How Spousal Lifetime Access Trusts Can Secure Your Clients’ Futures
February is a time of transition. It falls between the height of winter and the start of spring and smack-dab in the middle of tax season.
During this time, clients may be thinking about tax scenarios but are not quite ready to implement solutions. They may also be planning for Valentine’s Day, a welcome respite from the long winter doldrums, and want to do something special for their spouse.
This February, you can help your married clients show their love with a unique type of trust called a spousal lifetime access trust (SLAT) that can “lock in” a high federal estate tax exemption, adapt to future needs, and preserve wealth for younger beneficiaries.
Federal Estate Tax Exemption Could Fall Dramatically in 2026
For 2025, the federal annual gift tax exclusion is $19,000 per individual, and the federal lifetime gift and estate tax exemption is $13.99 million per individual.
These exemption amounts are the highest they have ever been, marking an upward trend since the 2017 tax reforms under the first Trump administration. However, these limits are scheduled to sunset at the end of 2025 without congressional action. If they do revert to pre-2018 levels, the result could be the biggest estate tax increase since the 1940s.
Such changes would subject far more estates to taxation and dramatically heighten the need for proactive estate planning. Against this backdrop, estate planning tools such as SLATs can help clients maximize historically high exemptions and lock in tax advantages before any changes take effect.
How SLATs Work and Key Benefits
A SLAT is an irrevocable trust set up by one spouse (the donor spouse) primarily for the benefit of the other spouse (the beneficiary spouse), with other beneficiaries such as children or grandchildren being the remainder beneficiaries when the beneficiary spouse passes away.
SLATs gained popularity amid the uncertainty of the 2012 fiscal cliff, and the current uncertainty around tax legislation remains a major SLAT selling point. Notable features and benefits of SLATs to highlight for clients include the following:
- The beneficiary spouse can receive direct distributions from the trust, and the donor spouse maintains indirect access to the assets through the beneficiary spouse.
- When the donor spouse funds the SLAT, the value of the transferred assets is treated as a taxable gift to the trust beneficiaries, even the beneficiary spouse. The gift is typically sheltered from federal gift taxes by the donor spouse’s federal lifetime gift and estate tax exemption, which is $13.99 million per individual in 2025.
- After the assets have been transferred to the trust, they are removed from the donor spouse’s taxable estate and are generally not included in the surviving spouse’s taxable estate.
- Any future appreciation of SLAT assets after their transfer to the trust is also not subject to estate taxes.
- Depending on how the trust is structured, the donor spouse is usually responsible for paying income taxes on the trust’s assets, including dividends, interest, and capital gains.
- When the trust terminates (i.e., when the beneficiary spouse passes away), the remaining trust assets pass to the remainder beneficiaries, such as children, whom the donor spouse has named in the trust document. The assets can be distributed directly to the remainder beneficiaries or held in further trusts tailored to each beneficiary.
- A properly drafted SLAT generally protects the beneficiary spouse’s assets from creditors.
- Married couples can set up separate SLATs to benefit each other. However, it is important to ensure that the trusts have different terms to avoid running afoul of the reciprocal trust doctrine, which could cause both trusts to be undone, resulting in the assets being included in the spouses’ taxable estates.
Potential SLAT Downsides
SLATs offer tax efficiency, wealth preservation, and financial flexibility, but they are irrevocable and require proper planning to avoid losing access to assets and Internal Revenue Service scrutiny.
- If the beneficiary spouse suddenly passes away, the donor spouse loses their (indirect) access to the SLAT’s payouts. (The same can happen in the event of a divorce; without the right provisions, the donor spouse may still be on the hook for paying income taxes on trust assets that are solely benefiting their (now) ex-spouse.)
- If trust law is not carefully followed, unwanted tax consequences can occur. One such outcome is that if the donor spouse retains certain powers over the SLAT, such as the unrestricted ability to replace the trustee, the trust’s assets might still be included in the donor spouse’s estate.
- It is not ideal for the beneficiary spouse to receive distributions from the SLAT unless they are truly needed because the distributions bring assets back into their estate and reduce the trust assets that can grow tax-free.
- When assets are placed in a SLAT, they retain the donor spouse’s original tax basis, so beneficiaries could end up owing capital gains tax, especially on low-basis assets, when they are eventually sold or liquidated.
