A Spousal Lifetime Access Trust (“SLAT”) is an irrevocable trust created by one spouse (Donor Spouse) for the benefit of the other spouse (Beneficiary Spouse) (and/or other family members, like children and grandchildren). The Donor Spouse can make gifts of separate property to the SLAT, utilizing lifetime gift tax exemption (large gifts), annual exclusion gifts, sale of assets, and GRATs (more information on these in a Lesson to come!). The benefit of having SLAT assets is that they are excluded from the taxable estates of both spouses if structured properly.

The SLAT can be structured in many ways:

• Beneficiary Spouse as sole lifetime beneficiary;
• Beneficiary Spouse and children as lifetime beneficiaries;
• Beneficiary Spouse defined generically (so to whomever Donor Spouse is married), or by current spouse’s name.

The SLAT must consider divorce or unexpected death of the Beneficiary Spouse. Often the SLAT utilizes life insurance to counteract a premature death.  Post-nuptial Agreements and the SLAT terms may be used to contemplate divorce. SLATs can be structured for asset protection, Federal AND state estate tax reduction, to keep assets in the family, and more!

Although the Donor Spouse is not a direct beneficiary, the Beneficiary Spouse can certainly ‘share the wealth’ and, therefore, the Donor Spouse may indirectly benefit.  The Beneficiary Spouse may even serve as Trustee of the SLAT, so long as the distributions to herself are limited to an ‘ascertainable standard’ (e.g., health, education, maintenance).

The SLAT can be established as a Grantor Trust– making the Donor Spouse responsible for paying the income taxes (so long as this method is allowed by law) – essentially a tax-free gift!

Although a great tool for some families, SLATs are not risk-free. The gifts are irrevocable (you can’t get the assets back!), the trust is subject to law changes, and the Donor Spouse could lose access to the assets in the event of the Beneficiary Spouse’s death or if they divorce. Many of these risks can be mitigated, but a thorough discussion is always needed.

If you would like to explore whether a SLAT is the right option for you, contact us today!

Best,

Kristin