An Estate Planning Tool You Can Trust: Spousal Lifetime Access Trusts (SLATs)
With estate and gift tax exemptions at a historical, all-time high (over $11.5 million per person), it’s the perfect opportunity for married couples to take advantage of a unique estate planning tool: the Spousal Lifetime Access Trust, or SLAT. Before the current exemption is cut in half on January 1, 2026, we recommend that spouses explore the benefits of establishing a SLAT – not just for the benefit of one another, but for children and grandchildren – in order to reap the most from current tax protections.
A SLAT is an irrevocable trust set up by one spouse for the other and/or the grantor’s dependents. The beneficiary spouse may receive income and principal distributions from the assets gifted to the SLAT, though ideally the SLAT assets would remain untapped and allowed to grow estate tax free. Upon the death of the beneficiary spouse, the SLAT assets may then be administered for the family in perpetuity.
Couples considering this vehicle should act now, as it is possible that the current gift tax exemption may change before 2026 under a number of Democratic proposals. There are many in DC who would support a drastic reduction of the current estate and gift exemptions prior to their current scheduled sunset while also increasing the estate tax rate.
Transferring assets into a SLAT will protect them not only from estate taxes after the death of the grantor spouse, but also from creditors, so long as the SLAT is properly drafted and carefully implemented. The SLAT should ensure the beneficiary spouse and/or descendant beneficiaries will be the exclusive beneficiaries of the trust, and not the grantor spouse. A well-drafted SLAT should also contain provisions that protect it from being accessed by creditors of the grantor or beneficiaries or for support obligations of the grantor. Spouses who use a SLAT should be mindful, though, that the protections against creditors are not completely bulletproof because state law governs creditor rights and may supersede written provisions. However, this low risk should not deter couples from considering this option, as the SLAT structure does create a very strong wall of protection.
To properly fund a SLAT, the grantor spouse must ensure the asset they wish to put into the trust is solely their property – it must only be in their name and should not be a leveraged asset. Upon gifting the asset to the SLAT, that value of that asset is then removed from each member of the couple’s estate and will not be charged estate taxes – and even better, it can grow over the years without being subject to additional gift taxes. Distributions from the SLAT should go into a separate account for the beneficiary spouse, because funneling them into a joint account could make the grantor liable for estate taxes under the assumption that the funds are benefiting the grantor. If distributions are needed, the beneficiary spouse may use unlimited marital deduction to give gifts from the account to the grantor, gift tax free.
Generally, people who set up SLATs do so with income-generating assets such as real estate, ownership interests in a business, or marketable securities – but anything from cash to a life insurance policy can be used to fund a SLAT. The spouse for whom the SLAT is established will be able to enjoy the appreciation of the SLAT assets over time.
The grantor is responsible for federal and state income taxes from the SLAT during their lifetime, essentially creating an additional gift that is income tax-free for the beneficiary. Upon the transfer of assets to the SLAT, the grantor will file a gift tax return for the value of the assets – and, as long as the grantor has sufficient gift tax exemption, they will not have to pay a gift tax. Therefore, now – when the exemption levels for gift and estate taxes are so high – is an optimal time to explore the possibility of a SLAT, especially before changes under the new presidential administration can come to fruition.
For more information and to learn more about whether a SLAT is the right tool for your estate plan, contact our McBrayer estate planning team today.
This blog was authored by our Estate Planning Team.
Ivan Schell is a Member of McBrayer PLLC. His multifaceted legal practice includes estate planning and administration, private foundation and public charity formation and planning, physician practice consultation and healthcare law, employee benefits law, and closely-held corporation planning transitions. He can be reached at firstname.lastname@example.org or by calling (502) 327-5400, ext. 2351.
Sean Mumaw is a McBrayer Member practicing out of both the Louisville and Lexington offices. His practice area focuses on estate planning but also includes tax (estate, gift, income, and inheritance), general business law, business succession planning, real estate, and the like. He can be reached at email@example.com or (502) 327-5400, ext. 2304.
McBrayer attorney Maxine Bizer centers her practice on estate planning and administration and probate. She practices in McBrayer's Louisville office. Ms. Bizer can be reached at firstname.lastname@example.org or (502) 327-5400, ext. 2354.
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This article does not constitute legal advice.