The Omitted Spouse: When the Spouse is Left Out of the Will
What happens if you leave your spouse out of your will? Or your spouse leaves you out of his or her will?
This happens more often than you think. Many couples get married after one or both partners already executed a last will, meaning the new spouse has been unintentionally left out.
But that doesn’t mean the surviving spouse receives nothing. The law provides for the omitted spouse so that he or she is not unintentionally disinherited.
What the Omitted Spouse is Entitled To
Under South Carolina Code section 62-2-301, an omitted spouse is entitled to the same share of the testator’s estate that would have been received had the testator died without a will.
South Carolina intestacy laws determine the share of inheritance in such cases. If the testator dies with no children, the spouse inherits everything (i.e., all the assets subject to probate). If the testator dies with a spouse and children, the surviving spouse is entitled to 50% of the estate. The remaining 50% is divided according to the terms of the will.
The omitted spouse does not automatically receive the assets but must claim his or her share within a certain time frame.
When the Omitted Spouse Provision Does Not Apply – Spousal Elective Share
The purpose of the omitted spouse is to provide for a spouse left out of the will unintentionally.
But what if the spouse was left out of the will intentionally?
Under the same law cited above, if it appears that the omission was intentional or if the testator provided for the spouse through transfers outside of the will, then the omitted spouse provision does not apply.
The surviving spouse may still make a claim for elective share, however. A surviving spouse is entitled to one third of the testator’s probate estate in South Carolina even if the testator intentionally left the spouse out of the will. That’s because the only way to legally disinherit a spouse in South Carolina is to have both partners knowingly sign a waiver of elective share. (Read more about disinheriting a spouse and spousal elective share here on our blog.)
The Solution: An Intentional and Current Estate Plan
Laws regarding omitted spouses and elective share have helped many people who would otherwise have been disinherited. But having a purposeful, up-to-date will and estate plan is better than relying on the law to carry out your wishes.
For help with last wills, trusts, powers of attorney, and other estate planning documents, call estate planning attorney at the Gem McDowell Law Group. Gem and his team help individuals and families in South Carolina create estate plans that take into account unique circumstances, carry out personal wishes, and give peace of mind.
Whether you’ve never had an estate plan drawn up before or your existing plan is in need of a review, Gem and his team can help. Call today to schedule a free consultation virtually or at the Myrtle Beach or Mt. Pleasant, SC, at 843-284-1021.
Can I get Out of a One-Sided Contract? Adhesion Contracts and Unconscionability in South Carolina
Unless you live off the grid, you have almost certainly signed a very long contract full of dense legalese. You probably didn’t even read it. You certainly didn’t attempt to negotiate better terms for yourself. You just signed your name and hoped for the best.
These types of one-sided, boilerplate contracts are known as adhesion contracts, and they’re very common. If you want to lease a car, buy a new build home, enjoy streaming content, or enjoy any other number of products or services, you’ll encounter one. It’s a take-it-or-leave-it situation: accept the contract as is or simply don’t enjoy the product or service.
But what if you discover after signing that you’ve made a big mistake and want out? Can you get out of a one-sided adhesion contract?
Maybe. One way to get out of such a contract is for a court to find the contract terms so one-sided and oppressive they’re considered unconscionable. Today we’ll look at where South Carolina courts draw the line between enforceable and unenforceable with respect to adhesion contracts, and see what the South Carolina Court of Appeals said on the topic in Mart vs. Great Southern Homes, Inc. (2023).
Elements of Unconscionability in South Carolina
A court can find a contract, a clause, or behavior “unconscionable” when it’s so egregious that it shocks the conscience of the court. We’ve covered unconscionability in depth on this blog before when looking at Huskins v Mungo Homes, LLC (2022); read that blog here.
In South Carolina, two elements are required for unconscionability with respect to contract law:
- Absence of meaningful choice
- Oppressive and one-sided terms
Both elements need to be present for a court to find a contract or its terms unconscionable.
When a clause is found to be unconscionable, the court has the discretion to sever that clause and enforce the rest of the contract as is; render the entire contract unenforceable; or limit the application of the unconscionable clause. (See South Carolina code Section 36-2-302).
Adhesion Contracts in South Carolina and Unconscionability
The question is whether adhesion contracts contain:
- Absence of meaningful choice AND
- Oppressive and one-sided terms
By their nature, adhesion contracts entail an absence of meaningful choice. The party signing the contract (typically an individual consumer) does not have the opportunity to negotiate terms with the party writing and presenting the contract (typically a large company).
Adhesion contracts are also one-sided by nature. Terms favor the party providing the contract and disfavor the signing party.
The final element to satisfy for unconscionability is “oppressive.”
What’s Considered “Oppressive”?
The 2023 South Carolina Court of Appeals case Mart v. Great Southern Homes, Inc. (find it here) mainly focuses on whether arbitration can be compelled when a single contract contains conflicting arbitration clauses. (The court says yes.) At the end of its decision, the court also briefly addressed the issue of adhesion contracts and unconscionability.
Quoting the South Carolina Supreme Court case Damico v. Lennar Carolinas, LLC (2022), it wrote “a take-it-or-leave it contract of adhesion is not necessarily unconscionable, even though it may indicate one party lacked a meaningful choice. […] Rather, to constitute unconscionability, the contract terms must be so oppressive that no reasonable person would make them and no fair and honest person would accept them.” (emphasis added)
And: “The distinction between a contract of adhesion and unconscionability is worth emphasizing: adhesive contracts are not unconscionable in and of themselves so long as the terms are even-handed.” (emphasis in the original)
In the Mart opinion, the court provides some examples of unconscionable and therefore unenforceable terms from other cases involving home builders:
- Smith v. D.R. Horton, Inc. (SC Supreme Court, 2016, here): D.R. Horton’s attempts to disclaim implied warranty claims and prohibit monetary damages of any kind; contract terms left relief “to the whim” of D.H. Horton
- Damico (SC Supreme Court, 2022, here): Lennar’s contract gave Lennar “sole election” to choose the parties for arbitration, potentially forcing purchasers to separately litigate against subcontractors in circuit court
- Huskins (SC Court of Appeals, 2022, here): The Mungo Homes contract shortened the statutory limitation period to bring a claim from three years (as provided for in state law) to a maximum of ninety days
These terms go beyond normal contract terms in favoring the contract-writing party such that the courts ultimately found them “oppressive.”
