SLATs, GRATs, and ILITs: Advanced Trusts for Ultra-High-Net-Worth Families

As of 2026, if an individual with a net worth of over $15 million passes, the federal estate tax can claim up to 40% of assets above the exemption amount. For estates built on appreciating assets, such as businesses, real estate, and investment portfolios, the amount of estate exposed to these taxes increases every year.

Thankfully, there are ways of managing and moving your wealth that ensure it passes to the next generation before estate tax is ever applied. The three structures used to do this are SLATs, GRATs, and ILITs. These are all irrevocable trusts designed to move wealth and its future appreciation outside of the taxable estate.

Each of these structures is incredibly useful in terms of planning your estate, and understanding what each of them does and why they are important can make all the difference when it comes to the next generations of your family being able to inherit what they truly deserve.

Why Advanced Trust Planning Matters Right Now

As mentioned, the federal estate and gift tax exemption currently stands at $15 million per individual (or $30 million per married couple) as of 2026. This follows the 2025 tax legislation that makes the higher exemption permanent and inflation-indexed.

Estate planning doesn’t have an automatic deadline, but the window for planning your estate is still very time-sensitive for a number of reasons.

• “Permanent” doesn’t actually mean permanent: In reality, the permanence of this higher exemption realistically just means ‘until Congress changes it’. Exemption thresholds have swung dramatically over the past couple of decades and have been a political topic of contention for many years. By making completed gifts, you can lock in today’s historically high exemption, which can help protect your family’s financial assets in the future, should the threshold drop.
• Appreciation: Each year that an appreciating asset stays in the estate, the eventual tax bill increases. Trusts like SLATs, GRATs, and ILITs are used to freeze or remove value before the growth happens. This means that taking action on establishing your trusts and planning your estate sooner is better when it comes to protecting your wealth to pass to the next generation.
• The structures take time: SLATs, GRATs, and ILITs take time to plan properly. They require a proper design, thorough valuation (particularly for those with business interests), and the funding and administration simply cannot be rushed. Families who wait for a legislative scare before taking any action can end up creating their own pressure to meet a new deadline, which can cause a lot of added stress. Rushed planning like that can cause mistakes. To avoid these mistakes and any unnecessary stress, start your trust planning as soon as possible.

Of course, trust planning isn’t necessary for everyone. However, it’s worth paying attention to trust planning to protect your estate if you’re a high-net-worth individual who is approaching (or whose wealth already exceeds) the $15 million threshold. Couples approaching the $30 million threshold should also begin to make moves to protect their assets, as well as families whose estates are illiquid relative to their potential tax bill, and business owners who are anticipating a sale or continued growth.

What Is a SLAT (Spousal Lifetime Access Trust)?

A SLAT is an irrevocable trust created by one spouse (the grantor) for the benefit of the other spouse (the beneficiary) during the grantor spouse’s lifetime, and typically for children and future generations after that. It helps keep wealth within the family for the benefit of future generations. It is funded with a completed gift that removes the assets and all future appreciation from the taxable estates of both spouses.

This type of trust is usually structured as a grantor trust. This means that the grantor pays the income taxes on any earnings within the trust, which is a powerful, gift-tax-free wealth transfer, as the assets can grow within the trust and are not diminished by additional taxes.

So long as the marriage is intact and the beneficiary spouse is still living, distributions made to that spouse within the trust can support the couple’s shared lifestyle. This is known as ‘indirect access’ and is the case even though the assets are legally outside of both spouses’ estates.

A SLAT can be incredibly appealing for couples with high net worth when planning their estates, as it solves the biggest psychological barrier to large gifts. Many wealthy couples hesitate to give away millions irrevocably, which is why the SLAT is such a popular choice for them. This type of trust allows them to use their exemption while the beneficiary spouse still has access to distributions, which means that the household hasn’t truly lost the benefit of the wealth.

