Home Helpful Articles Answers To 95 Questions You Should Have About The New South Carolina Trust Code
Answers To 95 Questions You Should Have About The New South Carolina Trust Code

Evans, Carter, Kunes & Bennett, PA

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Answers to 95 Questions You Should Have

About the New South Carolina Trust Code

Evans, Carter, Kunes & Bennett, PA*

The new South Carolina Trust Code (SCTC) was passed by the South Carolina General

Assembly and signed into law in 2005. It takes effect on January 1, 2006, and applies retroactively

to all trusts. Modeled on the Uniform Trust Code (UTC), which was promulgated by the National

Conference of Commissioners on Uniform State Laws, the SCTC was the result of the efforts of the

SCTC Study Committee of the Probate, Estate Planning and Trust Section of the South Carolina Bar.

For the most part, the SCTC is a default statute. The absence of case law and the absence

of statutes left practitioners dealing with uncertainty in many areas of the common law. The SCTC

introduces new concepts and makes significant changes to our laws on trusts. The SCTC is codified

in Article 7 of Title 62 of the South Carolina Code. There are eleven sections to the Act, and it

includes the official UTC comments as well as South Carolina comments.

Attorneys, judges, corporate and individual trustees, and trust beneficiaries and their duties

and rights will soon be guided and governed by the SCTC. Herewith are answers to 95 questions

we should all have about the new law.

1. How many states have passed a version of the UTC?

Fourteen states, including South Carolina, and the District of Columbia have done so. They

are: Arkansas, Kansas, Maine, Missouri, Nebraska, New Hampshire, New Mexico, North Carolina,

Oregon, Tennessee, Utah, Virginia, and Wyoming.

2. When is the SCTC effective?

January 1, 2006.

3. Does the SCTC apply to existing trusts or only those created after the effective date?

SCTC Section 62-7-1106 states that, except as otherwise stated in the Act, the SCTC applies

to all trusts created before, on, or after its effective date. It also applies to all judicial proceedings

concerning trusts commenced on or after its effective date.

4. What and who is a settlor?

The Settlor is the SCTC’s term for the creator of the trust, but the term also applies to others

who add or contribute property to the trust. Thus, if A signs the trust document with the trustee but

B also contributes property to the trust, both are settlors.

*

Mr. Chandler and Ms. Shuman were members of the South Carolina Trust Code Study Committee that studied

and adapted the Uniform Trust Code and presented the South Carolina Trust Code to the South Carolina Bar

Association.

This Article was written primarily by Andrew W. Chandler, Virginia Meeks Shuman and Robert M. Kunes.

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5. Are the statutory provisions obligatory, or can the settlor craft language outside the statute?

The settlor can craft language that does not track the statute so he is free to draft his own

charter, so to speak; however, there are eleven subsections in 62-7-105(b) setting forth matters that

cannot be deviated from by the terms of the trust. The eleven are (1) the requirements for creating

a trust; (2) the duty of a trustee to act in good faith and in accordance with the purposes of the trust;

(3) the requirement that a trust and its terms be for the benefit of its beneficiaries, and that the trust

have a purpose that is lawful and possible to achieve; (4) the power of the court to modify or

terminate a trust under Sections 62-7-410 through 62-7-416; (5) the effect of a spendthrift provision

and the rights of certain creditors and assignees to reach a trust as provided in Part 5; (6) the power

of the court under Section 62-7-708(b) to adjust a trustee’s compensation specified in the terms of

the trust which is unreasonably low or high; (7) the effect of an exculpatory term under Section 62-

7-1008; (8) the rights under Sections 62-7-1010 through 62-7-1013 of a person other than a trustee

or beneficiary; (9) periods of limitation for commencing a judicial proceeding; (10) the power of

the court to take such action and exercise such jurisdiction as may be necessary in the interests of

justice ; and (11) the subject-matter jurisdiction of the court and venue for commencing a

proceeding as provided in SCTC Sections 62-7-201 and 62-7-204.

6. I hear great things about the trust laws of other states like Alaska and Delaware. Can I draft

language having those statutes apply?

Under SCTC Section 62-7-107, the meaning and the effect of the terms of the trust can be

designated by the settlor. Thus, as a draftsman, you can designate Alaska law to apply. While it is

not totally clear, it seems that the other substantive provisions applying to trusts in other states such

as Alaska’s abolition of the term limits on trusts could be incorporated into the trust. However, in

the absence of designating what law applies, South Carolina law would govern trusts created in this

state.

7. Who is a “qualified beneficiary” and why does it matter that I know?

A qualified beneficiary is a living beneficiary who, on the date the beneficiary’s

qualification, is determined:

(A) is a distributee or permissible distributee of trust income or principal;

(B) would be a distributee or permissible distributee of trust income or principal if the

interests of the distributees described in subparagraph (A) terminated on that date, but the

termination of those interests would not cause the trust to terminate; or

(C) would be a distributee or permissible distributee of trust income or principal if the

trust terminated on that date.

