In Part 2 of our series, “Building a Lasting Legacy”, we explored lifetime gifting strategies like SLATs, GRATs, and ILITs, which help reduce taxes and efficiently transfer wealth to heirs. Now, as we continue the series in Part 3, we shift to more advanced, long-term solutions for those seeking to preserve wealth across generations and/or make a significant charitable impact. These advanced trust structures offer a flexible and powerful approach to managing both family wealth and philanthropy. In this final part, we’ll explore four key strategies:
- Dynasty Trusts
- Charitable Remainder Trusts (CRTs)
- Charitable Lead Trusts (CLTs)
- Private Foundations
These advanced tools help you manage both wealth and philanthropy effectively, ensuring a lasting legacy for your family and the causes you care about.
1. Dynasty Trusts: Securing Wealth for Generations
What is a Dynasty Trust?
A Dynasty Trust is designed to pass on wealth to future generations while avoiding estate and gift taxes. The assets placed in the trust can potentially grow for hundreds of years, with the possibility of ensuring your family continues to benefit long after you’re gone. The domicile of the Dynasty Trust ultimately determines how long the trust can continue. By way of example, Washington’s law requires that these trusts terminate within 150 years of creation, California requires that a trust interest must vest or terminate 90 years after a trust is created, while South Dakota will allow the trust to continue in perpetuity.
How does it work?
Assets transferred into the trust are removed from your taxable estate. The trust lasts for multiple generations, often benefiting your grandchildren and beyond. The Generation-Skipping Transfer (GST) tax exemption allows wealth to be transferred to future generations without additional taxation.
Why use a Dynasty Trust?
This trust can potentially protect family wealth from estate tax and creditors, including potential ex-spouses. It is intended to ensure assets grow over time and remain available for future generations.
2. Charitable Remainder Trusts (CRTs): Supporting Charity While Continuing to Benefit from Trust Assets
What is a Charitable Remainder Trust?
A Charitable Remainder Trust (CRT) allows you to support charitable causes while still providing income to yourself or your heirs. It’s a popular strategy for balancing personal financial goals with philanthropy.
How does it work?
You transfer assets, often appreciated, into the CRT. The trust pays you (or another beneficiary) an income stream for life or a set term, and at the end of the trust term, the remaining assets go to your chosen charity. One benefit of a CRT is that your Donor Advised Fund (DAF) can be the named charitable beneficiary of your CRT, which allows you to adjust the ultimate charitable beneficiary with ease. The income stream may be a set annuity amount if you create a Charitable Remainder Annuity Trust, or a “unitrust” amount, which is calculated as a percentage of the trust assets each year, if you create a Charitable Remainder Unitrust. There are pros and cons to both types of trusts and we encourage you to reach out to your Client Advisor to learn more.
Why use a CRT?
CRTs are tax-efficient because you can potentially reduce or eliminate capital gains taxes on the donated assets. You also receive an immediate charitable deduction for the gift, while still securing income for yourself or your heirs.
3. Charitable Lead Trusts (CLTs): Giving First, Preserving Wealth for Heirs
What is a Charitable Lead Trust?
A Charitable Lead Trust (CLT) is the reverse of a CRT. With a CLT, charities receive income first, and your family inherits the remaining assets after the trust term ends.
How does it work?
The trust provides income to charitable organizations for a set period. Like a CRT, your DAF may be named as the charitable beneficiary. Once the term ends, any remaining assets transfer to your heirs, often at a reduced tax cost. If the CLT qualifies as a grantor trust, then you or your spouse could be the remainder beneficiary of the CLT once the trust ends.
Why use a CLT?
A CLT allows you to make significant charitable contributions during your lifetime while still potentially preserving family wealth for future generations. It also can potentially serve as a tax-efficient way to support both family and charity.
4. Private Foundations: Direct Control Over Philanthropy
What is a Private Foundation?
A Private Foundation allows you to set up a charitable entity that your family can oversee. It provides long-term control over your giving and can be passed down to future generations.
How does it work?
You establish and fund the foundation, which grows over time. You or your family members can sit on the board and decide which charities receive grants, ensuring that your values and priorities are upheld.
Why use a Private Foundation?
We believe private foundations offer maximum control over charitable giving and investments, while allowing your family to be deeply involved in philanthropic decisions. They are potentially ideal for families looking to make a long-term impact.
Key Takeaways
We believe, by using dynasty trusts, CRTs, CLTs, and private foundations, you can reduce estate tax exposure, ensure financial security for future generations, and support meaningful charitable causes. Each trust provides a unique combination of tax efficiency and flexibility, allowing you to balance family wealth with philanthropy.
Final Thoughts: Building a Comprehensive Legacy
Your estate plan is more than just transferring assets—it’s about defining your legacy, preserving wealth, and supporting causes that matter to you. Throughout this series, we’ve explored key strategies which we believe could help you to achieve these goals.
In Part 1, we examined Donor Advised Funds (DAFs), offering flexibility and tax benefits for charitable giving while involving your family in philanthropy.
In Part 2, we focused on lifetime gifting strategies like SLATs, GRATs, and ILITs, which have the potential to reduce taxes and efficiently transfer wealth to your heirs.
Now, in Part 3, we’ve covered advanced trust structures—dynasty trusts, CRTs, CLTs, and private foundations—for preserving wealth across generations and potentially creating a lasting charitable impact.
By combining DAFs, lifetime gifting, and advanced trusts, we believe you can craft a holistic estate plan that aligns your wealth with your values for generations to come. Take the first step toward building your enduring legacy—reach out to our Wealth Planning Team today to discuss how these strategies can be tailored to your unique needs.
Important Disclosures: This article is not intended to provide, and you should not rely upon it for, accounting, legal, tax or investment advice or recommendations. We are not making any specific recommendations regarding any financial planning, investment or tax strategy, and you should not make any financial planning, investment or tax decisions based on the information in this article. This article is intended to be educational in nature and to discuss a few limited aspects of very complex legislation or other complex subject matters. This article is not a comprehensive or complete summary of considerations regarding its subject matter. We recognize that every individual has different needs and the opinions expressed in this article may not be appropriate for everyone. Please consult with a Freestone Client Advisor, accountant, or lawyer regarding options specific to your needs. Please note that Freestone does not approve or endorse any third-party content hyperlinked to in this article.