SLATs (Spousal Lifetime Access Trusts) for Founders and Tech Executives

A married founder with $40 million of pre-IPO stock wants to use her $13.99M 2025 lifetime exemption before it potentially drops at the end of 2025 (the TCJA sunset). She transfers $13M of stock to a spousal lifetime access trust (SLAT) for the benefit of her husband and their children. She has gifted $13M of current value; it uses $13M of her lifetime exemption. If the stock grows to $100M by IPO, the $87M of appreciation passes to the trust (and eventually the children) outside her estate.

Her husband has access to distributions from the SLAT as needed, giving the family continued liquidity. He is not the beneficiary of her remaining separate assets (to avoid reciprocal-trust doctrine), and his decisions as a permissible beneficiary are at the discretion of an independent trustee.

SLATs are the founder’s workhorse vehicle for locking in the lifetime exemption while maintaining household access through the spouse. The structure has specific traps and requirements, but when done correctly, it moves enormous value out of the taxable estate.

The basic structure

A SLAT is an irrevocable trust established by one spouse (the grantor) for the benefit of the other spouse (the beneficiary spouse) and potentially children or other beneficiaries.

Key provisions:

• Beneficiary spouse is primary lifetime beneficiary. Can receive distributions for health, education, maintenance, support (HEMS standard), or broader under independent trustee discretion.
• Children or other beneficiaries may also be beneficiaries. Often take distributions after spouse’s death.
• Grantor is not a beneficiary. Grantor cannot receive distributions (would violate IRC §2036 and cause inclusion in estate).
• Trust is typically a grantor trust for income-tax purposes. Grantor pays income tax on trust income without additional gift (allowed under IRC §671-§677).
• Independent trustee or co-trustee. Oversees distributions and investments.

The gift at funding

The transfer to the SLAT is a completed gift by the grantor. It uses the grantor’s lifetime gift and estate tax exemption (2025: $13.99M per person).

The gifted value is the fair market value of the transferred assets at the gift date. For pre-IPO stock, this requires a qualified appraisal with DLOM (discount for lack of marketability) and DLOC (discount for lack of control) applied to get the gift-value below the headline share price.

Typical DLOM + DLOC combined on pre-IPO common: 20-40%. A $13M gift of pre-IPO stock at headline share prices might be valued at $8-10M for gift tax purposes with discounts applied. This effectively multiplies the amount that can be transferred within a fixed exemption.

The spousal access

The beneficiary spouse retains access to distributions from the SLAT. This provides continued family access to the gifted wealth through the spousal relationship.

Access is limited:

• The spouse doesn’t own the assets; only receives distributions at trustee discretion (or under specific standards).
• The spouse’s creditors generally cannot reach trust assets (subject to state law).
• Upon the spouse’s death, the spouse has no control over remaining assets; the trust continues under its terms.

Distributions can be substantial: a SLAT can distribute significant cash to the spouse for living expenses, school fees, medical needs, and more. With an independent trustee, broader distributions are possible.

The grantor trust mechanics

Most SLATs are drafted as grantor trusts for income tax. Under IRC §§671-677, the grantor is treated as the owner of trust income for income tax purposes.

Grantor trust for income tax purposes means:

• The grantor pays income tax on trust income.
• Trust assets grow without tax-drag from income tax paid from trust assets.
• Grantor’s income-tax payments are not additional gifts (under Rev. Rul. 2004-64).

This is a significant benefit. A $10M trust generating 5% returns produces $500K of income per year. Grantor pays roughly $120-180K in tax on that (depending on character). Over 10 years, that’s $1.2-1.8M of tax the grantor pays on the trust’s behalf, effectively making additional gifts to the trust without using exemption.

For estate tax: the grantor’s payment of the tax is not an additional gift, but it reduces the grantor’s estate by the amount paid. Double benefit.

The reciprocal trust doctrine

The reciprocal trust doctrine (from United States v. Estate of Grace) prevents spouses from establishing “mirror” SLATs for each other that effectively recreate the same estate position as if each owned their assets directly.

