A spousal lifetime access trust, or SLAT, can help a married couple make a substantial gift for the family’s future while allowing one spouse to remain a beneficiary. One spouse creates and funds the irrevocable trust. The other spouse, and often children or later generations, can receive benefits under its terms.
For a family with significant wealth or a growing business, that arrangement can move future appreciation outside the taxable estate while preserving a measure of family access. The right design begins with a practical question: How much can you comfortably commit to the trust while keeping the resources you need for your own life?
Key takeaways
- One spouse makes a completed gift to a trust that can benefit the other spouse and additional family members.
- The intended estate-tax benefits depend on the trust’s terms, funding, and administration.
- Existing appreciation and expected future growth are separate considerations when choosing assets.
- The donor often continues to pay the trust’s income tax even though the assets have been given away.
- Access, creditor protection, and what happens after a death or divorce belong in the initial planning conversation.
How a SLAT works | Funding choices | Tax returns | Common questions
How a SLAT serves a family
You transfer selected assets to an irrevocable trust. The trustee manages them and makes distributions under the standards in the document. Your spouse may receive income, principal, or both. After your spouse’s death, the trust can continue for children and other beneficiaries.
A properly structured SLAT is intended to keep its property and future growth outside the donor’s estate. It can also be designed to avoid inclusion in the beneficiary spouse’s estate. Retained powers, distribution rights, trustee selection, and actual conduct all matter to that result.
The gift generally uses the donor’s available estate and gift tax exclusion. The federal basic exclusion is $15 million per person in 2026, with prior taxable gifts affecting the amount still available. Funding decisions should reflect expected estate-tax exposure, the family’s spending needs, and the value of retaining flexibility.
Appreciated assets or cash?
A SLAT may hold investments, appropriate business interests, cash, or other suitable property. We look at two different questions: How much has this asset already gained in value, and how much growth might occur after the transfer?
Moving future growth outside the estate can be useful. Existing gain travels with appreciated property under the usual gift-basis rules. For example, securities worth $1 million with an adjusted basis of $200,000 generally retain that $200,000 basis after a gift, subject to applicable adjustments. A later sale requires someone to account for the gain.
Property given to a SLAT and excluded from your estate does not receive a basis adjustment at your death merely because you remain its income-tax owner. The IRS confirmed that distinction in Revenue Ruling 2023-2. It is one reason the capital-gains analysis belongs beside the estate-tax projection.
Cash or assets with relatively little built-in gain may preserve other appreciated property for a possible basis adjustment at death. An appreciated business interest may still be attractive when its anticipated growth and the family’s succession goals support the transfer. Selling an investment to raise cash can itself create tax, so we compare the actual alternatives before choosing.
Ownership matters, too. We confirm which spouse owns the property, whether it is jointly held, and whether a transfer would affect existing protections. Business agreements, valuation requirements, debt, and restrictions on eligible shareholders can also influence funding.
Who pays the tax?
A SLAT is often a grantor trust for income-tax purposes. That generally means the donor reports the trust’s taxable income and pays the resulting tax. The trust’s being irrevocable and outside the donor’s estate does not settle this separate income-tax question.
Paying that tax can allow more trust property to remain invested for the beneficiaries. Under Revenue Ruling 2004-64, the grantor’s payment of the income tax attributable to a grantor trust is not itself an additional gift to the beneficiaries. We also plan for the practical cost to the donor, particularly if the trust sells a valuable asset.
A tax-reimbursement provision needs careful drafting. Its effect depends on whether reimbursement is mandatory or discretionary and on the surrounding circumstances. It should be considered when the trust is created, along with the donor’s ability to carry the expected tax obligation.
Will it need a separate return?
Grantor trusts have special reporting rules. Some qualify for an optional method instead of Form 1041; others file an informational Form 1041 with a statement assigning income to the owner. The reporting method also affects the identification information used. Your CPA should select and consistently follow the appropriate approach.
The initial gift ordinarily requires Form 709 even if the available exclusion means no gift tax is payable. Gifts for grandchildren or later generations introduce generation-skipping transfer tax decisions as well. After a death or a change in the trust’s tax status, the reporting arrangement may change. Those transitions are part of ongoing administration.
Access and protection
The beneficiary spouse can receive distributions allowed by the trust. Those distributions may help support the household, but the donor should have sufficient resources outside the trust and should not rely on an informal arrangement to recover the property. The trustee must follow the actual terms.
For the spouse and later beneficiaries, appropriate discretionary and spendthrift provisions can provide protection from certain creditor claims. The donor’s position is different. Florida generally allows a donor’s creditors to reach amounts an irrevocable trust can distribute for that donor’s benefit. Transferring assets also remains subject to the law governing transfers prejudicing creditors.
Florida has a specific rule for certain spouse-benefit trusts after the beneficiary spouse dies. For the statutory category applicable to many SLATs, the spouse must be a beneficiary throughout life, the donor cannot be a beneficiary during that spouse’s life, and the transfers must be completed gifts. If the conditions are satisfied, the assets are treated as contributed by the deceased spouse for this creditor-law purpose. That can support carefully designed later benefits for the original donor, subject to the law governing transfers prejudicing creditors. See Florida Statutes section 736.0505.
Planning for changes in the family
We discuss what happens if the beneficiary spouse dies first, the marriage ends, a beneficiary develops a disability, or the family moves. The definition of spouse, the succession of beneficial interests, trustee powers, and tax provisions should work together.
Divorce deserves separate attention to both beneficiary rights and income-tax responsibility. Federal rules can attribute a spouse’s interests or powers to the donor based on the relationship when they were created. A change in marital status does not by itself provide a complete answer to the tax question.
The trust can also include carefully chosen flexibility for future circumstances. The appropriate mechanisms depend on the family’s goals and the tax consequences of each power. We explain who may exercise them and what they can accomplish.
Common questions about SLATs
Can we each create a trust for the other?
Possibly, with careful coordination. Interrelated trusts that leave each spouse in substantially the position of having created a trust for themselves can be challenged under the reciprocal trust doctrine. Different signing dates alone do not resolve the issue. Each trust needs a substantive design that fits its purposes.
Can my spouse be the trustee?
Sometimes. Distribution powers must be designed with estate inclusion and creditor protection in mind. An independent trustee or co-trustee may be appropriate for broader distribution authority or complex assets.
Can a SLAT hold a family business?
It may. We examine the entity’s governing documents, ownership restrictions, valuation, control, cash flow, and tax classification. The trust must be a suitable owner, and the family’s business succession arrangements should remain workable after the transfer.
How does it compare with a bypass trust?
A SLAT is funded during life. A bypass trust typically receives property at the first spouse’s death. The timing changes access, basis, tax reporting, and the opportunity to move future appreciation. We compare both approaches within your broader plan.
Start with the life you want to preserve
A SLAT works best when the family understands both the opportunity and the daily realities. I work with your CPA and financial advisers to evaluate funding, future income-tax obligations, and the resources you will keep outside the trust.
Contact Verras Law to arrange a consultation by appointment in Palm Harbor, Tampa, or St. Petersburg, or by Zoom or teleconference.
Sources and further reading
- IRS Form 709 instructions and Treasury Regulation section 1.671-4, addressing gift and grantor-trust reporting.
- Internal Revenue Code section 672(e) and section 677, addressing income-tax ownership and spousal interests.
- Section 1015, addressing basis following a gift.
- United States v. Estate of Grace, the Supreme Court’s reciprocal-trust decision.
- Florida Statutes section 736.0504, addressing discretionary interests.