What a SLAT Accomplishes

There are some core benefits to using SLATs that make it such an appealing choice for high-net-worth individuals. Here are some of the things that SLATs do that make it so popular among couples:

• Removes future appreciation: All asset growth after the gift occurs outside of the taxable estate.
• Preserves practical access: The beneficiary spouse’s distribution rights ensure that they are able to keep the wealth available to the household. This allows the couple access to the wealth while it legally sits outside of their estate.
• Creditor and beneficiary protection: As an irrevocable spendthrift trust, a properly structured SLAT can protect assets from the beneficiaries’ creditors and also help to protect heirs from their own mismanagement. This is very valuable when it comes to ensuring that assets are protected properly during estate planning.
• Multi-generational reach: With a generation-skipping transfer (GST) tax exemption allocated, the trust is able to benefit grandchildren and the generations that come after, without any additional transfer tax.

Altogether, these benefits make SLATs a powerful estate planning tool for married couples who want to transfer significant wealth while retaining a degree of indirect access to those assets. However, the advantages of a SLAT must be weighed against the restrictions and potential drawbacks that come with placing assets in an irrevocable trust.

SLAT Risks and Limitations

As with any type of trust, there are some trade-offs that you should be aware of before making the jump to including a SLAT in your trust planning. Here are some of the things to keep in mind before choosing to set one up:

• Divorce risk: If the couple divorces, the grantor will lose indirect access. The ex-spouse may remain as the beneficiary unless the trust is drafted with protective provisions (such as defining “spouse” to legally mean “current spouse”). Without these precautions, an ex-spouse may still be able to be considered the beneficiary.
• Death of the beneficiary spouse: If the beneficiary spouse dies before the grantor, the spouse who granted the SLAT will lose their indirect access. To account for the potential of this, a common hedge is to ensure life insurance is taken out on the beneficiary spouse in the event that they pass away first.
• The reciprocal trust doctrine: When both spouses create SLATs for each other, the trusts must be meaningfully different in terms, timing, and funding. Otherwise, the IRS can “uncross” them and pull the assets back into the estates they were initially gifted from. This is a drafting trap that can catch many people off guard, particularly if they don’t have experienced counsel to help establish their trusts.
• Irrevocability: The gift is permanent. This means that the grantor cannot be a beneficiary, and poorly planned funding can leave the grantor with insufficient retained assets.

While these drawbacks do not necessarily make a SLAT unsuitable, they highlight the importance of careful planning and drafting before assets are transferred. A properly structured SLAT should account for potential changes in family circumstances, while at the same time, balancing asset protection and tax objectives with the grantor’s need for financial flexibility.

What Is a GRAT (Grantor Retained Annuity Trust)?

The Grantor Retained Annuity Trust, or the GRAT, is an irrevocable trust into which the grantor transfers appreciating assets, while retaining the right to receive a fixed annuity payment back from the trust for a set term of years. After the annuity payments are completed, the growth remaining in the trust is passed along to heirs, with little or no gift tax.

A GRAT is not primarily about using an exemption, but is a way of transferring appreciation. This makes it a top choice of tool for assets that are expected to grow rapidly, such as pre-sale business interests, concentrated stock positions, and real estate assets that are poised to appreciate.

What a GRAT Accomplishes

A GRAT can be a great choice for appreciating assets to be transferred to heirs. Here are some of the things a GRAT does that make it a top choice of trust tool:

• Transfers appreciation with minimal gift tax: A zeroed-out GRAT uses virtually none of the grantor’s lifetime exemption. This can help them to preserve it for use in other strategies, such as SLATs.
• Low downside: If the assets underperform, the annuity simply returns the assets to the grantor. This means that any losses incurred are primarily transaction costs, making the GRAT a rare ‘win or break-even’ style of structure.
• Ideal for pre-liquidity-event planning: Using business interests to fund a GRAT before a sale can shift a significant amount of the premium from the sale to the heirs, helping future generations of your family to inherit more.
• Repeatable: GRATs don’t have to be long-term tools. In fact, using rolling short-term GRATs can capture appreciation in successive windows, and at the same time, minimize the risk of carrying out a single-term GRAT that may lose out due to fluctuations in appreciation.

These features make GRATs particularly useful for transferring future appreciation while limiting the amount of gift tax exemption required.

