Louisiana Inheritance

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

What If Heir Refuses To Accept Inheritance Of Money or Item?

Occasionally, for unfortunate emotional or relationship issues, there is an heir of an estate who refuses to accept either the inheritance of money or the inheritance of a specific item. This can cause the probate or Succession to come to a screaching halt, causing delays and expense for everyone involved.

While it is not uncommon for an heir to formally "disclaim" an inheritance for a variety of reasons, such as income, gift, or estate tax reasons, it is uncommon for someone to fail to communicate even though a small amount of communication could result in a financial windfall for the individual.

Louisiana Succession law has a procedure to address this. If an heir refuses to accept and sign a receipt for an inheritance of funds, then, after a hearing, the court may order an executor to deposit the funds in either a state or national bank, or in the registry of the court to the credit of the person entitled to the funds. A receipt showing the court that the deposit was made is sufficient to allow the executor to be discharged.

If an heir refuses to receive an item (called in Louisiana, a "corporeal movable"), then the court may direct the executor to make some other disposition of the item.

It is worth noting that this same thing can happen when a trust beneficiary refuses to accept a distribution of trust principal. While our trust code does not specifically address this issue, it would make sense that these funds sit in a trust account for the benefit of the refusing beneficiary, or perhaps the trustee could petition the proper court for some direction.

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

Child Dies Before Parent: What Happens To Estate?

Typically toward the end of the estate planning conversation, a client asks the question, "What would happen to my estate if my child dies before me?"

There are a few different components to this question. First, if a Louisiana resident dies with no legal planning in place (no last will means they died "intestate"), then state law determines who gets what. For example, let's say Dad dies. Two years earlier, Daughter died. Daughter left three children. If Dad died intestate, Daughter's three children would inherit the portion that would have gone to Daughter. Daughter's three children "represent" their mother in Dad's Succession.

Now, let's say, Dad left a Will or a Trust when Dad died. Now, the estate planning legal documents Dad signed control what happens to Dad's estate. Most estate planning documents have, as a default provision, a statement that says that if a child predeceases a parent, then the child's share will go the child's children. However, when a person is putting an estate legal program in place, they can direct their estate as they wish. Many parents express that if their child predeceases, they do not want the child's share to go to the child's spouse or the child's step-children. Or some grandparents have grandchildren that have substance abuse problems and the grandparents do not want to dump an inheritance into a grandchild's lap. So, it's important to address these contingencies as you create your estate legal program.

What you can't do, however, is leave an inheritance to a child and then direct what happens to that inheritance when the child later dies. Once you leave an inheritance to someone (such as, a child), the inheritance belongs to the person who you left it to. You cannot control what they do with it. However, by leaving an inheritance in trust you may be able to exercise more control over what happens to the inherited assets after you pass away.

Nine Elements of a Louisiana "Avoid Probate" Estate Legal Program

Many seniors in Louisiana express a desire that their family and loved ones avoid the court-supervised probate process when they die. Because every family is unique and each person or couple owns different types of assets, it's important that they have a foundation for their Program. The following is a description of nine different elements of the Louisiana "Avoid Probate" Estate Legal Program.

(1) Revocable Living Trust. Their Revocable Living Trust ("RLT") is the foundation of their program. This is the customized legal instrument where you state who is in charge of your trust when become incapable or when you die, who will inherit or receive distributions from your trust after you die, and it will also state the rights and obligations of all of the parties that are involved. Your RLT really replaces the traditional "Last Will and Testament." The disposition of your trust assets are controlled by your trust instrument, not your Last Will and Testament.

(2) Pour-Over Last Will and Testament. If you happen to own any assets in your name when you die, and the title of which becomes frozen when you die because they are in your name, your Pour-Over Will is necessary. The executor of the WIll, after your death, will hire an attorney and go through the court-supervised Succession procedure to have those assets in your name transferred to your trust. Note that many people who set up an "Avoid Probate" Legal Program never need to utilize the Last Will because all assets will be titled in a way making the Succession unnecessary. "Funding" your trust (or re-titling your assets) is a critical step in the process so that nothing is left in your name when you die that would require a judicial proceeding.

(3) Durable Power of Attorney. This can also be referred to as Financial Power of Attorney, General Power of Attorney, or POA. An example of when this may be needed is when you are incapacitated and there is an IRA in your name and you are unable to transact the IRA due to your incapacity. Your POA should enable your "Agent" to act on your behalf at the financial institution where the IRA is held.

