Louisiana Trust

Should You Have a Will or Living Trust?

When people put their legal affairs in order, they have a decision to make. One of the questions they have to answer is, “ Should I use a Last Will and Testament (“Will”) as the legal instrument to pass along my estate to my heirs, or should I use a Revocable Living Trust (“Living Trust”)?

Let’s start with the basics. If you use a Will to pass your estate to your survivors, you’ll like have provisions leaving your estate, or parts of it, to your spouse, your children or others, or perhaps even leaving assets to a trust the terms of which are part of your Will (called a “testamentary trust”) that will be established with assets after your death.

With a “Will Plan,” you leave title to all your assets in your name: your home, your other real estate, your investments, and so forth. When you die, your assets are frozen (even though you had a Will), and your survivors must retain an attorney or attorneys to go through the court-supervised process of transferring assets to the people who are named in your Will.

If you have a Living Trust, your Living Trust will be prepared, for example, so that after you pass away, your trust provides that your estate, or parts of it, are to be transferred from your trust to your spouse, your children or others, or assets may remain in trust for the benefit of minors, irresponsible heirs, or heirs who are receiving government benefits so that they should not inherit assets in their name. When you establish your Living Trust, you will likely work with your estate attorney to transfer title of assets to your trust, such as your home, other real estate, investments, and so forth.

When you die, trust assets are not frozen. Attorneys and the court system do not have to get involved in the trust settlement because the court system only governs assets that are titled in your name when you die. In your Living Trust, you designated a Successor Trustee or Co-Trustees who will have immediate authority to transfer assets from your trust. Many people perceive it that their Living Trust replaces the Will.

So, which program should you have? It’s ultimately your decision, and some people make decisions like this based on their prior life experiences. Will clients often tell us something like, “When my mother died 12 years ago, I don’t remember her probate being too difficult. We had to do the probate to get the house in our names, but we were not in a big hurry.”

We hear from some Will clients the something like the following, “I don’t have any children so if my distant relatives and favorite charities named in my Will have to go through probate, so be it…I’ll be dead.”

Trust clients often tell us something like, “When my father died, his probate took years and it was difficult and expensive, and I don’t want my kids to go through that, so let’s set up a Living Trust.”

We’ll also hear, “My spouse and I want to make things as easy as we can on the surviving spouse when one of us passes, so let’s establish a Trust.”

Other Living Trust clients say, “If my spouse and I can establish a Living Trust and avoid the future delays and expenses of two probates (one when each of us dies), then a Living Trust seems like a no-brainer.”

And other Living Trust clients tell us, “We pre-arranged our funerals to make things as easy on our survivors and we’d like to do the same kind of pre-planning and pre-arrangements for our estate.”

Now, if you go the Living Trust route, make sure you watch my popular YouTube video titled, “If You Have a Revocable Living Trust, Watch This Now,” which address the important topic of trust funding.

Bottom line or Will vs. Living Trust? Take action. Talk to an estate attorney. Hopefully the attorney’s own biases don’t preclude you from making an informed decision. But get started. Failing to act puts the government in complete control of your estate, and who wants that?

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 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

Protect IRA From Nursing Home: Medicaid Planning

Often, when an individual enters a nursing home, a determination is made regarding whether they will be a private pay patient or a Medicaid recipient while in the nursing home. One part of the Medicaid application process revolves around the Medicaid applicants assets.

An individual often owns exempt assets and countable resources. Common exempt assets include a home and one vehicle. Countable resources include most other assets, including bank accounts, stocks and bonds, non-home real estate, and LLC interests.

The question often comes up as to whether an Individual Retirement Account (IRA) is a countable resource.

The Louisiana Medicaid Eligibility Manual provides, in pertinent part, "Count funds in an IRA as a countable resource."

When people pre-plan for a future Long Term Care Medicaid eligibility, they often transfer title to their assets to either other individuals or to certain types of trusts. While it is fairly simple to transfer title of real estate, investment accounts, and most other assets, it is not possible to transfer ownership of an IRA to others or to a trust.

Some people consider taking a large distribution from their IRA, paying the taxes, and then protecting the after tax proceeds, but this often requires the IRA owner to pay a huge income tax bill and most people don't want to do that  - I don't blame them.

