Essential Property Rights in Louisiana: What You Need to Know For Estate Planning Success
Your Ultimate Guide to Understanding Property Ownership in Louisiana: Usufruct, Naked Ownership, and Beyond
An estate plan is essentially a set of instructions for what you want to happen to your stuff when you’re no longer around.
And these instructions are legally binding.
As a Louisiana estate planning lawyer, it’s important to me that my fellow Louisianans fully understand the estate planning process.
The best way to do that is to understand what you currently have, so you can make a plan for what the future might hold.
Because here’s the bottom line: you can only give away what you actually own.
Let’s face it, many of us are going through the motions and don’t fully understand concepts like community property vs. separate property, forced heirship, or even probate property.
First of all, I got your back, you can check out my previous blog posts to get a full rundown on those important terms.
But, today, we’re going to dive into the foundational idea that affects everyone’s estate plan: type of ownership and property rights in Louisiana.
There are quite a few ways that property can be classified in Louisiana.
Here are some basic terms that are important to understand when discussing ownership types:
Outright Ownership: property that you alone own altogether. Your name is on the deed, you are the sole investor. You don't need anyone else's consent in order to sell this property.
Co-ownership: property that is owned by 2 or more individuals.
Usufruct: property held in usufruct divides the property between a usufructuary and a naked owner.
Trust: A trust is an arrangement in which a person (called the grantor or settlor) gives property to another person (called the trustee) to hold such property and administer and manage it under the terms created in the trust instrument or agreement for the benefit of certain named persons (beneficiary).
Transfer on Death/Pay on Death: a financial tool offered by many financial institutions that allow account holders to designate a specific person to automatically receive the funds upon their death without going through any court-supervised proceeding.
Joint Tenants With Rights of Survivorship (JTWROS): property ownership where two or more individuals hold an equal and undivided interest in the property, and upon the death of one joint tenant, their interest in the property automatically passes to the surviving joint tenants.
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What is Outright Ownership?
Outright Ownership Means Complete Control.
Simply put, outright ownership means that you own property by yourself. Your name is on the deed, you are the sole investor. You don't need anyone else's consent in order to sell this property.
Outright ownership is perhaps the simplest and most straightforward form of property ownership.
When you own a property outright, you have complete control over it.
Outright ownership stands as one of the most fundamental and uncomplicated forms of property ownership.
When an individual owns a property outright, they have complete control over it.
You alone can make the sole decision to sell the property or give it away.
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What is Co-Ownership?
Co-ownership: property that is owned by 2 or more individuals.
Each co-owner has an undivided fractional share in the entire property.
Co-owned property is not physically divided into separate portions by a boundary for each owner.
Each owner has a right to use and enjoy the entire property, but the value corresponds to the individual owner's share of the property.
Note that co-ownership is different from community property.
For example, community property is a special form of co-ownership only available to married couples.
When discussing co-ownership in Louisiana, we need to discuss “indivision”.
Co-ownership is when property is owned by two or more individuals.
In legal speak, the property is owned by the co-owners “in indivision”.
Indivision, in essence, signifies that each co-owner has an undivided fractional share in the entire property.
Rather than owning a specific, physical part of the property, each co-owner owns a piece of the entire property.
This means that each party has a separate transferable right to the property.
When multiple individuals co-own a property, each of them holds a fractional share in the entire property.
This means that instead of physically dividing the property into separate sections for each owner, the ownership is structured in terms of proportions or percentages.
For example, let's say there are three co-owners of a house: Alice, Bob, and Carol.
Each of them has an undivided fractional share in the property.
Alice owns 40%
Bob 30%
Carol 30%
In this case, there are no distinct boundaries separating the portions belonging to each co-owner.
The property as a whole is jointly owned, and the respective shares of Alice, Bob, and Carol represent their ownership interests.
They have the right to use and enjoy the entire property, but the value and control they have over it correspond to their individual fractional shares.
This arrangement allows co-owners to have a stake in the property without physically dividing it into separate parts, which can be particularly useful for shared properties like vacation homes or commercial buildings.
In common law states, this is referred to as tenancy in common.
This is different from community property. Learn more about community property here.
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A Practical Example of Co-ownership and Indivision in Action
To illustrate this concept more concretely, consider a scenario where three siblings inherit a real estate property from their parents.
