SLATs After OBBBA: How Spousal Lifetime Access Trusts Work in 2026

What a SLAT Is and How It Works

A SLAT starts with a completed gift. One spouse, the grantor, transfers assets to an irrevocable trust and gives up ownership and control of them. The trust names the other spouse as a beneficiary during their lifetime, often alongside the couple’s children or descendants, and leaves what remains to the descendants after the beneficiary spouse dies.

The gift uses the grantor’s own exemption. A transfer to a SLAT is a taxable gift reported on a gift tax return (Form 709), and the value is subtracted from the grantor’s $15,000,000 lifetime exemption, with no gift tax due unless the exemption is exhausted. Two features make it the grantor’s exemption alone. Married couples can usually elect to treat a gift by one spouse as made half by each, but that election generally is not available for the part of a gift in which the other spouse has an interest, so a SLAT draws on one spouse’s exemption and leaves the other’s untouched. And gifts to a trust generally do not qualify for the $19,000 annual exclusion unless the trust gives beneficiaries temporary withdrawal rights, so most SLATs are funded with exemption rather than annual gifts.

The assets leave both estates. The grantor keeps no interest in the trust and no control over distributions, so the assets are not included in the grantor’s estate. The beneficiary spouse did not fund the trust and holds no unlimited power to take its assets, so they are not included in the beneficiary spouse’s estate either. If the beneficiary spouse serves as trustee, distributions to that spouse are limited to an ascertainable standard (health, education, maintenance, and support) for exactly this reason; an independent trustee can be given broader discretion.

Access runs through the spouse. The trustee can distribute income or principal to the beneficiary spouse, and money the beneficiary spouse receives can be spent on the household. That is the “lifetime access”: the couple has not cut itself off from the assets, as it would with a gift to children. It is also the design’s first caution. A dollar distributed to the spouse and spent or saved by the household is back in the couple’s estate, and a SLAT used as a household checking account undoes its own purpose. The trust works best as a reserve the couple can reach in a hard year and otherwise leaves alone to grow.

The grantor pays the trust’s income tax. Because the trust’s income can be paid to the grantor’s spouse, the tax code treats the grantor as the owner of the trust for income tax purposes, under Sections 677 and 672(e). The trust is a grantor trust: its income, deductions, and gains are reported on the grantor’s own return, and the grantor pays the tax from assets outside the trust. That sounds like a drawback, and as a matter of cash flow it is one. As a matter of estate planning, under current law, it is one of the most valuable features of the structure, for reasons the worked example makes concrete.

Protection from creditors. Assets in a properly drafted SLAT are generally beyond the reach of the grantor’s future creditors, because the grantor no longer owns them, and a spendthrift provision protects the beneficiaries’ interests from their own creditors. The protection has limits: a transfer made when a claim is already pending or foreseeable can be undone as a fraudulent transfer. And for a Texas family under the exemption, protection is a real reason but has to be weighed against the lost step-up, because Texas law already shields homesteads, retirement accounts, and the cash value of life insurance and annuities from most creditors.

Two more features shape the trust. Retirement accounts cannot be given to a SLAT during life, because an IRA or 401(k) cannot be given away without first being withdrawn and taxed; our article on naming a trust as IRA beneficiary covers how retirement money reaches a trust at death instead. And because the trust can last a long time (Texas now allows trusts created on or after September 1, 2021 to run as long as 300 years), many SLATs are written to continue for grandchildren, with the grantor allocating generation-skipping transfer tax exemption, also $15,000,000 in 2026, on the gift tax return.

What Changed When the Exemption Became Permanent

The SLAT boom of the early 2020s had a specific cause. The exemption, doubled in 2018, was scheduled to fall by roughly half at the start of 2026, and Treasury regulations issued in 2019 confirmed that gifts made under the higher exemption would not be clawed back if it later dropped. The logic was use it or lose it, and a SLAT let couples use the exemption without giving millions outright to their children.

