§ 372 TAX APPORTIONMENT

• Jurisdiction: South Carolina
• Section: Chapter 3 Wills

§ 372 Tax apportionment

If neglected, the issue of estate tax apportionment⁵¹² can undermine a testator's estate plan. If the testator does not direct the devises that will be responsible for the allocation of estate taxes, then the SCPC controls the apportionment of taxes. An allocation of estate taxes against a devisee not intended by the testator to bear the brunt or even the burden of estate taxes can effectively and, depending on the circumstances, substantially reduce the amount of the devise ultimately received by the devisee.

SCPC section 3-916 controls the allocation of estate taxes "unless the will provides otherwise." If not countermanded by the testator's expression of intention, SCPC section 3-916 effects a pro-rata allocation of the tax burden against all persons "interested in the estate."⁵¹³ Thus, SCPC section 3-916 apportions taxes against recipients of probate and nonprobate interests. The prorata allocation is in the same proportion as that recipient's assets incurred a tax. Consequently, SCPC section 3-916 does not apportion taxes against a surviving spouse whose interests qualify for the marital deduction or a charity that receives an interest qualifying for the charitable deduction.

SCPC section 3-916 operates as a rule of construction because the testator can override the statutory apportionment procedure by indicating a contrary intent. Section 3-916 requires an express and unambiguous indication of the testator's intent. The 2013 amendment to section 3-916 recognizes the often symbiotic relationship between a will and a revocable inter vivos trust.⁵¹⁴ Consequently, section 3-916 creates a hierarchy of controlling documents. A will expressing the testator's intent controls tax apportionment. To the extent that a will fails to express the testator's intent about tax apportionment, the statute next looks to an expression of intent in a revocable inter vivos trust. In the event of more than one revocable trust with conflicting tax apportionment provisions, the most recent revocable trust controls.

SCPC section 3-916 provides mechanisms for the personal representative to offset a devisee's pro-rata share of taxes before making a distribution and to seek contribution from recipients of nonprobate interests.

Section 62-3-916. Apportionment of estate taxes.

(a) For purposes of this section:

(1) "Estate" means the gross estate of a decedent as determined for the purpose of federal estate tax and the estate tax payable to this State.

(2) "Person" means any individual, partnership, association, joint stock company, corporation, government, political subdivision, governmental agency, or local governmental agency.

(3) "Persons interested in the estate" means any person entitled to receive, or who has received, from a decedent or by reason of the death of a decedent any property or interest therein included in the decedent's estate. It includes a personal representative, conservator, and trustee.

(4) "State" means any state, territory, or possession of the United States, the District of Columbia, and the Commonwealth of Puerto Rico.

(5) "Tax" means the federal estate tax and the basic and any additional estate tax imposed by the State of South Carolina and interest and penalties imposed in addition to the tax.

(6) "Fiduciary" means personal representative or trustee.

(b) (1) To the extent that a provision of a decedent's will expressly and unambiguously directs the apportionment of an estate tax, the tax must be apportioned accordingly.

(2) Any portion of an estate tax not apportioned pursuant to item (1) must be apportioned in accordance with any provision of a revocable trust of which the decedent was the settlor which expressly and unambiguously directs the apportionment of an estate tax. If conflicting apportionment provisions appear in two or more revocable trust instruments, the provision in the most recently dated instrument prevails. For purposes of this item:

(A) a trust is revocable if it was revocable immediately after the trust instrument was executed, even if the trust subsequently becomes irrevocable; and

(B) the date of an amendment to a revocable trust instrument is the date of the amended instrument only if the amendment contains an apportionment provision.

(3) Any tax not apportioned in items (1) or (2) shall be apportioned among all persons interested in the estate. The apportionment is to be made in the proportion that the value of the interest of each person interested in the estate bears to the total value of the interests of all persons interested in the...