by Verena MeiserShould you Consider a Spousal Lifetime Access Trust (SLAT)?
Change is coming to estate and gift tax laws. Should you consider a Spousal Lifetime Access Trust (a SLAT)?
You may be asking yourself what steps you could take in light of the anticipated reduction in the estate tax exemption and the possible limitation of the annual gift tax exclusion to a total of $20,000 per year per donor, meaning that you could not make more than a total of $20,000 of gifts that do not have to be reported. Gone would be the days of making $15,000 gifts to grandchildren every year, or large contributions to life insurance trusts with Crummey powers to pay for premiums. The anticipated changes will impact many existing estate plans. If yours may be affected, are there any planning strategies you should consider?
Estate planners have many tools at their disposition. I would like to describe one of those, since it is drawing a lot of interest at this time, due to the nature of the anticipated tax law changes. That powerful planning tool is a trust, that could be added to an existing estate plan to lock in the currently high estate tax exemption and, it could also provide the resources to cover insurance policy premiums in excess of $20,000 a year.
Let’s look at a Spousal Lifetime Access Trust.
It is an irrevocable Trust, set up by a Grantor for the benefit of the Grantor’s spouse. Assets are protected from the spouse’s creditors, the spouse can choose the investments and the trustees, and if the transfer to the trust is a complete transfer, the assets are not part of the taxable estate of either spouse. The idea is to fund such a trust with assets of a value up to the current estate tax exemption.
In the case of a married Grantor, the spouse is the beneficiary, and as such, the spouse could share distributed property with the Grantor in the event he or she runs out of assets. That gives a sense of comfort. For the unmarried Grantor, the trust could include provisions for a potential future spouse, often referred to as a “floating spouse”, and children could be named as beneficiaries.
Some other attractive features of a SLAT are that the Spouse could have a lifetime and a testamentary limited power of appointment; meaning that the spouse could appoint funds back to the Grantor. For those who have purchased life insurance in an Irrevocable Life Insurance Trust, to shelter the proceeds from estate taxes, any annual premiums in excess of the new $20,000 gift tax limit, could be paid for with trust property.
The bottomline is that a SLAT has the potential of providing significant estate and gift tax savings making it worthwhile to consider. We are here to advise and explore if a SLAT is a good fit for your family.
by Verena MeiserHow to Plan for Upcoming Changes in Estate Tax Law
Can a Spousal Lifetime Access Trust (a SLAT) capture the current estate tax exemption? And could it help maintain an expensive life insurance policy? The answer to both questions is Yes.
You may be asking yourself what steps you could take in light of the anticipated drop in the estate tax exemption? If you already have an estate plan, how will these tax law changes affect your current estate plan? Is there anything else you need to do to avoid exposure to estate tax and preserve your property?
And what about that Irrevocable Life Insurance Trust aka ILIT, that you set up to shelter the life insurance proceeds from estate tax? Are the annual premiums greater than $20,000? What if the rumored changes to the annual gift tax exclusion become law, so that each of us will be limited to a total of $20,000 of excluded gifts each year? If that was the case, the excess premium above $20,000 would have to be reported on a gift tax return. And lifetime gifts erode the available estate tax exemption at the time of death.
These are only some of the questions our concerned clients are asking at this time.
We would like to describe a powerful planning tool, a trust, that you could incorporate into your existing estate plan that gives you a shot at trying to lock in the current estate tax exemption and, if you need to can provide the funds for those expensive life insurance premiums, all while continuing to keep the policy out of your taxable estate.
Meet the Spousal Lifetime Access Trust, also known by its acronym as SLAT. What is a SLAT?
It is an irrevocable Trust, set up by one spouse for the benefit of the other spouse. Assets are protected from the other spouse’s creditors, the other spouse chooses the investments and the trustees, and if the transfer to the trust is a completed gift, the assets are not part of the taxable estate of either spouse. A transfer of property to such a trust in an amount that is greater than the anticipated new estate tax exemption (anywhere from 3 to 6.8 Million) can be covered by the current unified gift and estate tax exemption. Current tax law provides that there will not be a claw back. No claw back means that the use of the exemption will not be undone if the exemption is smaller in the year the donor spouse dies. However, tax laws can be changed and even be made retroactively effective. Caution must be taken include provisions that allow for a flexible response to any estate and gift tax law changes that become the law quicker than anticipated.
How is a SLAT different from another irrevocable trust you may already have? Why would someone consider such a trust aside from the creditor and estate tax benefits?
Since the other spouse is the beneficiary of the trust, that spouse could share distributed property with the first spouse in the event the first spouse runs out of assets. That gives a sense of comfort. Children could also be added as beneficiaries, and for the unmarried individual, the trust could include provisions for a potential future spouse, often referred to as the so-called “floating spouse”. In addition, the children could be named as beneficiaries.
