InvestingRetirementTax Tips
The Spousal Lifetime Access Trust (SLAT): Locking in the $27M Exemption Before the Sunset
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Result: The SLAT saved the heirs over $5 Million.
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The Spousal Lifetime Access Trust (SLAT): Locking in the $27M Exemption Before the Sunset
CORE INSIGHTS
- The Ticking Clock: The Estate Tax Exemption (~$27M/couple) sunsets on Jan 1, 2026, dropping to ~$14M. This is a “Use It or Lose It” opportunity.
- The Strategy: A SLAT allows you to gift assets to a trust for your spouse. It removes assets from your estate (tax-free) but keeps them accessible to your household.
- The Math: Moving $13M now saves potentially $5.2M in future estate taxes (40% rate). Waiting until 2026 loses this exemption forever.
Wealthy couples face a dilemma: “I want to save estate taxes, but I might need the money.” The SLAT solves this. It removes assets from your taxable estate while keeping them within your spouse’s reach.
The “Sunset” Arbitrage
2025 Exemption: ~$27.2M (Couple)
2026 Exemption: ~$14.0M (Couple)
*Risk: If you die in 2027 with $27M, the excess $13M is taxed at 40%. Cost of Inaction: ~$5.2M.
What-If Scenario: $30M Estate (Married Couple)
| Scenario | Taxable Estate | Est. Tax (40%) |
|---|---|---|
| Do Nothing (2026) | $30,000,000 | ~$6,400,000 |
| Use SLAT (2025) | $16,400,000 | ~$1,000,000 |
Visualizing the Exemption Cliff
*Figure 1: Tax Liability. The Red bar (Do Nothing) shows the massive impact of the 2026 Sunset.*
Strategic Action Steps
1
Fund with Growth Assets
Don’t just use cash. Put Pre-IPO stock or High-Growth Real Estate in the SLAT. Future growth happens outside your estate.
Don’t just use cash. Put Pre-IPO stock or High-Growth Real Estate in the SLAT. Future growth happens outside your estate.
2
Avoid “Reciprocal Trusts”
Spouses cannot create identical SLATs simultaneously. The IRS will unwind them. Differentiate by time, assets, or trustees.
Spouses cannot create identical SLATs simultaneously. The IRS will unwind them. Differentiate by time, assets, or trustees.
3
Give Up “Control”
The Donor cannot be the Trustee. Use an independent trustee or the Beneficiary spouse to ensure the “strings are cut” for tax purposes.
The Donor cannot be the Trustee. Use an independent trustee or the Beneficiary spouse to ensure the “strings are cut” for tax purposes.
The Bottom Line: Who Should Choose What?
- Do This: Net Worth >$15M (Couple). You are in the Danger Zone. Start immediately; lawyers are booked.
- Avoid This: If marriage is unstable. In divorce, SLAT assets stay with the beneficiary spouse.
Frequently Asked Questions
What is a Spousal Lifetime Access Trust (SLAT)?
An irrevocable trust where one spouse (Donor) gifts assets to the other (Beneficiary). It removes assets from the taxable estate but keeps them accessible.
Why act before 2026?
The exemption sunsets on Jan 1, 2026. Funding a SLAT now ‘locks in’ the higher ~$27M limit before it drops to ~$14M.
What is the ‘Reciprocal Trust’ trap?
If spouses create identical trusts simultaneously, the IRS uncrosses them. You must vary them by time, assets, or terms.
Disclaimer: This content is for informational purposes only. SLATs are complex. Consult an estate planning attorney.
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