You have searched for and found your true love, and as you have built your life together, you’ve weathered storms and grown stronger because of them. To prepare for a future in which you may no longer be there for your spouse, you must plan now. As part of a married couple, you have certain planning resources available to protect your loved one after you pass away and some of these special planning techniques are only available to married individuals.

Lifetime QTIP Trust

If you and your spouse own unequal amounts of money or property, this type of trust will allow the wealthier spouse to transfer money and property into a trust for the benefit of the less wealthy spouse. A gift made to the less wealthy spouse, by comparison, can result in a loss of control over these assets and may expose them to the donor spouse’s potential creditors. A Lifetime QTIP Trust can also help couples in a second or third marriage. The less wealthy spouse will receive all the trust income over a lifetime and may receive the trust principal for limited purposes. When the less wealthy spouse dies, the assets remaining in the trust will be included in his or her estate, which can make use of that spouse’s unused federal estate tax exemption. If the less wealthy spouse dies first, the remaining trust property can stay protected for the wealthy spouse’s benefit, and the remainder will be excluded from the wealthy spouse’s estate when he or she dies. After both spouses die, the balance of the trust will go to the beneficiaries named by the wealthy spouse during the creation of the trust.

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, protecting that money from creditors and the estate tax, while still allowing the gifting spouse to enjoy the money through the beneficiary spouse. As opposed to a Lifetime QTIP Trust, this type of trust does not require that the beneficiary spouse receive income distributions; that spouse can have access to the principal while he or she is alive. The goal of this strategy is to use the gifting spouse’s estate tax exemption, not that of the beneficiary spouse. Additionally, other beneficiaries, such as children, can be named as current beneficiaries. This type of trust can be drafted to account for divorce and remarriage. The trust can refer to the beneficiary as the “current spouse”, so after a divorce, the former spouse is no longer entitled to payments. The new spouse will have access without changing the entire estate plan.

Note: If both spouses desire to use their own exemption during their lifetimes, they should make sure that reciprocal trusts are not drafted, which could unwind all the planning. As experienced attorneys, we can help make sure both spouses’ goals are met. 

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 is scheduled to end on December 31, 2025. If you die in 2026 or after, the estate tax exemption may be back down to $5 million adjusted for inflation. 

Portability can help manage this uncertainty; this 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 can use 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 filed quickly (usually within nine months) when the first spouse passes. Without this filing, the surviving spouse will only be able to use his or her own exclusion.

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

We Are Here to Help

You have worked hard to build a wonderful life for yourself and your family. We can help you develop a plan that protects your spouse and family according to your wishes after you are gone. Contact us today to schedule an appointment.

You can schedule a call with us or reach us directly at 855.528.9637 to learn more about how best to plan today to protect those most important to you.

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