At The Floyd Law Firm PC, we understand that estate planning is about preparing for the future—and with potential changes to estate and gift tax laws on the horizon, now is the time to take action. One powerful strategy to consider is a Spousal Lifetime Access Trust (SLAT), a tool designed to help high-net-worth families protect their assets and reduce future tax liabilities.
The 2017 Tax Cuts and Jobs Act (TCJA) significantly increased the federal estate tax exemption to $13.61 million per individual. However, this provision is set to “sunset” at the end of 2025, potentially halving the exemption to around $7 million unless Congress extends it. This uncertainty has many families seeking ways to secure today’s favorable tax benefits before they potentially vanish.
A SLAT is one such strategy, offering a unique combination of tax advantages and financial flexibility. A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust created by one spouse (the grantor) for the benefit of the other spouse and potentially other family members, such as children or grandchildren.
How a SLAT works:
- Funding the SLAT: The grantor transfers assets—such as cash, stocks, or business interests—into the SLAT. Once transferred, these assets are removed from the grantor’s taxable estate, reducing future estate tax liability.
- Tax Benefits: By establishing the SLAT before the TCJA sunsets, families can secure today’s higher exemption limits. This makes it a “use it or lose it” opportunity for significant tax savings.
- Spousal Access: The non-grantor spouse can receive distributions from the trust for health, education, and living expenses, providing financial flexibility while keeping the assets protected.
While SLATs offer many advantages, there are some risks to keep in mind:
- Irrevocability: Once a SLAT is created, it cannot be undone because it is because it is an irrevocable trust.
- Death or Divorce: If the non-grantor spouse dies or the couple divorces, the grantor loses indirect access to the trust assets.
- Reciprocal Trust Doctrine: If both spouses create SLATs for each other, the IRS may view them as reciprocal trusts, pulling the assets back into the estate. Careful structuring can aim towards mitigating this risk.
A SLAT can be a valuable tool for families looking to preserve wealth amid changing tax laws. It’s especially beneficial for those seeking to secure today’s higher tax exemption rates before they expire. However, because SLATs are irrevocable and come with potential risks, it’s essential to work with an experienced attorney to determine if this strategy aligns with your financial and family goals.
At The Floyd Law Firm PC, our skilled attorneys specialize in estate planning, wills, and trusts – including strategies like SLATs to help protect your assets and secure your legacy. Together, we’ll develop a customized plan to help you safeguard your family’s future.
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