As many California residents experienced a significant drop in income in 2020 along with the uncertainty over estate tax rates in the coming years, some have begun to look for additional ways to protect their current wealth. While some may think that setting up a trust is the answer, it’s not if you want the ability to access your own funds. Why not think of a Spousal Lifetime Access Trust (SLAT)?
What is a SLAT?
A SLAT is an irrevocable trust under which you, as the creator, make a gift for transfer tax purposes, naming your spouse, or sometimes your descendants as beneficiaries. Most of the time, your spouse will never need to receive a distribution from the SLAT, which means the assets in it can continue to grow without being subject to state or federal estate tax. However, your spouse can still access the funds if needed, indirectly allowing you access to your money. When setting up a SLAT, most people appoint an independent trustee for estate planning purposes, who can authorize distributions.
Considerations for Creating a SLAT
If you think a SLAT may benefit your financial situation, consider the following points before creating it:
- Financial forecasts
- The state in which you create the SLAT
- Using a different state for your SLAT and your spouse’s SLAT
- Current income tax considerations
- Powers of appointment
- Ability to use the money as a loan
- Adding charitable beneficiaries
- Owning an interest in a vacation home
- Including a discretionary income tax clause
- Notifying beneficiaries
If this legal instrument sounds complicated, you’re right. It can become complicated, which is why you should carefully consider its structure and consequences when using a SLAT for estate planning. Proper planning with legal and financial professionals is necessary before committing to this potentially money-saving document.