(4) Health Care Power of Attorney. Also called a Medicaid Power of Attorney or Health Care Proxy. This will enable your trusted family member or friend ("Agent") to talk to doctors and access your medical records in the event you are unable to do this yourself.

(5) Living Will Declarations. This is the legal instrument where you make your wishes known regardling life support machines. People who execute Living Wills typically want to relieve their family from the burden of making an end of life decision by putting their wishes on paper, in advance.

(6) Asset Transfers. All of your funding and re-titling documents should be organized in the Asset Transfers portion of your Estate Legal Program. This is where transfers of real estate, investments, and business interests are documented.

(7) Burial and Funeral Wishes. Part of completing your Estate Legal Program may involve informal documentation of your wishes regarding certain aspects of your passing, such as your burial and funeral wishes. 

(8) Distribution of Personal Effects. Some people provide for the distribution of their non-titled personal effects (jewelry, furniture, guns, etc.) in their formal legal documents. Others take a simpler approach and make an informal list of how they want their personal effects disbursed. Check with your attorney regarding the best way to provide for the distribution of your personal effects.

(9) Trustee Education. Since the establishing of an estate legal program may be new to you, your attorney should provide both you and your Successor Trustee(s) with education and instructions as to how to best serve as a Trustee of Co-Trustee. 

While every client is different, with different needs, this should give you a pretty good example of what the typical estate planning program consists of. Now go take care of business!

Paul Rabalais
www.RabalaisEstatePlanning
Law Offices: All over South Louisiana
Phone: 866-491-3884

Louisiana Usufruct and Long Term Care (Nursing Home) Medicaid

We get lots of questions about whether people who own the Louisiana usufruct can qualify for Louisiana Long Term Care Medicaid benefits.

So I'm sharing information today with you from the Louisiana Medicaid Eligibility Manual regarding usufruct and Medicaid.

When someone who owns a usufruct is in a nursing home and attempting to qualify for Medicaid, the first thing you want to determine is whether their usufruct is over a consumable or a nonconsumable. 

If the person owns a usufruct of a consumable, such as money, certificates of deposit, promissory notes, bank accounts, etc., then the entire amount of the asset's value is a Countable Resource. So, if Dad died leaving Mom the usufruct of a bank account that had $200,000 in it when Dad died, then the entire amount is considered a resource of Mom. Some people mistakenly believe that since there are naked owners (typically, the children), that Mom does not have to consume these assets in the nursing home.

If the usufructuary owns the usufruct of a nonconsumable item, such as land, houses, shares of stock, etc., then the value of the usufructuary's usufruct must be determined by a Medicaid table that factors in the usufructuary's age. So, for example, if Dad died and left Mom the usufruct of a piece of land worth $100,000, and Mom is 80 at the time of her Medicaid application, then the table indicates that Mom's usufruct is worth 43.659% of the asset. So, by Mom owning the usufruct of a piece of land worth $100,000, she has a Countable Resource valued at $43,659. This is a problem for Mom. Perhaps she will need to sell her usufruct for this amount and then consume all of that money before successfully qualifying for Medicaid.

The problem here is that there is little that can be done at the last minute to solve this problem. But there's lots that can be done if you act early (ideally, at least five years before entering the nursing home. 

Find this helpful, go LIke our law firm's facebook page at Rabalais Estate Planning, LLC, and discover lots more.

What Estate Related Matters Need To Be Addressed When Wealthier Parent Dies?

I was working with an older, wealthier client yesterday and the husband asked if we could prepare a list of what their survivors would need to address after they pass away. 

Every circumstance is unique but in this matter, the following are a few of the things that will need to be addressed when wealthier Louisiana parents pass away.

If the husband left assets to others through his last will and testament, a Louisiana Succession will be necessary. There may also need to be an Ancillary Probate in other states if he owned real estate in a state outside of Louisiana. If he and his wife had created a Living Trust, then no Succession will be necessary if assets are titled in the name of his trust when he dies.

He will likely have left assets either in ownership, or in usufruct, or in trust, for his wife and kids. Assets will need to be retitled into the proper form (such as into a Usufruct account or in trust). 

There may be a federal estate tax return that must be filed (even if no federal estate tax is due after the first death) within 9 months from the date of death. Both the terms of his estate legal documents, and the moves his family make are likely to have income tax and capital gains tax consequences. Good help here can save a ton.

