Baldwin Haspel Burke & Mayer LLC

Estate and Charitable Planning Tools that Work

John Rouchell -  Posted on by Baldwin, Haspel, Burke & Mayer

Article Last Updated: October 22, 2012


A. The most important estate planning tool is a properly drafted Will.

B. Louisiana Concepts

1. Community Property

a. Community property is owned one-half by each spouse, regardless of whose name appears on the title.
b. All property acquired during your marriage is “presumed” to belong to the community, unless there is proof to the contrary or a matrimonial agreement which abolishes or otherwise modifies the state’s community property laws.
c. Income generated from separate property is community unless there is executed and recorded a “declaration of paraphernality” reserving the income from separate property as separate.

2. Separate Property

a. Separate property belongs 100% to the person whose name is on the title.
b. Separate property includes property acquired prior to marriage that still exists or which can be traced back to other separate property with little or no commingling of community property, property inherited (even during  marriage) or property gifted (but not also to the other  spouse).

3. Usufruct

a. A usufruct is somewhat equivalent to a “life estate” common in other states.
b. A usufructuary is entitled to all of the fruits, such as rents, dividends, interest, etc. generated from the property subject to the usufruct.

4. Forced Heirship

a. A forced heir is any child under age 24 or any permanently handicapped child, regardless of age.  A forced heir also includes any descendant who, at the client’s death, has according to medical documentation, an inherited, incurable disease or condition that may render him incapable of caring for his person or administering his estate in the future.
b. A forced heir is entitled to inherit a certain share of the estate, depending upon the number of forced heirs.  This is known as the “legitime” or “forced portion” or “forced share.”
c. The forced share is one-quarter (1/4) if there is only one forced heir or one-half (½) if there are two or more forced heirs, divided equally among the forced heirs, but in no event can the forced portion exceed the amount a child would have received if the client had died without a Will (“intestate”).  For example, if a client has five children all over the age of 24 but one of them is handicapped, he will have only one forced heir. Although the forced portion with one forced heir is 1/4th, if the client had died without a Will, all five children would have inherited equally, or 1/5th each.  Thus, the handicapped child’s forced share is 1/5th, not 1/4th.
d. Life insurance and retirement benefits are not counted in determining the amount to which the forced heirs are entitled, but to the extent life insurance or retirement benefits are paid to the forced heirs, they will be credited in determining whether the forced portion amount has been satisfied, unless stipulated otherwise in a Will.

C. What happens if a client dies without a Will or with an invalid Will in Louisiana?

1. Spouse and child or children

a. Community property
(i) Children inherit equally.
(ii) Surviving spouse has usufruct which terminates upon remarriage.
a. Separate property
(i) Children inherit equally.
(ii) No spousal usufruct.

2. Spouse and No Descendants

a. Spouse inherits the decedent’s ½ of community property.
b. Brothers and sisters inherit the separate property, subject to the surviving parent(s) usufruct.

3. No spouse but children – children inherit equally.

D. Advantages of a Will

1. Legacies of special property (jewelry, collections, guns, automobiles, boats, other personal property, etc.)

2. Provisions or instructions for the disposition of a family business.

3. Provide for the disposition of property in excess of any forced share (called the “disposable portion” of the estate).  If the client has no forced heirs, he can dispose of 100% of his estate to anyone, including his spouse.

4. Grant to the spouse a lifetime usufruct instead of a usufruct which terminates upon remarriage.

5. Establish trusts in the Will for children, grandchildren, aging parents, etc.

6. Establish a special needs trust in the Will for any disabled child or grandchild to provide for continuity of financial management by a Trustee and to preserve the beneficiary’s eligibility for need-based governmental benefits, such as SSI and/or Medicaid.

7. Provide for contingency bequests in case of a common disaster or deaths within up to 180 days.

8. Appoint an Executor or Independent Executor of the estate.

9. Appoint tutors (guardians) who will be responsible for the personal care of minor children if you and your spouse both die.

10. Make charitable bequests.

11. Conserve the estate for family by proper tax planning by taking advantage of the exemption amounts and marital deduction if the size of the estate warrants special death tax planning.

