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Estate tax planning can become complicated when multiple parties are involved. For example, you may be concerned about providing assets to a surviving spouse of a second marriage, while also providing for your children from your first marriage. Of course, you also want to take advantage of favorable estate tax provisions in the law.<\/p>\n
Fortunately, there\u2019s a relatively simple way to meet your objectives with few dire tax consequences. It\u2019s commonly called a spousal lifetime access trust (SLAT).<\/p>\n
A SLAT in action<\/strong><\/p>\n Essentially, a SLAT is an irrevocable trust established by a grantor spouse for the benefit of the other spouse \u2014 called the beneficiary spouse \u2014 plus other family members, such as children and grandchildren. The beneficiary spouse is granted limited access to the trust\u2019s funds. As a result, the assets generally are protected from the reach of the beneficiary spouse\u2019s creditors. This ensures that the remainder beneficiaries \u2014 namely, the children and grandchildren \u2014 will have a nest egg to rely on.<\/p>\n According to the SLAT terms, lifetime distributions are made to the beneficiary spouse to meet his or her needs. Preferably, if other funds are available to the beneficiary spouse outside of the trust, those funds are used first instead of making regular distributions to the spouse. Otherwise, distributions from the SLAT to the beneficiary spouse will reduce the trust\u2019s effectiveness over time.<\/p>\n Favorable tax provisions <\/strong><\/p>\n One of the primary attractions of a SLAT is that it\u2019s designed to minimize federal tax liabilities. First, the transfer of assets is treated as a taxable gift, but it can be sheltered from gift tax by a combination of the annual gift tax exclusion ($16,000 for 2022) and the gift and estate tax exemption ($12.06 million for 2022). However, be aware that use of the exemption during the grantor spouse\u2019s lifetime reduces the available estate tax shelter at death.<\/p>\n Second, assets transferred by the grantor spouse to a SLAT are removed from his or her taxable estate. Thus, estate taxes aren\u2019t a concern, thereby allowing the remaining estate tax exemption to be used for other assets.<\/p>\n Third, a SLAT is considered to be a \u201cgrantor trust\u201d for income tax purposes. In other words, when a grantor spouse establishes a SLAT for the benefit of the beneficiary spouse, the trust\u2019s taxable income is reported on the grantor\u2019s personal tax return, but the trust entity pays zero tax. This may be advantageous because the assets can compound inside the trust without any income tax erosion. On the death of the grantor spouse, the trust is required to pay income tax.<\/p>\n Other planning considerations<\/strong><\/p>\n As mentioned above, the transfer of assets to a SLAT is a gift, so the grantor must file a federal gift tax return. Finally, don\u2019t forget that a SLAT is an irrevocable<\/em> trust. Thus, once the grantor spouse transfers assets to the trust, he or she can\u2019t get them back.<\/p>\n If you\u2019re considering using a SLAT, contact us for additional details.<\/p>\n \u00a9 2022<\/em><\/p>\n <\/body> Estate tax planning can become complicated when multiple parties are involved. For example, you may be concerned about providing assets to a surviving spouse of a second marriage, while also providing for your children from your first marriage. Of course, you also want to take advantage of favorable estate tax provisions in the law. Fortunately, […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,48,10],"tags":[8,11,12],"class_list":["post-15958","post","type-post","status-publish","format-standard","hentry","category-articles","category-estate-planning","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15958","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=15958"}],"version-history":[{"count":0,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/15958\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=15958"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=15958"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=15958"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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