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Monday, June 18, 2012

Important Issues to Consider When Setting Up Your Estate Plan

Often estate planning focuses on the “big picture” issues, such as who gets what, who should I name as the Executor of my estate, who should be named as Tutors for my minor children, should a living trust be created to potentially avoid probate, and what tax planning should I do to minimize gift and estate taxes. However, there are many smaller issues, which are just as critical to the success of your overall estate plan. Below are some of the issues that are often overlooked by clients and sometimes their attorneys. 

Cash Flow
Is there sufficient cash? Estates incur operating expenses throughout the administration phase. The estate often has to pay filing fees, living expenses for a surviving spouse or other dependents, cover regular expenses to maintain assets held in the estate, and various legal expenses and adminsitration costs and fees associated with settling the estate.

Taxes
How will taxes be paid? Although the estate may be small enough to avoid federal estate taxes, there are other taxes which must be paid. If the estate is earning income, it must pay income taxes until the estate is fully settled. Income taxes are paid from the liquid assets held in the estate, however estate taxes could be paid by either the estate or from each beneficiary’s inheritance if the underlying assets are liquid.

Assets
What, exactly, is held in the estate? The owner of the estate certainly knows this information, but estate administrators, successor trustees and executors may not have certain information readily available. A notebook or list documenting what major items are owned by the estate should be left for the estate administrator. It should also include locations and identifying information, including serial numbers and account numbers. Of course, the location of this information should be known to the personal representatives of the estate or a note in the attorney's file may suffice.

Creditors
Your estate can’t be settled until all creditors have been paid. As with your assets, be sure to leave your estate administrator a document listing all creditors and account numbers. Be sure to also include information regarding where your records are kept, in the event there are disputes regarding the amount the creditor claims is owed.

Beneficiary Designations
Some assets are not subject to the terms of a will. Instead, they are transferred directly to a beneficiary according to the instruction made on a beneficiary designation form. Bank accounts, life insurance policies, annuities, retirement plans, and IRAs allow you to designate a beneficiary to inherit the asset upon your death. By doing so, the asset is not included in the probate estate and simply passes to your designated beneficiary by operation of law.

Fund Your Living Trust
Your probate-avoidance living trust will not keep your estate out of the probate court unless you formally transfer your assets into the trust. Only assets which are legally owned by the trust are subject to its terms. Title to your real property, vehicles, investments and other financial accounts should be transferred into the name of your living trust.

All of these issues form part of an estate plan, and every one of them is a necessary consideration to make your plans for the furture complete. After all, the purpose of any estate plan is to plan today for tomorrow.

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Many & LoCoco

Attorneys at Law

 

 


Thursday, May 31, 2012

Preparing for Hurricane Season.

 

As you know, June 1st is the beginning of hurricane season. As always, this time of year provides a moment for the residents of New Orleans and the surrounding areas to make their storm preparations. 

However, it is also a good time to get into the habit of making a review of your estate plan part of those preparations as well.

In addition to the stocking of normal supplies, you should remember to put all of your important documents together in a secure location in a waterproof container. These documents should consist of your insurance policies, wills, birth certificates, marriage certificates, banking information, powers of attorney, living wills, titles to property, etc.

It is also a good time for you to reflect on your estate planning agenda and see if you have all of your plans in place.

Here are a few questions you should ask yourself every year at this time.

Do you have a will, living will, and Power of Attorney?

Have you named beneficiaries on your IRA and life insurance policy? Do you need to change any of those beneficiaries?

Have there been changes in your life situation for which your will and estate planning agenda needs to be revisited, such as the birth of a new child, a death in the family, or the start of a new job or business?

Using hurricane season as a reminder every year to think about your estate plan, will always make your plan current with your family's needs.

 

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Many & LoCoco

Attorneys at Law

 

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Thursday, May 24, 2012

What is Involved in Serving as the Executor of an Estate?

 

An executor is the person designated in a Will as the individual who is responsible for performing a number of tasks necessary to wind down the decedent’s affairs. Generally, the executor’s responsibilities involve taking charge of the deceased person’s assets, notifying beneficiaries and creditors, paying the estate’s debts and distributing the property to the beneficiaries.

Under Louisiana law, there is no prohibition from the executor also being a beneficiary of the Will, though he or she must treat all beneficiaries fairly and in accordance with the provisions of the Will.

First and foremost, an executor must obtain the original, signed Will as well as other important documents such as certified copies of the Death Certificate.  The executor presents the will for probate with the Court and seeks to be appointed as the Executor in that same pleading which is filed with the Court.

