Protect Your Wealth and Your Spouse with a Spousal Lifetime Access Trust
February, the month of love, is the perfect time to show your loved ones that you care about their financial futures.
While chocolates and flowers are nice gestures, a spousal lifetime access trust (SLAT) can make a more lasting gift, especially with the record-high estate tax exemption set to decrease drastically in 2026. In general terms, a SLAT is a trust that allows you to transfer your assets (for example, your accounts, money, and property) to your spouse while minimizing estate taxes and shielding those assets from probate and potential creditors.
Although the weather may still be cool outside, this time of year is when estate and tax planning heat up. So grab a cup of cocoa, snuggle up with your sweetheart, and dive into the world of SLATs.
How SLATs Work and Key Features
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). Other beneficiaries, such as children or grandchildren, are named remainder beneficiaries for when the beneficiary spouse passes away. Some key features of a SLAT are as follows:
- The beneficiary spouse can receive direct distributions from the trust; the donor spouse maintains indirect access to the assets through the beneficiary spouse.
- When the donor spouse funds the SLAT, the value of the assets transferred 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 in 2025 is $13.99 million per individual.
- 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 transfer to the trust is not subject to estate taxes.
- A properly drafted SLAT generally protects the assets of the beneficiary spouse from creditors.
- 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.
- 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 the reciprocal trust doctrine, which could cause both trusts to be undone, resulting in the assets being included in the spouses’ taxable estates.
Why Now Is the Time to Consider a SLAT
As you may know, the federal estate tax exemption is at a record high right now but could drastically decrease in 2026. If you have a large estate and that happens, your loved ones could face a hefty tax bill when inheriting your assets without proper planning.
SLATs grew in popularity amid the uncertainty of the 2012 fiscal cliff. The present uncertainty around tax legislation makes them an intriguing option to “lock in” today’s high federal estate and gift tax exemption.
This exemption, which allows a couple to shield a total of $27.98 million without paying any federal estate or gift tax, is the highest it has ever been. It marks an upward trend since the 2017 tax reforms under the first Trump administration. However, without further congressional action, these limits are scheduled to expire at the end of 2025.
Important Considerations and Potential Drawbacks of SLATs
SLATs offer tax efficiency, wealth preservation, and financial flexibility, but they are irrevocable (in other words, they cannot be changed once created) and require proper planning to avoid loss of access to assets as well as Internal Revenue Service (IRS) scrutiny. Here are some points to keep in mind about SLAT planning:
- If the beneficiary spouse predeceases the donor spouse, the donor spouse loses their (indirect) access to the SLAT assets. (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 particularly on low-basis assets when they are eventually sold or liquidated.
- If the beneficiary spouse is the SLAT’s trustee, 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 protection is needed, an independent trustee should be appointed and the distributions permitted only at the trustee’s discretion.
Love Is in the Air (and in Your Estate Plan) with a SLAT
Valentine’s Day provides a welcome reprieve from the seemingly interminable period between the holidays’ end and spring’s beginning. However, while the days are getting longer, the time to lock in a guaranteed high federal estate tax exemption in 2025 is growing shorter.
Given the approach of tax season and the ongoing questions around tax law, now is an opportune time to review your estate plan and ensure that your wealth stays in the family rather than goes to the IRS. SLATs are 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.
Schedule a meeting to explore how you can show your love with a SLAT this Valentine’s Day.
Maximize Tax Benefits and Protect Your Spouse with a Qualified Terminable Interest Property Trust
Valentine’s Day spending totaled nearly $26 billion in 2024, including an all-time high of $6.4 billion spent on jewelry. Yet many Americans report feeling disappointed that their partner did not do enough to celebrate Valentine’s Day.
More than 40 percent of US adults say they feel stressed about finding the perfect gift for loved ones. About one-third plan to give a gift of experience this year instead of material possessions, marking a consumer shift toward gifts that are seen as more experiential and personalized than material items.
While the gift of a qualified terminable interest property (QTIP) trust may not be the most romantic Valentine’s Day gesture, it could prove to be more thoughtful, caring, and valuable than an off-the-shelf purchase.
What Is a QTIP Trust?
A QTIP trust is an irrevocable trust for married couples that offers a tax advantage for the trustmaker (the spouse who creates the trust) and financial security for the surviving spouse while preserving wealth for future generations. Here is how it works:
- The trustmaker’s assets are transferred to the QTIP trust upon their death. These assets are then held in trust for the surviving spouse according to the terms of the trust.
- QTIPs qualify for the federal estate tax marital deduction. This means the assets (accounts and property) transferred to the trust are not subject to federal estate taxes at the time of the trustmaker’s death, effectively deferring those taxes until the surviving spouse’s death.
- The surviving spouse receives income generated by trust assets for the rest of their life, giving them financial security and support.
- The trustmaker names beneficiaries who will receive the trust assets upon the surviving spouse’s death. They could be family members, such as children or grandchildren, a charity, an entity, or anyone else the trustmaker chooses.
- A trustee appointed by the trustmaker manages the trust assets and ensures they are used in accordance with the trust’s terms, which can be customized to meet the trustmaker’s wishes and allows the trustmaker to retain control over the assets “from the grave.”
