Do homework to organize an estate plan

By Peter Finney Jr., Clarion Herald, Elder Outlook

Retirement and estate planning can be daunting, especially for the uninitiated, so it’s probably not the wisest thing to entrust those decisions to someone who merely plays an estate planner on television or who was wise enough to spend one night at a Holiday Inn Express.

When it comes to financial planning and making sure your assets are protected in the best way possible, it’s always a good idea to rely on those with experience and respect in the field.

Gregory S. LaCour, an estate planning and corporate planning attorney with Blue Williams, L.L.P., and the treasurer of The Catholic Foundation, offers the following advice on getting your financial and estate plans in order:

Tax facts

Death or inheritance taxes are not an issue except for the mega-wealthy. Louisiana eliminated inheritance taxes in 2004. Currently, the federal exemption for inheritance taxes is $11.2 million for an individual and $22.4 million for a couple.

“Most of us don’t have to worry about death taxes,” LaCour said. “If somebody is telling you otherwise, be careful.”

Privacy

State law now provides a mechanism to protect privacy in a succession proceeding so that a third party cannot review the decedent’s assets contained in a detailed descriptive list, which must be filed in the succession.

“If you have a will and independent administration, the court can seal the descriptive list so people cannot see what the decedent owned,” LaCour said.

Goal of estate planning

The goal of estate planning should be to maximize control over your life and your assets and to minimize the involvement of the court system, LaCour said.

“For example, you do not want a judge deciding who’s going to raise your minor children,” he said. “Estate planning usually involves four documents – the will, the living will and the powers of attorney, both financial and medical. A living will concerns end-of-life decisions. There is no such thing as a ‘Catholic’ living will, but for my clients, I create a Catholic living will which is in accordance with the teachings of the Catholic Church. Among other things, this Catholic living will alerts hospital staff that you are Catholic in case a priest is needed.”

Advice for people in their 20s and early 30s

It is very important for young adults to create a will, powers of attorney and a living will, particularly to determine who would raise their minor children in the event of their parents’ deaths. If money is tight, Louisiana recognizes, as a valid will, a handwritten (olographic) will, which must be entirely written, signed and dated on every page in only the handwriting of the testator (the individual creating the will). A notarial will is done with an attorney. At this stage in one’s life, LaCour recommends at least taking out term life insurance, which is relatively inexpensive. 

“If you die unexpectedly at a young age, you do not want to leave your spouse alone to face the debt and expenses that you have,” LaCour said. “Also, it’s important to educate yourself financially. Dave Ramsey has written books such as ‘Total Money Makeover.’ Read up on good financial advice and get out of debt as fast as you can. Hopefully, these individuals did not go into $100,000 or more debt for an undergraduate degree when most of these individuals still had to go to graduate school to get a job.”

Advice for people in their upper 30s through 40s

At this stage, you really need to formalize your estate plan (with a will, powers of attorney and living will). Again, life insurance is very important because of high school and college tuition expenses.

“I also stress the importance of umbrella insurance,” LaCour said. “As you begin to build assets, you need umbrella insurance on top of your homeowner’s and car insurance. It’s not very expensive. You can buy $1 million in coverage for less than $500 a year. Your $300,000 car insurance isn’t really enough.”

Advice for people in their 50s and older

Individuals at this stage of their lives should review their estate plan every five to seven years, LaCour said.

“Also, individuals should review their estate plans at major events in their lives, like death or divorce,” he said. “Make sure all your beneficiary forms (for IRAs, 401-Ks and life insurance) are accurate. These assets are all governed by beneficiary forms and not by a will.”

LaCour said it is not a good idea to transfer assets, such as a house or real estate, right before death into an irrevocable trust because the family will lose a valuable “step-up in basis” tax advantage.

“Let’s say your mom and dad bought a house for $50,000,” LaCour said. “When one of them dies, the cost basis of the house goes up to the present value of the house. When the second parent dies, the cost basis goes up again. Now, the house might be worth $300,000. When the house is sold for $300,000 after the death of both parents, the children of the deceased parents who inherited the property after death would not have to pay taxes on the house.  However, if the house is transferred before the parents die, the cost basis would remain at $50,000, and the children would have to pay the taxes on the increased value of the house ($250,000) should they sell the house.”

