State Succession Taxes
Prior to 2004, Louisiana used to levy two types of succession taxes:
- State inheritance taxes. Louisiana used to require that residents file a special estate tax return before initiating probate. Once the state Department of Revenue received this return, it would issue a certificate that had to be attached to the initial succession petition. However, the state inheritance tax was repealed in 2004, and residents no longer have to file returns before beginning probate.
- Estate transfer taxes. Louisiana once enforced an “estate transfer tax” if the deceased person’s assets were worth more than $10,000. If the heirs had to pay the estate transfer tax, they would be eligible to receive a credit for any necessary federal estate taxes. Similar to the state inheritance tax, estate transfer taxes were abolished in 2004.
Louisiana no longer levies any state-level succession taxes on any estate, no matter how large or small it may be. However, if the decedent owned property in another state that still has an inheritance tax or estate transfer tax, the estate may have to pay taxes on out-of-state assets and holdings.
Federal Estate Taxes
While Louisiana has no estate tax, the federal government may demand payment on particularly large or valuable estates:
- For 2021, the federal estate tax exemption was $11.70 million.
- For 2022, the federal estate tax exemption was $12.06 million.
- For 2023, the federal estate tax exemption is expected to rise to $12.92 million.
The federal estate tax is portable for married couples, meaning that spouses may combine their assets to exempt double the current-year exemption. For example, if both partners pass away in 2022, they can automatically exempt up to $24.12 million in assets.
However, any estate that exceeds these minimum limits must still pay federal estate taxes. For example:
- If the estate’s value exceeds the exemption threshold by $0.00 to $10,000, it will be taxed at 18%.
- If the estate’s value exceeds the exemption threshold by $10,001.00 to $20,000, it will be taxed $1,800 plus 20% of the amount over $10,000.
- If the estate’s value exceeds the exemption threshold by $20,001.00 to $40,000, it will be taxed 22% plus 22% of the amount over $20,000.
- If the estate’s value exceeds the exemption threshold by $40,001.00 to $60,000, it will be taxed $8,000 plus 24% of the amount over $40,000.
The federal estate tax ranges between 18% to 40%, with 40% chargeable on estates valued at $1,000,001 or more over the exemption floor.
Gift Taxes
Federal Gift Taxes
The federal government’s current gift tax exemption is $15,000 per year for each gift recipient. If you gift more than $15,000 to any individual within a single calendar year, you will have to report the amount to the Internal Revenue Service. The lifetime gift tax exemption in 2022 was $12.06 million.
State Gift Taxes
Louisiana, like most other states, does not impose any gift taxes. However, Bayou State residents may be compelled to pay gift taxes if they receive an inheritance from a decedent who resided in a state with gift taxes.
Generation-Skipping Transfer Tax Exemption
The generation-skipping transfer tax is a tax levied on property passed two or more generations beyond that of the transferring decedent.
However, the generation-skipping transfer tax can be exempted up to $12.06 million. Similar to other exemptions, this amount is also portable for married couples.
Contact a Louisiana Attorney Today
While Louisiana’s tax-friendly laws effectively exempt most Bayou State residents from having to worry about estate-related taxes, high-net-worth families and people who own properties in other states may have long-term tax implications when passing assets and properties to the next generation.
Louisiana’s Inheritance and Estate Tax: The Short Answer
Louisiana abolished its state inheritance tax for deaths occurring on or after July 1, 2004. Louisiana also has no state-level estate tax. There is no “Louisiana succession tax” on the value of what heirs inherit or on the size of a decedent’s estate — those state-level taxes no longer exist.
This means that for the overwhelming majority of Louisiana families, the succession tax question is simple: the answer is zero. The combined state tax burden from both inheritance and estate taxes is $0 for Louisiana residents. What remains is only the potential federal estate tax — and even that affects only the wealthiest estates.
Why does this matter? Many Louisiana families — particularly those who remember or have heard about the old inheritance tax — still believe they owe the state something when they inherit. They do not. An heir receiving $500,000 from a Louisiana succession owes no Louisiana inheritance tax. A $5 million estate going through Louisiana succession owes no Louisiana estate tax. The state stopped collecting these taxes over two decades ago.
