Spousal Lifetime Access Trusts

Spousal Lifetime Access Trusts (SLATs) have emerged as a crucial estate planning tool, particularly considering the currently record-high lifetime federal estate tax exemption, currently at $13.61 million per individual for 2024 is scheduled to be cut in half at the start of 2026. In essence, a SLAT enables one spouse, the grantor, to establish an irrevocable trust for the benefit of the other spouse, while also providing for future generations. This unique arrangement allows the grantor to transfer assets out of his or her estate thereby reducing any estate tax on the grantor’s estate,, while still allowing the couple to benefit from the assets in the trust by virtue of the spouse being the beneficiary of the trust.

One of the primary advantages of SLATs is their flexibility in addressing both current and future needs of the spouses. By transferring assets into the trust, the grantor can shield those assets from potential creditors and estate taxes. Meanwhile, the beneficiary spouse enjoys access to income and, potentially, principal distributions from the trust, providing a degree of financial security for both spouses. Any appreciation of the trust assets occurs outside of the grantor's estate, potentially resulting in significant tax savings upon the grantor's death. This aspect makes SLATs particularly appealing for high net-worth couples seeking to preserve wealth for future generations while minimizing tax liabilities.

As with any irrevocable trust, it is crucial to navigate the complexities of SLATs carefully, as they involve irrevocable decisions that can have long-term implications. Properly drafting the trust agreement, selecting trustees, and considering potential changes in circumstances are all critical factors to ensure the effectiveness and longevity of the trust. A couple should work closely with knowledgeable legal and financial advisors to tailor the SLAT to the couple’s specific needs and goals, taking into account both current laws and potential future legislative changes. Ultimately, when used thoughtfully and strategically, a SLAT can serve as a powerful tool for a couple looking to protect and preserve their wealth for themselves and future generations.