Managed Care

Attempts to lower costs by arranging for care at predetermined or discounted rates, specifying which doctors and hospitals the patient can use and overseeing physicians' treatments and referrals. See Health Maintenance Organization (HMO), Point-of-Service (POS), and Preferred Provider Organization (PPO).

Marital Deduction

Unlimited amounts of certain assets can be conveyed outright or in interest between spouses during lifetime or at death without gift taxes or estate taxes, or by naming the surviving spouse as the beneficiary of such things as insurance policies and certain retirement plans. See Qualified Terminal Interest Property Trust and Usufruct. A usufruct for life may also qualify for the marital deduction or a qualified terminal interest usufruct.

>>> Tip: In many states other than Louisiana, joint ownership (where property automatically passes to the spouse upon the death of the other spouse) qualifies for this deduction. See Inheritance Tax.

>>> Tip: If a married couple is worried about the amount that will ultimately pass on to their family or others, use of the full marital deduction to avoid all federal estate taxes upon the death of the first spouse to die may be unwise because this may eventually result in high estate taxes upon the death of the surviving spouse. The reason is that property must be passed on to the surviving spouse in a manner that would cause it to be included in the estate of the surviving spouse in order to qualify for the marital deduction. Any remaining portion of the property passed on to the surviving spouse will be subject to estate taxes to the extent that its value exceeds $675,000 (increasing to $1,000,000 in 2006).

Over-Qualification refers to a situation where a spouse transfers to the surviving spouse too many assets to use the exclusion amount ($675,000 increasing to $1,000,000 in 2006).

>>> Tip: The property which was untaxed when the first spouse died can be placed in trust so that it will not be includable in the estate of the surviving spouse upon the death of the surviving spouse. These are sometimes known as "bypass trusts", "credit shelter trusts", or "exemption equivalent trusts". See Trusts.

>>> Tip: When the value of any remaining portion of the estate of the spouse dying first is added to the value of any separate property of the surviving spouse and to the value of the surviving spouse's one-half community interest, the deferred or delayed estate tax (which would have been due on the estate of the spouse dying first) and the tax on the estate of the surviving spouse dying may be very high.

The marital deduction is usually not allowed if the assets of the deceased spouse are a terminable interest. A terminable interest is a right of ownership that will end after some period of time or upon the occurrence of some future specified event. See Qualified Terminal Interest Property Trust and Usufruct.

Matrimonial Agreement (Nuptial Agreement, Pre-Nuptial Agreement, or Separate Property Agreement)

An agreement entered into before marriage to avoid the Louisiana community property system or to change from a separate property system or a mixed system to a community property system, or to transform the status of property already owned. These are often used in second marriages to benefit children of the prior marriages or for asset protection. Owners of closely held companies may also request their children to enter into such agreements in order to preclude claims by the spouses of the children that part of the business is Community Property, entitling the spouse to an interest.

>>> Tip: Court approval is necessary for such agreements after marriage and for married couples who married outside of Louisiana and who then resided in Louisiana for more than one year.

Several options will be available in a matrimonial agreement to modify your matrimonial regime (a matrimonial regime is a system of rules that regulates the ownership and management of property owned by married persons). The are three kinds of matrimonial regimes: community property, separate property, and a mixed system by which some but not all aspects of the community property are selected.

>>> Tip: It is important to recognize that if you eliminate community property, upon the death of either spouse, the deceased spouse's estate includes only separate property and not an undivided one-half interest in community property if you have decided not to have any community property. Accordingly, the inheritance rights of spouses and children may vary, depending on whether your property is characterized as separate or community. See Community Property and Separate Property.

You may authorize joint accounts to pay for various living expenses, and so forth. The agreement may also provide that purchases made with funds from such accounts are deemed to be owned by the two of you as co-owners in division unless you agree otherwise in writing. If you do use such an account and if you buy only ordinary groceries and household goods, this provision is probably sufficient. However, if you intend to buy furniture or the like or indeed buy or rent a house or buy or lease a car, you may want to provide that your ownership will be deemed to be in proportion to your contributions to the account for that particular expense.

