Spousal Lifetime Access Trusts (SLATs) and Their Tax Implications

 

English Alt Text: A four-panel comic titled “Spousal Lifetime Access Trusts (SLATs) and Their Tax Implications.” Panel 1 shows a wealthy couple saying, “We want to reduce estate taxes but still access our wealth.” Panel 2 shows an estate planner explaining, “A SLAT lets one spouse create a trust for the other, removing assets from the estate.” Panel 3 shows the couple reviewing documents labeled “Irrevocable Trust” and “Gift Exemption.” Panel 4 shows them smiling while the advisor adds, “Just avoid the reciprocal trust trap!”

Spousal Lifetime Access Trusts (SLATs) and Their Tax Implications

High-net-worth couples are increasingly turning to Spousal Lifetime Access Trusts (SLATs) as a way to reduce estate taxes while retaining indirect access to trust assets.

With lifetime estate and gift tax exemptions currently at historic highs—but potentially declining—SLATs offer a strategic way to lock in today’s benefits.

This guide explores how SLATs work, their tax impact, and best practices for avoiding IRS pitfalls.

📌 Table of Contents

What Is a SLAT?

A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust created by one spouse for the benefit of the other spouse—while removing assets from the grantor’s taxable estate.

✔️ The donor uses their lifetime gift tax exemption to fund the trust

✔️ The beneficiary spouse may receive income or principal distributions

✔️ SLATs provide estate tax savings while preserving family access to wealth

Tax Benefits of SLATs

✔️ Uses current gift and estate tax exemption (currently $13.61M per person in 2024)

✔️ Removes appreciation of trust assets from both estates

✔️ Asset protection from future creditors and estate taxes

✔️ May be structured to benefit children or future generations as well

How to Structure a SLAT Properly

✔️ Create an irrevocable trust with independent trustee

✔️ Fund the trust using separate property—not jointly held assets

✔️ Clearly define distribution standards for the beneficiary spouse

✔️ Avoid reciprocal trust doctrine (two spouses creating identical SLATs for each other)

Common SLAT Pitfalls and IRS Red Flags

✘ Reciprocal trusts that mirror each other may be collapsed by the IRS

✘ Lack of independence in trust administration (e.g., beneficiary as trustee)

✘ Commingling trust and personal assets post-transfer

✘ Using jointly-owned funds to fund the SLAT may cause inclusion in both estates

When SLATs Make Strategic Sense

✔️ High-net-worth couples who have not yet used their lifetime exemption

✔️ Families concerned about future reductions in estate tax exemption levels

✔️ Married individuals with significant separate property to gift

✔️ Estate planners seeking to pair SLATs with life insurance or dynasty trusts

🔗 Advanced Trust & Estate Strategy Resources

— Align SLAT strategies with international tax planning.

— Use insurance structures inside SLATs to grow assets tax-deferred.

— Add digital assets to SLATs securely.

— Fund policies inside SLATs without liquidating assets.

— Maximize tax benefits across generations.



Keywords: SLAT trust, estate tax planning, spousal irrevocable trust, gift tax exemption, high-net-worth estate strategy