What Is a Spousal Lifetime Access Trust?
In past blogs, we have discussed revocable vs irrevocable trusts. Once a property is placed into a revocable trust, the individual can, at some point in the future, undo the transfer by removing the property and ending the trust. A Spousal Lifetime Access Trust (SLAT) however is an irrevocable trust, therefore any property placed into it, cannot be retrieved.
The donor spouse (grantor) creates the trust for their spouse or other beneficiaries. The donor spouse then funds the trust by making a gift into the trust using some or all their assets. SLAT’s can provide married couples a potential option for taking advantage of the federal lifetime gift and estate tax exclusion, while still maintaining some access to the assets.
The Potential Benefits of a SLAT
The transfer of assets to the Spousal Lifetime Access Trust is considered a taxable gift, irrevocable and permanently removes the assets, as well as any future appreciation of the assets, from the donor’s taxable estate; therefore, the assets in the trust will not acquire a “step-up” in cost basis upon the donor’s death.
An additional benefit of the SLAT is that despite the non-donor spouse being a beneficiary, the assets in the trust are also not included in their estate.
A Spousal Lifetime Access Trust, like other irrevocable trusts, can be an effective estate planning strategy for multi-generational planning. By taking advantage of the lifetime gift tax exclusion, it can protect trust contributions and future appreciation from transfer taxes. The assets in the trust are also provided some protection against claims from beneficiaries’ creditors.
The Potential Disadvantages of a SLAT
There are two main disadvantages to a SLAT. First, if the non-donor spouse dies, the donor spouse loses indirect access to the trust assets. The assets in the trust can then be transferred to the remaining beneficiaries.
Another disadvantage occurs during divorce. If the couple divorces, the separated non-donor spouse will continue to benefit from the SLAT as a beneficiary. Additionally, the donor spouse loses indirect access, just as they would if the non-donor spouse died while they were still married.
Next Steps
If you have questions regarding creating a Spousal Lifetime Access Trust (SLAT), please reach out to our office at (914) 228-7448.