Federal estate, gift, and GST tax exemptions are currently at a historic high.  The federal gift and estate tax exemption are combined to cover lifetime gifts and those distributions that pass at death.  The current combined gift and estate tax exemption amount is $12.06  million dollars. These higher exemptions are scheduled to return to $5 million, adjusted for inflation, after December 31, 2025, but they could be reduced before then, as a result of political or policy changes.”

The time period available to take advantage of the high transfer tax exemption has driven many to make or give more serious thought to making large gifts, while exemptions are certain. However, not everyone is ready or able to give away large amounts of wealth, in case they may be needed in the future. For those who are concerned about needing these assets, there are some strategies that can build flexibility into gift planning.

Spousal Lifetime Access Trust, or SLAT, is one option for married couples. This is a type of irrevocable trust that includes the grantor’s spouse as one of the beneficiaries. The couple can enjoy the gift tax exemption because the trust is funded while one spouse is living, but the spouse can also have access to the trust’s assets because the grantor’s spouse may receive both income and principal distributions in life and after the deceased spouse’s passing.

 A few things to keep in mind when discussing this with your estate planning attorney:

If both spouses want to create a SLAT, be careful not to make the trusts identical to one another. If they are created at the same time, funded with the same amount of assets, and contain the same terms, it is possible they will not withstand  IRS scrutiny. The term “spouse” has some flexibility. The spouse could be the current spouse, the current spouse, and a future spouse, or a future spouse for someone who is not yet married.

Special Power of Appointment is a power granted to a person to direct trust assets to a specified person or class of people (other than the power holder, the estate of the power holder, or the creditors of either one). The power holder may direct distributions to one or more people, change the beneficiaries of the trust, and/or change the terms of the trust, as long as the changes are consistent with the power of appointment. 

Note the following: The permissible appointees of a power of appointment can be broad or narrow, and the grantor may even be a permissible appointee for outright distributions.

If the grantor is a permissible appointee, special care must be taken when naming the power holder(s) to avoid any challenge that the trust was always intended for the grantor. The trust may need to have multiple power holders, or a third party, to agree to any distributions.

 A Trust Protector is a person who has powers over the trust but is not a trustee. This is an increasingly popular option, as the trust protector has the ability to address issues and solve problems that were not anticipated when the trust was created. The Trust Protector may often remove or replace trustees, make changes to beneficiaries, divide the trust, change administrative provisions, or change trust status.

 A Disclaimer is used when a gift recipient renounces part or all of a gift transferred to them. When a gift is made to a trust, the trust instrument is used to specify how the assets are to pass, in the event of a disclaimer. If the grantor makes a gift to the trust but is then concerned that the gift is unnecessary or the grantor might need the assets back, the trust can provide that the assets revert to the grantor in the event of the disclaimer. Often a disclaimer is used by a trust or estate beneficiary who does not want to accept the bequest, possibly for tax reasons, If the person disclaims it is as if they die before the grantor or the decedent. , then that asset which was to pass to the person disclaiming will pass as the  document indicates usually to the next heir in line mentioned in the Will or Trust.

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