Most estate planning attorneys start off with drafting a will. But, is a will always the answer?
There is no simple answer in estate planning. Sometimes, there is a good reason not to have a will.
Louisiana is one of only a few community property states. When you are married, everything you obtain from that point on belongs to the “community” between the married couple.
Community property is the property that belongs to the couple rather than to an individual. Each spouse owns the property in a kind of co-ownership with the other spouse and, generally speaking, each has an equal share.
The community property consists of everything that was acquired after the couple got married. Every paycheck, every debt owed, everything bought belongs to the two-person community of the marriage.
It doesn’t matter how the property is titled. If you are married, and then you buy a car “in your name,” it is still community property.
Separate property is owned individually. It includes what you owned before you got married and anything you were given specifically or inherited after you got married.
When a couple is married, though, the assumption is that any particular thing is part of their community property. It’s an assumption made in the law. That assumption has to be overcome by evidence.
In other words, when you are married, you don’t normally have to prove something is community property, but you may have to prove it isn’t.
This distinction is important because community property and separate property are treated differently in successions and estate law.
While separate property belongs to the individual spouse, the fruits of that separate property are community property. “Fruits” refers to income derived from a thing. It can literally be fruit, like the fruit from a tree you own, but it more commonly means things like rental receipts and interest income. There are special steps that can be taken to preserve these fruits as separate property, but if those steps are not taken, they belong to the community.
A power of attorney is a document that allows you to share your legal powers that you have with other people. “Power” in this case usually means something like the power to sign a contract, the power to withdraw money from an account, the power to vote on stock in a corporation, or the power to collect debts that are owed. A general power of attorney is a document necessary to allow someone to take care of your personal business when you are not able to. Someone with a general power of attorney can manage a checking account, open mail, pay bills, and buy or sell assets on your behalf just as if they were you.
The power of attorney is technically known as the “mandate” in Louisiana. I heard that the reason they changed the name of the document from “power of attorney” to “mandate” was to avoid the confusion of the word “attorney.” The “attorney” in this case is not the same as an attorney at law. But, in changing the name, they just introduced new sources of confusion. People pretty much know what a power of attorney is, but this new “mandate” thing, not so much. As a result, the documents are still often titled “Power of Attorney.”
The person who grants a mandate to someone is called a “principal.” The person the principal gives the power to is called a “mandatary.” The mandatary is the person that a power of attorney would call an “agent.”
A general power of attorney is a document necessary to allow someone to take care of your personal business when you are not able to. Someone with a general power of attorney can manage a checking account, open mail, pay bills, and buy or sell assets on your behalf just as if they were you.
Giving someone a power of attorney is not a transfer of a power in the sense that your giving your power to them so that you no longer have it. You still have your powers, but the other person can step in or handle certain situations if needed just as if they were you.
A power of attorney is automatically “durable” in Louisiana. That is, it automatically functions the same way a “durable power of attorney” does. A durable power of attorney means that the power is still active even if you are currently unable to exercise the power yourself. This can happen if you are incapacitated for some reason, such as being in a coma, being in surgery, or being on medications that are so strong that your judgment isn’t clear, or if you are suffering from dementia.
Everybody with legal capacity needs a power of attorney because emergencies happen. Situations happen where you may be in an accident or you may be suffering from a degenerative condition where your going to need help, and the power of attorney is what gives people the power to help you.
It needs to be noted that a durable power of attorney does not survive the death of the principal. A will or a trust is needed to carry out your wishes after death. It also is terminated if the agent is interdicted.
A will is sometimes also known as a “last will and testament,” and is a document that spells out what is to happen to your estate after you die. The person who writes a will is called the testator. There used to be several kinds of wills in Louisiana, but now there are only two: the notarial will and the holographic will.
A notarial will has formalities spelled out in the civil code. Among others, your signature must be on every page and notarized in front of two witnesses at the end. The will can be easily changed, either by writing a “codicil,” which is an amendment to the will, or simply writing an all new will. If there are two or more different wills floating around, the latest will is the one that is controlling.
The holographic will is one that is completely hand-written by the testator. It still has to meet the other technical requirements of a will, so, like any do-it-yourself will, it is not at all recommended. The only kind of will an estate plan is going to have is, of course, a notarial will.
A will is essential in almost any estate plan, even a plan that is “trust-based” and intended to avoid probate. The kind of will used in that case is called a “pour-over will” because it “pours” remaining assets into the trust. This is a safety measure in case there are some assets that were not properly transferred to the trust or that were acquired after the trust was formed and just hadn’t been transferred yet.
A trust is a kind of legal arrangement. It is technically a contract between you and whoever is the trustee. It is virtually a separate legal entity like a corporation.
The property assigned to the trust is owned by the trustee in their legal capacity as trustee. Nothing is actually “owned by the trust,” in the way things can be owned by a corporation or other legal entity. But, federal law treats the trust as a separate entity. The trust may have to have its own tax ID number and file its own tax returns, so for all practical purposes, it acts like a separate legal entity.
Think of a trust as if it were a box you can put stuff in. When you set up a trust and put stuff in the box, you are called a settlor. The stuff in the box is going to be used to benefit somebody. That person is called, conveniently, the beneficiary. The box has a set of rules on it detailing how and when things can come out of the box to benefit the beneficiary. The person who is responsible for holding the box and following those rules is called the trustee. In a Louisiana trust, the trustee is technically the owner of the items of the trust.
Louisiana Law divides trusts into two broad categories. First, is the testamentary trust. This is a trust created in a will. It doesn’t exist until you pass away and the will is executed. The second is the inter vivos trust. “Inter vivos” means “while alive.” It’s a trust that is created during your life. It is the way we say “living trust” in Louisiana.
Another important way trusts are classified is as revocable or irrevocable. A revocable trust can be dissolved or modified at any time by the settlor. An irrevocable trust cannot. An irrevocable trust is like a locked box. The settlor can’t get the stuff back out of the box. The benefit (under most circumstances) is that, because the box is locked like this, things in an irrevocable trust can’t be raided by creditors, either.
So far, I’ve talked about the settlor, trustee, and beneficiary as if there were single, separate individuals, but this does not have to be the case. You can have multiple settlors, such as when you and your spouse create a trust together. You can have co-trustees, and you can have many many beneficiaries.
You can also have one person filling more than one role. For example, one person could be all three: settlor, trustee, and beneficiary. This is normal in a revocable living trust. The trust will name successor trustees and beneficiaries, which is how it transfers assets after death while avoiding probate. The trust states that the heirs become new trustees and beneficiaries after death. This kind of trust can be used in many creative ways and is the centerpiece of several of our estate plans.
Special Needs Trusts are the cornerstone of any estate plan involving a special needs child. They preserve government benefits when the child receives an inheritance or other major asset, and also allow you to supplement their government benefits to improve their standard of living.
Special needs trusts are created to protect a beneficiary’s SSI, Medicaid and other benefits that are means-tested. In order to qualify for means-tested benefits, you have to have no more than a very limited income and property. If a person who receives means-tested benefits were to come into possession of a significant amount of property or income, they could lose those benefits.
Special needs trusts generally only allow distributions that would not disqualify the beneficiary from their received benefits. There are rules in the trust telling the trustee that the trust can not be used to pay for food, shelter, or anything the beneficiary receives benefits for.
The special needs trust is sometimes called a “supplementary needs trust” because the distributions are to supplement the benefits that the beneficiary is receiving. Another way of putting it is that it covers “special needs” that are not otherwise provided for.