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When we talk about estate planning, two topics tend to drive the conversation: inheritors and taxes. While estate planning is not most people’s favorite way to spend their time, their ears tend to perk up when we say something like, “What if you got a 40% off coupon on taxes because of how your estate is set up?” Suddenly, estate planning is riveting.
In that case, let me introduce you to the Spousal Lifetime Access Trust or SLAT. A SLAT is an irrevocable trust that one spouse (the grantor) creates for the benefit of the other spouse (the beneficiary).
It removes assets from the grantor’s estate—but because the beneficiary is the spouse, the couple still has indirect access to the funds during their lifetime.
Why It Matters
Let’s say you want to reduce estate tax exposure by moving assets out of your name but you’re uncomfortable making a gift you can never benefit from again. With a SLAT, you gain that estate planning benefit while preserving some practical access.
It is especially useful in situations where:
- You want to use today’s high estate tax exemption before it potentially gets cut.
- One spouse controls most of the family’s wealth, and the other does not.
- You’re thinking ahead to what happens if one spouse passes first—this creates a pool of assets available to the survivor, but already outside the taxable estate.
Key Benefits
- Reduces estate tax exposure. Assets grow outside the estate, reducing what is subject to tax at death.
- Keeps flexibility. Because your spouse is the beneficiary, you still have indirect access if needed.
- Tax-efficient growth. The grantor pays income tax on the trust assets, which keeps the trust growing and further reduces their own estate.
- Leverages today’s exemption. With potential changes to estate tax law on the horizon, SLATs are a timely way to “use it before you lose it.”
A note on point 3: if you pay taxes out of your SLAT assets, you’re shrinking your taxable estate even further. You’re doing it without eating into your lifetime exemption or requiring extra gifts.
It’s like paying the IRS with dollars that would have otherwise been taxed again at 40%.
Asking The Right Questions
SLATs aren’t one-size-fits-all. They work best when you have significant assets, clear estate goals, and a spouse who is comfortable being the named beneficiary. They also work best when your financial plan and your estate plan are fully integrated. This allows us to account for relational dynamics, gifting implications, and income needs.
We don’t rush into these. They have to be the right fit because once it’s funded, there’s no pulling the funds back. Like the highly specialized tool it is, it requires a specific use case with significant potential upside.
If you are looking for more tax-efficient estate planning strategies, seek the advice and guidance of a qualified estate planning attorney. If you need a recommendation, we are happy to connect you.