1. Don’t die without a will (or a will substitute in the form of a 'living trust').
   
   Reason: Federal estate tax planning primarily involves creating a situation whereby your estate will utilize, to the maximum extent possible, a combination of your federal estate tax exemption ($1,000,000 beginning 1/1/02) and a marital deduction on any excess attributable to either outright bequests to your surviving spouse or a bequest of a lifetime usufruct to your surviving spouse. Because of Louisiana’s intestacy laws, your estate will not qualify for the federal estate tax marital deduction if you die without a will (referred to as dying 'intestate').
   
   
2. Don’t bequeath everything in full ownership to your spouse (a/k/a 'I love you' wills).
   
   Reason: Since such a bequest generates a 100% marital deduction on your federal estate tax return, your federal estate tax exemption will not be used and will, therefore, be wasted.
   
   
3. Don’t make lifetime gifts without looking at the tax basis issue first.
   
   Reason: For purposes of determining gain or loss on the sale of the gifted property, the Donee takes the same tax basis for gifted property as the Donor’s tax basis, which is basically what the Donor originally paid for the property. If the same property is instead inherited at death, the heir takes a 'stepped-up' basis equal to the value of the property at the date of death. This difference could potentially produce significant income tax savings with regard to low tax basis property.
   
   
4. Don’t reserve a usufruct when making lifetime gifts.
   
   Reason: If you retain an interest in the gifted asset, the Internal Revenue Service will ignore the gift and treat you as owner of the asset for federal estate tax purposes.
   
   
5. Don’t forget about your IRA’s when planning for federal estate taxes.
   
   Reason: Since the spouse is named as the primary beneficiary of most IRA’s, special planning may be needed to avoid over-funding the marital deduction or, in other words, to avoid wasting some of your federal estate tax exemption.

Do’s:

1. Bequeath a lifetime usufruct to your spouse.
   
   Reason: A usufruct confirmed for life will allow full utilization of your federal estate tax exemption and the marital deduction on any amount over the federal estate tax exemption.
   
   
2. Take advantage of annual gift tax exclusions ($10,000/donee/year).
   
   Reason: There are no gift tax reporting requirements for gifts that do not exceed the annual gift tax exclusions. However, you should note that the annual gift tax exclusions are only available for lifetime transfers.
   
   
3. 'Equalize' the estates of spouses.
   
   Reason: Although Louisiana is a community property state, it is still possible for one spouse’s separate estate (i.e. inherited property or property owned prior to marriage) to be significantly larger than the other spouse’s estate. In some cases, the other spouse’s taxable estate is significantly less than the federal estate tax exemption. In such cases, 'equalizing' the estates (converting a portion of one spouse’s separate property into community property) will help to avoid wasting some of the federal estate tax exemption if the spouse with the small estate dies first.
   
   
4. Give to charities.
   
   Reason: All gifts and bequests to tax qualified charities are exempt from federal gift and estate taxes. Income tax charitable deductions are also available for lifetime gifts to charities.
   
   
5. Use a 'life insurance trust' when purchasing life insurance on your life.
   
   Reason: If properly drafted (you cannot be a beneficiary or trustee of the trust), the life insurance policy proceeds received by the 'life insurance trust' will not be subject to estate tax at your death and will, in effect, replace the assets of your estate used to pay the estate tax.
   
   
6. Spend it!
   
   Reason: It makes more sense for you to enjoy your hard-earned wealth than to leave half of it to the federal government.