Only certain assets that you own require the Louisiana Succession procedure to transfer them to your heirs. That's why people say that there are "Probate Assets" and "Nonprobate Assets."
Probate assets are assets that you own that cannot be transferred at death without a court-supervised probate proceeding. Real estate is a common probate asset. Even when a spouse dies, that spouse's ownership interest in the home must be transferred pursuant to a Succession proceeding. Some states allow you to title your real estate so that it automatically goes to your spouse when you die outside of probate - but Louisiana is not one of the states that permits this. Also, if you own an undivided interest in real estate when you die, your undivided interest (for example, a 25% interest that you own along with three siblings) must be transferred to your heirs pursuant to the Succession procedure.
Another probate asset is investments - stocks, bonds, and mutual funds that you own in your name. Securities laws require that investment accounts in your name be frozen when you die. No one will be able to access these funds or investments without the appropriate court orders. Again, some national investment companies allow you and your spouse to title investment accounts with designations such as Joint Tenants With Rights of Survivorship (JTWROS), but the problem is that the State of Louisiana does not recognize this as a form of ownership. In Louisiana, all assets are either separate property or community property - regardless of how titled. This causes confusion among heirs, brokerage firms, and others.
Small businesses are another probate asset. Many people own membership interests in limited liability companies (LLCs), or they own shares in a closely held corporation, or maybe even a partnership interest. Your probate will be required when you die to transfer your small business interest to your heirs.
Bank accounts can be tricky when it comes to probate. If you have an individual bank account in your name only, it will be frozen when you die and a Succession will be required to gain access to the funds. But some people add signers to their bank accounts, or they make a Payable On Death (POD) designation, which allows banks to release funds to another party outside of probate. Check with your attorney and your bank or credit union regarding whether a Succession will be necessary to gain access to bank or credit union funds.
Typical nonprobate assets include IRAs, life insurance, annuities, and other retirement accounts that allow you to designate a beneficiary. For example, Dad died leaving an individual retirement account (IRA). Dad had named Mom as the beneficiary. After Dad dies, Mom can produce a death certificate to the financial institution where the iRA is held, and the financial institution will transfer Dad's IRA into Mom's IRA - outside of courts, lawyers, judges, and the judicial system. Note that, however, if "The Estate" is the beneficiary, then those funds must be part of the Succession and will require a Succession proceeding to access those funds.
Non-titled personal items often are passed to family members outside of the formal judicial proceeding. Because Dad's gun and Mom's jewelry are not titled in anyone's name when Dad and Mom die, it is common for surviving family members to deal with these non-titled personal effects outside of the formal judicial process.
Many people ask me after a loved one dies, "Do we really have to go through a court process just to get access to may parent's account?"
Sometimes children think that because their parent had a Will, or because their affairs are simple and everyone is in agreement, that a probate is not necessary. But those children are often wrong.
Why is probate necessary?
It doesn't make sense to some people that the government must oversee the management and distribution of an estate after someone dies, even if the person laid out their wishes clearly in a last will and testament. And whenever the government gets involved with anything, it can get complicated and burdensome and inefficient.
Can't I Just Show Dad's Will to the Banker and the Broker - And They Will Transfer Everything To Me?
Can't I Just Take Dad's Will To The Clerk of Court and They Will Put Dad's Property In My Name?
There are very specific probate procedures that must take place between attorneys, judges, heirs, clerks of court, and others, that must take place when someone dies with assets in their name. Of course the banks and brokerage firms understand all of these probate rules and they realize they could be liable for handing over funds to the wrong people, so the banks and brokerage firms won't "unfreeze" and account and hand it over to the heirs without the proper court orders ordering them to do so.
To get these court orders, procedures that the Louisiana Legislature has created must be followed. There's no getting around it and there's no simpler way.
Bottom line: If you have things in your name (a home or accounts, for example), when you die, there is no getting around the court proceedings. And your loved ones will be forced to hire an attorney like myself to guide the family through the court proceedings the right way.
Are there legal strategies that you can implement ahead of time to help your family avoid this probate trap? Yes, but you have to have a legal program put in place the right way at the right time in order to simplify your estate settlement and avoid probate.
We've been working on a Louisiana Succession for the last several weeks. Dad passed away having left a last will and testament naming Son as executor, and leaving all of the assets to his four children.
The children were confused about the steps that needed to be taken because they had gone to several of Dad's banks. Some banks would not give the children any information. Some banks told the children they needed "a letter from the attorney." And some banks started processing the accounts instantly so they could be transferred to the children. There was also a home and some stock involved. They came to me to sort it all out. After about two hours of talking, digging, and a few phone calls to a few banks, I revealed the following steps that needed to be completed to get Dad's estate (or probate or Succession - whatever you want to call it) settled.
Here are the steps we are going through.
- Son Confirmed as Independent Executor. We prepared all of the court petitions and filings to enable a judge to sign the appropriate court orders confirming that the Son was the executor. Since the Will authorized the Son to act as an "independent executor," the court will issue court documents called "Letters of Independent Executorship." Even though the probate is still necessary, being confirmed as an "independent" executor is better than being an executor, because an independent executor can take more actions (such as paying debts or selling a vehicle) without having to ask a judge for permission every time the executor needs to do something.
- Open Estate Account. Once the initial court orders are issued, Son can go to the financial institution of his choosing and open an estate account. Then, Son can go to the various banks and other financial institutions and collect the funds from the frozen accounts, and deposit those funds directly into the estate account.
- Detailed Descriptive List. The family will get us the necessary information so that we can prepare the formal accountings including the Detailed Descriptive List of Assets and Liabilities. A judge won't allow assets to be transferred to the heirs until all of the Assets and Debts and Expenses are itemized the right way in this Detailed Descriptive List.
- Judgment of Possession. One of the last things that will happen in a Louisiana Succession is that the judge will sign the Judgment of Possession that we prepare and that all of the heirs sign off on. This judgment orders the executor and banks and other third parties to transfer remaining assets to the four children. The home will be listed as an asset of the Succession which must be transferred to the four children. This judgment will be recorded in the real estate records of the parish where the property is located - formally retitling the property into the names of the four children - so they can sell it when they are ready.
- IRAs. An IRA is one of those accounts where a beneficiary can be designated. Since Dad named the four children as the designated beneficiaries, the four children can work with the financial institution to have Dad's IRA transferred to the four Inherited IRAs. The children can elect to take taxable distributions over their lifetime of they wish, deferring the income tax while the investments continue to grow.
- Tax. The family was relieved that no federal estate tax was due since Dad's estate was well under the $5.45 million estate tax exemption. The only tax consequence is that the children will include in their taxable income the distributions that they get from what previously was Dad's IRA.
Completing a Louisiana Succession can be tricky. Getting the wrong advice or working with the wrong people can add months or years to an already difficult process. Check us out if you have a loved one who has passed away, and you and all of the other heirs want to streamline the estate settlement process.