An excerpt from Your Multimillion-Dollar Exit: The Entrepreneur’s Business Success(ion) Planner.
What is a Spousal Lifetime Access Trust (SLAT)?
A SLAT allows your spouse to access the assets you deposit into the trust. It can also give your kids and descendants access to the trust assets during or after your spouse’s lifetime.
What are some of the advantages of a SLAT?
If structured properly, the assets and any future appreciation are removed from the donor's taxable estate. Even though the donor's spouse is the beneficiary of the SLAT, the trust is excluded from the non-donor's taxable estate as well.
Another upside of the SLAT technique is that your spouse can have access, and therefore you can have indirect access, to the trust assets during your lifetimes. If your spouse predeceases you, you will lose direct access to the trust assets. The trust could state that the assets will be available for your children’s well-being or based on some other more rigid standard contained in the trust’s terms and conditions. You can draft the trusts to give your kids immediate access, deferred access, or very limited access to the trust assets.
Depending on how much is in the trust and your goals and objectives, you may grant your kids and other descendants very limited access to trust assets by leaving distribution decisions to the discretion of an independent trustee.
How does a SLAT work?
By putting an independent trustee (i.e., someone who is not related or subordinate to you or your trust beneficiaries) in charge of the trust, you achieve two benefits:
1. You can protect the trust assets from the claims of the beneficiaries and their creditors and predators.
2. If the assets are required to be held in the trust—either subject to discretionary distribution standards by the trustee or the ascertainable standard of health, education, maintenance, and support—you can exclude the assets from the kids’ and their descendants’ estates, savings millions of dollars in estate and generation-skipping transfer tax.