We often tell people that while you are fortunate to have an IRA, you are kind of "stuck" with it for nursing home purposes.

But know that strategies exist to protect the funds in your traditional or Roth IRA, but most of those strategies require that you plan years in advance of entering a nursing home - so it's critical that you get armed with the possibilities and take sufficient action to protect those 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

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

How Can a Class Trust Enable Me To Leave an Inheritance to People Who Don't Exist Yet When I Die?

An elderly gentleman comes into my estate planning law firm office and says, "Paul, I've bee fortunate accumulating an estate. My kids are well off and my ten grandchildren are all doing great financially. I'd like to leave $1 million for my great grandchildren, but the problem is I only have one great grandchild right now, but I know I will have many more because I have 10 grandchildren. Can I do this?"

Normally you cannot leave assets to a trust for the benefit of people who are not born at the time of the creation of the trust. But there is an exception for Class Trusts.

A person may create a trust in favor of a class consisting of some or all of the children, grandchildren, great grandchildren, nieces, nephews, grandnieces, grandnephews, and great grandnieces and great grandnephews of the settlor or the settlor's current, former, or predeceased spouse, or any combination thereof, although some members of the class are not yet in being at the time of the creation of the trust, provided that at least one member of the class is then in being.

Since Great Grandpa wants to leave $1 million for the benefit of all of his great grandchildren, even though many are not born when the trust is created, this is permissible since great grandchildren are one of the permitted classes under the class trust provisions.

Since this trust may last for many decades, and since it is irrevocable after Great Grandpa dies, the trust must be carefully prepared. Provisions regarding how income and principal can be used become important. When the class closes, and when the trust ends are important items to address when creating a Louisiana class trust.

In addition, our Louisiana Trust Code provides what happens to a class member's interest if he or she dies prior to the creation of the trust, or after the trust is created.

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 Does “Spendthrift Trust” Mean in Louisiana?

Often, people see language in a trust referencing that the trust is a "spendthrift trust," and they ask us the meaning of a spendthrift trust.

Most trusts are spendthrift trust. When a trust is classified as a spendthrift trust, it often means, in layman's terms, that a beneficiary may not sell their interest in the trust or use it as collateral for a loan, and that a creditor cannot seize a beneficiary's interest in a trust.

Note that if spendthift language is not included in a trust instrument, then a beneficiary may transfer or encumber their interest in the trust.

Let's take a look at an example. Grandpa dies and leaves $100,000 to Grandson in trust, and Grandpa provides that trust assets may be used for Grandson's education, and when Grandson reaches the age of 35, remaining trust assets may be disbursed to Grandson.

If Grandson was permitted to voluntarily alienate his interest in the trust, then Grandson could sell his interest in the trust or use it as collateral for a loan. And if the trust were not a spendthrift trust, then a creditor of Grandson could seize Grandson's interest in the trust.

Nonetheless, there are two circumstances where a creditor of a beneficiary may seize an interest in trust. First, if the beneficiary can voluntarily alienate his interest in the trust, then a creditor of the beneficiary can seize that beneficiary's interest in income or principal that could be voluntarily alienated. Second, a beneficiary's interest in income or principal can be seized to the extent that the beneficiary donated property to the trust, either directly or indirectly.

The key to restraining alienation by a beneficiary to the maximum extent permitted by the Louisiana Trust Code is to declare in the trust instrument that the interest of a beneficiary shall be held subject to a "spendthrift trust."

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

Arranging a Louisiana Estate for Asset Protection and Easy Inheritance

This post describes how Irrevocable Grantor Trusts are used to protect assets while parents are alive, and then to provide for an easy transition or inheritance to the children or other heirs.

As folks age, they often worry that they will run out of money before they die due to their longevity and all of the threats that seniors face these days.

Many seniors create trusts to help protect what they've worked for. They often keep some assets in their name, and they transfer other assets to a trust that they create.
 
Because their assets are titled in the right kind of trust, with the right kind of asset protection provisions, they are less likely to lose these assets from some kind of life-changing event.

These asset trusts are often irrevocable, but sometimes certain aspects of the trust are amendable. These trusts typically allow for trust assets to be sold and re-invested. These trusts usually have some provision for distributions of principal. Many of these trusts and estates are arranged so that probate is avoided at the death of the Settlors/Grantors/Trustors.

