SLAT: The “Have Your Cake and Eat It Too” Strategy
Tax Tips / Estate Planning
SLAT: The “Have Your Cake and Eat It Too” Strategy
💡 Executive Summary
- Problem: You want to use your $13.6M Lifetime Exemption before it gets cut in 2026, but you are afraid to give the money away because you might need it later.
- Solution: Create a Spousal Lifetime Access Trust (SLAT). You gift assets to a trust for the benefit of your Spouse (and kids).
- Result: The assets are out of your estate (no Estate Tax), but your spouse can request distributions. Since you are married, you indirectly regain access to the funds.
⚠️ THE “DIVORCE & DEATH” RISK
If your spouse dies or you get divorced, your access to the trust is cut off immediately.
• Solution 1 (Divorce): Use a “Floating Spouse” clause (Trust benefits “whoever I am currently married to”).
• Solution 2 (Death): Buy Life Insurance on your spouse to replace the lost liquidity.
If your spouse dies or you get divorced, your access to the trust is cut off immediately.
• Solution 1 (Divorce): Use a “Floating Spouse” clause (Trust benefits “whoever I am currently married to”).
• Solution 2 (Death): Buy Life Insurance on your spouse to replace the lost liquidity.
The SLAT is the most popular strategy for the “Not-Quite-Billionaire” (Tier L2/L3). It solves the psychological barrier of “Irrevocable Trusts.” Technically, the gift is irrevocable. Practically, as long as your marriage is solid, the money is still in the family checkbook.
🧐 Core Mechanic: Reciprocal Trust Doctrine
Husband creates a SLAT for Wife. Wife creates a SLAT for Husband. (Double Win?)
WARNING: If the trusts are identical, the IRS un-does them (Reciprocal Trust Doctrine). To work, the trusts must be substantially different (e.g., different trustees, different terms, different assets, created at different times).
Husband creates a SLAT for Wife. Wife creates a SLAT for Husband. (Double Win?)
WARNING: If the trusts are identical, the IRS un-does them (Reciprocal Trust Doctrine). To work, the trusts must be substantially different (e.g., different trustees, different terms, different assets, created at different times).
Performance Simulation
Estate Tax Impact ($20M Asset)
Do Nothing (Assets in Estate)
~$8M Estate Tax Bill (40%)
Eroded
SLAT Strategy (Assets Removed)
$0 Estate Tax Bill*
Full Preservation
SLAT vs. Dynasty Trust
| Feature | Dynasty Trust (Art. 627) | SLAT (This Article) |
|---|---|---|
| Primary Beneficiary | Children / Grandchildren | Spouse (+ Children) |
| Grantor Access | None (Zero) | Indirect (Via Spouse) |
| Best For | Multi-Gen Legacy | Married Couples needing Safety Net |
The SLAT is the estate planning equivalent of a boomerang. You throw the assets away to avoid taxes, but they curve back to your household through your spouse.”
🔗 Related BMT Playbooks (Internal)
🛡️ The Partner: Often SLATs turn into Dynasty Trusts after spouse dies ⚖️ The Engine: SLATs are usually structured as Grantor Trusts (IDGTs) ✅ The Investment: Using PPLI inside a SLAT for tax-free compounding🏛️ Institutional Resources (External)
📜 Legal Text: IRC § 2036 (Retained Life Estate Risks) ⚖️ Case Law: US v. Grace (The Reciprocal Trust Doctrine) 📘 Resource: ACTEC Guide on Spousal Trusts
BMT designs for tax reality, not theory.