A Spousal Lifetime Access Trust (SLAT) is a valuable estate planning strategy designed to transfer assets out of an individual’s taxable estate while maintaining financial security for their spouse. By establishing a SLAT, the grantor makes irrevocable gifts to a trust that benefits their spouse—and potentially other beneficiaries, such as children—providing both estate tax advantages and asset protection. This approach is particularly beneficial for individuals looking to maximize their lifetime gift tax exemption while still maintaining indirect access to the trust’s assets through their spouse.

By utilizing a SLAT, married couples can efficiently remove assets from their taxable estate, prevent estate taxes on future asset appreciation, and still retain a level of financial flexibility, ensuring stability for the spouse.

• Reduction of Taxable Estate: Assets placed in a SLAT are excluded from the grantor’s taxable estate, reducing potential estate taxes upon the grantor’s death. This is particularly advantageous for those aiming to leverage their lifetime gift tax exemption.
• Indirect Access to Trust Assets: While the assets in a SLAT are irrevocably transferred, the grantor’s spouse, as a beneficiary, can receive distributions from the trust, preserving financial flexibility.
• Asset Protection: Assets held in a SLAT are generally safeguarded from creditors, lawsuits, and other financial risks, providing additional security for the spouse and other beneficiaries.
• Utilization of Lifetime Gift Tax Exemption: By transferring assets into a SLAT, the grantor can take advantage of their lifetime gift tax exemption, securing the current exemption levels before potential changes in tax laws.

• Irrevocability: Once the SLAT is established and funded, it cannot be changed or revoked—you lose control over the transferred assets. If your relationship with your spouse deteriorates, access to the trust (via the spouse) may become problematic.
• Divorce Risk: If you divorce, your indirect access to the trust ends—you no longer benefit from assets held for your now ex-spouse.
• Gift Tax Filing and Valuation: Funding a SLAT is a taxable gift, requiring a gift tax return and careful valuation of transferred assets. You may use up part of your lifetime gift and estate tax exemption, which could be less favorable if exemption amounts are reduced in the future.
• Loss of Stepped-Up Basis: Assets transferred to the SLAT are removed from your estate, so they won’t receive a step-up in basis at death—potentially increasing capital gains tax for heirs.

A SLAT is established as an irrevocable trust funded by the grantor, who transfers selected assets into it. The spouse is designated as the primary beneficiary, with provisions for additional beneficiaries such as children or grandchildren. The trust allows distributions to the spouse for health, education, maintenance, and support (commonly known as HEMS standards), ensuring financial stability while keeping the assets outside the taxable estate. Upon the spouse’s death or at a specified time, the remaining trust assets pass to designated heirs, such as the couple’s children, free from estate taxes. Once the assets are transferred, the grantor no longer has direct control over them, but since the spouse can receive distributions, the trust structure allows for financial flexibility.

• Income Taxes: SLATs are typically structured as grantor trusts for income tax purposes, meaning the grantor pays taxes on the trust’s earnings, allowing assets to grow tax-free within the trust.
• Estate Taxes: Since SLAT assets are excluded from both the grantor’s and spouse’s taxable estates, they are not subject to estate tax, which can yield significant tax savings.
• Gift Taxes: Assets transferred into the SLAT are considered gifts and apply to the grantor’s lifetime gift tax exemption, reducing the overall taxable estate.

• Irrevocability: Once assets are placed into a SLAT, they cannot be reclaimed by the grantor, making asset selection a crucial decision to ensure both spouses retain adequate financial security outside of the trust.
• Reciprocal Trust Doctrine: If both spouses create SLATs for each other’s benefit, they must be structured differently to avoid IRS scrutiny that could negate tax benefits.
• Divorce Implications: In the event of divorce, the spouse’s access to trust assets may terminate, depending on the trust’s terms. This should be considered when structuring the trust.
• Asset Selection: Choosing assets expected to appreciate can maximize estate tax savings by ensuring future growth occurs outside of the taxable estate.
• Trustee Selection: The choice of trustee is critical, as they will manage and distribute trust assets. Trustees may be family members, third parties, or corporate entities based on family preferences and trust objectives.

A Spousal Lifetime Access Trust (SLAT) provides a strategic and tax-efficient means of transferring wealth while ensuring financial security for a spouse. By utilizing the lifetime gift tax exemption and removing appreciating assets from the taxable estate, a SLAT helps families preserve wealth across generations while maintaining indirect access to trust funds. When structured properly, SLATs can be a powerful estate planning tool for high-net-worth individuals aiming to minimize estate tax liability while securing their financial future.

Disclosure: This information is for general informational purposes only and should not be considered investment advice or a specific tax or financial planning recommendation. It does not constitute an offer to provide financial services. Consult with qualified tax, legal, and financial professionals before implementing any estate planning strategies.

Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. Burnham Harbor Private Wealth is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.