What Is the Legal Rate of Interest in South Carolina in 2025?
On January 6, 2025, the Supreme Court of South Carolina issued an order regarding interest rates on money decrees and judgments for the upcoming year. The legal rate of interest for money decrees and judgments in South Carolina is 11.50% compounded annually for the period between January 15, 2025 and January 14, 2026. (Read the original order in PDF format.)
The rate “is equal to the prime rate as listed in the first edition of the Wall Street Journal published for each calendar year for which the damages are awarded, plus four percentage points, compounded annually,” according to South Carolina Code § 34-31-20 (B) (2020). The law also provides that the SC Supreme Court updates the interest rate every year by January 15th.
Compare with the legal rate of interest in 2024.
What Is the Legal Rate of Interest in South Carolina in 2024?
Update: Read about the 2025 legal rate of interest here on the blog.
On January 4, 2024, the Supreme Court of South Carolina issued an order regarding interest rates on money decrees and judgments for the next twelve months. The legal rate of interest for money decrees and judgments is 12.50% compounded annually for the period between January 15, 2024 and January 14, 2025. (Read the original order in PDF format.)
The rate “is equal to the prime rate as listed in the first edition of the Wall Street Journal published for each calendar year for which the damages are awarded, plus four percentage points, compounded annually,” according to South Carolina Code § 34-31-20 (B). The law also provides that the SC Supreme Court updates the interest rate every year, no later than January 15th, for the upcoming year.
What Is HEMS and What Does it Mean for Trustees?
HEMS is an acronym that stands for Health, Education, Maintenance, and Support. It’s commonly used in trusts as a way to guide and restrict the kinds of distributions that a trustee can make to a beneficiary.
Purpose and Benefits of HEMS
There are a few reasons for and benefits of HEMS.
For one, adhering to the “ascertainable standard” of HEMS can be vital for protecting the trust’s assets. For example, say a wife creates a testamentary trust that names her spouse both beneficiary and trustee upon her death. The trust may limit distributions of the assets to HEMS, which is an ascertainable standard recognized by the IRS. If the husband takes distributions that fall under one of these categories, the assets of the trust are not considered to be part of his personal estate – they belong to the trust, a separate entity – and are therefore protected from certain taxes. For this same reason, a creditor coming after the husband cannot access the trust’s assets to pay the husband’s debts.
Another benefit has to do with the trustee-beneficiary relationship, when it’s not the same person in both roles. It’s common for a beneficiary to want to draw more money from the trust while the trustee’s goal is to keep the trust as intact as possible. The HEMS standard serves to restrict the trustee from making distributions that can unnecessarily diminish the trust, while providing appropriate support for the beneficiary. By including this language in the trust, a grantor can prevent the beneficiary from having unlimited access to the trust’s assets.
Or, it can work the other way. Say that same couple from above has a trust that remains in the spouse’s control as trustee and beneficiary during his lifetime, and after his death passes to the couple’s children as beneficiaries. In this case, it’s the children who are motivated to ensure the trust remains as intact as possible. It’s in their best interest to ensure their father is adhering to the HEMS standard with the distributions he takes for himself as trustee and beneficiary.
Finally, the HEMS standard provides valuable guidance to trustees, whether they are also a beneficiary or not. By understanding what’s included under the umbrella of health, education, maintenance, and support, a trustee can better determine what distributions to make from the trust’s assets.
Examples of HEMS
Health, Education, Maintenance and Support are rather broad categories, but what do they include, exactly? The exact items included can vary by state, but here are examples of HEMS that are commonly included.
Examples of Health
Some basic examples in the Health category include:
- Routine health care
- Hospital care
- Emergency medical treatment
- Psychiatric or psychological care
- Prescription drugs
- Dental
- Vision
The following may also be considered included in this category:
- Elective procedures like LASIK or cosmetic surgery
- Alternative medicine treatments
- Gym, sports club, or spa memberships
- Health supplements
Examples of Education
This category commonly includes:
- Tuition for all levels of schooling from grammar to graduate, professional, or technical school or training
- Continuing education expenses
- Expenses for school-related programs, such as Study Abroad in college
- Support during schooling years, even during summers and other breaks
Examples of Maintenance and Support
“Maintenance” and “support” are one and the same. Commonly included in this category:
- Mortgage or rent payments
- Property taxes
- Premiums for health, life, and property insurance
- Travel and vacation expenses
- Charitable giving
This category is the least clearly defined. It’s typically interpreted to include distributions that help maintain the beneficiary’s standard of living. Distributions to cover expenses that are solely for the beneficiary’s happiness rather than support do not fall under this category.
