There are now more than 9 million millionaire households in the U.S., including families with $5 million to $25 million in net worth, the Federal Reserve reports. That’s twice as many as a decade ago, and the number is growing every day.

Increasingly, these new millionaires are baby boomers in their 40s and 50s, and a growing number are even in their 20s and 30s. Many of them want to use their wealth to make life better for their families–not just their children, grandchildren and great grandchildren, but their parents as well.

Those with very significant net worth often use dynasty trusts to transfer wealth to both succeeding and preceding generations. Boomers are not only concerned about their heirs, they’re also concerned about their parents’ well-being later in life. A survey sponsored by Putnam Investments found that 1 in 5 adults aged 45 and older support their parents financially. Boomers are providing that support while also caring for children and sometimes grandchildren, making them the main course within the “sandwich generation.”

Including parents as current beneficiaries poses some complications when designing and implementing a dynasty trust. However, the core advantage of creating a dynasty trust remains the same: maximization of the generation-skipping transfer tax (GSTT) exemptions so as to eliminate estate taxes at all future generational levels for as long as possible.

Affluent people who want to see their families enjoy their generosity sometimes elect to fund their dynasty trust with a “gift and note sale” strategy. Under this strategy, the grantor of the trust typically uses some or all of his lifetime gift tax exemption to seed a trust with an initial gift. Generation-skipping tax exemptions are allocated to the initial gift to avoid the imposition of any possible generation-skipping transfer tax. After the trust is seeded, the trustee purchases other assets, typically at a discount, from the grantor in return for a note.

It’s important to structure a grantor trust so there is no gain upon the sale of the assets to the trust and to prevent the interest paid by the trustee to the grantor from being interest income. Any potential income tax liability is avoided because the grantor of the trust remains liable for the income tax on the trust assets. In layman’s terms, the trust is respected as a separate entity for estate and gift tax purposes but is ignored for income tax purposes.

The transfer tax benefits of a gift-and-note sale strategy are almost entirely dependent upon the appreciation and income of the assets sold to the trust. If the assets that were sold to the trust outperform the interest rate on the note, wealth is passed to the trust. Therefore, careful consideration should be given to the type of assets purchased for the trust in order to minimize the likelihood of the trustee being unable to meet its interest obligation.

Family limited partnership (FLP) units or non-voting S-Corporation stock are often the preferred assets to be sold because their value can often be discounted for a lack of control and/or a lack of marketability; and they often have steady and predictable income.

Consider an example of how a gift and note sale might work: Mr. Smith, age 57, uses his lifetime gift tax exemption to gift $300,000 of cash to his dynasty trust, which is drafted as a “grantor” trust for income tax purposes. He subsequently sells $3 million of FLP units to the same trust in return for an interest-only note with a balloon payment due at maturity. The interest rate on the note is 5%, or $150,000.

Assuming a 30% discount for lack of marketability and lack of control, the pre-discounted value of the FLP units sold is $4,285,714. For the trustee to meet its note interest obligation, the trustee needs to earn only 3.3% ($150,000 / $4,585,714) per year. Any income earned by the trust in excess of the 3.3% belongs to the trust. If the trustee was able to earn 8% on the trust assets, the trust would generate $366,857 per year. After making its $150,000 interest payment on the note, the trustee would still have $216,857 remaining.

Depending on the terms of the trust, the net income from the trust may be used for different purposes. First, the trustee could use some of the income to pay down the note balance. However, making principal payments is probably not necessary if the trustee never encroaches on the trust principal, because the trustee can always repay the note balance with the trust principal. Second, the trustee could use some of the money to benefit the trust beneficiaries, which can include children, grandchildren, and of increasing popularity, parents.

In our example, Mr. Smith would like to help his aging parents enjoy their golden years to the fullest extent possible. To make sure they’re financially comfortable, the trustee could distribute some or all of the remaining $216,857 to Mr. Smith’s parents. However, making outright distributions to Mr. Smith’s parents and other beneficiaries during his life reduces or eliminates the financial legacy that he may leave upon his death.

To accomplish Mr. Smith’s goal of providing family wealth to his parents, children and grandchildren, the trustee could use some of the excess income within the trust to purchase life insurance on Mr. Smith’s life. A $3 million life insurance policy that costs approximately $53,000 could leave $163,857 for the trustee to distribute to the trust beneficiaries per year.

The life insurance death benefit provides cash to pay off the note in the event Mr. Smith dies before extinguishing the obligation. More importantly, in Mr. Smith’s case, the policy ensures that the trust assets are replenished upon his death and that his financial legacy is continued for his children and grandchildren.

By combining a gift-and-note sale with a life insurance policy in a dynasty trust, wealthy members of the sandwich generation can benefit their children, grandchildren, and parents too. Life insurance allows them to watch as their families enjoy financially enhanced lives, and still provide a significant legacy for future generations.

Even the most affluent boomers and Generation X-ers who can envision passing their wealth to multiple generations are seeking new financial planning solutions to their “sandwich generation” responsibilities. But tapping into dynasty trusts at the outset to support older generations can create resource issues, even for families transferring tens of millions of dollars to future generations. With more millionaires coming into the wealth transfer market every day, there will be many more families who are sandwiched between competing financial goals and therefore need your help.