SLATs: using your estate exemption now without giving up all access

The lifetime gift and estate tax exemption is historically high, and it is scheduled to change. Wealthy couples who want to 'use it or lose it' face a dilemma: gifting millions out of your estate today locks in the exemption, but what if you need that money later? A spousal lifetime access trust (SLAT) is the popular compromise: one spouse gifts assets into an irrevocable trust for the benefit of the other, moving wealth out of the estate while keeping indirect access through the beneficiary spouse.

The core idea

Spouse A creates an irrevocable trust and gifts assets to it, using part of A's lifetime exemption. Spouse B is a beneficiary and can receive distributions for health, education, maintenance, and support. Because the couple is married, money distributed to Spouse B still, practically, benefits the household — so the family has not truly lost access, yet the assets and all future growth sit outside both spouses' estates.

The two big risks

• Divorce: your access to the trust runs through your spouse. If you divorce, the beneficiary spouse (and the money) may walk away. Some SLATs add a 'floating spouse' clause defining the beneficiary as 'whoever I am currently married to,' but this is delicate drafting.
• Death of the beneficiary spouse: if the spouse you rely on for indirect access dies, that access can end, leaving the grantor spouse cut off from the funds. Life insurance on the beneficiary spouse is a common backstop.
• The reciprocal trust doctrine: if BOTH spouses create near-identical SLATs for each other, the IRS can 'uncross' them and treat each as if they kept their own — undoing the benefit. The two trusts must be meaningfully different.

Two SLATs, done carefully

Couples often want each spouse to have a SLAT so both retain some access. That is possible, but the trusts must differ in real ways — different funding amounts, different terms, created at different times, with different powers — to avoid the reciprocal trust doctrine. Cookie-cutter mirror-image SLATs are exactly what the IRS looks for.

The bottom line

A SLAT lets a married couple use today's large exemption to move wealth — and its future growth — out of the estate, while one spouse retains indirect access as a beneficiary. It is a leading strategy ahead of a scheduled exemption decline. The price of that flexibility is fragility: divorce or the beneficiary spouse's death can sever your access, and sloppy mirror-image drafting invites the reciprocal trust doctrine. Powerful, but only in careful hands.