Check with the right estate planning attorney in your jurisdiction to make sure you establish an estate planning legal program that is right for you and your family. Don't try to do this yourself. Too much is 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

Powers When Multiple Executors or Trustees are Named

When people establish wills or trusts, they often want to designate more than one executor or more than one trustee. This video describes what it takes to exercise powers when multiple executors or trustees are named in Louisiana. Note that each state can be different so check with an attorney in your state to guide you through these matters.

Most people are not aware that the Louisiana Succession procedure (regarding executors) and the Louisiana Trust Code (regarding trustees) have different provisions and different applications.

Here are three rules you should be aware of when considering naming more than one executor or co-trustee:

(1) Executors. Louisiana Succession law provides that when there are several executors named, all action by them shall be taken jointly. Provisions in the will can alter this rule.

(2) Two trustees named. If there are two trustees of a trust named, the powers conferred upon them shall be exercised only by both of them. The trust instrument or a court could alter these default provisions.

(3) Three+ Trustees. A power conferred in three or more trustees may be exercised by a majority of the trustees, unless the trust instrument provides otherwise.

So, when three executors are named in a will, action by them shall be taken jointly. But if three trustees are named in a trust, actions by them may be taken by a majority.

I do not know why there is this distinction and difference between our Louisiana Succession law and our Louisiana Trust Code, but you should fully understand these differences when you are working with an attorney to prepare your will or trust, and you are naming more than one person to be in charge when you die. Many parents do not want to show favoritism toward just one child, so they designate all of their children to fill these roles.

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

Transfer on Death (TOD) and Joint Tenants with Rights of Survivorship (JTWROS) Designations Not Recognized in Louisiana

Many Louisiana residents get confused because they are under the assumption that they can name beneficiaries on their non-retirement accounts at their investment company - but they can't.

Example. Mom and Dad have three accounts at the investment company. Dad owns a traditional IRA. Mom owns a traditional IRA. And they have a joint investment account. They come into the law office to discuss how to leave assets to each other and their family outside of probate and they are convinced that they have named beneficiaries on all of their investment accounts. They later discover that they were only permitted to designate beneficiaries on their IRAs, but not their joint investment account. While other states permit probate avoidance designations on investment accounts, like Transfer on Death (TOD) and Joint Tenants With Rights of Survivorship (JTWROS), these designations are not recognized for Louisiana residents and investment companies do not permit their Louisiana customers to make these designations.

The following are a few examples of large investment companies that realize that the State of Louisiana does not recognize these designations, and thus, state so in their paperwork:

(1) Edward Jones Transfer on Death Agreement. "This Agreement shall not be valid and shall be of no effect in the State of Louisiana." https://www.edwardjones.com/images/transfer-on-death-agreement.pdf

(2) Merrill Lynch Joint Account Agreement. "JTWROS: Joint Tenancy with Right of Survivorship (not available for Louisiana residents)." https://olui2.fs.ml.com/Publish/Content/application/pdf/GWMOL/Joint_Account_Tenancy_Agreement_-_1277.pdf

(3) Merrill Lynch TOD Agreement. Transfer On Death Accounts are available to Account Owners (defined below) who reside in all states within the United States (other than Louisiana)." https://olui2.fs.ml.com/publish/content/application/pdf/GWMOL/TransferOnDeathAgreement.pdf

(4) T Rowe Price TOD Agreement. "TOD is not recognized by the state of Louisiana, so we do not offer TOD for Louisiana residents." https://individual.troweprice.com/Retail/Shared/PDFs/todreg.pdf?src=AccountFinder

(5) Charles Schwab Designated Beneficiary Plan Agreement. "The Plan is not available in Louisiana." https://www.schwab.com/public/file/P-831898/APP10780-16-ADA_-_5_19_2017.pdf

A related issue affects Louisiana bank account holders who make a POD (Payable on Death) Designation. Louisiana banking laws simply release banks from liability to heirs or the estate for paying a beneficiary in accordance with the POD Designation. But if the account owner has different heirs pursuant to a Will or Trust, the POD beneficiary may be accountable to those funds they received.

