Savings Bonds

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.

What Should Louisiana Residents Do With Their Series EE or Series I Savings Bonds When Planning Their Estate?

I was working with a couple yesterday in our Baton Rouge office. Their neighbor had used our services and were satisfied, so they wanted to get the same peace of mind knowing that all of their legal affairs were in order. They discussed with me what they owned: home, IRAs, bank accounts, vehicles...the usual stuff.

I asked them if they were worried about the prospect of losing everything if they had a nursing home situation. She shook her head up and down and stated that it was one of her biggest concerns. They had an estate the size of which they needed to protect because it was more than what they are allowed to have and qualify for Louisiana Long Term Care Medicaid, but it was not so much that if they spent just a few short years in a nursing home, it would all get eaten up by nursing home costs.

So we started a discussion about how simple it would be to protect the value of their home from Medicaid's Estate Recovery lien, which if the home was not protected, would allow Medicaid to force a sale of the home after they both died to reimburse Medicaid for what it had spent on their nursing home expenses. We also discussed how easy it would be to protect their bank savings, particularly because they were starting the planning process while they were still healthy.

The wife went on to tell me that she had purchased a long term care insurance policy years earlier, but the insurance company would not permit the husband to buy a policy because of some health concerns.

We kept talking about some of the issues involved in protecting their IRAs from nursing home expenses. We discussed the Community Spouse Resource Allowance which allows married couples to protect more than $100,000 of the IRA and other assets if only one spouse enters a nursing home while the other stays at home.

We all felt that we had come up with a good strategy to protect what they had worked for from nursing home expenses, and also from probate, and as I was summarizing all of the details of their program, she said, "Oh, I almost forgot...I have all of these Savings Bonds. What do I do with these?"

She pulled an envelope out from which came a two-inch thick stack of United States Savings Bonds. I shuffled through them and discovered that some were in the wife's name only, some were in the husband's name only. Some were titled, "Wife OR Husband." And some were titled, "Wife OR Child."

She said, "What can we do to protect these Savings Bonds?"

I told her, "It's simple." Once your trust is signed - next time you come back to the office - you will be able to re-title all of your Savings Bonds into your trust by going to a special website. Transferring your savings bonds to your trust will prevent you from being forced to sell them and spend them if you go into a nursing home, AND, your son that you designated to handle your family's affairs when you and your husband die (the son's title is called the "Successor Trustee") will not have to fight with lawyers and the court system to get those bonds sold or transferred to your children equally when you die.

We pointed out to her that she will need to complete a Request to Reissue United States Savings Bonds to a Personal Trust, and that form is available online at http://www.treasurydirect.gov/forms/sav1851.pdf.

We told her that any questions regarding proper completion of this form could be directed to the Treasury at 1-800-245-2804.

We discussed how when the government re-issues a Series EE or Series I savings bond, it no longer issues a paper bond, and that the reissued bond is in electronic form - this actually makes things simple - don't have to deal with all that paper anymore.

We discussed how since she was transferring the bonds to their "Grantor Trust," the tax on the deferred interest would not have to be paid. The interest from the bonds would continue to accumulate tax deferred until the bonds were disposed of or they finally matured.

While some Louisiana residents have complex assets that are difficult to deal with when it comes to probate, Medicaid, usufruct, donations, gifting, Successions, taxes,  or re-titling, the government has actually done a pretty good job making it easy to re-issue United States Savings Bonds to a trust, allowing your clients to avoid all of the itemization of the bonds when they go through probate, and, if desired, allowing your clients to avoid being forced to sell and consume bonds if there is a nursing home situation.

If you own United States savings bonds and you want to simplify what your family will have to go through one day to get those bonds and other estate assets settled, whether it's when you die, when you become incapable, or perhaps even when you enter a nursing home, then give us a call at Rabalais Estate Planning, LLC, and we'll discuss, perhaps, a program to simplify all of this and leave your family a legacy instead of a headache.