Curated by: Rubric Advisors
Estate & Legacy
Spousal Lifetime Access Trust (SLAT)
A Spousal Lifetime Access Trust allows married couples to remove assets from their taxable estate while retaining indirect access through the beneficiary spouse, an increasingly popular strategy to lock in the current high estate tax exemption.
Spousal Lifetime Access Trust (SLAT)
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What Is a SLAT?
- An irrevocable trust created by one spouse for the benefit of the other spouse (and potentially children)
- Assets transferred to the SLAT are removed from the grantor's taxable estate
- The beneficiary spouse can receive distributions from the trust, providing indirect access to the assets
- Uses the grantor's lifetime gift/estate tax exemption, locking in the current high exemption amount
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Full Guide
What Is a SLAT?
- An irrevocable trust created by one spouse for the benefit of the other spouse (and potentially children)
- Assets transferred to the SLAT are removed from the grantor's taxable estate
- The beneficiary spouse can receive distributions from the trust, providing indirect access to the assets
- Uses the grantor's lifetime gift/estate tax exemption, locking in the current high exemption amount
Why SLATs Are Popular Now
- The current estate tax exemption is historically high (check IRS.gov for current year amounts)
- Assets already in a SLAT are permanently protected even if exemption levels change in the future
- The IRS has confirmed that gifts made under the current high exemption won't be 'clawed back' if limits decrease
- Couples can potentially remove millions from their combined estates while retaining practical access
How Indirect Access Works
- The beneficiary spouse can request distributions from the trustee for health, education, maintenance, and support
- Distributions provide the couple access to funds without the assets being included in either estate
- An independent trustee provides the strongest creditor protection and tax position
- The trust can also benefit children and grandchildren, creating a multi-generational wealth transfer vehicle
Reciprocal Trust Doctrine Risk
- If both spouses create identical SLATs for each other, the IRS may invoke the reciprocal trust doctrine
- This doctrine can 'uncross' the trusts, treating each spouse as the grantor of their own trust, defeating the purpose
- Mitigation: make the trusts materially different in terms, timing, funding amounts, or beneficiary provisions
- Common approach: fund the trusts with different amounts, different assets, or different distribution standards
Risks and Considerations
- Divorce risk: if the marriage ends, the grantor spouse loses access to the assets in the other spouse's SLAT
- Death of beneficiary spouse: the grantor loses indirect access (trust can continue for children)
- Irrevocable: once funded, the transfer generally cannot be undone, careful sizing is critical
- Gift tax implications: the transfer uses lifetime exemption and should be coordinated with overall estate plan
Key Takeaways
- SLATs offer a way to remove assets from your estate while maintaining indirect family access
- The historically high exemption makes SLATs an effective vehicle for large wealth transfers
- Carefully differentiate spousal SLATs to avoid the reciprocal trust doctrine
- Work with an estate planning attorney and financial advisor to determine if a SLAT fits your situation
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