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 Double Step Up In Basis: Traditional Planning Makes Kids Pay Extra Capital Gains Tax

This describes how the traditional methods of estate planning for married couples causes children or other heirs and beneficiaries to pay extra capital gains tax due to the failure to take advantage of the double step-up in basis.

In the old days (about a decade ago), the emphasis on estate planning was always avoiding estate tax. Married couples would arrange their wills and trusts so that when the first spouse died, assets were left either in usufruct or to an irrevocable trust so that the assets of the first spouse to die would not be included, for estate tax purposes, in the estate of the surviving spouse. Assets were left to trusts commonly referred to as A/B trusts, credit shelter trusts, survivor's and family trusts, QTIP trusts, or bypass trusts. The goal was to, by leaving assets to an irrevocable trust at the death of the first spouse, those assets would escape estate taxation upon the death of the surviving spouse.

However, this planning method did not have the best capital gains tax result. In community property states, all of the community property would get a step up in basis upon the first spouse's death (to the value at the date of the first spouse's death), but only the assets that the surviving spouse owned would recognize another step up in basis when the surviving spouse died. The family was forfeiting another step up in basis.

Now, for almost all families, the fact that all the assets get lumped into the estate of the surviving spouse is irrelevant for federal estate tax purposes. Each estate can exempt $11.2 (for deaths in 2018) from the estate tax. And since new portability law allows the surviving spouse to use any part of the exemption that went unused by the first spouse to die, married couples can shield $22.4 million) from the estate tax. Simply put, estate tax is not an issue for most families.

So now, married couples should consider doing the opposite. They should consider arranging their affairs to that all marital assets get included in the estate of the surviving spouse. So long as the total is less than the estate tax exemptions, there will be no estate tax but the heirs will benefit from another step-up in basis when the surviving spouse dies. Then, if the heirs sell previously appreciated assets, there will be no tax to pay.

A simple way to include assets in the estate of the surviving spouse is to leave ownership of those assets to the surviving spouse (through a Last Will), Or if a married couple has a living trust to avoid probate, they can provide that the trust does not become irrevocable upon the death of the first spouse. However, if there is a blended family situation, or the couple is worried that the survivor may attempt to leave assets to a second spouse, or if the surviving spouse may need to qualify for Medicaid upon entering a nursing home, that couple may want to reconsider whether or not to put the surviving spouse in complete control of the marital assets.

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

Estate Planning Case Study: Married Couple with $3m Estate

While every individual and couple that engages in estate planning has a different set of circumstances - no two are the same, the following is a case study of a Louisiana couple that has accumulated some wealth, never engaged in estate planning before, has two adult children who are late 20's and early 30s, and wants to keep control of their estate, provide for the surviving spouse, preserve it for the kids, keep estate matters simple, and avoid tax and government interference.

Let's say that the couple owns a home in Louisiana and a condo on the beach in another state. The husband worked for a chemical company, built up his 401(k), and when he retired, he rolled over his 401(k) into his traditional IRA. They have a joint brokerage account, vehicles, and a boat. Total estate is $3,000,000.

Some of the issues we would discuss include:

(1) First Spouse Dies. We would discuss how they want to leave their estate to their spouse when the first spouse dies. Do they want to leave their estate in full ownership to their spouse? Do they want to leave their estate in trust for their spouse so that assets get preserved for the children after the surviving spouse dies? Or, since they live in Louisiana, do they want to leave usufruct to their spouse, giving their spouse an obligation to account to the kids at the termination of the usufruct? Each of these options has varied estate tax, income tax, and capital gains tax consequences. Gotta do this right the first time before the first spouse dies.

(2) Surviving Spouse Dies. Do they want to leave assets to their children outright or in trust? Do any children have special needs, the inability to handle a lump sum inheritance, marital issues, or some other issues that would warrant leaving the inheritance to a child in trust? Lots to discuss here.

(3) Who's In Charge When You Can't? Who should be primary and backup for Trustee, Executor, Durable Power of Attorney, Health Care Power of Attorney, etc. We'd discuss the life-support machines decision.

(4) Taxes. We discuss the distribution rules for IRAs and retirement accounts and how those rules differ for spouse and non-spouses as beneficiaries. We'd discuss the step-up and double step-up in basis which can save the heirs a fortune when the sell your assets.

