What is a Spousal Lifetime Access Trust (SLAT)?
Hope you had a great Valentine's Day! When is the best time for you to review your estate strategy?
If you’re married, you need to plan the future of your estate with your spouse. As hard as it is to face, one spouse will pass first and it’s important to take the steps necessary to protect the surviving spouse. One option for estate planning you and your spouse may want to consider is a Spousal Lifetime Access Trust (SLAT).
What is a Spousal Lifetime Access Trust?
A SLAT is a type of irrevocable trust that involves one spouse making a gift into a trust to benefit the other spouse (as well as other family members like children). A SLAT removes the assets involved from their combined estates. With a SLAT, one spouse may decide to fund this trust for their spouse or both spouses may choose to fund their own SLATs.
This type of trust gives couples the opportunity to take advantage of the federal lifetime gift and estate tax exclusion ($12,060,000 as of 2022). With a SLAT, post-gift appreciation occurs in the trust and is excluded from the estate of both spouses which helps with federal taxation purposes. This is allowed because the SLAT is made with a gift during the lifetime of the spouse who arranged and funded the SLAT.
How Does a Slat Work
There are multiple parties involved in a SLAT:
Donor spouse. This is the spouse gifting their property to the SLAT (which is an irrevocable trust) for the benefit of the non-donor spouse.
Non-donor spouse. This is the recipient of the SLAT.
In some cases, a SLAT also includes other family members such as children and grandchildren who are also beneficiaries. Typically, the gift made to the SLAT isn’t taxable. This is because the donor spouse uses their federal gift and estate tax exclusion when they transfer their chosen assets to the SLAT.
A couple that likes to plan ahead may want to make a large and permanent gift to one another or to another family member so they can reduce the size of their estate. The problem that often arises is that the owner of the gift doesn’t want to lose access to it until after their death. This is where a SLAT can be very helpful, as a SLAT allows the donor spouse to indirectly benefit from the property gifted to the trust while they are still alive, as long as they are still married to and living with the non-donor spouse.
Benefits of a SLAT
As briefly noted, there are some tax benefits associated with SLATs that make them an appealing estate planning option.
Thanks to the Federal gift and estate tax exclusion, if a SLAT is structured properly, there can be tax benefits associated with this type of trust, which makes a SLAT a good tool for multi-generational planning. If your goal is to build and sustain generational wealth for your descendants, a SLAT is a great way to pass wealth on to future generations without incurring transfer taxes.
Not sure if a SLAT is the right fit for you and your family? Let’s discuss your estate planning options so you can gain some much needed peace of mind!