By: Ruzy Behnejad
Executive Summary
In recent years, because of an increase in estate tax exemption amounts, the legal field of estate planning has seen a significant trend towards the drafting of irrevocable Spousal Lifetime Access Trusts (“SLAT”). These trusts are designed to preserve and pass on family wealth to younger family members, while also maintaining the power to “undo” the gift by allowing the spouse to force distributions of the trusts assets to the spouse. The SLAT can also have significant advantages with respect to asset protection. The SLAT provides a powerful shield protecting family assets from the grantor’s creditors or creditors of any family member.
How It Works
1. The “Grantor” spouse establishes an irrevocable SLAT, with the spouse as a beneficiary who is allowed to force distributions of the SLAT property.
2. The Grantor spouse gifts separate property to the SLAT.
3. The trustee may make distributions of the SLAT property to the Grantor’s spouse during his/her lifetime according to the trust document.
4. Upon death of the Grantor’s spouse, the children or other beneficiaries will receive distributions according to the trust document.
Advantages of the SLAT
• The trust assets are protected from the Grantor’s creditors, the spouse’s creditors, and the trust beneficiaries’ creditors if the trust document contains the appropriate provisions and distributions.
• The grantor’s spouse has the ability to receive distributions from the trust.
• The trust can help preserve the full value of your life insurance policies by avoiding the 40% U.S. estate tax.
• Assets transferred into the SLAT are not included in the Grantor’s estate and therefore avoid the U.S. estate tax if the trust is property structured and maintained.
• The trust funds can be used for estate liquidity by lending money to the estate or by purchasing assets from the estate.
Disadvantages
• Access to the trust’s assets are available only to the grantor’s spouse and/or other beneficiaries, not to the grantor. However, the grantor has indirect access to the trust assets through the spouse.
• The SLAT requires a stable marriage. Concerns about marriage issues can be addressed by each spouse having a separate SLAT. In such cases, care must be taken to avoid the reciprocal trust doctrine. Or, in other words, make sure the trust is drafted by an experienced Miami trust attorney.
Conclusion
A SLAT can be a powerful structure to protect family assets in our litigious society. It is a safe haven for family assets. It also offers excellent estate tax saving benefits. These trusts are technical and should be drafted by an experienced Miami trust attorney. For more information contact trust attorney Phil Rarick at (305) 556-5209 or email to info@raricklaw.com.
Special Note
The information on this blog is of a general nature and is not intended to answer any individual’s legal questions. Do not rely on information presented herein to address your individual legal concerns. If you have a legal question about your individual facts and circumstances, you should consult an attorney that is experienced in Florida estate planning law. Your receipt of information from this website or blog does not create an attorney-client relationship and the legal privileges inherent therein.