With the pending December 31, 2025 sunset and possibility of changes to the Tax Cuts and Jobs Act of 2017, there has been a renewed interest in utilizing Spousal Lifetime Access Trusts (“SLAT”) as an estate planning tool. The current 2025 lifetime exemption for federal estate and gift tax is $13,990,000 per person or $27,980,000 for married couples. If Congress fails to act prior to the sunset, the exclusion amount will revert to the 2017 limit of $5,000,000, adjusted for inflation. One way that people are locking in the current exclusion amounts is through the use of a SLAT as a will lawyer can share.
What Is A Slat?
A Spousal Lifetime Access Trusts (SLAT) is a type of irrevocable trust that provides asset protection and tax benefits. SLATs are often used as a gifting strategy when one spouse (the grantor) wants to provide some access to gifted assets to his or her spouse, during that spouse’s lifetime. The added benefit is that the grantor spouse will benefit from the distributions to the beneficiary spouse as our friends at Aptt Law LLC can explain.
How Does A Slat Work?
The grantor spouse creates an irrevocable trust and designates the other spouse as a beneficiary, who will receive payments during his or her lifetime to be used for their health, education, maintenance, or support to preserve the beneficiary spouses accustomed to standard and manner of living. The trust is funded with a gift by the grantor spouse. The gift uses all or a portion of the grantor spouse’s federal lifetime gift exclusion.
Benefits Of Using A Slat
A SLAT can help lock in the current high federal estate and gift tax exemption. Moreover, appreciation of assets gifted to a SLAT will continue to grow free from inclusion in the grantor spouse’s taxable estate. A SLAT allows access to funds for the beneficiary spouse which will provide an indirect benefit to the grantor spouse (for so long as the spouses remain married). Indeed, the beneficiary spouse will be able to withdraw funds for his or her health education, maintenance and support. If using an independent 3rd party trustee, the beneficiary spouse may be able to get additional distributions.
Finally, at the beneficiary spouse’s death the remaining trust assets will pass free of estate tax to the grantor spouse’s children (or other designated beneficiaries).
Important Considerations
Divorce And Beneficiary Spouse’s Life Expectancy
The stability of marriage and beneficiary spouse’s life expectancy are key considerations in determining the benefit of using a SLAT as either can impact the grantor spouse’s ability to indirectly benefit from the trust assets. While it is possible to draft for divorce and remarriage, such planning comes with its own challenges that are beyond the scope of this post.
Reciprocal Trust Doctrine
In the event two spouses want to each create a SLAT for the benefit of the other, special care in drafting must be taken so the IRS won’t pull assets back into each grantor spouse’s estate utilizing the “reciprocal trust doctrine.” A skilled estate planning attorney is crucial to avoid such an asset pull back.
Loss Of Step-up Basis At Death
Because a gift to a SLAT is a completed gift, beneficiaries receive the bases as of the date of the transfer and not the date of the grantor’s death. Consideration should be given to the capital gains tax consequences for the beneficiary, should they intend to sell the transferred assets. This is a particularly important consideration as the grantor gets the most benefit from gifting appreciable assets to the SLAT.
More Information On Slats
For further information on SLATs or to determine if it might be the right estate planning strategy for you, contact a lawyer near you who would be happy to answer any questions.