Taking Care of the Children: There are solid practical reasons why a CRT should have as its beneficiaries a husband and wife, and not their children. These reasons are taxes. If the sole individual CRT beneficiary is the donor, federal law exempts the entire value of the property donated to the CRT from all federal gift and estate taxes. This tax avoidance is a considerable advantage, at a time when both these federal taxes are assessed at from 37 percent to 60 percent of the total value of the estate property. If the donor's spouse is also a beneficiary, the value of that interest is reportable as a taxable gift, but it fully qualifies for a marital gift tax deduction. If the couples' children (or others) are also named as beneficiaries, their interests are taxable gifts to the extent their interests exceed the allowable annual exclusions. Annual gifts of cash or other property worth $10,000 or less, often called "annual exclusion gifts," may be made by a donor free of any federal gift or estate tax. In order to qualify for this exclusion the gift must be of a "present interest" in the property. Trust gifts do not usually qualify unless the trust is specially designed to accommodate such "present interest" gifts. In addition to federal estate and gift taxes, any grandchildren's CRT interest would also be subject to the federal "generation skipping" tax of a flat 55 percent in excess of $1 million in gifts made to them during the donor's lifetime. One bright spot is that property given to a qualified charity is fully deductible against any gift or estate taxes. If one does not include their children as beneficiaries of the CRT, how does one "make it up" to the kids for their "lost" value of the $1 million building that ultimately becomes a gift to the charitable remainderman? There are several ways to accomplish this worthy parental goal, but first let's consider some simple tax arithmetic to lay a basis for a suggested solution. When a building (or anything else) valued at $1 million is donated to a CRT, it is received tax free. As we have seen, with a capital gains tax the $1 million would have been reduced to $731,200 in after tax cash. But $1 million invested by the CRT at an expected 8 percent return gives the donor $80,000 annually in income, rather than $58,496, the annual amount of cash after the capital gains tax. That means a net bonanza of $21,504 each year. And here's where the solution to the children's inheritance problem is achieved. Using $15,000 of the net bonanza money, the parents can fund an irrevocable life insurance trust, (also called a "wealth replacement" or inheritance trust), with their children as named beneficiaries. Many couples chose to have their life insurance trust purchase a "last to die" or "survivorship" policy covering them jointly. Such a policy is much cheaper and is not payable, as indicated, until the last of the two parents dies. Donating a portion of their increased income from their CRT to their life insurance trust, about $15,000 annually, for ten years will allow purchase of a "last to die" whole life policy paying about $750,000. This inheritance is far more than the net value that $1 million building would have produced had it not gone to the CRT, but remained a part of the parents' estate to be ravaged by federal taxes. The $750,000 insurance payout figure is approximate because, as in all insurance policies, the exact premiums and payout depends on variables concerning the person or persons insured. This figure is a quote from an insurance company based on a non- smoking 65 year-old couple in good health at the time the life insurance is purchased. Some insurance companies will include an optional clause guaranteeing that if both insured parents die within four years of each other, the company will pay out 222 percent of the face value of the policy. At least one spouse must be under age 70 and in good health to obtain this lucrative policy rider, but that means double the money for your heirs. Even if the IRS somehow successfully attacked this sum as being taxable as part of the parents' estate, and even if the estate was in the 55 percent tax bracket, that means on a $1 million policy paying $2.22 million, after tax proceeds would still equal the $1 million. It's worth the gamble and probably more likely than winning the state lottery. Using the life insurance trust route, everybody should be pleased; the parents have added net lifetime income from the CRT, the children have an equal or greater inheritance, and the charity of your choice benefits greatly in the end. A word of caution. Before establishing a life insurance trust and having it purchase any life insurance policies, all the personal health variables, actual premium costs and payouts should be realistically assessed and quotations obtained in writing from the prospective insurer. This is not an area to be left to hopeful promises from an eager insurance salesperson. A firm administering charitable remainder trusts can usually get the best deals on wealth replacement life insurance, as they are experienced in working with insurance companies who understand the purpose of the policy, and in obtaining competitive quotations. After all, your children deserve the best - guaranteed money.