Many clients, including high-net-worth individuals, often worry about the impact of taxes on their estates. Tax laws change regularly with the political landscape, and frequent updates to tax shield strategies should be considered. The 2017 Tax Cuts and Jobs Act protected estates with a number of tools to shield and exempt against taxation. However, this law sunsets, or expires, at the end of 2025. One tool enabled by the law is the creation of a Spousal Lifetime Access Trust, or SLAT, designed to transfer assets between spouses in a way that protects against tax liability. Read on for more on SLATs and how you can take advantage of these estate planning tools now.
What is a Spousal Lifetime Access Trust?
A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust, which means the grantor or creator of the trust cannot change or end the trust after creating it. In a SLAT, one spouse—the “donor spouse”—creates the trust for the benefit of the other spouse, or “beneficiary spouse.” The spouse does this by using their gift tax exemption, which is an amount that varies each year, to fund the trust with a gift. The property or assets placed in the trust are then accessible by the beneficiary, though multiple structures exist that can allow children or grandchildren to benefit. The funding of the trust up to the gift tax exemption cap allows the trust to avoid probate and estate taxes, preserving value for the grantor’s family and beneficiary.
Protecting Your SLAT
In 2022, the maximum possible gift tax exemption is $12,060,000. This means a spouse could fund a SLAT in this amount without that portion of their estate is taxable. The assets should not be jointly owned by both spouses. If the assets appreciate in value, that appreciation is also considered outside of your taxable estate. The SLAT assets could also continue to grow tax-free if not distributed or withdrawn by the beneficiary spouse, which could then go to the next generation if also named as current or remainder beneficiaries.
But this relatively high exemption amount will not stick around for long. At the end of 2025, the gift tax exemption will drop to around $6 million, less than half of what it is today. In addition, Congress has the ability to lower the gift tax exemption cap even before 2022. Furthermore, since assets in a SLAT may appreciate without incurring taxation, selecting assets that may grow in value can help preserve this growth for years to come. To fully take advantage of a SLAT, families should contact an experienced estate planning attorney today to discuss options for structuring.
Reach Out to a Colorado Estate Planning Attorney for Help with Your Estate Plan
If you and your spouse are interested in protecting your assets for each other and your family, consider setting up a SLAT today to protect your assets. The Boulder estate planning attorneys are Braverman Law Group have many years of estate planning experience in the Boulder area and beyond. To schedule a free, no-obligation consultation with one of our trusted attorneys, give us a call today at (303) 800-1588.