When a person leaves behind a trust as part of his or her estate plan, the person who is responsible for managing the trust is referred to as the “trustee.” While the person who creates the trust (referred to as a “settlor” or “grantor”) establishes the terms of the trust and the scope of the trustee’s authority, trustees have certain statutory rights and obligations under South Carolina law as well.
If you have been named as the trustee of a loved one’s trust in South Carolina, or if you are the beneficiary of a trust and you live in the Palmetto State, it is important to have a clear understanding of the trustee role. The same is true if you are an heir or a will beneficiary and your right to a share of a loved one’s estate could be impaired the improper acts of a trustee (such as attempting to distribute assets that fall outside of the trust). When trustees exceed the scope of their authority or fail to meet their legal obligations, beneficiaries and other affected parties can take legal action, and trustees can face personal liability for any losses they cause.
The Trust Agreement Controls, Subject to Certain Exceptions Under the South Carolina Trust Code
Trustees’ statutory rights and obligations are established in the South Carolina Trust Code. Section 62-7-105 (Default and Mandatory Rules) states that “[e]xcept as otherwise provided in the terms of the trust, this article governs the duties and powers of a trustee, relations among trustees, and the rights and interests of a beneficiary.” It goes on to clarify that, “[t]he terms of a trust prevail over any provision of [the South Carolina Trust Code],” subject to twelve specific exceptions enumerated in the statute.
In other words, when attempting to discern a trustee’s scope of authority or responsibilities, the first place to look is typically the trust agreement. The trust agreement should include specific provisions regarding matters such as:
- The assets that fall within the trust;
- The trustee’s obligation to manage and invest trust assets;
- The timing and terms of distributions of trust assets;
- The timing and terms of the trust’s termination; and,
- Any compensation to which the trustee is entitled.
However, while the trust agreement controls in most cases, and while the majority of the exceptions under Section 62-7-105 are not directly relevant to the performance of trustees’ duties, there are a few exceptions that establish critical protections for trust beneficiaries. For example, a trust agreement cannot relieve a trustee of his or her obligation to:
- “[A]ct in good faith and in accordance with the purposes of the trust;” or,
- Manage the trust, “for the benefit of its beneficiaries.”
Similarly, in describing trustees’ duty of loyalty, Section 62-7-802 of the South Carolina Trust Code states that a trustee, “shall administer the trust solely in the interests of the beneficiaries.” Section 62-7-802 also clarifies various aspects of the fiduciary duty that trustees owe to beneficiaries, including:
- “[A] sale, encumbrance, or other transaction involving the investment or management of trust property entered into by the trustee for the trustee’s own personal account or which is otherwise affected by a conflict between the trustee’s fiduciary and personal interests is voidable [subject to limited exceptions].”
- “A sale, encumbrance, or other transaction involving the investment or management of trust property is presumed to [involve] a conflict between personal and fiduciary interests if it is entered into by the trustee with [a family member or a related business entity].”
- “A transaction not concerning trust property in which the trustee engages in the trustee’s individual capacity involves a conflict between personal and fiduciary interests if the transaction concerns an opportunity properly belonging to the trust.”
What Happens if a Trustee Violates His or Her Duties Under a Trust Agreement or the South Carolina Trust Code?
If a trustee fails to uphold his or her responsibilities under a trust agreement or violates any applicable provisions of the South Carolina Trust Code, then the trustee can face personal liability to any beneficiaries who are negatively affected. In certain circumstances, heirs, will beneficiaries, estate creditors and other third parties may have grounds to pursue claims against trustees as well. However, it is worth noting that trustees are generally entitled to exercise a certain amount of discretion, and settlors will often include trust agreement provisions designed to protect their trustees– particularly when their chosen trustees are family members. So, not all decisions that prove to have negative consequences will necessarily trigger legal liability, although many wills.
When a trustee exceeds his or her authority, breaches his or her fiduciary duty or a duty of loyalty, or otherwise violates the terms of the settlor’s trust or the South Carolina Trust Code, potential remedies available to trust beneficiaries and other affected parties include:
- Damages for financial losses (which would be awarded against the trustee and not paid out of the trust estate);
- Trust accounting and other administrative remedies; and,
- Removal of the trustee.
What are a Trustee’s Options When Unable to Satisfy His or Her Legal Duties?
As a trustee, what are your options if you are unable to satisfy your legal duties or if you are concerned that you could be at risk for personal liability? As with all legal matters, you should discuss your situation with an attorney as soon as possible. Most trust agreements include provisions regarding trustee resignation (and often provide for the appointment of an alternate trustee), and Section 62-7-705 of the South Carolina Trust Code contains provisions regarding trustee resignation as well. Under Section 62-7-705, court approval is required prior to resignation, and resignation will not necessarily result in immediate relief from all responsibilities. Additionally, the statute specifically provides that, “[a]ny liability of a resigning trustee . . . is not discharged or affected by the trustee’s resignation.”
Schedule an Appointment with Summerville, SC Trust Administration Lawyer Patrick R. Watts
If you have questions about your rights or obligations as a trustee, beneficiary, or heir in South Carolina, we invite you to get in touch. To schedule an appointment in Summerville, South Carolina trust administration lawyer Patrick R. Watts, please call 843-851-7050 or contact us online today.