Be Careful What You Sign
So, can you get out of an adhesion contract? Maybe – but probably not. Even if you’re successful in proving in court that certain contract terms are unconscionable, the court may simply sever those terms and allow the rest of the contract to stand.
The bottom line: If you don’t want to be held to the terms of the contract, simply don’t sign it in the first place. You can’t count on getting out of a contract after the fact.
(And don’t forget that many contracts, including many EUAs and contracts you agree to digitally, give you the opportunity to opt out of arbitration in writing within 30 days, as we previously covered in this blog on arbitration.)
For help with contracts, business law, estate planning, and probate, contact Gem McDowell at the Gem McDowell Law Group. Gem and his team help individuals, families, and businesses in South Carolina from offices in Myrtle Beach and Mount Pleasant. Gem has over thirty years of experience and can help you and your family or your business protect your interests, avoid mistakes, and achieve peace of mind. Call today to schedule your initial consultation at 843-284-1021.
Avoid $591/Day Penalty: Business Owners, File a BOI Report ASAP
Attention U.S. business owners: If you are a beneficial owner in a non-exempt company, you must submit a Beneficial Owner Information Report. Depending on when your company was established, you may have 30 or 90 days from when your company was created or until January 1, 2025, to do so.
The penalty for failing to file is steep – over $500 per day in fines and even jail time.
The new reporting requirement is due to the Corporate Transparency Act (CTA), which was passed in late 2020 after being tacked onto a larger bill (the National Defense Authorization Act for Fiscal Year 2021). Here’s what to know about the reporting requirement and what you should do.
Frequently Asked Questions
How Do I File a Beneficial Owner Information Report?
You can file a BOIR online at https://www.fincen.gov/boi.
What is a Beneficial Owner Information Report?
A Beneficial Owner Information Report (BOIR) is a required submission to the Financial Crimes Enforcement Network (FinCEN, part of the Treasury Department) that contains information on the company and its beneficial owner(s). This information includes full name, address, date of birth, and ID.
What is a “Beneficial Owner”?
A “beneficial owner” is someone who owns or controls at least 25% of the “ownership interests” of the company or someone who exercises “substantial control” over the company.
Who Must File a Beneficial Owner Information Report?
A BOIR must be filed for every “reporting company” which is established in the U.S. or registered to do business in the U.S. and is not exempt (see below for exemptions). This may be an LLC, a corporation, or any other business entity that was created by filing with the secretary of state, as well as some trusts.
Just one BOI report is required per company, regardless of the number of beneficial owners. The report is typically filled out and filed by one of the beneficial owners, such as a member, manager, director, or corporate officer, or an attorney working at or for the company.
Which Companies Are Exempt?
Some companies qualify for an exemption, meaning they are not required to file a BOI report.
These include companies that are already subject to regulatory oversight such as banks, credit unions, insurance companies, and tax-exempt entities. “Large operating companies” are also exempt; under the CTA, a “large operating company” is one with a physical office in the U.S., more than 20 full-time employees, and over $5 million in gross receipts or sales for the previous year as reported on a federal income tax or information return.
Find the full list of the 23 exempt entities on the FinCEN website.
When is the BOIR Due?
Companies formed or established before January 1, 2024 have until January 1, 2025 to submit a BOIR.
Companies that have ceased to exist but were still in existence as of January 1, 2024 have until January 1, 2025 to submit a BOIR.
Companies formed or established between January 1, 2024 and January 1, 2025 have 90 days to submit a BOIR.
Companies formed or established after January 1, 2025 have 30 days to submit a BOIR.
Is a BOIR Due Every Year?
No, as of now, just one BOIR is required. However, substantial changes must be reported within 30 days with a new BOIR, if, for example, the beneficial owners change or a previously non-exempt company becomes exempt (or vice versa).
What is a FinCEN Identifier?
A FinCEN ID is a unique 12-digit number an individual or entity may use when submitting a BOIR. It is not required. However, if you are submitting multiple BOIRs, a FinCEN ID can help speed up the process by allowing you to submit your personal information just one time rather than repeating it again and again.
What Are the Penalties for Non-Compliance?
According to FinCEN, someone who “willfully” violates the BOI reporting requirements may be fined for each day the violation continues. The amount of the fine adjusts annually with inflation, so what was originally a $500 per day fine was (as of 2024) $591 per day.
Willful violation can also lead to up to two years in prison and a $10,000 fine.
Uncertainty Over the Future of the CTA
The stated intention of the Corporate Transparency Act is to reduce money laundering, financing of terrorism, and other financial crimes. However, it has already been challenged in a number of lawsuits, as some see it as intrusive and unconstitutional. The future of the CTA is unclear, as these legal challenges could lead to significant changes in reporting requirements.
But that’s a long way off, if it happens at all. For now, you can stay in compliance and avoid steep financial penalties (and possible imprisonment) by submitting a BOIR for any company in which you’re a beneficial owner.
Protect Your Interests, Avoid Mistakes, and Grow Your Business with Gem McDowell
For legal help and strategic advice on business in South Carolina, contact Gem of the Gem McDowell Law Group. Whether you want to establish, buy, sell, or grow your business, Gem and his team can help. Call the Myrtle Beach or Mt. Pleasant, SC office today at 843-284-1021.
I Want to Be Cremated; Does My Family Have to Follow My Wishes?
The short answer is “Yes, IF…”
Yes, If You Complete a Pre-Need Cremation Authorization Form
South Carolina law (Chapter 8 Title 32) provides that an individual may pre-authorize their own cremation. This pre-authorization is a legally binding agreement between the individual and his or her chosen crematory that gives the crematory permission to cremate the individual’s remains.
You can download the PDF of this form here or find it on the South Carolina Labor Licensing Regulation website here (scroll down to the “Forms” section, click on “Cremation Forms,” and select “Cremation Authorization – Pre-Need”).
This form must be signed in ink by the individual requesting cremation services in the presence of two witnesses. It remains enforceable unless and until the individual provides written notice to the funeral establishment and the crematory.
Are Cremation Wishes in a Last Will Legally Binding?
