Do the Personal Representatives Get First Dibs on the Good Stuff?
Earlier this October, the South Carolina Supreme Court held oral arguments in Bennett v. Felder, a case in which the Court granted a Petition for Writ of Certiorari to review a decision of the Court of Appeals regarding the propriety of a real property distribution under a will. The petitioners are Jacquelin Bennett and her sister Kathleen Turner, the co-Personal Representatives of the estate of their late mother, Jacquelin Stevenson (“Mrs. Stevenson”). Like their brothers, Thomas Stevenson and Daniel Stevenson, Bennett and Turner were born of the marriage between Mrs. Stevenson and Thomas Stevenson. Mrs. Stevenson had a son from a prior marriage, James King. Mr. Stevenson had a daughter — Genevieve Felder — from his first marriage.
Mrs. Stevenson died in 2007. Bennett, Turner, and Felder, who were beneficiaries of Mrs. Stevenson’s revocable trust, sued Thomas and Daniel, who served as trustees, alleging misfeasance and malfeasance. Thomas settled the litigation and the beneficiaries obtained a verdict exceeding $10 million against Daniel, who did not put up a defense at trial. Subsequently, Bennett replaced Thomas as co-personal representative, and both Thomas and Daniel were barred from taking under the will by order of the probate court.
In her will, Mrs. Stevenson specifically devised one resort property at Lake Summit in Henderson, North Carolina to Thomas and Daniel, and she specifically devised another waterfront property on Wadmalaw Island, South Carolina to Bennett and Turner. Before this litigation, Mrs. Stevenson’s estate was distributed with the exception of the Lake Summit property and several other pieces of real estate which were not vacation properties.
This litigation arose after Turner and Bennett exercised their powers as personal representatives to allocate the remaining real estate holdings in the estate in a fashion that was economically fair to all beneficiaries, but which gave to themselves the family vacation home at Lake Summit — a property Felder wanted to share equally with them. The primary issue is whether the Court should set aside a distribution of property by the personal representatives which is economically fair, but which gives the more sentimentally valuable property solely to the fiduciaries.
The Lake Summit property was the Stevenson’s family vacation home for decades and was sentimentally valuable to the family, although Bennett and Turner argued it had more sentimental value to them because they spent time there as children, while Felder was already married and starting her family when the home was purchased. Because the bequest to Thomas and Daniel lapsed, the Lake Summit house was to be distributed through the residuary clause of Mrs. Stevenson’s will, which provided in pertinent part that the residue of her estate should pass to all six children, including Felder and King, “in equal shares.” Bennett and Turner interpreted the residuary clause to allow a distribution of the real property “in any reasonable manner.” Accordingly, they commissioned an appraisal of the residuary properties and then proposed to distribute the Lake Summit house and land to themselves, while distributing portions of other non-resort real estates to Felder. The parties agreed that the division of property under the residuary clause was economically equal.
Felder, however, challenged the proposed distribution in probate court, arguing that the authority of the personal representatives “is constrained by fiduciary principals and the duty to treat all beneficiaries equitably and fairly.” She argued the personal representatives should have taken non-economic factors, such as the sentimental value of the property, into consideration, rather than solely using the monetary value of the properties to justify the distribution. The probate court sided with Felder, finding a pro-rata distribution of the real estate to be “appropriate in light of the evidence presented.” That is, each beneficiary was to receive a one-third interest in each of the properties. Bennett and Felder appealed.
In an unpublished per curiam opinion, the Court of Appeals affirmed the probate court, finding facts sufficient to support the decision. Applying a standard of review that would require affirming the probate court if “any evidence” supported its ruling, the Court of Appeals found “there is evidence to support the probate court’s finding that the Personal Representatives’ proposed allocation of the Residuary Estate would violate the fiduciary duties of a personal representative.” Bennett v. Est. of King, No. 2017-001196, 2019 WL 7369267, at *2 (S.C. Ct. App. Dec. 31, 2019). The Court of Appeals noted, ”[a]lthough the Will did not clearly provide for whether the equal shares should consist of equal ownership interests or shares of equal monetary value, South Carolina law requires a personal representative to distribute the estate for the best interests of the estate and the successors to the estate, not for his or her own personal interests.” Id. at *2. The Court of Appeals also could not find a reasonable basis for dividing the property in the manner concocted by Bennett and Turner. Bennett and Turner petitioned the Supreme Court for a Writ of Certiorari, which the Court granted. Oral arguments took place on October 13, 2021.
