Upstate Estate Law, P.C. Blog

In McDaniel v. Kendrick, Op. No. 4643 (S.C. Ct. App. filed December 31, 2009), the South Carolina Court of Appeals decided a real estate dispute with a tangential relationship to estate planning. Oftentimes, a mom or dad will decide as part of their estate planning to transfer a home to a child as a gift, with the expectation that the parent would continue to reside in the home for the rest otheir lives. This might be done for medicaid qualification purposes (assuming medicaid is not expected to be necessary for at least five years), or estate tax purposes. What happens however is the relationship between parent and child or parent and spouse of child deteriorates, and the parent is evicted from the home.

There is an equitable legal doctrine known as a constructive trust that could come to the parent’s rescue in the above situation. While the McDaniel case did not concern a home transfer for the purpose of estate planning, it involved a home transfer from a father (father owned the home in his name only) to his child. The mother, who never divorced the husband, requested the court to impose a constructive trust on the home because she acquired an interest in the home by virtue of having lived in it as the marital home and because she contributed to its purchase.

The trial court decided the case against imposing a constructive trust, and the Court of Appeals affirmed. The Court reviewed this aspect of the case as an action in equity, which permits the Court to find the facts “in accordance with its own view of the evidence.” This standard of review did not appear to have an impact on the decision however.

The Court of Appeals stated that “[t]he constructive trust results from fraud, bad faith, abuse of confidence, or violation of a fiduciary duty which gives rise to an obligation in equity to make restitution. Fraud is an  essential element, although it need not be actual fraud.” (Citations omitted.) The Court easily dismissed the wife’s arguments on the basis that S.C. Code Ann. Section 20-3-610 (Supp. 2008) requires claims for special equity in or equitable distribution of a marital home to be considered by the family court in the context of marital litigation.

In the estate planning context, in Footnote 4 the Court of Appeals cited Chapman v. Citizens & So. Nat’l Bank, 302 S.C. 469, 478-79, 395 S.E.2d 446, 452 (Ct. App. 1990), which was an estate case where a home owner transferred a home by will to “B” with the intent that the house would be for the benefit of “C.”  B did not live up to the agreement, so the Court imposed a constructive trust on the property for the benefit of “C.” The relevant difference in Chapman according to the Court was that that transfer was accompanied by a promise by “B” that the house would be held for the benefit of “C.”

The wife in McDaniel tried to show such a promise with a letter from her husband stating that she was to continue residing on the property.  The Court disposed of this argument, saying that the letter was dated in 1990, while the transfer of the house was in 1989. The Court stated that the letter was not proof that the transfer of the house was contemporaneously conditioned on the promise that wife would continue to live there.

While the constructive can be a useful tool to undo transfers of property seen as fraudulent and unjustly enriching the transferee, its requirements can be onerous, with the standard of proof required being clear and convincing evidence of fraud or other wrongdoing. Clear and convincing evidence is a standard somewhat below the criminal standard of beyond a reasonable doubt, but somewhat above the traditional civil standard of preponderance of the evidence. If you are contemplating a transfer of property for purposes of estate planning, you should consult an attorney. The stakes are too high to do otherwise.