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1 Indicates Matter Stricken
2 Indicates New Matter
3
4 COMMITTEE REPORT
5 May 23, 2001
6
7 H. 4044
8
9 Introduced by Rep. Campsen
10
11 S. Printed 5/23/01--H.
12 Read the first time May 1, 2001.
13
14
15 THE COMMITTEE ON JUDICIARY
16 To whom was referred a Bill (H. 4044) to enact the South
17 Carolina Trusts, Estates, and Probate Reform Act; to amend
18 Subarticle 5, Article 3, Chapter 7, Title 20, Code of Laws of South
19 Carolina, 1976, etc., respectfully
20 REPORT:
21 That they have duly and carefully considered the same and
22 recommend that the same do pass with amendment:
23
24 Amend the bill, as and if amended, by striking all after the
25 enacting words and inserting:
26 / SECTION 1. Section 62-7-204 of the 1976 Code, as last
27 amended by Act 521 of 1990, is further amended to read:
28 “Section 62-7-204. (A) The probate court has concurrent
29 jurisdiction with the circuit courts of this State of actions and
30 proceedings to determine the existence or nonexistence of trusts
31 created other than by will, of actions by or against creditors or
32 debtors of trusts, and of other actions and proceedings involving
33 trustees and third parties. Venue is determined by the rules
34 generally applicable to civil actions.
35 (B) The probate court has concurrent jurisdiction with the
36 circuit courts of this State over attorney’s fees. Attorney’s fees
37 may be set at a fixed or hourly rate or by contingency fee.”
38 SECTION 2. Section 62-7-302 of the 1976 Code, as last
39 amended by Act 449 of 1994, is further amended to read:
40 ‘Section 62-7-302. (a) Except as otherwise provided by the
41 terms or limitations set forth in any will, agreement, court order, or
42 other instrument creating or defining the fiduciary’s duties and
[4044-1]
1 powers (the terms “legal investment” or “authorized investment”
2 or words of similar import, as used in any such instrument being
3 taken, however, to mean any investment which is permitted by the
4 terms of this section), in acquiring, investing, reinvesting,
5 exchanging, retaining, selling, and managing property for the
6 benefit of another, a fiduciary shall exercise the judgment and care
7 under the circumstances then prevailing, that a prudent person
8 acting in a like capacity and familiar with such matters would use
9 to attain the purposes of the fiduciary account. In making
10 investment decisions, a fiduciary may consider the general
11 economic conditions, the anticipated tax consequences of the
12 investment, the anticipated duration of the fiduciary account, the
13 needs and objectives of its beneficiaries, and other prevailing
14 circumstances. Within the limitations of the foregoing standard
15 and considering individual investments as part of an overall
16 investment strategy, a fiduciary is authorized to:
17 (1) acquire and retain every kind of property and every kind of
18 investment, specifically including, but not by way of limitation,
19 bonds, debentures, and other corporate obligations, and stocks,
20 preferred or common, and securities of any open-end or closed-end
21 management-type investment company or investment trust
22 registered under the Federal Investment Company Act of 1940, as
23 amended;
24 (2) retain property properly acquired, without limitation as to
25 time and without regard to its suitability for original purchase;
26 (3) retain the property received by such fiduciary on the creation
27 of the estate, guardianship, trust, or other fiduciary account
28 (including, in the case of a corporate fiduciary, stock or other
29 securities of its own issue or of its parent corporation’s issue)
30 without regard to its suitability for original purchase;
31 (4) retain the securities into which corporate securities owned by
32 the fiduciary may be converted or which may be derived therefrom
33 as a result of merger, consolidation, stock dividends, splits,
34 liquidations, and similar procedures (and may exercise by purchase
35 or otherwise any rights, warrants, or conversion features attaching
36 to any such securities);
37 (5) purchase or otherwise acquire and retain any security
38 underwritten by a syndicate, even if the fiduciary or its affiliate
39 (defined as any entity which owns or is owned by, in whole or in
40 part, the fiduciary or is owned by the same entity that owns the
41 fiduciary) participates or has participated as a member of the
42 syndicate, provided the fiduciary does not purchase the security
43 from itself, its affiliate, or from another member of the
[4044-2]
1 underwriting syndicate or its affiliate pursuant to an implied or
2 express reciprocal agreement between the fiduciary or its affiliate,
3 and such other member or its affiliate, to purchase all or part of
4 each other’s underwriting participation commitment within the
5 syndicate. The propriety of an investment decision is to be
6 determined by what the fiduciary knew or should have known at
7 the time of the decision about the inherent nature and expected
8 performance of the investment, the attributes of the portfolio, the
9 general economic conditions, the anticipated tax consequences of
10 the investment, the anticipated duration of the fiduciary account,
11 the needs and objectives of the beneficiaries of the account, and
12 other pertinent circumstances as they existed at the time of the
13 decision. Any determination of liability for investment
14 performance shall consider not only the performance of a
15 particular investment but also the performance of the portfolio as a
16 whole. Any fiduciary acting under a governing instrument shall
17 not be liable to anyone whose interests arise from that instrument
18 for the fiduciary’s good faith reliance on the express provisions of
19 such instrument. The standards set forth in this section may be
20 expanded, restricted, or eliminated by express provisions in a
21 governing instrument; and
22 (6) invest and reinvest in the securities of an open-end or
23 closed-end management investment company or of an investment
24 trust registered under the Investment Company Act of 1940, as
25 amended. A bank or trust company may invest in these securities
26 even if the bank or trust company, or an affiliate of the bank or
27 trust company, provides services to the investment company or
28 investment trust such as that of an investment advisor, custodian,
29 transfer agent, registrar, sponsor, distributor, manager, or
30 otherwise, and receives reasonable remuneration for those services.
31 (b) The provisions of this section shall not be construed as
32 restricting the power of a court of proper jurisdiction to permit a
33 fiduciary to deviate from the terms of any will, agreement, or other
34 instrument relating to the acquisition, investment, reinvestment,
35 exchange, retention, sale, or management of fiduciary property.
36 (c) When a fiduciary shall invest the property in his charge in
37 whole or in part in the manner authorized by this section such
38 fiduciary shall not be chargeable in his account at a greater rate of
39 interest, as to such property so invested, than such property shall
40 have so earned.
41 (d) Whenever a trust instrument reserves unto the trustor, or
42 vests in an advisory or investment committee or in any other
43 person or persons, including a co-trustee, to the exclusion of the
[4044-3]
1 trustee or to the exclusion of one or more of several trustees,
2 authority to direct the making or retention of investments or of any
3 investment, the excluded trustee or co-trustee shall be liable, if at
4 all, only as a ministerial agent and shall not be liable as trustee or
5 co-trustee for any loss resulting from the making or retention of
6 any investment pursuant to such authorized direction.
7 (e) Notwithstanding subsections (a) through (d), the duties of a
8 trustee with respect to acquiring or retaining a contract of
9 insurance upon the life of the trustor, or upon the lives of the
10 trustor and the trustor’s spouse, children, or parents do not include
11 a duty to:
12 (i) determine whether any such contract is or remains a proper
13 investment;
14 (ii) exercise policy options available under any such contract; or
15 (iii) diversify any such contract.
16 The trustee is not liable to the beneficiaries under the instrument
17 or to any other party for any loss arising from the absence of this
18 duty upon the trustee. Except as specifically provided in the trust
19 instrument, the provisions of this subsection apply to any trust
20 established before or after the effective date of this subsection and
21 to any life insurance policy acquired by the trustee before or after
22 the effective date of this subsection. (A) This section may be cited
23 as the South Carolina Uniform Prudent Investor Act.
24 (B)(1) Except as otherwise provided in item (2), a trustee who
25 invests and manages trust assets owes a duty to the beneficiaries of
26 the trust to comply with the prudent investor rule in this section.
27 (2) The prudent investor rule is a default rule that may be
28 expanded, restricted, eliminated, or otherwise altered by the
29 provisions of a trust. A trustee is not liable to a beneficiary to the
30 extent that the trustee acted in reasonable reliance on the
31 provisions of the trust.
32 (C)(1) A trustee shall invest and manage trust assets as a
33 prudent investor would by considering the purposes, terms,
34 distribution requirements, and other circumstances of the trust. In
35 satisfying this standard, the trustee shall exercise reasonable care,
36 skill, and caution.
37 (2) A trustee’s investment and management decisions
38 respecting individual assets must be evaluated not in isolation but
39 in the context of the trust portfolio as a whole and as a part of an
40 overall investment strategy having risk and return objectives
41 reasonably suited to the trust.
[4044-4]
1 (3) A trustee shall consider in investing and managing trust
2 assets those circumstances of the following as are relevant to the
3 trust or its beneficiaries:
4 (a) general economic conditions;
5 (b) the possible effect of inflation or deflation;
6 (c) the expected tax consequences of investment decisions
7 or strategies;
8 (d) the role that each investment or course of action plays
9 within the overall trust portfolio, including financial assets,
10 interests in closely held enterprises, tangible and intangible
11 personal property, and real property;
12 (e) the expected total return from income and the
13 appreciation of capital;
14 (f) other resources of the beneficiaries;
15 (g) needs for liquidity, regularity of income, and
16 preservation or appreciation of capital; and
17 (h) an asset’s special relationship or special value to the
18 purposes of the trust or to one or more of the beneficiaries.
19 (4) A trustee shall make a reasonable effort to verify facts
20 relevant to the investment and management of trust assets.
21 (5) A trustee may invest in any kind of property or type of
22 investment consistent with the standards of this section.
23 (6) A trustee who has special skills or expertise, or is named
24 trustee in reliance upon the trustee’s representation that the trustee
25 has special skills or expertise, has a duty to use those special skills
26 or expertise.
27 (D) A trustee shall diversify the investments of the trust unless
28 the trustee reasonably determines that, because of special
29 circumstances, the purposes of the trust are better served without
30 diversifying.
31 (E) Within a reasonable time after accepting a trusteeship or
32 receiving trust assets, a trustee shall review the trust assets and
33 make and implement decisions concerning the retention and
34 disposition of assets in order to bring the trust portfolio into
35 compliance with the purposes, terms, distribution requirements,
36 and other circumstances of the trust and with the requirements of
37 this section.
38 (F) A trustee shall:
39 (1) invest and manage the trust assets solely in the interest of
40 the beneficiaries;
41 (2) act impartially in investing and managing the trust assets,
42 taking into account any differing interests of the beneficiaries if a
43 trust has two or more beneficiaries;
[4044-5]
1 (3) incur only costs that are appropriate and reasonable in
2 relation to the assets, the purposes of the trust, and the skills of the
3 trustee in investing and managing trust assets.
4 (G) Compliance with the prudent investor rule is determined in
5 light of the facts and circumstances existing at the time of a
6 trustee’s decision or action and not by hindsight.
7 (H)(1) A trustee may delegate investment and management
8 functions if it is prudent to do so under the circumstances. The
9 trustee shall exercise reasonable care, skill, and caution in:
10 (a) selecting an agent;
11 (b) establishing the scope and terms of the delegation,
12 consistent with the purposes and terms of the trust; and
13 (c) periodically reviewing the actions of the agent to
14 monitor his performance and compliance with the terms of the
15 delegation.
16 (2) In performing a delegated function, an agent owes a duty
17 to the trust to exercise reasonable care to comply with the terms of
18 the delegation.
19 (3) A trustee who complies with the requirements of item (1)
20 is not liable to the beneficiaries or to the trust for the decisions or
21 actions of the agent to whom the function was delegated.
22 (4) By accepting the delegation of a trust function from the
23 trustee of a trust that is subject to the law of this State, an agent
24 submits to the jurisdiction of the courts of this State.
25 (I) The following terms or comparable language in the
26 provisions of a trust, unless otherwise limited or modified,
27 authorize any investment or strategy permitted pursuant to this
28 section: ‘investments permissible by law for investment of trust
29 funds’, ‘legal investments’, ‘authorized investments’, ‘using the
30 judgment and care under the circumstances then prevailing that
31 persons of prudence, discretion, and intelligence exercise in the
32 management of their own affairs, not in regard to speculation but
33 in regard to the permanent disposition of their funds, considering
34 the probable income as well as the probable safety of their capital’,
35 ‘prudent man rule’, ‘prudent trustee rule’, ‘prudent person rule’,
36 and ‘prudent investor rule’.
37 (J)(1) Notwithstanding provisions of this section to the
38 contrary, the duties of a trustee with respect to acquiring a contract
39 of insurance upon the life of the trustor or upon the lives of the
40 trustor and the trustor’s spouse, children, or parents do not include
41 a duty to:
42 (a) determine whether the contract is or remains a proper
43 investment;
[4044-6]
1 (b) exercise policy options available under the contract; or
2 (c) diversify the contract.
3 (2) The trustee is not liable to the beneficiaries of the
4 contract of insurance or to another party for loss arising from this
5 subsection.
6 (3) Except as specifically provided in the trust instrument,
7 the provisions of this subsection apply to trust established before
8 or after the effective date of this subsection and to a life insurance
9 policy acquired by the trustee before or after the effective date of
10 this section.
11 (K) This section applies to ‘charitable remainder trusts’.
12 ‘Charitable remainder trust’ means a trust that provides for a
13 specified distribution at least annually for either life or a term of
14 years to one or more beneficiaries, at least one of which is not a
15 charity with an irrevocable remainder interest to be held for the
16 benefit of, or paid over to, charity.
17 (L) This section must be applied and construed to effectuate its
18 general purpose to make uniform the law with respect to the
19 subject of this section among the States enacting it.”
20 SECTION 3. Part 4, Article 7, Chapter 7, Title 62 of the 1976
21 Code is amended to read:
22 “Part 4
23 Revised South Carolina Uniform Principal And Income Act
24 Section 62-7-401. This part [Sections 62-7-401 et seq.] may be
25 cited as the Revised Uniform Principal and Income Act.
26 Section 62-7-402. As used in this part:
27 (1) “Income beneficiary” means the person to whom income is
28 presently payable or for whom it is accumulated for distribution as
29 income.
30 (2) “Inventory value” means the cost of property purchased by
31 the trustee and the market value of other property at the time it was
32 made subject to the trust, but in the case of a testamentary trust the
33 trustee may use any value finally determined for the purposes of an
34 estate or inheritance tax.
35 (3) “Remainderman” means the person entitled to principal,
36 including income which has been accumulated and added to
37 principal. and
38 (4) “Trustee” means an original trustee and any succeeding or
39 added trustee.
40 Section 62-7-403. Except as specifically provided in the trust
41 instrument or the will or in this part [Sections 62-7-401 et seq.],
42 this part shall apply to any receipt or expense received or incurred
43 by any trust or decedent’s estate whether established before or
[4044-7]
1 after June 3, 1963, and whether the asset involved was acquired by
2 the trustee before or after June 3, 1963; provided, however, it shall
3 not be applied to upset apportionments or allocations of corporate
4 distributions declared by the corporation or heretofore made in fact
5 by trustees or to disturb any rights heretofore vested in the life
6 beneficiary.
7 Section 62-7-404. (a) A trust shall be administered with due
8 regard to the respective interests of income beneficiaries and
9 remaindermen. A trust is so administered with respect to the
10 allocation of receipts and expenditures if a receipt is credited or an
11 expenditure is charged to income or principal or partly to each:
12 (1) in accordance with the terms of the trust instrument,
13 notwithstanding contrary provisions of this part [Sections 62-7-401
14 et seq.];
15 (2) in the absence of any contrary terms of the trust instrument,
16 in accordance with the provisions of this part [Sections 62-7-401 et
17 seq.]; or
18 (3) if neither of the preceding rules of administration is
19 applicable, in accordance with what is reasonable and equitable in
20 view of the interests of those entitled to income as well as of those
21 entitled to principal, and in view of the manner in which men of
22 ordinary prudence, discretion, and judgment would act in the
23 management of their own affairs.
24 (b) If the trust instrument gives the trustee discretion in crediting
25 a receipt or charging an expenditure to income or principal or
26 partly to each, no inference of imprudence or partiality arises from
27 the fact that the trustee has made an allocation contrary to the
28 provisions of this part [Sections 62-7-401 et seq.].
29 Section 62-7-405. Income is the return in money or property
30 derived from the use of principal, including return received as:
31 (1) rent of real or personal property, including sums received for
32 cancellation or renewal of a lease;
33 (2) interest on money lent, including sums received as
34 consideration for the privilege of prepayment of principal except as
35 provided in Section 62-7-410 on bond premium and bond
36 discount;
37 (3) income earned during administration of a decedent’s estate
38 as provided in Sections 62-7-408 and 62-7-419;
39 (4) corporate distributions as provided in Section 62-7-409;
40 (5) accrued increment on bonds or other obligations issued at
41 discount as provided in Section 62-7-410;
42 (6) receipts from principal used in business and farming as
43 provided in Section 62-7-411;
[4044-8]
1 (7) receipts from disposition of natural resources as provided in
2 Sections 62-7-412 and 62-7-413;
3 (8) receipts from other principal subject to depletion as provided
4 in Section 62-7-414; or
5 (9) receipts from disposition of underproductive property as
6 provided in Section 62-7-415.
7 Section 62-7-406. Principal is the property which has been set
8 aside by the owner or the person legally empowered so that it is
9 held in trust eventually to be delivered to a remainderman while
10 the return or use of the principal is in the meantime taken or
11 received by or held for accumulation for an income beneficiary.
12 Principal includes:
13 (1) consideration received by the trustee on the sale or other
14 transfer of principal or on repayment of a loan or as a refund or
15 replacement or change in the form of principal;
16 (2) proceeds of property taken on eminent domain proceedings;
17 (3) proceeds of insurance upon property forming part of the
18 principal except proceeds of insurance upon a separate interest of
19 an income beneficiary;
20 (4) stock dividends, receipts on liquidation of a corporation, and
21 other corporate distributions as provided in Section 62-7-409;
22 (5) receipts from the disposition of corporate securities as
23 provided in Section 62-7-410;
24 (6) royalties and other receipts from disposition of natural
25 resources as provided in Sections 62-7-412 and 62-7-413;
26 (7) receipts from other principal subject to depletion as provided
27 in Section 62-7-414;
28 (8) any profit resulting from any change in the form of principal
29 except as provided in Section 62-7-415 on underproductive
30 property;
31 (9) receipts from disposition of underproductive property as
32 provided in Section 62-7-415; or
33 (10) any allowances for depreciation established under Sections
34 62-7-411 and 62-7-417(2).
35 Section 62-7-407. (a) An income beneficiary is entitled to
36 income from the date specified in the trust instrument, or, if none
37 is specified, from the date an asset becomes subject to the trust. In
38 the case of an asset becoming subject to a trust by reason of a will,
39 it becomes subject to the trust as of the date of the death of the
40 testator even though there is an intervening period of
41 administration of the testator’s estate.
42 (b) In the administration of a decedent’s estate or a testamentary
43 trust or in the case of an asset received under a will by a trustee:
[4044-9]
1 (1) receipts due but not paid at the date of death of the testator
2 are principal;
3 (2) receipts in the form of periodic payments (other than
4 corporate distributions to stockholders), such as rent, interest, or
5 annuities, not due at the date of the death of the testator shall be
6 treated as accruing from day to day. That portion of such a receipt
7 accruing before the date of death is principal and the balance is
8 income.
9 (c) In all other cases, any receipt from an income producing
10 asset is income even though the receipt was earned or accrued in
11 whole or in part before the date when the asset became subject to
12 the trust.
13 (d) On termination of an income interest, the income beneficiary
14 whose interest is terminated, or his estate, is entitled to:
15 (1) income undistributed on the date of termination;
16 (2) income due but not paid to the trustee on the date of
17 termination; or
18 (3) income in the form of periodic payments (other than
19 corporate distributions to stockholders), such as rent, interest, or
20 annuities, not due on the date of termination, accrued from day to
21 day.
22 (e) Corporate distributions to stockholders shall be treated as
23 due on the day fixed by the corporation for determination of
24 stockholders of record entitled to distribution or, if no date is fixed,
25 on the date of declaration of the distribution by the corporation.
26 Section 62-7-408. Unless the will otherwise provides, income
27 from the assets of a decedent’s estate after the death of the testator
28 and before distribution, including income from property used to
29 discharge liabilities, shall be determined in accordance with the
30 rules applicable to a trustee under this Part [Sections 62-7-401 et
31 seq.,] and distributed as follows:
32 (1) to specific legatees and devisees, the income from the
33 property bequeathed or devised to them respectively, less taxes,
34 ordinary repairs, and other expenses of management and operation
35 of the property, and an appropriate portion of interest accrued since
36 the death of the testator and of taxes imposed on income
37 (excluding taxes on capital gains) which accrue during the period
38 of administration;
39 (2)(i) for one year after the first appointment of a personal
40 representative, to all other legatees and devisees, except legatees of
41 pecuniary bequests not in trust, the balance of the income, less the
42 balance of taxes, ordinary repairs, and other expenses of
43 management and operation of all property from which the State is
[4044-10]
1 entitled to income, interest accrued since the death of the testator,
2 and taxes imposed on income (excluding taxes on capital gains)
3 which accrue during the period of administration, in proportion to
4 their respective interests in the undistributed assets of the estate
5 computed at times of distribution on the basis of inventory value.
6 Income received by a trustee under this section shall be treated as
7 income of the trust.
8 (ii) beginning one year after the first appointment of a personal
9 representative, to all other legatees and devisees, the balance of the
10 income less the balance of taxes, ordinary repairs, and other
11 expenses of management and operation of all property from which
12 the State is entitled to income, interest accrued since the death of
13 the testator, and taxes imposed on income (excluding taxes on
14 capital gains) which accrue during the period of administration, in
15 proportion to their respective interests in the undistributed assets of
16 the estate computed at times of distribution on the basis of
17 inventory value. Income received by a trustee under this section
18 shall be treated as income of the trust.
19 Section 62-7-409. (a) Corporate distributions of shares of the
20 distributing corporation, including distributions in the form of a
21 stock split or stock dividend, are principal. A right to subscribe to
22 shares or other securities issued by the distributing corporation
23 accruing to stockholders on account of their stock ownership and
24 the proceeds of any sale of the right are principal.
25 (b) Except to the extent that the corporation indicates that some
26 part of a corporate distribution is a settlement of preferred to
27 guaranteed dividends accrued since the trustee became a
28 stockholder or is in lieu of an ordinary cash dividend, a corporate
29 distribution is principal if the distribution is pursuant to:
30 (1) a call of shares;
31 (2) a merger, consolidation, reorganization, or other plan by
32 which assets of the corporation are acquired by another
33 corporation; or
34 (3) a total or partial liquidation of the corporation. For the
35 purposes of this section, a distribution is pursuant to a liquidation
36 if the corporation so indicates, or if the corporation is making a
37 distribution of assets, other than cash, pursuant to a court decree or
38 final administrative order by a government agency ordering
39 distribution of the particular assets.
40 (c) Distributions made from ordinary income by a regulated
41 investment company or by a trust qualifying and electing to be
42 taxed as a real estate investment trust under federal law are
43 income. All other distributions made by such a company or trust,
[4044-11]
1 including distributions from capital gains, depreciation, or
2 depletion, whether in the form of cash or an option to take new
3 stock or cash or an option to purchase additional shares, are
4 principal.
5 (d) Except as provided in subsections (a), (b), and (c), all
6 corporate distributions are income, including cash dividends,
7 distributions of, or rights to, subscribe to shares or securities or
8 obligations of corporations other than the distributing corporation,
9 and the proceeds of such rights or property distributions. Except
10 as provided in subsections (b) and (c), if the distributing
11 corporation gives a stockholder an option to receive a distribution
12 either in cash or in its own shares, the distribution chosen is
13 income.
14 (e) The trustee may rely upon any statement of the distributing
15 corporation as to any fact relevant under any provision of this part
16 [Sections 62-7-401 et seq.] concerning the source or character of
17 dividends or distributions of corporate assets.
18 Section 62-7-410. (a) Bonds or other obligations for the
19 payment of money are principal at their inventory value, except as
20 provided in subsection (b) for discount bonds. No provision shall
21 be made for amortization of bond premiums or for accumulation
22 for discount. The proceeds of sale, redemption, or other
23 disposition of the bonds or obligations are principal.
24 (b) The increment in value of a bond or other obligation for the
25 payment of money payable at a future time in accordance with a
26 fixed schedule of appreciation in excess of the price at which it
27 was issued, and the amount of the accretion of a bond or other
28 obligation for the payment of money bearing no stated interest but
29 redeemable at maturity or at a future time in an amount in excess
30 of the amount in consideration for which it was issued, is
31 distributable as income. The increment in value is distributable to
32 the beneficiary who was the income beneficiary at the time of
33 increment from the first principal cash available or, if none is
34 available, when realized by sale, redemption, or other disposition.
35 Whenever unrealized increment is distributed as income but out of
36 principal, the principal shall be reimbursed for the increment when
37 realized.
38 Section 62-7-411. (a) If a trustee uses any part of the principal
39 in the continuance of a business of which the settlor was a sole
40 proprietor or a partner, the net profits of the business, computed in
41 accordance with generally accepted accounting principles for a
42 comparable business, are income. If a loss results in any fiscal or
43 calendar year, the loss falls on principal and shall not be carried
[4044-12]
1 into any other fiscal or calendar year for the purposes of
2 calculating net income.
3 (b) Generally accepted accounting principles shall be used to
4 determine income from an agricultural or farming operation,
5 including the raising of animals or the operation of a nursery.
6 Section 62-7-412. (a) If any part of the principal consists of a
7 right to receive royalties, overriding or limited royalties, working
8 interests, production payments, net profit interests, or other
9 interests in minerals or other natural resources in, on, or under
10 land, the receipts from taking the natural resources from the land
11 shall be allocated as follows:
12 (1) If received as rent on a lease or extension payments on a
13 lease, the receipts are income.
14 (2) If received from a production payment, the receipts are
15 income to the extent of any factor for interest or its equivalent
16 provided in the governing instrument. There shall be allocated to
17 principal the fraction of the balance of the receipts which the
18 unrecovered cost of the production payment bears to the balance
19 owed on the production payment, exclusive of any factor for
20 interest or its equivalent. The receipts not allocated to principal
21 are income.
22 (3) If received as a royalty, overriding or limited royalty, or as a
23 bonus, or from a working interest or net profit, or from any other
24 interest in minerals or other natural resources, receipts not
25 provided for in the preceding paragraphs of this section shall be
26 apportioned on a yearly basis in accordance with this paragraph
27 whether or not any natural resource was being taken from the land
28 at the time the trust was established. Twenty-seven and one-half
29 percent of the gross receipts (but not to exceed fifty percent of the
30 net receipts remaining after payment of all expenses, direct and
31 indirect, computed without allowance for depletion) shall be added
32 to principal as an allowance for depletion. The balance of the
33 gross receipts, after payment therefrom of all expenses, direct and
34 indirect, is income.
35 (b) If a trustee, on June 3, 1963, held an item of depletable
36 property of a type specified in this section, he shall allocate
37 receipts from the property in the manner used before June 3, 1963,
38 but as to all depletable property acquired after June 3, 1963, by an
39 existing or new trust, the method of allocation provided herein
40 shall be used.
41 (c) This section does not apply to timber, water, soil, sod, dirt,
42 turf, or mosses.
[4044-13]
1 Section 62-7-413. If any part of the principal consists of land
2 from which merchantable timber may be removed, the receipts
3 from taking the timber from the land shall be allocated in
4 accordance with paragraph (3) of Section 62-7-404.
5 Section 62-7-414. Except as provided in Sections 62-7-412 and
6 62-7-413, if the principal consists of property subject to depletion,
7 including leaseholds, patents, copyrights, royalty rights, and rights
8 to receive payments on a contract for deferred compensation, the
9 receipts from the property not in excess of five percent per year of
10 its inventory value are income and the balance is principal.
11 Section 62-7-415. (a) Except as otherwise provided in this
12 section, a portion of the net proceeds of sale of any part of
13 principal which has not produced an average net income of at least
14 one percent per year of its inventory value for more than a year
15 (including as income the value of any beneficial use of the
16 property by the income beneficiary) shall be treated as delayed
17 income to which the income beneficiary is entitled as provided in
18 this section. The net proceeds of sale are the gross proceeds
19 received, including the value of any property received in
20 substitution for the property disposed of, less the expenses,
21 including capital gains tax, if any, incurred in disposition and less
22 any carrying charges which have been paid while the property was
23 underproductive.
24 (b) The sum allocated as delayed income is the difference
25 between the net proceeds and the amount which, had it been
26 invested at simple interest at four percent per year while the
27 property was underproductive, would have produced the net
28 proceeds. This sum plus any carrying charges and expenses
29 previously charged against income while the property was
30 underproductive, less any income received by the income
31 beneficiary from the property and less the value of any beneficial
32 use of the property by the income beneficiary, is income, and the
33 balance is principal.
34 (c) An income beneficiary or his estate is entitled to delayed
35 income under this section as if it accrued from day to day during
36 the time he was a beneficiary.
37 (d) If principal subject to this section is disposed of by
38 conversion into property which cannot be apportioned easily,
39 including land or mortgages (for example, realty acquired by or in
40 lieu of foreclosure), the income beneficiary is entitled to the net
41 income from any form of property or obligation into which the
42 original principal was converted while the property or obligation is
43 held. If within five years after the conversion the property into
[4044-14]
1 which the underproductive property is converted has not been
2 further converted into easily apportionable property, no allocation
3 as provided in this section shall be made.
4 Section 62-7-416. After determining income and principal in
5 accordance with the terms of the trust instrument or of this part, the
6 trustee shall charge to income or principal expenses and other
7 charges as provided in Sections 62-7-417, 62-7-418, and 62-7-420.
