When the charitable trust terminates, the property within the trust is transferred to a charitable organization - rather than to family heirs. So while the charitable remainder trust offers many benefits, this strategy can effectively disinherit your heirs.

An effective solution to this problem is the wealth replacement trust. To create a wealth replacement trust, you use a portion of the income from a charitable remainder trust to buy a life insurance policy. The "extra" income comes from the tax savings generated by the charitable remainder trust. You decide how much of the charitable gift to replace. You can buy enough insurance to replace only a portion of the property that will eventually pass to charity, or you may prefer to replace all of the property within the charitable remainder trust. The wealth replacement trust is often designed so that upon the death of the second spouse, the death benefit of the life insurance policy goes to your heirs. These funds replace the property that passes to the charity from the charitable remainder trust. And because the life insurance policy is owned by the trust, the proceeds of the policy will not be subject to estate taxes at either death.