It is natural to want to protect your hard-earned assets to ensure you and your loved ones can benefit from them for years to come.
One way married couples can protect assets is by creating a spousal lifetime access trust (SLAT). These trusts allow one spouse to set aside assets for the benefit of the other spouse. In this article, we explore SLATs, covering questions like:
- What is a SLAT trust?
- How do SLATs work?
- How do you create a SLAT?
Setting up a functioning SLAT requires a carefully crafted trust instrument, which usually means hiring an experienced trust attorney.
If you want to take advantage of the potential savings you can get by setting up a SLAT, reach out to Massingill as soon as possible. We offer flat rate fees, so when you hire us, you know how to plan for your budget.
What Is a Spousal Lifetime Access Trust?
Some people may refer to a SLAT as a “spousal limited access trust” or the simplified “spousal access trust” instead of a spousal lifetime access trust, but these terms typically refer to the same kind of trust.
In legal terms, SLATs are living irrevocable trusts a grantor spouse sets up for the benefit of a beneficiary spouse operated by a trustee. So what do all those legal terms mean?
Grantors, Beneficiaries, and Trustees
Grantors, beneficiaries, and trustees are the people involved in trust creation and operation.
Grantors
The grantor creates the trust. A grantor can be an individual, multiple people, or a business entity. In the case of a SLAT, the grantor is one of the spouses.
Beneficiaries
Beneficiaries are people or entities the grantor selects to benefit from the trust. Some beneficiaries may have a present interest, where they receive regular payments from the trust.
Others may receive benefits only after a certain condition occurs, like the death of the beneficiary with the present interest.
A grantor can sometimes name themself as a beneficiary, but they cannot do so in a SLAT. Instead, the non-grantor spouse is typically the lifetime beneficiary, meaning they receive the trust benefits for the rest of their life.
To bypass inclusion in the beneficiary spouse’s estate, SLATs generally must pass to other beneficiaries automatically when the beneficiary spouse dies.
Many SLATs are structured to name the couple’s children, grandchildren, other loved ones, or favored charities as the next beneficiaries in line.
Trustees
Trustees manage the trust. How much power and discretion a trustee has can vary greatly based on the terms of the trust.
A trustee can be the grantor, a beneficiary, or a neutral third party, like a financial institution. The trustee owes a fiduciary duty to the trust.
Depending on your asset protection priorities and need for control over disbursements, you may designate either spouse, a different beneficiary, or a third party as trustee in a SLAT.
An experienced attorney can help you determine who to name to ensure your SLAT meets your needs.
Revocable vs. Irrevocable Trusts
Every trust is either revocable or irrevocable. A grantor can generally take back the assets placed into a revocable trust and destroy the trust. A grantor typically cannot take back the assets placed in an irrevocable trust.
However, the grantor can retain some control over the operation of even irrevocable trusts. In that case, the trust may be a “grantor trust.”
Assets placed in an irrevocable trust may, depending on how the trust is structured, count for tax purposes as the grantor’s assets, the beneficiary’s assets, or simply trust assets.
SLATs are typically grantor trusts. As grantor trusts, the income the SLAT produces is generally treated as the grantor’s for tax purposes.
Living vs. Testamentary Trusts
Living trusts are funded and go into effect during the grantor’s lifetime. Testamentary trusts are funded and go into effect when the grantor dies through the grantor’s will.
SLATs are generally structured as living trusts.
How Do You Set Up a SLAT Trust?
Establishing a SLAT requires careful planning and precise wording. Having an experienced lawyer to guide you through the process is often the only way to ensure you complete the process correctly.
Draft the Trust Instrument
The document establishing the trust is known as the trust instrument. You should work with your lawyer to create a draft of the trust instrument to begin the process.
Each spouse can create a SLAT to benefit the other. However, you have to take care not to run afoul of the government’s “reciprocal trust doctrine.”
In short, the reciprocal trust doctrine establishes that two people cannot establish substantially similar trusts to each other’s benefit.
If both spouses want to create SLATs, you have to ensure the terms of the trusts, the beneficiaries, and the trustees are different enough to avoid the reciprocal trust rule.
Separate Property
As a community property state, when you set up a SLAT in Texas you typically begin by separating the property you intend to place into the trust so that the grantor spouse has individual ownership.
This process may look different depending on whether the spouses have managed earnings jointly or separately.
Ensuring that the trust terms account for Texas’ community property scheme is vital. If the trust is not drafted carefully, the grantor spouse may effectively become a beneficiary by sharing the beneficiary spouse’s property. If that occurs, it can invalidate the SLAT as a gift to the beneficiary spouse.
Create and Fund the Trust
Once one spouse has sufficient ownership over the property, they can transfer the assets into the SLAT as a gift to the other spouse.
Gifts from one spouse to the other are usually excluded from gift taxes. However, gifts may be taxed if above a set value, combined with the estate tax.
Until January 2026, the maximum gift and estate tax exemption is $10 million indexed to inflation. That means, in 2024, the maximum is $13,610,000 for an individual and $27,220,000 for a married couple.
How Does a SLAT Trust Work?
Trusts are flexible tools, so how a SLAT operates can be tailored to your particular needs.
The grantor can set when and how trust income is distributed or leave discretion to the trustee on when and how to distribute income. Once the SLAT is created and funded, the beneficiary spouse can begin receiving benefits.
The SLAT generally lasts until the beneficiary spouse dies. At that time, the trust assets can pass to other beneficiaries directly, or the trust can continue on behalf of its other beneficiaries. Regardless, the trust bypasses the beneficiary spouse’s estate and is not subject to the estate tax.
Massingill Can Help You Protect Your Assets Through a SLAT
Because the current estate and gift tax limits are set to be reduced by half in 2026, there is no better time to establish a SLAT.
Significantly, SLATs created before the 2026 reduction will continue to use pre-2026 rates. Reach out to Masingill today to learn more about protecting your assets with a SLAT.
Joshua Massingill
Joshua Massingill is an attorney practicing in Austin, Texas. He serves on the Texas State Bar’s Law Practice Management Committee, the Leander Educational Excellence Foundation (LEEF) Board of Directors, and the Success-Werx Board of Advisors. He mentors young entrepreneurs in Leander ISD’s INCubatorEDU program and is active in his church.
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