Once appointed by the Court, the Executor must notify all persons who have an interest in the estate or who are named as beneficiaries in the Will. A list of all assets must be compiled, including value at the date of death. The executor must take steps to secure all assets, whether by taking possession of them, or by obtaining adequate insurance. Assets of the estate include all real and personal property owned by the decedent; overlooked assets sometimes include stocks, bonds, pension funds, bank accounts, safety deposit boxes, annuity payments, holiday pay, and work-related life insurance or survivor benefits.

The executor is responsible for compiling a list of the decedent’s debts, as well. Debts can include credit card accounts, loan payments, mortgages, home utilities, tax arrears, alimony and outstanding leases. All of the decedent’s creditors must also be notified and given an opportunity to make a claim against the estate.

Once the executor has this legal authority, he or she must pay all of the decedent’s outstanding debts, provided there are sufficient assets in the estate. After debts have been paid, the executor must distribute the remaining real and personal property to the beneficiaries, in accordance with the wishes set forth in the Will. Because the executor is accountable to the beneficiaries of the estate, it is extremely important to keep complete, accurate records of all expenditures, correspondence, asset distribution, and filings with the court and government agencies.

The executor is also responsible for filing all tax returns for the deceased person including federal and state income tax returns and estate tax filings, if applicable. Additional tasks may include notifying carriers for homeowner’s and auto insurance policies and initiating claims on life insurance policies.

The executor is entitled to compensation for his or her services.  In Louisiana, the minimum fee is set by statute. It is equal to 2 1/2 percent of the gross estate of the decedent. The fee may be subject to review depending on the complexity as well as the time and effort expended by the executor. The fee is treated as income to the Executor and must be reported as income on their personal tax return.

The executor also has the absolute right to hire an attorney and a CPA to assist with the handling of the estate, all of their own choosing. Even if an attorney is listed in the will as the attorney for the estate, Louisiana law recognizes the right of the executor to choose who they wish to work with in handling the estate.

 

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Many & LoCoco

Attorneys at Law

 

 

 

 


Thursday, May 10, 2012

Thinking About Donating your Home to your Children? Not So Fast.

I am often asked by my (shall we say seasoned) clients about the wisdom of donating the family home to their children now. Usually, some family friend or one of the children has told the parents that this is a must and that they really should look into doing it as it will make things so much easier for the children when the parents pass.

While it is true that donating the home now will take the home out of the parents' estate, there are concerns that must be considered before doing so. After hearing the concerns, the clients usually agree that donating the family home is not the best idea for them. The concerns mostly deal with taxes.

First, if you donate the property to your children, you will lose the homestead exemption, which will greatly increase your property taxes.

The second concern deals with the concept of step-up in basis and how capital gains tax can come into play. For those who don't know, step-up in basis is a readjustment of value on inherited property. I will try to explain it by using a very simple example, and hopefully, will show you that donating the home is not always the right decision to make.

For our example, the premise is that Mom and Dad bought a home in 1980 for $100,000. Thus, their tax basis in the home is $100,000.

Let's say by 2012, the home has increased in value to $200,000. In 2012, Mom and Dad donate the home to their children.

Because it is a donation, the children do not get a step-up in basis. In other words, because the children are not inheriting the asset, the children’s basis is the same as Mom and Dad’s basis, which is valued at the time Mom and Dad bought the home back in 1980, namely $100,000, and not at the time of the donation in 2012. Thus, if the children sell the home for $200,000, they will pay a capital gains tax on $100,000, the amount above their tax basis.

Now, let’s change the example. Let’s say Mom and Dad do not donate the home to the children. They both die in 2012, still owning the home, and the home at the time of their death is now worth $200,000. The property is inherited by the chidren. Because the parents never donated the home to the children, the children (the heirs) get a step-up in basis to the value that the home has at the time of their parents’ death, namely $200,000. The new tax basis for the children is now $200,000 instead of $100,000. Thus, if the children sell the home for $200,000, there is -0- capital gains tax to pay.

Thus, taking these two concerns into consideration, the donation actually did not make things easier for the children, it actually caused a tax, which could have been avoided by not making the donation.

Now, after considering these concerns, if the client still wants to donate the property, there are some alternatives that can be looked into such as putting the home into a revocable trust to avoid the probate of the home thereof but still retaining all of the good tax benefits. 

If you would like a more in depth explanation on any issue discussed herein, and in particular, the concept of step-up in basis, call us and we would be glad to discuss it with you.