No. Many people choose to include their last wishes relating to funeral arrangements, burials, cremation, and so on, in their last will, but they are not legally binding. If you live in South Carolina and your wish is to be cremated, you should consider filling out the pre-need cremation authorization form linked above.
Get Help with Estate Planning in South Carolina
What will happen to your assets and your remains when you die? Decide for yourself by creating an up-to-date estate plan to help ensure your last wishes are known and followed after you’re gone.
For help with last wills, living wills, trusts, powers of attorney, and more, call Gem McDowell at the Gem McDowell Law Group in Myrtle Beach and Mt. Pleasant, SC. Gem and his team help individuals and families in South Carolina review and create comprehensive estate plans for peace of mind. Call 843-284-1021 today to schedule a free consultation or get in touch through this form.
What is a Trust Protector and When Do You Need a Trust Protector?
If you know anything about trusts, you have likely heard of the roles of settlor (aka grantor), beneficiary, and trustee. But there’s another role to know about: the trust protector.
Let’s look at what a trust protector is, who can be a trust protector, and the advantages and disadvantages of appointing one for your trust.
What is a Trust Protector and What Does a Trust Protector Do?
A trust protector, or simply “protector,” is an individual or entity whose primary role is to ensure the trust is being carried out in accordance with the settlor’s original wishes. Trust protectors were most commonly seen in asset-protecting offshore trusts in the 1980s and 1990s, but they have since become more popular for all kinds of trusts in the U.S. and many other nations.
What does a trust protector protect against? Depending on the circumstances, the trust protector may protect the trust from various threats or risks including trustee misconduct, mismanagement, or incapacity; disputes among beneficiaries and/or trustee(s); changing laws that adversely affect the trust; ill-advised financial decisions; and more.
Common powers and responsibilities may allow a trust protector to:
- Oversee trust administration to ensure it’s in compliance with applicable laws and with the settlor’s wishes
- Require trustee to get trust protector’s consent before taking certain actions such as investing or distributing funds
- Modify the trustee’s powers
- Remove or replace trustees
- Change the beneficiary or beneficiaries
- Adjust as needed in response to changing circumstances
A trust protector may have all or some of the powers listed above, and more. The exact powers and responsibilities are enumerated either in the trust instrument itself or in a separate document.
Who Can Be a Trust Protector?
In theory, anyone of legal age who is mentally competent can be appointed trust protector, other than a trustee. Even the settlor/grantor may serve as the trust protector (and often does). Entities such as banks, law firms, and corporations may also serve as trust protectors.
In practice, it can be challenging to find the right individual or entity to effectively fill the role. The ideal candidate should have the right experience and knowledge, including knowing relevant state and federal laws, tax and reporting requirements, and the trustee’s powers and responsibilities, for a start. A trust protector should also be an impartial third party with no conflict of interest, meaning the individual or entity should not have any financial stake in the trust or how it’s handled.
Above all, a trust protector should be someone the settlor can rely on to carry out their wishes, which is why settlors often select a family friend or close acquaintance whom they trust implicitly.
Does Every Trust Need a Trust Protector? Advantages of Appointing a Trust Protector
No, not every trust needs one, but we strongly recommend a trust protector in the following situations:
- A troubled beneficiary. If the beneficiary has issues with drugs, alcohol, or excessive spending, a trust protector – such as a family friend or counselor – can be helpful in finding the right trustee to handle the trust. The two can work together to ensure the trust is not misused.
- Specific investments. A grantor may wish to appoint a trust protector to help direct the investment of trust assets in a particular “family way” that the trustee might not be familiar with.
Outside of these specific circumstances, here are just some of the main advantages of having a trust protector that any trust can benefit from:
Flexibility to respond to changing circumstances. Changes in family/beneficiary situations, tax code, and estate planning laws can adversely affect a trust. Trust protectors have powers trustees don’t (and legally cannot) have that allow them to alter the trust in response to new circumstances. This can reduce tax liabilities and ensure the trust reflects the settlor’s wishes long after the settlor is gone.
Oversight over the trustee. Trust protectors can also serve as an additional layer of protection against mismanagement by the trustee(s). This is more important than ever, as the powers of trustees have grown over time. Oversight by a third party (the trust protector) can help prevent intentional or unintentional mishandling by the trustee(s) that can harm the beneficiaries’ interests and endanger the trust.
Conflict resolution. Trust protectors can also act as informal mediators when disputes arise. Beneficiaries may fight among themselves, and trustees and beneficiaries often have competing goals, which can lead to strife and litigation. (Read about how one such conflict ended up in the SC Court of Appeals here on our blog.) A skilled trust protector can step in at the first signs of conflict and resolve the matter amicably, potentially avoiding litigation and strained relationships.
Depending on your circumstances and goals, you may gain additional advantages by appointing a trust protector for your trust. This is something to speak with your estate planning attorney about.
What if you didn’t appoint a trust protector in the original trust document? That’s not a problem. A settlor can add a trust protector later.
Downsides of Having a Trust Protector
What are the risks and disadvantages of having a trust protector? Some possible downsides include:
Higher fees. Not all trust protectors are compensated for their role, but some are. Trust protectors who are fiduciaries (with a fiduciary duty to the beneficiary or beneficiaries) are typically compensated. Depending on the terms of the trust, having a trust protector can be expensive and can diminish the trust’s assets.
Potential for challenges. Trusts have been around for centuries, and by now the roles and responsibilities of the grantor/settlor, trustee, and beneficiary are clear. But the role of trust protector is relatively new, and relevant case law in South Carolina is sparse. The potential for lawsuits and legal challenges over a trust protector’s actions shouldn’t be ignored.
Needless complexity. A trust protector may end up bringing conflict, indecision, or poor judgment to the situation. This is why it’s crucial to take the time to select the right trust protector. No trust protector at all is better than an ineffective and incompetent one.
For Help with Trusts and Estate Planning, Call the Gem McDowell Law Group
Trusts are excellent instruments for estate planning, but they can be complex. For help creating or amending a trust, or for advice on appointing a trust protector for your trust, talk with Gem McDowell. Gem helps individuals and families in South Carolina create estate plans tailored to their unique circumstances and wishes. He’s also a problem solver who can help you tackle tricky family or inheritance situations and avoid mistakes.
Call Gem and his team at their Myrtle Beach or Mount Pleasant, SC office today to schedule your free, no-obligation consultation at (843) 284-1021, or reach out to us through this form.
