Keep Property in Family

What Does "Asset Protection" REALLY Mean?

In this post we dig a little deeper about who wants to protect their assets and their estate from losing their estate to (1) nursing home expenses; (2) a lawsuit; and (3) government intervention.

People often call our office or request to discuss with me how they can "protect their assets." But different people, in different circumstances, have different ideas regarding what they want to protect their estates FROM.

One group of people asks me about how to protect their estate from long term care expenses. Perhaps they are 65 or older, and they have seen family members and friends be forced to deplete their estate, and even lose their home, sue to the costs they must pay to reside in a nursing home.

When we engage in a conversation about Long Term Care Medicaid eligibility, we have to take an in depth look at an individual's, or couple's, assets, monthly income, health, age, and the different rules that apply. Often we make some determination regarding what assets should remain in the individual or couple's name, and what assets, perhaps, should be transferred to some form of a trust. Not that the traditional "avoid probate" revocable living trust does NOT provide much in the way of protection from nursing home expenses. Also note that this form of "asset protection" is most effective when transacted at least five years before entering a nursing home.

The second theme of asset protection involves protecting assets you own in the event you get successfully sued. Sometimes people contact us and they are a nervous wreck because "something happened," (maybe the threat of a lawsuit, maybe an automobile accident where you were determined at fault, maybe someone injured on real estate you own, or maybe you have a serious illness and you are worried about the millions of dollars of potential health care expenses).

Two common obstacles I've seen to this kind of asset protection are: (1) People do not want to give up the control over what they own; or (2) people don't engage in this kind of asset protection until it is too late - whereby action could be later undone due to the rules on fraudulent conveyances and the intent to defraud creditors.

The third category of asset protection requests comes from those who, in general, want to protect their estate from "the government." When I ask follow-up questions and dig deeper, they often want to protect their estate from the various forms of taxation, and they want to keep their estate out of probate (the court system).

The solutions for these three categories of asset protection vary based on the appropriate set of laws, rules, and regulations that apply to your situation, and the solutions vary based on your particular financial and estate situation.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

What Happens After Louisiana Resident Dies With No Will, No Spouse, No Kids, and No Surviving Parents.

What does a family do when someone dies unexpectedly with no last will and testament, no surviving spouse, no children or grandchildren, and no surviving parents?

This can be a stressful time for surviving family members. The first question that often gets answered is, "Who inherits from this person?" The second question that often gets answered is, "How do the heirs settle the estate and get the assets?"

When a Louisiana resident dies with no will, no descendants, no surviving parents, and no spouse, the deceased's estate will go the the deceased's brothers and sisters. If any of the deceased's brothers and sisters had died before the deceased, then the deceased sibling's children will represent the deceased sibling.

One of the first things to do in settling an estate like this is to have a judge appoint an Administrator of the Succession. In a matter like this, it would be common for one of the siblings to step up and ask to be appointed as the Administrator. If all of the heirs agree, it would be advisable for the sibling to ask to be appointed as the Independent Administrator, since less judicial supervision is required of an Independent Administrator. But remember, all of the heirs must sign an Agreement allowing the Administrator to be Independent.

Once a judge signs the court order appointing the Independent Administrator, the clerk of court will issue, "Letters of Independent Administration." This permits the Independent Administrator to open an estate account at a bank, and pool all of the deceased's funds from the deceased's frozen accounts into the estate account.

Once that is addressed, it is likely that the Independent Administrator would start selling estate assets, such as vehicles and real estate. Proceeds from the sale of these estate assets would be deposited by the Independent Administrator into the estate account.

In the meantime, the attorney for the Independent Administrator and the heirs will put together an inventory of assets and debts, often called a,"Sworn Detailed Descriptive List of Assets and Liabilities," showing estate assets and debts as of the date of death of the deceased. This inventory is submitted into the court record for judicial review and oversight.

Finally, after expenses and debts are paid, a judge may sign a "Judgment of Possession," a court order ordering that remaining estate assets be disbursed to the appropriate heirs in the appropriate proportions. The Independent Administrator may withhold some funds for unexpected expenses and final income tax return preparation.

