Wealth Replacement Trust

A wealth replacement trust is an effective planning tool in which a donor uses the income and/or tax savings from establishing a life-income gift such as a gift annuity or charitable remainder trust to buy insurance on his or her life to replace the asset he or she gives away. Because the life insurance is held in an irrevocable insurance trust, the death benefit passes to heirs free of estate taxes.

Example

Mr. and Mrs. Sheldon, parents of Sarah Lawrence alumnae Emily and Elizabeth, are both age 65 and in good health and would like to make a substantial gift to the College in support of student life. They establish a $500,000 charitable remainder annuity trust and, using their annual after-tax income to make annual premiums, purchase a $500,000 second-to-die life insurance policy naming their two daughters as beneficiaries.