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 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.
South Carolina Rejects the Mortgage Replacement Doctrine
The Supreme Court of South Carolina rejected the mortgage replacement doctrine in the 2023 case ArrowPointe Federal Credit Union v. Bailey (PDF), upholding the decision of the SC Court of Appeals.
Under the replacement mortgage doctrine, if an older (original) mortgage is released and replaced with a new mortgage in the same transaction, the newer mortgage maintains the same priority for repayment as the original.
But the replacement mortgage doctrine is not part of South Carolina law, and the SC Supreme Court rejected it. Here’s some brief background on the case and the court’s main points.
The Background of ArrowPointe Federal Credit Union v. Bailey (2023)
In late October 2009, Jimmy Eugene Bailey and Laura Jean Bailey took out a mortgage from Quicken Loans on their Winnsboro, SC home in the amount of $256,500. In early November, they took out an equity line of credit with ArrowPointe Federal Credit Union (ArrowPointe), secured by a mortgage, with a maximum principal amount of $99,000.
Less than three weeks later, in December 2009, the Baileys refinanced and got a new mortgage from Quicken Loans in the amount of $296,000. At closing, they signed a document saying the only lien on the property was the original Quicken Loans mortgage. Quicken didn’t have ArrowPointe sign a subordination agreement to ensure that it (Quicken Loans) would be paid back before ArrowPointe. It appears the ArrowPointe loan was not discovered during a title search, even though it had been properly recorded and Quicken Loans had constructive notice.
Sometime later, the Baileys defaulted on their ArrowPointe loan, which stood at $187,201.60 in March 2017.
Who Gets Paid First?
In 2017, ArrowPointe filed this action seeking a declaration that its line of credit had priority over the second Quicken Loans mortgage – now held by U.S. Bank – and should be paid first.
U.S. Bank argued it was entitled to priority over ArrowPointe under the replacement mortgage doctrine. ArrowPointe argued that it was entitled to priority, as Quicken Loans had recorded notice of the ArrowPointe line of credit at the time the second mortgage was signed.
A special referee agreed with ArrowPointe, finding that South Carolina does not recognize the replacement mortgage doctrine and that ArrowPointe had priority over U.S. Bank under South Carolina’s race-notice statute (discussed below). The referee ordered the foreclosure of the mortgage and the sale of the Bailey home. The SC Court of Appeals affirmed the special referee’s decision. The matter then went to the Supreme Court in May 2022.
The SC Supreme Court Rejects the Mortgage Replacement Doctrine
The SC Supreme Court affirmed the lower court’s decision. Here are some takeaways from its opinion.
South Carolina Statute is Clear, and the Court is Not a “Superlegislature”
U.S. Bank’s argument for priority was based on the replacement mortgage doctrine, but that is not part of current South Carolina law. The Supreme Court agrees with the SC Court of Appeals that whether South Carolina should adopt the replacement mortgage doctrine is an issue for the General Assembly, not the court, saying, “We do not sit as a superlegislature to second-guess the General Assembly’s decisions.”
Current law is clear. South Carolina has a race-notice recording statute, which is one way of determining the lawful owner of a piece of property when more than one party makes a claim to it. In states with a race statute, the party that records the sale with the recording office first is the legal owner. In states with a notice statute, a subsequent buyer who is not aware of a previous sale of the property, through actual or constructive notice, is considered the owner. The buyer may be made aware of a prior conveyance either through actual notice or constructive notice, such as the recording of a deed which is public record.
In a race-notice statute state like South Carolina, a subsequent buyer must have no actual or constructive notice of a prior conveyance and must record the purchase before the prior buyer. Under this statute, ArrowPointe has priority over U.S. Bank.
Equitable Subrogation Doctrine and Replacement Mortgage Doctrine Are Not the Same
U.S. Bank also argued that because the South Carolina Supreme Court has adopted the equitable subrogation doctrine as an exception to the race-notice statute in the past, it may also adopt the replacement mortgage doctrine.
