Quick summary

A Spousal Lifetime Access Trust (SLAT) lets one spouse gift assets out of their estate while the other spouse can receive income or discretionary distributions. Properly drafted, a SLAT moves future appreciation out of the grantor’s estate, can use part of the lifetime gift/estate tax exemption, and preserves access to trust resources through the beneficiary spouse. SLATs are irrevocable, can be written as grantor trusts for income-tax reporting advantages, and require careful drafting to avoid pitfalls such as the reciprocal trust doctrine and divorce exposure.

Why couples use SLATs (when it makes sense)

  • Estate-tax exposure: Couples who expect their combined estates to exceed the lifetime federal exemption (or to be close) use SLATs to transfer assets out of a taxable estate. See IRS guidance on estate and gift taxes for current exemptions (IRS: https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes).
  • Income access: Unlike outright gifts to children, a SLAT keeps income available to the beneficiary spouse during life, easing cash-flow concerns for the survivor.
  • Appreciation outside estate: Growth inside the trust generally avoids inclusion in the grantor’s estate, so long-term appreciation accrues for heirs rather than the grantor’s taxable estate.

How a SLAT works — step-by-step (practical mechanics)

  1. Drafting the trust: An estate planning attorney drafts an irrevocable trust naming the spouse-beneficiary and the remainder beneficiaries (children, trusts for descendants, charities, etc.). Terms vary by family goals.

  2. Funding the trust: The grantor transfers assets—cash, marketable securities, business interests, or real estate—into the SLAT. The transfer is a completed gift for gift-tax purposes and must be reported on IRS Form 709 if it uses more than the annual exclusion.

  3. Grantor vs. beneficiary tax characterization: Many SLATs are drafted as “grantor” trusts for income-tax purposes so the grantor pays income tax on trust income (which can be an intentional wealth transfer strategy because paying trust income tax accelerates the transfer of wealth to beneficiaries tax-free). See IRS rules on grantor trusts (IRS: https://www.irs.gov/taxtopics/tc505).

  4. Income and distributions: The beneficiary spouse may receive income and discretionary distributions per the trust terms. The grantor does not control distributions after the gift is completed—control resides with the trustee (who can be an independent party or a spouse, with care taken to avoid retained control problems).

  5. At the beneficiary spouse’s death: Remaining trust assets pass to the remainder beneficiaries per the trust document and, properly structured, are not included in the grantor’s estate—thereby keeping that value out of estate taxation at the grantor’s death.

Tax mechanics and reporting (what to expect)

  • Gift tax: The initial transfer to the SLAT is a gift and consumes part of the grantor’s lifetime gift/estate tax exemption or uses the annual exclusion if structured in small enough increments. The IRS publishes exemption amounts and annual exclusions—these change annually, so always verify the current numbers on IRS.gov (IRS: https://www.irs.gov/businesses/small-businesses-self-employed/estate-and-gift-taxes).

  • Income tax: If the SLAT is a grantor trust, trust income is reported on the grantor’s individual return (Form 1040). If it is not a grantor trust, the trust itself reports income on Form 1041. Confirm reporting with your tax advisor and the trustee.

  • Estate tax and basis: Because assets removed by a SLAT are generally not part of the grantor’s estate, beneficiaries may not receive a step-up in basis at the grantor’s death for assets excluded from estate inclusion. That potential loss of a step-up in basis is an important trade-off to discuss with counsel.

Common drafting issues and risks

  • Reciprocal trust doctrine: If both spouses create mirror SLATs with essentially identical terms and fund them in equal amounts, a court or the IRS may treat the trusts as reciprocal and collapse them back into the grantors’ estates. Avoid identical terms, fund sizes, trustees, or distribution provisions in both trusts. Consider unequal funding, different trustees, or materially different language.

  • Divorce and remarriage risk: If the beneficiary spouse later divorces, assets in the SLAT are controlled by trust terms and may be unreachable by the former spouse, potentially leaving the grantor without expected access. Consider divorce-triggered provisions or drafting that protects intended beneficiaries.

  • Loss of direct control: Grantors lose direct control over assets once gifted. While that’s the intent for estate reduction, it requires trust in your trustee and clear instructions in the trust document.

  • State law and state estate taxes: State estate or inheritance taxes can differ from federal rules and may treat trust assets differently; check state rules and domicile implications.

Practical drafting techniques I use in client work

  • Avoid mirror language: When both spouses use SLATs, I ensure terms differ materially—different distribution standards, successor beneficiaries, or trustees—to reduce reciprocal-trust risk.

  • Grantor trust powers: I often draft the SLAT so it is a grantor trust for income-tax purposes (for example, by including certain limited administrative powers), letting the grantor pay income tax on trust earnings. Paying income tax outside the trust increases the net wealth that ultimately passes to remainder beneficiaries without using additional gift tax exemption in my clients’ families.

  • Trustee selection and independence: Appoint an independent trustee or an independent co-trustee with clear discretion to make distribution decisions to reduce perceived retained control by the grantor.

  • Contingency provisions: Include alternate remainder beneficiaries and charity contingencies to address predeceased children or changing family circumstances.

Alternatives and combinations

  • GRATs and SLATs: For families focused on moving future appreciation of a particular high-growth asset, a Grantor Retained Annuity Trust (GRAT) can complement or substitute for a SLAT. See our deeper explanation of GRATs: Wealth Transfer: Grantor Retained Annuity Trusts (GRATs) — An Overview.

  • Multi-generation plans: SLATs are commonly used together with other vehicles in multi-generational plans. For planning that coordinates SLATs and GRATs, see our guide: Using GRATs and SLATs in Multi-Generational Transfer Plans.

  • Outright gifts, family limited partnerships, and sales to intentionally defective grantor trusts (IDGTs) are additional options that may better suit particular asset types or family dynamics.

Example (illustrative, simplified)

Imagine a grantor places $1,000,000 of stocks into a SLAT. The trust is drafted as a grantor trust and the beneficiary spouse may receive trust income. If the invested securities appreciate substantially, the growth inside the SLAT is removed from the grantor’s estate and passes to remainder beneficiaries at the trust’s termination. The grantor may still pay income taxes on trust earnings (if grantor-trust status applies), accelerating tax-free wealth transfer. This is a simplified example—actual results depend on market performance, trust drafting, and tax law.

Practical checklist before you create a SLAT

  • Review projected combined estate value versus current federal and state exemptions.
  • Discuss funding assets (cash vs. appreciating assets vs. closely held business interests).
  • Confirm whether to draft the SLAT as a grantor trust for income-tax strategy.
  • Plan trustee selection and succession.
  • Build in anti-reciprocity drafting and contingency language for divorce and remarriage.
  • Coordinate SLATs with other wealth-transfer tools (GRATs, FLPs, charitable vehicles).
  • Work with an experienced estate-planning attorney and tax advisor to file required gift-tax returns and confirm reporting.

Professional takeaway (in my practice)

In my experience working with family and estate plans, SLATs can be a highly effective tool when the couple’s goals include removing appreciation from an estate while preserving survivor access to income. The biggest mistakes are drafting mirror trusts that invite reciprocal trust treatment, underestimating divorce or remarriage risk, and skipping coordination with income-tax planning. When used thoughtfully—and with counsel—a SLAT is a durable way to achieve multi-generational gifting objectives.

Sources and further reading

Professional disclaimer: This article is educational and not legal or tax advice. SLATs involve complex tax and trust rules; work with a licensed estate-planning attorney and a tax professional to implement a strategy tailored to your family and to confirm current exemption amounts and reporting requirements.