The Rabalais Law Firm's La. Estates Blog

Seeing More Usufruct Than Ownership As Estate Tax Creeps Into Picture

Was meeting with a super-nice couple today. She had attended my webinar last week and they were ready and overdue on getting their estate plan in order.

They had no children under 24 so there were no forced heirship issues. I was walking them through the usual estate planning decisions, such as:

• what happens if both of them die;
• what happens if they become incapacitated;
• who will be in charge;
• who will inherit from them;
• how can they protect their children's inheritance from a future divorce; and
• how will their future medical decisions be made.

I got to the point of the conversation where they needed to decide whether they would leave ownership or usufruct to their surviving spouse. Until recently, it didn't really matter which they chose. Some couples want to leave things simple and leave ownership to surviving spouse. Some couples want to protect the children from the surviving spouse changing things - so they will lifetime usufruct to their surviving spouse.

NOW IT MATTERS.  The couple I worked with today has total assets of about $1 million. If the first spouse to die leaves ownership to the surviving spouse, all the assets will be lumped into the surviving spouse's estate. And with the federal estate tax exemption schedule to be $1 million in 2011 and beyond, we don't want that.

So, as the husband stated, it was a "no-brainer." They decided to leave each other the lifetime usufruct so that the assets of the first spouse to die will not be lumped into the surviving spouse's estate for federal estate tax purposes.

With the estate tax exemption dropping to a mill next year, better revisit those estate plans to make sure there is on unnecessary lumping going on after the first spouse dies. Until next time...

Paul Rabalais

Don't Miss This Upcoming Louisiana Estate Planning Webinar

I'm hosting a webinar on Thursday, May 13, 2010, to teach all you intersted people in Louisiana how to protect your estate for yourself and your family. Feel free to join us. You'll be glad you did. The following is the email invitation I sent out to our closest friends and clients:

Free 2010 Louisiana Estate Planning Live Webinar

Date of Webinar: Thursday, May 13, 2010    Start Time: 12:30pm CST

Perhaps you are concerned about protecting your estate for yourself and your family in light of so many legislative changes in recent years. Or perhaps you've been thinking for some time about creating or updating your important estate plans for your family, but you didn't know how to get started. If so, you won't want to miss this timely and important Louisiana estate planning webinar. We'll cover all the basics.

Now Is the Time to Put Your Affairs in Order - Click Here For Webinar Registration

If your Last Will was prepared a few years ago, or if you've never had a Will or Trust prepared for you, then attending this webinar may be the most important thing you do this year for your family. Here's why:

0. Our estate tax laws are in a state of chaos right now;
0. The court-supervised process of transferring your estate to your heirs (probate/succession) is time-consuming, expensive, and public;
0. Louisiana laws regarding estates have changed every year;
0. Your family circumstances may warrant changes to your existing estate plan; and
0. Louisiana estate planning laws are completely different than all other states' laws.

What is a Webinar? Register Now - Space is Limited!

Join me on Thursday, May 13, 2010, starting at 12:30pm CST and ending at 1:30pm CST  for a free webinar from the comfort of your home. Please join the webinar at least five minutes before the scheduled start time. A webinar is a presentation that is delivered over the internet and the phone. Attending a webinar is like attending any seminar apart from the place that the event takes place. Once you have logged in you can sit back and listen to the presentation on your phone (or on your computer speakers) while watching it on your screen. During this free webinar, you will discover answers to the following questions:

0. How can my family avoid taxes when I die?
0. Since I live in Louisiana , should I have a Will or a revocable living trust?
0. Is it true that probate will cost your estate 5% to 10% of its value ?
0. What is the difference between a revocable trust and an irrevocable trust?
0. How do I protect my estate if I become incapacitated?
0. What will my family go through when there is a probate when I die? 
0. How can I protect the value of my home avoid depleting my life savings if I have to live in a nursing home ?
0. How do I protect my children's inheritance from their past and future divorces?  
0. What is the best way to arrange my affairs to keep things simple for me and my family in the future? 