But the two are different, says the court. With equitable subrogation doctrine, a new party essentially “steps into the shoes” of the existing mortgagee, to use the court’s analogy. The party has changed, but the loan itself has not. With the mortgage replacement doctrine, however, the old mortgage is satisfied and replaced with a wholly new mortgage that may or may not have similar terms. In the present case, the second mortgage the Baileys took out was substantially more than the first – $39,500 more – so the two mortgages were significantly different. The second mortgage was not an exact replacement for the first.
A Thorough Title Search is a Better Solution
A thorough title examination is “inherent” in our state’s race-notice statute, says the court. Quicken Loans should have discovered the ArrowPointe line of credit in a title search and addressed it during refinancing, but it didn’t.
“We conclude the replacement mortgage doctrine invites needless litigation that could be avoided by a simple examination of the title to the real property,” says the SC Supreme Court. “We see no reason to adopt a doctrine that excuses the failure to conduct such a title examination—or, when a title examination is conducted, the failure to ascertain the existence of an intervening lien.” (Emphasis added by Gem McDowell Law Group.)
Don’t take chances or shortcuts when it comes to real estate deals. Work with an attorney who can help you cover all your legal bases so there are no surprises in the future.
Call South Carolina Attorney Gem McDowell
For help with contracts, commercial real estate transactions, and other estate planning and business law needs, call Gem and his team at his Mt. Pleasant office. Gem has over 30 years of experience helping individuals and businesses in South Carolina to protect their interests and avoid potentially costly mistakes. Call 843-284-1021 today to schedule your free consultation.
What is a Lady Bird Deed? Are Lady Bird Deeds Legal in South Carolina?
A lady bird deed, like other kinds of deeds, determines how ownership of a property is transferred and to whom. It’s similar to a life estate deed in that it allows the transfer of property outside of probate. But the big difference is that a lady bird deed gives the life tenant rights to the property that are restricted by a traditional life estate deed, such as the right to mortgage or sell the property.
A lady bird deed – also known as a ladybird deed or an enhanced life estate deed – can be a useful tool in the right estate plan. But it’s not right for everyone, and using a lady bird deed can lead to serious unintended consequences.
Let’s look at what a lady bird deed is and what it does, the advantages and disadvantages of the lady bird deed, and lady bird deeds in South Carolina.
What Is a Lady Bird Deed? What Does a Lady Bird Deed Do?
The lady bird deed was created by Florida attorney Jerome Ira Solkoff in the early 1980s; the name comes from Solkoff’s book and is not a reference to First Lady “Lady Bird” Johnson. Solkoff started using the lady bird deed to address an issue with the traditional life estate.
In a typical life estate, a piece of property (often but not always real estate) is owned by a “life tenant” for the duration of their life only. When the life tenant dies, the property automatically passes to a “remainderman” or “remaindermen.” The life tenant may be the grantor (the original owner of the property), the grantor’s spouse or child, or someone else.
One big advantage of a life estate deed is that the property is not subject to probate. But one big disadvantage – to the life tenant, at least – of the traditional life estate is that the life tenant does not have full rights to the property during their lifetime. The life tenant cannot, for example, sell or take out a mortgage on the property without the permission of the remainderman. Understandably, selling or mortgaging the property goes against the best interests of the remainderman, who would prefer for the property to remain intact with its full value. This clash of interests between the life tenant and the remainderman effectively means that, in most cases, the life tenant is unable to sell or mortgage the property, even if it is legally theirs.
Enter the lady bird deed. With a lady bird deed, the life tenant has full rights to the property during their lifetime, including the right to mortgage, sell, or otherwise dispose of the property without the permission of the remainderman. This is why the term “enhanced life estate” is also used for a lady bird deed, since it’s essentially a life estate deed that gives the life tenant additional rights to the property. Upon the death of the life tenant, the property, or what remains of it, automatically goes to the remainderman (or remaindermen).
