A Spousal Lifetime Access Trust (SLAT) is an estate planning tool that helps married couples transfer wealth while maintaining some access to the funds. SLATs have grown in popularity, especially with potential changes to estate tax exemptions on the horizon. Understanding the benefits and considerations of a SLAT can help couples decide if this strategy fits their financial goals.
Benefits of a SLAT
One of the main benefits of a SLAT is its ability to reduce the taxable estate of the grantor. By transferring assets into a SLAT, the value of those assets will no longer count toward estate taxes when the grantor dies. This benefit can be especially useful if estate tax exemptions decrease in the coming years.
A SLAT also provides a level of financial security for the beneficiary spouse. Even though the assets are in the trust, the beneficiary spouse can receive income or distributions if needed. This setup allows the couple to lower their estate tax liability while retaining access to some of their wealth.
Flexibility and protection
A SLAT offers flexibility and protection for the grantor’s assets. Since SLAT assets are no longer in the grantor’s estate, they can be shielded from creditors or lawsuits. The trust also allows for some customization, such as specifying when the beneficiary spouse can access funds or appointing children as secondary beneficiaries.
Considerations before setting up a SLAT
Setting up a SLAT requires careful planning. Once assets are transferred into the trust, the grantor cannot access them directly. If the beneficiary spouse passes away or if the couple divorces, access to the SLAT may become complicated or impossible.
SLATs also need to comply with strict regulations. Couples must ensure they do not violate the “reciprocal trust doctrine,” which could cause the IRS to treat both trusts as if the grantors retained control over their assets. Seeking professional guidance is important when creating a SLAT to avoid any legal pitfalls.
