0:01 hello and welcome to trust and Estates weekly I'm your host Kevin bemel and we are here every Monday morning at 10: amm Pacific Time now for my guests that's going to be uh central time I think right you're in Louisiana is that right Paul that's right right so must must be noon there and uh um we deal with Estate Planning and Trust in estate Administration both from this our own uh perspective of doing this for ourselves as well as as professionals who are helping clients and Friends deal with
0:37 the mer Myriad issues that come up when we're dealing with the potential transfer of wealth and and the actual transfer of wealth so I'm I'm very pleased to have my guest today Paul rabes and as as we mentioned a minute ago Paul hailes from Louisiana I think you're my first uh my first guest from Louisiana spent some memorable time in Orleans a while back and I I came I I met Paul through an article he wrote uh not too long ago called the six unique
1:12 aspects of Estate Planning in Louisiana and it caught my eye because as we've talked about many times on the show estate law and Trust law varies from state to state there's no overarching national law and so it's good to be able to get into some of the distinctions there are between the 50 states and yet at the same time I think we'll find that although things may be done a little bit differently in Louisiana by looking at how they're done there we can we come up with some good
1:47 questions to ask our own advisors whether you're in California like me or you're in North Carolina Wisconsin doesn't really matter so Paul thank you very much for coming on trust and States weekly welcome to the show hey it's uh excited to be here I'm I'm excited to share some of our uniqueness that we have here in Louisiana that's you know one of the unique things about Louisiana is you have parishes instead of counties that I know um aside from that I I don't know so let's let's Jump Right In um you know the six unique aspects of of Estate
2:23 Planning and and uh why don't you if you want to run through those for us and then we can go back through each one or however however it yeah sure I'll just um try to run through them fairly quickly but uh uh thorough but brief so we are different here in Louisiana um and I was born and raised in Louisiana lived here my entire life except for a year in Boston Massachusetts where I earned a a masters in tax law from Boston University so um finished that up came back down here and have been working in the estate planning field ever since most times when an
2:59 outof state lawyer hears that one of their clients has some some issue involving Louisiana the the out ofate lawyer usually says I'm not going to touch that with a 10 foot pole Louisiana's weird and different and I'm not going there so um and and perhaps you know rightfully so because you used a word that that caught my ear a moment ago Myriad yeah uh not only in each particular state is there a myriad of issues but when you you know cross state lines and go state to state and then you run into a state like Louisiana which
3:35 has uh its its Traditions based on the French civil law as opposed to the English common law we have some differences let's just jump right in the the first one uh maybe Kevin you can tell me if you've heard this in in other states is we have something called forced Airship even if you hate to say it don't like your child um they may they may still be what's called a forced air and and you may not be permitted to disinherit them or leave them nothing now the the definition of a forced air
4:10 has been watered down over the years and so so now it's really limited to two categories of people if if a parent passes away if they have a child who is 23 years of age or younger or if when the parent passes away they have a child of any age who is is incapacitated let me just say that they're they're unable to care for themselves then um that parent is is forced to leave a portion of their estate to that forced Heir or to those forced heirs so for example if a if a parent dies and they have three
4:47 children and one of them is 22 years old and the other ones are older than 23 they can't have a will or trust that that says I'm excluding my 22y old that that one forced when there's one is automatically entitled to 1/4th of the parents estate if a parent has two or more forced heirs then collectively those forced heirs must equally share half of their parents estate now the forced Airship it doesn't come up much because it really only comes up when when someone has children who are 23
5:22 years of age or younger and they want to just exclude those children so as you might might expect it may come up from time to time right but uh um so it's an issue that we have and and maybe 20 years ago it was limited to Children 23 years 23 23 years of age or younger before then it was it was all children were forced heirs and you couldn't exclude any of your children so that's that's one have you ever heard of that before Kevin this forced Airship concept not not with respect to Children I've seen it with respect to a spouse where if a spouse isn't receiving the share that they would get under uh you know
5:57 under the probate code in a particular state they can in essence impose that on the estate of the decedent um and and the court will hear that but I've never heard that with respect to a child now does this apply only to Natural issue or or do adopted children qualify y adopted children are included in that definition of of children yeah sure are yeah so that that happens sometimes when an older person adopts someone who's very young and the older person for lack of a better term dies when they're 70 or 75 and they they have a 20-year-old child
