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CHARITABLE REMAINDER TRUSTSrespect to the trust) was self-dealing. 402 This was a reversal of an earlier position,holding that there is no self-dealing in these instances because the benefit to thedonor/disqualified person is incidental or tenuous. 403§ 12.10 WEALTH REPLACEMENT TRUSTSThe wealth replacement trust is often used in conjunction with CRTs. This isusually done in the estate planning context. 404 This approach is also sometimescombined with the use of a CRT in the retirement planning setting.A wealth replacement trust is a trust established to create an asset, for the heirsof the donors, in replacement of the assets transferred to one or more charitableorganizations. This type of trust is usually funded by means of life insurance.The following six examples illustrate these concepts.EXAMPLE 12.17H and W, aged 64 and 62, respectively, have built a profitable manufacturing business worthapproximately $4 million. They receive annual combined compensation of $200,000 from thebusiness. Their total net worth, including their home, personal investments, and other property,is about $5 million. H and W have two daughters, both of whom have families of their own.H and W plan to sell their business as a way to create a secure, comfortable retirement. Theyintend to travel extensively, and visit their children and grandchildren often. They also wouldlike to increase their involvement with the local children’s hospital (having lost a son toleukemia when he was 12).H and W believe they can sell the business for its full value. However, their accountant hascalculated that selling the business would result in a tax liability of about $1.1 million. Theymeet with a charitable gift planner and formulate these objectives: (1) to maximize the value oftheir business as of the time of sale; (2) to create an inflation-proof retirement income stream;(3) to provide at least a $2 million inheritance to each of their daughters; and (4) to leave amaximum charitable gift, if possible, in lieu of estate tax. The following plan is formulated.A CRT is created. H and W transfer 75 percent of their stock in the business to the trust; acharitable contribution deduction of nearly $620,000 is thereby created. The stock issubsequently sold, free of tax, by the trust and reinvested for income. The remaining 25 percentof the stock will be sold by H and W. They will receive a lifetime income stream from the trust.To meet their inheritance objectives, H and W establish an irrevocable life insurance trust.They will make annual gifts to the trust out of their tax savings and their new income. The trustwill purchase $3 million of survivorship-type life insurance.At the death of H and W, the proceeds of the insurance policy will be distributed to the twodaughters free of estate tax. Additionally, H and W leave a total of $1.2 million to theirdaughters, the maximum amount that can pass from their estate tax-free. The balance of theestate of H and W which exceeds the $1.2 million and the assets in the CRT will be passed to afoundation named H and W.In this example, capital gain and estate tax savings of $2.3 million create increased lifetimeincome ($.4 million), increased benefit to heirs ($1.6 million), and future charitable gifts ($3.7million), for a total of benefits of $5.7 million.402 Priv. Ltr. Rul. 9714010.403 Priv. Ltr. Rul. 9233053.404 In general, see § 8.6. 468