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Navigating Louisiana's Estate Planning Landscape · The Practical Planner

• speaker-0: But what you have to realize in Louisiana is no, no, no, at your own death in that first level of like passing the assets by giving everything to your spouse, you are effectively legally disinheriting your kids at that step. All right, hello everyone. So I think for the first time in the Practical Planner's history, ⁓ Thomas is not hosting this one, I am. And so this is Anne Rhodes, Chief Legal Officer at Wealth.com. And today we have a very special episode. We have invited an estate planning attorney, Addie Pruitt, who practices out of New Orleans, Louisiana. as well as Alaina Lachter, who is Senior Product Counsel here at Wealth.com, to talk about ⁓ Louisiana planning specifically. Now, for those of you in the audience, lots of financial advisors, of course, but maybe even clients, you know that Louisiana has ⁓ been, for a very long time, ⁓ a state on which Wealth.com, we would say, we don't offer trust. ⁓ For a long time, we took our wills offline because we wanted to make sure that sub-trust or planning for blended families could be done appropriately. And so finally, earlier this year in January, we've released our Louisiana will workflow. Now we did not release a trust workflow and this whole episode will be sort of about the intricacies of Louisiana law, what makes Louisiana just so special in the estate planning world and the decisions that we decided to make here at Wealth as well. And so without further ado, I'd love ⁓ maybe ⁓ Addie for you to introduce yourself first to the audience. It's ⁓ our first guest who's an attorney in a very long time on this podcast. And then Elena for you also to have the chance to introduce yourself. speaker-2: Sure. I'm Addie Pruitt. I'm an estate planning attorney in Louisiana. I've been practicing in New Orleans for the last 10 years, have some experience in big four accounting firms, and kind of eventually found my way over to estate planning. I'm with Sparrow Law Group. I'm just really excited to be with you guys today. speaker-1: Thank you so much. am Alaina Lachter. I am Senior Product Counsel at Wealth.com. I joined Wealth in 2024. And before that, I was in private practice in Seattle, Washington. So not a Louisiana law expert, but I've been working with Addie a lot over the last year. So I feel at least somewhat well-versed. But I'm excited to talk about it all today. speaker-0: Well, welcome, Addie and Elena. So today we have three women with a first name, starting with A. Hopefully that doesn't get too confusing for our audience. ⁓ But Elena, why don't you kick it off? speaker-1: Great, great. So like Ian said, we're going to cover some of the nuances of Louisiana law today, some of the things that are the same ⁓ in other states in the United States, and then some of the key things that are different. And just to start it off, I thought I would do a quick glossary of some of the big terms that differ in Louisiana from the rest of the country. So instead of a will, a Louisiana resident might say, speaker-2: Testament. So that's usually what most people refer to around here. speaker-1: Okay, and then instead of probate. speaker-2: This is most confusing one, succession. We call it a succession here. Everybody's seen succession on HBS, so they totally are confused. It's not at all like that. It's just what we call probate. speaker-1: And then instead of guardian for a child speaker-2: Sure. We call those people a tutor, which nobody in Louisiana even knows unless they're a lawyer, I feel like. speaker-1: Okay, so not a math tutor, although they might be good at math. And then instead of a life estate, you might say. speaker-2: We have this weird term called the use of frock ⁓ and so we're gonna hopefully we'll talk about that later but it's it's a little bit a little different. speaker-1: Yeah, and I know it's not totally one-to-one with a life estate, but we'll dive into that. So one of the first things that we mention when people ask, like even internally at wealth, like how is Louisiana different? ⁓ We say like, for steership, that is different. So in the rest of the country in general, you can choose to completely disinherit your child and give them zero dollars. ⁓ Is that true in Louisiana? speaker-2: ⁓ The lawyer answers it depends, but in general we have like this concept called forced airship. So, you know, it goes back to our civil law and Napoleonic code, all that stuff you hear about when you think of Louisiana law, but it's been reformed. So it doesn't apply to all children. It's only children who are either under the age of 24 or any child, regardless of age, if they are permanently incapable of taking care of themselves. And that definition can be very broad. So there's lots of nuances that can come into that. speaker-1: OK, and so how much if you do if somebody does have a forced air, like what does that mean