The new tax act temporarily increases the lifetime estate exemption to $11.2 million. This change took effect on January 1, but sunsets on December 31, 2025. On January 1, 2026, the exemption reverts back to the current $5.6 million, subject to inflation adjustment. It is quite possible that the larger exemption doesn’t make it to December 31, 2025, if there is a Democratic administration and Congress come January 2021.
The upshot is that for wealthy clients there is a window to make lifetime gifts to take advantage of the temporary increase in the lifetime exemption. There are many ideas to consider, but in this blog post I want to mention the spousal lifetime access trust (SLAT). With a SLAT the grantor makes a gift to a trust that benefits his spouse or his spouse and descendants. The spouse may serve as trustee, if the trustee is limited to an ascertainable distribution standard.
If both spouses do SLATs, a couple has the opportunity to “lock” in the increased exemption amount and transfer a whooping $22.4 million free of estate tax to younger generations. With discount planning the amount could be even bigger.
If both spouses seek to do SLATs they must avoid the reciprocral trust doctrine, but that can be done with careful planning.