Revocable Living Trust

What does Avoid Probate mean?

What does avoid probate mean?

To understand what avoid probate means, you have to understand what probate is.

For prospective law firm clients who want to schedule a free 15 minute initial phone call with Paul Rabalais, go to: https://go.oncehub.com/Paul8

Some basics: Probate, in general, is the court-supervised process of transferring assets in the name of a deceased person to the heirs. In Louisiana, probate is referred to as "a Succession." But because there are different laws, rules, and regulations that apply to different types of assets you might own, I'd like to use an example.

Let's say that Alan and Alice Peterson own five assets:

(1) A bank account;

(2) An individual retirement account (IRA);

(3) A brokerage account;

(4) A vehicle; and

(5) A home.

One die, Alan dies. Alice goes to the bank where they tell her that she still has access to their bank joint bank account. Alan goes to their brokerage firm where she is told that as the designated beneficiary on Alan's IRA, she can produce a death certificate (when she gets it) and the financial institution will transfer Alan's IRA into an IRA in Alice's name. So far, Alice is on a roll.

But when Alice inquires about their joint brokerage account, the brokerage firm tells Alice that the account is frozen, and that Alice and her family must hire an attorney to get the appropriate court orders in order to gain access to the brokerage account funds.

Then Alice discovers from the Office of Motor Vehicles that she cannot sell or otherwise transact the car until she produces the appropriate court order ordering the Office of Motor Vehicles to take Alan's name off the vehicle title.

Then, when Alice starts to inquire about selling the home, she discovers that she can't sell the home until she "completes Alan's Succession," which will clear up the title to the home.

So, even if Alan had a last will and testament, it's the fact that he had assets titled in his name when he died that required his survivors to hire lawyers to complete this court-supervised procedure, even though Alan's IRA "avoided probate."

So Alice and the kids hire a lawyer, spend a few grand or more, take several months or more, to complete the court proceeding and all that goes along with settling Alan's estate.

Years later, Alice dies, also owning five assets. Even though Alice may have had a last will and testament naming an executor, and naming her children as her sole heirs. The kids must now "lawyer up" and go through the court proceeding in order to get Alice's bank funds and brokerage account, and to sell Alice's vehicle and home.

Some people want their survivors to "avoid probate," which means they want to arrange their affairs in a manner so that their survivors will have immediate access to assets, without their survivors having to have assets frozen while survivors hire lawyers and wait on the judicial system to oversee the settling of the estate.

So perhaps Alan and Alice would have, in order to avoid probate, established the "Alan and Alice Peterson Revocable Living Trust." They would have transferred their "probate assets" to their trust, such as their home and brokerage account, while they would have kept the IRA out of the trust since IRA law permits IRA owners to designate beneficiaries of their IRA accounts.

Then when Alan died, Alice, as the trustee of their trust, could sell the home and access the trust brokerage account, without having to go through probate. Things in a trust do not have to "go through probate" when you die. Only certain assets titled in your name require a probate (or in Louisiana, "a Succession") when you die.

After both Alan AND Alice die, then the Successor Trustee so designated by Alan and Alice in the trust instrument, would have immediate access to sell trust assets (like the home, if appropriate), and disburse trust assets to the principal beneficiaries of the trust, without having the traditional attorney and court involvement that is required when you die with assets in your name and a Succession is required.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

When You Look at the Initial Legal Planning Expense AND the Estate Settlement Expense, Which Estate Planning Program is More Efficient: the Last Will Plan or the Revocable Living Trust Plan?

People often ask how much a will or a trust costs. In this post, we look at the overall financial involvement, from implementation until after death, of having a Last Will-based Legal Plan versus a Revocable Living Trust based Legal Program.

For most, there are two different ways you can leave your estate to your survivors - through your Last Will and Testament, or through your Revocable Living Trust.

It is generally less expensive to establish a Last Will based Estate Planning Program because with a Will Plan, you will leave all of your assets in your name. You won't need to re-title your home, your other property, your investments, or other assets into a trust's name. However, when you pass away, your assets will be frozen, and your executor and heirs must go through a court-supervised process to remove your name from your home, investments, and other "probate assets."

When you set up your revocable living trust, and re-title assets in your trust, you are arranging your affairs in such a way that your trust assets will not be frozen when you die. Your trustee, when you pass away, retains thet authority to access, manage, and transfer your trust assets to your trust beneficiaries in the manner you arranged in your trust instrument. In effect, your trust replaces your last will.

