A SLAT or Spousal Lifetime Access Trust is a type of irrevocable trust that can be used by married couples for the benefit of a spouse, children, or other beneficiaries. Is a SLAT right for your family? The recent article titled “Should a SLAT Be Part Of Your Estate Planning?” from Forbes examines how a SLAT works.
A SLAT works well while both spouses are alive as each spouse can be a beneficiary of the other’s SLAT. As of this writing, up to $11,700,000 of assets can be removed from a taxable estate using your federal estate tax exemption, while your spouse continues to have access to the assets.
Sounds like a win-win, doesn’t it? However, there are drawbacks. If your spouse dies, you lose access to the assets. They will pass to the remainder beneficiaries in the trust, typically children.
If you and your spouse both establish SLATs to benefit each other, you run the risk of the “reciprocal trust doctrine.” The IRS could take the position that the trusts cancel each other out, and rule that the only reason for the SLAT was to remove taxable assets from your estate. Therefore, the SLATs need to be different from each other in a few ways. The attorneys at Kurre Schneps LLP can develop this with you. A few ways to structure two SLATs:
- Create them at different times.
- Have different trustees.
- Vary the distribution rules for the surviving spouse and the distribution rules upon the death of the second spouse. For instance, one spouse’s trust could hold the assets in lifetime trusts for the children, while the other spouse’s trust could terminate, and assets be distributed to the children when they reach age 40.
The SLAT is an especially useful way to address tax liability. If you did not max out lifetime gifts in 2020, now is the time to start this process. On January 1, 2026, the federal estate tax exemption is scheduled to revert back to $5 million. It will be here faster than you think. If the country needs to find revenue quickly, that change may come sooner. Tax reform that occurs in 2021 is not likely to be retroactive to January 1, 2021, but there are no guarantees.
Reference: Forbes (Feb. 16, 2021) “Should a SLAT Be Part Of Your Estate Planning?”
