Spousal Limited Access Trust

A Spousal Limited Access Trust (SLAT) is an irrevocable trust created for the benefit of a spouse, with the objective of minimizing federal estate tax due on the donor spouse's death. Although the grantor is gifting away assets, the beneficiary spouse is entitled to income and principal distributions from the trust – thereby giving the grantor spouse indirect access to the trust. Although the spouse is the primary beneficiary, other family members can be included as beneficiaries. The grantor controls who the ultimate beneficiary is upon the donor spouse's death.

SLATs are grantor trusts so the grantor pays all income tax on trust assets. This allows greater appreciation of principal, which is excluded from both spouse's estate. If drafted correctly, SLATs also provide asset protection so that the assets are not reachable by creditors of the donor or beneficiary spouse. As with most over-tax planning trusts, there are advantages and disadvantages to using SLATs.

A Spousal Limited Access Trust (SLAT) is an estate planning tool that allows one spouse (the donor spouse) to transfer assets into an irrevocable trust for the benefit of the other spouse (the beneficiary spouse), as well as potentially other family members, while still maintaining some access to the trust assets. SLATs are commonly used to take advantage of estate tax exemptions and provide financial security for the beneficiary spouse and family.

Here's how a Spousal Limited Access Trust typically works:

1. Creation: The donor spouse establishes the SLAT and transfers assets, such as cash, securities, or real estate, into the trust.
2. Beneficiary Designation: The beneficiary spouse is designated as the primary beneficiary of the trust, meaning they are entitled to receive distributions from the trust for their benefit.
3. Limited Access: While the donor spouse relinquishes direct control over the trust assets by placing them in an irrevocable trust, they may still indirectly access the assets through distributions made to the beneficiary spouse. These distributions can provide financial support and security for the beneficiary spouse and potentially other family members.
4. Tax Considerations: By transferring assets to the SLAT, the donor spouse can potentially remove the value of those assets from their estate for estate tax purposes, thereby reducing the size of their taxable estate. This can be particularly beneficial if the donor spouse expects their estate to exceed estate tax exemption limits.
5. Gift Tax Considerations: When assets are transferred into the SLAT, the donor spouse is making a taxable gift to the trust beneficiaries, including the beneficiary spouse. However, the donor spouse can take advantage of their gift tax exemption to minimize or eliminate gift tax liability. Additionally, the beneficiary spouse's access to trust distributions can provide indirect access to the transferred assets without triggering gift tax consequences.

SLATs offer several potential benefits, including estate tax reduction, asset protection, and financial support for the beneficiary spouse and family members. However, they also have complexities and potential risks, particularly related to changes in tax laws and the irrevocable nature of the trust.

Contact Will and Trust Planning Today

For personalized advice on estate planning, including strategies to minimize or avoid probate, contact Will and Trust Planning today. Our experienced estate planning attorneys can help you understand your options, draft essential documents, and create a plan that protects your assets and achieves your goals.