Key Takeaways
- Marital trusts like SLATs and SLANTs provide unique methods for protecting assets in a marital relationship while preserving them for the beneficiary spouse.
- A spousal lifetime access trust (SLAT) allows for the protection of one spouse’s assets for their surviving spouse while offering tax advantages.
- A spousal lifetime access non-grantor trust (SLANT) offers similar benefits to a spousal lifetime access trust (SLAT), but with additional tax benefits, as it is treated as a separate entity.
- Potential disadvantages of these trusts include the complexity involved with setting them up, the costs to administer them, and the limited flexibility of the grantor to access these trusts.
Introduction
Spousal lifetime access trusts and spousal lifetime access non-grantor trusts are two types of marital trusts, also known as spousal trusts. These types of trusts may offer unique benefits for a beneficiary spouse while allowing the grantor spouse to protect their assets for their beneficiaries.
Each type of trust can offer benefits such as protecting assets against creditor or legal claims, which can make them worthwhile. However, they each have their own unique nuances that require some careful consideration over which one makes the most sense for your estate plan.
Understanding the difference between SLATs and SLANTs will empower you to decide whether one of these estate planning tools make sense for you and your heirs while ensuring that they are properly drafted and administered.
Understanding SLATs and SLANTs
Both SLATs and SLANTs are irrevocable trusts used as tools to preserve a grantor’s assets for their beneficiary spouse while providing potential asset protection benefits for future generations. Still, each type of trust has unique nuances that may offer benefits for some spouses more than others.
Definition of SLATs
A spousal lifetime access trust (SLAT) is an irrevocable trust created by one spouse, known as the grantor, for the benefit of their spouse. Unlike most types of irrevocable trusts, a SLAT is a grantor trust, which means that it is still considered part of the grantor’s taxable estate, making them liable for any necessary taxes.
SLATs provide indirect access to trust assets for the grantor through their spouse, who is listed as a beneficiary. However, a SLAT may also include other beneficiaries, such as children or grandchildren of the grantor, allowing for additional flexibility in estate planning.
Once established, a SLAT cannot be amended or terminated, except under specific, limited circumstances. The difficulty involved in changing a trust only reinforces its role as a long-term estate planning and asset protection tool.
Definition of SLANTs
A spousal lifetime access non-grantor trust (SLANT) is created by one spouse for the benefit of the other spouse. A SLANT is very similar to a SLAT with its ability to protect assets and shield them from creditors, except, unlike a SLAT, it is not a grantor trust.
A SLANT is a SLAT that is structured as a non-grantor trust, which means that it has its own tax structure. This approach keeps it separate from the grantor’s taxable estate and offers additional benefits, like a potentially lower tax rate.
SLANTs also allow the grantor to name multiple beneficiaries in addition to the beneficiary spouse. To protect the integrity of the trust and the distributions that are made, any distribution to the beneficiary spouse must be approved by an adverse party. The adverse party who approves a distribution is usually another beneficiary, such as the oldest child, for example.
Key Differences Between SLATs and SLANTs
Although both types of trusts are very similar, as they both provide control over assets, they feature crucial differences to consider before establishing your estate plan. These two types of marital trusts have different implications for tax considerations and how assets are managed.
Tax Implications
Although both types of trusts can reduce the size of one’s taxable estate, they each have unique tax implications. The key difference between these two trusts is that a SLAT is a grantor trust, while a SLANT is a non-grantor trust.
As a grantor trust, a SLAT is considered a type of pass-through entity in the realm of income taxes, but the grantor is still liable. The grantor spouse is responsible for paying any income taxes that are attributed to the trust. This is the case for all income, regardless of whether it remains in the trust or is distributed to beneficiaries.
Meanwhile, as a non-grantor trust, a SLANT removes the trust assets from the trust creator’s taxable estate, making it a completely separate legal entity. A SLANT is taxed as its own taxpayer with a separate income tax rate, which often offers the potential benefit of a compressed tax rate.