In this situation, each sibling possesses an equal, undivided interest in the whole property.
Despite the absence of physically demarcated boundaries of ownership, each sibling has an encompassing right to the entire real estate property.
This means that each sibling shares the right to access, use, and benefit from the entire property, rather than a specific portion of it.
Decoding the Implications: Rights and Responsibilities in Indivision
On the surface, this might seem like an ideal arrangement, fostering an equitable sharing of rights.
However, this approach can present its own set of challenges and intricacies that co-owners need to navigate carefully.
For instance, any decisions relating to the property's maintenance, management, or sale need to be made collectively, respecting each co-owners equal rights.
This necessity for consensus might lead to potential disagreements, and thus co-owners should consider setting out guidelines or agreements that can aid in the resolution of such disputes.
Usufruct and Naked Ownership: Louisiana’s Unique Interests
In the realm of property ownership in the US, Louisiana has a unique form of ownership known as the usufruct.
This arrangement divides property rights between two key players: the usufructuary and the naked owner.
Understanding the Usufruct and its Mechanics
Imagine the usufructuary as an active partner in a business venture, entrusted with the privilege to utilize the property, reap its benefits, and generate income, such as rental proceeds.
This arrangement typically spans a predetermined term, often lasting throughout the usufructuary's lifetime.
On the other hand, we have a silent partner in this property arrangement—the naked owner.
Although the naked owner technically holds ownership rights, they have no authority about the property's daily operations and management, akin to a silent partner in a business endeavor.
When the term of the usufruct concludes, the property seamlessly passes to the naked owner without the need for further legal action.
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Navigating Limitations and Complexities: The Sale of Usufruct Property
It's important to note that the usufructuary generally lacks the authority to sell the property unless explicitly granted permission by the individual who transferred the property.
If such permission is granted, the proceeds from the sale become subject to the usufruct, potentially introducing complexities, especially when the funds involved are in the form of cash.
A Practical Illustration of Usufruct in Action
To better grasp the practical implications, let's consider a scenario where a father passes away, leaving his wife as the lifetime usufructuary of the family house, with the right to sell it.
The two children are the naked owners.
In this situation, the mother has several options:
Reside in the house
Lease the house to tenants
Sell the house, with the sale proceeds falling under the scope of the usufruct
However, complications may arise upon the death of the usufructuary:
If the mother has expended all the sale proceeds and her estate holds no remaining assets, the naked owners—the children, in this case—could find themselves empty-handed.
Carefully Crafting Usufructs: Considering Primary Objectives
Given these complexities, it becomes crucial to consider the primary objectives when creating a usufruct.
For instance, if the intention is to ensure the specific property is ultimately passed to the children, the testator may want to limit the usufructuary's right to sell the property.
Embracing the Distinct Flavor of Louisiana's Property Arrangements
Louisiana's property laws, particularly usufructs, infuse estate planning with a distinct flavor in the state.
Gaining a comprehensive understanding of these concepts empowers individuals to make informed decisions regarding their property and estate matters, ultimately guiding them toward achieving their desired outcomes.
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Transfer on Death Accounts: Exercise Caution When Using These in Louisiana
A Transfer on Death account, also known as a Pay on Death account, is a financial tool offered by many financial institutions that allows account holders to designate a specific person to automatically receive the funds upon their death without going through any court-supervised proceeding.
It is akin to a beneficiary designation on a life insurance policy.
As of 2016, Louisiana law was changed to allow bank accounts, credit unions, and savings and loans to offer TOD designations to their account holders.
In 2022, Louisiana enacted new legislation permitting TOD accounts for securities, such as brokerage accounts.
While the law grants immunity to financial institutions when transferring funds to TOD beneficiaries, it does not override Louisiana's forced heirship and community property laws.
Therefore, the TOD designation may not actually transfer ownership to the intended beneficiary.
Before you use a TOD designation in Louisiana, it's essential to consider potential claims from community spouses, forced heirs, or other creditors.
A properly drafted will or trust may provide more security that the property will be transferred to the person that the client desires to benefit.
Estate Planning is way more than a will.
It’s time to get prepared.
Joint Tenants With Rights of Survivorship (JTWROS)
Common ownership structure outside of Louisiana is NOT recognized in Louisiana.