Changing the Rules Mid-Game: What the Connelly v U.S. Decision Means for Closely Held Corporations
If you are a shareholder in a closely held corporation, you need to know about the June 2024 decision from the U.S. Supreme Court case Connelly v. United States (2024). This decision (find it here) could have dramatic consequences for your business and for you, personally, as a shareholder.
Here’s the central issue:
Should life insurance proceeds paid to a closely held corporation to buy out a deceased shareholder’s portion of the business be counted as a non-offsettable asset for the purposes of calculating the decedent’s federal estate taxes?
The U.S. Supreme Court says YES.
The issue is somewhat convoluted. The upshot is that this decision allows the IRS, in some circumstances, to essentially “tax” a portion of previously untaxable life insurance proceeds without directly taxing them. Instead, it’s done by counting the life insurance proceeds as a business asset that cannot be offset, thus increasing the deceased shareholder’s share of the company at time of death and increasing their taxable estate – and possibly creating a federal estate tax liability.
This is a drastic change from what has previously been done. It’s like changing the rules while you’re in the middle of the game; you were expecting to pass Go and collect $200, but now you owe $300.
Below, we’ll look at the background of Connelly and the court’s reasoning, then discuss what it could mean for you and the other shareholders in your closely held corporation.
Note that today’s blog is just an introduction to the topic. Since this decision is so new, it’s not clear how things will shake out; it will take some time for business owners and their attorneys to determine the best course of action moving forward. But for now, we wanted to put this on your radar. We recommend speaking with your own business attorney and/or estate planning attorney about the potential consequences for you if you are an owner in a closely held corporation. (And if you do not yet have a business attorney or estate planning attorney in South Carolina, call us at the Gem McDowell Law Group at 843-284-1021 to talk.)
Connelly vs United States (2024) Summary
Briefly: Michael and Thomas Connelly were brothers and together owned a building supply company, Crown C Supply (Crown). They had an agreement to ensure the business would stay in the family if either brother died. The surviving brother would have the option to purchase the shares first, and if not, then Crown would be required to purchase the deceased brother’s shares. The corporation purchased life insurance policies of $3.5 million on each brother to this end.
Michael died in 2013 owning 77.18% of the business (385.9 of 500 shares) at death, with his brother Thomas owning the remaining 22.82%. Thomas declined to buy the shares, so Crown redeemed them for $3 million, an amount agreed upon by Michael’s son and Thomas.
Michael’s federal tax return for the year of his death was audited by the IRS. As part of the audit, an accounting firm valued the business at Michael’s death at $3.86 million, with his 77.18% share amounting to approximately $3 million. The analyst followed the holding of Estate of Blount v Commissioner of Internal Revenue (2005) that stated life insurance proceeds should be deducted from the value of a corporation when the proceeds are “offset by an obligation to pay those proceeds to the estate in a stock buyout.”
But the IRS argued that Crown’s obligation to buy back the stock did not offset the life insurance proceeds. The $3 million in life insurance proceeds should be added to the assets of the business, the IRS argued, making the total value of Crown at Michael’s death $3.86 million + $3 million = $6.86 million. Michael’s 77.18% share of this larger amount would be approximately $5.3 million, and based on this, the IRS said Michael’s estate owed an additional $889,914 in taxes.
Michael’s estate paid these taxes, and Thomas, as Michael’s executor, later sued the United States for a refund. The case went before the Supreme Court in March 2024.
The Supreme Court’s Reasoning
In its decision, the court states two points that “all agree” on:
- The value of a decedent’s shares in a closely held corporation must reflect the corporation’s fair market value for the purposes of calculating federal estate tax; and
- Life insurance proceeds payable to a corporation are an asset that increase the corporation’s fair market value.
The question, then, is whether the obligation to pay out those life insurance proceeds offset the asset, effectively canceling itself out.
The Supreme Court’s answer: No.
The reasoning: “An obligation to redeem shares at fair market value does not offset the value of the life-insurance proceeds set aside for the redemption because a share redemption at fair market value does not affect any shareholder’s economic interest.” The court says that no willing buyer would treat the obligation as a factor that reduced the value of the shares.
Also, for the calculating estate taxes, the point is to assess how much an owner’s shares are worth at the time of death. In this case, it was before Crown paid out the $3 million to buy Michael’s shares. Therefore, that $3 million should be added to the value of the business’s assets and income generating potential, valued at $3.86 million.
This decision will likely affect millions of business owners and trillions of dollars. Depending on your personal and business circumstances, it could affect you, too.
What This Means for You: Federal Estate Taxes
The most important thing to know about federal estate taxes is that the laws affecting them can and do change regularly. (This is one big reason it’s important to have your estate plan reviewed regularly to ensure it’s up to date with current law. Read about the unintended consequences of an out-of-date estate plan here on our blog.)
The majority of individuals subject to U.S. taxes who die in 2024 will not be subject to federal estate taxes; only about 0.2% were expected to in 2023, according to a Tax Policy Center estimate. Currently, if an individual dies in 2024 with a taxable estate valued below $13,610,000, no federal estate tax needs to be paid. This amount doubles to $27,220,000 for married couples filing jointly.
But the “applicable exclusion amount” (also called the “unified tax credit” or “unified credit”) has not always been so high. For many years, it was just $600,000. The current unified tax credit amount is set to expire at the end of 2025, after which it will revert to a lower amount (expected to be around $7 million), unless Congress passes more legislation changing it first.
When Michael Connelly died in 2013, the unified tax credit amount according to the IRS was $5,250,000. Valuing his share of the business at death at $5.3 million rather than $3 million meant he had a larger taxable estate and owed additional federal taxes.
What does this mean for you? This makes estate planning tricky. You can’t know for sure when you’ll die or what the applicable exclusion amount will be that year. Depending on the value of your business and your personal assets, your estate may owe federal estate taxes you weren’t anticipating. The bottom line: If you have a buy-sell agreement and it is funded with life insurance, have it reviewed by an attorney ASAP.
What This Means for You: Succession Planning Going Forward
It’s common for shareholders in a family-owned closely held corporation to have buy-sell agreements that would keep the business in the family should a shareholder die. (Read more about buy-sell agreements on our blog here.) To that end, life insurance policies are often taken out on the shareholders to ensure funds are available to buy out the deceased shareholder’s shares at death.
