Estate planning is essential for Texans who want to protect their wealth and ensure it’s passed down efficiently to their heirs. For married couples, one tool that can be particularly beneficial is a Spousal Lifetime Access Trust (SLAT). A SLAT is a special type of trust that can help Texas residents reduce their estate taxes, which can be significant if your estate is large enough. Below, our Houston, TX Domestic Asset Protection Trust lawyer who is licensed in Texas, Kentucky, Pennsylvania, and South Dakota will explain how a SLAT works, why it’s important for Texas residents, and how it can minimize estate taxes, especially with the 2025 estate tax exemption of $13.99 million per person.
What Is A SLAT?
A SLAT is an irrevocable trust created by one spouse (the donor spouse) for the benefit of the other spouse (the beneficiary spouse). The donor spouse transfers assets into the trust, and the beneficiary spouse can access the funds during their lifetime. While the donor spouse creates the trust, the beneficiary spouse benefits from it. This setup allows Texas residents to provide for a loved one while also reducing the estate tax burden, as the assets in the SLAT are not considered part of the donor spouse’s taxable estate.
Why Estate Taxes Are Important For Texas Residents
In Texas, there is no state estate tax — which means residents don’t need to worry about paying any estate taxes to the state upon their death. However, there is still a federal estate tax that applies to estates above a certain threshold. For 2025, the federal estate tax exemption is set to be $13.99 million per person. This means that if your estate exceeds this amount, it may be subject to a federal estate tax rate of up to 40% on the value above the exemption limit.
Even though Texas residents don’t have to worry about a state-level estate tax, they still face the potential for high federal estate taxes. With large estates, this can mean a significant portion of your wealth could be lost to taxes. This is where a SLAT can be a helpful tool in minimizing the impact of these taxes and protect your assets from probate.
How A Slat Helps Texas Residents Minimize Estate Taxes
A SLAT helps reduce estate taxes in several ways, and it can be particularly beneficial for Texas residents with larger estates:
- Removing Assets From The Estate: When one spouse creates a SLAT and transfers assets into the trust, those assets are no longer part of their taxable estate. This reduces the value of the donor spouse’s estate for federal tax purposes, potentially bringing the estate below the $13.99 million exemption threshold. By doing this, a SLAT helps ensure that fewer assets are subject to federal estate taxes when the donor spouse passes away.
- Gift Tax Exemption: The transfer of assets to the SLAT is considered a gift for tax purposes. In 2025, the gift tax exemption will be $13.99 million per person, which means each spouse can give away up to that amount in assets without paying gift taxes. For Texas residents with significant assets, this provides an opportunity to transfer wealth without triggering gift tax, further lowering the value of the taxable estate and reducing estate taxes.
- Income Tax Benefits: Even though the donor spouse is no longer the owner of the assets in the SLAT, the beneficiary spouse can still receive income from the trust. In many cases, the income generated by the SLAT may be taxed at a lower rate than if the assets remained in the donor spouse’s estate. Although the trust is irrevocable (meaning the assets cannot be returned to the donor spouse), this arrangement allows the donor spouse to provide for their spouse during their lifetime while potentially reducing the overall tax burden.
- Appreciation Of Assets: A significant benefit of a SLAT is the ability to transfer assets that may appreciate in value over time. If the donor spouse transfers assets that increase in value after being placed in the SLAT, that appreciation is not included in the donor’s taxable estate. As a result, the growth in the value of these assets will not be subject to estate taxes, allowing more wealth to be passed down to heirs without additional tax liability.
- Strategic Estate Planning For Large Estates: For Texas residents with estates above the $13.99 million exemption threshold, a SLAT offers a strategic way to reduce estate taxes. By transferring assets into the SLAT, the couple can lower the size of their taxable estates, preserving more wealth for their beneficiaries. The SLAT also allows the spouse who is not the donor to benefit from the assets, which can be helpful if they need financial support.
Why It’s Particularly Important For Texans
Texas residents should be particularly aware of how estate taxes can affect their wealth. While there is no state estate tax in Texas, large estates are still subject to federal estate taxes. For Texans who may own significant real estate, businesses, or other valuable assets, it’s crucial to plan ahead to minimize the impact of these taxes — and it is also crucial to keep your legal plans up-to-date with the changing laws.
Using a SLAT can be an excellent way to ensure that more of the family wealth stays within the family, rather than going to the federal government. Texas families with large estates, especially those who have accumulated wealth through property, businesses, or other investments, can see a significant benefit by reducing their estate’s tax burden.
Considerations For Texas Residents Using A SLAT
While a SLAT is an effective tool for reducing estate taxes, it’s important for Texas residents to understand the key aspects of this strategy. One important factor is that the trust is irrevocable, meaning the donor spouse cannot take the assets back once they are transferred to the trust. Therefore, Texas residents should be sure that they are comfortable with giving up control of the assets before using a SLAT.
Additionally, it’s essential to carefully structure the SLAT to avoid any issues with the IRS. If not set up correctly, the transfer of assets could be considered a taxable gift. Consulting with an experienced estate planning attorney who understands Texas laws and federal tax regulations is critical to ensuring that the SLAT is structured properly and that all rules are followed.
For Texas residents with large estates, a Spousal Lifetime Access Trust (SLAT) can be an effective way to minimize estate taxes, particularly with the 2025 estate tax exemption of $13.99 million per person. By removing assets from the taxable estate, taking advantage of the gift tax exemption, and allowing the beneficiary spouse to benefit from the trust, a SLAT can help reduce the estate tax burden and ensure that more wealth is passed on to future generations. However, it’s important for Texas residents to work with a qualified estate planning professional to ensure the SLAT is set up correctly and that it fits their overall estate planning goals. Our firm has worked with families just like yours to make estate plans since its founding in 2021; contact Stuart Green Law, PLLC today for help.