E. Non-probate Assess

1. The Will provides for the disposition of “probate” assets, such as the family home, business interests, cash and cash equivalents, personally-owned investment portfolios, and investment real estate.  The probate estate consists of the decedent’s one-half (½) interest in community assets and 100% of any separate property.

2. A substantial portion of a client’s wealth may be transmitted at death outside of the Will in accordance with beneficiary designation forms, forms of joint ownership, or “payable on death” accounts.  The client should coordinate these non-probate assets with his overall family and tax objectives.

a. Life insurance
b. Annuities
c. Retirement benefits (IRAs, 401(k), pension, etc.)
d. U.S. Savings Bonds or CDs “payable on death.”
e. Property located in other states registered “joint tenants with right of survivorship” or “JTRS.”

3. All beneficiary designation forms should be reviewed and updated.  For example:

a. If the client created a trust in his Will for children to receive probate assets, should the same trust be named either as the primary or contingent beneficiary of his non-probate assets instead of having these benefits paid to his children outright?
b. If the client is divorced, did he want to change the beneficiaries?
c. Did the client name specific children as primary or contingent beneficiaries and have more children after he completed the form?
d. Does the client have any children receiving SSI or Medicaid which they would lose if they received more than $2,000 in nonprobate assets?


A. Limited or Full Interdiction (Default Option)

1. A court appoints a curator (guardian) to make some or all decisions for the client, including financial and health care decisions.

2. Disadvantages:

a. Requires court proceeding
b. Expensive – Lawyer representing client and lawyer for person seeking to have the client interdicted – need for constant court approvals for curator’s actions – bond costs – accountings, etc.
c. Time consuming
d. Emotionally and psychologically draining
e. Stigmatization of being an interdict
f. Curator appointed to make financial and/or health care decisions may not be the person the client would have chosen.

B. Financial Power of Attorney (“POA”)

1. Written instrument appointing one or more persons as the client’s designated “Agent” to make all financial decisions (general POA) or only certain specified financial decisions (special POA).

2. The POA may be “immediate” conferring on the designated Agent immediate authority to act for the client or “springing” conferring powers only when the client is medically certified to be disabled.

3. Disadvantages:

a. The older the POA, the less likely a financial institution will be willing to rely upon your  Agent’s authority to act for the client.
b. Revocable — This is a positive and a negative.  The client can cancel the POA at any time.  By the same token, if the client has diminished capacity, different people can influence the client to keep changing his Agent.
c. If the client uses a springing POA, how is he going to be determined to be disabled if HIPAA would not permit the release of his medical records and the appointment of his Agent does not take effect until the POA is effective?

C. Health Care Power of Attorney (“POA”)

1. Louisiana’s Medical Consent Law provides a list of family members who, in order of priority, have the right to make medical decisions for the client in the absence of a health care POA.

2. A Health Care POA allows the client to choose the person(s) he wants to make health care decisions if he cannot.

D. Living Will

1. A Living Will is the client’s written declaration about his  treatment wishes if he becomes incompetent and is suffering from a “terminal and irreversible condition.”  A terminal illness is defined as a continual profound comatose state with no reasonable chance of recovery or a condition caused by injury, disease or illness which, within reasonable medical judgment, would produce death and for which the application of life-sustaining procedures would serve only to postpone the moment of death.  To become operative, the client must be diagnosed and certified by his attending physician and one other physician who has personally examined the client that he suffers from a terminal and irreversible condition.

2. The Living Will is not a POA.  The client does not delegate the decision to someone else.  The client states his treatment desire while he is competent which must be followed unless he revokes his Living Will.

3. The Living Will usually provides that the client does not want life-sustaining procedures to be used.  However, it can be tailored to reflect the client’s own concerns and preferences as to which procedures he does or does not want and when certain procedures may be discontinued.

E. Revocable “Living” Trust

1. A revocable trust created during the client’s lifetime allows him to manage his property until incapacity, at which time the trust becomes irrevocable and one or more Successor Trustees whom the client has named assumes control of management and investment of his financial assets.

