Benefits of a Spousal Lifetime Access Trust
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n the era of high exemptions from the Federal gift and estate tax, the spousal lifetime access trust (SLAT) has become a popular transfer tax savings strategy employed by married couples. The Tax Cuts and Jobs Act of 2017 increased the 2021 federal estate and gift exemption amount to $11.7 million. In 2017, prior to the Tax Cuts and Jobs Act, the Federal estate and gift exemption amount was $5.49 million. Generally speaking, a married couple can transfer $23.4 million before paying estate and gift taxes. Unless congress takes further action, the exemption amount is set to sunset (revert) back to the pre-2018 exclusion levels (indexed for inflation) after December 31, 2025. The Treasury Department has issued regulations confirming that should the estate and gift
tax exemption revert to pre2018 levels, taxpayers who take advantage of the increased exemption amount during the time it is available will not be adversely affected when the exemption amount returns to $5 million (indexed for inflation) after December 31, 2025. The prospect of a 2026 sunset of the higher exemption amount, as well as political uncertainty in the United States (such as after a congressional or presidential election, which could accelerate a reduction in the exemption amount), has prompted many families to look for ways to use the increased exemption amount before it decreases. For married persons who want to take advantage of the increased exemption from the estate and gift tax but are not sure that they can irrevocably part with so much wealth, a SLAT (Spousal
Lifetime Access Trust) may be an appropriate solution. A SLAT allows the donor spouse to transfer up to the donor spouse’s available exemption amount without a gift tax. When the donor spouse dies, the value of the assets in the SLAT is excluded from the donor spouse’s gross estate and are not subjected to the Federal estate tax. However, because the donor spouse will have used the exemption amount to shelter assets transferred to the SLAT from the Federal gift tax (so that the exemption amount
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used is no longer available to shelter assets in the donor spouse’s estate from estate tax), it is the appreciation on the assets in the SLAT that truly escapes Federal estate tax. Because there is no “claw back,” any exemption amount used when the trust was funded over the exemption amount allowed at the time of the donor spouse’s death should also escape Federal estate tax. Of course, there are more details to this strategy, so please contact us to discuss. Your family could benefit for generations to come.
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1 0 1 P L A N TAT I O N C H A S E , S T. S I M O N S I S L A N D , G A 3 1 5 2 2 912.638.9031 • schellhogan.com
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DECEMBER 2021
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