Spousal Lifetime Access Trust (SLAT) may be a mouthful to say, but it can keep your family financially protected as part of your overall estate planning strategy. This type of trust can be particularly useful if you are wealthy, married, and want to shelter your assets while ensuring your spouse is provided for now and down the line.
How a Spousal Lifetime Access Trust Works
When setting up a SLAT, you become the donor spouse and gift assets to fund the trust. You lose access to those assets, and you also can’t be named the trustee who oversees the distribution of funds from the trust. Instead, either your spouse or an independent third party will act as trustee.
Even though you can’t directly use those gifted assets, there are still some seriously beneficial upsides to this type of trust. Anything placed in the SLAT is shielded from your creditors and eventually the probate court when you pass away, as well as avoiding the estate tax.
Most importantly, your spouse is able to access funds in the trust while you are still alive. That isn’t typically the case with many other types of trusts, where funds aren’t available until after you die. While you can’t withdraw gifted funds from the trust yourself, there’s nothing stopping your spouse from sharing them with you when necessary, or from legally loaning assets back to you.
Besides providing for your spouse both while you are married and then after you pass away, a SLAT is useful in passing assets to your heirs while avoiding unnecessary taxes. When your spouse eventually dies, the remaining assets in the trust go to any named indirect beneficiaries, who are typically your children.
What You Need to Know Before Funding a SLAT
Before setting up a SLAT, always consult with an experienced Brooklyn estate planning attorney to help decide whether this or a different type of trust might be your best option. There are some potential downsides to keep in mind as your lawyer guides you through the process.
For instance, setting up a SLAT can be expensive, so it’s typically only a solid choice for couples with large estates that will benefit from asset protection. A SLAT may also be a poor choice for those in professional fields that face frequent lawsuits, as issues of fraud can easily occur if you transfer assets to the SLAT after being sued.
Because this kind of trust revolves around gifting, you don’t want to place enough funds in the SLAT that the assets go over your available gift tax exemptions. The exact amount for those exemptions can change over time as previous legislation expires or Congress passes new legislation, which is why you need to work with an attorney who can offer the most up-to-date information.
Aside from tax considerations, there are other topics of sudden life changes that aren’t always pleasant to discuss but still need to be considered ahead of time when setting up a SLAT. Critically, you and your family can lose all access to the gifted assets if you get divorced, or if your spouse dies before you.
Finally, if you and your spouse both have significant assets to be protected, in some cases a SLAT can be set up for each of you to cover the other simultaneously. There are key restrictions put in place by the IRS however that prevent Spousal Lifetime Access Trusts from too closely mirroring each other. To avoid problems in the future, the terms of the trust and types of assets placed in dual SLATs will need to be worked out with an attorney.
Get the Most Benefit From a SLAT With a Skilled Attorney
Are you considering an irrevocable trust to provide for your spouse? Talk with a Brooklyn trust attorney who can help you stay ahead of any potential tax pitfalls and tailor a SLAT to your unique situation. Get in touch through our contact form and let us know about your asset protection and estate planning needs.