For example, say our couple from above typically takes a two-week vacation to the Rockies each year. After the wife dies and her husband controls the trust, a distribution to cover this annual vacation would fall under this category. A distribution to cover a four-month, ‘round-the-world luxury cruise would not. That’s because such a vacation would be beyond his typical standard of living.
However, depending on the trust, the trustee may have some discretion to make distributions for just such an unusual vacation or other luxury that would be outside the beneficiary’s established standard of living.
Use of HEMS
Grantors can include general language regarding HEMS or they can be more prescriptive and precise about how they’d like the trust’s assets used. For instance, a grantor may specify that trust money can be used to pay for college but not for graduate school. Or that the beneficiary must use other sources of funds, if available, to pay property taxes or rent before accessing the trust’s money. The grantor has a large degree of control when directing how the trust’s funds can be used.
Not all trusts contain language relating to HEMS; it depends on the particulars and purpose of the trust. Whether or not it’s appropriate in your estate plan is something to discuss with an estate planning attorney.
Get Help with Trusts and Estate Planning
The HEMS standard is just one commonly used tool grantors have to direct how a trust’s assets are distributed. Trusts are powerful documents that can be a cornerstone of an estate plan. For help creating a trust, or other estate planning documents like wills, living wills, and POAs, contact the Gem McDowell Law Group. Gem and his associates will help you create the personalized plan you need so your family is cared for and your wishes are carried out. Whether you have documents that need review or updating, or it’s your first time doing estate planning for your family, Gem and his team can help. Call 843-284-1021 today to schedule a free consultation or to book an appointment at the Mount Pleasant office.
Why You Don’t Want to Be a Trustee
I once saw a bumper sticker on a car that said “Smile. You Could Be a Trustee.” I thought it was great because it’s true.
Being a trustee can be a challenging, and often litigious, job. In estate planning, the role may fall to a family member or trusted friend who is typically not well versed in the law but who must now navigate the complexities of the trust’s provisions in service of the grantor’s wishes. I’ve seen many trustees become mired in litigation as they battle to follow the trust’s provisions while keeping the beneficiaries happy.
Still, if you are a current or prospective trustee, you may be willing to put up with all that. You may also believe that you can’t be held personally liable for any mistakes made in your role as trustee. Right?
Wrong. Today I want to look at a case from the South Carolina Court of Appeals, filed in April 2019, in some detail. It covers this exact topic and is a warning to any trustee out there that when he/she takes on the role, he/she is at risk.
The Background of Deborah Dereede Living Trust v. Karp
Eight months before she died, Deborah Dereede executed a revocable trust naming herself as trustee and her daughter, Courtney Feely Karp, as successor trustee. The only asset in the trust was Dereede’s home in Lake Wylie, SC, which Karp sold several months after her death, netting $356,242.86.
People with interest in the sale included Karp’s stepfather, Hugh Dereede (Hugh), and his company, Tyre Dealer Network Consultants, Inc. (Tyre).
An important provision in the trust essentially said the following:
- After Dereede’s death, sell the house “as soon as practicable”
- Proceeds from the sale should be distributed in this manner:
- First, pay off the mortgage
- Then pay off the promissory note to Tyre, which is currently $250,000
- Then half of remaining net sale to Hugh
- Finally, the remainder to the following Articles…
The Disagreement
The disagreement that took Karp to court stemmed from that provision.
After the house was sold, Hugh demanded immediate payment to himself and to Tyre, in accordance with the trust’s provision.
But Karp didn’t pay him immediately. She was also the personal representative for her mother’s estate, and she believed she could not yet distribute proceeds. She wanted to be sure of the net assets of the trust and estate and give time for creditors’ claims, if any.
Hugh filed action in probate court for declaratory judgment for immediate payment. Hugh and Karp battled over the issue but Karp still refused to pay and also claimed that by suing her, Hugh and Tyre had triggered the no-contest clause and were therefore giving up their claim to the money owed them. (Incidentally, if Hugh and Tyre did forfeit that money, it would instead go to Karp and her siblings.)
Enter the Trust Protector
After ten months of litigation, Karp appointed Catherine H. Kennedy as trust protector. A trust protector is someone who watches over the trustee as the trustee watches over the trust. In some cases, it may be an individual who actually knew the grantor (the person who set up the trust), while the trustee did not (if, for example, the trustee is a bank).