Bennett and Turner argued to the Supreme Court that the probate court’s decision was “an outright dereliction of the principal duty of the Court to determinate the testator’s intent in an action to determine the construction of a will.” They argued the intent of the residuary clause was for the property to pass in economically equal shares, rather than pro-rata. Bennett and Turner pointed to a set-off provision in the residuary clause in which the residuary share of some beneficiaries would be reduced by the amount of loans Mrs. Stevenson made to them during her life. Bennett and Turner argued this set-off provision demonstrated Mrs. Stevenson’s intent that the residuary shares would be economically equal, rather than requiring a pro-rata distribution. Bennett and Turner also argued that by leaving the Lake Summit home originally to the two sons of her marriage to Mr. Stevenson, Mrs. Stevenson demonstrated an intent that this property remain within that family and that it should not be shared with the half-siblings Felder and King.
Felder responded by arguing the set-off provision of the residuary clause merely demonstrated Mrs. Stevenson’s intent to take into consideration lifetime gifts to the beneficiaries when dividing her assets among them. Her intent to treat all six of the children equally, Felder argued, is not disputed. She also argued that by leaving the Rockville property — rather than the Lake Summit property — specifically to Bennett and Turner, Mrs. Stevenson indicated her intent that these sisters would not also receive the Lake Summit property. Felder maintained the probate court had ample evidence on which to rest its decision. Specifically, the probate court found as a matter of fact that the Lake Summit property is desirable because the owners can enjoy it, and the other properties left to Felder were a “mishmash of interests in which the majority are consigned to [Felder] by [Bennett and Turner] in order to offset the value of Lake Summit.”
At oral arguments, the Supreme Court demonstrated a concern that Bennett and Turner were acting improperly by transferring the Lake Summit property to themselves, but they also had mixed views of whether this impropriety constituted a breach of fiduciary duty. They also cast doubt on the argument that Mrs. Stevenson’s will demonstrated an intent that Lake Summit should go to Bennett and Turner, to the exclusion of Felder.
To demonstrate a concern about the supposed equality of the distribution plan at issue, Justice Kittredge pointedly asked counsel for the personal representatives whether his clients would agree to take the property earmarked in their distribution scheme for Felder, rather than the distribution they made to themselves. Counsel for the personal representatives did not accept that proposal but instead responded by referring the Court to evidence of the testatrix’s intent. He argued Mrs. Stevenson intended for the property to be distributed to Bennett and Turner. He argued the will demonstrated an “overarching intent” that real property would flow to the children of her marriage to Mr. Stevenson, whereas King and Felder were to receive only monetary distributions.
But the Justices repeatedly returned to their apparent distaste for the distribution at issue. Justice Kittredge observed the proposed distribution gave “nothing outright” to Felder. Chief Justice Beatty followed up by asking why the property could not be distributed in a way that would provide Felder with entire ownership of at least one of the properties in the residuary. The Court seemed troubled that the personal representatives took outright ownership of Lake Summit for themselves, but gave Felder only portions of the other properties. Justice James echoed this sentiment as well.
Justice Few squarely placed the central question before the Court — whether Felder must prove a breach of fiduciary duty for the Court to set aside the distribution. He noted, “unfair is not the standard, is it?” He observed a fiduciary is charged with making difficult decisions, and as long as they are made without breaching a fiduciary duty, then the decisions may not be “second-guessed.” Counsel for Felder initially would not agree that a breach of fiduciary duty is required for the decision to be overturned. Justice Few, however, pressed the point further until counsel for Felder agreed that the Court must find a breach of fiduciary duty to set aside a decision of a personal representative under this will.
The Justices also focused extensively on whether, by distributing the sentimentally more valuable Lake Summit property to themselves and by providing no real estate outright to Felder, Bennett and Turner breached their fiduciary duties to Felder. The Chief Justice observed that he did not see self-dealing here, but he again suggested that the estate could be redistributed to give a whole property to Felder. The Justices pressed counsel for Felder to point to a breach of fiduciary duty. Felder’s counsel argued the fiduciaries engaged in self-dealing by taking the most favored property entirely for themselves. Justice Hearn probed for evidence of bad faith on the part of the personal representatives, noting cases where breach of fiduciary duty is found typically include a finding of some “badness.” She questioned whether a breach occurs merely because Felder does not like the distribution. Counsel for Felder, however, maintained that the personal representatives could have breached their fiduciary duty without acting in bad faith. Justice James noted they “had their thumbs on the scales a little bit.”
