Trusts offer many advantages: avoiding probate, managing distribution of assets, and ensuring that your wishes are carried out after your death. However, you might wonder if there are any benefits trusts provide to the living? The short answer is “Yes.” Texas trust attorneys have been working diligently to advise clients about the merits of Spousal Lifetime Access Trusts. Spousal Lifetime Access Trusts (SLATs) provide the same flexibility and asset protections as traditional trusts, but offer added opportunity to maximize the federal estate tax exemption, benefitting you and your family before your passing.
What Are Spousal Lifetime Access Trusts (SLATs)?
Spousal Lifetime Access Trusts are irrevocable trusts created for the benefit of one spouse by the other. The spouse establishing a SLAT makes a gift to the SLAT under the federal gift tax exemption. While the donor spouse gives up rights to the gifted property, the beneficiary spouse has access to the gifted property.
How Much Can I Transfer Into Texas SLATs?
The asset value transferable into a SLAT is governed by a federal lifetime gift tax exemption, not by individual states. You may transfer up to $11.2 million under the gift tax exemption until 2025. In 2025, the federal lifetime gift tax exemption will decrease to $5.6 million.
How Does A Spousal Lifetime Access Trust Benefit My Beneficiary?
Assets gifted to the SLAT are fully accessible by the beneficiary of the trust. The assets may be used as financial support while simultaneously being sheltered from federal gift and estate taxes. Further, any growth on the assets is also protected against estate and gift taxes.
How Do I Benefit From a Spousal Lifetime Access Trust?
SLATs offer several benefits to donor spouses considering transferring wealth and assets under the gift tax exemption:
- Taxable Estate Reduction: Gifting assets into a SLAT reduces the donor spouse’s taxable estate during his or her lifetime.
- Shared Funds: A donor spouse benefits from their SLAT when the beneficiary spouse withdraws and shares assets with the donor spouse.
- Wealth Management: SLATs are a useful means to consolidate and manage family wealth. By redistributing wealth into a SLAT under the federal gift tax exemption, assets grow free from taxation, including future estate and generation-skipping transfer taxes.
Are There Drawbacks to Spousal Lifetime Access Trusts? 6 FAQ’s
While SLATs can be a very sound estate planning option when appropriately prepared, there are always pros and cons. The biggest drawback to using a SLAT as part of your overall wealth management and estate plan is that you are relinquishing control of your assets to another person…our spouse. A second concern would be triggering an audit by the IRS.
Frequently asked questions regarding SLAT’s:
- What happens to the assets in my SLAT if my spouse and I divorce?
- What if my spouse predeceases me?
- Can my spouse and I set up individual SLATs naming each other as beneficiaries?
- What is the Reciprocal Trust Doctrine?
- Will my spouse and I be accused of tax evasion if we have SLATs?
- What are the best practices for transferring assets into my SLAT?
What your Texas Trust Attorney Can Do For You
Spousal lifetime access trusts offer attractive benefits to donor spouses and their beneficiaries and are worthy of strong consideration in wealth management. However, as with any financial or estate plan, there is no perfect tool.
If you reside in Texas, many factors must be considered when establishing a trust. State and federal tax laws are subject to constant change, and understanding how they affect your financial legacy is a challenge.
You will need the expert guidance of an experienced Texas trust attorney to review your options and determine if a spousal lifetime access trust is a good fit for you. Contact the Law Office of Carey Thompson today to schedule a consultation.