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Spousal Lifetime Access Trust (SLAT)

This trust is a type of Irrevocable Life Insurance Trust (ILIT) with a twist: you need a spouse.

Here is how it works: You establish the SLAT to benefit your spouse (and other heirs). The SLAT is then the owner of a life insurance policy insuring you or both of you. The SLAT is also the beneficiary of this policy. You then transfer cash to the SLAT so that the trustee can pay the premium for the life insurance policy [depending on your ability to make annual exclusion gifts or use the lifetime gift tax exclusion, these transfers of cash to the SLAT may not be subject to gift taxes.]

By setting up your spouse as the SLAT beneficiary, the trustee has the ability to make income-tax free loans from the cash value of the policy to your spouse, or withdraw cash and make distributions to your spouse during their lifetime. (This is a great solution if you are uninsurable, but your spouse is, and you pass before your spouse.)

Then when the insured passes, the SLAT receives the death benefit in cash and can make further distributions, including assisting in paying of estate taxes.

Since the SLAT owns the life insurance policy, the death benefit passes to the SLAT without adding to the taxable size of your estate.

You need an estate planning attorney to set up a SLAT and to determine if this is the right solution to your overall estate goals.

Click here to see other estate planning strategies.


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