6:32 that they adopted then those Forest Airship Provisions May apply so yeah I could see it too when you have a second marriage and the the new spouse adopts the children who may be true young at the time of the marriage right and so now are you have children who are maybe in their teens and uh yeah and it sometimes applies when people when when married people just try to leave their estate to their spouse um then they pass away they set up their will or trust to leave everything to their spouse and these for airs kind of say wait a second here he can't leave everything to his
7:07 spouse I'm a forced a I'm entitled to something so you know it it does apply in in limited circumstances so something you said at the very beginning I thought was particularly interesting and it didn't strike me until until you mentioned it that that much of Louisiana state law comes from French law whereas like here in California our our estate law is actually a blending of English and Spanish law right because a lot of our law we you know California was part of Mexico and prior to that you know Spain and so a lot of our legal
7:43 tradition comes from from Spanish law and then over time English common law has kind of gotten lay layered on top and for example Alabama is an English in an English law state but but I forgot you know Louisiana has that French heritage and and you can see it existing you know to this day in in in some of these things that you're mentioning that's fascinating yeah the law really favors the the descendants of someone who passed away over over the surviving spouse so I don't I'm not sure if that's part of the French tradition but we do
8:18 have this you know uh intestate law enforced Airship law it's all designed to make sure the children of the decedent are protected not so much for the surviving spouse right inter so what's the next what's the next one the next one is a very unique form of ownership uh called usfr doesn't exist in any other states uh spelled USU F ruct kind of really as I explain it to people it kind of means when when a married person dies they often either through intestate law or through their
8:54 will through testate law they'll often leave their surviving spouse the use fruct of certain assets or of their entire estate to their surviving spouse and and all of the states were common with this concept of of of a married person leaving their estate in trust for their surviving spouse often naming the surviving spouse as the trustee and often naming the the children of the deceased spouse as the principal beneficiaries of that trust this is a little bit like that but there are some some distinctions so it's it's embedded in Louisiana because it applies in our
9:29 intestate law If a married person dies and the married person owned community property with their spouse and they died intestate let's say a married couple had $2 million of community property and and let's say the husband dies first the wife keeps her $1 million and as to the husband's $1 million the wife inherits this usufruct until she dies or remarries whichever occurs first and when that usfr terminates then the assets revert to what's called The Naked owners which would be the children of the husband who passed away and there's
10:04 differences on what the use of fractu rights are whether they're inheriting the use ofr of what's called a consumable item like cash or a non-consumable item like real estate homes or shares of stock so there's a lot of accounting involved when that use of fruu dies and similar to a trust Arrangement but but but very different as well and most people people they they see the word even even our great Louisiana residents with their unique accents that um Louisiana residents and out of state people have difficulty I
10:40 get a kick over how people say the word because again it's spelled unique uufr UCT and I've heard 150 pronunciations for it so I get a kick out of that but but yeah it's uh very different but very common in Louisiana in fact years ago um one of our Louisiana Congressman put it in the Internal Revenue code so that in Louisiana if you give your spouse this lifetime usufruct of your estate it qualifies for two- tip treatment it's written into the Internal Revenue code and so it it allows for couples in
11:15 Louisiana who want to take advantage of this ufr concept it allows them to do things like qualify for the marital deduction defer federal estate tax so it's uh it's entrenched in our Louisiana history n Louisiana law yeah interesting I mean it's it's almost like a combination between a life estate and a trust right I mean I was going to mention a life estate very very similar to that as well so but uh so that's another one that uh that where we're different and and that that goes as I recall that goes all the way back to um um biblical um uh strictures about how
11:55 um family members inherit a man who's died so um I think I think the wife does get the usufruct but the children then are essentially take ownership of the property at the point where the wife dies so it's I mean it depends on where the property came from originally but I think it was the husbands originally that's how it works so you know again the historic I I did a a show a few weeks ago on the some of the historic aspects of of probate law but this is this is really getting into some other very interesting points so right
