If you’ve been considering making a gift to take advantage of the current lifetime federal estate tax emotions, you’ve likely considered the role that a spousal lifetime access trust could play in your trust.
A spousal lifetime access trust (SLAT) is an irrevocable trust that is created for the benefit of your spouse. These trusts can also indirectly benefit a couple’s children as well as any other beneficiaries. After a SLAT is created, you can make the most of the lifetime tax exemption. This article reviews some important factors to consider in deciding whether a SLAT is the right idea for you.
# 1 – SLATs Let You Take Advantage of The Estate Tax Exemption
SLATs allow people to take advantage of the large estate tax exemption which helps to increase what a person can pass on an estate tax-free in case the exemption is later reduced. This advantage, however, only comes into play for estates that are worth more than $12 million. If you don’t use the high exemption rate before the end of 2025, more of your estate will ultimately be subject to estate taxes.
# 2 – SLATs Can Be Helpful for Asset Protection
Because SLATs involve placing assets into an irrevocable trust for the benefit of another individual, SLATs are not considered the creator’s assets in situations like bankruptcy or litigation. Furthermore, if you use an independent trustee who has discretion over the distribution of assets, these funds might also be protected from a spouse’s creditors.
# 3 – Utilizing a SLAT Can Lead to Loss of Asset Control
If your spouse passes away, you no longer have access to the assets in the SLATs. Instead, assets in a SLAT are passed to the designated remainder beneficiaries. Another situation where assets in a SLAT are lost is if you and your spouse divorce and the former spouse is still a beneficiary of the trust. While it’s possible to draft the possibility of divorce into the terms of a SLAT, not everyone remembers to do this.
# 4 – Both Spouses Can Create Trusts
Both you and your spouse might decide to create spousal lifetime access trusts so that both of you benefit. In these situations, however, spouses must make sure that the trusts are distinguished from one another. This is because if the trusts are too similar, the Internal Revenue Service (IRS) can assume the perspective that the trusts cancel each other out. In this situation, the IRS would then view the trusts as negating your estate planning. Some ways that spouses distinguish between trusts include creating the trusts are different dates, having different trustees, and vary distributions to the trusts.
Obtain the Assistance of an Experienced Estate Planning Attorney
Estate planning is a critical but complex issue. To make sure that you have the best estate plan possible, it can help to speak with an experienced estate planning lawyer. Contact Ettinger Law Firm today to schedule a free case evaluation.