Asset Protection
Both SLATs and SLANTs offer protection of assets by placing them separately from the grantor’s standard estate. Assets in these trusts are shielded from both creditors and potential lawsuits, preserving these assets for the surviving spouse or other beneficiaries.
However, the key difference is that in a SLANT, any distributions to the beneficiary spouse must be approved by an adverse party. An adverse party may be another beneficiary of the trust, but the beneficiary spouse cannot serve as the adverse party. In some cases, the trust grantor may specify that any beneficiary payment should be approved by the adverse party.
The grantor also typically maintains more control in a SLANT than a SLAT. Because a SLAT is irrevocable, any changes will require the consent of the trustee and the beneficiary spouse. However, with a SLANT,
Flexibility in Estate Planning
Both types of trusts may offer flexibility in their structures, but SLANTs may offer more than a SLAT. In a SLAT, the grantor has little control over the assets placed in the trust, but the beneficiary spouse may be given the ability to accept trust assets and redirect them to other beneficiaries. Although the grantor may not benefit directly from trust funds, allowing the beneficiary spouse access to assets within these trusts may provide additional flexibility.
Meanwhile, SLANTs allow the grantor to also serve as the trustee during their lifetime, which may offer more direct control over assets, distributions, and overall trust management. If flexibility is a priority, it’s important to discuss what provisions you may be able to include with a financial advisor and an estate planning attorney.
Advantages of SLATs
A spousal lifetime access trust offers high-net-worth individuals versatility and flexibility in their estate plan. Establishing an SLAT offers the following advantages.
Irrevocable Trust Benefits
SLATs can offer the same unique advantages as irrevocable trusts. These types of trusts move assets away from the grantor’s taxable estate, which can offer several potential benefits, such as:
- Potentially reducing estate taxes
- Shielding assets from creditors
- Allowing assets to appreciate outside of the taxable estate, which may reduce capital gains taxes
- Protecting assets for multiple beneficiaries
Together, an irrevocable trust allows assets to appreciate outside of the estate, thereby maximizing potential income for the trust and protecting wealth for beneficiaries.
Gift Tax Savings
One of the key benefits of a SLAT is that it provides married couples the opportunity to take advantage of the high gift tax exemption available to them while also providing continued access to trust assets. By transferring assets outside of your estate and into the trust as a gift for your spouse, you can reduce the size of your overall estate and receive a potential reduction in estate taxes.
Access for Spouse
A SLAT provides a beneficiary spouse access to assets in the trust at almost any time, which offers the opportunity for the spouse to use assets or trust income as needed. The grantor spouse may also provide additional control and flexibility by naming the beneficiary spouse as a co-trustee of the trust.
Access for the beneficiary spouse is also a potential benefit for the grantor.
A key aspect of irrevocable trusts is that the grantor relinquishes all access and control to assets, but the benefit of SLATs may allow for the grantor to maintain indirect access through their spouse. This advantage may provide additional flexibility to the grantor spouse to maintain access to their assets during their lifetime.
Advantages of SLANTs
The advantages of a SLANT are very similar to those of a SLAT, but it does offer a few potential additional advantages, which are outlined below.
Non-Grantor Trust Structure
Because SLANTs have a non-grantor trust structure, the trust is treated as its own taxable entity under the law. This structure works in contrast to a grantor trust structure, where the income is attributed to the grantor, who is still subject to tax liability. When trust income exceeds a certain threshold, it is taxed at a more compressed tax rate compared to individual income tax rates, potentially offering the benefit of minimized tax obligations and avoiding higher individual income tax rates.
Tax Optimization
SLANTs are designed to hold assets outside the grantor’s taxable estate and keep these two buckets entirely separate, which can minimize income, federal estate, and gift taxes. By using a SLANT, the grantor spouse can reduce the size of their estate to keep it below the federal estate tax exemption, which can result in considerable savings.
Estate Growth Potential
Assets placed into a SLANT can appreciate over time, while being removed from both spouses’ taxable estates, potentially reducing future estate taxes. Because these assets remain separate from the taxable estate, they are allowed to increase in value over time within the trust to accrue income and interest.
