Paul Rabalais' Louisiana Succession Law Blog

Five Biggest Louisiana Estate Settlement Blunders

Over the 20+ years I've been providing estate settlement legal services to families in Louisiana, I've seen surviving spouses, surviving children, and other heirs make a host of mistakes when it comes to settling the estate of their loved one who passed away. While I could easily make a list of 20-30 common mistakes that are made, the following are five that we see quite often:

1. Working with the wrong lawyer or law firm. Every week we get calls or emails from people who are frustrated because they feel that their loved one's succession is stuck in mud, because the attorney can't/won't/doesn't know how to/refuses to do the work to complete the succession. Sometimes it's because the lawyer won't return phone calls. Sometimes it's because the lawyer doesn't understand Louisiana Succession law. Sometimes it's because the lawyer is too busy handling other things. Sometimes it's because you don't get along with the lawyer. Sometimes its due to miscommunication or no communication. It could be anything. You need to work with a lawyer of law firm who can work with you to develop a written plan to take you from start to finish, is available to handle things that come up during the estate settlement (and things WILL come up), and keeps you posted of progress along the way. Work with someone who provides their fixed fee in writing so you won't be unpleasantly surprised later regarding legal costs. Work with a lawyer or law firm that handles estate matters exclusively so they are not sidetracked by other more pressing legal deadlines that they have in their other matters.
2. Ignoring the estate settlement. No one is going to come knocking on your door after your loved one dies reminding you that it's your job to complete the estate settlement of your loved one. It's your job to take action, contact an estate settlement lawyer, and get the job done. Otherwise, there could be some hefty estate tax penalties and interest due if an estate tax return was required to be filed. Plus, you can't sell the house or any other estate assets until the Succession is complete. And, the longer you wait to do the Succession, the harder it is to gather all of the required date of death assets and values that must be disclosed on the Detailed Descriptive List of Assets and Liabilities. So, Git-R-Done.
3. Failure to Maintain Open Communication With the Heirs. This one causes family relationships to break. There is little that causes more stress than being involved in an estate settlement but not being able to get basic information about the workings of the matter. This causes stress, resentment, suspicions of impropriety, lack of trust, and worse, a complete and permanent breakdown of the relationships of what were formerly loving family members. Work with a law firm that has the legal, technical, and client service skills that will keep all of the heirs current on the progress of the estate.
4. Ignoring Current and Future Tax Consequences. If the Successsion / Probate / Estate Settlement (call it what you want) is done wrong, the heirs will pay more tax. Executors, trustees, and heirs have certain decisions they must make when the estate is being settled that will affect (often adversely) the amount of tax that the estate or the heirs must pay. Most estate settlements have tax consequences in the tax areas of: estate tax, capital gains tax, income tax, generation-skipping transfer tax, and property tax. One example is the "Executor's Fee." While the executor of a Louisiana is entitled to an executor's fee of 2.5% of the estate assets, an analyses must be made about whether to accept the fee. The fee is a deduction from the estate for federal estate tax purposes, but it is included in the taxable income of the executor. Work with a lawyer or law firm that understands the various tax consequences of settling an estate.
5. Failure to properly document "Usufruct" assets. When a married person dies, he often leave his surviving spouse the usufruct of assets in his estate. If his wife inherits the usufruct, she is going to be accountable to the naked owners when the usufruct later ends. Proper documentation of usufruct assets at the time of death AND proper documentation of the subsequent sale of those usufruct assets is a MUST to avoid complications at the end of the usufruct (which typically is when the surviving spouse dies) and the heirs of both spouses squabble over those assets. Work with a lawyer or law firm that understands the usufructuary accounting and can provide you with the necessary guidance so that the estate settlement goes smooth not only when the first spouse dies but also when the surviving spouse dies.

Mistakes are often made in estate settlement legal proceedings because most executors and heirs don't go through this very often, so they don't comprehend the consequences of a mistake. If you are the executor of an estate, or your loved one died recently with no Will, give us a call at 866-491-3884, and we'll help you develop a plan to get the estate settlement done quickly, easily, and without stress. We provide legal services for Successions in all 64 Louisiana Parishes. Call today!

