Today’s very generous federal estate rules are set to expire in 2025, therefore potential estate tax changes are predicted to address the need for increased tax revenue and to get ahead of this change, which is known at the “sunset”. As a result, you may be considering updating your estate plan to gift assets and reduce your estate tax calculation. A new tool, designed to reduce a married couple’s estate, is the Spousal Lifetime Access Trust, or SLAT, which can help a married couple address these possible estate tax changes and changes in estate liability.

A SLAT involves a gift from one spouse, the donor spouse, to an irrevocable trust for the benefits of the other spouse, the beneficiary spouse. In many cases, the final remainder beneficiaries of a SLAT will be the grantor’s children. This means that the interest remaining in the trust would pass to the grantor’s children upon the death of a beneficiary spouse. Children who are the remaining beneficiaries of a SLAT have certain rights. For instance, the beneficiaries have the right to be notified when the trust is created and they also have the right to receive trust accountings based on their future remainder interest in the SLAT. This is true even if the grantor of the trust is still alive.

A properly structured SLAT has substantial benefits related to estate tax. When properly structured, the assets held in a SLAT will not be included in either the grantor’s estate or the beneficiary spouse’s estate upon death for estate tax purposes. A transfer of assets from the grantor spouse to the SLAT is instead considered to be taxable gifts at the time of the creation of the SLAT. This means that the grantor spouse most commonly uses part of his or her lifetime gift and estate transfer tax exemption. (The 2022 individual unified gift and estate tax lifetime transfer amount is over $12,000,000. This is the amount that will sunset on 2025). These gift transfers to the SLAT must be reported on a federal gift tax return but no actual tax payment would be due unless the taxpayer has already used up their individual federal estate tax exemption amount.

New York currently does not have a gift tax; there will be no need for a New York State gift tax filing for these lifetime gifts. Gift transfers to a SLAT can result in an overall estate tax saving as a future appreciation of transferred assets will grow outside the grantor’s estate as these assets are no longer in the grantor’s estate to be taxed. The growth of these transferred assets between the time of transfer and the time of death is no longer subject to taxation upon the death of the original owner. To learn more about SLATS and whether you and your spouse may benefit from establishing a SLAT.

Please contact our firm, GRIMALDI YEUNG LAW GROUP, LLP, for an estate planning consultation and to learn more about SLATS and how they can help you reduce your estate plan.

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