for the presentation of 18 claims, the personal representative shall proceed to pay the claims 19 allowed against the estate in the order of priority prescribed, after 20 making provision for homestead, for exempt property under 21 Section 622401, for claims already presented which have not yet 22 been allowed or whose allowance has been appealed, and for 23 unbarred claims which may yet be presented, including costs and 24 expenses of administration. By petition to the court in a 25 proceeding for the purpose, or by appropriate motion if the 26 administration is under Part 5, a claimant whose claim has been 27 allowed but not paid as provided herein may secure an order 28 directing the personal representative to pay the claim to the extent 29 that funds of the estate are available for the payment. Prior to the 30 closing of the estate and no later than fourteen months after the 31 decedent’s death, the personal representative must proceed to pay 32 the claims allowed against the estate in the order of priority 33 prescribed; and after making provision for the homestead, for 34 exempt property under Section 622401, for claims already 35 presented which have not been allowed or whose disallowance is 36 the subject of a legal proceeding, or the time to file such a 37 proceeding has not expired, and for unbarred claims which may 38 yet be presented, including costs and expenses of administration. 39 Upon application of the personal representative and for good cause 40 shown, the probate court may extend the time for payment of 41 creditor claims. 42 (b) Upon the expiration of the applicable time limitation 43 provided in Section 623803 for the presentation of claims, any[1243] 182 1 claimant whose claim has been allowed, or partially allowed, 2 under Section 623806 may petition the probate court, or file an 3 appropriate motion if the administration is under Part 5, for an 4 order directing the personal representative to pay the claim, to the 5 extent allowed, and to the extent assets of the estate are available 6 for payment without impairing the ability of the personal 7 representative to fulfill the other obligations of the decedent’s 8 estate. 9 (c) The personal representative at any time may pay any just 10 claim which has not been barred, with or without formal 11 presentation, but he is personally liable to any other claimant 12 whose claim is allowed and who is injured by such payment if: 13 (1) the payment was made before the expiration of the time 14 limit stated in subsection (a) set forth in Section 623803 for the 15 presentation of a claim, and the personal representative failed to 16 require the payee to give adequate security for the refund of any of 17 the payment necessary to pay other claimants; or 18 (2) the payment was made, due to the negligence or wilful 19 fault of the personal representative, in such manner as to deprive 20 the injured claimant of his priority. 21 22 REPORTER’S COMMENTS 23 This provides a remedy for a claimant whose claim has been 24 allowed but has not been paid. Under Section 623807(c), a 25 personal representative is liable for claims paid out of order. 26 27 Section 623808. (a) Unless otherwise provided in the contract, 28 a personal representative is not individually liable on a contract 29 properly entered into in his fiduciary capacity in the course of 30 administration of the estate unless he fails to reveal his 31 representative capacity or identify the estate in the contract. 32 (b) A personal representative is individually liable for 33 obligations arising from ownership or control of the estate or for 34 torts committed in the course of administration of the estate only if 35 he is personally at fault. 36 (c) Claims based on contracts entered into by a personal 37 representative in his fiduciary capacity, on obligations arising from 38 ownership or control of the estate or on torts committed in the 39 course of estate administration may be asserted against the estate 40 by proceeding against the personal representative in his fiduciary 41 capacity, whether or not the personal representative is individually 42 liable therefor. [1243] 183 1 (d) Issues of liability as between the estate and the personal 2 representative individually may be determined in a proceeding for 3 accounting, surcharge, or indemnification or other appropriate 4 proceeding. 5 6 REPORTER’S COMMENTS 7 This section clarifies that the personal representative is not 8 individually liable for contracts properly entered into in his 9 fiduciary capacity on obligations arising from ownership or control 10 of the estate. He is liable for torts committed in the course of his 11 administration only if he is personally at fault. 12 It also provides for a variety of appropriate proceedings to 13 determine the issues of liability between the estate and the personal 14 representative. 15 16 Section 623809. Payment of a secured claim is upon the basis of 17 the amount allowed if the creditor surrenders his security; 18 otherwise, payment is upon the basis of one of the following: 19 (1) if the creditor exhausts his security before receiving 20 payment, upon the amount of the claim allowed less the fair 21 market value of the security as agreed by the parties, or as 22 determined by the court; or 23 (2) if the creditor does not have the right to exhaust his security 24 or has not done so, upon the amount of the claim allowed less the 25 value of the security determined by converting it into money 26 according to the terms of the agreement pursuant to which the 27 security was delivered to the creditor, or by the creditor and 28 personal representative by agreement, arbitration, compromise, or 29 litigation. 30 31 REPORTER’S COMMENTS 32 This provides for payment of allowed secured claims in full if the 33 security is surrendered by the creditor. 34 Where the creditor exhausts his security before receiving payment, 35 he receives the claim allowed less the fair market value of security 36 as agreed or determined by the court. 37 If the security has not been exhausted, the creditor is paid the 38 amount of the claim less the value of the security if covered. 39 40 Section 623810. (a) If a claim which will become due at a 41 future time or a contingent or unliquidated claim becomes due or 42 certain before the distribution of the estate, and if the claim has[1243] 184 1 been allowed or established by a proceeding, it is paid in the same 2 manner as presently due and absolute claims of the same class. 3 (b) In other cases the personal representative or, on petition of 4 the personal representative or the claimant in a special proceeding 5 for the purpose, the court may provide for payment as follows: 6 (1) if the claimant consents, he may be paid the present or 7 agreed value of the claim, taking any uncertainty into account; 8 (2) arrangement for future payment, or possible payment, on 9 the happening of the contingency or on liquidation may be made 10 by creating a trust, giving a mortgage or other security interest, 11 obtaining a bond or security from a distributee, or otherwise. 12 13 REPORTER’S COMMENTS 14 This provides various arrangements by which the personal 15 representative can secure future payment of claims which are not 16 due, contingent, or unliquidated. 17 18 Section 623811. In allowing a claim, the personal representative 19 may deduct any counterclaim which the estate has against the 20 claimant. In determining a claim against an estate, a court shall 21 reduce the amount allowed by the amount of any counterclaims 22 allowed and, if such counterclaims exceed the claim, render a 23 judgment against the claimant in the amount of the excess. A 24 counterclaim, liquidated or unliquidated, may arise from a 25 transaction other than that upon which the claim is based. A 26 counterclaim may give rise to relief exceeding in amount or 27 different in kind from that sought in the claim. 28 29 REPORTER’S COMMENTS 30 This provides for the reduction of a claim against the estate by any 31 counterclaim, liquidated or unliquidated. 32 33 Section 623812. No execution may issue upon nor may any levy 34 be made against any property of the estate under any judgment 35 against a decedent or a personal representative, but this section 36 shall not be construed to prevent the enforcement of mortgages, 37 pledges, liens, or other security interests upon real or personal 38 property in an appropriate proceeding. 39 40 REPORTER’S COMMENTS 41 This prohibits executions and levies against property of the estate 42 under judgments against the decedent or the personal[1243] 185 1 representative, but excepts enforcement of mortgages, pledges, and 2 liens in appropriate proceedings. 3 4 Section 623813. When a claim against the estate has been 5 presented in any manner, the personal representative may, if it 6 appears for the best interest of the estate, compromise the claim, 7 whether due or not due, absolute or contingent, liquidated or 8 unliquidated. 9 10 REPORTER’S COMMENTS 11 This section gives the personal representative the authority to 12 compromise claims in the best interests of the estate. The consent 13 of the probate judge is not necessary. 14 15 Section 623814. If any assets of the estate are encumbered by 16 mortgage, pledge, lien, or other security interest, the personal 17 representative may pay the encumbrance or any part thereof, 18 renew, or extend any obligation secured by the encumbrance or 19 convey or transfer the assets to the creditor in satisfaction of his 20 lien, in whole or in part, whether or not the holder of the 21 encumbrance has presented a claim, if it appears to be for the best 22 interest of the estate. Payment of an encumbrance does not 23 increase the share of the distributee entitled to the encumbered 24 assets unless the distributee is entitled to exoneration. 25 26 REPORTER’S COMMENTS 27 This gives the personal representative essential authority to deal 28 with encumbered assets. 29 30 Section 623815. (a) All assets of estates being administered in 31 this State are subject to all claims, allowances, and charges 32 existing or established against the personal representative 33 wherever appointed. 34 (b) If the estate either in this State or as a whole is insufficient 35 to cover all family exemptions and allowances determined by the 36 law of the decedent’s domicile, prior charges and claims, after 37 satisfaction of the exemptions, allowances, and charges, each 38 claimant whose claim has been allowed either in this State or 39 elsewhere in administrations of which the personal representative 40 is aware, is entitled to receive payment of an equal proportion of 41 his claim. If a preference or security in regard to a claim is 42 allowed in another jurisdiction but not in this State, the creditor so[1243] 186 1 benefited is to receive dividends from local assets only upon the 2 balance of his claim after deducting the amount of the benefit. 3 (c) In case the family exemptions and allowances, prior 4 charges, and claims of the entire estate exceed the total value of the 5 portions of the estate being administered separately and this State 6 is not the state of the decedent’s last domicile, the claims allowed 7 in this State shall be paid their proportion if local assets are 8 adequate for the purpose, and the balance of local assets shall be 9 transferred to the domiciliary personal representative. If local 10 assets are not sufficient to pay all claims allowed in this State the 11 amount to which they are entitled, local assets shall be marshaled 12 so that each claim allowed in this State is paid its proportion as far 13 as possible, after taking into account all dividends on claims 14 allowed in this State from assets in other jurisdictions. 15 16 REPORTER’S COMMENTS 17 This section deals with various matters related to the payment of 18 claims where there is administration in more than one state. As to 19 the order of priorities of payment of claims, local creditors are not 20 preferred over creditors in the decedent’s domicile. 21 22 Section 623816. The estate of a nonresident decedent being 23 administered by a personal representative appointed in this State 24 shall, if there is a personal representative of the decedent’s 25 domicile willing to receive it, be distributed to the domiciliary 26 personal representative for the benefit of the successors of the 27 decedent unless: (1) by virtue of the decedent’s will, if any, and 28 applicable choice of law rules, the successors are identified 29 pursuant to the local law of this State without reference to the local 30 law of the decedent’s domicile; (2) the personal representative of 31 this State, after reasonable inquiry is unaware of the existence or 32 identity of a domiciliary personal representative; or (3) the court 33 orders otherwise in a proceeding for a closing order under Section 34 6231001 or incident to the closing of an administration under Part 35 5 [Sections 623501 et seq.]. In other cases, distribution of the 36 estate of a decedent shall be made in accordance with the other 37 parts of this article [Sections 623101 et seq.]. 38 39 REPORTER’S COMMENTS 40 The estate of a nonresident decedent being administered in this 41 State is, upon conclusion of the local administration, paid over to 42 the domiciliary personal representative. 43[1243] 187 1 Part 9 2 3 SPECIAL PROVISIONS RELATING TO DISTRIBUTION 4 5 Section 623901. In the absence of administration, the devisees 6 are entitled to the estate in accordance with the terms of a probated 7 will and the heirs in accordance with the laws of intestate 8 succession. Devisees may establish title by the probated will to 9 devised property. Persons entitled to property by exemption or 10 intestacy may establish title thereto by proof of the decedent’s 11 ownership, his death, and their relationship to the decedent. 12 Successors take subject to all charges incident to administration, 13 including the claims of creditors and subject to the rights of others 14 resulting from abatement, retainer, advancement, and ademption, 15 and elective share. 16 17 REPORTER’S COMMENTS 18 This section governs the rights of heirs and devisees when the 19 administrator of an estate is not able to proceed for one reason or 20 another or in the absence of administration. This section provides 21 that in the absence of administration the rights of the heirs or 22 devisees will be established by the laws of intestate succession or 23 by the terms of a probated will. Without an administration, heirs 24 and devisees take the property subject to charges, such as charges 25 incident to administration and creditors’ claims. In addition, 26 successors in title are ‘subject to the rights of others’ which may 27 result from ‘abatement, retainer, advancement, ademption and 28 elective share.’ 29 30 Section 623902. (a) Except as provided in subsection (b), and 31 except as provided in connection with the share of the surviving 32 spouse who elects to take an elective share, shares of distributees 33 abate, without any preference or priority as between real and 34 personal property, in the following order: (1) property not 35 disposed of by the will; (2) residuary devises; (3) general devises; 36 (4) specific devises. For purposes of abatement, a general devise 37 charged on any specific property or fund is a specific devise to the 38 extent of the value of the property on which it is charged, and upon 39 the failure or insufficiency of the property on which it is charged, a 40 general devise to the extent of the failure or insufficiency. 41 Abatement within each classification is in proportion to the 42 amounts of property each of the beneficiaries would have received[1243] 188 1 if full distribution of the property had been made in accordance 2 with the terms of the will. 3 (b) If the will expresses an order of abatement, or if the 4 testamentary plan or the express or implied purpose of the devise 5 would be defeated by the order of abatement stated in subsection 6 (a), as, for instance, in case the will was executed before the 7 effective date of this Code, the shares of the distributees abate as 8 may be found necessary to give effect to the intention of the 9 testator. 10 (c) If the subject of a preferred devise is sold or used incident 11 to administration, abatement shall be achieved by appropriate 12 adjustments in, or contribution from, other interests in the 13 remaining assets. 14 15 REPORTER’S COMMENTS 16 The purpose of Section 623902 is to provide a defined order in 17 which assets of an estate are used or applied for the payment of 18 debts, in the absence of intent by the testator that an alternate order 19 of abatement be used. The design of this section is to insure that 20 the testator’s intent, whether expressed or implied by the terms of 21 the will, would be given first priority in the order of abatement. 22 The section is to be used only to resolve doubts as to the testator’s 23 intent, rather than defeating his purpose. 24 Under this section, there is no distinction made with regard to the 25 character of the assets. A devise encompasses any testamentary 26 passage of property, whether real estate or personalty. Within 27 classifications, abatement will be prorata. 28 29 Section 623903. The amount of a liquidated indebtedness of a 30 successor to the estate if due, or its present value if not due, shall 31 be offset against the successor’s interest; but the successor has the 32 benefit of any defense which would be available to him in a direct 33 proceeding for recovery of the debt. 34 35 REPORTER’S COMMENTS 36 This section provides that if the amount of liquidated indebtedness 37 of a successor to the estate is due, then the personal representative 38 is to offset any devise to that successor by the amount of the 39 liquidated indebtedness. In the event the indebtedness is liquidated 40 but not yet due, the representative can use the present value of the 41 indebtedness to offset that amount against the devise to the 42 successor. 43[1243] 189 1 Section 623905. A provision in a will purporting to penalize any 2 interested person for contesting the will or instituting other 3 proceedings relating to the estate is unenforceable if probable 4 cause exists for instituting proceedings. 5 6 Section 623906. (a) Unless a contrary intention is indicated by 7 the will, such as the grant to the personal representative of a power 8 of sale, the distributable assets of a decedent’s estate must be 9 distributed in kind to the extent possible through application of the 10 following provisions: 11 (1) A specific devisee is entitled to distribution of the thing 12 devised to him, and a spouse or child who has selected particular 13 assets of an estate as provided in Section 622401 shall receive the 14 items selected. 15 (2) Any devise payable in money may be satisfied by value 16 in kind provided: 17 (i) the person entitled to the payment has not demanded 18 payment in cash; 19 (ii) the property distributed in kind is valued at fair market 20 value as of the date of its distribution; and 21 (iii) no residuary devisee has requested that the asset in 22 question remain a part of the residue of the estate. 23 (3) For the purpose of valuation under paragraph (2), 24 securities regularly traded on recognized exchanges, if distributed 25 in kind, are valued at the price for the last sale of like securities 26 traded on the business day prior to distribution, or if there was no 27 sale on that day, at the median between amounts bid and offered at 28 the close of that day. Assets consisting of sums owed the decedent 29 or the estate by solvent debtors as to which there is no known 30 dispute or defense are valued at the sum due with accrued interest 31 or discounted to the date of distribution. For assets which do not 32 have readily ascertainable values, a valuation as of a date not more 33 than thirty days prior to the date of distribution, if otherwise 34 reasonable, controls. For purposes of facilitating distribution, the 35 personal representative may ascertain the value of the assets as of 36 the time of the proposed distribution in any reasonable way, 37 including the employment of qualified appraisers, even if the 38 assets may have been previously appraised. 39 (4) The personal property of the residuary estate must be 40 distributed in kind if there is no objection to the proposed 41 distribution and it is practicable to distribute undivided interests. 42 Subject to the provisions of Section 623711(b), in other cases,[1243] 190 1 personal property of the residuary estate may be converted into 2 cash for distribution. 3 (b) After the probable charges against the estate are known, the 4 personal representative may mail or deliver a proposal for 5 distribution to all persons who have a right to object to the 6 proposed distribution, notifying such persons of the pending 7 termination of the right to object to the proposed distribution. The 8 right of any distributee to object to the proposed distribution on the 9 basis of the kind or value of asset he is to receive, if not waived 10 earlier in writing, terminates if he fails to object in writing received 11 by the personal representative within thirty days after mailing or 12 delivery of the proposal. 13 (c) When a personal representative or a trustee is empowered 14 under the will or trust of a decedent to satisfy a pecuniary bequest, 15 devise, or transfer in trust, in kind with assets at their value for 16 federal estate tax purposes, the fiduciary, in order to implement the 17 bequest, devise, or transfer in trust, shall, unless the governing 18 instrument provides otherwise, distribute assets, including cash, 19 fairly representative of appreciation or depreciation in the value of 20 all property thus available for distribution in satisfaction of the 21 pecuniary bequest, devise, or transfer. 22 (d) Personal representatives and trustees are authorized to enter 23 into agreements with beneficiaries and with governmental 24 authorities, agreeing to make distribution in accordance with the 25 terms of Section 623906 for any purpose which they consider to be 26 in the best interests of the estate, including the purpose of 27 protecting and preserving the federal estate tax marital deduction 28 as applicable to the estate, and the guardian or conservator of a 29 surviving beneficiary or the personal representative of a deceased 30 beneficiary is empowered to enter into such agreements for and on 31 behalf of the beneficiary or the deceased beneficiary. 32 (e) The provisions of Section 623906 are not intended to 33 change the present laws applicable to fiduciaries, but are 34 statements of the fiduciary principles applicable to these 35 fiduciaries and are declaratory of these laws. 36 37 REPORTER’S COMMENTS 38 Section 623906(a) establishes a preference for distributions ‘in 39 kind.’ 40 Section 623906(a) sets out the rights of the three classes of 41 successors specific devisees (623906(a)(1)), general pecuniary 42 devisees (623906(a)(2)), and residuary devisees (623906(a)(3)). [1243] 191 1 As to specific devisees, Section 623906(a)(1) provides that the 2 specific devisee is entitled to the thing devised to him. 3 Section 623906(a)(2) authorizes the personal representative to 4 make ‘in kind’ distributions to satisfy devises payable in money 5 (general pecuniary devises) provided (1) the devisee has not 6 demanded payment in cash, (2) the property is fairly valued as of 7 the date of distribution under Section 623906(a)(3) and, (3) a 8 residuary devisee has not requested that the asset remain part of 9 the residue estate. 10 Residuary devisees are to receive ‘in kind’ distribution provided 11 (1) there is no objection to the proposed distribution and (2) it is 12 practicable to distribute undivided interests. 13 Section 623906(b) provides that the personal representative may 14 submit a proposal for distribution to all parties in interest. This 15 section effectively eliminates the interested party’s right to object 16 to the distribution if he fails to object to the plan in writing within 17 thirty days from receipt of the proposal. 18 The 2012 amendment added to 623906(b) the requirement of 19 notice of deadline to object to proposed distribution. 20 21 Section 623907. (A) If distribution in kind is made, whether 22 real or personal property, the personal representative must execute 23 an instrument or a deed of distribution with respect to real property 24 and such other necessary or appropriate instrument of conveyance 25 with respect to personal property, assigning, transferring, or 26 releasing the assets to the distributee as evidence of the 27 distributee’s title to the property. 28 (B) If the decedent dies intestate or devises real property to a 29 distributee, the personal representative’s execution of a deed of 30 distribution of real property constitutes a release of the personal 31 representative’s power over the title to the real property, which 32 power is equivalent to that of an absolute owner, in trust, however, 33 for the benefit of the creditors and others interested in the estate, 34 provided by Section 623711(a). The deed of distribution affords 35 the distributee and his purchasers or encumbrancers the protection 36 provided in Sections 623908 and 623910. 37 (C) If the decedent devises real property to a personal 38 representative, either in a specific or residuary devise, the personal 39 representative’s execution of a deed of distribution of the real 40 property constitutes a transfer of the title to the real property from 41 the personal representative to the distributee, as well as a release of 42 the personal representative’s power over the title to the real 43 property, which power is equivalent to that of an absolute owner,[1243] 192 1 in trust, however, for the benefit of the creditors and others 2 interested in the estate, provided by Section 623711(a). The deed 3 of distribution affords the distributee, and his purchasers or 4 encumbrancers, the protection provided in Sections 623908 and 5 623910. 6 (D) The personal representative’s execution of an instrument or 7 deed of distribution of personal property constitutes a transfer of 8 the title to the personal property from the personal representative 9 to the distributee, as well as a release of the personal 10 representative’s power over the title to the personal property, 11 which power is equivalent to that of an absolute owner, in trust, 12 however, for the benefit of the creditors and others interested in the 13 estate, provided by Section 623711(a). 14 15 REPORTER’S COMMENTS 16 This section provides that evidence of distribution ‘in kind’ will be 17 in the form of an instrument or deed of distribution which the 18 personal representative will give to the distributees. This 19 instrument serves as a transfer of the interest an estate had in an 20 asset or assets. Sections 623907 should be read in conjunction 21 with Sections 623908 through 623910 to determine rights of 22 distributees and purchasers therefrom. In addition the personal 23 representative may use this instrument as a release under Section 24 623709 where the representative determines that certain assets of 25 the decedent’s estate should be left in the possession of the party 26 who would ultimately receive these assets by way of distribution 27 ‘in kind.’ 28 The 2012 amendments revised subsection (a) to provide that, 29 while a deed of distribution is required for real property, with 30 respect to personal property the personal representative may 31 execute an appropriate instrument evidencing the conveyance of 32 title. 33 34 Section 623908. Proof that a distributee has received an 35 instrument or deed of distribution of assets in kind whether real or 36 personal property, or payment in distribution, from a personal 37 representative is conclusive evidence that the distributee has 38 succeeded to the interest of the estate in the distributed assets, as 39 against all persons interested in the estate, except that the personal 40 representative may recover the assets or their value if the 41 distribution was improper. An improper distribution includes, but 42 is not limited to, those instances where the instrument or deed of[1243] 193 1 distribution is found to be inconsistent with the provisions of the 2 will or statutes governing intestacy. 3 4 REPORTER’S COMMENTS 5 Section 623908 contemplates that all actions for overpayment to a 6 devisee be funneled through the personal representative. 7 8 Section 623909. Unless the distribution or payment no longer 9 can be questioned because of adjudication, estoppel, or limitation, 10 a distributee of property improperly distributed or paid, or a 11 claimant who was improperly paid, is liable to return the property 12 improperly received and its income since distribution if he has the 13 property. If he does not have the property, then he is liable to 14 return the value as of the date of disposition of the property 15 improperly received and its income and gain received by him. 16 17 REPORTER’S COMMENTS 18 This section provides that an innocent distributee does not have the 19 protection of a bona fide purchaser. The purpose of Section 20 623909 is to shift questions concerning propriety of distribution 21 from fiduciary to distributees. It should be remembered that a 22 distribution under Section 623703 may be ‘authorized at the time’ 23 but may still be improper under this section. 24 The provisions of Sections 623909 and 623910 establish the 25 proposition that liability follows the property. 26 27 Section 623910. (A) If property distributed in kind (whether 28 real or personal property) or a mortgage or other security interest 29 therein is acquired for value by a purchaser from or lender to a 30 distributee who has received an instrument or deed of distribution 31 from the personal representative, or is so acquired by a purchaser 32 from or lender to a transferee from such distributee, the purchaser 33 or lender takes title free of rights of any interested person in the 34 estate and incurs no personal liability to the estate, or to any 35 interested persons, whether or not the distribution was proper or 36 supported by court order or the authority of the personal 37 representative was terminated before execution of the instrument 38 or deed. This section protects a purchaser from or lender to a 39 distributee who, as personal representative, has executed a deed of 40 distribution to himself, as well as a purchaser from or lender to any 41 other distributee or his transferee. To be protected under this 42 provision, a purchaser or lender need not inquire whether a 43 personal representative acted properly in making the distribution in[1243] 194 1 kind, even if the personal representative and the distributee are the 2 same person, or whether the authority of the personal 3 representative had terminated before the distribution. Any 4 recorded instrument described in this section on which the 5 appropriate documentary or revenue stamps are affixed deed 6 recording fee prescribed by Chapter 24, Title 12, has been paid, 7 and which has been recorded is prima facie evidence that the 8 transfer sale was made for value. 9 (B) If a will devises real property to a personal representative 10 or authorizes a personal representative to sell real property (the 11 title to which was not devised to the personal representative), a 12 purchaser for value who receives a deed from the personal 13 representative takes title to the real property free of rights of any 14 heirs or devisees or other interested person in the estate and incurs 15 no personal liability to the estate or to any heir or devisee or other 16 interested person in the estate. The purchaser is protected whether 17 or not the sale was proper and regardless of whether the heirs or 18 devisees to whom title devolved pursuant to Section 623101 19 executed or consented to the deed, because the personal 20 representative exercises the power of sale in trust, for the benefit of 21 ; however, creditors, and others interested in the estate, who have a 22 right of recourse against the personal representative under Section 23 623712 if the sale constitutes a breach of the personal 24 representative’s fiduciary duty. This section protects a purchaser 25 of real property from a personal representative who has title to the 26 real property or who has sold real property to the purchaser 27 pursuant to an authorization in the will. To be protected under this 28 provision, a purchaser need not inquire whether a personal 29 representative acted properly in making the sale, even if the 30 personal representative and the purchaser are the same person, or 31 whether the authority of the personal representative had terminated 32 before the sale. Any recorded instrument described in this section 33 on which the appropriate documentary or revenue stamps are 34 affixed deed recording fee prescribed by Chapter 24, Title 12 has 35 been paid, and which has been recorded is prima facie evidence 36 that the sale was made for value. 37 38 REPORTER’S COMMENTS 39 Section 623910 provides that an instrument of distribution (as 40 defined in Section 623907) is an essential element in the chain of 41 title to ensure that purchasers or lenders from or to a distributee 42 would have good title. 43[1243] 195 1 Section 623911. For purposes of this section, ‘interested heirs or 2 devisees’ means those heirs or devisees who are entitled to an 3 interest in the real or personal property that is subject to partition 4 pursuant to this section. When two or more heirs or devisees are 5 entitled to distribution of undivided interests in any personal or 6 real property of the estate, the personal representative or one or 7 more of the interested heirs or devisees may petition the court prior 8 to the closing of the estate, to make partition. After service of 9 summons and petition and after notice to the interested heirs or 10 devisees, the court shall partition the property in kind if it can be 11 fairly and equitably partitioned in kind. If not subject to fair and 12 equitable partition in kind, the court shall direct the personal 13 representative to sell the property and distribute the proceeds the 14 manner provided in this section. 15 (1) The court shall partition the property in kind if it can be 16 fairly and equitably partitioned in kind. 17 (2) If the property cannot be fairly and equitably partitioned in 18 kind, the court shall direct the personal representative to sell the 19 property and distribute the proceeds subject to the following 20 provisions of this item. 21 (a) The court shall provide for the nonpetitioning interested 22 heirs or devisees who wish to purchase the property to notify the 23 court of that interest no later than ten days prior to the date set for 24 a hearing on the partition. The nonpetitioning interested heirs or 25 devisees shall be allowed to purchase the interests in the property 26 as provided in this section whether default has been entered against 27 them or not. 28 (b) In the circumstances described in subitem (a) of this 29 section, and in the event the interested heirs or devisees cannot 30 reach agreement as to the price, the value of the interest or 31 interests to be sold shall be determined by one or more competent 32 appraisers, as the court shall approve, appointed for that purpose 33 by the court. The appraisers appointed pursuant to this section 34 shall make their report in writing to the court within thirty days 35 after their appointment. The costs of the appraisers appointed 36 pursuant to this section shall be taxed as a part of the cost of court 37 to those seeking to purchase the interests of the heirs or devisees in 38 the property described in the petition for partition. 39 (c) In the event that the interested heirs or devisees object to 40 the value of the property interests as determined by the appointed 41 appraisers, those heirs or devisees shall have ten days from the 42 date of filing of the report to file written notice of objection to the 43 report and request a hearing before the court on the value of the[1243] 196 1 interest or interests. An evidentiary hearing limited to the 2 proposed valuation of the property interests of the interested heirs 3 or devisees shall be conducted, and an order as to the valuation of 4 the interests of the interested heirs and devisees shall be issued. 5 (d) After the valuation of the interests in the property is 6 completed as provided in subitems (b) or (c) of this item, the 7 interested heirs or devisees seeking to purchase the interests of the 8 other interested heirs or devisees shall have fortyfive days to pay 9 into the court the price set as the value of those interests to be 10 purchased, in such shares and proportions as the court shall 11 determine. Upon the payment and approval of it by the court, the 12 court shall direct the personal representative to execute and deliver 13 the proper instruments transferring title to the purchasers. 14 (e) In the event that the interested heirs or devisees seeking 15 to purchase the partitioned property fail to pay the purchase price 16 as provided in subitem (d) of this item, the court shall proceed 17 according to the traditional practices of circuit courts in partition 18 sales. 19 20 REPORTER’S COMMENTS 21 This section makes provision for the probate court to partition 22 personal property. 23 The 2010 amendment added ‘service of summons and petition 24 and after’ in the second sentence to clarify that a summons and 25 petition are required to commence a formal proceeding, including 26 a formal proceeding for purpose of distribution and to make 27 partition. See 2010 amendments to certain definitions in S.C. 28 Code §621201 and also see §§1423280, 621304, and Rules 1 and 29 81, SCRCP. 30 Under the 2012 amendment Section 623911 has been rewritten 31 to provide a method of partition in probate court comparable to the 32 procedure in circuit court pursuant to section 156125. 33 34 Section 623912. Subject to the rights of creditors and taxing 35 authorities, competent successors may agree among themselves to 36 alter the interests, shares, or amounts to which they are entitled 37 under the will of the decedent, or under the laws of intestacy, in 38 any way that they provide in a written contract executed by all who 39 are affected by its provisions. The personal representative shall 40 abide by the terms of the agreement subject to his obligation to 41 administer the estate for the benefit of creditors, to pay all taxes 42 and costs of administration, and to carry out the responsibilities of 43 his office for the benefit of any successors of the decedent who are[1243] 197 1 not parties. Personal representatives of decedents’ estates are not 2 required to see to the performance of trusts if the trustee thereof is 3 another person who is willing to accept the trust. Accordingly, 4 trustees of a testamentary trust are successors for the purposes of 5 this section. Nothing herein relieves trustees of any duties owed to 6 beneficiaries of trusts. 7 8 REPORTER’S COMMENTS 9 Section 623912 sanctions settlement agreements among successors 10 allowing them to vary the distributions of an estate, whether testate 11 or intestate, without the necessity of seeking court approval. 12 13 14 Section 623913. (a) Before distributing to a trustee, the 15 personal representative may require that the trust be registered if 16 the state in which it is to be administered provides for registration 17 and that the trustee inform the beneficiaries as provided in Section 18 627813. 19 (b) If the trust instrument does not excuse the trustee from 20 giving bond, the personal representative may petition the 21 appropriate court to require that the trustee post bond if he 22 apprehends that distribution might jeopardize the interests of 23 persons who are not able to protect themselves, and he may 24 withhold distribution until the court has acted. 25 (c) No inference of negligence on the part of the personal 26 representative shall be drawn from his failure to exercise the 27 authority conferred by subsections (a) and (b). 28 29 REPORTER’S COMMENTS 30 This section gives the right to the personal representative to require 31 a trustee to register where the state law allows for registration. In 32 addition this section permits the representative to require that a 33 trustee post a bond unless the trust document provides otherwise. 34 This section grants powers to the representative to withhold 35 distributions to a trust where the representative feels that the 36 beneficiaries may not be informed of the existence of the trust or 37 when the representative has doubts as to the capability and 38 competency of the trustee or of the trustee’s intention to hold the 39 funds without profit to himself. 40 Under this section, testamentary trustees would enjoy the status of 41 a devisee, distributee, and successor. 42[1243] 198 1 Section 623914. (a) If after the expiration of eight months 2 from the appointment of the personal representative of a decedent 3 it appears to the satisfaction of the court by whom the appointment 4 was granted that the personal representative of the estate is unable 5 to ascertain the whereabouts of a person entitled to be heir or 6 devisee of the estate or whether a person who, if living, would be 7 entitled as heir or devisee of this estate is dead or alive, the court 8 may issue a notice addressed to all persons interested in the estate 9 as heirs or devisees calling on the person whose whereabouts or 10 the fact of whose death is unknown, his personal representatives, 11 or heirs or devisees, to appear before the court on a certain day and 12 hour as specified in this notice and to show cause why the personal 13 representative should not be ordered to distribute the estate as if 14 the person whose whereabouts or the fact of whose death is 15 unknown had died before the decedent, and notifying all persons 16 entitled to the estate as heir or devisee, or otherwise, to appear on a 17 designated day and time before the court to intervene for their 18 interest in the estate. The day fixed in the notice, on which cause 19 must be shown, must not be less than one month after the date of 20 the first publication of the notice. 21 (b) The notice must be published once a week for three 22 successive weeks in a newspaper published in the county in which 23 the court is held. The court has the right, in its discretion, to order 24 the notice to be published once a week for three successive weeks 25 in one other newspaper published in another place most likely to 26 give notice to interested persons. 27 (c) The publication of the notice as prescribed in subsection (b) 28 must be proved by filing with the court copies of the newspapers 29 containing the publication of the notice and or the affidavit of the 30 publishers or printers of the respective newspapers. 31 (d) At the time fixed in the notice for cause to be shown, due 32 proof of publication having been made and filed as required by 33 subsection (c), if no person appears as required, the court must 34 decree distribution of the estate to be made as if the person whose 35 whereabouts or the fact of whose death is unknown had died 36 before the decedent. Distribution by the personal representative is 37 a full and complete discharge to the personal representative. 38 (e) At the time fixed in the notice for cause to be shown, due 39 proof of publication having been made and filed as required by 40 subsection (c), if the person whose whereabouts or the fact of 41 whose death was unknown appears, all further proceedings must 42 be discharged. [1243] 199 1 (f) If the identity of the person appearing is disputed by the 2 personal representative, an heir or devisee of the decedent or the 3 legal representatives of an heir or devisee, the court must proceed 4 to hear and determine the controversy. If the controversy is 5 determined against the person appearing, distribution of the estate 6 must be made as prescribed in subsection (d); but if the 7 controversy is determined in favor of the party appearing, he is 8 considered to be the person whose whereabouts or the fact of 9 whose death was unknown. The determination in either case is 10 subject to appeal as provided in Section 621308. 11 (g) At the expiration of the time fixed in the notice for cause to 12 be shown, due proof of publication having been made and filed as 13 required by subsection (c), if a person appears claiming to be heir, 14 devisee, or personal representative of the person whose 15 whereabouts or the fact of whose death is unknown or to be 16 otherwise entitled to his estate and claiming a distributive share in 17 the decedent’s estate, the court shall proceed to hear and determine 18 whether the person whose whereabouts or the fact of whose death 19 is unknown died before or after the decedent, and if the 20 determination is that the person whose whereabouts or the fact of 21 whose death is unknown died before the decedent, distribution of 22 the decedent’s estate must be made accordingly; but if the court 23 determines that the person whose whereabouts or the fact of whose 24 death is unknown died after the death of the decedent, the 25 distributive share of the person must be paid and delivered by the 26 personal representative to the person legally entitled to receive it, 27 the determination in either case, is subject to appeal as provided in 28 Section 621308. 29 (h) Instead of the procedure required in this section, an 30 unclaimed devise or intestate share of one hundred five thousand 31 dollars or less may be paid or transferred by the personal 32 representative to the South Carolina State Treasurer. 33 34 REPORTER’S COMMENTS 35 Section 623914 provides that the distributive share to a missing 36 heir, devisee, or claimant must be paid to the conservator of the 37 missing person or, if there is no conservator, to the State Treasurer, 38 to become part of the escheat fund. This section sets aside the 39 assets belonging to a missing person. 40 The 2012 amendment revised subsection (c) to permit proof of 41 publication by either filing with the court copies of the newspaper 42 itself or an affidavit of the publisher or printer of the newspaper.[1243] 200 1 The de minimus amount in subsection (h) now includes an 2 intestate share and has been increased to $5000. 3 4 Section 623915. A personal representative may discharge his 5 obligation to distribute to any person under legal disability by 6 distributing to his conservator or any other person authorized by 7 this Code or otherwise to give a valid receipt and discharge for the 8 distribution. 9 10 REPORTER’S COMMENTS 11 Section 623915 provides that the personal representative will be 12 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 tax 18 payable to this State. 19 (2) ‘Person’ means any individual, partnership, association, 20 joint stock company, corporation, government, political 21 subdivision, governmental agency, or local governmental agency. 22 (3) ‘Persons interested in the estate’ means any person 23 entitled to receive, or who has received, from a decedent or by 24 reason of the death of a decedent any property or interest therein 25 included in the decedent’s estate. It includes a personal 26 representative, conservator, and trustee. 27 (4) ‘State’ means any state, territory, or possession of the 28 United States, the District of Columbia, and the Commonwealth of 29 Puerto Rico. 30 (5) ‘Tax’ means the federal estate tax and the basic and any 31 additional estate tax imposed by the State of South Carolina and 32 interest and penalties imposed in addition to the tax. 33 (6) ‘Fiduciary’ means personal representative or trustee. 34 (b)(1) Unless the will otherwise provides, the tax shall be 35 apportioned among all persons interested in the estate. The 36 apportionment is to be made in the proportion that the value of the 37 interest of each person interested in the estate bears to the total 38 value of the interests of all persons interested in the estate. The 39 values used in determining the tax are to be used for that purpose. 40 If the decedent’s will directs a method of apportionment of tax 41 different from the method described in this Code, the method 42 described in the will controls. To the extent that a provision of a 43 decedent’s will expressly and unambiguously directs the[1243] 201 1 apportionment of an estate tax, the tax must be apportioned 2 accordingly. 3 (2) Any portion of an estate tax not apportioned pursuant to 4 item (1) must be apportioned in accordance with any provision of a 5 revocable trust of which the decedent was the settlor which 6 expressly and unambiguously directs the apportionment of an 7 estate tax. If conflicting apportionment provisions appear in two 8 or more revocable trust instruments, the provision in the most 9 recently dated instrument prevails. For purposes of this item: 10 (A) a trust is revocable if it was revocable immediately 11 after the trust instrument was executed, even if the trust 12 subsequently becomes irrevocable; and 13 (B) the date of an amendment to a revocable trust 14 instrument is the date of the amended instrument only if the 15 amendment contains an apportionment provision. 16 (3) Any tax not apportioned in items (1) or (2) shall be 17 apportioned among all persons interested in the estate. The 18 apportionment is to be made in the proportion that the value of the 19 interest of each person interested in the estate bears to the total 20 value of the interests of all persons interested in the estate. The 21 values used in determining the tax are to be used for that purpose. 22 If pursuant to items (1) and (2) the decedent’s will or revocable 23 trust directs a method of apportionment of tax different from the 24 method described in this Code, the method described in the will or 25 revocable trust controls. 26 (c)(1) The court in which venue lies for the administration of 27 the estate of a decedent, on petition for the purpose, may determine 28 the apportionment of the tax. 29 (2) If the court finds that it is inequitable to apportion 30 interest and penalties in the manner provided in subsection (b), 31 because of special circumstances, it may direct apportionment 32 thereof in the manner it finds equitable. 33 (3) If the court finds that the assessment of penalties and 34 interest assessed in relation to the tax is due to delay caused by the 35 negligence of the fiduciary, the court may charge him with the 36 amount of the assessed penalties and interest. 37 (4) In any action to recover from any person interested in the 38 estate the amount of the tax apportioned to the person in 39 accordance with this Code, the determination of the court in 40 respect thereto shall be prima facie correct. 41 (5) The expenses reasonably incurred by the fiduciary and 42 by any other person interested in the estate in connection with the 43 determination of the amount and apportionment of the tax shall be[1243] 202 1 apportioned as provided in subsection (b) and charged and 2 collected as a part of the tax apportioned. If the court finds it is 3 inequitable to apportion the expenses as provided in subsection (b), 4 it may direct apportionment thereof equitably. 5 (d)(1) The personal representative or other person in possession 6 of the property of the decedent required to pay the tax may 7 withhold from any property distributable to any person interested 8 in the estate, upon its distribution to him, the amount of tax 9 attributable to his interest. If the property in possession of the 10 personal representative or other person required to pay the tax and 11 distributable to any person interested in the estate is insufficient to 12 satisfy the proportionate amount of the tax determined to be due 13 from the person, the personal representative or other person 14 required to pay the tax may recover the deficiency from the person 15 interested in the estate. If the property is not in the possession of 16 the personal representative or the other person required to pay the 17 tax, the personal representative or the other person required to pay 18 the tax may recover from any person interested in the estate the 19 amount of the tax apportioned to the person in accordance with 20 this section. 21 (2) If property held by the personal representative is 22 distributed prior to final apportionment of the tax, the distributee 23 shall provide a bond or other security for the apportionment 24 liability in the form and amount prescribed by the personal 25 representative. 26 (e)(1) In making an apportionment, allowances shall be made 27 for any exemptions granted, any classification made of persons 28 interested in the estate, and for any deductions and credits allowed 29 by the law imposing the tax. 30 (2) Any exemption or deduction allowed by reason of the 31 relationship of any person to the decedent or by reason of the 32 purposes of the gift inures to the benefit of the person bearing such 33 relationship or receiving the gift; but if an interest is subject to a 34 prior present interest which is not allowable as a deduction, the tax 35 apportionable against the present interest shall be paid from 36 principal. 37 (3) Any deduction for property previously taxed and any 38 credit for gift taxes or death taxes of a foreign country paid by the 39 decedent or his estate inures to the proportionate benefit of all 40 persons liable to apportionment. 41 (4) Any credit for inheritance, succession, or estate taxes or 42 taxes in the nature thereof applicable to property or interest 43 includable in the estate, inures to the benefit of the persons or[1243] 203 1 interests chargeable with the payment thereof to the extent 2 proportionately that the credit reduces the tax. 3 (5) To the extent that property passing to or in trust for a 4 surviving spouse or any charitable, public, or similar purpose is not 5 an allowable deduction for purposes of the tax solely by reason of 6 an inheritance tax or other death tax imposed upon and deductible 7 from the property, the property is not included in the computation 8 provided for in subsection (b) hereof, and to that extent no 9 apportionment is made against the property. The sentence 10 immediately preceding does not apply to any case if the result 11 would be to deprive the estate of a deduction otherwise allowable 12 under Section 2053(d) of the Internal Revenue Code of 1954, as 13 amended, of the United States, relating to deduction for state death 14 taxes on transfers for public, charitable, or religious uses. 15 (f) No interest in income and no estate for years or for life or 16 other temporary interest in any property or fund is subject to 17 apportionment as between the temporary interest and the 18 remainder. The tax on the temporary interest and the tax, if any, 19 on the remainder is chargeable against the corpus of the property 20 or funds subject to the temporary interest and remainder. 21 (g) Neither the personal representative nor other person 22 required to pay the tax is under any duty to institute any action to 23 recover from any person interested in the estate the amount of the 24 tax apportioned to the person until the expiration of the three 25 months next following final determination of the tax. A personal 26 representative or other person required to pay the tax who 27 institutes the action within a reasonable time after the three 28 months’ period is not subject to any liability or surcharge because 29 any portion of the tax apportioned to any person interested in the 30 estate was collectible at a time following the death of the decedent 31 but thereafter became uncollectible. If the personal representative 32 or other person required to pay the tax cannot collect from any 33 person interested in the estate the amount of the tax apportioned to 34 the person, the amount not recoverable shall be equitably 35 apportioned among the other persons interested in the estate who 36 are subject to apportionment. 37 (h) A personal representative acting in another state or a person 38 required to pay the tax domiciled in another state may institute an 39 action in the courts of this State and may recover a proportionate 40 amount of the federal estate tax, of an estate tax payable to another 41 state or of a death duty due by a decedent’s estate to another state, 42 from a person interested in the estate who is either domiciled in 43 this State or who owns property in this State subject to attachment[1243] 204 1 or execution. For the purposes of the action, the determination of 2 apportionment by the court having jurisdiction of the 3 administration of the decedent’s estate in the other state is prima 4 facie correct. 5 6 REPORTER’S COMMENTS 7 Section 623916(b) establishes a true apportionment of estate taxes 8 among all takers, whether they be probate or nonprobate, unless a 9 will or revocable trust states otherwise. 10 The 2012 amendment incorporates into the South Carolina 11 Probate Code the Uniform Estate Tax Apportionment Act as 12 revised in 2003 (UETAA or new UETAA). The new UETAA 13 replaces the Uniform Probate Code’s former estate tax 14 apportionment provision (Section 3916), which incorporated into 15 the Uniform Probate Code the former UETAA. The new UPC 16 apportionment statute is actually 15 sections (although a couple are 17 blank, marked ‘reserved’) and with comments extending for more 18 than 20 pages. 19 Before the 2012 amendment, this statute did not specifically 20 allow a variance from the statutory apportionment by revocable 21 trust, only by will. The 2012 amendment requires a specific and 22 unambiguous direction for the payment and allows it in a will or in 23 a revocable trust. Per the UPC comments, a general direction to 24 pay debts from the residue does not meet this standard. 25 26 Part 10 27 28 Closing Estates 29 30 Section 6231001. (a) Within one year after the date of the 31 first publication of notice to creditors, (or if a state or federal estate 32 tax return was filed, within ninety days after the receipt of a state 33 or federal estate tax closing letter, whichever is later), the later of: 34 (i) The expiration of the applicable time limitation for any creditor 35 to commence a proceeding contesting a disallowance of a claim 36 pursuant to Section 623806(a); the time when all legal proceedings 37 commenced for allowance of a claim have ended in accordance 38 with Sections 623804 and 623806; and (iii) if a state or federal 39 estate tax return was filed, within ninety days after the receipt or a 40 state or federal estate tax closing letter, whichever is later, a 41 personal representative must shall file with the court: 42 (1) a full account accounting in writing of his administration, 43 unless the accounting is waived pursuant to subsection (e); [1243] 205 1 (2) a proposal for distribution of assets not yet distributed, 2 unless the proposal for distribution of assets is waived pursuant to 3 subsection (e); 4 (3) an application for settlement of the estate to consider the 5 final account accounting or approve an accounting and distribution 6 and adjudicate the final settlement and distribution of the estate; 7 and 8 (4) proof that a notice of right to demand hearing and copies 9 of the account accounting, the proposal for distribution, and the 10 application for settlement of the estate have been sent to all 11 interested persons including all creditors or other claimants of 12 whom the personal representative is aware whose claims are 13 neither paid nor barred, unless the notice of right to demand 14 hearing is waived pursuant to subsection (e). 15 (b) If the personal representative does not timely perform his 16 duties under pursuant to subsection (a), and all interested persons 17 have not waived the requirement pursuant to subsection (e), any an 18 interested person may petition for an order compelling the personal 19 representative to perform his duties under pursuant to subsection 20 (a). The court may issue an order requiring the personal 21 representative to perform his duties under After notice and hearing 22 in accordance with Section 621401, the court may issue an order 23 requiring the personal representative to perform his duties pursuant 24 to subsection (a). 25 (c) After thirty days from the filing by the personal 26 representative of proof that a notice of right to demand hearing has 27 been sent to all persons entitled to such the notice under pursuant 28 to subsection (a), or at any time after the filing of the application of 29 settlement if notice of right to demand hearing has been waived 30 pursuant to subsection (e), the court may enter an order or orders 31 approving settlement and directing or approving distribution of the 32 estate, terminating the appointment of the personal representative, 33 and discharging the personal representative from further claim or 34 demand of any interested person. However, if any an interested 35 person files with the court a written demand for hearing within 36 thirty days after the personal representative files proof that a notice 37 of right to demand hearing has been sent to all persons entitled to 38 such the notice under pursuant to subsection (a), the court may 39 enter its order or orders only after notice to all interested persons in 40 accordance with Section 621401 and hearing. 41 (d) If one or more heirs or devisees were omitted as parties in, 42 or were not given notice of, a previous formal testacy proceeding, 43 the court, on proper petition for an order of complete settlement of[1243] 206 1 the estate under pursuant to this section, and after notice of hearing 2 to the omitted or unnotified persons and other interested parties 3 determined to be interested on the assumption that the previous 4 order concerning testacy is conclusive as to those given notice of 5 the earlier proceeding, may determine testacy as it affects the 6 omitted persons and confirm or alter the previous order of testacy 7 as it affects all interested persons as appropriate in the light of the 8 new proofs. In the absence of objection by an omitted or 9 unnotified person, evidence received in the original testacy 10 proceeding constitutes prima facie proof of due execution of any a 11 will previously admitted to probate, or of the fact that the decedent 12 left no valid will if the prior proceedings determined this fact. 13 (e) Notwithstanding the provisions of this section, a personal 14 representative shall not be required to file an accounting in writing 15 of his administration, a proposal for distribution of assets not yet 16 distributed, or a notice of right to demand hearing if and to the 17 extent these filings are waived by all interested persons. 18 19 REPORTER’S COMMENTS 20 Section 6231001 describes procedures for obtaining orders of 21 complete settlement of an estate. 22 The closing process under Section 6231001(a) requires notice to 23 all interested parties including unpaid creditors. The court upon 24 application may order or approve an accounting, may interpret the 25 terms of the will, direct or approve distribution of estate assets, 26 discharge the personal representative, and close the estate. Such a 27 discharge of the personal representative terminates his authority. 28 The personal representative or any other interested person may 29 petition for an order of complete settlement under this section after 30 the claim period has expired, but a devisee may not seek such an 31 order until a year has elapsed from the issuance of the appointment 32 of the representative. 33 The 2010 amendment revised subsections (3) and (4) to conform 34 to current practice allowing the personal representative to pursue 35 informal proceedings to close the estate by filing an application 36 rather than a petition. Unlike a petition, an application does not 37 require a summons or petition. See 2010 amendments to certain 38 definitions in S.C. Code §621201 (1). The 2010 amendment also 39 revised subsection (4)(c ) to delete ‘on appropriate conditions, 40 determining testacy, determining the persons entitled to 41 distribution of the estate, and, as circumstances require,’ and 42 adding ‘in accordance with Section 621401 in the last sentence to 43 clarify procedure. The 2010 amendment added ‘of hearing’ in[1243] 207 1 subsection (d) to clarify the notice of hearing requirements referred 2 to in §621401. 3 The 2012 amendment clarifies that all interested persons may 4 waive the filings otherwise required by Section 6231001(a)(1), (2), 5 or (4). 6 7 Section 6231002. No final account accounting of a fiduciary 8 shall be allowed by the probate court unless such account shows, 9 and the judge of such court finds, that all taxes imposed by the 10 provisions of Chapter 6 of, Title 12 upon such fiduciary, which 11 have become payable, have been paid, and that all taxes which 12 may become due are secured by bond, deposit, or otherwise. The 13 certificate of the South Carolina Department of Revenue and the 14 receipt for the amount of the tax therein certified shall be 15 conclusive as to the payment of the tax to the extent of such 16 certificate. 17 18 REPORTER’S COMMENTS 19 Section 6231002 precludes the court’s approval of a final 20 accounting by a fiduciary without a finding that the taxes imposed 21 by Chapter 6, Title 12, have been paid. 22 23 Section 6231003. No final account accounting of a personal 24 representative in any probate proceeding who is required to file a 25 federal estate tax return may be allowed and approved by the court 26 before whom the proceeding is pending unless the court finds that 27 the any tax imposed on the property by Chapter 16 of, Title 12, 28 including applicable interest, has been paid in full or that no such 29 tax is due. 30 31 REPORTER’S COMMENTS 32 Section 6231002 precludes the court’s approval of a final 33 accounting by a fiduciary without a finding that the taxes imposed 34 by Chapter 16, Title 12, have been paid. 35 36 Section 6231004. After assets of an estate have been 37 distributed and subject to Section 6231006, an undischarged claim 38 not barred may be prosecuted in a proceeding against one or more 39 distributees. No distributee shall be liable to claimants for 40 amounts received as exempt property or for amounts in excess of 41 the value of his distribution as of the time of distribution. As 42 between distributees, each shall bear the cost of satisfaction of 43 unbarred claims as if the claim had been satisfied in the course of[1243] 208 1 administration. Any distributee who shall have failed to notify 2 other distributees of the demand made upon him by the claimant in 3 sufficient time to permit them to join in any proceeding in which 4 the claim was asserted against him loses his right of contribution 5 against other distributees. 6 7 REPORTER’S COMMENTS 8 Section 6231004 allows a creditor of an estate to pursue assets 9 distributed against one or more distributees. A distributee’s 10 liability to a claimant is for amounts received as distributions in 11 excess of exempt property but no more than the value of the 12 property received, valued as of the time of the distribution. 13 A distributee has a right of contribution against other distributees if 14 he gives timely notice to the distributees so that they can 15 participate in the proceedings under which the claimant is asserting 16 his claim. 17 18 Section 6231005. Unless previously barred by adjudication 19 and except as provided in the any accounting, the rights of 20 successors and of creditors whose claims have not otherwise been 21 barred against the personal representative for breach of fiduciary 22 duty are barred unless a proceeding to assert the same is 23 commenced within six months after the filing of the account, 24 proposal for distribution of the estate, petition application for 25 settlement of the estate, and proofs required by Section 6231001. 26 The rights thus barred do not include rights to recover from a 27 personal representative for fraud, misrepresentation, or inadequate 28 disclosure related to the settlement of the decedent’s estate. 29 30 REPORTER’S COMMENTS 31 The 2012 amendment conforms this section to changes to 31001, 32 allowing waiver of accounting and proposal for distribution. 33 34 Section 6231006. Unless previously adjudicated in a formal 35 testacy proceeding or in a proceeding settling the accounts of a 36 personal representative or otherwise barred, the claim of any 37 claimant to recover from a distributee who is liable to pay the 38 claim, and the right of any heir or devisee, or of a successor 39 personal representative acting in their behalf, to recover property 40 improperly distributed or the value thereof from any distributee is 41 forever barred at the later of (i) if a claim by a creditor of the 42 decedent, at one year after the decedent’s death, and (ii) any other 43 claimant and any heir or devisee, at the later of three years after the[1243] 209 1 decedent’s death or one year after the time of distribution thereof. 2 This section does not bar an action to recover property or value 3 received as the result of fraud. 4 5 REPORTER’S COMMENTS 6 Section 6231006 creates a statute of limitations for claims against 7 distributees by creditors or other persons claiming to be entitled to 8 distribution from the estate. The time limitation provided for heirs 9 and devisees or claimants other than creditors is three years after 10 the decedent’s death or, for creditors, one year after the time of the 11 distribution thereof. 12 As in Section 6231005, this section does not create a time bar 13 for any action to recover property received as a result of fraud. 14 15 Section 6231007. After his appointment has terminated, the 16 personal representative, his sureties, or any successor of either, 17 upon the filing of a verified application showing, so far as is 18 known by the applicant, that no action concerning the estate is 19 pending in any court, is entitled to receive a certificate from the 20 court that the personal representative appears to have fully 21 administered the estate in question. The certificate evidences 22 discharge of any lien on any property given to secure the 23 obligation of the personal representative in lieu of bond or any 24 surety, but does not preclude action against the personal 25 representative or the surety. 26 27 REPORTER’S COMMENTS 28 Under Section 6231007, after termination of the personal 29 representative’s appointment, and upon the filing of an application 30 showing that no action is pending concerning the estate, the 31 personal representative or his sureties may obtain from the court a 32 certificate to the effect that the personal representative appears to 33 have fully administered the estate. A certificate issued by the court 34 affects a release of any security given in connection with the 35 personal representative’s bond, but does not prevent an action 36 against the personal representative or his surety. 37 38 Section 6231008. If other property of the estate is discovered 39 after an estate has been settled and the personal representative 40 discharged or for other good cause, the court upon application of 41 any interested person and upon notice as it directs may appoint the 42 same or a successor personal representative to administer the 43 subsequently opened estate. If a new appointment is made, unless[1243] 210 1 the court orders otherwise, the provisions of this Code apply as 2 appropriate; but no claim previously barred may be asserted in the 3 subsequent administration. 4 5 REPORTER’S COMMENTS 6 Section 6231008 provides a procedure for reopening an estate 7 following discharge of the personal representative. Such a 8 supplemental or subsequent administration of a decedent’s estate 9 would be required if other property of the estate is discovered after 10 the personal representative’s discharge. Upon petition of an 11 interested party and upon notice as required by the court, the court 12 may reappoint the former personal representative or a different 13 person to administer the subsequently discovered assets. 14 In administering the subsequently discovered assets, the procedure 15 of this Code would apply as appropriate, except that previously 16 barred claims could not be asserted in the subsequent 17 administration. 18 The 2010 amendment deleted ‘petition’ and replaced it with 19 ‘application’ to allow any interested person to make application for 20 a subsequent administration. Unlike a petition, an application does 21 not require a summons or petition. See 2010 amendments to 22 certain definitions in §621201. 23 24 Part 11 25 26 Compromise of Controversies 27 28 Section 6231101. A compromise of a controversy as to 29 admission to probate of an instrument offered for formal probate as 30 the will of a decedent, the construction, validity, or effect of a 31 probated will, the rights or interests in the estate of the decedent, of 32 a successor, or the administration of the estate, if approved by the 33 court after hearing, is binding on all the parties including those 34 unborn, unascertained, or who could not be located. An approved 35 compromise is binding even though it may affect a trust or an 36 inalienable interest. A compromise does not impair the rights of 37 creditors or of taxing authorities who are not parties to it. A 38 compromise approved pursuant to this section is not a settlement 39 of a claim subject to the provisions of Section 625433. 40 41 REPORTER’S COMMENTS [1243] 211 1 Section 6231101 provides that compromises of controversies 2 regarding estates can be made binding on interested parties by 3 court confirmation. 4 Such controversies would include disagreements regarding the 5 admission to probate of and instrument as the will of the decedent, 6 the construction, validity, and effect of a probated will, the rights 7 of successors to decedent’s estate, and the personal 8 representative’s administration of the estate. 9 Approval of the compromise agreement is by order of the probate 10 court following a formal proceeding. The order confirming the 11 agreement is binding upon parties to the proceeding, and is binding 12 upon unborn or unascertained persons and upon persons who could 13 not be located. 14 After court confirmation, the agreement is binding even though the 15 agreement affects a trust contained in an instrument separate from 16 decedent’s will, and even though it affects an unalienable right. 17 The agreement as confirmed by the court is not binding on 18 creditors of the estate or trust estate, or on taxing authorities, 19 unless they are parties to the agreement. 20 The 2010 amendment deleted ‘in a formal proceeding in’ and 21 replaced the foregoing with ‘by’ and deleted ‘for that purpose’ and 22 replaced it with ‘after hearing.’ The intention of the amendment 23 was to require court approval in an informal proceeding after 24 hearing. See § 6231102 regarding application procedure for 25 approval of compromise and certain agreements. 26 27 Section 6231102. The procedure for securing court approval of 28 a compromise is as follows: 29 (1) The terms of the compromise shall be set forth in an 30 agreement in writing which shall be executed by all competent 31 persons and parents acting for any minor child having beneficial 32 interests or having claims which will or may be affected by the 33 compromise. Execution is not required by any person whose 34 identity cannot be ascertained or whose whereabouts is unknown 35 and cannot reasonably be ascertained. 36 (2) Any interested person, including the personal 37 representative or a trustee, then may submit the agreement to the 38 court for its approval and for execution by the personal 39 representative, the trustee of every affected testamentary trust, and 40 other fiduciaries and representatives. 41 (3) Upon application to the court and after notice to all 42 interested persons or their representatives, including the personal 43 representative of the estate and all affected trustees of trusts, the[1243] 212 1 court, if it finds that the contest or controversy is in good faith and 2 that the effect of the agreement upon the interests of persons 3 represented by fiduciaries or other representatives is just and 4 reasonable, shall make an order approving the agreement and 5 directing all fiduciaries subject to its jurisdiction to execute the 6 agreement. Minor children represented only by their parents may 7 be bound only if their parents join with other competent persons in 8 execution of the compromise. Upon the making of the order and 9 the execution of the agreement, all further disposition of the estate 10 is in accordance with the terms of the agreement. 11 12 REPORTER’S COMMENTS 13 Section 6231102 provides the procedure by which agreements for 14 compromise of estate controversies are confirmed by the probate 15 court. 16 Subsection (1) requires the agreement be in written form setting 17 forth all of the terms of the compromise. The agreement must be 18 signed by all persons having a beneficial interest in or claim 19 against the estate, whose interest or claim is affected by the 20 agreement. If an interested party is a minor, the agreement may be 21 executed on his behalf by his parent. 22 Execution of the agreement is not required by unknown parties or 23 by parties whose whereabouts are unknown or cannot reasonably 24 be ascertained. The agreement should clearly specify the effect of 25 the compromise on the minors, on unknown parties, and on 26 unlocated parties. Subsection (2) would imply that the agreement 27 is not to be signed by the personal representative or trustees of the 28 affected testamentary trust prior to submission of the agreement to 29 the probate court, but the agreement should specify the proposed 30 effect on the personal representative and affected trusts. 31 Subsection (2) requires submission of the agreement to the probate 32 court for approval. The application for approval may be made by 33 an interested party or by the personal representative. The 34 application would request approval of the agreement and would 35 request an order directing or permitting the personal representative 36 and the trustee of an affected testamentary trust to execute the 37 agreement. 38 Pursuant to subsection (3), a hearing after notice to all interested 39 parties is conducted by the probate judge. In addition to parties to 40 the agreement, the personal representative and trustees of affected 41 trusts must be notified of the hearing. 42 The advocates of the agreement must prove to the court that a 43 controversy existed in good faith among the interested parties.[1243] 213 1 This requirement is to avoid sham arrangements designed to 2 prejudice unknown parties or parties whose addresses are unknown 3 but would be bound by an order confirming the agreement. 4 The advocates of the agreement must prove that the effect of the 5 agreement on persons, including minors and incompetents 6 represented by fiduciaries or other representatives, is fair, 7 equitable, and reasonable. 8 Upon such proof to the court, the court will by order approve the 9 agreement and will direct the personal representative and all 10 fiduciaries subject to the court’s jurisdiction to execute the 11 agreement. 12 The agreement as confirmed by the court will govern further 13 disposition of the decedent’s estate in accordance with the terms of 14 the agreement. Subsection (3) further provides that minor children 15 who are represented only by their parents may be bound only if 16 their parents executed the agreement with other competent 17 persons. In the event this requirement cannot be met, execution of 18 the agreement on behalf of the minor could be made binding if by 19 a court appointed guardian. 20 The 2010 amendment revised subsection (3) to delete ‘After’ at 21 the beginning and replaces it with ‘Upon application to the court 22 and after’ to allow application to the probate court to secure court 23 approval of a compromise. Unlike a petition, an application does 24 not require a summons or petition. See 2010 amendments to 25 certain definitions in §621201. 26 27 Part 12 28 29 Collection of Personal Property by Affidavit and Summary 30 Administration Procedure for Small Estates 31 32 Section 6231201. (a) Thirty days after the death of a 33 decedent, any person indebted to the decedent or having 34 possession of tangible personal property or an instrument 35 evidencing a debt, obligation, stock, or chose in action belonging 36 to the decedent shall make payment of the indebtedness or deliver 37 the tangible personal property or the instrument evidencing the 38 debt, obligation, stock, or chose in action to a person claiming to 39 be the successor of the decedent upon being presented an affidavit 40 made by or on behalf of the successor. Before this affidavit may 41 be presented to collect the decedent’s personal property, it must: 42 (1) state that the value of the entire probate estate (the 43 decedent’s property passing under the decedent’s will plus the[1243] 214 1 decedent’s property passing by intestacy), wherever located, less 2 liens and encumbrances, does not exceed ten twentyfive thousand 3 dollars; 4 (2) state that thirty days have elapsed since the death of the 5 decedent; 6 (3) state that no application or petition for the appointment 7 of a personal representative is pending or has been granted in any 8 jurisdiction; 9 (4) state that the claiming successor, which for the purposes 10 of this section includes a person who remitted payment for 11 reasonable funeral expenses, is entitled to payment or delivery of 12 the property; 13 (5) be approved and countersigned by the probate judge of 14 the county of the decedent’s residence domicile at the time of his 15 death, or if the decedent was not domiciled in this State, in the 16 county in which the property of the decedent is located, and only 17 upon the judge’s satisfaction that the successor is entitled to 18 payment or delivery of the property; and 19 (6) be filed in the probate court for the county of the 20 decedent’s domicile at the time of his death, or, if the decedent was 21 not domiciled in this State, in the county in which property of the 22 decedent is located. 23 (b) A transfer agent of any security shall change the registered 24 ownership on the books of a corporation from the decedent to the 25 successor or successors upon the presentation of an affidavit as 26 provided in subsection (a). 27 28 REPORTER’S COMMENTS 29 Section 6231201 provides for a simplified handling of small 30 estates of twentyfive thousand dollars or less through the use of an 31 affidavit. The small estate affidavit may be used starting thirty 32 days after the death of the decedent if the entire estate of the 33 decedent, wherever located, after deduction of liens and 34 encumbrances, does not exceed twentyfive thousand dollars. The 35 affiant must state that the value of the estate does not exceed 36 twentyfive thousand dollars, that thirty days have elapsed since the 37 decedent’s death, that no person has applied for appointment as, or 38 has been appointed as, personal representative in any jurisdiction, 39 and that the affiant as successor to the decedent is entitled to 40 payment or delivery of the property. 41 Upon presentment of such an affidavit, holders of property of 42 the decedent, or persons obligated to the decedent, must transfer 43 the property, or discharge their debt, to the successor. Stock[1243] 215 1 transfer agents in subparagraph (6) are directed to transfer stock 2 based on such affidavits. 3 The small estate affidavit cannot be used to transfer title to real 4 estate and it cannot be used by creditors of the estate to reach 5 assets of the estate. 6 The 2012 amendment increases the size of the estate in which a 7 small estate affidavit can be utilized to twentyfive thousand 8 dollars, establishes that a person who advances reasonable funeral 9 expenses is a successor for purposes of this section regardless of 10 his status as an heir or devisee, and clarifies which probate court 11 must approve and record the affidavit. 12 13 Section 6231202. The person paying, delivering, transferring, 14 or issuing personal property or the evidence thereof pursuant to 15 affidavit is discharged and released to the same extent as if he dealt 16 with a personal representative of the decedent. He is not required 17 to see to the application of the personal property or evidence 18 thereof or to inquire into the truth of any statement in the affidavit. 19 If any person to whom an affidavit is delivered refuses to pay, 20 deliver, transfer, or issue any personal property or evidence 21 thereof, it may be recovered or its payment, delivery, transfer, or 22 issuance compelled upon proof of their right in a proceeding 23 brought for the purpose by or on behalf of the persons entitled 24 thereto. Any person who receives or is presented with a valid 25 affidavit executed pursuant to Section 6231201 and who has not 26 received actual written notice of its revocation or termination must 27 not fail to deliver the property identified in the affidavit, provided 28 it contains the following provision. ‘No person who may act in 29 reliance on this affidavit shall incur any liability to the estate of the 30 decedent.’ Any person to whom payment, delivery, transfer, or 31 issuance is made is answerable and accountable therefor to any 32 personal representative of the estate or to any other person having 33 a superior right. 34 35 REPORTER’S COMMENTS 36 Section 6231202 discharges and releases any person who transfers 37 personal property of a decedent or who pays his debt to the 38 decedent pursuant to the small estate affidavit pursuant to Section 39 6231201 to the same extent he would have been released from 40 liability had he dealt with a courtappointed personal representative 41 of the decedent. The person so released is not required to inquire 42 into the accuracy of the affidavit nor to insure the proper 43 application of the personal property by the successor. [1243] 216 1 This section creates a liability in the recipient of property 2 through the use of an affidavit to any personal representative of the 3 estate and to any person having a superior right, including 4 creditors of the decedent or of the estate, or other successors of the 5 decedent. 6 The 2012 amendment requires the person receiving or presented 7 with the affidavit to deliver the property identified in the affidavit 8 if the affidavit contains the quoted language, unless that person has 9 received actual written notice of the affidavit’s revocation or 10 termination. 11 12 Section 6231203. (a) If it appears from the inventory and 13 appraisal that the value of the entire probate estate (the decedent’s 14 property passing under the decedent’s will plus the decedent’s 15 property passing by intestacy), less liens and encumbrances, does 16 not exceed ten twentyfive thousand dollars and exempt property, 17 costs and expenses of administration, reasonable funeral expenses, 18 and reasonable and necessary medical and hospital expenses of the 19 last illness of the decedent, the personal representative, after giving 20 publishing notice to creditors required by pursuant to Section 21 623801, but without giving additional notice to creditors, may 22 immediately disburse and distribute the estate to the persons 23 entitled thereto and file a closing statement as provided in Section 24 6231204. 25 (b) If it appears from an appointment proceeding that (1) the 26 appointed personal representative, individually or in the capacity 27 of a fiduciary, is either the sole devisee under the probated will of 28 a testate decedent or the sole heir of an intestate decedent, or (2) 29 the appointed personal representatives, individually or in their 30 capacity as a fiduciary, are the sole devisees under the probated 31 will of a testate decedent or the sole heirs of an intestate decedent, 32 the personal representative, after giving publishing notice to 33 creditors as required by under Section 623801, but without giving 34 additional notice to creditors may immediately disburse and 35 distribute the estate to the persons entitled thereto and file a 36 closing statement as provided in Section 6231204. 37 38 REPORTER’S COMMENTS 39 Sections 6231203 and 6231204 provide for an expedited 40 administration by a personal representative. Under Section 41 6231203, if the personal representative determines after inventory 42 and appraisal that: (1) the estate assets, after deduction of liens and 43 encumbrances, do not exceed the total of twentyfive thousand[1243] 217 1 dollars, plus exempt property, plus costs and expenses of 2 administration, reasonable funeral expenses, and medical and 3 hospital expenses of the decedent’s last illness, or (2) that the sole 4 personal representative is also the sole heir or devisee of the 5 decedent or that corepresentatives are all of the only heirs or 6 devisees of the decedent, then the personal representative may 7 immediately pay the administration, funeral, medical, and hospital 8 expenses and distribute the balance to distributees. Other than the 9 publication of notice under Section 623801, additional notice to 10 creditors of this election is not required. Following the 11 disbursement of the assets, the personal representative would file 12 the closing statement required by Section 6231204. 13 14 Section 6231204. (a) Unless prohibited by order of the court 15 and except for estates being administered under Part 5 (Sections 16 623501 et seq.), a after filing an inventory with the court, and 17 paying any court fees due, the personal representative may close 18 an estate administered under the summary procedures of Section 19 6231203 by filing with the court, at any time after disbursement 20 and distribution of the estate, a verified statement stating that: 21 (1) either 22 (i) to the best knowledge of the personal representative, 23 the value of the entire probate estate (the decedent’s property 24 passing under the decedent’s will plus the decedent’s property 25 passing by intestacy), less liens and encumbrances, did not exceed 26 ten twentyfive thousand dollars and exempt property, costs, and 27 expenses of administration, reasonable funeral expenses, and 28 reasonable and necessary medical and hospital expenses of the last 29 illness of the decedent; or 30 (ii) the estate qualifies for summary administration 31 according to the provisions of subsection (b) of Section 6231203; 32 (2) the personal representative has fully administered the 33 estate by disbursing and distributing it to the persons entitled 34 thereto; 35 (3) the personal representative has sent a copy of the closing 36 statement to all distributees of the estate and to all creditors or 37 other claimants of whom he the personal representative is aware 38 and whose claims are neither paid nor barred and has furnished a 39 full account in writing of his administration to the distributees 40 whose interests are affected. 41 (b) If no unresolved claims, actions or proceedings involving 42 the personal representative are pending in the any court one year[1243] 218 1 after the closing statement is filed date of the decedent’s death, the 2 appointment of the personal representative terminates. 3 4 REPORTER’S COMMENTS 5 Section 6231204 provides the procedure for closing the estate 6 following the disbursement and distribution of assets pursuant to 7 Section 6231203. The procedure would not be used if prohibited 8 by the probate court or if the estate was in administration under 9 Part 5. 10 The personal representative would file with the probate court his 11 verified statement stating that: (1) to the best of his knowledge the 12 estate assets do not exceed the limitations in or would qualify as a 13 summary administrator according to the requirements described in 14 Section 6231203; (2) he has disbursed and distributed the assets to 15 the proper persons, he has sent a copy of the closing statement to 16 the distributees, unpaid creditors, and claimants whose claims are 17 not barred, and he has sent to all distributees a written account of 18 his administration of the estate. 19 If no action regarding the estate is pending one year after the 20 date of the decedent’s death, the court will terminate the 21 appointment of the personal representative who filed the closing 22 statement. 23 24 Part 13 25 26 Sale of Real Estate by Probate Court to Pay Debts 27 28 Section 6231301. The provisions of this Part are hereby 29 declared to be the only procedure for the sale of lands by the court, 30 except where the will of the decedent authorizes to the contrary. 31 32 Section 6231302. The court may, as herein provided, authorize 33 the sale of the real estate property of such deceased person a 34 decedent. 35 36 REPORTER’S COMMENTS 37 Section 6231302 establishes the circumstances under which the 38 probate court has the power to sell the land of the decedent. 39 40 Section 6231303. At any time after the qualification of the 41 personal representative, on application petition to the court by an 42 interested person requesting the sale of real estate property of the 43 deceased decedent, a summons shall be issued to the personal[1243] 219 1 representative (if not the petitioner), the heirs or devisees of the 2 estate at law of the decedent (if the decedent died intestate or the 3 time to challenge a will admitted to probate has not expired), the 4 devisees under the decedent’s will (if any), any person who has 5 properly presented a claim against the estate which remains 6 unresolved, any interested person effected by the proceeding, and 7 any other person as required by the court in its discretion. 8 9 REPORTER’S COMMENTS 10 Section 6231303 specifies the process by which an action for the 11 sale of real estate in aid of assets is commenced. The action is 12 commenced by a petition filed after qualification of the personal 13 representative. The petition may be filed by an interested person. 14 Upon filing of the petition, Section 6231303 provides that the 15 probate judge will issue a summons directed to the specified 16 interested persons. 17 18 Section 6231304. The form of such summons must be in like 19 form as summonses for civil actions in the circuit courts. 20 21 Section 6231305. To such summons a copy of the petition 22 must be attached and copies of the summons and petition served 23 on the personal representative (if not the petitioner), the heirs or 24 devisees, and any other at law of the decedent (if the decedent died 25 intestate or the time to challenge a will admitted to probate has not 26 expired), the devisees under the decedent’s will (if any), any 27 person who has properly presented a claim against the estate which 28 remains unresolved, any interested person effected by the 29 proceeding, and any other interested person as required by the 30 court in its discretion, in like manner as summonses and 31 complaints are served in civil actions in the circuit courts. If there 32 are minors the court shall appoint guardians ad litem who must be 33 served with copies of the summons and petition and the 34 appointment, and who must acknowledge acceptance of such 35 guardian endorsed on the their appointment as guardians ad litem 36 to the probate court prior to being served with the summons and 37 petition. Nothing herein contained precludes any of the parties 38 interested in the proceeding from accepting service of the 39 summons and petition or from and consenting to the sale as prayed 40 for in the petition. 41 42 REPORTER’S COMMENTS [1243] 220 1 This section provides for the manner of service of the summons 2 and petition and incorporates by reference the methods of service 3 of summons and complaints in civil actions in the circuit courts. 4 This section further provides for appointment of guardian ad litem 5 to represent minors and specifies that the guardian ad litem will be 6 served with copies of the summons and petition. A copy of the 7 order appointing the guardian ad litem and a statement of the 8 guardian to serve must be endorsed on the petition. This section 9 further provides that any of the parties may accept service of the 10 summons and petition and may also consent to the sale prayed for 11 in the petition. 12 13 Section 6231306. The sheriffs of the several counties in this 14 State are required to serve all processes which may be issued, if so 15 ordered by the court under the provisions of this Part, for which 16 they shall receive the same fees as are allowed them by law for 17 similar services, which must be paid from the proceeds of sale or 18 by the petitioner. 19 20 REPORTER’S COMMENTS 21 Section 6231306 provides for service of the summons and petition 22 within the State of South Carolina by the sheriffs of the various 23 counties in which interested parties are located. This section 24 specifies that the sheriffs’ fees for service shall be as in other 25 circumstances and are to be paid by the petitioner or from the 26 proceeds of the sale. 27 28 Section 6231307. If there is any party who resides beyond the 29 limits of this State or whose residence is unknown and who does 30 not consent in writing to the sale, the court may authorize 31 publication of the summons as provided by this Code and if such 32 party does not appear and show sufficient cause within the time 33 named in the summons the court shall enter of record his consent 34 as confessed and proceed with the sale. 35 36 REPORTER’S COMMENTS 37 This section provides for service of the summons and petition by 38 publication on interested parties who are not residents of South 39 Carolina or whose addresses are unknown. If the party consented 40 to the sale, service would not be required. If the party after such 41 service did not appear or answer, the probate judge will enter of 42 record his consent by default. 43[1243] 221 1 Section 6231308. Upon the filing of the petition, the petitioner 2 shall file in the office of the clerk of the circuit court a notice of 3 pendency of action authorized by Sections 151110 to 151150 and 4 upon the filing of such notice it has the same force and effect as 5 notice of pendency of action filed in an action in the circuit court. 6 7 REPORTER’S COMMENTS 8 This section prescribes the filing of a notice of pendency of action, 9 or lis pendens, by the probate judge in the office of the clerk of 10 court for the county in which the land is located, at the time the 11 petition is filed, pursuant to Sections 151110 to 151150. Such 12 filing will eliminate from consideration by the court any party who 13 acquires subsequent to the filing of the notice a lien upon or an 14 interest for value in the land. 15 16 Section 6231309. The time to answer or otherwise respond by 17 motion to the a summons and petition is at least thirty days from 18 the date of service. Should the personal representative (if not the 19 petitioner) or any of the heirs or devisees, or other parties, if any, 20 desire to answer or otherwise respond by motion it must be in 21 writing and the court shall in regular order, as in the case of other 22 litigated cases, proceed to determine the issues made by petition, 23 subsequent pleadings, and motions and if the court decides that the 24 real estate for sale of real property of a decedent is the same as the 25 time to answer in any civil litigation case. Interested persons who 26 wish to file an answer or return to the petition must do so in 27 writing in the same manner as an answer to a complaint in other 28 civil litigation cases. In addition the court may hear motions and 29 accept such subsequent pleadings as would be heard or accepted in 30 other civil litigation cases. After the filing and service of the 31 summons and petition and the time for filing responsive pleadings 32 has elapsed, the court will convene a hearing on the merits of the 33 petition. If based on the evidence presented at the hearing the 34 court finds the real property should be sold it shall then, in its 35 discretion, either (a) order the personal representative to sell the 36 same at private sale upon such terms and conditions as the court 37 may impose; or (b) proceed to sell the same upon the next or some 38 subsequent convenient sales day after publishing a notice of such 39 sale three weeks prior thereto in some paper published in the 40 county. Upon the sale being made, after the payment of the costs 41 and expenses thereof, the court shall pay proceeds of the sale will 42 be paid over to the personal representative the net proceeds of such 43 sale. The personal representative shall administer such proceeds in[1243] 222 1 like manner as proceeds of personal property coming into his 2 hands. Nothing in this part may be construed to abridge 3 homestead exemptions. Notice of hearings in regard to the petition 4 will be provided to interested persons in accordance with Section 5 621401. 6 7 REPORTER’S COMMENTS 8 Section 6231309 incorporates the rules of civil litigation to 9 determine the time limits to file an answer or return to the petition. 10 Following this period, the probate judge would schedule a hearing 11 of the case. 12 If the probate judge determines that the land should be sold in 13 accordance with the petition, he would either order a private sale 14 or schedule a public auction of the land. The notice of the sale 15 must be published once a week for three weeks during the three 16 weeks preceding the sale in a newspaper published in the county of 17 the probate court. 18 Following the sale, the net proceeds of the sale will be paid over 19 to the personal representative for distribution in accordance with 20 law as if it were personal property originally belonging to the 21 estate. 22 Section 6231309 further provides that the proceedings are not to 23 abridge the rights of homestead exemption in the land. 24 The 2010 amendment revised this section to delete ‘for return’ 25 in the first sentence and replace it with ‘to answer or otherwise 26 respond by motion to the summons and petition, delete ‘make a 27 return’ and replace it with ‘answer or otherwise respond by 28 motion,’ add ‘subsequent pleadings,’ and delete ‘return’ and 29 replace it with ‘motions’ in the second sentence The foregoing 30 2010 amendment is intended to clarify that an answer or other 31 response to a summons and petition must be served in an action to 32 sell real estate, which is a formal proceeding as referred to in 33 §621201(17). 34 The amendments to this section in 2012 were largely clarifying 35 revisions, and did not change substantive law. All answers to the 36 petition must be in writing and served on the petitioner and other 37 parties in the same manner as an answer to a complaint in circuit 38 court, and within the same time limits as would apply in circuit 39 court. Further, the same rules apply as to motions in the case of a 40 petition for sale of real property of a decedent as apply in circuit 41 court to answers. Consequently, as in circuit court, answers may 42 not be due while certain motions are pending, and the same rules 43 for amending petitions and answers would apply.[1243] 223 1 The 2012 amendments added the requirement that all interested 2 persons be served with notice of hearings regarding a petition to 3 sell real property of a decedent in accordance with Section 621401. 4 5 Section 6231310. The regular bond of the personal 6 representative must protect the creditors, heirs, devisees, or other 7 interested persons, if any, in the handling of the proceeds of sale 8 by the personal representative, but in case no such bond has been 9 given, the court shall may require the giving of a bond by such 10 personal representative as provided in Sections 623603, 623604, 11 and 623605. 12 13 REPORTER’S COMMENTS 14 Section 6231310 provides that the regular bond of the personal 15 representative protects claimants to the proceeds of the sale. If no 16 bond has been filed previously, the personal representative may be 17 required to file one pursuant to Sections 623603 and 623605. If a 18 bond has previously been filed, the personal representative may be 19 required to increase the amount of the bond. 20 The 2012 amendment gives the court discretion to require bond. 21 22 Section 6231311. The court shall file and keep the original 23 petition with due proof of service thereon and all original papers 24 connected with the sale and shall require from such personal 25 representative his final account showing the distribution of the 26 funds received by him. 27 28 REPORTER’S COMMENTS 29 Section 6231311 requires the filing and preserving in the probate 30 court of all original documents relating to the action for the sale of 31 the land including the petition, proofs of service, and order. 32 This section further requires the personal representative file a final 33 accounting to document the distribution of the proceeds of sale of 34 the land. 35 36 Section 6231312. In case any lands of the deceased subject to 37 the lien of any judgment, mortgage, or other lien is sold under the 38 provisions of this Part the court may enter a release of the lands so 39 sold upon the records in the office of the clerk of court or register 40 of deeds of the county from the lien of such judgment, mortgage, 41 or other lien and in case such mortgage, judgment, or other lien 42 debt has been paid in full out of the proceeds of the sale of such 43 lands the court may have cancellation of the same entered on the[1243] 224 1 record thereof. The foregoing does not relieve any judgment, 2 mortgage, or other lien creditor of the duty, as provided otherwise 3 by law, of releasing or canceling such liens. Each release 4 satisfaction or cancellation provided for herein must refer by 5 proper notation to the file number of such estate in the court. The 6 provisions of this section do not apply when the order of sale 7 directs the sale of any lands which must be sold subject to any 8 existing mortgage, judgment, or other lien, but only when such 9 lands are sold freed and discharged from all such liens. 10 11 REPORTER’S COMMENTS 12 This section provides that the probate judge must file in the offices 13 of the clerk of court and of the register of mesne conveyances 14 releases of the land sold from the lien of any mortgage, judgment, 15 or other lien on said land. If the lien claim is paid in full from the 16 proceeds of sale, the probate judge will file a cancellation of the 17 lien. Such filing of releases by the probate judge will not be 18 required if such releases are timely filed by the lien claimants. 19 Such releases by the probate judge must make reference to the 20 probate court file number for the estate. 21 This section specifies that releases must also be filed by the lien 22 claimants even if a release has been filed by the probate judge. 23 This section further provides that the probate judge may sell the 24 land subject to any existing lien on the land, and, in which case, no 25 release from the lien would be required. 26 27 Article 4 28 29 Local and Foreign Personal Representatives; Ancillary 30 Administration 31 32 Part 1 33 34 Definitions 35 36 Section 624101. In this article [Sections 624101 et seq.]: 37 (1) ‘Local administration’ means administration by a personal 38 representative appointed in this State pursuant to appointment 39 proceedings described in Article 3 [Sections 623101 et seq.]. 40 (2) ‘Local personal representative’ includes any personal 41 representative appointed in this State pursuant to appointment 42 proceedings described in Article 3 [Sections 623101 et seq.] and[1243] 225 1 excludes foreign personal representatives who acquire the power 2 of a local personal representative pursuant to Section 624205. 3 (3) ‘Resident creditor’ means a person domiciled in, or doing 4 business in, this State who is, or could be, a claimant against an 5 estate of a nonresident decedent. 6 7 REPORTER’S COMMENTS 8 Section 624101 defines ‘local administration’ and ‘local personal 9 representative’ in order to distinguish ‘local’ matters from that 10 matter covered by Article 4, the ‘foreign personal representative’ 11 and his administrative acts in South Carolina undertaken on the 12 strength of his ‘foreign administration,’ without his appointment in 13 South Carolina pursuant to Article 3 of this Code. Section 621201 14 includes definitions of ‘foreign personal representative’, ‘personal 15 representative’, and ‘nonresident decedent’. 16 17 Part 2 18 19 Powers of Foreign Personal Representatives 20 21 Section 624201. At any time after the expiration of sixty days 22 from the death of a nonresident decedent, any person indebted to 23 the estate of the nonresident decedent or having possession or 24 control of personal property, or of an instrument evidencing a debt, 25 obligation, stock, or chose in action belonging to the estate of the 26 nonresident decedent may pay the debt, deliver the personal 27 property, or the instrument evidencing the debt, obligation, stock, 28 or chose in action, to the domiciliary foreign personal 29 representative of the nonresident decedent upon being presented 30 with proof of his appointment and an affidavit made by or on 31 behalf of the representative stating: 32 (1) the date of the death of the nonresident decedent; 33 (2) that no local administration, or application or petition 34 therefor, is pending in this State; 35 (3) that the domiciliary foreign personal representative is 36 entitled to payment or delivery. 37 38 REPORTER’S COMMENTS 39 Sections 624201, 624202, and 624203 must be read, together with 40 Section 624206, as providing a means, less cumbersome than those 41 provided by Sections 624204 and 624205 and by Section 624207, 42 for the unification and simplification of the administration of 43 multistate estates in the hands of the domiciliary foreign personal[1243] 226 1 representatives of nonresident decedents. These sections allow the 2 domiciliary foreign personal representative to collect estate assets 3 in South Carolina without requiring local appointment (Section 4 624201), while protecting debtors of the estate against double 5 payment (Section 624202) and also protecting resident creditors of 6 the estate from nonpayment (Section 624203). See Section 7 625431 for a provision similarly allowing the collection of the 8 assets of a nonresident protected person by his domiciliary foreign 9 conservator. 10 Sections 624201 and 624202 preserve the domiciliary foreign 11 personal representative’s power to collect estate assets in South 12 Carolina from debtors willing to make voluntary payment on the 13 strength of his foreign appointment, and also preserve the 14 corresponding effect, the full discharge of the debtor, resulting 15 from the payment. 16 These sections by their terms apply only to estates of nonresident 17 decedents and allow for payment only to the domiciliary, not to 18 any ancillary, foreign personal representative. Presumably, an 19 ancillary personal representative is empowered to collect assets 20 only in the state of his appointment. The debtor’s good faith 21 reliance on the foreign personal representative’s proof of 22 appointment and affidavit, inaccurately showing that the decedent 23 was a nonresident of South Carolina and that the personal 24 representative was appointed as a domiciliary personal 25 representative, should protect the debtor under Section 624202. 26 These sections apply even if local administration is actually 27 pending or applied for, as long as the foreign personal 28 representative supplies the documentation detailed in Section 29 624201 and the debtor has no actual notice of the pending local 30 administration. Section 624202 requires only good faith of the 31 debtor who receives that documentation; his release then depends 32 solely on his making payment to the foreign personal 33 representative. See Section 624206. 34 These sections apply even though interested persons, including 35 estate creditors, are domiciled in, or doing business in, South 36 Carolina. Such creditors are protected under Section 624203. 37 These sections apply to the collection of all debts owed to and 38 tangible and intangible personal property owned by the estate. 39 Section 623201(d) refers to the location of tangible personal 40 property and intangible personal property which may be evidenced 41 by an instrument. Transfers of securities are covered by these 42 sections as well as by Sections 35710, et seq. the Uniform Act 43 for Simplification of Fiduciary Security Transfers. [1243] 227 1 Section 624201 provides for a waiting period of sixty days from 2 the death of the decedent before payment can be made with the 3 expectation of an immediate discharge of the debtor. Presumably, 4 having made payment before the expiration of the period, a debtor 5 will be discharged at the expiration of the period if he would have 6 been discharged had he then paid, but, for example, not if, in the 7 meantime, a local administration has come to the attention of the 8 debtor. 9 See Section 12161150 for estate tax duties and liabilities imposed 10 on personal representatives. 11 12 Section 624202. Payment or delivery made in good faith on the 13 basis of the proof of authority and affidavit releases the debtor or 14 person having possession of the personal property or of the 15 instrument evidencing a debt, obligation, stock, or chose in action 16 to the same extent as if payment or delivery had been made to a 17 local personal representative. 18 19 REPORTER’S COMMENTS 20 See Comment to Section 624201. 21 22 Section 624203. Payment or delivery under Section 624201 may 23 not be made if a resident creditor of the nonresident decedent has 24 given written notice to the debtor of the nonresident decedent or 25 the person having possession of the personal property or of the 26 instrument evidencing a debt, obligation, stock, or chose in action 27 belonging to the nonresident decedent that the debt should not be 28 paid nor the property delivered to the domiciliary foreign personal 29 representative. 30 31 REPORTER’S COMMENTS 32 For the context of Section 624203, see comment to Section 33 624201. Section 624203 provides a means by which a resident 34 creditor of the decedent can attempt to protect himself from 35 nonpayment of his debt, resulting from assets of the estate being 36 removed from South Carolina by a domiciliary foreign personal 37 representative. The creditor simply notifies the debtors of the 38 decedent not to pay their debts under Sections 624201 and 624202. 39 The notice must be in writing, thereby excluding constructive 40 notice. Section 624203 provides for a mechanism protective of 41 resident creditors, while Section 624202 deprives of such 42 protection resident creditors who fail to give notice under Section 43 624203. [1243] 228 1 2 Section 624204. If no local administration or application or 3 petition therefor is pending in this State, a domiciliary foreign 4 personal representative may file with a court in this State in a 5 county in which property belonging to the decedent is located, 6 authenticated copies of his appointment, and of the will, if any, and 7 of any official bond he has given, which bond shall name the court 8 in this State as coobligee on such bond. The filing of a bond shall 9 not be required unless the court in its discretion orders it. 10 11 REPORTER’S COMMENTS 12 Sections 624204 and 624205 must be read, together with Section 13 624206, as providing a means, additional to those of Sections 14 624201 through 624203 and of Section 624207, for the unification 15 and simplification of the administration of multistate estates, 16 without requiring the local appointment of a personal 17 representative. Predicated on no local administration having been 18 instituted, the domiciliary foreign personal representative, who 19 files with the court the documents required by Section 624204, 20 obtains under Section 624205 all of the powers of a local personal 21 representative. See Article 3 for the powers of local personal 22 representatives. 23 24 Section 624205. A domiciliary foreign personal representative 25 who has complied with Section 624204 may exercise as to assets 26 (including real and personal property) in this State all powers of a 27 local personal representative and may maintain actions and 28 proceedings in this State subject to any conditions imposed upon 29 nonresident parties generally. 30 31 REPORTER’S COMMENTS 32 See comment to Section 624204. 33 34 Section 624206. The power of a domiciliary foreign personal 35 representative under Section 624201 or 624205 shall be exercised 36 only if there is no administration or application therefor pending in 37 this State. An application or petition for local administration of the 38 estate terminates the power of the foreign personal representative 39 to act under Section 624205, but the local court may allow the 40 foreign personal representative to exercise limited powers to 41 preserve the estate. No person who, before receiving actual notice 42 of a pending local administration, has changed his position in 43 reliance upon the powers of a foreign personal representative shall[1243] 229 1 be prejudiced by reason of the application or petition for, or grant 2 of, local administration. The local personal representative is 3 subject to all duties and obligations which have accrued by virtue 4 of the exercise of the powers by the foreign personal representative 5 and may be substituted for him in any action or proceedings in this 6 State. 7 8 REPORTER’S COMMENTS 9 Section 624206 limits the powers of foreign personal 10 representatives, under both Sections 624201, et seq., and 624204, 11 et seq., to cases in which no local administration is pending, with 12 provision, however, for court approved exercise of limited powers 13 to preserve the estate, for protection of any person acting in 14 reliance upon these sections and without actual notice of a pending 15 local administration, and for subjection of the local personal 16 representative to the obligations accrued by the foreign personal 17 representative under these sections. See Article 3 for provisions 18 concerning local administration. 19 20 Section 624207. In respect to a nonresident decedent, the 21 provisions of Article 3 [Sections 623101 et seq.] govern (1) 22 proceedings, if any, in a court of this State for probate of the will, 23 appointment, removal, supervision, and discharge of the local 24 personal representative, and any other order concerning the estate; 25 and (2) the status, powers, duties, and liabilities of any local 26 personal representative and the rights of claimants, purchasers, 27 distributees, and others in regard to a local administration. The 28 initiation of a proceeding under Article 3 (Sections 623101 et seq.) 29 is the appropriate procedure for an ancillary administration relating 30 to the real property of a nonresident decedent located in this State 31 and is an alternative to the procedures available to a foreign 32 personal representative under Sections 624201 through 624206. 33 34 REPORTER’S COMMENTS 35 The purpose of this section is to direct attention to Article 3 for 36 sections controlling ancillary, i.e., local administration of estates of 37 nonresident decedents. See in particular Sections 623101, 623201, 38 623202, 623203, 623307(a), 623308, 623611(b), 623803(a), 39 623815, and 623816. Section 624207 and Article 3 must be read 40 as providing an alternative to the procedures available to a foreign 41 personal representative under Sections 624201 through 624206. 42 43 Part 3 [1243] 230 1 2 Jurisdiction Over Foreign Personal Representatives 3 4 Section 624301. A foreign personal representative submits 5 personally to the jurisdiction of the courts of this State in any 6 proceeding relating to the estate by (1) filing authenticated copies 7 of his appointment as provided in Section 624204, (2) receiving 8 payment of money or taking delivery of personal property under 9 Section 624201, or (3) doing any act as a personal representative in 10 this State which would have given the State jurisdiction over him 11 as an individual. Jurisdiction under (2) is limited to the money or 12 value of personal property collected. 13 14 REPORTER’S COMMENTS 15 Sections 624301 and 624302 assert the South Carolina courts’ 16 jurisdiction over foreign personal representatives, not appointed in 17 South Carolina pursuant to Article 3. Jurisdiction is asserted in the 18 circumstances, under Section 624301, of the foreign personal 19 representative’s acting (1) under Section 624204 of this Code, (2) 20 under Section 624201 of this Code, or (3) within the state in a 21 manner which would have subjected him, as an individual, to the 22 state’s jurisdiction, and, under Section 624302, (4) of the 23 decedent’s having been subject to the courts’ jurisdiction 24 immediately prior to his death. The words ‘courts of this state’ are 25 sufficient under federal legislation to include a federal court 26 having jurisdiction in South Carolina. 27 A foreign personal representative appointed at the decedent’s 28 domicile has priority for appointment in any local administration. 29 See Section 623203(g). Once appointed as local personal 30 representative, he remains subject to the jurisdiction of the 31 appointing court under Section 623602. 32 33 Section 624302. In addition to jurisdiction conferred by Section 34 624301, a foreign personal representative is subject to the 35 jurisdiction of the courts of this State to the same extent that his 36 decedent was subject to jurisdiction immediately prior to death. 37 38 REPORTER’S COMMENTS 39 For the context of Section 624302, see comment to Section 40 624301. Section 624302 subjects the foreign personal 41 representative to jurisdiction on the basis of his decedent’s 42 immediate predeath condition or activities, whether the decedent 43 was domiciled, doing business, or maintaining his principal place[1243] 231 1 of business in South Carolina (see Section 362802 Code) of the 2 1976 Code or engaged in conduct encompassed in South 3 Carolina’s ‘longarm’ statutes (see Sections 362803, 155130, 4 155140, and 159350, et seq.). As to survival of causes of action, 5 see Sections 15590, 155110, et seq., and 3511520 of the 1976 6 Code. 7 Uniform Commercial Code Section 362801 might be read to 8 subject a personal representative ‘whether or not a citizen or 9 domiciliary of this State,’ including a foreign personal 10 representative, to the jurisdiction of the South Carolina courts. 11 Section 624302 settles any doubt as to the foreign personal 12 representative’s immunity from suit. 13 Section 624302 should be read with Sections 155130 and 155140 14 as augmenting and simplifying the process available to persons 15 involved in South Carolina in automobile accidents also involving 16 deceased nonresident motorists. Section 624302 allows for suit 17 directly against the foreign personal representative. 18 19 Section 624303. (a) Service of process may be made upon the 20 foreign personal representative by registered or certified mail, 21 addressed to his last reasonably ascertainable address, requesting a 22 return receipt signed by addressee only. Notice by ordinary first 23 class mail is sufficient if registered or certified mail service to the 24 addressee is unavailable. Service may be made upon a foreign 25 personal representative in the manner in which service could have 26 been made under other laws of this State on either the foreign 27 personal representative or his decedent immediately prior to death. 28 (b) If service is made upon a foreign personal representative as 29 provided in subsection (a), he shall be allowed thirty days within 30 which to appear or respond. 31 32 REPORTER’S COMMENTS 33 Section 624303 provides for service of process upon a foreign 34 personal representative, first, either by registered or by certified 35 mail, with return receipt requested, if available under postal 36 regulations; second, by ordinary first class mail, where registered 37 or certified mail is unavailable; and, third, by any means available 38 under other laws of South Carolina for service on the decedent (or 39 on the foreign personal representative himself) immediately prior 40 to the decedent’s death. For service on the decedent, see Sections 41 362804, et seq., for service of process in support of personal 42 jurisdiction under the ‘longarm’ provisions of the Uniform 43 Commercial Code, Sections 362801, et seq. See Sections 159350,[1243] 232 1 et seq., for substituted service of process in South Carolina on the 2 statutorily designated agents of nonresident motorists, motor 3 carriers, aircraft operators, vessel operators, certain traveling 4 shows, nonresident directors of domestic corporations, nonresident 5 trustees of inter vivos trusts, and nonresident individual fiduciaries. 6 See Sections 621401 through 621403 of this Code for the general 7 notice provisions of this Code. 8 9 Part 4 10 11 Judgments and Personal Representatives 12 13 Section 624401. An adjudication rendered in any jurisdiction in 14 favor of or against any personal representative of the estate is as 15 binding on the local personal representative as if he were a party to 16 the adjudication; provided, however, that notice and the 17 opportunity to defend must be given to the local representative in 18 order that the judgment be collectible. 19 20 REPORTER’S COMMENTS 21 For the determinative effect of domiciliary foreign orders 22 determining testacy or the validity of a will and of domiciliary 23 certificates of the efficacy of a will, see Section 623408 and 24 623409. 25 26 Article 5 27 28 Protection of Persons Under Disability and Their Property 29 30 Part 1 31 32 General Provisions 33 34 Section 625101. Unless otherwise apparent from the context, in 35 this Code article: 36 (1) ‘Incapacitated person’ means any person who is impaired 37 by reason of mental illness, mental deficiency, physical illness or 38 disability, advanced age, chronic use of drugs, chronic 39 intoxication, or other cause (except minority) to the extent that he 40 lacks sufficient understanding or capacity to make or communicate 41 responsible decisions concerning his person or property; 42 (2) A ‘protective proceeding’ is a proceeding under the 43 provisions of Section 625401 to determine if a person is an[1243] 233 1 incapacitated person, or to secure the administration of the estates 2 of incapacitated persons or minors; 3 (3) A ‘protected person’ is a minor or incapacitated person for 4 whom a conservator has been appointed or other protective order 5 has been made; 6 (4) A ‘ward’ is a person for whom a guardian has been 7 appointed; 8 (5) A ‘guardianship proceeding’ is a formal proceeding under 9 the provisions of Part 3 of Article 5 (Section 625301, et seq.) to 10 determine if a person is an incapacitated person, or to appoint a 11 guardian for an incapacitated person. 12 ‘Adult’ means an individual who has attained eighteen years of 13 age or who has been emancipated by a court of competent 14 jurisdiction. 15 (2) ‘Conservator’ means a person appointed by the court to 16 manage the estate of a protected person. 17 (3) ‘Court’ means the probate court. 18 (4) ‘Emergency’ means circumstances that likely will result in 19 substantial harm to a primary respondent’s health, safety, or 20 welfare or in substantial economic loss to the primary respondent. 21 (5) ‘Guardian’ means a person appointed by the court as 22 guardian, but excludes one who is a guardian ad litem. 23 (6) ‘Guardian With Limitation’ is a guardian whose powers or 24 duties have been limited by court order. 25 (7) ‘Guardian Without Limitation’ is a guardian who has all 26 the powers and duties conferred in section 625313. 27 (8) ‘Guardian ad litem’ is a person appointed by the court in 28 accordance with Part 8, Article 5. 29 (9) ‘Guardianship order’ means an order appointing a guardian 30 or adjudicating an adult incapacitated. 31 (10) ‘Guardianship proceeding’ means a formal proceeding 32 under the provisions of Part 3, Article 5 (Sections 625301, et seq.) 33 to determine if an adult is an incapacitated person or in which an 34 order for the appointment of a guardian for an adult is sought or 35 has been issued. 36 (11) ‘Home state’ means the state in which the primary 37 respondent was physically present, including a period of temporary 38 absence, for at least six consecutive months immediately before 39 the filing of a petition for the appointment of a guardian or 40 protective order, or if none, the state in which the primary 41 respondent was physically present, including a period of temporary 42 absence, for at least six consecutive months ending with the six 43 months prior to the filing of the petition.[1243] 234 1 (12) ‘Incapacitated person’ means an individual who, for 2 reasons other than minority, has incapacity. 3 (13) ‘Incapacity’ means the inability to receive and evaluate 4 information or make or communicate decisions to the extent that a 5 person, even with appropriate technological assistance, (a) is 6 unable to provide for his physical health, safety, or selfcare to the 7 extent he needs a guardian, or (b) is unable to manage his property 8 to the extent he needs a protective order. 9 (14) ‘Party’ means the primary respondent, petitioner, guardian, 10 conservator, or any other person allowed by the court or entitled 11 under this article to participate in a guardianship proceeding or 12 protective proceeding. 13 (15) ‘Person’ means an individual, corporation, business trust, 14 estate, trust, partnership, limited liability company, association, 15 joint venture, government or governmental subdivision, agency, or 16 instrumentality, public corporation, or any other legal or 17 commercial entity. 18 (16) ‘Primary respondent’ means (a) an adult for whom a 19 protective order is sought, (b) an adult for whom the appointment 20 of a guardian is sought, (c) an adult for whom a determination of 21 incapacity is sought, or (d) a minor for whom a protective order is 22 sought. 23 (17) ‘Protected person’ means 24 (a)(i) a minor; 25 (ii) an incapacitated person; 26 (iii) a person who is confined, is detained by a foreign 27 power, or has disappeared; or 28 (iv) a person who is disabled and requires a court order to 29 create and establish a special needs trust; and 30 (b) for whom a conservator has been appointed or other 31 protective order has been made. 32 (18) ‘Protective order’ means an order appointing a conservator 33 or related to the management of the property of: 34 (a) an incapacitated person; 35 (b) a minor; 36 (c) a person who is confined, is detained by a foreign power, 37 or has disappeared; or 38 (d) a person who is disabled and requires a court order to 39 create and establish a special needs trust for the person’s benefit. 40 (19) ‘Protective proceeding’ means a judicial proceeding in 41 which a protective order is sought or has been issued.[1243] 235 1 (20) ‘Record’ means information that is inscribed on a tangible 2 medium or that is stored in an electronic or other medium and is 3 retrievable in perceivable form. 4 (21) ‘Significantconnection state’ means a state, other than the 5 home state, with which a primary respondent has a significant 6 connection other than mere physical presence and in which 7 substantial evidence concerning the primary respondent is 8 available. Determination of whether a primary respondent has a 9 significant connection with a particular state shall include 10 consideration of the following: 11 (a) the location of the primary respondent’s family and 12 others required to be notified of the guardianship proceeding or 13 protective proceeding; 14 (b) the length of time the primary respondent at any time 15 was physically present in the state and the duration of any 16 absences; 17 (c) the location of the primary respondent’s property; and 18 (d) the extent to which the primary respondent has other ties 19 to the state such as voting registration, filing of state or local tax 20 returns, vehicle registration, driver’s license, social relationships, 21 and receipt of services. 22 (22) ‘State’ means a state of the United States, the District of 23 Columbia, Puerto Rico, the United States Virgin Islands, a 24 federally recognized Indian tribe, or any territory or insular 25 possession subject to the jurisdiction of the United States. 26 (23) ‘Visitor’ is a person who has the requisite knowledge, 27 training, or expertise to perform the duties required as the court 28 may determine appropriate and must be an officer, employee, or 29 special appointee of the court with no personal interest in the 30 proceeding. 31 (24) ‘Ward’ means an adult for whom a guardian has been 32 appointed. 33 34 REPORTER’S COMMENTS 35 The 2012 amendment substantially changed this section. 36 Section 625101 defines certain terms which are used in Article 5. 37 Definitions from the South Carolina Adult Guardianship and 38 Protective Proceedings Jurisdiction Act (Part 7) have been moved 39 to 625101. The South Carolina Adult Guardianship and Protective 40 Proceedings Jurisdiction Act is a slightly modified version of the 41 Uniform Adult Guardianship and Protective Proceedings 42 Jurisdiction Act (UAGPPJA) drafted by the Uniform Law 43 Commission. [1243] 236 1 The definitions of ‘Incapacity’ and ‘Incapacitated Person’ have 2 changed significantly. These definitions are modified versions of 3 the definition contained in the Uniform Guardianship and 4 Protective Proceedings Act (1997) drafted by the Uniform Law 5 Commission. The new definition is based upon an individual’s 6 functional capacity rather than the person’s disability. The 7 requirement that the person be unable to make ‘responsible’ 8 decisions is deleted, as is the requirement that the person have an 9 impairment by reason of a specified disability or other cause, a 10 requirement which may have led the trier of fact to focus unduly 11 on the nature of the respondent’s disabling condition, as opposed 12 to the respondent’s actual ability to function. The revised 13 definition is based on recommendations of the 1988 Wingspread 14 conference on guardianship reform, the report of which should be 15 referred to for additional background. See Guardianship: An 16 Agenda For Reform 15 (A.B.A. 1989). See also Stephen J. 17 Anderer, Determining Competency in Guardianship Proceedings 18 (A.B.A. 1990). Courts seeking guidance on particular factors to 19 consider should also consult the California Due Process in 20 Competency Determination Act, California Probate Code Section 21 811. 22 This Article 5 uses the term’ guardian’ (5) to refer to a fiduciary 23 who has custody of an incapacitated adult. See Section 24 621201(16).There are two types of guardian: ‘guardian without 25 limitation’ (7) and ‘guardian with limitation’ (6). 26 Under this Article 5, a fiduciary appointed to manage the assets 27 of a minor or incapacitated person is referred to as a ‘conservator’ 28 (2). 29 Any person for whom a guardian has been appointed is referred 30 to as a ‘ward’ (24). 31 Any person for whom a conservator has been appointed or a 32 protective order issued is referred to as a ‘Protected Person’ (17). 33 A person who may participate in a guardianship proceeding or a 34 protective proceeding is referred to as a ‘Party’ (14). 35 A ‘Conservator’ (2) is appointed pursuant to a ‘Protective 36 Order’ (18) which is issued as part of a ‘Protective Proceeding’ 37 (19) and which authorizes the conservator to manage the property 38 of a ‘Protected Person’ (17). A protective order may be issued by 39 the court without the appointment of a conservator. For example, 40 under 625405 the court may authorize a socalled single 41 transaction. For this reason, Article 5 contains frequent references 42 to the broader category of protective orders. When intended to 43 apply only to conservatorships this Article 5 refers to[1243] 237 1 conservatorship and not the broader category of protective 2 proceedings. 3 Article 5 applies to all types of guardianship proceedings and 4 protective proceedings, whether full, limited, temporary or 5 emergency. 6 In compliance with the requirement of a summons with all 7 petitions in the probate court, the individual for whom a 8 guardianship or protective proceeding is sought is referred to as the 9 ‘Primary Respondent’ (16). 10 The definition of ‘home state’ (11) is derived from but differs in 11 a couple of respects from the definition of the same term in Section 12 102 of the Uniform Child Custody Jurisdiction and Enforcement 13 Act (1997). First, unlike the definition in the UCCJEA, the 14 definition clarifies that actual physical presence is necessary. The 15 UCCJEA definition instead focuses on where the child has ‘lived’ 16 for the prior six months. Basing the test on where someone has 17 ‘lived’ may imply that the term ‘home state’ is similar to the 18 concept of domicile. Domicile, in an adult guardianship context, is 19 a vague concept that can easily lead to claims of jurisdiction by 20 courts in more than one state. Second, under the UCCJEA, home 21 state jurisdiction continues for six months following physical 22 removal from the state and the state has ceased to be the actual 23 home. Under this Act, the sixmonth tail is incorporated directly 24 into the definition of home state. The place where the respondent 25 was last physically present for six months continues as the home 26 state for six months following physical removal from the state. 27 This modification of the UCCJEA definition eliminates the need to 28 refer to the sixmonth tail each time home state jurisdiction is 29 mentioned in the Act. 30 The definition of ‘significantconnection state’ (21) is similar to 31 Section 201(a)(2) of the Uniform Child Custody Jurisdiction and 32 Enforcement Act (1997). However, this definition adds a list of 33 factors relevant to adult guardianship and protective proceedings to 34 aid the court in deciding whether a particular place is a 35 significantconnection state. Under Section 301(e)(1), the 36 significant connection factors listed in the definition are to be 37 taken into account in determining whether a conservatorship may 38 be transferred to another state. 39 40 Section 625102. (a) The probate court has jurisdiction over 41 protective proceedings and guardianship proceedings. [1243] 238 1 (b) When both guardianship proceedings and protective 2 proceedings as to the same person are commenced or pending in 3 the same court, the proceedings may be consolidated. 4 5 REPORTER’S COMMENTS 6 Under Section 625102, when proceedings relating to the 7 appointment of a fiduciary who will have custody and proceedings 8 relating to the appointment of a fiduciary who will manage assets 9 are commenced in the same court, such proceedings may be 10 consolidated. 11 12 Section 625103. (1) A person under a duty to pay or deliver 13 money or personal property to a minor or incapacitated person may 14 perform this duty in amounts not exceeding an aggregate amount 15 of ten thousand dollars each year, by paying or delivering the 16 money or property to: 17 (1)(A) a person having the care and custody of the minor or 18 incapacitated person with whom the minor or incapacitated person 19 resides; 20 (2)(B) a guardian of the minor or an incapacitated person; or 21 (3)(C) a financial institution incident to a deposit in a 22 federally insured savings account in the sole name of the minor or 23 for the minor under the Uniform Gifts to Minors Act and giving 24 notice of the deposit to the minor. 25 (2) This section does not apply if the person making payment 26 or delivery has actual knowledge that a conservator has been 27 appointed or proceedings that a proceeding for appointment of a 28 conservator of the estate of the minor or incapacitated person are 29 primary respondent is pending. The persons, other than the minor 30 or incapacitated person or a financial institution under (3)(1)(C) 31 above, receiving money or property for a minor or incapacitated 32 person, serve as fiduciaries subject to fiduciary duties, and are 33 obligated to apply the money for the benefit of the minor or 34 incapacitated person with due regard to (i) the size of the estate, 35 the probable duration of the minority or incapacity, and the 36 likelihood that the minor or incapacitated person, at some future 37 time, may be able fully to manage his affairs and his estate; (ii) 38 the accustomed standard of living of the minor or incapacitated 39 person and members of his household; and (iii) other funds or 40 sources resources used or available for the support of the minor or 41 incapacitated person, but. The persons may not pay themselves 42 except by way of reimbursement for outofpocket expenses for 43 goods and services necessary for the minor’s or incapacitated[1243] 239 1 person’s support. Money or other property received on behalf of a 2 minor or incapacitated person may not be used by a person to 3 discharge a legal or customary obligation of support that may exist 4 between that person and the minor or incapacitated person. Excess 5 sums must be preserved for future benefit of the minor or 6 incapacitated person, and a any balance not used and property 7 received for the minor or incapacitated person must be turned over 8 to the minor when he attains majority or to the incapacitated 9 person when he is no longer incapacitated. Persons who pay or 10 deliver in accordance with provisions of this section are not 11 responsible for the proper application of it the money or personal 12 property. 13 (3) Regardless of the amount of compensation, any employer 14 may fulfill his duties to a minor or incapacitated employee by 15 delivering a check to or depositing payment into an account in the 16 name of the minor or incapacitated employee. 17 18 REPORTER’S COMMENTS 19 This section applies to the property of minors or incapacitated 20 persons. This section does not require a court order. This section 21 was amended to clarify that the $10,000.00 limit is an aggregate 22 amount each year. Multiple distributions in one year aggregating 23 more than $10,000.00 require the appointment of a conservator or 24 other protective order. 25 When a minor or incapacitated person annually receives from a 26 specific payer property or cash of $10,000 or less, in all likelihood 27 it will be expended for support within the year and it would be 28 cumbersome and unnecessarily expensive to require the 29 establishment of a conservatorship to handle the payments. This 30 section allows the person required to transfer the property to do so 31 in a more expeditious way. 32 The person required to transfer the property has the option of 33 making the transfer to the person having care and custody of the 34 minor or incapacitated person, when the minor or incapacitated 35 person resides with that person, or may instead make payments to 36 the guardian of the minor or incapacitated person, a custodian 37 under the Uniform Gifts to Minors Act, or to a financial institution 38 where an interestbearing account or certificate in only the minor’s 39 name is located. 40 The protections of this section do not apply if the person 41 required to make the transfer knows that a conservator has been 42 appointed or that there is a proceeding pending for the appointment 43 of a conservator. Consequently, the fact that a guardian has been[1243] 240 1 appointed does not require that payment be made to that guardian. 2 A guardian of a minor or incapacitated person may receive 3 payments but has no power to compel payment from a third 4 person. Should a guardian desire such authority, the appropriate 5 course is for the guardian to petition the court to be appointed as 6 conservator. 7 Although the person making the transfer has no duty or 8 obligation to see that the money or property is properly applied, 9 this section is a default statute and does not override any specific 10 provisions in a will or trust instrument relating to monies to be 11 paid to a minor or incapacitated person. In those cases, the duty of 12 the person making the transfer would be dictated by the terms of 13 the instrument. 14 The section limits the use of the money or property for the 15 benefit of the minor or incapacitated person. The money or 16 property may not be used to discharge a legal or customary 17 obligation of support. Only expenses reasonably incurred may be 18 reimbursed from this money or property, with the balance being 19 preserved for the future benefit of the minor or incapacitated 20 person. This section is not applicable to child support payments 21 made pursuant to a court order because child support payments are 22 made to another for the minor’s benefit. 23 While a recipient of funds is not a fiduciary in the normally 24 understood sense of a person appointed by the court or by written 25 instrument, a recipient under this section is subject to fiduciary 26 obligations. Under subsection (2), the recipient may not derive any 27 personal benefit from the transfer and must preserve funds not 28 used for the minor’s benefit and transfer any balance to the minor 29 upon emancipation or attainment of majority. Should the recipient 30 misapply the funds or property transferred, the recipient, given this 31 fiduciary role, would be liable for breach of trust. 32 The person receiving the monies may consider, in appropriate 33 cases, the purchase of an annuity or some other financial 34 arrangement whereby payout occurs at a time subsequent to the 35 minor’s attainment of majority. But to provide more certainty for 36 the transaction, the recipient should consider petitioning the Court 37 under Section 625405 for approval of the purchase as a protective 38 arrangement. 39 40 Section 625104. A guardian of an incapacitated person, by a 41 properly executed power of attorney, may delegate to another 42 person, for not more than thirty days, any of his powers regarding 43 care and custody of the incapacitated person. If a patient of a state[1243] 241 1 mental health facility has no legally appointed conservator, the 2 Director of the Department of Mental Health or his designee may 3 receive and accept for the use and benefit of the patient assets, 4 which may be due the patient by inheritance, gift, pension, or 5 otherwise, with an aggregate value not exceeding ten thousand 6 dollars in one calendar year. The director or his designee may act 7 as conservator for the patient and his endorsement or receipt 8 discharges the obligor for any assets received. Upon receipt, the 9 director or his designee shall use the assets for the proper 10 maintenance, use, and benefit of the patient or as much of the 11 assets as may be necessary for these purposes. In the event the 12 patient dies leaving an unexpended balance of assets in the hands 13 of the director or his designee, the director or his designee shall 14 apply the balance first to the funeral expenses of the patient, and 15 any balance remaining must be held by the director or his designee 16 for a period of six months; and if within this period, the director or 17 his designee is not contacted by the personal representative of the 18 deceased patient, the balance of the assets may be applied to the 19 maintenance and medical care account of the deceased patient. 20 The director or his designee must, within thirty days following the 21 death of the patient, notify the probate court in the county in which 22 the patient last resided of the death of the patient and provide a list 23 of any property belonging to the patient and held by the 24 department. Upon appointment of a conservator for a patient of a 25 state mental health facility, the director shall deliver any assets of 26 the protected person to the conservator and provide an accounting 27 of the management of those assets. 28 29 REPORTER’S COMMENTS 30 This section was formerly Section 625105 before the 2012 31 amendment. This section addresses the receipt of assets up to an 32 aggregate of $10,000.00 per year by the Director of the 33 Department of Mental Health for patients of a state mental health 34 facility for whom no conservator has been appointed. If a 35 conservator has been appointed, the assets must be delivered to the 36 conservator. 37 At the death of the patient, the Director may apply remaining 38 funds to funeral expenses. The director must notify the court of 39 the patient’s death and provide a list of assets within thirty days 40 from the date of death. If no personal representative is appointed 41 and contacts the Director within six months of the death, the funds 42 may be applied to the account of the deceased patient. 43[1243] 242 1 Section 625105. If a patient of a state mental health facility has 2 no legally appointed conservator, the Director of the Department 3 of Mental Health or his designee may receive and accept for the 4 use and benefit of that patient a sum of money, not in excess of the 5 sum of ten thousand dollars in one calendar year, which may be 6 due the patient or trainee by inheritance, gift, pension, or 7 otherwise. The director or his designee may act as conservator for 8 the patient and his endorsement or receipt discharges the obligor 9 for the sum received. Upon receipt of these funds the director or 10 his designee shall use it for the proper maintenance, use, and 11 benefit of the patient or as much of the fund as may be necessary 12 for these purposes. In the event the patient dies leaving an 13 unexpended balance of these funds in the hands of the director or 14 his designee, he shall apply the balance first to the funeral 15 expenses of the patient or trainee, and any balance remaining must 16 be held by the director or his designee for a period of six months, 17 and if he is not within this period, contacted by the personal 18 representative of the deceased patient, the balance in the personal 19 fund account must be applied to the maintenance and medical care 20 account of the deceased patient. 21 22 Section 625106. (A) For purposes of this section, 23 ‘incapacitated person’ has the meaning set forth in Sections 24 625101(1) and 625401(2) and does not include a person protected 25 only by reason of his minority. 26 (B) Notwithstanding another provision of law, neither a 27 guardianship of an incapacitated person established pursuant to 28 Part 3 of this article or a conservatorship or other protective order 29 for an incapacitated person established pursuant to Part 4 of this 30 article terminates only because the ward or protected person attains 31 the age of majority or other benchmark age. 32 33 Part 2 34 35 Jurisdiction 36 37 Section 625201. The family courts of this State have jurisdiction 38 over the care, custody, and control of the persons of minors. 39 Jurisdiction of the probate court is set forth in Section 621302 and 40 in Section 625701 as to appointment of a guardian or issuance of a 41 protective order for an adult. The probate court does not have 42 jurisdiction over the care, custody, and control of the persons of 43 minors, but does have jurisdiction over the property of minors. [1243] 243 1 2 REPORTER’S COMMENTS 3 4 The 2012 amendment to this section clarifies that the probate court 5 has jurisdiction of guardianships and protective proceedings for 6 adults, but only protective proceedings for a minor. The family 7 court has jurisdiction over the person of a minor. 8 9 Part 3 10 11 Guardians of Incapacitated Persons 12 13 Section 625301. (a) The parent of an incapacitated person may 14 by will appoint a guardian of the incapacitated person. A 15 testamentary appointment by a parent becomes effective when, 16 after having given twenty days prior written notice of intention to 17 the incapacitated person and to the person having his care or to his 18 nearest adult relative, the guardian files acceptance of appointment 19 in the court in which the will is informally or formally probated, if 20 prior thereto, both parents are dead or the surviving parent is 21 adjudged incapacitated. If both parents are dead, an effective 22 appointment by the parent who died later has priority unless it is 23 terminated by the denial of probate in formal proceedings. 24 (b) The spouse of a married incapacitated person may by will 25 appoint a guardian of the incapacitated person. The appointment 26 becomes effective when, after having given twenty days prior 27 written notice of his intention to do so to the incapacitated person 28 and to the person having his care or to his nearest adult relative, 29 the guardian files acceptance of appointment in the court in which 30 the will is informally or formally probated. An effective 31 appointment by a spouse has priority over an appointment by a 32 parent unless it is terminated by the denial of probate in formal 33 proceedings. 34 (c) This State shall recognize a testamentary appointment 35 effected by filing acceptance under a will probated at the testator’s 36 domicile in another state. 37 (d) On the filing with the court in which the will was probated 38 of written objection to the appointment by the person for whom a 39 testamentary appointment of guardian has been made, the 40 appointment is terminated. An objection does not prevent 41 appointment by the court in a proper proceeding of the 42 testamentary nominee or any other suitable person upon an 43 adjudication of incapacity in proceedings under the succeeding[1243] 244 1 section of this Part. Subject to the provisions of Sections 625701 2 et seq., venue for guardianship proceedings for an incapacitated 3 person is in the place where the incapacitated person resides or is 4 present. If the incapacitated person is committed to an institution 5 pursuant to an order of a court of competent jurisdiction, venue is 6 also in the county in which that court sits. 7 8 REPORTER’S COMMENTS 9 Prior to the 2012 amendment, Section 625301 was Section 10 625302. 11 The Section was amended to include reference to the South 12 Carolina Adult Guardianship and Protective Proceedings 13 Jurisdiction Act (Part 7). 14 15 16 Section 625302. The venue for guardianship proceedings for an 17 incapacitated person is in the place where the incapacitated person 18 resides or is present. If the incapacitated person is admitted to an 19 institution pursuant to order of a court of competent jurisdiction, 20 venue is also in the county in which that court sits. 21 (1) A parent, by will, may appoint a guardian for an unmarried 22 adult child whom the parent believes is an incapacitated person. 23 The testamentary appointment by a parent becomes effective 24 when, after having given twenty days prior written notice of 25 intention to the incapacitated person and any person to whom 26 notice is required under Section 625303(1), the guardian files 27 acceptance of appointment in the court in which the will is 28 informally or formally probated, if both parents are dead or the 29 surviving parent is adjudged incapacitated prior to the will being 30 probated. If both parents are deceased, an effective appointment 31 by the surviving parent has priority over any appointment by the 32 first deceased parent. The denial of probate in formal proceedings 33 terminates a testamentary appointment of guardian under this 34 section. 35 (2) An individual, by will, may appoint a guardian for the 36 individual’s spouse whom the appointing spouse believes is an 37 incapacitated person. The testamentary appointment by a spouse 38 becomes effective when, after having given twenty days prior 39 written notice of his intention to do so to the incapacitated person 40 and any person to whom notice is required under Section 41 625303(1), the guardian files acceptance of appointment in the 42 court in which the will is informally or formally probated. An 43 effective appointment by a spouse has priority over a testamentary[1243] 245 1 appointment by a parent, unless it is terminated by the denial of 2 probate in formal proceedings. The denial of probate in formal 3 proceedings terminates a testamentary appointment of guardian 4 under this section. 5 (3) Upon the filing of acceptance of testamentary appointment 6 under a will probated at the testator’s domicile in another state, this 7 state shall recognize a testamentary appointment of a guardian 8 effected by the filing of acceptance of appointment in the manner 9 set forth in subsections (1) and (2) in the county in this state in 10 which the incapacitated person resides. 11 (4) Upon the filing of written objection to the testamentary 12 appointment by the person for whom a testamentary appointment 13 of guardian has been made or by any person to whom notice is 14 required under Section 625303(1), the appointment is terminated. 15 The filing of written objection to the testamentary applicant shall 16 be with the court in which the will was probated. An objection 17 does not prevent appointment by the court in a proper proceeding 18 of the testamentary nominee or any other suitable person upon an 19 adjudication of incapacity in proceedings under the succeeding 20 section of this Part. 21 (5) The appointment of a guardian under this section is not an 22 adjudication of incapacity. 23 (6) Upon the testamentary appointment becoming effective, the 24 testamentary guardian shall be deemed to have been appointed by 25 the court and the court shall issue a certificate of appointment to 26 the testamentary guardian who shall have all of the rights, duties 27 and responsibilities of a guardian under this part. 28 29 REPORTER’S COMMENTS 30 Prior to the 2012 amendment, Section 625302 was Section 31 625301. 32 Section (1) provides for appointment of a guardian for an 33 unmarried adult child by will of a parent. Notice is required to be 34 given to those to whom notice is required in 625303(1). Because 35 of the presumption that an individual is not incapacitated until 36 proven otherwise, the language of this subsection was amended to 37 assume not the incapacity of the individual, but rather that the 38 parent has a belief that the individual is incapacitated. 39 Section (2) provides for appointment of a guardian by will of a 40 spouse. Similar changes were made to former Section 625301(B) 41 as were made to former Section 625301(A). 42 Section (4) allows for the person for whom testamentary 43 appointment is sought, as well as anyone to whom notice was[1243] 246 1 required to be sent, to object to the appointment. If any of those 2 entitled to object do so, the appointment is terminated. 3 Section (5) and (6) were added to clarify that the appointment of 4 a guardian under this section is not an adjudication of incapacity 5 and that once effective, a guardian appointed under this section is 6 deemed to have the same rights, duties and responsibilities as a 7 guardian appointed through court proceedings under this part. 8 9 Section 625303. (a) The incapacitated person or a person 10 interested in his welfare may petition for a finding of incapacity 11 and appointment of a guardian. 12 (b) Upon the filing and service of the summons and the petition 13 the court shall send a visitor to the place where the allegedly 14 incapacitated person resides to observe conditions and report in 15 writing to the court. The court shall set a date for hearing on the 16 issues of incapacity and unless the allegedly incapacitated person 17 has counsel of his own choice, it shall appoint an attorney to 18 represent him in the proceedings and that attorney shall have the 19 powers and duties of a guardian ad litem. The person alleged to be 20 incapacitated shall be examined by two examiners, one of whom 21 shall be a physician appointed by the court who shall submit their 22 reports in writing to the court. The person alleged to be 23 incapacitated is entitled to be present at the hearing in person, and 24 to see or hear all evidence bearing upon his condition. He is 25 entitled to be represented by counsel, to present evidence including 26 testimony by a physician of his own choosing, to crossexamine 27 witnesses, including the courtappointed examiners. The issue may 28 be determined at a closed hearing if the person alleged to be 29 incapacitated or his counsel so requests. 30 (1) An alleged incapacitated person or any person interested in 31 the welfare of the primary respondent may petition the court for a 32 finding of incapacity and, if appropriate, for the appointment of a 33 guardian with limitation or a guardian without limitation for the 34 alleged incapacitated person. The guardianship proceeding is 35 commenced by the filing and service of a summons and verified 36 petition upon the primary respondent and those persons listed in 37 item (2)(d). 38 (2) The petition shall set forth, to the extent known or 39 reasonably ascertainable, the following information: 40 (a) the interest of the petitioner; 41 (b) the name, age, and current address of the primary 42 respondent;[1243] 247 1 (c) the physical location of the primary respondent during 2 the six month period immediately preceding the filing of the 3 summons and petition; and, if the primary respondent was not 4 physically present in South Carolina for that period, sufficient 5 information on which the court may make a determination that it 6 has initial jurisdiction pursuant to Section 625707; 7 (d) the names and addresses of the following persons whose 8 identity and whereabouts are known or reasonably ascertainable: 9 (i) the primary respondent’s spouse; 10 (ii) the primary respondent’s adult children; 11 (iii) if there is no spouse or adult child. the primary 12 respondent’s parents; 13 (iv) if there is no spouse, adult child, or parent, at least one 14 of the primary respondent’s adult relatives with the nearest degree 15 of kinship; 16 (v) any person known to have been appointed as agent for 17 the primary respondent under a general durable power of attorney 18 or health care power of attorney; 19 (vi) any person who under Section 625305 has equal or 20 greater priority for appointment as guardian with the person whose 21 appointment the petition advocates; 22 (vii) any person with whom the primary respondent resides 23 outside of a health care facility, group home, homeless shelter, or 24 prison; and 25 (viii) any person, other than an unrelated employee or 26 health care worker, who is known or reasonably ascertainable by 27 the petitioner to have materially participated in caring for the 28 primary respondent within the six month period preceding the 29 filing of the petition with the court; 30 (e) the name and address of the person whose appointment is 31 sought and the basis of his priority for appointment; 32 (f) the reason why guardianship is necessary, including a 33 brief description of the nature and extent of the primary 34 respondent’s alleged incapacity; 35 (g) whether the petitioner is requesting the appointment of a 36 guardian with limitation or a guardian without limitation and, if a 37 guardian without limitation is requested, the reason why a guardian 38 with limitation is inappropriate; or, if a guardian with limitation is 39 requested, the restrictions sought to be imposed on the primary 40 respondent and the limitations sought to be imposed on the 41 guardian’s powers and duties; and [1243] 248 1 (h) a general statement of the primary respondent’s assets, 2 with an estimate of its value, and the source and amount of any 3 income of the primary respondent. 4 (3) Upon the filing of the summons and petition with the court 5 and proof of service of the summons and petition upon the primary 6 respondent, the court must appoint a guardian ad litem for the 7 primary respondent in accordance with Sections 625810 et seq, 8 and the guardian ad litem shall have the duties and responsibilities 9 set forth in Sections 625830. The appointment of a guardian ad 10 litem under this section shall have no effect on the legal capacity 11 of the primary respondent and shall not raise a presumption of 12 incapacity of the primary respondent. 13 (4) The primary respondent is not required to be represented by 14 counsel but is entitled to be represented by counsel of his 15 choosing. If the primary respondent is not represented by counsel, 16 then: 17 (a) upon the request of the primary respondent, the court 18 may allow the primary respondent to proceed pro se or instruct the 19 guardian ad litem to assist the primary respondent in obtaining 20 counsel; or 21 (b) upon the request of the primary respondent, guardian ad 22 litem, any party, or upon the court’s own motion, the court may 23 appoint counsel for the primary respondent. Nothing in this 24 subsection shall be construed to require an attorney to accept an 25 uncompensated appointment. During the pendency of any 26 guardianship proceeding, any attorney purporting to represent the 27 primary respondent shall file a notice of appearance with the court. 28 Fees for counsel retained by a primary respondent who is 29 determined to be incapacitated shall be subject to approval by the 30 court. 31 (5) Upon the filing of the summons and petition with the court 32 and proof of service of the summons and petition upon the primary 33 respondent, the court shall appoint an examiner, who shall be a 34 physician, to examine the primary respondent and report to the 35 court the physical and mental condition of the primary respondent. 36 Upon the motion or written request of the guardian ad litem, the 37 primary respondent, any party or on its own motion, the court may 38 appoint one or more additional examiners, who may be a physician 39 or any other person the court determines qualified to evaluate the 40 primary respondent’s alleged impairment. If the court appoints any 41 additional examiners, the court shall set out in the order appointing 42 the examiner why an additional examiner is necessary and why the 43 appointed examiner is appropriate to serve in that capacity. Each[1243] 249 1 examiner shall complete a verified report evaluating the condition 2 of the primary respondent and file his original report with the court 3 or deliver the original report to the guardian ad litem, who without 4 undue delay must file the report with the court by the deadline set 5 by the court, but not less than fortyeight hours prior to any hearing 6 in which the report will be introduced as evidence. For good 7 cause, the court may allow admission of an examiner’s report filed 8 less than fortyeight hours prior to the hearing. All parties to the 9 proceeding are entitled to copies of examiners’ reports. An 10 examiner’s report shall evaluate the condition of the primary 11 respondent and shall contain, to the best information and belief of 12 the examiner: 13 (a) a description of the nature, type, and extent of the 14 primary respondent’s incapacity, including the primary 15 respondent’s specific functional impairments; 16 (b) a diagnosis and assessment of the primary respondent’s 17 mental and physical condition, including a statement as to whether 18 the primary respondent is on any medications that may affect his 19 actions or demeanor; 20 (c) where appropriate and consistent with the scope of the 21 examiner’s license, an evaluation of the primary respondent’s 22 ability to learn selfcare skills, adaptive behavior, and social skills 23 and a prognosis for improvement; 24 (d) the date or dates of the examinations, evaluations, and 25 assessments upon which the report is based; 26 (e) the identity of those persons with whom the examiner 27 met or consulted regarding the primary respondent’s mental or 28 physical condition; and 29 (f) the signature of the examiner and the nature of any 30 professional license held by the examiner. Unless otherwise 31 directed by the court, in preparing a report for the court, the 32 examiner may rely upon an examination conducted by the 33 examiner within the ninetyday period immediately preceding the 34 filing of the petition. In the absence of bad faith or malicious 35 intent, an examiner appointed by the court and performing an 36 examination and submitting a report under this section shall be 37 immune from civil liability for any breach of patient 38 confidentiality made in furtherance of his duties under this section. 39 A report prepared pursuant to this section shall be admissible as 40 evidence of the facts stated therein and the results of the 41 examination or evaluation referred to therein. 42 (6) As soon as the interests of justice may allow, but after the 43 time for filing a response to the petition has elapsed as to all[1243] 250 1 parties served, the court must hold a hearing on the merits of the 2 petition. The primary respondent, all parties, and any person who 3 has filed a demand for notice pursuant to subsection (7), must be 4 given notice of the hearing as provided in Section 621401. The 5 primary respondent shall attend the hearing, unless excused by the 6 court for good cause. In determining good cause, the court may 7 consider affidavits submitted by the guardian ad litem or any 8 interested persons. 9 (7) Any interested person who desires to be notified before any 10 order is made in a guardianship proceeding may file with the court 11 a demand for notice. The court shall mail a copy of the demand to 12 the guardian, if one has been appointed, or to the petitioner, if no 13 guardian has been appointed. A demand for notice is not effective 14 unless it contains a statement indicating the nature of the interest 15 of the person filing the demand, his address or that of his attorney, 16 and is effective only as to matters occurring after the filing of the 17 demand. 18 (8) After a hearing, or with the consent of all parties, upon the 19 finding that a basis for the appointment of a guardian has been 20 established as set forth in this section, the court shall make an 21 appointment. A primary respondent represented by counsel may 22 consent through counsel. 23 24 REPORTER’S COMMENTS 25 26 Section 625303 was significantly revised by the 2012 27 amendment. 28 The revised section adds the requirement of a summons and 29 clarifies that a petition must be verified. 30 The phrase ‘any person interest in the welfare of the primary 31 respondent’ is intended to be broader than then term ‘interested 32 person’ defined in 621201. For example, it could include a friend, 33 neighbor, or person residing with the primary respondent. 34 This section sets out the basic procedure for a finding of 35 incapacity or appointment of a guardian. The section was also 36 amended to provide for both guardianship with limitation and 37 guardianship without limitation. 38 Section (2) provides detailed requirements for the content of a 39 petition for appointment of conservator or other protective order. 40 While the subsection requires the petitioner to provide only 41 information known to the petitioner, it imposes on the petitioner a 42 duty to engage in a reasonable effort to ascertain the required 43 information. Specifying the required contents of the petition is in[1243] 251 1 accordance with the recommendations of both the Wingspread 2 conference on guardianship reform and the Commission on 3 National Probate Court Standards. See Guardianship: An Agenda 4 For Reform 9 (A.B.A. 1989); National Probate Court Standards, 5 Standard 3.3.1, ‘Petition’ (1993). 6 Subsection (2)(g) emphasizes the importance of limited 7 guardianship, the encouragement of which is a major theme of the 8 Act. The petitioner, when requesting an unlimited guardianship, 9 must state in the petition why a limited guardianship would not 10 work. If a limited guardianship is requested, the petition must set 11 out the recommended powers to be granted to the guardian. 12 A substantive change was made in that the appointment of a 13 visitor is always optional under 625314, but the appointment is no 14 longer required at commencement of the action. 15 Subsection (3) provides for the appointment of a guardian ad 16 litem, upon the filing and service of the verified petition for a 17 finding of incapacity or appointment of a guardian. While 18 appointment of a guardian ad litem occurs without a preliminary 19 assessment of capacity by the court, the subsection makes it clear 20 the mere appointment of the guardian ad litem does not impact the 21 rights of the person allegedly in need of a guardian and the 22 appointment is not evidence of incapacity. 23 With this revision, the roles of counsel and guardian ad litem 24 have been separated. A guardian ad litem is required to be 25 appointed in every case. A guardian ad litem must meet the 26 qualifications set forth in Section 625820, but the guardian ad 27 litem is no longer required to be an attorney. If the guardian ad 28 litem is an attorney, that person may not also serve as counsel for 29 the primary respondent. 30 Subsection (4) provides that the primary respondent is not 31 required to be represented by counsel, but is entitled to be 32 represented by counsel of his own choosing. This subsection sets 33 forth the options of the court when dealing with a primary 34 respondent who is not represented by counsel. This section does 35 not mandate the appointment of counsel, nor is the primary 36 respondent required to be represented by counsel. If the court 37 determines an unrepresented primary respondent should not 38 proceed without counsel, the subsection authorizes the court to 39 appoint counsel for the primary respondent. The subsection also 40 suggests to the court the option of directing the guardian ad litem 41 to assist the person in obtaining counsel. This would be 42 particularly appropriate where the court felt the need for counsel 43 and the person had adequate resources with which to pay counsel.[1243] 252 1 The enhanced duties of the guardian ad litem established by Title 2 62, Article 5, Part 8, in conjunction with the enhanced 3 qualification for persons acting as guardian ad litem should 4 provide adequate protection of the interests of the person who is 5 the subject of a guardianship proceeding in most cases. 