SLATs for Couples: Protect Wealth While Keeping Options Open
Planning for multigenerational wealth calls for tools that lower estate-tax exposure and still leave room to adapt. A Spousal Lifetime Access Trust (SLAT) is one such option. This overview explains what a SLAT is, how it functions, where it helps most, key trade-offs, and how to decide if it fits your plan.
What Is a Spousal Lifetime Access Trust?
A SLAT is an irrevocable trust funded by one spouse for the other spouse’s benefit. The funding spouse uses part of their lifetime gift/estate tax exemption to transfer assets out of their taxable estate. The beneficiary spouse may receive distributions under the trust’s terms, preserving practical access for the household.
In Plain-English: A SLAT moves assets outside the estate for tax purposes while allowing the non-donor spouse to receive support from the trust.
Step-by-Step: How a SLAT Works
Step 1: Create and Fund
One spouse (the donor) establishes the trust and contributes separate-property assets. That transfer is a taxable gift that uses some (or all) of the donor’s lifetime exemption.
Step 2: Use and Distributions
The beneficiary spouse can receive distributions—often limited by HEMS standards (health, education, maintenance, and support)—providing structure and indirect access for the couple.
Step 3: Pass to the Next Generation
When the beneficiary spouse dies, remaining trust assets typically pass to the named remainder beneficiaries (commonly children or grandchildren), outside the surviving spouse’s estate.
Why Families Use a SLAT
1) Estate-Tax Efficiency
Assets placed in the SLAT—plus future growth—are generally excluded from both spouses’ taxable estates, helping preserve more for heirs.
2) Added Protection From Creditors
Trust ownership can offer strong protection against many future creditor claims, depending on state law and proper drafting.
3) Practical Access During Life
Although the transfer is irrevocable, the beneficiary spouse’s ability to receive distributions provides day-to-day flexibility for family needs.
Important Points to Weigh First
Irrevocable Structure: Once funded, changing terms is difficult. Careful design up front is essential.
Access Can Change: If the beneficiary spouse dies first—or the couple divorces—the donor spouse usually loses the indirect access that existed through the beneficiary spouse.
Avoid “Reciprocal” Issues: If both spouses set up SLATs for each other, the trusts must be meaningfully different (timing, terms, trustees, and funding) to avoid IRS challenges under the reciprocal trust doctrine.
Frequently Asked Questions
Can both spouses establish SLATs for each other?
Yes, but they must be drafted and funded in non-mirror ways to steer clear of the reciprocal trust doctrine.
What happens if the beneficiary spouse dies first?
The trust generally continues for the remainder beneficiaries named in the document; the donor spouse potentially loses access.
Are SLAT assets protected from creditors?
Properly drafted and administered SLATs usually provide strong creditor protection for the beneficiary spouse and future beneficiaries (subject to state law).
Do SLAT assets receive a step-up in basis at death?
Generally, no. Because the assets are outside the taxable estate, they typically do not receive a step-up in basis, which may affect future capital-gains taxes for heirs.
Is a SLAT a Fit for Your Family?
For affluent couples seeking to reduce estate taxes, strengthen asset protection, and keep flexibility through the beneficiary spouse, a SLAT can be a powerful solution. Because the rules are technical and long-lasting, expert guidance is essential.
Disclosures: FMD Wealth Advisors LLC (“FMD Wealth Advisors”) is a Registered Investment Adviser.
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