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How to use spousal lifetime access trusts to your benefit

On Behalf of | Feb 3, 2022 | Trusts |

Heirs in Connecticut paying estate taxes after a couple or individual has passed away is generally a concern that mainly affects the highest tier of the extremely wealthy. However, upcoming legislation may cause these taxes to apply to more people – which will, in turn, make tax reduction strategies important to more people as well.

The current federal estate tax exclusion is $24.12 million for married couples and $12.06 million for an individual. What this number effectively refers to is the amount of a person’s or couple’s assets that are protected from federal estate taxes.

Estate tax exclusion cuts in 2026

Something to keep in mind moving forward as we look towards the future is the current plan is to cut down this estate tax exclusion by half. This new legislation is scheduled to go into effect in 2026, and it would mean $6.2 million per individual and $12.4 million for couples.

The only way this change will be avoided is if opposing legislation passes in the intervening years. But if the exclusion cut does go through, it will mean that steep estate tax payments might not be far off for those who aren’t used to having to pay much, if anything at all, and those people may have to consider a tax reduction strategy.

This struggle to grapple with estate tax regulations has led to the popularity of SLATs – spousal lifetime access trusts. These are among the most widely used tax reduction strategies because of their superior effectiveness in helping you steer clear of as much estate taxes as possible. It’s generally seen as a preferable alternative to an irrevocable trust, which cannot be altered after being established.

With a SLAT, all assets are removed from the couple’s or individual’s taxable estate. At the same time, the SLAT enables one partner to give a gift to the benefit of their spouse before either member of the couple has passed away. For anyone dealing with estate tax woes who is in fear of the looming exclusion cuts, this strategic trust is something you’d do well to familiarize yourself with.