A beneficiary is a person that: (I) has a present or future beneficial interest in a trust, vested

or contingent; (ii) holds a power of appointment over trust property (in a capacity other than that

of a trustee); or (iii) in the case of a charitable trust has the authority to enforce the terms of the

Trust.

Several sections of the SCTC entitle a qualified beneficiary to notice and information to

which a beneficiary is not necessarily entitled.

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8. What are the “terms of the trust”?

The “terms of the trust” means the manifestation of the settlor’s intent regarding a trust’s

provisions as expressed in the trust instrument or as may be established by other evidence that

would be admissible in a judicial proceeding.

9. What is the trust’s principal place of administration?

Under section 62-7-108, the principal place of administration is the trustee’s usual place

of business, unless the terms of the trust otherwise mandate a different place for administration. The

trustee may change the principal place for administration by notifying qualified beneficiaries of the

trustee’s intent to change principal place of administration without court approval. Unless a

qualified beneficiary objects within 60 days of notice, the trustee may move the principal place of

administration.

10. If a petition involving the trust has been filed in court, how does one give notice?

SCTC Section 62-7-109 states that the petitioner shall cause notice of the time and place of

hearing of any petition to be given to any interested person or his attorney if he has appeared by

attorney or requested that notice be sent to his attorney. Notice shall be given:

(1) by mailing a copy thereof at least twenty days before the time set for the hearing by

certified, registered, or ordinary first class mail addressed to the person being notified at the post

office address given in his request for notice, if any, or at his office or place of residence, if known:

(2) by delivering a copy thereof to the person being notified personally at least twenty

days before the time set for the hearing; or

(3) if the address or identity of any person is not known and cannot be ascertained with

reasonable diligence by publishing a copy thereof in the same manner as required by law in the case

of the publication of a summons for an absent defendant in the court of common pleas.

As in the probate code, the court may for good cause provide a different method of giving

notice.

11. Who is an “interested person”?

SCTC Section 62-7-0103(22) states that an “interested person” or “interested party” is any

person or party deemed to be a necessary or proper party under Rule 19 of the South Carolina Rules

of Civil Procedure. SCRCP Rule 19 deals with the joinder of persons needed for just adjudication

and says that a person shall be joined [or, in the SCTC’s case, a person shall be an interested party]

if (1) in his absence complete relief cannot be accorded among those already parties or (2) he

claims an interest relating to the subject of the action and is so situated that the disposition of the

action in his absence may (I) as a practical matter impair or impeded his ability to protect that

interest or (ii) leave any of the persons already parties subject to a substantial risk of incurring

double, multiple, or otherwise inconsistent obligations by reasons of his claimed interest.

12. What is a nonjudicial settlement agreement, and are they allowed under the SCTC?

The SCTC provides that interested parties can enter into a nonjudicial settlement agreement

i.e. one not approved by the Court for the following matters: (1) the approval of a trustee’s report

or accounting; (2) direction to a trustee to perform or refrain from performing a particular

administrative act or the grant to a trustee of any necessary or desirable administrative power; (3)

the resignation or appointment of a trustee and the determination of a trustee’s compensation;(4)

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transfer of a trust’s principal place of administration; and(5) liability of a trustee for an action

relating to the trust.

13. What are the internal affairs of a trust?

Under SCTC Section 62-7-201, the internal affairs relate to the administration and distribution

of trusts, the declaration of rights, and the determination of other matters involving trustees and

beneficiaries of trusts. These include, but are not limited to, proceedings to:

(1) ascertain beneficiaries, determine any question arising in the administration or distribution

of any trust including questions of construction of trust instruments, instruct trustees, and determine

the existence or nonexistence of any immunity, power, privilege, duty, or right;

(2) review and settle interim or final accounts;

(3) review the propriety of employment of any person by a trustee including any attorney,

auditor, investment advisor or other specialized agent or assistant, and the reasonableness of the

compensation of any person so employed, and the reasonableness of the compensation determined

by the trustee for his own services. Any person who has received excessive compensation from a

trust may be ordered to make appropriate refunds. The provisions of this section do not apply to

the extent there is a contract providing for the compensation to be paid for the trustee’s services or

if the trust directs otherwise; and

(4) appoint or remove a trustee.

14. What courts have jurisdiction over the internal affairs of the trust?

The probate court has exclusive original jurisdiction. However, that exclusive jurisdiction is

subject to the right under SCTC Section 62-1-302(c) for a party or the court to remove the matter

to a circuit court.

15. What are the external affairs of the trust?

Under SCTC Section 62-7-201, the external affairs of trusts include, but are not limited to, the

following proceedings:

(1) determine the existence or nonexistence of trusts created other than by will;

(2) actions by or against creditors or debtors of trusts; and

(3) other actions and proceedings involving trustees and third parties;

16. What courts have jurisdiction over the external affairs of the trust?

The probate court has concurrent jurisdiction with the circuit courts over the actions and

proceedings concerning the external affairs of trusts.

