Reduced Estate Tax Exemption Solution
Estate taxes have not been a real concerned for most clients for the past several years. With a current estate tax exemption of $11.58 million per individual the tax did not apply to all but the wealthiest of individuals. See https://www.forbes.com/sites/ashleaebeling/2019/11/06/irs-announces-higher-estate-and-gift-tax-limits-for-2020/#4a700f872efb. The risk of estate taxes could take a significant turn under a new political administration. Under the Biden plan, the estate tax exemption would be reduced by 50% to $5.79 million per individual. See https://www.kitces.com/blog/biden-tax-plan-cuts-democrat-proposal-capital-gains-396-increase-estate-exemption-retirement-credit/. For married couples with a taxable estate, the Spousal Lifetime Access Trust (“SLAT”) may be the answer to passing the maximum amount estate tax free while also retaining some access to the asset placed into the SLAT.
Taking Advantage of 2020 Gifting
With a decreasing estate tax exemption on the horizon, families with larger estates should consider taking advantage of the larger exemption available to them during 2020. By making completed gifts during 2020 they can ensure that they will pass those assets free of the onerous 40% estate tax. The Internal Revenue Service (“IRS”) has provided the tax payer with certainty, by indicating they will not attempt to claw back gifts in the event the estate tax exemption deceases in the future. See https://www.forbes.com/sites/ashleaebeling/2018/11/21/irs-hands-the-rich-certainty-on-trump-estate-tax-sweetener-no-clawback-on-huge-gifts/#749081a034b2. A married couple could use a SLAT to transfer money out of their estate but still maintain some access to the funds placed in the SLAT throughout one of their lifetimes.
Spousal Lifetime Access Trust
A SLAT is an irrevocable trust established by one spouse on behalf of the other spouse. Unlike many trusts established for a spouse, the SLAT is established while both spouses are still living. The spouse creating the SLAT is giving up all ownership and rights to the assets that are being irrevocably transferred into the trust. See https://www.wealthenhancement.com/blog/spousal-lifetime-access-trust. The spouse creating the SLAT uses his or her estate tax exemption in establishing the trust for their spouse. You can draft the language in the SLAT to grant the beneficiary spouse, or even your children or grandchildren, wide or narrow access to the SLAT assets. See https://www.wealthenhancement.com/blog/spousal-lifetime-access-trust. Thus, you do not completely lose access to the assets in the event your family needs them.
SLAT Benefits
The use of a SLAT can have several benefits during the grantor spouse’s lifetime. It permits the grantor spouse to take full advantage of their larger estate tax exemption without giving up complete access to the assets held in the SLAT. See https://www.wealthenhancement.com/blog/spousal-lifetime-access-trust. Further, the appreciation associated with the assets placed into the trust are outside of both spouses’ estates for tax purposes. See https://www.natlawreview.com/article/slats-spousal-lifetime-access-trusts. If the family does not need access to the trust assets, those assets are allowed to grow eventually passing more assets estate tax free to their heirs. The SLAT can also act as an asset protection device. Since the grantor spouse has relinquished all their interest in the assets placed into the SLAT, those assets will no longer be subject to their creditors. Additionally, if the SLAT is designed with an independent trustee that makes discretionary distributions from the trust to the beneficiary spouse, the SLAT assets would not be available to the beneficiary spouse’s creditors either. See https://www.wealthenhancement.com/blog/spousal-lifetime-access-trust.
Educating You About Options
If you or your family are struggling with any Estate Planning or Probate concerns, make an appointment with the experienced St. Charles Estate Planning Attorneys at Jones Elder Law. That way, you can decide what happens to the assets you worked so hard to acquire. If we can help guide you, contact our St. Charles Estate Planning Law Firm at (636) 812-2575 and ask to schedule a call or virtual consultation, what we call a Vision Meeting http://joneselderlaw.com/vision-meeting/. For your safety and ours we have developed the Minimal Contact Planning process to be used while the Covid-19 virus remains a concern.
