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Irrevocable vs. Revocable Trusts in South Carolina

Charleston Trust Attorneys

The difference between irrevocable and revocable trusts is more than semantic. When used by highly skilled wills and trust attorneys, these trusts serve different purposes. Clearly, an irrevocable trust cannot be amended or changed once it has been finalized absent court approval, and a revocable trust can be altered until the death of the individual for whom it was established. As we explore the subject in greater depth, we should clarify a few terms:

  • Trustor: the person for whom the trust is created
  • Living Trust: a trust in effect during the trustor’s life
  • Testamentary Trust: a trust created during the trustor’s life that goes into effect after his or her death
  • Beneficiary: the person or entity that receives bequeathed assets
  • Trustee: an individual entrusted to administer funds to a beneficiary as designated by a trustor

Reasons to Create a Trust

There are a number of reasons to establish a trust, including:

  • To protect assets from unnecessary taxation and/or multiple tax exemptions
  • To control distributions for a beneficiary who is a minor, or a spendthrift, or otherwise unable to manage finances
  • To provide privacy concerning personal, financial, or familial information
  • To avoid probate
  • To preserve disability benefits of a beneficiary
  • To avoid compulsory succession

Much of the time an estate planning lawyer finds it wise to create more than one trust for you. At Wiles Law Firm, LLC, in South Carolina, our attorneys are familiar with all types of trusts and how to use them in ways that will help to preserve your assets and protect your family.

Types of Irrevocable Trusts

Irrevocable trusts, of which there are several types, cannot be modified without court approval during the lifetime of the trustor. For the most part, such trusts are designed to protect your assets from income or estate tax. Types of irrevocable trusts and their uses include:

  • Qualified Personal Residence Trust (QPRT) holds the trustor's primary or secondary residence and reduces its taxable value for estate purposes
  • Grantor Retained Annuity Trust (GRAT) allows money to be transferred to heirs without any estate tax liability
  • Testamentary Irrevocable Trust is funded after the trustor's death based on the will
  • Irrevocable Life Insurance Trust avoids federal income tax on life insurance proceeds to the first spouse
  • Gift in Trust is set up by the trustor to avoid taxes on gifts that will exceed the annual gift tax exclusion amount (presently $14,000 per individual)
  • Inheritor’s Trust is set up by the beneficiary to protect a future inheritance from creditors and also from federal estate taxes
  • Stand-alone Retirement Trust (SRT) is set up by the trustor as the beneficiary of a retirement fund to protect that retirement account from taxation and creditors; if the designated beneficiary is a minor it eliminates the need for the trustor to name a custodian

Advantages of an Irrevocable Trust

Once assets are transferred to the trust, those assets are no longer considered to belong to the trustor. Now that these funds are no longer his or her property, they are protected from creditors, lawsuits, and bankruptcy laws. At the time these funds are distributed to a designated beneficiary, however, they become taxable at that person’s normal income tax rates.

Irrevocable trusts are helpful in estate planning because the funds they contain are not typically counted as part of the value of your estate. The attorneys at Wiles Law Firm, LLC, know precisely how to put some of your assets into such trusts to reduce the tax burden on your heirs. As you may know, such measures are only necessary when you have a substantial estate since estate taxes are only charged on estates worth more than $5.49 million according to the current law. It is always important to plan as the future laws regarding estate taxes remain uncertain.

Finally, having an irrevocable trust can prevent the misuse of your assets. More people than one might imagine have heirs who are irresponsible -- at best extravagant and at worst dishonest. Putting your money in an irrevocable trust can protect your assets by only allowing distribution according to your specific instructions. Moreover, because the trust, once established, cannot be altered outside of the statutory procedures allowed, its existence may provide you with protection from constant harassment by a disgruntled heir-to-be.

Is there a downside to having an irrevocable trust in South Carolina?

The only disadvantages of utilizing an irrevocable trust are that the gift made to the trust is permanent and the trust itself is, as its name suggests, unchangeable absent court approval. Therefore, it is important that, with your attorney’s help, you examine all possible repercussions of your decision.

Revocable Living Trusts

When you create a revocable living trust (also known as an inter vivos trust), you do so in order to be able to use and control your assets during your lifetime and control their distribution after you die. When Wiles Law Firm, LLC, helps you to establish a revocable living trust in South Carolina, you become the trustor. In order to make your revocable living trust as beneficial to you as possible, you should place as much of your accumulated wealth into the trust as you can. Keep in mind, however, that certain of your assets, such as retirement accounts and life insurance policies, are not permitted to be owned by this type of trust. Though you can name yourself as the initial trustee (most people do this), you may name a successor trustee of your choosing who will take over management of the trust after you die. Your successor trustee is tasked with distributing your assets to the beneficiaries you have designated. 

Benefits of a Revocable Trust

One of the advantages of a revocable trust is that it can be altered, or even eliminated whenever you wish. Another is that having a living trust keeps your trust assets out of probate, the lengthy and often time-consuming court proceeding used to validate a will and make it effective. A trust allows you to bypass probate in any state in which you own property as long as such property is included in your trust.

Other advantages to a living trust are that it protects your privacy, whereas a will becomes a matter of public record. Furthermore, a trust is considerably more difficult to contest than a will, helping to ensure that your last wishes are adhered to. In the event that you become mentally incapacitated, your trust already has a successor trustee, which will probably make the need for a conservatorship unnecessary.

Is there a downside to having a living trust in South Carolina?

Even though there is no estate tax in the state of South Carolina, if you have a sizable estate (over $5.49 million) you will be taxed by the federal government. Also, having a revocable living trust does not shield your assets from Medicaid or creditors.

Contract Our Trust Attorneys Today!

At Wiles Law Firm, LLC, our accomplished team is adept at managing and preserving large estates. When you consult with one of our knowledgeable attorneys, you can be sure your assets will be protected in every way possible. Beyond taking care to address every one of your needs and concerns, we are committed to providing you and your family with not only economic growth but long-term financial stability. Contact us today!

Wiles Law Firm, LLC helps clients with their estate planning needs in Charleston, South Carolina and the surrounding areas such as West Ashley, Summerville, North Charleston, Mount Pleasant, and John's Island.

Information on this website is not legal advice. Further, viewing of the enclosed information does not create an attorney-client relationship with Wiles Law Firm, LLC. Matters will be handled by attorneys who primarily practice out of our office in Charleston County located at 852 Lowcountry Blvd., Ste. 101, Mt. Pleasant, SC 29464. M. Emerson Wiles, III is the attorney responsible for this advertisement.

Any result Wiles Law Firm, LLC may achieve on behalf of one client in one particular matter does not necessarily indicate similar results can be obtained for other clients. Please contact a South Carolina estate planning attorney or one of our attorneys with Wiles Law Firm, LLC for a consultation regarding your unique estate plan.

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