According to a recent article from Think Advisor, the most common estate planning technique used in 2020-2021 was the Spousal Lifetime Access Trust (SLAT). The SLAT has become increasingly popular for married couples at or above the current estate planning exemption level, as described in the article “9 Reasons This Popular Trust Isn’t Just for the Super-Wealthy.”
SLATs allow couples to move assets out of their estates and, in most cases, out of the reach of creditors and claimants. Each spouse can still access the assets, making the SLAT a valuable tool for retirement.
In the past, SLATs were not used as often for clients with $1 million to $10 million in net worth. However, the SLAT accomplishes several objectives: optimizing taxes, protecting assets from creditors, and addressing concerns related to aging.
SLATs are an excellent way to secure estate tax exemptions. Various proposals to slash the current estate tax exemptions before the sunset date (see below) make SLATs an attractive solution.
There has been some talk in Washington and the Treasury about restricting Grantor Trusts. The SLAT eliminates concern about any future changes to these trusts.
When the 2017 tax overhaul expires in 2026, Congress will effectively cut the gift, estate, and generation-skipping trust exemption in half. Now is the time to maximize those exemptions.
There may be a significant movement to act as 2026 draws closer and SLATs become a tool of choice. Before the wave hits and Congress reacts, it would be better to protect assets in advance.
Each spouse contributes assets to a SLAT trust. One spouse names the other as a beneficiary. This technique removes assets from the taxable estate, securing the exemption before 2026, and you also protect assets from claimants and creditors.
Even if your current estate doesn’t meet the high threshold of today, if it might reach $6 million in 2026, having a SLAT will add protection for the future.
A trustee can distribute funds and income to a beneficiary in a no-tax state, saving state tax income tax, or the trust may be formed in a no-tax state and possibly avoid the grantor’s high home state income tax.
Many people don’t think about asset protection until it’s too late. By starting now, when assets are below $10 million, asset protection can grow as wealth grows.
Depending on their financial situation, a couple may be able to use a SLAT trust and avoid the need for other trusts requiring annual gifts and Crummey powers. The SLAT may also eliminate the need to have a trust for their children.
Book a call with your estate planning attorney to learn if a SLAT is appropriate for your family, now and in the near and distant future. These complex legal instruments require skilled professional help in assessing their value to your estate.
Reference: Think Advisor (Nov. 16, 2022) “9 Reasons This Popular Trust Isn’t Just for the Super-Wealthy.”
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