The SLAT Strategy

What Happened to the Estate Tax Sunset?

The sunset never arrived. The One Big Beautiful Bill Act, signed into law on July 4, 2025, eliminated the scheduled drop in the federal estate tax exemption. Instead of falling to roughly $7 million per person in 2026, the exemption rose to $15 million per individual, $30 million for a married couple, with no expiration date written into the law. The figure is indexed for inflation going forward. I cover the full change in what changed and what still matters.

For years, the SLAT was pitched as a use-it-or-lose-it move: fund the trust before the exemption dropped, or forfeit the difference. That framing is dead. If a SLAT only made sense because of a deadline, it no longer makes sense. But the deadline was never the best reason to create one, and the reasons that remain are worth understanding before you write the strategy off.

How Does a Spousal Lifetime Access Trust (SLAT) Work?

A SLAT is an irrevocable trust created by one spouse (the grantor) for the benefit of the other spouse (the beneficiary). Here is how it works:

Spouse A creates an irrevocable trust and funds it with assets up to their available estate tax exemption amount (for 2026, as much as $15 million). Spouse A names Spouse B as the primary beneficiary of the trust. The trust language allows the trustee to make distributions to Spouse B during Spouse B's lifetime. The assets are now out of Spouse A's taxable estate: Spouse A has made a completed gift using their exemption.

Because Spouse B is a beneficiary of the trust, Spouse B has access to the trust's income and principal through the trustee's discretion. If the trustee is instructed to distribute funds to Spouse B, Spouse B receives the money. This indirect access, the ability to receive distributions through the trust, is why the strategy is called "Spousal Lifetime Access" Trust.

The assets inside the SLAT grow outside your taxable estate. If the SLAT is structured as a grantor trust (which it typically is), the income tax on investment returns inside the trust is paid by Spouse A, not by the trust. This tax payment by Spouse A is not considered a gift to the trust; it is just Spouse A paying taxes on their own trust's income. The effect is that Spouse A is funding the trust's growth without using additional exemption.

Does a SLAT Still Make Sense Without a Deadline?

Yes, for the right couple. Three reasons survive the law change, and none of them depend on the exemption dropping.

Reason 1: Future Appreciation Never Touches Your Estate. A SLAT removes the gifted assets and every dollar of growth that follows. If Spouse A funds a SLAT with $10 million of appreciating assets in 2026, and those assets grow to $20 million by 2035, the $10 million of growth is outside the taxable estate forever. Only the original $10 million counted against Spouse A's exemption. For a couple whose estate is near or above $30 million, or growing fast enough to get there, the appreciation shift is the core of the strategy. At a 40 percent federal estate tax rate, that hypothetical $10 million of growth represents roughly $4 million in estate tax avoided.

Reason 2: Creditor Protection. Assets in a properly structured, properly funded irrevocable trust are generally beyond the reach of the grantor's future creditors, because the grantor no longer owns them. For physicians, business owners, real estate investors, and others with real liability exposure, this protection can matter as much as the tax math. The trust's spendthrift provisions also shield the assets from the beneficiary spouse's creditors. The transfer must happen before a claim arises; funding a trust to dodge an existing creditor is a fraudulent transfer and does not work.

Reason 3: State Estate Tax. Arizona has no state estate tax, but a dozen states and the District of Columbia do, with thresholds far below the federal exemption. Oregon's starts at $1 million and Washington's at $3 million. For couples who own property in one of those states, plan to retire to one, or have moved from one recently, lifetime gifting through a SLAT can reduce exposure that the federal exemption does nothing about.

There is a fourth consideration that is not a reason on its own but strengthens the others: permanent means no scheduled expiration, not immune to future Congresses. Exemption levels have moved repeatedly over the past 25 years, in both directions. Assets already inside a SLAT are insulated from the next change in the law. A plan that works at multiple exemption levels is more durable than one that assumes today's number lasts forever.

What Is the Reciprocal Trust Doctrine and How Do You Avoid It?

The IRS watches for married couples creating identical or near-identical SLATs for each other. If Spouse A creates a SLAT for Spouse B and Spouse B simultaneously creates an identical SLAT for Spouse A, the IRS can invoke the "Reciprocal Trust Doctrine" and collapse both trusts, treating the assets as if they had never left the grantor spouses' estates. This would eliminate the exemption savings entirely.

