Planning 360 Years Ahead: Dynasty Estate Planning in South Carolina After RAP Change
Great news for high-net-worth individuals and families in South Carolina: You now have the ability to direct what happens to your property for much longer after your death. Previously, long-term estate planning had an effective limit of 90 years, or about three generations. Now, South Carolina residents can create trusts to protect and manage assets for up to 360 years – roughly a dozen generations.
This change went into effect in May 2025 when Gov. McMaster signed H.3432 into law. The bill extended the “wait-and-see” vesting period for future nonvested property interests and powers of appointment from 90 years to 360 years under the state’s Rule Against Perpetuities (RAP) laws. See South Carolina Code Sections 27-6-20 and 27-6-40.
This extension makes South Carolina competitive with other trust-friendly states like Tennessee, South Dakota, and Delaware, potentially attracting more high-net-worth families and trust businesses. (This is likely why H.3432 passed both the House and the Senate unanimously.)
For high-net-worth individuals and families, this change doesn’t affect the what, just the how long of family dynasty estate planning. But planning that far into the future comes with its own challenges. Below, we’ll look at the basics and benefits of dynasty estate planning, then at three things to watch out for.
The Basics and Benefits of (Very) Long-Term, Multi-Generation Estate Planning
The Basics of the RAP: Curbing “Dead-Hand Control”
The Rule Against Perpetuities originated in 17th Century England as a way to prevent long-term “dead-hand control,” when a deceased person directs or controls what happens to his or her property from the grave through a will or trust. This helped keep land marketable and transferable while limiting the power of family dynasties.
The RAP came to the U.S. as part of the common law with the same intention. However, it’s evolved over the years, trending in favor of individual property owners. The majority of states have extended the length of time individuals can direct what happens to their property after death – South Carolina included. (You can read more about the history of the RAP in South Carolina here.)
The RAP in South Carolina
South Carolina’s Rule Against Perpetuities applies to any nonvested future interest or power of appointment, whether that’s created through a trust, will, or other legal instrument. In practice, though, the RAP primarily applies to trusts, which are the best instruments for multi-generational estate planning.
Assets in trusts may enjoy the following protections in South Carolina, depending on how the trust is drawn up:
- Avoidance of estate tax
- Avoidance of generation-skipping transfer tax (GST tax)
- Protection from creditors
- Protection from lawsuits
- Protection from divorce
- Protection from any individual owner’s bad decisions
An individual beneficiary may enjoy the advantages of the assets during the life of the trust according to its terms, such as the right to live in a property, to receive income generated by the trust’s investments, or have the trust pay for HEMS.
The 360-year clock starts ticking when a future interest or power of appointment is created, either when an irrevocable trust is funded or when a revocable trust becomes irrevocable upon the death of the grantor/settlor. By the end of the 360-year period, any nonvested property interests or powers of appointment must either vest or terminate. Any assets that then pass into the beneficiaries’ personal estates are once again subject to estate taxes, creditors, and more.
The Realities of (Very) Long-Term, Multi-Generation Estate Planning: What to Watch Out For
The benefit of the 360-year time frame is simply that the assets are protected for much longer than previously allowed under state law. But planning so far into the future presents its own potential pitfalls. Here are three considerations before drawing up a dynasty trust.
Watch Out 1: Inflexibility. Flexibility in Your Trust is a Must.
Imagine it’s the year 1666 and you’re creating a legal document to direct what will happen to your property for the next 360 years. Could you even imagine how much the world would change? Would the plans you developed in 1666 make sense in the year 2026?
That’s one of the big challenges of creating a trust that’s valid for 360 years into the future: It’s impossible to know what life will look like in 2386. For this reason, you must ensure that your trust is flexible enough to meet beneficiaries’ changing needs over the coming centuries.
This could mean provisions of the trust:
- Give future beneficiaries special powers of appointment so they can (within limits) direct which assets should go to whom
- Give the trustee(s) powers to invest, manage, or sell assets as needed to carry out the purpose of the trust
- Allow decanting, restructuring, mergers, and divisions
- Use percentages or shares to determine distributions rather than fixed currency amounts
- Address family-specific circumstances (to discuss with your estate planning attorney)
Avoid overly restrictive objectives and terms in the trust such as:
- “This trust is to preserve the family home”
- “Never sell the land”
- “Invest only in bonds rated AAA”
Restrictive terms like these seem to make sense now, or even over the next five years, but could be obsolete or counter to the purpose of the trust in 360 years.
Watch Out 2: Choice of Trustee. Trustee Succession Is Crucial.
Choice of trustee is crucial no matter the trust, as the trustee holds a great deal of power. But with a trust that could conceivably last for centuries into the future, it’s certain that the trust will someday be managed by individuals or entities that don’t yet exist. What can you do to ensure your trust stays in good hands?
This is where trustee succession comes in. Speak with an estate planning attorney with experience drafting long-term trusts on procedures, provisions, and restrictions to include in the trust that determine how and when a new trustee is appointed.
You may also want to add additional layers of protection such as a trust director or trust protector.
Read more on this topic on our blog:
Watch Out 3: Vulnerabilities. Trusts Are Not Invincible.
No matter how well-written a trust is, the assets in it are still subject to some outside forces.
A trust can protect assets from private threats like creditors, divorces, lawsuits, and the bad decisions of individuals who might squander them. But a trust cannot offer protect from public-law powers. For example, a piece of real property in a trust would still be subject to:
- Tax liens, tax deed sales, or foreclosure due to unpaid property taxes
- Claims of eminent domain
- Easements
- Adverse possession
- Zoning or use laws
- Other government rights and interests
In short: A trust is not a magical shield, not even a well-written one designed to last 360 years.
Strategic Advice and Help with Long-Term Estate Planning from Gem McDowell
Trusts bring uncertainty, as you don’t know what the future will look like. But you can help avoid problems and keep your assets protected by talking through potential scenarios with an experienced estate planning attorney like Gem McDowell. Gem has over 30 years of experience helping South Carolina individuals and businesses protect their interests and plan for the future. He and his team can help you create a custom estate plan that’s robust enough to protect your assets yet flexible enough to adapt to life’s inevitable changes.
Call Gem and his team at the Gem McDowell Law Group, with offices in Myrtle Beach and Mt. Pleasant, SC, at 843-284-1021 today to schedule a free consultation.
What is the Legal Rate of Interest in South Carolina in 2026?
On January 7, 2026, the Supreme Court of South Carolina issued an order on the legal rate of interest on money decrees and judgements for the upcoming year. The legal rate of interest in South Carolina for the period of January 15, 2026, through January 14, 2027, is 10.75% compounded annually. See the court’s original order here (PDF).
The rate “is equal to the prime rate as listed in the first edition of the Wall Street Journal published for each calendar year for which the damages are awarded, plus four percentage points, compounded annually,” according to South Carolina Code § 34-31-20 (B) (2020).
Compare this to the previous legal rates of interest compounded annually in South Carolina (with links to the original orders):
2026: 10.75%
2025: 11.50%
2024: 12.50%
2023: 11.50%
2022: 7.25%
2021: 7.25%
2020: 8.75%
2019: 9.50%
2018: 8.50%
2017: 7.75%
Divorce and Elective Share: Is My Soon-To-Be Ex Entitled to My Estate If I Die?