While there is generally more cash outlay up front for the legal services necessary to set up a trust versus a will, the overall cash outlay considering the two probates the family must go through when each spouse dies, typically far surpasses the outlay of setting up the living trust and avoiding the two probates.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

If Your Estate Attorney Talks Too Much, Fails To Listen, or Speaks Over Your Head - Leave. Questions He SHOULD Be Asking

Some people get nervous before they go see an estate planning attorney for the first time. They don't know what to expect.

Selecting the right estate attorney is important in making sure that your legacy is preserved the right way.

Before we get into which questions you should expect to be asked by your estate planning attorney, let's address some characteristics of an estate attorney that should turn you away.

First, if you find that the attorney talks the entire time during your visit, then stand up an leave. Second, if your attorney speaks in terms you do not understand, get up and leave. And finally, if your attorney is not a good listener, leave.

With that being said, here are some things you should plan to discuss in your initial conversation with your estate planning attorney.

The first question I like to ask, right out of the box, goes something like, "So as we start a conversation about your estate legal program, what kinds of things do YOU want to make sure we discuss?"

Some people have specific things they want to address, such as, a blended family situation, a problem child, specific bequests they want to make, or providing for grandchildren, just to name a few. When a client has specific issues they want to address, we need to drill down on those to make sure the estate program is tailored for their specific needs.

Other people do not have a specific issue they want to address. Perhaps they don't know what to ask and they just want to make sure their estate legal affairs are in order.

In every estate planning conversation, there are discussions about particular issues that each client has, and there are questions that we ask virtually every client. Here's a few of the questions asked of just about every client (assuming a married couple but can be adapted to a single person):

(1) After you both pass, how do you want your estate disbursed?

(2) If you have to put someone in charge of the disbursement, who should it be?

(3) When one of you passes, how do you want to leave things to the surviving spouse? Remarriage is in the back of people's minds during this conversation.

(4) If you become incapacitated while you are alive, who do you want to make your medical and financial decisions?

(5) Do you want to leave bequests through your last will and testament (requires probate), or through your revocable living trust (avoids probate)?

What I have not addressed in this short post are questions related to Medicaid Planning (nursing home poverty), estate tax planning (only affects the super wealthy), charitable bequest planning, and the creation of entities for lawsuit protection purposes (particularly if you own rental property).

The discussion you have with your estate planning attorney about your legacy is an important one. Make sure you work with an attorney who doesn't merely want to hear himself/herself talk. Make sure you work with an attorney who doesn't speak in legal-ese (over your head). And make sure you work with an attorney who listens to what you say so that he or she can ask the next right question - and then listen again!

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Which revocable or irrevocable trusts allow you protection from the dreaded nursing home expenses?

"Do revocable or irrevocable trusts help qualify for Long Term Care Medicaid?"

That is the question we often get from clients and prospective clients who are concerned that they will lose their savings and home if they wind up in a nursing home facility.

There are many different kinds of trusts, but often people tend to break them down into two types: revocable and irrevocable.

Regarding revocable trusts, the Louisiana Medicaid Eligibility Manual could not be much clearer, "The entire corpus of a revocable trust is counted as an available resource to the individual."

Revocable trusts have never been used to protect assets from nursing home expenses. Revocable trusts are, however, used extensively for Succession / Probate avoidance purposes. And quite frankly, when the revocable living trust works like it should, it's a wonderful thing for the survivors of the person who set up the trust. When the person who set up the trust (Settlor) dies, the Successor Trustee (often a family member) can immediately disburse assets to the trust beneficiaries (often the children) without any of the attorney and court involvement, expense, and delay associated with a court-supervised probate process.

Regarding irrevocable trusts, it is important to note that not every irrevocable trust offers nursing home protection and Medicaid eligibility. An important provision in the Louisiana Medicaid Eligibility Manual provides, in pertinent part, that, "The portion of the corpus that could be paid to or for the benefit of the individual is treated as a resource available to the individual..."

There are several other factors that affect Medicaid eligibility when someone has established an irrevocable trust, but clearly of the trustee can pay corpus to or for the individual seeking Medicaid eligibility, then the trust assets will need to be spent prior to eligibility.

