What You Need To Know About Spousal Lifetime Access Trusts
Protect wealth with planned access.
What Are Spousal Lifetime Access Trusts?
Spousal Lifetime Access Trusts are estate planning tools for married couples. One spouse transfers assets into a trust, and the other spouse may receive benefits under the trust terms.
The spouse who creates and funds the trust is usually called the grantor. The spouse who may receive trust benefits is the spouse who benefits. Once the grantor transfers assets into the SLAT, those assets may be removed from the grantor’s taxed estate. This result depends on correct drafting and funding.
This can help a couple reduce estate tax risk while keeping some family access to the transferred assets. The grantor can’t take the assets back. Still, the spouse who benefits may receive income, principal, or both if the trustee can make those payments.
That access is indirect. It depends on the spouse staying alive, the marriage staying intact, and the trustee following the trust terms. This is why a SLAT needs careful review before any transfer is made. It should also be checked against the rest of the estate plan.
For 2026, the IRS states that the federal basic exclusion amount for estate and gift tax is $15,000,000. That current rule replaces older planning language about a scheduled exemption drop after 2025.
How Do Spousal Lifetime Access Trusts Work?
A SLAT works by moving assets away from the grantor while allowing the other spouse to receive trust benefits. The trust must be set up as a real separate plan, not as the grantor’s personal account.
The Grantor Transfers Assets
The grantor funds the trust with selected assets. These may include cash, investment accounts, business interests, or life insurance.
Funding a SLAT is usually treated as a gift for federal tax purposes. The transfer may use part of the grantor’s lifetime estate and gift tax exclusion.
Some transfers must be reported on IRS Form 709. The IRS says Form 709 is used to report transfers subject to federal gift tax and some GST tax matters.
The funding step should be documented with care. A trust that is signed but never funded may not meet the couple’s tax or planning goals.
The Spouse Who Benefits May Receive Payments
The spouse who benefits may receive trust payments if the trust document allows them. The trustee decides when and how payments are made.
The grantor does not own the trust assets after funding. This loss of direct control is part of what may help remove the assets from the taxed estate. It also means the grantor should not transfer assets that the couple may need for normal costs.
The Trust May Be a Grantor Trust
Many SLATs are designed as grantor trusts for income tax purposes. This means the grantor may report the trust income on the grantor’s own tax return.
This can let trust assets grow because the trust may not have to use its own funds to pay income tax. It can also reduce the grantor’s estate over time. The result depends on the trust language and tax rules that apply.
Why Do DC Residents Consider Spousal Lifetime Access Trusts?
DC residents may consider SLATs because federal and local estate tax rules use different thresholds. A married couple may have no federal estate tax concern, but still needs to think about the DC estate tax.
For 2026, the DC Office of Tax and Revenue states that the DC estate tax exclusion amount is $4,988,400. That amount applies to the estates of people who die in 2026.
That gap can matter for families with a home, investments, retirement assets, insurance, or business interests. A SLAT may reduce the taxed estate if the plan is correct and the transfer is complete.
A SLAT can also move future asset growth out of the estate. If a funded investment account grows inside the trust, that increase may stay outside the grantor’s taxed estate.
This does not mean every married couple in DC needs a SLAT. It means the couple should compare federal and local tax risk before deciding whether this trust fits the plan.
When Can a Spousal Lifetime Access Trust Create Problems?
A SLAT can create problems when the grantor relies too much on future access through the other spouse. Divorce, death, similar trusts, and overfunding can all reduce the value of the plan.
A Spousal Lifetime Access Trust can create problems when access, tax treatment, or family circumstances change after funding. The main risks usually involve divorce, death of the beneficiary spouse, IRS scrutiny, and placing too many assets into the trust.
Loss of Access After Divorce
Divorce can create a serious access problem for the grantor spouse. If the marriage ends, the beneficiary spouse may still have rights under the trust, while the grantor may lose indirect access to the assets.
This risk matters because a SLAT is usually irrevocable. Once the assets are transferred, the grantor generally can’t take them back simply because the marriage changed. The trust terms should be reviewed carefully before funding, especially if the couple may rely on those assets later.
No Indirect Access if the Beneficiary Spouse Dies First
The grantor may also lose indirect access if the beneficiary spouse dies first. The trust may continue for children or other beneficiaries, but the grantor usually doesn’t regain control of the assets.
This can create a cash flow issue if the couple expects to use trust distributions for shared expenses. Other assets, life insurance, or a separate estate planning strategy may help reduce this risk.
IRS Scrutiny of Similar Spousal Trusts
IRS scrutiny can arise when both spouses create similar SLATs for each other. If the trusts are too alike, the IRS may apply the reciprocal trust doctrine and treat each spouse as if they created a trust for their own benefit.
That result can weaken or undo the estate tax benefit. When both spouses want SLATs, the trusts should have meaningful differences in timing, assets, trustees, distribution terms, or other key details.
