Many of you may remember President Reagan’s famous 1984 campaign ad which proclaimed, “It’s morning again in America.” Fast forward to today, and in this campaign season we find ourselves in a different moment—one where a key tax policy of the past decade is about to “sunset.”
Many of the provisions in the Tax Cuts and Jobs Act (TCJA) of 2017, are set to expire in 2026 – less than 15 months from now. From an estate planning perspective, one of the key provisions that is in the twilight of its existence is what some have called the “bonus” exemption against estate taxes. The TCJA doubled the amount of estate tax emption. Today, the exemption is $13.61 million per person. An inflationary adjustment in 2025 should take the exemption to roughly $14 million. But in 2026, the “bonus” exemption goes away, leaving an exemption likely around $7 million.
For higher net worth families looking to preserve their wealth, this looming shift presents a serious challenge, and a time-sensitive opportunity. One popular approach to making the most of the exemption currently available is the Spousal Lifetime Access Trust (SLAT).
A SLAT is an irrevocable trust where one spouse makes a gift to the trust for the benefit of the other spouse (and potentially other family members), using up part or all of their estate tax exemption. The assets transferred to the trust, including any future appreciation, are removed from the taxable estate of the donor spouse, and are not included in the beneficiary spouse’s taxable estate. The beneficiary spouse retains access to the trust’s income and principal, providing financial security while keeping assets out of the taxable estate. The SLAT may also be designed as a dynasty type trust, which can continue to benefit children, grandchildren, and future generations without becoming subject to transfer taxes. If implemented before the end of 2025, this strategy allows couples to “lock in” today’s historically high exemption.
For families concerned about preserving wealth across generations, “It’s Sunset Again in America.” SLATs offer an effective solution to make the most of the current tax landscape. However, they require careful planning, which takes time to do well—time that is growing short First Covenant Trust & Advisors is here to help you navigate these changes, implement strategies that align your goals with the opportunities available, and ensure your legacy is protected. Contact us today to discuss how you can make the most of the current estate tax exemption before night falls.