For years, many business owners have had the corporation itself buy and maintain those life insurance policies on each shareholder. The proceeds went directly to the corporation and were not taxed. Additionally, they did not increase the value of the business, and thus the value of the deceased shareholder’s portion, at the time of the shareholder’s death.
Until now.
What does this mean for you? Now that this has changed after Connelly, shareholders in a closely held corporation may reconsider having the corporation purchase and maintain life insurance policies on its owners.
One option suggested in the Connelly opinion is for the shareholders to take out life insurance policies on each other in a “cross-purchase agreement.” The court acknowledges that this comes with its own set of problems, however, including different tax consequences and the necessity for each shareholder to maintain policies on the other shareholders.
Another potential option is to set up a separate LLC to maintain life insurance policies on the shareholders. In the event of a shareholder death, the LLC – not the corporation itself – would buy out the decedent’s share. This is one possible new solution to this new problem, but it is not yet tried and tested.
Finally, shareholders may continue to have the corporation purchase and maintain life insurance policies with the knowledge that each shareholder should create an estate plan for their personal assets that helps avoid federal estate taxes.
Watch This Space
As the dust settles from this decision, we’ll keep on top of it and come back with more information and advice.
Just remember – the law is not set in stone. Congress passes new legislation and courts render decisions regularly that can affect individuals and business owners. It can be hard to keep up with all the changes, which is why it’s important to have an attorney you can rely on to help keep your estate plan current and your business thriving.
Call Gem at the Gem McDowell Law Group in Myrtle Beach and Mt. Pleasant, SC. He and his team help South Carolina individuals and families create and review estate plans to protect assets and avoid family disputes. He also helps with the creation, purchase, sale, protection, and growth of South Carolina businesses through the creation of corporate governance documents, contracts, problem solving, and more. Call 843-284-1021 today to schedule a free consultation or fill out this form. We look forward to hearing from you.
What Happens When Easements Are Abandoned?
What happens if an easement is abandoned? While most easements in South Carolina last indefinitely, abandonment is one way to extinguish an easement. In that instance, the original rights revert to the property owner(s).
This sounds straightforward enough, but, as with many legal matters, sometimes straightforward things get complicated.
Case in point: the 2023 South Carolina Court of Appeals case Myers v. Town of Calhoun Falls (read it here). In short, a railroad line built on properties through the use of easements was abandoned and dismantled, and property owners sought to regain their property rights approximately thirty years later.
Questions the court looked at:
- Was the railroad properly abandoned, thus giving the court subject matter jurisdiction and authority to declare the easements terminated?
- Did the property owners wait too long to attempt to regain their rights, and should the doctrine of laches have barred them?
(For a refresher on easements in South Carolina, read more here on our blog.)
Brief Background of Myers vs. Town of Calhoun Falls (2023)
The railroad
Way back in 1878, South Carolina chartered the Savannah Valley Railroad Company to construct a railroad. This necessitated several easements on properties in McCormick County and Abbeville County, SC.
Over the years, the rights to the properties have been conveyed to successors of the Savannah Valley Railroad Company and have been recorded in deeds on the affected properties. The wording in a sample deed presented to the court included language stipulating that the easement was for the purpose of a railroad.
By the 1970s, the railroad was owned and operated by Seaboard Systems Railroad, Inc. (Railroad), which eventually sought permission from the Interstate Commerce Commission to close down the track. Permission was granted, and the railroad was entirely dismantled and removed by the end of February 1980.
Part of the Railroad’s interests in the properties eventually ended up in the possession of the Town of Calhoun Falls and another part in the possession of Savannah Valley Trails, Inc. (SVT), together the Appellants in this case.
The lawsuits
SVT began construction of a walking trail where the railway used to be. Not long after, Annie L. Myers and many other present-day owners of the affected properties (Respondents) took legal action, requesting declaratory relief as to the property rights of the easements. (Separate but similar actions by property owners in McCormick County and Abbeville County were consolidated by the trial court.)
In February 2020, the trial court found that Railroad had abandoned the line, and consequently the easements terminated and the associated property rights reverted to the property owners.
The matter then went to the South Carolina Court of Appeals in 2023.
Proving Abandonment – Which Party Has the Burden of Proof?
SVT argued that the trial court did not have subject matter jurisdiction because Respondents failed to prove the railroad was properly abandoned, meaning the issue was still under the jurisdiction of the Surface Transportation Board (previously the Interstate Commerce Commission, or the ICC).
The railroad had been abandoned as a matter of fact: the track was dismantled and removed, and Railroad sent a letter to the ICC stating that the line was officially abandoned on February 15, 1980. But SVT argued that Respondents did not produce Railroad’s journal entries documenting the abandonment of the line as requested by the ICC, so the abandonment was incomplete.
The appeals court stated that the burden of proof was on SVT to show that the abandonment was incomplete, not on Respondents to show the abandonment occurred in a particular manner. True, the appeals court noted, the record did not include journal entries as requested by the ICC. But neither did the record contain evidence that Railroad did not comply with its requests. SVT did not meet the burden of proof.
Therefore, the appeals court found that the trial court did have subject matter jurisdiction and had the authority to make a judgement on the easements.
Waiting Too Long – Should Laches Have Barred the Respondents’ Claim?
SVT also argued that Respondents’ claims should have been barred by the trial court by the doctrine of laches.
Laches is an equitable doctrine stemming from common law. It is, as described in Hallums v. Hallums (1988) and quoted by the court in the current opinion, “neglect for an unreasonable and unexplained length of time, under circumstances affording opportunity for diligence, to do what should have been done.” In other words, if a party waits too long to take action on a legal issue – like asserting or regaining their rights – they may have lost their chance for good.
Respondents waited approximately 30 years to seek declaratory relief regarding their property rights, despite having the opportunity to do so. The trial court did find this delay unreasonable.
But “The failure to assert a right ‘does not come into existence until there is a reason or situation that demands assertion’” (citing Mid-State Tr., II v. Wright, 1996, quoting Ex parte Stokes, 1971). Additionally, “the party asserting laches must show it has been materially prejudiced by the other person’s delay” (citing the same case).
