Fiduciaries

Question 1

What is a fiduciary?

Answer 1

“includes a personal representative, guardian, conservator, and trustee.” SCPC § 62-1-201(15)

“A person (or entity) having a duty, created by his or her undertaking, to act primarily for another’s benefit in matters connected with such undertaking… a special term to refer to a person having duties involving good faith, trust, special confidence, and candor towards another.”

Someone with the highest duties one can owe to another person under the law.

Question 2

Who may serve as a PR?

Answer 2

1) A Competent and Suitable (18+ yo) individual who submits to the Court’s Jurisdiction;
2) If a Corporate entity, it must do business in the state of the decedent’s domicile.

Question 3

What is a “foreign” PR?

Answer 3

A PR that has been appointed in another jurisdiction / state.

Question 4

Who has priority to serve as a PR?

Answer 4

The “person” with priority is:
1) The person(s)/entity named in a Will by the Testator in the order in which they are named; Or,
2) If intestate, or if the person(s) named in the Will are not competent, or are otherwise unavailable, then priority is as follows (§ 62-3-203):
Any person with priority to serve may nominate another who has the SAME priority as the person doing the nominating, except that the nominee has a lower priority than any alternate named in the Will; A Guardian for a person with priority has the same right to nominate or oppose;

Question 5

What, if anything, may a PR do prior to the issuance of Letters Testamentary / Certificate of Appointment?

Answer 5

1) A person named as PR in the Will may carry out any written instruction and be the final say on funeral and burial arrangements; and/or
2) A person named as PR in the Will may access the decedent’s safe deposit box to retrieve ONLY the Original Will and any Original Life Insurance Policy(s).

Question 6

As a PR, what is the difference between being Terminated vs. Discharged?

Answer 6

Termination = the moment the PR’s powers are terminated;
Discharge = the moment the PR’s duties are terminated.
A PR has no authority to act on an estate’s behalf once appointment has been terminated, but a PR has a continuing duty to preserve, account, and deliver until discharged from office.

Question 7

What are the ways a PR may be terminated?

Answer 7

1) Upon death; a PR of the PR cannot serve as a PR; a fiduciary may not serve as a fiduciary;
2) Upon the appointment of a Conservator for the PR; again, a fiduciary cannot serve as a fiduciary;
3) Upon court’s issuance of an Order Closing an Estate;
4) Upon PR’s resignation once a successor PR has been appointed;
5) Upon court’s issuance of an Order Removing a PR for Cause; and,
6) Upon court’s issuance of an Order that the estate has been changed from Testacy to Intestacy or vice versa due to the transition to a Formal Proceeding.

Question 8

What constitutes Cause to remove a PR?

Answer 8

Cause for removal of a PR exists if and when:

1) Removal is in the best interests of the estate;
2) a PR has intentionally misrepresented material facts in order to be appointed as PR;
3) a PR has disregarded a court order;
4) a PR is unable to discharge his/her/its duties because of
(a) a conflict of interest;
(b) mismanagement of the estate; OR
(c) failing to perform the duties of the office.

Question 9

What is a Successor PR and what are his/her/its duties?

Answer 9

An appointed Successor PR steps into the predecessor’s shoes and has all of the powers she had, except for any power that was specific/personal to the predecessor under the terms of the Will or Court Order.
A Successor PR in under no duty to investigate the acts of her predecessor unless there is evidence that the predecessor committed “wrongful acts.” If so, the Successor PR has a duty of due diligence to investigate.
* “Wrongful Act” is not defined; we assume a Breach of Duty.

Question 10

What is a Special Administrator and why/when are they appointed?

Answer 10

Any interested party may file an application asking the Court to informally appoint a SA to protect estate assets prior the the appointment of the PR or in the event a PR’s appointment has been terminated because of death or disability; or when a creditor to the estate is enforcing a lien/mortgage against an estate asset. (Equity)
ALSO
After a PR has been appointed, the Court may appoint an SA for the estate if:
Any interested party files a Summons and Petition asking that a SA be appointed; and
If the Court finds that appointing an SA is necessary to preserve the estate or to secure its proper administration.
A SA can be appointed to complete the entire administration of the estate, or can be appointed to deal with a specific act or issue that the PR should not be involved in (such as conflict of interest).

