While many wealthy clients find the current transfer tax exemption levels for estate and gift taxes to be very favorable being that they are the highest they have ever been (i.e. $11.18 million per individual, or $22.36 million per couple, for 2018-2025), it is important to prepare for a possible ‘fiscal cliff’ when these exemption amounts sunset in 2025.
This transfer tax exemption exempts both transfers at death and transfers made during life from estate and gift taxes, so there is ample opportunity for wealthy clients to shield a large portion of their estates from taxation. But like the saying goes, all good things must come to an end.
One strategy married couples may want to consider is the spousal lifetime access trust (SLAT). A SLAT is a type of irrevocable trust that allows a client to remove assets from his or her estate while also maintaining access to those assets during life since his or her spouse is the beneficiary. There must be an independent trustee and the reciprocal trust doctrine requires you to ensure that the two SLATs are not identical. This can be easily accomplished by naming different trustees and/or slight modifications on how to access the trust assets.
The SLAT strategy allows the client to retain a degree of control over the assets, while keeping the assets out of the reach of his or her creditors.
The uncertainty created by the 2017 tax reform has created the need for the very wealthy to plan to minimize their potential taxable estates. A SLAT is one technique that can provide a solution for clients who anticipate needing access to the assets placed in an irrevocable trust. For more information on estate planning in the Greater Baltimore area, please contact Stouffer Legal at 443-470-3599.