6 Subsection (5) provides for the appointment of an examiner in 7 connection with a proceeding for a finding of incapacity or 8 appointment of a guardian, establishes the necessary qualification 9 of the person who will serve as an examiner, sets forth the type of 10 report the examiner is to produce, and the time within which the 11 report is to be produced. Unlike prior law, only one examiner is 12 required. A designated examiner, who is a physician, must be 13 appointed. Additional designated examiners may be appointed by 14 the court. The additional examiners may be physicians or any 15 other person the court has determined is qualified to evaluate the 16 primary respondent’s alleged impairment. The subsection also 17 clarifies prior law, by establishing the examiner may make his 18 report from information obtained in an examination conducted 19 prior to the examiner’s appointment. If the examiner’s report 20 references an examination conducted prior to appointment, it must 21 have been conducted within the 90 days immediately preceding the 22 examiner’s appointment; otherwise the examination must occur 23 subsequent to the appointment. 24 Subsection (6) establishes the requirement of a hearing in regard 25 to the petition, provides who must be given notice of the hearing, 26 and the timing of notice. Note that the subsection mandates 27 attendance at the hearing by the primary respondent absent a 28 showing of good cause. 29 Subsection (7) provides a procedure for interested persons to 30 obtain notice prior to orders being issued in the proceeding. 31 Subsection (8) establishes the requirement that the court issue an 32 order in response to a petition and clarifies that such an order may 33 arise by consent of all parties. 34 35 Section 625304. (A)(1) The court shall exercise the authority 36 conferred in this part so as to encourage the development of 37 maximum selfreliance and independence of the incapacitated 38 person and make appointive and other orders only to the extent 39 necessitated by the incapacitated person’s mental and adaptive 40 limitations or other conditions warranting the procedure court’s 41 order. 42 (B) The court may appoint a guardian as requested if it is 43 satisfied that the person for whom a guardian is sought is[1243] 253 1 incapacitated and that the appointment is necessary or desirable as 2 a means of providing continuing care and supervision of the person 3 of the incapacitated person. The court, on appropriate findings, 4 may: 5 (1) treat the petition as one for a protective order under 6 Section 625401 and proceed accordingly; 7 (2) enter another appropriate order; or 8 (3) dismiss the proceeding. 9 (C) The court, at the time of appointment or later, on its own 10 motion or on appropriate petition or motion of the incapacitated 11 person or other interested person, may limit the powers of a 12 guardian otherwise conferred by this article and create a limited 13 guardianship. A limitation on the statutory power of a guardian of 14 an incapacitated person must be endorsed on the guardian’s letters 15 or, in the case of a guardian by parental or spousal appointment, 16 must be reflected in letters issued at the time a limitation is 17 imposed. Following the same procedure, a limitation may be 18 removed or modified and appropriate letters issued. 19 (2) The court may adjudicate the primary respondent as 20 incapacitated only if it finds by clear and convincing evidence that 21 the primary respondent is an incapacitated person as defined in 22 Section 625101. If the primary respondent is adjudicated as 23 incapacitated and the primary respondent’s identified needs cannot 24 be met by less restrictive means, the court may appoint a guardian 25 for the primary respondent. 26 (3) In an order appointing a guardian, the court may appoint a 27 guardian with limitation or a guardian without limitation. 28 (4) The court shall provide a copy of its orders to all parties to 29 the proceeding. 30 31 REPORTER’S COMMENTS 32 Section 625304 was revised by the 2012 amendment to require a 33 finding of incapacity to meet the clear and convincing standard of 34 review. The court is to exercise its authority to encourage 35 maximum selfreliance. Appointment orders are to be made only to 36 the extent necessitated by the incapacitated person’s mental and 37 adaptive limitations. The court is to appoint a guardian only if the 38 primary respondent is determined to be incapacitated, by clear and 39 convincing evidence, and if the primary respondent’s needs cannot 40 be met by less restrictive means. The section permits the court to 41 consider less restrictive alternatives to guardianship. 42[1243] 254 1 Section 625305. By accepting appointment, a guardian submits 2 personally to the jurisdiction of the court in any proceeding 3 relating to the guardianship that may be instituted by any interested 4 person. Notice of any proceeding shall be delivered to the 5 guardian or mailed to him by ordinary first class mail at his 6 address as listed in the court records and to his address as then 7 known to the petitioner. In appointing a guardian, the court shall 8 consider persons, who are otherwise qualified, in the following 9 order of priority: 10 (1) a guardian, other than a temporary or emergency guardian, 11 currently acting for the ward in this State or elsewhere; 12 (2) a person nominated to serve as guardian by the primary 13 respondent prior to his incapacity; 14 (3) an attorney in fact appointed by the primary respondent 15 pursuant to Section 625501, whose authority includes powers 16 relating to the person of the incapacitated person; 17 (4) the spouse of the primary respondent or a person nominated 18 as testamentary guardian in the will of the primary respondent’s 19 deceased spouse; 20 (5) an adult child of the primary respondent; 21 (6) a parent of the primary respondent or a person nominated 22 as testamentary guardian in the will of the primary respondent’s 23 deceased parent; 24 (7) another relative of the primary respondent; 25 (8) a person nominated by the person who is caring for the 26 primary respondent or paying benefits to him. 27 With respect to persons having equal priority, the court shall 28 select the person it considers best qualified to serve as guardian for 29 the primary respondent. The court, acting in the best interest of the 30 primary respondent, may decline to appoint a person having 31 priority and appoint a person having a lower priority or no priority. 32 33 REPORTER’S COMMENTS 34 35 Section 625305, formerly Section 625311, was revised by the 2012 36 amendment to comply with the South Carolina Adult Guardianship 37 and Protective Proceedings Jurisdiction Act (Part 7) giving highest 38 priority to an individual currently serving as guardian. The list of 39 priorities was further amended to allow a spouse to nominate a 40 guardian by will as is allowed for a parent. Also, the court may 41 deviate from the stated priorities if appointment of a proposed 42 guardian, with lower priority, is in the best interests of the ward. 43[1243] 255 1 Section 625306. The authority and responsibility of a guardian 2 for an incapacitated person terminates upon the death of the 3 guardian or ward, the determination of incapacity of the guardian, 4 or upon removal or resignation as provided in Section 625307. 5 Testamentary appointment under an informally probated will 6 terminates if the will is later denied probate in a formal 7 proceeding. Termination does not affect his liability for prior acts 8 nor his obligation to account for funds and assets of his ward. (A) 9 Notwithstanding an adjudication of incapacity or the 10 appointment of a guardian, and unless otherwise ordered by the 11 court, every ward retains the following rights: 12 (1) the right to a guardian who acts in the best interest of the 13 ward; 14 (2) the right to a guardian who is reasonably accessible to 15 the ward; 16 (3) the right to have the ward’s property utilized to provide 17 adequately for the ward’s support, care, education, health, and 18 welfare; 19 (4) the right to communicate freely and privately with 20 persons other than the guardian; 21 (5) the right to a reasonably accessible telephone or similar 22 communication device; 23 (6) the right to meet or otherwise communicate with legal 24 counsel outside the presence of the guardian; 25 (7) the right to notify the court that the ward is being 26 unjustly denied a right or privilege retained under or granted by 27 this section or ordered by the court. Any person who knowingly 28 interferes with transmission of this type of notification to the court 29 may be adjudicated guilty of contempt. 30 (8) the right to request readjudication of incapacity as set 31 forth in Section 625311(3); and 32 (9) the right to the least restrictive form of guardianship and 33 living environment practicable, taking into consideration the 34 ward’s functional limitations, personal needs, and identifiable 35 preferences. 36 (B) Unless an order of the court specifies otherwise, a finding 37 of incapacity or the appointment of a guardian is not a 38 determination that the ward lacks testamentary capacity or the 39 capacity to create, amend or revoke a revocable trust. 40 41 REPORTER’S COMMENTS 42 Section 625306 is a new section added by the 2012 amendment 43 which lists the rights retained by the ward, unless otherwise[1243] 256 1 ordered by the court. The section also addresses the common law 2 rule that a finding of incapacity is not a determination that the 3 ward lacks testamentary capacity. 4 5 Section 625307. (a) After service of the summons and petition 6 of the ward or any person interested in his welfare, the court may 7 remove a guardian and appoint a successor if in the best interests 8 of the ward. On petition of the guardian, the court may accept his 9 resignation and make any other order which may be appropriate. 10 (b) An order adjudicating or readjudicating incapacity may 11 specify a minimum period, not exceeding one year, during which 12 no petition for an adjudication that the ward is no longer 13 incapacitated may be filed without special leave. Subject to this 14 restriction, the ward may make a request for an order from the 15 court that he is no longer incapacitated, and for removal of the 16 guardian. A request for this order may be made by informal letter 17 to the court or judge and any person who knowingly interferes 18 with transmission of this kind of request to the court or judge may 19 be adjudged guilty of contempt of court. 20 (c) Before acting upon any such petition or request, the court 21 shall send a visitor to the residence of the present guardian and to 22 the place where the ward resides or is detained to observe 23 conditions and report in writing to the court. After reviewing the 24 report of the visitor, the court may order termination of the ward’s 25 incapacity or a hearing following the procedures set forth in 26 Section 625303. 27 (A) Unless the court’s order specifies otherwise, an 28 adjudication of incapacity or the appointment of a guardian 29 without limitation shall remove from the ward the following rights 30 and powers: 31 (1) the right to marry; 32 (2) the right to reside in a place of the ward’s choosing; 33 (3) the right to travel without the consent of the guardian; 34 (4) except as otherwise provided in Section 625306(A)(7) 35 and (8), the right to bring or defend any action at law or equity; 36 (5) the power to make, modify, or terminate contracts; 37 (6) the power to refuse or consent to medical treatment. 38 (B) Upon appointment of a guardian with limitation the court 39 must set forth in the order which rights enumerated in the section 40 are retained by the ward and which are removed from the ward. 41 (C) Unless the court’s order specifies otherwise, the 42 appointment of a guardian suspends the authority of an agent who 43 was previously appointed by the ward to act as an agent under a[1243] 257 1 durable power of attorney for health care or other advance medical 2 directive. The suspension of the authority of an agent does not 3 abrogate any other directives included in a properly executed 4 advance medical directive. 5 6 REPORTER’S COMMENTS 7 8 Section 625307 is a new section added by the 2012 amendment 9 that lists the rights which are lost when guardianship without 10 limitation or full guardianship is sought. The court may specify 11 that some or all of these rights are retained even in a guardianship 12 without limitation, but the rights are lost if the court does not 13 specify the rights are retained. For limited guardianship, the court 14 must list the specific rights which are lost. For example, an 15 individual may not have the capacity to understand his health care 16 needs to the extent necessary to consent to treatment, but he may 17 be able to understand and appreciate the benefits of one living 18 arrangement over another. In that circumstance, a ward may lose 19 the right to make health care decisions but may maintain the right 20 to make decisions about where he resides. 21 22 Section 625308. A visitor is, with respect to guardianship 23 proceedings, a person who is trained in law, nursing, or social 24 work and is an officer, employee, or special appointee of the court 25 with no personal interest in the proceedings. By accepting 26 appointment, a guardian submits personally to the jurisdiction of 27 the court in any informal or formal proceeding relating to the 28 guardianship that may be instituted by any interested person. 29 However, all formal proceedings instituted by interested persons 30 are governed by and subject to the rules of civil procedure adopted 31 for the circuit court and other rules of procedure in this title. 32 33 REPORTER’S COMMENTS 34 Prior to the 2012 amendment, Section 625308 was Section 35 625305. The notice provisions under the previous section 625305 36 were moved to section 625303. 37 38 Section 625309. (A) In a proceeding that is properly 39 commenced by filing and service of the summons and petition for 40 the appointment or removal of a guardian of an incapacitated 41 person other than the appointment of a temporary guardian or 42 temporary suspension of a guardian, the following persons must be 43 properly served: [1243] 258 1 (1) the ward or the person alleged to be incapacitated and his 2 spouse, parents, and adult children; 3 (2) a person who is serving as his guardian, conservator, or 4 attorney in fact under a durable power of attorney pursuant to 5 Section 625501 or who has his care and custody; 6 (3) if no other person is notified under item (1), at least one 7 of his closest adult relatives, if one can be found. 8 (B) Notice of hearing must be given as provided in Section 9 621401. Waiver of notice by the person alleged to be 10 incapacitated is not effective unless he attends the hearing or his 11 waiver of notice is given by his attorneys or, in proceedings for 12 removal, confirmed in an interview with the visitor, which may be 13 done at any time. Representation of the alleged incapacitated 14 person by a guardian ad litem is not necessary. Any guardian ad 15 litem, attorney, examiner, visitor or guardian appointed in a 16 guardianship proceeding is entitled to reasonable compensation 17 from the ward’s estate, as determined by the court. In addition, the 18 court has discretion to award, from the ward’s estate, reasonable 19 fees and expenses to attorneys involved in the proceeding resulting 20 in an adjudication of incapacity, the appointment of a guardian, or 21 a protective order concerning the primary respondent. 22 23 REPORTER’S COMMENTS 24 Section 625309 is a new section added by the 2012 amendment 25 explaining how appointees are to be compensated and allowing 26 attorneys to be compensated from the estate of the ward. This 27 change is in response to the decision in Dowaliby v. Chambless, 28 544 S.E.2d 646 (S.C.App. 2001), and is intended to provide a 29 statutory basis for the court, in its discretion, to award attorney’s 30 fees, to be paid from the ward’s estate, to attorneys involved in the 31 proceeding. 32 33 Section 625310. (A) If the court makes emergency preliminary 34 findings that: 35 (1) a physician has certified to the court, orally or in writing, 36 that the person is incapacitated; 37 (2) no guardian has been appointed previously; and 38 (3) the welfare of the incapacitated person requires 39 immediate action; then the court, with or without petition or 40 notice, may appoint a temporary guardian for a specified period 41 not to exceed six months in accordance with the priorities set out 42 in Section 625311. 43 (B) If the court makes emergency preliminary findings that: [1243] 259 1 (1) the appointed guardian or temporary guardian is not 2 effectively performing his duties; and 3 (2) the welfare of the allegedly incapacitated person requires 4 immediate action, then the court may appoint, with or without 5 petition or notice, a temporary guardian for a specified period not 6 to exceed six months in accordance with the priorities set out in 7 Section 625311. 8 (C)(1) The court may itself exercise the power of temporary 9 guardian, with or without petition or notice, if the court makes 10 emergency preliminary findings that either no person appears to 11 have authority to act on behalf of the incapacitated person or more 12 than one person is authorized to make health care decisions for the 13 incapacitated person, and these authorized persons disagree on 14 whether certain care must be provided and: 15 (a) the person has been adjudicated as being incapacitated, 16 or a physician has certified to the court, orally or in writing, that 17 the person is incapacitated; and 18 (b) an emergency exists. 19 (2) For health care purposes, ‘emergency’ means that a delay 20 caused by (i) further attempts to locate a person authorized to 21 make health care decisions or (ii) proceedings for appointment of a 22 guardian would present a serious threat to the life, health, or bodily 23 integrity of the incapacitated person. 24 (D) If a temporary guardian is appointed without petition or 25 notice under this section, a hearing to review the appointment must 26 be held after petition and notice and within thirty days after the 27 appointment of the temporary guardian. 28 (E) A temporary guardian is entitled to the care and custody of 29 the ward and the authority of a permanent guardian previously 30 appointed by the court is suspended so long as a temporary 31 guardian has authority. A temporary guardian may be removed at 32 any time. A temporary guardian shall make reports the court 33 requires. In other respects the provisions of law concerning 34 guardians apply to temporary guardians. 35 (F) A hearing concerning the need for appointment of a 36 permanent guardian must be a hearing de novo as to all issues 37 before the court. The authority and responsibility of a guardian for 38 a ward terminates upon the death of the guardian or ward, the 39 determination of incapacity of the guardian, or upon removal or 40 resignation of the guardian as provided in Section 625311. 41 Termination does not affect the guardian’s liability for prior acts or 42 his obligation to account for funds and assets of his ward. Upon 43 the death of the ward, the guardian shall file a certified copy of the[1243] 260 1 ward’s death certificate with the court having continuing 2 jurisdiction over the ward within sixty days of the ward’s death 3 and, upon receipt, the court must issue a termination of 4 appointment. Before the termination of the guardian’s 5 appointment, the court may require from the guardian an 6 accounting of any assets held by the guardian on behalf of the 7 ward. 8 9 REPORTER’S COMMENTS 10 Prior to the 2012 amendment Section 625310 was Section 625306. 11 The last two sentences were added to previous Section 625306 to 12 create a procedure for notice to the court if the ward dies. In such 13 event, the court may require an accounting for any assets held by 14 the guardian. 15 16 Section 625311. (A) Any competent person or a suitable 17 institution may be appointed guardian of an incapacitated person. 18 (B) Subject to a finding of good cause by the court, persons 19 who are not disqualified have priority for appointment as guardian 20 in the following order: 21 (1) a person nominated to serve as guardian by the 22 incapacitated person; 23 (2) an attorney in fact appointed by the incapacitated person 24 pursuant to Section 625501, whose authority includes powers 25 relating to the person of the incapacitated person; 26 (3) the spouse of the incapacitated person. A person who 27 claims to be a common law spouse of the incapacitated person has 28 the burden of proving that status in order to qualify for 29 appointment as a guardian under this provision. A decision by the 30 probate court regarding the status of a common law spouse is for 31 the purpose of guardianship appointment proceedings only and is 32 not binding in any other court of law or in any administrative 33 proceeding; 34 (4) an adult child of the incapacitated person; 35 (5) a parent of the incapacitated person, including a person 36 nominated by will or other writing signed by a deceased parent; 37 (6) another relative of the incapacitated person; 38 (7) a person nominated by the person who is caring for him 39 or paying benefits to him. 40 (1) Upon the filing of a summons and petition, and service 41 upon the primary respondent, the guardian, and other parties set 42 forth in Section 625303(2)(d), the ward or any person interested in 43 his welfare may file a summons and petition for the removal of a[1243] 261 1 guardian and, if necessary, appointment of a successor guardian. 2 If the court determines that it is in the best interests of the ward, 3 the court may remove the guardian and, if necessary, appoint a 4 successor guardian. 5 (2)(A) If coguardians are appointed by the court, one of the 6 coguardians may resign by filing a statement of resignation and, 7 upon filing, the court may informally confirm the appointment of 8 the remaining coguardian as sole guardian for the ward or the court 9 may, in its discretion, require the commencement of a formal 10 proceeding under Section 625303. 11 (B) If no coguardian is then serving, a guardian seeking to 12 resign must file a summons and petition for discharge and 13 appointment of a successor guardian. Upon the filing of a 14 summons and petition by the guardian and service upon the 15 primary respondent and other parties set forth in Section 16 625303(2)(d), the court may accept the resignation of the guardian 17 and make any other order which may be appropriate. Resignation 18 of a guardian is not effective until a successor is appointed and has 19 qualified. 20 (3)(A) A request for an order readjudicating incapacity may be 21 made by informal letter to the court by the guardian or the ward. 22 Any person who knowingly interferes with the transmission of this 23 type of request to the court or judge may be adjudged guilty of 24 contempt. The court may issue an order specifying a minimum 25 period, not exceeding one year, during which no petition for 26 readjudication that the ward is no longer incapacitated may be filed 27 without special leave of the court. Subject to this restriction, the 28 ward or the guardian may petition or make a request for an order 29 from the court that the ward is no longer incapacitated and for 30 termination of the guardianship. 31 (B) Before acting upon any such petition or request, the court 32 shall send a guardian ad litem to the place where the ward resides 33 or is detained to observe conditions and report in writing to the 34 court. After reviewing the report, the court may order the 35 termination of the ward’s incapacity solely on the basis of the 36 guardian ad litem’s report or require the filing of a summons and 37 petition for discharge and termination of the guardianship 38 following the procedures set forth in Section 625303. The court 39 may issue an interim order, for a period not to exceed ninety days, 40 regarding the care of the ward until a hearing is held and a final 41 order is issued. 42 43 Reporter’s Comments[1243] 262 1 2 Prior to the 2012 amendment, Section 625311 was Section 3 625307. The section was reorganized for clarity and amended to 4 require a summons and petition and allow for an interim order 5 pending a hearing and final order. 6 7 Section 625312. (a) A guardian of an incapacitated person has 8 the same powers, rights, and duties respecting his ward that a 9 parent has respecting his unemancipated minor child except that a 10 guardian is not liable to third persons for acts of the ward solely by 11 reason of the parental relationship. In particular, and without 12 qualifying the foregoing, a guardian has the following powers and 13 duties, except as modified by order of the court: 14 (1) to the extent that it is consistent with the terms of any 15 order by a court of competent jurisdiction relating to detention or 16 commitment of the ward, he is entitled to custody of the person of 17 his ward and may establish the ward’s place of abode within or 18 without this State. 19 (2) If entitled to custody of his ward he shall make provision 20 for the care, comfort, and maintenance of his ward and, whenever 21 appropriate, arrange for his training and education. Without regard 22 to custodial rights of the ward’s person, he shall take reasonable 23 care of his ward’s clothing, furniture, vehicles, and other personal 24 effects and commence protective proceedings if other property of 25 his ward is in need of protection. 26 (3) A guardian may give any consents or approvals that may 27 be necessary to enable the ward to receive medical or other 28 professional care, counsel, treatment, or service. 29 (4) If no conservator for the estate of the ward has been 30 appointed or if the guardian is also conservator, he may: 31 (i) institute proceedings to compel any person under a 32 duty to support the ward or to pay sums for the welfare of the ward 33 to perform his duty; 34 (ii) receive money and tangible property deliverable to the 35 ward and apply the money and property for support, care, and 36 education of the ward; but, he may not use funds from his ward’s 37 estate for room and board or services which he, his spouse, parent, 38 or child have furnished the ward unless a charge for the services 39 and/or room and board is approved by order of the court made 40 upon notice to at least one of the next of kin of the ward, if notice 41 is possible. He must exercise care to conserve any excess for the 42 ward’s needs. [1243] 263 1 (5) A guardian is required to report the condition of his ward 2 and of the estate which has been subject to his possession or 3 control, as required by the court or court rule, but at least on an 4 annual basis. 5 (6) If a conservator has been appointed, all of the ward’s 6 estate received by the guardian in excess of those funds expended 7 to meet current expenses for support, care, and education of the 8 ward must be paid to the conservator for management as provided 9 in this Code, and the guardian must account to the conservator for 10 funds expended. 11 (b) Any guardian of one for whom a conservator also has been 12 appointed shall control the custody and care of the ward and is 13 entitled to receive reasonable sums for his services and for room 14 and board furnished to the ward as agreed upon between him and 15 the conservator, provided the amounts agreed upon are reasonable 16 under the circumstances. The guardian may request the 17 conservator to expend the ward’s estate by payment to third 18 persons or institutions for the ward’s care and maintenance. 19 (1) The procedure for appointment of a temporary guardian 20 with notice is as follows: 21 (A) In the case of a person who has no guardian or temporary 22 guardian: 23 (i) following the filing of a summons and verified petition 24 for appointment of guardian and service upon the primary 25 respondent, any party may move the court for an order appointing 26 a temporary guardian for the primary respondent; 27 (ii) unless made during a hearing in open court, the motion 28 shall be in writing, and shall state with particularity: 29 (a) the name and address of the proposed temporary 30 guardian and that person’s relationship to the primary respondent; 31 (b) to the extent known or reasonably ascertainable, 32 those persons whose priority for appointment under Section 33 625305 are higher than the priority of the proposed temporary 34 guardian; and 35 (c) why the appointment of a temporary guardian is 36 necessary for the welfare of the primary respondent. 37 (B) In the case of a person for whom a guardian or temporary 38 guardian has previously been appointed, and that appointment has 39 not been terminated through an adjudication of capacity: 40 (i) any party may move the court for an order appointing 41 a temporary guardian for the ward; 42 (ii) unless made during a hearing in open court, the motion 43 shall be in writing and shall state with particularity:[1243] 264 1 (a) the name and address of the proposed temporary 2 guardian and that person’s relationship to the ward; 3 (b) to the extent known or reasonably ascertainable, 4 those persons whose priority for appointment under Section 5 625305 are higher than the priority of the proposed temporary 6 guardian; 7 (c) why the current guardian or temporary guardian 8 cannot or is not adequately fulfilling the guardian’s duties to the 9 ward; and 10 (d) why the appointment of a temporary guardian is 11 necessary for the welfare of the ward. 12 (C) As soon as practicable after the filing of a motion for 13 appointment of temporary guardian, the court shall set a hearing on 14 the motion. 15 (D) Notice of the hearing on the motion as provided in 16 Section 621401 must be given to the ward or primary respondent, 17 and those persons listed in Section 625303(2)(d). 18 (E) At or following the hearing convened for the purpose of 19 considering the appointment of a temporary guardian, the court 20 may appoint a temporary guardian for a ward or primary 21 respondent, if the court makes findings that: 22 (i) no guardian has been appointed for the primary 23 respondent or the guardian or temporary guardian for a ward is not 24 effectively performing his duties; 25 (ii) in the case of a person for whom there has been no 26 adjudication of incapacity, a physician has certified to the court, 27 orally or in writing, that the person is incapacitated; and 28 (iii) the welfare of the ward or primary respondent requires 29 immediate action. 30 (F) An order appointing a temporary guardian shall: 31 (i) set forth the duration of the appointment; which, 32 except for good cause shown, shall not exceed six months; 33 (ii) set forth a concise statement of the evidence submitted 34 at the hearing; 35 (iii) set forth the findings required under item (1)(E); 36 (iv) state the reason temporary guardianship is necessary 37 for the welfare of the primary respondent or ward; and 38 (v) set forth whether the appointment is of a temporary 39 guardian with limitation or a temporary guardian without 40 limitation; and, if a temporary guardian with limitation, the powers 41 and duties of the guardian. 42 (G) To the extent practicable and consistent with the urgency 43 of the needs of the primary respondent or ward, in appointing a[1243] 265 1 temporary guardian the court shall consider persons, who are 2 otherwise qualified, in the same order of priority it does in 3 appointments of guardians under Section 625305. 4 (2) The procedure for the emergency appointment of a 5 temporary guardian is as follows: 6 (A) any person interested in the welfare of a ward or primary 7 respondent, may file a motion for the emergency appointment of a 8 temporary guardian; 9 (B) upon receipt of the motion, the court may issue an order 10 ex parte or schedule a hearing with such notice as the court may 11 prescribe, all as the interests of justice and the needs of the ward or 12 primary respondent require; 13 (C) no order appointing a temporary guardian for a ward or 14 primary respondent shall issue except as provided in Section 15 623312(1), unless (i) the subject of the motion has previously been 16 adjudicated incapacitated or (ii) a physician has certified to the 17 court, orally or in writing, that in that physician’s opinion the 18 person is incapacitated, and it clearly appears from specific facts, 19 shown by affidavit or by a verified petition for appointment of 20 guardian, that an emergency exists; 21 (D) an emergency order appointing a temporary guardian 22 shall be endorsed with the date of issuance, filed in the record of 23 the case, and served, together with a summons and verified petition 24 for appointment of guardian, in the event no summons and verified 25 petition have previously been served in the action and no guardian 26 has previously been appointed, upon the ward or primary 27 respondent, and those persons required to receive notice of a 28 summons and petition for guardianship under Section 625303; 29 (E) an emergency order appointing a temporary guardian 30 must state the nature of the emergency, and, if no notice was 31 required, state the reason the order was granted without notice; 32 (F) An emergency order appointing a temporary guardian 33 shall expire by its terms within such time after entry, not to exceed 34 thirty days, as the court fixes, unless within the time so fixed in the 35 order, for good cause shown, the order is extended for a like 36 period. The reasons for the extension shall be set forth in the order 37 granting the extension; 38 (G) on two days’ notice to the party who obtained the 39 emergency order appointing a temporary guardian, or upon shorter 40 notice to that party as the court may prescribe, the primary 41 respondent, ward, or any party opposed to the order may appear 42 and move its dissolution or modification, and in that event, the[1243] 266 1 court shall proceed to hear and determine the motion as 2 expeditiously as the ends of justice require; 3 (H) unless limited by the court, an emergency temporary 4 guardian has the powers and duties of a guardian without 5 limitation; 6 (3) The court may exercise the powers of temporary guardian, 7 with or without petition or notice, if the court makes findings that: 8 (A) no person appears to have authority to act on behalf of a 9 person or more than one person is authorized to make health care 10 decisions for the person, and these authorized persons disagree on 11 whether certain care must be provided; 12 (B) the person has been adjudicated as being incapacitated, 13 or a physician has certified to the court, orally or in writing, that 14 the person is incapacitated; and 15 (C) an emergency exists. 16 (4) For purposes of this section, ‘emergency’ means: 17 (A)(i) no person appears to have authority to act on behalf of 18 a ward or primary respondent; 19 (ii) the guardian is not adequately fulfilling the guardian’s 20 duties to the ward; 21 (iii) the agent acting pursuant to a durable power of 22 attorney authorizing the agent to make health care decisions is not 23 adequately fulfilling the agent’s duties to the principal; or 24 (iv) more than one person is authorized to make health 25 care decisions for the person, and those authorized persons 26 disagree on whether certain care will or will not be provided; and 27 (B) the delay associated with further attempts to locate a 28 person authorized to make health care decisions for the person, to 29 resolve a dispute between multiple persons authorized to act for 30 the person, or to comply with the procedures set forth in subsection 31 (1) would present a serious threat to the life, health, or bodily 32 integrity of the ward or primary respondent. 33 (5) The authority of a permanent guardian previously 34 appointed by the court is suspended so long as a temporary 35 guardian has authority. A temporary guardian may be removed at 36 any time. A temporary guardian shall make any reports that the 37 court requires. In general the provisions of law concerning 38 guardians apply to temporary guardians. 39 (6) A hearing concerning the need for appointment of a 40 permanent guardian must be a hearing de novo as to all issues 41 before the court. 42 43 REPORTER’S COMMENTS[1243] 267 1 Prior to the 2012 amendment, Section 625312 was Section 2 625310. The section provides for three possibilities: (1) a 3 temporary guardian can be appointed after notice and a hearing, (2) 4 if there is an emergency, a temporary guardian can be appointed ex 5 parte, or (3) the court may act as a guardian in an emergency. All 6 three procedures require the filing of a summons and petition. A 7 temporary appointment requires proof that it is necessary for the 8 welfare of the primary respondent or ward. An emergency 9 appointment requires a finding that an emergency exists. 10 Emergency is defined in the section and means that not only is 11 there not someone acting on behalf of the ward or primary 12 respondent’s best interest, but also that delay would present a 13 serious threat to the life, health, or bodily integrity of the ward or 14 primary respondent. The emergency order is not to exceed 30 15 days unless the court finds, for good cause shown, that the order 16 should be extended. A hearing on the need for appointment of a 17 permanent guardian must be a de novo hearing on all issues before 18 the court. 19 20 Section 625313. (a) The court which appointed the guardian, 21 or in which acceptance of a testamentary appointment was filed, 22 has jurisdiction over resignation, removal, accounting, and other 23 proceedings relating to the guardianship. 24 (b) If the court which appointed the guardian, or in which 25 acceptance of appointment is filed, being the court in which 26 proceedings subsequent to appointment are commenced, 27 determines that the proceedings more appropriately belong in the 28 court located where the ward resides, the first court shall notify the 29 other court, in this or another state, and after consultation with the 30 other court determine whether to retain jurisdiction or transfer the 31 proceedings to the other court, whichever may be in the best 32 interest of the ward. A copy of any order accepting a resignation 33 or removing a guardian shall be sent to the court in which 34 acceptance of appointment is filed. 35 (1) Except as otherwise limited by the court, a guardian shall: 36 (a) make decisions regarding the ward’s health, education, 37 maintenance and support; 38 (b) exercise authority only as necessitated by the ward’s 39 limitations and, to the extent possible, encourage the ward to 40 participate in decisions, act on the ward’s own behalf, and develop 41 or regain the capacity to manage the ward’s personal affairs;[1243] 268 1 (c) consider the expressed desires and personal values of the 2 ward to the extent known to or reasonably ascertainable by the 3 guardian; 4 (d) act in the ward’s best interest and exercise reasonable 5 care, diligence, and prudence; 6 (e) become or remain personally acquainted with the ward 7 and maintain sufficient contact with the ward to know of the 8 ward’s capacities, limitations, needs, opportunities, and physical 9 and mental health; 10 (f) take reasonable care of the ward’s personal effects and 11 bring protective proceedings if necessary to protect the property of 12 the ward; 13 (g) expend money of the ward that has been received by the 14 guardian for the ward’s current needs for health, education, 15 maintenance and support; 16 (h) conserve any excess money of the ward for the ward’s 17 future needs; provided, however, if a conservator has been 18 appointed for the estate of the ward, the guardian immediately 19 shall pay the ward’s money and deliver the ward’s property to the 20 conservator; 21 (i) immediately notify the court if the ward’s condition has 22 changed to the extent that the ward is capable of exercising rights 23 previously removed; and 24 (j) inform the court of any change in the ward’s custodial 25 dwelling or address. 26 (2) Except as otherwise provided by law or by the court, a 27 guardian shall have the following powers: 28 (a) The guardian shall make decisions regarding the ward’s 29 health, education, maintenance and support. 30 (b) A guardian of a ward has the same powers, rights, and 31 duties respecting the ward that a parent has for an unemanicipated 32 minor child, except that a guardian is not liable to third persons for 33 acts of the ward nor is the guardian financially responsible for the 34 ward solely by reason of his appointment as guardian. If a ward is 35 in a facility licensed by the Department of Health and 36 Environmental Control, the guardian is not responsible for 37 placement in another facility or for providing care for the ward in 38 the home of the guardian; however, the guardian is responsible for 39 determining that the ward is receiving adequate and appropriate 40 care and must cooperate in identifying alternative placement, if 41 necessary, to the extent that it is consistent with the terms of any 42 order by a court of competent jurisdiction relating to the detention 43 or commitment of the ward. [1243] 269 1 (c) A guardian is entitled to custody of the person of his 2 ward and may establish the ward’s place of residence within this 3 state. The guardian may establish the ward’s place of residence 4 outside of this state upon express authorization of the court and in 5 accordance with the provisions of Section 625714. 6 (d) A guardian shall take reasonable care of his ward’s 7 clothing, furniture, vehicles, and other personal effects and 8 commence protective proceedings if other property of the ward is 9 in need of protection. 10 (e) A guardian may give any consents, denials, or approvals 11 that may be necessary to enable the ward to receive or refuse to 12 receive medical or other professional care, counsel, treatment, or 13 service, including institutional care. If there is no conservator and 14 placement or care of the ward requires the execution of an 15 admission agreement or other documents for the ward’s placement 16 in a facility, the guardian may execute such documents on behalf 17 of the ward, without incurring personal liability as to the 18 placement or care of the ward. 19 (f) If no conservator for the estate of the ward has been 20 appointed, the guardian may: 21 (i) apply for and institute proceedings to compel any 22 person under a duty to support the ward or to pay sums for the 23 welfare of the ward to perform such duty; 24 (ii) receive money and tangible property deliverable to the 25 ward up to an aggregate sum of ten thousand dollars per calendar 26 year and apply the money and property for support, care, and 27 education of the ward. However, he may not use funds from his 28 ward’s estate for room and board or services which the guardian or 29 the guardian’s spouse, parent, or child have furnished the ward 30 unless approved by application to the court after notice to at least 31 one next of kin of the ward who has no interest in the application 32 for approval. The court may approve or decline to approve any 33 application for approval or in its discretion require the 34 commencement of a formal proceeding for approval. A guardian 35 must exercise care to conserve any excess funds for the ward’s 36 needs. If a guardian receives money or tangible property 37 deliverable to the ward, he must account to the court for the receipt 38 and disbursement of the property annually and, if the amount held 39 exceeds the sum of ten thousand dollars, he must petition for the 40 appointment of a conservator for the ward. 41 (g) If reasonable under all of the circumstances, a guardian 42 may delegate to the ward certain responsibilities for decisions 43 affecting the ward’s wellbeing.[1243] 270 1 (h) A guardian, by a properly executed special durable 2 power of attorney, may delegate to another person, for a period not 3 to exceed sixty days, any of his powers regarding the care and 4 custody of the ward. The original power of attorney must be filed 5 with the court having jurisdiction over the guardianship. 6 (3)(a) A guardian is entitled to reasonable compensation for 7 services as guardian and to reimbursement for room, board, 8 clothing, and other reasonable and proper expenses for the benefit 9 of the ward, but only after application to the court for approval and 10 notice to at least one next of kin of the ward who has no interest in 11 the application for approval. The court may approve or decline to 12 approve any application for approval or in its discretion require the 13 commencement of a formal proceeding for approval. If a 14 conservator, other than the guardian or one who is affiliated with 15 the guardian, has been appointed for the estate of the ward, 16 reasonable compensation and reimbursement to the guardian may 17 be approved and paid by the conservator without order of the 18 court. 19 (b) A guardian who exercises reasonable care in choosing a 20 third person providing medical or other care, treatment, or service 21 for the ward is not liable for injury to the ward resulting from the 22 wrongful conduct of the third person. 23 (4) A guardian is required to report in writing the condition of 24 his ward and of the ward’s estate that has been subjected to the 25 guardian’s possession or control, as required by the court or court 26 rule, but at least on an annual basis. The court shall receive and 27 review the annual reports. 28 29 30 REPORTER’S COMMENTS 31 Prior to the 2102 amendment, Section 625313 was Section 32 625312. The section was amended to be consistent with the South 33 Carolina Adult Guardianship and Protective Proceedings 34 Jurisdiction Act (Part 7). 35 The duties of the guardian are listed under subsection (1) and 36 pursuant to subsection (4) include a report to be made to the court 37 as the court requires, but at least annually. The guardian is to 38 become or remain knowledgeable about the condition of the ward, 39 to consider the ward’s expressed desires and values in making 40 decisions, to encourage the ward to regain independence, and to 41 perform other duties specifically listed. 42 Each court is encouraged to establish a system for monitoring 43 guardianships, which would include, but not be limited to,[1243] 271 1 mechanisms for assuring that annual reports are timely filed and 2 reviewed. An independent monitoring system is crucial for a court 3 to adequately safeguard against abuses in the guardianship cases. 4 Monitors can be paid court personnel, court appointees or 5 volunteers. For a comprehensive discussion of the various methods 6 for monitoring guardianships, see Sally Balch Hurme, Steps to 7 Enhance Guardianship Monitoring (A.B.A. 1991). 8 The National Probate Court Standards also provide for the filing 9 of reports and procedures for monitoring guardianships. See 10 National Probate Court Standards, Standards 3.3.14 ‘Reports by 11 the Guardian,’ and 3.3.15 ‘Monitoring of the Guardian’ (1993). 12 The National Probate Court Standards additionally contain 13 recommendations relating to the need for periodic review of 14 guardianships and sanctions for failures of guardians to comply 15 with reporting requirements. See National Probate Court 16 Standards, Standards 3.3.16 ‘Reevaluation of Necessity for 17 Guardianship,’ and 3.3.17 ‘Enforcement.’ 18 The guardian has authority to make decisions on behalf of the 19 ward, unless otherwise provided by law or the court. The section 20 was amended to make it clear that the guardian is not financially 21 responsible for the ward solely by reason of appointment as a 22 guardian. The guardian is not required to provide care for the ward 23 in the guardian’s home. If the ward is in a facility licensed by 24 DHEC, then the guardian does not have to place the ward in 25 another facility, but does have to ensure that the ward is receiving 26 adequate and appropriate care. 27 The guardian may receive money and tangible property 28 deliverable to the ward up to an aggregate sum of $10,000 per 29 calendar year and apply the money for the support, care, and 30 education of the ward. If the cumulative amount exceeds $10,000, 31 then the guardian must petition for the appointment of a 32 conservator for the ward. 33 If reasonable to do so, the guardian may delegate responsibility 34 for certain decisions to the ward. Also, for a period not to exceed 35 sixty days, the guardian may delegate the care and custody of the 36 ward under a properly executed special durable power of attorney. 37 The original power of attorney must be filed with the court. 38 Subsection (3) provides that the guardian is entitled to 39 reasonable compensation for services as guardian and 40 reimbursement for expenses provided on behalf of the ward. The 41 amount determined to be reasonable may vary from state to state 42 and from one geographical area to another within a state. In 43 addition, factors to be considered by the court in setting[1243] 272 1 compensation will vary. Court approval is required unless a 2 conservator, not affiliated with the guardian, has been appointed. 3 Also, if the guardian exercises reasonable care in choosing a third 4 person to provide care or services on behalf of the ward, the 5 guardian is not liable for the wrongful conduct of the third person. 6 The guardian is liable only if personally at fault. 7 8 Section 625314. At any time during a guardianship proceeding, 9 the court may appoint a visitor to carry out the investigation as the 10 court directs, including meeting with the primary respondent or 11 ward and with the guardian, if a guardian has previously been 12 appointed, conducting interviews, observing conditions, and 13 reporting back in writing to the court as the court so directs. A 14 copy of the reports must be promptly provided by the visitor to all 15 parties. 16 17 REPORTER’S COMMENTS 18 Prior to the 2012 amendment, Section 625314 was section 625308. 19 A visitor is defined in Section 625101 (23). A visitor is not 20 required in a guardianship proceeding, but the court may appoint a 21 visitor at any time during the proceedings. 22 23 Section 625315. (1) The court which appointed the guardian, 24 or in which acceptance of a testamentary appointment has been 25 filed, has jurisdiction over resignation, removal, accounting, 26 modification, and other proceedings relating to the guardianship. 27 The court which appointed the guardian must maintain jurisdiction 28 over the guardianship until such time as: 29 (A) the proceeding is terminated pursuant to Section 625310, 30 termination of guardianship at death of ward; 31 (B) the proceeding is terminated pursuant to Section 32 625311(3), termination of incapacity; 33 (C) there is a completed transfer of the proceeding to another 34 county’s jurisdiction pursuant to subsection (2); or 35 (D) there is a completed transfer of the proceedings to 36 another state pursuant to Section 625714. 37 (2) If the court which appointed the guardian, or in which 38 acceptance of appointment is filed, being the court in which 39 proceedings subsequent to appointment are commenced, 40 determines that the proceedings more appropriately belong: 41 (A) in another county of this state, the first court shall notify 42 the other court and, after consultation with the other court, 43 determine whether to retain jurisdiction or transfer the proceedings[1243] 273 1 to the other court, whichever shall be in the best interest of the 2 ward. A copy of any order accepting a resignation or removing a 3 guardian shall be sent to the court in which acceptance of 4 appointment is filed; or 5 (B) in another state, the first court shall follow the 6 procedures set forth in Section 625714. 7 8 REPORTER’S COMMENTS 9 Prior to the 2012 amendment Section 625315 was previously 10 section 625313. The section was amended to provide consistency 11 with the South Carolina Adult Guardianship and Protective 12 Proceedings Jurisdiction Act (Part 7). A case may be transferred if 13 it is in the ward’s best interest to do so. 14 15 Part 4 16 17 Protection of Property of Persons Under Disability and Minors 18 19 Section 625401. After service of the summons and petition and 20 notice of hearing in accordance with the provisions of this part, the 21 court may appoint a conservator or make other protective order for 22 cause as follows: 23 (1) Appointment of a conservator or other protective order may 24 be made in relation to the estate and affairs of a minor if the court 25 determines that a minor owns money or property that requires 26 management or protection which cannot otherwise be provided, 27 has or may have business affairs which may be jeopardized or 28 prevented by his minority, or that funds are needed for his support 29 and education and that protection is necessary or desirable to 30 obtain or provide funds. 31 (2) Appointment of a conservator or other protective order may 32 be made in relation to the estate and affairs of a person if the court 33 determines that (i) the person is unable to manage his property and 34 affairs effectively for reasons such as mental illness, mental 35 deficiency, physical illness or disability, advanced age, chronic use 36 of drugs, chronic intoxication, confinement, detention by a foreign 37 power, or disappearance; and (ii) the person has property which 38 will be wasted or dissipated unless proper management is 39 provided, or that funds are needed for the support, care, and 40 welfare of the person or those entitled to be supported by him and 41 that protection is necessary or desirable to obtain or provide funds. 42 Subject to the provisions of Section 625701 et seq., venue for 43 proceedings under this part is: [1243] 274 1 (1) in the county in this State where the primary respondent 2 resides, whether or not a guardian has been appointed in another 3 place; or 4 (2) if the primary respondent does not reside in this State, in 5 any county in this State where the primary respondent has property 6 or has the right to take legal action. 7 8 REPORTER’S COMMENTS 9 This section consolidates venue for protective proceedings under 10 Part 4. While the venue provisions are generally consolidated in 11 this section, the section makes it clear that venue is subject to the 12 provisions of the South Carolina Adult Guardianship and 13 Protective Proceedings Jurisdiction Act (Part 7). 14 15 Section 625402. After the service of the summons and petition 16 in a proceeding seeking the appointment of a conservator or other 17 protective order and until termination of the proceeding, the 18 probate court in which the summons and petition are filed has: 19 (1) exclusive jurisdiction to determine the need for a 20 conservator or other protective order until the proceedings are 21 terminated; 22 (2) exclusive jurisdiction to determine how the estate of the 23 protected person which is subject to the laws of this State must be 24 managed, expended, or distributed to or for the use of the protected 25 person or any of his dependents; and 26 (3) concurrent jurisdiction to determine the validity of claims 27 for or against the person or estate of the protected person except as 28 limited by Section 625433. 29 (1) Appointment of a conservator or other protective order may 30 be made in relation to the estate and affairs of a minor, if the court 31 determines that: (i) a minor owns money or property that requires 32 management or protection that cannot otherwise be provided, (ii) 33 has or may have business affairs that may be jeopardized or 34 prevented by his minority, or (iii) funds are needed for the health, 35 education, maintenance, and support of the minor and a protective 36 order is necessary or desirable in order to obtain or provide such 37 funds. 38 (2) Upon the filing of a summons and petition for appointment 39 of a conservator or other protective order based upon minority, the 40 summons and the petition shall be served upon the minor, the 41 minor’s living parents whose identity and whereabouts are known 42 or reasonably ascertainable, and the person or persons having 43 custody of the minor. After the time has elapsed for the filing of a[1243] 275 1 response to the petition as to all parties served, the court may 2 schedule a hearing on the matters alleged in the petition or, if the 3 court is satisfied that the interests of the minor have been or will be 4 adequately protected, the court may issue an order without the 5 necessity of a hearing. If, at any time in the proceeding, the court 6 determines that the interests of the minor are or may be 7 inadequately represented, it may appoint a guardian ad litem for 8 the minor, with the duties and responsibilities set forth in Section 9 625830. 10 (3) If a minor is receiving needsbased government benefits, 11 including, but not limited to, Supplemental Security Income or 12 Medicaid, the court may limit access to the funds for the minor’s 13 benefit to prohibit payment of those expenses that would be 14 considered support by the Social Security Administration 15 including, but not limited to, food and shelter expenses. 16 (4) If prior to termination of a conservatorship based upon 17 minority only, an interested person files a summons and petition 18 for appointment of a conservator or other protective order under 19 Section 625403, the minor’s conservatorship shall not be 20 terminated until the petition is heard by the court. 21 22 REPORTER’S COMMENTS 23 This section sets out the basic procedure for the appointment of a 24 conservator or entry of another protective order by reason of 25 minority. This section is not applicable to actions involving 26 minors who are also incapacitated; Section 625403 is applicable to 27 those cases. While the section requires service on the minor and 28 others, after the time for response to the petition has expired, the 29 section allows for the appointment of a conservator or other 30 protective order without the necessity of a formal hearing. 31 Subsection 3 of this section was added to enable the court to 32 structure the assets of a minor so as not to interfere with any needs 33 based government benefits to which the minor may be entitled to. 34 Further, while a conservatorship solely by reason of minority 35 would terminate when the protected person attains the age of 36 majority, subsection 4 allows for the conservatorship to be 37 continued past majority, if a petition for conservatorship or other 38 protective order under Section 625403 is pending when the minor 39 attains majority. 40 41 Section 625403. Venue for proceedings under this part is: [1243] 276 1 (1) In the place in this State where the person to be protected 2 resides whether or not a guardian has been appointed in another 3 place; or 4 (2) If the person to be protected does not reside in this State, in 5 any place where he has property. 6 (A) Appointment of a conservator or other protective order may 7 be made in relation to the estate and affairs of a person if: 8 (1) the court determines, by a preponderance of the 9 evidence, the person is incapacitated or is unable to manage his 10 property or affairs effectively for reasons of confinement, 11 detention by a foreign power, or disappearance; and 12 (a) the person has an agent under a durable power of 13 attorney and the actions necessary to prevent waste or dissipation 14 of the person’s property are not being adequately performed by the 15 agent under the durable power of attorney or are beyond the 16 authority of the agent under the durable power of attorney; or 17 (b) the person has no agent under a durable power of 18 attorney and the person has property which will be wasted or 19 dissipated or funds are needed for the health, education, 20 maintenance or support of the person or for those entitled to be 21 supported by the person and protection is necessary or desirable in 22 order to obtain or provide such funds; and 23 (2) the court determines, by a preponderance of the 24 evidence, a protective order is necessary or desirable to create a 25 special needs trust for a person who is disabled in accordance with 26 Social Security Administration guidelines. 27 (B) An alleged incapacitated person or any person interested in 28 the estate, affairs, or welfare of the primary respondent may 29 petition the court for the appointment of a conservator or for other 30 appropriate protective order. A protective proceeding is 31 commenced by the filing and service of a summons and verified 32 petition for appointment of a conservator or other protective order, 33 for reasons other than minority, upon the primary respondent and 34 those persons listed in subsection (C)(4) of this section. 35 (C) The petition shall set forth, to the extent known or 36 reasonably ascertainable, the following information: 37 (1) the interests of the petitioner; 38 (2) the name, age, and current address of the primary 39 respondent; and 40 (3) the physical location of the primary respondent during 41 the six month period immediately preceding the filing of the 42 summons and petition, and, if the primary respondent was not 43 physically present in South Carolina for that period, sufficient[1243] 277 1 information on which the court may make a determination that it 2 has initial jurisdiction pursuant to Section 625707; 3 (4) the names and addresses of the following persons: 4 (a) the primary respondent’s guardian, if any; 5 (b) the primary respondent’s spouse; 6 (c) the primary respondent’s adult children; 7 (d) if there is no spouse or adult child, the primary 8 respondent’s parents; 9 (e) if there is no spouse, adult child or parents, the 10 primary respondent’s nearest adult relative; 11 (f) any person known to have been appointed as agent for 12 the primary respondent under a general durable power of attorney 13 or a health care power of attorney; 14 (g) any person whose priority for appointment as 15 conservator under Section 625408 is equal to or greater than the 16 priority for appointment of the person whose appointment the 17 petition advocates; 18 (h) any person with whom the primary respondent resides 19 outside of a health care facility, group home, homeless shelter, or 20 prison; and 21 (i) if the conservatorship is for the purpose of receiving 22 veterans’ benefits, the Secretary of the Department of Veterans’ 23 Affairs; 24 (5) a general statement of the primary respondent’s assets 25 with an estimate of its value, and the source and amount of any 26 income, insurance, pension, or allowance to which the primary 27 respondent is entitled; 28 (6) the reason why appointment of a conservator or other 29 protective order is necessary, including a brief description of the 30 nature and extent of the primary respondent’s alleged incapacity; 31 and 32 (7) if the appointment of a conservator is requested, the 33 name and address of the person whose appointment is sought, the 34 basis of his priority for appointment, and any limitations or 35 restrictions sought to be imposed on the conservator’s powers and 36 duties. 37 (D) Upon the filing of the summons and petition with the court 38 and proof of service of the summons and petition upon the primary 39 respondent, the court must appoint a guardian ad litem for the 40 primary respondent in accordance with Part 8, Article 5, Title 62, 41 and the guardian ad litem shall have the duties and responsibilities 42 set forth in Part 8, Article 5, Title 62. Unless otherwise ordered by 43 the court, the appointment of a guardian ad litem under this section[1243] 278 1 will not affect the rights of the primary respondent and will not 2 raise a presumption of incapacity of the primary respondent. 3 (E)(1) The primary respondent is entitled to retain counsel of 4 his or her choosing. If the primary respondent is not represented 5 by counsel, then: 6 (i) the court may allow the primary respondent to proceed 7 pro se or shall instruct the guardian ad litem to assist the primary 8 respondent in obtaining counsel; or 9 (ii) upon the request of the guardian ad litem, the primary 10 respondent, any party, or upon the court’s own motion, the court 11 may appoint counsel for the primary respondent. 12 (2) This subsection shall not be construed to require an 13 attorney to accept an uncompensated appointment. During the 14 pendency of any protective proceeding, any attorney purporting to 15 represent the primary respondent shall file a notice of appearance 16 with the court. Attorney’s fees for counsel appointed under this 17 section shall be subject to approval by the court. 18 (F) Except in cases governed by Section 625431, relating to 19 veterans’ benefits, upon the filing of the summons and petition 20 with the court in which the petitioner alleges the primary 21 respondent is incapacitated and proof of service of the summons 22 and petition upon the primary respondent, the court must appoint 23 an examiner, who shall be a physician, to examine the primary 24 respondent and report to the court the physical and mental 25 condition of the primary respondent. Upon motion or written 26 request of the guardian ad litem, the primary respondent, any 27 interested party, or upon the court’s own motion, the court may 28 appoint one or more additional examiners, who may be a physician 29 or any other person the court determines qualified to evaluate the 30 primary respondent’s alleged impairment. If the court appoints any 31 additional examiners, the court shall set out in the order appointing 32 the examiner why an additional examiner is necessary and why the 33 appointed examiner is appropriate to serve in that capacity. Each 34 examiner shall complete a verified report evaluating the condition 35 of the primary respondent and file an original report with the court 36 or deliver the original report to the guardian ad litem, who, without 37 undue delay must file the report with the court by the deadline set 38 by the court, but not less than fortyeight hours prior to any hearing 39 in which the report will be introduced as evidence. For good 40 cause, the court may allow admission of an examiner’s report filed 41 less than fortyeight hours prior to the hearing. All parties to the 42 proceeding are entitled to a copy of each examiner’s report. A 43 examiner’s report shall evaluate the condition of the primary[1243] 279 1 respondent and shall contain, to the best information and belief of 2 the examiner: (i) a description of the nature, type, and extent of the 3 primary respondent’s incapacity, including the primary 4 respondent’s specific functional impairments, (ii) a diagnosis and 5 assessment of the primary respondent’s mental and physical 6 condition, including a statement as to whether the primary 7 respondent is on any medications that may affect his actions or 8 demeanor, (iii) where appropriate and consistent with the scope of 9 the examiner’s license, an evaluation of the primary respondent’s 10 ability to learn selfcare skills, adaptive behavior, and social skills 11 and a prognosis for improvement, (iv) the date or dates of the 12 examinations, evaluations, and assessments upon which the report 13 is based, (v) the identity of those persons with whom the examiner 14 met or consulted regarding the primary respondent’s mental or 15 physical condition, and (vi) the signature of the examiner and the 16 nature of the professional license held by the examiner. Unless 17 otherwise directed by the court, in preparing a report for the court, 18 the examiner may rely upon an examination of the primary 19 respondent conducted by the examiner subsequent to his 20 appointment or within the ninetyday period immediately preceding 21 the filing of the petition. In the absence of bad faith or malicious 22 intent, an examiner appointed by the court and performing an 23 examination and submitting a report under this section shall be 24 immune from civil liability for any breach of patient 25 confidentiality made in furtherance of his duties under this section. 26 A report prepared pursuant to this section shall be admissible as 27 evidence of the facts stated in the report and the results of the 28 examination or evaluation referred to in the report. 29 (G) As soon as the interests of justice may allow, but after the 30 time for response to the petition has elapsed as to all parties 31 served, the court shall hold a hearing on the merits of the petition. 32 The primary respondent, all parties, and any person who has filed a 33 demand for notice pursuant to subsection (H), must be given notice 34 of the hearing as provided in Section 621401. The primary 35 respondent shall attend the hearing unless excused by the court for 36 good cause. In determining good cause, the court may consider 37 affidavits submitted by the guardian ad litem or any interested 38 persons. Nothing in this section prohibits all parties not in default 39 from waiving a hearing on any petition, and the court for good 40 cause may entertain a consent order on any petition. A primary 41 respondent represented by counsel may consent through counsel. 42 (H) Any interested person who desires to be notified before any 43 order is made in a protective proceeding may file with the court a[1243] 280 1 demand for notice. The court shall mail a copy of the demand to 2 the conservator, if one has been appointed, or to the petitioner, if 3 no conservator has been appointed. A demand for notice is not 4 effective unless it contains a statement indicating the nature of the 5 interest of the person filing the demand, his address or that of his 6 attorney, and is effective only as to matters occurring after the 7 filing of the demand. 8 (I) After a hearing, or with the consent of all parties, upon 9 finding that a basis for the appointment of a conservator or other 10 protective order has been established as set forth in this section, the 11 court shall make an appointment or other protective order. 12 (J) Any person interested in the estate, affairs or welfare of a 13 person who is unable to manage his property or affairs effectively 14 for reasons of confinement, detention by a foreign power, or 15 disappearance may petition the court for appointment of a 16 conservator or for other protective order for such person under this 17 section; provided, however, the appointment of an examiner shall 18 not be required for a person who is confined, detained or missing. 19 20 REPORTER’S COMMENTS 21 Section 625403 was significantly revised by the 2012 22 amendment. 23 The revised section adds the requirement of a summons and 24 clarifies that a petition must be verified. 25 This section sets out the basic procedure for the appointment of 26 a conservator or entry of another protective order for reasons other 27 than minority. 28 The phrase ‘any person interested in the estate, affairs, or 29 welfare of the primary respondent’ is intended to be broader than 30 then term ‘interested person’ defined in 621201. For example, it 31 could include a friend, neighbor, or person residing with the 32 primary respondent. 33 Subsection (A) sets out the conditions under which the 34 appointment of a conservator or other protective order is 35 appropriate. In order to preserve any advance planning by the 36 primary respondent, the revised subsection emphasizes the 37 importance of looking first to agents under a durable power of 38 attorney, before appointing a conservator or issuing a protective 39 order. Nothing in the section precludes a party from questioning 40 the validity of a power of attorney or seeking the removal of an 41 agent under a power of attorney for breach or dereliction of duty. 42 Further the section acknowledges that necessary actions may be 43 beyond the authority given to an agent under a durable power of[1243] 281 1 attorney. A major addition to the reasons for the appointment of a 2 conservator or protective order is the need to create a special needs 3 trust for a disabled person. For this subsection to apply the 4 disabled person need not be incapacitated, but must be disabled 5 under social security guidelines. It is not necessary the individual 6 be actually receiving social security disability or SSI benefits. 7 Subsection (B) provides who may commence a proceeding for 8 the appointment of a conservator or other protective order, how to 9 commence the proceeding, and who must be served in connection 10 with the proceeding. This section makes it clear the petition used 11 to commence the proceeding must be verified by the petitioner. 12 Subsection (C) provides detailed requirements for the content of 13 a petition for appointment of conservator or other protective order. 14 While the subsection requires the petitioner to provide only 15 information known to the petitioner, it imposes on the petitioner a 16 duty to engage in a reasonable effort to ascertain the required 17 information. Specifying the required contents of the petition is in 18 accordance with the recommendations of both the Wingspread 19 conference on guardianship reform and the Commission on 20 National Probate Court Standards. See Guardianship: An Agenda 21 For Reform 9 (A.B.A. 1989); National Probate Court Standards, 22 Standard 3.3.1, ‘Petition’ (1993). 23 Subsection (D) provides for the appointment of a guardian ad 24 litem, upon the filing and service of the verified petition for 25 appointment of conservator or other protective order. While 26 appointment of a guardian ad litem occurs without a preliminary 27 assessment of capacity by the court, the subsection makes it clear 28 the mere appointment of the guardian ad litem does not impact the 29 rights of the person allegedly in need of a conservator or protective 30 order and the appointment is not evidence of incapacity. 31 With this revision, the roles of legal counsel and guardian ad 32 litem have been separated. While a guardian ad litem is required 33 to be appointed in every case, unlike prior law, it is not necessary 34 for the guardian ad litem to be an attorney. Further, if the guardian 35 ad litem is an attorney, that person may not also serve as counsel 36 for the primary respondent in the proceeding. This revision 37 eliminates the conflict which existed under prior law between the 38 role of legal counsel as advocate for the primary respondent and 39 the role of guardian ad litem, who has duties to both the primary 40 respondent and the court. 41 Subsection (E) provides that the primary respondent is not 42 required to be represented by counsel, but is entitled to be 43 represented by counsel of his own choosing. This subsection sets[1243] 282 1 forth the options of the court when dealing with a primary 2 respondent who is not represented by counsel. This section does 3 not mandate the appointment of counsel, nor is the primary 4 respondent required to be represented by counsel. If the court 5 determines an unrepresented primary respondent should not 6 proceed without counsel, the subsection authorizes the court to 7 appoint counsel for the primary respondent. The subsection also 8 suggests to the court the option of directing the guardian ad litem 9 to assist the person in obtaining counsel. This would be 10 particularly appropriate where the court felt the need for counsel 11 and the person had adequate resources with which to pay counsel. 12 The enhanced duties of the guardian ad litem established by Title 13 62, Article 5, Part 8, in conjunction with the enhanced 14 qualification for persons acting as guardian ad litem should 15 provide adequate protection of the interests of the person who is 16 the subject of a protective proceeding in most cases. 17 Subsection (F) provides for the appointment of an examiner in 18 connection with a proceeding for the appointment of a conservator 19 or other protective order, establishes the necessary qualification of 20 the person who will serve as an examiner, sets forth the type of 21 report the examiner is to produce, and the time within which the 22 report is to be produced. A designated examiner who is a 23 physician must be appointed. Additional designated examiners 24 may be appointed by the court. The additional examiners may be 25 physicians or any other person the court has determined is 26 qualified to evaluate the primary respondent’s alleged impairment. 27 The subsection also clarifies prior law by establishing the 28 examiner may make his report from information obtained in an 29 examination conducted prior to the examiner’s appointment. If the 30 examiner’s report references an examination conducted prior to 31 appointment, it must have been conducted within the 90 days 32 immediately preceding the examiner’s appointment; otherwise the 33 examination must occur subsequent to the appointment. 34 Subsection (G) establishes the requirement of a hearing in 35 regard to the petition, provides who must be given notice of the 36 hearing, and sets forth the timing of notice. Note that the 37 subsection mandates attendance at the hearing by the primary 38 respondent absent a showing of good cause. 39 Subsection (H) provides a procedure for interested persons to 40 obtain notice prior to orders being issued in the proceeding. 41 Subsection (I) establishes the requirement that the court issue an 42 order in response to a petition and clarifies that such an order may 43 arise by consent of all parties. If the petition contains an allegation[1243] 283 1 of incapacity on behalf of the primary respondent, he must be 2 represented by counsel in order to consent. 3 Subsection (J) clarifies that the appointment of an examiner is 4 not necessary, in the absence of an allegation of incapacity. An 5 examiner would be unnecessary in cases of detention or missing 6 persons. 7 Section 625401 puts venue for proceedings in the county of 8 residence of the person to be protected, or if he resides out of state, 9 where his property lies. 10 11 Section 625404. (a) The person to be protected, any person 12 who is interested in his estate, affairs, or welfare, including his 13 parent, guardian, or custodian, or any person who would be 14 adversely affected by lack of effective management of his property 15 and affairs may petition for the appointment of a conservator or for 16 other appropriate protective order. 17 (b) The petition shall set forth to the extent known, the interest 18 of the petitioner; the name, age, residence, and address of the 19 person to be protected; the name and address of his guardian, if 20 any; the name and address of his nearest relative known to the 21 petitioner; a general statement of his property with an estimate of 22 the value thereof, including any compensation, insurance, pension, 23 or allowance to which he is entitled; and the reason why 24 appointment of a conservator or other protective order is 25 necessary. If the appointment of a conservator is requested, the 26 petition also shall set forth the name and address of the person 27 whose appointment is sought and the basis of his priority for 28 appointment. 29 The court has the following powers which may be exercised 30 directly or through a conservator with respect to the estate and 31 affairs of protected persons: 32 (A) During the pendency of a proceeding for the appointment 33 of a conservator or other protective order, any party or other 34 person interested in the estate, affairs or welfare of the primary 35 respondent may file with the court a motion for temporary relief in 36 regard to the property or financial affairs of the primary 37 respondent. 38 (B) Unless made in open court, the motion shall be in writing 39 and shall describe the nature of the temporary relief sought and 40 state the reasons the temporary relief is in the best interest of the 41 primary respondent. 42 (C) Upon receipt of the motion, the court may issue an order 43 ex parte or schedule a hearing with such notice as the court may[1243] 284 1 prescribe, all as the interests of justice or the needs of the primary 2 respondent require. 3 (D) Notwithstanding any other provision of this section, no 4 order for temporary relief will issue other than following a hearing 5 with notice to all parties as provided in Section 621401 unless it 6 appears from specific facts, shown by affidavit or evident from the 7 petition, that the requested relief is necessary to provide for the 8 health and welfare of the primary respondent or those dependent 9 upon the primary respondent for support or to prevent the property 10 of the primary respondent from being wasted and there is 11 insufficient time to hold a noticed hearing. 12 (E) Notice of any temporary relief granted shall be given to all 13 parties as soon thereafter as practicable. If relief was granted 14 without a noticed hearing, on two days’ notice to the party who 15 obtained the order for temporary relief, or on shorter notice to that 16 party as the court may prescribe, the primary respondent, or any 17 party opposed to the order may appear and move its dissolution or 18 modification, and in that event, the court shall proceed to hear and 19 determine the motion as expeditiously as the ends of justice 20 require. 21 (F) Except as otherwise provided by the court, any order 22 granting temporary relief under this section shall terminate upon 23 the court’s final ruling on the merits of the pending petition for 24 conservatorship or protective order. 25 (G)(1) Upon finding that a basis for an appointment or other 26 protective order exists with respect to a minor solely for reason of 27 minority, the court has all of the powers over the estate and affairs 28 of the minor which are or might be necessary for the best interests 29 of the minor, his family, and members of his household. 30 (2) Upon finding that a basis for an appointment or other 31 protective order exists for reasons other than minority, the court 32 has all of the powers over the person’s real and personal property 33 and financial affairs which such person could exercise if not under 34 disability, except the power to make a will. 35 36 REPORTER’S COMMENTS 37 This Section was revised by the 2012 amendment and provides a 38 procedure for obtaining temporary relief pending a determination 39 in a protective proceeding and sets forth a general description of 40 the power of the court after it determines the appointment of a 41 conservator or issuance of a protective order is appropriate. 42 Subsection (A) establishes the procedure for seeking an order of 43 temporary relief in regard to the affairs of the primary respondent[1243] 285 1 in a protective proceeding. The subsection provides that any 2 person interested in the affairs of the primary respondent may 3 move the court for an order of temporary relief during the 4 pendency of a protective proceeding. The phrase ‘other person 5 interested in the estate, affairs, or welfare of the primary 6 respondent’ is intended to be broader than then term ‘interested 7 person’ defined in 621201. For example, it could include a friend, 8 neighbor, or person residing with the primary respondent. Note 9 that no such order may issue prior to the filing and service of a 10 summons and petition. While the subsection authorizes the court 11 to issue ex parte orders in response to the motion for temporary 12 relief, the subsection emphasizes that absent exigent circumstances 13 the court should schedule a hearing on the motion and provide 14 notice to all parties to the proceeding. The subsection also 15 provides for a procedure for the primary respondent or any party to 16 the proceeding to seek dissolution of an order of temporary relief. 17 Subsection (B) delineates the powers of the court over the 18 affairs of a minor. 19 Subsection (C) delineates the powers of the court over the 20 affairs of a primary respondent after a finding the basis for an 21 appointment of conservator or issuance of protective order exists. 22 23 Section 625405. (a) After filing of the summons and the 24 petition for appointment of a conservator or other protective order, 25 the person to be protected must be served personally with the 26 summons and petition. The following persons also must be 27 properly served: the spouse and the adult children of the person to 28 be protected, or if none, his parents or nearest adult relatives if 29 there are no parents, and other persons as the court may direct. 30 (b) Notice of hearing on a petition for appointment of a 31 conservator or other initial protective order, and of any subsequent 32 hearing, must be given to the person to be protected, to any person 33 who has filed a request for notice under Section 625406, to 34 interested persons, and to other persons as the court may direct. 35 Notice must be given in accordance with Section 621401. Waiver 36 of notice of hearing by the person to be protected is not effective 37 unless he attends the hearing or waiver of notice is given by his 38 attorney. 39 (A)(1) When it is established in a proper proceeding that a basis 40 exists as described in Section 625402 or Section 625403 for 41 affecting the property and affairs of the primary respondent, the 42 court, without appointing a conservator, may authorize, direct, or 43 ratify any transaction necessary or desirable to achieve any[1243] 286 1 security, service, or care arrangement meeting the foreseeable 2 needs of the primary respondent. Protective arrangements include, 3 but are not limited to, payment, delivery, deposit, or retention of 4 funds or property, sale, mortgage, lease, or other transfer of 5 property, entry into an annuity contract, a contract for life care, a 6 deposit contract, a contract for training and education, or addition 7 to or establishment of a suitable trust. 8 (2) When it has been established in a proper proceeding that 9 a basis exists as described in Section 625402 or Section 625403 for 10 affecting the property and affairs of the primary respondent, the 11 court, without appointing a conservator, may authorize, direct, or 12 ratify any contract, trust, or other transaction relating to the 13 primary respondent’s financial affairs or involving the primary 14 respondent’s estate if the court determines that the transaction is in 15 the best interests of the primary respondent. 16 (B) Before approving a protective arrangement or other 17 transaction under this section, the court shall consider whether, in 18 view of the primary respondent’s disability, the primary 19 respondent needs the continuing protection of a conservator. The 20 court may appoint a special conservator to assist in the 21 accomplishment of any protective arrangement or other transaction 22 authorized under this section. The special conservator shall have 23 the authority conferred by the court’s order, shall file any and all 24 reports as required by the court and shall serve until discharged by 25 order of the court. 26 (C)(1) When it is established in a proper proceeding that a basis 27 exists as described in Section 625403 for affecting the property 28 and affairs of the primary respondent, the court may exercise or 29 authorize a conservator or a special conservator to exercise any of 30 the powers set forth in subsection (D). 31 (2) If the power sought to be exercised in subsection (D) is 32 requested concurrently with the petition under Section 625403, in 33 addition to those persons required to be served under section 34 625403, all of the primary respondent’s known heirs and devisees 35 are also required to be served with the summons and petition. 36 (3) If the power sought to be exercised in subsection (D) is 37 requested subsequent to the appointment of a conservator, then the 38 primary respondent and all of the primary respondent’s known 39 heirs and devisees are required to be served with the summons and 40 petition requesting the requested relief. 41 (D) The following powers may be authorized by the court after 42 hearing or with the consent of all necessary parties:[1243] 287 1 (1) to make gifts as the court, in its discretion, believes 2 would be made by the primary respondent if the primary 3 respondent were competent; 4 (2) to convey or release the primary respondent’s contingent 5 and expectant interests in property including material property 6 rights and any right of survivorship incident to joint tenancy; 7 (3) to create or amend revocable trusts or create irrevocable 8 trusts of property of the primary respondent’s estate that may 9 extend beyond the primary respondent’s disability or life, 10 including the creation or funding of a special needs trust or a 11 pooled fund trust for a minor who has been determined to be 12 disabled; 13 (4) to fund trusts; 14 (5) to exercise the primary respondent’s right to elect 15 options and change beneficiaries under insurance and annuity 16 policies and to surrender policies for their cash value; 17 (6) to exercise the primary respondent’s right to an elective 18 share in the estate of the primary respondent’s deceased spouse; 19 (7) to disclaim or renounce any interest by testate or intestate 20 succession or by inter vivos transfer; and 21 (8) to ratify any such actions taken on the behalf of the 22 primary respondent. 23 (E) In exercising or approving a conservator’s or special 24 conservator’s exercise of the powers set forth in subsection (D) 25 above, the court shall, to the extent ascertainable, give primary 26 weight to what the primary respondent would do under the 27 circumstances if the primary respondent capable of acting 28 independently. The court may also consider: 29 (1) the financial needs and legal obligations of the primary 30 respondent, including the needs of individuals to whom the 31 primary respondent owes an obligation of support: 32 (2) possible reduction of taxes, including, but not limited to, 33 income, estate, and inheritance taxes; 34 (3) the primary respondent’s eligibility or potential 35 eligibility for governmental assistance; 36 (4) the primary respondent’s previous pattern of giving or 37 level of support; 38 (5) the primary respondent’s existing estate plan; and 39 (6) the primary respondent’s life expectancy and the 40 probability that the conservatorship will terminate before the 41 primary respondent’s death. 42 (F) In exercising or approving a conservator’s or special 43 conservator’s exercise of the powers set forth in subsection (D),[1243] 288 1 the court shall set forth in the court’s record specific findings upon 2 which the court bases its ruling. For purposes of issuing a consent 3 order under subsection (D), a guardian ad litem may consent on 4 behalf of the primary respondent. 5 6 REPORTER’S COMMENTS 7 As revised by the 2012 amendment this encompasses former 8 Section 625409 and a portion of Section 625408. Consistent with 9 the philosophy of this article that a conservator be appointed only 10 as a last resort, this section authorizes the court, in lieu of 11 appointing a conservator, to order a variety of less intrusive 12 ‘protective arrangements.’ A protective arrangement typically 13 involves a single transaction such as a sale of land or the entry of a 14 contract for care. The procedure for obtaining a protective 15 arrangement is similar to that required for the appointment of a 16 conservator. A summons and petition must be filed, and notice 17 must be given to the appropriate parties. 18 The code section provides that the court may authorize a 19 protective arrangement or single transaction without the 20 appointment of a conservator; however, the section also introduces 21 the concept of a special conservator. The role of the special 22 conservator is to carry out only those tasks that are specifically 23 ordered by the court. 24 Subsection (C) lists powers the court can exercise over the 25 assets of a protected person, but which require notice to parties 26 who may not normally be served with the summons and petition 27 for a conservator or other protective order. The reason is these 28 actions may affect what a nonparty would receive by way of 29 inheritance from the protected person. The subsection deals with 30 both the situation of a request for the action in an original petition, 31 and a request for the action in a proceeding after a conservator has 32 been appointed. 33 Subsection (D) takes the opportunity to suggest the use of 34 consent orders, to mitigate disputes that may arise. 35 Subsection (E) lists the factors the court should consider in 36 determining whether it should approve or facilitate a protective 37 arrangement described in subsection (D). Subsection (E) makes it 38 clear the decision to approve or disapprove a request for a 39 protective proceeding described in subsection (D) should be 40 primarily based on the decision that the protected person would 41 have made, if of full capacity. In that regard the court should take 42 into consideration the protected person’s personal values and 43 expressed desires, past and present, when making decisions.[1243] 289 1 Carrying out the protected person’s intent or probable intent is a 2 major theme of this part. In this regard, this section probably 3 confirms what the law is already. Even in the absence of a statute, 4 the conservator should consider the protected person’s probable 5 wishes, particularly with respect to gifts and other estate planning 6 related transactions. 7 Subsection (F) provides guidance to the court on what should be 8 included in an order approving a protective arrangement described 9 in subsection (D). 10 The authority confirmed by this section may be used to engage 11 in tax planning on behalf of the protected person. For example, by 12 making annual exclusion gifts, the federal estate tax liability at the 13 protected person’s death may be substantially reduced. However, 14 this section can also be used for nontax transactions. Transfers 15 may be made to qualify the protected person for governmental 16 programs, or the court may continue the protected person’s prior 17 pattern of giving to charities and others. 18 19 20 Section 625406. Any interested person who desires to be 21 notified before any order is made in a protective proceeding may 22 file with the court a request for notice subsequent to payment of 23 any fee required by statute or court rule. The clerk shall mail a 24 copy of the request to the conservator if one has been appointed. 25 A request is not effective unless it contains a statement showing 26 the interest of the person making it and his address, or that of his 27 attorney, and is effective only as to matters occurring after the 28 filing. Any governmental agency paying or planning to pay 29 benefits to the person to be protected is an interested person in 30 protective proceedings. Unless an order of the court specifies 31 otherwise, a finding of incapacity and appointment of a 32 conservator or other protective order is not a determination that the 33 protected person lacks testamentary capacity or the capacity to 34 create, amend or revoke a revocable trust. 35 36 REPORTER’S COMMENTS 37 This section makes it clear that a finding of incapacity for purposes 38 of appointment of a conservator or other protective order is not a 39 finding as to testamentary capacity. 40 41 Section 625407. (a) Upon the filing of a summons and petition 42 for appointment of a conservator or other protective order because 43 of minority, and after service of the summons and the petition, the[1243] 290 1 court may set a date for hearing on the matters alleged in the 2 petition. If, at any time in the proceeding, the court determines 3 that the interests of the minor are or may be inadequately 4 represented, it may appoint an attorney to represent the minor, 5 giving consideration to the choice of the minor if fourteen years of 6 age or older. A lawyer appointed by the court to represent a minor 7 has the powers and duties of a guardian ad litem. If the minor 8 already has an attorney, that attorney shall act as his guardian ad 9 litem. 10 (b) Upon the filing of a summons and petition for appointment 11 of a conservator or other protective order for reasons other than 12 minority, and after service of the summons and the petition, the 13 court shall set a date for hearing. Unless the person to be protected 14 has counsel of his own choice, the court must appoint a lawyer to 15 represent him who then has the powers and duties of a guardian ad 16 litem. If the protected person already has representation by an 17 attorney that attorney shall act as his guardian ad litem. If the 18 alleged disability is mental illness, mental deficiency, physical 19 illness or disability, advanced age, chronic use of drugs, or chronic 20 intoxication, the court shall direct that the person to be protected 21 be examined by one or more physicians designated by the court, 22 preferably physicians who are not connected with any institution in 23 which the person is a patient or is detained. 24 (c) After hearing, upon finding that a basis for the appointment 25 of a conservator or other protective order has been established, the 26 court shall make an appointment or other appropriate protective 27 order. (A) Unless the court’s order specifies otherwise, the 28 appointment of a conservator shall remove from the protected 29 person the following rights and privileges, which to the extent 30 authorized in Section 625422, and pending further order of the 31 court, shall thereafter reside in the conservator acting on behalf of 32 the protected person: 33 (1) the power to buy, sell, or transfer real or personal 34 property or transact business of any type including, but not limited 35 to, those powers conferred upon the conservator under Section 36 625422; 37 (2) the power to make, modify, or terminate contracts; and 38 (3) the right to bring or defend any action at law or equity. 39 Nothing in this section shall prevent the protected person from 40 notifying the court that the protected person is being unjustly 41 denied a right or privilege granted by this part or requesting 42 removal of the conservator or termination of the conservatorship 43 under Section 625428.[1243] 291 1 (B) Unless the court’s order specifies otherwise, the 2 appointment of a conservator suspends the authority of an agent 3 who was previously appointed by the protected person to act as an 4 agent under financial provisions of a durable power of attorney. 5 The authority of an agent to make health care decisions or 6 authority granted by other advance directives regarding health care 7 is unaffected by the appointment of a conservator. The court may, 8 with appropriate findings, permanently terminate the authority of 9 an agent under a durable or nondurable power of attorney. 10 11 REPORTER’S COMMENTS 12 Under the 2012 amendment, this section sets forth the rights and 13 privileges lost by a protected person upon the appointment of a 14 conservator. The court can override this section by court order. 15 Subsection (B) provides that, upon the appointment of a 16 conservator, the authority of an agent under a durable power of 17 attorney executed by the protected person is suspended. Note the 18 agent’s authority is only suspended and not revoked. It the court 19 determines at some point in the future a conservator is no longer 20 necessary, the authority of the agent under the power of attorney is 21 revived. 22 Note that the appointment of a conservator has no impact on the 23 authority of an agent under a health care power of attorney. 24 However, the appointment of a guardian under Section 625303 25 would affect the authority of such an agent. 26 27 Section 625408. The court has the following powers which may 28 be exercised directly or through a conservator in respect to the 29 estate and affairs of protected persons: 30 (1) While a petition for appointment of a conservator or other 31 protective order is pending and after preliminary hearing upon 32 such notice by the court as is reasonable under the circumstances, 33 and if the petition requests temporary relief, the court has the 34 power to preserve and apply the property of the person to be 35 protected as may be required for his benefit or the benefit of his 36 dependents; however, notice of such actions of the court shall be 37 given to interested parties as soon thereafter as practicable. 38 (2) After hearing and upon determining that a basis for an 39 appointment or other protective order exists with respect to a 40 minor without other disability, the court has all those powers over 41 the estate and affairs of the minor which are or might be necessary 42 for the best interests of the minor, his family, and members of his 43 household. [1243] 292 1 (3)(a) After hearing and upon determining that a basis for an 2 appointment or other protective order exists with respect to a 3 person for reasons other than minority, the court has, for the 4 benefit of the person and of his estate and fulfillment of his legal 5 obligations of support of dependents, all the powers over his estate 6 and affairs which he could exercise if present and not under 7 disability, except the power to make a will. These powers include, 8 but are not limited to, the power to: 9 (i) make gifts as the court, in its discretion, believes 10 would be made by the person if he were competent; 11 (ii) convey or release the person’s contingent and 12 expectant interests in property including material property rights 13 and any right of survivorship incident to joint tenancy; 14 (iii) exercise or release the person’s powers as trustee, 15 personal representative, custodian for minors, conservator, or 16 donee of a power of appointment; 17 (iv) enter into contracts; 18 (v) create or amend revocable trusts or create irrevocable 19 trusts of property of the estate which may extend beyond the 20 person’s disability or life; 21 (vi) fund trusts; 22 (vii) exercise options of the disabled person to purchase 23 securities or other property; 24 (viii) exercise the person’s right to elect options and 25 change beneficiaries under insurance and annuity policies and to 26 surrender the policies for their cash value; 27 (ix) exercise the person’s right to an elective share in the 28 estate of the person’s deceased spouse; 29 (x) renounce any interest by testate or intestate succession 30 or by inter vivos transfer; and 31 (xi) ratify any such actions taken on the person’s behalf. 32 (b) In order to exercise, or direct the exercise of the court’s 33 authority in any powers set forth in item (a), the court must 34 entertain a petition in which the specific relief sought is set forth, 35 the incapacitated person, his known heirs, devisees, donees, and 36 beneficiaries are made parties to the action, and which contains a 37 statement that the person either is incapable of consenting or has 38 consented to the proposed exercise of power. 39 (c) In exercising the powers set forth in item (b), the court 40 also must inquire into and consider any known lifetime gifts or the 41 estate plan of the person, the terms of any revocable trust of which 42 he is grantor, and any contract, transfer, or joint ownership 43 arrangements with provisions for payment or transfer of benefits or[1243] 293 1 interests at his death to another which he may have originated. In 2 exercising the court’s authority set forth in item (b), the court must 3 set forth in the record specific findings upon which it has based its 4 ruling. 5 (4) An order made pursuant to this section determining that a 6 basis for appointment of a conservator or other protective order 7 exists, has no effect on the capacity of the protected person, except 8 to the extent the order affects his estate or affairs. 9 (1) The court may appoint an individual, or a corporation with 10 the power to serve as trustee, as conservator of the estate of the 11 primary respondent. The court in appointing a conservator shall 12 consider persons, who are otherwise qualified, in the following 13 order of priority: 14 (a) a person previously appointed as conservator, guardian 15 of property, or other like fiduciary for the primary respondent by 16 another court of competent jurisdiction; 17 (b) an individual or corporation nominated by the primary 18 respondent if he is fourteen or more years of age and has, in the 19 opinion of the court, sufficient mental capacity to make a reasoned 20 choice; 21 (c) an attorney in fact appointed by the primary respondent 22 pursuant to Section 625501; 23 (d) the spouse of the primary respondent. 24 (e) an adult child of the primary respondent; 25 (f) a parent of the primary respondent; 26 (g) the person nearest in kinship to the primary respondent 27 who is willing to accept the appointment; 28 (h) a person with whom the primary respondent resides 29 outside of a health care facility, group home, homeless shelter, or 30 prison; and 31 (i) a person nominated by a health care facility caring for 32 the primary respondent. 33 A person whose priority is based upon the status under items (a), 34 (c), (d), (e), (f), or (g), may nominate in writing a person to serve 35 in his stead. With respect to persons having equal priority, the 36 court shall select the person it considers best qualified to serve as 37 conservator for the primary respondent and in the best interest of 38 the primary respondent. The court, acting in the best interest of the 39 primary respondent, may decline to appoint a person having higher 40 priority and appoint a person having lesser priority or no priority. 41 (2) A probate judge or an employee of the probate court shall 42 not serve as a conservator of an estate of a protected person. 43 However, a probate judge or an employee of the probate court may[1243] 294 1 serve as a conservator of the estate of a family member if the 2 service does not interfere with the proper performance of the 3 probate judge’s or the employee’s official duties. For purposes of 4 this subsection, ‘family member’ means a spouse, parent, child, 5 brother, sister, niece, nephew, motherinlaw, fatherinlaw, soninlaw, 6 daughterinlaw, grandparent, or grandchild. 7 8 REPORTER’S COMMENTS 9 The 2012 amendments expand former Section 625410. The 10 section provides a detailed tiered system for determining who 11 should be given priority for appointment as conservator for a 12 protected person. A change from prior law is the addition in the 13 list of priorities of a person with whom the primary respondent 14 resides, regardless of kinship. While the court must consider 15 persons in the order listed, nothing prevents a court from deviating 16 from the order of priority in the best interest of the primary 17 respondent. 18 19 Section 625409. (a) If it is established in a proper proceeding 20 that a basis exists as described in Section 625401 for affecting the 21 property and affairs of a person the court, without appointing a 22 conservator, may authorize, direct, or ratify any transaction 23 necessary or desirable to achieve any security, service, or care 24 arrangement meeting the foreseeable needs of the protected person. 25 Protective arrangements include, but are not limited to, payment, 26 delivery, deposit, or retention of funds or property, sale, mortgage, 27 lease, or other transfer of property, entry into an annuity contract, a 28 contract for life care, a deposit contract, a contract for training and 29 education, or addition to or establishment of a suitable trust. 30 (b) When it has been established in a proper proceeding that a 31 basis exists as described in Section 625401 for affecting the 32 property and affairs of a person, the court, without appointing a 33 conservator, may authorize, direct, or ratify any contract, trust, or 34 other transaction relating to the protected person’s financial affairs 35 or involving his estate if the court determines that the transaction is 36 in the best interests of the protected person. 37 (c) Before approving a protective arrangement or other 38 transaction under this section, the court shall consider the interests 39 of creditors and dependents of the protected person and, in view of 40 his disability, whether the protected person needs the continuing 41 protection of a conservator. The court may appoint a special 42 conservator to assist in the accomplishment of any protective 43 arrangement or other transaction authorized under this section who[1243] 295 1 shall have the authority conferred by the order and serve until 2 discharged by order after report to the court of all matters done 3 pursuant to the order of appointment. 4 Except upon a finding of good cause, the court must require a 5 conservator to furnish a bond conditioned upon faithful discharge 6 of all duties of the conservator according to law and must approve 7 all sureties. When bond is required, the person qualifying shall file 8 a statement under oath with the court indicating his best estimate 9 of the value of the personal estate of the protected person and of 10 the income expected from the personal estate during the next 11 calendar year, and he shall execute and file a bond with the court, 12 or give other suitable security, in an amount not less than the 13 estimate. The court shall determine that the bond is duly executed 14 by a corporate surety, or one or more individual sureties whose 15 performance is secured by pledge of personal property, mortgage 16 on real property, or other adequate security. Good cause for waiver 17 of the bond includes, but is not limited to, the establishment of a 18 properly executed restricted account agreement with a domestic 19 financial institution, as defined in Section 626101, in which the 20 funds are deposited and held in a manner that prevents their 21 unauthorized disposition or other similar restrictive arrangements. 22 The court may authorize an unrestricted or unbonded account to be 23 used by the conservator for expenses on behalf of the protected 24 person, and all activity in the account shall be reported by the 25 conservator as required by the court. Upon application of the 26 conservator or another interested person, or upon the court’s own 27 motion, the court may: (a) order the creation, change, or 28 termination of an account, (b) increase or reduce the amount of the 29 bond, (c) release sureties, (d) dispense with security or securities, 30 or (e) permit the substitution of another bond with the same or 31 different sureties. 32 33 REPORTER’S COMMENTS 34 As revised by the 2012 amendment this was formerly Section 35 625411. This section continues its bias toward conservators being 36 bonded. Changes to prior law include guidance on the meaning of 37 good cause for purposes of waiving the requirement of bond. 38 39 Section 625410. (a) The court may appoint an individual, or a 40 corporation with general power to serve as trustee, as conservator 41 of the estate of a protected person. The following are entitled to 42 consideration for appointment in the order listed: [1243] 296 1 (1) a conservator, guardian of property, or other like 2 fiduciary appointed or recognized by the appropriate court of any 3 other jurisdiction in which the protected person resides; 4 (2) an individual or corporation nominated by the protected 5 person if he is fourteen or more years of age and has, in the 6 opinion of the court, sufficient mental capacity to make an 7 intelligent choice; 8 (3) an attorney in fact appointed by such protected person 9 pursuant to Section 625501; 10 (4) the spouse of the protected person; 11 (5) an adult child of the protected person; 12 (6) a parent of the protected person, or a person nominated 13 by the will of a deceased parent; 14 (7) any other relative of the protected person; 15 (8) a person nominated by the person who is caring for him 16 or paying benefits to him. 17 (b) A person in priorities (1), (4), (5), (6), or (7) may nominate 18 in writing a person to serve in his stead. With respect to persons 19 having equal priority, the court is to select the one who is best 20 qualified of those willing to serve. The court, for good cause, may 21 pass over a person having priority and appoint a person having less 22 priority or no priority. 23 (c) A probate judge or an employee of the probate court shall 24 not serve as a conservator of an estate of a protected person; 25 however, a probate judge or an employee of the probate court may 26 serve as a conservator of the estate of a family member if such 27 service does not interfere with the proper performance of the 28 probate judge’s or the employee’s official duties. For purposes of 29 this subsection, ‘family member’ means a spouse, parent, child, 30 brother, sister, niece, nephew, motherinlaw, fatherinlaw, soninlaw, 31 daughterinlaw, grandparent, or grandchild. 32 The following requirements and provisions apply to any bond 33 required under Section 625409: 34 (1) sureties shall be jointly and severally liable with the 35 conservator and with each other; 36 (2) by executing an approved bond of a conservator, the surety 37 consents to the jurisdiction of the court in any proceeding 38 pertaining to the fiduciary duties of the conservator and naming the 39 surety as a party defendant. Notice of any proceeding shall be 40 delivered to the surety or mailed to him by registered or certified 41 mail at his address as listed with the court where the bond is filed 42 and to his address as then known to the petitioner; [1243] 297 1 (3) after service of a summons and petition by a successor 2 conservator or any interested person, or upon the court’s own 3 motion, a proceeding may be initiated against a surety for breach 4 of the obligation of the bond of the conservator; 5 (4) subject to applicable statutes of limitation, the bond of the 6 conservator is not void after the first recovery but may be 7 proceeded against from time to time until the whole penalty is 8 exhausted; 9 (5) no proceeding may be commenced against the surety on 10 any matter as to which an action or proceeding against the primary 11 obligor is barred by adjudication or limitation. 12 13 REPORTER’S COMMENTS 14 As moved by the 2012 amendment, this was formerly Section 15 625412. There are no substantive changes from the prior law. 16 17 Section 625411. The court, unless for good cause stated, shall 18 require a conservator to furnish a bond conditioned upon faithful 19 discharge of all duties of the trust according to law and will 20 approve all sureties. If bond is required, the person qualifying 21 shall file a statement under oath with the court indicating his best 22 estimate of the value of the personal estate of the protected person 23 and of the income expected from the personal estate during the 24 next year, and he shall execute and file a bond with the court, or 25 give other suitable security, in an amount not less than the 26 estimate. The court shall determine that the bond is duly executed 27 by a corporate surety, or one or more individual sureties whose 28 performance is secured by pledge of personal property, mortgage 29 on real property, or other adequate security. The court may permit 30 the amount of the bond to be reduced by the value of assets of the 31 estate deposited with a domestic financial institution, as defined in 32 Section 626101, in a manner that prevents their unauthorized 33 disposition. Upon application of the conservator or another 34 interested person, or upon the court’s own motion, the court may 35 increase or reduce the amount of the bond, release sureties, 36 dispense with security or securities, or permit the substitution of 37 another bond with the same or different sureties. A denial of an 38 application by the court is not an adjudication and does not 39 preclude a formal proceeding. By accepting appointment, a 40 conservator submits personally to the jurisdiction of the court in 41 any informal or formal proceeding relating to the conservatorship 42 estate. Notice of any proceeding shall be delivered to the 43 conservator. [1243] 298 1 2 REPORTER’S COMMENTS 3 As revised by the 2012 amendment, this was formerly Section 4 625413. The section establishes that acceptance of the office of 5 conservator constitutes consent to the jurisdiction of South 6 Carolina courts. Notice of any proceeding against a person for 7 whom a conservator has been appointed must be delivered to the 8 conservator. 9 10 Section 625412. (a) The following requirements and 11 provisions apply to any bond required under Section 625411: 12 (1) Sureties shall be jointly and severally liable with the 13 conservator and with each other; 14 (2) By executing an approved bond of a conservator, the 15 surety consents to the jurisdiction of the court which issued letters 16 to the primary obligor in any proceeding pertaining to the fiduciary 17 duties of the conservator and naming the surety as a party 18 defendant. Notice of any proceeding shall be delivered to the 19 surety or mailed to him by registered or certified mail at his 20 address as listed with the court where the bond is filed and to his 21 address as then known to the petitioner; 22 (3) After service of a summons and petition by a successor 23 conservator or any interested person, or upon the court’s own 24 motion, a proceeding may be initiated against a surety for breach 25 of the obligation of the bond of the conservator; 26 (4) Subject to applicable statutes of limitation, the bond of 27 the conservator is not void after the first recovery but may be 28 proceeded against from time to time until the whole penalty is 29 exhausted. 30 (b) No proceeding may be commenced against the surety on 31 any matter as to which an action or proceeding against the primary 32 obligor is barred by adjudication or limitation. Any guardian ad 33 litem, attorney, examiner, conservator, or special conservator 34 appointed in a protective proceeding is entitled to reasonable 35 compensation from the protected person’s estate, as determined by 36 the court. In addition, the court has discretion to award, from the 37 protected person’s estate, reasonable fees and expenses to 38 attorneys involved in the proceeding resulting in a protective order. 39 40 REPORTER’S COMMENTS 41 As amended by the 2012 amendments, this was formerly Section 42 625414. This section explains how appointees are to be 43 compensated and allows attorneys to be compensated from the[1243] 299 1 estate of the protected person. This change is in response to the 2 decision in Dowaliby v. Chambless, 544 S.E.2d 646 (S.C.App. 3 2001) and is intended to provide a statutory basis for the court, in 4 its discretion, to award attorney’s fees, to be paid from the 5 protected person’s estate, to attorneys involved in the proceeding. 6 7 Section 625413. By accepting appointment, a conservator 8 submits personally to the jurisdiction of the court in any 9 proceeding relating to the estate that may be instituted by any 10 interested person. Notice of any proceeding shall be delivered to 11 the conservator, or mailed to him by registered or certified mail at 12 his address as listed in the petition for appointment or as thereafter 13 reported to the court and to his address as then known to the 14 petitioner. The court may remove a conservator for good cause or 15 accept the resignation of a conservator. After the death, 16 resignation, or removal of a conservator, the court may, if 17 necessary appoint a successor conservator who succeeds to the title 18 and powers of his predecessor. The removal of a conservator or 19 the discharge of a conservator based upon resignation and, if 20 necessary, the appointment of a successor conservator, shall be in 21 accordance with the procedure set forth in Section 625428. 22 Resignation of a conservator is not effective until approved by the 23 court. 24 25 REPORTER’S COMMENTS 26 As revised by the 2012 amendment, this was formerly Section 27 625415. The section references new procedures for the 28 appointment of a successor conservator under Section 625428. 29 The section also clarifies that a conservator’s resignation is not 30 effective until a new conservator is appointed. This precludes a 31 conservator from resigning and abandoning a protected person 32 without court action. 33 34 Section 625414. If not otherwise compensated for services 35 rendered, any visitor, lawyer, physician, conservator, or special 36 conservator appointed in a protective proceeding is entitled to 37 reasonable compensation from the estate, as determined by the 38 court. (A) In the exercise of his powers, a conservator is to act as 39 a fiduciary and shall observe the standards of care applicable to 40 trustees as described by Section 627804. 41 (B) A conservator may exercise authority only as necessitated 42 by the limitations of the protected person, and to the extent 43 possible, shall encourage the protected person to participate in[1243] 300 1 decisions, act in the person’s own behalf, and develop or regain the 2 ability to manage the protected person’s estate and business affairs. 3 (C) At any time the court determines appropriate, it may order 4 a conservator to file a plan for protecting, managing, expending, 5 and distributing the assets of the protected person’s estate. The 6 plan must be approved, disapproved, or modified by the court, in 7 informal or formal proceedings, as the court deems appropriate. 8 Nothing in this section requires the court to oversee or approve the 9 investment choices made by the conservator. The plan must be 10 based on the actual needs of the protected person, take into 11 consideration the best interest of the protected person and be 12 updated, modified and revised as the needs and circumstances of 13 the protected person require. The conservator shall include in the 14 plan: 15 (1) a statement of the extent to which the protected person 16 may be able to develop or recover the ability to manage the 17 person’s property and any planned steps to develop or restore the 18 person’s ability; 19 (2) an estimate of the duration of the conservatorship; and 20 (3) projections of expenses and resources. 21 (D) In investing an estate, selecting assets of the estate for 22 distribution, and invoking powers of revocation or withdrawal 23 available for the use and benefit of the protected person and 24 exercisable by the conservator, a conservator shall take into 25 account any estate plan of the protected person known to the 26 conservator and may examine the will and any other donative, 27 nominative, or other appointive instrument of the protected person. 28 29 REPORTER’S COMMENTS 30 As revised by the 2012 amendment, this was formerly Section 31 625417. The section establishes the duties of a conservator. This 32 section adds the requirement that a conservator consult with and 33 allow the protected person to participate in the management and 34 application of his assets. The section also introduces the concept 35 of a plan. This clarifies the authority of the probate court to 36 require the conservator to submit a plan for the administration of a 37 protected person’s estate. The section also requires the 38 conservator to take into account the protected person’s estate plan 39 when making decisions on investments, distributions, and other 40 matters affecting the protected person’s assets. This obligation 41 was unclear under prior law. 42[1243] 301 1 Section 625415. The court may remove a conservator for good 2 cause, upon notice and hearing, or accept the resignation of a 3 conservator. After his death, resignation, or removal, the court 4 may appoint another conservator. A conservator so appointed 5 succeeds to the title and powers of his predecessor. Within sixty 6 days after appointment, every conservator shall prepare and file 7 with the appointing court a complete inventory of the estate of the 8 protected person together with the conservator’s oath or 9 affirmation that it is complete and accurate to the best of the 10 conservator’s knowledge, information and belief. The court may, 11 for good cause shown, grant an extension to file the inventory. 12 The conservator shall provide a copy of the inventory to the 13 protected person’s guardian, if any, and any other persons the court 14 may direct. 15 16 REPORTER’S COMMENTS 17 As revised by the 2012 amendment, this was formerly Section 18 625418. The section requires the conservator to file an inventory 19 60 days after his appointment, unless that date is extended by the 20 probate court. The prior version of this section provided a list of 21 persons who were to be given copies of the inventory. This 22 section requires a copy be delivered only to the protected person’s 23 guardian, if he has one, and leaves to the probate court the decision 24 of who else should be given a copy. The statement under prior law 25 requiring the conservator to keep suitable records and make the 26 same available to any interested person has been eliminated. The 27 requirement to keep records and make them available is now fully 28 covered under Section 625416. 29 30 Section 625416. (a) Upon filing a petition and summons with 31 the appointing court, a person interested in the welfare of a person 32 for whom a conservator has been appointed may request an order 33 (1) requiring bond or security or additional bond or security, or 34 reducing bond, (2) requiring an accounting for the administration 35 of the trust, (3) directing distribution, (4) removing the conservator 36 and appointing a temporary or successor conservator, or (5) 37 granting other appropriate relief. The petition and summons must 38 be served upon the conservator and other persons as the court may 39 direct. 40 (b) Upon application to the appointing court, a conservator 41 may request instructions concerning his fiduciary responsibility. A 42 denial of the application by the court is not an adjudication and 43 does not preclude a formal proceeding. [1243] 302 1 (c) After notice and hearing as the court may direct, the court 2 may give appropriate instructions or make any appropriate order. 3 (A) A conservator shall report to the court regarding his 4 administration of the estate annually, upon resignation or removal, 5 on termination of the protected person’s minority or disability, 6 upon the death of the protected person, and at other times as the 7 court directs. The conservator may petition in formal proceedings 8 under section 625428 for: 9 (1) an order allowing an intermediate report of a 10 conservator, and adjudicating liabilities concerning the matters 11 adequately disclosed in the accounting; and 12 (2) an order allowing a final report and adjudicating all 13 previously unsettled liabilities relating to the conservatorship. 14 (B) A report must state or contain: 15 (1) an accounting of receipts and disbursements during the 16 period for which the report is made; 17 (2) a list of the assets of the estate under the conservator’s 18 control and the location of those assets; and 19 (3) any recommended changes in the plan for the 20 conservatorship as well as a recommendation as to the continued 21 need for conservatorship and any recommended changes in the 22 scope of the conservatorship. 23 (C)(1) The conservator shall provide a copy of the report to the 24 protected person if he can be located, has attained the age of 25 fourteen years, and has sufficient mental capacity to understand the 26 report, and to any parent or guardian with whom the protected 27 person resides. 28 (2) The court may appoint a guardian ad litem to review a 29 report or plan, interview the protected person or conservator, and 30 make any other investigation the court directs. 31 (3) In connection with a report, the court may order a 32 conservator to submit the assets of the estate to an appropriate 33 examination in any manner directed by the court. 34 35 REPORTER’S COMMENTS 36 As revised by the 2012 amendment this section expands former 37 Section 625419. It provides a more detailed description of the type 38 of report a conservator is to produce, and when the report is to be 39 produced. If further provides a more restricted listing of who is to 40 receive a copy of the report. 41[1243] 303 1 Section 625417. In the exercise of his powers, a conservator is 2 to act as a fiduciary and shall observe the standards of care 3 applicable to trustees as described by Section 627933. 4 The appointment of a conservator vests in him title as trustee to all 5 property of the protected person, presently held or thereafter 6 acquired, including title to any property theretofore held for the 7 protected person by custodians or attorneys in fact, unless 8 otherwise provided in the court’s order. Neither the appointment 9 of a conservator or the establishment of a trust in accordance with 10 Article 6, Chapter 6, Title 44, is a transfer or alienation within the 11 meaning of general provisions of any federal or state statute or 12 regulation, insurance policy, pension plan, contract, will, or trust 13 instrument, imposing restrictions upon or penalties for transfer or 14 alienation by the protected person of his rights or interest. 15 16 REPORTER’S COMMENTS 17 As revised by the 2012 amendments, this section was formerly 18 Section 625420. This section deletes the last phrase of the last 19 sentence of former Section 625420 which read ‘but this section 20 does not restrict the ability of a person to make specific provision 21 by contract or dispositive instrument or other transaction.’ The 22 rights of a protected person following the appointment of a 23 conservator is now more fully covered in Section 625407. 24 25 Section 625418. Within thirty days after his appointment, every 26 conservator shall prepare and file with the appointing court a 27 complete inventory of the estate of the protected person together 28 with his oath or affirmation that it is complete and accurate so far 29 as he is informed. The court may, for good cause shown, increase 30 the allotted time. The conservator shall provide a copy thereof to 31 the protected person if he can be located, has attained the age of 32 fourteen years, and has sufficient mental capacity to understand 33 these matters, and to any parent or guardian with whom the 34 protected person resides. The conservator shall keep suitable 35 records of his administration and exhibit the same on request of 36 any interested person. 37 Letters of conservatorship are evidence of vesting title of the 38 protected person’s assets in the conservator, unless otherwise 39 provided in the court’s order. An order terminating a 40 conservatorship transfers all assets of the estate from the 41 conservator to the protected person or his successors. Letters or 42 certificates of conservatorship and terminations of appointment 43 shall be filed and recorded in the office where conveyances of real[1243] 304 1 estate are recorded for the county in which the protected person 2 resides and in the counties of this State or other states where the 3 protected person owns real estate, as is appropriate. 4 Conservators may file letters of conservatorship with credit 5 reporting agencies. 6 7 REPORTER’S COMMENTS 8 As revised by the 2012 amendment, this section was formerly 9 Section 625421. The primary change from prior law is the express 10 permission for the conservator to file the letters of conservatorship 11 with credit reporting agencies. 12 13 Section 625419. Every conservator shall account to the court for 14 his administration of the trust annually and upon his resignation or 15 removal, and at other times as the court may direct. On 16 termination of the protected person’s minority or disability a 17 conservator shall account to the court. Upon the filing and service 18 of summons and petition for approval of accounting, an order, 19 made upon notice and hearing, allowing an intermediate account of 20 a conservator, adjudicates as to his liabilities concerning the 21 matters shown in connection with it and an order, made upon 22 notice and hearing, allowing a final account adjudicates as to all 23 unsettled liabilities of the conservator to the protected person or his 24 successors relating to the conservatorship concerning the matters 25 shown. In connection with an account, the court may require a 26 conservator to submit to a physical check of the estate in his 27 control, to be made in a manner the court may specify. 28 Any sale or encumbrance to a conservator, his spouse, agent, or 29 attorney, or any corporation, trust, or other entity in which he has a 30 substantial beneficial interest, or any transaction which is affected 31 by a substantial conflict of interest by the conservator is void 32 unless the transaction is approved by the court in a proceeding in 33 accordance with the procedure set forth in Section 625428. 34 35 REPORTER’S COMMENTS 36 As revised by the 2012 amendment this section was formerly 37 Section 625422. The wording of the former section left to the 38 probate court’s discretion the procedure to follow in approving 39 transactions involving self dealing by the conservator. The section 40 directs the court to use the procedure established in Section 41 625428. 42[1243] 305 1 Section 625420. The appointment of a conservator vests in him 2 title as trustee to all property of the protected person, presently 3 held or thereafter acquired, including title to any property 4 theretofore held for the protected person by custodians or attorneys 5 in fact. Neither the appointment of a conservator nor the 6 establishment of a trust in accordance with Title 44, Chapter 6, 7 Article 6, is a transfer or alienation within the meaning of general 8 provisions of any federal or state statute or regulation, insurance 9 policy, pension plan, contract, will, or trust instrument, imposing 10 restrictions upon or penalties for transfer or alienation by the 11 protected person of his rights or interest, but this section does not 12 restrict the ability of persons to make specific provision by 13 contract or dispositive instrument relating to a conservator. 14 A person who in good faith either assists a conservator or deals 15 with him for value in any transaction, other than those requiring a 16 court order or approval as required in this part, is protected as if 17 the conservator properly exercised the power. The fact that a 18 person knowingly deals with a conservator does not alone require 19 the person to inquire into the existence of a power or the propriety 20 of its exercise, except that restrictions on powers of conservators 21 which are endorsed on letters as provided in Section 625424 are 22 effective as to third persons. A person is not bound to see to the 23 proper application of estate assets paid or delivered to a 24 conservator. The protection here expressed extends to instances in 25 which some procedural irregularity or jurisdictional defect 26 occurred in proceedings leading to the issuance of letters. The 27 protection here expressed is not by substitution for that provided 28 by comparable provisions of the laws relating to commercial 29 transactions and laws simplifying transfers of securities by 30 fiduciaries. 31 32 REPORTER’S COMMENTS 33 As revised by the 2012 amendment, this was formerly Section 34 625423. 35 This section provides protection to bona fide purchasers for 36 value of the property of a protected person when dealing with his 37 conservator. The purpose of this section is to facilitate commercial 38 transactions by negating the traditional duty of inquiry found under 39 the common law of trusts. Even the third party’s actual knowledge 40 that the third party is dealing with a conservator does not require 41 that the third party inquire into the possession of or propriety of the 42 conservator’s exercise of a power. Nor is the third party, contrary 43 to the common law, responsible for the proper application of funds[1243] 306 1 or property delivered to the conservator. But consistent with the 2 emphasis on limited conservatorship, the protection extended to 3 third parties is not unlimited. Third parties are charged with 4 knowledge of restrictions on the authority of conservators when 5 the restrictions are endorsed on the conservator’s letters. 6 The protections provided by this section are limited by the last 7 sentence of the section which provides that this section will be 8 superseded by statutes relating to commercial transactions, such as 9 the uniform commercial code, or by statutes relating to the transfer 10 of securities. 11 12 Section 625421. Letters of conservatorship transfer all assets of 13 a protected person to the conservator. An order terminating a 14 conservatorship transfers all assets of the estate from the 15 conservator to the protected person or his successors. Letters of 16 conservatorship, and orders terminating conservatorships, shall be 17 filed and recorded in the office where conveyances of real estate 18 are recorded for the county in which the protected person resides 19 and in the other counties where the protected person owns real 20 estate. 21 (1) Except as otherwise provided in subsections (2) and (3), the 22 interest of a protected person in property vested in a conservator is 23 not transferable or assignable by the protected person. 24 (2) A person without knowledge of the conservatorship who in 25 good faith and for security or substantially equivalent value 26 receives delivery from a protected person of tangible personal 27 property of a type normally transferred by delivery of possession is 28 protected as if the protected person had valid title. 29 (3) A third party who deals with the protected person with 30 respect to property vested in a conservator is entitled to any 31 protection provided by law. 32 33 REPORTER’S COMMENTS 34 This section provides a spendthrift effect for property of the 35 protected person vested in the conservator. The section, like 36 Section 625420, is designed to allow the estate to be administered 37 with a minimum of interference, and to make clear that the 38 conservator, with respect to the property of the conservatorship, 39 occupies a role similar to that of a trustee. The section is also 40 designed to protect the estate, and hence the protected person, 41 against possibly abusive or improvident claims. But some 42 significant exceptions are recognized to protect the rights of third 43 parties. An attempted transfer or assignment by the protected[1243] 307 1 person, while ineffective to affect property rights, may give rise to 2 a claim against the protected person for restitution or damages. 3 Subsection (2) addresses a special situation. While title to 4 certain tangible personal property, such as an automobile, is 5 transferred by means of a document of title, title to most tangible 6 personal property is transferred simply by delivery of possession. 7 Sales of such property are often casual, and purchasers do not 8 usually inquire into the source of the seller’s title. Upon the 9 conservator’s appointment, title to a protected person’s tangible 10 personal property, like title to the protected person’s other assets, 11 is transferred from the protected person to the conservator. But this 12 transfer of title will normally not be known to a prospective 13 purchaser, particularly if the tangible personal property is still in 14 the protected person’s possession. The effect of this subsection is 15 to generally validate the title of such casual purchasers. The 16 conservator may contest the purchaser’s title only if the purchaser 17 failed to pay full value, the purchaser knew of the conservatorship, 18 or the purchaser, based on the circumstances, should have inquired 19 into the conservatorship’s existence. 20 Subsection (3) clarifies that this section does not supersede 21 protections third parties may have under other law, such as under 22 the statutes regulating commercial transactions. 23 24 Section 625422. Any sale or encumbrance to a conservator, his 25 spouse, agent, or attorney, or any corporation or trust in which he 26 has a substantial beneficial interest, or any transaction which is 27 affected by a substantial conflict of interest is void unless the 28 transaction is approved by the court after notice to interested 29 persons and others as directed by the court. 30 (A) Except as otherwise qualified or limited by the court in its 31 order of appointment and endorsed on the letters and certificates of 32 appointment, a conservator, acting reasonably in the best interest 33 of the protected person and in efforts to accomplish the purpose for 34 which he was appointed, may act without court authorization or 35 confirmation, to: 36 (1) invest and reinvest funds of the estate as would a trustee, 37 subject to the requirements of Section 627804; 38 (2) collect, hold, and retain assets of the estate including 39 land in another state, until, in his judgment, disposition of the 40 assets should be made, and the assets may be retained even though 41 they include an asset in which the conservator personally is 42 interested; 43 (3) receive additions to the estate; [1243] 308 1 (4) deposit estate funds in a financial institution including a 2 financial institution operated by the conservator; 3 (5) make ordinary or extraordinary repairs or alterations to 4 buildings or other structures, demolish, improve, raze or erect 5 existing or new partywalls or buildings; 6 (6) vote a security, in person or by general or limited proxy; 7 (7) pay calls, assessments, and other sums chargeable or 8 accruing against or on account of securities; 9 (8) sell or exercise stock subscription or conversion rights; 10 (9) consent, directly or through a committee or other agent, 11 to the reorganization, consolidation, merger, dissolution, or 12 liquidation of a corporation or other business enterprise whose 13 stock or shares are publicly held; 14 (10) hold a security in the name of a nominee or in other form 15 without disclosure of the conservatorship so that title to the 16 security may pass by delivery, but the conservator is liable for an 17 act of the nominee in connection with the stock so held; 18 (11) insure the assets of the estate against damage or loss, and 19 the conservator against liability with respect to third persons; 20 (12) borrow money to be repaid from estate assets or 21 otherwise; 22 (13) advance money for the protection of the estate or the 23 protected person, and for all expenses, losses, and liability 24 sustained in the administration of the estate or because of the 25 holding or ownership of estate assets and the conservator shall 26 have a lien on the estate as against the protected person for 27 advances so made; 28 (14)(a) pay or contest a claim except as limited by Section 29 625432; 30 (b) settle a claim by or against the estate of the protected 31 person by compromise, arbitration, or otherwise except as limited 32 by Section 625432; and 33 (c) release, in whole or in part, a claim belonging to the 34 estate to the extent that the claim is uncollectible; 35 (15) pay taxes, assessments, and other expenses incurred in 36 the collection, care, administration, and protection of the estate; 37 (16) allocate items of income or expense to either estate 38 income or principal, as provided by law, including creation of 39 reserves out of income for depreciation, obsolescence, or 40 amortization, or for depletion in mineral or timber properties; 41 (17) pay a sum distributable to a protected person or his 42 dependent without liability to the conservator, by paying the sum 43 to the protected person or the distributee or by paying the sum for[1243] 309 1 the use of the protected person or the distributee either to his 2 guardian or, if none, to a relative or other person with custody of 3 his person; 4 (18)(a) employ persons, including attorneys, auditors, 5 investment advisors, or agents even though they are associated 6 with the conservator to advise or assist the conservator in the 7 performance of his administrative duties; and 8 (b) to act upon their recommendation without independent 9 investigation; and instead of acting personally, to employ one or 10 more agents to perform an act of administration, whether or not 11 discretionary; 12 (19) prosecute or defend actions, claims, or proceedings in 13 any jurisdiction for the protection of estate assets and of the 14 conservator in the performance of his duties; 15 (20) execute and deliver all instruments which will 16 accomplish or facilitate the exercise of the powers vested in the 17 conservator; and 18 (21) enter into a lease of a residence for the protected person 19 for a term not exceeding one year. 20 (B) A conservator acting reasonably in the best interest of the 21 protected person and in efforts to accomplish the purpose for 22 which he was appointed may file an application with the court 23 requesting authority to: 24 (1) continue or participate in the operation of any 25 unincorporated business or other enterprise; 26 (2) acquire an undivided interest in an estate asset in which 27 the conservator, in a fiduciary capacity, holds an undivided 28 interest; 29 (3)(a) acquire or dispose of an estate asset including land in 30 another state for cash or on credit, at public or private sale; and 31 (b) to manage, develop, improve, exchange, partition, 32 change the character of, or abandon an estate asset; 33 (4)(a) subdivide, develop, or dedicate land to public use; 34 (b) to make or obtain the vacation of plats and adjust 35 boundaries; 36 (c) to adjust differences in valuation on exchange or to 37 partition by giving or receiving considerations; and 38 (d) to dedicate easements to public use without 39 consideration; 40 (5) enter into a lease as lessor or lessee, other than a 41 residential lease described in subsection (A)(21);[1243] 310 1 (6) enter into a lease or arrangement for exploration and 2 removal of minerals or other natural resources or enter into a 3 pooling or unitization agreement; 4 (7) grant an option involving disposition of an estate asset, 5 or take an option for the acquisition of any asset; 6 (8) undertake another act considered necessary or reasonable 7 by the conservator and the court for the preservation and 8 management of the estate; 9 (9) make gifts to charitable organizations and for other 10 religious, charitable, eleemosynary, or educational purposes which 11 are tax deductible as the protected person might have been 12 expected to make, in amounts which do not exceed in total for any 13 year twenty percent of the income from the estate, if and only if 14 the estate is ample to provide for the purposes implicit in the 15 distributions authorized by Section 625423; 16 (10)(a) encumber, mortgage, or pledge an asset for a term 17 extending within or beyond the term of the conservatorship; 18 (b) pay a reasonable fee to the conservator for services 19 rendered; and 20 (c) adopt an appropriate budget for routine expenditures of 21 the protected person; 22 (11) reimburse the conservator for monies paid to or on behalf 23 of the protected person; 24 (12) exercise or release the primary respondent’s powers as 25 trustee, personal representative, custodian for minors, conservator, 26 or donee of a power of appointment; 27 (13) enter into contracts; and 28 (14) exercise options of the primary respondent to purchase 29 securities or other property. 30 (C)(1) The court may approve or deny any application for 31 approval filed by the conservator under item (3), without notice, or 32 may, in its discretion require the commencement of a formal 33 proceeding under Section 625428. 34 (2) A conservator may apply to the court for ratification of 35 any action taken in good faith. The court may approve or deny the 36 application, without notice, or may, in its discretion require the 37 commencement of a formal proceeding under Section 625428. 38 (3) A conservator may request instructions concerning the 39 conservator’s fiduciary responsibility and may make requests for 40 expenditure of funds for the protected person by filing an 41 application with the court, or by commencing a formal proceeding 42 in accordance with Section 625428. If application is made, the[1243] 311 1 court may approve or deny the application without notice, or may, 2 in its discretion require formal proceedings. 3 4 REPORTER’S COMMENTS 5 As revised by the 2012 amendment, this section was formerly 6 section 625424. This section sets out the powers of a conservator 7 in administration. 8 Subsection (A) sets out twentyone specifically itemized powers 9 which a conservator has and may exercise without court 10 authorization or confirmation, unless such powers have been 11 limited by the court. There is a requirement that the conservator 12 must act reasonably in the best interest of the protected person. 13 Subsection (A)(1) grants the conservator authority to invest and 14 reinvest funds of the estate as would a trustee and imposes the 15 requirements of Section 627804. Subsection (A)(21) grants the 16 power to ‘enter into a lease of a residence for the protected person 17 for a term not exceeding one year.’ 18 Subsection (B) requires the conservator to file an application to 19 the court requesting authority to exercise any of the fourteen 20 powers set forth. Upon the filing of such an application, the court 21 may approve or deny without notice or may require the 22 conservator to commence a formal proceeding under section 23 625428. 24 Subsection (C)(2) allows the conservator to file an application 25 for ratification of an action taken in good faith. The court may 26 approve or deny without notice or may require the conservator to 27 commence a formal proceeding under Section 625428. 28 Subsection (C)(3) allows the conservator to file an application 29 requesting instructions or expenditures or to commence a formal 30 proceeding under Section 625428. If an application is filed, the 31 court may approve or deny without notice or may require a formal 32 proceeding under Section 625428. 33 34 Section 625423. A person who in good faith either assists a 35 conservator or deals with him for value in any transaction other 36 than those requiring a court order as provided in Sections 625408 37 and 625422, is protected as if the conservator properly exercised 38 the power. The fact that a person knowingly deals with a 39 conservator does not alone require the person to inquire into the 40 existence of a power or the propriety of its exercise, except that 41 restrictions on powers of conservators which are endorsed on 42 letters as provided in Section 625426 are effective as to third 43 persons. A person is not bound to see to the proper application of[1243] 312 1 estate assets paid or delivered to a conservator. The protection 2 here expressed extends to instances in which some procedural 3 irregularity or jurisdictional defect occurred in proceedings leading 4 to the issuance of letters. The protection here expressed is not by 5 substitution for that provided by comparable provisions of the laws 6 relating to commercial transactions and laws simplifying transfers 7 of securities by fiduciaries. (A) A conservator may expend or 8 distribute sums from the estate, without further court authorization, 9 for the health, education, maintenance and support of the protected 10 person and his dependents in accordance with the following 11 principles: 12 (1) The expenditures must be consistent with the 13 courtapproved plan under section 625414, if any. 14 (2) The conservator is to consider recommendations relating 15 to the appropriate standard of health, education, maintenance and 16 support for the protected person made by a parent or guardian, if 17 any. The conservator may not be surcharged for sums paid to 18 persons or organizations furnishing health, education, maintenance 19 or support to the protected person pursuant to the 20 recommendations of a parent or guardian unless the conservator 21 has actual knowledge that the parent or guardian is deriving 22 personal financial benefit therefrom, including relief from any 23 personal duty of support, or unless the recommendations are 24 clearly not in the best interests of the protected person. 25 (3) The conservator is to expend or distribute sums 26 reasonably necessary for the health, education, maintenance and 27 support of the protected person with due regard to: (i) the size of 28 the estate, the probable duration of the conservatorship and the 29 likelihood that the protected person, at some future time, may be 30 fully able to manage his affairs and the estate which has been 31 conserved for him, (ii) the accustomed standard of living of the 32 protected person and members of his household, and (iii) other 33 funds or sources used for the support of the protected person. 34 (4) The conservator may expend funds of the estate for the 35 support of persons legally dependent on the protected person. 36 (B)(1) Funds expended under this section may be paid by the 37 conservator to any person, including the protected person, to 38 reimburse for expenditures which the conservator might have 39 made, or in advance for services to be rendered to the protected 40 person when it is reasonable to expect that they will be performed 41 and where advance payments are customary or reasonably 42 necessary under the circumstances. [1243] 313 1 (2) If the conservator determines that it is reasonably 2 necessary to supply funds to the protected person, the conservator 3 may provide such funds to the protected person through reasonable 4 financial methods, including, but not limited to, checks, currency, 5 debit card, or allowance. All funds so provided shall be reported 6 on the accountings as required by the court. 7 (C) When a person who is incapacitated solely by reason of 8 minority attains the age of majority or is emancipated by the 9 family court, his conservator, after meeting expenses of 10 administration, shall pay over and distribute all remaining funds 11 and properties to the former protected person as soon as 12 practicable pursuant to Section 625428(4), unless a: 13 (1) protective order has been issued because the protected 14 person is incapacitated; or 15 (2) protective proceeding or other petition with regard to the 16 protected person is pending. 17 A protected person under the age of eighteen who is married 18 shall remain a minor for purposes of this subsection until the 19 person attains the age of the age of majority or emancipation. 20 (D) When the conservator is satisfied that a protected person’s 21 incapacity has ceased, the conservator shall petition the court, and 22 after determination by the court that the incapacity has ceased in 23 accordance with Section 625428, the conservator, after paying 24 outstanding expenses of administration and any claims approved 25 by the court, shall pay over and distribute all remaining funds and 26 properties to the former protected person as soon as practicable. 27 (E) When the conservator is satisfied that a protected person’s 28 estate has a value of less than ten thousand dollars, he may file an 29 application with the court for termination of the conservatorship 30 and permission to pay the remaining funds and properties to or for 31 benefit of the protected person in accordance with Section 625103. 32 The court may approve or deny the application, without notice, or 33 may, in its discretion require the commencement of a formal 34 proceeding under Section 625428. If the court determines that the 35 protected person’s estate has a value of less than ten thousand 36 dollars, the court may on its own accord, in its discretion, 37 terminate the conservatorship and order the conservator, after 38 paying outstanding expenses of administration and any claims 39 approved by the court, to pay over and distribute all remaining 40 funds and properties to or for the protected person as soon as 41 practicable in accordance with Section 625103. 42 (F)(1) If a protected person dies, the conservator shall deliver to 43 the court for safekeeping any will of the deceased protected person[1243] 314 1 which may have come into the conservator’s possession, inform 2 the personal representative or a beneficiary named in the will of 3 the delivery, and retain the estate for delivery to a duly appointed 4 personal representative of the deceased protected person or other 5 persons entitled thereto. If after thirty days from the death of the 6 protected person no person has been appointed personal 7 representative and no application or petition for appointment is 8 pending in the court, the conservator may apply for appointment as 9 personal representative. The conservator shall deliver the estate of 10 the deceased protected person to his duly appointed personal 11 representative or other persons entitled thereto under the law. 12 (2) A person shall not be disqualified as a personal 13 representative of a deceased protected person solely by reason of 14 his having been appointed or acting as conservator for that 15 protected person. 16 17 REPORTER’S COMMENTS 18 As revised by the 2012 amendments, this section was formerly 19 section 625425. This section sets out the principles to be followed 20 by the conservator in making distributions. Subsection (1)(A) 21 requires that if there is a court approved plan under section 22 625414, expenditures must be consistent with that plan. 23 Subsection (B)(2) is an addition allowing the conservator, when 24 reasonably necessary, to allow the protected person access to funds 25 through mechanisms including a checking account, a debit card, or 26 cash. 27 Subsection (C) directs distribution to a former minor upon 28 attaining majority unless there is an existing protective order based 29 on incapacity or a protective proceeding or other petition is 30 pending. 31 Subsection (D) provides that the conservator shall petition the 32 court for a redetermination of capacity of the protected person if 33 the conservator is satisfied that the incapacity has ceased. 34 Subsection (E) allows the conservator to file an application for 35 termination of the conservatorship if the conservator is satisfied 36 that the protected person’s estate is less than $10,000.00. Even 37 without application, the court may terminate the conservatorship if 38 the value is less than $10,000.00. 39 Subsection (F)(1) provides for distribution at the death of the 40 protected person. The conservator is required to deliver any will of 41 the protected person in his possession to the court and to notify the 42 personal representative or a beneficiary that he has done so.[1243] 315 1 Subsection (F)(2) provides that previous service as a conservator 2 for the protected person does not disqualify the conservator from 3 serving as personal representative of the estate of the protected 4 person. 5 6 Section 625424. (A) A conservator has power without court 7 authorization or confirmation to invest and reinvest funds of the 8 estate as would a trustee. 9 (B) A conservator, acting reasonably in efforts to accomplish 10 the purpose for which he was appointed, may act without court 11 authorization or confirmation, to: 12 (1) collect, hold, and retain assets of the estate including 13 land in another state, until, in his judgment, disposition of the 14 assets should be made, and the assets may be retained even though 15 they include an asset in which he personally is interested; 16 (2) receive additions to the estate; 17 (3) invest and reinvest estate assets in accordance with 18 subsection (A); 19 (4) deposit estate funds in a bank including a bank operated 20 by the conservator; 21 (5) make ordinary or extraordinary repairs or alterations in 22 buildings or other structures, to demolish improvement, to raze 23 existing or erect new partywalls or buildings; 24 (6) vote a security, in person or by general or limited proxy; 25 (7) pay calls, assessments, and other sums chargeable or 26 accruing against or on account of securities; 27 (8) sell or exercise stock subscription or conversion rights; 28 consent, directly or through a committee or other agent, to the 29 reorganization, consolidation, merger, dissolution, or liquidation of 30 a corporation or other business enterprise whose stock or shares 31 are publicly held; 32 (9) hold a security in the name of a nominee or in other form 33 without disclosure of the conservatorship so that title to the 34 security may pass by delivery, but the conservator is liable for an 35 act of the nominee in connection with the stock so held; 36 (10) insure the assets of the estate against damage or loss, and 37 the conservator against liability with respect to third persons; 38 (11) borrow money to be repaid from estate assets or 39 otherwise; advance money for the protection of the estate or the 40 protected person, and for all expenses, losses, and liability 41 sustained in the administration of the estate or because of the 42 holding or ownership of estate assets and the conservator has a lien 43 on the estate as against the protected person for advances so made; [1243] 316 1 (12) pay or contest a claim except as limited by Section 2 625433; settle a claim by or against the estate of the protected 3 person by compromise, arbitration, or otherwise except as limited 4 by Section 625433; and release, in whole or in part, a claim 5 belonging to the estate to the extent that the claim is uncollectible; 6 (13) pay taxes, assessments, and other expenses incurred in 7 the collection, care, administration, and protection of the estate; 8 (14) allocate items of income or expense to either estate 9 income or principal, as provided by law, including creation of 10 reserves out of income for depreciation, obsolescence, or 11 amortization, or for depletion in mineral or timber properties; 12 (15) pay a sum distributable to a protected person or his 13 dependent without liability to the conservator, by paying the sum 14 to the distributee or by paying the sum for the use of the distributee 15 either to his guardian or if none, to a relative or other person with 16 custody of his person; 17 (16) employ persons, including attorneys, auditors, 18 investment advisors, or agents even though they are associated 19 with the conservator to advise or assist him in the performance of 20 his administrative duties; to act upon their recommendation 21 without independent investigation; and instead of acting 22 personally, to employ one or more agents to perform an act of 23 administration, whether or not discretionary; 24 (17) prosecute or defend actions, claims, or proceedings in 25 any jurisdiction for the protection of estate assets and of the 26 conservator in the performance of his duties; and 27 (18) execute and deliver all instruments which will 28 accomplish or facilitate the exercise of the powers vested in the 29 conservator. 30 (C) A conservator acting reasonably in efforts to accomplish 31 the purpose for which he was appointed may act with court 32 approval to: 33 (1) continue or participate in the operation of any 34 unincorporated business or other enterprise; 35 (2) acquire an undivided interest in an estate asset in which 36 the conservator, in a fiduciary capacity, holds an undivided 37 interest; 38 (3) acquire or dispose of an estate asset including land in 39 another state for cash or on credit, at public or private sale; and to 40 manage, develop, improve, exchange, partition, change the 41 character of, or abandon an estate asset; 42 (4) subdivide, develop, or dedicate land to public use; to 43 make or obtain the vacation of plats and adjust boundaries; to[1243] 317 1 adjust differences in valuation on exchange or to partition by 2 giving or receiving considerations; and to dedicate easements to 3 public use without consideration; 4 (5) enter into a lease as lessor or lessee with or without 5 option to purchase or renew for a term within or extending beyond 6 the term of the conservatorship; 7 (6) enter into a lease or arrangement for exploration and 8 removal of minerals or other natural resources or enter into a 9 pooling or unitization agreement; 10 (7) grant an option involving disposition of an estate asset, 11 to take an option for the acquisition of any asset; 12 (8) undertake another act considered necessary or reasonable 13 by the conservator and the court for the preservation and 14 management of the estate; 15 (9) make gifts to charitable organizations and for other 16 religious, charitable, eleemosynary, or educational purposes which 17 are tax deductible as the protected person might have been 18 expected to make, in amounts which do not exceed in total for any 19 year twenty percent of the income from the estate, if and only if 20 the estate is ample to provide for the purposes implicit in the 21 distributions authorized by Section 625425; 22 (10) encumber, mortgage, or pledge an asset for a term 23 extending within or beyond the term of the conservatorship. 24 The court may, at the time of appointment or at any time 25 thereafter, limit the powers of a conservator otherwise conferred 26 by Sections 625422 and 625423, or previously conferred by the 27 court, and may at any time relieve the conservator of any limitation 28 previously imposed by the court. If the court limits any power 29 conferred on the conservator by Section 625422 or Section 30 625423, the limitation shall be endorsed upon his letters of 31 appointment and upon any certificate evidencing his appointment. 32 Notwithstanding the foregoing, the failure to endorse any 33 limitation upon the conservator’s letters or certificate shall not 34 relieve the conservator of the limitation imposed by order of the 35 court. 36 37 REPORTER’S COMMENTS 38 As revised by the 2012 amendments, this section was former 39 Section 625426. This section permits the court to limit the powers 40 of a conservator or relieve the conservator of a previously imposed 41 limitation. It further provides that limitations be endorsed on the 42 letters of appointment, but failure to so endorse does not relieve 43 the conservator of the limitations.[1243] 318 1 2 Section 625425. (a) A conservator may expend or distribute 3 sums from the principal of the estate without court authorization or 4 confirmation for the support, education, care, or benefit of the 5 protected person and his dependents in accordance with the 6 following principles: 7 (1) The conservator is to consider recommendations relating 8 to the appropriate standard of support, education, and benefit for 9 the protected person made by a parent or guardian, if any. He may 10 not be surcharged for sums paid to persons or organizations 11 actually furnishing support, education, or care to the protected 12 person pursuant to the recommendations of a parent or guardian of 13 the protected person unless he knows that the parent or guardian is 14 deriving personal financial benefit therefrom, including relief from 15 any personal duty of support, or unless the recommendations are 16 clearly not in the best interests of the protected person. 17 (2) The conservator is to expend or distribute sums 18 reasonably necessary for the support, education, care, or benefit of 19 the protected person with due regard to (i) the size of the estate, the 20 probable duration of the conservatorship and the likelihood that the 21 protected person, at some future time, may be fully able to manage 22 his affairs and the estate which has been conserved for him; (ii) 23 the accustomed standard of living of the protected person and 24 members of his household; (iii) other funds or sources used for the 25 support of the protected person. 26 (3) The conservator may expend funds of the estate for the 27 support of persons legally dependent on the protected person. 28 (4) Funds expended under this subsection may be paid by 29 the conservator to any person, including the protected person, to 30 reimburse for expenditures which the conservator might have 31 made, or in advance for services to be rendered to the protected 32 person when it is reasonable to expect that they will be performed 33 and where advance payments are customary or reasonably 34 necessary under the circumstances. 35 (b) When a minor who has not been adjudged disabled under 36 Section 625401(2) attains his majority or is emancipated, his 37 conservator, after meeting all prior claims and expenses of 38 administration, shall pay over and distribute all funds and 39 properties to the former protected person as soon as possible. An 40 individual under the age of eighteen who is also married shall 41 remain a minor for purposes of this subsection until attaining 42 majority or emancipation. [1243] 319 1 (c)(1) When the conservator is satisfied that a protected 2 person’s disability (other than minority) has ceased, then he shall 3 petition the court, and after determination by the court that the 4 disability has ceased in accordance with Section 625430, the 5 conservator, after meeting all prior claims and expenses of 6 administration shall pay over and distribute all funds and 7 properties to the former protected person as soon as possible. 8 (2) When the conservator is satisfied that a protected 9 person’s estate has a value of less than five thousand dollars, then 10 he may petition the court, and after determination by the court that 11 the protected person’s estate has a value of less than five thousand 12 dollars, the court in its discretion may terminate the 13 conservatorship and order the conservator, after meeting all prior 14 claims and expenses of administration, to pay over and distribute 15 all funds and properties to or for the protected person as soon as 16 possible and in accordance with Section 625103. 17 (d) If a protected person dies, the conservator shall deliver to 18 the court for safekeeping any will of the deceased protected person 19 which may have come into his possession, inform the executor or a 20 beneficiary named therein that he has done so, and retain the estate 21 for delivery to a duly appointed personal representative of the 22 decedent or other persons entitled thereto. If after thirty days from 23 the death of the protected person no other person has been 24 appointed personal representative and no application or petition for 25 appointment is before the court, the conservator may apply to 26 exercise the powers and duties of a personal representative so that 27 he may proceed to administer and distribute the decedent’s estate. 28 Upon application for an order granting the powers of a personal 29 representative to a conservator, after notice to any person 30 demanding notice under Section 623204 and to any person 31 nominated executor in any will of which the applicant is aware, the 32 court may order the conferral of the power upon determining that 33 there is no objection, and endorse the letters of the conservator to 34 note that the formerly protected person is deceased and that the 35 conservator has acquired all of the powers and duties of a personal 36 representative. The making and entry of an order under this 37 section shall have the effect of an order of appointment of a 38 personal representative as provided in Section 623308 and Parts 6 39 through 10 of Article 3 [Sections 623601 et seq. through Sections 40 6231001 et seq.] except that estate in the name of the conservator, 41 after administration, may be distributed to the decedent’s 42 successors without prior retransfer to the conservator as personal 43 representative. [1243] 320 1 (e) A person shall not be disqualified as an executor of a 2 deceased protected person solely by reason of his having been 3 appointed and acting conservator of that protected person. 4 In investing the estate, and in selecting assets of the estate for 5 distribution, in utilizing powers of revocation or withdrawal 6 available for the support of the protected person, and exercisable 7 by the conservator or the court, the conservator and the court must 8 take into account any known estate plan of the protected person, 9 any revocable trust of which the protected person is settlor, and 10 any contract, transfer, or joint ownership arrangement with 11 provisions for payment or transfer of benefits or interests at his 12 death to another or others which the protected person may have 13 originated. 14 15 REPORTER’S COMMENTS 16 As revised by the 2012 amendment, this section was formerly 17 Section 625427 and provides that the conservator and the court 18 must take into account any known estate plan of the protected 19 person, in making investments, in distribution of assets, and in 20 exercising certain other powers. 21 22 Section 625426. The court may, at the time of appointment or 23 later, limit the powers of a conservator otherwise conferred by 24 Sections 625424 and 625425, or previously conferred by the court, 25 and may at any time relieve him of any limitation. If the court 26 limits any power conferred on the conservator by Section 625424 27 or Section 625425, the limitation shall be endorsed upon his letters 28 of appointment and upon any certificate evidencing his 29 appointment. 30 If a creditor has notice of appointment of a conservator, all 31 pleadings must be served upon the conservator. Within thirty days 32 after the conservator becomes aware of a proceeding in which the 33 protected person is a party, the conservator must notify the court. 34 The conservator may request instructions from the court as 35 necessary. 36 37 REPORTER’S COMMENTS 38 As revised by the 2012 amendment, this section was formerly 39 Section 625428 which has been substantially modified. If the 40 creditor has notice that there is a conservator appointed, the 41 conservator must be served with the pleadings. When the 42 conservator becomes aware of such a proceeding, he must notify 43 the court and may seek instructions.[1243] 321 1 2 Section 625427. In investing the estate, and in selecting assets 3 of the estate for distribution under subsections (a) and (b) of 4 Section 625425, in utilizing powers of revocation or withdrawal 5 available for the support of the protected person, and exercisable 6 by the conservator or the court, the conservator and the court 7 should take into account any known estate plan of the protected 8 person, any revocable trust of which he is settlor, and any contract, 9 transfer, or joint ownership arrangement with provisions for 10 payment or transfer of benefits or interests at his death to another 11 or others which he may have originated. 12 (1) Unless otherwise provided in the contract, a conservator is 13 not individually liable on a contract properly entered into in his 14 fiduciary capacity in the course of administration of the estate 15 unless he fails to reveal his representative capacity and identify the 16 estate in the contract. 17 (2) The conservator is individually liable for obligations 18 arising from ownership or control of property of the estate or for 19 torts committed in the course of administration of the estate only if 20 he is personally at fault. 