As someone who helps families plan their finances, I know that keeping your money safe and saving on taxes is very important. One great way to do this is with a Spousal Lifetime Access Trust (SLAT). This special trust can help you save on estate taxes and make sure your loved ones get more of your money. Below, our friends at Stuart Green Law, PLLC discuss this type of trust in depth.
What Is A Spousal Lifetime Access Trust?
A SLAT is a type of trust that one spouse sets up for the benefit of the other spouse. The main idea is to move assets (things like money or property) out of the first spouse’s estate. This means these assets won’t be counted when figuring out estate taxes. Unlike some other trusts, a SLAT allows the spouse who benefits from the trust to use the assets while they are still alive.
Key Benefits Of A SLAT
- Estate Tax Reduction: When you put assets into a SLAT, they are no longer part of your estate. This is good because if your estate is worth more than the federal estate tax exemption ($13.61 million per person in 2024), you won’t have to pay taxes on those assets. Plus, any increase in the value of these assets isn’t taxed later.
- Income Tax Benefits: Even though the spouse who sets up the trust might have to pay income tax on what the trust earns, this actually helps reduce their taxable estate even more. This way, the trust’s assets can grow without being taxed.
Flexibility And Access
A SLAT is flexible because the spouse who benefits from it can use the trust’s money or assets for things like health, education, maintenance, or support. This means the spouse can get what they need while still enjoying the tax benefits.
Setting Up A SLAT For Maximum Benefit
To get the most out of a SLAT, it’s important to plan carefully. Here are some tips:
- Gift Tax Exemption: When you put assets into a SLAT, you use part of your lifetime gift tax exemption. In 2024, this exemption is $13.61 million per person. By using this exemption wisely, you can move a lot of wealth into the trust without paying extra taxes.
- Reciprocal Trust Doctrine: If both spouses want to set up SLATs, they need to be careful. If the trusts are too similar, they might not get the tax benefits. To avoid this, make sure the trusts have different terms, beneficiaries, or are set up at different times.
- Choosing the Right Assets: It’s important to put the right assets into a SLAT. Things that will increase in value, like stocks or real estate, are good choices. This way, their growth won’t be taxed as part of your estate.
Important Tax Law Changes
It’s also important to know that estate tax laws are going to change soon. The Tax Cuts and Jobs Act (TCJA) gave us higher estate tax exemptions, but these rules will end on January 1, 2026. When this happens, the exemption amounts will go back to the lower levels they were before the TCJA. This means more estates could be subject to estate taxes in the future. So, planning now with tools like a SLAT can help you take advantage of the current higher exemptions before they decrease.
A Spousal Lifetime Access Trust is a great tool to save on estate taxes while keeping your spouse financially secure. By moving assets out of your estate and allowing access to them, a SLAT offers both protection and flexibility. However, setting up a SLAT can be complicated, so it’s important to get help from an experienced estate tax lawyer.
For families looking to protect their wealth and pass it on to their loved ones, using a SLAT can make a big difference. Always talk to a knowledgeable attorney to make sure this strategy fits your specific needs and goals.