Another important difference between a lady bird deed and a life estate deed is that a lady bird deed can be revoked or changed by the grantor alone. By contrast, a life estate deed can only be revoked or changed by the grantor with the permission of the life tenant and the remainderman.
Benefits of a Lady Bird Deed
As covered above, the main benefits of a lady bird deed over a life estate deed include:
- Full property rights to the life tenant including the right to sell or mortgage the property without the remainderman’s permission.
- Ability for grantor to revoke or change the lady bird deed without the remainderman’s permission.
Other benefits of a lady bird deed are the same as a typical life estate deed, which include:
- Avoiding probate. Because the lady bird deed (or life estate deed) directs where the property should go after death, the property passes automatically to the heir without needing to go through probate.
- Help with Medicaid eligibility. If the grantor is also the life tenant, then the property is not considered an asset when the grantor applies for Medicaid. Lady bird deeds aren’t considered a transfer for Medicaid eligibility purposes.
- Prevent property from being used to repay Medicaid. Lady bird deeds (and life estate deeds) prevent the property from being used to repay the state for Medicaid costs related to long-term care after the individual’s death.
- Avoid federal gift tax. Importantly, it does not help you avoid applicable estate taxes.
This list is not exhaustive. Depending on your specific circumstances, you may derive other benefits from a lady bird deed or life estate deed.
Drawbacks of a Lady Bird Deed and Potential Consequences
Lady bird deeds sound great. They provide all the benefits of a life estate deed but without the major drawback of restricting the life tenant’s rights. Plus, they can be changed or revoked by the grantor at will.
But there are two major drawbacks specific to lady bird deeds that can create unintended consequences. These are:
Drawback 1: Lack of widespread recognition
Lady bird deeds are not as common and widespread as life estate deeds and many other estate planning tools. As of now, only five states fully recognize lady bird deeds (usually called enhanced life estate deeds): Florida, Michigan, Texas, Vermont, and West Virginia.
While this doesn’t mean you are prohibited from having a lady bird deed if you live in one of the other forty-five states, it does mean that doing so is taking a risk. Your wishes may not be carried out as you want, because the law still isn’t clear on how to handle lady bird deeds in most states.
Drawback 2: Difficulty obtaining title insurance
One of the great benefits of a lady bird deed is that the life tenant does not require permission from the remainderman to mortgage, sell, or otherwise encumber or dispose of the property. But this can cause a problem when it comes to title insurance if the life tenant ever decides to sell or take out a mortgage on the property.
A title insurance company in a state where lady bird deeds are not routinely recognized may refuse to issue title insurance unless it has the “joinder of the remainder,” that is, the agreement of the remainderman or remaindermen to the sale or mortgage. Since, as discussed above, doing so goes against the remainderman’s best interests, it may be impossible to obtain the joinder of the remainder. At that point, the enhanced life estate created by the lady bird deed is no different than a typical life estate.
What if you simply don’t get title insurance and go ahead with the sale? It’s true that title insurance is not required for every sale. But skipping the title insurance doesn’t address the underlying problem, which is that the remainderman has a vested interest in the property and can bring a claim in the future. Fighting such claims in and out of court can be costly and time consuming, and they can irreparably damage relationships among heirs.
Are Lady Bird Deeds Legal in South Carolina?
Lady bird deeds are not codified into law in South Carolina, nor have they been officially recognized by the courts.
However, in at least two instances, South Carolina higher courts have agreed with the intention of an enhanced life estate, or, in its words, a “life estate with the power of disposition,” as far back as 1971. That is, it recognized the right of a life tenant to dispose of the property as they wish without the consent of the remaindermen when this wish was explicitly expressed in the original property owner’s last will. See Blackmon v. Weaver (2005) (here) and Johnson v. Waldrop (1971) (here).
This may be reassuring to those who wish to take advantage of the benefits of a lady bird deed in South Carolina, but it’s still a long way from being widely used and recognized here. Plus, it still doesn’t change the fact that title insurance companies may refuse to issue title insurance without the joinder of the remainder, which could hamper real estate deals. Finally, it’s worth noting that both of the “life estates with the power of disposition” recognized by the courts were created in last wills, not through deeds, meaning that the properties in question were subject to probate.
