South Carolina Trust
and Estate Law Blog

The Personal Representative of an estate is responsible for marshalling and managing the assets of the estate. One part of this responsibility is dealing with creditors of the estate. There are a number of South Carolina statutes that lay out what this responsibility is.

First off, creditors of an estate must file their claims in Probate Court prior to the earlier of eight months after a creditor’s advertisement is published or one year after the Decedent’s date of death. (SC Code §62-3-805) Personal Representatives can put themselves in serious jeopardy if they pay out funds from the estate to the estate beneficiaries before the expiration of the claim period. Personal Representatives who do so can be personally liable to any creditor who files a valid claim within the claim period but after the PR distributes assets to a beneficiary.

Creditors who do not make their claims prior to the expiration of the claim period will have their claims barred. One exception to this is if the creditor is a secured creditor, such as the holder of a mortgage on estate real property. This debt will not be barred by the claim period, as the mortgage is attached to the property. Typically bills like credit cards, medical bills, and utility bills, are unsecured debts, and can be barred if claims against the estate are not made on time.

Once the creditor’s period is passed, the Personal Representative may pay the valid claims made against the estate. The Personal Representative must evaluate all of the claims made and insure that they are valid debts and the claims have been validly and timely made. The validly and timely made claims can then be paid. If there are sufficient estate assets to pay with, they can all be paid and releases obtained and filed with the Probate Court. If there are insufficient assets to pay the claims, they must be paid according to the statutory order of claim priority, and if there are insufficient assets to pay all the claims at the same level of priority, they are paid on a pro rata basis.

S.C. Code §62-3-805 lays out the following order of claim priority:

Costs and expenses of estate administration, including attorney’s fees and reasonable funeral expenses have the highest priority. Claims with the second highest priority are those reasonable and necessary medical and hospital expenses of the decedent’s last illness and/or medical assistance paid under Medicaid for the Decedent’s benefit. The claims that come next are debts and taxes required to be paid under federal law, and debts and taxes required to be paid under South Carolina law. All other claims are paid last.

The life estate, or, an estate per autre vie, is at common law and from statute the ownership of land for the duration of a person’s life. In legal terms it is an estate in real property that ends at death, at which time there is either a “reversion” to the original owner, or an automatic conveyance to a remainderperson. The owner of a life estate is called a “life tenant”.

A life estate has its uses in estate planning. It can be used to allow the life tenant to continue to reside in a residence for the remainder of their lifetime, without easily allowing for the sale of the property by the life tenant. It is difficult to sell a life tenancy because the life tenant can only sell that which they actually own, which is the right to own a property for life. Most persons would not want to purchase such an interest in land.

A life tenancy can also potentially be utilized in medicaid planning, where a person who anticipates having expensive long term care needs in the future could simply own a life estate in their property, which is considered an exempt interest for the purposes of medicaid.

As with all estate planning techniques, the use of a life estate should occur under the supervision of an attorney. Mistakes can be costly, and while life estates have their benefits, they also have their consequences, such as a loss of control over a property, and potential disputes over the responsibility to repair, maintain, and improve a property.

Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm. The rules regarding retirement accounts do change, are highly fact specific, and errors can be extremely costly. Before relying on any information given on this site, please contact a legal professional to discuss your particular situation.

Keogh plans are a type of retirement plan for self-employed people and small businesses. They are considered Qualified Plans by the IRS, thus they are subject to a greater amount of administrative overhead and are more difficult to set up and maintain than is an IRA or an IRA-based plan, such as a SEP-IRA. It usually will require professional assistance to set up a Keogh account.

Keoghs come in two flavors: defined contribution and defined benefit. Defined contribution plans are funded with fixed contributions from each pay check, while defined benefit plans are funded through contributions dependent on an IRS formula.

Contributions must be made pre-tax, and income tax is imposed upon withdrawal from the account. The main benefit of the Keogh plan is that it allows for a greater amount of annual contributions to the account, ie, for 2012 the limit is $50,000.00. However, it requires a large amount of business income to be able to reach this maximum contribution as contributions are limited to 25% of gross income.

Keoghs have their place, but for a self employed business owner who does have a large amount of gross income, it would likely be a better choice to use an IRA-based retirement account such as a SEP-IRA, or a SIMPLE 401k.

Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm. The rules regarding retirement accounts do change, are highly fact specific, and errors can be extremely costly. Before relying on any information given on this site, please contact a legal professional to discuss your particular situation.

Oh, and the IRS would like me to let you know that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.

