Spousal Lifetime Access Trust (SLAT) in New York

A SLAT lets one spouse move assets out of both estates while the other spouse can still receive distributions. This page explains how it works, why it matters under the New York estate tax, and where the traps are.

Most married New Yorkers who ask us about gifting have the same hesitation: they want assets out of their taxable estate but are not ready to give up the income. A spousal lifetime access trust, or SLAT, is the standard answer. One spouse makes a completed gift to an irrevocable trust, the other spouse is a beneficiary, and the couple keeps an indirect line to the money for as long as the marriage and the beneficiary spouse last.

The federal exemption is now a permanent $15,000,000 per person, so the federal urgency behind SLAT planning has faded. In New York it has not. The state exclusion is $7,350,000 for 2026, there is no portability between spouses, and the cliff at $7,717,500 wipes out the exclusion entirely. For a New York couple, a SLAT is mostly about getting below the state numbers while there is still time.

How a SLAT works

The donor spouse creates an irrevocable trust and funds it with his or her own separate property. The beneficiary spouse and, usually, the couple’s children and grandchildren are the beneficiaries. An independent trustee (or the beneficiary spouse, limited to an ascertainable standard) can make distributions of income and principal for health, education, maintenance and support. The donor spouse is not a beneficiary and keeps no strings on the property.

Three things happen at once. The gift uses part of the donor’s $15,000,000 federal exemption, so there is no gift tax on the way in. Future appreciation grows outside both spouses’ estates. And because the trust is a grantor trust under IRC §§ 671–679, the donor keeps paying the income tax on its earnings; that payment is not a further gift (Rev. Rul. 2004-64), so the trust compounds undrained. We cover the general structure in more depth on our page on the spousal lifetime access trust in New York.

Why New Yorkers still use SLATs with a permanent $15,000,000 federal exemption

New York has no gift tax. A completed gift to a SLAT therefore costs nothing at the state level on the day it is made. What matters is what the gift does at death. New York’s estate tax starts from the federal gross estate and adds back taxable gifts made within three years of death (Tax Law § 954(a)(3)). A taxable gift made more than three years before death is simply gone: it never enters the New York calculation, it never counts toward the $7,350,000 exclusion, and it never pushes the estate toward the $7,717,500 cliff.

That is the whole New York case for a SLAT. A couple with $12,000,000 in combined assets owes nothing federally, but a $12,000,000 New York taxable estate pays about $1,386,800 of state tax. Moving enough into a SLAT to bring each spouse’s estate under $7,350,000 can eliminate that tax while the family still has a beneficiary spouse who can receive distributions. New York does not allow portability, so each spouse has to use his or her own exclusion; a SLAT is one of the ways to make sure the donor spouse’s estate actually fits inside it. Our article on why New York has no gift tax but that is not the whole story walks through the add-back in more detail.

The three-year add-back trap

The add-back applies to taxable gifts, meaning gifts that exceed the $19,000 annual exclusion and would be reported on a federal Form 709. A SLAT gift is almost always a taxable gift, so it is exposed. If the donor spouse dies within three years of funding, the gifted amount comes back into the New York gross estate for purposes of computing the tax, and the incremental tax is treated as a debt of the estate. The 2025 amendment extended the add-back to decedents dying before January 1, 2032, so this is not going away soon.

• Fund early. The clock starts at the date of the completed gift. A SLAT funded while both spouses are healthy is far more likely to clear the three years than one funded after a diagnosis.
• Exceptions are narrow. Gifts of real or tangible property outside New York, gifts made while a nonresident, and gifts already in the federal gross estate are excepted; a SLAT funded with securities by a resident is not.
• Appreciation still escapes. The add-back reaches the value of the gift, not the growth after the gift. Even a SLAT that fails the three-year test keeps post-gift appreciation out of the New York estate.

Two SLATs and the reciprocal trust doctrine

Couples often want symmetry: each spouse funds a SLAT for the other, so each has indirect access to what the other gave away. The Supreme Court addressed exactly this in United States v. Estate of Grace, 395 U.S. 316 (1969). Where two trusts are interrelated and leave the spouses in roughly the same economic position as if each had created a trust for himself or herself, the trusts are “uncrossed” and each spouse is treated as having funded a trust for his or her own benefit. The result is inclusion in both estates, which is the opposite of the plan.

The doctrine is avoided by making the trusts genuinely different, not cosmetically different:

• Different timing. Fund the trusts in different years, or at least months apart.
• Different assets and amounts. One trust holds marketable securities, the other an interest in the family business or real estate; the values should not mirror each other.
• Different beneficiaries and standards. One trust may include the spouse from day one; the other may add the spouse only after a period of years. One may limit the spouse to income; the other may permit principal.
• Different powers and trustees. Give the beneficiary spouse a limited testamentary power of appointment in one trust and none in the other, and use different trustees.

Divorce, death of the beneficiary spouse, and the limits of indirect access

The donor spouse’s access to a SLAT is indirect and depends on the beneficiary spouse being alive, married to the donor, and willing to share. Each of those can change.

Divorce: the floating spouse clause

If the trust names the beneficiary spouse by name, a divorce leaves a former spouse as lifetime beneficiary of an irrevocable trust. A “floating spouse” clause defines the beneficiary as the person to whom the donor is married from time to time, so the interest ends at divorce. It cannot restore the donor’s own access, but it keeps a former spouse out.