This webinar is customized for the lay person  or family that lives in Louisiana and wants to avoid legal, tax, and financial problems before or after death. If you want to protect your family and avoid leaving them with legal, accounting, tax, and financial problems, along with unnecessary delays, you won't want to miss this webinar. Don't Procrastinate! To register for the webinar, simply click on the link below.

Click Here For Immediate Webinar Registration

P.S. Forward this webinar invitation email to any other individuals you know who would want to understand how to take the necessary legal actions to protect their estate and their family. With so much confusion out there, they will thank you.

P.P.S. Because there is so much information in our webinar, the recorded webinar cannot be emailed to you or posted on a website due to the size of the file. To get this valuable information, you must register and attend this live event. 

The Louisiana Usufuct - After the First Spouse Dies

Here are a few of the many questions I get about the Louisiana usufruct:

• If my husband dies, can his kids kick me out of the house?
• If my husband dies and I sell the home, do I have to give his kids half the money?
• If my spouse dies, can his or her children force me to sell the house?
• If my spouse dies, do my spouse's children have to sign the paperwork if I want to sell my house?
• If I die, can my spouse leave my house to her new husband?
• I can't stand my daughter-in-law. Can she kick my wife out our home if I die?

This is just a small taste of the many questions we get regarding the Louisiana usufruct, specifically as it relates to the family home after the first spouse dies.

Spouse Dies Without a Will

If a married person dies without a Last Will in Louisiana, and the married couple purchased a home during the marriage, then the ownership of this community property residence will be divided as follows: the surviving spouse will continue to own his or her undivided one-half of the home, and the surviving spouse inherits the usufruct of the deceased spouse's one-half of the home. This usufruct will last until the surviving spouse either dies or remarries.

If the surviving spouse wants to sell the home, the surviving spouse may do so but the children of the deceased spouse (the "naked owners") must agree to and sign the necessary paperwork to sell the home. If the home is sold,  the surviving spouse will receive all of the proceeds of the sale because when an asset subject to usufruct is sold, the usufructuary will receive the proceeds.

If the surviving spouse is not the parent of the children of the deceased spouse, the children of the deceased spouse may force the usufructuary to post bond in order to protect the interest of the naked owners.

Extra Powers Given To Usufructuary in Last Will

You can write a last will and testament and bequeath your spouse the usufruct and give your spouse more power than the "intestate" (see above) usufruct gives them.

First, you may provide that your spouse's usufruct will last for your spouse's lifetime. This will prevent your children from kicking your spouse out of the house if your spouse remarries. The "lifetime usufruct" may also prevent federal estate tax from being due to the IRS within nine months after your death if you have a large estate.

Second, you may provide that your surviving spouse shall have the authority to sell items over which the surviving spouse has usufruct, without having to obtain the written consent of the naked owners. This is tricky and it has to be worded exactly right.

Third, you can provide that your spouse is not required to post a bond if your surviving spouse is not the parent of the naked owners. This is a no-brainer. Bonds are expensive and a waste of money. Always make sure you waive the bond requirement for the usufructuary.

There's more to the Louisiana usufruct than I've described above, but if you live in Louisiana and you want to protect your spouse from having problems after your death, you better educate yourself on how this works - or work with an attorney like me who can guide you through this process.

We provide estate planning legal services for individuals, couples, and families, all over the State of Louisiana. Technology makes it easy for us to customize estate planning documents for anyone in the state at a reasonable cost. If you are interested in discussing how we may help you and your family get your affairs in order, give us a call at 225-329-2450, or drop me an email at paul@rabalaislaw.com

See ya!

Paul Rabalais

Will or Trust Revision May Be Necessary If You Left "Maximum Amount" to Children

We've prepared thousands of estate planning documents. We don't "usually" do this but on more than one occasion, a couple has come into the office and expressed to me something like the following:

"I want me and my spouse to utilize our federal estate tax exemptions by leaving the most we can leave to our children without tax and leave our surviving spouse everything else."

This scenario worked well when the exemption was $600,000, or even $1,000,000. If Husband died and his estate was $5,000,000, the formula would be applied at death and the surviving spouse would still receive the bulk of the estate ($4,000,000 if the exemption amount that went to the children was $1,000,000).

