When it comes to estate planning, trusts, and wills, you have many options—which begs the question: Which estate planning options are suitable for you and your family? There's no quick answer to that question because everyone's situation is unique, but we want to share one tool you may want to consider: spousal lifetime access trusts, or SLATs.
Let's learn more about SLATs, their pros and cons, and who they may be suitable for.
What is a Spousal Lifetime Access Trust (SLAT)?
According to Wells Fargo, a SLAT is an “irrevocable trust created by one spouse for the benefit of the other.” The donor spouse takes advantage of their gift-tax exemption by making a gift to the trust, and their spouse is the current beneficiary of the trust.
When setting up a SLAT, you can only allow your beneficiary spouse to access the funds throughout their lifetime, with the remaining assets being granted to your other heirs (children and grandchildren) upon their death. Or you can choose to permit simultaneous distributions to your beneficiary spouse and children.
Pros of SLATs
The primary benefit of a SLAT is that you can take advantage of potential tax savings. In 2023, the estate and gift tax exemption was $12,920,000 per individual. Individuals can give their spouse (or another beneficiary) this amount tax-free.1
In addition to transferring this amount tax-free into a SLAT, you can gift various assets, such as cash, securities, and real estate. This means that assets that may appreciate could be even more advantageous if transferred to a SLAT because any appreciation is outside your taxable estate. Wells Fargo adds that "if the assets in the SLAT are not distributed to the beneficiary spouse, they may continue to grow free of estate and gift taxes while remaining available for the next generation."1,2
Considerations of SLATs
The primary consideration is that all assets in the trust are irrevocable. This means that the donor spouse can't retain any beneficial interest in the trust and that the SLAT is not included in their estate. Assets contributed to a SLAT can't be taken back from the trust.
Another consideration is that divorce is always a possibility, and while we don't like to consider a happy marriage coming to an end, it is a risk involved in creating a SLAT. With a SLAT, you no longer have direct access to the assets, and without the proper construction of a SLAT, those assets could end up going to an estranged spouse. It is possible to draft your SLAT so that the assets are only available to your current spouse (rather than an ex-spouse), but it's important to get this correct with your estate planning attorney.
Who are SLATs Right For?
While SLATs may be a beneficial estate planning asset, they aren't right for everyone. But, they could be a good fit for:
- High net worth individuals who want to maximize gifting opportunities.
- Those who have appreciating assets, such as real estate. Appreciation of assets in a trust doesn't count against your lifetime gift exclusion amount.
- Married couples seeking to establish an intergenerational legacy.
- Individuals with complex estate plans want to use SLATs as one piece of their estate planning picture.
A proper estate plan requires diligent planning, and SLATs are just one strategy to consider. An estate planning professional can help you build an estate plan to provide an inheritance for your children, spouse, loved ones, or charity.
We are a trusted fee-only fiduciary financial planning and investment advisory firm to individuals and small businesses in the Akron/Cleveland area and across the country. Please feel free to give us a call at 330-836-7000 to schedule an introductory conversation. We will partner with you to design a financial blueprint for a successful and stress-free financial future. You can also schedule an introductory conversation with us here.
For nearly two decades, TCM Wealth Advisors has been providing Fee-Only Fiduciary Advice to our individual and business clients in Northeast Ohio, Akron, Canton, Cleveland, and around the country.