I was asked a question recently by a husband whose wife had recently passed away. She left her husband the usufruct of a significant investment portfolio of stocks, bonds, and mutual funds. The wife named her children as the naked owners of her estate.
He asked me, "Paul, what standard am I going to be held accountable to now that I have the usufruct of an investment portfolio? I don't want the naked owners coming after me alleging that I managed the assets the wrong way?"
I told him that, in regards to a usufructuary's standard of care, the usufructuary is answerable for losses resulting from his fraud, default, or neglect.
I told him that he should be fine so long as he makes decisions that a prudent owner or a prudent administrator would make. I told him there was some Louisiana case law that stated that a usufructuary is bound to take the same care of the property as if it were his own. And I told him, that if the investments were sound, and there was a general downturn in the markets, that he may be ok due to the fact that Louisiana courts have stated that a prudent administrator is not responsible for the decline of rental income attributed to the general decline of the economy.
We also discussed the fact that he was inheriting the usufruct of nonconsumables. And upon their sale, we discussed the consequences to him and his estate when nonconsumables (such as stocks and bonds) are converted to a consumable (cash).
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Louisiana Estate Planning Attorney
Phone: (225) 329-2450