In the world of Florida estate planning, Spousal Lifetime Access Trusts (SLATs) have become popular tools for managing assets and minimizing estate taxes. A SLAT allows one spouse to create a trust for the benefit of the other spouse while effectively removing the assets from the couple’s estate. However, like any financial strategy, SLATs come with their own set of advantages and disadvantages.
I am Barbara M. Pizzolato, Esq., Attorney at Law, and in this blog I discuss the pros and cons of a SLAT.
What are Spousal Lifetime Access Trusts?
Spousal Lifetime Access Trusts are an irrevocable trust that one spouse sets up to benefit the other spouse. This type of trust allows the grantor to reduce their taxable estate while providing access to the trust’s income and, sometimes, principal for their spouse’s benefit. It is a type of Intentionally Deceptive Grantor Trust (IDGT) because the grantor pays income tax on the revenue the trust assets generate. Permitting  the assets to grow tax-free but the income tax paid is not a gift  to any beneficiary of the Trust.
Pros of a SLAT
Why would we recommend a SLAT for your estate plan? Depending on your situation and goals, you could reap substantial benefits.
Estate Tax Benefits
One of the primary benefits of a SLAT is its potential to reduce estate taxes. Since the assets placed in the trust are considered removed from the grantor’s estate, this can significantly lower the estate tax burden upon death. When you establish a SLAT for your spouse’s benefit, you can gift assets up to your lifetime gift exemption—($13.61 million per individual in 2024 and growing to $13.99 million in 2025)—without incurring federal estate taxes.Â
Asset Protection
Assets held in a SLAT can be safeguarded from creditors and lawsuits. This is particularly beneficial for individuals in high-risk professions or those concerned about potential litigation.
Lifetime Access for the Beneficiary
The spouse who benefits from the SLAT can receive distributions of income or principal from the trust, providing financial flexibility during their lifetime. This allows the grantor to provide for their spouse’s needs without retaining control over the assets.
Flexibility with Income Distribution
A SLAT can be structured to provide the grantor’s spouse with varying levels of access to income and principal, if needed, based on their financial situation at any given time. This adaptability can be crucial in managing changing circumstances.
Cons of a SLAT
A SLAT sounds like an exceptional estate planning tool. Why wouldn’t I want one? Here are a few drawbacks:
Irrevocability
One significant drawback of a SLAT is its irrevocable nature. Once established, the grantor cannot modify or dissolve the trust, which means the grantor gives up control over the assets placed in the trust.
Limited Benefits After the Spouse’s Death
While a SLAT can provide lifetime benefits to one spouse, upon the death of the beneficiary spouse, the assets in the SLAT will no longer be indirectly accessible to the grantor spouse and the beneficiaries of the assets do not receive a step up in basis.
Complexity and Legal Fees
Creating a SLAT involves legal intricacies and can incur significant legal fees. Setting up the trust requires careful planning and expert advice to ensure compliance with tax laws and regulations.
Financial Limitations
Although a SLAT does provide access to financial resources, it may not be as flexible as other forms of irrevocable trusts. Â Â Generally, the idea is NOT to access the assets in a SLAT but to allow them to grow and be inherited by the next generation.
Learn More About SLATS from a Ft. Myers Estate Planning Attorney
A Spousal Lifetime Access Trust (SLAT) can offer significant benefits in terms of estate planning, particularly for couples looking to minimize their estate tax liabilities and protect their assets. However, the irrevocable nature and potential limitations of a SLAT mean that it is not suitable for everyone.
Couples considering a SLAT need to consult with the knowledgeable team at Barbara M. Pizzolato, Esq., to evaluate their unique circumstances and understand the full implications of establishing such a trust. I can help you make informed decisions that align with your financial and estate planning goals. Contact our office today at (239) 225-7911 or (866) 817-4713 to schedule a consultation.