SLATs: How Bay Area Couples Lock In the $13.99M Lifetime Exemption

If you and your spouse are sitting on a startup equity position, a paid-off Palo Alto house, or a brokerage account that crossed $10 million sometime in the last bull run, the One Big Beautiful Bill Act (OBBBA, Public Law 119-21, signed July 4, 2025) made the higher lifetime gift and estate tax exemption permanent and lifted it further beginning in 2026. The federal exemption for 2025 sits at $13.99 million per person ($27.98 million for a married couple). Under OBBBA, the exemption rises to $15 million per person ($30 million per couple) for 2026 and continues to be indexed for inflation thereafter, replacing the prior-law sunset that would have cut the exemption roughly in half on January 1, 2026.

OBBBA also kept the anti-clawback regulations intact, so any earlier gifts made under the higher exemption remain protected. With the higher exemption now permanent, the planning calculus shifts from a hard sunset deadline to optimizing growth removal and generation-skipping strategy. The catch remains: most couples do not want to irrevocably give away $28 to $30 million and watch it disappear into a trust they cannot access.

This is exactly the problem that a Spousal Lifetime Access Trust, or SLAT, is built to solve. A properly drafted SLAT lets one spouse fund an irrevocable trust with the other spouse as a discretionary beneficiary. The donor spouse uses their exemption, the assets leave their estate, and the family still has indirect access to the funds through the beneficiary spouse. Done correctly with two SLATs, a married couple can deploy both exemptions while keeping a practical safety net. We work through these plans regularly with our estate and trust planning team at Silicon Valley Tax.

The Exemption After OBBBA: A Permanent Higher Floor

The federal lifetime gift and estate tax exemption was nearly doubled by the Tax Cuts and Jobs Act of 2017. After inflation adjustments, the 2025 exemption is $13.99 million per individual, or $27.98 million for a married couple using portability. The federal estate tax rate above the exemption is 40%.

Prior to OBBBA, the TCJA sunset provision would have rolled the exemption back to its pre-2018 base on January 1, 2026 (roughly $7 million per person after inflation). OBBBA repealed that sunset and instead set the exemption at $15 million per person ($30 million per couple) for 2026, indexed for inflation thereafter. For a couple sitting at $25 million of net worth, the planning math is no longer dominated by a hard cliff.

The IRS final regulations under Treas. Reg. §20.2010-1(c) confirming no "clawback" on gifts made under the higher exemption remain in force. With OBBBA's permanent lift, the strategic case for using exemption shifts from beating a sunset to (a) removing future appreciation from your estate, (b) layering on generation-skipping transfer tax planning, and (c) front-loading exemption usage before any future political reversal.

For a deeper background on the annual exclusion and the lifetime exemption mechanics, see our companion post on the gift tax exclusion in 2026.

What a SLAT Actually Is

A Spousal Lifetime Access Trust is an irrevocable trust funded by one spouse (the donor or "grantor") for the benefit of the other spouse (the beneficiary), often along with descendants. The donor spouse files a federal gift tax return (Form 709) for the year of funding, reports the transfer, and uses a portion of their lifetime exemption under IRC §2010. Because the gift is complete and irrevocable under IRC §2511, the assets and all future appreciation are removed from the donor's taxable estate.

The mechanism that makes a SLAT different from a standard irrevocable gift trust is the beneficiary spouse. An independent trustee (typically a corporate trustee or a non-related professional) has discretion to make distributions to the beneficiary spouse for health, education, maintenance, and support, or under a broader standard if drafted that way. Because the donor and beneficiary are married and share household finances, distributions to the beneficiary spouse provide the donor with indirect access to the trust assets while they are still married and the beneficiary spouse is still living.

Key structural features:

• Irrevocable. Once funded, the donor cannot pull assets back. The gift is complete the moment the trust is funded and title transfers.
• Discretionary beneficiary. The beneficiary spouse has no right to demand distributions. The independent trustee decides whether and when to distribute.
• Outside the estate. Properly drafted, the trust assets are excluded from both spouses' gross estates at death under IRC §§2036, 2038, and 2042.
• Grantor trust for income tax. Almost always structured to be a grantor trust under IRC §§671 to 679, meaning the donor continues to pay the income tax on trust earnings. This is a feature, not a bug, and we explain why below.
• GST planning. Most SLATs are also funded with generation-skipping transfer (GST) tax exemption allocated, so the assets can pass to grandchildren without an additional 40% GST tax layer.

Why Couples Set Up Two SLATs (and the Reciprocal Trust Trap)

A single SLAT lets one spouse use their exemption while preserving indirect access. The natural follow-on question: can both spouses do the same thing in opposite directions? Yes, but only if the trusts are not mirror images of each other.

