Some of the most valuable strategies for reducing potential estate tax liability involves “squeezing” and “freezing” assets — in other words, discounting assets in various ways and locking in lower asset values. A spousal lifetime access trust (SLAT) is one option that can help you achieve the “freezing” by making distributions to your spouse.

A spousal lifetime access trust (SLAT) provides the tax benefits of an irrevocable trust while indirectly giving you access to the trust assets. The unique feature of a SLAT is that it authorizes the trustee to make distributions to your spouse. You also name your children or other heirs as beneficiaries and can apply your lifetime gift tax exemption to contributions to the trust. As with any irrevocable trust, future appreciation on the SLAT assets is shielded from transfer taxes.

Who should you name as a trustee?

The SLAT can be drafted to make distributions based on an “ascertainable standard” (such as your spouse’s health, education, maintenance or support) to give the trustee full discretion to make distributions. Generally, it’s best to name an independent trustee. If you act as trustee, the SLAT assets will be included in your taxable estate. Appointing your spouse is an option, but only if distributions are limited to an ascertainable standard.

What happens if your spouse dies before you?

Be aware that if your spouse predeceases you (or if you and your spouse divorce) your indirect access to the trust assets will be lost. So you may want to create a SLAT only if your marriage is strong and it’s likely that your spouse will survive you.

There are other ways to “squeeze and freeze” assets – learn more about them in our blog “Tax Cuts and Jobs Act Estate Planning Strategies” As always, our Private Client Tax Services Team can help you navigate the rules.

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