“We set up our estate plan years ago when exemption amounts were high. Now, with inflation and higher living costs, we’re starting to feel pressure on our lifestyle budget. Can we revisit our SLAT distributions without undoing the planning we put in place?”
The vehicle in question is the Spousal Lifetime Access Trust (SLAT).
A Quick Refresher on SLATs
A SLAT is designed to move assets out of your estate by placing them in an irrevocable trust. That way, those assets can continue to grow without counting toward estate tax limits.
Typically, one spouse creates a trust that benefits the other. For example, I set up a SLAT for my spouse, who can access income from it, while the principal continues to grow. My spouse does the same for me. It’s a creative way for both partners to gain indirect access to income while keeping the trust assets earmarked for the next generation.
The trade-off? By definition, the trust is irrevocable. You’ve cut ties with the principal. The money isn’t meant to be for you—it’s meant to pass on.
When Living Costs Rise
The challenge many families face is that distributions initially set at “minimal” levels may not stretch far enough years later. Inflation and higher expenses can create real strain.
Most SLATs already allow for distributions under the HEMS standard—health, education, maintenance, and support. Beyond that, some families explore adjustments like adding a cost-of-living increase or broadening distribution provisions.
The Trade-Offs of Flexibility
Here’s the catch: every increase in flexibility comes with a decrease in protection.
- Asset protection risk: The more control you retain over distributions, the easier it is for creditors—or even the IRS—to argue that you never truly gave up ownership.
- Tax efficiency: Looser rules may weaken the estate and tax advantages that made the SLAT appealing in the first place.
- Legacy goals: Every extra dollar distributed now is one less available for the next generation.
How to Approach Adjustments
If you’re considering changes:
- Talk to your attorney. They can walk you through what types of amendments are possible and where the boundaries are.
- Review your financial plan. Think beyond today’s needs. What will your expenses look like 5, 10, or 15 years from now? Any adjustments should reflect not only the present but also your likely future.
- Balance trade-offs. Ask yourself: How much flexibility do we need today—and how much asset protection are we willing to give up to get it?
Final Thought
There are options to adapt your SLAT if rising costs are making distributions feel too tight. Just remember that with every increase in access comes a decrease in protection. The right answer isn’t a simple yes or no—it’s about finding the balance that lets you maintain your lifestyle today without undermining the long-term purpose of the trust.
This post is based on a recent episode of the Scholar Wealth Podcast. For more insights, listen in.