Question 11

What is an Executor de son tort?

Answer 11

A person impersonating an executor; they will be held liable for their acts and damages shall be equal to the value of the estate assets that they waste.
It applies when someone fraudulently possesses estate assets. It charges that person with fiduciary duties while in possession of such assets (like a constructive trust?);
It is not personal to the Executor de son tort in that it survives their death and you may go after their estate.

Question 12

What are some potential conflicts of interest for a PR?

Answer 12

1) Conflicts may exist when the PR is also a beneficiary;
2) Conflicts may exist when there are multiple PRs serving and they do not agree w/ one another;
3) Conflicts may exist between the PR and 3rd Parties (such as creditors, etc.)

Question 13

What is the priority for how payments are made to creditors when there are insufficient assets in the estate?

Answer 13

Claims should be satisfied in the following order:

1) Costs and expenses of administration, atty’s fees, and reasonable funeral expenses;
2) Reasonable and necessary medical and hospital expenses of decedent’s last illness, including salary for those that were taking care of the decedent;
3) Debts and taxes with preference under Federal Law;
4) Debts and taxes with preference under State Law; and
5) All other claims (those timely filed are paid on a pro rata basis).

PR will want to act quickly in paying creditors upon expiration of the presentation of claims period; interest shall be paid on all allowed claims running 30 days after the time period is expired. This rate is established either in the agreement that established the claim, or it is applied as found in SC Code § 34-31-20(A).

Question 14

What are the procedures for a Creditor to present its claim?

Answer 14

A Creditor, when presenting its claim, may choose between 2 possible procedures:

First, the Double Step:
Step 1)
The Claimant files Notice of Claim with the Probate Court and mails a copy of it to the PR.

The claim must be timely filed and must state: (A) the basis for the claim; (B) the amount of the claim (if no $ amt, how it would be determined (+ interest), note if the claim is contingent, and note if the claim is secured); and, (C) the name and address of the claimant.

Step 2)
Then, either the PR allows the claim, pays it and gets a satisfaction filed with the court; OR
The PR files a Notice of Disallowance of the Claim, and the claimant then has 30 days to ask the court to set a hearing date and allow its claim.

Or, the Single Step:
Step 1)
The Claimant can skip the PR altogether and ask the Court for a hearing date, immediately commencing his action.

Again, the claim must be timely filed and must state: (A) the basis for the claim; (B) the amount of the claim; and, (C) the name and address of the claimant.

Question 15

If a Creditor requests a hearing for a Claim, how can the PR respond?

Answer 15

1) The PR can negotiate and agree to settlement with the Creditor at any time prior to the hearing; OR
2) The PR can allow the full claim; OR
3) The PR can attend the hearing and present evidence as to why the claim should be disallowed, and let the Court decide if the claim is valid.

Question 16

How does a PR go about paying a Creditor’s Claim?

Answer 16

When the 8 month Creditor’s Claim period has run, the PR is required to pay all claims allowed.

If the PR pays a claim BEFORE the Creditor’s Claim period has expired, and is incorrect in the payment or the priority of the claim, then she may be personally liable for the claim.

Question 17

What are the duties of a PR in administering the estate, and what must she consider in executing those duties?

Answer 17

A PR must:

1) Observe the established Standard of Care;
2) Determine who the decedent’s heirs at law are and who is entitled to the estate assets;
3) Take possession of and control of the decedent’s assets;
4) Settle or distribute the estate in an expeditious and efficient manner;
5) Pay taxes, debts, and deal with creditors; and
6) Distribute the assets appropriately.

A PR must consider:

1) The terms of the Will (if any);
2) The Law ( the SCPC, Federal Tax Laws, and the Common Law);
3) What is in the best interests of the estate; and
4) the rights and interests of any creditors, heirs at law, devisees, etc.

Question 18

What are the General Duties of the PR (discretionary and fiduciary duties)?

Answer 18

See § 62-3-703(a) for the basic theory underlying the duties and powers of the PR, and § 62-7-933 for the SCUPIA (South Carolina Uniform Prudent Investor Act - replacing “trustee” with “PR” and “trust” with “estate”.

