A SLAT can help with your estate tax liability and much more.
People have different tax liabilities, especially when it comes to estate taxes.
For those with high tax exposures, how assets are transferred is of particular importance.
Leaving assets outright through traditional estate planning tools, like a last will or a revocable living trust, invites the government to tax your entire estate in each succeeding generation.
Alternative estate planning tools can be helpful when strategically transferring assets to heirs in a protected and tax-savvy manner in perpetuity.
According to a recent Forbes article titled “Should a SLAT Be Part Of Your Estate Planning?,” a married couples can utilize a SLAT in their estate plan.
How might a SLAT help?
For starters, a SLAT is a Spousal Limited Access Trust.
In essence, a SLAT is an irrevocable trust with assets your spouse can access during his or her lifetime.
As of “press” time, through lifetime gifting to a SLAT you can remove up to $11,700,000 from your taxable estate and provide your spouse with access to the gifted assets.
Although this can be a great tax solution, a SLAT can complicate certain situations.
If your spouse dies before you die, then you will lose access to the assets.
Instead, the assets will be directed to the remainder beneficiaries of the trust.
Often these are your children, but other beneficiaries may be selected.
Another problem occurs if you and your spouse divorce.
The spouse will still be the beneficiary of the SLAT.
If this is a concern, you may ask your attorney if something can be written into the trust for this situation.
Without “getting down into the weeds” on the various planning work arounds to these potential “complications,” know that an experienced estate planning attorney can make sure you are okay.
Ethical issues my arise with this; however, if your attorney represents both spouses.
Full disclosure and a “team approach” are essential here.
Can both spouses create a SLAT?
Would this be a solution?
The IRS may determine the sole reason of the SLAT was to remove taxable assets from your estate and rule that the trusts cancel each other out.
This is called the “reciprocal trust doctrine” and experienced estate planning attorney knows where the no-go line is drawn.
To address this, each SLAT will need to be different in a few material, not just cosmetic ways.
The trusts should be created at different times.
If possible, consider make each trust in a separate state.
You could also appoint different trustees.
Varying the distribution rules could also help.
Estate planning for tax liability could become even more important when the federal exemption reverts back to $5 million.
This is set to occur after December 31, 2025, but it could be earlier depending on the actions of the current government administration.
Work with an experienced estate planning attorney to determine whether a SLAT might be beneficial as part of your own estate planning.
Reference: Forbes (Feb. 16, 2021) “Should a SLAT Be Part Of Your Estate Planning?”