Trust Law/Level III · Family trusts/3.3 Couples and blended families/Lesson 4
Spousal lifetime access trusts (SLAT)
How one spouse can give assets to a trust for the other spouse, and the risks that come with it.
Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.
The lean path
The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.
- Most couples need no SLAT: with a 2026 basic exclusion of $15 million per person and portability, federal estate tax is zero below that. Catch: some state estate taxes start far lower, and portability must be elected on Form 706.
- Annual exclusion gifts cost nothing: $19,000 per recipient in 2026, plus unlimited direct tuition and medical payments (IRC §2503(e)). Catch: larger gifts to anyone but a US-citizen spouse require Form 709 by 15 April of the next year.
- If a SLAT is used, fund it from the settlor’s separate property and avoid near-identical trusts for each spouse (United States v. Estate of Grace, 1969). Catch: file Form 709 by 15 April of the following year to report the gift.
- Paying tax on SLAT income as a grantor trust (IRC §677) shrinks the settlor’s estate while trust assets grow without that drag. Catch: the tax duty can survive divorce (§672(e)), so define the beneficiary as the current spouse when drafting.
MaterialsA copy of your current will and any existing trust documentsThe current US federal gift and estate tax exclusion figures for the year you are reading (2025: $13.99 million per person; 2026: $15 million per person)A list of assets you own, noting which are in one spouse’s sole name and which are joint or, in some states, community property
Wonder
- What happens to the money if my spouse dies before me?
- Does this protect us from a future divorce?
- Why would I pay income tax on money that isn’t technically mine?
Explore
- A spousal lifetime access trust (SLAT) is an irrevocable trust that one spouse, the settlor, creates and funds for the benefit of the other spouse and often their descendants. The settlor is not a beneficiary. Because the transfer is a completed gift, the assets and their later growth are generally kept out of the settlor’s taxable estate, while the family keeps indirect access through distributions to the beneficiary spouse. That access depends on the trust’s terms and the trustee’s decisions, and it lasts only while the marriage and the beneficiary spouse do.
- Funding a SLAT uses the settlor’s lifetime gift and estate tax exclusion. Under US federal law the basic exclusion is $13.99 million per person for 2025 and $15 million per person for 2026, set by the One Big Beautiful Bill Act of July 2025 and inflation-indexed from 2027. Gifts within the exclusion usually cause no gift tax at the time, though a gift tax return is generally required. Because the trust is irrevocable, the settlor cannot take the assets back if their own finances, health or plans change.
- A known risk is the reciprocal-trust doctrine. In United States v. Estate of Grace (1969), a husband and wife had created nearly identical trusts for each other. The US Supreme Court held that when trusts are interrelated and leave each settlor in about the same economic position as if each had created a trust for themselves, the trusts are ‘uncrossed’: each settlor is treated as the settlor of the trust the other created, and its value is included in the settlor’s estate. No tax-avoidance motive has to be shown. Couples who each create a SLAT for the other therefore face this question.
- Divorce is another risk. If the trust names the beneficiary spouse by name, the former spouse may keep their benefits after a divorce unless the trust says otherwise. Income tax can also follow the settlor: the grantor-trust rules treat a spouse’s interest as the settlor’s own for a person who was the settlor’s spouse when the trust was created (Internal Revenue Code §672(e)), so the settlor may keep paying tax on income that benefits a former spouse. The beneficiary spouse’s death is a third risk: the settlor’s indirect access through that spouse ends.
- A SLAT is usually a grantor trust for federal income tax. Under Internal Revenue Code §677, the settlor is treated as the owner of trust income that may be paid to the settlor’s spouse without the consent of an adverse party. The settlor therefore reports and pays tax on the trust’s income, even when it is kept in the trust or paid to the spouse. Paying that tax reduces the settlor’s own assets, and so the settlor’s taxable estate, while the trust’s assets are not used for the tax. Some people see this as an advantage; others find the yearly tax bill a burden.
- Funding needs care. Assets must actually be transferred into the trust; a pour-over will is not the usual way to fund a lifetime SLAT. If the assets come partly from the beneficiary spouse, for example joint property or community property, that spouse may be treated as a settlor too, which can undo the intended result. Assets given to a SLAT are generally beyond the settlor’s own creditors, but transfers can be challenged under fraudulent-transfer law. Drafting costs, state rules and tax results vary widely; this lesson does not suggest whether a SLAT suits any family.
Key facts
- The US federal basic exclusion amount is $13.99 million per person for 2025.
- The 2026 US federal basic exclusion amount is $15 million per person, set by the One Big Beautiful Bill Act of July 2025.
- In United States v. Estate of Grace (1969), the US Supreme Court held that interrelated trusts that leave each settlor in about the same economic position are ‘uncrossed’, so each settlor is taxed as if they had created the trust for themselves.
- A SLAT is an irrevocable trust; the settlor cannot unilaterally change or end it.
- A SLAT is usually a grantor trust under Internal Revenue Code §677, so the settlor pays income tax on trust income even though the settlor is not a beneficiary.
- A SLAT benefits the beneficiary spouse and often descendants on the terms the trust sets; the settlor’s indirect access can end with divorce or the beneficiary spouse’s death.
Exercise nine, six, three, one
9CollectList up to 9 assets you own (most families have fewer), noting for each whose name it is in (one spouse, both, or community property) and its rough value.
6ClusterSort the assets into 6 categories: cash, investments, real estate, business interests, retirement accounts, and other property, marking each as sole, joint or community.
3DistillReduce the 6 categories to 3 groups: assets in one spouse’s sole name, assets owned jointly or as community property, and assets such as retirement accounts that usually cannot be moved into a trust during life without tax consequences.
1CrystallizeWrite 1 sentence naming which of the risks in this lesson (reciprocal trusts, divorce, the beneficiary spouse’s death, or the yearly income tax) you would most want explained before any decision.
Fact check
Dates, figures and claims checked against the published sources listed below.