8 Section 62-7-417. (a) The following charges shall be made
9 against income:
10 (1) ordinary expenses incurred in connection with the
11 administration, management, and preservation of the trust
12 property, including regularly recurring taxes assessed against any
13 portion of the principal, water rates, premiums on insurance taken
14 upon the interests of the income beneficiary, remainderman or
15 trustee, interest paid by the trustee, and ordinary repairs;
16 (2) a reasonable allowance for depreciation on property subject
17 to depreciation under generally accepted accounting principles, but
18 no allowance shall be made for depreciation of that portion of any
19 real property used by a beneficiary as a residence; nor for
20 depreciation of any property held by the trustee on June 3, 1963,
21 (except as to subsequent expenses incurred for extraordinary
22 repairs or capital improvements to such property), for which the
23 trustee was not then making an allowance for depreciation;
24 (3) one-half of court costs, attorney’s fees, and other fees on
25 periodic judicial accounting, unless the court directs otherwise;
26 (4) court costs, attorney’s fees, and other fees on other
27 accountings or judicial proceedings if the matter primarily
28 concerns the income interest, unless the court directs otherwise;
29 (5) one-half of the trustee’s regular compensation, whether
30 based on a percentage of principal or income, and all expenses
31 reasonably incurred for current management of principal and
32 application of income;
33 (6) any tax levied upon receipts defined as income under this
34 part [Sections 62-7-401 et seq.] or the trust instrument and payable
35 by the trustee.
36 (b) If charges against income are of unusual amount, the trustee
37 may by means of reserves or other reasonable means charge them
38 over a reasonable period of time and withhold from distribution
39 sufficient sums to regularize distributions.
40 Section 62-7-418. The following charges shall be made against
41 principal:
42 (1) trustee’s compensation not chargeable to income under
43 subsection (a), items (4) and (5) of Section 62-7-417, including
[4044-15]
1 special compensation of trustees and expenses reasonably incurred
2 in connection with the principal, court costs, and attorney’s fees
3 concerning matters of principal, and trustee’s compensation
4 computed on principal as an acceptance, distribution, or
5 termination fee;
6 (2) charges not provided for in Section 62-7-417(a) including
7 the cost of investing and reinvesting principal, the payments on
8 principal of an indebtedness (including a mortgage amortized by
9 periodic payments of principal), expenses for preparation of
10 property for rental or sale, and, unless the court directs otherwise,
11 expenses incurred in maintaining or defending any action to
12 protect or construe the trust or the property or assure the title of
13 any trust property;
14 (3) extraordinary repairs or expenses incurred in making a
15 capital improvement of principal, including special assessments,
16 but, to the extent permitted by Section 62-7-411 and subsection
17 (a), item (2), of Section 62-7-417 a trustee may establish an
18 allowance for depreciation out of income;
19 (4) any tax levied upon profit, gain, or other receipts allocated to
20 principal notwithstanding denomination of the tax as an income tax
21 by the taxing authority;
22 (5) if an estate or inheritance tax is levied in respect of a trust in
23 which both an income beneficiary and a remainderman have an
24 interest, any amount apportioned to the trust, including interest and
25 penalties, even though the income beneficiary also has rights in the
26 principal.
27 Section 62-7-419. Unless the will otherwise provides and
28 subject to Section 62-7-408, all expenses incurred in connection
29 with the settlement of a decedent’s estate, including debts, funeral
30 expenses, estate taxes, interest and penalties concerning taxes,
31 family allowances, fees of attorneys and personal representatives,
32 and court costs shall be charged against the principal of the estate.
33 Section 62-7-420. Regularly recurring charges payable from
34 income shall be apportioned to the same extent and in the same
35 manner that income is apportioned under Section 62-7-407.
36 Section 62-7-421. This part [Sections 62-7-401 et seq.] shall be
37 so construed as to effectuate its general purpose to make uniform
38 the law of those states which enact it.
39 Section 62-7-401. This part may be cited as the South Carolina
40 Uniform Principal and Income Act.
41 Section 62-7-402. As used in this part:
42 (1) ‘Accounting period’ means a calendar year unless another
43 twelve-month period is selected by a fiduciary. The term includes
[4044-16]
1 a portion of a calendar year or other twelve-month period that
2 begins when an income interest begins or ends when an income
3 interest ends.
4 (2) ‘Beneficiary’ includes, in the case of a decedent’s estate, an
5 heir, legatee, and devisee and, in the case of a trust, an income
6 beneficiary and a remainder beneficiary.
7 (3) ‘Fiduciary’ means a personal representative or a trustee.
8 The term includes an executor, administrator, successor personal
9 representative, special administrator, and a person performing
10 substantially the same function.
11 (4) ‘Income’ means money or property that a fiduciary receives
12 as current return from a principal asset. The term includes a
13 portion of receipts from a sale, exchange, or liquidation of a
14 principal asset, to the extent provided in Section 62-7-410 through
15 Section 62-7-424.
16 (5) ‘Income beneficiary’ means a person to whom net income
17 of a trust is or may be payable.
18 (6) ‘Income interest’ means the right of an income beneficiary
19 to receive all or part of net income, whether the terms of the trust
20 require it to be distributed or authorize it to be distributed in the
21 trustee’s discretion.
22 (7) ‘Mandatory income interest’ means the right of an income
23 beneficiary to receive net income that the terms of the trust require
24 the fiduciary to distribute.
25 (8) ‘Net income’ means the total receipts allocated to income
26 during an accounting period minus the disbursements made from
27 income during the period, plus or minus transfers under this part to
28 or from income during the period.
29 (9) ‘Person’ means an individual, a corporation, a business
30 trust, an estate, a trust, a partnership, a limited liability company,
31 an association, a joint venture, a government or a governmental
32 subdivision, an agency, or an instrumentality; a public corporation,
33 or other legal or commercial entity.
34 (10) ‘Principal’ means property held in trust for distribution to a
35 remainder beneficiary when the trust terminates.
36 (11) ‘Remainder beneficiary’ means a person entitled to receive
37 principal when an income interest ends.
38 (12) ‘Terms of a trust’ means the manifestation of the intent of a
39 settlor or decedent with respect to the trust, expressed in a manner
40 that admits of its proof in a judicial proceeding, whether by written
41 or spoken words or by conduct.
42 (13) ‘Trustee’ includes an original, additional, or successor
43 trustee, whether or not appointed or confirmed by a court.
[4044-17]
1 Section 62-7-403. (A) In allocating receipts and disbursements
2 to or between principal and income, and with respect to any matter
3 within the scope of Sections 62-7-405 and 62-7-409, a fiduciary:
4 (1) shall administer a trust or estate in accordance with the
5 terms of the trust or the will, even if there is a different provision
6 in this part;
7 (2) may administer a trust or estate by the exercise of a
8 discretionary power of administration given to the fiduciary by the
9 terms of the trust or the will, even if the exercise of the power
10 produces a result different from a result required or permitted by
11 this part;
12 (3) shall administer a trust or estate in accordance with this
13 part if the terms of the trust or the will do not contain a different
14 provision or do not give the fiduciary a discretionary power of
15 administration; and
16 (4) shall add a receipt or charge a disbursement to principal
17 to the extent that the terms of the trust and this part do not provide
18 a rule for allocating the receipt or disbursement to or between
19 principal and income.
20 (B) In exercising the power to adjust pursuant to Section
21 62-7-404(A) or a discretionary power of administration regarding a
22 matter within the scope of this part, whether granted by the terms
23 of a trust, a will, or this part, a fiduciary shall administer a trust or
24 estate impartially, based on what is fair and reasonable to all of the
25 beneficiaries, except to the extent that the terms of the trust or the
26 will clearly manifest an intention that the fiduciary shall or may
27 favor one or more of the beneficiaries. A determination in
28 accordance with this part is presumed to be fair and reasonable to
29 all of the beneficiaries.
30 Section 62-7-404. (A) A trustee may adjust between principal
31 and income to the extent the trustee considers necessary if the
32 trustee invests and manages trust assets as a prudent investor, the
33 terms of the trust describe the amount that may or must be
34 distributed to a beneficiary by referring to the trust’s income, and
35 the trustee determines, after applying the provisions in Section
36 62-7-403(A), that the trustee is unable to comply with Section
37 62-7-403(B).
38 (B) In deciding whether and to what extent to exercise the
39 power of adjustment in subsection (A), a trustee shall consider all
40 factors relevant to the trust and its beneficiaries, including:
41 (1) nature, purpose, and expected duration of the trust;
42 (2) intent of the settlor;
43 (3) identity and circumstances of the beneficiaries;
[4044-18]
1 (4) needs for liquidity, regularity of income, and
2 preservation and appreciation of capital;
3 (5) assets held in the trust and the extent to which they
4 consist of financial assets, interests in closely held enterprises,
5 tangible and intangible personal property, or real property and the
6 extent to which an asset is used by a beneficiary, and whether an
7 asset was purchased by the trustee or received from the settlor;
8 (6) net amount otherwise allocated to income and the
9 increase or decrease in the value of the principal assets, which the
10 trustee may estimate as to assets for which market values are not
11 readily available;
12 (7) terms of the trust and whether and to what extent they
13 give the trustee the power to, or prohibit him from, invade
14 principal or accumulate income or prohibit the trustee from
15 invading principal or accumulating income, and the extent to
16 which the trustee has exercised a power from time to time to
17 invade principal or accumulate income;
18 (8) actual and anticipated effect of economic conditions on
19 principal and income and effects of inflation and deflation; and
20 (9) anticipated tax consequences of an adjustment.
21 (C) A trustee may not make an adjustment:
22 (1) that diminishes the income interest in a trust that requires
23 all of the income to be paid at least annually to a surviving spouse
24 and for which an estate tax or gift tax marital deduction is allowed,
25 in whole or in part, if the trustee did not have the power to make
26 the adjustment;
27 (2) that reduces the actuarial value of the income interest in
28 a trust to which a person transfers property with the intent to
29 qualify for a gift tax exclusion;
30 (3) that changes the amount payable to a beneficiary as a
31 fixed annuity or a fixed fraction of the value of the trust assets;
32 (4) from any amount that is permanently set aside for
33 charitable purposes under a will or the terms of a trust unless both
34 income and principal are so set aside;
35 (5) if possessing or exercising the power to make an
36 adjustment is determinative in causing an individual to be treated
37 as the owner of all or part of the trust for income tax purposes;
38 (6) if possessing or exercising the power to make an
39 adjustment is determinative in causing all or part of the trust assets
40 to be included for estate tax purposes in the estate of an individual
41 who has the power to remove a trustee or appoint a trustee, or
42 both;
43 (7) if the trustee is a beneficiary of the trust; or
[4044-19]
1 (8) if the trustee is not a beneficiary, but the adjustment
2 benefits the trustee directly or indirectly.
3 (D) If subsection (C)(5), (6), (7), or (8) applies to a trustee and
4 there is more than one trustee, a cotrustee to whom the provision
5 does not apply may make the adjustment unless the exercise of the
6 power by the remaining trustee or trustees is not permitted by the
7 terms of the trust.
8 (E) A trustee may release the entire power of adjustment in by
9 subsection (A) or may release only the power to adjust from
10 income to principal or the power to adjust from principal to income
11 if the trustee is uncertain about whether possessing or exercising
12 the power causes a result described in subsections (C)(1) through
13 (6) or (C)(8) or if the trustee determines that possessing or
14 exercising the power may deprive the trust of a tax benefit or
15 impose a tax burden not contemplated in subsection (C). The
16 release may be permanent or for a specified period, including a
17 period measured by the life of an individual.
18 (F) Terms of a trust that limit the power of a trustee to make an
19 adjustment between principal and income do not affect the
20 application of this section unless it is clear from the terms of the
21 trust that the terms are intended to deny the trustee the power of
22 adjustment in subsection (A).
23 Section 62-7-405. After a decedent dies, in the case of an
24 estate, or after an income interest in a trust ends, a fiduciary:
25 (1) of an estate or of a terminating income interest shall
26 determine the amount of net income and net principal receipts
27 received from property specifically given to a beneficiary pursuant
28 to Sections 62-7-407 through 62-7-430 which apply to trustees and
29 the provisions of item (5). The fiduciary shall distribute the net
30 income and net principal receipts to the beneficiary who is to
31 receive the specific property;
32 (2) shall determine the remaining net income of a decedent’s
33 estate or a terminating income interest pursuant to Sections
34 62-7-407 through 62-7-430 which apply to trustees and by:
35 (a) including in net income all income from property used to
36 discharge liabilities;
37 (b) paying from income or principal, in the fiduciary’s
38 discretion, fees of attorneys, accountants, and fiduciaries, court
39 costs and other expenses of administration, and interest on death
40 taxes; except that the fiduciary may pay those expenses from
41 income of property passing to a trust for which the fiduciary claims
42 an estate tax marital or charitable deduction only to the extent that
[4044-20]
1 the payment of those expenses from income does not cause the
2 reduction or loss of the deduction; and
3 (c) paying from principal all other disbursements made or
4 incurred in connection with the settlement of a decedent’s estate or
5 the winding up of a terminating income interest, including debts,
6 funeral expenses, disposition of remains, family allowances, and
7 death taxes and related penalties that are apportioned to the estate
8 or terminating income interest by the will, the terms of the trust, or
9 applicable law;
10 (3) shall distribute to a beneficiary who receives a pecuniary
11 amount outright the interest or other amount provided by the will,
12 the terms of the trust, or applicable law from net income as
13 determined by item (2) or from principal to the extent that net
14 income is insufficient. If a beneficiary is to receive a pecuniary
15 amount outright from a trust after an income interest ends and no
16 interest or other amount is provided for by the terms of the trust or
17 applicable law, the fiduciary shall distribute the interest or other
18 amount to which the beneficiary would be entitled under
19 applicable law if the pecuniary amount were required to be paid
20 under a will;
21 (4) shall distribute the net income remaining after distributions
22 required by item (3) in the manner pursuant to Section 62-7-406 to
23 all other beneficiaries, including a beneficiary who receives a
24 pecuniary amount in trust, even if the beneficiary holds an
25 unqualified power to withdraw assets from the trust or other
26 presently exercisable general power of appointment over the trust;
27 and
28 (5) may not reduce principal or income receipts from property
29 described in item (1) because of a payment pursuant to Sections
30 62-7-424 and 62-7-425 to the extent that the will, the terms of the
31 trust, or applicable law requires the fiduciary to make the payment
32 from assets other than the property or to the extent that the
33 fiduciary recovers or expects to recover the payment from a third
34 party. The net income and principal receipts from the property are
35 determined by including all of the amounts the fiduciary receives
36 or pays with respect to the property, whether those amounts
37 accrued or became due before, on, or after the date of a decedent’s
38 death or an income interest’s terminating event, and by making a
39 reasonable provision for amounts that the fiduciary believes the
40 estate or terminating income interest may become obligated to pay
41 after the property is distributed.
42 Section 62-7-406. (A) Each beneficiary described in Section
43 62-7-405(4) is entitled to receive a portion of the net income equal
[4044-21]
1 to his fractional interest in undistributed principal assets, using
2 values as of the distribution date. If a fiduciary makes more than
3 one distribution of assets to beneficiaries to whom this section
4 applies, each beneficiary, including one who does not receive part
5 of the distribution, is entitled, as of each distribution date, to the
6 net income the fiduciary has received after the date of death or
7 terminating event or earlier distribution date but has not distributed
8 as of the current distribution date.
9 (B) In determining a beneficiary’s share of net income, the:
10 (1) beneficiary is entitled to receive a portion of the net
11 income equal to his fractional interest in the undistributed principal
12 assets immediately before the distribution date, including assets
13 that later may be sold to meet principal obligations.
14 (2) fractional interest of the beneficiary in the undistributed
15 principal assets must be calculated without regard to property
16 specifically given to a beneficiary and property required to pay
17 pecuniary amounts not in trust.
18 (3) fractional interest of the beneficiary in the undistributed
19 principal assets must be calculated on the basis of the aggregate
20 value of those assets as of the distribution date without reducing
21 the value by any unpaid principal obligation; and
22 (4) distribution date for purposes of this section may be the
23 date as of which the fiduciary calculates the value of the assets if
24 that date is reasonably near the date on which assets are actually
25 distributed.
26 (C) If a fiduciary does not distribute all of the collected but
27 undistributed net income to each person as of a distribution date,
28 the fiduciary shall maintain appropriate records showing the
29 interest of each beneficiary in that net income.
30 (D) A trustee may apply the provisions of this section, to the
31 extent that the trustee considers it appropriate, to net gain or loss
32 realized after the date of death or terminating event or earlier
33 distribution date from the disposition of a principal asset if this
34 section applies to the income from the asset.
35 Section 62-7-407. (A) An income beneficiary is entitled to net
36 income from the date on which the income interest begins. An
37 income interest begins on the date specified in the terms of the
38 trust or, if no date is specified, on the date an asset becomes
39 subject to a trust or successive income interest.
40 (B) An asset becomes subject to a trust on the date:
41 (1) it is transferred to the trust, in the case of an asset that is
42 transferred to a trust during the transferor’s life;
[4044-22]
1 (2) the testator dies, in the case of an asset that becomes
2 subject to a trust by reason of a will, even if there is an intervening
3 period of administration of the estate; or
4 (3) the individual dies, in the case of an asset that is
5 transferred to a fiduciary by a third party because of the death of
6 the individual.
7 (C) An asset becomes subject to a successive income interest
8 on the day after the preceding income interest ends, as determined
9 pursuant to subsection (D), even if there is an intervening period of
10 administration to wind up the preceding income interest.
11 (D) An income interest ends on the day before an income
12 beneficiary dies or another terminating event occurs or on the last
13 day of a period during which there is no beneficiary to whom a
14 trustee may distribute income.
15 Section 62-7-408. (A) A trustee shall allocate an income
16 receipt or disbursement, other than one subject to Section
17 62-7-405(1), to principal if its due date occurs before a decedent
18 dies in the case of an estate or before an income interest begins in
19 the case of a trust or successive income interest.
20 (B) A trustee shall allocate an income receipt or disbursement
21 to income if its due date occurs on or after the date on which a
22 decedent dies or an income interest begins and it is a periodic due
23 date. An income receipt or disbursement must be treated as
24 accruing from day to day if its due date is not periodic or it has no
25 due date. The portion of the receipt or disbursement accruing
26 before the date on which a decedent dies or an income interest
27 begins must be allocated to principal and the balance must be
28 allocated to income.
29 (C) An item of income or an obligation is due on the date the
30 payer is required to make a payment. If a payment date is not
31 stated, there is no due date for the purposes of this part.
32 Distributions to shareholders or other owners from an entity
33 subject to Section 62-7-410 are considered due on the date fixed by
34 the entity for determining who is entitled to receive the distribution
35 or, if no date is fixed, on the declaration date for the distribution.
36 A due date is periodic for receipts or disbursements that must be
37 paid at regular intervals under a lease or an obligation to pay
38 interest or if an entity customarily makes distributions at regular
39 intervals.
40 Section 62-7-409. (A) In this section, ‘undistributed income’
41 means net income received before the date on which an income
42 interest ends. The term does not include an item of income or
[4044-23]
1 expense that is due or accrued or net income that has been added or
2 must be added to principal under the terms of the trust.
3 (B) When a mandatory income interest ends, the trustee shall
4 pay to a mandatory income beneficiary who survives that date, or
5 the estate of a deceased mandatory income beneficiary whose
6 death causes the interest to end, the beneficiary’s share of the
7 undistributed income that is not disposed of under the terms of the
8 trust, unless the beneficiary has an unqualified power to revoke
9 more than five percent of the trust immediately before the income
10 interest ends. In that case, the undistributed income from the
11 portion of the trust that may be revoked must be added to principal.
12 (C) When the obligation of a trustee to pay a fixed annuity or a
13 fixed fraction of the value of the trust assets ends, the trustee shall
14 prorate the final payment if, and to the extent, required by
15 applicable law to accomplish a purpose of the trust or its settlor
16 relating to income, gift, estate, or other tax requirements.
17 Section 62-7-410. (A) In this section, ‘entity’ means a
18 corporation, partnership, limited liability company, regulated
19 investment company, real estate investment trust, common trust
20 fund, or other organization in which a trustee has an interest other
21 than a trust or estate subject to Section 62-7-411, a business or
22 activity to which Section 62-7-412 applies, or an asset-backed
23 security to which Section 62-7-424 applies.
24 (B) Except as otherwise provided in this section, a trustee shall
25 allocate to income money received from an entity.
26 (C) A trustee shall allocate the following receipts from an entity
27 to principal:
28 (1) property other than money;
29 (2) money received in one distribution or a series of related
30 distributions in exchange for part or all of a trust’s interest in the
31 entity;
32 (3) money received in total or partial liquidation of the
33 entity; and
34 (4) money received from an entity that is a regulated
35 investment company or a real estate investment trust if the money
36 distributed is a capital gain dividend for federal income tax
37 purposes.
38 (D) Money is received in partial liquidation:
39 (1) to the extent that the entity, at or near the time of a
40 distribution, indicates that it is a distribution in partial liquidation;
41 or
42 (2) if the total amount of money and property received in a
43 distribution or series of related distributions is greater than twenty
[4044-24]
1 percent of the entity’s gross assets of the entity, as shown by the its
2 year-end financial statements immediately preceding the initial
3 receipt.
4 (E) Money is not received in partial liquidation, nor may it be
5 taken into account pursuant to subsection (D)(2), to the extent that
6 it does not exceed the amount of income tax that a trustee or
7 beneficiary must pay on taxable income of the entity that
8 distributes the money.
9 (F) A trustee may rely upon a statement made by an entity
10 about the source or character of a distribution if the statement is
11 made at or near the time of distribution by the its board of directors
12 or other person or group of persons authorized to exercise powers
13 to pay money or transfer property comparable to those of a
14 corporation’s board of directors.
15 Section 62-7-411. A trustee shall allocate to income an amount
16 received as a distribution of income from a trust or an estate in
17 which the trust has an interest other than a purchased interest, and
18 shall allocate to principal an amount received as a distribution of
19 principal from such a trust or estate. If a trustee purchases an
20 interest in a trust that is an investment entity, or a decedent or
21 donor transfers an interest in such a trust to a trustee, Section
22 62-7-410 or 62-7-424 applies to a receipt from the trust.
23 Section 62-7-412. (A) If a trustee who conducts a business or
24 other activity determines that it is in the best interest of all the
25 beneficiaries to account separately for the business or activity
26 instead of accounting for it as part of the general accounting
27 records of the trust, the trustee may maintain separate accounting
28 records for its transactions, whether or not its assets are segregated
29 from other trust assets.
30 (B) A trustee who accounts separately for a business or other
31 activity may determine the extent to which its net cash receipts
32 must be retained for working capital, the acquisition or
33 replacement of fixed assets, and other reasonably foreseeable
34 needs of the business or activity, and the extent to which the
35 remaining net cash receipts are accounted for as principal or
36 income in the trust’s general accounting records. If a trustee sells
37 assets of the business or other activity, other than in the ordinary
38 course of the business or activity, the trustee shall account for the
39 net amount received as principal in the general accounting records
40 of the trust to the extent the trustee determines that the amount
41 received is no longer required in the conduct of the business.
42 (C) Activities for which a trustee may maintain separate
43 accounting records include:
[4044-25]
1 (1) retail, manufacturing, service, and other traditional
2 business activities;
3 (2) farming;
4 (3) raising and selling livestock and other animals;
5 (4) management of rental properties;
6 (5) extraction of minerals and other natural resources;
7 (6) timber operations; and
8 (7) activities subject to Section 62-7-423.
9 Section 62-7-413. A trustee shall allocate to principal:
10 (1) to the extent not allocated to income pursuant to this part,
11 assets received from a transferor during his lifetime, a decedent’s
12 estate, a trust with a terminating income interest, or a payer under a
13 contract naming the trust or its trustee as beneficiary;
14 (2) money or other property received from the sale, exchange,
15 liquidation, or change in form of a principal asset, including
16 realized profit;
17 (3) amounts recovered from third parties to reimburse the trust
18 because of disbursements described in Section 62-7-426(A)(7) or
19 for other reasons to the extent not based on the loss of income;
20 (4) proceeds of property taken by eminent domain, but a
21 separate award made for the loss of income with respect to an
22 accounting period during which a current income beneficiary had a
23 mandatory income interest is income;
24 (5) net income received in an accounting period during which
25 there is no beneficiary to whom a trustee may or must distribute
26 income; and
27 (6) other receipts as provided in Sections 62-7-417 through
28 62-7-424.
29 Section 62-7-414. To the extent that a trustee accounts for
30 receipts from rental property pursuant to this section, the trustee
31 shall allocate to income an amount received as rent of real or
32 personal property, including an amount received for cancellation or
33 renewal of a lease. An amount received as a refundable deposit,
34 including a security deposit or a deposit applied as rent for future
35 periods, must be added to principal and held subject to the terms of
36 the lease and is not available for distribution to a beneficiary until
37 the trustee’s contractual obligations have been satisfied with
38 respect to that amount.
39 Section 62-7-415. (A) An amount received as interest, whether
40 determined at a fixed, variable, or floating rate, on an obligation to
41 pay money to the trustee, including an amount received as
42 consideration for prepaying principal, must be allocated to income
43 without provision for amortization of premium.
[4044-26]
1 (B) A trustee shall allocate to principal an amount received
2 from the sale, redemption, or other disposition of an obligation to
3 pay money to the trustee more than one year after it is purchased or
4 acquired by the trustee, including an obligation whose purchase
5 price or value when it is acquired is less than its value at maturity.
6 If the obligation matures within one year after it is purchased or
7 acquired by the trustee, an amount received in excess of its
8 purchase price or its value when acquired by the trust must be
9 allocated to income.
10 (C) This section does not apply to an obligation subject to
11 Section 62-7-418, 62-7-419, 62-7-420, 62-7-421, or 62-7-424.
12 Section 62-7-416. (A) Except as otherwise provided in
13 subsection (B), a trustee shall allocate to principal the proceeds of
14 a life insurance policy or other contract in which the trust or its
15 trustee is named as beneficiary, including a contract that insures
16 the trust or its trustee against loss for damage to, destruction of, or
17 loss of title to a trust asset. The trustee shall allocate dividends on
18 an insurance policy to income if the premiums on the policy are
19 paid from income, and to principal if the premiums are paid from
20 principal.
21 (B) A trustee shall allocate to income proceeds of a contract
22 that insures the trustee against loss of occupancy or other use by an
23 income beneficiary, loss of income, or, subject to Section
24 62-7-412, loss of profits from a business.
25 (C) This section does not apply to a contract subject to Section
26 62-7-418.
27 Section 62-7-417. If a trustee determines that an allocation
28 between principal and income required by Section 62-7-418,
29 62-7-419, 62-7-420, 62-7-421, or 62-7-424 is insubstantial, the
30 trustee may allocate the entire amount to principal unless one of
31 the circumstances provided in Section 62-7-404(C) applies to the
32 allocation. This power may be exercised by a cotrustee in the
33 circumstances provided in Section 62-7-404(D) and may be
34 released for the reasons and in the manner provided in Section
35 62-7-404(E). An allocation is presumed to be insubstantial if:
36 (1) the amount of the allocation increases or decreases net
37 income in an accounting period, as determined before the
38 allocation, by less than ten percent; or
39 (2) the value of the asset producing the receipt for which the
40 allocation is made is less than ten percent of the total value of the
41 assets of the trust at the beginning of the accounting period.
42 Section 62-7-418. (A) In this section, ‘payment’ means a
43 payment that a trustee may receive over a fixed number of years or
[4044-27]
1 during the life of one or more individuals because of services
2 rendered or property transferred to the payer in exchange for future
3 payments. The term includes a payment made in money or
4 property from the payer’s general assets or from a separate fund
5 created by the payer, including a private or commercial annuity, an
6 individual retirement account, and a pension, profit-sharing,
7 stock-bonus, or stock-ownership plan.
8 (B) To the extent that a payment is characterized as interest or a
9 dividend or a payment made instead of interest or a dividend, a
10 trustee shall allocate it to income. The trustee shall allocate to
11 principal the balance of the payment and any other payment
12 received in the same accounting period that is not characterized as
13 interest, a dividend, or an equivalent payment.
14 (C) If part of a payment is not characterized as interest, a
15 dividend, or an equivalent payment, and all or part of the payment
16 is required to be made, a trustee shall allocate to income ten
17 percent of the part that is required to be made during the
18 accounting period and the balance to principal. If a part of a
19 payment is not required to be made or the payment received is the
20 entire amount to which the trustee is entitled, the trustee shall
21 allocate the entire payment to principal. For purposes of this
22 subsection, a payment is not ‘required to be made’ to the extent
23 that it is made because the trustee exercises a right of withdrawal.
24 (D) If, to obtain an estate tax marital deduction for a trust, a
25 trustee must allocate more of a payment to income than provided
26 for by this section, the trustee shall allocate to income the
27 additional amount necessary to obtain the marital deduction.
28 (E) This section does not apply to payments subject to Section
29 62-7-419.
30 Section 62-7-419. (A) In this section, ‘liquidating asset’ means
31 an asset whose value diminishes or terminates because the asset is
32 expected to produce receipts for a period of limited duration. The
33 term includes a leasehold, patent, copyright, royalty right, and right
34 to receive payments during a period of more than one year under
35 an arrangement that does not provide for the payment of interest on
36 the unpaid balance. The term does not include a payment subject
37 to Section 62-7-418, resources subject to Section 62-7-420, timber
38 subject to Section 62-7-421, an activity subject to Section
39 62-7-423, an asset subject to Section 62-7-424, or any asset for
40 which the trustee establishes a reserve for depreciation pursuant to
41 Section 62-7-427.
42 (B) A trustee shall allocate to income ten percent of the receipts
43 from a liquidating asset and the balance to principal.