for their estate and how much they can or how much they have to give that? speaker-2: Right, so if you have one forestaire, you're required to give them 25 % of your estate. If you have more than one forestaire, it's 50%, but then divided by the number of children. So if you have two, it'd be 25 each. If you have three, went to law school, not math, but you get the picture. So that 50 % is divided amongst the number of children that they have. speaker-1: OK, and so I know it's pretty rare that somebody would want to completely disinherit their child, although it does come up. If somebody does want to disinherit their child and they do fall within that definition of forced airship, ⁓ or they think they do, are there options to disinherit a speaker-2: Yeah, there's a statute, you know, what we call our laws around here that directly addresses the circumstances where you can disinherit a child. Probably the one that we see the most often. I think for kids under the age of 24, it's pretty hard. But for adult children, refusal to talk to a parent for two years despite knowing how to do so is like a big one. I mean, this is going to sound crazy, but attempting to murder your parent is grounds for, you know, disinheritance, which would seem obvious. So there are ways to disinherit a child. But I think the biggest thing to kind of remember about forced airship is, you know, for minor children, as a parent myself, not many people want, let's say, eight-year-olds to get 25 % of their estate outright. And so to put it into trust or a different form, you kind of have to jump through all these hoops. that's where even though, you know, I think most people are like, oh, that's a great concept. You take care of your kids. But it can kind of lead to some different results than you might think. speaker-1: Right. And I think about this too, because I think the idea that a lot of at least traditional families have is like, ⁓ I want everything to go to my spouse. And then after my spouse has passed away, then everything goes to the kids. But they want their spouse to be cared for. And they think that just like the default laws of their state are going to take care of that. And that's not necessarily the case. speaker-2: That's exactly right. And in Louisiana, you know, in particular, you know, whether, whether property automatically goes to their spouse depends on whether it's community property or separate property, which most people don't think of, you know, we're a community property state. Most people, at least that I deal with, don't have prenups, don't have any marital agreements. So they think like, okay, it's our house. Like when I die, it to my husband. But we, that is absolutely not the way it works here. So, you know, You can think of it as when you die, my husband will get his one half interest of the house, but I can give my one half interest to whoever I want. so people, they just think it's like doing tenants with rights of survivorship and it's not. speaker-1: Yeah. And that's actually like, even though it's a difference in a lot of states, think ⁓ Anne and I can probably relate to that at some level because we both have practiced in community property states, ⁓ me in Washington and her in California. ⁓ But I do think people have that expectation, especially if they have some awareness of what community property is, but maybe not full understanding. I feel like that's a logical assumption or conclusion to draw when you hear, ⁓ community property, what's yours is mine. speaker-2: Exactly, speaker-0: Yeah, I think for me what was so interesting when we were releasing the Will workflow at Wealth.com and why Louisiana ended up being so different from some of the other states is this idea of like disinheriting your kids. You think, ⁓ that's only really relevant once my spouse has passed away, right? Like, ⁓ you know, maybe that's when somebody is considering like disinheriting. But what you have to realize in Louisiana is no, no, no, at your own death in that first level of like passing the assets by giving everything to your spouse, you are effectively legally disinheriting your kids at that step. is kind of like weird, like, you know, and so all of a sudden, even the structure of our documents had to change to accommodate that. And Addie, I was wondering if you could talk a little bit about like, know, Elena mentioned some people, most people don't think it's a good idea to give 50 % of your state split amongst like your two or three children who are minors. And so what do you do if you want to override that like, you know, disinheritance of your kids and put more assets in the hands of your spouse? Like, what's the mechanism there? speaker-2: Yeah, that's a great question. So there's two ways that we do this, ⁓ two ways the law allows us to do this. So the first is to use a use of fructum. We've kind of already mentioned that term before. It's similar to a life estate. gives the person who receives the use of