Alternatives to Lady Bird Deeds in South Carolina
At this time, the most prudent thing to do may be to find an alternative to the lady bird deed if you live in South Carolina or another state where enhanced life estate deeds are not routinely recognized. Some possible alternatives to a lady bird deed, depending on your objectives, include a life estate deed, a transfer-upon-death deed, or a revocable living trust.
If you have questions about your estate plan and are concerned about avoiding probate or ensuring that your property is inherited according to your wishes, call estate planning attorney Gem McDowell at the Gem McDowell Law Group. He and his team can help you create, review, or update your estate plan so it reflects your current life circumstances and future wishes. He can also help you understand the possible consequences of how your estate plan will play out and how that can affect your family members and heirs and prevent friction in the future.
Call Gem today at his office in Mount Pleasant, SC, at 843-284-1021 to schedule your free consultation today.
What Is the Legal Rate of Interest in South Carolina in 2024?
On January 4, 2024, the Supreme Court of South Carolina issued an order regarding interest rates on money decrees and judgments for the next twelve months. The legal rate of interest for money decrees and judgments is 12.50% compounded annually for the period between January 15, 2024 and January 14, 2025. (Read the original order in PDF format.)
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). The law also provides that the SC Supreme Court updates the interest rate every year, no later than January 15th, for the upcoming year.
Are You Responsible for Your Spouse’s Debts?
Are you responsible for your spouse’s debts? It depends. Generally, you are not responsible for any debts your spouse brings into the marriage.
As for debts incurred during the marriage, it depends on the state you live in and the type of debt. In an equitable division state such as South Carolina, both spouses are responsible for debt taken on jointly and for debt that benefits the marriage. In South Carolina and many other states, you would not be liable for debts incurred only by your spouse that don’t benefit the marriage.
There’s one important exception – the doctrine of necessaries.
The Doctrine of Necessaries in South Carolina
The doctrine of necessaries (also called the necessaries doctrine or sometimes the doctrine of necessities) comes from common law and is still valid in many states today, including South Carolina. It makes an individual liable for a spouse’s debts if the debts are related to medical care, food, shelter, or other “necessaries” for life. It also applies to parents who are liable for their minor children’s debts including medical bills.
The necessaries doctrine has been affirmed a number of times in South Carolina courts, including in the case Richland Memorial Hospital v Burton (1984) in the Supreme Court of South Carolina (here). Richland Memorial Hospital brought a collection action against Cary Burton, the husband of a deceased patient of the hospital, for debts incurred by his wife during her medical care. The trial court found Burton liable for the debts, and the SC Supreme Court ultimately affirmed.
This case is important because it brought equality to a common law that originally applied only to men and not to women.
Historical Inequality in the Doctrine of Necessaries
Originally, only husbands had the legal duty to support their wives and take on their debt. The necessaries doctrine comes from common law during a time when women did not have all the rights they do today, including property rights and the right to enter into contracts. A husband had a duty to support his wife, even taking on the debts she incurred before the marriage, and he also had the authority to use her property to satisfy her debts. Common law did not require a woman to take on her husband’s debts, because it didn’t make sense at the time.
Things began to change in the mid-1800s when Married Women’s Property Acts and similar acts were passed, state by state, across the country, giving women more legal authority and property rights. South Carolina later enacted Code 20-5-60 which relieved husbands of liability for their wives’ debts, except for her necessary support: “A husband shall not be liable for the debts his wife contracted prior to or after their marriage, except for her necessary support and that of their minor children residing with her.”
Still, while women gained more rights, the necessaries doctrine remained unchanged in many places for a long time, including South Carolina.
