Spousal Lifetime Access Trusts (SLATs)

A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust created by one spouse (the grantor) for the benefit of the other (the beneficiary spouse) and their descendants. By utilizing your lifetime gift tax exemption ($15 million in 2026), you remove assets—and their future appreciation—from your taxable estate while maintaining indirect access to the capital through your spouse’s distributions.

The structural mechanics and advantages of a SLAT include:

• Indirect Access: The trustee can distribute income or principal to your spouse for health, education, maintenance, and support (HEMS). Your spouse can deposit these funds into a joint bank account, providing you with indirect access to the trust’s assets.
• Grantor Trust Status: A SLAT is classified as a grantor trust for income tax purposes under IRC §677 because trust income can be distributed to your spouse. You must pay the trust’s income taxes on your personal Form 1040. This tax payment is not considered a taxable gift to the trust, allowing the trust assets to grow tax-free.
• Asset Protection: The irrevocable nature of the trust shields the assets from both spouses’ future creditors.

However, SLATs carry four major planning risks:

Divorce Risk

If you divorce, your indirect access to the trust assets terminates immediately. Furthermore, unless the trust agreement contains a “floating spouse” clause—which defines the beneficiary spouse as the person to whom you are married at the time of distribution—your ex-spouse will continue to benefit from your trust.

Premature Death

If your spouse dies before you, your indirect access to the trust assets ends. You can mitigate this risk by purchasing a second-to-die life insurance policy or a policy on the beneficiary spouse’s life.

The Reciprocal Trust Doctrine

If you and your spouse establish identical SLATs for each other, the IRS will uncross the trusts under United States v. Estate of Grace, 395 U.S. 316 (1969). The assets will be pulled back into both of your gross estates. To avoid this, the trusts must be materially different: use different trustees, establish them in different tax years, or grant one spouse a limited power of appointment while denying it to the other.

Community Property Funding Trap

In community property states like California, SLATs must be funded solely with the grantor’s separate property. If you fund a SLAT using community property, the beneficiary spouse is deemed to have made a gift of their 50% share to the trust, which pulls that 50% back into their gross estate under IRC §2036 upon death, destroying the tax exclusion.