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Trusts & Estates

May 13, 2022

The Importance of Carefully Crafted SLATs

Executive Summary

• A Spousal Lifetime Access Trust, also called a Spousal Limited Access Trust or SLAT, may be created by one spouse for the benefit of the other to ensure the availability of assets for use by the beneficiary spouse and mitigate transfer tax exposure at the death of the survivor.

• A SLAT provides the opportunity for a married individual to use his or her federal estate tax exemption amount ($11,700,000 in 2021) without fear of compromising the financial well-being of one’s spouse.

• A SLAT is designed to create a reserved pool of assets for a beneficiary spouse that can be accessed if needed, while affording asset protection and greater administrative flexibility than some other trust vehicles.

• A SLAT is an irrevocable trust and can be an effective tool for multi-generational planning.

How a SLAT works

A SLAT is an irrevocable trust that one spouse creates during his or her lifetime for the benefit of the other spouse. To fund the SLAT, the donor spouse/creator of the trust makes a gift to the trust, usually part or all of the donor spouse’s remaining federal estate tax exemption amount. During the lifetime of the beneficiary spouse, the beneficiary may receive distributions of income and/or principal from the SLAT. The beneficiary spouse may serve as a Trustee, so long as the SLAT prohibits a beneficiary Trustee from making discretionary distributions for his or her own behalf. The donor spouse may not serve as Trustee. Most advisors and attorneys recommend the beneficiary spouse refrain from receiving distributions from the trust until the beneficiary’s own assets are exhausted so as to minimize growth of assets outside the SLAT.

Donor spouse pays the income tax

Under the IRS’s “grantor trust rules,” the donor spouse will bear the ongoing income tax burden of the SLAT if the Trustee has discretion to distribute income to the beneficiary spouse. This grantor trust status permits the assets of the SLAT to accumulate within the trust without being reduced by payment of income taxes. This status also enables greater growth of the trust assets, further reduces the donor’s remaining taxable estate and affords protection from the beneficiaries’ creditors. Further, an allocation of the donor spouse’s generation-skipping transfer tax exemption to the trust can allow the trust to benefit multiple generations of descendants without being subject to transfer tax until the SLAT finally terminates.

Planning for state estate tax liability

State estate and inheritance tax rules often do not follow the federal rules. For married couples facing a separate state estate or inheritance tax, a SLAT can be used to mitigate state tax liability. Properly drafted, the SLAT can remove assets from the donor spouse’s federal taxable estate and state taxable estate. As of March 2021, 12 states and the District of Columbia impose some form of state estate tax, and 6 states impose an inheritance tax. Of those, one state, Maryland, imposes both an estate and an inheritance tax. Only Connecticut levies a separate lifetime gift tax.

An example of potential estate tax savings

Consider the case of a married couple with a combined net worth of $20 million living in a state with a state estate tax exemption of $2 million and a top tax bracket of 15%. Each spouse’s estate planning documents require a disposition of all assets to the survivor in a marital trust, as shown in the table on the next page.

If both spouses die in 2021, the couple has saved $1.5 million of state estate tax by creating the SLAT. Perhaps just as importantly, if the federal exemption amount decreases to $5 million, the couple will have saved that same $1.5 million of state tax and $2.25 million of federal estate tax.
Planning for potential challenge

A SLAT should be carefully drafted to maintain the integrity of the trust and effectively remove SLAT assets from the donor spouse’s estate. Any evidence of an agreement between the donor spouse and the beneficiaries of the SLAT to use distributions from the trust for the benefit of the donor spouse will cause inclusion of the trust assets in the estate of the donor spouse for federal estate tax purposes. Likewise, if SLAT assets are or can be used to satisfy a donor spouse’s legal obligation of support or to relieve the donor spouse of debt, inclusion will result. The same result occurs if an agreement exists to exercise a limited power of appointment in favor of the donor spouse at the death of the beneficiary spouse.

Moreover, estates of spouses who each create SLATs for the benefit of the other may be subjected to a higher level of IRS scrutiny and must be in a position to demonstrate that the reciprocal trust doctrine does not apply:

  • The facts and circumstances surrounding the creation of the estate plan must indicate it has substance (i.e., serves a purpose beyond removing assets from the spouses’ estates).
  • After creation of the trusts, the spouses are not in substantially the same economic positions as they would be if they had either not created trusts or had created trusts naming themselves as beneficiaries.

SLATs implemented by spouses should be created at different points in time, funded with different amounts and assets of varying character, have contrasting dispositive provisions and remainder beneficiaries and name different initial and successor Trustees who are authorized to exercise disparate powers under the trusts.

Planning for contingencies

The purpose of the SLAT may be thwarted if spouses do not anticipate contingencies such as death or divorce. The SLAT should be drafted to contemplate these events and direct the Trustees accordingly. For example, a SLAT may provide that the filing of a divorce complaint or a cessation in cohabitation between spouses serves to sever a spouse’s beneficial interest in the trust and replace it with that of a remainder beneficiary.

To plan for the premature death of a beneficiary spouse, the donor spouse may grant the beneficiary the right to direct the distribution of the remaining trust assets at the beneficiary’s death among a group of potential beneficiaries consisting of any or all the issue of the donor spouse’s grandparents other than the donor spouse. This power must be precisely crafted and carefully exercised so that creditor protection is maintained and estate tax inclusion does not occur.


The laws regarding the use of SLATs are still developing. While SLATs can bring potential significant long-term economic benefit to the family, including SLAT assets in the estate of the donor spouse or creator of the trust carries risk if the SLAT is not carefully crafted and administrative requirements are not met.

Spouses who each implement this technique for the benefit of the other should plan carefully that the SLATs they create will not run afoul of the reciprocal trust doctrine or other laws. You should consult with your attorney and other members of your financial team to model and create a SLAT that can work for you.

To learn more, contact your Glenmede Wealth Advisor or visit us at






This material provides information of possible interest to Glenmede Trust Company clients and friends and does not provide investment, estate planning, tax, legal or other advice. It contains Glenmede’s opinions, which may change without notice after the date of publication. Information gathered from third-party sources is assumed reliable but is not guaranteed. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss anything they see here of interest with their tax advisor, attorney or Glenmede Relationship Manager.