What Is a SLAT in Estate Planning?Posted on January 30, 2024, by Nicholas Medley
As leading estate planning lawyers in Pensacola, we’ve helped countless clients protect their wealth and secure their families’ financial futures. When you need a custom-tailored estate plan, Medley Law Firm is here to help. Contact us online to schedule a consultation.
Securing your legacy is a life-long endeavor. After years of working hard, amassing wealth, and making the smartest financial decisions possible, you have the opportunity to maximize your position—don’t jeopardize it by failing to make an estate plan.
Contrary to popular belief, estate planning isn’t just for the ultra-wealthy or for people with complex family structures and obligations. Rather, estate planning is for anyone who knows the value of doing due diligence in money matters. Although estate planning is important no matter where you live, an expertly crafted estate plan can offer tremendous benefits in Florida.
Unlike many states, Florida doesn’t impose an estate tax (also called an inheritance tax) or a state income tax on its residents, which is one of the reasons it attracts so many high-net-worth residents. Floridians are, however, still subject to federal estate and income taxes. Luckily, there are a few highly effective estate planning tools that an experienced attorney can use to minimize you and your spouse’s taxable estate.
This article will explore a particularly useful estate planning tool called the spousal lifetime access trust (SLAT), including its pros and cons, who it benefits, and a few Florida-specific legal considerations.
Failing to make an estate plan leaves your assets vulnerable to excess taxes and liabilities. Luckily, there’s an easy solution: Call Medley Law Firm at (850) 607-7890 to discuss your options with a dedicated estate planning and wealth management lawyer today.
Understanding Spousal Lifetime Access Trusts (SLATs)
A spousal lifetime access trust (SLAT) is a type of irrevocable trust designed for married couples. If you are new to the world of estate planning, think of an irrevocable trust as an agreement wherein you give up control over a certain asset in exchange for its exemption from your taxable estate.
As a special type of irrevocable trust, a SLAT is established by one spouse for the other spouse. The appeal of a SLAT lies in its ability to minimize future estate tax liability while allowing the couple to maintain at least indirect access to their assets.
Who Benefits from SLATs?
SLATs primarily benefit married couples—especially couples with substantial assets. However, establishing a SLAT may also benefit the following groups:
- High-net-worth couples whose estates exceed the federal estate tax exemption limit
- Couples needing creditor protection
- Couples with specific financial planning goals, including individuals who want to make sure their spouse is financially provided for after their passing
- Couples with philanthropic goals, as SLATs can be structured to provide charitable gifts while simultaneously benefiting the surviving spouse
- Families building multi-generational wealth, especially when structured to minimize the impact of the generation-skipping transfer tax
- Couples anticipated legislative changes that may reduce the estate tax and gift tax exemption amounts
- Couples with appreciating assets who want to avoid hefty estate taxes
Keep in mind that while SLATs offer many potential benefits, they aren’t the right choice for every couple. Whether or not you could benefit from a SLAT depends on your specific situation, estate size, financial goals, and personal circumstances. Couples considering SLATs should consult a spousal lifetime access trust attorney to review their options.
Possible Risks of SLATs
While SLATs offer undeniable advantages to some couples, they also come with several possible risks. Perhaps the most important to understand is the irrevocable nature of these trusts. Once established, a SLAT cannot be revoked, meaning the grantor cannot change their mind and take the SLAT assets back. Other possible risks include:
- Invocation of the Reciprocal Trust Doctrine. If both spouses create similar SLATs for each other, the IRS may view it as a gaming of the system and invoke the Reciprocal Trust Doctrine. This action could potentially unwind the tax benefits associated with creating a SLAT in the first place.
- Divorce or beneficiary spouse’s death. If the beneficiary of the SLAT passes away or the couple divorces, the grantor may lose access to these trust assets. An experienced estate planning attorney can help you plan for these contingencies.
- Gift tax consideration. When funding a SLAT, the grantor is essentially making a gift for tax purposes, thereby utilizing part of their lifetime gift tax exemption. It’s important to consider how this could affect the overall estate plan before establishing a SLAT.
- State laws. The legal landscape surrounding estate planning and trusts varies by state. Florida has specific statutes and legal precedents that impact how a SLAT can be created and administered and that should be considered before establishing this trust.
Additionally, there are many Florida-specific laws and regulations that couples should take into account before creating a SLAT, including the following:
- Florida homestead laws. Florida’s homestead laws provide certain protections for a primary residence that may affect how SLATs that include real estate can be structured.
- The Florida Trust Code. The Florida Trust Code includes specific provisions governing how trusts operate within the state. To ensure legal compliance and the effectiveness of a SLAT, couples should develop a firm understanding of this code before establishing their SLAT.
- Community property vs. separate property. Florida is a separate property state (also called a common law state), meaning that personal property is not automatically considered to be jointly owned between spouses, even if acquired during a marriage. This has distinct implications for how assets can be categorized in and transferred to a SLAT.
As you can see, there are more than a few considerations that come into play when deciding whether to set up a SLAT. The best way to get clarity is by speaking with a trusted SLATs lawyer in Pensacola.
Medley Law Firm: Trusted Estate Planning Attorneys in Pensacola, FL
Estate planning is a dynamic legal field. Spousal lifetime access trusts are just one of the many tools at your disposal when you partner with a law firm that tailors their representation to your unique needs and goals. When you’re ready to secure your financial future and establish a lasting legacy, Medley Law Firm is ready to take you there. Connect with us online to schedule a case evaluation or call our law office at (850) 607-7890 today.