Rich parents aren’t ready to let go of their wealth, but they want to save big on taxes. One neat trick: Stash it in a trust for your spouse.

• The wealthy want to take advantage of Trump’s tax cuts, but they don’t want to lose access to their wealth.
• They can have their cake and eat it too by utilizing spousal lifetime-access trusts, also known as “SLATs.”
• Lawyers told Business Insider that SLATs save millions of dollars in taxes but can backfire when it comes to divorces.

Parents never truly let go; instead, they adjust their grip.

Wealthy Americans can save a lot of money on estate taxes by taking advantage of Trump’s tax cuts, which are set to expire in about two years. The clock is ticking, and some parents are hesitant to pass on their wealth to their children. According to Dan Griffith, director of wealth strategy at Huntington Bank, it’s a common complaint from clients, whether they’re concerned about losing cash flow or handing over control of their assets.

Fortunately, wealthy parents can have their cake and eat it as well. Using a spousal lifetime-access trust, also known as a “SLAT,” married taxpayers can stash their fortunes in trusts that pay distributions to their spouses rather than assets to their children. There are some restrictions, but the beneficiary spouse can use the money to support the couple’s lifestyle. When this spouse dies, the trust is passed on to new beneficiaries, who are usually the couple’s children.

This can result in millions of dollars in tax savings. Under current law, you can put up to $12.92 million in a SLAT without paying the 40% federal estate tax. The children are also exempt, even if the trust’s value has increased by millions by the time they become beneficiaries.

“Technically, from a legal perspective, you don’t have access to those dollars anymore,” said Griffith. “But as long as you’re nice to your spouse, you may benefit little from the trust.”

There are benefits other than tax savings

Unless Congress acts before the end of 2025, the federal estate-tax exemption will be reduced to $5 million per individual, adjusted for inflation from 2018.

Even if Congress extends the higher exemption, Griffith believes that establishing a SLAT now is a wise decision. A properly drafted SLAT includes a spendthrift provision that prohibits heirs from using trust assets or future distributions as collateral. This shields the assets from claims by creditors or divorcing spouses. This protection does not apply to the spouse who is the initial beneficiary of the SLAT in some jurisdictions, only to other beneficiaries.

SLATs can also help high-net-worth individuals who want to pass on their wealth but are concerned about cash flow. According to Robert Strauss, a partner at the law firm Weinstock Manion, this need is sometimes more emotional than pragmatic. One client with a $300 million net worth chose a SLAT over gifting assets to his children because he was concerned about losing access to his assets and funding his lifestyle.

“What I have found is that this has nothing to do with objectivity,” Strauss told Business Insider.

The trust maker, the spouse who funds the trust, has no direct control over the SLAT, and these trusts are irrevocable, which means the trust maker cannot withdraw assets. Lawyers, on the other hand, can erect barriers to exert some control. The trust maker can appoint a third-party trustee who can decide whether to sell trust assets and can overrule beneficiaries. This is especially important because many trust makers place privately held businesses in SLATs. Griffith has observed this more frequently with second marriages intended to appease adult children from the trust maker’s first marriage.

“For any trust that’s going to live a long time, we want to create a level of flexibility,” Griffith went on to say. “Some people say, ‘Well, I know my kids, I’m comfortable with them, but what about my grandchildren?'”

Here’s how SLATs lead to millions in tax savings

Without a SLAT, the married couple is subject to a 40% federal estate tax on assets in excess of the exemption.

Griffith provided an example of how this can result in a hefty tax bill.

Consider a married couple, both 61, with a net worth of $40 million and a life expectancy of 25 years.Assume the couple has no estate planning. Their net worth had increased to $72.86 million at the time of their death.If the estate-tax exemption expires in 2026 and is adjusted for inflation, it will be worth an estimated $10 million per person or $20 million per married couple when the couple dies in 2048. The amount over the exemption is subject to a $21.14 million estate tax.

If this same couple had used a SLAT, they could have saved about $12 million in estate taxes and millions more in future taxes for their heirs.

Instead, they choose to fund one SLAT with $12.92 million, taking advantage of the entire individual exemption. The SLAT is funded by business assets that have grown to $37.3 million by the time the couple dies. Gains are not taxable. The assets outside of the trust grow to $32.52 million. The estate-tax bill is $9.01 million after deducting the beneficiary spouse’s $10 million exemption.The couple’s heirs save millions in future taxes in addition to saving approximately $12 million in estate taxes. The heirs pay income tax on trust income, but there is no estate tax when the trust passes to the next generation.

There are a few caveats

If the beneficiary spouse dies first, the trust maker’s spouse loses de facto access to the assets. Following the death of the beneficiary spouse, the SLAT exists to benefit the children.

Another restriction is that spouses may establish SLATs for each other, but the trusts must be identical. It may be worthwhile if the married couple can comfortably fund two SLATs totaling more than $13 million. However, if the SLATs are identical, they violate IRS rules and are subject to estate tax, according to Strauss.

Users should also exercise caution when putting certain types of assets in SLATs. Griffith stated that putting jointly owned assets, such as family homes, into SLATs is frowned upon by the IRS.

The biggest disadvantage of SLATs is that if the couple divorces, the beneficiary may be able to keep the assets.

Several courts have rejected the claim that trust assets are marital property that must be divided. An Ohio appeals court ruled in Dayal v. Lakshmipathy that the beneficiary spouse’s interest in the trust was a gift and not subject to division.

“When you get divorced, you have to be careful about how you define marital property,” he told me. “Be ready for those dollars to disappear.”