One all-important discussion that often gets overlooked in the estate planning process involves how married couples leave their assets to each other. In Louisiana, couples have options that are not available to couples who live in other states.
A couple of the options that married couples in Louisiana have when they are deciding how to leave assets to their surviving spouse are: (1) leave the usufruct of assets to their surviving spouse; or (2) leave assets in trust for the surviving spouse. Let's take a closer look at each of these options.
Leaving Usufruct To Spouse
Let's say Fred dies with an estate of $1 million of cash. He leaves his wife, Ginger, the lifetime usufruct of his estate. So, after Fred dies, Ginger has her own $1 million, and she also has the usufruct of Fred's $1,000,000. As the usufructuary of Fred's $1 million of cash accounts, she becomes the owner of them with an obligation to pay Fred's heirs this amount when she dies (from her estate).
After Fred dies, Ginger lives another 25 years, spending some of the money. When Fred died, Ginger had $2 million ($1 million of her own, and $1,000,000 in usufruct). 25 years later when Ginger dies, Ginger's estate only has $900,000 remaining (she spent $1.1 million. Ginger has a Will leaving her estate to her children. Who gets Ginger's $900,000? Well, Fred's children get it and Ginger's kids get nothing. Ginger's estate owes Fred's kids $1 million. Since there is only $900,000 in Ginger's estate, all of Ginger's estate must be used to satisfy her "usufructuary debt." Ginger's kids are bitter.
Leaving Assets in Trust for Spouse
Now, let's say, Fred establishes his Will or Trust to leave his $1 million in trust for his wife so that she has the ability to use the money for her health, education, maintenance and support (the customary HEMS standard). After Fred dies, Ginger uses half of these funds for her HEMS, and only $500,000 remains in the "Fred Trust" when Ginger dies. Ginger was able to keep $500,000 of her own money because she used some of Fred's money for her needs. When Ginger later dies, Fred's heirs get the $500,000 in the Fred Trust, and Ginger's heirs get her $500,000. Everybody is satisfied and everyone feels this is more fair than the usufruct situation.
Bottom line: Make sure you understand the consequences of different types of bequests to your spouse. What you do today could cause some very hard feelings and unintended consequences in the future.