If two trusts are “substantially interrelated” and “leave the grantors in approximately the same economic position as if they had created trusts naming themselves as beneficiary,” the IRS can “uncross” them: each spouse is treated as the grantor of the trust for their own benefit, causing estate inclusion.

To avoid reciprocal trust problems:

• Different terms. SLATs for each spouse should have meaningfully different provisions (different beneficiaries, different distribution standards, different powers, different trustees).
• Different funding times. Fund one SLAT, wait substantially, then fund the other.
• Different assets. Fund with genuinely different asset categories.
• Different trustees. Use different trust companies or individuals.

In practice, many couples fund only one SLAT (for one spouse) or stagger/differentiate carefully. Dual SLATs require careful planning and documented independence.

The 2026 sunset and urgency

The 2017 Tax Cuts and Jobs Act doubled the estate and gift tax exemption effective 2018. The increase sunsets December 31, 2025. Without legislative action, the exemption drops to roughly $7M per person in 2026 (half of 2025 level).

The anti-clawback regulations under §2010 confirmed that gifts made while the exemption was high (2018-2025) will not be “clawed back” if the exemption is lower at death. Gifts using the high exemption are locked in.

This creates urgency for gifting before December 31, 2025. A $13.99M gift in 2025 is permanently outside the estate; if exemption drops to $7M in 2026, making the same $13.99M gift would use all of 2026 exemption plus create gift tax on the excess.

SLATs have been the vehicle of choice for “use-it-or-lose-it” exemption planning in 2024 and 2025.

The risks

Spousal divorce. The SLAT is irrevocable. If the couple divorces, the grantor loses access to the gifted wealth (since access was through the spouse). The spouse still receives distributions under the trust terms.

Some SLATs have provisions for divorce (spousal removal as beneficiary upon divorce). Such provisions can be challenged as incomplete gifts.

Spousal death. If the beneficiary spouse dies before the grantor, access through the spouse is lost. Remaining trust assets continue under the trust terms for other beneficiaries.

Trustee conflict. If the trustee limits distributions to the spouse against the grantor’s wishes, the family’s access to the funds is constrained. Choose trustees carefully.

Recharacterization risk. Aggressive SLAT provisions (e.g., where the spouse has excessive control or the grantor retains too much power) can be challenged by IRS as incomplete gifts or not respecting the irrevocable structure.

Comparison: SLAT vs alternatives

Vehicle	Uses exemption	Grantor retains access	Ideal for
SLAT	Yes, at funding	Through spouse	Married, want spousal access
Outright gift	Yes	No	Confident in transfer
GRAT	None	Yes via annuity	Volatile, high-upside assets
IDGT + installment sale	Small amount	No direct access	Large asset transfer
Dynasty trust	Yes	No	Multi-generational
QPRT (personal residence)	Yes	Use home for term	Primary residence only

Frequently asked

Can I be co-trustee of my own SLAT? Generally no; grantor serving as trustee with distribution power risks estate inclusion. Grantor can serve as trustee for narrow administrative functions (like investment direction) in some cases.

Can the SLAT own my employer stock? Yes. SLATs commonly hold founder stock, employee stock, and investment portfolios.

What about the step-up in basis at my death? Grantor-trust SLAT assets are not in the grantor’s estate, so no step-up at grantor’s death. Heirs receive trust assets at trust’s basis (typically original basis from grantor).

Can both spouses fund SLATs for each other? Yes, with careful reciprocal-trust avoidance (different terms, different timing, different assets).

What if I change my mind? SLATs are irrevocable. Some limited modifications may be possible through decanting or non-judicial settlement, but significant changes usually are not.

Next step

If you have significant appreciating assets and are married, evaluate SLAT funding before any exemption changes. Engage an estate planning attorney with SLAT experience at least 90 days before target funding date. Obtain a qualified appraisal for any private company stock. Consider funding timing relative to liquidity events (pre-IPO is often optimal due to discount availability and pre-transaction positioning).