Wealth Replacement Trust
A Wealth Replacement Trust can be set up to replace the
asset gifted to the CRT or possibly even more. This way the
heirs still receive an inheritance in the form of cash rather
than an asset that may not be liquid. This can create another
problem if the asset needs to be liquidated to cover estate
taxes that may be due since the asset would be included in
Here is how this estate planning concept works.
The donor(s) purchase a life insurance policy held inside
of a trust with the policy death benefit set up to be paid
out to their heirs at death. If structured properly, the Life
Policy will pay out 100% Income and Estate Tax Free. This
can mean a much larger after-tax inheritance for the heirs
than if they received the gifted asset itself.
The key is to have the life insurance policy owned outside
the estate. This is usually accomplished with an Irrevocable
Life Insurance Trust.
An Irrevocable Life Insurance Trust is used to hold the Life
Insurance Policy outside of the estate in order to avoid Income
and Estate Taxes. Because the trust is a separate entity from
the insured's estate, the Life Insurance is not a part of
the insured's estate and therefore not subject to estate tax.
In addition, Life Insurance death benefits are not subject
to Income Tax. Therefore, the proper use of an Irrevocable
Life Insurance Trust will enable the heirs to receive the
Death Benefit free and clear of Estate and Income taxes.
The premium for the life policy can be paid from a portion
of the tax savings and/or income generated by the Charitable
A common way to reduce the costs of the life policy is to
use a Second to Die Life Insurance Policy. Click
here to view one of our other web sites located at www.SecondtoDieLifeInsurance.com
for more information.
Harding Financial Services, LLC
The information contained on this site is for educational
purposes only, it is not intended to be professional tax or
legal advise; consult a tax advisor about your specific situation.