fruct, we call them the use of fructuary, ⁓ and they have the right to use the property and the right to derive the income from the property. if you're familiar with life estates, that's generally what you think of. So we can give their surviving spouse that usufruct, that ability to use the property, and then the children or the naked owners, that's just what we call the remaindermen here. So the property kind of automatically goes to them that way. Now, to kind of throw another nuance onto it, if you think like, have minor children, what if I die and then something happens to my husband and the kids are still minors? I probably still don't want them to get it. So what we'll typically do is create the usufruct structure, but then put the naked ownership interest in a trust. so that as something does happen, the trust is there to automatically like step in and say, know, here's where we're gonna make distributions, here's when we're gonna terminate, who's gonna be oversee that trust. And so, you sometimes I say estate planning in Louisiana is like, you know, estate planning with one hand behind your back because you're gonna have to jump through all these hoops. Eventually, I think we get to a lot of the same answers as in other states, but you kind of have to work through the statutes to get there. speaker-1: That's a really good point and that's actually like, that's the route we ended up taking ⁓ with our Wealth.com documents because we, know, always in other states we give users the ability to decide whether or not they want their child's share to go into trust. But adding on this layer of like the use of Fractin, having that testamentary trust come into play at the first death, if forced death. sorry, forced airship is potentially applicable. That can, you know, it just kind of changed how we thought about things and just we couldn't just, you know, copy and paste from other states because there was a little bit of like reworking and how we all like tend to think about that in the process of estate planning. So it's really interesting. And I know I laugh at the naked ownership comment because our paralegal thinks it's the funniest thing. It's called naked ownership. speaker-2: why it's called that. Everybody is like, what are you talking about? It's the term naked and they're like, what? speaker-0: So in other words, if you read a Louisiana will or, you know, I guess a trust and you see all of this really weird language because you yourself as an advisor are not used to having clients based out of Louisiana, it's actually a hallmark that the document is a higher quality one because it's trying to be respondent to, you know, this weird dictionary being used in Louisiana. Yeah. So don't be put off by the term they can over. speaker-2: That's right. speaker-1: That actually leads to another question I had. And I know we've talked about this a little bit in the past, Addie. But I was wondering how much this actually comes up in practice when this isn't accounted for in someone's documents. I mean, I think about in my family, if everything went to my mom, I wouldn't bat an eye. Because I think that's the expectation of a lot of kids, too, that they're their parent in a traditional family is going to have access to those dollars, like, are there disputes over forced air? speaker-2: I mean, most definitely. There are definitely disputes. And one thing to kind of keep in mind is in Louisiana, of fruct is not just over real estate. So you can have a use of fruct over bank accounts, over ⁓ financial accounts, a car, like anything, any property you can have a use of fruct over. And so if you don't actually have a will in Louisiana, the default is a surviving spouse gets a use of fruct. ⁓ The difference between one big difference between a use of fruct and a life estate is that it can be for a set term. So the The intestate loss, say the use of fric loss until remarriage or until death, the earlier of them. So it could actually terminate before the spouse dies. ⁓ So anyway, to get back to your original point, think the way most of the time we see the forced airship issue come up is maybe a blended family situation. So surviving spouse is not the parent of the children. They didn't get what they thought they were gonna get or not as much. And the kind of the interesting thing is we said that, Children under the age of 24 automatically forced airs. Like that's very easy. When's their birthday? But for the other kind of prong of the statute, as you will, ⁓ the statute says that if they have an incurable disease that may later render them incapable of taking care of their person, they can also qualify as a forced air. So you can imagine, people, I've seen people claim diabetes as ⁓ being the forced air. They may eventually be rendered you know, incapable of taking care of themselves. And so, mean, depression, like just, there's lots of things that can come up. So I think that's particularly when we see it. And because the