If you are researching spousal lifetime access trust pros and cons, you are likely trying to answer one question: can we move assets out of our taxable estate without giving up access completely? A spousal lifetime access trust, often called a SLAT, is one tool some married couples consider for that goal.
A SLAT can be useful in the right situation, but it is also an irrevocable decision with real tradeoffs. This article focuses on what couples should weigh before moving forward, including the risks that are easy to overlook.
What Is a Spousal Lifetime Access Trust?
A SLAT is an irrevocable trust that one spouse creates and funds with a gift for the benefit of the other spouse, and often their children or other descendants.
Because the transfer is a completed gift, the assets and their future growth are generally removed from the donor spouse's taxable estate. Because the other spouse is a beneficiary, the household may still benefit from the trust indirectly through distributions to that spouse.
Key roles in a SLAT
Grantor (donor spouse): The spouse who creates and funds the trust.
Beneficiary spouse: The spouse who can receive distributions under the trust terms.
Trustee: The person or institution that manages the trust and makes distribution decisions.
Remainder beneficiaries: Often children or grandchildren who benefit later.
For a broader introduction, see our article on understanding spousal lifetime access trusts.
The Potential Pros of a SLAT
Couples often look at a SLAT for these potential advantages:
Using the lifetime gift and estate tax exemption
A SLAT can use some or all of the donor spouse's lifetime gift and estate tax exemption. The exemption amount has been the subject of recent legislation and can change again, so check current IRS guidance for the amount that applies to you.
Removing future growth from the estate
Once assets are in the trust, any future appreciation may also stay outside the donor spouse's estate. For families expecting assets to grow, this can be a meaningful part of the conversation.
Indirect access through the beneficiary spouse
Unlike some other irrevocable gifts, a SLAT may allow the beneficiary spouse to receive distributions. This "access" is a big reason couples are drawn to this structure.
Possible grantor trust treatment
Many SLATs are designed as grantor trusts for income tax purposes. That generally means the donor spouse pays the income tax on trust earnings, which may allow trust assets to grow without being reduced by those taxes.
Potential creditor protection
Depending on state law and how the trust is drafted, assets in an irrevocable trust may have some protection from future creditors. Rules vary by state.
The Potential Cons of a SLAT
This is where the decision gets more personal. Some of the most important SLAT pros and cons involve relationships, not just taxes.
It is irrevocable
Once you fund a SLAT, you generally cannot take the assets back or easily change the terms. Some trusts include flexibility provisions, but you should plan as if the decision is permanent.
Divorce risk
If the couple later divorces, the beneficiary spouse may continue to benefit from the trust, depending on how it was drafted. The donor spouse may lose indirect access entirely. This is one of the most frequently searched concerns, and it deserves an honest conversation with your attorney.
Death of the beneficiary spouse
If the beneficiary spouse passes away first, the donor spouse's indirect access through that spouse may end. The trust typically passes to the remainder beneficiaries.
No step-up in basis
Assets in a SLAT are generally not included in the donor's estate, which also means they may not receive a step-up in cost basis at death. Heirs could face higher capital gains taxes when they sell.
Ongoing income tax cost
The grantor trust feature that can be a benefit is also a cost. The donor spouse must have enough other resources to pay income tax on trust earnings each year.
Reciprocal trust concerns
Some couples consider creating two SLATs, one for each spouse. If the trusts are too similar, tax authorities may disregard them under what is known as the reciprocal trust doctrine. Careful drafting by an estate planning attorney is important.
Questions to Ask Before Creating a SLAT
Before moving forward, consider asking:
Can we afford to give these assets away? Will our lifestyle still be supported by what we keep outside the trust?
What happens if we divorce or one of us dies?
Who should serve as trustee, and what powers should they have?
Which assets make sense to transfer? Some assets may be better candidates than others.
How will the trust fit with our wills, other trusts, and beneficiary designations?
What are the ongoing costs for tax filings, trustee fees, and administration?
How a Financial Advisor Fits Into SLAT Planning
A SLAT is a legal document, so it must be drafted by an estate planning attorney. A financial advisor may help in a different way by looking at your full picture: cash flow, investments, retirement income needs, and how a gift today could affect your plan later.
At VestGen, our Estate Planning services involve working with estate planning attorneys on wills, trusts, and wealth transfer. Our Tax Optimization services review tax considerations as part of your broader plan. Learn more on our Services page.
Who VestGen Serves and Where
Every financial journey is distinct, and so is our approach. VestGen Wealth Partners offers bespoke wealth management solutions crafted to align with your individual goals and aspirations. We go beyond traditional financial planning to deliver solutions that are as unique as our clients' ambitions.
VestGen serves clients across the nation through many office locations, including Chicago, Glen Ellyn, Schaumburg, Naperville, Oak Brook, South Barrington, St. Charles, and Downers Grove in Illinois, Kirkwood and Kansas City in Missouri, and locations in Texas, New Jersey, Florida, and North Carolina. You can find an advisor near you.
Ready to Start Your Journey?
A SLAT is a significant decision, and it works best when it fits within a thoughtful overall plan. If you would like to talk through your estate and wealth transfer goals, contact VestGen Wealth Partners to schedule a consultation with one of our advisors. Together, we can chart a course toward your financial future.
Frequently Asked Questions
What are the disadvantages of a spousal lifetime access trust?
Common disadvantages include that the trust is irrevocable, access may be lost after divorce or the beneficiary spouse's death, assets may not receive a step-up in basis, and the donor spouse may owe income tax on trust earnings.
What happens to a SLAT in a divorce?
It depends on how the trust is drafted and state law. In many cases, the beneficiary spouse may continue to benefit, and the donor spouse may lose indirect access. Discuss this scenario with your attorney before creating the trust.
Can both spouses create a SLAT?
Yes, some couples create two SLATs. However, if the trusts are too similar, they may be challenged under the reciprocal trust doctrine. An estate planning attorney can help design them to reduce that risk.
Do assets in a SLAT get a step-up in basis?
Generally no, because the assets are typically outside the donor's taxable estate. This can mean higher capital gains taxes for heirs, so it is worth comparing against the potential estate tax benefits.
Is a SLAT still worth it if estate tax exemptions are high?
It depends on the size of your estate, expected growth, state estate taxes, and family goals. Exemption amounts can change through legislation, so review current IRS guidance and your situation with your attorney and advisor.
Who should be the trustee of a SLAT?
Some couples name the beneficiary spouse, while others choose an independent trustee or institution. The choice can affect taxes and control, so it should be reviewed with an estate planning attorney.
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