A PR SHALL invest and manage estate assets AS A PRUDENT INVESTOR WOULD by considering all the purposes, terms, distribution requirements, and other circumstances of the Will.

The PR MUST exercise reasonable care, skill, and caution in satisfying this standard of care.

A PR SHALL consider in investing and managing estate assets as such of the following are relevant to the estate or its devisees:

1) General economic conditions;
2) Possible effects of inflation / deflation;
3) Expected tax consequences on investment decisions;
4) The role that each investment plays within the overall portfolio of estate assets;
5) The expected total return and appreciation of capital; and
6) An asset’s special relationship or value to the purposes of the estate.

A PR SHALL:

1) Make a reasonable effort to verify facts relevant to the investment of assets;
2) Diversify the investments unless it makes reasonable sense not to; and
3) Review the estate assets and make and implement decisions concerning the retention and disposition of assets…

Question 19

What are the Fiduciary Duties of the PR?

Answer 19

1) The Duty of Care
- Act as a reasonable prudent person would in fulfilling her duties;
- Duty to Protect the estate assets;
- Duty to Account for estate assets;
- Duty Not to Commingle estate assets w/ PR’s assets;
- Duty to Inform and Account to the heirs/devisees/court.
- Act in the best interests of the estate to carry out the testator’s intent (testate) and/or to determine the heirs and distribute the property accordingly (intestate);
- Act in Good Faith at all times.
2) The Duty of Prudence
- Cannot abuse its discretion.
2) The Duty of Loyalty
- Act impartially when considering all heirs and devisees;
- No self-dealing (unless specifically permitted).
- Duty Not to Commingle estate assets w/ PR’s assets;

Question 20

What are the remedies if a PR breaches its duty?

Answer 20

The court may:

1) Compel the PR to perform the PR’s duties; (contempt?)
2) Enjoin the PR from committing a breach; (injunction/TRO);
3) Compel the PR to redress a breach by paying back/restoring; (Restitution);
4) Order the PR to Account; (an Accounting);
5) Appoint a Special Administrator to take possession of the estate assets and/or administer estate assets; (S.A.)
6) Suspend or remove a PR; (permanent injunction?);
7) Reduce or deny compensation to the PR;
8) Order any other appropriate relief.

Question 21

Who holds title to the decedent’s assets?

Answer 21

Title to REAL property passes immediately at death to heirs/devisees NOT the PR;

Title to PERSONAL property passes to the PR immediately at death and the PR distributes title to heirs/devisees. Title automatically passes to heirs/devisees on 3rd anniversary of decedent’s death if they have not been distributed.

Question 22

What is the Statute of Elizabeth?

Answer 22

You cannot defraud creditors by giving away property.

A PR may recover any property transferred by the decedent in a transaction that would be void or voidable against creditors. § 62-3-710

If a decedent gave away property prior to death and his goal was to defraud creditors, a PR can go after those assets and bring them back into the estate.

Question 23

What is a PR forbidden from selling of the decedent’s assets?

Answer 23

Unless the Will specifically permits it, a PR
- Cannot sell Real Estate (no matter the value); and
- Cannot sell any Personal Property that is hard to value, but worth more than $5k
Without the Court’s approval.

Question 24

Must the PR notify a creditor directly as to the death of the decedent?

Answer 24

The Tulsa, OK case:

Actual Notice is NOT req’d for unknown creditors but IS req’d for known and reasonably ascertained creditors.

Question 25

How are creditors given notice of a person’s death?

Answer 25

MANDATORY:
Published Notice (§ 62-3-704; § 62-3-801)
A PR must publish a notice to creditors upon appointment; Notice must be published 1x per week for 3 consecutive weeks in a newspaper of general circulation in the county. Notice must announce that:
1) an Estate has opened;
2) a PR is appointed and provide PR’s address;
3) inform that claims must be filed w/in 8 months of the date of first publication.

ADDITIONALLY:
A PR SHOULD give written notice by mail or other delivery to any KNOWN creditor with the same info included in the publication, and informing creditor that they must file a claim with the Court w/in the EARLIER of 1 year from the DoD OR 60 Days from date of mailing/delivery of this written notice.