As a further example of your options, instead of establishing a separate property system by which each spouse's earnings and property, and its fruits and revenues, belong solely and exclusively to each spouse (as opposed to a community property system which automatically applies to persons who marry in Louisiana unless there is a valid matrimonial agreement to the contrary), it is possible to establish a mixed system by which some but not all aspects of the community property system are selected. You are free to design and regulate your marital regime in a matrimonial agreement with a mixed system, subject only to certain limitations of public policy.

>>> Tip: If you should choose to establish a mixed system of community and separate property, then one typical way would be to earmark certain existing or proposed assets as separate, and to provide that the remainder of the property acquired later shall be community.

Any life insurance or similar insurance that you may acquire following your marriage would be subject to a typical matrimonial agreement, because Louisiana characterizes the nature of an insurance policy and its proceeds depending upon the time of acquisition, subject to certain exceptions if premiums were paid with community funds.

As another example of your options, you may waive any and all rights that you may have to assert a claim for permanent alimony from each other due to any divorce. An alternative would be to recognize the possibility of an obligation of mutual support between the two of you created by law, including a court alimony award.

Medical Savings Account (MSA)

May be established with employee contributions deductible from income, in connection with a high deductible health plan, by self-employed individuals or small employers generally employing 50 or less employees. Distributions from an MSA are tax free when used to pay for qualified medical expenses.

Medicare and Medicaid

Medicare covers those 65 and over, regardless of their income or assets and certain individuals under 65 disabled for two years or more. Coverage at age 65 is automatic unless they do not receive Social Security payments, for example because they have deferred their retirement. Social Security disability beneficiaries (after two years), such as disabled widows and widowers age 50 or over and beneficiaries age 18 or older who receive benefits because of disability beginning at age 22 are also covered.

>>> Tip: Medicare does not pay for long-term custodial (nursing home) care. See Long-Term Care Insurance. Also it does not pay for most preventive medicine and check-ups, prescription or non-prescription drugs, para-medical services, most eyeglasses, hearing aids, incontinency pads, or chronic illnesses.

Part A (hospitalization, and so forth) coverage provides some hospitalization, some skilled nursing care, hospice care, and some home health care.

>>> Tip: Those not eligible for Part A coverage can purchase it by paying a premium.

Part B (physicians' services, and so forth) pays for certain physicians' services, clinical laboratory expenses, home health care, outpatient hospital treatment. The beneficiaries pay deductibles, co-insurance and monthly premiums for Part B coverage. The premium is typically deducted from the beneficiary's Social Security benefits.

Part C (Medicare + Choice Program) provides optional benefits in lieu of or in addition to Part A and Part B benefits.

Medicaid is for applicants without sufficient income to provide for their own health care. It pays for premiums and co-payments under Medicare. Applicants must have limited assets and resources.

The Louisiana Medicaid Program includes certain physician services (non-preventative), laboratory and diagnostic services, medical equipment and supplies, long-term care and hospital services, medications, dental and eye care, home health services, psychiatric services for those over age 65, rehabilitation and clinic services, medical transportation, and other benefits.

>>> Tip: Asset transfers within 30 to 60 months before application can affect eligibility and some may be illegal.

Acute-care is short term treatment to cure or improve a condition. Chronic-care is for illnesses which cannot be cured or improved. Such care attempts to keep conditions from deteriorating and to make the patients more comfortable and improve the patients' ability to take care of basic daily tasks themselves.

Medicare provides for certain acute care, skilled nursing facility, hospice care, hospitalization, visits to a doctor, medical tests, and certain skilled nursing care for recuperation from an acute illness. Medicare provides a limited benefit for home health care (the Medicaid system provides for nursing home care).