The Federal Estate Tax: Who It Affects and What It Costs
The federal estate tax is the primary succession-related tax that Louisiana families need to understand. It applies to the total value of a decedent’s taxable estate — not to individual inheritances, and not to assets that pass to a surviving spouse.
The exemption: Each U.S. citizen has a federal estate tax exemption — an amount that passes completely free of federal estate tax. For 2024, the exemption is $13.61 million per individual. For a married couple, the exemption can effectively be doubled to $27.22 million through a process called “portability” — the surviving spouse can claim the deceased spouse’s unused exemption by filing an estate tax return (IRS Form 706) within the required deadline, even if no tax is owed.
The rate: Taxable estates above the exemption are taxed at a top marginal rate of 40%. This is a significant number, but because the tax only applies to the amount above the exemption, the effective rate on the total estate is lower for estates that are just over the threshold.
The sunset risk: The current high exemption level was established by the Tax Cuts and Jobs Act of 2017 and is scheduled to sunset (expire) at the end of 2025. Unless Congress acts, the exemption is projected to drop to approximately $6–7 million per person (adjusted for inflation) starting in 2026. Families with estates in the $7–13 million range who are not currently exposed to the federal estate tax may become exposed after 2025 if the exemption drops. This is a significant planning window that is closing.
Estate Tax Planning Strategies for Louisiana Families
For Louisiana families with estates approaching or exceeding the federal estate tax threshold, several strategies can reduce or eliminate the federal estate tax burden:
- Annual gift exclusion. Each individual can give up to $18,000 per year per recipient (2024 amount) without gift tax consequences and without using any of the lifetime exemption. A married couple can give $36,000 per recipient per year. Over time, systematic annual gifting can meaningfully reduce a taxable estate.
- Portability election. When the first spouse dies, the surviving spouse should file a federal estate tax return (Form 706) to preserve the deceased spouse’s unused exemption. This doubles the surviving spouse’s effective exemption and is one of the most underutilized planning tools available to married couples. The filing is required even if no tax is due — missing this election forfeits the deceased spouse’s unused exemption permanently.
- Irrevocable life insurance trusts (ILITs). Life insurance proceeds are generally included in the insured’s taxable estate if the insured owned the policy. Transferring a life insurance policy to an ILIT — or purchasing a new policy through the trust — removes the proceeds from the taxable estate while still allowing the proceeds to benefit the family. The trust, not the insured, owns the policy.
- Louisiana’s community property advantage. Louisiana’s community property system provides a significant federal income tax benefit at death: the entire community property gets a “stepped-up” basis to the date-of-death fair market value. In common law states, only the decedent’s 50% share gets the step-up. This means heirs who later sell appreciated community property assets owe little or no capital gains tax — a significant benefit that community property planning can maximize.
- Charitable planning. Charitable remainder trusts, charitable lead trusts, and direct charitable bequests remove assets from the taxable estate while supporting causes the decedent cared about. For large taxable estates, charitable planning can simultaneously eliminate federal estate tax on the charitable portion and create an income stream for the donor during life.
If you need assistance planning your Louisiana succession, please call Scott Law Group – Estate Counsel at 504-264-1057 to get started today.
|
Related Links: |
Louisiana’s Inheritance Tax Landscape: What the State Currently Imposes
Louisiana abolished its inheritance tax for deaths occurring after June 30, 2004, which means that the overwhelming majority of Louisiana families today have no Louisiana state inheritance tax obligation whatsoever. The pre-2004 Louisiana inheritance tax was a tax on the right to receive property through an inheritance, imposed at rates that varied based on the relationship between the heir and the decedent and the value of the property received. When Louisiana repealed that tax, it eliminated a significant burden that had applied to Louisiana estates for generations. For modern Louisiana successions — any death occurring after June 30, 2004 — there is simply no Louisiana inheritance tax to pay, and no Louisiana inheritance tax return to file.
Louisiana does technically maintain an estate transfer tax in its statutes, but this tax is effectively zero for current estates because of its historical tie to the federal tax system. Louisiana’s estate transfer tax was designed as a “pick-up” or “sponge” tax — it was calculated as the amount of the federal state death tax credit that the federal government allowed estates to claim against their federal estate tax liability. When federal tax law changed in 2001 and phased out the state death tax credit entirely by 2005, Louisiana’s estate transfer tax effectively became zero as well, because there is no longer any federal credit for states to “pick up.” Unless and until the federal law changes to reinstate the state death tax credit, Louisiana’s estate transfer tax remains a dormant provision that imposes no actual liability on Louisiana estates.
