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Article highlights:
Spousal Lifetime Access Non-Grantor Trusts are versatile estate planning tools that can offer significant tax and estate savings and asset protection. While primarily used for these purposes, SLANTs can also be utilized for stacking Qualified Small Business Stock benefits. This article will explore the potential benefits and trade-offs of using a SLANT for QSBS stacking and provide a case study to illustrate the financial advantages of this strategy.
Qualified Small Business Stock refers to shares in a C-corporation that meet specific requirements under Section 1202 of the Internal Revenue Code. Key requirements include:
Shareholders who hold QSBS assets for more than five years may be eligible for significant tax benefits, including:
QSBS stacking aims to maximize the benefits by transferring QSBS to multiple legal entities, such as trusts, which are treated as separate taxpayers. Each separate taxpayer may then be eligible for its own exemption, effectively multiplying the tax savings.
In particular, by transferring QSBS to a SLANT, the grantor effectively creates a separate legal entity, which may be considered an additional shareholder for QSBS purposes.
In this case study, we will explore the potential financial benefits of using a SLANT for QSBS stacking. We’ll use the following assumptions:
Chart 1: QSBS Stacking
Benefits Comparison – SLANT vs. No Trust
Scenario | QSBS Gains | QSBS Exclusion Limit | Taxable Gains | Potential Tax Savings |
---|---|---|---|---|
Jane (No SLANT) | $15M | $10M | $5M | |
Jane (with SLANT) | $7.5M | $10M | $0 | |
SLANT (with QSBS) | $7.5M | $10M | $0 | $1.85M |
Combined (Jane + SLANT) | $15M | $20M (Stacked) | $0 | $1.85M |
Jane can potentially benefit from QSBS stacking as shown in the chart above. By transferring $7.5 million of her QSBS gains to the SLANT, both Jane and the SLANT can exclude their respective gains from taxation, leading to $1.85 million in tax savings.
It is important to understand the trade-offs and potential benefits of using SLANTs for QSBS stacking and to make informed decisions that align with your financial and estate planning goals.
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