If the protector believes the trustee is not doing their job or is engaged in misconduct, they can terminate the trustee. Depending on the trust, the protector may have different powers, but this is the essential one. The role actually has its origins in offshore trusts but has become more popular in domestic trusts in recent years.
As trust protector, Kennedy reviewed Karp’s actions and determined that Karp was justified in waiting for creditors’ claims before disbursement. She further said that issues regarding the no-contest clause – whether Karp exercised good faith in bringing it up, and whether Hugh and Tyre had probable cause – should be decided by a court.
Bench Trial
After a bench trial, the court ruled that:
- Karp had breached her fiduciary trust by not distributing the proceeds of the house sale to Hugh and Tyre in a timely manner
- Hugh did have probable cause to bring the action and therefore the no-contest clause was not invoked
- Tyre was a creditor, so the no-contest clause wouldn’t have applied anyway
- Tyre and Hugh were entitled to attorneys’ fees and costs, payable by Karp
Karp appealed and the case went to the South Carolina Court of Appeals. (Read its decision here.)
Good Faith Isn’t Enough to Protect a Trustee
South Carolina Trust Code says that a trustee “shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries…” A breach of trust is “violation by a trustee of a duty the trustee owes to a beneficiary…”
Karp stated that she wanted to wait until she was certain of the net assets of the trust and estate before making disbursements. The Court of Appeals states that such a delay is “common” and “often required” in the probate of an estate, but rules are different for trusts. Also noted is that if Karp had followed the trust exactly and made the distributions quickly, she would have risked no personal liability.
Though Karp’s actions were understandable and appeared to have been done in good faith, she was nevertheless found in breach of trust. The Court of Appeals says “There is no evidence Karp acted in bad faith” and goes on to cite a District Court case, saying that good faith “counts for nothing” when it comes to breach of trust.
Ultimately, the Court of Appeals affirmed the lower court’s decision and found that Karp was personally liable, as well as liable in her capacity as trustee. “Although Karp acted in good faith, a trustee is nevertheless personally liable for breach of trust.”
Additionally, the Court of Appeals affirmed the lower court’s finding that Hugh did have probable cause, therefore the no-contest clause did not come into effect.
Think Twice Before Becoming a Trustee
If you are already a trustee, or if someone has asked you to be a trustee, consider the responsibility – and the liability – of the role. It’s easy to believe that you’re doing someone a favor and that if you’re doing your best, you can’t get into trouble. As you’ve seen illustrated in the case above, that’s not true. As a trustee, you can be held personally liable – meaning money can come out of your pocket – for your actions with respect to the trust, even if everything you do is in good faith and the courts recognize that.
For questions on creating a trust, managing a trust, or other issues of estate planning, contact estate planning attorney Gem McDowell. He and his associates at the Gem McDowell Law Group in Mt. Pleasant, SC work with many individuals and families to create estate plans to provide peace of mind. Call today to schedule a free consultation at 843-284-1021.
Can Your Retirement Account Be Used to Settle Business Debts?
Let’s say you owe money in a judgment, yet you still want to continue contributing to your savings accounts. Can you do that, or can that money be used to settle your judgment?
First Citizens Bank v. Blue Ox
A case decided by the South Carolina Court of Appeals heard in late 2017 dealt with this exact issue. Here’s a little bit of the background.
J. Chris Lindgren was the sole member of Blue Ox, LLC. In 2013, he signed confessions of judgment totaling $113,000 on behalf of himself and Blue Ox after he defaulted on a loan from the Bank. Lindgren never paid the judgment, and in the meantime, Blue Ox went defunct. Since the time of the judgment, Lindgren made contributions to an IRA account and a 401(k) plan.
The Bank wanted the judgement settled and started supplemental proceedings against Lindgren. It argued that the contributions he made to those accounts were fraudulent and that money should be available to pay off the judgement.
Lindgren knew he owned money to the Bank. Yet he still made contributions to three separate savings accounts. Was that legal? Should the money have been or become available to pay off the judgment? Or are those accounts protected from such use?
The case was first heard and decided by the Master-In-Equity before the cross-appeal was heard by the Court of Appeals. The Master-In-Equity determined that the 401(k) contributions were exempt from execution but his IRA contributions were not. Here are some issues the Court considered when deciding the case, and what it means for you.
