Other planned giving vehicles used by high-net-worth individuals include charitable remainder trusts and charitable lead trusts. These are so called “split-interest” trusts, which means the client gets some benefit as well as the charity. In general, the charitable remainder trust pays the client a certain amount for a set period of time, either for life or for a period of up to 20 years, with the balance at the termination of the client’s interest passing to charity.
The charitable lead trust is the mirror image of the charitable remainder trust. The charitable lead trust will pay the up-front interest to charity with the remainder interest going to individuals. Both the charitable remainder trust and charitable lead trust are subject to complicated rules, not discussed here, that a client must fully understand before deciding to use either vehicle for charitable giving purposes.
Asset protection. Finally, high-net-worth clients may be interested in limiting their assets to exposure to creditor claims. Those clients are interested in asset-protection planning. In some cases, state or federal laws may provide automatic protection for those assets.
For example, many states protect life insurance proceeds from creditor’s claims. States may allow a homestead exemption to protect part or all of a client’s home. Additionally, federal law generally protects qualified pension plans from a creditor’s claims. In lieu of statutory protection, 19 states currently allow a client to transfer assets to a domestic asset-protection trust. These trusts, while differing from state to state, generally allow the client some access to the assets in the trust while preventing creditors from accessing trust assets to satisfy a claim against the client. In some situations, a client may want to use an offshore jurisdiction for asset protection, although the rules for offshore protection are complicated.
There are a number of techniques available for transferring wealth, giving to charity and protecting assets. Which planning opportunity is best for a particular high-net-worth client depends on the client’s particular situation. The most important point is to plan ahead and build flexibility into the plan to be able to adjust to changing and unanticipated circumstances.
Jere Doyle is an estate planning strategist for BNY Mellon Wealth Management and a senior vice president of BNY Mellon.