2. Advantages

a. The client can amend or revoke the trust while competent.
b. The trust can be wholly or partially funded at creation or remain unfunded until the occurrence of incapacity (e.g., stand-by trust funded by representative through POA).
c. Has a higher level of acceptance by third parties than a Power of Attorney.
d. The client is taxable on income during life and assets are included in his estate for death tax purposes.
e. Unlike curator, Trustee is not required to seek court approval for actions.
f. Trust can dispense with bonding requirement for Trustee.
g. Can substitute for a Will or serve as a pour-over vehicle from a Will.
h. Opportunity to test the Trustee while the client is  competent.

3. Disadvantages

a. Cost (legal, Trustee fee, investment advisor, etc.)
b. Efforts to retitle assets.
c. Like a springing Power, must define procedure for determining the client’s incapacity.
d. Must provide mechanism for removal and replacement of Trustee.

4. Living Trust Mills

a. Living Trusts are being oversold by aggressive marketers with a variety of promises, such as avoiding probate, asset protection, saving death taxes and qualifying for Medicaid if the client needs long-term care.
(i) Probate avoidance: Won’t avoid probate for assets not retitled in the name of the trust.  Furthermore, Louisiana’s new “Independent” administration of estates avoids delays and costs normally associated with probate.
(ii) Save Taxes: A revocable trust is tax neutral.  Trust assets are included in the client’s estate for federal estate tax purposes and the income is taxed directly to the client.  The trust does not afford any special marital deduction or other tax planning which could not otherwise be accomplished in a properly drafted Will.
(iii) Asset Protection: Although the trust may contain a “spendthrift” provision, the client’s “interest” in the trust is seizable by creditors.
(iv) Medicaid Planning: The transfer of assets to a revocable trust can trigger a period of Medicaid ineligibility of up to five years from the date of transfer.

F. Disability Insurance

1. A client’s income from their business and ability to work are their your most important assets.  The loss of income due to permanent disability can be devastating to the client and his family, particularly if he has young children with educational or other support needs.  Even if the client does not support children, the loss of $60,000 per year over 15 years assuming disability strikes at age 50 is the loss of a $900,000 income stream!

2. Consider protecting your client’s income with disability insurance.  In the process, consider the following issues:

a. Definition of Disability.  The best definition of disability is the client’s “own occupation.”  If the definition is “any occupation,” the client may be denied benefits if he can teach or sweep floors.  The trigger for Social Security disability benefits is inability to be gainfully employed, which means that the client’s education, training and experience are immaterial so long as he can be gainfully employed somewhere.
b. Waiting Period.  How long does the client have to be disabled under the policy before benefits commence?  You should coordinate the waiting period with any other benefits the client may receive if he becomes disabled.
c. Maximum Benefit Period.  Do benefits cease after a specified period of time?
d. Coordination of Benefits (Offsets).  Are benefits under the policy reduced by any other payments made to the client on account of disability, such as under another disability insurance policy, disability payments from a qualified retirement plan and/or Social Security disability payments?
e. Benefit Amount.  Most policies limit the amount of monthly disability benefit and the amount of benefit also is limited by the client’s income, such as up to 50% of the client’s pre-disability income but no more than $10,000 per month.  If the client is young, should the benefit have an automatic cost of living increase to keep pace with inflation?
f. Cancellation.  Is the policy non-cancellable by the insurer?
g. Premiums.  Are the premium amounts guaranteed?  Do premium payments cease when the client becomes disabled?
h. Rating.  Does the insurance carrier have a good rating?

G. Financing Long Term Care

1. Long term care refers to an array of services associated with managing the kind of chronic illness or disability that leaves the client unable to care for himself for an extended period of time.  Long term care reaches beyond the traditional nursing home care, and includes assistive services for activities of daily living, such as bathing, grooming, eating, dressing, toileting, etc. in a variety of other settings, such as at home, continuing care communities and assisted living facilities.

2. The cost of long term care is one of the greatest financial burdens facing the modern American family.  In the New Orleans area, private pay nursing home charges can exceed $48,000 per year (compared to as much as $90,000 – $100,000 in the Northeast).  If a client is age 65 and may require nursing home care in 10 years at age 75, the New Orleans rate will likely be $90,000 – $100,000 per year based upon medical care inflation rates.  Round-the-clock sitters today can cost in excess of $70,000 per year.

