How to Use a Spousal Lifetime Access Trust (SLAT) to Reduce Your Taxable Estate
What is a SLAT?
A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust that one spouse (the donor spouse) creates and funds for the benefit of the other spouse (the beneficiary spouse). The assets transferred into the trust are removed from the donor spouse's taxable estate. In return, the beneficiary spouse can receive distributions from the trust during their lifetime, providing the couple with indirect access to the funds even though the assets are technically no longer owned by either spouse outright.
SLATs have become one of the most widely used estate planning tools for married high-net-worth couples, particularly in the current environment where the federal estate tax exemption remains historically high but is scheduled to sunset significantly after 2025.
Why the current exemption environment matters
The Tax Cuts and Jobs Act of 2017 nearly doubled the federal estate and gift tax exemption. In 2024, the exemption sits at approximately $13.61 million per person ($27.22 million for married couples). Under current law, this exemption is scheduled to revert to its pre-2017 level — roughly half — after December 31, 2025, adjusted for inflation.
The IRS has confirmed that gifts made using the higher exemption before the sunset will not be "clawed back" into the taxable estate. This creates a limited window to lock in the larger exemption amount by making substantial gifts — including gifts to a SLAT — before the law changes.
How a SLAT works in practice
The donor spouse funds the SLAT — typically with cash, securities, or other assets — using their available gift tax exemption. The gift is reported on a federal gift tax return, but no tax is due if it falls within the exemption amount. The trust is then managed by an independent trustee (not the donor spouse) who can make distributions to the beneficiary spouse for health, education, maintenance, and support.
When the beneficiary spouse dies, the remaining trust assets pass to the named remainder beneficiaries — typically children — without inclusion in either spouse's estate.
The reciprocal trust doctrine: a critical risk to manage
A significant risk with SLATs arises when both spouses create SLATs for each other simultaneously. The IRS can apply the reciprocal trust doctrine to "uncross" the trusts, treating each spouse as having created their own trust for their own benefit — which would pull the assets back into each estate. To avoid this, any dual SLAT strategy must involve meaningful differences between the two trusts in terms of timing, assets, trust terms, and beneficiary provisions. This requires careful drafting and coordination with experienced counsel.
What happens if the marriage ends?
A SLAT is irrevocable. If the beneficiary spouse dies first, the donor spouse loses indirect access to the trust assets — a risk known as the "access problem." If the couple divorces, the beneficiary spouse (now a former spouse) may still be entitled to distributions from the trust, depending on how it is drafted. These risks should be openly discussed with your attorney before funding a SLAT.
With the estate tax exemption sunset approaching, now is the time to evaluate whether a SLAT belongs in your plan. Our attorneys have extensive experience designing and implementing SLAT strategies for high-net-worth couples. Contact us to schedule a consultation.
