Published August 31, 2015

Business Succession Planning? Consider Spousal Lifetime Access Trusts

Succession planning is a crucial undertaking for any operating business. Likewise, proper estate planning is important for taxpayers with family-owned, closely held businesses. Appropriate planning includes measures for reducing tax liability, creditor protection, and centralized management of the family assets. Often, the business is the majority of a taxpayer’s estate, so it is therefore a necessity to utilize succession planning in order to smoothly transition from current owner to predecessor in a tax-efficient manner.

Trusts are a common and effective vehicle used in business succession planning, with several available options to fit a taxpayer’s situation.  One such option is the Spousal Lifetime Access Trust (SLAT).  A SLAT is an irrevocable trust that includes the grantor’s spouse and generally their children.  When attempting to minimize potential estate tax liability associated with a highly appreciating business, a SLAT may be worthy of consideration.  By contributing a business to a SLAT, the value of the business is considered “frozen” for estate tax purposes.  Additionally, the benefiting spouse of the SLAT may access income and other trust assets, which can be useful should the family ever face an unexpected financial hardship.

However, one limitation of the SLAT is that the grantor does not have direct access to the trust, but rather indirect access through the benefiting spouse.  If the spouse were to pass away, the donor spouse would lose access to the trust, as the trust assets would pass to the trust beneficiaries.  Additionally, taxpayers should be aware that contributing to a SLAT will reduce the donor’s gift and estate tax exclusion.  Currently, the estate exclusion amount for 2015 is $5.43 million per spouse.

In order to provide taxpayers with quality advice, proper planning is necessary. As the baby boomer generation reaches peak retirement age, there is greater need for estate and succession planning. The Spousal Lifetime Access Trust may be the right option for a variety of taxpayers.

We would be glad to address any questions you have which may affect the future planning of your business or estate. For more information about succession and estate planning or to request a speaker on this topic, contact PYA at (800) 270-9629.

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