Should I Create a Spousal Lifetime Access Trust in Washington State?

If you’re considering estate planning strategies that involve gifts between spouses, you may have heard of a spousal lifetime access trust. Also known as a “SLAT,” this type of trust offers numerous potential advantages for married couples. But is it really the right estate planning strategy for you? Can an estate planning attorney in Spokane help you assess the potential pros and cons of a SLAT?

How Does a Spousal Lifetime Access Trust Work? 

A spousal lifetime access trust is a type of irrevocable trust that relies on a concept that may seem counterintuitive given Washington’s Community Property laws, that is “gifting” in trust for the benefit of a living spouse. Because the trust is irrevocable, it is extremely difficult to alter or terminate once you establish it. Like all trusts, a SLAT becomes the legal owner of your assets once you transfer them into the trust. Because it is a separate legal entity, a SLAT has the potential to reduce your taxable estate.

Gifting is a powerful estate planning strategy because of the tax-exempt status of most gifts. These strategies often involve gifts of cash, investments, and real estate between spouses. Instead of giving a gift directly to your spouse, you can give it to a SLAT instead. Your spouse will be listed as a beneficiary of the SLAT, so this is still considered a gift. As such, you should record any transfers to the SLAT as gifts in your tax returns. This gift will use up some of your federal estate tax exemption, but the value of that gift is likely to be far less than if that gifted property and all of its accumulation and growth were part of your estate at your death. That difference is the specific value that a SLAT may provide.

Once you transfer these gifts to a SLAT, your spouse is free to access them while minimizing tax implications. You can indirectly benefit from these gifts, as your spouse can use SLAT distributions to maintain your mutual standard of living. Your spouse might receive funds from the SLAT to pay for groceries, vacations, healthcare, and many other expenses.

When you pass away, your spouse can continue to enjoy financial support from the trust. As long as the total transfers to the trust fall under certain state and federal exemptions, a SLAT can reduce estate or gift tax obligations. When the surviving spouse passes away, the trust assets pass to other beneficiaries, such as children and grandchildren.

What Are Some Potential Downsides of SLATs? 

SLATs can be expensive to establish and manage, and outright gifts to a non-spouse may provide many of the same benefits but without these additional costs. Residents of Washington State may also need to take additional steps before transferring assets into SLATs due to community property laws. Additionally, a gift of this nature will be treated as the separate property of the beneficiary spouse in the case of divorce.

When is the Best Time to Create a SLAT? 

The following are factors to help decide whether a SLAT may make sense for you and/or your spouse:

• The marriage is well-established and without any specific concerns for divorce.
• The couple has a larger estate that may be subject to estate tax in the future.
• The federal estate tax exemption will be reduced soon, and the couple would like to ‘harvest’ the exclusion being eliminated. For instance, in 2025, the federal exemption is $13.99 Million, but on January 1, 2026, the exemption is set to fall to approximately $7 Million. If a SLAT is funded with $10 Million, the $3 Million excess will not be counted in the estate, even after the exemption is reduced.

Can an Estate Planning Attorney in Spokane Help Me Create a SLAT? 

If you’re interested in establishing a spousal lifetime access trust, a Spokane estate planning attorney may be able to help. It could be challenging to determine whether this strategy makes sense for your specific needs – especially after reading a relatively short online article. A consultation with Moulton Law Offices may provide more targeted guidance, so contact us today to discuss your unique circumstances.

Sources: 

app.leg.wa.gov/wac/default.aspx?cite=458-61A-210

dor.wa.gov/taxes-rates/other-taxes/estate-tax