On this last point, the trial court found that SVT failed to provide evidence demonstrating how Respondents’ delay affected them financially or made them liable if the walking trail were not completed. Since SVT was not able to prove material prejudice due to Respondents’ delay, the appeals court agreed with the trial court that the doctrine of laches did not apply. Respondents were not barred from making a claim.
Get Legal Help from Gem McDowell and His Team
The South Carolina Court of Appeals ultimately affirmed the trial court’s decision granting declaratory relief. The court found that the rights to the properties reverted to the property owners (Respondents) at the time the railroad was abandoned and the easements terminated.
Note that it wasn’t until the property owners took legal action that they secured their rights again. If you are in a similar situation looking to regain full rights to your property after the termination of an easement, don’t expect it to happen automatically. You will likely have to take affirmative action to regain your rights just like Respondents did in this case.
For help with easements and more, contact attorney Gem McDowell at the Gem McDowell Law Group in Myrtle Beach and Mt. Pleasant, SC. Gem has over 30 years of experience handling legal matters in South Carolina, including easement disputes commercial real estate, business law, and estate planning. Call Gem and his team to schedule a free consultation at 843-284-1021 or fill out this form today.
What is a Certificate of Tax Compliance and Why Should You Get One for a Business Closing?
If you are planning on buying or selling a business in South Carolina, or a significant portion of its assets, you need to know what a Certificate of Tax Compliance is.
A Certificate of Tax Compliance is not mandatory in South Carolina, but we strongly advise our clients to get one prior to a business closing because it provides protection to the buyer.
Here’s what a Certificate of Tax Compliance is, how to get one, and how it can protect you.
What is a Certificate of Tax Compliance in South Carolina?
A Certificate of Tax Compliance is a document issued by the South Carolina Department of Revenue (SCDOR) that confirms a taxpayer has filed and paid all taxes due.
Any taxpayer in the state – business or individual – may request a certificate, which is valid for 30 days. If the taxpayer is current on taxes, the certificate is typically issued within 7-10 days of the request. If not, the SCDOR gives the taxpayer 30 days to file returns and/or remit payments to become up to date, after which a certificate will be issued. The taxpayer can request an extension if 30 days is not enough time.
How Do I Get a Certificate of Tax Compliance in South Carolina?
To request a Certificate of Tax Compliance (also called a Certificate of Compliance by the SCDOR), fill out Form C-268 and return it to the SCDOR by fax, email, or mail along with a $60 fee. Find the form and get more details on the SCDOR website and in the separate procedure document (PDF).
The request may be made either by the taxpayer (e.g., the business owner/seller) or by a third party (e.g., the prospective buyer) with a Power of Attorney authorizing the third party to request the certificate. Plan to get the certificate no more than 30 days before the business closing.
Why Get a Certificate of Compliance for Business Closings in South Carolina?
As stated above, a Certificate of Tax Compliance is not required by law for a business closing in South Carolina. But it serves an important purpose: it protects the buyer from any liens placed on the business assets due to unpaid taxes at the time of closing.
South Carolina Code § 12-54-124 (2022) states:
“In the case of the transfer of a majority of the assets of a business, other than cash, […] any tax generated by the business which was due on or before the date of any part of the transfer constitutes a lien against the assets in the hands of a purchaser, or any other transferee, until the taxes are paid. Whether a majority of the assets have been transferred is determined by the fair market value of the assets transferred, and not by the number of assets transferred. The department may not issue a license to continue the business to the transferee until all taxes due the State have been settled and paid and may revoke a license issued to the business in violation of this section.
“This section does not apply if the purchaser receives a certificate of compliance from the department stating that all tax returns have been filed and all taxes generated by the business have been paid. The certificate of compliance is valid if it is obtained no more than thirty days before the sale or transfer.” (Emphasis added.)
For just a $60 fee, a Certificate of Tax Compliance offers excellent protection for prospective business buyers, and that’s why we always strongly recommend our clients get one.
Contact South Carolina Business Attorney Gem McDowell
Gem and his team at Gem McDowell Law Group help business owners and employers in South Carolina with business creation, business acquisition and sales, business planning, and commercial real estate transactions. Gem has over 30 years of experience in South Carolina which includes multi-million-dollar real estate transactions, and he and his team have the knowledge and experience to help businesses grow and thrive. The Gem McDowell Law Group has offices in Myrtle Beach and Mt. Pleasant, SC. Call today at 843-284-1021 to schedule a free consultation to discuss your business needs.
How to Disinherit a Spouse in South Carolina Through Elective Share Waiver (Or: Pillow Talk Is Not Enforceable)
A lady came to our offices for help with her estate plan which included setting up a new trust to hold her assets. She planned to leave everything to her kids and nothing to her husband, which she said her husband had agreed to. He never signed anything on paper to that effect, but she insisted that he was okay with the arrangement.
Literally the following week, she died. Her husband then filed for elective share, which is the portion of a deceased person’s estate that a surviving spouse is entitled to by law. There was nothing barring the husband from receiving a portion of his wife’s estate, despite her wishes.
What could the wife have done differently?
Below we’ll look at elective share and how to disinherit a spouse in South Carolina.
Elective Share in South Carolina
A surviving spouse is entitled to a portion of the deceased spouse’s estate under the law regardless of the terms of the deceased spouse’s will. This portion is called the elective share, or spousal elective share. The portion the surviving spouse can claim varies by state; in South Carolina, it’s one third.
The surviving spouse may claim elective share even if the couple was estranged or in divorce proceedings at the time at the time of death. We previously covered a case on this blog in which a surviving spouse was able to claim elective share after the court granted the couple’s divorce, since the husband happened to die in between the court’s decision and the clerk filing and recording the divorce decree. [Read about that case, Hatchell-Freeman v. Freeman (2000) here.]
What the Surviving Spouse is Entitled To
In South Carolina, the surviving spouse is entitled to one third of the deceased spouse’s estate. This third includes assets that are not subject to probate, such as life insurance proceeds, retirement accounts, property owned jointly with right of survivorship, and assets in revocable trusts. The value of these and other interests due to the surviving spouse count towards the elective share first, along with the value of anything that was renounced or disclaimed. Only then is the balance due taken from the probate estate.