- If the beneficiary spouse serves as a trustee of the SLAT, distributions should be limited to the health, education, maintenance, and support (HEMS) standard. However, the level of access that the beneficiary spouse has will impact the level of asset protection. If more asset protection is needed, an independent trustee should be appointed, and the distributions should be permitted only at the trustee’s discretion.
Uncertainty Presents Opportunity
February is considered a “shoulder season” for estate planning attorneys and other advisors. The tourism industry uses this term to refer to the time of year between the peak season and off-season, when travel is light and conditions may not be ideal. But within the lull, opportunities abound.
As clients face the prospect of a reduced federal estate tax exemption at the end of 2025, advisors can suggest SLATs as a timely and powerful (and, dare we say, romantic?) tool to transfer substantial wealth and lock in current tax advantages while maintaining financial security and flexibility.
Reach out and schedule a meeting to discuss specific SLAT-based estate planning strategies.
An Advisor’s Guide to Qualified Terminable Interest Property Trusts
“A diamond is forever” is a popular saying. Estate planning does not have a time horizon that long, but it does seek to protect a family’s wealth and provide them with financial stability for years to come.
Around Valentine’s Day, many couples are looking for ways to display their affection. By understanding the nuances of qualified terminable interest property (QTIP) trusts and ways to customize them, advisors can help clients show love to their spouse with a gift that lasts a lifetime—and in many cases, even longer.
What Is a QTIP Trust?
A QTIP trust is an irrevocable trust that allows a surviving spouse to benefit from their deceased spouse’s assets while ensuring that those assets ultimately pass to beneficiaries designated by the deceased spouse.
Key features of a QTIP trust include the following:
- Spousal income for life. The surviving spouse must receive the income generated by the trust assets at least annually for the rest of their life, potentially giving them financial security and support.
- Designated remainder beneficiaries. The trustmaker designates the beneficiaries who will receive the trust assets upon the surviving spouse’s death. Such beneficiaries could be children, a charity, or other entities or loved ones.
- Control over assets. The trustee manages the trust assets and ensures that they are used in accordance with the (customizable) trust terms created by the deceased spouse. Depending on the desired level of asset protection, the spouse may serve as trustee of their trust.
QTIPs may be particularly useful for clients who want to provide for a surviving spouse but who also wish to direct the eventual distribution of the trust to different beneficiaries. Clients can simultaneously take advantage of the unlimited marital deduction and retain control over their assets “from the grave,” an option that did not exist until legislative reforms in the Economic Recovery Tax Act of 1981.
Important QTIP Trust Features
Although a QTIP trust is just a trust, it is special. Certain important and unique characteristics may make it the right solution for your married clients.
- Restricted principal access. The trustmaker can specify whether and under what circumstances the surviving spouse may access the trust’s principal. This restriction helps protect the trust’s assets from being mismanaged or prematurely spent. Such provisions may be useful if the trustmaker has concerns about their spouse’s ability to manage assets.
- Marital deduction. A QTIP trust allows the trustmaker to take advantage of the unlimited marital deduction to minimize estate taxes. Qualified transfers to the trust for the benefit of a US citizen spouse will not be subject to federal estate tax at the trustmaker’s death (although the assets held in the trust may be subject to estate tax at the surviving spouse’s death).
- Protection from creditors. Assets held in a QTIP trust are generally protected from the surviving spouse’s creditors and from claims in any future remarriage. The level of asset protection will depend on the level of control the surviving spouse has over the trust’s assets. After assets have been distributed to the surviving spouse, they are more vulnerable to a creditor’s claim.
- Balancing interests. A QTIP trust can provide income for the surviving spouse while preserving the trust’s principal for the children, allowing both to benefit from the trust as the grantor sees fit. This arrangement may prove useful when there are children from a previous marriage or another unique family dynamic.
Customizing a QTIP Trust
One of the strengths of a QTIP trust is its ability to be customized to a client’s needs and circumstances. Here are some top-level customization options you may want to discuss with clients:
- Distributions of principal. The surviving spouse is entitled to income generated by the trust at least annually, but the trustmaker can dictate whether and under what circumstances the trustee can distribute the principal to the spouse. Distributions can be structured in several ways, including only for ascertainable standards (health, education, maintenance, and support) or for hardship. They can also give the trustee sole discretionary authority to distribute principal based on the spouse’s needs. The trustmaker can even restrict principal distributions entirely to preserve the remaining beneficiaries’ trust assets.