[4044-28]
1 Section 62-7-420. (A) To the extent that a trustee accounts for
2 receipts from an interest in minerals or other natural resources
3 pursuant to this section, the trustee shall allocate them if:
4 (1) received as nominal delay rental or nominal annual rent
5 on a lease, a receipt must be allocated to income;
6 (2) received from a production payment, a receipt must be
7 allocated to income if and to the extent that the agreement creating
8 the production payment provides a factor for interest or its
9 equivalent. The balance must be allocated to principal;
10 (3) an amount received as a royalty, shut-in-well payment,
11 take-or-pay payment, bonus, or delay rental is more than nominal,
12 ninety percent must be allocated to principal and the balance to
13 income;
14 (4) an amount is received from a working interest or any
15 other interest not otherwise provided for in this subsection, ninety
16 percent of the net amount received must be allocated to principal
17 and the balance to income.
18 (B) An amount received on account of an interest in water that
19 is renewable must be allocated to income. If the water is not
20 renewable, ninety percent of the amount must be allocated to
21 principal and the balance to income.
22 (C) This part applies whether or not a decedent or donor was
23 extracting minerals, water, or other natural resources before the
24 interest became subject to the trust.
25 (D) If a trust owns an interest in minerals, water, or other
26 natural resources on the effective date of this part, the trustee may
27 allocate receipts from the interest as provided in this part or in the
28 manner used by the trustee before the effective date of this part. If
29 the trust acquires an interest in minerals, water, or other natural
30 resources after the effective date of this part, the trustee shall
31 allocate receipts from the interest as provided in this part.
32 Section 62-7-421. (A) To the extent that a trustee accounts for
33 receipts from the sale of timber and related products pursuant to
34 this section, the trustee shall allocate the net receipts to:
35 (1) income, to the extent that the amount of timber removed
36 from the land does not exceed the rate of growth of the timber
37 during the accounting periods in which a beneficiary has a
38 mandatory income interest;
39 (2) principal, to the extent that the amount of timber
40 removed from the land exceeds the rate of growth of the timber or
41 the net receipts are from the sale of standing timber;
42 (3) or between income and principal, if the net receipts are
43 from the lease of timberland or from a contract to cut timber from
[4044-29]
1 land owned by a trust, by determining the amount of timber
2 removed from the land under the lease or contract and applying
3 items (1) and (2); or
4 (4) principal, to the extent that advance payments, bonuses,
5 and other payments are not otherwise allocated pursuant this
6 subsection.
7 (B) In determining net receipts to be allocated pursuant to
8 subsection (A), a trustee shall deduct and transfer to principal a
9 reasonable amount for depletion.
10 (C) This part applies whether or not a decedent or transferor
11 was harvesting timber from the property before it become subject
12 to the trust.
13 (D) If a trust owns an interest in timberland on the effective
14 date of this part, the trustee may allocate net receipts from the sale
15 of timber and related products as provided in this part or in the
16 manner used by the trustee before the effective date of this part. If
17 the trust acquires an interest in timberland after the effective date
18 of this part, the trustee shall allocate net receipts from the sale of
19 timber and related products as provided in this part.
20 Section 62-7-422. (A) If a marital deduction is allowed for all
21 or part of a trust whose assets consist substantially of property that
22 does not provide the surviving spouse with sufficient income from
23 or use of the trust assets, and if the amounts that the trustee
24 transfers from principal to income pursuant to Section 62-7-404
25 and distributes to the spouse from principal pursuant to the terms
26 of the trust are insufficient to provide the spouse with the
27 beneficial enjoyment required to obtain the marital deduction, the
28 spouse may require the trustee to make property productive of
29 income, convert property within a reasonable time, or exercise the
30 power in Section 62-7-404(A). The trustee may decide which
31 action or combination of actions to take.
32 (B) If subsection (A) is inapplicable, proceeds from the sale or
33 other disposition of an asset are principal without regard to the
34 amount of income the asset produces during any accounting
35 period.
36 Section 62-7-423. (A) In this section, ‘derivative’ means a
37 contract or financial instrument or a combination of contracts and
38 financial instruments which gives a trust the right or obligation to
39 participate in some or all changes in the price of a tangible or
40 intangible asset or group of assets, or changes in a rate, an index of
41 prices or rates, or other market indicator for an asset or a group of
42 assets.
[4044-30]
1 (B) To the extent that a trustee does not account pursuant to
2 Section 62-7-412 for transactions in derivatives, the trustee shall
3 allocate to principal receipts from and disbursements made in
4 connection with those transactions.
5 (C) If a trustee grants an option to buy property from the trust,
6 whether or not the trust owns the property when the option is
7 granted, grants an option that permits another person to sell
8 property to the trust, or acquires an option to buy property for the
9 trust or an option to sell an asset owned by the trust, and the trustee
10 or other owner of the asset is required to deliver the asset if the
11 option is exercised, an amount received for granting the option
12 must be allocated to principal. An amount paid to acquire the
13 option must be paid from principal. A gain or loss realized upon
14 the exercise of an option, including an option granted to a settlor of
15 the trust for services rendered, must be allocated to principal.
16 Section 62-7-424. (A) In this section, ‘asset-backed security’
17 means an asset whose value is based upon the right it gives the
18 owner to receive distributions from the proceeds of financial assets
19 that provide collateral for the security. The term includes an asset
20 that gives the owner the right to receive from the collateral
21 financial assets only the interest or other current return or only the
22 proceeds other than interest or current return. The term does not
23 include an asset subject to Section 62-7-409 or 62-7-418.
24 (B) If a trust receives a payment from interest or other current
25 return and from other proceeds of the collateral financial assets, the
26 trustee shall allocate to income the portion of the payment which
27 the payer identifies as being from interest or other current return
28 and shall allocate the balance of the payment to principal.
29 (C) If a trust receives one or more payments in exchange for the
30 its entire interest in an asset-backed security in one accounting
31 period, the trustee shall allocate the payments to principal. If a
32 payment is one of a series of payments that results in the
33 liquidation of the interest of the trust in the security over more than
34 one accounting period, the trustee shall allocate ten percent of the
35 payment to income and the balance to principal.
36 Section 62-7-425. A trustee shall make the following
37 disbursements from income to the extent that they are not
38 disbursements subject to Section 62-7-405(2)(b) or (c):
39 (1) one-half of the regular compensation of the trustee and of
40 any person providing investment advisory or custodial services to
41 the trustee;
[4044-31]
1 (2) one-half of all expenses for accountings, judicial
2 proceedings, or other matters that involve both the income and
3 remainder interests;
4 (3) all of the other ordinary expenses incurred in connection
5 with the administration, management, or preservation of trust
6 property and the distribution of income, including interest,
7 ordinary repairs, regularly recurring taxes assessed against
8 principal, and expenses of a proceeding or other matter that
9 concerns primarily the income interest; and
10 (4) recurring premiums on insurance covering the loss of a
11 principal asset or the loss of income from or use of the asset.
12 Section 62-7-426. (A) A trustee shall make the following
13 disbursements from principal:
14 (1) the remaining one-half of the disbursements provided in
15 Section 62-7-425(1) and (2);
16 (2) all of the trustee’s compensation calculated on principal
17 as a fee for acceptance, distribution, or termination, and
18 disbursements made to prepare property for sale;
19 (3) payments on the principal of a trust debt;
20 (4) expenses of a proceeding that concerns primarily
21 principal, including a proceeding to construe the trust or to protect
22 the trust or its property;
23 (5) premiums paid on a policy of insurance not provided in
24 Section 62-7-425(4) of which the trust is the owner and
25 beneficiary;
26 (6) estate, inheritance, and other transfer taxes, including
27 penalties, apportioned to the trust; and
28 (7) disbursements related to environmental matters,
29 including reclamation, assessing environmental conditions,
30 remedying and removing environmental contamination,
31 monitoring remedial activities and the release of substances,
32 preventing future releases of substances, collecting amounts from
33 persons liable or potentially liable for the costs of those activities,
34 penalties imposed under environmental laws or regulations and
35 other payments made to comply with those laws or regulations,
36 statutory or common law claims by third parties, and defending
37 claims based on environmental matters.
38 (B) If a principal asset is encumbered with an obligation that
39 requires income from that asset to be paid directly to the creditor,
40 the trustee shall transfer from principal to income an amount equal
41 to the income paid to the creditor in reduction of the principal
42 balance of the obligation.
[4044-32]
1 Section 62-7-427. (A) In this section, ‘depreciation’ means a
2 reduction in value due to wear, tear, decay, corrosion, or gradual
3 obsolescence of a fixed asset having a useful life of more than one
4 year.
5 (B) A trustee may transfer to principal a reasonable amount of
6 the net cash receipts from a principal asset that is subject to
7 depreciation, but may not transfer any amount for depreciation:
8 (1) of that portion of real property used or available for use
9 by a beneficiary as a residence or of tangible personal property
10 held or made available for the personal use or enjoyment of a
11 beneficiary;
12 (2) during the administration of a decedent’s estate; or
13 (3) under this section if the trustee is accounting pursuant to
14 Section 62-7-412 for the business or activity in which the asset is
15 used.
16 (C) An amount transferred to principal need not be held as a
17 separate fund.
18 Section 62-7-428. (A) If a trustee makes or expects to make a
19 principal disbursement described in this section, the trustee may
20 transfer an appropriate amount from income to principal in one or
21 more accounting periods to reimburse principal or to provide a
22 reserve for future principal disbursements.
23 (B) A principal disbursement for purposes of this section
24 includes the following, but only to the extent that the trustee has
25 not been, and does not expect to be, reimbursed by a third party:
26 (1) an amount chargeable to income but paid from principal
27 because it is unusually large, including extraordinary repairs;
28 (2) a capital improvement to a principal asset, whether in the
29 form of changes to an existing asset or the construction of a new
30 asset, including special assessments;
31 (3) a disbursement made to prepare property for rental,
32 including tenant allowances, leasehold improvements, and broker’s
33 commissions;
34 (4) a periodic payment on an obligation secured by a
35 principal asset to the extent that the amount transferred from
36 income to principal for depreciation is less than the periodic
37 payments; and
38 (5) a disbursement described in Section 62-7-426(A)(7).
39 (C) If the asset whose ownership gives rise to the
40 disbursements becomes subject to a successive income interest
41 after an income interest ends, a trustee may continue to transfer
42 amounts from income to principal as provided in subsection (A).
[4044-33]
1 Section 62-7-429. (A) A tax required to be paid by a trustee
2 based on receipts allocated to income must be paid from income.
3 (B) A tax required to be paid by a trustee based on receipts
4 allocated to principal must be paid from principal, even if the tax is
5 called an income tax by the taxing authority.
6 (C) A tax required to be paid by a trustee on the trust’s share of
7 the taxable income of the entity must be paid proportionately from:
8 (1) income, to the extent that receipts from the entity are
9 allocated to income; and
10 (2) principal, to the extent that:
11 (a) receipts from the entity are allocated to principal; and
12 (b) the trust’s share of the taxable income of the entity
13 exceeds the total receipts described in items (1) and (2)(a).
14 (D) For purposes of this section, receipts allocated to principal
15 or income must be reduced by the amount distributed to a
16 beneficiary from principal or income for which the trust receives a
17 deduction in calculating the tax.
18 Section 62-7-430. (A) A fiduciary may make adjustments
19 between principal and income to offset the shifting of economic
20 interests or tax benefits between income beneficiaries and
21 remainder beneficiaries which arise from:
22 (1) elections and decisions, other than those provided in
23 subsection (B), that the fiduciary makes from time to time
24 regarding tax matters;
25 (2) an income tax or any other tax that is imposed upon the
26 fiduciary or a beneficiary as a result of a transaction involving or a
27 distribution from the estate or trust; or
28 (3) the ownership by an estate or trust of an interest in an
29 entity whose taxable income, whether or not distributed, is
30 includable in the taxable income of the estate, trust, or a
31 beneficiary.
32 (B) If the amount of an estate tax marital deduction or
33 charitable contribution deduction is reduced because a fiduciary
34 deducts an amount paid from principal for income tax purposes
35 instead of deducting it for estate tax purposes, and as a result estate
36 taxes paid from principal are increased and income taxes paid by
37 an estate, trust, or beneficiary are decreased, each estate, trust, or
38 beneficiary that benefits from the decrease in income tax shall
39 reimburse the principal from which the increase in estate tax is
40 paid. The total reimbursement must equal the increase in the estate
41 tax to the extent that the principal used to pay the increase would
42 have qualified for a marital deduction or charitable contribution
43 deduction but for the payment. The proportionate share of the
[4044-34]
1 reimbursement for each estate, trust, or beneficiary whose income
2 taxes are reduced must be the same as its proportionate share of the
3 total decrease in income tax. An estate or trust shall reimburse
4 principal from income.
5 Section 62-7-431. In applying and construing this Uniform
6 Act, consideration must be given to the need to promote uniformity
7 of the law with respect to its subject matter among states that enact
8 it.
9 Section 62-7-432. (A) A court shall not change a fiduciary’s
10 decision to exercise or not to exercise a discretionary power
11 conferred by this part unless it determines that the decision was an
12 abuse of the fiduciary’s discretion. A court shall not determine that
13 a fiduciary abused its discretion merely because the court would
14 have exercised the discretion in a different manner or would not
15 have exercised the discretion.
16 (B) The decisions subject to subsection (a) include a
17 determination:
18 (1) pursuant to Section 62-7-404(A) of whether and to what
19 extent an amount should be transferred from principal to income or
20 from income to principal; and
21 (2) of the factors that are relevant to the trust and its
22 beneficiaries, the extent to which they are relevant, and the weight,
23 if any, to be given to the relevant factors, in deciding whether and
24 to what extent to exercise the power in Section 62-7-404(A).
25 (C) If a court determines that a fiduciary has abused its
26 discretion, the remedy is to restore the income and remainder
27 beneficiaries to the positions they would have occupied if the
28 fiduciary had not abused its discretion, according to the following
29 rules:
30 (1) to the extent that the abuse of discretion has resulted in
31 no distribution to a beneficiary or a distribution that is too small,
32 the court shall require the fiduciary to distribute from the trust to
33 the beneficiary an amount that the court determines will restore the
34 beneficiary, in whole or in part, to his or her appropriate position;
35 (2) to the extent that the abuse of discretion has resulted in a
36 distribution to a beneficiary that is too large, the court shall restore
37 the beneficiaries, the trust, or both, in whole or in part, to their
38 appropriate positions by requiring the fiduciary to withhold an
39 amount from one or more future distributions to the beneficiary
40 who received the distribution that was too large or requiring that
41 beneficiary to return some or all of the distribution to the trust;
42 (3) to the extent that the court is unable, after applying items
43 (1) and (2), to restore the beneficiaries, the trust, or both, to the
[4044-35]
1 positions they would have occupied if the fiduciary had not abused
2 its discretion, the court may require the fiduciary to pay an
3 appropriate amount from its own funds to one or more of the
4 beneficiaries or the trust or both.
5 (D) Upon a petition by the fiduciary, the court having
6 jurisdiction over the trust or estate shall determine whether a
7 proposed exercise or nonexercise by the fiduciary of a
8 discretionary power in this part results in an abuse of the
9 fiduciary’s discretion. If the petition describes the proposed
10 exercise or nonexercise of the power and contains sufficient
11 information to inform the beneficiaries of the reasons for the
12 proposal, the facts upon which the fiduciary relies, and an
13 explanation of how the income and remainder beneficiaries are
14 affected by the proposed exercise or nonexercise of the power, a
15 beneficiary who challenges the proposed exercise or nonexercise
16 has the burden of establishing that it will result in an abuse of
17 discretion.”
18 SECTION 4. If any section, subsection, paragraph,
19 subparagraph, sentence, clause, phrase, or word of this act is for
20 any reason held to be unconstitutional or invalid, such holding
21 shall not affect the constitutionality or validity of the remaining
22 portions of this act, the General Assembly hereby declaring that it
23 would have passed this act, and each and every section, subsection,
24 paragraph, subparagraph, sentence, clause, phrase, and word
25 thereof, irrespective of the fact that any one or more other sections,
26 subsections, paragraphs, subparagraphs, sentences, clauses,
27 phrases, or words hereof may be declared to be unconstitutional,
28 invalid, or otherwise ineffective.
29 SECTION 5. This act takes effect upon approval by the
30 Governor. SECTION 2 applies to trusts existing on and created
31 after its effective date, except that as applied to trusts existing on
32 its effective date, SECTION 2 governs only decisions or actions
33 occurring after that date. SECTION 3 applies to every trust or
34 decedent’s estate existing on the effective date of this act, except
35 as otherwise expressly provided in the will or terms of the trust or
36 in Section 3. /
37 Amend further by amending the title to read:
38 / TO ENACT THE SOUTH CAROLINA TRUSTEE
39 INVESTMENT ACT; TO AMEND SECTION 62-7-302, AS
40 AMENDED, CODE OF LAWS OF SOUTH CAROLINA, 1976,
41 RELATING TO A TRUSTEE’S STANDARD OF CARE, SO AS
42 TO DESIGNATE THE SECTION AS THE “UNIFORM
43 PRUDENT INVESTOR ACT”, TO RECOGNIZE THE
[4044-36]
1 PRUDENT INVESTOR RULE AND THE TOTAL RETURN
2 THEORY OF INVESTMENT MANAGEMENT; AND TO
3 AMEND PART 4, ARTICLE 7, CHAPTER 7, TITLE 62,
4 RELATING TO THE UNIFORM PRINCIPAL AND INCOME
5 ACT, SO AS TO DESIGNATE PART 4 AS THE “UNIFORM
6 PRINCIPAL AND INCOME ACT OF 1997”; TO PERMIT THE
7 ALLOCATION OF BENEFICIARY RECEIPTS BY A TRUSTEE
8 TO INCOME INSTEAD OF TO PRINCIPAL UNDER CERTAIN
9 SPECIFIED CIRCUMSTANCES AND IN RECOGNITION OF
10 TOTAL RETURN THEORY OF INVESTMENT. /
11
12 JAMES H. HARRISON for Committee.
13
[4044-37]
1
2
3
4
5
6
7
8
9 A BILL
10
11 TO ENACT THE SOUTH CAROLINA TRUSTS, ESTATES,
12 AND PROBATE REFORM ACT; TO AMEND SUBARTICLE 5,
13 ARTICLE 3, CHAPTER 7, TITLE 20, CODE OF LAWS OF
14 SOUTH CAROLINA, 1976, RELATING TO THE UNIFORM
15 GIFTS TO MINORS ACT, SO AS TO DESIGNATE
16 SUBARTICLE 5 AS THE “UNIFORM TRANSFERS TO
17 MINORS ACT”, TO CHANGE THE AGE OF DISTRIBUTION
18 TO TWENTY-ONE YEARS, INCLUDE BOTH GRATUITOUS
19 TRANSFERS AND TRANSFERS FOR CONSIDERATION
20 TRANSFERS AND BOTH LIFETIME TRANSFERS AND
21 TRANSFERS FROM TRUSTS, ESTATES, AND
22 GUARDIANSHIPS, AND LIMIT THE MINOR’S LIABILITY
23 TO THIRD PARTIES TO CASES OF PERSONAL FAULTY; TO
24 AMEND SECTION 62-7-302, AS AMENDED, RELATING TO
25 A TRUSTEE’S STANDARD OF CARE, SO AS TO
26 DESIGNATE THE SECTION AS THE “UNIFORM PRUDENT
27 INVESTOR ACT”, TO RECOGNIZE THE PRUDENT
28 INVESTOR RULE AND THE TOTAL RETURN THEORY OF
29 INVESTMENT MANAGEMENT; TO AMEND PART 4,
30 ARTICLE 7, CHAPTER 7, TITLE 62, RELATING TO THE
31 UNIFORM PRINCIPAL AND INCOME ACT, SO AS TO
32 DESIGNATE PART 4 AS THE “UNIFORM PRINCIPAL AND
33 INCOME ACT OF 1997”; TO PERMIT THE ALLOCATION OF
34 BENEFICIARY RECEIPTS BY A TRUSTEE TO INCOME
35 INSTEAD OF TO PRINCIPAL UNDER CERTAIN SPECIFIED
36 CIRCUMSTANCES AND IN RECOGNITION OF TOTAL
37 RETURN THEORY OF INVESTMENT; TO AMEND SECTION
38 62-5-501, AS AMENDED, RELATING TO THE DURABLE
39 POWER OF ATTORNEY, SO AS TO PROVIDE FOR
40 REASONABLE COMPENSATION FOR AN
41 ATTORNEY-IN-FACT ACTING PURSUANT TO A DURABLE
42 POWER OF ATTORNEY, AND TO PROVIDE FOR
[4044] 1
1 PROTECTION OF THIRD PARTIES RELYING ON THE ACTS
2 OF AN INDIVIDUAL ACTING PURSUANT TO A DURABLE
3 POWER OF ATTORNEY; TO AMEND ARTICLE 2, CHAPTER
4 2, TITLE 62, RELATING TO INTESTACY, SUCCESSION AND
5 WILLS, SO AS TO CHANGE THE TITLE OF THE ARTICLE
6 TO “INTESTACY, WILLS, AND DONATIVE TRANSFERS;
7 TO AMEND PART 7, ARTICLE 2, CHAPTER 2, TITLE 62,
8 RELATING TO CONTRACTUAL ARRANGEMENTS
9 RELATING TO DEATH, SO AS TO REPLACE PART 7 WITH
10 RULES FOR CONSTRUCTION OF WILLS AND OTHER
11 INSTRUMENTS GOVERNING TRANSFERS; TO AMEND
12 SECTION 62-2-803, RELATING TO THE EFFECT OF
13 HOMICIDE ON INTESTATE SUCCESSION, WILLS, JOINT
14 ASSETS, LIFE INSURANCE, AND BENEFICIARY
15 DESIGNATIONS, SO AS TO PROVIDE FOR A JUDICIAL
16 DETERMINATION OF CRIMINAL ACCOUNTABILITY,
17 USING THE PREPONDERANCE OF THE EVIDENCE
18 STANDARD, IN THE ABSENCE OF A CRIMINAL
19 CONVICTION; TO AMEND PART 8, ARTICLE 2, CHAPTER
20 2, TITLE 62, RELATING TO GENERAL PROVISIONS AS TO
21 INTESTATE SUCCESSION, BY ADDING SECTION 62-2-805
22 SO AS TO PROVIDE FOR REVOCATION OF PROBATE AND
23 NONPROBATE TRANSFERS BY DIVORCE AND
24 ANNULMENT; TO AMEND SECTION 34-19-120, RELATING
25 TO ACCESS TO A LOCKBOX TO OBTAIN A POWER OF
26 ATTORNEY, SO AS TO FACILITATE ACCESS
27 CONDITIONED ON A VERIFIED DOCUMENT; AND TO
28 AMEND SECTION 27-7-40, RELATING TO THE CREATION
29 AND SEVERANCE OF A JOINT TENANCY, SO AS TO
30 CLARIFY THAT A JOINT TENANCY WITH A RIGHT OF
31 SURVIVORSHIP IN REAL ESTATE MAY TRANSFER HIS
32 INTEREST WITHOUT JOINDER OF THE OTHER JOINT
33 TENANTS.
34
35 Be it enacted by the General Assembly of the State of South
36 Carolina:
37
38 SECTION 1. This act may be cited as the South Carolina Trusts,
39 Estates, and Probate Reform Act of 2001.
40
41 SECTION 2. Subarticle 5, Article 3, Chapter 7, Title 20 of the
42 1976 Code is amended to read:
43
[4044] 2
1 “Subarticle 5
2
3 South Carolina Uniform Gifts Transfers To Minors Act
4
5 Section 20-7-140. This subarticle may be cited as the ‘South
6 Carolina Uniform Gifts Transfers to Minors Act’.
7
8 Section 20-7-150. In this subarticle, unless the context
9 otherwise requires:
10 (1) ‘Adult’ is a person who has attained the age of eighteen
11 years.
12 (2) ‘Bank’ is any bank, trust company, national banking
13 association or industrial bank.
14 (3) ‘Broker’ is a person lawfully engaged in the business of
15 effecting transactions in securities for the account of others. The
16 term includes a bank which effects such transactions. The term
17 also includes a person lawfully engaged in buying and selling
18 securities for his own account through a broker or otherwise as a
19 part of a regular business.
20 (4) ‘Court’ means the court or branch having jurisdiction.
21 (5) ‘Custodial property’ includes:
22 (a) All securities, life insurance policies, annuity contracts,
23 real estate, tangible personal property and money and any other
24 type of property under the supervision of the same custodian for
25 the same minor as a consequence of a gift made to the minor in a
26 manner prescribed in this subarticle.
27 (b) The income from the custodial property.
28 (c) The proceeds, immediate and remote, from the sale,
29 exchange, conversion, investment, reinvestment, surrender or other
30 disposition of such securities, money, life insurance policies,
31 annuity contracts, real estate, tangible personal property and other
32 property.
33 (6) ‘Custodian’ is a person so designated in manner prescribed
34 in this chapter and the term includes a successor custodian.
35 (7) ‘Guardian’ of a minor means the general guardian,
36 guardian, tutor or curator of his property or estate, appointed or
37 qualified by a court of this State or another state.
38 (8) ‘Issuer’ is a person who places or authorizes the placing of
39 his name on a security, other than as a transfer agent, to evidence
40 that it represents a share, participation or other interest in his
41 property or in an enterprise, or to evidence his duty or undertaking
42 to perform an obligation evidenced by the security or who
43 becomes responsible for in place of any such person.
[4044] 3
1 (9) ‘Legal representative’ of a person in his executor or the
2 administrator, general guardian, guardian, committee, conservator,
3 tutor or curator of his property or estate.
4 (10) ‘Member of a minor’s family’ means any of the minor’s
5 parents, grandparents, brothers, sisters, uncles and aunts, whether
6 of the whole blood or the half blood, or by or through legal
7 adoption.
8 (11) ‘Minor’ is a person who has not attained the age of eighteen
9 years, excluding a person under the age of eighteen who is married
10 or emancipated as decreed by the family court.
11 (12) ‘Savings and loan association’ is a state-chartered savings
12 and loan association or building and loan association or a
13 federally-chartered savings and loan association.
14 (13) ‘Security’ includes any note, stock, treasury stock, bond,
15 debenture, evidence of indebtedness, certificate of interest or
16 participation in an oil, gas or mining title or lease or in payments
17 out of production under such a title or lease, collateral trust
18 certificate, transferable share, voting -trust certificate or, in
19 general, any interest or instrument commonly known as a security,
20 any certificate of interest or participation in any temporary or
21 interim certificate, receipt or certificate of deposit for or any
22 warrant or right to subscribe to or purchase any of the foregoing.
23 The term does not include a security of which the donor is the
24 issuer. A security is in ‘registered form’ when it specifies a person
25 entitled to it or to the rights it evidences and its transfer may be
26 registered upon books maintained for that purpose by or on behalf
27 of the issuer.
28 (14) ‘Transfer agent’ is a person who acts as authenticating
29 trustee, transfer agent, registrar or other agent for an issuer in the
30 registration of transfers of its securities or in the issue of new
31 securities in the cancellation of surrendered securities.
32 (15) ‘Trust company’ is a bank, corporation or other legal entity
33 authorized to exercise trust powers in this State.
34 (16) ‘Financial institution’ is a bank, a federal savings and loan
35 association, a savings institution chartered and supervised as a
36 savings and loan or similar institution under federal law or the laws
37 of a state, a federal credit union or a credit union chartered and
38 supervised under the laws of a state; a ‘domestic financial
39 institution’ is one chartered and supervised under the laws of this
40 State or chartered and supervised under federal law and having its
41 principal office in this State; an ‘insured financial institution’ is
42 one in which deposits (including a savings, share, certificate or
43 deposit account) are, in whole or in part, insured by the Federal
[4044] 4
1 Deposit Insurance Corporation, by the Federal Savings and Loan
2 Insurance Corporation or by a deposit insurance fund approved by
3 this State.
4 (17) ‘Life insurance policy or annuity contract’ means a life
5 insurance policy or annuity contract issued by an insurance
6 company on the life of a minor to whom a gift of the policy or
7 contract is made in the manner prescribed in this subarticle or on
8 the life of a member of the minor’s family.
9
10 Section 20-7-160. (1) An adult person may, during his lifetime,
11 make a gift of security, a life insurance policy or annuity contract
12 or money or real estate, tangible personal property or any other
13 property to a person who is a minor on the date of the gift:
14 (a) If the subject of the gift is a security in registered form,
15 by registering it in the name of the donor, another adult person or a
16 trust company followed in substance by the words: ‘As custodian
17 for __________ (name of minor) __________ under the Uniform
18 Gifts to Minors Act’.
19 (b) If the subject of the gift is a security not in registered
20 form, by delivering it to an adult other than the donor, a guardian
21 of the minor or a trust company, accompanied by a statement of
22 gift in the following form, in substance, signed by the donor and
23 the person designated as custodian:
24 ‘GIFT UNDER THE SOUTH CAROLINA UNIFORM GIFTS TO
25 MINORS ACT
26 __________(name of donor) __________ hereby delivers to
27 __________ (name of custodian) __________ as custodian for
28 __________ (name of minor) __________ under the South
29 Carolina Uniform Gifts to Minors Act the following security:
30 (insert an appropriate description of the security delivered
31 sufficient to identify it)
32
33 (signature of donor)
34 __________ (name of custodian) __________ hereby
35 acknowledges receipt of the above-described security as custodian
36 for the above minor under the Uniform Gifts to Minors Act.
