Spousal Limited Access Trusts (SLATS) can be a great estate planning tool for very wealthy families looking to protect their wealth from the threat of Federal Estate Taxes and/or judgments.
Getting your head around these trusts can be difficult, so we hope this introductory guide will clarify any confusions you have.
Disclaimer: This blog acts as an introductory guide to SLATs and should not be used as a replacement for using an Estate Planning attorney. Tax and asset protection planning is rife with complications and should always be assisted by a professional.
What is a Spousal Limited Access Trust (SLAT) in Florida?
A Spousal Limited Access Trust (SLAT), or Spousal Lifetime Access trust, is a flexible irrevocable trust that provides the grantor (trust creator) wealth protection, estate tax reduction and benefit to their spouse.
Why Use a Spousal Limited Access Trust in Florida?
To Understand the use of SLATs in Florida, we first need to understand the problems they can solve:
Florida law protects assets owed by couples as tenants by entireties from judgments – regardless of which spouse is the debtor. But, entireties protection is lost when the spouses are no longer married – even when one spouse passes away.
That poses a big risk to the surviving spouse’s assets if they have a judgment against them, as suddenly all the assets that once belonged to the non-debtor spouse are at risk of creditors and judgments.
A way to mitigate this risk is a Spousal Limited Access Trust. In Florida, a SLAT can provide asset protection without the loss of protection of tenancy by entireties, upon the spouse’s death.
Reducing Estate Taxes
Spousal Limited Access Trusts in Florida that are drafted as ‘completed gift trusts’ may allow the reduction of Federal estate taxes. This is especially useful as in Florida there is the spousal estate tax exemption.
Funds transferred into a Completed Gift SLAT are removed from the grantor and their spouse’s future taxable estates.
So the IRS no longer counts the wealth held in the SLAT as belonging to the spouses. But the assets can still be distributed to the beneficiary spouse, and eventually pass to the grantor’s children or grandchildren.
This way, the money stays in the family rather than going to the IRS, in an entirely legal way.
Naturally, this is a complicated task that should be completed always with the assistance of a reputable Florida estate planning lawyer.
How to Set Up a Spousal Lifetime Access Trust in Florida?
- SLATs work by having the grantor create an irrevocable trust that names their spouse as a beneficiary, with assets transferred irrevocably into the trust.
- For tax planning purposes, the grantor can decide to prepare the trust as an ‘incomplete gift’ or a ‘completed gift’.
- Incomplete gift trusts offer more flexibility, with asset protection and martial planning the primary goal.
- Completed gift trusts are more restrictive but come with estate tax planning benefits.
- The beneficiary spouse gains access to the trust during life, via trust distributions.
- When the beneficiary spouse passes away, the trust’s remaining wealth will be distributed to ‘remainder beneficiaries’ or ‘trust beneficiaries’ named in the documentation. These are usually surviving children or grandchildren.
- SLATS can be created so that the trustee distributes any remaining funds at once (terminating the trust), or via long-term management instructions such as milestones and conditions that must be met first. This can even be across multiple generations, like with a Florida Dynasty Trust.
Gift and Estate Tax on SLAT Transfers in Florida
When making a transfer of assets to a Spousal Limited Access Trust in Florida, you may potentially trigger federal gift taxes for that year.
There is a $17,000 annual gift exclusion for transfers to the trust, but only when the trust is correctly structured so that beneficiaries get a present interest in the gift.
However, depending on the circumstances, IRS gift-splitting rules may allow you to allocate a gift between both spouses, thus increasing the non-taxed figure.
This is complicated though and is generally not advisable. Please contact our Florida estate planning attorneys if you have any questions on the matter.
If a transfer to a SLAT triggers federal gift taxes, then the grantor must pay the bill or apply the transfer toward the combined gift and estate tax lifetime exemption.
In 2023, the Federal gift and estate tax lifetime exemption is $12.92 million ($25.84 million per married couple). This record high is set to drop significantly in the coming years. Therefore funding a SLAT before the decrease can result in considerable tax savings.
Negatives of a SLAT Trust in Florida
As with all estate planning techniques, it’s worth considering what consequences you may face from committing to the creation of a Spousal Limited Access Trust in Florida.
Divorce or the death of a beneficiary spouse could destroy the SLAT’s purposes.
For example, an early and unexpected death of the beneficiary spouse would mean the assets have already been gifted to the trust and cannot be taken back – potentially seeing the grantor see their assets and wealth leave their immediate family, years or even decades before that was planned.
SLATs should be carefully drafted to deal with potential divorces. To avoid the SLAT benefitting a divorced spouse, you can consider a ‘floating spouse’ provision.
A ‘floating spouse’ provision defines the beneficiary spouse as the person the grantor is married to at any time.
Contact an Estate Planning Attorney Today in Riverview and St. Petersburg
If you want to create or consider creating a Spousal Limited Access Trust in Florida, our Florida estate planning attorney can help.
We welcome you to contact our Florida estate planning attorneys today for a free consultation if you have any questions or wish to get started.
We can draft your trust documents to structure optimally for your wealth and family.
Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced estate planning attorneys, they can help you create a water-tight estate plan that protects your rights and wishes.