Joint Tenants With Rights of Survivorship: What it Means in Louisiana

 

The following story is a trap where unknowing families often wind up paying hundreds of thousands of unnecessary estate tax dollars. I was working with a family where Dad died a few weeks ago and the family was doing a lot of things on their own. Dad had some IRA's that went to the surviving wife. They were able to do all of that paperwork with the financial institution because she was the designated beneficiary. They also had an account that had about a million dollars in it and was titled, "Dad and Mom, Joint Tenants with Rights of Survivorship." Now, that's a form of title that Louisiana simply doesn't recognize. However, they had that account and as far as that investment company knew, if it was titled that way and Dad died, they were going to put the account in Mom's name. That's exactly what they did. Mom has all of the money and they felt like we didn't even need to address that account. Dad's last will and testament said that Dad gave Mom the lifetime usufruct of his estate. So I told them how really important it was to document that account and put it in as a succession asset and itemize everything in that account because if it was left how it was then when Mom dies in the future it was all going to be in Mom's estate. This could be a lot of unnecessary estate tax creating a large estate for Mom. However, if we document everything correctly now by documenting what Dad's estate was that Mom had the usufruct of Dad's half of the community property, then those things that Mom had the usufruct of won't be counted as part of her estate for estate tax purposes when she dies. A lot of financial institutions just let Mom put everything in her name, but it's really important for estate tax avoidance purposes to document what's in the estate of the first spouse to die so that it gets excluded from the estate of the surviving spouse.  So make sure you take care of all those things.

Tax Implications for Trust Distributions

The other day a client confronted me with their concerns over tax implications from distributions made out of a testamentary trust (a trust created at the death of the trust creator). The answer to this question is actually quite simple. 

Distributions of principal from a Trust, whether that trust is a Revocable Living Trust, Irrevocable Trust, or Inheritance trust created in the will are not subject to federal income tax. These distributions are treated just as an inheritance or a gift would be treated from a tax standpoint.

The only tax that may come up for distributions of the trust principal would be a capital gains tax. This would be taxed if any property in the trust has appreciated in value from the time of the trust creator's death and is thereafter sold by the beneficiary or person receiving the trust distribution. 

Please also be aware that income off the trust assets, such as interest or rents, which accrues during the life of the trust is taxable income when it is distributed to the income beneficiaries.

If you are interested in trusts or other matters concerning your estate give me a call in the New Orleans/Metairie Area at (504) 247-1980 or send an email to chris@rabalaislaw.com. On the Northshore, contact Brent Durham at (985) 246-3020 or brent@rabalaislaw.com. In Baton Rouge, contact Paul Rabalais at 225-329-2450 or paul@rabalaislaw.com.

Chris Kane, Attorney

Director, New Orleans Office

        

 

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What To Do After the First Spouse Dies to Avoid Estate Tax After the Second Death

I spoke with a daughter today. Her father died recently and she wanted to know how to handle his Louisiana succession (what she needs to do, how much, the usual).

I asked her about her parents' assets. When we added it all up, it was a little over $1 million. I asked her what her father's Will said and the will left everything to his surviving wife. This is commonly referred to as an, "I Love You" Will, because it simply leaves everything to the surviving spouse.

I knew that could be a problem. I told her that if everything gets lumped into Mom's estate, then there is the potential for some hefty federal estate tax when Mom later dies since she will likely own more than $1,000,000, and since the tax law provides that starting January 1, 2011, everything over $1 million will be subject to a federal estate tax which starts at 37% and creeps up to 55% quickly.

I suggested that before the family do anything, that Mom should at least consider disclaiming some of Dad's estate. Whatever she disclaims (or "renounces" or "refuses") will go straight to the children and will not be lumped into Mom's estate for estate tax purposes when she dies.

Even though the new law does not take effect until January 1, 2011, you need to start planning for it. Decisions that are made today can have adverse tax effects in the future if those decisions are not made with future tax laws in mind.

If you are an executor of a Louisiana succession, or if you are the "decisionmaker" of an estate, and would like to speak to us about how we can quickly and efficiently resolve and complete an uncontested Louisiana succession - and if you'd like to avoid or minimize estate tax along the way - give our office a call at 225-329-2450 - or send me an email at paul@rabalaislaw.com and in the subject line write - NEED AMAZING SUCCESSION LAWYER.

Paul Rabalais

How I Saved a Family $1,200,000

I had a meeting with a nice family last week. Dad had died during this year and they were wanting me to settle Dad's estate. Dad had an estate of about $2,500,000 and Mom had an estate worth about $1,000,000. Dad had quite a bit of separate property that he had inherited.

Dad's Will left his entire estate to Mom. I'm confident that most lawyers would have followed the Will and put all of the assets into Mom's name during the Louisiana Succession, knowing that there is no federal estate tax for deaths occurring in 2010.