The answer: Yes, maybe. Your soon-to-be ex could very well have the legal right to claim one-third of your probate estate in South Carolina if you die before the divorce is finalized and filed. But there is some nuance to this topic, so let’s get into it.
Elective share is the portion of a deceased spouse’s probate estate that the surviving spouse is entitled to regardless of the terms of the will, as we’ve covered before. It protects surviving spouses from being unknowingly disinherited.
In South Carolina, the only reasons a surviving spouse would lose that right are:
- Missing the deadline to file a claim
- Signing a valid waiver (read more on our blog here)
- Divorce
Divorce is where it can get tricky. Intent to divorce does not extinguish an individual’s right to elective share, nor does filing for divorce. So, then, exactly how and when does divorce affect the right to spousal elective share under state law?
That’s what we’re looking at today, along with the reasoning of the Supreme Court of South Carolina in Deborah Weeks v David Weeks (2024) (here) which affirmed that intention doesn’t matter – only the letter of the law does.
Weeks v. Weeks (2024) Brief Background
Deborah and James had a “stormy” relationship after they married in 1998. Deborah initiated many actions in family court over the years, and several temporary orders were issued – no final orders – but all actions were dismissed in 2012.
James and Deborah were still married at the time of his death in 2017. His 2001 will left everything to his two children from a previous marriage. Deborah filed for elective share.
The probate court disallowed her claim, and upon appeal the circuit court affirmed the probate court. But the South Carolina Court of Appeals and later the Supreme Court reversed the lower courts and found in favor of Deborah, favoring a plain reading of the letter of the law.
How Divorce Affects the Right to Elective Share in South Carolina
South Carolina courts have routinely protected and upheld the right of a surviving spouse to claim elective share.
Still, there are some instances when an individual no longer has a right to claim spousal elective share: once a divorce is finalized, and in select situations as described in South Carolina Code Section 62-2-802, which directly covers how divorce and annulment affect marital rights, and Section 62-2-204, which covers voluntary waiver of rights.
The right to claim elective share is extinguished:
- Once a Divorce is Finalized
Under South Carolina Code Section 62-2-802(a), if the individual has divorced the decedent, and the two did not remarry and stay married until the decedent’s death, he or she is no longer a “surviving spouse” and is therefore not entitled to elective share.
Importantly, Section 62-2-802(c) states that “A divorce or annulment is not final until signed by the court and filed in the office of the clerk of court.”
What happens if a divorce is granted, but one spouse dies before the order is signed and filed? This exact scenario happened, as we’ve covered in this blog before. In short, in Hatchell-Freeman v. Freeman (2000), the SC Court of Appeals found in favor of the party claiming elective share, because she was still technically a “surviving spouse” under the law when the decedent died.
- Upon Obtaining a Divorce or Annulment Not Recognized by South Carolina
Section 62-2-802(b)(1) addresses situations where an individual “obtains or consents to” a final decree or judgement of divorce or annulment but that divorce or annulment is not recognized by South Carolina. While technically still married under SC law, if the couple does not “live together as husband and wife” at the time of the decedent’s death, the individual no longer has the right to claim elective share.
- Upon Marrying a Third Person Subsequent to an Invalid Divorce or Annulment
Section 62-2-802(b)(2) addresses situations where an individual has obtained a divorce or annulment that is not recognized by South Carolina but has then gone on to marry a third party. In these situations, the individual no longer has the right to claim elective share from the estate of the first spouse.
- Upon Obtaining an Order Terminating All Marital Property Rights or Confirming Equitable Distribution
Under Section 62-2-802(b)(3), an individual who “was a party to a valid proceeding concluded by an order purporting to terminate all marital property rights or confirming equitable distribution between spouses” no longer has the right to claim elective share, as long as the couple were no longer “living together as husband and wife” at the time of the decedent’s death.
- Upon Obtaining a Complete Property Settlement or Property Rights Waiver in Anticipation of Divorce
Under Section 62-2-204(b), a waiver of all rights in the spouse’s property or estate or “a complete property settlement entered into after or in anticipation of separation or divorce is a waiver of all rights to elective share” unless it provides to the contrary.
(Additionally, Section 62-2-802(b)(4) addresses instances of common law marriage, where an individual is not considered a “surviving spouse” unless his or her status as a common law spouse has been established within the time frame defined by statute.)
The Supreme Court Again Follow the Letter of the Law, Not Intent
In the Weeks opinion, the court cites SC Code Section 62-2-802 and Section 62-2-204 explicitly and shows how the statute did not apply in this case.
Deborah did not sign a waiver of elective share before or during the marriage, not even in anticipation of divorce. The orders issued were not final and were, in the words of the court, “not only temporary but ephemeral.” When James died, the two were still married and there was no pending divorce suit, final property settlement, or final order “purporting to terminate all marital property rights or confirming equitable distribution.” Under the law, Deborah was a “surviving spouse” and therefore retained her right to claim spousal elective share, even if that went against the wishes of James in his will.
The court found in favor of Deborah and affirmed her right to claim elective share. The court states, “Why the parties decided to drop their family court battle and remain married may be a mystery to others, but § 62-2-204 is not about unraveling the baffles of human affairs. It is about setting the boundaries of a surviving spouse’s rights. These rights are substantial, and the elective share statute must be construed in strict faithfulness to its plain terms.”
This approach is consistent with other decisions that rely on strict interpretation of the law, including Geddings v. Geddings (1995), Terry v. Terry (2012), Simpson v. Sanders (1994), and Hatchell-Freeman v. Freeman (2000), mentioned above.
“Sometimes the law’s boundaries do not parallel what some view as fair. The probate court, believing the fair thing to do was grant Deborah nothing, set the law aside and imposed its own idea of fairness. This it cannot do,” concludes the court.
What You Can Do Now
If you are in the middle of a divorce, what can you do? Speak with your divorce attorney and estate planning attorney to go over your options. You and your soon-to-be ex don’t have to wait until the divorce is finalized; you may be able to mutually waive your rights to elective share, obtain a complete property settlement in anticipation of divorce, or obtain a court order terminating all marital property rights.
For Help with Prenuptial and Postnuptial Agreements, Probate, Elective Share and More
Call estate planning attorney Gem McDowell of the Gem McDowell Law Group with offices in Myrtle Beach and Mt. Pleasant, SC. Gem and his team help create personalized estate plans that reflect your family’s wishes and circumstances and give you peace of mind knowing that your loved ones will be taken care of when the time comes. Gem also helps families through the probate process, from submitting the will to closing the estate, and more.
Whether you simply want to review an existing will, trust, or agreement to ensure it’s still valid, or you want to create a comprehensive estate plan, or get help with probate, call Gem and his team today to schedule a free consultation at 843-284-1021.
How to Force an LLC Member Out – Judicial Dissociation
What happens when you’re in business with someone whose behavior harms the LLC but who refuses to leave voluntarily?
