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If you are self-employed or receive income other than a salary or employment wages, you could be responsible for making estimated tax payments.

You might think of these estimated taxes as an advance payment against your expected tax liability for a given year. The IRS requires certain people and businesses to make quarterly estimated tax payments (that is, four times each year).

Not sure if you are required to make estimated tax payments or how much you should pay? Here’s a closer look at this topic, which will cover:

•   What are estimated tax payments?

•   Who needs to make estimated tax payments?

•   What are the pros and cons of estimated tax payments?

•   How do you know how much you owe in estimated taxes?

What Are Estimated Tax Payments?

Estimated tax payments are payments you make to the IRS on income that is not subject to federal withholding. Ordinarily, your employer withholds taxes from your paychecks. Under this system, you pay taxes as you go, and you might get money back (or owe) when you file your tax return, based on how much you paid throughout the year.

So what is an estimated tax payment designed to do? Estimated tax payments are meant to help you keep pace with what you owe so that you don’t end up with a huge tax bill when you file your return. They’re essentially an estimate of how much you might pay in taxes if you were subject to regular withholding, say, by an employer.

Estimated tax payments can apply to different types of income, including:

•   Self-employment income

•   Income from freelancing or gig work (aka a side hustle)

•   Interest and dividends

•   Rental income

•   Unemployment compensation

•   Alimony

•   Capital gains

•   Prizes and awards

If you receive any of those types of income during the year, it’s important to know when you might be on the hook for estimated taxes. That way, you can avoid being caught off-guard during tax season.

How Do Estimated Tax Payments Work?

Estimated tax payments allow the IRS to collect income tax, as well as self-employment taxes from individuals who are required to make these payments. When you pay estimated taxes, you’re making an educated guess about how much money you’ll owe in taxes for the year.

The IRS keeps track of estimated tax payments as you make them. You’ll also report those payments on your income tax return when you file. The amount you paid in is then used to determine whether you need to pay any additional tax owed, based on your filing status and income, and the deductions or credits you might be eligible for.

Failing to pay estimated taxes on time can trigger tax penalties. You might also pay a penalty for underpaying if the IRS determines that you should have paid a different amount.

Who Needs to Pay Estimated Tax Payments?

Now that you know what an estimated tax payment is, take a closer look at who needs to make them. The IRS establishes some rules about who is liable for estimated tax payments. Generally, you’ll need to pay estimated taxes if:

•   You expect to owe $1,000 or more in taxes when you file your income tax return, after subtracting any withholding you’ve already paid and any refundable credits you’re eligible for.

•   You expect your withholding and refundable credits to be less than the smaller of either 90% of the tax to be shown on your current year tax return or 100% of the tax shown on your prior year return.

•   The tax threshold drops to $500 for corporations.

Examples of individuals and business entities that may be subject to estimated tax payments include:

•   Freelancers

•   Sole proprietors

•   Business partners

•   S-corporations

•   Investors

•   Property owners who collect rental income

•   Ex-spouses who receive alimony payments

•   Contest or sweepstakes winners

Now, who doesn’t have to make estimated tax payments? You may be able to avoid estimated tax payments if your employer is withholding taxes from your pay regularly and you don’t have significant other forms of income (such as a side hustle). The amount the employer withholds is determined by the elections you make on your Form W-4, which you should have filled out when you were hired.

You can also avoid estimated taxes for the current tax year if all three are true:

•   You had no tax liability for the previous tax year

•   You were a U.S. citizen or resident alien for the entire year

•   Your prior tax year spanned a 12-month period

Pros and Cons of Estimated Taxes

Paying taxes can be challenging, and some people may dread preparing for tax season each year. Like anything else, there are some advantages and disadvantages associated with estimated tax payments.

Here are the pros:

•   Making estimated tax payments allows you to spread your tax liability out over the year, versus trying to pay it all at once when you file.

•   Overpaying estimated taxes could result in a larger refund when you file your return, which could be put to good use (such as paying down debt).

