SLAT: Take Advantage of Tax Exemption Strategy
What’s SLAT?
SLAT stands for Spousal Lifetime Access Trust. It is an irrevocable trust that one spouse creates during their lifetime for the other spouse. A SLAT helps the Donor Spouse reduce the size of their taxable estate, yet still benefit from it.
How Does It Work?
With the help of an estates attorney, the Donor Spouse establishes an irrevocable trust and names the other spouse, the Donee Spouse, and possibly dependent children as the beneficiary. The SLAT allows the trust funds to remain untouched where they can mature free of federal and estate tax. However, the SLAT can distribute funds to the Donee Spouse; thus the Donor Spouse may still benefit indirectly from the proceeds.
Potential Pitfalls
- In New Jersey, the window of SLAT availability will end on December 31, 2025.
- What happens if the Donee Spouse, the beneficiary spouse, dies first?
- What happens if the couple divorces?
SLAT Benefits
Establishing a SLAT allows the Donor Spouse to:
- Avoid probate.
- Protect assets from creditors.
- Protect assets from other claims.
- Reduce estate tax.
- Grow wealth unburdened by taxes.
- Reduce capital gains on death tax.
- Use it as a life insurance trust.