New South Carolina Law Rebuttably Presumes Certain Tangible Personal Property is Owned as Joint Tenants with Right of Survivorship by the Husband and Wife Upon the Death of First Spouse
South Carolina recently passed a new law, which provides that untitled tangible personal property, such as household and personal effects, are presumed to be owned by a husband and wife as joint tenants with right of survivorship. There are 5 exceptions, and the presumption can also be overcome or rebutted by sufficient evidence to prove that it is more likely than not, that the property was owned in a manner other than as joint tenants with right of survivorship.
The law is mainly positive. What follows is a comprehensive review and discussion of the new law.
Background and Explanation
Over the years, I have noted that most married couples who come in for estate planning assume that their untitled tangible personal property, such as household and personal effects, are owned as joint tenants with right of survivorship. Also for years, many practitioners in a pinch have relied upon this legal fiction.
I say fiction because it is almost impossible under common law principles, to own household and personal effects as joint tenants with right of survivorship. This is due to how a joint tenancy with right of survivorship is created. It is somewhat difficult to accomplish. As a practical matter, it requires a bill of sale or similar legal document from a third party to those receiving the property and it must contain special survivorship language.
You almost never see this, since most tangible personal property does not come with a bill or sale, much less one with survivorship language. Those times, when you have tangible personal property with a bill of sale or similar document, it usually involves property such as automobiles, boats, and airplanes, which require registration.
If the property is owned as joint tenants with right of survivorship, it will not require going through the probate court and the probate process to obtain ownership or title. It automatically belongs to the survivor. Admittedly, many spouses who had possession of the property ignored the technicalities and kept the property, subject to being challenged.
Challengers could include creditors wanting to be paid, children of the same marriage, and more problematically, children from previous marriages wanting their parent's and/or family's heirlooms and keepsakes.
A few years ago, legislation was introduced, but never passed, to change the rule with respect to such property owned by married couples so that it would be considered to be owned as joint tenants with right of survivorship, but it did not get anywhere. Now, a new law has been passed in South Carolina that may accomplish this result and may be beneficial in avoiding probate on tangible personal property as between a husband and wife.
The new law is Section 2-805 of the Probate Code. Basically, it creates a presumption that if tangible personal property is in the joint possession or control of the decedent and the surviving spouse at the time of the decedent's death, then it is owned by the decedent and the decedent's spouse as joint tenants with right of survivorship. It adds the additional condition that the ownership is not otherwise evidenced by a certificate of title, bill of sale, or other writing.
This additional condition is a common sense one. For instance, if an automobile is titled in the decedent's name alone, no one would normally believe that it should be owned as joint tenants with right of survivorship, especially since it could have been so easily titled at the highway department.
Maybe not as clear, is what it takes to be considered a bill of sale or other writing. Some could argue that a receipt showing the decedent paid for the item may qualify for the “other writing”, if not a bill of sale. However, this may be more useful in rebutting the presumption of ownership, which is discussed below.
The law also provides that the presumption of being owned as joint tenants with right of survivorship does not apply to property:
(1) acquired by either spouse before marriage;
(2) acquired by either spouse by gift or inheritance during the marriage;
(3) used by the decedent spouse in a trade or business in which the surviving spouse has no interest;
(4) held for another; or
(5) devised in a written statement or list disposing of tangible personal property pursuant to Section 62-2-512.
What this means is that there is no presumption with respect to these five (5) categories. Presumably, the burden of proof is on the one arguing that one of the exceptions in 1-5 applies. The proof may or may not be difficult, depending upon the circumstances.
Also, unless the item is very valuable, the differences will likely be worked out among the parties. Although, I hasten to add that this certainly will not always be the case.
For items 1 and 2, practical factors that would likely come into play include the length of the marriage and whether family heirlooms, keepsakes, or valuable property is involved. In actual practice, it may also depend on whether the children are all from the same marriage or if the decedent had children from a previous marriage.