After the surviving spouse dies, it is likely that one or more of the adult children are named as executors or trustees. If the surviving spouse left assets to the kids through her last will and testament, another Succession (and Ancillary Probates in other states) must happen. If the surviving spouse had assets titled in the name of her trust, the successor trustee (typically one or more of the kids) can disburse assets from the trust to the beneficiaries immediately, skipping the court-supervised Succession.

Estate tax returns may need to be filed, and estate tax may need to be paid. The children should get good help making sure that they inherit IRAs and other assets the right way so that taxes are minimized or avoided on the distribution or subsequent sale of inherited assets.

Don't make the mistake of asking for help after you've made a mistake that you can't undo. If you need help, call our office at 866-491-3884.

How a Surviving Spouse Owns Home After Inheriting the Intestate Louisiana Usufruct

Whenever a Louisiana married resident dies owning a home with their spouse, and they pass away without ever having signed a Will or Trust (they died "intestate", issues always arise.

I was working with a surviving husband whose wife had died a few weeks earlier. The surviving husband really wanted to own their home. He said that he may want to sell it in the upcoming months or years, he may want to create a home equity line of credit, and he also said that while he has no plans for remarriage, he would want to be able to provide a roof over a new wife's head if he dies before her.

When he came into my office he told he that she had never signed a WIll. He "assumed" that he would own the house since they bought it together and it was paid for. But his assumption was false. I had to tell him that since his wife passed away without any estate legal program in place, that he would continue owning his "one-half" of the house, and that he would be inheriting the "usufruct" of his wife's half of the home until the earlier to occur of his death or remarriage. I further told him that their children would inherit the "naked ownership" of her half of the house.

Some Louisiana folks mistakenly believe that when a married person dies without a Last Will, then half of the deceased's half would go to the surviving spouse, and the other half of the deceased spouse's half would go to the children. But this is an incorrect assumption.

The husband asked me how in the world could he get ownership of the house solely in his name. I told him that we would need to complete his wife's succession first. The succession will require that the home be re-titled so that their children are naked owners of his deceased wife's half of the home, and the surviving husband would own the usufruct of her half until he died or remarried.

Then, his children will sign the necessary paperwork to donate their naked ownership interest back to their father. This would enable the surviving father to have "full ownership" of the home. He needed the children's cooperation to obtain full ownership but the children were completely supportive of the concept of their father owning the home that he had acquired and paid for.

In order to avoid sticky situations when a family member or loved one passes away, it always makes sense to take care of this ahead of time and create an estate legal program that makes settling your estate easier and the right way.

If You Don't Want To Leave A Windfall

I was working with a couple recently that had done well during their lifetime, and they wanted to benefit several people and family members when they were gone. But they specifically stated that they did not want to leave people a "windfall."

They were leaving a significant sum to a number of different people but they told me that they wanted to leave these people, "5% each year so  they get it over 20 years."

Now I've seen many trusts written in a way so that it says that the beneficiaries get 5% per year. But this is not often the intent of the person establishing the trust.

In short, of the beneficiary gets 5% of the trust principal each year, then the principal will never fully be paid out. Instead, trusts often should be drafted in a way so that the beneficiary receives a fraction of the trust distribution each year. For example, in the first year, the beneficiary receives 1/20th of the trust principal. In the second year, the beneficiary receives 1/19th of the balance of the trust principal. In the third year, the beneficiary receives 1/18th of what's left, and so on and so on. This formula provides for generally equal distributions of all trust principal over a period of 20 years.

There is an unlimited number of ways that you can leave an inheritance to an heir without them getting a "windfall" that they would blow. This is just one method. You just need to make sure that the trust language is consistent with your intentions. 

If you live in Louisiana and want to simply start a conversation about protecting your estate, call our toll-free number at 866-491-3884.