The Homestead Exemption Act: What’s Exempt Under the Law
The Bank argued that the 401(k) contributions Lindgren made were not subject to protection under the Homestead Exemption Act.
What is the Homestead Exemption Act? It’s probably best known to South Carolina homeowners because it exempts the first $50,000 in value in real property in from property taxes for homeowners over 65, totally and permanently disabled, or legally blind.
The Act goes much further than this, however, and spells out exactly how much property a debtor may have that is “exempt from attachment, levy, and sale.” That is, these particular assets are protected from being used to settle debts.
In addition to the $50,000 in real property that’s exempt, the Act also allows $5,000 of interest in one motor vehicle, $4,000 in personal property such as household goods and clothing, $1,000 in family jewelry, etc. It also protects income due to the debtor from things like social security benefits, veterans’ benefits, alimony, and pension plans.
In the case at hand, the Court of Appeals AFFIRMED the Master’s initial finding and DISAGREED with the Bank. It determined that that the contributions Lindgren made to his 401(k) accounts were clearly protected under Section 15-41-30(A)(14) of the Act as a matter of statute. The Court also noted that “the exemptions in the Homestead Act are to be construed in favor of the Debtor.”
The Statute of Elizabeth: What Constitutes Fraudulent Behavior
It is illegal under South Carolina law to intentionally transfer assets in order to avoid paying your debts. If you remember from a previous blog on this topic of fraudulent conveyances and the Statute of Elizabeth, Courts can look for “badges of fraud” to assess whether or not someone’s behavior was fraudulent in intent.
In this case, the Court stated that the Bank needed to demonstrate Lindgren’s “actual intent to defraud” in order to make his savings contributions available for settlement of the judgment. The Court determined that the following badges of fraud were present:
- Lindgren did not possess enough assets to pay the debt
- Lindgren reserved the benefit of the IRA contributions for himself
- Lindgren was aware of the outstanding judgment against him at the time of the contributions
However, the Court found that many other badges were missing:
- Contributions were limited in amount
- Contributions were not secretive
- Contributions were in line with his long-standing pattern of investing in retirement
This last point is important. Lindgren provided evidence that he had a pattern of contributing to his savings accounts for many years before he signed the confessions of judgment. The contributions he made after the judgment were a continuation of that pattern, which the Court said is “conduct that is encouraged by the very existence of the exemption.”
Based on all this, the Court did not find “clear and convincing” evidence of fraudulent intent. It REVERSED the Master’s finding that Lindgren’s IRA contributions were fraudulent conveyances.
Ownership and Consideration
The Court failed to find Lindgren’s behavior demonstrated clear intent to defraud under the Statute of Elizabeth. Yet it also acknowledged that analysis under the Statute of Elizabeth was not mandated in this case for two reasons.
First, one of the hallmarks of fraudulent conveyance is that the asset changes ownership. However, money contributed to an IRA still belongs to the debtor; while it has now been transferred into a protected asset, ownership has not changed. (The Court also noted that in bankruptcy, the “conversion of a non-exempt asset into an exempt asset is not in and of itself a fraudulent act.”)
Second, there is the issue of consideration, which refers to the exchange of one thing for another. Typically, in instances of fraudulent conveyance, no consideration is being given for the assets transferred. For example, someone may transfer land into someone else’s name, but receive no money for it. This is one of the badges of fraud.
In this case, the Court stated that “in the specific case of IRAs, the contribution is never made for valuable consideration” (emphasis theirs). Therefore, it is not appropriate to consider Lindgren’s contributions his IRA in terms of the Statute of Elizabeth.
Your Savings Accounts May Be Safe from Debts
The South Carolina Court of Appeals looked at state statute, the intent of the law, and the Debtor’s behavior to come to the conclusions it did. It ultimately protected Lindgren’s contributions to his savings accounts from execution for settlement of the judgment he owed. This is a positive outcome for individuals who may be in debt but want to continue saving for the future.
However, don’t assume that any contributions made to savings accounts are always safe from execution. A lot depends on the particular facts of the case. In addition, this is a Court of Appeals decision, and may not be the final word on the issue. As of March 2018, there is a petition for rehearing pending, meaning that the South Carolina Supreme Court could reverse the decision.
Get Business and Estate Planning Advice
For legal advice from an experienced business and estate planning attorney, call Gem McDowell Law Group in Mt. Pleasant today at 843-284-1021. Gem has over 25 years of experience in solving legal problems and helping people planning for the future, and he is ready to help you do the same.
