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Posted on Thursday, August 25th, 2016 by Peter Klenk

From Our “Ask a Question” mailbag: “What is a Spousal Limited Access Trust?”

The Pros and Cons of Spousal Limited Access Trust or SLATA Spousal Lifetime Access Trust, or SLAT, holds and shelters your gifts for your spouse’s benefit.

Let me break down the terms.

  • “Spousal” Trust refers to your spouse being the beneficiary.  You can also include children and grandchildren.
  • It is an “Access” trust because after forming and funding the trust you cannot benefit from the trust, but, your spouse has access to the resources inside the trust.
  • The term “Lifetime” refers to the trust existing for your spouse’s life.  Sometimes the “L” in SLAT is known as “Limited.”  The word “Limited” refers to limits on your spouse’s access to the funds to shelter them from creditors and inclusion in your spouse’s federal taxable estate.
  • The “Trust” portion refers to this being an Irrevocable Trust, rather than a Revocable Trust

What are the Spousal Limited Access Trust Advantages?

  • A SLAT allows you to set up a trust for your spouse sheltering funds from future creditors.
  • A SLAT allows your spouse access to the resources, which your spouse can then share with you.
  • All the growth in the SLAT is free from Estate Tax. This increase passes at your death free of the 40% Federal Estate Tax plus any state Estate Tax (e.g. New Jersey Estate Tax).
  • A SLAT can also help avoid state Inheritance Taxes.  e.g., Pennsylvania’s 4.5% tax on transfers to children.
  • You can set up the SLAT as a Grantor Trust, so the trust’s income is reported on your return, which is essentially an ongoing Gift Tax-free transfer.

What are the Spousal Lifetime Access Trust disadvantages?

  • If you divorce, the assets in your spouses’s trust will be unavailable to you.
  • If your partner dies, you may also have no access to the property in your partner’s trust.
  • The approximate cost of setting up a SLAT is $2,000.

Contact our office for a free consultation further questions about Spousal Lifetime/Limited Access Trusts or any other Estate Planning issues.

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