3. Medicare only pays for 100 days of skilled nursing home care with days 21-100 subject to an individual co-payment amount unless the client has a Medigap policy to cover the co-payment.

4. The only government program which really pays for long term care is Medicaid.

a. Louisiana Medicaid does not pay for home care or assisted living facilities, only nursing home care.
b. To qualify for Medicaid, you must be poor!
(i) The client cannot own more than $2,000 of countable resources.  The family home and one car are not counted.  If the client is married and his spouse resides at home, his spouse is allowed to keep $92,760 of countable assets in 2004; and
(ii) The client’s income must be $1,692 per month or less from all sources, including Social Security and pensions.
c. If the client is 55 or older when he enters a nursing home, the state can go after the equity in the client’s house after his death (or, if his spouse is living in the house, after both of them have died) to reimburse itself for the Medicaid benefits paid.

5. Long term care insurance (LTCI) if the client can afford it and if the client can meet the medical underwriting criteria may be a viable option for financing the cost of long term care.

a. Levels of Care.  The newer policies cover not only nursing home care, but all levels of care, including home care, assisted living, adult day care, respite care and hospice.  Thus, the client has more choices than if he relied on Medicaid.
b. Amount of Benefits.  The client can select the amount of benefit he desires, depending upon his ability to use other resources (such as Social Security) to fund part of the anticipated cost of his long term care.  The policy for a younger person should contain an inflation factor.  For example, a 65 year old who buys a policy today may not need it for 15 years, so it is very likely that the average daily nursing home cost today will double by then.  Good inflation protection can be expensive and add 25%-50% to the premium cost.  Instead of paying up to a specific benefit based upon actual costs, some LTCIs are “indemnity” policies, that is they pay you a maximum amount and it’s up to the client how to spend it.
c. Maximum Benefits.  Many policies contain a period of time, dollar limit or both for which benefits will be paid.  Some policies offer unlimited lifetime benefits.
d. Waiting Period.  Generally, the longer the waiting period before a policy begins paying benefits once the need for long term care arises, the cheaper the policy.
e. Bed Reservation Benefit.  Some newer policies allow the client to reserve his nursing home bed for up to a stipulated number of days should his covered stay be interrupted by temporary hospitalization.
f. Waiver of Premium.  Some policies provide for a waiver of premiums in case of disability or nursing home admission.
g. Rating.  The client should purchase a policy with an insurer with high ratings.
h. Cost.  Most insurers provide for a level premium payment with the amount of premium varying based upon the client’s age when he purchases the policy, the amount of benefit, the duration of the benefit and the length of the waiting period.  Although a level premium cannot be increased by the insurer on an individual basis, the insurer may request an across-the-board increase from the Louisiana Insurance Commissioner for all of its policies sold in Louisiana.  Due to aggressive pricing and under-estimations of actual costs, the LTCI industry is undergoing a consolidation with several insurers dropping out of the market and even some of the leading insurance companies seeking and obtaining rate hikes on existing policies within the state.

6. Congress has and probably will continue to enact tax incentives to encourage people to provide for their own long term care costs through long term care insurance.  Some of the current incentives include the tax-free receipt of LTCI benefits and the deductibility of LTCI premiums for “qualified” policies.


A. Second To Die Coverage

1. A frequently used counterpart to the marital deduction Will which defers death tax until the death of the surviving spouse when both estates are subject to death tax.

2. If a properly structured life insurance trust is the applicant, owner and beneficiary, the coverage should be excluded from both estates, but payable on the death of the survivor when the death tax is due.

3. Often the insurer passes on a portion of its use of the funds during the period of survivorship in the form of reduced premium cost.

4. This approach may be most beneficial where one of the spouses is rated or uninsurable.

5. The trust should be structured with both spouses as Settlors, but neither spouse should be the Trustee.  The income and principal beneficiaries should reflect the residuary legatees of the estate so that the funding of death tax and other liquidity needs parallels the responsibility for those expenses among the heirs and legatees.

6. The term of the trust should continue at least until the surviving spouse has died.  It may be inappropriate to authorize the trustee to terminate the trust prior to that date since this will result in ownership of the policy among multiple principal beneficiaries.

