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Saturday, December 01, 2012


By Charles Rubin and Robert Chaves

There is a substantial amount of gifting activity being undertaken in late 2012 to use the unified credit before it is scheduled to be reduced in 2013. Oftentimes, spouses are creating trusts for each other to use their credit, which trusts are commonly known as spousal limited access trusts, or SLATs.

SLATs are not without tax risk, especially if each spouse creates one for each other (e.g., the application of the reciprocal trust doctrine). While with proper planning such risks can be minimized, the possibility that the assets of a SLAT may be includable in the gross estate of a grantor spouse cannot be entirely eliminated. While many believe that such a grantor should be in no worse position than if he or she had not undertaken the planning, this ignores the loss of the ability of such a grantor spouse to use the marital deduction for such transferred assets (if he or she is the first spouse to die).

Therefore, in preparing SLATs, planners should include a provision that allows for the marital deduction in the event of gross estate inclusion in the estate of the grantor spouse. Further, in the circumstances of powers of appointment being exercised by a beneficiary spouse in a SLAT in favor of the grantor spouse at the death of the beneficiary spouse, similar planning may be indicated.

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