Wealth left unprotected doesn’t stand a chance. So, you need to make sure you’re safeguarding it. To do that effectively, your wealth demands more than good intentions. It requires precision, strategy, and expertise.
For families and individuals managing substantial estates, the Spousal Lifetime Access Trust (SLAT) is one tool worth knowing. Not because it’s trendy or complicated but because it works.
A SLAT isn’t for everyone. It’s not some off-the-shelf solution or gimmick. But for those who understand the stakes, for those who value securing their legacy while maintaining a degree of flexibility, it’s a solution that commands attention.
What Is a Spousal Lifetime Access Trust?
A Spousal Lifetime Access Trust is an irrevocable trust that does precisely what its name implies: grants lifetime access to assets while addressing estate tax exposure. Unlike many so-called “estate planning tools,” a SLAT doesn’t play coy about its purpose.
It’s designed to remove assets from a taxable estate while offering limited access for the donor’s spouse. The result? A solution that safeguards wealth from federal and state tax collectors while keeping a measure of control intact.
Here’s how it functions: one spouse, the donor, transfers individually owned assets into the trust. These assets are then managed for the benefit of the other spouse, the beneficiary, who can access income or principal if needed.
Upon the beneficiary’s death, remaining assets are distributed to heirs, often children or grandchildren, according to the trust’s terms. It’s straightforward and effective – qualities we value and rarely see in the overhyped noise of estate planning.
Why Should You Care About a SLAT Right Now?
Time is rarely your ally in wealth protection, and this is no exception. Today’s estate tax exemption – $13.61 million per individual or $27.22 million for a married couple – won’t last.
When the Tax Cuts and Jobs Act sunsets at the end of 2025, the exemption could plummet to roughly $7 million per individual. Do the math: families once immune to estate taxes may suddenly find themselves facing a 40% rate on wealth exceeding these thresholds.
A SLAT offers an opportunity to lock in today’s generous exemption levels before they disappear. Waiting for Congress to extend them, or assuming your wealth won’t grow enough to matter, isn’t a strategy. It’s complacency – and it’s expensive.
Why else should you care about SLATs? Here are the advantages that matter most to HNWIs and UHNWIs:
Estate Tax Reduction
A SLAT doesn’t simply benefit from avoiding taxation on those assets now, a SLAT removes the gifted assets from your estate. This also means their future appreciation occurs outside the estate. The real savings come into play for families who get the compounding effect.
Flexibility for the Beneficiary Spouse
A SLAT is super flexible compared to other irrevocable trusts. Here, the beneficiary spouse can tap into those trust assets if they need to, which is helpful for keeping that financial flexibility while still enjoying tax perks.
State Estate Tax Mitigation
Federal estate taxes aren’t the only thing you should be thinking about. States with their own estate tax rules can certainly be a bummer, but SLAT can help by reducing the estate that gets hit with local taxes. It’s a smart move for anyone wanting to maximize their wealth.
Income Tax Efficiency
When set up properly as a grantor trust, the donor continues to hold the responsibility for income taxes on the assets within the trust. What are the benefits of this? This approach lets those assets flourish without the burden of income tax, ensuring that the value passed down to heirs is maximized.
The Risks No One Likes to Mention
Every strategy comes with its own set of imperfections, and SLATs definitely have theirs. Recognizing and tackling possible drawbacks is what truly distinguishes a solid plan from a costly blunder.
Divorce Complications
When donor and beneficiary spouses go through a divorce, the donor effectively loses indirect access to the assets held in the trust. Even though a carefully structured SLAT ends the beneficiary spouse’s interest if a divorce occurs, it can still leave the donor without the advantages they might have counted on.
Premature Death of the Beneficiary Spouse
If the beneficiary spouse were to pass away first, the donor would lose their indirect access to the trust. The assets are still safeguarded for the heirs, but the donor has lost some flexibility.