17. What does a trustee or a beneficiary have to do to submit to the jurisdiction of South Carolina

courts?

Under SCTC Section 62-7-202, by accepting the trusteeship of a trust having its principal place

of administration in this state or by moving the principal place of administration to this state, the

trustee submits personally to the jurisdiction of the courts of this state regarding any matter

involving the trust. By accepting a distribution from such a trust, the recipient submits personally

to the jurisdiction of the courts of this state regarding any matter involving the trust.

18. Who is a “beneficiary representative”?

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A“beneficiary representative" refers to a person who may represent and bind another person

concerning the affairs of trusts.

19. Can a beneficiary representative bind a beneficiary?

The consent of a beneficiary representative is binding on the person represented unless the

person represented objects to the representation before the consent would otherwise have become

effective.

20. Can an agent under a power of attorney bind a principal in matters relating to a trust?

To the extent there is no conflict of interest, an agent may represent and bind the principal to

the extent the agent has authority to act with respect to the particular question or dispute;

21. Can a parent bind a minor child in matters involving a trust?

To the extent there is no conflict of interest, a parent may represent and bind the parent's minor

or unborn child if a conservator or guardian for the child has not been appointed.

22. What is virtual representation and how does it work under the SCTC?

Virtual Representation is the concept that persons having the same interests may be bound by

another having the same interest; the SCTC provides that a minor, incapacitated, or unborn

individual, or a person whose identity or location is unknown and not reasonably ascertainable, may

be represented by and bound by another having a substantially identical interest with respect to the

particular question or dispute, but only to the extent there is no conflict of interest between the

beneficiary representative and the person represented and provided the interest of the person

represented is adequately represented by the beneficiary representative. In other words, virtual

representation lessens the number of times a guardian ad litem (GAL) would have to be appointed.

A person, who prior to the SCTC, would have needed a GAL to represent him or her can be

represented by another having his or her same interests or by his or her parent, assuming in both

cases that no conflict exists between the one representing and the one being represented.

23. What are the ways in which a trust can be created?

Under SCTC Section 62-7-401, a trust can be created by (1) transferring property to

another person as trustee during the settlor’s lifetime or by will or other disposition taking effect

upon the settlor’s death; (2) a writing signed by the owner of property that the owner holds

identifiable property as trustee; or (3) exercising a power of appointment in favor of a trustee.

24. In an estate planning context, can a person create a revocable trust for herself and retain

beneficial interest and serve as trustee?

Yes, a revocable inter vivos trust may be created either by declaration of trust or by a

transfer of property and is not rendered invalid because the settler retains substantial control over

the trust including, but not limited to, (1) a right of revocation, (2) substantial beneficial interests

in the trust, or (3) the power to control investments or reinvestments.

25. What are the requirements for a valid trust?

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Under SCTC Section 62–7-402, a trust is created only if: (1) the settlor has capacity to

create a trust; (2) the settlor indicates an intention to create the trust; (3) the trust has a definite

beneficiary or is: (A) a charitable trust; (B) a trust for the care of an animal; or (C) a trust for a

noncharitable purpose; (4) the trustee has duties to perform; and (5) the same person is not the sole

trustee and sole current and future beneficiary.

26. Can the purpose of the trust be contrary to public policy?

The SCTC Section 62-7-404 says that a trust is created only to the extent that its purposes

are (1) lawful and (2) possible to achieve. Although this section says that the purposes must be

‘lawful’ without mentioning public policy, the South Carolina comments to the section make it clear

that this section is not meant to alter South Carolina’s existing common law requirement that a trust

purpose shall not be contrary to public policy.

27. Is a trust created in another jurisdiction valid under the SCTC?

Yes, so long as the trust complies with the laws of the jurisdiction in which the trust was

executed, or the law of the jurisdiction in which, at the time of creation: (1) the settlor was

domiciled, had a place of abode, or was a national; (2) a trustee was domiciled or had a place of

business; or (3) any trust property was located

28. Is an oral trust valid in SC?

Yes, except that the SCTC does not recognize oral trusts for real property. In other words,

a trust need not be evidenced by a trust instrument so long as the other requirements have been met

(unless the trust owns real property). However, the creation of an oral trust and its terms may be

established only by clear and convincing evidence.

29. Does the SCTC provide for the creation of a trust for pets?

Yes, in contrast to existing SC law, SCTC Section 62-7-408 provides that a trust may be

created to provide for the care of an animal or animals alive or in gestation during the settlor’s

lifetime, whether or not alive at the time the trust is created. The trust terminates upon the death of

the last surviving animal.

30. Are there other new provisions relating to the creation of trusts?

In a deviation from prior law, SCTC Section 62-7-409 allows the creation of a nonchartiable

trust without a definite or definitely ascertainable beneficiary. Under the SCTC, a document can

allow a trustee to select the trust beneficiaries.

