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​​​​© 2019 by Lara Sass & Associates, PLLC 

 

The information contained on this website is provided for informational purposes only and should not be construed as legal advice on any subject matter.  If you wish to discuss the topics addressed on this website, or other estate planning issues, please contact Lara Sass & Associates, PLLC.

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Spousal Lifetime Access Trust (SLAT)

 

 

Currently, in 2019, the lifetime federal gift and estate tax exemption is $11,400,000 per person.  Never before have individuals had the opportunity to transfer so much wealth out of their taxable estates during their lives.  However, this increased exemption is scheduled to expire at the end of 2025 (if not sooner, if a new administration comes into office in 2020), when the exemption amount will be reduced to $5,000,000 per person (indexed for inflation).   Accordingly, given this short-term window, time is of the essence for planning utilizing this tremendous opportunity for wealth transfer and estate tax reduction.  Nonetheless, given the uncertain financial environment and inability to predict future financial needs, many clients are apprehensive about parting with ownership and control of their assets.  A spousal lifetime access trust (SLAT) is an ideal planning strategy that balances a donor's desire to use this increased lifetime exemption with the need to retain adequate funds to support future unforeseen financial needs.  

 

The SLAT is a lifetime irrevocable trust created for the benefit of the donor’s spouse and other beneficiaries, such as descendants, which allows the donor to take advantage of his or her current $11.4 million gift tax exemption.  This gift of the lifetime exemption amount allows the donor to reduce future estate tax liability by removing the asset and its income and appreciation from the donor's taxable estate.  By having the donor's spouse as a beneficiary of the SLAT, he or she can receive distributions from the trust, thereby allowing the donor to indirectly benefit from these distributions, as well, should the need arise.  

 

Additionally, in states, such as New York, that do not impose gift taxes but still impose estate taxes, a lifetime gift to a SLAT can result in reduced state estate tax exposure.  In addition, the trust can purchase life insurance on the donor’s life, while avoiding income taxes on the growth within the policy and allowing policy death benefit proceeds to pass free of income and estate taxes.  

 

As an irrevocable trust, the SLAT can also protect trust assets from the donor's and beneficiaries’ creditors, and avoid probate.  Further, if the donor allocates his or her generation-skipping transfer tax exemption to the gifts to the SLAT, the donor can structure the SLAT as a dynasty trust that benefits multiple generations of his or her descendants without the imposition of additional transfer taxes.