•   Estimated tax payments can help you create a realistic budget if you’re setting aside money for taxes on a regular basis.

And now, the cons:

•   Underpaying estimated taxes could result in penalties when you file.

•   Calculating estimated tax payments and scheduling those payments can be time-consuming.

•   Miscalculating estimated tax payments could result in owing more money to the IRS.

Recommended: What Happens If I Miss the Tax Filing Deadline?

Figuring Out How Much Estimated Taxes You Owe

There are a few things you’ll need to know to calculate how much to pay for estimated taxes. Specifically, you’ll need to know your:

•   Expected adjusted gross income (AGI)

•   Taxable income

•   Taxes

•   Deductions

•   Credits

You can use IRS Form 1040 ES to figure your estimated tax. There are also online tax calculators that can do the math for you.

•   If you’re calculating estimated tax payments for the first time, it may be helpful to use your prior year’s tax return as a guide. That can give you an idea of what you typically pay in taxes, based on your income, assuming it’s the same year to year.

•   When calculating estimated tax payments, it’s always better to pay more than less. If you overpay, the IRS can give the difference back to you as a tax refund when you file your return.

•   If you underpay, on the other hand, you might end up having to fork over more money in taxes and penalties.

Paying Your Estimated Taxes

As mentioned, you’ll need to make estimated tax payments four times each year. The due dates are quarterly but they’re not spaced apart in equal increments.

Here’s how the estimated tax payment calendar works for 2026:

Payment	Due Date
First Payment	April 15, 2026
Second Payment	June 15, 2026
Third Payment	September 15, 2026
Fourth Payment	January 15, 2027

Here’s how to pay:

•   You’ll make estimated tax payments directly to the IRS. You can do that online through your IRS account, through the IRS2Go app, or using IRS Direct Pay.

•   You can use a credit card, debit card, or bank account to pay. Note that you might be charged a processing fee to make payments with a credit or debit card.

•   Certain IRS retail locations can also accept cash payments in person.

Keep in mind that if you live in a state that collects income tax, you’ll also need to make estimated tax payments to your state tax agency. State (and any local) quarterly estimated taxes follow the same calendar as federal tax payments. You can check with your state tax agency to determine if estimated tax is required and how to make those payments.

The Takeaway

If you freelance, run a business, or earn interest, dividends, or rental income from investments, you might have to make estimated tax payments. Doing so will help you avoid owing a large payment on Tax Day and possibly incurring penalties. The good news is that once you get into the habit of calculating those payments, tax planning becomes less stressful.

Another way to make your financial life less stressful: Find the right banking partner.

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Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

What happens if I don’t pay estimated taxes?

Failing to pay estimated taxes when you owe them can result in tax penalties. Interest can also accrue on the amount that was due. You can’t eliminate those penalties or interest by overpaying at the next quarterly due date or making one large payment to the IRS at the end of the year. You can appeal the penalty, but you’ll still be responsible for paying any estimated tax due.

What if you haven’t paid enough in estimated tax payments?

Underpaying estimated taxes can result in a tax penalty. The IRS calculates the penalty based on the amount of the underpayment, the period when the underpayment was due and not paid, and the applicable interest rate. You’d have to pay the penalty, along with any additional tax owed, when you file your annual income tax return.

How often do you pay estimated taxes?

The IRS collects estimated taxes quarterly, with the first payment for the current tax year due in April. The remaining payments are due in June, September, and the following January. You could, however, choose to make payments in smaller increments throughout the year as long as you do so by the quarterly deadline.

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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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You can file a tax extension in a few different ways, such as online or by mail. This process can help people who may need more time to finalize their return, whether they are missing documents, dealing with a personal emergency, or have other reasons for being behind schedule.

While a six-month extension can be a good safety net, it’s important to learn the facts. For instance, an extension doesn’t mean you have more time to pay any taxes you may owe.

Read on to learn the facts and important considerations to know when filing a tax extension.

What Is a Tax Extension?