An Old Common Law in Modern Times
In Richland Memorial Hospital v Burton, Burton argued that the necessaries doctrine and SC Code Section 20-5-60 were unconstitutional because they violated the equal protection clauses of the South Carolina Constitution and the United States Constitution. The appellant and respondent conceded that the necessaries doctrine denied equal protection because it imposed an obligation on husbands it did not impose on wives. The court agreed.
But the court also agreed with Richland Hospital that the doctrine of necessaries remains a viable common law doctrine. The court determined that both husbands and wives were subject to the necessaries doctrine. From the court’s opinion: “We accordingly hold that the necessaries doctrine allows third parties providing necessaries to a husband or wife to bring an action against the individual’s spouse.”
In short, yes, in South Carolina you can be responsible for necessaries-related debts your spouse alone incurs – whether you’re a husband or a wife.
Estate Planning with Gem McDowell
For help with estate planning, call estate planning attorney Gem McDowell at the Gem McDowell Law Group. He and his team can help you with estate planning documents like wills, living wills, and trusts, and help make sure your estate plan is up to date and reflects your wishes and current laws. Call 843-284-1021 to schedule your free initial consultation today.
What is a Right of First Refusal and When Is It Enforceable?
The right of first refusal sounds simple on the surface. A right of first refusal (ROFR) gives the right-holder the opportunity to enter into a business transaction with another party before anyone else. It’s most commonly seen in real estate contracts, such as when a lessor signs a contract giving them the ROFR to put in an offer to purchase the property if it ever comes up for sale.
But as straightforward as it sounds on paper, it’s not always so straightforward in the real world. Contracts that include an ROFR must be clear and detailed in order to be enforceable.
The Supreme Court of South Carolina addressed this issue in the 2023 case Clarke v. Fine Housing, Inc. (here). We’ll look at the factors required for an enforceable right of first refusal in South Carolina and how they played out in this recent case.
The Pros and Cons of a Right of First Refusal
An ROFR can benefit both parties. In the example of a lessor with the ROFR to purchase the property, if and when it comes up for sale, they can be sure not to miss out on the opportunity to put in an offer. There’s no downside for the potential buyer; if they don’t want to buy the property, they simply refuse.
The property owner can benefit by having a potential buyer already lined up when it’s time to sell, which may help them in negotiations with other potential buyers. However, the downside for the property owner is that a ROFR can restrict their power of alienation, which is their ability to dispose of property.
“South Carolina law prohibits enforcement of unreasonable restraints on alienation of real property,” the court says in the Clarke opinion. The key word here is “unreasonable.” Whether a particular ROFR is enforceable depends on whether the restraints on alienation are considered unreasonable.
Unreasonable Restraints on Alienation of Property: What is Unreasonable?
In the Clarke opinion, the SC Supreme Court turns to the Restatement (Third) of Property. The Restatements of the Law (Third) are a comprehensive set of legal treatises widely referenced and relied upon by courts, judges, lawyers, and others across the U.S. On the subject of the ROFR, it says, “Reasonableness is determined by weighing the utility of the restraint against the injurious consequences of enforcing the restraint.”
The Supreme Court of South Carolina uses the factors listed in the Restatement (Third) of Property (Comment f) to determine, on a case-by-case basis, whether a right of first refusal is enforceable. The factors are:
- The legitimacy of the purpose of the right,
- The price at which the right may be exercised, and
- The procedures for exercising the right
These factors are not exclusive.
Let’s look at each one of the factors and how they figure into the Clarke case.
Background of Clarke v Fine Housing (2023)
First, the pertinent background of 2023 Supreme Court of South Carolina case Clarke v. Fine Housing, Inc.: Barry Clarke owned a strip club in Charleston. In 1999, he entered into a lease agreement with the owners of another strip club across the street to use part of their unimproved land for parking. The lease contained the following language:
- Section 5.2. Right of First Refusal: Lessor grants the Lessee the right of first refusal should it wish to sell.
Note that there’s no mention of price, timing, how to exercise the right, or any other specifics – not even which property this right of first refusal applies to.