B. Single Life Policies

1. Often a husband and wife either cross-own policies insuring the life of the other or have named the survivor as death beneficiary.  These approaches will remove the proceeds from the insured’s estate, but unconsumed proceeds (or their reinvestments) will be subject to death tax in the surviving spouse’s estate.

2. To remove the proceeds from both estates, the policy can be acquired by a properly structured life insurance trust.

3. Since the non-insured spouse often needs or wants access to the policy proceeds during the period of survivorship for income continuation and lifestyle maintenance, these trusts are often structured with the non-insured spouse as income beneficiary for life, with the children as principal beneficiaries.

4. In some cases, the surviving spouse will wish to control the proceeds as Trustee of the Trust, with a power to invade principal to maintain his or her lifestyle.  Care should be taken to limit or circumscribe those invasion powers by ascertainable standards (such as for medical needs or to maintain his or her standard of living) in order to keep the proceeds out of the surviving spouse’s estate.

5. Additionally, since Louisiana is a community property state, the policy should be converted into the separate property of the insured spouse, who then transfers the policy to the trust as his or her separate property.  Interspousal donations before transfer to the trust can accomplish this.

6. Finally, the transfer of a pre-existing policy to such a trust will require a three year period of time to elapse before the death of the insured to remove the policy proceeds from the insured’s estate.  If death occurs within the three year waiting period, the QTIP marital deduction election could eliminate taxation in the insured spouse’s estate, but the QTIP election will cause inclusion in the surviving spouse’s estate.


A. Family Limited Partnerships/LLCs

1. Use of the annual federal gift tax exclusions of $13,000 per donee, per year (or $26,000, if a husband and wife join in the gift) as well as the lifetime federal gift tax exemption of $1 Million per donor can be leveraged by transferring business or investment assets to a family limited partnership (“FLP”) or to a family limited liability company (“FLLC”) and thereafter, donating interests in the entity, taking advantage of judicially recognized transfer tax valuation discounts for lack of marketability and for minority interests.

2. Care should be taken in drafting the organizational documents, filing them in the proper sequence and respecting the entity’s legal structure in consolidating, managing and transferring family assets in order to avoid recent successful IRS challenges in the jurisprudence.

3. Of particular importance is obtaining qualified appraisals of the assets transferred to the entity as well as valuations of the transferred interests in the entities to justify the valuation discounts and to ward off potential IRS attacks.

B. Debt Flavored Transactions

1. There are a number of transactions involving sales or their equivalents which can “freeze” the value of estate assets and, in some instances, remove those assets from the transferor’s estate.  These transactions may be particularly useful if gift tax exclusions or exemptions have been depleted, or if relatively low interest rates are prevailing in the money markets.

2. An installment sale of assets from one generation to the next will replace an appreciating asset in the transferor’s estate with an asset, namely, a promissory note, which will not appreciate in value (except for interest), and will reduce in value as principal is amortized.  The estate freezing benefit of the installment sale can be further enhanced if the asset sold, such as an interest in an FLP or FLLC, is subject to transfer tax valuation discounting.

3. A further variation on the theme is an installment sale to an intentionally defective grantor trust (“IDGT”) for the benefit of children or grandchildren.  An IDGT is a trust drafted to invoke certain provisions of the Internal Revenue Code which causes the trust to be ignored for income tax purposes but not for transfer tax purposes.  A sale to an IDGT achieves estate freezing but the sale is not recognized for federal income tax purposes. Thus, the transferor recognizes no capital gain on sale or interest income on receipt of note payments.  The transferee trust owns the asset sold, but receives no deduction for the interest paid.  The asset sold is considered to be acquired by the trust for transfer tax purposes for full consideration (assuming that an adequate interest rate is stated in the note), so no gift occurs.  The transferor replaces the appreciating asset sold with a promissory note in his estate.  The income from the transferred asset is considered by IRS to continue to be the income of the transferor.  IRS has acknowledged that when the transferor pays his income tax on the trust’s net income, he is discharging his own legal obligation such that no additional gift to the trust occurs.  Thus, the assets build up within the IDGT for the benefit of the younger generation income tax free to them, much like an IRA.

