BusinessReport.com

No one likes to face the prospect of his own demise, but managing assets beyond your earthly years for your loved ones’ benefit is Paul Rabalais’ forte.

The estate-planning attorney is president of Rabalais Law Firm on Perkins Road and published a book in 2007 called Estate Planning in Louisiana about wills, trusts and other wealth-transfer matters. Although the state did away with its inheritance tax in 2004, Rabalais says there are unique terms and ownership concepts here stemming from French laws that are useful to grasp. Then there are federal estate-tax rules that change year by year and likely are in for another big swing for 2010.

The Denham Springs family man and graduate of LSU’s Paul M. Hebert Law Center explains why you should give a usufruct and stop procrastinating writing your epilogue.

1. Who comes to see you about their financial affairs?

It is primarily ordinary middle- to middle-upper-class Louisiana residents that want to make sure that their affairs are in order, that things are going to go smooth. Anywhere from young parents with minor children who want to name guardians … all the way up through older people who want to make sure that if they have to enter a nursing home, their assets are protected for their family. Generally, it’s people in their 50s and 60s.

2. What’s unique about Louisiana estate-tax laws?

It’s the kind of forms of ownership that we have. When one spouse dies, the surviving spouse often inherits the usufruct. That means the person has the right to use those assets until the day it goes to the naked owners. That is unique only to residents of Louisiana. It comes from the French civil law, the Napoleonic Code.

3. What’s the difference between usufruct and ownership in terms of transferring assets between spouses?

The benefit is that it enables married couples to arrange their affairs so that both the surviving spouse and the children are protected. That spouse can use the assets, but at some later date, perhaps when the surviving spouse remarries or the surviving spouse dies, those assets must revert back to the heirs of the first spouse.

4. This year, the federal estate-tax exemption rose to $3.5 million for decedents. What does the change mean for your business?

Particularly with the downturn in the stock market, the value of an individual’s estate has decreased in the last year or two. Here in Louisiana, most middle- to upper-middle-class families are not subject to the estate tax. They have more flexibility with what to do with their assets. On Jan. 1, 2010, there will not be a federal estate tax. Congress, I don’t think, will let that happen. The most likely proposal in my view is that Congress will make this $3.5 million exemption permanent. They will have to change the law prior to Jan. 1.

5. So next year, the federal estate tax disappears entirely, reappearing in 2011 but going from the current rate of 45% up to 55%. What’s the rationale behind that switch?

That’s just how it was structured. There was an estate-tax change that took effect 10 years ago. Once the 10 years was up, that tax change had to go through a sunset. Congress voted to phase out the estate tax, but since that law wasn’t passed by a supermajority—it was only passed by a majority—that law has to be wiped of the books.

6. Some groups say ending the estate tax could create 1.5 million jobs, while raising the rate to 55% will eliminate 500,000 jobs. Is there a relation between wealth transfer and jobs?

I believe there is. When a business owner dies, a federal estate tax must be paid, and that tax is based on the fair-market value of their business. Businesses often have to be sold or broken up or converted to cash in order to pay the necessary estate tax. It is very hard for businesses to continue from generation to generation when there is a 45% or 55% federal or state tax that is based on the value.

7. What impact has the recent economic roller coaster had on estate planning? Are people putting it off in the near term or guarding their assets more carefully?

People are more cautious. They feel that they don’t have as much of an estate as they used to. They perceive estate planning as something that’s going to be time-consuming and expensive. It’s very easy to procrastinate. You have to face things like, “One day I’m going to die or become incapacitated.” For making sure that the transition goes smoothly, there’s a lot of nontax reasons for people to engage in estate planning, particularly in the area where there are mixed marriages and blended families.

8. Since few people were able to avoid stock, bond, real estate, commodity and other losses in the recession, what do your clients want to see done in order to protect them from the sky falling again?

We do represent a lot of elderly individuals that have their money in banks, and so they do like the increased FDIC protection from $100,000 to $250,000. People really have not voiced to me what they’d like to see happen in the stock market. Most of the people whose estates we’re planning, they’re older, they like more fixed-income investments … just to have the peace of mind that they can protect what they have.

9. What kind of advice do you have for clients about Capital Region real estate?

I had someone in the office today with three pieces of commercial real estate. We created three LLCs, or limited-liability corporations, and he put one piece of property into each LLC to protect himself against liability if someone gets injured on his property. That’s just one more reason to get your affairs in order.

10. With the mortgage meltdown and the drop in home values, do people have to change their spending habits and investing strategies fundamentally to rebuild their estates?

Yes, they do. It seems like we’ve gone from this era of, “It’s easy to make money, and it’s easy to invest, things just happen to grow automatically,” to a sharp downturn, which in my view was a great wake-up call that requires people to pay close attention to how to invest their current investments, and also how to accumulate wealth in the future.