In 2013, then-owner RRJR conveyed the property in question to Fine Housing, Inc. Clarke learned of the sale in 2014 after it was a done deal, having had no opportunity to exercise what he believed to be his enforceable right of first refusal (Right).
In 2015, Clarke brought this action for specific performance against Fine Housing and RRJR. The case eventually came before the Supreme Court of South Carolina, which agreed with the SC Court of Appeals that the Right was not enforceable because it constituted an unreasonable restraint on alienation.
Factors for an Enforceable Right of First Refusal
Here are the three factors the Supreme Court of South Carolina uses to determine enforceability of a right of first refusal on a case-by-case basis and how they show up in Clarke.
Factor 1: Legitimacy
In Clarke, Fine Housing didn’t challenge the legitimacy of the purpose of the Right, so the court didn’t address the issue.
Factor 2: Price
Price may or may not be an unreasonable restraint on alienation. If, for example, the ROFR were dependent on a fixed price, that could restrain alienation. If the price were to be matched to a third party’s offer, there would be less restraint.
In Clarke, Clarke argued that the Right left the price to be determined entirely by RRJR and required him to match any offer from a third party. He also argued that exercising the Right would have started a bidding war that would have benefitted RRJR.
The court agreed with Fine Housing that the absence of any method for determining the purchase price in the lease constituted an unreasonable restraint on alienation. Absence of specifics on how to determine price may not be as restraining as a fixed price, says the court, but it is still a restraint, and “a right of first refusal should contain some method for determining the price at which it may be exercised.” The lease Clarke signed had no method, and therefore this factor worked against him.
Factor 3: Procedures governing the exercise of the right
Comment f to the Restatement stresses the importance of provisions governing the exercise of the right, stating, “Lack of clarity may cause substantial harm by making it difficult to obtain financing and exposing potential buyers to threats of litigation. Lengthy periods for exercise of rights of first refusal will also substantially affect alienability of the property.”
Time is also an important consideration. How soon after the owner decides to sell does the right holder have to exercise their right? An extended period of time can be a restraint on the property owner, while a “reasonable” time frame does not impose unreasonable restraint and is generally enforceable.
In Clarke, Clarke argued that a ROFR does not require detailed instructions on how to exercise it to be valid, but this directly contradicts the Restatement (Third) of Property. He also argued that the lease provided satisfactory procedures regarding the exercise of the right. The court disagreed “because the Right contains no such procedures whatsoever.”
As for timing, Clarke argued that if there’s no mention of a timeline in the language of the agreement, then it must be done within a “reasonable time.” The court disagreed, saying that the point of the Restatement is to include a predetermined time limit so as to protect the property owner’s power of alienation, rather than having the owner rely on a “judicially implied ‘reasonable time.’”
Because of the total lack of provisions regarding timing and procedures on how to exercise the Right, the court found again in favor of restraint on alienation.
Additionally: Which Property?
The court also addressed a matter specific to Clarke: to which property did the Right ostensibly apply? The entire property that includes the unimproved land Clarke leased for parking, or the unimproved land only?
Clarke argued that the Right applied to the entire property, but the court disagreed because the language in the lease was not clear. That uncertainty constitutes an additional unreasonable restraint on alienation.
Takeaway: Rely on Clear, Specific Contracts
The SC Supreme Court affirmed the appeals court’s decision, finding in favor of Fine Housing and against Clarke, stating “The Right does not identify the property it encumbers, contain price provisions, or contain procedures governing the exercise of the Right. We conclude the Right is an unreasonable restraint on alienation. We therefore affirm the court of appeals’ holding that the Right is unenforceable.”
An important takeaway for anyone entering into a contract with a right of first refusal in South Carolina: Make sure the language in your contact is clear and specific and that it addresses the three factors discussed above. It must contain language on how the price should be determined and how the right should be exercised. Language that unreasonably restrains the property owner’s power of alienation may render it unenforceable, so the right cannot be construed too favorably to the would-be buyer.