Ideally, you have a well-drafted buy-sell agreement or operating agreement that addresses this exact situation and clearly lays out next steps. If not, you may be able to go to court to pursue judicial dissociation, the court-ordered removal of a member from an LLC.
South Carolina courts are typically reluctant to take such a drastic step, but it can be done. This blog will cover what it takes for a court to grant judicial dissociation in SC according to state statute and look at a case where the appeals court did not grant judicial dissociation, reversing the circuit court’s earlier decision. Note: We previously covered this case, The Boathouse v. Richard Stoney (2024) (read it here), on the issue of whether a single member “class of one” can bring a derivative action in SC.
South Carolina Statute on Judicial Dissociation
South Carolina Code Section 33-44-601 lays out the many ways in which a member of an LLC may be dissociated from the LLC, with subsection (6) specifically listing the circumstances under which a member may be expelled by judicial determination:
- If the member engaged in conduct that “adversely and materially” affected business;
- If the member committed a “material” breach “wilfully or persistently” of the operating agreement or duty owed to the company and other members, as described in Section 33-44-409 (covering General standards of member’s and manager’s conduct); OR
- If the member’s conduct relating to the business made it “not reasonably practicable” for the business to carry on with that member.
If a member’s conduct fits into one or more of the categories above, he or she may be removed from the LLC by the court.
Factors to Consider Whether Judicial Dissociation Is Warranted
That’s what the law says, but it’s up to the court to apply it on a case-by-case basis.
In the Boathouse opinion, the SC appeals court cited an “instructive” decision from the Supreme Court of New Jersey, IE Test, LLC v. Carroll (N.J. 2016), which laid out several factors to consider (while noting that it’s not binding on the South Carolina court):
- The nature of the LLC member’s conduct relating to the LLC’s business;
- Whether, with the LLC member remaining a member, the entity may be managed so as to promote the purposes for which it was formed;
- Whether the dispute among the LLC members precludes them from working with one another to pursue the LLC’s goals;
- Whether there is a deadlock among the members;
- Whether, despite that deadlock, members can make decisions on the management of the company, pursuant to the operating agreement or in accordance with applicable statutory provisions;
- Whether, due to the LLC’s financial position, there is still a business to operate; and
- Whether continuing the LLC, with the LLC member remaining a member is financially feasible.
The New Jersey Supreme Court states that mere conflict isn’t enough to warrant dissociation. Members seeking to expel another member through forcible dissociation must “clear a high bar” and prove that it’s not reasonably practicable to carry on the business with the member.
The Boathouse case: Judicial Dissociation in Practice
All of that sounds well and good, but it’s very theoretical. What does it look like in real life?
In the Boathouse case, the circuit court granted a motion for judicial dissociation of a member, which the appeals court later reversed.
For a more thorough look into the interesting background of this case, read our previous blog. Briefly: Cousins Laurence Stoney and Richard Stoney are both members, along with other individuals, of an LLC that runs the popular Charleston-area restaurant The Boathouse on Breach Inlet. Over the course of many years, Laurence alleged, Richard misspent company funds, taking money earned by the Boathouse and spending it in his other businesses and on personal expenses such as vacations and polo ponies. Richard, through a different but related LLC, ended up owing the Boathouse LLC $4 million.
But the motion for dissociation was not against Richard, it was against Laurence. Laurence sought to bring a derivative action as a “class of one” against Richard for his conduct. In turn, Richard and a few other third-party Intervenors filed a motion to dissociate Laurence from the company. The circuit court granted the motion to dissociate Laurence, based on:
- Laurence denigrating the company to vendors,
- Laurence’s efforts to change ownership and management during Richard’s divorce, and
- Laurence’s efforts to purchase land that Richard had an interest in without disclosing his efforts to Richard
The court of appeals looked at whether this behavior reached the high level required for forcible judicial dissociation.
Why the Appeals Court Reversed the Circuit Court
The South Carolina Court of Appeals found that “none of these incidents evidence conduct relating to the Company’s business that would warrant judicial dissociation.” In addition, the animosity between the members was not substantial enough to warrant judicial dissociation, as much of the animosity stemmed from disagreements over Richard’s use (or misuse) of company funds.
As to the other factors laid out by the New Jersey court, cited above, the South Carolina appeals court notes that Laurence was not in a position to create a deadlock or interfere with the running of the business, owning just a 5% stake; the Boathouse restaurant still brought in money and was projected to continue with strong sales; and the LLC would not be prevented from continuing to operate if Laurence remained a member.
The appeals court ultimately held that the circuit court erred when it found Laurence “engaged in conduct relating to the company’s business which makes it not reasonably practicable to carry on the business with the member” and reversed the grant of the motion for dissociation.
A Better Option: Solid Corporate Governance Documents
You don’t know what the future holds for your LLC, but you can be sure that it won’t always be smooth sailing. So figure out what to do in advance, instead of deciding how to handle the storm only after it strikes. When a situation does arise in the future, you can turn to your corporate governance documents instead of the courts.
At the least, when you are going into business with another person you should have:
An Operating Agreement. An operating agreement lays out the roles and responsibilities of each party so everyone is clear on what his or her job is and knows when a member is not living up to his or her duties. An operating agreement often includes provisions for removing or dissociating a member in certain situations such as misconduct or breach of duty.
A Buy-Sell Agreement. A buy-sell agreement sets the rules for how and when changes in ownership occur due to things like death, disability, divorce, or dispute. Members can agree in advance on what to do if one member does not live up to his or her duties as outlined in the operating agreement, which could include buying him or her out. Read more about buy-sell agreements here on our blog.
It’s best to have these drawn up when you start up your business, while all members are still on good terms. However, if you’ve been in business for a while and still don’t have anything in place, you can do it now – it’s never too late.
For Corporate Governance Documents and Strategic Legal Advice, Call Gem McDowell
To draw up or review operating agreements, buy-sell agreements, and other corporate governance documents, or for strategic business advice, call Gem at the Gem McDowell Law Group. Gem and his team help South Carolina businesses and business owners with starting, buying, selling, and more. With over thirty years in practice in the state, Gem has the experience to help you grow, avoid mistakes, and protect your interests.
The Gem McDowell Law Group has offices in Myrtle Beach and Mt. Pleasant, SC. Call 843-284-1021 today to schedule your free, no-obligation consultation.
Can an Arbitration Award be Appealed? Vacatur, Manifest Disregard, and the Waldo Case in SC
Arbitration is by usually binding, meaning the arbitrator’s decision is final and the parties must legally abide by it. Since arbitration is type of Alternative Dispute Resolution that happens outside the judicial system, courts are reluctant to “vacate” an arbitrator’s decision. Most of the time, the decision stands.
But in rare instances, an arbitration award can be vacated. Federal and state law provide some limited statutory grounds for vacatur, which we’ll cover below.
In addition, some jurisdictions allow for vacatur due to “manifest disregard of the law.” South Carolina does recognize the high standard of “manifest disregard of the law” as valid grounds for vacating an arbitration award, as was reaffirmed by the SC Supreme Court in the Andrew Waldo v Michael Cousins (2024) decision.