statute is so broad and could, doesn't give a lot of guidance, you know, the course are still just always interpreting it. So it's, you know, rather interesting in that sense. speaker-1: Yeah. One more thing about how I know that there's probably a lot we could talk about with use of fracks. But one question I do anticipate that people would have is like a use of frack is kind of an informal trust in a way, right? That's exactly how I think of it. spouse has the right to the income and they have the right to, if it is real estate, live in the house. But they don't have the right to sell in the house. What does that mean practically? Like if somebody wants to move, do they have to ask their kids permission? Like what does it mean if a spouse uses up the whole bank account to care for themselves, which might have been the intent of the deceased? How does that all kind of shake? speaker-2: Yeah, great question. So I think it depends on the type of use of trucks. So sometimes for the wills that I'll write sometimes, ⁓ you can give a use of truck that allows a person, we call it the right to convert the property non consumables to something else. So they can sell the property, they could sell a house and then whatever proceeds the use of truck attaches to that. A lot of times like in a lot of documents, you'll see, essentially to give their surviving spouse the right to sell the property. Now, if we're talking about the legal use of truck, that comes under the inheritance law, then they don't have that right to sell the property. And then they need the naked owners, the kids to sign off on it. And most families, that's not a big deal. But as you can imagine, in some families, there is some money that has to be transferred in order for that sign off to occur. So, you know, kind of depends on where the family is in that situation. And then I know you had another question that I wanted to answer and I can't quite remember what it was. speaker-1: Yeah, so if it is a consumable, say they have a right to sell the house, and that's something that we did grant in our Wealth.com documents. Like when a spouse is given a use of prox, they have the right to convert to avoid situations like that. But if they do sell the house or if the use of prox is granted over just a bank account or stocks or something else, and they use it up, what does that mean for the naked owner? speaker-2: Yes, so that's a great question. Essentially, when we think of a use of a consumable bank account, under the law, technically, what they should do is open two accounts. They should put the principal in one account and sweep the income over because the use of ruptuary at the end of the use of has an obligation to account to the naked owner for the money they received. Now, as a practical matter, do people do that? Absolutely not. And there is really no way for the naked owner to tell them to do that. So essentially the naked owner has become an unclaimed creditor of the surviving spouse's estate. And that's usually what I tell people. you know, this is how we should do it. Now, whether they do it the way I say, you know, flip a coin. ⁓ But at the end of the day, the naked owners don't have a lot of recourse. I mean, you know, if that... surviving spouse that had real estate or whatever they would have the claim on. They're an unsecured creditor of the estate essentially. So if they use up everything, sometimes it is, there's just nothing there to go get. Wow. Yeah, crazy. speaker-1: Very informal, which is fine. There are no issues. speaker-2: Yeah, and I mean, so I think your comment like an informal trust is just a great way to like for that's the greatest way I think about it because that's what it is. I mean, we're kind of separating ownership. We're saying who can do what, you know, the law tells us the rights of these fracturing the naked owner. But at the end of the day, is very less formal than a trust. You know, our trust gives much more structure around that. And I think for a lot of people, ⁓ like exactly what you said, they really do want the surviving spouse to use up the proceeds and not have to account. and just whatever is left go to the kids. And so when, know, I mean, the way to do that is a trust, is a testimony trust. And so usually I will try and convince them to do that, but you know, they see trust and they get scared and it doesn't always work, so. speaker-0: Yeah. speaker-1: Yeah. OK. Well, speaking of trust, that leads to my next question. feel like just like the will versus trust question, it already does vary by jurisdiction. I practiced in Washington, jumping to a revocable trust was definitely not the default, that it can't be in other states that have a particularly expensive probate process. But what does that ⁓ look like in Louisiana? speaker-2: Yeah, I think we're kind of the same. So the default rule here is not automatically a revocable trust. ⁓ We don't have a terrible probate process. ⁓ So, you know, when people