Spousal Lifetime Access Trusts after the recent federal changes

A practice guide for estate planners who want to integrate SLATs with today’s transfer tax system and with basis strategy

Executive summary

A spousal lifetime access trust can still be the most versatile lifetime wealth transfer structure for married clients who want to remove assets and their future growth from the taxable estate while keeping a safety valve of family access through the beneficiary spouse. The federal baseline has shifted though. The basic exclusion amount in 2025 is 13.99 million per person and the annual exclusion is 19 thousand. Congress then enacted the One Big Beautiful Bill Act in July 2025. That statute raised the estate and gift tax basic exclusion amount to 15 million per person for decedents dying and gifts made after December 31 of 2025 subject to inflation adjustments. That larger base reduces the share of families driven primarily by transfer tax and it increases the number of plans where step up in basis and income tax efficiency govern the design. The basis rule under section 1014 remains. Final consistent basis regulations under sections 1014 f and 6035 took effect in 2024 and Revenue Ruling 2023 2 confirms there is no basis adjustment for assets held in an irrevocable grantor trust that are not included in the grantor’s gross estate. Together these rules make basis management inside and around a SLAT a first order planning task. Journal of Accountancy+4Fidelity+4Congress.gov+4

Part one. The federal baseline in late 2025

The current exclusion and what changes on January 1 of 2026
For 2025 the federal estate and gift tax exclusion is 13.99 million per person and the annual exclusion for present interest gifts is 19 thousand per donee. Under the 2025 legislation described above the basic exclusion rises to 15 million per person for transfers after December 31 of 2025 with inflation indexing. For married couples, portability still permits a survivor to add the deceased spouse’s unused exclusion if a timely or late portability return is filed. Fidelity+2feldmanlawgroup.com+2

Late portability window remains generous
Revenue Procedure 2022 32 allows a simplified late portability election for up to five years after death if the estate was not otherwise required to file Form 706. This is still an important backstop for SLAT families because the survivor may want to preserve the deceased spouse’s unused exclusion even when the taxable estate is below the filing threshold. Internal Revenue Service

The step up rule and consistent basis reporting
Section 1014 continues to set basis equal to fair market value at death for property that is considered to have been acquired from the decedent. Treasury finalized the consistent basis and reporting regulations in 2024. These rules tie a beneficiary’s initial basis to the value reported for estate tax purposes and refine who must receive basis information and when. Practitioners should assume heightened scrutiny of mismatches between reported estate value and later income tax basis. U.S. Code+1

No basis adjustment for assets outside the gross estate
Revenue Ruling 2023 2 states that assets gifted to an irrevocable grantor trust that are not included in the grantor’s gross estate do not receive a basis adjustment at the grantor’s death. That position forecloses aggressive readings of section 1014 for many grantor trusts and it squarely affects SLAT basis strategy. Journal of Accountancy

The anti clawback rule is settled
Treasury Regulation section 20.2010 1 c allows a decedent’s estate to compute the estate tax credit using the higher of the basic exclusion amount available when lifetime gifts were made or the amount at death. This protects clients who used larger exclusions before a later change in law. The rule remains relevant for those who made significant gifts from 2018 through 2025. Internal Revenue Service

Part two. What a SLAT does and why it remains central

A SLAT is an irrevocable trust that one spouse funds for the benefit of the other spouse and often for descendants. The gift is a completed transfer that removes assets and their growth from the donor’s gross estate. The donor commonly configures the SLAT as a grantor trust so all trust income and gains are taxed to the donor during life. That tax burn further reduces the donor’s estate without additional gift tax. Revenue Ruling 2004 64 confirms that the donor’s payment of income tax on a grantor trust is not a separate gift. If the governing instrument requires reimbursement the ruling warns of possible estate inclusion under section 2036. Recent Chief Counsel Advice also cautions that adding a reimbursement right after the fact can itself create a gift by beneficiaries. unclefed.com+1

Because the beneficiary spouse can receive distributions under an ascertainable standard the couple preserves indirect access to the transferred wealth. This access must be framed carefully to avoid estate inclusion under sections 2036 and 2038. Legal Information Institute+1

Part three. Design choices that matter for SLATs today

Trustee and distribution standard
Use an independent trustee or a carefully limited role for the beneficiary spouse. Tie distributions to health education maintenance and support. Avoid any retained power by the donor to alter enjoyment. These controls reduce risk under sections 2036 and 2038. Legal Information Institute+1

