Contract Breaches and Enforcement

1. Specific Performance - Specific performance is the preferred remedy in Louisiana for contract breach. It is awarded only when the court considers it practicable and not impossible, and other discretionary tests are met. Under the tests discussed below, specific performance may also be denied when the cost of inconvenience of such remedy is greatly disproportionate to the damage caused by the breach, when the enforcing party has no real interest in receiving performance, or when performance would have a substantial negative effect on the interests of third parties. This provides considerable "wiggle room" for a state judge to apply these factors.

Although the specific performance action in Louisiana is enforceable through the procedural mechanism of injunction, and a preliminary injunction by summary process may be available, this also introduces additional areas of discretion such as whether or not the plaintiff can prove irreparable injury, has a likelihood of success on the merits, and so forth.

Specific performance is addressed by Louisiana law which provides that upon an obligor's failure to perform an obligation to deliver a thing, or not to do an act, or to execute an instrument, the court shall grant specific performance plus damages for delay if the obligee so demands. If specific performance is impracticable, the court may allow damages to the obligee. This law also provides that upon a failure to perform an obligation that has another object, such as an obligation to do, the granting of specific performance is at the discretion of the court.

The obligor may be restrained from doing anything in violation of an obligation not to do. While it has been held that specific performance is the preferred remedy for breach of contract, it has also been held that it may be withheld by the court where a specific relief is impossible, when inconvenience or cost of performance is greatly disproportionate to the damages caused, when the obligee has no real interest in receiving performance, or when receiving performance would have a substantial negative effect on the interests of third parties.

A suit for specific performance usually is an ordinary, not summary, proceeding. Consequently, judicial discretion to control the court's docket will come into play and an unsympathetic judge could approve extended delays. The enforcement action itself may be subject to extended delays.

2. Injunctions - Unless specifically provided by law, injunctive relief is available only in cases where irreparable injury, loss or damage may otherwise result. The party seeking an injunction in Louisiana must establish irreparable injury, and the injury must be immediate and irreparable to obtain the ancillary relief of a temporary restraining order.

The Louisiana injunction standard is that an injunction shall issue in cases where irreparable injury, loss, or damage may otherwise result to the applicant, or in other cases specifically provided by law.

The requirements for issuance of a preliminary injunction are (1) irreparable injury, (2) entitlement to the relief sought, and (3) likelihood of prevailing on the merits. Only a prima facie showing is required, that is, less proof than may be required on the permanent injunction. A trial judge has great discretion to grant or deny a preliminary injunction.

The courts apply a four part test for issuance of a preliminary injunction:

3. Mandatory Injunctions - A mandatory injunction, meaning one that commands some kind of affirmative action, can only be issued after a full hearing on the merits where the standard of proof is a preponderance of the evidence.

An appeal may be taken from an order granting or denying a mandatory injunction, but the effect of the court's order may be not be suspended while on appeal unless the court in its discretion so orders. However, an appeal bond must be furnished regardless of whether the effect of the trial court order is suspended while being appealed.

4. Declaratory Judgments - A Louisiana court may declare rights, status and other legal relationships whether or not further relief is or could be claimed and the existence of another adequate remedy does not preclude a judgment for declaratory relief in cases where it is appropriate. A conventional type of judgment embodies two elements: (1) an ascertainment of the declaration of the rights of the parties (usually implied); (2) a specific award of relief. The declaratory judgment of course embodies only the first element which, of course, is always express.

With one notable exception, the Louisiana Gaming Control Law, the declaratory judgment is an ordinary, not a summary proceeding.

Both the trial court and the appellate courts are granted broad discretionary power to determine whether declaratory relief may be appropriate.

A person interested under a written contract or other writing constituting a contract, or whose rights, status, or other legal relations are affected by a statute or contract may have determined any question or construction of validity arising under the statute or contract and obtain a declaration of rights, status, or other legal relations.

A court may refuse to render a declaratory judgment or decree where such judgment or decree, if rendered, would not determine the uncertainty or controversy giving rise to the proceeding.

Further relief based on a declaratory judgment or decree may be granted whenever necessary and proper.

The Louisiana Declaratory Judgment Act is remedial and its purpose is to settle and afford relief from uncertainty and insecurity with respect to rights, status and other legal relations, and they are to be liberally construed and administered.