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Many & LoCoco

Attorneys at Law

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Wednesday, May 2, 2012

Top 4 Real Estate Tips for Small Businesses

For the vast majority of small businesses, the company’s first and only real estate transaction is entering into a lease for commercial space. Whether you are considering office, manufacturing or retail space, the following four tips will help you navigate the negotiation process so you can avoid any unpleasant surprises or costly mistakes.


Read the Lease

Don't laugh. You would be amazed at how many clients will sign a lease without ever taking a look at it. I would even go a step further though. Yes, it is important to read the lease, but just as important is to understand all of the terms of the lease. If it doesn't make sense, ask a real estate person or lawyer to explain it to you. Remember, it's better to know what you are getting yourself into instead of trying to get yourself out of it later.

“Base Rent” is Not the Only Rent You Will Pay

Most prospective tenants focus their negotiation efforts on the “base rent,” the fixed monthly amount you will pay under the lease agreement. You may have negotiated a terrific deal on the base rent, but the transaction may not be the best value once other charges are factored in. For example, the majority of commercial lease agreements are “triple net,” meaning that the tenant also must pay for insurance, taxes and other operating expenses. When negotiating “triple net,” ensure you aren’t being charged for expenses that do not benefit your space, and that you are paying an amount that is in proportion to the space you utilize in the building. Another provision to watch for is “percentage rent,” in which a tenant pays a percentage of revenue in excess of a specific amount. This may not be a bad thing, as it provides the landlord with an incentive to help ensure your company is successful.

There’s No Such Thing as a “Form Lease”

Most commercial property owners and managers offer prospective tenants a pre-printed lease containing your name and various terms. They often present these documents and adamantly explain that it is the landlord’s “typical form lease.” This, however, does not mean you cannot negotiate. Review every provision in the agreement, bearing in mind that all terms are open for discussion and negotiation. Pay particular attention to the specific needs of your business that are not addressed in the “form lease.”

Note the Notice Requirements

Your lease agreement may contain many provisions that require you to send notification to the landlord under various circumstances. For example, if you wish to renew or terminate your lease at the end of the term, you will likely owe a notice to the landlord to that effect, and it may be due much earlier than you think – sometimes up to a year or more. Prepare a summary of the key notice requirements contained in your lease agreement, along with the due dates, and add key dates to your calendar to ensure you comply with all notice requirements and do not forfeit any rights under your lease agreement.
 

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Many & LoCoco

Attorneys at Law

www.neworleansestatelaw.com  

 


Wednesday, April 25, 2012

Should I have a Living Will or Health Care Power of Attorney? Or Do I Need Both?

Many people are confused by these two important estate planning documents. It’s important to understand the functions of each and ensure that you are fully protected by incorporating both of these documents into your overall estate plan.

LIVING WILL

A “living will,” often called an advance health care directive, is a legal document setting forth your wishes for end-of-life medical care in the event that you are unable to communicate those wishes yourself. In Louisiana, the advance directive is only operative if you are diagnosed with a terminal condition and the administration of life-sustaining treatment will merely artificially prolong the process of dying, or if you are in a persistent vegetative state with no hope of recovery. In the document, you will also have to elect if you wish the life-sustaining procedures to be withheld to include nutrition or hydration or not. 

DURABLE POWER OF ATTORNEY FOR HEALTH CARE

A durable power of attorney for health care is a document in which you name another person to serve as your health care agent. This person is authorized to speak on your behalf in order to consent to – or refuse – medical treatment if your doctor determines that you are unable to make those decisions for yourself. With the ever increasing reliance on Hippa laws by the medical community, this document has become invaluable for the person seeking information for a loved one. A durable power of attorney for health care can be operative at any time you designate, not just when your condition is terminal. The term "durable" means that the document survives any incapacity you may suffer that would render you incapable of making those decisions. That is why it is an important document to execute now, while you still have the requisite capacity to execute such a document.

BOTH DOCUMENTS SHOULD BE IN YOUR ESTATE PLAN

For maximum protection, we strongly recommend to all of our clients that they have both a living will and a durable power of attorney for health care. The power of attorney affords you flexibility with an agent who can express your wishes and respond accordingly to any changes in your medical condition. Your agent should base his or her decisions on any written wishes you have provided, like an advance directive. This is how the two documents work in accord with eacjh other, assisting your agent in deciding what you would ewant done if you were in a position to speak for yourself.  Furthermore, the advance directive is necessary to guide health care providers in the event your agent is unavailable. If your agent’s decisions are ever challenged, the advance directive can also serve as evidence that your agent is acting in good faith and in accordance with your wishes.  