Grantor trust switch and the power to substitute
Most SLATs rely on grantor trust status for income tax purposes. The cleanest lever is a substitution power under section 675 4 that lets the grantor swap property with the trust at equivalent value. Revenue Ruling 2008 22 confirms that a properly drafted substitution power does not by itself trigger estate inclusion under sections 2036 or 2038. Revenue Ruling 2011 28 confirms that a properly drafted substitution right with an independent trustee is not an incident of ownership in a life insurance policy for section 2042. Both rulings require fiduciary safeguards and an equivalent value requirement. Kiplinger+1

Gift splitting traps
Do not assume gift splitting is available. A transfer to a trust that benefits the consenting spouse is not fully eligible for split gift treatment unless the portion for third parties is ascertainable and severable from the spouse’s interest. Many SLAT gifts do not satisfy that test. Cite the regulation directly in your memo and decide case by case. Legal Information Institute

Reciprocal trust doctrine
If each spouse creates a trust for the other and the trusts are substantially similar, the Service can uncross the arrangement and treat each spouse as if they created a trust for themselves. The Supreme Court’s Grace decision remains the touchstone. Material differences in trusteeship, distribution standards, powers of appointment, timing, funding sources, and beneficiaries are the best defenses. Justia Law

Life insurance inside a SLAT
If an existing policy on the donor is transferred to the SLAT and the donor dies within three years the death benefit will be pulled back into the gross estate under section 2035 in conjunction with section 2042. New policies owned from inception by the SLAT avoid that three year taint. Legal Information Institute

Part four. Basis strategy inside and around a SLAT after Revenue Ruling 2023 2

The ruling makes one point clear. A grantor’s death alone does not step up the basis of assets owned by a grantor SLAT unless those assets are included in a taxable estate. Estate planners must therefore manage basis intentionally.

Ten practical moves

1. Swap out low basis assets before a death
   Use the substitution power to exchange low basis trust assets for cash or high basis assets in the grantor’s name. The exchanged low basis assets then receive a basis step up at the grantor’s death. The trust receives equivalent value without recognition of gain while grantor trust status lasts. Document equivalence carefully and use an independent valuation where appropriate. Kiplinger

2. Build a formula general power of appointment toggle
   Consider giving the beneficiary spouse a testamentary general power of appointment limited by a formula to the amount that will not increase transfer taxes. On the spouse’s death the appointed portion is included in that spouse’s estate and receives a step up. Use an on off design through a fiduciary or protector so the power is granted only when advantageous. WealthCounsel

3. Use upstream powers when family facts allow
   If a parent or other elder relative has unused exclusion, an upstream general power over selected SLAT assets can produce a basis step up at that person’s death without federal estate tax cost. Safeguards must address creditor exposure and benefit targeting. media.law.miami.edu

4. Coordinate with community property
   For couples domiciled in community property states the survivor can receive a basis step up on both halves of appreciated community property under section 1014 b 6. Community property trusts and transmutation agreements can extend similar effects in opt in states. Use these regimes for assets outside the SLAT to maximize basis at the first death. The Florida Bar

5. Plan for basis reporting
   Executors must give beneficiaries accurate basis statements and beneficiaries must respect the ceiling imposed by section 1014 f. When SLAT assets are swapped into the estate close to death keep records that show the includible property and its final estate value. Federal Register

6. Mind the ordering of distributions
   Distributions of appreciated property from a grantor SLAT to the beneficiary spouse during the grantor’s life do not create a basis step up. If the aim is to sell with a higher basis it is usually better to swap the asset into the grantor’s name, wait for estate inclusion and then sell after death.

7. Avoid accidental estate inclusion
   A mandatory reimbursement clause for grantor level tax or a retained right that affects enjoyment can create inclusion under section 2036. Review instruments drafted during the rush years. If the trust lacks a reimbursement clause, do not add one without considering the 2023 Chief Counsel Advice. unclefed.com+1

8. Integrate SLATs with lifetime QTIPs when appropriate
   In higher net worth plans, a lifetime QTIP with a reverse QTIP election can preserve GST exemption while reserving basis flexibility for the survivor. This is not a SLAT but it can sit next to a SLAT in the same overall plan. Legal Information Institute

9. S corporation stock awareness
   Grantor trust status allows S corporation ownership. After the grantor’s death the trust must qualify as a QSST or an ESBT or it will bust the S election. Build the documents so the trustee can make the election without court work.

