October 2015

Three Benefits of Spousal Limited Access Trusts

Spousal Limited Access Trusts are a great way to set aside and protect assets from creditors, while allowing your spouse access to the assets to support his or her lifestyle. In order to take full advantage of the benefits, it is important to consult with your attorney, accountant, and other advisors to ensure that all tax and non-tax considerations are taken into account.

1. Control of the Assets

Although the person establishing the trust (the "grantor") will lose the ability to directly control the assets once the gift is complete, these trusts allow the grantor to remove the assets from his or her taxable estate and still dictate where the assets will pass in the future. Whether the grantor desires to transfer the assets to his or her descendants upon the death of the beneficiary-spouse, or to a charity of their choosing, the grantor has the ability to determine how and when the assets will be distributed in the future.

2. Access to Trust Assets

A Spousal Limited Access Trust allows the grantor to utilize the available lifetime gift tax exemption amount and divest themselves of the assets for estate tax purposes, while leaving the resources accessible to their spouse during their lifetime. During the beneficiary-spouse's lifetime, the grantor-spouse may also be in a position to benefit from the trust property through the beneficiary-spouse.

Although this indirect access to trust assets through the spouse will end at the death of the beneficiary-spouse, the grantor can still engage in certain transactions with the trust which could allow them to access to assets if necessary. For example, the grantor may borrow money from the trust, with the loan secured by a long-term, low interest-bearing note. The grantor may also sell assets to the trust without recognizing gain on such sale. As a separate entity, the trust may be a co-owner of assets managed by the grantor through an entity such as a limited liability company, which will allow for asset management and potential discounting opportunities.

3. Asset Protection

In addition to the advantages described above, a Spousal Limited Access Trust also shelters the trust assets, and any growth, from the creditors of all family members. Since a transfer to a Spousal Limited Access Trust is a completed gift to the trust, the assets are no longer directly owned by the grantor or a family member of the grantor. Therefore, as long as the assets remain in the trust, they are not available to pay creditors of the grantor or a family member.