Louisiana Succession With Land, a Mobile Home, and Bond Mutual Funds

Working with a really nice family getting their parents' Successions completed. Met with all of the children a couple of times as we developed an efficient plan for getting everything done. The parents' had Wills essentially leaving everything to the children equally. The Wills named two of the children as the co-executor. After going through quite a bit of information and discussion, our firm will be leading them through the Succession process that will look something like this:

  1. Step One - Confirmation of independent executor. We have already prepared, and all of the heirs have already signed, the initial court paperwork to get the executor "confirmed." Since the Will was written prior to 2001, we had to get all of the heirs to sign this paperwork. As an independent executor, the executor can take certain actions without having to get a judge's approval first.
  2. Step Two - Estate account. Once the executor is confirmed by the court as the independent executor, the clerk of court will issue "Letters of Independent Executorship." The executor will then take these "Letters" to the brokerage firm and establish an estate account at the brokerage firm. The parents' brokerage account is currently frozen. But with the Letters, the brokerage firm will be required to establish an estate account and move the investments from the frozen brokerage account into the new estate account.
  3. Step Three - Managing the estate account. Expenses of the estate will be paid from the estate account. The family decided to sell the investments in the estate account so that cash will be readily available to pay expenses and ultimately, distribute to heirs. The refund check from the nursing home that is payable to "Estate of....." will be deposited into the estate account. The proceeds of the sale of the mobile home will be deposited into the estate account.
  4. Step Four - Detailed Descriptive List of Assets and Debts. Our office will prepare the required Detailed Descriptive List of Assets and Debts that the court must have before assets can be distributed to heirs.
  5. Step Five - Judgment of Possession. Our office will obtain the necessary court Judgment which orders third parties to transfer assets to the four heirs. A certified copy of this judgment will be recorded in the parish where the family owns land - this makes the heirs the new owners of the property. After expenses of the Succession are paid, the executor will distribute remaining funds in the estate account to the heirs, equally, in accordance with the Last Will of the parents.

There you have it. Often glitches appear when settling an estate and it's likely that "stuff" will pop out of the woodwork as we work on this, but wanted to give you an idea of a few of the steps that are involved in completing a Succession.

Let me know if a loved one has passed away, and the heirs want a simple and expedited process for getting all matters settled.

Lafayette,Louisiana Family Benefits From Dad's Estate and Medicaid Planning

I've been working with a Lafayette area family lately. Dad has his home, his life savings, and a couple of other pieces of property, and he wants to make sure his kids get it when he dies. His biggest threats to his children, as he sees it, are:

  1. Losing the assets due to a long-term care nursing home stay;
  2. Taxes; and
  3. Probate

A large part of his life savings is tucked away in his Individual Retirement Account (IRA). He also has investments held in an account that is not an IRA, and he has some money in bank accounts.

He realized that his IRA is threatened. He knows that any distributions from the IRA during his lifetime or after he dies will be subject to income tax to the recipient of the distribution. He was questioning whether taking required minimum distributions each year was the smartest way to handle his IRA. Here's what he said:

"If I just keep taking my required distributions, then I will pay tax on those distributions and the remainder of my IRA will continue to grow tax-deferred. All of the future growth will be ordinary income to whoever receives a distribution and those distributions in the future could be taxes at a rate as high as 40%, particularly if they go to my kids. Plus, if I go to a nursing home, I will be forced to take large distributions, pay the income tax, and then spend the remaining amounts on my nursing home expenses."

Then he asked:

"Wouldn't it be better if I took larger distributions that the required distributions, pay the tax, and then place the after-tax proceeds in a special trust account where it will be protected from my future nursing home expenses? Oh, and since the trust is a Grantor Trust, any future appreciation of my investments after I take it out of the IRA will passtax-free to my kids due to the step-up in basis that they will enjoy when they sell the assets after my death?"

His analyses appears to make a lot of sense. Most people are encouraged to keep every penny that they can inside their IRA. I'm not saying that's wrong every time, but as long as the investments grow inside the IRA, then a big chunk of each distribution will go the IRS. If the IRA goes ahead and takes distributions faster than required, and pays the tax on those distributions, then future appreciation would escape taxation due to the step-up in basis. Plus, if the IRA owner takes distributions and places those funds into the right kind of trust, then there is the added benefit of being protected from future nursing home costs.

Anyone who has an IRA and is concerned about future taxes and about losing the IRA to nursing home expenses, should have a conversation with an estate planning attorney who understands not only the estate tax, but the income tax and capital gains tax consequences of taking minimum distributions versus taking distributions larger than the minimum required amount.

Give us a call at 866-491-3884 to start a conversation about how to protect your IRA from the government. Don't wait another day. Every day that you wait could be costing you and your family!!!

Seven New Louisiana Estate Matters That Walked Into Rabalais Estate Planning During The Last Two Days

I have been fortunate to have seven different families, from Metairie, Baton Rouge, Shreveport, Gonzales, and Zachary. ask me to help them with various estate matters over the last two days. Each family has a different situation and a different concern, so I thought I'd give you a general overview of their problems and how we are solving them so that if you have a similar problem you will know that you are not alone and there is someone that can help who has helped others in similar situations.