Some parents, in order to protect assets, establish an irrevocable trust and provide in the trust instrument that a trustee may make distributions to or for the children of the Settlor of the trust.

Here's my words of warning regarding Medicaid eligibility. Seek out good legal help in your area. Medicaid is a combined state and federal program, so you must work with someone who is well-versed in your state's eligibility provisions. Don't try this at home on your own. Get it right the first time.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

If You Have a Revocable Living Trust, Then Why Do You Need a Last Will and Testament?

If you have a Revocable Living Trust, do you need a Last Will and Testament?

When someone dies with assets in their name, like real estate, or interests in a business, or investments, those assets will be frozen when they die, even if they have a Will disposing of them, and their survivors are stuck hiring lawyers and all will go through a court process commonly referred to as probate, or in Louisiana, a Succession.

Many people, in an effort to simplify their estate settlement and avoid the court process, often create a revocable living trust, and they transfer title of their assets to their trust while they are alive, so that when they pass away, the court process is avoided because assets in a trust bypass the whole “settle your estate through the court system” process. You simply designate a Successor Trustee of your trust who can immediately sell or disburse assets from your trust to your trust beneficiaries, all outside of government supervision.

Your trust replaces the Will because the trust instrument governs who gets what as it relates to trust assets.

But even if you establish your revocable living trust, you still need to have a Will just in case assets are in your name when you die. Maybe you left something out of trust. Perhaps you acquired an asset or account in your name after you established your trust, and you forgot to title it in the name of your trust.

Someone who utilizes a revocable living trust often has a last will that is often referred to as their “pour-over” Will because it pours over the assets in your name at your death to your trust. It is there only as a "catch-all" to cover assets that should have been, but were not for some reason, put in your trust before you died.

Now, your pour-over Will may never be used because everything you have either has a beneficiary designation, is titled in the name of your trust when you die, or survivors will somehow have access to the asset upon your death.

So, in summary, if you have a revocable living trust that is designed to avoid probate and provide for the distribution of your estate when you die, you’ll also have a Will, but your Will may never need to be used because the Will is there as a "catch-all" to allow for the transfer of assets that are in your name when you die and require a probate to access.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Pros and Cons of Leaving Everything to Your Spouse

When married couples engage in estate planning, one of the questions they often are required to answer is, "If I die before my spouse, do I want to leave complete ownership and control of my estate to my spouse?" Or, "Do I want to leave my estate to my spouse in a way that my children (or other heirs) are protected?"

Leaving all of your assets to your spouse is pretty easy to understand - when you die, your spouse owns everything. Maybe you are thinking that it is ok to leave everything to your spouse because you are confident that when your spouse dies, your spouse will leave it all to your kids. Or maybe you like the thought of leaving your estate to your spouse because your descendants circumstances may change after you die and you want your spouse to be able to leave the estate to your descendants the right way.

However, if you leave your estate to your spouse, your spouse "could" leave your estate to people other than your children, like your spouse's next spouse!

Some people want to leave their estate to their spouse in a way that their children or heirs are protected. The two common ways to do this are (1) in trust; and (2) via the Louisiana usufruct.

Leaving your estate to your spouse may be the best overall tax outcome, but it used to be the worst. In the old days, it did not make sense to leave your estate to your spouse because when you lumped your estate on top of your spouse's estate, it caused the spouse's estate to be subject to a 50% or more federal estate tax upon the death of the surviving spouse. But now, with an $11.4 million estate tax inclusion, and with portability (making it easier for married couples to exempt $22.8 million from the estate tax), rarely are couples penalized for leaving everything to each other.

The tax benefit that often results from leaving your estate to your spouse is that your heirs will benefit from a "double step up" in basis, for capital gains tax purposes. In community property states (like Louisiana) all community property gets a new stepped-up basis when the first spouse dies. And when you leave all of your assets to your spouse, all of the assets will get another step-up in basis when your spouse later dies. This can save considerable capital gains tax when assets are later sold, particularly if there is appreciation that occurs from the date of death of the first spouse to the date of death of the surviving spouse.

In addition, if you live in Louisiana, you are prohibited from leaving your entire estate to your spouse if you have forced heirs. Forced heirs are children of your that, at the time of your death, are 23 years of age or younger, or, are of any age but incapacitated.

