Are you and your spouse contemplating removing some of your assets from your taxable estate? A well liked estate planning tool for married couples to utilize would be a Spousal Lifetime Access Trust (SLATs), and it may be a good choice for you and your spouse. With a SLAT you and your spouse would be able to remove assets from your taxable estate, and also be able to preserve access for one of the two of you during your lifetime. An appealing feature is that assets placed into a SLAT are not subject to federal estate tax, but setting up a SLAT requires time and administrative costs. Also, you and your spouse should be aware of the limitations on the money you put into the SLAT before you make the commitment. Let us discuss more of the important details about SLATs.
First you and your spouse, when creating a SLAT, must decide which of the two of you will be the donor spouse and which will be the recipient spouse. The responsibility of the donor spouse is to make a gift of money, securities, or other assets to the trust. The trust is considered irrevocable, which means that once the donor puts in the money, the donor loses all direct access to and control over the funds.
Now that the gift is made, the assets are considered removed from the marital estate of you and your spouse. In fact, the assets will not be subject to estate tax at the end of both your lifetime and your spouse. Be aware, though, only the recipient spouse can access the money in the trust. The donor spouse retains some benefit, because the recipient can be given money from the trust to spend on their living expenses, in which they would both benefit. The donor, however, cannot make any direct request or receive a distribution.
The most important benefit to a SLAT may be the removal of the assets from within the couple’s taxable estate. Are you and your spouse concerned that your estate may approach either your state’s estate tax exclusion, or the federal limits? Then a SLAT would be a good option for you and your spouse to avoid this. In addition, a SLAT can be a tool to use in your legacy estate planning. When you and your spouse name your children or grandchildren as secondary beneficiaries of your SLAT, when the recipient spouse passes away, they receive principal or income from the trust without being subject to federal gift and estate tax.
However, the biggest downside may be that, as an irrevocable trust, SLATs cannot be terminated if you and your spouse separate or divorce. If this happens, the recipient retains full benefits from the trust, and the donor spouse receives nothing. Therefore, it may make more sense for a long-married couple on their first marriage to choose this type of trust.
At David H. Jacoby Elder Law Advocate, P. A., we are focused on providing thorough, ethical, and timely solutions for our clients and their loved ones. We encourage you to contact us and schedule a meeting with us.