4. Still further variations on this theme involve transfers in exchange for a private annuity and transfers in exchange for self-cancelling installment notes at the transferor’s death. These transactions will result in no inclusion in the transferor’s estate, but the payments must bear interest under I.R.C. §7520 which is 120% of the applicable federal mid-term rate required by IRS for notes between 3 and 9 years duration.  This rate will be higher than the corresponding rate for a normal installment note whose principal balance is included in the transferor’s estate at death.  The deferred gain in a self-cancelling installment note is taxable income to the estate, although the principal balance of the note has a zero value for transfer tax purposes.


A. Outright Gifts

1. Inter vivos gifts of property to qualified charities are eligible for income tax deductions, subject to percentage limitations and the erosion of itemized deductions. The property is removed from the estate for transfer tax purposes.

2. Outright charitable bequests in a Will do not generate income tax deductions but result in a charitable deduction for federal estate tax purposes.  Often marital deduction deferral takes place in the first spouse’s estate, so it may be better for the surviving spouse to make a personal charitable lifetime gift to generate an income tax deduction or to make the charitable bequest in the surviving spouse’s Will.

B. Charitable Trusts

1. Charitable Remainder Trusts

a. These trusts pay a fixed annuity (annuity trust) or a fixed percentage of the fair market value of the trust’s assets (unitrust) each year to the transferor or to a designed beneficiary, for life or for a term of years, after which the trust principal is delivered to one or more qualified charities.  The actuarial value of the retained interest is not a gift for transfer tax purposes or is valued at its actuarial value if the income beneficiary is someone other than the transferor.  The actuarial value of the interests of the charity or charities is a charitable contribution for income tax purposes (if an inter vivos transfer) and a charitable estate tax deduction (for testamentary transfers).
b. The charitable remainder trust is a tax-exempt trust for income tax purposes.  Often highly appreciated assets are transferred to the trust and then sold by the trust without income tax consequences.  The funds are then in liquid form and available for reinvestment and payment to the non-charitable income beneficiary, and are subject to income tax as the payments are made under a special tiered system.  This enables the non-charitable beneficiary to diversify investments free of capital gains tax and retain the income from such investments, with a potential income tax deduction and no inclusion of the assets in the estate.
c. These types of trusts can be created by Will in which the surviving spouse could be designated as the income beneficiary and still qualify for the federal estate tax QTIP marital deduction.

2. Charitable Lead Trusts

a. These trusts pay to a qualified charity an annuity or unitrust amount for a term of years, after which the trust assets are transferred to the non-charitable principal beneficiaries.
b. Often used to leverage the lifetime exemption from the tax on generation skipping transfers (“GST”), a testamentary charitable lead unitrust (“CLUT”) is used to transfer assets to grandchildren at discounted rates for estate and GST purposes.  The actuarial value of the charity’s lead interest is deductible for estate tax purposes.  The transfer tax value of the grandchildren’s interest is discounted for the value of the charity’s interest.
c. For example, if a testamentary CLUT pays to a charity a 5% unitrust amount each year for 10 years and then pays the principal to the client’s grandchildren as principal beneficiaries, and is funded with $2,470,615 of property by a decedent dying in October, 2004, at current applicable interest rates (4.4%), the value of the grandchildren’s interest would be $1,500,000, exactly equal to the client’s GST exemption.  If the trust generates income at 7% per annum, at the end of the 10 year term, approximately $2,973,136 will be available for distribution to the grandchildren.

C. Charitable Gift Annuities

1. This technique is a “poor man’s” charitable remainder trust.  A charitable gift annuity involves the transfer of money or property to a charity in exchange for the payment of a fixed amount annually to the transferor or to the transferor and spouse for life.  No trust is involved.

2. The transaction is treated as a part gift and a part purchase of an annuity.  The transferor is entitled to a charitable contribution equal to the value of the property transferred minus the cost of acquiring a comparable commercial annuity, determined by IRS tables.

3. A portion of each annuity payment is income tax-free and a portion is capital gain during the transferor’s life expectancy, determined by IRS tables.  If the transferor outlives his or her life expectancy, the payments are all ordinary income from that point forward.