Let’s look at this issue more closely.
Statutory Grounds for Vacating a Decision Made in Arbitration
Many states, including South Carolina, base state laws regarding arbitration on the Federal Arbitration Act (FAA), first enacted in 1925. Found in Title 9 of the U.S. Code, Section 10 lays out the following limited grounds for vacating an award:
- Corruption, fraud, or undue means
- Evident partiality or corruption of the arbitrator(s)
- Misconduct of the arbitrator(s)
- Arbitrator exceeding powers or failing to issue a definite and final decision
The South Carolina Uniform Arbitration Act, found in SC Code Title 15, Chapter 48, contains essentially the same grounds for vacatur as the FAA above, with the addition of a fifth:
- An award may be vacated if there was no arbitration agreement, the matter was not adversely determined under Section 15-48-20, and the party property objected
Vacatur of an arbitration award on statutory grounds is relatively rare. So is vacatur on the basis of the judicial concept of “manifest disregard of the law.”
“Manifest Disregard of the Law” as Judicial Grounds for Vacatur
Manifest disregard of the law occurs when an arbitrator knows the relevant, applicable law but deliberately ignores it. This is different from an error of law or ignorance of the law, which are not grounds for vacatur.
Manifest disregard of the law is not considered valid grounds in all jurisdictions, which makes the SC Supreme Court’s 2024 Waldo decision notable.
The facts, briefly
Michael Cousins is the broker in charge of a realty company that represented National Golf Management, LLC (NGM) as sellers in a transaction. The buyers were represented by a realty company where Andrew Waldo is the broker in charge.
In a subsequent transaction, Waldo represented the buyers again when purchasing 13 golf courses from NGM. Cousins didn’t have a written agreement with any party in this deal, and he didn’t get a commission from it.
Cousins and his company then brought suit against several parties seeking a commission. Cousins, Waldo, and an agent at Waldo’s company entered into arbitration, as they were required to do as members in a local realtor association.
Legal action and arbitration
Should Cousins be awarded a commission for the transaction? The decisions went back and forth:
- The arbitration panel ruled that Cousins was entitled to half of the commission earned in the deal
- Upon appeal, a Master-in-Equity vacated the award
- Upon further appeal, the court of appeals reversed the Master
- Finally, the SC Supreme Court reversed the court of appeals and vacated the award
In its opinion, the supreme court starts by “acknowledging – and reaffirming – the rare and narrow basis upon which we may disturb an arbitration award.”
However, if a claim is made that the arbitrator failed to follow the controlling law, then it must be shown that the arbitrator knew of “well-defined, explicit, and clearly applicable controlling law” but “still refused to apply it.” The court has held that in these situations, “the arbitrator exceeded his power by manifestly disregarding or perversely misconstruing the law governing the dispute.”
This high standard is only met when it’s “intentional” or “reckless flouting” of the law – not simply an error of interpretation. In this particular case, Waldo argued that the arbitration panel manifestly disregarded statutes governed by real estate agency law; the court agreed.
1. Did the Arbitrators Apply Relevant and Applicable Law? No.
Cousins argued that he acted as a “cooperating broker” with the buyer’s agent and was therefore entitled to a commission based on an “implied contract.” But under South Carolina law pertaining to the SC Real Estate Commission, Act 24 (1997) and Act 218 (2004), a written agreement with a buyer or seller is required for a broker (including a cooperating broker, or subagent) to be entitled to a commission. Cousins did not have one.
Cousins also argued that previous cases recognized the realtor’s right to commission through oral or implied contract. However, these cases were decided before the Acts went into effect, and the law states that the statute’s provisions supersede the common law when the two are inconsistent. (See: Title 40, Chapter 57 of the SC State Code.)
The law is clear: Cousins needed a written agreement in order to be entitled to a commission, and he did not have one. The arbitration panel did not apply this law in its decision.
2. Was There Evidence of Manifest Disregard? Yes.
Demonstrating that the arbitrators did not follow controlling law is one part of applying manifest disregard of the law. Far more difficult is proving that the arbitrator had knowledge of the controlling law but ignored it.
In the Waldo case, the record clearly showed that the arbitrators were aware of relevant and applicable law. They knew of the Acts referenced above and had a circuit court order dismissing similar claims from the same transaction on the grounds that oral and implied contracts in for real estate commissions were unenforceable under the Acts.
The arbitrators ignored the law in favor of focusing on “the procuring cause,” which the chairman brought up in the arbitration hearing. Under this theory, the agent or broker may be entitled to a commission if it can be shown that he or she was the initial cause of the chain of events that led to the transaction, even if he or she did not finalize the deal at the end. Courts recognized this reasoning in some prior cases even in the absence of a written agreement. But the statute is now clear that a written agreement is required, procuring cause or not.
“The Legal End Is Not a Lawless One”: Final Words of the Court
In summary, the record showed the arbitrators knew of the relevant law yet chose to ignore it. The supreme court reversed the court of appeals’ opinion, the award was vacated, and Cousins received no commission.
It’s worth reading some of the court’s musings on the nature and goal of arbitration towards the end of its opinion:
“Arbitration rests on consent of the parties, where parties freely exchange the expansive litigation rights court actions provide for the speed, informality, and finality arbitration promises. But when parties calculate the benefits and risks of their exchange, they do not bargain to have their dispute resolved by whim. Arbitration is designed to be the end, not the beginning, of legal wrangling, and our strict manifest disregard standard for vacatur honors this design by ensuring the legal end is not a lawless one.”
Help with Contracts, Business Law, and More – The Gem McDowell Law Group
If you’re a business professional who needs legal help or strategic advice to help grow and protect your company, call business attorney Gem McDowell. Gem and his team work with business owners and other professionals across South Carolina from their offices in Myrtle Beach and Mount Pleasant. They can help with buying, selling, starting, and growing your business; create and review contracts, arbitration agreements, and corporate governance documents; and provide strategic advice to help you avoid mistakes and protect your interests.
Call Gem and his team today to schedule your free initial consultation at 843-281-1021.
Pros and Cons of Family Friend vs. Corporate Trustee and Why Choice of Fiduciary Matters
A trustee of a trust is a fiduciary with a legal duty to act in the best interest of the trust beneficiary or beneficiaries in accordance with the terms of the trust.
The choice of trustee is an important one, which is why it should not be an afterthought when drawing up the trust instrument. The right trustee can ensure the grantor’s (aka settlor’s) wishes are carried out and help create a positive legacy for future generations. The wrong trustee can deviate from the grantor’s wishes and intent, stoke conflict among beneficiaries, and mismanage trust assets – sometimes to the point of criminal wrongdoing.
Here are some things to consider when choosing a fiduciary, plus some different options for your trust.
Family Friend or Corporate Trustee?
The choice of trustee often comes down to a choice between a family friend/relative or an unrelated corporate trustee. Both have their pros and cons.
The Family Friend/Relative as Trustee: Pros and Cons
Many grantors choose a trusted family member or friend for this role.
