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Talking Taxes: You Can't Always Get What You Want
Article publishedBy: Eaton Vance  |  Article published on:August 15, 2024

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Talking Taxes: You Can't Always Get What You Want

By Eaton Vance Advisor Institute

Given the impending sunset of The Tax Cuts and Jobs Act (TCJA), and the potential for the current estate tax exemption to be cut in half, many of your clients may feel pressure to make large gifts now. But it can be hard for clients to part with control and access to a significant portion of their wealth. How can you open the door to discussing their options while also acknowledging that any solution will likely be viewed as a compromise on their part?

Consider using an ism inspired by The Rolling Stones song "You Can't Always Get What You Want." Retaining complete control over assets, while also removing them from a taxable estate, isn't an option. Yet, an advanced planning technique could help them get what they need—removing assets from their taxable estate. 

A spousal lifetime access trust (SLAT) gives access rights to the donor's spouse thus allowing the donor, via their spouse, to retain limited access to the gifted funds during their spouse's lifetime. A SLAT is created when one spouse (the donor) sets up an irrevocable trust for the benefit of the other spouse and future generations—the beneficiaries. When cash, stocks, real estate or other assets are transferred into the trust, the donor can use all or a portion of their remaining exemption to remove those assets from their taxable estate. The beneficiaries, including the spouse, can access the trust's income and receive distributions of principal, pursuant to the trust's terms.

Start a conversation about SLATs with your clients by asking: "Given the potential sunset of the current estate and gift tax, are you open to exploring trusts? They can be used for gifting while retaining access rights for your spouse."

While clients may not be able to get exactly what they want, tax benefits with retained access and control, they might find they can get what they need with a SLAT. Keep in mind that the trust's terms need to be restrictive enough to prevent inclusion of the assets in both the donor's estate and the spouse's estate. So, it's important for clients to engage their estate planning attorney in these conversations as early as possible.

Bottom Line: As the impending sunset of the TCJA draws near, a well-articulated ism can help guide clients concerned about the potential sunsetting of the current estate tax exemption.