A spousal lifetime access trust (SLAT) is an irrevocable trust that one spouse funds for the other, using the donor spouse’s federal lifetime gift and estate tax exemption to move assets and their future growth out of the taxable estate while the household keeps indirect access through distributions to the beneficiary spouse. It is one of the tools couples with taxable-estate-sized net worth review with an estate attorney before the exemption or their circumstances change.
A spousal lifetime access trust is an irrevocable trust that one spouse (the donor) funds for the other spouse (the beneficiary) with a completed gift that uses the donor’s lifetime exemption, $15,000,000 per individual in 2026 (Source: IRS, Rev. Proc. 2025-32). The assets and their appreciation leave the taxable estate, yet the donor keeps indirect access while the marriage continues.
What a spousal lifetime access trust is
A spousal lifetime access trust is an irrevocable trust one spouse creates and funds for the other spouse’s benefit. The funding is a completed gift that uses the donor spouse’s lifetime gift and estate tax exemption ($15,000,000 per individual in 2026), so the transferred assets and any later appreciation sit outside both spouses’ taxable estates, while the beneficiary spouse can receive distributions during life (Source: IRS, Rev. Proc. 2025-32).
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The structure reconciles two goals that usually conflict: moving wealth out of the estate for transfer-tax purposes, and keeping the money within a household’s reach. Because the beneficiary spouse can receive distributions to maintain the family’s standard of living, the couple retains indirect access as long as the marriage continues and both spouses are living.
A SLAT is most often considered by couples whose combined net worth may approach or exceed the federal exemption. The tradeoff at the center of the decision is irrevocability: the donor gives up ownership and control and cannot take the assets back.
How a SLAT works step by step
A SLAT works by turning a lifetime gift into an irrevocable trust that benefits the other spouse, so the assets leave the donor’s estate while the household keeps indirect access. The mechanics center on a completed gift reported on IRS Form 709, an often-independent trustee, distribution standards for the beneficiary spouse, and remainder beneficiaries (commonly children or descendants) who receive what is left.
- The donor spouse creates an irrevocable trust naming the other spouse as lifetime beneficiary, usually with children or descendants as remainder beneficiaries.
- The donor transfers assets into the trust as a completed gift, using part of the donor’s lifetime exemption ($15,000,000 per individual in 2026, per Rev. Proc. 2025-32).
- The donor reports the gift on IRS Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return (Source: IRS, About Form 709).
- A trustee, frequently an independent party, manages the assets and can distribute to the beneficiary spouse under the trust’s standards.
- During the marriage, the couple benefits indirectly because distributions to the beneficiary spouse can support the household.
- At the beneficiary spouse’s death, remaining assets typically pass to the remainder beneficiaries outside the taxable estate, under the trust terms.
A SLAT is deliberately drafted so the gift does not qualify for the unlimited marital deduction. Qualifying for that deduction would defeat the purpose, because the goal is to use lifetime exemption now rather than defer the transfer to the surviving spouse’s estate (Source: IRC 2523; IRC 2056).
How a SLAT is funded: cash, securities, and life insurance
A SLAT can be funded with cash, marketable securities, closely held business interests, or life insurance, and the choice shapes the outcome. Many couples fund with appreciating assets so future growth accrues outside the estate. Funding with life insurance is common: the SLAT owns a policy and pays premiums, keeping the death benefit out of the taxable estate much like an irrevocable life insurance trust (ILIT), while distributions can help the beneficiary spouse.
Assets expected to appreciate are frequently chosen, because a completed gift freezes their value in the donor’s exemption ledger while future growth compounds outside the transfer-tax base. Securities and closely held business interests are common for this reason.
Life insurance is a distinct funding option. A SLAT that owns a policy on the donor spouse can receive gifts to pay premiums and later collect an income-tax-free death benefit outside both spouses’ estates, similar to an ILIT but with the added feature that the beneficiary spouse can receive lifetime distributions. The annual gift tax exclusion of $19,000 per donee in 2026 can apply to premium-funding gifts structured with withdrawal rights (Source: IRS, Rev. Proc. 2025-32).
How a SLAT is taxed: grantor trust income tax and no step-up in basis
A SLAT is usually a grantor trust, so the donor spouse pays income tax on the trust’s income personally, even on income the trust keeps. The IRS treats that tax payment as not an additional gift (Rev. Rul. 2004-64), so it acts as a “tax burn” that further reduces the donor’s estate tax-free. The tradeoff: assets gifted to a SLAT do not receive a step-up in cost basis at death.
