Spousal lifetime access trusts

Every legally valid estate planning technique must have an acronym, so a spousal lifetime access trust is a SLAT. Technically that is not a true statement, but estate planners sure love acronyms. I first heard the term SLAT in 2012 even though I had already been intimately familiar with this type of trust for over a decade. Fundamentally, a SLAT is just a trust that names the spouse of the grantor as a discretionary beneficiary. Hardly a revolutionary concept, but the SLAT is a remarkably useful and nuanced planning tool.

Each person has a federal gift and estate tax exclusion (inflation adjusted to $12.06 million in 2022) that can be used to shelter gifts or bequests.¹ An individual can transfer that much wealth during life, at death, or a combination of the two without paying any federal tax. Transfers above that sum result in a 40% federal gift or estate tax. For example, if I give my sister $4 million during my life (and have not made any prior gifts), then I would not owe any federal gift tax. If I then died and left my children $9.06 million then my total transfers would be $13.06 million and my estate would owe $400,000 of federal estate tax (40% of $1 million).²

There is a significant advantage to making lifetime gifts because any appreciation on those assets from the date of the gift to the date the transferor dies will not be part of the transferor’s estate for estate tax purposes. In the above example, if the $4 million I gave to my sister grew to $40 million before I died, then there would be no additional federal gift or estate tax on that sum and I would still be able to pass an additional $8.06 million estate tax free at my death provided that the lifetime exemption at my death is $12.06 million and my only lifetime exemption gift had been $4 million (my sister would have her own separate tax considerations).

Please note: The complete publication, including important information and disclosures, can be downloaded via the link below.

¹ The 2021 figures are based on a 2011 base amount of $10 million (adjusted for inflation) as a result of the Tax Cuts and Jobs Act. The law will revert (”sunset”) to the  original $5 million base amount (adjusted for inflation) on January 1, 2026, unless Congress takes action. 

²The method used to calculate any federal estate taxes due assumes a 40% tax on any amount over the remaining federal estate tax exemption amount, and does not take into account the graduated tax rate on the first $1 million. As such, the estate tax amount noted above may be slightly overstated.