Claiming elective share usually means a surviving spouse will inherit assets that would otherwise have gone to other heirs named in the deceased spouse’s will. Because of this, the surviving spouse has a duty under South Carolina code Section 62-2-205(b) to inform recipients of the probate estate whose interests are adversely affected of the time and date of the hearing set to determine elective share.
Disinheriting a Spouse in South Carolina: A WRITTEN Waiver of Elective Share
The laws regarding elective share ensure that a spouse is not easily disinherited.
But an individual can fully disinherit a spouse in South Carolina. This may happen, for example, in blended families when each spouse wants to leave their assets to their own children and knows that the other spouse is financially secure. Or an individual may wish to disinherit a spouse because of estrangement or separation.
Whatever the reason, it’s important to know that drawing up a will or creating an estate plan that intentionally leaves out the spouse is not enough. The couple must take active steps to disinherit a spouse in South Carolina.
Written Waiver of Elective Share
A spouse may voluntarily agree to give up all or part of their elective share. The spouse who is to be disinherited must agree to waive the right to elective share in writing. Such a waiver is often part of a prenuptial or postnuptial agreement but may be a standalone document.
The spouse waiving their right to elective share in whole or in part must be fully aware of what they are giving up. South Carolina code Section 62-2-204 requires that the disinheriting spouse provide “fair and reasonable” disclosures of their property and financial obligations in writing to the waiving spouse.
Schedule a Free Consultation with Estate Planning Attorney Gem McDowell
For legal help and advice on waiver of elective share, prenuptial or postnuptial agreements, probate, or other estate planning concerns, call Gem McDowell of the Gem McDowell Law Group of Mt. Pleasant and Myrtle Beach. Gem and his team help families in the greater Charleston and Myrtle Beach areas create and review estate plans to help ensure their wishes are carried out.
Gem can also help you understand the consequences and potential downsides of your estate plan. Sometimes estate plans created with the best of intentions can lead to unintended consequences, disputes, and fractured relationships between family members and heirs.
If you have a complicated family situation, a large estate, or you simply want a basic estate plan put in place for your peace of mind, call Gem and his team today at 843-284-1021.
The FTC’s Proposed Final Noncompete Rule: What It Means for South Carolina
*This blog will be updated with new information as it becomes available*
UPDATE: On August 20, 2024, the U.S. District Court for the Northern District of Texas entered a final judgment stating that the ban should not take effect or be enforced nationwide. The FTC “is considering an appeal,” according to its website. Additionally, “The decision does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions.”
UPDATE: On July 3, 2024, federal judge Ada E. Brown of the Northern District of Texas issued an injunction pending litigation on the FTC’s noncompete rule, effectively putting it on hold. The ban on noncompetes was set to go into effect on September 4, 2024. The court says that it will issue a final order on the merits by August 30.
ORIGINAL POST published 04/25/24:
The Federal Trade Commission (FTC) released its final proposed rule on noncompetes on Tuesday, April 23, 2024. If adopted, the Non-Compete Clause Rule would ban new noncompete agreements altogether for all workers (with very few exceptions) as of the effective date, which could be as soon as late August. (The effective date is 120 days after the publication of the rule in the Federal Register, according to the 570-page PDF which you can find here.)
The rule is already being challenged. The U.S. Chamber of Commerce and the tax firm Ryan LLC both filed lawsuits in Texas on Wednesday aiming to stop the rule from going into effect.
South Carolina, like most states, does allow noncompete agreements, aka covenants not to compete. How would this rule affect the workers and employers in our state?
What the FTC’s Proposed Noncompete Rule Means for South Carolina Businesses
On this blog we’ve previously looked at how SC courts view covenants not to compete; they are enforceable as long as they are reasonable and don’t overly restrict the worker’s ability to find gainful employment. Covenants not to compete that are excessively restrictive in terms of duration, geographic location, and/or industry will be found to be unenforceable.
The FTC’s noncompete rule, if adopted, would override state law. No new noncompete agreements would be allowed in South Carolina for any kind of worker (with very few exceptions), not even for “senior executives” who earn more than $151,164 annually and are in a “policy-making position.”
What about existing noncompete agreements? Existing noncompete agreements for senior executives would remain in force as of the effective date. Extant noncompete agreements for other kinds of workers in South Carolina would no longer be enforceable after the effective date.
Is the FTC’s Proposed Noncompete Rule Likely to Go into Effect?
We don’t know for sure, but many people are predicting that the proposed rule will fail, including former FTC general counsel Alden Abbott (via Forbes). Or if it does go into effect, it will likely not be permanent. The rule is already being challenged and will certainly continue to be challenged, as many view it as exceeding the FTC’s authority.
Here at the Gem McDowell Law Group, we also think it’s unlikely that this rule is here to stay. We will follow this story closely and provide updates – stay tuned.
What Makes an Arbitration Agreement Unenforceable?
Is it easy to get out of arbitration in South Carolina? That’s the question we’ll look at today.
Arbitration agreements and clauses are ubiquitous these days, from employment contracts to online End-User License Agreements. Arbitration is often touted as being a faster, less expensive, and more private alternative to civil lawsuits and civil court. But arbitration agreements can put individuals at a disadvantage by requiring them to waive their rights or burden them with lopsided terms. This may prompt them to try to get out of arbitration.
Maybe you’re a customer or consumer who doesn’t want to be bound to arbitration. Or maybe you’re a business owner or professional who wants to ensure the arbitration agreements in your contracts are enforceable. Whatever your situation, you should understand when arbitration is enforced and when it’s not in South Carolina so you can better look after your own interests.
First we’ll look at what makes a contract enforceable and unenforceable in South Carolina, then dive into some cases to see how these issues played out in the courts.
Are Arbitration Agreements Always Binding in South Carolina?
Generally yes, but occasionally no.
Valid arbitration agreements are enforceable in South Carolina. In the 2020 case Weaver v. Brookdale Senior Living, Inc. (which we’ve previously covered here), the South Carolina Court of Appeals stated that there is “potent” public policy favoring arbitration when the terms are entered into validly.
What constitutes a valid and enforceable contract in South Carolina? To start, parties signing the contract must have the authority and capacity to understand and enter into such an agreement. The contract also must:
- Be mutually agreed upon
- Be freely entered into
- Include “consideration,” an exchange of values between the parties, such as money or the promise of a service
- Not violate public policy
Since South Carolina courts view and treat arbitration agreements as they do any other part of a contract, these same standards apply.
