Can’t Touch These: Asset Protection Trusts In South Carolina

Can’t Touch These: Asset Protection Trusts In South CarolinaDebt is a real danger in today’s economy, and unexpected lawsuits or medical emergencies can ruin families and send lives spiraling as creditors come knocking to collect. In South Carolina, like most states, it is possible to protect some assets from almost any type of creditor, but only if you plan ahead.

That is where asset protection trusts come into play. In this article, you will learn the basics of how to protect assets and property from creditors using trusts, including:

  • What asset protection trusts are and what kind of creditors they can protect you from.
  • The limitations and restrictions that apply to asset protection trusts in South Carolina.
  • How asset protection and planning differs from traditional estate planning.
What Is Asset Protection Estate Planning And How Does It Differ From Traditional Estate Planning?

Asset protection estate planning is the proactive process of protecting assets and property against creditors while you are alive. Traditional estate planning, on the other hand, is focused on proposing and creating solutions for your assets and their distribution after your death.

While general estate planning might involve any number of different kinds of trusts and other measures to ensure your legacy is passed on, asset protection estate planning involves a very specific kind of irrevocable trust. This means that once assets are placed in it, they cannot be taken out, because they effectively no longer belong to you, which is why creditors cannot touch them.

How Does An Irrevocable Asset Protection Trust Differ From A Revocable Trust?

The most fundamental difference between most trusts and an asset protection trust is the “irrevocable” status. A revocable trust, as the name suggests, can be changed and revoked. An irrevocable trust, on the other hand, cannot be revoked by the person placing assets into it (also called the trustor).

Another significant difference is that the trustor of an irrevocable asset protection trust cannot be the person who manages the trust (also called the trustee). In a revocable family trust, the trustor is usually also the trustee.

But the most important difference between them is in how well they protect your assets against creditors. Because revocable trusts are still under your name, they can be seized by creditors after, for example, a lawsuit that your insurance cannot cover. By effectively removing the assets or property from your ownership, an irrevocable asset protection trust shields them from these types of claims and almost any type of creditors.

Can An Asset Protection Trust Really Protect Against All Types Of Creditors?

In all but the most extreme and unlikely of cases, an asset protection trust shields whatever you put into it against any seizure or claim by creditors.

However, there are two instances where those protections do not apply. First, if the government is the creditor, for example, the IRS or the State Department. A government creditor can go to a federal judge who can hold the trustor in contempt until he tells the trustee of the trust to release the money that is being sought into judgment.

The other exception applies only if there is a fraudulent conveyance into the trust. When a trustor puts assets in the trust knowing that they have an upcoming judgment or a creditor that they owe money to, that can be undone under the fraudulent conveyance law.

Asset protection trusts are not meant to be preventative measures to hide away assets you rightly owe, but a forward-thinking planning measure to protect assets in the eventuality of a claim by creditors in the future.

Are There Any Limitations Or Restrictions On Transferring Assets Into An Asset Protection Trust?

There are no restrictions on the types or amount of assets that can be transferred into an irrevocable asset protection trust, with a few notable exceptions: stolen/illegal assets and fraudulent conveyance.

The former is fairly obvious, any assets you gained illegally, through criminal behavior, or as the profits of criminal enterprise, cannot be protected using such a trust. The government can and will come to claim them if the criminal act is discovered.

In addition, you are not allowed to transfer assets after learning about a lawsuit, settlement, creditor, or other such claims. If you do, then the courts can undo that transfer and make those assets come back out of the trust.

Can Any South Carolina Resident Establish An Asset Protection Trust? Are There Other Options For Asset Protection?

Anyone in South Carolina has the authority and right to establish an asset protection trust, which is the primary way that you would use to protect your assets against future creditor claims or lawsuits. While it is the most secure and effective method, there are some other less effective options.

Another method for shielding some assets is through joint ownership of property, notably in marriage. Doing so does not offer 100% protection for an asset, but it might protect at least half of it, the half that the other person owns. This also makes the property a lot less desirable for a creditor to try to take, as they will only get half of it.

A final method works if you own a company or have a majority interest in a company. You can transfer the property that you are worried about into the company’s name. This means it would no longer be your asset, and thus safe from claims against you. On the other hand, it would then be vulnerable to claims by creditors or lawsuits against the company, which could put it at even greater risk.

Do South Carolina’s Homestead Exemption Laws Impact Asset Protection Planning?

South Carolina’s homestead exemption law exempts the first $50,000 of the value of a home from taxes. This means property taxes are only based on the value of the home over $50,000. But these laws also provide an exemption from judgments that can impact asset protection and estate planning.

Thanks to South Carolina’s homestead laws, your home is protected for the first $50,000 of its value. This share of it cannot be attached by judgment or paid to a judgment creditor. Similar laws and exemptions apply to other items like cars, the first $5,000 of the value of a car is exempt for example. There is a long statute listing a lot of different items exempt from judgment and claims by creditors.

Generally speaking, however, these laws are only meant to protect the bare minimum you need to get by. If you have accumulated significant assets throughout your life, you will need more extensive asset protection measures.

Can Asset Protection Strategies Be Implemented Alongside Traditional Estate Planning Measures?

While asset protection measures like irrevocable trusts remain an excellent way to shield your assets from creditors while you are still alive, there is no reason not to combine them with other estate planning measures in the eventuality of your death.

You can have a family trust and an asset protection trust. You can have a will that covers most of your personal assets and an asset protection trust just to contain certain assets that you fear might be taken if you are sued.

An estate planning and asset protection attorney can help you figure out the right balance, which assets belong in what trusts, and the advantages and disadvantages of each measure for you and your family.

For more information on Asset Protection Planning In South Carolina, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (864) 271-7940 today.

Office Location

11 McGee Street
Greenville, SC 29601

Phone: (864) 271-7940
Fax: (864) 370-3413
Toll Free: 1-800-216-1116