How a Spousal Lifetime Access Trust (SLAT) Saved Our Client Millions in Taxes
When a married couple walked into my office recently, we’ll call them John and Sarah, they had a big concern on their minds—how to protect their wealth and avoid estate taxes eating away at their hard-earned legacy. In Massachusetts, we have one of the highest estate tax rates in the country, and if you don’t plan for it, the tax can take a big bite out of your legacy and the assets you planned to leave to the next generation.
John had built a thriving business, and together they had amassed a net worth of about $10 million. They were doing well, but with Massachusetts’ estate tax rates (up to 16% of the estate, yikes!!!), they knew they needed a solid plan.
That’s where a Spousal Lifetime Access Trust (SLAT) came into play. I could see the relief on their faces when I told them, “We have a solution that not only saves you millions in taxes but also ensures your wealth is protected for your family.”
What Exactly Is a SLAT?
If you’ve never heard of a SLAT, you’re not alone. A Spousal Lifetime Access Trust is one of the most effective tools available to high-net-worth families who want to remove assets from their taxable estate while still ensuring financial security for their spouse. It’s a tool that only estate planning specialists (ahem, cough, cough) know how to implement properly.
Here’s how it works:
John, as the grantor spouse, would transfer assets—say, business interests investment accounts, life insurance, and real estate—into a trust created for Sarah’s benefit. Since the trust is irrevocable, it means the assets are officially out of John’s estate, reducing the amount that could be taxed down the line. But here’s the great part—Sarah, as the beneficiary spouse, still has access to the trust’s assets for health, education, maintenance, and support (HEMS).
This way, their wealth is protected from estate taxes, and they don’t have to sacrifice their lifestyle.
Why John and Sarah Needed a SLAT – And Why You Might Too
Like many high-net-worth families, John and Sarah were facing a potential estate tax bill of over $4 million if they didn’t take action. And with estate tax exemptions expected to decrease in the near future, their exposure would only get worse. They needed a way to shelter their assets legally and efficiently.
A SLAT was the perfect solution because it allowed them to:
1. Remove a large chunk of their wealth from their taxable estate – decreasing their potential tax liability.
2. Ensure Sarah had financial security – since she could still access the trust assets if needed.
3. Protect their assets from creditors and lawsuits – an added benefit they hadn’t considered initially.
I explained to them, “Think of it as moving your money into a safe, tax-efficient vehicle, with Sarah still having the keys.”
John loved the idea, but naturally, he had concerns. He asked, “What happens if I need access to the money later?” That’s a common question—and one of the reasons a SLAT isn’t for everyone. Once the assets are in the trust, they belong to the trust, not to John directly. However, Sarah could access them within the guidelines, offering an indirect way to tap into their wealth if needed.
The Tax Savings Breakdown: SLAT vs. No SLAT
Here’s what would have happened without a SLAT:
• John and Sarah’s estate would be fully taxable, leaving them with an estate tax bill of around $4 million.
• Their children would receive significantly less than expected, cutting into their generational wealth goals.
Now, here’s what happened with the SLAT:
• We transferred $7 million into the trust, reducing their taxable estate to only $3 million.
• The potential estate tax bill? Eliminated.
• Even better, the assets inside the SLAT were expected to grow to $12 million, which would now pass tax-free to their children.
This was the kind of financial win they were hoping for.
Common Concerns About SLATs:
Now, I know what you’re thinking—this sounds too good to be true. What’s the catch? Well, SLATs do have a few strings attached.
- First, SLATs are irrevocable. Once you create it, you can’t just take your assets back. This is why careful planning is crucial. You need to be comfortable parting with the control of those funds.
- Second, what if there’s a divorce? If John and Sarah were to split, the assets in the trust would stay with Sarah. That’s a risk that should be carefully considered. For couples in long-term, stable marriages, this usually isn’t a concern, but it’s something to think about.
- Finally, there’s the complexity factor. Setting up a SLAT isn’t something you do over a weekend. It takes careful planning, the right legal structure, and ongoing maintenance to make sure it’s compliant with tax laws and properly managed.
When Is a SLAT the Right Move?
SLATs aren’t for everyone, but they’re a perfect fit for:
- High-net-worth individuals who want to shield their assets from estate taxes.
- Couples in stable marriages where the trust can provide for one spouse while securing wealth for future generations.
- Those looking for asset protection, shielding wealth from creditors and potential lawsuits.
- Families who want to take advantage of current tax exemptions before they potentially decrease.
If you fall into any of these categories, it’s time to start considering whether a SLAT could be part of your estate planning strategy.
What Happens After a SLAT Is Set Up?
Once John and Sarah’s SLAT was in place, they could breathe easy knowing their estate plan was working for them—not against them. Sarah could continue to enjoy the benefits of their wealth, and their kids wouldn’t have to worry about losing a chunk of their inheritance to estate taxes.
We made sure their SLAT was set up to provide maximum flexibility, with an independent trustee overseeing distributions and ensuring compliance with the terms of the trust.
Protect Your Legacy – Take Action Now
If you’re like John and Sarah and want to protect your wealth, reduce your estate tax liability, and ensure your family’s financial future, now is the time to act. With estate tax exemptions likely decreasing in the coming years, waiting could cost you thousands—or even millions—in unnecessary taxes.
At Monteforte Law, we help high-net-worth families craft estate plans designed to protect their legacy. Wondering if a SLAT fits into your estate plan? Don’t guess—find out at one of our upcoming seminars.
If you don’t take control of your estate plan, the government will—and they won’t prioritize your family’s best interests.
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