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Spousal Lifetime Access Trusts (“SLATs”) and Life Insurance

What Is it?

A Spousal Lifetime Access Trust or SLAT is an irrevocable trust whereby one spouse (grantor) makes a gift in trust for the other spouse (non-grantor spouse), removing assets and their future appreciation from their combined estates. During his or her lifetime, the non-grantor spouse can request income and principal distributions from the SLAT to maintain their lifestyle and standard of living. And through the non-grantor spouse, the grantor spouse is able to indirectly access these funds as well.

SLATs provide an opportunity to take advantage of the current federal exclusion before it sunsets, or expires, on December 31, 2025. Currently, the federal lifetime gift and estate tax exclusion is $12.92 million per person or $25.84 million per married couple. By utilizing a SLAT, a married couple could take advantage of the $25.84 million exemption while retaining limited access to the assets, in the event such access is ever needed.

By funding a SLAT with life insurance, you provide leverage and other legacy planning benefits.

How It works

Grantor makes gifts to the SLAT to pay premiums on a policy purchased by the trust on the life of the grantor and possibly the grantor’s spouse. The SLAT is both the owner and beneficiary of the life insurance policy. At death, the life insurance proceeds would not be included in grantor’s estate for estate tax purposes. The proceeds would also generally be received by the SLAT free of income taxes.

To access cash values in the policy, the trustee can be given the discretion to take loans and withdrawals from the policy. Generally, a loan is not treated as a distribution and is not taxable. Withdrawals may be free of income tax if they don't exceed the investment in the contract (or basis).