Tax Deferred Annuity

See Annuities.

Tax-Free Exchange (Sections 1031, 1035, and 1044 Exchanges)

When business or investment property is exchanged for like-kind property (that is, the same character or nature), gain or loss does not have to be recognized and the transaction should not be subject to current taxation because the taxpayer is in basically the same position before and after the transaction. Real estate, life insurance policies, and annuity contracts can all be exchanged tax-free. An exchange which involves the assumption of a mortgage will cause recognition of some income. Special rules apply to exchanges between related individuals and entities, deferred exchanges, and multiple party exchanges.

See Real Estate Investments references.

>>> Tip: A >tax-free exchange is not typically possible for property that is not business or investment property, stocks, bonds, securities, partnership interests or inventories. However, transfers of assets between accounts in tax deferred variable annuities and in certain retirement plans may be made free of current income taxes; and certain "exchange" or "swap" funds allow investors to diversify their holdings by transferring stock into such a fund in exchange for an interest in the fund without recognizing a gain and paying taxes.

Taxable Estate

The portion of your estate subject to federal income, gift, estate, or generation skipping taxes. See Estate Tax, Generation-Skipping Transfer Tax and Gift Tax Exclusions.

TOPS (Tuition Opportunity Program for Students)

Eligible students may receive an amount equal to the tuition at a Louisiana public college or university which may be used by the student to pay any educational expense included in the student's approved cost of attendance. Performance and honors awards are also possible for students attending certain regionally accredited independent colleges or universities. See Education Funding and Education IRA.

Trust

Essentially a way to provide for the management and distribution of your property for the benefit of someone whom you believe needs such assistance. The creator is the settlor, the individual or corporation holding the property is the trustee, and the person for whose benefit the property is held in trust is the beneficiary. The property transferred to the trust is the corpus. A trust created during the settlor's life is an inter vivos or living trust and one that is created upon the settlor's death is a testamentary or mortis causa (in prospect of death) trust. A revocable trust can be modified or terminated by the settlor. A trust in a will is always revocable living trust until the testator or testatrix dies. Assets in a revocable living trust trust are part of the transferor's gross estate. An irrevocable trust cannot be modified, terminated, revoked or recalled. See Trustee. See By-Pass Trust, Charitable Lead Trust, Charitable Remainder Annuity Trust, Charitable Remainder Lead Trust, Charitable Remainder Unitrust, Credit Shelter Trust, Crummey Trust, Generation-Skipping Trust, GRATs, GRITs, GRUTs, Life Insurance Trust, Living Trust, Qualified Residence Trust, Qualified Terminal Interest Property and Trust, Rabbi Trust, Spendthrift Trust, Sprinkling Trust.

Some of these trusts or versions of them or other trusts are sometimes called A-B Trusts, Asset Protection Trusts, Charitable Lead Annuity Trusts, Craven Trusts, Disclaimer Trusts, Legacy Trusts, Mega Trusts, Minor's Trusts, Pot Trusts, Premarital Trusts, Probate Avoidance Trusts, Q-TIP Trusts, Sec. 2503(c) Trusts, Stand-By Trusts, Super Trusts, and Supplemental Care Trusts.

See Trusts.

Trustee

The trustee is a fiduciary (that is, owes a high degree of good faith performance of duties in financial transactions to the beneficiaries of the fiduciary's duties) and must administer the trust solely in the interests of the beneficiary. The trustee is under a duty to a beneficiary to keep and render clear and accurate accounts of the administration of the trust and must give a beneficiary upon request at reasonable times complete and accurate information as to the nature and amount of the trust property, and permit the beneficiary or a person duly authorized to inspect the subject matter of the trust, and the accounts, vouchers, and other documents relating to the trust.

A trustee in administering a trust must exercise such skill and care as a person of ordinary prudence would exercise in dealing with such a person's own property.

The duties of a trustee are determined from the provisions of the trust agreement except as expressly provided in the Louisiana Trust Code, and, in the absence of any provisions of the trust agreement, by the provisions of the Louisiana Trust Code and law.

A court may direct or permit a trustee to deviate from the provisions of the trust agreement concerning the administration of the trust if compliance would defeat or substantially impair the purposes of the trust. A court may permit or direct the trustee to invest in securities not prescribed by the trust agreement if the investments prescribed by the trust instrument would be likely to affect adversely the best interests of a beneficiary to a serious extent, having due regard for the purposes of the trust.

A trustee is under a duty to a beneficiary to take reasonable steps to take, keep control of, and preserve the trust property. See Trust.

Tutor or Tutrix

Someone who will have custody of your minor children and take care of them, seeing that your children are properly reared and educated while also administering your children's property. See Custody Of Your Children.

Unified Transfer Tax and Credit

The federal estate and gift tax systems that were formerly separate are now unified with respect to rates, values and credits.

The same tax rates apply whether property is transferred by lifetime taxable gift or at death subject to the estate tax. The unification of these rates reduced any tax incentive to making gifts during life in order to remove the value of donated or gifted property from a taxable estate, but some estate planning advantages to gifting outright or in trust still exist to reduce an overall transfer and income tax burden of an individual and his or her estate and shifting future income and growth or appreciation of the property transferred to others.