LaCour said the goal for a married couple should be to provide for each other first before taking care of children. Life expectancy is increasing – it’s about 87 for women.

“I also advise deferring taking Social Security as long as you can (because the Social Security payments increase until about age 70), but you should talk to your financial advisor,” LaCour said.

Warning on inter vivos (living) trusts

There are two types of trusts: living/inter vivos trusts and testamentary trusts in wills.  

For living trusts, LaCour said, a person must retitle all assets into the trust or else the assets are not included in the trust. Examples of these assets are bank accounts, cars, houses, brokerage accounts, boats, real estate. 

“At your death, those assets must be titled in the name of the trust and not in your name,” LaCour said. Most people who do this living trust strategy do not properly retitle the assets in the trust and thus are required to do a succession.

Many times, attorneys who advocate for the living trust strategy may not review a person’s particular circumstances, but instead just use a generic, form-based product that most people really do not need, LaCour said. The attorney’s fees to follow this strategy are significantly higher than doing a will, he said.

Succession scare tactics

Most successions in Louisiana are very straightforward, quick and inexpensive, LaCour said. It is not a complicated process and simply involves retitling assets to the heirs or legatees.

“If someone says how difficult and expensive the succession process is, first find out if those statistics being cited are even from Louisiana, or rather from states such as Florida or California,” LaCour said. “Most living trusts are not necessary and will cost the client more money than a typical estate plan (will and succession). Even when using the living trust strategy, and assuming that all assets were retitled into the name of the trust when a person dies, the family still will have to hire an attorney to move those assets out of the trust.  Unfortunately, many attorneys using the living trust strategy fail to mention this to their clients.” 

Irrevocable trusts

A living trust can be irrevocable (permanent) or revocable (it can be undone). In addition to losing the “step up in basis” if property is transferred before death into an irrevocable trust, an irrevocable trust affords children the right to access the parents’ financial information if the children are named as beneficiaries in the trust. Under state law, that would mean annual accountings by parents to their beneficiaries (children) and the right of the children to obtain their parents’ other financial information. Again, at the death of the person who created the irrevocable trust, an attorney must then be hired to retitle the property out of the trust. Until this occurs, the costs of administering the trust and the legal expenses are significant and probably are not discussed by the attorney advocating for the living trust.

“Also, if the strategy is to avoid succession, please note the contradiction if the clients who chose the living trust strategy are also provided with a will.  If you have a will, you most likely will have a succession. The reason these clients are given a will, even though they created a living trust, is because the attorney advocating the living trust knows that the clients most likely will not retitle all assets into the trust and thus will need a succession anyway,” LaCour said. “Thus, you are paying significant money for a living trust now, yet you will still have to pay for a succession later.”

Revocable trusts

LaCour said revocable trusts provide no creditor protection or tax advantages.

“Also, after the death of the person who created the trust, one still needs to hire an attorney to retitle property out of trust after death, so there will be attorney’s fees and costs, administrative expenses and costly trust tax returns until the trust is terminated,” he said.

Medicaid planning

In order to meet the low-income requirements of Medicaid, which pays for nursing home care, among other things, some parents consider transferring their home and other assets to their children or to third parties. To “qualify” for Medicaid, a person is only allowed to own limited assets. Thus, some individuals transfer all of their assets to their children in order to qualify for Medicaid.

However, there is a five-year “look-back” period after this transfer occurs, meaning  if you transferred assets to a family member during the five years and you apply for Medicaid, your application may be rejected or your eligibility for benefits delayed when you need them most. The look-back period is designed to prevent people from making themselves poor “on paper.”

“I’m not a big fan of that strategy,” LaCour said. “You are in essence giving up total control of your assets to your children or to a third party. This would concern me. Also, you are shifting the burden of paying for your parent’s Medicaid care to other taxpayers instead of using your parents’ assets to cover those costs.

Finally, LaCour said Louisiana Attorney General Jeff Landry has published an article on elder fraud prevention at www.AGjeffLandry.com where he discusses the dangers of living trusts.

Gregory S. LaCour is an estate planning and corporate planning attorney and a partner with Blue Williams, L.L.P., and is the treasurer of The Catholic Foundation. He can be reached at glacour@bluewilliams.com.

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