In Louisiana, if you die without a Last Will and Testament, the Court through the probate process, is directed to put ownership of your assets in the name(s) of your heirs according to law. Read on for more information about how this happens. But first….
What Property is Subject to Probate?
Under Louisiana law, there are classifications of property. The first is “separate property” and the second is “community property” which is owned jointly by husband and wife.
Community property is property acquired by and held in common between the spouses during their marriage. Separate property is property acquired by either spouse before marriage, or property inherited by a spouse during the marriage. There can be exceptions. In the majority of cases of clients who have been married for many years, usually all or most of their assets are owned as community property. Think of it like this:
Autos & Boats
Stocks and Bonds
Upon the death of one spouse, all of the community property is divided straight down the middle. One-half of the community property belongs to the estate of the deceased spouse, and the other one-half belongs to the surviving spouse. All of the separate property belonging to each of the spouses belongs to them separately. This distinction is critical, because if one dies without a will and with separate property, the law pertaining to who has the right to inherit the community property and the separate property is often very different.
<Estate of First Spouse to Die>
½ Autos & Boats
½ Real Estate
½ Stocks and Bonds
PLUS: His Separate Property
½ Autos & Boats
½ Real Estate
½ Stocks and Bonds
PLUS: Her Separate Property
If I Die Without a Will, Who Will Get my Separate Property and my ½ Share of the Community Property?
Louisiana has created a statutory framework that dictates that if you die without an estate plan, a Last Will and Testament or a Trust, your property will be owned after your death in certain proportions and ways, depending upon your marital status, your children, and the classification of your property, whether Community Property or Separate Property.
Single or Widowed. If you are single or widowed and you don’t have an estate plan, your property will be inherited by each of your children equally.
Married with Community Property. By default, if you die without a Will, your surviving spouse will get to “use” (called a “usufruct” in Louisiana) your one-half share of your community property until your surviving spouse dies or remarries. Upon death or remarriage, the usufruct terminates, and the ownership of your community property will devolve to each of your children equally (whether these children are from prior marriages or not).
Married with Separate Property. By default, if you die without a Will, your surviving spouse gets no right or interest in your separate property. Your separate property devolves directly to each of your children equally.
This distinction is important for many married clients with separate property. I often see clients in my practice with the following fact pattern. Husband and wife are on their second or third marriage, with children from prior marriages. Husband owns the house that the married couple is living in because the house was purchased by him before his marriage to his wife. Without a will, and upon the death of the husband who owns the house, the house will be inherited by the children of the husband. Those children would then have the legal right to kick the wife out of the house leaving the surviving spouse homeless!
A similar problem can occur with liquid assets such as cash, stocks, or bonds that are separate property.
I don’t like these results! What can I do?
There may be many reasons that you may not like these results. For example, if you have a house that is separate property, you may want to execute a Last Will and Testament or Living Trust which specifically gives the right to your surviving spouse to live in the house until death. You need an estate plan.
Also, let’s say you want to disinherit one or more children, or you want to leave one or more of your children more or less property than they would otherwise inherit. Under Louisiana law this is generally permitted, with certain limited exceptions relating to Forced Heirship. It is your property. You decide. But you need an estate plan.
Also, you may want to leave to each of your two children child roughly the same value of assets, but you may not want give them the same proportion of assets. For example, you and your spouse may want to give one child 100% of the house valued at $300,000, and give another child 100% of the business that he/she has been working with you in for many years also valued at $300,000. If you died without a Will or a Trust, each would get 50% of each asset. This might create problems. Again, you will need an estate plan.
The bottom line is that if you don’t like the rule established by the State of Louisiana, you need to vary from those rules by creating your own estate plan.
The State’s Rules are Fine by Me! Do I really Need an Estate Plan?
If you have assets, the answer is almost always YES! I can’t stress strongly enough, an estate plan is more than just where you want your “stuff” to go after you die.
A proper estate plan should include at least the following by a qualified estate planning attorney (preferably one well versed in both the tax laws and laws pertaining to Medicaid qualification):
- Asset protection review;
- Long-term care planning considerations;
- Tax planning considerations, such as estate tax and income tax considerations, including “step-up” in tax basis review;
- Review of beneficiary designation forms for life insurance and IRAs;
- Disability planning for a child or grandchild with special needs such as Downs or Autism;
- Rollover and stretch-out of large IRAs and qualified plans after death;
- For a client with one or more businesses, review of a business succession plan and tax minimization strategies; and
- Possibly (where circumstances warrant) probate avoidance.
For example, if a Husband (“H”) and Wife (“W”) know that they want to leave their property one-half (1/2) to each of their two children with a usufruct to the surviving spouse at death, then there are no “dispositional issues”.
No Long Term Care Plan. However, other issues may include lack of a long-term care plan. Suppose H and W do not have long-term care insurance, and they are concerned about the costs of either one of them staying in a nursing home and depleting their assets. They need a plan.
No Tax Plan. Or suppose they have a business or expect to have more than $5 million in assets on the death of the first spouse to die. They can be subject to the federal estate tax and they will need significant estate tax and income tax planning. They need a plan.
No Special Needs Planning. Or suppose it’s H and W has a child or grandchild with special needs or is disabled. H and W risk having their loved one kicked off of Medicaid if they leave their loved one an inheritance. They need a plan.
No Plan for IRAs and Qualified Plan. Or suppose H and W have an IRA and 401(k) accounts that aggregate to $500,000 or more. If they name their children as beneficiaries, they might (1) lose the spousal rollover; and/or (2) miss out on the stretch-out of the IRA and 401(k) over the lives of the children or grandchildren; and/or (3) cause a “blow out” of their IRA and 401(k) assets by paying significant taxes upon death or when the children withdraw the funds willy nilly. Too often, these issues are not addressed by a financial advisor (even assuming the client has one). They need a plan.
No Business Succession Plan. Or suppose H and W have a business and one child is working in the business and the other children are not. Or else they are partners with someone else whom they are not related to. They need a business succession plan.
The list can go on and on and on.
But I have a Will drafted by my Local Attorney who does divorce and personal injury as well. I should be all set, right?
Not necessarily. Can an attorney that is a “general practitioner” handle all of the issues raised above? Let me ask the question this way: Would you go to your doctor who is a General Practitioner for a heart issue? No, you would consult a heart specialist. Would you go to a “general practitioner” if you had cancer. No, you would consult a go to an oncologist. But too many people think that consulting a “general practitioner” who does more divorce and personal injury work than estate planning is a wise choice. It may not be.
The attorney may have given the right advice to the client, but more often than not, obtaining a “Will” without a proper estate plan can give you a false sense of security.
I can’t stress strongly enough: Estate planning is not merely a Will or other document. Estate planning involves an understanding of all the pitfalls that may befall you, your family and your stiff. This can be properly be done best by a qualified experienced estate planning attorney.
An initial consultation with the Vicknair Law Firm is free. You have nothing to lose, and everything to gain.