Death of the beneficiary spouse

When the beneficiary spouse dies, the donor’s indirect access ends and the trust continues for the descendants. We routinely pair a SLAT with life insurance on the beneficiary spouse, either owned by the SLAT itself or by a separate ILIT, so the donor has a replacement for the lost access without pulling assets back into an estate.

No implied understanding

Distributions should be made because the beneficiary spouse needs or wants them, not on a schedule designed to route money back to the donor. An understanding that the spouse will hand distributions over undermines the completed gift and invites a § 2036 argument. The donor should never be a beneficiary or a trustee with discretionary powers.

Trustee selection and what to fund the trust with

The beneficiary spouse can serve as trustee if distributions to himself or herself are limited to an ascertainable standard (health, education, maintenance and support). Broader discretion should sit with an independent trustee. The donor spouse should not be trustee. We usually add a trust protector who can replace trustees and adjust administrative terms.

Funding needs the same care:

• Use the donor’s separate property. If jointly owned assets are used, the beneficiary spouse is treated as a partial donor to a trust for his or her own benefit, and that share is pulled back into the beneficiary spouse’s estate under § 2036. Retitle first, wait, then fund.
• Be careful with the residence. A donor who keeps living in a home given to a SLAT has retained enjoyment of it. If the residence must go in, the trust should charge fair rent. There are usually better assets to give.
• Think about basis. Gifted assets keep the donor’s basis under § 1015, and assets in a grantor trust that are not in the estate get no § 1014 step-up at death (Rev. Rul. 2023-2). Prefer cash, high-basis securities or assets expected to appreciate strongly. A § 675(4)(C) swap power (Rev. Rul. 2008-22) lets the donor later exchange high-basis assets for low-basis trust assets so the low-basis property can be held until death. Our page on step-up and carryover basis covers the tradeoff.
• Consider discounted interests. Non-controlling units in a family LLC move more underlying value for the same gift-tax value.

Form 709 reporting and GST allocation

A SLAT gift is reported on the donor’s Form 709 by April 15 of the following year (extended with the income tax return, or separately on Form 8892). Gift-splitting under § 2513 generally does not work for a SLAT because the consenting spouse is a beneficiary, so the gift is charged against the donor’s own $15,000,000 exemption. If the trust holds hard-to-value assets, the return should meet the adequate-disclosure rules (Treas. Reg. § 301.6501(c)-1(f)) so the three-year statute of limitations on the value starts running; otherwise the IRS can revalue the gift at death.

Because grandchildren are usually beneficiaries, the return should also allocate GST exemption to the trust so its inclusion ratio is zero (§§ 2631, 2632, 2642). New York has no generation-skipping tax, so once the federal exemption is allocated the SLAT can run as a dynasty trust for as long as New York law allows. Our Form 709 page explains when a return is required.

A worked example with 2026 numbers

A New York husband owns $10,000,000 of investments in his own name; his wife has a smaller estate. He funds a SLAT for his wife and children with $4,000,000 of securities and survives more than three years.

If he dies within three years, the $4,000,000 is added back and the New York tax returns to about $1,067,600, though post-gift appreciation still escapes. Had he gifted only $2,000,000, the $8,000,000 remaining estate would be over the cliff and pay about $773,200. A New York SLAT should be sized to get the donor comfortably under $7,350,000, not just to reduce the number.

Who a SLAT is for, and who it is not for

• Good fit: a married New York couple with a combined estate above roughly $7,350,000 per spouse, or heading there, who can afford to give away a meaningful block of assets and are in a stable marriage. Business owners and holders of appreciating securities benefit most because the growth leaves the estate.
• Good fit: a couple that already has an A/B trust plan and wants to reduce New York exposure during life, not only at the first death.
• Poor fit: a couple with well under $7,350,000 each, a couple that needs the income from the gifted assets, an uncertain marriage, or a donor unlikely to survive three years. There we look first at cliff planning tools that work at death.

Pitfalls we see most often

• Funding with joint property. It converts the beneficiary spouse into a partial grantor of a trust for his or her own benefit.
• Using the trust as a checking account. Regular distributions that flow straight to the donor look like retained enjoyment.
• Forgetting the income tax. The donor keeps paying tax on trust income. Plan cash flow for it; any reimbursement must be in the trustee’s sole discretion, never a right.
• Skipping the GST allocation. An unallocated SLAT with grandchildren as beneficiaries can face a 40% GST tax later.
• No insurance on the beneficiary spouse. When that spouse dies first, the donor loses access with no replacement.

For a longer discussion of the tradeoffs, see our article on what a SLAT is, its advantages, what to watch out for and the tax implications.

Related Estate Tax Planning Topics

• The New York Estate Tax Cliff – Why $7,717,500 pays about $735,000 and $7,350,000 pays nothing.
• A/B Trust – Capturing both spouses’ New York exclusions at death.
• ILIT – Insurance outside the estate, often paired with a SLAT.
• Form 709 – When a gift tax return is required and why adequate disclosure matters.
• Dynasty Trust – Extending a SLAT for grandchildren with a GST allocation.

Talk to us about a SLAT

We draft and fund SLATs for New York couples, handle the Form 709 and GST allocation, and design the second trust when both spouses want one. Call Albert Goodwin at 212-233-1233 or email [email protected] to discuss whether a SLAT fits your estate.