37 Dated: __________
38
39 (Signature of custodian)’
40 (c) If the subject of the gift is money, by paying or
41 delivering it to a broker or a domestic financial institution for
42 credit to an account in the name of the donor, another adult or a
43 trust company followed in substance by the words: ‘as custodian
[4044] 5
1 for __________ (name of minor) __________ under the Uniform
2 Gifts to Minors Act’.
3 (d) If the subject of the gift is a life insurance policy or
4 annuity contract, by causing the ownership of the policy or
5 contract to be registered with the issuing insurance company in the
6 name of the donor, another adult or a trust company followed in
7 substance by the words ‘as custodian for __________ (name of
8 minor) __________ under the Uniform Gifts to Minors Act’.
9 (e) If the subject of the gift is an interest in real estate, by
10 executing and delivering in the appropriate manner a deed,
11 assignment or similar instrument in the name of the donor, another
12 adult or guardian of the minor or a trust company followed in
13 substance by the words: ‘as custodian for __________ (name of
14 minor) __________ under the Uniform Gifts to Minors Act’.
15 (f) If the subject of the gift is an interest in any property not
16 described in items (a) through (e) above, by causing the ownership
17 of the property to be transferred by any written document in the
18 name of the donor, another adult, a guardian or the minor or a trust
19 company followed in substance by the words: ‘as custodian for
20 __________ (name of minor) __________ under the Uniform
21 Gifts to Minors Act’.
22 (g) If the gift is by will, by stating in the will that the bequest
23 or devise is made under the South Carolina Uniform Gifts to
24 Minors Act. Unless the testator in his will designates the
25 custodian, who shall be an adult, a guardian of the minor or a trust
26 company, his personal representative shall, subject to any
27 limitations contained within the will, have the power to name as
28 the custodian an adult, a guardian of the minor or a trust company
29 and shall distribute the subject of the gift by transferring it in the
30 manner and form provided in the preceding items of this
31 subsection.
32 (h) If the gift is preceded by a gift in trust to some other
33 person, by stating in the will or inter vivos trust instrument that it
34 is made under the South Carolina Uniform Gifts to Minors Act.
35 Unless the custodian, who shall be an adult, a guardian of the
36 minor or a trust company, is designated in the will or inter vivos
37 trust instrument, the trustee shall, subject to any limitations
38 contained within the will or inter vivos trust instrument, have the
39 power to name as custodian an adult, a guardian of the minor or a
40 trust company, and shall distribute the subject of the gift by
41 transferring it in the manner and form provided in the preceding
42 items of this subsection.
[4044] 6
1 (2) Any gift made in a manner prescribed in subsection (1)
2 may be made to only one minor and only one person may be the
3 custodian.
4 (3) A donor who makes a gift to a minor in the manner
5 prescribed in subsection (1) shall promptly do all things within his
6 power to put the subject of the gift in the possession and control of
7 the custodian but the donor’s failure to comply with this
8 subsection, his designation of an ineligible person as custodian, or
9 renunciation by the person designated as custodian shall not affect
10 the consummation of the gift.
11 (4) Whether or not a gift of the ownership of a life insurance
12 policy or annuity contract has been made, the owner of such a
13 policy or contract may designate a custodian (or a successor
14 custodian) as the beneficiary of any such policy or contract. When
15 the custodian receives any proceeds of such policy or contract, the
16 proceeds shall at that time become custodian property.
17
18 Section 20-7-170. (1) A gift made in a manner prescribed in
19 this subarticle is irrevocable and conveys to the minor indefeasibly
20 vested legal title to the security, life insurance policy, annuity
21 contract, money, real estate or any other property given, but no
22 guardian of the minor has any right, power, duty or authority with
23 respect to the custodial property except as provided in this
24 subarticle.
25 (2) By making a gift in a manner prescribed in this subarticle,
26 the donor incorporates in his gift, inter vivos trust instrument or
27 will all provisions of this subarticle and grants to the custodian and
28 to any issuer, transfer agent, bank, life insurance company, broker
29 or third person, dealing with a person designated as custodian the
30 respective powers, rights and immunities provided in this
31 subarticle.
32
33 Section 20-7-180. (1) The custodian shall collect, hold,
34 manage, invest and reinvest the custodial property.
35 (2) The custodian shall pay over to the minor for expenditure by
36 him, or expend for the minor’s benefit, so much of or all the
37 custodial property as the custodian deems advisable for the
38 support, maintenance, education and benefit of the minor in the
39 manner, at the same time or times, and to the extent that the
40 custodian in his discretion deems suitable and proper, with or
41 without court order, with or without regard to the duty of himself
42 or of any other person to support the minor or his ability to do so,
[4044] 7
1 and with or without regard to any other income or property of the
2 minor which may be applicable or available for any such purpose.
3 (3) The court, on the petition of a parent or guardian of the minor
4 or of the minor, if he has attained the age of fourteen years, may
5 order the custodian to pay over to the minor for expenditure by
6 him or to expend so much of or all of the custodial property as is
7 necessary for the minor’s support, maintenance or education.
8 (4) To the extent that the custodial property is not so expended, the
9 custodian shall deliver or pay it over to the minor on his attaining
10 the age of eighteen years or, if the minor dies before attaining the
11 age of eighteen years, he shall thereupon deliver or pay it over to
12 the estate of the minor.
13 (5) The custodian, notwithstanding statutes restricting investments
14 by fiduciaries, shall invest and reinvest the custodial property as
15 would a prudent man of discretion and intelligence who is seeking
16 a reasonable income and the preservation of his capital, except that
17 he may, in his discretion and without liability to the minor or his
18 estate, retain custodial property given to the minor in a manner
19 prescribed in this subarticle or hold money so given in an account
20 in the financial institution to which it was paid or delivered by the
21 donor.
22 (6) The custodian may sell, exchange, convert, surrender or
23 otherwise dispose of custodial property in the manner, at the time
24 or times, for the price or prices and upon the terms he deems
25 advisable. He may vote in person or by general or limited proxy a
26 security which is custodial property. He may consent, directly or
27 through a committee or other agent, to the reorganization,
28 consolidation, merger, dissolution or liquidation of an issuer, a
29 security of which is custodial property, and to the sale, lease,
30 pledge or mortgage of any property by or to such an issuer, and to
31 any other action by such an issuer. He may execute and deliver
32 any and all instruments in writing which he deems advisable to
33 carry out any of his powers as custodian. With respect to any
34 interest in real estate, he may perform the same acts that any
35 unmarried adult could perform, including, but not limited to, the
36 power to buy, sell, assign, transfer, convey, dedicate, partition,
37 exchange, mortgage, create or redeem ground rents, deeds, grant or
38 exercise options, effect and keep in force fire, rent, liability,
39 casualty, and other insurance; make, execute, acknowledge, and
40 deliver deeds, conveyances, mortgages, releases, leases, including
41 leases for ninety-nine years renewable forever, and leases
42 extending beyond the minority of the minor; collect rents;
43 improve, subdivide, or develop property; construct, alter,
[4044] 8
1 demolish or repair property; settle boundary lines and easements;
2 pay taxes; and protect assessments.
3 (7) The custodian shall register each security which is custodial
4 property and in registered form in the name of the custodian
5 followed in substance by the words: ‘as custodian for __________
6 (name of minor) __________ under the Uniform Gifts to Minors
7 Act’. The custodian shall hold all money which is custodial
8 property in an account with a broker or in an insured financial
9 institution in the name of the custodian followed in substance by
10 the words: ‘as custodian for __________ (name of minor)
11 __________ under the Uniform Gifts to Minors Act’. The
12 custodian shall keep all other custodial property separate and
13 distinct from his own property in a manner to identify it clearly as
14 custodial property.
15 (8) The custodian shall keep records of all transactions with
16 respect to the custodial property and make them available for
17 inspection at reasonable intervals by a parent or legal
18 representative of the minor or by the minor, if he has attained the
19 age of fourteen years.
20 (9) A custodian has, with respect to the custodial property, in
21 addition to the rights and powers provided in this subarticle, all the
22 rights and powers which a guardian has with respect to property
23 not held as custodial property.
24 (10) If the subject of the gift is a life insurance policy or annuity
25 contract, the custodian:
26 (a) In his capacity as custodian, has all the incidents of ownership
27 in the policy or contract to the same extent as if he were the owner,
28 except that the designated beneficiary of any policy or contract on
29 the life of the minor shall be the minor’s estate and the designated
30 beneficiary of any policy or contract on the life of a person other
31 than the minor shall be the custodian as custodian for the minor for
32 whom he is acting;
33 (b) May pay premiums on the policy or contract out of the
34 custodial property.
35
36 Section 20-7-190. (1) A custodian is entitled to
37 reimbursement from the custodial property for his reasonable
38 expenses incurred in the performance of his duties.
39 (2) A custodian may act without compensation for his services.
40 (3) Unless he is a donor, a custodian may receive from the
41 custodial property reasonable compensation for his services
42 determined by one of the following standards in the order stated:
43 (a) A direction by the donor when the gift is made;
[4044] 9
1 (b) A statute of this State applicable to custodians;
2 (c) The statute of this State applicable to guardians;
3 (d) An order of the court.
4 (4) Except as otherwise provided in this subarticle, a custodian
5 shall not be required to give a bond for the performance of his
6 duties.
7 (5) A custodian not compensated for his services is not liable for
8 losses to the custodial property unless they result from his bad
9 faith, intentional wrongdoing or gross negligence or from his
10 failure to maintain the standard of prudence in investing the
11 custodial property provided in this subarticle.
12
13 Section 20-7-200. No issuer, transfer agent, bank, life
14 insurance company, broker or other person or financial institution
15 acting on the instructions of or otherwise dealing with any person
16 purporting to act as a donor or in the capacity of a custodian is
17 responsible for determining whether the person designated as
18 custodian by the purported donor or by the custodian or purporting
19 to act as a custodian has been duly designated or whether any
20 purchase, sale or transfer to or by or any other act of any person
21 purporting to act in the capacity of custodian is in accordance with
22 or authorized by this subarticle, or is obliged to inquire into the
23 validity or propriety under this subarticle of any instrument or
24 instructions executed or given by a person purporting to act as a
25 donor or in the capacity of a custodian, or is bound to see to the
26 application by any person purporting to act in the capacity of a
27 custodian of any money or other property paid or delivered to him.
28 No issuer, transfer agent, bank, life insurance company, broker or
29 other person or financial institution acting on any instrument of
30 designation of a successor custodian, executed as provided in
31 subsection (1) of Section 20-7-210 by a minor to whom a gift has
32 been made in a manner prescribed in this subarticle and who has
33 attained the age of fourteen years, is responsible for determining
34 whether the person designated by the minor as successor custodian
35 has been duly designated, or is obliged to inquire into the validity
36 or propriety under this subarticle of the instrument of designation.
37
38 Section 20-7-210. (1) Only an adult member of the minor’s
39 family, a guardian of the minor or a trust company is eligible to
40 become successor custodian. A custodian may designate his
41 successor by executing and dating an instrument of designation
42 before a subscribing witness other than the successor, the
43 instrument of designation may, but need not, contain the
[4044] 10
1 resignation of the custodian. If the custodian does not so designate
2 his successor before he dies or becomes legally incapacitated, and
3 the minor has attained the age of fourteen years, the minor may
4 designate a successor custodian by executing an instrument of
5 designation before a subscribing witness other than the successor.
6 A successor custodian has all the rights, powers, duties and
7 immunities of a custodian designated in a manner prescribed by
8 this subarticle.
9 (2) The designation of a successor custodian as provided in
10 subsection (1) takes effect as to each item of the custodial property
11 when the custodian resigns, dies or becomes legally incapacitated,
12 and the custodian or his legal representative:
13 (a) Causes the item, if it is a security in registered form, or a life
14 insurance policy or annuity contract, to be registered with the
15 issuing insurance company in the case of a life insurance policy or
16 annuity contract, or an interest in real property in the name of the
17 successor custodian followed in substance by the words: ‘as
18 custodian for __________ (name of minor) __________ under the
19 Uniform Gifts to Minors Act’;
20 (b) Delivers or causes to be delivered to the successor custodian
21 any other item of the custodial property, together with the
22 instrument of designation of the successor custodian or a true copy
23 thereof, and any additional instruments required for the transfer
24 thereof to the successor custodian.
25 (3) A custodian who executes an instrument of designation of his
26 successor containing the custodian’s resignation as provided in
27 subsection (1) shall promptly do all things within his power to put
28 each item of the custodial property in the possession and control of
29 the successor custodian named in the instrument. The legal
30 representative of a custodian who dies or becomes legally
31 incapacitated shall promptly do all things within his power to put
32 each item of the custodial property in the possession and control of
33 the successor custodian named in an instrument of designation
34 executed as provided in subsection (1) by the custodian or, if none,
35 by the minor if he has no guardian and has attained the age of
36 fourteen years, or in the possession and control of the guardian of
37 the minor if he has a guardian. If the custodian has executed as
38 provided in subsection (1) more than one instrument of
39 designation, his legal representative shall treat the instrument dated
40 on an earlier date as having been revoked by the instrument dated
41 on a later date.
42 (4) If a person designated as custodian or as a successor custodian
43 by the custodian as provided in subsection (1) is not eligible, dies
[4044] 11
1 or becomes legally incapacitated before the minor attains the age
2 of eighteen years and if the minor has a guardian, the guardian of
3 the minor shall be successor custodian. If the minor has no
4 guardian and if no successor custodian who is eligible and has not
5 died or became legally incapacitated has been designated as
6 provided in subsection (1), a donor, his representative, the legal
7 representative of the custodian or an adult members of the minor’s
8 family may petition the court for the designation of a successor
9 custodian. The provisions of this subsection shall not affect the
10 power of a personal representative or trustee to appoint a custodian
11 pursuant to items (g) and (h) of subsection (1) of Section 20-7-160,
12 or the power of an owner of a life insurance policy or annuity
13 contract to appoint a successor custodian pursuant to subsection (4)
14 of Section 20-7-160.
15 (5) A donor, the legal representative of a donor, a successor
16 custodian, an adult member of the minor’s family, a guardian of
17 the minor or the minor, if he has attained the age of fourteen years,
18 may petition the court that, for cause shown in the petition, the
19 custodian be removed and a successor custodian be designated or,
20 in the alternative, that the custodian be required to give bond for
21 the performance of his duties.
22 (6) Upon the filing of a petition as provided in this section, the
23 court shall grant an order, directed to the persons and returnable on
24 such notice as the court may require, to show cause why the relief
25 prayed for in the petition should not be granted and, in due course,
26 grant such relief as the court finds to be in the best interests of the
27 minor.
28
29 Section 20-7-220. (1) The minor, if he has attained the age of
30 fourteen years, or the legal representative of the minor, an adult
31 member of the minor’s family or a donor or his legal representative
32 may petition the court for an accounting by the custodian or his
33 legal representative.
34 (2) The court, in a proceeding under this subarticle or otherwise,
35 may require or permit the custodian or his legal representative to
36 account and, if the custodian is removed, shall so require and order
37 delivery of all custodial property to the successor custodian and the
38 execution of all instruments required for the transfer thereof.
39
40 Section 20-7-220. (1) The minor, if he has attained the age of
41 fourteen years, or the legal representative of the minor, an adult
42 member of the minor’s family or a donor or his legal representative
[4044] 12
1 may petition the court for an accounting by the custodian or his
2 legal representative.
3 (2) The court, in a proceeding under this subarticle or otherwise,
4 may require or permit the custodian or his legal representative to
5 account and, if the custodian is removed, shall so require and order
6 delivery of all custodial property to the successor custodian and the
7 execution of all instruments required for the transfer thereof.
8
9 Section 20-7-230. (1) This subarticle shall be so construed as
10 to effectuate its general purpose to make uniform the law of those
11 states which enact it.
12 (2) This subarticle shall not be construed as providing an exclusive
13 method for making gifts to minors.
14
15 Section 20-7-240. No amendment to this subarticle shall be
16 construed to adversely affect any gift legally made under its
17 provisions in effect prior to the amendment.
18
19 Section 20-7-145. In this subarticle, unless the content requires
20 otherwise:
21 (1) ‘Adult’ means an individual who has attained the age of
22 twenty-one years.
23 (2) ‘Benefit plan’ means an employer’s plan for the benefit of
24 an employee or partner.
25 (3) ‘Broker’ means a person lawfully engaged in the business
26 of effecting transactions in securities or commodities for the
27 person’s own account or for the account of others.
28 (4) ‘Conservator’ means a person appointed or qualified by a
29 court to act as conservator of a minor’s property pursuant to
30 Section 62-5-401(1) or a person legally authorized to perform
31 substantially the same functions.
32 (5) ‘Court’ means the Probate Court.
33 (6) ‘Custodial property’ means:
34 (a) any interest in property transferred to a custodian
35 pursuant to this subarticle; and
36 (b) the income from and proceeds of that interest in
37 property.
38 (7) ‘Custodian’ means a person or the successor or substitute
39 designated pursuant to Sections 20-7-165 and 20-7-200.
40 (8) ‘Financial institution’ means a bank, trust company,
41 savings institution, or credit union that is chartered and supervised
42 pursuant to state or federal law.
[4044] 13
1 (9) ‘Legal representative’ means an individual’s personal
2 representative or conservator.
3 (10) ‘Member of the minor’s family’ means the minor’s parent,
4 stepparent, spouse, grandparent, brother, sister, uncle, or aunt,
5 whether of the whole or half blood or by adoption.
6 (11) ‘Minor’ means an individual who has not attained the age
7 of twenty-one years.
8 (12) ‘Person’ means an individual, corporation, organization, or
9 other legal entity.
10 (13) ‘Personal representative’ means an executor, administrator,
11 successor personal representative, or special administrator of a
12 decedent’s estate, or a person legally authorized to perform
13 substantially the same functions.
14 (14) ‘State’ includes a state of the United States, the District of
15 Columbia, the Commonwealth of Puerto Rico, and a territory or
16 possession subject to the legislative authority of the United States.
17 (15) ‘Transfer’ means a transaction that creates custodial
18 property pursuant to Section 20-7-165.
19 (16) ‘Transferor’ means a person who makes a transfer under
20 this pursuant to this subarticle.
21 (17) ‘Trust company’ means a financial institution, corporation,
22 or other legal entity, authorized to exercise general trust powers.
23
24 Section 20-7-150. (A) This subarticle applies to a transfer as
25 provided in Section 20-7-165 by which the transfer is made if at
26 the time of the transfer, the transferor, the minor, or the custodian
27 is a resident of this State or the custodial property is located in this
28 State. The custodianship created remains subject to this subarticle
29 even if there is subsequent change in residence of a transferor, the
30 minor, or the custodian, or the removal of custodial property from
31 this State.
32 (B) A person designated as custodian pursuant to this subarticle
33 is subject to personal jurisdiction in this State with respect to any
34 matter relating to the custodianship.
35 (C) A transfer that purports to be made, and which is valid,
36 under the Uniform Transfers to Minors Act, the Uniform Gifts to
37 Minors Act, or a substantially similar act of another state is
38 governed by the law of that state and may be executed and is
39 enforceable in this State if, at the time of the transfer, the
40 transferor, the minor, or the custodian is a resident of the
41 designated state or the custodial property is located in the
42 designated state.
[4044] 14
1 (D) This subarticle is not the exclusive procedure for
2 transferring a property interest to a minor and another procedure
3 for transferring a property interest to a minor authorized by the law
4 of this State, and, not specifically repealed, continues in effect.
5
6 Section 20-7-155. (A) A person having the right to designate
7 the recipient of property transferable upon the occurrence of a
8 future event may revocably nominate a custodian to receive the
9 property for a minor beneficiary upon the occurrence of the event
10 by naming the custodian followed in substance by the words: ‘as
11 custodian for ____________________ (name of minor) under the
12 South Carolina Uniform Transfers to Minors Act’. The
13 nomination may name one or more persons as substitute custodians
14 to whom the property must be transferred, in the order named, if
15 the first nominated custodian dies before the transfer or is unable,
16 declines, or is ineligible to serve. The nomination may be made in
17 a will, a trust, a deed, an instrument exercising a power of
18 appointment, or in a writing designating a beneficiary of
19 contractual rights which is registered with or delivered to the
20 payor, issuer, or other obligor of the contractual rights.
21 (B) A custodian nominated pursuant to this section must be a
22 person to whom a transfer of property of that kind may be made
23 pursuant to Section 20-7-165.
24 (C) The nomination of a custodian provided by this section
25 does not create custodial property until the nominating instrument
26 becomes irrevocable or a transfer to the nominated custodian is
27 completed pursuant to Section 20-7-165. Unless the nomination of
28 a custodian has been revoked, the custodianship becomes effective
29 upon the occurrence of the future event and the custodian shall
30 enforce a transfer of the custodial property pursuant to Section
31 20-7-165.
32
33 Section 20-7-160. (A) A person may make a transfer by
34 irrevocable gift to, or the irrevocable exercise of a power of
35 appointment in favor of, a custodian for the benefit of a minor
36 pursuant to Section 20-7-165.
37 (B)(1) A personal representative or trustee may make an
38 irrevocable transfer pursuant to Section 20-7-165 to a custodian for
39 the benefit of a minor as authorized in the governing will or trust.
40 (2) If the testator or settlor has nominated a custodian
41 pursuant to Section 20-7-155 to receive the custodial property, the
42 transfer must be made to that person.
[4044] 15
1 (3) If the testator or settlor has not nominated a custodian
2 pursuant to Section 20-7-155, or if all persons nominated as
3 custodian die before the transfer or are unable, decline, or are
4 ineligible to serve, the personal representative or the trustee shall
5 designate the custodian from among those eligible to serve as
6 custodian for property of that kind pursuant to Section
7 20-7-176(A).
8 (C)(1) Subject to item (3), a personal representative or trustee
9 may make an irrevocable transfer to another adult or trust company
10 as custodian for the benefit of a minor pursuant to Section
11 20-7-165, in the absence of a will or pursuant to a will or trust that
12 does not contain an authorization to do so.
13 (2) Subject to item (3), a conservator may make an
14 irrevocable transfer to another adult or trust company as custodian
15 for the benefit of the minor pursuant to Section 20-7-165.
16 (3) A transfer pursuant to item (1) or (2) may be made only
17 if:
18 (a) the personal representative, trustee, or conservator
19 considers the transfer to be in the best interest of the minor; and
20 (b) the transfer is not prohibited by or inconsistent with
21 the provisions of the applicable will, trust agreement or other
22 governing instrument.
23 If the value of the property transferred pursuant to item (1) or
24 (2) totals more than ten thousand dollars, whether in one or more
25 transfers, that transfer must be authorized by the court. If the
26 transfer pursuant to item (1) or (2) is to the transferor then the
27 transfer must be authorized by the court.
28 (D)(1) Subject to items (2) and (3), a person not covered by
29 subsection (B) or (C) who holds property of or owes a liquidated
30 debt to a minor not having a conservator may make an irrevocable
31 transfer to a custodian for the benefit of the minor pursuant to
32 Section 20-7-165.
33 (2) If a person having the right to nominate pursuant to
34 Section 20-7-155 has nominated a custodian to receive the
35 custodial property, the transfer must be made to that person.
36 (3) If a custodian has not been nominated as provided by
37 Section 20-7-155, or all persons nominated as custodian die before
38 the transfer or are unable, decline, or are ineligible to serve, a
39 transfer pursuant to this subsection may be made to an adult
40 member of the minor’s family or to a trust company unless the
41 property exceeds ten thousand dollars in value.
[4044] 16
1 (E) A written acknowledgment of delivery by a custodian
2 constitutes a sufficient receipt and discharge for custodial property
3 transferred to the custodian pursuant to this subarticle.
4
5 Section 20-7-165. (A) Custodial property is created and a
6 transfer is made when:
7 (1) an uncertificated security or a certificated security in
8 registered form is either:
9 (a) registered in the name of the transferor, an adult other
10 than the transferor, or a trust company, followed in substance by
11 the words: ‘as custodian for ____________________ (name of
12 minor) under the South Carolina Uniform Transfers to Minors
13 Act’; or
14 (b) delivered if in certificated form, or if in uncertificated
15 form any document necessary for its transfer is delivered, together
16 with a necessary endorsement to an adult other than the transferor
17 or to a trust company as custodian, accompanied by an instrument
18 in substantially the form provided in subsection (B);
19 (2) money is paid or delivered, or a security held in the name
20 of a broker, financial institution, or its nominee is transferred, to a
21 broker or financial institution for credit to an account in the name
22 of the transferor, an adult other than the transferor, or a trust
23 company, followed in substance by the words: ‘as custodian for
24 ____________________ (name of minor) as provided in the South
25 Carolina Uniform Transfers to Minors Act’;
26 (3) the ownership of a life or endowment insurance policy or
27 annuity contract is either:
28 (a) registered with the issuer in the name of the transferor,
29 an adult other than the transferor, or a trust company, followed in
30 substance by the words: ‘as custodian for ____________________
31 (name of minor) as provided in the South Carolina Uniform
32 Transfers to Minors Act’; or
33 (b) assigned in a writing delivered to an adult other than
34 the transferor or to a trust company whose name in the assignment
35 is followed in substance by the words: ‘as custodian for
36 ____________________ (name of minor) as provided in the South
37 Carolina Uniform Transfers to Minors Act’;
38 (4) an irrevocable exercise of a power of appointment or an
39 irrevocable present right to future payment under a contract is the
40 subject of a written notification delivered to the payor, issuer, or
41 other obligor that the right is transferred to the transferor, an adult
42 other than the transferor, or a trust company, whose name in the
43 notification is followed in substance by the words: ‘as custodian
[4044] 17
1 for ____________________ (name of minor) as provided in the
2 South Carolina Uniform Transfers to Minors Act’;
3 (5) an interest in real property is conveyed or devised to the
4 transferor, an adult other than the transferor, or a trust company,
5 followed in substance by the words: ‘as custodian for
6 ____________________ (name of minor) as provided in the South
7 Carolina Uniform Transfers to Minors Act’;
8 (6) a certificate of title issued by a department or agency of a
9 state or of the United States which evidences title to tangible
10 personal property is either:
11 (a) issued in the name of the transferor, an adult other
12 than the transferor, or a trust company, followed in substance by
13 the words: ‘as custodian for ____________________ (name of
14 minor) as provided in the South Carolina Uniform Transfers to
15 Minors Act’; or
16 (b) delivered to an adult other than the transferor or to a
17 trust company, endorsed to that person followed in substance by
18 the words: ‘as custodian for ____________________ (name of
19 minor) as provided in the South Carolina Uniform Transfers to
20 Minors Act’; or
21 (7) an interest in any property not described in items (1)
22 through (6) is transferred to an adult other than the transferor or to
23 a trust company by a written instrument in substantially the form
24 as provided in subsection (b).
25 (B) An instrument in the following form satisfies the
26 requirements of items (1)(b) and (7) of subsection (A):
27
28 ‘TRANSFER UNDER THE SOUTH CAROLINA
29 UNIFORM TRANSFERS TO MINORS ACT
30
31 I, ____________________ (name of transferor or name and
32 representative capacity if a fiduciary) hereby transfer to
33 ____________________ (name of custodian), as custodian for
34 ____________________ (name of minor) as provided in the South
35 Carolina Uniform Transfers to Minors Act, the following: (insert a
36 description of the custodial property sufficient to identify it).
37 Dated: ____________________
38
39 __________________________________________________
40 (Signature)
41
42 ____________________ (name of custodian) acknowledges
43 receipt of the property described above as custodian for the minor
[4044] 18
1 named above as provided in the South Carolina Uniform Transfers
2 to Minors Act.
3 Dated: ____________________
4
5 __________________________________________________’
6 (Signature of Custodian)
7
8 (C) A transferor shall place the custodian in control of the
9 custodial property as soon as practicable.
10
11 Section 20-7-170. A transfer may be made only for one minor,
12 and only one person may be the custodian. All custodial property
13 held pursuant to this subarticle by the same custodian for the
14 benefit of the same minor constitutes a single custodianship.
15
16 Section 20-7-175. (A) The validity of a transfer made in a
17 manner prescribed in this subarticle is not affected by:
18 (1) failure of the transferor to comply with Section
19 20-7-165(C) concerning possession and control;
20 (2) designation of an ineligible custodian, except designation
21 of the transferor in the case of property for which the transferor is
22 ineligible to serve as custodian pursuant to Section 20-7-165(A);
23 (3) death or incapacity of a person nominated as provided by
24 Section 20-7-155 or designated as provided by Section 20-7-165 as
25 custodian or the disclaimer of the office by that person; or
26 (4) the use of an abbreviation in referring to this subarticle
27 or the equivalent act of another state.
28 (B) A transfer made pursuant to Section 20-7-165 is
29 irrevocable. Upon transfer, the custodial property is indefeasibly
30 vested in the minor, however, the custodian has all the rights,
31 powers, duties, and authority provided in this subarticle, and
32 neither the minor nor the minor’s legal representative has any
33 right, power, duty, or authority with respect to the custodial
34 property except as provided in this subarticle.
35 (C) By making a transfer, the transferor incorporates in the
36 disposition all the provisions of this subarticle and grants to the
37 custodian, and to a third person dealing with a person designated
38 as custodian, the respective powers, rights, and immunities
39 provided in this subarticle.
40
41 Section 20-7-180. (A)(1) A custodian shall:
42 (a) take control of custodial property;
[4044] 19
1 (b) register or record title to custodial property if
2 appropriate; and
3 (c) collect, hold, manage, invest, and reinvest custodial
4 property.