31. What does the SCTC provide about the creation of charitable trusts?

A charitable trust may be created for the relief of distress or poverty, the advancement of

education or religion, the promotion of health, scientific, literary, benevolent, governmental or

municipal purposes, or other purposes, the achievement of which purposes is beneficial to the

community.

32. Does the trustee of a charitable trust have to file a copy of the trust with the attorney

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general’s office?

Under 62-7-405, unless excepted by statute or rule or regulation of the attorney general, the

trustees of charitable trusts in existence on the effective date of this Article, or thereafter created,

under the laws of this state, shall file a certified copy of the trust instrument with the attorney

general within ninety days after such date or within sixty days after the creation of the trust,

whichever is later.

33. What new provisions exist with regard to modification and/or termination of trusts?

In a series of critical sections, the SCTC adds the ability to modify or terminate a

nonchartiable irrevocable trust by consent with court approval (SCTC Section 62-7-411); the ability

to modify or terminate because of unanticipated circumstances or change in ability to administer

the trust effectively (SCTC Section 62-7-412), the ability to modify or terminate the trust because

of size and operating costs of the trust (SCTC 62-7-414); and the ability to reform to correct

mistakes to conform the terms to the settlor’s intentions or to achieve the settlor’s tax objectives

(SCTC Sections 62-7-415 and 416). And, as stated above, SCTC Section 303 permits virtual

representation by fiduciaries and parents in such actions (assuming no conflict exists).

34. Who must initiate the action to modify or terminate the trust?

A proceeding to approve or disapprove a proposed modification or termination under

Sections 62-7-411 through 62-7-414 may be commenced by a trustee or beneficiary, and a

proceeding to approve or disapprove a proposed modification or termination under Section 62-7-

411 may be commenced by the settlor. A settlor’s agent under a power of attorney can commence

a proceeding so long as the power of attorney expressly authorizes him or her to do so.

35. Who must consent to the modification or termination of a trust?

A noncharitable irrevocable trust may be modified or terminated with court approval upon

consent of the settlor and all beneficiaries, even if the modification or termination is inconsistent

with a material purpose of the trust.

A noncharitable irrevocable trust may be terminated upon consent of all beneficiaries if the

court concludes that continuance of the trust is not necessary to achieve any material purpose of

the trust. A nonchartiable irrevocable trust may be modified upon consent of all of the beneficiaries

if the court concludes that modification is not inconsistent with a material purpose of the trust.

36. What happens to the property upon termination of the trust under these sections?

Upon termination of a trust under 62-7-411, the trustee shall distribute the trust property

as ordered by the court.

37. In what situations can the Court modify the terms of the trust and what happens to the

property of the Trust?

Under 62-7-412, (a) the court may modify the administrative or dispositive terms of a trust

or terminate the trust if, because of circumstances not anticipated by the settlor, modification or

termination will further the purposes of the trust. To the extent practicable, the modification must

be made in accordance with the settlor’s probable intention, (b) The court may modify the

administrative terms of a trust if continuation of the trust on its existing terms would be

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impracticable or wasteful or impair the trust’s administration, and ©) Upon termination of a trust

under this section, the trustee shall distribute the trust property as ordered by the court.

38. At what point does the size of the trust corpus allow the trustee to terminate the trust to save

fees and other costs?

After notice to the qualified beneficiaries, the trustee of a trust consisting of trust property

having a total value less than $100,000 may terminate the trust if the trustee concludes that the

value of the trust property is insufficient to justify the cost of administration. While not requiring

court approval, the statute contemplates possible court involvement and provides the trustee shall

distribute the trust property as ordered by the court or, if the court does not specify the manner of

distribution, in a manner consistent with the purposes of the trust.

39. Are there statutorily contemplated alternatives to modification of the trust terms?

In new statutory framework for SC, the court may reform the terms of a trust, even if

unambiguous, to conform the terms to the settlor’s intention if it is proved by clear and convincing

evidence that both the settlor’s intent and the terms of the trust were affected by a mistake of fact

or law, whether in expression or inducement.

40. Is there specifically contemplated authority to modify to achieve tax goals that were not

accurately captured in the drafting of the document?

In a provision to assist in obtaining relief, SCTC Section 62-76-416 provides the court may

modify the terms of a trust in a manner that is not contrary to the settlor’s probable intention. The

court may provide that the modification has retroactive effect.

41. Are there any changes in how one combines or divides trusts?

Under SCTC Section 62-7-417, without court approval and whether or not the document

contemplates division or combination, after notice to the qualified beneficiaries, a trustee may

combine two or more trusts into a single trust or divide a trust into two or more separate trusts, if

the result does not impair rights of any beneficiary or adversely affect achievement of the purposes

of the trust.

42. Are there provisions for modifying or terminating an irrevocable charitable trust?

Yes. SCTC Section 62-7-413 recognizes the doctrine of equitable deviation, which permits

a court of equity to deviate from the strict terms of a trust when changed conditions render the

accomplishment of the charitable purpose impossible or impracticable.

