Maximizing Financial Benefits and Protecting Assets Using a SLAT

August 07, 2023 By Laura Nash, CFP® »
Married couple kissing after the cermony

In today's dynamic financial landscape, individuals seek innovative and effective ways to protect their assets while maximizing financial benefits for themselves and their family. One such strategy that has gained popularity in recent years is the Spousal Lifetime Access Trust (SLAT). SLATs provide a unique opportunity for married couples to protect their wealth, reduce estate taxes, and maintain control over their assets, all while ensuring financial security for their spouses.

A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust established by one spouse for the benefit of the other spouse. The trust is typically funded with individually-held assets that are intended to grow over time and provide income and financial security for the non-grantor spouse. For 2023, an individual can gift up to $12.92 million free of federal gift tax.1

SLATs provide an opportunity today that may or may not be available in the future, depending on new legislation passed by Congress. It's important to note that the Tax Cut and Jobs Act of 2017 had increased the estate tax exemption, but it will revert to the inflation-adjusted 2017 level on January 1, 2026, unless Congress takes action.2, 3 For reference, the estate tax exemption in 2017 was $5.6 million per person. The point is, if you want to take advantage of saving on estate taxes, now is the best time to consider if a SLAT is right for you and your family.

Key Features and Benefits

  1. One of the primary benefits of a SLAT is asset protection. By transferring assets to an irrevocable trust, they are shielded from potential creditors, lawsuits, or financial risks. This feature is particularly valuable in high-liability professions and for individuals with significant wealth.
  2. A well-structured SLAT can help mitigate estate tax liability. When assets are transferred to the trust, they are effectively removed from the grantor's estate. Consequently, any appreciation in the trust's value is also excluded from the grantor's taxable estate. By leveraging the gift and estate tax exemption, couples can effectively reduce the overall tax burden on their estates.
  3. Despite the irrevocable nature of a SLAT, the non-grantor spouse can still receive income distributions and, in some cases, access to principal. These distributions can provide financial security and support the non-grantor spouse's lifestyle while maintaining the trust's tax advantages.
  4. SLATs offer a degree of control and flexibility to the grantor. Although the grantor cannot directly access the trust's assets, they can dictate the terms of distributions and appoint trustees who share their values and financial objectives. Additionally, SLATs can be structured to allow the grantor to change beneficiaries in the future, providing flexibility to adapt to changing family circumstances.

While SLATs offer numerous advantages, it is essential to consider the following factors:

  1. Once assets are transferred to a SLAT, they become irrevocable. The grantor relinquishes ownership and control over the assets. Careful consideration and professional advice are crucial before establishing a SLAT to ensure it aligns with long-term financial goals.
  2. Funding a SLAT involves making a gift to the trust. Gift tax rules and exemptions must be understood and considered to minimize potential tax liabilities. Consulting with an experienced estate planning attorney or tax advisor is crucial to navigate these complexities.
  3. SLATs are designed to benefit the non-grantor spouse, and any decisions made within the trust must align with their best interests. Open communication and trust between spouses are vital to ensure the success and effectiveness of the SLAT.

With careful planning, a SLAT can become a valuable tool in optimizing wealth preservation and securing a lasting legacy. Feel free to call us if you would like to further explore this strategy for your family.

Meet Laura Nash, CFP® »

Read the August 2023 Financial Planning Focus:

1https://www.investopedia.com/estate-tax-exemption-2021-definition-5114715

2https://www.investopedia.com/managing-wealth/how-does-new-tax-law-affect-your-estate-plan/

3https://www.irs.gov/newsroom/estate-and-gift-tax-faqs

Important Disclosures

West Financial Services, Inc. ("WFS") offers investment advisory services and is registered with the U.S. Securities and Exchange Commission ("SEC"). SEC registration does not constitute an endorsement of the firm by the SEC nor does it indicate that the firm has attained a particular level of skill or ability. You should carefully read and review all information provided by WFS, including Form ADV Part 1A, Part 2A brochure and all supplements, and Form CRS.

Certain information contained herein was derived from third party sources, as indicated, and has not been independently verified. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. Where such sources include opinions and projections, such opinions and projections should be ascribed only to the applicable third party source and not to WFS.

This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product, security, or concept. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. You should not treat these materials as advice in relation to legal, taxation, or investment matters. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisers.

Categories Financial Planning Focus