Leaving assets to the surviving spouse is common for traditional families - one marriage and all children are from the one marriage. And if you really want to make it as simple as possible on your spouse when you pass away, consider establishing a revocable living trust and titling the appropriate assets in your trust. Assets in your living trust don't go through the court-supervised probate/Succession procedure, so having your assets in your living trust will prevent your spouse from having to hire lawyers and go through the courts just to get ownership of your assets after you die.

Other factors that are typically discussed when married couples engage in estate planning legal services include: who makes your decisions when you are incapable; protecting assets from long term care costs; and how will assets be managed and disbursed after both spouses pass away. These are all important components of any estate planning legal program.

Note also that if you have no legal plans in place, Louisiana laws won't do your spouse any favors. These laws will favor your descendants much more than your spouse.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

How To Amend or Modify a Revocable Living Trust

It is common for people, as part of the estate planning process, to establish a revocable living trust to provide for the disposition of trust assets outside of probate. Occasionally, people who previously established a revocable living trust want to amend or modify or revoke their trust.

Reasons why people would amend their revocable living trust include someone wanting to change the beneficiaries of their trust; someone wanting to amend how a beneficiary receives his or her portion or share; or perhaps changing the name of the Successor Trustee who is in charge of administering the trust after the death of the Settlor (the person who established the trust).

So, how do you amend or revoke your trust? Well, you must first look to the state law of the state that governs the trust instrument. The following is an overview of the Louisiana law applicable to modifying or revoking a trust.

What you should never do is pull out a pen and pencil and start marking on your trust. None of this will be valid. Most trust amendments or revocations in Louisiana are done by authentic act. An authentic act, generally, is a writing executed before a notary public and two witnesses, and signed by the person amending their trust, the witnesses, and the notary. Most trust amendments are done this way.

The Louisiana Trust Code also provides for modifying a trust by act under private signature, and also by testament. Even though Louisiana law provides for three different ways to modify a trust, most amendments are done through an authentic act.

Bottom line - don't try to amend or revoke a will or trust without getting some legal help from an estate attorney. Different rules apply to wills and trusts, and you must work with an attorney who understands all of this and helps you get it right the first time - there is too much at stake.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

The Double Step Up In Basis: Traditional Planning Makes Kids Pay Extra Capital Gains Tax

This describes how the traditional methods of estate planning for married couples causes children or other heirs and beneficiaries to pay extra capital gains tax due to the failure to take advantage of the double step-up in basis.

In the old days (about a decade ago), the emphasis on estate planning was always avoiding estate tax. Married couples would arrange their wills and trusts so that when the first spouse died, assets were left either in usufruct or to an irrevocable trust so that the assets of the first spouse to die would not be included, for estate tax purposes, in the estate of the surviving spouse. Assets were left to trusts commonly referred to as A/B trusts, credit shelter trusts, survivor's and family trusts, QTIP trusts, or bypass trusts. The goal was to, by leaving assets to an irrevocable trust at the death of the first spouse, those assets would escape estate taxation upon the death of the surviving spouse.

However, this planning method did not have the best capital gains tax result. In community property states, all of the community property would get a step up in basis upon the first spouse's death (to the value at the date of the first spouse's death), but only the assets that the surviving spouse owned would recognize another step up in basis when the surviving spouse died. The family was forfeiting another step up in basis.

Now, for almost all families, the fact that all the assets get lumped into the estate of the surviving spouse is irrelevant for federal estate tax purposes. Each estate can exempt $11.2 (for deaths in 2018) from the estate tax. And since new portability law allows the surviving spouse to use any part of the exemption that went unused by the first spouse to die, married couples can shield $22.4 million) from the estate tax. Simply put, estate tax is not an issue for most families.

So now, married couples should consider doing the opposite. They should consider arranging their affairs to that all marital assets get included in the estate of the surviving spouse. So long as the total is less than the estate tax exemptions, there will be no estate tax but the heirs will benefit from another step-up in basis when the surviving spouse dies. Then, if the heirs sell previously appreciated assets, there will be no tax to pay.

A simple way to include assets in the estate of the surviving spouse is to leave ownership of those assets to the surviving spouse (through a Last Will), Or if a married couple has a living trust to avoid probate, they can provide that the trust does not become irrevocable upon the death of the first spouse. However, if there is a blended family situation, or the couple is worried that the survivor may attempt to leave assets to a second spouse, or if the surviving spouse may need to qualify for Medicaid upon entering a nursing home, that couple may want to reconsider whether or not to put the surviving spouse in complete control of the marital assets.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

Does a Revocable Living Trust Protect From Nursing Home, Lawsuits, or Income Tax?

