Setting Up a Spousal Lifetime Access Trust (SLAT): Key Considerations

What Is a Spousal Lifetime Access Trust?

A spousal lifetime access trust (SLAT) is a type of trust that can help high-worth estates protect assets from federal estate and gift taxes. Currently, there’s an exemption for individuals of up to $13.61 million and couples of up to $27.22 million. The amount changes every year, and in 2026, those amounts could be cut in half unless Congress takes steps to stop it.

Here’s how a SLAT works.

• The donor spouse transfers ownership of assets that they alone own into a SLAT and reports the transfer on their gift tax return.
• The spouse named as beneficiary on the SLAT can then access those assets by requesting a distribution of principal or income from the principal. Note that the donor spouse may benefit from this, but indirectly.
• When the SLAT ends (usually when the beneficiary dies), the remaining assets are distributed to other beneficiaries named in the trust.

What Are the Pros and Cons of Setting Up a SLAT?

Like most estate planning tools, a SLAT may work better for some people than others. Every estate is unique. To learn more about whether a SLAT could benefit your estate, contact an experienced estate planning and trust attorney. One thing common to most trusts is that they don’t have to go through probate court to distribute the assets. Probate court is public, and it can be time-consuming. Avoiding it keeps the estate’s details private and may lead to a quicker, less costly distribution process.

Here are some additional pros and cons to consider.

• Pros:
  • The beneficiary spouse can access the assets in the trust while the donor is still alive and can potentially use some assets to maintain or increase their standard of living.
  • It’s possible that the assets in the SLAT will not be subject to Connecticut’s estate tax (or not subject to as much) (contact an attorney for details).
  • The donor, not the trust, is responsible for any income tax based on asset gains, meaning the trust’s assets could continue to grow unimpeded by income tax.
  • Irrevocable trusts are usually immune from creditors and lawsuits, which makes them a good choice for people in lawsuit-prone professions (medical care, etc.).
• Cons:
  • Loss of access to the donor. If the beneficiary spouse dies before the donor spouse, the donor still can’t access them because a SLAT is an irrevocable trust. However, the donor can arrange for the trust to name their children as subsequent beneficiaries or distribute the assets directly to the children.
  • Divorce can be even more complicated when a SLAT is involved. When setting up this type of trust, it’s crucial to work with an estate planning attorney who can help protect the donor’s assets in the event that the marriage ends.
  • If the beneficiary spouse is the SLAT’s trustee and plans to authorize distributions to themselves, there are potential tax implications. It’s worth considering having a third-party trustee. Discuss this option with your attorney to see if it could work for you.

It’s advisable to remember that tax laws change frequently. How SLATS are treated today could be different in the future. Discuss any concerns you have about this irrevocable trust with your estate planning attorney.

What Options Do I Have if I’d Prefer Not to Use an Irrevocable Trust?

There are many people who would rather not use an irrevocable trust because they’re worried there may be upcoming changes they’d want to account for. If you’re concerned about that type of trust, consider creating a revocable trust. That’s a trust that can be amended or canceled as long as the estate’s owner is still alive and mentally competent.

As with irrevocable trusts, revocable trusts have pros and cons.

• Pros:
  • Flexibility. The estate owner can move assets in and out of the trust and change the beneficiaries over time.
  • If a successor trustee is named (recommended) and the estate’s owner becomes unable to manage the trust, the trust can continue seamlessly.
• Cons:
  • Lack of tax benefits. An irrevocable trust will likely have tax benefits that a revocable trust won’t.
  • Loss of asset protection. Unlike irrevocable trusts, revocable trusts may be approached by creditors and assets seized to pay lawsuits.

If I Have a Trust, Do I Need a Will?

It’s possible you may need both. If there are assets that aren’t transferred into a trust’s ownership, they should be addressed in a will, or else they’ll go to the probate court, and that court will determine who receives them.

One area that trusts can’t legally address is the guardianship of minor children. If you have children who might be orphaned, it’s crucial to draw up a will naming the people you want to be their legal guardians. Otherwise, the probate court will make that determination, often choosing a close relative. Create a will to ensure your children are cared for by the best guardian.

What Should I Do if I Need More Information on Setting Up a Spousal Lifetime Access Trust?

Call the Law Offices of Ericson, Scalise & Mangan, PC, at 860-854-3809 to schedule a consultation. This is a highly complex area of estate planning. Our team of experienced, knowledgeable estate planning and trust administration attorneys can review the specifics of your estate and help you determine which planning tools are most appropriate for you and your family. We understand how vital it is that your wishes be carried out and can work with you to explore the best ways to do that.