Drafting Considerations
Although both types of trusts have their potential advantages, careful drafting of these trusts is crucial for ensuring you maximize their benefits. Married couples must consider the following points in the process.
Reciprocal Trust Doctrine
Both spouses in a partnership have the right to create their own trusts to benefit the other. However, it’s important that they are sufficiently different from each other.
The reciprocal trust doctrine states that if two trusts are identical, then the IRS may claim that each spouse left the other a gift and tax them accordingly. This doctrine is a common concern in cases of SLATs and SLANTS because if the spouses’ trusts are not fundamentally different, it could lead to the IRS considering all assets as part of each spouse’s personal estate, eliminating the potential tax benefits.
Some considerations for avoiding reciprocal trust doctrine issues include:
- Using a different trust structure for each spouse’s trust
- Naming a different number of beneficiaries instead of both spouses listing only each other.
- Carefully choosing a state to establish your trust may also allow for more favorable terms. For example, Nevada is often regarded as a friendly state for these trusts, given its long-lasting dynasty trust provisions.
Ultimately, careful drafting of these drafts is crucial for avoiding the reciprocal trust doctrine, so it’s advisable to consult an experienced estate planning attorney early in the process.
Legal Complexity
Both types of spousal trusts have a higher degree of legal complexity in establishing them, as they must account for several nuances, such as the extent of control the beneficiary spouse may have or planning for what to do in the event of a divorce or marriage split.
The irrevocable nature of these marital trusts can also make it difficult to make changes in the future, especially for the grantor. As a result, it’s crucial to maintain extensive due diligence in drafting these trusts.
Due to the complexity of these trusts, there may be a lack of clarity regarding how to handle conflicts such as divorce or the premature death of beneficiaries if not addressed up front. It’s advisable to consult an estate planning attorney with experience in drafting SLANTs and SLATs.
Importance of Professional Guidance
Given the unique implications of these types of trusts and the complexities involved, it’s important to have professional guidance to support you through the process. Guidance from a combination of professionals, like an attorney, financial advisor, and tax advisor, can help you understand which trust is best for you and how you can best structure your trust for your unique situation. If you experience potential disputes after a trust creator dies, then consider reaching out to a trust litigation attorney who can help you navigate them.
Impact of Divorce
In any estate plan, divorce can create a unique challenge that necessitates a deviation from the original plan. With the control that SLATs and SLANTs provide the beneficiary spouse, there is the risk that the surviving spouse may maintain this control past divorce, with the grantor spouse having no control over assets.
Careful drafting of these trusts is crucial for ensuring proper contingencies are in place for a divorce scenario and preventing the risk of losing control. A common concern is that after divorce, the ex-spouse may maintain control of the assets against the wishes of the grantor spouse.
To eliminate these risks, when drafting a SLANT, a grantor may include a provision that terminates the beneficiary spouse’s interest in the trust upon divorce, preventing them from maintaining access to the trust. Another common safety measure is to require an adverse party to approve any distributions from the trust, which would allow them to deny any distributions to the beneficiary spouse after divorce.
Impact of the Big Beautiful Bill
The recently passed Big Beautiful Bill (Public Law 119-21) has made some important and permanent changes to estate and gift tax law. Most notably, it sets a $15 million exemption per person for estate and gift taxes, adjusted annually for inflation. This replaces the prior rules under the Tax Cuts and Jobs Act (TCJA), which had raised the exemption temporarily and was set to expire at the end of 2025.
Under the old rules, the exemption would have dropped to about $6.5 million in 2026 unless Congress took action. That created a lot of uncertainty and pressure for individuals to use their exemptions before the deadline. Now, with the new law in place, that pressure is gone. The higher exemption is here to stay, giving individuals and families more breathing room and long-term planning flexibility.
That said, strategic planning is still important. Tools like SLANTs and SLATs remain valuable options for removing assets from your taxable estate and protecting long-term growth. While the urgency around the sunset date has passed, it’s still a good idea to talk with an estate planning attorney to make sure your plan is structured in the most tax-efficient way possible.
