Spouse A (the grantor) makes a gift of assets to an irrevocable trust — using their lifetime gift tax exemption. Spouse B is named as a beneficiary and can receive distributions from the trust during their lifetime. The gifted assets grow outside the grantor's taxable estate. Because Spouse B has access to distributions, the couple indirectly retains access to the assets — while they are permanently removed from the estate for tax purposes.
Grantor spouse funds the SLAT using lifetime exemption
Spouse A transfers assets into the irrevocable SLAT — typically cash, investments, or other assets — using their federal lifetime gift and estate tax exemption ($13.61M in 2024). The transfer is a completed gift — it uses exemption now but removes the assets and all future appreciation from the estate permanently.
Beneficiary spouse can receive distributions
The trust document allows the trustee to make distributions to Spouse B for health, education, maintenance, and support — or with broader discretion depending on how the trust is drafted. Spouse A benefits indirectly through the marital relationship. Children and grandchildren are typically named as remainder beneficiaries.
Assets grow outside the taxable estate
All future appreciation on the SLAT assets occurs outside both spouses' taxable estates. The trust is typically structured as a grantor trust for income tax purposes — meaning Spouse A pays the income taxes on trust income, which is itself an additional tax-free gift that further reduces the taxable estate.
Remainder passes to children — estate-tax-free
At the death of the beneficiary spouse (or at a specified time), the remaining trust assets pass to the named remainder beneficiaries — typically children or a dynasty trust — completely free of estate tax, having grown outside both estates for years or decades.
The 2026 exemption cliff — fund your SLAT now
The federal estate and gift tax exemption is $13.61M per individual in 2024. When TCJA sunsets in 2026, this is projected to roughly halve to approximately $7M. Gifts made before the sunset that use the higher exemption are permanently protected — the IRS has confirmed that gifts made under the higher exemption will not be clawed back when the exemption is reduced. For married couples with estates between $14M and $27M, funding SLATs before 2026 could eliminate estate tax exposure entirely.
⚠️ Reciprocal trust doctrine — the critical risk
Married couples often want to establish reciprocal SLATs — each spouse funds a SLAT with the other as beneficiary. The IRS applies the reciprocal trust doctrine: if two trusts are sufficiently similar in structure and timing, the IRS may treat them as if each grantor retained an interest in their own trust — causing the assets to be included back in the estate. To avoid this, SLATs must be meaningfully different in terms, timing, assets, or trustee — qualified estate planning counsel is essential.
Divorce risk — the major planning consideration
If the couple divorces after the SLAT is funded, the grantor spouse loses the indirect access to the trust assets — Spouse B retains access as a beneficiary, but Spouse A has no claim on the trust. For this reason, SLATs require both strong marital confidence and careful drafting — particularly around provisions for what happens to the trust in the event of divorce or the beneficiary spouse's death before the grantor.