- Granting the spouse control. Although the trustmaker has the ultimate say on the final distribution of assets, they can grant the surviving spouse some degree of control over the trust using strategies such as a testamentary limited power of appointment, which lets the surviving spouse choose how the remaining trust assets are distributed upon their death among a defined group of beneficiaries predetermined by the trustmaker (e.g., children, grandchildren, or other family members).
Additional Options and Considerations
Although a QTIP trust may not be the most romantic gift, it could prove more thoughtful, caring—and, years from now, more valuable—than a standard Valentine’s Day purchase. Clients can be sold on them as a way to express their love in a controlled, future-minded manner that supports their legacy goals.
With tax season officially underway, let’s discuss using estate planning tools like QTIPs to meet clients’ wealth preservation goals this February.
Power Play: How a General Power of Appointment Trust Can Strengthen Your Clients’ Legacies
Around Valentine’s Day, themes of love and relationships can stress to clients the importance of estate coplanning between couples and the options available to them. A proper estate plan can help ensure that the surviving spouse is taken care of, that the deceased spouse’s wishes are honored after they pass away, and, if necessary, that the marital deduction is utilized to address any estate tax concerns the couple may have. One solution for married couples is placing assets for the surviving spouse in a general power of appointment (GPOA) trust. While this estate planning tool is not as restrictive or protective as other options, a GPOA trust can still provide some peace of mind for clients.
What Is a General Power of Appointment Trust?
A GPOA is the legal authority granted by one individual (the donor) to a different individual (the donee, also known as the powerholder or appointer) that allows the donee to determine who will receive certain assets, either during their lifetime or upon their death. This power is broad and may include the ability to direct distribution of the assets to themselves, their creditors, their estate, or their estate’s creditors, making it distinct from more restrictive limited powers of appointment. In a GPOA trust, the donee is the beneficiary and has a GPOA over the trust’s assets, meaning that the donee can make unlimited withdrawals from the trust.
Why Would a Client Use a General Power of Appointment Trust?
If your client intends to protect their assets, even in the hands of their spouse, you may wonder why they would use a GPOA trust when the beneficiary spouse can withdraw and do whatever they want with the assets. This type of arrangement sounds more like giving assets to a spouse outright, which may lead to many problems down the road. Although the trustmaker spouse gives up control over the assets, there are a few key benefits of a GPOA trust, including the following:
- Incapacity protection. If the surviving spouse cannot manage their affairs when their spouse passes away, no one has to worry about a guardianship or conservatorship for these assets because the trustee will step in and manage the assets on behalf of the surviving spouse. In other words, the assets held in the trust can generally be managed without court oversight, whereas assets held in the spouse’s name may require court intervention.
- Asset segregation. Depending on the types of assets your client owns and applicable state law, it may be beneficial to have certain assets set aside in a trust so they can be managed independently and to avoid any future commingling should the surviving spouse remarry.
- Probate avoidance. As long as the assets remain in the trust, the successor trustee can take over management when the surviving spouse passes away, bypassing the need for probate court involvement. This ensures a smoother transition and keeps the details of the trust, including what and how much is left to beneficiaries, out of public view.
Requirements for a General Power of Appointment Trust
As with all trusts, certain requirements must be met, especially if clients want assets transferred to this trust to qualify for the unlimited marital deduction. Some of these requirements are the following:
- Mandatory income distributions. The surviving spouse must receive all income from the trust at least annually.
- Power over assets. The surviving spouse must have the power to appoint assets to either themselves or their estate.
- Only the spouse. Only the surviving spouse can exercise their power. No other person can have the power to appoint the trust assets.
Talking to Your Clients About a General Power of Appointment Trust
As we celebrate love and relationships this month, we can extend this sentiment to our clients’ estate plans by explaining how, depending on their unique situation, they can use a GPOA trust to accomplish their planning goals.
Our attorneys are available to advise you on the ins, outs, pros, and cons of a GPOA trust in estate planning.
