Should You Choose a Revocable or Irrevocable Trust for Your South Carolina Estate Plan?

Building a life in South Carolina involves years of dedication, saving, and investing. Whether you have established a family home in Greenville, built a business in Spartanburg, or accumulated a portfolio of investments, the desire to protect what you have built is natural. However, the path to passing those assets on to the next generation is rarely a straight line. It involves navigating tax laws, potential creditor issues, and the public nature of the probate court.

Many individuals assume that a Last Will and Testament is sufficient to handle their affairs. While a Will is a necessary component of any estate plan, it often falls short of providing the control, privacy, and asset protection that families require. This is where trusts become essential tools. A trust allows you to specify exactly how and when your assets are distributed, but the type of trust you select determines the level of protection and flexibility you retain. The two primary categories you will encounter are the Revocable Living Trust and the Irrevocable Trust.

Defining the Trust Concept

Before determining which vehicle serves your specific needs, it helps to clarify what a trust actually is. In its simplest form, a trust is a fiduciary arrangement where a third party, known as the trustee, holds assets on behalf of a beneficiary or beneficiaries.

Every trust involves three key roles:

• The Grantor: The person who creates the trust and funds it with assets.
• The Trustee: The person or entity responsible for managing the assets according to the instructions in the trust document.
• The Beneficiary: The person or group of people who receive the benefits of the trust assets.

The Revocable Living Trust: Maximum Flexibility

A Revocable Living Trust (RLT) is the most common trust structure used in estate planning for families who prioritize flexibility and probate avoidance. As the name suggests, this instrument is fully changeable. As the Grantor, you retain the right to amend, modify, or completely revoke the trust at any time during your life, provided you remain mentally competent.

In a typical RLT setup, you serve as your own trustee. This means you maintain total control over the assets placed in the trust. You can buy, sell, trade, or spend the assets just as you did before they were titled in the name of the trust. There are no separate tax ID numbers required during your lifetime; income generated by trust assets is reported on your personal tax return.

Primary Benefits of a Revocable Trust

• Probate Avoidance: In South Carolina, assets held in a trust bypass the probate process. This saves your heirs from the delays, court fees, and administrative burdens associated with probate court in counties like Greenville or Anderson.
• Privacy: Unlike a Will, which becomes a public record once filed with the probate court, a trust document remains a private family matter.
• Incapacity Planning: If you become unable to manage your finances due to illness or injury, the successor trustee you named can step in immediately to pay bills and manage investments without court intervention.
• Seamless Transition: Assets can be distributed to beneficiaries immediately upon death or held in the trust and distributed over time, depending on your instructions.

Limitations of a Revocable Trust

It is vital to recognize what an RLT does not do. Because you retain full control and access to the assets, the law considers them to be yours. Therefore, a Revocable Living Trust offers no protection against creditors, lawsuits, or the costs of long-term nursing care. If you are sued, the assets in your revocable trust are reachable.

The Irrevocable Trust: Maximum Protection

An Irrevocable Trust operates on a fundamentally different premise. Once you sign the document and transfer assets into it, you generally cannot change the terms, remove assets, or act as the trustee. You are effectively removing those assets from your personal estate and giving up control over them.

While the loss of control may sound daunting, it is the necessary trade-off to achieve specific legal and financial benefits that a revocable trust cannot provide. When you no longer own the asset, your future creditors generally cannot reach it.

Primary Benefits of an Irrevocable Trust

• Asset Protection: Since the trust owns the assets, they are generally shielded from future lawsuits, creditors, and divorce settlements involving beneficiaries.
• Estate Tax Reduction: Assets placed in an irrevocable trust are typically removed from your taxable estate. This is particularly relevant for high-net-worth individuals concerned about federal estate taxes.
• Medicaid Planning: Moving assets into a properly structured irrevocable trust can help residents qualify for long-term care benefits without exhausting their life savings, provided the transfer occurs before the five-year look-back period.

Limitations of an Irrevocable Trust

The rigidity of this structure is its main drawback. Once established, you cannot simply change your mind if you need the money back. The selection of a trustee is also more restrictive, as you usually cannot serve as the sole trustee if your goal is tax or asset protection.

Detailed Comparison of Trust Structures

To help visualize the distinctions, consider how these two vehicles compare across key categories:

Flexibility

• Revocable: You can change beneficiaries, trustees, and terms at any time.
• Irrevocable: Changes are difficult and often require court approval or the consent of all beneficiaries (also known as a “trust protector”).

Control of Assets

• Revocable: You retain full control and use of assets.
• Irrevocable: Control is transferred to the trustee; you generally have limited or no access to the principal.

Creditor Protection

• Revocable: Assets are treated as your own.
• Irrevocable: Assets are generally beyond the reach of creditors.

Probate Avoidance

• Revocable: Assets bypass probate.
• Irrevocable: Assets bypass probate.

Tax Implications

• Revocable: Tax neutral. You pay taxes on income; assets are included in your taxable estate.
• Irrevocable: Separate tax entity. Trust pays taxes (often at higher rates) or passes tax liability to beneficiaries; assets are generally excluded from your taxable estate.

South Carolina Probate and Privacy Considerations

For many South Carolina residents, the desire to avoid probate is the driving force behind creating a trust. Probate is the court-supervised process of authenticating a Last Will and Testament and distributing assets. In South Carolina, this process can take anywhere from six months to over a year, depending on the complexity of the estate and whether there are any disputes.