10. Administration calendar
    Create a pre death basis sweep protocol and a year end checklist for valuation and substitutions. Use qualified appraisals for closely held assets before any swap near a death.

Part five. Funding and gift tax execution

What to fund and when
Appreciating assets with long horizons are the best SLAT candidates. Concentrated low basis positions can be moved, but the team must be ready to swap them back later. One spouse’s SLAT cannot be funded with gift splitting for the portion that benefits the other spouse. If both spouses will fund trusts, ensure there are material differences and adequate spacing in time and administration to respect each trust as an independent arrangement. Legal Information Institute+1

GST decisions
If the SLAT is intended to benefit grandchildren directly or through a dynasty design, consider allocating GST exemption. Many SLATs meet the definition of a GST trust for purposes of the automatic allocation rule, but counsel should make an affirmative allocation to control inclusion ratios and later distributions. Where a lifetime QTIP is used in parallel, a reverse QTIP election can preserve the first spouse’s GST exemption. Legal Information Institute

Disclosure and valuation
File a timely and adequately disclosed Form 709. Use a full appraisal for closely held business interests or hard to value assets. Disclose the existence of the substitution power and any valuation methodology applied in the governing instrument.

Part six. Case study

Assume a married couple with a combined net worth of 40 million in a common law state and no prior taxable gifts. In 2025 they would have a combined exclusion of 27.98 million. If both died in late 2025 with no planning, roughly 12.02 million would be exposed to federal estate tax before deductions and credits. At a 40 percent top rate the rough federal levy would be about 4.81 million.

Now assume the couple funds two non reciprocal SLATs in 2025. Each spouse transfers 13.5 million to a separate trust with differences in trustees, beneficiaries, distribution standards, and powers of appointment. Each gift uses that donor’s 2025 exclusion. By 2035 the trusts collectively grow to 27 million at a modest annual growth rate. None of that appreciation is subject to estate tax in either estate. The couple then runs a basis sweep before the first death by swapping out 7 million of the lowest basis positions into the grantor’s estate to secure an estate level step up. The trusts receive cash and high basis securities. After the first death, the survivor’s taxable estate remains well under the then applicable exclusion. The heirs receive trust property with the basis positions selected by the team rather than dictated by chance.

If instead the couple waited and used the 15 million per person basic exclusion available for gifts after December 31 of 2025 they could still remove 30 million but the compounding on appreciation during the waiting period would remain in the estate. The case study usually favors earlier gifts for fast growing assets, but the family’s comfort with access and with the reciprocal trust doctrine engineering must drive the timing. Fidelity+1

Part seven. Frequent pitfalls and how to avoid them

Mirror image trusts
Do not draft two trusts with the same terms, same trustees, same powers, and same timing. Vary dispositive provisions and administration meaningfully. The Grace case still governs the analysis. Justia Law

Over broad access for the beneficiary spouse
If the beneficiary spouse as trustee can distribute for any reason the Service may argue that the donor retained de facto enjoyment through the spouse. Limit the spouse with an ascertainable standard and consider an independent distribution trustee. Legal Information Institute

Unmonitored substitution power
A substitution power without an equivalent value requirement or without fiduciary policing invites inclusion or recharacterization. Conform to the safeguards in Revenue Ruling 2008 22 and Revenue Ruling 2011 28. Kiplinger+1

Gift splitting without analysis
Confirm whether the interest for persons other than the spouse is severable and ascertainable before assuming split gift treatment. Otherwise, file a return using only the donor’s exclusion. Legal Information Institute

Adding a tax reimbursement right later
A decanting or modification that adds a reimbursement clause for grantor level income tax can be treated as a gift by beneficiaries and can raise inclusion concerns. The 2023 Chief Counsel Advice is direct on this point. Internal Revenue Service

Life insurance three year problem
Transferring an existing policy on the donor to a SLAT within three years of death brings the proceeds back into the estate. Use new policies when possible or plan for the risk in pricing. Legal Information Institute

Basis complacency
Do not assume any basis adjustment for assets that remain in the SLAT at the grantor’s death. Revenue Ruling 2023 2 closes that door. Plan the swap calendar and keep the paper trail for section 1014 f compliance. Journal of Accountancy+1

Part eight. Variations and complements

Lifetime QTIP next to a SLAT
For certain clients, a lifetime QTIP for the surviving spouse can lock in the marital deduction while positioning GST exemption through a reverse QTIP election. It can also simplify income tax reporting after the beneficiary spouse dies. In the same family the other spouse can fund a SLAT to remove growth and preserve access. Legal Information Institute

GRATs and installment sales
A GRAT remains an efficient way to strip appreciation without using exclusion. A sale to a grantor trust can add leverage next to a SLAT as long as the family can carry the risk of mismatched cash flow. These are complements, not replacements.

