Lifetime gifts and SLATs: keep the growth out of your estate

The numbers

Picture a married couple whose business and investments are worth well over $30 million and growing. One spouse gives $10 million of business interests to a SLAT for the other spouse and their children. By the time of death, the gifted interests have grown to $25 million.

For illustration purposes. Tax law may change, which may change these calculations slightly.

Federal estate tax (separate from income tax)

Either way, the couple uses $10 million of exemption. Gifting early means the $15 million of growth is never in the estate, which saves about $6 million of federal estate tax. Oklahoma doesn’t currently have its own estate or inheritance tax.

The income tax trade-off: assets you keep until death get a new, stepped-up basis, while gifted assets keep your original basis. When heirs sell, they may owe capital gains tax that a step-up would have erased. We weigh the two.

How it works

1. Create the trust. Your estate attorney drafts an irrevocable trust. In a SLAT, your spouse (and often your children) are beneficiaries, so your household keeps indirect access to the money.
2. Make the gift. Transfer business interests, investments, or real estate to the trust, using part of your lifetime exemption. Business interests are valued by a qualified appraisal.
3. File a gift tax return. Form 709 reports the gift and the exemption used. No tax is due while you’re within the exemption.
4. Pay the trust’s income tax. Most SLATs are “grantor trusts,” so you pay the income tax on the trust’s earnings. That lets the trust grow faster and is effectively another tax-free gift.
5. Growth stays outside your estate. Everything the gifted assets earn and grow from here is outside your taxable estate.

Who it fits

• Owners of growing businesses, real estate, or investments whose estates may pass $15 million per person.
• Owners with a sale coming. Gifting before a sale, at today’s value, can move a large future price out of the estate.
• Married couples who want the security of keeping access through a spouse.

When it doesn’t fit

• Estates comfortably below the exemption. Keeping assets for the step-up in basis may be worth more.
• Owners who may need the gifted assets themselves.

The rules

• The exemption. $15 million per person in 2026, indexed for inflation after 2026, shared between lifetime gifts and your estate. A surviving spouse can generally use the unused exemption of the first spouse to die, if it’s elected on a timely estate tax return.
• Annual exclusion. Gifts up to $19,000 per recipient per year (2026) don’t use any exemption.
• Reciprocal trusts. If both spouses create nearly identical trusts for each other, the IRS can undo them. Each trust must be meaningfully different.
• Basis. Gifted assets carry over your basis. Many trusts let you swap assets back in later, so low-basis assets can come back into your estate for a step-up.
• Valuation. Gifts of business interests need a qualified appraisal and a properly filed Form 709.

Risks and costs to weigh

• Divorce or death of a spouse. In a SLAT, your access runs through your spouse. If the marriage ends or your spouse dies first, that access can end.
• It’s irrevocable. You can’t take the gift back.
• Rules can change. The exemption is permanent under current law, but Congress can change it.
• A team effort. You’ll need an estate attorney, an appraiser for business interests, and your tax strategist.

How we handle it for clients

With a Cannon & Brown tax plan, we project how your business and investments may grow, show the estate tax exposure in today’s dollars, and compare gifting now with keeping assets for the step-up. We prepare the gift tax returns, help plan which assets to give, and work alongside your estate attorney. Because our technology keeps your numbers current all year, your projection stays up to date as your business grows. Your tax strategist reviews every recommendation.

Illustrative example. The couple and figures on this page are hypothetical, used to explain how the strategy works. They are not a client and not a promise of results. The example assumes a $10 million gift that grows to $25 million by death, an estate large enough that all of the growth would be taxed, and the 40% federal estate tax rate. It ignores income taxes on the trust and on a later sale. This page is educational and is not tax or legal advice for your situation; tax rules and limits change.