Separate Property

Gentleman Shocked to Learn That With a Pre-Nup, His Assets Weren't Protected If Wife Went to Nursing Home

I was talking to a gentleman yesterday. He was a little concerned about the possibility of losing his assets to his nursing home expenses in the future. He had recently married (for the second time). Since he and his new wife each had children from their prior marriage, and they wanted to keep their estates separate, the signed a pre-nup (also known as a Marriage Contract or a Separate Property Agreement).

He felt that he and his wife's estates were in order because of their Marriage Contract. He told me, "If my wife happens to go to a nursing home in the future, I have everything protected because of my pre-nup."

Well, no so fast. What most people who remarry later in life after losing a spouse think is that if they have a pre-nup and all of the assets are kept separate - no community property, then the assets of the spouse who does not go into the nursing home are protected. But people who think that are dead wrong - no pun intended.

The Louisiana Long Term Care Medicaid Manual provides that the assets of the spouse who stays at home (even if they are separate property of the spouse who stays at home) must be used to satisfy the needs of the spouse who is in the nursing home.

So, if you are in a second (or third) marriage, and you are confident you will never enter a nursing home - and thus, never lose your life savings, know that you could still lose everything you've worked for if your spouse needs long term care. There is a legal strategy available to you to protect your (and your spouse's) assets from nursing home poverty, but you must take advantage of the legal strategy at least five years before either spouse needs long term care.

Louisiana Family Supportive After Parent Dies Intestate Requiring Probate

I was contacted by a family recently that had a number of estate planning and administration issues that needed to be addressed.

Mom had died unexpectedly a few years ago. Mom died intestate - which means she had no Will or other estate planning legal documents in place when she died. Mom and Dad had accumulated a fairly significant estate by the time she passed away - including homes, mutual funds, stock, bank accounts, vehicles, and other assets.

Dad is planning on getting married again. Normally, this causes problems between the children of the first marriage and the new step-mom - but not here.

The children were super-supportive of their father. They said, "Look Dad, you raised us, bought us cars, paid for our college education, and you've been a great father. You and Mom don't owe us anything. We want you to have it."

Now that's support from children back to their father! The children realized that they could kick Dad out of his house on the day that he marries Step-Mom - but the kids are better than that.

But we still have legal work to take care of. We will complete Mom's Succession. And then after that, the kids will sign legal documents donating their share of their inheritance from Mom back to Dad. Dad will wind up being the 100% owner of everything. 

Dad is now establishing a new legal plan to support his new wife and his children the right way, and making things easy for them to inherit in the future.

If you live in Louisiana, and are in a situation like this, and would like to find out how easy it is to get all of this straight (and how much of a mess it will be if you don't address it), give my office a call at 866-491-3884, and we'll have a discussion about the easiest way to get all of it straight.

Husband's Small Estate Can Do A Huge Favor to Wife's Family - the Estate Tax Portability Election

Blended families are common these days primarily because the divorce rate is high, and since people are living longer, it's common for someone to lose their spouse and then remarry in their 60's, 70's or 80's.

Many blended family situations are such that each spouse has their own children. It's common for the couple to establish a Marriage Contract (also referred to as pre-nup, pre-nuptial agreement, or separate property contract.

I've been working with a blended family in recent months that has strong ties to the Baton Rouge, New Orleans, and Lafayette communities. The wife has a very large estate (let's say, $10 million) and the husband has a much smaller estate (let's say $1 million). Each of them has their estate legal program set up so that when each spouse dies, their respective estates will go to their respective children. The problem is that the wife's estate, at $10 million, faces perhaps a couple of million dollars or more in estate tax when she dies (depending on value and tax law at time of death).

The couple is predicting that the husband will die first - he is older and is not in as good health as the wife. He'll be leaving everything to his four adult children. His wife will not be involved in his estate settlement. There will no federal estate tax return due after the husband dies because his estate - at $1 million - will be less than the applicable exemption ($5.45 million for deaths in 2016).

Here's the kicker: when the husband dies, there will obviously be no estate tax because his estate is relatively small compared to the estate tax exemption. But if the husband's estate, after he dies, files an estate tax return and makes the portability election, then the wife's estate, when she dies, will not only have her $5.45 million estate tax exemption, but she will also get to use the husband's unused exemption. So, let's say the husband does not use $4.45 million of his exemption and his estate makes the portability election on his estate tax return (IRS Form 706), then the wife, at her subsequent death, could exclude $9.9 million of her estate from the 40% tax.

Bottom line - when the husband dies, the wife and her children should be REALLY nice to the husband's family (particularly his executor) in order to sweet talk him into filing an estate tax return and making the portability election. In fact, the wife should offer to pay for the accounting and legal work necessary to get that done. It will be a small price to pay to recognize as much as $2 million of tax savings at the subsequent wife's death.

