A spousal lifetime access trust (SLAT) is an irrevocable trust one spouse creates for the benefit of the other (and often descendants), using the donor spouse's exemption to move assets and appreciation out of both spouses' estates while preserving indirect access through distributions to the beneficiary spouse. It is the leading way to 'use it or lose it' on a large exemption without fully giving up access.
- The donor spouse makes a completed gift to the SLAT, using exemption; assets and growth leave the taxable estate.
- The beneficiary spouse can receive distributions (HEMS or broader), giving the couple indirect access while married.
- Typically structured as a grantor trust so the donor pays income tax, compounding the benefit; can be GST-exempt for dynasty planning.
Reciprocal trust doctrine
If both spouses create SLATs for each other that are substantially identical, the IRS can 'uncross' them (Grace), unwinding the estate-tax benefit. Differentiate the trusts materially: different funding amounts and assets, different terms, powers of appointment, trustees, and creation dates.
- Access is lost if the beneficiary spouse predeceases the donor or on divorce — mitigate with a lifetime QTIP, floating-spouse provisions, or a special power of appointment.
- Distributions to the beneficiary spouse that are re-pooled into the marital economy risk implicit retained-enjoyment arguments; keep distributions purposeful and documented.
- Watch the step-transaction risk if assets are gifted to the beneficiary spouse first and then to the SLAT.
Key takeaways
- A SLAT uses a spouse's exemption now while preserving indirect access through the beneficiary spouse.
- Avoid the reciprocal trust doctrine by making paired SLATs materially different.
- Plan for loss of access on death or divorce with floating-spouse clauses, lifetime QTIPs, or powers of appointment.
Authorities
- United States v. Estate of Grace, 395 U.S. 316 (1969) — Reciprocal trust doctrine.
- IRC 2036, 2038, 2511; grantor-trust rules IRC 671-679