43. Is there a part of the SCTC that deals with creditors and creditor’s rights?

Part 5 of the SCTC contains seven sections that deal with spendthrift trusts. Prior SC law

was unclear on the effect of spendthrift provisions. The new law codifies the rights of creditors in

the absence of a spendthrift provision, the concept of spendthrift trusts, the trusts to which it applies,

and the exceptions which exist to the protection provided by spendthrift trust language

44. What are the general rights of a beneficiary’s creditors or assignees?

.

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SCTC Section 62-7-501 provides that the court may authorize a creditor or assignee of the

beneficiary to reach the beneficiary’s interest by attachment of present or future distributions to or

for the benefit of the beneficiary or other means. The court may limit the award to such relief as is

appropriate under the circumstances.

45. What exceptions are there to these rights of creditors and assignees?

SCTC Section 62-7-501 shall not apply and a trustee shall have no liability to any creditor

of a beneficiary for any distributions made to or for the benefit of the beneficiary to the extent a

beneficiary’s interest (1) is protected by a spendthrift provision, or (2) is a discretionary trust

interest as referred to in S.C. Code §62-7-504.

46. What is required to create a spendthrift trust?

First, the spendthrift provision in the trust must restrain both voluntary and involuntary

transfers by the beneficiary; second, the terms of the trust must provide that the interest of a

beneficiary is held subject to a spendthrift trust or words of similar import.

47. What exceptions are there to spendthrift provisions?

Even if a trust contains a spendthrift provision, a beneficiary’s child who has a judgment or

court order against the beneficiary for support or maintenance may obtain from a court an order

attaching present or future distributions to or for the benefit of the beneficiary under section 62-7-

503(b). Thus, the only beneficiary who has a right to override spendthrift provisions is a child. The

UTC from which SC draftsmen began work extended rights to spouses, but SC has chosen to restrict

to children only.

48. What is a discretionary trust?

While the terms of the trust ordinarily will identify the beneficiaries of the trust and identify

what the trustee’s obligations are regarding distributions to beneficiaries, the trustee may be given

total and unfettered discretion with regard to what distributions, if any, are made to a particular

beneficiary, and when such distributions are made. For example, the right of a trustee to distribute

income of a trust among a class of the Settlor’s issue at such time as the Trustee deems appropriate

does not create a right in any one beneficiary to get income, nor does it create a right to get income

at a specific time. The Trustee will not be allowed to abuse his discretion without risk of court

involvement to correct the abuse.

In contrast, more commonly, one sees trusts that direct the trustee to pay all income to a

spouse quarterly. Here there is no discretion involved because the beneficiary to get the funds and

the time of distribution are specifically stated. Another example would be a direction to the trustee

to expend principal for the beneficiary’s health. If the trustee fails to act in making distributions

for the beneficiary’s health, the beneficiary has a right to force the trustee to make distributions for

the beneficiary’s health.

49. In a trust containing spendthrift provisions and directing the trustee to expend principal for

the beneficiary’s health (or other ascertainable standard), can a creditor force the trustee to

make distributions for health?

Subject to one exception hereinafter discussed, 62-7-504 provides a creditor of a beneficiary

may not compel a distribution from a trust in which the beneficiary has a discretionary trust interest,

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even if: (1) the discretion is expressed in the form of a standard of distribution; or (2) the trustee

has abused the discretion.

50. If a trustee has abused his or her discretion in failing to make distributions from a

discretionary trust, can a creditor force such distributions?

Subject to the one exception (child support), the trustee cannot be forced to make

distributions.

51. What exception exists to force distributions from spendthrift trusts?

To the extent a trustee has not complied with a standard of distribution or has abused a

discretion: a distribution may be ordered by the court to satisfy a judgment or court order against

the beneficiary for support or maintenance of the beneficiary’s child; and the court shall direct the

trustee to pay to the child such amount as is equitable under the circumstances but not more than

the amount the trustee would have been required to distribute to or for the benefit of the beneficiary

had the trustee complied with the standard or not abused the discretion.

52. Does the protection offered by a spendthrift provision allow me to create a spendthrift trust

for myself?

No, SCTC Section 62-7-505 provides, in part, that during the lifetime of the settlor, the

property of a revocable trust is subject to claims of the settlor's creditors. With respect to an

irrevocable trust, a creditor or assignee of the settlor may reach the maximum amount that can be

distributed to or for the settlor's benefit.

53. Suppose someone else set up a trust for my benefit but named me as the trustee. The trust

has a spendthrift clause. Can a creditor get to these assets?

If there is an ascertainable standard, you are safe. The statute provides, in part, that, a

beneficiary who is a trustee of a trust, but who is not the settlor of the trust, cannot be treated in the

same manner as the settlor of a revocable trust if the beneficiary-trustee’s power to make

distributions to the beneficiary-trustee is limited by an ascertainable standard related to the

beneficiary-trustee’s health, education, maintenance, and support.

