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The SLAT Advantage: Protecting Your Wealth from Estate Taxes Without Surrendering Your Assets

by | Nov 26, 2024 | Firm News

By Edwin P. Morrow III, J.D., LL.M., MBA, CFP®, CM&AA® and Andrew J. Kelleher, Jr., J.D., CPA, LL.M.

When it comes to estate planning, employing a diverse array of irrevocable trusts has emerged as an indispensable strategy for individuals aiming to preserve and allocate their assets effectively. Among these trusts, the Spousal Lifetime Access Trust (SLAT) has surged in popularity, particularly with the current historically high estate tax exemption amount of $13.61 million. With this threshold slated to decrease to $5 million (which will be adjusted for inflation to about $7 million) as of January 1, 2026, there exists a window of opportunity to use this exclusion amount before it disappears. One popular way for married couples to do so is to implement a SLAT. It can be a powerful tool for mitigating liability exposure, leveraging the all-time-high estate tax/gift exemption, and maintaining access to funds.

How a SLAT Works

Generally speaking, a SLAT is a multi-generational trust established by one spouse (called a settlor or grantor) to benefit the other, as well as others such as children or grandchildren. The grantor spouse transfers assets, via gift and/or sale, to a SLAT for the primary benefit of his or her spouse, allowing the grantor to properly plan for his or her estate/gift tax exemption. With proper SLAT planning, the spouse benefiting from the transfer can be both the SLAT’s trustee and the primary beneficiary. This means the benefiting spouse can maintain access to assets protected in the SLAT. Further, there are no additional income tax returns needed with SLAT planning while the grantor is still alive.

SLAT Benefits

  • Protects future appreciation of assets in the SLAT from estate/gift and other transfer taxes
  • Allows for more control and efficient management of assets
  • Allows for the efficient use of the 2024 $13.61 million estate/gift tax exemption
  • Provides asset protection from mental disability, creditors, divorces, etc.
  • Allows the benefiting spouse and other beneficiaries access to the SLAT assets while alive
  • Utilizes the generation-skipping transfer tax (“GSTT”) exemption, avoiding transfer taxes over multiple generations
  • Can be utilized with valuation discount planning to transfer additional wealth among generations, especially for closely-held business interests
  • Yields additional advantages when leveraged with proper life insurance planning

Why Now?

The current estate/gift tax exemption offers unprecedented opportunities for high-net-worth families to reduce their transfer tax exposure. Any transfers made before the exclusion law sunsets are likely protected from future taxes.

As with any estate planning strategy, it is essential to consult with experienced legal professionals to determine whether a SLAT aligns with your financial goals. Ultimately, for those seeking to preserve and pass on their wealth efficiently, SLATs can be a valuable addition to their estate planning toolkit.

 

Kelleher + Holland, LLC is a national recognized, full-service law firm with 60+ legal professionals in North Barrington. For assistance with estate and tax planning, contact Andrew Kelleher or Edwin Morrow at (847) 382-9195 or visit www.kelleherholland.com.

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