A tax extension extends the deadline for filing your federal tax return by six months. All you have to do to get an extension is request one by Tax Day (typically April 15). Here are important points to know:

•   An extension grants you more time to file your return, but not more time to pay any taxes you owe. If you file an extension for taxes but do not pay your tax bill by the original deadline, you will face penalties and interest on the unpaid amount.

•   The failure-to-pay penalty is typically 0.5% of the unpaid taxes for each month (or part of a month) the tax remains unpaid, up to a maximum of 25%. If you set up an IRS installment agreement, however, the IRS will reduce your failure to pay penalty to 0.25% of the tax you owe while the installment agreement is in effect.

•   The IRS charges interest on the underpayment, which compounds daily from the original due date until the date you pay in full. The interest rate is determined quarterly and is generally the federal short-term rate plus 3%.

•   If you fail to file or request an extension by Tax Day, you can also get hit with a failure-to-file penalty. This is generally 5% of unpaid taxes per month, up to 25%, but is reduced by the failure-to-pay penalty if both apply. 

How Do Tax Extensions Work?

There are three ways to request an automatic extension of time to file your return:

1.    File IRS Form 4868 electronically using your personal computer or through a tax professional who uses e-file. You’ll be asked to provide your prior year’s adjusted gross income for verification purposes. (If you do not know your prior year’s AGI and do not have a copy of that tax return, you can find the information by signing in to your IRS online account.)

2.    Mail a paper Form 4868. (The IRS says, though, not to mail in Form 4868 if you file electronically unless you’re making a payment with a check or money order.)

3.    Pay all or part of your estimated income tax due, and indicate that the payment is for an extension, using IRS Direct Pay or the Electronic Federal Tax Payment System. You can also pay taxes with a credit card or debit card.

Special rules about filing extensions may apply to those serving in a combat zone or a qualified hazardous duty area or living outside the United States.

Recommended: Tax Season 2025 Help Center

Reasons to File for a Tax Extension

Many high earners routinely seek tax extensions because their business dealings and investments can take longer to sort out. Other people might seek a tax extension for different reasons, such as:

•   Needing extra time to track down missing tax documents, especially if you’re dealing with an extenuating circumstance (for instance, the closure of a place of employment shortly before tax documents were due to be issued).

•   A major unplanned life event interrupts your plans and makes it hard to get things together on time.

•   You’re still figuring out how to do taxes as a freelancer and want to take all the deductions you can.

•   You’re going to take the home office tax deduction as a self-employed person and want to carefully crunch the numbers because you’re skipping the simplified deduction of up to $1,500.

•   General life busyness led to the deadline sneaking up on you.

•   Maybe you’re filing taxes for the first time and you simply procrastinated.

•   You have a primary and second home and are still unsure whether to itemize and take the mortgage interest deduction.

Filing for a Tax Extension Online

Remember, you don’t need to file Form 4868 if you make a payment using IRS electronic payment options or by phone and indicate that you want an extension.

If you do need to file Form 4868, you can do so electronically by accessing the IRS e-file with your tax software or by using a tax professional who uses e-file.

IRS e-file options include Free File, which lets you prepare and file your federal income tax online using guided tax preparation at an IRS partner site (for filers with AGI of $84,000 or less) or Free File fillable forms (for any income level).

Filing for a Tax Extension by Mail

You can simply download and print Form 4868 from IRS.gov, fill it out, and mail it in, along with a check for estimated income taxes owed.

The form itself includes information about where to send the document, depending on where you live.

Recommended: High-Yield Savings Account Calculator

Can I File for a Tax Extension If I Owe Money?

Yes, you can still file for a tax return extension if you owe the government money — but the money itself is still due on the original due date.

Unfortunately, there’s no way to file for an extension of taxes owed. Rather, your best bet is to pay as much of your estimated taxes as you can when you file for the extension. Then apply for a payment plan online or call the IRS to learn about your options for complete repayment if you don’t have enough money in your bank account to cover what you owe.

Can Someone Be Denied a Tax Extension?

Yes, but it’s uncommon. If your tax extension was denied, it was probably because of a mistake in your personal information on Form 4868.

