Using SLATs to reduce the size of your estate and avoid taxation

Currently, if your estate is worth more than $12.92 million (for a single individual) and you pass away, your estate will be subject to the federal estate tax. Most people do not want to see the wealth they worked so hard to accrue during their lifetime be depleted even slightly.

Spousal lifetime access trusts — SLATs — are an estate planning vehicle that aim to help people lower the size of their estate. The goal is to avoid being subject to the federal estate tax.

How do SLATs work?

SLATS are available to married couples. The doner spouse will give estate assets to an irrevocable trust that benefits the receiving spouse. This effectively takes those assets out of the donor spouse’s estate, lowering its value, while still transferring these assets to the receiving spouse. In this way, SLATs can help people avoid the federal estate tax.

There are limits to SLATs. A couple cannot set up separate SLATs at the same time for the benefit of each other and then try to fund these SLATS with identical assets. This violates Internal Revenue Service (IRS) rules.

SLATs are not risk-free. If the receiving spouse passes away or the couple divorces, the donor spouse may no longer have any right to the assets in the SLAT.

Seek help with your SLAT

SLATs are complex legal instruments, and they are certainly not a do-it-yourself type of undertaking. You will want to enlist the help of a professional if you wish to create a SLAT.

SLATs are not for everyone. Some people may not need to access the funds in a SLAT. But if you think you might need to access SLAT funds, you may want to reconsider executing a SLAT, as assets gifted to them cannot be controlled by the donor afterwards.