Proactive Planning with a Spousal Lifetime Access Trust
What is a Spousal Lifetime Access Trust (SLAT)?
A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust set up by one spouse naming their spouse (and sometimes their children in addition to their spouse) as the beneficiary of the trust in order to utilize their federal estate and gift tax exemption for the transfer of assets to the trust. The SLAT has several unique features which make it attractive as an advanced estate planning tool.
Three of the main advantages are that (1) the Grantor spouse can use his or her separate property to fund a transfer of assets to the trust and utilize his or her current federal estate and gift tax exemption for the gift to the trust; (2) the Grantor spouse can also continue to pay any income tax liability generated by the assets that are owned by the SLAT; and (3) the assets owned by the SLAT can grow unencumbered by future estate taxes when passed on to successive generations if there is an allocation of GSTT gift tax exemption made on a gift tax return for the year the gift is made.
As a general rule, it is advantageous to remove assets from a Grantor’s estate earlier rather than later so that the assets can grow outside the Grantor’s taxable estate.
Additionally, the Grantor may still have indirect access to the SLAT assets through his or her spouse (and children if desired). And if a business entity such as a limited partnership is used to transfer an interest in the limited partnership to the SLAT, the Grantor of the trust can also retain management control over the investment assets as the General Partner of the limited partnership. Creditor protection over the assets is another unique feature because the trust is irrevocable and the Trustee is someone other than the Grantor or a beneficiary of the trust. Including a third-party Trustee that is neither directly related to or subordinate to the Grantor or any of the beneficiaries will yield the best protection (IRC Section 672(c)).
In 2022, the gift and estate tax exemption amount is now $12,060,000 per person. However, this exemption is set to sunset at the end of 2025, and on January 1, 2026 the new estate and gift tax exemption amount will be $5,000,000 per person. If you or a loved one with a larger estate are married, you may want to utilize your current exemption before the law change and still maintain access to the funds in the SLAT through your spouse in addition to other advanced estate planning strategies.
If you have any questions or need help with establishing a SLAT or updating your estate plan, please do not hesitate to reach out to our law firm. Our Intake Director, Kirsten Ohrazda, can be reached at (760) 448-2220 to schedule a legal advice consult.
Brenda Geiger, J.D.CEO and Managing Attorney Geiger Law Office, P.C. 1917 Palomar Oaks Way, Suite 160 Carlsbad, CA 92008 (760) 448-2220