Here are the seven different situations that families have retained me in the last two days to help them:

  1. Mom's Investment Account Frozen. A gentleman came and met with me two days ago. His mother had passed away and, as a result, her investment account was frozen. Mom and the son had the same investment advisor. The investment advisor suggested that the son come see me so that we could complete the probate (also known in Louisiana as "Succession") to obtain the necessary court orders which will allow the family to have access to Mom's currently frozen investment account.
  2. Want To Protect Each Other and Teenage Child. A couple came in that had been referred by another financial advisor. The couple had a teenage child and wanted to make sure that their "legal affairs were in order" because they had done no estate legal planning in the past. We will be setting up an estate legal program for this couple to make legal matters easy or nonexistent when one spouse dies, and then making sure that guardians and trustees are named for their minor child should something happen to the parents before the child is an adult.
  3. Couple With No Children. Working with a couple that has been married for decades with no children. They have some pets that are important to them. We will be setting up an estate legal program so that when one of them dies, matters will be under the continued control of the surviving spouse, and that after they both pass away, funds will be set aside for the care of their pets, with the remainder of their estate being divided among four charitable causes that they care deeply about. Nice and fun couple - organized too!
  4. Blended Family. Working with a couple each of whom was in their second marriage. They each had one child. The children lived geographically far apart and had not spent much time together. The couple wanted to make sure that protections were in place for each other so that when one dies, there is no interruption from the children, and then when both spouses die, things are in place for the two children to inherit outside of probate and other court legal proceedings being necessary. Another really nice couple.
  5. Protect Mom's Money From Nursing Homes. Working with a family where Mom is currently residing in an assisted living facility. The family realized that all assisted living facilities in Louisiana are private-pay, but they are worried that if Mom's conditions worsens, Mom will have to move to a skilled nursing facility and be forced to spend $6,000 monthly or more on her care.  We are setting up a legal plan for the family so that Mom's money will be protected if she has to reside in a nursing home in the future. Plus, probate will be avoided when Mom dies.
  6. Execute Will. I wrote a Will for a woman many years ago. She passed away recently. I met with the family and they retained us to execute Mom's Will and complete Mom's Succession so that the home and Mom's CDs, and the vehicle, could be transferred 100% into Dad's name. We are also updating all of Dad's estate planning legal documents because he wanted to change how things would be disbursed upon his death.
  7. Plan For Two Children. Now working with a gentleman who contact me after "watching some of my videos and reading some of my blog posts online." He has a rather large estate, much of it in real estate, and he wants to make sure that it goes to his two children the right way and he wants it to be easy for his two children to inherit the property. We also had some discussions about capital gains tax and estate tax to make sure that his children would avoid as much tax as possible as this property gets transitioned to the next generation.

While many people think that estate planning is the same for everyone, you can see from reading these seven examples that every family and every individual has a unique situation that requires unique solutions. If you have an estate that you want to protect for your family, feel free to give my office a call at 866-491-3884 to start a conversation about the easiest ways to protect what you have for your loved ones.

Paul Rabalais

 

Importance of Documenting the Accounts in a Louisiana Succession After the First Spouse Dies

We started working on a Succession today out of our Baton Rouge office. The wife had passed away. Her husband was talking to me about helping the family get the Succession complete. The couple had been married for about 20 years, but they each had children from their prior marriages. The deceased wife had two children. The surviving husband had three children. The husband said that, for now, the relationships were good between himself and the two sets of children. He was hoping that the fact that his wife's estate needed to be settled would not harm the relationships among all of the parties involved.

Usufruct To Spouse - Naked Ownership To Children

We discussed how her wife left a Will leaving him the lifetime usufruct of her estate, and she named her two children as the naked owners. He stated that he wanted his three children to inherit his estate when he dies.

He brought in a list of all of the various bank accounts and investment accounts. They had about five bank accounts, an investment account at Fidelity Investments, and they owned a home worth about $500,000. We discussed how important it is now to fully document all of the bank accounts, investment accounts, debts, credit card balances, funeral expenses, and medical bills outstanding, because when the husband later dies, the children of the two spouses will look back to how the assets were listed when the first spouse dies to determine who inherits what after the surviving spouse dies.