ADDITIONAL INFORMATION

Although beyond the scope of this article, we would be remiss if we didn't at least mention that as it relates to the health care power of attorney, it is often incorporated into a durable general power of attorney, which gives an agent the authority to act on your behalf in all of your financial affairs as well as your health care decisions. However, sometimes these documents are separated into two distinct legal documents for many reasons, one of which is because the client will appoint one agent to make financial decisions and another individual to be the agent for healthcare decisions. These are choices solely up to the client.

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Many & LoCoco

Attorneys at Law

www.neworleansestatelaw.com  

 

 


Monday, April 16, 2012

The Importance of Estate Planning for Parents with Minor Children

If you have minor children, you must have a will.

I usually began my talks at seminars with this strong, unequivocal statement. Why do I say that?

Simply put, in their will, parents are provided the only opportunity available to them to appoint a Tutor, the person that they personally choose and designate will raise their children in case both parents die together. 

Choosing whom to name as Tutor is usually a very tough decision that parents must make. It is such a difficult decision that many parents never do it. I am convinced they just don’t want to even contemplate the situation, which is understandable. But it needs to be well thought out and then actually done.

If you do have minor children, let me ask you a question that I believe will make you start thinking about getting a will done. If you don’t formally appoint a person to act as Tutor for your child, do you know who makes that decision? Answer: A judge.

I know a lot of judges, and I like most of them, but I would not want any of them choosing who will be the person responsible for the raising of my children. The person appointed by the judge in some cases may not be your first choice, or in some situtations, may be the one person you would never want to raise your children. What are the chances the judge will choose the one person you would have wanted to serve as Tutor? Are you willing to take that chance? Probably not. 

Now, before sitting down with an attorney to draft your will, you and your spouse should carefully consider whom you would like to appoint as Tutor. In making this decision, you must remember that the person you name as Tutor will be raising your child until he or she reaches the age of majority, which in Louisiana is at the age of 18. Thus, you want to make certain that the person you choose shares the same values held by you and your spouse.

Who can be named as Tutors? Anyone. Some people name other family members or some even name family friends.

You also need to name an Undertutor, who is a substitute named in case the Tutor cannot act for any reason. 

At this point, parents throw there hands up and say, “I can’t think of one person, and now I need to name two people."

This is where an estate planning attorney can assist you. The attorney will work with you through your available choices and help you in choosing your best options.

Naming a Tutor is just one small aspect in the drafting of your will and your overall estate plan. An estate planning attorney will guide you through the myriad of options available to you in forming an estate plan that best fits your own individual needs. I hope this article shows the importance of planning now for the unforseen events in the future.

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Many & LoCoco

Attorneys at Law

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Friday, April 13, 2012

Forced Heirship under Louisiana Law by Vincent B. "Chip" LoCoco, Esq.

 

Forced heirship is an ancient civilian concept.  Louisiana is the only state in the union which has forced heirship as a law. It was derived from Roman and French law.

The simple explanation of the law of forced heirship is the requirement that a portion of a person’s estate must be left to his or her children, who under law are known as forced heirs.

Originally, every child was considered to be a forced heir. That law, over the years, has been changed and amended many times and now the law, as stated in Louisiana Civil Code Article 1493, has defined forced heirs as those descendants of the decedent who at the time of the decedent’s death are twenty three (23) years of age or younger or who of any age, because of a mental incapacity or physical infirmity, are permanently incapable of taking care of their persons or administering their estates at the time of the death of the decedent.

The law spells out the portion of your estate that must be left to your forced heir. This is called the “forced portion”. If you die, leaving one forced heir, the “forced portion” is one-quarter (1/4) of your estate. If you die with two or more children, then the “forced portion” is one-half (1/2) of your estate, which must be split among the forced heirs.

Forced heirship is the law of Louisiana. Simply put, other than for specific grounds of disinherison recognized by law, if you leave a forced heir, he or she will receive a portion of your estate when you die.

That is where proper estate planning comes in. Since we know your forced heir has to get a portion of your estate, an estate planning agenda can be developed to perhaps leave the forced portion to your child in trust, so that they cannot access the funds themselves, with said funds being controlled by a Trustee whom you appoint in your will. Additionally, that forced portion could also be subject to a usufruct to your spouse, whereby your spouse has full use of the property during her lifetime. The forced heir merely has what is called the “naked ownership” of his or her forced portion. This is allowed under Louisiana Law.

That is the importance of a well-thought out estate plan and the use of a Last Will and Testament.

This article is a very brief discussion of forced heirship. Please call one of our attorneys today if you would like more information or if you would like to set up a meeting to begin your own estate planning agenda.

 

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Many & LoCoco
 
Attorneys at Law

 


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