Estate planning is about so much more than a will, although that can be an important part of an estate plan. Trusts, for instance, may be much of a mystery to most, but remain valuable legal tools when properly implemented in the right estate plan. Trust types and purposes, however, can widely vary and it can be overwhelming trying to figure out what the right fit for your individual circumstances may be. A SLAT, for instance, may not be something you have ever heard of, but this type of trust has many potential benefits that you may want to consider.
What is a SLAT?
A Spousal Lifetime Access Trust, or SLAT, is a rather popular estate planning tool employed by married couples. With a SLAT, the donor spouse makes a gift to an irrevocable trust for the benefit of the beneficiary spouse. In contrast with credit shelter trusts or bypass trusts, SLATs are funded by gifts made while both spouses are still alive. To reap the full benefits a SLAT must be properly structured, properly funded, and must be irrevocable. Without all of this, you risk missing out on the many benefits, particularly the tax benefits, of establishing a SLAT.
During his or her lifetime, the beneficiary spouse is able to receive distributions from the SLAT. When the beneficiary spouse dies, however, the assets held within the SLAT will not be included in his or her gross estate and, thus, not incur estate tax liability. In fact, a properly structured SLAT, will not be included in the taxable estate of either the beneficiary or the donor spouse upon their deaths. You see, a gift from the donor spouse to the SLAT will be considered a taxable gift. The donor spouse will, therefore, have to use a portion of his or her lifetime transfer tax exemption in order to shelter transfers to the SLAT from gift tax liability. Furthermore, gifts made to the SLAT must be reported on a federal gift tax return. Despite the potential tax liability for a gift made above the gift tax exemption limit for lifetime transfers, a SLAT can still result in significant tax savings.
Not only will assets transferred to the SLAT escape estate tax liability, but the appreciation on assets held in the SLAT will escape taxation. With so much discussion about potential lowering of the federal estate tax exemption amount as well as proposed increases in the federal estate tax rate, a SLAT may become an even more attractive option for married couples worried about this kind of tax liability. There is no claw back if you put a SLAT in place right now and transfer assets accordingly. Any exemption amount used at the time the trust is funded when the exemption amount was higher should escape federal estate tax consequences.
Estate Planning Attorney
If you are interested in learning more about your estate planning options, the knowledgeable team at Verras law is here for you. Contact Verras Law today.