Most SLATs are intentionally structured as grantor trusts under the grantor trust rules of IRC 671 to 679. The donor spouse reports the trust’s income, dividends, and capital gains on the donor’s own Form 1040 and pays the tax. Because Revenue Ruling 2004-64 confirms that the donor’s payment of the trust’s income tax is not treated as an additional gift, every tax dollar the donor pays shrinks the taxable estate while letting the trust grow undiminished. Practitioners often call this the tax burn.
The basis side is a real cost that many overviews skip. Assets a SLAT holds were removed from the estate by completed gift, so they do not receive the IRC 1014 step-up in cost basis at the donor or beneficiary spouse’s death. Instead the trust and its remainder beneficiaries generally take the donor’s carryover basis under IRC 1015. For highly appreciated assets, the future capital gains cost of that lost step-up can offset part of the estate tax saved.
Because SLAT income taxes flow onto the donor’s personal return, families often review the trust alongside their broader retirement-tax picture, including a Roth conversion strategy, the net investment income tax that can apply at 3.8% above $250,000 of MAGI for joint filers, and required minimum distributions that begin at age 73.
Creditor protection and other benefits
Beyond estate tax savings, a SLAT can provide creditor and asset protection. Because the assets are held in an irrevocable trust the donor no longer owns, and are often managed by an independent trustee with a spendthrift clause, they are generally shielded from the donor’s future creditors and, depending on the terms and state law, from the beneficiary spouse’s creditors. This protection is a core reason many couples consider a SLAT.
Once assets are transferred by completed gift to an irrevocable SLAT, they are no longer the donor’s property, so they generally fall outside the reach of the donor spouse’s later creditors and lawsuits. A spendthrift provision can further limit creditor claims against the beneficiary spouse, subject to state law and the trust’s distribution standards.
Other frequently cited benefits include removing future appreciation from the estate and pairing the SLAT with generation-skipping transfer (GST) planning so wealth can pass to grandchildren or later generations. The GST exemption also reaches $15,000,000 per individual in 2026 and was made permanent by the One Big Beautiful Bill Act (Source: IRS, Rev. Proc. 2025-32; P.L. 119-21).
The main risks: divorce, death, and the reciprocal trust doctrine
The main risks of a SLAT are irrevocability, divorce, death of the beneficiary spouse, and the reciprocal trust doctrine. Because access runs through the beneficiary spouse, divorce or that spouse’s death can cut off the household’s indirect access to the assets, and the donor cannot undo the trust. Drafting techniques, such as a floating-spouse clause, can address the divorce risk but cannot eliminate every consequence.
Divorce and floating-spouse drafting
A SLAT is irrevocable, so divorce does not dissolve the trust, and by default the ex-spouse could remain a beneficiary, leaving the donor giving indirect support to a former spouse. Two common drafting responses address this. A floating-spouse clause (also called a floating-spouse provision) defines the beneficiary as whoever the donor is married to at a given time, rather than naming the person, so a divorce automatically removes the ex-spouse. Alternatively, the trust can state that a beneficiary spouse’s interest terminates on divorce. Either way, the donor typically loses indirect access to the assets after a divorce.
Death of the beneficiary spouse
If the beneficiary spouse dies first, the access route ends because distributions ran through that spouse. The remaining assets generally pass to the remainder beneficiaries (often children) outside the taxable estate, but the surviving donor spouse loses the indirect access the SLAT was built to provide. Couples sometimes address this risk with life insurance on the beneficiary spouse.
The reciprocal trust doctrine
When both spouses each create a SLAT for the other, the reciprocal trust doctrine can undo the benefit. The controlling authority is United States v. Estate of Grace, 395 U.S. 316 (1969), where the Supreme Court held that if two trusts are interrelated and leave the settlors in approximately the same economic position as if each had created a trust for himself, the trusts can be uncrossed, without any need to prove a tax-avoidance motive. The value can then be pulled back into the estate under IRC 2036. To reduce this risk, attorneys make the two trusts meaningfully different.
- Fund the two trusts at different times and with different assets and amounts.
- Use different trustees or different distribution standards in each trust.
- Give one spouse a limited power of appointment the other does not have.
- Name different remainder beneficiaries or different terms in each trust.