Question 26

How long does a creditor have to bring a claim against a decedent’s estate?

Answer 26

In addition to published 8 months notice, any claim MUST be brought against a decedent’s estate within 1 year from DoD. This is the final limitation on a Creditor’s Claim. (both Pre- and Post-Death claims).

So if your decedent died today (5/2/2016), but you didn’t open the estate until October 2, 2016 (10/2/2016 = 5 months after DoD), The creditor has only 7 months (not 8) within which to file, because once you hit May 2, 2017 (5/2/2017) the claims are barred.

ADDITIONALLY:
A PR SHOULD give written notice by mail or other delivery to any KNOWN creditor with the same info included in the publication, and informing creditor that they must file a claim with the Court w/in the EARLIER of 1 year from the DoD OR 60 Days from date of mailing/delivery of this written notice.

IMPORTANT TOOL to LIMIT creditors, b/c if a creditor receives ACTUAL WRITTEN NOTICE they will have only 60 Days from the date of receipt of that notice within which to file their claim.

So if you mailed notice to a KNOWN creditor 5 days after the decedent’s DoD (DoD = May 2, 2016, so mailed May 7th, 2016), then that creditor only has until the 7th of July(ish) to file their claim. Then they are barred. Cuts them off by about 8 months!

Question 27

What are the Creditor’s time limits for filing Post-Death claims?

Answer 27

Typically, these claims arise out of the PR’s activities.

A creditor whose claim is based on a K w/ the PR must be brought w/in 8 months AFTER the PR’s performance is due;

Any other post-death claim must be brought the LATER of 1 year from DoD or 8 months after claim arises.

Question 28

What kind of Creditor’s Claims cannot be time barred?

Answer 28

1) Any proceeding to enforce a mortgage, pledge, lien, or other security interest upon property of the estate (§ 62-3-803 (c)(1))
2) Claims up to the limits of insurance protection only of the decedent or any proceeding to establish the liability of the decedent under liability insurance; (ex: if the decedent caused a wreck and dies in that wreck, then these time limits apply for any claim a person is making against the decedent’s estate, but they do not apply to any claim being made against the decedent’s insurance company).
3) Claims by agencies of the Federal Govt.
4) Claims involving Trust funds.
5) Claims being prosecuted in an action filed against the decedent while he was alive (§ 62-3-804(2))
6) Claim period does not apply to an attorney or accountant trying to recover her fess or to a PR trying to get reimbursed for payments she made on the estate’s behalf.

Question 29

What is a Trust?

Answer 29

A fiduciary relationship in which one person holds legal title to property for the benefit of another. A Trustee owns legal title like a fee simple owner of property, but he holds the property for the benefit of the trust beneficiaries and must act in accordance with the terms of the trust and subject at all times to Good Faith and his fiduciary duties of care and loyalty.

Question 30

What happens to a decedent’s assets that are encumbered on his date of death?

Answer 30

SC Code 62-3-814
A PR has the authority to deal with encumbered estate assets.
A devisee takes encumbered property subject to its encumbrance unless s/he is entitled to exoneration.
- If a Will says “pay the debt from the residue and give the house to my sister outright” then the sister gets the house debt free.
- If a Will says, “give my sister my house” and my house is subject to a debt/mortgage, then my sister takes the house subject to that debt.

Question 31

With regard to the distribution of decedent’s assets, who has a right to the property if there is no estate administration?

Answer 31

Special Provisions Relating to Distribution

SECTION 62-3-901. Successors’ rights if no administration.

In the absence of administration, the devisees are entitled to the estate in accordance with the terms of a probated will and the heirs in accordance with the laws of intestate succession. Devisees may establish title by the probated will to devised property. Persons entitled to property by exemption or intestacy may establish title thereto by proof of the decedent’s ownership, his death, and their relationship to the decedent. Successors take subject to all charges incident to administration, including the claims of creditors and subject to the rights of others resulting from abatement, retainer, advancement, ademption, and elective share.