The Louisiana Declaratory Judgment Act should be interpreted and construed so as to effectuate the general purpose to make uniform the law of those states which enact them, and to harmonize, as far as possible, with federal laws and regulations on the subject of declaratory judgments and decrees.

Contracts to Buy or Sell Real Estate

Real estate purchase contracts typically specify a time for acceptance and are irrevocable during that time; they expire at the time specified for acceptance and in the event either the proposed buyer or seller dies or becomes incapacitated before acceptance.

>>> Tip: Acceptance that is not in accordance with the terms of the offer is a counter offer which must be accepted by the original offeror.

See Real Estate Investments references.

Controlling Shareholder

A shareholder who at the time of death owns more than 50% of a corporation.

Corporate Owned Life Insurance

Allows corporations to fund or recover the costs of non-qualified benefit plans which provide additional benefits to key executives in addition to those that can be provided through qualified plans. The policies are bought by the corporations on the lives of such employees to pay for deferred compensation plans, survivor income plans, post-retirement medical benefits, and supplemental executive retirement plans.

Credit Cards

>>> Tip: Rarely if ever use a credit card for long term financing of purchases because the interest rates are usually much higher than bank, credit union, mortgage, or other financing especially when the credit card interest rate is increased with late charges; borrowing on your permanent life insurance is another alternative but the cash value of the policy (and proceeds to a beneficiary) is reduced. A home equity loan should be considered. See "Cashing Out" Assets references and Interest Deductions.

>>> Tip: If you pay only the minimum required payment each month, it can take you as long as 33 years to pay a credit card debt.

>>> Tip: Low introductory rates frequently end if you are late on even one monthly payment.

Credit Shelter Trust

See Marital Deduction and Trust.

Critical Illness Insurance

Pays a benefit upon the diagnosis of a named critical illness or condition. It is similar to a "dreaded disease" policy. See Accelerated Death Benefit, Life Insurance, Long Term Care Insurance, Reverse Mortgage, and Viatical Settlement.

Crummey Powers or Crummey Trust

Gifts to trusts are frequently subject to restrictions on the beneficiaries' rights to the trust assets. In order to have the availability of the annual gift tax exclusion, the beneficiaries are given powers to withdraw annually gifts placed in a trust because this power (even if not exercised) makes the funding of the trust a present-interest gift instead of a future interest gift. Crummey refers to the name of a taxpayer in a suit against the IRS. See Trust.

Curator

A temporary guardian or conservator appointed by a court to care for the property or person of a minor or an incompetent.

Death Benefits

See Buy Sell Life Insurance, Corporate Owned Life Insurance, Death Benefit Only Plan (DBO), Estate Liquidity Life Insurance, Estate Taxation of Life Insurance, First to Die Insurance, Home Equity Loan, Key Person Insurance, Life Insurance, Reverse Mortgage, Sale and Purchase of a Business, Sale of Depreciated Property, Sale of Residence, Self-Canceling Installment Note (SCIN), Social Security (SS) Benefits and Taxation, Survivorship Life Insurance (Last to Die Insurance or Second to Die Insurance).

Death Benefit Only Plan (DBO)

A survivor income plan for larger estates which keeps survivor benefits out of the employee's taxable estate and thus avoids federal estate taxes, unlike other survivor income plans where the present value of the survivor's income payments is included in the employee's taxable estate. In view of the unlimited marital deduction, there are no federal estate taxes except where benefits are payable to anyone other than the surviving spouse, such as children, for example. However, if the employee is a controlling shareholder, the benefits may be included in the employee's taxable estate.

Deferral of Estate Tax

The federal estate tax is due within nine months after death. However, special deferral provisions are available for the estate tax on the deceased's interest in certain "closely held" businesses. See Qualified Family-Owned Business Exclusion from Federal Estate Tax.

Deferred Annuity

See Annuities.

Deferred Compensation Plans

An employee's income is deferred until after retirement when the employee may be in a lower tax bracket.