People often ask whether creating, funding, and maintaining a revocable living trust gives them protection from the long term care Medicaid spend down that applies when one enters a nursing home with assets, whether the revocable living trusts protects assets in the event the Settlor of the trust is sued, and people also ask what effect a revocable living trust will have on their income taxes.

Regarding whether revocable trust assets give protection from the nursing home spend-down, the answer is clear. The Louisiana Medicaid Eligibility Manual provides that the trust is a resource of yours if you have the right to revoke it and use the funds for your own benefit. 

Regarding protection from lawsuits (creditors), the Louisiana Trust Code provides that a creditor may seize an interest in income or principal that is subject to voluntary alienation by a beneficiary. Since you can voluntarily alienate (and do whatever you want) your revocable trust assets, the assets in the trust could be seized if someone files a lawsuit against you, is successful in the lawsuit, and gets a judgment against you.

Regarding income tax, a revocable living trust is considered a Grantor Trust. Grantor Trusts are those where you have retained certain powers. One of the enumerated Grantor Trust powers is the power to revoke the trust. Thus, a revocable trust is a Grantor Trust for income tax purposes. Grantor Trusts are generally disregarded for income tax purposes during your lifetime. The IRS will treat you as the owner of your revocable trust assets. The Grantor Trust is ignored for income tax purposes, and all income is treated as belonging directly to you (the "Grantor"). During your lifetime, you will report the income from trust assets on your personal income tax return. 

To find out more, subscribe to our Youtube channel (Rabalais Estate Planning, LLC), subscribe to our podcast (Estate Planning with Paul Rabalais), or check out our website (www.RabalaisEstatePlanning.com).

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

Rules on an Irrevocable Trust and Nursing Home Medicaid

This post describes the regulations that exist regarding when assets in a trust are considered resources of someone who is applying for Long Term Care Medicaid.

Many Seniors are concerned about the cost of long term care, especially if it is necessary that they spend months or years in a skilled nursing facility.

Some Seniors explore getting assets out of their name timely to make themselves eligible for Medicaid. These same Seniors, however, are uncomfortable putting assets in their children's names for fear of losing control of the assets, and for fear of giving their children unwanted tax consequences.

Some people explore putting assets in trust for purposes of gaining future Long Term Care Medicaid eligibility. The Louisiana Long Term Care Medicaid Eligibility Manual (the "Manual") has specific rules regarding whether trust assets are considered a resource of the Medicaid applicant, rendering them ineligible for Medicaid benefits.

Regarding when the Medicaid applicant is a trustee of a trust, the Manual provides:

"Count the trust as a resource, regardless of whose funds were
originally deposited into the trust, if the applicant/enrollee:
 is the trustee, and
 has the legal right to:
- revoke the trust, and
- use the money for his own benefit."

Regarding when the Medicaid applicant is a Settlor of a trust, the Manual provides:

"Count the trust as a resource if the applicant/enrollee is the settlor
(created the trust) and:
 has the right to revoke it, and
 can use the funds for his own benefit"

Regarding when assets are not considered a resource and penalty periods apply to the transfer of the assets to a trust, the Manual provides:

Consider penalties under the transfer of resource policy (refer to
I-1670 Transfer of Resources For Less Than Fair Market Value) if
the applicant/enrollee:
 created the trust,
 does not have the right to revoke it, and
 cannot use the principal for his own benefit.

The traditional "avoid probate" revocable living trust clearly is a resource for a Medicaid applicant. Many people, however, create other trusts, and transfer assets to those trusts, which can enable a Senior to avoid the risks inherent in transferring assets during into children's names, while starting the five year penalty period and protecting assets from the nursing home spend down.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

Estate Planning Case Study: Married Couple with $3m Estate

While every individual and couple that engages in estate planning has a different set of circumstances - no two are the same, the following is a case study of a Louisiana couple that has accumulated some wealth, never engaged in estate planning before, has two adult children who are late 20's and early 30s, and wants to keep control of their estate, provide for the surviving spouse, preserve it for the kids, keep estate matters simple, and avoid tax and government interference.

Let's say that the couple owns a home in Louisiana and a condo on the beach in another state. The husband worked for a chemical company, built up his 401(k), and when he retired, he rolled over his 401(k) into his traditional IRA. They have a joint brokerage account, vehicles, and a boat. Total estate is $3,000,000.

Some of the issues we would discuss include:

(1) First Spouse Dies. We would discuss how they want to leave their estate to their spouse when the first spouse dies. Do they want to leave their estate in full ownership to their spouse? Do they want to leave their estate in trust for their spouse so that assets get preserved for the children after the surviving spouse dies? Or, since they live in Louisiana, do they want to leave usufruct to their spouse, giving their spouse an obligation to account to the kids at the termination of the usufruct? Each of these options has varied estate tax, income tax, and capital gains tax consequences. Gotta do this right the first time before the first spouse dies.

(2) Surviving Spouse Dies. Do they want to leave assets to their children outright or in trust? Do any children have special needs, the inability to handle a lump sum inheritance, marital issues, or some other issues that would warrant leaving the inheritance to a child in trust? Lots to discuss here.

(3) Who's In Charge When You Can't? Who should be primary and backup for Trustee, Executor, Durable Power of Attorney, Health Care Power of Attorney, etc. We'd discuss the life-support machines decision.

(4) Taxes. We discuss the distribution rules for IRAs and retirement accounts and how those rules differ for spouse and non-spouses as beneficiaries. We'd discuss the step-up and double step-up in basis which can save the heirs a fortune when the sell your assets.

(5) Avoid Probate. We'd discuss the pros and cons of the "Will Based Plan" and the "Revocable Living Trust Based Plan," which can allow the surviving spouse and the children to avoid multiple probates in multiple states - given that the couple owns real estate in two states. The RLT Program would keep brokerage accounts from being frozen in the future.

Again, since very person is different - their objectives, their family, what they own, don't take this info and think that it perfectly applies to you. You need to work with the right estate planning attorney the first time so that problems don't surface later.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

When a Corporate Trustee May Be Appropriate

People create trusts for lots of different reasons. A few reasons include putting assets in a living trust to avoid probate, providing that assets after death remain in trust to be doled out to children or grandchildren over time as opposed to in a lump sum, or leaving assets to a trust for a 2nd spouse and having those assets revert back to your children after the death of your surviving 2nd spouse.

Often, people who create trusts designate an individual to be the trustee, Successor trustee, or co-trustee. These individuals are often family members. But sometimes, people who set up trusts are more comfortable naming a corporate trustee because naming an individual or family member as trustee is simply not appropriate.

Perhaps you do not want to show bias toward one of your children by naming them as a trustee. Or perhaps because of the potential conflict between children and a 2nd spouse, you don't want to name one of them as a trustee. 

Some of the reasons that people have designated a corporate trustee are as follows:

(1) Experience. Corporate trustees often better understand trust provisions and trust law - more so than an individual that has never served as a trustee.

(2) Unbiased. An individual who is also a beneficiary of a trust may find it difficult to be biased in the administration of their duties as trustee. Corporate trustees can act with more bias.

(3) Accounting. Corporate trustees are capable of preparing and providing the necessary trust accounting, and, if necessary, the trust tax return preparation.

Note that corporate trustees typically require that the trust assets must meet or exceed certain values. If the trust assets are minimal, then an individual trustee who is willing to serve with little or no compensation may be your best or only option.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

Final Steps To Putting Your Trust Program In Effect

Once all of the documents are ready and accurate, it is time for you to sign your legal documents and make it all official. When you sign your trust, you'll also likely sign a host of other legal documents, such as transfer documents transferring real estate to your trust, your pour-over Will, your powers of attorney and living will declaration, and more - depending upon the particular circumstances of your customized estate planning program.

Once all of the documents are signed, your attorney's office will likely record the transfers of real estate at the courthouse. This takes care of making sure that your real estate is in your trust. Also, on your trust is signed, you can visit your financial institutions and brokerage firms to re-title your investment accounts in the name of your trust. 

This process if re-titling your assets into the name of your trust is commonly referred to as "funding your trust." It's important that your trust be funded properly before you die so that your heirs won't have to deal with a judicial administration of your estate after you die.

Info to Gather When Starting "Avoid Probate" Living Trust Based Estate Plan

I'm often asked, "Paul, what information do we need to gather and bring in to get started on our estate planning?" Well, this advice is based on a "typical" (even though there is no such thing as typical because every family's situation is unique and requires customization) person or couple who wants to set up an estate legal program and prevent their family and loved ones from having to go through the court-supervised judicial probate or Succession estate administration process. This typically involves establishing a Living Trust and transferring title to some of your assets into your trust while you are alive in order to make it easy for your Successor Trustee to access and disburse those assets when you die.

In general, there are three groups of information that must be provided: (1) family information; (2) asset information; and (3) substantive legal decisions.

(1) Family Information. This is typically simple. We are going to need the names of all who will participate in your estate planning program either while you are alive or after you die. This typically involves the full names (as you would have them listed in legal documents) of yourself and spouse, children, and sometimes grandchildren or others if they are included. We typically do not need the social security numbers of all of these people. although you may have to provide these numbers to financial institutions on items like IRA and annuity beneficiaries.

(2) Asset Information. When you get started, you should have a good working knowledge of what you own. It is particularly helpful if you gather, up front, all of your real estate legal descriptions. In Louisiana, these real estate legal descriptions can be found on the "Act of Sale" from when you purchased the property, or the "Judgment of Possession" if you inherited the property. We need these up front so that we can prepare the necessary transfer documents that will be signed at the same time that you sign your trust. Documents regarding investments and brokerage accounts don't have to be provided up front (but great if you have them), because you cannot transfer those assets to your trust until after your trust is signed.

(3) Substantive Decisions. All of the "who gets what, how they get it, who will be in charge" decisions are gathered through the dialogue you'll have with your estate planning attorney. These are important decisions and you need an experienced attorney to guide you through this. But it doesn't hurt give some good thought to these things in advance.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com

Tax Consequences When Living Trust Settlor Dies

Because our government likes to tax people, there are a number of different taxes that come into play when the Settlor of a Revocable Living Trust dies. In general, the "tax at death" landscape has changed from avoiding estate tax, to avoiding capital gains tax and income tax. The following are the types of tax that might affect you if you are a Settlor, heir, beneficiary, legatee, trustee, executor, Agent, or Grantor, Trustor, or other participant in someone's transfer of wealth.

(1) Federal Estate Tax. For most people, you ain't gotta worry about it. If you have less than $11.2 million in assets when you die, you don't even have to file a federal estate tax return. Married? Exempt $22.4 million from the 40% estate tax. Yes, like everyone says, you can call me when you win the Powerball.

(2) Louisiana Inheritance Tax. It went long gone back in 2004. Doesn't exist any more.

(3) Capital Gains Tax. Definitely in play. When someone dies, assets that they own in their name, or assets in their revocable living trust, get a step-up in basis at death. This can permit the Successor Trustee or the beneficiaries to sell appreciated assets and pay little or no tax. Example: Dad bought a share of stock for $10. Before his death, the share is worth $50. If Dad sells it before he dies, he pays capital gains tax on the $40 of capital gain. But if Dad does not sell the share, and he dies, then the heirs or beneficiaries inherit the stock at the "stepped-up" $50 (fair market value on the date Dad died). Note that in community property states like Louisiana, ALL of the community property gets a step up when the first spouse dies. It makes a lot of sense, when a married person dies, to document the value of the assets so that tax can be calculated later when the asset is sold. Remember: no capital gains tax unless an asset is SOLD.

(4) Income Tax. There are all kinds of income tax ramifications to inheriting. Depends on what you inherit and many other factors. However, in general, a distribution of trust principal to a principal beneficiary after a Settlor dies is free of income tax to the recipient. However, income tax consequences exist if you are the beneficiary of a Traditional IRA, 401(k), or other pre-tax retirement account. You may also be required to pay income tax on the "gain" portion of a tax-deferred annuity when you receive it. There are also income tax consequences to inheriting appreciated savings bonds. Note that if you are the beneficiary of a Traditional IRA, and you are not the account owner's spouse, you will likely inherit it as an Inherited IRA and you cannot wait until 70.5 to start taking required distributions.

Many of the decisions you make when establishing your estate planning program, and many of the decisions your Trustee, heirs, or beneficiaries make after you death, can have a significant impact on how much tax the government takes from your estate.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: 866-491-3884

Subscribe to my Youtube channel!