Gifting to a Spousal Lifetime Access Trust
As we have previously advised our clients, there is a $5 million gifting exemption per person that is available under the current law through December 31, 2012. It is unclear at this point as to whether this benefit will ultimately be extended or eliminated. Because of that, we are recommending that our clients look seriously at taking advantage of this benefit as the year progresses. We recognize that some clients may be reluctant to actually make asset transfers to children that they are no longer able to access for themselves, so we want to bring to your attention a type of trust that should eliminate any such fears: a Spousal Lifetime Access Trust (SLAT).
Under such a trust, a husband and a wife can each gift assets into a trust for the other and your children, that can be accessed by the other (since they will be the sole trustee) for the health, education, maintenance or support of any of these beneficiaries. There are technical provisions these trusts should include to avoid any potential estate tax problems associated with the “reciprocal trust doctrine”. If done properly, each spouse could gift $5 million into a trust for the other, together utilizing the $10 million of exemptions. The value in these trusts, once the two spouses pass away, including the appreciation on the assets that were gifted, will avoid estate taxation. This is a very appealing option, because as the Trustee of the other’s Trust, each spouse could continue to utilize the assets for the enumerated reasons.
There are ways to further enhance this benefit by gifting assets that can be discounted, and we can discuss with you how to maximize any tax savings. Please feel free to call any of our attorneys to discuss whether this idea is appropriate for you, and pay attention to the looming deadline of December 31, 2012.
As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.