12:30 fantastic yep okay number three is one I'm going to uh this is not exclusive only to Louisiana in fact uh in California you know we we both can take advantage of this we have community property we're one of I think you know we're well two of around nine states that have community property what what our clients here in Louisiana and I'm sure what uh clients in California Love is we have our unique rule of of the step up and basis when it relates to community property we're we get an extra tax benefit is when a married person dies owning community property with
13:06 their spouse some people who aren't really familiar with the concept think well certainly the deceased spouses one/ half of the community property will get a step up in basis but no actually it's all of the community property the husband's share and the wife's share get that stuff up in basis and speaking of History um Kevin I was trying to figure out why why in the world would would Congress give this big tax advantage to only residents of community property States and I I read into it and I realized that well a long long time ago
13:42 most of the assets that were accumulated were accumulated in the husband's name and and so the husband often died first and so it so all of the husband's assets were essentially everything that the married couple owned because just the way it was back in the day the assets were accumulated in the husband's name you know virtually all of the assets used to get a step up in basis when the husband died anyway because they were all in his name so that that kind of got us to where we are today but that's a a big benefit um that we have in community property States and uh it really comes
14:19 to a surprise to many many clients I'd be anxious to hear about if what happens out there in California are you seeing the same thing yeah yeah yeah for sure for sure I mean you know community property is a big issue here in in California um and and it comes from the Spanish antecedence of of of it and um you know what it was interesting what you said because when I was learning about community property uh the rationale behind it I was taught was that um you had situations where a woman owned property prior to marriage um and
14:56 you would have kind of the you know third or fourth son of an aristocrat who you know coming out of England had virtually no chance that he was going to inherit any of his father's property because of um progenitor and you know those kind of things and so they would look to as they said in the day marry well um which meant going and finding a woman who had a lot of property who you know to marry um and the way the the law worked back then was once a man married a woman he gained management control
15:31 over her property um and and so what unscrupulous men would do is they would get control of the property without ownership and then essentially cheat women out of their property um and and so the Spanish didn't want that to happen they didn't want to have all these women impoverished and taken advantage of so they developed a different legal tradition that protected women's rights in property so that a husband even if they got married um he couldn't take away the ownership of the
16:07 property because any property owned prior to marriage was vested permanently in the wife so you know it it it basically kept the the government from having a lot of you know poor women thrown thrown on them as a result of these unscrupulous men so how about that good stuff yeah absolutely all right so I'm gonna move on on to number four and dig right into the old probate scene um I've been fortunate to have a lot of conversations with attorneys around the country about their probate system in their state um and I know in
16:43 California probate is um maybe difficult is the right term but you'll be able to share more light on that and in Louisiana it's it's fairly streamlined um the the parties don't ever have to go to court even the attorneys don't have to go to court unless something's contested so it's it's mainly you know the preparation of of documents that get filed at the courthouse and then they make their way to a judge's office and a judge signs orders probating the will letters testamentary uh the final judgment um so
17:18 but I've talked to some other lawyer state lawyers in other states where you know um uh Court appearances are just part of the process we don't have that here one thing that I'm interested in talking to you about is like many states we have a a small we call it and that's another distinction in Louisiana other states call the the process of getting someone's estate settled through the court system probate we happen to call ours succession and so we have what we call a small succession affidavit applies when someone dies without a will and they had less than $125,000 and every state has their own
17:54 small estate affidavit rules but I I did read something just in the last couple of days about how the the a California bill has been proposed to increase the small estate threshold to $750,000 oh which is a significant change just just in the last couple of weeks or so I think that bill was filed in California you know that does sound like how California handles things I haven't seen anything about that I'll have to look into that um I know there a small estate provision in the probate code here um but I thought it yeah so
