How Can a SLAT Reduce Estate Taxes?

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A Spousal Lifetime Access Trust (SLAT) can provide protection in asset transfers.

Distribution of assets involves numerous considerations.

Everyone must address taxes, state laws, and federal laws.

Certain families and individuals must also navigate complicated family dynamics.

According to a recent The Tennessean article titled “Learn about options for estate planning and wealth transfer,” a Spousal Lifetime Access Trust (SLAT) can prove beneficial for any of these goals.

A SLAT is a helpful tool.
Married couples may benefit from the use of a SLAT in their estate planning.

What is a Spousal Lifetime Access Trust?

A SLAT is a type of irrevocable trust.

Assets are gifted by one spouse to the trust for the benefit of the other spouse.

Because it is an irrevocable trust, these assets are completely removed from the estate and ownership of the trustmaker.

As a result, these assets are not subject to state or federal estate taxes.

Although many people have had no need to be concerned about this tax, the estate tax exemption threshold set by the The Tax Cut and Jobs Act of 2017 (TCJA) under President Trump is scheduled to expire on December 31, 2025.

Adjusted for inflation, the amount exempt from estate taxes in 2023 is $25.84 million for couples filing jointly and $12.92 million for individuals.

The federal government taxes any wealth in excess of the exemption threshold at a maximum rate of 40 percent.

With the expiration of the TCJA provision, the exempt amount will be cut almost in half.

For this reason, more people will find a chunk of their estate passing to the federal government instead of their families.


Although a SLAT can be beneficial for many circumstances, it can be especially helpful for those who want to minimize their estate tax liability after the “sunset” of the TCJA threshold.

While these assets will no longer be under the control of the family, they will be made available to the spouse through distributions over his or her lifetime.

Essentially, these assets are gifted for the benefit of the spouse.

The person who made the trust can also have limited access through the spouse who is the beneficiary.

Before setting up a SLAT, you should be certain this is what you want to do.

The terms of an “irrevocable” trust cannot be changed nor taken back by the one making the gift.

Although helpful, these trusts come with their own risks.

What are these?

The access by the trustmaker to the trust assets could be abruptly lost if the beneficiary spouse dies and payouts to that spouse end.

In divorce, access to these assets could also be lost.

By including a provision for the payouts to benefit current and future spouses, the loss from divorce could be minimized, and access could be restored through remarriage.

Another downside of these trusts is how they impact capital gains.

Assets held in a SLAT do not receive a step-up in basis when the donor spouse dies.

As a result, the remainder beneficiaries could face higher capital gains tax liability.

Although all estate planning benefits from working with an experienced estate planning attorney, the creation of a SLAT demands the knowledge of a professional.

ReferenceThe Tennessean (May 7, 2023) “Learn about options for estate planning and wealth transfer”

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