At Schultz Financial Group (SFG), we view wealth differently through our Four Capital approach. Our team works with you to build your wealth across Four Capitals – Financial Matters, Physical Well-being, Intellectual Engagement, and Psychological Space. This Financial Matters article focuses on Spousal Lifetime Access Trusts (SLAT).
Spousal Lifetime Access Trust (SLAT) is an inter vivos1 irrevocable trust. The goal of a SLAT is similar to that of a bypass trust: SLATs are generally used to transfer assets out of the grantor’s estate, up to the estate and gift tax exemption amount, while providing their spouse with access to the transferred assets. The beneficiary spouse usually can receive distributions of both income and principal from the trust.
SLATs may be beneficial in an environment where the estate tax exclusion amount is expected to go down. The estate and gift tax exemption is $11.7 million per person in 2021 (Internal Revenue Service, 2021b). This exemption amount is scheduled to revert to its pre-Tax Cuts and Jobs Act level of $5 million, adjusted for inflation, in 2026 (Internal Revenue Service, 2021a). Reducing the donor’s estate by funding a SLAT may avoid or reduce both federal estate taxes and state death taxes. While the beneficiary spouse has access to the trust assets, SLATs are designed to be excluded from the beneficiary spouse’s gross estate.
Since the goal of creating a SLAT is to maximize estate and gift tax savings, the ideal assets to transfer are those most likely to appreciate, such as securities, art, and collectibles. Transferring assets to a SLAT removes the asset and its future appreciation from the grantor’s estate.
SLATs are grantor trusts which means that the grantor pays the income tax generated from the trust’s income. Since the grantor pays income taxes, trust assets may compound without being diminished by income taxes and the grantor’s estate is further reduced by taxes paid.
SLATs may also provide for asset protection. Generally, assets in the trust are protected from creditors of both spouses.
When transferring assets to a SLAT, the grantor relinquishes interest and control over the transferred assets. However, there is still some flexibility allowed by SLATs. For example, if the grantor needs access to the funds, the trust may lend money to the grantor. So long as the loan is bona fide, it would be a debt of the grantor’s estate. This is a tax advantaged alternative to making distributions to the beneficiary spouse, since distributions taken would be includable in the beneficiary spouse’s estate.
The trust may also include a provision that gives the beneficiary spouse a broad limited testamentary power of appointment to anyone other than him or herself, his or her estate, creditors, or the creditors of his or her estate. This provision allows the spouse to appoint the SLAT property to a trust for the grantor’s benefit upon the spouse’s death. If the beneficiary spouse dies first and appoints the property to a trust for the grantor-spouse, state law may consider the trust to be a self-settled trust subject to the grantor’s creditors, which would likely cause it to be includible in the grantor-spouse’s gross estate at the grantor’s death.
Each spouse can create a SLAT for the benefit of the other spouse. However, an estate planning attorney should be cautious to ensure that the trusts are not identical to avoid the application of the reciprocal trust doctrine.
This article is intended to provide you with general information and strategies related to Spousal Lifetime Access Trusts. You should consult with an estate planning attorney to understand the potential benefits and consequences of SLATs before execution.
1Inter vivos: transfer made during the life of the grantor.
Alyssa Yocom is an Associate Wealth Manager with Schultz Financial Group Inc.
Schultz Financial Group Inc. (SFG) is a wealth management firm located in Reno, NV. Our approach to wealth management is different from many other wealth managers, financial advisors, and financial planners. Our team of fee-only fiduciaries strives to help our clients build their wealth across four capitals: Financial Matters, Physical Well-being, Psychological Space, and Intellectual Engagement. We provide family office and wealth management services to clients located in Nevada, California, and other states. If you’d like more information, please check out our website or reach out to us via our contact page.