The Tax Cuts and Jobs Act of 2017 (TCJA) greatly increased the federal gift and estate tax applicable exclusion amount, also known as the gift and estate tax “exemption”. Today, a married couple can transfer more than $27 million before having to pay any gift or estate taxes. Unless Congress takes further action, the exemption amount is scheduled to revert (or sunset) to pre-2018 exemption levels in 2026, anticipated to be over $6 million per individual.

The upcoming sunset has driven many families to explore ways to use the elevated exemption amount before it decreases. Various types of trusts can lower the value of your taxable estate. For married couples, a spousal lifetime access trust (SLAT) can be a very effective strategy to consider.

A SLAT is an irrevocable trust that allows one spouse to gift assets to a trust to benefit the other spouse and possibly other family members. The assets shift out of the donor’s estate, and any future appreciation in the trust is also excluded from the value of the estate for federal estate tax purposes.

One spouse (the donor) establishes an irrevocable trust for the benefit of the other spouse (the beneficiary). Assets such as public securities, closely held business interests, cash, and real estate are transferred into the trust, effectively removing them from the donor’s taxable estate. The beneficiary spouse can have access to trust distributions, providing financial security without compromising tax advantages.

SLATs can provide benefits, including:

SLATs may seem to be good to be true, but there are definitely risks to consider. It’s very important to discuss all the potential “what if” scenarios with your entire advisory team, and especially understanding all the legal considerations from your estate planner. As an example, major risk factors of a SLAT strategy include divorce or death. It can be uncomfortable, but it’s very important to consider a marriage’s long-term stability, as well as the beneficiary spouse’s life expectancy.

Considering implementing a spousal access lifetime trust involves a complex decision tree with coordination and input needed from your estate planning attorney and CPA. As your wealth advisor, we can help lead your advisory team to determine if a SLAT is worth pursuing for your unique financial situation.

As always, we are here to help and to ensure you and your family are evaluating all financial planning strategies so you can focus on what’s most important to you, to help you live your best life.

Sources: Not Too Rich, Not Too Poor: Transferring Wealth for the Middle Rich (Robert Kirkland, Turney Berry, Suzanne Walsh)

This material is not financial advice or an offer to sell any product and is not a recommendation to buy or sell any particular security. The opinions expressed are those of the Saling Wealth Advisors’ Management Investment Team and are subject to change without notice.

Saling Wealth Advisors (“SWA”) is an independent SEC registered investment advisor. Registration does not imply a certain level of skill or training. This material is provided for informational and educational purposes only. More information about SWA including our advisory services, fees, and objectives can be found in our Form ADV Part 2A, which is available upon request.