Spousal Lifetime Access Trust (SLAT) in Utah

A Spousal Lifetime Access Trust is an irrevocable trust created by one spouse — the grantor — for the benefit of the other. The grantor transfers assets into the trust, removing them from their taxable estate for federal estate tax purposes. The beneficiary spouse retains access to those assets through trustee distributions during their lifetime. When the beneficiary spouse dies, the remaining trust assets pass to the children or other remainder beneficiaries named in the trust, typically free of estate tax at that transfer.

The SLAT solves a specific problem: how to use the federal estate tax exemption — currently $15 million per individual under the One Big Beautiful Bill Act — to permanently remove assets from the taxable estate while preserving the grantor's indirect access to those assets through their spouse. For couples with estates that approach or exceed the exemption, or that may grow to do so, a SLAT executed today locks in the current exemption amount for the transferred assets regardless of what Congress does to the exemption in future years.

At Cutler Riley, a SLAT is $5,000.

How a SLAT Works

The grantor spouse funds the trust by transferring assets — cash, investment accounts, real estate, business interests, or other property — into it. The transfer is a taxable gift, but it is sheltered by the grantor's lifetime federal gift and estate tax exemption. Because the exemption is unified — the same pool covers both lifetime gifts and the taxable estate at death — a transfer into a SLAT today reduces the exemption available at death by the same amount. The economic trionale is that the assets in the trust, and all future appreciation on those assets, are permanently outside the taxable estate regardless of how much they grow.

The beneficiary spouse is the primary income beneficiary of the trust. The trustee — an independent third party, not the grantor — has discretion to make distributions of income and principal to the beneficiary spouse for their health, education, maintenance, and support, or under a broader standard if the trust is drafted that way. The grantor has no right to distributions and no authority to direct them.

After the beneficiary spouse's death, the remaining trust assets pass to the remainder beneficiaries — typically children — either outright or in continuing trust. Because the assets are already outside both spouses' taxable estates, that transfer occurs without additional estate tax, allowing the next generation to receive the full value of the trust.

Grantor Trust Status and Income Tax

A SLAT is typically structured as a grantor trust for federal income tax purposes. This means the trust's income, gains, and deductions are reported on the grantor's personal tax return rather than on a separate trust return, even though the grantor has no right to the trust assets. The grantor pays income tax on trust earnings out of their own, non-trust assets — which has the effect of further depleting the taxable estate without being treated as an additional taxable gift.

This income tax treatment is a significant secondary benefit of the SLAT structure. Every dollar of income tax the grantor pays on trust earnings is a dollar that reduces the grantor's taxable estate without using exemption. Over a long period, particularly in a trust holding appreciating assets, this compounding effect can be substantial.

Grantor trust status is maintained through retained powers specified in the trust — typically a power to substitute assets of equivalent value under IRC § 675(4)(C) or through certain administrative powers. These powers must be carefully drafted: they must be sufficient to maintain grantor trust status without being so broad that they cause estate inclusion.

The Reciprocal Trust Doctrine: Why Both Spouses Cannot Simply Create Mirror SLATs

A SLAT's estate tax benefit depends on the grantor not being a beneficiary. But the grantor retains indirect access through their spouse — which creates a practical concern: if the grantor and the beneficiary spouse exchange roles, and both spouses create SLATs benefiting the other, the IRS may treat the trusts as if each spouse created a trust for themselves, negating the estate tax benefit entirely. This is the reciprocal trust doctrine, articulated in United States v. Estate of Grace, 395 U.S. 316 (1969).

The doctrine applies when two trusts are interrelated — meaning the trusts were created in consideration of each other — and when the settlors are left in approximately the same economic position as if each had created a trust naming themselves as beneficiary. If both trusts are substantially identical in terms, amounts, and timing, the risk of reciprocal trust treatment is high.

Avoiding the reciprocal trust doctrine when both spouses want to create SLATs requires deliberate differentiation: different funding amounts, different asset types, different distribution standards, different trustee succession arrangements, different remainder beneficiary designations, meaningful time gaps between execution, or some combination of these. The differences must be genuine and substantive, not merely cosmetic. This is one of the principal reasons SLAT drafting requires experienced counsel — the differentiation strategy must be designed thoughtfully and documented clearly.

The Survivor Risk: What Happens If the Beneficiary Spouse Dies First

The most significant practical risk of a SLAT is the death of the beneficiary spouse. If the beneficiary spouse predeceases the grantor, the grantor loses all indirect access to the trust assets. The trust continues for the benefit of the remainder beneficiaries — typically the children — but the grantor cannot receive distributions and may no longer benefit from assets they transferred into the trust years earlier.

This risk is real and should be evaluated seriously before a SLAT is funded. Mitigations include keeping sufficient assets outside the SLAT to meet the grantor's needs independent of the trust, purchasing life insurance on the beneficiary spouse's life to provide liquidity to the grantor if the beneficiary spouse dies first, using a limited power of appointment in the trust that allows the beneficiary spouse to redirect assets in ways that could benefit the grantor indirectly if circumstances change, and building flexibility into the trustee distribution standard so that children or other family members can provide practical assistance to the grantor after the beneficiary spouse's death.

The survivor risk is also why SLATs are typically most appropriate when both spouses are in good health, when the couple has sufficient non-trust assets to meet the grantor's needs independently, and when the estate tax benefit of the transfer is large enough to justify the loss of flexibility.

