The information below is designed to answer some frequently asked questions about the estate planning process in Louisiana. Please be forewarned that this is general information which may not apply to your situation, depending on the particular facts and circumstances. The information below is not meant to constitute legal advice; always consult a competent legal advisor, preferably one certified as an estate planning and administration law specialist by the Louisiana Board of Legal Specialization, to obtain advice pertinent to your specific problem.
1. How much property can I leave to my loved ones without paying federal estate tax?
You may leave $5,490,000 (2017 amount) of property to your heirs without paying federal estate tax. This exclusion is indexed for inflation each year.
2. How do I avoid wasting the federal exclusion?
Effective for persons dying after 2010, the unused exclusion is portable from your “last deceased spouse”. To illustrate, Husband1 dies with a taxable estate of $3.49 million. His unused exclusion of $2 million may be allocated to his Wife so that she has a $7.49 million exclusion. If Wife marries Husband2 who dies with a taxable estate of $4.49 million, her exclusion is then only $6.49 million (her own $5.49 million plus the unused exclusion from Husband2 of $1 million). The greater unused exclusion from Husband1 will be lost if unused because the unused exclusion of the last deceased spouse now becomes the amount available. Now assume Wife dies before Husband2 with a taxable estate of $3.49 million. Her unused exclusion of $4 million ($7.49 million less $3.49 million) may be allocated to Husband2.
The executor of the estate must prepare a complete estate tax return in order to compute the taxable estate and the unused exclusion even though no estate tax is due. The executor may elect to allocate the unused exclusion to the surviving spouse only on a timely filed estate tax return. Otherwise, the unused exclusion may be lost.
3. Why can’t I just leave everything to my spouse since the exclusion is portable?
Although there may be good intentions to create reciprocal Wills for the same ultimate heirs when both spouses are alive, outside influences after the death of the first spouse can undo the best-laid plans. Unless the ultimate heir’s inheritance is vested upon the first spouse’s death, unintended persons may end up with the wealth (housekeeper, care giver, new spouse, gold digging girlfriend, or Lothario, for example).
To ensure the children eventually get something, spouses typically leave each other a usufruct interest for life over their estate with the naked ownership of the property passing to their children. If their children are minors, this naked ownership is placed in trust until they are of a more mature age.
A usufruct is the right to use and enjoy the property subject to the usufruct. The right of use depends upon whether the thing is a consumable or a non-consumable. A consumable is a thing which you cannot enjoy without using it up. For example, if you have a usufruct of cash, you cannot enjoy the cash without spending it. Accordingly, the usufructuary becomes the owner of the cash and must simply account to the naked owners at the end of the usufruct for the amount of cash which was subject to the usufruct. A non-consumable is a thing which you can enjoy without destroying the substance of the thing. For example, a spouse with usufruct of a house can live in the house or rent the house without having to destroy the house. At the end of the usufruct, the naked owners become the full owner of the thing.
The children (or their trust), are referred to as naked owners because they can do little with the property left to them until the usufruct in favor of the spouse comes to an end.
To illustrate, assume husband dies with a community certificate of deposit worth $100,000 and a community house worth $80,000. The husband leaves his estate to his children, in naked ownership, subject to a usufruct for life in favor of his surviving spouse. The spouse and children obtain a simple judgment of possession in the husband’s succession proceedings.
The wife can do what she wants with her half of the CD, because it was hers to begin with. The wife can do what she wants with the husband’s half of the CD as usufructuary because it is a consumable. She must repay $50,000 to the children as naked owners at the end of her usufruct, which will be at her death. The children will file a claim in her estate for the $50,000.
With respect to the house, the wife owns one-half of the house and has usufruct over the other half. Unless the husband specifically grants her the right to sell his half of the house in his Will, she must obtain the children’s consent before the house can be sold. At that time the wife and children could agree to split the proceeds or to allow the wife’s usufruct to attach to the proceeds, thereby fixing the amount of money owed to the children at the end of her usufruct.
Louisiana is the only state in the country which allows the use of a usufruct to achieve estate planning. All other states typically require the use of trusts. In Louisiana, a trust is only needed if you do not ‘trust’ someone. If the children are minors, you may need a trust to hold their naked ownership interest. If a spouse is a spendthrift, you may need a trust to hold his or her interest so that it can be managed by a professional trustee. Otherwise, a trust is not necessary to achieve estate planning goals.
4. Does my Will dictate who gets what of my estate?
Certain assets pass outside of the probate process, such as life insurance and retirement plans. The proceeds from these contracts are paid directly to the stated beneficiary on the life insurance policy or the retirement plan. It is imperative to coordinate the beneficiary designation on these non-probate assets with the overall estate plan set forth in your Will.
5. Do I need a Will?
Absolutely. Even if you do not have a federal taxable estate, a Will may allow you to accomplish several other goals as follows:
1. Pick an Executor to avoid a fight over the job.
2. Set the compensation of the Executor.
3. Allow the Executor to choose assets to satisfy bequests.
4. Dispense with the requirement of posting bond.
5. Allow for independent administration of the estate without court supervision.
6. Make specific bequests.
7. Apportion debts and death taxes among your heirs.
8. Dispense with collation, a Louisiana law which allows certain children to force other children to settle up for any advantages received from you three years prior to your death.
9. Appoint guardians (called tutors in Louisiana) for your minor children.
10. Consider forced heirship issues.
6. Do we still have forced heirship in Louisiana?
Force heirship is alive and well. Forced heirs include children under the age of twenty-four and children of any age who are permanently disabled physically or mentally. The protection for disability extends to disabled grandchildren whose parent is deceased with respect to a grandparent’s estate. Forced heirs also include grandchildren whose deceased parent would not have been 24 years old on the date of the grandparent’s death. And, in certain circumstances, a spouse can be a forced heir entitled to the minimum marital portion.
We hope that this information will be useful to you. The importance of proper estate planning cannot be overemphasized. We will be happy to answer specific questions in a personal and confidential meeting. Please call our offices to schedule an appointment with Ray Ladouceur, 985-898-2131, ext. 1006.