21 (3) Claims based on contracts entered into by a conservator in 22 his fiduciary capacity, on obligations arising from ownership or 23 control of the estate, or on torts committed in the course of 24 administration of the estate may be asserted against the estate by 25 proceeding against the conservator in his fiduciary capacity, 26 whether or not the conservator is individually liable. 27 (4) Any question of liability between the estate and the 28 conservator individually may be determined in a proceeding for 29 accounting, surcharge, or indemnification, or other appropriate 30 proceeding or action. 31 32 REPORTER’S COMMENTS 33 As amended by the 2012 amendment, this section was formerly 34 section 625429. 35 Subsection (1) relieves a conservator of personal liability for 36 contracts properly entered into in his fiduciary capacity unless he 37 fails to reveal his representative capacity and identify the estate in 38 the contract. 39 Subsection (2) relieves the conservator from obligations arising 40 from ownership or control of property and tort liability unless he is 41 personally at fault.[1243] 322 1 Subsection (3) states that claims may be asserted by proceeding 2 against the conservator in his fiduciary capacity, whether or not he 3 is individually liable. 4 Subsection (4) addresses how questions of liability between the 5 conservator and the estate may be determined. 6 7 Section 625428. (a)(1) A conservator must pay from the estate 8 all just claims against the estate and against the protected person 9 arising before or after the conservatorship upon their presentation 10 and allowance. A claim may be presented by either of the 11 following methods: 12 (i) the claimant may deliver or mail to the conservator a 13 written statement of the claim indicating its basis, the name and 14 address of the claimant, and the amount claimed; 15 (ii) the claimant may file a written statement of the claim, 16 in the form prescribed by rule, with the clerk of court and deliver 17 or mail a copy of the statement to the conservator. 18 (2) A claim is considered presented on the first to occur of 19 receipt of the written statement of claim by the conservator or the 20 filing of the claim with the court. Every claim which is disallowed 21 in whole or part by the conservator is barred so far as not allowed 22 unless the claimant files and properly serves a summons and 23 petition for allowance in the court or commences a proceeding 24 against the conservator not later than thirty days after the mailing 25 of the notice of disallowance or partial disallowance if the notice 26 warns the claimant of the impending bar. The presentation of a 27 claim tolls any statute of limitation relating to the claim until thirty 28 days after its disallowance. 29 (b) A claimant whose claim has not been paid may petition, by 30 service of the summons and the petition, the court for 31 determination of his claim at any time before it is barred by the 32 applicable statute of limitation, and, upon due proof, procure an 33 order for its allowance and payment from the estate. If a 34 proceeding is initiated against a protected person, the moving party 35 must give notice of the proceeding to the conservator if the 36 outcome is to constitute a claim against the estate. 37 (c) If it appears that the estate in conservatorship is likely to be 38 exhausted before all existing claims are paid, preference must be 39 given to prior claims for the care, maintenance, and education of 40 the protected person or his dependents and existing claims for 41 expenses of administration. [1243] 323 1 (1)(A) Upon filing of a summons and petition with the 2 appointing court, the protected person, the conservator, or 3 interested person may request an order: 4 (i) requiring bond or security or additional bond or 5 security, or reducing bond; 6 (ii) requiring an accounting for the administration of the 7 conservatorship; 8 (iii) directing distributions from the protected person’s 9 estate when the conservator has denied the request and has 10 declined to file an application for expenditure; 11 (iv) removing the conservator and appointing a temporary 12 or successor conservator; 13 (v) limiting or expanding the conservatorship; 14 (vi) adjudicating liabilities pursuant to Section 625416(1); 15 (vii) authorizing a transaction involving a conflict of 16 interest pursuant to Section 625419; 17 (viii) authorizing or approving an action of the 18 conservator pursuant to Section 625422(B); 19 (ix) accepting the resignation of the conservator and 20 appointing a temporary or successor conservator, if necessary; 21 (x) terminating a conservatorship for reasons other than 22 death or attaining majority; and 23 (xi) granting other appropriate relief. 24 (B) The procedure for obtaining orders subsequent to 25 appointment is as follows: 26 (i) Upon the filing of a summons and petition, the 27 summons and petition shall be served upon the protected person, 28 the conservator, the guardian, if any, the spouse of the protected 29 person, the adult children whose whereabouts are reasonably 30 ascertainable of the protected person, the parents of the protected 31 person, if there is no spouse or adult child, any person who, under 32 section 625408, has equal or greater priority for appointment as the 33 appointed conservator, any person with whom the protected person 34 resides outside of a health care facility, group home, homeless 35 shelter, or prison, and if the conservatorship is for the purpose of 36 receiving veterans’ benefits, the Secretary of the Department of 37 Veterans’ Affairs. 38 (ii) The petition shall state the relief sought and the 39 reasons the relief is necessary, desirable or beneficial for the 40 protected person. 41 (iii) After the filing of the summons and petition with the 42 court and service upon the protected person, the court shall appoint[1243] 324 1 a guardian ad litem for the protected person, with the duties and 2 responsibilities set forth in Section 625830. 3 (iv) As soon as the interests of justice may allow, but after 4 the time for response to the petition has elapsed as to all parties 5 served, the court shall hold a hearing on the merits of the petition. 6 The protected person and all parties not in default must be given 7 notice of the hearing as provided in Section 621401. Nothing in 8 this section prohibits all parties not in default from waiving a 9 hearing on a petition and the court for good cause may entertain a 10 consent order on any petition. 11 (v) The court may issue interim orders, for a period not to 12 exceed ninety days, regarding the assets of the protected person 13 until a hearing is held and a final order is issued. 14 (2) Upon the death of the protected person, the conservator or 15 the personal representative of the deceased protected person’s 16 estate may make application for the termination of the 17 conservatorship and approval of the final accounting of the 18 administration of the conservatorship estate. Notice must be given 19 to those persons as the court may direct. 20 (3) Upon the death of the protected person, the conservator 21 may make application for the approval of payment of funeral 22 expenses. Notice must be given to those persons as the court may 23 require. 24 (4) Subject to the provisions of Section 625423(C), upon the 25 protected person’s attaining the age of majority or being 26 emancipated by the family court, the conservator shall make 27 application for the termination of the conservatorship and the 28 approval of the final accounting of the administration of the 29 conservatorship. Notice must be given to the former protected 30 person and such other persons as the court directs. Following 31 approval of the accounting, final distribution of the remaining 32 funds and properties as ordered by the court and the filing of proof 33 of distribution, the court will terminate the conservatorship. 34 (5) Following the procedure set forth in subsection (B)(1), the 35 protected person or any person interested in his welfare may 36 petition for an order adjudicating or readjudicating the protected 37 person’s incapacity. The court may issue an order to specify a 38 minimum period, not exceeding one year, during which no petition 39 for adjudication that the protected person is no longer 40 incapacitated may be filed without special leave of the court. 41 Subject to this restriction, the protected person or the conservator 42 may petition the court that the protected person is no longer[1243] 325 1 incapacitated, and for termination of the protective order, which 2 must be proved by a preponderance of the evidence. 3 4 REPORTER’S COMMENTS 5 As revised by the 2012 amendment, this section was formerly 6 Section 625430, which has been significantly expanded. 7 Subsection (1) addresses the procedure for requesting an order 8 after the initial establishment of the conservatorship. 9 Subsection (2) allows for termination of a conservatorship upon 10 the death of the protected person by application to the court. The 11 conservator may also apply for approval of payment of funeral 12 expenses. 13 Subsection (4) addresses petitions for adjudication and 14 readjudication of incapacity. The court may restrict the filing of a 15 petition for adjudication. 16 17 Section 625429. (a) Unless otherwise provided in the contract, 18 a conservator is not individually liable on a contract properly 19 entered into in his fiduciary capacity in the court of administration 20 of the estate unless he fails to reveal his representative capacity 21 and identify the estate in the contract. 22 (b) The conservator is individually liable for obligations 23 arising from ownership or control of property of the estate or for 24 torts committed in the course of administration of the estate only if 25 he is personally at fault. 26 (c) Claims based on contracts entered into by a conservator in 27 his fiduciary capacity, on obligations arising from ownership or 28 control of the estate, or on torts committed in the course of 29 administration of the estate may be asserted against the estate by 30 proceeding against the conservator in his fiduciary capacity, 31 whether or not the conservator is individually liable therefor. 32 (d) Any question of liability between the estate and the 33 conservator individually may be determined in a proceeding for 34 accounting, surcharge, or indemnification, or other appropriate 35 proceeding or action. 36 (A) Any person indebted to a protected person, or having 37 possession of property of or an instrument evidencing a debt, 38 stock, or chose in action belonging to a protected person may pay 39 or deliver to a conservator, guardian of the estate, or other like 40 fiduciary appointed by a court of the state of residence of the 41 protected person, upon being presented with proof of his 42 appointment and an affidavit made by him or on his behalf stating: [1243] 326 1 (1) that no protective proceeding relating to the protected 2 person is pending in this State; and 3 (2) that the foreign conservator is entitled to payment or to 4 receive delivery. 5 (B) If the person to whom the affidavit is presented is not 6 aware of any protective proceeding pending in this State, payment 7 or delivery in response to the demand and affidavit discharges the 8 debtor or possessor. 9 10 REPORTER’S COMMENTS 11 This section provides for payment of debts and delivery of 12 property to a foreign conservator without local proceedings. 13 14 Section 625430. (A) The protected person, the conservator, or 15 any other interested person, by service of a summons and petition, 16 may request that the court terminate the conservatorship. A 17 protected person seeking termination is entitled to the same rights 18 and procedures as in an original proceeding for a protective order. 19 The court, upon determining after notice and hearing, that the 20 disability of the protected person has ceased, may terminate the 21 conservatorship. 22 (B) The protected person, his personal representative, or the 23 conservator may make application for the termination of the 24 conservatorship when the protected person has attained his 25 majority or if the protected person is deceased. Notice must be 26 given to those persons as the court may direct. 27 (A) If a conservator has not been appointed in this State and a 28 petition for a protective order is not pending in this State, a 29 conservator appointed in another state, after giving notice to the 30 appointing court of an intent to register, may register the protective 31 order in this State by filing in any appropriate county of this state a 32 certified copy of the letters of office in the register of deeds and 33 also filing a clocked copy of the letters of office, a certified copy 34 of the order, and any bond in the probate court. 35 (B) Upon registration of a protective order from another state, 36 the conservator may exercise in this State all powers authorized in 37 the order of appointment except as prohibited under the laws of 38 this State, including maintaining actions and proceedings in this 39 State and, if the guardian or conservator is not a resident of this 40 state, subject to any conditions imposed upon nonresident parties. 41 (C) A court of this State may grant any relief available under 42 this part and other law of this State to enforce a registered order. 43[1243] 327 1 REPORTER’S COMMENTS 2 As revised by the 2012 amendment, this section was formerly 3 625432. It matches Sections 625717 and 625718 which address 4 registration of a protective order from another state when the 5 protected person is an adult. It is included here to clarify that this 6 would also apply to protective orders for minors. 7 8 Section 625431. Any person indebted to a protected person, or 9 having possession of property of or an instrument evidencing a 10 debt, stock, or chose in action belonging to a protected person may 11 pay or deliver to a conservator, guardian of the estate, or other like 12 fiduciary appointed by a court of the state of residence of the 13 protected person, upon being presented with proof of his 14 appointment and an affidavit made by him or on his behalf stating: 15 (1) that no protective proceeding relating to the protected 16 person is pending in this State; 17 (2) that the foreign conservator is entitled to payment or to 18 receive delivery. 19 If the person to whom the affidavit is presented is not aware of 20 any protective proceeding pending in this State, payment or 21 delivery in response to the demand and affidavit discharges the 22 debtor or possessor. 23 (A) For purposes of this section: 24 (1) The term ‘VA’ means the United States Department of 25 Veterans’ Affairs or its successor. 26 (2) The terms ‘estate’ and ‘income’ shall include only 27 monies received by a conservator from the VA, all real and 28 personal property acquired in whole or in part with such monies, 29 and all earnings, interest, and profits derived from such monies. 30 (3) The term ‘benefits’ means all monies payable by the 31 United States through the VA. 32 (4) The term ‘Secretary’ means the Secretary of the United 33 States Department of Veterans’ Affairs or its successor. 34 (5) The term ‘protected person’ means a beneficiary of the 35 VA. 36 (6) The term ‘conservator’ means any person acting as a 37 fiduciary for any protected person. 38 (B)(1) Whenever, pursuant to any law of the United States or 39 regulation of the VA, the secretary requires, prior to payment of 40 benefits, that a conservator be appointed for a protected person, the 41 appointment shall be made in the manner provided in Section 42 625403, except to the extent this section requires otherwise. The 43 petition shall show that the person to be protected has been rated[1243] 328 1 incapable of handling his estate and monies on examination by the 2 VA in accordance with the laws and regulations governing the VA. 3 (2) When a petition is filed for the appointment of a 4 conservator and a certificate of the Secretary or his representative 5 is filed setting forth the fact that the appointment of a conservator 6 is a condition precedent to the payment of any monies due the 7 protected person by the VA, the certificate shall be prima facie 8 evidence of the necessity for the appointment and no examiner’s 9 report shall be required. 10 (C)(1) Except as hereinafter provided or as otherwise permitted 11 by the VA, no person shall serve as conservator of any protected 12 person if such proposed conservator shall at that time be acting as 13 conservator for five protected persons. Upon presentation of a 14 petition by an attorney of the VA under this section alleging that a 15 conservator is acting in a fiduciary capacity for more than five 16 protected persons and requesting his discharge as a conservator of 17 any protected person for that reason, the court, upon proof 18 substantiating the petition, shall require a final accounting 19 forthwith from the conservator and shall discharge such 20 conservator in all requested cases. The limitations of this section 21 shall not apply when the conservator is a bank or trust company 22 acting for protected persons’ estates. 23 (2) The conservator shall file such inventory, accountings, 24 exhibits or other pleadings with the court as provided by law and 25 copies shall be filed with the VA. 26 (3) Every conservator shall invest the surplus funds in his 27 protected person’s estate in such securities, or otherwise, as 28 allowed by law, and in which the conservator shall have no 29 interest. The funds may be invested, without prior court 30 authorization, in direct interestbearing obligations of this state or 31 of the United States and in obligations the interest and principal of 32 which are both unconditionally guaranteed by the United States 33 Government. 34 (4) Whenever a copy of any public record is required by the 35 VA to be used in determining the eligibility of any person to 36 participate in benefits made available by the VA, the official 37 charged with the custody of the public record shall without charge 38 provide the applicant for the benefits or any person acting on his 39 behalf or the representative of the VA with a certified copy of the 40 record. 41 (D) The Secretary or his successor is and shall be a party in 42 interest:[1243] 329 1 (1) in any proceeding brought under any law of this State for 2 the appointment, confirmation, recognition, or removal of any 3 conservator of a minor, or of a mentally incompetent person, to 4 whom or on whose behalf benefits have been paid or are payable 5 by the VA, its predecessor or successor; 6 (2) in any conservatorship proceeding involving such person 7 or his estate; 8 (3) in any suit or other proceeding arising out of the 9 administration of such person’s estate or assets; and 10 (4) in any proceeding the purpose of which is the removal of 11 the disability of minority or of mental incompetency of such 12 person. 13 (E) In any case or proceeding involving property or funds of 14 the minor or mentally incompetent person not derived from the 15 VA, the VA shall not be a necessary party but may be a proper 16 party to such proceedings. This section shall not apply unless the 17 VA designates in a writing filed with the Secretary of State, the 18 name and address of its chief attorney, acting chief attorney or 19 other agent within this State as a person authorized to accept 20 service of process or upon whom process may be served. 21 (F) For services as conservator of funds paid from the VA, 22 compensation payable to the conservator shall not exceed five 23 percent of the income of the protected person during any year. If 24 extraordinary services are rendered by any such conservator the 25 court may, upon application of the conservator and notice to the 26 VA as provided in this section, authorize additional compensation 27 payable from the estate of the protected person. No compensation 28 shall be allowed on the corpus of an estate derived from payments 29 from the VA. The conservator may be allowed reimbursement 30 from the estate of his protected person for reasonable premiums 31 paid by him to any corporate surety upon his bond. 32 33 REPORTER’S COMMENTS 34 As revised by the 2012 amendments, this section is a distillation of 35 provisions of the Uniform Veterans’ Guardianship Act, which was 36 formerly Part 6, Article 5, Title 62. This section should be taken 37 into consideration whenever the primary respondent is receiving or 38 will receive moneys from the VA. In general, the proceeding is the 39 same as that contained in section 625403, except that a certificate 40 of the Secretary or his representative replaces the necessity for an 41 examiner and there may be a limit on the number of persons for 42 whom a conservator may act. 43[1243] 330 1 Section 625432. If no local conservator has been appointed and 2 no petition in a protective proceeding is pending in this State, then, 3 except as provided in Section 625431, a domiciliary foreign 4 conservator may file with the court in this State in all counties in 5 which property belonging to the protected person is located, 6 authenticated copies of his appointment and of any official bond he 7 has given. Thereafter, he may exercise as to assets in this State all 8 powers of a local conservator and maintain actions and 9 proceedings in this State subject to any conditions imposed upon 10 nonresident parties generally. 11 (A) For purposes of this section, the following definitions shall 12 apply: 13 (1) ‘Court’ means the probate court or the circuit court of the 14 county in which the minor or incapacitated person resides or any 15 court of this State in which a legal action regarding the claim in 16 favor of or against the minor or incapacitated person has been 17 properly commenced. 18 (2) ‘Claim’ means the net or actual amount payable to or on 19 behalf of or paid by the minor or incapacitated person as a result of 20 the settlement of a legal matter resulting in the payment of money 21 or the delivery of real or personal property. 22 (3) ‘Conservator’ means: 23 (a) for residents of this state a conservator appointed for 24 the minor or incapacitated person by the probate court for the 25 county in which the minor or incapacitated person resides; and 26 (b) for a nonresident of this State, a person appointed by a 27 court in the state of residence of the minor or incapacitated person 28 and who has authority and duties similar to those of a conservator 29 in this state or a person appointed conservator for a nonresident by 30 a probate court in this state in a county where the nonresident has 31 property or the right to take legal action. 32 (B)(1) The settlement of any claim in favor of or against any 33 minor or incapacitated person, for whom a conservator has 34 previously been appointed and is serving, only may be effected by 35 the conservator for such minor or incapacitated person. 36 (2) The settlement of any claim that does not exceed ten 37 thousand dollars in favor of or against any minor or incapacitated 38 person shall be effected by the conservator for the minor or 39 incapacitated person or, if no conservator has previously been 40 appointed, may be effected by: (i) the parent or guardian of the 41 minor, (ii) a guardian appointed under Part 3 of this article for an 42 incapacitated person, or (iii) a guardian ad litem appointed by the 43 court for the minor or incapacitated person. The settlement of the[1243] 331 1 claim may be effected without court approval and without the 2 subsequent appointment of a conservator for the minor or 3 incapacitated person. If the settlement requires the payment of 4 money or the delivery of personal property for the benefit of the 5 minor or incapacitated person, the payment or delivery must be 6 made to a conservator previously appointed for the minor or 7 incapacitated person or, if no conservator has been previously 8 appointed, shall be made in accordance with Section 625103, in 9 which case the person receiving the money or personal property on 10 behalf of the minor or incapacitated person shall be authorized to 11 execute a proper receipt and release or covenant not to sue 12 therefor, which shall be binding upon the minor or incapacitated 13 person. 14 (3) The settlement of any claim exceeding ten thousand 15 dollars in favor of or against a minor or incapacitated person 16 requires the appointment of a conservator for the minor or 17 incapacitated person unless one has been previously appointed and 18 is serving. If a conservator concludes that settlement of the claim 19 exceeding ten thousand dollars in favor of or against his ward is in 20 the best interest of the ward he may enter into the settlement as 21 follows: 22 (a) subject to limitations placed upon a conservator by the 23 appointing court, if the claim is twentyfive thousand dollars or 24 less, the conservator may settle the claim without court 25 authorization or confirmation, or the conservator may file with the 26 court an application or motion for approval as provided item (4). 27 If the settlement requires an application the payment of money or 28 the delivery of personal property for the benefit of the minor or 29 incapacitated person, the conservator shall receive the money or 30 personal property and execute a proper receipt and release or 31 covenant not to sue therefor, which shall be binding upon the 32 minor or incapacitated person. 33 (4) Settlement of a claim with a value exceeding twentyfive 34 thousand dollars requires court approval which the conservator 35 may attain only as follows: 36 (a) The conservator must file with the court an application 37 or motion setting forth all of the pertinent facts concerning the 38 claim, payment, attorney’s fees, and expenses, if any, and the 39 reasons why, in the opinion of the conservator, the proposed 40 settlement is fair and reasonable and should be approved by the 41 court. The application or motion must include a statement by the 42 conservator that, in his opinion, the proposed settlement is in the 43 best interests of the minor or incapacitated person. Notice of[1243] 332 1 hearing must be given to the minor or incapacitated person’s 2 guardian, the spouse, any adult children whose whereabouts are 3 known or reasonably ascertainable, and if there is no spouse or 4 adult children, the parents whose whereabouts are known or 5 reasonably ascertainable. The court may approve or deny any 6 application or motion for approval of a settlement filed by the 7 conservator after notice and a hearing, or may in its discretion 8 require the commencement of a formal proceeding under Section 9 625428. 10 (b) If, upon consideration of the petition and after hearing 11 the testimony as it may require concerning the matter, the court 12 concludes that the proposed settlement is proper and in the best 13 interests of the minor or incapacitated person, the court shall issue 14 its order approving the settlement and authorizing the conservator 15 to consummate it and execute a proper receipt and release or 16 covenant not to sue therefor, which shall be binding upon the 17 minor or incapacitated person. 18 (c) Except as provided in subitem (d), the order 19 authorizing the settlement must require that payment or delivery of 20 the money or personal property to or in favor of a minor or 21 incapacitated person be paid to the conservator for the benefit of 22 the minor or incapacitated person. 23 (d) If based upon the facts set forth in the application or 24 motion or presented during the hearing, the probate court finds it is 25 in the best interest of the minor or incapacitated person, the court 26 may order any settlement proceeds placed in a special needs trust 27 which complies with the provisions of 42 U.S.C. 1396p(d)(4)(A) 28 or in a pooled fund trust which complies with the provisions of 42 29 USC 1396p(d)(4)(C). 30 (e) If a party subject to the court order fails or refuses to 31 pay the money or deliver the personal property as required by the 32 order, the party may be found to be liable and punishable for 33 contempt of court, but failure or refusal does not affect the validity 34 or conclusiveness of the settlement. 35 36 REPORTER’S COMMENTS 37 As revised by the 2012 amendment, this section was formerly 38 Section 625433 which has been substantially modified. It 39 addresses The settlement of claims in favor of or against a minor 40 or incapacitated person. 41 Item (A) contains definitions applicable to this section. 42 Item (B)(1) states that if a conservatorship is in place, only the 43 conservator may settle the claim.[1243] 333 1 Item (B)(2) addresses claims not in excess of $10,000.00. Such 2 claims may be settled by a conservator. If no conservator has been 3 appointed, the claim may be settled by the parent, guardian or 4 guardian ad litem of a minor or by a guardian for an incapacitated 5 person without court approval and without appointment of a 6 conservator. If there is a conservator, any funds or property would 7 be delivered to the conservator. If there is no conservator, funds or 8 property could be delivered in accordance with 625103. 9 Item (B)(3) addresses claims over $10,000.00 and requires the 10 appointment of a conservator to effect the settlement. 11 Item (B)(4) states that for claims of $25,000.00 or less, the 12 conservator, unless his authority has been limited by the court, 13 may settle the claim without court approval or may file an 14 application or motion for approval. For claims in excess of 15 $25,000.00, the conservator must file an application or motion for 16 approval. 17 18 Section 625433. (A)(1) For purposes of this section and for any 19 claim exceeding twentyfive thousand dollars in favor of or against 20 any minor or incapacitated person, ‘court’ means the circuit court 21 of the county in which the minor or incapacitated person resides or 22 the circuit court in the county in which the suit is pending. For 23 purposes of this section and for any claim not exceeding 24 twentyfive thousand dollars in favor of or against any minor or 25 incapacitated person, ‘court’ means either the circuit court or the 26 probate court of the county in which the minor or incapacitated 27 person resides or the circuit court or probate court in the county in 28 which the suit is pending. 29 (2) ‘Claim’ means the net or actual amount accruing to or 30 paid by the minor or incapacitated person as a result of the 31 settlement. 32 (3) ‘Petitioner’ means either a conservator appointed by the 33 probate court for the minor or incapacitated person or the guardian 34 or guardian ad litem of the minor or incapacitated person if a 35 conservator has not been appointed. 36 (B) The settlement of any claim over twentyfive thousand 37 dollars in favor of or against any minor or incapacitated person for 38 the payment of money or the possession of personal property must 39 be effected on his behalf in the following manner: 40 (1) The petitioner must file with the court a verified petition 41 setting forth all of the pertinent facts concerning the claim, 42 payment, attorney’s fees, and expenses, if any, and the reasons 43 why, in the opinion of the petitioner, the proposed settlement[1243] 334 1 should be approved. For all claims that exceed twentyfive 2 thousand dollars, the verified petition must include a statement by 3 the petitioner that, in his opinion, the proposed settlement is in the 4 best interests of the minor or incapacitated person. 5 (2) If, upon consideration of the petition and after hearing 6 the testimony as it may require concerning the matter, the court 7 concludes that the proposed settlement is proper and in the best 8 interests of the minor or incapacitated person, the court shall issue 9 its order approving the settlement and authorizing the petitioner to 10 consummate it and, if the settlement requires the payment of 11 money or the delivery of personal property for the benefit of the 12 minor or incapacitated person, to receive the money or personal 13 property and execute a proper receipt and release or covenant not 14 to sue therefor, which is binding upon the minor or incapacitated 15 person. 16 (3) The order authorizing the settlement must require that 17 payment or delivery of the money or personal property be made 18 through the conservator. If a conservator has not been appointed, 19 the petitioner shall, upon receiving the money or personal 20 property, pay and deliver it to the court pending the appointment 21 and qualification of a duly appointed conservator. If a party 22 subject to the court order fails or refuses to pay the money or 23 deliver the personal property as required by the order, he is liable 24 and punishable as for contempt of court, but failure or refusal does 25 not affect the validity or conclusiveness of the settlement. 26 (C) The settlement of any claim that does not exceed 27 twentyfive thousand dollars in favor of or against a minor or 28 incapacitated person for the payment of money or the possession 29 of personal property may be effected in any of the following 30 manners: 31 (1) If a conservator has been appointed, he may settle the 32 claim without court authorization or confirmation, as provided in 33 Section 625424, or he may petition the court for approval, as 34 provided in items (1), (2), and (3) of subsection (B). If the 35 settlement requires the payment of money or the delivery of 36 personal property for the benefit of the minor or incapacitated 37 person, the conservator shall receive the money or personal 38 property and execute a proper receipt and release or covenant not 39 to sue therefor, which is binding upon the minor or incapacitated 40 person. 41 (2) If a conservator has not been appointed, the guardian or 42 guardian ad litem must petition the court for approval of the 43 settlement, as provided in items (1) and (2) of subsection (B), and[1243] 335 1 without the appointment of a conservator. The payment or 2 delivery of money or personal property to or for a minor or 3 incapacitated person must be made in accordance with Section 4 625103. If a party subject to the court order fails or refuses to pay 5 the money or deliver the personal property, as required by the 6 order and in accordance with Section 625103, he is liable and 7 punishable as for contempt of court, but failure or refusal does not 8 affect the validity or conclusiveness of the settlement. 9 (D) The settlement of any claim that does not exceed two 10 thousand five hundred dollars in favor of or against any minor or 11 incapacitated person for the payment of money or the possession 12 of personal property may be effected by the parent or guardian of 13 the minor or incapacitated person without court approval of the 14 settlement and without the appointment of a conservator. If the 15 settlement requires the payment of money or the delivery of 16 personal property for the benefit of the minor or incapacitated 17 person, the parent or guardian shall receive the money or personal 18 property and execute a proper receipt and release or covenant not 19 to sue therefor, which is binding upon the minor or incapacitated 20 person. The payment or delivery of money or personal property to 21 or for a minor or incapacitated person must be made in accordance 22 with Section 625103. 23 (1) An adult, who is not incapacitated but is disabled, may 24 petition the court to create and establish a special needs trust for 25 his benefit in compliance with 42 USC 1396p(d)(4)(A). Upon the 26 filing of an application together with the written statement of a 27 physician stating that the petitioner is competent to manage his 28 property, the court may issue an order creating and establishing a 29 special needs trust in the form and substance submitted by the 30 petitioner. The court shall have no responsibility to assure the 31 validity of the trust or its effectiveness in accomplishing the 32 intended purpose and shall have no ongoing responsibility to 33 monitor the trust. 34 (2) The court shall have authority to create and establish a 35 special needs trust for an incapacitated person in compliance with 36 42 U.S.C. 1396(d)(4)(A) and to order the placement of the 37 incapacitated person’s funds into such a trust or into a pooled trust 38 in compliance with 42 U.S.C. 1396(d)(4)(C) for the benefit of 39 incapacitated persons under its authority to issue protective orders 40 pursuant to the procedure set forth in Section 625401 et seq. 41 (3) In the case of a disabled minor primary respondent, the 42 court shall have authority to create and establish a special needs 43 trust in compliance with 42 U.S.C. 1396(d)(4)(A) if the court[1243] 336 1 determines it is in the primary respondent’s best interest. The 2 court also shall have the authority to order the placement of the 3 minor’s funds into such a trust or into a pooled trust in compliance 4 with 42 U.S.C. 1396(d)(4)(C) for the benefit of a minor under its 5 authority to issue protective orders pursuant to the procedure set 6 forth in Section 625401 et seq., even though the terms of the trust 7 extend beyond the age of majority. 8 9 REPORTER’S COMMENTS 10 The 2012 amendment added this section. 11 Subsection (1) clarifies that the court has jurisdiction to create a 12 special needs trust for an adult who is disabled, but not 13 incapacitated. The court is authorized to create such a trust in the 14 form submitted by the petitioner and is not responsible for the 15 validity of the trust or for monitoring of the trust. 16 Subsection (2) affirms the court’s authority to create a special 17 needs trust for an incapacitated person and to order the placement 18 of the incapacitated person’s funds into a special needs trust or a 19 pooled trust. 20 Subsection (3) confirms the court’s authority to create a special 21 needs trust for a disabled minor and to order the placement of the 22 disabled minor’s funds into a special needs trust or pooled trust 23 even though the trust extends beyond the age of majority. 24 A special needs trust or pooled trust is appropriate for a minor or 25 adult who meets the disability requirements referenced in 42 26 U.S.C. 1396P(d)(4). 27 28 Section 625434. The settlement of any claim involving a minor 29 completed between July 1, 1987, and September 24, 1987, is 30 presumed facially valid whether effectuated with or without court 31 approval. 32 33 Section 625435. Neither the court which may have approved a 34 settlement nor a person who completed the settlement of a minor’s 35 claim but did not seek court approval during this time period is 36 liable for their good faith exercise of discretion in approving or 37 completing the settlement. 38 39 Part 5 40 41 Powers Durable Power of Attorney 42[1243] 337 1 Section 625501. (A) Whenever a principal designates another 2 his attorney in fact by a power of attorney in writing and the 3 writing contains (1) the words ‘This power of attorney is not 4 affected by physical disability or mental incompetence of the 5 principal which renders the principal incapable of managing his 6 own estate’, (2) the words ‘This power of attorney becomes 7 effective upon the physical disability or mental incompetence of 8 the principal’, or (3) similar words showing the intent of the 9 principal that the authority conferred is exercisable 10 notwithstanding his physical disability or mental incompetence or 11 either physical disability or mental incompetence, the authority of 12 the attorney in fact is exercisable by him as provided in the power 13 on behalf of the principal notwithstanding later physical disability 14 or mental incompetence of the principal or later uncertainty as to 15 whether the principal is dead or alive. The power may define 16 ‘physical disability’ or ‘mental incompetence’ and may set forth 17 the procedures for determining whether the principal is physically 18 disabled or mentally incompetent. If no definition of mental 19 incompetence or procedures for determining mental incompetence 20 are set forth, and the authority of the attorney in fact relates solely 21 to health care, mental incompetence is to be determined according 22 to the standards and procedures for inability to consent under 23 Section 446620(6) of the Adult Health Care Consent Act. The 24 authority of the attorney in fact to act on behalf of the principal 25 must be set forth in the power and may relate to any act, power, 26 duty, right, or obligation which the principal has or may acquire 27 relating to the principal or any matter, transaction, or property, 28 including the power to consent or withhold consent on behalf of 29 the principal to health care. The attorney in fact has a fiduciary 30 relationship with the principal and is accountable and responsible 31 as a fiduciary. All acts done by the attorney in fact pursuant to the 32 power during a period of physical disability or mental 33 incompetence or uncertainty as to whether the principal is dead or 34 alive have the same effect and inure to the benefit of and bind the 35 principal or his heirs, devisees, legatees, and personal 36 representative as if the principal were alive, mentally competent, 37 and not disabled physically. 38 (B) An instrument to which this section is applicable also may 39 provide for successor attorneys in fact and provide conditions for 40 their succession, which may include an authorization for the court 41 to appoint a successor, and the succession may occur whether or 42 not the principal then is physically disabled or mentally 43 incompetent. The appointment of an attorney in fact under this[1243] 338 1 section does not prevent a person or his representative from 2 petitioning the court to have a guardian or conservator appointed. 3 Unless the power of attorney provides otherwise, appointment of a 4 guardian terminates all or part of the power of attorney that relates 5 to matters within the scope of the guardianship, and appointment 6 of a conservator terminates all or part of the power of attorney that 7 relates to matters within the scope of the conservatorship. 8 (C) A power of attorney executed under the provisions of this 9 section must be executed and attested with the same formality and 10 with the same requirements as to witnesses as a will. In addition, 11 the instrument must be recorded in the same manner as a deed in 12 the county where the principal resides at the time the instrument is 13 recorded. After the instrument has been recorded, whether 14 recorded before or after the onset of the principal’s physical 15 disability or mental incompetence, it is effective notwithstanding 16 the mental incompetence or physical disability. If the authority of 17 the attorney in fact relates solely to the person of the principal, the 18 instrument is effective without being recorded. 19 (D) A power of attorney as provided for under this section is 20 valid if: 21 (1) executed in compliance with this section; or 22 (2) its execution complies with the law at the time of 23 execution of the jurisdiction where the instrument was executed 24 and it is recorded as required by subsection (C). Notwithstanding 25 the provisions of Section 30530, a valid power of attorney as 26 provided for under this section which is executed in another 27 jurisdiction may be recorded as though it complies with the 28 provisions of subsection (C) of this section. 29 (E) A properly executed durable power of attorney that 30 authorizes an attorney in fact to make health care decisions or 31 other decisions regarding the principal is valid whether or not it 32 was executed after May 14, 1990. 33 (F)(1) A third person in this State who receives or is presented 34 with a valid power of attorney executed pursuant to this section, 35 and has not received actual written notice of its revocation or 36 termination, must not refuse to honor the power of attorney if it 37 contains the following provision or a substantially similar 38 provision: 39 ‘No person who may act in reliance upon the representations of 40 my attorneyinfact for the scope of authority granted to the 41 attorneyinfact shall incur any liability as to me or to my estate as a 42 result of permitting the attorneyinfact to exercise this authority, nor[1243] 339 1 is any such person who deals with my attorneyinfact responsible to 2 determine or ensure the proper application of funds or property.’ 3 As used in this subsection, ‘to honor’ a power of attorney means 4 to deal with the attorneyinfact as if the attorneyinfact were the 5 principal, personally present and acting on his own behalf within 6 the scope of the powers granted to the attorneyinfact. 7 (2) Unless the third person actually has received written 8 notice of the revocation or termination of a valid power of attorney 9 executed in accordance with this section, a third person in this 10 State who receives or is presented with a power of attorney: 11 (a) does not incur liability to the principal or the 12 principal’s estate by reason of acting upon the authority of it or 13 permitting the attorneyinfact to exercise authority; 14 (b) is not required to inquire whether the attorneyinfact 15 has power to act or is properly exercising the power; or 16 (c) is not responsible to determine or ensure the proper 17 application of assets, funds, or property belonging to the principal. 18 (3) A ‘third person’ means an individual, a corporation, an 19 organization, or other legal entity for purposes of this subsection. 20 (G)(1) An attorneyinfact is entitled to reimbursement for 21 expenses and compensation for services as provided in the power 22 of attorney. In the absence of a provision in the power of attorney 23 regarding reimbursement or compensation, or both: 24 (a) an attorneyinfact is entitled to reimbursement for all 25 reasonable costs and expenses actually incurred and paid by the 26 attorneyinfact on the principal’s behalf; 27 (b) an attorneyinfact, upon the approval of the probate 28 court, is entitled to reasonable compensation based upon the 29 responsibilities he assumed and the effort he expended; and 30 (c) if two or more attorneysinfact are serving together, the 31 compensation paid must be divided by them in a manner as they 32 agree or as determined by a court of competent jurisdiction if they 33 fail to agree. 34 (2) An interested person may petition a court of competent 35 jurisdiction to review the propriety and reasonableness of payment 36 for reimbursement or compensation to the attorneyinfact, and an 37 attorneyinfact who has received excessive payment may be 38 ordered to make appropriate refunds to the principal. 39 40 Section 625502. (a) The death, disability, or incompetence of 41 any principal who has executed a power of attorney in writing does 42 not revoke or terminate the agency as to the attorneyinfact, agent, 43 or other person who, without actual knowledge of the death,[1243] 340 1 disability, or incompetence of the principal, acts in good faith 2 under the power of attorney or agency. Any action so taken, 3 unless otherwise invalid or unenforceable, binds the principal and 4 his heirs, devisees, and personal representatives. 5 (b) An affidavit, executed by the attorneyinfact or agent stating 6 that he did not have, at the time of doing an act pursuant to the 7 power of attorney, actual knowledge of the revocation or 8 termination of the power of attorney by death, disability, or 9 incompetence, is, in the absence of fraud, conclusive proof of the 10 nonrevocation or nontermination of the power at that time. If the 11 exercise of the power requires execution and delivery of any 12 instrument which is recordable, the affidavit when authenticated 13 for record is likewise recordable. 14 (c) This section shall not be construed to alter or affect any 15 provision for revocation or termination contained in the power of 16 attorney. 17 18 Section 625503. The probate court has concurrent jurisdiction 19 with the circuit courts of this State over all subject matter related to 20 the creation, exercise, and termination of powers of attorney 21 governed by the provisions of this Part, including the approval of 22 the sale of real and personal property by an attorneyinfact. 23 24 Section 625504. (A) As used in this section: 25 (1) ‘Agent’ or ‘health care agent’ means an individual 26 designated in a health care power of attorney to make health care 27 decisions on behalf of a principal. 28 (2) ‘Declaration of a desire for a natural death’ or 29 ‘declaration’ means a document executed in accordance with the 30 South Carolina Death with Dignity Act or a similar document 31 executed in accordance with the law of another state. 32 (3) ‘Health care’ means a procedure to diagnose or treat a 33 human disease, ailment, defect, abnormality, or complaint, whether 34 of physical or mental origin. It also includes the provision of 35 intermediate or skilled nursing care; services for the rehabilitation 36 of injured, disabled, or sick persons; and placement in or removal 37 from a facility that provides these forms of care. 38 (4) ‘Health care power of attorney’ means a durable power 39 of attorney executed in accordance with this section. 40 (5) ‘Health care provider’ means a person, health care 41 facility, organization, or corporation licensed, certified, or 42 otherwise authorized or permitted by the laws of this State to 43 administer health care. [1243] 341 1 (6) ‘Lifesustaining procedure’ means a medical procedure or 2 intervention which serves only to prolong the dying process. 3 Lifesustaining procedures do not include the administration of 4 medication or other treatment for comfort care or alleviation of 5 pain. The principal shall indicate in the health care power of 6 attorney whether the provision of nutrition and hydration through 7 medically or surgically implanted tubes is desired. 8 (7) ‘Permanent unconsciousness’ means a medical 9 diagnosis, consistent with accepted standards of medical practice, 10 that a person is in a persistent vegetative state or some other 11 irreversible condition in which the person has no neocortical 12 functioning, but only involuntary vegetative or primitive reflex 13 functions controlled by the brain stem. 14 (8) ‘Nursing care provider’ means a nursing care facility or 15 an employee of the facility. 16 (9) ‘Principal’ means an individual who executes a health 17 care power of attorney. A principal must be eighteen years of age 18 or older and of sound mind. 19 (10) ‘Separated’ means that the principal and his or her 20 spouse are separated pursuant to one of the following: 21 (a) entry of a pendente lite order in a divorce or separate 22 maintenance action; 23 (b) formal signing of a written property or marital 24 settlement agreement; 25 (c) entry of a permanent order of separate maintenance 26 and support or of a permanent order approving a property or 27 marital settlement agreement between the parties. 28 (B)(1) A health care power of attorney is a durable power of 29 attorney pursuant to Section 625501. Sections that refer to a 30 durable power of attorney or judicial interpretations of the law 31 relating to durable powers of attorney apply to a health care power 32 of attorney to the extent that they are not inconsistent with this 33 section. 34 (2) This section does not affect the right of a person to 35 execute a durable power of attorney relating to health care 36 pursuant to other provisions of law but which does not conform to 37 the requirements of this section. If a durable power of attorney for 38 health care executed under Section 625501 or under the laws of 39 another state does not conform to the requirements of this section, 40 the provisions of this section do not apply to it. However, a court 41 is not precluded from determining that the law applicable to 42 nonconforming durable powers of attorney for health care is the[1243] 342 1 same as the law set forth in this section for health care powers of 2 attorney. 3 (3) To the extent not inconsistent with this section, the 4 provisions of the Adult Health Care Consent Act apply to the 5 making of decisions by a health care agent and the implementation 6 of those decisions by health care providers. 7 (4) In determining the effectiveness of a health care power 8 of attorney, mental incompetence is to be determined according to 9 the standards and procedures for inability to consent under Section 10 446620(6), except that certification of mental incompetence by the 11 agent may be substituted for certification by a second physician. If 12 the certifying physician states that the principal’s mental 13 incompetence precludes the principal from making all health care 14 decisions or all decisions concerning certain categories of health 15 care, and that the principal’s mental incompetence is permanent or 16 of extended duration, no further certification is necessary in regard 17 to the stated categories of health care decisions during the stated 18 duration of mental incompetence unless the agent or the attending 19 physician believes the principal may have regained capacity. 20 (C)(1) A health care power of attorney must: 21 (a) be substantially in the form set forth in subsection (D) 22 of this section; 23 (b) be dated and signed by the principal or in the 24 principal’s name by another person in the principal’s presence and 25 by his direction; 26 (c) be signed by at least two persons, each of whom 27 witnessed either the signing of the health care power of attorney or 28 the principal’s acknowledgment of his signature on the health care 29 power of attorney. Each witness must state in an affidavit as set 30 forth in subsection (D) of this section that, at the time of the 31 execution of the health care power of attorney, to the extent the 32 witness has knowledge, the witness is not related to the principal 33 by blood, marriage, or adoption, either as a spouse, lineal ancestor, 34 descendant of the parents of the principal, or spouse of any of 35 them; not directly financially responsible for the principal’s 36 medical care; not entitled to any portion of the principal’s estate 37 upon his decease under a will of the principal then existing or as an 38 heir by intestate succession; not a beneficiary of a life insurance 39 policy of the principal; and not appointed as health care agent or 40 successor health care agent in the health care power of attorney; 41 and that no more than one witness is an employee of a health 42 facility in which the principal is a patient, no witness is the 43 attending physician or an employee of the attending physician, or[1243] 343 1 no witness has a claim against the principal’s estate upon his 2 decease; 3 (d) state the name and address of the agent. A health care 4 agent must be an individual who is eighteen years of age or older 5 and of sound mind. A health care agent may not be a health care 6 provider, or an employee of a provider, with whom the principal 7 has a providerpatient relationship at the time the health care power 8 of attorney is executed, or an employee of a nursing care facility in 9 which the principal resides, or a spouse of the health care provider 10 or employee, unless the health care provider, employee, or spouse 11 is a relative of the principal. 12 (2) The validity of a health care power of attorney is not 13 affected by the principal’s failure to initial any of the choices 14 provided in Section 4, 6, or 7 of the Health Care Power of 15 Attorney form or to name successor agents. If the principal fails to 16 indicate either of the statements in Section 7 concerning provision 17 of artificial nutrition and hydration, the agent does not have 18 authority to direct that nutrition and hydration necessary for 19 comfort care or alleviation of pain be withheld or withdrawn. 20 (D) A health care power of attorney executed on or after 21 January 1, 2007 must be substantially in the following form: 22 INFORMATION ABOUT THIS DOCUMENT 23 THIS IS AN IMPORTANT LEGAL DOCUMENT. BEFORE 24 SIGNING THIS DOCUMENT, YOU SHOULD KNOW THESE 25 IMPORTANT FACTS: 26 1. THIS DOCUMENT GIVES THE PERSON YOU NAME AS 27 YOUR AGENT THE POWER TO MAKE HEALTH CARE 28 DECISIONS FOR YOU IF YOU CANNOT MAKE THE 29 DECISION FOR YOURSELF. THIS POWER INCLUDES THE 30 POWER TO MAKE DECISIONS ABOUT LIFESUSTAINING 31 TREATMENT. UNLESS YOU STATE OTHERWISE, YOUR 32 AGENT WILL HAVE THE SAME AUTHORITY TO MAKE 33 DECISIONS ABOUT YOUR HEALTH CARE AS YOU 34 WOULD HAVE. 35 2. THIS POWER IS SUBJECT TO ANY LIMITATIONS OR 36 STATEMENTS OF YOUR DESIRES THAT YOU INCLUDE IN 37 THIS DOCUMENT. YOU MAY STATE IN THIS DOCUMENT 38 ANY TREATMENT YOU DO NOT DESIRE OR TREATMENT 39 YOU WANT TO BE SURE YOU RECEIVE. YOUR AGENT 40 WILL BE OBLIGATED TO FOLLOW YOUR INSTRUCTIONS 41 WHEN MAKING DECISIONS ON YOUR BEHALF. YOU 42 MAY ATTACH ADDITIONAL PAGES IF YOU NEED MORE 43 SPACE TO COMPLETE THE STATEMENT. [1243] 344 1 3. AFTER YOU HAVE SIGNED THIS DOCUMENT, YOU 2 HAVE THE RIGHT TO MAKE HEALTH CARE DECISIONS 3 FOR YOURSELF IF YOU ARE MENTALLY COMPETENT TO 4 DO SO. AFTER YOU HAVE SIGNED THIS DOCUMENT, NO 5 TREATMENT MAY BE GIVEN TO YOU OR STOPPED OVER 6 YOUR OBJECTION IF YOU ARE MENTALLY COMPETENT 7 TO MAKE THAT DECISION. 8 4. YOU HAVE THE RIGHT TO REVOKE THIS DOCUMENT, 9 AND TERMINATE YOUR AGENT’S AUTHORITY, BY 10 INFORMING EITHER YOUR AGENT OR YOUR HEALTH 11 CARE PROVIDER ORALLY OR IN WRITING. 12 5. IF THERE IS ANYTHING IN THIS DOCUMENT THAT 13 YOU DO NOT UNDERSTAND, YOU SHOULD ASK A 14 SOCIAL WORKER, LAWYER, OR OTHER PERSON TO 15 EXPLAIN IT TO YOU. 16 6. THIS POWER OF ATTORNEY WILL NOT BE VALID 17 UNLESS TWO PERSONS SIGN AS WITNESSES. EACH OF 18 THESE PERSONS MUST EITHER WITNESS YOUR SIGNING 19 OF THE POWER OF ATTORNEY OR WITNESS YOUR 20 ACKNOWLEDGMENT THAT THE SIGNATURE ON THE 21 POWER OF ATTORNEY IS YOURS. 22 THE FOLLOWING PERSONS MAY NOT ACT AS 23 WITNESSES: 24 A. YOUR SPOUSE, YOUR CHILDREN, GRANDCHILDREN, 25 AND OTHER LINEAL DESCENDANTS; YOUR PARENTS, 26 GRANDPARENTS, AND OTHER LINEAL ANCESTORS; 27 YOUR SIBLINGS AND THEIR LINEAL DESCENDANTS; OR 28 A SPOUSE OF ANY OF THESE PERSONS. 29 B. A PERSON WHO IS DIRECTLY FINANCIALLY 30 RESPONSIBLE FOR YOUR MEDICAL CARE. 31 C. A PERSON WHO IS NAMED IN YOUR WILL, OR, IF YOU 32 HAVE NO WILL, WHO WOULD INHERIT YOUR PROPERTY 33 BY INTESTATE SUCCESSION. 34 D. A BENEFICIARY OF A LIFE INSURANCE POLICY ON 35 YOUR LIFE. 36 E. THE PERSONS NAMED IN THE HEALTH CARE POWER 37 OF ATTORNEY AS YOUR AGENT OR SUCCESSOR AGENT. 38 F. YOUR PHYSICIAN OR AN EMPLOYEE OF YOUR 39 PHYSICIAN. 40 G. ANY PERSON WHO WOULD HAVE A CLAIM AGAINST 41 ANY PORTION OF YOUR ESTATE (PERSONS TO WHOM 42 YOU OWE MONEY). [1243] 345 1 IF YOU ARE A PATIENT IN A HEALTH FACILITY, NO 2 MORE THAN ONE WITNESS MAY BE AN EMPLOYEE OF 3 THAT FACILITY. 4 7. YOUR AGENT MUST BE A PERSON WHO IS 18 YEARS 5 OLD OR OLDER AND OF SOUND MIND. IT MAY NOT BE 6 YOUR DOCTOR OR ANY OTHER HEALTH CARE 7 PROVIDER THAT IS NOW PROVIDING YOU WITH 8 TREATMENT; OR AN EMPLOYEE OF YOUR DOCTOR OR 9 PROVIDER; OR A SPOUSE OF THE DOCTOR, PROVIDER, 10 OR EMPLOYEE; UNLESS THE PERSON IS A RELATIVE OF 11 YOURS. 12 8. YOU SHOULD INFORM THE PERSON THAT YOU WANT 13 HIM OR HER TO BE YOUR HEALTH CARE AGENT. YOU 14 SHOULD DISCUSS THIS DOCUMENT WITH YOUR AGENT 15 AND YOUR PHYSICIAN AND GIVE EACH A SIGNED COPY. 16 IF YOU ARE IN A HEALTH CARE FACILITY OR A 17 NURSING CARE FACILITY, A COPY OF THIS DOCUMENT 18 SHOULD BE INCLUDED IN YOUR MEDICAL RECORD. 19 HEALTH CARE POWER OF ATTORNEY 20 (S.C. STATUTORY FORM) 21 1. DESIGNATION OF HEALTH CARE AGENT 22 I, ______, hereby appoint: 23 (Principal) 24 (Agent’s Name) ___ 25 (Agent’s Address) ___ 26 Telephone: home: ______work: ______mobile: 27 ______as my agent to make health care decisions for me as 28 authorized in this document. 29 Successor Agent: If an agent named by me dies, becomes legally 30 disabled, resigns, refuses to act, becomes unavailable, or if an 31 agent who is my spouse is divorced or separated from me, I name 32 the following as successors to my agent, each to act alone and 33 successively, in the order named: 34 a. First Alternate Agent: 35 Address: ___ 36 Telephone: home: _____ work: _____ mobile: ____ 37 b. Second Alternate Agent: 38 Address: ___ 39 Telephone: home: _____ work: _____ mobile: ____ 40 Unavailability of Agent(s): If at any relevant time the agent or 41 successor agents named here are unable or unwilling to make 42 decisions concerning my health care, and those decisions are to be 43 made by a guardian, by the Probate Court, or by a surrogate[1243] 346 1 pursuant to the Adult Health Care Consent Act, it is my intention 2 that the guardian, Probate Court, or surrogate make those decisions 3 in accordance with my directions as stated in this document. 4 2. EFFECTIVE DATE AND DURABILITY 5 By this document I intend to create a durable power of attorney 6 effective upon, and only during, any period of mental 7 incompetence, except as provided in Paragraph 3 below. 8 3. HIPAA AUTHORIZATION 9 When considering or making health care decisions for me, all 10 individually identifiable health information and medical records 11 shall be released without restriction to my health care agent(s) 12 and/or my alternate health care agent(s) named above including, 13 but not limited to, (i) diagnostic, treatment, other health care, and 14 related insurance and financial records and information associated 15 with any past, present, or future physical or mental health 16 condition including, but not limited to, diagnosis or treatment of 17 HIV/AIDS, sexually transmitted disease(s), mental illness, and/or 18 drug or alcohol abuse and (ii) any written opinion relating to my 19 health that such health care agent(s) and/or alternate health care 20 agent(s) may have requested. Without limiting the generality of 21 the foregoing, this release authority applies to all health 22 information and medical records governed by the Health Insurance 23 Portability and Accountability Act of 1996 (HIPAA), 42 USC 24 1320d and 45 CFR 160164; is effective whether or not I am 25 mentally competent; has no expiration date; and shall terminate 26 only in the event that I revoke the authority in writing and deliver 27 it to my health care provider. 28 4. AGENT’S POWERS 29 I grant to my agent full authority to make decisions for me 30 regarding my health care. In exercising this authority, my agent 31 shall follow my desires as stated in this document or otherwise 32 expressed by me or known to my agent. In making any decision, 33 my agent shall attempt to discuss the proposed decision with me to 34 determine my desires if I am able to communicate in any way. If 35 my agent cannot determine the choice I would want made, then my 36 agent shall make a choice for me based upon what my agent 37 believes to be in my best interests. My agent’s authority to 38 interpret my desires is intended to be as broad as possible, except 39 for any limitations I may state below. 40 Accordingly, unless specifically limited by the provisions specified 41 below, my agent is authorized as follows: 42 A. To consent, refuse, or withdraw consent to any and all types of 43 medical care, treatment, surgical procedures, diagnostic[1243] 347 1 procedures, medication, and the use of mechanical or other 2 procedures that affect any bodily function, including, but not 3 limited to, artificial respiration, nutritional support and hydration, 4 and cardiopulmonary resuscitation. 5 B. To authorize, or refuse to authorize, any medication or 6 procedure intended to relieve pain, even though such use may lead 7 to physical damage, addiction, or hasten the moment of, but not 8 intentionally cause, my death. 9 C. To authorize my admission to or discharge, even against 10 medical advice, from any hospital, nursing care facility, or similar 11 facility or service. 12 D. To take any other action necessary to making, documenting, 13 and assuring implementation of decisions concerning my health 14 care, including, but not limited to, granting any waiver or release 15 from liability required by any hospital, physician, nursing care 16 provider, or other health care provider; signing any documents 17 relating to refusals of treatment or the leaving of a facility against 18 medical advice, and pursuing any legal action in my name, and at 19 the expense of my estate to force compliance with my wishes as 20 determined by my agent, or to seek actual or punitive damages for 21 the failure to comply. 22 E. The powers granted above do not include the following powers 23 or are subject to the following rules or limitations: 24 ___ 25 ___ 26 ___ 27 5. ORGAN DONATION (INITIAL ONLY ONE) 28 My agent may ___; may not ___ consent to the donation of all or 29 any of my tissue or organs for purposes of transplantation. 30 6. EFFECT ON DECLARATION OF A DESIRE FOR A 31 NATURAL DEATH (LIVING WILL) 32 I understand that if I have a valid Declaration of a Desire for a 33 Natural Death, the instructions contained in the Declaration will be 34 given effect in any situation to which they are applicable. My 35 agent will have authority to make decisions concerning my health 36 care only in situations to which the Declaration does not apply. 37 7. STATEMENT OF DESIRES CONCERNING 38 LIFESUSTAINING TREATMENT 39 With respect to any LifeSustaining Treatment, I direct the 40 following: 41 (INITIAL ONLY ONE OF THE FOLLOWING 3 42 PARAGRAPHS) [1243] 348 1 (1) ___ GRANT OF DISCRETION TO AGENT. I do not want 2 my life to be prolonged nor do I want lifesustaining treatment to be 3 provided or continued if my agent believes the burdens of the 4 treatment outweigh the expected benefits. I want my agent to 5 consider the relief of suffering, my personal beliefs, the expense 6 involved and the quality as well as the possible extension of my 7 life in making decisions concerning lifesustaining treatment. 8 OR 9 (2) ___ DIRECTIVE TO WITHHOLD OR WITHDRAW 10 TREATMENT. I do not want my life to be prolonged and I do not 11 want lifesustaining treatment: 12 a. if I have a condition that is incurable or irreversible and, without 13 the administration of lifesustaining procedures, expected to result 14 in death within a relatively short period of time; or 15 b. if I am in a state of permanent unconsciousness. 16 OR 17 (3) ___ DIRECTIVE FOR MAXIMUM TREATMENT. I want 18 my life to be prolonged to the greatest extent possible, within the 19 standards of accepted medical practice, without regard to my 20 condition, the chances I have for recovery, or the cost of the 21 procedures. 22 8. STATEMENT OF DESIRES REGARDING TUBE FEEDING 23 With respect to Nutrition and Hydration provided by means of a 24 nasogastric tube or tube into the stomach, intestines, or veins, I 25 wish to make clear that in situations where lifesustaining treatment 26 is being withheld or withdrawn pursuant to Paragraph 7, (INITIAL 27 ONLY ONE OF THE FOLLOWING 3 PARAGRAPHS): 28 (1) ___ GRANT OF DISCRETION TO AGENT. I do not want 29 my life to be prolonged by tube feeding if my agent believes the 30 burdens of tube feeding outweigh the expected benefits. I want my 31 agent to consider the relief of suffering, my personal beliefs, the 32 expense involved, and the quality as well as the possible extension 33 of my life in making this decision. 34 OR 35 (2) ___ DIRECTIVE TO WITHHOLD OR WITHDRAW TUBE 36 FEEDING. I do not want my life prolonged by tube feeding. 37 OR 38 (3) ___ DIRECTIVE FOR PROVISION OF TUBE FEEDING. I 39 want tube feeding to be provided within the standards of accepted 40 medical practice, without regard to my condition, the chances I 41 have for recovery, or the cost of the procedure, and without regard 42 to whether other forms of lifesustaining treatment are being 43 withheld or withdrawn. [1243] 349 1 IF YOU DO NOT INITIAL ANY OF THE STATEMENTS IN 2 PARAGRAPH 8, YOUR AGENT WILL NOT HAVE 3 AUTHORITY TO DIRECT THAT NUTRITION AND 4 HYDRATION NECESSARY FOR COMFORT CARE OR 5 ALLEVIATION OF PAIN BE WITHDRAWN. 6 9. ADMINISTRATIVE PROVISIONS 7 A. I revoke any prior Health Care Power of Attorney and any 8 provisions relating to health care of any other prior power of 9 attorney. 10 B. This power of attorney is intended to be valid in any jurisdiction 11 in which it is presented. 12 BY SIGNING HERE I INDICATE THAT I UNDERSTAND THE 13 CONTENTS OF THIS DOCUMENT AND THE EFFECT OF 14 THIS GRANT OF POWERS TO MY AGENT. 15 I sign my name to this Health Care Power of Attorney on this ___ 16 day of ___, 20 __. My current home address is: 17 ___ 18 Principal’s Signature: ___ 19 Print Name of Principal: ___ 20 I declare, on the basis of information and belief, that the person 21 who signed or acknowledged this document (the principal) is 22 personally known to me, that he/she signed or acknowledged this 23 Health Care Power of Attorney in my presence, and that he/she 24 appears to be of sound mind and under no duress, fraud, or undue 25 influence. I am not related to the principal by blood, marriage, or 26 adoption, either as a spouse, a lineal ancestor, descendant of the 27 parents of the principal, or spouse of any of them. I am not 28 directly financially responsible for the principal’s medical care. I 29 am not entitled to any portion of the principal’s estate upon his 30 decease, whether under any will or as an heir by intestate 31 succession, nor am I the beneficiary of an insurance policy on the 32 principal’s life, nor do I have a claim against the principal’s estate 33 as of this time. I am not the principal’s attending physician, nor an 34 employee of the attending physician. No more than one witness 35 is an employee of a health facility in which the principal is a 36 patient. I am not appointed as Health Care Agent or Successor 37 Health Care Agent by this document. 38 Witness No. 1 39 Signature: ______Date: ___ 40 Print Name: ______Telephone: ___ 41 Address: ___ 42 ___ 43 Witness No. 2 [1243] 350 1 Signature: ______Date: ___ 2 Print Name: ______Telephone: ___ 3 Address: ___ 4 ___ 5 (This portion of the document is optional and is not required to 6 create a valid health care power of attorney.) 7 STATE OF SOUTH CAROLINA 8 COUNTY OF ___ 9 The foregoing instrument was acknowledged before me by 10 Principal on ______, 20 ______. 11 Notary Public for South Carolina ___ 12 My Commission Expires: ___ 13 (E) A health care agent has, in addition to the powers set forth 14 in the health care power of attorney, the following specific powers: 15 (1) to have access to the principal’s medical records and 16 information to the same extent that the principal would have 17 access, including the right to disclose the contents to others; 18 (2) to contract on the principal’s behalf for placement in a 19 health care or nursing care facility or for health care related 20 services, without the agent incurring personal financial liability for 21 the contract; 22 (3) to hire and fire medical, social service, and other support 23 personnel responsible for the principal’s care; 24 (4) to have the same health care facility or nursing care 25 facility visitation rights and privileges of the principal as are 26 permitted to immediate family members or spouses. 27 (F)(1) The agent is not entitled to compensation for services 28 performed under the health care power of attorney, but the agent is 29 entitled to reimbursement for all reasonable expenses incurred as a 30 result of carrying out the health care power of attorney or the 31 authority granted by this section. 32 (2) The agent’s consent to health care or to the provision of 33 services to the principal does not cause the agent to be liable for 34 the costs of the care or services. 35 (G) If a principal has been diagnosed as pregnant, lifesustaining 36 procedures may not be withheld or withdrawn pursuant to the 37 health care power of attorney during the course of the principal’s 38 pregnancy. This subsection does not otherwise affect the agent’s 39 authority to make decisions concerning the principal’s obstetrical 40 and other health care during the course of the pregnancy. 41 (H) A health care provider or nursing care provider having 42 knowledge of the principal’s health care power of attorney has a 43 duty to follow directives of the agent that are consistent with the[1243] 351 1 health care power of attorney to the same extent as if they were 2 given by the principal. If it is uncertain whether a directive is 3 consistent with the health care power of attorney, the health care 4 provider, nursing care provider, agent, or other interested person 5 may apply to the probate court for an order determining the 6 authority of the agent to give the directive. 7 (I) An agent acting pursuant to a health care power of attorney 8 shall make decisions concerning the principal’s health care in 9 accordance with the principal’s directives in the health care power 10 of attorney and with any other statements of intent by the principal 11 that are known to the agent and are not inconsistent with the 12 directives in the health care power of attorney. If a principal has a 13 valid Declaration of a Desire for a Natural Death pursuant to Title 14 44, Chapter 77, the declaration must be given effect in any 15 situation to which it is applicable. The agent named in the health 16 care power of attorney has authority to make decisions only in 17 situations to which the declaration does not apply. However, 18 nothing herein prevents the principal or a person designated by the 19 principal in the declaration from revoking the declaration as 20 provided in Section 447780. 21 (J)(1) A person who relies in good faith upon a person’s 22 representation that he is the person named as agent in a health care 23 power of attorney is not subject to civil or criminal liability or 24 disciplinary action for recognizing the agent’s authority. 25 (2) A health care provider or nursing care provider who in 26 good faith relies on a health care decision made by an agent or 27 successor agent is not subject to civil or criminal liability or 28 disciplinary action on account of relying on the decision. 29 (3) An agent who in good faith makes a health care decision 30 pursuant to a health care power of attorney is not subject to civil or 31 criminal liability on account of the substance of the decision. 32 (K)(1) The principal may appoint one or more successor agents 33 in the health care power of attorney in the event an agent dies, 34 becomes legally disabled, resigns, refuses to act, is unavailable, or, 35 if the agent is the spouse of the principal, becomes divorced or 36 separated from the principal. A successor agent will succeed to all 37 duties and powers given to the agent in the health care power of 38 attorney. 39 (2) If no agent or successor agent is available, willing, and 40 qualified to make a decision concerning the principal’s health care, 41 the decision must be made according to the provisions of and by 42 the person authorized by the Adult Health Care Consent Act. [1243] 352 1 (3) All directives, statements of personal values, or 2 statements of intent made by the principal in the health care power 3 of attorney must be treated as exercises of the principal’s right to 4 direct the course of his health care. Decisions concerning the 5 principal’s health care made by a guardian, by the probate court, or 6 by a surrogate pursuant to the Adult Health Care Consent Act, 7 must be made in accordance with the directions stated in the health 8 care power of attorney. 9 (L)(1) A health care power of attorney may be revoked in the 10 following ways: 11 (a) by a writing, an oral statement, or any other act 12 constituting notification by the principal to the agent or to a health 13 care provider responsible for the principal’s care of the principal’s 14 specific intent to revoke the health care power of attorney; or 15 (b) by the principal’s execution of a subsequent health 16 care power of attorney or the principal’s execution of a subsequent 17 durable power of attorney under Section 625501 if the durable 18 power of attorney states an intention that the health care power of 19 attorney be revoked or if the durable power of attorney is 20 inconsistent with the health care power of attorney. 21 (2) A health care provider who is informed of or provided 22 with a revocation of a health care power of attorney immediately 23 must record the revocation in the principal’s medical record and 24 notify the agent, the attending physician, and all other health care 25 providers or nursing care providers who are responsible for the 26 principal’s care. 27 (M) The execution and effectuation of a health care power of 28 attorney does not constitute suicide for any purpose. 29 (N) No person may be required to sign a health care power of 30 attorney in accordance with this section as a condition for coverage 31 under an insurance contract or for receiving medical treatment or 32 as a condition of admission to a health care or nursing care facility. 33 (O) Nothing in this section may be construed to authorize or 34 approve mercy killing or to permit any affirmative or deliberate act 35 or omission to end life other than to permit the natural process of 36 dying. 37 (P) The absence of a health care power of attorney by an adult 38 patient does not give rise to a presumption of his intent to consent 39 to or refuse death prolonging procedures. Nothing in this section 40 impairs other legal rights or legal responsibilities which a person 41 may have to effect the provision or the withholding or withdrawal 42 of lifesustaining procedures in a lawful manner. [1243] 353 1 (Q)(1) If a person coerces or fraudulently induces another 2 person to execute a health care power of attorney, falsifies or 3 forges a health care power of attorney, or wilfully conceals, 4 cancels, obliterates, or destroys a revocation of a health care power 5 of attorney, and the principal dies as a result of the withdrawal or 6 withholding of treatment pursuant to the health care power of 7 attorney, that person is subject to prosecution in accordance with 8 the criminal laws of this State. 9 (2) Nothing in this section prohibits a person from informing 10 another person of the existence of this section, delivering to 11 another person a copy of this section or a form for a health care 12 power of attorney, or counseling another person in good faith 13 concerning the execution of a health care power of attorney. 14 (3) If a person wilfully conceals, cancels, defaces, 15 obliterates, or damages a health care power of attorney without the 16 principal’s consent, or falsifies or forges a revocation of a health 17 care power of attorney, or otherwise prevents the implementation 18 of the principal’s wishes as stated in a health care power of 19 attorney, that person breaches a duty owed to the principal and is 20 responsible for payment of any expenses or other damages 21 incurred as a result of the wrongful act. 22 (R) A physician or health care facility electing for any reason 23 not to follow an agent’s instruction that lifesustaining procedures 24 be withheld or withdrawn as authorized in the health care power of 25 attorney shall make a reasonable effort to locate a physician or 26 health care facility that will follow the instruction and has a duty to 27 transfer the patient to that physician or facility. If a nurse or other 28 employee of a health care provider or nursing care provider gives 29 notice that the employee does not wish to participate in the 30 withholding or withdrawal of lifesustaining procedures as directed 31 by an agent, a reasonable effort shall be made by the physician and 32 the health care provider or nursing care provider to effect the 33 withholding or withdrawal of lifesustaining procedures without the 34 participation of the employee. 35 (S)(1) Notwithstanding the requirements of subsections (C) and 36 (D) of this section, any document or writing containing the 37 following provisions is deemed to comply with the requirements of 38 this section: 39 (a) the name and address of the person who meets the 40 requirements of subsection (C)(1)(d) and is authorized to make 41 health care related decisions if the principal becomes mentally 42 incompetent; [1243] 354 1 (b) the types of health care related decisions that the 2 health care agent is authorized to make; 3 (c) the signature of the principal; 4 (d) the signature of at least two persons who witnessed the 5 principal’s signature and who meet the requirements of subsection 6 (C)(1)(c); and 7 (e) the attestation of a notary public. 8 (2) Additionally, any document that meets the requirements 9 of subsection (S)(1) and also provides expressions of the 10 principal’s intentions or wishes with respect to the following 11 health care issues authorizes the health care agent to act in 12 accordance with these provisions: 13 (a) organ donations; 14 (b) lifesustaining treatment; 15 (c) tube feeding; 16 (d) other kinds of medical treatment that the principal 17 wishes to have or not to have; 18 (e) comfort and treatment issues; 19 (f) provisions for interment or disposal of the body after 20 death; and 21 (g) any written statements that the principal may wish to 22 have communicated on his behalf. 23 SOUTH CAROLINA COMMENTS 24 The 2010 amendment revised this subsection (H) to allow the 25 health care provider, nursing care provider, agent, or other 26 interested person to ‘apply,’ rather than ‘petition,’ the probate 27 court for an order. An ‘application’ is defined in §621201(1) and 28 does not require a summons or petition. 29 30 Section 625505. The validity of a durable power of attorney that 31 authorizes an attorney to make health care decisions regarding the 32 principal properly executed pursuant to Section 625501 of the 33 1976 Code before or after the effective date of this act is not 34 affected by the amendments to Part 5, Article 5, Title 62 of the 35 1976 Code contained in this act. 36 37 Section 625501. (A) To create a durable power of attorney, a 38 principal must 39 (1) Designate another as agent in a written instrument, 40 (2) Provide in the instrument the principal’s intent that the 41 authority conferred is exercisable notwithstanding the incapacity 42 of the principal, using the words ‘This power of attorney is not 43 affected by the incapacity of the principal which renders the[1243] 355 1 principal incapable of managing his own estate’ or the words ‘This 2 power of attorney becomes effective upon the incapacity of the 3 principal’, or words of similar intent, 4 (3) Execute and attest the durable power of attorney with the 5 same formality and with the same requirements as to witnesses of 6 a will as set forth in Section 622502, and 7 (4) Prove or acknowledge the durable power of attorney as 8 set forth in Section 30530. 9 (B) A principal’s signature on a durable power of attorney is 10 presumed to be genuine if the principal acknowledges the 11 signature before a notary public or other individual authorized by 12 law to take acknowledgements. 13 (C) Notwithstanding the provisions of Section 30530, a valid 14 durable power of attorney executed in another jurisdiction may be 15 recorded as though it complies with Section 30530. 16 (D) A durable power of attorney may be recorded in the same 17 manner as a deed in the county where the principal resides at the 18 time the instrument is recorded. Subject to subsection (E), an 19 instrument that meets the requirements set forth in subsection (A) 20 above is effective notwithstanding the incapacity of the principal, 21 even if that instrument is not recorded. 22 (E) An instrument meeting the requirements set forth in 23 subsection (A) above must be recorded upon the request of a third 24 party presented with it, except that the recording is not necessary if 25 the instrument is a Health Care Power of Attorney pursuant to 26 Section 625524. 27 (F) An agent’s good faith exercise of authority under a durable 28 power of attorney prior to its recording relates back to the effective 29 date of such instrument and does not constitute an improper or 30 invalid act solely because the instrument was not recorded prior to 31 the agent’s exercise of authority. 32 33 REPORTER’S COMMENTS: 34 35 This section applies only to durable powers of attorney. The 2012 36 amendments reorganized former Section 625501 for purposes of 37 readability and clarity. The amendments differ from the Uniform 38 Power of Attorney Act in that the default rule in the Uniform Act 39 is that a power of attorney is durable unless otherwise provided in 40 the power of attorney. The amendments do not change the 41 longstanding rule in South Carolina that certain words need to be 42 stated in a power of attorney for it to be durable. The term 43 ‘physical disability or mental incompetence’ has been replaced[1243] 356 1 with the term ‘incapacity,’ which is defined in Section 625505. 2 The term ‘attorney in fact’ has been replaced with the term ‘agent.’ 3 This section sets forth the execution requirements for a durable 4 power of attorney. Recordation is not required unless requested by 5 a third party. There are attestation requirements in connection 6 with the proper execution of a durable power of attorney. These 7 requirements are not intended to require a self proving affidavit, as 8 is the case with a will. 9 10 Section 625502. (A) The agent under a durable power of 11 attorney has a fiduciary relationship with the principal and is 12 accountable and responsible as a fiduciary pursuant to the 13 provisions of this part and of South Carolina law. 14 (B) Except as set forth in this part, the authority of the agent to 15 act on behalf of the principal under a durable power of attorney 16 must be set forth in the power and may relate to any act, power, 17 duty, right, or obligation which the principal has or may acquire 18 relating to the principal or any matter, transaction, or property, 19 including the power to consent or withhold consent on behalf of 20 the principal to health care. 21 (C) The meaning and effect of a durable power of attorney is 22 determined by the law of the jurisdiction indicated in the durable 23 power of attorney and, in the absence of an indication of 24 jurisdiction, by the law of the jurisdiction in which the durable 25 power of attorney was executed. 26 (D) All acts done by the agent pursuant to a durable power of 27 attorney during a period of the principal’s incapacity or uncertainty 28 as to whether the principal is dead or alive have the same effect 29 and inure to the benefit of and bind the principal or his heirs, 30 devisees, legatees, and personal representative as if the principal 31 were alive and not incapacitated. 32 33 REPORTER’S COMMENTS: 34 35 The 2012 amendments retain in this section portions of former 36 Section 625501(A). The agent’s fiduciary duty is described in 37 greater detail in section 625509. The section also incorporates 38 section 107 of the Uniform Power of Attorney Act. 39 40 Section 625503. (A) A durable power of attorney is effective 41 when executed unless the instrument provides that it becomes 42 effective at a future date or upon the occurrence of a future event 43 or contingency.[1243] 357 1 (B) If a durable power of attorney becomes effective upon the 2 occurrence of a future event or contingency, the principal may 3 authorize in the instrument itself one or more persons to determine 4 in writing that the event or contingency has occurred. 5 6 REPORTER’S COMMENTS: 7 8 This section is a portion of Section 109 of the Uniform Power of 9 Attorney Act. 10 11 Section 625504. (A) A durable health care power of attorney 12 that relates to health care may be created under the provisions of 13 Section 625524 or may be created pursuant to other provisions of 14 law. 15 (B) If the durable power of attorney relates solely to health care 16 then it is not required to be recorded as set forth in Section 625501 17 in order to be effective during the incapacity of the principal. 18 (C) A properly executed durable power of attorney that 19 authorizes an agent to make health care decisions regarding the 20 principal is valid whether or not it was executed after May 14, 21 1990. 22 (D) The validity of a durable power of attorney that authorizes 23 an attorney to make health care decisions regarding the principal 24 properly executed pursuant to Section 625501 of the 1976 Code 25 before or after the effective date of this act is not affected by the 26 amendments to Part 5, Article 5, Title 62 of the 1976 Code 27 contained in this act. 28 29 Section 625505. (A) The instrument may define ‘incapacity’ or 30 ‘incapacitated’ and may set forth the procedures for determining 31 the incapacity of the principal or whether the principal is 32 incapacitated. 33 (B) If a durable power of attorney becomes effective upon the 34 incapacity of the principal, the principal may authorize one or 35 more persons to determine that the principal is incapacitated. A 36 person authorized by the principal to make such a determination 37 may act as the principal’s personal representative as defined in and 38 pursuant to the Health Insurance Portability and Accountability 39 Act, Section 1171 through 1179 of the Social Security Act, 42 40 U.S.C. 1320d, as amended, and applicable regulations, to obtain 41 access to the principal’s health care information and may 42 communicate with the principal’s health care providers. [1243] 358 1 (C) If a durable power of attorney becomes effective upon the 2 incapacity of the principal and the principal has not authorized a 3 person to determine that the principal is incapacitated, or the 4 person authorized is unable or unwilling to make the 5 determination, then the durable power of attorney becomes 6 effective upon a determination in a writing or other record that: 7 (1) The principal is incapacitated, pursuant to the definitions 8 or procedures set forth in the durable power of attorney for 9 determining the principal’s incapacity, as certified under penalty of 10 perjury by a licensed physician who has personally examined the 11 principal; or 12 (2) If the durable power of attorney does not define 13 incapacity or incapacitated, then such terms shall mean the 14 inability of an individual to manage property or business affairs 15 because the individual: 16 (a) has an impairment in the ability to receive and 17 evaluate information or make or communicate decisions even with 18 the use of technological assistance; or 19 (b) is: 20 (i) missing; 21 (ii) detained, including incarcerated in a penal system; 22 or 23 (iii) outside the United States and unable to return. 24 (D) If no person authorized by the principal is able or willing to 25 determine that the principal is incapacitated, then a person having 26 priority to make health care decisions for the principal pursuant to 27 S.C. Code Section 446630, as amended, may act as the principal’s 28 personal representative as defined in and pursuant to the Health 29 Insurance Portability and Accountability Act, Section 1171 30 through 1179 of the Social Security Act, 42 U.S.C. 1320d, as 31 amended, and applicable regulations, to obtain access of the 32 principal’s health care information and may communicate with the 33 principal’s health care providers. 34 (E) No licensed physician who, in good faith, makes a 35 determination as set forth above of the principal’s incapacity shall 36 be subject to liability because of such determination. 37 38 REPORTER’S COMMENTS: 39 40 This section adopts and modifies a portion of section 109 of the 41 Uniform Power of Attorney Act to set forth provisions regarding 42 the definition of incapacity. The section also provides a safe 43 harbor for a physician who in good faith makes a determination as[1243] 359 1 to physical disability or mental incompetence as set forth in this 2 section. 3 4 Section 625506. A durable power of attorney may provide for 5 successor agents to any agent and provide conditions for their 6 succession, which may include an authorization for the court or the 7 agent to appoint a successor, and the succession may occur 8 whether or not the principal is incapacitated when the succession 9 occurs. 10 11 REPORTER’S COMMENTS 12 13 As part of the reorganization of former Section 625501, the 2012 14 amendments moved former Section 625501(b) into different 15 sections. This section used to be part of former Section 625501(b) 16 and is now a slightly modified standalone section. 17 18 Section 625507. Except as otherwise provided in the durable 19 power of attorney, a person accepts appointment as an agent under 20 a durable power of attorney by exercising authority or performing 21 duties as an agent or by any other assertion or conduct indicating 22 acceptance. 23 24 REPORTER’S COMMENTS 25 26 The 2012 amendments adopted section 113 of the Uniform Power 27 of Attorney Act to clarify when a person accepts appointment as 28 an agent under a power of attorney. There was no corresponding 29 statute before the amendment. 30 31 Section 625508. (A) Unless the durable power of attorney 32 provides a different method for an agent’s resignation, an agent 33 may resign by giving written notice to the principal and, if the 34 principal is incapacitated within the meaning of section 625505, 35 written notice must also be given as follows: 36 (1) to the conservator or guardian, if one has been appointed 37 for the principal, and a coagent or successor agent; or 38 (2) if there is no person described in subsection (1), to: 39 (a) the principal’s caregiver; 40 (b) another person reasonably believed by the agent to 41 have sufficient interest in the principal’s welfare; or 42 (c) a governmental agency having authority to protect the 43 welfare of the principal.[1243] 360 1 (B) Unless the durable power of attorney provides a different 2 method for an agent’s removal by the principal, the principal may 3 remove an agent by giving written notice to the agent. 4 (C) If the durable power of attorney was recorded, the agent’s 5 written notice of resignation and the principal’s written notice of 6 removal must be recorded in the same manner as a deed in the 7 county where the durable power of attorney was recorded. If the 8 durable power of attorney was not recorded, the agent’s written 9 notice of resignation and the principal’s notice of removal may be 10 recorded in the same manner as a deed in the county where the 11 principal resides at the time of resignation or removal. 12 (D) Upon such resignation or removal, the attorney shall 13 thereupon be divested of all authority under the durable power of 14 attorney. 15 (E) An agent’s authority terminates when: 16 (1) the principal revokes the authority; 17 (2) the principal dies; 18 (3) an action is commenced for divorce, annulment, or for 19 termination of all marital property rights or for equitable 20 distribution as to a spouse named as agent, unless the durable 21 power of attorney otherwise provides; or 22 (4) an agent dies, becomes incapacitated, is removed, or 23 resigns. 24 (F) Unless the durable power of attorney provides otherwise, 25 an agent’s authority is exercisable until the authority terminates 26 under (E), notwithstanding a lapse of time since the execution of 27 the durable power of attorney. 28 29 REPORTER’S COMMENTS 30 31 The 2012 amendments adopted a modified version of section 118 32 of the Uniform Power of Attorney Act methods for an agent’s 33 resignation and the principal’s removal of the agent. 34 35 Section 625509. (A) Notwithstanding provisions in the durable 36 power of attorney, an agent that has accepted appointment is a 37 fiduciary who shall: 38 (1) act in good faith; and 39 (2) act only within the scope of authority granted in the 40 durable power of attorney. 41 (B) Except as otherwise provided in the durable power of 42 attorney, an agent that has accepted appointment shall:[1243] 361 1 (1) act in accordance with the principal’s reasonable 2 expectations to the extent actually known by the agent and, 3 otherwise, in the principal’s best interest; 4 (2) act loyally for the principal’s benefit; 5 (3) act so as not to create a conflict of interest that impairs 6 the agent’s ability to act impartially in the principal’s best interest; 7 (4) act with the care, competence, and diligence ordinarily 8 exercised by agents in similar circumstances; 9 (5) keep a record of all receipts, disbursements, and 10 transactions made on behalf of the principal and account to the 11 principal or the principal’s designee upon demand of the principal 12 or the principal’s designee; 13 (6) cooperate with a person that has authority to make 14 healthcare decisions for the principal to carry out the principal’s 15 reasonable expectations to the extent actually known by the agent 16 and, otherwise, act in the principal’s best interest; and 17 (7) attempt to preserve the principal’s estate plan, to the extent 18 actually known by the agent, if preserving the plan is consistent 19 with the principal’s best interest based on all relevant factors, 20 including: 21 (a) the value and nature of the principal’s property; 22 (b) the principal’s foreseeable obligations and need for 23 maintenance; 24 (c) minimization of taxes, including income, estate, 25 inheritance, generationskipping transfer, and gift taxes; and 26 (d) eligibility for a benefit, a program, or assistance under a 27 statute or regulation. 28 (C) An agent that acts in good faith is not liable to any 29 beneficiary of the principal’s estate plan for failure to preserve the 30 principal’s estate plan. 31 (D) An agent that acts with care, competence, and diligence for 32 the best interest of the principal is not liable solely because the 33 agent also benefits from the act or has an individual or conflicting 34 interest in relation to the property or affairs of the principal. 35 (E) If an agent is selected by the principal because of special 36 skills or expertise possessed by the agent or in reliance on the 37 agent’s representation that the agent has special skills or expertise, 38 the special skills or expertise must be considered in determining 39 whether the agent has acted with care, competence, and diligence 40 under the circumstances. 41 (F) Absent a breach of duty to the principal, an agent is not 42 liable if the value of the principal’s property declines.[1243] 362 1 (G) An agent that exercises authority to delegate to another 2 person the authority granted by the principal or that engages 3 another person on behalf of the principal is not liable for an act, 4 error of judgment, or default of that person if the agent exercises 5 reasonable care, competence, and diligence in selecting and 6 monitoring the person. 7 8 REPORTER’S COMMENTS 9 The 2012 amendments adopt the bulk of section 114 of the 10 Uniform Power of Attorney Act to set forth the duties of an agent 11 in detail. 12 13 Section 625510. (A) Subject to subsections (B) (C), (D), (E), 14 and (F), if a durable power of attorney grants to an agent authority 15 to do all acts that a principal could do, the agent has the general 16 authority described in Sections 625511 through 625514 and any 17 other specific power as expressly provided in the durable power of 18 attorney, 19 (B) Subject to subsections (A), (C), (D), (E), and (F), if the 20 subjects over which authority is granted in a durable power of 21 attorney are similar or overlap, the broadest authority controls. 22 (C) Authority granted in a durable power of attorney is 23 exercisable with respect to property that the principal has when the 24 durable power of attorney is executed or acquires later, whether or 25 not the property is located in this state and whether or not the 26 authority is exercised or the durable power of attorney is executed 27 in this state. 28 (D) Notwithstanding anything contained in Section 625511 or 29 anything in this part to the contrary, an agent under a durable 30 power of attorney may do the following on behalf of the principal 31 or with the principal’s property only if the durable power of 32 attorney expressly grants the agent the authority and exercise of 33 the authority is not otherwise prohibited by another written 34 agreement or instrument to which the authority or property is 35 subject: 36 (1) make a gift; 37 (2) create or change rights of survivorship; 38 (3) create or change a beneficiary designation; 39 (4) delegate authority granted under the durable power of 40 attorney; 41 (5) waive the principal’s right to be a beneficiary of a joint 42 and survivor annuity, including a survivor benefit under a 43 retirement plan; [1243] 363 1 (6) exercise fiduciary powers that the principal has authority 2 to delegate; 3 (7) disclaim property, including a power of appointment; 4 (8) access any safe deposit box rented by the principal; or 5 (9) create, amend, revoke or terminate a trust. 6 (E) Notwithstanding a grant of authority to do an act described 7 in subsection (D), unless the durable power of attorney otherwise 8 expressly provides, an agent that is not an ancestor, spouse, or 9 descendant of the principal may not exercise authority under a 10 durable power of attorney to create in the agent, or in an individual 11 to whom the agent owes a legal obligation of support, an interest in 12 the principal’s property, whether by gift, right of survivorship, 13 beneficiary designation, disclaimer, or otherwise. 14 (F) Notwithstanding the foregoing, and notwithstanding 15 anything in this Part to the contrary, a principal may expressly 16 modify, reject, or omit any part or all authority contained in 17 Sections 625512 through 625514. 18 19 REPORTER’S COMMENTS 20 21 The 2012 amendments modify and adopt section 201 of the 22 Uniform Power of Attorney Act to set forth authority that requires 23 a specific grant and to clarify the effect of a grant of general 24 authority. The general authority includes, but is not limited to, the 25 authority found in sections 625511 through 625514. 26 27 Section 625511. (A) An agent has authority described in this 28 article if the durable power of attorney expressly refers to general 29 authority with respect to the descriptive term for the subjects stated 30 in Sections 625512 through 625514 or expressly cites the section 31 in which the authority is described. 32 (B) An express reference in a durable power of attorney to 33 general authority with respect to the descriptive term for a subject 34 in Sections 625512 through 625514 or an express citation to a 35 section of Sections 625512 through 625514 incorporates the entire 36 section as if it were set out in full in the durable power of attorney. 37 (C) Notwithstanding the foregoing, and notwithstanding 38 anything in this Part to the contrary, a principal may expressly 39 modify, reject, or omit any part or all authority contained in 40 Sections 625512 through 6255514. 41 42 REPORTER’S COMMENTS 43[1243] 364 1 The 2012 amendments modify and adopt section 202 of the 2 Uniform Power of Attorney Act relating to the incorporation of 3 certain authority in a power of attorney. This authority includes, 4 but is not limited to, the powers in sections 625512 through 5 625514, all of which are modified versions of the Uniform Act. Of 6 course, the principal may modify the authority incorporated by 7 reference, and it is the intent to leave the drafting to the drafter. 8 9 Section 625512. By executing a durable power of attorney 10 that incorporates by reference a subject described in Sections 11 625513 through 625514 or that grants to an agent authority to do 12 all acts that a principal could do pursuant to Section 625510(A), a 13 principal authorizes the agent, with respect to that subject, to: 14 (1) demand, receive, and obtain by litigation or otherwise, 15 money or another thing of value to which the principal is, may 16 become, or claims to be entitled, and conserve, invest, disburse, or 17 use anything so received or obtained for the purposes intended; 18 (2) subject to the limitations of 625510(D), contract in any 19 manner with any person, on terms agreeable to the agent, to 20 accomplish a purpose of a transaction and perform, rescind, cancel, 21 terminate, reform, restate, release, or modify the contract or 22 another contract made by or on behalf of the principal; 23 (3) execute, acknowledge, seal, deliver, file, or record any 24 instrument or communication the agent considers desirable to 25 accomplish a purpose of a transaction, including creating at any 26 time a schedule listing some or all of the principal’s property and 27 attaching it to the durable power of attorney; 28 (4) initiate, participate in, submit to alternative dispute 29 resolution, settle, oppose, or propose or accept a compromise with 30 respect to a claim existing in favor of or against the principal or 31 intervene in litigation relating to the claim; 32 (5) seek on the principal’s behalf the assistance of a court or 33 other governmental agency to carry out an act authorized in the 34 durable power of attorney; 35 (6) engage, compensate, and discharge an attorney, accountant, 36 discretionary investment manager, expert witness, or other advisor 37 even though they are associated with the agent to advise or assist 38 him in the performance of his administrative duties; to act upon 39 their recommendation without independent investigation; and 40 instead of acting personally, to employ one or more agents to 41 perform an act of administration, whether or not discretionary;[1243] 365 1 (7) prepare, execute, and file a record, report, application, 2 appeal, or other document to safeguard or promote the principal’s 3 interest under a statute or regulation; 4 (8) communicate with any representative or employee of a 5 government or governmental subdivision, agency, or 6 instrumentality, on behalf of the principal; 7 (9) access communications intended for, and communicate on 8 behalf of the principal, whether by mail, electronic transmission, 9 telephone, or other means, and access the principal’s files and 10 accounts in electronic format including obtaining the principal’s 11 user names and passwords; 12 (10) waive, release, or renounce any fiduciary position to which 13 the principal has been appointed. 14 (11) deposit money in and withdraw money from accounts in a 15 regulated financialservice institution in the name of the principal, 16 including by automatic withdrawals and electronic debits and other 17 forms of electronic processing; 18 (12) subject to the terms of a document or an agreement 19 governing an entity ownership interest, and unless the power of 20 attorney provides otherwise, with respect to an interest in a 21 proprietorship, partnership, limited liability company, business 22 trust, corporation, or other form of business or enterprise, create 23 and/or continue a business or other enterprise and take any action 24 that may be taken by shareholders, members, or property owners, 25 including merging, dissolving, or otherwise changing the form of 26 business organization or contributing additional capital; 27 (13) with respect to stocks or other securities, exercise the rights 28 of an absolute owner, including the right to: 29 (a) vote, or give proxies to vote, with or without power of 30 substitution, or enter into or continue a voting trust agreement; 31 (b) hold a security in the name of a nominee or in other form 32 so that title may pass by delivery; 33 (c) pay calls, assessments, and other sums chargeable or 34 accruing against the securities, and sell or exercise stock 35 subscription or conversion rights; and 36 (d) deposit the securities with a depositary or other regulated 37 financialservice institution; 38 (14) pay taxes, assessments, compensation of employees and 39 agents of the principal, and other expenses incurred in carrying out 40 the powers given to the agent; 41 (15) prepare or cause to be prepared and file tax returns for 42 federal, state, and local taxes; [1243] 366 1 (16) contribute to, and make withdrawals from any employee 2 benefit or retirement plan, annuity, or life insurance owned by the 3 principal and exercise the principal’s rights thereunder to roll over, 4 exchange, and transfer the account to a new custodian; 5 (17) prosecute or defend an action, claim, or judicial proceeding 6 in any jurisdiction for or against the principal; 7 (18) expend sums for the health, education, maintenance and 8 support of the principal and the principal’s dependents; 9 (19) apply for government benefits for the principal; 10 (20) file a claim for an elective share or other statutory 11 entitlement in any proceeding involving the principal; 12 (21) enter into agreements for the admission, discharge, and care 13 of the principal with any assisted living, nursing home, hospital, 14 rehabilitative, respite, in home, or other care providers, including 15 hiring and firing home health care and other providers of services 16 to the principal; 17 (22) to do any other act necessary, appropriate, incident, or 18 convenient to the exercise of the foregoing powers. 19 20 REPORTER’S COMMENTS 21 22 The 2012 amendments modify and adopt section 203 of the 23 Uniform Power of Attorney Act. The section has also been 24 modified to incorporate many of the powers available to trustees, 25 guardians, and conservators. 26 27 Section 625513. Subject to the provisions of 625510, language 28 in a durable power of attorney granting general authority with 29 respect to real property authorizes the agent to: 30 (1) demand, buy, lease, receive, accept as a gift or as security 31 for an extension of credit, or otherwise acquire or reject an interest 32 in real property or a right incident to real property; 33 (2) sell; exchange; convey with or without covenants, 34 representations, or warranties; quitclaim; release; surrender; retain 35 title for security; encumber; partition; consent to partitioning; 36 subject to an easement or covenant; subdivide; apply for zoning or 37 other governmental permits; plat or consent to platting; develop; 38 grant an option concerning; lease; sublease; contribute to an entity 39 in exchange for an interest in that entity; or otherwise grant or 40 dispose of an interest in real property or a right incident to real 41 property; 42 (3) pledge or mortgage an interest in real property or right 43 incident to real property as security to borrow money or pay,[1243] 367 1 renew, or extend the time of payment of a debt of the principal or a 2 debt guaranteed by the principal; 3 (4) release, assign, satisfy, or enforce by litigation or otherwise 4 a mortgage, deed of trust, conditional sale contract, encumbrance, 5 lien, or other claim to real property which exists or is asserted; 6 (5) manage or conserve an interest in real property or a right 7 incident to real property owned or claimed to be owned by the 8 principal, including: 9 (a) insuring against liability or casualty or other loss; 10 (b) obtaining or regaining possession of or protecting the 11 interest or right by litigation or otherwise; 12 (c) paying, assessing, compromising, or contesting taxes or 13 assessments or applying for and receiving refunds in connection 14 with them; and 15 (d) purchasing supplies, hiring assistance or labor, and 16 making repairs or alterations to the real property; 17 (6) use, develop, alter, replace, remove, erect, or install 18 structures or other improvements upon real property in or incident 19 to which the principal has, or claims to have, an interest or right; 20 (7) participate in a reorganization with respect to real property 21 or an entity that owns an interest in or right incident to real 22 property and receive, and hold, and act with respect to stocks and 23 bonds or other property received in a plan of reorganization, 24 including: 25 (a) selling or otherwise disposing of them; 26 (b) exercising or selling an option, right of conversion, or 27 similar right with respect to them; and 28 (c) exercising any voting rights in person or by proxy; 29 (8) change the form of title of an interest in or right incident to 30 real property; and 31 (9) dedicate to public use, with or without consideration, 32 easements or other real property in which the principal has, or 33 claims to have, an interest. 34 35 REPORTER’S COMMENTS 36 37 This section is a modified version of Section 204 of the Uniform 38 Power of Attorney Act. 39 40 Section 625514. Subject to the provisions of 625510, language 41 in a durable power of attorney granting general authority with 42 respect to tangible personal property authorizes the agent to:[1243] 368 1 (1) demand, buy, receive, accept as a gift or as security for an 2 extension of credit, or otherwise acquire or reject ownership or 3 possession of tangible personal property or an interest in tangible 4 personal property; 5 (2) sell; exchange; convey with or without covenants, 6 representations, or warranties; quitclaim; release; surrender; create 7 a security interest in; grant options concerning; lease; sublease; or, 8 otherwise dispose of tangible personal property or an interest in 9 tangible personal property; 10 (3) grant a security interest in tangible personal property or an 11 interest in tangible personal property as security to borrow money 12 or pay, renew, or extend the time of payment of a debt of the 13 principal or a debt guaranteed by the principal; 14 (4) release, assign, satisfy, or enforce by litigation or 15 otherwise, a security interest, lien, or other claim on behalf of the 16 principal, with respect to tangible personal property or an interest 17 in tangible personal property; 18 (5) manage or conserve tangible personal property or an 19 interest in tangible personal property on behalf of the principal, 20 including: 21 (a) insuring against liability or casualty or other loss; 22 (b) obtaining or regaining possession of or protecting the 23 property or interest, by litigation or otherwise; 24 (c) paying, assessing, compromising, or contesting taxes or 25 assessments or applying for and receiving refunds in connection 26 with taxes or assessments; 27 (d) moving the property from place to place; 28 (e)storing the property for hire or on a gratuitous bailment; 29 and 30 (f) using and making repairs, alterations, or improvements 31 to the property; and 32 (6) change the form of title of an interest in tangible personal 33 property. 34 35 REPORTER’S COMMENTS 36 37 This section is a modified version of Section 205 of the Uniform 38 Power of Attorney Act. 39 40 Section 625515. (A) The death of any principal who has 41 executed a durable power of attorney in writing does not revoke or 42 terminate the agency as to the agent, or other person who, without 43 actual knowledge of the death, of the principal, acts in good faith[1243] 369 1 under the durable power of attorney or agency. Any action so 2 taken, unless otherwise invalid or unenforceable, binds the 3 principal and his heirs, devisees, and personal representatives. 4 (B) An affidavit, executed by the agent stating that he did not 5 have, at the time of doing an act pursuant to the durable power of 6 attorney, actual knowledge of the revocation or termination of the 7 durable power of attorney by death is, in the absence of fraud, 8 conclusive proof of the nonrevocation or nontermination of the 9 power at that time. If the exercise of the power requires execution 10 and delivery of any instrument which is recordable, the affidavit 11 when authenticated for record is likewise recordable. 12 (C) This section shall not be construed to alter or affect any 13 provision for revocation or termination contained in the durable 14 power of attorney. 15 16 REPORTER’S COMMENTS 17 18 The 2012 amendments incorporate the provisions of former 19 Section 625502. 20 21 Section 625516. (A) As used in this section: 22 (1) A third person’ means an individual, corporation, 23 organization, or other legal entity. A third person that conducts 24 activities through employees is without knowledge of a fact 25 relating to a durable power of attorney, to a principal, or to an 26 agent if the employee conducting the transaction involving the 27 instrument is without the actual knowledge of the fact. 28 (2) ‘To honor’ a durable power of attorney means to deal 29 with the agent as if the agent were the principal, personally present 30 and acting on the principal’s own behalf within the general scope 31 of the powers granted to the agent under the durable power of 32 attorney. 33 (B) Subject to subsection (C), a third person that receives or is 34 presented with a durable power of attorney, executed as provided 35 in Section 625501, or a recorded copy thereof, who has not 36 received actual written notice of its revocation or termination, must 37 honor the agent’s requested exercise of authority, if such authority 38 is within the general scope of the powers granted to the agent, 39 under any of the following circumstances: 40 (1) the instrument contains the following provision or a 41 substantially similar provision: 42 ‘No person who may act in reliance upon the representations of 43 my agent for the scope of authority granted to the agent shall incur[1243] 370 1 any liability as to me or to my estate as a result of permitting the 2 agent to exercise this authority, nor is any such person who deals 3 with my agent responsible to determine or insure the proper 4 application of funds or property.’; or 5 (2) the agent signs and presents to the third person a written 6 certificate as provided in Section 625517; or 7 (3) the instrument does not include language expressly 8 prohibiting or restricting the action the agent desires to take. 9 (C) Before honoring a durable power of attorney, a third person 10 may require that: 11 (1) the instrument have been recorded, 12 (2) the agent sign a written certificate as provided in Section 13 625517, and 14 (3) an English translation of the durable power of attorney 15 be provided if the durable power of attorney contains, in whole or 16 in part, language other than English. 17 (D) Unless the third person actually has received written notice 18 of the revocation or termination of a durable power of attorney, a 19 third person that honors a durable power of attorney: 20 (1) does not incur liability to the principal or the principal’s 21 estate by reason of acting upon the authority of it or permitting the 22 agent to exercise authority; 23 (2) is not required to inquire whether the agent has the 24 power to exercise the requested authority where such authority is 25 within the general scope of the powers granted under the durable 26 power of attorney; and 27 (3) is not responsible to determine or ensure the proper 28 application of assets, funds, or property belonging to the principal. 29 (E) A third person that wrongfully refuses to honor a durable 30 power of attorney is subject to: 31 (1) a court order mandating acceptance of the durable power 32 of attorney; 33 (2) liability for reasonable attorney’s fees and costs incurred 34 in any action or proceeding that confirms the validity of the 35 durable power of attorney or mandates acceptance of the durable 36 power of attorney; and 37 (3) damages resulting to the principal caused by such refusal 38 to honor the durable power of attorney without reasonable cause. 39 40 REPORTER’S COMMENTS 41[1243] 371 1 This section clarifies the rights of a third party presented with a 2 durable power of attorney as well as the rights of an agent who 3 presents a power of attorney to a third party. 4 5 Section 625517. The following optional form or a similar form 6 may be used by an agent to certify facts concerning a durable 7 power of attorney. 8 9 AGENT’S CERTIFICATION AS TO THE VALIDITY OF 10 DURABLE POWER OF ATTORNEY AND AGENT’S 11 AUTHORITY 12 13 State of ______14 [County] of______] 15 16 I, ______(Name 17 of Agent), [certify] under penalty of perjury that 18 ______(Name of 19 Principal) granted me authority as an agent or successor agent in a 20 durable power of attorney dated ______. 21 22 I further [certify] that to my knowledge: 23 24 (1) the Principal is alive and has not revoked the durable power 25 of attorney or my authority to act under the durable power of 26 attorney and the durable power of attorney and my authority to act 27 under the durable power of attorney have not terminated; 28 29 (2) the authority I am exercising is within the scope of authority 30 granted under the durable power of attorney; 31 32 (3) if the durable power of attorney was drafted to become 33 effective upon the happening of an event or contingency, the event 34 or contingency has occurred; and 35 36 (4) if I was named as a successor agent, the prior agent is 37 terminated. 38 39 40 SIGNATURE AND ACKNOWLEDGMENT 41 42 ______43 ______[1243] 372 1 Agent’s Signature Date 2 3 ______4 Agent’s Name Printed 5 ______6 ______7 Agent’s Address 8 ______9 Agent’s Telephone Number 10 11 This document was acknowledged before me on 12 ______, 13 (Date) 14 by______. 15 (Name of Agent) 16 ______(Seal) 17 Signature of Notary 18 My commission expires: ______19 20 REPORTER’S COMMENTS 21 The 2012 amendments adopt for the most part the form set forth in 22 Section 302 of the Uniform Power of Attorney Act as an example 23 of a form to be used to certify facts concerning a power of 24 attorney. 25 26 Section 625518. In addition to other remedies provided by law 27 and except as otherwise provided in the durable power of attorney, 28 an agent that violates the provisions of Section 625501 et seq. is 29 liable to the principal or the principal’s successorsininterest for the 30 amount required to: 31 (1) restore the value of the principal’s property to what it 32 would have been had the violation not occurred; and 33 (2) reimburse the principal or the principal’s successors in 34 interest for reasonable attorney’s fees and costs paid by the 35 principal or the principal’s successors in interest or on the 36 principal’s behalf. 37 38 REPORTER’S COMMENTS 39 The 2012 amendments adopt a modified version of section 117 of 40 the Uniform Power of Attorney Act to describe the liability of an 41 agent. These remedies are in addition to other remedies at law or 42 equity. 43[1243] 373 1 Section 625519. (A) Unless the durable power of attorney 2 otherwise provides, an agent is entitled to reimbursement of 3 expenses reasonably incurred on behalf of the principal and to 4 compensation that is reasonable under the circumstances. If two or 5 more attorneysinfact are serving together, the compensation paid 6 must be divided by them in a manner as they agree or as 7 determined by a court of competent jurisdiction if they fail to 8 agree. 9 (B) An interested person as defined in Section 625520 may 10 petition a court of competent jurisdiction to review the propriety 11 and reasonableness of payment for reimbursement or 12 compensation to the agent, and an agent who has received 13 excessive payment may be ordered to make appropriate refunds to 14 the principal. 15 16 REPORTER’S COMMENTS 17 18 The 2012 Amendments incorporate the provisions of Uniform 19 Power of Attorney Act Section 112 and former section 20 6255501(G)(1) and (2). The amendments eliminate the need to 21 petition the court for reimbursement and compensation unless the 22 power of attorney provides otherwise. The amendments also 23 clarify who is an interested person for purposes of petitioning the 24 court for review of reimbursement or compensation. 25 26 Section 625520. (A) The following persons may petition a 27 court of competent jurisdiction to construe a durable power of 28 attorney, to review the agent’s conduct, and to grant appropriate 29 relief: 30 (1) the principal or the agent; 31 (2) a guardian, conservator, or other fiduciary acting for the 32 principal; 33 (3) a person authorized to make healthcare decisions for the 34 principal; 35 (4) the principal’s spouse, parent, or adult descendant; 36 (5) an individual who would qualify as an intestate heir of 37 the principal; 38 (6) a person named as a beneficiary to receive any property, 39 benefit, or contractual right on the principal’s death or as a 40 beneficiary of a trust created by or for the principal that has a 41 financial interest in the principal’s estate; 42 (7) a governmental agency having regulatory authority to 43 protect the welfare of the principal;[1243] 374 1 (8) the principal’s caregiver or another person that 2 demonstrates sufficient interest in the principal’s welfare; and 3 (9) a person asked to accept the durable power of attorney. 4 (B) Upon motion by the principal, the court shall dismiss a 5 petition filed under this section, unless the court finds that the 6 principal lacks capacity to revoke the agent’s authority or the 7 durable power of attorney. 8 9 REPORTER’S COMMENTS 10 11 The 2012 amendments incorporate the provisions of section 116 of 12 the Uniform Power of Attorney Act. The amendments expand the 13 provisions regarding judicial relief and define those interested 14 persons who may petition the court for such relief. The section 15 also describes when a petition may be dismissed on the principal’s 16 motion. 17 18 Section 625521. The probate court has concurrent jurisdiction 19 with the circuit courts of this State over all subject matter related to 20 the creation, exercise, and termination of powers of attorney 21 governed by the provisions of this Part. 22 23 REPORTER’S COMMENTS 24 25 The 2012 amendments retained this portion of former Section 26 625503. The amendments delete the reference in the former 27 statute to the approval of the sale of real or personal property. 28 Depending on the wording of the power of attorney, such approval 29 may or may not be necessary, but it is not required under all 30 circumstances. 31 32 Section 625522. The appointment of an agent in a durable 33 power of attorney does not prevent the agent, any other person or 34 his representative from applying to the court for the appointment 35 of a guardian or conservator for the principal. To the extent the 36 court determines that the appointment of a guardian or conservator 37 is appropriate, appointment of a guardian suspends or terminates 38 all or part of the durable power of attorney that relates to matters 39 within the scope of the guardianship pursuant to Section 40 625307(C), and appointment of a conservator suspends or 41 terminates all or part of the durable power of attorney that relates 42 to matters within the scope of the conservatorship pursuant to 43 625407(B).[1243] 375 1 2 REPORTER’S COMMENTS 3 4 The 2012 amendments incorporate and slightly modify a portion of 5 former Section 625501(b). 6 7 Section 625523. (A) A durable power of attorney executed in 8 this state after the effective date of this section, is valid if executed 9 in compliance with Section 625501. 10 (B) A durable power of attorney executed in this state before 11 the effective date of this section is valid if its execution complied 12 with the laws of this state as they existed at the time of execution. 13 (C) A durable power of attorney executed other than in this 14 state is valid in this state if, when the durable power of attorney 15 was executed, the execution complied with: 16 (1) the law of the jurisdiction that determines the meaning 17 and effect of the durable power of attorney pursuant to Section 18 625502; or 19 (2) the requirements for a military durable power of attorney 20 pursuant to 10 U.S.C. Section 1044b, as amended. 21 (D) Except as otherwise provided by statute other than this part, 22 a photocopy or electronically transmitted copy of an original 23 recorded durable power of attorney has the same effect as the 24 original recorded durable power of attorney . 25 26 REPORTER’S COMMENTS: 27 28 The 2012 amendments clarify the rules regarding validity of 29 durable powers of attorney. The amendments incorporate section 30 625501(d) and section 106 of the uniform power of attorney act. 31 The amendments also confirm that a copy of an original recorded 32 durable power of attorney has the same effect as the original. 33 34 Section 625524. (A) As used in this section: 35 (1) ‘Agent’ or ‘health care agent’ means an individual 36 designated in a health care power of attorney to make health care 37 decisions on behalf of a principal. 38 (2) ‘Declaration of a desire for a natural death’ or 39 ‘declaration’ means a document executed in accordance with the 40 South Carolina Death with Dignity Act or a similar document 41 executed in accordance with the law of another state. 42 (3) ‘Health care’ means a procedure to diagnose or treat a 43 human disease, ailment, defect, abnormality, or complaint, whether[1243] 376 1 of physical or mental origin. It also includes the provision of 2 intermediate or skilled nursing care; services for the rehabilitation 3 of injured, disabled, or sick persons; and placement in or removal 4 from a facility that provides these forms of care. 5 (4) ‘Health care power of attorney’ means a durable power 6 of attorney executed in accordance with this section. 7 (5) ‘Health care provider’ means a person, health care 8 facility, organization, or corporation licensed, certified, or 9 otherwise authorized or permitted by the laws of this State to 10 administer health care. 11 (6) ‘Lifesustaining procedure’ means a medical procedure or 12 intervention which serves only to prolong the dying process. 13 Lifesustaining procedures do not include the administration of 14 medication or other treatment for comfort care or alleviation of 15 pain. The principal shall indicate in the health care power of 16 attorney whether the provision of nutrition and hydration through 17 medically or surgically implanted tubes is desired. 18 (7) ‘Permanent unconsciousness’ means a medical 19 diagnosis, consistent with accepted standards of medical practice, 20 that a person is in a persistent vegetative state or some other 21 irreversible condition in which the person has no neocortical 22 functioning, but only involuntary vegetative or primitive reflex 23 functions controlled by the brain stem. 24 (8) ‘Nursing care provider’ means a nursing care facility or 25 an employee of the facility. 26 (9) ‘Principal’ means an individual who executes a health 27 care power of attorney. A principal must be eighteen years of age 28 or older and of sound mind. 29 (10) ‘Separated’ means that the principal and his or her 30 spouse are separated pursuant to one of the following: 31 (a) entry of a pendente lite order in a divorce or separate 32 maintenance action; 33 (b) formal signing of a written property or marital 34 settlement agreement; 35 (c) entry of a permanent order of separate maintenance 36 and support or of a permanent order approving a property or 37 marital settlement agreement between the parties. 38 (B)(1) A health care power of attorney is a durable power of 39 attorney pursuant to Section 625501. Sections that refer to a 40 durable power of attorney or judicial interpretations of the law 41 relating to durable powers of attorney apply to a health care power 42 of attorney to the extent that they are not inconsistent with this 43 section.[1243] 377 1 (2) This section does not affect the right of a person to 2 execute a durable power of attorney relating to health care 3 pursuant to other provisions of law but which does not conform to 4 the requirements of this section. If a durable power of attorney for 5 health care executed under Section 625501 or under the laws of 6 another state does not conform to the requirements of this section, 7 the provisions of this section do not apply to it. However, a court is 8 not precluded from determining that the law applicable to 9 nonconforming durable powers of attorney for health care is the 10 same as the law set forth in this section for health care powers of 11 attorney. 12 (3) To the extent not inconsistent with this section, the 13 provisions of the South Carolina Adult Health Care Consent Act 14 apply to the making of decisions by a health care agent and the 15 implementation of those decisions by health care providers. 16 (4) In determining the effectiveness of a health care power 17 of attorney, mental incompetence is to be determined according to 18 the standards and procedures for inability to consent under Section 19 446620(6), except that certification of mental incompetence by the 20 agent may be substituted for certification by a second physician. If 21 the certifying physician states that the principal’s mental 22 incompetence precludes the principal from making all health care 23 decisions or all decisions concerning certain categories of health 24 care, and that the principal’s mental incompetence is permanent or 25 of extended duration, no further certification is necessary in regard 26 to the stated categories of health care decisions during the stated 27 duration of mental incompetence unless the agent or the attending 28 physician believes the principal may have regained capacity. 29 (C)(1) A health care power of attorney must: 30 (a) be substantially in the form set forth in subsection (D) 31 of this section; 32 (b) be dated and signed by the principal or in the 33 principal’s name by another person in the principal’s presence and 34 by his direction; 35 (c) be signed by at least two persons, each of whom 36 witnessed either the signing of the health care power of attorney or 37 the principal’s acknowledgment of his signature on the health care 38 power of attorney. Each witness must declare as set forth in 39 subsection (D) of this section that, at the time of the execution of 40 the health care power of attorney, to the extent the witness has 41 knowledge, the witness is not related to the principal by blood, 42 marriage, or adoption, either as a spouse, lineal ancestor, 43 descendant of the parents of the principal, or spouse of any of[1243] 378 1 them; not directly financially responsible for the principal’s 2 medical care; not entitled to any portion of the principal’s estate 3 upon his decease under a will of the principal then existing or as an 4 heir by intestate succession; not a beneficiary of a life insurance 5 policy of the principal; and not appointed as health care agent or 6 successor health care agent in the health care power of attorney; 7 and that no more than one witness is an employee of a health 8 facility in which the principal is a patient, no witness is the 9 attending physician or an employee of the attending physician, or 10 no witness has a claim against the principal’s estate upon his 11 decease; 12 (d) state the name and address of the agent. A health care 13 agent must be an individual who is eighteen years of age or older 14 and of sound mind. A health care agent may not be a health care 15 provider, or an employee of a provider, with whom the principal 16 has a providerpatient relationship at the time the health care power 17 of attorney is executed, or an employee of a nursing care facility in 18 which the principal resides, or a spouse of the health care provider 19 or employee, unless the health care provider, employee, or spouse 20 is a relative of the principal. 21 (2) The validity of a health care power of attorney is not 22 affected by the principal’s failure to initial any of the choices 23 provided in Section 4, 6, or 7 of the Health Care Power of 24 Attorney form or to name successor agents. If the principal fails to 25 indicate either of the statements in Section 7 concerning provision 26 of artificial nutrition and hydration, the agent does not have 27 authority to direct that nutrition and hydration necessary for 28 comfort care or alleviation of pain be withheld or withdrawn. 29 (D) A health care power of attorney executed on or after 30 January 1, 2007 must be substantially in the following form: 31 32 INFORMATION ABOUT THIS DOCUMENT 33 34 THIS IS AN IMPORTANT LEGAL DOCUMENT. BEFORE 35 SIGNING THIS DOCUMENT, YOU SHOULD KNOW THESE 36 IMPORTANT FACTS: 37 38 1. THIS DOCUMENT GIVES THE PERSON YOU NAME AS 39 YOUR AGENT THE POWER TO MAKE HEALTH CARE 40 DECISIONS FOR YOU IF YOU CANNOT MAKE THE 41 DECISION FOR YOURSELF. THIS POWER INCLUDES THE 42 POWER TO MAKE DECISIONS ABOUT LIFESUSTAINING 43 TREATMENT. UNLESS YOU STATE OTHERWISE, YOUR[1243] 379 1 AGENT WILL HAVE THE SAME AUTHORITY TO MAKE 2 DECISIONS ABOUT YOUR HEALTH CARE AS YOU 3 WOULD HAVE. 4 5 2. THIS POWER IS SUBJECT TO ANY LIMITATIONS OR 6 STATEMENTS OF YOUR DESIRES THAT YOU INCLUDE IN 7 THIS DOCUMENT. YOU MAY STATE IN THIS DOCUMENT 8 ANY TREATMENT YOU DO NOT DESIRE OR TREATMENT 9 YOU WANT TO BE SURE YOU RECEIVE. YOUR AGENT 10 WILL BE OBLIGATED TO FOLLOW YOUR INSTRUCTIONS 11 WHEN MAKING DECISIONS ON YOUR BEHALF. YOU 12 MAY ATTACH ADDITIONAL PAGES IF YOU NEED MORE 13 SPACE TO COMPLETE THE STATEMENT. 14 15 3. AFTER YOU HAVE SIGNED THIS DOCUMENT, YOU 16 HAVE THE RIGHT TO MAKE HEALTH CARE DECISIONS 17 FOR YOURSELF IF YOU ARE MENTALLY COMPETENT TO 18 DO SO. AFTER YOU HAVE SIGNED THIS DOCUMENT, NO 19 TREATMENT MAY BE GIVEN TO YOU OR STOPPED OVER 20 YOUR OBJECTION IF YOU ARE MENTALLY COMPETENT 21 TO MAKE THAT DECISION. 22 23 4. YOU HAVE THE RIGHT TO REVOKE THIS DOCUMENT, 24 AND TERMINATE YOUR AGENT’S AUTHORITY, BY 25 INFORMING EITHER YOUR AGENT OR YOUR HEALTH 26 CARE PROVIDER ORALLY OR IN WRITING. 27 28 5. IF THERE IS ANYTHING IN THIS DOCUMENT THAT 29 YOU DO NOT UNDERSTAND, YOU SHOULD ASK A 30 SOCIAL WORKER, LAWYER, OR OTHER PERSON TO 31 EXPLAIN IT TO YOU. 32 33 6. THIS POWER OF ATTORNEY WILL NOT BE VALID 34 UNLESS TWO PERSONS SIGN AS WITNESSES. EACH OF 35 THESE PERSONS MUST EITHER WITNESS YOUR SIGNING 36 OF THE POWER OF ATTORNEY OR WITNESS YOUR 37 ACKNOWLEDGMENT THAT THE SIGNATURE ON THE 38 POWER OF ATTORNEY IS YOURS. 39 40 THE FOLLOWING PERSONS MAY NOT ACT AS 41 WITNESSES: 42[1243] 380 1 A. YOUR SPOUSE, YOUR CHILDREN, GRANDCHILDREN, 2 AND OTHER LINEAL DESCENDANTS; YOUR PARENTS, 3 GRANDPARENTS, AND OTHER LINEAL ANCESTORS; 4 YOUR SIBLINGS AND THEIR LINEAL DESCENDANTS; OR 5 A SPOUSE OF ANY OF THESE PERSONS. 6 7 B. A PERSON WHO IS DIRECTLY FINANCIALLY 8 RESPONSIBLE FOR YOUR MEDICAL CARE. 9 10 C. A PERSON WHO IS NAMED IN YOUR WILL, OR, IF YOU 11 HAVE NO WILL, WHO WOULD INHERIT YOUR PROPERTY 12 BY INTESTATE SUCCESSION. 13 14 D. A BENEFICIARY OF A LIFE INSURANCE POLICY ON 15 YOUR LIFE. 16 17 E. THE PERSONS NAMED IN THE HEALTH CARE POWER 18 OF ATTORNEY AS YOUR AGENT OR SUCCESSOR AGENT. 19 20 F. YOUR PHYSICIAN OR AN EMPLOYEE OF YOUR 21 PHYSICIAN. 22 23 G. ANY PERSON WHO WOULD HAVE A CLAIM AGAINST 24 ANY PORTION OF YOUR ESTATE (PERSONS TO WHOM 25 YOU OWE MONEY). 26 27 IF YOU ARE A PATIENT IN A HEALTH FACILITY, NO 28 MORE THAN ONE WITNESS MAY BE AN EMPLOYEE OF 29 THAT FACILITY. 30 31 7. YOUR AGENT MUST BE A PERSON WHO IS 18 YEARS 32 OLD OR OLDER AND OF SOUND MIND. IT MAY NOT BE 33 YOUR DOCTOR OR ANY OTHER HEALTH CARE 34 PROVIDER THAT IS NOW PROVIDING YOU WITH 35 TREATMENT; OR AN EMPLOYEE OF YOUR DOCTOR OR 36 PROVIDER; OR A SPOUSE OF THE DOCTOR, PROVIDER, 37 OR EMPLOYEE; UNLESS THE PERSON IS A RELATIVE OF 38 YOURS. 39 40 8. YOU SHOULD INFORM THE PERSON THAT YOU WANT 41 HIM OR HER TO BE YOUR HEALTH CARE AGENT. YOU 42 SHOULD DISCUSS THIS DOCUMENT WITH YOUR AGENT 43 AND YOUR PHYSICIAN AND GIVE EACH A SIGNED COPY.[1243] 381 1 IF YOU ARE IN A HEALTH CARE FACILITY OR A 2 NURSING CARE FACILITY, A COPY OF THIS DOCUMENT 3 SHOULD BE INCLUDED IN YOUR MEDICAL RECORD. 4 5 HEALTH CARE POWER OF ATTORNEY 6 (S.C. STATUTORY FORM) 7 8 1. DESIGNATION OF HEALTH CARE AGENT 9 10 I, ______, hereby appoint: 11 12 (Principal) 13 14 (Agent’s Name) 15 16 (Agent’s Address) 17 18 Telephone: home: ______work: ______mobile: ______19 as my agent to make health care decisions for me as authorized in 20 this document. 21 22 Successor Agent: If an agent named by me dies, becomes 23 incapacitated, resigns, refuses to act, becomes unavailable, or if an 24 agent who is my spouse is divorced or separated from me, I name 25 the following as successors to my agent, each to act alone and 26 successively, in the order named: 27 28 A. First Alternate Agent: 29 30 Address: 31 32 Telephone: home: _____ work: _____ mobile: ____ 33 34 B. Second Alternate Agent: 35 36 Address: 37 38 Telephone: home: _____ work: _____ mobile: ____ 39 40 Unavailability of Agent(s): If at any relevant time the agent or 41 successor agents named here are unable or unwilling to make 42 decisions concerning my health care, and those decisions are to be 43 made by a guardian, by the Probate Court, or by a surrogate[1243] 382 1 pursuant to the Adult Health Care Consent Act, it is my intention 2 that the guardian, Probate Court, or surrogate make those decisions 3 in accordance with my directions as stated in this document. 4 5 2. EFFECTIVE DATE AND DURABILITY 6 7 By this document I intend to create a durable power of attorney 8 effective upon, and only during, any period of mental 9 incompetence, except as provided in Paragraph 3 below. 10 11 3. HIPAA AUTHORIZATION 12 13 When considering or making health care decisions for me, all 14 individually identifiable health information and medical records 15 shall be released without restriction to my health care agent(s) 16 and/or my alternate health care agent(s) named above including, 17 but not limited to, (i) diagnostic, treatment, other health care, and 18 related insurance and financial records and information associated 19 with any past, present, or future physical or mental health 20 condition including, but not limited to, diagnosis or treatment of 21 HIV/AIDS, sexually transmitted disease(s), mental illness, and/or 22 drug or alcohol abuse and (ii) any written opinion relating to my 23 health that such health care agent(s) and/or alternate health care 24 agent(s) may have requested. Without limiting the generality of the 25 foregoing, this release authority applies to all health information 26 and medical records governed by the Health Insurance Portability 27 and Accountability Act of 1996 (HIPAA), 42 USC 1320d and 45 28 CFR 160164; is effective whether or not I am mentally competent; 29 has no expiration date; and shall terminate only in the event that I 30 revoke the authority in writing and deliver it to my health care 31 provider. 32 33 4. AGENT’S POWERS 34 35 I grant to my agent full authority to make decisions for me 36 regarding my health care. In exercising this authority, my agent 37 shall follow my desires as stated in this document or otherwise 38 expressed by me or known to my agent. In making any decision, 39 my agent shall attempt to discuss the proposed decision with me to 40 determine my desires if I am able to communicate in any way. If 41 my agent cannot determine the choice I would want made, then my 42 agent shall make a choice for me based upon what my agent 43 believes to be in my best interests. My agent’s authority to[1243] 383 1 interpret my desires is intended to be as broad as possible, except 2 for any limitations I may state below. 3 4 Accordingly, unless specifically limited by the provisions specified 5 below, my agent is authorized as follows: 6 7 A. To consent, refuse, or withdraw consent to any and all types of 8 medical care, treatment, surgical procedures, diagnostic 9 procedures, medication, and the use of mechanical or other 10 procedures that affect any bodily function, including, but not 11 limited to, artificial respiration, nutritional support and hydration, 12 and cardiopulmonary resuscitation. 13 14 B. To authorize, or refuse to authorize, any medication or 15 procedure intended to relieve pain, even though such use may lead 16 to physical damage, addiction, or hasten the moment of, but not 17 intentionally cause, my death. 18 19 C. To authorize my admission to or discharge, even against 20 medical advice, from any hospital, nursing care facility, or similar 21 facility or service. 22 23 D. To take any other action necessary to making, documenting, 24 and assuring implementation of decisions concerning my health 25 care, including, but not limited to, granting any waiver or release 26 from liability required by any hospital, physician, nursing care 27 provider, or other health care provider; signing any documents 28 relating to refusals of treatment or the leaving of a facility against 29 medical advice, and pursuing any legal action in my name, and at 30 the expense of my estate to force compliance with my wishes as 31 determined by my agent, or to seek actual or punitive damages for 32 the failure to comply. 33 34 E. The powers granted above do not include the following powers 35 or are subject to the following rules or limitations: 36 37 5. ORGAN DONATION (INITIAL ONLY ONE) 38 39 My agent may ___; may not ___ consent to the donation of all or 40 any of my tissue or organs for purposes of transplantation. 41 42 6. EFFECT ON DECLARATION OF A DESIRE FOR A 43 NATURAL DEATH (LIVING WILL)[1243] 384 1 2 I understand that if I have a valid Declaration of a Desire for a 3 Natural Death, the instructions contained in the Declaration will be 4 given effect in any situation to which they are applicable. 5 However, if the terms of the Declaration of a Desire for a 6 Natural Death conflict with the Health Care Power of 7 Attorney, the terms of the Declaration of a Desire for a Natural 8 Death shall control if it is signed at the same time as or after 9 this Health Care Power of Attorney. My agent will have 10 authority to make decisions concerning my health care only in 11 situations to which the Declaration does not apply. 12 13 7. STATEMENT OF DESIRES CONCERNING 14 LIFESUSTAINING TREATMENT 15 16 With respect to any LifeSustaining Treatment, I direct the 17 following: 18 19 (INITIAL ONLY ONE OF THE FOLLOWING 3 20 PARAGRAPHS) 21 22 A. ___ GRANT OF DISCRETION TO AGENT. I do not want my 23 life to be prolonged nor do I want lifesustaining treatment to be 24 provided or continued if my agent believes the burdens of the 25 treatment outweigh the expected benefits. I want my agent to 26 consider the relief of suffering, my personal beliefs, the expense 27 involved and the quality as well as the possible extension of my 28 life in making decisions concerning lifesustaining treatment. 29 30 OR 31 32 B. ___ DIRECTIVE TO WITHHOLD OR WITHDRAW 33 TREATMENT. I do not want my life to be prolonged and I do not 34 want lifesustaining treatment: 35 36 1. if I have a condition that is incurable or irreversible and, without 37 the administration of lifesustaining procedures, expected to result 38 in death within a relatively short period of time; or 39 40 2. if I am in a state of permanent unconsciousness. 41 42 OR 43[1243] 385 1 C. ___ DIRECTIVE FOR MAXIMUM TREATMENT. I want my 2 life to be prolonged to the greatest extent possible, within the 3 standards of accepted medical practice, without regard to my 4 condition, the chances I have for recovery, or the cost of the 5 procedures. 6 7 8. STATEMENT OF DESIRES REGARDING TUBE FEEDING 8 9 With respect to Nutrition and Hydration provided by means of a 10 nasogastric tube or tube into the stomach, intestines, or veins, I 11 wish to make clear that in situations where lifesustaining treatment 12 is being withheld or withdrawn pursuant to Paragraph 7, (INITIAL 13 ONLY ONE OF THE FOLLOWING 3 PARAGRAPHS): 14 15 A. ___ GRANT OF DISCRETION TO AGENT. I do not want my 16 life to be prolonged by tube feeding if my agent believes the 17 burdens of tube feeding outweigh the expected benefits. I want my 18 agent to consider the relief of suffering, my personal beliefs, the 19 expense involved, and the quality as well as the possible extension 20 of my life in making this decision. 21 22 OR 23 24 B. ___ DIRECTIVE TO WITHHOLD OR WITHDRAW TUBE 25 FEEDING. I do not want my life prolonged by tube feeding. 26 27 OR 28 29 C. ___ DIRECTIVE FOR PROVISION OF TUBE FEEDING. I 30 want tube feeding to be provided within the standards of accepted 31 medical practice, without regard to my condition, the chances I 32 have for recovery, or the cost of the procedure, and without regard 33 to whether other forms of lifesustaining treatment are being 34 withheld or withdrawn. 35 36 IF YOU INITIAL ANY OF THE STATEMENTS IN 37 PARAGRAPH 8, YOUR AGENT WILL STILL HAVE 38 AUTHORITY TO DIRECT THAT NUTRITION AND 39 HYDRATION NECESSARY FOR COMFORT, CARE OR 40 ALLEVIATION OF PAIN BE WITHDRAWN. 41 42 9. ADMINISTRATIVE PROVISIONS 43[1243] 386 1 A. I revoke any prior Health Care Power of Attorney and any 2 provisions relating to health care of any other prior power of 3 attorney. 4 5 B. This power of attorney is intended to be valid in any jurisdiction 6 in which it is presented. 7 8 BY SIGNING HERE I INDICATE THAT I UNDERSTAND THE 9 CONTENTS OF THIS DOCUMENT AND THE EFFECT OF 10 THIS GRANT OF POWERS TO MY AGENT. 11 12 I sign my name to this Health Care Power of Attorney on this ___ 13 day of ___, 20 __. My current home address is: 14 15 Principal’s Signature: 16 17 Print Name of Principal: 18 19 I declare, on the basis of information and belief, that the person 20 who signed or acknowledged this document (the principal) is 21 personally known to me, that he/she signed or acknowledged this 22 Health Care Power of Attorney in my presence, and that he/she 23 appears to be of sound mind and under no duress, fraud, or undue 24 influence. I am not related to the principal by blood, marriage, or 25 adoption, either as a spouse, a lineal ancestor, descendant of the 26 parents of the principal, or spouse of any of them. I am not directly 27 financially responsible for the principal’s medical care. I am not 28 entitled to any portion of the principal’s estate upon his decease, 29 whether under any will or as an heir by intestate succession, nor 30 am I the beneficiary of an insurance policy on the principal’s life, 31 nor do I have a claim against the principal’s estate as of this time. I 32 am not the principal’s attending physician, nor an employee of the 33 attending physician. No more than one witness is an employee of a 34 health facility in which the principal is a patient. I am not 35 appointed as Health Care Agent or Successor Health Care Agent 36 by this document. 37 38 Witness No. 1 39 40 Signature: ______Date: 41 42 Print Name: ______Telephone: 43[1243] 387 1 Address: 2 3 4 5 Witness No. 2 6 7 Signature: ______Date: 8 9 Print Name: ______Telephone: 10 11 Address: 12 13 (This portion of the document is optional and is not required to 14 create a valid health care power of attorney.) 15 16 STATE OF SOUTH CAROLINA 17 18 COUNTY OF 19 20 The foregoing instrument was acknowledged before me by 21 Principal on ______, 20 ______. 22 23 Notary Public for South Carolina 24 25 My Commission Expires: 26 27 (E) A health care agent has, in addition to the powers set forth 28 in the health care power of attorney, the following specific powers: 29 (1) to have access to the principal’s medical records and 30 information to the same extent that the principal would have 31 access, including the right to disclose the contents to others; 32 (2) to contract on the principal’s behalf for placement in a 33 health care or nursing care facility or for health care related 34 services, without the agent incurring personal financial liability for 35 the contract; 36 (3) to hire and fire medical, social service, and other support 37 personnel responsible for the principal’s care; 38 (4) to have the same health care facility or nursing care 39 facility visitation rights and privileges of the principal as are 40 permitted to immediate family members or spouses. 41 (F)(1) The agent is not entitled to compensation for services 42 performed under the health care power of attorney, but the agent is 43 entitled to reimbursement for all reasonable expenses incurred as a[1243] 388 1 result of carrying out the health care power of attorney or the 2 authority granted by this section. 3 (2) The agent’s consent to health care or to the provision of 4 services to the principal does not cause the agent to be liable for 5 the costs of the care or services. 6 (G) If a principal has been diagnosed as pregnant, lifesustaining 7 procedures may not be withheld or withdrawn pursuant to the 8 health care power of attorney during the course of the principal’s 9 pregnancy. This subsection does not otherwise affect the agent’s 10 authority to make decisions concerning the principal’s obstetrical 11 and other health care during the course of the pregnancy. 12 (H) A health care provider or nursing care provider having 13 knowledge of the principal’s health care power of attorney has a 14 duty to follow directives of the agent that are consistent with the 15 health care power of attorney to the same extent as if they were 16 given by the principal. If it is uncertain whether a directive is 17 consistent with the health care power of attorney, the health care 18 provider, nursing care provider, agent, or other interested person 19 may petition the probate court for an order determining the 20 authority of the agent to give the directive. 21 (I) An agent acting pursuant to a health care power of attorney 22 shall make decisions concerning the principal’s health care in 23 accordance with the principal’s directives in the health care power 24 of attorney and with any other statements of intent by the principal 25 that are known to the agent and are not inconsistent with the 26 directives in the health care power of attorney. If a principal has a 27 valid Declaration of a Desire for a Natural Death pursuant to Title 28 44, Chapter 77, the declaration must be given effect in any 29 situation to which it is applicable. The agent named in the health 30 care power of attorney has authority to make decisions only in 31 situations to which the declaration does not apply. To the extent 32 that the terms of a Declaration of a Desire for a Natural Death and 33 a health care power of attorney conflict, the terms of the later 34 executed document shall control, provided that the terms of a 35 Declaration of a Desire for a Natural Death shall control if the two 36 documents are executed simultaneously. However, nothing 37 herein prevents the principal or a person designated by the 38 principal in the declaration from revoking the declaration as 39 provided in Section 447780. 40 (J)(1) A person who relies in good faith upon a person’s 41 representation that he is the person named as agent in a health care 42 power of attorney is not subject to civil or criminal liability or 43 disciplinary action for recognizing the agent’s authority.[1243] 389 1 (2) A health care provider or nursing care provider who in 2 good faith relies on a health care decision made by an agent or 3 successor agent is not subject to civil or criminal liability or 4 disciplinary action on account of relying on the decision. 5 (3) An agent who in good faith makes a health care decision 6 pursuant to a health care power of attorney is not subject to civil or 7 criminal liability on account of the substance of the decision. 8 (K)(1) The principal may appoint one or more successor agents 9 in the health care power of attorney in the event an agent dies, 10 becomes legally disabled, resigns, refuses to act, is unavailable, or, 11 if the agent is the spouse of the principal, becomes divorced or 12 separated from the principal. A successor agent will succeed to all 13 duties and powers given to the agent in the health care power of 14 attorney. 15 (2) If no agent or successor agent is available, willing, and 16 qualified to make a decision concerning the principal’s health care, 17 the decision must be made according to the provisions of and by 18 the person authorized by the South Carolina Adult Health Care 19 Consent Act. 20 (3) All directives, statements of personal values, or 21 statements of intent made by the principal in the health care power 22 of attorney must be treated as exercises of the principal’s right to 23 direct the course of his health care. Decisions concerning the 24 principal’s health care made by a guardian, by the probate court, or 25 by a surrogate pursuant to the South Carolina Adult Health Care 26 Consent Act, must be made in accordance with the directions 27 stated in the health care power of attorney. 28 (L)(1) A health care power of attorney may be revoked in the 29 following ways: 30 (a) by a writing, an oral statement, or any other act 31 constituting notification by the principal to the agent or to a health 32 care provider responsible for the principal’s care of the principal’s 33 specific intent to revoke the health care power of attorney; or 34 (b) by the principal’s execution of a subsequent health 35 care power of attorney or the principal’s execution of a subsequent 36 durable power of attorney under Section 625501 if the durable 37 power of attorney states an intention that the health care power of 38 attorney be revoked or if the durable power of attorney is 39 inconsistent with the health care power of attorney. 40 (2) A health care provider who is informed of or provided 41 with a revocation of a health care power of attorney immediately 42 must record the revocation in the principal’s medical record and 43 notify the agent, the attending physician, and all other health care[1243] 390 1 providers or nursing care providers who are responsible for the 2 principal’s care. 3 (M) The execution and effectuation of a health care power of 4 attorney does not constitute suicide for any purpose. 5 (N) No person may be required to sign a health care power of 6 attorney in accordance with this section as a condition for coverage 7 under an insurance contract or for receiving medical treatment or 8 as a condition of admission to a health care or nursing care facility. 9 (O) Nothing in this section may be construed to authorize or 10 approve mercy killing or to permit any affirmative or deliberate act 11 or omission to end life other than to permit the natural process of 12 dying. 13 (P) The absence of a health care power of attorney by an adult 14 patient does not give rise to a presumption of his intent to consent 15 to or refuse death prolonging procedures. Nothing in this section 16 impairs other legal rights or legal responsibilities which a person 17 may have to effect the provision or the withholding or withdrawal 18 of lifesustaining procedures in a lawful manner. 19 (Q)(1) If a person coerces or fraudulently induces another 20 person to execute a health care power of attorney, falsifies or 21 forges a health care power of attorney, or willfully conceals, 22 cancels, obliterates, or destroys a revocation of a health care power 23 of attorney, and the principal dies as a result of the withdrawal or 24 withholding of treatment pursuant to the health care power of 25 attorney, that person is subject to prosecution in accordance with 26 the criminal laws of this State. 27 (2) Nothing in this section prohibits a person from informing 28 another person of the existence of this section, delivering to 29 another person a copy of this section or a form for a health care 30 power of attorney, or counseling another person in good faith 31 concerning the execution of a health care power of attorney. 32 (3) If a person willfully conceals, cancels, defaces, 33 obliterates, or damages a health care power of attorney without the 34 principal’s consent, or falsifies or forges a revocation of a health 35 care power of attorney, or otherwise prevents the implementation 36 of the principal’s wishes as stated in a health care power of 37 attorney, that person breaches a duty owed to the principal and is 38 responsible for payment of any expenses or other damages 39 incurred as a result of the wrongful act. 40 (R) A physician or health care facility electing for any reason 41 not to follow an agent’s instruction that lifesustaining procedures 42 be withheld or withdrawn as authorized in the health care power of 43 attorney shall make a reasonable effort to locate a physician or[1243] 391 1 health care facility that will follow the instruction and has a duty to 2 transfer the patient to that physician or facility. If a nurse or other 3 employee of a health care provider or nursing care provider gives 4 notice that the employee does not wish to participate in the 5 withholding or withdrawal of lifesustaining procedures as directed 6 by an agent, a reasonable effort shall be made by the physician and 7 the health care provider or nursing care provider to effect the 8 withholding or withdrawal of lifesustaining procedures without the 9 participation of the employee. 10 (S)(1) Notwithstanding the requirements of subsections (C) and 11 (D) of this section, any document or writing containing the 12 following provisions is deemed to comply with the requirements of 13 this section: 14 (a) the name and address of the person who meets the 15 requirements of subsection (C)(1)(d) and is authorized to make 16 health care related decisions if the principal becomes mentally 17 incompetent; 18 (b) the types of health care related decisions that the 19 health care agent is authorized to make; 20 (c) the signature of the principal; 21 (d) the signature of at least two persons who witnessed the 22 principal’s signature and who meet the requirements of subsection 23 (C)(1)(c); and 24 (e) the attestation of a notary public. 25 (2) Additionally, any document that meets the requirements 26 of subsection (S)(1) and also provides expressions of the 27 principal’s intentions or wishes with respect to the following 28 health care issues authorizes the health care agent to act in 29 accordance with these provisions: 30 (a) organ donations; 31 (b) lifesustaining treatment; 32 (c) tube feeding; 33 (d) other kinds of medical treatment that the principal 34 wishes to have or not to have; 35 (e) comfort and treatment issues; 36 (f) provisions for interment or disposal of the body after 37 death; and 38 (g) any written statements that the principal may wish to 39 have communicated on his behalf. 40 41 REPORTER’S COMMENTS 42[1243] 392 1 The 2012 amendments changed former Section 625504 to provide 2 that in case of a conflict between a health care power of attorney 3 and a Declaration of Desire for a Natural Death, the later executed 4 document shall control. If the two documents are executed 5 contemporaneously, then the terms of the Declaration shall control. 6 7 Part 6 8 9 Uniform Veterans’ Guardianship Act 10 11 Section 625601. This part [Sections 625601 et seq.] may be 12 cited as the ‘Uniform Veterans’ Guardianship Act’. 13 14 Section 625602. As used in this part [Sections 625601 et seq.]: 15 (1) The term ‘Veterans’ Administration’ means the United 16 States Veterans’ Administration or its successor. 17 (2) The terms ‘estate’ and ‘income’ shall include only monies 18 received by the guardian from the Veterans’ Administration and all 19 earnings, interest, and profits derived therefrom. 20 (3) The term ‘benefits’ means all monies payable by the United 21 States through the Veterans’ Administration. 22 (4) The term ‘Administrator’ means the Administrator of 23 Veterans’ Affairs of the United States or his successor. 24 (5) The term ‘ward’ means a beneficiary of the Veterans’ 25 Administration. 26 (6) The term ‘guardian’ means any person acting as a fiduciary 27 for any ward, including a committee for a person over twentyone 28 years old. 29 30 Section 625603. Whenever, pursuant to any law of the United 31 States or regulation of the Veterans’ Administration, the 32 Administrator requires, prior to payment of benefits, that a 33 guardian be appointed for a ward, such appointment shall be made 34 in the manner hereinafter provided. 35 36 Section 625604. A summons and petition for the appointment of 37 a guardian may be filed in any court of competent jurisdiction by 38 or on behalf of any person who under existing law is entitled to 39 priority of appointment. If there be no person so entitled or if the 40 person so entitled shall neglect or refuse to file such a summons 41 and petition within thirty days after the mailing of notice by the 42 Veterans’ Administration to the last known address of such person 43 indicating the necessity of such filing, a summons and petition for[1243] 393 1 such appointment may be filed in any court of competent 2 jurisdiction by or on behalf of any responsible person residing in 3 this State. 4 5 SOUTH CAROLINA COMMENTS 6 The 2010 amendment revised this section to clarify that a 7 summons and petition are required to commence a formal 8 proceeding, including a proceeding for appointment of a guardian 9 under the Uniform Veteran’s Guardianship Act as contained in 10 Part 6. See 2010 amendments to certain definitions in S.C. Code 11 §§621201 and also see §§1423280, 621304, and Rules 1 and 81, 12 SCRCP. 13 14 Section 625605. The petition for such an appointment shall set 15 forth (a) the name, age and place of residence of the ward, (b) the 16 names and places of residence of the nearest relatives, if known, 17 (c) the fact that such ward is entitled to receive monies payable by 18 or through the Veterans’ Administration and (d) the amount of 19 monies then due and the amount of probable future payments. 20 The petition shall also set forth the name and address of the 21 person or institution, if any, having actual custody of the ward. 22 In the case of a mentally incompetent ward the petition shall show 23 that such ward has been rated incompetent on examination by the 24 Veterans’ Administration in accordance with the laws and 25 regulations governing the Veterans’ Administration. 26 27 Section 625606. When a petition is filed for the appointment of 28 a guardian of a minor ward a certificate of the Administrator or his 29 representative, setting forth the age of such minor as shown by the 30 records of the Veterans’ Administration and the fact that the 31 appointment of a guardian is a condition precedent to the payment 32 of any monies due the minor by the Veterans’ Administration, 33 shall be prima facie evidence of the necessity for such an 34 appointment. 35 36 Section 625607. When a petition is filed for the appointment of 37 a guardian of a mentally incompetent ward a certificate of the 38 Administrator or his representative, setting forth the fact that such 39 person has been rated incompetent by the Veterans’ 40 Administration on examination in accordance with the laws and 41 regulations governing the Veterans’ Administration and that the 42 appointment of a guardian is a condition precedent to the payment 43 of any monies due such person by the Veterans’ Administration,[1243] 394 1 shall be prima facie evidence of the necessity for such 2 appointment. 3 4 Section 625608. Upon the filing and service of summons and 5 petition for the appointment of a guardian, under the provisions of 6 this part the court shall cause such notice to be given as is provided 7 by law. 8 9 SOUTH CAROLINA COMMENTS 10 The 2010 amendment revised this section to clarify that a 11 summons and petition are required in a formal proceeding, 12 including a proceeding for appointment of a guardian under the 13 Uniform Veteran’s Guardianship Act as contained in Part 6. See 14 2010 amendments to certain definitions in S.C. Code §621201 and 15 also see §§1423280, 621304, and Rules 1 and 81, SCRCP. 16 17 Section 625609. Before making an appointment under the 18 provisions of this part [Sections 625601 et seq.], the court shall be 19 satisfied that the guardian whose appointment is sought is a fit and 20 proper person to be appointed. Upon the appointment being made 21 the guardian shall execute and file a bond to be approved by the 22 court in an amount not less than the sum then due and estimated to 23 become payable during the ensuing year. The bond shall be in the 24 form and be conditioned as required of guardians appointed under 25 the general guardianship laws of this State. The court may, from 26 time to time, require the guardian to file an additional bond. 27 When a bond is tendered by a guardian with personal sureties, 28 such sureties shall file with the court a certificate under oath which 29 shall describe the property owned by them both real and personal, 30 and that they are each worth the sum named in the bond as the 31 penalty thereof over and above all their debts and liabilities and 32 exclusive of property exempt from execution. 33 34 Section 625610. Except as hereinafter provided it shall be 35 unlawful for any person to accept appointment as guardian of any 36 ward if such proposed guardian shall at that time be acting as 37 guardian for five wards. Upon presentation of a petition by an 38 attorney of the Veterans’ Administration under this section 39 alleging that a guardian is acting in a fiduciary capacity for more 40 than five wards and requesting his discharge as a guardian of any 41 such ward for that reason, the court, upon proof substantiating the 42 petition, shall require a final accounting forthwith from such 43 guardian and shall discharge such guardian in such case. [1243] 395 1 The limitations of this section shall not apply when the guardian is 2 a bank or trust company acting for the wards’ estates only. An 3 individual may be guardian of more than five wards if they are all 4 members of the same family. 5 6 Section 625611. Every guardian who has received or shall 7 receive on account of his ward any monies from the Veterans’ 8 Administration, its predecessors or successors, shall file with the 9 court, annually, on the anniversary date of the appointment, in 10 addition to such other accounts as may be required by the court, a 11 full, true, and accurate account under oath of all monies so 12 received by him and of all disbursements thereof and showing the 13 balance thereof in his hands at the date of such account and how 14 such balance is invested. 15 16 Section 625612. Such guardian, at the time of filing his account, 17 shall exhibit all securities or investments shown by the account to 18 have been acquired with funds so received and then on hand and 19 described therein to (a) an officer of the bank or other depository 20 wherein such securities are held for safekeeping, (b) an authorized 21 representative of the corporation which is surety on his bond, (c) 22 the clerk or other officer of a court of record in this State or (d) 23 upon the request of the guardian or other interested party, to any 24 other reputable person designated by the court. The person to 25 whom such assets are so exhibited shall certify in writing that he 26 has examined such securities or investments and identified them as 27 those described in the account; provided, however, if such 28 depository is the guardian, such certifying officer shall be an 29 officer other than the officer verifying the account. Or, in lieu of 30 exhibiting such securities to any of the persons mentioned above, 31 the guardian may exhibit such securities or investments to the 32 court, who shall endorse on the account and copy thereof a 33 certificate that the securities or investments shown therein as on 34 hand were each in fact exhibited to him and that those exhibited to 35 him were the same as those shown in the account. Such certificate 36 and the certificate of an official of the bank in which are deposited 37 any funds for which the guardian is accountable, showing the 38 amount of the deposit, shall be filed by the guardian with his 39 account. 40 41 Section 625613. If any guardian shall fail to file any account of 42 the monies received by him from the Veterans’ Administration on 43 account of his ward within thirty days after such account is[1243] 396 1 required by either the court or the Administration or shall fail to 2 furnish the Veterans’ Administration a copy of his accounts as 3 required by this part [Sections 625601 et seq.], such failure shall 4 be grounds for removal. 5 6 Section 625614. If the guardian is accountable for property 7 derived from sources other than the Veterans’ Administration, he 8 shall be accountable as is or may be required under the applicable 9 law of this State pertaining to the property of minors or persons of 10 unsound mind who are not beneficiaries of the Veterans’ 11 Administration. 12 13 Section 625615. Every guardian shall invest the surplus funds in 14 his ward’s estate in such securities, or otherwise, as allowed by 15 law, and in which the guardian shall have no interest, but only 16 upon prior order of the court. Such funds may be invested, without 17 prior court authorization, in direct interestbearing obligations of 18 this State or of the United States and in obligations the interest and 19 principal of which are both unconditionally guaranteed by the 20 United States Government. 21 22 Section 625616. A guardian shall not apply any portion of the 23 estate of his ward for the support and maintenance of any person 24 other than his ward, except upon order of the court after a hearing, 25 notice of which has been given the proper office of the Veterans’ 26 Administration in the manner provided in Sections 625622 and 27 625623. 28 29 Section 625617. Whenever a copy of any public record is 30 required by the Veterans’ Administration to be used in determining 31 the eligibility of any person to participate in benefits made 32 available by the Administration, the official charged with the 33 custody of such public record shall without charge provide the 34 applicant for such benefits or any person acting on his behalf or the 35 representative of the Veterans’ Administration with a certified 36 copy of such record. 37 38 Section 625618. Compensation payable to guardians shall not 39 exceed five per cent of the income of the ward during any year. If 40 extraordinary services are rendered by any such guardian the court 41 may, upon petition and after hearing thereon, authorize additional 42 compensation therefor payable from the estate of the ward. Notice 43 of such petition and hearing shall be given the proper office of the[1243] 397 1 Veterans’ Administration in the manner provided in Sections 2 625622 and 625623. No compensation shall be allowed on the 3 corpus of an estate received from a preceding guardian. The 4 guardian may be allowed from the estate of his ward reasonable 5 premiums paid by him to any corporate surety upon his bond. 6 7 Section 625619. When a minor ward for whom a guardian has 8 been appointed under the provisions of this chapter or other laws 9 of this State has attained his majority and, if incompetent, is 10 declared competent by the Veterans’ Administration and the court 11 and when any incompetent ward, not a minor, is declared 12 competent by the Administration and the court, the guardian shall, 13 upon making a satisfactory accounting, be discharged upon a 14 petition filed for that purpose. 