Depreciation

Deducting an allowance for the exhaustion and the wear and tear of property used in a trade or business or of property held for the production of income. This reduces the income tax basis of the property. Some of the tax benefit of depreciation is recaptured when the property is sold, but economic benefits remain because of the time value of money and the possible benefit of capital gains, where the rate is less than the taxpayer's tax rate on other income. However, equipment, vehicles, and certain other depreciable personal property, certain depreciable real estate, leaseholds, and other intangible real property are not eligible for all of the benefits of capital gain rates or treatment. See Sale of Depreciated Property and Real Estate Investments references.

>>> Tip: Depreciation also means reduced value owing to any cause (for example, physical deteoriation, deferred maintenance, functional or economic obsolescence) and is considered in cost approach appraisals.

See Real Estate Investments references.

Disability Buy-Out Insurance

Provides cash for the purchase of a disabled owner's interest in a business after permanent and total disability. Benefits are paid to the individual or the legal business entity which has a contractual obligation to buy the interest of the disabled owner. The premiums are not tax deductible but the benefits are tax free. The disabled owner is subject to capital gains taxation on any gain on the sale of his business interest. See Key Person Insurance.

Disability Income Insurance

Replaces income when the insured becomes disabled. The definition and duration of disability and the waiting period are important and vary from policy to policy. Many policies have a two-year limit on disabilities caused by mental and nervous conditions. Usually only part of your earnings are replaced. Group coverage is available without regard to individual coverage that you may already have but existing group coverage is typically taken into consideration when you apply for individual coverage. If your premium is paid by your employer with pre-tax dollars (for example, through a Cafeteria Plan), the benefits will be taxed.

>>> Tip: The likelihood of a three-month disability occurring before age 65 is said to be statistically greater than the likelihood of death.

Disability Income Taxation

Although disability payments under an employer's plan are included in gross income and are taxable to the disabled employee, if the employee receives payments under a plan to which the employee has contributed part of the premium, the portion of the benefit attributable to the employee's contributions are free of income taxes, whether the payments are called disability payments, salary continuation, wage continuation, or sick pay. In some cases, a tax credit is available to employees at age 65 or those under 65 but retired based on a permanent and total disability. The credit is phased out if the taxpayer receives certain amounts of adjusted gross income or non-taxable social security, pension or disability benefits.

Disclaimer (Renunciation)

A beneficiary may refuse to accept property which will then be transferred to the next beneficiary in accordance with a will, trust, legal instrument, or state law without triggering two gift taxes. Often this must be done within nine months of the death of the benefactor. See Generation-Skipping Transfer Tax.

Dividend Reinvestment Program

Dividends on stock are not paid in cash but rather in the form of additional shares of stock.

Domicile

The permanent residence of a person or the place to which that person intends to return if he or she actually resides elsewhere.

>>> Tip: A person may have many residences but only one domiciled.

Donation

A gift in Louisiana; to be valid, some donations must be accomplished by certain formalities such as a notarial act. See Gift Tax Exclusion and Inheritance Tax.

Double Taxation of Qualified Pension Plans

The federal income tax and the estate tax can dramatically affect accumulations in a qualified pension plan. For example, if a taxpayer dies with a pension accumulation of $1,600,000 (plus other assets) the retirement benefits available to the taxpayer's beneficiaries can be reduced to $460,800 under certain circumstances.

Durable Power of Attorney

Names a trusted person to act as agent or attorney-in-fact in your place to manage your financial affairs during your absence, sickness or other incapacity or disability. You as principal may also appoint an agent to make health care decisions on your behalf if you become incapacitated. It authorizes the agent to act even if you are incapacitated.

>>> Tip: Some advantages of a Durable power of attorney are: You will enjoy the security of knowing that your financial and health care needs and concerns would be handled in the manner that is consistent with your own intentions; you, rather than the court, appoint the person you believe to be the most competent to manage your affairs; a Durable power of attorney circumvents the delay and expense of court-appointed individuals.

>>> Tip: The procuration and power of attorney must be made when the principal is of sound mind and has the requisite capacity.

>>> Tip: A Durable power of attorney can also authorize the agent to make gifts and establish and implement estate plans. A number of options are available. For example, the power of attorney can give your agent the express power of substitution. In other words, the agent named can in turn pass on powers he or she has been granted to a substitute. In this regard, the Louisiana Civil Code provides that an appointed agent with an express power of substitution in a procuration is not liable for the acts of his or her substitute.

