At midnight on December 31, 2012, more is going to happen than just the Times Square ball dropping and the calendar turning the page to January 1, 2013. The current gift tax exemption is also set to expire — barring any Congressional changes which may or may not happen post-election.
Currently couples can shelter $10 million from estate taxes, and a single person can shelter $5 million. There are a number of ways to do this, one of them being the spousal limited access trust, or SLAT. A SLAT is an irrevocable trust, meaning that once it has been created, you cannot change your mind. It is, as the word says, irrevocable.
When the irrevocable trust is set up through the SLAT, then as long as your spouse is living, a trustee will distribute income and principal to your spouse. The gifted portion that is set up in the SLAT is not considered part of your estate should you pass away before your spouse.
There are a few restrictions, one of which is that the assets you put into a SLAT must be your assets and not marital assets. As a practical matter this would typically include pre-marital assets or inherited assets.
To use the full $10 million, you and your spouse could each set up a SLAT, although they must be different. Perhaps you give $5 million to your spouse and a son equally and your spouse gives $5 million to you and a daughter. The SLATs should be different and created at different times.
Because it is irrevocable, the act of creating the SLAT is also an act of faith that your marriage is strong, because the gift is permanent.
When estate planning, there are many options and ways to pass along wealth to your family members and other individuals. Working with a professional that focuses on estate planning is a wise choice to avoid pitfalls and take advantage of everything that is available given your circumstances.
Source: Barron’s, “SLATS: A Spousal Shelter With Benefits,” Tatiana Serafin, Sept. 20, 2012