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

Some articles call it a Spousal Lifetime Access Trust, while others call it a Spousal Limited Access Trust.

Which is it?  It can’t be both!  It depends upon how it’s drafted.

Spousal “Limited” Access Trust

When I draft a SLAT, it’s a Spousal Lifetime Access Trust because distributions aren’t “limited”.  Why would the draftsman want to limit distributions?  One of the objectives is for the settlor to be able to indirectly live out of the trust via distributions to the settlor’s spouse who can then share them with the settlor.

Drafting in substantial limitations would seem to defeat this purpose.  If the settlor doesn’t want the spouse to have control, then that is handled via the choice of trustees and choice of who can remove and replace trustees.  There is no reason to “limit” the access.

In order to “limit” the access, the trust would generally be drafted to allow distributions only for health, education, maintenance and support.  This is generally not the best way to draft a trust for a couple of reasons.

First, this would be classified as a support trust for creditor protection purposes and therefore would be available to certain exception creditors based on applicable state law.  Second, if and when the trust is a non-grantor trust, such as upon the settlor’s death, if any of the beneficiaries are residents of California, Georgia or North Carolina, this type of trust will be subject to state income tax on all (Georgia/North Carolina) or part (California) of the undistributed taxable income.

Spousal “Lifetime” Access Trust

As noted above, I draft all SLATs as Spousal Lifetime Access Trusts.  Definitely not “Limited”!

This type of SLAT is drafted where distributions can be made by a non-beneficiary trustee in such trustee’s sole and absolute distribution without being limited by a distribution standard.  Therefore, the trustee can distribute none, some or all of the trust assets without being “limited”.

Depending upon the trust “form” and other variables, the settlor can be the investment trustee or can name the settlor’s spouse or anyone else as the investment trustee.  The settlor retains the power to remove and replace trustee.  Therefore, the settlor retains substantial control over the trust.

Conclusion

Maybe estate planners are simply misusing terminology, or maybe they are drafting SLATs whereby distributions are truly limited.

If they are limiting distributions only because they think the “L” in SLAT means “Limited”, then they might consider the plain meaning of that word and decide whether their marketing materials should be updated to use the word “Lifetime”.

The reality is that the term “Spousal Lifetime/Limited Access Trust” is nothing more than a marketing term.  The only thing that matters is how the trust agreement is actually drafted.  If the estate planner wants to call it “limited” but otherwise drafts it to be fully discretionary, then it doesn’t really matter, does it???

RELATED EDUCATION

If you found this article interesting, you might also be interested in these other educational programs and products by Steve Oshins:

• The Spousal Lifetime Access Trust: A Gifting and Creditor Protection Technique
• Estate Planning Techniques in a Time of Low Interest Rates
• The Installment Sale to an Intentionally Defective Grantor Trust
• The Grantor Retained Annuity Trust: Significant Estate Tax Savings with Nearly Zero Gift Tax Risk
• Steve’s FREE State Rankings Charts

ABOUT THE AUTHOR

Steven J. Oshins, 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 has been named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor and one of the Top 100 Attorneys in Worth. He is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates/Tax Law Lawyer of the Year in 2012, 2015, 2016, 2018, 2020 and 2022.  He can be reached at 702-341-6000, ext. 2, at soshins@oshins.com or at his firm’s website, www.oshins.com.