Spousal Limited Access Trusts

An estate planning technique, used by some taxpayers to utilize part or all of one's estate and gift tax exemption, by making a completed gift of assets now, and indirectly retaining the economic benefits of the gifted assets through a continuing relationship with a spouse. Typically, a grantor transfers assets to an irrevocable trust for the benefit of a spouse, providing discretionary income and principal for that spouse, but limiting access so as to protect against the couple's future creditors, and from being included in the spouse's gross estate. The granting spouse would "elect out" of treating the transfer as a valid marital gift under Sections 2523 and 2056(b)(7), thereby rejecting marital deduction treatment and allowing the grantor use use the estate and gift tax exemption for the completed gift.

Presumptively, this transaction works if both spouse stay happily married and the grantor can enjoy the economic benefits the spouse receives from the irrevocable trust. Also, in most cases both spouses would create such trust, inserting provisions such as a limited power of appointment for only one spouse, to avoid the reciprocal trust doctrine. Most SLATs are structured so that the assets are includible in the grantor's gross estate, thereby obtaining a step-up in basis at the death of the grantor.