18:30 that that to me that would be a GameChanger because um while while people do have you know often have homes that are valuable and and uh sometimes those homes are in a trust and IA and life insurance that pass outside of of probate through beneficiary designation it's going to make it a lot easier for for people to you know take that that um oh miscellaneous MetLife stock account that that might have a hundred or $200,000 in value of stock and a few other bank
19:05 accounts in in I was surprised to see I don't know if it'll pass but I was I was surprised to see even a bill was proposed because that's a that's a pretty big jump Most states are in the 50,000 100,000 $150,000 range for this small estate uh affidavit which which does permit people if if someone dies and the assets are minimal it it it permits that family to avoid the kind of full-blown court and attorney involved probate so we'll see how it goes but I see around the country more and more legislatures are are creating legislation enabling things to
19:42 pass to beneficiaries outside and probate it and whether or not that's a good thing that remains to be seen but nonetheless you know with pod and to and beneficiary designations some states allow you to Title vehicles to pass to a beneficiary when you tie some some states allow you to create your LLC in a way so that the paperwork is done so that membership interest automatically passes some states have to death transfer on death Deeds for homes and other real estate so I I just I see a big Trend out there where uh states are trying to to
20:20 carefully enable people to structure what they have in a way so that fewer and fewer things have to go through through this kind of court and attorney involved process what do you think about that or what are you seeing Kevin so I mean here in California um while we can do remote Court appearances like you know like on on a zoom essentially um you still have to you know the attorneys have to appear the judge is there all that kind of thing so it hasn't gotten you know to the point where it is in Louisiana that's that's for sure um even even when it's not contested because I'm
20:55 dealing with a case right now where we're not contested but you know I mean we we filed a number of petitions the end of last month and they're not going to be heard for example until the middle of August um and the the lawyers have to be there I'm going to have to appear at least remotely you know this kind of thing so um and and and I think California is one of the most challenging States for this one reason is because our property values are so high pretty much everybody gets roped into probing unless you create a trust um and even
21:32 then I've had cases this case actually the one I'm thinking was not here in in California it was actually in Alabama but I did have a case where the the the couple had diligently put all their property into the trust but still a couple things got left out and we ended up having to file a probate anyway so you know I I do have a friend here in California who's looking for a way to streamline the probate process because it is so costly for a small estate to go through probate here in California because of the length of time um and and
22:08 it seems like every state has a different I'm sorry not every state every you know bank has a different form they want filled out and universality in any of this stuff and it's really kind of crazy because the reality is every financial institution basically needs the same information they could come up with a uniform form that could be used for everyone but but you know they just haven't and so then for those of us I I I'm a professional fiduciary so you know I do you know Administration you have to fill out you know 10 forms or whatever it is it it becomes very costly so yeah
22:45 and I'm not sure what the solution is but um but we'll see you know and now we have you know technology is being use so much more and we'll see how that translate both into the estate planning area and the EST State Administration Trust settlement area so we'll see but uh yeah number number five here let me jump in is it's it's not a real unique area but it's Unique enough it's it's the whole area around using powers of attorney so um like you were mentioning it'd be nice if there were kind of customary standard forms that people
23:20 could use I know in many states um uh State legislatures have enact have created statuto Powers of Attorney and talking to lawyers in other states that seems to work pretty well the the financial institutions the brokerage firms they're all familiar with the form that the state legislature created or State Assembly and so things work pretty well we don't have any of that in Louisiana every Power of Attorney that that uh someone has in Louisiana is is unique based on the kind of whims of the
23:56 attorney who prepared it so it it does is create some more challenges when someone tries to use a power attorney because every financial institution wants their legal department or their lawyers to review it and so there's some some concerns there and in Louisiana we have some some unique areas where um if your agent or attorney in fact in fact wants to do something for what I'll call the principle that that power must be expressly stated in the power of attorney things like making GI things like uh handling a probate matter
24:32 uh making Health Care decisions um and then and there's a few others as well so we always and when we when we review an outof State Attorney we look for some of those powers that must be expressly stated in the power of attorney for that U agent to have the authority to to do things on behalf of the principal so a little bit unique there are you are you um kind of where you are do you use more of a statutory well so in Theory we have certain statutory uh you know abilities if you will so one that leaps to mind because I dealt with this um earlier this year is
