Do I Still Need My SLAT?

A New Administration

The Tax Cuts and Jobs Act (TCJA) of 2017 introduced significant tax reforms, many of which are set to expire on December 31, 2025. These provisions include reductions in individual income tax rates, increased standard deductions, changes to itemized deductions, and notably, a doubling of the estate and gift exclusion amount.

With the recent election of President Donald Trump and a Republican-controlled Congress, there is a strong possibility that we will see efforts to make these tax cuts permanent. However, the process of making these tax cuts permanent involves legislative action, which can be complex and subject to surprises. The Congressional Budget Office has estimated that extending the expiring provisions would add $4.6 trillion to the federal deficit over ten years, raising concerns about fiscal responsibility.

Given this uncertainty, it’s prudent to plan for the possibility that the TCJA provisions may sunset as scheduled in 2025. Staying informed about legislative developments and consulting with a tax professional can help you navigate potential changes and optimize your tax strategy. Read more about the sunset in Keep Your Eye on the Sunset.

Planning for a (Potentially) Taxable Estate

Despite the likelihood that the current favorable law may be extended, a Spousal Lifetime Access Trust (SLAT) can still be a valuable tool in your estate plan. If it was good planning for your estate and circumstances before the new administration, it may still be good planning today.

If your estate is sizeable and possibly subject to estate tax, you may have been discussing ways to take advantage of the “bonus exemption.” Some of you have already executed and funded a SLAT.

In a SLAT, the “donor/grantor spouse” irrevocably funds a trust for the benefit of a “beneficiary spouse.” The grantor spouse typically utilizes most, if not all, of his available exemption amount when funding the trust. Furthermore, the trust and its growth will pass outside the estate of the beneficiary spouse. Thus, the SLAT offers a means of leveraging the gift tax exemptions, safeguarding wealth for future generations, and mitigating estate taxes, all while retaining indirect access to the assets through the beneficiary spouse.

Using a SLAT is especially valuable if you’re concerned about potential reductions in gift and estate tax exemptions (like the TCJA sunset) or want to provide for your family while safeguarding wealth for the future.

Future Proofing—While laws may seem stable now, future changes are always a possibility. A SLAT offers a hedge against potential legislative shifts that could lower exemptions or increase estate tax rates down the road.

Funding a SLAT today allows you to lock in the higher exemption now, mitigating the risk of losing this opportunity if tax laws tighten. We know we will have a new president and possibly a changing of control in Congress in the future. A new administration may push for changes to estate and gift tax laws, including reducing exemptions or increasing tax rates. Establishing a SLAT now helps you take advantage of current favorable laws before any adjustments take effect.

Estate Reduction—Although the high exemptions might remain, the assets placed in a SLAT (and their future growth) are removed from your taxable estate, providing permanent tax savings and protecting your wealth for future generations. Even if you’re not concerned about hitting the exemption limits, the value of assets in the SLAT can grow significantly over time. By keeping this appreciation outside your estate, you can pass on more wealth tax-free.

A SLAT allows your spouse to access trust assets for their needs while still keeping the assets outside of your estate, providing financial flexibility for your family. By combining a SLAT with other tools like generation-skipping trusts (GSTs), you can create a long-term, tax-efficient plan to preserve and grow your family’s wealth across multiple generations. A SLAT ensures that assets are passed to your heirs (typically children or grandchildren) in a structured, tax-efficient way, safeguarding them from unnecessary risks or poor financial management.

Considerations

• A SLAT is irrevocable, so once it has been created, you lose direct control over the assets.
• Careful drafting is essential to avoid issues like reciprocal trust doctrine if both spouses create SLATs for each other.
• Making lifetime gifts of appreciated assets means losing the “step up” in basis on those assets at death. Generally speaking, near-death planning favors holding onto appreciated assets.
• Consult with your estate planning attorney and financial advisor to ensure alignment with your overall financial goals and any evolving tax laws.

By acting now, you can leverage today’s favorable conditions and build a robust plan to protect your family’s wealth in an uncertain tax environment. Even in a stable tax environment, a SLAT remains a powerful option for wealth protection, tax efficiency, and legacy planning. It’s important to evaluate your overall financial goals, family needs, and risk tolerance with your financial advisor and estate planning attorney to determine whether a SLAT aligns with your strategy.

This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.