Avoid estate tax Baton Rouge

When an Estate Should Give Information to the IRS - Even When You Don't Have To

I've been working with a Baton Rouge family that had an estate plan set up. The wife died. Her separate property and her one-half of the community property totaled about $2 million. She owned property in Baton Rouge, Lafayette, and Gonzales.

After the wife died, I was working with the surviving husband and the children. They assumed, rightly so, that the wife's estate was not required to file a federal estate tax return because the gross value of her estate was less than $5.45 million.

While they were technically correct, they did not realize that the failure to file a federal estate tax return on behalf of the wife's estate could cost them millions in the long run. You see, the husband had a large estate of his own. He owned property in New Orleans, Shreveport, Alexandria, and near Monroe. He also owned a significant IRA. His total estate was about $7 million and likely to grow.

I explained to the family that while the wife's estate was not required to file a federal estate tax return with the IRS, they should do so and make the "portability election." Filing a U.S. Form 706 on behalf of the wife's estate, and making the appropriate portability election would allow the surviving husband's estate to use $3 million unused estate tax exemption that they wife's estate failed to use.

Had the wife's estate not filed an estate tax return, then the husband's estate would only be able to shield $5.45 million from the 40% estate tax. But since we are filing the return and electing portability (even though it is not required to file a return since her estate was less than the $5.45 million exemption), the husband will be able to shield at least $8.45 million from estate tax when he dies. The portability election allows his estate to use his full exemption plus use the amount of her exemption that her estate did not use.

Future appreciation of an estate after the first spouse dies, or a future change in the law which reduces the estate tax exemption, could cause families to incur estate tax when they did not think they would. Careful consideration should go into whether an estate tax return should be filed with the IRS after the first spouse dies, even if it is not required.

If you are concerned about the possibility of your survivors incurring a 40% federal estate tax when you pass, shoot me an email at paul@rabalaisestateplanning.com, and perhaps we can discuss the simplest ways to preserve your estate from the government and for your family.


Basic Gifting Concepts To Avoid Estate and Gift Tax

Gifting may only be necessary for people who have large estates. With the estate tax exemption for deaths occurring in 2016 at $5.45 million, it may not be appropriate for most Louisianians to make gifts annually.

However, if an individual has or will have an estate exceeding these thresholds, it may make sense to do some gifting if one of the primary objectives is to preserve the estate for the family and minimize or avoid estate tax at death.

Individuals can donate up to $14,000 annually to as many people as they want to without incurring gift and estate tax consequences. If an annual gift exceeds this annual exclusion amount, then typically, no tax is due, but the donor will begin using his or her $5.45 million gift and estate tax exemption.

A person can donate cash, stock, property, an interest in a business, or any other asset having value. People should be careful, however, when they donate appreciated assets because it may result in extra capital gains tax when the asset is later sold or disposed of. When appreciated assets are donated, the done/recipient receives the assets at a "carry-over" basis. But when an individual inherits appreciated assets, the heir/recipient enjoys a "step-up" in basis.

Gifts can be either outright or in trust. Gifts are often made in trust when the donor does not want the donee to have complete control of the gifted asset. But if you donate in trust, you have to make sure the gift in trust meets the requirements of the "present interest annual exclusion," so that the beneficiary of the trust has a "present interest" in the gift.

Gifting to avoid estate tax can be complicated. Rabalais Estate Planning, LLC, has attorneys and office locations all around south Louisiana, including Baton Rouge, Metairie, Lafayette, Mandeville, Lake Charles, and Houma. Our website is www.RabalaisEstatePlanning.com. Our phone number is 866-491-3884. You can also email me at paul@rabalaisestateplanning.com.

The Two Secrets to Bill Gates Completely Avoiding Estate Tax

It's no secret that Bill Gates is one of the wealthiest people on the planet. You would think that the IRS will mop up when he dies, collecting billions in estate tax to be redistributed in whatever way our government distributes it - that's another story.