I gave the husband an example. I said, "Let's assume that the two of you owned bank accounts totaling $200,000 when your wife died. Let's also assume that the two of you had credit card and home equity debt of $40,000. Further, let's assume that there were $15,000 of funeral expenses. What all of this means is that when you die, your estate will owe your wife's children $65,000."

Usufructuary Accounting

He asked me how I came to that calculation. So I said, "Well the $200,000 of bank accounts are community property so you each own half of those accounts. As the usufructuary. you own your half of the accounts, and your estate will owe your wife's children her half of the accounts when you die. So, let's start with the fact that you will owe her children $100,000. Now, since there was $40,000 of community debt, your wife's share of that is $20,000, and you can deduct $20,000 from what you owe her children. And since there were $15,000 of funeral expenses, you can also deduct that amount from what you owe. So, $100,000 minus $20,000 minus $15,000 totals $65,000. That's the amount your estate will owe your wife's children when you die."

Then, we started talking about their home. The surviving husband said he intended to sell the home in a few months and move into something smaller. So I gave him another example regarding their home. I said, "Let's say you sell the home in six months for $520,000. At that moment, you converted a nonconsumable (the home) into a consumable (cash). If you sell the house for $520,000, you will get to keep all of the money, but upon your death, your estate will owe your wife's children $260,000 (one-half of the sales proceeds). 

The mistake many families make is that even though money typically does not go to the children upon the death of the first spouse, it is critical to properly document the assets as part of the Succession process. If things are accurately documented in the Succession (also known as "Probate") when the first spouse dies, it will make it much easier to accurately divide the assets after the surviving spouse dies. Shoddy records after the first spouse's death will likely lead to estate settlement disputes after the surviving spouse dies because the families will often have to "guess" at what assets and accounts existed years earlier when the first spouse died and there are no longer records from years earlier.

Louisiana Statewide Succession and Estate Planning Legal Services

If you want to set up an estate legal program and you live in Louisiana, whether you live in Baton Rouge, Covington, Metairie, Lafayette, Lake Charles, Shreveport, Monroe, or Alexandria, or if you've lost a family member and you want to make sure that the estate settlement is handled the right way to avoid disputes, now or later, among family members, give our Louisiana toll-free number a call at 866-491-3884, and we will be happy to have a conversation about how easy it is to do it the right way, the first time.

What Happens If I Set Up a Trust For My 30 Year Old Child - and Then My Child Dies?

I was working with a couple from Lake Charles, Louisiana, on their estate planning legal program. For estate tax avoidance purposes, they wanted to set up a trust for their 30 year old child, who lives in Baton Rouge. Assets in this trust will not be part of the couple's estate when they die.

Their 30 year old child was not responsible with money, but he was getting more mature by the years. But the parents did not just want to dump a big sum of money in their child's lap - for him to blow. They decided that the trust should stay in effect until their son is 55 years old, at which time he can have the trust assets put into his own name. When we were discussing other terms of this irrevocable trust, they asked me a question.: "Paul, what if our son happens to die unexpectedly while this trust is in existence for him?"

I told them, "It depends. Does your son have children?" Why did I ask them if their son had children? Because the Louisiana Trust Code provides guidance on your right to re-direct the trust assets of the trust if the beneficiary dies prior to the termination of the trust.

The couple told me that their son did not presently have children, but that he had a serious girlfriend and would likely get married in the next couple of children.

So, I told them, "If your son dies while this Louisiana Trust is in existence for him, and he does not have children (or grandchildren), then you can determine where the trust assets go if he dies before he turns 55 years old. The couple indicated to me that if their son dies with no children, the couple would then want the trust to be for the benefit of four nieces and nephews they had.

But then I said, "If your son dies while this trust is in existence for him, and he DOES have descendants, then his interest in the trust will be in his estate and will be for his heirs. Although you do have the authority to shift the trust principal to one or more of his descendants, under these circumstances where he dies with descendants.

I verified all of this by double-checking the relevant provisions of the Louisiana Trust Code, in this case it was Title 9, Section 1973, which was revised by the Louisiana legislature in 2016.

If all of this sounds confusing, don't be alarmed. It is confusing. So if you want to set up a Louisiana estate planning legal program so that what you own goes to your family, the right way, the first time, and protected from government interference, then you may want to call our estate planning law firm at 866-491-3884 and ask to set up a time to start a conversation about how to leave your estate to your family.

