Can We Use Funds from Our SLATs to Assist Our Son?

 In Estate and Gift Taxes, Irrevocable Trusts
spousal lifetime access trust

Spousal lifetime access trust

Question:

My husband and I have SLATs set up. The only beneficiaries are our son and 2 grandsons. Our son lost his job and has been looking without luck for 4 months for a new one. He is very worried as to how to pay his bills. He was making over $100K and jobs just are not paying that now. We have been giving him money for our grandson’s education and medical bills and would like to make a distribution from the trust under the maintenance and support category but do not know what would be included – – property tax, home and car, health insurance, utilities? We do not want to run afoul of the IRS and negate the trusts.

Response:

To explain to the uninitiated, “SLAT” refers to a “spousal lifetime access trust.” These are trusts similar to more standard spousal trusts created for estate tax planning purposes that are funded at the death of the first spouse to die. Instead, SLATs are created and funded during life, each spouse creating a trust for the benefit of the other. The main advantage of taking this step is that they provide creditor protection as well as tax planning benefits. The downside, that you’re running into, is that for these trusts to work they must include some restrictions on how the trust funds are used.

Since every trust is somewhat different, my main question is whether your son is a current beneficiary of the trust or will only become one after you and your husband have both passed away. If he is a current beneficiary, then paying for the items you list come under the “maintenance and support” definition and will not run afoul of the IRS rules. If he is not a current beneficiary (which is more likely), then it’s more difficult since “maintenance and support” applies to your and your husband’s needs and not those of your son.

There may be a couple of workarounds. First, you might be able to assist your son from your income rather than from the trusts. Second, depending on the terms of the trusts, you may be able to borrow from them and then use that money to assist your son. If you do this, do so by the book. Execute promissory notes and pay back the trusts under their terms.

In any case, I’d recommend that you go back to the attorney who assisted you with setting up the SLATs in the first place to see what they advise in terms of a solution.

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