Dynasty Trusts ensure that wealth gets passed down to successive generations. In fact, the special tax provisions in this wealth-building vehicle can allow you to amass a fortune relatively quickly. So much so— in fact— that $1 million can turn into roughly $20 million over the course of just three generations (assuming that the trust’s balance grows by a net of 6%, annually).
- Assuming that the assets in your Dynasty Trust are designed to avoid transfer taxes upon the death of one generation (which is a safe assumption to make), you could require that a portion of the money saved due to this tax break— say 10 percent— be given to charity at such times (i.e. upon the death of one generation).
- Your Dynasty Trust could require:
- More frequent distributions of the 10 percent figure mentioned above to charity or
- A higher outright distribution percentage of the money accrued from transfer tax savings be given to charity. For instance, if your trust is required by law to terminate after about 90 years, it could be set up to distribute 20 percent of its transfer tax savings to charities in pre-determined yearly intervals. This amounts to (potentially) millions of dollars going to specified charities.
- Once established, cash or other assets get transferred to the CLT.
- The charity you designate in the CLT agreement then receives payments from it annually, for a term you select (note that these payments must be a stated percentage of the CLT assets, which are valued annually).
- When the term of your charitable payments terminates, the remaining CLT assets get distributed to a non-charitable beneficiary (i.e. private person such as a relative) of your choosing.
- The assets contained within the Dynasty Trust then serve to benefit your heirs in perpetuity.