A few comments regarding matters like this:

(1) If the assets of the deceased totaled less than $125,000 in value, they should consider using Louisiana's Small Succession Affidavit Procedure;

(2) Perhaps the deceased's wishes could have been better expressed in a last will and testament, which would name an executor, and designate heirs.

(3) Perhaps the deceased could have created a revocable living trust, designating a Successor Trustee and trust beneficiaries, so that the settlement of the trust and estate could have taken place without attorney involvement and government intervention.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Which revocable or irrevocable trusts allow you protection from the dreaded nursing home expenses?

"Do revocable or irrevocable trusts help qualify for Long Term Care Medicaid?"

That is the question we often get from clients and prospective clients who are concerned that they will lose their savings and home if they wind up in a nursing home facility.

There are many different kinds of trusts, but often people tend to break them down into two types: revocable and irrevocable.

Regarding revocable trusts, the Louisiana Medicaid Eligibility Manual could not be much clearer, "The entire corpus of a revocable trust is counted as an available resource to the individual."

Revocable trusts have never been used to protect assets from nursing home expenses. Revocable trusts are, however, used extensively for Succession / Probate avoidance purposes. And quite frankly, when the revocable living trust works like it should, it's a wonderful thing for the survivors of the person who set up the trust. When the person who set up the trust (Settlor) dies, the Successor Trustee (often a family member) can immediately disburse assets to the trust beneficiaries (often the children) without any of the attorney and court involvement, expense, and delay associated with a court-supervised probate process.

Regarding irrevocable trusts, it is important to note that not every irrevocable trust offers nursing home protection and Medicaid eligibility. An important provision in the Louisiana Medicaid Eligibility Manual provides, in pertinent part, that, "The portion of the corpus that could be paid to or for the benefit of the individual is treated as a resource available to the individual..."

There are several other factors that affect Medicaid eligibility when someone has established an irrevocable trust, but clearly of the trustee can pay corpus to or for the individual seeking Medicaid eligibility, then the trust assets will need to be spent prior to eligibility.

Some parents, in order to protect assets, establish an irrevocable trust and provide in the trust instrument that a trustee may make distributions to or for the children of the Settlor of the trust.

Here's my words of warning regarding Medicaid eligibility. Seek out good legal help in your area. Medicaid is a combined state and federal program, so you must work with someone who is well-versed in your state's eligibility provisions. Don't try this at home on your own. Get it right the first time.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

The Medicaid Five Year Rule Regarding the Transfer of Resources for Less than Fair Market Value

Many people understand the general rule that if you own more than $2,000 of assets (there are definitions of "assets") when you enter a nursing home, then you will not be eligible for Medicaid, and you must privately pay the entire nursing home expense, which in every state is many thousands of dollars monthly.

However, most people, if they must enter a nursing home for long term care services, would prefer to have Medicaid cover this expense, rather than have to pay for it out of their own life savings. But in order to qualify for Medicaid, you have to meet your state's definition of "poor."

For starters, when you enter a nursing home and apply for Medicaid, you can have no more than $2,000 of countable resources. Countable resources include things like money in the bank, investments, savings bonds, retirement accounts, real estate (not your home), and interests in a business or LLC.

Some uneducated folks think they can get around this rule by "quietly" transferring assets out of their name just prior to going into a nursing home. But the Medicaid Manual's rules are quite extensive - making it impossible to get around the rules.

When one enters a nursing home having transferred assets out of their name at least 60 months prior to applying for Medicaid, then it is likely that those assets are, as people say, "protected."

It's much trickier if assets are transferred within the 60 months prior to entering a nursing home.

If you are considering transferring assets to start the five-year clock ticking, you'll likely consider whether you should transfer assets to individuals or trusts. Most people who get educated on the subject tend to transfer assets to particular types of trusts, for two reasons: (1) control reasons; and (2) tax reasons (income tax and capital gains tax).

If you take one item away from this discussion, it's that there are rules which make it very difficult to avoid losing your life savings and home if you enter a nursing home, but by planning ahead (ideally, at least five years before entering a nursing home), you can protect a very large portion of what you own for yourself and your loved ones. But know that the rules are complicated and you need good legal help - ideally, from an attorney who is well-versed on the ins and outs of your state's Medicaid eligibility rules.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

The Amendable But Irrevocable Trust

Is it possible to amend, modify, or change the provisions of an irrevocable trust?