Subject to issues of credibility of the witness, the testimony or possibly the sworn affidavit of the surviving spouse may be sufficient. Naturally, it would be helpful to have other testimony or documentary evidence such as a receipt for a purchase showing who purchased the item or in the case of a gift, the testimony of the donor of the gift.
Exception 3 should not be too difficult since there should be business records to prove ownership, but not always. Over a period of years, as with all such matters, records tend to be lost. However, property located on a business premises may provide the necessary proof that it is owned by the business. Also, the testimony of employees of the business may be sufficient.
Note that exception 3 does not seem to apply if the surviving spouse had an interest in the business. Does this mean that if the surviving spouse owns 1% of the business and the decedent owns 99%, then the business tangible personal property will be deemed to be owned as joint tenants with right of survivorship? With a literal reading of the statute, this seems to be the case.
Does it apply to sole proprietorships only, or does it apply to entities such as LLCs, corporations, partnerships and other entities owned by the decedent in which the decedent’s spouse also has an ownership interest? It is arguable that it does. It is also arguable that it would not apply to LLCs and corporations owned by the decedent, nor partnerships for that matter, since the decedent does not technically own the tangible personal property, itself, but only the interest in the business that owns the property. However, if the exception does apply, it could certainly create a problem in those cases where the business is left to a child rather than the surviving spouse. Similar considerations apply to sole proprietorships.
Item 4 appears to cover the situation where property was held by the decedent, but owned by someone else. Take, for example, the case of the borrowed lawn mower. It should be noted that this should not be a probate asset in any event, since the decedent did not own it.
It may also be intended to cover assets held by the decedent as Trustee, but maybe not since the decedent would not merely hold property for another, since the decedent is the legal owner of the property for the benefit of another, i.e. the beneficiary.
Item 4 could also cover property that someone asked the decedent to store for them, while they were gone, such as furniture stored in the decedent’s garage.
One might ask why you need item 4 since there may be no ownership interest to begin with and therefore no probate issue. The reason is that the law appears to create a presumption of ownership, by virtue of joint possession or control, where no actual ownership may have otherwise existed. Item 4 seems to be designed to mitigate the possibility that the presumption is applied to property that neither the decedent nor the decedent's spouse had any actual ownership interest in.
Item 5 is interesting. It basically states that you can remove the presumption merely by leaving the property in question to someone by a written memorandum. It is not clear what happens if you have a memorandum that simply states that all tangible personal property that you own, without specific identification, is transferred by the memorandum, which is what many people have done. Under a literal reading of Item 5, this should cause the property not to be owned as joint tenants with right of survivorship; although, it may be arguable with respect to such memorandums that were executed prior to the effective date or the introduction of the new law.
Oddly enough, if the decedent were to leave the property in the body of their Will and not by a separate written memorandum, then the presumption of survivorship still appears to exist. If so, then the property can not be devised by Will unless the presumption is rebutted. I am not sure that this was the legislature's intent, but it may be the result. It may also be that the Will can be used as an “other writing” to overcome the presumption itself.
The new law provides that the presumption may be overcome by a preponderance of the evidence demonstrating that ownership was held other than in joint tenancy with right of survivorship. This basically means the presumption can be rebutted with evidence that proves “it is more likely than not” that the property was owned in a manner other than as joint tenants with right of survivorship.
Although the property may be presumed to be owned as joint tenants with right of survivorship and is not subject to the probate process, upon the death of the first spouse, if nothing further is done, then it will be subject to probate upon the death of the second spouse. For this reason, it may still be advisable to place such property into a Revocable Living Trust, if this is your primary dispositive document. By doing this and properly drafting the memorandum, the Will and/or the Trust Agreement, you can achieve the probate avoidance on the death of the first spouse and upon the death of the surviving spouse.