Question 32

What happens when there is not enough property in the decedent’s estate to satisfy all the creditors and be distributed in accordance with the Will, and the Will fails to provide any guidance as to who has priority? (order of abatement)

Answer 32

SECTION 62-3-902(a)

(a) Except as provided in subsection (b), and except as provided in connection with the share of the surviving spouse who elects to take an elective share, shares of distributees abate, without any preference or priority as between real and personal property, in the following order:
(1) property not disposed of by the will;
(2) residuary devises;
(3) general devises;
(4) specific devises.

For purposes of abatement, a general devise charged on any specific property or fund is a specific devise to the extent of the value of the property on which it is charged, and upon the failure or insufficiency of the property on which it is charged, a general devise to the extent of the failure or insufficiency.

Abatement within each classification is in proportion to the amounts of property each of the beneficiaries would have received if full distribution of the property had been made in accordance with the terms of the will.

Question 33

What happens when a devisee named in the decedent’s Will owed/owes the decedent money or property before he died?

Answer 33

Section 62-3-903 allows the PR to offset that devisee’s distributive share by the amount that he owed the decedent.

Question 34

Is a No Contest clause in a Will enforceable?

Answer 34

Per Section 62-3-905, it is NOT enforceable IF probable cause exists for instituting the proceedings to challenge the Will.

Question 35

How should the decedent’s assets be distributed?

Answer 35

Per Section 62-3-906, Estate assets should be distributed in kind to the extent possible. (practical)

Look first to the Will for guidance, but if that doesn’t help, then distribute as follows:

1) Satisfy specific devisees first; a specific devisee should get what s/he is entitled to receive;
2) For a general pecuniary devise ($$), then you may give property to satisfy that gift IF
a) the devisee doesn’t demand cash;
b) you value the property given as of the date of distribution and not the date of death; and,
c) The residuary devisee has not asked for that particular property to remain in the residue.

The PR can send a proposal for distribution to the court for its approval, and give the devisees 30 days within which to object to the proposed distribution, or be barred thereafter from making an objection.

Any devisee may ask the court to Partition real property per 62-3-911; if it cannot be done equitably, then the court will likely order it sold and let the PR distribute the proceeds of the sale.

Question 36

How are a decedent’s assets to be valued when they are distributed in kind?

Answer 36

Any in-kind distributions to satisfy CA$H devises MUST be valued as of the Date of Distribution;

To value securities, you look to the price for the last sale on the business date prior to the distribution;

For all hard to value assets, they should be valued as of a date not more than 30 days prior to the date of distribution.

Question 37

What must a PR provide upon distributing decedent’s assets?

Answer 37

62-3-907
If distribution is made in kind, the PR must execute an instrument or deed assigning the assets to the distributee as proof of the distribution;

62-3-908
If it is real property, there must be a Deed of Distribution as conclusive proof that the distributee has succeeded to the interest of the estate (except to the extent that the PR can void the transfer as an improper distribution).

Question 38

What happens if a PR improperly distributes the property?

Answer 38

62-3-909
A distributee must give the property back to the PR if it was improperly distributed, so long as there are no issues of adjudication or estoppel. While a PR has the right to get the property back, she still may be liable to anyone else that was damaged by her improper distribution.
If the distributee has already disposed of the property before the PR can reclaim it, the distributee must return the value of the property (as of the Date of Distribution), as well as any income or gain derived from it.
If a distribution is improperly made to a bona fide purchaser, the BFP is protected and does not have to give the property back to the PR. The BFP takes the property free of any other claim from a distributee or a creditor (but for a secured creditor).

Question 39

Are the family members/heirs/devisees allowed to change the testator’s plan?

Answer 39

62-3-912
Private Family Settlement Agreements
a PR is bound by what the successors in interest decide to do with the estate assets. They all have to come together and agree,

Question 40

What happens if a PR needs to distribute assets but the distributee is missing or incapacitated?

Answer 40

62-3-914
The Will is not likely to address this sort of situation, but you should still review it and make sure.
After the 8 months creditors claim period has expired, the PR must give notice (guessing by publication?) and if the devisee is still not found or if a person is unable to prove that he is the intended devisee, then we are to presume that the devisee predeceased the decedent.

62-3-915
As for minors or incapacitated devisees, the PR (again) must look to see if this is addressed in the Will. If not, then they are to distribute the property to the conservator of the devisee.