Is A Spousal Lifetime Access Trust (SLAT) Right for Me?
Spousal Lifetime Access Trusts (SLATs): An Estate Planning Tool for Married Couples
For married couples with substantial assets, being able to remove assets from their taxable estates without completely giving up access to those assets is a smart estate planning goal. One planning technique designed to accomplish that goal is the Spousal Lifetime Access Trust, commonly called a “SLAT”.
A SLAT is an irrevocable trust created by one spouse for the benefit of the other, often with children or other descendants included as additional beneficiaries. When properly structured, assets transferred to the SLAT (and the future appreciation of those assets) may be removed from the originator’s taxable estate while the beneficiary-spouse can continue to receive distributions from the trust.
SLATs offer an attractive combination of estate-tax planning, long-term family wealth planning, and potential asset protection. But of course, like any tool that allows a person to avoid taxes, SLATs involve tradeoffs; in the estate planning world, you can never have full asset and creditor protection without giving up something in return. A SLAT is generally irrevocable, and the spouse creating it should not assume that the transferred property can simply be taken back later or used completely for their benefit while it’s in force. Additionally, if both spouses want to create one for the other, the drafting attorney must be very careful not to make the spousal support awards or terms too similar or they could be disregarded by the IRS.
How Does a SLAT Work?
Assume Husband owns investments worth $5 million in his individual name. Husband creates an irrevocable trust for Wife and their children, and then transfers the investments to the trust. Husband is the grantor or settlor, the person creating and funding the trust. Wife and children are beneficiaries. Depending on how the trust is drafted, an independent trustee may have discretion to distribute trust income or principal to Wife during her lifetime for her needs. After Wife's death, the remaining assets might continue in trust for the couple's children and later descendants.
If the transfer is properly structured as a completed gift, and the trust is drafted and administered appropriately, the transferred property may no longer be considered part of Husband's taxable estate by the IRS. If the $5 million transferred to the trust eventually grows to $10 million, that appreciation may also remain outside of Husband's estate. This is important because when a person dies, the value of their estate is added up to come up with a gross value, and that value must be below the federal exemption amount to not be taxed.
While the Husband is receiving these tax benefits, Wife remains a potential beneficiary of the trust. The family has therefore transferred wealth outside Husband's estate without necessarily cutting off all potential access to the transferred wealth. That indirect access is the feature that gives the SLAT its name: Spousal Lifetime Access Trust.
Why Are SLATs Used?
The principal reason for creating a SLAT is typically federal estate and gift tax planning. Federal law provides each individual with an exemption that can be used to transfer a certain amount of property during life or at death without federal gift or estate tax. For 2026, the federal basic exclusion amount is $15 million per individual. A properly structured gift to a SLAT generally uses some of the grantor-spouse's available gift and estate tax exemption. The tradeoff is that the gifted property and subsequent appreciation can potentially remain outside that spouse's taxable estate.
We expect this Federal estate tax exemption amount to decrease when a new administration is in the White House, but what it will decrease to is anyone’s guess, which will likely make the SLAT even more attractive in the coming years. This means that SLATs will become even more attractive to a greater audience.
SLATs can be particularly valuable when a family owns assets expected to appreciate substantially, such as a closely held business, investment portfolio, real estate, or other growth assets. The strategy is not limited to families whose estates already exceed the federal exemption. Families approaching that level may use SLATs as part of longer-term planning, particularly when significant future appreciation is expected.
The Major Benefits of a SLAT
Removing Future Appreciation from the Taxable Estate. One of the most important advantages of a SLAT is the ability to move appreciating assets outside the grantor's taxable estate. For example, suppose a spouse transfers $4 million of assets to a SLAT. Twenty years later, those assets are worth $12 million. Assuming the trust has been properly structured and administered, the entire $12 million may potentially remain outside the grantor's taxable estate. In that sense, the benefit is not simply transferring today's value; it is also transferring the future growth on that value.
Potential Access Through the Beneficiary-Spouse. A direct gift to children generally means the parents no longer have access to the gifted property. A SLAT is different because the grantor's spouse remains a beneficiary. Depending on the trust's terms, the trustee may make distributions to the beneficiary-spouse for health, education, maintenance and support, or pursuant to another properly drafted distribution standard. Some SLATs instead give an independent trustee broader discretion over distributions. Those distributions can benefit the beneficiary-spouse and, practically, may also benefit the married household. However, this feature should not be misunderstood. The grantor does not retain a legal right to the trust assets merely because the grantor is married to a beneficiary. A SLAT should be established only if the grantor is genuinely willing to give up ownership and control of the transferred property.