GRAT Risks and Limitations

Like any estate planning strategy, a GRAT also involves important limitations and risks that should be considered before deciding whether it is an appropriate choice for you when it comes to your trust and estate planning. Some of these trade-offs include:

• Mortality risk: If the individual granting the trust passes away during the term of the GRAT, then some or all of the assets in the trust are pulled back into the estate and will be vulnerable to taxation. This is why, when choosing a GRAT, the ones with shorter terms are more popular.
• Performance risk: Assets must outperform the 7520 hurdle rate for any appreciation to transfer. If the asset remains flat or even declines, then there is no benefit to them being in a GRAT.
• Poor fit for generation skipping: GST exemption cannot be efficiently allocated to a GRAT. This makes it suitable as a tool for the grantor to gift to their children, rather than their grandchildren. This can be a setback for those with certain familial relationship dynamics in which an individual would prefer to have a grandchild as a beneficiary, or for those looking to establish multi-generational wealth distribution.
• Legislative risk: GRATs, particularly those that are zeroed out and short-term, have been repeated targets of reform proposals.
• Administration is unforgiving: Annuity payments must be made precisely and on time. Hard-to-value assets also require qualified appraisals. This can make the trust planning both time-consuming and stressful.

The choice of term, assets, beneficiaries, and administrative approach can all affect whether a GRAT achieves its intended estate planning objectives, making professional guidance particularly important when deciding if a GRAT is an appropriate strategy for you.

What Is an ILIT (Irrevocable Life Insurance Trust)?

Many people are surprised to learn that life insurance proceeds are actually included in the taxable estate when the person insured on the policy is the one who owns it. In such cases, the beneficiaries do not need to pay income tax on these proceeds, but because the proceeds are liable to estate taxes in these cases, it can leave multi-million-dollar death benefits vulnerable to a 40% estate tax. Having an ILIT in place can remove this exposure entirely, as it is an irrevocable trust that is created to own a life insurance policy on the grantor’s life. From here, the death benefit can instead pass to the beneficiaries free of both income tax and estate tax.

For very large life insurance policies, the trust’s premiums can be funded through a premium finance arrangement. A strategy used to obtain expensive life insurance policies on finance for individuals with a very high net worth.

What an ILIT Accomplishes

An ILIT is a popular choice, particularly for those who own their own life insurance policies. Here are some of the benefits of using one as part of your trust and estate planning strategy:

• Removes the death benefit from the taxable estate: The death benefit will be delivered entirely tax-free with the use of a properly structured ILIT.
• Creates estate tax liquidity: Heirs can lend money from the estate or purchase assets from it.
• Protects beneficiaries: Proceeds are held in the trust and shielded from the beneficiaries’ creditors, spending habits, and divorces. They are distributed on the grantor’s terms, ensuring the beneficiaries get what they are entitled to.
• Equalizes inheritances: ILITs are used as a common tool in business succession. The business passes to the child running it through the tool, while the death benefit equalizes the inheritance for other children.
• Gift-tax efficient: Premium gifts can be structured under annual exclusions. This allows enormous eventual value to be transferred with minimal costs in transfer taxes.

These benefits make an ILIT a valuable tool for combining life insurance with broader estate planning and wealth-transfer goals.

ILIT Risks and Limitations

While ILITs can be extremely beneficial, there are some key drawbacks, including:

• The three-year rule: If the person insured transfers an existing life insurance policy into the ILIT and passes away within three years, then the death benefit is automatically pulled back into the estate. This is why an ILIT is something to heavily consider when obtaining and setting up your life insurance policy plan.
• Formalities are mandatory: Things which may seem like formalities are in fact mandatory. Missed Crummey notices, premiums paid directly by the individual insured, and retained “incidents of ownership” can unwind the entire tax benefit.
• Irrevocability and inflexibility: The grantor gives up control of the policy. Modern drafting, such as trust protector provisions and powers of appointment, can help to build in some flexibility, but this must be done during the design stage of the ILIT.

It’s critical to consider these restrictions and administrative requirements before incorporating an ILIT into your estate plan.

SLAT vs. GRAT vs. ILIT: Which One Fits Your Goals?

Using SLATs, GRATs, and ILITs Together

SLATs, GRATs, and ILITs are structures that work together in complementary ways. They do not compete, and each of them attacks a different part of the estate tax problem. This means that because they all play different roles, sophisticated trust planning strategies carefully layer them to create more security around estate planning. An example of how they are effectively used together includes:

Why These Strategies Demand an Experienced Estate Planning Attorney

Every one of these advanced structures is powerful due to its technicalities. While these technicalities have the potential to create a safe future for your family, these same technicalities can turn an excellent tax-saving strategy into a very expensive mistake.

