AALU: Spousal Lifetime Access Trust

Spousal Lifetime Access Trust (SLATs)

The increased gift and generation-skipping transfer tax exemptions provide greater opportunities to benefit future generations during life.  A spousal lifetime access trust (a so-called “SLAT”) may provide a helpful solution for clients, who are looking to giving lifetime gifts with the need to retain adequate funds to support their needs.

The SLAT, a lifetime irrevocable trust created for the benefit of the donor’s spouse, arguably allows the donor to indirectly benefit from the trust assets (through distributions to the spouse) should the need arise.  Additionally, in states that do not levy gift taxes but still impose estate taxes, a lifetime gift to a SLAT can result in reduced state estate tax exposure.  In addition, the trust can purchase life insurance on the donor’s life.  Following appropriate applicable tax principles and laws, growth within the policy generally is not subject to income or net investment income (“NII”) taxes and policy death benefit proceeds typically are not subject to income or estate taxes.  However, extreme care is required in crafting, implementing, and administering the SLAT.

Learn about the benefits and potential risks of a Spousal Lifetime Access Trust in the latest Washington Report.