The Tax Cuts and Jobs Act (TCJA) nearly doubled the federal estate tax exemption amount. This, however, is set to be reduced by roughly half in 2026, unless Congress takes steps to increase the longevity of the larger exemption amount. With the potential for the federal estate tax exemption amount to be subject to a significant reduction in the not-so-distant future, have you been looking for ways to escape the potentially substantial tax bill that your estate may incur should its value fall above the allotted federal exemption amount? One way to help do this might be through using a Spousal Lifetime Access Trust (SLATs).
A SLAT is an irrevocable trust that one spouse can establish during his or her lifetime for the benefit of his or her spouse. Children and grandchildren, as well as other family members, may also be listed beneficiaries of a SLAT. SLATs offer flexibility in many ways, one being that you can draft the trust so that proceeds may only be disbursed for certain purposes or may be used for a wide variety of purposes, depending on your goals for the trust and your family’s needs.
One of the primary advantages of a SLAT may be the potential tax advantages. When the donor of the SLAT, the spouse that funds the trust, transfers assets into the SLAT, it is considered a taxable gift. If properly executed, however, the gift will be excluded from the donor spouse’s taxable estate. Furthermore, the trust will be excluded from the non-donor beneficiary spouse’s taxable estate as well.
SLATS may also offer asset protection for both the donor and beneficiary spouse. When transferring assets into an irrevocable trust for the benefit of someone else, you are relinquishing control, use, or access to the assets. That means that the assets held in trust will no longer be considered yours and, therefore, will usually not be accessible should you be involved in litigation or bankruptcy proceedings. Additionally, if you appoint an independent trustee empowered with discretion as to how and when trust distributions may be made to the trust beneficiaries, then the assets may also be sheltered from creditors of the beneficiaries, too.
Do you have more questions about the potential benefits of SLATs and whether SLATs may be right for you? Contact our office today to schedule an appointment.