15 If no further income is anticipated by the guardian and the funds 16 held by the guardian do not exceed one thousand dollars, the 17 guardian may pay such funds to the ward if the ward is eighteen 18 years of age and is competent. If the ward is incompetent, the 19 guardian may pay the sum to his conservator if one has been 20 previously appointed. If no conservator exists, then the guardian 21 shall pay to the father or mother of the ward, if living, or either, 22 and if neither is living then to a duly appointed conservator. When 23 the final disbursement has been made and satisfactorily accounted 24 for, the guardian may then be discharged upon a petition filed for 25 that purpose. 26 27 Section 625620. The Administrator or his successor is and shall 28 be a party in interest (a) in any proceeding brought under any law 29 of this State for the appointment, confirmation, recognition, or 30 removal of any guardian of a minor, or of a mentally incompetent 31 person, to whom or on whose behalf benefits have been paid or are 32 payable by the Veterans’ Administration, its predecessor or 33 successor, (b) in any guardianship proceeding involving such 34 person or his estate, (c) in any suit or other proceeding arising out 35 of the administration of such person’s estate or assets and (d) in 36 any proceeding the purpose of which is the removal of the 37 disability of minority or of mental incompetency of such person. 38 In any case or proceeding involving property or funds of such 39 minor or mentally incompetent person not derived from the 40 Veterans’ Administration, the Veterans’ Administration shall not 41 be a necessary party but may be a proper party to such 42 proceedings. This section shall not apply unless the Veterans’ 43 Administration shall designate in writing filed with the Secretary[1243] 398 1 of State, its chief attorney, acting chief attorney or other agent 2 within this State as a person authorized to accept service of process 3 or upon whom process may be served. 4 5 Section 625621. A certified copy of each of the accounts filed 6 pursuant to Section 625611 and a signed duplicate of each of the 7 certificates filed with the court shall be sent by the guardian to the 8 office of the Veterans’ Administration having jurisdiction over the 9 area in which such court is located. A duplicate signed copy or 10 certified copy of any petition, motion, or other pleading which is 11 filed in the guardianship proceeding or in any proceeding for the 12 purpose of removing the disability of minority or of mental 13 incapacity shall be furnished by the person filing the same to the 14 office of the Veterans’ Administration concerned. 15 16 Section 625622. The court, unless hearing be waived in writing 17 by an attorney of the Veterans’ Administration, shall fix a time and 18 place for the hearing on such account, petition, or other pleading 19 not less than fifteen days nor more than thirty days from the date 20 of filing the same, unless a different available date be stipulated in 21 writing. Unless waived in writing, written notice of the time and 22 place of such hearing shall be given to the aforesaid Veterans’ 23 Administration office not less than fifteen days prior to the date 24 fixed for the hearing. Such notice may be given by mail, in which 25 event it shall be deposited in the mails not less than fifteen days 26 prior to such date. 27 28 Section 625623. Notice of such hearing shall in like manner be 29 given to the guardian and to any other person entitled to notice. 30 The court, or clerk thereof, shall mail to the Veterans’ 31 Administration office a copy of each order entered in any 32 guardianship proceeding wherein the Veterans’ Administration is 33 an interested party. 34 35 Section 625624. This part shall be construed liberally to secure 36 the beneficial intents and purposes thereof and shall apply only to 37 beneficiaries of the Veterans’ Administration. This part shall also 38 be so interpreted and construed as to effectuate its general purpose 39 to make uniform the law of those states which enact substantially 40 identical legislation. 41 42 RESERVED. 43[1243] 399 1 Part 7 2 3 South Carolina Adult Guardianship 4 and Protective Proceedings Jurisdiction Act 5 6 Section 625700. This act part may be cited as the ‘South 7 Carolina Adult Guardianship and Protective Proceedings 8 Jurisdiction Act’. 9 10 REPORTER’S COMMENTS 11 The title to the Act succinctly describes the Act’s scope. The 12 Act applies only to court jurisdiction and related topics for adults 13 for whom the appointment of a guardian or conservator or other 14 protective order is being sought or has been issued. 15 The drafting committee of the Uniform Law Commission 16 elected to limit the Act to adults for two reasons. First, 17 jurisdictional issues concerning guardians for minors are subsumed 18 by the Uniform Child Custody Jurisdiction and Enforcement Act 19 (1997). Second, while the UCCJEA does not address 20 conservatorship and other issues involving the property of minors, 21 all of the problems and concerns that led the Uniform Law 22 Commission to appoint a drafting committee involved adults. 23 Part 7 is a slightly modified version of the Uniform Adult 24 Guardianship and Protective Proceedings Jurisdiction Act drafted 25 by the Uniform Law Commission 26 27 Section 625701. Notwithstanding another provision of law, this 28 part provides the exclusive jurisdictional basis for a court of this 29 State to appoint a guardian or issue a protective order for an adult. 30 31 REPORTER’S COMMENTS 32 All guardianship proceedings and protective proceedings for an 33 adult incapacitated person must comply with the provisions of Part 34 7. 35 36 Section 625702.As used in this part, the term: 37 (1) ‘Adult’ means an individual who has attained eighteen years 38 of age or who has been emancipated by a court of competent 39 jurisdiction. 40 (2) ‘Conservator’ means a person appointed by a court to 41 manage an estate of a protected person. [1243] 400 1 (3) ‘Court’ means a probate court in this State or a court in 2 another state with the same jurisdiction as a probate court in this 3 State. 4 (4) ‘Emergency’ means circumstances that will likely result in 5 substantial harm to a respondent’s health, safety, or welfare or 6 substantial economic loss or expense. 7 (5) ‘Guardian’ means a person who has qualified as a guardian 8 of an incapacitated person pursuant to a court appointment, but 9 excludes one who is a guardian ad litem or a statutory guardian. 10 (6) ‘Guardianship order’ means an order appointing a guardian. 11 (7) ‘Guardianship proceeding’ means a judicial proceeding in 12 which an order for the appointment of a guardian is sought or has 13 been issued. 14 (8) ‘Home state’ means the state in which the respondent was 15 physically present, including a period of temporary absence, for at 16 least six consecutive months immediately before the filing of a 17 petition for a protective order or the appointment of a guardian; or 18 if none, the state in which the respondent was physically present, 19 including a period of temporary absence, for at least six 20 consecutive months ending within the six months prior to the filing 21 of the petition. 22 (9) ‘Incapacitated person’ means an adult for whom a guardian 23 or conservator has been appointed. 24 (10) ‘Party’ means the respondent, petitioner, guardian, 25 conservator, or other person allowed by the court to participate in a 26 guardianship or protective proceeding. 27 (11) ‘Person’, except in the term ‘incapacitated person’ or 28 ‘protected person’, means an individual, corporation, business 29 trust, estate, trust, partnership, limited liability company, 30 association, joint venture, public corporation, government or 31 governmental subdivision, agency, or instrumentality, or another 32 legal or commercial entity. 33 (12) ‘Protected person’ means an adult for whom a protective 34 order has been issued. 35 (13) ‘Protective order’ means an order appointing a conservator 36 or a court order relating to the management of property of an 37 incapacitated person. 38 (14) ‘Protective proceeding’ means a judicial proceeding in 39 which a protective order is sought or has been issued. 40 (15) ‘Record’ means information that is inscribed on a tangible 41 medium or that is stored in an electronic or other medium and is 42 retrievable in perceivable form. [1243] 401 1 (16) ‘Respondent’ means an adult for whom a protective order 2 or the appointment of a guardian is sought. 3 (17) ‘Significantconnection state’ means a state, other than the 4 home state, with which a respondent has a significant connection 5 other than mere physical presence and in which substantial 6 evidence concerning the respondent is available. In determining 7 pursuant to Sections 625707 and 625714(E) whether a respondent 8 has a significant connection with a particular state, the court shall 9 consider the: 10 (a) location of the respondent’s family and other persons 11 required to be notified of the guardianship or protective 12 proceeding; 13 (b) length of time the respondent at any time was physically 14 present in the state and the duration of any absence; 15 (c) location of the respondent’s property; and 16 (d) extent to which the respondent has ties to the state such as 17 voting registration, state or local tax return filing, vehicle 18 registration, driver’s license, social relationship, and receipt of 19 services. 20 (18) ‘State’ means a state of the United States, the District of 21 Columbia, Puerto Rico, the United States Virgin Islands, a 22 federally recognized Indian tribe, or a territory or insular 23 possession subject to the jurisdiction of the United States. 24 (19) ‘Ward’ means a person for whom a guardian has been 25 appointed. The terms used in this part have the same definition as 26 set forth in Section 625101. 27 28 Section 625703. The A court of this State may treat a foreign 29 country as if it were a state for the purpose of applying this part. 30 31 REPORTER’S COMMENTS 32 This section addresses application of the Act to guardianship and 33 protective orders issued in other countries. A foreign order is not 34 enforceable pursuant to the registration procedures of Sections 35 625716 through 625718, but a court in this country may otherwise 36 apply this Act to a foreign proceeding as if the foreign country 37 were an American state. Consequently, a court may conclude that 38 the court in the foreign country has jurisdiction because it 39 constitutes the primary respondent’s ‘home state’ or 40 ‘significantconnection state’ and may therefore decline to exercise 41 jurisdiction on the ground that the court of the foreign country has 42 a higher priority under Section 625707. Or the court may treat the 43 foreign country as if it were a state of the United States for[1243] 402 1 purposes of applying the transfer provisions of Sections 625714 2 through 625715. 3 This section addresses similar issues to but differs in result from 4 Section 105 of the Uniform Child Custody Jurisdiction and 5 Enforcement Act (1997). Under the UCCJEA, the United States 6 court must honor a custody order issued by the court of a foreign 7 country if the order was issued under factual circumstances in 8 substantial conformity with the jurisdictional standards of the 9 UCCJEA. Only if the child custody law violates fundamental 10 principles of human rights is enforcement excused. Because 11 guardianship regimes vary so greatly around the world, 12 particularly in civil law countries, it was concluded that under this 13 Act a more flexible approach was needed. Under this Act, a court 14 may but is not required to recognize the foreign order. 15 The fact that a guardianship or protective order of a foreign 16 country cannot be enforced pursuant to the registration procedures 17 of Sections 627716 through 625718 does not preclude enforcement 18 by the court under some other provision or rule of law. 19 20 Section 625704. (A) The A court of this State may 21 communicate with a court in another state concerning a proceeding 22 arising pursuant to this article part. The court shall allow the 23 parties to participate in a discussion between courts on the merits 24 of a proceeding. Except as otherwise provided in subsection (B), 25 the court shall make a record of the communication. When a 26 discussion on the merits of a proceeding between courts is held, 27 the record must show that the parties were given an opportunity to 28 participate, must summarize the issues discussed, and must list the 29 participants to the discussion. In all other matters except as 30 provided in subsection (B), the record may be limited to the fact 31 that the communication occurred. 32 (B) Courts may communicate concerning schedules, calendars, 33 court records, and other administrative matters without making a 34 record. A court may allow the parties to a proceeding to 35 participate in any communications held pursuant to this subsection. 36 37 REPORTER’S COMMENTS 38 This section emphasizes the importance of communications 39 among courts with an interest in a particular matter. Most 40 commonly, this would include communication between courts of 41 different states to resolve an issue of which court has jurisdiction 42 to proceed under Sections 625707 through 625713. It would also 43 include communication between courts of different states to[1243] 403 1 facilitate the transfer of a guardianship or conservatorship to a 2 different state under Sections 625714 through 625715. 3 Communication can occur in a variety of ways, including by 4 electronic means. This section does not prescribe the use of any 5 particular means of communication. 6 The court may authorize the parties to participate in the 7 communication; but, unless there is to be a discussion on the 8 merits, the Act does not mandate participation or require that the 9 court give the parties notice of any communication. 10 Communication between courts is often difficult to schedule and 11 participation by the parties may be impractical. Phone calls or 12 electronic communications often have to be made afterhours or 13 whenever the schedules of judges allow. When issuing a 14 jurisdictional or transfer order, the court should set forth the extent 15 to which a communication with another court may have been a 16 factor in the decision. 17 South Carolina amended the Uniform Act to provide that the 18 parties to a proceeding must be given an opportunity to participate 19 in any discussion between courts on the merits of a proceeding. 20 This section does not prescribe the extent of the record that the 21 court must make, leaving that issue to the court. A record might 22 include notes or transcripts of a court reporter who listened to a 23 conference call between the courts, an electronic recording of a 24 telephone call, a memorandum summarizing a conversation, and 25 email communications. No record need be made of relatively 26 inconsequential matters such as scheduling, calendars, and court 27 records. 28 Section 110 of the Uniform Child Custody Jurisdiction and 29 Enforcement Act (1997) addresses similar issues as this section but 30 is more detailed. As is the case with several other provisions of 31 this Act, the drafters of this Act concluded that the more varied 32 circumstances of adult guardianship and protective proceedings 33 suggested a need for greater flexibility. 34 35 Section 625705. (A) In a guardianship or protective proceeding 36 in this State, the court may request the appropriate court of another 37 state to do any of the following: 38 (1) hold an evidentiary hearing; 39 (2) order a person in that state to produce evidence or give 40 testimony evidence pursuant to procedures of that state; 41 (3) order that an evaluation or assessment be made of the 42 primary respondent, or order any appropriate investigation of a 43 person involved in a proceeding; [1243] 404 1 (4) order an appropriate investigation of a person involved in 2 a proceeding; 3 (5) forward to the court of this State a certified copy of the 4 transcript or other record of a hearing pursuant to item (1) or 5 another proceeding, any evidence otherwise produced presented 6 pursuant to item (2), and an evaluation or assessment prepared in 7 compliance with an order the request pursuant to item (3) or (4); 8 (6)(5) issue an order necessary to assure the appearance in 9 the proceeding of a person whose presence is necessary for the 10 court to make a determination, including the primary respondent or 11 the incapacitated or protected person; and 12 (7)(6) issue an order authorizing the release of medical, 13 financial, criminal, or other relevant information in that state, 14 including protected health information as defined in 45 C.F.R. 15 Section 164.504. 16 (B) If a court of another state in which a guardianship or 17 protective proceeding is pending requests assistance of the kind 18 provided in subsection (A), the a court of this State has jurisdiction 19 for the limited purpose of granting the request or making 20 reasonable efforts to comply with the request. 21 22 REPORTER’S COMMENTS 23 Subsection (A) of this section is similar to Section 112(a) of the 24 Uniform Child Custody Jurisdiction and Enforcement Act (1997), 25 although modified to address issues of concern in adult 26 guardianship and protective proceedings and with the addition of 27 subsection (A)(6), which addresses the release of health 28 information protected under HIPAA. Subsection (B), which 29 clarifies that a court has jurisdiction to respond to requests for 30 assistance from courts in other states even though it might 31 otherwise not have jurisdiction over the proceeding, is not found in 32 although probably implicit in the UCCJEA. 33 Court cooperation is essential to the success of this Act. This 34 section is designed to facilitate such court cooperation. It provides 35 mechanisms for courts to cooperate with each other in order to 36 decide cases in an efficient manner without causing undue expense 37 to the parties. Courts may request assistance from courts of other 38 states and may assist courts of other states. 39 This section does not address assessment of costs and expenses, 40 leaving that issue to local law. Should a court have acquired 41 jurisdiction because of a party’s unjustifiable conduct, Section 42 625711(B) authorizes the court to assess against the party all costs 43 and expenses, including attorney’s fees.[1243] 405 1 2 Section 625706. (A) In a guardianship or protective 3 proceeding, in addition to other procedures that may be available, 4 testimony of a witness who is located in another state may be 5 offered by deposition or other means allowable in this State for 6 testimony taken in another state. The court on its own motion may 7 order that the testimony of a witness be taken in another state and 8 may prescribe the manner in which and the terms upon which the 9 testimony is to be taken. 10 (B) In a guardianship or protective proceeding, a court in this 11 State may permit a witness located in another state to be deposed 12 or to testify by telephone or audiovisual or other electronic means. 13 The A court of this State shall cooperate with the court courts of 14 the other state states in designating an appropriate location for the 15 deposition or testimony. 16 (C) Documentary evidence transmitted from another state to a 17 court of this State by technological means that do not produce an 18 original writing may not be excluded from evidence on an 19 objection based on the means of transmission. 20 21 REPORTER’S COMMENTS 22 This section is similar to Section 111 of the Uniform Child 23 Custody Jurisdiction and Enforcement Act (1997). That section 24 was in turn derived from Section 316 of the Uniform Interstate 25 Family Support Act (1992) and the much earlier and now 26 otherwise obsolete Uniform Interstate and International Procedure 27 Act (1962). 28 This section is designed to fill the vacuum that often exists in 29 cases involving an adult with interstate contacts when much of the 30 essential information about the individual is located in another 31 state. 32 Subsection (A) empowers the court to initiate the gathering of 33 outofstate evidence, including depositions, written interrogatories 34 and other discovery devices. The authority granted to the court in 35 no way precludes the gathering of outofstate evidence by a party, 36 including the taking of depositions outofstate. 37 Subsections (B) and (C) clarify that modern modes of 38 communication are permissible for the taking of depositions and 39 receipt of documents into evidence. 40 This section is consistent with and complementary to the 41 Uniform Interstate Depositions and Discovery Act (2007), which 42 specifies the procedure for taking depositions in other states. 43[1243] 406 1 Section 625707. The court has jurisdiction to appoint a guardian 2 or issue a protective order for a respondent if: 3 (1) this State is the primary respondent’s home state; 4 (2) on the date the petition is filed, this State is a 5 significantconnection state; and 6 (a) the primary respondent does not have a home state or a 7 court of the primary respondent’s home state has declined to 8 exercise jurisdiction because this State is a more appropriate 9 forum; or 10 (b) the primary respondent has a home state, a petition for an 11 appointment or order is not pending in a court of that state or 12 another significantconnection state and, before the court makes the 13 appointment or issues the order: 14 (i) a petition for an appointment or order is not filed in 15 the primary respondent’s home state; 16 (ii) an objection to the court’s jurisdiction is not filed by a 17 person required to be notified of the proceeding; and 18 (iii) the court concludes that it is an appropriate forum 19 pursuant to the factors provided in Section 625710(C); 20 (3) this State does not have jurisdiction pursuant to either item 21 (1) or (2), the primary respondent’s home state and all 22 significantconnection states have declined to exercise jurisdiction 23 because this State is the more appropriate forum, and jurisdiction 24 in this State is consistent with the constitutions of this State and the 25 United States; or 26 (4) the requirements for special jurisdiction pursuant to Section 27 625708 are met. 28 29 REPORTER’S COMMENTS 30 31 Similar to the Uniform Child Jurisdiction and Enforcement Act 32 (1997), this Act creates a threelevel priority for determining which 33 state has jurisdiction to appoint a guardian or issue a protective 34 order; the home state (625101(11)), followed by a 35 significantconnection state (625101(21)), followed by other 36 jurisdictions. The principal objective of this section is to eliminate 37 the possibility of dual appointments or orders except for the special 38 circumstances specified in Section 627708. 39 While this section is the principal provision for determining 40 whether a particular court has jurisdiction to appoint a guardian or 41 issue a protective order, it is not the only provision. As indicated in 42 the crossreference in subsection (4), a court that does not otherwise[1243] 407 1 have jurisdiction under Section 625707 may have jurisdiction 2 under the special circumstances specified in Section 625708. 3 Pursuant to subsection (1), the home state has primary 4 jurisdiction to appoint a guardian or conservator or issue another 5 type of protective order. This jurisdiction terminates if the state 6 ceases to be the home state, if a court of the home state declines to 7 exercise jurisdiction under Section 625710 on the basis that 8 another state is a more appropriate forum, or, as provided in 9 Section 625709, a court of another state has appointed a guardian 10 or issued a protective order consistent with this Act. The standards 11 by which a home state that has enacted the Act may decline 12 jurisdiction on the basis that another state is a more appropriate 13 forum are specified in Section 625710. Should the home state not 14 have enacted the Act, subsection (1) does not require that the 15 declination meet the standards of Section 625710. 16 Once a petition is filed in a court of the primary respondent’s 17 home state, that state does not cease to be the primary respondent’s 18 home state upon the passage of time even though it may be many 19 months before an appointment is made or order issued and during 20 that period the primary respondent is physically located. Only 21 upon dismissal of the petition can the court cease to be the home 22 state due to the passage of time. Under the definition of ‘home 23 state,’ the sixmonth physical presence requirement is fulfilled or 24 not on the date the petition is filed. 25 A significantconnection state has jurisdiction under two possible 26 bases; subsections (2)(a) and (2)(b). Under subsection (2)(a), a 27 significantconnection state has jurisdiction if the individual does 28 not have a home state or if the home state has declined jurisdiction 29 on the basis that the significantconnection state is a more 30 appropriate forum. 31 Subsection (2)(b) is designed to facilitate consideration of cases 32 where jurisdiction is not in dispute. Subsection (2)(b) allows a 33 court in a significantconnection state to exercise jurisdiction even 34 though the primary respondent has a home state and the home state 35 has not declined jurisdiction. The significantconnection state may 36 assume jurisdiction under these circumstances, however, only in 37 situations where the parties are not in disagreement concerning 38 which court should hear the case. Jurisdiction may not be 39 exercised by a significantconnection state under subsection (2)(b) 40 if (1) a petition has already been filed and is still pending in the 41 home state or other significantconnection state; or (2) prior to 42 making the appointment or issuing the order, a petition is filed in 43 the primary respondent’s home state or an objection to the court’s[1243] 408 1 jurisdiction is filed by a person required to be notified of the 2 proceeding. Additionally, the court in the significantconnection 3 state must conclude that it is an appropriate forum applying the 4 factors listed in Section 625710. 5 There is nothing comparable to subsection (2)(b) in the Uniform 6 Child Custody Jurisdiction and Enforcement Act (1997). Under 7 Section 201 of the UCCJEA a court in a significantconnection 8 state acquires jurisdiction only if the child does not have a home 9 state or the court of that state has declined jurisdiction. The 10 drafters of this Act concluded that cases involving adults differed 11 sufficiently from child custody matters that a different rule is 12 appropriate for adult proceedings in situations where jurisdiction is 13 uncontested. 14 Pursuant to subsection (3), a court in a state that is neither the 15 home state nor a significantconnection state has jurisdiction if the 16 home state and all significantconnection states have declined 17 jurisdiction or the primary respondent does not have a home state 18 or significantconnection state. The state must have some 19 connection with the proceeding, however. As subsection (3) 20 clarifies, jurisdiction in the state must be consistent with the state 21 and United States constitutions. 22 23 Section 625708. (A) The A court of this State lacking 24 jurisdiction pursuant to Section 625707(1) through (3) has special 25 jurisdiction to do any of the following: 26 (1) appoint a guardian in an emergency pursuant to this 27 article for a term not exceeding ninety days six months for a 28 primary respondent who is physically present located in this State; 29 (2) issue a protective order with respect to real or tangible 30 personal property located in this State; or 31 (3) appoint a guardian or conservator for an incapacitated or 32 protected person for whom a provisional order to transfer the 33 proceeding from another state has been issued pursuant to 34 procedures similar to as provided in Section 625714 625715. 35 (B) If a petition for the appointment of a guardian in an 36 emergency is brought in this State pursuant to this article and this 37 State was not the primary respondent’s home state on the date the 38 petition was filed, the court shall dismiss the proceeding at the 39 request of the court of the home state, if any, whether dismissal is 40 requested before or after the emergency appointment. 41 42 REPORTER’S COMMENTS[1243] 409 1 This section lists the special circumstances where a court 2 without jurisdiction under the general rule of Section 625707 has 3 jurisdiction for limited purposes. The three purposes are (1) the 4 appointment of a guardian in an emergency for a term not 5 exceeding six months for a primary respondent who is physically 6 located in the state (subsection (A)(1)); (2) the issuance of a 7 protective order for a primary respondent who owns an interest in 8 real or tangible personal property located in the state (subsection 9 (A)(2)); and (3) the grant of jurisdiction to consider a petition 10 requesting the transfer of a guardianship or conservatorship 11 proceeding from another state (subsection (A)(3)). If the court has 12 jurisdiction under Section 625707, reference to Section 625708 is 13 unnecessary. The general jurisdiction granted under Section 14 625707 includes within it all of the special circumstances specified 15 in this section. 16 When an emergency arises, action must often be taken on the 17 spot in the place where the primary respondent happens to be 18 physically located at the time. This place may not necessarily be 19 located in the primary respondent’s home state or even a 20 significantconnection state. Subsection (A)(1) assures that the 21 court where the primary respondent happens to be physically 22 located at the time has jurisdiction to appoint a guardian in an 23 emergency but only for a limited period of six months. As 24 provided in subsection (B), the emergency jurisdiction is also 25 subject to the authority of the court in the primary respondent’s 26 home state to request that the emergency proceeding be dismissed. 27 The theory here is that the emergency appointment in the 28 temporary location should not be converted into a de facto 29 permanent appointment through repeated temporary appointments. 30 Subsection (A)(2) grants a court jurisdiction to issue a protective 31 order with respect to real and tangible personal property located in 32 the state even though the court does not otherwise have 33 jurisdiction. Such orders are most commonly issued when a 34 conservator has been appointed but the protected person owns real 35 property located in another state. The drafters specifically rejected 36 using a general reference to any property located in the state 37 because of the tendency of some courts to issue protective orders 38 with respect to intangible personal property such as a bank account 39 where the technical situs of the asset may have little relationship to 40 the protected person. 41 Subsection (A)(3) is closely related to and is necessary for the 42 effectiveness of Section 625714, which addresses transfer of a 43 guardianship or conservatorship to another state. A ‘Catch22’[1243] 410 1 arises frequently in such cases. The court in the transferring state 2 will not allow the incapacitated or protected person to move and 3 will not terminate the case until the court in the transferee state has 4 accepted the matter. But the court in the transferee state will not 5 accept the case until the incapacitated or protected person has 6 physically moved and presumably become a resident of the 7 transferee state. Subsection (A)(3), which grants the court in the 8 transferee state limited jurisdiction to consider a petition 9 requesting transfer of a proceeding form another state, is intended 10 to unlock the stalemate. 11 Not included in this section but a provision also conferring 12 special jurisdiction on the court is Section 625705(B), which 13 grants the court jurisdiction to respond to a request for assistance 14 from a court of another state. 15 16 Section 625709. Except as otherwise provided in Section 17 625708, a court that has appointed a guardian or issued a 18 protective order consistent with this article part has exclusive and 19 continuing jurisdiction over the proceeding until it is terminated by 20 the court or the appointment or order expires by its own terms. 21 22 REPORTER’S COMMENTS 23 While this Act relies heavily on the Uniform Child Jurisdiction 24 and Enforcement Act (1997) for many basic concepts, the identity 25 is not absolute. Section 202 of the UCCJEA specifies a variety of 26 circumstances whereby a court can lose jurisdiction based on loss 27 of physical presence by the child and others, loss of a significant 28 connection, or unavailability of substantial evidence. Section 203 29 of the UCCJEA addresses the jurisdiction of the court to modify a 30 custody determination made in another state. Nothing comparable 31 to either UCCJEA section is found in this Act. Under this Act, a 32 guardianship or protective order may be modified only upon 33 request to the court that made the appointment or issued the order, 34 which retains exclusive and continuing jurisdiction over the 35 proceeding. Unlike child custody matters, guardianships and 36 protective proceedings are ordinarily subject to continuing court 37 supervision. Allowing the court’s jurisdiction to terminate other 38 than by its own order would open the possibility of competing 39 guardianship or conservatorship appointments in different states 40 for the same person at the same time, the problem under current 41 law that enactment of this Act is designed to avoid. Should the 42 incapacitated or protected person and others with an interest in the 43 proceeding relocate to a different state, the appropriate remedy is[1243] 411 1 to seek transfer of the proceeding to the other state as provided in 2 Section 625715. 3 The exclusive and continuing jurisdiction conferred by this 4 section only applies to guardianship orders made and protective 5 orders issued under Section 625707. Orders made under the special 6 jurisdiction conferred by Section 625708 are not exclusive. And as 7 provided in Section 625708(B), the jurisdiction of a court in a state 8 other than the home state to appoint a guardian in an emergency is 9 subject to the right of a court in the home state to request that the 10 proceeding be dismissed and any appointment terminated. 11 Section 625715 authorizes a guardian or conservator to petition 12 to transfer the proceeding to another state. Upon the conclusion of 13 the transfer, the court in the accepting state will appoint the 14 guardian or conservator as guardian or conservator in the accepting 15 state and the court in the transferring estate will terminate the local 16 proceeding, whereupon the jurisdiction of the transferring court 17 terminates and the court in the accepting state acquires exclusive 18 and continuing jurisdiction as provided in Section 625709. 19 20 Section 625710. (A) The A court of this State having 21 jurisdiction pursuant to Section 625707 to appoint a guardian or 22 issue a protective order may decline to exercise its jurisdiction if it 23 determines at any time that a court of another state is a more 24 appropriate forum. 25 (B) If the a court of this State declines to exercise its 26 jurisdiction over a guardianship or protective proceeding pursuant 27 to subsection (A), it shall either dismiss the proceeding or stay the 28 proceeding. The court may impose any other condition the court 29 considers just and proper, including the condition that a petition 30 for the appointment of a guardian or issuance of a protective order 31 be filed promptly filed in another state. 32 (C) In determining whether it is an appropriate forum, the court 33 shall consider all relevant factors, including: 34 (1) the any expressed preference of the primary respondent; 35 (2) whether abuse, neglect, or exploitation of the primary 36 respondent has occurred or is likely to occur and which state could 37 best protect the primary respondent from the abuse, neglect, or 38 exploitation; 39 (3) the length of time the primary respondent was physically 40 present in or was a legal resident of this or another state; 41 (4) the distance of the primary respondent from the court in 42 each state; [1243] 412 1 (5) the financial circumstances of the primary respondent’s 2 estate; 3 (6) the nature and location of the evidence; 4 (7) the ability of the court in each state to decide the issue 5 expeditiously and the procedures necessary to present evidence; 6 (8) the familiarity of the court of each state with the facts 7 and issues in the proceeding; and 8 (9) if an appointment is made, the court’s ability to monitor 9 the conduct of the guardian or conservator; and 10 (10) any other information as the court deems relevant in 11 evaluating the appropriateness of the forum. 12 13 REPORTER’S COMMENTS 14 This section authorizes a court otherwise having jurisdiction to 15 decline jurisdiction on the basis that a court in another state is in a 16 better position to make a guardianship or protective order 17 determination. The effect of a declination of jurisdiction under this 18 section is to rearrange the priorities specified in Section 625707. A 19 court of the home state may decline in favor of a court of a 20 significantconnection or other state and a court in a 21 significantconnection state may decline in favor of a court in 22 another significantconnection or other state. The court declining 23 jurisdiction may either dismiss or stay the proceeding. The court 24 may also impose any condition the court considers just and proper, 25 including the condition that a petition for the appointment of a 26 guardian or issuance of a protective order be filed promptly in 27 another state. 28 This section is similar to Section 207 of the Uniform Child 29 Custody Jurisdiction and Enforcement Act (1997) except that the 30 factors in subsection (C) of this Act have been adapted to address 31 issues most commonly encountered in adult guardianship and 32 protective proceedings as opposed to child custody determinations. 33 Under Section 625707(2)(b), the factors specified in subsection 34 (C) of this section are to be employed in determining whether a 35 court of a significantconnection state may assume jurisdiction 36 when a petition has not been filed in the primary respondent’s 37 home state or in another significantconnection state. Under Section 38 625711(1)(B)(2), the court is to consider these factors in deciding 39 whether it will retain jurisdiction when unjustifiable conduct has 40 occurred. 41 42 Section 625711. (A) If at any time the a court of this State 43 determines that it acquired jurisdiction to appoint a guardian or[1243] 413 1 issue a protective order because of unjustifiable conduct, the court 2 may: 3 (1) decline to exercise jurisdiction; 4 (2) exercise jurisdiction for the limited purpose of fashioning 5 an appropriate remedy to ensure the health, safety, and welfare of 6 the primary respondent or the protection of the primary 7 respondent’s property or prevent a repetition of the unjustifiable 8 conduct, including staying the proceeding until a petition for the 9 appointment of a guardian or issuance of a protective order is filed 10 in a court of another state having jurisdiction; or 11 (3) continue to exercise jurisdiction after considering: 12 (a) the extent to which the primary respondent and all 13 persons required to be notified of the proceedings have acquiesced 14 in the exercise of the court’s jurisdiction; 15 (b) whether it is a more appropriate forum than the court 16 of any other state pursuant to the factors provided set forth in 17 Section 625710(C); and 18 (c) whether the court of any other state would have 19 jurisdiction under factual circumstances in substantial conformity 20 with the jurisdictional standards of Section 625708 625707. 21 (B) If the a court of this State determines that it acquired 22 jurisdiction to appoint a guardian or issue a protective order 23 because a party seeking to invoke its jurisdiction engaged in 24 unjustifiable conduct, it may assess against that party necessary 25 and reasonable expenses, including attorney’s fees, investigative 26 fees, court costs, communication expenses, witness fees and 27 expenses, and travel expenses. The court may not assess fees, 28 costs, or expenses of any kind against this State or a governmental 29 subdivision, agency, or instrumentality of this State unless 30 authorized by law other than this article part. 31 32 REPORTER’S COMMENTS 33 This section is similar to the Section 208 of the Uniform Child 34 Custody Jurisdiction and Enforcement Act (1997). Like the 35 UCCJEA, this Act does not attempt to define ‘unjustifiable 36 conduct,’ concluding that this issue is best left to the courts. 37 However, a common example could include the unauthorized 38 removal of an adult to another state, with that state acquiring 39 emergency jurisdiction under Section 625708 immediately upon 40 the move and home state jurisdiction under Section 625707 six 41 months following the move if a petition for a guardianship or 42 protective order is not filed during the interim in the soontobe 43 former home state. Although child custody cases frequently raise[1243] 414 1 different issues than do adult guardianship matters, the element of 2 unauthorized removal is encountered in both types of proceedings. 3 For the caselaw on unjustifiable conduct under the predecessor 4 Uniform Child Custody Jurisdiction Act (1968), see David Carl 5 Minneman, Parties’ Misconduct as Grounds for Declining 6 Jurisdiction Under §8 of the Uniform Child Custody Jurisdiction 7 Act (UCCJA), 16 A.L.R. 5th 650 (1993). 8 Subsection (A) gives the court authority to fashion an 9 appropriate remedy when it has acquired jurisdiction because of 10 unjustifiable conduct. The court may decline to exercise 11 jurisdiction; exercise jurisdiction for the limited purpose of 12 fashioning an appropriate remedy to ensure the health, safety, and 13 welfare of the primary respondent or the protection of the primary 14 respondent’s property or prevent a repetition of the unjustifiable 15 conduct; or continue to exercise jurisdiction after considering 16 several specified factors. Under subsection (A), the unjustifiable 17 conduct need not have been committed by a party. 18 Subsection (B) authorizes a court to assess costs and expenses, 19 including attorney’s fees, against a party whose unjustifiable 20 conduct caused the court to acquire jurisdiction. Subsection (B) 21 applies only if the unjustifiable conduct was committed by a party 22 and allows for costs and expenses to be assessed only against that 23 party. Similar to Section 208 of the UCCJEA, the court may not 24 assess fees, costs, or expenses of any kind against this state or a 25 governmental subdivision, agency, or instrumentality of the state 26 unless authorized by other law. 27 28 Section 625712. If a petition for the appointment of a guardian 29 or issuance of a protective order is brought in this State and this 30 State was not the primary respondent’s home state on the date the a 31 petition for the appointment of a guardian or protective order was 32 filed, or within six months before the date the petition was filed, in 33 addition to complying with the notice requirements of this State, 34 notice of the petition proceeding must be given by the petitioner to 35 those persons who would be entitled to notice of the petition if a 36 the proceeding were brought in the primary respondent’s home 37 state, if any. The notice must be given in the same manner as 38 notice is required to be given in this State. 39 40 REPORTER’S COMMENTS 41 While this Act tries not to interfere with a state’s underlying 42 substantive law on guardianship and protective proceedings, the 43 issue of notice is fundamental. Under this section, when a[1243] 415 1 proceeding is brought other than in the primary respondent’s home 2 state, the petitioner must give notice in the method provided under 3 local law not only to those entitled to notice under local law but 4 also to the persons required to be notified were the proceeding 5 brought in the primary respondent’s home state. Frequently, the 6 respective lists of persons to be notified will be the same. But 7 where the lists are different, notice under this section will assure 8 that someone with a right to assert that the home state has a 9 primary right to jurisdiction will have the opportunity to make that 10 assertion 11 12 Section 625713. Except for a petition for the appointment of a 13 guardian in an emergency or issuance of a protective order limited 14 to property located in this State pursuant to Section 625708(A)(1) 15 or (2), if a summons and petition for the appointment of a guardian 16 or issuance of a protective order is filed and served in this and 17 another state and in another state and neither petition has been 18 dismissed or withdrawn, the following rules apply: 19 (1) if the court in this State has jurisdiction pursuant to Section 20 625707, it may proceed with the case unless a court in another 21 state acquires jurisdiction under provisions similar to Section 22 625707 before the appointment or issuance of the order. 23 (2) if the court in this State does not have jurisdiction pursuant 24 to Section 625707, whether at the time the petition is filed or at 25 any time before the appointment or issuance of the order, the court 26 shall stay the proceeding and communicate with the court in the 27 other state. If the court in the other state has jurisdiction, does not 28 determine that the court in this State shall dismiss the petition 29 unless the court in the other state determines that the court in this 30 State is a more appropriate forum, the court in this State shall 31 dismiss the petition. 32 33 REPORTER’S COMMENTS 34 Similar to Section 206 of the Uniform Child Custody 35 Jurisdiction and Enforcement Act (1997), this section addresses 36 the issue of which court has the right to proceed when proceedings 37 for the same primary respondent are brought in more than one 38 state. The provisions of this section, however, have been tailored 39 to the needs of adult guardianship and protective proceedings and 40 the particular jurisdictional provisions of this Act. Emergency 41 guardianship appointments and protective proceedings with respect 42 to property in other states (Sections 625708(A)(1) and (A)(2)) are 43 excluded from this section because the need for dual appointments[1243] 416 1 is frequent in these cases; for example, a petition will be brought in 2 the primary respondent’s home state but emergency action will be 3 necessary in the place where the primary respondent is temporarily 4 located, or a petition for the appointment of a conservator will be 5 brought in the primary respondent’s home state but real estate 6 located in some other state needs to be brought under management. 7 Under the Act only one court in which a petition is pending will 8 have jurisdiction under Section 625707. If a petition is brought in 9 the primary respondent’s home state, that court has jurisdiction 10 over that of any significantconnection or other state. If the petition 11 is first brought in a significantconnection state, that jurisdiction 12 will be lost if a petition is later brought in the home state prior to 13 an appointment or issuance of an order in the significantconnection 14 state. Jurisdiction will also be lost in the significantconnection 15 state if the primary respondent has a home state and an objection is 16 filed in the significantconnection state that jurisdiction is properly 17 in the home state. If petitions are brought in two 18 significantconnection states, the first state has a right to proceed 19 over that of the second state, and if a petition is brought in any 20 other state, any claim to jurisdiction of that state is subordinate to 21 that of the home state and all significantconnection states. 22 Under this section, if the court has jurisdiction under Section 23 625707, it has the right to proceed unless a court of another state 24 acquires jurisdiction prior to the first court making an appointment 25 or issuing a protective order. If the court does not have jurisdiction 26 under Section 625707, it must defer to the court with jurisdiction 27 unless that court determines that the court in this state is the more 28 appropriate forum and it thereby acquires jurisdiction. While the 29 rules are straightforward, factual issues can arise as to which state 30 is the home state or significantconnection state. Consequently, 31 while under Section 625707 there will almost always be a court 32 having jurisdiction to proceed, reliance on the communication, 33 court cooperation, and evidence gathering provisions of Sections 34 625704 through 625706 will sometimes be necessary to determine 35 which court that might be. 36 37 Section 625714. (A) A guardian or conservator appointed in 38 this State may petition the court to transfer the guardianship or 39 conservatorship to another state. 40 (B) Notice of a petition pursuant to subsection (A) must be 41 given to the persons that would be entitled to notice of a petition in 42 this State for the appointment of a guardian or conservator. [1243] 417 1 (C) On the court’s own motion or on request of the guardian or 2 conservator, the incapacitated or protected person, or other person 3 required to be notified of the petition, the court shall hold a hearing 4 on a petition filed pursuant to subsection (A), except that no 5 hearing shall be required if a consent order is signed by all parties 6 who have pled, defended, or otherwise participated in the 7 proceeding, as provided by the South Carolina Rules of Civil 8 Procedure. 9 (D) The court shall issue an order provisionally granting a 10 petition to transfer a guardianship and shall direct the guardian to 11 petition for guardianship in the other state if the court is satisfied 12 that the guardianship will be accepted by the court in the other 13 state and the court finds that: 14 (1) the incapacitated person is physically present in or is 15 reasonably expected to move permanently to the other state; 16 (2) an objection to the transfer has not been made or, if an 17 objection has been made, the objector has not established that the 18 transfer would be contrary to the interests of the incapacitated 19 person; and 20 (3) plans for care and services for the incapacitated person in 21 the other state are reasonable and sufficient. 22 (E) The court shall issue a provisional order granting a petition 23 to transfer a conservatorship and shall direct the conservator to 24 petition for conservatorship in the other state if the court is 25 satisfied that the conservatorship will be accepted by the court of 26 the other state and the court finds that: 27 (1) the protected person is physically present in or is 28 reasonably expected to move permanently to the other state, or the 29 protected person has a significant connection to the other state 30 considering the factors provided in Section 625707(2)(b); 31 (2) an objection to the transfer has not been made or, if an 32 objection has been made, the objector has not established that the 33 transfer would be contrary to the interests of the protected person; 34 and 35 (3) adequate arrangements will be made for management of 36 the protected person’s property. 37 (F) The court shall issue a final order confirming the transfer 38 and terminating the guardianship or conservatorship upon its 39 receipt of: 40 (1) a provisional order accepting the proceeding from the 41 court to which the proceeding is to be transferred which is issued 42 under provisions similar to Section 625715; and [1243] 418 1 (2) the documents required to terminate a guardianship or 2 conservatorship in this State. 3 (1) Following the appointment of a guardian or conservator, 4 the guardian or conservator may petition the court to transfer the 5 guardianship or conservatorship to another state. 6 (2) Notice of the petition pursuant to subsection (1) must be 7 given by the petitioner to those persons that would be entitled to 8 notice of a petition in this State for the appointment of a guardian 9 or conservator. 10 (3) On the court’s own motion or on request of the guardian or 11 conservator, the incapacitated or protected person, or other person 12 required to be notified of the petition, the court shall hold a hearing 13 on a petition filed pursuant to subsection (1); except that no 14 hearing shall be required if a consent order is signed by all parties 15 who have pled, defended or otherwise participated in the 16 proceeding, as provided by the South Carolina Rules of Civil 17 Procedure. 18 (4) The court shall issue a provisional order granting a petition 19 to transfer a guardianship and shall direct the guardian to petition 20 for guardianship in the other state if the court is satisfied that the 21 guardianship will be accepted by the court in the other state and 22 the court finds that: 23 (a) the incapacitated person is physically located in or is 24 reasonably expected to move permanently to the other state; 25 (b) an objection to the transfer has not been made or, if an 26 objection has been made, the objector has not established that the 27 transfer would be contrary to the interests of the incapacitated 28 person; and 29 (c) the court is satisfied that plans for care and services for 30 the incapacitated person in the other state are reasonable and 31 sufficient. 32 (5) The court shall issue a provisional order granting a petition 33 to transfer a conservatorship and shall direct the conservator to 34 petition for conservatorship in the other state if the court is 35 satisfied that the conservatorship will be accepted by the court of 36 the other state and the court finds that: 37 (a) the protected person is physically located in or is 38 reasonably expected to move permanently to the other state, or the 39 protected person has a significant connection to the other state 40 considering the factors set forth in Section 625101(21); 41 (b) an objection to the transfer has not been made or, if an 42 objection has been made, the objector has not established that the[1243] 419 1 transfer would be contrary to the interests of the protected person; 2 and 3 (c) the court is satisfied that adequate arrangements will be 4 made for management of the protected person’s property. 5 (6) Upon receipt from the court of the other state of a 6 provisional order issued under provisions similar to Section 7 625715 to accept a guardianship or conservatorship transferred 8 under this section and the filing of the documents required in this 9 state to terminate a guardianship or conservatorship, the court shall 10 issue an order confirming the transfer of the proceeding to the 11 other state and terminating the guardianship or conservatorship in 12 this State. 13 14 Section 625715. (A) To confirm transfer of a guardianship or 15 conservatorship transferred to this State under provisions similar to 16 Section 625714, the guardian or conservator must petition the 17 court in this State to accept the guardianship or conservatorship. 18 The petition must include a certified copy of the other state’s 19 provisional order of transfer. 20 (B) Notice of a petition pursuant to subsection (A) must be 21 given to those persons that would be entitled to notice if the 22 petition were a petition for the appointment of a guardian or 23 issuance of a protective order in both the transferring state and this 24 State. The notice must be given in the same manner as notice is 25 required to be given in this State. 26 (C) On the court’s own motion or on request of the guardian or 27 conservator, the incapacitated or protected person, or other person 28 required to be notified of the proceeding, the court shall hold a 29 hearing on a petition filed pursuant to subsection (A). 30 (D) The court shall issue an order provisionally granting a 31 petition filed pursuant to subsection (A) unless: 32 (1) an objection is made and the objector establishes that 33 transfer of the proceeding would be contrary to the interests of the 34 incapacitated or protected person; or 35 (2) the guardian or conservator is ineligible for appointment 36 in this State. 37 (E) The court shall issue a final order accepting the proceeding 38 and appointing the guardian or conservator as guardian or 39 conservator in this State upon its receipt from the court from which 40 the proceeding is being transferred of a final order issued pursuant 41 to provisions similar to Section 625714 transferring the proceeding 42 to this State. [1243] 420 1 (F) Not later than ninety days after issuance of a final order 2 accepting transfer of a guardianship or conservatorship, the court 3 shall determine whether the guardianship or conservatorship needs 4 to be modified to conform to the laws of this State. 5 (G) In granting a petition pursuant to this section, the court 6 shall recognize a guardianship or conservatorship order from the 7 other state, including the determination of the incapacitated or 8 protected person’s incapacity and the appointment of the guardian 9 or conservator. 10 (H) The denial by the court of a petition to accept a 11 guardianship or conservatorship transferred from another state 12 does not affect the ability of the guardian or conservator to seek 13 appointment as guardian or conservator in this State pursuant to 14 another provision of this article if the court has jurisdiction to 15 make an appointment other than by reason of the provisional order 16 of transfer. 17 (1) Upon issuance of a provisional order in another state to 18 transfer a guardianship or conservatorship to this State under 19 procedures similar to those in Section 625714, the guardian or 20 conservator shall petition the court in this State to accept the 21 guardianship or conservatorship. The petition must include a 22 certified copy of the other state’s provisional order. 23 (2) Notice of a petition under subsection (1) to accept a 24 guardianship or conservatorship from another state must be given 25 by the petitioner to those persons that would be entitled to notice if 26 the petition were a petition for the appointment of a guardian or 27 issuance of a protective order in both the transferring state and this 28 State. The notice must be given in the same manner as notice is 29 given in this State. 30 (3) On the court’s own motion or on request of the guardian or 31 conservator, the incapacitated or protected person, or other person 32 required to be notified of the proceeding, the court shall hold a 33 hearing on a petition filed pursuant to subsection (1) to accept a 34 guardianship or conservatorship from another state, except that no 35 hearing shall be required if a consent order is signed by all parties 36 who have pled or otherwise defended as provided by the South 37 Carolina Rules of Civil Procedure. 38 (4) The court shall issue a provisional order approving a 39 petition filed under subsection (1) unless: 40 (a) an objection is made and the objector establishes that 41 transfer of the proceeding would be contrary to the interests of the 42 incapacitated or protected person; or [1243] 421 1 (b) the guardian or conservator is ineligible for appointment 2 in this State. 3 (5) The court shall issue a final order accepting the proceeding 4 and appointing the guardian or conservator as guardian or 5 conservator in this State upon receipt from the court from which 6 the proceeding is being transferred of a final order issued pursuant 7 to provisions similar to Section 625714 transferring the proceeding 8 to this State. 9 (6) Not later than ninety days after the issuance of a final order 10 accepting transfer of a guardianship or conservatorship, the court 11 shall determine whether the guardianship or conservatorship needs 12 to be modified to conform to the laws of this State. 13 (7) In granting a petition under this section, the court shall 14 recognize a guardianship or conservatorship order from the other 15 State, including the determination of the incapacitated or protected 16 person’s incapacity and the appointment of the guardian or 17 conservator, if the guardian or conservator is eligible to act in this 18 state. 19 (8) The denial of a petition filed under subsection (1) to accept 20 a guardianship or conservatorship from another state does not 21 affect the ability of a guardian or conservator appointed by a court 22 in another state to seek appointment as guardian of the 23 incapacitated person or conservator of the protected person under 24 Parts 3 and 4 of this article if the court has jurisdiction to make an 25 appointment other than by reason of the provisional order of 26 transfer. 27 28 REPORTER’S COMMENTS 29 Sections 625714 and 625715, are part of one integrated 30 procedure. Section 625714 authorizes a guardian or conservator to 31 petition the court to transfer the guardianship or conservatorship 32 proceeding to a court of another state. Such a transfer is often 33 appropriate when the incapacitated or protected person has moved 34 or has been placed in a facility in another state, making it 35 impossible for the original court to adequately monitor the 36 proceeding. Section 625714 authorizes a transfer of a 37 guardianship, a conservatorship, or both. There is no requirement 38 that both categories of proceeding be administered in the same 39 state. 40 Section 625714 addresses procedures in the transferring state. 41 Section 625715 addresses procedures in the accepting state. 42 A transfer begins with the filing of a petition by the guardian or 43 conservator as provided in Section 625714(1). Notice of this[1243] 422 1 petition must be given to the persons who would be entitled to 2 notice were the petition a petition for an original appointment. 3 Section 625714(2). A hearing on the petition is required if 4 requested or on the court’s own motion, unless all necessary 5 parties have consented . Assuming the court in the transferring 6 state is satisfied that the grounds for transfer stated in Section 7 625714(4) (guardianship) or 625714(5) (conservatorship) have 8 been met, one of which is that the court is satisfied that the court in 9 the other state will accept the case, the court must issue a 10 provisional order approving the transfer. The transferring court 11 will not issue a final order dismissing the case until, as provided in 12 Section 625714(6), it receives a copy of the provisional order from 13 the accepting court accepting the transferred proceeding. 14 Following issuance of the provisional order by the transferring 15 court, a petition must be filed in the accepting court as provided in 16 Section 625715(1). Notice of that petition must be given to those 17 who would be entitled to notice of an original petition for 18 appointment in both the transferring state and in the accepting 19 state. Section 625715(2). A hearing must be held if requested or on 20 the court’s own motion, unless all necessary parties have 21 consented. Section 625715(3). The court must issue a provisional 22 order accepting the case unless it is established that the transfer 23 would be contrary to the incapacitated or protected person’s 24 interests or the guardian or conservator is ineligible for 25 appointment in the accepting state. Section 625715(4). The term 26 ‘interests’ as opposed to ‘best interests’ was chosen because of the 27 strong autonomy values in modern guardianship law. Should the 28 court decline the transfer petition, it may consider a separately 29 brought petition for the appointment of a guardian or issuance of a 30 protective order only if the court has a basis for jurisdiction under 31 Sections 625707 or 625708 other than by reason of the provisional 32 order of transfer. Section 625715(8). 33 The final steps are largely ministerial. Pursuant to Section 34 625714(6), the provisional order from the accepting court must be 35 filed in the transferring court. The transferring court will then issue 36 a final order terminating the proceeding, subject to local 37 requirements such as filing of a final report or account and the 38 release of any bond. Pursuant to Section 625715(5), the final order 39 terminating the proceeding in the transferring court must then be 40 filed in the accepting court, which will then convert its provisional 41 order accepting the case into a final order appointing the 42 petitioning guardian or conservator as guardian or conservator in 43 the accepting state. [1243] 423 1 Because guardianship and conservatorship law and practice will 2 likely differ between the two states, the court in the accepting state 3 must within 90 days after issuance of a final order determine 4 whether the guardianship or conservatorship needs to be modified 5 to conform to the law of the accepting state. Section 625715(6). 6 The drafters specifically did not try to design the procedures in 7 Sections 625714 and 625715 for the difficult problems that can 8 arise in connection with a transfer when the guardian or 9 conservator is ineligible to act in the second state, a circumstance 10 that can occur when a financial institution is acting as conservator 11 or a government agency is acting as guardian. Rather, the 12 procedures in Sections 625714 and 625715 are designed for the 13 typical case where the guardian or conservator is legally eligible to 14 act in the second state. Should that particular guardian or 15 conservator not be the best person to act in the accepting state, a 16 change of guardian or conservator can be initiated once the transfer 17 has been secured. 18 The transfer procedure in this article responds to numerous 19 problems that have arisen in connection with attempted transfers 20 under the existing law of most states. Sometimes a court will 21 dismiss a case on the assumption a proceeding will be brought in 22 another state, but such proceeding is never filed. Sometimes a 23 court will refuse to dismiss a case until the court in the other state 24 accepts the matter, but the court in the other state refuses to 25 consider the petition until the already existing guardianship or 26 conservatorship has been terminated. Oftentimes the court will 27 conclude that it is without jurisdiction to make an appointment 28 until the primary respondent is physically present in the state, a 29 problem which Section 625708(A)(3) addresses by granting a 30 court special jurisdiction to consider a petition to accept a 31 proceeding from another state. But the most serious problem is the 32 need to prove the case in the second state from scratch, including 33 proving the primary respondent’s incapacity and the choice of 34 guardian or conservator. Sections 625714 and 625715 eliminate 35 this problem. Section 625715(7) requires that the court accepting 36 the case recognize a guardianship or conservatorship order from 37 the other state, including the determination of the incapacitated or 38 protected person’s incapacity and the appointment of the guardian 39 or conservator, if otherwise eligible to act in the accepting state. 40 41 Section 625716. (A) If a guardian has not been appointed in 42 another this State and a petition for the appointment of a guardian 43 is not pending in this State, the a guardian appointed in the other[1243] 424 1 another state, after giving notice to the appointing court of an 2 intent to register, may register the guardianship order in this State 3 by filing as a foreign judgment in a court, in any appropriate 4 county of this State, a certified copies copy of the order and letters 5 of office in the register of deeds and also filing a clocked copy of 6 the letters of office and a certified copy of the order of 7 appointment in the probate court. 8 (B) If a conservator has been appointed in another state and a 9 petition for a protective order is not pending in this State, the 10 conservator appointed in the other state, after giving notice to the 11 appointing court of an intent to register, may register the protective 12 order in this State by filing as a foreign judgment in a court of this 13 State, in any county in which property belonging to the protected 14 person is located, certified copies of the order and letters of office 15 and of any bond. 16 (C)(1) Upon registration of a guardianship or protective order 17 from another state, the guardian or conservator may exercise in 18 this State all powers authorized in the order of appointment except 19 as prohibited under the laws of this State, including maintaining 20 actions and proceedings in this State and, if the guardian or 21 conservator is not a resident of this State, subject to any conditions 22 imposed upon nonresident parties. 23 (2) A probate court of this State may grant any relief 24 available pursuant to the provisions of this article and other laws of 25 this State to enforce a registered order. 26 27 Section 625717. If a conservator has not been appointed in 28 this State and a petition for a protective order is not pending in this 29 State, a conservator appointed in another state, after giving notice 30 to the appointing court of an intent to register, may register the 31 protective order in this State by filing in any appropriate county of 32 this State a certified copy of the letters of office in the register of 33 deeds and also filing a clocked copy of the letters of office, a 34 certified copy of the order, and any bond in the probate court. 35 36 Section 625718. Upon registration of a guardianship or 37 protective order from another state, the guardian or conservator 38 may exercise in this State all powers authorized in the order of 39 appointment except as prohibited under the laws of this State, 40 including maintaining actions and proceedings in this State and, if 41 the guardian or conservator is not a resident of this State, subject to 42 any conditions imposed upon nonresident parties. [1243] 425 1 A court of this State may grant any relief available under this 2 part and other law of this State to enforce a registered order. 3 4 REPORTER’S COMMENTS 5 Sections 625716 through 625718 are designed to facilitate the 6 enforcement of guardianship and protective orders in other states. 7 These sections do not make distinctions among the types of orders 8 that can be enforced. These sections are applicable whether the 9 guardianship or conservatorship is full or limited. While some 10 states have expedited procedures for sales of real estate by 11 conservators appointed in other states, few states have enacted 12 statutes dealing with enforcement of guardianship orders, such as 13 when a care facility questions the authority of a guardian appointed 14 in another state. Sometimes, these sorts of refusals necessitate that 15 the proceeding be transferred to the other state or that an entirely 16 new petition be filed, problems that could often be avoided if 17 guardianship and protective orders were entitled to recognition in 18 other states. 19 These sections provides for such recognition. The key concept is 20 registration. Section 625716 provides for registration of 21 guardianship orders, and Section 625717 for registration of 22 protective orders. Following registration of the order in the 23 appropriate county of the other state, and after giving notice to the 24 appointing court of the intent to register the order in the other state, 25 Section 625718 authorizes the guardian or conservator to thereafter 26 exercise all powers authorized in the order of appointment except 27 as prohibited under the laws of the registering state. 28 These sections conclude that the registration of certified copies 29 provides sufficient protection and that it is not necessary to 30 mandate the filing of authenticated copies. 31 32 PART 8 33 34 Guardian Ad Litem under this Article 35 36 Section 625810. The court has discretion in determining who 37 will be appointed as a guardian ad litem in each case, subject to the 38 requirements set forth in Section 625820, and shall issue an order 39 of appointment after obtaining the consent of the proposed 40 guardian ad litem. 41 42 REPORTER’S COMMENTS 43[1243] 426 1 Prior to the 2012 amendments the previous version of the Article 2 5, Part 8 required that an attorney be appointed for the alleged 3 incapacitated person and that the attorney have the powers and 4 duties of a guardian ad litem. There was no guidance provided as 5 to what those powers and duties should include and the dual role of 6 attorney and guardian ad litem resulted in potential conflicts of 7 interest. This Part 8 is based on the guardian ad litem statutes 8 found in South Carolina Code of Laws, Title 63, Chapter 3, Article 9 7, concerning the family court guardian ad litem. This section sets 10 out the basic authority and procedure for the appointment of a 11 guardian ad litem in the probate court. 12 13 Section 625820. (1) To be appointed as a guardian ad litem 14 pursuant to Section 625810, a person must have the requisite 15 knowledge or expertise to perform the required duties and must 16 have completed the required training approved for guardians ad 17 litem by the probate court making the appointment. These training 18 requirements are: 19 (A) if the guardian ad litem is a nonlawyer: 20 (i) for initial qualification, a minimum of six hours; and 21 (iii) every three years after the year of initial qualification, 22 a minimum of six additional hours; 23 (B) if the guardian ad litem is a lawyer: 24 (i) for initial qualification, a minimum of three hours; and 25 (ii) every three years after the year of initial qualification, 26 a minimum of three additional hours. 27 (C) The training requirements of this section may be waived 28 by the court for good cause shown. 29 (2) The training for a guardian ad litem serving in the probate 30 court shall include a review of: 31 (A) Parts 1 through 4 of this article; 32 (B) the qualifications, responsibilities and duties of a guardian 33 ad litem as set forth in this part; and 34 (C) issues commonly encountered by guardians ad litem, 35 including, but not limited to: and 36 (i) resources, such as Social Security, Medicare, 37 Medicaid, VA Benefits; and 38 (ii) probate court procedures. 39 (3) Upon accepting the appointment as guardian ad litem, a 40 guardian ad litem must certify to the court that he meets the 41 statutory qualifications. [1243] 427 1 (4) A person whose eligibility has lapsed may again become 2 eligible for appointment as a guardian ad litem by completing the 3 additional training required after initial qualification. 4 (5) For appointments made in the first year following 5 enactment of this section, the court may waive the initial training 6 requirement. 7 8 REPORTER’S COMMENTS 9 10 This revision allows both lawyers and nonlawyers to be appointed 11 as guardian ad litem, specifies the requirements for eligibility and 12 appointment of the guardian ad litem, and is based upon the family 13 court requirements found in 633820(A). 14 15 Subsection (5) allows the court to waive the training requirement 16 for appointments made in the year after enactment in order to 17 allow time for the creation and dissemination of training programs. 18 19 Section 625830. (1) The responsibilities and duties of a 20 guardian ad litem include, but are not limited to: 21 (A) acting in the best interest of the primary respondent; 22 (B) conducting an independent, balanced, and impartial 23 investigation to determine the facts relevant to the situation of the 24 primary respondent. An investigation must include, but is not 25 limited to: 26 (i) obtaining and reviewing relevant documents. The 27 guardian ad litem shall have access to the primary respondent’s 28 medical records (including, but not limited to, hospital records, 29 physician’s records mental health treatment records, chemical 30 dependency treatment records, and VA treatment records, state and 31 federal tax records, financial records), public benefits records, and 32 any other relevant records. The guardian ad litem shall have, on 33 behalf of the primary respondent, the right to institute or 34 participate in discovery and in any proceedings to the same extent 35 as any party to the action; 36 (ii) meeting with, observing, and interviewing the primary 37 respondent on at least one occasion; 38 (iii) conveying to the primary respondent the substance of 39 the petition, the nature, purpose and effect of the proceeding, and 40 the primary respondent’s rights at the hearing; 41 (iv) informing the primary respondent of the right to retain 42 counsel or request the court to appoint counsel in accordance with[1243] 428 1 the provisions of Section 625303(4) or Section 625403(E), as 2 applicable; 3 (v) interviewing the petitioner, the proposed guardian, the 4 proposed conservator, and any party who files an answer in the 5 matter; 6 (vi) visiting the residence of the primary respondent, if 7 deemed appropriate; 8 (vii) interviewing caregivers, relatives, and others with 9 knowledge relevant to the case; 10 (viii) reviewing the criminal history of any individual 11 proposed as guardian or conservator when deemed appropriate; 12 and 13 (ix) considering the wishes of the primary respondent; 14 (C) advocating for the best interest of the primary respondent 15 by making specific and clear suggestions, including information 16 and recommendations regarding resources as may be appropriate 17 or available to benefit the primary respondent; 18 (D) attending all probate court hearings, except when 19 attendance is excused by the court or the absence is stipulated by 20 all parties present at the hearing. The guardian ad litem must 21 provide accurate, current information directly to the court; 22 (E) making recommendations regarding the appropriateness 23 of the appointment of a guardian or conservator and any 24 limitations to be imposed; 25 (F) presenting an oral report at the hearing on the 26 information gathered, findings, and recommendations of the 27 guardian ad litem, unless a written report has been submitted 28 pursuant to paragraph (G) and attendance has been excused 29 pursuant to paragraph (D); and 30 (G) upon request by the court, presenting to the court and all 31 parties clear and comprehensive written reports including, but not 32 limited to, a final written report regarding the best interest of the 33 primary respondent. The written report, when requested, must be 34 submitted to the court and all parties by the deadline set by the 35 court, but at least fortyeight hours prior to the hearing, unless 36 otherwise waived by the court. The guardian ad litem is subject to 37 crossexamination on the facts and conclusions contained in the 38 report. 39 (2) A guardian ad litem may submit reports, recommendations, 40 briefs, memoranda, affidavits, or other documents on behalf of the 41 primary respondent, in a manner consistent with the South 42 Carolina Rules of Evidence and other state law. A guardian ad 43 litem’s notes are his work product and are not subject to subpoena.[1243] 429 1 (3) The guardian ad litem shall submit to the court a report that 2 includes: 3 (A) the date and place of the meeting of the guardian ad litem 4 with the primary respondent; 5 (B) whether the primary respondent approves of: 6 (i)the appointment of a guardian or conservator, as 7 requested in the petition; 8 (ii) the person to be appointed; and 9 (iii) the extent of the requested authority; 10 (C) a description of the appearance of the primary 11 respondent; 12 (D) a description of the condition of the place of the meeting, 13 if appropriate; 14 (E) the diagnosis of the primary respondent; 15 (F) any prior action with the Department of Social Services 16 or law enforcement concerning the primary respondent or the 17 proposed guardian or conservator, of which the guardian ad litem 18 is aware; 19 (G) a statement as to any prior relationship between the 20 guardian ad litem and the petitioner, primary respondent, or any 21 other party to the action; and 22 (I) the signature of the guardian ad litem and the date of the 23 report. 24 (4) The court may extend or limit the responsibilities and 25 authority of the guardian ad litem upon good cause shown. 26 27 REPORTER’S COMMENTS 28 29 The listed responsibilities are adapted from the requirements for a 30 guardian ad litem serving in the family court found in South 31 Carolina Code of Laws Section 633830. Subsection 1 codifies the 32 responsibilities of the guardian ad litem. Subsection 2 33 specifically allows the guardian ad litem to introduce documents 34 and protects the guardian ad litem’s work. The new reporting 35 requirement in Subsection 3 incorporates information gathered by 36 the guardian ad litem into a minimum of one report, and includes 37 information previously reported by an appointed visitor (the visitor 38 appointment is now optional for the court under the 2012 39 amendments). 40 41 Section 625840. (1) At the time of appointment of a guardian 42 ad litem, the court must set forth the rate of compensation for the 43 guardian ad litem based on the factors set forth in subsection (2).[1243] 430 1 The court may set an overall maximum fee or an hourly rate of 2 compensation. If the guardian ad litem determines that it is 3 necessary to exceed the fee initially authorized by the judge, the 4 guardian ad litem may move the court for additional compensation. 5 (2) A guardian ad litem appointed by the court is entitled to 6 reasonable compensation and reimbursement for expenses, subject 7 to the review and approval of the court. In determining the 8 reasonableness of the fees and costs, the court must take into 9 account: 10 (a) the novelty and difficulty of the issues before the court 11 and the skill requisite to perform the responsibilities properly; 12 (b) the contentiousness of the proceedings; 13 (c) the time expected to be expended by the guardian ad 14 litem; 15 (d) the likelihood that the acceptance of the appointment will 16 preclude other employment of the guardian ad litem; 17 (e) the time limitations imposed by the circumstances; 18 (f) the experience, reputation and ability of the person being 19 appointed by the court; 20 (g) the financial ability of each party to pay fees and costs; 21 and 22 (h) any other factors the court considers necessary. 23 (3) If so directed by the court, the guardian ad litem must 24 submit an itemized billing statement of hours, expenses, costs, and 25 fees to the court. 26 (4) At any time during the action, a party may petition the 27 court to review the reasonableness of the fees and costs submitted 28 by the guardian ad litem. 29 30 REPORTER’S COMMENTS 31 32 This section is based upon Section 633850, which addresses 33 compensation for the guardian ad litem in family court. 34 35 Section 625850. Any guardian ad litem appointed by the court 36 must, upon request of the court or any party, provide written 37 disclosure to each party: 38 (1) of the nature, duration, and extent of any relationship the 39 guardian ad litem (or any member of the guardian ad litem’s 40 immediate family) has with any party; and 41 (2) of any interest adverse to any party or any party’s attorney 42 which might cause the impartiality of the guardian ad litem to be 43 challenged.[1243] 431 1 2 REPORTER’S COMMENTS 3 4 This section is based upon Section 633860, which addresses 5 disclosure for the guardian ad litem in family court. 6 7 Section 625860. (1) A guardian ad litem may resign or be 8 removed from a case at the discretion of the court. 9 (2) Upon the appointment of a guardian or issuance of a 10 protective order, the appointment of the guardian ad litem 11 automatically terminates unless otherwise specified in the court 12 order. 13 14 REPORTER’S COMMENTS 15 16 Subsection 1 is based upon Section 633870, which addresses 17 removal of the guardian ad litem in family court. Subsection 2 18 terminates the responsibilities of a guardian ad litem unless the 19 court requires further action by the guardian ad litem on behalf of 20 the primary respondent. 21 22 Section 625870. A guardian ad litem appointed under this part 23 and acting in the course and scope of the appointment is not liable 24 for damages arising from an act or omission of the guardian ad 25 litem committed in good faith. The immunity granted by this 26 section does not apply if the conduct constitutes willful or wanton 27 misconduct or gross negligence. 28 29 REPORTER’S COMMENTS 30 31 This addition provides statutory protection for lawyer and 32 nonlawyer guardians ad litem. See Fleming v. Asbill, 326 S.C. 33 49, 483 S.E.2d 751 (S.C. 1997), and Vaughan v. McLeod Regional 34 Medical Center, 372 S.C. 505, 642 S.E.2d 744 (S.C. 2007). 35 36 Article 6 37 38 Nonprobate Transfers 39 40 Part 1 41 42 MultipleParty Accounts Definitions and General Provisions 43[1243] 432 1 Section 626101. In this subpart [Sections 626101 et seq.], unless 2 the context otherwise requires: 3 (1) ‘Account’ means a contract of deposit of funds between a 4 depositor and a financial institution, and includes a checking 5 account, savings account, certificate of deposit, share account, and 6 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 as 10 one for whom a party to the account is named as trustee as one to 11 whom sums on deposit in an account are payable on request after 12 death of all parties or for whom a party is named as trustee. 13 (3)(4) ‘Financial institution’ means any organization authorized 14 to do business under state or federal laws relating to financial 15 institutions, including, without limitation, banks and trust 16 companies, savings banks, building and loan associations, savings 17 and loan companies or associations, and credit unions and includes 18 a bank, trust company, savings bank, building and loan 19 association, savings and loan company or association, and credit 20 union. 21 (4) ‘Joint account’ means an account payable on request to one 22 or more of two or more parties (whether ‘and’, ‘or’, ‘and/or’, or 23 any other designation), whether or not mention is made of any 24 right of survivorship. 25 (5) A ‘MultipleParty account’ is any of the following types of 26 account: (i) a joint account, (ii) a P.O.D. account, or (iii) a trust 27 account. It does not include accounts established for deposit of 28 funds of a partnership, joint venture, or other association for 29 business purposes, or accounts controlled by one or more persons 30 as the duly authorized agent or trustee for a corporation, 31 unincorporated association, charitable or civic organization, or a 32 regular fiduciary or trust account where the relationship is 33 established other than by deposit agreement means an account 34 payable on request to one or more of two or more parties, whether 35 or not a right of survivorship is mentioned including, but not 36 limited to, joint accounts or POD accounts. 37 (6) ‘Net contribution’ of a party to a joint account as of any 38 given time is means the sum of all deposits thereto to an account 39 made by or for him the party, less all withdrawals made by or for 40 him which have not been paid to or applied to the use of any other 41 party, plus a prorata share of any interest or dividends included in 42 the current balance. The term includes, in addition, any proceeds 43 of deposit life insurance added to the account by reason of the[1243] 433 1 death of the party whose net contribution is in question payments 2 from the account made to or for the party which have not been paid 3 to or applied to the use of another party and a proportionate share 4 of any charges deducted from the account, plus a proportionate 5 share of any interest or dividends earned, whether or not included 6 in the current balance. The term includes deposit life insurance 7 proceeds added to the account by reason of death of the party 8 whose net contribution is in question. 9 (7) ‘Party’ means a person who, by the terms of the an account, 10 has a present right, subject to request, to payment from a 11 multipleparty the account other than as a beneficiary or agent. A 12 P.O.D. payee or beneficiary of a trust account is a party only after 13 the account becomes payable to him by reason of his surviving the 14 original payee or trustee. Unless the context otherwise requires, it 15 includes a guardian, conservator, personal representative, or 16 assignee, including an attaching creditor, of a party. It also 17 includes a person identified as a trustee of an account for another 18 whether or not a beneficiary is named, but it does not include any 19 named beneficiary unless he has a present right of withdrawal. 20 (8) ‘Payment’ of sums on deposit includes withdrawal, 21 payment on check or other directive of to a party, and any pledge 22 of sums on deposit by a party and any setoff, or reduction or other 23 disposition of all or part of an account pursuant or third person 24 pursuant to a check or other request, and a pledge of sums on 25 deposit by a party, or a setoff, reduction, or other disposition of all 26 or part of an account pursuant to a pledge. 27 (9) ‘Proof of death’ includes a death certificate or record or 28 report which is prima facie proof of death under Section 621107 29 621507. 30 (10) ‘P.O.D. account’ means an account payable on request to 31 one person during his lifetime and on his death to one or more 32 P.O.D. payees, or to one or more persons during their lifetimes and 33 on the death of all of them to one or more P.O.D. payees 34 designation’ means the designation of: (i) a beneficiary in an 35 account payable on request to one party during the party’s lifetime 36 and on the party’s death to one or more beneficiaries, or to one or 37 more parties during their lifetimes and on death of all of them to 38 one or more beneficiaries, or (ii) a beneficiary in an account in the 39 name of one or more parties as trustee for one or more 40 beneficiaries if the relationship is established by the terms of the 41 account and there is no subject of the trust other than the sums on 42 deposit in the account, whether or not payment to the beneficiary is 43 mentioned. [1243] 434 1 (11) ‘P.O.D. payee’ means a person designated on a P.O.D. 2 account as one to whom the account is payable on request after the 3 death of one or more persons ‘Receive’ as it relates to notice to a 4 financial institution, means receipt in the office or branch office of 5 the financial institution in which the account is established, but if 6 the terms of the account require notice at a particular place, in the 7 place required. 8 (12) ‘Request’ means a proper request for withdrawal, or a 9 check or order for payment, which complies with all conditions of 10 the account, including special requirements concerning necessary 11 signatures and regulations of the financial institution; but if the 12 financial institution conditions withdrawal or payment on advance 13 notice, for purposes of this part the request for withdrawal or 14 payment is treated as immediately effective and a notice of intent 15 to withdraw is treated as a request for withdrawal complying with 16 all terms of the account, including special requirements concerning 17 necessary signatures and regulations of the financial institution. 18 However, for purposes of this subpart, if terms of the account 19 condition payment on advance notice, a request for payment is 20 treated as immediately effective and a notice of intent to withdraw 21 is treated as a request for payment. 22 (13) ‘Sums on deposit’ means the balance payable on a 23 multipleparty account including interest, and dividends earned, 24 whether or not included in the current balance, and in addition any 25 deposit life insurance proceeds added to the account by reason of 26 the death of a party. 27 (14) ‘Trust account’ means an account in the name of one or 28 more parties as trustee for one or more beneficiaries where the 29 relationship is established by the form of the account and the 30 deposit agreement with the financial institution and there is no 31 subject of the trust other than the sums on deposit in the account; 32 it is not essential that payment to the beneficiary be mentioned in 33 the deposit agreement. A trust account does not include a regular 34 trust account under a testamentary trust or a trust agreement which 35 has significance apart from the account, or a fiduciary account 36 arising from a fiduciary relationship such as attorneyclient. 37 (15) ‘Withdrawal’ includes payment to a third person pursuant 38 to check or other directive of a party ‘Terms of the account’ 39 includes the deposit agreement and other terms and conditions, 40 including the form, of the contract of deposit. 41 42 REPORTER’S COMMENTS 43[1243] 435 1 This and the sections that follow are designed to reduce certain 2 questions concerning many forms of multipleperson accounts. A 3 ‘payable on death’ designation and an ‘agency’ designation are 4 also authorized for both singleparty and multipleparty accounts. 5 An agent (paragraph (2)) may not be a party. The agency 6 designation must be signed by all parties, and the agent is the agent 7 of all parties. See Section 626105 (designation of agent). 8 A ‘beneficiary’ of a party (paragraph (3)) may be a POD 9 beneficiary. See paragraph (10) (‘POD designation’ defined). The 10 definition of ‘beneficiary’ refers to a ‘person,’ who may be an 11 individual, corporation, organization, or other legal entity Thus, a 12 church, trust company, family corporation, or other entity, as well 13 as any individual, may be designated as a beneficiary. 14 The term ‘multipleparty account’ (paragraph 5) is used in this part 15 in a broad sense to include any account having more than one 16 owner with a present interest in the account. Thus, an account may 17 be a ‘multipleparty account’ within the meaning of this part 18 regardless of whether the terms of the account refer to it as ‘joint 19 tenancy’ or as ‘tenancy in common,’ regardless of whether the 20 parties named are coupled by ‘or’ or ‘and,’ and regardless of 21 whether any reference is made to survivorship rights, whether 22 expressly or by abbreviation such as JTWROS or JT TEN. 23 Survivorship rights in a multipleparty account are determined by 24 the terms of the account, by statute and by the intent of the party, 25 and survivorship is not a necessary incident of a multipleparty 26 account. See Section 626202 (rights at death). 27 ‘Net contribution’ as defined in paragraph (6) has no application to 28 the financial institutiondepositor relationship. Rather, it is relevant 29 only to controversies that may arise between parties to a 30 multipleparty account. See Section 626201 (ownership during 31 lifetime). 32 Under paragraph (7), a ‘party’ is a person with a present right to 33 payment from an account. Therefore, present owners of a 34 multipleparty account are parties, as is the present owner of an 35 account with a POD designation. The beneficiary of an account 36 with a POD designation is not a party, but is entitled to payment 37 only on the death of all parties. An agent with the right of 38 withdrawal on behalf of a party is not itself a party. A person 39 claiming on behalf of a party such as a guardian or conservator, or 40 claiming the interest of a party such as a creditor, is not itself a 41 party, and the right of such a person to payment is governed by 42 general law other than this part.[1243] 436 1 Various signature requirements may be involved in order to meet 2 the payment requirements of the account. A ‘request’ (paragraph 3 (12)) involves compliance with these requirements. A party is one 4 to whom an account is presently payable without regard to whose 5 signature may be required for a ‘request.’ 6 7 Section 626102. The provisions of Sections 626103 to 626105 8 concerning beneficial ownership as between parties, or as between 9 parties and P.O.D. payees or beneficiaries of multipleparty 10 accounts, are relevant only to controversies between these persons 11 and their creditors and other successors, and have no bearing on 12 the power of withdrawal of these persons as determined by the 13 terms of account contracts. The provisions of Sections 626108 to 14 626113 govern the liability of financial institutions who make 15 payments pursuant thereto and their setoff rights. This article does 16 not apply to: (i) an account established for a partnership, joint 17 venture, or other organization for a business purpose, (ii) an 18 account controlled by one or more persons as an agent or trustee 19 for a corporation, unincorporated association, or charitable or civic 20 organization, or (iii) a fiduciary or trust account in which the 21 relationship is established other than by the terms of the account. 22 23 REPORTER’S COMMENTS 24 The reference to a fiduciary or trust account in item (iii) includes a 25 regular trust account under a testamentary trust or a trust agree- 26 ment that has significance apart from the account, and a fiduciary 27 account arising from a fiduciary relation such as attorneyclient. 28 29 Section 626103. (a) A joint account belongs, during the 30 lifetime of all parties, to the parties in proportion to the net 31 contributions by each to the sums on deposit, unless there is clear 32 and convincing evidence of a different intent. 33 (b) A P.O.D. account belongs to the original payee during his 34 lifetime and not to the P.O.D. payee or payees; if two or more 35 parties are named as original payees, during their lifetimes rights 36 as between them are governed by subsection (a) of this section. 37 (c) Unless a contrary intent is manifested by the terms of the 38 account or the deposit agreement or there is clear and convincing 39 evidence of an irrevocable trust, a trust account belongs 40 beneficially to the trustee during his lifetime, and if two or more 41 parties are named as trustee on the account, during their lifetimes 42 beneficial rights as between them are governed by subsection (a) 43 of this section. If there is an irrevocable trust, the account belongs[1243] 437 1 beneficially to the beneficiary. (a) An account may be for a single 2 party or multiple parties. A multipleparty account may be with or 3 without a right of survivorship between the parties. Subject to 4 Section 626202(c), either a singleparty account or a multipleparty 5 account may have a POD designation, an agency designation, or 6 both. 7 (b) An account established after January 1, 2013, whether in 8 the form prescribed in Section 626104 or in any other form, is 9 either a singleparty account or a multipleparty account, with or 10 without right of survivorship, and with or without a POD 11 designation or an agency designation, within the meaning of this 12 subpart, and is governed by this article. 13 14 REPORTER’S COMMENTS 15 16 In the case of an account established after the effective date of this 17 part that is not in substantially the form provided in Section 18 626104, the account is governed by the provisions of this part 19 applicable to the type of account that most nearly conforms to the 20 depositor’s intent. See Section 626104 (forms). 21 Thus, a tenancy in common account established before or after the 22 effective date of this part would be classified as a ‘multipleparty 23 account’ for purposes of this part. See Section 62 6101(5) 24 (‘multipleparty account’ defined). On death of a party there would 25 not be a right of survivorship since the tenancy in common title 26 would be treated as a multipleparty account without right of 27 survivorship. See Section 626202(c). It should be noted that a POD 28 designation may not be made in a multipleparty account without 29 right of survivorship. See Sections 62 6101(10) (‘POD 30 designation’ defined), 626104 (forms), and 626202 (rights at 31 death). 32 33 Section 626104. (a) Sums remaining on deposit at the death of 34 a party to a joint account belong to the surviving party or parties as 35 against the estate of the decedent unless there is a writing filed 36 with the financial institution at the time the account is created (or 37 subsequently as provided under Section 626105) which indicates a 38 different intention. If there are two or more surviving parties, their 39 respective ownerships during lifetime shall be in proportion to 40 their previous ownership interests under Section 626103 41 augmented by an equal share for each survivor of any interest the 42 decedent may have owned in the account immediately before his[1243] 438 1 death; and the right of survivorship continues between the 2 surviving parties. 3 (b) If the account is a P.O.D. account: 4 (1) on death of one of two or more original payees the rights 5 to any sums remaining on deposit are governed by subsection (a); 6 (2) on death of the sole original payee or of the survivor of 7 two or more original payees, any sums remaining on deposit 8 belong to the P.O.D. payee or payees if surviving, or to the 9 survivor of them if one or more die before the original payee; if 10 two or more P.O.D. payees survive, there is no right of 11 survivorship in the event of death of a P.O.D. payee thereafter 12 unless the terms of the account or deposit agreement expressly 13 provide for survivorship between them. 14 (c) If the account is a trust account: 15 (1) on death of one of two or more trustees, the right to any 16 sums remaining on deposit are governed by subsection (a); 17 (2) on death of the sole trustee or the survivor of two or 18 more trustees, any sums remaining on deposit belong to the person 19 or persons named as beneficiaries, if surviving, or to the survivor 20 of them if one or more die before the trustee, unless there is clear 21 evidence of a contrary intent; if two or more beneficiaries survive, 22 there is no right of survivorship in event of death of any 23 beneficiary thereafter unless the terms of the account on deposit 24 agreement expressly provide for survivorship between them. 25 (d) In other cases, the death of any party to a multiple party 26 account has no effect on beneficial ownership on the account other 27 than to transfer the rights of the decedent as part of his estate. 28 (e) A right to survivorship arising from the express terms of 29 the account or under this section, a beneficiary designation in a 30 trust account, or a P.O.D. payee designation, cannot be changed by 31 will; however, a party who owns a joint account under the 32 provisions of Section 626103(a) may effect such change by will to 33 the extent of his ownership if the will contains clear and 34 convincing evidence of his intent to do so. 35 (f) The provisions of Section 626104(a), (b), and (c) are 36 applicable to all multipleparty accounts created subsequent to the 37 effective date of this section, and unless there is clear and 38 convincing evidence of a different intention at the time the account 39 was created, to all multipleparty accounts created prior to the 40 effective date of this section. A contract of deposit that contains 41 provisions in substantially the following form establishes the type 42 of account provided, and the account is governed by the provisions 43 of this subpart applicable to an account of that type:[1243] 439 1 2 ‘ UNIFORM SINGLEOR MULTIPLEPARTY ACCOUNT FORM 3 4 PARTIES [Name One or More Parties]: 5 ______6 7 8 OWNERSHIP [Select One And Initial]: 9 10 __SINGLEPARTY ACCOUNT 11 12 13 __MULTIPLEPARTY ACCOUNT 14 Parties own account in proportion to net contributions unless there 15 is clear and convincing evidence of a different intent. 16 17 RIGHTS AT DEATH [Select One And Initial]: 18 19 If SingleParty Account is chosen in 2. above, choose one of 20 following: 21 22 __SINGLEPARTY ACCOUNT 23 At death of party, ownership passes as part of party’s estate. 24 25 __SINGLEPARTY ACCOUNT WITH POD (PAY ON DEATH) 26 DESIGNATION 27 [Name One Or More Beneficiaries]: 28 ______29 30 At death of party, ownership passes to POD beneficiaries and is 31 not part of party’s estate. 32 33 If MultipleParty Account is chosen in 2. above, choose one of 34 following: 35 36 __MULTIPLEPARTY ACCOUNT WITH RIGHT OF 37 SURVIVORSHIP 38[1243] 440 1 At death of party, ownership passes to surviving parties. The last 2 surviving party owns the entire account. (Note: This can be 3 overridden by clear and convincing evidence of a contrary intent.) 4 5 __MULTIPLEPARTY ACCOUNT WITH RIGHT OF 6 SURVIVORSHIP AND POD (PAY ON DEATH) 7 DESIGNATION 8 [Name One Or More Beneficiaries]: 9 ______10 11 At death of last surviving party, ownership passes to POD 12 beneficiaries and is not part of last surviving party’s estate. 13 14 __MULTIPLEPARTY ACCOUNT WITHOUT RIGHT OF 15 SURVIVORSHIP 16 At death of party, deceased party’s ownership passes as part of 17 deceased party’s estate. 18 19 DESIGNATION OF AGENT FOR ACCOUNT [Optional] 20 Agents may make account transactions for parties but have no 21 ownership or rights at death unless named as POD beneficiaries. 22 [To Add Agency Designation To Account, Name One Or More 23 Agents]: 24 ______25 26 [Select One And Initial]: 27 ______AGENCY DESIGNATION SURVIVES DISABILITY OR 28 INCAPACITY OF PARTIES 29 30 ______AGENCY DESIGNATION TERMINATES ON 31 DISABILITY OR INCAPACITY OF PARTIES’ 32 33 (b) A contract of deposit that does not contain provisions in 34 substantially the form provided in subsection (a) is governed by 35 the provisions of this article applicable to the type of account that 36 most nearly conforms to the depositor’s intent. 37 38 REPORTER’s COMMENTS[1243] 441 1 This section provides short forms for single and multipleparty 2 accounts which, if used, bring the accounts within the terms of this 3 part. A financial institution that uses the statutory form language in 4 its accounts is protected in acting in reliance on the form of the 5 account. See also Section 626306 (discharge). 6 The forms provided in this section enable a person establishing a 7 multipleparty account to state expressly in the account whether 8 there are to be survivorship rights between the parties. The account 9 forms permit greater flexibility than traditional account designa- 10 tions. 11 An account that is not substantially in the form provided in this 12 section is nonetheless governed by this part. See Section 626103 13 (types of account; existing accounts). 14 15 Section 626105. The provisions of Section 626104 as to rights 16 of survivorship are determined by the form of the account at the 17 death of a party. This form may be altered by written order given 18 by a party to the financial institution to change the form of the 19 account or to stop or vary payment under the terms of the account. 20 The order or request must be signed by a party, received by the 21 financial institution during the party’s lifetime, and not 22 countermanded by other written order of the same party during his 23 lifetime. By a writing signed by all parties, the parties may 24 designate as agent of all parties on an account a person other than a 25 party. Unless the terms of an agency designation provide that the 26 authority of the agent terminates on disability or incapacity of a 27 party, the agent’s authority survives disability and incapacity. The 28 agent may act for a disabled or incapacitated party until the 29 authority of the agent is terminated. Death of the sole party or last 30 surviving party terminates the authority of an agent. The 31 designated agent on an account is authorized to make all 32 transactions on the account that the party can make, including, but 33 not limited to, closing the account. An agent serving under a 34 durable power of attorney can change, modify, or revoke an agent 35 designated on an account. 36 37 REPORTER’S COMMENTS 38 An agent has no beneficial interest in the account. See Section 39 626201 (ownership during lifetime). The agency relationship is 40 governed by the general law of agency of the state, except to the 41 extent this part provides express rules, including the rule that the 42 agency survives the disability or incapacity of a party.[1243] 442 1 A financial institution may make payments at the direction of an 2 agent notwithstanding disability, incapacity, or death of the party, 3 subject to receipt of a stop notice. Section 626306 (discharge); see 4 also Section 626304 (payment to designated agent). 5 The rule of subsection (b) applies to agency designations on all 6 types of accounts, including nonsurvivorship as well as 7 survivorship forms of multipleparty accounts. 8 9 Section 626106. Any transfers resulting from the application of 10 Section 626104 are effective by reason of the account contracts 11 involved and this statute and are not to be considered as 12 testamentary or subject to Articles 1 through 4 [Sections 621101 13 thru 624101 et seq.] except as a consequence of, and to the extent 14 directed by, Section 626107. The provisions of Part 2 concerning 15 beneficial ownership as between parties or as between parties and 16 beneficiaries apply only to controversies between those persons 17 and their creditors and other successors, and do not apply to the 18 right of those persons to payment as determined by the terms of the 19 account. Part 3 governs the liability and setoff rights of financial 20 institutions that make payments pursuant to it. 21 22 Section 626107. 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, P.O.D. payee, or beneficiary 27 who receives payment from a multipleparty account after the death 28 of a deceased party is liable to account to his personal 29 representative for amounts the decedent owned beneficially 30 immediately before his death to the extent necessary to discharge 31 the claims and charges mentioned above remaining unpaid after 32 application of the decedent’s estate. No proceeding to assert this 33 liability may be commenced unless the personal representative has 34 received a written demand by a creditor of the decedent, and no 35 proceeding may be commenced later than two years following the 36 death of the decedent. Sums recovered by the personal 37 representative must be administered as part of the decedent’s 38 estate. This section does not affect the right of a financial 39 institution to make payment on multipleparty accounts according 40 to the terms thereof or make it liable to the estate of a deceased 41 party unless before payment the institution has been served with an 42 order of the probate court. 43[1243] 443 1 Section 626108. Financial institutions may enter into 2 multipleparty accounts to the same extent that they may enter into 3 singleparty accounts. Any multipleparty account may be paid, on 4 request, to any one or more of the parties, unless a contrary intent 5 is manifested by the terms of the account or the deposit agreement. 6 A financial institution may not be required to inquire as to the 7 source of funds received for deposit to a multipleparty account, or 8 to inquire as to the proposed application of any sum withdrawn 9 from an account, for purposes of establishing net contributions. 10 11 Section 626109. Unless a contrary intent is manifested by the 12 terms of the account or the deposit agreement, any sums in a joint 13 account may be paid, on request, to any party without regard to 14 whether any other party is incapacitated or deceased at the time the 15 payment is demanded; but payment may not be made to the 16 personal representative or heirs of a deceased party unless proofs 17 of death are presented to the financial institution showing that the 18 decedent was the last surviving party or unless there is no right of 19 survivorship under Section 626104. 20 21 Section 626110. Unless a contrary intent is manifested by the 22 terms of the account or the deposit agreement, any P.O.D. account 23 may be paid, on request, to any original party to the account. 24 Payment may be made, on request, to the P.O.D. payee or to the 25 personal representative or heirs of a deceased P.O.D. payee upon 26 presentation to the financial institution of proof of death showing 27 that the P.O.D. payee survived all persons named as original 28 payees. Payment may be made to the personal representative or 29 heirs of a deceased original payee if proof of death is presented to 30 the financial institution showing that his decedent was the survivor 31 of all other persons named on the account either as an original 32 payee or as P.O.D. payee. 33 34 Section 626111. Unless a contrary intent is manifested by the 35 terms of the account or the deposit agreement, any trust account 36 may be paid, on request, to any trustee. Unless the financial 37 institution has received written notice that the beneficiary has a 38 vested interest not dependent upon his surviving the trustee, 39 payment may be made to the personal representative or heirs of a 40 deceased trustee if proof of death is presented to the financial 41 institution showing that his decedent was the survivor of all other 42 persons named on the account either as trustee or beneficiary. 43 Payment may be made, on request, to the beneficiary or to the[1243] 444 1 personal representative or heirs of a deceased beneficiary upon 2 presentation to the financial institution of proof of death showing 3 that the beneficiary or beneficiaries survived all persons named as 4 trustees. 5 6 Section 626112. Payment made pursuant to Section 626108, 7 626109, 626110, or 626111 discharges the financial institution 8 from all claims for amounts so paid whether or not the payment is 9 consistent with the beneficial ownership of the account as between 10 parties, P.O.D. payees, or beneficiaries, or their successors. The 11 protection here given does not extend to payments made after a 12 financial institution has received written notice from any party able 13 to request present payment to the effect that withdrawals in 14 accordance with the terms of the account should not be permitted. 15 Unless the notice is withdrawn by the person giving it, the 16 successor of any deceased party must concur in any demand for 17 withdrawal if the financial institution is to be protected under this 18 section. No other notice or any other information shown to have 19 been available to a financial institution shall affect its right to the 20 protection provided here. The protection here provided shall have 21 no bearing on the rights of parties in disputes between themselves 22 or their successors concerning the beneficial ownership of funds 23 in, or withdrawn from, multipleparty accounts. 24 25 Section 626113. Without qualifying any other statutory right to 26 setoff or lien and subject to any contractual provision, if a party to 27 a multipleparty account is indebted to a financial institution, the 28 financial institution has a right to setoff against the account in 29 which the party has or had immediately before his death a present 30 right of withdrawal. The amount of the account subject to setoff is 31 that proportion to which the debtor is, or was immediately before 32 his death, beneficially entitled, and in the absence of proof of net 33 contributions, to an equal share with all parties having present 34 rights of withdrawal. 35 36 Part 2 37 38 Provisions Relating to Effect of Death 39 40 Section 626201. (a) Any of the following provisions in an 41 insurance policy, contract of employment, bond, mortgage, or 42 other security interest, promissory note, deposit agreement, 43 pension plan, trust agreement, conveyance, or any other written[1243] 445 1 instrument otherwise effective as a contract, gift, conveyance, or 2 trust is deemed to be nontestamentary, and this Code does not 3 invalidate the instrument or any provision: 4 (1) that money or other benefits theretofore due to, 5 controlled, or owned by a decedent shall be paid after his death to 6 a person designated by the decedent in either the instrument or a 7 separate writing, including a will, executed at the same time as the 8 instrument or subsequently; 9 (2) that any money due or to become due under the 10 instrument shall cease to be payable in event of the death of the 11 promisee or the promissor before payment or demand; or 12 (3) that any property which is the subject of the instrument 13 shall pass to a person designated by the decedent in either the 14 instrument or a separate writing, including a will, executed at the 15 same time as the instrument or subsequently. 16 (b) Nothing in this section limits the rights of creditors under 17 other laws of this State. 18 19 Part 2 20 21 Ownership as Between Parties and Others 22 23 Section 626201. (A) During the lifetime of all parties, an 24 account belongs to the parties in proportion to the net contribution 25 of each to the sums on deposit, unless there is clear and convincing 26 evidence of a different intent. 27 (B) A beneficiary in an account having a POD designation has 28 no right to sums on deposit during the lifetime of any party. 29 (C) An agent in an account with an agency designation has no 30 beneficial right to sums on deposit. 31 32 REPORTER’S COMMENTS 33 This section reflects the assumption that a person who deposits 34 funds in an account normally does not intend to make an 35 irrevocable gift of all or any part of the funds represented by the 36 deposit. Rather, the person usually intends no present change of 37 beneficial ownership. The section permits parties to accounts to be 38 as definite, or as indefinite, as they wish in respect to the matter of 39 how beneficial ownership should be apportioned between them. 40 The assumption that no present change of beneficial ownership is 41 intended may be disproved by showing that a gift was intended. 42 For example, under subsection (b) it is presumed that the 43 beneficiary of a POD designation has no present ownership[1243] 446 1 interest during lifetime. However, it is possible that in the case of a 2 POD designation in trust form an irrevocable gift was intended. 3 It is important to note that the section is limited to ownership of an 4 account while parties are alive. Section 626202 prescribes what 5 happens to beneficial ownership on the death of a party. 6 The section does not undertake to describe the situation between 7 parties if one party withdraws more than that party is then entitled 8 to as against the other party. Sections 626301 and 626306 protect a 9 financial institution in that circumstance without reference to 10 whether a withdrawing party may be entitled to less than that party 11 withdraws as against another party. Rights between parties in this 12 situation are governed by general law other than this part. 13 The theory of these sections is that the basic relationship of the 14 parties is that of individual ownership of values attributable to their 15 respective deposits and withdrawals, and not equal and undivided 16 ownership that would be an incident of joint tenancy. 17 18 Section 626202. (a) Except as otherwise provided in this sub- 19 part, on death of a party sums on deposit in a multipleparty ac- 20 count belong to the surviving party or parties. If two or more par- 21 ties survive and one is the surviving spouse of the decedent, the 22 amount to which the decedent, immediately before death, was ben- 23 eficially entitled under Section 626201 belongs to the surviving 24 spouse. If two or more parties survive and none is the surviving 25 spouse of the decedent, the amount to which the decedent, immedi- 26 ately before death, was beneficially entitled under Section 626201 27 belongs to the surviving parties in equal shares, and augments the 28 proportion to which each survivor, immediately before the dece- 29 dent’s death, was beneficially entitled under Section 626201, and 30 the right of survivorship continues between the surviving parties. 31 (b) In an account with a POD designation: 32 (1) on death of one of two or more parties, the rights in sums 33 on deposit are governed by subsection (a); 34 (2) on death of the sole party or the last survivor of two or 35 more parties, sums on deposit belong to the surviving beneficiary 36 or beneficiaries. If two or more beneficiaries survive, sums on 37 deposit belong to them in equal and undivided shares, and there is 38 no right of survivorship in the event of death of a beneficiary 39 thereafter. If no beneficiary survives, sums on deposit belong to 40 the estate of the last surviving party. 41 (c) Sums on deposit in a singleparty account without a POD 42 designation, or in a multipleparty account that, by the terms of the 43 account, is without right of survivorship, are not affected by death[1243] 447 1 of a party, but the amount to which the decedent, immediately 2 before death, was beneficially entitled under Section 626201 is 3 transferred as part of the decedent’s estate. A POD designation in a 4 multipleparty account without right of survivorship is ineffective. 5 For purposes of this section, designation of an account as a tenancy 6 in common establishes that the account is without right of 7 survivorship. 8 (d) The ownership right of a surviving party or beneficiary, or 9 of the decedent’s estate, in sums on deposit is subject to requests 10 for payment made by a party before the party’s death, whether paid 11 by the financial institution before or after death, or unpaid. The 12 surviving party or beneficiary, or the decedent’s estate, is liable to 13 the payee of an unpaid request for payment. The liability is limited 14 to a proportionate share of the amount transferred under this 15 section, to the extent necessary to discharge the request for 16 payment. 17 18 REPORTER’S COMMENTS 19 The effect of subsection (a) is to make an account payable to one 20 or more of two or more parties a survivorship arrangement unless a 21 nonsurvivorship arrangement is specified in the terms of the 22 account. 23 The account characteristics described in this section must be 24 determined by reference to the form of the account and the impact 25 of Sections 626103 and 626104 on the admissibility of extrinsic 26 evidence tending to confirm or contradict intention as signaled by 27 the form. 28 29 Section 626203. (a) Rights at death of a party under Section 30 626202 are determined by the terms of the account at the death of 31 the party. A party may alter the terms of the account by a notice 32 signed by the party and given to the financial institution to change 33 the terms of the account or to stop or vary payment under the terms 34 of the account. To be effective the notice must be received by the 35 financial institution during the party’s lifetime. 36 (b) A right of survivorship arising from the express terms of 37 the account under Section 626202 may be altered by clear and 38 convincing evidence, including but not limited to express 39 provisions in a will. 40 (c) A multipleparty account of husband and wife is presumed 41 to be joint with right of survivorship unless clear and convincing 42 evidence shows survivorship was not the intent of the party. 43[1243] 448 1 REPORTER’S COMMENTS 2 Under this section, rights of parties and beneficiaries are 3 determined by the type of account at the time of death. It is to be 4 noted that only a ‘party’ may give notice blocking the provisions 5 of Section 626202 (rights at death). ‘Party’ is defined by Section 6 626101(7). Thus, if there is an account with a POD designation in 7 the name of A and B with C as beneficiary, C cannot change the 8 right of survivorship because C has no present right to payment 9 and hence is not a party. 10 11 Section 626204. A transfer resulting from the application of 12 Section 626202 is effective by reason of the terms of the account 13 involved and this part and is not testamentary or subject to Articles 14 1 through 4 (estate administration) unless there is clear and con- 15 vincing evidence that the deceased party did not intend for the ac- 16 count to be joint with right of survivorship. 17 18 REPORTER’S COMMENTS 19 The purpose of classifying the transactions contemplated by this 20 part as nontestamentary is to bolster the explicit statement that 21 their validity as effective modes of transfers on death is not to be 22 determined by the requirements for wills. 23 24 Section 626205. Subject to the provisions contained in Section 25 623916, no multipleparty account is effective against an estate of a 26 deceased party to transfer to a survivor sums needed to pay debts, 27 taxes, and expenses of administration, if other assets of the estate 28 are insufficient. A surviving party or beneficiary who receives 29 payment from a multipleparty account after the death of a deceased 30 party is liable to account to his personal representative for amounts 31 the decedent owned beneficially immediately before his death to 32 the extent necessary to discharge the claims and charges men- 33 tioned above remaining unpaid after application of the decedent’s 34 estate. No proceeding to assert this liability may be commenced 35 unless the personal representative has received a written demand 36 by a creditor of the decedent, and no proceeding may be com- 37 menced later than one year following the death of the decedent. 38 Sums recovered by the personal representative must be adminis- 39 tered as part of the decedent’s estate. This section does not affect 40 the right of a financial institution to make payment on multiplepar- 41 ty accounts according to the terms of the account or make it liable 42 to the estate of a deceased party unless, before payment, the insti- 43 tution has been served with an order of the probate court.[1243] 449 1 2 REPORTER’S COMMENTS 3 Section 626205, in derogation of the survivorship rights 4 established in Sections 626202 through 626204, establishes in the 5 estate of a deceased party a limited beneficial ownership of the 6 funds on deposit in a multipleparty account, limited, however, to 7 the payment of debts, taxes, and the expenses of administration of 8 the estate of the deceased party, and existing only if other assets of 9 that estate are insufficient to that purpose, only up to the amount to 10 which the deceased party was beneficially entitled prior to death, 11 and only if a creditor’s claim proceeding is brought within one 12 year of the deceased party’s death. 13 14 Part 3 15 16 Protection of Financial Institutions 17 18 Section 626301. A financial institution may enter into a contract 19 of deposit for a multipleparty account to the same extent it may 20 enter into a contract of deposit for a singleparty account, and may 21 provide for a POD designation and an agency designation in either 22 a singleparty account or a multipleparty account. A financial 23 institution need not inquire as to the source of a deposit to an 24 account or as to the proposed application of a payment from an 25 account. 26 27 REPORTER’S COMMENTS 28 Section 626301 is substantially the same as prior law under former 29 S.C. Code Section 626108, with the additional reference to POD 30 and agency designations. The provisions governing payment on 31 request of one or more parties, previously covered in former S.C. 32 Code Section 626108, is now found in S.C. Code Section 626302. 33 The provisions of this subpart relate only to protection of a 34 financial institution that makes payment as provided in the subpart. 35 Nothing in this subpart affects the beneficial rights of persons to 36 sums on deposit or paid out. Ownership as between parties, and 37 others, is governed by Subpart 2. See Section 626106 38 (applicability of subpart). 39 40 Section 626302. A financial institution, on request, may pay 41 sums on deposit in a multipleparty account: 42 (1) to one or more of the parties, whether or not another party 43 is disabled, incapacitated, or deceased when payment is requested[1243] 450 1 and whether or not the party making the request survives another 2 party; 3 (2) to the personal representative of a deceased party, if proof 4 of death is presented to the financial institution showing that the 5 deceased party was the survivor of all other persons named on the 6 account either as a party or beneficiary, unless the account is 7 without right of survivorship under Section 626202; or 8 (3) in accordance with a court order directing the payment of 9 the sums on deposit. 10 11 REPORTER’S COMMENTS 12 Section 626302 expands upon former 626108 and recognizes 13 multiple party accounts may be paid on request to one or more 14 parties. Subsection (2) is a departure from prior law in that it does 15 not contain the former provision providing for payment to heirs or 16 devisees if there is no personal representative. Now, in such a 17 circumstance, Subsection (3) allows for payment in accordance 18 with a court order. Section 626302 is consistent with the result of 19 Trotter v. First Federal Sav. and Loan Ass’n, 298 S.C. 85, 378 20 S.E.2d 267 (Ct. App. 1989), which recognized that a bank was 21 authorized to make a payment from a joint account to satisfy the 22 debt of one of the signatories, even though the other 23 (nonconsenting) signatory had contributed the funds to the 24 account. 25 A financial institution that makes payment on proper request 26 under this section is protected unless the financial institution has 27 received written notice not to. Section 626306 (discharge). 28 Paragraph (1) applies to both a multipleparty account with right of 29 survivorship and a multipleparty account without right of 30 survivorship (including an account in tenancy in common form). 31 Paragraph (2) is limited to a multipleparty account with right of 32 survivorship; payment to the personal representative or heirs or 33 devisees of a deceased party to an account without right of 34 survivorship is governed by the general law of the state relating to 35 the authority of such persons to collect assets alleged to belong to a 36 decedent. 37 38 Section 626303. A financial institution, on request, may pay 39 sums on deposit in an account with a POD designation: 40 (1) to one or more of the parties, whether or not another party 41 is disabled, incapacitated, or deceased when the payment is 42 requested and whether or not a party survives another party;[1243] 451 1 (2) to the beneficiary or beneficiaries, if proof of death is 2 presented to the financial institution showing that the beneficiary 3 or beneficiaries survived all persons named as parties; 4 (3) to the personal representative of a deceased party, if proof 5 of death is presented to the financial institution showing that the 6 deceased party was the survivor of all other persons named on the 7 account either as a party or beneficiary; or 8 (4) in accordance with a court order directing the payment of 9 the sums on deposit. 10 11 REPORTER’S COMMENTS 12 Section 626303 is substantially the same as prior 626110, with the 13 addition of Subsection (4) which allows payment in accordance 14 with a court order. 15 A financial institution that makes payment on proper request under 16 this section is protected unless the financial institution has received 17 written notice not to. See Section 626306 (discharge). Payment to 18 the personal representative of a deceased beneficiary who would 19 be entitled to payment under paragraph (2) is governed by the 20 general law of the state relating to the authority of such persons to 21 collect assets alleged to belong to a decedent. 22 23 Section 626304. A financial institution, on request of an agent 24 under an agency designation for an account, may pay to the agent 25 sums on deposit in the account, whether or not a party is disabled, 26 incapacitated, or deceased when the request is made or received, 27 and whether or not the authority of the agent terminates on the dis- 28 ability or incapacity of a party. 29 30 REPORTER’S COMMENTS 31 Section 626304 is new and recognizes the ability to pay to an agent 32 under an agency designation. Designation of an agent is governed 33 by S.C. Code Section 626105 and this section is in accordance 34 with the concept of adding a nonparty agent to an account, as 35 commonly provided in account agreements. Section 626304 is 36 consistent with former S.C. Code Section 626111 governing 37 payments of a trust account to a trustee, though this section is 38 broader in that the definition of agent under S.C. Code Section 39 622101(2) includes any ‘person authorized to make account 40 transactions for a party.’ 41 This section is intended to protect a financial institution that makes 42 a payment pursuant to an account with an agency designation even 43 though the agency may have terminated at the time of the payment[1243] 452 1 due to disability, incapacity, or death of the principal. The 2 protection does not apply if the financial institution has received 3 notice under Section 626306 not to make payment or notice that 4 the agency has terminated. This section applies whether or not the 5 agency survives the party’s disability or incapacity under Section 6 62 6105 (designation of agent). 7 8 Section 626305. If a financial institution is required or permitted 9 to make payment pursuant to this subpart to a minor designated as 10 a beneficiary, payment shall be made as ordered by the court or 11 may be made in accordance with Section 625103. 12 13 SOUTH CAROLINA COMMENTS 14 Section 626305 is intended to avoid the need for a guardianship or 15 other protective proceeding in situations where the Uniform Gifts 16 to Minors Act may be used. 17 18 Section 626306. (a) Payment made pursuant to this subpart in ac- 19 cordance with the terms of the account discharges the financial in- 20 stitution from all claims for amounts so paid, whether or not the 21 payment is consistent with the beneficial ownership of the account 22 as between parties, beneficiaries, or their successors. Payment may 23 be made whether or not a party, beneficiary, or agent is disabled, 24 incapacitated, or deceased when payment is requested, received, or 25 made. 26 (b) Protection under this section does not extend to payments 27 made after a financial institution has received written notice from a 28 party, or from an agent under a durable power of attorney or a 29 conservator for a party, or from the personal representative of a 30 deceased party, or surviving spouse of a deceased party, to the 31 effect that payments in accordance with the terms of the account, 32 including one having an agency designation, should not be 33 permitted, and the financial institution has had a reasonable 34 opportunity to act on it when the payment is made. Unless the 35 notice is withdrawn by the person giving it, the successor of any 36 deceased party must concur in a request for payment if the 37 financial institution is to be protected under this section. Unless a 38 financial institution has been served with process or a court order 39 in an action or proceeding, no other notice or other information 40 shown to have been available to the financial institution affects its 41 right to protection under this section. 42 (c) A financial institution that receives written notice pursuant 43 to this section or otherwise has reason to believe that a dispute[1243] 453 1 exists as to the rights of the parties may refuse, without liability, to 2 make payments in accordance with the terms of the account. 3 (d) Protection of a financial institution under this section does 4 not affect the rights of parties in disputes between themselves or 5 their successors concerning the beneficial ownership of sums on 6 deposit in accounts or payments made from accounts. 7 8 REPORTER’S COMMENTS 9 The provision of subsection (a) protecting a financial institution 10 for payments made after the death, disability, or incapacity of a 11 party is a specific elaboration of the general protective provisions 12 of this section and is drawn from Uniform Commercial Code 13 Section 4405. 14 Knowledge of disability, incapacity, or death of a party does not 15 affect payment on request of an agent, whether or not the agent’s 16 authority survives disability or incapacity. See Section 62 6304 17 (payment to designated agent). But under subsection (b), the 18 financial institution may not make payments on request of an agent 19 after it has received written notice not to, whether because the 20 agency has terminated or otherwise. 21 22 Section 626307. Without qualifying any other statutory right to 23 setoff or lien and subject to any contractual provision, if a party to 24 a multipleparty account is indebted to a financial institution, the fi- 25 nancial institution has a right to setoff against the account in which 26 the party has or had immediately before his death a present right of 27 withdrawal. The amount of the account subject to setoff is that pro- 28 portion to which the debtor is, or was immediately before his 29 death, beneficially entitled, and in the absence of proof of net con- 30 tributions, to an equal share with all parties having present rights 31 of withdrawal. 32 33 REPORTER’S COMMENTS 34 Section 626307 is substantially similar to former S.C. Code 35 §626113. As with former Section 626113, Section 626307 allows 36 the financial institution, as creditor of a party, to set off in its own 37 favor an amount from a multiple party account to cover the 38 indebtedness of that party. This Section is in addition to any other 39 statutory, common law, or contractual remedies, liens or rights of 40 setoff. 41 42 Article 7 43[1243] 454 1 South Carolina Trust Code 2 3 Part 1 4 5 General Provisions and Definitions 6 7 8 GENERAL COMMENT 9 The South Carolina version of the Uniform Trust Code is 10 referred to as the South Carolina Trust Code or sometimes the 11 SCTC or sometimes the Code throughout this Article. The 12 Uniform Trust Code is sometimes referred to as the UTC. The 13 South Carolina Probate Code, South Carolina Code Ann. Section 14 621100 et seq., is sometimes referred to as the SCPC. The 15 sections of the South Carolina Trust Code are codified at Title 62, 16 Article 7 and consequently are a part of the comprehensive South 17 Carolina Probate Code. Depending on context, general references 18 to “Article” in the UTC Comments may correlate to “Part” in the 19 SCTC. 20 As with the UTC, the SCTC is primarily a default statute. Most 21 of the Code’s provisions can be overridden in the terms of the 22 trust. The provisions not subject to override are scheduled in 23 Section 627105(b). These include the duty of a trustee to act in 24 good faith and with regard to the purposes of the trust, public 25 policy exceptions to enforcement of spendthrift provisions, the 26 requirements for creating a trust, and the authority of the court to 27 modify or terminate a trust on specified grounds. 28 The remainder of the article specifies the scope of the Code 29 (Section 627102), provides definitions (Section 627103), and 30 collects provisions of importance not amenable to codification 31 elsewhere in the SCTC. Sections 627106 and 627107 focus on the 32 sources of law that will govern a trust. Section 627106 clarifies 33 that despite the Code’s comprehensive scope, not all aspects of the 34 law of trusts have been codified. The SCTC is supplemented by 35 the common law of trusts and principles of equity. Section 627 36 107 addresses selection of the jurisdiction or jurisdictions whose 37 laws will govern the trust. A settlor, absent overriding public 38 policy concerns, is free to select the law that will determine the 39 meaning and effect of a trust’s terms. 40 Changing a trust’s principal place of administration is 41 sometimes desirable, particularly to lower a trust’s state income 42 tax. Such transfers are authorized in Section 627108. The trustee, 43 following notice to the “qualified beneficiaries,” defined in Section[1243] 455 1 627103(12), may without approval of court transfer the principal 2 place of administration to another State or country if a qualified 3 beneficiary does not object and if the transfer is consistent with the 4 trustee’s duty to administer the trust at a place appropriate to its 5 purposes, its administration, and the interests of the beneficiaries. 6 The settlor, if minimum contacts are present, may also designate 7 the trust’s principal place of administration. 8 Sections 627104 and 627109 through 627111 address procedural 9 issues. Section 627104 specifies when persons, particularly 10 persons who work in organizations, are deemed to have acquired 11 knowledge of a fact. Section 627109 specifies the methods for 12 giving notice and excludes from the Code’s notice requirements 13 persons whose identity or location is unknown and not reasonably 14 ascertainable. Section 627110 allows beneficiaries with remote 15 interests to 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 used 20 in all court proceedings relating to the trust, the nonjudicial 21 settlement procedures will not always be available. The terms of 22 the trust may direct that the procedures not be used, or settlors may 23 negate or modify them by specifying their own methods for 24 obtaining consents. Also, a nonjudicial settlement may include 25 only terms and conditions a court could properly approve. 26 Section 627112 provides that South Carolina’s specific rules on 27 construction of wills, whatever they may be, also apply to the 28 construction of trusts. 29 30 31 Section 627101. This article may be cited as the South Carolina 32 Trust Code. In this article, unless the context clearly indicates 33 otherwise, ‘Code’ shall mean means the South Carolina Trust 34 Code. 35 36 Section 627102. This article applies to express trusts, charitable 37 or noncharitable, and trusts created pursuant to a statute, judgment, 38 or decree that requires the trust to be administered in the manner of 39 an express trust. The term ‘express trust’ includes both 40 testamentary and inter vivos trusts, regardless of whether the 41 trustee is required to account to the probate court, and includes, but 42 is not limited to, all trusts defined in Section 621201(49). This 43 article does not apply to constructive trusts, resulting trusts,[1243] 456 1 conservatorships administered by conservators as defined in 2 Section 621201(6), administration of decedent’s estates, all 3 multiple party accounts referred to in Section 626101 et seq., 4 custodial arrangements, business trusts providing for certificates to 5 be issued to beneficiaries, common trust funds, voting trusts, 6 security arrangements, liquidation trusts, and trusts for the primary 7 purpose of paying debts, dividends, interest, salaries, wages, 8 profits, pensions, or employee benefits of any kind, or any 9 arrangement under which a person is nominee or escrowee for 10 another. 11 12 REPORTER’S COMMENT 13 This section provides a concise statement of the positive 14 inclusion of express trusts within the scope of the SCTC. 15 South Carolina has another comprehensive statement of the 16 scope of applicable South Carolina trust law, contained in the 17 definition paragraph of the South Carolina Probate Code Section 18 621201(49), which contains an expanded statement of the 19 inclusion of express trusts and further contains detailed statements 20 of the trusts and trust type arrangements that are excluded from the 21 scope. This statement is now included in Section 627102 with 22 reference to Section 621201(49). Former Section 627702(1), in 23 the South Carolina Uniform Trustee’s Powers Act, which was 24 repealed by the SCTC, also contained a comprehensive statement 25 of applicable South Carolina trust law. 26 Excluded from the Code’s coverage are resulting and 27 constructive trusts, which are not express trusts but remedial 28 devices imposed by law. For the requirements for creating an 29 express trust and the methods by which express trusts are created, 30 see Sections 627401 and 627402. The Code does not attempt to 31 distinguish express trusts from other legal relationships with 32 respect to property, such as agencies and contracts for the benefit 33 of third parties. For the distinctions, see Restatement (Third) of 34 Trusts Sections 2, 5 (Tentative Draft No. 1, approved 1996); 35 Restatement (Second) of Trusts Sections 2, 516C (1959). 36 The SCTC is directed primarily at trusts that arise in an estate 37 planning or other donative context, but express trusts can arise in 38 other contexts. For example, a trust created pursuant to a divorce 39 action would be included, even though such a trust is not donative 40 but is created pursuant to a bargainedfor exchange. Commercial 41 trusts come in numerous forms, including trusts created pursuant to 42 a state business trust act and trusts created to administer specified 43 funds, such as to pay a pension or to manage pooled investments.[1243] 457 1 Commercial trusts are often subject to specialpurpose legislation 2 and case law, which in some respects displace the usual rules 3 stated in this Code. See John H. Langbein, The Secret Life of the 4 Trust: The Trust as an Instrument of Commerce, 107 Yale L.J. 5 165 (1997). 6 Express trusts also may be created by means of court judgment 7 or decree. Examples include trusts created to hold the proceeds of 8 personal injury recoveries and trusts created to hold the assets of a 9 protected person in a conservatorship proceeding. 10 11 Section 627103. In this article: 12 (1) ‘Action,’ with respect to an act of a trustee, includes a 13 failure to act. 14 (2) ‘Beneficiary’ means a person that: 15 (A) has a present or future beneficial interest in a trust, 16 vested or contingent; or 17 (B) in a capacity other than that of trustee, holds a power of 18 appointment over trust property; or 19 (C) In the case of a charitable trust, has the authority to 20 enforce the terms of the Trust. 21 (3) ‘Charitable trust’ means a trust, or portion of a trust, 22 created for a charitable purpose described in Section 627405(a). 23 (4) ‘Conservator’ means a person appointed by the court to 24 administer the estate of a protected person. 25 (5) ‘Environmental law’ means a federal, state, or local law, 26 rule, regulation, or ordinance relating to protection of the 27 environment. 28 (6) ‘Guardian’ means a person appointed by the court to make 29 decisions regarding the support, care, education, health, and 30 welfare of a minor or adult individual. The term does not include a 31 guardian ad litem or a statutory guardian. 32 (7) ‘Interests of the beneficiaries’ means the beneficial 33 interests provided in the terms of the trust. 34 (8) ‘Jurisdiction’, with respect to a geographic area, includes a 35 State or country. 36 (9) ‘Person’ means an individual, corporation, business trust, 37 estate, trust, partnership, limited liability company, association, 38 joint venture, government, governmental subdivision, agency, or 39 instrumentality, public corporation, or any other legal or 40 commercial entity. 41 (10) ‘Power of withdrawal’ means a presently exercisable 42 general power of appointment other than a power exercisable by a 43 trustee which is limited by an ascertainable standard, or which is[1243] 458 1 exercisable by another person only upon consent of the trustee or 2 the person holding an adverse interest. 3 (11) ‘Property’ means anything that may be the subject of 4 ownership, whether real or personal, legal or equitable, or any 5 interest therein. 6 (12) ‘Qualified beneficiary’ means a living beneficiary who, on 7 the date the beneficiary’s qualification is determined: 8 (A) is a distributee or permissible distributee of trust income 9 or principal; 10 (B) would be a distributee or permissible distributee of trust 11 income or principal if the interests of the distributees described in 12 subparagraph (A) terminated on that date, but the termination of 13 those interests would not cause the trust to terminate; or 14 (C) would be a distributee or permissible distributee of trust 15 income or principal if the trust terminated on that date. 16 (13) ‘Revocable’, as applied to a trust, means revocable by the 17 settlor without the consent of the trustee or a person holding an 18 adverse interest. 19 (14) ‘Settlor’ means a person, including a testator, who creates, 20 or contributes property to, a trust. If more than one person creates 21 or contributes property to a trust, each person is a settlor of the 22 portion of the trust property attributable to that person’s 23 contribution except to the extent another person has the power to 24 revoke or withdraw that portion. Neither the possession of, nor the 25 lapse, release, or waiver of a power of withdrawal shall cause a 26 holder of the power to be deemed to be a settlor of the trust, and 27 property subject to such power is not susceptible to the power 28 holder’s creditors. 29 (15) ‘Spendthrift provision’ means a term of a trust which 30 restrains both voluntary and involuntary transfer of a beneficiary’s 31 interest. 32 (16) ‘State’ means a State of the United States, the District of 33 Columbia, Puerto Rico, the United States Virgin Islands, or any 34 territory or insular possession subject to the jurisdiction of the 35 United States. The term includes an Indian tribe or band 36 recognized by federal law or formally acknowledged by a State. 37 (17) ‘Terms of a trust’ means the manifestation of the settlor’s 38 intent regarding a trust’s provisions as expressed in the trust 39 instrument or as may be established by other evidence that would 40 be admissible in a judicial proceeding. 41 (18) ‘Trust instrument’ means an instrument executed by the 42 settlor that contains terms of the trust, including any amendments 43 thereto. [1243] 459 1 (19) ‘Trustee’ includes an original, additional, and successor 2 trustee, and a cotrustee, whether or not appointed or confirmed by 3 a court. 4 (20) ‘Ascertainable standard’ means an ascertainable standard 5 relating to a trustee’s individual’s health, education, support, or 6 maintenance within the meaning of Section 2041(b)(1)(A) or 7 2514(c)(1) of the Internal Revenue Code, as amended. 8 (21) ‘Distributee’ means any person who receives property of a 9 trust from a trustee, other than as creditor or purchaser. 10 (22) ‘Interested person’ or ‘interested party’ means any person 11 or party deemed to be a necessary or proper party under Rule 19 of 12 the South Carolina Rules of Civil Procedure. 13 (23) ‘Internal Revenue Code’ means the Internal Revenue Code, 14 as amended from time to time. Each reference to a provision of 15 the Internal Revenue Code shall include any successor or 16 amendment thereto. 17 (24) ‘Serious breach of trust’ means either: a single act that 18 causes significant harm or involves flagrant misconduct, or a series 19 of smaller breaches, none of which individually justify removal 20 when considered alone, but which do so when considered together. 21 (25) ‘Permissible distributee’ means any person who or which 22 on the date of qualification as a beneficiary is eligible to receive 23 current distributions of property of a trust from a trustee, other than 24 as a creditor or purchaser. 25 (26) ‘Trust investment advisor’ is a person, committee of 26 persons, or entity who is or who are given authority by the terms of 27 a trust instrument to direct, consent to or disapprove a trustee’s 28 actual or proposed investment decisions. 29 (27) ‘Trust protector’ is a person, committee of persons or entity 30 who is or who are designated as a trust protector whose 31 appointment is provided for in the trust instrument. 32 The terms and definitions contained in the South Carolina 33 Probate Code that do not conflict with the terms defined in this 34 section shall remain in effect for the South Carolina Trust Code. 35 36 REPORTER’S COMMENT 37 There are a number of definitions in Section 627103 referred to 38 throughout the South Carolina Trust Code that have no equivalent 39 in other portions of the South Carolina Code. These include 40 “Action,” “Charitable trust,” “Environmental law,” “Interests of 41 the beneficiaries,” “Jurisdiction,” “Power of withdrawal,” 42 “Qualified beneficiary,” “Revocable,” “Settlor,” “Spendthrift 43 provision,” “Terms of a trust,” and “Trust instrument.” In the[1243] 460 1 interest of uniformity, such terms are included in the South 2 Carolina Trust Code except as noted below. 3 A definition of “action” (paragraph (1)) is included for drafting 4 convenience, to avoid having to clarify in the numerous places in 5 the SCTC where reference is made to an “action” by the trustee 6 that the term includes a failure to act. 7 “Beneficiary” (paragraph (2)) refers only to a beneficiary of a 8 trust as defined in the SCTC. In addition to living and ascertained 9 individuals, beneficiaries may be unborn or unascertained. 10 Pursuant to Section 627402(c), a trust is valid only if a beneficiary 11 can be ascertained now or in the future. The term “beneficiary” 12 includes not only beneficiaries who received their interests under 13 the terms of the trust but also beneficiaries who received their 14 interests by other means, including by assignment, exercise of a 15 power of appointment, resulting trust upon the failure of an 16 interest, gap in a disposition, operation of an antilapse statute upon 17 the predecease of a named beneficiary, or upon termination of the 18 trust. The fact that a person incidentally benefits from the trust 19 does not mean that the person is a beneficiary. For example, 20 neither a trustee nor persons hired by the trustee become 21 beneficiaries merely because they receive compensation from the 22 trust. See Restatement (Third) of Trusts Section 48 cmt. c 23 (Tentative Draft No. 2, approved 1999); Restatement (Second) of 24 Trusts Section 126 cmt. c (1959). 25 While the holder of a power of appointment is not necessarily 26 considered a trust beneficiary under the common law of trusts, 27 holders of powers are classified as beneficiaries under the SCTC. 28 Holders of powers are included on the assumption that their 29 interests are significant enough that they should be afforded the 30 rights of beneficiaries. A power of appointment as used in state 31 trust law and this Code is as defined in state property law and not 32 federal tax law although there is considerable overlap between the 33 two definitions. 34 A power of appointment is authority to designate the recipients 35 of beneficial interests in property. See Restatement (Second) of 36 Property: Donative Transfers Section 11.1 (1986). A power is 37 either general or nongeneral and either presently exercisable or not 38 presently exercisable. A general power of appointment is a power 39 exercisable in favor of the holder of the power, the power holder’s 40 creditors, the power holder’s estate, or the creditors of the power 41 holder’s estate. See Restatement (Second) of Property: Donative 42 Transfers Section 11.4 (1986). All other powers are nongeneral. 43 A power is presently exercisable if the power holder can currently[1243] 461 1 create an interest, present or future, in an object of the power. A 2 power of appointment is not presently exercisable if exercisable 3 only by the power holder’s will or if its exercise is not effective for 4 a specified period of time or until occurrence of some event. See 5 Restatement (Second) of Property: Donative Transfers Section 6 11.5 (1986). Powers of appointment may be held in either a 7 fiduciary or nonfiduciary capacity. The definition of “beneficiary” 8 excludes powers held by a trustee but not powers held by others in 9 a fiduciary capacity. 10 Under Section 627302, the holder of a testamentary general 11 power of appointment may represent and bind persons whose 12 interests are subject to the power. 13 The definition of “beneficiary” includes only those who hold 14 beneficial interests in the trust. Because a charitable trust is not 15 created to benefit ascertainable beneficiaries but to benefit the 16 community at large (see Section 627405(a)), persons receiving 17 distributions from a charitable trust are not beneficiaries as that 18 term is defined in this Code. However, pursuant to Section 19 627110(b), charitable organizations expressly designated to 20 receive distributions under the terms of a charitable trust, even 21 though not beneficiaries as defined, are granted the rights of 22 qualified beneficiaries under the Code. 23 The SCTC leaves certain issues concerning beneficiaries to the 24 common law. Any person with capacity to take and hold legal title 25 to intended trust property has capacity to be a beneficiary. See 26 Restatement (Third) of Trusts Section 43 (Tentative Draft No. 2, 27 approved 1999); Restatement (Second) of Trusts Sections 116119 28 (1959). Except as limited by public policy, the extent of a 29 beneficiary’s interest is determined solely by the settlor’s intent. 30 See Restatement (Third) of Trusts Section 49 (Tentative Draft No. 31 2, approved 1999); Restatement (Second) of Trusts Sections 32 127128 (1959). While most beneficial interests terminate upon a 33 beneficiary’s death, the interest of a beneficiary may devolve by 34 will or intestate succession the same as a corresponding legal 35 interest. See Restatement (Third) of Trusts Section 55(1) 36 (Tentative Draft No. 2, approved 1999); Restatement (Second) of 37 Trusts Sections 140, 142 (1959). 38 Under the SCTC, when a trust has both charitable and 39 noncharitable beneficiaries only the charitable portion qualifies as 40 a “charitable trust” (paragraph (3)). The great majority of the 41 Code’s provisions apply to both charitable and noncharitable trusts 42 without distinction. The distinctions between the two types of 43 trusts are found in the requirements relating to trust creation and[1243] 462 1 modification. Pursuant to Sections 627405 and 627413 of the 2 SCTC, a charitable trust must have a charitable purpose and 3 charitable trusts may be modified or terminated under the doctrine 4 of equitable deviation. Although South Carolina courts have 5 previously refused to recognize the doctrine of cy pres (see Section 6 627413 comment), a charitable trust in South Carolina could be 7 modified or terminated under the doctrine of equitable deviation. 8 Also, Section 627411 allows a noncharitable trust to in certain 9 instances be terminated by its beneficiaries while charitable trusts 10 do not have beneficiaries in the usual sense. To the extent of these 11 distinctions, a splitinterest trust is subject to two sets of provisions, 12 one applicable to the charitable interests, the other the 13 noncharitable. 14 Subsection (4) reflects the definition of “conservator” contained 15 in South Carolina Probate Code Section 621201(6).See the 16 definition of “guardian” (paragraph (6)). 17 To encourage trustees to accept and administer trusts containing 18 real property, the SCTC contains several provisions designed to 19 limit exposure to possible liability for violation of “environmental 20 law” (paragraph (5)). Section 627701(c)(2) authorizes a 21 nominated trustee to investigate trust property to determine 22 potential liability for violation of environmental law or other law 23 without accepting the trusteeship. Section 627816(13) grants a 24 trustee comprehensive and detailed powers to deal with property 25 involving environmental risks. Section 6271010(b) immunizes a 26 trustee from personal liability for violation of environmental law 27 arising from the ownership and control of trust property. 28 Under the SCTC, a “guardian” (paragraph (6)) makes decisions 29 with respect to personal care; a “conservator” (paragraph (4)) 30 manages property. The terminology used in the SCTC is that 31 employed in Article V of the South Carolina Probate Code. 32 Further, the South Carolina Probate Code (Section 621201(18)) 33 specifically excludes “a statutory guardian” and this modification 34 was incorporated into the SCTC definition. 35 The phrase “interests of the beneficiaries” (paragraph (7)) is 36 used with some frequency in the SCTC. The definition clarifies 37 that the interests are as provided in the terms of the trust and not as 38 determined by the beneficiaries. Section 627108 dictates that a 39 trustee is under a continuing duty to administer the trust at a place 40 appropriate to the interests of the beneficiaries. Section 627706(b) 41 conditions certain of the grounds for removing a trustee on the 42 court’s finding that removal of the trustee will best serve the 43 interests of the beneficiaries. Section 627801 requires the trustee[1243] 463 1 to administer the trust in the interests of the beneficiaries, and 2 Section 627802 makes clear that a trustee may not place its own 3 interests above those of the beneficiaries. Section 627808(d) 4 requires the holder of a power to direct who is subject to a 5 fiduciary obligation to act with regard to the interests of the 6 beneficiaries. Section 6271002(b) may impose greater liability on 7 a cotrustee who commits a breach of trust with reckless 8 indifference to the interests of the beneficiaries. Section 6271008 9 invalidates an exculpatory term to the extent it relieves a trustee of 10 liability for breach of trust committed with reckless indifference to 11 the interests of the beneficiaries. 12 “Jurisdiction” (paragraph (8)), when used with reference to a 13 geographic area, includes a state or country but is not necessarily 14 so limited. Its precise scope will depend on the context in which it 15 is used. “Jurisdiction” is used in Sections 627107 and 627403 to 16 refer to the place whose law will govern the trust. The term is 17 used in Section 627108 to refer to the trust’s principal place of 18 administration. The term is used in Section 627816 to refer to the 19 place where the trustee may appoint an ancillary trustee and to the 20 place in whose courts the trustee can bring and defend legal 21 proceedings. 22 The definition of “property” (paragraph (11)) is intended to be 23 as expansive as possible and to encompass anything that may be 24 the subject of ownership. Included are choses in action, claims, 25 and interests created by beneficiary designations under policies of 26 insurance, financial instruments, and deferred compensation and 27 other retirement arrangements, whether revocable or irrevocable. 28 Any such property interest is sufficient to support creation of a 29 trust. See Section 627401 comment. 30 Due to the difficulty of identifying beneficiaries whose interests 31 are remote and contingent, and because such beneficiaries are not 32 likely to have much interest in the daytoday affairs of the trust, the 33 SCTC uses the concept of “qualified beneficiary” (paragraph (12)) 34 to limit the class of beneficiaries to whom certain notices must be 35 given or consents received. The definition of qualified 36 beneficiaries is used in Section 627705 to define the class to whom 37 notice must be given of a trustee resignation. The term is used in 38 Section 627813 to define the class to be kept informed of the 39 trust’s administration. Section 627417 requires that notice be 40 given to the qualified beneficiaries before a trust may be combined 41 or divided. Actions which may be accomplished by the consent of 42 the qualified beneficiaries include the appointment of a successor 43 trustee as provided in Section 627704. Prior to transferring a[1243] 464 1 trust’s principal place of administration, SCTC Section 627108(e) 2 (UTC Section 108(d)) requires that the trustee give at least 60 days 3 notice to the qualified beneficiaries. 4 The qualified beneficiaries consist of the beneficiaries currently 5 receiving a distribution from the trust together with those who 6 might be termed the firstline remaindermen. These are the 7 beneficiaries who would receive distributions were the event 8 triggering the termination of a beneficiary’s interest or of the trust 9 itself to occur on the date in question. Such a terminating event 10 will typically be the death or deaths of the beneficiaries currently 11 eligible to receive the income. Should a qualified beneficiary be a 12 minor, incapacitated, or unknown, or a beneficiary whose identity 13 or location is not reasonably ascertainable, the representation and 14 virtual representation principles of Part 3 may be employed, 15 including the possible appointment by the court of a representative 16 to represent the beneficiary’s interest. 17 The qualified beneficiaries who take upon termination of the 18 beneficiary’s interest or of the trust can include takers in default of 19 the exercise of a power of appointment. The term can also include 20 the persons entitled to receive the trust property pursuant to the 21 exercise of a power of appointment. Because the exercise of a 22 testamentary power of appointment is not effective until the 23 testator’s death and probate of the will, the qualified beneficiaries 24 do not include appointees under the will of a living person. Nor 25 would the term include the objects of an unexercised inter vivos 26 power. 27 Charitable trusts and trusts for a valid noncharitable purpose do 28 not have beneficiaries in the usual sense. However, certain 29 persons, while not technically beneficiaries, do have an interest in 30 seeing that the trust is enforced. Section 627110 expands the 31 definition of qualified beneficiaries to encompass this wider group. 32 UTC Section 110 grants the rights of qualified beneficiaries to the 33 attorney general of the state and charitable organizations expressly 34 designated to receive distributions under the terms of a charitable 35 trust; SCTC Section 627110 grants the rights of qualified 36 beneficiaries only to charitable organizations expressly designated 37 to receive distributions under the terms of a charitable trust. 38 Section 627110 also grants the rights of qualified beneficiaries to 39 persons appointed by the terms of the trust or by the court to 40 enforce a trust created for an animal or other noncharitable 41 purpose. 42 The definition of “revocable” (paragraph (13)) clarifies that 43 revocable trusts include only trusts whose revocation is[1243] 465 1 substantially within the settlor’s control. The consequences of 2 classifying a trust as revocable are many. The SCTC contains 3 provisions relating to liability of a revocable trust for payment of 4 the settlor’s debts (Section 627505), the standard of capacity for 5 creating a revocable trust (Section 627601), the procedure for 6 revocation (Section 627602), the subjecting of the beneficiaries’ 7 rights to the settlor’s control (Section 627603), the period for 8 contesting a revocable trust (Section 627604), the power of the 9 settlor of a revocable trust to direct the actions of a trustee (Section 10 627808(a)), notice to the qualified beneficiaries upon the settlor’s 11 death (Section 627813(b)), and the liability of a trustee of a 12 revocable trust for the obligations of a partnership of which the 13 trustee is a general partner (Section 6271011(d)). 14 The definition of “settlor” (paragraph (14)) refers to the person 15 who creates, or contributes property to, a trust, whether by will, 16 selfdeclaration, transfer of property to another person as trustee, or 17 exercise of a power of appointment. For the requirements for 18 creating a trust, see Section 627401. Determining the identity of 19 the “settlor” is usually not an issue. The same person will both 20 sign the trust instrument and fund the trust. Ascertaining the 21 identity of the settlor becomes more difficult when more than one 22 person signs the trust instrument or funds the trust. The fact that a 23 person is designated as the “settlor” by the terms of the trust is not 24 necessarily determinative. For example, the person who executes 25 the trust instrument may be acting as the agent for the person who 26 will be funding the trust. In that case, the person funding the trust, 27 and not the person signing the trust instrument, will be the settlor. 28 Should more than one person contribute to a trust, all of the 29 contributors will ordinarily be treated as settlors in proportion to 30 their respective contributions, regardless of which one signed the 31 trust instrument. See Section 627602(b). 32 In the case of a revocable trust employed as a will substitute, 33 gifts to the trust’s creator are sometimes made by placing the 34 gifted property directly into the trust. To recognize that such a 35 donor is not intended to be treated as a settlor, the definition of 36 “settlor” excludes a contributor to a trust that is revocable by 37 another person or over which another person has a power of 38 withdrawal. Thus, a parent who contributes to a child’s revocable 39 trust would not be treated as one of the trust’s settlors. The 40 definition of settlor would treat the child as the sole settlor of the 41 trust to the extent of the child’s proportionate contribution 42 Ascertaining the identity of the settlor is important for a variety 43 of reasons. It is important for determining rights in revocable[1243] 466 1 trusts. See Sections 627505(a)(1), (3) (creditor claims against 2 settlor of revocable trust), 627602 (revocation or modification of 3 revocable trust), and 627604 (limitation on contest of revocable 4 trust). It is also important for determining rights of creditors in 5 irrevocable trusts. See Section 627505(a)(2) (creditors of settlor 6 can reach maximum amount trustee can distribute to settlor). 7 While the settlor of an irrevocable trust traditionally has no 8 continuing rights over the trust except for the right under Section 9 627411 to terminate the trust with the beneficiaries’ consent, the 10 SCTC also authorizes the settlor of an irrevocable trust to petition 11 for removal of the trustee and to enforce or modify a charitable 12 trust. See Sections 627405(c) (standing to enforce charitable 13 trust), 627413 (South Carolina, doctrine of equitable deviation), 14 and 627706 (removal of trustee). 15 “Spendthrift provision” (paragraph (15)) means a term of a trust 16 which restrains the transfer of a beneficiary’s interest, whether by 17 a voluntary act of the beneficiary or by an action of a beneficiary’s 18 creditor or assignee, which at least as far as the beneficiary is 19 concerned, would be involuntary. A spendthrift provision is valid 20 under the SCTC only if it restrains both voluntary and involuntary 21 transfer. For a discussion of this requirement and the effect of a 22 spendthrift provision in general, see Section 627502. The insertion 23 of a spendthrift provision in the terms of the trust may also 24 constitute a material purpose sufficient to prevent termination of 25 the trust by agreement of the beneficiaries under Section 627411, 26 although the Code does not presume this result. 27 “Terms of a trust” (paragraph (17)) is a defined term used 28 frequently in the SCTC. While the wording of a written trust 29 instrument is almost always the most important determinant of a 30 trust’s terms, the definition is not so limited. Oral statements, the 31 situation of the beneficiaries, the purposes of the trust, the 32 circumstances under which the trust is to be administered, and, to 33 the extent the settlor was otherwise silent, rules of construction, all 34 may have a bearing on determining a trust’s meaning. See 35 Restatement (Third) of Trusts Section 4 cmt. a (Tentative Draft 36 No. 1, approved 1996); Restatement (Second) of Trusts Section 4 37 cmt. a (1959). If a trust established by order of court is to be 38 administered as an express trust, the terms of the trust are 39 determined from the court order as interpreted in light of the 40 general rules governing interpretation of judgments. See 41 Restatement (Third) of Trusts Section 4 cmt. f (Tentative Draft No. 42 1, approved 1996).[1243] 467 1 A manifestation of a settlor’s intention does not constitute 2 evidence of a trust’s terms if it would be inadmissible in a judicial 3 proceeding in which the trust’s terms are in question. See 4 Restatement (Third) of Trusts Section 4 cmt. b (Tentative Draft 5 No. 1, approved 1996); Restatement (Second) of Trusts Section 4 6 cmt. b (1959). See also Restatement (Third) Property: Donative 7 Transfers Sections 10.2, 11.111.3 (Tentative Draft No. 1, approved 8 1995). For example, South Carolina has chosen to recognize the 9 creation of an oral trust, Section 627407. Evidence otherwise 10 relevant to determining the terms of a trust may also be excluded 11 under other principles of law, such as the parol evidence rule. 12 “Trust instrument” (paragraph (18)) is a subset of the definition 13 of “terms of a trust” (paragraph (17)), referring to only such terms 14 as are found in an instrument executed by the settlor. Section 15 627403 provides that a trust is validly created if created in 16 compliance with the law of the place where the trust instrument 17 was executed. Pursuant to Section 627604(a)(2), the contest 18 period for a revocable trust can be shortened by providing the 19 potential contestant with a copy of the trust instrument plus other 20 information. UTC Section 813(b)(1) and SCTC Sections 21 627813(b) requires that the trustee upon request furnish a 22 beneficiary with a copy of the trust instrument. To allow a trustee 23 to administer a trust with some dispatch without concern about 24 liability if the terms of a trust instrument are contradicted by 25 evidence outside of the instrument, Section 6271006 protects a 26 trustee from liability to the extent a breach of trust resulted from 27 reasonable reliance on those terms. Section 6271013 allows a 28 trustee to substitute a certification of trust in lieu of providing a 29 third person with a copy of the trust instrument. Section 30 6271106(a)(4) provides that unless there is a clear indication of a 31 contrary intent, rules of construction and presumptions provided in 32 the SCTC apply to trust instruments executed before the effective 33 date of the Code. 34 The definition of “trustee” (paragraph (19)) includes not only 35 the original trustee but also an additional and successor trustee as 36 well as a cotrustee. Section 621201 of the South Carolina Probate 37 Code contains the language “whether or not appointed or 38 confirmed by court” and the South Carolina Trust Code retains that 39 language. Because the definition of trustee includes trustees of all 40 types, any trustee, whether original or succeeding, single or 41 cotrustee, has the powers of a trustee and is subject to the duties 42 imposed on trustees under the SCTC. Any natural person, 43 including a settlor or beneficiary, has capacity to act as trustee if[1243] 468 1 the person has capacity to hold title to property free of trust. See 2 Restatement (Third) of Trusts Section 32 (Tentative Draft No. 2, 3 approved 1999); Restatement (Second) of Trusts Section 89 4 (1959). State banking statutes normally impose additional 5 requirements before a corporation can act as trustee. 