September 20, 2023

The Benefits of Spousal Lifetime Access Trusts

Leveraging Spousal Lifetime Access Trusts (SLATs) in Your Estate Planning

Estate planning is a critical aspect of securing your family’s financial future. This blog post will provide a comprehensive breakdown of estate planning, with a specific focus on the differentiation between revocable and irrevocable trusts. Lastly, we delve deeply into the benefits of Spousal Lifetime Access Trusts (SLATs), an irrevocable trust designed for married couples.

Estate Tax

Understanding the Federal Estate Tax

The federal estate tax is a 40% tax imposed by the U.S. federal government on the transfer of assets and property upon death. It is levied on the total value of your gross estate, which typically includes all the assets and property you own or have an interest in at the time of your death, such as real estate, personal property, bank accounts, investment accounts, retirement accounts, and life insurance death benefit proceeds.

Generally federal estate tax does come into play unless you pass away with a gross estate, plus lifetime taxable gifts, over $12.92M (if single) or $25.84M (if married). As of writing (2023), the current estate tax exemption amount is $12.92M per person, and married couples may share exemptions by electing portability, which doubles this limit to $25.84M.

This means that individuals / married couples can transfer up to $12.92M / $25.84M during life or at death, without incurring the 40% federal estate tax.

Impending Changes

The exemption amount is currently at its highest point in history, and it is important to note that this can and most likely will change under future tax law. The current estate tax exemption is set to sunset at the end of 2025, which will effectively reduce the exemption amount by half.

State Tax Considerations

In addition to federal estate tax, considerations should also be made for state death taxes. As of 2023, twelve states and the District of Columbia impose estate taxes, and six impose state inheritance taxes. This ranges anywhere from 0 – 20% depending on your state of residence.


Trust Planning (Revocable vs. Irrevocable Trusts)

Revocable Trusts

A revocable trust, also known as a “revocable living trust” is a legal document that you create during your lifetime to manage and distribute your assets at your passing. It is called “revocable” because, as the grantor (the person creating the trust), you retain the ability to make changes to, amend, or even revoke the trust entirely while you are still alive and of sound mind.

Assets held in revocable trusts do not avoid federal estate tax or state death tax.

Instead, they are primarily used for:

  • Avoidance of Probate: One of the primary benefits of a revocable trust is that it allows your assets to pass to your beneficiaries without going through the probate process. Probate can be time-consuming, expensive, and public, while a revocable trust enables a smoother, private, and more efficient asset transfer after your passing.
  • Privacy: Unlike a will, which becomes a public document during probate, the terms and assets of a revocable trust remain private. This confidentiality can be appealing to those who prefer to keep their financial affairs out of the public eye.
  • Incapacity Planning: A revocable trust can also provide for the management of your assets in case you become incapacitated or unable to manage your financial affairs. The successor trustee you designate can step in to manage the trust assets on your behalf.
  • Asset Management: You can appoint yourself as the initial trustee of the revocable trust, allowing you to continue managing your assets as you did before creating the trust. Upon your passing, the successor trustee you appointed will manage the trust assets and distribute them according to your instructions outlined in the trust document.
  • Avoiding Ancillary Probate: If you real own property in multiple states, a revocable trust can help avoid the need for ancillary probate proceedings in each state where you hold property. This can save time and expense for your heirs.
  • Control: Specific language can be written into the trust document to ensure distributions are carried out according to your wishes. In addition, you can include a bloodline protection provision, which would keep the assets in your family’s name in the event of a divorce.

Irrevocable Trusts

An irrevocable trust is a type of trust that, once established, generally cannot be modified, amended, or revoked by the grantor (the person who creates the trust). Once the assets are transferred into an irrevocable trust, they are no longer considered the property of the grantor, and control over those assets is transferred to the trustee (the person or entity responsible for managing the trust) and the trust’s beneficiaries.