The IRS will collapse two trusts under the reciprocal trust doctrine, established in United States v. Estate of Grace, 395 U.S. 316 (1969). In Grace, the Supreme Court held that two trusts created by spouses for each other, with substantially identical terms and a clear quid pro quo, would be "uncrossed" for tax purposes. The result: each grantor was treated as having created the trust they were the beneficiary of, the assets were pulled back into each estate, and the entire planning benefit was lost.

To survive a reciprocal trust attack, the two SLATs should differ across multiple dimensions:

• Different funding dates. Stagger the fundings by months, not days. One in Q2, the other in Q4.
• Different funding amounts. $11 million in one, $13 million in the other.
• Different trust assets. Cash and marketable securities in one, founder stock or LP interests in the other.
• Different beneficiary classes. One trust names spouse plus current descendants, the other names spouse plus descendants plus charity, or adjusts the order of remainder beneficiaries.
• Different distribution standards. HEMS in one, a broader "comfort and welfare" standard in the other.
• Different trustees. A corporate trustee on one, an independent individual professional on the other.
• Different powers of appointment. A limited testamentary power in one, no power of appointment in the other.
• Different situs and governing law. One trust in Delaware, the other in Nevada or South Dakota.

No single difference is dispositive. The IRS and courts look at the overall economic substance. The goal is that the two trusts could plausibly stand on their own without each other, and that neither spouse is in substantially the same economic position they would have been in if they had simply funded a trust for themselves.

The QSBS Multiplier

For Bay Area founders, SLATs become genuinely powerful when paired with Qualified Small Business Stock. Section 1202 allows a per-issuer exclusion of up to $15 million (post-OBBBA, for stock issued after July 4, 2025) of capital gain on QSBS held five years or more. The exclusion is per taxpayer, per issuer.

A properly structured non-grantor trust is a separate taxpayer for QSBS purposes, with its own $15 million cap. Even grantor SLATs can preserve QSBS treatment under IRC §1202(h)(1) because transfers by gift to a trust generally tack basis and holding period. Two SLATs, properly drafted, can stack QSBS exclusions on top of the founder's own exclusion. For more on the underlying QSBS rules, see our deep dive on Section 1202.

Practical sequence we see at SVT:

1. Founder confirms QSBS eligibility at issuance and tracks basis (most founders we work with have this documented).
2. Well before the five-year QSBS hold completes, founder gifts a slice of QSBS shares into SLAT 1.
3. Months later, on different terms, spouse gifts a different slice into SLAT 2 (if both spouses hold QSBS, which is common when both worked at the company).
4. Founder also retains a slice in their personal name to use the founder-level exclusion.
5. Five years from original issuance, the company is acquired. Each of the three taxpayers (founder, SLAT 1, SLAT 2) potentially excludes up to $15 million federally.

The Grantor Trust "Tax Burn" Feature

SLATs are almost always intentionally drafted as grantor trusts under IRC §§671 to 679. That means the donor spouse continues to be treated as the owner of the trust assets for income tax purposes, even though the assets are outside their estate for transfer tax purposes. The donor pays the income tax on dividends, interest, and capital gains earned inside the trust.

This sounds like a bug. It is a feature. Every dollar of income tax the donor pays on trust earnings is a dollar that comes out of their taxable estate without being treated as an additional gift to the trust beneficiaries. The donor is, in effect, making an additional tax-free transfer to the trust each year equal to the trust's annual tax liability. Over a 20-year horizon, this "tax burn" can move several million dollars of additional value out of the estate.

If the burn becomes too painful (e.g., the donor's liquidity is constrained), the trust can be drafted to permit the trustee to reimburse the donor for taxes attributable to grantor trust status. Reimbursement provisions need to be permissive and not mandatory to avoid pulling the trust assets back into the estate. The drafting attorney should know exactly how to thread this.

Risks You Have to Plan For

SLATs are powerful, but they are not without risk. Cooper and our planning team always walk clients through these failure modes before recommending the structure:

1. Divorce. If the marriage ends, the donor spouse loses indirect access entirely. The trust is irrevocable; the beneficiary spouse remains the beneficiary, even after divorce. Some SLATs include a "floating spouse" provision that defines the beneficiary as "the person currently married to the grantor," but these provisions have mixed track records under state law and are not universally available.
2. Death of the beneficiary spouse. Once the beneficiary spouse dies, the indirect access channel closes. The trust assets continue for the remainder beneficiaries (typically children), but the donor spouse no longer has any mechanism to receive distributions, even through the household. Couples often offset this by making the donor spouse the beneficiary of a life insurance policy held outside the SLAT.
3. Reciprocal trust doctrine failure. Covered above. If the two SLATs are too similar, the IRS uncrosses them and the entire planning benefit collapses. Differences must be real and economically meaningful, not cosmetic.
4. Form 709 not filed or filed incorrectly. Funding a SLAT is a reportable gift under IRC §2503. Form 709 must be filed by April 15 of the year following the gift (with an extension available). Failure to file can run statute-of-limitations risks and complicates GST exemption allocation. We file a lot of these returns and they are not DIY territory.
5. Valuation discipline. If you fund the SLAT with private company stock or LLC interests, you need a defensible third-party valuation at the date of gift. Lowballing the valuation can trigger gift-tax assessments years later, often after the assets have appreciated dramatically.
6. State tax exposure. California taxes trust income based on residence of the fiduciary and beneficiary. A grantor SLAT with a California donor and California-administered trustee will continue to be taxed by California even if the trust is sitused in Delaware. Picking trust situs requires its own analysis.
7. Step-transaction risk. Funding a SLAT with shares the day before a known acquisition signing is a step-transaction problem. The IRS can collapse the gift and the sale into a single transaction. Build in time between funding and any anticipated liquidity event.

Worked Example: Bay Area Founder Couple

Husband and wife in Mountain View, both early employees at a Series C company. Net worth: $40 million combined. Of that, $20 million is QSBS-eligible common stock in the company (acquired in 2021, basis around $4 million combined, currently held in their joint names roughly equally). The other $20 million is a paid-off house, brokerage, and 401(k)s.

Their exposure if they do nothing and the exemption sinks to $7 million per person in 2026:

• Combined exemption available at first death: roughly $14 million.
• Excess in taxable estate at second death (assuming flat estate of $40M): $26 million.
• Federal estate tax at 40%: roughly $10.4 million.

Their plan, executed over 90 days:

1. April 2026. Husband funds SLAT 1 (Delaware corporate trustee, HEMS standard, wife and descendants as beneficiaries, no power of appointment) with $13 million of his QSBS shares. Form 709 to be filed by April 2027 reporting use of $13M of lifetime exemption and full GST exemption.
2. October 2026. Wife funds SLAT 2 (Nevada situs, independent individual trustee, broader "comfort and welfare" standard, husband and descendants as beneficiaries, limited testamentary power of appointment) with $13 million of her QSBS shares. (If a couple wanted to fund the full $13.99M per spouse, any additional gift above that ceiling would either consume annual exclusion gifts or become a taxable gift requiring payment of gift tax on the excess.) Form 709 to be filed by April 2027.
3. The two SLATs differ in funding date, funding amount, asset mix, governing law, trustee, distribution standard, and powers of appointment. The reciprocal trust risk is materially reduced.
4. 2027 onward: Both spouses continue to pay income tax on trust income (grantor trust status). The tax burn moves additional value out of their estates over the next 20+ years.
5. 2028 (year five of QSBS hold): Company is acquired. Each SLAT, as a separate taxpayer, claims its own §1202 exclusion. The founders also claim their personal exclusions on the shares retained outside the trusts.

Approximate federal outcome compared to doing nothing:

• ~$26 million of QSBS gain across both SLATs and personal holdings excluded under §1202 (subject to per-issuer cap stacking).
• ~$26 million removed from taxable estate, plus all future appreciation, plus 20+ years of grantor trust tax burn.
• Federal estate tax saved relative to no-planning scenario: somewhere in the $8 to $11 million range, depending on growth assumptions and exemption levels at death.

The plan does not eliminate California exposure, since California does not conform to §1202 and continues to tax trust income based on its residence rules. We model the California layer separately for every client. None of this is hypothetical: we are running variants of this exact plan for several Bay Area couples right now. See our landing pages on tax for startup founders and pre-IPO tax planning for more context on the equity side.

What Goes Wrong Without a CPA

The most common pattern we see at intake: a couple either funds two SLATs too late in December with cosmetically different terms (high reciprocal trust risk; the IRS can collapse the structure decades later when the second estate is settled), or funds a single SLAT under one spouse's exemption and forgets that the other spouse's $13.99M exemption is also evaporating at sunset. Either way the cost is $5 million or more in additional federal estate tax that proper drafting and timing would have prevented.

DIY estate planning software does not model reciprocal trust risk, does not coordinate QSBS basis tacking under §1202(h)(1), and does not file Form 709. Those are the items where engagement with a CPA and estate attorney pays for itself in a single planning year.

