Bill 1344

                    Current Status

Bill Number:               1344
Ratification Number:       687
Act Number                 596
Introducing Body:          Senate
Subject:                   To codify the common law rule

(A596, R687, S1344)

AN ACT TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 62-7-603 SO AS TO CODIFY THE COMMON LAW RULE PROHIBITING FIDUCIARIES FROM MAKING OR PARTICIPATING IN FIDUCIARY DECISIONS TO BENEFIT THEMSELVES, BY PROHIBITING FIDUCIARIES FROM MAKING OR PARTICIPATING IN DECISIONS TO EXERCISE GENERAL POWERS OF APPOINTMENT IN FAVOR OF THEMSELVES WHEN THERE ARE OTHER BENEFICIARIES, BY REQUIRING THAT ALLOCATIONS BETWEEN INCOME AND PRINCIPAL OF RECEIPTS AND EXPENSES IN THEIR FAVOR BE MADE IN ACCORDANCE WITH THE REVISED UNIFORM PRINCIPAL AND INCOME ACT, AND BY PROVIDING THAT MERGER OF THE LEGAL AND EQUITABLE TITLES OF THE TRUST PROPERTY MAY NOT OCCUR UNLESS THE SOLE FIDUCIARY AND THE SOLE BENEFICIARY ARE IDENTICAL, AND TO REPEAL SECTION 21-11-5 RELATING TO CERTAIN POWERS OF FIDUCIARIES.

Be it enacted by the General Assembly of the State of South Carolina:

Findings

SECTION 1. The General Assembly finds that under general fiduciary principles, fiduciaries, including trustees of testamentary and inter vivos trusts and executors of decedents' estates, owe a duty of undivided loyalty to the beneficiaries of these trusts and estates. In order to protect beneficiaries from conflicts of interests of fiduciaries which would arise if the fiduciaries were allowed to participate in decisions to make discretionary distributions of income or of principal to themselves, or to make discretionary allocations in their favor of receipts and of expenses as between income and principal, fiduciaries are generally not permitted under common law to participate in these decisions. This act is intended to be declaratory of the common law rule that protects the beneficiaries of trusts and estates from these conflicts of interests. As the court stated in First Union National Bank of S.C. v. Cisa, 361 S.E. 2d 615 (1987): "... under the principles of trust law, the trustee-beneficiary is required to refrain from taking actions which it cannot exclude all selfish interest from affecting." Settlors of trusts intend to separate the legal and equitable title of the property they place in trust. In order to avoid frustrating that intent, the General Assembly desires to prevent the merger of legal and equitable titles to property held in trust except in cases in which the sole fiduciary is the sole beneficiary and the legal and equitable titles are identical.

Fiduciary decisions, allocations between income and principal, and merger of titles of trust property.

SECTION 2. The 1976 Code is amended by adding:

"Section 62-7-603. (A)

Unless application of this section is clearly and convincingly negated in the will, the trust document or a written instrument appointing a fiduciary, the following provisions apply to any fiduciary, whether acting as a sole fiduciary or as a co-fiduciary.

(1) Any power conferred upon the fiduciary, in his capacity as a fiduciary (and not including any power conferred upon him in his capacity as a beneficiary), which would, except for this section, constitute, in whole or in part, a general power of appointment cannot be exercised by him in favor of himself, his estate, his creditors, or the creditors of his estate.

(a) The fiduciary can, however, exercise the power in favor of someone other than himself, his estate, his creditors and the creditors of his estate.

(b) If a power comes within item (1) and the power is conferred upon two or more fiduciaries, it can be exercised by the fiduciary or the fiduciaries who are not disqualified from exercising the power as if they were the only fiduciary or fiduciaries.

(c) If all of the serving fiduciaries are disqualified from exercising a power, the court that would have jurisdiction to appoint a fiduciary under the instrument, if there were no fiduciary currently serving, shall exercise, or shall appoint a special fiduciary whose only power is to exercise, the power that cannot be exercised by the other fiduciaries by reason of item (1).

(d) For purposes of this section:

( i) 'general power of appointment' means any power that would cause income to be taxed to the fiduciary in his individual capacity under Section 678 of the Internal Revenue Code and any power that would be a general power of appointment, in whole or in part, under Section 2041(a)(2) or 2514(c) of the Internal Revenue Code.

(ii) 'Internal Revenue Code' has the same meaning as in Section 12-7-20(11).

(2) Any power conferred upon the fiduciary in his capacity as a fiduciary to allocate receipts and expenses as between income and principal in his own favor, must be exercised in accordance with the provisions of the Revised Uniform Principal and Income Act, as contained in this South Carolina Probate Code.

(3) If a person holds legal title to property in a fiduciary capacity and also has an equitable or beneficial title in the same property, either by transfer, by declaration, or by operation of law, no merger of the legal and the equitable titles shall occur unless:

(a) the fiduciary is the sole fiduciary and is also the sole current and future beneficiary; and

(b) the legal title and the equitable title are of the same quality and duration.

If either one of these conditions is not met, no merger may occur and the fiduciary relationship does not terminate.

(B) Subsection (A) of this section does not apply to revocable trusts in which the fiduciary of the trust is also the creator of the trust and is living.

(C) This section applies to all fiduciary relationships in existence on the effective date of this section and to all other fiduciary relationships that come into existence after the effective date of this section. The provisions of subsection (A) of this section are declaratory of existing common law and neither modify nor amend existing fiduciary relationships."

Repeal

SECTION 3. Section 21-11-5 of the 1976 Code is repealed.

Time effective

SECTION 4. This act takes effect upon approval by the Governor.