Louisiana estate planning attorney

Signature on Life Insurance Form Saves Louisiana Family $1.2 Million in Federal Estate Tax

Been working with a couple from Lafayette, Louisiana on their estate legal program. One of the reasons they said they came to me was that I had a Masters Degree in Tax Law (from Boston University School of Law) and they wanted to make sure that they avoided estate tax as they passed their rather large estate on to their children.

We were going through their list of assets and I noticed that he had accumulated a number of life insurance policies during his lifetime. He had about $3 million of life insurance - it was a cluster of five different policies that he had been sold over his lifetime - some term insurance, some universal life, and some whole life.

He had done what most people do when they are married and they acquire life insurance. The husband had named himself as the owner of the life insurance policies, and he had named his wife as the beneficiary. This is what most people do.

So, if he has his policies structured this way, what will be the estate tax consequences? Well, if the husband dies first, there will be no estate tax as a result of these life insurance policies because the $3 million will be part of the Husband's gross estate, but they will be deducted from his estate under the federal estate tax marital deduction. But the problem is: THE WIFE NOW HAS AN EXTRA $3 MILLION IN HER ESTATE. There will be no way to exclude these funds from her estate. She can't give it away fast enough pursuant to the annual exclusion. These funds will cause an extra $1.2 million of federal estate tax when the surviving wife dies ($3 million * 40%)

We discussed having the husband and wife transfer OWNERSHIP of these policies either to their children, or to an irrevocable trust naming the children as beneficiaries, so that neither the ownership nor the proceeds of the policies would be in the estate of either spouse. We talked about how special rules apply to ownership of life insurance policies such that three years must pass after the transfer of ownership for the death proceeds to be excluded from the estate of the insured.

If you live in Louisiana, whether you live in Baton Rouge, Monroe, Shreveport, Lafayette, Lake Charles, or New Orleans, and you own life insurance and you would like for the death proceeds to not only avoid income tax but also the 40% estate tax, you may want to give our office a call at 866-491-3884 to start a conversation about how to set up your estate legal program to avoid estate tax when you (or you and your spouse) pass away.

Louisiana Parents Want Different Allocation to Their Four Children

Met with a couple in our Baton Rouge estate planning office today. They lived in Gonzales. They has a number of different rental properties throughout Ascension Parish and East Baton Rouge Parish and Livingston Parish.

The couple has four children. Their son works in their rental property business and handles all of the books for them. Their second oldest child has had substance abuse problems and has caused the family lots of grief.

One of the things that they wanted to accomplish was to set up an estate legal program so that after both the husband and the wife died, that 60% of their estate would go to their son in their rental business, and the child who had the substance abuse problems would only get 5% of their estate, and the 5% would remain in the trust until the child proved that he was clean and sober to his three siblings.

The couple feared that if their drug-abusing child got her hands on any money when the couple died, that the money would simply be used to support their daughter's drug habits. So, this was a scenario where we helped a couple in several different ways:

  1. The drug-abusing child will not get a lump sum handed to her. She will have to prove that she is clean and sober before she gets a nickel;
  2. They made the proper allocations to the four children to reflect how much certain children have helped them over the years;
  3. Their estates will not have to go through the Louisiana probates when they die because certain assets will be held in trust, bypassing the probate process;
  4. They won't have to sell any of their rental property if they go into a nursing home since they are setting their legal affairs up in a way so that their "Countable Resources" for Long Term Care Medicaid purposes are minimized; and
  5. Their responsible son who helps them manage and account for their rental property will have the authority to manage things if the couple becomes incapacitated or when they die.

If you live in Louisiana, whether it's in Metairie, Covington, Baton Rouge, Lafayette, Lake Charles, Monroe, Alexandria, or Shreveport, and you have particular family circumstances and you want to make sure that you have a simple but thorough estate legal plan to preserve all that you've worked for, give our office a call at 866-491-3884 to start a conversation with an estate planning attorney who - I guarantee - will put your mind at ease.

Paul Rabalais