6 Subsections (21) (defining “distributee”), (25) (defining 7 “permissible distributee”), (26) (defining “Trust Investment 8 Advisor”), and (27) (defining “Trust Protector”) are South 9 Carolina additions to the UTC. 10 The South Carolina version of Section 627103 expresses the 11 intent that the definitions contained in the South Carolina Probate 12 Code that are not otherwise defined within the South Carolina 13 Trust Code and that do not conflict with the definitions contained 14 in the South Carolina Trust Code shall continue to apply to the law 15 governing trusts in South Carolina. 16 17 Section 627104. (a) Subject to subsection (b), a person has 18 knowledge of a fact if the person: 19 (1) has actual knowledge of it; 20 (2) has received a notice or notification of it; or 21 (3) from all the facts and circumstances known to the person 22 at the time in question, has reason to know it. 23 (b) An organization that conducts activities through employees 24 has notice or knowledge of a fact involving a trust only from the 25 time the information was received by an employee having 26 responsibility to act for the trust, or would have been brought to 27 the employee’s attention if the organization had exercised 28 reasonable diligence. An organization exercises reasonable 29 diligence if it maintains reasonable routines for communicating 30 significant information to the employee having responsibility to act 31 for the trust and there is reasonable compliance with the routines. 32 Reasonable diligence does not require an employee of the 33 organization to communicate information unless the 34 communication is part of the individual’s regular duties or the 35 individual knows a matter involving the trust would be materially 36 affected by the information. 37 38 REPORTER’S COMMENT 39 This section specifies when a person is deemed to know a fact. 40 Subsection (a) states the general rule. Subsection (b) provides a 41 special rule dealing with notice to organizations. Pursuant to 42 subsection (a), a fact is known to a person if the person had actual 43 knowledge of the fact, received notification of it, or had reason to[1243] 469 1 know of the fact’s existence based on all of the circumstances and 2 other facts known to the person at the time. Under subsection (b), 3 notice to an organization is not necessarily achieved by giving 4 notice to a branch office. Nor does the organization necessarily 5 acquire knowledge at the moment the notice arrives in the 6 organization’s mailroom. Rather, the organization has notice or 7 knowledge of a fact only when the information is received by an 8 employee having responsibility to act for the trust, or would have 9 been brought to the employee’s attention had the organization 10 exercised reasonable diligence. 11 “Know” is used in its defined sense in Sections 627109 12 (methods and waiver of notice), 627305 (appointment of 13 representative), 627604(b) (limitation on contest of revocable 14 trust), 6271009 (nonliability of trustee upon beneficiary’s consent, 15 release, or ratification), and 6271012 (protection of person dealing 16 with trustee). But as to certain actions, a person is charged with 17 knowledge of facts the person would have discovered upon 18 reasonable inquiry. See Section 6271005 (limitation of action 19 against trustee following report of trustee). 20 This section is based on Uniform Commercial Code Section 21 1202 (2000 Annual Meeting Draft). 22 23 Section 627105. (a) Except as otherwise provided in the terms 24 of the trust, this article governs the duties and powers of a trustee, 25 relations among trustees, and the rights and interests of a 26 beneficiary. 27 (b) The terms of a trust prevail over any provision of this 28 article except: 29 (1) the requirements for creating a trust; 30 (2) the duty of a trustee to act in good faith and in 31 accordance with the purposes of the trust; 32 (3) the requirement that a trust and its terms be for the 33 benefit of its beneficiaries, and that the trust have a purpose that is 34 lawful and possible to achieve; 35 (4) the power of the court to modify or terminate a trust 36 under Sections 627410 through 627416; 37 (5) the effect of a spendthrift provision and the rights of 38 certain creditors and assignees to reach a trust as provided in Part 39 5; 40 (6) the limitations on the ability of a settlor’s agent under a 41 power of attorney to revoke, amend, or make distributions from a 42 revocable trust pursuant to Section 627602(e) 627602.1; [1243] 470 1 (7) the power of the court under Section 627708(b) to adjust 2 a trustee’s compensation specified in the terms of the trust which is 3 unreasonably low or high; 4 (8) the effect of an exculpatory term under Section 6271008; 5 (9) the rights under Sections 6271010 through 6271013 of a 6 person other than a trustee or beneficiary; 7 (10) periods of limitation for commencing a judicial 8 proceeding; 9 (11) the power of the court to take such action and exercise 10 such jurisdiction as may be necessary in the interests of justice; 11 and 12 (12) the subject matter jurisdiction of the court and venue for 13 commencing a proceeding as provided in Sections 627201 and 14 627204. 15 16 REPORTER’S COMMENT 17 Section 627105(a) begins with the premise that the provisions of 18 the South Carolina Trust Code govern trusts when the terms of a 19 trust do not otherwise direct. While this Code provides numerous 20 procedural rules on which a settlor may wish to rely, the settlor is 21 generally free to override these rules and to prescribe the 22 conditions under which the trust is to be administered. However, 23 subsection (b) lists eleven separate requirements that may not be 24 waived and will be controlled by the terms of the SCTC 25 irrespective of the terms of the trust. 26 With only limited exceptions, the duties and powers of a trustee, 27 relations among trustees, and the rights and interests of a 28 beneficiary are as specified in the terms of the trust. 29 Subsection (b) lists the items not subject to override in the terms 30 of the trust. 31 Subsection (b)(1) confirms that the requirements for a trust’s 32 creation, such as the necessary level of capacity and the 33 requirement that a trust have a legal purpose, are controlled by 34 statute and common law, not by the settlor. For the requirements 35 for creating a trust, see Sections 627401 through 409. Subsection 36 (b)(10) makes clear that the settlor may not reduce any otherwise 37 applicable period of limitations for commencing a judicial 38 proceeding. See Sections 627604 (period of limitations for 39 contesting validity of revocable trust), and 6271005 (period of 40 limitation on action for breach of trust). Similarly, a settlor may 41 not so negate the responsibilities of a trustee that the trustee would 42 no longer be acting in a fiduciary capacity. Subsection (b)(2) 43 provides that the terms may not eliminate a trustee’s duty to act in[1243] 471 1 good faith and in accordance with the purposes of the trust. 2 Subsection (b)(3) provides that the terms may not eliminate the 3 requirement that a trust and its terms must be for the benefit of the 4 beneficiaries. Subsection (b)(3) also provides that the terms may 5 not eliminate the requirement that the trust have a purpose that is 6 lawful and possible to achieve. Subsection (b)(2)(3) are echoed in 7 Sections 627404 (trust and its terms must be for benefit of 8 beneficiaries; trust must have a purpose that is lawful and possible 9 to achieve), 627801 (trustee must administer trust in good faith, in 10 accordance with its terms and purposes and the interests of the 11 beneficiaries), 627802(a) (trustee must administer trust solely in 12 interests of the beneficiaries), 627814 (trustee must exercise 13 discretionary power in good faith and in accordance with its terms 14 and purposes and the interests of the beneficiaries), and 6271008 15 (exculpatory term unenforceable to extent it relieves trustee of 16 liability for breach of trust committed in bad faith or with reckless 17 indifference to the purposes of the trust and the interests of the 18 beneficiaries). SCTC Section 627404 does not include the words 19 “not contrary to public policy,” found in UTC Section 404, 20 recognizing that existing South Carolina law would invalidate 21 trusts that are contrary to public policy. 22 The UTC provides that the terms of a trust may not deny a court 23 authority to take such action as necessary in the interests of justice, 24 including requiring that a trustee furnish bond. UTC Subsections 25 (b)(6), (13). The SCTC does not include the UTC version of 26 subsection 105(b)(6). Section 627702 of the South Carolina Trust 27 Code provides the situations for which the trustee must provide 28 bond. 29 UTC subsection (b)(14) and SCTC subsection (b)(12) similarly 30 provides that such provisions cannot be altered in the terms of the 31 trust. The power of the court to modify or terminate a trust under 32 Sections 627410 through 627416 is not subject to variation in the 33 terms of the trust. Subsection (b)(4). However, all of these Code 34 sections involve situations which the settlor could have addressed 35 had the settlor had sufficient foresight. These include situations 36 where the purpose of the trust has been achieved, a mistake was 37 made in the trust’s creation, or circumstances have arisen that were 38 not anticipated by the settlor. 39 Section 627813 imposes a general obligation to keep the 40 beneficiaries informed as well as several specific notice 41 requirements. UTC Subsections (b)(8) and (b)(9) specify limits on 42 the settlor’s ability to waive these information requirements. The[1243] 472 1 South Carolina Trust Code does not include the UTC version of 2 subsections 105(b)(8)(9). 3 In conformity with traditional doctrine, the SCTC limits the 4 ability of a settlor to exculpate a trustee from liability for breach of 5 trust. The limits are specified in Section 6271008. UTC 6 Subsection (b)(10) and SCTC Subsection (b)(8) of this section 7 provide a crossreference. Similarly, subsection (b)(7) provides a 8 crossreference to Section 708(b), which limits the binding effect of 9 a provision specifying the trustee’s compensation. 10 Finally, UTC subsection (b)(11) and SCTC subsection (b)(9) 11 clarify that a settlor is not free to limit the rights of third persons, 12 such as purchasers of trust property. Subsection (b)(5) clarifies 13 that a settlor may not restrict the rights of a beneficiary’s creditors 14 except to the extent a spendthrift restriction is allowed as provided 15 in Article 5. 16 2001 Amendment. By amendment in 2001, subsection (b)(3), 17 (8) and (9) were revised to read as above. The language in 18 subsection (b)(3) “that the trust have a purpose that is lawful and 19 possible to achieve” is new. This addition clarifies that the settlor 20 may not waive this common law requirement, which is codified in 21 the Code at Section 627404. SCTC Section 627404 does not 22 include the words “not contrary to public policy,” found in UTC 23 Section 404, recognizing that existing South Carolina law would 24 invalidate trusts that are contrary to public policy. As a result, 25 SCTC subsection (b)(3) does not include the words “not contrary 26 to public policy.” 27 The SCTC does not include the UTC version of Subsections 105 28 (b)(8) (9) thus the 2001 Amendment which applies to Subsections 29 105 (b)(8)(9) is not applicable. 30 2010 Amendment to the SCTC. The 2010 amendment added 31 subsection (b)(6) relating to limitations on a settlor’s agent; and 32 redesignated former subsections (b)(6) through (b)(11) as 33 subsections (b)(7) through (b)(12), respectively. 34 35 Section 627106. The common law of trusts and principles of 36 equity supplement this article, except to the extent modified by this 37 article or another statute of this State. 38 39 REPORTER’S COMMENT 40 The SCTC codifies those portions of the law of express trusts 41 that are most amenable to codification. The Code is supplemented 42 by the common law of trusts, including principles of equity, 43 particularly as articulated in the Restatement of Trusts,[1243] 473 1 Restatement (Third) of Property: Wills and Other Donative 2 Transfers, and the Restatement of Restitution. The common law of 3 trusts is not static but includes the contemporary and evolving 4 rules of decision developed by the courts in exercise of their power 5 to adapt the law to new situations and changing conditions. It also 6 includes the traditional and broad equitable jurisdiction of the 7 court, which the Code in no way restricts. 8 The statutory text of the SCTC is also supplemented by these 9 Comments, which, like the Comments to any Uniform Act, may be 10 relied on as a guide for interpretation. See Acierno v. Worthy 11 Bros. Pipeline Corp., 656 A.2d 1085, 1090 (Del. 1995) 12 (interpreting Uniform Commercial Code); Yale University v. 13 Blumenthal, 621 A.2d 1304, 1307 (Conn. 1993) (interpreting 14 Uniform Management of Institutional Funds Act); 2 Norman 15 Singer, Statutory Construction Section 52.05 (6th ed. 2000); Jack 16 Davies, Legislative Law and Process in a Nutshell Section 554 (2d 17 ed. 1986).See also South Carolina Probate Code Section 621103. 18 19 Section 627107. The meaning and effect of the terms of a trust 20 are determined by: 21 (1) the law of the jurisdiction designated in the terms of the 22 trust; or 23 (2) in the absence of a controlling designation in the terms of 24 the trust, the law of the jurisdiction having the most significant 25 relationship to the matter at issue. 26 27 REPORTER’S COMMENT 28 This section provides rules for determining the law that will 29 govern the meaning and effect of particular trust terms. The law to 30 apply to determine whether a trust has been validly created is 31 determined under Section 627403. 32 Under prior South Carolina law, there was no statutory 33 counterpart to this section; common law principles controlled. 34 Paragraph (1) allows a settlor to select the law that will govern 35 the meaning and effect of the terms of the trust. The jurisdiction 36 selected need not have any other connection to the trust. The 37 settlor is free to select the governing law regardless of where the 38 trust property may be physically located, whether it consists of real 39 or personal property, and whether the trust was created by will or 40 during the settlor’s lifetime. This section does not attempt to 41 specify the strong public policies sufficient to invalidate a settlor’s 42 choice of governing law. These public policies will vary 43 depending upon the locale and may change over time. See,[1243] 474 1 however, Russell v. Wachovia Bank, 353 S.C. 208, 578 S.E.2d 329 2 (2003), in which the South Carolina Supreme Court cited language 3 from the Restatement (Second) of Conflict of Laws Sections 4 268270 (1971) in adopting a rule similar to that of SCTC Section 5 107. 6 Paragraph (2) provides a rule for trusts without governing law 7 provisions the meaning and effect of the trust’s terms are to be 8 determined by the law of the jurisdiction having the most 9 significant relationship to the matter at issue. Factors to consider 10 in determining the governing law include the place of the trust’s 11 creation, the location of the trust property, and the domicile of the 12 settlor, the trustee, and the beneficiaries. See Restatement 13 (Second) of Conflict of Laws Sections 270 cmt. c and 272 cmt. d 14 (1971). Other more general factors that may be pertinent in 15 particular cases include the relevant policies of the forum, the 16 relevant policies of other interested jurisdictions and degree of 17 their interest, the protection of justified expectations and certainty, 18 and predictability and uniformity of result. See Restatement 19 (Second) of Conflict of Laws Section 6 (1971). Usually, the law 20 of the trust’s principal place of administration will govern 21 administrative matters and the law of the place having the most 22 significant relationship to the trust’s creation will govern the 23 dispositive provisions. 24 This section is consistent with and was partially patterned on the 25 Hague Convention on the Law Applicable to Trusts and on their 26 Recognition, signed on July 1, 1985. Like this section, the Hague 27 Convention allows the settlor to designate the governing law. 28 Hague Convention art. 6. Absent a designation, the Convention 29 provides that the trust is to be governed by the law of the place 30 having the closest connection to the trust. Hague Convention art. 31 7. The Convention also lists particular public policies for which 32 the forum may decide to override the choice of law that would 33 otherwise apply. These policies are protection of minors and 34 incapable parties, personal and proprietary effects of marriage, 35 succession rights, transfer of title and security interests in property, 36 protection of creditors in matters of insolvency, and, more 37 generally, protection of third parties acting in good faith. Hague 38 Convention art. 15. 39 For the authority of a settlor to designate a trust’s principal place 40 of administration, see UTC Section 108(a) or SCTC Section 41 627108(b). Because SCTC Section 627108 includes an additional 42 paragraph not in the UTC, which is at SCTC Section 627108(a),[1243] 475 1 the reference to UTC Section 108(a) in the UTC Comment is 2 appropriate for SCTC Section 627108(b). 3 4 Section 627108. (a) Unless otherwise designated by the terms 5 of a trust, the principal place of administration of a trust is the 6 trustee’s usual place of business where the records pertaining to 7 the trust are kept, or at the trustee’s residence if he has no such 8 place of business. In the case of cotrustees, the principal place of 9 administration, if not otherwise designated in the trust instrument, 10 is: 11 (1) the usual place of business of the corporate trustee if 12 there is but one corporate cotrustee, or 13 (2) the usual place of business or residence of the individual 14 trustee who is a professional fiduciary if there is but one such 15 person and no corporate cotrustee, and otherwise 16 (3) the usual place of business or residence of any of the 17 cotrustees as agreed upon by them. 18 (b) Without precluding other means for establishing a 19 sufficient connection with the designated jurisdiction, terms of a 20 trust designating the principal place of administration are valid and 21 controlling if: 22 (1) a trustee’s principal place of business is located in or a 23 trustee is a resident of the designated jurisdiction; or 24 (2) all or part of the administration occurs in the designated 25 jurisdiction. 26 (c) A trustee is under a continuing duty to administer the trust 27 at a place appropriate to its purposes, its administration, and the 28 interests of the beneficiaries. 29 (d) Without precluding the right of the court to order, approve, 30 or disapprove a transfer, the trustee, in furtherance of the duty 31 prescribed by subsection (c), may transfer the trust’s principal 32 place of administration to another State or to a jurisdiction outside 33 of the United States. 34 (e) Unless otherwise designated in the trust, the trustee shall 35 notify the qualified beneficiaries of a proposed transfer of a trust’s 36 principal place of administration not less than 60 sixty days before 37 initiating the transfer. The notice of proposed transfer must 38 include: 39 (1) the name of the jurisdiction to which the principal place 40 of administration is to be transferred; 41 (2) the address and telephone number at the new location at 42 which the trustee can be contacted; 43 (3) an explanation of the reasons for the proposed transfer; [1243] 476 1 (4) the date on which the proposed transfer is anticipated to 2 occur; and 3 (5) the date, not less than 60 sixty days after the giving of 4 the notice, by which the qualified beneficiary must notify the 5 trustee of an objection to the proposed transfer. 6 (f) The authority of a trustee under this section to transfer a 7 trust’s principal place of administration terminates if a qualified 8 beneficiary notifies the trustee of an objection to the proposed 9 transfer on or before the date specified in the notice. 10 (g) In connection with a transfer of the trust’s principal place 11 of administration, the trustee may transfer some or all of the trust 12 property to a successor trustee designated in the terms of the trust 13 or appointed pursuant to Section 627704. 14 15 REPORTER’S COMMENT 16 This section prescribes rules relating to a trust’s principal place 17 of administration. Locating a trust’s principal place of 18 administration will ordinarily determine which court has primary if 19 not exclusive jurisdiction over the trust. It may also be important 20 for other matters, such as payment of state income tax or 21 determining the jurisdiction whose laws will govern the trust. See 22 Section 627107 comment. 23 Because of the difficult and variable situations sometimes 24 involved, the SCTC does not attempt to further define principal 25 place of administration. A trust’s principal place of administration 26 ordinarily will be the place where the trustee is located. 27 Determining the principal place of administration becomes more 28 difficult, however, when cotrustees are located in different states 29 or when a single institutional trustee has trust operations in more 30 than one state. In such cases, other factors may become relevant, 31 including the place where the trust records are kept or trust assets 32 held, or in the case of an institutional trustee, the place where the 33 trust officer responsible for supervising the account is located. 34 Under the SCTC, the fixing of a trust’s principal place of 35 administration will determine where the trustee and beneficiaries 36 have consented to suit (Section 627202), and the rules for locating 37 venue within a particular state (Section 627204). It may also be 38 considered by a court in another jurisdiction in determining 39 whether it has jurisdiction, and if so, whether it is a convenient 40 forum. 41 Because SCTC Section 627108 includes an additional paragraph 42 not in the UTC, which is at SCTC Section 627108(a), the 43 references to the subsections of UTC Section 108 in the UTC[1243] 477 1 Comment have been adjusted correspondingly for SCTC Section 2 627108. 3 SCTC Section 627108(a) incorporates the provisions of former 4 SCPC Section 627202 (which dealt with venue), except SCTC 5 subsection 108(a) is not limited to matters of venue. 6 A settlor expecting to name a trustee or cotrustees with 7 significant contacts in more than one state may eliminate possible 8 uncertainty about the location of the trust’s principal place of 9 administration by specifying the jurisdiction in the terms of the 10 trust. Under UTC subsection (a) and SCTC subsection (b), a 11 designation in the terms of the trust is controlling if (1) a trustee is 12 a resident of or has its principal place of business in the designated 13 jurisdiction, or (2) all or part of the administration occurs in the 14 designated jurisdiction. Designating the principal place of 15 administration should be distinguished from designating the law to 16 determine the meaning and effect of the trust’s terms, as 17 authorized by Section 627107. A settlor is free to designate one 18 jurisdiction as the principal place of administration and another to 19 govern the meaning and effect of the trust’s provisions. 20 UTC Subsection (b) and SCTC subsection (c) provide that a 21 trustee is under a continuing duty to administer the trust at a place 22 appropriate to its purposes, its administration, and the interests of 23 the beneficiaries. “Interests of the beneficiaries,” defined in 24 Section 627103(7), means the beneficial interests provided n the 25 terms of the trust. Ordinarily, absent a substantial change or 26 circumstances, the trustee may assume that the original place of 27 administration is also the appropriate place of administration. The 28 duty to administer the trust at an appropriate place may also dictate 29 that the trustee not move the trust. 30 UTC Subsections (c)(f) and SCTC subsections (d)(g) provide a 31 procedure for changing the principal place of administration to 32 another state or country. Such changes are often beneficial. A 33 change may be desirable to secure a lower state income tax rate, or 34 because of relocation of the trustee or beneficiaries, the 35 appointment of a new trustee, or a change in the location of the 36 trust investments. The procedure for transfer specified in this 37 section applies only in the absence of a contrary provision in the 38 terms of the trust. See Section 627105. To facilitate transfer in the 39 typical case, where all concur that a transfer is either desirable or is 40 at least not harmful, a transfer can be accomplished without court 41 approval unless a qualified beneficiary objects. To allow the 42 qualified beneficiaries sufficient time to review a proposed 43 transfer, the trustee must give the qualified beneficiaries at least 60[1243] 478 1 days prior notice of the transfer. Notice must be given not only to 2 qualified beneficiaries as defined in Section 627103(12) but also to 3 those granted the rights of qualified beneficiaries under Section 4 627110. To assure that those receiving notice have sufficient 5 information upon which to make a decision, minimum contents of 6 the notice are specified. If a qualified beneficiary objects, a trustee 7 wishing to proceed with the transfer must seek court approval. 8 SCTC Section 627108(e), which corresponds to UTC subsection 9 108(d), adds to the UTC version the introductory phrase “unless 10 otherwise designated in the trust.” 11 In connection with a transfer of the principal place of 12 administration, the trustee may transfer some or all of the trust 13 property to a new trustee located outside of the state. The 14 appointment of a new trustee may also be essential if the current 15 trustee is ineligible to administer the trust in the new place. UTC 16 Subsection (f) and SCTC subsection (g) clarifies that the 17 appointment of the new trustee must comply with the provisions 18 on appointment of successor trustees as provided in the terms of 19 the trust or under Section 627704. Absent an order of succession 20 in the terms of the trust, Section 627704(c) provides the procedure 21 for appointment of a successor trustee of a noncharitable trust, and 22 Section 627704(d) the procedure for appointment of a successor 23 trustee of a charitable trust. 24 While transfer of the principal place of administration will 25 normally change the governing law with respect to administrative 26 matters, a transfer does not normally alter the controlling law with 27 respect to the validity of the trust and the construction of its 28 dispositive provisions. See 5A Austin W. Scott & William F. 29 Fratcher, The Law of Trusts Section 615 (4th ed. 1989). 30 31 Section 627109. (a) Notice to a person under this article or the 32 sending of a document to a person under this article must be 33 accomplished in a manner reasonably suitable under the 34 circumstances and likely to result in receipt of the notice or 35 document. Permissible methods of notice or for sending a 36 document include firstclass mail, personal delivery, delivery to the 37 person’s last known place of residence or place of business, or a 38 properly directed electronic message. 39 (b) Notice otherwise required under this article or a document 40 otherwise required to be sent under this article need not be 41 provided to a person whose identity or location is unknown to and 42 not reasonably ascertainable by the trustee. [1243] 479 1 (c) Notice under this article or the sending of a document 2 under this article may be waived by the person to be notified or 3 sent the document. 4 (d) If notice of a hearing on any petition is required and, except 5 for specific notice requirements as otherwise provided, the 6 petitioner shall cause notice of the time and place of hearing of any 7 petition to be given to any interested person or his attorney if he 8 has appeared by attorney or requested that notice be sent to his 9 attorney. Notice shall be given: 10 (1) by mailing a copy thereof at least twenty days before the 11 time set for the hearing by certified, registered, or ordinary first 12 class mail addressed to the person being notified at the post office 13 address given in his request for notice, if any, or at his office or 14 place of residence, if known: 15 (2) by delivering a copy thereof to the person being notified 16 personally at least twenty days before the time set for the hearing; 17 or 18 (3) if the address or identity of any person is not known and 19 cannot be ascertained with reasonable diligence by publishing a 20 copy thereof in the same manner as required by law in the case of 21 the publication of a summons for an absent defendant in the court 22 of common pleas. 23 (e) The court for good cause shown may provide for a different 24 method or time of giving notice for any hearing. 25 (f) Proof of the giving of notice shall be made on or before the 26 hearing and filed in the proceeding. 27 28 REPORTER’S COMMENT 29 Subsection (a) clarifies that notices under the SCTC may be 30 given by any method likely to result in its receipt by the person to 31 be notified. The specific methods listed in the subsection are 32 illustrative, not exhaustive. Subsection (b) relieves a trustee of 33 responsibility for what would otherwise be an impossible task, the 34 giving of notice to a person whose identity or location is unknown 35 and not reasonably ascertainable by the trustee. The section does 36 not define when a notice is deemed to have been sent or delivered 37 or person deemed to be unknown or not reasonably ascertainable, 38 the drafters preferring to leave this issue to the enacting 39 jurisdiction’s rules of civil procedure. 40 Under the SCTC, certain actions can be taken upon unanimous 41 consent of the beneficiaries or qualified beneficiaries. See 42 Sections 627411 (termination of noncharitable irrevocable trust) 43 and 627704 (appointment of successor trustee). UTC Subsection[1243] 480 1 (b) of this section only authorizes waiver of notice. A consent 2 required from a beneficiary in order to achieve unanimity is not 3 waived because the beneficiary is missing. But the fact a 4 beneficiary cannot be located may be a sufficient basis for a 5 substitute consent to be given by another person on the 6 beneficiary’s behalf under the representation principles of Part 3. 7 In a nonjudicial context, SCTC Section 627109(b) does not 8 require notification of a person whose identity or location is 9 unknown or cannot be reasonably ascertainable. 10 To facilitate administration, subsection (c) allows waiver of 11 notice by the person to be notified or sent the document. Among 12 the notices and documents to which this subsection can be applied 13 are notice of a proposed transfer of principal place of 14 administration (UTC Section 108(d) and SCTC Section 627108(e)) 15 or of a trustee’s report (Section 627813(e)). This subsection also 16 applies to notice to qualified beneficiaries of a proposed trust 17 combination or division (Section 627417), of a temporary 18 assumption of duties without accepting trusteeship (Section 19 627701(c)(1)), and of a trustee’s resignation (Section 627705(a) 20 (1)). 21 Notices under the SCTC are nonjudicial. 22 Previous South Carolina law had no precise counterpart. 23 However, the South Carolina Probate Code contains various 24 provisions respecting notice. The general notice section, SCPC 25 Section 621401 provides that notice of a hearing or other petition 26 shall be delivered at least twenty (20) days before the time set for 27 the hearing by certified, registered, or ordinary first class mail, or 28 by delivering a copy to the person being notified at least twenty 29 (20) days before the time set for hearing. That section also 30 provides for the service of notice of hearing by publication if the 31 address or identity of the person cannot be ascertained with 32 reasonable diligence. SCTC Section 627109(d) differs from the 33 UTC version and incorporates the substance of SCPC Section 34 621401. 35 The SCTC adds Subsections 627109(e) and (f), which are not in 36 UTC Section 109. 37 38 Section 627110. (a) Whenever notice to qualified beneficiaries 39 of a trust is required under this article, the trustee must also give 40 notice to any other beneficiary who has sent the trustee a request 41 for notice. 42 (b) A charitable organization expressly designated to receive 43 distributions under the terms of a charitable trust has the rights of a[1243] 481 1 qualified beneficiary under this article if the charitable 2 organization, on the date the charitable organization’s qualification 3 is being determined: 4 (A) is a distributee or permissible distributee of trust income 5 or principal; 6 (B) would be a distributee or permissible distributee of trust 7 income or principal upon the termination of the interests of other 8 distributees or permissible distributees then receiving or eligible to 9 receive distributions; or 10 (C) would be a distributee or permissible distributee of trust 11 income or principal if the trust terminated on that date. 12 (c) A person appointed to enforce a trust created for the care of 13 an animal or another noncharitable purpose as provided in Section 14 627408 or 627409 has the rights of a qualified beneficiary under 15 this article. 16 17 REPORTER’S COMMENT 18 Former South Carolina law had no statutory counterpart. 19 Under the SCTC, certain notices need be given only to the 20 “qualified” beneficiaries. For the definition of “qualified 21 beneficiary,” see Section 627103(12). Among these notices are 22 notice of a transfer of the trust’s principal place of administration 23 (UTC Section 108(d) and SCTC Section 627108(e)), notice of a 24 trust division or combination (Section 627417), notice of a trustee 25 resignation (Section 627705(a)(1)), and notice of a trustee’s annual 26 report (Section 627813(c)). Subsection (a) of this section 27 authorizes other beneficiaries to receive one or more of these 28 notices by filing a request for notice with the trustee. 29 Under the Code, certain actions, such as the appointment of a 30 successor trustee, can be accomplished by the consent of the 31 qualified beneficiaries. See, e.g., Section 627704 (filling vacancy 32 in trusteeship). Subsection (a) addresses only notice, not required 33 consent. A person who requests notice under subsection (a) does 34 not thereby acquire a right to participate in actions that can be 35 taken only upon consent of the qualified beneficiaries. 36 Charitable trusts do not have beneficiaries in the usual sense. 37 However, certain persons, while not technically beneficiaries, do 38 have an interest in seeing that the trust is enforced. In the case of a 39 charitable trust, this includes the state’s attorney general and 40 charitable organizations expressly designated to receive 41 distributions under the terms of the trust. Under subsection (b), 42 charitable organizations expressly designated in the terms of the 43 trust to receive distributions and who would qualify as a qualified[1243] 482 1 beneficiary were the trust noncharitable, are granted the rights of 2 qualified beneficiaries. Because the charitable organization must 3 be expressly named in the terms of the trust and must be 4 designated to receive distributions, excluded are organizations that 5 might receive distributions in the trustee’s discretion but that are 6 not named in the trust’s terms. Requiring that the organization 7 have an interest similar to that of a beneficiary of a private trust 8 also denies the rights of a qualified beneficiary to organizations 9 holding remote interests. For further discussion of the definition 10 of “qualified beneficiary,” see Section 627103 comment. 11 Subsection (c) similarly grants the rights of qualified 12 beneficiaries to persons appointed by the terms of the trust or by 13 the court to enforce a trust created for an animal or other trust with 14 a valid purpose but no ascertainable beneficiary. For the 15 requirements for creating such trusts, see Sections 627408 and 16 627409. 17 Section 627110 does not include a counterpart to UTC 18 subsection 110(d), in the 2004 UTC Amendments, which gives the 19 state Attorney General the rights of a qualified beneficiary in 20 certain cases. See, however, SCTC Section 627405, which 21 provides certain rights and powers to the South Carolina Attorney 22 General. 23 Subsection (d) does not limit other means by which the attorney 24 general or other designated official can enforce a charitable trust. 25 26 Section 627111. (a) For purposes of this section, ‘interested 27 persons’ means persons whose consent would be required in order 28 to achieve a binding settlement were the settlement to be approved 29 by the court. 30 (b) Interested persons may enter into a binding nonjudicial 31 settlement agreement with respect to only the following trust 32 matters: 33 (1) the approval of a trustee’s report or accounting; 34 (2) direction to a trustee to perform or refrain from 35 performing a particular administrative act or the grant to a trustee 36 of any necessary or desirable administrative power; 37 (3) the resignation or appointment of a trustee and the 38 determination of a trustee’s compensation; 39 (4) transfer of a trust’s principal place of administration; 40 and 41 (5) liability of a trustee for an action relating to the trust. 42 (c) Any interested person may request the court to approve a 43 nonjudicial settlement agreement, to determine whether the[1243] 483 1 representation as provided in Part 3 was adequate, and to 2 determine whether the agreement contains terms and conditions 3 the court could have properly approved. 4 5 REPORTER’S COMMENT 6 While the SCTC recognizes that a court may intervene in the 7 administration of a trust to the extent its jurisdiction is invoked by 8 interested persons or otherwise provided by law (see Section 9 627201(a)), resolution of disputes by nonjudicial means is 10 encouraged. This section facilitates the making of such 11 agreements by giving them the same effect as if approved by the 12 court. To achieve such certainty, however, subsection (c) requires 13 that the nonjudicial settlement must contain terms and conditions 14 that a court could properly approve. Under this section, a 15 nonjudicial settlement cannot be used to produce a result not 16 authorized by law, such as to terminate a trust in an impermissible 17 manner. 18 Trusts ordinarily have beneficiaries who are minors; 19 incapacitated, unborn or unascertained. Because such beneficiaries 20 cannot signify their consent to an agreement, binding settlements 21 can ordinarily be achieved only through the application of 22 doctrines such as virtual representation or appointment of a 23 guardian ad litem, doctrines traditionally available only in the case 24 of judicial settlements. The effect of this section and the SCTC 25 more generally is to allow for such binding representation even if 26 the agreement is not submitted for approval to a court. For the 27 rules on representation, including appointments of representatives 28 by the court to approve particular settlements, see Part 3. 29 The fact that the trustee and beneficiaries may resolve a matter 30 nonjudicially does not mean that beneficiary approval is required. 31 For example, a trustee may resign pursuant to Section 627705 32 solely by giving notice to the qualified beneficiaries, a living 33 settlor, and any cotrustees. But a nonjudicial settlement between 34 the trustee and beneficiaries will frequently prove helpful in 35 working out the terms of the resignation. 36 Because of the great variety of matters to which a nonjudicial 37 settlement may be applied, this section does not attempt to 38 precisely define the “interested persons” whose consent is required 39 to obtain a binding settlement as provided in subsection (a). 40 However, the consent of the trustee would ordinarily be required to 41 obtain a binding settlement with respect to matters involving a 42 trustee’s administration, such as approval of a trustee’s report or 43 resignation.[1243] 484 1 2 Section 627112. The rules of construction that apply in this 3 State to the interpretation of and disposition of property by will 4 also apply as appropriate to the interpretation of the terms of a trust 5 and the disposition of the trust property. 6 7 REPORTER’S COMMENT 8 This section is patterned after Restatement (Third) of Trusts 9 Section 25(2) and comment e (Tentative Draft No. 1, approved 10 1996), although this section, unlike the Restatement, also applies 11 to irrevocable trusts. The revocable trust is used primarily as a 12 will substitute, with its key provision being the determination of 13 the persons to receive the trust property upon the settlor’s death. 14 Given this functional equivalence between the revocable trust and 15 a will, the rules for interpreting the disposition of property at death 16 should be the same whether the individual has chosen a will or 17 revocable trust as the individual’s primary estate planning 18 instrument. Over the years, the legislatures of the States and the 19 courts have developed a series of rules of construction reflecting 20 the legislative or judicial understanding of how the average testator 21 would wish to dispose of property in cases where the will is silent 22 or insufficiently clear. Few legislatures have yet to extend these 23 rules of construction to revocable trusts, and even fewer to 24 irrevocable trusts, although a number of courts have done so as a 25 matter of judicial construction. See Restatement (Third) of Trusts 26 Section 25, Reporter’s Notes to cmt. d and e (Tentative Draft No. 27 1, approved 1996). 28 Because of the wide variation among the States on the rules of 29 construction applicable to wills, this Code does not attempt to 30 prescribe the exact rules to be applied to trusts but instead adopts 31 the philosophy of the Restatement that the rules applicable to trusts 32 ought to be the same, whatever those rules might be. 33 Rules of construction are not the same as constructional 34 preferences. A constructional preference is general in nature, 35 providing general guidance for resolving a wide variety of 36 ambiguities. An example is a preference for a construction that 37 results in a complete disposition and avoids illegality. Rules of 38 construction, on the other hand, are specific in nature, providing 39 guidance for resolving specific situations or construing specific 40 terms. Unlike a constructional preference, a rule of construction, 41 when applicable, can lead to only one result. See Restatement 42 (Third) of Property: Donative Transfers Section 11.3 and cmt. b 43 (Tentative Draft No. 1, approved 1995).[1243] 485 1 Rules of construction attribute intention to individual donors 2 based on assumptions of common intention. Rules of construction 3 are found both in enacted statutes and in judicial decisions. Rules 4 of construction can involve the meaning to be given to particular 5 language in the document, such as the meaning to be given to 6 “heirs” or “issue.” Rules of construction also address situations the 7 donor failed to anticipate. These include the failure to anticipate 8 the predecease of a beneficiary or to specify the source from which 9 expenses are to be paid. Rules of construction can also concern 10 assumptions as to how a donor would have revised donative 11 documents in light of certain events occurring after execution. 12 These include rules dealing with the effect of a divorce and 13 whether a specific devisee will receive a substitute gift if the 14 subject matter of the devise is disposed of during the testator’s 15 lifetime. 16 The most direct counterpart in the law of wills is South Carolina 17 Probate Code Section 622601 (Rules of Construction and 18 Presumption). That section provides that the testator’s intent 19 controls the legal effect of his dispositions, and it refers to 20 succeeding sections, which contain some, but not all, rules of 21 construction with respect to wills. Other will construction rules 22 are left to the common law in South Carolina. As to construction 23 of wills, see S. Alan Medlin, The Law of Wills and Trusts, Volume 24 1, Estate Planning in South Carolina (2002) at Section 330 et seq. 25 South Carolina Trust Code Section 627112 is in part analogous to 26 SCPC Sections 621102 and 621103. SCPC Section 621102, 27 entitled “Purposes; Rule of Construction,” provides for a liberal 28 interpretation of the SCPC in furtherance of the policies set forth 29 in that section. SCPC Section 621103 provides that the provisions 30 of the SCPC supplement existing principles of law and equity. 31 32 Part 2 33 34 Judicial Proceedings 35 36 GENERAL COMMENT 37 This article addresses selected issues involving jurisdiction and 38 venue. This article is not intended to provide comprehensive 39 coverage of procedure with respect to trusts. These issues are 40 better addressed elsewhere, for example in the State’s rules of civil 41 procedure or as provided by court rule. 42 Section 627201 makes clear that the jurisdiction of the court is 43 available as invoked by interested persons or as otherwise[1243] 486 1 provided by law. Proceedings involving the administration of a 2 trust normally will be brought in the court at the trust’s principal 3 place of administration. Section 627202 provides that the trustee 4 and beneficiaries are deemed to have consented to the jurisdiction 5 of the court at the principal place of administration as to any matter 6 relating to the trust. 7 There is significant overlap between Part 2 of the SCTC 8 covering judicial proceedings and former Part II under Article 7 of 9 the South Carolina Probate Code. To promote consistency and 10 familiarity with existing South Carolina law and practice, the 11 relevant South Carolina Probate Code language has been 12 maintained whenever possible under this part of the South 13 Carolina Trust Code. Additionally, several separate statutes 14 formerly under the South Carolina Probate Code regarding court 15 jurisdiction of trusts have been consolidated into a single section 16 herein. 17 18 Section 627201. (a) Subject to the provisions of Section 19 621302(d), the probate court has exclusive jurisdiction of 20 proceedings initiated by interested parties concerning the internal 21 affairs of trusts. These proceedings must be formal as defined by 22 Section 621201(17) but consent petitions are not subject to the 23 requirements of formal proceedings. Proceedings that may be 24 maintained pursuant to this section are those concerning the 25 administration and distribution of trusts, the declaration of rights, 26 and the determination of other matters involving trustees and 27 beneficiaries of trusts. These include, but are not limited to, 28 proceedings to: 29 (1) ascertain beneficiaries, determine a question arising in 30 the administration or distribution of a trust including questions of 31 construction of trust instruments, instruct trustees, and determine 32 the existence or nonexistence of any immunity, power, privilege, 33 duty, or right; 34 (2) review and settle interim or final accounts; 35 (3) review the propriety of employment of a person by a 36 trustee including an attorney, auditor, investment advisor or other 37 specialized agent or assistant, and the reasonableness of the 38 compensation of a person so employed, and the reasonableness of 39 the compensation determined by the trustee for his own services. 40 A person who has received excessive compensation from a trust 41 may be ordered to make appropriate refunds. The provisions of 42 this section do not apply to the extent there is a contract providing[1243] 487 1 for the compensation to be paid for the trustee’s services or if the 2 trust directs otherwise; and 3 (4) appoint or remove a trustee. 4 (b) A proceeding under this section does not result in 5 continuing supervisory proceedings. The management and 6 distribution of a trust estate, submission of accounts and reports to 7 beneficiaries, payment of trustee’s fees and other obligations of a 8 trust, acceptance and change of trusteeship, and other aspects of 9 the administration of a trust shall proceed expeditiously consistent 10 with the terms of the trust, free of judicial intervention and without 11 order, approval, or other action of any court, subject to the 12 jurisdiction of the court as invoked by interested parties or as 13 otherwise exercised as provided by law or by the terms of the trust. 14 (c) The probate court has concurrent jurisdiction with the 15 circuit courts of this State of actions and proceedings concerning 16 the external affairs of trusts. These include, but are not limited to, 17 the following proceedings: 18 (1) determine the existence or nonexistence of trusts created 19 other than by will; 20 (2) actions by or against creditors or debtors of trusts; and 21 (3) other actions and proceedings involving trustees and 22 third parties; 23 (d) The probate court has concurrent jurisdiction with the 24 circuit courts of this State over attorney’s fees. Attorney’s fees 25 may be set at a fixed or hourly rate or by contingency fee. 26 (e) The court will not, over the objection of a party, entertain 27 proceedings under this section involving a trust registered or 28 having its principal place of administration in another state, unless: 29 (1) when all appropriate parties could not be bound by 30 litigation in the courts of the state where the trust is registered or 31 has its principal place of administration; or 32 (2) when the interests of justice otherwise would seriously 33 be impaired. 34 The court may condition a stay or dismissal of a proceeding under 35 this section on the consent of any party to jurisdiction of the state 36 in which the trust is registered or has its principal place of 37 business, or the court may grant a continuance or enter any other 38 appropriate order. 39 40 REPORTER’S COMMENT 41 Section 627201(a) grants exclusive subject matter jurisdiction to 42 the probate court of interested parties’ proceedings concerning the 43 internal affairs of trusts. The subsection provides two illustrative[1243] 488 1 and nonexclusive lists of such proceedings. The lists have this in 2 common: all items on both lists are matters of dispute primarily 3 between and among the trustees and the beneficiaries of trusts, i.e., 4 matters internal to trust administration, and are not matters 5 immediately involving third parties, such as creditors and debtors 6 of trusts. Compare the actions and proceedings concerning the 7 external affairs of trusts, which are the subject matter of Section 8 627204. See also the specific coverage of proceedings concerning 9 a trustee’s compensation, Section 627205, and for this State’s 10 Uniform Declaratory Judgments Act, see Section 1555310 of the 11 1976 Code et seq., especially Section 155350. 12 Section 627201(b) makes it clear that no single proceeding in 13 the probate court concerning the internal affairs of a trust will have 14 the effect of subjecting the administration of the trust to later 15 continuous supervision by the probate court. 16 SCTC subsections 627201(a) and (b) incorporate former South 17 Carolina Probate Code Section 627201 regarding the Probate 18 Court’s exclusive jurisdiction over the internal affairs of trusts. 19 Subsection (a)(3) has been taken from former South Carolina 20 Probate Code Section 627205. Such exclusive jurisdiction is 21 subject to Section 621302(d) of the South Carolina Probate Code 22 regarding a party’s right to remove a proceeding to the circuit 23 court. 24 Subsections (c) and (d) are taken from former South Carolina 25 Probate Code Section 627204(A). 26 Subsection (e) is taken from former South Carolina Probate 27 Code Section 627203. 28 Subsection (e) refers to a trust’s “principal place of 29 administration” which is addressed under South Carolina Trust 30 Code Section 627108. 31 Whereas the Uniform Trust Code encourages resolution of 32 disputes without resort to courts through options such as 33 nonjudicial settlements authorized by Section 111, the South 34 Carolina Trust Code limits nonjudicial settlements to specified 35 matters set forth in Section 627111, thereby generally maintaining 36 the practice requiring court involvement for resolution of trust 37 disputes. 38 Subsection (a) makes clear that the court’s jurisdiction may be 39 invoked even absent an actual dispute. Traditionally, courts in 40 equity have heard petitions for instructions and have issued 41 declaratory judgments if there is a reasonable doubt as to the 42 extent of the trustee’s powers or duties. The court will not 43 ordinarily instruct trustees on how to exercise discretion, however.[1243] 489 1 See Restatement (Second) of Trusts Section 187, 259 (1959). This 2 section does not limit the court’s equity jurisdiction. 3 4 Section 627202. (a) By accepting the trusteeship of a trust 5 having its principal place of administration in this State or by 6 moving the principal place of administration to this State, the 7 trustee submits personally to the jurisdiction of the courts of this 8 State regarding any matter involving the trust. 9 (b) With respect to their interests in the trust, the beneficiaries 10 of a trust having its principal place of administration in this State 11 are subject to the jurisdiction of the courts of this State regarding 12 any matter involving the trust. By accepting a distribution from 13 such a trust, the recipient submits personally to the jurisdiction of 14 the courts of this State regarding any matter involving the trust. 15 (c) This section does not preclude other methods of obtaining 16 jurisdiction over a trustee, beneficiary, or other person receiving 17 property from the trust. 18 19 REPORTER’S COMMENT 20 There was no corresponding statute under the South Carolina 21 Probate Code prior to the enactment of the SCTC. 22 This section clarifies that the courts of the principal place of 23 administration have jurisdiction to enter orders relating to the trust 24 that will be binding on both the trustee and beneficiaries. A trust’s 25 “principal place of administration” is addressed in SCTC Section 26 627108. Consent to jurisdiction does not dispense with any 27 required notice, however. With respect to jurisdiction over a 28 beneficiary, the Comment to Uniform Probate Code Section 7103, 29 upon which portions of this section are based, is instructive: 30 It also seems reasonable to require beneficiaries to go to the seat 31 of the trust when litigation has been instituted there concerning a 32 trust in which they claim beneficial interests, much as the rights of 33 shareholders of a corporation can be determined at a corporate 34 seat. The settlor has indicated a principal place of administration 35 by its selection of a trustee or otherwise, and it is reasonable to 36 subject rights under the trust to the jurisdiction of the Court where 37 the trust is properly administered. 38 The jurisdiction conferred over the trustee and beneficiaries by 39 this section does not preclude jurisdiction by courts elsewhere on 40 some other basis. Furthermore, the fact that the courts in a new 41 State acquire jurisdiction under this section following a change in a 42 trust’s principal place of administration does not necessarily mean 43 that the courts of the former principal place of administration lose[1243] 490 1 jurisdiction, particularly as to matters involving events occurring 2 prior to the transfer. 3 The jurisdiction conferred by this section is limited. Pursuant to 4 subsection (b), until a distribution is made, jurisdiction over a 5 beneficiary is limited to the beneficiary’s interests in the trust. 6 Personal jurisdiction over a beneficiary is conferred only upon the 7 making of a distribution. Subsection (b) also gives the court 8 jurisdiction over other recipients of distributions. This would 9 include individuals who receive distributions in the mistaken belief 10 they are beneficiaries. 11 For a discussion of jurisdictional issues concerning trusts, see 12 5A Austin W. Scott & William F. Fratcher, The Law of Trusts 13 Sections 556573 (4th ed. 1989). 14 15 Section 627203. RESERVED. 16 17 Section 627204. (a) Except as otherwise provided in 18 subsection (b), venue for a judicial proceeding involving a trust is 19 in the county of this State in which the trust’s principal place of 20 administration is or will be located and, if the trust is created by 21 will and the estate is not yet closed, in the county in which the 22 decedent’s estate is being administered. 23 (b) If a trust has no trustee, venue for a judicial proceeding for 24 the appointment of a trustee is in a county in which any trust 25 property is located or the county where the last trustee had its 26 principal place of administration, and if the trust is created by will, 27 in the county in which the decedent’s estate was or is being 28 administered. 29 (c) If proceedings concerning the same trust could be 30 maintained in more than one place in South Carolina, the court in 31 which the proceeding is first commenced has the exclusive right to 32 proceed. 33 (d) If proceedings concerning the same trust are commenced in 34 more than one court of South Carolina, the court in which the 35 proceeding was first commenced shall continue to hear the matter, 36 and the other courts shall hold the matter in abeyance until the 37 question of venue is decided, and, if the ruling court determines 38 that venue is properly in another court, it shall transfer the 39 proceeding to the other court. 40 (e) If a court finds that, in the interest of justice, a proceeding 41 or file concerning a trust should be in another court in South 42 Carolina, the court making the finding may transfer the proceeding 43 or file to the other court. [1243] 491 1 2 REPORTER’S COMMENT 3 South Carolina Trust Code subsections 627204 (a) and (b) are 4 taken from former South Carolina Probate Code Section 627202 5 and incorporate provisions of UTC Section 204. 6 SCTC subsections (c), (d), and (e) are taken from former South 7 Carolina Probate Code Section 621303 and do not incorporate 8 UTC provisions. 9 A trust’s “principal place of administration” is addressed in 10 SCTC Section 627108. 11 SCTC Section 627204 differs significantly from UTC Section 12 204. 13 14 Part 3 15 16 Representation 17 18 GENERAL COMMENT 19 This article deals with representation of beneficiaries, both 20 representation by fiduciaries (personal representatives, trustees, 21 guardians, and conservators), and what is known as virtual 22 representation. 23 There is significant overlap between Part 3 of the South 24 Carolina Trust Code covering judicial proceedings and South 25 Carolina Probate Code provisions concerning representation of 26 others. To promote consistency and familiarity with existing 27 South Carolina law and practice, the relevant South Carolina 28 Probate Code language has been maintained whenever possible 29 under this part of the South Carolina Trust Code. 30 Section 627301 is the introductory section, laying out the scope 31 of the article. The representation principles of this article have 32 numerous applications under this Code. The representation 33 principles of the article apply for purposes of settlement of 34 disputes, whether by a court or nonjudicially. They apply for the 35 giving of required notices. They apply for the giving of consents 36 to certain actions. 37 Sections 627302 through 305 cover the different types of 38 representation. Section 627302 deals with representation by the 39 holder of a general testamentary power of appointment. Section 40 627303 deals with representation by a fiduciary, whether of an 41 estate, trust, conservatorship, or guardianship. The section also 42 allows a parent without a conflict of interest to represent and bind 43 a minor or unborn issue. Section 627304 is the virtual[1243] 492 1 representation provision. It provides for representation of and the 2 giving of a binding consent by another person having a 3 substantially identical interest with respect to the particular issue. 4 Section 627305 authorizes the court to appoint a representative to 5 represent the interests of unrepresented persons or persons for 6 whom the court concludes the other available representation might 7 be inadequate. 8 The provisions of this article are subject to modification in the 9 terms of the trust. Settlors are free to specify their own methods 10 for providing substituted notice and obtaining substituted consent. 11 12 Section 627301. (a) For purposes of this part, ‘beneficiary 13 representative’ refers to a person who may represent and bind 14 another person concerning the affairs of trusts. 15 (b) Notice to a beneficiary representative has the same effect as 16 if notice were given directly to the represented person. Notice of a 17 hearing on any petition in a judicial proceeding must be given 18 pursuant to Section 627109(d). 19 (c) The consent of a beneficiary representative is binding on 20 the person represented unless the person represented objects to the 21 representation before the consent would otherwise have become 22 effective. 23 (d) Except as otherwise provided in Sections 627411 and 24 627602, a person who under this part may represent a settlor who 25 lacks capacity may receive notice and give a binding consent on 26 the settlor’s behalf. 27 (e) In judicial proceedings, orders binding a beneficiary 28 representative under this part bind the person(s) represented by 29 that beneficiary representative. 30 31 REPORTER’S COMMENT 32 This section applies to both judicial and nonjudicial matters 33 involving trusts. Nonjudicial matters may include, for example, 34 the transfer of a trust’s principal place of business, a proposed trust 35 combination or division, a trustee’s resignation, appointment of a 36 successor trustee by consent, a trustee’s resignation, and the 37 consent to, release of, or affirmance of a trustee’s actions. See 38 SCTC Section 627111. 39 Subsection (a) defines the terms “beneficiary representative” for 40 purposes of this part in an effort to avoid confusion between the 41 SCTC term “representative” and the familiar term “personal 42 representative” under the South Carolina Probate Code.[1243] 493 1 Subsection (b) of South Carolina Trust Code Section 627301 2 confirms that notice of a hearing on a petition in a judicial 3 proceeding must be given in the manner prescribed under SCTC 4 Section 627109(d). However, this section does not expressly 5 address the manner of commencing a judicial proceeding. 6 Subsection (c) deals with the effect of a consent, whether by 7 actual or virtual representation. Subsection (c) may be used to 8 facilitate consent of the beneficiaries to modification or 9 termination of a trust, with or without the consent of the settlor 10 (Section 627411), agreement of the qualified beneficiaries on 11 appointment of a successor trustee of a noncharitable trust (Section 12 627704(c)(2)), and a beneficiary’s consent to or release or 13 affirmance of the actions of a trustee (Section 6271009). A 14 consent by a beneficiary representative bars a later objection by the 15 person represented, but a consent is not binding if the person 16 represented raises an objection prior to the date the consent would 17 otherwise become effective. The possibility that a beneficiary 18 might object to a consent given on the beneficiary’s behalf will not 19 be germane in many cases because the person represented will be 20 unborn or unascertained. However, the representation principles 21 of this article will sometimes apply to adult and competent 22 beneficiaries. 23 Subsection (d) addressing a person who may represent an 24 incapacitated settlor specifically references the possibility of 25 additional requirements imposed under Section 627411 regarding 26 modification or termination of noncharitable irrevocable trusts by 27 consent and Section 627602 addressing revocation or amendment 28 of revocable trusts. 29 Subsection (e) confirms that orders in a judicial proceeding 30 binding a beneficiary representative bind the person(s) represented 31 by that beneficiary representative. 32 33 Section 627302. To the extent there is no conflict of interest 34 between the holder of a presently exercisable general power of 35 appointment and the persons represented with respect to the 36 particular question or dispute, the holder may represent and bind 37 persons whose interests, as permissible appointees, takers in 38 default, or otherwise, are subject to the power. The term ‘ 39 presently exercisable general power of appointment’ includes a 40 testamentary general power of appointment having no conditions 41 precedent to its exercise other than the death of the holder, the 42 validity of the holder’s last Will and Testament, and the inclusion 43 of a provision in the Will sufficient to exercise this power. [1243] 494 1 2 REPORTER’S COMMENT 3 This section tracks the language of current South Carolina 4 Probate Code Section 621108 which defines the term “presently 5 exercisable general power of appointment.” This section does not 6 extend the substitute representation under this section to limited or 7 nongeneral powers of appointment (which are also not covered 8 under South Carolina Probate Code Section 621108). 9 It specifies the circumstances under which a holder of a general 10 testamentary power of appointment may receive notices on behalf 11 of and otherwise represent and bind persons whose interests are 12 subject to the power, whether as permissible appointees, takers in 13 default, or otherwise. Such representation is allowed except to the 14 extent there is a conflict of interest with respect to the particular 15 matter or dispute. Typically, the holder of a general testamentary 16 power of appointment is also a life income beneficiary of the trust, 17 oftentimes of a trust intended to qualify for the federal estate tax 18 marital deduction. See I.R.C. Section 2056(b)(5). Without the 19 exception for conflict of interest, the holder of the power could act 20 in a way that could enhance the holder’s income interests to the 21 detriment of the appointees or takers in default, whomever they 22 may be. 23 24 Section 627303. (a) To the extent there is no conflict of 25 interest between the following beneficiary representatives and the 26 person represented or among those being represented with respect 27 to a particular question or dispute: 28 (1) a conservator may represent and bind the estate that the 29 conservator controls to the extent of the powers and authority 30 conferred upon conservators generally or by court order; 31 (2) a guardian may represent and bind the ward if a 32 conservator of the ward’s estate has not been appointed to the 33 extent of the powers and authority conferred upon guardians 34 generally or by court order; 35 (3) an agent may represent and bind the principal to the 36 extent the agent has authority to act with respect to the particular 37 question or dispute; 38 (4) a trustee may represent and bind the beneficiaries of the 39 trust with respect to questions or disputes involving the trust; 40 (5) a personal representative of a decedent’s estate may 41 represent and bind persons interested in the estate with respect to 42 questions or disputes involving the decedent’s estate; and, [1243] 495 1 (6) a person may represent and bind the person’s minor or 2 unborn issue if a conservator or guardian for the issue has not been 3 appointed. 4 (b) The order in which the beneficiary representatives are listed 5 above sets forth the priority each such beneficiary representative 6 has relative to the others. In any judicial proceeding or upon 7 petition to the court, the court for good cause may appoint a 8 beneficiary representative having lower priority or a person having 9 no priority. 10 11 REPORTER’S COMMENT 12 This section allows for representation of persons by their 13 fiduciaries (conservators, guardians, agents, trustees, and personal 14 representatives). Representation is not available if the fiduciary or 15 parent is in a conflict position with respect to the particular matter 16 or dispute, however. A typical conflict would be where the 17 fiduciary or parent seeking to represent the beneficiary is either the 18 trustee or holds an adverse beneficial interest. 19 South Carolina Probate Code Section 621403 is the counterpart 20 to South Carolina Trust Code Section 627303. The SCTC, 21 however, adds representation by an agent on behalf of the principal 22 under Subsection (a)(3). 23 The authority of a conservator or guardian under this section is 24 subject to the authority conferred upon conservators and guardians 25 generally under provisions of the South Carolina Probate Code or 26 by court order, it not being the intent herein to enlarge a 27 conservator’s or guardian’s powers otherwise. 28 Subsection (a)(2) authorizes a guardian to bind and represent a 29 ward if a conservator of the ward’s estate has not been appointed. 30 Granting a guardian authority to represent the ward with respect to 31 interests in the trust can avoid the need to seek appointment of a 32 conservator. Under the South Carolina Trust Code, a 33 “conservator” is appointed by the court to manage the ward’s 34 property, a “guardian” to make decisions with respect to the 35 ward’s personal affairs. See Section 627103. 36 Subsection (a)(3) authorizes an agent to represent a principal 37 only to the extent the agent has authority to act with respect to the 38 particular question or dispute. Pursuant to Sections 627411 and 39 627602, an agent may represent a settlor with respect to the 40 amendment, revocation or termination of the trust only to the 41 extent this authority is expressly granted either in the trust or the 42 power. Otherwise, depending on the particular question or dispute,[1243] 496 1 a general grant of authority in the power may be sufficient to 2 confer the necessary authority. 3 Subsection (b) prioritizes the right to act as substitute 4 representative where more than one such representation may apply. 5 6 Section 627304. Unless otherwise represented, a minor, 7 incapacitated, or unborn individual, or a person whose identity or 8 location is unknown and not reasonably ascertainable, may be 9 represented by and bound by another having a substantially 10 identical interest with respect to the particular question or dispute, 11 but only to the extent there is no conflict of interest between the 12 beneficiary representative and the person represented and provided 13 the interest of the person represented is adequately represented by 14 the beneficiary representative. 15 16 REPORTER’S COMMENT 17 This section authorizes a person with a substantially identically 18 interest with respect to a particular question or dispute to represent 19 and bind an otherwise unrepresented minor, incapacitated or 20 unborn individual, or person whose location is unknown and not 21 reasonably ascertainable. This section extends the doctrine of 22 virtual representation to representation of minors and incapacitated 23 individuals. This section does not apply to the extent there is a 24 conflict of interest between the beneficiary representative and the 25 person represented by the beneficiary representative, consistent 26 with current South Carolina Probate Code Section 621403(2)(iii). 27 Typically, the interests of the beneficiary representative and the 28 person represented will be identical. A common example would 29 be a trust providing for distribution to the settlor’s children as a 30 class, with an adult child being able to represent the interests of 31 children who are either minors or unborn. Exact identity of 32 interests is not required, only substantial identity with respect to 33 the particular question or dispute. Whether such identity is present 34 may depend on the nature of the interest. For example, a 35 presumptive remaindermen may be able to represent alternative 36 remaindermen with respect to approval of a trustee’s report but not 37 with respect to interpretation of the remainder provision or 38 termination of the trust. Even if the beneficial interests of the 39 beneficiary representative and person represented are identical, 40 representation is not allowed in the event of conflict of interest. 41 The beneficiary representative may have interests outside of the 42 trust that are adverse to the interest of the person represented, such 43 as a prior relationship with the trustee or other beneficiaries. [1243] 497 1 South Carolina Probate Code Section 621403(2)(iii) is the 2 current counterpart to this Section 627304. However, the South 3 Carolina Trust Code adds an incapacitated person to the list of 4 those who may be represented by another person under this 5 section. 6 7 Section 627305. At any point in a judicial proceeding, a court 8 may appoint a guardian ad litem to represent the interest of a 9 minor, an incapacitated, unborn, or unascertained person, or a 10 person whose identity or address is unknown, if the court 11 determines that representation of the interest otherwise would be 12 inadequate. If not precluded by conflict of interests, a guardian ad 13 litem may be appointed to represent several persons or interests. 14 The court shall set out its reasons for appointing a guardian ad 15 litem as a part of the record of the proceeding. 16 17 REPORTER’S COMMENT 18 Whereas the Uniform Trust Code encourages nonjudicial 19 settlements and authorizes court appointment of a representative to 20 act like a guardian ad litem but without ongoing court 21 involvement, South Carolina expressly limits the scope of 22 nonjudicial settlements to those matters specified in Section 23 627111 and follows current practice for the appointment of 24 guardians ad litem and ongoing court involvement pursuant to 25 South Carolina Probate Code Section 621403(4). 26 27 Part 4 28 29 Creation, Validity, Modification, and Termination of Trusts 30 31 Section 627401. (a) A trust described in Section 627102 may 32 be created by: 33 (1) transfer of property to another person as trustee during 34 the settlor’s lifetime or by will or other disposition taking effect 35 upon the settlor’s death; 36 (2) written declaration signed by the owner of property that 37 the owner holds identifiable property as trustee; or 38 (3) exercise of a power of appointment in favor of a trustee. 39 (b) When any conveyance shall be made of any lands or 40 tenements by which a trust or confidence shall or may arise or 41 result by the implication or construction of law or be transferred or 42 extinguished by act or operation of law, such trust or confidence[1243] 498 1 shall be of like force and effect as it would have been without 2 Section 627401(a). 3 (c) A revocable inter vivos trust may be created either by 4 declaration of trust or by a transfer of property and is not rendered 5 invalid because the settler retains substantial control over the trust 6 including, but not limited to, (i) a right of revocation, (ii) 7 substantial beneficial interests in the trust, or (iii) the power to 8 control investments or reinvestments. This subsection does not 9 prevent a finding that a revocable inter vivos trust, enforceable for 10 other purposes, is illusory for purposes of determining a spouse’s 11 elective share rights pursuant to Article 2, Title 62. A finding that 12 a revocable inter vivos trust is illusory and thus invalid for 13 purposes of determining a spouse’s elective share rights pursuant 14 to Article 2, Title 62 does not render that revocable inter vivos 15 trust invalid, but allows inclusion of the trust assets as part of the 16 probate estate of the settlor only for the purpose of calculating the 17 elective share. In that event, the trust property that passes or has 18 passed to the surviving spouse, including a beneficial interest of 19 the surviving spouse in that trust property, must be applied first to 20 satisfy the elective share and to reduce contributions due from 21 other recipient of transfers including the probate estate, and the 22 trust assets are available for satisfaction of the elective share only 23 to any remaining extent necessary pursuant to Section 622207. 24 25 REPORTER’S COMMENT 26 This section is based on Restatement (Third) of Trusts Section 27 10 (Tentative Draft No. 1, approved 1996), and Restatement 28 (Second) of Trusts Section 17 (1959). Under the methods 29 specified for creating a trust in this section, a trust is not created 30 until it receives property. For what constitutes an adequate 31 property interest, see Restatement (Third) of Trusts Sections 4041 32 (Tentative Draft No. 2, approved 1999); Restatement (Second) of 33 Trusts Sections 7486 (1959). The property interest necessary to 34 fund and create a trust need not be substantial. A revocable 35 designation of the trustee as beneficiary of a life insurance policy 36 or employee benefit plan has long been understood to be a 37 property interest sufficient to create a trust. See Section 38 627103(11) (“property” defined). Furthermore, the property 39 interest need not be transferred contemporaneously with the 40 signing of the trust instrument. A trust instrument signed during 41 the settlor’s lifetime is not rendered invalid simply because the 42 trust was not created until property was transferred to the trustee at 43 a much later date, including by contract after the settlor’s death. A[1243] 499 1 pourover devise to a previously unfunded trust is also valid and 2 may constitute the property interest creating the trust. See Unif 3 Testamentary Additions to Trusts Act Section 1 (1991), codified at 4 Uniform Probate Code Section 2511 and SCPC Section 622510 5 (pourover devise to trust valid regardless of existence, size, or 6 character of trust corpus). See also Restatement (Third) of Trusts 7 Section 19 (Tentative Draft No. 1, approved 1996). 8 Section 627401(a) provides different methods to create a trust, 9 creating a distinction between thirdpartytrusteed trusts in 10 subsection (a)(1) and selftrusteed trusts in subsection (a)(2). 11 Subsection (a)(1) provides that, if a third party is to serve as 12 trustee, transfer of property to that other person, whether during 13 life or at death, is sufficient to create a trust; no writing is required. 14 Subsection (a)(2) requires that, if the settlor is also to be the 15 trustee, then some written declaration signed by the settlor is 16 required to create the trust. Such a declaration need not be a trust 17 agreement, but can be some written evidence signed by the settlor 18 sufficient to establish that the settlor intended to hold the property 19 in trust. 20 While this section refers to transfer of property to a trustee, a 21 trust can be created even though for a period of time no trustee is 22 in office. See Restatement (Third) of Trusts Section 2 cmt. g 23 (Tentative Draft No. 1, approved 1996); Restatement (Second) of 24 Trusts Section 2 cmt. i (1959). A trust can also be created without 25 notice to or acceptance by a trustee or beneficiary. See 26 Restatement (Third) of Trusts Section 14 (Tentative Draft No. 1, 27 approved 1996); Restatement (Second) of Trusts Sections 3536 28 (1959). 29 The methods set out in Section 627401 are not the exclusive 30 methods to create a trust as recognized by Section 627102. 31 A trust can also be created by a promise that creates enforceable 32 rights in a person who immediately or later holds these rights as 33 trustee. See Restatement (Third) of Trusts Section 10(e) 34 (Tentative Draft No. 1, approved 1996). A trust thus created is 35 valid notwithstanding that the trustee may resign or die before the 36 promise is fulfilled. Unless expressly made personal, the promise 37 can be enforced by a successor trustee. For examples of trusts 38 created by means of promises enforceable by the trustee, see 39 Restatement (Third) of Trusts Section 10 cmt. g (Tentative Draft 40 No. 1, approved 1996); Restatement (Second) of Trusts Sections 41 14 cmt. h, 26 cmt. n (1959). 42 PreSCTC South Carolina law made a distinction between trusts 43 for personal property and trusts in land. Trusts in personal[1243] 500 1 property could be proved, as well as created, by parol declarations. 2 See Harris v. Bratton, 34 S.C. 259. 13 S.E. 447 (1891). On the 3 other hand, a valid trust of any “land, tenements, or hereditaments” 4 had to be proved by a writing signed by the party creating the trust. 5 See former South Carolina Probate Code Section 627101, which 6 did not require that the trust be created by a writing, but merely 7 that it be established by a writing. An exception to the 8 requirement of a writing to establish a trust in land was found in 9 former SCPC Section 627103 for trusts arising by implication of 10 law, such as resulting and constructive trusts. Because the SCTC 11 applies only to express trusts and not to trusts implied in law 12 (Section 627102), former SCPC section 627103 has been 13 incorporated as SCTC Section 627401(b). 14 Former SCPC Section 627112 has been retained as SCTC 15 Section 627401(c). Former SCPC Section 627112 was enacted 16 after the Siefert decision, Seifert v. Southern Nat’l Bank of South 17 Carolina, 305 S.C. 353, 409 S.E. 2d 337 (1991), to clarify that the 18 settlor’s retention of substantial control over a trust, such as a right 19 to revoke, does not render that trust invalid. 20 While a trust created by will may come into existence 21 immediately at the testator’s death and not necessarily only upon 22 the later transfer of title from the personal representative, Section 23 627701 makes clear that the nominated trustee does not have a 24 duty to act until there is an acceptance of the trusteeship, express 25 or implied. To avoid an implied acceptance, a nominated 26 testamentary trustee who is monitoring the actions of the personal 27 representative but who has not yet made a final decision on 28 acceptance should inform the beneficiaries that the nominated 29 trustee has assumed only a limited role. The failure so to inform 30 the beneficiaries could result in liability if misleading conduct by 31 the nominated trustee causes harm to the trust beneficiaries. See 32 Restatement (Third) of Trusts Section 35 cmt. b (Tentative Draft 33 No 2, approved 1999). 34 While this section confirms the familiar principle that a trust 35 may be created by means of the exercise of a power of 36 appointment (paragraph ((a)(3)), this Code does not legislate 37 comprehensively on the subject of powers of appointment but 38 addresses only selected issues. See Section 627302 (representation 39 by holder of general testamentary power of appointment). For the 40 law on powers of appointment generally, see Restatement 41 (Second) of Property: Donative Transfers Sections 11.124.4 42 (1986); Restatement (Third) of Property: Wills and Other Donative 43 Transfers (in progress).[1243] 501 1 2 Section 627402. (a) A trust is created only if: 3 (1) the settlor has capacity to create a trust; 4 (2) the settlor indicates an intention to create the trust; 5 (3) the trust has a definite beneficiary or is: 6 (A) a charitable trust; 7 (B) a trust for the care of an animal, as provided in Section 8 627408; or 9 (C) a trust for a noncharitable purpose, as provided in 10 Section 627409; 11 (4) the trustee has duties to perform; and 12 (5) the same person is not the sole trustee and sole current 13 and future beneficiary. 14 (b) If the trust agreement is in writing, the trust instrument may 15 be signed by the settler or in the settlor’s name by some other 16 person in the settlor’s presence and by the settlor’s direction. 17 (c) A beneficiary is definite if the beneficiary can be 18 ascertained now or in the future, subject to any applicable rule 19 against perpetuities. 20 (c)(d) A power in a trustee to select a beneficiary from an 21 indefinite class is valid. If the power is not exercised within a 22 reasonable time, the power fails and the property subject to the 23 power passes to the persons who would have taken the property 24 had the power not been conferred. 25 (d)(e) For purposes of Section 627402(a)(5), if a person holds 26 legal title to property in a fiduciary capacity and also has an 27 equitable or beneficial title in the same property, either by transfer, 28 by declaration, or by operation of law, no merger of the legal and 29 equitable titles shall occur unless: 30 (1) the fiduciary is the sole fiduciary and is also the sole 31 current and future beneficiary; and 32 (2) the legal title and the equitable title are of the same 33 quality and duration. 34 If either one of these conditions is not met, no merger may occur 35 and the fiduciary relationship does not terminate. 36 37 REPORTER’S COMMENT 38 Subsection (a) codifies the basic requirements for the creation of 39 a trust. To create a valid trust, the settlor must indicate an 40 intention to create a trust. See Restatement (Third) of Trusts 41 Section 13 (Tentative Draft No. 1, approved 1996); Restatement 42 (Second) of Trusts Section 23 (1959). But only such 43 manifestations of intent as are admissible as proof in a judicial[1243] 502 1 proceeding may be considered. See Section 627103(17) (“terms of 2 a trust” defined). 3 To create a trust, a settlor must have the requisite mental 4 capacity. To create a revocable or testamentary trust, the settlor 5 must have the capacity to make a will. To create an irrevocable 6 trust, the settlor must have capacity during lifetime to transfer the 7 property free of trust. See Section 627601 (capacity of settlor to 8 create revocable trust), and see generally Restatement (Third) of 9 Trusts Section 11 (Tentative Draft No. 1, approved 1996); 10 Restatement (Second) of Trusts Sections 1822 (1959); and 11 Restatement (Third) of Property: Wills and Other Donative 12 Transfers Section 8.1 (Tentative Draft No. 3, 2001). 13 Subsection (a)(3) requires that a trust, other than a charitable 14 trust, a trust for the care of an animal, or a trust for another valid 15 noncharitable purpose, have a definite beneficiary. While some 16 beneficiaries will be definitely ascertained as of the trust’s 17 creation, subsection (c) recognizes that others may be ascertained 18 in the future as long as this occurs within the applicable 19 perpetuities period. The definite beneficiary requirement does not 20 prevent a settlor from making a disposition in favor of a class of 21 persons. Class designations are valid as long as the membership of 22 the class will be finally determined within the applicable 23 perpetuities period. For background on the definite beneficiary 24 requirement, see Restatement (Third) of Trusts Sections 4446 25 (Tentative Draft No. 2, approved 1999); Restatement (Second) of 26 Trusts Sections 112122 (1959). 27 Subsection (a)(4) recites standard doctrine that a trust is created 28 only if the trustee has duties to perform. See Restatement (Third) 29 of Trusts Section 2 (Tentative Draft No. 1, approved 1996); 30 Restatement (Second) of Trusts Section 2 (1959). Trustee duties 31 are usually active, but a validating duty may also be passive, 32 implying only that the trustee has an obligation not to interfere 33 with the beneficiaries’ enjoyment of the trust property. Such 34 passive trusts, while valid under this Code, may be terminable 35 under the Statute of Uses. See Restatement (Third) of Trusts 36 Section 6 (Tentative Draft No. 1, approved 1996); Restatement 37 (Second) of Trusts Sections 6772 (1959). 38 Subsection (a)(5) addresses the doctrine of merger, which, as 39 traditionally stated, provides that a trust is not created if the settlor 40 is the sole trustee and sole beneficiary of all beneficial interests. 41 The SCTC modifies the UTC by adding the phrase “current and 42 future” to UTC subsection (a)(5). The doctrine of merger has been 43 inappropriately applied by the courts in some jurisdictions to[1243] 503 1 invalidate selfdeclarations of trust in which the settlor is the sole 2 life beneficiary but other persons are designated as beneficiaries of 3 the remainder. The doctrine of merger is properly applicable only 4 if all beneficial interests, both life interests and remainders, are 5 vested in the same person, whether in the settlor or someone else. 6 An example of a trust to which the doctrine of merger would apply 7 is a trust of which the settlor is sole trustee, sole beneficiary for 8 life, and with the remainder payable to the settlor’s probate estate. 9 On the doctrine of merger generally, see Restatement (Third) of 10 Trusts Section 69 (Tentative Draft No. 3, 2001); Restatement 11 (Second) of Trusts Section 341 (1959). 12 Subsection (d) allows a settlor to empower the trustee to select 13 the beneficiaries even if the class from whom the selection may be 14 made cannot be ascertained. Such a provision would fail under 15 traditional doctrine; it is an imperative power with no designated 16 beneficiary capable of enforcement. Such a provision is valid, 17 however, under both this Code and the Restatement, if there is at 18 least one person who can meet the description. If the trustee does 19 not exercise the power within a reasonable time, the power fails 20 and the property will pass by resulting trust. See Restatement 21 (Third) of Trusts Section 46 (Tentative Draft No. 2, approved 22 1999). See also Restatement (Second) of Trusts Section 122 23 (1959); Restatement (Second) of Property: Donative Transfers 24 Section 12.1 cmt. a (1986). 25 No similar statutory provisions existed under South Carolina 26 law prior to the enactment of the SCTC, except that former SCPC 27 Section 627603(A)(3) specified the requirements for merger of 28 equitable and legal title. Former Section 627603(A)(3) has been 29 retained as subsection (e). 30 South Carolina case law provides that, for a trust to exist, certain 31 elements must be present, including a declaration creating the 32 trust, a trust res, and designated beneficiaries. See Whetstone v. 33 Whetstone, 309 S.C. 227, 23132, 420 S.E.2d 877, 879 (Ct. App. 34 1992). The declaration of trust has to be in writing when the trust 35 property includes realty. See Id. If the declaration of trust is in 36 writing, the SCTC allows the grantor to sign the trust agreement, 37 but also allows, under Section 627402 (b), the grantor to direct a 38 third party to sign on the grantor’s behalf and in the grantor’s 39 presence. 40 The Supreme Court has found that, with respect to the spousal 41 elective share, a revocable inter vivos trust that conferred only 42 custodial powers on the trustee, and that expressly barred the 43 trustee from exercising any powers of sale, investment, or[1243] 504 1 reinvestment during the settlor’s lifetime without the settlor’s 2 consent, was illusory and invalid. See Seifert v. Southern Nat. 3 Bank of South Carolina, 409 S.E.2d 337, 305 S.C. 353 (1991). 4 Former SCPC Section 627112 was subsequently enacted and is 5 retained at SCTC Section 627401(c). 6 7 Section 627403. A trust not created by will is validly created if 8 its creation complies with the law of the jurisdiction in which the 9 trust instrument was executed, or the law of the jurisdiction in 10 which, at the time of creation: 11 (1) the settlor was domiciled, had a place of abode, or was a 12 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 by 18 the law of the decedent’s domicile. No such certainty exists with 19 respect to determining the law governing the validity of inter vivos 20 trusts. Generally, at common law a trust was created if it complied 21 with the law of the state having the most significant contacts to the 22 trust. Contacts for making this determination include the domicile 23 of the trustee, the domicile of the settlor at the time of trust 24 creation, the location of the trust property, the place where the trust 25 instrument was executed, and the domicile of the beneficiary. See 26 5A Austin Wakeman Scott & William Franklin Fratcher, The Law 27 of Trusts Sections 597, 599 (4th ed. 1987). Furthermore, if the 28 trust has contacts with two or more states, one of which would 29 validate the trust’s creation and the other of which would deny the 30 trust’s validity, the tendency is to select the law upholding the 31 validity of the trust. See 5A Austin Wakeman Scott &.William 32 Franklin Fratcher, The Law of Trusts 600 (4th ed. 1987). 33 Former South Carolina Probate Code Section 627106 34 recognized religious, educational, or charitable trusts validly 35 created in the Settlor’s state of domicile where a beneficiary or 36 object of the trust resided or was located in South Carolina. The 37 remainder of this SCTC section appears to have no prior South 38 Carolina statutory equivalent. 39 Section 627403 is comparable to South Carolina Probate Code 40 Section 622505 recognizing the validity of wills executed in 41 compliance with the law of a variety of places where the testator 42 had a significant contact, but expands the possible jurisdictions 43 beyond those allowed for a valid will.[1243] 505 1 Section 627403 extends the common law rule by validating a 2 trust if its creation complies with the law of any of a variety of 3 states in which the settlor or trustee had significant contacts. 4 Pursuant to Section 627403, a trust not created by will is validly 5 created if its creation complies with the law of the jurisdiction in 6 which the trust instrument was executed, or the law of the 7 jurisdiction in which, at the time of creation the settlor was 8 domiciled, had a place of abode, or was a national; the trustee was 9 domiciled or had a place of business; or any trust property was 10 located. 11 The section does not supersede local law requirements for the 12 transfer of real property, such that title can be transferred only by 13 recorded deed. 14 15 Section 627404. A trust may be created only to the extent its 16 purposes are lawful and possible to achieve. A trust and its terms 17 must be for the benefit of its beneficiaries. 18 19 REPORTER’S COMMENT 20 For an explication of the requirement that a trust must not have a 21 purpose that is unlawful, see Restatement (Third) of Trusts 22 Sections 2730 (Tentative Draft No. 2, approved 1999); 23 Restatement (Second) of Trusts Sections 5965 (1959). A trust 24 with a purpose that is unlawful is invalid. Depending on when the 25 violation occurred, the trust may be invalid at its inception or it 26 may become invalid at a later date. The invalidity may also affect 27 only particular provisions. Generally, a trust has a purpose, which 28 is illegal if (1) its performance involves the commission of a 29 criminal or tortious act by the trustee; (2) the settlor’s purpose in 30 creating the trust was to defraud creditors or others; or (3) the 31 consideration for the creation of the trust was illegal. See 32 Restatement (Third) of Trusts Section 28 cmt. a (Tentative Draft 33 No. 2, approved 1999); Restatement (Second) of Trusts Section 60 34 cmt. a (1959). South Carolina Trust Code Section 627404 does 35 not include the words “not contrary to public policy,” found in 36 SCTC Section 404, recognizing that existing South Carolina law 37 would invalidate trusts that are contrary to public policy. The 38 failure to include these words from the uniform act is not intended 39 to change the existing common law. See Restatement (Third) of 40 Trusts Section 29 cmt. dh (Tentative Draft No. 2, 1999); 41 Restatement (Second) of Trusts Section 62 (1959). 42 Pursuant to Section 627402(a), a trust must have an identifiable 43 beneficiary unless the trust is of a type that does not have[1243] 506 1 beneficiaries in the usual sense, such as a charitable trust or, as 2 provided in Sections 627408 and 627409, trusts for the care of an 3 animal or other valid noncharitable purpose. The general purpose 4 of trusts having identifiable beneficiaries is to benefit those 5 beneficiaries in accordance with their interests as defined in the 6 trust’s terms. The requirement of this section that a trust and its 7 terms be for the benefit of its beneficiaries, which is derived from 8 Restatement (Third) of Trusts Section 27(2) (Tentative Draft No. 9 2, approved 1999), implements this general purpose. While a 10 settlor has considerable latitude in specifying how a particular trust 11 purpose is to be pursued, the administrative and other 12 nondispositive trust terms must reasonably relate to this purpose 13 and not divert the trust property to achieve a trust purpose that is 14 invalid, such as one which is frivolous or capricious. 15 See Restatement (Third) of Trusts Section 27 cmt. b (Tentative 16 Draft No. 2, approved 1999). 17 Section 627412(b), which allows the court to modify 18 administrative terms that are impracticable, wasteful, or impair the 19 trust’s administration, is a specific application of the requirement 20 that a trust and its terms be for the benefit of the beneficiaries. The 21 fact that a settlor suggests or directs an unlawful or other 22 inappropriate means for performing a trust does not invalidate the 23 trust if the trust has a substantial purpose that can be achieved by 24 other methods. See Restatement (Third) of Trusts Section 28 cmt. 25 e (Tentative Draft No. 2, approved 1999). 26 There was no South Carolina statutory provision that correlated 27 with SCTC Section 627404. South Carolina case law has been 28 consistent with Section 627404 in refusing to impose an express 29 trust, resulting trust, or constructive trust on property in favor of a 30 transferor attempting to impose a trust on property he transferred 31 to the transferee, when the facts indicate no written agreement 32 between them existed, the transferor had a fraudulent purpose for 33 the transfers, and the transferee committed no fraud or deceit. See 34 Settlemeyer v. McCluney, 359 S.C. 317, 596 S.E.2d 514 (S.C. Ct. 35 App. 2004); All v. Prillaman, 200 S.C. 279, 20 S.E.2d 741 (S.C. 36 1942). “The law will not permit a party to deliberately put his 37 property out of his control for a fraudulent purpose, and then, 38 through intervention of a court of equity, regain the same after his 39 fraudulent purpose has been accomplished” All v. Prillaman, 200 40 S.C. 279, 308, 20 S.E.2d 741, 753, quoting Jolly v. Graham, 78 41 N.E. 919, 920 (Ill. 1906). See also Colin McK. Grant Home V. 42 Medlock, 292 S.C. 466, 349 S.E.2d 655 (Ct. App. 1987), involving 43 a charitable trust, in which the equitable doctrine of equitable[1243] 507 1 deviation was used to eliminate the racial restrictions from a 2 charitable trust’s requirements. See also Buck v. Toler, 146 S.C. 3 294, 141 S.E. 1 (1928), in which a testamentary trust that violated 4 the rule against perpetuities and that was determined to have been 5 created by the testatrix merely to tie up the property was found to 6 be void. 7 8 Section 627405. (a) A charitable trust may be created for the 9 relief of distress or poverty, the advancement of education or 10 religion, the promotion of health, scientific, literary, benevolent, 11 governmental or municipal purposes, or other purposes, the 12 achievement of which purposes is beneficial to the community. 13 (b) If the terms of a charitable trust do not indicate a particular 14 charitable purpose or beneficiary, the court may select one or more 15 charitable purposes or beneficiaries. The selection must be 16 consistent with the settlor’s intention to the extent it can be 17 ascertained. 18 (c) The settlor of a charitable trust, the trustee, and the 19 Attorney General, among others may maintain a proceeding to 20 enforce the trust. 21 (d) Unless otherwise required by statute or by rule or 22 regulation of the Attorney General, the trustees of charitable trusts 23 shall not be required to file with the Attorney General any copies 24 of trusts instruments or reports concerning the activities of 25 charitable trusts. 26 (e) The Attorney General may make such rules and regulations 27 relating to the information to be contained with the filing of a trust 28 as may be required. 29 (f) All trustees of any trust governed by the laws of this State 30 whose governing instrument does not expressly provide that this 31 section shall not apply to such trust are required to act or to refrain 32 from acting so as not to subject the trust to the taxes imposed by 33 Sections 4941, 4942, 4943, 4944, or 4945 of the Internal Revenue 34 Code, or corresponding provisions of any subsequent United States 35 internal revenue law. 36 (g) Nothing contained in Sections 3331150 and 3331151 may 37 be construed to cause a forfeiture or reversion of any of the 38 property of a trust which is subject to such Sections, or to make the 39 purposes of the trust impossible of accomplishment. 40 41 REPORTER’S COMMENT 42 The required purposes of a charitable trust specified in 43 subsection (a) restate the wellestablished categories of charitable[1243] 508 1 purposes listed in Restatement (Third) of Trusts Section 28 2 (Tentative Draft No. 3, approved 2001), and Restatement (Second) 3 of Trusts Section 368 (1959), which ultimately derive from the 4 Statute of Charitable Uses, 43 Eliz. I, c.4 (1601). The directive to 5 the courts to validate purposes the achievement of which are 6 beneficial to the community has proved to be remarkably 7 adaptable over the centuries. The drafters concluded that it should 8 not be disturbed. 9 South Carolina Trust Code Section 627405 adds “distress” to the 10 Uniform Trust Code version, to cover disasters or sudden 11 catastrophes in addition to “poverty.” The SCTC also adds 12 “scientific, literary and benevolent” to the UTC version. 13 Practically, the specified charitable purposes will be identical to 14 Internal Revenue Code Section 501 (c)(3). 15 Charitable trusts are subject to the restriction in Section 627404 16 that a trust purpose must be legal. This would include trusts that 17 involve invidious discrimination. See Restatement (Third) of 18 Trusts Section 28 cmt. f (Tentative Draft No. 3, approved 2001). 19 Under subsection (b), a trust that states a general charitable 20 purpose does not fail if the settlor neglected to specify a particular 21 charitable purpose or organization to receive distributions. The 22 court may instead validate the trust by specifying particular 23 charitable purposes or recipients, or delegate to the trustee the 24 framing of an appropriate scheme. See Restatement (Second) of 25 Trusts Section 397 cmt. d (1959). Subsection (b) of this section is 26 a corollary to Section 413, which states the doctrine of cy pres. 27 Under Section 627413(a), a trust with a particular charitable 28 purpose which is impracticable or impossible to achieve does not 29 necessarily fail. The court must instead apply the trust property in 30 a manner consistent with the settlor’s charitable purposes to the 31 extent they can be ascertained. 32 Subsection (b) does not apply to the longestablished estate 33 planning technique of delegating to the trustee the selection of the 34 charitable purposes or recipients. In that case, judicial intervention 35 to supply particular terms is not necessary to validate the creation 36 of the trust. The necessary terms instead will be supplied by the 37 trustee. See Restatement (Second) of Trusts Section 396 (1959). 38 Judicial intervention under subsection (b) will become necessary 39 only if the trustee fails to make a selection. See Restatement 40 (Second) of Trusts Section 397 cmt. d (1959). Pursuant to Section 41 627110(b), the charitable organizations selected by the trustee 42 would not have the rights of qualified beneficiaries under this[1243] 509 1 Code because they are not expressly designated to receive 2 distributions under the terms of the trust. 3 Section 627405(b) must be read in conjunction with SCTC 4 Sections 627404 and 627413. SCTC Section 627413 incorporates 5 the doctrine of equitable deviation from South Carolina common 6 law. See the South Carolina Comment to SCTC Section 627413. 7 SCTC Section 627405(c) adds “the trustee and the Attorney 8 General” to those who may maintain a proceeding to enforce the 9 trust under the UTC version. 10 Former South Carolina Probate Code Sections 627501 through 11 627507, Part 5 of Article 7 of Title 62, covered charitable trusts. 12 These sections are revised and incorporated in SCTC Section 13 627405. 14 SCPC Section 627501 required individual trustees of certain 15 charitable trusts to file a copy of the trust with the Attorney 16 General. Section 627405(d) makes this initial filing applicable to 17 all charitable trusts, subject to certain exceptions. 18 SCPC Section 627502 required that certain charitable trusts file 19 annual reports with the attorney general. 20 SCPC Section 627505 exempted many charitable trusts from the 21 filing requirements of Part Five: 22 “… trusts or trustees of the following: Churches, cemeteries, 23 orphanages operated in conjunction with churches, hospitals, 24 colleges, or universities, or school districts, nor shall it apply to 25 banking institutions which act as trustees under the supervision of 26 the State Board of Financial Institutions or under the supervision 27 of federal banking agencies.” 28 SCPC Sections 627502 and 627505 are repealed. The exemption 29 is anachronistic. SCTC Section 627405(d) requires that every 30 charitable trust make an initial filing at inception with the Attorney 31 General, subject to certain exceptions. 32 SCPC Section 627504 is retained at Section 627405(e), 33 empowering the Attorney General to issue regulations to require 34 further reporting from charitable trusts. 35 SCPC Section 627506 incorporated the prohibited transaction 36 provisions applicable to private foundations and charitable trusts 37 into every trust and is retained in SCTC Section 627405(f). 38 (Existing Section 3331150 applies the restrictions to notforprofit 39 South Carolina corporations.) 40 SCPC Section 627507 made clear that incurring an excise tax 41 for violation of the prohibited transaction provisions will not result 42 in trust termination, and is retained in Section 627405(g).[1243] 510 1 South Carolina expressly rejects the portion of the UTC 2 Comment which makes “public policy” or “invidious 3 discrimination” a basis to find that a trust violates Section 627404. 4 South Carolina common law does not allow enforcement of a 5 trust for an unlawful purpose. South Carolina’s existing case law 6 is sufficient to prohibit discrimination in a charitable trust. 7 Contrary to Restatement (Second) of Trusts Section 391 (1959), 8 subsection (c) grants a settlor standing to maintain an action to 9 enforce a charitable trust. The grant of standing to the settlor does 10 not negate the right of the state attorney general or persons with 11 special interests to enforce either the trust or their interests. For 12 the law on the enforcement of charitable trust, see Susan N. Gary, 13 Regulating the Management of Charities: Trust Law, Corporate 14 Law, and Tax Law, 21 U. Hawaii L. Rev. 593 (1999). 15 16 Section 627406. A trust is voidable to the extent its creation was 17 induced by fraud, duress, or undue influence. 18 19 REPORTER’S COMMENT 20 This section is a specific application of Restatement (Third) of 21 Trusts Section 12 (Tentative Draft No. 1, approved 1996), and 22 Restatement (Second) of Trusts Section 333 (1959), which provide 23 that a trust can be set aside or reformed on the same grounds as 24 those which apply to a transfer of property not in trust, among 25 which include undue influence, duress, and fraud, and mistake. 26 This section addresses undue influence, duress, and fraud. For 27 reformation of a trust on grounds of mistake, see Section 627415. 28 See also Restatement (Third) of Property: Wills and Other 29 Donative Transfers Section 8.3 (Tentative Draft No. 3, approved 30 2001), which closely tracks the language above. Similar to a will, 31 the invalidity of a trust on grounds of undue influence, duress, or 32 fraud may be in whole or in part. 33 The South Carolina version of this section changes the word 34 “void” to “voidable” to eliminate any suggestion that a trust might 35 be void ab initio or that the trustee’s actions might be invalid even 36 though taken in good faith and before any determination that the 37 trust is void. 38 Third parties dealing with the trustee of a voidable trust will be 39 protected by South Carolina Trust Code Section 6271012. 40 This section is similar to present South Carolina law regarding 41 the validity of wills. 42[1243] 511 1 Section 627407. Except as otherwise required by statute, a trust 2 need not be evidenced by a trust instrument. The creation of an 3 oral trust and its terms may be established only by clear and 4 convincing evidence. 5 6 REPORTER’S COMMENT 7 While it is always advisable for a settlor to reduce a trust to 8 writing, the SCTC follows established law in recognizing oral 9 trusts. Such trusts are viewed with caution, however. 10 This section is in accordance with existing South Carolina law 11 requiring oral trusts to be proved by clear and convincing 12 evidence. However, South Carolina statutory law has consistently 13 required that the declaration or creation of trusts in lands, 14 tenements or hereditaments be manifested and proved by some 15 writing such as a trust agreement or last will. Absent such a 16 writing, the trust would be void, per former South Carolina Probate 17 Code Section 627101 et seq. Historically, a distinction has been 18 made between the creation of the trust and the conveyance of real 19 property thereto, but the writing must manifest a previous trust. 20 This section no longer distinguishes between trusts funded with 21 real estate from those funded with personalty. Both must be 22 established by clear and convincing evidence. See Beckham v. 23 Short, 380 S.E. 2d 826 (S.C. 1989). 24 Absent some specific statutory provision, such as a Statute of 25 Frauds provision requiring that transfers of real property be proved 26 by writing, a trust need not be evidenced by a writing. 27 For the Statute of Frauds generally, see Restatement (Second) of 28 Trusts Sections 4052 (1959). For a description of what the writing 29 must contain, assuming that a writing is required, see Restatement 30 (Third) of Trusts Section 22 (Tentative Draft No. 1, approved 31 1996); Restatement (Second) of Trusts Section 4649 (1959). For a 32 discussion of when the writing must be signed, see Restatement 33 (Third) of Trusts Section 23 (Tentative Draft No. 1, approved 34 1996); Restatement (Second) of Trusts Section 4142 (1959). For 35 the law of oral trusts, see Restatement (Third) of Trusts Section 20 36 (Tentative Draft No. 1, approved 1996); Restatement (Second) of 37 Trusts Sections 4345 (1959). 38 South Carolina Trust Code Section 627401(a)(2) requires a 39 writing to create a declaration of trust (a selftrusteed trust). 40 41 Section 627408. (a) A trust may be created to provide for the 42 care of an animal or animals alive or in gestation during the 43 settlor’s lifetime, whether or not alive at the time the trust is[1243] 512 1 created. The trust terminates upon the death of the last surviving 2 animal. 3 (b) A trust authorized by this section may be enforced by a 4 person appointed in the terms of the trust or, if no person is so 5 appointed, by a person appointed by the court. A person 6 concerned for the welfare of the animal may request the court to 7 appoint a person to enforce the trust or to remove a person 8 appointed. 9 (c) Property of a trust authorized by this section may be 10 applied only to its intended use, except to the extent the court 11 determines that the value of the trust property exceeds the amount 12 required for the intended use. Except as otherwise provided in 13 the terms of the trust, property not required for the intended use 14 must be distributed to the settlor, if then living, otherwise to the 15 settlor’s successors in interest. 16 17 REPORTER’S COMMENT 18 This section and the next section of the Code validate so called 19 honorary trusts. Unlike honorary trusts created pursuant to the 20 common law of trusts, which are arguably no more than powers of 21 appointment, the trusts created by this and the next section are 22 valid and enforceable. For a discussion of the common law 23 doctrine, see Restatement (Third) of Trusts Section 47 (Tentative 24 Draft No. 2, approved 1999); Restatement (Second) of Trusts 25 Section 124 (1959). 26 This section addresses a particular type of honorary trust, the 27 trust for the care of an animal. Section 627409 specifies the 28 requirements for trusts without ascertainable beneficiaries that are 29 created for other noncharitable purposes. A trust for the care of an 30 animal may last for the life of the animal. While the animal will 31 ordinarily be alive on the date the trust is created, an animal may 32 be added as a beneficiary after that date as long as the addition is 33 made prior to the settlor’s death. Animals in gestation but not yet 34 born at the time of the trust’s creation may also be covered by its 35 terms. A trust authorized by this section may be created to benefit 36 one designated animal or several designated animals. 37 South Carolina Trust Code Section 627408 differs in several 38 minor ways from the uniform version. Two provisions found in 39 the UTC Comment have been added to the body of Section 40 627408(a): (1) that the trust can benefit animals alive during the 41 settlor’s lifetime, regardless of whether they are alive at the time 42 the trust is created, and (2) that animals in gestation at the settlor’s[1243] 513 1 death can be included in the trust. Surplus language in the UTC 2 has also been omitted from the SCTC version. 3 Subsection (b) addresses enforcement. SCTC Section 4 627408(b) modifies the UTC version, attempting to clarify that a 5 person need be concerned only for an animal’s welfare to petition 6 the court. That person does not have to have a legally cognizable 7 interest in the animal. Noncharitable trusts ordinarily may be 8 enforced by their beneficiaries. Charitable trusts may be enforced 9 by the State’s attorney general or by a person deemed to have a 10 special interest. See Restatement (Second) of Trusts Section 391 11 (1959). But at common law, a trust for the care of an animal or a 12 trust without an ascertainable beneficiary created for a 13 noncharitable purpose was unenforceable because there was no 14 person authorized to enforce the trustee’s obligations. 15 Sections 627408 and 627409 close this gap. The intended use of 16 a trust authorized by either section may be enforced by a person 17 designated in the terms of the trust or, if none, by a person 18 appointed by the court. In either case, Section 627110(b) grants to 19 the person appointed the rights of a qualified beneficiary for the 20 purpose of receiving notices and providing consents. If the trust is 21 created for the care of an animal, a person with an interest in the 22 welfare of the animal has standing to petition for an appointment. 23 The person appointed by the court to enforce the trust should also 24 be a person who has exhibited an interest in the animal’s welfare. 25 The concept of granting standing to a person with a demonstrated 26 interest in the animal’s welfare is derived from the Uniform 27 Guardianship and Protective Proceedings Act, which allows a 28 person interested in the welfare of a ward or protected person to 29 file petitions on behalf of the ward or protected person 30 Subsection (c) addresses the problem of excess funds. If the 31 court determines that the trust property exceeds the amount needed 32 for the intended purpose and that the terms of the trust do not 33 direct the disposition, a resulting trust is ordinarily created in the 34 settlor or settlor’s successors in interest. See Restatement (Third) 35 of Trusts Section 47 (Tentative Draft No. 2, approved 1999); 36 Restatement (Second) of Trusts Section 124 (1959). Successors in 37 interest include the beneficiaries under the settlor’s will, if the 38 settlor has a will, or in the absence of an effective will provision, 39 the settlor’s heirs. The settlor may also anticipate the problem of 40 excess funds by directing their disposition in the terms of the trust. 41 The disposition of excess funds is within the settlor’s control: See 42 Section 627105(a). While a trust for an animal is usually not 43 created until the settlor’s death; subsection (a) allows such a trust[1243] 514 1 to be created during the settlor’s lifetime. Accordingly, if the 2 settlor is still living, subsection (c) provides for distribution of 3 excess funds to the settlor, and not to the settlor’ s successors in 4 interest. 5 Should the means chosen not be particularly efficient, a trust 6 created for the care of an animal can also be terminated by the 7 trustee or court under Section 627414. Termination of a trust 8 under that section, however, requires that the trustee or court 9 develop an alternative means for carrying out the trust purposes. 10 See Section 627414(c). 11 This section and the next section are suggested by Section 2907 12 of the Uniform Probate Code, but much of this and the following 13 section is new. 14 A trust created under this section would not be recognized under 15 former South Carolina law. Thus, this section creates a new 16 concept for South Carolina. 17 18 Section 627409. Except as otherwise provided in this section or 19 by another statute, the following rules apply: 20 (1) A trust may be created for a noncharitable purpose without 21 a definite or definitely ascertainable beneficiary or for a 22 noncharitable but otherwise valid purpose to be selected by the 23 trustee. The trust may not be enforced for more than the period 24 allowed under the South Carolina Uniform Statutory Rule Against 25 Perpetuities (S.C. Code Section 27610 et. seq.) any rule against 26 perpetuities applicable under South Carolina law, except for the 27 care and maintenance of a cemetery or cemetery plots, graves, 28 mausoleums, columbaria, grave markers, or monuments. 29 (2) A trust authorized by this section may be enforced by a 30 person appointed in the terms of the trust or, if no person is so 31 appointed, by a person appointed by the court. 32 (3) Property of a trust authorized by this section may be 33 applied only to its intended use, except to the extent the court 34 determines that the value of the trust property exceeds the amount 35 required for the intended use. Except as otherwise provided in the 36 terms of the trust, property not required for the intended use must 37 be distributed to the settlor, if then living, otherwise to the settlor’s 38 successors in interest. 39 40 REPORTER’S COMMENT 41 South Carolina Trust Code Section 627409 had no exact 42 statutory counterpart under prior South Carolina law, although this 43 Section continues South Carolina’s allowance of trusts for the[1243] 515 1 perpetual care of cemetery plots as set forth in S. C. Code Section 2 27570. 3 This section authorizes two types of trusts without ascertainable 4 beneficiaries; trusts for general but noncharitable purposes, and 5 trusts for a specific noncharitable purpose other than the care of an 6 animal, on which see Section 627408. Examples of trusts for 7 general noncharitable purposes include a bequest of money to be 8 distributed to such objects of benevolence as the trustee might 9 select. Unless such attempted disposition was interpreted as 10 charitable, at common law the disposition was honorary only and 11 did not create a trust. Under this section, however, the disposition 12 is enforceable as a trust for a period of up to the maximum allowed 13 under any applicable state rule against perpetuities. 14 The most common example of a trust for a specific 15 noncharitable purpose is a trust for the care of a cemetery plot. 16 The rule against perpetuities limitation does not apply to 17 cemeteries, cemetery plots, grave sites, mausoleums, columbaria, 18 grave markers, or monuments. 19 Perpetual care cemeteries are addressed in Title 40, Chapter 8, 20 Sections 408110 et.seq. 21 For the requirement that a trust, particularly the type of trust 22 authorized by this section, must have a purpose that is not 23 capricious, see Section 627404 Comment. For examples of the 24 types of trusts authorized by this section, see Restatement (Third) 25 of Trusts Section 47 (Tentative Draft No. 2, approved 1999), and 26 Restatement (Second) of Trusts Section 62 cmt. W and Section 27 124 (1959). The case law on capricious purposes is collected in 2 28 Austin W. Scott & William F. Fratcher, The Law of Trusts Section 29 124.7 (4th ed. 1987). 30 This section is similar to Section 627408, although less detailed. 31 Much of the Comment to Section 627408 also applies to this 32 section. 33 34 Section 627410. (a) In addition to the methods of termination 35 prescribed by Sections 627411 through 627414, a trust terminates 36 to the extent the trust is revoked or expires pursuant to its terms. 37 (b) A proceeding to approve or disapprove a proposed 38 modification or termination under Sections 627411 through 39 627416, or trust combination or division under Section 627417, 40 may be commenced by a trustee or beneficiary, and a proceeding 41 to approve or disapprove a proposed modification or termination 42 under Section 627411 may be commenced by the settlor. The 43 settlor of a charitable trust as well as the Attorney General, among[1243] 516 1 others, may maintain a proceeding to modify the trust under 2 Section 627413. 3 4 REPORTER’S COMMENT 5 South Carolina Trust Code Section 627410 provides for the 6 modification or termination of trusts and refers to the more specific 7 provisions of Sections 627411 through 627 417. This SCTC 8 Section does not adopt the provisions of Uniform Trust Code 9 Section 627410, calling for termination of the trust when “no 10 purpose of the trust remains to be achieved, or the purposes of the 11 trust have become unlawful, contrary to public policy, or 12 impossible to achieve.” These may be grounds to terminate a trust 13 under the SCTC, but only upon appropriate notice to interested 14 parties and an opportunity for a hearing. A declaratory judgment 15 may be sought to determine if the trust has terminated. 16 17 Section 627411. (a) A noncharitable irrevocable trust may be 18 modified or terminated with court approval upon consent of the 19 settlor and all beneficiaries, even if the modification or termination 20 is inconsistent with a material purpose of the trust. A settlor’s 21 power to consent to a trust’s modification or termination may be 22 exercised by an agent under a power of attorney only to the extent 23 expressly authorized by the power of attorney or the terms of the 24 trust; by the settlor’s conservator with the approval of the court 25 supervising the conservator if an agent is not so authorized; or by 26 the settlor’s guardian with the approval of the court supervising the 27 guardianship if an agent is not so authorized and a conservator has 28 not been appointed. 29 (b) A noncharitable irrevocable trust may be terminated upon 30 consent of all beneficiaries if the court concludes that continuance 31 of the trust is not necessary to achieve any material purpose of the 32 trust. A noncharitable irrevocable trust may be modified upon 33 consent of all of the beneficiaries if the court concludes that 34 modification is not inconsistent with a material purpose of the 35 trust. 36 (c) Upon termination of a trust under subsection (a) or (b), the 37 trustee shall distribute the trust property as ordered by the court. 38 (d) If not all of the beneficiaries consent to a proposed 39 modification or termination of the trust under subsection (a) or (b), 40 the modification or termination may be approved by the court if 41 the court is satisfied that: 42 (1) if all of the beneficiaries had consented, the trust could 43 have been modified or terminated under this section; and [1243] 517 1 (2) the interests of a beneficiary who does not consent will 2 be adequately protected. 3 4 REPORTER’S COMMENT 5 This section describes the circumstances in which termination or 6 modification of a noncharitable irrevocable trust may be compelled 7 by the beneficiaries, with or without the concurrence of the settlor, 8 but with court approval. For provisions governing modification or 9 termination of trusts without the need to seek beneficiary consent, 10 see Sections 627412 (modification or termination due to 11 unanticipated circumstances or inability to administer trust 12 effectively), 627414 (termination or modification of uneconomic 13 noncharitable trust), and 627416 (modification to achieve settlor’s 14 tax objectives). If the trust is revocable by the settlor, the method 15 of revocation specified in Section 627602 applies. South Carolina 16 Trust Code Section 627411(a) adds the phrase “with court 17 approval” to the first sentence of the Uniform Trust Code version 18 and the phrase “modification or” to the second sentence of the 19 UTC version. The SCTC omits UTC subsection 411(c), which 20 provided that a spendthrift provision would not be presumed to 21 constitute a material purpose of the trust. SCTC Section 22 627411(c) substitutes the phrase “as ordered by the court” to the 23 UTC version of subsection (d) for the phrase “as agreed by the 24 beneficiaries.” 25 Subsection (a) provides the requirements for termination or 26 modification by the beneficiaries with the concurrence of the 27 settlor. Subsection (b) provides the requirements for termination 28 or modification by unanimous consent of the beneficiaries without 29 the concurrence of the settlor. The rules on trust modification and 30 termination in subsections (a)(b) carries forward the Claflin rule, 31 first stated in the famous case of Claflin v. Claflin, 20 N.E. 454 32 (Mass. 1889). Subsection (c) directs how the trust property is to be 33 distributed following a termination under either subsection (a) or 34 (b). Subsection (d) creates a procedure for judicial approval of a 35 proposed termination or modification when the consent of less 36 than all of the beneficiaries is available. 37 Under this section, a trust may be modified or terminated over a 38 trustee’s objection. However, pursuant to Section 627410, the 39 trustee has standing to object to a proposed termination or 40 modification. 41 The settlor’s right to join the beneficiaries in terminating or 42 modifying a trust under this section does not rise to the level of a 43 taxable power. See Treas. Reg. Section 20.20381(a)(2). No gift[1243] 518 1 tax consequences result from a termination as long as the 2 beneficiaries agree to distribute the trust property in accordance 3 with the value of their proportionate interests. 4 The provisions of Part 3 on representation, virtual representation 5 and the appointment and approval of representatives appointed by 6 the court apply to the determination of whether all beneficiaries 7 have signified consent under this section. The authority to consent 8 on behalf of another person, however, does not include authority to 9 consent over the other person’s objection. See Section 627301(c). 10 Regarding the persons who may consent on behalf of a 11 beneficiary, see Sections 627302 through 627305. A consent 12 given by a representative is invalid to the extent there is a conflict 13 of interest between the representative and the person represented. 14 If virtual or other form of representation is unavailable, Section 15 627305 of the Code permits the court to appoint a representative 16 who may give the necessary consent to the proposed modification 17 or termination on behalf of the minor, incapacitated, unborn, or 18 unascertained beneficiary. The ability to use virtual and other 19 forms of representation to consent on a beneficiary’s behalf to a 20 trust termination or modification has not traditionally been part of 21 the law, although there are some notable exceptions. Compare 22 Restatement (Second) Section 337(1) (1959) (beneficiary must not 23 be under incapacity), with Hatch v. Riggs National Bank, 361 F.2d 24 559 (D.C. Cir. 1966) (guardian ad litem authorized to consent on 25 beneficiary’s behalf). 26 Subsection (a) also addresses the authority of an agent, 27 conservator, or guardian to act on a settlor’s behalf. Consistent 28 with Section 627602 on revocation or modification of a revocable 29 trust, the section assumes that a settlor, in granting an agent 30 general authority, did not intend for the agent to have authority to 31 consent to the termination or modification of a trust, authority that 32 could be exercised to radically alter the settlor’s estate plan. In 33 order for an agent to validly consent to a termination or 34 modification of the settlor’s revocable trust, such authority must be 35 expressly conveyed either in the power or in the terms of the trust. 36 Subsection (a), however, does not impose restrictions on consent 37 by a conservator or guardian, other than prohibiting such action if 38 the settlor is represented by an agent. The section instead leaves 39 the issue of a conservator’s or guardian’s authority to local law. 40 Many conservatorship statutes recognize that termination or 41 modification of the settlor’s trust is a sufficiently important 42 transaction that a conservator should first obtain the approval of 43 the court supervising the conservatorship. See, e.g., Unif Probate[1243] 519 1 Code Section 5411(a)(4). Because the SCTC uses the term 2 “conservator” to refer to the person appointed by the court to 3 manage an individual’s property (see Section 627103(4)), a 4 guardian may act on behalf of a settlor under this section only if a 5 conservator has not been appointed. 6 Subsection (a) is similar to Restatement (Third) of Trusts 7 Section 65(2) (Tentative Draft No. 3, approved 2001), and 8 Restatement (Second) of Trusts Section 338(2) (1959), both of 9 which permit termination upon joint action of the settlor and 10 beneficiaries. Unlike termination by the beneficiaries alone under 11 subsection (b), termination with the concurrence of the settlor does 12 not require a finding that the trust no longer serves a material 13 purpose. No finding of failure of material purpose is required 14 because all parties with a possible interest in the trust’s 15 continuation, both the settlor and beneficiaries, agree there is no 16 further need for the trust. Restatement Third goes further than 17 subsection (b) of this section and Restatement Second, however, in 18 also allowing the beneficiaries to compel termination of a trust that 19 still serves a material purpose if the reasons for termination 20 outweigh the continuing material purpose. 21 Subsection (b), similar to Restatement Third but not 22 Restatement Second, allows modification by beneficiary action. 23 The beneficiaries may modify any term of the trust if the 24 modification is not inconsistent with a material purpose of the 25 trust. Restatement Third, though, goes further than this Code in 26 also allowing the beneficiaries to use trust modification as a basis 27 for removing the trustee if removal would not be inconsistent with 28 a material purpose of the trust. Under the Code, however, Section 29 627706 is the exclusive provision on removal of trustees. Section 30 627706(b)(4) recognizes that a request for removal upon 31 unanimous agreement of the qualified beneficiaries is a factor for 32 the court to consider, but before removing the trustee the court 33 must also find that such action best serves the interests of all the 34 beneficiaries, that removal is not inconsistent with a material 35 purpose of the trust, and that a suitable cotrustee or successor 36 trustee is available. Compare Section 627706(b)(4), with 37 Restatement (Third) Section 65 cmt. f (Tentative Draft No. 3, 38 approved 2001). 39 The requirement that the trust no longer serve a material purpose 40 before it can be terminated by the beneficiaries does not mean that 41 the trust has no remaining function. In order to be material, the 42 purpose remaining to be performed must be of some significance:[1243] 520 1 Material purposes are not readily to be inferred. A finding of such 2 a purpose generally requires some showing of a particular concern 3 or objective on the part of the settlor, such as concern with regard 4 to the beneficiary’s management skills, judgment, or level of 5 maturity. Thus, a court may look for some circumstantial or other 6 evidence indicating that the trust arrangement represented to the 7 settlor more than a method of allocating the benefits of property 8 among multiple beneficiaries, or a means of offering to the 9 beneficiaries (but not imposing on them) a particular advantage. 10 Sometimes, of course, the very nature or design of a trust suggests 11 its protective nature or some other material purpose. 12 Restatement (Third) of Trusts Section 65 cmt. d (Tentative Draft 13 No. 3, approved 2001). 14 Subsection (c) recognizes that, once termination has been 15 approved, how the trust property is to be distributed is solely for 16 the court to decide. 17 No similar statutory provisions existed under prior South 18 Carolina law. 19 Under South Carolina case law, a court has the power to alter or 20 modify an irrevocable trust to effectuate the intent of the settler, 21 but it is the duty of the courts to preserve, not destroy, trusts. See 22 Chiles v. Chiles, 270 S.C. 379, 242 S.E.2d 426 (S.C. 1978). When 23 a settler sought modification of an irrevocable trust without the 24 consent of the beneficiaries, the court would modify the trust to 25 effectuate the settlor’s intent only when some exigency or 26 emergency made the modification indispensable to the 27 preservation of the trust. See Chiles. 28 Under existing South Carolina case law, a spendthrift trust 29 cannot be terminated by agreement of all beneficiaries when the 30 purpose of the trust is to provide an income stream for life or until 31 the trust fund was exhausted, since to do so would defeat a 32 material purpose of the trust. See Germann v. New York Life 33 Insurance Co, 286 S.C. 34 , 331 S.E.2d 385(S.C..App. 1985). 34 35 Section 627412. (a) The court may modify the administrative 36 or dispositive terms of a trust or terminate the trust if, because of 37 circumstances not anticipated by the settlor, modification or 38 termination will further the purposes of the trust. To the extent 39 practicable, the modification must be made in accordance with the 40 settlor’s probable intention. 41 (b) The court may modify the administrative terms of a trust if 42 continuation of the trust on its existing terms would be 43 impracticable or wasteful or impair the trust’s administration. [1243] 521 1 (c) Upon termination of a trust under this section, the trustee 2 shall distribute the trust property as ordered by the court. 3 4 REPORTER’SCOMMENT 5 This section broadens the court’s ability to apply equitable 6 deviation to terminate or modify a trust. South Carolina Trust 7 Code Section 627412(a) conceptually broadens the traditional 8 authority of the court to modify trust provisions because of 9 unanticipated circumstances, especially with respect to dispositive 10 provisions. Subsection (a) is similar to Restatement (Third) of 11 Trusts Section 66(1) (Tentative Draft No. 3, approved 2001), 12 except that this section, unlike the Restatement, does not impose a 13 duty on the trustee to petition the court if the trustee is aware of 14 circumstances justifying judicial modification. The purpose of the 15 “equitable deviation” authorized by subsection (a) is not to 16 disregard the settlor’s intent but to modify inopportune provisions 17 to effectuate better the settlor’s broader purposes. Among other 18 things, equitable deviation may be used to modify administrative 19 or dispositive terms due to the failure to anticipate economic 20 change or the incapacity of a beneficiary. For numerous 21 illustrations, see Restatement (Third) of Trusts Section 66 cmt. b 22 (Tentative Draft No. 3, approved 2001). While it is necessary that 23 there be circumstances not anticipated by the settlor before the 24 court may grant relief under subsection (a), the circumstances may 25 have been in existence when the trust was created. This section 26 thus complements Section 627415, which allows for reformation 27 of a trust based on mistake of fact or law at the creation of the 28 trust. 29 Subsection (b) broadens the court’s ability to modify the 30 administrative terms of a trust. The standard under subsection (b) 31 is similar to the standard for applying equitable deviation to a 32 charitable trust. See Section 627413(a). Just as a charitable trust 33 may be modified if its particular charitable purpose becomes 34 impracticable or wasteful, so can the administrative terms of any 35 trust, charitable or noncharitable. Subsections (a) and (b) are not 36 mutually exclusive. Many situations justifying modification of 37 administrative terms under subsection (a) will also justify 38 modification under subsection (b). Subsection (b) is also an 39 application of the requirement in Section 627404 that a trust and 40 its terms must be for the benefit of its beneficiaries. See also 41 Restatement (Third) of Trusts Section 27(2) & cmt. b (Tentative 42 Draft No. 2, approved 1999). Although the settlor is granted 43 considerable latitude in defining the purposes of the trust, the[1243] 522 1 principle that a trust have a purpose which is for the benefit of its 2 beneficiaries precludes unreasonable restrictions on the use of trust 3 property. An owner’s freedom to be capricious about the use of 4 the owner’s own property ends when the property is impressed 5 with a trust for the benefit of others. See Restatement (Second) of 6 Trusts Section 124 cmt. g (1959). Thus, attempts to impose 7 unreasonable restrictions on the use of trust property will fail. See 8 Restatement (Third) of Trusts Section 27 Reporter’s Notes to cmt. 9 b (Tentative Draft No. 2, approved 1999). Subsection (b), unlike 10 subsection (a), does not have a direct precedent in the common 11 law, but various states have adopted such a measure by statute. 12 See, e.g., Mo. Rev. Stat. Section 456.590.1. 13 Modification under this section, because it does not require 14 beneficiary action, is not precluded by a spendthrift provision. 15 South Carolina Trust Code Section 627412(c) modifies the 16 uniform version to provide that, upon termination, trust property is 17 to be distributed as ordered by the court. 18 19 Section 627413. (a) Except as otherwise provided in 20 Subsection (b), if a particular charitable purpose becomes 21 unlawful, impracticable, impossible to achieve, or wasteful: 22 (1) the trust does not fail, in whole or in part; 23 (2) the trust property does not revert to the settlor or the 24 settlor’s successors in interest; and 25 (3) the court may deviate from the terms of the trust to 26 modify or terminate the trust by directing that the trust property be 27 applied or distributed, in whole or in part, in a manner consistent 28 with the settlor’s charitable intent. 29 (b) A provision in the terms of a charitable trust that would 30 result in distribution of the trust property to a noncharitable 31 beneficiary prevails over the power of the court under subsection 32 (a) to modify or terminate the trust only if, when the provision 33 takes effect: 34 (1) the trust property is to revert to the settlor and the settlor 35 is still living; or 36 (2) fewer than the number of years allowed under the South 37 Carolina Uniform Statutory Rule Against Perpetuities, (S.C. Code 38 Section 27610 et seq.) any rule against perpetuities applicable 39 under South Carolina law, have elapsed since the date of the trust’s 40 creation. 41 42 REPORTER’S COMMENT[1243] 523 1 This section clarifies and codifies in part existing South Carolina 2 law that recognizes “equitable deviation,” which is the power of a 3 court in certain situations to change the provisions of a charitable 4 trust. 5 South Carolina has long recognized the doctrine of equitable 6 deviation, which permits a court of equity to deviate from the strict 7 terms of a trust when changed conditions render the 8 accomplishment of the charitable purpose impossible or 9 impracticable. Subsection (a) codifies the court’s inherent 10 authority to apply equitable deviation. The power may be applied 11 to modify an administrative or dispositive term. The court may 12 order the trust terminated and distributed to other charitable 13 entities. 14 When the Section 627413 was enacted, the words “cy pres” in 15 the Uniform Trust Code version were deleted and replaced with 16 language referring to equitable deviation because South Carolina 17 courts have refused to recognize the doctrine of cy pres. See e.g.. 18 Mars v. Gilbert, 93 S.C. 455, 77 S.E. 131 (S.C. 1913) (expressly 19 rejecting the doctrine of equitable cy pres. but making clear that 20 literal compliance with the terms of a will is not always required 21 when the conditions have changes). See also All Saints Parish, 22 Waccamaw, a South Carolina nonprofit corporation, a/k/a The 23 Episcopal Church of All Saints and a/k/a The Vestry and Church 24 Wardens of the Episcopal Church of All Saints Parish, 358 S.C. 25 209; 595 S.E. 2d 253 (S.C. Ct. App 2004). 26 Although Section 627413 changes the references from cy pres in 27 the UTC version to equitable deviation terminology, Section 28 627413 is otherwise taken verbatim from the UTC (except for a 29 slight modification in the manner of referring to the rule against 30 perpetuities). Consequently, the substantive provisions of UTC 31 section 413 are exactly the same as those in Section 627413. 32 Query whether by statute South Carolina now effectively 33 recognizes the doctrine of cy pres as set forth in UTC section 413. 34 35 Section 627414. (a) After notice to the qualified beneficiaries, 36 and without court approval, the trustee of a trust consisting of trust 37 property having a total value less than one hundred thousand 38 dollars may terminate the trust if the trustee concludes that the 39 value of the trust property is insufficient to justify the cost of 40 administration. 41 (b) The court may modify or terminate a trust or remove the 42 trustee and appoint a different trustee if it determines that the value[1243] 524 1 of the trust property is insufficient to justify the cost of 2 administration. 3 (c) Upon termination of a trust under this section, the trustee 4 shall distribute the trust property as ordered by the court or, if the 5 court does not specify the manner of distribution, or if no court 6 approval is required, in a manner consistent with the purposes of 7 the trust. 8 (d) This section does not apply to an easement for conservation 9 or preservation. 10 11 REPORTER’S COMMENT 12 Subsection (a) assumes that a trust with a value of $100,000 or 13 less is sufficiently likely to be inefficient to administer that a 14 trustee should be able to terminate it without the expense of a 15 judicial termination proceeding. Also, in subsection (c) a phrase 16 added to the uniform version clarifies that the court may specify 17 how the trust assets should be distributed e.g., in cases when the 18 court is involved in a termination under subsection (b). 19 Because subsection (a) is a default rule, a settlor is free to set a 20 higher or lower figure or to specify different procedures or to 21 prohibit termination without a court order. See Section 627105. 22 Subsection (b) allows the court to modify or terminate a trust if 23 the costs of administration would otherwise be excessive in 24 relation to the size of the trust. The court may terminate a trust 25 under this section even if the settlor has forbidden it. See Section 26 627105(b)(4). Judicial termination under this subsection may be 27 used whether or not the trust is larger or smaller than $100,000. 28 When considering whether to terminate a trust under either 29 subsection (a) or (b), the trustee or court should consider the 30 purposes of the trust. Termination under this Section is not always 31 wise. Even if administrative costs may seem excessive in relation 32 to the size of the trust, protection of the assets from beneficiary 33 mismanagement may indicate that the trust be continued. The 34 court may be able to reduce the costs of administering the trust by 35 appointing a new trustee. 36 Upon termination of a trust under this section, subsection (c) 37 requires that the trust property be distributed in a manner 38 consistent with the purposes of the trust. In addition to outright 39 distribution to the beneficiaries, Section 627816(21) authorizes 40 payment to be made by a variety of alternate payees. Distribution 41 under this section will typically be made to the qualified 42 beneficiaries in proportion to the actuarial value of their interests.[1243] 525 1 If the trustee or cotrustee is a beneficiary and would receive part 2 or all of the trust assets upon termination of a trust under 3 subsection (a), then the trustee’s power to terminate is subject to 4 the limitations in SCTC Section 627814. 5 Even though not accompanied by the usual trappings of a trust, 6 the creation and transfer of an easement for conservation or 7 preservation will frequently create a charitable trust. The 8 organization to whom the easement was conveyed will be deemed 9 to be acting as trustee of what will ostensibly appear to be a 10 contractual or property arrangement. Because of the fiduciary 11 obligation imposed, the termination or substantial modification of 12 the easement by the “trustee” could constitute a breach of trust. 13 The drafters of the Uniform Trust Code concluded that easements 14 for conservation or preservation are sufficiently different from the 15 typical cash and securities found in small trusts that they should be 16 excluded from this section, and subsection (d) so provides. Most 17 creators of such easements, it was surmised, would prefer that the 18 easement be continued unchanged even if the easement, and hence 19 the trust, has a relatively low market value. For the law of 20 conservation easements, see Restatement (Third) of Property: 21 Servitudes Section 1.6 (2000). 22 While this Section is not directed principally at honorary trusts, 23 it may be so applied. See Sections 627408 and 627409. 24 Because termination of a trust under this Section is initiated by 25 the trustee or ordered by the court, termination is not precluded by 26 a spendthrift provision. 27 Subsection (a) had no counterpart in prior South Carolina law, 28 though a trust document might contain similar provisions. 29 30 Section 627415. The court may reform the terms of a trust, even 31 if unambiguous, to conform the terms to the settlor’s intention if it 32 is proved by clear and convincing evidence that both the settlor’s 33 intent and the terms of the trust were affected by a mistake of fact 34 or law, whether in expression or inducement. 35 36 REPORTER’S COMMENT 37 Reformation of inter vivos instruments to correct a mistake of 38 law or fact is a longestablished remedy. Restatement (Third) of 39 Property: Donative Transfers Section 12.1 (Tentative Draft No. 1, 40 approved 1995), which this section copies, clarifies that this 41 doctrine also applies to wills.[1243] 526 1 There was no comparable South Carolina statutory provision 2 authorizing a court to reform an unambiguous trust to conform to 3 the settlor’s intent. 4 South Carolina Trust Code Section 627415 would permit the 5 introduction of parol evidence to show the settlor’s intent and the 6 existence of a mistake of fact or law, provided that the evidence is 7 clear and convincing to protect against the possibility of unreliable 8 or fraudulent evidence. This section permits consideration of 9 evidence relevant to the settlor’s intention even when contradicted 10 by the plain meaning of the words in the instrument. 11 This section applies whether the mistake is one of expression or 12 one of inducement. A mistake of expression occurs when the 13 terms of the trust misstate the settlor’s intention, fail to include a 14 term that was intended to be included, or include a term that was 15 not intended to be excluded. A mistake in the inducement occurs 16 when the terms of the trust accurately reflect what the settlor 17 intended to be included or excluded but this intention was based on 18 a mistake of fact or law. See Restatement (Third) of Property: 19 Donative Transfers Section 12.1 cmt. i (Tentative Draft No. 1, 20 approved 1995). Mistakes of expression are frequently caused by 21 scriveners’ errors while mistakes of inducement often trace to 22 errors of the settlor. 23 Reformation is different from resolving an ambiguity. 24 Resolving an ambiguity involves the interpretation of language 25 already in the instrument. Reformation, on the other hand, may 26 involve the addition of language not originally in the instrument, 27 or the deletion of language originally included by mistake, if 28 necessary to conform the instrument to the settlor’s intent. 29 Because reformation may involve the addition of language to the 30 instrument, or the deletion of language that may appear clear on its 31 face, reliance on extrinsic evidence is essential. To guard against 32 the possibility of unreliable or contrived evidence in such 33 circumstance, the higher standard of clear and convincing proof is 34 required. See Restatement (Third) of Property: Donative Transfers 35 Section 12.1 cmt. e (Tentative Draft No. 1, approved 1995). 36 In determining the settlor’s original intent, the court may 37 consider evidence relevant to the settlor’s intention even though it 38 contradicts an apparent plain meaning of the text. The objective of 39 the plain meaning rule, to protect against fraudulent testimony, is 40 satisfied by the requirement of clear and convincing proof. See 41 Restatement (Third) of Property: Donative Transfers Section 12.1 42 cmt. d and Reporter’s Notes (Tentative Draft No. 1, approved 43 1995). See also John H. Langbein & Lawrence W. Waggoner,[1243] 527 1 Reformation of Wills on the Ground of Mistake: Change of 2 Direction in American Law?, 130 U. Pa. L. Rev. 521 (1982). 3 For further discussion of the rule of this section and its 4 application to illustrative cases, see Restatement (Third) of 5 Property: Donative Transfers Section 12.1 cmts. and Reporter’s 6 Notes (Tentative Draft No. 1, approved 1995). 7 8 Section 627416. To achieve the settlor’s tax objectives, the 9 court may modify the terms of a trust in a manner that is not 10 contrary to the settlor’s probable intention. The court may provide 11 that the modification has retroactive effect. 12 13 REPORTER’S COMMENT 14 This section is copied from Restatement (Third) of Property: 15 Donative Transfers Section 12.2 (Tentative Draft No. 1, approved 16 1995). “Modification” under this section is to be distinguished 17 from the “reformation” authorized by Section 627415. 18 Reformation under Section 627415 is available when the terms of 19 a trust fail to reflect the donor’s original, particularized intention. 20 The mistaken terms are then reformed to conform to this specific 21 intent. The modification authorized here allows the terms of the 22 trust to be changed to meet the settlor’s taxsaving objective as long 23 as the resulting terms, particularly the dispositive provisions, are 24 not inconsistent with the settlor’s probable intent. The 25 modification allowed by this subsection is similar in concept to the 26 equitable deviation doctrine for charitable trusts (see Section 27 627413), and the deviation doctrine for unanticipated 28 circumstances (see Section 627412). 29 There was no South Carolina statutory provision that correlates 30 with this Section. Former Section 627211 of the South Carolina 31 Probate Code provided for division or consolidation of trusts, 32 provided that the consolidation or division was not inconsistent 33 with the intent of the trustor, the action would facilitate trust 34 administration, and the action would be in the best interests of all 35 beneficiaries and not materially impair their interests. See South 36 Carolina Trust Code Section 627417. 37 Whether a modification made by the court under this section 38 will be recognized under federal tax law is a matter of federal law. 39 Absent specific statutory or regulatory authority, binding 40 recognition is normally given only to modifications made prior to 41 the taxing event, for example, the death of the testator or settlor in 42 the case of the federal estate tax. See Rev. Rul. 73142, 19731 C.B. 43 405. Among the specific modifications possibly authorized by the[1243] 528 1 Internal Revenue Code or Service include the revision of 2 splitinterest trusts to qualify for the charitable deduction, 3 modification of a trust for a noncitizen spouse to become eligible 4 as a qualified domestic trust, and the splitting of a trust to utilize 5 better the exemption from generationskipping tax. 6 For further discussion of the rule of this section and the relevant 7 case law, see Restatement (Third) of Property: Donative Transfers 8 Section 12.2 cmts. and Reporter’s Notes (Tentative Draft No. 1, 9 approved 1995). 10 South Carolina case law indicates that the courts will not allow a 11 beneficiary’s interest to be negated if the beneficiary objects, 12 regardless of the tax benefit desired. See Chiles v. Chiles, 270 13 S.C. 379, 242 S.E.2d 426 (S.C. 1978) (the Supreme Court 14 reversed, with respect to the one appellant only, the lower court’s 15 extinguishment of certain noncharitable beneficiaries’ interests to 16 vest a charitable contribution deduction for federal estate tax 17 purposes). 18 19 Section 627417. After notice to the qualified beneficiaries, a 20 trustee may combine two or more trusts into a single trust or divide 21 a trust into two or more separate trusts, if the result does not impair 22 rights of any beneficiary or adversely affect achievement of the 23 purposes of the trust. 24 25 REPORTER’S COMMENT 26 This section expands former South Carolina Probate Code 27 Section 627211, which allowed the division or consolidation of 28 trusts only with court approval when such action was not 29 authorized by the trust instrument and is subject to contrary 30 provision in the terms of the trust. Many trust instruments and 31 standardized estate planning forms include comprehensive 32 provisions governing combination and division of trusts. Except 33 for the requirement that the qualified beneficiaries receive advance 34 notice of a proposed combination or division, this section is similar 35 to Restatement (Third) of Trusts Section 68 (Tentative Draft No. 3, 36 approved 2001). 37 This section allows a trustee to combine two or more trusts even 38 though their terms are not identical. Typically the trusts to be 39 combined will have been created by different members of the same 40 family and will vary on only insignificant details, such as the 41 presence of different perpetuities savings periods. The more the 42 dispositive provisions of the trusts to be combined differ from each 43 other the more likely it is that a combination would impair some[1243] 529 1 beneficiary’s interest, hence the less likely that the combination 2 can be approved. Combining trusts may prompt more efficient 3 trust administration and is sometimes an alternative to terminating 4 an uneconomic trust as authorized by Section 627414. 5 Administrative economies promoted by combining trusts include a 6 potential reduction in trustees’ fees, particularly if the trustee 7 charges a minimum fee per trust, the ability to file one trust 8 income tax return instead of multiple returns, and the ability to 9 invest a larger pool of capital more effectively. Particularly if the 10 terms of the trust are identical, available administrative economies 11 may suggest that the trustee has a responsibility to pursue a 12 combination. See Section 627805 (duty to incur only reasonable 13 costs). 14 Division of trusts is often beneficial and, in certain 15 circumstances, almost routine. Division of trusts is frequently 16 undertaken due to a desire to obtain maximum advantage of 17 exemptions available under the federal generationskipping tax. 18 While the terms of the trusts which result from such a division are 19 identical, the division will permit differing investment objectives 20 to be pursued and allow for discretionary distributions to be made 21 from one trust and not the other. Given the substantial tax benefits 22 often involved, a failure by the trustee to pursue a division might 23 in certain cases be a breach of fiduciary duty. The opposite could 24 also be true if the division is undertaken to increase fees or to fit 25 within the small trust termination provision. See Section 627414. 26 This section authorizes a trustee to divide a trust even if the 27 trusts that result are dissimilar. Conflicts among beneficiaries, 28 including differing investment objectives, often invite such a 29 division, although as in the case with a proposed combination of 30 trusts, the more the terms of the divided trusts diverge from the 31 original plan, the less likely it is that the settlor’s purposes would 32 be achieved and that the division could be approved. 33 This section does not require that a combination or division be 34 approved either by the court or by the beneficiaries. Prudence may 35 dictate, however, that court approval under Section 627410 be 36 sought and beneficiary consent obtained whenever the terms of the 37 trusts to be combined or the trusts that will result from a division 38 differ substantially one from the other. For the provisions relating 39 to beneficiary consent, or ratification of a transaction, or release of 40 trustee from liability, see Section 6271009. 41 While the consent of the beneficiaries is not necessary before a 42 trustee may combine or divide trusts under this section, advance 43 notice to the qualified beneficiaries of the proposed combination or[1243] 530 1 division is required. This is consistent with Section 627813, which 2 requires that the trustee keep the qualified beneficiaries reasonably 3 informed of trust administration, including the giving of advance 4 notice to the qualified beneficiaries of several specified actions 5 that may have a major impact on their interests. 6 Numerous States have enacted statutes authorizing division of 7 trusts, either by trustee action or upon court order. For a list of 8 these statutes, see Restatement (Third) Property: Donative 9 Transfers Section 12.2 Statutory Note (Tentative Draft No. 1, 10 approved 1995). Combination or division has also been authorized 11 by the courts in the absence of authorizing statute. See, e.g., In re 12 Will of Marcus, 552 N.Y.S. 2d 546 (Surr. Ct. 1990) (combination); 13 In re Heller Inter Vivos Trust, 613 N.Y.S. 2d 809 (Surr. Ct. 1994) 14 (division); and BankBoston v. Marlow, 701 N.E. 2d 304 (Mass. 15 1998) (division). 16 For a provision authorizing a trustee, in distributing the assets of 17 the divided trust, to make nonprorata distributions, see Section 18 627816(22). 19 20 Section 627418. (a) When any person shall be seized of any 21 lands, tenements, rents, reversions, remainders, or other 22 hereditaments to the use, confidence, or trust of any other person 23 or of any body politic by reason of any bargain, sale, feoffment, 24 covenant, contract, agreement, will, or otherwise, the person or 25 body politic that shall have such use, confidence, or trust, in fee 26 simple, fee tail, for term of life or for years or otherwise or any 27 use, confidence, or trust in remainder or reversion, shall be deemed 28 and adjudged in lawful seizing, estate and possession of and in 29 such lands, tenements, rents, reversions, remainders, and 30 hereditaments, with their appurtenances, to all intents, 31 constructions, and purposes in law of and in such like estates as 32 they shall have in use, trust, or confidence of or in them. 33 (b) When several persons shall be jointly seized of any lands, 34 tenements, rents, reversions, remainders, or other hereditaments to 35 the use, confidence, or trust of any of them that be so jointly 36 seized, such person or persons who shall have any such use, 37 confidence, or trust in any such lands, tenements, rents, reversions, 38 remainders, or hereditaments shall have such estate, possession, 39 and seizing of and in such lands, tenements, rents, reversions, 40 remainders, and other hereditaments only to him or them that shall 41 have any such use, confidence, or trust, in like nature, manner, 42 form, condition, and course as he or they had before in the use, 43 confidence, or trust of such lands, tenements, or hereditaments,[1243] 531 1 saving and reserving to all and singular persons and bodies politic, 2 their heirs and successors, other than such person or persons who 3 are seized of such lands, tenements, or hereditaments to any use, 4 confidence, or trust, all such right, title, entry, interest, possession, 5 rents, and action as they or any of them had or might have had 6 without this section and also saving to all and singular those 7 persons and their heirs who are seized to any use all such former 8 right, title, entry, interest, possession, rents, customs, services, and 9 action as they or any of them might have had to his or their own 10 proper use in or to any lands, tenements, rents, or hereditaments 11 whereof they are seized to any other use, anything contained in this 12 chapter to the contrary notwithstanding. 13 14 REPORTER’S COMMENT 15 There is no counterpart to this section in the Uniform Trust 16 Code. 17 South Carolina Trust Code Subsections 627418(a) and (b) retain 18 and incorporate former South Carolina Probate Code Sections 19 627107 and 627108. 20 21 Part 5 22 23 Creditors’ Claims; Spendthrift and Discretionary Trusts 24 General Comment 25 This article addresses the validity of a spendthrift provision and 26 the rights of creditors, both of the settlor and beneficiaries, to reach 27 a trust to collect a debt. Sections 627501 and 627502 state the 28 general rules. To the extent that a trust is protected by a spendthrift 29 provision, a beneficiary’s creditor may not reach the beneficiary’s 30 interest until distribution is made by the trustee. To the extent not 31 protected by a spendthrift provision, however, the creditor can 32 reach the beneficiary’s interest subject to the court’s power to limit 33 the relief. Section 627503 lists the categories of creditors whose 34 claims are not subject to a spendthrift restriction. Sections 627504 35 through 627507 address special categories in which the rights of a 36 beneficiary’s creditors are the same whether or not the trust 37 contains a spendthrift provision. Section 627504 deals with 38 discretionary trusts and trusts for which distributions are subject to 39 a standard. Section 627505 covers creditor claims against a settlor, 40 whether the trust is revocable or irrevocable, and if revocable, 41 whether the claim is made during the settlor’s lifetime or incident 42 to the settlor’s death. Section 627506 provides a creditor with a 43 remedy if a trustee fails to make a mandated distribution within a[1243] 532 1 reasonable time. Section 627507 clarifies that although the trustee 2 holds legal title to trust property, that property is not subject to the 3 trustee’s personal debts. 4 The provisions of this article relating to the validity and effect of 5 a spendthrift provision and the rights of certain creditors and 6 assignees to reach the trust may not be modified by the terms of 7 the trust. See Section 627105(b)(5). 8 This article does not supersede state exemption statutes nor any 9 fraudulent transfer statutes, which, when applicable, invalidates 10 any type of gratuitous transfer, including transfers into trust. 11 12 Section 627501. (a) Except as provided in subsection (b), the 13 court may authorize a creditor or assignee of the beneficiary to 14 reach the beneficiary’s interest by attachment of present or future 15 distributions to or for the benefit of the beneficiary or other means. 16 The court may limit the award to such relief as is appropriate under 17 the circumstances. 18 (b) This section shall not apply and a trustee shall have no 19 liability to any creditor of a beneficiary for any distributions made 20 to or for the benefit of the beneficiary to the extent a beneficiary’s 21 interest: 22 (1) is protected by a spendthrift provision, or 23 (2) is a discretionary trust interest as referred to in S.C. Code 24 Section 627504. 25 26 REPORTER’S COMMENT 27 28 Absent a valid spendthrift provision, a creditor may reach the 29 interest of a beneficiary the same as any other of the beneficiary’s 30 assets. This does not necessarily mean that the creditor can collect 31 all distributions made to the beneficiary. Other creditor law of the 32 State may limit the creditor to a specified percentage of a 33 distribution. This section does not prescribe the procedures for 34 reaching a beneficiary’s interest or of priority among claimants, 35 leaving those issues to the State’s law on creditor rights. The 36 section does clarify, however, that an order obtained against the 37 trustee, whatever state procedure may have been used, may extend 38 to future distributions whether made directly to the beneficiary or 39 to others for the beneficiary’s benefit. By allowing an order to 40 extend to future payments, the need for the creditor periodically to 41 return to court will be reduced. 42 A creditor typically will pursue a claim by serving an order on 43 the trustee attaching the beneficiary’s interest. Assuming that the[1243] 533 1 validity of the order cannot be contested, the trustee will then pay 2 to the creditor instead of to the beneficiary any payments the 3 trustee would otherwise be required to make to the beneficiary, as 4 well as discretionary distributions the trustee decides to make. The 5 creditor may also, in theory, force a judicial sale of a beneficiary’s 6 interest. 7 Because proceedings to satisfy a claim are equitable in nature, 8 the second sentence of this section ratifies the court’s discretion to 9 limit the award as appropriate under the circumstances. In 10 exercising its discretion to limit relief, the court may appropriately 11 consider the support needs of a beneficiary and the beneficiary’s 12 family. See Restatement (Third) of Trusts Section 56 cmt. e 13 (Tentative Draft No. 2, approved 1999). 14 The case law in South Carolina was uncertain as to the 15 effectiveness and application of the spendthrift provision but 16 appears to indicate that a spendthrift provision operated against 17 only income interests but not principal interests. See S. Alan 18 Medlin, The Law of Wills and Trusts, Vol. I. Estate Planning in 19 South Carolina, Section 508.2(a), p. 519 (2002). Older cases seem 20 to allow a cessor clause to prevent the voluntary or involuntary 21 alienation of the beneficiary’s interest. See S. Alan Medlin, supra. 22 This Section avoids the confusion regarding the effectiveness and 23 application of the spendthrift provision and also clarifies and 24 broadens the laws in South Carolina so that a spendthrift provision 25 operates as a restraint against both income and principal interests, 26 except as otherwise provided in the following sections of the 27 SCTC. 28 Section 627501 provides additional protection not only for 29 spendthrift interests, but also for interests in discretionary trusts as 30 referred to in S. C. Code Section 627504. Discretionary trusts do 31 not have to rely on spendthrift language for a beneficiary’s present 32 or future interest in the trust to be exempt from creditor 33 attachment. 34 For a definition of discretionary trust, resort should be made to 35 the South Carolina common law. See generally Heath v. Bishop, 36 25 S. C. Eq. (4 Rich. Eq.) 446 (S.C. 1851); Collins v. Collins, 219 37 S.C. 1. 63 S.E. 2d 811 (S.C.1951); see also Sarlin v. Sarlin, 312 S. 38 C. 27, 430 S. E. 2d 530 (S.C. App. 1993); Page v. Page, 243 S. C. 39 312, 133 S. E. 2d 829 (S.C. 1963). 40 41 Section 627502. (a) A spendthrift provision is valid only if it 42 restrains both voluntary and involuntary transfer of a beneficiary’s 43 interest. [1243] 534 1 (b) A term of a trust providing that the interest of a beneficiary 2 is held subject to a ‘spendthrift trust’, or words of similar import, is 3 sufficient to restrain both voluntary and involuntary transfer of the 4 beneficiary’s interest. 5 (c) A beneficiary may not transfer an interest in a trust in 6 violation of a valid spendthrift provision and, except as otherwise 7 provided in this article, a creditor or assignee of the beneficiary 8 may not reach the interest or a distribution by the trustee before its 9 receipt by the beneficiary. 10 11 REPORTER’S COMMENT 12 13 Under this section, a settlor has the power to restrain the transfer 14 of a beneficiary’s interest, regardless of whether the beneficiary 15 has an interest in income, in principal, or in both. Unless one of 16 the exceptions under this article applies, a creditor of the 17 beneficiary is prohibited from attaching a protected interest and 18 may only attempt to collect directly from the beneficiary after 19 payment is made. This section is similar to Restatement (Third) of 20 Trusts Section 58 (Tentative Draft No. 2, approved 1999), and 21 Restatement (Second) of Trusts Sections 152153 (1959). For the 22 definition of spendthrift provision, see Section 627103(15). 23 For a spendthrift provision to be effective under this Code, it 24 must prohibit both the voluntary and involuntary transfer of the 25 beneficiary’s interest, that is, a settlor may not allow a beneficiary 26 to assign while prohibiting a beneficiary’s creditor from collecting, 27 and vice versa. See Restatement (Third) of Trusts Section 58 cmt. 28 b (Tentative Draft No. 2, approved 1999). See also Restatement 29 (Second) of Trusts Section 152(2) (1959). A spendthrift provision 30 valid under this Code will also be recognized as valid in a federal 31 bankruptcy proceeding. See 11 U.S.C. Section 541(c)(2). 32 Subsection (b), which is derived from Texas Property Code 33 Section 112.035(b), allows a settlor to provide maximum 34 spendthrift protection simply by stating in the instrument that all 35 interests are held subject to a “spendthrift trust” or words of 36 similar effect. 37 A disclaimer, because it is a refusal to accept ownership of an 38 interest and not a transfer of an interest already owned, is not 39 affected by the presence or absence of a spendthrift provision. 40 Most disclaimer statutes expressly provide that the validity of a 41 disclaimer is not affected by a spendthrift protection. See, e.g., 42 Unif. Probate Code Section 2801(a) and SCPC Section 622801(c) 43 (6). Releases and exercises of powers of appointment are also not[1243] 535 1 affected because they are not transfers of property. See 2 Restatement (Third) of Trusts Section 58 cmt. c (Tentative Draft 3 No. 2, approved 1999). 4 A spendthrift provision is ineffective against a beneficial interest 5 retained by the settlor. See Restatement (Third) of Trusts Section 6 58(2) (Tentative Draft No. 2, approved 1999). This is a necessary 7 corollary to Section 627505(a)(2), which allows a creditor or 8 assignee of the settlor to reach the maximum amount that can be 9 distributed to or for the settlor’s benefit. This right to reach the 10 trust applies whether or not the trust contains a spendthrift 11 provision. 12 A valid spendthrift provision makes it impossible for a 13 beneficiary to make a legally binding transfer, but the trustee may 14 choose to honor the beneficiary’s purported assignment. The 15 trustee may recommence distributions to the beneficiary at 16 anytime. The beneficiary, not having made a binding transfer, can 17 withdraw the beneficiary’s direction but only as to future 18 payments. See Restatement (Third) of Trusts Section 58 cmt. d 19 (Tentative Draft No. 2, approved 1999); Restatement (Second) of 20 Trusts Section 152 cmt. i (1959). 21 For discussion of the treatment of spendthrift provisions in 22 South Carolina, see Comment to SCTC Section 627501. 23 24 Section 627503. (a) In this section, ‘child’ includes any person 25 for whom an order or judgment for child support has been entered 26 in this or another State. 27 (b) Even if a trust contains a spendthrift provision, a 28 beneficiary’s child who has a judgment or court order against the 29 beneficiary for support or maintenance may obtain from a court an 30 order attaching present or future distributions to or for the benefit 31 of the beneficiary. 32 (c) The exception in subsection (b) is unenforceable against a 33 special needs trust, supplemental needs trust, or similar trust 34 established for a disabled person if the applicability of such a 35 provision could invalidate such a trust’s exemption from 36 consideration as a countable resource for Medicaid or 37 Supplemental Security Income (SSI) purposes or if the 38 applicability of such a provision has the effect or potential effect of 39 rendering such disabled person ineligible for any program of 40 public benefit, including, but not limited to, Medicaid and SSI. 41 42 REPORTER’S COMMENT 43[1243] 536 1 This section exempts the claims of certain categories of creditors 2 from the effects of a spendthrift restriction. 