kind of come to me, generally, my advice is that a last will and testament, you know, is usually where we start. Now, if there's circumstances where that doesn't work, and there certainly are, ⁓ then a trust kind of comes into play. But, ⁓ you know, I get a lot of I saw on YouTube or this TikTok video said I need a trust. And so ⁓ When people tell me that, I'm like, OK, well, what are your assets? Why do you think you need it? Let's talk about specifically what it's going to do and what it's not going to do. And I still think people have the misconception that once you put stuff on a trust, it's just tax free. ⁓ And so explaining to them that a revocable trust really doesn't provide asset protection or doesn't protect you from actually, it's sort of interesting. ⁓ speaker-0: Adia will tell you, part of the impetus of this podcast is to demystify a lot of the things people are hearing on TikTok and other social media. thumbs up for it and I encourage our audience to check out earlier episodes of this podcast where we say there is no income or state tax planning objective being fulfilled by a revocable or living trust. speaker-2: Say it over and over, maybe they'll get it. speaker-1: Yes. for our Wealth.com documents, for that reason, we like, we already know that we're going to have to deal with a lot of the complexities of Louisiana law in general with dealing with our testamentary trusts within our last will and testaments. So we went the will route. But just to talk about that, we still did have to think about Louisiana law. in terms of trust and how it differs from other states. one of the things that popped out to me when we started talking about it was just overall, the flexibility is much more limited. And I was wondering if you could expand on that a little. speaker-2: Yeah, absolutely. So one of the biggest things I think in terms of flexibility is in Louisiana, you know, we kind of divide our beneficiaries between an income beneficiary and a principal beneficiary. And I kind of think of it as like the principal beneficiaries king, like they're the anchor of the trust. So it's very hard. It's not impossible. And there are certain circumstances. But once you name those principal beneficiaries, that's ultimately who's either getting or a state is getting the money. Now, ⁓ you know, one thing that we don't have is that to be named a beneficiary of a Louisiana trust, generally you have to be in being. And so you can't have the super long, just, you know, descendants of forever and ever. Like we don't have dynasty trust. You know, when people are like, I want a dynasty trust, I'm, you know, want it multi-generations, you know, first off, I'm like, well, do we, A, do we really need that? But B, if you do the Louisiana jurisdiction is just not going to accomplish your goals. You know, it's just. And most, the regeneration is about all we can get if we use a class trust, but that's really about as far as we can go. speaker-1: Yeah, and I know that that was something that we were, when you were helping me review the documents, that was something that we were taking a look at our Wealth.com documents, making sure that we have a clearly defined principal beneficiaries, because that's just not what our forms are like for different states, that identification of income and principal and having that be set. even if you have my descendants then living, that can... of the Louisiana. speaker-2: Exactly. And then another thing that, you know, we have no powers of appointment. So after I graduated from LSU law school, I got my LLM at Boston University, I get into like, you know, a state tax class, and people are talking about powers of appointment, and I have no clue what they're talking about. Like, I'm just like, you know, what, what is this thing? Like, please explain. And so I think people probably think that's hilarious, because like, that is one of the most used techniques of estate planning everywhere else. And we just have no ability to do it here. So So that's very different. speaker-0: If you go to a hacker link session, wonder how many sessions do not mention the power of speaker-2: Probably zero. ⁓ that's, know, there are definitely, I remember I had to go buy a little trust book because I was like, I just, don't understand. This is so different. ⁓ So, you know, it's, it's, it's good though. speaker-1: I'm going to think of what else we want. OK, so this was one thing. And actually mentioning our paralegal again, kept when we were working on this Louisiana project, I kept saying like, ⁓ Louisiana law is different. Louisiana law is different. And she was like, Elena, you need to stop saying that because people in Louisiana don't see themselves as different. It's just their lives. And she's right. I'm sure she's right to some extent. But I was wondering like what level of knowledge and awareness the clients you see come into your office with this or like how much you need to explain these concepts to them