5 (2) In dealing with custodial property, a custodian shall
6 observe the standard of care observed by a prudent person dealing
7 with property of another and is not limited by another statute
8 restricting investments by fiduciaries. If a custodian has a special
9 skill or expertise or is named custodian on the basis of
10 representations of a special skill or expertise, the custodian shall
11 use that skill or expertise. However, a custodian, in the
12 custodian’s discretion and without liability to the minor or the
13 minor’s estate, may retain custodial property received from a
14 transferor.
15 (3) A custodian may invest in or pay premiums on life
16 insurance or endowment policies on the life of:
17 (a) the minor, only if the minor or the minor’s estate or
18 the custodian in the capacity of custodian is the sole beneficiary; or
19 (b) another person in whom the minor has an insurable
20 interest, only to the extent that the minor, the minor’s estate, or the
21 custodian in the capacity of custodian, is the irrevocable
22 beneficiary.
23 (4) A custodian shall keep custodial property separate and
24 distinct from all other property in a manner sufficient to identify it
25 clearly as custodial property of the minor. Custodial property
26 consisting of an undivided interest is identified if the minor’s
27 interest is held as a tenant in common and is fixed. Custodial
28 property subject to recordation is identified if it is recorded.
29 Custodial property subject to registration is identified if it is either
30 registered or held in an account designated in the name of the
31 custodian, followed in substance by the words: ‘as a custodian for
32 ____________________ (name of minor) under the South
33 Carolina Uniform Transfers to Minors Act’.
34 (5) A custodian shall keep records of all transactions with
35 respect to custodial property, including information necessary for
36 the preparation of the minor’s tax returns, and shall make them
37 available for inspection at reasonable intervals by a parent or legal
38 representative of the minor or by the minor if the minor has
39 attained the age of fourteen years.
40 (B)(1) A custodian, acting in a custodial capacity, has all rights,
41 powers, and authority over custodial property that an unmarried
42 adult owner has over his own property. A custodian may exercise
[4044] 20
1 those rights, powers, and authority only in the capacity of a
2 custodian.
3 (2) This section does not relieve a custodian from liability
4 for breach of subsection (A).
5 (C)(1) A custodian may deliver or pay to the minor or expend
6 for the minor’s benefit as much of the custodial property as the
7 custodian considers advisable for the use and benefit of the minor,
8 without court order and without regard to:
9 (a) the duty or ability of the custodian personally or of any
10 other person to support the minor; or
11 (b) other income or property of the minor that may be
12 applicable or available for that purpose.
13 (2) On petition of an interested person, or the minor if the
14 minor has attained the age of fourteen years, the court may order
15 the custodian to deliver or pay to the minor or expend for the
16 minor’s benefit as much of the custodial property as the court
17 considers advisable for the use and benefit of the minor.
18 (3) A delivery, payment, or expenditure pursuant to this
19 subsection is in addition to, not in substitution for, and does not
20 otherwise affect an obligation of a person to support the minor.
21
22 Section 20-7-185. (A) A custodian may use custodial property
23 for payment of or reimbursement for reasonable expenses incurred
24 in the performance of the custodian’s duties.
25 (B) Except for a transferor pursuant to Section 20-7-160(A), a
26 custodian has a noncumulative election during each calendar year
27 to charge reasonable compensation for services performed during
28 that year.
29 (C) Except as provided in Section 20-7-200(F), a custodian is
30 not required to give a bond.
31
32 Section 20-7-190. A third person, in good faith and without
33 court order, may act on the instructions of or otherwise deal with a
34 person purporting to make a transfer or purporting to act in the
35 capacity of a custodian and, in the absence of knowledge, is not
36 responsible for determining:
37 (1) the validity of the purported custodian’s designation;
38 (2) the propriety of, or the authority pursuant to this
39 subarticle for, any act of the purported custodian;
40 (3) the validity or propriety pursuant to this subarticle of any
41 instrument or instructions executed or given either by the person
42 purporting to make a transfer or by the purported custodian; or
[4044] 21
1 (4) the propriety of the application of property of the minor
2 delivered to the purported custodian.
3
4 Section 20-7-195. (A) A claim may be asserted against the
5 custodial property by proceeding against the custodian in the
6 custodial capacity, whether or not the custodian or the minor is
7 liable personally for the claim, if the claim is based on:
8 (1) a contract entered into by a custodian acting in a
9 custodial capacity;
10 (2) an obligation arising from the ownership or control of
11 custodial property; or
12 (3) a tort committed during the custodianship.
13 (B) A custodian is not liable personally:
14 (1) on a contract properly entered into in the custodial
15 capacity if the custodian fails to reveal that capacity and to identify
16 the custodianship in the contract; or
17 (2) for an obligation arising from control of custodial
18 property or for a tort committed during the custodianship unless
19 the custodian is personally at fault.
20 (C) A minor is not liable personally for:
21 (1) an obligation arising from ownership of custodial
22 property; or
23 (2) a tort committed during the custodianship unless the
24 minor is personally at fault.
25
26 Section 20-7-200. (A) A person nominated as provided by
27 Section 20-7-155 or designated as provided by Section 20-7-165 as
28 custodian may decline to serve by delivering a valid disclaimer to
29 the person who made the nomination or to the transferor or the
30 transferor’s legal representative. If the event giving rise to a
31 transfer has not occurred and a substitute custodian able, willing,
32 and eligible to serve is not nominated pursuant to Section
33 20-7-155, the person who made the nomination may nominate a
34 substitute custodian pursuant to Section 20-7-155, or the transferor
35 or the transferor’s legal representative shall designate a substitute
36 custodian at the time of the transfer. In either case, the designation
37 must be from among the persons eligible to serve as custodian for
38 that kind of property pursuant to Section 20-7-165(A). The
39 designated custodian has the rights of a successor custodian.
40 (B) A custodian may designate at any time a trust company or
41 an adult other than a transferor as provided by Section
42 20-7-160(A) as successor custodian by executing and dating an
43 instrument of designation before a subscribing witness other than
[4044] 22
1 the successor. If the instrument of designation does not contain or
2 is not accompanied by the resignation of the custodian, the
3 designation of the successor does not take effect until the custodian
4 resigns, dies, becomes incapacitated, or is removed.
5 (C) A custodian may resign at any time by delivering written
6 notice to the minor if the minor has attained the age of fourteen
7 years and to the successor custodian and by delivering the
8 custodial property to the successor custodian.
9 (D) If a custodian is ineligible, dies, or becomes incapacitated
10 without effectively having designated a successor and the minor
11 has attained the age of fourteen years, the minor may designate as
12 successor custodian, in the manner prescribed in subsection (B), an
13 adult member of the minor’s family, a conservator of the minor, or
14 a trust company. If the minor has not attained the age of fourteen
15 years or fails to act within sixty days after the ineligibility, death,
16 or incapacity, the conservator of the minor becomes successor
17 custodian. If the minor has no conservator or the conservator
18 declines to act, the transferor, the legal representative of the
19 transferor or of the custodian, an adult member of the minor’s
20 family, or any other interested person may petition the court to
21 designate a successor custodian.
22 (E) A custodian who declines to serve as provided by
23 subsection (A) or resigns as provided by subsection (C), or the
24 legal representative of a deceased or incapacitated custodian, as
25 soon as practicable, shall put the custodial property and records in
26 the possession and control of the successor custodian. The
27 successor custodian by action may enforce the obligation to deliver
28 custodial property and records and becomes responsible for each
29 item as received.
30 (F) A transferor, the legal representative of a transferor, an
31 adult member of the minor’s family, a guardian of the person of
32 the minor, the conservator of the minor, or the minor if the minor
33 has attained the age of fourteen years may petition the court to
34 remove the custodian for cause and to designate a successor
35 custodian other than a transferor as provided by Section
36 20-7-160(A) or to require the custodian to give appropriate bond.
37
38 Section 20-7-205. (A) A minor who has attained the age of
39 fourteen years, the minor’s guardian of the person or legal
40 representative, an adult member of the minor’s family, a transferor,
41 or a transferor’s legal representative may petition the court for:
42 (1) an accounting by the custodian or the custodian’s legal
43 representative; or
[4044] 23
1 (2) a determination of responsibility, as between the
2 custodial property and the custodian personally, for claims against
3 the custodial property unless the responsibility has been
4 adjudicated in an action pursuant to Section 20-7-195 to which the
5 minor or the minor’s legal representative was a party.
6 (B) A successor custodian may petition the court for an
7 accounting by the predecessor custodian.
8 (C) The court, in a proceeding pursuant to this subarticle or in
9 another proceeding, may require or permit the custodian or the
10 custodian’s legal representative to account.
11 (D) If a custodian is removed pursuant to Section 20-7-200(F),
12 the court shall require an accounting and order delivery of the
13 custodial property and records to the successor custodian and the
14 execution of all instruments required for transfer of the custodial
15 property.
16
17 Section 20-7-210. The custodian shall transfer the custodial
18 property in an appropriate manner to the minor or to the minor’s
19 estate upon the earlier of:
20 (1) the minor’s attainment of twenty-one years of age with
21 respect to custodial property transferred pursuant to Section
22 20-7-160(A) or (B);
23 (2) the minor’s attainment of eighteen years of age with respect
24 to custodial property transferred pursuant to Section 20-7-160(C)
25 or (D); or
26 (3) the minor’s death.
27
28 Section 20-7-215. This subarticle applies to a transfer within
29 the scope of Section 20-7-150 and made after its effective date if:
30 (1) the transfer purports to have been made pursuant to the
31 Uniform Gifts to Minors Act of South Carolina; or
32 (2) the instrument by which the transfer was made uses in
33 substance the designation ‘as custodian pursuant to the Uniform
34 Gifts to Minors Act’ or ‘as custodian pursuant to the Uniform
35 Transfers to Minors Act’ of any other state, and the application of
36 this subarticle is necessary to validate the transfer.
37
38 Section 20-7-220. (A) A transfer of custodial property, as
39 defined in this subarticle, made before its effective date is a valid
40 transfer, notwithstanding that there was no specific authority in the
41 Uniform Gifts to Minors Act of South Carolina for the coverage of
42 custodial property of that kind or for a transfer from that source at
43 the time the transfer was made.
[4044] 24
1 (B) This subarticle applies to all transfers made before the
2 effective date of this subarticle in a manner and form prescribed in
3 the Uniform Gifts to Minors Act of South Carolina, except to the
4 extent the application impairs constitutionally vested rights or
5 extends the duration of custodianships in existence on the effective
6 date of this subarticle.
7 (C) Sections 20-7-145 and 20-7-210, with respect to the age of
8 a minor for whom custodial property is held pursuant to this
9 subarticle, do not apply to custodial property held in a
10 custodianship that terminated before the effective date of this
11 subarticle because of the minor’s attainment of the age of majority.
12
13 Section 20-7-225. This subarticle must be applied and
14 construed to effectuate its general purpose to make uniform the
15 law with respect to the subject of this subarticle among states
16 enacting it.”
17
18
19 SECTION 3. Section 62-7-302 of the 1976 Code, as last amended
20 by Act 449 of 1994, is further amended to read:
21
22 ‘Section 62-7-302. (a) Except as otherwise provided by the
23 terms or limitations set forth in any will, agreement, court order, or
24 other instrument creating or defining the fiduciary’s duties and
25 powers (the terms “legal investment” or “authorized investment”
26 or words of similar import, as used in any such instrument being
27 taken, however, to mean any investment which is permitted by the
28 terms of this section), in acquiring, investing, reinvesting,
29 exchanging, retaining, selling, and managing property for the
30 benefit of another, a fiduciary shall exercise the judgment and care
31 under the circumstances then prevailing, that a prudent person
32 acting in a like capacity and familiar with such matters would use
33 to attain the purposes of the fiduciary account. In making
34 investment decisions, a fiduciary may consider the general
35 economic conditions, the anticipated tax consequences of the
36 investment, the anticipated duration of the fiduciary account, the
37 needs and objectives of its beneficiaries, and other prevailing
38 circumstances. Within the limitations of the foregoing standard
39 and considering individual investments as part of an overall
40 investment strategy, a fiduciary is authorized to:
41 (1) acquire and retain every kind of property and every kind of
42 investment, specifically including, but not by way of limitation,
43 bonds, debentures, and other corporate obligations, and stocks,
[4044] 25
1 preferred or common, and securities of any open-end or closed-end
2 management-type investment company or investment trust
3 registered under the Federal Investment Company Act of 1940, as
4 amended;
5 (2) retain property properly acquired, without limitation as to time
6 and without regard to its suitability for original purchase;
7 (3) retain the property received by such fiduciary on the creation of
8 the estate, guardianship, trust, or other fiduciary account
9 (including, in the case of a corporate fiduciary, stock or other
10 securities of its own issue or of its parent corporation’s issue)
11 without regard to its suitability for original purchase;
12 (4) retain the securities into which corporate securities owned by
13 the fiduciary may be converted or which may be derived therefrom
14 as a result of merger, consolidation, stock dividends, splits,
15 liquidations, and similar procedures (and may exercise by purchase
16 or otherwise any rights, warrants, or conversion features attaching
17 to any such securities);
18 (5) purchase or otherwise acquire and retain any security
19 underwritten by a syndicate, even if the fiduciary or its affiliate
20 (defined as any entity which owns or is owned by, in whole or in
21 part, the fiduciary or is owned by the same entity that owns the
22 fiduciary) participates or has participated as a member of the
23 syndicate, provided the fiduciary does not purchase the security
24 from itself, its affiliate, or from another member of the
25 underwriting syndicate or its affiliate pursuant to an implied or
26 express reciprocal agreement between the fiduciary or its affiliate,
27 and such other member or its affiliate, to purchase all or part of
28 each other’s underwriting participation commitment within the
29 syndicate. The propriety of an investment decision is to be
30 determined by what the fiduciary knew or should have known at
31 the time of the decision about the inherent nature and expected
32 performance of the investment, the attributes of the portfolio, the
33 general economic conditions, the anticipated tax consequences of
34 the investment, the anticipated duration of the fiduciary account,
35 the needs and objectives of the beneficiaries of the account, and
36 other pertinent circumstances as they existed at the time of the
37 decision. Any determination of liability for investment
38 performance shall consider not only the performance of a
39 particular investment but also the performance of the portfolio as a
40 whole. Any fiduciary acting under a governing instrument shall
41 not be liable to anyone whose interests arise from that instrument
42 for the fiduciary’s good faith reliance on the express provisions of
43 such instrument. The standards set forth in this section may be
[4044] 26
1 expanded, restricted, or eliminated by express provisions in a
2 governing instrument; and
3 (6) invest and reinvest in the securities of an open-end or
4 closed-end management investment company or of an investment
5 trust registered under the Investment Company Act of 1940, as
6 amended. A bank or trust company may invest in these securities
7 even if the bank or trust company, or an affiliate of the bank or
8 trust company, provides services to the investment company or
9 investment trust such as that of an investment advisor, custodian,
10 transfer agent, registrar, sponsor, distributor, manager, or
11 otherwise, and receives reasonable remuneration for those services.
12 (b) The provisions of this section shall not be construed as
13 restricting the power of a court of proper jurisdiction to permit a
14 fiduciary to deviate from the terms of any will, agreement, or other
15 instrument relating to the acquisition, investment, reinvestment,
16 exchange, retention, sale, or management of fiduciary property.
17 (c) When a fiduciary shall invest the property in his charge in
18 whole or in part in the manner authorized by this section such
19 fiduciary shall not be chargeable in his account at a greater rate of
20 interest, as to such property so invested, than such property shall
21 have so earned.
22 (d) Whenever a trust instrument reserves unto the trustor, or vests
23 in an advisory or investment committee or in any other person or
24 persons, including a co-trustee, to the exclusion of the trustee or to
25 the exclusion of one or more of several trustees, authority to direct
26 the making or retention of investments or of any investment, the
27 excluded trustee or co-trustee shall be liable, if at all, only as a
28 ministerial agent and shall not be liable as trustee or co-trustee for
29 any loss resulting from the making or retention of any investment
30 pursuant to such authorized direction.
31 (e) Notwithstanding subsections (a) through (d), the duties of a
32 trustee with respect to acquiring or retaining a contract of
33 insurance upon the life of the trustor, or upon the lives of the
34 trustor and the trustor’s spouse, children, or parents do not include
35 a duty to:
36 (i) determine whether any such contract is or remains a proper
37 investment;
38 (ii) exercise policy options available under any such contract; or
39 (iii) diversify any such contract.
40 The trustee is not liable to the beneficiaries under the instrument or
41 to any other party for any loss arising from the absence of this duty
42 upon the trustee. Except as specifically provided in the trust
43 instrument, the provisions of this subsection apply to any trust
[4044] 27
1 established before or after the effective date of this subsection and
2 to any life insurance policy acquired by the trustee before or after
3 the effective date of this subsection. (A) This section may be cited
4 as the South Carolina Uniform Prudent Investor Act.
5 (B)(1) Except as otherwise provided in item (2), a trustee who
6 invests and manages trust assets owes a duty to the beneficiaries of
7 the trust to comply with the prudent investor rule in this section.
8 (2) The prudent investor rule is a default rule that may be
9 expanded, restricted, eliminated, or otherwise altered by the
10 provisions of a trust. A trustee is not liable to a beneficiary to the
11 extent that the trustee acted in reasonable reliance on the
12 provisions of the trust.
13 (C)(1) A trustee shall invest and manage trust assets as a
14 prudent investor would by considering the purposes, terms,
15 distribution requirements, and other circumstances of the trust. In
16 satisfying this standard, the trustee shall exercise reasonable care,
17 skill, and caution.
18 (2) A trustee’s investment and management decisions
19 respecting individual assets must be evaluated not in isolation but
20 in the context of the trust portfolio as a whole and as a part of an
21 overall investment strategy having risk and return objectives
22 reasonably suited to the trust.
23 (3) A trustee shall consider in investing and managing trust
24 assets those circumstances of the following as are relevant to the
25 trust or its beneficiaries:
26 (a) general economic conditions;
27 (b) the possible effect of inflation or deflation;
28 (c) the expected tax consequences of investment decisions
29 or strategies;
30 (d) the role that each investment or course of action plays
31 within the overall trust portfolio, including financial assets,
32 interests in closely held enterprises, tangible and intangible
33 personal property, and real property;
34 (e) the expected total return from income and the
35 appreciation of capital;
36 (f) other resources of the beneficiaries;
37 (g) needs for liquidity, regularity of income, and
38 preservation or appreciation of capital; and
39 (h) an asset’s special relationship or special value to the
40 purposes of the trust or to one or more of the beneficiaries.
41 (4) A trustee shall make a reasonable effort to verify facts
42 relevant to the investment and management of trust assets.
[4044] 28
1 (5) A trustee may invest in any kind of property or type of
2 investment consistent with the standards of this section.
3 (6) A trustee who has special skills or expertise, or is named
4 trustee in reliance upon the trustee’s representation that the trustee
5 has special skills or expertise, has a duty to use those special skills
6 or expertise.
7 (D) A trustee shall diversify the investments of the trust unless
8 the trustee reasonably determines that, because of special
9 circumstances, the purposes of the trust are better served without
10 diversifying.
11 (E) Within a reasonable time after accepting a trusteeship or
12 receiving trust assets, a trustee shall review the trust assets and
13 make and implement decisions concerning the retention and
14 disposition of assets in order to bring the trust portfolio into
15 compliance with the purposes, terms, distribution requirements,
16 and other circumstances of the trust and with the requirements of
17 this section.
18 (F) A trustee shall:
19 (1) invest and manage the trust assets solely in the interest of
20 the beneficiaries;
21 (2) act impartially in investing and managing the trust assets,
22 taking into account any differing interests of the beneficiaries if a
23 trust has two or more beneficiaries;
24 (3) incur only costs that are appropriate and reasonable in
25 relation to the assets, the purposes of the trust, and the skills of the
26 trustee in investing and managing trust assets.
27 (G) Compliance with the prudent investor rule is determined in
28 light of the facts and circumstances existing at the time of a
29 trustee’s decision or action and not by hindsight.
30 (H)(1) A trustee may delegate investment and management
31 functions if it is prudent to do so under the circumstances. The
32 trustee shall exercise reasonable care, skill, and caution in:
33 (a) selecting an agent;
34 (b) establishing the scope and terms of the delegation,
35 consistent with the purposes and terms of the trust; and
36 (c) periodically reviewing the actions of the agent to
37 monitor his performance and compliance with the terms of the
38 delegation.
39 (2) In performing a delegated function, an agent owes a duty
40 to the trust to exercise reasonable care to comply with the terms of
41 the delegation.
[4044] 29
1 (3) A trustee who complies with the requirements of item (1)
2 is not liable to the beneficiaries or to the trust for the decisions or
3 actions of the agent to whom the function was delegated.
4 (4) By accepting the delegation of a trust function from the
5 trustee of a trust that is subject to the law of this State, an agent
6 submits to the jurisdiction of the courts of this State.
7 (I) The following terms or comparable language in the
8 provisions of a trust, unless otherwise limited or modified,
9 authorize any investment or strategy permitted pursuant to this
10 section: ‘investments permissible by law for investment of trust
11 funds’, ‘legal investments’, ‘authorized investments’, ‘using the
12 judgment and care under the circumstances then prevailing that
13 persons of prudence, discretion, and intelligence exercise in the
14 management of their own affairs, not in regard to speculation but
15 in regard to the permanent disposition of their funds, considering
16 the probable income as well as the probable safety of their capital’,
17 ‘prudent man rule’, ‘prudent trustee rule’, ‘prudent person rule’,
18 and ‘prudent investor rule’.
19 (J)(1) Notwithstanding provisions of this section to the
20 contrary, the duties of a trustee with respect to acquiring a contract
21 of insurance upon the life of the trustor or upon the lives of the
22 trustor and the trustor’s spouse, children, or parents do not include
23 a duty to:
24 (a) determine whether the contract is or remains a proper
25 investment;
26 (b) exercise policy options available under the contract; or
27 (c) diversify the contract.
28 (2) The trustee is not liable to the beneficiaries of the
29 contract of insurance or to another party for loss arising from this
30 subsection.
31 (3) Except as specifically provided in the trust instrument,
32 the provisions of this subsection apply to trust established before
33 or after the effective date of this subsection and to a life insurance
34 policy acquired by the trustee before or after the effective date of
35 this section.
36 (K) This section applies to ‘charitable remainder trusts’.
37 ‘Charitable remainder trust’ means a trust that provides for a
38 specified distribution at least annually for either life or a term of
39 years to one or more beneficiaries, at least one of which is not a
40 charity with an irrevocable remainder interest to be held for the
41 benefit of, or paid over to, charity.
[4044] 30
1 (L) This section must be applied and construed to effectuate its
2 general purpose to make uniform the law with respect to the
3 subject of this section among the States enacting it.”
4
5 SECTION 4. Part 4, Article 7, Chapter 7, Title 62 of the 1976
6 Code is amended to read:
7
8 “Part 4
9
10 Revised South Carolina Uniform Principal And Income Act
11
12 Section 62-7-401. This part [Sections 62-7-401 et seq.] may be
13 cited as the Revised Uniform Principal and Income Act.
14
15 Section 62-7-402. As used in this part:
16 (1) “Income beneficiary” means the person to whom income is
17 presently payable or for whom it is accumulated for distribution as
18 income.
19 (2) “Inventory value” means the cost of property purchased by the
20 trustee and the market value of other property at the time it was
21 made subject to the trust, but in the case of a testamentary trust the
22 trustee may use any value finally determined for the purposes of an
23 estate or inheritance tax.
24 (3) “Remainderman” means the person entitled to principal,
25 including income which has been accumulated and added to
26 principal. and
27 (4) “Trustee” means an original trustee and any succeeding or
28 added trustee.
29
30 Section 62-7-403. Except as specifically provided in the trust
31 instrument or the will or in this part [Sections 62-7-401 et seq.],
32 this part shall apply to any receipt or expense received or incurred
33 by any trust or decedent’s estate whether established before or
34 after June 3, 1963, and whether the asset involved was acquired by
35 the trustee before or after June 3, 1963; provided, however, it shall
36 not be applied to upset apportionments or allocations of corporate
37 distributions declared by the corporation or heretofore made in fact
38 by trustees or to disturb any rights heretofore vested in the life
39 beneficiary.
40
41 Section 62-7-404. (a) A trust shall be administered with due
42 regard to the respective interests of income beneficiaries and
43 remaindermen. A trust is so administered with respect to the
[4044] 31
1 allocation of receipts and expenditures if a receipt is credited or an
2 expenditure is charged to income or principal or partly to each:
3 (1) in accordance with the terms of the trust instrument,
4 notwithstanding contrary provisions of this part [Sections 62-7-401
5 et seq.];
6 (2) in the absence of any contrary terms of the trust instrument, in
7 accordance with the provisions of this part [Sections 62-7-401 et
8 seq.]; or
9 (3) if neither of the preceding rules of administration is applicable,
10 in accordance with what is reasonable and equitable in view of the
11 interests of those entitled to income as well as of those entitled to
12 principal, and in view of the manner in which men of ordinary
13 prudence, discretion, and judgment would act in the management
14 of their own affairs.
15 (b) If the trust instrument gives the trustee discretion in crediting a
16 receipt or charging an expenditure to income or principal or partly
17 to each, no inference of imprudence or partiality arises from the
18 fact that the trustee has made an allocation contrary to the
19 provisions of this part [Sections 62-7-401 et seq.].
20
21 Section 62-7-405. Income is the return in money or property
22 derived from the use of principal, including return received as:
23 (1) rent of real or personal property, including sums received for
24 cancellation or renewal of a lease;
25 (2) interest on money lent, including sums received as
26 consideration for the privilege of prepayment of principal except as
27 provided in Section 62-7-410 on bond premium and bond
28 discount;
29 (3) income earned during administration of a decedent’s estate as
30 provided in Sections 62-7-408 and 62-7-419;
31 (4) corporate distributions as provided in Section 62-7-409;
32 (5) accrued increment on bonds or other obligations issued at
33 discount as provided in Section 62-7-410;
34 (6) receipts from principal used in business and farming as
35 provided in Section 62-7-411;
36 (7) receipts from disposition of natural resources as provided in
37 Sections 62-7-412 and 62-7-413;
38 (8) receipts from other principal subject to depletion as provided in
39 Section 62-7-414; or
40 (9) receipts from disposition of underproductive property as
41 provided in Section 62-7-415.
42
[4044] 32
1 Section 62-7-406. Principal is the property which has been set
2 aside by the owner or the person legally empowered so that it is
3 held in trust eventually to be delivered to a remainderman while
4 the return or use of the principal is in the meantime taken or
5 received by or held for accumulation for an income beneficiary.
6 Principal includes:
7 (1) consideration received by the trustee on the sale or other
8 transfer of principal or on repayment of a loan or as a refund or
9 replacement or change in the form of principal;
10 (2) proceeds of property taken on eminent domain proceedings;
11 (3) proceeds of insurance upon property forming part of the
12 principal except proceeds of insurance upon a separate interest of
13 an income beneficiary;
14 (4) stock dividends, receipts on liquidation of a corporation, and
15 other corporate distributions as provided in Section 62-7-409;
16 (5) receipts from the disposition of corporate securities as provided
17 in Section 62-7-410;
18 (6) royalties and other receipts from disposition of natural
19 resources as provided in Sections 62-7-412 and 62-7-413;
20 (7) receipts from other principal subject to depletion as provided in
21 Section 62-7-414;
22 (8) any profit resulting from any change in the form of principal
23 except as provided in Section 62-7-415 on underproductive
24 property;
25 (9) receipts from disposition of underproductive property as
26 provided in Section 62-7-415; or
27 (10) any allowances for depreciation established under Sections
28 62-7-411 and 62-7-417(2).
29
30 Section 62-7-407. (a) An income beneficiary is entitled to
31 income from the date specified in the trust instrument, or, if none
32 is specified, from the date an asset becomes subject to the trust. In
33 the case of an asset becoming subject to a trust by reason of a will,
34 it becomes subject to the trust as of the date of the death of the
35 testator even though there is an intervening period of
36 administration of the testator’s estate.
37 (b) In the administration of a decedent’s estate or a testamentary
38 trust or in the case of an asset received under a will by a trustee:
39 (1) receipts due but not paid at the date of death of the testator are
40 principal;
41 (2) receipts in the form of periodic payments (other than corporate
42 distributions to stockholders), such as rent, interest, or annuities,
43 not due at the date of the death of the testator shall be treated as
[4044] 33
1 accruing from day to day. That portion of such a receipt accruing
2 before the date of death is principal and the balance is income.
3 (c) In all other cases, any receipt from an income producing asset
4 is income even though the receipt was earned or accrued in whole
5 or in part before the date when the asset became subject to the
6 trust.
7 (d) On termination of an income interest, the income beneficiary
8 whose interest is terminated, or his estate, is entitled to:
9 (1) income undistributed on the date of termination;
10 (2) income due but not paid to the trustee on the date of
11 termination; or
12 (3) income in the form of periodic payments (other than corporate
13 distributions to stockholders), such as rent, interest, or annuities,
14 not due on the date of termination, accrued from day to day.
15 (e) Corporate distributions to stockholders shall be treated as due
16 on the day fixed by the corporation for determination of
17 stockholders of record entitled to distribution or, if no date is fixed,
18 on the date of declaration of the distribution by the corporation.
