With the uncertainty of estate and gift tax law changes on the horizon, people are looking for ways to save money. Spousal Lifetime Access Trust(s) (SLATs) are nothing new, but they are getting more attention. If the laws do not change before 2025, the gift and estate tax exemption, which is $11.7 million per person in 2021 and $23.4 million per couple, will revert to about $5 million per person as they were in 2017 – with an allowance for inflation.
Those with assets that exceed the higher thresholds will be caught paying a lot of taxes. A SLAT can lock in the threshold rates at the higher amount if you create a trust while the thresholds are high.
How Does a SLAT Help?
A SLAT is irrevocable and often used for income tax purposes. This grantor-type trust allows a spouse to gift the other spouse assets. Once the assets are transferred into the trust, they are removed from the estate. Each spouse can create a Spousal Lifetime Asset Trust for the other to shelter $23.4 million from gift and estate taxes.
Setting Up a SLAT
During his or her life, the non-donor spouse can request principal and income distributions from the SLAT. The non-donor spouse can also serve as a trustee for the SLAT. If both spouses wish to create a SLAT, the attorney must be sure that the two trusts do not violate the “reciprocal trust doctrine” by ensuring that each trust has different language and that enough time has elapsed between creating the two trusts.
Benefits of Creating a SLAT
The biggest benefit of creating a SLAT is that the donor removes assets from his or her taxable estate. The future growth in the trust is free of income tax since the donor spouse pays annual income tax on any taxable trust income.
Another large benefit is that the assets in the trust are “grandfathered” into the current estate and gift tax exemptions since the Treasury Department has stated that it will not require a future gift tax due if or when the exemption reverts to the lower amount.
To learn more about Spousal Lifetime Access Trust(s), whether a Spousal Lifetime Access Trust is right for you, and other types of trusts that could save you money, or to create or amend an estate plan, contact our attorneys at Grissom Law, LLC.
Disclaimer
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