Survivors and dependents of persons entitled to Part A benefits and dependents of persons under age 65 who are entitled to Social Security retirement or disability benefits are eligible for Part A benefits if the survivor and dependents are age 65 or older.

Medicare Supplement Insurance/Medigap Insurance

Private insurance which supplements Medicare benefits but typically does not provide long-term care chronic care coverage. See Long-Term Care Insurance and Medicare.

>>> Tip: Some such policies pay the Medicare deductibles, co-insurance, and non-covered services, drugs and equipment.

Mortgage Loan Monthly Payments

Examples of monthly payments of principal and interest for each $1,000 borrowed:

Example: $100,000 loan ¸ $1,000 = 100 x $6.65 (that is 7% for 30 yrs.) = $665.00 per month exclusive of any taxes, insurance, mortgage insurance, and so forth.

See Real Estate Investments references.

Net Taxable Estate (Federal)

The gross estate less deductions, credits and charitable contributions.

Non-Probate Assets

Are ordinarily not subject to court probate and succession proceedings and pass automatically to the intended recipients. Such property commonly includes POD accounts (payable on death), proceeds from life insurance policies, trusts, pensions, IRAs with named beneficiaries, employee benefits and certain annuities and retirement benefits payable to the decedent at least in part and after death to a surviving beneficiary. These annuities and retirement benefits include insurance company annuities, private annuities, and qualified employee benefit plans to include pension plans, profit-sharing plans, 401(k) plans, SEPs, and IRAs. "Either or" accounts are subject to probate and succession procedures unless an authentic notarial act of donation has been executed. However, U.S. Treasury securities held in "either or" accounts are not subject to probate and succession procedures.

>>> Tip: Real estate ownership in states other than Louisiana may be subject to joint ownership which may operate to pass property automatically to the surviving owner. See Probate.

>>> Tip: Non-Probate assets are not necessarily free of Louisiana inheritance taxes or federal estate taxes.

Penalties and Excise Taxes (Qualified Plans and IRAs)

The purpose of the federal tax laws permitting the tax deferral of contributions to qualified plans and IRAs is to encourage participants to plan a reasonable income level for their retirement. The following penalties are placed on distributions or accumulations that are considered to be contrary to this objective:

èEarly Distributions - If a participant takes early distributions (for example, before age 59½) from a qualified plan, a 10% penalty tax is imposed. Certain exceptions apply, such as: non-taxable return of an employee's after tax contributions, tax-free rollover to an IRA or qualified plan, financial hardship, benefits received from a qualified plan upon termination of employment and after age 55.

èMinimum Distributions - If amount distributed is less than the minimum required distribution, a 50% excise tax is placed on the difference.

èExcess Distributions - If the amount distributed is greater than certain IRS guidelines, a 15% excise tax may be imposed.

Per Stirpes - Per Capita

These are sometimes used in designating beneficiaries in life insurance policies, wills, and trusts. "Per Stirpes" means that the share of a deceased beneficiary goes to the beneficiary's children. "Per Capita" means that the children of a deceased beneficiary are to share equally with the surviving members of the beneficiaries.

Personal Holding Company

One in which (with certain exceptions) 5 or less individuals own 50% of the stock and 60% of the corporation's adjusted ordinary gross income is passive income such as dividends, interest, annuities and certain royalties and rents. See Family Holding Company.

Point-Of-Service (POS)

A managed care plan that allows patients to seek care outside an HMO at a higher cost. See Health Maintenance Organizations, Managed Care, and Preferred Provider Organizations (PPO).

