Spousal Lifetime Access Trusts (SLATs)

High-net-worth married couples in Nashville and across Middle Tennessee look to trusts to help them protect their assets while keeping them accessible for later years. Trusts also keep a couple’s taxable estate below the federal estate tax threshold. A Spousal Lifetime Access Trust, commonly known as a SLAT, was developed to help couples with this situation.

A SLAT allows one spouse to make a completed gift for estate tax purposes while preserving a degree of practical access to the transferred assets through the other spouse. When properly designed and properly administered, it can serve as a cornerstone of an advanced estate plan.

If you are considering SLATs or other options for your estate plan, get personalized advice and support. Contact Frazier Law to schedule a consultation to find out how to use SLATs and other entities to protect yourself now and in the future.

What Is a Spousal Lifetime Access Trust?

A SLAT is an irrevocable trust created by one spouse (the grantor) for the benefit of the other spouse (the beneficiary). Additional beneficiaries—often children or future generations—are typically included as well. Once assets are transferred into the trust, they are no longer owned by the grantor and are generally excluded from the grantor’s taxable estate.

What distinguishes a SLAT from many other irrevocable trusts is the indirect benefit it provides. While the grantor cannot personally access the trust assets, the beneficiary spouse may receive distributions that support the household, preserving lifestyle flexibility while still achieving estate reduction.

SLATs have become increasingly popular as families respond to uncertainty in federal estate tax laws. Many couples recognize that today’s exemption levels may not last indefinitely. A SLAT offers a way to use available exemptions proactively without fully severing access to transferred wealth.

Estate planning often requires acting before legislative changes take effect. A SLAT allows couples to move assets out of their estate now, potentially locking in favorable tax treatment, while still maintaining a financial safety net through the beneficiary spouse.

How a SLAT Is Structured

Although SLATs can be customized extensively, the basic structure follows a consistent framework. The grantor spouse establishes an irrevocable trust and transfers assets into it. These assets may include investment accounts, closely held business interests, real estate, or other appreciating property. The transfer is treated as a completed gift for federal gift tax purposes, typically offset by the grantor’s lifetime exemption.

The beneficiary spouse is entitled to receive distributions from the trust, subject to the terms set out in the trust agreement. These distributions are often tied to an ascertainable standard—such as health, education, maintenance, or support—to preserve tax advantages.

After the beneficiary spouse’s death, or upon other triggering events, remaining trust assets usually pass to children or other designated beneficiaries, often in further trust.

The Estate Tax Impact of a SLAT

One of the primary motivations for establishing a SLAT is estate tax mitigation. Assets transferred into a SLAT, along with any appreciation after the transfer, are generally excluded from the grantor’s taxable estate. Over time, this can significantly reduce estate tax exposure, particularly for assets expected to grow substantially.

Many SLATs are intentionally drafted as grantor trusts for income tax purposes. This means the grantor continues to pay income taxes on trust earnings, even though the assets are no longer part of the estate. While this may seem counterintuitive, it can further reduce the grantor’s taxable estate without additional gifting.

Income Tax Considerations

When the grantor pays income taxes on trust earnings, the trust assets can continue to grow without being reduced by tax payments. Over time, this functions as an additional, tax-free transfer of wealth to the trust beneficiaries.

Because assets held in a SLAT are not included in the grantor’s estate, they generally do not receive a step-up in basis at death. This can result in higher capital gains taxes if assets are later sold. Weighing this tradeoff is a critical part of SLAT planning.

Asset Protection Advantages

Beyond tax planning, SLATs can provide meaningful protection against certain risks. Assets held within a properly structured SLAT are typically insulated from the grantor’s creditors. In many cases, they are also protected from claims against the beneficiary spouse, depending on state law and trust terms.

For families concerned about lawsuits, business risks, or future divorces involving children, SLATs can add a layer of protection that outright gifts cannot.

When Are SLATs Not the Best Option?

Despite their advantages, SLATs are not appropriate for every couple. Once assets are transferred, the grantor cannot reclaim them or unilaterally change the trust terms. This loss of control is permanent. If full control of your assets at all times is a priority, contact Frazier Law to review other options.

Also keep in mind that the grantor’s indirect access depends on the beneficiary spouse being alive and eligible to receive distributions. If the beneficiary spouse predeceases the grantor, that indirect access disappears.

You further need to be aware that divorce can complicate SLAT planning. Most SLATs are drafted so that only a current spouse qualifies as a beneficiary, meaning distributions would cease if the marriage ends. Careful drafting can help manage this risk, but it cannot eliminate it entirely. Frazier Law can help you develop an estate plan that accounts for life changes.

“Reciprocal” SLATs

In some cases, spouses consider creating SLATs for each other. While this strategy can be effective, it must be handled carefully. If two SLATs are too similar in structure, timing, and terms, the IRS may treat them as essentially the same trust, undermining the intended tax benefits. To reduce this risk, differences are often built into:

• Distribution standards.
• Trustees.
• Funding assets.
• Timing of creation.

Frazier Law can help you create SLATs that are structured to minimize your IRS risk.

Trustee Selection

Choosing the right trustee is one of the most consequential decisions in SLAT planning. The beneficiary spouse may serve as trustee, but this typically limits distribution discretion. An independent trustee—such as a trusted advisor or professional fiduciary—can offer greater flexibility and reduce tax risk.

Integrating a SLAT Into Your Estate Plan

A SLAT can be an excellent part of your estate plan, but only if it is appropriate for you and only if it is drafted correctly. Without careful integration, a SLAT can create unintended gaps or overlaps in an estate plan. Aligning beneficiary designations, liquidity planning, and long-term goals is essential.

If you live in Nashville or anywhere in Middle Tennessee, Frazier Law can help you create a plan that works, no matter what your assets are and no matter what your future plans are.

Our boutique firm is led by Charles Frazier, who holds the Estate Planning Law Specialist (EPLS) and Accredited Estate Planner (AEP) credentials issued by the National Association of Estate Planning Councils in July 2021. Charles Frazier has helped many families handle complex estate planning needs, including multi-national families, high-net-worth estates, blended families, and other complex situations. In every case, he works to educate families about their options so they can make educated choices that fully support their future.

If you are ready to start planning or to set up a SLAT, contact Frazier Law. We ensure that your estate plan and trusts fully support your life and help you make the most of everything you have worked for.