You can resubmit your request and make sure to enter your current address, name, and Social Security number correctly.

How to Know If You Owe Taxes

While self-employed individuals must estimate their taxes and pay on a quarterly basis, those who file using W-2 wage reports may not do this kind of taxation math.

There are several easy ways to find out if you owe Uncle Sam.

•   You may receive a notice in the mail from the IRS, but ensure that it’s official correspondence and not a note from a scammer. The IRS will never email, text, or reach out to individuals via social media.

•   “Your Online Account” on IRS.gov allows you to see how much you owe in taxes. This user profile also allows you to pay any owed taxes directly.

•   You can always call the IRS at 800-829-1040 to confirm any amount of back taxes you might owe.

The Takeaway

Is it hard to file a tax extension? Not really. What may prove difficult is paying all taxes owed by the filing deadline (aka Tax Day) or paying a balance still owed plus a penalty and interest after the April date to file taxes.

It’s important to have a handle on your tax status and tax bill as April 15th arrives. It’s also wise to have a good banking partner and accounts that allow easy payment of any money you owe or refunds you receive.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

How do I know if I’ve been approved for a tax extension?

Extension requests are rarely denied, but news of a denial would come by email. In the event of an error in an address or name, a taxpayer will be given a few days to remedy the error and file a tax extension again. Usually, you can get an automatic extension of time to file your tax return by filing Form 4868 electronically. You’ll receive an electronic acknowledgment of your request.

Is there a fee to file for a tax extension?

No. Filing for a tax extension is free.

Is the process for filing a tax extension easy?

Yes. You simply submit Form 4868 electronically or by mail before the filing deadline, or make a tax payment through approved methods and indicate you want an extension of time to file your federal return.

What happens if I file my taxes late and without an extension?

If you don’t pay your tax balance by the filing deadline and you did not file for an extension, you’ll get hit with a failure-to-file penalty (in most cases) and interest. Interest also compounds daily on any unpaid tax from the due date of the return until the date of payment in full.

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SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 12/23/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
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*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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A spousal lifetime access trust (SLAT) is a specific type of trust that’s designed to help married couples reduce estate taxes while retaining access to their assets. Trusts can serve as a tool to help you preserve your wealth and potentially minimize some of your tax burden when planning your estate. A SLAT trust is established by one spouse for the benefit of the other and may be particularly appealing to higher-net-worth couples with larger estates.

Understanding the Basics of a Spousal Lifetime Access Trust

What is a SLAT? As noted, it’s an irrevocable trust that’s created by a grantor (spouse A) for a beneficiary (spouse B). If the grantor wishes to include additional beneficiaries, such as children or grandchildren, they have the flexibility to do so.1

In effect, a SLAT can be an addition to your overall financial plan, along with your saving and investing activities. To fund the trust, the grantor must transfer ownership of assets that will be held in trust to a trustee. This trustee has a fiduciary duty to manage the trust according to the grantor’s wishes and in the best interests of the beneficiary or beneficiaries. Spousal lifetime access trust can hold a variety of asset types, including:

•   Real estate

•   Bank accounts

•   Investment accounts

•   Individual shares of stock

•   Bonds

•   Life insurance policies

An irrevocable SLAT trust is permanent; once it’s established its terms cannot be changed. Any assets transferred to the trust cannot be removed, which is an important consideration for estate planning. If you’d prefer to have the option of changing trust terms, you’d likely need to establish a revocable trust instead.

A SLAT trust allows the beneficiary spouse to have access to those assets during their lifetime. They can draw on trust assets or any interest those assets earn for income should they need to do so.

SLAT trusts are generally protected from creditors, though state laws may vary. If your spouse, who is named as beneficiary, is sued for a debt, the creditor might be barred from attempting to attach any assets in a SLAT trust to satisfy a judgment. It may be wise to speak with a lawyer or financial professional to get a sense of your exact situation.

