SLATs have become increasing popular in legacy planning for married couples but may have unanticipated consequences if the marriage ends.
Per Notice 2018-37, the IRS plans to issue future guidance that could impact the income taxation of SLATs post-divorce. Regardless, clients and advisors should be proactive in addressing these issues when planning with SLATs. New SLATs should incorporate trust provisions specifically dealing with spousal trust rights in the event of a divorce. Existing SLATs should be reviewed to confirm the impact of divorce, with consideration given to addressing spousal rights in a post-nuptial agreement if the SLAT fails to do so. Clients with existing SLATs that are contemplating divorce should review the SLAT’s tax ramifications as part of their negotiations, well in advance of a final settlement, and consult with a tax advisor in collaboration with the divorce attorney to coordinate the technical tax aspects of any settlement.