3 The exception in subsection (b) for judgments or orders to 4 support a beneficiary’s child is in accord with Restatement (Third) 5 of Trusts Section 59(a) (Tentative Draft No. 2, approved 1999), 6 Restatement (Second) of Trusts Section 157(a) (1959), and 7 numerous state statutes. It is also consistent with federal 8 bankruptcy law, which exempts such support orders from 9 discharge. South Carolina Trust Code Section 627503(b), 10 however, eliminates the exceptions contained in Uniform Trust 11 Code Section 503 for a beneficiary’s spouse or former spouse who 12 has a judgment or court order against the beneficiary for support or 13 maintenance as well as a judgment creditor who has provided 14 services for the protection of a beneficiary’s interest in a 15 spendthrift trust. The effect of this exception is to permit the 16 claimant for unpaid support to attach present or future distributions 17 that would otherwise be made to the beneficiary. Distributions 18 subject to attachment include distributions required by the express 19 terms of the trust, such as mandatory payments of income, and 20 distributions the trustee has otherwise decided to make, such as 21 through the exercise of discretion. Subsection (b), unlike Section 22 627504, does not authorize the child claimant to compel a 23 distribution from the trust. Section 627504 authorizes a child 24 claimant to compel a distribution to the extent the trustee has 25 abused a discretion or failed to comply with a standard for 26 distribution. 27 Subsection (b) refers both to “support” and “maintenance” in 28 order to accommodate differences among the states in terminology 29 employed. No difference in meaning between the two terms is 30 intended. 31 The definition of “child” in subsection (a) accommodates the 32 differing approaches states take to defining the class of individuals 33 eligible for child support, including such issues as whether support 34 can be awarded to stepchildren. However the state making the 35 award chooses to define “child” will be recognized under this 36 Code, whether the order sought to be enforced was entered in the 37 same or different state. 38 South Carolina has eliminated the exceptions found in UTC 39 Section 503 (b) and (c) certain judgment creditors and for a claim 40 made by the State of South Carolina or the United States to the 41 extent a state or federal law provides for any such claim. Thus, 42 under the SCTC, the only exception to a spendthrift trust will be 43 for a beneficiary’s child who has a judgment or court order against[1243] 537 1 the beneficiary for support or maintenance. South Carolina also 2 adds a new subsection (c), not found in the UTC, which makes 3 clear that the exception in subsection (b) for child support shall be 4 unenforceable against a special or supplemental needs trusts under 5 the circumstances described in subsection (c). Unlike Restatement 6 (Third) of Trusts Section 59(2) (Tentative Draft No. 2, approved 7 1999), and Restatement (Second) of Trusts Section 157(b) (1959), 8 this Code does not create an exception to the spendthrift restriction 9 for creditors who have furnished necessary services or supplies to 10 the beneficiary. There is also no exception for tort claimants. For 11 a discussion of the exception for tort claims, which has not 12 generally been recognized, see Restatement (Third) of Trusts 13 Section 59 Reporter’s Notes to cmt. a (Tentative Draft No. 2, 14 approved 1999). For a discussion of other exceptions to a 15 spendthrift restriction, recognized in some States, see George G. 16 Bogert & George T. Bogert, The Law of Trusts and Trustees 17 Section 224 (Rev. 2d ed. 1992); and 2A Austin W. Scott & 18 William F. Fratcher, The Law of Trusts Sections 157157.5 (4th ed. 19 1987). 20 21 Section 627504. (a) In this section, ‘child’ includes any person 22 for whom an order or judgment for child support has been entered 23 in this or another state. 24 (b) Except as otherwise provided in subsection (c), a creditor 25 of a beneficiary may not compel a distribution from a trust in 26 which the beneficiary has a discretionary trust interest, even if: 27 (1) the discretion is expressed in the form of a standard of 28 distribution; or 29 (2) the trustee has abused the discretion. 30 (c) To the extent a trustee has not complied with a standard of 31 distribution or has abused a discretion: 32 (1) a distribution may be ordered by the court to satisfy a 33 judgment or court order against the beneficiary for support or 34 maintenance of the beneficiary’s child; and 35 (2) the court shall direct the trustee to pay to the child such 36 amount as is equitable under the circumstances but not more than 37 the amount the trustee would have been required to distribute to or 38 for the benefit of the beneficiary had the trustee complied with the 39 standard or not abused the discretion. 40 (d) This section does not limit the right of a beneficiary to 41 maintain a judicial proceeding against a trustee for an abuse of 42 discretion or failure to comply with a standard for distribution;[1243] 538 1 provided, however, this right may not be exercised by a creditor of 2 the beneficiary. 3 (e) Whether or not a trust contains a spendthrift provision, a 4 creditor of a beneficiary may not compel a distribution from 5 insurance proceeds payable to the trustee as beneficiary to the 6 extent state law exempts such insurance proceeds from creditors’ 7 claims. 8 (f) A creditor of a beneficiary who is also a trustee or cotrustee 9 may not reach the trustee’s beneficial interest or otherwise compel 10 a distribution if the trustee’s discretion to make distributions for 11 the trustee’s own benefit is limited by an ascertainable standard. 12 13 REPORTER’S COMMENT 14 15 South Carolina Trust Code Section 627504 eliminates the 16 exceptions allowed under Uniform Trust Code Section 504 for 17 judgments or court orders in favor of a beneficiary’s spouse or 18 former spouse. As with SCTC Section 627503, the only exception 19 will be for a beneficiary’s child who has a judgment or court order 20 against the beneficiary for support or maintenance. However, a 21 child’s claim against a discretionary trust interest will be limited to 22 those cases where a trustee has not complied with a standard of 23 distribution or has abused a discretion. 24 This section addresses the ability of a beneficiary’s creditor to 25 reach the beneficiary’s discretionary trust interest, whether or not 26 the exercise of the trustee’s discretion is subject to a standard. 27 This section, similar to the Restatement, eliminates the distinction 28 between discretionary and support trusts, unifying the rules for all 29 trusts fitting within either of the former categories. See 30 Restatement (Third) of Trusts Section 60 Reporter’s Notes to cmt. 31 a (Tentative Draft No. 2, approved 1999). 32 This section could have limited application. Pursuant to Section 33 627502, the effect of a valid spendthrift provision, where 34 applicable, is to prohibit a creditor from collecting on a 35 distribution prior to its receipt by the beneficiary. Only if the trust 36 is not protected by a spendthrift provision, or if the creditor falls 37 within one of the exceptions to spendthrift enforcement created by 38 Section 627503, does this section become relevant. 39 For a discussion of the definition of “child” in subsection (a), 40 see Section 627503 Comment. 41 Subsection (b), which establishes the general rule, forbids a 42 creditor from compelling a distribution from the trust, even if the 43 trustee has failed to comply with the standard of distribution or has[1243] 539 1 abused a discretion. Under subsection (d), the power to force a 2 distribution due to an abuse of discretion or failure to comply with 3 a standard belongs solely to the beneficiary. Under Section 4 627814(a), a trustee must always exercise a discretionary power in 5 good faith and with regard to the purposes of the trust and the 6 interests of the beneficiaries. 7 Subsection (c) creates an exception for support claims of a child 8 who has a judgment or order against a beneficiary for support or 9 maintenance. While a creditor of a beneficiary generally may not 10 assert that a trustee has abused a discretion or failed to comply 11 with a standard of distribution, such a claim may be asserted by the 12 beneficiary’s child enforcing a judgment or court order against the 13 beneficiary for unpaid support or maintenance. The court must 14 direct the trustee to pay the child such amount as is equitable under 15 the circumstances but not in excess of the amount the trustee was 16 otherwise required to distribute to or for the benefit of the 17 beneficiary. Before fixing this amount, the court having 18 jurisdiction over the trust should consider that in setting the 19 respective support award, the family court has already considered 20 the respective needs and assets of the family. The SCTC does not 21 prescribe a particular procedural method for enforcing a judgment 22 or order against the trust, leaving that matter to local collection 23 law. 24 The South Carolina Trust Code adds to the UTC version the 25 proviso at the end of subsection (d), which prevents a beneficiary’s 26 creditor from enforcing on behalf of the beneficiary the 27 beneficiary’s right, to the extent it exists, to maintain a judicial 28 proceeding against a trustee for an abuse of discretion or failure to 29 comply with a standard of distribution. 30 South Carolina’s version of subsection (e), not found in the 31 UTC, ensures that even if there is no spendthrift provision, 32 insurance proceeds remain exempt from creditors’ claims pursuant 33 to S. C. Code Section 386340 et seq. and other relevant state laws. 34 35 Section 627505. (a) Whether or not the terms of a trust contain 36 a spendthrift provision, the following rules apply: 37 (1) During the lifetime of the settlor, the property of a 38 revocable trust is subject to claims of the settlor’s creditors. 39 (2) With respect to an irrevocable trust, a creditor or 40 assignee of the settlor may reach the maximum amount that can be 41 distributed to or for the settlor’s benefit. If a trust has more than 42 one settlor, the amount the creditor or assignee of a particular[1243] 540 1 settlor may reach may not exceed the settlor’s interest in the 2 portion of the trust attributable to that settlor’s contribution. 3 (3) After the death of a settlor, and subject to the settlor’s 4 right to direct the source from which liabilities will be paid, and 5 except to the extent state or federal law exempts any property of 6 the trust from claims, costs, expenses, or allowances, the property 7 of a held in a revocable trust that was revocable at the time of the 8 settlor’s death is subject to claims of the settlor’s creditors, costs of 9 administration of the settlor’s estate, the expenses of the settlor’s 10 funeral and disposal of remains, and statutory allowances to a 11 surviving spouse and children to the extent the settlor’s probate 12 estate is inadequate to satisfy those claims, costs, expenses, and 13 allowances, unless barred by Section 623801 et seq. 14 (b) For purposes of this section,: 15 (1) a beneficiary who is a trustee of a trust, but who is not 16 the settlor of the trust, cannot be treated in the same manner as the 17 settlor of a revocable trust if the beneficiarytrustee’s power to 18 make distributions to the beneficiarytrustee is limited by an 19 ascertainable standard related to the beneficiarytrustee’s health, 20 education, maintenance, or and support; 21 (2) the assets in a trust that are attributable to a contribution 22 to an inter vivos marital deduction trust described in either Section 23 2523(e) or (f) of the Internal Revenue Code of 1986, after the 24 death of the spouse of the settlor of the inter vivos marital 25 deduction trust are deemed to have been contributed by the 26 settlor’s spouse and not by the settlor. 27 28 REPORTER’S COMMENT 29 30 Subsection (a)(1) states what is now a well accepted conclusion, 31 that a revocable trust is subject to the claims of the settlor’s 32 creditors while the settlor is living. See Restatement (Third) of 33 Trusts Section 25 cmt. a (Tentative Draft No. 1, approved 1996). 34 Such claims were not allowed at common law, however. See 35 Restatement (Second) of Trusts Section 330 cmt. o (1959). 36 Because a settlor usually also retains a beneficial interest that a 37 creditor may reach under subsection (a)(2), the common law rule, 38 were it retained in this Code, would be of little significance. See 39 Restatement (Second) of Trusts Section 156(2) (1959). 40 Subsection (a)(2), which is based on Restatement (Third) of 41 Trusts Section 58(2) and cmt. e (Tentative Draft No. 2, approved 42 1999), and Restatement (Second) of Trusts Section 156 (1959), 43 follows traditional doctrine in providing that a settlor who is also a[1243] 541 1 beneficiary may not use the trust as a shield against the settlor’s 2 creditors. The drafters of the Uniform Trust Code concluded that 3 traditional doctrine reflects sound policy. Consequently, the 4 drafters rejected the approach taken in States like Alaska and 5 Delaware, both of which allow a settlor to retain a beneficial 6 interest immune from creditor claims. See Henry J. Lischer, Jr., 7 Domestic Asset Protection Trusts: Pallbearers to Liability, 35 Real 8 Prop. Prob. & Tr. J. 479 (2000); John E. Sullivan, III, Gutting the 9 Rule Against SelfSettled Trusts: How the Delaware Trust Law 10 Competes with Offshore Trusts, 23 Del. J. Corp. L. 423 (1998). 11 The SCTC confirms this policy. Under the Code, whether the trust 12 contains a spendthrift provision or not, a creditor of the settlor may 13 reach the maximum amount that the trustee could have paid to the 14 settlerbeneficiary. If the trustee has discretion to distribute the 15 entire income and principal to the settlor, the effect of this 16 subsection is to place the settlor’s creditors in the same position as 17 if the trust had not been created. For the definition of “settlor,” see 18 Section 627103(14). 19 This section does not address possible rights against a settlor 20 who was insolvent at the time of the trust’s creation or was 21 rendered insolvent by the transfer of property to the trust. This 22 subject is instead left to the State’s law on fraudulent transfers. A 23 transfer to the trust by an insolvent settlor might also constitute a 24 voidable preference under federal bankruptcy law. 25 Subsection (a)(3) recognizes that a revocable trust is usually 26 employed as a will substitute. As such, the trust assets, following 27 the death of the settlor, should be subject to the settlor’s debts and 28 other charges. However, under SCTC 627505(a)(3), only assets 29 held in a revocable trust at the time of the settlor’s death will be 30 subject to creditor’s claims. Assets transferred to a revocable trust 31 following the settlor’s death will not become subject to creditor’s 32 claims as a result of the transfer. For example, life insurance 33 proceeds and cash surrender values that would be exempt under 34 the terms of the trust pursuant to §386340 or §386590 would 35 maintain the exempt status if payable to the trust. Also, in 36 accordance with traditional doctrine, the assets of the settlor’s 37 probate estate must normally first be exhausted before the assets of 38 the revocable trust can be reached. This section does not attempt 39 to address the procedural issues raised by the need first to exhaust 40 the decedent’s probate estate before reaching the assets of the 41 revocable trust. Nor does this section address the priority of 42 creditor claims or liability of the decedent’s other nonprobate 43 assets for the decedent’s debts and other charges. Subsection (a)[1243] 542 1 (3), however, does ratify the typical pourover will, revocable trust 2 plan. As long as the rights of the creditor or family member 3 claiming a statutory allowance are not impaired, the settlor is free 4 to shift liability from the probate estate to the revocable trust. 5 Regarding other issues associated with potential liability of 6 nonprobate assets for unpaid claims, see Section 6102 of the 7 Uniform Probate Code, which was added to that Code in 1998. 8 Upon the lapse, release, or waiver of a power of withdrawal, 9 the property formerly subject to the power will normally be subject 10 to the claims of the power holder’s creditors and assignees the 11 same as if the power holder were the settlor of a now irrevocable 12 trust. Pursuant to subsection (a)(2), a creditor or assignee of the 13 power holder generally may reach the power holder’s entire 14 beneficial interest in the trust, whether or not distribution is subject 15 to the trustee’s discretion. The Uniform Trust Code does not 16 address creditor issues with respect to property subject to a special 17 power of appointment or a testamentary general power of 18 appointment. For creditor rights against such interests, see 19 Restatement (Property) Second: Donative Transfers Sections 13.1 20 3.7 (1986). 21 22 Section 627506. Whether or not a trust contains a spendthrift 23 provision, a creditor or assignee of a beneficiary may reach a 24 mandatory distribution of income or principal, including a 25 distribution upon termination of the trust, if the trustee has not 26 made the distribution to the beneficiary within a reasonable time 27 after the designated distribution date. For purposes of this section, 28 a mandatory distribution is a distribution where the trustee has no 29 discretion in determining whether the distribution shall be made or 30 the amount or timing of such distribution. 31 32 REPORTER’S COMMENT 33 34 The effect of a spendthrift provision is generally to insulate 35 totally a beneficiary’s interest until a distribution is made and 36 received by the beneficiary. See Section 627502. But this section, 37 along with several other sections in this article, recognizes 38 exceptions to this general rule. Whether a trust contains a 39 spendthrift provision or not, a trustee should not be able to avoid 40 creditor claims against a beneficiary by refusing to make a 41 distribution required to be made by the express terms of the trust. 42 On the other hand, a spendthrift provision would become largely a 43 nullity were a beneficiary’s creditors able to attach all required[1243] 543 1 payments as soon as they became due. This section reflects a 2 compromise between these two competing principles. A creditor 3 can reach a mandatory distribution, including a distribution upon 4 termination, if the trustee has failed to make the payment within a 5 reasonable time after the designated distribution date. Following 6 this reasonable period, payments mandated by the express terms of 7 the trust are in effect being held by the trustee as agent for the 8 beneficiary and should be treated as part of the beneficiary’s 9 personal assets. 10 South Carolina Trust Code Section 627506 adds to the Uniform 11 Trust Code version of Section 506 a definition of “mandatory 12 distribution” to prevent the South Carolina section from being 13 interpreted to require distributions from discretionary trusts as 14 referred to in SCTC Section 627504. Common examples of 15 mandatory distributions are found in qualified terminable interest 16 property trusts, charitable remainder trusts, and grantor retained 17 trusts, when the trustee is required to make a distribution annually 18 of a sum certain. 19 This section is similar to Restatement (Third) of Trusts Section 20 58 cmt. d (Tentative Draft No. 2, approved 1999). 21 22 Section 627507. Trust property is not subject to personal 23 obligations of the trustee, even if the trustee becomes insolvent or 24 bankrupt. 25 26 REPORTER’S COMMENTS 27 28 Because the beneficiaries of the trust hold the beneficial interest 29 in the trust property and the trustee holds only legal title without 30 the benefits of ownership, the creditors of the trustee have only a 31 personal claim against the trustee. See Restatement (Third) Section 32 5 cmt. k (Tentative Draft No. 1, approved 1996); Restatement 33 (Second) of Trusts Section 12 cmt. a (1959). Similarly, a personal 34 creditor of the trustee who attaches trust property to satisfy the 35 debt does not acquire title as a bona fide purchaser even if the 36 creditor is unaware of the trust. See Restatement (Second) of 37 Trusts Section 308 (1959). The protection afforded by this section 38 is consistent with that provided by the Bankruptcy Code. Property 39 in which the trustee holds legal title as trustee is not part of the 40 trustee’s bankruptcy estate. 11 U.S.C. Section 541(d). 41 The exemption of the trust property from the personal 42 obligations of the trustee is the most significant feature of 43 AngloAmerican trust law by comparison with the devices available[1243] 544 1 in civil law countries. A principal objective of the Hague 2 Convention on the Law Applicable to Trusts and on their 3 Recognition is to protect the AngloAmerican trust with respect to 4 transactions in civil law countries. See Hague Convention art. 11. 5 See also Henry Hansmann & Ugo Mattei, The Functions of Trust 6 Law: A Comparative Legal and Economic Analysis, 73 N.Y.U. L. 7 Rev. 434 (1998); John H. Langbein, The Secret Life of the Trust: 8 The Trust as an Instrument of Commerce, 107 Yale L.J. 165, 9 17980 (1997). 10 11 Part 6 12 13 Revocable Trusts 14 15 General Comment 16 This article deals with issues of significance not totally settled 17 under prior law. Because of the widespread use in recent years of 18 the revocable trust as an alternative to a will, this short article is 19 one of the more important articles of the Code. This article and the 20 other articles of the Code treat the revocable trust as the functional 21 equivalent of a will. Section 627601 provides that the capacity 22 standard for wills applies in determining whether the settlor had 23 capacity to create a revocable trust. Section 627602, after 24 providing that a trust is presumed revocable unless stated 25 otherwise, prescribes the procedure for revocation or amendment, 26 whether the trust contains one or several settlors. Section 627603 27 provides that while a trust is revocable and the settlor has capacity, 28 the rights of the beneficiaries are subject to the settlor’s control. 29 Section 627604 prescribes a statute of limitations on contest of 30 revocable trusts. 31 Sections 627601 and 627604, because they address 32 requirements relating to creation and contest of trusts, are not 33 subject to alteration or restriction in the terms of the trust. See 34 Section 627105. Sections 627602 and 627603, by contrast, are not 35 so limited and are fully subject to the settlor’s control. 36 37 Section 627601. The capacity required to create, amend, revoke, 38 or add property to a revocable trust, or to direct the actions of the 39 trustee of a revocable trust, is the same as that required to make a 40 will. 41 42 REPORTER’S COMMENT 43[1243] 545 1 This section is patterned after Restatement (Third) of Trusts 2 Section 11(1) (Tentative Draft No. 1, approved 1996). The 3 revocable trust is used primarily as a will substitute, with its key 4 provision being the determination of the persons to receive the 5 trust property upon the settlor’s death. To solidify the use of the 6 revocable trust as a device for transferring property at death, the 7 settlor usually also executes a pourover will. The use of a 8 pourover will assures that property not transferred to the trust 9 during life will be combined with the property the settlor did 10 manage to convey. Given this primary use of the revocable trust 11 as a device for disposing of property at death, the capacity standard 12 for wills rather than that for lifetime gifts should apply. The 13 application of the capacity standard for wills does not mean that 14 the revocable trust must be executed with the formalities of a will. 15 There are no execution requirements under this Code for a trust not 16 created by will, and a trust not containing real property may be 17 created by an oral statement. See Section 627407 and comment. 18 See SCTC Section 627401, which requires a writing for a 19 selftrusteed declaration of trust. 20 The SCTC does not explicitly spell out the standard of capacity 21 necessary to create other types of trusts, although Section 627402 22 does require that the settlor have capacity. This section includes a 23 capacity standard for creation of a revocable trust because of the 24 uncertainty in the case law and the importance of the issue in 25 modern estate planning. No such uncertainty exists with respect to 26 the capacity standard for other types of trusts. To create a 27 testamentary trust, the settlor must have the capacity to make a 28 will. To create an irrevocable trust, the settlor must have the 29 capacity that would be needed to transfer the property free of trust. 30 See generally Restatement (Third) of Trusts Section 11 (Tentative 31 Draft No. 1, approved 1996); Restatement (Third) of Property: 32 Wills and Other Donative Transfers Section 8.1 (Tentative Draft 33 No. 3, approved 2001). 34 South Carolina Probate Code Section 622501 provides that a 35 person who is “of sound mind and who is not a minor as defined in 36 Section 622201(27) may make a will.” Section 622201(27) 37 defines a minor as a person under eighteen excluding persons 38 under eighteen who are married or emancipated by court decree. 39 The test for mental capacity is whether the person has the 40 capability to know (1) his estate, (2) the objects of his affections, 41 and (3) to whom he wishes to give his property. The capacity to 42 understand as opposed to actual knowledge or understanding is 43 sufficient. It is a lower standard than that required to sign a deed[1243] 546 1 or contract. Weeks v. Drawdy, 329 S.C. 251, 495 S.E.2d 454 (S.C. 2 Ct.App. 1997); McCollum v. Banks, et al., 213 S.C. 476, 50 S.E.2d 3 199 (S.C. 1948). 4 A higher degree of capacity is required to execute an irrevocable 5 trust. The settlor must have the mental capacity to understand the 6 nature of the trust and its probable consequences. Macauley, et al. 7 v. Wachovia Bank, et al., 351 S.C. 287, 569 S.E.2d 371 (S.C. 8 Ct.App. 2002). 9 There was no prior statutory counterpart to this Section. 10 As a practical matter, the relatively common use of pour over 11 wills in conjunction with minimally funded revocable trusts 12 indicates that the measure of capacity for execution of the trust is 13 the same as that for a will. See Bowles v. Bradley, 219 S.C. 377, 14 461 S.E.2d 811 (S.C. 1995). 15 16 Section 627602. (a) Unless the terms of a trust expressly 17 provide that the trust is irrevocable, the settlor may revoke or 18 amend the trust. This subsection does not apply to a trust created 19 under an instrument executed before the effective date of this 20 article. 21 (b) If a revocable trust is created or funded by more than one 22 settlor: 23 (1) to the extent the trust consists of community property, 24 the trust may be revoked by either spouse acting alone but may be 25 amended only by joint action of both spouses; and 26 (2) to the extent the trust consists of property other than 27 community property, each settlor may revoke or amend the trust 28 with regard to the portion of the trust property attributable to that 29 settlor’s contribution; and 30 (3) upon the revocation or amendment of the trust by fewer 31 than all of the settlors, the trustee shall promptly notify the other 32 settlors of the revocation or amendment. 33 (c) The settlor may revoke or amend a revocable trust: 34 (1) by substantial compliance with a method provided in the 35 terms of the trust; or 36 (2) if the terms of the trust do not provide a method or the 37 method provided in the terms is not expressly made exclusive, by: 38 (A) a later will or codicil that expressly refers to the trust, 39 manifesting clear and convincing evidence of the settlor’s intent; 40 or 41 (B) by oral statement to the trustee if the trust was created 42 orally; or [1243] 547 1 (C) any other written method, other than a later will or 2 codicil, delivered to the trustee and manifesting clear and 3 convincing evidence of the settlor’s intent. 4 (d) Upon revocation of a revocable trust, the trustee shall 5 deliver the trust property as the settlor directs. 6 (e) A settlor’s powers with respect to revocation, amendment, 7 or distribution of trust property may be exercised by an agent 8 under a power of attorney only to the extent expressly authorized 9 by the terms of the trust or the power of attorney provided the 10 exercise of the power does not alter the designation of 11 beneficiaries to receive the property on the settlor’s death under 12 the settlor’s existing estate plan. RESERVED 13 (f) A conservator of the settlor or, if no conservator has been 14 appointed, a guardian of the settlor may exercise a settlor’s powers 15 with respect to revocation, amendment, or distribution of trust 16 property only with the approval of the court supervising the 17 conservatorship or guardianship and with regard to the 18 requirements of Section 625408 (3)(c). 19 (g) A trustee who does not know that a trust has been revoked 20 or amended is not liable to the settlor or settlor’s successors in 21 interest for distributions made and other actions taken on the 22 assumption that the trust had not been amended or revoked. 23 24 REPORTER’S COMMENT 25 26 South Carolina Trust Code Section 627602(a) is a departure 27 from former South Carolina law, which presumed that a trust was 28 irrevocable unless a power of revocation was validly reserved and 29 that, if a particular method of revocation was specified, it must be 30 strictly followed. Where the right to revoke was reserved and no 31 particular mode was specified, any mode sufficiently showing an 32 intention to revoke was effective. See Peoples National Bank of 33 Greenville v. Peden et al., 229 S.E. 2d 163 (S.C. 1956), citing to 4 34 Bogert on Trusts and Trustees Section 996 and 54 Am. Jur. 35 Section 77 on Trusts. Likewise, a settlor had to expressly reserve 36 the right to modify a trust. First Carolinas Joint Stock Land Bank 37 v. Deschamps, et al., 171 S. C. 466 172 S.E. 622 (S.C. 1934). 38 The South Carolina Supreme Court has noted that there are 39 some exceptions to the general rule that a trust cannot be revoked 40 or modified unless such a power is expressly reserved in the trust 41 instrument, such as mistake. Chiles v. Chiles, et al., 20 S. C. 379, 42 242 S.E. 2d 426 (S.C. 1978), citing to the Restatement 2d of Trusts 43 Section 330(2).[1243] 548 1 Most states follow the rule that a trust is presumed irrevocable 2 absent evidence of contrary intent. See Restatement (Second) of 3 Trusts Section 330 (1959). California, Iowa, Montana, Oklahoma, 4 and Texas presume that a trust is revocable. The South Carolina 5 Trust Code endorses this minority approach, but only for trusts 6 created after its effective date. This Code presumes revocability 7 when the instrument is silent because the instrument was likely 8 drafted by a nonprofessional, who intended the trust as a will 9 substitute. The most recent revision of the Restatement of Trusts 10 similarly reverses the former approach. A trust is presumed 11 revocable if the settlor has retained a beneficial interest. See 12 Restatement (Third) of Trusts Section 63 cmt. c (Tentative Draft 13 No. 3, approved 2001). Because professional drafters habitually 14 spell out whether or not a trust is revocable, subsection (a) will 15 have limited application. 16 A power of revocation includes the power to amend. An 17 unrestricted power to amend may also include the power to revoke 18 a trust. See Restatement (Third) of Trusts Section 63 cmt. g 19 (Tentative Draft No. 3, approved 2001); Restatement (Second) of 20 Trusts Section 331 cmt. g & h (1959). 21 Subsection (b), which is similar to Restatement (Third) of Trusts 22 Section 63 cmt. k (Tentative Draft No. 3, approved 2001), 23 provides default rules for revocation or amendment of a trust 24 having several settlors. The settlor’s authority to revoke or modify 25 the trust depends on whether the trust contains community 26 property. To the extent the trust contains community property, the 27 trust may be revoked by either spouse acting alone but may be 28 amended only by joint action of both spouses. The purpose of this 29 provision, and the reason for the use of joint trusts in community 30 property states, is to preserve the community character of property 31 transferred to the trust. While community property does not 32 prevail in a majority of states, contributions of community 33 property to trusts created in noncommunity property states does 34 occur. This is due to the mobility of settlors, and the fact that 35 community property retains its community character when a 36 couple moves from a community to a noncommunity state. For 37 this reason, subsection (b), and its provision on contributions of 38 community property, should be enacted in all states, whether 39 community or noncommunity. 40 With respect to separate property contributed to the trust, or all 41 property of the trust if none of the trust property consists of 42 community property, subsection (b) provides that each settlor may 43 revoke or amend the trust as to the portion of the trust contributed[1243] 549 1 by that settlor. The inclusion of a rule for contributions of separate 2 property does not mean that the use of joint trusts should be 3 encouraged. The rule is included because of the widespread use of 4 joint trusts in noncommunity property states in recent years. Due 5 to the desire to preserve the community character of trust property, 6 joint trusts are a necessity in community property states. Unless 7 community property will be contributed to the trust, no similarly 8 important reason exists for the creation of a joint trust in a 9 noncommunity property state. Joint trusts are often poorly drafted, 10 confusing the dispositive provisions of the respective settlors. 11 Their use can also lead to unintended tax consequences. See 12 Melinda S. Merk, Joint Revocable Trusts for Married Couples 13 Domiciled in CommonLaw Property States, 32 Real Prop. Prob. & 14 Tr. J. 345 (1997). 15 Subsection (b) does not address the many technical issues that 16 can arise in determining the settlors’ proportionate contribution to 17 a joint trust. Most problematic are contributions of jointlyowned 18 property. In the case of joint tenancies in real estate, each spouse 19 would presumably be treated as having made an equal contribution 20 because of the right to sever the interest and convert it into a 21 tenancy in common. This is in contrast to joint accounts in 22 financial institutions, ownership of which in most states is based 23 not on fractional interest but on actual dollar contribution. See, 24 e.g., Unif. Probate Code Section 6211. Most difficult may be 25 determining a contribution rule for entireties property. In 26 Holdener v. Fieser, 971 S.W. 2d 946 (Mo. Ct. App. 1998), the 27 court held that a surviving spouse could revoke the trust with 28 respect to the entire interest but did not express a view as to 29 revocation rights while both spouses were living. 30 Subsection (b)(3) requires that the other settlor or settlors be 31 notified if a joint trust is revoked by less than all of the settlors. 32 Notifying the other settlor or settlors of the revocation or 33 amendment will place them in a better position to protect their 34 interests. If the revocation or amendment by less than all of the 35 settlors breaches an implied agreement not to revoke or amend the 36 trust, those harmed by the action can sue for breach of contract. If 37 the trustee fails to notify the other settlor or settlors of the 38 revocation or amendment, the parties aggrieved by the trustee’s 39 failure can sue the trustee for breach of trust. 40 Subsection (c), which is similar to Restatement (Third) of Trusts 41 Section 63 cmt. h & i (Tentative Draft No. 3, approved 2001), 42 specifies the method of revocation and amendment. Revocation of 43 a trust differs fundamentally from revocation of a will. Revocation[1243] 550 1 of a will, because a will is not effective until death, cannot affect 2 an existing fiduciary relationship. With a trust, however, because 3 a revocation will terminate an already existing fiduciary 4 relationship, there is a need to protect a trustee who might act 5 without knowledge that the trust has been revoked. There is also a 6 need to protect trustees against the risk that they will misperceive 7 the settlor’s intent and mistakenly assume that an informal 8 document or communication constitutes a revocation when that 9 was not in fact the settlor’s intent. To protect trustees against these 10 risks, drafters habitually insert provisions providing that a 11 revocable trust may be revoked only by delivery to the trustee of a 12 formal revoking document. Some courts require strict compliance 13 with the stated formalities. Other courts, recognizing that the 14 formalities were inserted primarily for the trustee’s and not the 15 settlor’s benefit, will accept other methods of revocation as long as 16 the settlor’s intent is clear. See Restatement (Third) of Trusts 17 Section 63 Reporter’s Notes to cmt. hj (Tentative Draft No. 3, 18 approved 2001). 19 This Code tries to effectuate the settlor’s intent to the maximum 20 extent possible while at the same time protecting a trustee against 21 inadvertent liability. While notice to the trustee of a revocation is 22 good practice, this section does not make the giving of such notice 23 a prerequisite to a trust’s revocation. To protect a trustee who has 24 not been notified of a revocation or amendment, subsection (f) 25 provides that a trustee who does not know that a trust has been 26 revoked or amended is not liable to the settlor or settlor’s 27 successors in interest for distributions made and other actions 28 taken on the assumption that the trust, as unamended, was still in 29 effect. However, to honor the settlor’s intent, subsection (c) 30 generally honors a settlor’s clear expression of intent even if 31 inconsistent with stated formalities in the terms of the trust. 32 Under subsection (c), the settlor may revoke or amend a 33 revocable trust by substantial compliance with the method 34 specified in the terms of the trust or by a later will or codicil or any 35 other method manifesting clear and convincing evidence of the 36 settlor’s intent. Only if the method specified in the terms of the 37 trust is made exclusive is use of the other methods prohibited. 38 Even then, a failure to comply with a technical requirement, such 39 as required notarization, may be excused as long as compliance 40 with the method specified in the terms of the trust is otherwise 41 substantial. 42 While revocation of a trust will ordinarily continue to be 43 accomplished by signing and delivering a written document to the[1243] 551 1 trustee, other methods, such as a physical act or an oral statement 2 coupled with a withdrawal of the property, might also demonstrate 3 the necessary intent. These less formal methods, because they 4 provide less reliable indicia of intent, will often be insufficient, 5 however. The method specified in the terms of the trust is a 6 reliable safe harbor and should be followed whenever possible. 7 Revocation or amendment by will is mentioned in subsection (c) 8 not to encourage the practice but to make clear that it is not 9 precluded by omission. See Restatement (Third) of Property: Will 10 and Other Donative Transfers Section 7.2 cmt. e (Tentative Draft 11 No. 3, approved 2001), which validates revocation or amendment 12 of will substitutes by later will. Situations do arise, particularly in 13 deathbed cases, where revocation by will may be the only 14 practicable method. In such cases, a will, a solemn document 15 executed with a high level of formality, may be the most reliable 16 method for expressing intent. A revocation in a will ordinarily 17 becomes effective only upon probate of the will following the 18 testator’s death. For the cases, see Restatement (Third) of Trusts 19 Section 63 Reporter’s Notes to cmt. hi (Tentative Draft No. 3, 20 approved 2001). 21 A residuary clause in a will disposing of the estate differently 22 than the trust is alone insufficient to revoke or amend a trust. The 23 provision in the will must either be express or the will must 24 dispose of specific assets contrary to the terms of the trust. The 25 substantial body of law on revocation of Totten trusts by will 26 offers helpful guidance. The authority is collected in William H. 27 Danne, Jr., Revocation of Tentative (“Totten”) Trust of Savings 28 Bank Account by Inter Vivos Declaration or Will, 46 A.L.R. 3d 29 487 (1972). 30 Subsection (c) does not require that a trustee concur in the 31 revocation or amendment of a trust. Such a concurrence would be 32 necessary only if required by the terms of the trust. If the trustee 33 concludes that an amendment unacceptably changes the trustee’s 34 duties, the trustee may resign as provided in Section 627705. 35 As to SCTC Section 627602(c), although prior South Carolina 36 case law required strict compliance with method of revocation 37 provided by the terms of the trust, the courts would recognize a 38 valid revocation as long as it was clear that the settlor had 39 exercised every right within his power to revoke the trust and if 40 notice requirements which were strictly for the benefit of the 41 trustee wwere waived by the trustee. Peoples National Bank of 42 Greenville v. Peden et al., 229 S.C. 167, 92 S.E. 2d 163 (S.C. 43 1956). SCTC subsection (c)(2) differs from the UTC version by[1243] 552 1 requiring a writing to revoke or amend a trust unless the trust was 2 created orally. 3 Under prior South Carolina case law, if the power to revoke was 4 not expressly reserved in a trust, the terms of a later will could not 5 control the disposition of property under a previously executed 6 trust document. Bonney v. Granger, et al., 292 S.C. 308, 356 S.E. 7 2d 138 (S.C. Ct. App. 1987). If the right to revoke was reserved 8 and no particular method of revocation was specified, a revocable 9 trust could be revoked by a testamentary devise of the corpus of 10 the trust. Whether a will impliedly revoked a revocable trust was a 11 question of intention. Peoples National Bank of Greenville v. 12 Peden et al., 229 S.C. 167, 92 S.E. 2d 163 (S.C. 1956), citing to 54 13 Am Jur. Section 77. A residuary clause was insufficient to revoke 14 or amend a trust. First Carolinas Joint Stock Land Bank v. 15 Deschamps, et al., 171 S.C. 466, 172 S.E. 622 (S.C.1934). 16 See SCTC Section 627401, which requires a writing for the 17 creation of selftrusteed declarations of trust. 18 Subsection (d), providing that upon revocation the trust property 19 is to be distributed as the settlor directs, codifies a provision 20 commonly included in revocable trust instruments. Prior South 21 Carolina case law required a trustee upon termination of a trust to 22 distribute the assets to the beneficiaries or to their nominee. Beaty 23 Trust Co. v. S. C. Tax Com., 278 S.C. 113, 292 S.E. 2d 788 (S.C. 24 1982). There was no prior South Carolina law that addressed the 25 responsibility of the trustee in regard to a revocable trust. 26 A settlor’s power to revoke is not terminated by the settlor’s 27 incapacity. The power to revoke may instead be exercised by an 28 agent in accordance with Section 627602.1. 29 Subsection (e) addresses the authority of a conservator or 30 guardian to revoke or amend a revocable trust. Under the South 31 Carolina Trust Code, a “conservator” is appointed by the court to 32 manage the ward’s party, a “guardian” to make decisions with 33 respect to the ward’s personal affairs. See Section 627103. 34 Consequently, subsection (e) authorizes a guardian to exercise a 35 settlor’s power to revoke or amend a trust only if a conservator has 36 not been appointed. 37 In South Carolina, the probate court, acting through a 38 conservator, exercises control over the estate and affairs of an 39 incapacitated person in regard to trusts. Acting through the 40 conservator, the court may create, amend or fund, but not revoke 41 (unless amendment could be construed so broadly as to constitute a 42 right to revoke), a revocable trust. In exercising these powers, the 43 court must consider the estate plan and the terms of any revocable[1243] 553 1 trust of which the incapacitated person is settlor. The court has no 2 power to make a will for the incapacitated person. S. C. Code 3 Section 625404(G)(2). 4 If a conservator has not been appointed, subsection (e) 5 authorizes a guardian to exercise a settlor’s power to revoke or 6 amend the trust upon approval of the court supervising the 7 guardianship. The court supervising the guardianship will need to 8 determine whether it can grant a guardian authority to revoke a 9 revocable trust under local law or whether it will be necessary to 10 appoint a conservator for that purpose. 11 12 Section 627602A. (a) An agent acting pursuant to a power of 13 attorney may exercise the following powers of the settlor with 14 respect to a revocable trust only to the extent expressly authorized 15 by the terms of the trust or the power of attorney: 16 (1) revocation of the trust; 17 (2) amendment of the trust; 18 (3) additions to the trust; 19 (4) direction to dispose of property of the trust; 20 (5) creation of the trust, notwithstanding the provisions of 21 Section 627402(a)(1) and (2). 22 (b) An agent acting pursuant to a power of attorney may 23 exercise the following powers of the settlor with respect to an 24 irrevocable trust only to the extent expressly authorized by the 25 terms of the trust or the power of attorney: 26 (1) additions to the trust; 27 (2) creation of the trust, notwithstanding the provisions of 28 Section 627402(a)(1) and (2). 29 (c) The exercise of the powers described in subsection (a) and 30 (b) shall not alter the amount of property beneficiaries are to 31 receive on the settlor’s death under the settlor’s existing will or 32 other estate planning documents or in the absence thereof in 33 accordance with the law of intestate succession. 34 35 REPORTER’S COMMENT 36 37 This section replaces former SCTC Section 627602(e) and 38 expands agent powers with respect to a revocable trust. 39 Subsection (a) expands the powers found in the Uniform Trust 40 Code and former Section 627602(e) which authorized an agent 41 under a power of attorney to revoke, amend, or distribute property 42 from a revocable trust of the principal. Subsection (a) adds to 43 these powers the authorization of an agent of the settlor to create or[1243] 554 1 add to a revocable trust. Subsection (b) revises the limitations of 2 the former Section 627602(e) that prohibited an agent from 3 deviating from the settlor’s estate plan by stating that there shall be 4 no deviation in regard to the amount of property beneficiaries are 5 to receive from the settlor’s will or in the absence thereof from the 6 law of intestate succession. 7 8 Section 627603. While a trust is revocable, rights of the 9 beneficiaries are subject to the control of, and the duties of the 10 trustee are owed exclusively to, the settlor. 11 12 REPORTER’S COMMENT 13 14 This section has the effect of postponing enforcement of the 15 rights of the beneficiaries of a revocable trust until the death of the 16 settlor or other person holding the power to revoke the trust. This 17 section thus recognizes that the settlor of a revocable trust is in 18 control of the trust and should have the right to enforce the trust. 19 Pursuant to this section, the duty under Section 627813 to 20 inform and report to beneficiaries is owed to the settlor of a 21 revocable trust as long as the settlor has capacity. 22 The beneficiaries are entitled to request information concerning 23 the trust and the trustee must provide the beneficiaries with annual 24 trustee reports and whatever other information may be required 25 under Section 627813. However, because this section may be 26 freely overridden in the terms of the trust, a settlor is free to deny 27 the beneficiaries these rights, even to the point of directing the 28 trustee not to inform them of the existence of the trust. Also, 29 should an incapacitated settlor later regain capacity, the 30 beneficiaries’ rights will again be subject to the settlor’s control. 31 The cessation of the settlor’s control upon the settlor’s incapacity 32 or death does not mean that the beneficiaries may reopen 33 transactions the settlor approved while having capacity. 34 Typically, the settlor of a revocable trust will also be the sole or 35 primary beneficiary of the trust. Upon the settlor’s incapacity, any 36 right of action the settlortrustee may have against the trustee for 37 breach of fiduciary duty will pass to the settlor’s agent or 38 conservator. 39 Prior South Carolina law addressed the trustee’s duty of loyalty 40 to the beneficiaries of the trust. See e.g., Ramage v. Ramage, 283 41 S.C. 239, 322 S.E. 2d 22 (S.C. Ct. App. 1984). SCTC Section 42 627603 omits the language found in the UTC 2004 Amendments[1243] 555 1 expressly providing that a trust is revocable only while the settlor 2 has the capacity to revoke. 3 4 Section 627604. (a) A person must commence a judicial 5 proceeding to contest the validity of a trust that was revocable at 6 the settlor’s death within the earlier of: 7 (1) one year after the settlor’s death; or 8 (2) one hundred twenty days after the trustee sent the person 9 a copy of the trust instrument and a notice informing the person of 10 the trust’s existence, of the trustee’s name and address, and of the 11 time allowed for commencing a proceeding. 12 (b) Upon the death of the settlor of a trust that was revocable at 13 the settlor’s death, the trustee may proceed to distribute the trust 14 property in accordance with the terms of the trust. The trustee is 15 not subject to liability for doing so unless: 16 (1) the trustee knows of a pending judicial proceeding 17 contesting the validity of the trust; or 18 (2) a potential contestant has notified the trustee of a 19 possible judicial proceeding to contest the trust and a judicial 20 proceeding is commenced within one hundred twenty days after 21 the contestant sent the notification. 22 (c) A beneficiary of a trust that is determined to have been 23 invalid is liable to return any distribution received. 24 25 REPORTER’S COMMENT 26 27 This section provides finality to the question of when a contest 28 of a revocable trust may be brought. The section is designed to 29 allow an adequate time in which to bring a contest while at the 30 same time permitting the expeditious distribution of the trust 31 property following the settlor’s death. 32 A trust can be contested on a variety of grounds. For example, 33 the contestant may allege that no trust was created due to lack of 34 intent to create a trust or lack of capacity (see Section 627402), 35 that undue influence, duress, or fraud was involved in the trust’s 36 creation (see Section 627406), or that the trust had been revoked or 37 modified (see Section 627602). A “contest” is an action to 38 invalidate all or part of the terms of the trust or of property 39 transfers to the trustee. An action against a beneficiary or other 40 person for intentional interference with an inheritance or gift, not 41 being a contest, is not subject to this section. For the law on 42 intentional interference, see Restatement (Second) of Torts Section 43 774B (1979). Nor does this section preclude an action to[1243] 556 1 determine the validity of a trust that is brought during the settlor’s 2 lifetime, such as a petition for a declaratory judgment, if such 3 action is authorized by other law. See Section 627106 (SCTC 4 supplemented by common law of trusts and principles of equity). 5 This section applies only to a revocable trust that becomes 6 irrevocable by reason of the settlor’s death. A trust that became 7 irrevocable by reason of the settlor’s lifetime release of the power 8 to revoke is outside its scope. A revocable trust does not become 9 irrevocable upon a settlor’s loss of capacity. Pursuant to Section 10 627602 and 627602.1, the power to revoke may be exercised by 11 the settlor’s agent, conservator, or guardian, or personally by the 12 settlor if the settlor regains capacity. 13 Subsection (a) specifies a time limit on when a contest can be 14 brought. A contest is barred upon the first to occur of two possible 15 events. The maximum possible time for bringing a contest is one 16 year from the settlor’s death. This should provide potential 17 contestants with ample time in which to determine whether they 18 have an interest that will be affected by the trust, even if formal 19 notice of the trust is lacking. The oneyear period is derived from 20 Section 623108, under which the contest of an informally probate 21 will must occur by the later of one year from death or eight months 22 after informal probate 23 A trustee who wishes to shorten the contest period may do so by 24 giving notice. Subsection (a)(2) bars a contest by a potential 25 contestant 120 days after the date the trustee sent that person a 26 copy of the trust instrument and informed the person of the trust’s 27 existence, of the trustee’s name and address, and of the time 28 allowed for commencing a contest. The 120 day period in 29 subsection (a)(2) is subordinate to the oneyear bar in subsection (a) 30 (1). A contest is automatically barred one year after the settlor’s 31 death even if notice is sent by the trustee less than 120 days prior 32 to the end of that period. 33 Because only a small minority of trusts are actually contested, 34 trustees should not be restrained from making distributions 35 because of concern about possible liability should a contest later be 36 filed. Absent a protective statute, a trustee is ordinarily absolutely 37 liable for misdelivery of the trust assets, even if the trustee 38 reasonably believed that the distribution was proper. See 39 Restatement (Second) of Trusts Section 226 (1959). Subsection 40 (b) addresses liability concerns by allowing the trustee, upon the 41 settlor’s death, to proceed expeditiously to distribute the trust 42 property. The trustee may distribute the trust property in 43 accordance with the terms of the trust until and unless the trustee[1243] 557 1 receives notice of a pending judicial proceeding contesting the 2 validity of the trust, or until notified by a potential contestant of a 3 possible contest, followed by its filing within 120 days. 4 Even though a distribution in compliance with subsection (b) 5 discharges the trustee from potential liability, subsection (c) makes 6 the beneficiaries of what later turns out to have been an invalid 7 trust liable to return any distribution received. Issues as to whether 8 the distribution must be returned with interest, or with income 9 earned or profit made are not addressed in this section but are left 10 to the law of restitution. 11 For purposes of notices under this section, the substitute 12 representation principles of Part 3 are applicable. The notice by 13 the trustee under subsection (a)(2) or by a potential contestant 14 under subsection (b)(2) must be given in a manner reasonably 15 suitable under the circumstances and likely to result in its receipt. 16 See Section 627109(a). 17 This section does not address possible liability for the debts of 18 the deceased settlor or a trustee’s possible liability to creditors for 19 distributing trust assets. For possible liability of the trust, see 20 Section 627505(a)(3) and Comment 21 For statutory limitations periods applicable to wills, see South 22 Carolina Probate Code Section 623108. 23 For statutory limitations periods applicable to claims of 24 beneficiaries against the trustee, see SCTC Section 6271005. 25 26 Section 627605. A provision in a revocable trust purporting to 27 penalize any interested person for contesting the validity of the 28 trust or instituting other proceedings relating to the trust is 29 unenforceable if probable cause exists for instituting proceedings. 30 31 REPORTER’S COMMENT 32 33 This Section is analogous to South Code Probate Code Section 34 623905, which is applicable to wills. 35 36 Section 627606. (A) Unless the trust expressly provides 37 otherwise, if the beneficiary under a revocable trust, who is a 38 greatgrandparent or a lineal descendant of a greatgrandparent of 39 the settlor, is dead at the time of execution of the trust, fails to 40 survive the settlor, or is treated as if he predeceased the settlor, the 41 issue of the deceased beneficiary who survived the settlor take in 42 place of the deceased beneficiary and if they are all of the same 43 degree of kinship to the beneficiary they take equally, but if of[1243] 558 1 unequal degree then those of more remote degree take by 2 representation. One who would have been a beneficiary under a 3 class gift if he had survived the settlor is treated as a beneficiary 4 for purposes of this section whether his death occurred before or 5 after the execution of the trust. 6 (B) Except as provided in subsection (A), if the disposition of 7 any real or personal property under a revocable trust fails for any 8 reason, this property becomes a part of the residue of the trust. 9 (C) Except as provided in subsection (A), if the residue under a 10 revocable trust is distributed to two or more persons and the share 11 of one of the residuary beneficiaries fails for any reason, his share 12 passes to the other residuary beneficiary or to other residuary 13 beneficiaries in proportion to their interests in the residue. 14 15 REPORTER’S COMMENT 16 17 This Section retains and incorporates former South Carolina 18 Probate Code Section 627113 (except for the deletion of the words 19 “inter vivos” when used to describe the trust and the addition of 20 the introductory “Unless the trust expressly provides otherwise”) 21 and is analogous to SCPC Section 622603 applicable to wills. 22 23 Section 627607. If after executing a revocable trust the settlor is 24 divorced or his the marriage annulled or his the spouse is a party to 25 a valid proceeding concluded by an order purporting to terminate 26 all marital property rights or confirming equitable distribution 27 between the spouses, the divorce or annulment or order revokes 28 any disposition or appointment of property including beneficial 29 interests made by such trust to the spouse, any provision 30 conferring a general or special power of appointment on the 31 spouse, and any nomination of the spouse as trustee, unless the 32 trust expressly provides otherwise. Property prevented from 33 passing to a spouse because of revocation by divorce or annulment 34 or order passes as if the spouse failed to survive the settlor, and 35 other provisions conferring some power or office on this spouse 36 are interpreted as if the spouse failed to survive the settlor. If these 37 provisions for the spouse are revoked solely by this section, they 38 are revived by the settlor’s remarriage to the former spouse. For 39 purposes of this section, divorce or annulment or order means any 40 divorce or annulment or order which would exclude the spouse as 41 a surviving spouse within the meaning of subsections (a) and (b) of 42 Section 622802. A decree of separate maintenance which does not 43 terminate the status of husband and wife is not a divorce for[1243] 559 1 purposes of this section. No change of marital or parental 2 circumstances other than as described in this section revokes a 3 disposition to a spouse in a revocable trust. 4 5 REPORTER’S COMMENT 6 7 This Section retains and incorporates South Carolina Probate 8 Code Section 627114 (except for the deletion of the words “inter 9 vivos” when used to describe the trust) and is consistent with 10 SCPC Section 622507. 11 12 Part 7 13 14 Office of Trustee 15 16 General Comment 17 This article contains a series of default rules dealing with the 18 office of trustee. Sections 627701 and 627702 address the process 19 for getting a trustee into office, including the procedures for 20 indicating an acceptance and whether bond will be required. 21 Section 627703 addresses cotrustees, permitting the cotrustees to 22 act by majority action and specifying the extent to which one 23 trustee may delegate to another. Sections 627704 through 627707 24 address changes in the office of trustee, specifying the 25 circumstances when a vacancy must be filled, the procedure for 26 resignation, the grounds for removal, and the process for 27 appointing a successor. Sections 627708 and 627709 prescribe the 28 standards for determining trustee compensation and reimbursement 29 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 terms of 32 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 acceptance 38 provided in the terms of the trust; or 39 (2) if the terms of the trust do not provide a method or the 40 method provided in the terms is not expressly made exclusive, by 41 accepting delivery of the trust property, exercising powers or 42 performing duties as trustee, or otherwise indicating acceptance of 43 the trusteeship. [1243] 560 1 (b) A person designated as trustee who has not yet accepted the 2 trusteeship may reject the trusteeship. A designated trustee who 3 does not accept the trusteeship within a reasonable time after 4 knowing of the designation is deemed to have rejected the 5 trusteeship. 6 (c) A person designated as trustee, without accepting the 7 trusteeship, may: 8 (1) act to preserve the trust property if, within a reasonable 9 time after acting, the person sends a rejection of the trusteeship to 10 the settlor or, if the settlor is dead or lacks capacity, to a qualified 11 beneficiary; and 12 (2) inspect or investigate trust property to determine 13 potential liability under environmental or other law or for any 14 other purpose. 15 16 REPORTER’S COMMENT 17 18 This section, which specifies the requirements for a valid 19 acceptance of the trusteeship, implicates many of the same issues 20 that arise in determining whether a trust has been revoked. 21 Consequently, the two provisions track each other closely. 22 Compare Section 627701(a), with Section 627602(c) (procedure 23 for revoking or modifying trust). Procedures specified in the terms 24 of the trust are recognized, but only substantial, not literal 25 compliance is required. A failure to meet technical requirements, 26 such as notarization of the trustee’s signature, does not result in a 27 failure to accept. Ordinarily, the trustee will indicate acceptance 28 by signing the trust instrument or signing a separate written 29 instrument. However, this section validates any other method 30 demonstrating the necessary intent, such as by knowingly 31 exercising trustee powers, unless the terms of the trust make the 32 specified method exclusive. This section also does not preclude an 33 acceptance by estoppel. For general background on issues relating 34 to trustee acceptance and rejection, see Restatement (Third) of 35 Trusts Section 35 (Tentative Draft No. 2, approved 1999); 36 Restatement (Second) of Trusts Section 102 (1959). Consistent 37 with Section 627201(b), which emphasizes that continuing judicial 38 supervision of a trust is the rare exception, not the rule, the SCTC 39 does not require that a trustee qualify in court. 40 To avoid the inaction that can result if the person designated as 41 trustee fails to communicate a decision either to accept or to reject 42 the trusteeship, subsection (b) provides that a failure to accept 43 within a reasonable time constitutes a rejection of the trusteeship.[1243] 561 1 What will constitute a reasonable time depends on the facts and 2 circumstances of the particular case. A major consideration is 3 possible harm that might occur if a vacancy in a trusteeship is not 4 filled in a timely manner. A trustee’s rejection normally precludes 5 a later acceptance but does not cause the trust to fail. See 6 Restatement (Third) of Trusts Section 35 cmt. c (Tentative Draft 7 No. 2, approved 1999). Regarding the filling of a vacancy in the 8 event of a rejection, see Section 627704. 9 A person designated as trustee who decides not to accept the 10 trusteeship need not provide a formal rejection, but a clear and 11 early communication is recommended. The appropriate recipient 12 of the rejection depends upon the circumstances. Ordinarily, it 13 would be appropriate to communicate the rejection to the person 14 who informed the designee of the proposed trusteeship. If judicial 15 proceedings involving the trust are pending, the rejection could be 16 filed with the court. In the case of a person named as trustee of a 17 revocable trust, it would be appropriate to communicate the 18 rejection to the settlor. In any event, it would be best to inform a 19 beneficiary with a significant interest in the trust because that 20 beneficiary might be more motivated than others to seek 21 appointment of a new trustee. 22 Subsection (c)(1) makes clear that a nominated trustee may act 23 expeditiously to protect the trust property without being considered 24 to have accepted the trusteeship. However, upon conclusion of the 25 intervention, the nominated trustee must send a rejection of office 26 to the settlor, if living and competent, otherwise to a qualified 27 beneficiary. 28 Because of the potential liability that can inhere in trusteeship, 29 subsection (c)(2) allows a person designated as trustee to inspect 30 the trust property without accepting the trusteeship. The condition 31 of real property is a particular concern, including possible tort 32 liability for the condition of the premises or liability for violation 33 of state or federal environmental laws such as CERCLA, 42 U.S.C. 34 Section 9607. For a provision limiting a trustee’s personal liability 35 for obligations arising from ownership or control of trust property, 36 see Section 6271010(b). 37 South Carolina had no prior statutory counterpart. Generally, at 38 common law, “in an express trust, a trustee must agree to serve as 39 trustee because of the attendant duties and potential liability.” S. 40 Alan Medlin, The Law of Wills and Trusts, Vol. 1, Estate Planning 41 in South Carolina (2002) at Section 502, citing Anderson v. Earle, 42 9 S.C. 460 (S.C. 1878). 43[1243] 562 1 Section 627702. (a) A trustee shall provide bond to secure the 2 performance of the trustee’s duties if: 3 (1) the terms of the governing instrument require the trustee 4 to provide bond; 5 (2) a beneficiary requests the trustee to provide bond and the 6 court finds the request to be reasonable; or 7 (3) the court finds that it is necessary for the trustee to 8 provide bond in order to protect the interests of the beneficiaries 9 who are not able to protect themselves and whose interests 10 otherwise are not adequately represented. 11 However, in no event shall bond be required of a trustee, 12 including a trustee appointed by the court, if the governing 13 instrument directs otherwise. On petition of the trustee or other 14 interested person, the court may excuse a requirement of bond, 15 reduce the amount of the bond, release the surety, or permit the 16 substitution of another bond with the same or different sureties. 17 (b) If bond is required, it shall be filed in the court in the place 18 in which the trust has its principal place of administration in 19 amounts and with sureties and liabilities consistent with the 20 requirements of South Carolina Code Sections 623604 relating to 21 bonds of personal representatives. 22 23 REPORTER’S COMMENT 24 25 South Carolina Trust Code Section 627702 differs significantly 26 from the Uniform Trust Code version of Section 702. SCTC 27 Section 627702 is in accord with former South Carolina Probate 28 Code Section 627304, providing that a trustee will not normally be 29 required to post bond. 30 31 Section 627703. (a) Cotrustees who are unable to reach a 32 unanimous decision may act by majority decision. 33 (b) If a vacancy occurs in a cotrusteeship, the remaining 34 cotrustees may act for the trust. 35 (c) A cotrustee must participate in the performance of a 36 trustee’s function unless the cotrustee is unavailable to perform the 37 function because of absence, illness, disqualification under other 38 law, or other temporary incapacity or the cotrustee has properly 39 delegated the performance of the function to another trustee. 40 (d) If a cotrustee is unavailable to perform duties because of 41 absence, illness, disqualification under other law, or other 42 temporary incapacity, and prompt action is necessary to achieve 43 the purposes of the trust or to avoid injury to the trust property, the[1243] 563 1 remaining cotrustee or a majority of the remaining cotrustees may 2 act for the trust. 3 (e) A trustee may not delegate to a cotrustee the performance 4 of a function the settlor reasonably expected the trustees to 5 perform jointly. Unless a delegation was irrevocable, a trustee 6 may revoke a delegation previously made. 7 (f) Except as otherwise provided in subsection (g), a trustee 8 who does not join in an action of another trustee is not liable for 9 the action. 10 (g) Each trustee shall exercise reasonable care to: 11 (1) prevent a cotrustee from committing a serious breach of 12 trust; and 13 (2) compel a cotrustee to redress a serious breach of trust. 14 (h) A dissenting trustee who joins in an action at the direction 15 of the majority of the trustees and who notified any cotrustee of the 16 dissent at or before the time of the action is not liable for the action 17 unless the action is a serious breach of trust. 18 19 REPORTER’S COMMENT 20 21 This section contains most but not all of the Code’s provisions 22 on cotrustees. Other provisions relevant to cotrustees include 23 Sections 627704 (vacancy in trusteeship need not be filled if 24 cotrustee remains in office), 627705 (notice of resignation must be 25 given to cotrustee), 627706 (lack of cooperation among cotrustees 26 as ground for removal), 627707 (obligations of resigning or 27 removed trustee), 627813 (reporting requirements upon vacancy in 28 trusteeship), and 6271013 (authority of cotrustees to authenticate 29 documents. 30 Cotrustees are appointed for a variety of reasons. Having 31 multiple decisionmakers serves as a safeguard against eccentricity 32 or misconduct. Cotrustees are often appointed to gain the 33 advantage of differing skills, perhaps a financial institution for its 34 permanence and professional skills, and a family member to 35 maintain a personal connection with the beneficiaries. On other 36 occasions, cotrustees are appointed to make certain that all family 37 lines are represented in the trust’s management. 38 Cotrusteeship should not be called for without careful reflection. 39 Division of responsibility among cotrustees is often confused, the 40 accountability of any individual trustee is uncertain, obtaining 41 consent of all trustees can be burdensome, and, unless an odd 42 number of trustees is named, deadlocks requiring court resolution 43 can occur. Potential problems can be reduced by addressing[1243] 564 1 division of responsibilities in the terms of the trust. Like the other 2 sections of this article, this section is freely subject to modification 3 in the terms of the trust. See Section 627105. 4 Much of this section is based on comparable provisions of the 5 Restatement of Trusts, although with extensive modifications. 6 Reference should also be made to ERISA Section 405 (29 U.S.C. 7 Section 1105), which in recent years has been the statutory base 8 for the most significant case law on the powers and duties of 9 cotrustees. 10 Subsection (a) is in accord with Restatement (Third) of Trusts 11 Section 39 (Tentative Draft No.2, approved 1999), which rejects 12 the common law rule, followed in earlier Restatements, requiring 13 unanimity among the trustees of a private trust. See Restatement 14 (Second) of Trusts Section 194 (1959). This section is consistent 15 with the prior Restatement rule applicable to charitable trusts, 16 which allowed for action by a majority of trustees. See 17 Restatement (Second) of Trusts Section 383 (1959). Under 18 subsection (b), a majority of the remaining trustees may act for the 19 trust when a vacancy occurs in a cotrusteeship. Section 627704 20 provides that a vacancy in a cotrusteeship need be filled only if 21 there is no trustee remaining in office. 22 Subsections (b) and (d) provide for the proper administration of 23 the trust in the event a cotrustee is unavailable or temporarily 24 incapacitated. Subsection (c) compels a cotrustee to participate in 25 the trustee’s function or delegate such a duty unless excused by 26 “absence, illness, disqualification under the law, or other 27 temporary incapacity.” Other laws under which a cotrustee might 28 be disqualified include federal securities law and the ERISA 29 prohibited transactions rules. 30 Subsection (e) addresses the extent to which a trustee may 31 delegate the performance of functions to a cotrustee. The standard 32 differs from the standard for delegation to an agent as provided in 33 Section 627807 because the two situations are different. Section 34 627807, which is identical to Section 9 of the Uniform Prudent 35 Investor Act, recognizes that many trustees are not professionals. 36 Consequently, trustees should be encouraged to delegate functions 37 they are not competent to perform. Subsection (e) is premised on 38 the assumption that the settlor selected cotrustees for a specific 39 reason and that this reason ought to control the scope of a 40 permitted delegation to a cotrustee. Subsection (e) prohibits a 41 trustee from delegating to another trustee functions the settlor 42 reasonably expected the trustees to perform jointly. The exact 43 extent to which a trustee may delegate functions to another trustee[1243] 565 1 in a particular case will vary depending on the reasons the settlor 2 decided to appoint cotrustees. The better practice is to address the 3 division of functions in the terms of the trust, as allowed by 4 Section 627105. Subsection (e) is based on language derived from 5 Restatement (Second) of Trusts Section 171 (1959). This section 6 of the Restatement Second, which applied to delegations to both 7 agents and cotrustees, was superseded, as to delegation to agents, 8 by Restatement (Third) of Trusts: Prudent Investor Rule Section 9 171 (1992). 10 By permitting the trustees to act by a majority, this section 11 contemplates that there may be a trustee or trustees who might 12 dissent. The safeguard for a dissenting cotrustee is sprinkled 13 throughout subsections (f), (g) and (h), Subsection (f) provides for 14 a limitation on liability for a nonjoining cotrustee, but that 15 limitation on liability is tempered in subsection (g) by providing 16 that a trustee must exercise “reasonable care”. Under subsection 17 (g), a trustee may not passively dissent to an improper action by a 18 cotrustee. Subsection (h) protects a dissenting cotrustee who joins 19 in an action at the direction of the majority and notifies any 20 cotrustee of his dissent. Subsection (h) does not require the dissent 21 to be in writing. Further, under subsections (g) and (h) together, a 22 cotrustee can not dissent and thereafter remain passive for actions 23 by the majority of cotrustees amounting to a “serious breach of 24 trust.” The dissenting trustee must exercise “reasonable care” to 25 correct the conduct of the cotrustee(s). The responsibility to take 26 action against a breaching cotrustee codifies the substance of 27 Sections 184 and 224 of the Restatement (Second) of Trusts 28 (1959). 29 30 Section 627704. (a) A vacancy in a trusteeship occurs if: 31 (1) a person designated as trustee rejects the trusteeship; 32 (2) a person designated as trustee cannot be identified or 33 does not exist; 34 (3) a trustee resigns; 35 (4) a trustee is disqualified or removed; 36 (5) a trustee dies; or 37 (6) a guardian or conservator is appointed for an individual 38 serving as trustee. 39 (b) If one or more cotrustees remain in office, a vacancy in a 40 trusteeship need not be filled. A vacancy in a trusteeship must be 41 filled if the trust has no remaining trustee. [1243] 566 1 (c) A vacancy in a trusteeship of a noncharitable trust that is 2 required to be filled must be filled in the following order of 3 priority: 4 (1) by a person designated in the terms of the trust to act as 5 successor trustee; 6 (2) by a person appointed by unanimous agreement of the 7 qualified beneficiaries; or 8 (3) by a person appointed by the court. 9 (d) A vacancy in a trusteeship of a charitable trust that is 10 required to be filled must be filled in the following order of 11 priority: 12 (1) by a person designated in the terms of the trust to act as 13 successor trustee; 14 (2) by a person selected by the charitable organizations 15 expressly designated to receive distributions under the terms of the 16 trust if the Attorney General concurs in the selection; or 17 (3) by a person appointed by the court. 18 (e) Whether or not a vacancy in a trusteeship exists or is 19 required to be filled, the court may appoint an additional trustee or 20 special fiduciary whenever the court considers the appointment 21 necessary for the administration of the trust. The procedure for 22 such appointment and the notice requirement shall be the same as 23 set forth for special administrators under South Carolina Code 24 Section 623614. 25 26 REPORTER’S COMMENT 27 28 This section provides a definition for a vacancy in a trusteeship 29 and the procedure for appointment of a successor trustee if no 30 provisions for dealing with these matters are set forth in the trust. 31 See also Sections 627701 (accepting or declining trusteeship), 32 627705 (resignation), and 627706 (removal). Good drafting 33 practice suggests that the terms of the trust deal expressly with the 34 problem of vacancies, naming successors and specifying the 35 procedure for filling vacancies. This section applies only if the 36 terms of the trust fail to specify a procedure. 37 Subsection (a) provides a list of matters causing a vacancy in 38 trusteeship. The disqualification of a trustee referred to in 39 subsection (a)(4) would include a financial institution whose right 40 to engage in trust business has been revoked or removed. Such 41 disqualification might also occur if the trust’s principal place of 42 administration is transferred to a jurisdiction in which the trustee, 43 whether an individual or institution, is not qualified to act.[1243] 567 1 Subsection (b) grants authority to the remaining trustee(s) for 2 the administration of the trust following a vacancy. If a vacancy in 3 the cotrusteeship is not filled, Section 627703 authorizes the 4 remaining cotrustees to continue to administer the trust. However, 5 as provided in subsection (e), the court, exercising its inherent 6 equity authority, may always appoint additional trustees if the 7 appointment would promote better administration of the trust. See 8 Restatement (Third) of Trusts Section 34 cmt. a (Tentative Draft 9 No. 2, approved 1999); Restatement (Second) of Trusts Section 10 108 cmt. a (1959). 11 Subsection (c) provides a procedure for filling a vacancy in 12 trusteeship if such a vacancy is required to be filled. Vacancies in 13 this context could arise when the sole remaining trustee no longer 14 is available to serve or the trust requires cotrustees and only one is 15 named in the trust. Subsection (c) provides priority of succession 16 of trustees in a noncharitable trust. Absent an effective provision 17 in the terms of the trust, subsection (c)(2) permits a vacancy in the 18 trusteeship to be filled, without the need for court approval, by a 19 person selected by unanimous agreement of the qualified 20 beneficiaries. An effective provision in the terms of the trust for 21 the designation of a successor trustee includes a procedure under 22 which the successor trustee is selected by a person designated in 23 those terms. Pursuant to Section 627705(a)(1), the qualified 24 beneficiaries may also receive the trustee’s resignation. If a trustee 25 resigns following notice as provided in Section 627705, the trust 26 may be transferred to a successor appointed pursuant to subsection 27 (c)(2) of this section, all without court involvement. A 28 nonqualified beneficiary who is displeased with the choice of the 29 qualified beneficiaries may petition the court for removal of the 30 trustee under Section 627706. 31 If the qualified beneficiaries fail to make an appointment, 32 subsection (c)(3) authorizes the court to fill the vacancy. In 33 making the appointment, the court should consider the objectives 34 and probable intention of the settlor, the promotion of the proper 35 administration of the trust, and the interests and wishes of the 36 beneficiaries. See Restatement (Third) of Trusts Section 34 cmt. f 37 (Tentative Draft No. 2, approved 1999); Restatement (Second) of 38 Trusts Section 108 cmt. d (1959). 39 Subsection (d) provides for priority of succession in a charitable 40 trust. These sections provide a method for the vacancy to be filled 41 without court approval. Subsection (d) includes the language 42 added by the 2004 Amendments to the UTC, dealing with the 43 concurrence of the Attorney General. If the attorney general does[1243] 568 1 not concur in the selection, however, or if the trust does not 2 designate a charitable organization to receive distributions, the 3 vacancy may be filled only by the court. 4 Subsection (e) provides for a court appointed special trustee or 5 “special fiduciary” if necessary for the “administration of the 6 trust.” The provisions of subsection (e) are unqualified and 7 provide “whether or not a vacancy in a trusteeship exists or is 8 required to be filled” the court has authority to appoint such an 9 additional trustee. Such a trustee would have the authority 10 provided by the court in its order of appointment. If the order of 11 appointment contains no limitations, the additional trustee would 12 succeed to the full powers of a trustee under the trust. 13 In the case of a revocable trust, the appointment of a successor 14 will normally be made directly by the settlor. As to the duties of a 15 successor trustee with respect to the actions of a predecessor, see 16 Section 627812. 17 18 Section 627705. (a) A trustee may resign: 19 (1) upon at least 30 days notice in writing to the qualified 20 beneficiaries, the settlor, if living, and all cotrustees; or 21 (2) with the approval of the court. 22 (b) In approving a resignation, the court may issue orders and 23 impose conditions reasonably necessary for the protection of the 24 trust property. 25 (c) Any liability of a resigning trustee or of any sureties on the 26 trustee’s bond for acts or omissions of the trustee is not discharged 27 or affected by the trustee’s resignation. 28 29 REPORTER’S COMMENT 30 31 This section rejects the common law rule that a trustee may 32 resign only with permission of the court, and goes further than the 33 Restatements, which allow a trustee to resign with the consent of 34 the beneficiaries. See Restatement (Third) of Trusts Section 36 35 (Tentative Draft No. 2, approved 1999); Restatement (Second) of 36 Trusts Section 106 (1959). Concluding that the default rule ought 37 to approximate standard drafting practice, the drafting committee 38 provided in subsection (a) that a trustee may resign by giving 39 notice to the qualified beneficiaries, a living settlor, and any 40 cotrustee. A resigning trustee may also follow the traditional 41 method and resign with approval of the court. 42 Restatement (Third) of Trusts Section 36 cmt. d (Tentative Draft 43 No. 2, approved 1999), and Restatement (Second) of Trusts[1243] 569 1 Section 106 cmt. b (1959), provide, similar to subsection (c), that a 2 resignation does not release the resigning trustee from potential 3 liabilities for acts or omissions while in office. The act of 4 resignation can give rise to liability if the trustee resigns for the 5 purpose of facilitating a breach of trust by a cotrustee. See Ream 6 v. Frey, 107 F.3d 147 (3rd Cir. 1997). 7 Regarding the residual responsibilities of a resigning trustee 8 until the trust property is delivered to a successor trustee, see 9 Section 627707. 10 In the case of a revocable trust, because the rights of the 11 qualified beneficiaries are subject to the settlor’s control (see 12 Section 627603), resignation of the trustee is accomplished by 13 giving notice to the settlor instead of the beneficiaries. 14 Section 627705(a)(1) adds to the Uniform Trust Code version of 15 Section 705 the words “in writing” after “notice” for clarification, 16 as a writing is the reasonable and customary choice for 17 notification. 18 This Section incorporates some of the provisions of former 19 South Carolina Probate Code Section 627705, except that this 20 Section introduces a thirty (30) day written notice provision for 21 resignation. The former South Carolina statute allowed the 22 Trustee to resign if the document so provided, all beneficiaries 23 consented, or the court approved the resignation. Subsection (c) 24 makes clear that a mere resignation does not terminate a trustee’s 25 liability. 26 27 Section 627706. (a) For the reasons set forth in subsection (b), 28 the settlor, a cotrustee, or a beneficiary may request the court to 29 remove a trustee, or a trustee may be removed by the court on its 30 own initiative. 31 (b) The court may remove a trustee if: 32 (1) the trustee has committed a serious breach of trust; 33 (2) lack of cooperation among cotrustees substantially 34 impairs the administration of the trust; 35 (3) because of unfitness, unwillingness, or persistent failure 36 of the trustee to administer the trust effectively, the court 37 determines that removal of the trustee best serves the interests of 38 the beneficiaries; or 39 (4) there has been a substantial change of circumstances or 40 removal is requested by all of the qualified beneficiaries, the court 41 finds that removal of the trustee best serves the interests of all of 42 the beneficiaries and is not inconsistent with a material purpose of 43 the trust, and a suitable cotrustee or successor trustee is available. [1243] 570 1 (c) Pending a final decision on a request to remove a trustee, or 2 in lieu of or in addition to removing a trustee, the court may order 3 such appropriate relief under Section 6271001(b) as may be 4 necessary to protect the trust property or the interests of the 5 beneficiaries. 6 7 REPORTER’S COMMENT 8 9 This section sets forth the grounds for removal of a trustee. 10 Subsection (a), contrary to the common law, grants the settlor of 11 an irrevocable trust the right to petition for removal of a trustee. 12 The right to petition for removal does not give the settlor of an 13 irrevocable trust any other rights, such as the right to an annual 14 report or to receive other information concerning administration of 15 the trust. The right of a beneficiary to petition for removal does 16 not apply to a revocable trust while the settlor has capacity. 17 Pursuant to Section 627603(a), while a trust is revocable and the 18 settlor has capacity, the rights of the beneficiaries are subject to the 19 settlor’s exclusive control. 20 For clarification, Section 627706(a) adds to the Uniform Trust 21 Code version the words “for the reasons set forth in subsection 22 (b).” The UTC Comment makes clear that a beneficiary’s rights 23 under a revocable trust are subject to those of the settlor. 24 Trustee removal may be regulated by the terms of the trust. See 25 Section 627105. In fashioning a removal provision for an 26 irrevocable trust, the drafter should be cognizant of the danger that 27 the trust may be included in the settlor’s federal gross estate if the 28 settlor retains the power to be appointed as trustee or to appoint 29 someone who is not independent. See Rev. Rul. 9558, 19952 C.B. 30 191. 31 Subsection (b) lists the grounds for removal of the trustee. The 32 grounds for removal are similar to those found in Restatement 33 (Third) of Trusts Section 37 cmt. a (Tentative Draft No. 2, 34 approved 1999). A trustee may be removed for untoward action, 35 such as for a serious breach of trust, but the section is not so 36 limited. A trustee may also be removed under a variety of 37 circumstances in which the court concludes that the trustee is not 38 best serving the interests of the beneficiaries. The term “interests 39 of the beneficiaries” means the beneficial interests as provided in 40 the terms of the trust, not as defined by the beneficiaries. See 41 Section 627103(7). Removal for conduct detrimental to the 42 interests of the beneficiaries is a wellestablished standard for 43 removal of a trustee. See Restatement (Third) of Trusts Section 37[1243] 571 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 Trusts 4 Section 37 cmt. a and g (Tentative Draft No. 2, approved 1999), 5 makes clear that not every breach of trust justifies removal of the 6 trustee. The breach must be “serious.” A serious breach of trust 7 may consist of a single act that causes significant harm or involves 8 flagrant misconduct. A serious breach of trust may also consist of 9 a series of smaller breaches, none of which individually justify 10 removal when considered alone, but which do so when considered 11 together. A particularly appropriate circumstance justifying 12 removal of the trustee is a serious breach of the trustee’s duty to 13 keep the beneficiaries reasonably informed of the administration of 14 the trust or to comply with a beneficiary’s request for information 15 as required by Section 627813. Failure to comply with this duty 16 may make it impossible for the beneficiaries to protect their 17 interests. It may also mask more serious violations by the trustee. 18 “Serious breach of trust” is defined in SCTC Subsection 19 627103(24). 20 The lack of cooperation among trustees justifying removal under 21 subsection (b)(2) need not involve a breach of trust. The key 22 factor is whether the administration of the trust is significantly 23 impaired by the trustees’ failure to agree. Removal is particularly 24 appropriate if the naming of an even number of trustees, combined 25 with their failure to agree, has resulted in deadlock requiring court 26 resolution. The court may remove one or more or all of the 27 trustees. If a cotrustee remains in office following the removal, 28 under Section 627704 appointment of a successor trustee is not 29 required. 30 Subsection (b)(2) deals only with lack of cooperation among 31 cotrustees, not with friction between the trustee and beneficiaries. 32 Friction between the trustee and beneficiaries is ordinarily not a 33 basis for removal. However, removal might be justified if a 34 communications breakdown is caused by the trustee or appears to 35 be incurable. See Restatement (Third) of Trusts Section 37 cmt. a 36 (Tentative Draft No. 2, approved 1999). 37 Subsection (b)(3) authorizes removal for a variety of grounds, 38 including unfitness, unwillingness, or persistent failure to 39 administer the trust effectively. Removal in any of these cases is 40 allowed only if it best serves the interests of the beneficiaries. For 41 the definition of “interests of the beneficiaries,” see Section 42 627103(7). “Unfitness” may include not only mental incapacity 43 but also lack of basic ability to administer the trust. Before[1243] 572 1 removing a trustee for unfitness the court should consider the 2 extent to which the problem might be cured by a delegation of 3 functions the trustee is personally incapable of performing. 4 “Unwillingness” includes not only cases where the trustee refuses 5 to act but also a pattern of indifference to some or all of the 6 beneficiaries. See Restatement (Third) of Trusts Section 37 cmt. a 7 (Tentative Draft No. 2, approved 1999). A “persistent failure to 8 administer the trust effectively” might include a longterm pattern 9 of mediocre performance, such as consistently poor investment 10 results when compared to comparable trusts. 11 It has traditionally been more difficult to remove a trustee 12 named by the settlor than a trustee named by the court, particularly 13 if the settlor at the time of the appointment was aware of the 14 trustee’s failings. See Restatement (Third) of Trusts Section 37 15 cmt. f (Tentative Draft No. 2, approved 1999); Restatement 16 (Second) of Trusts Section 107 cmt. fg (1959). Because of the 17 discretion normally granted to a trustee, the settlor’s confidence in 18 the judgment of the particular person whom the settlor selected to 19 act as trustee is entitled to considerable weight. This deference to 20 the settlor’s choice can weaken or dissolve if a substantial change 21 in the trustee’s circumstances occurs. To honor a settlor’s 22 reasonable expectations, subsection (b)(4) lists a substantial 23 change of circumstances as a possible basis for removal of the 24 trustee. Changed circumstances justifying removal of a trustee 25 might include a substantial change in the character of the service 26 or location of the trustee. A corporate reorganization of an 27 institutional trustee is not itself a change of circumstances if it does 28 not affect the service provided the individual trust account. Before 29 removing a trustee on account of changed circumstances, the court 30 must also conclude that removal is not inconsistent with a material 31 purpose of the trust, that it will best serve the interests of the 32 beneficiaries, and that a suitable cotrustee or successor trustee is 33 available. 34 Subsection (b)(4) also contains a specific but more limited 35 application of Section 627411. Section 627411 allows the 36 beneficiaries by unanimous agreement to compel modification of a 37 trust if the court concludes that the particular modification is not 38 inconsistent with a material purpose of the trust. Subsection (b)(4) 39 of this section similarly allows the qualified beneficiaries to 40 request removal of the trustee if the designation of the trustee was 41 not a material purpose of the trust. Before removing the trustee the 42 court must also find that removal will best serve the interests of the[1243] 573 1 beneficiaries and that a suitable cotrustee or successor trustee is 2 available. 3 Subsection (c) authorizes the court to intervene pending a final 4 decision on a request to remove a trustee. Among the relief that 5 the court may order under Section 6271001(b) is an injunction 6 prohibiting the trustee from performing certain acts and the 7 appointment of a special fiduciary to perform some or all of the 8 trustee’s functions. Pursuant to Section 6271004, the court may 9 also award attorney’s fees as justice and equity may require. 10 11 Section 627707. (a) Unless a cotrustee remains in office or the 12 court otherwise orders, and until the trust property is delivered to a 13 successor trustee or other person entitled to it, a trustee who has 14 resigned or been removed has the duties of a trustee and the 15 powers necessary to protect the trust property. 16 (b) A trustee who has resigned or been removed shall proceed 17 expeditiously to deliver the trust property within the trustee’s 18 possession to the cotrustee, successor trustee, or other person 19 entitled to it. 20 21 REPORTER’S COMMENT 22 23 This section addresses the continuing authority and duty of a 24 resigning or removed trustee. This section is comparable to South 25 Carolina Probate Code Sections 623608 through 623611 26 concerning the termination of a personal representative. Subject to 27 the power of the court to make other arrangements or unless a 28 cotrustee remains in office, a resigning or removed trustee has 29 continuing authority until the trust property is delivered to a 30 successor. If a cotrustee remains in office, there is no reason to 31 grant a resigning or removed trustee any continuing authority, and 32 none is granted under this section. In addition, if a cotrustee 33 remains in office, the former trustee need not submit a final 34 trustee’s report. See Section 627813(c). 35 There is ample authority in the SCTC for the appointment of a 36 special fiduciary, an appointment which can avoid the need for a 37 resigning or removed trustee to exercise residual powers until a 38 successor can take office. See Sections 627704(e) (court may 39 appoint additional trustee or special fiduciary whenever court 40 considers appointment necessary for administration of trust), 41 627705(b) (in approving resignation, court may impose conditions 42 necessary for protection of trust property), 627706(c) (pending 43 decision on petition for removal, court may order appropriate[1243] 574 1 relief), and 6271001(b)(5) (to remedy breach of trust, court may 2 appoint special fiduciary as necessary to protect trust property or 3 interests of beneficiary). 4 If the former trustee has died, the SCTC does not require that the 5 trustee’s personal representative wind up the deceased trustee’s 6 administration. Nor is a trustee’s conservator or guardian required 7 to complete the former trustee’s administration if the trustee’s 8 authority terminated due to an adjudication of incapacity. 9 However, to limit the former trustee’s liability, the personal 10 representative, conservator or guardian may submit a trustee’s 11 report on the former trustee’s behalf as authorized by Section 12 627813(c). Otherwise, the former trustee remains liable for 13 actions taken during the trustee’s term of office until liability is 14 otherwise barred. 15 16 Section 627708. (a) If the terms of a trust do not specify the 17 trustee’s compensation, a trustee is entitled to compensation that is 18 reasonable under the circumstances. 19 (b) If the terms of a trust specify the trustee’s compensation, 20 the trustee is entitled to be compensated as specified, but the court 21 may allow more or less compensation if: 22 (1) the duties of the trustee are substantially different from 23 those contemplated when the trust was created; or 24 (2) the compensation specified by the terms of the trust 25 would be unreasonably low or high. 26 27 REPORTER’S COMMENT 28 29 This section incorporates and clarifies the provisions of current 30 South Carolina law for determination of trustee fees. Former 31 South Carolina Probate Code Section 627205 required the trustee 32 to return the excess part of any fee determined to be unreasonable 33 by the court. 34 Subsection (a) establishes a standard of reasonable 35 compensation. Relevant factors in determining this compensation, 36 as specified in the Restatement, include the custom of the 37 community; the trustee’s skill, experience, and facilities; the time 38 devoted to trust duties; the amount and character of the trust 39 property; the degree of difficulty, responsibility and risk assumed 40 in administering the trust, including in making discretionary 41 distributions; the nature and costs of services rendered by others; 42 and the quality of the trustee’s performance. See Restatement 43 (Third) of Trusts Section 38 cmt. c (Tentative Draft No. 2,[1243] 575 1 approved 1999); Restatement (Second) of Trusts Section 242 cmt. 2 b (1959). 3 In setting compensation, the services actually performed and 4 responsibilities assumed by the trustee should be closely 5 examined. A downward adjustment of fees may be appropriate if a 6 trustee has delegated significant duties to agents, such as the 7 delegation of investment authority to outside managers. See 8 Section 627807 (delegation by trustee). On the other hand, a 9 trustee with special skills, such as those of a real estate agent, may 10 be entitled to extra compensation for performing services that 11 would ordinarily be delegated. See Restatement (Third) of Trusts 12 Section 38 cmt. d (Tentative Draft No. 2, approved 1999); 13 Restatement (Second) of Trusts Section 242 cmt. d (1959). 14 Because “trustee” as defined in Section 627103(19) includes not 15 only an individual trustee but also cotrustees, each trustee, 16 including a cotrustee, is entitled to reasonable compensation under 17 the circumstances. The fact that a trust has more than one trustee 18 does not mean that the trustees together are entitled to more 19 compensation than had either acted alone. Nor does the 20 appointment of more than one trustee mean that the trustees are 21 eligible to receive the compensation in equal shares. The total 22 amount of the compensation to be paid and how it will be divided 23 depend on the totality of the circumstances. Factors to be 24 considered include the settlor’s reasons for naming more than one 25 trustee and the level of responsibility assumed and exact services 26 performed by each trustee. Often the fees of cotrustees will be in 27 the aggregate higher than the fees for a single trustee because of 28 the duty of each trustee to participate in administration and not 29 delegate to a cotrustee duties the settlor expected the trustees to 30 perform jointly. See Restatement (Third) of Trusts Section 38 cmt. 31 i (Tentative Draft No. 2, approved 1999). The trust may benefit in 32 such cases from the enhanced quality of decisionmaking resulting 33 from the collective deliberations of the trustees. 34 Financial institution trustees normally base their fees on 35 published fee schedules. Published fee schedules are subject to the 36 same standard of reasonableness under the SCTC as are other 37 methods for computing fees. The courts have generally upheld 38 published fee schedules but this is not automatic. Among the more 39 litigated topics is the issue of termination fees. Termination fees 40 are charged upon termination of the trust and sometimes upon 41 transfer of the trust to a successor trustee. Factors relevant to 42 whether the fee is appropriate include the actual work performed; 43 whether a termination fee was authorized in the terms of the trust;[1243] 576 1 whether the fee schedule specified the circumstances in which a 2 termination fee would be charged; whether the trustee’s overall 3 fees for administering the trust from the date of the trust’s creation, 4 including the termination fee, were reasonable; and the general 5 practice in the community regarding termination fees. Because 6 significantly less work is normally involved, termination fees are 7 less appropriate upon transfer to a successor trustee than upon 8 termination of the trust. For representative cases, see Cleveland 9 Trust Co. v. Wilmington Trust Co., 258 A.2d 58 (Del. 1969); In re 10 Trusts Under Will of Dwan, 371 N.W. 2d 641 (Minn. Ct. App. 11 1985); Mercer v. Merchants National Bank, 298 A.2d 736 (N.H. 12 1972); In re Estate of Payson, 562 N.Y.S. 2d 329 (Surr. Ct. 1990); 13 In re Indenture Agreement of Lawson, 607 A. 2d 803 (Pa. Super. 14 Ct. 1992); In re Estate of Ischy, 415 A.2d 37 (Pa. 1980); Memphis 15 Memorial Park v. Planters National Bank, 1986 Tenn. App. 16 LEXIS 2978 (May 7, 1986); In re Trust of Sensenbrenner, 252 17 N.W. 2d 47 (Wis. 1977). 18 This Code does not take a specific position on whether dual fees 19 may be charged when a trustee hires its own law firm to represent 20 the trust. For a discussion, see Ronald C. Link, Developments 21 Regarding the Professional Responsibility of the Estate 22 Administration Lawyer: The Effect of the Model Rules of 23 Professional Conduct, 26 Real Prop. Prob. & Tr. J. 1, 2238 (1991). 24 Subsection (b) permits the terms of the trust to override the 25 reasonable compensation standard, subject to the court’s inherent 26 equity power to make adjustments downward or upward in 27 appropriate circumstances. Compensation provisions should be 28 drafted with care. Common questions include whether a provision 29 in the terms of the trust setting the amount of the trustee’s 30 compensation is binding on a successor trustee, whether a 31 dispositive provision for the trustee in the terms of the trust is in 32 addition to or in lieu of the trustee’s regular compensation, and 33 whether a dispositive provision for the trustee is conditional on the 34 person performing services as trustee. See Restatement (Third) of 35 Trusts Section 38 cmt. a (Tentative Draft No. 2, approved 1999); 36 Restatement (Second) of Trusts Section 242 cmt. f (1959). 37 Compensation may be set by agreement. A trustee may enter 38 into an agreement with the beneficiaries for lesser or increased 39 compensation, although an agreement increasing compensation is 40 not binding on a nonconsenting beneficiary. See Section 41 627111(b) (matters that may be the resolved by nonjudicial 42 settlement). See also Restatement (Third) of Trusts Section 38 43 cmt. f (Tentative Draft No. 2, approved 1999); Restatement[1243] 577 1 (Second) of Trusts Section 242 cmt. i (1959). A trustee may also 2 agree to waive compensation and should do so prior to rendering 3 significant services if concerned about possible gift and income 4 taxation of the compensation accrued prior to the waiver. See Rev. 5 Rul. 66167, 19661 C.B. 20. See also Restatement (Third) of 6 Trusts Section 38 cmt. g (Tentative Draft No. 2, approved 1999); 7 Restatement (Second) of Trusts Section 242 cmt. j (1959). 8 Section 627816(15) grants the trustee authority to fix and pay its 9 compensation without the necessity of prior court review, subject 10 to the right of a beneficiary to object to the compensation in a later 11 judicial proceeding. Allowing the trustee to pay its compensation 12 without prior court approval promotes efficient trust administration 13 but does place a significant burden on a beneficiary who believes 14 the compensation is unreasonable. To provide a beneficiary with 15 time to take action, and because of the importance of trustee’s fees 16 to the beneficiaries’ interests, Section 813(b)(4) requires a trustee 17 to provide the qualified beneficiaries with advance notice of any 18 change in the method or rate of the trustee’s compensation. 19 Failure to provide such advance notice constitutes a breach of 20 trust, which, if sufficiently serious, would justify the trustee’s 21 removal under Section 627706. 22 Under Sections 627925 and 627926 of the South Carolina 23 Uniform Principal and Income Act, onehalf of a trustee’s regular 24 compensation is charged to income and the other half to principal. 25 Chargeable to principal are fees for acceptance, distribution, or 26 termination of the trust, and fees charged on disbursements made 27 to prepare property for sale. 28 29 Section 627709. (a) A trustee is entitled to be reimbursed out 30 of the trust property, with interest at the legal rate as appropriate, 31 for: 32 (1) expenses that were properly incurred in the 33 administration of the trust; and 34 (2) to the extent necessary to prevent unjust enrichment of 35 the trust, expenses that were not properly incurred in the 36 administration of the trust. 37 (b) An advance by the trustee of money for the protection of 38 the trust gives rise to a lien against trust property to secure 39 reimbursement with reasonable interest. 40 (c) A prospective trustee is entitled to be reimbursed from trust 41 property for expenses reasonably incurred by the prospective 42 trustee pursuant to Section 627701(c) to protect or investigate the[1243] 578 1 trust assets before deciding whether or not to accept the 2 trusteeship. 3 4 A trustee has the authority to expend trust funds as necessary in 5 the administration of the trust, including expenses incurred in the 6 hiring of agents. See Sections 627807 (delegation by trustee) and 7 627816(15) (trustee to pay expenses of administration from trust). 8 Subsection (a)(1) clarifies that a trustee is entitled to 9 reimbursement from the trust for incurring expenses within the 10 trustee’s authority. The trustee may also withhold appropriate 11 reimbursement for expenses before making distributions to the 12 beneficiaries. See Restatement (Third) of Trusts Section 38 cmt. b 13 (Tentative Draft No. 2, approved 1999); Restatement (Second) of 14 Trusts Section 244 cmt. b (1959). A trustee is ordinarily not 15 entitled to reimbursement for incurring unauthorized expenses. 16 Such expenses are normally the personal responsibility of the 17 trustee. 18 As provided in subsection (a)(2), a trustee is entitled to 19 reimbursement for unauthorized expenses only if the unauthorized 20 expenditures benefited the trust. The purpose of this provision, 21 which is derived from Restatement (Second) of Trusts Section 245 22 (1959), is not to ratify the unauthorized conduct of the trustee, but 23 to prevent unjust enrichment of the trust. Given this purpose, a 24 court, on appropriate grounds, may delay or even deny 25 reimbursement for expenses which benefited the trust. 26 Appropriate grounds include: (1) whether the trustee acted in bad 27 faith in incurring the expense; (2) whether the trustee knew that the 28 expense was inappropriate; (3) whether the trustee reasonably 29 believed the expense was necessary for the preservation of the trust 30 estate; (4) whether the expense has resulted in a benefit; and (5) 31 whether indemnity can be allowed without defeating or impairing 32 the purposes of the trust. See Restatement (Second) of Trusts 33 Section 245 cmt. g (1959). 34 Subsection (b) implements Section 627802(h)(5), which creates 35 an exception to the duty of loyalty for advances by the trustee for 36 the protection of the trust if the transaction is fair to the 37 beneficiaries. Former South Carolina Probate Code Section 38 627704(18) empowered the trustee “to advance money for the 39 protection of the trust, and for all expenses, losses, and liability 40 sustained in the administration of the trust or because of the 41 holding or ownership of any trust assets, for which advances with 42 any interest the trustee has a lien on the trust assets as against the 43 beneficiary . . . .”[1243] 579 1 Reimbursement under this section may include attorney’s fees 2 and expenses incurred by the trustee in defending an action. 3 However, a trustee is not ordinarily entitled to attorney’s fees and 4 expenses if it is determined that the trustee breached the trust. See 5 3A Austin W. Scott & William F. Fratcher, The Law of Trusts 6 Section 245 (4th ed. 1988). 7 8 Part 8 9 10 Duties and Powers of Trustee 11 12 General Comment 13 This article states the fundamental duties of a trustee and lists 14 the trustee’s powers. The duties listed are not new, but how the 15 particular duties are formulated and applied has changed over the 16 years. This Part was drafted where possible to conform with the 17 South Carolina Uniform Prudent Investor Act. The South Carolina 18 Prudent Investor Act prescribes a trustee’s responsibilities with 19 respect to the management and investment of trust property. The 20 SCTC also addresses a trustee’s duties with respect to distribution 21 to beneficiaries. 22 Because of the widespread adoption of the Uniform Prudent 23 Investor Act, it was decided not to disassemble and fully integrate 24 the Prudent Investor Act into the Uniform Trust Code. Instead, 25 states enacting the Uniform Trust Code were encouraged to 26 recodify their version of the Prudent Investor Act by reenacting it 27 as Part 9 of this Code rather than leaving it elsewhere in their 28 statutes. Where the Uniform Trust Code and Uniform Prudent 29 Investor Act overlap, states were advised to enact the provisions of 30 this Part and not enact the duplicative provisions of the Prudent 31 Investor Act. Sections of this article which overlap with the 32 Prudent Investor Act are Sections 627802 (duty of loyalty), 33 627803 (impartiality), 627805 (costs of administration), 627806 34 (trustee’s skills), and 627807 (delegation). For more complete 35 instructions on how states were advised to enact the Uniform 36 Prudent Investor Act as part of this Code, see the General 37 Comment to Article 9. South Carolina followed the advice of the 38 Uniform Code drafters by including the South Carolina Prudent 39 Investor Act as Sections 627901 through 627932 of the SCTC. 40 All of the provisions of this Part may be overridden in the terms 41 of the trust except for certain aspects of the trustee’s duty to act in 42 good faith, in accordance with the purposes of the trust, and for the 43 benefit of the beneficiaries (see Section 627105(b)(2)(3)).[1243] 580 1 2 Section 627801. Upon acceptance of a trusteeship, the trustee 3 shall administer the trust in good faith, in accordance with its terms 4 and purposes and the interests of the beneficiaries, and in 5 accordance with this article. 6 7 REPORTER’S COMMENT 8 9 This section confirms that a primary duty of a trustee is to 10 follow the terms and purposes of the trust and to do so in good 11 faith. 12 This section describes a trustee’s broad and general duty of good 13 faith and establishes that a nominated or proposed trustee owes no 14 duty to the beneficiary unless and until the trusteeship is accepted. 15 See former South Carolina Probate Code Section 627301 (a trustee 16 has a general duty to administer the trust expeditiously for the 17 benefit of the beneficiaries) and Section 627305 (a trustee is under 18 a continuing duty to administer the trust according to the 19 objectives of the trustor); Sarlin v. Sarlin, 312 S.C. 27, 430 S.E.2d 20 530 (S.C. Ct. App. 1993) (a trustee’s discretion must be exercised 21 in good faith, consistent with the primary purpose(s) of the trust). 22 There was no prior South Carolina case law regarding the 23 principle that there is no duty owed to beneficiaries without 24 acceptance of the trust by the proposed trustee; however, there is 25 general common law to that effect. Restatement, Second, Trusts 26 Section 169. 27 28 Section 627802. (a) A trustee shall administer the trust solely 29 in the interests of the beneficiaries. 30 (b) Subject to the rights of persons dealing with or assisting the 31 trustee as provided in Section 6271012, a sale, encumbrance, or 32 other transaction involving the investment or management of trust 33 property entered into by the trustee for the trustee’s own personal 34 account or which is otherwise affected by a conflict between the 35 trustee’s fiduciary and personal interests is voidable by a 36 beneficiary affected by the transaction unless: 37 (1) the transaction was authorized by the terms of the trust; 38 (2) the transaction was approved by the court; 39 (3) the beneficiary did not commence a judicial proceeding 40 within the time allowed by Section 6271005; 41 (4) the beneficiary consented to the trustee’s conduct, 42 ratified the transaction, or released the trustee in compliance with 43 Section 6271009; or [1243] 581 1 (5) the transaction involves a contract entered into or claim 2 acquired by the trustee before the person became or contemplated 3 becoming trustee. 4 (c) A sale, encumbrance, or other transaction involving the 5 investment or management of trust property is presumed to be 6 affected by a conflict between personal and fiduciary interests if it 7 is entered into by the trustee with: 8 (1) the trustee’s spouse; 9 (2) the trustee’s descendants, siblings, parents, or their 10 spouses; 11 (3) an agent or attorney of the trustee; 12 (4) a corporation or other person or enterprise in which the 13 trustee has such a substantial interest that it might affect the 14 trustee’s best judgment; and 15 (5) a corporation or other person or enterprise which has 16 such a substantial interest in the trustee that it might affect the 17 trustee’s best judgment. 18 (d) A transaction between a trustee and a beneficiary that does 19 not concern trust property but that occurs during the existence of 20 the trust or while the trustee retains significant influence over the 21 beneficiary and from which the trustee obtains an advantage is 22 voidable by the beneficiary unless the trustee establishes that the 23 transaction was fair to the beneficiary. 24 (e) A transaction not concerning trust property in which the 25 trustee engages in the trustee’s individual capacity involves a 26 conflict between personal and fiduciary interests if the transaction 27 concerns an opportunity properly belonging to the trust. 28 (f) An investment by a trustee in securities of an investment 29 company or investment trust to which the trustee, or its affiliate, 30 provides services in a capacity other than as trustee is not 31 presumed to be affected by a conflict between personal and 32 fiduciary interests if the investment otherwise complies with the 33 prudent investor rule of Part 9. The trustee may be compensated 34 by the investment company or investment trust for providing those 35 services out of fees charged to the trust if the trustee at least 36 annually notifies the persons entitled under Section 627813 to 37 receive a copy of the trustee’s annual report of the rate and method 38 by which the compensation was determined. 39 (g) In voting shares of stock or in exercising powers of control 40 over similar interests in other forms of enterprise, the trustee shall 41 act in the best interests of the beneficiaries. If the trust is the sole 42 owner of a corporation or other form of enterprise, the trustee shall[1243] 582 1 elect or appoint directors or other managers who will manage the 2 corporation or enterprise in the best interests of the beneficiaries. 3 (h) This section does not preclude the following transactions, if 4 fair to the beneficiaries: 5 (1) an agreement between a trustee and a beneficiary relating 6 to the appointment or compensation of the trustee; 7 (2) payment of reasonable compensation to the trustee; 8 (3) a transaction between a trust and another trust, 9 decedent’s estate, or conservatorship of which the trustee is a 10 fiduciary or in which a beneficiary has an interest; 11 (4) a deposit of trust money in a regulated financialservice 12 institution operated by the trustee; or 13 (5) an advance by the trustee of money for the protection of 14 the trust. 15 (i) The court may appoint a special fiduciary to make a 16 decision with respect to any proposed transaction that might 17 violate this section if entered into by the trustee. 18 19 REPORTER’S COMMENT 20 21 This section addresses the duty of loyalty, perhaps the most 22 fundamental duty of the trustee. 23 Section 627802(a) sets forth the Trustee’s particular duty of 24 loyalty owed to beneficiaries. See former South Carolina Probate 25 Code Section 627301, which states that a trustee has a general duty 26 to administer the trust “for the benefit of the beneficiaries . . . .” 27 South Carolina case law provided similarly. See McNeil v. 28 Morrow, 30 S.C. Eq. (9 Rich.Cas.) 172 (S.C. 1832); Cartee v. 29 Lesley, 290 S.C. 333, 350 S.E.2d 388 (S.C. 1986); Yates v. Yates, 30 292 S.C. 49, 354 S.E.2d 800 (S.C. Ct. App. 1987). 31 Section 627802(b) states the general rule governing trust 32 property transactions affected by the trustee’s conflict of interest. 33 Such a transaction is voidable by a beneficiary unless one of the 34 stated exceptions is shown to apply. 35 Regarding the general power of a beneficiary to void a conflict 36 of interest transaction, see former SCPC Section 627706, which 37 implied such a power. In the analogous situation of a personal 38 representative’s conflict of interest transaction, SCPC Section 39 623713 provides that any transaction affected by “a substantial 40 conflict of interest” is voidable unless (1) the decedent’s will or 41 contract expressly authorized the transaction, or (2) the transaction 42 is approved by the court after notice.[1243] 583 1 In general, transactions involving trustee self dealing (selling 2 trust property to trustee individually or buying property, as trustee, 3 from himself individually) are voidable by beneficiaries without 4 regard to good faith and fair consideration. See Zimmerman v. 5 Harmon, 25 S.C. Eq. (4 Rich. Eq.)165 (S.C.1851) and McCants v. 6 Bee, 6 S.C. Eq. (1 McCord Eq.) 383 (S.C. 18). Also, see 7 Restatement, Second, Trusts Section 170, comments b. and h. on 8 subsection (1). 9 In subsection (b)(1), the first exception to the “voidable” rule 10 provides that a beneficiary may not automatically void a conflict of 11 interest transaction if the transaction is authorized by the terms of 12 the trust. Former SCPC Section 627706 implicitly provided for 13 that exception. If the transaction was authorized by the trust 14 agreement, it could be assumed that the court would approve the 15 transaction. There is no prior South Carolina case law directly on 16 point regarding authorization in the trust agreement for the conflict 17 of interest transaction. However, there is general common law to 18 that effect. The most commonly recognized exception to the duty 19 of loyalty rule is where the settlor expressly or impliedly approved 20 of the conflict of interest position or transaction. George Gleason 21 Bogert and George Taylor Bogert, The Law of Trusts and 22 Trustees, Section 543 (Rev. 2d ed. 1993) (where the testator/settlor 23 created the conflict situation when his will or trust was drawn, by 24 naming a particular person as personal representative/trustee who, 25 after the opening of the estate/trust, would be exposed to a conflict 26 between personal and representational interests, there is an implied 27 exemption from the duty of loyalty, absent fraud or bad faith on 28 the party of the fiduciary.) 29 Subsection (b)(2) provides the second exception to the 30 “voidable” rule: a beneficiary may not automatically void a 31 conflict of interest transaction if the transaction is approved by the 32 court. Former SCPC Section 627706 provided that conflict of 33 interest transactions could be approved by the court. Prior South 34 Carolina case law provided similarly. Sollee v. Croft, 28 S.C. Eq. 35 (7 Rich. Eq.) (S.C. 1854) (the court may permit a conflict of 36 interest transaction.) Also, see Restatement, Second, Trusts 37 Section 170, comment f. on subsection (1); Honeywell v. 38 Dominick, 223 S.C. 365, 75 S.E.2d 59 (S.C. 1953) 39 (notwithstanding the general rule prohibiting a trustee from buying 40 trust property at his own sale, the court may approve such a 41 transaction upon finding a justifiable exception). 42 Subsection (b)(3), the third exception to the “voidable” rule, 43 provides that a beneficiary’s right to void a conflict of interest[1243] 584 1 transaction is subject to the limitation periods in SCTC Section 2 6271005. Former SCPC Section 627307 provided that claims 3 against a trustee for breach of trust could be commenced within 4 one year after receipt of final account disclosing the matter (actual 5 disclosure) and in no event more than three years after a 6 beneficiary’s receipt of a final account or statement, regardless of 7 disclosure (constructive disclosure). See Moyer v. M.S. Bailey & 8 Son, 347 S.C. 353, 555 S.E.2d 406 (S.C. Ct. App. 2001) (applying 9 the provisions of former SCPC Section 627307). See also 10 Rembert v. Gressette, 318 S.C. 519, 458 S.E.2d 552 (S.C. Ct. App. 11 1995) (beneficiaries may lose claims against trustees due to 12 laches). 13 Subsection (b)(4) contains the fourth exception to the “voidable” 14 rule, providing that the transaction is not voidable by the 15 beneficiary if the beneficiary consents to, ratifies, or releases the 16 trustee with regard to the transaction as set forth in SCTC Section 17 6271009. Former SCPC Section 627307 implied that beneficiaries 18 could consent to a breach; see also SCPC Section 623713, 19 governing personal representatives, which provides that a 20 beneficiary’s right to void a conflict transaction may be lost by 21 consent. See Byrd v. King, 245 S.C. 247, 140 S.E.2d 158 (S.C. 22 1965), applying Restatement, Second, Trusts Section 216, holding 23 that a beneficiary may not hold the trustee liable for breach of trust 24 if the beneficiary consented to the trustee’s act or omission. The 25 comments to Restatement Section 216 set forth numerous 26 factsensitive applications of the rule. 27 Subsection (b)(5), the fifth exception to the “voidable” rule, 28 provides that a transaction contracted for prior to the person 29 becoming trustee or before he contemplated becoming trustee is 30 not automatically voidable by a beneficiary. There was no prior 31 SC statutory or case law counterpart. 32 Whereas Section 627802(b) applies an irrebuttable presumption 33 to void certain conflict of interest transactions, Section 627802(c) 34 applies a rebuttable presumption of voidability for transactions 35 involving trust property entered into with persons who have close 36 business or personal ties with the trustee. There was no prior 37 South Carolina statutory counterpart. See ScottishAmerican Mtg. 38 Co. v. Clowney, 70 S.C. 229, 49 S.E. 569 (S.C. 1904) (sale of trust 39 property by trustee to trustee’s spouse is voidable at the option of 40 the beneficiary). Restatement, Second, Trusts Section 170 41 provides that a transaction with the trustee’s spouse can be set 42 aside as though it was made with the trustee himself. Id., comment, 43 e. to subsection (4). A transaction with a nonspouse person who[1243] 585 1 “is related to the trustee” makes the transaction suspicious but not 2 ipso facto improper. Id. 3 SCTC subsection (c)(4) substitutes certain language for that in 4 the UTC version and adds subsection (c)(5), not found in UTC 5 Section 802, to clarify that the “interest,” either “of” or “in” the 6 trustee, must be “substantial” in order that such “interest” “might 7 affect the best judgment of the trustee.” This is consistent with 8 Scott on Trusts, Secs. 170.10 13 and the corresponding sections of 9 the Restatement of Trusts. 10 Subsection (d) addresses transactions between the trustee and a 11 beneficiary that do not involve trust property. Subsection (d) 12 creates a presumption that the trustee abused the confidential 13 relationship, thereby requiring the trustee to rebut the presumption 14 with evidence that the transaction was fair to the beneficiary. There 15 was no South Carolina statutory counterpart. See Guinyard v. 16 Atkins, 282 S.C. 61, 317 S.E.2d 137 (S.C. Ct. App. 1984) 17 (transactions between a trustee and beneficiaries may be sustained 18 where there is clear affirmative proof of fair consideration, perfect 19 candor, and absence of advantage.) Guinyard involved a trust 20 property transaction, but arguably would also apply to a nontrust 21 property transaction between trustee and beneficiary. Restatement, 22 Second, Trusts Section 170(2) permits transactions of the type 23 described in subsection (d) only if the trustee satisfies the 24 heightened standard of fairness and full disclosure. 25 Subsection (e) allows a beneficiary to void a transaction 26 involving nontrust property entered into by the trustee personally if 27 the transaction constituted an opportunity belonging to the trust. 28 There was no South Carolina statutory or case law counterpart. 29 See, however, Restatement, Second, Trusts Section 170, comment 30 k. to subsection (1). 31 Subsection (f) creates an exception to the nofurtherinquiry rule 32 for trustee investments in mutual funds, and allows trustees to take 33 additional compensation for services provided to the investment 34 company, subject to a duty of disclosure and subject to the duties 35 imposed by the Prudent Investor Act. See Part 9. There was no 36 prior South Carolina case law counterpart. Subsection (f) includes 37 the word “otherwise” found in the 2004 Amendments to UTC 38 Section 802. 39 Subsection (g) makes share voting or other exercise of entity 40 control by a trustee a fiduciary function. Former SCPC Section 41 627704(c)(3), (13), (14), (15), and (26) provides for trustee powers 42 with respect to entity control. The exercise of said powers was 43 subject to the prudent man rule and had to be exercised in the best[1243] 586 1 interest of the beneficiary and consistent with the purposes of the 2 trust. See Weston v. Weston, 210 S.C. 1, 41 S.E.2d 372 (S.C. 3 1947) (it is the duty of the trustee in voting shares of corporate 4 stock to act in the best interests of the beneficiary). 5 Subsection (h) sets forth exceptions to the duty of loyalty, which 6 apply if the transaction was fair to the beneficiary. 7 Subsection (h)(1) and (2) provides that a trustee is free to 8 contract with the beneficiary about the terms of appointment and 9 compensation. Subsection (h)(3) permits transactions involving 10 the trust with other fiduciary estates in which the trustee is also the 11 fiduciary or in which the beneficiary of the trust has an interest. 12 Subsection (h)(4) permits the trustee to deposit trust assets in a 13 financial institution operated by the trustee. Subsection (h)(5) 14 permits the trustee to advance money for the protection of the trust. 15 There was no prior South Carolina statute on the subject of a 16 trustee’s ability to contract with a beneficiary about terms of 17 appointment and compensation. Former SCPC Section 627205 18 permitted a trustee to fix his own fees (if not governed by the trust 19 instrument) subject to the right of the beneficiary to object. 20 Former SCPC Section 627704(c)(4) permitted transactions of the 21 type described in subsection (h)(3). Former SCPC Section 22 677704(6) permitted transactions of the type described in 23 subsection (h)(4). Former SCPC Section 677704(c)(18) permitted 24 transactions of the type described in subsection (h)(5). There was 25 no South Carolina case law counterpart. 26 Subsection (i) confirms that the court may appoint a special 27 fiduciary to act with respect to any transaction that might violate 28 the duty of loyalty if entered into by the trustee. There was no 29 South Carolina statutory or case law counterpart. 30 31 Section 627803. If a trust has two or more beneficiaries, the 32 trustee shall act impartially in investing, managing, and 33 distributing the trust property, giving due regard to the 34 beneficiaries’ respective interests. 35 36 REPORTER’S COMMENT 37 38 The duty of impartiality is an important aspect of the duty of 39 loyalty. Former SCPC Section 627302(F)(2), retained and 40 incorporated in Part 9, provided similarly. Former SCPC Sections 41 627301 and 627305 set forth the general duties of administering 42 the trust for the benefit of the beneficiaries and according to the 43 objectives of the settlor. In Johnson v. Thornton, 264 S.C. 252,[1243] 587 1 214 S.E.2d 124 (S.C. 1975), the court recognized the existence of a 2 trustee’s duty to deal impartially with two or more beneficiaries. 3 See also Restatement, Second, Trusts Section 183. 4 5 Section 627804. A trustee shall administer the trust as a prudent 6 person would, by considering the purposes, terms, distributional 7 requirements, and other circumstances of the trust. In satisfying 8 this standard, the trustee shall exercise reasonable care, skill, and 9 caution. 10 11 REPORTER’S COMMENT 12 13 The duty to administer a trust with prudence is a fundamental 14 duty of the trustee. Former SCPC Section 627702(2) defined a 15 prudent man as a trustee whose exercise of judgment and care 16 complies with the requirements of former Section 627302, which 17 is retained and incorporated in Part 9. 18 A settlor who wishes to modify the standard of care specified in 19 this section is free to do so, but there is a limit. Section 6271008 20 prohibits a settlor from exculpating a trustee from liability for 21 breach of trust committed in bad faith or with reckless indifference 22 to the purposes of the trust or to the interests of the beneficiaries. 23 24 Section 627805. In administering a trust, the trustee may incur 25 only costs that are reasonable in relation to the trust property, the 26 purposes of the trust, and the skills of the trustee. 27 28 REPORTER’S COMMENT 29 30 This section is consistent with the South Carolina Prudent 31 Investor Act, Section 627933, and is consistent with the rules 32 concerning costs in Restatement (Third) of Trusts: Prudent 33 Investor Rule Section 227(c)(3) (1992). For related rules 34 concerning compensation and reimbursement of trustees, see 35 Sections 627708 and 627709. The duty not to incur unreasonable 36 costs applies when a trustee decides whether and how to delegate 37 to agents, as well as to other aspects of trust administration. In 38 deciding whether and how to delegate, the trustee must be alert to 39 balancing projected benefits against the likely costs. To protect 40 the beneficiary against excessive costs, the trustee should also be 41 alert to adjusting compensation for functions which the trustee has 42 delegated to others. The obligation to incur only necessary or[1243] 588 1 appropriate costs of administration has long been part of the law of 2 trusts. See Restatement (Second) of Trusts Section 188 (1959). 3 Former SCPC Section 627302(F)(3), retained and incorporated 4 in Part 9, provided similarly. 5 6 Section 627806. A trustee who has special skills or expertise, or 7 is named trustee in reliance upon the trustee’s representation that 8 the trustee has special skills or expertise, shall use those special 9 skills or expertise. 10 11 REPORTER’S COMMENT 12 13 This section is similar to Restatement (Second) of Trusts Section 14 174 (1959), and consistent with the South Carolina Prudent 15 Investor Act, Section 627933. 16 Former SCPC Section 627302(C)(6), retained and incorporated 17 in Part 9, provided similarly. 18 19 Section 627807. (a) A trustee may delegate duties and powers 20 that a prudent trustee of comparable skills could properly delegate 21 under the circumstances. The trustee shall exercise reasonable 22 care, skill, and caution in: 23 (1) selecting an agent; 24 (2) establishing the scope and terms of the delegation, 25 consistent with the purposes and terms of the trust; and 26 (3) periodically reviewing the agent’s actions in order to 27 monitor the agent’s performance and compliance with the terms of 28 the delegation. 29 (b) In performing a delegated function, an agent owes a duty to 30 the trust to exercise reasonable care to comply with the terms of 31 the delegation. 32 (c) A trustee who complies with subsection (a) is not liable to 33 the beneficiaries or to the trust for an action of the agent to whom 34 the function was delegated. 35 (d) By accepting a delegation of powers or duties from the 36 trustee of a trust that is subject to the law of this State, an agent 37 submits to the jurisdiction of the courts of this State. 38 39 REPORTER’S COMMENT 40 41 This section permits trustees to delegate various aspects of trust 42 administration to agents, subject to the standards of the section. 43 Former SCPC Section 627302(H)(1), retained and incorporated in[1243] 589 1 Part 9, provided similarly. The language is derived from Section 9 2 of the Uniform Prudent Investor Act. See also John H. Langbein, 3 Reversing the Nondelegation Rule of Trust Investment Law, 59 4 Mo. L. Rev. 105 (1994) (discussing prior law). 5 This section encourages and protects the trustee in making 6 delegations appropriate to the facts and circumstances of the 7 particular trust. Whether a particular function is delegable is based 8 on whether it is a function that a prudent trustee might delegate 9 under similar circumstances. For example, delegating some 10 administrative and reporting duties might be prudent for a family 11 trustee but unnecessary for a corporate trustee. 12 This section applies only to delegation to agents, not to 13 delegation to a cotrustee. For the provision regulating delegation 14 to a cotrustee, see Section 627703. 15 16 Section 627808. (a) While a trust is revocable, the trustee may 17 follow a direction of the settlor that is contrary to the terms of the 18 trust. 19 (b) If the terms of a trust confer upon a person other than the 20 settlor of a revocable trust power to direct certain actions of the 21 trustee, the trustee shall act in accordance with an exercise of the 22 power unless the attempted exercise is manifestly contrary to the 23 terms of the trust or the trustee knows the attempted exercise 24 would constitute a serious breach of a fiduciary duty that the 25 person holding the power owes to the beneficiaries of the trust. 26 (c) The terms of a trust may confer upon a trustee or other 27 person a power to direct the modification or termination of the 28 trust. 29 (d) A person, other than a beneficiary, who holds a power to 30 direct is presumptively a fiduciary who, as such, is required to act 31 in good faith with regard to the purposes of the trust and the 32 interests of the beneficiaries. The holder of a power to direct is 33 liable for any loss that results from breach of a fiduciary duty. 34 35 REPORTER’S COMMENT 36 37 Subsection (a) is an application of Section 627603(a), which 38 provides that a revocable trust is subject to the settlor’s exclusive 39 control. Because of the settlor’s degree of control, subsection (a) 40 of this section authorizes a trustee to rely on a direction from the 41 settlor even if it is contrary to the terms of the trust. The direction 42 of the settlor might be regarded as an amendment of the trust. [1243] 590 1 Subsections (b)(d) ratify the use of trust protectors and advisers. 2 Subsections (b) and (d) are based in part on Restatement (Second) 3 of Trusts Section 185 (1959). Subsection (c) is similar to 4 Restatement (Third) of Trusts Section 64(2) (Tentative Draft No. 5 3, approved 2001). “Advisers” have long been used for certain 6 trustee functions, such as the power to direct investments or 7 manage a closelyheld business. “Trust protector,” a term largely 8 associated with offshore trust practice, is more recent and usually 9 connotes the grant of greater powers, sometimes including the 10 power to amend or terminate the trust. Subsection (c) ratifies the 11 recent trend to grant third persons such broader powers. See 12 SCTC Sections 627818 and 627819. 13 A power to direct must be distinguished from a veto power. A 14 power to direct involves action initiated and within the control of a 15 third party. The trustee usually has no responsibility other than to 16 carry out the direction when made. But if a third party holds a 17 veto power, the trustee is responsible for initiating the decision, 18 subject to the third party’s approval. A trustee who administers a 19 trust subject to a veto power occupies a position akin to that of a 20 cotrustee and is responsible for taking appropriate action if the 21 third party’s refusal to consent would result in a serious breach of 22 trust. See Restatement (Second) of Trusts Section 185 cmt. g 23 (1959); Section 703(g) (duties of cotrustees). 24 Frequently, the person holding the power is directing the 25 investment of the holder’s own beneficial interest. Such 26 selfdirected accounts are particularly prevalent among trusts 27 holding interests in employee benefit plans or individual retirement 28 accounts. See ERISA Section 404(c) (29 U.S.C. Section 1104(c)). 29 But for the type of donative trust which is the primary focus of this 30 Code, the holder of the power to direct is frequently acting on 31 behalf of others. In that event and as provided in subsection (d), 32 the holder is presumptively acting in a fiduciary capacity with 33 respect to the powers granted and can be held liable if the holder’s 34 conduct constitutes a breach of trust, whether through action or 35 inaction. Like a trustee, liability cannot be imposed if the holder 36 has not accepted the grant of the power either expressly or 37 informally through exercise of the power. See Section 627701. 38 Powers to direct are most effective when the trustee is not 39 deterred from exercising the power by fear of possible liability. 40 On the other hand, the trustee does have overall responsibility for 41 seeing that the terms of the trust are honored. For this reason, 42 subsection (b) imposes only minimal oversight responsibility on 43 the trustee. A trustee must generally act in accordance with the[1243] 591 1 direction. A trustee may refuse the direction only if the attempted 2 exercise would be manifestly contrary to the terms of the trust or 3 the trustee knows the attempted exercise would constitute a serious 4 breach of a fiduciary duty owed by the holder of the power to the 5 beneficiaries of the trust. 6 The provisions of this section may be altered in the terms of the 7 trust. See Section 627105. A settlor can provide that the trustee 8 must accept the decision of the power holder without question. Or 9 a settlor could provide that the holder of the power is not to be held 10 to the standards of a fiduciary. A common technique for assuring 11 that a settlor continues to be taxed on all of the income of an 12 irrevocable trust is for the settlor to retain a nonfiduciary power of 13 administration. See I.R.C. Section 675(4). 14 There was no prior South Carolina statutory or case law 15 counterpart. 16 17 Section 627809. A trustee shall take reasonable steps to take 18 control of and protect the trust property. 19 20 REPORTER’S COMMENT 21 22 This section codifies the substance of Sections 175 and 176 of 23 the Restatement (Second) of Trusts (1959). The duty to take 24 control of and safeguard trust property is an aspect of the trustee’s 25 duty of prudent administration as provided in Section 627804. See 26 also Sections 627816(1) (power to collect trust property), 27 627816(11) (power to insure trust property), and 627816(12) 28 (power to abandon trust property). The duty to take control 29 normally means that the trustee must take physical possession of 30 tangible personal property and securities belonging to the trust, and 31 must secure payment of any choses in action. See Restatement 32 (Second) of Trusts Section 175 cmt. a, c & d (1959). This section, 33 like the other sections in this article, is subject to alteration by the 34 terms of the trust. See Section 627105. For example, the settlor 35 may provide that the spouse may occupy the settlor’s former 36 residence rent free, in which event the spouse’s occupancy would 37 prevent the trustee from taking possession. 38 There was no prior South Carolina statutory or case law 39 counterpart. 40 41 Section 627810. (a) A trustee shall keep adequate records of 42 the administration of the trust. [1243] 592 1 (b) A trustee shall keep trust property separate from the 2 trustee’s own property. 3 (c) Except as otherwise provided in subsection (d), a trustee 4 shall cause the trust property to be designated so that the interest of 5 the trust, to the extent feasible, appears in records maintained by a 6 party other than a trustee or beneficiary. 7 (d) If the trustee maintains records clearly indicating the 8 respective interests, a trustee may invest as a whole the property of 9 two or more separate trusts. 10 11 REPORTER’S COMMENT 12 13 The duty to keep adequate records stated in subsection (a) is 14 implicit in the duty to act with prudence (Section 627804) and the 15 duty to report to beneficiaries (Section 627813). For an 16 application, see Green v. Lombard, 343 A. 2d 905, 911 (Md. Ct. 17 Spec. App. 1975). See also Restatement (Second) of Trusts 18 Sections 172, 174 (1959). This Section is related to Section 19 627813, which requires the trustee to keep the beneficiaries 20 reasonably informed about the administration of the trust. 21 Subsection (c) allows the trustee to maintain assets in nominee 22 name rather than holding individual assets in the name of the 23 trustee. 24 Subsection (d) allows a trustee to use the property of two or 25 more trusts to make joint investments. This allows the use of 26 common trust funds or mutual funds which can be an economical 27 method of managing assets of the trust. 28 29 Section 627811. A trustee shall take reasonable steps to enforce 30 claims of the trust and to defend claims against the trust. 31 32 REPORTER’S COMMENT 33 34 This section does not impose any new duties upon trustees. It 35 has been held in South Carolina that a trustee who fails to collect 36 upon a debt owed the trust, or to make an effort to do so, is liable 37 to the trust. Neely v. Peoples Bank of Anderson, 133 S.C. 43, 130 38 S.E. 550 (S.C. 1925). See also former SCPC Section 627704(c) 39 (19), which provided that a trustee had the power to pay or contest 40 claims, settle claims by or against the trust, and to release claims 41 owned by the trust, which is similar to Section 627816(14). 42[1243] 593 1 Section 627812. Unless directed otherwise by the court or by 2 the trust instrument, a successor trustee appointed by the court or 3 by the trust instrument succeeds to all the powers, duties, and 4 discretionary authority given to the predecessor trustee. Upon 5 reasonable request, a successor trustee is entitled to a statement of 6 the accounts of the trust from a predecessor trustee. A successor 7 trustee may accept the account rendered and shall be under no duty 8 to examine the acts or omissions of the predecessor trustee and 9 shall not be liable for failure to seek redress for any act or 10 omission of the predecessor trustee. The trustee of a testamentary 11 trust may accept the account rendered by a personal representative 12 and shall be under no duty to examine the acts or omissions of the 13 predecessor personal representative and shall not be liable for 14 failure to seek redress for any act or omission of the predecessor 15 personal representative. 16 17 REPORTER’S COMMENT 18 Section 627812 does not adopt Uniform Trust Code Section 19 812. Instead, Section 627812 retains and incorporates former 20 SCPC Section 627707(c). Section 627703 has provisions similar 21 to former SCPC Section 627707(a), (b), and (d). 22 23 Section 627813. (a)A trustee shall keep the qualified 24 beneficiaries of the trust reasonably informed about the 25 administration of the trust and of the material facts necessary for 26 them to protect their interests. Unless unreasonable under the 27 circumstances, a trustee shall promptly respond to a beneficiary’s 28 request for information related to the administration of the trust. 29 (b) A trustee: 30 (1) upon request of a beneficiary, shall promptly furnish to 31 the beneficiary a copy of the trust instrument; 32 (2) within 60 days after accepting a trusteeship, shall notify 33 the qualified beneficiaries of the acceptance and of the trustee’s 34 name, address, and telephone number; 35 (3) within 60 days after the date the trustee acquires 36 knowledge of the creation of an irrevocable trust, or the date the 37 trustee acquires knowledge that a formerly revocable trust has 38 become irrevocable, whether by the death of the settlor or 39 otherwise, shall notify the qualified beneficiaries of the trust’s 40 existence, of the identity of the settlor or settlors, of the right to 41 request a copy of the trust instrument, and of the right to a trustee’s 42 report as provided in subsection (c); and [1243] 594 1 (4) shall notify the qualified beneficiaries in advance of any 2 change in the method or rate of the trustee’s compensation. 3 (c) A trustee shall send to the distributees or permissible 4 distributees of trust income or principal, and to other qualified or 5 nonqualified beneficiaries who request it, at least annually and at 6 the termination of the trust, a report of the trust property, liabilities, 7 receipts, and disbursements, including the source and amount of 8 the trustee’s compensation, a listing of the trust assets and, if 9 feasible, their respective market values. Upon a vacancy in a 10 trusteeship, unless a cotrustee remains in office, a report must be 11 sent to the qualified beneficiaries by the former trustee. A 12 personal representative, conservator, or guardian may send the 13 qualified beneficiaries a report on behalf of a deceased or 14 incapacitated trustee. 15 (d) A beneficiary may waive the right to a trustee’s report or 16 other information otherwise required to be furnished under this 17 section. A beneficiary, with respect to future reports and other 18 information, may withdraw a waiver previously given. 19 (e) SubSections (b)(2) and (b)(3) of this section apply only to a 20 trustee who accepts a trusteeship on or after the effective date of 21 this article, to an irrevocable trust created on or after the effective 22 date of this article, and to a revocable trust which becomes 23 irrevocable on or after the effective date of this article. Unless the 24 terms of a trust expressly provide otherwise, while a trust is 25 revocable the trustee’s duties under this section are owed 26 exclusively to the settlor. 27 (b) Unless the terms of a trust expressly provide otherwise, a 28 trustee who accepts a trusteeship or undertakes the administration 29 of an irrevocable trust created on or after the effective date of this 30 article, or of a revocable trust which becomes irrevocable whether 31 by the death of the settlor or by the terms of the trust on or after the 32 effective date of this article, shall: 33 (1) within ninety days after the trustee accepts a trusteeship 34 or undertakes administration of an irrevocable trust or a revocable 35 trust that has become irrevocable whether by the death of the 36 settlor or by the terms of the trust, notify the qualified 37 beneficiaries, as defined in Section 627103(12), of: 38 (A) the existence of the trust; 39 (B) the identity of the settlor or settlers; 40 (C) the trustee’s name, address and telephone number; 41 (D) the right to request in writing a copy of the trust 42 instrument; and[1243] 595 1 (E) the right to request in writing a copy of any trustee’s 2 report described in (c)(1) below; 3 (2) throughout the administration of the trust, keep the 4 distributees and the permissible distributes, as defined in Section 5 627103(21) and (25), reasonably informed about the 6 administration of the trust and of the material facts necessary for 7 them to protect their interests, provided that the attorneyclient 8 privilege between the trustee and the trustee’s attorney is not 9 violated; 10 (3) upon the reasonable written request of a beneficiary 11 other than a qualified beneficiary unless unreasonable under the 12 circumstances, provide to the beneficiary a copy of the trust 13 instrument redacted to include only those provisions of the trust 14 that are relevant to the beneficiary’s interest in the trust, as the 15 trustee determines, and unless unreasonable under the 16 circumstances, respond to a beneficiary’s written request for 17 information related to the administration of the trust; 18 (4) notify the distributees and permissible distributees in 19 advance of any change in the method or rate of the trustee’s 20 compensation; and 21 (5) notwithstanding any of the above, not be required to 22 notify any beneficiary in advance of transactions relating to the 23 trust property. 24 (c) Unless the terms of a trust expressly provide otherwise, a 25 trustee who accepts a trusteeship or undertakes the administration 26 of an irrevocable trust created on or after the effective date of this 27 article, or of a revocable trust which becomes irrevocable on or 28 after the effective date of this article, shall: 29 (1) have a continuing duty to: 30 (A) keep the distributees and permissible distributees, or 31 other qualified beneficiaries who request information in writing, 32 reasonably informed as to the administration of the trust; and 33 (B) send annually, and upon the termination of the trust, a 34 written report of the trust property which may be in any format 35 which provides the distributees and permissible distributees, or 36 other qualified beneficiaries who have requested in writing, with 37 information necessary to protect their interests. The report may 38 include a copy of the fiduciary income tax return, or copies of 39 bank or brokerage statements, or an informal list of assets and if 40 feasible, the market values of those assets, the liabilities, the 41 receipts and the disbursements, including the source and amount of 42 the trustee’s compensation;[1243] 596 1 (2) upon resignation of the trustee and unless a cotrustee 2 remains in office, send a written report as described in (c)(1) to the 3 distributees and permissible distributees; and in the case of the 4 death or incapacity of a trustee, the report may be sent by the 5 trustee’s personal representative, conservator or guardian. 6 (d) To the extent that there is no conflict of interest, the 7 trustee’s duties to inform and report under subsections (b) and (c) 8 are deemed satisfied if the information and report are given to the 9 beneficiary’s representative as described in Sections 627302 10 through 627305. 11 (e) Any distributee or permissible distributee may waive the 12 right to a trustee’s report and other information described under 13 this section and, with respect to future reports and other 14 information, withdraw a waiver previously given. 15 16 REPORTER’S COMMENT 17 18 The 2012 Amendments completely revise the previous version 19 of 627813 and more clearly define the duties of the trustee to 20 inform and report as well as the classes of beneficiaries to whom 21 the trustee’s duties extend. The language is intended to balance 22 the trustee’s duties with the rights of the various classes of 23 beneficiaries to receive information and reports. In regard to the 24 initial duty to inform, qualified beneficiaries are entitled to receive 25 information as provided in subsection (b)(1); thereafter, only 26 distributees and permissible distributees have the right to receive 27 information as provided in subsections (b)(2) and (b)(4); and under 28 (b)(3) a nonqualified beneficiary may receive only a redacted copy 29 of a trust agreement and only upon request. In regard to the duty 30 to report, subsection (c)(1) provides that the distributees and 31 permissible distributees have the right to receive a report as 32 described therein. Other qualified beneficiaries may receive the 33 report only upon written request and nonqualified beneficiaries are 34 not entitled to a report. 35 36 Section 627814. (a) Notwithstanding the breadth of discretion 37 granted to a trustee in the terms of the trust, including the use of 38 such terms as ‘absolute’, ‘sole’, or ‘uncontrolled’, the trustee shall 39 exercise a discretionary power in good faith and in accordance 40 with the terms and purposes of the trust and the interests of the 41 beneficiaries. 42 (b) A power whose exercise is limited or prohibited by 43 subsection (c) may be exercised by a majority of the remaining[1243] 597 1 trustees whose exercise of the power is not so limited or 2 prohibited. If the power of all trustees is so limited or prohibited, 3 the court may appoint a special fiduciary with authority to exercise 4 the power. 5 (c) Subject to subsection (d), and unless the application of this 6 section is clearly and convincingly negated in the will, the trust 7 document, terms of the trust, or a written instrument appointing a 8 fiduciary, expressly indicating that a rule in this subsection does 9 not apply, any power conferred upon the fiduciary, in his capacity 10 as a fiduciary (and not including any power conferred upon him in 11 his capacity as a beneficiary), which would, except for this section, 12 constitute, in whole or in part, a general power of appointment 13 cannot be exercised by him in favor of himself, his estate, his 14 creditors, or the creditors of his estate. 15 (1) The fiduciary can, however, exercise the power in favor 16 of someone other than himself, his estate, his creditors and the 17 creditors of his estate. 18 (2) If a power comes within subsection (c) and the power is 19 conferred upon two or more fiduciaries, it can be exercised by the 20 fiduciary or the fiduciaries who are not disqualified from 21 exercising the power as if they were the only fiduciary or 22 fiduciaries. 23 (3) If all of the serving fiduciaries are disqualified from 24 exercising a power, the court that would have jurisdiction to 25 appoint a fiduciary under the instrument, if there were no fiduciary 26 currently serving, shall exercise, or shall appoint a special 27 fiduciary whose only power is to exercise the power that cannot be 28 exercised by the other fiduciaries by reason of subsection (c). 29 (4) A trustee may not exercise a power to make discretionary 30 distributions to satisfy a legal obligation of support that the trustee 31 personally owes another person. 32 (d) Subsection (c) does not apply to: 33 (1) a power held by the settlor’s spouse who is the trustee of 34 a trust for which a marital deduction, as defined in Section 2056(b) 35 (5) or 2523(e) of the Internal Revenue Code, as amended, was 36 previously allowed; 37 (2) any trust during any period that the trust may be revoked 38 or amended by its settlor; or 39 (3) a trust if contributions to the trust qualify for the annual 40 exclusion under Section 2503(c) of the Internal Revenue Code as 41 amended. 42 43 REPORTER’S COMMENT[1243] 598 1 2 The corresponding statute under the former South Carolina law 3 was SCPC Section 627603. The intent of both former SCPC 4 Section 627603 and current SCTC Section 627814 is to avoid 5 inadvertent income tax and estate tax consequences that might 6 result under certain circumstances where a beneficiary is also 7 serving as a trustee. 8 The introductory language to subsection (A) of former SCPC 9 Section 627603 appears to be more demonstrative than the 10 corresponding language of Uniform Trust Code Section 814(b). 11 Consequently, current SCTC Section 627814 incorporates that 12 introductory clause from former SCPC Section 627603(A) that 13 current SCTC Section 627814 does not limit the intent and 14 protection of former SCPC Section 627603. 15 Former SCPC Section 627603 also limited certain fiduciary 16 powers so that the trustee was not deemed to have a general power 17 of appointment. A corresponding clause was not expressly 18 contained in the UTC version of Section 814. Thus, the 19 appropriate language from former SCPC Section 627603 is 20 included at current SCTC Section 627814(c). 21 Despite the breadth of discretion purportedly granted by the 22 wording of a trust, no grant of discretion to a trustee, whether with 23 respect to management or distribution, is ever absolute. A grant of 24 discretion establishes a range within which the trustee may act. 25 The greater the grant of discretion, the broader the range. Pursuant 26 to subsection (a), a trustee’s action must always be in good faith, 27 with regard to the purposes of the trust, and in accordance with the 28 trustee’s other duties, including the obligation to exercise 29 reasonable skill, care and caution. See Sections 627801 (duty to 30 administer trust) and 627804 (duty to act with prudence). The 31 standard stated in subsection (a) applies only to powers which are 32 to be exercised in a fiduciary as opposed to a nonfiduciary 33 capacity. Regarding the standards for exercising discretion and 34 construing particular language of discretion, see Restatement 35 (Third) of Trusts Section 50 (Tentative Draft No. 2, approved 36 1999); Restatement (Second) of Trusts Section 187 (1959). See 37 also Edward C. Halbach, Jr., Problems of Discretion in 38 Discretionary Trusts, 61 Colum. L. Rev. 1425 (1961). An abuse 39 by the trustee of the discretion granted in the terms of the trust is a 40 breach of trust that can result in surcharge. See Section 41 6271001(b) (remedies for breach of trust). 42 Subsections (b) through (d) rewrite the terms of a trust that 43 might otherwise result in adverse estate and gift tax consequences[1243] 599 1 to a beneficiarytrustee. This Trust Code does not generally 2 address the subject of tax curative provisions. These are 3 provisions that automatically rewrite the terms of trusts that might 4 otherwise fail to qualify for probable intended tax benefits. Such 5 provisions, because they apply to all trusts using or failing to use 6 specified language, are often overbroad, applying not only to trusts 7 intended to qualify for tax benefits but also to smaller trust 8 situations where taxes are not a concern. Enacting taxcurative 9 provisions also requires special diligence by state legislatures to 10 make certain that these provisions are periodically amended to 11 account for the frequent changes in federal tax law. Furthermore, 12 many failures to draft with sufficient care may be correctable by 13 including a tax savings clause in the terms of the trust or by 14 seeking modification of the trust using one or more of the methods 15 authorized by Sections 627411 through 627417. Notwithstanding 16 these reasons, the unintended inclusion of the trust in the 17 beneficiarytrustee’s gross estate is a frequent enough occurence 18 that this Code addresses it. It is also a topic on which numerous 19 states have enacted corrective statutes. 20 A tax curative provision differs from a statute such as Section 21 627416 of this Code, which allows a court to modify a trust to 22 achieve an intended tax benefit. Absent Congressional or 23 regulatory authority authorizing the specific modification, a lower 24 court decree in state court modifying a trust is controlling for 25 federal estate tax purposes only if the decree was issued before the 26 taxing event, which in the case of the estate tax would be the 27 decedent’s death. See Rev. Rul. 73142, 19731 C.B. 405. There is 28 specific federal authority authorizing modification of trusts for a 29 number of reasons (see Comment to UTC Section 416) but not on 30 the specific issues addressed in this section. Subsections (b) 31 through (d), by interpreting the original language of the trust 32 instrument in a way that qualifies for intended tax benefits, 33 obviates the need to seek a later modification of the trust. 34 QTIP marital trusts are subject to this section. QTIP trusts 35 qualify for the marital deduction only if so elected on the federal 36 estate tax return. Excluding a QTIP for which an election has been 37 made from the operation of this section would allow the terms of 38 the trust to be modified after the settlor’s death. By not making the 39 QTIP election, an otherwise unascertainable standard would be 40 limited. By making the QTIP election, the trustee’s discretion 41 would not be curtailed. This ability to modify a trust depending on 42 elections made on the federal estate tax return could itself[1243] 600 1 constitute a taxable power of appointment resulting in inclusion of 2 the trust in the surviving spouse’s gross estate. 3 The exclusion of the Section 2503(c) minors trust is necessary to 4 avoid loss of gift tax benefits. While preventing a trustee from 5 distributing trust funds in discharge of a legal obligation of support 6 would keep the trust out of the trustee’s gross estate, such a 7 restriction might result in loss of the gift tax annual exclusion for 8 contributions to the trust, even if the trustee were otherwise 9 granted unlimited discretion. See Rev. Rul. 69345, 19691 C.B. 10 226. 11 12 Section 627815. (a) A trustee, without authorization by the 13 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 unmarried 17 competent owner has over individually owned property; 18 (B) any other powers appropriate to achieve the proper 19 investment, management, and distribution of the trust property; 20 and 21 (C) any other powers conferred by this part. 22 (b) The exercise of a power is subject to the fiduciary duties 23 prescribed by this part. 24 25 REPORTER’S COMMENT 26 27 This section is intended to grant trustees the broadest possible 28 powers, but to be exercised always in accordance with the duties of 29 the trustee and any limitations stated in the terms of the trust. This 30 broad authority is denoted by granting the trustee the powers of an 31 unmarried competent owner of individually owned property, 32 unlimited by restrictions that might be placed on it by marriage, 33 disability, or cotenancy. 34 A power differs from a duty. A duty imposes an obligation or a 35 mandatory prohibition. A power, on the other hand, is a discretion, 36 the exercise of which is not obligatory. The existence of a power, 37 however created or granted, does not speak to the question of 38 whether it is prudent under the circumstances to exercise the 39 power. 40 Former SCPC Section 627704 contained the default powers that 41 were available to all trustees when the trust instrument did not 42 provide specific powers. Former SCPC Section 627704 granted 43 general powers that a prudent person would perform incident to the[1243] 601 1 collection, preservation, management, use and distribution of the 2 trust estate, and it also contained various specific powers. SCTC 3 Section 627815 broadens the former SCPC list of powers that 4 apply to all trustees by stating that a trustee has all of the powers 5 over trust property that an individual has over his own property. 6 7 Section 627816. Without limiting the authority conferred by 8 Section 627815, a trustee may: 9 (1) collect trust property and accept or reject additions to the 10 trust property from a settlor or any other person; 11 (2) acquire or sell property, for cash or on credit, at public or 12 private sale; 13 (3) exchange, partition, or otherwise change the character of 14 trust property; 15 (4) deposit trust money in accountsall types including margin 16 accountsin a regulated financialservice institution; 17 (5) borrow money, with or without security, and mortgage or 18 pledge trust property for a period within or extending beyond the 19 duration of the trust; 20 (6) with respect to an interest in a proprietorship, partnership, 21 limited liability company, business trust, corporation, or other 22 form of business or enterprise, create and/or continue a business or 23 other enterprise and take any action that may be taken by 24 shareholders, members, or property owners, including merging, 25 dissolving, or otherwise changing the form of business 26 organization or contributing additional capital; 27 (7) with respect to stocks or other securities, exercise the rights 28 of an absolute owner, including the right to: 29 (A) vote, or give proxies to vote, with or without power of 30 substitution, or enter into or continue a voting trust agreement; 31 (B) hold a security in the name of a nominee or in other form 32 without disclosure of the trust so that title may pass by delivery; 33 (C) pay calls, assessments, and other sums chargeable or 34 accruing against the securities, and sell or exercise stock 35 subscription or conversion rights; and 36 (D) deposit the securities with a depositary or other regulated 37 financial service institution; 38 (8) with respect to an interest in real property, construct, or 39 make ordinary or extraordinary repairs to, alterations to, or 40 improvements in, buildings or other structures, demolish 41 improvements, raze existing or erect new party walls or buildings, 42 subdivide or develop land, dedicate land to public use or grant 43 public or private easements, including by way of example qualified[1243] 602 1 conservation and façade easements, and make or vacate plats and 2 adjust boundaries; 3 (9) enter into a lease for any purpose as lessor or lessee, 4 including a lease or other arrangement for exploration and removal 5 of natural resources, with or without the option to purchase or 6 renew, for a period within or extending beyond the duration of the 7 trust; 8 (10) grant an option involving a sale, lease, or other disposition 9 of trust property or acquire an option for the acquisition of 10 property, including an option exercisable beyond the duration of 11 the trust, and exercise an option so acquired; 12 (11) insure the property of the trust against damage or loss and 13 insure the trustee, the trustee’s agents, and beneficiaries against 14 liability arising from the administration of the trust; 15 (12) abandon or decline to administer property of no value or of 16 insufficient value to justify its collection or continued 17 administration; 18 (13) with respect to possible liability for violation of 19 environmental law: 20 (A) inspect or investigate property the trustee holds or has 21 been asked to hold, or property owned or operated by an 22 organization in which the trustee holds or has been asked to hold 23 an interest, for the purpose of determining the application of 24 environmental law with respect to the property; 25 (B) take action to prevent, abate, or otherwise remedy any 26 actual or potential violation of any environmental law affecting 27 property held directly or indirectly by the trustee, whether taken 28 before or after the assertion of a claim or the initiation of 29 governmental enforcement; 30 (C) decline to accept property into trust or disclaim any 31 power with respect to property that is or may be burdened with 32 liability for violation of environmental law; 33 (D) compromise claims against the trust which may be 34 asserted for an alleged violation of environmental law; and 35 (E) pay the expense of any inspection, review, abatement, or 36 remedial action to comply with environmental law; 37 (14) pay or contest any claim, settle a claim by or against the 38 trust, and release, in whole or in part, a claim belonging to the 39 trust; 40 (15) pay taxes, assessments, compensation of the trustee and of 41 employees and agents of the trust, and other expenses incurred in 42 the administration of the trust; [1243] 603 1 (16) exercise elections with respect to federal, state, and local 2 taxes; 3 (17) select a mode of payment under any employee benefit or 4 retirement plan, annuity, or life insurance payable to the trustee, 5 exercise rights thereunder, including exercise of the right to 6 indemnification for expenses and against liabilities, and take 7 appropriate action to collect the proceeds; 8 (18) make loans out of trust property, including loans to a 9 beneficiary on terms and conditions the trustee considers to be fair 10 and reasonable under the circumstances, and the trustee has a lien 11 on future distributions for repayment of those loans; 12 (19) pledge trust property to guarantee loans made by others to 13 the beneficiary; 14 (20) appoint a trustee to act in another jurisdiction with respect 15 to trust property located in the other jurisdiction, confer upon the 16 appointed trustee all of the powers and duties of the appointing 17 trustee, require that the appointed trustee furnish security, and 18 remove any trustee so appointed; 19 (21) pay an amount distributable to a beneficiary who is under a 20 legal disability or who the trustee reasonably believes is 21 incapacitated, by paying it directly to the beneficiary or applying it 22 for the beneficiary’s benefit, or by: 23 (A) paying it to the beneficiary’s agent under a Power of 24 Attorney, to the beneficiary’s conservator or, if the beneficiary 25 does not have a conservator, to the beneficiary’s guardian; 26 (B) paying it to the beneficiary’s custodian under the 27 Uniform Gifts or Transfers to Minors Act or custodial trustee 28 under the Uniform Custodial Trust Act, and, for that purpose, 29 creating a custodianship or custodial trust; 30 (C) if the trustee does not know of an agent under a Power of 31 Attorney, conservator, guardian, custodian, or custodial trustee, 32 paying it to an adult relative or other person having legal or 33 physical care or custody of the beneficiary, to be expended on the 34 beneficiary’s behalf; or 35 (D) managing it as a separate fund on the beneficiary’s 36 behalf, subject to the beneficiary’s continuing right to withdraw 37 the distribution; 38 (22) on distribution of trust property or the division or 39 termination of a trust, make distributions in divided or undivided 40 interests, allocate particular assets in proportionate or 41 disproportionate shares, value the trust property for those purposes, 42 and adjust for resulting differences in valuation; [1243] 604 1 (23) resolve a dispute concerning the interpretation of the trust 2 or its administration by mediation, arbitration, or other procedure 3 for alternative dispute resolution; 4 (24) prosecute or defend an action, claim, or judicial proceeding 5 in any jurisdiction to protect trust property and the trustee in the 6 performance of the trustee’s duties; 7 (25) sign and deliver contracts and other instruments that are 8 useful to achieve or facilitate the exercise of the trustee’s powers; 9 and 10 (26) on termination of the trust, exercise the powers appropriate 11 to wind up the administration of the trust and distribute the trust 12 property to the persons entitled to it. 13 (27) allocate items of income or expense to either trust income 14 or principal, as permitted or provided by the trust instrument and 15 applicable law, but this power shall not be construed as prescribing 16 the method of accounting for principal and income; 17 (28) to divide any trust into separate shares or separate trusts or 18 to create separate trusts if the trustee reasonably deems it 19 appropriate and the division or creation is consistent with the 20 settlor’s intent and facilitates the trust’s administration without 21 defeating or impairing the interests of the beneficiaries. 22 23 REPORTER’S COMMENT 24 25 This section enumerates specific powers commonly included in 26 trust instruments and in trustee powers legislation. All the powers 27 listed are subject to alteration in the terms of the trust. See Section 28 627105. The powers listed are also subsumed under the general 29 authority granted in Section 627815(a)(2) to exercise all powers 30 over the trust property which an unmarried competent owner has 31 over individually owned property, and any other powers 32 appropriate to achieve the proper management, investment, and 33 distribution of the trust property. The powers listed add little of 34 substance not already granted by Section 627815 and powers 35 conferred elsewhere in the Code. While the Committee drafting the 36 Uniform Trust Code discussed dropping the list of specific powers, 37 it concluded that the demand of third parties to see language 38 expressly authorizing specific transactions justified retention of a 39 detailed list. 40 As provided in Section 627815(b), the exercise of a power is 41 subject to fiduciary duties except as modified in the terms of the 42 trust. The fact that the trustee has a power does not imply a duty 43 that the power must be exercised.[1243] 605 1 Many of the powers listed in this section are similar to the 2 powers listed in Section 3 of the Uniform Trustees’ Powers Act 3 (1964). Several are new, however, and other powers drawn from 4 that Act have been updated. The powers enumerated in this section 5 may be divided into categories. Certain powers, such as the powers 6 to acquire or sell property, borrow money, and deal with real 7 estate, securities, and business interests, are powers that any 8 individual can exercise. Other powers, such as the power to collect 9 trust property, are by their very nature only applicable to trustees. 