The SLAT: locking in exemptions while keeping access.

By Tresp, Day & Associates · January 27, 2021

With the federal gift- and estate-tax exemption at historic highs but scheduled to fall, many affluent couples want to “use it or lose it”, but hesitate to give away wealth they might need. The SLAT is designed for exactly that tension.

How a SLAT works

One spouse (the donor) creates an irrevocable trust for the other spouse (the beneficiary), funding it with a gift that uses the donor’s exemption. The assets, and all of their future appreciation, leave the donor’s taxable estate. Because the beneficiary spouse can receive distributions, the couple retains indirect access to the funds while they’re married and living together.

The benefits

You lock in today’s exemption before it shrinks, move future growth out of your estate, keep indirect access through your spouse, and gain creditor protection on the trust assets. For couples with estates that may face tax under a lower exemption, it’s a powerful tool.

The risks to plan around

Access depends on the marriage: divorce or the beneficiary spouse’s death can cut off the donor’s indirect access. If both spouses create SLATs for each other, they must be carefully differentiated to avoid the “reciprocal trust” doctrine unwinding the benefit. These are solvable with careful drafting, which is exactly where experienced counsel matters. Tresp, Day & Associates structures SLATs as part of coordinated estate planning. This is general information, not tax advice.