What is a Spousal Lifetime Access Trust (SLAT)?
A spousal lifetime access trust (SLAT) is a trust created by one spouse (trustmaker spouse) for the benefit of the other (beneficiary spouse).
This estate planning tool can be used to retain as much control over your property and assets as possible while not paying any more taxes than you have to.
Spousal Lifetime Access Trusts
A SLAT is an irrevocable trust used to transfer money and property out of the trustmaker spouse’s estate into a trust for the other spouse’s benefit.
Using a SLAT, the trustmaker spouse can take advantage of their lifetime gift and estate tax exclusion amounts by making sizable, permanent gifts to the SLAT.
This decreases the value of their estate while still allowing some limited access to the trust’s money and property.
Here’s how it works:
- The trustmaker spouse gifts money or property to the SLAT to benefit the beneficiary spouse. The trustmaker spouse must be the sole owner of these assets. If the couple lives in a community property state, they will probably need to convert their community property into separate property through a partition agreement.
- The trustmaker spouse reports the gift to the SLAT on a gift tax return.
- The beneficiary spouse receives distributions from the SLAT, which indirectly benefits the trustmaker spouse.
- When the beneficiary spouse dies, the assets are transferred to the remaining trust beneficiaries, either outright or in a trust. These beneficiaries are typically the couple’s children or grandchildren.
Contact an Asset Protection Attorney Near You
Online Appointment Request
Call Our Office
What are the main benefits of a SLAT?
SLATs offer many potential advantages for people looking to reduce their tax burden, including:
- Reduce estate value: The value of the property gifted by the trustmaker spouse to the SLAT is removed from the estate. All future appreciation is also removed. The beneficiary spouse receives distributions from the SLAT, but the trust property is excluded from their estate.
- Reduce tax burden: SLATs are typically structured as grantor trusts. The trust’s taxable income is taxed to the trustmaker spouse. This reduces their estate value. As long as the trustmaker spouse is alive, they do not need to submit a separate tax return for the SLAT. A separate tax return is required if the SLAT is not structured as a grantor trust.
- Financial security: A SLAT allows the trustmaker spouse indirect access to the assets in the SLAT through the beneficiary spouse.
What are the main drawbacks to a SLAT?
There are potential drawbacks to a SLAT that should be considered, including:
- Irrevocable trust: Gifts made to a SLAT is permanently transferred, and the transfer cannot be undone.
- Access depends on the beneficiary spouse: If the beneficiary spouse dies or divorces the trustmaker spouse, the trustmaker spouse will lose access to all assets gifted to the SLAT. Upon remarrying, the trustmaker could potentially regain access.
- Loss of step up in cost basis: The property gifted to the SLAT will not receive a step up in cost basis when the trustmaker spouse dies. To minimize the effect of this drawback, Trustmakers can include a trust provision that allows the trustmaker spouse to substitute low-basis trust property with high-basis property or cash of equal value.
- Cannot construct two similar trusts: If two spouses are trying to create SLATS that fully utilize each other’s exemption amount, they may run afoul of the reciprocal trust doctrine. In this case, the Internal Revenue Service may undo the trusts and include the trust property in the spouses’ taxable estates. This defeats the purpose of the trust. Creating SLATs at different times, using different trustees, choosing different beneficiaries, or providing different distribution terms may help overcome this obstacle.
When does it make sense to have a SLAT?
A SLAT can be an effective estate planning tool for married individuals who have significant assets and want to provide for their spouse while minimizing estate taxes. It allows them to transfer assets to a trust, removing them from their taxable estate, while still ensuring that their spouse has access to those assets throughout their lifetime.
This can be particularly useful in situations where there may be concerns about future changes in tax laws or the potential for remarriage.
What are the requirements for establishing a SLAT?
To establish a SLAT, the individual must be married and willing to transfer assets to an irrevocable trust for the benefit of their spouse. The trust must be properly funded with assets that will generate income for the spouse, and a trustee must be appointed to manage the trust and distribute income as necessary.
It is important to work with an experienced estate planning attorney to meet legal requirements and structure the trust in a way that meets your specific goals.
How much can I gift to my SLAT in 2024?
In 2024, the annual gift tax exclusion allows individuals an annual gift tax exclusion of $18,000 per spouse per year, as well as a lifetime gift tax exclusion of $13.61 million per individual, or double this amount for married couples. However, everyone should keep in mind that these exemptions will likely be adjusted and reduced by 2026 for future years. Discuss this year’s exclusions and future exclusions with your lawyer.
Is a SLAT included in my estate or my spouse’s estate?
One of the advantages of a SLAT is that the assets transferred to the trust are removed from the individual’s taxable estate. This means that the assets are not subject to estate tax upon the individual’s death. However, if the individual’s spouse is the beneficiary of the trust and passes away before the individual, the trust assets may become part of the spouse’s taxable estate. Proper estate planning can help mitigate any potential estate tax consequences, and an experienced estate planning attorney can provide guidance on the best strategies to protect your assets.
What happens if my spouse predeceases me, or my spouse and I get divorced?
If your spouse predeceases you, the assets in the SLAT will typically pass to the trust beneficiaries as specified in the trust agreement. These beneficiaries can include children, grandchildren, or other individuals named in the trust. In the case of divorce, it is important to review and modify the trust agreement accordingly, as the trust assets may no longer be intended for the former spouse’s benefit. Always work with an estate planning attorney to make sure that the proper provisions are in place to address these scenarios and protect your assets.
Can both my spouse and I set up separate SLATs for each other?
Yes, both spouses can establish separate SLATs for each other. This can provide additional flexibility and protection for both individuals. However, it’s important to coordinate and align the trusts’ objectives and strategies to avoid potential conflicts or unintended consequences. Consulting with an experienced estate planning attorney ensures that the trusts are structured appropriately and complement each other’s goals.
Is a SLAT right for you?
Determining whether a SLAT is the right estate planning tool for you and your spouse requires careful consideration of your financial situation, goals, and objectives. An estate planning attorney can assess your unique circumstances and provide guidance on whether a SLAT aligns with your needs and helps you achieve your desired outcomes. With their knowledge of trusts and estate laws, they can analyze your assets, tax implications, and other relevant factors to determine if a SLAT is the most suitable solution.
SLATs may be a limited-time option
SLATs may be considered a limited-time option because of changes in tax laws and regulations. In 2023, the gift and estate tax exemption amounts are $12.92 million for individuals and $25.84 million for married couples.
This historically high level provides opportunities for people with high-value estates that lower tax exemptions would not.
Under current law, gift and estate tax exemption amounts will decrease to $5 million (adjusted for inflation) on 1/1/26. Of course, Congress could decrease the exemption sooner.
Because tax laws could change at any time, the opportunity to use SLATs to their greatest advantage may be limited.
Considering the potential changes in tax laws, using SLATs as an estate planning tool may be a limited-time option. For expert guidance, consult our New York Estate Planning Attorneys.
If you are a married couple and need to reduce your federal estate taxes or have questions about SLATs, schedule a call with us at 855.631.3457 to learn more about how to protect those most important to you.
Discuss Options with Our Estate Planning Attorney
If you are considering establishing a Spousal Lifetime Access Trust or have any questions about estate planning, it is vital to consult with an experienced estate planning attorney. Katzner Law Group offers comprehensive estate planning services tailored to your specific goals and needs.
Our skilled attorneys understand how New York estate planning works for high-wealth clients and can provide you with the guidance and support you need to protect your assets and provide for your loved ones.
Contact us at 855-830-6180 to schedule a consultation and start planning for your future. Don’t leave your legacy to chance, trust the attorneys at Katzner Law Group.