Benefits vs drawbacks of a SLAT
The central benefit of a SLAT is removing assets and their future appreciation from the taxable estate while keeping indirect access through the beneficiary spouse, plus creditor protection and grantor-trust tax burn. The central drawbacks are irrevocability, no step-up in cost basis at death, and the loss of access if the marriage or the beneficiary spouse’s life ends. The table below sets them side by side.
| Potential benefits | Potential drawbacks and risks |
|---|---|
| Uses the donor’s $15,000,000 (2026) lifetime exemption to move assets out of the estate (Source: IRS, Rev. Proc. 2025-32). | The trust is irrevocable; the donor gives up ownership and control and cannot retrieve the assets. |
| Future appreciation on gifted assets grows outside the taxable estate. | No step-up in cost basis at death; the trust takes carryover basis under IRC 1015, so embedded gains remain taxable. |
| Indirect access continues while the marriage lasts and the beneficiary spouse is living. | Divorce can end the household’s indirect access, since the beneficiary is a spouse. |
| Grantor-trust status lets the donor pay the trust’s income tax, a tax-free “burn” that further reduces the estate (Rev. Rul. 2004-64). | Death of the beneficiary spouse cuts off the access route to distributions. |
| Creditor and asset protection through an irrevocable trust with spendthrift terms. | The reciprocal trust doctrine can cause estate inclusion under IRC 2036 (Estate of Grace, 395 U.S. 316). |
Whether the benefits outweigh the risks depends on net worth, marital stability, liquidity needs, and how much of the gifted assets carry unrealized gains. Because a SLAT interacts with income taxes, couples often model it alongside decisions like how much to convert to Roth and the break-even point on those conversions.
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Frequently asked questions
How does a spousal lifetime access trust work?
A spousal lifetime access trust works by having one spouse make a completed gift to an irrevocable trust for the other spouse, using the donor’s lifetime exemption ($15,000,000 in 2026). The assets and their appreciation leave the taxable estate, a trustee makes distributions to the beneficiary spouse for the household’s benefit, and remainder beneficiaries (often children) receive what is left (Source: IRS, Rev. Proc. 2025-32).
What is the downside of a SLAT?
The main downsides of a SLAT are its irrevocability, the loss of a step-up in cost basis at death, and the risk of losing indirect access. The donor cannot retrieve the assets, divorce or the beneficiary spouse’s death can end the household’s access, and gifted assets take carryover basis under IRC 1015 rather than a stepped-up basis, leaving embedded gains taxable.
Can both spouses set up a SLAT for each other?
Both spouses can each create a SLAT, but the reciprocal trust doctrine can undo the benefit if the two trusts are too similar. Under United States v. Estate of Grace, 395 U.S. 316 (1969), interrelated trusts that leave the settlors in about the same economic position can be uncrossed, causing estate inclusion under IRC 2036. Attorneys make the two trusts meaningfully different to reduce this risk.
What happens to a SLAT in a divorce?
A SLAT is irrevocable, so divorce does not dissolve it, and by default an ex-spouse could remain a beneficiary. A floating-spouse clause defines the beneficiary as whoever the donor is currently married to, so divorce automatically removes the ex-spouse. Alternatively, the trust can terminate the spouse’s interest on divorce. Either way, the donor usually loses indirect access to the assets after divorce.
Is a SLAT a grantor trust?
Yes, a SLAT is usually structured as a grantor trust under the rules of IRC 671 to 679. The donor spouse reports the trust’s income on a personal Form 1040 and pays the income tax. Because Revenue Ruling 2004-64 treats that tax payment as not an additional gift, it acts as a tax-free “burn” that further reduces the donor’s taxable estate.
Does a SLAT get a step-up in basis?
No. Assets gifted to a SLAT are removed from the estate by completed gift, so they do not receive the IRC 1014 step-up in cost basis at the donor or beneficiary spouse’s death. The trust and its remainder beneficiaries generally take the donor’s carryover basis under IRC 1015, so unrealized gains remain subject to future capital gains tax.
How much can you put in a SLAT?
There is no fixed dollar cap on a SLAT, but transfers use the donor’s lifetime gift and estate tax exemption, which is $15,000,000 per individual in 2026 (Source: IRS, Rev. Proc. 2025-32). Gifts above the remaining exemption are subject to the 40% federal gift tax rate. A married couple could shelter up to $30,000,000 combined using two individual exemptions.
Who pays the taxes on a SLAT?
The donor spouse generally pays the taxes on a SLAT. Because most SLATs are grantor trusts, the donor reports the trust’s income, dividends, and capital gains on a personal return and pays the income tax (Rev. Rul. 2004-64 treats this as not an added gift). Any gift tax on funding above the exemption is also the donor’s, reported on IRS Form 709.