Call Gem McDowell for Contracts, Strategic Business Advice, and Commercial Real Estate
Many legal disputes come down to the language in a contract. Is it clear? Is it enforceable? Would the courts side with you if the matter were ultimately litigated? It’s critical to get the contract right before signing it, so you lessen the chances of complications and litigation down the road.
For help with business contracts and commercial real estate, call business attorney Gem McDowell at the Gem McDowell Law Group. Gem has over 30 years of experience working with business owners to help them start, grow, and protect their businesses. He and his team can help you with contracts, corporate governance documents, strategic advice, and more. He also has extensive experience in commercial real estate transactions in South Carolina. Call the Gem McDowell Law Group today to schedule a free consultation at 843-284-1021.
What is Family Malpractice™, and Have You Committed It?
Have you committed Family Malpractice™?
If you’ve neglected your legal responsibilities regarding your family, then yes, you have.
What is Family Malpractice™?
You’ve heard of attorney malpractice, where an attorney’s misconduct causes problems for a client, and you’ve heard of medical malpractice, where a doctor’s error or negligence causes problems for a patient. Similarly, Family Malpractice™ is when an individual causes problems for his/her family members, usually because of failure to take action on a legal matter.
Problems that are created can be legal, financial, and/or familial in nature. I’ve seen a decedent’s heirs have to go through years of expensive and stressful legal battles over how to divide up assets. I’ve seen people take a huge financial hit because of how property was handled after the owner’s death. I’ve seen families torn apart and relationships permanently ruined due to Family Malpractice™.
While it’s not something you can be prosecuted for, Family Malpractice™ is something to avoid. You can easily do so by knowing some of the common pitfalls that put your family in peril legally and financially, and how to avoid these easily avoidable situations yourself.
When You Have Children but Have No Will, That’s Family Malpractice™
Do you know what happens in South Carolina if you die without a will, leaving behind a spouse and children? When I ask this question in consultations or at live, in-person seminars, most people believe that 100% of the deceased’s probate estate goes to the spouse. This is incorrect. By state statute, the deceased’s probate estate is divided evenly between the spouse, who gets 50%, and the children, who share the remaining 50% among themselves.
This sounds reasonable and fair. But, as straightforward as it sounds, this simple arrangement can cause a lot of problems, usually for the spouse. For instance, if a husband and father dies intestate (without a will), his half of the house is divided equally between his surviving wife and children. So his wife now owns 75% of the house and the children own the other 25%. If she’s not able to keep up with the house payments and wants to downsize, she can’t sell unless her children agree. They then have leverage and can demand more than the 25% of the sales price of the home, or else simply refuse to sell.
Who would do this to their own mother, you ask? Plenty of people, unfortunately. I’ve seen scenarios like these play out many times in my 30+ years of being an attorney. Situations like these can ruin a person financially in their later years and destroy family relationships irrevocably.
The situation becomes even more complicated in blended families where one or both spouses have children from a previous marriage. Imagine then, the surviving spouse may own 75% of the house and the children from a previous marriage own the other 25%. The children from the previous marriage are not required to cooperate with the surviving spouse. They can veto a sale, refinance, etc. They essentially control the property. That is not what the decedent wanted, and that decedent committed Family Malpractice™ with regards to the surviving spouse.
In short, the way an estate is passed along and divided up according to South Carolina law may not be what an individual wants, but if they die intestate, they don’t get a choice – and their heirs have to live with the consequences.
The solution: Have a will drawn up. This is vital if you have a family and especially if you have anything other than a small estate. Dying without a will can potentially create a lot of problems for your heirs that could have been avoided with a current estate plan.
When You Don’t Probate Your Deceased Mom or Dad’s Estate, That’s Family Malpractice™
The idea of a family home being passed down from generation to generation is something many people aspire to. Passing on wealth in the form of real property to your children, and to their children in turn, and so on, is a wonderful gift.
