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Now May Be the Time to Consider a SLAT

Now May Be the Time to Consider a SLAT

With the pending election and potential tax law modifications based on the outcome, high net worth married couples should consider scheduling a meeting with their advisors to determine what they can do to prepare for this possibility. One strategy worth consideration is funding a Spousal Lifetime Access Trust, commonly referred to as a SLAT.

In its simplest form, a SLAT is a gift from one spouse to an irrevocable trust for the benefit of the other spouse. Unlike other types of credit shelter trusts, a SLAT is funded by a gift while both spouses are still living. The beneficiary spouse can receive distributions from the SLAT even though it is designed to be excluded from the beneficiary spouse’s gross estate and not be subject to estate tax when the beneficiary spouse dies.

The SLAT will not qualify for the gift tax marital deduction, which prevents the value of the SLAT assets from being included in the beneficiary spouse’s gross estate. This allows the donor spouse’s exemption from the gift and estate tax to be applied to the value of the assets transferred to the SLAT, sheltering the transfer from gift tax.

The reason why it’s a good time to take advantage of a SLAT is because there could be a decrease in the federal gift and estate tax exemption, which is currently at $11.58 million per person or $23.16 million for a married couple. For example, if a President Biden and Democrat-controlled Congress passed tax legislation some time in 2021 that lowered the exemption to $3.5 million per individual (a number that has been mentioned), this could be made retroactive to the beginning of the year. But if the SLAT was funded in 2020, you will not be adversely affected when/if the amount is decreased.

Can both spouses do SLATs at the same time? Under the Reciprocal Trust Doctrine, if a husband and wife create two identical or substantially similar SLATs for the benefit of each other, the SLATs may be subject to estate tax in both the wife’s and husband’s estates. In order to avoid this, the SLATs must not simply be duplicated, even if it saves legal fees. They need to be unique trusts, and possibly have different beneficiaries, trustees, rights, and powers of appointment, and be created at different times.

There are many pros and cons of SLATs to take into consideration. It is best to talk to your estate planning attorney to see if this is the right vehicle for you to take advantage of the favorable estate and gift tax exemption. Just know there is a chance your window may close at the end of this year so don’t wait much longer.

©2020 SVA Financial Group

All information herein has been prepared solely for informational purposes only and opinions are subject to change. Past performance is not indicative of future results and all investments involve the risk of loss of principal. For information on how these general principles apply to your situation, consult an investment professional.

Article Topic Specialist: Chris Ponteri, MBA

Chris is a Wealth Manager with SVA Wealth Management and a Trust Officer with SVA Trust Company, LLC. Chris has over 18 years of experience in the trust industry. He specializes in post-death administration of estates and trusts.

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