A light came on in my head during my meeting with Mom and the kids. It appeared to me that there would be significant estate tax when Mom dies in 2011 or beyond when the estate tax exemption is scheduled to be $1,000,000. If Mom dies with an estate of $3,500,000, then under the law as it now stands for deaths in 2011 and beyond, there will be $1,200,000 in estate tax when Mom dies.

I told the family, "Perhaps Mom should disclaim her inheritance from Dad and let Dad's estate pass down to the children." Under this scenario, the children will receive Dad's $2,500,000 estate free of estate tax (since Dad died in 2010 when we have no estate tax - apparently), and Mom will be left with an estate of $1,000,000. When Mom dies in 2011 or beyond, Mom's estate tax exemption will shield her estate from tax.

Most Louisiana general practice lawyers would not have utilized this estate tax savings approach. Heck, most Louisiana general practice lawyers have no idea this kind of stuff exists! At best, they would have lumped it all in her estate and then maybe advised some $13,000 gifting - which wouldn't put a dent in the potential estate tax bill since Mom is not in the best of health.

I realize that Congress could change the laws tomorrow but I believe this planning technique will save this family over $1,000,000

Paul Rabalais

Valuing Estates as of Alternate Valuation Date

Been working with our associate attorney, Catherine Martinez, this morning on a federal estate tax return for someone who died in late 2009 when we had a federal estate tax for estates of decedents that died with an estate valued in excess of $3.5 million.

Since a large portion of the estate consisted of stock which depreciated in value after the date of death, we are using the alternate valuation date for purposes of valuing the estate for federal estate tax purposes. It will save a pretty good chunk of change in estate tax. The alternate valuation date is the date six months after the date of death.

A few points you should know about using the alterate valuation date for federal estate tax purposes:

• All of the assets must be valued as of the alternate valuation date. You can't pick and choose which assets get valued as of the alternate valuation date;
• You cannot use alternate valuation date unless the amount of tax will be reduced. So, a non-taxable estate cannot use the alternate valuation date;
• If the estate sells property during the six month period, then the sold property must be valued as of the date of sale;

Using the alternate valuation date for federal estate tax purposes can be complicated. Since there is no federal estate tax for estates of decedents dying in 2010, it appears the alternate valuation date will get a one year hiatus.

Paul

No Excuse For Congress Failing To Act on the Estate Tax

OK we are almost two full months into 2010, and still we have no idea what's going to occur with the estate tax for deaths that occur in 2010.

Wealthy individuals are dying all around us since January 1, 2010, and surviving family members do not know whether it is OK to distribute the assets, sell the assets to raise cash to pay a potential estate tax, or whether to go back and search records in an attempt to determine the capital gains tax basis because there may not be a full step-up in basis for decedent's dying with appreciated assets.

By all means this should have taken place prior to December 31, 2009. But it did not. So families are being held hostage not knowing what to do while grieving for their lost family member.

All Louisiana Inheritance Taxes Prescribe

Instructions for Completing the Louisiana Inheritance and Estate Transfer Tax Return provides that all inheritance taxes will prescribe in the near future. Prescription in this context means, I assume, you don't owe them anymore.

The Instructions provide:

Inheritance taxes will prescribe January 1, 2010 for deaths occurring on or after July 1, 2004. All inheritance taxes due for deaths occurring before July 1, 2004 will prescribe January 1, 2012.

 

Renouncing Louisiana Usufruct Can Be Effective Post Death Estate Planning Tool

Let's say Wife dies with a Last Will providing that her husband is to inherit the lifetime usufruct of her estate. Her estate is less than (but close to) the estate tax exemption. The surviving husband is concerned that if he inherits the usufruct, all of this income from the usufruct assets will be lumped into his estate for estate tax purposes when he dies. He doesn't want to burden his children with any additional unnecessary estate tax.

If the husband feels his estate is enough to satisfy his living expenses for his lifetime, he can renounce (also known as "disclaim") his usufruct, allowing full ownership of his Wife's estate to go to the children. The children can agree to hold this money aside in case Dad needs it. Now, the income from Wife's estate will not be lumped into Husband's estate.

With the potential for an estate tax exemption of $1,000,000, this succession planning tool could save families loads of taxes.

If you are involved in a Louisiana Succession, and you want to know how a Renunciation might benefit your family, feel free to send me an email at paul@rabalaislaw.com, or give our law office a call at 225-329-2450. We'll be glad to chat with you about it. Until next time...

Paul Rabalais