by: Jeff M. Brandon, Senior Wealth Planner
Some numbers in this article have been updated to reflect annual indexing, effective January 1, 2024.
Spousal Access Lifetime Trusts have become an increasingly popular estate planning strategy in recent years, enabling wealthy individuals to take advantage of the federal lifetime gift and estate tax exclusion while retaining indirect access to their assets.
A Spousal Access Lifetime Trust, often referred to as a SLAT, is an irrevocable trust that enables wealthy individuals to transfer assets outside of their estate. When a SLAT is established, the grantor’s spouse is the primary beneficiary, meaning that the grantor retains indirect access to the assets within the trust through their spouse.
SLATs are poised to see an increase in popularity in the years leading up to the lowering of the lifetime exclusion in 2026. In this guide, we explore the key considerations couples must bear in mind before establishing a SLAT. In the right scenario, a correctly-structured SLAT is an extremely valuable estate planning asset, but as we’ll see, it’s not a fit for every couple.
A SLAT is an irrevocable trust designed to provide for the benefit of the grantor’s spouse and possibly their descendants too. By funding the SLAT, the grantor removes the assets from their combined marital estate while providing a benefit for their spouse, typically in the form of an annual payout from the SLAT that funds the spouse’s living expenses on an ongoing basis.
By gifting assets to a SLAT, individuals remove the assets from their estate while continuing to indirectly realize the benefits of these assets through distributions made from the trust to the spouse. One spouse may fund a SLAT for the benefit of the other, or both parties can fund a SLAT for the benefit of the other spouse, although certain requirements must be met to ensure reciprocal trusts haven’t been created. To maximize estate tax benefits, the beneficiary spouse should minimize withdrawals from the SLAT to leave assets for the next generation and avoid bringing assets back into the estate.
SLATs are a popular strategy among wealthy individuals. In 2024, the lifetime federal estate and gift tax exemption is $13.61 million, double for married couples. However, in 2026, this is set to be cut to $5 million, adjusted for inflation. By moving assets into a SLAT before January 1, 2026, wealthy individuals can take advantage of these higher limits and minimize their estate tax liability.
Spousal Lifetime Access Trusts can be an extremely valuable estate planning tool but there are several considerations that couples should bear in mind before establishing a SLAT.
Connect with your financial planner to determine the liquidity required to sustain your current lifestyle. While SLATs do offer grantors indirect access to the income from the trust, certain events can change this.
In the event of the death of the beneficiary spouse, or divorce, the grantor will lose this indirect access. SLATs are irrevocable, meaning that once the trust is established, it cannot be amended by the grantor. Typically, the SLAT will include a provision that in the event of death or divorce, the assets of the trust flow to the secondary beneficiary of the trust, which tends to be the children or grandchildren.
Both spouses can establish SLATs for each other, but there are certain guidelines that wealthy couples must comply with to avoid IRS scrutiny. Under the reciprocal trust doctrine, the trusts must have considerable differences: different terms, beneficiaries, withdrawal rights, and so on. Generally, if one spouse establishes a SLAT, the other spouse should wait at least a year before setting up a new SLAT. Estate attorneys often recommend SLATs include a clause that allows for corrections in instances where trustees incorrectly handle disbursements from the trust to avoid unintended taxes and penalties from the IRS.
When assets are gifted to the SLAT, the cost basis is not stepped up; it is inherited by the trust. This could mean that there are significant capital gains taxes to be paid in the future. To mitigate this, many SLATs include a provision that gives the trust the ability to buy, sell, or swap assets on a dollar-for-dollar basis.
This allows individuals to swap assets with a low cost basis in the trust for assets with a higher cost basis in their personal estate, where the assets will receive a basis step up at the time of their death. This can be a complex calculation. Work with a wealth advisor to determine the best path forward for your portfolio and revisit this calculation every so often as asset values fluctuate.
While Spousal Lifetime Access Trusts are poised to be a popular estate planning strategy in the next two years, there are some advantages and disadvantages to bear in mind.
The key benefits of SLATs include:
The decision to establish a SLAT can be complicated by the following drawbacks:
The significant benefit of a SLAT over a traditional bypass or credit shelter trust is the ability to freeze the lifetime estate tax exemption at today’s higher limits versus freezing the estate tax exemption at a future date determined by the grantor’s death. However, these forms of trust are not for everyone. Many wealthy couples enjoy their lifestyle and don’t want to run the risk of having to cut back if they establish a SLAT and their spouse passes away.
Establishing a SLAT is not a decision that any couple should take lightly. While these trusts can offer significant estate planning benefits, there is a wide range of considerations that must be thought through.
If you need a financial planner with the experience and skills to help you plan a lasting legacy, the Smith + Howard Wealth Management team is here to help. Our experienced estate planning specialists work closely with tax advisors, estate planning attorneys, and other professionals to help our clients cement their legacy for generations to come.
To start exploring the best option for you and your family, contact a Smith + Howard Wealth Management Advisor today.
Unless stated otherwise, any estimates or projections (including performance and risk) given in this presentation are intended to be forward-looking statements. Such estimates are subject to actual known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those projected. The securities described within this presentation do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in such securities was or will be profitable. Past performance does not indicate future results.
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