As you all likely know by now, Legal Zoom is a service that allows people to go online and have various legal documents prepared. Things like Last Wills, trusts, trademark applications, and various other documents. I have thought about what these services mean to the legal profession in general, and to me in particular.

And I finally came up with the answer. Legal Zoom does not mean a whole lot to my practice. What you get when you go to Legal Zoom is a document writer. When people come to me they get a whole lot more. They get the benefit of my education, the benefit of my experience, and the benefit of my knowledge of what can go wrong in the future. They get the benefit of my judgement. They get the benefit of my counsel. They get the benefit of legal advice. They get the benefit of an explanation of the difference between per stirpes and by representation and how the distinction can affect their descendants’ inheritances. They get the benefit of knowing that an unfunded living trust is about the most worthless document you can ever purchase.

I have seen Legal Zoom Wills and Trusts. And I have seen mine. The documents that I prepare cannot be found on Legal Zoom. My documents are customized and tailored to each client so that they fit each client’s situation. And I know that the advice I provide cannot be had on Legal Zoom. I am an estate planner, not a document writer. I am not in competition with Legal Zoom. Because what I provide Legal Zoom cannot.

This installment of South Carolina Estate Lawyer A to Z continues with the theme of retirement accounts. Defining the term JOINT AND LAST SURVIVOR TABLE requires a small amount of background about retirement accounts.

As you may know, federal tax law allows for the deferral of income taxes for compensation income that is placed into traditional IRAs or into qualified retirement accounts such as 401Ks. While federal law allows this tax deferral for a time, the law does not grant deferral forever. What the law gives it does eventually want to take back.

Participants in these tax advantaged accounts are required to begin taking distributions from these accounts in the year that they reach age seventy and a half years. The distributions thus taken are then subjected to income taxes.

The calculation of these required distributions, officially termed Required Minimum Distributions, is relatively simple to accomplish. You simply obtain a divisor from an IRS published table called the Uniform Lifetime Table and divide the prior year end account balance by the applicable divisor and the result is your Required Minimum Distribution.

For example, suppose I turn 74 years of age in the year 2012, and as of December 31, 2011 the balance in my traditional IRA is $150,000.00. From the Uniform Lifetime Table, the divisor for a person who is age 74 is equal to 23.8. To obtain my year 2012 Required Minimum Distribution, I would divide $150,000.00 by 23.8, for a result of approximately $6,302.00. Thus in the year 2012 I would be required to withdraw $6,302.00 from my traditional IRA account and pay the income taxes on it. If I failed to take the distribution, I would be assessed a penalty excise tax of 50% of the amount not taken, in this instance $3,151, plus have to pay the income taxes when I did eventually take the distribution. Neglecting to take your required minimum distributions can be a costly error.

To learn what the JOINT AND LAST SURVIVOR TABLE is used for, you need to understand what the Uniform Lifetime Table is. The Uniform Lifetime Table is actually obtained from the combined life expectancy of the account participant plus that of a hypothetical beneficiary exactly age ten years younger than the plan participant.

The JOINT AND LAST SURVIVOR TABLE (and you have got to love the optimism of our Congresspeople here) is a table that can be used when the plan participant names as beneficiary his or her spouse who is greater than ten years younger than the participant. For an example of the JOINT AND SURVIVOR TABLE follow this link.

The divisors obtained from this table are more generous than the Uniform Lifetime Table. Let’s see how the use of the JOINT AND LAST SURVIVOR TABLE would have affected my example above. Again, suppose I am 74 in the year 2012, but that my spouse is named as my primary beneficiary and she is age 58. Looking at the table at the link above, we look across the top for age 74, and then go down to find my spouse’s age 58. Here, the divisor would be 28.1. Lets divide $150,000.00 by 28.1 for a Required Minimum Distribution of approximately $5,338.00. Thus, the use of the JOINT AND LAST SURVIVOR TABLE results is a lower Required Minimum Distribution. This table is more generous because it is assumed that because the beneficiary spouse has a much longer life expectancy the account should last for a longer time. Reducing the amount required to be taken from the account will accomplish this goal.

Like any decent lawyer, I need to add a disclaimer here: unfortunately, it is impossible to offer comprehensive legal advice over the internet, no matter how well researched or written. And remember, reviewing this website and my blogs doesn’t make you a client of my Firm. The rules regarding retirement accounts do change, are highly fact specific, and errors can be extremely costly. Before relying on any information given on this site, please contact a legal professional to discuss your particular situation.

Oh, and the IRS would like me to let you know that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.