The One Big Beautiful Bill Act removed that reason. Starting in 2026 the exemption is $15,000,000 per person, $30,000,000 for a married couple, with inflation adjustments after 2026 and no scheduled sunset. There is no longer a deadline to beat, and our article on what the permanent exemption changes explains why, for most families, the estate tax has stopped being the main event in their transfer planning.

What remains is the reason SLATs worked for estates that were always going to be taxable: a lifetime gift freezes the value that counts against the exemption. A gift of $4,000,000 uses $4,000,000 of exemption whether the asset is worth $4,000,000 or $40,000,000 when the grantor dies. Every dollar of growth after the day of the gift is outside the estate. For an estate that will be taxable at the second death, using exemption early on an asset that grows is worth more than using the same exemption at death.

So the question a SLAT answers has narrowed. Under the old law, many families funded SLATs because they might be taxable after the sunset. Under permanent law, the question is whether a family’s projection shows its estate above the combined exemption at the second death, inflation adjustments included. For most households the answer is no. For owners of growing businesses, and for families already near or above the line, it is often yes. A smaller group remains in between: families who would like a hedge against a future Congress cutting the exemption. That risk is real, and our exemption article treats it as a reason to keep plans flexible, but on its own it rarely justifies giving up the step-up on appreciated assets today.

Permanence also changes the pace. Without a deadline, a SLAT can be funded in stages, each gift sized to what the projection shows the family can spare and revisited as a business grows, rather than filled with one large gift in a single December.

State estate taxes are a separate reason. Twelve states and the District of Columbia have their own estate tax, most with exemptions far below the federal amount ($1,000,000 in Oregon and $2,000,000 in Massachusetts, for example), and only Connecticut also taxes gifts. For a couple living in one of the others, a gift to a SLAT can move assets and their growth beyond the state’s estate tax even when the federal tax will never apply, although a few of those states, New York and Minnesota among them, add back gifts made within a set period before death. Texas has no estate or inheritance tax, so for Texas residents the state question arises mainly for families planning a move and for those who own real estate in an estate-tax state, which that state can tax even when the owner lived elsewhere. The comparison is the one this article runs at the federal level, measured across every state the family touches: estate tax saved against the step-up given up.

The Central Trade: Estate Tax on Growth Versus the Step-Up

A SLAT saves estate tax and costs income tax, and the planning lives in the comparison.

What a SLAT saves. When the estate tax is computed at death, lifetime taxable gifts are added back at their value on the date of the gift. A SLAT therefore saves no estate tax on the gift itself; the $4,000,000 gift in the example below still uses $4,000,000 of exemption. What it saves is the tax on growth after the gift, at the 40% estate tax rate, for an estate that is actually above the exemption.

What a SLAT costs. Assets given during life keep the giver’s basis, under Section 1015. Assets held at death normally take a new basis equal to their value at death, under Section 1014, which erases the gain that built up during the owner’s life. Assets in a SLAT get neither: they are not in the grantor’s estate, and the IRS confirmed in Revenue Ruling 2023-2 that assets in a grantor trust that are excluded from the estate do not receive a step-up when the grantor dies. If the trust sells after the grantor’s death, the gain is measured from the grantor’s original basis, and it includes the gain that existed before the gift as well as everything after. Our article on the step-up in basis explains how much that reset is worth, and why it is worth even more for Texas couples.

Three questions decide which side wins. First, will the estate actually owe estate tax, federal or state? If not, the 40% side of the comparison is zero and the trust only costs basis. Second, how much of the asset’s eventual value is growth after the gift, as opposed to gain that already existed? The estate tax saving applies only to the first; the lost step-up applies to both. Third, will the asset be sold during the grantor’s lifetime? An asset sold before death is taxed on its gain whether it sits in a SLAT or not, so the step-up the SLAT gives up is the step-up on whatever is still unsold at death.

At the rates in this article, a SLAT trades a 40% tax on growth after the gift for a capital gains tax of up to 23.8% (the 20% top long-term rate plus the 3.8% net investment income tax) on the full gain, but only on assets held until death. That is why the same trust can be an excellent decision for one family and a quiet mistake for another.

