Estate planning is about more than just deciding who will inherit your assets—it’s about protecting what you’ve built, minimizing taxes, and ensuring financial security for your loved ones. One strategy that can help married couples accomplish these goals is the Spousal Lifetime Access Trust (SLAT).
A SLAT allows one spouse to set aside assets in a trust for the benefit of the other spouse, while also reducing the couple’s taxable estate and shielding wealth from potential creditors. This can be especially valuable for high-net-worth families or those looking to take advantage of the current federal estate tax exemption before it changes.
How Does a SLAT Work?
A Spousal Lifetime Access Trust is an irrevocable trust, meaning once assets are transferred into it, they cannot be taken back. Here’s how it works:
- One spouse (the grantor) transfers assets into the SLAT, removing them from their taxable estate.
- The other spouse (the beneficiary spouse) can receive distributions from the trust for living expenses, healthcare, or other financial needs.
- Since the assets are no longer owned by the grantor, they are not subject to estate taxes upon their passing.
- After the beneficiary spouse’s lifetime, the remaining assets can pass to children or other heirs with significant tax advantages.
This structure allows families to protect and preserve wealth for future generations while still ensuring access to funds during their lifetime.
Why Consider a SLAT?
A SLAT offers multiple benefits, making it a popular choice for estate planning in Texas:
- Protects Assets from Creditors: Assets in the trust are shielded from lawsuits and creditor claims.
- Reduces Federal Estate Taxes: Assets placed in the SLAT are removed from the grantor’s taxable estate, potentially lowering estate tax liability.
- Provides Ongoing Financial Support: The beneficiary spouse has access to trust distributions, allowing the couple to continue benefiting from the assets.
- Secures Generational Wealth: The trust can be structured to provide for children, grandchildren, or other beneficiaries in a tax-efficient way.
Important Considerations for Texas Residents
Unlike some states, Texas does not have an estate or inheritance tax, making it a favorable place for high-net-worth individuals to implement advanced estate planning strategies like a SLAT. However, Texas is a community property state, meaning careful planning is required when funding the trust.
To maximize the benefits of a SLAT, it’s often best to fund it with separate property assets, rather than community property, to avoid tax complications. Additionally, the federal estate tax exemption is currently at an all-time high but is set to decrease after 2025—making now an ideal time to consider a SLAT.
Potential Drawbacks to Keep in Mind
While SLATs offer significant advantages, they aren’t the right fit for everyone. Here are a few considerations:
- Irrevocable Structure: Once assets are placed in the SLAT, the grantor cannot reclaim them.
- Risk of Beneficiary Spouse’s Death: If the beneficiary spouse passes away first, access to the trust’s assets may be lost unless structured carefully.
- IRS Scrutiny of Reciprocal Trusts: If both spouses create identical SLATs for each other, the IRS may view them as an attempt to retain control over assets, potentially eliminating tax benefits.
Is a SLAT the Right Choice for You?
For Texas families looking to safeguard their wealth, a Spousal Lifetime Access Trust can be a valuable tool. However, because it involves complex legal and tax considerations, it’s essential to work with an experienced estate planning attorney to ensure the trust is properly structured.
Bromlow Law, PLLC and Laura L. Bromlow, are dedicated to the practice of Elder Law and Estate Planning. Our practice focuses solely on working with clients in these and closely related legal fields. Laura L. Bromlow is a Certified Elder Law Attorney with the National Elder Law Foundation. Bromlow Law, PLLC strives to enhance communication among family members and loved ones and to keep them all out of conflict so they can stay out of court. We want to help you keep your close circle safe!
Please contact our office today at (281) 665-3807 to schedule a free consultation to discuss your legal matters. We look forward to the opportunity to work with you.