But now in our crazy chaotic estate tax environment, that Will could pose bigtime problems for the surviving spouse. If your current law holds up through 2010, Husband's entire estate would go to his children, and surviving spouse would be left with nothing from Husband's estate. His kids could kick her out of her home.

If you live in Louisiana and your Will applies a formula so that you leave the "maximum amount" to your children under federal estate tax laws, you better quickly revise it in light of the fact that no estate tax exemption amount exists for people who die in 2010 - unless of course Congress and the President change things which they do not seem to be in any hurry to do.

Paul Rabalais

What Will Happen to the Federal Estate Tax in 2010?

This seems to be the intriguing question. Here are my thoughts as of April 16, 2010:

• Before January 1, 2010, everyone who was anyone was predicting that new legislation would be enacted prior to January 1, 2010, which would create an estate tax for the estates of decedents who died during the calendar year 2010. No legislation was enacted. So, as of January 1, 2010, we had no estate tax for 2010. Many felt that the 2009 exemption amount of $3.5 million would be continued through 2010 - but no legislation was ever passed. The House of Representatives passed a bill in early December, but the Senate failed to act.
• Shortly after January 1, 2010, everyone who was anyone predicted that legislation would be passed creating an estate tax for 2010, and that the legislation would be made retroactive back to deaths occurring on or after January 1, 2010. Some questioned whether Congress would have the authority to make a tax retroactive, but most thought they could do it.
• Now that it is April 16, 2010, no one knows what the heck is going on. Momentum is gaining for the position that it is too late to enact legislation and make it retroactive back to January 1, 2010.

So, what will happen? My guess is that Congress' procrastination to address estate tax reform, combined with the fact that Congress is loaded down with other pressing issues, combined with the fact that many seats are up for grabs in Congress later this year, combined with the fact that multi-billionaires have died since January 1, 2010, and creating a retroactive tax would face major catfights, will lead to fact that there will not be a federal estate tax for deaths occuring in 2010. This will create a huge accounting mess for estates because Congressional inaction results in the lost of the step-up in basis for appreciated assets in estates.

I'm also guessing that later in the year 2010, Congress will change the estate tax exemption for years 2011 and beyond. Present law states that the exemption will be $1 million for 2011 and beyond. I predict Congress will increase this exempt amount from $1,000,000 to, let's guess, $3,500,000.

What do you think?

Paul Rabalais

Unfortunate that the Estate Tax Law is Unclear

It is bad enough that we have high tax rates in Louisiana and in the United States. But perhaps it is worse when we don't even know if we have a tax!

About ten years ago, Congress enacted tax legislation that provided the following:

• $3.5 million dollar estate tax exemption for deaths occurring in 2009
• No federal estate tax for deaths occurring in 2010; and
• $1 million exemption for deaths occurring in 2011 and beyond.

All of the so-called experts predicted that Congress and the President would act prior to December 31, 2009, and "bring back" the tax effective for years 2010 and beyond...but they failed to act! Actually, the House of Representatives passed the legislation in early December, 2009, but the Senate never got around to it.

Then, shortly after the first of this year, everyone predicted that Congress would quickly enact legislation bringing back the estate tax, and making those estate tax laws retroactive back to death occurring on or after January 1, 2010...but they didn't do anything.

Now, it is March 10, 2010, and unfortunately, families of decedents have no idea what to do. Is Congress going to enact legislation that will bring back the estate tax and preserve the step-up in basis? Or will Congress fail to act and we'll have a one year hiatus from the estate tax, but heirs will inherit appreciated assets with a carry-over basis instead of a step-up in basis?

Who knows? We are now is a state of limbo. Congress should act immediately regarding the estate tax so that families that are grieving the loss of a loved one can also have some certainty with regard to the estate tax and the settling the estate of a loved one.

Understand Tax Laws Before You Sell or Donate Appreciated Property

I was visiting with a wonderful married couple today. They had seen me speak to a big church group a while back and they attended my Barnes & Noble book signing and mini-seminar. They were telling me how fantastic their children and grandchildren were.