Process and Timeline

A real SLAT takes 60 to 90 days from first meeting to fully funded and titled. The high-level sequence:

1. Weeks 1 to 2: Scope. Net worth review, exemption available, marital and family facts, asset inventory, QSBS verification, identification of suitable trust assets, decision on one SLAT vs. two.
2. Weeks 2 to 4: Drafting. Estate planning attorney drafts the trust agreement(s), distribution standards, trustee designations, situs decisions, and reciprocal-trust differentiators. SVT coordinates with counsel on the tax mechanics.
3. Weeks 4 to 6: Trustee setup and valuations. Corporate trustee onboarding (if applicable), independent third-party valuation for any private company stock or LP interests, brokerage account openings in the trust name.
4. Weeks 6 to 8: Funding. Asset retitling, stock power assignments, share transfer agent paperwork, GST allocation memos. For QSBS, the company's stock administrator must update the cap table. This step routinely takes longer than people expect.
5. Weeks 8+: Documentation. Funding memos, valuation reports filed, statements pulled for the gift tax return. Form 709 prep happens in the spring after the funding year.

The reason we tell clients to start no later than September of the year they want to use exemption: the last two weeks of December are when corporate trustees, transfer agents, and valuation firms are unreachable. SLATs are not a Christmas-week project. We have unwound more than one failed last-minute attempt where the wire hit January 2 and the exemption was simply lost.

When to Talk to Us

SLATs are not for everyone. If your combined net worth is below the projected post-sunset exemption (around $14M for a couple), the structure is usually overkill. If your net worth is well above that, and especially if a meaningful portion is QSBS-eligible or otherwise expected to appreciate substantially, the planning math is hard to ignore. Couples in the $15M to $100M net worth range are usually the sweet spot for SLAT planning.

At Silicon Valley Tax, we coordinate the tax side of SLAT planning with your estate attorney: gift tax return preparation (Form 709), GST exemption allocation, valuation review, QSBS coordination, grantor trust income tax filings, and ongoing California state tax modeling. If you do not have an estate attorney yet, we can introduce you to several we work with regularly. For the broader question of whether you need a trust at all, see our overview at do I need a trust?.

Schedule a complimentary consultation and we will walk through your specific exemption posture, whether one or two SLATs makes sense for your family, and the runway you have left before the window closes.

Frequently Asked Questions

What happens to a SLAT in divorce?

The trust is irrevocable. The beneficiary spouse remains the beneficiary even after divorce, and the donor spouse loses indirect access. Some SLATs include a "floating spouse" clause defining the beneficiary as "the person currently married to the grantor," but enforceability varies by state and these clauses are not bulletproof. Most planners treat the divorce risk as a real cost of the structure and discuss it openly with the client.

Can a SLAT hold QSBS?

Yes. Under IRC §1202(h)(1), transfers of QSBS by gift to a trust generally tack the donor's basis and holding period. A properly drafted SLAT preserves QSBS treatment and, as a separate taxpayer, can claim its own per-issuer exclusion cap on a sale. Two SLATs can stack two additional caps on top of the founder's personal cap. See our QSBS deep dive for the underlying mechanics.

Can the donor spouse benefit indirectly from a SLAT?

Yes, through the beneficiary spouse. When the trustee distributes to the beneficiary spouse, those funds enter the marital household economy. The donor spouse cannot be a direct beneficiary, cannot be the trustee with discretion over distributions, and cannot have any retained interest that would pull the trust back into their estate. The indirect access is real but conditional on the marriage continuing and the beneficiary spouse being alive.

Do I have to file Form 709 the year I fund the SLAT?

Yes. Funding a SLAT is a reportable gift. Form 709 is due April 15 of the year following the gift (extension to October 15 available). The return reports the gift, calculates the exemption used, and allocates GST exemption if applicable. Failure to file leaves the statute of limitations open and can complicate later returns. We prepare a lot of these and recommend not treating Form 709 as a DIY project.

Did OBBBA change the planning calculus?

Yes. OBBBA (Pub. L. 119-21) made the higher exemption permanent and lifted it to $15M per person ($30M per couple) starting in 2026, indexed thereafter. The 2026 sunset cliff is gone. The case for funding SLATs now is no longer about beating a deadline; it is about removing future appreciation from your estate, layering GST planning, and front-loading exemption usage before any future political reversal. The anti-clawback regulations remain in force for any earlier gifts.

How long does it take to set up two SLATs?

60 to 90 days from first meeting to fully funded, assuming reasonably clean assets and an experienced estate attorney. Private company stock with transfer restrictions and 409A valuations can push that to 120 days. Starting in September is reasonable for a year-end funding; starting in November is usually too late for the second SLAT (the staggered timing required to avoid reciprocal trust treatment does not fit into the calendar).