The Role of Spousal Lifetime Access Trusts (SLATs) in Today’s Estate Planning Environment

Families with significant wealth face a very different planning landscape today. Rising portfolio values, higher interest rates, and significant changes in federal tax law have pushed estate planning back to the forefront.

Spousal Lifetime Access Trusts, often called SLATs, are receiving attention because they offer a way to move wealth out of a taxable estate while still keeping indirect access to those assets during a couple’s lifetime. This strategy is relevant only for families with significant projected estates. Most households will not face future estate tax exposure under the current exemption schedule.

A SLAT is not the right fit for everyone. It becomes compelling only when a family’s projected future estate exceeds the federal exemption or when they want to lock in today’s larger exclusion amount before it changes.

What makes the current environment unique

Estate planning is always shaped by tax law. The basic exclusion amount increases to $15 million per person, starting in 2026, and is indexed for inflation. That increase provides families with more room before facing federal estate taxes, but it doesn’t eliminate the need for planning.

The current exemption amount reflects the temporary increases enacted under the Tax Cuts and Jobs Act (TCJA), which expire after 2025. Although the 2026 amount is higher than the current exemption, the opportunity to use the TCJA-level exemption before it expires remains relevant for very high-net-worth families who want to lock in that amount before year-end 2025. The federal estate tax rate remains forty percent, which creates a powerful incentive to shift appreciating assets out of an estate long before death.

A second factor is market growth. Many families now hold far more wealth in taxable accounts than they did a decade ago. Appreciation accelerates exposure to future estate taxes, especially when a portfolio grows faster than inflation or income. Moving assets into an irrevocable trust early allows all future growth to occur outside the taxable estate, thereby maximizing the benefits of the trust.

The third factor is interest rates. The IRS uses specific interest rate assumptions for certain advanced planning strategies. When rates rise, some techniques become less attractive while others become more valuable. SLATs remain especially appealing because they don’t rely on interest rate arbitrage. Their benefit comes from removing appreciating assets and using a spouse as the primary lifetime beneficiary.

How a SLAT works

A SLAT is an irrevocable trust created by one spouse for the benefit of the other. The grantor spouse makes a completed gift to the trust, using part of their federal gift and estate tax exemption to shelter the transfer. The beneficiary spouse can receive distributions during life. After both spouses have passed away, the remaining assets pass to the children or other beneficiaries outside the taxable estate.

This structure offers two advantages. The first is estate tax reduction. Assets moved into the trust, along with all future appreciation, are no longer included in the grantor’s estate.

The second is indirect access. Because the beneficiary spouse can receive distributions, the couple retains practical access to the wealth.

SLATs must be drafted carefully. The trust must be irrevocable. The grantor cannot serve as a beneficiary. Custody and control of assets must follow strict rules. A mistake in drafting or administration can cause assets to be pulled back into the taxable estate, defeating the goal of the strategy.

Why high-net-worth families consider SLATs

A SLAT becomes valuable when a family expects its future estate to exceed the federal exemption. For many families with eight-figure net worths, projections show significant exposure once both spouses have passed and assets have appreciated over decades.

The strategy is most compelling when a couple wants to use the current exemption while it is still available. Although the exemption will reset to $15 million in 2026 under current law, long-term federal policy remains uncertain. A SLAT lets a family use a large portion of the exemption now. Once the transfer is complete, that exemption use is locked in.

A second reason families use a SLAT is to protect assets from risks that are separate from tax law. A well-drafted SLAT shields assets from future creditors. It also protects wealth for children and grandchildren in the event of remarriage or family conflict.

A third benefit is generational planning. Shifting wealth early enables families to plan how assets will be passed to the next generation. They can decide whether children receive assets outright or under a continuing trust. They can incorporate values, guardrails, or incentives to guide their decisions. A SLAT becomes one part of a broader plan to build long-term financial security for the family.

Important rules that guide SLAT design

Several technical rules govern the creation of a SLAT. A grantor cannot benefit from their own SLAT, so couples sometimes consider creating two reciprocal trusts. This approach must be handled with caution. Courts can treat two nearly identical trusts as a single arrangement, which may result in assets being included in both estates. Proper drafting avoids this problem by varying terms, timing, and structure.

The beneficiary spouse’s access must follow the trust document. Most SLATs allow distributions for health, education, maintenance, and support. Some families prefer broader discretionary standards. The correct choice depends on how much access the couple wants during life and how much creditor protection they want to preserve.

Administration matters after the trust is funded. Proper recordkeeping, separate accounts, and clear distribution procedures protect the tax benefits. These formalities prevent the IRS from arguing that the couple retained too much control.

Tax considerations that influence SLAT planning

Gifts to a SLAT are completed gifts for federal gift tax purposes. A family uses part of the donor spouse’s exemption when assets are transferred. If the assets appreciate significantly, the tax savings multiply because the appreciation occurs outside the estate, thereby reducing the tax burden.

Income tax treatment depends on whether the SLAT is drafted as a grantor trust. This means the grantor pays the income tax on the trust’s earnings, which allows the trust to grow more quickly. Under the grantor trust rules, the payment of income tax by the grantor is not treated as an additional gift. Over time, this structure further redistributes wealth out of the taxable estate.

A SLAT does not receive a step-up in basis when the grantor dies because the assets are excluded from the estate. This makes SLATs best suited for assets with modest embedded gains or for families whose primary goal is estate tax reduction rather than basis planning.

Credible factual principles continue to support the use of SLATs. The federal estate tax rate, the size of the basic exclusion amount, the treatment of completed gifts, the rules governing grantor trusts, and the reciprocal trust doctrine all shape how these trusts must be structured.

Who should consider a SLAT?

A SLAT makes sense when a couple has a combined net worth that is likely to exceed the future exemption, even after considering their lifetime spending. It also makes sense when a couple wants to shift future appreciation out of the taxable estate while keeping practical access through the beneficiary spouse.

This strategy is not well-suited for families that require complete control over their assets or expect to rely heavily on portfolio withdrawals for their financial needs. It also does not fit families whose net worth will remain well below the federal exemption.