Exploring the Benefits of Spousal Lifetime Access Trusts (SLATs)

Estate planning can be complex, especially when balancing asset protection with long-term family security. Many couples in Pennsylvania are turning to a planning tool called a Spousal Lifetime Access Trust (SLAT) to accomplish both goals. A SLAT allows one spouse to transfer assets into an irrevocable trust for the benefit of the other, effectively removing those assets from their taxable estate while still maintaining indirect access to the funds.

Though the concept may sound technical, the potential benefits are significant. With the right planning and legal guidance, a SLAT can offer tax advantages, protect family wealth, and provide flexibility for the future.

What a Spousal Lifetime Access Trust Does

A Spousal Lifetime Access Trust is an irrevocable trust created by one spouse—the “grantor”—for the benefit of the other spouse—the “beneficiary.” The trust holds assets such as cash, securities, real estate, or even shares in a closely held business. Once those assets are transferred, they are generally excluded from the grantor’s taxable estate.

However, the couple can still enjoy some level of benefit from the assets. The beneficiary spouse can receive distributions from the trust, and because the spouses typically share financial resources, the grantor may indirectly benefit as well. This combination of estate tax savings and access to funds is what makes SLATs so appealing to married couples looking for balance between control and protection.

Tax Benefits That Make SLATs Appealing

One of the primary reasons couples consider a SLAT is its ability to take advantage of current federal gift and estate tax exemptions. As of recent years, the lifetime gift tax exemption is historically high. By transferring assets into a SLAT, a grantor can use part of this exemption now, locking in favorable conditions before any potential legislative changes reduce it.

Here’s how that works in practice. When the grantor transfers assets to the SLAT, the value of those assets is removed from their taxable estate. If the assets appreciate over time, that growth also occurs outside of the estate, reducing potential estate tax exposure at death.

In addition, Pennsylvania does not currently impose a state-level estate tax, but it does have an inheritance tax that applies to transfers at death. A properly structured SLAT can help minimize the impact of that tax as well. By moving assets into the trust during the grantor’s lifetime, fewer assets remain subject to Pennsylvania’s inheritance tax later on.

Access to Trust Assets Without Losing Control

A common concern among couples considering irrevocable trusts is the fear of losing access to their assets. SLATs provide a solution by allowing one spouse to retain indirect access through the beneficiary spouse.

If the beneficiary spouse needs funds for living expenses, education, or healthcare, the trustee can make distributions. Because the couple typically shares resources, the grantor indirectly benefits. This feature makes SLATs particularly attractive for couples who want to transfer wealth but are hesitant to give up all use of the assets.

It’s important to note, though, that once the assets are transferred to the trust, the grantor no longer has legal ownership. The trustee controls distributions according to the terms of the trust. This means careful drafting is critical to ensure the trust reflects the couple’s intentions and provides the right level of flexibility.

Protection from Creditors and Legal Claims

Another key advantage of a Spousal Lifetime Access Trust is asset protection. Once assets are transferred into the SLAT, they generally become shielded from future creditors, lawsuits, and other claims against the grantor. Because the trust is irrevocable, and the assets are no longer personally owned, they are typically outside the reach of most creditors.

This protection can be valuable for business owners, professionals, or anyone in a high-liability field. It can also help safeguard family wealth from unexpected financial challenges. However, timing matters. Transfers made to a SLAT after creditors have already made claims may not be protected. That’s why proactive planning is essential.

Opportunities for Long-Term Family Wealth Planning

Beyond the tax and protection benefits, a SLAT can serve as a cornerstone for multigenerational estate planning. The trust can be designed to continue for the benefit of children or grandchildren after the beneficiary spouse’s lifetime.

This setup allows families to create a legacy plan that not only reduces taxes but also promotes financial stewardship. The trust terms can specify how and when future generations receive distributions, helping prevent misuse of funds while still providing meaningful support.

Couples may also include provisions for education, healthcare, or charitable giving. These customized elements make SLATs adaptable to a family’s unique goals and values.

Practical Considerations Before Creating a SLAT

While the benefits of a Spousal Lifetime Access Trust are clear, it’s not the right fit for everyone. A few important points should be considered before creating one.

Irrevocability
Once established, a SLAT generally cannot be revoked or amended. This means that the grantor must be comfortable permanently transferring ownership of the assets.

Marital stability
Because the trust relies on the beneficiary spouse for indirect access, a divorce or death of that spouse could eliminate access to the funds. Couples may want to plan for this risk by using life insurance, setting up reciprocal trusts, or building other safeguards into their estate plan.

The reciprocal trust rule
If both spouses set up SLATs for each other, the trusts must be drafted carefully to avoid violating the “reciprocal trust doctrine.” If the trusts are too similar, the IRS may treat them as if each spouse retained control of their own assets, negating the tax benefits. An experienced estate planning attorney can structure them properly to avoid this issue.

Trustee selection
The trustee plays a crucial role in managing trust assets and making distributions. Many couples choose a professional trustee to ensure impartial administration and compliance with tax requirements.

Why Timing Matters for SLAT Planning

The timing of creating a SLAT is particularly relevant today. The federal estate and gift tax exemption is set to be reduced after 2025, unless Congress acts to extend it. Establishing a SLAT now allows individuals to take advantage of the higher exemption before it potentially decreases.

For high-net-worth couples in Pennsylvania, this window of opportunity can be significant. Acting early ensures that the maximum value of assets can be transferred while minimizing future tax exposure.

Working with a Pennsylvania Estate Planning Attorney

Because SLATs involve intricate tax and legal considerations, professional guidance is essential. A Pennsylvania estate planning attorney can help evaluate whether a SLAT aligns with your financial goals, family structure, and overall estate plan.

An attorney can also coordinate with financial advisors, accountants, and insurance professionals to ensure that all components of your plan work together. From drafting the trust to selecting the right assets to transfer, each decision can impact the long-term outcome.

Conclusion

A Spousal Lifetime Access Trust offers a strategic way to preserve wealth, minimize taxes, and maintain a measure of flexibility for married couples. For Pennsylvanians seeking to protect their assets and secure their family’s financial future, it can be a powerful estate planning option.

While the rules surrounding SLATs can be complex, the potential rewards make them worth exploring. With the guidance of an experienced estate planning attorney, couples can craft a plan that supports their needs today while safeguarding their legacy for generations to come.