Some other attractive features of a SLAT are that the Spouse could have a lifetime and testamentary limited power of appointment. That means the spouse could appoint funds back to the first spouse who set up the trust.
Bottomline is that a SLAT can provide significant estate and gift tax savings making it worthwhile to consider. We are here to advise and explore if a SLAT is a good fit for your family.
Verena Meiser is an Estate Planning attorney with Lewicky, O’Connor, Hunt & Meiser, LLC. She can be contacted at (410) 489-1996 or [email protected].
by Verena MeiserHow the SECURE Act impacts your plan for your retirement accounts. It is a good time to review.
The passage of the SECURE Act left many wondering if their estate planning documents need to be
updated.
Generally, we do not need to revise your trusts to comply with SECURE. It is important to understand
that trust rules did not change. If you included conduit trusts for your beneficiaries, they will still work
as intended, as conduit trusts. If you included a see-through accumulation trusts, they will also still work
as intended, as accumulation trusts.
The 10-Year Rule Basics
The problem introduced by SECURE is that the stretch-IRA and the income tax benefits of distributions
over the life expectancy of the beneficiary are mostly gone and replaced by a requirement that the
entire IRA will have to be paid out within 10 years of your death. There are five situations where the 10-
year rule does not apply; (1) when the plan has no designated beneficiary and the plan participant dies
after the required beginning date for distributions, since the plan continues to pay over the remaining
life expectancy of the deceased plan participant, and (2-5) there are four categories of beneficiaries who
are still eligible to withdraw their inherited interest in the form of minimum required distributions over
their expected lifetime. The eligible groups of beneficiaries are (i) minor children through majority (see
discussion below), (ii) chronically ill or disabled beneficiaries, (iii) persons not more than 10 years
younger than the plan participant, and (iv) spouses named as sole beneficiaries of a trust. Spouses
named directly as beneficiaries can still roll their interest over.
For a conduit trust beneficiary, who does not fall within one of the 4 eligible categories, the 10-year rule
means the beneficiary’s entire share of the inherited IRA has to be distributed to the beneficiary within
10 years. Since the 10 year period will include months of 11 tax years, the income tax impact of
distributions can be spread over 11 tax years. The rate at which distributions are taken is up to the
trustee of the trust.
For accumulation trust beneficiaries, who does not fall within one of the four eligible categories, that
means the distributions have to be made to their trusts by the end of the 10 years, over 11 tax years,
and the trustee decides at what rate to withdraw.
We see that the SECURE Act changed the income tax reward of a life-expectancy based payout.
Children and the 10-Year Rule
A minor child beneficiary falls within one of the exceptions to the 10-year rule and the child’s life
expectancy will be used to calculate payouts until the child “attains majority”. At that time, the payouts
switch to the 10-year rule. There is a lot of confusion about what “majority” means. Until we get clear
guidance from the Treasury, the assumption is that it means age 26, as long as the child is a student.
Thus, your child’s share of your IRA will be fully distributed to your child by age 36.
Note that this rule only applies to your minor child. It does not apply to other minors, such as nieces,
nephews, or grandchildren. Also note that for a disabled child, life expectancy payouts continue as long
as the disability lasts.
If the thought of your child having control over their entire share of your IRA by age 36 is a concern, you
could remove the conduit trust provisions for your child’s trust and convert it to an accumulation trust.
Additional updates to your revocable trust could allow your Trust Protector to convert a conduit trust to
an accumulation trust at the time of your death, if circumstances should have changed for your child by
then.
An adult child will receive the payout from the IRA within 10 years of the participant’s death. A conduit
trust for an adult child could be replaced with an accumulation trust, if you wish to keep the
distributions in the child’s legacy trust for asset protection purposes and income taxation at the trust’s
income tax bracket is not a concern. Recall that trusts have compressed marginal tax brackets.
Currently, a trust pays 37% for income above $12,700. If your child is a high earner, the distributions
would be taxed at 37% whether they would be distributed outright to your child or kept in the trust. In
such cases, the benefits of asset protection may weigh in favor of replacing a conduit trust with an
accumulation trust.
Talk to Your Estate Planning Attorney Today
This is a time to review your estate plan. We offer free initial consultations for new clients and free
reviews to our existing clients.
by Verena MeiserHow to prepare to meet with an estate planning attorney
How to prepare to meet with an estate planning attorney
So you’ve made that call and have scheduled your first appointment with an estate planning attorney to discuss creating your will or trust. Congratulations! The hard part is done, but there is still a bit more work that you need to do before that first meeting. While it may be tempting to go in unprepared and let the attorney take charge of the discussion, it’s actually far more productive if you come prepared and armed with important information. The more organized you are before your meeting, the more your attorney can successfully help you make the right choices.