Potential Creditor Protection. A properly drafted irrevocable trust may also provide protection against certain creditors of a beneficiary. This is an area where Tennessee law can be particularly relevant. Tennessee's trust statutes provide substantial protection for properly structured spendthrift and discretionary trust interests. Tenn. Code Ann. § 35-15-502 recognizes spendthrift provisions that restrict both voluntary and involuntary transfers of a beneficiary's interest, while § 35-15-504 provides significant protection for discretionary trust interests. Tennessee law also contains a provision particularly relevant to spousal trusts. Under Tenn. Code Ann. § 35-15-505(h), a beneficiary is generally not treated as the settlor of an irrevocable inter vivos trust merely because the beneficiary's spouse contributed the property to the trust. The statute applies even where the spouses have created irrevocable trusts for one another, although the precise structure and facts remain important. These rules can make Tennessee an attractive jurisdiction for certain trust structures. Creditor protection is nevertheless highly fact-specific and should never be viewed as absolute.
Multigenerational Planning. A SLAT does not necessarily have to terminate when the beneficiary-spouse dies. The trust can be designed to continue for children, grandchildren, and potentially later generations. This may allow assets to remain in trust rather than passing outright to beneficiaries. Long-term trusts can provide additional benefits, including professional or controlled management of assets and potential protection from beneficiaries' creditors. They can also protect family wealth from being transferred outside the family through a beneficiary's later divorce or poor financial decisions, subject to applicable law and the terms of the trust. For appropriate families, generation-skipping transfer ("GST") tax planning may also be incorporated into the structure.
Grantor Trust Treatment Can Provide an Additional Planning Benefit. Many SLATs are intentionally drafted as "grantor trusts" for federal income tax purposes. In simplified terms, this means the grantor continues to report the trust's taxable income on the grantor's individual income tax return even though the trust assets are outside the grantor's estate for estate-tax purposes. At first glance, paying tax on income generated by assets someone no longer owns may sound like a disadvantage. From an estate-planning perspective, however, it can be beneficial. The grantor's payment of the income tax allows the trust assets to grow without being depleted by those income-tax payments, effectively allowing additional wealth to accumulate for the trust beneficiaries.
What Are the Downsides to SLATs?
SLATs are powerful planning tools precisely because the grantor is making a genuine transfer of property. That creates several important disadvantages.
Loss of Ownership and Control. The most significant disadvantage is easy to see: the assets transferred to the SLAT no longer belong to the grantor. A SLAT is generally irrevocable. The grantor cannot treat it like a savings account and withdraw property whenever desired. The trust agreement may contain considerable flexibility, and Tennessee law offers sophisticated trust-planning tools, but the basic transfer must still be respected. A person should not establish a SLAT with assets that he or she is likely to need personally.
Divorce Can Eliminate the Grantor's Indirect Access. The grantor's practical access to SLAT assets exists primarily because the grantor is married to a trust beneficiary. If the couple divorces, that practical benefit may disappear. Careful drafting can address what happens to a spouse's beneficial interest following divorce, but no drafting provision changes the fundamental issue: assets previously owned by the grantor have been transferred to an irrevocable trust. For this reason, the stability of the marriage is an important practical consideration when deciding whether a SLAT is appropriate.
The Beneficiary-Spouse Could Die First. Similar concerns arise if the beneficiary-spouse dies before the grantor. The trust may continue for children or other beneficiaries, but the grantor's indirect household access to trust assets may disappear. Life insurance, trust provisions, powers of appointment, and other planning techniques can sometimes mitigate this risk, but they do not eliminate it entirely.