What Makes a QTIP Trust Different?
There are as many different types of trusts as there are flavors in a box of Valentine’s Day chocolates. In a way that sets them apart from other trusts, QTIPs offer a unique balance between providing for a surviving spouse and maintaining trustmaker control over the trust’s assets.
- Trustmaker control. While a QTIP is required to pay all the income it generates to the spouse beneficiary, the trustmaker can specify whether and under what circumstances the spouse may access the trust’s principal.
- Estate tax savings. QTIPs allow the trustmaker’s estate to take advantage of the unlimited marital deduction to minimize estate taxes.
- 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 protection will depend on the level of control the surviving spouse has over the trust’s assets. However, after assets have been distributed to the surviving spouse, they may be subject to a creditor’s claim.
Customizing a QTIP Trust
One of the strengths of a QTIP trust lies in its flexibility. Some ways to customize a QTIP include the following:
Distributions of Principal
The trustmaker has almost unlimited leeway to dictate when and how the trustee can distribute principal to their spouse. For example, they can limit access to the principal for only health, education, maintenance, or support expenses (i.e., the HEMS standard). They can also give the trustee sole discretionary authority to distribute principal based on the spouse’s needs. They can even prohibit spousal access to the principal altogether to preserve assets for remainder beneficiaries.
Spousal Control
Although the trustmaker has the final say on the ultimate distribution of assets when the surviving spouse passes, they can give the surviving spouse some degree of control 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, other family members).
Why Use a QTIP Trust?
A QTIP trust can be an effective estate planning tool if you want to provide for your spouse after your death but ultimately limit the spouse’s control over your assets and have your assets pass to different beneficiaries.
This arrangement may prove useful when you have children from a previous marriage, your spouse does not manage money wisely or has creditor issues, or there is some other unique family dynamic. A QTIP trust can also be part of a business succession strategy that ensures your spouse has an income stream from the business without being involved in running it.
This Valentine’s Day, instead of the customary candy, cards, flowers, and jewelry, consider showing your love with the gift of a QTIP trust that lasts a lifetime—and, in many cases, even longer. Call our office to schedule an appointment.
Appointing Your Legacy: A Guide to Using a General Power of Appointment Trust to Protect Your Spouse
Through sickness and health, thick and thin, you and your spouse have been there for each other. You may even share almost everything, including your estate plan. That plan expresses the love and trust you have built over the years. It ensures that the other will be financially and legally taken care of when something happens to one of you.
However, you may have lived long enough to know that, despite your best efforts, not everything can be perfectly planned for. A proper estate plan can help ensure that your surviving spouse is taken care of, that your wishes are honored after you pass away, and, if necessary, that the marital deduction is utilized to address any estate tax concerns you may have. One solution for married couples is placing assets (money and property) into 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 peace of mind.
What Is a GPOA 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 the 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 assets in the trust. Here is a breakdown of how a GPOA trust works:
- Upon the donor spouse’s death, the assets transfer into the GPOA trust, and the provisions of the trust grant the donee spouse the general power of appointment over those trust assets.
- A GPOA treats the donee spouse as the legal owner of the trust assets. This means that they can control what happens to the assets in the trust, even if their decision differs from what the donor spouse originally specified in the trust’s distribution instructions.
- The donee spouse has unlimited discretion to decide who receives the trust property and how and when beneficiaries receive it. They can also use a GPOA to change the trust asset beneficiaries or the terms and conditions of beneficiaries’ distributions from the trust. This also means that they have unlimited withdrawal rights.
How a GPOA Trust Protects Your Spouse and Your Legacy
Giving your spouse the ability to alter your estate plan might seem like a risky move, and in some ways, it is—both for you and them. However, the open-ended nature of a GPOA trust offers unmatched flexibility that can futureproof your estate plan and ensure that your spouse and loved ones are protected in the ever-evolving landscape of life. The following are some additional benefits:
- Incapacity protection. If the surviving spouse cannot manage their affairs when their spouse passes away, no one has to worry about 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 you own and the 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.
While probate avoidance and incapacity planning are important considerations in an estate plan, a GPOA trust’s other key advantages lie in its ability to provide long-term flexibility and address unforeseen circumstances.
- If your spouse experiences a significant change in their financial or life situation after something happens to you, they can adjust the distribution of assets accordingly using their GPOA.
- Changes in family dynamics, such as divorce, disability, or windfalls, can also necessitate adjustments to an estate plan. With a GPOA trust, your spouse can add or remove beneficiaries who will inherit at their passing, alter the amount of assets a beneficiary will receive at your surviving spouse’s death, and modify the timing or conditions of distributions, such as setting age requirements or other criteria for receiving funds.
Requirements for a General Power of Appointment Trust
As with all trusts, certain requirements must be met, especially if you want assets in 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.
Planning for Life’s Changes
Change is the only constant in life. An estate plan that cannot adapt to change risks failing when it matters most. You cannot plan for everything, but with a GPOA trust, your estate plan can be ready for anything.
For couples who have built a life together, a GPOA trust can represent the culmination of the love and trust they share and give an estate plan, like a strong relationship, the ability to stand the test of time.
Call us to discuss the pros and cons of general powers of appointment in estate planning.
