Definition of "Asset Replacement Trust"

Also referred to as an Irrevocable Life Insurance Trust, an Asset Replacement Trust is usually set up along with a Charitable Remainder Trust. Income from the Charitable Remainder Trust is used to pay the premiums on a life insurance policy on the life of the donor. Following the donor's death, the proceeds of the policy go to the beneficiary (usually the spouse and or children) and are not taxable as part of the donor's estate.