All assets transferred to your Family Foundation are removed from your estate – thereby avoiding any possible estate tax on those assets.
Since most people don’t want heirs to feel left out or disinherited, a Wealth Enhancement Trust™ is established to replace the value of those assets transferred to your Family Foundation. This strategy provides your heirs with an inheritance equal to the value of the assets that were transferred.
The *Wealth Enhancement Trust™ is an irrevocable trust that is funded with a type of life insurance policy up to an amount equal to the value of the assets transferred to your Family Foundation. Because the life insurance policy is owned by an irrevocable life insurance trust (ILIT), it is also out of your estate. Since life insurance proceeds are not subject to income tax, the life insurance proceeds (that are equal to the value of the assets transferred to your Family Foundation) are received by heirs both income and estate tax-free.
The end result is that you have been able to establish a family legacy in perpetuity in the form of your own Family Foundation. Your heirs can receive their full inheritance even if you transfer all of your assets to your Family Foundation (which many wealthy people do to eliminate all taxation). You are able to pass the full value of those assets transferred into your Family Foundation to your heirs without incurring any taxation for you, or for your heirs. And in addition, you receive an income tax deduction, and possibly an income for life (if a CRT Advantage Trust is used).
* Any such Wealth Enhancement Trust planning is done outside and independent of The American Foundation and is an idea that we promote to the extent that it allows donors to increase their philanthropy. This information is included because it makes it more attractive to those who do want to become philanthropists.