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A Wealth Enhancement Trust™ is an
optional part of the family foundation process. This trust can assure that heirs
are not “disinherited”. It is
usually established in tandem with a
CRT Advantage™ income trust or r family foundation.
In the example, $1,000,000 in
appreciated property is transferred to the CRT Advantage
income trust. The trust is set up to pay 8% annually
($80,000 the first year) of the trust assets to the income beneficiary
(usually donor or donor and spouse).
In conjunction with the CRT Advantage, a Wealth Enhancement Trust is also established. This trust is
funded with a specially designed $1,000,000 life insurance
policy. The money to pay the premiums for this policy come mostly
from tax savings, and if tax saving are not enough then a small amount
of the premium payments can come from the newly created increased
income stream generated by the CRT Advantage.
At the death of the income
beneficiary, $1,000,000 flows from the CRT Advantage trust into the donors family
foundation. This creates a perpetual charitable family
legacy. In addition, another $1,000,000 is paid to heirs
tax-free.
When property is transferred to a charitable source such as a
family foundation account or the CRT Advantage trust,
that particular property is no longer owned by the donor, so it is
not subject to estate tax. However heirs cannot receive property
that has been used to create philanthropy.
The most tax
efficient solution to this potential problem is to establish a Wealth
Enhancement Trust. This is an
irrevocable trust that is funded with a life insurance policy usually
up to an amount equal to the value of the property transferred to
your family foundation account or CRT Advantage trust. Because the policy is
owned by an irrevocable life insurance trust (ILIT) and not by you, all
proceeds will be paid to your heirs without incurring any income tax or
estate tax.
This results in your heirs
receiving one hundred percent of the value of the property that was
transferred to the charitable entity. No one is disinherited from
their inheritance. The donor,
the heirs, and charities all win when a family
foundation or CRT Advantage
is coupled with a Wealth Enhancement Trust.
● You receive an income tax deduction
●
You reduce or eliminate any estate tax
●
You eliminate capital gains tax if using the CRT Advantage
● Your heirs receive their full inheritance
(and it is not subject to income tax or estate tax)
●
Charities that you support will
benefit from your philanthropy in perpetuity
Other names used
for the Wealth Enhancement Trust
are "Asset Replacement Trust" and "Wealth Replacement
Trust".
Any such Wealth Enhancement Trust planning is done outside and independent of
The American Foundation.
This information is included because it helps make philanthropy more
attractive.
Please Note:
If you or your attorney or CPA have any questions regarding any of our
charitable planning concepts, The American Foundation™ is always
available to answer any questions or explain any concepts.
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