Use a spousal limited access trust (or SLAT)

Of all of the proposed changes, the most significant is the reduction of the estate and gift tax exemption from $11 million to $5 million. This decrease can be avoided by transferring wealth now.

One option is the spousal limited access trust (or SLAT).

To use a SLAT, one or both spouses creates a trust for the benefit of the other spouse. Because the trust is funded by gift while both spouses are alive, this approach lets you take advantage of the current estate and gift tax exemption, avoiding any decreases in the exemption amount.

Be careful though. The SLAT is best used by individuals in extremely solid marriages. Also, if two identical trusts are created, the IRS can use something called the reciprocal trust doctrine to “uncross” the trusts, making the funds in each ineligible for the estate and gift tax exemption. If both spouses are going to create SLATs, it’s important the trusts are meaningfully different.

%d bloggers like this: