With President Biden’s inauguration, many Americans are wondering if the estate and gift tax exemption will revert to a lower level, as well as what they can do to protect their assets. While there are many Houston estate planning options for individuals to shelter funds from the estate tax, SLAT trusts may be the right option for married couples. Because most Texans are unaware of a Texas SLAT—and how it could benefit them—below are the common questions and explanations of why a SLAT might help their loved ones.
What Is a SLAT Trust, and What Are Its Benefits?
A Spousal Lifetime Access Trust (SLAT) is a gift from one spouse to an irrevocable trust for the other spouse’s benefit. When creating a SLAT, one spouse gifts funds to an irrevocable trust for the other spouse to access once they have passed away. A person creates a SLAT for their spouse to allow them to (i) receive assets up to the federal estate tax exemption; and (ii) prevent the value of the trust from being included in the surviving spouse’s gross estate tax when the spouse dies. The spouse that benefits from the SLAT—often called the beneficiary spouse—can receive assets that are sheltered from the gift tax.
For married couples who are unsure about parting with a great deal of their wealth—but still want to benefit from the current exemption from the estate and gift tax—a SLAT might be right for them. However, a SLAT must be an irrevocable trust, so the donor spouse must forever part with the assets going into the trust. But depending on the terms of the SLAT, the beneficiary spouse may be able to access the transferred assets if need be, even before their spouse’s death.
What is the Gift and Estate Tax?
The Tax Cuts and Job Act of 2017 increased the federal gift and estate tax that individuals must pay if the value of their estate exceeds a certain amount. Before this law, the exemption was $5.49 million; however, the exemption is currently $11.58. This means that a married couple could transfer money to a SLAT—which is meant to be excluded from the beneficiary spouse’s gross estate and not subject to the estate tax—before having to pay a gift or estate tax. However, President Biden is expected to lower this exemption in the near future.
Because of this, individuals interested in creating a SLAT should do so as soon as possible. For individuals who take advantage of the increased exemption amount now, by creating a SLAT, they will not be adversely impacted if the amount is later lowered. Because SLATs are complicated to create—and since there may be additional complications with a changing exemption rate—individuals thinking about creating a SLAT should contact an experienced estate planning attorney.
Contact an Experienced Estate Planning Attorney
If you or a loved one is interested in creating a SLAT, contact the Houston estate planning attorneys at McCulloch & Miller, PLLC. We have years of experience handling a wide variety of estate planning matters and we can finalize an estate plan that is right for you and your family. Thinking about the future can often be intimidating and scary; that’s why we are here to help. To speak with one of our knowledgeable attorneys, give us a call today at 713-333-8900.