\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0As part of an ongoing process of revamping and improving South Carolina's version of the Uniform Probate Code (the SCPC), the S.C. General Assembly, after extensive study, enacted omnibus legislation in 2013, effective January 1, 2014, that augmented, amended and clarified the existing SCPC (the 2013 amendments). The 2013 amendments impact both substantive and procedural provisions of the SCPC. This article discusses some of the most significant changes effected by the 2013 amendments.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0SIGNIFICANT SUBSTANTIVE AMENDMENTS
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The SCPC introduced the spousal elective share to South Carolina law. Prior to the 2013 amendments, the SCPC authorized a surviving spouse to claim one-third of the probate estate, defined as those assets passing under the deceased spouse's will and by intestacy less claims and administrative expenses. This calculation rendered a gross amount ("gross elective share" or "gross amount") for the elective share claimant, but the gross amount was reduced by the value of any probate transfers to the surviving spouse. If the gross elective share minus the value of probate transfers to the surviving spouse resulted in a positive amount ("net elective share"), the spouse could take the net elective share from the probate estate. Thus, the elective share claimant would be entitled to a total of one-third of the value of the deceased spouse's probate estate. The pre-2013 amendments elective share calculation did not consider nonprobate transfers, with one possible court-imposed exception. Although assets in a revocable trust are considered to be nonprobate, the S.C. Supreme Court in Seifert v. Southern National Bank1 determined that the revocable trust assets in that case constituted probate assets subject to the elective share.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The 2013 amendments substantially change the elective share calculation methodology and clarify some issues that were previously unclear.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Most significantly, the 2013 amendments expand the assets that are included in the SCPC section 62-2-207 calculation of the offset against the gross elective share, as calculated under sections 62-2-201 and 62-2-202. The surviving spouse will be charged with probate assets as well as certain nonprobate assets received as a result of the deceased spouse's death: those passing under a revocable inter vivos trust and by beneficiary designation for life insurance policies and retirement plans. Thus, a deceased spouse may provide for the surviving spouse, at least in part, by nonprobate transfers that will reduce the gross elective share amount. However, only probate assets are considered in calculating the gross elective share.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The 2013 amendments provide another innovation to South Carolina elective share law: giving the surviving spouse the right to demand the conversion to a uni-trust. The SCPC allows a deceased spouse to partially avoid the elective share by devising to the surviving spouse a beneficial interest in a trust that qualifies for federal estate tax purposes as a qualified terminable interest property trust (QTIP trust). Generally a trust qualifies for QTIP treatment if the surviving spouse is entitled to income for life, without sharing the income with another. Section 62-2-207, which reduces the gross elective share by the value of property interests received by the surviving spouse, has a special valuation rule that applies to a beneficial interest qualifying for federal tax QTIP treatment: for purposes of offsetting the gross elective share, the surviving spouse is charged with the full value of the trust property subject to the beneficial interest even though that beneficial interest is for income only and does not include an entitlement to trust principal. Clearly, a beneficial interest in income only is not worth the full value of the underlying trust property, yet section 62-2-207 deems the income interest to be worth the full value of the underlying property for elective share offset calculation purposes. Thus, a deceased spouse could partially avoid the full impact of the elective share by giving the surviving spouse a QTIP interest, which results in the surviving spouse being charged with a greater value than actually received.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Regardless of whether the section 62-2-207 value methodology for QTIP interests is fair, recent economic conditions resulting in low fixed-income returns add additional difficulty for a surviving spouse with only an income interest. These economic conditions make it difficult to achieve a reasonable return for an income beneficiary unless the trustee uses tools such as the power to adjust or conversion to a unitrust, discussed below. By giving the surviving spouse the right to demand a unitrust conversion for a QTIP interest, the 2013 amendments provide the surviving spouse a more reasonable three to five percent return on the full value of the trust for that income interest.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The 2013 amendments to the elective share also cover two connected issues: (1) whether the elective share, once allowed, is a fractional share or a pecuniary share, and (2) whether the elective share is satisfied with date of death or date of distribution values of probate property.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Whether a share is fractional or pecuniary could affect whether the surviving spouse's elective share is entitled to income or appreciation during the estate's administration, particularly when juxtaposed with the issue of when the assets used to satisfy the elective share are valued. If assets satisfying the elective share are valued at date of death, then presumably no consideration would be given to appreciation or depreciation in value. Neither the fractional versus pecuniary nor the date of death versus date of distribution issues were specifically addressed in the pre-2013 version, although the elective share was apparently frac- t ional because the entitlement was expressed in the form of a fraction —one-third of the probate estate.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Section 62-2-207(c)(2) of the 2013 amendments provides that the elective share is pecuniary and that assets used to satisfy the elective share are valued at the date of distribution. Therefore, the amount of the elective share is determined as a dollar amount according to the estate's value at the deceased spouse's date of death, and the assets used to pay that dollar amount are valued at the date of distribution.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Revocation by divorce
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The SCPC includes several sections that revoke a testator's will, in whole or in part, based on assumptions about the testator's intent rather than the expression of an intent to revoke. These situations include a testator who is divorced after the execution of a will (the "revocation-by-divorce" statute). When applicable, the revocation-by-divorce statute, section 62-2-507, revokes a testator's will to the extent necessary to omit an ex-spouse.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Prior to the 2013 amendments, section 62-2-507 applied only to devises under a testator's will. Although section 62-7-607 applied similarly to revocable trusts by assuming that a deceased settlor did not want to transfer property in a revocable trust to an ex-spouse, South Carolina law did not otherwise presumptively revoke any other nonprobate transfer to an ex-spouse. Because in today's world substantial value is transferred by nonprobate means, the lack of a statutory presumption revoking nonprobate transfers, other than by revocable trusts, created a trap for the unwary.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The 2013 amendments broaden the scope of section 62-2-507 to include not only wills but also nonprobate transfers. As amended, that section now presumptively revokes most revocable transfers, including beneficiary designations, whether probate or nonprobate.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0Before the 2013 amendments, South Carolina followed the basic common law rule that a beneficiary had to survive the decedent to take from a testator's probate estate or by revocable nonprobate transfer. However, section 62-2-104 carved out an exception for intestacy: the heir had to survive the intestate decedent by at least 120 hours. South Carolina followed the Uniform Simultaneous Death Act for those situations when it could not be determined whether the decedent or a beneficiary survived— for example, in a common disaster.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The 2013 amendments apply the policy of section 62-2-104 to all transfers, both probate and nonprobate, and require a probate or nonprobate beneficiary to survive the decedent by 120 hours, as proved by clear and convincing evidence. Because the amendments to part 5 of Article I of the SCPC operate as a rule of construction, the 120-hour survivorship requirement does not apply if the decedent indicates a contrary intent. Similarly, the 120-hour survivorship requirement would not apply if its application would cause the invalidation of a vested right, effect a negative tax c onsequence, or cause an escheat.
\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0\xA0The SCPC allows any person, or one with authority to act on that person's behalf, to disclaim any interest in property transferred by any means whatsoever to the dis-claimant. Disclaimers are...