Key Benefits of Establishing a SLAT

Setting up a trust can be time-consuming and costly, so there typically needs to be a good reason to do it. With that in mind, it’s worth asking what advantages a spousal lifetime access trust may offer you, and maybe even thinking more about money and marriage tips that could further help you build out a comprehensive estate plan.

SLAT trusts do one simple but very powerful thing from an estate and tax planning perspective: They remove assets from the grantor spouse’s taxable estate. This means that any future appreciation of those assets is free of estate tax.

Federal tax rules allow for annual gift tax exclusions, as well as lifetime gift and estate tax exemption. The annual gift tax exclusion allows you to make gifts up to a certain threshold, without triggering gift tax.

•   For 2025, the annual gift tax exclusion limit is $19,000.

•   For 2026, the limit remains at $19,000.

These amounts double for married couples. So, if you have three children you could gift each one of them $38,000 in 2025 and 2026 if you and your spouse agree to “split” the gift on your joint tax return.

Amounts exceeding the annual gift tax exclusion limit count against your lifetime gift and estate tax exemption. This is the amount of assets you can give away during your lifetime without triggering federal estate or gift tax.

•   For 2025, the exemption limit is $13,990,000.

•   For 2026, the is $15,000,000.

Again, those limits double for married couples. Under the One Big Beautiful Bill Act that was signed into law in July 2025, the $15,000,000 exemption limit is permanent but will be adjusted annually for inflation.

Now, here’s where the SLAT fits in. When you establish a SLAT, you lock in the gift tax value at the time assets are transferred to the trust. Funding a spousal lifetime access trust now could help you hedge against less favorable changes to the gift and estate tax exemption in the future.

How to Set Up and Fund a SLAT

A SLAT estate planning attorney can help you establish and fund your trust. They can also walk you through which assets to include and how a SLAT trust may affect your tax liability.

The basic steps in creating a SLAT trust are as follows:

•   Trust creation. The first step is establishing the trust on paper. An estate planning attorney can draft the necessary documents for you. You’ll need to designate one or more beneficiaries and select someone to act as trustee. When drafting the trust document, you can include instructions for how trust assets should be managed.

•   Asset selection. Once the paperwork is out of the way you can fund the trust. Here, you’ll need to decide which assets it makes the most sense to include. Your SLAT estate planning attorney might advise you to include any assets that are likely to appreciate significantly in value, as well as life insurance policies or other assets you want your spouse to have access to.

•   Trust funding. If you know what you want to put into a SLAT trust, the remaining step is funding. Here, you’ll work with your attorney to transfer ownership of assets to the trustee. Remember, once assets are transferred to a SLAT trust the move is permanent.

Your beneficiary spouse can also act as trustee but you may prefer to have a third party take on this role. When choosing a trustee, look for an individual or entity that’s reliable and trustworthy. You might ask your attorney, financial advisor, or bank to handle trustee duties, depending on your situation and needs.

Tax Implications of a Spousal Lifetime Access Trust

SLAT trusts can offer some tax benefits if you’re able to reduce what you owe in estate taxes during your lifetime. Needing a trust is a sign that you’ve accumulated some wealth, which is a good thing, but there are a few important tax rules to keep in mind.

•   Annual gift tax exclusion limits still apply. When you transfer assets to a SLAT trust you’re making a financial gift to your spouse. Ordinarily, gifts to spouses are not subject to gift tax but SLAT trusts are an exception. As the gifting spouse, you’re responsible for any gift tax that may be due if the value of assets donated exceeds the annual gift tax exclusion limit.

•   Gifts must be reported. You’ll need to tell the IRS about the assets you’ve transferred to a SLAT trust. Gifts to the trust are reported on IRS Form 709.

•   Income tax returns are required for the trust. You’ll also need to handle annual income tax filing for any income tax generated by trust assets. Income includes dividends, interest, and capital gains. The trustee should file a blank Form 1041 to let the IRS know that any trust income and/or deductions will be reported on your personal income tax return.5,6

Potential Drawbacks and Considerations

SLAT trusts may have some downsides that could make them a less-than-ideal choice for your estate plan. As you weigh spousal lifetime access trust pros and cons, here are a few things to note.