One main advantage is cost. The trustee is entitled to compensation as detailed in the trust instrument or, potentially, “reasonable compensation” under state law. This can be a set hourly rate or a small percentage of the trust assets (often below 1%) annually. Many trustees waive the fee altogether, especially if administering the trust is not too time consuming and challenging.
One disadvantage is that if the trust is time consuming and challenging, a family friend may not have the skills and experience. A trustee needs to know all relevant legal and tax matters to stay in compliance and may have a large job in terms of investing, managing, and distributing trust assets. Additionally, non-corporate trustees are not required to be bonded and insured like corporate trustees are, leaving assets more vulnerable to mismanagement and misconduct.
Succession planning can be a challenge, too. The trustee will eventually die or may step away from the role sooner due to illness, incapacity, or any number of other personal issues. The grantor must consider how a successor would be chosen in this circumstance.
Finally, consider the personalities, relationships, and interpersonal dynamics of the parties involved. Having someone who knows the grantor and beneficiaries personally can be a pro or a con depending on the particular situation. On the one hand, he or she may have valuable insights into the grantor’s values, wishes, and intent, and the individual needs and potential issues of the beneficiaries, because of those personal relationships. This can be a big benefit that corporate trustees simply can’t replicate.
On the other hand, this could work against the trustee. Beneficiaries may try to take advantage of their personal history with the trustee, the trustee could treat beneficiaries unfairly due to personal biases, or previously good relationships could be strained.
Whether the personal relationship is a pro or con is highly dependent on the individual personalities and relationship dynamics of the beneficiaries and trustee.
The Corporate Trustee: Pros and Cons
Another common option is the corporate trustee, where a financial institution is the trustee, and individual employees carry out the day-to-day duties of administering the trust.
One main advantage of choosing a corporate trustee is that you know the individuals involved have the skills and experience needed to manage and administer the trust. They are aware of all the legal and tax implications and obligations and can handle them, even if the trust is complex and time consuming.
Corporate trustees are also regulated by state and federal authorities, providing a level of protection you don’t have with non-professional family/friend trustees. Corporate trustees are bonded and insured against fraud, theft, misconduct, and errors and omissions.
Another benefit is the ease of succession planning; even if individual trust officers or advisors leave the role, another one takes over, providing continuity over time.
The biggest downside of choosing a corporate trustee is often the cost. A corporate trustee will not waive the fee, which is often a small percentage of the trust assets annually plus fees and expenses for any additional services. This can add up to a sizeable amount every year.
Finally, consider the lack of insider knowledge and personal relationships with the grantor and the beneficiaries. Again, whether this is a pro or con is a matter of individual personalities and relationships. An impartial corporate trustee could be ideal in certain situations, while in others, a trustee with personal knowledge could better carry out the spirit and intent of the trust.
Questions to Consider When Choosing a Trustee
If you’re considering creating a trust, here are some questions to consider when it comes to choosing a trustee.
- Does the trustee understand my intent as the grantor, and can he or she help carry out that intent?
- Is the trust so large and/or complex that it should be administered by a professional with experience? Or is it straightforward enough for anyone to manage?
- Knowing the personalities and relationship dynamics of the beneficiaries, is it wiser to have a trustee who is impartial or one with a personal touch?
- For family friend/relative trustees:
- Does he or she have a good relationship with the beneficiaries? Is he or she good at resolving conflict, dealing with different personalities, and saying “no” when necessary?
- Does he or she have the time necessary to administer the trust? Does he or she have the required knowledge about compliance, taxes, and investing to carry out the job effectively?
- Is he or she reliable? Trustworthy?
- For corporate trustees:
- What experience does the individual/team administering the trust have with similar trusts?
- If the company is bought out or merges with another company, how does that affect continuity?
- What are the fees? Are additional services (such as litigation support, tax preparation, etc.) available, and how are they billed?
Speak with your estate planning attorney to come up with questions that are pertinent to your unique situation.
Additional Options for Your Trust
As the grantor, you are not stuck in an either-or position. You have options beyond having either a corporate trustee or a family friend serve as trustee, including:
Appoint a combination of both. With both types of trustees, you get the best of both worlds. The corporate trustee has the impartiality, experience, and time to properly administer the trust. The family friend/relative trustee has the personal connections and knowledge to ensure the trust is being administered according to the grantor’s wishes. The downsides: this is probably more costly (unless the family friend waives the fee) and could lead to clashes between the two trustees if the trust is not clear about the roles of each trustee.
Appoint a trust director*. A trust director is an individual with a specific role as described by the trust. For instance, a trust director may be solely in charge of managing the investment of assets but have nothing to do with making distributions or handling compliance. The trust director works alongside others to manage the trust. Read more about trust directors here on our blog.
Appoint a trust protector*. A trust protector is an individual whose role is to ensure that the trust is being administered according to the terms of the trust and the wishes of the grantor. He or she is not involved in asset management or day-to-day handling of the trust but has a more supervisory role. Read more about trust protectors and when it’s smart to have one here on our blog.
*These terms are sometimes used interchangeably.
Require Trustee to Be Bonded and Insured. A family friend or relative is not required by law to be bonded and insured, but the trust instrument can require it, providing an extra layer of protection.
Create a Private Family Trust Company (PFTC). Creating a PFTC is a viable option for ultra-high-net-worth families. PFTCs allow for more privacy, better continuity over time, and more input from family members (as members of the company) on how to administer the trust. The company itself is a fiduciary and acts as trustee. The downsides: PFTCs are expensive to maintain and are currently not recognized by all states.
Make the Trust Flexible Enough for the Future. Understand that things will change over time, and a trust should be flexible enough to adapt to uncertain future circumstances. Include provisions on replacing a trustee such as when replacement can or must happen and who has the authority to select the replacement.
Legal Help and Strategic Advice from Gem McDowell
Trusts may seem simple on the surface, but with many kinds of trusts, many potential pitfalls, and changing laws and tax regulations, they can quickly become complicated. Avoid mistakes and get strategic advice from estate planning attorney Gem McDowell of the Gem McDowell Law Firm with offices in Myrtle Beach and Mt. Pleasant, SC.
Gem and his team help individuals and families in South Carolina create estate plans that reflect their unique circumstances to protect what they love and bring peace of mind. Whether you need help creating or reviewing a trust, choosing a trustee, or developing a custom estate plan from scratch, Gem can help. Call 843-284-1021 today to schedule your free consultation.
What is a Directed Trust, and When Do You Need One?
In a standard trust, a trustee is appointed who is responsible for handling the investment of trust assets, distributions to beneficiaries, and administrative tasks like keeping records and filing taxes.
With a directed trust, a “trust director” is also appointed in addition to the trustee. A trust director (sometimes called a trust advisor) takes an active role, according to the terms of the trust, often in charge of an area he or she has experience and knowledge in such as investing assets. This is different from a trust protector, whose role is mostly supervisory (read more about trust protectors here).
How does this work in practice? Here’s an example of a directed trust. A trust director is given the responsibility of directing asset investment, since he has professional experience in investing. The trustee is a personal friend of the family who knows the grantor and beneficiaries well; she’s responsible for directing distributions and handling administrative tasks. The trust director and trustee have distinct and complementary roles, roles that utilize their particular strengths and experience.
