Spousal Lifetime Access Trusts

Spousal Lifetime Access Trusts—The ‘SLAT’ Advantage

Spousal Lifetime Access Trusts—The ‘SLAT’ Advantage
A spousal lifetime access trust (SLAT) can be an incredibly powerful estate planning tool for high-net-worth couples and families.

What’s the concept? Simply, it’s when one spouse (or both) creates a trust, with the other as the beneficiary. At a high level, a SLAT removes assets from one’s estate while still allowing access to those assets and providing protection from creditors. A SLAT also locks in the current estate-tax exemption.

That last bit is icing on the cake: You may recall that the federal estate-tax exclusion was increased to a whopping $12.06 million in 2017 thanks to the Tax Cuts and Jobs Act. And the number is double for married couples. (You will also see this figure referred to as the “unified credit”—the lifetime dollar amount one can gift or pass to the next generation before triggering gift or estate tax.) 

That $12.06 million figure is important because the increase is scheduled to sunset after 2025—reverting to $5.49 million (which will be adjusted for inflation)—unless Congress decides to make the higher exemption permanent.

We don’t have a crystal ball, so we don’t know if legislators will act. But we do know that locking in the higher exemption now, rather than waiting to see, is an idea worth considering. Here’s what it looks like at a very high level:

  • You create a $12 million SLAT with your spouse as beneficiary
  • Your spouse creates a similar trust with you as the beneficiary
  • In effect, you’ve moved $24 million in assets outside of your estate, safeguarding the higher exemption before it possibly reverts down in 2026

Spousal lifetime access trusts come with some limitations. For instance, upon the non-donor spouse’s death or in the event of a divorce, the donor no longer has the same indirect access to the trust assets. And if each spouse creates a SLAT to benefit the other, careful planning must be done to avoid the “reciprocal trust doctrine” (when the IRS interprets the two trusts as constructively similar or interrelated).

Work with your wealth adviser and tax strategist before implementing a spousal lifetime access trust to make sure it meets your needs and is being drafted and executed properly.

Tax and legal information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice.  Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice. Always consult a licensed attorney or tax professional regarding your specific legal or tax situation.

Our statements and opinions are subject to change without notice.  All investments carry risk of loss and there is no guarantee that investment objectives will be achieved.

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