A major shift during the 2017 Trump Tax Cuts was a creation of the doubling of the federal estate tax exemption to $11.7 million (as of 2021). However, contained within the Trump Tax Cuts was a sunset provision. The estate tax exemption would be reduced in 2025 to pre-2017 levels, i.e., $5 million per person.
The House Ways & Means Committee has introduced legislation which would change the sunset provision in the 2017 Trump Tax Cuts from 2025 to the end of 2021. This switch would mean that the federal estate tax exemption would be reduced at the end of 2021 from $11.7 million to $5 million. The reduction would mean that several more families will be subject to the federal estate tax under the new sunset provisions in 2022.
Are you impacted by this scenario? It may be time to implement a Spousal Lifetime Access Trust (SLAT) as part of your estate planning strategy.
SLAT — A Powerful Estate and Tax Planning Strategy
A SLAT is an irrevocable trust established for your spouse, children and other heirs. Once you contribute the money to this trust, you relinquish access to the money and assets in this trust. The money and assets are set aside for the benefit of your spouse and heirs.
A family establishing a SLAT prior to the end of 2021 would be able to shelter up to $11.7 million tax free. If a family waited to pass $11.7 million at death, for example, then $6.7 million ($11.7 million minus $5 million estate tax exemption) would be subject to the estate tax at a top tax rate of 40%.
The use of a SLAT prior to the amendment to the sunset provision would provide a family the ability to shelter $11.7 million in assets tax free if the family takes advantage of this strategy prior to the end of 2021. In addition, as the SLAT is used to hold assets for the benefit of your spouse, you still can receive the use and enjoyment of the SLAT while you are married.
This estate planning and tax planning strategy can be a very powerful way to shelter up to $11.7 million in assets tax free while the exemption still remains at $11.7 million until the end of 2021.
Be aware that although the House Ways & Means Committee introduced this legislation, it is not yet law. Be prepared that if this is passed into law the revision of the sunset provision to $5 million will take effect at the end of 2021.
For More Information
If you have additional questions about the information in this article and how it may impact your current estate planning strategy, please contact the Trust and Estate Attorneys at Aronoff, Rosen & Hunt, LPA at (513) 241-0400
Use our contact form to schedule a time to discuss your Trust and Estate questions and concerns relating to potential tax law changes. You can also download one of our free reports on estate planning and trusts available on our website.
We look forward to hearing from you!