19
20 Section 62-7-408. Unless the will otherwise provides, income
21 from the assets of a decedent’s estate after the death of the testator
22 and before distribution, including income from property used to
23 discharge liabilities, shall be determined in accordance with the
24 rules applicable to a trustee under this Part [Sections 62-7-401 et
25 seq.,] and distributed as follows:
26 (1) to specific legatees and devisees, the income from the property
27 bequeathed or devised to them respectively, less taxes, ordinary
28 repairs, and other expenses of management and operation of the
29 property, and an appropriate portion of interest accrued since the
30 death of the testator and of taxes imposed on income (excluding
31 taxes on capital gains) which accrue during the period of
32 administration;
33 (2)(i) for one year after the first appointment of a personal
34 representative, to all other legatees and devisees, except legatees of
35 pecuniary bequests not in trust, the balance of the income, less the
36 balance of taxes, ordinary repairs, and other expenses of
37 management and operation of all property from which the State is
38 entitled to income, interest accrued since the death of the testator,
39 and taxes imposed on income (excluding taxes on capital gains)
40 which accrue during the period of administration, in proportion to
41 their respective interests in the undistributed assets of the estate
42 computed at times of distribution on the basis of inventory value.
[4044] 34
1 Income received by a trustee under this section shall be treated as
2 income of the trust.
3 (ii) beginning one year after the first appointment of a personal
4 representative, to all other legatees and devisees, the balance of the
5 income less the balance of taxes, ordinary repairs, and other
6 expenses of management and operation of all property from which
7 the State is entitled to income, interest accrued since the death of
8 the testator, and taxes imposed on income (excluding taxes on
9 capital gains) which accrue during the period of administration, in
10 proportion to their respective interests in the undistributed assets of
11 the estate computed at times of distribution on the basis of
12 inventory value. Income received by a trustee under this section
13 shall be treated as income of the trust.
14
15 Section 62-7-409. (a) Corporate distributions of shares of the
16 distributing corporation, including distributions in the form of a
17 stock split or stock dividend, are principal. A right to subscribe to
18 shares or other securities issued by the distributing corporation
19 accruing to stockholders on account of their stock ownership and
20 the proceeds of any sale of the right are principal.
21 (b) Except to the extent that the corporation indicates that some
22 part of a corporate distribution is a settlement of preferred to
23 guaranteed dividends accrued since the trustee became a
24 stockholder or is in lieu of an ordinary cash dividend, a corporate
25 distribution is principal if the distribution is pursuant to:
26 (1) a call of shares;
27 (2) a merger, consolidation, reorganization, or other plan by which
28 assets of the corporation are acquired by another corporation; or
29 (3) a total or partial liquidation of the corporation. For the
30 purposes of this section, a distribution is pursuant to a liquidation
31 if the corporation so indicates, or if the corporation is making a
32 distribution of assets, other than cash, pursuant to a court decree or
33 final administrative order by a government agency ordering
34 distribution of the particular assets.
35 (c) Distributions made from ordinary income by a regulated
36 investment company or by a trust qualifying and electing to be
37 taxed as a real estate investment trust under federal law are
38 income. All other distributions made by such a company or trust,
39 including distributions from capital gains, depreciation, or
40 depletion, whether in the form of cash or an option to take new
41 stock or cash or an option to purchase additional shares, are
42 principal.
[4044] 35
1 (d) Except as provided in subsections (a), (b), and (c), all corporate
2 distributions are income, including cash dividends, distributions of,
3 or rights to, subscribe to shares or securities or obligations of
4 corporations other than the distributing corporation, and the
5 proceeds of such rights or property distributions. Except as
6 provided in subsections (b) and (c), if the distributing corporation
7 gives a stockholder an option to receive a distribution either in
8 cash or in its own shares, the distribution chosen is income.
9 (e) The trustee may rely upon any statement of the distributing
10 corporation as to any fact relevant under any provision of this part
11 [Sections 62-7-401 et seq.] concerning the source or character of
12 dividends or distributions of corporate assets.
13
14 Section 62-7-410. (a) Bonds or other obligations for the
15 payment of money are principal at their inventory value, except as
16 provided in subsection (b) for discount bonds. No provision shall
17 be made for amortization of bond premiums or for accumulation
18 for discount. The proceeds of sale, redemption, or other
19 disposition of the bonds or obligations are principal.
20 (b) The increment in value of a bond or other obligation for the
21 payment of money payable at a future time in accordance with a
22 fixed schedule of appreciation in excess of the price at which it
23 was issued, and the amount of the accretion of a bond or other
24 obligation for the payment of money bearing no stated interest but
25 redeemable at maturity or at a future time in an amount in excess
26 of the amount in consideration for which it was issued, is
27 distributable as income. The increment in value is distributable to
28 the beneficiary who was the income beneficiary at the time of
29 increment from the first principal cash available or, if none is
30 available, when realized by sale, redemption, or other disposition.
31 Whenever unrealized increment is distributed as income but out of
32 principal, the principal shall be reimbursed for the increment when
33 realized.
34
35 Section 62-7-411. (a) If a trustee uses any part of the principal
36 in the continuance of a business of which the settlor was a sole
37 proprietor or a partner, the net profits of the business, computed in
38 accordance with generally accepted accounting principles for a
39 comparable business, are income. If a loss results in any fiscal or
40 calendar year, the loss falls on principal and shall not be carried
41 into any other fiscal or calendar year for the purposes of
42 calculating net income.
[4044] 36
1 (b) Generally accepted accounting principles shall be used to
2 determine income from an agricultural or farming operation,
3 including the raising of animals or the operation of a nursery.
4
5 Section 62-7-412. (a) If any part of the principal consists of a
6 right to receive royalties, overriding or limited royalties, working
7 interests, production payments, net profit interests, or other
8 interests in minerals or other natural resources in, on, or under
9 land, the receipts from taking the natural resources from the land
10 shall be allocated as follows:
11 (1) If received as rent on a lease or extension payments on a lease,
12 the receipts are income.
13 (2) If received from a production payment, the receipts are income
14 to the extent of any factor for interest or its equivalent provided in
15 the governing instrument. There shall be allocated to principal the
16 fraction of the balance of the receipts which the unrecovered cost
17 of the production payment bears to the balance owed on the
18 production payment, exclusive of any factor for interest or its
19 equivalent. The receipts not allocated to principal are income.
20 (3) If received as a royalty, overriding or limited royalty, or as a
21 bonus, or from a working interest or net profit, or from any other
22 interest in minerals or other natural resources, receipts not
23 provided for in the preceding paragraphs of this section shall be
24 apportioned on a yearly basis in accordance with this paragraph
25 whether or not any natural resource was being taken from the land
26 at the time the trust was established. Twenty-seven and one-half
27 percent of the gross receipts (but not to exceed fifty percent of the
28 net receipts remaining after payment of all expenses, direct and
29 indirect, computed without allowance for depletion) shall be added
30 to principal as an allowance for depletion. The balance of the
31 gross receipts, after payment therefrom of all expenses, direct and
32 indirect, is income.
33 (b) If a trustee, on June 3, 1963, held an item of depletable
34 property of a type specified in this section, he shall allocate
35 receipts from the property in the manner used before June 3, 1963,
36 but as to all depletable property acquired after June 3, 1963, by an
37 existing or new trust, the method of allocation provided herein
38 shall be used.
39 (c) This section does not apply to timber, water, soil, sod, dirt, turf,
40 or mosses.
41
42 Section 62-7-413. If any part of the principal consists of land
43 from which merchantable timber may be removed, the receipts
[4044] 37
1 from taking the timber from the land shall be allocated in
2 accordance with paragraph (3) of Section 62-7-404.
3
4 Section 62-7-414. Except as provided in Sections 62-7-412 and
5 62-7-413, if the principal consists of property subject to depletion,
6 including leaseholds, patents, copyrights, royalty rights, and rights
7 to receive payments on a contract for deferred compensation, the
8 receipts from the property not in excess of five percent per year of
9 its inventory value are income and the balance is principal.
10
11 Section 62-7-415. (a) Except as otherwise provided in this
12 section, a portion of the net proceeds of sale of any part of
13 principal which has not produced an average net income of at least
14 one percent per year of its inventory value for more than a year
15 (including as income the value of any beneficial use of the
16 property by the income beneficiary) shall be treated as delayed
17 income to which the income beneficiary is entitled as provided in
18 this section. The net proceeds of sale are the gross proceeds
19 received, including the value of any property received in
20 substitution for the property disposed of, less the expenses,
21 including capital gains tax, if any, incurred in disposition and less
22 any carrying charges which have been paid while the property was
23 underproductive.
24 (b) The sum allocated as delayed income is the difference between
25 the net proceeds and the amount which, had it been invested at
26 simple interest at four percent per year while the property was
27 underproductive, would have produced the net proceeds. This sum
28 plus any carrying charges and expenses previously charged against
29 income while the property was underproductive, less any income
30 received by the income beneficiary from the property and less the
31 value of any beneficial use of the property by the income
32 beneficiary, is income, and the balance is principal.
33 (c) An income beneficiary or his estate is entitled to delayed
34 income under this section as if it accrued from day to day during
35 the time he was a beneficiary.
36 (d) If principal subject to this section is disposed of by conversion
37 into property which cannot be apportioned easily, including land or
38 mortgages (for example, realty acquired by or in lieu of
39 foreclosure), the income beneficiary is entitled to the net income
40 from any form of property or obligation into which the original
41 principal was converted while the property or obligation is held. If
42 within five years after the conversion the property into which the
43 underproductive property is converted has not been further
[4044] 38
1 converted into easily apportionable property, no allocation as
2 provided in this section shall be made.
3
4 Section 62-7-416. After determining income and principal in
5 accordance with the terms of the trust instrument or of this part, the
6 trustee shall charge to income or principal expenses and other
7 charges as provided in Sections 62-7-417, 62-7-418, and 62-7-420.
8
9 Section 62-7-417. (a) The following charges shall be made
10 against income:
11 (1) ordinary expenses incurred in connection with the
12 administration, management, and preservation of the trust
13 property, including regularly recurring taxes assessed against any
14 portion of the principal, water rates, premiums on insurance taken
15 upon the interests of the income beneficiary, remainderman or
16 trustee, interest paid by the trustee, and ordinary repairs;
17 (2) a reasonable allowance for depreciation on property subject to
18 depreciation under generally accepted accounting principles, but
19 no allowance shall be made for depreciation of that portion of any
20 real property used by a beneficiary as a residence; nor for
21 depreciation of any property held by the trustee on June 3, 1963,
22 (except as to subsequent expenses incurred for extraordinary
23 repairs or capital improvements to such property), for which the
24 trustee was not then making an allowance for depreciation;
25 (3) one-half of court costs, attorney’s fees, and other fees on
26 periodic judicial accounting, unless the court directs otherwise;
27 (4) court costs, attorney’s fees, and other fees on other accountings
28 or judicial proceedings if the matter primarily concerns the income
29 interest, unless the court directs otherwise;
30 (5) one-half of the trustee’s regular compensation, whether based
31 on a percentage of principal or income, and all expenses
32 reasonably incurred for current management of principal and
33 application of income;
34 (6) any tax levied upon receipts defined as income under this part
35 [Sections 62-7-401 et seq.] or the trust instrument and payable by
36 the trustee.
37 (b) If charges against income are of unusual amount, the trustee
38 may by means of reserves or other reasonable means charge them
39 over a reasonable period of time and withhold from distribution
40 sufficient sums to regularize distributions.
41
42 Section 62-7-418. The following charges shall be made against
43 principal:
[4044] 39
1 (1) trustee’s compensation not chargeable to income under
2 subsection (a), items (4) and (5) of Section 62-7-417, including
3 special compensation of trustees and expenses reasonably incurred
4 in connection with the principal, court costs, and attorney’s fees
5 concerning matters of principal, and trustee’s compensation
6 computed on principal as an acceptance, distribution, or
7 termination fee;
8 (2) charges not provided for in Section 62-7-417(a) including the
9 cost of investing and reinvesting principal, the payments on
10 principal of an indebtedness (including a mortgage amortized by
11 periodic payments of principal), expenses for preparation of
12 property for rental or sale, and, unless the court directs otherwise,
13 expenses incurred in maintaining or defending any action to
14 protect or construe the trust or the property or assure the title of
15 any trust property;
16 (3) extraordinary repairs or expenses incurred in making a capital
17 improvement of principal, including special assessments, but, to
18 the extent permitted by Section 62-7-411 and subsection (a), item
19 (2), of Section 62-7-417 a trustee may establish an allowance for
20 depreciation out of income;
21 (4) any tax levied upon profit, gain, or other receipts allocated to
22 principal notwithstanding denomination of the tax as an income tax
23 by the taxing authority;
24 (5) if an estate or inheritance tax is levied in respect of a trust in
25 which both an income beneficiary and a remainderman have an
26 interest, any amount apportioned to the trust, including interest and
27 penalties, even though the income beneficiary also has rights in the
28 principal.
29
30 Section 62-7-419. Unless the will otherwise provides and
31 subject to Section 62-7-408, all expenses incurred in connection
32 with the settlement of a decedent’s estate, including debts, funeral
33 expenses, estate taxes, interest and penalties concerning taxes,
34 family allowances, fees of attorneys and personal representatives,
35 and court costs shall be charged against the principal of the estate.
36
37 Section 62-7-420. Regularly recurring charges payable from
38 income shall be apportioned to the same extent and in the same
39 manner that income is apportioned under Section 62-7-407.
40
41 Section 62-7-421. This part [Sections 62-7-401 et seq.] shall be
42 so construed as to effectuate its general purpose to make uniform
43 the law of those states which enact it.
[4044] 40
1
2 Section 62-7-401. This part may be cited as the South Carolina
3 Uniform Principal and Income Act.
4
5 Section 62-7-402. As used in this part:
6 (1) ‘Accounting period’ means a calendar year unless another
7 twelve-month period is selected by a fiduciary. The term includes
8 a portion of a calendar year or other twelve-month period that
9 begins when an income interest begins or ends when an income
10 interest ends.
11 (2) ‘Beneficiary’ includes, in the case of a decedent’s estate, an
12 heir, legatee, and devisee and, in the case of a trust, an income
13 beneficiary and a remainder beneficiary.
14 (3) ‘Fiduciary’ means a personal representative or a trustee.
15 The term includes an executor, administrator, successor personal
16 representative, special administrator, and a person performing
17 substantially the same function.
18 (4) ‘Income’ means money or property that a fiduciary receives
19 as current return from a principal asset. The term includes a
20 portion of receipts from a sale, exchange, or liquidation of a
21 principal asset, to the extent provided in Section 62-7-410 through
22 Section 62-7-424.
23 (5) ‘Income beneficiary’ means a person to whom net income
24 of a trust is or may be payable.
25 (6) ‘Income interest’ means the right of an income beneficiary
26 to receive all or part of net income, whether the terms of the trust
27 require it to be distributed or authorize it to be distributed in the
28 trustee’s discretion.
29 (7) ‘Mandatory income interest’ means the right of an income
30 beneficiary to receive net income that the terms of the trust require
31 the fiduciary to distribute.
32 (8) ‘Net income’ means the total receipts allocated to income
33 during an accounting period minus the disbursements made from
34 income during the period, plus or minus transfers under this part to
35 or from income during the period.
36 (9) ‘Person’ means an individual, a corporation, a business
37 trust, an estate, a trust, a partnership, a limited liability company,
38 an association, a joint venture, a government or a governmental
39 subdivision, an agency, or an instrumentality; a public corporation,
40 or other legal or commercial entity.
41 (10) ‘Principal’ means property held in trust for distribution to a
42 remainder beneficiary when the trust terminates.
[4044] 41
1 (11) ‘Remainder beneficiary’ means a person entitled to receive
2 principal when an income interest ends.
3 (12) ‘Terms of a trust’ means the manifestation of the intent of a
4 settlor or decedent with respect to the trust, expressed in a manner
5 that admits of its proof in a judicial proceeding, whether by written
6 or spoken words or by conduct.
7 (13) ‘Trustee’ includes an original, additional, or successor
8 trustee, whether or not appointed or confirmed by a court.
9
10 Section 62-7-403. (A) In allocating receipts and disbursements
11 to or between principal and income, and with respect to any matter
12 within the scope of Sections 62-7-405 and 62-7-409, a fiduciary:
13 (1) shall administer a trust or estate in accordance with the
14 terms of the trust or the will, even if there is a different provision
15 in this part;
16 (2) may administer a trust or estate by the exercise of a
17 discretionary power of administration given to the fiduciary by the
18 terms of the trust or the will, even if the exercise of the power
19 produces a result different from a result required or permitted by
20 this part;
21 (3) shall administer a trust or estate in accordance with this
22 part if the terms of the trust or the will do not contain a different
23 provision or do not give the fiduciary a discretionary power of
24 administration; and
25 (4) shall add a receipt or charge a disbursement to principal
26 to the extent that the terms of the trust and this part do not provide
27 a rule for allocating the receipt or disbursement to or between
28 principal and income.
29 (B) In exercising the power to adjust pursuant to Section
30 62-7-404(A) or a discretionary power of administration regarding a
31 matter within the scope of this part, whether granted by the terms
32 of a trust, a will, or this part, a fiduciary shall administer a trust or
33 estate impartially, based on what is fair and reasonable to all of the
34 beneficiaries, except to the extent that the terms of the trust or the
35 will clearly manifest an intention that the fiduciary shall or may
36 favor one or more of the beneficiaries. A determination in
37 accordance with this part is presumed to be fair and reasonable to
38 all of the beneficiaries.
39
40 Section 62-7-404. (A) A trustee may adjust between principal
41 and income to the extent the trustee considers necessary if the
42 trustee invests and manages trust assets as a prudent investor, the
43 terms of the trust describe the amount that may or must be
[4044] 42
1 distributed to a beneficiary by referring to the trust’s income, and
2 the trustee determines, after applying the provisions in Section
3 62-7-403(A), that the trustee is unable to comply with Section
4 62-7-403(B).
5 (B) In deciding whether and to what extent to exercise the
6 power of adjustment in subsection (A), a trustee shall consider all
7 factors relevant to the trust and its beneficiaries, including:
8 (1) nature, purpose, and expected duration of the trust;
9 (2) intent of the settlor;
10 (3) identity and circumstances of the beneficiaries;
11 (4) needs for liquidity, regularity of income, and
12 preservation and appreciation of capital;
13 (5) assets held in the trust and the extent to which they
14 consist of financial assets, interests in closely held enterprises,
15 tangible and intangible personal property, or real property and the
16 extent to which an asset is used by a beneficiary, and whether an
17 asset was purchased by the trustee or received from the settlor;
18 (6) net amount otherwise allocated to income and the
19 increase or decrease in the value of the principal assets, which the
20 trustee may estimate as to assets for which market values are not
21 readily available;
22 (7) terms of the trust and whether and to what extent they
23 give the trustee the power to, or prohibit him from, invade
24 principal or accumulate income or prohibit the trustee from
25 invading principal or accumulating income, and the extent to
26 which the trustee has exercised a power from time to time to
27 invade principal or accumulate income;
28 (8) actual and anticipated effect of economic conditions on
29 principal and income and effects of inflation and deflation; and
30 (9) anticipated tax consequences of an adjustment.
31 (C) A trustee may not make an adjustment:
32 (1) that diminishes the income interest in a trust that requires
33 all of the income to be paid at least annually to a surviving spouse
34 and for which an estate tax or gift tax marital deduction is allowed,
35 in whole or in part, if the trustee did not have the power to make
36 the adjustment;
37 (2) that reduces the actuarial value of the income interest in
38 a trust to which a person transfers property with the intent to
39 qualify for a gift tax exclusion;
40 (3) that changes the amount payable to a beneficiary as a
41 fixed annuity or a fixed fraction of the value of the trust assets;
[4044] 43
1 (4) from any amount that is permanently set aside for
2 charitable purposes under a will or the terms of a trust unless both
3 income and principal are so set aside;
4 (5) if possessing or exercising the power to make an
5 adjustment is determinative in causing an individual to be treated
6 as the owner of all or part of the trust for income tax purposes;
7 (6) if possessing or exercising the power to make an
8 adjustment is determinative in causing all or part of the trust assets
9 to be included for estate tax purposes in the estate of an individual
10 who has the power to remove a trustee or appoint a trustee, or
11 both;
12 (7) if the trustee is a beneficiary of the trust; or
13 (8) if the trustee is not a beneficiary, but the adjustment
14 benefits the trustee directly or indirectly.
15 (D) If subsection (C)(5), (6), (7), or (8) applies to a trustee and
16 there is more than one trustee, a cotrustee to whom the provision
17 does not apply may make the adjustment unless the exercise of the
18 power by the remaining trustee or trustees is not permitted by the
19 terms of the trust.
20 (E) A trustee may release the entire power of adjustment in by
21 subsection (A) or may release only the power to adjust from
22 income to principal or the power to adjust from principal to income
23 if the trustee is uncertain about whether possessing or exercising
24 the power causes a result described in subsections (C)(1) through
25 (6) or (C)(8) or if the trustee determines that possessing or
26 exercising the power may deprive the trust of a tax benefit or
27 impose a tax burden not contemplated in subsection (C). The
28 release may be permanent or for a specified period, including a
29 period measured by the life of an individual.
30 (F) Terms of a trust that limit the power of a trustee to make an
31 adjustment between principal and income do not affect the
32 application of this section unless it is clear from the terms of the
33 trust that the terms are intended to deny the trustee the power of
34 adjustment in subsection (A).
35
36 Section 62-7-405. After a decedent dies, in the case of an
37 estate, or after an income interest in a trust ends, a fiduciary:
38 (1) of an estate or of a terminating income interest shall
39 determine the amount of net income and net principal receipts
40 received from property specifically given to a beneficiary pursuant
41 to Sections 62-7-407 through 62-7-430 which apply to trustees and
42 the provisions of item (5). The fiduciary shall distribute the net
[4044] 44
1 income and net principal receipts to the beneficiary who is to
2 receive the specific property;
3 (2) shall determine the remaining net income of a decedent’s
4 estate or a terminating income interest pursuant to Sections
5 62-7-407 through 62-7-430 which apply to trustees and by:
6 (a) including in net income all income from property used to
7 discharge liabilities;
8 (b) paying from income or principal, in the fiduciary’s
9 discretion, fees of attorneys, accountants, and fiduciaries, court
10 costs and other expenses of administration, and interest on death
11 taxes; except that the fiduciary may pay those expenses from
12 income of property passing to a trust for which the fiduciary claims
13 an estate tax marital or charitable deduction only to the extent that
14 the payment of those expenses from income does not cause the
15 reduction or loss of the deduction; and
16 (c) paying from principal all other disbursements made or
17 incurred in connection with the settlement of a decedent’s estate or
18 the winding up of a terminating income interest, including debts,
19 funeral expenses, disposition of remains, family allowances, and
20 death taxes and related penalties that are apportioned to the estate
21 or terminating income interest by the will, the terms of the trust, or
22 applicable law;
23 (3) shall distribute to a beneficiary who receives a pecuniary
24 amount outright the interest or other amount provided by the will,
25 the terms of the trust, or applicable law from net income as
26 determined by item (2) or from principal to the extent that net
27 income is insufficient. If a beneficiary is to receive a pecuniary
28 amount outright from a trust after an income interest ends and no
29 interest or other amount is provided for by the terms of the trust or
30 applicable law, the fiduciary shall distribute the interest or other
31 amount to which the beneficiary would be entitled under
32 applicable law if the pecuniary amount were required to be paid
33 under a will;
34 (4) shall distribute the net income remaining after distributions
35 required by item (3) in the manner pursuant to Section 62-7-406 to
36 all other beneficiaries, including a beneficiary who receives a
37 pecuniary amount in trust, even if the beneficiary holds an
38 unqualified power to withdraw assets from the trust or other
39 presently exercisable general power of appointment over the trust;
40 and
41 (5) may not reduce principal or income receipts from property
42 described in item (1) because of a payment pursuant to Sections
43 62-7-424 and 62-7-425 to the extent that the will, the terms of the
[4044] 45
1 trust, or applicable law requires the fiduciary to make the payment
2 from assets other than the property or to the extent that the
3 fiduciary recovers or expects to recover the payment from a third
4 party. The net income and principal receipts from the property are
5 determined by including all of the amounts the fiduciary receives
6 or pays with respect to the property, whether those amounts
7 accrued or became due before, on, or after the date of a decedent’s
8 death or an income interest’s terminating event, and by making a
9 reasonable provision for amounts that the fiduciary believes the
10 estate or terminating income interest may become obligated to pay
11 after the property is distributed.
12
13 Section 62-7-406. (A) Each beneficiary described in Section
14 62-7-405(4) is entitled to receive a portion of the net income equal
15 to his fractional interest in undistributed principal assets, using
16 values as of the distribution date. If a fiduciary makes more than
17 one distribution of assets to beneficiaries to whom this section
18 applies, each beneficiary, including one who does not receive part
19 of the distribution, is entitled, as of each distribution date, to the
20 net income the fiduciary has received after the date of death or
21 terminating event or earlier distribution date but has not distributed
22 as of the current distribution date.
23 (B) In determining a beneficiary’s share of net income, the:
24 (1) beneficiary is entitled to receive a portion of the net
25 income equal to his fractional interest in the undistributed principal
26 assets immediately before the distribution date, including assets
27 that later may be sold to meet principal obligations.
28 (2) fractional interest of the beneficiary in the undistributed
29 principal assets must be calculated without regard to property
30 specifically given to a beneficiary and property required to pay
31 pecuniary amounts not in trust.
32 (3) fractional interest of the beneficiary in the undistributed
33 principal assets must be calculated on the basis of the aggregate
34 value of those assets as of the distribution date without reducing
35 the value by any unpaid principal obligation; and
36 (4) distribution date for purposes of this section may be the
37 date as of which the fiduciary calculates the value of the assets if
38 that date is reasonably near the date on which assets are actually
39 distributed.
40 (C) If a fiduciary does not distribute all of the collected but
41 undistributed net income to each person as of a distribution date,
42 the fiduciary shall maintain appropriate records showing the
43 interest of each beneficiary in that net income.
[4044] 46
1 (D) A trustee may apply the provisions of this section, to the
2 extent that the trustee considers it appropriate, to net gain or loss
3 realized after the date of death or terminating event or earlier
4 distribution date from the disposition of a principal asset if this
5 section applies to the income from the asset.
6
7 Section 62-7-407. (A) An income beneficiary is entitled to net
8 income from the date on which the income interest begins. An
9 income interest begins on the date specified in the terms of the
10 trust or, if no date is specified, on the date an asset becomes
11 subject to a trust or successive income interest.
12 (B) An asset becomes subject to a trust on the date:
13 (1) it is transferred to the trust, in the case of an asset that is
14 transferred to a trust during the transferor’s life;
15 (2) the testator dies, in the case of an asset that becomes
16 subject to a trust by reason of a will, even if there is an intervening
17 period of administration of the estate; or
18 (3) the individual dies, in the case of an asset that is
19 transferred to a fiduciary by a third party because of the death of
20 the individual.
21 (C) An asset becomes subject to a successive income interest
22 on the day after the preceding income interest ends, as determined
23 pursuant to subsection (D), even if there is an intervening period of
24 administration to wind up the preceding income interest.
25 (D) An income interest ends on the day before an income
26 beneficiary dies or another terminating event occurs or on the last
27 day of a period during which there is no beneficiary to whom a
28 trustee may distribute income.
29
30 Section 62-7-408. (A) A trustee shall allocate an income
31 receipt or disbursement, other than one subject to Section
32 62-7-405(1), to principal if its due date occurs before a decedent
33 dies in the case of an estate or before an income interest begins in
34 the case of a trust or successive income interest.
35 (B) A trustee shall allocate an income receipt or disbursement
36 to income if its due date occurs on or after the date on which a
37 decedent dies or an income interest begins and it is a periodic due
38 date. An income receipt or disbursement must be treated as
39 accruing from day to day if its due date is not periodic or it has no
40 due date. The portion of the receipt or disbursement accruing
41 before the date on which a decedent dies or an income interest
42 begins must be allocated to principal and the balance must be
43 allocated to income.
[4044] 47
1 (C) An item of income or an obligation is due on the date the
2 payer is required to make a payment. If a payment date is not
3 stated, there is no due date for the purposes of this part.
4 Distributions to shareholders or other owners from an entity
5 subject to Section 62-7-410 are considered due on the date fixed by
6 the entity for determining who is entitled to receive the distribution
7 or, if no date is fixed, on the declaration date for the distribution.
8 A due date is periodic for receipts or disbursements that must be
9 paid at regular intervals under a lease or an obligation to pay
10 interest or if an entity customarily makes distributions at regular
11 intervals.
12
13 Section 62-7-409. (A) In this section, ‘undistributed income’
14 means net income received before the date on which an income
15 interest ends. The term does not include an item of income or
16 expense that is due or accrued or net income that has been added or
17 must be added to principal under the terms of the trust.
18 (B) When a mandatory income interest ends, the trustee shall
19 pay to a mandatory income beneficiary who survives that date, or
20 the estate of a deceased mandatory income beneficiary whose
21 death causes the interest to end, the beneficiary’s share of the
22 undistributed income that is not disposed of under the terms of the
23 trust, unless the beneficiary has an unqualified power to revoke
24 more than five percent of the trust immediately before the income
25 interest ends. In that case, the undistributed income from the
26 portion of the trust that may be revoked must be added to principal.
27 (C) When the obligation of a trustee to pay a fixed annuity or a
28 fixed fraction of the value of the trust assets ends, the trustee shall
29 prorate the final payment if, and to the extent, required by
30 applicable law to accomplish a purpose of the trust or its settlor
31 relating to income, gift, estate, or other tax requirements.
