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SLAT helps some families take advantage of estate tax exemptions

The significant changes to estate tax law that passed through broad tax legislation in 2017 mean that, at least for a while, only a small portion of the wealthiest families in the country would be subject to the estate tax. These changes, which raised the exemption level from $5.6 to $11.18 million per individual, are set to expire in 2025. Families that would benefit from the raised exemption should take advantage of the situation in case the changes are allowed to sunset.

Wealthy individuals and couples can transfer their wealth through the estate tax exemption either upon their deaths or through estate and gift taxes. For some wealthy people, it's important for them to both pass on their assets tax-free while retaining the ability to access them. This is where a spousal lifetime access trust (SLAT) may be the best option. This an irrevocable trust that is given to a spouse that removes the assets from the grantor's estate.

There are some potential problems with using a SLAT. One is that it requires the grantor to trust his or her spouse to actually honor the decisions he or she makes about the SLAT's assets. This can be a major issue if the couple decides to get divorced. Couples also need to avoid violating the reciprocal trust doctrine, a rule designed to prevent families from creating identical SLATs that have the sole purpose of shielding assets from taxes.

Families have a wide range of options when it comes to inheritance and taxation. With support and advice from a lawyer who focuses on trusts and trust administration, people may be able to take advantage of financial instruments and rules that help them reach specific objectives. An estate planning attorney should have up-to-date knowledge about all relevant state and federal tax codes.

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