All trusts can be classified as either revocable or irrevocable. The #1 reason people create revocable trusts is to hold title to assets in a way that you keep total control but eliminate the attorney and court-involved probate process when you pass away. Quite a bit is written about using revocable living trusts to avoid probate, so that is not the topic of this post.

Irrevocable trusts, however, are created for many different reasons: avoid taxes, lawsuit protection, and nursing home protection, just to name a few.

The word "irrevocable" scares many consumers, but it may not need to. Someone can establish an "irrevocable" trust, yet reserve the right to modify certain terms of the trust after the trust is created.

Here's an example: Parent sets up a trust. Parent is referred to as the "Settlor." In the trust instrument, it states that "X" is the trustee of the trust. It further states that "Y" and "Z" are the principal beneficiaries of the trust. The trust states that the trustee may distribute principal to the principal beneficiaries during the lifetime of the Settlor. The trust instrument further provides that when the Settlor dies, the trustee shall terminate the trust and distribute the principal to the principal beneficiaries.

Then, the trust instrument further provides that the Settlor can replace the trustee, and the trust instrument also provides that the trustee can replace the principal beneficiaries. Now you have an irrevocable trust where the Settlor has expressly reserved the right to modify certain provisions of the trust, yet there are some provisions of the trust that the Settlor cannot, under any circumstances, modify.

Fueling this concern over the inflexibility of irrevocable trusts is the fact that back in the 1990's, most irrevocable trusts were set up to avoid the 55% estate tax on assets that exceeded $600,000 in value at death. Settlors of those irrevocable trusts almost never reserved the right to modify those trust provisions for fear that the "right to modify" would cause the trust assets to revert back to the estate of the Settlor.

But since we now have an $11.4 million estate tax exemption, and portability between spouses, married couples can exempt $22.8 million in assets from the estate tax. Moving assets out of the estate to avoid estate tax just isn't a concern any more.

Now, irrevocable trusts are established for a variety of reasons: yes, tax avoidance is one. But so is lawsuit protection, nursing home protection, and many other reasons. But you need to be very careful when you are attempting to take advantage of trusts and other legal strategies to gain these protections because the slightest alterations of wording can have adverse tax, creditor protection, and Medicaid eligibility consequences.

So, in summary, an irrevocable trust does not need to be as scary as it first sounds, due to the fact that you can reserve the right to modify certain provisions, but you will want to tread carefully.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Under What Circumstances Should You Give a Trustee the Discretion to Make Distributions to a Trust Beneficiary?

How much discretion should you give a trustee when you establish a trust for the benefit of one or more beneficiaries?

Trusts are set up for many different reasons. Sometimes people want to leave assets at their death to others, but they don't want the inheritors to receive the inheritance in one lump sum. Some people who leave an inheritance want to dictate what the inheritance is to be used for, and under what conditions they can receive it.

For example, let's say a grandparent wants to leave $150,000 to his grandchild. At the time that the grandparent is establishing his estate legal program through a Last Will or Living Trust, the grandchild is only six years old. So the grandparents is advised to leave the bequest in a trust for the benefit of the grandchild.

One decision the grandparent must make is who should be the trustee of this trust after the grandparent dies. Let's say the grandparent selects grandparent's child as the trustee.

And now the decision comes regarding when distributions can be made to or for the grandchild, from the trust, by the trustee.

When you establish a trust like this, you will make a decision regarding whether you want the trustee to have discretion or no discretion in making trust decisions.

If you choose to allow the trustee to exercise discretion in making distributions, you might include trust language that permits the trustee to make distributions to or for a beneficiary for the "health, education, maintenance, and support," of the beneficiary. This can work well when you have a trustee that you know will exercise that discretion in the best interests of the beneficiary. When you choose this option, you may believe that you don't know what future circumstances may bring, and you trust that the trustee will exercise their discretion in a manner consistent with your overall objectives. Perhaps you even communicate to your trustee during your lifetime how you would want the trustee to exercise their discretion.

