This is the second part of our multipart series on protecting your spouse.

You have searched for and found the love of your life, maybe your first love, or maybe after a previous marriage. As you have built your life together, you have probably weathered your fair share of storms and grown stronger because of them. To prepare for the future and the possibility of no longer being around for your spouse, it is important that you plan now to protect the surviving spouse later. As part of a married couple, you are uniquely situated to further protect your loved one upon your passing through the use of special planning techniques only available to married individuals.

Spousal Lifetime Access Trust (SLAT)
This type of trust allows one spouse to gift money or property into a trust for the benefit of the other spouse, protecting the money and property from creditors and estate tax, while still allowing the gifting spouse the ability to enjoy the money or property through the beneficiary spouse. As opposed to a Lifetime QTIP Trust, this type of trust does not require that the beneficiary spouse be given income distributions but that spouse can be given access to principal during his or her lifetime. The goal of this strategy is to use the gifting spouse’s own estate tax exemption, not the beneficiary spouse’s. Additionally, other beneficiaries, such as children or grandchildren, can be named as current beneficiaries of the trust. An added benefit of this type of trust is that it can be drafted to take into account a potential divorce and remarriage. The trust can refer to the beneficiary as the “current spouse”, so if there is a divorce, the former spouse is no longer entitled to payments, and any new spouse will have access without changing all of the estate planning.

Note: If both spouses desire to use their own exemption during their lifetimes through estate planning, special attention needs to be paid to ensure that reciprocal trusts are not drafted, which could unwind all of the planning. As experienced attorneys, we can help ensure that both spouse’s goals are met in the most tax-efficient manner.

Portability
With the Tax Cuts and Jobs Act of 2017 (TCJA) doubling the estate tax exemption to $10M adjusted for inflation ($11.58M in 2020), you may feel that you do not need to worry about estate tax reduction strategies. However, this provision will sunset on December 31, 2025, unless Congress takes additional action. If you die in 2026 or after, there is a possibility the estate tax exemption could be back down to $5 million adjusted for inflation. Unfortunately, without a crystal ball, there is no way to know what the exemption amount will be if you die after the sunset. However, portability is a handy tool to have in our belts to help us battle this uncertainty.

Portability allows a surviving spouse to use his or her deceased spouses’ unused exclusion (DSUE) for either gift or estate tax reduction. This means that the surviving spouse has his or her own exclusion plus whatever is leftover from their deceased spouse. In order to take advantage of this, however, an estate tax return (Form 706) has to be timely filed (usually within 9 months, or longer if an extension has been granted) when the first spouse passes. Without this filing, the surviving spouse will only have his or her own exclusion amount to use.

Note:  You can only use the DSUE for your most recent deceased spouse. If you remarry, you must use the DSUE from your first spouse before your second spouse dies or else you will lose it.

We Are Here to Help
You have worked hard to build a wonderful life for yourself and your family. We are here to help develop a plan to ensure that your spouse and family will be taken care of upon your passing according to your wishes. At Marvel Law, we are here to help serve you with purpose.  Click here to email us or call us at 309-807-2885 for your FREE 15-minute consultation.