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ESTATE PLANNING - PART 2

Updated: Feb 4, 2023



This article was originally written for and published in The Business Bulletin.


I wish I could think of a way to make this subject more entertaining, but it’s kind of tough. “Somebody’s gotta do it!” So stick with me and we’ll finish. If you read the last article, you have hopefully decided to give some attention to this subject and have thought about the process of dying and how you would like to have your estate handled.


First I want to explain the process of Probate, or Succession, as it is called in Louisiana: Probate is simply the legal process that ensures that the property of the deceased one is distributed fairly and legally. For now forget about the hype of “avoiding probate” and look at it as being there for our good, especially for those who have not prepared a will or other directive.


Probate for the intestate (those that die without a will):


John and Mary Doe die without a will. They have three children: Jack, Jill and Jerry. For purposes of simplicity, let’s assume John dies, and Mary follows about a month later. They have a house, a car, and other personal assets. It might help to pause a moment and define some legal terms:


  • Real Property: Land and buildings and improvements to them, usually immovable.

  • Personal Property: Any property other than Real Property, usually movable.

  • Intangible Property: Something with value that you can’t hold in your hands, for example, the worth of going concern of a business, or the name of a business, or stock in a company.


The three children meet after the Mary’s funeral and decide that they’ll appoint Jack to sell the house and car and they will get together to split up the personal property. Jack finds a nephew who is ready to buy the house, so he goes to a local attorney to ask him to handle the transaction. He is surprised to find that the deal cannot go through until there is a probate, or actually two probates. Why? Because John and Mary Doe are not physically there to sign the paperwork selling the property that belongs to them. The title cannot transfer without their permission, or a probate happening.


In the absence of an individual to sign the documents selling his real estate, there must be a representative. Since in this case there is not a will appointing an executor, the attorney begins the process of probate and applies to the Judge that Jack Doe be the executor for the estate. Usually the law requires that a period of time elapse while this appointment and prospective sale is advertised in the local newspapers in case the other heirs or some other party would like to protest. If all is clear, the Judge appoints Jack as executor and charges him with being just and fair. He now has power to sell and distribute the assets, and pay any debts or taxes owing. When he has completed his duties, he informs his attorney, who makes a report to the Judge. If it appears that he acted in the benefit of the heirs, the estate is then closed after another period of advertising.


This process can easily take six months or more. It results in frustration and expense in most cases. A similar, but more onerous process must happen if there are children orphaned and no guardian has been named in a will. Again, if you have minor or disabled children, or if you own real estate, you need something. Do not procrastinate. Read on for your options:


Probate for those with a will:


After Mary’s funeral, the three children meet and open the will. John had mentioned to Jack earlier that he and Mary each had a will, stored in their fire proof box and that they had chosen Jack to be the executor. John visits an attorney who opens the probate process, meeting with the Judge. The will is accepted as authentic and Jack is assured that he has the power to distribute the assets. The land title is transferred to the ownership of the three children. He then sells the car and he and his siblings divide the personal property. As the new owners of the land they can keep it or sell it to the nephew. Jack makes a report to the attorney of how the distribution was made, listing the bigger items and their values. The attorney is able to close the estate with a hearing from the Judge. The procedure is quite simple, not too time consuming, and usually not too expensive. If there is no real estate involved, the process is very minimal, or may not even be required by law in your state.


Now I want to describe some methods (or “vehicles”) by which you can distribute your assets and provide for the guardian ship of your children, should they be orphaned.


Will


Using a simple will is still the most common way to do your estate planning. In many cases it’s the vehicle of choice, and if no real property is involved, it would almost always be the vehicle of choice. If you have nothing at all in place, at least begin with a will. There are several elements to include in a well written will:


1. Name your executor or executors, your representative(s).

2. Name the person(s) you wish to appoint as guardians or tutors of your minor or disabled children if they were to be orphaned. These individuals would not necessarily be charged with raising or adopting your children, but they would be given the responsibility of protecting them immediately and finding the proper home. They have the power to complete an adoption.

3. Explain how you would like to have your assets distributed. Be sure to mention any family heirlooms that may generate feelings.

4. This is your opportunity to give a set amount or percentage of your estate to the Church or other charity.

5. Life Estate or Usafrux: In community property states like Louisiana and Texas, you and your spouse are usually considered equal owners in your joint property. Your will deals with your part only. It is usually advisable for you to mention that you intend for your spouse to have Usafrux of the home. Then they will be able to use as if it were their own during their lifetime.

6. If you feel to disinherit somebody, you need to mention it in your will. You may want to mention that any monies owed by a particular heir(s) be deducted from their share of the estate, along with the location of the records. This is also your opportunity to forgive any debts owed you.

