Building Better SLATs: Reciprocal Trusts, Floating Spouse Clauses, and QSBS Planning (On-Demand)

Course Description

This course provides an in-depth overview of Spousal Lifetime Access Trusts (SLATs), including their fundamental structure, estate tax planning objectives, and strategies for maximizing available gift and estate tax exemptions. It examines trust design and funding techniques, including floating spouse provisions, powers of appointment, trust protectors, installment sales, intentionally defective grantor trust structures, and estate-freeze strategies. The course also explores GST and dynasty trust planning, long-term trust governance, situs considerations, and the use of SLATs in multigenerational planning. Participants will also learn about key risks and advanced planning considerations, including the reciprocal trust doctrine, estate inclusion, step-transaction concerns, trustee selection, and divorce-related access issues.

Principles

• Use the SLAT to transfer wealth while preserving indirect spousal access.
  • A SLAT is fundamentally an irrevocable completed-gift strategy: assets and future appreciation can be moved outside the grantor’s taxable estate while the grantor’s spouse remains a beneficiary, creating a form of indirect family access.
• Exemption planning is fundamentally a timing decision.
  • The course emphasizes the “use it or lose it” nature of available gift and estate tax exemption. Properly structured lifetime transfers can capitalize on available exemption, with the no-clawback rules providing important protection when exemption is used during life.
• Trust design should balance access, flexibility, and estate-tax protection.
  • Features such as floating spouse clauses, discretionary distribution provisions, powers of appointment, trust protectors, and carefully selected trustees can make a SLAT adaptable to changing family circumstances. But flexibility must be balanced against the risk of causing estate inclusion or undermining the intended tax treatment.
• Advanced SLAT planning can leverage grantor-trust and estate-freeze techniques.
  • A SLAT can be structured as an IDGT and potentially used for installment-sale transactions, allowing additional appreciation to grow outside the grantor’s estate. Seed gifts, note terms, transaction timing, and the grantor’s payment of trust income taxes all require careful planning to maximize the intended tax benefits while avoiding step-transaction concerns.
• Long-term success depends on anticipating future risks—not just maximizing the initial tax benefit.
  • SLAT planning must account for the reciprocal trust doctrine, estate inclusion, divorce or death of the beneficiary spouse, trustee selection, GST exemption, dynasty-trust objectives, trust duration, and situs/governance issues. The best SLAT is therefore designed not only for today’s tax environment but also for decades of changing family and legal circumstances.

Syllabus

1. SLAT fundamentals and planning purpose
   • The presentation explains that a Spousal Lifetime Access Trust (SLAT) is an irrevocable trust funded by a completed gift, with the grantor’s spouse as a current beneficiary, designed to remove assets and future appreciation from the taxable estate while preserving indirect family access
2. Exemption-use strategy and “no clawback” context
   • A central theme is the “use it or lose it” opportunity to use available gift and estate tax exemption through lifetime planning, supported by the no-clawback rule under Reg. §20.2010-1(c)
3. Trust design choices for spousal access and flexibility
   • The presentation covers how SLAT distributions may be structured—income and/or principal, discretionary or standards-based—and highlights flexibility tools such as powers of appointment, trust protector provisions, and “floating spouse” language to address later life changes
4. Grantor trust / IDGT structure and installment-sale planning
   • The presentation explains that SLATs are often designed as intentionally defective grantor trusts, including grantor trust status where income may benefit the grantor’s spouse under IRC §677(a), and discusses income-tax-disregarded sales between a grantor and grantor trust under Rev. Rul. 85-13
5. Funding mechanics, estate-freeze concepts, and tax arbitrage
   • The presentation covers seed gifts, installment sales to the SLAT, note design, and timing considerations to reduce step-transaction concerns, while also noting that the grantor’s payment of trust income tax can enhance trust growth and is not treated as an additional gift under Rev. Rul. 2004-64
6. GST, dynasty trust, and long-term governance planning
   • The presentation expands SLAT planning into multigenerational trust planning, including GST exemption allocation, the non-portability of GST exemption under IRC §2631, reverse QTIP concepts, state-law trust duration issues, trustee structures, directed trusts, trust protectors, and situs flexibility
7. Key risks and advanced variations
   • The presentation highlights pitfalls such as trustee-selection issues, estate inclusion concerns, reciprocal trust doctrine risk under Estate of Grace, step-transaction issues, and divorce-related access concerns