There are many estate planning strategies that high net-worth individuals can utilize to protect and transfer their wealth to their spouse or the next generation. One method rising in popularity is the Spousal Lifetime Access Trust (SLAT).
A SLAT is an irrevocable trust which allows one spouse to make a monetary gift to a trust for the benefit of the second spouse or other family members. (Each spouse may choose to fund separate SLATs for each other’s benefit or for the benefit of other family members.) This approach removes the gifted amount from the couple’s combined estates and may offer a way to take advantage of the federal lifetime gift and estate tax exclusion, which is currently $12.06 million per person, or $24.12 million per married couple, while retaining limited access to the assets, in the event such access is ever needed. This exclusion amount is scheduled to sunset back to $5 million on January 1, 2026, which may lead individuals to explore options for using their exclusion now.
Since a SLAT is funded with a gift made during the grantor spouse’s lifetime, any post-gift appreciation takes place in the trust and will be excluded from the estate of both spouses for federal estate taxation purposes. SLATs may hold a variety of liquid or illiquid assets and may also hold life insurance.
One of the downsides to lifetime gifting is that the gifted assets will no longer be available for use by the grantor spouse directly. However, the grantor spouse may indirectly benefit from the property gifted to the trust, as long as the beneficiary spouse is living and remains married to the donor. Typically, the couple’s descendants would be named as remainder beneficiaries after the death of the beneficiary spouse.
Another potential disadvantage of a SLAT is that upon the beneficiary spouse’s death, the grantor spouse no longer has indirect access to the trust assets. Instead, the trust may either terminate and be distributed to or continue for the benefit of the grantor’s children and other family members. Divorce would present yet another risk, as the separated beneficiary spouse will continue to benefit from the trust as a beneficiary while the grantor spouse loses the indirect access in the same way that he or she would if the beneficiary spouse passed away while they were still married.
Like other irrevocable trusts, when appropriate for the family’s needs, a SLAT can be an effective tool for multi-generational planning. A SLAT may be designed to benefit the next generation only or be structured as a dynasty trust, which is a long-term trust created to pass wealth from generation to generation.
It is important to consult an estate planning professional who can help you develop a strategy for your estate plan that is right for you and your family’s specific circumstances.