Arizona Estate Planning

Spousal Lifetime Access Trusts: What You Should Know

No one wants to pay more taxes than they have to. To carry out this objective, many people search for the perfect estate planning tool that will allow them to control as much of their money and property as possible while reducing the amount they or their loved ones will have to pay the government. If you have looked for the tax-saving estate planning tools, chances are you might have come across the spousal lifetime access trust (SLAT). Here are some important things you should know before you settle on this tool as your estate planning solution.

What is a spousal lifetime access trust?

A SLAT is a type of irrevocable trust created by one spouse (trustmaker spouse) for the benefit of the other spouse (beneficiary spouse) that is used to transfer money and property out of the trustmaker spouse’s estate. This strategy allows married couples to take advantage of their lifetime gift and estate tax exclusion amounts by having the trustmaker spouse make sizable, permanent gifts to the SLAT that decrease the value of their estate while maintaining some limited access to the money and property that is gifted for the beneficiary spouse’s benefit.

How does it work?

The trustmaker spouse gifts money or property (of which they are the sole owner) to the SLAT for the benefit of the beneficiary spouse. If the couple resides in a community property state, they will likely need to convert community property into separate property through a partition agreement. The trustmaker spouse reports the gift on a gift tax return. The beneficiary spouse can receive distributions from the trust, from which the trustmaker spouse may also indirectly benefit. Upon the death […]

Wealth Transfer Strategies to Take Before Congress Reduces the Estate Tax Exemption Amount

Democrats want to return federal estate taxes to their historic norms, which means taxpayers need to act now before Congress passes legislation that could adversely impact their estates. Currently, the federal estate and gift tax exemption is set at $11.58 million per taxpayer. Assets included in a decedent’s estate that exceed the decedent’s remaining exemption available at death are taxed at a federal rate of 40 percent (with some states adding an additional state estate tax). However, each asset included in the decedent’s estate receives an income tax basis adjustment so that the asset’s basis equals its fair market value on the date of the decedent's death. Thus, beneficiaries realize capital gain upon the subsequent sale of an asset only to the extent of the asset’s appreciation since the decedent’s death.

If the Democrats get control of the Senate it could mean not only lower estate and gift tax exemption amounts, but also the end of the longtime taxpayer benefit of stepped-up basis at death. To avoid the negative impact of these potential changes, there are a few wealth transfer strategies it would be prudent to consider before the year-end.

Spousal Lifetime Access Trust

With the threat of a lowered estate and gift tax exemption amount, a spousal lifetime access trust (SLAT) allows donors to lock in the current, historic high exemption amounts to avoid adverse estate tax consequences at death. The donor transfers an amount up to the donor’s available gift tax exemption into the SLAT. Because the gift tax exemption is used, the value of the SLAT’s assets is excluded from the gross estates of both the donor and the donor’s spouse. An independent trustee administers the SLAT for the […]