Post Mortem Tax Planning

A decedent's executor or executrix or beneficiaries must consider a number of options or elections such as inheritance and estate tax elections, renunciations or disclaimers of assets, and income tax decisions. Choices also include (a) alternate valuation dates, (b) special valuations such as the Section 303 election that covers certain stock redemptions to pay "death taxes" and administrative costs (see Gross Estate and Qualified Family-Owned Business), (c) special use valuation reductions available for certain farms and businesses located near more valuable commercial property, (d) the deferred payment of estate taxes later than the usual due date of nine months after death, and (e) decisions relating to income taxes. Such income tax decisions include (a) deducting certain medical expenses on the final income return of the deceased instead of on the estate tax return, (b) options relating to Series E and EE U.S. Savings Bonds, (c) selection of the estate's tax year, for example to divide income between two tax years, (d) the filing of joint returns, (e) deducting administrative expenses such as executor's fees, legal fees, court costs, accounting fees, appraiser's fees and certain estate asset sale expenses on the fiduciary income tax returns instead of on the estate tax return; (f) determining when to close or terminate the estate as a taxable entity, and (g) deciding whether the executor or the executrix should waive any fee for tax reasons.

Pour-Over Will

Transfers property at death to an existing trust.

Power of Attorney

Is a document (called a mandate or procuration in Louisiana) executed by the principal (the person who gives authority to an agent or attorney-in-fact to act for his or her benefit) authorizing a trusted agent or attorney-in-fact to act on the principal's behalf. The powers may be broad and authorize the agent to enter into most legal obligations on behalf of the principal, or the powers may be limited and authorize the agent to perform only specific functions on behalf of the principal. A medical power of attorney authorizes the agent to make medical or health care decisions. See Durable Power of Attorney and see Gross Estate (Under Federal Estate Tax) - power of appointment.

Preferred Provider Organization (PPO)

A managed care plan that is a network of independent physicians, hospitals, and other healthcare providers who contract with insurance companies to provide care at discounted rated. See Health Maintenance Organization (HMO), Managed Care, and Point-of-Service (POS).

Pre-Nuptial Agreement

See Matrimonial Agreement.

Probate

The process in which a court determines the validity of a will and supervises the distribution of the assets that are subject to the will. See Non-Probate Assets and see Succession. See Avoiding Probate.

Probate Assets

Probate assets include your residence; stocks; bonds; cash; vehicles; equipment; household goods; and so forth; real, personal, tangible or intangible property that you own at death either in your name or property in which you own an undivided interest. See Probate and see Will.

Qualified Family-Owned Business Interest (QFOBI)

Part of the value of the decedent's interest may be excluded from the decedent's gross estate if the decedent's interest is passed on to family members or to senior employees; such interest must constitute 50% of the estate and certain rigid qualification requirements must be met. The maximum exclusion is reduced by a "credit" that is the being phased in; this will amount to an effective exclusion of only $300,000 by 2006.

>>> Tip: There is a penalty for failure to maintain QFOBI status for 10 years following the decedent's death.

Qualified Long-Term Care Insurance

Provides only coverage for necessary diagnostic, preventive, therapeutic, curing, treating, mitigating, and rehabilitative services, and maintenance or personal care services.

Qualified Personal Residence Trust (Residence GRIT)

Irrevocable trust created by transferring a residence or a second home into a split interest trust for a period of time. See GRIT.

Qualified Small Business Stock

Certain stock designated by federal tax law. Noncorporate investors may exclude 50 percent of their gain from the sale of such stock if certain requirements are met.

Qualified Terminal Interest Property Trust or Usufruct (QTIP Trust or Usufruct)

A trust whose assets qualify for the unlimited federal marital deduction, thus reducing the taxable estate of a deceased to the extent of the value of assets placed in trust for the benefit of the surviving spouse, even if the surviving spouse has no power to dispose of trust principal (the corpus, that is, other than its income) during the lifetime of the spouse or upon the later death of the spouse. The surviving spouse must receive all of the trust income not less than annually; no part of the trust property can be available to anyone other than the surviving spouse and an election must be made. A usufruct for life may also qualify for the marital deduction instead of a trust. Trust assets that remain are included in the taxable estate of the second spouse to die. See Marital Deduction, Reverse QTIP, and Usufruct.

>>> Tip: There is no equivalent deferral for a QTIP under the Louisiana inheritance tax.