Avoiding The Gift Tax, But Keeping The Benefits

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A song familiar to all tells us that, “Love and marriage go together like a horse and carriage.”   Maybe so.  But when it comes to finances and marriage the use of the two as grist to the mill of so many matrimony jokes does not suggest such an harmonious coupling.  Consider a couple tame examples:

Wife to husband:  “I didn’t report your stolen credit card because the thief is using it more wisely than you did!”

Husband to wife:  “I think I need to buy you a new bank account.  The one you have keeps running out of money!”

Fortunately, fact usually looms larger than the fiction of humor.  We find most high-net-worth married couples in full financial tandem, especially when it allows them to move large amounts of net worth out of their joint taxable estate and still keep access to the benefit of the assets after the transfer.

This is done through a common and time-tested planning device most-often referred to as the Spousal Lifetime Access Trust (SLAT).  

With the help of legal and tax counsel its implementation and function are as follows:
  1. The taxpayer sets up an irrevocable grantor trust with intended heirs (usually the kids) as trust beneficiaries.
  2. In addition, the taxpayer’s spouse is made a lifetime beneficiary of the trust – that is what makes it a SLAT.
  3. The beneficiary spouse can have the right to withdraw all income generated in the trust each year.
  4. The beneficiary spouse can have the right to draw 5% of the trust corpus each year.
  5. The trustee of the SLAT can have the power to make discretionary distributions for the health, education, maintenance, or support (HEMS!) of the beneficiary spouse.  And if your trustee can’t justify a distribution for one of these reasons, someone should be appointed who has a better imagination!
  6. The beneficiary spouse can even be the SLAT trustee who makes the discretionary distributions discussed in #5!

So… a high-net-worth taxpayer can make full use of the current high lifetime exemption of $13,900,000 by transferring that amount to a SLAT for a spouse and still maintain vicarious access through that beneficiary spouse to the benefits of the property gifted.

A SLAT can also serve as the depository for life insurance outside the estate that can assist in payment of any unavoidable death taxes.  In addition, legal counsel can be sought to see if a second trust can be used in a marriage to take similar advantage of the other lifetime exemption available to a married couple.

Call with additional questions or to arrange a conference or Zoom call on any planning topic with you and your clients, or their advisors, at Tom Virkler, 706-614-3796, or tom@cpsadvancedmarkets.com. 

For What It’s Worth:  Considered by many the wealthiest celebrity couple, and thus much in need of estate planning, are actress Salma Hayek and luxury goods CEO Francois-Henri Pinault.  Married since 2009, the two share an estimated net worth of around $7.1 billion.