If you are in a marital situation and one spouse has an estate that is much larger than the other spouse, you may want to have a discussion with someone like myself who can help you set up a Louisiana estate legal program to minimize or avoid the tax that both families may have to incur later.

Divorced Monroe Father Now Has Children's Inheritance Protected From Ex-Wife

I'm working with a gentleman who lives in Monroe, Louisiana. He is divorced. He has three children - two are in their early 20's, and one is a teen-ager. He is not fond of his ex-wife - she took him to the cleaners in the divorce. He has a "significant other" that he may marry someday but no time soon. He stated that his main estate planning worries were:

  • He wanted to make sure his ex-wife did not control his money and his business interests if he died;
  • He wanted to make sure his children's inheritance would not be "blown," rather, he wanted to make sure his children would benefit for their lifetimes from the legacy he leaves them; and
  • He did not want his ex-wife, his "significant other," and his children to have to go through a probate proceeding in the courts after he died.

He owned a nice home in Monroe, and he wanted to make sure that his "significant other" (whether he married her or not) would have a right to continue living in the home for as long as she wanted to after he died.

He knew that if he had no estate legal plan in place, that his ex-wife would control his teen-age daughter's inheritance, which means she would also have indirect control over the adult children's inheritance because the three children would be inheriting together and co-owning assets.

So we are establishing a trust so that when he dies, his business partner (as the Successor Trustee) can manage his estate for the three children and dole it out to them at different stages in their lives. The children will not get a large inheritance in a lump sum, and will not have an opportunity to "blow it all" with one big mistake. Setting things up this way will keep the ex-wife out of this father's financial affairs when he dies. The family will avoid what would have been an ugly probate proceeding with each party being represented by different bulldog attorneys (further draining estate assets), and the father can rest assured knowing that his significant other will be protected with a home, and his children's inheritance will be protected.

If you are divorced and you want to make sure that your ex-spouse does not control all of your money when you die, you may want to give me a call at 866-491-3884 to start a simple conversation about how easy it is to put an estate legal program in place, whether you live in Monroe, Shreveport, Alexandria, New Orleans, Lake Charles, Lafayette, or Baton Rouge.

6 Critical Estate Planning Concepts: How To Make Your Child's Inheritance Divorce-Proof

I was working with a couple from St. Tammany Parish. They had only one child. It appeared to this couple that their child would likely get married in the next few months or years. The couple was not particularly fond of their potential daughter-in-law, but like they told me, "We don't get to select who our son marries!"

The couple had worked very hard to save up their estate. They wanted to pass it along to their son - AND THEIR SON ONLY. They feared leaving their estate to their son one day in the future, and then the daughter-in-law divorces the son and takes half of the inheritance along with her. They owned a home and another piece of property. They owned publicly traded stock, and they owned a considerable amount of cash, in the form of checking accounts, savings accounts, money market accounts, and certificates of deposit.

Here are a few things you should know if you want to keep your children's inheritance in the family and avoid losing it to your children's past, present, and future divorces.

  1. Inheritance is Separate Property. At the moment that a child (or anyone) inherits, that inheritance is the separate property of the person inheriting. So, if parents leave Son $1 million, then that $1 million initially is the separate property of Son's - not community property of Son and Daughter-in-Law.
  2. Income From Separate Property. Income produced by the separate property of a spouse is community property. So, if that $1 million that Son inherited produces $200,000 of income (interest and dividends) over a several year period, then that income that Son's separate property produced is community property owned by both Son and Daughter-in-Law.
  3. Commingling of Community and Separate Property. If community property and separate property get mixed up together so that you can't distinguish the separate property from the community property, then it all becomes community due to our presumption that anything a married couple has is community property.
  4. Declaration of Paraphernality. Son may sign a particular type of Declaration reserving that the fruits and revenues (income) of his separate property IS his separate property. Assuming he executes this document timely and accurately, then the $200,000 of income that his inheritance produced (See #2, above) would be his separate property. There would be no commingling of inheritance and income from inheritance, so the separate property status of all of it would be preserved.
  5. Leaving an Inheritance To Your Ex-Inlaw. Let's say your son is divorced from the mother of your son's three minor children. Your son predeceases you. It is likely that the inheritance that your son would have received would go to your son's children (your grandchildren). But guess who controls it? Yep, you've just put all of your hard earned wealth into the hands of your deceased son's ex-wife, because the courts will put her in charge of your minor grandchildren's inheritance, causing you to "roll over in your grave." Proper estate planning, done right the first time, with the right estate planning attorney, can avoid these problems.
  6. Leave It To "The Son Trust." For parents who want their children to have an extra layer of protection, they will set up their estate planning legal program in a manner that when the parents die, the child's inheritance will be placed into a trust for the child. Done correctly, this may prevent the child from being "influenced" by the child's spouse to do something inappropriate with the inheritance, and it may even provide that when the child later dies, any remaining inheritance in the child's trust will pass along to the child's children - and not the child's spouse or ex-spouse.