A spousal lifetime access trust (SLAT) is a powerful estate planning tool. It allows married couples to transfer assets out of their estates while still providing benefits to a spouse.
This type of trust offers several advantages, including tax benefits, asset protection, and the flexibility to access funds if needed. Understanding the purpose of a SLAT and how it fits into an overall estate plan can help you determine if it’s the right option for you.
Reducing Estate Taxes
One of the main benefits of a SLAT is its ability to reduce estate taxes. When you transfer assets into the trust, those assets are no longer considered part of your estate. As a result, they won’t be subject to estate tax upon your death.
This is particularly valuable for individuals with larger estates who want to minimize the impact of the federal estate tax, which can significantly reduce the value passed on to heirs.
Providing Financial Security for a Spouse
A SLAT allows one spouse to create a trust for the benefit of the other. This ensures that your spouse can access funds during their lifetime if needed.
While the assets are removed from your estate, your spouse can still receive income or principal distributions from the trust. This financial flexibility offers security for your spouse while still achieving the goal of reducing estate taxes.
However, it’s important to note that once the assets are transferred into the SLAT, the creator of the trust (grantor) cannot access them. Only the beneficiary spouse has the right to benefit from the trust’s assets.
Careful consideration of the amount placed in the SLAT is necessary to ensure that the grantor retains enough assets outside the trust for personal needs.
Protecting Assets from Creditors
A SLAT can also offer protection from creditors. Once assets are transferred into the trust, they are no longer considered personal property.
This can provide a layer of protection in the event of lawsuits or other claims. If you or your spouse are concerned about potential liabilities, a SLAT can help shield your assets from these risks.
The protection extends beyond the lifetime of the beneficiary spouse as well. When structured correctly, a SLAT can safeguard the assets for future generations. This makes it an excellent tool for multigenerational wealth preservation.
Maintaining Control and Flexibility
While a SLAT offers many advantages, it also allows for flexibility. The trust can be structured in a way that provides some control over how assets are managed and distributed.
For example, you can specify when and how your spouse can access the funds or how the remaining assets will be distributed after their death.
You can also include provisions for future generations, ensuring that the wealth you’ve built is passed on according to your wishes. This flexibility makes the SLAT a versatile option for those who want to balance current financial needs with long-term wealth preservation goals.
Potential Risks and Considerations
Although a SLAT offers numerous benefits, there are some risks to consider. For one, once the trust is created, the assets transferred into it are irrevocable. This means you cannot take them back or make changes to the terms of the trust.
Additionally, both spouses cannot set up a SLAT for each other with the same terms. This would violate the “reciprocal trust doctrine,” which could undo the tax benefits of the trust.
To avoid this issue, spouses who both wish to create a SLAT for the other need to ensure that the terms of their trusts are different enough to prevent them from being considered reciprocal.
Finally, while the beneficiary spouse can access the trust assets, the grantor spouse cannot. It’s important to ensure that the grantor has sufficient assets outside of the SLAT to cover their own needs, as they won’t be able to tap into the trust for financial support.
Is a SLAT Right for You?
Deciding whether a SLAT is the right choice for your estate plan depends on your individual circumstances.
If you’re looking to reduce your estate tax exposure while still providing financial security for your spouse, a SLAT can be an effective strategy. It also offers asset protection and the ability to maintain some control over how your wealth is distributed.
However, it’s essential to weigh the benefits against the irrevocability of the trust and the limitations on who can access the assets.
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Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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