Spousal Lifetime Access Trust (SLAT)

A Spousal Lifetime Access Trust, or SLAT, can offer real peace of mind for married couples who want to protect their assets and maintain financial flexibility. It allows one spouse to gift assets while keeping indirect access, making it a smart option for tax savings and legacy planning. Your Arkansas Spousal Lifetime Access Trust lawyer from Legacy Law Firm brings 15+ years of experience guiding families through this process. Reach out today to find out if a SLAT belongs in your estate plan.

One of the biggest advantages of a Spousal Lifetime Access Trust is that it gives you a way to reduce estate taxes without losing complete access to your assets. But like any estate planning tool, the details matter. Your estate planning lawyer can help you strike the right balance between protecting your assets and keeping flexibility in your plan. The goal is to support your spouse while making sure the trust works the way you intended.

Managing Distributions to the Beneficiary Spouse

A SLAT allows one spouse to gift assets into the trust for the benefit of the other. That person is called the beneficiary spouse, and they can receive distributions from the trust if needed. However, the donor spouse cannot have direct access to those funds. Instead, the trustee manages the trust and makes distributions based on the terms you set during planning.

The idea is to keep the assets out of your taxable estate while still providing support. That support happens indirectly, which is what makes this strategy work. A well-drafted SLAT gives the trustee clear instructions on when to distribute funds, how to prioritize needs, and what kind of flexibility to allow. It also helps prevent confusion or disputes by keeping expectations clear from the start.

Choosing the Right Trustee for Your SLAT

Picking the right trustee is one of the most important decisions you will make when setting up a SLAT. The trustee is responsible for managing the assets, following the terms of the trust, and making distributions to the beneficiary spouse. You can choose an individual, like a trusted friend or family member, or you can use a corporate trustee with professional experience. Either way, the person you choose needs to be reliable, organized, and willing to follow your instructions closely.

Avoiding Reciprocal Trust Doctrine Issues

When both spouses want to set up a SLAT, there is an important rule to be aware of. If the trusts are too similar, the IRS might treat them as if neither one actually removed assets from the estate. This is known as the reciprocal trust doctrine, and it can undo the tax benefits you were trying to create in the first place.
To avoid that, the two trusts need to be meaningfully different. That could include using different trustees, drafting unique distribution terms, or staggering when the trusts are funded. Under 26 C.F.R. § 25.2518-2(e)(5), the IRS expects trusts between spouses to have distinct features if both are being used for tax planning. With the right guidance, you can set things up carefully and avoid crossing that line. Your plan can still be strong, flexible, and fully compliant.