A Spousal Lifetime Access Trust (SLAT) allows one spouse to gift assets to a trust to benefit the other spouse. People do this because it potentially reduces the taxable estate while retaining some access to the assets. Given the potential for changes in estate tax laws, understanding SLATs as one tool for high-net-worth couples to use to manage their estates effectively. With the current lifetime estate tax exemption set to significantly lower at the end of next year, now is an ideal time to consider utilizing a SLAT as one tool to mitigate future estate taxes.
What This Trust Accomplishes
A SLAT allows a spouse to make a gift to an irrevocable trust that benefits the other spouse. This action reduces the couple’s combined estate, potentially minimizing federal and state estate taxes. This can help residents of states with state estate taxes even if they don’t face federal estate taxes.
In 2024, individuals can exclude $13.61 million from their estate, allowing a married couple to exclude up to $27.22 million. However, these exemptions are set to decrease in 2026 to about $7 million per person unless new legislation is enacted. This reduction means that some people not currently affected by estate taxes might face them.
Couples can use a SLAT to take advantage of the current high exemptions before they potentially decrease. A SLAT provides a way to lock in these benefits, making it an attractive option for those looking to reduce their estate tax liability. Additionally, by transferring assets to a SLAT, any subsequent appreciation in those assets occurs outside the taxable estate.
How it Protects Your Assets
A SLAT is an irrevocable trust that cannot be changed once established. The donor spouse can gift assets to the trust, which effectively removes them from their taxable estate. This helps reduce the overall estate size and potentially avoid hefty estate taxes. Additionally, the assets in the trust can grow without being subject to estate tax, which can be advantageous for long-term financial planning. The non-donor spouse can access the trust’s assets, ensuring the couple maintains their standard of living. This access is generally restricted to health, education, maintenance, or support distributions, which keeps the assets from being added to the non-donor spouse’s taxable estate.
In divorce, provisions can terminate the non-donor spouse’s beneficial interest. The assets in the trust can still benefit children or other family members if the non-donor spouse dies before the donor. This ensures the trust continues to fulfill its purpose even without the non-donor spouse. If structured as a grantor trust, the trust’s income is taxed to the donor spouse. This allows the trust’s assets to grow without being harmed by income taxes. To accommodate future changes, the trust can include provisions for a trust protector and an independent third party who can adjust the trust terms as needed.
Protect Your Assets with Private Wealth Law Group
If you’re considering a Spousal Lifetime Access Trust or have questions about estate planning, contact Private Wealth Law Group to schedule a consultation.
Private Wealth Law Group, P.C.
