Wealthy couples often face an estate tax: Here’s their favorite legal maneuver to get around it

High net worth couples have no shortage of tools and strategies at their disposal to lower their tax obligations and pass on their wealth. But financial planners say one especially favorable arrangement has become a go-to in recent years—one that helps them pass on generational wealth while still benefitting from it during their lifetimes. They are called spousal lifetime access trusts, or SLATs.

SLATs are irrevocable trusts that let the spouses maintain access to their assets while keeping them out of their taxable estate. A growing number of wealthy customers are using them to take advantage of high estate and gift tax exemptions, a strategy that can lead to significant tax savings over a lifetime.

Here’s how it works: One spouse, called the grantor, transfers her individually-owned assets from her estate into the SLAT for the benefit of her spouse, called the beneficiary. Once removed from the grantor’s estate, the future appreciation of the assets is also removed, meaning those gains won’t be taxed.

But the couple isn’t cut off from the money: the beneficiary spouse can access the assets in the SLAT for health, education, maintenance, and support for both him and his spouse, says Bob Peterson, senior wealth advisor at Crescent Grove Advisors. “Some would say you are having your cake and eating it too.”

The primary purpose of a SLAT is to move future asset growth out of the estate, says Peterson. He gives the example of moving $5 million into the SLAT. If it eventually grows to $15 million, the $10 million appreciation is not subject to estate taxes upon the grantor’s death. Establishing a SLAT can also be a good way to safeguard assets from creditors or claims against either spouse.

“It should be remembered that SLATs are an estate tax strategy, not necessarily an income tax strategy,” says Peterson. “SLATs are typically structured as grantor trusts, so the grantor continues to pay income taxes on the trust earnings.”

This is an especially beneficial arrangement to some couples because many irrevocable trusts don’t allow beneficiaries to take distributions until after the death of the grantor. With a SLAT, however, beneficiaries are able to withdraw the income or principal to maintain the couple’s standard of living.

While those benefits may seem too good to be true, there are also drawbacks, says Peterson. The main one being that any gift is irrevocable—the grantor gives up all rights to the funds. That “can become problematic in the event of divorce or the spouses passing,” says Peterson. Additionally, jointly-owned assets cannot be transferred into the SLAT.

Grantors should be sure, then, that they can continue to live their lifestyle if they lose access to those funds in the future, for whatever reason. If the beneficiary spouse dies before the grantor, the remaining assets will pass to that spouse’s beneficiaries, typically children, without estate taxes.

SLATs are growing increasingly popular

SLATs have been especially popular lately thanks to the impending sunset of the 2017 Tax Cuts and Jobs Act, or TCJA. That law doubled the estate tax exemption, or the maximum that individuals and couples can give their beneficiaries during their lifetime and as part of their estate without paying federal gift or estate taxes.

The transfer of assets from one spouse’s estate to the SLAT is reported on a gift tax return, meaning it is applied against the donor’s lifetime gift and estate tax exemption. That currently stands at $13.99 million for individuals—and double for married couples—but could be halved come January, depending on what Congress is able to pass as part of its ongoing tax bill negotiations. That has created something of a race-against-the-clock mentality for some high-net-worth families, financial advisors say, should Congress fail to re-up the doubled exemption.

“By making a gift now, you can use the full $13.99 million, versus waiting until 2026 and only having the ability to gift around $7 million without gift tax consequences,” says Peterson. 

But again, couples will want to be careful. The expanded exemption could easily be extended, and then they may have put limits on how they can access their funds for no reason.

This story was originally featured on Fortune.com