Pros and Cons of Directed Trust
Directed trusts are becoming more widespread. Here are some advantages and disadvantages.
Advantages of a Directed Trust
- Makes the role of trustee less burdensome, as the responsibilities are split between people in multiple roles
- Splits liability between trustee and trust director(s)
- Takes advantage of expertise by allowing each person involved to do what they do best
- Can give the grantor more control over the trust’s assets by appointing one or more trust directors with particular expertise
- Potentially increases oversight and accountability because there are more parties involved
Disadvantages of a Directed Trust
- Costs more, as a fee must be paid to the trust director(s) (unless waived)
- Could create conflict between trustee and trust director(s)
- Doesn’t eliminate possibility of fraud or mismanagement simply because there are more parties involved
Furthermore, directed trusts are not recognized by all states at this point. South Carolina does recognize such trusts, though not explicitly by name, in South Carolina Code Section 62-7-808.
Should You Consider a Directed Trust?
It depends on your goals and your circumstances. Smaller, simpler trusts typically do well with a single trustee. Larger, more complex trusts, especially those with real estate or business holdings, could benefit from a trust director with expertise in those particular areas.
For Help with Directed Trusts and More
Call estate planning attorney Gem McDowell at the Gem McDowell Law Group with offices in Myrtle Beach and Mt. Pleasant, SC. He and his team help individuals and families create personalized estate plans that reflect their unique circumstances and provide peace of mind. If you want to create a trust to protect assets, reduce tax liability, or set up the next generation for success, Gem can discuss different options available to find the one that’s right for you. Call today to schedule your free initial consultation at 843-284-1021.
Can Buy-Sell Agreements Determine Business Value for Tax Purposes? The IRS Says…
Buy-sell agreements cannot be relied on to determine the value of a business for the purposes of estate tax or gift tax.
If the IRS believes that a closely held business, or an interest in it, has a higher fair market value (FMV) than the one determined by a buy-sell agreement, it may use that higher value to determine the tax liability. This is to prevent business owners from artificially lowering the value of a company for the purpose of reducing or evading taxes.
If you’re part owner in a closely-held company – particularly a family-held company – here’s what to know.
How Buy-Sell Agreements Can Affect Sales Price and Company Value
It’s the same old story: Business owners want to protect their assets and pay as little as possible in taxes to the federal government, while the IRS wants to get all the money it’s entitled to under the law.
One way some business owners have tried to reduce the amount taxes owed to the IRS is by artificially reducing the value of a closely held company, or interest in that company, through certain provisions in the company’s buy-sell agreement.
For example, terms in a buy-sell agreement might:
- Set a fixed price for sale that’s significantly below FMV
- Set a formula to determine price that’s below FMV
- Restrict sale back to the company at a particular price
- Restrict sale to family members only, which lowers value by reducing marketability
- Give right of first refusal for purchase to existing owners at below FMV prices
When the owner eventually dies, the value of the business or business interest is reported as the value determined by the buy-sell agreement and not an objective appraiser. This may mean a lower – sometimes substantially lower – tax liability.
The IRS Will Disregard Such Terms
Terms like those above can lead to the under-valuing of a company which could mean less taxes for the IRS to collect. Under Section 2703(a) of the Internal Revenue Code (IRC), the IRS will disregard such terms in buy-sell agreements:
“(a)General rule For purposes of this subtitle, the value of any property shall be determined without regard to—
- “any option, agreement, or other right to acquire or use the property at a price less than the fair market value of the property (without regard to such option, agreement, or right), or
- “any restriction on the right to sell or use such property.”
If the IRS rejects the valuation of a business based on a buy-sell agreement, then it will use the value determined by a qualified appraiser or other method.
However, such terms are not necessarily illegitimate. The IRS will not disregard these kinds of terms if certain conditions are met.
The Three “Safe Harbor” Conditions for Buy-Sell Agreements
Exceptions to the general rule above are found in the “Safe Harbor” provisions of Section 2703(b) of the IRC. The IRS will respect the valuation in a buy-sell agreement if all three of the following conditions are met:
(b)Exceptions Subsection (a) shall not apply to any option, agreement, right, or restriction which meets each of the following requirements:
- “It is a bona fide business arrangement.
- “It is not a device to transfer such property to members of the decedent’s family for less than full and adequate consideration in money or money’s worth. [the “device test”]
- “Its terms are comparable to similar arrangements entered into by persons in an arms’ length transaction.” [the “comparability test”]
More on the “arms’ length” standard below.
The “Arms’ Length” Standard
IRC Sections 2703(a) and (b) apply to all closely held businesses, but in practice, they most commonly apply to family-held businesses. The IRS is more likely to scrutinize family-held companies and transfers between family members, as family members are more likely to want to give each other the most favorable terms possible.
This is where the “arms’ length” standard comes in. A buy-sell agreement’s terms should reflect the reality of doing business with unrelated parties, not family members. When business is done at arms’ length, all parties involved act in their own self-interest; the transaction is free from manipulation, duress, and favoritism; and transfers occur at fair market value. A transfer between family members at below-market value is a big red flag to the IRS.
Other red flags to avoid:
- Terms in the buy-sell agreement that are not supported with sound business reasons
- Fixed sales price or price formula in the buy-sell agreement that doesn’t reflect the current market
- Evidence the company’s purpose is more for estate planning than conducting business
As a business owner, one proactive step you can take is to have your buy-sell agreement reviewed by a business attorney and updated as needed to ensure it reflects the current market and aligns with the arms’ length standard.
Strategic Legal Advice to Protect and Grow Your Business
When was the last time your buy-sell agreement and other corporate governance documents were reviewed? Laws and circumstances change, and it’s smart to make sure your company’s documents reflect those changes. Business attorney Gem McDowell and his team can help.
For strategic legal advice and help with contracts, corporate governance documents, and starting, buying, or selling a business in South Carolina, contact Gem. Gem has over 30 years of experience helping individuals and business professionals across the state protect their interests, avoid mistakes, and plan for the future. Call the McDowell Law Group, with offices in Myrtle Beach and Mt. Pleasant, SC, at 843-284-1021 today to schedule a free consultation.
The Family Investment Company: Benefits and Risks (Avoid These 3 Mistakes)
Family investment companies (FICs) are becoming increasingly common among high-net-worth families. An FIC is typically a family-held LLC or family limited partnership (FLP) in which a wealthy founder transfers assets into the company, and other family members become partners or members in the business.
Creating an FIC can be a good way to protect and manage assets, pass on wealth to future generations, and reduce tax liabilities. However, over the years the IRS has cottoned on to the fact that some FICs exist for the sole purpose of reducing or avoiding taxes. This has led to increased scrutiny.
If you have an FIC, or are thinking about creating one for your family, here’s what you should know.
You Need a Legitimate Non-Tax Reason to Operate a Family Investment Company
The purpose of the FIC cannot be to reduce or avoid taxes. There must be a legitimate non-tax reason for the family investment company to exist in the first place.
