Wealth replacement is a strategy used to replace an asset that is contributed to a trust or a Pooled Income Fund.

How it works:

Donor(s) may use the income or tax savings and gift annually to their children ($14,000 exemption for 2016). The children will use the proceeds to purchase a life insurance policy on the Donor(s). At the Donor’s death, the life insurance policy will pay the heirs, income tax free.

The key is to have the life insurance policy owned outside of the estate. This may mean a much larger after-tax inheritance for heirs than if they received the gifted asset itself (because it is outside of insured’s estate and not subject to estate or income tax.)

Benefits:

  • Removes asset from your taxable estate
  • Potential for replacing more inheritance for your heirs

To learn more about wealth replacement strategies with the Pooled Income Funds, please consult your financial advisor to discuss your individual situation before contributing.

Please be sure to consult a financial and insurance professional prior to purchasing any insurance product. This is not considered tax advice, and you should consult a tax advisor on your specific tax situation.