Paul Rabalais' Louisiana Succession Law Blog

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

Basics of Taxes and the Louisiana Succession

When someone dies, there are tax consequences. Let's start with some basics:

• Income Tax. In general, an inheritance is free from income tax. If your mother left you a bank account with $100,000, you will receive these funds free of income tax. 

• Estate Tax. For deaths occuring in 2009, the estate will be entitled to an exemption for $3.5 million of assets. In 2010, there will be no estate tax (at least until they change this rule). For deaths in 2011, the estate tax exemption will be $1,000,000 (unless they change it).

• Gift tax. You can give up to $13,000 in 2009 to as many people as you want to without gift tax consequences. If you give more, you start using some of your estate tax exemption. Louisiana no longer has a state gift tax.

• Louisiana Inheritance Tax. We don't have one any more.

• Capital gains tax. When you inherit an appreciated asset, you receive it at a stepped-up basis. If Dad owned Exxon stock that Dad purchased for $10/share, and when Dad died it was worth $70/share, then your basis (for capital gains tax purposes when you sell it) is $70. This is a good thing.

• Life insurance. Generally, life insurance proceeds you receive are income tax-free. But if the deceased owned the policy, it will be counted as part of his or her estate for estate tax purposes.

• IRA/401(k). Beneficiaries of these accounts must include as taxable income any distributions they receive. Many beneficiaries may elect to take distributions over their life expectancy which will postpone the income tax hit. But you won't have to pay the extra 10% penalty if you receive a distribution from an inherited IRA - even if you have not yet reached the age of 59.5.

There's more - but these are the basics.