Assets held in irrevocable trusts do avoid federal estate tax because they were taxable gifts at the time of transfer. For state death tax, some states require you to live a certain period of time after transfer for the assets to escape the death tax.

Irrevocable trusts are primarily used for the following:

  • Estate Tax Reduction: One of the primary purposes of irrevocable trusts is to reduce the taxable estate of the grantor for federal estate tax purposes. Since the assets placed in the trust are no longer considered part of the grantor’s estate, they are not subject to estate taxes upon the grantor’s passing. This includes all growth on the assets after transfer.
  • Asset Protection: Irrevocable trusts can provide a degree of asset protection, shielding the trust assets from potential creditors or legal claims against the grantor and the trust beneficiaries. However, the level of protection may vary depending on state laws and the specific terms of the trust.
  • In addition, irrevocable trusts are also used for avoidance of probate, privacy, and control (as listed above under revocable trusts).

It’s important to note that once assets are placed into an irrevocable trust, the grantor generally relinquishes direct control over those assets. The trustee becomes responsible for managing the trust according to the trust document’s terms.


Spousal Lifetime Access Trusts (SLATs)

A Spousal Lifetime Access Trust (SLAT) is a type of irrevocable trust designed for married couples. SLATs are used in estate planning to leverage the benefits of irrevocable trusts while allowing one spouse (the donor spouse) to provide for the other spouse (the beneficiary spouse). SLATs can be a powerful tool for minimizing estate taxes and preserving family wealth, all while maintaining an element of control via the beneficiary spouse.

Structure of a SLAT:

  1. Donor Spouse: One spouse (the donor spouse) establishes and funds the SLAT with the donor’s separate assets. Once the assets are transferred into the trust, they are generally no longer considered part of the donor spouse’s taxable estate.
  2. Beneficiary Spouse: The other spouse (the beneficiary spouse) is the primary beneficiary and sole trustee of the trust. This means that the beneficiary spouse can receive income and principal distributions from the trust for their health, education, maintenance, and support. Plus, the assets still not taxed in the beneficiary spouse’s estate.
  3. Additional Beneficiaries: In addition to the beneficiary spouse, SLATs often allow for other beneficiaries, typically the couple’s children or descendants. This allows for the wealth to be preserved and passed down to future generations.

Benefits of SLATs:

  1. Estate Tax Reduction: By transferring assets into a SLAT, the couple can effectively remove those assets (and the appreciation) from their taxable estates.
  2. Retained Access: Despite being an irrevocable trust, the beneficiary spouse can receive distributions from the trust for their benefit, which provides financial security while still achieving estate tax savings.
  3. Gift Tax Efficiency: Utilizing the donor spouse’s lifetime gift tax exemption, assets can be gifted into the SLAT without incurring gift taxes, up to the donor spouse’s available exemption amount. This can be particularly useful for reducing the taxable estate over time.
  4. Protection from Creditors: Assets in a SLAT are typically protected from the beneficiary spouse’s creditors, which can provide an added layer of asset protection.

Considerations for SLAT planning:

When setting up a Spousal Lifetime Access Trust (SLAT), several important considerations should be taken into account. Firstly, it’s vital to understand that the irrevocable nature of the trust means that once assets are placed into it, the donor spouse forfeits direct control over those assets. Additionally, SLATs are subject to specific tax rules and regulations, necessitating compliance to achieve the intended tax benefits. Lastly, the strength and trust of the spousal relationship plays a pivotal role, as the beneficiary spouse’s needs and financial security must be considered when determining distributions from the trust.

Share This Article:

Get In Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.


Add me to the weekly newsletter to say informed of current events that could impact my investment portfolio.

Important Disclosures:

Securities and advisory services offered through EWA LLC dba Equilibrium Wealth Advisors (a SEC Registered Investment Advisor).
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you.  The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.

Request An Appointment

In 15 minutes we can get to know you – your situation, goals and needs – then connect you with an advisor committed to helping you pursue true wealth.