During probate, your Will becomes a public document. Anyone can go to the county courthouse—whether in Spartanburg, Charleston, or Greenville—and request to see who you left your money to and how much they received. This lack of privacy can attract unwanted attention from solicitors or estranged relatives.

Both revocable and irrevocable trusts solve this problem. Because the trust legally owns the assets, there is no need for the court to oversee their transfer. The successor trustee simply follows the instructions in the private trust document. This allows for a swift, private transfer of wealth that keeps family business within the family.

Strategic Uses for Irrevocable Trusts in South Carolina

While the Revocable Living Trust is the “foundational” document for most families, specific goals require the robust protection of an Irrevocable Trust. There are several specialized types of irrevocable trusts frequently used in South Carolina estate planning.

The Medicaid Asset Protection Trust (MAPT)

Long-term care costs in South Carolina can exceed $8,000 per month. For seniors, the fear of depleting a lifetime of savings to pay for a nursing home is real. Medicaid pays for long-term care, but only for those with very limited assets. A MAPT allows you to transfer assets, such as your family home or investment accounts, into a trust.

You name a trusted individual (often an adult child) as trustee. You can reserve the right to live in the home and receive income generated by the trust’s investments. However, you cannot access the principal. If this trust is established and funded at least five years before you apply for Medicaid, the assets inside are not counted toward the eligibility limit. This protects the inheritance for your heirs while ensuring you receive the care you need.

The Irrevocable Life Insurance Trust (ILIT)

Life insurance death benefits are generally income-tax-free, but they are included in your taxable estate for federal estate tax purposes. If you have a large policy, it could push your estate over the exemption limit. By creating an ILIT and having the trust own the policy, the death benefit is removed from your taxable estate. The proceeds can then be used to pay estate taxes, create liquidity, or provide for beneficiaries.

The Special Needs Trust (SNT)

If you have a child or grandchild with a disability who receives government benefits like SSI or Medicaid, leaving them a direct inheritance can disqualify them from those essential programs. A Special Needs Trust (a type of irrevocable trust) holds the assets for their benefit. The trustee can use the funds to pay for “supplemental” needs—such as therapy, travel, or electronics—that the government does not cover, without jeopardizing their eligibility for benefits.

Tax Implications: Estate and Gift Taxes

Federal estate tax laws are a major factor in choosing between trust types. As of 2025, the federal estate tax exemption is historically high, allowing individuals to transfer significant wealth tax-free. However, these high limits are scheduled to “sunset” on January 1, 2026, reverting to pre-2017 levels adjusted for inflation. This impending change creates urgency for high-net-worth families.

The Role of the Gift Tax

When you transfer assets into an Irrevocable Trust, it is often considered a taxable gift. However, you can utilize your lifetime exemption to cover these transfers. By moving appreciating assets into an irrevocable trust now, you “freeze” the value of the asset for estate tax purposes. All future appreciation occurs outside your taxable estate.

Step-Up in Basis Considerations

One distinct advantage of the Revocable Trust—and assets held until death—is the “step-up in basis.” When your heirs inherit an asset like real estate or stock upon your death, the tax basis is adjusted to the fair market value at the date of death. This eliminates capital gains tax on the appreciation that occurred during your lifetime.

When using Irrevocable Trusts, you must be careful. If you transfer assets completely out of your estate during your life, your beneficiaries may lose this step-up in basis, potentially facing capital gains taxes when they sell the asset. Advanced planning techniques can sometimes preserve this benefit even within irrevocable structures, which emphasizes the need for skilled legal drafting.

The Importance of Trustee Selection

Regardless of the trust type, the efficacy of your plan relies heavily on the trustee. For a Revocable Trust, you typically serve as your own trustee, but you must name a successor. This person or entity will take over management if you become incapacitated or pass away.

For an Irrevocable Trust, the selection is even more significant. Because you generally cannot serve as the trustee, you must choose someone who is financially literate, trustworthy, and capable of saying “no” to beneficiaries when necessary to preserve the trust’s intent.

Family Member vs. Professional Trustee

Many people choose a spouse or adult child. While cost-effective, this can cause family friction if the trustee has to make difficult distribution decisions. Using a corporate trustee (like a bank or trust company) ensures professional management and neutrality, though it comes with fees. In South Carolina, you can also appoint co-trustees to balance family involvement with professional oversight.

Why “Do It Yourself” is a Risk

With the availability of online forms, some individuals attempt to draft their own trusts. This is particularly dangerous with trusts because the language must be precise. In South Carolina, specific statutes govern how trusts must be signed, witnessed, and funded.

A failure to properly “fund” the trust—meaning retitling assets from your individual name to the name of the trust—renders a Revocable Trust useless for avoiding probate. Even worse, a poorly drafted Irrevocable Trust might fail to achieve asset protection while still locking up your money, leaving you in the worst of both worlds. The tax code and Medicaid regulations are complex and constantly shifting; relying on a generic form can lead to devastating financial consequences for your family.

Taking the Next Step for Your Legacy

The choice between a revocable and irrevocable trust depends entirely on what you value most right now: flexibility and control, or protection and tax reduction. There is no one-size-fits-all answer, and your needs may evolve as you move through different stages of life. At the DeBruin Law Firm, we believe that estate planning is not just about documents; it is about providing for the people you love and ensuring your wishes are honored. We help families in Greenville and across South Carolina navigate these important decisions, ensuring that every legal structure we create is tailored to your unique financial landscape and personal values.

If you are ready to discuss your estate planning options, please contact us at (864) 982-5930 or send a message online to schedule a consultation.