The new law appears to have a retroactive effect, meaning that for those who die after the June 2010 effective date, it will apply to property owned prior to the effective date. For those who have used a tangible personal property memorandum, you should take a look at it to make sure that it still expresses your intent. It is also advisable to update these and specifically refer to the new code section and that you do not intend that it apply, unless of course you want it to apply. If you do want the presumption to apply, then you may not want to have a tangible personal property memorandum specifying who receives the property, unless you are leaving it to your surviving spouse.
Although it is beyond the scope of this discussion, the tax cost basis may be significantly different if the presumption applies or if it does apply and the property is owned solely by the decedent.
It may be beneficial in cases of death when there is a surviving spouse, to prepare a sworn affidavit to be signed by the surviving spouse that recites the appropriate portions of the statute as evidence of which tangible personal property is owned or claimed to be owned as joint tenants with right of survivorship and which property is not so owned. If a probate file is open, it may also be advisable to file a copy with the probate court to serve as a public record of which property is owned as joint tenants with right of survivorship. This should stand as sufficient proof, subject to being rebutted.
The new law may also have the effect of adding additional asset protection for the surviving spouse from the unsecured debts of the predeceased spouse. Traditionally, in order to make property owned as joint tenants with right of survivorship subject to the creditor claims of the decedent, special legislation had to be passed. For instance, joint bank accounts have such special legislation as do assets in a decedent’s Revocable Living Trust. As you might suspect, these were added at the request of the banking lobby.
Without such special legislation, the surviving spouse may reasonably argue that the property is not subject to the creditor claims of the deceased spouse. This can be accomplished without having to rely upon other statutory exemptions.
Naturally, this assumes that the surviving spouse is not otherwise also liable on the debt. If this interpretation of the new legislation is correct, then look to the banking lobby to have it changed so that their creditor claims are protected.
It can also be argued that our legislature has created a de facto form of tenancy by the entirety with respect to tangible personal property. This reinforces the argument that it is not subject to the creditor claims of the deceased spouse, unless the surviving spouse is also liable on the debt. It can also be argued that if it is a form of tenancy by the entirety, then it is not subject to creditor claims of only one spouse, while both are alive, or even upon the death of one spouse, if the surviving spouse is not the debtor. This means that a creditor cannot foreclose on the debt and force its sale. Admittedly, this interpretation is a stretch, since the statute refers only to the presumption being applied at the death of the first spouse.
Many states, including North Carolina, Florida, and New Jersey, have recognized tenancies by the entirety for many years as an additional protection for their citizens against overzealous creditors. The method for a creditor to protect itself is to make sure both spouses are debtors and not just one. This is usually accomplished by having both spouses sign a note and security agreement. Again, if this protection against creditors interpretation is correct, then look to the banking lobby to have it changed so that their creditor claims are more easily protected.
One might ask what happens in the event of a common disaster, when both spouses are presumed to have predeceased each other. In such a case, there is no surviving spouse. Suppose, however, that one of the Wills has a presumption that one spouse, for instance the wife, is the survivor. Do we have a survivor for purposes of the statute such that the property passes to the surviving spouse without being subject to probate in the first spouse’s estate?
Similar questions arise if a qualified disclaimer is filed by the surviving spouse, since the survivor is then treated as though he or she predeceased the decedent, with respect to the property disclaimed. This is easier to manage because if you do not specify that it applies to tangible personal property, then it will not and you will have a surviving spouse and the statute should apply.
Suppose, however, that the surviving spouse does disclaim the property. Since this means that the surviving spouse predeceased the spouse who actually died first, is the predeceased spouse now the surviving spouse for purposes of the statute? Possibly an interesting thought for later discussion.
On balance, I believe that the new legislation will be beneficial to most South Carolina decedents and their families. For persons with modest and simple estates (i.e., most South Carolinians) this new legislation, when combined with other property owned as joint tenants with right of survivorship, should reduce the cost of administration, possibly eliminating probate and making the process much easier. This may be one of the few pieces of legislation passed by the legislature in recent years, in the estate planning and probate area, that actually reduces costs and for this I applaud our legislators.