32
33 Section 62-7-410. (A) In this section, ‘entity’ means a
34 corporation, partnership, limited liability company, regulated
35 investment company, real estate investment trust, common trust
36 fund, or other organization in which a trustee has an interest other
37 than a trust or estate subject to Section 62-7-411, a business or
38 activity to which Section 62-7-412 applies, or an asset-backed
39 security to which Section 62-7-424 applies.
40 (B) Except as otherwise provided in this section, a trustee shall
41 allocate to income money received from an entity.
42 (C) A trustee shall allocate the following receipts from an entity
43 to principal:
[4044] 48
1 (1) property other than money;
2 (2) money received in one distribution or a series of related
3 distributions in exchange for part or all of a trust’s interest in the
4 entity;
5 (3) money received in total or partial liquidation of the
6 entity; and
7 (4) money received from an entity that is a regulated
8 investment company or a real estate investment trust if the money
9 distributed is a capital gain dividend for federal income tax
10 purposes.
11 (D) Money is received in partial liquidation:
12 (1) to the extent that the entity, at or near the time of a
13 distribution, indicates that it is a distribution in partial liquidation;
14 or
15 (2) if the total amount of money and property received in a
16 distribution or series of related distributions is greater than twenty
17 percent of the entity’s gross assets of the entity, as shown by the its
18 year-end financial statements immediately preceding the initial
19 receipt.
20 (E) Money is not received in partial liquidation, nor may it be
21 taken into account pursuant to subsection (D)(2), to the extent that
22 it does not exceed the amount of income tax that a trustee or
23 beneficiary must pay on taxable income of the entity that
24 distributes the money.
25 (F) A trustee may rely upon a statement made by an entity
26 about the source or character of a distribution if the statement is
27 made at or near the time of distribution by the its board of directors
28 or other person or group of persons authorized to exercise powers
29 to pay money or transfer property comparable to those of a
30 corporation’s board of directors.
31
32 Section 62-7-411. A trustee shall allocate to income an amount
33 received as a distribution of income from a trust or an estate in
34 which the trust has an interest other than a purchased interest, and
35 shall allocate to principal an amount received as a distribution of
36 principal from such a trust or estate. If a trustee purchases an
37 interest in a trust that is an investment entity, or a decedent or
38 donor transfers an interest in such a trust to a trustee, Section
39 62-7-410 or 62-7-424 applies to a receipt from the trust.
40
41 Section 62-7-412. (A) If a trustee who conducts a business or
42 other activity determines that it is in the best interest of all the
43 beneficiaries to account separately for the business or activity
[4044] 49
1 instead of accounting for it as part of the general accounting
2 records of the trust, the trustee may maintain separate accounting
3 records for its transactions, whether or not its assets are segregated
4 from other trust assets.
5 (B) A trustee who accounts separately for a business or other
6 activity may determine the extent to which its net cash receipts
7 must be retained for working capital, the acquisition or
8 replacement of fixed assets, and other reasonably foreseeable
9 needs of the business or activity, and the extent to which the
10 remaining net cash receipts are accounted for as principal or
11 income in the trust’s general accounting records. If a trustee sells
12 assets of the business or other activity, other than in the ordinary
13 course of the business or activity, the trustee shall account for the
14 net amount received as principal in the general accounting records
15 of the trust to the extent the trustee determines that the amount
16 received is no longer required in the conduct of the business.
17 (C) Activities for which a trustee may maintain separate
18 accounting records include:
19 (1) retail, manufacturing, service, and other traditional
20 business activities;
21 (2) farming;
22 (3) raising and selling livestock and other animals;
23 (4) management of rental properties;
24 (5) extraction of minerals and other natural resources;
25 (6) timber operations; and
26 (7) activities subject to Section 62-7-423.
27
28 Section 62-7-413. A trustee shall allocate to principal:
29 (1) to the extent not allocated to income pursuant to this part,
30 assets received from a transferor during his lifetime, a decedent’s
31 estate, a trust with a terminating income interest, or a payer under a
32 contract naming the trust or its trustee as beneficiary;
33 (2) money or other property received from the sale, exchange,
34 liquidation, or change in form of a principal asset, including
35 realized profit;
36 (3) amounts recovered from third parties to reimburse the trust
37 because of disbursements described in Section 62-7-426(A)(7) or
38 for other reasons to the extent not based on the loss of income;
39 (4) proceeds of property taken by eminent domain, but a
40 separate award made for the loss of income with respect to an
41 accounting period during which a current income beneficiary had a
42 mandatory income interest is income;
[4044] 50
1 (5) net income received in an accounting period during which
2 there is no beneficiary to whom a trustee may or must distribute
3 income; and
4 (6) other receipts as provided in Sections 62-7-417 through
5 62-7-424.
6
7 Section 62-7-414. To the extent that a trustee accounts for
8 receipts from rental property pursuant to this section, the trustee
9 shall allocate to income an amount received as rent of real or
10 personal property, including an amount received for cancellation or
11 renewal of a lease. An amount received as a refundable deposit,
12 including a security deposit or a deposit applied as rent for future
13 periods, must be added to principal and held subject to the terms of
14 the lease and is not available for distribution to a beneficiary until
15 the trustee’s contractual obligations have been satisfied with
16 respect to that amount.
17
18 Section 62-7-415. (A) An amount received as interest, whether
19 determined at a fixed, variable, or floating rate, on an obligation to
20 pay money to the trustee, including an amount received as
21 consideration for prepaying principal, must be allocated to income
22 without provision for amortization of premium.
23 (B) A trustee shall allocate to principal an amount received
24 from the sale, redemption, or other disposition of an obligation to
25 pay money to the trustee more than one year after it is purchased or
26 acquired by the trustee, including an obligation whose purchase
27 price or value when it is acquired is less than its value at maturity.
28 If the obligation matures within one year after it is purchased or
29 acquired by the trustee, an amount received in excess of its
30 purchase price or its value when acquired by the trust must be
31 allocated to income.
32 (C) This section does not apply to an obligation subject to
33 Section 62-7-418, 62-7-419, 62-7-420, 62-7-421, or 62-7-424.
34
35 Section 62-7-416. (A) Except as otherwise provided in
36 subsection (B), a trustee shall allocate to principal the proceeds of
37 a life insurance policy or other contract in which the trust or its
38 trustee is named as beneficiary, including a contract that insures
39 the trust or its trustee against loss for damage to, destruction of, or
40 loss of title to a trust asset. The trustee shall allocate dividends on
41 an insurance policy to income if the premiums on the policy are
42 paid from income, and to principal if the premiums are paid from
43 principal.
[4044] 51
1 (B) A trustee shall allocate to income proceeds of a contract
2 that insures the trustee against loss of occupancy or other use by an
3 income beneficiary, loss of income, or, subject to Section
4 62-7-412, loss of profits from a business.
5 (C) This section does not apply to a contract subject to Section
6 62-7-418.
7
8 Section 62-7-417. If a trustee determines that an allocation
9 between principal and income required by Section 62-7-418,
10 62-7-419, 62-7-420, 62-7-421, or 62-7-424 is insubstantial, the
11 trustee may allocate the entire amount to principal unless one of
12 the circumstances provided in Section 62-7-404(C) applies to the
13 allocation. This power may be exercised by a cotrustee in the
14 circumstances provided in Section 62-7-404(D) and may be
15 released for the reasons and in the manner provided in Section
16 62-7-404(E). An allocation is presumed to be insubstantial if:
17 (1) the amount of the allocation increases or decreases net
18 income in an accounting period, as determined before the
19 allocation, by less than ten percent; or
20 (2) the value of the asset producing the receipt for which the
21 allocation is made is less than ten percent of the total value of the
22 assets of the trust at the beginning of the accounting period.
23
24 Section 62-7-418. (A) In this section, ‘payment’ means a
25 payment that a trustee may receive over a fixed number of years or
26 during the life of one or more individuals because of services
27 rendered or property transferred to the payer in exchange for future
28 payments. The term includes a payment made in money or
29 property from the payer’s general assets or from a separate fund
30 created by the payer, including a private or commercial annuity, an
31 individual retirement account, and a pension, profit-sharing,
32 stock-bonus, or stock-ownership plan.
33 (B) To the extent that a payment is characterized as interest or a
34 dividend or a payment made instead of interest or a dividend, a
35 trustee shall allocate it to income. The trustee shall allocate to
36 principal the balance of the payment and any other payment
37 received in the same accounting period that is not characterized as
38 interest, a dividend, or an equivalent payment.
39 (C) If part of a payment is not characterized as interest, a
40 dividend, or an equivalent payment, and all or part of the payment
41 is required to be made, a trustee shall allocate to income ten
42 percent of the part that is required to be made during the
43 accounting period and the balance to principal. If a part of a
[4044] 52
1 payment is not required to be made or the payment received is the
2 entire amount to which the trustee is entitled, the trustee shall
3 allocate the entire payment to principal. For purposes of this
4 subsection, a payment is not ‘required to be made’ to the extent
5 that it is made because the trustee exercises a right of withdrawal.
6 (D) If, to obtain an estate tax marital deduction for a trust, a
7 trustee must allocate more of a payment to income than provided
8 for by this section, the trustee shall allocate to income the
9 additional amount necessary to obtain the marital deduction.
10 (E) This section does not apply to payments subject to Section
11 62-7-419.
12
13 Section 62-7-419. (A) In this section, ‘liquidating asset’ means
14 an asset whose value diminishes or terminates because the asset is
15 expected to produce receipts for a period of limited duration. The
16 term includes a leasehold, patent, copyright, royalty right, and right
17 to receive payments during a period of more than one year under
18 an arrangement that does not provide for the payment of interest on
19 the unpaid balance. The term does not include a payment subject
20 to Section 62-7-418, resources subject to Section 62-7-420, timber
21 subject to Section 62-7-421, an activity subject to Section
22 62-7-423, an asset subject to Section 62-7-424, or any asset for
23 which the trustee establishes a reserve for depreciation pursuant to
24 Section 62-7-427.
25 (B) A trustee shall allocate to income ten percent of the receipts
26 from a liquidating asset and the balance to principal.
27
28 Section 62-7-420. (A) To the extent that a trustee accounts for
29 receipts from an interest in minerals or other natural resources
30 pursuant to this section, the trustee shall allocate them if:
31 (1) received as nominal delay rental or nominal annual rent
32 on a lease, a receipt must be allocated to income;
33 (2) received from a production payment, a receipt must be
34 allocated to income if and to the extent that the agreement creating
35 the production payment provides a factor for interest or its
36 equivalent. The balance must be allocated to principal;
37 (3) an amount received as a royalty, shut-in-well payment,
38 take-or-pay payment, bonus, or delay rental is more than nominal,
39 ninety percent must be allocated to principal and the balance to
40 income;
41 (4) an amount is received from a working interest or any
42 other interest not otherwise provided for in this subsection, ninety
[4044] 53
1 percent of the net amount received must be allocated to principal
2 and the balance to income.
3 (B) An amount received on account of an interest in water that
4 is renewable must be allocated to income. If the water is not
5 renewable, ninety percent of the amount must be allocated to
6 principal and the balance to income.
7 (C) This part applies whether or not a decedent or donor was
8 extracting minerals, water, or other natural resources before the
9 interest became subject to the trust.
10 (D) If a trust owns an interest in minerals, water, or other
11 natural resources on the effective date of this part, the trustee may
12 allocate receipts from the interest as provided in this part or in the
13 manner used by the trustee before the effective date of this part. If
14 the trust acquires an interest in minerals, water, or other natural
15 resources after the effective date of this part, the trustee shall
16 allocate receipts from the interest as provided in this part.
17
18 Section 62-7-421. (A) To the extent that a trustee accounts for
19 receipts from the sale of timber and related products pursuant to
20 this section, the trustee shall allocate the net receipts to:
21 (1) income, to the extent that the amount of timber removed
22 from the land does not exceed the rate of growth of the timber
23 during the accounting periods in which a beneficiary has a
24 mandatory income interest;
25 (2) principal, to the extent that the amount of timber
26 removed from the land exceeds the rate of growth of the timber or
27 the net receipts are from the sale of standing timber;
28 (3) or between income and principal, if the net receipts are
29 from the lease of timberland or from a contract to cut timber from
30 land owned by a trust, by determining the amount of timber
31 removed from the land under the lease or contract and applying
32 items (1) and (2); or
33 (4) principal, to the extent that advance payments, bonuses,
34 and other payments are not otherwise allocated pursuant this
35 subsection.
36 (B) In determining net receipts to be allocated pursuant to
37 subsection (A), a trustee shall deduct and transfer to principal a
38 reasonable amount for depletion.
39 (C) This part applies whether or not a decedent or transferor
40 was harvesting timber from the property before it become subject
41 to the trust.
42 (D) If a trust owns an interest in timberland on the effective
43 date of this part, the trustee may allocate net receipts from the sale
[4044] 54
1 of timber and related products as provided in this part or in the
2 manner used by the trustee before the effective date of this part. If
3 the trust acquires an interest in timberland after the effective date
4 of this part, the trustee shall allocate net receipts from the sale of
5 timber and related products as provided in this part.
6
7 Section 62-7-422. (A) If a marital deduction is allowed for all
8 or part of a trust whose assets consist substantially of property that
9 does not provide the surviving spouse with sufficient income from
10 or use of the trust assets, and if the amounts that the trustee
11 transfers from principal to income pursuant to Section 62-7-404
12 and distributes to the spouse from principal pursuant to the terms
13 of the trust are insufficient to provide the spouse with the
14 beneficial enjoyment required to obtain the marital deduction, the
15 spouse may require the trustee to make property productive of
16 income, convert property within a reasonable time, or exercise the
17 power in Section 62-7-404(A). The trustee may decide which
18 action or combination of actions to take.
19 (B) If subsection (A) is inapplicable, proceeds from the sale or
20 other disposition of an asset are principal without regard to the
21 amount of income the asset produces during any accounting
22 period.
23
24 Section 62-7-423. (A) In this section, ‘derivative’ means a
25 contract or financial instrument or a combination of contracts and
26 financial instruments which gives a trust the right or obligation to
27 participate in some or all changes in the price of a tangible or
28 intangible asset or group of assets, or changes in a rate, an index of
29 prices or rates, or other market indicator for an asset or a group of
30 assets.
31 (B) To the extent that a trustee does not account pursuant to
32 Section 62-7-412 for transactions in derivatives, the trustee shall
33 allocate to principal receipts from and disbursements made in
34 connection with those transactions.
35 (C) If a trustee grants an option to buy property from the trust,
36 whether or not the trust owns the property when the option is
37 granted, grants an option that permits another person to sell
38 property to the trust, or acquires an option to buy property for the
39 trust or an option to sell an asset owned by the trust, and the trustee
40 or other owner of the asset is required to deliver the asset if the
41 option is exercised, an amount received for granting the option
42 must be allocated to principal. An amount paid to acquire the
43 option must be paid from principal. A gain or loss realized upon
[4044] 55
1 the exercise of an option, including an option granted to a settlor of
2 the trust for services rendered, must be allocated to principal.
3
4 Section 62-7-424. (A) In this section, ‘asset-backed security’
5 means an asset whose value is based upon the right it gives the
6 owner to receive distributions from the proceeds of financial assets
7 that provide collateral for the security. The term includes an asset
8 that gives the owner the right to receive from the collateral
9 financial assets only the interest or other current return or only the
10 proceeds other than interest or current return. The term does not
11 include an asset subject to Section 62-7-409 or 62-7-418.
12 (B) If a trust receives a payment from interest or other current
13 return and from other proceeds of the collateral financial assets, the
14 trustee shall allocate to income the portion of the payment which
15 the payer identifies as being from interest or other current return
16 and shall allocate the balance of the payment to principal.
17 (C) If a trust receives one or more payments in exchange for the
18 its entire interest in an asset-backed security in one accounting
19 period, the trustee shall allocate the payments to principal. If a
20 payment is one of a series of payments that results in the
21 liquidation of the interest of the trust in the security over more than
22 one accounting period, the trustee shall allocate ten percent of the
23 payment to income and the balance to principal.
24
25 Section 62-7-425. A trustee shall make the following
26 disbursements from income to the extent that they are not
27 disbursements subject to Section 62-7-405(2)(b) or (c):
28 (1) one-half of the regular compensation of the trustee and of
29 any person providing investment advisory or custodial services to
30 the trustee;
31 (2) one-half of all expenses for accountings, judicial
32 proceedings, or other matters that involve both the income and
33 remainder interests;
34 (3) all of the other ordinary expenses incurred in connection
35 with the administration, management, or preservation of trust
36 property and the distribution of income, including interest,
37 ordinary repairs, regularly recurring taxes assessed against
38 principal, and expenses of a proceeding or other matter that
39 concerns primarily the income interest; and
40 (4) recurring premiums on insurance covering the loss of a
41 principal asset or the loss of income from or use of the asset.
42
[4044] 56
1 Section 62-7-426. (A) A trustee shall make the following
2 disbursements from principal:
3 (1) the remaining one-half of the disbursements provided in
4 Section 62-7-425(1) and (2);
5 (2) all of the trustee’s compensation calculated on principal
6 as a fee for acceptance, distribution, or termination, and
7 disbursements made to prepare property for sale;
8 (3) payments on the principal of a trust debt;
9 (4) expenses of a proceeding that concerns primarily
10 principal, including a proceeding to construe the trust or to protect
11 the trust or its property;
12 (5) premiums paid on a policy of insurance not provided in
13 Section 62-7-425(4) of which the trust is the owner and
14 beneficiary;
15 (6) estate, inheritance, and other transfer taxes, including
16 penalties, apportioned to the trust; and
17 (7) disbursements related to environmental matters,
18 including reclamation, assessing environmental conditions,
19 remedying and removing environmental contamination,
20 monitoring remedial activities and the release of substances,
21 preventing future releases of substances, collecting amounts from
22 persons liable or potentially liable for the costs of those activities,
23 penalties imposed under environmental laws or regulations and
24 other payments made to comply with those laws or regulations,
25 statutory or common law claims by third parties, and defending
26 claims based on environmental matters.
27 (B) If a principal asset is encumbered with an obligation that
28 requires income from that asset to be paid directly to the creditor,
29 the trustee shall transfer from principal to income an amount equal
30 to the income paid to the creditor in reduction of the principal
31 balance of the obligation.
32
33 Section 62-7-427. (A) In this section, ‘depreciation’ means a
34 reduction in value due to wear, tear, decay, corrosion, or gradual
35 obsolescence of a fixed asset having a useful life of more than one
36 year.
37 (B) A trustee may transfer to principal a reasonable amount of
38 the net cash receipts from a principal asset that is subject to
39 depreciation, but may not transfer any amount for depreciation:
40 (1) of that portion of real property used or available for use
41 by a beneficiary as a residence or of tangible personal property
42 held or made available for the personal use or enjoyment of a
43 beneficiary;
[4044] 57
1 (2) during the administration of a decedent’s estate; or
2 (3) under this section if the trustee is accounting pursuant to
3 Section 62-7-412 for the business or activity in which the asset is
4 used.
5 (C) An amount transferred to principal need not be held as a
6 separate fund.
7
8 Section 62-7-428. (A) If a trustee makes or expects to make a
9 principal disbursement described in this section, the trustee may
10 transfer an appropriate amount from income to principal in one or
11 more accounting periods to reimburse principal or to provide a
12 reserve for future principal disbursements.
13 (B) A principal disbursement for purposes of this section
14 includes the following, but only to the extent that the trustee has
15 not been, and does not expect to be, reimbursed by a third party:
16 (1) an amount chargeable to income but paid from principal
17 because it is unusually large, including extraordinary repairs;
18 (2) a capital improvement to a principal asset, whether in the
19 form of changes to an existing asset or the construction of a new
20 asset, including special assessments;
21 (3) a disbursement made to prepare property for rental,
22 including tenant allowances, leasehold improvements, and broker’s
23 commissions;
24 (4) a periodic payment on an obligation secured by a
25 principal asset to the extent that the amount transferred from
26 income to principal for depreciation is less than the periodic
27 payments; and
28 (5) a disbursement described in Section 62-7-426(A)(7).
29 (C) If the asset whose ownership gives rise to the
30 disbursements becomes subject to a successive income interest
31 after an income interest ends, a trustee may continue to transfer
32 amounts from income to principal as provided in subsection (A).
33
34 Section 62-7-429. (A) A tax required to be paid by a trustee
35 based on receipts allocated to income must be paid from income.
36 (B) A tax required to be paid by a trustee based on receipts
37 allocated to principal must be paid from principal, even if the tax is
38 called an income tax by the taxing authority.
39 (C) A tax required to be paid by a trustee on the trust’s share of
40 the taxable income of the entity must be paid proportionately from:
41 (1) income, to the extent that receipts from the entity are
42 allocated to income; and
43 (2) principal, to the extent that:
[4044] 58
1 (a) receipts from the entity are allocated to principal; and
2 (b) the trust’s share of the taxable income of the entity
3 exceeds the total receipts described in items (1) and (2)(a).
4 (D) For purposes of this section, receipts allocated to principal
5 or income must be reduced by the amount distributed to a
6 beneficiary from principal or income for which the trust receives a
7 deduction in calculating the tax.
8
9 Section 62-7-430. (A) A fiduciary may make adjustments
10 between principal and income to offset the shifting of economic
11 interests or tax benefits between income beneficiaries and
12 remainder beneficiaries which arise from:
13 (1) elections and decisions, other than those provided in
14 subsection (B), that the fiduciary makes from time to time
15 regarding tax matters;
16 (2) an income tax or any other tax that is imposed upon the
17 fiduciary or a beneficiary as a result of a transaction involving or a
18 distribution from the estate or trust; or
19 (3) the ownership by an estate or trust of an interest in an
20 entity whose taxable income, whether or not distributed, is
21 includable in the taxable income of the estate, trust, or a
22 beneficiary.
23 (B) If the amount of an estate tax marital deduction or
24 charitable contribution deduction is reduced because a fiduciary
25 deducts an amount paid from principal for income tax purposes
26 instead of deducting it for estate tax purposes, and as a result estate
27 taxes paid from principal are increased and income taxes paid by
28 an estate, trust, or beneficiary are decreased, each estate, trust, or
29 beneficiary that benefits from the decrease in income tax shall
30 reimburse the principal from which the increase in estate tax is
31 paid. The total reimbursement must equal the increase in the estate
32 tax to the extent that the principal used to pay the increase would
33 have qualified for a marital deduction or charitable contribution
34 deduction but for the payment. The proportionate share of the
35 reimbursement for each estate, trust, or beneficiary whose income
36 taxes are reduced must be the same as its proportionate share of the
37 total decrease in income tax. An estate or trust shall reimburse
38 principal from income.
39
40 Section 62-7-431. In applying and construing this Uniform
41 Act, consideration must be given to the need to promote uniformity
42 of the law with respect to its subject matter among states that enact
43 it.
[4044] 59
1
2 Section 62-7-432. (A) A court shall not change a fiduciary’s
3 decision to exercise or not to exercise a discretionary power
4 conferred by this part unless it determines that the decision was an
5 abuse of the fiduciary’s discretion. A court shall not determine that
6 a fiduciary abused its discretion merely because the court would
7 have exercised the discretion in a different manner or would not
8 have exercised the discretion.
9 (B) The decisions subject to subsection (a) include a
10 determination:
11 (1) pursuant to Section 62-7-404(A) of whether and to what
12 extent an amount should be transferred from principal to income or
13 from income to principal; and
14 (2) of the factors that are relevant to the trust and its
15 beneficiaries, the extent to which they are relevant, and the weight,
16 if any, to be given to the relevant factors, in deciding whether and
17 to what extent to exercise the power in Section 62-7-404(A).
18 (C) If a court determines that a fiduciary has abused its
19 discretion, the remedy is to restore the income and remainder
20 beneficiaries to the positions they would have occupied if the
21 fiduciary had not abused its discretion, according to the following
22 rules:
23 (1) to the extent that the abuse of discretion has resulted in
24 no distribution to a beneficiary or a distribution that is too small,
25 the court shall require the fiduciary to distribute from the trust to
26 the beneficiary an amount that the court determines will restore the
27 beneficiary, in whole or in part, to his or her appropriate position;
28 (2) to the extent that the abuse of discretion has resulted in a
29 distribution to a beneficiary that is too large, the court shall restore
30 the beneficiaries, the trust, or both, in whole or in part, to their
31 appropriate positions by requiring the fiduciary to withhold an
32 amount from one or more future distributions to the beneficiary
33 who received the distribution that was too large or requiring that
34 beneficiary to return some or all of the distribution to the trust;
35 (3) to the extent that the court is unable, after applying items
36 (1) and (2), to restore the beneficiaries, the trust, or both, to the
37 positions they would have occupied if the fiduciary had not abused
38 its discretion, the court may require the fiduciary to pay an
39 appropriate amount from its own funds to one or more of the
40 beneficiaries or the trust or both.
41 (D) Upon a petition by the fiduciary, the court having
42 jurisdiction over the trust or estate shall determine whether a
43 proposed exercise or nonexercise by the fiduciary of a
[4044] 60
1 discretionary power in this part results in an abuse of the
2 fiduciary’s discretion. If the petition describes the proposed
3 exercise or nonexercise of the power and contains sufficient
4 information to inform the beneficiaries of the reasons for the
5 proposal, the facts upon which the fiduciary relies, and an
6 explanation of how the income and remainder beneficiaries are
7 affected by the proposed exercise or nonexercise of the power, a
8 beneficiary who challenges the proposed exercise or nonexercise
9 has the burden of establishing that it will result in an abuse of
10 discretion.”
11
12 SECTION 5. Section 62-5-501 of the 1976 Code, as last amended
13 by Act 152 of 1997, is further amended by adding at the end:
14
15 “(F)(1) A third person in this State who receives or is presented
16 with a valid power of attorney executed pursuant to this section,
17 and has not received actual written notice of its revocation or
18 termination, shall not refuse to honor the power of attorney if:
19 (a) it contains the following provision or a substantially
20 similar provision:
21 ‘No person who may act in reliance upon the representations of
22 my attorney-in-fact for the scope of authority granted to the
23 attorney-in-fact shall incur any liability to me or to my estate as a
24 result of permitting the attorney-in-fact to exercise any such
25 authority, nor shall any such person who deals with my
26 attorney-in-fact be responsible to determine or insure the proper
27 application of funds or property.’; or
28 (b) the attorney-in-fact gives him an affidavit under oath
29 and subject to perjury, stating that the powers of the
30 attorney-in-fact are then in effect, the action the attorney-in-fact
31 desires to take is within the scope of his authority granted pursuant
32 to the power of attorney, and the power of attorney has not been
33 revoked or terminated by the principal.
34 (2) Unless the third person actually has received written
35 notice of the revocation or termination of a valid power of attorney
36 executed in accordance with this section, a third person in this
37 State who receives or is presented with a power of attorney:
38 (a) does not incur liability to the principal or the
39 principal’s estate by reason of acting upon the authority of it or
40 permitting the attorney-in-fact to exercise authority;
41 (b) is not required to inquire whether the attorney-in-fact
42 has power to act or is properly exercising the power; or
[4044] 61
1 (c) is not responsible to determine or ensure the proper
2 application of assets, funds, or property belonging to the principal.
3 (3) A ‘third person’ means an individual, a corporation, an
4 organization, or other legal entity for purposes of this subsection.
5 (G)(1) Subject to the provisions of the power of attorney or
6 separate written agreement:
7 (a) an attorney-in-fact is entitled to reimbursement for all
8 reasonable costs and expenses actually incurred and paid by the
9 attorney-in-fact on the principal’s behalf;
10 (b) an attorney-in-fact is entitled to reasonable
11 compensation based upon the responsibilities he assumed and the
12 effort he expended; and
13 (c) if two or more attorneys-in-fact are serving together,
14 the compensation paid must be divided by them in a manner as
15 they agree or as determined by a court of competent jurisdiction if
16 they fail to agree.
17 (2) An interested person may petition a court of competent
18 jurisdiction to review the propriety and reasonableness of payment
19 for reimbursement or compensation to the attorney-in-fact, and an
20 attorney-in-fact who has received excessive payment may be
21 ordered to make appropriate refunds to the principal.”
22
23 SECTION 6. The title of Article 2, Chapter 2, Title 62 of the
24 1976 Code is amended to read:
25
26 “Article 2
27
28 Intestacy, Succession and Wills, and Donative Transfers”
29
30 SECTION 7. Part 7, Article 2, Chapter 2, Title 62 of the 1976
31 Code is amended to read:
32
33 “Part 7
34
35 Contractual Arrangements Relating To Death
36 Rules of Construction Applicable to
37 Wills and Other Governing Instruments
38
39 Section 62-2-701. A contract to make a will or devise, or to
40 revoke a will or devise, or not to revoke a will or devise, or to die
41 intestate, if executed after the effective date of this act, can be
42 established only by (1) provisions of a will of the decedent stating
43 material provisions of the contract; (2) an express reference in a
[4044] 62
1 will of the decedent to a contract and extrinsic evidence proving
2 the terms of the contract; or (3) a writing signed by the decedent
3 evidencing the contract and extrinsic evidence proving the terms of
4 the contract. The execution of a joint will or mutual wills does not
5 create a presumption of a contract not to revoke the will or wills.
6 In the absence of a finding of a contrary intention, the rules of
7 construction in this part control the construction of a governing
8 instrument. The rules of construction in this part apply to a
9 governing instrument of any type, except as the application of a
10 particular section is limited by its terms to a specific type or types
11 of provision or governing instrument.
12
13 Section 62-2-702. (A) For the purposes of probate, not
14 including purposes of the Uniform Transfer on Death Security
15 Registration Act and except as provided in subsection (D), an
16 individual who is not established by clear and convincing evidence
17 to have survived an event, including the death of another
18 individual, by one hundred twenty hours is considered to have
19 predeceased the event.
