Estate planning is anticipating and arranging for the disposal of your estate during your lifetime. The objective is to provide for the orderly transfer of wealth in line with your personal objectives. An effective estate plan includes the preparation of a last will and testament that designates who will receive your property at your death (“legatees”) and that also reduces the legal fees incurred by your legatees in administering your estate.
Louisiana subscribes to the Community Property Regime. Under that regime, property falls into one of two categories, community property or separate property. For most married couples, community property normally includes things acquired during the marriage by the labor of either spouse, income from community property, and all other property not classified as separate property. Separate property includes things owned before the marriage of the spouses and any inheritance or gift acquired by a spouse during the marriage. Your will should identify both categories of property and provide for the proper transfer of each to your legatees.
So, what happens when your spouse dies without a will under Louisiana’s Community Property Regime? In our estate planning practice, we often encounter this scenario. Mary and Jack are in a second marriage, living with Jack’s two children from a prior marriage in a St. Charles Avenue Mansion, a house Jack purchased prior to his marriage with Mary. Jack dies without a will. Under Louisiana law, Jack’s children will inherit his one-half interest in the community property of the marriage, but Mary will hold a usufruct (the right to use or enjoy the fruits) over Jack’s interest in such property until she remarries or dies. If Mary remarries, her usufruct over Jack’s portion of the community property of the marriage will cease and fall in full ownership to his two children. Jack could have avoided this result by drafting a will that provides Mary with a usufruct for life over his portion of the community property of the marriage, with the right to dispose or donate any of his portion of the community property. Also, without a will, Jack’s children will inherit all of Jack’s interest in his separate property, including the St. Charles Avenue Mansion, and Mary will not receive a usufruct or any other rights to such property. And Jack’s children could sell the St. Charles Avenue Mansion without Mary’s consent. Jack could have prevented this outcome by drafting a will that provides Mary with a usufruct over his separate property.
For federal tax purposes, your estate consists of probate assets and non-probate assets. Probate assets include real estate, automobiles, jewelry, personal possessions, bank accounts, stocks, bonds, and mutual funds. These assets will pass to the legatees named in your will. Non-probate assets such as life insurance, retirement plans, and annuities pass outside of your will to the beneficiaries designated in such assets. Designating legatees in your will does not change the beneficiaries of your non-probate assets. For example, if Jack drafts a will leaving all his property (community and separate) to Mary, but Jack’s two children are the beneficiaries of his life insurance policies, the death benefits from Jack’s life insurance policies will pass to his two children, not Mary. For this reason, it is important to confirm that the beneficiaries of your non-probate assets compliment your estate planning objectives.
Besides the transfer of assets at your death, estate planning also includes planning for your long-term personal care while living. An accident or sudden illness can render you physically and mentally incapable of managing your affairs – paying bills, making medical decisions, obtaining loans, etc. Without the proper estate planning tools already in place, a loved one may be forced to bring an interdiction proceeding in court to manage your affairs for you. Interdiction is an expensive legal process where a court is asked to determine whether a person is unable to consistently make decisions regarding his or her property. It is also an emotionally taxing process. By preparing general powers of attorney, medical powers of attorney and advance directives, you can alleviate the burden placed on your loved ones relative to end-of-life decisions.
The general power of attorney gives an agent, typically a spouse or loved one, authority to manage your financial affairs if you cannot do so. The medical power of attorney allows the agent to make decisions about your medical care, including the right to consent to procedures and surgeries recommended by your doctors. Lastly, the advance directive (or “living will”) tells your doctors and family members whether and how long you would like to receive life support (breathing machines, nutrition, hydration, etc.) if you are in an irreversible comatose state, as certified by two physicians. Making your desires regarding life support known in a living will saves your loved ones from the very difficult task of guessing, during an already traumatic time, how long you would like to be kept on life support. For example, let’s say Jack is seriously injured as the result of an automobile accident, he is in a comatose state, and initially his doctors believe he has a significant chance of recovery. Because Jack previously executed a general power of attorney, Mary can pay, out of Jack’s personal checking account, the electricity bill for the house and Jack’s medical bills. Because Jack previously executed a medical power of attorney, Mary can authorize the doctors to perform additional tests on Jack. Because of the tests, the doctors determine that Jack will not recover from his current state and the only thing keeping him alive is the invasive administration of food and water. Because Jack had previously executed a living will, Mary can avoid the pain of deciding how long Jack should be kept on life support; Jack’s doctors will follow Jack’s instructions in the living will.
While these are difficult issues to consider, discussing your estate planning objectives with your spouse and attorney, and executing the appropriate documents, will give you peace of mind that your future is adequately provided for.
Mr. Landry is a partner in the firm’s New Orleans office practicing in the Commercial Litigation, Oil & Gas, and Wills, Trusts, & Estate Planning sections. Mr. Bagwell is an associate in the firm's New Orleans office.
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