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In estate planning, where uncertainty seems to be the only certainty, it's time to adapt and choose flexible strategies so you can walk this changing landscape confidently. This is a different world where individuals don't move assets into an irrevocable trust to avoid taxes and sigh with relief. As we age, economic uncertainty and rising costs move the goalposts closer to home. Comprehensive estate plans encompass retirement, advance care planning, and Medicaid.
The estate tax exemption, poised to drop significantly in 2026, has estate planning attorneys and their clients considering different approaches to estate planning. Estate planning needs for wealthy individuals and those building a nest egg have evolved from passing on wealth to preserving and accessing wealth retirement through the senior season of life. Referencing Charles Schwab's article, "Prepare for 2026 Estate Planning With SPATs, SLATs, and DAPTs," we outline three types of trusts that might be good options in your estate plan.
Trusts, an estate planning staple, have benefits and vulnerabilities if not structured strategically. Adjusting a trust's provisions to empower trustees with control over distributions protects against creditors or the deceased's ex-spouse. There are three types of trust you might not be aware of: a Domestic Asset Protection Trust (DAPT), a Special Power of Appointment Trust (SPAT), and a Spousal Lifetime Access Trust (SLAT).
The Domestic Asset Protection Trust (DAPT) is a self-settled or self-created trust that can name the creator/grantor as beneficiary and an administrative trustee with approval authority. Placing asset distribution decisions in the trustee's hands protects from creditors or litigation.
As with any estate planning option, consider the pros and cons of creating a DAPT. The trust creator or grantor funds the trust but only accesses the assets as the beneficiary, not directly. The administrative trustee controls distributions, while the trust creator is the investment trustee, managing the investments in a DAPT trust.
Not a self-created trust, the special power of appointment trust's assets are not vulnerable to creditors or estate expenses. The grantor or person funding the trust is not a trustee or a beneficiary and relies on a trusted individual to distribute funds directly to them later.
Work with an experienced estate planning attorney to discuss the pros and cons of this type of trust. If you don't need direct access to the funds, a SPAT may align with your asset protection goals.
A Spouse Lifetime Access Trust (SLAT), available in community property states, allows a spouse to establish a trust for the other's benefit. SLATs are post-marital legal documents that separate community property such as real estate, income, and debt. They can be created by one or both spouses and funded with different assets to remove specific property from one spouse's estate.
Work with an estate planning attorney if you are interested in a spousal lifetime trust so you don't run into a reciprocal trust doctrine issue, in which the trusts are too similar and create mutual value, much like the community property they're trying to avoid.
Customize each trust's provisions to avoid similarities that make both trusts interrelated or like community property. Each SLAT should differ in trustees, beneficiaries, trust administration rules, gift distributions, and withdrawal rights.
Want to know more about SPATs, SLATs, and DAPTs? Contact The Werner Law Firm probate attorneys in Los Angeles for a free consultation! We can help you adapt your estate plan to address your goals and economic changes for peace of mind.
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Reference: Kiplinger (April 12, 2023) “Prepare for 2026 Estate Planning With SPATs, SLATs and DAPTs.”
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