Joint Tenants with Rights of Survivorship (JTWOS) is a legal form of property ownership where two or more individuals hold an equal and undivided interest in the property, and upon the death of one joint tenant, their interest in the property automatically passes to the surviving joint tenants.
This transfer occurs outside of the probate process and without the need for a will.
JTWOS is recognized in many states in the United States, but it is not recognized in Louisiana.
In Louisiana, the default form of co-ownership gives each co-owner the ability to pass by will or inheritance the co-owner’s undivided interest in the property.
There is no right of survivorship for the remaining co-owners.
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What is a Trust?
A trust is an arrangement in which a person (called the grantor or settlor) gives property to another person (called the trustee) to hold such property and administer and manage it under the terms created in the trust instrument or agreement for the benefit of certain named persons (beneficiary).
A person can hold more than one role at the same time. It is not unusual for one of the beneficiary's to be a trustee. But in this arrangement, the trustee is a fiduciary, which generally means that the trustee has to act in the best interests of the beneficiaries.
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Consider the following property rights concepts:
If you are married, property can be classified as separate or community.
Generally, separate property is property that you acquired before marriage or received as a gift or inheritance during the marriage.
Community property is all property acquired during the marriage for married couples that have not opted out of Louisiana’s community property regime.
If you are married, I strongly encourage you to read up on Community Property Laws in Louisiana: How Do They Affect Your Estate? for more information.
In Louisiana, property can be classified as probate or nonprobate.
Probate property passes through your will (or the laws of intestacy if you don’t have a will).
Nonprobate property passes outside of your will and the most common nonprobate property is life insurance and retirement plans.
Learn more about probate and nonprobate property.
Consider the example of a married couple that buys a house together in Louisiana.
Note that they are governed by Louisiana's community property regime.
The house may be classified as all of the following at the same time:
Owned outright
Community property
Probate property
Get Your Estate Plan Done with Ease (really!)
The first and most important step in any estate planning process is creating an inventory of everything you own (and owe).
Sign up to get the free worksheet instantly!
Remember, when it comes to estate planning, we are making a well-informed, present-moment plan of action.
We are creating a statement of intent that outlines what you would like to happen in the future.
Of course, the future doesn’t have to comply, but we can give it our best shot by applying our core values to the decision-making process.
You do not have to go through this alone. If you live in Louisiana and are ready to start your estate plan, get in touch with me today.
You’ve got this.
Take Care,
Addie
FAQ
Q: What is outright ownership?
A: property that you alone own. Your name is on the deed, you are the sole investor. You don't need anyone else's consent in order to sell this property.
Q: What is co-ownership?
A: Property that is owned by 2 or more individuals.
Each co-owner has an undivided fractional share in the entire property. Co-owned property is not physically divided into separate portions by a boundary for each owner. Each owner has a right to use and enjoy the entire property, but the value corresponds to the individual owner’s share of the property.
Note that co-ownership is different from community property. Community property is a special form of co-ownership only available to married couples.
Q: What is usufruct?
A: Property held in usufruct divides the property between a usufructuary and a naked owner.
The usufructuary has the ability to use the property and get the rent or income from the property for a certain term (usually their lifetime), and at the end of the term, the property automatically passes to the naked owner.
When a usufruct is for life, it is like a "life estate" - which means you use the property for your life, and then automatically goes to someone else when you pass away.
Q: What is a trust?
A: A trust is an arrangement in which a person (called the grantor or settlor) gives property to another person (called the trustee) to hold such property and administer and manage it under the terms created in the trust instrument or agreement for the benefit of certain named persons (beneficiary).
A person can hold more than one role at the same time. It is not unusual for one of the beneficiary's to be a trustee. But in this arrangement, the trustee is a fiduciary, which generally means that the trustee has to act in the best interests of the beneficiaries.
Q: What is TOD?
A: Transfer on Death (aka Pay on Death) is a financial tool offered by many financial institutions that allow account holders to designate a specific person to automatically receive the funds upon their death without going through any court-supervised proceeding.
Because of Louisiana's forced heirship and community property laws, many financial institutions within Louisiana do not offer this option, but many financial institutions outside of Louisiana have these types of accounts.
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