A New York trial court recently approved a trustee's petition to reform his deceased father's…
Now is the time to explore a Spousal Lifetime Access Trust (SLAT)
With the upcoming election and potential tax law modifications based on the outcome, high net worth married couples should consider meeting with their advisors to determine what they can do to prepare for potential tax changes. One strategy worth consideration is a Spousal Lifetime Access Trust, commonly referred to as a SLAT.
A SLAT is a gift from one spouse to an irrevocable trust for the benefit of the other spouse. Unlike other types of credit shelter trusts, a SLAT is funded while both spouses are still living. The beneficiary spouse can receive distributions from the SLAT even though it is designed to be excluded from the beneficiary spouse’s gross estate and not be subject to estate tax when the beneficiary spouse dies.
There are many advantages of SLATs. Below are some FAQs regarding SLATs:
A SLAT is a gift from one spouse (the donor spouse) to an irrevocable trust for the benefit of the other spouse (the beneficiary spouse). Similar to a so-called “bypass” or “credit shelter” trust, which: (i) receives assets having a value up to a deceased spouse’s remaining exemption from the federal estate tax; (ii) potentially benefits the surviving spouse; and (iii) prevents the value of the trust from being included in the surviving spouse’s gross estate and subject to estate tax when the surviving spouse dies, the SLAT is funded by gift while both spouses are alive. The beneficiary spouse can receive distributions from the SLAT, yet the SLAT is designed to be excluded from the beneficiary spouse’s gross estate and to not be subject to estate tax when the beneficiary spouse dies. To prevent the value of the assets of the SLAT from being included in the beneficiary spouse’s gross estate, the SLAT will not qualify for the gift tax marital deduction (either because the donor does not make the necessary election or the terms of the trust prevent it from qualifying).
It may be a good time to take advantage of a SLAT because there could be a decrease in the federal gift and estate tax exemption, which is currently at $11.58 million per person or $23.16 million for a married couple. For example, if a President-elect Biden and Democrat-controlled Congress passed tax legislation in 2021 that lowered the exemption to $3.5 million (a number that has been mentioned), this could be made retroactive to the beginning of the year. But if the SLAT was funded in 2020, you will not be adversely affected if the amount is decreased.
It is best to talk to your estate planning attorney and determine if a SLAT is a good option to allow you to take advantage of the favorable estate and gift tax exemption. Be aware that there is a chance your window may close at the end of this year, so do not procrastinate.