What is a SLAT?

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A SLAT is an estate planning tool that may become more popular as we approach the current federal estate tax exclusion’s sunset on December 31, 2025. SLAT stands for Spousal Lifetime Access Trust.

A SLAT is an irrevocable trust, so any assets funded into a SLAT are removed from your estate. In 2023, the federal estate tax exemption is $12.92 million per person, so there are not too many people who are concerned about avoiding federal estate taxes. Utah does not have its own state estate tax; so again, there is no reason to transfer wealth outside of your estate to avoid Utah estate taxes. However, in 2026, the federal estate tax exemption will be cut in half unless some other action is taken by the federal legislature. Any assets transferred into a SLAT now can take advantage of the larger federal lifetime gift and estate tax exclusions.

Advantages of a SLAT

  • Removes assets from your estate for state and federal estate tax purposes
  • Allows access to the assets through distributions to the spouse as the beneficiary of the trust
  • Provides asset protection from creditors
  • Transfers assets to the next generation or other beneficiaries upon the death of the spouse
  • Passes through income to the grantor when set up as a grantor trust
    • Taxes are paid at the individual level rather than at the higher trust tax levels
    • No additional tax returns are required during the donor’s lifetime
  • Allows individuals to take advantage of the large estate and gift tax exclusion levels that will likely come to an end in the next couple of years.

Disadvantages of a SLAT:

  • Complex administration of an irrevocable trust and costs of an independent trustee
  • Donor’s indirect access is terminated upon the spouse’s death
    • The risk of death can be mitigated by a life insurance policy taken out on the spouse.
  • Donor’s indirect access may be terminated upon divorce even though the former spouse continues to benefit from the SLAT
    • This can be prohibited in the terms of the trust.
  • There is a loss of the step-up in basis at death
    • This can be mitigated by allowing for a swap of assets of equal value

If you would like to discuss whether a SLAT is right for your situation, please don’t hesitate to call me at 801-874-4546 to schedule a free consultation. I am an estate planning attorney in Spanish Fork, Utah. While my office is in Spanish Fork, I provide estate planning services in Utah County and beyond.

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