Procrastinators Programs SM Estate Planning Basics: That Pesky Cocktail Party Question - Do I Still Need a Will? Patrica A. Garcia Course Number: 0200141210 1 Hour of CLE December 10, 2014 11:20 a.m. 12:20 p.m.
Patricia A. Garcia has been an owner/principal of a law practice in New Orleans since February 1990. The Law Offices of Patricia A. Garcia specializes in estate planning and successions, as well as small business planning. She is a member of the New Orleans Bar Association (President 1992-93), the Louisiana State Bar Association and the American Bar Association. Ms. Garcia is a 1980 graduate of Loyola University School of Law and received her undergraduate degree from the University of New Orleans.
THAT PESKY COCKTAIL PARTY QUESTION: DO I NEED A WILL? Estate Planning Basics Patricia A. Garcia THE WILL WHO NEEDS A WILL? American Bar Association statistics reveal that more than 70% of all Americans don t have wills. Why should anyone write a will? 1. You want to make it as easy as possible on your heirs when you are gone. 2. If you have young children, it is critical to communicate your wishes as to who will take care of them if their parents are gone. 3. If you are married, you may need to take certain actions to protect your spouse s rights during his/her lifetime. 4. If you have no spouse or children, your estate may be inherited by siblings, or even aunts, uncles and cousins you barely know. 5. If you or your spouse has children from a previous marriage, a will is the only way to make sure that everyone is protected and treated fairly. 6. If you have no spouse but do have a significant other, that person has no legal rights whatsoever without a will. 7. Without a will, you are not able to leave bequests to your favorite charities.
TYPES OF WILLS Louisiana recognizes two forms of testament olographic and notarial. An olographic will must be written entirely in the testator s own hand. A notarial will must be signed by two witnesses and a notary. The Code makes provisions for testators who can t see, can t write, or are otherwise physically disabled. La. C.C. Art. 1574 et seq. Why involve a lawyer if a valid will can be written by the testator himself? Testators may include provisions that are contrary to law, which may invalidate all or part of the will. If the wishes are not perfectly clear and unambiguous, they may be misinterpreted by the court after death. WHERE TO START Estate planning begins with gathering information. Probate assets (those disposed of pursuant to the will): family home other real estate interests in a business stocks and bonds bank accounts personal property (jewelry, furniture, clothing, etc.) An inventory of significant outstanding debts should also be made. Non-probate assets (those that transfer automatically to another person upon death): proceeds of insurance policies where beneficiaries are named 2
retirement plans, IRAs, or other accounts that are payable to beneficiaries property owned jointly with rights of survivorship assets held in trust The second step is to determine the testator s goals with respect to the estate. Another important decision is the designation of estate representatives. By law, that individual is responsible for amassing and preserving your assets, paying creditors and taxes, and distributing the remaining property among beneficiaries. In general, this should be the person most likely to be able to assist the lawyer handling the succession in locating and describing the assets of the deceased. If the estate representative is designated as an independent Executor, he will have the power to transfer property on behalf of the estate without prior court approval. This can save a great deal of time and money in certain instances. However, it also gives a great deal of power and discretion to the executor, so the decision should be considered carefully. Details about independent administration can be found in La. CCP Art. 3396 et seq. FAMILIES AND FEUDS Forced heirship has been virtually abolished by the State of Louisiana. Children are forced heirs only if they are 23 years of age or younger; grandchildren can be forced heirs under certain circumstances if their parents are predeceased; and children of any age may be forced heirs if they have permanent physical or mental infirmities which render them incapable of caring for themselves. Legislation over the ten years since this concept was enacted has raised some serious questions about this last provision. La. CC Art. 1493 et seq and related caselaw. When leaving a descendent out of a will, or leaving unequal portions to different children, the key is to be specific. Parents have often given substantial amounts to their children during their lifetime, and that is also not always equal. You should discuss with a testator whether he wishes to equalize this through his will, or dispense with collation. In either case, this should also be stated clearly and unambiguously. It is usually not advisable to burden a will with a lengthy recitation of all of a testatrix s furniture, jewelry and other personal items. In many families, this can be handled through an 3
adjunct non-binding letter, listing specific items. If the document is written entirely in her own hand, dated and signed, it may be able to be used later as a codicil if necessary. WILL FACTS AND TIPS A will is effective until it is replaced or revoked. It may be altered by executing a new will or by adding a codicil, which is done in the same manner as a will. Writing on the original document itself could invalidate the entire will. For most clients, the original will and other documents are retained in our office safe. A safe deposit box is usually NOT the best place to keep estate planning documents. To the greatest extent possible, wills should be written in plain language using short sentences. Specific bequests should be SPECIFIC and leave no room for guesswork. Wills should not contain burial instructions. Married couples cannot write a joint will. However, it is a good idea for them to plan together in order to best accomplish their goals. For tax purposes, it s often not a good idea for one spouse to leave all of her assets to the other. However, for most families it can be a good idea to leave the family home and vehicles in full ownership to the spouse. Estate plans should be reviewed every three to five years, and any time life circumstances change substantially. POWER OF ATTORNEY A general power of attorney (often called an Act of Procuration in Louisiana) will enable your clients to appoint someone they trust to act on their behalf should they become incompetent. 4
