If you have had a Spousal Lifetime Access Trust (SLAT) drafted to remove assets from your estate through strategic gifts to your spouse while you are alive, then you need to determine your next steps and follow through on them. You can repeatedly transfer selected assets as gifts into this irrevocable trust, but you will need to be mindful not to surpass the estate and gift tax exemption. At the time of writing, there is a window through 2025 during which you may be able to make greater use of this exemption. You will also need to avoid missteps that threaten to prevent your SLAT from having the intended effect of avoiding Estate Tax.
At TrustFunding.com, we fund trusts for our clients. Through a free virtual Funding Analysis, we identify the funding status of your SLAT Trust and work with you to plan a strategy for funding it accordingly. Learn about important considerations affecting the next steps for your SLAT, and contact us to discuss your funding strategy.
Do you know if your SLAT is funded? Have you transferred any assets to the trust? SLATs are typically Grantor Trusts, meaning the liability for income tax on the earnings will lie with you instead of the trust. The SLAT affects each asset’s Estate Tax implications after that asset is transferred to the trust.
While you may have initially funded a SLAT with one or more asset(s), you can continue to transfer assets out of your estate and into the trust. Your strategy can be more complicated if you and your spouse both have SLATs. We manage the funding of your Spousal Lifetime Access Trust according to a strategy that fits your unique goals.
You should be aware that at the time of writing, the lifetime exemption limit is approximately $12 million, but this is set to drop by about half to $5 million adjusted for inflation at the end of 2025. This means if you can gift between $5 million (adjusted for inflation) and $12 million, you may be able to exempt the portion of your gifted assets above $5 million, perhaps exempting up to roughly an additional $6 million during your lifetime.
While this upcoming exemption change obviously won’t apply to everyone, anyone in a position to transfer millions of dollars may be looking at a window of opportunity to avoid Estate Tax for a large set of assets, greatly benefiting their beneficiaries. Your funding strategy should reflect this, and we will address the status of your SLAT’s funding and strategic plans if you contact us for a free virtual Funding Analysis.
You will need to avoid missteps that can sabotage the intended effects of your SLAT(s). First, the assets you transfer to your SLAT cannot be co-owned by your spouse, so you must verify the nature of a given asset’s ownership before its transfer. Co-owned assets transferred into your trust would negate the benefits of a SLAT.
The specific terms of your SLAT regarding beneficiaries are vital, especially when you and your spouse both have SLATs. You need to avoid mirrored trusts that could invoke the Reciprocal Trusts Doctrine. Your strategy with multiple SLATs must prevent issues with the assets or accounts interacting in a way that confuses who is the Grantor or the Beneficiary in theory or practice.
The specific terms of your particular SLAT regarding the beneficiary may or may not account for the possibility of divorce. This element is often neglected when drafting a SLAT because it is a sensitive subject. However, the terms of your SLAT may allow assets transferred into this irrevocable to go to your ex-spouse if you are already divorced or if you get divorced in the future. You must include a special divorce or floating spouse provision to prevent this outcome in your SLAT. We can address this question in your free virtual Funding Analysis.
If you do not fund your SLAT more than $5 million before 2026, you will miss the opportunity to exempt up to roughly $6 million in assets. If you have the means, you may be able to follow through with such a strategy while alive through 2025.
Funding a trust is what makes it work. A Spousal Lifetime Access Trust differs from other spousal trusts because it allows you to make gifts to fund the trust over time during your lifetime. In practice, you may likely wait to transfer some assets marked for your SLAT later. In the case of your unexpected incapacitation or death, this may result in some such assets being left outside of the trust.
If you forget or otherwise neglect to transfer an asset to your SLAT, then that asset remains in your estate, and you miss out on the benefits of a SLAT for that asset. You will therefore want to strategically plan the timed transfer of assets according to your goals and monitor your progress as you continue to fund your SLAT. At TrustFunding.com, we manage the funding of trusts for our clients according to their unique strategies.
Your SLAT is an irrevocable trust, meaning you lose access to the assets when transferred. You may be able to retain some indirect control over such assets through your beneficiary/spouse, but you need to understand that the Trustee controls assets transferred to the trust. This person may have distribution discretion which could permit them not to give distributions to beneficiaries (your spouse). Therefore, you will want to protect your ability to meet your lifestyle requirements with assets that will remain outside your trust when managing your SLAT funding strategy.
You need to know the current funding status of your SLAT, identify your funding strategy, and see to it that you can confidently follow through with your funding plan while accounting for contingencies. The sunset or the $12 million exemption limit at the end of 2025 and the specific terms of your SLAT(s) will affect your strategy.
Your next step is to contact TrustFunding.com at (248) 987-0400 or through the form on our website to schedule a free virtual Funding Analysis. We work virtually with our clients face-to-face in all 50 states to fulfill their funding strategies and take their trusts across the finish line.
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The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.
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The information in this video is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.