25:08 we have something called a certificate of trust which by Statute for example a bank is is supposed to accept in trust agreement right the reality though is every single financial institution escrow title company has their own form that they want filled out and even though it has the exact same information on it if it does if it's not on you know their letter head they won't take it so yeah helping a friend of mine with a situation and we we've done I think five
25:46 different certificate of trusts because there was you know there was a bank there was an escrow there was a title company and there um there was a second Bank you know and and it's it's it's right there in the statutory language this is what it needs to have but you know I I think the lawyers in these institutions want it to be you know just so and and I my feeling is it defeats the purpose of the statute but you know it is how it is right yeah you're so right about the every institution has their own rules one quick story is you my my brother-in-law my sister's husband
26:21 was was at the Office of Motor Vehicles last week texting me frantically his mother had listed his father as the first agent named on the power of attorney and my brother-in-law Doug was listed as the backup well the first named agent had passed away and and my brother-in-law had his death certificate and so he presents this power of attorney to the Office of Motor Vehicles he says here's my mother's power of attorney she appointed my father first he's passed away here's his death certificate I'm the backup and I'd like to to get a new title for my mother because she lost it and they're like no
26:57 we we can only only work with the first person named we we can't work with an alternate even if the first person died and you have their death certificate and then he goes to CarMax to try to sell the vehicle and they're like sure we'll take it but we have to keep your original document with the original notary seal so he's like Paul what's going on I talk to five different people I get five different answers so it's frustrating yeah yeah all right so let me keep going last but not least is and this there's this
27:32 one's not real sexy for lack of a better term but I I just wanted to address when I talk about Louisiana just want to kind of let the public know we don't have any kind of death tax or state inheritance tax or state estate tax I know a few states do but we had one and in in 2004 20 years ago it just it got eliminated and it was a pretty pretty burdensome tax um every time somebody died we'd have to make our trip down to the Department of Revenue and pay that tax and get that receipt that the taxes have been paid before a judge would allow the property to be transfer to the survivors
28:07 but we just we just don't have that anymore we have no death tax like some other states do so that's number six yeah and do you remember what the estate tax rate was before it went away I'm just curious yeah it was actually an inheritance tax was which was a tax on the recipient of the inheritance and I do remember that if if children were inheriting their tax rate was was 3% but if a non-related person was inheriting their inheritance tax rate was 10% so it was usually a 3 to 10% tax and then of
28:42 course if if there was a federal estate tax that also applied right right so here in California actually we don't have a state estate tax either um but you know a number of my um people that I'm dealing with you know we're kind of holding our breaths to what happens not so much this year but next year as to whether on the federal level you know the the current regime gets extended because if not especially here in California a lot more Estates are going to get um are going to end up having to be liable for estate taxes because I think the the the limit returns to what4
29:19 million or $5 million something like that I I don't remember exactly the number the where the exemption is coming to yeah where it will drop to after 20 to it's based on an inflation adjustment Factor but probably around 7 million it's 5 million adjusted for inflation but I think it'll be about 7 million okay so 7 million even so you know here in California where like in LA county the median the median home price is900 plus thousand you know crazy you know if you have other Investments other property you can hit that $7 million limit pretty quickly so
29:56 yeah it's you know know and the other I'm curious to ask how how are you working with your people this is not Louisiana directed per se yeah but given the uncertainty there how are you talking to your clients about what may happen in a you know roughly a year and a half yeah it's um I don't know if my my take on it is unique but yeah we have this what is now a $1 13.6 million exemption sched to be around 7 million in 2026 a lot of the public out there is
30:34 thinking maybe maybe they're thinking something like okay I have I have a $10 million estate so let me go ahead and and and gift one million or 2 million to that next generation and that way I can use some of my $ 13.6 million exemption and I'll still have 7 million doll exemption when I die down the road but but that's that's not the way the law is set up so when someone in 2026 or thereafter their exemption will be the greater of of what was used during their lifetime or the exemption at the time of their death so the the only people really who are kind of benefiting and of
