What is a SLANT?

The Ideal Trust for QSBS Stacking

Quick Overview

A Spousal Lifetime Access Non-grantor Trust (SLANT) combines the tax benefits of a non-grantor trust with the practical advantage of indirect access to trust assets through your spouse. This makes SLANTs particularly valuable for QSBS stacking strategies, as they create separate taxpayers eligible for their own $10 million QSBS exclusions while still providing a degree of family access to the assets. This article explains how SLANTs work, their advantages over other trust structures, key design considerations, and practical implementation strategies for founders looking to maximize QSBS benefits.

What Exactly Is a SLANT?

A Spousal Lifetime Access Non-grantor Trust (SLANT) is a specialized trust structure that combines several beneficial characteristics:

• Spousal Access: Your spouse is a primary beneficiary, allowing indirect family access to trust assets

• Lifetime: Created during your lifetime (not at death) as part of proactive planning

• Non-grantor: The trust itself is treated as a separate taxpayer for income tax purposes

• Trust: A legal arrangement where assets are held by trustees for beneficiaries

The SLANT is essentially a variation of the more common Spousal Lifetime Access Trust (SLAT), but with specific provisions that ensure non-grantor tax treatment. This non-grantor status is what makes SLANTs particularly effective for QSBS stacking.

Why SLANTs Are Ideal for QSBS Stacking

As I discussed in my previous article on non-grantor trusts, any properly structured non-grantor trust can serve as a QSBS stacking vehicle. However, SLANTs offer several advantages that make them particularly well-suited for founders:

1. Indirect Asset Access: Unlike other non-grantor trusts where assets are completely removed from your family's reach, a SLANT provides indirect access through your spouse as beneficiary

2. Balance of Control and Tax Benefits: You can permanently transfer assets for tax purposes while maintaining family access through your spouse

3. Simplicity: Compared to more complex non-grantor trust structures like INGs, SLANTs are relatively straightforward to establish and administer

4. Estate Tax Benefits: Beyond QSBS stacking, SLANTs also remove assets from your taxable estate

5. Legacy Planning: You can include children or other family members as remainder beneficiaries

For founders concerned about permanently giving away valuable company stock, SLANTs provide an appealing middle ground—tax benefits with continued family access.

How SLANTs Differ from Standard SLATs

The key difference between a standard SLAT and a SLANT is the tax treatment:

• A standard SLAT is typically a grantor trust, meaning the grantor (the spouse creating the trust) remains responsible for all income taxes

• A SLANT is specifically designed as a non-grantor trust, making the trust itself a separate taxpayer

This distinction is critical for QSBS stacking, as only separate taxpayers can claim their own $10 million QSBS exclusions.

The non-grantor status is achieved through careful drafting to avoid the grantor trust rules in IRC Sections 671-679, particularly Section 677 (which often triggers grantor trust status when a spouse is beneficiary).

Key Design Elements of an Effective SLANT

Creating an effective SLANT for QSBS stacking requires careful attention to several design elements:

1. Independent Trustee Provisions

The trustee structure is critical to establishing non-grantor status. Typically, this means:

• The grantor cannot serve as trustee

• An independent trustee must control certain trust decisions

• A professional trustee (like a trust company) often serves this role

At Promissory, we connect founders with experienced Nevada trustees who understand QSBS planning.

2. Beneficiary Structure

The beneficiary structure typically includes:

• Your spouse as primary beneficiary during their lifetime

• Children or other family members as remainder or contingent beneficiaries

• Carefully drafted distribution standards (often for health, education, maintenance, and support)

3. Limited Powers of Appointment

Powers of appointment allow beneficiaries to direct assets to others. In a SLANT:

• Your spouse may have a limited power of appointment

• These powers must be carefully designed to avoid triggering grantor trust status

• They can provide flexibility for changing future circumstances

4. Special Provisions for Non-Grantor Status

Several specific provisions help ensure non-grantor status:

• Prohibition on using trust assets to satisfy legal obligations of the grantor

• Restrictions on certain trustee powers that could trigger grantor trust rules

• Careful drafting around spousal support obligations

5. Jurisdiction Selection

SLANTs benefit from being established in favorable jurisdictions like Nevada, which offers:

• No state income tax

• Strong asset protection laws

• Dynasty trust provisions

• Privacy protections

Practical Implementation Steps for a SLANT

If you're considering using a SLANT as part of your QSBS stacking strategy, here's a practical roadmap:

1. Timing Considerations

Establish your SLANT early in your company's growth cycle when:

• Your company valuation is still relatively low

• You're well before any potential liquidity event

• You can maximize the amount of shares transferred within gift tax limits

2. Trustee Selection

Choose trustees carefully, considering:

• Independence requirements for non-grantor status

• Experience with QSBS planning

• Understanding of startup equity

• Reliability and responsiveness

3. Funding Strategy

When funding a SLANT with QSBS shares:

• Document the fair market value with a qualified valuation

• Consider how much of your overall equity to transfer (typically 30-50%)

• File a gift tax return even if no tax is due

• Maintain proper stock transfer documentation

4. Ongoing Administration

Proper administration is essential to maintain the trust's status as a separate taxpayer:

• Regular trustee meetings and documented decisions

• Separate trust accounts and financial records

• Annual tax filings for the trust (Form 1041)

• Proper documentation of any distributions

Real-World Example: SLANT in Action

A founder I spoke with had built a business now valued at approximately $30 million, with his ownership stake worth about $12 million. With a relatively low basis in his shares, he was concerned about capital gains taxes upon an eventual exit.

Working with Promissory, he implemented a strategy that included:

• Retaining $7 million in shares personally

• Transferring $5 million in shares to a Nevada-based SLANT

The SLANT was designed with:

• His wife as primary beneficiary

• Their children as remainder beneficiaries

• A professional Nevada trustee

• Specific provisions to ensure non-grantor status

Three years later (after his total holding period exceeded 5 years), when the company was acquired, this structure allowed:

• Full QSBS exclusion on his personal $10 million gain

• Full QSBS exclusion on the SLANT's $6.5 million gain

• Continued family access to the SLANT assets through his spouse

• Total tax savings of approximately $1.5 million

This balanced approach provided significant tax savings while maintaining family access to the assets—the best of both worlds.

Potential Risks and Considerations

While SLANTs offer significant benefits, they also come with potential risks and considerations:

1. Divorce Risk

Since access to trust assets depends on your marriage, divorce could eliminate this indirect access. Promissory includes provisions addressing this possibility. One of the advantages to a SLANT is that if you are divorced, your spouse no longer has access to the trust because they are no longer your spouse, so be sure to designate a backup beneficiary.

2. Spouse Predeceases

If your spouse passes away before you, your indirect access to the trust assets may end. Careful drafting can address this contingency.

3. IRS Scrutiny

As with all tax planning strategies, SLANTs may face IRS scrutiny, particularly if:

• They appear to be last-minute tax avoidance vehicles

• There's insufficient separation between grantor and trust

• Trust administration is lax or inconsistent

4. Irrevocable Nature

Remember that SLANTs are irrevocable—once established and funded, you cannot simply change your mind and take back the assets.

SLANTs vs. Other Trust Strategies

When considering a SLANT, it's helpful to understand how it compares to other trust options:

SLANT vs. Standard SLAT

• SLANT: Non-grantor tax treatment, separate taxpayer for QSBS purposes

• SLAT: Grantor tax treatment, not a separate taxpayer for QSBS

SLANT vs. ING Trust

• SLANT: Indirect access through spouse, simpler structure

• ING: Potential direct access for grantor, more complex structure, not permitted in certain states

SLANT vs. Direct Gifting to Family

• SLANT: Professional management, controlled distributions, asset protection

• Direct Gifts: Immediate full access by recipients, less control, no asset protection

For most married founders, SLANTs offer the optimal balance of tax benefits, continued family access, and simplicity.

Balancing Control and Tax Benefits

One of the biggest concerns founders have about any trust strategy is permanently giving away valuable company stock. At Promissory, we find most founders achieve the best balance by:

1. Retaining a significant portion of shares personally (often 60-70%)

2. Transferring a portion to a SLANT for their spouse's benefit (often 40-30%)

3. Potentially creating additional trusts for children or other purposes

This approach provides substantial tax savings while maintaining direct control over the majority of your assets.

Key Takeaways

• SLANTs combine non-grantor tax treatment with spousal access to trust assets

• Each properly structured SLANT can exclude up to $10 million in QSBS gains

• Nevada is an ideal jurisdiction for SLANTs due to favorable trust laws

• Professional trustees are essential to establishing non-grantor status

• Early implementation maximizes the amount of shares that can be transferred

• Most founders transfer 30-40% of their shares to SLANTs, retaining the majority

• Proper documentation and ongoing administration are critical to maintaining tax benefits

• SLANTs offer a balance of tax advantages and continued family access

Disclaimer

Tax laws are complex and constantly evolving. While this article provides general information about SLANTs for QSBS planning, it should not be considered legal or tax advice. Each situation is unique, and tax treatment can vary based on individual circumstances. Always consult with qualified tax and legal professionals before making decisions based on the information provided here.

Ready to explore how a SLANT could fit into your QSBS strategy? Promissory streamlines the entire process from trust creation to Nevada trust custody and QSBS tracking—all in one platform for a fraction of the cost of traditional attorney services. Create an account today and maximize your future tax savings.