Should You Open a Spousal Lifetime Access Trust? The Pros and Cons

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When planning for the future, many couples consider opening a spousal lifetime access trust, or SLAT. This type of trust can offer many benefits to married couples, but you should consider the potential drawbacks. So, is a spousal lifetime access trust right for you? Let’s look at spousal lifetime access trust pros and cons and see how one may benefit you and your spouse.

What is a Spousal Lifetime Access Trust (SLAT)?

A trust is a legal tool that holds assets and keeps them safe, much like a business account. Once you place the assets into a SLAT, they become the property of the SLAT.

If you’re considering setting up a SLAT, you should keep a few things in mind. First, you’ll need to decide how you will fund the trust and choose a trustee to oversee the trust after your death. Additionally, you’ll need to determine what assets you will place into the trust and how and under what terms they will distribute.

The SLAT uses the resources in the trust to carry out the trust purposes you define with your attorney. The spouse who sets up the trust is called the Grantor. The spouse receiving the benefits of the trust is the beneficiary.

What are the Benefits of Setting Up a SLAT?

Giving thought to a spousal lifetime access trust pros and cons is crucial before creating one. However, a SLAT is a type of trust that can offer many benefits to married couples.

The most common benefit of this type of trust is that it protects you from civil lawsuit liability. It can also provide for a spouse and other family members after your death. However, this type of trust can also offer tax advantages and asset protection while planning for more assets to pass on to your heirs tax-free.

There can be untold benefits to setting up a SLAT, including:

  • Protection from Lawsuits: As long as you set up the trust and add assets to it before a potential lawsuit arises, your assets stay safe. The trust protects the assets because it owns the assets. You do not own them, and neither does your spouse. However, according to the trust’s terms, you benefit from the assets.
  • Avoid state income taxes: Avoid state taxes on your assets depending on which state you choose to set up your trust.
  • Estate and Gift Tax Benefits: SLAT assets remain at the same value during the trust’s life for the purposes of calculating estate tax and gift taxes. So your estate will not pay gift taxes at the rate your assets will be worth later on.
  • Family members such as children or a beloved aunt can also be beneficiaries of the SLAT.
  • If you die, the SLAT assets remain protected.
  • If your beneficiary spouse dies, the SLAT assets provide for heirs with no probate necessary if all your assets are in the trust.
  • You can set up the trust with your attorney to keep assets in the family in the future. A SLAT can also later serve as a Family Trust to pass assets down to future heirs. The SLAT continues to protect the assets from lawsuits, creditors, and divorce.

What Are the Disadvantages of a SLAT?

There are a few drawbacks to setting up a spousal lifetime access trust. One of the most common drawbacks is that it can be expensive to set up and maintain. Additionally, this type of trust can be complex, and you will need to seek legal help to set it up correctly.

Another consideration is giving up control of the assets you place in the trust. So if you need to access the assets during your lifetime, reaching them can be difficult. However, your spouse has access and can pull assets out for you when needed according to the trust’s terms.

If you divorce, you can lose access to the funds in the SLAT unless you’ve made provisions for this possibility in your trust’s terms.

What Legal Help Do You Need to Create a SLAT?

Because every family is different and your family’s liabilities are unique, setting up your trust’s terms with an experienced estate and asset planning attorney is crucial. Your attorney can help you plan for every eventuality and protect the assets from the types of lawsuits or other threats you may feel concerned about.

An attorney can help you understand the pros and cons of a SLAT and can assist you in setting it up correctly with the language needed to prevent future court battles over its contents. Additionally, an attorney can answer any questions about spousal lifetime access trusts and help you create a plan that meets your unique needs.

We Can Help

At Vail Gardner Law, we are here to help you protect your family’s future. Contact us today to learn more about spousal lifetime access trusts and whether one is right for your family. Our experienced estate planning and asset protection legal team can help you understand this type of trust’s pros and cons and assist you in setting it up correctly. 

Call us or contact us through our site to schedule a consultation. We look forward to helping you plan for your family’s future!