 

How To Complete the Probate of a $1 Million Louisiana Estate

I've handled many Louisiana Successions over the last 25 years. Every one is different and there can be many different ways to "skin the cat." But I want to give you an overview of what typically is involved when a "typical" one million dollar estate is being probated in Louisiana.

First, some terminology - Probate or Succession. When someone dies with assets in their name in the United States, it is up to our government (the judicial system) to see to it that those assets are managed properly and then ultimately transferred to the rightful heirs after all applicable delays and court costs, attorney fees and other administrative expenses have been taken care of. The fact that the government must oversee this is the topic of another discussion.

All other states, except Louisiana, call this court-supervised process "Probate." In Louisiana, it is also commonly referred to as a "Succession." For purposes of this discussion, I will call this procedure in Louisiana - "Probate."

So let's look at an example. Dad died years ago leaving everything to Mom. Now, Mom just passed away three weeks ago. Mom lived in Louisiana when she died. Mom had previously signed a Last Will and Testament ("Will") leaving her entire estate equally to her three children. She named her oldest child ("Sonny") as the executor of her Will. When Mom died, she owned a home worth $300,000, bank accounts valued at $100,000, CDs valued at $200,000, an IRA valued at $150,000, a separate stock account valued at $100,000, an annuity valued at $50,000, US Savings Bonds valued at $50,000, a vehicle valued at $20,000, and other personal effects valued at $30,000. Mom also had a few debts. Mom has two credit cards (each with a $5,000 balance). There are ongoing insurance and maintenance expenses associated with the house. Mom's daughter, Sissy, paid the $10,000 funeral expense out of her own pocket.

So, here are the typical steps involved in settling this million dollar estate.

