Effective estate planning positions your assets to be shielded from tax liability while remaining accessible for the assigned beneficiaries. In traditional estate planning, that means tucking your money away for future distribution to your heirs in the event of your death. Some interesting options in estate planning allow your tax-exempt and liability-protected money to be used while you are still alive, making you an effective beneficiary of those assets. One such option is a Spousal Lifetime Access Trust (SLAT).
Protecting Your Assets
A fundamental goal of estate planning is to protect your assets from taxes, creditors, and other forms of liability. For example, if you were to be sued, any assets in your estate are vulnerable to be used to pay off a claim. If you have your assets invested wisely, however, you can keep your assets at arm’s length to protect them from lawsuit liability, as well as from tax liability and creditors. A SLAT arrangement allows for this asset protection while still retaining the ability to access those funds while you are still living.
With the goal of protecting your assets in mind, setting up a SLAT that allows you to access your money involves naming your spouse as the beneficiary of the trust. In doing so, you can gain access to the assets in the trust by having your spouse access the funds to be used to pay for your joint living expenses or other pursuits. Distributions should go into the beneficiary spouse’s account, not a shared account, lest they become subject to tax penalties.
Likewise, it is necessary that the assets put into the trust are the sole property of one individual spouse for the benefit of the other spouse. Joint property must be divided before it can be placed in a SLAT. Once established, the SLAT cannot remain part of the estate of either spouse. It must be maintained by a third party, usually a wealth management institution.
It is important to ensure that the wording of the SLAT makes it clear that the SLAT is not reciprocal, meaning that one spouse sets up the SLAT for the benefit of the other spouse, such as a husband who creates a SLAT to benefit his wife. Creating a second SLAT for the wife to benefit the husband may become problematic, and result in the determination by tax authorities that the arrangement is invalid.
If you intend to set up a second trust to benefit the second spouse, be sure to differentiate the two sufficiently. For example, the two should be set up at different times with different assets, possibly in different states, and with differing distribution strategies, thus preventing tax authorities or creditors from defining them as reciprocal in nature, which would uncross the trusts and invalidate their protections.
West Chester Wills and Estates Lawyers at Eckell Sparks Assist Clients with All Matters of Estate Planning
Using a SLAT or other irrevocable trust can protect your wealth while allowing you to have control over your assets. Talk with the West Chester wills and estates lawyers at Eckell, Sparks, Levy, Auerbach, Monte, Sloane, Matthews & Auslander, P.C. to learn more about how you can protect your wealth and make it work for you. Contact us online or call us at 610-565-3701 to schedule a free consultation. Located in Media and West Chester, Pennsylvania, we serve clients throughout Delaware County, Chester County, and Montgomery County.