Wealth Replacement

Historically, some argued that a significant disadvantage of a charitable trust was that family heirs lost the benefits of direct inheritance. Today, many estate planners are recommending combining charitable giving with an irrevocable life insurance trust, also known as a wealth replacement trust. A wealth replacement trust restores the assets of your estate that have been used to make a charitable gift, and can be designed to provide your heirs with inheritances free of estate taxes.

The wealth replacement trust may be structured so that you set up a charitable remainder trust to receive the income and tax benefits. At the same time, you set up an irrevocable life insurance trust that names your heirs as beneficiaries and someone other than yourself as trustee.The wealth replacement trust buys an insurance policy on your life, usually in an amount equal to your charitable gift. Every year, you transfer assets to the wealth replacement trust (using income from the charitable remainder trust) to cover the cost of trust administration and the life insurance.

A wealth replacement trust, allows you to provide for both your heirs and charitable organizations. Advantages to the wealth replacement trust include:

	•	You remove assets from your estate that could incur large estate taxes.
	•	You are allowed to claim charitable contributions.
	•	Your heirs usually receive a comparable amount to that which they would have received had you not created the trust.
	•	The charitable organization you designate receives significant support.

For more information about trust services or any other service provided by New Covenant Trust Company, please contact Chip Walker at 800-528-4083, ext. 5912 or e-mail at cwalker@newcovenanttrust.com. Contact your tax advisor to determine how these trusts would actually affect your estate.