  1. Attorney For The Children. Generally, each child must have an attorney since all of the children are participants in this court proceeding. For purposes of this situation, let's assume that all of the children are represented by the same attorney. All communications with the attorney will be with all of the children present. There is no conflict between any of the children. If there is any conflict among the children, then different children will have different attorneys and the proceeding will likely move much slower through the court system - in fact, many contested probates never wind up getting fully resolved.
  2. IRA and Annuity. Let's assume that Mom designated her three children as the equal designated beneficiaries on the IRA and the annuity with the particular financial institutions. If so, then the three children can apply directly to these financial institutions to get their benefits. We'll talk taxes later, but the beneficiaries will include distributions they receive from Mom's IRA as taxable income, and they will also have to pay income tax on the gain that was recognized inside of Mom's annuity.
  3. Get Sonny Confirmed as Independent Executor. Court pleadings will be prepared, signed, and filed at the courthouse to open the Probate and to petition to be confirmed as the Independent Executor. Let's assume Mom's Will not only designated Sonny as the executor, but she authorized him to act as an Independent Executor. It is critical that Sonny be confirmed as the Independent Executor so that he can start to gain access to Mom's accounts, pay bills on behalf of the estate, and perhaps sell estate assets that need to be sold. When the judge signs this first court order, the clerk of court will issue certified copies of the "Letters of Independent Executorship."
  4. Open Estate Account. Once Sonny receives the court-issued Letters of Independent Executorship, he will go to a bank and open an Estate Account. Sonny cannot open an estate account until he has these "Letters."  Let's assume he opens the Estate Account at the same bank that Mom used. The bank will open the Estate Account and they will transfer Mom's frozen bank account funds and her frozen CD funds into the estate account. There will be no penalty for early surrender of the CDs when the bank transfers the funds out of Mom's CDs into the Estate Account.
  5. Detailed Descriptive List of Assets and Liabilities. The family provides information to the attorney regarding the specifics of Mom's assets and debts when she died. The court requires that a detailed listing of all assets and debts be filed into the court record before a judge can authorize a distribution of estate assets to the heirs.
  6. Separate Stock Account. The children talked and decided that since they have no emotional attachment to the stock that Mom owned, it would be best to sell the stock and divide the proceeds of the sale among the children. Sonny, armed with his Letters of Independent Executorship giving him authorization to sell estate assets, sells the stock. The check from the sale is made out to: Estate of Mom. Sonny deposits this check into the Estate Account at the bank.
  7. Mom's Home. Since all three children have their own homes, the children agree that it would be best to sell the home. The children quickly clean out the house and Sonny, as the Independent Executor, gets with a realtor to list the home for sale. Two months later, they find a buyer to buy the house from the estate. Sonny attends the closing. The check for $300,000 produced at the house closing is payable to "Estate of Mom." Sonny deposits these funds into the estate account.  There is no tax on the sale of the house because, even though Mom and Dad purchased the home years ago for $120,000, the children will enjoy the "step-up in basis" at Mom's death. Since the new basis is the value of the home at Mom's death, and since there is no better way to determine fair market value than what a willing buyer and willing seller agree to shortly after death, it is fair to say that the basis was the sales price ($300,000). So, there was no capital gains tax to be paid upon the sale of the home.
  8. U.S. Savings Bonds. When Mom died, she owned 87 U.S. Savings Bondsthat were valued at $50,000 when Mom died. Mom had originally paid $33,000 for these savings bonds. The children decide to keep things simple by selling all of the bonds. Sonny goes through the process of selling all of the bonds, as the Independent Executor, and depositing those proceeds into the Estate Account. Income tax will have to be paid on the difference between what the US Savings Bonds were sold for ($33,000) and what they were sold for ($50,000). This taxable gain is $17,000.
  9. Mom's Vehicle. The children decide to sell Mom's old Lincoln. Sonny sells the vehicle. The check is payable to Estate of Mom. Check deposited in Estate Account.
  10. Personal Effects. The children get together at Mom's home shortly after Mom died and, informally, agreed on how Mom's personal effects are to be divided. Perhaps Mom may have even communicated to the children, or made an informal list of instructions, regarding her personal effects. Since these personal effects are not "titled," like an account or a piece of property is, the children are satisfied with their own personal division of personal effects. The attorney does not have to get involved in this aspect of settling the probate.
  11. Paying Estate Bills. Sonny will use the funds in the Estate Account to reimburse Sissy for the funeral expenses she incurred, and Sonny will also use the Estate Account to pay off Mom's credit cards, and to pay house maintenance expenses of the home from the time Mom died until the house is sold. Sonny may very well be required to prepare and file a final income tax return for Mom, which will be due April 15 of the year after Mom died.
  12. Executor Fee. As executor, Sonny is entitled to an executor's fee of 2.5% of the Succession Assets. Sonny does the math and concludes that he is entitled to an executor's fee of $25,000. Sonny has a decision to make: Does he collect the $25,000 executor's fee from the estate (he will pay income tax on this amount because he is being compensated for the services he rendered). Or does he waive some or all of the fee and allow the three children to simply inherit the estate assets one-third each without income tax consequences.
  13. Estate Tax. No federal estate tax is due because the value of Mom's estate is less than the applicable estate tax exemption of $5.45 million. No Louisiana Inheritance Tax is due because Louisiana no longer has an inheritance tax. We discussed above income tax consequences to the children's receipt of the annuity and IRA and US Savings Bonds.
  14. Judgment of Possession. Finally, a judge signs a Judgment of Possession which may close the estate and order that all remaining estate assets be transferred to the three children equally. Sonny, as executor, may want to hold back a sum of money just in case bills come in after all of the funds would have been otherwise distributed.

There you have it. While every Louisiana Succession or Probate is different, this is just one example of things that occur during the legal proceedings related to settling a $1 million dollar probate. Actually, the procedure would be the same whether the estate was worth $200,000 or $4,000,000.

If you have lost a family member, and you want to work with an attorney who will help your family get through all of this quickly and easily while keeping the family relationships intact, give us a call at 866-491-3884 to start a discussion about handling the Louisiana Succession.

Louisiana Family Establishes Estate Legal Program for Two Children and Grandchildren

I was working with a Baton Rouge family recently who wanted to set up an estate legal program the right way for their family. Their goals were to make things simple for the surviving spouse; designate both of their children to work together, while staying out of the Louisiana probate, after both spouses died; and making sure that the money they left their grandchildren would be used for the right reasons.

So, we are establishing their revocable living trust so that the surviving spouse is the sole trustee after one spouse dies and is in complete control of everything (no Louisiana Succession or Probate); their two children will be the Successor Co-Trustees after both parents die, and since there will be no probate, the children could sell the home immediately after the parents pass; and third, instead of dumping $100,000 or so into each grandchild's lap when the grandparents die (encouraging even more bad habits from the grandchildren), the grandchildren's parents (who are very responsible) will serve as the trustee of the trust for the grandchildren. The parents will have total discretion regarding what the funds are used for, and the grandchildren's parents will transfer the inherited funds to the grandchildren when the grandchildren show the maturity and financial responsibility to be able to handle this kind of money the right way.