What Is a Spousal Lifetime Access Trust?

During the estate planning process, a married couple can take steps to protect their assets and ensure financial security for themselves and their loved ones. For couples who are looking to minimize estate taxes while retaining access to their money and property, a spousal lifetime access trust (SLAT) can be an effective solution. An experienced attorney can help couples who own substantial assets understand how SLATs work and determine whether this solution is right for their financial situation.

Understanding Spousal Lifetime Access Trusts

A spousal lifetime access trust is an irrevocable trust established by one spouse (the grantor) for the other spouse’s benefit. The primary purpose of a SLAT is to remove assets from the grantor’s estate, thereby reducing potential estate taxes, while still providing a spouse with access to the trust’s income and principal under certain conditions.

When to Use a SLAT

SLATs can be particularly useful for the following purposes:

• Estate tax minimization: If the value of a couple’s estate exceeds the federal estate tax exemption limit, a SLAT can help reduce the taxable value of their estate. The federal estate tax exemption was increased in 2017, but this increase is scheduled to expire at the end of 2025. A SLAT may allow a couple to take advantage of the increased exemption while it is still in effect.
• Wealth transfer planning: A SLAT can facilitate the transfer of wealth to future generations in a tax-efficient manner.
• Asset protection: Assets in a SLAT are generally protected from creditors and potential legal claims.

Advantages of a SLAT

• Reduction of estate taxes: By transferring assets into a SLAT, a couple will effectively remove those assets from their taxable estate. This can significantly reduce the estate tax burden upon the death of the grantor.
• Continued access to trust assets: Although the grantor relinquishes ownership of the assets placed in the SLAT, the other spouse can still receive distributions from the trust. This ensures that the couple can maintain their lifestyle and financial security.
• Protection from creditors: Assets that are held in a SLAT are typically shielded from creditors’ claims, providing an added layer of financial security.
• Flexibility in asset management: The terms of a spousal lifetime access trust can be tailored to meet specific financial goals and needs. For example, a couple can specify how and when distributions will be made to the beneficiary.
• Intergenerational wealth transfer: A SLAT allows for the efficient transfer of wealth to children or other beneficiaries. Upon the death of the beneficiary spouse, the remaining trust assets can be distributed to other designated beneficiaries, often with minimal tax implications.

Drawbacks of a SLAT

• Irrevocability: Once a SLAT is established, it cannot be revoked or altered. This lack of flexibility can be a disadvantage if a couple’s financial situation or goals change over time.
• Loss of direct control: The grantor loses direct control over the assets placed in the SLAT. While the beneficiary can access the assets in the trust, the grantor cannot unilaterally withdraw or manage the assets.
• Potential for marital discord: If the marriage ends in divorce, the assets in the SLAT will typically remain with the beneficiary. This could potentially lead to disputes over asset distribution.
• Gift tax considerations: Transferring assets into a SLAT is considered a taxable gift. It is important to understand how this may impact an overall estate plan and the lifetime gift tax exemption that may apply.

Contact Our Naperville Irrevocable Trusts Attorney

A spousal lifetime access trust can be a valuable tool for protecting your assets and minimizing estate taxes, but it is essential to understand the complexities of these types of trusts and ensure that they are created correctly. To determine if a SLAT is right for your estate plan, contact the DuPage County trusts lawyer at the Gierach Law Firm. Call 630-228-9413 to schedule a consultation and learn how we can help to take the proper steps to provide for your financial future.