D. Outright Gifts with Retained Powers

In addition to outright gifts, it is possible to make charitable gifts while retaining some degree of control over future charitable recipients.

1. Private Family Foundation.  A private family foundation is an I.R.C. §501(c)(3) organization, but most, if not all, of its financial resources come from the client’s family, rather than from public grants, gifts, etc.  Since the foundation is managed by the family with little or no public oversight, the Internal Revenue Code requires that it distribute certain amounts of income each year to public charities and prohibits certain insider activities such as self-dealing with related parties, retaining excess business holdings, and making certain prohibited investments and expenditures.

a. Direct bequests in Wills to family foundations qualify for the charitable estate tax deduction without limitation.
b. It can be a contingent beneficiary of a retirement plan or IRA, where the surviving spouse is the primary beneficiary.
c. It can receive a family business prior to sale.
d. It can serve as the charity in charitable remainder and lead trusts.

2. Donor Advised Funds.  If the expense and administrative complexity of a private foundation is not feasible, a gift or bequest can be placed in a fund, with a public foundation, subject to annual advisory recommendations from the client as to distributions for charitable causes, such as education, environmental issues, medical research, etc.

3. Supporting Foundations.  For sizeable charitable gifts, a public foundation may be willing to create a separate subsidiary corporation with a board of directors composed of the client’s family members and others, as well as individuals appointed by the public foundation.  The supporting foundation can be the charity in a charitable remainder or lead trust.  A supporting foundation is autonomous and more permanent and multi-generational than a donor advised fund, but is less expensive than a private family foundation.

E. Wealth Replacement

1. An obvious drawback to charitable planning is the fact that the client’s children are deprived of the donated assets.

2. One solution is to replace all or a portion of those assets with life insurance payable for the benefit of the children to a life insurance trust which should remove the proceeds from the client’s estate.


A. Section 529 Plans

1. Recent tax legislation has made significant changes to rules on Section 529 Plans and education IRA’s which can be used to fund children and grandchildren’s educational expenses.  The new law increases the availability of these benefits while at the same time providing tax savings to help save for a grandchild’s education.

2. The major tax benefit of utilizing the Section 529 Plan is that distributions from the account will be free from federal income tax beginning this year to the extent used to pay qualified higher education expenses at a public institution (i.e. tuition, fees, books, supplies and equipment required for attendance at an eligible educational institution). The same tax free status has been extended to prepaid tuition plans established for private colleges and universities beginning this year.

3. Every state has established its own Section 529 Plan with different rules applicable to each.  For example, Louisiana’s Section 529 Plan, also known as START, will match a portion of contributions to an account at a rate that varies according to income. If desired, a separate START account could be established by parents and grandparents with each receiving a matching contribution from the state.

4. The tax benefits associated with Section 529 Plans make them an attractive way to finance a child’s education.  However, the client should determine the type of investment and rate of return for a specific state’s Section 529 Plan that is desirable.  Currently, assets contributed to a START account in Louisiana are earing approximately 6%, but this amount varies as yields increase or decline.  If the client believes a higher after tax rate of return can be earned on other investments, he could make contributions to a traditional educational trust instead.

5. An account established under a Section 529 Plan also can be used in conjunction with gift giving.  For example, a client can contribute up to $55,000.00 for each child or grandchild to a Section 529 Plan.  The contribution is treated as having been made in $11,000.00 increments over a five year period.  After five years, another $55,000.00 contribution can be made.  Thus, these plans allow the client to accelerate annual gift giving.  However, if the client dies with the five year period, a portion of the fund will be included in the client’s estate (for example, if the client survives 1 year, 80% is included; 2 years 60% is included, etc.).

B. Exclusion of Direct Payments

1. A payment of tuition directly to the educational institution (or for health care directly to the provider) are not taxable gifts and will not deplete the client’s annual exclusions or lifetime exemptions for transfer tax purposes.


For many estates, no single estate or charitable planning technique can achieve all of a client’s goals.  Instead, the professional advisor should tailor these tools to the needs of each client and utilize a number of techniques, implement them aggressively and periodically monitor them to achieve the family’s personal goals and tax savings objectives.



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