Imagine you have a big box of toys and you want to make sure that your friends can play with them while also keeping them safe. A Spousal Lifetime Access Trust, aka “SLAT”, is like a special toy box for grown-ups, especially when they have lots of money and assets, called an estate.
What is a SLAT?
A SLAT is a type of trust that allows one spouse to put money or assets into a “box” that the other spouse can use during their lifetime. It’s a way to share wealth while making sure it stays protected and doesn’t get lost. Think of it like sharing your toys with your best friend, but with some special rules!
Why Use Separate Property Limited Partnership Interests?
Now, when it comes to really big estates, some people use something called “separate property limited partnership interests.” Let’s break that down:
- Separate Property: This means that these assets belong to one person and not both. It’s like when you have a toy that’s just yours, and not a shared toy.
- Limited Partnership: This is a fancy term for a group of people (like a team) who own part of a business or property but with some rules about how much say each person gets.
- Advantages to Using Limited Partnership Interests to Fund a SLAT: There are three main advantages: (a) the partnership is usually entitled to discounts for how much you have to record as the gift to the SLAT or to record as the face value of the loan to the SLAT; (b) the appreciation in the gifted or sold assets continues to grow outside of your “taxable” estate for figuring out the estate tax in the future; and (c) you are allowed to continue to pay the income taxes on the income generated by the assets inside the limited partnership.
By putting limited partnership interests into a SLAT, couples can enjoy several benefits:
Benefits of Using a SLAT:
- Tax Savings: Estates have to pay taxes on their value when someone passes away. A SLAT can help reduce these taxes, which means more money goes to your family.
- Access to Money: Your spouse can use the money in the SLAT whenever they need it, like taking out a toy to play with. This can help them pay bills or enjoy life without worrying too much.
- Protection from Outside Risks: If something bad happens, like a lawsuit, the money in the SLAT is safer, just like your toys are safe inside your toy box.
- Control Over Money: The spouse who creates the SLAT gets to decide how the money is used and who benefits from it because they are usually the General Partner of the limited partnership and have control of income or principal being distributed from the partnership to the partners (themselves as General Partner and the SLAT as the limited partner). It’s like being the boss of the toy box!
- Keeps Wealth in the Family: Finally, using a SLAT helps keep the family’s wealth together, making sure that future generations can enjoy it too.
A Spousal Lifetime Access Trust using separate property limited partnership interests is a smart way for couples with large estates to share their wealth safely. It can help with estate, gift and income taxes, provide access to money (if needed), and can keep everything secure and protected from creditor risks, like a vault built around your toy box filled with your favorite toys!
If you, a friend, or family member need help establishing or updating an estate, please reach out to our Intake Department at 760-448-2220 or at https://www.geigerlawoffice.com/contact.cfm. We have offices in San Diego County (Carlsbad) and Orange County (Laguna Niguel), but we assist can families throughout California as well.
