Bar seeks parity for spousal-lifetime-access trusts to protect assets from creditor claims

Representatives of the Maryland State Bar Association urged the House Judiciary Committee to support House Bill 50, a technical change to Estates and Trusts law intended to extend existing state protections to spousal lifetime access trusts (SLATs).

Charles Jones and Laura Thomas of the MSBA Estates and Trust section told the committee that a SLAT is an irrevocable trust created by one spouse for the benefit of the settlor’s spouse; SLATs are often used to move assets out of a settlor’s taxable estate while still giving the spouse access to resources. Testimony said that, under current Maryland law, certain trust structures (QTIP trusts) have established state-tax and creditor-protection treatment when the settlor’s interest arises only after the beneficiary-spouse’s death; SLATs lack a parallel statutory treatment and can create inadvertent inclusion in the settlor’s taxable estate in some drafting scenarios.

Witnesses said the change would align state law with common estate-planning practices and cited the looming federal exemption ‘sunset’ as background for why many Maryland residents have already engaged in SLAT planning. Committee members asked how the federal exemption amount interacts with state law and about common divorce or remarriage scenarios that can affect SLAT outcomes; witnesses described examples in which a settlor’s estate inclusion could occur if a trust is drafted or handled in particular ways and said the bill would provide clarity and parity with QTIP rules.

MSBA witnesses urged a favorable report and said technical amendments may be requested; the committee did not record any vote or amendment in the hearing transcript.