(5) Avoid Probate. We'd discuss the pros and cons of the "Will Based Plan" and the "Revocable Living Trust Based Plan," which can allow the surviving spouse and the children to avoid multiple probates in multiple states - given that the couple owns real estate in two states. The RLT Program would keep brokerage accounts from being frozen in the future.

Again, since very person is different - their objectives, their family, what they own, don't take this info and think that it perfectly applies to you. You need to work with the right estate planning attorney the first time so that problems don't surface later.

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 Leave Inheritance To Minor Child or Young Adult

It never makes sense to leave an inheritance to a minor child in their own name, and it almost never makes sense to leave a lump sum inheritance to a young adult - say in their late teens or early 20's.

There are different vehicles to leave assets to a minor or young adult. Some people leave assets to others through a testamentary trust - a trust that is part of their last will and testament. Others create an "avoid probate" living trust and provide that the trust will continue after the parents pass away. Others set up life insurance trusts so that life insurance won't be dumped into the lap of a minor child or immature young adult.

One of the decisions you will make when you arrange an estate planning legal program for minors or young adults is: Who will be the trustee of the trust? Perhaps you have trusted family members or friends that you can designate as a trustee when you are gone - to oversee the inheritance for your minor children or young adult children. These would be what's referred to as an "individual trustee." Others of you may name a corporate trustee - a large bank or other financial institution that is set up to serve as a corporate trustee.

What often requires a great deal of discussion revolves around when your children can have access to the trust principal that is being held for them. There are unlimited options, but you could designate that your children receive their inheritance when they reach a certain age, say 25. Or, you could say that they get their inheritance in stages, say 1/3 at 25; 1/2 of what's left at 30; the rest at 35. Or, you could say that the trustee has discretion to determine the appropriate time to make principal distributions to your principal beneficiaries.

Note that even if you designate that the children cannot demand principal until a later date (let's say 30, for example), you can provide that distributions can be made earlier for the health, education, maintenance, and support of the principal beneficiary. This allows, for example, educational and health care expenses to be paid from the trust, even though the remaining principal will not be distributed until later.

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.

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.

Final Steps To Putting Your Trust Program In Effect

Once all of the documents are ready and accurate, it is time for you to sign your legal documents and make it all official. When you sign your trust, you'll also likely sign a host of other legal documents, such as transfer documents transferring real estate to your trust, your pour-over Will, your powers of attorney and living will declaration, and more - depending upon the particular circumstances of your customized estate planning program.

Once all of the documents are signed, your attorney's office will likely record the transfers of real estate at the courthouse. This takes care of making sure that your real estate is in your trust. Also, on your trust is signed, you can visit your financial institutions and brokerage firms to re-title your investment accounts in the name of your trust. 

This process if re-titling your assets into the name of your trust is commonly referred to as "funding your trust." It's important that your trust be funded properly before you die so that your heirs won't have to deal with a judicial administration of your estate after you die.

How To Review Your Customized Estate Planning Program Prior to Making It Official

When you review your customized estate planning legal program documents, you likely will fall in a range of thought processes from, "I don't need to review anything...just show me where to sign," to "I need to know what every word of every document means, including the definition of 'Pact De Non Alienando'". 

It makes sense, for people who fall in the middle, to want to review the customized portions of their estate plan. Just like when you buy a house and get a mortgage, there is all kinds of legal mumbo jumbo that needs to be in the paperwork.

The following could be a few things that should be reviewed prior to making your estate planning documents official:

(1) Power of Attorney. Is it effective immediately or does it spring into effect upon your incapacity? Do you name one Agent or more than one? If you name more than one, must they act jointly or can they act separately? Did you name any backups?

(2) Living Will Declaration. What did you document regarding the removal of nutrition and hydration if you are in that profound vegetative state with no chance of recovery?

(3) Living Trust. Who did you names as your Successor Trustee or Co-Trustees. What is the distribution schedule after you die? Are beneficiaries to receive their distributions outright or does the trust continue for certain beneficiaries? And if it continues, under what terms? Don't get too caught up in the trustee powers and duties (unless you intentionally wanted to customize these powers and duties).

Once you have peace of mind that all of the substantive components are in order, then go ahead and make it official and have the security that comes with knowing that your legal affairs are in order.

Paul Rabalais
Louisiana Estate Planning Attorney
Phone: 866-491-3884

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