What Is a Spousal Lifetime Access Trust (SLAT)?

How Does a Spousal Lifetime Access Trust Work?

One spouse, called the donor or grantor, creates the SLAT and transfers assets into it. These assets are removed from the donor's taxable estate. The other spouse is named as a beneficiary and can receive distributions from the trust during their lifetime. When the beneficiary spouse passes away, the remaining trust assets go to other named beneficiaries, usually the couple's children.

Because the SLAT is irrevocable, the donor spouse gives up direct control of the transferred assets. However, because the beneficiary spouse can receive distributions, the couple still has indirect access to the wealth. The trust is typically structured as a grantor trust, which means the donor spouse pays income taxes on trust earnings. This allows the trust assets to grow without being reduced by taxes, effectively increasing what passes to the next generation.

The donor spouse reports the transfer on a federal gift tax return (Form 709) and applies their lifetime exemption so no gift tax is owed. Almost any individually owned asset can fund a SLAT, including cash, marketable securities, real estate, business interests, and life insurance policies. Community property in states like California must first be converted to separate property before it can be transferred into a SLAT.

What Are the Benefits of a SLAT Trust?

The primary benefit is estate tax reduction. Assets transferred to a SLAT, plus all future appreciation, are excluded from both spouses' taxable estates. For a couple with $35 million in combined assets, funding two SLATs with $15 million each could remove up to $30 million from their estate, sheltering it from the 40% federal estate tax rate.

Other key benefits include:

• Continued access to wealth through the beneficiary spouse's distributions
• Creditor protection, since assets in the trust are generally shielded from claims against either spouse
• Grantor trust status, which allows trust assets to grow income tax-free inside the trust
• Flexibility to fund with cash, securities, real estate, business interests, or life insurance

Can Both Spouses Create a SLAT?

Yes, but with an important caveat. When both spouses create SLATs to benefit each other, the IRS may apply what is called the reciprocal trust doctrine. This rule says that if two trusts are substantially identical, the IRS can treat them as if each spouse created a trust for their own benefit, which would undo the estate tax savings.

To avoid this, each SLAT must be meaningfully different. Couples and their attorneys typically vary the funding amounts, the timing of contributions, the distribution standards, the classes of beneficiaries, or the withdrawal rights between the two trusts. Working with an experienced attorney on this structure is essential.

What Are the Risks of a SLAT?

The biggest risk is that a SLAT is irrevocable. Once assets are transferred, the donor spouse cannot take them back. If the marriage ends in divorce, the donor spouse loses both the assets and the indirect access they had through their spouse.

Another consideration is that assets inside a SLAT do not receive a step-up in cost basis at death. This means beneficiaries who inherit appreciated assets may face capital gains taxes when they eventually sell. Some SLAT documents include a provision that allows the donor spouse to swap high-appreciation assets out of the trust for equal-value assets with a higher basis, which can help manage this issue.

Finally, if the beneficiary spouse dies before the donor spouse, the donor loses their indirect access to the trust entirely. This is a risk that both partners should discuss openly before creating a SLAT. Advisors generally recommend that the beneficiary spouse avoid taking distributions unless truly needed, since withdrawals bring assets back into their taxable estate and reduce the long-term growth potential of the trust.

Who Is a SLAT Best Suited For?

SLATs are designed for couples with significant combined wealth, typically those whose assets exceed or approach the federal estate tax exemption. They are especially valuable for:

• Tech founders and executives with large equity compensation packages
• Couples with rapidly appreciating assets like real estate or business interests
• Families in states like New York, where a separate state estate tax applies with a lower exemption
• Couples who want to transfer wealth now while maintaining some access through the beneficiary spouse

For couples in California, where there is no state estate tax but community property rules affect asset ownership, careful coordination is needed to ensure only individually owned assets are used to fund the SLAT.

How Does Neptune Help Couples Set Up a SLAT?

Neptune's estate planning service connects couples with experienced attorneys who understand advanced trust structures like SLATs. For $2,500 all-in, Neptune guides both partners through the preparation process together, helping you align on goals before involving legal counsel.

Because a SLAT involves coordination between both spouses, Neptune's platform is built to facilitate exactly that kind of joint decision-making. Whether you need one SLAT or a dual-SLAT structure, Neptune helps you start the conversation and connects you with the right professionals. To understand how irrevocable trusts compare to revocable ones, the Neptune trust guide explains the key differences.