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Introduction to Spousal Lifetime Access Trusts

Key Highlights:

  1. Spousal Lifetime Access Trusts (SLATs) and Spousal Lifetime Access Non-Grantor Trusts (SLANTs) are key estate planning tools that offer tax benefits, asset protection, and financial security for your family.
  2. Uncover how the unique tax treatments and flexibility of SLATs and SLANTs can help high net worth individuals, business owners, and technology professionals reduce their taxable estate and protect personal assets from potential liabilities.
  3. In this article we explore the differences between SLATs and SLANTs, tradeoffs, and common use cases

Trusts and estate planning are essential tools for managing your wealth, protecting your assets, and ensuring your family’s financial well-being. Trusts, in particular, can provide flexibility, privacy, and control, making them an integral part of an estate plan. This article will introduce two types of trusts: Spousal Lifetime Access Trusts (SLATs) and Spousal Lifetime Access Non-Grantor Trusts (SLANTs).

The Basics of Spousal Lifetime Access Trusts (SLATs)

A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust created by one spouse (the grantor) for the benefit of the other spouse and, typically, their kids after both spouses pass away (collectively, the beneficiaries). The grantor transfers assets into the trust, effectively removing them from their taxable estate. The beneficiary spouse can access the trust’s income and, in certain situations, the principal to maintain their lifestyle or cover unforeseen expenses.

SLATs offer several benefits, including:

  1. Reduced estate and gift taxes as the appreciation inside the trust does not count as part of your estate (and thus can avoid estate and gift taxes)
  2. Asset protection from creditors and lawsuits
  3. The beneficiary spouse retains access to assets (as does the gifting spouse, indirectly, as long as the couple stays married).

The Basics of Spousal Lifetime Access Non-Grantor Trusts (SLANTs)

A Spousal Lifetime Access Non-Grantor Trust (SLANT) is similar to a SLAT, but with one key difference: the grantor spouse is not treated as the owner of the trust for income tax purposes. This means that the trust pays its own income taxes, instead of those payments coming out of the grantor’s pocket (though potentially at a higher or lower tax rate than the grantor would have paid).

SLANTs provide some distinct advantages, such as:

  1. Income tax savings for the grantor spouse
  2. Additional QSBS exemption
  3. Enhanced asset protection

Key Differences Between SLATs and SLANTs

The main distinction between SLATs and SLANTs lies in their tax treatment. In a SLAT, the grantor spouse is considered the owner for income tax purposes, so the trust’s income is taxed at the grantor’s individual rate or as if the grantor were realizing the income themself. Conversely, in a SLANT, the trust is responsible for paying its own income taxes, potentially at a higher or lower rate depending on how much income is being realized and the location of the grantor and the trust. Now importantly SLAT can become a SLANT and vice versa.

Common Scenarios and Use Cases

SLATs and SLANTs can be beneficial in a variety of situations, such as:

  1. High net worth couples seeking to reduce their taxable estate and provide for the financial security of the surviving spouse
  2. Business owners looking to protect personal assets from potential business liabilities
  3. Couples who want to provide for their spouse while minimizing the estate and gift taxes their children will face

Conclusion

Both SLATs and SLANTs can be valuable tools in estate planning, offering tax benefits, asset protection, and financial security for spouses. However, the best choice depends on individual circumstances, goals, and tax considerations. Consulting with an experienced trust and estate attorney is essential to determine which trust will best meet your needs and objectives.

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