Asset Protection Definitions: Spousal Lifetime Access Trust
Channel: LayRoots
Date: 2016-10-18

Spousal Lifetime Access Trust Transcript:
Hey, Colin Ley here with LayRoots, and I want to talk to you today about SLAT's. A SLAT is a spousal lifetime access trust and they are an interesting form of estate planning. Basically SLAT's are used for individuals that have estates valued between this number, about 2 million, and estates of 5 and a half million, and the reason those numbers are important is because above this number, you're going to be paying a Washington estate tax, somewhere between 10 and 20 percent right now, and if you're above this number, you're paying a federal estate tax, which is at 40 percent right now, so if you fall into this category in this range, you don't have enough assets to owe federal estate taxes but you do have enough to pay Washington estate taxes. It's a bit of a tongue twister for me.

I talked to a couple people this past week and they were in this range and they were wanting to know what to do, because they want to get below this number, and one of the most common ways to do that is to give some money away, so this number here represents an exemption amount, so you can give away up to this number, about 5 and a half million right now, and it usually goes up every year with inflation, so you can give that money away or assets during your lifetime without paying any gift taxes, so essentially if somebody was here at, say, the 3 million dollar range, they could give away assets worth a million dollars and that would then bring them down below the state level.

Since they're using their federal gift tax exemption, there's no tax on that, and then that drops them down to below this number, so then at the time of their death, they would not owe any Washington estate taxes, because I haven't really run into anybody who wants to pay estate taxes. They don't want their loved ones to have to pay that extra tax on money that they've probably already been taxed plenty on. This whole gifting process, a lot of times comes in the place of a spousal lifetime access trust, so basically this individual with this estate creates a trust, drops this gift of money, assets, whatever, into this trust. The person's spouse, or their spouse and their kids, can use that money, and it basically passes ... It gets the money out of the individual's estate, so they don't owe estate taxes.

Now, I was talking to someone who wanted to do this and they were wanting to gift out a piece of property that was worth a couple million bucks and that would've ... Again, they were somewhere in this range, and that would bring them below that 2 million dollar threshold, but the thing to consider when you are gifting assets, the person who receives the gift receives your basis for capital gains taxes, so if you pass something along in death, they get what's called a step up in basis, so when they sell the asset, if they do, they don't owe as many capital gains taxes, so if you gift something that has a low basis and the person you gift it to then ends up selling it, they're going to be looking at paying capital gains taxes, so the important thing to do is make sure that if you're trying to avoid a 10 to 20 percent state estate tax, you don't end up racking up a higher 15 to 20 percent capital gains tax bill. That would really defeat the purpose of all this planning.

There you have it. Hope that's clear for you. If you have any questions, feel free to reach out to us. Take care.


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