An estate plan is designed to make sure your family is taken care of after you are gone — and to see that your money and property is dispersed as you want it to be. There are a number of tools available to build an effective estate plan, including wills and various types of trust. One you may want to consider is a spousal lifetime access trust, which has benefits for the spouse who is left after one passes away.
For more help with estate planning, including creating trusts, consider working with a financial advisor.
What Is a Spousal Lifetime Access Trust?
As spousal lifetime access trust (SLAT) is one trust type that can help you protect your assets. It provides a pathway for one spouse to gift the other spouse assets within a trust that benefits the receiving spouse.
Through this transfer of assets, the gifting spouse would be able to exclude the SLAT from their taxable estate and their spouse’s taxable estate.
Importantly, the gifting spouse no longer has any rights to or control over the gifted assets. But as the beneficiary of the trust, your spouse will have access to the assets within the trust.
Spousal Lifetime Access Trust Limitations
As of 2022, each spouse can gift up to $12.06 million to a SLAT without incurring the federal gift tax. But keep in mind that this relatively high limit may shrink in the future. That’s because the Tax Cuts and Jobs Act of 2017 has this increased limit expiring in 2026. At that point, the federal gift tax exemption will be lowered to $5 million per person.
Additionally, spouses who want to set up two separate SLATs should proceed with caution. Although absolutely allowed, the trusts cannot mirror each other. If the trusts are too similar, that can lead to issues with the IRS. To avoid this issue, the SLAT agreements must have sufficiently different rules in place.
What Are the Advantages of a SLAT?
Every financial tool comes with advantages and disadvantages, SLATs aren’t any different. Here are some benefits of SLATs to keep in mind:
- Spouse aspect: When you move assets into a trust, the grantor must part with the assets. But when using a SLAT, one spouse gains access to the funds while another losses access. With that, the receiving spouse has the option to use the funds for joint upkeep expenses.
- High gift tax exclusion: As of 2022, you can gift up to $12.06 million into a SLAT without incurring a gift tax.
- Creditor protection: When the donor spouse transfers funds into a SLAT, there is some level of protection from creditor claims against either spouse. But the rules on this vary at a state level.
What Are the Disadvantages of a SLAT?
Of course, there are also some disadvantages to consider when creating a SLAT.
Here are some of the drawbacks:
- Risk of death: If the receiving spouse dies before the donor spouse, the donor spouse will no longer have indirect access to the trust. In this case, the trust may only be available to the deceased spouse’s children or may terminate.
- Risk of divorce: If the donor spouse is divorced from the receiving spouse, the donor spouse will no longer have indirect access to the funds. However, donor spouses can mitigate this risk with a termination clause should divorce happen.
- Income taxes still reported on a personal level: Although you avoid the gift tax, you’ll still have to report income generated by the SLAT on your personal income taxes.
Is a SLAT Right for Your Estate Planning Need?
A SLAT is one way to minimize your federal estate tax burden. But before transferring assets into this legal structure, make sure you have sufficient assets to cover your lifestyle expenses. If you transfer all of your assets into a SLAT, that’s likely a recipe for financial headaches.
Instead, a SLAT should be considered one of many tools available to help you lower your federal estate tax burden. When the gift tax exemption is lowered in 2026, SLATs may be less attractive for individuals with substantial assets.
Before you decide whether or not a SLAT is right for your estate planning needs, consider speaking with a financial advisor. After all, a SLAT is just one of many different trust options. A qualified financial advisor can help you choose a trust that best aligns with your goals.
Estate Planning Tips
- If you aren’t sure whether or not a spousal lifetime access trust is the right fit for your situation, then speaking with a qualified financial advisor is a smart move. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- The right estate planning strategy varies based on your unique goals and assets. A spousal lifetime access trust is just one of many options to protect your assets. Check out our full guide to trusts to explore your options.
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