Administrative Complexity
Funding a SLAT involves more than just writing a check. Transfers are limited to assets that are owned by individuals. What about property that’s owned together? It really disrupts the whole foundation. Staying on top of compliance is paramount. When it comes to funding or administration, any missteps can lead to some serious tax implications.
Changing Tax Laws
Staying on top of tax laws is crucial because they can change at any moment. Being informed and ready for those changes is definitely the way to go. The success of the SLAT truly depends on the existing regulations that are currently in effect.
Adding a trust protector will certainly minimize certain risks, but it’s crucial to keep in mind that there’s no foolproof way to guarantee total protection against possible future changes in legislation.
Who Benefits From a SLAT?
While a SLAT isn’t essential for everyone, it can be a game-changer for those who find it necessary. Check out the profiles where SLATs really stand out:
Estates Above Current or Future Tax Exemptions
If your estate is likely to surpass the current exemption or you see yourself hitting those 2026 limits, a SLAT is a smart way to tackle the issue before it turns into a bigger concern.
Families Seeking Flexibility Without Sacrificing Protection
A SLAT strikes the perfect balance between reducing taxes and maintaining access, making it a great choice for anyone who wants to keep control without giving it all away.
Residents of High-Tax States
While federal taxes might not be a concern, you definitely want to keep an eye on state estate taxes – they could still come into play. A SLAT effectively protects these assets from unwarranted state-level depletion.
How Dominion Secures Your SLAT for the Long-Term
Creating a successful SLAT means making sure it stands strong for the long haul. At Dominion, we understand that the strength of a trust relies heavily on the solid framework that underpins it.
When we create SLATs, we focus on enhancing and strengthening them to their fullest potential. This requires a deep dive into the advantages of jurisdiction, staying informed about shifts in global tax laws, and putting in place protective measures to ensure your wealth remains safe no matter what the future holds.
We’re always keeping an eye on your SLAT, making sure it adapts to the ever-evolving financial and legal landscapes. When there are changes in jurisdiction or shifts in tax regulations, we adapt swiftly to ensure your trust remains optimized for the future.
For clients looking for personalized solutions that last through generations, we develop custom strategies aimed at protecting assets while providing flexibility for future heirs.
With Dominion, your SLAT evolves into an exuberant framework that expands and adjusts to your legacy.
Structuring a SLAT: Details Matter
Getting a SLAT right isn’t optional. Trusts that aren’t set up properly can really miss the mark, leading to some serious issues down the line. Here’s what you need to get right:
Asset Selection
Assets that are individually owned and appreciate over time, such as securities, life insurance, or real estate, are definitely worth considering. Jointly held property isn’t.
Trustee Selection
The spouse who benefits can serve as the trustee, but it’s crucial to limit their power over distributions to prevent any inclusion in their taxable estate. Bringing in an independent trustee really opens up options and minimizes potential risks.
Integrated Adaptability
Incorporating a trust protector or a similar mechanism really helps the SLAT stay flexible with shifting tax laws or family situations, making sure it remains effective over the long haul.
Integration with Estate Plans
A SLAT is more than just a standalone tool. It’s essential that it fits perfectly within your overall estate plan, including wills and other trusts, to maintain consistency and harmony.
Dominion’s Take on SLATs
Authentic resonant solutions are what Dominion is about – we strictly avoid generic or overly exaggerated ideas. When properly executed a SLAT really does shine, but too many advisors don’t have the expertise to properly implement this structure. That’s just one of the many reasons clients choose us.
We take a meticulous yet flexible approach to managing wealth governance. We customize each trust to suit your specific needs, leveraging our extensive global network of legal and financial professionals.
This is not random speculation or generic planning. It’s a game plan that’s tied to years of legal precedent and decades of protecting your assets.
As an integral piece of the puzzle, SLATs need to fit with your estate planning goals, and we make sure they fit synergistically. The outcome? A tried and true solution that works in today’s and tomorrow’s world, as well as decades further into the future. If you want to find out whether a Spousal Lifetime Access Trust makes sense for your financial case, contact Dominion for assistance.
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