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Tax advantaged spousal lifetime access trusts bear risks

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A rush to transfer assets into spousal lifetime access trusts in order to avoid estate taxes in the future may bring its own risks apart from the high payments to Uncle Sam.

The ability to set aside up to $13.61 million per individual in 2024 (or $13.99 million next year) tax-free into a SLAT carries a lot of appeal for wealthy households in which one spouse is removing the assets from the estate while maintaining some indirect use of them. However, the concerns of unexpected deaths, divorces or cash-flow problems represent significant dangers in the long term, according to Martin Shenkman, founder of Shenkman Law.

“You can actually do modeling as the financial advisor and help the lawyer figure out which extra access points or techniques to add to the plan based on the modeling. That just doesn’t happen very often, and it should happen all the time,” he said in an interview. “The role of the financial advisor should help lead the decisions on how the SLAT or another type of planning is done. The role of the financial advisor is essential, and, too often, the clients work out these decisions with their attorneys without their financial advisors involved. That’s not prudent.”

READ MORE: Divorce, death and taxes: 3 risks connected with SLATs

SLATs began receiving a lot more attention in recent years amid concerns about potential changes to taxes under President Joe Biden’s administration and the possible expiration of the Tax Cuts and Jobs Act of 2017 at the end of 2025. With former President Donald Trump set to return to the White House next year and his Republican party in control of Congress, the gift and estate exemptions look increasingly likely to remain at their high levels — even if planners and their clients won’t know the exact details for several months or the entire year in 2025. The trusts combine tax advantages with a degree of wiggle room.

“Once the assets are out of the grantor’s estate, any appreciation of assets in the trust also occurs outside of the grantor’s taxable estate, which can significantly enhance the long-term financial legacy for the grantor’s heirs,” George Reilly, a partner with the Dunlap Bennett & Ludwig law firm, wrote in a guide to SLATs in September. “Since a SLAT is an irrevocable trust, assets in SLATs are also generally protected from the grantor’s creditors. This protection can be valuable for individuals in professions or situations where they may be at higher risk of legal claims. Finally, SLATs afford grantors greater flexibility. While a grantor cannot directly access the assets in the trust, the beneficiary spouse can receive distributions from the trust, so the couple still has access to the assets.”

Those benefits prove less beneficial without adequate analysis of whether the leftover assets are enough to support the same spending budgets and address needs such as long-term care or other healthcare expenses connected with aging, Shenkman pointed out. Insurance or domestic asset protection trusts could deliver some of the same advantages without posing the fundamental challenge of whether the clients truly have enough money at their disposal.

“A lot of people are talking about SLATs like they’re the ultimate planning tool, and, like any tool, it’s useful. But it’s got to be used properly and in the right circumstances,” Shenkman said. “How do you know that a SLAT gives you enough access to the money? The answer is, you really need to do financial modeling and see what access you might need.”

READ MORE: 3 types of trusts that could help wealthy clients’ estate plans

Unexpected deaths, divorces or disability add a layer of complexity to those calculations. In some circumstances, the assets could wind up no longer being available to the original grantor of the trust. Some clients may not grasp that it requires an “incredible level of wealth to be able to give it away and not have access,” Shenkman said.

“Too often, people get mesmerized by the idea of saving estate taxes, and they don’t think through the financial risk that could be really devastating. On one end of the spectrum, SLATs are a great tool. But you’ve got to make sure you have enough money,” he said. “A client really should have a complete insurance analysis done when they do a SLAT or any of the other variations that are available.”

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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