As one example, property gifted with a value of $10,000 ($20,000 for married couples - "split gifts", both indexed for inflation) per recipient per year is free of federal and Louisiana gift tax and neither the donated property nor any subsequent appreciation or growth will be included in the donor's gross estate for federal estate tax purposes; usually such property will not be subject to the Louisiana inheritance tax or the generation-skipping transfer tax.

>>> Tip: The amounts that a donor pays directly to service providers for education tuition and medical care is also free of federal gift tax. Gifts from one spouse to another may also have advantages.

The unification of the federal estate and gift tax transfer structure also requires that the value of all taxable gifts (made after 1976) be included in the calculation of the amount subject to estate taxation. Accordingly, the values of the gifts are used to determine gift taxes and they are also used to determine the estate tax.

The unified credit is applied to the deceased individual's estate including taxable gifts made by the deceased. This credit is $220,550, increasing in steps to $326,300 in 2005.

The unified credit is equivalent to the exemption (also called the applicable exclusion or exemption equivalent) of $675,000 of assets from transfer taxation. This equivalent is increasing in steps to $1,000,000 in 2006.

>>> Tip: The credit is applied to the tax but the exemption equivalent is not deducted from the value of the estate or taxable gifts.

See Dynasty Trusts, Gifts and Gift Tax Exclusion, Estate Tax, and Gross Estate.

Usufruct (Louisiana)

Essentially the right to use and enjoy another's property, the income from it and the benefits produced from it. A usufruct is similar to a life estate or life interest in other states. The owner of the property is called the naked owner. Naked ownership is similar to a remainder interest in other states.

Valuation of Assets and Discounts (Federal Estate Tax and Gift Tax)

See Fair Market Value.

Vesting

Non-forfeitable interest in a retirement plan. See Retirement Plans and Benefits.

Viatical Settlements

The sale of a life insurance policy to an investor or insurer at a discount for a percentage of the face value providing cash to the insured which is excluded from income. See Accelerated Death Benefit and Critical Illness Insurance.

Will (Last Testament)

Transfers property at death to those designated (that is, legatees) by the testator or testatrix who make the will. Until the testator becomes incompetent, incapacitated, or dies, the will can be modified or revoked.

Not all property is transferred by a will. See Non-Probate Assets. See A Will is a Must, Taxes and Our Wishes, Advantages to a Will, Special Needs, Matching People with Property, Louisiana Forced Heirship, Usufructs, and Executors and Executrixes.

The person administering the will is the executor or executrix (sometimes called a personal representative) who may be one or more individuals or a bank, trust company, and so forth. The will can also appoint individuals to care for minor children. An individual dying with a will dies testate; without a will the individual dies intestate and the estate is transmitted to heirs. See Executor or Executrix. See also Advantages To A Will, Special Needs, and Matching People with Property.

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SUGGESTED REFERENCES AND BIBLIOGRAPHY

Business Entities

Current Status of Limited Liability Companies and the Self-Employment Income Tax, 77 Mich. B.J. 440

Estate Planning in Louisiana

Estate Planning

Experience, The Magazine of the Senior Lawyers Division, American Bar Association

Federal Tax Handbook

Federal Taxation of Employee Benefits, 45-4th C.P.S.

Field Guide to Estate Planning, Business Planning, and Employee Benefits

Financial Planning for the Older Client

Financial Planning for You and Your Clients

Financial Strategies for Successful Retirement

Flowthrough Entities and the Self-Employment Tax: Is it Time for a Uniform Standard, 17 Va. Tax Rev. 811

Fundamentals of Personal Investing

Journal of Accountancy

Lawyer's Guide to Estate Planning: Fundamentals for the Legal Practitioner

Louisiana Civil Law Treatise: Business Organizations

Louisiana Civil Law Treatise: Louisiana Limited Liability Companies and Partnerships

Louisiana Civil Law Treatise: Successions and Donations

Louisiana Commercial Financing

Louisiana Corporations

Louisiana Estate Planning, Will Drafting, and Estate Administration

Louisiana Limited Liability Companies and Partnerships

Louisiana Real Estate Transactions

Louisiana Security Rights in Personal Property

Louisiana Successions

Louisiana Wills and Trusts

Modern Real Estate Acquisition and Disposition

Meyer's Manual on Louisiana Real Estate

Multi-Housing News

Multistate and Multinational Estate Planning

No Choice of Entity After Check-The-Box, 52 Tax Law 1

Planning for Entity Choice After the "Check-the-Box" Regulations, ALI-ABA Continuing Legal Education, SE35 ALJ-ABA 1477

Probate & Property, The Magazine of the Real Property, Probate and Trust Law Section of the American Bar Association

Real Estate Licensing

Real Property, Probate, and Trust Journal

Sixty-Minute Estate Planner

Structuring and Drafting Commercial Loan Agreements

Structuring Modern Mortgage Banking Transactions

Tax Facts 1

The Bond Buyer

Trusts & Estates, The Journal of Wealth Management for Estate Planning Professionals

U.S. Master Tax Guide

For further information, contact one of the following: