Could Your Family Benefit from the Compounding of Assets over Multiple Generations?

Many of the Elite Families in American Society Have Used This Seldom Heard Strategy to Create Opulent Abundance for Decades

Albert Einstein once called the compounding of interest the “8th wonder of the world.” When developing a “Dynastic Wealth Transfer Plan,” the longer a legacy can remain in a tax favored, divorce protected and creditor proof environment the better the potential for significant wealth to accumulate into the future.

In the past, most states had a “rule against perpetuities,” limiting trust duration to the life of the beneficiaries living at the time of the trust creation plus 21 years. Name a 10-year-old grandson as a trust beneficiary under these rules and, if he lives to age 75, the trust will end in 96 years.

The rule against perpetuity is rapidly changing with at least 17 states and the District of Columbia having discarded it completely, while others have passed laws retaining the concept of a time limit but extending the period. Florida now limits trusts to 360 years, Nevada 365 years, while Wyoming and Utah have 1,000 year rules.

The Economics

The compounding effect of a Dynasty Trust coupled with the avoidance of transfer taxes for multiple generations can lead to some extraordinary results. The following chart illustrates the differences in result for a $1,000,000 contribution into a Dynasty Trust that will last for 120 years and outright transfers subject to an estate tax of 50 percent every 30 years.

The savings potential is often greater than illustrated since the example ignores the fact that property received outright will probably be reduced further due to (1) divorce settlements, (2) creditor problems, and (3) the fact that assets are less likely to be dissipated in a trust than if held outright even if the invasion rights in a trust are extremely broad and generous. In addition, the leverage feature increases the longer the trust continues. For example, if the trust term in Exhibit 1 were extended another 30 years to 150 years, at 8 percent the value of the trust corpus would grow from $10,252,992,943 to $103,172,350,067 rather than the $3,224,135,940 if a Dynasty Trust were not used.

The Dynasty Trust offers unique opportunities to create a "family asset pool" which may be enjoyed by the creator's family into perpetuity without shrinkage caused by transfer taxes or loss due to divorce or other creditor claims. It should become an integral part of the creative estate planner's arsenal.

To learn more about the potential benefits of creating a “Dynastic Wealth Transfer Plan” please feel free to  contact me for more information. To schedule a complimentary meeting, either in person or by telephone, please use the use the CONTACT US link and let me know.

I look forward to meeting you!