7. Finally at the end, insert a clause that mentions that if you have inadvertently stated something in violation to state law, that the remainder of the will be considered valid, with only that part struck out. Mention that this is your “last will and testament” and the date it is to be signed.

8. Sign the will in the presence of three witnesses. They do not need to read your will, they just need to be informed that you are signing your will in their presence and they will sign their names under yours as witnesses. In Louisiana and some other states, a notary should be present also.


Inter Vivos or Revocable Living Trust


This is a very good vehicle to use if your estate includes quite a bit of real estate. It is more expensive and time consuming to set up than a will, but settling the estate is much simpler so the extra time and expense is usually more than cancelled by that savings. A trust is an entity of itself that is created to hold the estate property. While you the owner of the estate are alive, you are the trustee, so you manage the assets in the trust almost as if there were no trust at all. Upon your death, the successor trustee(s) manages the assets. The successor trustee has complete power to buy, sell, or invest the trust assets as long as he acts for the benefit of the beneficiaries.


Here are the basic elements of the Living Trust:


1. Owners (grantors) and Heirs (Beneficiaries) are specified.

2. Trustees (usually the owners) and Successor Trustees (usually the executors) are specified.

3. A list of the assets transferred into the trust is made and a “pour over will” is drawn up. Only items transferred into the trust are part of the trust. If, after the trust is made, land or vehicles are purchased in the individual’s name, rather than in the name of the trust, they are not legally part of it. The “pour over will” is the catch all.


In the case of John and Mary, they ask their attorney to set up a Living Trust. They name themselves as the Trustees, with Jack as their successor Trustee. The beneficiaries of the trust are Jack, Jill, Jerry and the Church. They list the assets they transfer into the trust, usually their real estate and sometimes autos. These properties are actually legally transferred to and belong to the trust now. They mention their other untitled property as belonging to the trust. They make a short will, explaining that any property titled in their name is to be transferred to the trust at their death. They take care of any guardianship issues and any family heirloom issues in that will.


In due time John and Mary die and Jack is left with his responsibility as the sole Trustee of the trust property. After visiting with his siblings he sells the real estate to the nephew and deposits the funds in the trust checking account. The sale of the real estate and the vehicle is as simple as if it were his own. There may be a tax return due if rental or interest income is collected. After the monies are distributed to the beneficiaries, the trust is then closed down. Does a trust avoid probate? Not entirely in all cases, but it abbreviates it. I would recommend this vehicle to many of our older couples who own real estate and have families who have a high level of trust in each other.


NOTE: you must realize that your successor trustee is very powerful. He has the power to do what he wishes with your estate. Of course he is bound by the law to act in behalf of the beneficiaries, but the only way they can stop him is by taking him to court. DO NOT TRY TO WRITE YOUR OWN LIVING TRUST!


Joint Tenancy with Right of Survivorship and Transfer on Death


These are similar vehicles that can be used in some states. Since we can’t use them here, I’m not very familiar with them, but they can be used to transfer real estate and vehicles to your heirs without going through the process of probate. A deed is drawn up and the real estate, for example, is titled as you giving the land to your heirs. But you are able to treat it as your own while you’re alive. At death the land passes to them. It’s quite simple and quite inexpensive. The disadvantages could be small or large.


If one of the heirs listed on the deed happens to die before you, it could disqualify the whole deed. In that case, you would die intestate if you didn’t also have a will. The tax consequences could be quite detrimental to your heirs when they sell the property, especially if you are giving them something with appreciated value. The tax implications are too complicated to discuss in this article.


Where from here? Get started!


You can actually start by drawing up your own will. Husband and wife need to have their own separate ones. Be sure they are typewritten, and properly witnessed at signing. Then, if you have real estate, go visit an attorney. He may tell you that your will is self-prepared will is sufficient, but likely he will prepare a better one for you for a reasonable fee. Ask him if he recommends a trust, or some other method for your situation. But the important part is that while you’re considering your options, you have something in place. Be sure to disclose the location of your original copies with the person you are asking to be your executor. Consider visiting with the people you’ve assigned to be your children’s guardians.


I will keep on hand at my office a sample of a simple Will, and a Durable Power of Attorney. If you would like a copy, call, fax or email our office and someone will get a copy for you. Remember that the Power of Attorney is to appoint someone to act while you are alive, if you can’t be there. The other vehicles are for after your death.


If you are looking for Medical Directives, such as a Living Will, or Medical Power of Attorney, contact your doctor or your local hospital and they will give you forms to fill in with check boxes and instructions. These are also issues that should be taken care of now, not later. May you “Rest in Peace” while living and in death, knowing that your affairs are in order.


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