A Worked Example: A Houston Founder’s SLAT

A couple in their late fifties lives outside Houston. One spouse founded a commercial services company, organized as an S corporation, and nearly everything they own, the company included, is community property. Their multi-year projection, built with the company’s growth and an eventual sale modeled in, shows their combined estate passing the $30,000,000 exemption well before the second death, even with inflation adjustments. The kind of projection that answers that question is the subject of our article on the multi-year tax projection.

Setting it up. The company recapitalizes into voting and nonvoting shares, which an S corporation can do without creating a second class of stock, because differences in voting rights alone are disregarded. The nonvoting shares are what make the gift workable: the founder keeps the voting shares and keeps running the company, and the tax code would pull gifted shares back into his estate if he kept the right to vote them in a company he controls. The couple signs a written partition agreement converting a block of nonvoting shares into the founder’s separate property and an equal block into the other spouse’s separate property (the next section explains why). The founder then gives his block to a SLAT for his wife and their children. Because it is a minority, nonvoting interest in a private company, it is appraised below its proportionate share of the company’s value, at $4,000,000; how a gift appraisal and a buyer’s price differ is covered in our article on how a business is valued for sale. His basis in the shares is $400,000. From the day of the gift the trust owns those shares outright, so the company’s distributions on them go to the trust’s own account, not the founder’s; a grantor who keeps enjoying what he gave away invites the argument that he never gave it away. The gift uses $4,000,000 of his $15,000,000 exemption, no gift tax is due, and the gift tax return describes the gift and the appraisal fully enough to start the three-year clock on any IRS challenge to the value.

The sale. Five years later the company sells, and the trust’s shares bring $7,000,000: five years of growth, plus the minority discount disappearing in a sale of the whole company. That increase is also why the gift had to happen before a buyer named a price, as our article on estate planning before a business sale explains. The trust’s gain is $6,600,000. Because the SLAT is a grantor trust, the founder reports that gain on his own return and pays the tax from his own assets, about $1,320,000 at an illustrative 20% federal rate. (He works in the business, so the 3.8% net investment income tax generally does not apply to his gain on the sale.) The trust keeps the entire $7,000,000.

The second death. The trust invests the proceeds and, at an illustrative 5% a year, holds about $18.6 million twenty years later, when the second spouse dies. Because the $4,000,000 gift is added back in the estate tax calculation, the trust removes about $14.6 million of growth from the taxable estate, which at 40% is about $5.8 million of estate tax the family does not pay. The central trade still applies on a smaller scale: whatever part of that growth the trust has not yet realized at the second death passes to the children without a step-up.

About $1.4 million of that saving comes from the founder paying the trust’s tax on the sale. Had the trust paid the $1,320,000 itself, it would have reinvested $5,680,000 instead of $7,000,000, held about $15.1 million at the second death, and saved about $4.4 million. Every dollar of tax the grantor pays on the trust’s behalf is a dollar that leaves the estate without using any exemption, and under current law those payments are not gifts, as the IRS confirmed in Revenue Ruling 2004-64. Proposals to limit grantor trusts, including this treatment, have appeared in past federal budgets and, as recently as April 2026, in a Senate bill; none has become law. The illustration counts only the sale; in practice the founder keeps paying tax on the trust’s investment income for as long as the trust remains a grantor trust, which moves still more out of the estate.

The same trust, held instead of sold. Suppose the company never sells, and the trust still owns the shares when the second spouse dies, worth the same $18.6 million with a basis still near $400,000. (Basis in S corporation shares rises and falls with the company’s income and distributions; the example holds it constant for simplicity.) The estate tax saving is the same $5.8 million. But the shares get no step-up, and if the children sell, the gain of about $18.2 million is taxed at up to 23.8%, about $4.3 million of capital gains tax that a step-up would have erased. The net benefit shrinks to about $1.5 million, before the swap strategy described below and before the tax the founder pays each year on the trust’s share of company profits.

The same trust, for a family under the exemption. If the couple’s estate would never have owed estate tax, nothing on the estate side is saved, and the children inherit the founder’s $400,000 basis on shares worth $18.6 million. When they sell, the SLAT has cost the family about $4.3 million.

