The Spousal Lifetime Access Trust

By Steven J. Oshins, Esq., AEP (Distinguished)

Imagine that there is a type of trust that you can set up where you can transfer assets and not only protect them from creditors and estate tax, but also have access to them through your spouse.  No, this is not a hypothetical world where there are rainbows and unicorns!  This world really does exist!

This trust is often called a Spousal Lifetime Access Trust, or “SLAT” for short.  Most people are aware of the completed gift version where estate tax avoidance is the primary motivating factor.  However, there are really two different types of SLATs – a Completed Gift SLAT and an Incomplete Gift SLAT.  This article will describe both types.

The Completed Gift SLAT

The Completed Gift SLAT is the much more common version.  The primary objective is to move the assets out of the settlor’s estate while maintaining the ability to access the assets through distributions to the settlor’s spouse.  Although many of these trusts own life insurance, other assets may be owned by the trust.

The settlor sets up the trust for the benefit of the settlor’s spouse and descendants and makes gifts to the trust that must come from the settlor’s separate property.  If drafted properly, the trust assets are protected from the creditors and divorcing spouses of the beneficiaries and aren’t subject to estate taxes when the settlor and settlor’s spouse pass away.

Given that the federal estate tax exemption is now so high that only roughly 0.1% of the United States would pay a federal estate tax were they to pass away now, there are less Completed Gift SLAT opportunities than there were in the past.  Therefore, the Incomplete Gift SLAT should be the version that is more widely used in today’s regime.

The Incomplete Gift SLAT

Most people have never heard of the Incomplete Gift SLAT.  You don’t hear it being discussed at industry conferences or read articles about it, other than those that I author.  But yet it is one of the smartest trust options available.

Probably the number one reason why it doesn’t get discussed is that the estate planning industry seems to shy away from asset protection planning.  There is no rhyme or reason for estate planners to neglect such an important part of estate planning, but yet it happens frequently.

The primary objective in setting up an Incomplete SLAT is to protect the trust assets from creditors.  The settlor transfers assets into the trust for the benefit of the transferor’s spouse and descendants.  If the settlor gets sued or divorced, the assets are protected.  If the beneficiaries get sued or divorced, the assets are protected.

Unlike with the Completed Gift SLAT, the settlor retains a lifetime and testamentary power to appoint income and principal to anybody except the settlor, the settlor’s estate or the creditors of the settlor or settlor’s estate.  The settlor also retains the power to veto any distributions.  Because the settlor retains these powers, the transfers to the trust aren’t completed transfers for gift tax purposes and are included in the settlor’s taxable estate for estate tax purposes.

Summary

The SLAT is a popular trust option.  The Completed Gift version is much more popular and widely-used than the Incomplete Gift version, but both tools should be mastered by any estate planning professional.  In fact, because of the high federal estate tax exemption, the Incomplete Gift SLAT should be the more widely-used option.


RELATED EDUCATION

If you would like to learn more about SLATs and how to implement this planning strategy with your clients, be sure to check out Steve Oshins’ special 90-minute presentation entitled, “The Spousal Lifetime Access Trust: A Gifting and Creditor Protection Technique”.

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ABOUT THE AUTHOR

Steven J. OshSteven-Oshins43721143ins, Esq., AEP (Distinguished) is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011. He was named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor. Steve was also named one of the Top 100 Attorneys in Worth and is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates Lawyer of the Year in 2012, 2015 and 2018 and Tax Law Lawyer of the Year in 2016 and 2020.  He can be reached at 702-341-6000, ext. 2, at soshins@oshins.com or at his firm’s website, www.oshins.com.

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