To avoid this, the two SLATs must be meaningfully different. This is achieved through:

Different Trustees. If Spouse A's SLAT uses an independent trustee while Spouse B's SLAT uses a family member as trustee, this is a meaningful difference.

Different Distribution Standards. If Spouse A's SLAT uses "sole discretion" (trustee can make any distribution the trustee desires) while Spouse B's SLAT uses "ascertainable standard" (trustee can distribute for health, education, maintenance, and support), this is a meaningful difference.

Different Timing. Creating the SLATs in different years (e.g., one in 2026, the other in 2027) demonstrates lack of simultaneity. Now that there is no deadline forcing both trusts into the same year, spacing them out is easier than it used to be. This is one place the law change actually helps.

Different Funding Assets. If one SLAT is funded with real estate and the other with stocks, this is a meaningful difference.

The more differences between the SLATs, the stronger the defense against IRS challenge. A couple planning SLATs should work with their estate planning attorney to ensure the structures are sufficiently different.

Divorce Risk and Trust Permanence

Because a SLAT is irrevocable, Spouse A cannot change the trust terms after creation. If Spouse A and Spouse B later divorce, the trust terms remain the same: Spouse B is still the beneficiary of the trust created by Spouse A. The trust assets do not revert to Spouse A or become subject to divorce division.

This is both a feature and a risk. The permanence of the SLAT is part of what makes it effective for estate planning; you commit to removing assets from your estate permanently. But it also means you cannot take back the gift if your marriage ends.

This risk deserves more weight now than it got during the sunset years, when the deadline pushed couples to move fast. There is no longer a penalty for waiting until you are certain. Some couples address the risk by drafting distribution terms that limit Spouse B's access if the marriage ends. Others accept it as the cost of the planning.

Allocating GST Exemption: The Dynasty Opportunity

In addition to the federal estate tax exemption, there is a separate Generation Skipping Transfer (GST) exemption, also $15 million per person in 2026. The GST exemption allows you to transfer wealth not just to your children but to your grandchildren and further descendants without GST tax.

When creating a SLAT, you should explicitly allocate your GST exemption to the trust. This converts the SLAT into a "dynasty trust": assets can pass from Spouse A to Spouse B to your children to your grandchildren, all within the trust, all with GST exemption applied. The trust can last for generations without incurring transfer taxes.

This requires proper drafting and an election on your tax return (Form 709, the gift tax return). Work with your estate planning attorney to ensure your SLAT is drafted as a GST-exempt dynasty trust if that is your intent.

What Assets Should Fund a SLAT?

A SLAT should be funded with the assets you expect to appreciate most. The goal is to remove future growth from your taxable estate, so every dollar of expected appreciation you place inside the trust is a dollar of future estate tax exposure you eliminate.

Good SLAT funding assets include: commercial real estate expected to appreciate, operating business interests, concentrated stock positions you believe will grow, and growth-oriented investments.

Poor SLAT funding assets include: bonds, Treasury securities, or other low-growth fixed-income investments (these should be held personally or in a revocable trust to preserve flexibility), and assets you think may decline in value. One more consideration matters more under the permanent exemption: assets gifted during life carry over your cost basis, while assets held until death receive a step-up. For a low-basis asset you expect to grow slowly, holding it may beat gifting it. Run that comparison with your CPA before funding.

When Should You Fund a SLAT Now That There Is No Deadline?

When the strategy fits, not when the calendar says so. The year-end scramble that defined SLAT planning through 2025 is over. Timing is now driven by better questions: Is the marriage solid? Can you comfortably part with the assets permanently? Are the assets you would gift temporarily depressed in value, so the gift uses less exemption? Is your attorney available to draft the trusts carefully rather than against a deadline? Before that attorney conversation, you can score your estate across nine complexity factors and see whether your situation carries the exposure a SLAT is built to address.

If the answers point toward yes, moving sooner still beats moving later, because every year of appreciation inside your estate is appreciation you could have shifted out. But that is an argument for deliberate action, not urgency. Deliberate is better. Rushed trust drafting was always the hidden cost of deadline-driven planning.