The Step-Up in Basis Trade-Off

Because a SLAT removes assets from the grantor's taxable estate, those assets do not receive a step-up in basis under IRC § 1014 at the grantor's death. The trust holds the assets at their carryover basis — the original purchase price — and any embedded capital gain that accrued before the transfer is preserved. When the trust sells the assets or when they eventually pass to the children, that gain will be recognized and taxed.

For assets with modest appreciation, this is usually an acceptable cost. For assets with very large embedded gains — a business interest acquired at nominal cost, real estate held for decades — the step-up trade-off deserves specific analysis. The estate tax savings from removing the assets from the taxable estate may or may not exceed the capital gains cost of losing the step-up, depending on the size of the estate, the applicable estate tax rate, the basis relative to current value, and the expected holding period.

This is one of the scenarios where SLAT planning intersects most directly with the broader estate and tax picture, and it is why coordinating with a CPA on the specific assets proposed for the SLAT is essential before funding.

The Current Estate Tax Landscape

The federal estate tax exemption is $15 million per individual as of 2026 under the One Big Beautiful Bill Act, which made the elevated exemption permanent and indexed it for inflation. The prior concern — that the TCJA's sunset would reduce the exemption to approximately $7 million in 2026 — is no longer operative. The "use it or lose it" urgency that drove SLAT planning in 2024 and 2025 has passed.

That said, the underlying rationale for SLAT planning is unchanged. The $15 million exemption is permanent under current law, but "permanent" in tax law means until Congress changes it. A SLAT executed today uses the current exemption to lock in permanent estate exclusion for the transferred assets and all future appreciation. If the exemption were reduced by a future Congress, the assets already in the trust would remain outside the estate — the exemption amount used at the time of the gift cannot be clawed back. For couples with estates approaching or likely to grow toward the exemption level, early use of the exemption remains sound planning regardless of whether the exemption is at risk of reduction.

Utah has no state estate tax, so the relevant threshold for Utah residents is the federal exemption only.

When a SLAT Makes Sense

A SLAT is most appropriate when the combined marital estate is large enough that estate tax is a present or foreseeable concern, when both spouses are in good health and the marriage is stable, when the couple has sufficient assets outside the SLAT to support the grantor's independent needs, and when the grantor is comfortable with the irrevocability of the transfer and the survivor risk it entails.

It is not appropriate when the couple's estate is comfortably below the federal exemption with no realistic prospect of growth toward it, when the marriage is unstable, when the grantor would be financially dependent on the SLAT assets in the absence of the beneficiary spouse, or when the assets proposed for the SLAT carry embedded capital gains large enough that the step-up trade-off outweighs the estate tax benefit.

A SLAT is also not a standalone solution. It should be designed as part of a complete estate plan that includes a revocable trust, pour-over will, powers of attorney, and health care directives, with the SLAT sitting alongside those documents as a supplemental advanced planning layer.

Frequently Asked Questions

What is a Spousal Lifetime Access Trust?

A SLAT is an irrevocable trust created by one spouse for the benefit of the other. The grantor spouse transfers assets into the trust, removing them from the taxable estate. The beneficiary spouse can receive distributions from the trust during their lifetime. After the beneficiary spouse dies, the remaining assets pass to children or other remainder beneficiaries, typically free of estate tax.

How does a SLAT reduce estate taxes?

Assets transferred into a SLAT are sheltered by the grantor's lifetime gift and estate tax exemption at the time of funding. Once transferred, those assets — and all future appreciation on them — are permanently outside the grantor's taxable estate. The exemption used is locked in at the time of the gift and cannot be affected by future changes to the exemption amount.

Can both spouses create SLATs for each other?

Yes, but with significant drafting care. If both SLATs are substantially identical in terms, amounts, and timing, the IRS may apply the reciprocal trust doctrine and treat each spouse as having created a trust for themselves — negating the estate tax benefit. Both trusts must be genuinely differentiated in multiple meaningful respects. This is one of the most technically demanding aspects of SLAT planning.

What happens if the beneficiary spouse dies before the grantor?

The grantor loses indirect access to the trust assets. The trust continues for the remainder beneficiaries — typically children — but the grantor receives no distributions. This is the primary risk of a SLAT and should be addressed in the planning through liquidity reserves, life insurance on the beneficiary spouse, or other mitigation strategies.

Does a SLAT affect the step-up in basis at death?

Yes. Because the SLAT assets are outside the grantor's taxable estate, they do not receive a step-up in basis at the grantor's death. The carryover basis — the original purchase price — is preserved. For highly appreciated assets, this can be a meaningful cost that should be weighed against the estate tax savings before funding.

How much does a SLAT cost at Cutler Riley?

A SLAT at Cutler Riley is $5,000. This does not include the core estate plan — if you don't already have a revocable trust, will, power of attorney, and health care directive in place, we would typically recommend completing those first. Book a free consultation and we'll assess whether a SLAT fits your situation and what the engagement would involve.

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Ready to Explore SLAT Planning?

A SLAT at Cutler Riley is $5,000. Book a free consultation and we'll walk you through whether the structure fits your estate, your marriage, and your tax picture — and coordinate with your CPA on the specific assets and exemption analysis before you commit.

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