20 (B) Except as provided in subsection (D) and except for a
21 security registered in beneficiary form pursuant to the Uniform
22 Transfer on Death Security Registration Act, for purposes of a
23 provision of a governing instrument that relates to an individual
24 surviving an event, including the death of another individual, an
25 individual who is not established by clear and convincing evidence
26 to have survived the event by one hundred twenty hours is
27 considered to have predeceased the event.
28 (C)(1) Except as provided in subsection (D), if:
29 (a) it is not established by clear and convincing evidence
30 that one of two co-owners with right of survivorship survived the
31 other co-owner by one hundred twenty hours, one-half of the
32 property passes as if one had survived by one hundred twenty
33 hours and one-half as if the other had survived by one hundred
34 twenty hours; and
35 (b) there are more than two co-owners and it is not
36 established by clear and convincing evidence that at least one of
37 them survived the others by one hundred twenty hours, the
38 property passes in the proportion that one bears to the whole
39 number of co-owners.
40 (2) For the purposes of this subsection, ‘co-owners with
41 right of survivorship’ includes joint tenants and other co-owners of
42 property or accounts held under circumstances that entitles one or
[4044] 63
1 more to the whole of the property or account on the death of the
2 other or others.
3 (D) This section does not apply if:
4 (1) the governing instrument contains language dealing
5 explicitly with simultaneous deaths or deaths in a common disaster
6 and that language is operable under the facts of the case;
7 (2) the governing instrument expressly indicates that an
8 individual is not required to survive an event, including the death
9 of another individual, by a specified period or expressly requires
10 the individual to survive the event by a specified period;
11 (3) the imposition of a one hundred twenty-hour requirement
12 of survival causes a nonvested property interest or a power of
13 appointment to fail to qualify for validity pursuant to the Uniform
14 Statutory Rule Against Perpetuities; or
15 (4) the application of this section to multiple governing
16 instruments results in an unintended failure or duplication of a
17 disposition.
18 (E)(1) A payor or other third party is not liable for having made
19 a payment or transferred an item of property or another benefit to a
20 beneficiary designated in a governing instrument who, pursuant to
21 this section, is not entitled to the payment or item of property, or
22 for having taken another action in good faith reliance on the
23 beneficiary’s apparent entitlement pursuant to the terms of the
24 governing instrument, before the payor or other third party
25 received written notice of a claimed lack of entitlement pursuant to
26 this section. A payor or other third party is liable for a payment
27 made or other action taken after the payor or other third party
28 receives written notice of a claimed lack of entitlement pursuant to
29 this section.
30 (2) Written notice of a claimed lack of entitlement pursuant
31 to item (1) must be mailed to the payor’s or other third party’s
32 main office or home by registered or certified mail, return receipt
33 requested, or served upon the payor or other third party in the same
34 manner as a summons in a civil action. Upon receipt of written
35 notice of a claimed lack of entitlement pursuant to this section, a
36 payor or other third party may pay an amount owed or transfer or
37 deposit an item of property held by it to or with the court having
38 jurisdiction of the probate proceedings relating to the decedent’s
39 estate, or if no proceedings have been commenced, to or with the
40 court having jurisdiction of probate proceedings relating to
41 decedents’ estates located in the county of the decedent’s
42 residence. The court shall hold the funds or item of property and
43 shall order disbursement in accordance with its determination
[4044] 64
1 pursuant to this section. Payments, transfers, or deposits made to
2 or with the court discharge the payor or other third party from all
3 claims for the value of amounts paid to or items of property
4 transferred to or deposited with the court.
5 (F)(1) A person who purchases property for value and without
6 notice of entitlement, or who receives a payment or other item of
7 property in partial or full satisfaction of a legally enforceable
8 obligation, is neither obligated to return the payment, item of
9 property, or benefit, nor liable for the amount of the payment or
10 the value of the item of property or benefit. A person who, not for
11 value, receives a payment, item of property, or other benefit to
12 which the person is not entitled pursuant to this section is obligated
13 to return the payment, item of property, or benefit, or is liable
14 personally for the amount of the payment or the value of the item
15 of property or benefit, to the person who is entitled to it pursuant to
16 this section.
17 (2) If this section or a part of this section is preempted by
18 federal law with respect to a payment, an item of property, or
19 another benefit covered by this section, a person who, not for
20 value, receives the payment, item of property, or another benefit to
21 which the person is not entitled pursuant to this section is obligated
22 to return the payment, item of property, or benefit, or is liable
23 personally for the amount of the payment or the value of the item
24 of property or benefit, to the person entitled to it if this section or
25 part of this section were not preempted.
26
27 Section 62-2-703. The meaning and legal effect of a governing
28 instrument is determined by the local law of the state selected by
29 the transferor in the governing instrument, the provisions relating
30 to exempt property and allowances provided in Part 4 of this
31 article, or another public policy of this State otherwise applicable
32 to the disposition.
33
34 Section 62-2-704. If a governing instrument creating a power
35 of appointment expressly requires that the power be exercised by a
36 reference, an express reference, or a specific reference, to the
37 power or its source, it is presumed that the donor’s intention, in
38 requiring that the donee exercise the power by making reference to
39 the particular power or to the creating instrument, was to prevent
40 an inadvertent exercise of the power.
41
42 Section 62-2-705. The issue of a deceased transferee who
43 survive the transferor take in place of the deceased transferee if the
[4044] 65
1 transferee, who is a great-grandparent or a lineal descendant of a
2 great-grandparent of the transferor:
3 (1) is dead at the time of execution of the governing
4 instrument;
5 (2) fails to survive the transferor; or
6 (3) is treated as if he predeceased the transferor. If they are all
7 of the same degree of kinship to the transferee they take equally.
8 If they are of unequal degree, then those of more remote degree
9 take by representation. One who would have been a transferee
10 under a class gift if he had survived the transferor is treated as a
11 transferee for purposes of this section whether his death occurred
12 before or after the execution of the governing instrument.
13
14 Section 62-2-706. (A) As used in this section:
15 (1) ‘Alternative beneficiary designation’ means a beneficiary
16 designation that is expressly created by the governing instrument
17 and, under the terms of the governing instrument, can take effect
18 instead of another beneficiary designation on the happening of one
19 or more events, including survival of the decedent or failure to
20 survive the decedent, whether an event is expressed in
21 condition-precedent, condition-subsequent, or any other form.
22 (2) ‘Beneficiary’ means the beneficiary of a beneficiary
23 designation and includes:
24 ( i) a class member if the beneficiary designation is in the
25 form of a class gift; and
26 (ii) an individual or class member who was deceased at
27 the time the beneficiary designation was executed as well as an
28 individual or class member who was then living but who failed to
29 survive the decedent.
30 (3) ‘Beneficiary designation’ includes an alternative
31 beneficiary designation and a beneficiary designation in the form
32 of a class gift.
33 (4) ‘Class member’ includes an individual who fails to
34 survive the decedent but who would have taken under a
35 beneficiary designation in the form of a class gift had he survived
36 the decedent.
37 (5) ‘Surviving beneficiary’ or ‘surviving descendant’ means
38 a beneficiary or a descendant who neither predeceased the
39 decedent nor is considered to have predeceased the decedent
40 pursuant to Section 62-2-702.
41 (B) If a beneficiary fails to survive the decedent and is a
42 grandparent of the decedent, or a descendant of a grandparent of
43 the decedent, then:
[4044] 66
1 (1) except as provided in item (4), if the beneficiary
2 designation is not in the form of a class gift and the deceased
3 beneficiary leaves surviving descendants, a substitute gift is
4 created in the beneficiary’s surviving descendants, who take by
5 representation the property to which the beneficiary would have
6 been entitled had the beneficiary survived the decedent;
7 (2) except as provided in item (4), if the beneficiary
8 designation is in the form of a class gift, other than a beneficiary
9 designation to ‘issue’, ‘descendants’, ‘heirs of the body’, ‘heirs’,
10 ‘next of kin’, ‘relatives’, or ‘family’, or a class described by
11 language of similar import, a substitute gift is created in the
12 surviving descendants of the deceased beneficiary or beneficiaries.
13 The property to which the beneficiaries would have been entitled
14 had all of them survived the decedent passes to the surviving
15 beneficiaries and the surviving descendants of the deceased
16 beneficiaries. Each surviving beneficiary takes the share to which
17 he would have been entitled had the deceased beneficiaries
18 survived the decedent. Each deceased beneficiary’s surviving
19 descendants who are substituted for the deceased beneficiary take
20 by representation the share to which the deceased beneficiary
21 would have been entitled had the deceased beneficiary survived the
22 decedent. For the purpose of this item, ‘deceased beneficiary’
23 means a class member who failed to survive the decedent and left
24 one or more surviving descendants;
25 (3) for the purpose of Section 62-2-701, words of
26 survivorship, such as in a beneficiary designation to an individual
27 ‘if he survives me’, or in a beneficiary designation to ‘my
28 surviving children’, are not, in the absence of additional evidence,
29 a sufficient indication of an intent contrary to the application of
30 this section;
31 (4) if a governing instrument creates an alternative
32 beneficiary designation with respect to a beneficiary designation
33 for which a substitute gift is created by item (1) or (2), the
34 substitute gift is superseded by the alternative beneficiary
35 designation only if an expressly designated beneficiary of the
36 alternative beneficiary designation is entitled to take.
37 (C)(1) If, pursuant to subsection (B), substitute gifts are created
38 and not superseded with respect to more than one beneficiary
39 designation and the beneficiary designations are alternative
40 beneficiary designations, one to the other, the determination of
41 which of the substitute gifts takes effect is resolved:
42 (a) except as provided in subitem (b), the property passes
43 under the primary substitute gift;
[4044] 67
1 (b) if there is a younger-generation beneficiary
2 designation, the property passes under the younger-generation
3 substitute gift and not under the primary substitute gift.
4 (2) As used this subsection :
5 (a) ‘Primary beneficiary designation’ means the
6 beneficiary designation that would have taken effect had all the
7 deceased beneficiaries of the alternative beneficiary designations
8 who left surviving descendants survived the decedent.
9 (b) ‘Primary substitute gift’ means the substitute gift
10 created with respect to the primary beneficiary designation.
11 (c) ‘Younger-generation beneficiary designation’ means a
12 beneficiary designation that:
13 ( i) is to a descendant of a beneficiary of the primary
14 beneficiary designation;
15 (ii) is an alternative beneficiary designation with respect
16 to the primary beneficiary designation;
17 (iii) is a beneficiary designation for which a substitute
18 gift is created; and
19 (iv) would have taken effect had all the deceased
20 beneficiaries who left surviving descendants survived the decedent
21 except the deceased beneficiary or beneficiaries of the primary
22 beneficiary designation.
23 (d) ‘Younger-generation substitute gift’ means the
24 substitute gift created with respect to the younger-generation
25 beneficiary designation.
26 (D)(1) A payor is protected from liability in making payments
27 under the terms of the beneficiary designation until the payor has
28 received written notice of a claim to a substitute gift pursuant to
29 this section. Payment made before the receipt of written notice of
30 a claim to a substitute gift pursuant to this section discharges the
31 payor, but not the recipient, from all claims for the amounts paid.
32 A payor is liable for a payment made after the payor has received
33 written notice of the claim. A recipient is liable for a payment
34 received, whether or not written notice of the claim is given.
35 (2) The written notice of the claim to a substitute gift must
36 be mailed to the payor’s main office or home by registered or
37 certified mail, return receipt requested, or served upon the payor in
38 the same manner as a summons in a civil action. Upon receipt of
39 written notice of the claim, a payor may pay any amount owed by
40 it to the court having jurisdiction of the probate proceedings
41 relating to the decedent’s estate or, if no proceedings have been
42 commenced, to the court having jurisdiction of probate
43 proceedings relating to decedents’ estates located in the county of
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1 the decedent’s residence. The court shall hold the funds and, upon
2 its determination pursuant to this section, order disbursement in
3 accordance with the determination. Payment made to the court
4 discharges the payor from all claims for the amounts paid.
5 (E)(1) A person who purchases property for value and without
6 notice of claim to a substitute gift, or who receives a payment or
7 other item of property in partial or full satisfaction of a legally
8 enforceable obligation, is neither obligated to return the payment,
9 item of property, or benefit, nor liable for the amount of the
10 payment or the value of the item of property or benefit. A person
11 who, not for value, receives a payment, item of property, or other
12 benefit to which the person is not entitled pursuant to this section
13 is obligated to return the payment, item of property, or benefit, or
14 is liable personally for the amount of the payment or the value of
15 the item of property or benefit, to the person who is entitled to it
16 pursuant to this section.
17 (2) If this section or a part of this section is preempted by
18 federal law with respect to a payment, an item of property, or
19 another benefit provided by this section, a person who, not for
20 value, receives the payment, item of property, or another benefit to
21 which the person is not entitled pursuant to this section is obligated
22 to return the payment, item of property, or benefit, or is liable
23 personally for the amount of the payment or the value of the item
24 of property or benefit, to the person entitled to it if this section or
25 part of this section were not preempted.
26
27 Section 62-2-707. If a class gift in favor of ‘descendants’,
28 ‘issue’, or ‘heirs of the body’ does not specify the manner in which
29 the property is distributed among the class members, the property
30 is distributed among the class members who are living when the
31 interest takes effect in possession or enjoyment, in the shares they
32 would receive, pursuant to the applicable law of intestate
33 succession if the designated ancestor died intestate owning the
34 subject matter of the class gift.
35
36 Section 62-2-708. If an applicable statute or a governing
37 instrument calls for a future distribution to, or creates a future
38 interest in, a designated individual’s ‘heirs’, ‘heirs at law’, ‘next of
39 kin’, ‘relatives’, or ‘family’, or language of similar import, the
40 property passes to those persons, including the state, pursuant to
41 Section 62-2-106, and in the shares that would succeed to the
42 designated individual’s intestate estate pursuant to the intestate
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1 succession law of the designated individual’s domicile if the
2 designated individual died intestate.”
3
4 SECTION 8. Section 62-2-803(e) of the 1976 Code is amended to
5 read:
6
7 “(e) A final judgment of conviction of felonious and intentional
8 killing is conclusive for purposes of this section. In the absence of
9 a conviction of felonious and intentional killing the court may
10 determine by a preponderance of evidence whether the killing was
11 felonious and intentional for purposes of this section. After all
12 right to appeal has been exhausted, a judgment of conviction
13 establishing criminal accountability for the felonious and
14 intentional killing of the decedent conclusively establishes the
15 convicted individual as the decedent’s killer for purposes of this
16 section. In the absence of a conviction, the court, upon the petition
17 of an interested person, shall determine whether, using the
18 preponderance of evidence standard, the individual would be found
19 criminally accountable for the felonious and intentional killing of
20 the decedent. If the court determines using that standard, that the
21 individual would be found criminally accountable for the felonious
22 and intentional killing of the decedent, the determination
23 conclusively establishes that individual as the decedent’s killer for
24 purposes of this section.”
25
26 SECTION 9. Part 8, Article 2, Chapter 2, Title 62 of the 1976
27 Code is amended by adding:
28
29 “Section 62-2-805. (A) As used in this section:
30 (1) ‘Disposition or appointment of property’ includes a
31 transfer of an item of property or other benefit to a beneficiary
32 designated in a governing instrument.
33 (2) ‘Divorce or annulment’ means any divorce or annulment,
34 or any dissolution or declaration of invalidity of a marriage, that
35 excludes the spouse as a surviving spouse within the meaning of
36 Section 62-2-802. A decree of separation that does not terminate
37 the status of husband and wife is not a divorce for purposes of this
38 section.
39 (3) ‘Divorced individual’ includes an individual whose
40 marriage has been either dissolved or declared invalid.
41 (4) ‘Governing instrument’ means a governing instrument
42 executed by the divorced individual before the divorce or
43 annulment of his marriage to his former spouse.
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1 (5) ‘Relative of the divorced individual’s former spouse’
2 means an individual who is related to the divorced individual’s
3 former spouse by blood, adoption, or affinity and who, after the
4 divorce or annulment, is not related to the divorced individual by
5 blood, adoption, or affinity.
6 (6) ‘Revocable,’ with respect to a disposition, appointment,
7 provision, or nomination, means one under which the divorced
8 individual, at the time of the divorce or annulment, was alone
9 empowered by law or under the governing instrument to cancel the
10 designation in favor of his former spouse or former spouse’s
11 relative, whether or not the divorced individual was then
12 empowered to designate himself in place of his former spouse or in
13 place of his former spouse’s relative and whether or not the
14 divorced individual then had the capacity to exercise the power.
15 (B) Except as provided by the express terms of a governing
16 instrument, a court order, or a contract relating to the division of
17 the marital estate made between the divorced individuals before or
18 after the marriage, divorce, or annulment, the divorce or annulment
19 of a marriage:
20 (1) revokes a revocable:
21 (a) disposition or appointment of property made by a
22 divorced individual to his former spouse in a governing instrument
23 and a disposition or appointment created by law or in a governing
24 instrument to a relative of the divorced individual’s former spouse;
25 (b) provision in a governing instrument conferring a
26 general or nongeneral power of appointment on the divorced
27 individual’s former spouse or on a relative of the divorced
28 individual’s former spouse; and
29 (c) nomination in a governing instrument nominating a
30 divorced individual’s former spouse or a relative of the divorced
31 individual’s former spouse to serve in a fiduciary or representative
32 capacity, including a personal representative, executor, trustee,
33 conservator, agent, or guardian; and
34 (2) severs the interests of the former spouses in property
35 held by them at the time of the divorce or annulment as joint
36 tenants with the right of survivorship, or as community property
37 with the right of survivorship, in a community property
38 jurisdiction, transforming the interests of the former spouses into
39 tenancies in common.
40 (C) A severance pursuant to subsection (B)(2) does not affect a
41 third-party interest in property acquired for value and in good faith
42 reliance on an apparent title by survivorship in the survivor of the
43 former spouses unless a writing declaring the severance has been
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1 noted, registered, filed, or recorded in records appropriate to the
2 kind and location of the property which are relied upon, in the
3 ordinary course of transactions involving such property, as
4 evidence of ownership.
5 (D) Provisions of a governing instrument that are not revoked
6 by this section are given effect as if the former spouse and relatives
7 of the former spouse disclaimed the revoked provisions or, in the
8 case of a revoked nomination in a fiduciary or representative
9 capacity, as if the former spouse and relatives of the former spouse
10 died immediately before the divorce or annulment.
11 (E) Provisions revoked only by this section are revived by the
12 divorced individual’s remarriage to the former spouse or by a
13 nullification of the divorce or annulment.
14 (F) A change of circumstances other than as provided in this
15 section and in Section 62-2-803 does not result in a revocation.
16 (G)(1) A payor or other third party is not liable for having made
17 a payment or transferred an item of property or other benefit to a
18 beneficiary designated in a governing instrument affected by a
19 divorce, annulment, or remarriage or for having taken other action
20 in good faith reliance on the validity of the governing instrument
21 before the payor or other third party received written notice of the
22 divorce, annulment, or remarriage. A payor or other third party is
23 liable for a payment made or other action taken after the payor or
24 other third party received written notice of a claimed forfeiture or
25 revocation pursuant to this section.
26 (2) Written notice of the divorce, annulment, or remarriage
27 must be mailed to the payor’s or other third party’s main office or
28 home by registered or certified mail, return receipt requested, or
29 served upon the payor or other third party in the same manner as a
30 summons in a civil action. Upon receipt of written notice of the
31 divorce, annulment, or remarriage, a payor or other third party may
32 pay any amount owed or transfer or deposit any item of property
33 held by it to or with the court having jurisdiction of the probate
34 proceedings relating to the decedent’s estate or, if no proceedings
35 have been commenced, to or with the court having jurisdiction of
36 probate proceedings relating to decedents’ estates located in the
37 county of the decedent’s residence. The court shall hold the funds
38 or item of property and, upon its determination pursuant to this
39 section, shall order disbursement or transfer in accordance with the
40 determination. Payments, transfers, or deposits made to or with
41 the court discharge the payor or other third party from all claims
42 for the value of amounts paid to or items of property transferred to
43 or deposited with the court.
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1 (H)(1) A person who purchases property from a former spouse,
2 relative of a former spouse, or other person for value and without
3 notice of the divorce, annulment, or remarriage, or who receives
4 from a former spouse, relative of a former spouse, or another
5 person a payment or other item of property in partial or full
6 satisfaction of a legally enforceable obligation, is neither obligated
7 to return the payment, item of property, or benefit, nor liable for
8 the amount of the payment or the value of the item of property or
9 benefit. A former spouse, relative of a former spouse, or other
10 person who, not for value, received a payment, item of property, or
11 other benefit to which that person is not entitled pursuant to this
12 section is obligated to return the payment, item of property, or
13 benefit, or is liable personally for the amount of the payment or the
14 value of the item of property or benefit, to the person who is
15 entitled to it pursuant to this section.
16 (2) If this section or part of this section is preempted by
17 federal law with respect to a payment, an item of property, or
18 another benefit provided in this section, a former spouse, relative
19 of the former spouse, or other person who, not for value, received a
20 payment, item of property, or another benefit to which that person
21 is not entitled pursuant to this section is obligated to return that
22 payment, item of property, or benefit, or is liable personally for the
23 amount of the payment or the value of the item of property or
24 benefit, to the person entitled to it if this section or part of this
25 section were not preempted.”
26
27 SECTION 10. Section 34-19-120 of the 1976 Code, as added by
28 Act 499 of 1988, is amended to read:
29
30 “Section 34-19-120. In cases where a person has been given a
31 durable power of attorney by a lessee of a safe deposit box who
32 has become mentally incompetent, and the original copy of the
33 power is put in the box, the lessor may permit the person given the
34 power to open the box to obtain the original copy of the power.
35 The lessor may request the person purporting to have been given
36 the durable power of attorney to produce a certified copy of the
37 power or an affidavit declaring that he has been given the power
38 before opening the box. No other contents may be removed from
39 the box pursuant to this section.
40 The durable power of attorney provided for in this section
41 means a power made durable under the provisions of Section
42 62-5-501. (A)(1) The person who has been given a durable
43 power of attorney by a lessee of a safe deposit box may open, or
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1 direct the lessor to open, the safe deposit box of the lessee and
2 obtain the original copy of the durable power of attorney; provided
3 that a statement in the form of item (3), or in a similar form
4 showing the same intent, is:
5 (a) incorporated in the body of the original durable power
6 of attorney contained in the safe deposit box; or
7 (b) contained in a separate statement in the form provided
8 in subsection (B), or in a similar form showing the same intent as
9 that attached or annexed to the original durable power of attorney
10 contained in the safe deposit box.
11 (2) If the statement is contained in a separate writing, the
12 execution of the separate statement is not an amendment,
13 modification, or revision of the original power of attorney.
14 (3) The statement must be substantially in the following
15 form:
16 ‘I__________________, the Principal, do hereby authorize
17 and direct my appointee or appointees as my
18 Attorney-in-Fact in my durable power of attorney, to have
19 access at any time or times to any safe deposit box rented by
20 me, wherever located, in order to remove my original durable
21 power of attorney, and any institution in which any such safe
22 deposit box may be located shall not be required to make any
23 inquiry and shall not incur any liability to me or my estate as a
24 result of permitting my appointee or appointees in my original
25 durable power of attorney to exercise this power. This power
26 shall be exercisable without: (i) any contact with, or notice
27 to, me, my spouse, and/or any interested persons to my
28 estate; (ii) any prior court order or authorization, (iii) any
29 knowledge of, or any prior determination as to, my mental
30 or physical capacity or incapacity, (iv) any knowledge as to
31 my whereabouts regardless whether my whereabouts are
32 known or unknown, or (v) any inquiry.’
33
34 (B) The lessee, at any time after the execution of his durable
35 power of attorney, may execute a separate statement authorizing
36 the removal of his original durable power of attorney from his safe
37 deposit box pursuant to subsection (A), provided that the separate
38 statement is executed by the Principal with the same formalities as
39 the execution and recording of a deed in the State of South
40 Carolina pursuant to Section 30-5-30, and the separate statement is
41 attached or annexed to the original durable power of attorney in the
42 following form, or in a similar form showing the same intent, with
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1 the acknowledgement for recorded deeds pursuant to Section
2 30-5-30(B) or (C).
3 ‘STATE OF _____________ )
4 )
5 COUNTY OF ____________________ )
6
7 I, _______ the Principal, do hereby authorize and direct my
8 appointee or appointees as my Attorney-in-Fact in my
9 durable power of attorney dated the __day of __, in the year
10 __, to have access at any time or times to any safe deposit box
11 rented by me, wherever located, in order to remove my
12 original durable power of attorney, and any institution in
13 which any such safe deposit box may be located shall not be
14 required to make any inquiry and shall not incur any liability
15 to me or my estate as a result of permitting my appointee or
16 appointees in my original durable power of attorney to
17 exercise this power. This power shall be exercisable without:
18 (i) any contact with, or notice to, me, my spouse, and/or any
19 interested persons to my estate; (ii) any prior court order or
20 authorization; (iii) any knowledge of, or any prior
21 determination as to, my mental or physical capacity or
22 incapacity; (iv) any knowledge as to my whereabouts
23 regardless whether my whereabouts are known or unknown;
24 or (v) any inquiry.’
25
26 IN WITNESSETH WHEREOF, I have executed this
27 statement on the ________ day of ______________, in the
28 year, ___________.
29
30 _________________________
31 ________________________
32 (Witness) Principal
33
34 _________________________(Witness)’
35
36 (C) If the original durable power of attorney does not contain a
37 statement in the form provided in subsection (A) or in a similar
38 form showing the same intent, or a separate statement in the form
39 provided in subsection (B) or in a similar form showing the same
40 intent is not attached or annexed to the original durable power of
41 attorney, then to allow removal of the lessee’s durable power of
42 attorney from the lessee’s safe deposit box the financial institution
43 must have:
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1 (1) contact with or notice to the lessee, the lessee’s spouse,
2 or an interested person in the lessee’s estate;
3 (2) a prior court order or court authorization;
4 (3) knowledge of, or a prior determination as to, the
5 mental or physical capacity or incapacity of the lessee;
6 (4) knowledge as to the lessee’s whereabouts, whether the
7 lessee’s whereabouts are known or unknown; or
8 (5) other inquiry.
9 (D) A witness to a statement provided for in subsection (B),
10 who also is an officer authorized to administer oaths pursuant to
11 the laws of this State may notarize the signature of the other
12 witness of the statement in the manner provided by this section.
13 (E) A financial institution that authorizes a person who has
14 been given a durable power of attorney by a lessee of a safe
15 deposit box, to remove the original durable power of attorney from
16 the safe deposit box of the lessee, pursuant to subsection (A) or
17 (B), or a financial institution that removes the original durable
18 power of attorney from the safe deposit box of the lessee pursuant
19 to the direction of the person who has been given a durable power
20 of attorney by the lessee, is not required to make further inquiry,
21 and is not liable to the lessee or the lessee’s estate as a result of
22 permitting removal of the original power of attorney. The financial
23 institution may request the person purporting to have been given
24 the durable power of attorney to produce a certified copy of the
25 power or an affidavit declaring that he has been given the power
26 before opening the box. No other contents may be removed from
27 the box pursuant to this section.
28 (F) The provisions of this section enable the person who has
29 been given a durable power of attorney by a lessee of a safe
30 deposit box to remove or obtain the original durable power of
31 attorney from the safe deposit box of the lessee, and enable the
32 financial institution to allow the removal of the durable power of
33 attorney from the safe deposit box without court action or findings
34 of incapacity of the lessee. This section supplements and does not
35 supplant the current procedures for obtaining the power of attorney
36 of the lessee from the safe deposit box, and is not the exclusive
37 method.”
38
39 SECTION 11. Section 27-7-40(a)(iv) of the 1976 Code, as added
40 by Act 398 of 2000, is amended to read:
41
42 ‘(iv) If all the joint tenants who own real estate held in joint
43 tenancy join in an encumbrance or deed of conveyance, the interest
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1 in the real estate shall be is effectively encumbered or conveyed to
2 a third party or parties.”
3
4 SECTION 12. If any section, subsection, paragraph,
5 subparagraph, sentence, clause, phrase, or word of this act is for
6 any reason held to be unconstitutional or invalid, such holding
7 shall not affect the constitutionality or validity of the remaining
8 portions of this act, the General Assembly hereby declaring that it
9 would have passed this act, and each and every section, subsection,
10 paragraph, subparagraph, sentence, clause, phrase, and word
11 thereof, irrespective of the fact that any one or more other sections,
12 subsections, paragraphs, subparagraphs, sentences, clauses,
13 phrases, or words hereof may be declared to be unconstitutional,
14 invalid, or otherwise ineffective.
15
16 SECTION 13. This act takes effect upon approval by the
17 Governor. To the extent that SECTION 2 does not apply to
18 transfers made in a manner prescribed in the Gifts to Minors Act of
19 South Carolina or to the powers, duties, and immunities conferred
20 by transfers in that manner upon custodians and persons dealing
21 with custodians, this section does not affect those transfers or those
22 powers, duties, and immunities, subject to Sections 20-7-215 and
23 20-7-220. SECTION 3 applies to trusts existing on and created
24 after its effective date, except that as applied to trusts existing on
25 its effective date, SECTION 3 governs only decisions or actions
26 occurring after that date. SECTION 4 applies to every trust or
27 decedent’s estate existing on the effective date of this act, except
28 as otherwise expressly provided in the will or terms of the trust or
29 in this section.
30 ----XX----
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