Monday, November 13, 2023
Estate planners are advising wealthy individuals to utilize the current high lifetime gift and estate tax exemption of $12.92 million before it potentially decreases to around $7 million by the end of 2025. To do so, individuals are urged to employ sophisticated strategies despite the apprehension that comes with transferring a significant amount of wealth to another person's ownership or control. This includes considering spousal lifetime access trusts (SLATs).
SLATs are irrevocable trusts where an individual sets up a trust for their spouse as the primary beneficiary, with children or grandchildren as beneficiaries after the spouse's passing. This allows the individual to remove assets from their estate while retaining a potential avenue to access the assets in the future through the spouse. SLATs must be funded with assets owned solely by the individual, and they help shield both the assets and future growth from estate taxes. However, challenges arise in the case of divorce, as SLATs are irrevocable, and the trust continues for the benefit of the ex-spouse, with the original creator still responsible for taxes on trust income.
For more information see Karen Hube “What the Wealthy Can Do to Prepare for the Expiration of Today’s High Estate Tax Exemption”, Barrons PENTA, November 7, 2023.
Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.