When the estate tax exemption is high, wealthy individuals want to gift assets out of their estate to lock in the exemption before Congress lowers it. However, giving away millions of dollars permanently is terrifying. What if you need the money later? The Spousal Lifetime Access Trust (SLAT) solves this dilemma.
How a SLAT Works
You create an irrevocable trust and fund it with your separate property, naming your spouse as the primary beneficiary. Because it is an irrevocable gift, the assets (and all future growth) are removed from your taxable estate. However, because your spouse is the beneficiary, they can request distributions from the trust, giving your marital unit indirect access to the funds.
Warning
The Divorce and Death Risks
If you divorce, your ex-spouse remains the beneficiary of the SLAT, and you lose your indirect access. If your spouse dies before you, your indirect access also dies with them.
The Reciprocal Trust Doctrine
Couples often try to set up identical SLATs for each other. The IRS hates this and will invoke the 'Reciprocal Trust Doctrine' to uncross the trusts and pull the assets back into your taxable estates. To avoid this, the two SLATs must be materially different in their terms, trustees, or timing.