An Overview of Spousal Lifetime Access Trusts

by: Smith and Howard

September 13, 2023

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Authored by Smith + Howard Wealth Management

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. 

An Introduction to Spousal Lifetime Access Trusts (SLATs)

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 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 2023, the lifetime federal estate and gift tax exemption is $12.92 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.

Key Considerations When Forming a Spousal Access Lifetime Trust

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. 

Pros and Cons of Spousal Lifetime Access Trusts

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.

Advantages of Spousal Lifetime Access Trusts

The key benefits of SLATs include:

  • Use of Higher Lifetime Exemption: SLATs allow wealthy individuals to take advantage of the historically high lifetime exemption before it reverts to significantly lower levels on January 1, 2026. 
  • Irrevocable: SLATs allow wealthy individuals to move assets out of their estate while still retaining indirect access to the income those assets produce. 
  • Long-Term Legacy: structured correctly, a SLAT can provide for both the spouse and the grantor’s children and grandchildren. By preserving assets in a trust that essentially functions as a dynasty trust, grantors can avoid their assets being subject to an estate tax when future generations pass. 

Disadvantages of Spousal Lifetime Access Trusts

The decision to establish a SLAT can be complicated by the following drawbacks:

  • Death or Divorce: in the event of the death or divorce of the spouse receiving the benefit, the grantor spouse will lose the indirect access they previously enjoyed. 
  • Irrevocable: moving assets to an irrevocable trust such as a SLAT removes the assets from an individual’s estate, resulting in a lack of control over how these assets are stewarded. 
  • Loss of Stepped Up Basis: assets moved into an irrevocable trust do not receive a step up in basis, meaning that the beneficiaries of the trust may face significant capital gains taxes if they sell these assets. However, by including a provision that allows the trustee to buy, sell, or perform a dollar-for-dollar swap, families can work around this issue. 

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. 

Originally posted: An Overview of Spousal Lifetime Access Trusts – Smith and Howard Wealth Management ( To receive an alert when these articles are published, sign up for our newsletter [email protected]

Smith + Howard Wealth Management: Experienced Estate Planning Professionals

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.

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