Counsel for Felder argued the proposed distribution should be set aside because it is not equal. He argued non-economic considerations, including sentimental attachment to the property, should “tip the scales” in favor of pro-rata distribution. As to the proof of Felder’s sentimental attachment to the property, Justice Hearn questioned whether Felder could have such feelings, given that she did not grow up using the Lake Summit property, like Bennett, Turner, and their two full brothers did.
The Court, and Justice Hearn in particular, also delved into the powers granted to the personal representatives in Article 10.6 of the will. That provision grants broad powers and expressly does not require the consent of beneficiaries to decisions. Justice Hearn focused on that language extensively in her questions. Although the probate court found that Article 10.6 did not apply to the residuary clause, Justice Hearn was very skeptical of that determination. Justice Hearn questioned how Article 10.6 could possibly apply only to specific bequests, as the probate court found because the personal representative has no discretion about how to distribute specific bequests. It would be meaningless in that context. Ultimately, counsel for Felder agreed with this observation, conceding the broad powers of Article 10.6 do apply to the distributions made pursuant to the residuary clause. Justice Hearn then questioned why that does not end the matter. She observed Felder does not like the distribution, but she again noted she has not seen evidence of bad faith, which she implied is required for a finding that a fiduciary duty is breached. Justice Hearn also noted Felder was getting $680,000 through this distribution and she could acquire her own property.
Justice Kittredge, however, pointed out that here, the personal representatives wore two hats — fiduciary and beneficiary. He implied this constrained their discretion in formulating a “reasonable” plan for distribution. Perhaps more significantly, counsel for the personal representatives ultimately agreed that even if his clients were empowered by Article 10.6 to make the distribution at issue, it would not absolve his clients of a breach of fiduciary duty. In other words, the personal representatives were not empowered by the will to breach their fiduciary duty to Felder, including the duty not to engage in self-dealing.
Justice James focused on Bennett and Turner’s argument that Mrs. Stevenson intended for them to have the Lake Summit property. He wanted to see in the will where Mrs. Stevenson expressed a “mandatory intent” that Bennet and Turner should get Lake Summit, to the exclusion of Felder and King. Chief Justice Beatty pointed to Mrs. Stevenson’s original specific bequest of the Lake Summit property to the two sons of her marriage to Mr. Stevenson. He questioned why that specific bequest to the sons did not demonstrate Mrs. Stevenson’s intent for the Lake Summit property to go to the “blood children” and not to Felder and King. Counsel for Felder noted circumstances have changed since Mrs. Stevenson executed this will in 1996, because of the removal of Thomas and Daniel as beneficiaries and the need to convey the Lake Summit property through the residuary, rather than as a specific bequest. Justice James, through his questions, indicated he does not view the specific bequest of the Lake Summit property to the two brothers as proof that Mrs. Stevenson intended to convey the property to the two sisters, Bennett and Turner.
In reply, Justice James pressed counsel for Bennett and Turner for the “exact words” in the will that demonstrate Mrs. Stevenson’s intent for Lake Summit to go to Bennett and Turner. Counsel for the personal representatives noted that real property was devised only to the full children of the second marriage, whereas the stepchildren only received cash.
Oral arguments, in this case, seem to point to a divided court. Justices Hearn and Few did not seem inclined to affirm a finding of breach of fiduciary duty, and therefore, they may seek to reverse the probate court and the Court of Appeals. Justices James and Kittredge, however, asked questions that demonstrated a serious concern that the distribution plan was inherently unequal and that the will did not demonstrate Mrs. Stevenson intended that the Lake Summit resort should pass exclusively to Bennett and Turner. The Chief Justice appeared to be undecided — expressing both concerns about the fairness of the distribution and a doubt about whether this unfairness rose to the level required to undo the lower court's decision. Although neither the Court nor the parties focused much attention on the “any evidence” standard on appeal, the high bar this standard creates could be the deciding factor in this decision, which seems to be a very close one.