Funding the SLAT Such gifts are excluded from gift tax only if they are “gifts with present interest,” meaning that the recipient has the current enjoyment of the gift. Donations to trusts would not normally pass on immediate enjoyment to the beneficiaries of the trust and are therefore normally excluded from the gift tax. The transfer of assets to a limited-access trust for spouses is a donation and will require the filing of a gift tax return. Because the spouse is a beneficiary of the trust, gifts to a SLAT are generally not eligible for the gift division, where half of the gift is reported by each spouse.
Plan to fund the trust with only the amount of your available gift tax exemption or a smaller amount. SLATs achieve the dual objective of using the lifetime gift exemption for the benefit of descendants while allowing the donor spouse to retain indirect access (through the beneficiary spouse) to the assets donated to the trust. Most donation techniques require the donor to hand over assets without control or rights to future income, fearing Sec. The SLAT strategy is unique and should be considered for high-net-worth clients who want to minimize their future equity tax liability and yet are concerned about preserving enough value (indirectly) for themselves.
In light of the COVID-19 pandemic, many customers find this strategy attractive. Don't get lost in the fog of recently evolving legislative changes, tax development and tax planning strategies. Tax Section membership will help you stay current and make your practice more efficient. Donor spouses use their federal estate and gift tax exemption to donate assets to the trust for the benefit of non-donor spouses.
Children and grandchildren can also be named as future SLAT beneficiaries. During his/her lifetime, the non-donor spouse may apply for income and capital distributions from the SLAT to maintain lifestyle and standard of living. In addition, by naming a grandchild as a beneficiary of the trust, assets can also be excluded from the next generation estate if the exemption from generation jump transfer tax (GST) is correctly allocated to the gift. Few spouses recognize that just as you can make annual trust gifts to other family members who are excluded from federal gift and estate tax, you can also make annual tax-free gifts to your spouse.
The grantor will pay tax on the income of the trust, but the appreciation of the asset is not included in the value of the gift and therefore does not use more than the grantor's lifetime exemption. The amount of this donation reduces the amount of the beneficiary's gift tax exemption for life or subject the beneficiary to payment of gift tax. With a barrage of news and headlines at the state and federal levels about possible changes to inheritance and gift tax law, individuals and their advisors are reevaluating their estate planning tools. With respect to a gift to a trust, the IRS will generally not contest that the gift is a valid gift of a current interest in the property where the trust instrument gives the trust beneficiaries the power to demand immediate possession and enjoyment of the trust's capital or income.
However, the annual exclusion is only available for gifts of a present interest in the property, which is defined in Regs. GRAT funds may also be useful for people who do not want to use their lifetime gift exemption amount or who have already exhausted their lifetime exemption. The transfer of assets by the spouse establishing the trust is considered a gift and will use part or all of the person's gift tax exemption. She is concerned that she and her husband may need some of the donated funds in the future, especially if there is another economic downturn.
In a motion for summary judgment, the Tax Court held that the Mikels were entitled to annual exclusion from gift tax for their property transfers to the trust. .
