2016 Case Notes: Trusts & Estates - December 5, 2016

The South Carolina Court of Appeals recently handed down the decision of In Re: Estate of Marion M. Kay, Op. No. 5414 (S.C.Ct.App. Withdrawn, Substituted and Refiled Nov. 2, 2016) (Shearouse Adv.Sh. No. 42 at 28).  In Kay, the Court decided an appeal arising out of the administration of an estate wherein the personal representative advanced himself a significant fee over the course of administration.  The PR attempted to distribute the estate, which consisted mainly of real property, by offering to sell or distribute outright the parcels, so that some beneficiaries under the will could receive cash instead of an undivided interest in the testatrix’s real property.  Because he could not obtain approval of all the beneficiaries, the PR ultimately filed an action for partition and declaratory judgment.  Id. at 31.  Ultimately, the PR sold the decedent’s interest in all the real property to a third party, and the beneficiaries all consented to the sale.  Thereafter, some beneficiaries of the estate challenged the PR’s compensation request.  After a hearing, the probate court issued an order finding the PR unnecessarily complicated the estate by filing the partition action instead of simply deeding the real property to the beneficiaries pursuant to the terms of the will.  Nevertheless, the probate court allowed a fee approximating 10% of the estate’s value, and ordered the PR to refund all monies in excess of that amount that the PR had advanced to himself.  Id. at 31-32.

In considering the reasonableness of the PR’s compensation, the Court of Appeals recognized two guiding principles.  First, the relevant statute limits personal representative fees to 5% of the value of personal property, plus 5% of the sale of real property.  Id. at 34 (quoting S.C. Code Ann. § 62-3-719(a)). Second, the Court of Appeals recognized that limit does not apply where, among other things, “the will otherwise directs”.

Id. (quoting S.C. Code Ann. § 62-3-719(c)).  The decedent’s will allowed for “reasonable compensation.”  Id.  Considering the probate court’s decision in light of the record, the will, and the applicable statutes, the Court of Appeals held that the probate court’s decision to limit the PR’s request for fees was within the probate court’s discretion and supported by the evidence.  Id. at 35.

Can't recover attorney’s fees and costs attributable to the PR individually

The PR requested the probate court allow the estate to pay all of the PR’s attorney’s fees, including those fees incurred in the defense of his request for compensation.  The probate court only awarded those fees associated with the administration of the estate, not those associated with the defense of the PR’s compensation request.  Id. at 32.  In affirming the probate court’s decision awarding only part of the PR’s request for attorney’s fees, the Court of Appeals again relied on the relevant statute, in this case, Section 62-3-720.  Id. at 38.  While the Court of Appeals agreed that statute “affords a PR reimbursement for costs and attorney’s fees in connection with the administration and protection of the Estate,” the Court also agreed the probate court properly exercised its discretion in finding the attorney’s fees that were disallowed arose out of the contest involving the PR’s claim for compensation.  Id.  The Court of Appeals further found that section 62-3-720 was intended to cover “fees and expenses in connection with prosecuting and defending claims against the Estate.” Id.  The fees disallowed by the probate court “were properly assessed against Appellant in his individual capacity”.  Id. (emphasis added).  As a result, the Court would not allow the PR to recover his individual attorney’s fees and costs, as they were not related to the administration of the estate.

Practice Pointers

Estate planners and counsel advising personal representatives should be wary of this case.  If it represents a trend of the courts to closely monitor PR fees, the response is clear.  PRs operate under a fiduciary duty identical to that of trustees.  S.C. Code Ann. §§ 62-3-703(a) & 62-7-804.  As such, they must “settle and distribute the estate of the decedent … as expeditiously and efficiently as is consistent with the best interests of the estate.”  S.C. Code Ann. § 62-3-704(a).  To do that effectively, the PR needs to carefully consider which work advances the goal of settlement and distribution, and which work advances the PR’s own interests. 

Estate planners should counsel their testators to address PR compensation in the testamentary instrument.  By clearly defining reasonable compensation, or adhering to the statutory fee structure, testators can resolve this issue prior to death, thereby avoiding disputes.  Similarly, where the issue is not clearly defined in the testamentary instrument, legal counsel forPRs should advise their clients to judiciously conserve estate assets and avoid protracted litigation regarding compensation.  The Court of Appeals has signaled it will not tolerate depletion of estate assets to serve the individual goals of the personal representative.