Some individuals may be tempted to arrange these trusts themselves; however, generalist drafting and online templates are simply not suitable for this, as the trust strategy and implementation must be carried out in a way that is specific to the grantor’s situation. That’s where an experienced counsel comes in.

When working with experienced counsel or an estate planning attorney, they are able to use their expertise to carefully design a strategic trust implementation plan tailored to the family’s assets and goals. Estate planning attorneys provide precise drafting that anticipates every eventuality, such as divorce, death, legislative changes, and more, to find the best structure for you that will hold up under IRS scrutiny years down the line.

Build a Trust Strategy That Preserves Your Family’s Wealth for Generations

SLATs, GRATs, and ILITs each work to convert a looming estate tax liability into a deliberate wealth transfer. Moving assets, appreciation, and insurance proceeds to the next generation, on your terms, rather than on the IRS’s schedule.

That’s where we come in. At The Law Office of Dustin I. Nichols, A PC, we focus on advanced estate, business, and exemption planning for high-net-worth and ultra-high-net-worth families, with 30 years of experience integrating trust strategies into comprehensive plans.

So, if you’re a high-net-worth individual, couple, or business owner, be sure to reach out to schedule a free phone consultation with The Law Office of Dustin I. Nichols, A PC, to evaluate which combination of these structures belongs in your new estate plan.

FAQs About SLATs, GRATs, and ILITs

What Is a SLAT in Estate Planning?

A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust one spouse creates for the benefit of the other spouse (and typically descendants), funded with a completed gift using the grantor’s lifetime exemption. It removes the gifted assets and all future appreciation from both spouses’ taxable estates while preserving indirect access to the wealth through distributions to the beneficiary spouse.

What Happens to a SLAT in a Divorce?

Divorce is the SLAT’s signature risk: the grantor’s indirect access to the trust ends, and without protective drafting, the ex-spouse may remain a beneficiary. Experienced counsel addresses this in the trust document — for example, by defining the beneficiary as the grantor’s “current spouse” or building in mechanisms that adjust beneficial interests upon divorce.

What Is a GRAT and How Does It Save Taxes?

A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust into which the grantor transfers appreciating assets while retaining fixed annuity payments for a term of years. Because the annuity returns most of the initial value to the grantor, the taxable gift is minimal — but all growth above the IRS’s assumed rate (the Section 7520 hurdle rate) passes to heirs free of gift tax at the end of the term.

What Happens If the Grantor Dies During the GRAT Term?

If the grantor dies before the annuity term ends, some or all of the trust’s assets are included in the grantor’s taxable estate — largely eliminating the intended benefit. This mortality risk is why many families use shorter GRAT terms (often two to five years), sometimes in a rolling series, rather than a single long-term GRAT.

What Is an ILIT and Why Would I Need One?

An Irrevocable Life Insurance Trust (ILIT) is a trust created to own life insurance on the grantor’s life. Because the trust — not the insured — owns the policy, the death benefit is excluded from the taxable estate and passes to beneficiaries free of both income and estate tax. ILITs are commonly used to create liquidity for estate taxes and to protect and control how proceeds reach heirs.

What Is the Three-Year Rule for ILITs?

If an insured transfers an existing life insurance policy into an ILIT and dies within three years of the transfer, the death benefit is pulled back into the taxable estate under Internal Revenue Code Section 2035. The cleanest solution is to have the ILIT apply for and own the policy from the start, which avoids the rule entirely.

Do These Trusts Still Matter Now That the Estate Tax Exemption Is $15 Million?

Yes. First, many ultra-high-net-worth estates exceed the exemption today or will as assets appreciate. Second, exemption levels are set by Congress and have changed repeatedly — completed gifts to irrevocable trusts lock in today’s rules against future reductions. Third, these structures deliver benefits beyond estate tax savings, including creditor protection, control over distributions, and multi-generational wealth preservation.

Can I Use a SLAT, GRAT, and ILIT Together?

Yes — and sophisticated plans often do. A common architecture uses SLATs to lock in exemption on existing wealth, GRATs to move future appreciation with little or no gift tax, and an ILIT to provide tax-free liquidity for any remaining estate tax exposure. The structures must be carefully sequenced and coordinated, which is a core reason to work with an attorney experienced in advanced estate planning.