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Using a Spousal Lifetime Access Trust (SLAT) while the Estate Exemptions are high!

| May 26, 2021

There has been much ado over the tax proposal from Biden’s camp making its way through the congressional chambers. Whether or not all those measures being proposed will actually come to fruition is still to be determined. Currently you are allowed to pass $11.7 million, per spouse, to your heirs estate tax free, but these exemptions could revert back to $3.5 million per spouse under the new tax proposal.

Lots of questions are circling around as to what will the ultimate estate tax exemption amounts be? When will they take effect? Can they retroactively make it effective at the beginning of a prior calendar year? Most likely they will not all be implemented but likely there will be changes and those changes are not expected to be favorable to the higher net worth families. Looking ahead at possible scenarios and planning for how these modifications is the best course of action.

There are pros and cons to each estate planning strategy but one particular strategy that has come to light and looking more advantageous lately, is the Spousal Lifetime Access Trust or SLAT. This type of trust allows one spouse (the donor spouse) to make a gift of stock or other assets to the other spouse via the trust (SLAT). The gift moves money out of the couple’s taxable estate, allowing the transferred assets to grow in value free of future estate taxes. This is technically an irrevocable gift which allows one of the spouses to use up the current high gift exemption amount, up to $11.7 million per spouse. This is important because if the gift amounts go back to a lower level, the gift at a higher exemption amount is already locked in. Doing so will allow you to pass more of your hard-earned estate to your heirs free of estate taxes, potentially saving your heirs millions.

This type of strategy can be great for married couples who want to take advantage of the increased exemption but are not sure they can irrevocably part with so much of their wealth. This irrevocable gift into the SLAT still allows the beneficiary spouse to receive distributions of income and or principal. While this income is received by the beneficiary spouse, the donor spouse indirectly receives it as well. So, though this is an irrevocable gift it allows both spouses to enjoy the income from it if needed!

The information provided here is for general information only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.