Spousal lifetime access trusts

Provides education on spousal lifetime access trusts and how they can be a remarkable and useful nuanced planning tool.

by Catherine McDermott, Senior Wealth Strategist, Advanced Planning Group 15 Oct 2022

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.

The basics

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).

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Purpose of this material.
The information on this page and in the attached document is provided for informational and educational purposes only. It should be used solely for the purposes of discussion with your UBS Financial Advisor and your independent consideration. UBS does not intend this to be fiduciary or best interest investment advice or a recommendation that you take a particular course of action.

No tax or legal advice.
UBS Financial Services Inc., its affiliates and its employees do not provide tax or legal advice. You should consult with your personal tax and/or legal advisors regarding your particular situation.

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