SLATs are a flexible and inexpensive lifetime estate planning tool for married couples wishing to shelter assets who see the family as a team. As part of an Estate Plan, SLATs are principally an Asset Protection Tool.
Let’s call the spouse who creates the trust the “Grantor Spouse” and the spouse who benefits from the trust the “Beneficiary Spouse.” The Grantor Spouse creates a Spousal Limited Access Trust by executing an Irrevocable Trust for the Beneficiary Spouse’s benefit, giving the Beneficiary Spouse limited access to the trust assets. Access is “limited” to provide shelter from creditors and death taxes.
Simply put, the goal is to move assets into the SLAT and out of the Grantor Spouse’s name and estate so they can provide care for the Beneficiary Spouse limited enough to shelter the property from the Beneficiary Spouse’s future creditors, spouses and from being included in the Beneficiary Spouse’s taxable estate.
If a Pennsylvania resident couple dies and leaves their $2M estate to their children, the Pennsylvania Inheritance tax due is $90,000.00 ($2M x 4.5% Tax). If instead, the Grantor Spouse forms a SLAT for the Beneficiary Spouse, puts into that trust $1M, and both spouses die several years later, then the $1M and all the growth it may have had passes to the children, free of the Pennsylvania Inheritance Tax. At the second spouse’s death, the tax is on the remaining $1M x 4.5% = $45,000.00, a savings of $45,000 for the family.
Here are some common questions clients, beneficiaries, and Trustees ask:
No, the assets you place in a SLAT for your spouse should be your assets.
Yes, but only after analyzing the property’s long-term use plan. Our Estate Planning Lawyers can help analyze the capital gains tax and mortgage issues.
Yes, the Trustee opens an account in the SLAT’s name, deposits your transfer and is then free to use the money for investments.
Careful planning and use of the SLAT funds will prevent them from being exposed to Debt Collectors.
Yes, the SLAT can be crafted to reflect your Estate Plan and concerns.
Yes, you can include beneficiaries other than your spouse, and you can dictate who receives the remaining assets at your Spouse’s death.
You can have the SLAT crafted, so a divorce ends your current spouse’s interest and that any future “spouse” becomes the current beneficiary. You can also craft a Postnuptial Agreement as part of the gift to the SLAT addressing the gift to the SLAT and how it would be considered in a divorce.
The SLAT has its tax ID and any income not distributed must be reported on the trusts’ return. With careful planning, the trust can have a situs in a state with no income tax. This would avoid paying state income tax on non-distributed income. If you plan is to allow the trust assets to grow over time, avoiding state income tax can have a substantial positive impact.
No, a SLAT works only if you can never have the funds returned to your name. But, the SLAT can be used to pay for your children’s education, weddings or other expenses that would otherwise come from your personal accounts. Reducing your expenses isn’t a return of money to you, but it serves the same purpose.
Yes, the SLAT works just as well for LGBT married couples as any other married couple.
A SLAT provides an intriguing option for holding a Mahr. A Mahr in Islam is the mandatory payment from a groom to his bride at the marriage. The Mahr becomes the wife’s property. But by placing the Mahr in a SLAT, the Mahr is sheltered from her future creditors and is not part of her taxable estate at death. She is free to invest as she pleases and may have broad rights for using the funds for herself, and even have a wide right to name who receives what remains at her death.
If you have any questions about Spousal Lifetime Access Trusts or any other estate planning topics, please contact us to schedule a free consultation. For more than two decades Klenk Law has focused only on Estate Law. We’ve seen it all, and this experience allows us to explain complex estate law and planning techniques clearly and concisely. We make it easy for you to understand SLATs so you can make the best decisions for yourself and your family.