Texas Community Property: Why the Funding Has to Be Separate

In Texas and the other community property states, most of what a married couple acquires during the marriage belongs to both spouses equally, whatever the title says. That rule creates the most important Texas-specific requirement for a SLAT.

The problem with community funding. A gift of community property is treated as made half by each spouse. If a SLAT for the wife is funded with community property, she is treated as having given half of it, and a trust funded partly by its own beneficiary invites the argument that her half belongs in her estate under Section 2036. Had the founder in the example funded the trust with community shares, that argument would reach half of a trust worth about $18.6 million, or about $9.3 million. Practitioners avoid the argument rather than plan to win it.

The fix: separate property. A SLAT is generally funded with property that belongs to the grantor alone. Some couples already have it: property one spouse owned before the marriage, or received by gift or inheritance and kept separate. Others create it with a partition agreement, a written agreement signed by both spouses under the Texas Family Code that converts community property into equal shares of separate property. Practitioners commonly leave time between the partition and the gift, and treat the partitioned property as genuinely each spouse’s, so the two steps are not collapsed into a single transfer by the beneficiary spouse. Outside the community property states the same principle applies to jointly titled assets, which generally need to be retitled to the grantor alone before the gift.

What a partition costs. Partitioned property gives up a Texas advantage. Community property gets a full step-up on both halves at the first spouse’s death; separate property steps up only at its owner’s death. The other spouse’s block of shares in the example, now her separate property, will not step up if the founder dies first. A partition also changes what each spouse owns if the marriage ends, and unless the agreement says otherwise, income earned on separate property during the marriage is community property. None of this argues against partitioning when a SLAT is the right tool, but it belongs in the same projection as the trust, not after it.

Couples who moved to Texas. Property a couple acquired while living in a common-law state generally stays the separate property of whichever spouse owned it after a move to Texas, which can make it a natural source of SLAT funding. The same move raises its own basis questions, which our step-up article covers in its section on moving between states.

SLAT Risks: Divorce, a Spouse’s Death, and Reciprocal Trusts

A SLAT’s access runs through one person and one marriage, and its design risks follow from that.

If the beneficiary spouse dies first. The household’s access to the trust ends with the beneficiary spouse. The trust continues for the children, and the grantor, who gave away the assets and has lost a spouse, has no claim on them. Couples address this in several ways: a smaller gift that leaves the grantor’s own assets clearly sufficient, life insurance on the beneficiary spouse, or a power the beneficiary spouse can use to direct the trust’s assets at death. Texas law also lets a trust for a spouse name the grantor as a beneficiary after the spouse’s death without treating the grantor as having funded a trust for himself for creditor purposes. Whether such a provision is wise is a question for the estate attorney, because state creditor law and federal estate tax inclusion are separate tests.

If the marriage ends. A divorce does not remove the beneficiary spouse from the trust unless the trust says so. Many SLATs now provide that the spouse’s interest ends at a divorce, or define the spouse as whoever the grantor is married to at the time, which still leaves the grantor without access between marriages. The income tax side is harsher. The grantor trust rules treat anyone who was the grantor’s spouse when the interest was created as still a spouse, so after a divorce the grantor can remain responsible for the tax on income the trust pays to a former spouse. A provision of the tax code that once shifted that tax to the former spouse was repealed for divorce or separation instruments executed after 2018. A trustee power to reimburse the grantor for the tax, a provision ending the spouse’s interest, and a marital agreement that addresses the trust are the usual protections, and how a divorce court treats the trust’s assets varies by state and by the facts.

If both spouses want one. A couple can create two SLATs, one for each spouse, so each keeps access to the other’s trust. If the two trusts are too much alike, the Supreme Court’s reciprocal trust doctrine (United States v. Estate of Grace, 1969) lets the IRS uncross them, treating each spouse as the grantor of the trust for their own benefit and pulling both trusts back into the estates, to the extent of their mutual value. Trusts created at different times, with different assets, terms, trustees, and powers, are the standard defense, and some couples are better served by a single SLAT and a plan for the other spouse’s exemption at death.