On the other hand, you may wish to remove all discretion from the trustee, by providing something like, "I direct the trustee to distribute $1,500 monthly to the beneficiary until trust principal is gone."

Or, you might even get more restrictive by stating that the beneficiary must meet certain standards (GPA, no criminal activity, no drug use, etc.) before distributions can be made. However, the more restrictions you place in the trust, the more difficult it will be for a trustee to adapt to circumstances that may not have been able to have been contemplated at the time of the creation of the trust.

So, granting lots of trustee discretion allows a trustee to use their discretion in a manner that is consistent with your overall objectives, but it may create a situation where a beneficiary is badgering the trustee to exercise their discretion, so you'd need to designate a trustee that has the ability to say, "NO" to a beneficiary when appropriate.

Or, you may choose to eliminate trustee discretion by imposing specific restrictions in the trust that must be met for distributions to be made.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Five Reasons Louisiana Residents Take Advantage of the Legal Services of an Estate Planning Attorney

The following are five reasons that Louisiana residents (and anyone for that matter) take advantage of the services of an estate planning lawyer:

1. Protect your Children's Inheritance from Their Divorces. Yes, the moment your children inherit from you, the inheritance is separate property. But if they commingle the inheritance (accidentally or intentionally), the inheritance becomes community property. Then, when your child later divorces, your child loses half the inheritance. You can proactively take legal steps to ensure that your child's inheritance will always be your child's inheritance.

2. Avoid Probate. When you leave assets to your survivors through your Last Will and Testament, your survivors will be required to hire attorneys and go through what many perceive to be an expensive, time-consuming, and inefficient court-supervised probate/Succession procedure to gain access to your estate assets. You can proactively arrange an estate legal program to enable your loved ones to receive your estate without having to be burdened by these court procedures.

3. Protect Assets from Long Term Care Costs. If you must enter a nursing home with assets in your name, you will be forced to deplete those assets on your long term care expenses until you are left with less than $2,000 in your name. You can take actions ahead of time to protect them but stay in control of them. This is a huge problem for the middle class that most don't address until it's too late.

4. Put the Right People in Charge. Absent your direction, a judge will select someone to handle your finances, make your medical decisions, and oversee the distribution of your estate. You will want to control who makes the decisions when you are no longer able to make them for yourself.

5. Avoid Taxes. Most estates avoid the 40% estate tax, but virtually every family faces income and capital gains tax consequences when family assets are transitioned from one generation to the next. You can be proactive and minimize these tax burdens for your family.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

How to Keep Your Farm or "Family Property" in the Family for Future Generations

Many parents who have both children and grandchildren want to keep some of the property that they own so that their kids and grandkids can enjoy the property for many years to come. Perhaps the parents have seen how much their kids and grandkids enjoy the property.

However, when parents pass away and their property is left to children, property rules apply that may conflict with what the parents are trying to accomplish. Customizing the right legal program can ensure that one rogue descendant, or perhaps even the spouse of one child or grandchild, will not be able to mess up or destroy the family property that you'd want them all to enjoy.

First, let's look at some of the Louisiana laws that apply when multiple owners own real estate in Louisiana. Louisiana has a rule that states that no owner can be compelled to own property with another. When children inherit their parents' land, the children are considered "owners in indivision."

Anyone who owns an undivided interest in real estate in Louisiana, regardless of how big or small their ownership interest, can sell their ownership interest, or can force a "partition" of the property. The two kinds of partition are "partition in kind" and "partition by licitation."

When a piece of property is susceptible to being divided into lots, an owner can force a partition in kind whereby each owner would wind up with their own tract. Or, particularly if property is not susceptible to division into lots, an owner in indivision can force a sale of the property and the proceeds would be distributed to the co-owners in proportion to their ownership interest in the property.

Due to these rights that co-owners have, family property often gets sold eliminating future descedants from being able to enjoy the property.

