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Bill Number: 671 Ratification Number: 149 Act Number 109 Introducing Body: Senate Subject: Fiduciaries generally, by adding section 21-11-5
(A109, R149, S671)
AN ACT TO AMEND CHAPTER 11, TITLE 21, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO FIDUCIARIES GENERALLY, BY ADDING SECTION 21-11-5 SO AS TO PROTECT BENEFICIARIES FROM CONFLICTS OF INTERESTS OF TRUSTEES THAT MAY ARISE IF TRUSTEES PARTICIPATE IN DECISIONS TO MAKE DISCRETIONARY DISTRIBUTIONS OF INCOME OR PRINCIPAL TO THEMSELVES WHEN THERE ARE OTHER BENEFICIARIES, AND TO PROTECT THEMSELVES WHEN MAKING DISCRETIONARY ALLOCATIONS IN THEIR FAVOR OF RECEIPTS AND EXPENSES BETWEEN INCOME AND PRINCIPAL.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. The trustees of testamentary and inter vivos trusts in this State owe an undivided duty of loyalty to the beneficiaries of these trusts under general fiduciary principles. For this reason, to protect beneficiaries from conflicts of interests of trustees that could arise if the trustees were to participate in decisions to make discretionary distributions of income or principal to themselves when there are other beneficiaries or to make discretionary allocations in their favor of receipts and expenses as between income and principal, trustees are generally not permitted under common law to participate in those decisions. The common-law rule sometimes is subject to exception when there is only one trustee of the trust or when a trustee of the trust is also the creator of the trust. This act is intended to be declaratory of the commonlaw rule that protects the beneficiaries of trusts from these conflicts of interests, while recognizing the several exceptions to that rule.
Power of fiduciary
SECTION 2. Chapter 11, Title 21 of the 1976 Code is amended by adding:
"Section 21-11-5. (A) A power conferred upon a person in his capacity as a fiduciary to make discretionary distributions of principal or income to himself as a beneficiary or to make discretionary allocations in his own favor of receipts or expenses as between income and principal cannot be exercised by him. The discretionary power may be exercised only by fiduciaries who are not so disqualified. This section applies to all trusts now in existence and to all other trusts that come into existence after the effective date of this section.
(B) Subsection (A) of this section does not apply to:
(1) trusts now in existence, in which a fiduciary of the trust is also the creator of the trust and is living;
(2) trusts that come into existence after the effective date of this section, in which a fiduciary is also the creator of the trust, is living and the trust instrument shows a clear intent that this section does not apply;
(3) trusts now in existence, in which the fiduciary is the sole fiduciary;
(4) trusts that come into existence after the effective date of this section, in which the fiduciary is the sole fiduciary, and the trust instrument shows a clear intent that subsection (A) does not apply; or
(5) trusts that are now in existence or that come into existence after the effective date of this section, in which the discretionary power of the fiduciary is subject to an ascertainable standard.
(C) The provisions of subsection (A) of this section are declaratory of existing common law and do not modify or amend existing trust relationships."
SECTION 3. This act takes effect upon approval by the Governor.