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Advanced Estate Planning: Spousal Lifetime Access Trusts (SLATs)

Annie Rogers

Christina Knopke

In this episode, Attorneys Chrissy Knopke and Annie Rogers discuss an advanced estate planning technique called Spousal Lifetime Access Trusts (SLATs). With talk of the individual lifetime exemption being significantly reduced in the near future, there’s been a renewed and urgent focus on SLATs for ultra-high net worth couples with potentially taxable estates.

Read more about SLATs:

A Matter of Trust, hosted by Creative Planning Attorneys Annie Rogers and Christina Knopke, is a thoughtful, informed discussion about ideas, trends and developments in estate planning. Our mission is to educate and inspire people to make better financial choices through knowledge, tools and strategies that ensure a more prosperous future.

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Chrissy Knopke: Welcome to Creative Planning’s A Matter of Trust. I’m Chrissy Knopke and I’m here with my colleague and friend, Annie Rogers. We’re both attorneys here at Creative Planning, and today we’re going to talk about Spousal Lifetime Access Trusts.

Annie Rogers: SLATs.

Chrissy: Otherwise known as SLATs. And so this is an advanced planning technique, and so it does not apply to everyone. It applies to those that have a high net worth. And the reason that they’re becoming really popular is because right now the Federal tax exemption level is at its all-time high of $11.7 million per person. We already know, under our current laws, that in 2026 that is going to sunset back probably in the $5-6 million per person range. And there’s a…

Annie: Proposal in the House Ways and Means Committee in September of 2021 that proposed the exemption is cut in half.

Chrissy: Cut in half before 2026.

Annie: January 1st, 2026. With things that are being proposed right now in Congress, the exemption very well may reduce before 2026.

Chrissy: And while it’s impossible to really predict where the exemption level is going to be, we know right now, while it is high, we can take advantage and gift assets out of our estate so that if it does go low we haven’t lost the opportunity to do that. And one of those methods is using a SLAT. So Annie is going to talk a little bit about what a SLAT is.

Annie: So, a SLAT is an irrevocable trust that one spouse creates for the benefit of the other spouse. And so the beneficiary spouse can access the trust assets pursuant to the distribution provisions in the trust documents. So it’s designed to utilize the exemption amount of the donor spouse, but then it’s not included in the beneficiary spouse’s estate for estate tax purposes.

Chrissy: So, it’s completely outside of that person’s estate.

Annie: All the appreciation, any growth on it, like any other irrevocable trust is growing outside of the beneficiary’s estate, and also gets it out of the donor spouse’s estate, as well.

Chrissy: So, the requirements of a SLAT are a little tricky because the IRS enacted this rule called the Reciprocal Trust Doctrine, where if you make two like trusts for a spouse and they have identical terms, then the IRS can say, “No, this is kind of a sham. We’re going to view it as still included in your estate.” So we have to make sure that we make these trusts, whether it’s for husband or wife, very different so that they pass the Reciprocal Trust Doc[trine].

So when we draft these documents we have to make sure they are signed at different times, that they have different provisions. So one spouse may get access to the assets and the distribution clause in that trust, as they can have access for health, education, maintenance, support; whereas the other trust has a different distribution clause for the other spouse.

You can also make the trustees different. So on one trust, it could be just the husband and maybe Creative Planning serving as the successor trustees, whereas in the other trust it could be the spouse and children. So there’s all these little things that we can change inside these trusts, but they cannot be identical. So I’ve had spouses I’ve worked with where they want them to say the exact same thing, and by law they cannot or they won’t pass that Reciprocal Trust Doctrine.

Annie: Right, and they have to be funded with different amounts, so you can’t put the same amount of money in each one. It’s really important that the SLATs be funded with individually-owned assets. They can’t be joint or community property. So sometimes we have to convert the joint community property to separate property before we put it into the SLAT. These are, these are tricky. These are, these take a lot of work. It takes some time. These aren’t things that get done very quickly because there’s got to be a period of time between signing the first SLAT and the second one.

Chrissy: And you need to work with somebody that has done SLATs before. So these are highly technical documents that have a lot of ins and outs, so we urge you to contact an attorney that has handled creating Spousal Lifetime Access Trusts. One of the biggest questions we get is how is that tax return filed? So as soon as that gift is made into that SLAT, then there needs to be a Federal gift tax return filed so that it is a completed gift, and then out of the donor’s estate.

Annie: Because this will use the person’s lifetime exemption, it’ll use it up, but the benefit is that it’s there for the benefit of the spouse, and then the document itself, that irrevocable trust, can say… to your kin.

So that planning will already be done, and then any additional funds over whatever exemption you used will be subject to the estate tax in your revocable trust. A lot of times people with very high net worth, we’re kind of utilizing all of these different techniques kind of in conjunction to try to…

Chrissy: We’re pretty much hedging future decreases in the exemption and using it right now. So we’re kind of taking the stance that you use your high exemption level right now, or you lose it.

Annie: And one of our colleagues, Maggie Fisher, wrote a good article about this and it’s on the Creative Planning website. So if you want to learn more about this you can check out her article.

Chrissy: Thank you for joining us.

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