Some owners of property think that by forming a limited liability company (LLC), the owners can keep the property in the family for generations. While owners of property should consider forming an LLC, and transferring their property to it, this is more of a "protection from lawsuits" vehicle than a "keep it in the family for generations" vehicle. Placing the property in an LLC and leaving membership interests in the LLC to your descendants won't prevent an owner/member from (1) selling or disposing of their LLC interest; (2) a member's creditor seizing their interest; or (3) giving or bequeathing their LLC membership interest to a non-family member.

These conversations about keeping property in the family for generations often turn toward creating a family trust. Parents would name a trustee or co-trustees (perhaps the "responsible" descendant") who will manage the trust assets for the benefit of all of the children and grandchildren. Backup trustees would need to be provided for since this trust may be in existence for many decades. Thanks to trust law, the descendants (trust beneficiaries) would not be permitted to sell, alienate, or mortgage, their interest in the trust, and the creditors of a beneficiary could not seize their interest in the trust.

Other issues to consider before pulling the trigger on something like this include the gift and estate tax, future Medicaid qualification, leaving funds to the trust to provide for ongoing management and expenses, and perhaps having the parents transfer the property (or their LLC which owns the property) to a revocable trust now (which trust would become irrevocable when the parents die) in order to avoid having the property go through a court-supervised probate proceeding when they pass away.

Every set of family circumstances is unique. You likely only have one "shot" to get it right. And the decisions that you make (or don't make) will affect your descendants for many, many years to come.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Pros and Cons of Leaving Everything to Your Spouse

When married couples engage in estate planning, one of the questions they often are required to answer is, "If I die before my spouse, do I want to leave complete ownership and control of my estate to my spouse?" Or, "Do I want to leave my estate to my spouse in a way that my children (or other heirs) are protected?"

Leaving all of your assets to your spouse is pretty easy to understand - when you die, your spouse owns everything. Maybe you are thinking that it is ok to leave everything to your spouse because you are confident that when your spouse dies, your spouse will leave it all to your kids. Or maybe you like the thought of leaving your estate to your spouse because your descendants circumstances may change after you die and you want your spouse to be able to leave the estate to your descendants the right way.

However, if you leave your estate to your spouse, your spouse "could" leave your estate to people other than your children, like your spouse's next spouse!

Some people want to leave their estate to their spouse in a way that their children or heirs are protected. The two common ways to do this are (1) in trust; and (2) via the Louisiana usufruct.

Leaving your estate to your spouse may be the best overall tax outcome, but it used to be the worst. In the old days, it did not make sense to leave your estate to your spouse because when you lumped your estate on top of your spouse's estate, it caused the spouse's estate to be subject to a 50% or more federal estate tax upon the death of the surviving spouse. But now, with an $11.4 million estate tax inclusion, and with portability (making it easier for married couples to exempt $22.8 million from the estate tax), rarely are couples penalized for leaving everything to each other.

The tax benefit that often results from leaving your estate to your spouse is that your heirs will benefit from a "double step up" in basis, for capital gains tax purposes. In community property states (like Louisiana) all community property gets a new stepped-up basis when the first spouse dies. And when you leave all of your assets to your spouse, all of the assets will get another step-up in basis when your spouse later dies. This can save considerable capital gains tax when assets are later sold, particularly if there is appreciation that occurs from the date of death of the first spouse to the date of death of the surviving spouse.

In addition, if you live in Louisiana, you are prohibited from leaving your entire estate to your spouse if you have forced heirs. Forced heirs are children of your that, at the time of your death, are 23 years of age or younger, or, are of any age but incapacitated.

Leaving assets to the surviving spouse is common for traditional families - one marriage and all children are from the one marriage. And if you really want to make it as simple as possible on your spouse when you pass away, consider establishing a revocable living trust and titling the appropriate assets in your trust. Assets in your living trust don't go through the court-supervised probate/Succession procedure, so having your assets in your living trust will prevent your spouse from having to hire lawyers and go through the courts just to get ownership of your assets after you die.

Other factors that are typically discussed when married couples engage in estate planning legal services include: who makes your decisions when you are incapable; protecting assets from long term care costs; and how will assets be managed and disbursed after both spouses pass away. These are all important components of any estate planning legal program.