10 Other specific powers, particularly those listed in other sections of 11 the SCTC, modify a trustee duty that would otherwise apply. See, 12 e.g., Sections 627802(h) (exceptions to duty of loyalty) and 13 627810(d) (joint investments as exception to earmarking 14 requirement). 15 Paragraph (1) authorizes a trustee to collect trust property and 16 collect or decline additions to the trust property. The power to 17 collect trust property is an incident of the trustee’s duty to 18 administer the trust as provided in Section 627801. The trustee has 19 a duty to enforce claims as provided in Section 627811, the 20 successful prosecution of which can result in collection of trust 21 property. Pursuant to Section 627812, the trustee also has a duty to 22 collect trust property from a former trustee or other person holding 23 trust property. For an application of the power to reject additions to 24 the trust property, see Section 627816(13) (power to decline 25 property with possible environmental liability). 26 Paragraph (2) authorizes a trustee to sell trust property, for cash 27 or on credit, at public or private sale. Under the Restatement, a 28 power of sale is implied unless limited in the terms of the trust. 29 Restatement (Third) of Trusts: Prudent Investor Rule Section 190 30 (1992). In arranging a sale, a trustee must comply with the duty to 31 act prudently as provided in Section 627804. This duty may dictate 32 that the sale be made with security. 33 Paragraph (4) authorizes a trustee to deposit funds in an account 34 in a regulated financialservice institution. This includes the right of 35 a financial institution trustee to deposit funds in its own banking 36 department as authorized by Section 627802(h)(4). South Carolina 37 Trust Code Section 627816 subsection (4) added “in accounts” to 38 the UTC version and expressly provides for the deposit of money 39 in “all types” of accounts, and specifically references the inclusion 40 of “margin accounts.” 41 Paragraph (5) authorizes a trustee to borrow money. Under the 42 Restatement, the sole limitation on such borrowing is the general 43 obligation to invest prudently. See Restatement (Third) of Trusts:[1243] 606 1 Prudent Investor Rule Section 191 (1992). Language clarifying 2 that the loan may extend beyond the duration of the trust was 3 added to negate an older view that the trustee only had power to 4 encumber the trust property for the period that the trust was in 5 existence. 6 Paragraph (6) authorizes the trustee to continue, contribute 7 additional capital to, or change the form of a business. Any such 8 decision by the trustee must be made in light of the standards of 9 prudent investment stated in Section 627933. SCTC Section 10 627816 subsection (6) added language to the UTC version which 11 authorizes a trustee to “create” a business. 12 Paragraph (7), regarding powers with respect to securities, 13 codifies and amplifies the principles of Restatement (Second) of 14 Trusts Section 193 (1959). 15 Paragraph (9), authorizing the leasing of property, negates the 16 older view, reflected in Restatement (Second) of Trusts Section 17 189 cmt. c (1959), that a trustee could not lease property beyond 18 the duration of the trust. Whether a longer term lease is appropriate 19 is judged by the standards of prudence applicable to all 20 investments. 21 Paragraph (10), authorizing a trustee to grant options with 22 respect to sales, leases or other dispositions of property, negates 23 the older view, reflected in Restatement (Second) of Trusts Section 24 190 cmt. k (1959), that a trustee could not grant another person an 25 option to purchase trust property. Like any other investment 26 decision, whether the granting of an option is appropriate is a 27 question of prudence under the standards of Part 9. 28 Paragraph (11), authorizing a trustee to purchase insurance, 29 empowers a trustee to implement the duty to protect trust property. 30 See Section 627809. The trustee may also insure beneficiaries, 31 agents, and the trustee against liability, including liability for 32 breach of trust. 33 Paragraph (13) is one of several provisions in the SCTC 34 designed to address trustee concerns about possible liability for 35 violations of environmental law. This paragraph collects all the 36 powers relating to environmental concerns in one place even 37 though some of the powers, such as the powers to pay expenses, 38 compromise claims, and decline property, overlap with other 39 paragraphs of this section (decline property, paragraph (1); 40 compromise claims, paragraph (14); pay expenses, paragraph 41 (15)). See Sections 627701(c)(2) (designated trustee may inspect 42 property to determine potential violation of environmental or other 43 law or for any purpose) and 6271010(b) (trustee not personally[1243] 607 1 liable for violation of environmental law arising from ownership or 2 control of trust property). 3 Paragraph (14) authorizes a trustee to pay, contest, settle, or 4 release claims. Section 627811 requires that a trustee need take 5 only “reasonable” steps to enforce claims, meaning that a trustee 6 may release a claim not only when it is uncollectible, but also 7 when collection would be uneconomic. See Restatement (Second) 8 of Trusts Section 192 (1959) (power to compromise, arbitrate and 9 abandon claims). 10 Paragraph (15), among other things, authorizes a trustee to pay 11 compensation to the trustee and agents without prior approval of 12 court. Regarding the standard for setting trustee compensation, see 13 Section 627708. See also Section 627709 (repayment of trustee 14 expenditures). 15 Paragraph (16) authorizes a trustee to make elections with 16 respect to taxes. The SCTC leaves to other law the issue of 17 whether the trustee, in making such elections, must make 18 compensating adjustments in the beneficiaries’ interests. 19 Paragraph (17) authorizes a trustee to take action with respect to 20 employee benefit or retirement plans, or annuities or life insurance 21 payable to the trustee. Typically, these will be beneficiary 22 designations which the settlor has made payable to the trustee, but 23 this Code also allows the trustee to acquire ownership of annuities 24 or life insurance. 25 Paragraphs (18) and (19) allow a trustee to make loans to a 26 beneficiary or to guarantee loans of a beneficiary upon such terms 27 and conditions as the trustee considers fair and reasonable. The 28 determination of what is fair and reasonable must be made in light 29 of the fiduciary duties of the trustee and the purposes of the trust. 30 Frequently, a trustee will make loans to a beneficiary which might 31 be considered less than prudent in an ordinary commercial sense 32 although of great benefit to the beneficiary and which help carry 33 out the trust purposes. If the trustee requires security for the loan to 34 the beneficiary, adequate security under this paragraph may consist 35 of a charge on the beneficiary’s interest in the trust. See 36 Restatement (Second) of Trusts Section 255 (1959). However, the 37 interest of a beneficiary subject to a spendthrift restraint may not 38 be pledged as security for a loan. See Section 627502. 39 Paragraph (20) authorizes the appointment of ancillary trustees 40 in jurisdictions in which the regularly appointed trustee is unable 41 or unwilling to act. Normally, an ancillary trustee will be 42 appointed only when there is a need to manage real estate located 43 in another jurisdiction. This paragraph allows the regularly[1243] 608 1 appointed trustee to select the ancillary trustee and to confer on the 2 ancillary trustee such powers and duties as may be necessary. The 3 appointment of ancillary trustees is a topic which a settlor may 4 wish to address in the terms of the trust. 5 Paragraph (21) authorizes a trustee to make payments to another 6 person for the use or benefit of a beneficiary who is under a legal 7 disability or who the trustee reasonably believes is incapacitated. 8 Although an adult relative or other person receiving funds is 9 required to spend it on the beneficiary’s behalf, it is preferable that 10 the trustee make the distribution to a person having more formal 11 fiduciary responsibilities. For this reason, payment may be made to 12 an adult relative only if the trustee does not know of a conservator, 13 guardian, custodian, or custodial trustee capable of acting for the 14 beneficiary. South Carolina Trust Code Section 627816 15 subsections (21) (a) & (c) added the phrase “agent under a power 16 of attorney” to the UTC version. It is important for the practioner 17 to be cautious of SCPC Section 625501, which may provide for a 18 priority payee under these subsections. 19 Paragraph (22) authorizes a trustee to make nonprorata 20 distributions and allocate particular assets in proportionate or 21 disproportionate shares. This power provides needed flexibility 22 and lessens the risk that a nonprorata distribution will be treated as 23 a taxable sale. 24 Paragraph (23) authorizes a trustee to resolve disputes through 25 mediation or arbitration. In representing beneficiaries and others in 26 connection with arbitration or mediation, the representation 27 principles of Part 3 may be applied. Settlors wishing to encourage 28 use of alternate dispute resolution may draft to provide it. For 29 sample language, see American Arbitration Association, 30 Arbitration Rules for Wills and Trusts (1995). 31 Paragraph (24) authorizes a trustee to prosecute or defend an 32 action. As to the propriety of reimbursement for attorney’s fees 33 and other expenses of an action or judicial proceeding, see Section 34 627709 and Comment. See also Section 627811 (duty to defend 35 actions). 36 Paragraph (26), which is similar to Section 344 of the 37 Restatement (Second) of Trusts (1959), clarifies that even though 38 the trust has terminated, the trustee retains the powers needed to 39 wind up the administration of the trust and distribute the remaining 40 trust property. 41 South Carolina Trust Code Section 627816 added to the UTC 42 version subsections (27) and (28) to retain and incorporate specific[1243] 609 1 powers the trustee had under former South Carolina law but which 2 were not specifically included in the Uniform Trust Code version. 3 4 Section 627816A. (a) Unless the terms of the instrument 5 expressly provide otherwise, a trustee with the discretion to make 6 distributions of principal or income to or for the benefit of one or 7 more beneficiaries of a trust, the original trust, may exercise that 8 discretion by appointing all or part of the property subject to that 9 discretion in favor of another trust for the benefit of one or more of 10 those beneficiaries, the second trust. This power may be exercised 11 without the approval of a court, but court approval is necessary if 12 the terms of the original trust expressly prohibit the exercise of 13 such power or require court approval. 14 (b) The trustee of the original trust may exercise this power 15 whether or not there is a current need to distribute principal or 16 income under any standard provided in the original trust. The 17 trustee’s special power to appoint trust principal or income in 18 further trust under this section includes the power to create the 19 second trust. 20 (c) The second trust may be a trust created under the same trust 21 instrument as the original trust or under a different trust 22 instrument, and the trustee of the second trust may be either the 23 trustee of the original trust or another trustee. 24 (d) The terms of the second trust are subject to the following 25 requirements: 26 (1) The beneficiaries of the second trust may include only 27 beneficiaries of the original trust. 28 (2) A beneficiary who has only a future beneficial interest, 29 vested or contingent, in the original trust cannot have the future 30 beneficial interest accelerated to a present interest in the second 31 trust. 32 (3) The terms of the second trust may not contain any 33 provision nor reduce any fixed income, annuity, or unitrust interest 34 of a beneficiary in the assets of an original trust document if the 35 inclusion of the provision or reduction in the original trust 36 document would have disqualified any assets of the original trust 37 for any federal or state income, estate, or gift tax deduction 38 received on account of any assets of the original trust, or if the 39 inclusion of the provision or reduction in the original trust 40 document would have reduced the amount of any federal or state 41 income, estate, or gift tax deduction received. In addition, the 42 terms of the second trust may not reduce any retained interest of a[1243] 610 1 beneficiary of the original trust if the interest is a qualified interest 2 under Internal Revenue Code Section 2702. 3 (4) If contributions to the original trust have been excluded 4 from the gift tax by the application of Internal Revenue Code 5 Section 2503(b) and Section 2503(c), then the second trust shall 6 provide that the beneficiary’s remainder interest in the 7 contributions shall vest and become distributable no later than the 8 date upon which the interest would have vested and become 9 distributable under the terms of the original trust. 10 (5) If a beneficiary of the original trust has a power of 11 withdrawal over trust property, then either: 12 (A) the terms of the second trust must provide a power of 13 withdrawal in the second trust identical to the power of withdrawal 14 in the original trust; or 15 (B) sufficient trust property must remain in the original 16 trust to satisfy the outstanding power of withdrawal. 17 (6) If the power to distribute principal or income in the 18 original trust is subject to an ascertainable standard, then the power 19 to distribute income or principal in the second trust must be subject 20 to the same ascertainable standard as in the original trust and must 21 be exercisable in favor of the same beneficiaries as in the original 22 trust. 23 (7) The second trust may confer a power of appointment 24 upon a beneficiary of the original trust to whom or for the benefit 25 of whom the trustee has the power to distribute principal or income 26 of the original trust. The permissible appointees of the power of 27 appointment conferred upon a beneficiary may include persons 28 who are not beneficiaries of the original or second trust. 29 (e) A trustee may not exercise the power to appoint principal 30 or income under subsection (a) of this section if the trustee is a 31 beneficiary of the original trust, but the remaining cotrustee or a 32 majority of the remaining cotrustees may act for the trust. If all the 33 trustees are beneficiaries of the original trust, then the court may 34 appoint a special fiduciary with authority to exercise the power to 35 appoint principal or income under subsection (a) of this section. 36 (f) The exercise of the power to appoint principal or income 37 under subsection (a) of this section: 38 (1) is considered the exercise of a power of appointment, 39 other than a power to appoint to the trustee, the trustee’s creditors, 40 the trustee’s estate or the creditors of the trustee’s estate; 41 (2) does not result in the trustee or cotrustees of the original 42 trust being considered the settlor of the second trust;[1243] 611 1 (3) is not prohibited by a spendthrift provision or by a 2 provision in the trust instrument that prohibits amendment or 3 revocation of the trust. 4 (g) To effect the exercise of the power to appoint principal or 5 income under subsection (a) of this section, all of the following 6 apply: 7 (1) The exercise of the power to appoint must be made by an 8 instrument in writing, signed and acknowledged by the trustee, 9 setting forth the manner of the exercise of the power, including the 10 terms of the second trust, and the effective date of the exercise of 11 the power. The instrument must be filed with the records of the 12 original trust. 13 (2) The trustee shall give written notice to all qualified 14 beneficiaries of the original trust, at least ninety days prior to the 15 effective date of the exercise of the power to appoint, of the 16 trustee’s intention to exercise the power. The notice must include 17 a copy of the instrument described in subitem (1) of this 18 subsection. 19 (3) If all qualified beneficiaries waive the notice period by a 20 signed written instrument delivered to the trustee, the trustee’s 21 power to appoint principal or income is exercisable after notice is 22 waived by all qualified beneficiaries, notwithstanding the effective 23 date of the exercise of the power. 24 (h) Nothing in this section must be construed to create or imply 25 a duty of the trustee to exercise the power to distribute principal or 26 income, and no inference of impropriety must be made as a result 27 of a trustee not exercising the power to appoint principal or income 28 conferred under subsection (a) of this section. Nothing in this 29 section must be construed to abridge the right of any trustee who 30 has a power to appoint property in further trust that arises under 31 the terms of the original trust or under any other section of this 32 article or under another provision of law or under common law. 33 The terms of an original trust may modify or waive the notice 34 requirements under subsection (g), reduce or increase restrictions 35 on altering the interests of beneficiaries under subsection (d), and 36 may otherwise contain provisions that are inconsistent with the 37 requirements of this section. 38 (i) A trustee or beneficiary may commence a proceeding to 39 approve or disapprove a proposed exercise of the trustee’s special 40 power to appoint to another trust pursuant to subsection (a) of this 41 section. Furthermore, if a qualified beneficiary objects to the 42 exercise of the power to appoint, the trustee shall bring an action to 43 approve or disapprove the proposed exercise.[1243] 612 1 (j) The provisions of Section 627109 regarding notices and the 2 sending of documents to persons under this article apply for the 3 purposes of notices and the sending of documents under this 4 section. 5 6 REPORTER’S COMMENT 7 8 Providing decanting authority to a trustee, authority to appoint 9 the property of an original trust to a second trust, provides 10 flexibility to adapt the terms of a trust on account of unforeseen 11 circumstances or drafting error. In effect, statutory decanting 12 authority makes it possible to modify an irrevocable trust when 13 doing so would be in the best interests of the beneficiaries. 14 Decanting authority can be used to achieve significant benefits in 15 many different circumstances, including: (1) modifying 16 administrative provisions where a change in law allowed 17 conversion of an income interest into a unitrust interest; (2) 18 allowing a trustee to delegate investment decisions to another 19 fiduciary to reduce potential inability; (3) changing the situs of a 20 trust to a state with more favorable law; (4) relocating trust assets 21 to a state that does not impose a state income tax; (5) combining 22 multiple trusts to reduce administrative costs; (6) dividing trusts to 23 reduce disagreements among beneficiaries; (7) limiting the 24 authority of interested trustees; (8) correcting drafting errors to 25 mitigate the impact of attorney malpractice; and (9) conforming 26 the distribution provisions of a trust to the requirements of a 27 special needs trust. 28 The New York and Florida statutes are modeled after existing 29 case law and limit decanting authority to circumstances where the 30 trustee is given absolute discretion over distributions. The South 31 Carolina statute eliminates this requirement to maximize 32 flexibility, while including subsection (d)(6) to prevent a trustee 33 from exercising decanting authority to expand a trustee’s 34 discretion beyond that provided in the original trust document. 35 Allowing the trustee of a trust that prohibits decanting to petition 36 for court approval would allow a trustee to petition a court to allow 37 decanting on account of unforeseen circumstances, such as where 38 it becomes necessary to conform a trust to the requirements of a 39 special needs trust. The South Carolina statute also omits the 40 provision in the North Carolina statute requiring both the original 41 and second trusts to be irrevocable. 42 States recognizing decanting authority as a matter of case law 43 have sometimes differed as to when a trustee may decant and how[1243] 613 1 far the authority extends. Subsection (b) clarifies questions that 2 arose under common law or under other state statutes. 3 Subsection (c) also clarifies questions that arose under common 4 law or other state statutes. It eliminates uncertainty and concerns 5 over issues that might otherwise make a fiduciary hesitant to take 6 advantage of the benefits offered by the exercise of decanting 7 authority. The recently enacted North Carolina statute addresses 8 these issues in a definitions section. Because the provision in the 9 subsection contain substantive rules, the provisions would likely 10 be easier to locate within the text of the statute, as opposed to a 11 separate definitions section. 12 Subdivisions (d)(1) and (d)(2) prevent a trustee from exercising 13 decanting authority to improperly add beneficiaries or increase a 14 beneficiary’s interest in the trust. Early decanting statutes in New 15 York, Alaska, Delaware, Tennessee and South Dakota instead 16 required that the power be exercised for the benefit of the “proper 17 objects” of the exercise of the power, a phrase that has proven to 18 be difficult to define. The South Carolina statute follows the 19 model of the Arizona, Florida, New Hampshire and North Carolina 20 statutes, which provide much more clarity. 21 Subdivision (d)(3) restricts a trustee’s ability to modify a 22 beneficiary’s fixed interest. Some states, most recently North 23 Carolina, prohibit any reduction of a fixed interest. Delaware’s 24 statute has no limitation, whereas South Dakota prohibits reduction 25 for marital trusts, charitable remainder trusts, and grantor retained 26 annuity trusts. Under subdivision (d)(3), modification would be 27 prohibited where the creation of the interest was tax motivated. 28 Also, subdivisions (g)(2) and (i) should prevent any modification 29 not in the beneficiary’s best interest, as should SCTC Section 30 627801. In effect, reduction or elimination would be available 31 only for creditor protection purposes, including conforming a trust 32 to the requirements of a special needs trust. 33 Subdivision (d)(4) prevents a trustee from utilizing decanting 34 authority to delay a beneficiary’s ability to withdraw amounts 35 gifted by way of the annual exclusion, Under some of the first 36 decanting statutes, it might be possible for trustee to extend the 37 vesting period of certain trust for minors (as well as other 38 beneficiaries). A form of this preventative provision was first 39 included in the South Dakota statute, and all of the statutes enacted 40 since thenin Arizona, New Hampshire and North Carolinaalso 41 include a similar provision. 42 Subdivision (d)(5) prevents a trustee from exercising decanting 43 power to usurp a beneficiary’s power of withdrawal over trust[1243] 614 1 property. Most states require a trustee to maintain sufficient trust 2 property to satisfy the beneficiary’s power of withdrawal, forcing 3 the trustee to maintain two distinct trusts and potentially leading to 4 additional expenses. North Carolina was the first state to provide 5 the option of simply providing the beneficiary an identical power 6 of withdrawal in the second trust to allow for a complete merger, 7 while simultaneously preserving the beneficiary’s power of 8 withdrawal; the proposed statute follows this approach. 9 Subdivision (d)(6) prevents a trustee from using decanting 10 authority to increase the discretion afforded to the holder of a 11 power of appointment subject to an ascertainable standard, or 12 increase the potential objects to whom the holder of a special 13 power of appointment could appoint trust property. The primary 14 purpose is to prevent conversion of a special power of appointment 15 into a general power of appointment. 16 As an alternative to an outright distribution to a beneficiary of a 17 discretionary trust, subdivision (d)(7) allows a trustee to instead 18 provide the beneficiary with a power of appointment. It also 19 clarifies that the power of appointment created is subject to any 20 rule against perpetuities. 21 Like SCTC §627814(c), subsection (e) of the proposed statute is 22 intended to prevent the adverse tax consequences that would result 23 if an interested trustee inadvertently was deemed to have general 24 power of appointment. The subsection also preserves the ability to 25 decant in the instance of an interested trustee. 26 Subsection (f) ensures that exercise of the power does not create 27 a general power of appointment, is subject to any rule against 28 perpetuities, and is available to the trustee of an irrevocable trust. 29 Subsection (g) provides the procedural requirements for 30 effecting a decanting, including requisite notice. Subdivision (g) 31 (3) allows a beneficiary to waive the notice period without waiving 32 the right to seek relief for a trustee’s breach of a fiduciary duty. 33 Subsection (h) shields a trustee from liability for unforeseeable 34 complications, while assuring that the codification of decanting 35 authority serves to provide statutory protection for the trustee 36 seeking to decant, without curtailing any authority that already 37 exists. The first sentence at least partially protects a trustee from 38 liability for any unforeseeable complication that could have 39 potentially been avoided by an earlier decanting. The second 40 sentence preserves any similar, more extensive right the trustee 41 already has under case law or the original trust document, while 42 the third sentence confirms the original settlor’s broad authority to[1243] 615 1 draft decanting provisions that are either more lenient or restrictive 2 than the authority provided under the proposed statute. 3 Subsection (i) allows either a trustee or qualified beneficiary to 4 seek court approval or disapproval of a proposed exercise of 5 decanting power when there is any doubt as to the propriety of the 6 proposed decanting. This subsection allows a trustee to obtain the 7 assurance that a proposed decanting will be respected, while 8 allowing a beneficiary the opportunity to prevent a proposed 9 exercise of the decanting power before it is carried out by the 10 trustee, rather than trying to force a trustee to reverse the effects of 11 a decanting after it has already been completed. 12 13 Section 627817. (a) Upon termination or partial termination of 14 a trust, the trustee may send to the beneficiaries a proposal for 15 distribution. The right of any beneficiary to object to the proposed 16 distribution terminates if the beneficiary does not notify the trustee 17 of an objection within 30 days after the proposal was sent but only 18 if the proposal informed the beneficiary of the right to object and 19 of the time allowed for objection. 20 (b) Upon the occurrence of an event terminating or partially 21 terminating a trust, the trustee shall proceed expeditiously to 22 distribute the trust property to the persons entitled to it, subject to 23 the right of the trustee to retain a reasonable reserve for the 24 payment of debts, expenses, and taxes. 25 (c) A release by a beneficiary of a trustee from liability for 26 breach of trust is invalid to the extent: 27 (1) it was induced by improper conduct of the trustee; or 28 (2) the beneficiary, at the time of the release, did not know 29 of the beneficiary’s rights or of the material facts relating to the 30 breach. 31 32 REPORTER’S COMMENT 33 34 SCPC Section 623906(b), which provides for a proposal for 35 distribution by a personal representative, is analogous to this 36 SCTC Section 627817(a). 37 This section contains several provisions governing distribution 38 upon termination. Other provisions of the SCTC relevant to 39 distribution upon termination include Section 627816(26) (powers 40 upon termination to windup administration and distribution), and 41 6271005 (limitation of action against trustee). 42 Subsection (a) addresses the dilemma that sometimes arises 43 when the trustee is reluctant to make distribution until the[1243] 616 1 beneficiary approves but the beneficiary is reluctant to approve 2 until the assets are in hand. The procedure made available under 3 subsection (a) facilitates the making of nonprorata distributions. 4 However, whenever practicable it is normally better practice to 5 obtain the advance written consent of the beneficiaries to a 6 proposed plan of distribution. 7 Subsection (b) recognizes that upon an event terminating or 8 partially terminating a trust, expeditious distribution should be 9 encouraged to the extent reasonable under the circumstances. 10 However, a trustee is entitled to retain a reasonable reserve for 11 payment of debts, expenses, and taxes. Sometimes these reserves 12 must be quite large, for example, upon the death of the beneficiary 13 of a QTIP trust that is subject to federal estate tax in the 14 beneficiary’s estate. Not infrequently, a substantial reserve must be 15 retained until the estate tax audit is concluded several years after 16 the beneficiary’s death. 17 Subsection (c) is an application of Section 6271009. Section 18 6271009 addresses the validity of any type of release that a 19 beneficiary might give. Subsection (c) is more limited, dealing 20 only with releases given upon termination of the trust. Factors 21 affecting the validity of a release include adequacy of disclosure, 22 whether the beneficiary had a legal incapacity, and whether the 23 trustee engaged in any improper conduct. See Restatement 24 (Second) of Trusts Section 216 (1959). 25 26 Section 627818. The powers and discretions of a trust protector 27 are as provided in the governing instrument and may be exercised 28 or not exercised, in the best interests of the trust, in the sole and 29 absolute discretion of the trust protector and are binding on all 30 other persons. These powers and discretion may include, but are 31 not limited to, the following: 32 (1) modify or amend the trust instrument to achieve favorable 33 tax status or respond to changes in the Internal Revenue Code, 34 state law, or the rulings and regulations thereunder; 35 (2) increase or decrease the interests of any beneficiaries to the 36 trust; 37 (3) modify the terms of any power of appointment granted by 38 the trust. However, a modification or amendment may not grant a 39 beneficial interest to any individual or class of individuals not 40 specifically provided for under the trust instrument; 41 (4) remove and appoint a trustee, trust advisor, investment 42 committee member, or distribution committee member; 43 (5) terminate the trust;[1243] 617 1 (6) veto or direct trust distributions; 2 (7) change situs or governing law of the trust, or both; 3 (8) appoint a successor trust protector; 4 (9) interpret terms of the trust instrument at the request of the 5 trustee; 6 (10) advise the trustee on matters concerning a beneficiary; and 7 (11) amend or modify the trust instrument to take advantage of 8 laws governing restraints on alienation, distribution of trust 9 property, or the administration of the trust. 10 The powers referenced in subitems (5), (6) and (11) may be 11 granted notwithstanding the provisions of Sections 627410 through 12 627412, inclusive. 13 14 REPORTER’S COMMENT 15 16 There was no prior South Carolina statutory case law 17 counterpart to this section. This section expands and defines the 18 powers of the trust protector. See comments to SCTC Section 19 627808 (b) (d). 20 21 Section 627819. (a) Whenever a trust instrument provides that 22 a trustee is to follow the direction of a trust investment advisor 23 with respect to investment decisions or distribution decisions, then, 24 except to the extent that the trust instrument provides otherwise, 25 the trustee has no duty to: 26 (1) monitor the conduct of the trust investment advisor; 27 (2) provide advice to the trust investment advisor; or 28 (3) communicate with or warn or apprise any beneficiary or 29 third party concerning instances in which the trustee would or 30 might have exercised the trustee’s own discretion in a manner 31 different from the manner directed by the advisor. 32 (b) Absent clear and convincing evidence to the contrary, the 33 actions of the trustee pertaining to matters within the scope of the 34 trust investment advisor’s authority, such as confirming that the 35 trust investment advisor’s directions have been carried out and 36 recording and reporting actions taken at the trust investment 37 advisor’s direction, are presumed to be administrative actions 38 taken by the trustee solely to allow the trustee to perform those 39 duties assigned to the trustee under the governing instrument and 40 these administrative actions are not deemed to constitute an 41 undertaking by the trustee to monitor the trust investment advisor 42 or otherwise participate in actions within the scope of the trust 43 investment advisor’s authority.[1243] 618 1 (c) For purposes of this section, ‘investment decision’ means, 2 with respect to any investment, the retention, purchase, sale, 3 exchange, tender or other transaction affecting the ownership 4 thereof, or rights therein. 5 6 REPORTER’S COMMENT 7 8 There was no prior South Carolina statutory case law 9 counterpart to this section. This section defines the powers of a 10 trust investment advisor. 11 12 Part 9 13 14 South Carolina Uniform Principal and Income Act; 15 South Carolina Uniform Prudent Investor Act 16 PREFATORY NOTE 17 18 In 2001 South Carolina enacted as part of its version of the 19 Uniform Probate Code (“the South Carolina Probate Code or 20 SCPC”) the South Carolina Uniform Principal and Income Act, 21 Sections 627401 through 627432 (SCUP &IA). This is South 22 Carolina’s version of the Uniform Principal and Income Act which 23 had been recommended in 1997 by the Uniform Law 24 Commissioners (ULC) for enactment in all the states. ULC’s 1997 25 Uniform Principal and Income Act revised its original 1931 26 Uniform Principal and Income act (the 1931 Act) and its 1962 27 Revised Uniform Principal and Income Act (the 1962 Act). 28 Likewise, 2001 SCUP&IA revised South Carolina’s 1963 29 “Revised Uniform Principal and Income Act”, Sections 627401 30 through 627421 (the 1963 SC Act). South Carolina did not enact 31 ULC’s 1931 Act. When in 2005 South Carolina enacted its 32 version of ULC’s recommended 2000 Uniform Trust Code as the 33 South Carolina Trust Code, SC Code Title 62, Article 7 (SCTC), 34 SCUP&IA was retained, renumbered and incorporated at SCTC 35 Sections 627901 through 932. Any reference elsewhere in the 36 South Carolina Code to former SCPC Sections 627401 through 37 432 should now refer to SCTC Sections 627901 through 932. 38 The 1997 revision by ULC of its original 1931 Uniform 39 Principal and Income Act (the 1931 Act) and its 1962 Revised 40 Uniform Principal and Income Act (the 1962 Act) and the 41 subsequent 2001 revision by South Carolina of its 1963 Revised 42 Uniform Principal and Income Act (1963 SC Act) had two 43 purposes:[1243] 619 1 (1) One purpose was to revise the 1931 and 1962 Acts and the 2 1963 SC Act, respectively. Revision was needed to support the 3 now widespread use of the revocable living trust as a will 4 substitute by the 1990s, to change the rules in those Acts that 5 experience had shown needed to be changed, and to establish new 6 rules to cover situations not provided for in the old Acts, including 7 rules that apply to financial instruments invented since 1962. 8 (2) The other purpose was to provide a means for 9 implementing the transition to an investment regime based on 10 principles embodied in the Uniform Prudent Investor Act, 11 especially the principle of investing for total return rather than a 12 certain level of “income” as traditionally perceived in terms of 13 interest, dividends, and rents. 14 Revision of the 1931 and 1962 Acts and the corresponding 1963 15 SC Act. 16 The prior Acts and revision of those Acts dealt with four 17 questions affecting the rights of beneficiaries: 18 (1) How is income earned during the probate of an estate to be 19 distributed to trusts and to persons who receive outright bequests 20 of specific property, pecuniary gifts, and the residue? 21 (2) When an income interest in a trust begins (i.e., when a 22 person who creates the trust dies or when she transfers property to 23 a trust during life), what property is principal that will eventually 24 go to the remainder beneficiaries and what is income? 25 (3) When an income interest ends, who gets the income that 26 has been received but not distributed, or that is due but not yet 27 collected, or that has accrued but is not yet due? 28 (4) After an income interest begins and before it ends, how 29 should its receipts and disbursements be allocated to or between 30 principal and income? 31 Changes in the traditional sections are of three types: new rules 32 that deal with situations not covered by the prior Acts, clarification 33 of provisions in the 1962 Act, and changes to rules in the prior 34 Acts. 35 New rules. Issues addressed by some of the more significant 36 new rules include: 37 (1) The application of the probate administration rules to 38 revocable living trusts after the settlor’s death and to other 39 terminating trusts. Sections 627905 through 909. 40 (2) The payment of interest or some other amount on the 41 delayed payment of an outright pecuniary gift that is made 42 pursuant to a trust agreement instead of a will when the agreement 43 does not provide for such a payment. Section 627905(3).[1243] 620 1 (3) The allocation of net income from partnership interests 2 acquired by the trustee other than from a decedent (the old Acts 3 deal only with partnership interests acquired from a decedent). 4 Section 627910. 5 (4) An “unincorporated entity” concept has been introduced to 6 deal with businesses operated by a trustee, including farming and 7 livestock operations, and investment activities in rental real estate, 8 natural resources, timber, and derivatives. Section 627912. 9 (5) The allocation of receipts from discount obligations such as 10 zerocoupon bonds. Section 627915(B). 11 (6) The allocation of net income from harvesting and selling 12 timber between principal and income. Section 627921. 13 (7) The allocation between principal and income of receipts 14 from derivatives, options, and assetbacked securities. Sections 15 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 of S 19 corporation stock and interests in partnerships. Section 627929. 20 (10) The power to make adjustments between principal and 21 income to correct inequities caused by tax elections or peculiarities 22 in the way the fiduciary income tax rules apply. Section 627930. 23 24 Clarifications and changes in existing rules. A number of 25 matters provided for in the prior Acts have been changed or 26 clarified in this revision, including the following: 27 (1) An income beneficiary’s estate will be entitled to receive 28 only net income actually received by a trust before the 29 beneficiary’s death and not items of accrued income. Section 30 627909. 31 (2) Income from a partnership is based on actual distributions 32 from the partnership, in the same manner as corporate 33 distributions. Section 627910. 34 (3) Distributions from corporations and partnerships that 35 exceed 20% of the entity’s gross assets will be principal whether 36 or not intended by the entity to be a partial liquidation. Section 37 627910 (D)(2). 38 (4) Deferred compensation is dealt with in greater detail in a 39 separate section. Section 627918. 40 (5) The 1962 Act rule for “property subject to depletion,” 41 (patents, copyrights, royalties, and the like), which provides that a 42 trustee may allocate up to 5% of the asset’s inventory value to 43 income and the balance to principal, has been replaced by a rule[1243] 621 1 that allocates 90% of the amounts received to principal and the 2 balance to income. Section 627919. 3 (6) The percentage used to allocate amounts received from oil 4 and gas has been changed 90% of those receipts are allocated to 5 principal and the balance to income. Section 627920. 6 (7) The unproductive property rule has been eliminated for 7 trusts other than marital deduction trusts. Section 627922. 8 (8) Charging depreciation against income is no longer 9 mandatory, and is left to the discretion of the trustee. Section 10 627927. 11 12 Coordination with the Uniform Prudent Investor Act 13 The law of trust investment has been modernized. See Uniform 14 Prudent Investor Act (1994); Restatement (Third) of Trusts: 15 Prudent Investor Rule (1992) (hereinafter Restatement of Trusts 16 3d: Prudent Investor Rule). Now it is time to update the principal 17 and income allocation rules so the two bodies of doctrine can work 18 well together. This revision deals conservatively with the tension 19 between modern investment theory and traditional income 20 allocation. The starting point is to use the traditional system. If 21 prudent investing of all the assets in a trust viewed as a portfolio 22 and traditional allocation effectuate the intent of the settlor, then 23 nothing need be done. The Act, however, helps the trustee who 24 has made a prudent, modern portfoliobased investment decision 25 that has the initial effect of skewing return from all the assets 26 under management, viewed as a portfolio, as between income and 27 principal beneficiaries. The Act gives that trustee a power to 28 reallocate the portfolio return suitably. To leave a trustee 29 constrained by the traditional system would inhibit the trustee’s 30 ability to fully implement modern portfolio theory. [Since the 31 early 1990s when this Prefatory Note and the following Comments 32 were prepared by ULC, Restatement of Trusts 3d has progressed 33 significantly as reported in the Forenote to Chapter 17 of what is 34 now cited as “Restatement Third, Trusts”: 35 The contents of this Chapter (Introduction and Sections 36 9092) were approved at the American Law Institute’s 1990 37 Annual Meeting and were originally published as Sections 38 227229 of Restatement Third, Trusts (Prudent Investor 39 Rule) in 1992 [referred to throughout this SCUP&IA 40 Prefatory Note and the following Comments as either 41 “Restatement of Trusts 3d; Prudent Investor Rule” or 42 simply “1992 Restatement”][1243] 622 1 Therefore, appropriate reference to Chapter 17 (Introduction and 2 Sections 9092) of Restatement Third, Trusts is suggested.] 3 As to modern investing see, e.g., the Preface to, terms of, and 4 Comments to the Uniform Prudent Investor Act (1994); the 5 discussion and reporter’s note by Edward C. Halbach, Jr. in 6 Restatement of Trusts 3d: Prudent Investor Rule; John H. 7 Langbein, The Uniform Prudent Investor Act and the Future of 8 Trust Investing, 81 Iowa L. Rev. 641 (1996); Bevis Longstreth, 9 Modern Investment Management and the Prudent Man Rule 10 (1986); John H. Langbein & Richard A. Posner, The Revolution in 11 Trust Investment Law, 62 A.B.A.J. 887 (1976); and Jeffrey N. 12 Gordon, The Puzzling Persistence of the Constrained Prudent Man 13 Rule, 62 N.Y.U. L. Rev. 52 (1987). See also R.A. Brearly, An 14 Introduction to Risk and Return from Common Stocks (2d ed. 15 1983); Jonathan R. Macey, An Introduction to Modern Financial 16 Theory (2d ed. 1998). As to the need for principal and income 17 reform see, e.g., Joel C. Dobris, Real Return, Modern Portfolio 18 Theory and College, University and Foundation Decisions on 19 Annual Spending From Endowments: A Visit to the World of 20 Spending Rules, 28 Real Prop., Prob., & Tr. J. 49 (1993); Joel C. 21 Dobris, The Probate World at the End of the Century: Is a New 22 Principal and Income Act in Your Future?, 28 Real Prop., Prob., & 23 Tr. J. 393 (1993); and Kenneth L. Hirsch, Inflation and the Law of 24 Trusts, 18 Real Prop., Prob., & Tr. J. 601 (1983). See also, Jerold 25 I. Horn, The Prudent Investor Rule B, Impact on Drafting and 26 Administration of Trusts, 20 ACTEC Notes 26 (Summer 1994). 27 28 Section 627901. Sections 627901 through 627932 of This part 29 may be cited as the South Carolina Uniform Principal and Income 30 Act. 31 32 Section 627902. As used in this part the South Carolina 33 Uniform Principal and Income Act: 34 (1) ‘Accounting period’ means a calendar year unless another 35 twelvemonth period is selected by a fiduciary. The term includes a 36 portion of a calendar year or other twelvemonth period that begins 37 when an income interest begins or ends when an income interest 38 ends. 39 (2) ‘Beneficiary’ includes, in the case of a decedent’s estate, an 40 heir, legatee, and devisee and, in the case of a trust, an income 41 beneficiary and a remainder beneficiary. 42 (3) ‘Fiduciary’ means a personal representative or a trustee. 43 The term includes an executor, administrator, successor personal[1243] 623 1 representative, special administrator, and a person performing 2 substantially the same function. 3 (4) ‘Income’ means money or property that a fiduciary receives 4 as current return from a principal asset. The term includes a 5 portion of receipts from a sale, exchange, or liquidation of a 6 principal asset, to the extent provided in Section 627910 through 7 Section 627924. 8 (5) ‘Income beneficiary’ means a person to whom net income 9 of a trust is or may be payable. 10 (6) ‘Income interest’ means the right of an income beneficiary 11 to receive all or part of net income, whether the terms of the trust 12 require it to be distributed or authorize it to be distributed in the 13 trustee’s discretion. 14 (7) ‘Mandatory income interest’ means the right of an income 15 beneficiary to receive net income that the terms of the trust require 16 the fiduciary to distribute. 17 (8) ‘Net income’ means the total receipts allocated to income 18 during an accounting period minus the disbursements made from 19 income during the period, plus or minus transfers under this part 20 the South Carolina Uniform Principal and Income Act to or from 21 income during the period. 22 (9) ‘Person’ means any individual, corporation, business trust, 23 estate, trust, partnership, limited liability company, association, 24 joint venture, or government, governmental subdivision, agency, 25 or instrumentality; or public corporation, or other legal or 26 commercial entity. 27 (10) ‘Principal’ means property held in trust for distribution to a 28 remainder beneficiary when the trust terminates. 29 (11) ‘Remainder beneficiary’ means a person entitled to receive 30 principal when an income interest ends. 31 (12) ‘Terms of a trust’ means the manifestation of the intent of a 32 settlor or decedent with respect to the trust, expressed in a manner 33 that admits of its proof in a judicial proceeding, whether by written 34 or spoken words or by conduct. 35 (13) ‘Trustee’ includes an original, additional, or successor 36 trustee, whether or not appointed or confirmed by a court. 37 38 REPORTER’S COMMENT 39 40 “Income beneficiary.” The definitions of income beneficiary 41 (Section 627902(5)) and income interest (Section 627902(6)) 42 cover both mandatory and discretionary beneficiaries and interests. 43 There are no definitions for “discretionary income beneficiary” or[1243] 624 1 “discretionary income interest” because those terms are not used in 2 the Act. 3 “Inventory value.” There is no definition for inventory value in 4 this Act because the provisions in which that term was used in the 5 1962 Act and the 1963 SC Act have either been eliminated (in the 6 case of the underproductive property provision) or changed in a 7 way that eliminates the need for the term (in the case of bonds and 8 other money obligations, property subject to depletion, and the 9 method for determining entitlement to income distributed from a 10 probate estate). 11 “Net income.” The reference to “transfers under this Act to or 12 from income” means transfers made under Sections 627904(A), 13 921(A), 926(B), 927(B), 904(A) and 930. 14 “Terms of a trust.” This term was chosen in preference to 15 “terms of the trust instrument” (the phrase used in the 1962 Act 16 and the 1963 SC Act) to make it clear that the Act applies to oral 17 trusts as well as those whose terms are expressed in written 18 documents. The definition is based on the (1959) and the 19 Restatement (Second) of Trusts Sec. 4 (Tent. Draft No. 1, 1996). 20 Constructional preferences or rules would also apply, if necessary, 21 to determine the terms of the trust. 22 23 Section 627903. (A) In allocating receipts and disbursements to 24 or between principal and income, and with respect to any matter 25 within the scope of Sections 627905 through 627909, a fiduciary: 26 (1) shall administer a trust or estate in accordance with the 27 terms of the trust or the will, even if there is a different provision 28 in this part the South Carolina Uniform Principal and Income Act; 29 (2) may administer a trust or estate by the exercise of a 30 discretionary power of administration given to the fiduciary by the 31 terms of the trust or the will, even if the exercise of the power 32 produces a result different from a result required or permitted by 33 this part the South Carolina Uniform Principal and Income Act; 34 (3) shall administer a trust or estate in accordance with this 35 part the South Carolina Uniform Principal and Income Act if the 36 terms of the trust or the will do not contain a different provision or 37 do not give the fiduciary a discretionary power of administration; 38 and 39 (4) shall add a receipt or charge a disbursement to principal 40 to the extent that the terms of the trust and this part the South 41 Carolina Uniform Principal and Income Act do not provide a rule 42 for allocating the receipt or disbursement to or between principal 43 and income. [1243] 625 1 (B) In exercising: 2 (1) the power to adjust pursuant to Section 627904(A); 3 (2) a discretionary power in connection with the conversion 4 or administration of a unitrust under Sections 627904B through 5 Section 627904P; or 6 (3) a discretionary power of administration regarding a 7 matter within the scope of this part the South Carolina Uniform 8 Principal and Income Act, whether granted by the terms of a trust, 9 a will, or this part the South Carolina Uniform Principal and 10 Income Act, 11 a fiduciary shall administer a trust or estate impartially, based on 12 what is fair and reasonable to all of the beneficiaries, except to the 13 extent that the terms of the trust or the will clearly manifest an 14 intention that the fiduciary shall or may favor one or more of the 15 beneficiaries. A determination in accordance with this part the 16 South Carolina Uniform Principal and Income Act is presumed to 17 be fair and reasonable to all of the beneficiaries. 18 19 REPORTER’S COMMENT 20 21 Prior Act. The rule in Section 627404(1) of the 1963 SC Act is 22 restated in Section 627903(a), without changing its substance, to 23 emphasize that this Act contains only default rules and that 24 provisions in the terms of the trust are paramount. However, 25 Section 627404(a) of the 1963 SC Act applied only to the 26 allocation of receipts and disbursements to or between principal 27 and income. In this Act, the first sentence of Section 627903(A) 28 states that it also applies to matters within the scope of Sections 29 627905 through 627909. Section 627903(A)(2) incorporates the 30 rule in Section 627404(b) of the 1963 SC Act that a discretionary 31 allocation made by the trustee that is contrary to a rule in the Act 32 should not give rise to an inference of imprudence or partiality by 33 the trustee. 34 The Act deletes the language that appears at the end of 1963 SC 35 Act Section 627404(a)(3) “and in view of the manner in which 36 men of ordinary prudence, discretion and judgment would act in 37 the management of their affairs” because persons of ordinary 38 prudence, discretion and judgment, acting in the management of 39 their own affairs do not normally think in terms of the interests of 40 successive beneficiaries. If there is an analogy to an individual’s 41 decisionmaking process, it is probably the individual’s decision to 42 spend or to save, but this is not a useful guideline for trust[1243] 626 1 administration. No case has been found in which a court has relied 2 on the “prudent man” rule of the 1963 SC Act. 3 Fiduciary discretion. The general rule is that if a discretionary 4 power is conferred upon a trustee, the exercise of that power is not 5 subject to control by a court except to prevent an abuse of 6 discretion. Restatement (Second) of Trusts Sec 187. The 7 situations in which a court will control will control the exercise of 8 a trustee’s discretion are discussed in the comments to Sec 187. 9 See also id. Sec 233 Comment p. 10 Questions for which there is no provision. Section 627903(A) 11 (4) allocates receipts and disbursements to principal when there is 12 no provision for a different allocation in the terms of the trust, the 13 will, or the Act. This may occur because money is received from a 14 financial instrument not available at the present time 15 (inflationindexed bonds might have fallen into this category had 16 they been announced after the Uniform Act was approved by the 17 Commissioners on Uniform State Laws) or because a transaction is 18 of a type or occurs in a manner not anticipated by the Drafting 19 Committee for the Uniform Act or the drafter of the trust 20 instrument. 21 Allocating to principal a disbursement for which there is no 22 provision in the Act or the terms of the trust preserves the income 23 beneficiary’s level of income in the year it is allocated to principal, 24 but thereafter will reduce the amount of income produced by the 25 principal. Allocating to principal a receipt for which there is no 26 provision will increase the income received by the income 27 beneficiary in subsequent years, and will eventually, upon 28 termination of the trust, also favor the remainder beneficiary. 29 Allocating these items to principal implements the rule that 30 requires a trustee to administer the trust impartially, based on what 31 is fair and reasonable to both income and remainder beneficiaries. 32 However, if the trustee decides that an adjustment between 33 principal and income is needed to enable the trustee to comply 34 with Section 627903(B) after considering the return from the 35 portfolio as a whole, the trustee may make an appropriate 36 adjustment under Section 627904(A). 37 Duty of impartiality. Whenever there are two or more 38 beneficiaries, a trustee is under a duty to deal impartially with 39 them. Restatement of Trusts 3d: Prudent Investor Rule Sec 183 40 (1992). This rule applies whether the beneficiaries’ interests in the 41 trust are concurrent or successive. If the terms of the trust give the 42 trustee discretion to favor one beneficiary over another, a court 43 will not control the exercise of such discretion except to prevent[1243] 627 1 the trustee from abusing it. Id. Sec 183, Comment a. “The precise 2 meaning of the trustee’s duty of impartiality and the balancing of 3 competing interests and objectives inevitably are matters of 4 judgment and interpretation. Thus, the duty and balancing are 5 affected by the purposes, terms, distribution requirements, and 6 other circumstances of the trust, not only at the outset but as they 7 may change from time to time.” Id. Sec 232, Comment c. 8 The terms of a trust may provide that the trustee, or an 9 accountant engaged by the trustee, or a committee of persons who 10 may be family members or business associates, shall have the 11 power to determine what is income and what is principal. If the 12 terms of a trust provide that this Act specifically or principal and 13 income legislation in general does not apply to the trust but fail to 14 provide a rule to deal with a matter provided for in this Act, the 15 trustee has an implied grant of discretion to decide the question. 16 Section 627903(B) provides that the rule of impartiality applies in 17 the exercise of such a discretionary power to the extent that the 18 terms of the trust do not provide that one or more of the 19 beneficiaries are to be favored. The fact that a person is named an 20 income beneficiary or a remainder beneficiary is not by itself an 21 indication of partiality for that beneficiary. 22 23 Section 627904. (A) A trustee may adjust between principal 24 and income to the extent the trustee considers necessary if the 25 trustee invests and manages trust assets as a prudent investor, the 26 terms of the trust describe the amount that may or must be 27 distributed to a beneficiary by referring to the trust’s income, and 28 the trustee determines, after applying the provisions in Section 29 627903(A), that the trustee is unable to comply with Section 30 627903(B). In lieu of exercising the power to adjust, the trustee 31 may convert the trust to a unitrust as permitted under Sections 32 627904A through 627904P, in which case the unitrust amount 33 becomes the net income of the trust. 34 (B) In deciding whether and to what extent to exercise the 35 power of adjustment to adjust in subsection (A), a trustee shall 36 consider all factors relevant to the trust and its beneficiaries, 37 including, but not limited to: 38 (1) the nature, purpose, and expected duration of the trust; 39 (2) the intent of the settlor; 40 (3) the identity and circumstances of the beneficiaries; 41 (4) the needs for liquidity, regularity of income, and 42 preservation and appreciation of capital; [1243] 628 1 (5) the assets held in the trust and the extent to which they 2 consist of financial assets, interests in closely held enterprises, 3 tangible and intangible personal property, or real property and the 4 extent to which an asset is used by a beneficiary, and whether an 5 asset was purchased by the trustee or received from the settlor; 6 (6) the net amount otherwise allocated to income under other 7 sections of the South Carolina Uniform Principal and Income Act 8 and the increase or decrease in the value of the principal assets, 9 which the trustee may estimate as to assets for which market 10 values are not readily available; 11 (7) terms of the trust and whether and to what extent they the 12 terms of the trust give the trustee the power to invade principal or 13 accumulate income or prohibit the trustee from invading principal 14 or accumulating income, and the extent to which the trustee has 15 exercised a power from time to time to invade principal or 16 accumulate income; 17 (8) the actual and anticipated effect of economic conditions 18 on principal and income and effects of inflation and deflation; and 19 (9) the anticipated tax consequences of an adjustment. 20 (C) A trustee may not make an adjustment: 21 (1) that diminishes the income interest in a trust that requires 22 all of the income to be paid at least annually to a surviving spouse 23 and for which an estate tax or gift tax marital deduction is allowed, 24 in whole or in part, if the trustee did not have the power to make 25 the adjustment, but only to the extent that making such an 26 adjustment would cause adverse tax consequences under 27 applicable tax laws and regulations; 28 (2) that reduces the actuarial value of the income interest in 29 a trust to which a person transfers property with the intent to 30 qualify for a gift tax exclusion; 31 (3) that changes the amount payable to a beneficiary as a 32 fixed annuity or a fixed fraction of the value of the trust assets; 33 (4) from any amount that is permanently set aside for 34 charitable purposes under a will or the terms of a trust unless both 35 income and principal are so set aside, but only to the extent that 36 making such an adjustment would cause adverse tax consequences 37 under applicable tax laws and regulations; 38 (5) if possessing or exercising the power to make an 39 adjustment is determinative in causing an individual to be treated 40 as the owner of all or part of the trust for income tax purposes and 41 the individual would not be treated as the owner if the trustee did 42 not possess the power to make an adjustment; [1243] 629 1 (6) if possessing or exercising the power to make an 2 adjustment is determinative in causing all or part of the trust assets 3 to be included for estate tax purposes in the estate of an individual 4 who has the power to remove a trustee or appoint a trustee, or 5 both, and the assets would not be included in the estate of the 6 individual if the trustee did not possess the power to make an 7 adjustment; 8 (7) if the trustee is a beneficiary of the trust; or 9 (8) if the trustee is not a beneficiary, but the adjustment 10 benefits would benefit the trustee directly or indirectly, except that 11 a trustee may make an adjustment that also benefits a beneficiary 12 even if the terms of the trust provide for trustee compensation as a 13 percentage of the trust’s income; or 14 (9) if the trust has been converted to, and is then operating as 15 a unitrust under Sections 627904B through 627904P. 16 (D) If subsection (C)(5), (6), (7), or (8) applies to a trustee and 17 there is more than one trustee, a cotrustee to whom the provision 18 does not apply may make the adjustment unless the exercise of the 19 power by the remaining trustee or trustees is not permitted by the 20 terms of the trust. 21 (E) A trustee may release the entire power of adjustment in 22 subsection (A) or may release only the power to adjust from 23 income to principal or the power to adjust from principal to 24 income if the trustee is uncertain about whether possessing or 25 exercising the power causes a result described in subsection 26 subsections (C)(1) through (6) or subsection (C)(8) or if the trustee 27 determines that possessing or exercising the power will or may 28 deprive the trust of a tax benefit or impose a tax burden not 29 contemplated in subsection (C). The release may be permanent or 30 for a specified period, including a period measured by the life of 31 an individual. 32 (F) Terms of a trust that limit the power of a trustee to make an 33 adjustment between principal and income do not affect the 34 application of this section unless it is clear from the terms of the 35 trust that the terms are intended to deny the trustee the power of 36 adjustment to adjust in subsection (A). 37 38 REPORTER’S COMMENTS 39 40 Purpose and Scope of Provision. The purpose of Section 41 627904 is to enable a trustee to select investments using the 42 standards of a prudent investor without having to realize a 43 particular portion of the portfolio’s total return in the form of[1243] 630 1 traditional trust accounting income such as interest, dividends, and 2 rents. Section 627904(A) authorizes a trustee to make adjustments 3 between principal and income if three conditions are met: (1) the 4 trustee must be managing the trust assets under the prudent 5 investor rule; (2) the terms of the trust must express the income 6 beneficiary’s distribution rights in terms of the right to receive 7 “income” in the sense of traditional trust accounting income; and 8 (3) the trustee must determine, after applying the rules in Section 9 627903(A) that he is unable to comply with Section 627903(B). In 10 deciding whether and to what extent to exercise the power to 11 adjust, the trustee is required to consider the factors described in 12 Section 627904(B) but the trustee may not make an adjustment in 13 circumstances described in Section 627904(C). 14 Section 627904 does not empower a trustee to increase or 15 decrease the degree of beneficial enjoyment to which a beneficiary 16 is entitled under the terms of the trust; rather, it authorizes the 17 trustee to make adjustments between principal and income that 18 may be necessary if the income component of a portfolio’s total 19 return is too small or too large because of investment decisions 20 made by the trustee under the prudent investor rule. The 21 paramount consideration in applying Section 627904(A) is the 22 requirement in Section 627903(B) that “a fiduciary must 23 administer a trust or estate impartially, based on what is fair and 24 reasonable to all of the beneficiaries, except to the extent that the 25 terms of the trust or the will clearly manifest an intention that the 26 fiduciary shall or may favor one or more of the beneficiaries.” The 27 power to adjust is subject to control by the court to prevent an 28 abuse of discretion. Restatement (Second) of Trusts Sec.187 29 (1959). See also id. Sections 183, 232, 233, Comment p (1959). 30 Section 627904 will be important for trusts that are irrevocable 31 when a State adopts the prudent investor rule by statute or judicial 32 approval of the rule in Restatement of Trusts 3d: Prudent Investor 33 Rule. Wills and trust instruments executed after the rule is adopted 34 can be drafted to describe a beneficiary’s distribution rights in 35 terms that do not depend upon the amount of trust accounting 36 income, but to the extent that drafters of trust documents continue 37 to describe an income beneficiary’s distribution rights by referring 38 to trust accounting income, Section 627904 will be an important 39 tool in trust administration. 40 Three conditions to the exercise of the power to adjust. The first 41 of the three conditions that must be met before a trustee can 42 exercise the power to adjust that the trustee invest and manage 43 trust assets as a prudent investor is expressed in this Act by[1243] 631 1 language derived from the Uniform Prudent Investor Act (UPIA), 2 but the condition will be met whether the prudent investor rule 3 applies because the UPIA or other prudent investor legislation has 4 been enacted, the prudent investor rule has been approved by the 5 courts, or the terms of the trust require it. Even if a State’s 6 legislature or courts have not formally adopted the prudent 7 investor rule, the Restatement establishes the prudent investor rule 8 as an authoritative interpretation of the common law prudent man 9 rule, referring to the prudent investor rule as a “modest 10 reformulation of the Harvard College dictum and the basic rule of 11 prior Restatements.” Restatement of Trusts 3d: Prudent Investor 12 Rule, Introduction, at 5. As a result, there is a basis for concluding 13 that the first condition is satisfied in virtually all States except 14 those in which a trustee is permitted to invest only in assets set 15 forth in a statutory “legal list.” 16 The second condition will be met when the terms of the trust 17 require all of the “income” to be distributed at regular intervals; or 18 when the terms of the trust require a trustee to distribute all of the 19 income, but permit the trustee to decide how much to distribute to 20 each member of a class of beneficiaries; or when the terms of a 21 trust provide that the beneficiary shall receive the greater of the 22 trust accounting income and a fixed dollar amount (an annuity), or 23 of trust accounting income and a fractional share of the value of 24 the trust assets (a unitrust amount). If the trust authorizes the 25 trustee in its discretion to distribute the trust’s income to the 26 beneficiary or to accumulate some or all of the income, the 27 condition will be met because the terms of the trust do not permit 28 the trustee to distribute more than the trust accounting income. 29 To meet the third condition, the trustee must first meet the 30 requirements of Section 627903(A), i.e., he must apply the terms 31 of the trust, decide whether to exercise the discretionary powers 32 given to the trustee under the terms of the trust, and must apply the 33 provisions of the Act if the terms of the trust do not contain a 34 different provision or give the trustee discretion. Second, the 35 trustee must determine the extent to which the terms of the trust 36 clearly manifest an intention by the settlor that the trustee may or 37 must favor one or more of the beneficiaries. To the extent that the 38 terms of the trust do not require partiality, the trustee must 39 conclude that he is unable to comply with the duty to administer 40 the trust impartially. To the extent that the terms of the trust do 41 require or permit the trustee to favor the income beneficiary or the 42 remainder beneficiary, the trustee must conclude that he is unable 43 to achieve the degree of partiality required or permitted. If the[1243] 632 1 trustee comes to either conclusion that he is unable to administer 2 the trust impartially or that he is unable to achieve the degree of 3 partiality required or permitted he may exercise the power to 4 adjust under Section 627904(A). 5 Impartiality and productivity of income. The duty of 6 impartiality between income and remainder beneficiaries is linked 7 to the trustee’s duty to make the portfolio productive of trust 8 accounting income whenever the distribution requirements are 9 expressed in terms of distributing the trust’s “income.” The 1962 10 Act and the 1963 SC Act imply that the duty to produce income 11 applies on an asset by asset basis because the right of an income 12 beneficiary to receive “delayed income” from the sale proceeds of 13 underproductive property under Section 627415 of that Act arises 14 if “any part of principal ... has not produced an average net income 15 of a least one percent per year of its inventory value for more than 16 a year ... .” Under the prudent investor rule, “[t]o whatever extent 17 a requirement of income productivity exists, ... the requirement 18 applies not investment by investment but to the portfolio as a 19 whole.” Restatement of Trusts 3d: Prudent Investor Rule Sec 227, 20 Comment i, at 34. The power to adjust under Section 627904(A) 21 is also to be exercised by considering net income from the 22 portfolio as a whole and not investment by investment. Section 23 627922(B) of this Act eliminates the underproductive property rule 24 in all cases other than trusts for which a marital deduction is 25 allowed; the rule applies to a marital deduction trust if the trust’s 26 assets “consist substantially of property that does not provide the 27 spouse with sufficient income from or use of the trust assets ...” in 28 other words, the section applies by reference to the portfolio as a 29 whole. 30 While the purpose of the power to adjust in Section 627904(A) 31 is to eliminate the need for a trustee who operates under the 32 prudent investor rule to be concerned about the income component 33 of the portfolio’s total return, the trustee must still determine the 34 extent to which a distribution must be made to an income 35 beneficiary and the adequacy of the portfolio’s liquidity as a whole 36 to make that distribution. 37 For a discussion of investment considerations involving specific 38 investments and techniques under the prudent investor rule, see 39 Restatement of Trusts 3d: Prudent Investor Rule Sec 227, 40 Comments kp. 41 Factors to consider in exercising the power to adjust. Section 42 627904(B) requires a trustee to consider factors relevant to the 43 trust and its beneficiaries in deciding whether and to what extent[1243] 633 1 the power to adjust should be exercised. Section 627933(C)(3) of 2 the South Carolina Uniform Prudent Investor Act (SCUPIA) sets 3 forth circumstances that a trustee is to consider in investing and 4 managing trust assets. The circumstances in Section 627933(C)(3) 5 of the SCUPIA are the source of the factors in paragraphs (3) 6 through (6) and (8) of Section 627904(B) (modified where 7 necessary to adapt them to the purposes of this Act) so that, to the 8 extent possible, comparable factors will apply to investment 9 decisions and decisions involving the power to adjust. If a trustee 10 who is operating under the prudent investor rule decides that the 11 portfolio should be composed of financial assets whose total return 12 will result primarily from capital appreciation rather than 13 dividends, interest, and rents, the trustee can decide at the same 14 time the extent to which an adjustment from principal to income 15 may be necessary under Section 627904. On the other hand, if a 16 trustee decides that the risk and return objectives for the trust are 17 best achieved by a portfolio whose total return includes interest 18 and dividend income that is sufficient to provide the income 19 beneficiary with the beneficial interest to which the beneficiary is 20 entitled under the terms of the trust, the trustee can decide that it is 21 unnecessary to exercise the power to adjust. 22 Assets received from the settlor. Section 627933(D) of SCUPIA 23 provides that “[a] trustee shall diversify the investments of the trust 24 unless the trustee reasonably determines that, because of special 25 circumstances, the purposes of the trust are better served without 26 diversifying.” The special circumstances may include the wish to 27 retain a family business, the benefit derived from deferring 28 liquidation of the asset in order to defer payment of income taxes, 29 or the anticipated capital appreciation from retaining an asset such 30 as undeveloped real estate for a long period. To the extent the 31 trustee retains assets received from the settlor because of special 32 circumstances that overcome the duty to diversify, the trustee may 33 take these circumstances into account in determining whether and 34 to what extent the power to adjust should be exercised to change 35 the results produced by other provisions of this Act that apply to 36 the retained assets. See Section 627904(B)(5); Uniform Prudent 37 Investor Act Sec 3, Comment, 7B U.L.A. 18, at 2526 (Supp. 38 1997); Restatement of Trusts 3d: Prudent Investor Rule Sec 229 39 and Comments ae. 40 Limitations on Section 627904 power to adjust. The purpose of 41 subsections (C)(1) through (4) is to preserve tax benefits that may 42 have been an important purpose for creating the trust. Subsections 43 (C)(5), (6), and (8) deny the power to adjust in the circumstances[1243] 634 1 described in those subsections in order to prevent adverse tax 2 consequences, and subsection (C)(7) denies the power to adjust to 3 any beneficiary, whether or not possession of the power may have 4 adverse tax consequences. 5 Under subsection (C)(1), a trustee cannot make an adjustment 6 that diminishes the income interest in a trust that requires all of the 7 income to be paid at least annually to a spouse and for which an 8 estate tax or gift tax marital deduction is allowed; but this 9 subsection does not prevent the trustee from making an adjustment 10 that increases the amount of income paid from a marital deduction 11 trust to the spouse. Subsection (C)(1) applies to a trust that 12 qualifies for the marital deduction because the spouse has a general 13 power of appointment over the trust, but it applies to a qualified 14 terminable interest property (QTIP) trust only if and to the extent 15 that the fiduciary makes the election required to obtain the tax 16 deduction. Subsection (C)(1) does not apply to a socalled “estate” 17 trust. This type of trust qualifies for the marital deduction because 18 the terms of the trust require the principal and undistributed 19 income to be paid to the surviving spouse’s estate when the spouse 20 dies; it is not necessary for the terms of an estate trust to require 21 the income to be distributed annually. Reg. Sec 20.2056(c)2(b)(1) 22 (iii). 23 Subsection (C)(3) applies to annuity trusts and unitrusts with no 24 charitable beneficiaries as well as to trusts with charitable income 25 or remainder beneficiaries; its purpose is to make it clear that a 26 beneficiary’s right to receive a fixed annuity or a fixed fraction of 27 the value of a trust’s assets is not subject to adjustment under 28 Section 627904(A). Subsection (C)(3) does not apply to any 29 additional amount to which the beneficiary may be entitled that is 30 expressed in terms of a right to receive income from the trust. For 31 example, if a beneficiary is to receive a fixed annuity or the trust’s 32 income, whichever is greater, subsection (C)(3) does not prevent a 33 trustee from making an adjustment under Section 627904(A) in 34 determining the amount of the trust’s income. 35 If subsection (C)(5), (6), (7), or (8), prevents a trustee from 36 exercising the power to adjust, subsection (D) permits a cotrustee 37 who is not subject to the provision to exercise the power unless the 38 terms of the trust do not permit the cotrustee to do so. 39 Release of the power to adjust. Section 627904(E) permits a 40 trustee to release all or part of the power to adjust in circumstances 41 in which the possession or exercise of the power might deprive the 42 trust of a tax benefit or impose a tax burden. For example, if 43 possessing the power would diminish the actuarial value of the[1243] 635 1 income interest in a trust for which the income beneficiary’s estate 2 may be eligible to claim a credit for property previously taxed if 3 the beneficiary dies within ten years after the death of the person 4 creating the trust, the trustee is permitted under subsection to 5 release (E) to release just the power to adjust from income to 6 principal. 7 Trust terms that limit a power to adjust. Section 627904(F) 8 applies to trust provisions that limit a trustee’s power to adjust. 9 Since the power is intended to enable trustees to employ the 10 prudent investor rule without being constrained by traditional 11 principal and income rules, an instrument executed before the 12 adoption of this Act whose terms describe the amount that may or 13 must be distributed to a beneficiary by referring to the trust’s 14 income or that prohibit the invasion of principal or that prohibit 15 equitable adjustments in general should not be construed as 16 forbidding the use of the power to adjust under Section 627904(A) 17 if the need for adjustment arises because the trustee is operating 18 under the prudent investor rule. Instruments containing such 19 provisions that are executed after the adoption of this Act should 20 specifically refer to the power to adjust if the settlor intends to 21 forbid its use. See generally, Joel C. Dobris, Limits on the 22 Doctrine of Equitable Adjustment in Sophisticated Postmortem 23 Tax Planning, 66 Iowa L. Rev. 273 (1981). 24 Examples. The following examples illustrate the application of 25 Section 627904: 26 Example (1) T is the successor trustee of a trust that provides 27 income to A for life, remainder to B. T has received from the prior 28 trustee a portfolio of financial assets invested 20% in stocks and 29 80% in bonds. Following the prudent investor rule, T determines 30 that a strategy of investing the portfolio 50% in stocks and 50% in 31 bonds has risk and return objectives that are reasonably suited to 32 the trust, but T also determines that adopting this approach will 33 cause the trust to receive a smaller amount of dividend and interest 34 income. After considering the factors in Section 627904(B) T may 35 transfer cash from principal to income to the extent T considers it 36 necessary to increase the amount distributed to the income 37 beneficiary. 38 Example (2) T is the trustee of a trust that requires the income to 39 be paid to the settlor’s son C for life, remainder to C’s daughter D. 40 In a period of very high inflation, T purchases bonds that pay 41 doubledigit interest and determines that a portion of the interest, 42 which is allocated to income under Section 627915 of this Act, is a 43 return of capital. In consideration of the loss of value of principal[1243] 636 1 due to inflation and other factors that T considers relevant, T may 2 transfer part of the interest to principal. 3 Example (3) T is the trustee of a trust that requires the income to 4 be paid to the settlor’s sister E for life, remainder to charity F. E is 5 a retired schoolteacher who is single and has no children. E’s 6 income from her social security, pension, and savings exceeds the 7 amount required to provide for her accustomed standard of living. 8 The terms of the trust permit T to invade principal to provide for 9 E’s health and to support her in her accustomed manner of living, 10 but do not otherwise indicate that T should favor E or F. Applying 11 the prudent investor rule, T determines that the trust assets should 12 be invested entirely in growth stocks that produce very little 13 dividend income. Even though it is not necessary to invade 14 principal to maintain E’s accustomed standard of living, she is 15 entitled to receive from the trust the degree of beneficial 16 enjoyment normally accorded a person who is the sole income 17 beneficiary of a trust, and T may transfer cash from principal to 18 income to provide her with that degree of enjoyment. 19 Example (4) T is the trustee of a trust that is governed by the 20 law of State X. The trust became irrevocable before State X 21 adopted the prudent investor rule. The terms of the trust require all 22 of the income to be paid to G for life, remainder to H, and also 23 give T the power to invade principal for the benefit of G for “dire 24 emergencies only.” The terms of the trust limit the aggregate 25 amount that T can distribute to G from principal during G’s life to 26 6% of the trust’s value at its inception. The trust’s portfolio is 27 invested initially 50% in stocks and 50% in bonds, but after State 28 X adopts the prudent investor rule T determines that, to achieve 29 suitable risk and return objectives for the trust, the assets should be 30 invested 90% in stocks and 10% in bonds. This change increases 31 the total return from the portfolio and decreases the dividend and 32 interest income. Thereafter, even though G does not experience a 33 dire emergency, T may exercise the power to adjust under Section 34 627904(A) to the extent that T determines that the adjustment is 35 from only the capital appreciation resulting from the change in the 36 portfolio’s asset allocation. If T is unable to determine the extent 37 to which capital appreciation resulted from the change in asset 38 allocation or is unable to maintain adequate records to determine 39 the extent to which principal distributions to G for dire 40 emergencies do not exceed the 6% limitation, T may not exercise 41 the power to adjust. See Joel C. Dobris, Limits on the Doctrine of 42 Equitable Adjustment in Sophisticated Postmortem Tax Planning, 43 66 Iowa L. Rev. 273 (1981).[1243] 637 1 Example (5) T is the trustee of a trust for the settlor’s child. The 2 trust owns a diversified portfolio of marketable financial assets 3 with a value of $600,000, and is also the sole beneficiary of the 4 settlor’s IRA, which holds a diversified portfolio of marketable 5 financial assets with a value of $900,000. The trust receives a 6 distribution from the IRA that is the minimum amount required to 7 be distributed under the Internal Revenue Code, and T allocates 8 10% of the distribution to income under Section 627918(C) of this 9 Act. The total return on the IRA’s assets exceeds the amount 10 distributed to the trust, and the value of the IRA at the end of the 11 year is more than its value at the beginning of the year. Relevant 12 factors that T may consider in determining whether to exercise the 13 power to adjust and the extent to which an adjustment should be 14 made to comply with Section 627903(B) include the total return 15 from all of the trust’s assets, those owned directly as well as its 16 interest in the IRA, the extent to which the trust will be subject to 17 income tax on the portion of the IRA distribution that is allocated 18 to principal, and the extent to which the income beneficiary will be 19 subject to income tax on the amount that T distributes to the 20 income beneficiary. 21 Example (6) T is the trustee of a trust whose portfolio includes a 22 large parcel of undeveloped real estate. T pays real property taxes 23 on the undeveloped parcel from income each year pursuant to 24 Section 627925(3). After considering the return from the trust’s 25 portfolio as a whole and other relevant factors described in Section 26 627904(B), T may exercise the power to adjust under Section 27 627904(A) to transfer cash from principal to income in order to 28 distribute to the income beneficiary an amount that T considers 29 necessary to comply with Section 627903(B). 30 Example (7) T is the trustee of a trust whose portfolio includes 31 an interest in a mutual fund that is sponsored by T. As the 32 manager of the mutual fund, T charges the fund a management fee 33 that reduces the amount available to distribute to the trust by 34 $2,000. If the fee had been paid directly by the trust, onehalf of 35 the fee would have been paid from income under Section 36 627925(1) and the other onehalf would have been paid from 37 principal under Section 627926(A)(1). After considering the total 38 return from the portfolio as a whole and other relevant factors 39 described in Section 627904(B), T may exercise its power to adjust 40 under Section 627904(A) by transferring $1,000, or half of the 41 trust’s proportionate share of the fee, from principal to income. 42[1243] 638 1 Section 627904 A.(A) A court may not change a fiduciary’s 2 decision, or order a fiduciary to change its decision, to exercise or 3 not to exercise a discretionary power conferred by the South 4 Carolina Uniform Principal and Income Act unless it determines 5 that the decision was an abuse of the fiduciary’s discretion. A 6 fiduciary’s decision is not an abuse of discretion merely because 7 the court would have exercised the power in a different manner or 8 would not have exercised the power. 9 (B) The decisions subject to subsection (A) include, but are not 10 limited to, a determination: 11 (1) pursuant to Section 627904(A) of whether and to what 12 extent an amount should be transferred from principal to income or 13 from income to principal; and 14 (2) of the factors that are relevant to the trust and its 15 beneficiaries, the extent to which they are relevant, and the weight, 16 if any, to be given to the relevant factors, in deciding whether and 17 to what extent to exercise the power in Section 627904(A). 18 (C) If a court determines that a fiduciary has abused its 19 discretion, the court may place the income and remainder 20 beneficiaries in the positions they would have occupied if the 21 fiduciary had not abused its discretion, according to the following 22 rules: 23 (1) to the extent that the abuse of discretion has resulted in 24 no distribution to a beneficiary or in a distribution that is too small, 25 the court must order the fiduciary to distribute from the trust to the 26 beneficiary an amount that the court determines will restore the 27 beneficiary, in whole or in part, to the beneficiary’s appropriate 28 position; 29 (2) to the extent that the abuse of discretion has resulted in a 30 distribution to a beneficiary that is too large, the court must place 31 the beneficiaries, the trust, or both, in whole or in part, in their 32 appropriate positions by ordering the fiduciary to withhold an 33 amount from one or more future distributions to the beneficiary 34 who received the distribution that was too large or ordering that 35 beneficiary to return some or all of the distribution to the trust; 36 (3) to the extent that the court is unable, after applying items 37 (1) and (2), to place the beneficiaries, the trust, or both, in the 38 positions they would have occupied if the fiduciary had not abused 39 its discretion, the court may order the fiduciary to pay an 40 appropriate amount from its own funds to one or more of the 41 beneficiaries or the trust, or both. 42 (D) Upon a petition by the fiduciary, the court having 43 jurisdiction over the trust or estate must determine whether a[1243] 639 1 proposed exercise or nonexercise by the fiduciary of a 2 discretionary power in the South Carolina Uniform Principal and 3 Income Act would result in an abuse of the fiduciary’s discretion. 4 If the petition describes the proposed exercise or nonexercise of 5 the power and contains sufficient information to inform the 6 beneficiaries of the reasons for the proposal, the facts upon which 7 the fiduciary relies, and an explanation of how the income and 8 remainder beneficiaries would be affected by the proposed 9 exercise or nonexercise of the power, a beneficiary who challenges 10 the proposed exercise or nonexercise has the burden of 11 establishing that it will result in an abuse of discretion. 12 13 REPORTER’S COMMENTS 14 15 General. All of the discretionary powers in this 1997 Act are 16 subject to the normal rules that govern a fiduciary’s exercise of 17 discretion. Section 627932 codifies those rules for purposes of the 18 Act so that they will be readily apparent and accessible to 19 fiduciaries, beneficiaries, their counsel and the courts if and when 20 questions concerning such powers arise. 21 Section 627932 also makes clear that the normal rules governing 22 the exercise of a fiduciary’s powers apply to the discretionary 23 power to adjust conferred upon a trustee by Section 627904(A). 24 Discretionary provisions authorizing trustees to determine what is 25 income and what is principal have been used in governing 26 instruments for years; Section 2 of the 1931 Uniform Principal 27 and Income Act recognized that practice by providing that “the 28 person establishing the principal may himself direct the manner of 29 ascertainment of income and principal...or grant discretion to the 30 trustee or other person to do so....” Section 627903(A)(2) also 31 recognizes the power of a settlor to grant such discretion to the 32 trustee. Section 627932 applies to a discretionary power granted 33 by the terms of a trust or a will as well as the power to adjust in 34 Section 627904(A). 35 Power to Adjust. The exercise of the power to adjust is 36 governed by a trustee’s duty of impartiality, which requires the 37 trustee to strike an appropriate balance between the interests of the 38 income and remainder beneficiaries. Section 627903(B) expresses 39 this duty by requiring the trustee to “administer a trust or estate 40 impartially, based on what is fair and reasonable to all of the 41 beneficiaries, except to the extent that the terms of the trust or the 42 will clearly manifest an intention that the fiduciary shall or may 43 favor one or more of the beneficiaries.” Because this involves the[1243] 640 1 exercise of judgment in circumstances rarely capable of perfect 2 resolution, trustees are not expected to achieve perfection; they are, 3 however, required to make conscious decisions in good faith and 4 with proper motives. 5 In seeking the proper balance between the interests of the 6 beneficiaries in matters involving principal and income, a trustee’s 7 traditional approach has been to determine the settlor’s objectives 8 from the terms of the trust, gather the information needed to 9 ascertain the financial circumstances of the beneficiaries, 10 determine the extent to which the settlor’s objectives can be 11 achieved with the resources available in the trust, and then allocate 12 the trust’s assets between stocks and fixedincome securities in a 13 way that will produce a particular level or range of income for the 14 income beneficiary. The key element in this process has been to 15 determine the appropriate level or range of income for the income 16 beneficiary, and that will continue to be the key element in 17 deciding whether and to what extent to exercise the discretionary 18 power conferred by Section 627904(A). If it becomes necessary 19 for a court to determine whether an abuse of the discretionary 20 power to adjust between principal and income has occurred, the 21 criteria should be the same as those that courts have used in the 22 past to determine whether a trustee has abused its discretion in 23 allocating the trust’s assets between stocks and fixedincome 24 securities. 25 A fiduciary has broad latitude in choosing the methods and 26 criteria to use in deciding whether and to what extent to exercise 27 the power to adjust in order to achieve impartiality between 28 income beneficiaries and remainder beneficiaries or the degree of 29 partiality for one or the other that is provided for by the terms of 30 the trust or the will. For example, in deciding what the appropriate 31 level or range of income should be for the income beneficiary and 32 whether to exercise the power, a trustee may use the methods 33 employed prior to the enactment of SCUP&IA in 2001 in deciding 34 how to allocate trust assets between stocks and fixedincome 35 securities; or may consider the amount that would be distributed 36 each year based on a percentage of the portfolio’s value at the 37 beginning or end of an accounting period, or the average portfolio 38 value for several accounting periods, in a manner similar to a 39 unitrust, and may select a percentage that the trustee believes is 40 appropriate for this purpose and use the same percentage or 41 different percentages in subsequent years. The trustee may also use 42 hypothetical portfolios of marketable securities to determine an[1243] 641 1 appropriate level or range of income within which a distribution 2 might fall. 3 An adjustment may be made prospectively at the beginning of 4 an accounting period, based on a projected return or range of 5 returns for a trust’s portfolio, or retrospectively after the fiduciary 6 knows the total realized or unrealized return for the period; and 7 instead of an annual adjustment, the trustee may distribute a fixed 8 dollar amount for several years, in a manner similar to an annuity, 9 and may change the fixed dollar amount periodically. No 10 inference of abuse is to be drawn if a fiduciary uses different 11 methods or criteria for the same trust from time to time, or uses 12 different methods or criteria for different trusts for the same 13 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 the 17 portion of the portfolio that is composed of marketable securities 18 and the portion whose market value cannot be determined readily, 19 and may take into account a beneficiary’s use or possession of a 20 trust asset. 21 Under the prudent investor rule, a trustee is to incur costs that 22 are appropriate and reasonable in relation to the assets and the 23 purposes of the trust, and the same consideration applies in 24 determining whether and to what extent to exercise the power to 25 adjust. In making investment decisions under the prudent investor 26 rule, the trustee will have considered the purposes, terms, 27 distribution requirements, and other circumstances of the trust for 28 the purpose of adopting an overall investment strategy having risk 29 and return objectives reasonably suited to the trust. A trustee is 30 not required to duplicate that work for principal and income 31 purposes, and in many cases the decision about whether and to 32 what extent to exercise the power to adjust may be made at the 33 same time as the investment decisions. To help achieve the 34 objective of reasonable investment costs, a trustee may also adopt 35 policies that apply to all trusts or to individual trusts or classes of 36 trusts, based on their size or other criteria, stating whether and 37 under what circumstances the power to adjust will be exercised 38 and the method of making adjustments; no inference of abuse is to 39 be drawn if a trustee adopts such policies. 40 General rule. The first sentence of Section 627932(A) is from 41 Restatement (Second) of Trusts Sec 187 and Restatement (Third) 42 of Trusts (Tentative Draft No. 2, 1999) Sec 50(1). The second 43 sentence of Section 627932(A) derives from Comment e to Sec[1243] 642 1 187 of the Second Restatement and Comment b to Sec 50 of the 2 Third Restatement. 3 The reference in Section 627932(A) to a fiduciary’s decision to 4 exercise or not to exercise a discretionary power underscores a 5 fundamental precept, which is that a fiduciary has a duty to make a 6 conscious decision about exercising or not exercising a 7 discretionary power. Comment b to Sec 50 of the Third 8 Restatement states: 9 A court will intervene where the exercise of a power is left to 10 the judgment of a trustee who improperly fails to exercise that 11 judgment. Thus, even where a trustee has discretion whether or 12 not to make any payments to a particular beneficiary, the court will 13 interpose if the trustee, arbitrarily or without knowledge of or 14 inquiry into relevant circumstances, fails to exercise the discretion. 15 Section 627932(B) makes clear that the rule of subsection (A) 16 applies not only to the power conferred by Section 627904(A) but 17 also to the evaluation process required by Section 627904(B) in 18 deciding whether and to what extent to exercise the power to 19 adjust. Under Section 627904(B) a trustee is to consider all of the 20 factors that are relevant to the trust and its beneficiaries, including, 21 to the extent the trustee determines they are relevant, the nine 22 factors enumerated in Section 627904(B). Section 627904(B) 23 derives from Section 627933(C)(3) of SCUPIA which lists eight 24 circumstances that a trustee shall consider, to the extent they are 25 relevant, in investing and managing assets. The trustee’s decisions 26 about what factors are relevant for purposes of Section 627904(B) 27 and the weight to be accorded each of the relevant factors are part 28 of the discretionary decisionmaking process. As such, these 29 decisions are not subject to change for the purpose of changing the 30 trustee’s ultimate decision unless the court determines that there 31 has been an abuse of discretion in determining the relevancy and 32 weight of these factors. 33 Remedy. The exercise or nonexercise of a discretionary power 34 under the Act normally affects the amount or timing of a 35 distribution to the income or remainder beneficiaries. The primary 36 remedy under Section 627932(C) for abuse of discretion is the 37 restoration of the beneficiaries and the trust to the positions they 38 would have occupied if the abuse had not occurred. It draws on a 39 basic principle of restitution that if a person pays money to 40 someone who is not intended to receive it (and in a case to which 41 this Act applies, not intended by the settlor to receive it in the 42 absence of an abuse of discretion by the trustee), that person is 43 entitled to restitution on the ground that the payee would be[1243] 643 1 unjustly enriched if he were permitted to retain the payment. See 2 Restatement of Restitution Sec 22 (1937). The objective is to 3 accomplish the restoration initially by making adjustments 4 between the beneficiaries and the trust to the extent possible; to the 5 extent that restoration is not possible by such adjustments, a court 6 may order the trustee to pay an amount to one or more of the 7 beneficiaries, the trust, or both the beneficiaries and the trust. If 8 the court determines that it is not possible in the circumstances to 9 restore them to their appropriate positions, the court may provide 10 other remedies appropriate to the circumstances. The approach of 11 Section 105(c) is supported by Comment b to Sec 50 of the Third 12 Restatement of Trusts: 13 When judicial intervention is required, a court may direct the 14 trustee to make or refrain from making certain payments; issue 15 instructions to clarify the standards or guidelines applicable to the 16 exercise of the power; or rescind the trustee’s payment decisions, 17 usually directing the trustee to recover amounts improperly 18 distributed and holding the trustee liable for failure or inability to 19 do so. 20 Advance determinations. Section 627932(D) employs the 21 familiar remedy of the trustee’s petition to the court for 22 instructions. It requires the court to determine, upon a petition by 23 the fiduciary, whether a proposed exercise or nonexercise of a 24 discretionary power by the fiduciary of a power conferred by the 25 Act would be an abuse of discretion under the general rule of 26 Section 627932(A). If the petition contains the information 27 prescribed in the second sentence of subsection (D) the proposed 28 action or inaction is presumed not to result in an abuse, and a 29 beneficiary who challenges the proposal must establish that it will. 30 Subsection (D) is intended to provide a fiduciary the opportunity 31 to obtain an assurance of finality in a judicial proceeding before 32 proceeding with a proposed exercise or nonexercise of a 33 discretionary power. Its purpose is not, however, to have the court 34 instruct the fiduciary how to exercise the discretion. 35 A fiduciary may also obtain the consent of the beneficiaries to a 36 proposed act or an omission to act, and a beneficiary cannot hold 37 the fiduciary liable for that act or omission unless: 38 (a) the beneficiary was under an incapacity at the time of such 39 consent or of such act or omission; or 40 (b) the beneficiary, when he gave his consent, did not know of 41 his rights and of the material facts which the trustee knew or 42 should have known and which the trustee did not reasonably 43 believe that the beneficiary knew; or[1243] 644 1 (c) the consent of the beneficiary was induced by improper 2 conduct of the trustee. 3 Restatement (Second) of Trusts Sec 216. 4 If there are many beneficiaries, including some who are 5 incapacitated or unascertained, the fiduciary may prefer the greater 6 assurance of finality provided by a judicial proceeding that will 7 bind all persons who have an interest in the trust. 8 9 Section 627904B. The definitions in this section apply to 10 Sections 627904C through 627904P. 11 (1) ‘Code’ means the Internal Revenue Code of 1986, as 12 amended from time to time, and any statutory enactment successor 13 to the Code; reference to a specific section of the code in Sections 14 627904B through 627904P are considered a reference also to any 15 successor provision dealing with the subject matter of that section 16 of the Code. 17 (2) ‘Disinterested person’ means a person who is not a related 18 or subordinate party with respect to the person then acting as 19 trustee of the trust and excludes the settlor of the trust and any 20 interested trustee. 21 (3) ‘Express total return unitrust’ means a trust created by the 22 terms of a governing instrument requiring the distribution at least 23 annually of a unitrust amount equal to a fixed percentage of not 24 less than three percent nor more than five percent a year of the net 25 fair market value of the amounts of the trust, valued at least 26 annually. 27 (4) ‘Income trust’ means a trust, created by either an inter vivos 28 or a testamentary instrument, which directs or permits the trustee 29 to distribute the net income of the trust to one or more persons, 30 either in fixed proportions or in amounts or proportions determined 31 by the trustee, and regardless of whether the trust directs or permits 32 the trustee to distribute principal of the trust to one or more of 33 those persons. 34 (5) ‘Interested distributee’ means a living beneficiary who is a 35 distributee or permissible distributee of trust income or principal 36 who has the power to remove the existing trustee and designate as 37 successor a person who may be a related or subordinate party with 38 respect to that distributee. 39 (6) ‘Interested trustee’ means any of the following: 40 (a) an individual trustee who is a qualified beneficiary; 41 (b) a trustee who may be removed and replaced by an 42 interested distributee;[1243] 645 1 (c) an individual trustee whose legal obligation to support a 2 beneficiary may be satisfied by distributions of income and 3 principal of the trust. 4 (7) ‘Legal disability’ means a person under a legal disability 5 who is a minor, an incompetent or incapacitated person, or an 6 unborn individual, or whose identity or location is unknown. 7 (8) ‘Qualified beneficiary’ means a qualified beneficiary as 8 defined in Section 627103(12). 9 (9) ‘Related or subordinate party’ means a related or 10 subordinate party as defined in Section 672(c) of the Code. 11 (10) ‘Representative’ means a person who may represent and 12 bind another as provided in Part 3 of this article, the provisions of 13 which apply for purposes of this section and Sections 627904C 14 through 627904P. 15 (11) ‘Settlor’ means an individual, including a testator, who 16 creates a trust. 17 (12) ‘Total return unitrust’ means an income trust that has been 18 converted under and meets the provisions of this section and 19 Section 627904C through 627904P. 20 (13) ‘Treasury regulations’ means the regulations, rulings, 21 procedures, notices, or other administrative pronouncements issued 22 by the Internal Revenue Service, as amended from time to time. 23 (14) ‘Trustee’ means a person acting as trustee of the trust, 24 except as otherwise expressly provided in this section and Sections 25 627904C through 627904P whether acting in that person’s 26 discretion or on the direction of one or more persons acting in a 27 fiduciary capacity. 28 (15) ‘Unitrust amount’ means an amount computed as a 29 percentage of the fair market value of the assets of the trust. 30 31 Section 627904C. (A) A trustee, other than an interested 32 trustee, or, where two or more persons are acting as trustees, a 33 majority of the trustees who are not interested trustees (in either 34 case hereafter ‘trustee’) in the trustee’s sole discretion and without 35 court approval, may: 36 (1) convert an income trust to a total return unitrust; 37 (2) reconvert a total return unitrust to an income trust; or 38 (3) change the percentage used to calculate the unitrust 39 amount or the method used to determine the fair market value of 40 the trust if all of the following apply: 41 (a) The trustee adopts a written policy for the trust 42 providing:[1243] 646 1 ( i) in the case of a trust being administered as an 2 income trust, that future distributions from the trust will be unitrust 3 amounts rather than net income as determined pursuant to the 4 South Carolina Uniform Principal and Income Act; 5 (ii) in the case of a trust being administered as a total 6 return unitrust, that future distributions from the trust will be net 7 income rather than unitrust amounts; or 8 (iii) that the percentage used to calculate the unitrust 9 amount or the method used to determine the fair market value of 10 the trust will be changed as stated in the policy. 11 (b) The trustee gives written notice of its intention to take 12 the action, including copies of the written policy and Sections 13 627904B through 627904P, to: 14 ( i) the settlor of the trust, if living; and 15 (ii) all persons who are the qualified beneficiaries of the 16 trust at the time the notice is given. If a qualified beneficiary is 17 under a legal disability, notice shall be given to the representative 18 of the qualified beneficiary if a representative is available without 19 court order. 20 (c) There is at least: 21 ( i) one qualified beneficiary described in Section 22 627103(12)(A) or (B) who is not under a legal disability or a 23 representative of a qualified beneficiary so described; and 24 (ii) one qualified beneficiary described in Section 25 627103(12)(C) who is not under a legal disability or a 26 representative of a qualified beneficiary so described. 27 (d) No person receiving notice of the trustee’s intention to 28 take the proposed action objects to the action within ninety days 29 after notice has been given. The objection must be by written 30 notice to the trustee. 31 (B) If there is no trustee of the trust other than an interested 32 trustee, the interested trustee or, where two or more persons are 33 acting as trustee and are interested trustees, a majority of the 34 interested trustees may, in its sole discretion and without court 35 approval: 36 (1) convert an income trust to a total return unitrust; 37 (2) reconvert a total return unitrust to an income trust; or 38 (3) change the percentage used to calculate the unitrust 39 amount or the method used to determine the fair market value of 40 the trust if all of the following apply: 41 (a) The trustee adopts a written policy for the trust 42 providing:[1243] 647 1 ( i) in the case of a trust being administered as an 2 income trust, that future distributions from the trust will be unitrust 3 amounts rather than net income as determined pursuant to the 4 South Carolina Uniform Principal and Income Act; 5 (ii) in the case of a trust being administered as a total 6 return unitrust, that future distributions from the trust will be net 7 income as determined pursuant to the South Carolina Uniform 8 Principal and Income Act rather than unitrust amounts, or 9 (iii) that the percentage used to calculate the unitrust 10 amount or the method used to determine the fair market value of 11 the trust will be changed as stated in the policy. 12 (b) The trustee appoints a disinterested person who, in its 13 sole discretion but acting in a fiduciary capacity, determines for the 14 trustee: 15 ( i) the percentage to be used to calculate the unitrust 16 amount; 17 (ii) the method to be used in determining the fair market 18 value of the trust; and 19 (iii) which assets, if any, are to be excluded in 20 determining the unitrust amount. 21 (c) The trustee gives written notice of its intention to take 22 the action, including copies of the written policy and Sections 23 627904B through 627904P and the determinations of the 24 disinterested person to: 25 ( i) the settlor of the trust, if living; and 26 (ii) all persons who are the qualified beneficiaries of the 27 trust at the time of the giving of the notice. If a qualified 28 beneficiary is under a legal disability, notice must be given to the 29 representative of the qualified beneficiary if a representative is 30 available without court order. 31 (d) There is at least: 32 ( i) one qualified beneficiary described in Section 33 627103(12)(A) or (B) or a representative of a beneficiary so 34 described; and 35 (ii) one qualified beneficiary described in Section 36 627103(12)(C) or a representative of a qualified beneficiary so 37 described. 38 (e) No person receiving notice of the trustee’s intention to 39 take the proposed action of the trustee objects to the action or to 40 the determination of the disinterested person within ninety days 41 after notice has been given. The objection must be by written 42 instrument delivered to the trustee.[1243] 648 1 (C) A trustee may act under subsection (A) or (B) of this 2 section with respect to a trust for which both income and principal 3 have been set aside permanently for charitable purposes under the 4 governing instrument and for which a federal estate or gift tax 5 deduction has been taken, if all of the following apply: 6 (1) Instead of sending written notice to the persons described 7 in subsection (A)(3)(b) or subsection (B)(3)(b), as the case may be, 8 the trustee shall send written notice to each charitable organization 9 expressly designated to receive the income of the trust under the 10 governing instrument and, if no charitable organization is 11 expressly designated to receive all of the income of the trust under 12 the governing instrument, to the Attorney General of this State. 13 (2) Subsection (A)(3)(d) or subsection (B)(3)(d) of this 14 subsection, as the case may be, does not apply to this action. 15 (3) In each taxable year, the trustee shall distribute the 16 greater of the unitrust amount or the amount required by Section 17 4942 of the Code. 18 (D) The provisions of Section 627109 regarding notices and the 19 sending of documents to persons under this article shall apply for 20 purposes of notices and the sending of documents under this 21 section. 22 23 Section 627904D. (A) If a trustee desires to: 24 (1) convert an income trust to a total return unitrust; 25 (2) reconvert a total return unitrust to an income trust; or 26 (3) change the percentage used to calculate the unitrust 27 amount or the method used to determine the fair market value of 28 the trust assets but does not have the ability to or elects not to do it 29 under Section 627904C, the trustee may petition the court for an 30 order as the trustee considers appropriate. If there is only one 31 trustee of the trust and the trustee is an interested trustee or if there 32 are two or more trustees of the trust and a majority of them are 33 interested trustees, the court, in its own discretion or on the 34 petition of the trustee or trustees or any person interested in the 35 trust, may appoint a disinterested person who, acting in a fiduciary 36 capacity, shall present information to the court as necessary to 37 enable the court to make its determinations under Sections 38 627904B through 627904P. 39 (B) A qualified beneficiary or a representative of a qualified 40 beneficiary may request the trustee to: 41 (1) convert an income trust to a total return unitrust; 42 (2) reconvert a total return unitrust to an income trust; or [1243] 649 1 (3) change the percentage used to calculate the unitrust 2 amount or the method used to determine the fair market value of 3 the trust. If the trustee does not take the action requested, the 4 qualified beneficiary or a representative of the qualified 5 beneficiary may petition the court to order the trustee to take the 6 action. 7 (C) All proceedings under this section must be conducted as 8 provided in Part 2 of this article. 9 10 Section 627904E. (A) The fair market value of the trust assets 11 must be determined at least annually, using a valuation date 12 selected by the trustee in its discretion. The trustee, in its 13 discretion, may use an average of the fair market value on the same 14 valuation date for the current fiscal year and not more than three 15 preceding fiscal years, if the use of this average appears desirable 16 to the trustee to reduce the impact of fluctuations in market value 17 on the unitrust amount. Assets for which a fair market value 18 cannot be readily ascertained must be valued using valuation 19 methods as are considered reasonable and appropriate by the 20 trustee. Assets, such as a residence or tangible personal property, 21 used by the trust beneficiary may be excluded by the trustee from 22 the fair market value for computing the unitrust amount. 23 (B) The percentage to be used by the trustee in determining the 24 unitrust amount must be a reasonable current return from the trust, 25 but not less than three percent nor more than five percent, taking 26 into account the intentions of the settlor of the trust as expressed in 27 the terms of the trust, the needs of the beneficiaries, general 28 economic conditions, projected current earnings and appreciation 29 for the trust assets, and projected inflation and its impact on the 30 trust. 31 (C) Following the conversion of an income trust to a total 32 return unitrust, the trustee: 33 (1) shall consider the unitrust amount as paid from net 34 accounting income determined as if the trust were not a unitrust; 35 (2) shall then consider the unitrust amount as paid from 36 ordinary income not allocable to net accounting income; 37 (3) may, in the trustee’s discretion, consider the unitrust 38 amount as paid from net shortterm gain described in Section 39 1222(5) of the Code and then from net longterm capital gain 40 described in Section 1222(7) of the Code so long as the 41 discretionary power is exercised consistently and in a reasonable 42 and impartial manner, but the amount so paid from net capital 43 gains may not be greater than the excess of the unitrust amount[1243] 650 1 over the amount of distributable net income as defined in Section 2 643(a) of the Code without regard to Section 1.643(a)3(b) of the 3 Treasury Regulations, as amended from time to time; and 4 (4) shall then consider the unitrust amount as coming from 5 the principal of the trust. 6 7 Section 627904F. In administering a total return unitrust, the 8 trustee may, in its sole discretion but subject to the terms of the 9 trust, determine: 10 (1) the effective date of the conversion; 11 (2) the timing of distributions, including provisions for 12 prorating a distribution for a short year in which a beneficiary’s 13 right to payments commences or ceases; 14 (3) whether distributions are to be made in cash or in kind or 15 partly in cash and partly in kind; 16 (4) if the trust is reconverted to an income trust, the effective 17 date of the reconversion; and 18 (5) any other administrative issues as may be necessary or 19 appropriate to carry out the purposes of Sections 627904B through 20 627904P. 21 22 Section 627904G. Conversion to a total return unitrust under 23 Sections 627904B through 627904P does not affect any other 24 provision of the terms of the trust, if any, regarding distributions of 25 principal. For purposes of Sections 627904B through 627904P, the 26 distribution of a unitrust amount is considered a distribution of 27 income and not of principal. 28 29 Section 627904H. No trustee or disinterested person who in 30 good faith takes or fails to take any action under Sections 627904B 31 through 627904P is liable to any person affected by the action or 32 inaction, regardless of whether the person received written notice 33 as provided in Sections 627904B through 627904P and regardless 34 of whether the person was under a legal disability at the time of the 35 delivery of the notice. The exclusive remedy for any person 36 affected by such action or inaction is to obtain an order of the court 37 directing the trustee to: 38 (1) convert an income trust to a total return unitrust; 39 (2) reconvert from a total return unitrust to an income trust; or 40 (3) change the percentage used to calculate the unitrust 41 amount. 42[1243] 651 1 Section 627904I.Sections 627904B through 627904P apply to 2 all trusts in existence on, or created after the effective date of 3 Sections 627904A through 627904P unless: 4 (1) the governing instrument contains a provision clearly 5 expressing the settlor’s intention that the current beneficiary or 6 beneficiaries are to receive an amount other than a reasonable 7 current return from the trust; 8 (2) the trust is a trust described in Section 170(f)(2)(B), Section 9 664(d), Section 2702(a)(3), or Section 2702(b) of the Code; 10 (3) the trust is a trust under which any amount is, or has been 11 in the past, set aside permanently for charitable purposes unless the 12 income from the trust also is devoted permanently to charitable 13 purposes; or 14 (4) the governing instrument expressly prohibits use of 15 Sections 627904B through 627904P by specific reference to 16 Sections 627904B through 627904P or expressly states the settlor’s 17 intent that net income not be calculated as a unitrust amount. 18 A provision in the terms of the trust that ‘the provisions of 19 Sections 627904B through 627904P of this part or any 20 corresponding provision of future law, must not be used in the 21 administration of this trust,’ or ‘the trustee shall not determine the 22 distributions to the income beneficiary as a unitrust amount,’ or 23 similar words reflecting that intent is sufficient to preclude the use 24 of Sections 627904B through 627904P. 25 26 Section 627904J. RESERVED 27 28 Section 627904K. RESERVED 29 30 Section 627904L. RESERVED 31 32 Section 627904M. (A) The unitrust amount to be distributed by 33 the express total return unitrust may be determined by the terms of 34 the unitrust governing instrument by reference to the net fair 35 market value of the trust’s assets determined annually or averaged 36 on a multipleyear basis. 37 (B) The terms of an express total return unitrust governing 38 instrument may provide that: 39 (1) any assets of such a unitrust for which a fair market 40 value cannot be readily ascertained must be valued using valuation 41 methods that the trustee considers reasonable and appropriate; 42 (2) any assets of such a unitrust, such as a residence property 43 or tangible personal property, used by the trust beneficiary entitled[1243] 652 1 to the unitrust amount may be excluded by the trustee from the net 2 fair market value for computing the unitrust amount. 3 4 Section 627904N. The distribution from an express total return 5 unitrust of a unitrust amount equal to a fixed percentage of not less 6 than three percent nor more than five percent reasonably 7 apportions between the income beneficiaries and the remainder of 8 the total return of an express total return unitrust. 9 10 Section 627904O. (A) The terms of an express total return 11 unitrust governing instrument may provide the method similar to 12 the method provided under Section 627904C for changing the 13 unitrust percentage or for converting from a unitrust to an income 14 trust or for a reconversion of an income trust to a unitrust, or for all 15 of these actions. 16 (B) If the terms of an express total return unitrust governing 17 instrument do not specifically or by reference to Section 627904C 18 grant a power to the trustee to change the unitrust percentage or 19 change to an income trust, the trustee shall not have that power. 20 21 Section 627904P. Unless the terms of the express total return 22 unitrust governing instrument specifically provide otherwise, the 23 trustee: 24 (A) shall consider the unitrust amount as paid from net 25 accounting income determined as if the trust were not a unitrust; 26 (B) shall then consider the unitrust amount as paid from 27 ordinary income not allocable to net accounting income; 28 (C) may, in the trustee’s discretion, consider the unitrust 29 amount as paid from net shortterm gain described in Section 30 1222(5) of the Code and then from net longterm capital gain 31 described in Section 1222(7) of the Code so long as this 32 discretionary power is exercised consistently and in a reasonable 33 and impartial manner, but the amount so paid from net capital 34 gains may not be greater than the excess of the unitrust amount 35 over the amount of distributable net income as defined in Section 36 643(a) of the Code without regard to Section 1.643(a)3(b) of the 37 Treasury Regulations; and 38 (D) shall then consider the unitrust amount as coming from the 39 principal of the trust. 40 41 Section 627905. After a decedent dies, in the case of an estate, 42 or after an income interest in a trust ends, a fiduciary: [1243] 653 1 (1) of an estate or of a terminating income interest shall 2 determine the amount of net income and net principal receipts 3 received from property specifically given to a beneficiary pursuant 4 to Sections 627907 through 627930 which apply to trustees and the 5 provisions of item (5). The fiduciary shall distribute the net 6 income and net principal receipts to the beneficiary who is to 7 receive the specific property; 8 (2) shall determine the remaining net income of a decedent’s 9 estate or a terminating income interest pursuant to Sections 627907 10 through 627930 which apply to trustees and by: 11 (a) including in net income all income from property used to 12 discharge liabilities; 13 (b) paying from income or principal, in the fiduciary’s 14 discretion, fees of attorneys, accountants, and fiduciaries, court 15 costs and other expenses of administration, and interest on death 16 taxes; except that the fiduciary may pay those expenses from 17 income of property passing to a trust for which the fiduciary 18 claims an estate tax marital or charitable deduction only to the 19 extent that the payment of those expenses from income does not 20 cause the reduction or loss of the deduction; and 21 (c) paying from principal all other disbursements made or 22 incurred in connection with the settlement of a decedent’s estate or 23 the winding up of a terminating income interest, including debts, 24 funeral expenses, disposition of remains, family allowances, and 25 death taxes and related penalties that are apportioned to the estate 26 or terminating income interest by the will, the terms of the trust, or 27 applicable law; 28 (3) shall distribute to a beneficiary who receives a pecuniary 29 amount outright the rate of interest or other amount provided by 30 the will or the terms of the trust. If the will or the terms of the trust 31 provide no interest amount, the beneficiary of a pecuniary amount 32 outright shall receive no interest or other income on the bequest for 33 one year after the first appointment of a personal representative. 34 Beginning one year after the first appointment of a personal 35 representative, and notwithstanding any other provision of law to 36 the contrary, the beneficiary of a pecuniary amount outright must 37 be treated as any other beneficiary under item (4). If a beneficiary 38 is to receive a pecuniary amount outright from a trust after an 39 income interest ends and no interest or other amount is provided 40 for by the terms of the trust, the fiduciary shall treat the pecuniary 41 amount as if it were required to be paid under a will and as if the 42 payment were being made beginning one year after the first 43 appointment of a personal representative; [1243] 654 1 (4) shall distribute the net income remaining after distributions 2 required by item (3) in the manner pursuant to Section 627906 to 3 all other beneficiaries, including a beneficiary who receives a 4 pecuniary amount in trust, even if the beneficiary holds an 5 unqualified power to withdraw assets from the trust or other 6 presently exercisable general power of appointment over the trust; 7 and 8 (5) may not reduce principal or income receipts from property 9 described in item (1) because of a payment pursuant to Sections 10 627924 and 627925 to the extent that the will, the terms of the 11 trust, or applicable law requires the fiduciary to make the payment 12 from assets other than the property or to the extent that the 13 fiduciary recovers or expects to recover the payment from a third 14 party. The net income and principal receipts from the property are 15 determined by including all of the amounts the fiduciary receives 16 or pays with respect to the property, whether those amounts 17 accrued or became due before, on, or after the date of a decedent’s 18 death or an income interest’s terminating event, and by making a 19 reasonable provision for amounts that the fiduciary believes the 20 estate or terminating income interest may become obligated to pay 21 after the property is distributed. 22 23 REPORTER’S COMMENT 24 25 Terminating income interests and successive income interests. 26 A trust that provides for a single income beneficiary and an 27 outright distribution of the remainder ends when the income 28 interest ends. A more complex trust may have a number of income 29 interests, either concurrent or successive, and the trust will not 30 necessarily end when one of the income interests ends. For that 31 reason, the Act speaks in terms of income interests ending and 32 beginning rather than trusts ending and beginning. When an 33 income interest in a trust ends, the trustee’s powers continue 34 during the winding up period required to complete its 35 administration. A terminating income interest is one that has 36 ended but whose administration is not complete. 37 If two or more people are given the right to receive specified 38 percentages or fractions of the income from a trust concurrently 39 and one of the concurrent interests ends, e.g., when a beneficiary 40 dies, the beneficiary’s income interest ends but the trust does not. 41 Similarly, when a trust with only one income beneficiary ends 42 upon the beneficiary’s death, the trust instrument may provide that 43 part or all of the trust assets shall continue in trust for another[1243] 655 1 income beneficiary. While it is common to think and speak of this 2 (and even to characterize it in a trust instrument) as a “new” trust, 3 it is a continuation of the original trust for a remainder beneficiary 4 who has an income interest in the trust assets instead of the right to 5 receive them outright. For purposes of this Act, this is a 6 successive income interest in the same trust. The fact that a trust 7 may or may not end when an income interest ends is not 8 significant for purposes of this Act. 9 If the assets that are subject to a terminating income interest pass 10 to another trust because the income beneficiary exercises a general 11 power of appointment over the trust assets, the recipient trust 12 would be a new trust; and if they pass to another trust because the 13 beneficiary exercises a nongeneral power of appointment over the 14 trust assets, the recipient trust might be a new trust in some States 15 (see 5A Austin W. Scott & William F. Fratcher, The Law of Trusts 16 Sec 640, at 483 (4th ed. 1989)); but for purposes of this Act a new 17 trust created in these circumstances is also a successive income 18 interest. 19 Gift of a pecuniary amount. Section 627905(3) and (4) provide 20 different rules for an outright gift of a pecuniary amount and a gift 21 in trust of a pecuniary amount; this is the same approach used in 22 Section 627408(b)(2) of the 1963 SC Act. 23 Interest on pecuniary amounts. Section 627905(3) provides that 24 the beneficiary of an outright pecuniary amount is to receive the 25 interest or other amount provided by applicable law if there is no 26 provision in the will or the terms of the trust. Many States have no 27 applicable law that provides for interest or some other amount to 28 be paid on an outright pecuniary gift under an inter vivos trust; this 29 section provides that in such a case the interest or other amount to 30 be paid shall be the same as the interest or other amount required 31 to be paid on testamentary pecuniary gifts. This provision is 32 intended to accord gifts under inter vivos instruments the same 33 treatment as testamentary gifts. The various state authorities that 34 provide for the amount that a beneficiary of an outright pecuniary 35 amount is entitled to receive are collected in Richard B. Covey, 36 Marital Deduction and Credit Shelter Dispositions and the Use of 37 Formula Provisions, App. B (4th ed. 1997). 38 Administration expenses and interest on death taxes. Under 39 Section 627905(2)(b) a fiduciary may pay administration expenses 40 and interest on death taxes from either income or principal. An 41 advantage of permitting the fiduciary to choose the source of the 42 payment is that, if the fiduciary’s decision is consistent with the 43 decision to deduct these expenses for income tax purposes or estate[1243] 656 1 tax purposes, it eliminates the need to adjust between principal and 2 income that may arise when, for example, an expense that is paid 3 from principal is deducted for income tax purposes or an expense 4 that is paid from income is deducted for estate tax purposes. 5 Interest on Estate Taxes. Under the 1963 Act, Section 6 627418(5) charges interest on estate and inheritance taxes to 7 principal. The 1931 Act has no provision. Section 627925(3) of 8 this Act provides that, except to the extent provided in Section 9 627905(2)(b) or (c), all interest must be paid from income. 10 11 Section 627906.(A) Each beneficiary described in Section 12 627905(4) is entitled to receive a portion of the net income equal 13 to his fractional interest in undistributed principal assets, using 14 values as of the distribution date. If a fiduciary makes more than 15 one distribution of assets to beneficiaries to whom this section 16 applies, each beneficiary, including one who does not receive part 17 of the distribution, is entitled, as of each distribution date, to the 18 net income the fiduciary has received after the date of death or 19 terminating event or earlier distribution date but has not distributed 20 as of the current distribution date. 21 (B) In determining a beneficiary’s share of net income, the: 22 (1) beneficiary is entitled to receive a portion of the net 23 income equal to his fractional interest in the undistributed principal 24 assets immediately before the distribution date, including assets 25 that later may be sold to meet principal obligations. 26 (2) fractional interest of the beneficiary in the undistributed 27 principal assets must be calculated without regard to property 28 specifically given to a beneficiary and property required to pay 29 pecuniary amounts not in trust. 30 (3) fractional interest of the beneficiary in the undistributed 31 principal assets must be calculated on the basis of the aggregate 32 value of those assets as of the distribution date without reducing 33 the value by any unpaid principal obligation; and 34 (4) distribution date for purposes of this section may be the 35 date as of which the fiduciary calculates the value of the assets if 36 that date is reasonably near the date on which assets are actually 37 distributed. 38 (C) If a fiduciary does not distribute all of the collected but 39 undistributed net income to each person as of a distribution date, 40 the fiduciary shall maintain appropriate records showing the 41 interest of each beneficiary in that net income. 42 (D) A trustee may apply the provisions of this section, to the 43 extent that the trustee considers it appropriate, to net gain or loss[1243] 657 1 realized after the date of death or terminating event or earlier 2 distribution date from the disposition of a principal asset if this 3 section applies to the income from the asset. 4 5 REPORTER’S COMMENT 6 7 Relationship to Prior Acts. Section 627906 retains the concept 8 in Section 627408(2) of the 1963 SC Act that the residuary 9 legatees of estates are to receive net income earned during the 10 period of administration on the basis of their proportionate 11 interests in the undistributed assets when distributions are made. It 12 changes the basis for determining their proportionate interests by 13 using asset values as of a date reasonably near the time of 14 distribution instead of inventory values; it extends the application 15 of these rules to distributions from terminating trusts; and it 16 extends these rules to gain or loss realized from the disposition of 17 assets during administration, an omission in the 1962 Act that has 18 been noted by several commentators. See, e.g., Richard B. Covey, 19 Marital Deduction and Credit Shelter Dispositions and the Use of 20 Formula Provisions 91 (4th ed. 1998); Thomas H. Cantrill, 21 Fractional or Percentage Residuary Bequests: Allocation of 22 Postmortem Income, Gain and Unrealized Appreciation, 10 Prob. 23 Notes 322, 327 (1985). 24 25 Section 627907. (A) An income beneficiary is entitled to net 26 income from the date on which the income interest begins. An 27 income interest begins on the date specified in the terms of the 28 trust or, if no date is specified, on the date an asset becomes 29 subject to a trust or successive income interest. 30 (B) An asset becomes subject to a trust on the date: 31 (1) it is transferred to the trust, in the case of an asset that is 32 transferred to a trust during the transferor’s life; 33 (2) the testator dies, in the case of an asset that becomes 34 subject to a trust by reason of a will, even if there is an intervening 35 period of administration of the estate; or 36 (3) the individual dies, in the case of an asset that is 37 transferred to a fiduciary by a third party because of the death of 38 the individual. 39 (C) An asset becomes subject to a successive income interest 40 on the day after the preceding income interest ends, as determined 41 pursuant to subsection (D), even if there is an intervening period of 42 administration to wind up the preceding income interest. [1243] 658 1 (D) An income interest ends on the day before an income 2 beneficiary dies or another terminating event occurs or on the last 3 day of a period during which there is no beneficiary to whom a 4 trustee may distribute income. 5 6 REPORTER’S COMMENT 7 8 Period during which there is no beneficiary. The purpose of the 9 second part of subsection (D) is to provide that, at the end of a 10 period during which there is no beneficiary to whom a trustee may 11 distribute income, the trustee must apply the same apportionment 12 rules that apply when a mandatory income interest ends. This 13 provision would apply, for example, if a settlor creates a trust for 14 grandchildren before any grandchildren are born. When the first 15 grandchild is born, the period preceding the date of birth is treated 16 as having ended, followed by a successive income interest, and the 17 apportionment rules in Sections 627908 and 909 apply accordingly 18 if the terms of the trust do not contain different provisions. 19 20 Section 627908. (A) A trustee shall allocate an income receipt 21 or disbursement, other than one subject to Section 627905(1), to 22 principal if its due date occurs before a decedent dies in the case of 23 an estate or before an income interest begins in the case of a trust 24 or successive income interest. 25 (B) A trustee shall allocate an income receipt or disbursement 26 to income if its due date occurs on or after the date on which a 27 decedent dies or an income interest begins and it is a periodic due 28 date. An income receipt or disbursement must be treated as 29 accruing from day to day if its due date is not periodic or it has no 30 due date. The portion of the receipt or disbursement accruing 31 before the date on which a decedent dies or an income interest 32 begins must be allocated to principal and the balance must be 33 allocated to income. 34 (C) An item of income or an obligation is due on the date the 35 payer is required to make a payment. If a payment date is not 36 stated, there is no due date for the purposes of this part. 37 Distributions to shareholders or other owners from an entity 38 subject to Section 627910 are considered due on the date fixed by 39 the entity for determining who is entitled to receive the distribution 40 or, if no date is fixed, on the declaration date for the distribution. 41 A due date is periodic for receipts or disbursements that must be 42 paid at regular intervals under a lease or an obligation to pay[1243] 659 1 interest or if an entity customarily makes distributions at regular 2 intervals. 3 4 REPORTER’S COMMENT 5 6 Prior Acts. Professor Bogert stated that “Section 4 of the [1962] 7 Act makes a change with respect to the apportionment of the 8 income of trust property not due until after the trust began but 9 which accrued in part before the commencement of the trust. It 10 treats such income as to be credited entirely to the income account 11 in the case of a living trust, but to be apportioned between capital 12 and income in the case of a testamentary trust. The [1931] Act 13 apportions such income in the case of both types of trusts, except 14 in the case of corporate dividends.” George G. Bogert, The 15 Revised Uniform Principal and Income Act, 38 Notre Dame Law. 16 50, 52 (1962). The 1962 Act also provided that an asset passing to 17 an inter vivos trust by a bequest in the settlor’s will is governed by 18 the rule that applies to a testamentary trust, so that different rules 19 apply to assets passing to an inter vivos trust depending upon 20 whether they were transferred to the trust during the settlor’s life 21 or by his will. 22 Having several different rules that apply to similar transactions 23 is confusing. In order to simplify administration, Section 627908 24 of this Act applies the same rule to inter vivos trusts (revocable 25 and irrevocable), testamentary trusts, and assets that become 26 subject to an inter vivos trust by a testamentary bequest. 27 Periodic payments. Under Section 627908 a periodic payment 28 is principal if it is due but unpaid before a decedent dies or before 29 an asset becomes subject to a trust, but the next payment is 30 allocated entirely to income and is not apportioned. Thus, periodic 31 receipts such as rents, dividends, interest, and annuities, and 32 disbursements such as the interest portion of a mortgage payment, 33 are not apportioned. This is the original common law rule. Edwin 34 A. Howes, Jr., The American Law Relating to Income and 35 Principal 70 (1905). In trusts in which a surviving spouse is 36 dependent upon a regular flow of cash from the decedent’s 37 securities portfolio, this rule will help to maintain payments to the 38 spouse at the same level as before the settlor’s death. Under the 39 1962 Act, the predeath portion of the first periodic payment due 40 after death was apportioned to principal in the case of a 41 testamentary trust or securities bequeathed by will to an inter vivos 42 trust.[1243] 660 1 Nonperiodic payments. Under the second sentence of Section 2 627908(B) interest on an obligation that does not provide a due 3 date for the interest payment, such as interest on an income tax 4 refund, would be apportioned to principal to the extent it accrues 5 before a person dies or an income interest begins unless the 6 obligation is specifically given to a devisee or remainder 7 beneficiary, in which case all of the accrued interest passes under 8 Section 627905(1) to the person who receives the obligation. The 9 same rule applies to interest on an obligation that has a due date 10 but does not provide for periodic payments. If there is no stated 11 interest on the obligation, such as a zero coupon bond, and the 12 proceeds from the obligation are received more than one year after 13 it is purchased or acquired by the trustee, the entire amount 14 received is principal under Section 627915. 15 16 Section 627909. (A) In this section, ‘undistributed income’ 17 means net income received before the date on which an income 18 interest ends. The term does not include an item of income or 19 expense that is due or accrued or net income that has been added or 20 must be added to principal under the terms of the trust. 21 (B) When a mandatory income interest ends, the trustee shall 22 pay to a mandatory income beneficiary who survives that date, or 23 the estate of a deceased mandatory income beneficiary whose 24 death causes the interest to end, the beneficiary’s share of the 25 undistributed income that is not disposed of under the terms of the 26 trust, unless the beneficiary has an unqualified power to revoke 27 more than five percent of the trust immediately before the income 28 interest ends. In that case, the undistributed income from the 29 portion of the trust that may be revoked must be added to 30 principal. 31 (C) When the obligation of a trustee to pay a fixed annuity or a 32 fixed fraction of the value of the trust assets ends, the trustee shall 33 prorate the final payment if, and to the extent, required by 34 applicable law to accomplish a purpose of the trust or its settlor 35 relating to income, gift, estate, or other tax requirements. 36 37 REPORTER’S COMMENT 38 39 Prior Acts. Both the 1931 Act (Section 4) and the 1962 Act 40 (Section 4(d)) provided that a deceased income beneficiary’s 41 estate is entitled to the undistributed income. The ULC Drafting 42 Committee for the 1997 Act concluded that this is probably not 43 what most settlors would want, and that, with respect to[1243] 661 1 undistributed income, most settlors would favor the income 2 beneficiary first, the remainder beneficiaries second, and the 3 income beneficiary’s heirs last, if at all. However, it decided not 4 to eliminate this provision to avoid causing disputes about whether 5 the trustee should have distributed collected cash before the 6 income beneficiary died. 7 Accrued periodic payments. Under the prior Acts, an income 8 beneficiary or his estate is entitled to receive a portion of any 9 payments, other than dividends, that are due or that have accrued 10 when the income interest terminates. The last sentence of 11 subsection (A) changes that rule by providing that such items are 12 not included in undistributed income. The items affected include 13 periodic payments of interest, rent, and dividends, as well as items 14 of income that accrue over a longer period of time; the rule also 15 applies to expenses that are due or accrued. 16 Example Accrued periodic payments. The rules in Sections 17 627908 and 909 work in the following manner: Assume that a 18 periodic payment of rent that is due on July 20 has not been paid 19 when an income interest ends on July 30; the successive income 20 interest begins on July 31, and the rent payment that was due on 21 July 20 is paid on August 3. Under Section 627908(A), the July 22 20 payment is added to the principal of the successive income 23 interest when received. Under Section 627909(B), the entire 24 periodic payment of rent that is due on August 20 is income when 25 received by the successive income interest. Under Section 26 627909, neither the income beneficiary of the terminated income 27 interest nor the beneficiary’s estate is entitled to any part of either 28 the July 20 or the August 20 payments because neither one was 29 received before the income interest ended on July 30. The same 30 principles apply to expenses of the trust. 31 Beneficiary with an unqualified power to revoke. The 32 requirement in subsection (B) to pay undistributed income to a 33 mandatory income beneficiary or his estate does not apply to the 34 extent the beneficiary has an unqualified power to revoke more 35 than five percent of the trust immediately before the income 36 interest ends. Without this exception, subsection (B) would apply 37 to a revocable living trust whose settlor is the mandatory income 38 beneficiary during her lifetime, even if her will provides that all of 39 the assets in the probate estate are to be distributed to the trust. 40 If a trust permits the beneficiary to withdraw all or a part of the 41 trust principal after attaining a specified age and the beneficiary 42 attains that age but fails to withdraw all of the principal that he is 43 permitted to withdraw, a trustee is not required to pay him or his[1243] 662 1 estate the undistributed income attributable to the portion of the 2 principal that he left in the trust. The assumption underlying this 3 rule is that the beneficiary has either provided for the disposition 4 of the trust assets (including the undistributed income) by 5 exercising a power of appointment that he has been given or has 6 not withdrawn the assets because he is willing to have the principal 7 and undistributed income be distributed under the terms of the 8 trust. If the beneficiary has the power to withdraw 25% of the trust 9 principal, the trustee must pay to him or his estate the undistributed 10 income from the 75% that he cannot withdraw. 11 12 Section 627910. (A) In this section, ‘entity’ means a 13 corporation, partnership, limited liability company, regulated 14 investment company, real estate investment trust, common trust 15 fund, or other organization in which a trustee has an interest other 16 than a trust or estate subject to Section 627911, a business or 17 activity to which Section 627912 applies, or an assetbacked 18 security to which Section 627924 applies. 19 (B) Except as otherwise provided in this section, a trustee shall 20 allocate to income money received from an entity. 21 (C) A trustee shall allocate the following receipts from an 22 entity to principal: 23 (1) property other than money; 24 (2) money received in one distribution or a series of related 25 distributions in exchange for part or all of a trust’s interest in the 26 entity; 27 (3) money received in total or partial liquidation of the 28 entity; and 29 (4) money received from an entity that is a regulated 30 investment company or a real estate investment trust if the money 31 distributed is a capital gain dividend for federal income tax 32 purposes. 33 (D) Money is received in partial liquidation: 34 (1) to the extent that the entity, at or near the time of a 35 distribution, indicates that it is a distribution in partial liquidation; 36 or 37 (2) if the total amount of money and property received in a 38 distribution or series of related distributions is greater than twenty 39 percent of the entity’s gross assets of the entity, as shown by the 40 yearend financial statements immediately preceding the initial 41 receipt. 42 (E) Money is not received in partial liquidation, nor may it be 43 taken into account pursuant to subsection (D)(2), to the extent that[1243] 663 1 it does not exceed the amount of income tax that a trustee or 2 beneficiary must pay on taxable income of the entity that 3 distributes the money. 4 (F) A trustee may rely upon a statement made by an entity 5 about the source or character of a distribution if the statement is 6 made at or near the time of distribution by the board of directors or 7 other person or group of persons authorized to exercise powers to 8 pay money or transfer property comparable to those of a 9 corporation’s board of directors. 10 11 REPORTER’S COMMENT 12 13 Entities to which Section 627910 applies. The reference to 14 partnerships in Section 627910(A) is intended to include all forms 15 of partnerships, including limited partnerships, limited liability 16 partnerships, and variants that have slightly different names and 17 characteristics from State to State. The section does not apply, 18 however, to receipts from an interest in property that a trust owns 19 as a tenant in common with one or more coowners, nor would it 20 apply to an interest in a joint venture if, under applicable law, the 21 trust’s interest is regarded as that of a tenant in common. 22 Capital gain dividends. ,If a capital gain dividend does not 23 include any net shortterm capital gain, cash received by a trust 24 because of a net shortterm capital gain is income under this Act. 25 Reinvested dividends. If a trustee elects (or continues an 26 election made by its predecessor) to reinvest dividends in shares of 27 stock of a distributing corporation or fund, whether evidenced by 28 new certificates or entries on the books of the distributing entity, 29 the new shares would be principal. Making or continuing such an 30 election would be equivalent to deciding under Section 627904 to 31 transfer income to principal in order to comply with Section 32 627903(B). However, if the trustee makes or continues the 33 election for a reason other than to comply with Section 627903(B), 34 e.g., to make an investment without incurring brokerage 35 commissions, the trustee should transfer cash from principal to 36 income in an amount equal to the reinvested dividends. 37 Distribution of property. The 1963 SC Act describes a number 38 of types of property that would be principal if distributed by a 39 corporation. This becomes unwieldy in a section that applies to 40 both corporations and all other entities. By stating that principal 41 includes the distribution of any property other than money, Section 42 627910 embraces all of the items enumerated in the 1963 SC Act[1243] 664 1 as well as any other form of nonmonetary distribution not 2 specifically mentioned in that Act. 3 Partial liquidations. Under subsection (D)(1) any distribution 4 designated by the entity as a partial liquidating distribution is 5 principal regardless of the percentage of total assets that it 6 represents. If a distribution exceeds twenty percent of the entity’s 7 gross assets, the entire distribution is a partial liquidation under 8 subsection (D)(2) whether or not the entity describes it as a partial 9 liquidation. In determining whether a distribution is greater than 10 twenty percent of the gross assets, the portion of the distribution 11 that does not exceed the amount of income tax that the trustee or a 12 beneficiary must pay on the entity’s taxable income is ignored. 13 Other large distributions. A cash distribution may be quite large 14 (for example, more than ten percent but not more than twenty 15 percent of the entity’s gross assets) and have characteristics that 16 suggest it should be treated as principal rather than income. For 17 example, an entity may have received cash from a source other 18 than the conduct of its normal business operations because it sold 19 an investment asset; or because it sold a business asset other than 20 one held for sale to customers in the normal course of its business 21 and did not replace it; or it borrowed a large sum of money and 22 secured the repayment of the loan with a substantial asset; or a 23 principal source of its cash was from assets such as mineral 24 interests, ninety percent of which would have been allocated to 25 principal if the trust had owned the assets directly. In such a case, 26 the trustee, after considering the total return from the portfolio as a 27 whole and the income component of that return, may decide to 28 exercise the power under Section 627904(A) to make an 29 adjustment between income and principal, subject to the 30 limitations in Section 627904(C). 31 32 Section 627911. A trustee shall allocate to income an amount 33 received as a distribution of income from a trust or an estate in 34 which the trust has an interest other than a purchased interest, and 35 shall allocate to principal an amount received as a distribution of 36 principal from such a trust or estate. If a trustee purchases an 37 interest in a trust that is an investment entity, or a decedent or 38 donor transfers an interest in such a trust to a trustee, Section 39 627910 or 627924 applies to a receipt from the trust. 40 41 REPORTER’S COMMENT 42[1243] 665 1 Terms of the distributing trust or estate. Under Section 2 627903(A) a trustee is to allocate receipts in accordance with the 3 terms of the recipient trust or, if there is no provision, in 4 accordance with this Act. However, in determining whether a 5 distribution from another trust or an estate is income or principal, 6 the trustee should also determine what the terms of the distributing 7 trust or estate say about the distribution for example, whether they 8 direct that the distribution, even though made from the income of 9 the distributing trust or estate, is to be added to principal of the 10 recipient trust. Such a provision should override the terms of this 11 Act, but if the terms of the recipient trust contain a provision 12 requiring such a distribution to be allocated to income, the trustee 13 may have to obtain a judicial resolution of the conflict between the 14 terms of the two documents. 15 Investment trusts. An investment entity to which the second 16 sentence of this Section 627911 applies includes a mutual fund, a 17 common trust fund, a business trust or other entity organized as a 18 trust for the purpose of receiving capital contributed by investors, 19 investing that capital, and managing investment assets, including 20 assetbacked security arrangements to which Section 627924 21 applies. See John H. Langbein, The Secret Life of the Trust: The 22 Trust as an Instrument of Commerce, 107 Yale L.J. 165 (1997). 23 24 Section 627912. (A) If a trustee who conducts a business or 25 other activity determines that it is in the best interest of all the 26 beneficiaries to account separately for the business or activity 27 instead of accounting for it as part of the general accounting 28 records of the trust, the trustee may maintain separate accounting 29 records for its transactions, whether or not its assets are segregated 30 from other trust assets. 31 (B) A trustee who accounts separately for a business or other 32 activity may determine the extent to which its net cash receipts 33 must be retained for working capital, the acquisition or 34 replacement of fixed assets, and other reasonably foreseeable 35 needs of the business or activity, and the extent to which the 36 remaining net cash receipts are accounted for as principal or 37 income in the trust’s general accounting records. If a trustee sells 38 assets of the business or other activity, other than in the ordinary 39 course of the business or activity, the trustee shall account for the 40 net amount received as principal in the general accounting records 41 of the trust to the extent the trustee determines that the amount 42 received is no longer required in the conduct of the business. [1243] 666 1 (C) Activities for which a trustee may maintain separate 2 accounting records include: 3 (1) retail, manufacturing, service, and other traditional 4 business activities; 5 (2) farming; 6 (3) raising and selling livestock and other animals; 7 (4) management of rental properties; 8 (5) extraction of minerals and other natural resources; 9 (6) timber operations; and 10 (7) activities subject to Section 627923. 11 12 REPORTER’S COMMENT 13 14 Purpose and scope. The provisions in Section 627912 are 15 intended to give greater flexibility to a trustee who operates a 16 business or other activity in proprietorship form rather than in a 17 whollyowned corporation (or, where permitted by state law, a 18 singlemember limited liability company), and to facilitate the 19 trustee’s ability to decide the extent to which the net receipts from 20 the activity should be allocated to income, just as the board of 21 directors of a corporation owned entirely by the trust would decide 22 the amount of the annual dividend to be paid to the trust. It 23 permits a trustee to account for farming or livestock operations, 24 rental properties, oil and gas properties, timber operations, and 25 activities in derivatives and options as though they were held by a 26 separate entity. It is not intended, however, to permit a trustee to 27 account separately for a traditional securities portfolio to avoid the 28 provisions of this Act that apply to such securities. 29 Section 627912 permits the trustee to account separately for 30 each business or activity for which the trustee determines separate 31 accounting is appropriate. A trustee with a computerized 32 accounting system may account for these activities in a “subtrust”; 33 an individual trustee may continue to use the business and 34 recordkeeping methods employed by the decedent or transferor 35 who may have conducted the business under an assumed name. 36 The intent of this section is to give the trustee broad authority to 37 select business recordkeeping methods that best suit the activity in 38 which the trustee is engaged. 39 If a fiduciary liquidates a sole proprietorship or other activity to 40 which Section 627912 applies, the proceeds would be added to 41 principal, even though derived from the liquidation of accounts 42 receivable, because the proceeds would no longer be needed in the 43 conduct of the business. If the liquidation occurs during probate or[1243] 667 1 during an income interest’s winding up period, none of the 2 proceeds would be income for purposes of Section 627905. 3 Separate accounts. A trustee may or may not maintain separate 4 bank accounts for business activities that are accounted for under 5 Section 627912. A professional trustee may decide not to maintain 6 separate bank accounts, but an individual trustee, especially one 7 who has continued a decedent’s business practices, may continue 8 the same banking arrangements that were used during the 9 decedent’s lifetime. In either case, the trustee is authorized to 10 decide to what extent cash is to be retained as part of the business 11 assets and to what extent it is to be transferred to the trust’s general 12 accounts, either as income or principal. 13 14 Section 627913. A trustee shall allocate to principal: 15 (1) to the extent not allocated to income pursuant to this part, 16 assets received from a transferor during his lifetime, a decedent’s 17 estate, a trust with a terminating income interest, or a payer under a 18 contract naming the trust or its trustee as beneficiary; 19 (2) money or other property received from the sale, exchange, 20 liquidation, or change in form of a principal asset, including 21 realized profit; 22 (3) amounts recovered from third parties to reimburse the trust 23 because of disbursements described in Section 627926(A)(7) or for 24 other reasons to the extent not based on the loss of income; 25 (4) proceeds of property taken by eminent domain, but a 26 separate award made for the loss of income with respect to an 27 accounting period during which a current income beneficiary had a 28 mandatory income interest is income; 29 (5) net income received in an accounting period during which 30 there is no beneficiary to whom a trustee may or must distribute 31 income; and 32 (6) other receipts as provided in Sections 627917 through 33 627924. 34 35 REPORTER’S COMMENT 36 37 Eminent domain awards. Even though the award in an eminent 38 domain proceeding may include an amount for the loss of future 39 rent on a lease, if that amount is not separately stated, the entire 40 award is principal. The rule is the same in the 1931 and 1962 Acts 41 and in the 1963 SC Act (Section 627406(2)). 42[1243] 668 1 Section 627914. To the extent that a trustee accounts for 2 receipts from rental property pursuant to this section, the trustee 3 shall allocate to income an amount received as rent of real or 4 personal property, including an amount received for cancellation 5 or renewal of a lease. An amount received as a refundable deposit, 6 including a security deposit or a deposit applied as rent for future 7 periods, must be added to principal and held subject to the terms of 8 the lease and is not available for distribution to a beneficiary until 9 the trustee’s contractual obligations have been satisfied with 10 respect to that amount. 11 12 REPORTER’S COMMENT 13 14 Application of Section 627912. This section applies to the extent 15 that the trustee does not account separately under Section 627912 16 for the management of rental properties owned by the trust. 17 Receipts that are capital in nature. A portion of the payment 18 under a lease may be a reimbursement of principal expenditures 19 for improvements to the leased property that is characterized as 20 rent for purposes of invoking contractual or statutory remedies for 21 nonpayment. If the trustee is accounting for rental income under 22 Section 627914, a transfer from income to reimburse principal may 23 be appropriate under Section 627904 to the extent that some of the 24 “rent” is really a reimbursement for improvements. This set of 25 facts could also be a relevant factor for a trustee to consider under 26 Section 627904 (B) in deciding whether and to what extent to 27 make an adjustment between principal and income under Section 28 627904(A) after considering the return from the portfolio as a 29 whole. 30 31 Section 627915. (A) An amount received as interest, whether 32 determined at a fixed, variable, or floating rate, on an obligation to 33 pay money to the trustee, including an amount received as 34 consideration for prepaying principal, must be allocated to income 35 without provision for amortization of premium. 36 (B) A trustee shall allocate to principal an amount received 37 from the sale, redemption, or other disposition of an obligation to 38 pay money to the trustee more than one year after it is purchased 39 or acquired by the trustee, including an obligation whose purchase 40 price or value when it is acquired is less than its value at maturity. 41 If the obligation matures within one year after it is purchased or 42 acquired by the trustee, an amount received in excess of its[1243] 669 1 purchase price or its value when acquired by the trust must be 2 allocated to income. 3 (C) This section does not apply to an obligation subject to 4 Section 627918, 627919, 627920, 627921, or 627924. 5 6 REPORTER’S COMMENT 7 8 Variable or floating interest rates. The reference in subsection 9 (A) to variable or floating interest rate obligations is intended to 10 clarify that, even though an obligation’s interest rate may change 11 from time to time based upon changes in an index or other market 12 indicator, an obligation to pay money containing a variable or 13 floating rate provision is subject to this section and is not to be 14 treated as a derivative financial instrument under Section 627923. 15 Discount obligations. Subsection (B) applies to all obligations 16 acquired at a discount, including shortterm obligations such as 17 U.S. Treasury Bills, longterm obligations such as U.S. Savings 18 Bonds, zerocoupon bonds, and discount bonds that pay interest 19 during part, but not all, of the period before maturity. Under 20 subsection (B) the entire increase in value of these obligations is 21 principal when the trustee receives the proceeds from the 22 disposition unless the obligation, when acquired, has a maturity of 23 less than one year. In order to have one rule that applies to all 24 discount obligations, this Act eliminates the provision in the 1962 25 Act for the payment from principal of an amount equal to the 26 increase in the value of U.S. Series E bonds. 27 Subsection (B) also applies to inflationindexed bonds any 28 increase in principal due to inflation after issuance is principal 29 upon redemption if the bond matures more than one year after the 30 trustee acquires it; if it matures within one year, all of the increase, 31 including any attributable to an inflation adjustment, is income. 32 Effect of Section 627904. In deciding whether and to what 33 extent to exercise the power to adjust between principal and 34 income granted by Section 627904(A) a relevant factor for the 35 trustee to consider is the effect on the portfolio as a whole of 36 having a portion of the assets invested in bonds that do not pay 37 interest currently. 38 39 Section 627916. (A) Except as otherwise provided in 40 subsection (B), a trustee shall allocate to principal the proceeds of 41 a life insurance policy or other contract in which the trust or its 42 trustee is named as beneficiary, including a contract that insures 43 the trust or its trustee against loss for damage to, destruction of, or[1243] 670 1 loss of title to a trust asset. The trustee shall allocate dividends on 2 an insurance policy to income if the premiums on the policy are 3 paid from income, and to principal if the premiums are paid from 4 principal. 5 (B) A trustee shall allocate to income proceeds of a contract 6 that insures the trustee against loss of occupancy or other use by an 7 income beneficiary, loss of income, or, subject to Section 627912, 8 loss of profits from a business. 9 (C) This section does not apply to a contract subject to Section 10 627918. 11 12 Section 627917. If a trustee determines that an allocation 13 between principal and income required by Section 627918, 14 627919, 627920, 627921, or 627924 is insubstantial, the trustee 15 may allocate the entire amount to principal unless one of the 16 circumstances provided in Section 627904(C) applies to the 17 allocation. This power may be exercised by a cotrustee in the 18 circumstances provided in Section 627904(D) and may be released 19 for the reasons and in the manner provided in Section 627904(E). 20 An allocation is presumed to be insubstantial if: 21 (1) the amount of the allocation increases or decreases net 22 income in an accounting period, as determined before the 23 allocation, by less than ten percent; or 24 (2) the value of the asset producing the receipt for which the 25 allocation is made is less than ten percent of the total value of the 26 assets of the trust at the beginning of the accounting period. 27 28 REPORTER’S COMMENTS 29 30 This section is intended to relieve a trustee from making 31 relatively small allocations while preserving the trustee’s right to 32 do so if an allocation is large in terms of absolute dollars. 33 For example, assume that a trust’s assets, which include a 34 working interest in an oil well, have a value of $1,000,000; the net 35 income from the assets other than the working interest is $40,000; 36 and the net receipts from the working interest are $400. The 37 trustee may allocate all of the net receipts from the working 38 interest to principal instead of allocating ten percent or $40, to 39 income under Section 627920. If the net receipts from the working 40 interest are $35,000, so that the amount allocated to income under 41 Section 627920 would be $3,500, the trustee may decide that this 42 amount is sufficiently significant to the income beneficiary that the 43 allocation provided for by Section 627920 should be made, even[1243] 671 1 though the trustee is still permitted under Section 627917 to 2 allocate all of the net receipts to principal because the $3,500 3 would increase the net income of $40,000, as determined before 4 making an allocation under Section 627920 by less than ten 5 percent. Section 627917 will also relieve a trustee from having to 6 allocate net receipts from the sale of trees in a small woodlot 7 between principal and income. 8 While the allocation to principal of small amounts under this 9 section should not be a cause for concern for tax purposes, 10 allocations are not permitted under this section in circumstances 11 described in Section 627904 (C) to eliminate claims that the power 12 in this section has adverse tax consequences. 13 14 Section 627918. (A) In this section, ‘payment’ means a 15 payment that a trustee may receive over a fixed number of years or 16 during the life of one or more individuals because of services 17 rendered or property transferred to the payer in exchange for future 18 payments. The term includes a payment made in money or 19 property from the payer’s general assets or from a separate fund 20 created by the payer, including a private or commercial annuity, an 21 individual retirement account, and a pension, profitsharing, 22 stockbonus, or stockownership plan. 23 (B) To the extent that a payment is characterized as interest or a 24 dividend or a payment made instead of interest or a dividend, a 25 trustee shall allocate it to income. The trustee shall allocate to 26 principal the balance of the payment and any other payment 27 received in the same accounting period that is not characterized as 28 interest, a dividend, or an equivalent payment. 29 (C) If part of a payment is not characterized as interest, a 30 dividend, or an equivalent payment, and all or part of the payment 31 is required to be made, a trustee shall allocate to income ten 32 percent of the part that is required to be made during the 33 accounting period and the balance to principal. If a part of a 34 payment is not required to be made or the payment received is the 35 entire amount to which the trustee is entitled, the trustee shall 36 allocate the entire payment to principal. For purposes of this 37 subsection, a payment is not ‘required to be made’ to the extent 38 that it is made because the trustee exercises a right of withdrawal. 39 (D) If, to obtain an estate tax marital deduction for a trust, a 40 trustee must allocate more of a payment to income than provided 41 for by this section, the trustee shall allocate to income the 42 additional amount necessary to obtain the marital deduction. [1243] 672 1 (E) This section does not apply to payments subject to Section 2 627919. 3 4 REPORTER’S COMMENT 5 6 Scope. Section 627918 applies to amounts received under 7 contractual arrangements that provide for payments to a third party 8 beneficiary as a result of services rendered or property transferred 9 to the payer. While the right to receive such payments is a 10 liquidating asset of the kind described in Section 627919 i.e., “an 11 asset whose value will diminish or terminate because the asset is 12 expected to produce receipts for a period of limited duration,” 13 these payment rights are covered separately in Section 627918 14 because of their special characteristics. 15 Section 627918 applies to receipts from all forms of annuities 16 and deferred compensation arrangements, whether the payment 17 will be received by the trust in a lump sum or in installments over 18 a period of years. It applies to bonuses that may be received over 19 two or three years and payments that may last for much longer 20 periods, including payments from an individual retirement account 21 (IRA), deferred compensation plan (whether qualified or not 22 qualified for special federal income tax treatment), and insurance 23 renewal commissions. It applies to a retirement plan to which the 24 settlor has made contributions, just as it applies to an annuity 25 policy that the settlor may have purchased individually, and it 26 applies to variable annuities, deferred annuities, annuities issued 27 by commercial insurance companies, and “private annuities” 28 arising from the sale of property to another individual or entity in 29 exchange for payments that are to be made for the life of one or 30 more individuals. The section applies whether the payments begin 31 when the payment right becomes subject to the trust or are 32 deferred until a future date, and it applies whether payments are 33 made in cash or in kind, such as employer stock (inkind payments 34 usually will be made in a single distribution that will be allocated 35 to principal under the second sentence of subsection (C). 36 Prior Acts. Under Section 12 of the 1962 Act and Section 37 627414 of the 1963 SC Act, receipts from “rights to receive 38 payments on a contract for deferred compensation” are allocated to 39 income each year in an amount “not in excess of 5% per year” of 40 the property’s inventory value. While “not in excess of 5%” 41 suggests that the annual allocation may range from zero to five 42 percent of the inventory value, in practice the rule is usually 43 treated as prescribing a five percent allocation. The inventory[1243] 673 1 value is usually the present value of all the future payments, and 2 since the inventory value is determined as of the date on which the 3 payment right becomes subject to the trust, the inventory value, 4 and thus the amount of the annual income allocation, depends 5 significantly on the applicable interest rate on the decedent’s date 6 of death. That rate may be much higher or lower than the average 7 longterm interest rate. The amount determined under the five 8 percent formula tends to become fixed and remain unchanged even 9 though the amount received by the trust increases or decreases. 