>>> Tip: The power of attorney can be effective immediately or it is possible for the power of attorney to become effective only upon the disability of the principal, and is thus a conditional or "springing" power of attorney. When a conditional power of attorney is desired, a common way to handle it is to state that the principal shall be presumed to be disabled upon the presentation of a notarized statement to that effect from a doctor who is the principal's regular physician or from two other physicians selected by the principal. See Power of Attorney and see Gross Estate (Under Federal Estate Tax) - power of appointment.

Dynasty Trust (Generation-Skipping Trust)

An irrevocable trust created for the benefit of multiple generations without the initial payment of gift, estate, or generation skipping transfer taxes. See Trust. Such a trust is also referred to as a generation-skipping trust. It is created to take advantage of the $675,000 unified credit exemption (also called the applicable exclusion which is increasing in steps to $1,000,000 in 2006) and the $1,030,000 ($2,060,000 total for both spouses) generation-skipping transfer tax exemption as indexed for inflation in 2000. Transfer taxes may eventually be payable at a rate of 55% plus state taxes. Although principal and income may be accumulated for successive generations or distributed, trust income taxes may discourage accumulation. See Generation-Skipping Transfer Tax (GSTT) (GST) and Unified Transfer Tax and Credit.

Education Funding

The payment of tuition and college costs directly to a university is free of gift and estate taxes when the payment is made. Grandparents can use the annual gift tax exclusion to make gifts to their grandchildren or to the parents of their grandchildren.

>>> Tip: If such gift is made directly to the student, the student may not be eligible for financial aid because financial aid formulas may include the gift as part of the child's income and assets. See Gift Tax Exclusions and Gifts.

On the other hand, life insurance cash values and annuities are not included by the federal government in determining eligibility for financial aid.

Some interest on qualifying student loans is deductible but the deduction is phased out ratably between modified adjusted gross income of $40,000 to $55,000 ($60,000 to $75,000 for married taxpayers filing joint returns).

Withdrawals from regular IRAs for qualified higher education expenses of the taxpayer are not subject to the 10 percent penalty tax for premature distributions; however, they are subject to regular income taxes.

Interest on Series EE bonds is tax free if used for the tuition and fees of a dependent. However, this exclusion is phased out once modified adjusted gross income exceeds certain amounts.

A Hope Scholarship credit of $1,500.00 (indexed for inflation) per year per dependent student is available for each of the first two years of college, provided the student is enrolled at least half time in a qualifying educational institution. A student may be the taxpayer, the taxpayer's spouse or a dependent of the taxpayer, provided the credit may not be taken by an individual who is eligible to be claimed as a dependent on another taxpayer's return. The credit is phased out ratably between modified adjusted gross income of $40,000 to $50,000 ($80,000 to $100,000 for married taxpayers filing joint returns).

The Lifetime Learning Credit with a maximum $1,000.00 per year is available, however, it too is phased out ratably between the same modified adjusted gross incomes applicable to Hope Scholarship credits. The Lifetime Learning Credit is unlike the Hope Scholarship Credit in that it can be taken for any year of college education except a year in which the Hope Scholarship Credit is claimed for the same student and does not require at least half time enrollment. Moreover, study may be to improve the student's job skills and does not have to be in a degree program.

>>> Tip: You should also consider federal Pell Grants, federally subsidized and unsubsidized Stafford Loans, federal Plus Loans, federal Supplemented Educational Opportunity Grants, Perkins Loans, military scholarships, private lenders, and scholarships. Contact high school and college financial aid offices.

See Education IRAs and TOPS.

Education IRA

May be created to pay certain education expenses for certain beneficiaries under age 18. Annual contributions are limited to $500 per beneficiary. The annual contribution is phased out ratably for contributors with adjusted gross income between $95,000 and $110,000 ($150,000 and $160,000 for joint returns). See IRA and Roth IRA.

Contributions are not tax deductible but when funds are distributed to pay a beneficiary's qualified educational expenses, the distributed funds are not included in the beneficiary's income. The Educational IRA is not available during any tax year where contributions are made to a state tuition program for the beneficiary or under the Hope or Lifetime Learning credit programs.