While Mr. Gates has not yet contacted me to customize his estate legal documents, there is little doubt that he will take advantage of two "often little known" tax rules to minimize or completely avoid federal estate tax. While I'm sure Bill has several trusts to avoid probate and make things simple, here are the two tax rules that Bill will take advantage of:

1.    The Unlimited Marital Deduction. If Bill dies before his wife, Melinda, he will leave his estate in a way so that $0 estate tax will be paid when Bill dies. You can leave an unlimited amount of assets to your surviving spouse when you die, and no estate tax will be due (the idea is that the tax is due after the surviving spouse dies);

2.    The Estate Tax Charitable Deduction. After both Bill and Melinda die, they will leave the bulk of their estate to the Bill & Melinda Gates Foundation. Anything you leave at your death to a charity escapes the federal estate tax.

Voila! No estate tax. The richest man in the world will take advantage of two often misunderstood tax principles to avoid a tax that is specifically designed to tax the rich.

When Bill calls, I'm sure we'll have a discussion about this. Moral of this story? Make sure you take the necessary actions to protect your estate from the government. Be like Bill!


Four New Client Matters Yesterday - Your Concerns May Be Similar

From time to time I will provide a summary of the issues that I deal with on a certain day so that you can perhaps comment on them, or at least get a feel for what kind of issues we deal with so that you will know that perhaps you are not alone in the kinds of issues that are important to you and your family. Yesterday, I had four new client meetings. Without revealing any confidentialities, the following are four separate summaries of new client meetings that I had with new estate planning clients.

  1. Friend Needs Estate Planning Legal Work. The first discussion I had was with a friend who owns a successful business. He said he was working with some financial advisors from out of state. His goal was to set up an estate plan for he and his wife so that after they both passed away, their business and other assets would transition the right way to his kids. We discussed business ownership, estate tax, irrevocable life insurance trusts, and updating all of his estate planning legal documents which were prepared by another attorney more than 15 years ago when his kids were very young. We'll be meeting again in the coming days or weeks ahead to finalize an estate planning legal program for him.
  2. Couple Wants Each Child To Receive A Certain Piece of Property. My second meeting was with a couple who wanted to avoid probate and make matters simple for the kids. Even though the husband made most of the big financial decisions for the family, it was the wife who really wanted to have everything simple because she was worried that her husband might die first. The couple also had two pieces of real estate - their home and another piece of property. For specific reasons that they indicated, they wanted one piece to go to one child, and another piece to go to another child, and the rest of their estate to be divided equally among the two children. Assets we addressed included: avoiding probate, estate tax avoidance, avoiding capital gains tax on the sale of property, who to designate to handle matters when they die, income tax aspects of inheriting an IRA and a stock portfolio, the wife's need to rely on their CPA if the husband dies first.
  3. Surviving Spouse Wants To Simplify Complex Estate. We worked with a family that had in the past set up some complex trusts for their children and grandchildren. The surviving spouse now wanted to simplify the surviving spouse's estate, leave it to the children, and then ultimately let the children inherit it and figure out how they can provide for their children. Issues we addressed included: estate and gift tax avoidance; lifetime charitable giving; giving to charity at death; naming an executor of a Will; updating prior estate planning legal documents.
  4. Avoid Probate and Avoid Nursing Home Poverty. My final new client meeting of the day was with a couple that was very clear from the outset of the discussion. The husband had been through a nightmare probate in recent years and he was very clear that he wanted his family to avoid the two probates that they would otherwise have to go through after he and his wife died, and they did not want to lose assets due to their possible future nursing home expenses. Issues we addressed included: Medicaid Planning; IRAs and SEP-IRAs; avoiding probate; how to handle bank accounts and CDs; Irrevocable Trusts for Medicaid Planning; how to title boats and vehicles to avoid probate.

I also took a call from a potential Probate client, but I told them that I was not the attorney for them. The woman's attorney/friend referred her to me. Her mother had died but the daughter did not have a good relationship with her two step-siblings. The mother owned a home but died with a Will or with any estate planning legal documents in place. Since this was likely to be an adversarial matter between the parties that would likely last for years in the court system, and since these matters never work out well, I told them that I would respectfully decline their offer to have me represent them in the potentially hotly contested matter. I wish them well.