Grantor Trust Status: The Tax Bill and the Swap Power

The income tax side of a SLAT is where much of its value is created, and where its most useful repair tool sits.

The tax bill. As long as the trust remains a grantor trust, the grantor pays the income tax on everything it earns. In the example that meant a $1,320,000 tax bill in the year of the sale, paid from the founder’s own assets, plus tax on the trust’s investment income every year after. That is a large cash commitment, and it should be modeled against the grantor’s own spending before the trust is funded, not discovered afterward. Some trusts let an independent trustee reimburse the grantor for the tax. Under Revenue Ruling 2004-64, a discretionary power of that kind does not by itself pull the trust into the grantor’s estate, absent an understanding that it will be used or a state law letting the grantor’s creditors reach the trust because of it. Texas law addresses the second condition directly: a grantor is not treated as a beneficiary of the trust solely because a trustee other than the grantor is authorized to reimburse the grantor’s income tax. Reimbursement relieves the cash flow, but every dollar reimbursed moves back into the estate.

Why it is hard to switch off. In many grantor trusts, status can be turned off by releasing a single power. In a SLAT, grantor trust status usually comes from the spouse’s interest itself, because the trust’s income can be paid to the grantor’s spouse, so it generally lasts at least as long as the spouse can receive income. If the trust does become a separate taxpayer, typically after the grantor’s death, it pays tax on its own retained income at compressed rates (37% above $16,000 of taxable income in 2026), and a trust holding S corporation shares has to qualify as an eligible shareholder through a specific trust election within the time the rules allow.

The swap power. Many SLATs give the grantor a power to reacquire trust assets by substituting other property of equal value, a power that by itself makes the trust a grantor trust under Section 675. Revenue Ruling 2008-22 concluded that holding the power in a nonfiduciary capacity does not cause the trust to be included in the grantor’s estate, as long as the trustee has a duty to make sure the substituted property really is of equal value. Because the grantor and a grantor trust are the same taxpayer, the exchange itself triggers no gain under current law, though the April 2026 Senate bill mentioned earlier would treat exchanges like this as sales.

The swap is how a SLAT gets the step-up back. Late in life, the grantor can exchange cash or high-basis assets for the trust’s low-basis assets. The low-basis assets return to the grantor’s estate and step up at death; the trust keeps assets of equal value with a high basis. In the held-until-death version of the example, if the founder is the second spouse to die, a swap of about $18.6 million of cash or high-basis assets for the trust’s shares shortly before his death would recover most of the $4.3 million of lost step-up. If he dies first, the swap has to happen while he is alive, at the shares’ value then, and recovers only the gain built up to that point. The practical constraint is having that much to swap. Grantors without enough liquid assets sometimes swap a promissory note, and trustees have refused notes whose terms did not match the value of what they were giving up, sometimes ending in court. A trust that defines how equal value is established, and that lets an agent under the grantor’s durable power of attorney exercise the swap if the grantor is incapacitated, keeps the option usable when it matters most.

SLATs Funded Before 2026: What to Do Now

Many families funded SLATs in 2024 and 2025 to lock in exemption before a sunset that never came, and some of them will never owe estate tax under permanent law. For those families, the trust is now mostly a cost: the assets inside it have given up the step-up, and the grantor may be paying the trust’s income tax every year. A few paths are available, and the right one depends on the projection.

If the estate is still projected above the exemption. The trust is doing what it was built to do. The work is maintenance: a basis plan that identifies which low-basis assets to swap back before death, a distribution policy that does not drain the trust into the household, and an honest look each year at whether the income tax the grantor is paying is still affordable.

If the estate is now comfortably under the exemption. The step-up is the main prize, and there are several ways to recover some of it. A swap brings low-basis assets back into the grantor’s estate. Distributions to the beneficiary spouse move assets back into the household, where they can step up at the death of whoever owns them, which is a legitimate use of the access the trust was built to provide. Some trusts give a trust protector the power to grant a beneficiary a power over the trust’s assets that pulls them into that beneficiary’s estate for the step-up. And Texas law allows a trustee with discretion over principal to move the trust’s assets into a new trust with updated terms, a process called decanting, within the limits the statute sets; the new terms can add a feature like those above. A Texas couple who partitioned community property to fund the trust can also convert the other spouse’s half back to community property by written agreement, restoring its full step-up at the first death, with the trade-offs our step-up article describes.

