SLATs, GRATs, and CRATs: Flexible Trust Strategies for Families Near or Above the $30 Million Threshold

The permanent $15M per person estate tax exemption has given wealthy families breathing room. But if your estate is at or above $30M, every dollar over the exemption is still subject to a 40% estate tax.

That’s why advanced trust strategies—particularly SLATs, GRATs, and CRATs—remain essential tools for shifting appreciation out of your estate while maintaining income, access, or philanthropic benefits.

These structures aren’t “set it and forget it” solutions. Rather, they’re highly customizable tools that you can tailor to your asset mix, cash flow needs, and family goals.

1. Spousal Lifetime Access Trust (SLAT)

Purpose: Move assets out of your estate while retaining indirect access through your spouse.

How It Works:

• One spouse creates an irrevocable trust for the benefit of the other spouse (and potentially children).
• The donor uses some or all of their lifetime gift tax exemption to fund the trust.
• The beneficiary spouse can receive income or principal distributions during their lifetime.
• After the beneficiary spouse’s death, the trust passes to children or other heirs, free of estate tax.

Why It Works Well in the $30M Era:

• Removes current value and all future appreciation from the donor’s estate.
• Keeps a safety net—because if needed, the beneficiary spouse can access trust assets.
• Ideal for funding with high-growth assets.

Considerations:

• Requires careful structuring to avoid reciprocal trust issues if both spouses create SLATs.
• Assets in the SLAT are not accessible if the marriage ends or the beneficiary spouse dies early.

2. Grantor Retained Annuity Trust (GRAT)

Purpose: Transfer appreciation above a modest interest hurdle to heirs at little or no gift tax cost.

How It Works:

• You transfer assets to an irrevocable trust and retain the right to receive a fixed annuity for a set term.
• The IRS assumes the assets will grow at the §7520 rate (currently relatively low).
• Any appreciation above that rate passes to beneficiaries at the end of the term, gift-tax free.

Why It Works Well Now:

• If you fund a GRAT with assets likely to outperform the §7520 rate (private equity, pre-IPO stock, certain real estate), you can pass substantial growth without using much exemption.
• Short-term rolling GRATs allow repeated transfers of outperformance.

Considerations:

• You must outlive the GRAT term for it to provide the maximum benefit.
• Works best with volatile or high-growth assets.

3. Charitable Remainder Annuity Trust (CRAT)

Purpose: Combine philanthropy with income and estate tax reduction.

How It Works:

• You transfer assets into a CRAT.
• The trust pays you (or another non-charitable beneficiary) a fixed annuity for life or a term of years.
• At the end of the term, the remainder goes to charity.

Benefits:

• Immediate charitable income tax deduction based on the present value of the charitable remainder.
• The value of the trust is included in the estate but receives an offsetting estate tax charitable deduction, effectively removing assets from your estate.
• It can be used to diversify concentrated positions without immediate capital gains tax.

Considerations:

• Remainder interest must be at least 10% of initial trust value (IRS rule).
• You give up access to the remainder—irrevocable charitable gift.

---

Case Studies

Case Study 1: SLAT – Removing $7.7M of Growth While Keeping Access

Profile:
A couple with a $40M estate, $8M in marketable securities, they don’t need for lifestyle spending.

Action:
The husband funds a Spousal Lifetime Access Trust (SLAT) with the $8M of securities for the wife’s benefit, using part of his lifetime exemption.

Assumptions:

• 7% annual growth over 10 years.
• $8M grows to ≈ $15.7M inside the SLAT.

Impact:

• All $7.7M of appreciation occurs outside the husband’s estate.
• Wife can receive trust distributions if needed, preserving a safety net.
• The couple effectively shifts growth to heirs without losing access to principal indirectly.

Case Study 2: GRAT–Shifting $8.9M of Pre-IPO Growth

Profile:
An entrepreneur with $5M of pre-IPO shares, expecting a significant value increase after the company goes public.

Action:
He transfers the $5M into a 5-year Grantor Retained Annuity Trust (GRAT).

Assumptions:

• §7520 rate: 4% (IRS “hurdle” growth rate).
• Stock triples in value to $15M during GRAT term.

Impact:

• IRS assumes about $1.08M in “expected” growth; this is returned to the grantor along with the original $5M principal through annuity payments.
• The excess $8.92M passes to heirs at the end of the term, gift-tax free.
• The $8.92M never enters the estate, avoiding a potential $3.57M estate tax bill (40% of $8.92M).

Case Study 3: CRAT–Removing $3M and Funding a Legacy

Profile:
A couple with $50M net worth, including $3M of highly appreciated stock purchased decades ago.

Action:
They contribute the $3M to a Charitable Remainder Annuity Trust (CRAT), naming themselves as income beneficiaries and their donor-advised fund as the charitable remainder beneficiary.

Assumptions:

• Stock is sold inside CRAT with no immediate capital gains tax.
• CRAT invested to produce a fixed annuity for the couple for life or term of years.
• Remainder projected at $1.5M going to charity.

Impact:

• Entire $3M leaves the taxable estate immediately.
• The $1.5M charitable remainder will never be subject to estate tax.
• They receive a charitable deduction today, diversify without triggering capital gains tax, and retain an income stream.

---

The Takeaway

• SLAT: Moves appreciation out while maintaining indirect access.
• GRAT: Transfers high-growth upside with minimal gift tax cost.
• CRAT: Eliminates estate inclusion, creates charitable impact, and provides income.

Each on its own is powerful—and in some cases, combining them multiplies the impact.

Up Next: Gifting early-stage business interests—one of the most effective ways to lock in today’s valuations before a liquidity event.