Note also that if you have no legal plans in place, Louisiana laws won't do your spouse any favors. These laws will favor your descendants much more than your spouse.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

Designating Your Spouse versus a Trust for your Spouse as Beneficiary of your IRA

A common estate planning principle communicated by spouses who have children from prior marriages and relationships is, “If I predecease my spouse, I want my assets to be available for my surviving spouse’s needs, but when my surviving spouse dies, I want my assets to revert back to MY children.”

This can get complicated when the estate consists of Traditional IRAs, as many estates do. Let’s take the example of a Husband and Wife who each have two children. When H dies, his IRA is worth $1,000,000. In the year after Husband dies, Wife is 80 years old.  

When it comes to income tax planning and IRAs, most recommend to keep the IRA balance as large as possible, allowing an IRA owner to earn investment income on deferred income taxes. 

In this post we will discuss two strategies: (1) Naming the surviving spouse as the designated beneficiary of Husband’s IRA; and (2) Naming a trust (for the benefit of the spouse) as the beneficiary of Husband’s IRA. 

When a surviving spouse is the designated beneficiary of an IRA, the surviving spouse’s ability to roll over inherited benefits to her own IRA gives her a powerful tax-deferring option, not available to any other IRA beneficiaries. If the surviving spouse holds the IRA as an owner, her Required Minimum Distributions (RMDs) are determined using the Uniform Lifetime Table under which her Applicable Distribution Period (ADP) is the joint life expectancy of the surviving spouse and a hypothetical 10-years-younger beneficiary. If she withdraws only the RMDs under the Uniform Lifetime Table, the IRA is guaranteed to outlive the surviving spouse. And it’s likely that the IRA will be worth more in the surviving spouse’s late 80’s than it was when she inherited it at age 80. 

Let’s look at some numbers. Since Wife can use the Uniform Lifetime Table, her first required distribution the year after Husband dies (assuming a $1,000,000 IRA value) is $53,500 (5.35% of the IRA value). The next year her RMD is 5.59%. And the next year, 5.85%. If the investment performance of the IRA exceeds these distribution percentages, and she only takes the RMDs, the IRA will grow.  

The downside, however, is that since Wife is treated as the owner of the IRA, Wife can name whoever she wants as the beneficiary of beneficiaries of her IRA. She could exclude Husband’s children by naming Wife’s children, or perhaps even Wife’s new spouse that she married after Husband died! 

So instead of naming Wife as the designated beneficiary of Husband’s IRA, Husband considers naming a trust for Wife as beneficiary. The trust instrument might provide that RMDs go to Wife for her lifetime, but when Wife subsequently dies, trust assets revert back to Husband’s children. But since a trust was named as the beneficiary of Husband’s IRA, even if the trust qualifies as a “see-through” trust, RMDs after Husband dies will be based on the single life expectancy of the surviving spouse (Wife) which results in substantially less income tax deferral than would be available if the surviving spouse were named as the outright beneficiary and rolled over the benefits into her own IRA. 

Let’s look back at the numbers. If a trust for Wife is named as beneficiary of Husband’s IRA, the first RMD when Wife is 80 (based on the same $1,000,000 IRA) will be $98,000 (9.8% of the IRA value). At age 81, the RMD will exceed 10% of the account value. And each year, the percentage will increase. If Wife lives long enough after Husband dies, the RMDs based on the required single life expectancy table will cause most of the benefits to be distributed to Wife outright which will defeat the purpose of trying to protect those IRA assets for Husband’s children. 

So keep in mind that there are tradeoffs when it comes to naming beneficiaries of IRAs.

How To Amend or Modify a Revocable Living Trust

It is common for people, as part of the estate planning process, to establish a revocable living trust to provide for the disposition of trust assets outside of probate. Occasionally, people who previously established a revocable living trust want to amend or modify or revoke their trust.

Reasons why people would amend their revocable living trust include someone wanting to change the beneficiaries of their trust; someone wanting to amend how a beneficiary receives his or her portion or share; or perhaps changing the name of the Successor Trustee who is in charge of administering the trust after the death of the Settlor (the person who established the trust).

