Should You Have a Spousal Lifetime Access Trust?

Should You Have a Spousal Lifetime Access Trust?- Spousal Lifetime Access Trusts, known as SLATS, are a commonly used estate planning and asset protection tool, reports Forbes in the article “Investing Assets In A Spousal Lifetime Trust (SLAT).” An overly simplified description of a SLAT is a trust created to benefit your spouse. However, there’s a lot more to a SLAT.

In the past, life insurance trusts were an early form of SLATs. One spouse would purchase life insurance to protect the other spouse and their children. When the federal estate exemption was $1 million, the goal was to protect the funds from estate tax when the second spouse died. The idea was to protect the proceeds by placing the life insurance in an Irrevocable Life Insurance Trust, or ILIT.

These trusts were created primarily to shift appreciating assets outside of the taxable estate, while retaining indirect access through a spousal beneficiary. Let’s say a husband created a SLAT for his wife and contributes investment assets. The husband is not the beneficiary of the SLAT. However, the wife is. If the SLAT buys a vacation home, the wife, as the beneficiary of the trust, may use it. The wife can also allow her husband to use the home because of their spousal relationship.

How far the spouse setting up the SLAT can “indirectly” benefit the beneficiary spouse is a little unclear, so it’s important to be mindful of how assets are used. If the IRS attacks the plan and “pierces” the trust, any advantages could be lost. For example, documenting every use by the spouse may not be a good idea if they approach the limits of what could be acceptable. Nonetheless, a SLAT remains a powerful estate planning tool.

There are many different types of SLATs. It’s important to understand their nuances to determine which assets should be placed in the SLAT. Over time, family and financial circumstances change, and the planning focus may shift from wealth transfer efficiency to more complex challenges, such as balancing cash flow needs, protecting assets, or managing long-term care costs.

Most SLATs are created to avoid estate taxes. Changes in estate tax exemption levels may have altered this benefit. However, “permanent” in Washington, D.C., is often only temporary until the law changes. While the SLAT may be less critical this year, there’s no way to be sure it won’t come into play again.

Most SLATs are designed to be taxed as grantor trusts for income tax purposes. All trust income is taxed to the person who created the trust. This may be useful as a wealth-transfer means, since SLAT assets grow without diminution for income tax, and assets are reduced each year by income tax due on trust income. This can be good. However, it might also reach a point where it’s unproductive. When the reduction in the estate resulting from paying income tax on trust income becomes worrisome, it may be time to shift assets into stocks to be held longer. Investments in the SLAT are not set-it-and-forget-it.

SLATs can be structured as non-grantor trusts that pay their own income tax. This might help shift income to lower-bracket family members by exchanging charitable contribution deductions and taking advantage of the State and Local Tax (SALT) deduction.

Talk with your estate planning attorney about whether a SLAT is a useful estate planning tool for your family. You’ll need to understand how investment gains in SLATs impact tax liabilities and how assets in the SLAT are used. The SLAT is a highly useful tool in estate planning. However, it requires the guidance of a skilled estate planning attorney.

Schedule your phone consultation: THE LAW OFFICES OF CLAUDE S. SMITH, III

Should You Have a Spousal Lifetime Access Trust?

Reference: Forbes (March 9, 2026) “Investing Assets In A Spousal Lifetime Trust (SLAT)”