A SLAT is an irrevocable trust created by one spouse for the benefit of the other spouse, who is the beneficiary of the trust. SLATs can be used to protect the assets held by the trust from creditors and to minimize the federal estate tax. In a typical SLAT, the creditors of the donor spouse cannot reach the trust assets because the donor spouse is not a beneficiary of the trust. In addition, the trust assets are protected from the creditors of the beneficiary spouse if there is an independent trustee who has significant discretion regarding whether and when distributions may be made to the beneficiary spouse; or, if the beneficiary spouse is the trustee, distributions are mandatory or limited to the spouse’s reasonable need for health, education, maintenance, and support. The donor spouse may indirectly benefit from distributions to the beneficiary spouse. However, with a typical SLAT, when the beneficiary spouse dies, this indirect access to the assets held in the trust ceases.
The new Florida law, signed into law on May 10, 2022, allows the donor spouse to be a beneficiary of the trust upon the death of the beneficiary spouse (1) if the donor’s spouse is the beneficiary of the trust for the beneficiary spouse’s lifetime and (2) transfers to the trust are completed gifts under I.R.C. § 2511. Under the Florida statute, the trust assets “shall, after the death of the settlor’s spouse, be deemed to have been contributed by the settlor’s spouse and not by the settlor.”
Because the new law, effective for trusts created and funded after June 30, 2022, enables the SLAT to act as an asset protection trust benefiting the donor spouse after the death of the beneficiary spouse, wealthy Florida residents now have a good reason to form domestic asset protection trusts in Florida rather than in other states.
If you are interested to learn more about how a SLAT can benefit you or just interested in doing general estate planning please Contact our office to set up a consultation.