Spousal Lifetime Access Trust (SLAT): How It Works and What Wisconsin Families Should Consider
A spousal lifetime access trust, or SLAT, lets one spouse make a gift to an irrevocable trust for the benefit of the other spouse, and often children, while the couple may keep indirect access to the assets through the beneficiary spouse. For married couples with significant wealth, a SLAT trust is one of the more common ways to use lifetime gift tax exemption without giving up all access to the money.
SLAT estate planning involves legal, tax, and investment decisions that affect each other. It also raises personal questions about marriage, family, and flexibility. Here is how it works and what to weigh.
Start Here: A Complimentary Wealth and Tax Review
Before any trust is drafted, it helps to know whether you can comfortably give assets away. Compound offers a complimentary, no-obligation wealth and tax review that may include:
Your balance sheet: which assets you may need for your own lifestyle and which could be gifted
Estate exposure: how your wealth may interact with federal estate and gift tax rules
Income and cash flow: whether you can pay income tax on trust earnings over time
Business and real estate holdings: assets with growth potential that may fit a trust
Current documents: wills, trusts, and beneficiary designations
Request your wealth and tax review.
What Is a Spousal Lifetime Access Trust?
A SLAT is an irrevocable trust created by one spouse (the donor) for the benefit of the other spouse, and frequently for children or grandchildren as well. The donor transfers assets into the trust, using some of their lifetime gift tax exemption. A trustee can then make distributions to the beneficiary spouse under the trust's terms, often for health, education, maintenance, and support.
Because the beneficiary spouse may receive distributions, the household can keep indirect access to the assets while they are generally removed from the donor's taxable estate, along with future growth. When the beneficiary spouse passes away, the remaining assets typically continue for children or other beneficiaries.
Why Do Families Consider a SLAT?
Using lifetime exemption. Federal gift and estate tax exemptions are subject to change by law. Some families use a SLAT to make use of exemption while it is available. Annual limits apply to tax-free annual exclusion gifts, and lifetime exemption amounts are set by law.
Removing future growth from the estate. Appreciation on assets inside the trust generally occurs outside the donor's estate.
Keeping indirect access. Unlike a gift outright to children, the beneficiary spouse can receive distributions if needed.
Grantor trust treatment. Many SLATs are structured so the donor pays income tax on trust earnings, which may allow trust assets to grow without being reduced by taxes.
Risks and Trade-Offs to Understand
A SLAT is a permanent gift, and several risks deserve careful discussion:
Divorce. If the marriage ends, the former spouse may remain a beneficiary depending on how the trust is drafted.
Death of the beneficiary spouse. If the beneficiary spouse passes away first, the donor generally loses indirect access to the trust assets.
Reciprocal trusts. When both spouses create SLATs for each other, the trusts must be meaningfully different, or the IRS may disregard them.
No step-up in basis. Assets in a SLAT generally keep the donor's cost basis, so beneficiaries may owe capital gains tax when selling. Assets held until death often receive a basis adjustment instead.
Income tax burden. Paying tax on trust income can be a benefit for estate purposes, but it requires reliable cash flow.
A Wisconsin Consideration: Marital Property
Wisconsin is a marital property state, similar to community property states. Under Wisconsin law, much of what a married couple acquires during marriage may be treated as owned equally by both spouses. Because a SLAT generally needs to be funded with the donor spouse's individual property, how assets are classified, and whether a marital property agreement is needed, is an important question to review with a Wisconsin estate attorney before funding.
The Wealth Management Side of a SLAT
A SLAT is a long-term investment portfolio with its own objectives, often spanning decades. Practical questions include:
Which assets to contribute. Assets with higher growth potential may shift more future appreciation out of the estate, while low-basis assets carry a capital gains trade-off for heirs.
How the trust is invested. The trust's time horizon, distribution needs, and beneficiaries shape its allocation.
Your remaining portfolio. After a large gift, your own high net worth investment management plan must still support your lifestyle and retirement, plus the income tax on trust earnings.
Coordination over time. Distributions, tax payments, and rebalancing across your accounts and the trust should be planned together.
Wealth management paired with tax planning and preparation can help model how a gift may affect both your estate and your own financial security. To see how trust assets might grow under different assumptions, try the Compound calculator. Results are hypothetical and for illustration only.
Who May Consider SLAT Estate Planning?
A SLAT may be worth discussing for married couples who:
Have wealth beyond what they expect to need in their lifetime
Expect potential estate tax exposure
Want to use lifetime exemption but keep indirect access
Own a business or real estate with growth potential, often alongside planning for generational ownership changes
Have a stable marriage and are comfortable with an irrevocable gift
Coordinating With Your Estate Attorney
A SLAT must be drafted by an estate attorney, who can address trustee selection, distribution standards, protections in the event of divorce, and coordination with your will and other trusts. Your wealth and tax advisors can model the financial effects and help administer the trust over time. Families managing several trusts and entities may benefit from family office wealth management or from working with a legacy family advisor.
Serving Families Across Wisconsin
Compound works with married couples, business owners, and families throughout Wisconsin, including Milwaukee, Madison, Green Bay, Appleton, Waukesha, Brookfield, and Eau Claire, as well as surrounding areas, bringing wealth management and tax planning together for decisions like this one.
Considering a SLAT? Request a complimentary wealth and tax review.
Frequently Asked Questions
What is a spousal lifetime access trust?
A spousal lifetime access trust is an irrevocable trust one spouse creates for the benefit of the other spouse, and often children, using lifetime gift tax exemption while keeping indirect access through the beneficiary spouse.
What happens to a SLAT trust in a divorce?
It depends on how the trust is drafted. The former spouse may remain a beneficiary, which is why divorce provisions are an important topic to discuss with an estate attorney.
Can both spouses create a SLAT?
Yes, but the trusts generally must be meaningfully different. Nearly identical trusts may be disregarded under the reciprocal trust doctrine.
Does a SLAT get a step-up in basis?
Assets in a SLAT generally keep the donor's original cost basis and do not receive a step-up at death, which may create capital gains tax for beneficiaries when assets are sold.
Does Wisconsin marital property law affect a SLAT?
It can. Because Wisconsin is a marital property state, how assets are classified may affect funding. Review this with a Wisconsin estate attorney before creating the trust.
Compound is a registered investment adviser. Registration does not imply a certain level of skill or training. This article is for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. Tax laws are complex and subject to change. Strategies discussed may not be suitable for everyone, and there is no guarantee that any strategy will achieve its objectives or reduce taxes. Calculator results are hypothetical, are not guarantees of future results, and do not reflect any actual investment. Investing involves risk, including possible loss of principal. Diversification does not ensure a profit or protect against loss. Please consult your tax, legal, and financial professionals before acting on any information in this article. For more information, see Compound's Form ADV, available at adviserinfo.sec.gov.
About Compound Wealth
Tax planning often intersects with investment decisions, business ownership, retirement planning, and other financial considerations. Compound Wealth provides an integrated approach that combines tax planning, wealth management, accounting, and business transition services to help clients evaluate financial decisions from multiple perspectives as part of an ongoing planning process.