So, how do you amend or revoke your trust? Well, you must first look to the state law of the state that governs the trust instrument. The following is an overview of the Louisiana law applicable to modifying or revoking a trust.

What you should never do is pull out a pen and pencil and start marking on your trust. None of this will be valid. Most trust amendments or revocations in Louisiana are done by authentic act. An authentic act, generally, is a writing executed before a notary public and two witnesses, and signed by the person amending their trust, the witnesses, and the notary. Most trust amendments are done this way.

The Louisiana Trust Code also provides for modifying a trust by act under private signature, and also by testament. Even though Louisiana law provides for three different ways to modify a trust, most amendments are done through an authentic act.

Bottom line - don't try to amend or revoke a will or trust without getting some legal help from an estate attorney. Different rules apply to wills and trusts, and you must work with an attorney who understands all of this and helps you get it right the first time - there is too much at stake.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais

Louisiana Estate Planning Attorney

www.RabalaisEstatePlanning.com

Phone: (225) 329-2450

How To Keep Your Sons-In-Law and Daughters-In-Law Out of Your Estate

It's common for parents to want to keep their sons-in-law and daughters-in law out of their estate, for a variety of reasons. Common reasons include the fact that the in-law spends too much money; the in-law has their own kids; the in-law will inherit from their own parents and grandparents; some parents want to keep everything in the "bloodlines" because they inherited from parents and grandparents; others just don't like their in-laws; and others fear that their children will get divorced in the future and lose their inheritance.

Parents have several options when establishing an estate legal program. One option is simply leave the inheritance to the child - outright. Some parents reason that an inheritance is the separate property of the child so that should take care of it. However, inheritances that children receive are often, either intentionally or unintentionally, commingled with community property causing the inheritance to lose its separate property status.

A second option parents have is to leave their child's inheritance to a trust for the benefit of the child. If the parents name the child as the trustee, the child's spouse could exert influence over the child and force the child to take excessive distributions from the trust. But some parents tell me, "Let's leave it to a trust for our child and name our child as the trustee. If our child screws it up, so be it. We did what we could do to try to protect him without taking away his access to his inheritance."

A third option is to leave your child's inheritance to a trust, but name a 3rd party as the trustee of the trust - in essence restricting your child's access to his or her inheritance. By restricting your child's access to the trust, your are restricting your child's spouse from influencing your child to access the trust. You may even wish to name your child's children as the principal beneficiaries of the trust so that when your child later passes away, remaining trust assets would stay in the bloodlines benefiting your grandchildren. Your child's withdrawal or distribution rights become key components to this program.

There are many factors that play into how you leave an inheritance to your children. You must factor in the Louisiana community property law, the Louisiana Trust Code, laws which state that fruits of separate property are community property, family law, marriage contract law, and laws allowing spouses to sign a Declaration reserving the fruits of separate property as separate property.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

Disclaimer or Renunciation an Effective Post-Death Estate Planning Tool

Sometimes, believe it or not, it makes good tax or legal sense to formally refuse (also known as "disclaim" or "renounce") an inheritance.

Example: Dad dies and leaves assets to Mom. Mom doesn't need the assets and she wants to see the children enjoy their inheritance from their father. Mom might disclaim the inheritance.

Example: Mom dies leaving her estate to her two children. One child decides that he does not need the inheritance and decides to renounce and allow (due to Mom's governing documents) child's children to receive the inheritance. Disclaiming prevents the child from having to accept the inheritance and then give it away pursuant to federal gift tax annual exclusion limits.

Example: A Traditional IRA owner dies. The primary beneficiary decides that it makes more tax sense to disclaim her portion of the IRA and allow the IRA to pass along to the contingent beneficiaries because the taxable required distributions will be smaller to the contingent beneficiaries.

A "Disclaimer" is generally a federal tax term which allows people to formally refuse an inheritance. It prevents someone from having to accept an inheritance, and then donate it away. Particular disclaimer tax rules must be followed, including the requirement that the disclaimer be in writing, within nine months of death, and the disclaimant cannot accept any of the benefits of the disclaimed assets.

Renunciation is the Louisiana term for this. If a renunciation is to take place, it must do so in that window of opportunity after the date of death but before the disclaimant receives any assets or other benefit from an inheritance.

