Chocolate and flowers have been exchanged, dinner reservations have been made and fulfilled, and Valentine’s day has officially passed. However with the end of February approaching, there is more you can do for your spouse than buying gifts or sharing a romantic evening. Although it’s far from a traditional Valentine’s gift, a well-written and up-to-date estate plan is one of the most important ways you can protect your loved ones. There are many estate planning strategies available to help you meet your personal goals, whatever they may be. In the spirit of the time of year, a nice gift exchange between clients and their spouses is a Spousal Lifetime Access Trust (SLAT).
So, what is a SLAT? A SLAT is a type of irrevocable trust (that is, a trust that cannot be modified without the permission of the trustees/beneficiaries once it is created) where one of the beneficiaries is the spouse of the creator/grantor. Because they cannot be amended, irrevocable trusts result in some loss of control and flexibility regarding the assets contained within them. However, in exchange, they provide tax savings and asset protection from creditors. A SLAT is a type of irrevocable trust set up by one spouse for the benefit of the other, and it can be a valuable estate planning tool for the right client.
Pros:
- • Allows the grantor access to trust assets through his or her spouse;
- • Allows the grantor to be responsible for the income taxes on the interest earned by the assets growing within the trust, thereby avoiding the compressed trust tax structure;
- • Offers creditor protection to the beneficiaries as assets in the irrevocable trust are outside of the reach of the beneficiaries’ creditors;
- • Offers protection from children’s potential divorcing spouses;
- • Drafted properly, assets can bypass the estates of the grantor, the spouse, and the ultimate beneficiaries of the grantor;
- • Compared to costs associated with defending lawsuits brought by creditors, these trusts are relatively inexpensive to set up;
- • May avoid state income taxes (if properly set up in specific jurisdictions); and
- • Use of trust protectors within the trust can provide flexibility to otherwise irrevocable trusts
Cons:
- • Expensive, especially if established in Asset Protection Trust (APT) jurisdictions
- • If the spouse passes away, access to trust assets may pass outside the reach of the grantor’s indirect access as the ultimate beneficiaries will now have full control over trust assets; and
- • Depending on the jurisdiction and when and how the trust is set-up, these trusts may not protect against a subsequent divorce of the grantor
SLATs work best for couples with stable marriages, with significant assets, or with asset protection concerns for both themselves and their loved ones and who have no hint or threat of a potential lawsuit or claim either presently or in the imminent future. For those clients, SLATs present a valuable tool to protect the couple’s estates from creditors as well as increase tax efficiency. Additionally SLATs can protect the ultimate beneficiaries (typically the grantor’s children) from their own creditors. With SLATs, as with any other estate planning strategy, the benefits can be lost if they are not drafted by a knowledgeable and specialized estate planning attorney. If you want to find out whether SLATs can help you in achieving your estate planning goals, don’t wait—call us and schedule a time to speak with us today.