The donor may wish to make gifts in a way that the donor (or the donor’s spouse) could retain some use of the assets in case needed as a “rainy day” fund. A popular way of using the increased gift exemption may be for a donor to make gifts to a “lifetime access trust” for the benefit of the donor’s spouse (and possibly children). The trust could be designed to give as much control and flexibility as possible to the surviving spouse without creating tax or creditor concerns.

If one spouse creates a lifetime trust for the other spouse, neither spouses’ creditors should be able to reach the assets in the trust. If both spouses create trusts that are not reciprocal of each other, both trusts may be protected from claims of the spouses’ creditors.

People establish irrevocable trusts that include spouses for many reasons:

  • to protect assets from creditors of either spouse, without the uncertainty accorded self-settled asset protection trusts (especially for residents of states such as California that have not passed specific legislation). The terms of a SLAT may even include “repeal and replace”  “floating spouse” provisions.
  • to utilize the estate tax exclusion of the donor spouse, such as using the substantially increased gift tax exclusion before the increase potentially disappears.
  • to allow children from a prior marriage to receive other assets so that the probate of the settlor’s estate need not involve the spouse, causing less chance for friction, litigation, and delay;
  • to create more financial certainty for the donee spouse and peace of mind.