Disclaimer/Renunciation planning should be considered in many estate planning programs, both the post-death opportunities should be explored, and the incorporation of written disclaimer provisions in your governing will or trust legal documents as you put your estate planning legal program into effect.

One area where some get confused is that you cannot renounce an inheritance to get out of paying your debts or to get out of paying for the nursing home. Your creditor may accept your succession rights if you renounce them to the prejudice of your creditor's rights. And the Louisiana Long Term Care Medicaid Manual treats a renunciation as if you accepted the inheritance and then gave it away - triggering penalties for uncompensated transfers of resources.

Again, really important that you work with the right people to set things up the right way, the first time.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

Four Key Medicaid Rules Regarding Bank Accounts as Countable Resources

Many indviduals, couples, and families are concerned that a nursing home stay will cause them to deplete their life savnigs, and force them to lose their home to the State of Louisiana when they die due to the State's Estate Recovery Rights.

While it is important to take advantage of legal strategies to protect your estate from nursing home poverty at least five years before you wind up in a nursing home, it's also important to understand what you can and cannot own at the time one goes into a nursing home and applies for Louisiana Long Term Care Medicaid.

A single person can have no more than $2,000 of Countable Resources when they apply for Louisiana Long Term Care Medicaid. Bank accounts are a Countable Resource. This post takes a closer look at four key Medicaid rules regarding bank accounts as a Countable Resource for purposes of Louisiana Long Term Care Medicaid.

(1) 1st Day of Month. Medicaid counts the balance shown by your bank for the first moment of the first day of the month. Be prepared to furnish banking records.

(2) Encumbrances Deducted From Bank Balance. If you have written a check for a legal obligation, and that check has not cleared by the first moment of the first day of the month, the encumbrance may be deducted from the actual bank balance.

(3) Unrestricted Access ("or") Accounts. The Medicaid applicant is presumed to be the owner of all funds held in an "or" account.

(4) Rebutting the Presumption for an "or" Account. If the Medicaid applicant is not the owner of funds in an "or" account, the applicant can rebut the presumption of ownership by providing written and corroborating statements regarding ownership, withdrawals, and deposits, along with a change in account title or the establishment of a new account with only the Medicaid applicant's funds.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450

Prohibited Substitution in Louisiana Last Will is Null

The Prohibited Substitution estate planning rules in Louisiana are a trap for the unwary. When someone writes a Louisiana last will and testament, or a trust, in a way that it contains a prohibited substitution, then the bequest is null.

So, what is a prohibited substitution? Well, here's an example of a provision in a Will that would be interpreted as a prohibited substitution, "I leave ownership of X to Person 1. I require that Person 1 preserve X and, when Person 1 dies, I require that Person 1 leave ownership of X to Person 2."

You cannot donate or leave something in full ownership to one person with a charge to preserve it and deliver it to a second person at the death of the first person. You would be depriving the first person from the power of testation.

A prohibited substitution might be something that I'd see in an olographic testament. Some people attempt to write their own wills in their own handwriting, but they mess up the provisions of the Will. People in Louisiana sometimes argue that they can write their own valid will, but they often fail to realize that the wording that they put in their will can make their loved one's lives miserable.

A prohibited substitution is null - it's as if it was never written. The bequest to the first person is not even valid.

There are a couple of alternative you can use if you want to leave an asset for the benefit of someone, and then when that someone dies, have the asset pass along to another someone. One way to do this is to use a trust - check with your estate planning attorney to help you do this the right way. Another option that might be feasible is to leave usufruct of an asset to someone, and name the naked owner to receive the asset at the termination of the usufruct. Again, check with your estate planning attorney to make sure that you understand the pros and cons of leaving things in trust or in usufruct.

This post is for informational purposes only and does not provide legal advice. Please do not act or refrain from acting based on anything you read on this site. Using this site or communicating with Rabalais Estate Planning, LLC, through this site does not form an attorney/client relationship.

Paul Rabalais
Louisiana Estate Planning Attorney
www.RabalaisEstatePlanning.com
Phone: (225) 329-2450