At least, it can be. It’s not uncommon for property passed on after death to become “heirs property,” which can cause a lot of problems for the heirs. This can happen when the surviving children of the original, now-deceased homeowner continue to live in the home but don’t go through the proper legal process to put the property in the new owners’ names. That is going through the probate process. If the same situation repeats for a few generations in a row, you can end up with literally dozens of people (typically, the grandchildren or great-grandchildren of the original owner) who all have legal claims to the property, all while the property is still technically in the original owner’s name.
Why is this such a problem? Because it’s very difficult to sell a house like this, when there are so many owners and a cloudy title. A buyer interested in the property risks having the deal fall through if one of the many owners decides they want more than their proportional share of the sales price or refuses to sell altogether. Getting the title cleared takes extra time and money. Meanwhile, the family members who own the house cannot sell and take the equity in the house, and they may be barred from accessing things that require clear title of ownership, like mortgages, loans, and government programs.
The solution: Ensure your deceased parent’s estate goes through probate. The probate process does not happen automatically; it’s something the executor named in the will must carry out. If there is no will, the probate court names an executor, usually a child or close relative of the deceased.
There are a few roadblocks keeping people from ensuring a deceased parent’s estate goes through probate. One is simply not knowing that it’s needed; they may incorrectly assume that the ownership of the house legally passes from the parent to the child(ren) without having to do anything. Another reason is an aversion to having to pay a lot to probate the estate. But in SC, probate fees are not very high. For instance, probate fees on an estate worth $1 million is just $1,845, which is paid out of the estate, as are attorney’s fees. Finally, some people want to avoid dealing with the government altogether. While this may be understandable, it’s not a good reason to avoid probate. Working with an experienced probate attorney you trust can help you and ensure that your estate is handled legally and fairly.
Read more about probate here on our blog.
When You Don’t Take the 1014(e) Step-Up in Basis, That’s Family Malpractice™
A step-up in basis occurs when the cost basis of an asset, like a home, is adjusted from the original cost basis to the current fair market value upon the death of the owner.
Let’s say your parents bought a house 20 years ago for $150,000, and when you inherited it upon their deaths, it was worth $350,000. If you don’t take the step-up in basis and proceed to sell it, you’ll have to pay capital gains tax on the difference, which is $200,000. If instead you do take the step-up in basis, and have the cost basis of the house increased to $350,000 (the fair market value at the time of your parents’ deaths), then you’ll only pay capital gains tax on the difference between $350,000 and whatever you sell it for in the future.
Depending on the value of the house, and how much that value has grown over time, that can mean saving a lot of money in taxes. When someone does not take this step-up in basis, it can lead to very large tax bills when the time comes to sell the property. There are a few reasons a person may fail to do so; they may not even know that the option exists, or they may mistakenly assume that it happens automatically.
The solution: Take the step-up in basis on property in an estate that you are executor of, or ensure that the executor of your parents’ estate does so. The probate attorney handling the estate can help you. As a probate attorney, my goal is to get the largest step-up in basis possible for my clients in order to reduce their tax liability in the future.
Work with Estate Planning Attorney Gem McDowell
Wills, probate, and step-up in basis are things that most people don’t think about because it’s outside the scope of daily life. But failing to take care of these matters is what I call Family Malpractice™, and it can lead to major legal and financial hassles in the future. Even more devastating, it can cause rifts between family members as they fight over assets in and out of court. Fortunately, these issues are completely avoidable. Work with an estate planning attorney and probate attorney to ensure your estate plan is solid and current and that you’re handling your deceased relatives’ estates correctly.
If you have questions about creating or revising your own estate plan in South Carolina, or you want advice or assistance handling the estate of a deceased relative, contact Gem McDowell at the Gem McDowell Law Group today. Gem has over 30 years of experience as an attorney and has helped countless families in South Carolina create estate plans, avoid mistakes, and fix problems. He and his team can help you understand and avoid committing Family Malpractice™ that can harm your family. Call him at his Mount Pleasant office today at 843-284-1021 to schedule a free consultation.