31:10 uh from this large estate tax exemption that exists this year and next year is if they can kind of afford to to make these gifts of $ 13.6 million and use the large exemption while they have it giving away 1 million or two million it there there's no real significant advantage to that because the exemption in 2026 will still be 7 million and they'll have used one or two million of it during their lifetime so um so I'm having a lot of conversations with people that end up with just look there's there's no need to do anything um you have a $5 million estate you have
31:46 a $10 million estate you're a married couple with a $15 million estate but really based on the way this these Sunset rules apply um they just uh there there's really no need to take action it's the people who are taking action are are those people who can kind of financially swing it and just transfer tens of millions of dollars to the Next Generation so we do a lot of Education um but winds up you know it's really those kind of super wealthy people that will be the ones who will be you know uh attempting to take advantage of this Sunset of the tax cuts and jobs
32:23 act and are you anticipating doing a lot of you know follow-up meetings with people come 2026 depending on how things fall out just to you know sort of see at that point then once presumably at that point we'll know what's going to happen or how are you yeah so um and as you know Kevin if if the exemption is $7 million and if you're working with a married couple each spouse has their exemption so it's really $14 million so the bulk of the people that I talk to you know 90 or 95% of the people they're just they're just not Mar married couples that have 14 or5 million
33:01 or more so for many of the people that I work with those conversations of of okay now the exemption is 7 million 14 million for married couples Let's Get Serious those those conversations aren't really necessary but with the you know that certain segment of the population that isn't subject to the estate tax now but but is projected to based on the cutting the exemption in half yeah we have to start having some conversations about annual exclusion gifting to children and grandchildren and trying to you know uh get some assets out of the
33:36 estate without using up those exemptions right and you're really you're really talking about like married couples with you know over $14 million you're you're thinking that's that well over 14 but you know if a married couple is 60 years old and they have $10 million they're probably going to live another 20 25 30 years and so the appreciation on that $10 million is likely to wind up to be you know $50 or $60 million 30 years from now so even even people under this $14 million married couple threshold ought to at
34:11 least you know be in a position to start making some informed decisions about whether they want to try to structure some things to get things out of the estate and avoid the the tax on that future appreciation right right well and and and as I mentioned the beginning of the show I mean this this is something that applies Nationwide this is not right Louisiana because this is we're talking at the federal level well well Paul we're we're we're coming up to the end of our time here but I really appreciate you coming on the show uh fascinating to both hear how things work in Louisiana the different language the different historical tradition and um
34:46 and and it it is it is interesting because some of these things I think do play out in other states in other ways um and and so it's always good to sort of compare and contrast one you know one State against the other so thanks so much for coming on the show yeah and I I I appreciate the opportunity to be here and really applaud what you're doing I think us us the state lawyers who are in it all day every day we we uh we we like the challenge of just trying to get that education out there so that people can make you know informed decisions and don't make mistakes about the things that are most important to them their
35:21 family so I really applaud what you're doing and hope you keep it up thanks very much give me I'm going to wrap things up here and then we can talk offline for a minute so that that's our show for today thank you very much for tuning in and uh let's see tomorrow Tuesday at 10: a will be my show business lessons from the military so I invite you to tune in these these times are all Pacific Time Of course and then on Wednesday at 10: a.m. Pacific time is my show people making money and so again tune in on Wednesday and and um if you
35:56 have any questions comments about the show um just look down to the show notes after it posts and you'll see both how to contact me I'll put Paul's contact information in there especially if you're in Louisiana and you need some estate work done or estate planning work done um you know give get get in touch with Paul I'm sure he'll be happy to um answer your questions and and even more so to to help you out so Paul Paul won't won't you know he won't promote himself that way but can you know Shameless promotion you know on behalf of my guest
36:32 so um so that wraps it up for today again thank you very much for watching signing off as I always do Marie darling with a guest from nearby where you live just the next just two states over in Alabama you are my bell courage at all times my friends