For many families, centralized asset management is reason enough. FICs allow for assets to be pooled, managed, and overseen by multiple family members, rather than keeping those assets in separate trusts or an individual’s account(s).
Other potential legitimate reasons for creating and maintaining an FIC include:
- Asset protection (from creditors, family members, impending divorce, etc.)
- Business succession planning
- Preservation of larger assets by avoiding fractionalization
These are just some of the possible legitimate reasons to have an FIC; discuss your unique situation with your tax preparer, wealth advisor, business attorney, and/or estate planning attorney.
If the IRS determines that the FIC exists solely to evade paying taxes, it may be able to disregard the transfer of certain assets under Internal Revenue Code Section 2036 and count them in the estate of the donor/founder at death – a bigger topic we may cover in the future. For now, just remember that an FIC must have a non-tax purpose for existing.
You Must Respect the Business Entity and the Business
The IRS may look to see if the company is being run like a company or if it’s only “on paper.” A business that’s just on paper will have little to no activity and may serve solely as a place for assets to sit and generate income passively.
In contrast, a legitimate business in the eyes of the IRS is one that has a clear structure, maintains formalities such as holding meetings and keeping minutes, and engages in substantial economic activity such as managing and investing assets.
In addition, members/partners must respect the business entity itself and avoid piercing the corporate veil (read more about this on our blog).
Watch Out for Fractional Gifts
Why did the IRS start looking at family investment companies more closely over the past decade or so? Because some people got a little too greedy. Here’s what happened.
High-net-worth individuals discovered that the use of fractional gifts was a good way to handle the logistics of passing on assets to future generations, and it provided a tax benefit, too. A fractional gift in the context of an FIC typically involves a founder transferring a partial ownership interest in the FIC to a family member who is also a member/partner of the FIC.
This partial interest is eligible for discounts, often a discount for lack of control (when the stake in the business is under 50%) and a discount for marketability (because it’s harder to find buyers for a smaller, non-controlling share of a business). These discounts lower its value and, consequently, reduce the amount of gift taxes the donor is liable for. (Read more about discounts and on valuation of closely held companies here on our blog.)
But pigs get fat, hogs get slaughtered, as we often say. Not too long ago, some people tried to push the limit on these discounts, reducing the value beyond what the IRS found reasonable. This is what led to the IRS cracking down on families using FICs and fractional gifts, in particular, as tax evasion tools.
What’s a reasonable discount? There is no set number. This is something that needs to be determined on a case-by-case basis, ideally with the advice of an attorney, tax professional, and/or financial advisor.
Legal Advice on Business Matters and Estate Planning
For help with short-term and long-term estate planning and business planning, including succession planning, speak with Gem McDowell. Gem and his team help individuals and business professionals protect their interests and plan for the future with customized estate plans, corporate governance documents, and strategic advice. Gem also has many years of experience in tax law and holds a master’s degree in tax law from Emory University, and he is ready to help advise you on your tax issues.
Call the Gem McDowell Law Group, with offices in Myrtle Beach and Mt. Pleasant, SC, today at 843-284-1021 to schedule your free consultation.
Did You Know? SC Estates Over $600,000 Must Be Reported to the SCDOR
After someone dies in South Carolina, one of the duties of the personal representative (aka executor) is to create an inventory of the decedent’s probate assets and fair market value, as described in South Carolina Code Section 62-3-706. This inventory and appraisement must be filed with the court and mailed to any interested party within 90 days.
From there, the probate judge must send a copy of the inventory and appraisal to the South Carolina Department of Revenue (SCDOR) for every estate with probate assets of $600,000 or more, as detailed in SC Code Section 12-16-1220.
Here is the full text of that section:
“SECTION 12-16-1220. Information to be furnished by probate judge.
“The probate judge shall send to the department by mail a copy of the inventory and appraisal of the assets of every estate the gross assets of which for probated purposes are equal to or exceed the sum of six hundred thousand dollars within thirty days after it is filed, together with a copy of any will probated with respect to the estate. In the case of a nonresident decedent, the probate judge shall furnish the department with copies of all wills filed with his office and, in the case of an ancillary administration, the probate judge shall furnish the department with copies of inventories and appraisals in all cases regardless of the value of the tangible personal property and real property having a situs in this State.”
HISTORY: 1987 Act No. 70, Section 1.
What’s the purpose of this?
The purpose was to ensure that South Carolina received all the state-level estate taxes it was owed prior to 2005.
This law was created in 1987, when the unified credit amount was changed from $500,000 to $600,000, where it remained for a decade. All estates with probate assets of $600,000 or more were subject to federal estate taxes.
Also at that time, the federal government offered a federal credit against state estate taxes. This meant that a portion of an estate’s federal estate taxes would go to the state. South Carolina (and many other states) instituted a “pickup tax” equivalent to the amount of the federal credit. (See SC Code Section 12-16-510)
The federal credit was fully phased out in 2005, and South Carolina has no separate provision for collecting state-level estate taxes. So while the laws requiring reporting estates of $600,000 or more to the SCDOR and the “pickup tax” are no longer relevant, they remain on the books.
Get Help with Estate Planning
Gem and his team at the Gem McDowell Law Group help individuals and families across South Carolina create personalized estate plans to protect your interests and give you peace of mind. Schedule your free consultation today by calling us at (843) 284-1021 today.
Can I Disinherit My Child? Strategies for Disinheriting a Child from Your Will
The short answer is YES.
Yes, when writing your will, you have the power to disinherit your child and leave nothing to him or her. This is true in every state except for Louisiana, which does not allow a testator to disinherit a child under the age of 24 under the state’s “forced heirship” laws.
Leaving an inheritance to your child or children is not a legal requirement. But it is a cultural norm, and many children expect to inherit something upon the death of a parent. Some of those children then go on to contest the will or take other legal action to try to get what they believe is their fair share of the deceased’s estate.
For that reason, consider using some of the strategies below when intentionally disinheriting a child to reduce the likelihood of litigation after your death. The goal is not only to ensure your child doesn’t inherit a large amount from your estate, but also to help prevent legal action that could invalidate the will entirely.
Strategies for Disinheriting a Child in Your Will
Make your intentions clear
Name the child and be explicit about your intentions. Use language like: “I have intentionally chosen to make no provision for [Child’s Full Name] in my will.” (Consult an attorney in your state for the exact language to use in your will.)
Without this kind of language in the will, a child can make the case that the parent simply forgot to include them and make a claim for a share of the estate.
Consider a small inheritance instead of nothing
Rather than leave your child $0, you may want to leave a modest sum. It should be large enough to deter your child from taking legal action. This can soften the blow of being fully disinherited, too.
Include a “no-contest clause”
The tactic above is especially effective when used in conjunction with a “no-contest clause.” A no-contest clause states that if the child contests the will, he or she will not receive the inheritance.
Note that not all states recognize or enforce no-contest clauses. South Carolina does.
Disinheriting a Child FAQs
Should you include the reason for the disinheritance in the will?
In many cases, it’s best not to specify why you’re disinheriting the child. For one, wills become public during probate, so omitting details helps maintain privacy. Also, stating a reason could provide the disinherited child with grounds for contesting the will.
