Estate Planning and Oklahoma Spousal Lifetime Access Trust (SLAT)

Oklahoma Spousal Lifetime Access Trust is a great tool used to shelter assets. A Spousal Lifetime Access Trust (SLAT) is a written irrevocable trust that one spouse establishes for the benefit of the other. The goal of a SLAT is to transfer assets into a trust that is available to provide some financial assistance to the spouse, but to exclude those assets, and any future growth of those assets from the spouse’s estate. So the Grantor spouse can provide controlled distributions of assets to their spouse and heirs, while at the same time keeping the trust proceeds outside the grantor’s taxable estate. Not only do SLATs reduce the impact of estate taxes they also protect the spouse’s assets from potential creditors acting as a tool for asset protection.

Creating a SLAT in Oklahoma Estate Planning

When one spouse creates a SLAT that spouse will transfer funds or assets into the trust. All funds or assets must be the Settlor’s or Grantor’s own separate property. The SLAT cannot be funded by joint property. The Settlor or Grantor will be making a tax-free gift assuming the Grantor has enough available gift tax exemption. Upon the transfer the assets transferred into the SLAT will no longer be considered part of the husband or wife’s estate at the time of their death. This is also true about any appreciation realized on the property in the SLAT.

Benefits of the SLAT For Estate Planning

The spouse of the Settlor or Grantor will be the primary beneficiary of the SLAT during their lifetime. The spouse may serve as trustee; however, certain limitations must be placed on his or her powers to make distributions to him or herself, in order to avoid inclusion of the trust principal in the spouse’s estate. During his/her life the beneficiary spouse may distribute income or principal from the SLAT to herself for her health, education, support and maintenance. All distributions should be made to a separate account in the beneficiary’s name alone.

Spendthrift Trust

With the appropriate language a SLAT will act as a barrier between the trust assets and creditors of the beneficiaries. The beneficiaries would also enjoy further asset protection if the SLAT permits only discretionary distributions rather than mandatory distributions. The SLAT should be drafted carefully so the Grantor spouse does not retain any ownership interest in the SLAT’s assets. In the event the Grantor spouse maintains ownership interest in the assets, the SLAT may not maintain its tax benefits or the protection from creditors.

Avoid the Reciprocal Trust Doctrine

In the event a husband and wife create two identical or substantially similar SLATs for the benefit of each other the SLATs can be ignored for federal tax purposes. To trigger the reciprocal trust doctrine there must be a retained right by the grantor to the income of a trust or an understanding that the income would be received by the Grantor. The Courts will make the final determination after considering a totality of the circumstances.

To avoid the reciprocal trust doctrine the SLATs should be different. There should be different plans, name different trustees, do not have your spouse serve as the trustee of the other, provide different rights to the trust assets, and name different beneficiaries. Further differences could include having different powers of appointment, creating the trusts at different times, funding the SLATs with different assets and other differences would all help avoid the reciprocal trust doctrine.

A SLAT’s Potential Drawbacks

Though SLATs have many benefits, there are also some drawbacks. One downfall is if the spouses get divorced, the Grantor spouse may lose all the assets. Death also plays a role in the SLAT. If the donor’s partner dies, access to the assets in the trust may end up foregone. So consider all your options before transferring your assets into an irrevocable trust (SLAT). The thing to remember is that like other charitable trusts or any number of irrevocable trusts, once funded the money is potentially beyond your control.

Tulsa Trust and Probate Lawyers Near You

Oklahoma Spousal Lifetime Access Trust is a tool used by high income individuals as a part of their Estate Planning. Estate planning in Oklahoma is critical. You can protect your assets, potentially reduce your tax exposure and ensure that your Estate is distributed on your terms. Our Tulsa probate and Estate Planning attorneys can guide you through the process and provide you with absolutely confidential solutions that meet your needs. Call and talk with attorney Charles J. Kania today at 918.743.2233