See Education Funding.

Employee Stock Ownership Plan (ESOP)

Similar to those provided by a profit sharing plan, but they are paid with stock of your employer.

ERISA

The Employee Retirement Income Security Act of 1974. Its purpose is to protect the interests of employees and their beneficiaries who receive benefits from employee pension and welfare plans.

Estate Freeze

Fixes the value of certain assets at current levels to avoid transfer taxes (estate and inheritance taxes) on any increased value or to shift income to a lower bracketed family member. See Kiddie Tax.

Estate Liquidity Life Insurance

Funds estate taxes and other debts and expenses. See Life Insurance.

Estate Plan

A way to ensure that your money, property, and personal belongings will go to those you choose as economically and quickly as possible, deferring or minimizing as many taxes as possible and advisable. See ABCs of Your Lifetime Financial, Retirement and Estate Plan.

Estate Tax (Federal)

Assessed on a deceased individual's property valued at more than $675,000 (increasing in steps to $1,000,000 in 2006) with rates of as much as 55%. See Fair Market Value, Gross Estate, Net Taxable Estate, and Unified Transfer Tax and Credit.

Estate Taxation of Life Insurance

Proceeds of life insurance are included in the estate of a deceased insured if there are any incidents of ownership. Incidents of ownership include the actual ownership of the policy or the power to change beneficiaries, borrow cash value of the policy, pledge the policy to secure a loan, cancel the policy, and so forth, even if the policy is held by a trust. See Life Insurance Trust.

Proceeds payable to the estate of the deceased insured are also subject to estate taxation, including for example, when the executor or trustee is required to use insurance company proceeds to pay estate obligations including estate taxes. The insured's transfer of a policy or any other incidents of ownership within three years of the insured's death will result in the proceeds being included in the insured's gross estate. Earlier transfers may trigger gift taxes. See Gift Tax Exclusion and Gifts.

Executor or Executrix

A succession representative is a fiduciary (that is, owes a high degree of good faith performance of duties to the beneficiaries of the fiduciary's duties) with respect to the succession, and has the duty of collecting, preserving, and managing the property of the succession in accordance with law. The Executor must act at all times as a prudent administrator, and is personally responsible for all damages resulting from any failure so to act. The executor's fee is 2½ percent of the estate inventory unless provided otherwise by the will or by an agreement. See Will. See also Executors and Executrixes.

Exemption Equivalent Trust

See Bypass Trust, Marital Deduction and Trust.

Fair Market Value

The price at which assets or a business interest would be sold by an agreement between a willing buyer and a willing seller, where neither is under any compulsion to buy or sell, and both have reasonable knowledge of all the relevant facts. Assets included in a decedent's gross estate are valued at their fair market value on the date of death or their fair market value 6 months after death. See Alternate Valuation Date. Three valuation discounts recognized most frequently by the IRS for estate taxes and gift taxes are fractional interest discounts, minority interest discounts, and lack of marketability discounts. Valuation of a legal entity may be based on the fair market value of the underlying assets, its earnings, cash flow, book value, etc. Appraisals of assets are generally accomplished by these methods: liquidation value, comparable sales value, and going concern value. See Real Estate Investments references.

Fractional interest discounts apply to undivided interests in an asset such as real estate. See Real Estate Valuation for Investment Purposes, Immovable Property, and Appropriate Ownership of Property and Business Interests, especially ownership in indivision.

Minority interest discounts refer to an owner's lack of control over an asset and a lack of ability to directly influence decisions such as the payment of dividends, election of directors or officers, salaries, and so forth with respect to a corporation, partnership, limited liability company, and so forth. See Appropriate Ownership of Property and Business Interests.

Lack of marketability discounts refer to the owner's inability to find one or more willing buyers.

Family Business Exclusion From Federal Estate Tax

See Qualified Family-Owned Business.

Family Holding Company

Preferred voting stock and common non-voting stock may be issued. The business owner transfers the common stock in the existing operating corporation to a family holding company in exchange for the preferred and common stock. The goal is to freeze the interest of the business owner in the operating corporation by gifts of the voting common stock of the family holding company. See Estate Freeze.

>>> Tip: A family holding company is not necessarily a personal holding company. See Personal Holding Company.

