ARTICLE: The Ins and Outs of SLATs

The Ins and Outs of SLATs

Did you know that a popular estate planning tool for married couples, a Spousal Lifetime Access Trust (SLATs), may be a good choice for you if you and your spouse would like to remove assets from your taxable estate but preserve access for one of the two of you during your lifetime? Assets placed into a SLAT are not subject to federal estate tax, which can often be appealing, but setting up a SLAT requires time and administrative costs. You should be aware of the limitations on the money you put in before you make the commitment. Let us discuss more of the important details about SLATs.

When creating a SLAT, you and your spouse will decide which of the two of you will be the donor spouse and which will be the recipient spouse. The donor spouse makes a gift of money, securities, or other assets to the trust. The trust is considered irrevocable, which means that once the donor puts in the money, the donor loses all direct access to and control over the funds.

When the gift is made, the assets are considered to be removed from the marital estate of the couple. They will not be subject to estate tax at the end of the couple’s lifetimes. Only the recipient spouse, however, can access the money in the trust. The donor spouse retains some benefit, because the recipient can be given money from the trust to spend on their living expenses, and presumably the spouses live together and would both benefit. The donor, however, cannot make any direct request or receive a distribution.

The biggest upside to a SLAT may be the removal of the assets from within the couple’s taxable estate. If you are concerned that your estate may approach either your state’s estate tax exclusion, or the federal limits, a SLAT could be a good option for you to avoid this. A SLAT can also be a way to engage in legacy estate planning. You can name your children or grandchildren as secondary beneficiaries of the SLAT, so when the recipient spouse passes away, they receive principal or income from the trust without being subject to federal gift and estate tax.

The biggest downside may be that, as an irrevocable trust, a SLAT cannot be terminated if you and your spouse separate or divorce. If this happens, the recipient retains full benefits from the trust, and the donor spouse is out of luck. It may make more sense for a long-married couple on their first marriage to choose this type of trust.

For more information regarding SLATs and other valuable estate planning tools, please contact our office to set up an appointment.

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We at Roth Elder Law, PLLC, believe in providing services in a way that clients can easily understand and meaningfully participate in designing and maintaining their estate plan for their loved ones, as well as be assured that their plan will be administered according to their wishes.