However, if you’re not leaving anything to your child in the will because you’ve made provisions for him or her outside the will, then it can be helpful to include this information.
To tell or not to tell?
A common question when disinheriting a child is, “Should I tell my child they are not in the will?”
At our firm, we advise our clients not to tell the child that he or she is being disinherited, for two main reasons.
- You may change your mind. Relationships and circumstances change, and you may decide in the future to make a new will leaving an inheritance to your child.
- Telling a child he or she is being disinherited can allow them to start building a case to eventually contest the will.
This does happen. We had someone call us who was upset his mother’s will left everything to his three siblings and nothing to him, as he had essentially already received his inheritance outside the will. He wanted to sue, which we told him was not possible as his mother was still alive. Instead, he started to monitor her movements, hoping to gather evidence of lack of testamentary capacity so he could contest the will after her passing.
Ultimately, it’s your decision whether to tell your child what’s in your will or not. In our experience, we recommend not doing so.
Call Estate Planning Attorney Gem McDowell
For help creating or updating a will, call Gem at the Gem McDowell Law Group. He and his team help individuals and families in South Carolina create personalized wills and estate plans that reflect their unique circumstances, family dynamics, and wishes. Call or contact us at our Myrtle Beach or Mount Pleasant, SC offices today to schedule a free consultation at 843-284-1021.
Grounds for Contesting a Will in South Carolina
If you’ve been intentionally disinherited or unintentionally left out of the will, you might be wondering what legal options you have to challenge the will.
South Carolina Code Section 62-3-407 lists six grounds for contesting a will. These six grounds are found in many states as they come from common law, but exact laws regarding contesting a will vary by state.
In South Carolina (and many other states), grounds for contesting a will are:
- Lack of testamentary intent or capacity
- Revocation
- Mistake
- Fraud
- Duress
- Undue influence
It’s not enough to simply be unhappy with the terms of the will; the burden of proof is on you to show that the will is invalid based on one of the six grounds listed above.
Let’s look at each in turn.
Lack of testamentary intent or capacity
The testator must “be of sound mind” when executing the will for it to be valid.
The standard of “testamentary capacity” is not very high, however; it’s lower than the mental capacity required to sign a contract. All that’s required is that someone is aware that they are creating a will, what a will is, and what the will says.
Possible evidence for lack of capacity: You must show that the testator was not of sound mind and/or did not understand what they were signing at the time of executing the will. This could be video evidence, witness statements, healthcare records, or medical provider statements that demonstrate lack of capacity.
Revocation
A will that’s currently being probated by the court may be contested if there’s evidence that the testator planned to revoke or replace it.
Possible evidence for revocation: Evidence could include the existence of a newer, properly executed will, a valid codicil that revokes or changes terms of the will, or witness testimony.
Mistake
This broad category includes both mistakes in execution and mistakes in fact or intent.
Mistakes in execution includes things like not signing a formal will or a codicil in the presence of two witnesses, as required by law in South Carolina and many other states. (The exact requirements for validity depend on state law and on the type of will.)
Mistakes in fact or intent includes things like using the wrong name for an heir. In one example from our practice, a couple came in to create a will and named their two daughters as heirs to their estate. One child had been born a male, and the parents were insistent on using the child’s new chosen name rather than the legal name. This might seem like a small matter, but using a non-legal name could create grounds on which to contest the will in the future. In this situation, we advised the clients to use the child’s legal name and include “who goes by [New Name]” for clarity.
Possible evidence for mistake: Evidence for mistakes in fact or intent could include testimony or documentation that demonstrate the testator’s true intentions.
Fraud
A will may be contested on the grounds of fraud if one or more of the signatures was forged, if the testator was misled into signing a document believing it was something else other than a will, if a valid will was hidden or destroyed so a previous will would be probated in its place, and similar situations.
In our experience, the most common form of fraud occurs when the testator thinks they are signing Document A but are actually signing Document B. That’s why it’s important to take the time to read through what you are signing.
Possible evidence for fraud: It depends on the type of fraud suspected; evidence could include analyses from handwriting experts, witness testimony, or proof a more recent will was created and executed.
Duress
A valid will must be the product of the testator’s free will, and evidence of coercion can be grounds for contesting the will. If the testator created or changed the will under duress, such as blackmail, physical harm, or threat of harm, the will may be declared invalid.
Possible evidence for duress: Witness testimony, medical records indicating the testator’s vulnerability, and written communications between the testator and the individual coercing the testator are some types of evidence that can show duress. In cases of duress, the final will is often substantially different from the previous will, as well, which can serve to demonstrate the testator’s mindset.
Undue influence
Like a will created under duress, a will created under undue influence does not reflect the true intentions and wishes of the testator. But undue influence is more subtle than duress and often more difficult to prove.
Undue influence occurs when the testator is psychologically manipulated or pressured into redoing or making changes to the will, usually by someone close to the testator. This often (but not always) happens in conjunction with the trusted person isolating the testator or cutting him or her off from friends and family. It’s most common with older people who are more vulnerable physically and psychologically.
Possible evidence for undue influence: Proving a will is the result of undue influence is often challenging since undue influence happens “behind closed doors,” in the words of the South Carolina Court of Appeals. Evidence might include a final will which is substantially different from previous wills; proof that the testator’s behavior and habits have changed (e.g., the testator used to go out a lot but later stayed at home with a caregiver all day); records showing the testator used to communicate with friends and family regularly but then stopped and has lost contact with them; and witness testimony.
A successful case of contesting a will on the grounds of undue influence in South Carolina is Gunnells v Harkness, 2019, in which a daughter contested her mother’s will over undue influence from her brother. We examined this case in depth in a previous blog; read it here. It’s helpful to see exactly what kind of evidence – and how much – helps convince a court that undue influence has occurred.
Note: Don’t mistake unfair or unequal terms for undue influence. It’s not uncommon for parents to leave a larger inheritance to a child who has acted as caretaker in the final years, or for a testator to leave everything to the surviving spouse and nothing to the children. On their own, these terms do not indicate undue influence. Proving undue influence is challenging and requires a large amount of evidence that shows a clear pattern over time.
Other grounds
South Carolina Probate Code specifically lists six grounds for contesting the will. In addition, South Carolina courts may also invalidate specific provisions that violate public policy if, for example, a provision incites unlawful actions or is discriminatory.
Is Contesting the Will Worth It?
Contesting a will can be a lengthy, expensive, and contentious route, and sometimes it’s not worth it. (Read more about this in our blog on being disinherited, which you can read here.)
However, sometimes contesting the will is the right thing to do, especially if you believe the will does not accurately reflect the wishes of the deceased.
Get Help Creating or Contesting a Will in South Carolina
Gem McDowell has helped individuals and families in South Carolina for over 20 years with estate planning. Whether you need help creating, updating, or reviewing a will or estate plan, or need advice or assistance probating or contesting a will, he can help. Call Gem and his team at the Gem McDowell Law Group with offices in Myrtle Beach and Mount Pleasant, SC to schedule a free, initial consultation by calling 843-284-1021 today.