54. How does the new SCTC describe the level of capacity to create a revocable trust? Is it the

same as the capacity to make a Will?

Yes, it is the same as the capacity to make a Will. Part 6 of the SCTC codifies many

provisions relating to Revocable Trusts – with a recognition that Revocable Trusts are substitutes

for Last Wills and Testaments. SCTC Section 62-7-601 provides that the capacity required to

create, amend, revoke, or add property to a revocable trust, or to direct the actions of the trustee

of a revocable trust, is the same as that required to make a will. The comments to the SCTC note

that the test for mental capacity is whether the person knows (1) his estate, (2) the objects of his

affections, and (3) to whom he wishes to give his property. The capacity to understand as opposed

to actual knowledge or understanding is sufficient. It is a lower standard than that required to sign

a deed or contract.

55. Is a trust presumed to be revocable or irrevocable if the document does not explicitly state?

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In a change from existing law, the new SCTC provides that a trust is revocable, unless it

states otherwise. However it is important to note that this status of revocability does not apply to

documents executed before January 1, 2006.

56. How does one revoke or amend a revocable trust?

SCTC Section 62-7-602 provides default rules for amending and revoking a trust (remember

that the Settlor can craft language at variance from the default rules). The default rules provide

that the Settlor (1) can amend or revoke by substantial compliance with a method provided in the

terms of the trust; or (2) if the terms of the trust do not provide a method or the method provided in

the terms is not expressly made exclusive, by: (A) a later will or codicil that expressly refers to the

trust, manifesting clear and convincing evidence of the settlor’s intent; or (B) by oral statement to

the trustee if the trust was created orally; or ©) any other written method, other than a later will or

codicil, delivered to the trustee and manifesting clear and convincing evidence of the settlor’s intent.

57. What happens to the trust corpus when there is a revocation?

The Trustee is to distribute the property as the Settlor directs.

58. Can one delegate the ability to revoke or amend to an agent?

SCTC Section 62-7-602(e) specifically allows the ability to grant this authority to an agent

either under the terms of the trust or the terms of the power of attorney. South Carolina added to

the UTC statute the proviso that prohibits changing the designation of beneficiaries. However, this

provision is the default rule and, under Section 62-7-105, should be capable of being modified by

language in the trust document.

59. Is the trustee at risk if she makes distributions or takes other actions without being aware of

the revocation of the trust?

No, a trustee who does not know that a trust has been revoked or amended is not liable to

the settlor or settlor’s successors in interest for distributions made and other actions taken on the

assumption that the trust had not been amended or revoked.

60. Do beneficiaries have any rights while a trust is revocable?

As long as the trust is revocable, the beneficiaries have no rights by default, but the settlor

can create such rights in the document; however if the settlor loses capacity, then the beneficiaries

have rights while the settlor is incapacitated.

61. Are there statutory provisions for contesting or challenging a revocable trust?

SCTC Section 62-7-604 prescribes a statute of limitations for contesting the validity of a

revocable trust. A person must commence a judicial proceeding to contest the validity of a trust that

was revocable at the settlor’s death within the earlier of: (1) one year after the settlor’s death; or

(2) 60 days after the trustee sent the person a copy of the trust instrument and a notice informing

the person of the trust’s existence, of the trustee’s name and address, and of the time allowed for

commencing a proceeding.

62. Once a settlor dies, is there any period of time before a trustee can distribute the corpus

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among the beneficiaries?

SCTC Section 62-7-604(b) provides: Upon the death of the settlor of a trust that was

revocable at the settlor’s death, the trustee may proceed to distribute the trust property in

accordance with the terms of the trust. The trustee is not subject to liability for doing so unless: (1)

the trustee knows of a pending judicial proceeding contesting the validity of the trust; or (2) a

potential contestant has notified the trustee of a possible judicial proceeding to contest the trust and

a judicial proceeding is commenced within 60 days after the contestant sent the notification.

63. Suppose a trustee makes a distribution that is determined to be invalid. Does a beneficiary

have a duty to return the distribution?

Yes, under SCTC Section 62-7-604©), the beneficiary is under an obligation to return

improperly distributed assets, but the statute does not address whether or not the beneficiary owes

interest, leaving the matter to the law of restitution.

64. Are “no contest” clauses valid under the SCTC?

A provision in a revocable trust purporting to penalize any interested person for contesting

the validity of the trust or instituting other proceedings relating to the trust is unenforceable if

probable cause exists for instituting proceedings.

65. Suppose a beneficiary of the revocable trust dies? What happens to his gift under the terms

of the trust if the settlor had not drafted language anticipating the beneficiary’s demise?

SCTC Section 62-7-606 contains “anti-lapse” provisions substituting descendants of the

deceased beneficiary and using rules based upon the current South Carolina Probate Code. Should

a residuary gift lapse, then the other residuary beneficiary(ies) take the share.

