Net worth couples don’t lack the tools and strategies they can freely use to lower their taxes and take over wealth. However, financial planners say that particularly advantageous arrangements have become a dependent on recent years. This helps you pass on the wealth of generations while benefiting from lifetimes. They are called spouse’s lifetime access trusts or slats.
A slut is an irrevocable trust that allows a spouse to protect against taxable real estate while maintaining access to the property. More and more wealthy clients are using them to take advantage of highlands and gift tax exemptions.
Here’s how it works: One spouse transfers individually owned assets from her property to SLAT for the benefit of the spouse, known as the grantor and known as the beneficiary. If removed from Grant’s property, future valuations of the property will also be removed. That is, those profits are not taxed.
However, the couple is not separated from the money. The beneficiary’s spouse will have access to SLAT assets for the health, education, maintenance and support of both him and his spouse, says Bob Peterson, senior wealth advisor at Crescent Globe Advisor. “Some people say you have your cake and are eating it too.”
The main purpose of SLAT is to move future asset growth from real estate, Peterson says. He gives an example of moving $5 million to Slat. If it ultimately grows to $15 million, a $10 million appreciation is not subject to real estate tax upon the grantor’s death. Establishing a SLAT is a good way to protect your assets from creditors, or a claim against either spouse is a good way to do so.
“You should remember that slats are not necessarily income tax strategies, so slats are real estate tax strategies,” says Peterson. “Surats are usually constructed as grant trusts, so grantors continue to pay income tax on trust revenues.”
This is a particularly beneficial arrangement for some couples, as many irrevocable trusts do not allow the beneficiary to take distributions until after the grantor’s death. However, in SLAT, beneficiaries can withdraw income or principals to maintain the standard of living of the couple.
These advantages may seem better than they are true, but there are drawbacks, Peterson says. The main thing is that the gift is irrevocable. The grantor waives all rights to the funds. It “can cause problems if divorce or your spouse dies,” Peterson said. Additionally, joint ownership assets cannot be transferred to SLAT.
Claimants must ensure that, for some reason, they can continue to live their lifestyle if they lose access to these funds in the future. If the beneficiary’s spouse dies in front of the grantor, the remaining assets are passed without tax on that spouse’s beneficiary, usually the child.
Slats are becoming more and more popular
Surat has been particularly popular these days thanks to the 2017 Tax Cuts and Employment Act or the TCJA’s impending sunset. The law doubled the maximum that individuals and couples could give to beneficiaries as part of their property as a result of their lifetimes and without paying federal gift or real estate taxes.
Transfer of assets from one spouse’s real estate to SLAT is reported on a gift tax return. That is, it applies to donor lifetime gifts and real estate tax exemptions. Currently, individuals are $13.99 million, twice as many married couples, but could be half in January depending on what Congress can pass as part of ongoing tax bill negotiations. It has created something like a 24-hour mentality for some much-rich families, financial advisors say if Congress doesn’t re-upload the doubled exemption.
“By making a gift now, you can fully spend $13.99 million against waiting until 2026, and you can only give about $7 million without the impact of gift tax,” Peterson says.
But again, couples will want to be careful. An extended exemption could easily be extended and could then place restrictions on how you can access funds for no reason.
This story was originally featured on Fortune.com.