This can be a critical document, sometimes overlooked by individuals who believe they have taken all necessary steps to protect their loved ones and their assets. The document can be structured to take effect immediately upon its being signed, or it can go into effect upon proof of incapacity. LIVING WILL/MEDICAL POWER OF ATTORNEY A living will instructs those providing an individual s health care of the manner in which he wishes to be cared for if he should become permanently incapacitated and/or terminally ill. Another part of such document, or a separate document, is the appointment of someone to make medical decisions on his behalf when he is unable to do so. This document, as authorized in LRS 40:1299.58.1 et seq., does not require notarization to be valid. Although we usually think of this document as one needed in the event of terminal illness, it can also be used to appoint someone to authorize medical action if one is in an accident or other emergency situation. The designation of a health care proxy is especially important if there is no spouse, children or a parent who would have such right by law. TRUSTS A trust is a legal arrangement through which you give property to a trustee to manage for the benefit of a person, persons, or a class of persons. There are two main types of trusts: testamentary, which go into effect when you die, and living ( inter vivos ), which take effect during your lifetime. A testamentary trust is a trust created pursuant to a will, and thus comes into existence only after the testator s death. These trusts are most often used in wills to assure that children are taken care of after both parents die. By including this in a will, a testatrix can designate a tutor or tutrix of minor children to take care of their person; and a trustee to take care of their finances. These are often not the same person, as there may be different appropriate individuals for the different tasks. The trustee can be given great latitude to distribute funds to children as needed. 5
Specific ages can also be set forth at which a percentage of the funds can be distributed in a lump sum. Such a setup is not limited to minor children. A testamentary trust can also be used to establish a special needs trust for a family member or other individual who is receiving or expected to receive governmental assistance which is dependent upon certain minimal income and asset levels. Inter vivos trusts can be vehicles to provide for certain actions to take place with the best possible tax consequences. If used, they should be prepared in conjunction with a will, which ensures that any remaining assets (such as furniture) are transferred to the beneficiaries. While there are many benefits to a trust, there are also some disadvantages. Most inter vivos trusts involve some degree of loss of flexibility or control over assets. A revocable trust will not save estate taxes and frequently saves little, if any money in probate costs. Probate in Louisiana is simple and inexpensive for most ordinary folks. These trusts have received much favorable publicity but are not always advantageous. It can appoint someone to handle financial affairs on a person s behalf should he or she become incompetent a power of attorney, however, would achieve a similar result. An irrevocable trust is sometimes created by individuals who have the ability and inclination to completely relinquish control over a sizeable part of their estate. If the testator uses up the federal tax exemption, or a part thereof, during lifetime, the property, and the appreciation on that property, between the time the property is transferred to the trust and the time he dies, escapes estate tax in the estate. The income on the property transferred is also outside the estate. Clients should be cautioned that if the sole purpose for such a trust is to diminish the estate for the purpose of qualifying for Medicaid or completely avoiding taxes, loopholes have been closed; it may not work at all; and significant penalties may be imposed on both the client and the attorney. 6
TAXES There are some basics that everyone should know that will help in the planning process. 1. Louisiana inheritance taxes were gradually phased out and no longer apply for those who died after July 1, 2004. There will still be some estate taxes due to Louisiana if the deceased surpasses the federal exemption level. 2. The current status of federal inheritance taxes is an exemption of $5 million per person. 3. Know when to bring in a CPA or tax attorney. Patricia A. Garcia Post Office Box 19242 New Orleans, LA 70179 504-288-4569 pagarcia@pagarcialaw.com 7
LAW OFFICES OF PATRICIA A. GARCIA PREPARATION FOR ESTATE PLANNING MEETING If any of the following documents exist, they should be brought to the meeting: * Existing Will. * Living Will and/or Medical Directive/Medical Power of Attorney. * Power of Attorney. * Bank statements/broker statements * Life insurance policies. * Pension, profit sharing, stock bonus or deferred compensation plans. * Buy/sell or stock redemption agreements. * Trust instruments. *Business agreements and documents regarding interests in corporations, partnerships, LLCs, sole proprietorships, and the like. * Post or pre-nuptial agreements. * Instruments creating spouses' separate property (Successions of parents, siblings, or others from whom you inherited property). You should also provide information regarding the following: *Your marital status (specific dates and court information of any divorce), names and dates of birth of all children * Overview of assets with approximate values (real estate, vehicles, checking account, savings account, stocks, bonds, CDs, annuities, retirement plans, unusually high value jewelry or art). * Special bequests: particular items, or specific sums of money to an individual, charity or other entity. * Person or persons you want to leave the balance of your estate, in what proportions. * Full names, addresses, SSNs of those individuals and entities * Executor/executrix (who will assist your attorney in managing your estate after your death), and an alternate. * If your children are minors, who do you wish to take care of their money and their person (can be two different people). * If your children are minors or young adults, do you want to leave their inheritance in Trust to be distributed gradually? 8