The purpose of estate tax planning is to maximize the assets you pass on to future generations by minimizing gift and estate taxes. Estate-tax strategies revolve around the use of irrevocable trusts. This article discusses the most common types of irrevocable trusts that are used to minimize gift and estate […]
Key Highlights:
Trusts and estate planning are essential tools for managing your wealth, protecting your assets, and ensuring your family’s financial well-being. Trusts, in particular, can provide flexibility, privacy, and control, making them an integral part of an estate plan. This article will introduce two types of trusts: Spousal Lifetime Access Trusts (SLATs) and Spousal Lifetime Access Non-Grantor Trusts (SLANTs).
A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust created by one spouse (the grantor) for the benefit of the other spouse and, typically, their kids after both spouses pass away (collectively, the beneficiaries). The grantor transfers assets into the trust, effectively removing them from their taxable estate. The beneficiary spouse can access the trust’s income and, in certain situations, the principal to maintain their lifestyle or cover unforeseen expenses.
SLATs offer several benefits, including:
A Spousal Lifetime Access Non-Grantor Trust (SLANT) is similar to a SLAT, but with one key difference: the grantor spouse is not treated as the owner of the trust for income tax purposes. This means that the trust pays its own income taxes, instead of those payments coming out of the grantor’s pocket (though potentially at a higher or lower tax rate than the grantor would have paid).
SLANTs provide some distinct advantages, such as:
The main distinction between SLATs and SLANTs lies in their tax treatment. In a SLAT, the grantor spouse is considered the owner for income tax purposes, so the trust’s income is taxed at the grantor’s individual rate or as if the grantor were realizing the income themself. Conversely, in a SLANT, the trust is responsible for paying its own income taxes, potentially at a higher or lower rate depending on how much income is being realized and the location of the grantor and the trust. Now importantly SLAT can become a SLANT and vice versa.
SLATs and SLANTs can be beneficial in a variety of situations, such as:
Both SLATs and SLANTs can be valuable tools in estate planning, offering tax benefits, asset protection, and financial security for spouses. However, the best choice depends on individual circumstances, goals, and tax considerations. Consulting with an experienced trust and estate attorney is essential to determine which trust will best meet your needs and objectives.
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