How can I set up a self-settled trust that protects my assets but still lets me be trustee and control how my beneficiaries receive funds? – North Carolina

Short Answer

In North Carolina, a trust funded with a person’s own assets (a “self-settled” trust) usually does not protect that person’s assets from that person’s creditors if that person can still benefit from the trust. The typical way to keep meaningful control while improving protection is to make the trust irrevocable, avoid giving the person any right to distributions, and use a structure that separates “administrative control” from “beneficial access,” such as an independent distribution trustee (or another permitted fiduciary role) while the person keeps investment or management roles. Transfers must also be made before problems arise, because North Carolina law allows creditors to challenge transfers made to hinder, delay, or defraud them.

Understanding the Problem

In North Carolina estate planning, the core question is whether a person can move personal assets into a trust for asset protection, keep serving as trustee, and still control how and when beneficiaries receive money. The decision point is whether the trust is set up so the person who funds it can still benefit from it, because that feature often determines whether the assets remain reachable by that person’s creditors. This question also involves how much trustee control can be retained over investments and administration while limiting who has authority to make distributions to beneficiaries.

Apply the Law

North Carolina generally distinguishes between (1) control over trust administration and investments and (2) rights to receive trust distributions. For creditor protection, the most important issue in a self-settled arrangement is whether the person who created/funded the trust (the “settlor”) is also a beneficiary or can receive distributions. If the settlor can receive distributions, creditor protection is usually limited. Separately, even when a trust is otherwise drafted properly, transfers into a trust can be attacked if they were made to hinder, delay, or defraud creditors under North Carolina’s voidable transaction laws.

Key Requirements

Irrevocable transfer and real funding: The trust must be set up in writing and actually funded by retitling assets (not just signing a document), and the terms must clearly state who benefits and who controls what.
No retained beneficial access if “asset protection” is the goal: To improve creditor protection, the settlor generally cannot keep a right to receive trust distributions or otherwise treat the trust like a personal pocketbook.
Clean timing and purpose of transfers: Funding the trust must be done for legitimate planning reasons and not as a reaction to a looming lawsuit, collection action, divorce, or other creditor event that could trigger a “voidable transaction” claim.

What the Statutes Say

N.C. Gen. Stat. 39-23.4 (Voidable transactions; intent to hinder, delay, or defraud) – Allows creditors to challenge transfers made with improper intent or without reasonably equivalent value under certain financial conditions.
N.C. Gen. Stat. 33B-2 (North Carolina Uniform Custodial Trust Act; basic rules) – Provides rules for a custodial trust structure and clarifies limits (including that a trust solely for the declarant is not treated as a custodial trust under that Act).

Analysis

Apply the Rule to the Facts: No specific facts were provided, so the key variables are (1) whether the person setting up the trust will remain a beneficiary and (2) whether the trust is funded at a time when creditor issues are already brewing. If the goal is “asset protection” while also keeping trustee control, North Carolina planning typically separates roles: the person may keep certain trustee/management powers while an independent person or institution controls distributions. If the person keeps the ability to receive distributions, the “asset protection” benefit is usually much weaker and may fail against creditors.

Process & Timing

Who files: No court filing is usually required to create a private trust. Where: The trust is created by signing a written trust agreement in North Carolina, and assets are retitled with the relevant institutions (banks, brokers, county register of deeds for real estate). What: A written trust agreement plus asset-transfer documents (new deeds, account retitling forms, assignment documents). When: Before creditor trouble arises; waiting until after a lawsuit threat increases the risk of a challenge under North Carolina voidable transaction law.
Design control correctly: Use trust terms that give an independent trustee the power to make (or refuse) distributions, while the person who funded the trust may keep defined administrative powers (for example, investment direction) if the trust is drafted to allow that division of authority.
Fund and maintain the structure: Complete retitling, keep trust assets segregated, follow the trust’s procedures, and avoid treating trust property as personal funds. This step is often where otherwise good plans fail in practice.

Exceptions & Pitfalls

“Self-settled but protected” is a common misunderstanding: Many people assume a spendthrift clause alone blocks creditors, but self-settled trusts commonly have weak protection if the settlor can benefit.
Retained control can look like retained ownership: If the settlor keeps broad powers to use trust assets for personal benefit (directly or indirectly), creditors may argue the assets should be treated as still available.
Voidable transfer risk: Moving assets after being sued, threatened with suit, or while insolvent can trigger challenges under North Carolina’s voidable transaction rules.
Wrong tool for the job: Statutory “custodial trust” structures have limits and are not a catch-all asset protection device, especially if the trust is essentially for the creator’s sole benefit.

Conclusion

In North Carolina, a self-settled trust generally does not provide strong creditor protection if the person who funded it can still receive distributions from it. A more protective approach usually requires an irrevocable trust that removes the settlor’s beneficial access while allowing the settlor to keep limited administrative control and using an independent trustee (or other independent decision-maker) for distributions to beneficiaries. The most important practical step is to complete the trust funding (retitling) early enough to avoid a voidable transfer challenge.

Talk to a Estate Planning Attorney

If dealing with a plan for a self-settled trust that aims to protect assets while keeping control over trustee duties and beneficiary distributions, our firm has experienced attorneys who can help explain realistic options and timing risks under North Carolina law. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.