In the 1970s my grandparents owned a men’s clothing store located in Indianapolis’ Westlane Shopping Center at 71st Street and Michigan Road. Next door was a Baskin-Robbins ice cream store. When my mother took me and my sister by the store to visit, if I was lucky, my grandma would give me a dollar to buy us ice cream cones.
One fortunate day, I took my sister by the hand as we raced off to select from the array of colors nesting in the display freezers’ round, cardboard containers. I always liked to ask for a sample before choosing. French vanilla? Rocky road? Chocolate peanut butter? Cookie dough?! It was such a difficult choice!
We got our cones, I reached into my pocket to hand the dollar to the teenager behind the counter (she was beautiful but so much older than I!) and led sis back to the store. Exiting Baskin-Robbins, I froze. Not from ice-cream’s prevalent brain-freeze when one takes too big of a bite, rather from red and blue flashing lights that blinded me. Police cruisers, ambulances and fire trucks blocked the parking lot, and a sheriff’s deputy put his hand in front of my face to stop me from entering my grandparents’ store.
“He’s okay!” I heard my grandma shout. “Those are my grandchildren! Please let them in!”
The store was in chaos. My grandpa sat on the floor outside of the swinging, western saloon type doors that led to the backroom where he altered pants and suit jackets. Moments before, Grandma, who manned the cash register, was held at gunpoint during a robbery. Grandpa, unaware of the situation, burst through the swinging doors carrying hemmed pants. The ruckus spooked the robber, who turned and fired his gun.
Grandpa crumpled to the ground, Grandma screamed, the gunman fled. By the grace of God, the bullet merely skimmed Grandpa’s temple, taking some skin with it. He wasn’t seriously harmed.
I dropped my ice cream. My sister, remarkably, continued to eat hers as her five-year-old eyes watched the aftermath unfold. After things calmed down my grandpa took me back to Baskin-Robbins to replace my cone. I didn’t feel like eating, but he insisted. I recall that I chose an easy flavor like vanilla just to appease him. Mom came to pick my sis and me up. Trembling, she hugged us, unknowing at the time that we were safely next door when the incident occurred.
These days, as an estate planning attorney, I’m more like the Baskin-Robbins server than like a customer. With adverse tax legislation looming, my clients say they want a “SLAT” (Spousal Lifetime Access Trusts). They’ve heard about them from friends or read about them in the Wall Street Journal. This type of advanced estate planning technique is used to consume one’s federal gift/estate tax exemptions before they are legislated away or expire yet retain income for a spouse’s lifetime.
Hence the demand, “I want a SLAT!”
What my clients don’t realize is that’s like going into the Baskin-Robbins and declaring that one wants an ice cream cone! What flavor do you want? Without telling your server he has no idea what to make for you.
Do you want two SLATs, one for you and one for your spouse? The IRS has something known as the “Reciprocal Trust Doctrine” you need to avoid, or the entire transaction won’t work. There are several ways to so avoid the doctrine, which way shall we choose? Do we create SLATs a period of time from one another? Will one SLAT allow for a power of substitution of assets?
Do you want your spouse to be the only beneficiary for her lifetime, or can the trustee sprinkle the trust income or principal among your children and grandchildren?
Will the trust be consumed before your children die or is it likely to grow for subsequent generations? Should we opt-out of the automatic generation skipping transfer tax allocation or save that for another strategy? Are your children wealthy and how should that answer play into the strategies considered? What other strategies might work to fit your goals – are there any better than SLATs?
Can SLATs result in higher income tax payments? (Answer: Yes) How do we minimize them?
The questions go on and on. Properly strategized, SLATs should not be form documents. Like any other estate planning tool, the advantages and disadvantages of various techniques should be considered before creating and funding this irrevocable instrument.
These questions can freeze you in your tracks. Make it difficult to choose the strategy most appealing to you. An excellent guide will walk you through the process, rather than whip up the flavor of the day.
Especially for those reading this with high net worth, the stakes are enormous. My grandparents were simple haberdashers. They never had to worry about an estate tax, even in the years when the threshold was so much lower than it now stands. Grandma and Grandpa worked long, hard hours into their elder years before retiring. Thankfully, they had each other until my grandfather died at age 85. Grandma followed a few years later.
I still miss them.
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