Spousal Lifetime Access Trusts: A Way to Have Your Cake and Eat It Too

February 1, 2024 | Patricia C. Marcin | Trusts & Estates | Tax

You may have heard of Spousal Lifetime Access Trusts (SLATS) lately, especially if you have been thinking about using your federal estate and gift tax exemption before the current higher exemption amount of $13.61 million is automatically reduced to about $7 million on January 1, 2026, assuming Congress takes no action. (See my column from last month.) In the estate planning world, SLATS may actually be a way to “have your cake and eat it too!”

Usually, when you create a trust for your descendants, you give up all interest in the assets you place in the trust. With a SLAT, however, you can preserve access to the trust assets because your spouse is a beneficiary of the SLAT too. As long as both spouses remain living and married, they both, practically, have access to the SLAT.

A SLAT is similar to a trust you would otherwise create for your descendants, except your spouse is also a permissible beneficiary, along with your descendants. The spouse creating the SLAT can gift to the SLAT up to his or her full unused federal exemption amount (maximum $13.61 million for each spouse in 2024) without incurring any gift tax, and the assets in the SLAT will not be included in either spouse’s estate for estate tax purposes at death. Both spouses can create and gift to a SLAT, thereby using their combined exemptions to shelter up to $27.22 million in assets rom gift and estate taxes, even if the exemption is automatically reduced as of January 1, 2026.

There is an important caveat when creating SLATS, if both spouses plan to create one. To avoid the “reciprocal trust doctrine,” which, basically, “undoes” the trusts and puts the assets back in the grantor spouse’s estate for estate tax purposes (i.e., it’s as if you never made the transfer to the SLAT), it is very important that the SLATS are drafted carefully with varying provisions in each and that the timing and funding of the SLATS are carefully considered. If you would like to know more about SLATS, feel free to contact me or your estate planning lawyer.

This article appeared in the February 2024 issue of Stroll Lloyd Harbor.

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