•   SLAT trusts are irrevocable; if your financial situation or marital situation changes, you would be locked in to the trust terms even if they’re no longer suitable for your needs.

•   Transferring your assets to a SLAT trust means you give up control of them and become dependent on your beneficiary spouse to retain a connection to them.

•   If your beneficiary spouse passes away first, you lose the benefit of having indirect access to trust assets without estate tax implications.

•   Any heirs who inherit assets from a SLAT trust also inherit your original tax basis, which could result in a significant capital gains tax bill if those assets have greatly appreciated.

There’s also the time and expense of setting up a SLAT trust to consider. If you have a smaller estate, it may not be worth it to create this type of trust. A different type of trust may be more appropriate if you’re not in danger of hitting the estate tax exclusion limit.

Recommended: Can You Use your Spouse’s Income for a Personal Loan?

How Does SLAT Help With Retirement?

SLAT trusts can help you create a secure retirement by creating an additional income stream, should your beneficiary spouse need one. While you would be cut off from any assets you transfer, your spouse could still draw on the interest from assets held in the trust. That income can supplement a 401(k) plan, an IRA, Social Security benefits, or any other type of retirement assets you might have.

This income is good for the beneficiary spouse’s lifetime. How valuable that is to you may depend on the size of your estate and what income streams you already have in place for retirement.

Keep in mind that if your spouse should pass away first, assets in the trust would not automatically revert to you. Instead, they would be distributed to any other beneficiaries named in the trust. You would need to ensure that you have other retirement assets to rely on in that scenario.

Recommended: Am I Responsible for My Spouse’s Debt?

SLATs vs. Other Estate Planning Tools

SLAT trusts are just one way to plan your estate. You may consider other types of trusts instead, including:

•   Marital trusts

•   Bypass trusts (also known as AB trusts)

•   Special needs trusts

•   Life insurance trusts

These types of trusts are designed to meet different needs. For example, say that you and your spouse are parents to a child with a permanent disability that prevents them from living on their own. You might establish a special needs trust to plan and pay for their care during your lifetime and after you’re gone.

At a minimum, it’s wise to have a will in your estate plan. A will is a legal document that allows you to specify how you’d like your assets to be distributed when you pass away. You can also use a will to name a legal guardian for minor children or specify care instructions for any pets you may leave behind.

Wills may not offer the same level of creditor protection as a trust and they don’t convey any tax benefits either. Wills are subject to probate whereas trusts are not so it’s important to consider what you want your estate plan to look like when deciding what to include.

Recommended: What Is a Collective Income Trust?

The Takeaway

A SLAT trust is a power estate planning tool for preserving wealth. Your financial advisor can help you weigh the advantages and disadvantages to help you decide if a spousal lifetime access trust is a good fit for your needs.

When considering how you’ll build your future estate, opening an online brokerage account is a good first step. You can create and fund your account in minutes to begin building a diversified portfolio.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.¹

FAQ

Who can be the beneficiary of a SLAT?

SLATs are designed to benefit a spouse primarily, though you may name one or more other beneficiaries. For example, if you’d like to ensure that your wealth stays within the family you could name your children or grandchildren as beneficiaries. If your spouse passes away, the trust’s assets would be passed on to the other beneficiaries you named.

Can both spouses create SLATs for each other?

Spouses can create a SLAT trust fund for one another but doing so tends to be tricky, as you’ll need to ensure that you’re funding each one with distinct and separate assets. Each trust would also need to have a distinct structure and terms so the IRS doesn’t perceive them as being too similar in nature. In that scenario, you risk them canceling one another out and losing any anticipated tax benefits.

What happens to a SLAT in case of divorce?

Since SLAT trusts are irrevocable, divorce typically won’t change much. Your ex-spouse would remain the beneficiary and they would have access to the trust assets. None of your other beneficiary designations would change either if you added children or grandchildren to the trust. You may have to continue paying income tax on the trust income as well, unless the terms of your divorce state otherwise.

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SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


¹Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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