10 Allocations Under Section 627918(B). Section 627918(B) 11 applies to plans whose terms characterize payments made under 12 the plan as dividends, interest, or payments in lieu of dividends or 13 interest. For example, some deferred compensation plans that hold 14 debt obligations or stock of the plan’s sponsor in an account for 15 future delivery to the person rendering the services provide for the 16 annual payment to that person of dividends received on the stock 17 or interest received on the debt obligations. Other plans provide 18 that the account of the person rendering the services shall be 19 credited with “phantom” shares of stock and require an annual 20 payment that is equivalent to the dividends that would be received 21 on that number of shares if they were actually issued; or a plan 22 may entitle the person rendering the services to receive a fixed 23 dollar amount in the future and provide for the annual payment of 24 interest on the deferred amount during the period prior to its 25 payment. Under Section 627918(B) payments of dividends, 26 interest or payments in lieu of dividends or interest under plans of 27 this type are allocated to income; all other payments received 28 under these plans are allocated to principal. 29 Section 627918(B) does not apply to an IRA or an arrangement 30 with payment provisions similar to an IRA. IRAs and similar 31 arrangements are subject to the provisions in Section 627918(C). 32 Allocations Under Section 627918(C). The focus of Section 33 627918, for purposes of allocating payments received by a trust to 34 or between principal and income, is on the payment right rather 35 than on assets that may be held in a fund from which the payments 36 are made. Thus, if an IRA holds a portfolio of marketable stocks 37 and bonds, the amount received by the IRA as dividends and 38 interest is not taken into account in determining the principal and 39 income allocation except to the extent that the Internal Revenue 40 Service may require them to be taken into account when the 41 payment is received by a trust that qualifies for the estate tax 42 marital deduction (a situation that is provided for in Section 43 627918(D). An IRA is subject to federal income tax rules that[1243] 674 1 require payments to begin by a particular date and be made over a 2 specific number of years or a period measured by the lives of one 3 or more persons. The payment right of a trust that is named as a 4 beneficiary of an IRA is not a right to receive particular items that 5 are paid to the IRA, but is instead the right to receive an amount 6 determined by dividing the value of the IRA by the remaining 7 number of years in the payment period. This payment right is 8 similar to the right to receive a unitrust amount, which is normally 9 expressed as an amount equal to a percentage of the value of the 10 unitrust assets without regard to dividends or interest that may be 11 received by the unitrust. 12 An amount received from an IRA or a plan with a payment 13 provision similar to that of an IRA is allocated under Section 14 627918(C) which differentiates between payments that are 15 required to be made and all other payments. To the extent that a 16 payment is required to be made (either under federal income tax 17 rules or, in the case of a plan that is not subject to those rules, 18 under the terms of the plan), ten percent of the amount received is 19 allocated to income and the balance is allocated to principal. All 20 other payments are allocated to principal because they represent a 21 change in the form of a principal asset; Section 627918 follows the 22 rule in Section 627913(2) which provides that money or property 23 received from a change in the form of a principal asset be allocated 24 to principal. 25 Section 627918(C) produces an allocation to income that is 26 similar to the allocation under the 1962 Act formula and the 1963 27 SC Act formula if the annual payments are the same throughout 28 the payment period, and it is simpler to administer. The amount 29 allocated to income under Section 627918 is not dependent upon 30 the interest rate that is used for valuation purposes when the 31 decedent dies, and if the payments received by the trust increase or 32 decrease from year to year because the fund from which the 33 payment is made increases or decreases in value, the amount 34 allocated to income will also increase or decrease. 35 36 Section 627919. (A) In this section, ‘liquidating asset’ means 37 an asset whose value diminishes or terminates because the asset is 38 expected to produce receipts for a period of limited duration. The 39 term includes a leasehold, patent, copyright, royalty right, and 40 right to receive payments during a period of more than one year 41 under an arrangement that does not provide for the payment of 42 interest on the unpaid balance. The term does not include a 43 payment subject to Section 627918, resources subject to Section[1243] 675 1 627920, timber subject to Section 627921, an activity subject to 2 Section 627923, an asset subject to Section 627924, or any asset 3 for which the trustee establishes a reserve for depreciation 4 pursuant to Section 627927. 5 (B) A trustee shall allocate to income ten percent of the receipts 6 from a liquidating asset and the balance to principal. 7 8 REPORTER’S COMMENT 9 10 Prior Acts. Section 11 of the 1962 Act (Section 627414 of the 11 1963 SC Act) allocates receipts from “property subject to 12 depletion” to income in an amount “not in excess of 5%” of the 13 asset’s inventory value. The 1931 Act has a similar five percent 14 rule that applies when the trustee is under a duty to change the 15 form of the investment. The five percent rule imposes on a trust 16 the obligation to pay a fixed annuity to the income beneficiary 17 until the asset is exhausted. Under these prior Acts the balance of 18 each year’s receipts is added to principal. A fixed payment can 19 produce unfair results. The remainder beneficiary receives all of 20 the receipts from unexpected growth in the asset, e.g., if royalties 21 on a patent or copyright increase significantly. Conversely, if the 22 receipts diminish more rapidly than expected, most of the amount 23 received by the trust will be allocated to income and little to 24 principal. Moreover, if the annual payments remain the same for 25 the life of the asset, the amount allocated to principal will usually 26 be less than the original inventory value. For these reasons, 27 Section 627919 abandons the annuity approach under the five 28 percent rule. 29 Lottery payments. The reference in subsection (A) to rights to 30 receive payments under an arrangement that does not provide for 31 the payment of interest includes state lottery prizes and similar 32 fixed amounts payable over time that are not deferred 33 compensation arrangements covered by Section 627918. 34 35 Section 627920. (A) To the extent that a trustee accounts for 36 receipts from an interest in minerals or other natural resources 37 pursuant to this section, the trustee shall allocate them if: 38 (1) received as nominal delay rental or nominal annual rent 39 on a lease, a receipt must be allocated to income; 40 (2) received from a production payment, a receipt must be 41 allocated to income if and to the extent that the agreement creating 42 the production payment provides a factor for interest or its 43 equivalent. The balance must be allocated to principal; [1243] 676 1 (3) an amount received as a royalty, shutinwell payment, 2 takeorpay payment, bonus, or delay rental is more than nominal, 3 ninety percent must be allocated to principal and the balance to 4 income; 5 (4) an amount is received from a working interest or any 6 other interest not otherwise provided for in this subsection, ninety 7 percent of the net amount received must be allocated to principal 8 and the balance to income. 9 (B) An amount received on account of an interest in water that 10 is renewable must be allocated to income. If the water is not 11 renewable, ninety percent of the amount must be allocated to 12 principal and the balance to income. 13 (C) This part applies whether or not a decedent or donor was 14 extracting minerals, water, or other natural resources before the 15 interest became subject to the trust. 16 (D) If a trust owns an interest in minerals, water, or other 17 natural resources on the effective date of this part, the trustee may 18 allocate receipts from the interest as provided in this part or in the 19 manner used by the trustee before the effective date of this part. If 20 the trust acquires an interest in minerals, water, or other natural 21 resources after the effective date of this part, the trustee shall 22 allocate receipts from the interest as provided in this part. 23 24 REPORTER’S COMMENT 25 26 Prior Acts. The 1962 Act and the 1963 SC Act allocate to 27 principal as a depletion allowance, twenty seven and onehalf 28 percent of the gross receipts, but not more than fifty percent of the 29 net receipts after paying expenses. Section 9 of the 1931 Act 30 allocates all of the net proceeds received as consideration for the 31 “permanent severance of natural resources from the lands” to 32 principal. 33 Section 627920 allocates ninety percent of the net receipts to 34 principal and ten percent to income. A depletion provision that is 35 tied to past or present Code provisions is undesirable because it 36 causes a large portion of the oil and gas receipts to be paid out as 37 income. As wells are depleted, the amount received by the income 38 beneficiary falls drastically. Allocating a larger portion of the 39 receipts to principal enables the trustee to acquire other income 40 producing assets that will continue to produce income when the 41 mineral reserves are exhausted. 42 Application of Sections 627912 and 917. This Section 627920 43 applies to the extent that the trustee does not account separately for[1243] 677 1 receipts from minerals and other natural resources under Section 2 627912 or allocate all of the receipts to principal under Section 3 627917. 4 Open mine doctrine. The purpose of Section 627920(C) is to 5 abolish the “open mine doctrine” as it may apply to the rights of an 6 income beneficiary and a remainder beneficiary in receipts from 7 the production of minerals from land owned or leased by a trust. 8 Instead, such receipts are to be allocated to or between principal 9 and income in accordance with the provisions of this Act. For a 10 discussion of the open mine doctrine, see generally 3A Austin W. 11 Scott & William F. Fratcher, The Law of Trusts §239.3 (4th ed. 12 1988), and Nutter v. Stockton, 626 P.2d 861 (Okla. 1981). 13 Effective date provision. Section 9(b) of the 1962 Act and 14 Section 4122(b) of the SC Act provide that the natural resources 15 provision does not apply to property interests held by the trust on 16 the effective date of the Act, which reflects concerns about the 17 constitutionality of applying a retroactive administrative provision 18 to interests in real estate, based on the opinion in the Oklahoma 19 case of Franklin v. Margay Oil Corporation, 153 P.2d 486, 501 20 (Okla. 1944). Section 627920(D) permits a trustee to use either 21 the method provided for in this Act or the method used before the 22 Act takes effect. Lawyers in jurisdictions other than Oklahoma 23 may conclude that retroactivity is not a problem as to property 24 situated in their States, and this provision permits trustees to 25 decide, based on advice from counsel in States whose law may be 26 different from that of Oklahoma, whether they may apply this 27 provision retroactively if they conclude that to do so is in the best 28 interests of the beneficiaries. 29 If the property is in a State other than the State where the trust is 30 administered, the trustee must be aware that the law of the 31 property’s situs may control this question. The outcome turns on a 32 variety of questions: whether the terms of the trust specify that the 33 law of a State other than the situs of the property shall govern the 34 administration of the trust, and whether the courts will follow the 35 terms of the trust; whether the trust’s asset is the land itself or a 36 leasehold interest in the land (as it frequently is with oil and gas 37 property); whether a leasehold interest or its proceeds should be 38 classified as real property or personal property, and if as personal 39 property, whether applicable state law treats it as a movable or an 40 immovable for conflict of laws purposes. See 5A Austin W. Scott 41 & William F. Fratcher, The Law of Trusts Sections 648, at 531, 42 533534; Sec 657, at 600 (4th ed. 1989). 43[1243] 678 1 Section 627921. (A) To the extent that a trustee accounts for 2 receipts from the sale of timber and related products pursuant to 3 this section, the trustee shall allocate the net receipts to: 4 (1) income, to the extent that the amount of timber removed 5 from the land does not exceed the rate of growth of the timber 6 during the accounting periods in which a beneficiary has a 7 mandatory income interest; 8 (2) principal, to the extent that the amount of timber 9 removed from the land exceeds the rate of growth of the timber or 10 the net receipts are from the sale of standing timber; 11 (3) or between income and principal, if the net receipts are 12 from the lease of timberland or from a contract to cut timber from 13 land owned by a trust, by determining the amount of timber 14 removed from the land under the lease or contract and applying 15 items (1) and (2); or 16 (4) principal, to the extent that advance payments, bonuses, 17 and other payments are not otherwise allocated pursuant to this 18 subsection. 19 (B) In determining net receipts to be allocated pursuant to 20 subsection (A), a trustee shall deduct and transfer to principal a 21 reasonable amount for depletion. 22 (C) This part applies whether or not a decedent or transferor 23 was harvesting timber from the property before it became subject 24 to the trust. 25 (D) If a trust owns an interest in timberland on the effective 26 date of this part, the trustee may allocate net receipts from the sale 27 of timber and related products as provided in this part or in the 28 manner used by the trustee before the effective date of this part. If 29 the trust acquires an interest in timberland after the effective date 30 of this part, the trustee shall allocate net receipts from the sale of 31 timber and related products as provided in this part. 32 33 REPORTER’S COMMENT 34 35 Scope of section. The rules in Section 627921 are intended to 36 apply to net receipts from the sale of trees and byproducts from 37 harvesting and processing trees without regard to the kind of trees 38 that are cut or whether the trees are cut before or after a particular 39 number of years of growth. The rules apply to the sale of trees that 40 are expected to produce lumber for building purposes, trees sold as 41 pulpwood, and Christmas and other ornamental trees. Subsection 42 (A) applies to net receipts from property owned by the trustee and 43 property leased by the trustee. The Act is not intended to prevent a[1243] 679 1 tenant in possession of the property from using wood that he cuts 2 on the property for personal, noncommercial purposes, such as a 3 Christmas tree, firewood, mending old fences or building new 4 fences, or making repairs to structures on the property. 5 Under subsection (A) the amount of net receipts allocated to 6 income depends upon whether the amount of timber removed is 7 more or less than the rate of growth. The method of determining 8 the amount of timber removed and the rate of growth is up to the 9 trustee, based on methods customarily used for the kind of timber 10 involved. 11 Application of Sections 627912 and 917. This Section 627921 12 applies to the extent that the trustee does not account separately for 13 net receipts from the sale of timber and related products under 14 Section 627912 or allocate all of the receipts to principal under 15 Section 627917. The option to account for net receipts separately 16 under Section 627912 takes into consideration the possibility that 17 timber harvesting operations may have been conducted before the 18 timber property became subject to the trust, and that it may make 19 sense to continue using accounting methods previously established 20 for the property. It also permits a trustee to use customary 21 accounting practices for timber operations even if no harvesting 22 occurred on the property before it became subject to the trust. 23 24 Section 627922. (A) If a marital deduction is allowed for all or 25 part of a trust whose assets consist substantially of property that 26 does not provide the surviving spouse with sufficient income from 27 or use of the trust assets, and if the amounts that the trustee 28 transfers from principal to income pursuant to Section 627904 and 29 distributes to the spouse from principal pursuant to the terms of the 30 trust are insufficient to provide the spouse with the beneficial 31 enjoyment required to obtain the marital deduction, the spouse 32 may require the trustee to make property productive of income, 33 convert property within a reasonable time, or exercise the power in 34 Section 627904(A). The trustee may decide which action or 35 combination of actions to take. 36 (B) If subsection (A) is inapplicable, proceeds from the sale or 37 other disposition of an asset are principal without regard to the 38 amount of income the asset produces during any accounting 39 period. 40 41 REPORTER’S COMMENT 42[1243] 680 1 Prior Acts’ Conflict with the South Carolina Uniform Prudent 2 Investor Act. Section 627933(C)(2) of SCUPIA provides that “[a] 3 trustee’s investment and management decisions respecting 4 individual assets must be evaluated not in isolation but in the 5 context of the trust portfolio as a whole ... .” The underproductive 6 property provisions in Section 12 of the 1962 Act, Section 627415 7 of the 1963 SC Act, and Section 11 of the 1931 Act give the 8 income beneficiary a right to receive a portion of the proceeds 9 from the sale of underproductive property as “delayed income.” In 10 each Act the provision applies on an asset by asset basis and not by 11 taking into consideration the trust portfolio as a whole, which 12 conflicts with the basic precept in Section 627933(C)(2) of 13 SCUPIA. Moreover, in determining the amount of delayed 14 income, the prior Acts do not permit a trustee to take into account 15 the extent to which the trustee may have distributed principal to 16 the income beneficiary, under principal invasion provisions in the 17 terms of the trust, to compensate for insufficient income from the 18 unproductive asset. Under Section 627904(B)(7) of this Act, a 19 trustee must consider prior distributions of principal to the income 20 beneficiary in deciding whether and to what extent to exercise the 21 power to adjust conferred by Section 627904(A). 22 Duty to make property productive of income. In order to 23 implement SCUPIA, this Act abolishes the right to receive delayed 24 income from the sale proceeds of an asset that produces little or no 25 income, but it does not alter existing state law regarding the 26 income beneficiary’s right to compel the trustee to make property 27 productive of income. As the law continues to develop in this 28 area, the duty to make property productive of current income in a 29 particular situation should be determined by taking into 30 consideration the performance of the portfolio as a whole and the 31 extent to which a trustee makes principal distributions to the 32 income beneficiary under the terms of the trust and adjustments 33 between principal and income under Section 627904 of this Act. 34 Trusts for which the value of the right to receive income is 35 important for tax reasons may be affected by Reg. Sec 1.75203(b) 36 (2)(v) Example (1), Sec 20.75203(b)(2)(v) Examples (1) and (2), 37 and Sec 25.75203(b)(2)(v) Examples (1) and (2), which provide 38 that if the income beneficiary does not have the right to compel the 39 trustee to make the property productive, the income interest is 40 considered unproductive and may not be valued actuarially under 41 those sections. 42 Marital deduction trusts. Subsection (A) draws on language in 43 Reg. Sec 20.2056(b)5(f)(4) and (5) to enable a trust for a spouse to[1243] 681 1 qualify for a marital deduction if applicable state law is unclear 2 about the spouse’s right to compel the trustee to make property 3 productive of income. The trustee should also consider the 4 application of Section 627904 of this Act and the provisions of 5 Restatement of Trusts 3d: Prudent Investor Rule Sec 240, at 186, 6 app. Sec 240, at 252 (1992). Example (6) in the Comment to 7 Section 627904 describes a situation involving the payment from 8 income of carrying charges on unproductive real estate in which 9 Section 627904 may apply. 10 Once the two conditions have occurred insufficient beneficial 11 enjoyment from the property and the spouse’s demand that the 12 trustee take action under this section the trustee must act; but 13 instead of the formulaic approach of both the 1962 and the 1963 14 SC Acts which is triggered only if the trustee sells the property, 15 this Act permits the trustee to decide whether to make the property 16 productive of income, convert it, transfer funds from principal to 17 income, or to take some combination of those actions. The trustee 18 may rely on the power conferred by Section 627904(A) to adjust 19 from principal to income if the trustee decides that it is not feasible 20 or appropriate to make the property productive of income or to 21 convert the property. Given the purpose of Section 627922 the 22 power under Section 627904(A) would be exercised to transfer 23 principal to income and not to transfer income to principal. 24 Section 627922 does not apply to a socalled “estate” trust, which 25 will qualify for the marital deduction, even though the income may 26 be accumulated for a term of years or for the life of the surviving 27 spouse, if the terms of the trust require the principal and 28 undistributed income to be paid to the surviving spouse’s estate 29 when the spouse dies. Reg. Sec 20.2056(c)2(b)(1)(iii). 30 31 Section 627923. (A) In this section, ‘derivative’ means a 32 contract or financial instrument or a combination of contracts and 33 financial instruments which gives a trust the right or obligation to 34 participate in some or all changes in the price of a tangible or 35 intangible asset or group of assets, or changes in a rate, an index of 36 prices or rates, or other market indicator for an asset or a group of 37 assets. 38 (B) To the extent that a trustee does not account pursuant to 39 Section 627912 for transactions in derivatives, the trustee shall 40 allocate to principal receipts from and disbursements made in 41 connection with those transactions. 42 (C) If a trustee grants an option to buy property from the trust, 43 whether or not the trust owns the property when the option is[1243] 682 1 granted, grants an option that permits another person to sell 2 property to the trust, or acquires an option to buy property for the 3 trust or an option to sell an asset owned by the trust, and the trustee 4 or other owner of the asset is required to deliver the asset if the 5 option is exercised, an amount received for granting the option 6 must be allocated to principal. An amount paid to acquire the 7 option must be paid from principal. A gain or loss realized upon 8 the exercise of an option, including an option granted to a settlor of 9 the trust for services rendered, must be allocated to principal. 10 11 REPORTER’S COMMENT 12 13 Scope and application. It is difficult to predict how frequently 14 and to what extent trustees will invest directly in derivative 15 financial instruments rather than participating indirectly through 16 investment entities that may utilize these instruments in varying 17 degrees. If the trust participates in derivatives indirectly through 18 an entity, an amount received from the entity will be allocated 19 under Section 627910 and not Section 627923. If a trustee invests 20 directly in derivatives to a significant extent, the expectation is that 21 receipts and disbursements related to derivatives will be accounted 22 for under Section 627912; if a trustee chooses not to account under 23 Section 627912. Section 627923(B) provides the default rule. 24 Certain types of option transactions in which trustees may engage 25 are dealt with in subsection (C) to distinguish those transactions 26 from ones involving options that are embedded in derivative 27 financial instruments. 28 Definition of “derivative.” “Derivative” is a difficult term to 29 define because new derivatives are invented daily as dealers tailor 30 their terms to achieve specific financial objectives for particular 31 clients. Since derivatives are typically contractbased, a derivative 32 can probably be devised for almost any set of objectives if another 33 party can be found who is willing to assume the obligations 34 required to meet those objectives. 35 The most comprehensive definition of derivative is in the 36 Exposure Draft of a Proposed Statement of Financial Accounting 37 Standards titled “Accounting for Derivative and Similar Financial 38 Instruments and for Hedging Activities,” which was released by 39 the Financial Accounting Standards Board (FASB) on June 20, 40 1996 (No. 162B). The definition in Section 627923(A) is derived 41 in part from the FASB definition. The purpose of the definition in 42 subsection (A) is to implement the substantive rule in subsection 43 (B) that provides for all receipts and disbursements to be allocated[1243] 683 1 to principal to the extent the trustee elects not to account for 2 transactions in derivatives under Section 627912. As a result, it is 3 much shorter than the FASB definition, which serves much more 4 ambitious objectives. 5 A derivative is frequently described as including futures, 6 forwards, swaps and options, terms that also require definition, and 7 the definition in this Act avoids these terms. FASB used the same 8 approach, explaining in paragraph 65 of the Exposure Draft: 9 The definition of derivative financial instrument in this 10 Statement includes those financial instruments generally 11 considered to be derivatives, such as forwards, futures, swaps, 12 options, and similar instruments. The Board considered defining a 13 derivative financial instrument by merely referencing those 14 commonly understood instruments, similar to paragraph 5 of 15 Statement 119, which says that “... a derivative financial 16 instrument is a futures, forward, swap, or option contract, or other 17 financial instrument with similar characteristics.” However, the 18 continued development of financial markets and innovative 19 financial instruments could ultimately render a definition based on 20 examples inadequate and obsolete. The ULC , therefore, decided 21 to base the definition of a derivative financial instrument on a 22 description of the common characteristics of those instruments in 23 order to accommodate the accounting for newly developed 24 derivatives. (Footnote omitted.) 25 Marking to market. A gain or loss that occurs because the 26 trustee marks securities to market or to another value during an 27 accounting period is not a transaction in a derivative financial 28 instrument that is income or principal under the Act only cash 29 receipts and disbursements, and the receipt of property in exchange 30 for a principal asset, affect a trust’s principal and income accounts. 31 Receipt of property other than cash. If a trustee receives 32 property other than cash upon the settlement of a derivatives 33 transaction, that property would be principal under Section 34 627913(2). 35 Options. Options to which subsection (C) applies include an 36 option to purchase real estate owned by the trustee and a put option 37 purchased by a trustee to guard against a drop in value of a large 38 block of marketable stock that must be liquidated to pay estate 39 taxes. Subsection (C) would also apply to a continuing and regular 40 practice of selling call options on securities owned by the trust if 41 the terms of the option require delivery of the securities. It does 42 not apply if the consideration received or given for the option is[1243] 684 1 something other than cash or property, such as crossoptions 2 granted in a buysell agreement between owners of an entity. 3 4 Section 627924. (A) In this section, ‘assetbacked security’ 5 means an asset whose value is based upon the right it gives the 6 owner to receive distributions from the proceeds of financial assets 7 that provide collateral for the security. The term includes an asset 8 that gives the owner the right to receive from the collateral 9 financial assets only the interest or other current return or only the 10 proceeds other than interest or current return. The term does not 11 include an asset subject to Section 627909 or 627918. 12 (B) If a trust receives a payment from interest or other current 13 return and from other proceeds of the collateral financial assets, 14 the trustee shall allocate to income the portion of the payment 15 which the payer identifies as being from interest or other current 16 return and shall allocate the balance of the payment to principal. 17 (C) If a trust receives one or more payments in exchange for 18 the entire interest in an assetbacked security in one accounting 19 period, the trustee shall allocate the payments to principal. If a 20 payment is one of a series of payments that results in the 21 liquidation of the interest of the trust in the security over more than 22 one accounting period, the trustee shall allocate ten percent of the 23 payment to income and the balance to principal. 24 25 REPORTER’S COMMENT 26 27 Scope of section. Typical assetbacked securities include 28 arrangements in which debt obligations such as real estate 29 mortgages, credit card receivables and auto loans are acquired by 30 an investment trust and interests in the trust are sold to investors. 31 The source for payments to an investor is the money received from 32 principal and interest payments on the underlying debt. An 33 assetbacked security includes an “interest only” or a “principal 34 only” security that permits the investor to receive only the interest 35 payments received from the bonds, mortgages or other assets that 36 are the collateral for the assetbacked security, or only the principal 37 payments made on those collateral assets. An assetbacked security 38 also includes a security that permits the investor to participate in 39 either the capital appreciation of an underlying security or in the 40 interest or dividend return from such a security, such as the 41 “Primes” and “Scores” issued by Americus Trust. An assetbacked 42 security does not include an interest in a corporation, partnership, 43 or an investment trust described in the Comment to Section[1243] 685 1 627911 whose assets consist significantly or entirely of investment 2 assets. Receipts from an instrument that do not come within the 3 scope of this section or any other section of this Act would be 4 allocated entirely to principal under the rule in Section 627903(A) 5 (4) and the trustee may then consider whether and to what extent to 6 exercise the power to adjust in Section 627904 taking into account 7 the return from the portfolio as whole and other relevant factors. 8 9 Section 627925. A trustee shall make the following 10 disbursements from income to the extent that they are not 11 disbursements subject to Section 627905(2)(b) or (c): 12 (1) onehalf of the regular compensation of the trustee and of 13 any person providing investment advisory or custodial services to 14 the trustee; 15 (2) onehalf of all expenses for accountings, judicial 16 proceedings, or other matters that involve both the income and 17 remainder interests; 18 (3) all of the other ordinary expenses incurred in connection 19 with the administration, management, or preservation of trust 20 property and the distribution of income, including interest, 21 ordinary repairs, regularly recurring taxes assessed against 22 principal, and expenses of a proceeding or other matter that 23 concerns primarily the income interest; and 24 (4) recurring premiums on insurance covering the loss of a 25 principal asset or the loss of income from or use of the asset. 26 27 REPORTER’S COMMENT 28 29 Trustee fees. The regular compensation of a trustee or the 30 trustee’s agent includes compensation based on a percentage of 31 either principal or income or both. 32 Insurance premiums. The reference in paragraph (4) to 33 “recurring” premiums is intended to distinguish premiums paid 34 annually for fire insurance from premiums on title insurance, each 35 of which covers the loss of a principal asset. Title insurance 36 premiums would be a principal disbursement under Section 37 627926(A)(5). 38 Regularly recurring taxes. The reference to “regularly recurring 39 taxes assessed against principal” includes all taxes regularly 40 imposed on real property and tangible and intangible personal 41 property. 42[1243] 686 1 Section 627926. (A) A trustee shall make the following 2 disbursements from principal: 3 (1) the remaining onehalf of the disbursements provided in 4 Section 627925(1) and (2); 5 (2) all of the trustee’s compensation calculated on principal 6 as a fee for acceptance, distribution, or termination, and 7 disbursements made to prepare property for sale; 8 (3) payments on the principal of a trust debt; 9 (4) expenses of a proceeding that concerns primarily 10 principal, including a proceeding to construe the trust or to protect 11 the trust or its property; 12 (5) premiums paid on a policy of insurance not provided in 13 Section 627925(4) of which the trust is the owner and beneficiary; 14 (6) estate, inheritance, and other transfer taxes, including 15 penalties, apportioned to the trust; and 16 (7) disbursements related to environmental matters, 17 including reclamation, assessing environmental conditions, 18 remedying and removing environmental contamination, 19 monitoring remedial activities and the release of substances, 20 preventing future releases of substances, collecting amounts from 21 persons liable or potentially liable for the costs of those activities, 22 penalties imposed under environmental laws or regulations and 23 other payments made to comply with those laws or regulations, 24 statutory or common law claims by third parties, and defending 25 claims based on environmental matters. 26 (B) If a principal asset is encumbered with an obligation that 27 requires income from that asset to be paid directly to the creditor, 28 the trustee shall transfer from principal to income an amount equal 29 to the income paid to the creditor in reduction of the principal 30 balance of the obligation. 31 32 REPORTER’S COMMENT 33 34 Environmental expenses. All environmental expenses are 35 payable from principal, subject to the power of the trustee to 36 transfer funds to principal from income under Section 627928. 37 However, the ULC Drafting Committee decided that it was not 38 necessary to broaden this provision to cover other expenditures 39 made under compulsion of governmental authority. See generally 40 the annotation at 43 A.L.R.4th 1012 (Duty as Between Life Tenant 41 and Remainderman with Respect to Cost of Improvements or 42 Repairs Made Under Compulsion of Governmental Authority).[1243] 687 1 Environmental expenses paid by a trust are to be paid from 2 principal under Section 627926(A)(7) on the assumption that they 3 will usually be extraordinary in nature. Environmental expenses 4 might be paid from income if the trustee is carrying on a business 5 that uses or sells toxic substances, in which case environmental 6 cleanup costs would be a normal cost of doing business and would 7 be accounted for under Section 627912. In accounting under that 8 Section, environmental costs will be a factor in determining how 9 much of the net receipts from the business is trust income. Paying 10 all other environmental expenses from principal is consistent with 11 this Act’s approach regarding receipts when a receipt is not 12 clearly a current return on a principal asset, it should be added to 13 principal because over time both the income and remainder 14 beneficiaries benefit from this treatment. Here, allocating 15 payments required by environmental laws to principal imposes the 16 detriment of those payments over time on both the income and 17 remainder beneficiaries. 18 Under Sections 627928(A) and (B)(5) a trustee who makes or 19 expects to make a principal disbursement for an environmental 20 expense described in Section 627926(A)(7) is authorized to 21 transfer an appropriate amount from income to principal to 22 reimburse principal for disbursements made or to provide a reserve 23 for future principal disbursements. 24 The first part of Section 627926(A)(7) is based upon the 25 definition of an “environmental remediation trust” in Treas. Reg. 26 Sec 301.77014(e)(as amended in 1996). This is not because the 27 Act applies to an environmental remediation trust, but because the 28 definition is a useful and thoroughly vetted description of the kinds 29 of expenses that a trustee owning contaminated property might 30 incur. Expenses incurred to comply with environmental laws 31 include the cost of environmental consultants, administrative 32 proceedings and burdens of every kind imposed as the result of an 33 administrative or judicial proceeding, even though the burden is 34 not formally characterized as a penalty. 35 Title proceedings. Disbursements that are made to protect a 36 trust’s property, referred to in Section 627926(A)(4) include an 37 “action to assure title” that is mentioned in Section 13(c)(2) of the 38 1962 Act and Section 627418(2) of the 1963 SC Act. 39 Insurance premiums. Insurance premiums referred to in Section 40 627926(A)(5) include title insurance premiums. They also include 41 premiums on life insurance policies owned by the trust, which 42 represent the trust’s periodic investment in the insurance policy.[1243] 688 1 There is no provision in the 1962 or 1963 SC Act for life insurance 2 premiums. 3 Taxes. Generationskipping transfer taxes are payable from 4 principal under Section 627926(A)(6). 5 6 Section 627927. (A) In this section, ‘depreciation’ means a 7 reduction in value due to wear, tear, decay, corrosion, or gradual 8 obsolescence of a fixed asset having a useful life of more than one 9 year. 10 (B) A trustee may transfer to principal a reasonable amount of 11 the net cash receipts from a principal asset that is subject to 12 depreciation, but may not transfer any amount for depreciation: 13 (1) of that portion of real property used or available for use 14 by a beneficiary as a residence or of tangible personal property 15 held or made available for the personal use or enjoyment of a 16 beneficiary; 17 (2) during the administration of a decedent’s estate; or 18 (3) under this section if the trustee is accounting pursuant to 19 Section 627912 for the business or activity in which the asset is 20 used. 21 (C) An amount transferred to principal need not be held as a 22 separate fund. 23 24 REPORTER’S COMMENT 25 26 Prior Acts. The 1931 Act has no provision for depreciation. 27 Sections 13(a)(2) of the 1962 Act and 627417(2) of the 1963 SC 28 Act provide that a charge shall be made against income for “... a 29 reasonable allowance for depreciation on property subject to 30 depreciation under generally accepted accounting principles ... .” 31 That provision has been resisted by many trustees, who do not 32 provide for any depreciation for a variety of reasons. One reason 33 relied upon is that a charge for depreciation is not needed to 34 protect the remainder beneficiaries if the value of the land is 35 increasing; another is that generally accepted accounting principles 36 may not require depreciation to be taken if the property is not part 37 of a business. The Drafting Committee for the 1997 NCCUSL Act 38 concluded that the decision to provide for depreciation should be 39 discretionary with the trustee. The power to transfer funds from 40 income to principal that is granted by this section is a 41 “discretionary power of administration” referred to in Section 42 627903(B) and in exercising the power a trustee must comply with 43 Section 627903(B).[1243] 689 1 One purpose served by transferring cash from income to 2 principal for depreciation is to provide funds to pay the principal 3 of an indebtedness secured by the depreciable property. Section 4 627928(B)(4) permits the trustee to transfer additional cash from 5 income to principal for this purpose to the extent that the amount 6 transferred from income to principal for depreciation is less than 7 the amount of the principal payments. 8 9 Section 627928. (A) If a trustee makes or expects to make a 10 principal disbursement described in this section, the trustee may 11 transfer an appropriate amount from income to principal in one or 12 more accounting periods to reimburse principal or to provide a 13 reserve for future principal disbursements. 14 (B) A principal disbursement for purposes of this section 15 includes the following, but only to the extent that the trustee has 16 not been, and does not expect to be, reimbursed by a third party: 17 (1) an amount chargeable to income but paid from principal 18 because it is unusually large, including extraordinary repairs; 19 (2) a capital improvement to a principal asset, whether in the 20 form of changes to an existing asset or the construction of a new 21 asset, including special assessments; 22 (3) a disbursement made to prepare property for rental, 23 including tenant allowances, leasehold improvements, and broker’s 24 commissions; 25 (4) a periodic payment on an obligation secured by a 26 principal asset to the extent that the amount transferred from 27 income to principal for depreciation is less than the periodic 28 payments; and 29 (5) a disbursement described in Section 627926(A)(7). 30 (C) If the asset whose ownership gives rise to the 31 disbursements becomes subject to a successive income interest 32 after an income interest ends, a trustee may continue to transfer 33 amounts from income to principal as provided in subsection (A). 34 35 REPORTER’S COMMENT 36 37 Prior Acts. The South Carolina sources of Section 627928 are: 38 Section 627417(b) of the 1963 SC Act, which permits a trustee to 39 “regularize distributions,” if charges against income are unusually 40 large, by using “reserves or other reasonable means” to withhold 41 sums from income distributions; and Section 627417(a)(2) of the 42 1963 SC Act, which authorizes a trustee to establish an allowance 43 for depreciation out of income if principal is used for extraordinary[1243] 690 1 repairs and capital improvements. [Note, however, that “special 2 assessments” are not specifically mentioned in Section 627417(a) 3 (2) of the 1963 SC Act.] Section 12(3) of the 1931 Act permits the 4 trustee to spread income expenses of unusual amount “throughout 5 a series of years.” Section 627928 of this Act contains a more 6 detailed enumeration of the circumstances in which this authority 7 may be used, and includes in subsection (B)(4) the express 8 authority to use income to make principal payments on a mortgage 9 if the depreciation charge against income is less than the principal 10 payments on the mortgage. 11 12 Section 627929. (A) A tax required to be paid by a trustee 13 based on receipts allocated to income must be paid from income. 14 (B) A tax required to be paid by a trustee based on receipts 15 allocated to principal must be paid from principal, even if the tax is 16 called an income tax by the taxing authority. 17 (C) A tax required to be paid by a trustee on the trust’s share of 18 the taxable income of the entity must be paid proportionately from: 19 (1) income, to the extent that receipts from the entity are 20 allocated to income; and 21 (2) principal, to the extent that: 22 (a) receipts from the entity are allocated to principal; and 23 (b) the trust’s share of the taxable income of the entity 24 exceeds the total receipts described in items (1) and (2)(a). 25 (D) For purposes of this section, receipts allocated to principal 26 or income must be reduced by the amount distributed to a 27 beneficiary from principal or income for which the trust receives a 28 deduction in calculating the tax. 29 30 REPORTER’S COMMENT 31 32 Taxes on Undistributed Entity Taxable Income. When a trust 33 owns an interest in a passthrough entity, such as a partnership or S 34 corporation, it must report its share of the entity’s taxable income 35 regardless of how much the entity distributes to the trust. Whether 36 the entity distributes more or less than the trust’s tax on its share of 37 the entity’s taxable income, the trust must pay the taxes and 38 allocate them between income and principal. 39 Subsection (C) requires the trust to pay the taxes on its share of 40 an entity’s taxable income from income or principal receipts to the 41 extent that receipts from the entity are allocable to each. This 42 assures the trust a source of cash to pay some or all of the taxes on 43 its share of the entity’s taxable income. Subsection (D) recognizes[1243] 691 1 that, except in the case of an Electing Small Business Trust 2 (ESBT), a trust normally receives a deduction for amounts 3 distributed to a beneficiary. Accordingly, subsection (D) requires 4 the trust to increase receipts payable to a beneficiary as determined 5 under subsection (C) to the extent the trust’s taxes are reduced by 6 distributing those receipts to the beneficiary. 7 Because the trust’s taxes and amounts distributed to a 8 beneficiary are interrelated, the trust may be required to apply a 9 formula to determine the correct amount payable to a beneficiary. 10 This formula should take into account that each time a distribution 11 is made to a beneficiary, the trust taxes are reduced and amounts 12 distributable to a beneficiary are increased. The formula assures 13 that after deducting distributions to a beneficiary, the trust has 14 enough to satisfy its taxes on its share of the entity’s taxable 15 income as reduced by distributions to beneficiaries. 16 Example (1) Trust T receives a Schedule K1 from Partnership P 17 reflecting taxable income of $1 million. Partnership P distributes 18 $100,000 to T, which allocates the receipts to income. Both Trust 19 T and income Beneficiary B are in the 35 percent tax bracket. 20 Trust T’s tax on $1 million of taxable income is $350,000. Under 21 subsection (C) T’s tax must be paid from income receipts because 22 receipts from the entity are allocated only to income. Therefore, T 23 must apply the entire $100,000 of income receipts to pay its tax. In 24 this case, Beneficiary B receives nothing. 25 Example (2) Trust T receives a Schedule K1 from Partnership P 26 reflecting taxable income of $1 million. Partnership P distributes 27 $500,000 to T, which allocates the receipts to income. Both Trust 28 T and income Beneficiary B are in the 35 percent tax bracket. 29 Trust T’s tax on $1 million of taxable income is $350,000. Under 30 subsection (C) T’s tax must be paid from income receipts because 31 receipts from P are allocated only to income. Therefore, T uses 32 $350,000 of the $500,000 to pay its taxes and distributes the 33 remaining $150,000 to B. The $150,000 payment to B reduces T’s 34 taxes by $52,500, which it must pay to B. But the $52,500 further 35 reduces T’s taxes by $18,375, which it also must pay to B. In fact, 36 each time T makes a distribution to B, its taxes are further reduced, 37 causing another payment to be due B. 38 39 Alternatively, T can apply the following algebraic formula to 40 determine the amount payable to B: 41 42 D = (CR*K)/(1R) 43[1243] 692 1 D = Distribution to income beneficiary 2 C = Cash paid by the entity to the trust 3 R = tax rate on income 4 K = entity’s K1 taxable income 5 6 Applying the formula to Example (2) above, Trust T must pay 7 $230,769 to B so that after deducting the payment, T has exactly 8 enough to pay its tax on the remaining taxable income from P. 9 10 Taxable Income per K1 $1,000,000 11 Payment to beneficiary $ 230,769 [1] 12 Trust Taxable Income $ 769,231 13 35 percent tax $269,231 14 Partnership Distribution $ 500,000 15 Fiduciary’s Tax Liability ($269,231) 16 Payable to the Beneficiary $ 230,769 17 18 In addition, B will report $230,769 on his or her own personal 19 income tax return, paying taxes of $80,769. Because Trust T 20 withheld $269,231 to pay its taxes and B paid $80,769 taxes of its 21 own, B bore the entire $350,000 tax burden on the $1 million of 22 entity taxable income, including the $500,000 that the entity 23 retained that presumably increased the value of the trust’s 24 investment entity. 25 If a trustee determines that it is appropriate to so, it should 26 consider exercising the discretion granted in SCUP&IA Section 27 627930 to adjust between income and principal. Alternatively, the 28 trustee may exercise the power to adjust under SCUP&IA Section 29 627904 to the extent it is available and appropriate under the 30 circumstances, including whether a future distribution from the 31 entity that would be allocated to principal should be reallocated to 32 income because the income beneficiary already bore the burden of 33 taxes on the reinvested income. In exercising the power, the trust 34 should consider the impact that future distributions will have on 35 any current adjustments. 36 [1] D = (CR*K)/(1R) = ($500,000 $350,000)/(1 .35) = 37 $230,769. (D is the amount payable to the income beneficiary, K is 38 the entity’s K1 taxable income, R is the trust ordinary tax rate, and 39 C is the cash distributed by the entity). 40 41 Section 627930. (A) A fiduciary may make adjustments 42 between principal and income to offset the shifting of economic[1243] 693 1 interests or tax benefits between income beneficiaries and 2 remainder beneficiaries which arise from: 3 (1) elections and decisions, other than those provided in 4 subsection (B), that the fiduciary makes from time to time 5 regarding tax matters; 6 (2) an income tax or any other tax that is imposed upon the 7 fiduciary or a beneficiary as a result of a transaction involving or a 8 distribution from the estate or trust; or 9 (3) the ownership by an estate or trust of an interest in an 10 entity whose taxable income, whether or not distributed, is 11 includable in the taxable income of the estate, trust, or a 12 beneficiary. 13 (B) If the amount of an estate tax marital deduction or 14 charitable contribution deduction is reduced because a fiduciary 15 deducts an amount paid from principal for income tax purposes 16 instead of deducting it for estate tax purposes, and as a result estate 17 taxes paid from principal are increased and income taxes paid by 18 an estate, trust, or beneficiary are decreased, each estate, trust, or 19 beneficiary that benefits from the decrease in income tax shall 20 reimburse the principal from which the increase in estate tax is 21 paid. The total reimbursement must equal the increase in the estate 22 tax to the extent that the principal used to pay the increase would 23 have qualified for a marital deduction or charitable contribution 24 deduction but for the payment. The proportionate share of the 25 reimbursement for each estate, trust, or beneficiary whose income 26 taxes are reduced must be the same as its proportionate share of the 27 total decrease in income tax. An estate or trust shall reimburse 28 principal from income. 29 30 REPORTER’S COMMENT 31 32 Discretionary adjustments. Section 627930(A) permits the 33 fiduciary to make adjustments between income and principal 34 because of tax law provisions. It would permit discretionary 35 adjustments in situations like these: (1) A fiduciary elects to 36 deduct administration expenses that are paid from principal on an 37 income tax return instead of on the estate tax return; (2) a 38 distribution of a principal asset to a trust or other beneficiary 39 causes the taxable income of an estate or trust to be carried out to 40 the distributee and relieves the persons who receive the income of 41 any obligation to pay income tax on the income; or (3) a trustee 42 realizes a capital gain on the sale of a principal asset and pays a 43 large state income tax on the gain, but under applicable federal[1243] 694 1 income tax rules the trustee may not deduct the state income tax 2 payment from the capital gain in calculating the trust’s federal 3 capital gain tax, and the income beneficiary receives the benefit of 4 the deduction for state income tax paid on the capital gain. See 5 generally Joel C. Dobris, Limits on the Doctrine of Equitable 6 Adjustment in Sophisticated Postmortem Tax Planning, 66 Iowa L. 7 Rev. 273 (1981). 8 Section 627930(A)(3) applies to a qualified Subchapter S trust 9 (QSST) whose income beneficiary is required to include a pro rata 10 share of the S corporation’s taxable income in his return. If the 11 QSST does not receive a cash distribution from the corporation 12 that is large enough to cover the income beneficiary’s tax liability, 13 the trustee may distribute additional cash from principal to the 14 income beneficiary. In this case the retention of cash by the 15 corporation benefits the trust principal. This situation could occur 16 if the corporation’s taxable income includes capital gain from the 17 sale of a business asset and the sale proceeds are reinvested in the 18 business instead of being distributed to shareholders. 19 Mandatory adjustment. Section 627930(B) provides for a 20 mandatory adjustment from income to principal to the extent 21 needed to preserve an estate tax marital deduction or charitable 22 contributions deduction. It is derived from New York’s EPTL Sec 23 111.2(A), which requires principal to be reimbursed by those who 24 benefit when a fiduciary elects to deduct administration expenses 25 on an income tax return instead of the estate tax return. Unlike the 26 New York provision, Section 627930(B) limits a mandatory 27 reimbursement to cases in which a marital deduction or a 28 charitable contributions deduction is reduced by the payment of 29 additional estate taxes because of the fiduciary’s income tax 30 election. It is intended to preserve the result reached in Estate of 31 Britenstool v. Commissioner, 46 T.C. 711 (1966), in which the Tax 32 Court held that a reimbursement required by the predecessor of 33 EPTL Sec 111.2(A) resulted in the estate receiving the same 34 charitable contributions deduction it would have received if the 35 administration expenses had been deducted for estate tax purposes 36 instead of for income tax purposes. Because a fiduciary will elect 37 to deduct administration expenses for income tax purposes only 38 when the income tax reduction exceeds the estate tax reduction, the 39 effect of this adjustment is that the principal is placed in the same 40 position it would have occupied if the fiduciary had deducted the 41 expenses for estate tax purposes, but the income beneficiaries 42 receive an additional benefit. For example, if the income tax 43 benefit from the deduction is $30,000 and the estate tax benefit[1243] 695 1 would have been $20,000, principal will be reimbursed $20,000 2 and the net benefit to the income beneficiaries will be $10,000. 3 Irrevocable grantor trusts. Under Sections 671679 of the 4 Internal Revenue Code (the “grantor trust” provisions), a person 5 who creates an irrevocable trust for the benefit of another person 6 may be subject to tax on the trust’s income or capital gains, or 7 both, even though the settlor is not entitled to receive any income 8 or principal from the trust. Because this is now a wellknown tax 9 result, many trusts have been created to produce this result, but 10 there also may be trusts that are unintentionally subject to this 11 rule. The Act does not require or authorize a trustee to distribute 12 funds from the trust to the settlor in these cases because it is 13 difficult to establish a rule that applies only to trusts where this tax 14 result is unintended and does not apply to trusts where the tax 15 result is intended. Settlors who intend this tax result rarely state it 16 as an objective in the terms of the trust, but instead rely on the 17 operation of the tax law to produce the desired result. As a result it 18 may not be possible to determine from the terms of the trust if the 19 result was intentional or unintentional. Where the drafter of such a 20 trust wants the trustee to have the authority to distribute principal 21 or income to the settlor to reimburse the settlor for taxes paid on 22 the trust’s income or capital gains, such a provision should be 23 placed in the terms of the trust. In some situations the Internal 24 Revenue Service may require that such a provision be placed in the 25 terms of the trust as a condition to issuing a private letter ruling. 26 Section 627931. In applying and construing this Uniform Act, 27 consideration must be given to the need to promote uniformity of 28 the law with respect to its subject matter among states that enact it. 29 30 Section 627932. (A) A court must not change a fiduciary’s 31 decision to exercise or not to exercise a discretionary power 32 conferred by this part unless it determines that the decision was an 33 abuse of the fiduciary’s discretion. A court shall not determine 34 that a fiduciary abused its discretion merely because the court 35 would have exercised the discretion in a different manner or would 36 not have exercised the discretion. 37 (B) The decisions subject to subsection (A) include a 38 determination: 39 (1) pursuant to Section 627904(A) of whether and to what 40 extent an amount should be transferred from principal to income or 41 from income to principal; and 42 (2) of the factors that are relevant to the trust and its 43 beneficiaries, the extent to which they are relevant, and the weight,[1243] 696 1 if any, to be given to the relevant factors, in deciding whether and 2 to what extent to exercise the power in Section 627904(A). 3 (C) If a court determines that a fiduciary has abused its 4 discretion, the remedy is to restore the income and remainder 5 beneficiaries to the positions they would have occupied if the 6 fiduciary had not abused its discretion, according to the following 7 rules: 8 (1) to the extent that the abuse of discretion has resulted in 9 no distribution to a beneficiary or a distribution that is too small, 10 the court must require the fiduciary to distribute from the trust to 11 the beneficiary an amount that the court determines will restore the 12 beneficiary, in whole or in part, to his or her appropriate position; 13 (2) to the extent that the abuse of discretion has resulted in a 14 distribution to a beneficiary that is too large, the court must restore 15 the beneficiaries, the trust, or both, in whole or in part, to their 16 appropriate positions by requiring the fiduciary to withhold an 17 amount from one or more future distributions to the beneficiary 18 who received the distribution that was too large or requiring that 19 beneficiary to return some or all of the distribution to the trust; 20 (3) to the extent that the court is unable, after applying items 21 (1) and (2), to restore the beneficiaries, the trust, or both, to the 22 positions they would have occupied if the fiduciary had not abused 23 its discretion, the court may require the fiduciary to pay an 24 appropriate amount from its own funds to one or more of the 25 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 are 35 affected by the proposed exercise or nonexercise of the power, a 36 beneficiary who challenges the proposed exercise or nonexercise 37 has the burden of establishing that it will result in an abuse of 38 discretion. RESERVED 39 40 Part 9A 41 42 South Carolina Uniform Prudent Investor Act 43[1243] 697 1 General Comment 2 3 Effective July 18, 2001, South Carolina enacted as part of its 4 Uniform Probate Code (SCPC) the South Carolina Uniform 5 Prudent Investor Act (SCUPIA), Section 627302. This is South 6 Carolina’s version of the Uniform Prudent Investor Act (UPIA) 7 which was enacted and recommended in 1994 by the Uniform Law 8 Commission (ULC) for enactment in all the states. UPIA consists 9 of 16 separate sections, the first ten of which are each followed by 10 a separate ULC Comment; whereas, SCUPIA is a single section 11 (multisubsection) consolidation of (1) UPIA’s first ten sections but 12 without any of the ULC Comments, (2) two other UPIA sections 13 which have never had any comments (Sections 12, “Uniformity of 14 Application and Construction” and13, “Short Title”) and (3) two 15 new subsections which are not in UPIA and have never had any 16 comments (SCUPIA subsections (J) and (K)). The remaining four 17 sections of UPIA are not in SCUPIA and have never had any 18 comments. Thus, prior to 2005 SCUPIA had no ULC Comments. 19 When in 2005 South Carolina enacted its version of ULC’s 20 recommended 2000 Uniform Trust Code as the South Carolina 21 Trust Code (SCTC), SC Code Title 62, Article 7, SCUPIA was 22 retained, renumbered and incorporated at SCTC Section 627933, 23 but still without any ULC Comments. Now, with this 2012 (or 24 “current”) amendment, the ULC Comments are consolidated into a 25 single Comment drafted specifically for South Carolina purposes 26 and inserted immediately following SCUPIA. Again, any 27 reference elsewhere in the South Carolina Code to former SCPC 28 Section 627302 should now refer to SCTC Section 627933. 29 When in 2005 SCUPIA was retained, renumbered and 30 incorporated at SCTC Section 627933, certain subsections of 31 SCUPIA as it had been originally enacted in 2001 (SCPC Section 32 627302) were deleted as recommended by ULC because they were 33 duplicative of provisions in the newly enacted SCTC: former 34 SCPC Section 627302(C)(6), (F), and (H). The correlative 35 provisions of SCTC, which govern investment, management, and 36 distribution of trust assets (i.e., trust administration), are broader in 37 perspective than the deleted SCPC subsections, which governed 38 only investment and management of trust assets. SCTC Section 39 627933(C)(5)(c) retains and incorporates former SCPC Section 40 627602. 41 Over the quarter century from the late 1960’s to the early 1990s 42 the investment practices of fiduciaries experienced significant 43 change. ULC’s Uniform Prudent Investor Act (UPIA) undertakes[1243] 698 1 to update trust investment law in recognition of the alterations that 2 have occurred in investment practice. These changes have occurred 3 under the influence of a large and broadly accepted body of 4 empirical and theoretical knowledge about the behavior of capital 5 markets, often described as “modern portfolio theory.” 6 UPIA, now enacted in South Carolina as SCUPIA at Section 7 627933, draws upon the revised standards for prudent trust 8 investment promulgated by the American Law Institute in its 9 Restatement (Third) of Trusts: Prudent Investor Rule (1992) 10 [hereinafter Restatement of Trusts 3d: Prudent Investor Rule; also 11 referred to as 1992 Restatement]. [Since the early 1990’s when the 12 uniform version of this Prefatory Note and the following 13 Comments were prepared by ULC, Restatement of Trusts 3d has 14 progressed significantly as reported in the Forenote to Chapter 17 15 of what is now cited as “Restatement Third, Trusts”: 16 The contents of this Chapter (Introduction and Sections 9092) 17 were approved at the American Law Institute’s 1990 Annual 18 Meeting and were originally published as Sections 227229 of 19 Restatement Third, Trusts (Prudent Investor Rule) in 1992 20 [referred to throughout this SCUPIA Prefatory Note and the 21 following Comments as either “Restatement of Trusts 3d: Prudent 22 Investor Rule” or simply “1992 Restatement”]. The “prudent 23 investor rule” is incorporated here without substantive change, 24 with some updating of the Reporter’s Notes, adaptation of 25 crossreferences to reflect the new numbering and content of other 26 Trust Third Sections, and adaptation of some wording to reflect the 27 passage of time and interim developments, particularly the 28 widespread substitution of prudentinvestor principles for prior law. 29 Therefore, appropriate reference to Chapter 17 (Introduction and 30 Sections 9092) of Restatement Third, Trusts is suggested.] 31 Objectives of the Act. SCUPIA makes five fundamental 32 alterations in the former criteria for prudent investing. All are to be 33 found in the Restatement of Trusts 3d: Prudent Investor Rule. 34 (1) The standard of prudence is applied to any investment as part 35 of the total portfolio, rather than to individual investments. In the 36 trust setting the term “portfolio” embraces all the trust’s assets. 37 SCUPIA Subsection (C)(2). 38 (2) The tradeoff in all investing between risk and return is 39 identified as the fiduciary’s central consideration. SCUPIA 40 Subsection (C)(2). 41 (3) All categoric restrictions on types of investments have been 42 abrogated; the trustee can invest in anything that plays an 43 appropriate role in achieving the risk/return objectives of the trust[1243] 699 1 and that meets the other requirements of prudent investing. 2 SCUPIA Subsection (C)(5)(a). 3 (4) The long familiar requirement that fiduciaries diversify their 4 investments has been integrated into the definition of prudent 5 investing. SCUPIA Subsection (D). 6 (5) The much criticized former rule of trust law forbidding the 7 trustee to delegate investment and management functions has been 8 reversed. Delegation is now permitted, subject to safeguards. 9 SCUPIA Subsection (J). 10 Literature. These changes in trust investment law have been 11 presaged in an extensive body of practical and scholarly writing. 12 See especially the discussion and reporter’s notes by Edward C. 13 Halbach, Jr., in Restatement of Trusts 3d: Prudent Investor Rule 14 (1992); see also Edward C. Halbach, Jr., Trust Investment Law in 15 the Third Restatement, 27 Real Property, Probate & Trust J. 407 16 (1992); Bevis Longstreth, Modern Investment Management and 17 the Prudent Man Rule (1986); Jeffrey N. Gordon, The Puzzling 18 Persistence of the Constrained Prudent Man Rule, 62 N.Y.U.L. 19 Rev. 52 (1987); John H. Langbein & Richard A. Posner, The 20 Revolution in Trust Investment Law, 62 A.B.A.J. 887 (1976); 21 Note, The Regulation of Risky Investments, 83 Harvard L. Rev. 22 603 (1970). A succinct account of the main findings of modern 23 portfolio theory, written for lawyers, is Jonathan R. Macey, An 24 Introduction to Modern Financial Theory (1991) (American 25 College of Trust & Estate Counsel Foundation). A leading 26 introductory text on modern portfolio theory is R.A. Brealey, An 27 Introduction to Risk and Return from Common Stocks (2d ed. 28 1983). 29 Legislation. Most states have had legislation governing 30 trustinvestment law for many years. This Act promotes uniformity 31 of state law on the basis of the new consensus reflected in the 32 Restatement of Trusts 3d: Prudent Investor Rule. Some states had 33 already acted. California, Delaware, Georgia, Minnesota, South 34 Carolina, Tennessee, and Washington revised their prudent 35 investor legislation to emphasize the totalportfolio standard of care 36 in advance of the 1992 Restatement. These statutes are extracted 37 and discussed in Restatement of Trusts 3d: Prudent Investor Rule § 38 227, reporter’s note, at 6066 (1992). Although South Carolina 39 took such action in 1990 by amending SC Code Section 627302, 40 the South Carolina revision was not extracted and discussed in the 41 1992 Restatement. 42 Remedies. This Act does not undertake to address issues of 43 remedy law or the computation of damages in trust matters.[1243] 700 1 Remedies are the subject of a reasonably distinct body of doctrine. 2 See generally Restatement (Second) of Trusts §§ 197226A (1959) 3 [hereinafter cited as Restatement of Trusts 2d; also referred to as 4 1959 Restatement]. [With the enactment of the South Carolina 5 Trust Code in 2005, however, remedies and damages for breach of 6 trust are addressed. SCTC Part 10.] 7 Implications for charitable and pension trusts. This Act is 8 centrally concerned with the investment responsibilities arising 9 under the private gratuitous trust, which is the common vehicle for 10 conditioned wealth transfer within the family. Nevertheless, the 11 prudent investor rule also bears on charitable and pension trusts, 12 among others. “In making investments of trust funds the trustee of 13 a charitable trust is under a duty similar to that of the trustee of a 14 private trust.” Restatement of Trusts 2d § 389 (1959). The 15 Employee Retirement Income Security Act (ERISA), the federal 16 regulatory scheme for pension trusts enacted in 1974, absorbs 17 trustinvestment law through the prudence standard of ERISA § 18 404(a)(1)(B), 29 U.S.C. § 1104(a). The Supreme Court has said: 19 “ERISA’s legislative history confirms that the Act’s fiduciary 20 responsibility provisions ‘codif[y] and mak[e] applicable to 21 [ERISA] fiduciaries certain principles developed in the evolution 22 of the law of trusts.’” Firestone Tire & Rubber Co. v. Bruch, 489 23 U.S. 101, 11011 (1989) (footnote omitted). 24 Other fiduciary relationships. The South Carolina Uniform 25 Prudent Investor Act (SCUPIA) regulates the investment 26 responsibilities of trustees. Other fiduciaries such as executors, 27 conservators, and guardians of the property sometimes have 28 responsibilities over assets that are governed by the standards of 29 prudent investment. It will often be appropriate for states to adapt 30 the law governing investment by trustees under this Act to these 31 other fiduciary regimes, taking account of such changed 32 circumstances as the relatively short duration of most 33 executorships and the intensity of court supervision of 34 conservators and guardians in some jurisdictions. The present Act 35 does not undertake to adjust trustinvestment law to the special 36 circumstances of the state schemes for administering decedents’ 37 estates or conducting the affairs of protected persons. In South 38 Carolina two other SC Code sections have been enacted for this 39 purpose: 40 (1) Section 625414. 41 In the exercise of his powers, a conservator is to act as a fiduciary 42 and shall observe the standards of care applicable to trustees as 43 described by Section 627933 (SCUPIA).[1243] 701 1 (2) Section 623703 2 (a) A personal representative is a fiduciary who … shall observe 3 the standards of care as described by Section 627804. 4 (3) Both of these sections referred to Section 627933 5 (SCUPIA) until 2010 when Section 623703 was amended by 6 replacing Section 627933 with Section 627804. Prudent 7 administration 8 A trustee shall administer the trust as a prudent person would, 9 by considering the purposes, terms, distributional requirements, 10 and other circumstances of the trust. In satisfying this standard, 11 the trustee shall exercise reasonable care, skill, and caution. 12 (4) The Comments to the SCTC point out that Section 627804 13 is “similar to” SCUPIA and recognizes that trust “administration” 14 includes a trustee’s “distribution to beneficiaries” in addition to a 15 trustee’s investment and management of trust assets.] 16 Although SCUPIA by its terms applies to trusts and not to 17 charitable corporations, the standards of the Act can be expected to 18 inform the investment responsibilities of directors and officers of 19 charitable corporations. As the 1992 Restatement observes, “the 20 duties of the members of the governing board of a charitable 21 corporation are generally similar to the duties of the trustee of a 22 charitable trust.” Restatement of Trusts 3d: Prudent Investor Rule 23 § 379, Comment b, at 190 (1992). See also id. § 389, Comment b, 24 at 19091 (absent contrary statute or other provision, prudent 25 investor rule applies to investment of funds held for charitable 26 corporations). 27 [It is interesting to note that the ULC did not mention, on this 28 investment point, in the 1994 UPIA Prefatory Note its earlier 1972 29 Uniform Management of Institutional Funds Act (UMIFA). This is 30 probably explained by the following contrary view expressed in 31 the 1972 Comment following UMIFA Section 6: 32 The section establishes a standard of care and prudence for a 33 member of a governing board. The standard is generally 34 comparable to that of a director of a business corporation rather 35 than that of a private trustee, but it is cast in terms of the duties 36 and responsibilities of a manager of a nonprofit institution. 37 Officers of a corporation owe a duty of care and loyalty to the 38 corporation, and the more intimate the knowledge of the affairs of 39 the corporation the higher the standard of care. Directors are 40 obligated to act in the utmost good faith and to exercise ordinary 41 business care and prudence in all matters affecting the 42 management of the corporation. This is a proper standard for the[1243] 702 1 managers of a nonprofit institution, whether or not it is 2 incorporated. 3 Not until 2000 did South Carolina enact the South Carolina 4 Uniform Management of Institutional Funds Act (SCUMIFA). 5 Then in 2006 the ULC approved and recommended the Uniform 6 Prudent Management of Institutional Funds Act (UPMIFA) 7 which South Carolina enacted in 2008 as the South Carolina 8 Uniform Prudent Management of Institutional Funds Act 9 (SCUPMIFA), Sections 34610 through 100. Many of SCUPIA’s 10 provisions are in SCUPMIFA which is described by ULC as 11 “bringing the law governing charitable institutions in line with 12 modern investment and expenditure practice”.] 13 14 Section 627933. (A) This section may be cited as the South 15 Carolina Uniform Prudent Investor Act, or this act. 16 (B)(1) Except as otherwise provided in item (2) of this 17 subsection, a trustee who invests and manages trust assets owes a 18 duty to the beneficiaries of the trust to comply with the prudent 19 investor rule in this section act. 20 (2) The prudent investor rule is a default rule that may be 21 expanded, restricted, eliminated, or otherwise altered by the 22 provisions of a trust. A trustee is not liable to a beneficiary to the 23 extent that the trustee acted in reasonable reliance on the 24 provisions of the trust. 25 (C)(1) A trustee shall invest and manage trust assets as a 26 prudent investor would by considering the purposes, terms, 27 distribution requirements, and other circumstances of the trust. In 28 satisfying this standard, the trustee shall exercise reasonable care, 29 skill, and caution. 30 (2) A trustee’s investment and management decisions 31 respecting individual assets must be evaluated not in isolation but 32 in the context of the trust portfolio as a whole and as a part of an 33 overall investment strategy having risk and return objectives 34 reasonably suited to the trust. 35 (3) Among other circumstances provided in item (1) of this 36 subsection which a trustee shall consider in investing and 37 managing trust assets are such of the following as are relevant to 38 the trust or its beneficiaries: 39 (a) general economic conditions; 40 (b) the possible effect of inflation or deflation; 41 (c) the expected tax consequences of investment decisions 42 or strategies; [1243] 703 1 (d) the role that each investment or course of action plays 2 within the overall trust portfolio, including financial assets, 3 interests in closely held enterprises, tangible and intangible 4 personal property, and real property; 5 (e) the expected total return from income and the 6 appreciation of capital; 7 (f) other resources of the beneficiaries; 8 (g) needs for liquidity, regularity of income, and 9 preservation or appreciation of capital; and 10 (h) an asset’s special relationship or special value to the 11 purposes of the trust or to one or more of the beneficiaries. 12 (4) A trustee shall make a reasonable effort to verify facts 13 relevant to the investment and management of trust assets. 14 (5)(a) A trustee may invest in any kind of property or type of 15 investment consistent with the standards of this section act. 16 (b) Nothing in this section act prohibits affiliate 17 investments if they otherwise comply with the standards of this 18 section act. For these purposes, ‘affiliate’ means an entity that 19 owns or is owned by the trustee, in whole or in part, or is owned 20 by the same entity that owns the trustee. Affiliate investments 21 include: 22 ( i) investment and reinvestment in the securities of an 23 openend or closedend management investment company or of an 24 investment trust registered under the Investment Company Act of 25 1940, as amended. A bank or trustee, or both of them, may invest 26 in these securities even if the bank or trustee, or an affiliate of the 27 bank or trustee, provides services to the investment company or 28 investment trust such as that of an investment advisor, custodian, 29 transfer agent, registrar, sponsor, distributor, manager, or 30 otherwise, and receives reasonable remuneration for those 31 services; 32 (ii) retention of the securities into which corporate 33 securities owned by the trustee may be converted or which may be 34 derived as a result of merger, consolidation, stock dividends, splits, 35 liquidations, and similar procedures, and the exercise by purchase 36 or otherwise any rights, warrants, or conversion features attaching 37 to the securities; 38 (iii) purchase or other acquisition and retention of a 39 security underwritten by a syndicate, even if the trustee or its 40 affiliate participates or has participated as a member of the 41 syndicate, provided the trustee does not purchase the security from 42 itself, its affiliate, or from another member of the underwriting 43 syndicate, or its affiliate, pursuant to an implied or express[1243] 704 1 reciprocal agreement between the trustee, or its affiliate, and the 2 other member, or its affiliate, to purchase all or part of each other’s 3 underwriting participation commitment within the syndicate. 4 (c) Notwithstanding any other provision of law, any 5 fiduciary holding securities in its fiduciary capacity, any bank, 6 trust company, or private banker holding securities as a custodian 7 or managing agent, and any bank, trust company, or private banker 8 holding securities as custodian for a fiduciary, is authorized to 9 deposit or arrange for the deposit of such securities in a clearing 10 corporation, (as defined in Article 8 of the Uniform Commercial 11 Code). When such securities are so deposited, certificates 12 representing securities of the same class of the same issuer may be 13 merged and held in bulk in the name of the nominee of such 14 clearing corporation with any other such securities deposited in 15 such clearing corporation by any person regardless of the 16 ownership of such securities, and certificates of small 17 denomination may be merged into one or more certificates of 18 larger denomination. The records of such fiduciary and the 19 records of such bank, trust company, or private banker acting as 20 custodian, as managing agent or as custodian for a fiduciary shall 21 at all times show the name of the party for whose account the 22 securities are so deposited. Ownership of, and other interests in, 23 such securities may be transferred by bookkeeping entry on the 24 books of such clearing corporation without physical delivery of 25 certificates representing such securities. A bank, trust company, or 26 private banker so depositing securities pursuant to this section 27 shall be subject to such regulations as in the case of statechartered 28 institutions, the Board of Financial Institutions, and, in the case of 29 national banking associations, The Comptroller of the Currency 30 may from time to time issue. A bank, trust company, or private 31 banker acting as custodian for a fiduciary shall, on demand by the 32 fiduciary, certify in writing to the fiduciary the securities so 33 deposited by such bank, trust company, or private banker in such 34 clearing corporation for the account of such fiduciary. A fiduciary 35 shall, on demand by any party to a judicial proceeding for the 36 settlement of such fiduciary’s account or on demand by the 37 attorney for such party, certify in writing to such party the 38 securities deposited by such fiduciary in such clearing corporation 39 for its account as such fiduciary. This subsection shall apply to 40 any fiduciary holding securities in its fiduciary capacity, and to 41 any bank, trust company, or private banker holding securities as a 42 custodian, managing agent, or custodian for a fiduciary, acting on 43 April 17, 1973, or who thereafter may act regardless of the date of[1243] 705 1 the agreement, instrument, or court order by which it is appointed 2 and regardless of whether or not such fiduciary, custodian, 3 managing agent, or custodian for a fiduciary owns capital stock of 4 such clearing corporation. 5 (6) [RESERVED] 6 (D) A trustee shall diversify the investments of the trust unless 7 the trustee reasonably determines that, because of special 8 circumstances, the purposes of the trust are better served without 9 diversifying. 10 (E) Within a reasonable time after accepting a trusteeship or 11 receiving trust assets, a trustee shall review the trust assets and 12 make and implement decisions concerning the retention and 13 disposition of assets in order to bring the trust portfolio into 14 compliance with the purposes, terms, distribution requirements, 15 and other circumstances of the trust and with the requirements of 16 this section act. 17 (F) [RESERVED] 18 (G) Compliance with the prudent investor rule is determined in 19 light of the facts and circumstances existing at the time of a 20 trustee’s decision or action and not by hindsight. 21 (H) [RESERVED] 22 (I) The following terms or comparable language in the 23 provisions of a trust, unless otherwise limited or modified, 24 authorize any investment or strategy permitted pursuant to this 25 section act: ‘investments permissible by law for investment of trust 26 funds’, ‘legal investments’, ‘authorized investments’, ‘using the 27 judgment and care under the circumstances then prevailing that 28 persons of prudence, discretion, and intelligence exercise in the 29 management of their own affairs, not in regard to speculation but 30 in regard to the permanent disposition of their funds, considering 31 the probable income as well as the probable safety of their capital’, 32 ‘prudent man rule’, ‘prudent trustee rule’, ‘prudent person rule’, 33 and ‘prudent investor rule’. 34 (J)(1) Notwithstanding provisions of this section act to the 35 contrary, the duties of a trustee with respect to acquiring a contract 36 of insurance upon the life of the trustor or upon the lives of the 37 trustor and the trustor’s spouse, children, or parents do not include 38 a duty to: 39 (a) determine whether the contract is or remains a proper 40 investment; 41 (b) exercise policy options available under the contract; 42 or 43 (c) diversify the contract. [1243] 706 1 (2) The trustee is not liable to the beneficiaries of the 2 contract of insurance or to another party for loss arising from this 3 subsection. 4 (3) Except as specifically provided in the trust instrument, 5 the provisions of this subsection apply to a trust established before 6 or after the effective date of this subsection and to a life insurance 7 policy acquired by the trustee before or after the effective date of 8 this section act. 9 (K) This section act applies to ‘charitable remainder trusts’. 10 ‘Charitable remainder trust’ means a trust that provides for a 11 specified distribution at least annually for either life or a term of 12 years to one or more beneficiaries, at least one of which is not a 13 charity with an irrevocable remainder interest to be held for the 14 benefit of, or paid over to, charity. 15 (L) This section act must be applied and construed to effectuate 16 its general purpose to make uniform the law with respect to the 17 subject of this section act among the States enacting it. 18 19 REPORTER’S COMMENT 20 21 Subsection 627933(B): 22 Subsection 627933(B)(1) of the South Carolina Uniform 23 Prudent Investor Act (SCUPIA) imposes on trustees the obligation 24 of prudence in the conduct of investment functions and identifies 25 further subsections of SCUPIA that specify the attributes of 26 prudent conduct. 27 Origins. The prudence standard for trust investing traces back to 28 Harvard College v. Amory, 26 Mass. (9 Pick.) 446 (1830). 29 Trustees should “observe how men of prudence, discretion and 30 intelligence manage their own affairs, not in regard to speculation, 31 but in regard to the permanent disposition of their funds, 32 considering the probable income, as well as the probable safety of 33 the capital to be invested.” Id. at 461. 34 Prior legislation. The Model Prudent Man Rule Statute (1942), 35 sponsored by the American Bankers Association, undertook to 36 codify the language of the Amory case. See Mayo A. Shattuck, The 37 Development of the Prudent Man Rule for Fiduciary Investment in 38 the United States in the Twentieth Century, 12 Ohio State L.J. 491, 39 at 501 (1951); for the text of the model act, which inspired many 40 state statutes, see id. at 50809. Another prominent codification of 41 the Amory standard is Uniform Probate Code § 7302 (1969), which 42 provides that “the trustee shall observe the standards in dealing[1243] 707 1 with the trust assets that would be observed by a prudent man 2 dealing with the property of another ...” [Italics added.] 3 Congress has imposed a comparable prudence standard for the 4 administration of pension and employee benefit trusts in the 5 Employee Retirement Income Security Act (ERISA), enacted in 6 1974. ERISA § 404(a)(1)(B), 29 U.S.C. § 1104(a), provides that “a 7 fiduciary shall discharge his duties with respect to a plan solely in 8 the interest of the participants and beneficiaries and . . . with the 9 care, skill, prudence, and diligence under the circumstances then 10 prevailing that a prudent man acting in a like capacity and 11 familiar with such matters would use in the conduct of an 12 enterprise of like character and with like aims . . . .” [Italics 13 added.] 14 Prior Restatement. The Restatement of Trusts 2d (1959) also 15 tracked the language of the Amory case: “In making investments of 16 trust funds the trustee is under a duty to the beneficiary ... to make 17 such investments and only such investments as a prudent man 18 would make of his own property having in view the preservation 19 of the estate and the amount and regularity of the income to be 20 derived . . . .” Restatement of Trusts 2d § 227 (1959). 21 Objective standard. The concept of prudence in the judicial 22 opinions and legislation is essentially relational or comparative. It 23 resembles in this respect the “reasonable person” rule of tort law. 24 A prudent trustee behaves as other trustees similarly situated 25 would behave. The standard is, therefore, objective rather than 26 subjective. SCUPIA subsections 627933(C) through (G) identify 27 the main factors that bear on prudent investment behavior. 28 Variation. Almost all of the rules of trust law are default rules, 29 that is, rules that the settlor may alter or abrogate. SCUPIA 30 subsection 627933(B)(2) carries forward this traditional attribute 31 of trust law. Traditional trust law also allows the beneficiaries of 32 the trust to excuse its performance, when they are all capable and 33 not misinformed. Restatement of Trusts 2d § 216 (1959). 34 Subsection 627933(C) 35 SCUPIA subsection (C) is the heart of the Act. Subsections (C) 36 (1), (2) and (3) are patterned loosely on the language of te 37 Restatement of Trusts 3d: Prudent Investor Rule § 227 (1992), and 38 on the 1991 Illinois statute, 760 § ILCS 5/5a (1992). Subsection 39 (C)(6) is derived from Uniform Probate Code § 7302 (1969). 40 Objective Standard. SCUPIA subsection (C)(1) carries forward 41 the relational and objective standard made familiar in the Amory 42 case, in earlier prudent investor legislation, and in the 43 Restatements. Early formulations of the prudent person rule were[1243] 708 1 sometimes troubled by the effort to distinguish between the 2 standard of a prudent person investing for another and investing on 3 his or her own account. The language of SCUPIA subsection (C) 4 (1), by relating the trustee’s duty to “the purposes, terms, 5 distribution requirements, and other circumstances of the trust,” 6 should put such questions to rest. The standard is the standard of 7 the prudent investor similarly situated. 8 Portfolio Standard. SCUPIA subsection (C)(2) emphasizes the 9 consolidated portfolio standard for evaluating investment 10 decisions. An investment that might be imprudent standing alone 11 can become prudent if undertaken in sensible relation to other trust 12 assets, or to other nontrust assets. In the trust setting the term 13 “portfolio” embraces the entire trust estate. 14 Risk and Return. SCUPIA subsection (C)(2) also sounds the 15 main theme of modern investment practice, sensitivity to the 16 risk/return curve. See generally the works cited in the Prefatory 17 Note to this Act, under “Literature.” Returns correlate strongly 18 with risk, but tolerance for risk varies greatly with the financial 19 and other circumstances of the investor, or in the case of a trust, 20 with the purposes of the trust and the relevant circumstances of the 21 beneficiaries. A trust whose main purpose is to support an elderly 22 widow of modest means will have a lower risk tolerance than a 23 trust to accumulate for a young scion of great wealth. 24 SCUPIA subsection (C)(2) of this Act follows Restatement of 25 Trusts 3d: Prudent Investor Rule § 227(a), which provides that the 26 standard of prudent investing “requires the exercise of reasonable 27 care, skill, and caution, and is to be applied to investments not in 28 isolation but in the context of the trust portfolio and as a part of an 29 overall investment strategy, which should incorporate risk and 30 return objectives reasonably suitable to the trust.” 31 Factors Affecting Investment. SCUPIA subsection (C)(3) points 32 to certain of the factors that commonly bear on risk/return 33 preferences in fiduciary investing. This listing is nonexclusive. Tax 34 considerations, such as preserving the stepped up basis on death 35 under Internal Revenue Code § 1014 for lowbasis assets, have 36 traditionally been exceptionally important in estate planning for 37 affluent persons. Under the present recognition rules of the federal 38 income tax, taxable investors, including trust beneficiaries, are in 39 general best served by an investment strategy that minimizes the 40 taxation incident to portfolio turnover. See generally Robert H. 41 Jeffrey & Robert D. Arnott, Is Your Alpha Big Enough to Cover 42 Its Taxes?, Journal of Portfolio Management 15 (Spring 1993).[1243] 709 1 Another familiar example of how tax considerations bear upon 2 trust investing: In a regime of passthrough taxation, it may be 3 prudent for the trust to buy lower yielding taxexempt securities for 4 highbracket taxpayers, whereas it would ordinarily be imprudent 5 for the trustees of a charitable trust, whose income is tax exempt, 6 to accept the lowered yields associated with taxexempt securities. 7 When tax considerations affect beneficiaries differently, the 8 trustee’s duty of impartiality requires attention to the competing 9 interests of each of them. 10 Duty to Monitor. SCUPIA subsection (C)(1) through (4) apply 11 both to investing and managing trust assets. “Managing” embraces 12 monitoring, that is, the trustee’s continuing responsibility for 13 oversight of the suitability of investments already made as well as 14 the trustee’s decisions respecting new investments. 15 Duty to Investigate. SCUPIA subsection (C)(4) carries forward 16 the traditional responsibility of the fiduciary investor to examine 17 information likely to bear importantly on the value or the security 18 of an investment for example, audit reports or records of title. 19 E.g., Estate of Collins, 72 Cal. App. 3d 663, 139 Cal. Rptr. 644 20 (1977) (trustees lent on a junior mortgage on unimproved real 21 estate, failed to have land appraised, and accepted an unaudited 22 financial statement; held liable for losses). 23 Abrogating Categoric Restrictions. SCUPIA subsection (C)(5) 24 (a) clarifies that no particular kind of property or type of 25 investment is inherently imprudent. Traditional trust law was 26 encumbered with a variety of categoric exclusions, such as 27 prohibitions on junior mortgages or new ventures. In some states 28 legislation created socalled “legal lists” of approved trust 29 investments. The universe of investment products changes 30 incessantly. Investments that were at one time thought too risky, 31 such as equities, or more recently, futures, are now used in 32 fiduciary portfolios. By contrast, the investment that was at one 33 time thought ideal for trusts, the longterm bond, has been 34 discovered to import a level of risk and volatility in this case, 35 inflation risk that had not been anticipated. Accordingly, SCUPIA 36 subssection (C)(5)(a) follows Restatement of Trusts 3d: Prudent 37 Investor Rule in abrogating categoric restrictions. The Restatement 38 says: “Specific investments or techniques are not per se prudent or 39 imprudent. The riskiness of a specific property, and thus the 40 propriety of its inclusion in the trust estate, is not judged in the 41 abstract but in terms of its anticipated effect on the particular 42 trust’s portfolio.” Restatement of Trusts 3d: Prudent Investor Rule 43 § 227, Comment f, at 24 (1992). The premise of SCUPIA[1243] 710 1 subsection (C)(5)(a) is that trust beneficiaries are better protected 2 by the Act’s emphasis on close attention to risk/return objectives 3 as prescribed in SCUPIA subsection (C)(2) than in attempts to 4 identify categories of investment that are per se prudent or 5 imprudent. 6 The Act impliedly disavows the emphasis in older law on 7 avoiding “speculative” or “risky” investments. Low levels of risk 8 may be appropriate in some trust settings but inappropriate in 9 others. It is the trustee’s task to invest at a risk level that is suitable 10 to the purposes of the trust. 11 Professional Fiduciaries. 12 The ULC Drafting Committee declined the suggestion that the 13 Uniform Prudent Investor Act (UPIA) should create an exception 14 to the prudent investor rule (or to the diversification requirement of 15 UPIA Section 3) in the case of smaller trusts. The Committee 16 believes that UPIA subsections 2(b) and (c) (SCUPIA subsections 17 (C)(2) and (3) emphasize factors that are sensitive to the traits of 18 small trusts. Furthermore, it is always open to the settlor of a trust 19 under UPIA subsection 1 (b) (SCUPIA subsection (B)(2)) to 20 reduce the trustee’s standard of care if the settlor deems such a step 21 appropriate. The official comments to the 1992 Restatement 22 observe that pooled investments, such as mutual funds and bank 23 common trust funds, are especially suitable for small trusts. 24 Restatement of Trusts 3d: Prudent Investor Rule § 227, Comments 25 h, m, at 28, 51; reporter’s note to Comment g, id. at 83. 26 Matters of Proof. Although virtually all express trusts are 27 created by written instrument, oral trusts are known, and 28 accordingly, this Act presupposes no formal requirement that trust 29 terms be in writing. When there is a written trust instrument, 30 modern authority strongly favors allowing evidence extrinsic to the 31 instrument to be consulted for the purpose of ascertaining the 32 settlor’s intent. See Uniform Probate Code Sec. 2601 (1990), 33 Comment; Restatement (Third) of Property: Donative Transfers 34 (Preliminary Draft No. 2, ch. 11, Sept. 11, 1992). 35 Subsection 627933(D) 36 The language of this SCUPIA subsection derives from 37 Restatement of Trusts 2d § 228 (1959). ERISA insists upon a 38 comparable rule for pension trusts. ERISA § 404(a)(1)(C), 29 39 U.S.C. § 1104(a)(1)(C). Case law overwhelmingly supports the 40 duty to diversify. See Annot., Duty of Trustee to Diversify 41 Investments, and Liability for Failure to Do So, 24 A.L.R. 3d 730 42 (1969) & 1992 Supp. at 7879.[1243] 711 1 The 1992 Restatement of Trusts takes the significant step of 2 integrating the diversification requirement into the concept of 3 prudent investing. Section 227(b) of the 1992 Restatement treats 4 diversification as one of the fundamental elements of prudent 5 investing, replacing the separate section 228 of the Restatement of 6 Trusts 2d. The message of the 1992 Restatement, carried forward 7 in SCUPIA subsection (D) is that prudent investing ordinarily 8 requires diversification. 9 Circumstances can, however, overcome the duty to diversify. 10 For example, if a taxsensitive trust owns an underdiversified block 11 of lowbasis securities, the tax costs of recognizing the gain may 12 outweigh the advantages of diversifying the holding. The wish to 13 retain a family business is another situation in which the purposes 14 of the trust sometimes override the conventional duty to diversify. 15 Rationale for Diversification. “Diversification reduces risk . . . 16 [because] stock price movements are not uniform. They are 17 imperfectly correlated. This means that if one holds a well 18 diversified portfolio, the gains in one investment will cancel out 19 the losses in another.” Jonathan R. Macey, An Introduction to 20 Modern Financial Theory 20 (American College of Trust and 21 Estate Counsel Foundation, 1991). For example, during the Arab 22 oil embargo of 1973, international oil stocks suffered declines, but 23 the shares of domestic oil producers and coal companies 24 benefitted. Holding a broad enough portfolio allowed the investor 25 to set off, to some extent, the losses associated with the embargo. 26 Modern portfolio theory divides risk into the categories of 27 “compensated” and “uncompensated” risk. The risk of owning 28 shares in a mature and wellmanaged company in a settled industry 29 is less than the risk of owning shares in a startup hightechnology 30 venture. The investor requires a higher expected return to induce 31 the investor to bear the greater risk of disappointment associated 32 with the startup firm. This is compensated risk the firm pays the 33 investor for bearing the risk. By contrast, nobody pays the investor 34 for owning too few stocks. The investor who owned only 35 international oils in 1973 was running a risk that could have been 36 reduced by having configured the portfolio differently to include 37 investments in different industries. This is uncompensated risk 38 nobody pays the investor for owning shares in too few industries 39 and too few companies. Risk that can be eliminated by adding 40 different stocks (or bonds) is uncompensated risk. The object of 41 diversification is to minimize this uncompensated risk of having 42 too few investments. “As long as stock prices do not move exactly 43 together, the risk of a diversified portfolio will be less than the[1243] 712 1 average risk of the separate holdings.” R.A. Brealey, An 2 Introduction to Risk and Return from Common Stocks 103 (2d ed. 3 1983). 4 There is no automatic rule for identifying how much 5 diversification is enough. The 1992 Restatement says: “Significant 6 diversification advantages can be achieved with a small number of 7 wellselected securities representing different industries . . . . 8 Broader diversification is usually to be preferred in trust 9 investing,” and pooled investment vehicles “make thorough 10 diversification practical for most trustees.” Restatement of Trusts 11 3d: Prudent Investor Rule § 227, General Note on Comments eh, at 12 77 (1992). See also Macey, supra, at 2324; Brealey, supra, at 13 11113. 14 Diversifying by Pooling. It is difficult for a small trust fund to 15 diversify thoroughly by constructing its own portfolio of 16 individually selected investments. Transaction costs such as the 17 roundlot (100 shares) trading economies make it relatively 18 expensive for a small investor to assemble a broad enough 19 portfolio to minimize uncompensated risk. For this reason, pooled 20 investment vehicles have become the main mechanism for 21 facilitating diversification for the investment needs of smaller 22 trusts. 23 Most states have legislation authorizing common trust funds; see 24 3 Austin W. Scott & William F. Fratcher, The Law of Trusts § 25 227.9, at 46365 n.26 (4th ed. 1988) (collecting citations to state 26 statutes). As of 1992, 35 states and the District of Columbia had 27 enacted the Uniform Common Trust Fund Act (UCTFA) (1938), 28 overcoming the rule against commingling trust assets and 29 expressly enabling banks and trust companies to establish common 30 trust funds. 7 Uniform Laws Ann. 1992 Supp. at 130 (schedule of 31 adopting states). The Prefatory Note to the UCTFA explains: “The 32 purposes of such a common or joint investment fund are to 33 diversify the investment of the several trusts and thus spread the 34 risk of loss, and to make it easy to invest any amount of trust funds 35 quickly and with a small amount of trouble.” 7 Uniform Laws 36 Ann. 402 (1985). 37 Fiduciary Investing in Mutual Funds. Trusts can also achieve 38 diversification by investing in mutual funds. See Restatement of 39 Trusts 3d: Prudent Investor Rule, § 227, Comment m, at 99100 40 (1992) (endorsing trust investment in mutual funds). ERISA § 41 401(b)(1), 29 U.S.C. § 1101(b)(1), expressly authorizes pension 42 trusts to invest in mutual funds, identified as securities “issued by[1243] 713 1 an investment company registered under the Investment Company 2 Act of 1940 . . . .” 3 Subsection 627933(E) 4 SCUPIA subsection (E), requiring the trustee to dispose of 5 unsuitable assets within a reasonable time, is old law, codified in 6 Restatement of Trusts 3d: Prudent Investor Rule § 229 (1992), 7 lightly revising Restatement of Trusts 2d § 230 (1959). The duty 8 extends as well to investments that were proper when purchased 9 but subsequently become improper. Restatement of Trusts 2d § 10 231 (1959). The same standards apply to successor trustees, see 11 Restatement of Trusts 2d § 196 (1959). 12 The question of what period of time is reasonable turns on the 13 totality of factors affecting the asset and the trust. The 1959 14 Restatement took the view that “ordinarily any time within a year 15 is reasonable, but under some circumstances a year may be too 16 long a time and under other circumstances a trustee is not liable 17 although he fails to effect the conversion for more than a year.” 18 Restatement of Trusts 2d § 230, comment b (1959). The 1992 19 Restatement retreated from this rule of thumb, saying, “No 20 positive rule can be stated with respect to what constitutes a 21 reasonable time for the sale or exchange of securities.” 22 Restatement of Trusts 3d: Prudent Investor Rule § 229, comment b 23 (1992). 24 The criteria and circumstances identified in SCUPIA subsection 25 (C)(3) as bearing upon the prudence of decisions to invest and 26 manage trust assets also pertain to the prudence of decisions to 27 retain or dispose of inception assets under this section. 28 Subsection 627933(G) 29 This subsection derives from the 1991 Illinois act, 760 ILCS 30 5/5(a)(2) (1992), which draws upon Restatement of Trusts 3d: 31 Prudent Investor Rule § 227, comment b, at 11 (1992). Trustees 32 are not insurers. Not every investment or management decision 33 will turn out in the light of hindsight to have been successful. 34 Hindsight is not the relevant standard. In the language of law and 35 economics, the standard is ex ante, not ex post. 36 Subsection 627933(I): 37 This provision meant to facilitate incorporation of the Act by 38 means of the formulaic language commonly used in trust 39 instruments. 40 41 Part 10 42 43 Liability of Trustees and Rights of Persons Dealing With Trustee[1243] 714 1 2 3 General Comment 4 Sections 6271001 through 6271009 identify the remedies for 5 breach of trust, describe how money damages are to be 6 determined, and specify potential defenses. Section 6271001 lists 7 the remedies for breach of trust and specifies when a breach of 8 trust occurs. A breach of trust occurs when the trustee breaches 9 one of the duties contained in Article 8 or elsewhere in the Code. 10 The remedies for breach of trust in Section 6271001 are broad and 11 flexible. Section 6271002 provides how money damages for 12 breach of trust are to be determined. The standard for determining 13 money damages rests on two principles: (1) the trust should be 14 restored to the position it would have been in had the harm not 15 occurred; and (2) the trustee should not be permitted to profit from 16 the trustee’s own wrong. Section 6271003 holds a trustee 17 accountable for profits made from the trust even in the absence of 18 a breach of trust. Section 6271004 reaffirms the court’s power in 19 equity to award costs and attorney’s fees as justice requires. 20 Sections 6271005 through 6271009 deal with potential defenses. 21 Section 6271005 provides a statute of limitations on actions 22 against a trustee. Section 6271006 protects a trustee who acts in 23 reasonable reliance on the terms of a written trust instrument. 24 Section 6271007 protects a trustee who has exercised reasonable 25 care to ascertain the happening of events that might affect 26 distribution, such as a beneficiary’s marriage or death. Section 27 6271008 describes the effect and limits on the use of an 28 exculpatory clause. Section 6271009 deals with the standards for 29 recognizing beneficiary approval of acts of the trustee that might 30 otherwise constitute a breach of trust. 31 Sections 6271010 through 6271013 address trustee relations 32 with persons other than beneficiaries. The emphasis is on 33 encouraging third parties to engage in commercial transactions to 34 the same extent as if the property were not held in trust. Section 35 6271010 negates personal liability on contracts entered into by the 36 trustee if the fiduciary capacity was properly disclosed. The trustee 37 is also relieved from liability for torts committed in the course of 38 administration unless the trustee was personally at fault. Section 39 6271011 negates personal liability for contracts entered into by 40 partnerships in which the trustee is a general partner as long as the 41 fiduciary capacity was disclosed in the contract or partnership 42 certificate. Section 6271012 protects persons other than 43 beneficiaries who deal with a trustee in good faith and without[1243] 715 1 knowledge that the trustee is exceeding or improperly exercising a 2 power. Section 6271013 permits a third party to rely on a 3 certification of trust, thereby reducing the need for a third party to 4 request a copy of the complete trust instrument. 5 Much of this Part is not subject to override in the terms of the 6 trust. The settlor may not limit the rights of persons other than 7 beneficiaries as provided in Sections 6271010 through 6271013, 8 nor interfere with the court’s ability to take such action to remedy 9 a breach of trust as may be necessary in the interests of justice. See 10 Section 627105. 11 12 Section 6271001. (a) A violation by a trustee of a duty the 13 trustee owes to a beneficiary is a breach of trust. 14 (b) To remedy a breach of trust that has occurred or may occur, 15 the court may: 16 (1) compel the trustee to perform the trustee’s duties; 17 (2) enjoin the trustee from committing a breach of trust; 18 (3) compel the trustee to redress a breach of trust by paying 19 money, restoring property, or other means; 20 (4) order a trustee to account; 21 (5) appoint a special fiduciary to take possession of the trust 22 property and administer the trust; 23 (6) suspend the trustee; 24 (7) remove the trustee as provided in Section 627706; 25 (8) reduce or deny compensation to the trustee; 26 (9) subject to Section 6271012, void an act of the trustee, 27 impose a lien or a constructive trust on trust property, or trace trust 28 property wrongfully disposed of and recover the property or its 29 proceeds; or 30 (10) order any other appropriate relief. 31 32 REPORTER’S COMMENT 33 34 This section codifies the remedies available to rectify or to 35 prevent a breach of trust for violation of a duty owed to a 36 beneficiary. The duties that a trust might breach include those 37 contained in Part 8 in addition to those specified elsewhere in the 38 Code. 39 Although subsections (b)(2) through (b)(9) list specific 40 remedies, subsection (b)(10) provides a general statement of 41 available remedies, which essentially confirms broad authority in 42 the court to fashion an appropriate remedy for breach of trust.[1243] 716 1 This section identifies the available remedies but does not 2 attempt to cover the refinements and exceptions developed in case 3 law. The availability of a remedy in a particular circumstance will 4 be determined not only by this Code but also by the common law 5 of trusts and principles of equity. See Section 627106. 6 Beneficiaries and cotrustees have standing to bring a petition to 7 remedy a breach of trust. Following a successor trustee’s 8 acceptance of office, a successor trustee has standing to sue a 9 predecessor for breach of trust. See Restatement (Second) of Trusts 10 Section 200 (1959). A person who may represent a beneficiary’s 11 interest under Part 3 would have standing to bring a petition on 12 behalf of the person represented. In the case of a charitable trust, 13 those with standing include the state attorney general, a charitable 14 organization expressly designated to receive distributions under 15 the terms of the trust, and other persons with a special interest. See 16 Section 627110 & Restatement (Second) of Trusts Section 391 17 (1959). A person appointed to enforce a trust for an animal or a 18 trust for a noncharitable purpose would have standing to sue for a 19 breach of trust. See Sections 627110(c), 627408, 627409. 20 Traditionally, remedies for breach of trust at law were limited to 21 suits to enforce unconditional obligations to pay money or deliver 22 chattels. See Restatement (Second) of Trusts Section 198 (1959). 23 Otherwise, remedies for breach of trust were exclusively equitable, 24 and as such, punitive damages were not available and findings of 25 fact were made by the judge and not a jury. See Restatement 26 (Second) of Trusts Section 197 (1959). 27 The remedies identified in this section are derived from 28 Restatement (Second) of Trusts Section 199 (1959). The reference 29 to payment of money in subsection (b)(3) includes liability that 30 might be characterized as damages, restitution, or surcharge. For 31 the measure of liability, see Section 6271002. Subsection (b)(5) 32 makes explicit the court’s authority to appoint a special fiduciary, 33 also sometimes referred to as a receiver. See Restatement (Second) 34 of Trusts Section 199(d) (1959). The authority of the court to 35 appoint a special fiduciary is not limited to actions alleging breach 36 of trust but is available whenever the court, exercising its equitable 37 jurisdiction, concludes that an appointment would promote 38 administration of the trust. See Section 627704(e) (special 39 fiduciary may be appointed whenever court considers such 40 appointment necessary for administration). 41 Subsection (b)(8), which allows the court to reduce or deny 42 compensation, is in accord with Restatement (Second) of Trusts 43 Section 243 (1959). For the factors to consider in setting a trustee’s[1243] 717 1 compensation absent breach of trust, see Section 627708 and 2 Comment. In deciding whether to reduce or deny a trustee 3 compensation, the court may wish to consider (1) whether the 4 trustee acted in good faith; (2) whether the breach of trust was 5 intentional; (3) the nature of the breach and the extent of the loss; 6 (4) whether the trustee has restored the loss; and (5) the value of 7 the trustee’s services to the trust. See Restatement (Second) of 8 Trusts Section 243 cmt. c (1959). 9 The authority under subsection (b)(9) to set aside wrongful acts 10 of the trustee is a corollary of the power to enjoin a threatened 11 breach as provided in subsection (b)(2). However, in setting aside 12 the wrongful acts of the trustee the court may not impair the rights 13 of bona fide purchasers protected under Section 6271012. See 14 Restatement (Second) of Trusts Section 284 (1959). 15 16 Section 6271002. (a) A trustee who commits a breach of trust 17 is liable to the beneficiaries affected for the greater of: 18 (1) the amount required to restore the value of the trust 19 property and trust distributions to what they would have been had 20 the breach not occurred; or 21 (2) the profit the trustee made by reason of the breach. 22 (b) Except as otherwise provided in this subsection, if more 23 than one trustee is liable to the beneficiaries for a breach of trust, a 24 trustee is entitled to contribution from the other trustee or trustees. 25 A trustee is not entitled to contribution if the trustee was 26 substantially more at fault than another trustee or if the trustee 27 committed the breach of trust in bad faith or with reckless 28 indifference to the purposes of the trust or the interests of the 29 beneficiaries. A trustee who received a benefit from the breach of 30 trust is not entitled to contribution from another trustee to the 31 extent of the benefit received. 32 33 REPORTER’S COMMENT 34 35 Subsection (a) is based on Restatement (Third) of Trusts: 36 Prudent Investor Rule Section 205 (1992). If a trustee commits a 37 breach of trust, the beneficiaries may either affirm the transaction 38 or, if a loss has occurred, hold the trustee liable for the amount 39 necessary to compensate fully for the consequences of the breach. 40 This may include recovery of lost income, capital gain, or 41 appreciation that would have resulted from proper administration. 42 Even if a loss has not occurred, the trustee may not benefit from[1243] 718 1 the improper action and is accountable for any profit the trustee 2 made by reason of the breach. 3 For extensive commentary on the determination of damages, 4 traditionally known as trustee surcharge, with numerous specific 5 applications, see Restatement (Third) of Trusts: Prudent Investor 6 Rule Sections 205213 (1992). For the use of benchmark portfolios 7 to determine damages, see Restatement (Third) of Trusts: Prudent 8 Investor Rule Reporter’s Notes to Sections 205 and 208211 9 (1992). On the authority of a court of equity to reduce or excuse 10 damages for breach of trust, see Restatement (Second) of Trusts 11 Section 205 cmt. g (1959). For purposes of this section and 12 Section 6271003, “profit” does not include the trustee’s 13 compensation. A trustee who has committed a breach of trust is 14 entitled to reasonable compensation for administering the trust 15 unless the court reduces or denies the trustee compensation 16 pursuant to Section 6271001(b)(8). 17 Subsection (b) is based on Restatement (Second) of Trusts 18 Section 258 (1959). Cotrustees are jointly and severally liable for a 19 breach of trust if there was joint participation in the breach. Joint 20 and several liability also is imposed on a nonparticipating cotrustee 21 who, as provided in Section 627703(g), failed to exercise 22 reasonable care (1) to prevent a cotrustee from committing a 23 serious breach of trust, or (2) to compel a cotrustee to redress a 24 serious breach of trust. Joint and several liability normally carries 25 with it a right in any trustee to seek contribution from a cotrustee 26 to the extent the trustee has paid more than the trustee’s 27 proportionate share of the liability. Subsection (b), consistent with 28 Restatement (Second) of Trusts Section 258 (1959), creates an 29 exception. A trustee who was substantially more at fault or 30 committed the breach of trust in bad faith or with reckless 31 indifference to the purposes of the trust or the interests of the 32 beneficiaries is not entitled to contribution from the other trustees. 33 Determining degrees of comparative fault is a question of fact. 34 The fact that one trustee was more culpable or more active than 35 another does not necessarily establish that this trustee was 36 substantially more at fault. Nor is a trustee substantially less at 37 fault because the trustee did not actively participate in the breach. 38 See Restatement (Second) of Trusts Section 258 cmt. e (1959). 39 Among the factors to consider: (1) Did the trustee fraudulently 40 induce the other trustee to join in the breach? (2) Did the trustee 41 commit the breach intentionally while the other trustee was at most 42 negligent? (3) Did the trustee, because of greater experience or 43 expertise, control the actions of the other trustee? (4) Did the[1243] 719 1 trustee alone commit the breach with liability imposed on the other 2 trustee only because of an improper delegation or failure to 3 properly monitor the actions of the cotrustee? See Restatement 4 (Second) of Trusts Section 258 cmt. d (1959). 5 6 Section 6271003. (a) A trustee is accountable to an affected 7 beneficiary for any profit made by the trustee arising from the 8 administration of the trust, even absent a breach of trust. 9 (b) Absent a breach of trust, a trustee is not liable to a 10 beneficiary for a loss or depreciation in the value of trust property 11 or for not having made a profit. 12 13 REPORTER’S COMMENT 14 15 The principle on which a trustee’s duty of loyalty is premised is 16 that a trustee should not be allowed to use the trust as a means for 17 personal profit other than for routine compensation earned. While 18 most instances of personal profit involve situations where the 19 trustee has breached the duty of loyalty, not all cases of personal 20 profit involve a breach of trust. Subsection (a), which holds a 21 trustee accountable for any profit made, even absent a breach of 22 trust, is based on Restatement (Second) of Trusts Section 203 23 (1959). A typical example of a profit is receipt by the trustee of a 24 commission or bonus from a third party for actions relating to the 25 trust’s administration. See Restatement (Second) of Trusts Section 26 203 cmt. a (1959). 27 A trustee is not an insurer. Similar to Restatement (Second) of 28 Trusts Section 204 (1959), subsection (b) provides that absent a 29 breach of trust a trustee is not liable for a loss or depreciation in 30 the value of the trust property or for failure to make a profit. 31 For purposes of this section and Section 6271002, “profit” does 32 not include the trustee’s compensation. A trustee who has 33 committed a breach of trust is entitled to reasonable compensation 34 for administering the trust unless the court reduces or denies the 35 trustee compensation pursuant to Section 6271001(b)(8). 36 37 Section 6271004. In a judicial proceeding involving the 38 administration of a trust, the court, as justice and equity may 39 require, may award costs and expenses, including reasonable 40 attorney’s fees, to any party, to be paid by another party or from 41 the trust that is the subject of the controversy. 42 43 REPORTER’S COMMENT[1243] 720 1 2 This section is similar to former South Carolina Probate Code 3 Section 627204 Paragraph (B) which granted to the probate court 4 concurrent jurisdiction with the circuit courts of South Carolina 5 over attorney’s fees. As that section states, “Attorney’s fees may 6 be set at a fixed or hourly rate or by contingency fee.” SCTC 7 Section 6271004 goes further by codifying the power of the courts 8 to award costs and expenses. This section codifies the court’s 9 historic authority to award costs and fees, including reasonable 10 attorney’s fees, in judicial proceedings grounded in equity. The 11 court may award a party its own fees and costs from the trust. The 12 court may also charge a party’s costs and fees against another 13 party to the litigation. Generally, litigation expenses were at 14 common law chargeable against another party only in the case of 15 egregious conduct such as bad faith or fraud. With respect to a 16 party’s own fees, Section 627709 authorizes a trustee to recover 17 expenditures properly incurred in the administration of the trust. 18 The court may award a beneficiary litigation costs if the litigation 19 is deemed beneficial to the trust. Sometimes, litigation brought by 20 a beneficiary involves an allegation that the trustee has committed 21 a breach of trust. On other occasions, the suit by the beneficiary is 22 brought because of the trustee’s failure to take action against a 23 third party, such as to recover property properly belonging to the 24 trust. For the authority of a beneficiary to bring an action when the 25 trustee fails to take action against a third party, see Restatement 26 (Second) of Trusts Sections 281282 (1959). For the case law on 27 the award of attorney’s fees and other litigation costs, see 3 Austin 28 W. Scott & William F. Fratcher, The Law of Trusts Sections 188.4 29 (4th ed. 1988). 30 31 Section 6271005. (a) Unless previously barred by 32 adjudication, consent, or limitation, a beneficiary may not 33 commence a proceeding against a trustee for breach of trust more 34 than one year after the date the beneficiary or a representative of 35 the beneficiary was sent a report that adequately disclosed the 36 existence of a potential claim for breach of trust. 37 (b) A report adequately discloses the existence of a potential 38 claim for breach of trust if it provides sufficient information so that 39 the beneficiary or representative knows of the potential claim or 40 should have inquired into its existence. 41 (c) If subsection (a) does not apply, a judicial proceeding by a 42 beneficiary or on behalf of a beneficiary against a trustee for[1243] 721 1 breach of trust must be commenced within three years after the 2 first to occur of: 3 (1) the removal, resignation, or death of the trustee; 4 (2) the termination of the beneficiary’s interest in the trust; 5 or 6 (3) the termination of the trust. 7 8 REPORTER’S COMMENT 9 10 This section is similar in content to former South Carolina 11 Probate Code Section 627307. Both sections establish a statute of 12 limitations especially applicable to trustees’ liabilities to trust 13 beneficiaries for breach of trust. SCTC Section 6271005 sets the 14 limit for commencing a proceeding against a trustee for breach of 15 trust at one year after receiving a report from the trustee or its 16 representative that provides sufficient information so that the 17 beneficiary or representative should know of or be on inquiry 18 notice about the claim. In other cases, the threeyear limitation 19 period applies. 20 SCTC Section 6271005(a) does not adopt the Uniform Trust 21 Code requirement that, for the oneyear statute to commence, the 22 report inform the beneficiary of the limitations period. SCTC 23 Section 6271005(c) reduces the UTC limitations period from five 24 to three years. 25 The oneyear and threeyear limitations periods under this section 26 are not the only means for barring an action by a beneficiary. A 27 beneficiary may be foreclosed by consent, release, or ratification as 28 provided in Section 6271009. Claims may also be barred by 29 principles such as estoppel and laches arising in equity under the 30 common law of trusts. See Section 627106. 31 The representative referred to in subsection (a) is the person 32 who may represent and bind a beneficiary as provided in Part 3. 33 During the time that a trust is revocable and the settlor has 34 capacity, the person holding the power to revoke is the one who 35 must receive the report. See Section 627603(a) (rights of settlor of 36 revocable trust). 37 This section addresses only the issue of when the clock will start 38 to run for purposes of the statute of limitations. If the trustee 39 wishes to foreclose possible claims immediately, a consent to the 40 report or other information may be obtained pursuant to Section 41 6271009. For the provisions relating to the duty to report to 42 beneficiaries, see Section 627813.[1243] 722 1 Subsection (a) applies only if the trustee has furnished a report. 2 The oneyear statute of limitations does not begin to run against a 3 beneficiary who has waived the furnishing of a report as provided 4 in Section 627813(e). 5 Subsection (c) is intended to provide some ultimate repose for 6 actions against a trustee. It applies to cases in which the trustee 7 has failed to report to the beneficiaries or the report did not meet 8 the disclosure requirements of subsection (b). It also applies to 9 beneficiaries who did not receive notice of the report, whether 10 personally or through representation. While the threeyear 11 limitations period will normally begin to run on termination of the 12 trust, it can also begin earlier. If a trustee leaves office prior to the 13 termination of the trust, the limitations period for actions against 14 that particular trustee begins to run on the date the trustee leaves 15 office. If a beneficiary receives a final distribution prior to the 16 date the trust terminates, the limitations period for actions by that 17 particular beneficiary begins to run on the date of final 18 distribution. 19 If a trusteeship terminates by reason of death, a claim against the 20 trustee’s estate for breach of fiduciary duty would, like other 21 claims against the trustee’s estate, be barred by a probate creditor’s 22 claim statute even though the statutory period prescribed by this 23 section has not yet expired. 24 This section does not specifically provide that the statutes of 25 limitations under this section are tolled for fraud or other 26 misdeeds, leaving the resolution of this question to other law of the 27 State. 28 29 Section 6271005A. (A) If a trust instrument provides that a 30 trustee is to follow the direction of a trust protector and the trustee 31 acts in accordance with such direction, then except in cases of wilful 32 misconduct on the part of the trustee so directed, the trustee is not 33 liable directly or indirectly from any such act. 34 (B) If a trust instrument provides that a trustee is to make 35 decisions with the consent of a trust protector, then except in cases of 36 wilful misconduct or gross negligence on the part of the trustee, the 37 trustee is not liable for any loss resulting directly or indirectly from 38 any act taken or omitted as a result of such trust protector’s failure to 39 provide such consent after having been requested to do so by the 40 trustee. 41 (C) If the trust document provides for a trust protector and the 42 serving trust protector is unwilling or unable to serve or continue to 43 serve and there is no provision for a successor trust protector, the[1243] 723 1 then serving trustee may petition the court having jurisdiction over 2 the trust estate to appoint an individual or a bank or trust company 3 qualified to do business in the state of the settlor’s domicile at the 4 time of the settlor’s death as successor trust protector. 5 (D) A trust protector, other than a beneficiary, is a fiduciary with 6 respect to each power granted to such trust protector. In exercising a 7 power or refraining from exercising any power, a trust protector shall 8 act in good faith and in accordance with the terms and purposes of 9 the trust. 10 (E) A trust protector is an excluded fiduciary with respect to each 11 power granted or reserved exclusively to any one or more other 12 trustees, trust advisors, or trust protectors. 13 14 Section 6271005B. (A) If a trust instrument provides that a 15 trustee is to follow the direction of a trust investment advisor, and the 16 trustee acts in accordance with such a direction, then except in cases 17 of wilful misconduct on the part of the trustee so directed, the trustee 18 is not liable directly or indirectly from any such act. 19 (B) If a trust instrument provides that a trustee is to make 20 decisions with the consent of a trust investment advisor, then except 21 in cases of wilful misconduct or gross negligence on the part of the 22 trustee, the trustee shall not be liable directly or indirectly from any 23 act taken or omitted as a result of such trust investment advisor’s 24 failure to provide such consent after having been requested to do so 25 by the trustee. 26 (C) If a trust instrument provides for a trust investment advisor 27 and the serving trust investment advisor is unwilling or unable to 28 serve or continue to serve and there is no provision for a successor 29 trust investment advisor, the then serving trustee may petition the 30 court having jurisdiction over the trust estate to appoint an individual 31 or a bank or trust company qualified to do business in the state of the 32 settlor’s domicile at the time of the settlor’s death as successor trust 33 investment advisor. 34 (D) A trust investment advisor, other than a beneficiary, is a 35 fiduciary with respect to each power granted to such trust investment 36 advisor. In exercising any power or refraining from exercising any 37 power, a trust investment advisor shall act in good faith and in 38 accordance with the terms and purposes of the trust. 39 (E) A trust investment advisor is an excluded fiduciary with 40 respect to each power granted or reserved exclusively to any one or 41 more other trustees, trust advisors, or trust protectors. 42[1243] 724 1 Section 6271006. A trustee who acts in reasonable reliance on 2 the terms of the trust as expressed in the trust instrument is not 3 liable to a beneficiary for a breach of trust to the extent the breach 4 resulted from the reliance. 5 6 REPORTER’S COMMENT 7 8 Former South Carolina statutes and case law resembled SCTC 9 Section 6271006. Former South Carolina Probate Code Section 10 627302(B)(2), retained and incorporated in Part 9, stated “[a] 11 trustee is not liable to a beneficiary to the extent that the trustee 12 acted in reasonable reliance on the provisions of the trust.” That 13 section is part of the South Carolina Uniform Prudent Investor Act, 14 retained and incorporated in Section 627933, which provides 15 trustee guidelines for the administration of trusts, and specifically 16 relates to the investment and management of trust assets. As a 17 result, that section arguably applies to only the investment and 18 management of the trust corpus. SCTC Section 6271006, 19 however, covers a broader scope because it does not contain 20 language limiting its application to investment and management of 21 trust assets. 22 Prior South Carolina case law could be interpreted to allow 23 trustees to rely not only on terms pertaining to investment and 24 management of the trust, but also to other terms contained in the 25 trust document. South Carolina courts have held “[i]n ascertaining 26 the Settlor’s intent, [a] court must resort first to the language of the 27 trust instrument . . . .” Sarlin v. Sarlin, 312 S.C. 27, 29, 430 S.E. 28 2d 530, 532 (S.C. Ct. App. 1993). One could infer that a trustee 29 should follow the same canons of interpretation as applied by the 30 courts. Additionally, former SCPC Section 627704 encouraged 31 trustees to perform without the assistance of the courts in 32 providing that “a trustee has the power to perform, without court 33 authorization, every act which a prudent man would perform for 34 the purpose of the trust . . . .” This combination of case law and 35 statutory law seems to hold (or at the very least imply) that a 36 trustee could reasonably rely on the terms contained in the trust 37 instrument for all types of provisions, not only those pertaining to 38 the investment and management of trust assets. SCTC Section 39 6271006 provides more certainty with respect to this issue. 40 It sometimes happens that the intended terms of the trust differ 41 from the apparent meaning of the trust instrument. This can occur 42 because the court, in determining the terms of the trust, is allowed 43 to consider evidence extrinsic to the trust instrument. See Section[1243] 725 1 627103(17) (definition of “terms of a trust”). Furthermore, if a 2 trust is reformed on account of mistake of fact or law, as 3 authorized by Section 627415, provisions of a trust instrument can 4 be deleted or contradicted and provisions not in the trust 5 instrument may be added. The concept of the “terms of a trust,” 6 both as defined in this Code and as used in the doctrine of 7 reformation, is intended to effectuate the principle that a trust 8 should be administered and distributed in accordance with the 9 settlor’s intent. However, a trustee should also be able to 10 administer a trust with some dispatch and without concern that a 11 reasonable reliance on the terms of the trust instrument is 12 misplaced. This section protects a trustee who so relies on a trust 13 instrument but only to the extent the breach of trust resulted from 14 such reliance. This section is similar to Section 627933(B)(2), 15 which protects a trustee from liability to the extent that the trustee 16 acted in reasonable reliance on the provisions of the trust. 17 This section protects a trustee only if the trustee’s reliance is 18 reasonable. For example, a trustee’s reliance on the trust 19 instrument would not be justified if the trustee is aware of a prior 20 court decree or binding nonjudicial settlement agreement 21 clarifying or changing the terms of the trust. 22 23 Section 6271007. If the happening of an event, including 24 marriage, divorce, performance of educational requirements, or 25 death, affects the administration or distribution of a trust, a trustee 26 who has exercised reasonable care to ascertain the happening of 27 the event is not liable for a loss resulting from the trustee’s lack of 28 knowledge. 29 30 REPORTER’S COMMENT 31 32 There was no prior South Carolina statute specifically 33 addressing the issue of a trustee’s duty to ascertain the happening 34 of events affecting the administration or distribution of a trust. 35 Prior South Carolina case law essentially stated that a trustee 36 could be held liable for negligently failing to investigate events 37 affecting the status of a beneficiary’s rights to distributions. See 38 Rogers v. Herron, 226 S.C. 317, 85 S.E.2d 104 (S.C. 1954); see 39 also First Union Nat. Bank of South Carolina v. Soden, 511 S.E.2d 40 372 (Ct. App.1998) (essentially applying the same standards to a 41 remainder beneficiary for failing to disclose her father’s 42 remarriage). SCTC Section 6271007 expressly provides protection 43 from liability for trustees who do exercise reasonable care. [1243] 726 1 2 Section 6271008. A term of a trust relieving a trustee of 3 liability for breach of trust is unenforceable to the extent that it: 4 (a) relieves the trustee of liability for breach of trust committed 5 in bad faith or with reckless indifference to the purposes of the 6 trust or the interests of the beneficiaries; or 7 (b) was inserted as the result of an abuse by the trustee of a 8 fiduciary or confidential relationship to the settlor. 9 10 REPORTER’S COMMENT 11 12 Even if the terms of the trust attempt to completely exculpate a 13 trustee for the trustee’s acts, the trustee must always comply with a 14 certain minimum standard. As provided in subsection (a), a trustee 15 must always act in good faith with regard to the purposes of the 16 trust and the interests of the beneficiaries. Subsection (a) is 17 consistent with the standards expressed in Sections 627105 and 18 627814(a), which, similar to this section, place limits on the power 19 of a settlor to negate trustee duties. This section is also similar to 20 Section 222 of the Restatement (Second) of Trusts (1959), except 21 that this Code, unlike the Restatement, allows a settlor to exculpate 22 a trustee for a profit that the trustee made from the trust. 23 South Carolina Trust Code Section 6271008 does not include 24 Uniform Trust Code Section 1008(b) concerning exculpatory 25 terms drafted or caused to be drafted by the trustee. 26 27 Section 6271009. (a) A trustee is not liable to a beneficiary 28 for breach of trust if the beneficiary consented to the conduct 29 constituting the breach, released the trustee from liability for the 30 breach, or ratified the transaction constituting the breach, unless: 31 (1) the consent, release, or ratification of the beneficiary was 32 induced by improper conduct of the trustee; or 33 (2) at the time of the consent, release, or ratification, the 34 beneficiary did not have knowledge of the beneficiary’s rights or 35 of the material facts relating to the breach. 36 (b) No consideration is required for the consent, release or 37 ratification to be valid. 38 39 REPORTER’S COMMENT 40 41 This section is based on Sections 216 through 218 of the 42 Restatement (Second) of Trusts (1959). A consent, release, or 43 affirmance under this section may occur either before or after the[1243] 727 1 approved conduct. This section requires an affirmative act by the 2 beneficiary. A failure to object is not sufficient. See Restatement 3 (Second) of Trusts Section 216 cmt. a (1959). A consent is 4 binding on a consenting beneficiary although other beneficiaries 5 have not consented. See Restatement (Second) of Trusts Section 6 216 cmt. g (1959). To constitute a valid consent, the beneficiary 7 must know of the beneficiary’s rights and of the material facts 8 relating to the breach. See Restatement (Second) of Trusts Section 9 216 cmt. k (1959). If the beneficiary’s approval involves a 10 selfdealing transaction, the approval is binding only if the 11 transaction was fair and reasonable. See Restatement (Second) of 12 Trusts Sections 170(2), 216(3) & cmt. n (1959). 13 An approval by the settlor of a revocable trust or by the holder 14 of a presently exercisable power of withdrawal binds all the 15 beneficiaries. See Section 627603. A beneficiary is also bound to 16 the extent an approval is given by a person authorized to represent 17 the beneficiary as provided in Part 3. 18 The South Carolina Trust Code adds Section 6271009(b) not 19 found in the Uniform Trust Code version. 20 21 Section 6271010. (a) Except as otherwise provided in the 22 contract, a trustee is not personally liable on a contract properly 23 entered into in the trustee’s fiduciary capacity in the course of 24 administering the trust if the trustee in the contract disclosed the 25 fiduciary capacity. 26 (b) A trustee is personally liable for torts committed in the 27 course of administering a trust, or for obligations arising from 28 ownership or control of trust property, including liability for 29 violation of environmental law, only if the trustee is personally at 30 fault. 31 (c) A claim based on a contract entered into by a trustee in the 32 trustee’s fiduciary capacity, on an obligation arising from 33 ownership or control of trust property, or on a tort committed in 34 the course of administering a trust, may be asserted in a judicial 35 proceeding against the trustee in the trustee’s fiduciary capacity, 36 whether or not the trustee is personally liable for the claim. 37 (d) The question of liability as between the trust estate and the 38 trustee individually may be determined in a proceeding for 39 accounting, surcharge, or indemnification or other appropriate 40 proceeding. 41 42 REPORTER’S COMMENT 43[1243] 728 1 Section 6271010(b) is substantially similar to former South 2 Carolina Probate Code Section 627306(b). Section 6271010(b) 3 could be viewed as expanding on a trustee’s exemption from tort 4 liability by its specific reference to excluding trustees from 5 liabilities arising from violation of environmental laws. This 6 specific exemption is not contained in former SCPC Section 7 627306(b). It could be assumed, however, that the general 8 exemption for liability from torts provided by former SCPC 9 Section 627306(b) would cover tort liabilities associated with 10 environmental laws by virtue of the all encompassing general 11 reference to the term “torts.” This assumption, however, is less 12 than certain in light of the Uniform Trust Code Comment to 13 Section 1010, which indicates that UTC subsection 6271010(b) 14 was enacted in response to particular concerns from trustees over 15 this type of liability. UTC Section 1010(c) essentially mirrors 16 Section 627306(c) of the South Carolina Probate Code. 17 SCTC Section 6271010(d) retains and incorporates the 18 provisions of former SCPC Section 627306(d), not found in the 19 UTC version of Section 6271010. 20 21 Section 6271011. (a) Except as otherwise provided in 22 subsection (c) or unless personal liability is imposed in the 23 contract, a trustee who holds an interest as a general partner in a 24 general or limited partnership is not personally liable on a contract 25 entered into by the partnership after the trust’s acquisition of the 26 interest if the fiduciary capacity was disclosed in the contract or in 27 a statement previously filed pursuant to the South Carolina 28 versions of the Uniform Partnership Act or Uniform Limited 29 Partnership Act. 30 (b) Except as otherwise provided in subsection (c), a trustee 31 who holds an interest as a general partner is not personally liable 32 for torts committed by the partnership or for obligations arising 33 from ownership or control of the interest unless the trustee is 34 personally at fault. 35 (c) The immunity provided by this section does not apply if an 36 interest in the partnership is held by the trustee in a capacity other 37 than that of trustee or is held by the trustee’s spouse or one or more 38 of the trustee’s descendants, siblings, or parents, or the spouse of 39 any of them. 40 (d) If the trustee of a revocable trust holds an interest as a 41 general partner, the settlor is personally liable for contracts and 42 other obligations of the partnership as if the settlor were a general 43 partner. [1243] 729 1 2 REPORTER’S COMMENT 3 4 Section 6271011 protects a trustee from personal liability on 5 contracts that the trustee enters into on behalf of the trust. Section 6 6271011 also absolves a trustee from liability for torts committed 7 in administering the trust unless the trustee was personally at fault. 8 It does not protect a trustee from personal liability for contracts 9 entered into or torts committed by a general or limited partnership 10 of which the trustee was a general partner. That is the purpose of 11 this section. Subsection (a) protects the trustee from personal 12 liability for such partnership obligations whether the trustee signed 13 the contract or it was signed by another general partner. 14 Subsection (b) protects a trustee from personal liability for torts 15 committed by the partnership unless the trustee was personally at 16 fault. Protection from the partnership’s contractual obligations is 17 available under subsection (a) only if the other party is on notice of 18 the fiduciary relationship, either in the contract itself or in the 19 partnership certificate on file. 20 Special protection is not needed for other business interests that 21 the trustee may own, such as an interest as a limited partner, a 22 membership interest in an LLC, or an interest as a corporate 23 shareholder. In these cases the nature of the entity or the interest 24 owned by the trustee carries with it its own limitation on liability. 25 Certain exceptions apply. The section is not intended to be used 26 as a device for individuals or their families to shield assets from 27 creditor claims. Consequently, subsection (c) excludes from the 28 protections provided by this section trustees who own an interest in 29 the partnership in another capacity or if an interest is owned by the 30 trustee’s spouse or the trustee’s descendants, siblings, parents, or 31 the spouse of any of them. 32 Nor can a revocable trust be used as a device for avoiding 33 claims against the partnership. Subsection (d) imposes personal 34 liability on the settlor for partnership contracts and other 35 obligations of the partnership the same as if the settlor were a 36 general partner. 37 There was no prior South Carolina statutory or case law 38 counterpart. 39 40 Section 6271012. (a) A person other than a beneficiary who 41 in good faith assists a trustee, or who in good faith and for value 42 deals with a trustee, without knowledge that the trustee is 43 exceeding or improperly exercising the trustee’s powers is[1243] 730 1 protected from liability as if the trustee properly exercised the 2 power. 3 (b) A person other than a beneficiary who in good faith deals 4 with a trustee is not required to inquire into the extent of the 5 trustee’s powers or the propriety of their exercise. 6 (c) A person who in good faith delivers assets to a trustee need 7 not ensure their proper application. 8 (d) A person other than a beneficiary who in good faith assists 9 a former trustee, or who in good faith and for value deals with a 10 former trustee, without knowledge that the trusteeship has 11 terminated is protected from liability as if the former trustee were 12 still a trustee. 13 (e) Comparable protective provisions of other laws relating to 14 commercial transactions or transfer of securities by fiduciaries 15 prevail over the protection provided by this section. 16 17 REPORTER’S COMMENT 18 19 SCTC Section 6271012 is similar to former South Carolina 20 Probate Code Section 627708. SCTC Section 6271012 protects 21 third parties who act in good faith in dealings with trustees. While 22 good faith is not defined in the South Carolina Trust Code, 23 definitions of good faith in the commercial context should be 24 consistent with the purpose of this section, which is to treat 25 commercial transactions with trustees similar to other commercial 26 transactions. In addition, SCTC section 6271012 protects a third 27 party who in good faith deals with a former trustee without 28 knowledge that the trusteeship has terminated. 29 This section is derived from Section 7 of the Uniform Trustee 30 Powers Act. 31 Subsection (a) protects two different classes; persons other than 32 beneficiaries who assist a trustee with a transaction, and persons 33 other than beneficiaries who deal with the trustee for value. As 34 long as the assistance was provided or the transaction was entered 35 into in good faith and without knowledge, third persons in either 36 category are protected in the transaction even if the trustee was 37 exceeding or improperly exercising the power. For the definition 38 of “know,” see Section 627104 39 Subsection (b) confirms that a third party who is acting in good 40 faith is not charged with a duty to inquire into the extent of a 41 trustee’s powers or the propriety of their exercise. The third party 42 may assume that the trustee has the necessary power. 43 Consequently, there is no need to request or examine a copy of the[1243] 731 1 trust instrument. A third party who wishes assurance that the 2 trustee has the necessary authority instead should request a 3 certification of trust as provided in Section 6271013. Subsection 4 (b)is intended to negate the rule, followed by some courts, that a 5 third party is charged with constructive notice of the trust 6 instrument and its contents. The cases are collected in George G. 7 Bogert & George T. Bogert, The Law of Trusts and Trustees 8 Section 897 (Rev. 2d ed. 1995); and 4 Austin W. Scott & William 9 F. Fratcher, The Law of Trusts Section 297 (4th ed. 1989). 10 Subsection (c) protects any person, including a beneficiary, who 11 in good faith delivers property to a trustee. The standard of 12 protection in the Restatement is phrased differently although the 13 result is similar. Under Restatement (Second) of Trusts Section 14 321 (1959), the person delivering property to a trustee is liable if at 15 the time of the delivery the person had notice that the trustee was 16 misapplying or intending to misapply the property 17 Subsection (d) extends the protections afforded by the section to 18 assistance provided to or dealings for value with a former trustee. 19 The third party is protected the same as if the former trustee still 20 held the office. 21 Subsection (e) clarifies that a statute relating to commercial 22 transactions controls whenever both it and this section could apply 23 to a transaction. Consequently, the protections provided by this 24 section are superseded by comparable protective provisions of 25 these other laws. The principal statutes in question are the various 26 articles of the Uniform Commercial Code, including Article 8 on 27 the transfer of securities, as well as the Uniform Simplification of 28 Fiduciary Securities Transfer Act. 29 30 Section 6271013. (a) Instead of furnishing a copy of the trust 31 instrument to a person other than a beneficiary, the trustee may 32 furnish to the person a certification of trust containing the 33 following information: 34 (1) that the trust exists and the date the trust instrument was 35 executed; 36 (2) the identity of the settlor; 37 (3) the identity and address of the currently acting trustee; 38 (4) the powers of the trustee which may make a reference to 39 the powers set forth in the South Carolina Trust Code; 40 (5) the revocability or irrevocability of the trust and the 41 identity of any person holding a power to revoke the trust; [1243] 732 1 (6) the authority of cotrustees to sign or otherwise 2 authenticate and whether all or less than all are required in order to 3 exercise powers of the trustee; and 4 (7) the manner of taking title to trust property. 5 (b) A certification of trust may be signed or otherwise 6 authenticated by any trustee. 7 (c) A certification of trust must state that the trust has not been 8 revoked, modified, or amended in any manner that would cause the 9 representations contained in the certification of trust to be 10 incorrect. 11 (d) A certification of trust need not contain the dispositive 12 terms of a trust. 13 (e) A recipient of a certification of trust may require the trustee 14 to furnish copies of those excerpts from the original trust 15 instrument and later amendments which designate the trustee and 16 confer upon the trustee the power to act in the pending transaction. 17 (f) A person who acts in reliance upon a certification of trust 18 without knowledge that the representations contained therein are 19 incorrect is not liable to any person for so acting and may assume 20 without inquiry the existence of the facts contained in the 21 certification. Knowledge of the terms of the trust may not be 22 inferred solely from the fact that a copy of all or part of the trust 23 instrument is held by the person relying upon the certification. 24 (g) A person who in good faith enters into a transaction in 25 reliance upon a certification of trust may enforce the transaction 26 against the trust property as if the representations contained in the 27 certification were correct. 28 (h) A person making a demand for the trust instrument in 29 addition to a certification of trust or excerpts is liable for damages 30 if the court determines that the person did not act in good faith in 31 demanding the trust instrument. 32 (i) This section does not limit the right of a person to obtain a 33 copy of the trust instrument in a judicial proceeding concerning the 34 trust. 35 (j) In a transaction involving title to real property, the 36 certificate of trust must be executed and acknowledged in a 37 manner that permits its recordation in the Office of the Register of 38 Deeds or Clerk of Court in the county in which the real property is 39 located. 40 (k) The Certificate of Trust may be either in the form set forth 41 below or in any other form that satisfies the above requirements. 42 Settlor: ______43 Name of Trust: ______[1243] 733 1 Date of Trust: ______2 Current Trustee(s): ______3 Address of Trust: ______4 The undersigned trustee(s) does hereby confirm the existence of 5 the within described Trust and certify the following: 6 1. The undersigned is/are all of the currently serving trustee(s). 7 2. The Trust is in full force and effect and has not been revoked, 8 terminated or otherwise amended in any manner which would 9 cause the representations in this Certification of Trust to be 10 incorrect. 11 3. The Trust is revocable/irrevocable. (If revocable, define who 12 can revoke the document). 13 4. The above designated trustee(s) is/are fully empowered to act 14 for said Trust and is/are properly exercising the trustee’s authority 15 under this Trust. No other trustee or other individual or entity is 16 required to execute any document for the Trust. 17 5. The signature(s) of ______of the trustees is/are required for 18 any action taken on behalf of the Trust. (Define signature 19 requirements) 20 6. The proper manner for taking title to Trust property is: 21 [Name(s) of all current trustees], Trustee 22 [Name of trust], dated [Date of trust] 23 7. To the undersigned’s knowledge, there are no claims, challenges 24 of any kind, or cause of action alleged, which contest or question 25 the validity of the Trust or the trustee’s authority to act for the 26 Trust. 27 8. The trustee is authorized by the Trust Agreement to 28 ______. (State, synopsize, or 29 describe relevant powers.) 30 IN WITNESS THEREOF: the undersigned, being all of the 31 trustees, do hereby execute this Certificate of Trust this ___ day of 32 ______, 20__. 33 Witnesses: Trustee(s): 34 35 ______36 37 ______38 39 ______40 41 ______42 43 ______[1243] 734 1 STATE OF SOUTH CAROLINA ) 2 ) ACKNOWLEDGMENT 3 COUNTY OF ______) 4 I,______, do hereby certify that trustee(s) 5 personally appeared before me this day and acknowledged the due 6 execution of the foregoing instrument. 7 Witness my hand and official seal this the day of ______, 20__ 8 (SEAL) 9 Notary Public for South Carolina 10 My Commission Expires: 11 12 REPORTER’S COMMENT 13 14 South Carolina Trust Code Section 6271013, which has no prior 15 South Carolina statutory counterpart, permits a third party to 16 request a certification of trust from the trustee. The elements of a 17 certification are set forth in this section, and a third party may 18 assume, without inquiry, the existence of facts contained in the 19 certification. A third party who in good faith enters into a 20 transaction in reliance upon the certification may enforce the 21 transaction as if the representations contained in the certification 22 were correct. This section is also designed to protect the privacy 23 of the trust agreement and its beneficiaries, and under certain 24 circumstances, a third party may be liable for damages if he 25 demands a copy of the trust agreement in addition to the 26 certification. The SCTC adds subsection (k) to the UTC version, 27 providing a sample form certificate for use in South Carolina. 28 29 Part 11 30 31 Miscellaneous Provisions 32 33 Section 6271101. In applying and construing this Uniform Act 34 article, consideration must be given to the need to promote 35 uniformity of the law with respect to its subject matter among 36 states that enact it its provisions. 37 38 REPORTER’S COMMENT 39 40 This is consistent with SCPC Section 621102, which provides 41 that one of the underlying purposes and policies of the South 42 Carolina Probate Code “is to make uniform the law among the 43 various jurisdictions.” See SCPC Section 621102(b)(5).[1243] 735 1 2 Section 6271102. The provisions of this article governing the 3 legal effect, validity, or enforceability of electronic records or 4 electronic signatures, and of contracts formed or performed with 5 the use of such records or signatures, conform to the requirements 6 of Section 102 of the Electronic Signatures in Global and National 7 Commerce Act (15 U.S.C. Section 7002) and supersede, modify, 8 and limit the requirements of the Electronic Signatures in Global 9 and National Commerce Act. 10 11 REPORTER’S COMMENT 12 13 This section, which is being inserted in all Uniform Acts 14 approved in 2000 or later, preempts the federal Electronic 15 Signatures in Global and National Commerce Act. Section 102(a) 16 (2)(B) of that Act provides that the federal law can be preempted 17 by a later statute of the State that specifically refers to the federal 18 law. The effect of this section, when enacted as part of this Code, 19 is to leave to state law the procedures for obtaining and validating 20 an electronic signature. The SCTC does not require that any 21 document be in paper form, allowing all documents under this 22 Code to be transmitted in electronic form. A properly directed 23 electronic message is a valid method of notice under the Code as 24 long as it is reasonably suitable under the circumstances and likely 25 to result in receipt of the notice or document. See Section 26 627109(a). 27 28 Section 6271103. If any provision of this article or its 29 application to any person or circumstances is held invalid, the 30 invalidity does not affect other provisions or applications of this 31 article which can be given effect without the invalid provision or 32 application, and to this end the provisions of this article are 33 severable. 34 35 REPORTER’S COMMENT 36 37 The South Carolina Probate Code has a substantially identical 38 provision in SCPC Section 621104. 39 40 Section 6271106. (a) Except as otherwise provided in this 41 article, on the effective date of this article: 42 (1) this article applies to all trusts created before, on, or after 43 its effective date; [1243] 736 1 (2) this article applies to all judicial proceedings concerning 2 trusts commenced on or after its effective date; 3 (3) this article applies to judicial proceedings concerning 4 trusts commenced before its effective date unless the court finds 5 that application of a particular provision of this article would 6 substantially interfere with the effective conduct of the judicial 7 proceedings or prejudice the rights of the parties, in which case the 8 particular provision of this article does not apply and the 9 superseded law applies; 10 (4) subject to subsections (a)(5) and (b), any rule of 11 construction or presumption provided in this article applies to trust 12 instruments executed before the effective date of the article unless 13 there is a clear indication of a contrary intent in the terms of the 14 trust; and 15 (5) an act done and any right acquired or accrued before the 16 effective date of the article is not affected by this article. Unless 17 otherwise provided in this article, any right in a trust accrues in 18 accordance with the law in effect on the date of the creation of a 19 trust. 20 (b) If a right is acquired, extinguished, or barred upon the 21 expiration of a prescribed period that has commenced to run under 22 any other statute before the effective date of the article, that statute 23 continues to apply to the right even if it has been repealed or 24 superseded.” 25 26 REPORTER’S COMMENT 27 28 The SCTC is intended to have the widest possible effect within 29 constitutional limitations. Specifically, the Code applies to all 30 trusts whenever created, to judicial proceedings concerning trusts 31 commenced on or after its effective date, and unless the court 32 otherwise orders, to judicial proceedings in progress on the 33 effective date. In addition, any rules of construction or 34 presumption provided in the Code apply to preexisting trusts 35 unless there is a clear indication of a contrary intent in the trust’s 36 terms. By applying the Code to preexisting trusts, the need to 37 know two bodies of law will quickly lessen. 38 This Code cannot be fully retroactive, however. Constitutional 39 limitations preclude retroactive application of rules of construction 40 to alter property rights under trusts that became irrevocable prior to 41 the effective date. Also, rights already barred by a statute of 42 limitation or rule under former law are not revived by a possibly 43 longer statute or more liberal rule under this Code. Nor is an act[1243] 737 1 done before the effective date of the Code affected by the Code’s 2 enactment. 3 The SCTC contains an additional effective date provision. 4 Pursuant to Section 627602(a), prior law will determine whether a 5 trust executed prior to the effective date of the Code is presumed to 6 be revocable or irrevocable. 7 The South Carolina Probate Code counterpart is SCPC Section 8 621100, which has been subject to considerable litigation in the 9 years after the probate code’s enactment effective July 1, 1987. 10 Importantly, the intent to safeguard preexisting rights is contained 11 in SCTC Section 6271106 as it is in SCPC Section 621100. SCPC 12 Section 621100 draws a dichotomy between procedural provisions 13 of the SCPC (as in SCPC Section 621100(b)(2)) and substantive 14 rights in the decedent’s estate, which are to be unimpaired. SCPC 15 Section 621100(b)(4). 16 Rules of construction or presumption apply to trusts executed 17 before the effective date unless there is a clear indication of a 18 contrary intent in the terms of the trust. This appears similar to 19 SCPC Section 621100(b)(5). SCTC Section 6271106(b), providing 20 that any period of limitation which had commenced to run before 21 the effective date would continue to apply, is a counterpart to 22 SCPC Section 621100(b)(4), last sentence. SCTC subsection 23 6271106(a)(4) makes clear that the application of a presumption or 24 rule of construction shall not disrupt accrued or acquired rights in 25 the trust, which are determined according to the law in effect at the 26 trust’s creation. 27 28 SECTION 2. Chapter 6, Title 27 of the 1976 Code is amended to 29 read: 30 31 “CHAPTER 6. 32 33 UNIFORM STATUTORY RULE AGAINST PERPETUITIES 34 35 Section 27610. This chapter may be cited as the Uniform 36 Statutory Rule Against Perpetuities. 37 38 Section 27620. (A) A nonvested property interest is invalid 39 unless: 40 (1) when the interest is created, it is certain to vest or 41 terminate no later than twentyone years after the death of an 42 individual then alive; or [1243] 738 1 (2) the interest either vests or terminates within ninety years 2 after its creation. 3 (B) A general power of appointment not presently exercisable 4 because of a condition precedent is invalid unless: 5 (1) when the power is created, the condition precedent is 6 certain to be satisfied or become impossible to satisfy no later than 7 twentyone years after the death of an individual then alive; or 8 (2) the condition precedent either is satisfied or becomes 9 impossible to satisfy within ninety years after its creation. 10 (C) A nongeneral power of appointment or a general 11 testamentary power of appointment is invalid unless: 12 (1) when the power is created, it is certain to be irrevocably 13 exercised or to terminate no later than twentyone years after the 14 death of an individual then alive; or 15 (2) the power is irrevocably exercised or terminates within 16 ninety years after its creation. 17 (D) In determining whether a nonvested property interest or a 18 power of appointment is valid under subsection (A)(1), (B)(1), or 19 (C)(1), the possibility that a child will be born to an individual 20 after the individual’s death is disregarded. 21 22 Section 27630. (A) Except as provided in subsections (B) and 23 (C) and in Section 27660(A), the time of creation of a nonvested 24 property interest or a power of appointment is determined under 25 general principles of property law. 26 (B) If there is a person who alone can exercise a power created 27 by a governing instrument to become the unqualified beneficial 28 owner of (i) a nonvested property interest or (ii) a property interest 29 subject to a power of appointment described in Section 27620(B) 30 or 27620(C), the nonvested property interest or power of 31 appointment is created when the power to become the unqualified 32 beneficial owner terminates. A joint power with respect to 33 community property or to marital property under a Uniform 34 Marital Property Act held by individuals married to each other is a 35 power exercisable by one person alone. 36 (C) A nonvested property interest or a power of appointment 37 arising from a transfer of property to a previously funded trust or 38 other existing property arrangement is created when the nonvested 39 property interest or power of appointment in the original 40 contribution was created. 41 42 Section 27640. Upon the petition of an interested person, a 43 court shall reform a disposition in the manner that most closely[1243] 739 1 approximates the transferor’s manifested plan of distribution and is 2 within the ninety years permitted by this chapter if: 3 (1) a nonvested property interest or a power of appointment 4 becomes invalid under Section 27620; 5 (2) a class gift is not but may become invalid under Section 6 27620 and the time has arrived when the share of any class 7 member is to take effect in possession or enjoyment; or 8 (3) a nonvested property interest that is not validated by 9 Section 27620(A)(1) can vest but not within ninety years after its 10 creation. 11 12 Section 27650. Section 27620 does not apply to: 13 (1) a nonvested property interest or a power of appointment 14 arising out of a nondonative transfer, except a nonvested property 15 interest or a power of appointment arising out of (i) a premarital or 16 postmarital agreement, (ii) a separation or divorce settlement, (iii) 17 a spouse’s election, (iv) a similar arrangement arising out of a 18 prospective, existing, or previous marital relationship between the 19 parties, (v) a contract to make or not to revoke a will or trust, (vi) a 20 contract to exercise or not to exercise a power of appointment, (vii) 21 a transfer in satisfaction of a duty of support, or (viii) a reciprocal 22 transfer; 23 (2) a fiduciary’s power relating to the administration or 24 management of assets, including the power of a fiduciary to sell, 25 lease, or mortgage property, and the power of a fiduciary to 26 determine principal and income; 27 (3) a power to appoint a fiduciary; 28 (4) a discretionary power of a trustee to distribute principal 29 before termination of a trust to a beneficiary having an 30 indefeasibly vested interest in the income and principal; 31 (5) a nonvested property interest held by a charity, 32 government, or governmental agency or subdivision, if the 33 nonvested property interest is preceded by an interest held by 34 another charity, government, or governmental agency or 35 subdivision; 36 (6) a nonvested property interest in or a power of appointment 37 with respect to a trust or other property arrangement forming part 38 of a pension, profitsharing, stock bonus, and health, disability, 39 death benefit, income deferral, or other current or deferred benefit 40 plan for one or more employees, independent contractors, or their 41 beneficiaries or spouses, to which contributions are made for the 42 purpose of distributing to or for the benefit of the participants or 43 their beneficiaries or spouses the property, income, or principal in[1243] 740 1 the trust or other property arrangement, except a nonvested 2 property interest or a power of appointment that is created by an 3 election of a participant or a beneficiary or spouse; or 4 (7) a property interest, power of appointment, or arrangement 5 that was not subject to the common law rule against perpetuities or 6 is excluded by another statute of this State, including, but not 7 limited to, the interests, powers, and arrangements coming within 8 Sections 13730, 27570, 27580, 335330, 3955135, and 627909. 9 10 Section 27660. (A) Except as extended by subsection (B), this 11 chapter applies to a nonvested property interest or a power of 12 appointment that is created on or after July 1, 1987. For purposes 13 of this section, a nonvested property interest or a power of 14 appointment created by the exercise of a power of appointment is 15 created when the power is irrevocably exercised or when a 16 revocable exercise becomes irrevocable. 17 (B) If a nonvested property interest or a power of appointment 18 was created before July 1, 1987, and is determined in a judicial 19 proceeding, commenced on or after July 1, 1987, to violate this 20 State’s rule against perpetuities as that rule existed before July 1, 21 1987, a court upon the petition of an interested person shall reform 22 the disposition by inserting a savings clause that preserves most 23 closely the transferor’s plan of distribution and that brings that 24 plan within the limits of the rule against perpetuities applicable 25 when the nonvested property interest or power of appointment was 26 created. 27 28 Section 27670. This chapter shall be applied and construed to 29 effectuate its general purpose to make uniform the law with respect 30 to the subject of this chapter among states enacting it. 31 32 Section 27680. This chapter supersedes the common law rule 33 against perpetuities. (a) No interest created in real or personal 34 property shall be void by reason of any rule against perpetuities, 35 whether the common law rule, statutory rule, or otherwise. 36 Neither the common law rule against perpetuities or any statutory 37 rule against perpetuities shall be in force in this State. 38 (b) On the effective date of this chapter, this chapter applies to: 39 (1) all property interests created before, on, or after the 40 effective date of this chapter; 41 (2) all judicial proceedings concerning the rule against 42 perpetuities commenced on or after the effective date of this 43 chapter;[1243] 741 1 (3) judicial proceedings concerning the rule against 2 perpetuities commenced before the effective date of this chapter 3 unless the court finds that application of this chapter would 4 substantially prejudice the rights of the parties, in which case the 5 particular provision of this chapter does not apply and the 6 superseded law applies; 7 (4) subject to item (5), property interests created by 8 instruments executed before the effect date of this chapter unless 9 there is a clear indication of a contrary intent in the terms of the 10 instrument; and 11 (5) any act done and any right acquired or accrued before the 12 effective date of this chapter that is not affected by this chapter.” 13 14 REPORTER’S COMMENT 15 The abolition of the Rule Against Perpetuities is intended to have 16 the widest possible effect within constitutional limitations. The 17 abolition of the Rule Against Perpetuities applies to property 18 interests created by instruments executed before the effective date 19 of the abolition of the Rule, unless there is a clear indication of a 20 contrary intent in the terms of the instrument, as well as to 21 property interests created on or after the effective date. 22 Subsections (b)(4) and (b)(5) provide that the application of the 23 abolition of the Rule Against Perpetuities to property interests 24 created before the effective date of the abolition of the Rule shall 25 not disrupt accrued or acquired rights pursuant to the instrument, 26 which are determined according to the law in effect at the 27 instrument’s creation. 28 29 SECTION 3. If any section, subsection, paragraph, subparagraph, 30 sentence, clause, phrase, or word of this act is for any reason held 31 to be unconstitutional or invalid, such holding shall not affect the 32 constitutionality or validity of the remaining portions of this act, 33 the General Assembly hereby declaring that it would have passed 34 this act, and each and every section, subsection, paragraph, 35 subparagraph, sentence, clause, phrase, and word thereof, 36 irrespective of the fact that any one or more other sections, 37 subsections, paragraphs, subparagraphs, sentences, clauses, 38 phrases, or words hereof may be declared to be unconstitutional, 39 invalid, or otherwise ineffective. 40 41 SECTION 4. (A) This act takes effect on January 1, 2013. 42 (B) Except as otherwise provided in this act, on the effective 43 date of this act: [1243] 742 1 (1) this act applies to any estates of decedents dying 2 thereafter and to all trusts created before, on, or after its effective 3 date; 4 (2) the act applies to all judicial proceedings concerning 5 estates of decedents and trusts commenced on or after its effective 6 date; 7 (3) this act applies to judicial proceedings concerning estates 8 of decedents and trusts commenced before its effective date unless 9 the court finds that application of a particular provision of this act 10 would substantially interfere with the effective conduct of the 11 judicial proceedings or prejudice the rights of the parties, in which 12 case the particular provision of this act does not apply and the 13 superseded law applies; 14 (4) subject to item (B)(5) and subsection (C) of this section, 15 any rule of construction or presumption provided in this act applies 16 to governing instruments executed before the effective date of the 17 act unless there is a clear indication of a contrary intent in the 18 terms of the governing instrument; and 19 (5) an act done and any right acquired or accrued before the 20 effective date of the act is not affected by this act. Unless 21 otherwise provided in this act, any right in a trust accrues in 22 accordance with the law in effect on the date of the creation of a 23 trust and a substantive right in the decedent’s estate accrues in 24 accordance with the law in effect on the date of the decedent’s 25 death. 26 (C) If a right is acquired, extinguished, or barred upon the 27 expiration of a prescribed period that has commenced to run under 28 any other statute before the effective date of the act, that statute 29 continues to apply to the right even if it has been repealed or 30 superseded. 31 XX 32[1243] 743

2011-2012 Bill 1243: S.C. Probate Code - South Carolina Legislature Online

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