Although a CRT is an excellent planning tool that can increase one’s income, avoid unnecessary taxation, and achieve one’s charitable planning dreams, one question that is frequently raised concerning them, usually by the Trustmaker’s children, is “What about our inheritance if everything in the CRT gets distributed as income or is left to a charity?”

It is not uncommon for the Trustmaker’s children to view their parent’s desire to create a CRT skeptically for the fear of being disinherited or they may be suspicious that their parent is being unduly pressured by a charity into creating it. Fortunately, these types of objections are easily overcome once the children learn that by establishing the CRT their parents can actually increase the children’s inheritance and enable everyone (parents, charity, and children) to benefit.

The key to achieving this incredible win win win scenario lies in the fact that once the parents have established the CRT, they will be receiving a new stream of income. The parents can deal with the children’s concerns about being disinherited by simply taking a fraction of that income and using it to purchase a new life insurance policy in an amount at least equal to the value of the asset transferred to the CRT.

Often the tax savings and additional income produced by the CRT enable the parents to purchase life insurance (also known as wealth replacement insurance) with a death benefit even greater than the value of the asset being transferred to the CRT. Even better, if the new life insurance policy is owned by an Irrevocable Life Insurance Trust created by the parents, the insurance proceeds will be outside the parent’s estate and thus transferred to the children estate tax free. Most children are also pleased to learn that their inheritance will come in the form of a cash distribution from the ILIT instead of having to deal with selling a major asset after their parents die.