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SLATs vs. SLANTs: Choosing the Right Trust
Review of SLATs and SLANTs
- Unlock the secrets of the unique tax treatment of SLATs and SLANTs, which can minimize income, estate, and gift taxes, providing a strategic edge in protecting and growing your wealth.
- Dive into the world of asset protection with SLATs and SLANTs, shielding your hard-earned assets from creditors and potential lawsuits, ensuring your financial legacy remains intact.
- Explore how SLATs and SLANTs serve different priorities, from tax planning and asset protection to control over trust assets, empowering you to make informed decisions for your financial future.
Spousal Lifetime Access Trusts (SLATs) and Spousal Lifetime Access Non-Grantor Trusts (SLANTs) are powerful estate planning tools that offer numerous benefits, including tax advantages, asset protection, and financial support for a spouse. This article will compare these two types of trusts, highlighting their key differences and factors to consider when deciding which trust is best suited for your estate planning needs.
Tax Considerations
One of the primary reasons individuals choose to establish a SLAT or a SLANT is to minimize income, estate, and gift taxes. Both trusts offer significant tax benefits, but there are some distinctions between the two:
- SLATs: The grantor of a SLAT removes assets from their estate by transferring them into the trust, effectively reducing the size of the estate and potentially minimizing estate taxes. However, the grantor is still considered the owner of the trust assets for income tax purposes, meaning that they remain responsible for paying income taxes on the trust’s earnings.
- SLANTs: A SLANT, by contrast, is structured as a non-grantor trust, so the grantor is not considered the owner of the trust assets for income tax purposes. The trust itself is responsible for paying income taxes on its earnings. This arrangement can provide additional tax benefits in certain situations, such as when the trust is established in a state with lower income tax rates.
Chart 1: Comparison of SLATs and SLANTs
| Feature | SLAT | SLANT |
|---|---|---|
| Estate tax savings | Yes | Yes |
| Gift tax savings | Yes | Yes |
| Asset protection | Yes | Yes |
| Control and flexibility | Yes (with limitations) | Yes (with limitations) |
| Tax liability | Grantor pays income taes | Trust pays income taxes |
| Income tax shifting | Not applicable | Possible, depending on trust’s tax rate |
Asset Protection and Control
Both SLATs and SLANTs offer asset protection by shielding trust assets from creditors and potential lawsuits. However, the level of control the grantor retains over the trust assets differs between the two:
- SLATs: In a SLAT, the grantor has limited control over trust assets, as the trust is irrevocable and any changes require the consent of the trustee and the beneficiary spouse. The beneficiary spouse can access the trust assets, but the grantor cannot directly benefit from the assets.
- SLANTs: A SLANT also provides asset protection, but the grantor generally retains more control over trust assets. For example, the grantor can be the trustee of the SLANT, allowing them to manage the assets directly. (This may be counterintuitive, since a SLANT is, per the name, a non-grantor trust. The additional flexibility arises precise because of that non-grantor status, since the grantor is allowed to retain greater control of a non-grantor trust without giving up the tax benefits.) This increased control, however, may come at the expense of some asset protection benefits, as creditors could potentially argue that the trust assets should be considered part of the grantor’s personal assets.
Flexibility in Estate Planning
Flexibility is essential in estate planning, as circumstances and goals can change over time. Both SLATs and SLANTs can be designed to incorporate various levels of flexibility, but there are some differences:
- SLATs: While a SLAT is an irrevocable trust, certain provisions can be included to allow for flexibility, such as granting the beneficiary spouse a power of appointment to redirect trust assets to other beneficiaries.
- SLANTs: SLANTs can also be structured with flexibility in mind. The grantor’s ability to serve as trustee allows for more direct control over trust assets and distributions, which can be advantageous in situations where flexibility is a priority.
Chart 2: Comparing the Benefits of SLATs and SLANTs
| Benefit/Nuance | SLAT | SLANT |
|---|---|---|
| Estate & gift tax savings + Asset Protection | Yes | Yes |
| Additional QSBS Exemption | No | Yes |
| Control and flexibility | Yes (with limitations) | Yes (with limitations) |
| Income tax shifting | Not applicable | Possible, depending on trust’s tax rate |
| Reciprocal trust doctrine | Applies, must use different terms | Applies, must use different terms |
Making the Choice
Ultimately, the decision to establish a SLAT or a SLANT will depend on your unique circumstances and estate planning objectives. Factors to consider include:
- Tax planning priorities. If minimizing income taxes is a top priority, a SLANT may be more advantageous due to its non-grantor trust status.
- Control over trust assets. If retaining control over trust assets is important, a SLANT may offer more control by allowing the grantor to serve as trustee.
- Asset protection. Both SLATs and SLANTs provide asset protection, but the level of protection may vary depending on the structure and the grantor’s role in the trust. Consider which type of trust offers the degree of asset protection that best aligns with your needs.
- Family dynamics. The dynamics of your family and the needs of your spouse and other beneficiaries should be taken into account when choosing between a SLAT and a SLANT. Consider the financial security and well-being of your spouse and how each trust structure might impact them.
- State-specific laws and regulations. The laws governing trusts can vary by state, and these differences may influence your decision. Consult with an experienced trust and estate attorney to understand the specific implications of establishing a SLAT or a SLANT in your state.
With all of this in mind, it is worth noting that you can amend your trust to turn it from a SLAT to a SLANT, or vice versa, and you can always switch back again as your needs change (provided that you don’t make the change too frequently — the IRS looks askance at especially aggressive gamesmanship on this front.)
Conclusion
Both SLATs and SLANTs offer valuable estate planning benefits, but the right choice for you depends on your specific goals, circumstances, and priorities. By carefully considering the tax implications, asset protection features, flexibility, and personal factors associated with each trust type, you can make an informed decision that best supports your estate planning objectives.
Related Readings:
- SLATs and SLANTs: An Introduction to Spousal Lifetime Access Trusts
- The Advantages and Limitations of Spousal Lifetime Access Non-Grantor Trusts (SLANTs)
- What Is A Spousal Lifetime Access Trust?
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