66. What about divorce? What effect does that have on a provision for a spouse?

SCTC Section 62-7-607 states that the spouse is deemed to revoke all dispositions in favor

of the spouse, all powers of appointment granted to a spouse, and any other beneficial interests the

spouse would have had. A decree of separate maintenance is not a divorce and does not affect the

spouse’s rights.

67. How does a designated trustee accept the trusteeship?

Under SCTC Section 62-7-701 one accepts in two ways: -- either by substantially complying

with a method of acceptance provided in the terms of the trust; or (2) if the terms of the trust do not

provide a method or the method provided in the terms is not expressly made exclusive, by accepting

delivery of the trust property, exercising powers or performing duties as trustee, or otherwise

indicating acceptance of the trusteeship.

68. Does the statute provide for rejections of trusteeships?

The statute specifically addresses the right to reject trusteeships, but notes that one can act

to preserve trust property without accepting a trusteeship.

69. Are bonds now required of trustees under the new code?

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SCTC Section 62-7-702 states that bonds are not required if the agreement so states, but if

the document is silent, a beneficiary can request the court to direct the Trustee to secure a bond.

70. If more than two trustees are appointed, what rules govern their actions?

If co-trustees cannot reach unanimity, then a majority of the co trustees may act. Generally,

each co trustee is required to participate in all matters involving the Trust, subject to an ability to

delegate responsibilities to another co-trustee.

71. Suppose one of three co-trustees objects to a course of action selected by the other two cotrustees.

What liability does the third trustee have?

Under SCTC Section 62-7-703, a dissenting trustee who joins in an action at the direction

of the majority of the trustees and who notified any co-trustee of the dissent at or before the time of

the action is not liable for the action unless the action is a serious breach of trust.

72. If there is a serious breach of trust about to occur or has occurred, what is a dissenting cotrustee

to do?

Under SCTC Section 62-7-703, such a co-trustee should ask a court to intervene to prevent

a co-trustee from committing a serious breach of trust. If a serious breach has occurred, then the

co-trustee must ask a court to intervene to compel a co-trustee to redress a serious breach of trust.

73. If one of two co-trustees is unable to act, what action can the other co-trustee take?

Under SCTC Section 62-7-703(d), if a co-trustee is unavailable to perform duties because

of absence, illness, disqualification under other law, or other temporary incapacity, and prompt

action is necessary to achieve the purposes of the trust or to avoid injury to the trust property, the

remaining co-trustee or a majority of the remaining co-trustees may act for the trust.

74. If a vacancy occurs in a co-trusteeship, must the vacancy be filled?

If the terms of the document require there to be a fixed number of co-trustees, then the

vacancy must be filled, but otherwise the remaining trustee(s) serve without the necessity of

appointing a substitute to fill the vacancy.

75. In the absence of specific language in the trust document, how does a trustee resign?

Under SCTC Section 62-7-705 a trustee may resign: (1) upon at least 30 days notice in

writing to the qualified beneficiaries, the settlor, if living, and all co-trustees; or (2) with the

approval of the court.

76. Is there an overriding reasonableness requirement for trustee fees?

Yes. If the terms of payment are set forth in the document, a court can allow more or less

compensation if: (I) the duties of the trustee are substantially different from those contemplated

when the trust was created; or (ii) the compensation specified by the terms of the trust would be

unreasonably low or high.

77. Are the trustee’s duties of good faith, loyalty, impartiality, etc. codified?

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Yes, in Part 8 of the SCTC. In SCTC Section 62-7-810, trustees are required to keep

adequate trust records and to identify and to not co-mingle trust assets with other assets.

78. What trust information must a trustee disclose to a beneficiary? Can a document expressly

provide for nondisclosure of that information?

SCTC Section 62-7-813 states that a trustee has a general duty to keep the ‘qualified

beneficiaries’ reasonably informed about the administration of the trust and of the material facts

necessary to protect their respective interests and a duty to promptly respond to a beneficiary’s

request for information related to the administration of the trust.

Unless the document states otherwise, a trustee must provide all qualified beneficiaries with

the trustee’s name, address, and telephone number within sixty days of accepting the trusteeship.

Within sixty days of the date the trustee has knowledge that the trust has become irrevocable, a

trustee must also inform all qualified beneficiaries of the following: (I) that a trust exists; (ii) the

settlor’s identity; (iii) that the qualified beneficiary has a right to request a copy of the trust, and

(iv) that the qualified beneficiary has a right to an accounting. Unless the document states

otherwise, a trustee must provide all beneficiaries who request a copy of the trust, a copy of the

trust.

Again, this is a default statute and a settlor could specifically provide that the trustee is not

required to comply with this Section. The Section also give a beneficiary a right to waive his or her

right to this information.

79. Do the duties set forth in SCTC Section 62-7-813 apply retroactively?

This Section applies to any trustee who agrees and accepts to serve as trustee of any

irrevocable Trust on or after January 1, 2006, and to any trustee of any revocable trust that

becomes irrevocable on or after January 1, 2006.