Cash Flow Problems From Overfunding
A SLAT can also create problems if too many assets are transferred into it. The trust may reduce estate tax exposure, but it should not leave the couple without enough money for daily living, health care, taxes, or retirement.
Before funding the trust, the couple should review how much they need to keep outside the SLAT. The goal is to support estate planning without creating financial strain.
How Do You Set Up a Spousal Lifetime Access Trust in Washington, DC?
Setting up a Spousal Lifetime Access Trust takes planning, drafting, funding, and tax reporting. Each step should be handled before the couple treats the trust as complete.
Step 1: Review the Estate Plan
The first step is to review the full estate plan. This includes assets, debts, income, insurance, retirement needs, and family goals.
This review helps decide whether a SLAT is useful. It also helps decide which spouse should be the grantor and what assets may be right for the trust.
Step 2: Draft the Trust
The trust should name the trustee, the spouse who benefits, future beneficiaries, and the payment rules. It should also explain what the trustee may pay and when those payments may be made.
Drafting matters because a SLAT is usually hard to change. Once the trust is signed and funded, the grantor may not be able to change core terms.
Step 3: Fund the Trust
After signing, assets must be transferred into the trust. This may require new account titles, assignment forms, updated business records, or life insurance policy changes.
The funding step should match the trust and tax plan. Poor funding can leave the trust incomplete or create reporting problems.
Step 4: Handle Tax Reporting
A gift tax return may be needed after funding. Form 709 may be used to report taxable gifts and to show how much of the lifetime exclusion was used.
DC income tax rules may also matter. Under DC Code Section 47 1809.01, a trust can be treated as a resident trust if the creator was domiciled in DC when the trust was created. A trust can also be resident if it holds property of a person domiciled in DC.
Step 5: Review the Trust Over Time
A SLAT should be reviewed after major life changes. Divorce, death, a move, a business sale, a large change in asset value, or a tax law change may affect the plan.
Trust records should also be kept separate. Clear records help show that the trust is being managed as its own legal arrangement.
What Tax Rules Should You Know Before Funding a Spousal Lifetime Access Trust?
A Spousal Lifetime Access Trust can affect gift tax, estate tax, income tax, and local tax planning. These issues should be reviewed before assets are moved.
For federal planning, the grantor may use part of the lifetime estate and gift tax exclusion when funding the trust. The 2026 federal basic exclusion amount is $15,000,000, according to the IRS.
For local planning, DC has its own estate tax system. The 2026 DC exclusion amount is $4,988,400 for estates of people who die in 2026, according to the DC Office of Tax and Revenue.
Income tax can also be part of the plan. If the SLAT is treated as a grantor trust, the grantor may report trust income on an individual tax return. That can help the trust keep more of its assets, but it also creates a tax bill for the grantor.
DC trust residency rules can affect local reporting. A trust tied to a DC resident or DC property may need closer review under local tax law.
Questions About Spousal Lifetime Access Trusts in DC?
A Spousal Lifetime Access Trust can help married couples in Washington, DC, reduce estate tax exposure while keeping limited access through the beneficiary spouse. But a SLAT is not a simple form, and it should not be funded without reviewing the tax, family, and access risks first.
Kevin C. Martin, Attorney at Law, PLLC, can help you understand whether this trust fits your estate plan, how much to transfer, and what terms may reduce problems later. A careful review can also help you account for DC estate tax rules, federal gift tax reporting, divorce concerns, and the risk of losing access if the beneficiary spouse dies first.
Before moving assets into an irrevocable trust, take time to understand your options and decide whether a Spousal Lifetime Access Trust fits your broader estate planning goals.
FAQs About Spousal Lifetime Access Trusts
Can both spouses set up a SLAT for each other?
Yes, but the trusts must differ in structure or timing. If the trusts look like mirror images of each other, the IRS may apply the reciprocal trust doctrine and treat them as canceling out. That could pull the assets back into both taxable estates and undo the planning entirely.
What happens to a Spousal Lifetime Access Trust if the couple divorces?
The grantor spouse loses all indirect access to the trust. The assets remain in the trust for the benefit of the ex-spouse as the named beneficiary. There’s no mechanism to reverse the transfer after the trust is funded, which is one reason couples should think carefully about this risk before proceeding.
Can a Spousal Lifetime Access Trust hold a life insurance policy?
Yes. Placing a life insurance policy inside the trust is a common strategy. The trust owns the policy, and if structured correctly, the death benefit may stay outside the taxable estate. This can also help address the risk of losing access if the beneficiary spouse dies first.
Does Washington, DC have its own rules that affect a SLAT?
DC follows federal gift and estate tax rules for SLATs, but DC also has its own estate tax with an exemption threshold that is lower than the federal level. That gap matters when deciding how much to fund. DC residency can also affect how trust income is reported and taxed locally.
Can the grantor spouse ever get money back from the trust?
No. The grantor gives up direct access to the assets when the trust is funded. That loss of control is what removes the assets from the grantor’s taxable estate. The grantor can only benefit indirectly, through the beneficiary spouse’s use of the funds for shared expenses.