Potential Disadvantages
Given the legal complexities of SLATs and SLANTS, there are also careful legal and financial considerations that can pose challenges and disadvantages for married couples. The following are the most common disadvantages of using these two types of trusts, similar to other marital trusts.
Limitations on Access
Because these two types of trusts are considered irrevocable, the grantor may not access assets in the trust or modify the arrangement after it has been created, offering limited flexibility as a potential disadvantage. Grantors of SLANTs do not have direct access to the trusts, meaning they cannot withdraw assets from the trust or benefit from any of the funds during their lifetime.
However, the grantor may be able to access these resources through their spouse, who is a beneficiary. That said, if the SLANT is drafted in a way that requires distributions to beneficiaries to be approved by an adverse party, regular access to trust funds may be unreliable. This structure can pose issues during times like premature death or divorce, so it’s important that the terms of the trust are clearly outlined and consider contingencies.
Costs of Trust Maintenance
The complexity involved with setting up a SLANT or SLAT may lead to more significant legal fees. Because of the complex work and careful consideration needed to draft and establish a SLANT, the legal fees involved can be significantly higher due to the additional time and effort required.
As irrevocable trusts that will remain under the control of a trustee until the death of the grantor, both of these types of spousal trusts may involve higher administrative costs because of the trustee’s oversight. A SLANT may also involve higher tax rates, which can involve increased overall costs for maintaining the arrangement.
The complexities of these trusts may make it necessary to seek additional professional support throughout drafting and administration, which may include engaging a trust administration attorney, estate planning attorney, and additional experts, such as tax advisors and personal accountants. The need for additional support can all add to the cost of establishing and maintaining the trust.
Challenges in Administrative Compliance
Due to the complexities involved in overseeing and administering a trust, it’s important to be diligent when drafting a trust agreement. For example, when executing these trusts, it is essential to ensure that two trusts are not too similar or interrelated in order to avoid the IRS invoking the reciprocal trust doctrine at the risk of the trust agreement being dissolved.
Given the unique aspects of these trusts, it’s often advisable to consider naming a professional trustee, or one who has experience with these types of trusts and an understanding of how the administration process works to ensure that all steps are carried out effectively. The trustee should then engage a skilled trust administration attorney to ensure that they fully understand the duties and obligations involved with fulfilling their role.
Navigate SLATs and SLANTs with Help From RMO Lawyers
SLATS and SLANTS each have their advantages and disadvantages, as they can allow for greater spousal control over trust assets but can also add extra complexity to the administration process with additional legal and financial implications. This complexity may also lend itself to a greater risk of disputes.
With decades of experience in all types of trust administration, the team at RMO Lawyers is prepared to support you in understanding your options with these trusts. If a dispute or contest arises during the administration of either of these types of trusts, the trust litigation attorneys at RMO can help you explore your options in pursuing a proper resolution that secures the best possible outcome in the best interests of the trust.
Schedule a consultation with us at RMO Lawyers to learn more about your options and how we can help you secure the best possible outcome.
Glossary
Beneficiary – A beneficiary is an individual or entity identified in a trust or will as being entitled to receive benefits from the estate.
Grantor – A grantor is a person who creates a trust to specify how they want their assets distributed upon their death and to which beneficiaries.
Irrevocable Trust – A type of trust that cannot be modified or revoked by the grantor after it has been established, providing benefits such as asset protection and tax advantages.
Marital Trust – A type of trust set up by one spouse for the benefit of another spouse.
Trust – A trust is a legal agreement that grants a third party, or fiduciary, the authority to hold and manage assets for the beneficiaries of an estate.
Trustee – A trustee is a person who coordinates the administration of the trust, manages the trust’s assets and is responsible for distributing the assets to the trust’s beneficiaries.
Spousal Lifetime Access Trust – An irrevocable trust where one spouse is the grantor, and the other spouse is the beneficiary.
Spousal Lifetime Access Non-Grantor Trust – A spousal lifetime access non-grantor trust (SLANT) is created by one spouse for the benefit of the other spouse. A SLANT is very similar to a SLAT with its ability to protect assets and shield them from creditors, except, unlike a SLAT, it is not a grantor trust.