December 3, 2020

Volume X, Number 338

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SLATs—Spousal Lifetime Access Trusts

Spousal Lifetime Access Trusts (“SLATs”) may be the most common planning technique for married clients to use in 2020. A SLAT is an irrevocable trust where the spouse is a permitted beneficiary. It allows married clients to take advantage of the high gift tax exemption amount while also allowing for continued access to the gifted trust assets, if needed, while removing any appreciation on the gift from each spouse’s taxable estate. A SLAT can also be structured as a Dynasty Trust by naming children and grandchildren as additional beneficiaries and allocating GST exemption to the trust (click here for information on Dynasty Trusts).

With a SLAT, one spouse (the grantor) transfers assets to an irrevocable trust for the benefit of the other spouse (the beneficiary). The grantor spouse applies his or her gift tax exemption to the gifted trust assets, and all post-transfer appreciation of the SLAT assets are shielded from future gift, estate and GST taxes. While it is desirable to allow the trust assets to continue to grow in the trust free of transfer tax, if the beneficiary spouse needs assets from the trust in the future, a distribution can be made to the beneficiary spouse by a trustee. For this reason, SLATs are particularly attractive to clients who want to make large, irrevocable gifts while leaving open the possibility that a spouse could benefit from the trust if necessary.

Spouses may each use their available gift tax exemptions to fund a SLAT for the benefit of the other spouse; however the trusts must be sufficiently different so as to avoid application of the “reciprocal trust doctrine” and trigger unintended estate inclusion. Also, in the event of a subsequent divorce, the grantor spouse would lose any tangential benefits from the trust. In the end, however, SLATs provide married couples with a flexible, tax-efficient estate planning opportunity.

Click here to view a Wiggin and Dana LLP Webcast on SLATs.

© 1998-2020 Wiggin and Dana LLPNational Law Review, Volume X, Number 280
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Michael Clear Estate and Trust attorney Greenwich Wiggin and Dana
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As a Partner in the firm's Private Client Services Department, Michael regularly counsels clients on the far-reaching financial implications of estate planning, estate and trust administration, probate litigation, and business succession planning. Yet he is also a trained counselor with insight into the family dynamics these matters can effect. Known for his empathy and good humor, he helps clients take prudent action in the face of indecision, hopefully resolving contested issues before litigation.

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