In short, there’s no way to “get out” of a valid arbitration agreement in South Carolina.
Reasons an Arbitration Agreement May Be Unenforceable (Or, How to Get Out of Arbitration)
Arbitration agreements are not enforceable in South Carolina if they are not valid. Arbitration clauses within a contract may also be found to be unenforceable.
Reasons an arbitration agreement may found to be unenforceable (this list is not exhaustive):
- Absence of signature
- Fraud
- Duress or coercion
- Lack of authority to sign the agreement
- Lack of capacity (aka sound mind)
- Lack of mutual agreement
- Lack of consideration
- Unconscionability
- Unclear language
Proving an arbitration agreement is unenforceable can be difficult, but it does happen. Next we’ll look at cases where arbitration agreements were successfully challenged in court.
Lack of Authority to Enter into Arbitration Agreement without Power of Attorney: Solesbee
In some cases, the enforceability of an arbitration agreement comes down to small details. That’s what happened in the 2022 South Carolina Court of Appeals case The Estate of Mary Solesbee v Fundamental Clinic (read it here).
The Background
Mary Solesbee entered Magnolia, a skilled nursing facility in Spartanburg County, in June 2016. Her son, Allen Dover, signed the admission agreement and a separate arbitration agreement when she was admitted. On July 14, 2016, Solesbee was transported to a hospital, where she died two weeks later.
Connie Bayne, Solesbee’s personal representative, then filed a wrongful death and survival action alleging nursing home negligence for actual and punitive damages. In response, Magnolia filed a motion to compel arbitration.
The trial court denied the motion to compel arbitration, finding that Dover did not have the authority to sign the arbitration agreement on behalf of his mother and rendering it invalid. On appeal, the SC Court of Appeals agreed with the trial court’s decision to deny Magnolia’s motion to compel arbitration.
The Details
The appeals court determined that the admission agreement and the arbitration agreement were two separate documents. Magnolia argued that the court should have found the two were merged, since merger is usually presumed when multiple documents are signed by the same parties at the same time as part of the same transaction.
But the court says that’s not always so. It found that the two documents were indeed separate because:
- The admission agreement provided it was governed by South Carolina law, while the arbitration agreement provided it was governed by federal law
- The arbitration agreement referenced the admission agreement, showing it was conceived of as a separate document
- Each document was separately paginated with its own signature page
Additionally, the arbitration agreement was not a requirement for admission to Magnolia.
This matters because Bayne (Solesbee’s representative who brought the suit) argued that Dover (her son) did not have the authority to sign the arbitration agreement on his mother’s behalf. He did not have power of attorney for his mother at the time (and had only briefly possessed such powers years earlier before they were revoked) and did not have the authority to sign under any other legal theory.
He did, however, have the authority to sign the admission agreement under South Carolina’s Adult Health Care Consent Act. This act is limited to making health care related decisions only, and therefore did not give Solesbee’s son the power to sign the separate arbitration agreement.
Ultimately, because of how Magnolia wrote and structured its contracts, the court found that it could not compel arbitration.
Other Examples of Unenforceable Arbitration Agreements in South Carolina
Here are brief overviews of three other South Carolina cases in which arbitration agreements or sections were found to be unenforceable.
Lack of Authority Even with Power of Attorney: Arredondo
In Arredondo v. SNH SE Ashley River Tenant, LLC (2021), the South Carolina Supreme Court found that a daughter did not have the authority to sign an arbitration agreement on behalf of her father, despite being his agent under both a health care power of attorney and a general durable power of attorney. This case came down to the very specific wording in the powers of attorney, and it demonstrates how enforceability of a contract can hinge on language and word choice.
(The daughter also contended that the agreement was unconscionable and therefore unenforceable, but the court did not address this issue.)
Read more in detail about powers of attorney and the full story behind Arredondo in our blog on this case here.
Lack of Authority Due to Timing: Stott v White Oak Manor
In Stott v White Oak Manor, Inc. (2019), the South Carolina Court of Appeals found that a niece did not have the authority to sign an arbitration agreement on behalf of her uncle. There are two important elements in this case: One, capacity. The uncle possessed “intact mental functioning” at the time of his admission into a medical facility and therefore had the capacity to enter into agreements himself. Two, timing. A power of attorney that would have given the niece authority to enter into the agreement on his behalf was not recorded – and therefore not valid – until six days after her uncle was admitted to the facility.
Read more in detail about the background and the court’s reasoning in our blog on Stott here.
Unconscionability: Huskins v Mungo Homes
In Huskins v Mungo Homes (2022), the South Carolina Court of Appeals found that a portion of an arbitration clause within a purchase agreement was unconscionable and therefore unenforceable. It found the offending terms were absent of meaningful choice and were oppressive and one-sided, making them unconscionable.
Importantly, only the offending portion was severed from the clause, leaving the rest of the arbitration clause enforceable, and the court affirmed the circuit court’s order to compel arbitration under the newly modified terms.
Read more in detail about the background of this case and about unconscionability in our blog on Huskins v Mungo Homes here.
Understanding Arbitration and Reserving Your Rights
The examples of cases above show just how challenging it can be to get out of arbitration in South Carolina.
As a consumer, customer, or patient, you need to understand that the majority of the time, you are bound to arbitration when you agree to it. However, it’s not a given that you must agree; many contracts and agreements online allow you to opt out in writing within (typically) 30 days of signing the agreement. The next time you encounter a wall of text online that tells you to click the “I Agree” button, first look in the fine print for instructions on how to opt out of compelled arbitration and reserve your rights.
As a business owner or professional drafting an arbitration agreement or arbitration clause, you should know that the enforceability of your agreement can come down to terms, word choice, and other seemingly small details. It’s also important to ensure that the parties signing your agreement have the authority to do so.
Get Help with Contracts and Business Law in South Carolina
For help drafting or understanding arbitration agreements, employment contracts, and other contracts, contact Gem at the Gem McDowell Law Group. With over thirty years of experience, Gem along with his team helps South Carolina business owners grow their businesses and protect their interests and can represent individuals in contract disputes. Call to schedule your free consultation today at the Mount Pleasant office or Myrtle Beach office by calling 843-284-1021 today.
