In this edition of M&B Monthly…
Letter from the President – Spousal Lifetime Access Trust (SLAT)
Estate Planning = Peace of Mind
A Little About Us – Employee Profile with Andrew Ginis + his Great Aunt Mary’s Pie Crust Recipe
Letter from the President, Justin Martin:
Spousal Lifetime Access Trust (SLAT)
Estate taxes ebb and flow, increase and decrease, with the tides of political change, and it’s important to be aware of which way the wind is blowing. Today, the estate planning forecast calls for a dramatic tax increase on the federal level for much of the country, including for some Oregonians, who must also weather the state’s estate tax. Over the past couple months, we’ve been looking at estate planning tools for reducing future estate tax exposure. This article continues this theme by highlighting another popular estate tax savings tool for couples, the “Spousal Lifetime Access Trust” (SLAT).
Coming off the heels of historic tax exemption limits, our May article looked more closely at the unique federal estate tax planning environment of 2021 and the Biden administration’s talk about lowering the federal estate exemption to $3.5 million, taxing all assets above that at 40 percent to 45 percent. Given the new looming exemption limits in the background, our June article covered one tool for reducing assets that are subject to looming estate tax changes, the IDGIT (Intentionally Defective Grantor Irrevocable Trust), a popular type of trust used to gift to children and grandchildren. This month, we’re covering another gifting tool designed for couples, the SLAT.
Unlike IDGITs, the SLAT’s title more clearly explains what it’s all about: a spousal lifetime access trust, i.e., a trust that provides a spouse lifetime access to funds. SLATs also lower the amount of taxable estate of the grantor. In fact, even though the beneficiary spouse could be Trustee of the trust and use the assets, the assets remain outside both the grantor spouse’s estate and the beneficiary spouse’s estate for estate tax savings! Need we say more?
How do you know if a SLAT is right for you and your spouse? Set against the backdrop of the Biden’s desired federal estate exemption (lowering from $11.7 million per spouse to $3.5 million per spouse), married estates combined and expected to be worth more than $7 million should seriously consider this type of planning tool in order to take advantage of higher estate tax exemptions before it’s too late (i.e., use the window of opportunity to save now or lose these high exemption limits later), especially if children and grandchildren are also involved. Married Oregon estates in excess of $2 million can also have savings (Oregon’s estate tax exemption excludes $1 million, assessing a rate of 10–16 percent assets in excess).
Consider, for example, Steve and Grace, a couple who have $10 million in combined assets. While they’re in their late 60s and retired, they still have a lot of life left, in which they plan on using to invest more, travel to the places they’ve always talked about, and, who knows, maybe buy that house closer to the kids and grandkids. In addition to spending money, however, practically speaking, they also have a lot of life left for assets to continue to appreciate.
As such, thinking his wife would outlive him, Steve decides to create a SLAT for Grace with $5 million. He makes Grace the Trustee and gives her access to income and principal for Grace’s health, education, maintenance, and support. Steve figures if he dies first, Grace still has access to the full $10 million. If Grace passes first, knock on wood, Steve feels fine with the remaining $5 million, especially in view of his social security and retirement income.
Steve’s transfer of assets to a SLAT is considered an irrevocable gift, which means that Steve gives up any right to these assets. In so doing, his gift to Grace permanently removes the assets from his taxable estate. This means the assets are not subject to the federal or state estate tax! Even though Grace is the Trustee and maintains access, the assets are also excluded from her taxable estate.
It would also be possible for Grace to create a SLAT for Steve. However, their SLATs would need to be made differently to avoid the reciprocal trust doctrine that could invalidate such gifts. For example, the formation of a SLAT for each spouse is often accomplished in separate years.
Overall, the effect of Steve’s transfer could save approximately $2 million or more, not including the savings on the appreciation of such gifts outside their respective taxable estates.
Of course, Steve and Grace are just one example. Each couple is unique, and there are many crucial aspects to get right with SLATs, not to mention an assortment of potential pitfalls if drafted incorrectly. However, with tax law changes on the horizon in the coming years, SLATs could be a conversation to have with an experienced estate planning attorney and tax advisor who specialize in this area to see if this strategy makes sense for everyone’s unique situation.
That’s why we’re here. Myatt & Bell, P.C. has been drafting trusts for decades and for all kinds of scenarios. Reach out to us for a consultation, and we’ll walk you through the basics to see if a SLAT is right for you and your spouse.
Estate Planning = Peace of Mind
Have you found yourself making excuses for why not to get your estate in order? Maybe you’re convinced that you really don’t need estate planning. If you have assets and loved ones, you need an estate plan. Having an estate plan that is right for you ensures your loved ones are taken care of and that the transition is as easy as possible.
Attend one of our complimentary estate planning webinars and see for yourself. Having your estate plan prepared and understanding the why’s behind the importance of estate planning can bring you the peace of mind you have been needing. Join us at our next Estate Planning Informational Webinar by clicking here.
Recent Comments from Myatt & Bell Clients
“I have enjoyed working with you and appreciate your clear and organized approach as well as your patience with me during the entire process. As I am sure you are aware, it is a challenging time when a loved one passes and then to have the effects of a pandemic added to the picture is not helpful at all! Thank you for holding my hand during this whole time and making the process as painless as possible.” – Kerry
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A Little About Us…
Andrew Ginis – LL.M in Taxation, Attorney
- Favorite thing to do for fun? Gardening and cooking – especially cooking with things from my garden.
- All-time favorite movie or book? Botany of Desire by Michael Pollan.
- Something a lot of people don’t know about me is… Luckily, I was born without wisdom teeth.
- Most rewarding part of helping clients with trust administration? Watching estate plans unfold. During planning, there can be uncertainty and layers of contingencies. It’s rewarding to see those contingencies play out and clients’ wishes fulfilled.
Favorite Recipe – Great Aunt Mary’s Pie Crust (just in time for berry season!)
- 3c flour
- 1 tsp baking powder
- ¼ tsp salt
- 1 heaping cup shortening (or cold butter or a combination of both, as preferred)
- 1c milk (very cold)
- Mix dry ingredients together in a large bowl.
- Cut shortening and/or butter into flour mixture.
- Add milk and mix together gently by hand, adding additional tablespoons of milk as needed to form a dough. Do not overwork.
- Divide and roll out to desired thickness. Freezes well.
Families choose Myatt & Bell to design their estate plans with honest optimism and meticulous attention to detail.
Myatt & Bell, P.C. is seeking an attorney to join its specialized high net worth estate planning, trust administration, and probate practice in the Portland/Tigard and remote accessed area. We have several openings available at varying experience levels. We’re looking for personalities that want to be part of a team atmosphere.
Our firm’s culture values balance in life, humble teamwork, competitive pay, excellence in work product, and high customer service. While we have office space available, as desired, we are also up to date on our technology, having incorporated work from home policies that are here to stay.
As a firm, we like to have everyone home for dinner with their families and do not desire that anyone work weekends. Because we work as a team, we are able to provide compensation on par with the firms that demand extra hours. Please apply in confidence to firstname.lastname@example.org.
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