the deceased athlete’s family. To ensure this protection of trust assets from the claims of the creditors of the surviving spouse or children, it is essential that the trust include a provision to the effect that those creditors cannot reach the trust assets. This so-called “spendthrift” provision was rendered clearly available for the first time in South Carolina's history by the enactment of the South Carolina Trust Code effective January 1, 2006. If a client's trusts were drawn prior to that time, then a document review would be advisable to assure that spendthrift provisions are included. Yet another nontax reason why trusts remain popular is the avoidance of probate costs and delays. Most readers are familiar with the fact that if the client establishes a revocable living trust during his or her lifetime and conveys all or most of his or her assets into it, then at the client's death the assets in the trust are said to “avoid probate” because they were not owned by the client himself or herself at death. Such revocable living trusts normally contain provisions not only for the benefit of the client during his or her lifetime, but also for the distribution of the client's assets after his or her death. South Carolina’s probate fee, with a top marginal rate of 0.25%, is not capped as it is in other states like North Carolina ($6,000). For example, if no trust is used and the probate estate is $20 million, the South Carolina probate fee would be $49,345. The reduction of this fee and other costs and delays associated with probate are relatively easily avoided through the use of the revocable living trust.
“On a state law level, the South Carolina General Assembly's passage of the South Carolina Trust Code effective January 1, 2006 has rendered trusts considerably easier to implement, amend and terminate.” so in South Carolina in light of the enactment of the South Carolina Trust Code, is the fact that once the client dies, trusts which he or she has created for passage after his or her death to his or her surviving spouse and children can be used to protect the trust assets from claims by the surviving spouse’s or the children’s creditors. So if the surviving spouse for whose benefit the deceased spouse had established a trust is at fault in an automobile accident resulting in the death of a highly paid professional athlete, where liability insurance limits can be greatly exceeded, the assets in the trust of the first spouse to die should be protected from the claim against the surviving spouse by
Also, one member of a married couple, or any other intended heir of your client, may lack investment acumen or have exorbitant spending habits. Often the advisor has to listen to the client with a “third ear” when the client seems to want a trust even where no other tax or non-tax reasons may exist for the use of a trust. Clients and their loved ones are often reluctant to tell you (especially in the presence of that loved one) that money management or spending issues exist. Finally, charitably inclined clients with sizable assets often turn to the use of trusts to fulfill their philanthropic objectives. The Treasury has specifically endorsed several types of charitable split-interest trusts. One is the charitable remainder trust, where the client retains the right to a series of payments with ultimate passage of the assets to charity occurring at a specified future time such as the death of the client. A charitable gift annuity can be an attractive non-trust alternative to the charitable remainder trust. The second type of Treasury endorsed split-interest trust is the charitable lead trust, where charities receive specified payments at the beginning of the trust term, with the assets passing to the client’s descendents or others at the end of that term. The continued on page 38
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South Carolina CPA Report
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