like are you starting from scratch or is there some baseline level of awareness? speaker-2: You know, that's a great question. mean, even I'd say like when I went into law school, I didn't realize anything about forced airship or, you know, I knew we had community property. So I think for most people that come in, if they haven't been involved in like a succession of their parent or grandparent, they really don't have a lot of experience with it. And so it is just kind of educated, you know, kind of starting at the beginning and explaining how the rules work and how, you know, how we can get around the rules, how we can use the rules to... to do what they need to do, but it's definitely a lot of education, ongoing education. speaker-1: Yeah, which makes sense because I think that that's true in any state and like people see on TV like we're talking about looks like this ⁓ like grand thing and then actually it's just a lot of paperwork. speaker-2: And the reading of the will that's my favorite they're like when I'm read the will I'm like I've never read a will in real life, you know So it's not like you see on TV speaker-1: So many novels, like The Inheritance is conditional on something crazy that you know would never actually be enforced. So I always laugh at that if I'm reading my chiplet novels. speaker-2: Yeah. speaker-1: but I think we've covered a lot, but I think just in general, are there any other misconceptions about Louisiana estate planning or just estate planning in general that you see, ⁓ come up in practice that you feel like we should debunk a little bit? speaker-2: So I think we got the most of the big ones. I think what you've kind of already mentioned this I think you know most people just leave everything to I'll leave everything to my spouse and they they'll take care of the kids and so you know I do always caution people like you know in Louisiana there is no ability to you know once you give it to somebody there's no condition you know they they get it it's outright ownership they can do what they want with it grief like second spouses you never know so I think that's a big one that people don't often realize And then I think it's also, you know, the other one I hear a lot is I don't, I don't have, you know, my state's small. So like, I don't need a state planning. And so I think in that sense, it's trying to let people know that a state planning is more than just a will. mean, particularly for some people, think powers of attorney are just as important, if not more important than a will. You know, I always tell people you have an estate plan. The state of Louisiana has an estate plan for you. You may not like it, but you got one. Now a power of attorney, you know, I mean, the, you know, the teeter shirt. curatorship process, the interdiction, like nobody really wants to go through that if they don't have to. And so having those powers of attorney in place are like really key. So that's probably, I think, the big one. speaker-1: Yeah. And I think you just threw out like a few more like. ⁓ speaker-2: I sorry, I was like, exactly. Well, that one's easy because I, I use a Britney Spears conservator. I'm like, it's like when Britney Spears had a conservator, that's what I'm talking about. And people are like, okay, so I have an analogy, but yeah. speaker-1: Oh, that's perfect. And such a good point, because I think that's something I like to say, too. Everybody does have an estate plan. You just don't know what it is, because it's written in a statute somewhere. And you might think it operates a certain way. But even in testancy laws of other states might not work how you expect them to, depending on your family structure, if you're on a community property state. it's always best to just Go through the process, even just have all of your family on the same page and make sure you all understand. If you choose to share that process with your children, I know people differ on that. But in my experience, it can make everybody's lives a lot easier and stress-free when the time comes to actually execute those plans. speaker-2: So yeah, totally agree. Totally agree. speaker-0: All right, so what I am hearing in this episode is if you are an advisor who has a client in Louisiana, be careful, you know, make sure that they have an estate plan because not only is it that there are legislatures out there that have made a default estate plan for your client, but in Louisiana specifically, there's also a French flavor to it. And your client may be surprised or their loved ones if they pass away without an estate plan. And there are ways to work around some of these more rigid rules in Louisiana as well. And so with that, I wanted to close out our episode. Adi, Elena, thank you so, so much for joining the Practical Planner. We'd love to welcome either of you back. And with that, for our audience, if you would like more of this content, please ⁓ rate, subscribe, and we will see you in a different episode.