There are several ways you can use to protect and transfer your assets to your spouse while taking advantage of the tax benefits the government offers. One method that’s gaining popularity in Florida is a Spousal Lifetime Access Trust (SLAT).
Understanding a SLAT
A SLAT is an irrevocable trust that allows you to gift assets to your spouse while retaining access and control over them yourself. The benefits of this type of trust are twofold: first, it provides tax savings for both spouses; second, it allows you to protect your assets from creditors, lawsuits or other unexpected financial obligations.
How SLATs work – protection and tax advantages
A SLAT, at its core, is just like any other estate planning trust, where you are giving ownership of your assets to someone else (a trustee) who manages and distributes those assets to your beneficiary (in this case, your spouse) according to your wishes. But, unlike other trusts, you fund it gradually using gifts while ensuring you remain under the estate tax exemption.
SLATs reduce estate tax through two mechanisms. The first is removing additional growth on your assets from your estate by transferring ownership to the trustee. So if you have a property with significant growth potential, moving it into the trust before that happens can save you a lot of money in taxes.
The second way is through the gift tax exclusion. When you fund a SLAT, you can use the annual exclusion (which is at $12.06 million per person as of 2022) to make gifts to your spouse without incurring any tax liability. This means you can transfer a significant amount of wealth while not worrying about paying taxes on them.
SLATs also provide protection from creditors and lawsuits since they are irrevocable trusts with no personal liability for the assets within them. So even if something happens to either of you, your spouse’s inheritance will remain safe as long as they are within the trust.
If a SLAT sounds like a good fit for your needs, you can create one for your spouse. However, you must keep in mind that they must be irrevocable, which means once you create a SLAT, you can’t revoke or change its terms. So, if you divorce years later, your partner will continue to receive the benefits of the trust regardless of how you have changed your own financial situation.