Family Leases To Shift Income

See Income Shifting Among Family Members, Intrafamily Leases to Shift Income and Real Estate Investments references.

Family Limited Partnership

Provides a method for the economic benefits of a business interest and other assets to be transferred to family members at reduced values while parents, as general partners, retain control which reduces the parents' taxable estate. Limited partners (called in commendam partners in Louisiana) have no liability for partnership debts. Gifts can be made to the family limited partnership of assets such as an apartment building which is not otherwise easily divisible. Gifts of limited partnership interests to children can be made within the annual gift tax exclusion. Unified credit can be used to transfer larger limited partnership interests thereby reducing the parents' taxable estate. Limited partnership interests can be subject to valuation discounts insofar as they represent minority interests or lack marketability. See Fair Market Value. Gifts do not receive a stepped up income tax basis. General partners have liability for all partnership debts and obligations.

>>> Tip: The general partner can be a corporation or a limited liability company to eliminate the risk of such liability to a human general partner. As an alternative, the parents could make gifts of an asset to children who will then contribute the asset to the family limited partnership in exchange for limited partnership interest or form a Limited Liability Company or an S Corporation. See Gift Tax Exclusions and Gifts, Income Shifting Among Family Members, and Kiddie Tax.

See Appropriate Ownership of Property and Business Interests.

Family Members As Employees To Shift Income

>>> Tip: Income may be shifted to members of your family by employing them directly or through a family business entity to perform services and pay them reasonable amounts for their actual services. See Income Shifting Among Family Members and Kiddie Tax.

Fiduciary Income Taxes (Federal and Louisiana)

Fiduciary Income Taxes (Federal and Louisiana) are due and tax returns must be filed for estates beginning with the date of death.

First-to-Die Insurance

Insures the lives of two or more individuals, and pays a benefit upon the first death. See Survivorship Life Insurance. The proceeds are frequently used to pay off a mortgage, to pay estate taxes, especially on appreciating property, to fund business buy-outs, and to replace the income of the first to die spouse.

Forced Heirship

Unique to Louisiana, this allows parents in their wills to divide their estates among their children however they choose only if their children are twenty-four years of age or older unless their children of any age are permanently incapable of taking care of their persons or administering their estates because of mental incapacity or physical infirmity at the time of the death of the parent and have not been disinherited for just cause.

>>> Tip: All children are potentially forced heirs because any child may become disabled after you sign your will. Certain grandchildren are also potentially forced heirs if the grandchildren's parents predecease them. The grandparents must then honor the forced heirship law with respect to their grandchild if the grandchild's parent would have been 23 years of age or younger at the time of the grandparent's death or if the grandchild is permanently incapable of taking care of his or her person or estate at the time of the grandparent's death regardless of the age of the grandchild's parent at the time of the grandparent's death.

Generally, if a decedent leaves one forced heir, the forced portion (called the legitime) is one-fourth of the decedent's estate and if the decedent leaves two or more forced heirs, the forced portion is one-half of the decedent's estate. The rest of the estate is called the disposable portion.

>>> Tip: The forced portion may be subject to certain burdens called impingements: For example, the forced portion may be placed in trust for a term even as long as the lifetime of the forced heir, and the trustee need only distribute an amount from the net income in trust that is sufficient for the health, maintenance, support, and education of the forced heir, after taking into account all the forced heir's other income and support to be received by the forced heir during the year. The forced portion may also be subject to a usufruct in favor of a surviving spouse, who need not be a parent of the forced heir. This usufruct may include the right to use both separate and community property for life and the right to dispose of non-consumables. Non-consumables are things that can be used without altering their substance (for example, land, corporate stock, and so forth), whereas consumables are things which cannot be used without being consumed or their substance changed (for example, food, money, and so forth).

>>> Tip: The forced portion applies to your half of community property and all of your separate property.

>>> Tip: Qualified Retirement Plan benefits and IRAs are not included in the forced portion but benefits payable to forced heirs are credited.

>>> Tip: Forced heirship applies when the testator dies, not when the will is written.

Funeral Trust

An individual purchases funeral services or merchandise from the provider of funeral and burial services instead of relying on his surviving family to do so.