State estate and inheritance taxes
State regimes vary widely. Coordinate SLAT situs, governing law, and trustee residence with the relevant state tax map and with any domestic asset protection statutes available to the family.

Part nine. Drafting and administration checklist

Use this as a starting point for your internal forms and file memos.

Before funding

1. Family goals memo and risk appetite

2. Side by side estate model with the 2025 exclusion and with the 2026 exclusion

3. Reciprocal trust doctrine engineering plan if both spouses will fund trusts

4. Trustee map with distribution trustee and trust protector roles separated

5. Power to substitute under section 675 4 with fiduciary policing and equivalent value language consistent with published rulings

6. Reimbursement policy for grantor trust tax payments decided at formation with awareness of Revenue Ruling 2004 64

7. GST plan including whether the SLAT is a GST trust and whether affirmative allocation is preferred

8. Life insurance strategy and three year risk analysis where relevant

9. Community property overlay where applicable

At funding and annually

1. Appraisals for contributed hard to value assets

2. Adequate disclosure on Form 709

3. Annual independence and conflict check for trustees

4. Minutes showing distribution analysis for any large distributions to the spouse

5. Statement of assets suitable for later basis swaps

Pre death basis sweep

1. Identify lowest basis trust positions

2. Independent valuation and swap documentation

3. Verify grantor trust status up to the swap date

4. Map of which assets will be includible in a taxable estate

Post death

1. Basis statements and consistent basis reporting for property acquired from the decedent

2. Portability election within the normal window or under the five year relief procedure if needed

3. QSST or ESBT elections for any S corporation interests moving out of grantor trust status Federal Register+1

Conclusion

The larger exclusion scheduled for transfers after December 31 of 2025 changes the balance between estate tax removal and income tax optimization. SLATs remain powerful because they remove appreciation while preserving access and control through governance. In the world after Revenue Ruling 2023 2, every SLAT plan should build a basis playbook from day one. That means a substitution power with fiduciary guardrails, a realistic pre death swap calendar, and optional powers that can create estate inclusion for selected assets when there is no transfer tax cost. With those elements in place the SLAT is still the most adaptable lifetime structure for married clients who want to plan both the transfer tax and the income tax sides of the ledger. Congress.gov+1

Key authorities for quick reference

• Basic exclusion amount for 2025 and the 2026 increase under the 2025 statute. Fidelity+1

• Step up and consistent basis rules under section 1014 and the 2024 final regulations. U.S. Code+1

• Revenue Ruling 2023 2 on no basis adjustment for assets of a grantor trust outside the gross estate. Journal of Accountancy

• Revenue Ruling 2008 22 and Revenue Ruling 2011 28 on substitution powers and incidents of ownership. Kiplinger+1

• Revenue Ruling 2004 64 and the 2023 Chief Counsel Advice on tax reimbursement. unclefed.com+1

• Gift splitting regulation for trusts that benefit the consenting spouse. Legal Information Institute

• Reciprocal trust doctrine in United States v. Grace. Justia Law

• Three year rule on life insurance. Legal Information Institute

• Late portability election relief for five years. Internal Revenue Service

This article is for attorneys and assumes familiarity with federal transfer tax and income tax principles. State law can change outcomes. Confirm application of creditor and family law rules and any state level transfer or inheritance taxes in the relevant jurisdiction before implementing any technique described here.

Disclaimer:
The information provided in this post is for educational and general informational purposes only and does not constitute legal, tax, financial, or other professional advice. Laws, regulations, and interpretations are subject to change frequently and may vary by jurisdiction. You should not rely solely on this information when making decisions affecting your personal circumstances. Please consult with a qualified attorney, tax advisor, or financial professional for advice specific to your situation. The transmission or receipt of this information does not create an attorney-client relationship or any other professional relationship. This post may be considered advertising under applicable state laws.