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What Is a Spousal Lifetime Access Trust?

On Behalf of | Mar 4, 2021 | Estate Planning |

If you want to reduce your estate’s risk of being taxed and to use your tax exemptions for the benefit of your spouse, there is one trust that could help. A spousal lifetime access trust is one that you create to benefit your spouse. This trust is irrevocable, which means that it cannot be changed or altered in any significant way once it’s created.

A SLAT is a good option, because you can use it to gift a share of your estate tax lifetime exemption, which helps you take advantage of the lifetime federal estate tax exemption currently worth $11,700,000 in 2021.

Why makes this trust so special?

Something that makes the SLAT special is that your spouse will have access to it during their lifetime as a result of being a beneficiary. That means that you can put up to $11,700,000 of assets from your estate into that trust and out of your estate. Since this amount will drop at the end of 2025 to $5 million, now is a good time to do that. Additionally, since your spouse is the beneficiary, they can access that trust while you’re both still alive, giving you access to those assets and also protecting your estate from taxation.

Are there downsides to using a spousal lifetime access trust?

Yes, there are some drawbacks to selecting this kind of trust. The first is that you’ll lose access to the trust if your spouse passes away. The trust would then go to beneficiaries named in the trust, so you could keep it in the family or transfer it to a friend, for example, if you wanted.

Another issue could be the potential for a divorce. If you divorce, your spouse will still be the beneficiary on that trust. If you think that’s a possibility in the future, then it’s a good idea to talk to your attorney before setting up the trust.

If you and your spouse both make these trusts for each other, you have to be cautious as well. If they’re made too close together, then the Internal Revenue Service may say that they cancel each other out, which could mean that you or your beneficiaries would have to pay more taxes in the future.