Wealth Replacement Trusts

Today’s blog is centered around wealth replacement trusts. You may find this blog helpful if you choose to gift your property to a charity after you’re gone.

Charity Remainder Trusts

To create a charitable remainder trust, you first have to transfer appreciated property to an irrevocable trust and list the charity of your choice as the remainder beneficiary of the trust. Later, the property is sold and reinvested to provide income. Generally, you can retain a lifetime of interest in the income generated by the trust, and when the trust expires at your death, the remaining property is transferred to the charitable organization.

While subject to certain limits, you are entitled to a current income tax deduction for the charitable gift. And because the property was sold within the charitable trust, you will not have to pay tax on any capital gains (although any distribution you get from the trust is generally subject to income tax). This allows the value of the property to be reinvested, which will increase the income generated by the trust.

One major drawback is that since the beneficiary is listed as a charity, any heirs you have will not be receiving anything.

Replacing Gifted Assets

Another solution to a gifting situation could be a wealth replacement trust.

When you use a wealth replacement trust, you use a portion of the income from a charitable remainder trust to buy a life insurance policy. Then you get to decide how much of the charitable gift tot replace. You may purchase enough insurance to replace only a portion of the property that will pass to charity, or you may prefer to replace all of the property in the charitable remainder trust.

If you are interested in wealth replacement trusts, learn more about them by clicking here, or call our office today at 201-342-3300. One of our associates will be happy to speak to you.