Income Tax Basis Can Become a Significant Issue. This is one of the SLATs biggest downsides. Estate-tax savings should not be considered in isolation from income taxes. Assets included in a person's taxable estate may receive an adjustment in income-tax basis at death under federal tax law. By contrast, assets that were transferred by completed gift to an irrevocable grantor trust and are not included in the grantor's gross estate generally do not receive a basis adjustment merely because the grantor dies. The IRS expressly addressed this issue in Revenue Ruling 2023-2. This creates an important planning tradeoff. Removing a highly appreciated asset from an estate may save estate tax, but doing so may sacrifice a future income-tax basis adjustment. Depending on the family's wealth, the type of asset, its tax basis, expected appreciation, and future tax rates, that tradeoff can be significant. Good SLAT planning therefore considers both estate tax and capital-gains tax consequences, rather than focusing solely on reducing the taxable estate.
Gift Tax Returns and Valuation Requirements. Funding a SLAT usually involves a taxable gift for reporting purposes, even when no gift tax is actually payable because the grantor applies available lifetime exemption. A federal gift tax return Form 709 will commonly be required. The IRS notes that gift-tax filings involving transferred property may require supporting documentation, including appraisals and relevant transfer documents. If the SLAT is funded with interests in a closely held company, partnership, LLC, or other difficult-to-value property, a qualified appraisal or valuation analysis may be particularly important (and expensive).
Administrative Complexity and Expense. A SLAT is not simply a document that should be signed and forgotten. The trust must be properly funded and administered. Depending on its structure, administration may involve separate accounts, investment management, trustee decisions, tax reporting, recordkeeping, appraisals, and coordination among attorneys, accountants, financial advisors, trustees, and other professionals. The family must also respect the legal separation between the grantor and the trust. Failure to follow the rules of the trust or to administer it properly could entirely remove the treatment a SLAT would normally receive from the IRS.
Can Both Spouses Create SLATs?
Yes, but this requires considerable care. For example, Husband might create a trust for Wife and descendants, while Wife creates a separate trust for Husband and descendants. The danger is the federal “reciprocal trust doctrine”. If two trusts are essentially mirror images of one another, the IRS may attempt to "uncross" the trusts and treat each spouse as effectively having created a trust for himself or herself. That could undermine important estate-tax objectives.
Couples considering two SLATs should not simply sign identical trusts and contribute equivalent assets on the same day. The trusts may need meaningful differences in their terms, timing, assets, beneficiaries, distribution standards, powers, trustees, or other features. The appropriate distinctions depend on the circumstances and should be designed by an experienced estate-planning attorney.
Why Tennessee Law Can Matter
Tennessee has developed a comparatively sophisticated statutory framework for trusts. In addition to the Tennessee Uniform Trust Code, Tennessee has enacted the Tennessee Investment Services Act of 2007, Tenn. Code Ann. § 35-16-101 et seq., which permits certain qualifying irrevocable trusts to receive additional protections when statutory requirements are satisfied.
Among other requirements, an investment services trust must expressly incorporate Tennessee law and use a "qualified trustee" satisfying Tennessee statutory requirements. Tennessee law also expressly recognizes substantial protections for discretionary interests and spendthrift trusts and contains specific rules addressing trusts funded by one spouse for another.
These provisions can be useful when designing a SLAT for Tennessee residents or when considering Tennessee as the governing jurisdiction of a trust. Keep in mind that a conventional SLAT and a Tennessee Investment Services Trust are not necessarily the same thing. Whether the additional requirements and protections of the Investment Services Act should be incorporated into a particular estate plan depends on the client's objectives, assets, creditor concerns, trustee arrangements, and tax planning.
Is a SLAT Right for Everyone?
No, definitely not. A SLAT tends to be most useful for married individuals who have substantial assets, expect those assets to appreciate, and can comfortably transfer a meaningful amount of wealth without depending on those assets for their own future financial security. The analysis is increasingly important in light of the current federal exemption.
For 2026, the federal basic exclusion amount is $15 million per individual. A married couple with an estate well below the applicable federal thresholds may obtain relatively little federal estate-tax benefit from making a large irrevocable gift, particularly if doing so causes the family to sacrifice a valuable basis adjustment at death.
On the other hand, families with rapidly appreciating businesses, concentrated investment positions, substantial real estate holdings, or estates likely to grow considerably may still find lifetime planning valuable, especially considering the idea that the exemption could be lowered significantly in the future. The decision about whether to use a SLAT should take into consideration what taxes, risks, and family objectives we are trying to address, and whether a SLAT the most effective way to accomplish those goals.