Mandeville estate planning attorney

Living Trusts and Income Tax

As we discuss an estate planning program with our clients, some of our clients that they would like to arrange their estate to avoid the court-supervised probate estate administration at their death, but they are concerned about how setting up a Revocable Living Trust might affect their income tax situation during their lifetime.

When you create a Revocable Living Trust, you will be what's referred to as the "Grantor" or "Settlor." You can amend or revoke the trust at anytime, and you are entiled to receive all of the income that the trust assets produce during your lifetime.

While there are many different types of trusts, this type is arranged so that you are still taxed on all income earned by the trust assets. You continue to use your Social Security Number on all trust bank and investment accounts. The trust does not need its own Tax Identification Number. As long as you live, all of the income is reported on your own personal income tax return, so you won't need to file a separate trust tax return.

Some people like that their trust does not complicate or change their tax status, but the assets in the trust will avoid the Louisiana court-supervised probate estate administration upon their death.

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Own a Business and Owe Estate Tax? Pay the Estate Tax in Installments: Section 6166 Election

Several of our estate planning clients own businesses in Louisiana (or elsewhere). Some of these business owners have an estate that will require estate tax to be paid when they die. Many business owners are told that "half of their estate will go to the government when they die" so they must take drastic action today to somehow reduce that tax.

What many people don't know is that there are breaks in our Internal Revenue Code which permits certain estates to pay the estate tax liability over a period of 14 years - if they qualify for it because they own a closely held business.

Generally speaking, if a business owner dies and the value of his ownership interest in his or her business exceeds 35% of his adjusted gross estate, then the executor is allowed a 14 year period to pay estate tax attributable to an estate's interest in a closely held business. The estate may pay interest only payments for the first four years, and the taxes can then be paid over a 10 year period.

Here's an example that would not occur in real life but it shows how this election can help an estate. Let's say that Fred owns Fred's construction company. This is the only asset in Fred's estate. The business is worth $10.45 million. Fred is told by some that half of his estate will go to the government when he dies. This concerns Fred because there is not $5.225 million in liquidity in his estate to pay this tax and Fred worries that his children will lose the business.

But the Fred realizes that his estate could make a Section 6166 election timely after Fred dies. First, the estate tax must be calculated. Since there is a $5.45 million exemption, and a 40% estate tax on the balance, Fred figures there would be $2 million in tax - still a big worry to Fred. But if his estate makes the timely IRS Section 6166 election after he dies, his estate can pay interest only payments of $40,000 for four years after Fred dies, and then his estate can $200,000 annually for another 10 years. Fred now realizes that his business will produce enough revenue annually to pay this tax over the 14 year period, and his children will not lose the business due to estate tax liabilities.

If you are a business owner in Louisiana, whether your business is in Baton Rouge, Lafayette, New Orleans, Lake Charles, Shreveport, or Monroe, and you want to make sure that your estate passes intact to your family or other heirs, you may want to give my office a call at 866-491-3884, and tell our great staff that you own a valuable business and you want to speak to me to find out how to leave it the right way, I look forward to the opportunity to speak with you about how the IRS Section 6166 election for owners of closely held businesses can help your family, or how other little-known tax elections can help your family.

Fun Times at Estate Planning Luncheon Presentation in Madisonville

Wow! What a great crowd today at the lunch presentation that I gave today in Madisonville, Louisiana. We had future estate planning clients from Madisonville, Slidell, Mandeville, Covington, and Hammond in attendance. Virtually all of these fine folks will be meeting with me in the next couple of weeks at our estate planning law firm's office in Mandeville, Louisiana.

Here are a few issues that were brought up to me by the audience that I will be addressing with these fine Louisiana families as we work through establishing an estate legal program for them.

  1. Family Home. One person in attendance wants to make sure that his daughter inherit the right to live in the home when he dies, but when the daughter later dies, he wants his four grandchildren to own the home. He wants to make sure that his daughter's husband doesn't inherit the home.
  2. Owner Financed Home. Another gentleman financed the sale of one of his homes to his daughter. Now, the daughter is not making the payments on the home. So, the gentleman wants to make sure that the daughter does not take advantage of this when he dies.
  3. Six Children and 19 Grandchildren. One couple I'll be helping talked about making things easy when they die for their family. While they have considered leaving an inheritance to the grandchildren, they appear to have settled in on leaving their estate to their six children, and then letting the six children provide for their children.
  4. Blended Family. One other couple we will be helping married about seven years ago. They each have children. The children all get along well with each other, and the couple wants an estate planning program that can keep the family relationships strong even after the couple passes away.
  5. Wants To Trash the Handwritten Will. One couple realized that they want to get rid of the handwritten Wills they made in favor of having an entire estate legal program that avoids probate and makes matters easier for each other and their children.
  6. Avoid Nursing Home Poverty. One woman said her biggest worry is that she would hate to sell all of her assets depleted if she had to reside in a nursing home in the future. She said she was pleased to realize there was a way to set things up in a way that her home and her savings would be preserved for her and her family.
  7. No children. One couple with no children wants to have plan that keeps their options open in case the surviving spouse needs to move into a retirement village.
  8. Trust Account at Credit Union. We answered one question that enabled a family to set up a revocable living trust credit union account so that the account will never be frozen, even when the people who set up the account pass away.

As you can tell, there was a variety of estate planning legal issues that were brought up today at the presentation. I look forward to the opportunity help all of these fine Louisiana families put their estate legal affairs in order.

With our Louisiana estate planning law firm's offices positioned in Baton Rouge, Lafayette, Lake Charles, Metairie and Mandeville (with more to come later), we look forward to helping Louisiana families have peace of mind that comes from working with the right attorney to put your estate plan in order the right way the first time.

How To Avoid Income Tax on IRA Distributions After You Die

Let's face it. many people HATE paying tax. And many people hate paying income tax when distributions are made from their IRA.

I was working with a gentleman from Covington, Louisiana today on his estate plan. He owned property in St. Tammany Parish and in Tangipahoa Parish. He had never been married and he never had children.

He wanted to leave some things and some money to a family member of his, but he liked the idea of setting up some scholarship funds. So, after quite a bit of discussion, he decided to name his college as the beneficiary of part of his IRA when he died. But he did not want the funds from his IRA to go into the general funds of the college. So, we are restricting the IRA so that it can only be used in a certain curriculum of the university. Now, he knows that students in his prior field will benefit from scholarships that he establishes.

He also knows that none of his IRA will go the federal government or the State of Louisiana (or any other state for that matter). By naming his college as the beneficiary of his IRA, even if the money can be used for certain restricted purposes, the distributions after his death to the college will go income-tax free.

If you are leaving some assets to individuals when you die, and other assets to charities or educational institutions, you may want to consider leaving all or part of your IRA to the charities. Charities don't pay income tax when they are the beneficiary of an IRA. Leave your non-IRA assets to individuals - there will be no income tax consequence to those individuals.

If you live in Louisiana and you want to set up an estate legal program that makes sure that you leave assets where you intent them to go, and it is all set up in a tax-efficient or tax avoidance manner, give us a call at 866-491-3884 to talk to one of our estate planning attorneys.