New York Estate Planning & Elder Law Blog
In accordance with the Tax Cuts and Jobs Act, a person can transfer up to $11,580,000 without facing either estate or gift taxes. This amount, however, will lower at the end of 2026 and revert to $5,000,000. Many people are worried, however, that due to the change in political administrations that this amount will be lowered before then.
Spousal Lifetime Access Trusts are irrevocable trusts established by a donor spouse during his or her lifetime for the benefit of the other spouse. While the donor spouse gives up ownership of the assets, the beneficiary spouse continues to enjoy access to assets placed in the trust. Various issues should be considered if you are interested in creating a spousal lifetime access trust, and this article reviews just a few of these benefits.
# 1 – Asset Protection
Assets gifted by a spouse to the trust cannot be reached by the spouse’s creditors. Assuming that an independent trustee with sole discretion is presiding over the trust, assets in the trust are protected from most creditors of the beneficiaries as well. In accordance with the Uniform Fraudulent Transfer Act, assets can be reached by a creditor of the donor spouse if the donor either knows or should have known of the creditor’s claim and transferred the assets only to avoid paying the creditor.
# 2 – Generation-Skipping Taxes
A spousal lifetime access trust can be created to hold assets for future beneficiaries and a generation-skipping tax exemption can be placed on the finalized transfer. As a result, spouses who want to pass assets to a surviving spouse and then children as well as future generations should give thought to whether the tax-saving advantages of these trusts are worthwhile.
# 3 – Gift and Estate Taxes
Assets placed in a spousal lifetime access trust are protected from future estate and gift taxes. Additionally, assets transferred to the trust retain the carryover basis from the donor spouse and are not subject to a set up at the death of a donor spouse. The spouse who creates the trust can substitute property of equal value, which can allow a spouse to substitute cash in exchange for other assets.
# 4 – Divorce Can Impact the Role of these Trusts
Only people with the strongest marriage should consider utilizing spousal lifetime access trusts. This is because if a couple later divorces, the spouse who established the trust will lose indirect access to the trust. As a result, couples should enter into the creation of these trusts with the understanding that divorce can make matters much more challenging.
Speak with a Knowledgeable Estate Planning Attorney
Spousal lifetime access trusts, but for the right couple, these estate planning tools can prove extremely advantageous. If you or a loved one needs the assistance of an experienced accident attorney, you should not hesitate to contact Ettinger Law Firm. During a free case evaluation, we can discuss your available options to achieve your goals.