Questions to think about before your first meeting
Before you meet with an attorney, you should think about what your goals are for your end-of-life plan and your property after your death. Who, for example, do you want to be the person who will be financially responsible for your estate (your executor, personal representative or trustee, who makes sure that your money and assets are distributed in accordance with your wishes)? And, if that person is not available or cannot perform those duties for some reason, who would be your second choice? If you have minor children, who will take care of them if you die? Additionally, you’ll want to have a general idea of who is going to get your money and property, including whether or not you want to give part of your estate to a specific charity or to a person who is currently a minor.
Although it’s challenging, you’ll also want to consider what you’ll need in the event that you become unable to make decisions for yourself. What will you want your care to look like, and who will you want to be in charge of your care. Making an end-of-life plan is a difficult but necessary way to plan for a more secure future. You’ll want to think about what your medical directive will look like. Do you know if you’d want to be on life-support or in hospice care? Who do you trust to make those decisions for you? By knowing, even in a general sense, what you want in your later life, you’ll be able to craft a plan with your attorney that is in line with your needs and desires.
What to bring to your first meeting with your estate planning attorney, and what your attorney needs to see and know
You should come to your first meeting armed with some key information and documents, which will allow your attorney to move forward with your plans quickly and effectively. This information includes:
List of family, including their names, ages, and contact information. Remember to include your spouse, children, living immediate relatives, as well as former spouses. Also, if there are others who will be involved in crucial decisions (i.e., executors, guardians, beneficiaries, etc.), make sure to include those names and contact information on your list.
Information for both retirement and non-retirement assets, such as your bank statement, stocks, bonds, and other investments, 401 (k) statements, IRAs, pension statements, and the like. Your attorney is not looking for the hard and fast numbers here. Rather, he or she is getting a sense of your combined financial assets and future projections of assets. Your attorney will also want to explain how each type of asset should be planned for your particular family situation.
Record of real estate and lists of personal property, including your home and mortgage, rental properties, vacation properties, or investment properties. You’ll also want to include a list of personal property that is either financially or emotionally valuable. If you own your grandmother’s engagement ring and want it passed down to a specific person, your attorney will need to know about those special requests.
Remember, you don’t have to stress over every detail, or wonder if you are forgetting something crucial. Your estate planning attorney should be a skilled questioner that can hone in on unusual or difficult details in your assets. However, by bringing in the standard documents and having a broad sense about your end-of-life wishes, your attorney can effectively lead you on the path to a well-planned future.
If you think you are ready to meet with an estate planning attorney at Lewicky, O’Connor, Hunt & Meiser, LLC, make an appointment today.
Verena Meiser has 16 years of experience as a trust and estates attorney. She has been practicing law in Columbia, Maryland for the past 12 years. She specializes in estate planning and asset protection, special needs planning, elder law, VA planning, estate administration, trust administration, and trustee support
by Verena MeiserPicking an Estate Attorney
How to pick the estate planning attorney that’s right for you.
An initial meeting with an estate planning attorney can be a nerve-racking encounter. In my experience, many prospective clients put off making important decisions about their end-of-life plan, sometimes because they are nervous about the amount of savings they have (or don’t have), and sometimes because they don’t want to make uncomfortable decisions. But your meeting really shouldn’t be stressful. A good estate planning attorney isn’t here to judge your financial situation or berate you for not saving enough. What your attorney should do, however, is listen to your concerns and guide your planning solutions to deal with any unique challenges you have. Most clients, if they’ve picked the attorney that’s right for them, leave their meetings feeling more confident and prepared for the future.
Find a good communicator.
First and foremost, you want an attorney that helps you feel comfortable and confident. You and your lawyer will need to go over many challenging topics, including who will raise your children if you pass away while they are still minors, how you will take care of yourself if you become incapacitated, and who among your loved ones can realistically act as the executor of your estate. A good estate planning attorney will ask the right questions to get a sense of your needs and complexities. Essentially, you need your estate planning attorney to be a careful and competent listener, who can hear what you say and recognize what you may have forgotten to mention.
For example, I find it productive to have clients discuss with me their experiences with their own parents or siblings. Such conversations lead to the selection of the best available support network including appropriate health care and financial agents. It’s crucial for me to get a complete sense of the person and his or her extended community. Good communication allows me to discuss the hard questions my clients have.
Work with someone who has experience with your specific needs.
