Building a spousal lifetime access trust

By diamondcpas Estate Planning No Comments on Building a spousal lifetime access trust

Let’s discuss Spousal Lifetime Access Trusts, otherwise known as SLATs.

Establishing one can be complex and designing one to meet your particular needs will most certainly require an estate planning expert, but doing so could be quite beneficial for your financial future.

A Spousal Lifetime Access Trust  is an irrevocable trust that can own permanent life insurance and/or other assets. A SLAT permits the non-insured spouse to have access to the trust for distributions of principal and income during the spouse’s lifetime, while continuing to protect the death benefit in the grantor’s estate.

Many financial experts agree that an irrevocable trust can be an excellent way to offer controlled asset distribution to heirs, while also keeping the trust funds free from the grantor’s taxable estate. However, a significant concern is that in order to accomplish these goals, the trust must be irrevocable and the grantor cannot directly receive any benefits from the trust. In fact, the grantor has very little control over the SLAT, so it’s understandable why many people may not be interested in a vehicle that has such restrictions and limits on the oversight of a large part of their wealth.

A SLAT can help you reduce the risk associated with changes to the estate and gift tax laws and be an important part of your estate planning. Since planning around legacy assets is centered on maximizing your wealth to enhance the lives of people you care about and direct your money toward causes and interests that matter to you, you want to ensure that you – and your money – are protected.

Current laws may influence legacy planning, as the transfer tax exemption could change significantly in the coming years. Currently, a person can transfer up to $11.7 million without the incurring gift or estate taxes. That state of affairs could change if Washington reduces that amount to $3.5 million. Regardless, in 2026, the $11.7 million will be cut in half.  That is when the provision created in the 2017 Tax Cuts and Jobs Act (TCJA) will expire. That is among the reasons why SLATs can be valuable for taking advantage of the present tax laws in place.

Additionally, tax advisors say, the best way to address potential tax law changes, is to separate one’s assets between what they expect to spend during their lives – “lifetime assets” – and those they don’t anticipate spending – “legacy assets.”

Be advised that a SLAT is best-suited for those who have a partner with similar, if not exactly the same, economic interests.

As always, we are here to help you determine whether a Spousal Lifetime Access Trust would make sense for your estate plan and we can work with you on all of your financial and tax planning needs.

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