Understanding SLATs and Their Role in Your Estate Planning

Have you heard of SLATs? A Spousal Lifetime Access Trust (SLAT) is a type of trust for married couples that allows for one spouse to remove assets from the combined marital estate while preserving access to those assets for the other spouse during his or her lifetime. Let us take a closer look at SLATs and their role in your estate planning.

A SLAT is an irrevocable trust. This means that once money is put in by the first spouse, known as the “grantor” spouse, it cannot be taken out, and the grantor spouse loses control over the funds. The upside may be that the funds in the trust are removed from the marital taxable estate because they are no longer in the grantor’s control. Any appreciation in the funds will be excluded not just from the grantor spouse’s estate but from the estate of the other spouse as well. This may be a great benefit if the spouses want to take advantage of the lifetime federal gift and estate tax exclusion. Right now, the exclusion is $11.7 million per person or over $23 million for a married couple, so many people do not have to worry about going over the limit. These limits, however, are set to expire at the end of 2025 and could revert to their prior levels, or an even lower level, depending on what the administration at that time decides to do with its tax policy. 

A SLAT can be set up so that the grantor spouse retains limited access to the assets in the trust if absolutely necessary. In all cases, however, the other spouse is the primary beneficiary of the trust, and that spouse can request that the trustee give him or her distributions when money is needed. This is why the grantor spouse may still benefit, since the grantor’s spouse can ask for money for housing or other costs that he or she would also make use of. Typically, the couple’s children or grandchildren may be named as secondary beneficiaries to the trust, so that when both spouses pass away, family members receive the remainder of the assets in the trust without that money being subject to federal gift and estate tax.

The biggest drawback to a SLAT may be what happens if a couple divorces. Since the grantor spouse loses control of the money in a SLAT, if a divorce happens, the grantor spouse has no way to claw back the money. The other spouse would retain access to the trust for the remainder of his or her lifetime, even if they are no longer married.

To learn more about SLATs and how they might be a valuable addition to your estate plan, please contact our office to schedule an appointment.