They have owned some acreage for many years. It has appreciated significantly in value, but they are not at risk for paying federal estate tax (at least not unless there are some major changes in estate tax laws - which might happen). They were considering selling this property to one of their grandchildren. I pointed out that if they sell this property to their grandchild, they will pay approximately $100,000 of capital gains tax because there has been so much appreciation since their original acquisition.

However, if the grandchild inherits this property, then the grandchild will inherit it at a stepped-up basis. All of that appreciation that would be taxed if they sold or gave away would no longer be taxed.

Here's my rule: If you are certain there will be no federal estate tax, DON'T GIVE AWAY APPRECIATED ASSETS. If you give them away, your donees will receive your basis (called a "carry-over" basis). Let your heirs inherit the asset and let them enjoy the stepped-up basis.

Of course every circumstance is different and other factors may affect your decision, but make sure you know the rules before you take action.

Force Beneficiaries of IRA to Take Required Minimum Distributions By Naming Trust as Beneficiary

Have been asked a couple of times in the last couple of weeks to help people set up their IRAs so that when they die, the beneficiaries could only receive the required minimum distribution (RMD) from the IRA.

The reason people typically want to do this is twofold:

1. You virtually can guarantee that your beneficiary will receive annual income for the rest of the beneficiary's lifetime. The rules say that a non-spouse beneficiary must take RMDs over the beneficiary's life expectancy.
2. You can prevent your beneficiary from taking a lump sum distribution - requiring a hefty income tax bill - and then blowing the inherited funds.

Here's how it works:

• Determine who you want your beneficiaries of your IRA to be. It might be your children, your grandchildren, or other loved ones.
• Determine who will be the trustee of your "Stretch IRA Trust." This should be a responsible person or a trust company that will manage your IRA after your death and distribute to your beneficiaries their RMD amount.
• Work with an attorney like me to establish your Stretch IRA Trust.
• Give a copy of your Trust to your IRA custodian and make sure they will comply with the terms of your trust after your death.
• Name your trust as primary or contingent beneficiary of your IRA. Perhaps - if you are married - you want your spouse to be your primary beneficiary, and you want your trust to be the contingent beneficiary.

Paul Rabalais

Annual Gift Tax Exclusion Increases To $13,000 In 2009

During the calendar year 2008, individuals can make gifts of up to $12,000 to as many people as they'd like withou gift tax consequences.

Starting January 1, 2009, individuals will be permitted to gift $13,000 annually to individuals.

Note that this is NOT an income tax rule. Generally, gifts, regardless of the amount, do not have income tax consequences. 2009 gifts exceeding $13,000 per donee will require the donor to file a federal gift tax return and report the gift.

Note also that the State of Louisiana no longer has a state gift tax or a state inheritance tax. If you have questions about a Louisiana estate, feel free to send me an email at paul@rabalaislaw.com. I enjoy reading and responding to emails on a daily basis. Thanks.

Paul Rabalais

WSJ Reports on Portable Estate Tax Exemption

I recently read an October 15, 2008 article in the Wall Street Journal which discussed the presidential candidates' views on the federal estate tax - my dad showed me the article. It appears that both candidates favor making the estate tax exemption "portable," which means that the exemption would be transferable from one spouse to the other.

This would be a major change to the estate tax law. Currently, if the first spouse to die leaves all of his or her assets to the surviving spouse, the couple wastes one of the estate tax exemptions that is available to each of them. Currently, if a Louisiana couple wants to make certain that each spouse uses the maximum amount of their exemptions, they must either leave each other the lifetime usufruct, or they must set up trusts (either revocable living trusts or testamentary trusts), so that the first spouse to die's assets do not go directly to the surviving spouse.

Making the exemption portable would especially help couples that have the vast majority of their wealth in a company retirement account or an individual retirement account (IRA). The surviving spouse is often named the beneficiary of these accounts, which under our current system, overuses the marital deduction and unnecessarily lumps assets into the surviving spouse's taxable estate. Making the estate tax exemption portable may solve this problem since the surviving spouse will be able to protect "double" the estate tax exemption.

If you have questions about minimizing federal estate tax - particularly if you are a Louisiana resident - feel free to send me an email at paul@rabalaislaw.com

Paul Rabalais