Before unwinding anything. A SLAT funded for tax reasons may still be doing useful work for other reasons: protecting assets for children from their creditors and divorces, holding a family business together, providing for a blended family. Our article on estate planning beyond a will covers what the rest of the plan needs to do. The question is not whether the trust was a mistake under the law that arrived, but what it is worth now, and the answer comes from the same projection that would decide whether to create one today.

How We Think About It

We lean toward a SLAT built for estate tax only for households whose projection shows their estate above the combined federal exemption at the second death, or above the exemption of a state that can tax their estate, and only after the couple’s own lifetime needs are secured by assets outside the trust. The beneficiary spouse’s access is a safety valve, not a funding source for retirement. For families below the line, holding appreciated assets for the step-up usually beats a lifetime gift, and a SLAT is the most elaborate version of a lifetime gift; one built for protection instead has to earn its place on those grounds, and is usually funded with cash or high-basis assets so it gives up little step-up.

We lean toward funding a SLAT with the assets most likely to grow quickly or to be sold during the grantor’s lifetime, such as an interest in a business before a sale, and toward modeling the held-until-death case alongside it, with the swap plan written down at the start. A SLAT funded with low-basis assets the family expects to hold forever has to clear the highest bar, because it gives up the most step-up for the least estate tax saved.

We lean toward reviewing SLATs funded before 2026 rather than unwinding them by reflex. The projection under permanent law decides the path: keep and maintain a trust that is still saving estate tax, and use swaps, distributions, and the trust’s own flexibility to recover basis in one that no longer is, while weighing the protection the trust may still provide. In Texas, the review includes the partition that made the trust possible, since converting the other spouse’s half back to community property can restore its step-up at the first death. These are decisions we make alongside the family’s estate attorney and CPA, who draft the documents and file the returns.

Common Questions

What is a spousal lifetime access trust?

A spousal lifetime access trust (SLAT) is an irrevocable trust one spouse funds with a gift for the benefit of the other spouse, and usually their children. The gift uses the giving spouse’s lifetime exemption, $15,000,000 in 2026, and removes the assets and their future growth from both spouses’ taxable estates. The household keeps indirect access because the trustee can make distributions to the beneficiary spouse, and the giving spouse generally pays the trust’s income tax.

Does a SLAT still make sense now that the exemption is $15 million?

For most families, not as an estate tax tool. The One Big Beautiful Bill Act made the exemption permanent at $15,000,000 per person and $30,000,000 per couple, indexed after 2026, so most estates will never owe estate tax, and assets in a SLAT give up the step-up in basis at death. For families whose estates are projected to pass the exemption, often owners of growing businesses, a SLAT still moves future growth out of the estate, where it would otherwise face a 40% tax. Families in states with their own estate tax may also have a use for one, since only Connecticut also taxes gifts.

Do assets in a SLAT get a step-up in basis at death?

Generally no. Assets in a SLAT are not included in the grantor’s estate, so they keep the grantor’s original basis; the IRS confirmed in Revenue Ruling 2023-2 that assets in a grantor trust excluded from the estate do not step up. Many SLATs give the grantor a power to swap high-basis assets or cash for the trust’s low-basis assets before death, which brings the low-basis assets back into the estate, where they step up.

What happens to a SLAT if we divorce or my spouse dies?

If the beneficiary spouse dies, the household’s access to the trust ends and the trust continues for the children. In a divorce, the former spouse stays a beneficiary unless the trust ends that interest, and because of the grantor trust rules, the grantor may keep paying income tax on what the trust distributes to the former spouse. Provisions that end the spouse’s interest at divorce, let a trustee reimburse the grantor’s taxes, or address the trust in a marital agreement are the usual protections.