Secondly, you want to pick the estate planning attorney whose expertise matches your needs. The attorney should also have experience in estate and trust administration. This additional experience means the attorney knows how to keep in mind how your plan should be implemented someday and can avoid complications. Additionally, you’ll want to know if the attorney has experience in both wills and revocable living trusts, as well as a good understanding of how the need for assisted living or a move to a nursing home can affect your plan. More broadly, you’ll want an estate planning attorney who can look at all the elements of your life and choose the plan that is right for you. So, for example, if you have minor children, you’ll need to think about the structure of the trusts you set up for them and who to nominate as their Guardians in your Wills. Or, you may want to make specific cash payments to individuals or charities, and you’ll want an attorney who is experienced in charitable disbursements and inheritance taxes.
Ask them about how they follow up.
A good estate planning attorney will tell you when you should get back in contact to reexamine your estate plan. As your life grows and changes, you want to make sure that your plan is still working for you. I tell my clients I can be reached anytime to discuss if any updates are needed, but it is vital to revisit the plan whenever they have important life changes (i.e., they buy a new house, receive an inheritance, or have a new member added to their family). It’s key to know when to revise your plan, and to feel comfortable calling your attorney with any questions.
With the right estate planning attorney, you will feel more confident about your future, regardless of the size of your estate.
If you think any of these concerns apply to you, give yourself peace of mind and make an appointment with an estate planning attorney at Lewicky, O’Connor, Hunt & Meiser, LLC today.
Verena Meiser has 16 years of experience as a trust and estates attorney. She has been practicing law in Columbia, Maryland for the past 12 years. She specializes in estate planning and asset protection, special needs planning, elder law, VA planning, estate administration, trust administration, and trustee support.
by Verena MeiserKey Reasons Why You Should Hire an Estate Planning Attorney
What is an estate planning attorney and what does he or she do?
Estate planning attorneys help you prepare for the unexpected. They are professionals who help take you through the specific set up of support networks in the event of a physical or mental disability. They walk you through questions to develop the plan that distributes your property upon death in regards to who receives it, and how they get it.
Why should I hire an estate planning attorney?
You may think that you don’t need an estate planning attorney to set up your will or create an end-of-life plan. I don’t have a Swiss chalet or a house on the beach, the thinking goes, so I can just use a DIY template from the Internet. Many experts caution against using legal templates. In many cases, templates are unable to handle more complex situations or are not compatible with various state laws. A DIY template is also more likely to be declared invalid for missing key pieces of information or being improperly signed. The last thing you want is for your beneficiaries to end up in court, or worse, for your end-of-life wishes to not be recognized because something wasn’t notarized correctly.
What if my estate planning needs are very simple?
Remember, it’s not the size of the estate that determines complexity. Some needs are just more complicated and require a larger breadth of knowledge. This is where talking to a real person is preferable to a machine. A good estate planning attorney knows the right questions to ask and can take into account your unique needs. For example, an attorney can guide you through the current state of the law regarding your options for health care decision making. They can also discuss the traits to consider as you choose financial agents for your powers of attorney, or help you choose the right executor for your estate. If you have minor children or children with special needs, it is crucial to protect them financially. The attorney can make sure that your plans are aligned properly with your assets to turn these wishes into a reality.
What are the laws in my State?
Does your state even have estate taxes, or are there distinct state taxes for properties of non-residents? Are there inheritance taxes in your state if you chose to will your assets to your children? These are the kinds of questions your lawyer can answer when assessing your estate. An estate planning lawyer will be able to flag unique issues relevant to your holdings with regard to the differences in state laws. In addition, if you
have property or holdings in two or more states, an attorney can help you navigate the state laws pertaining to both residents and non-residents.
Are estate planning attorneys expensive?
Many people choose a DIY template because they (rightfully) don’t want to spend extra money on something they could do themselves. However, if there ends up being any mistakes in the template, your beneficiaries could end up in expensive court cases down the line. A more reliable and cost-effective method is utilizing a lawyer to help you and your beneficiaries set up an estate plan. With a living trust, for example, you can (in some states) transfer funds to avoid larger administrative costs and eliminate probate. Your attorney would help you navigate the complexities of the inheritance tax system to get the maximum allotted amount of assets directly to your beneficiaries. By getting the job done correctly the first time, an estate planning attorney can help you to save money in the long run.
If you think any of these concerns apply to you, give yourself peace of mind and make an appointment with an estate planning attorney at Lewicky, O’Connor, Hunt & Meiser, LLC today.
Verena Meiser has 16 years of experience as a trust and estates attorney. She has been practicing law in Columbia, Maryland for the past 12 years. She specializes in estate planning and asset protection, special needs planning, elder law, VA planning, estate administration, trust administration, and trustee support.