80. What statutory powers does a trustee have?

SCTC Sections 62-7-815 and 816 set forth the general and specific statutory powers of a

trustee. The first section states that a trustee has the same powers over trust property that an

individual has over his property. The second section is the laundry list.

81. How can a trustee protect itself upon termination of a trust?

SCTC Section 62-7-817 provides that a trustee may provide the beneficiaries with a proposal

for distribution, giving any beneficiary the right to object within thirty days of the date of the

mailing and informing the beneficiary of that right and of the time allowed for objection.

82. Where can I find the South Carolina Uniform Principal and Income Act?

It is Part 9 of the SCTC.

83. What is a breach of trust?

A breach of trust is any violation of a duty owed to a beneficiary by a trustee.

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84. What remedies does the SCTC provide for breach of trust?

Under SCTC Section 62-3-1001 the court may: (1) compel the trustee to perform the

trustee’s duties; (2) enjoin the trustee from committing a breach of trust; (3) compel the trustee to

redress a breach of trust by paying money, restoring property, or other means; (4)order a trustee

to account; (5) appoint a special fiduciary to take possession of the trust property and administer

the trust; (6)suspend the trustee; (7)remove the trustee as provided in Section 62-7-706; (8)reduce

or deny compensation to the trustee; (9) subject to Section 62-7-1012, void an act of the trustee,

impose a lien or a constructive trust on trust property, or trace trust property wrongfully disposed

of and recover the property or its proceeds; or (10) order any other appropriate relief.

85. What is the measure of damages for a breach of trust?

Under 62-7-1002, a trustee who commits a breach of trust is liable to the beneficiaries

affected for the greater of: (1) the amount required to restore the value of the trust property and

trust distributions to what they would have been had the breach not occurred; or (2) the profit the

trustee made by reason of the breach.

86. Are there ever damages recoverable against a trustee in the absence of a breach?

A trustee is accountable to an affected beneficiary for any profit made by the trustee arising

from the administration of the trust, even absent a breach of trust.

87. Is a beneficiary’s release of a trustee from liability for breach of trust valid?

Yes unless the release was induced by the trustee’s improper conduct or unless the

beneficiary was unaware of the beneficiary’s rights or of the material facts relating to the breach

when the release was signed.

88. What is the American rule regarding payment of attorneys fees? Is it affected by the SC TC?

The American rule traditionally has required each party to pay its own costs. However,

SCTC Section 62-7-1004 provides that in a judicial proceeding involving the administration of a

trust, the court, as justice and equity may require, may award costs and expenses, including

reasonable attorney’s fees, to any party, to be paid by another party or from the trust that is the

subject of the controversy.

89. What are applicable statutes of limitations in actions against a trustee?

While there can always be a prior adjudication, a consent or agreed upon limitation, a

beneficiary may not commence a proceeding against a trustee for breach of trust more than one year

after the date the beneficiary or a representative of the beneficiary was sent a report that adequately

disclosed the existence of a potential claim for breach of trust

.

90. If there was no report sent, when does the statute of limitations run?

A judicial proceeding by a beneficiary or on behalf of a beneficiary against a trustee for

breach of trust must be commenced within three years after the first to occur of: (1) the removal,

resignation, or death of the trustee; (2) the termination of the beneficiary’s interest in the trust; or

(3) the termination of the trust.

91. Can a trustee be absolved from liability by the terms of the document?

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Generally yes, but such terms are unenforceable if the exculpations relate to breach of trust

committed in bad faith or with reckless indifference to the purposes of the trust or the interests of

the beneficiaries; or if the exculpatory language was inserted as the result of an abuse by the trustee

of a fiduciary or confidential relationship to the settlor.

92. What personal liability does a trustee have in administering a trust?

Only for torts committed in the course of administering a trust, or for obligations arising

from ownership or control of trust property, including liability for violation of environmental law,

but only if the trustee is personally at fault. Otherwise the trustee is not personally liable, unless

provided in a contract signed by the trustee.

93. What is the liability of the settlor of a revocable trust if the trustee is a general partner?

The settlor is personally liable for contracts and other obligations of the partnership as if

the settlor were a general partner.

94. What is a certification of trust and what effect does a certification have?

As an alternative to furnishing a copy of the trust, the trustee may furnish a certificate for

the trust. The statute in 62-7-1013 sets forth all of the items that must be contained in such a

certificate, and in fact, contains an acceptable form of certification.

95. What was repealed by the SCTC?

South Carolina Code Sections 62-7-101 through 62-7-709 and Section 27-5-70 were

repealed; provided, however, that South Carolina’s version of the Uniform Prudent Investor Act,

which was Section 62-7-302, is now at SCTC 62-7-933 and South Carolina’s version of the Uniform

Principal and Income Act, which were Sections 62-7-401 through 432, is now SCTC Sections 62-7-

901 through

932.