A Quick Guide to Spousal Lifetime Access Trusts

While the coronavirus pandemic has left many people uncertain about what the future holds, now might be an excellent time to take advantage of a historically low tax environment.  Although it is unclear how long rates created by the Tax Cuts and Jobs Act of 2017 will remain low, remember that many provisions of this Act will automatically expire in 2026 provided Congress does not act to prolong them. With the matter of how these regulations will be handled uncertain, whoever wins the US election in several weeks will likely play a role in influencing the outcome of these regulations.


Due to uncertainty about how long the Tax Cuts and Jobs Act will remain in place, many people are taking advantage of both the high lifetime gift as well as estate tax exemptions to pass on assets to loved ones. Although there are many ways that high exemptions can be utilized, one of the best ways to make the most of these exemptions is through the use of a Spousal Lifetime Access Trust.


The Role of Spousal Lifetime Access Trusts


Spousal Lifetime Access Trusts are irrevocable trusts that contain assets gifted from one spouse to another while the residual passes to the children. By placing assets in a trust, assets are no longer subject to taxes from either spouse and are also no longer subject to the 40% estate and gift tax. Any appreciation of the gift after the transfer, however, is also excluded from both spouse’s estate for federal estate tax purposes. As a result, the primary goal of Spousal Access Lifetime Trusts is to let trust assets grow outside of the taxable estate. The appreciation of assets is not subjected to the federal lifetime estate and gift tax on the passing of the donor-spouse. As a result, special consideration should be paid both to the amount and type of assets that are passed into these trusts.


The Trusts Allow Surviving-Spouse Transfers


Spousal Lifetime Access Trusts provide the advantage of allowing non-donor spouses to receive distributions from the trust while both spouses are still alive. These distributions are often made for things like health care costs and to maintain standards of living. The donating spouse can also indirectly benefit from a distribution made to the non-donor spouse as well. To engage in this advantage, the non-donor spouse must only transfer some or all of the distribution to the donor spouse to utilize the unlimited marital dedication to make gifts.


The Trusts Provide Protection from Creditors


Special lifetime access trusts provide protection from creditors of the donor spouse and the trust’s beneficiaries. This is because these trusts almost always contain “spendthrift” provisions, which state that a beneficiary of the trust cannot sell or encumber a beneficial interest and that a creditor cannot attach a beneficiary’s interest. Due to these measures, these trusts are able to successfully protect assets.


Contact an Experienced Estate Planning Lawyer


If you live in New York and have questions or concerns about the estate planning process, one of the best steps that you can take is to retain the assistance of an experienced attorney. Contact Ettinger Law Firm today to schedule a free case evaluation.


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