June 11, 2024

Breaking Up Is Hard To Do: Divorce Risk and Spousal Lifetime Access Trust Planning

Philadelphia Estate Planning Council

Private client associate Brian Balduzzi and partner Lisa Presser co-authored an article titled, “Breaking Up Is Hard To Do: Divorce Risk and Spousal Lifetime Access Trust Planning” for the Philadelphia Estate Planning Council that discusses the ramifications of a potential divorce when considering trust planning and incorporating certain provisions and language into the trust, executing a postnuptial agreement or foregoing some estate planning strategies when the risk of divorce cannot be mitigated or may upset the proposed estate plan.

The authors advise reviewing the implementation of Spousal Lifetime Access Trust (SLAT) planning, which provides one option for married spouses to use (at least) one spouse’s lifetime exemption amount to remove the funded assets from their taxable estates, benefit from the historically high lifetime exemption amount, provide direct access for the beneficiary-spouse if he or she needs the income or principal from the SLAT and protect the assets from claimants and creditors. However, they also recommend considering the risk of divorce when planning the SLAT.

In the article, Balduzzi and Presser explain planning options for divorce risk including adding a “floating definition” of the term “spouse” in the trust instrument, including a trust protector and the power to grant or exercise a lifetime limited power of appointment over the trust assets; entering into a postnuptial agreement; and agreeing to a divorce settlement.

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