The practical consequence of Louisiana’s abolition of its inheritance tax is that most Louisiana families only need to evaluate one potential death-related tax: the federal estate tax. For the vast majority of Louisiana families, even the federal estate tax will not apply, because the federal exemption — the threshold below which no federal estate tax is owed — is set at a level that excludes all but the largest estates. But understanding where the thresholds are, how they interact with Louisiana’s community property system, and what happens to those thresholds in the coming years is essential for families with meaningful accumulated wealth, because the federal estate tax can impose rates as high as 40 percent on the value of a taxable estate that exceeds the exemption.
Louisiana community property law can actually reduce the federal estate tax burden — because the surviving spouse already owns one-half of community property, only the deceased’s one-half is included in the taxable estate. This is a significant advantage of the Louisiana community property system compared to common-law property states. In a common-law state, when one spouse owns an asset solely in their name, the entire value of that asset may be included in their taxable estate. In Louisiana, when spouses own community property together, each spouse already owns half of that property as a matter of law — so when one spouse dies, only that spouse’s half enters the taxable estate. For married couples with substantial community property, this built-in halving of the taxable estate can meaningfully reduce or even eliminate federal estate tax exposure.
Succession is required to formally establish the value and composition of the estate for federal estate tax purposes, and the Judgment of Possession must reflect the estate’s composition as of the date of death. The federal estate tax return (Form 706) requires a comprehensive inventory of all assets included in the taxable estate as of the date of death, with each asset valued at its fair market value on that date. The succession proceeding provides the legal framework within which this inventory is compiled, values are determined (through appraisals and account statements), and the Judgment of Possession ultimately memorializes the composition and distribution of the estate. Accurate valuation at the date of death is critical both for federal estate tax compliance and for establishing the stepped-up cost basis that heirs will use for capital gains tax purposes when they later sell inherited assets.
Federal Estate Tax: Thresholds, Portability, and Who Actually Pays It
The federal estate tax exemption — the amount that can pass free of federal estate tax — is currently set at $13.61 million per person for 2024, a historically high level that was established by the Tax Cuts and Jobs Act of 2017. This means that a single individual can leave up to $13.61 million to their heirs without any federal estate tax liability whatsoever. For a married couple, the combined exemption effectively doubles, since each spouse has their own $13.61 million exemption. At this exemption level, only the wealthiest fraction of one percent of Americans owe any federal estate tax — the vast majority of estates, regardless of their size by ordinary standards, are entirely below the threshold. Many Louisiana families who have built substantial wealth over lifetimes of work, including those with significant real estate holdings or business interests, still fall comfortably within the current exemption.
Portability of the deceased spouse’s unused exemption is one of the most important and underutilized federal estate tax planning tools available to married couples. When a spouse dies without having used all of their federal estate tax exemption, the unused portion of that exemption can be transferred to the surviving spouse — but only if the estate timely files a federal estate tax return (Form 706) and makes the portability election, even if no tax is actually owed. A surviving spouse who claims the deceased spouse’s unused exemption through a timely portability election can potentially have a combined exemption of over $27 million. Missing this election — which requires filing within nine months of death (or fifteen months with an extension) — permanently forfeits the benefit, which is why estate tax professionals consistently recommend filing the portability election return even when the deceased’s estate is far below the taxable threshold.
The unlimited marital deduction allows an unlimited amount of assets to pass from a deceased spouse to a surviving spouse completely free of federal estate tax, regardless of the size of the transfer. This deduction is one of the most powerful tools in federal estate tax planning — by leaving everything to a surviving spouse, a married person can defer all federal estate tax liability until the surviving spouse’s death. The deduction applies both to outright transfers and to transfers in properly structured trusts (qualifying trusts that meet the requirements for the marital deduction). The key limitation of the unlimited marital deduction is that it defers, rather than eliminates, the tax — the surviving spouse’s eventual estate may be subject to a larger tax burden than either spouse’s estate would have been individually, particularly if the portability election was not made and the surviving spouse cannot fully shield the combined wealth with their own single exemption.
A Judgment of Possession that accurately reflects each asset’s date-of-death fair market value creates the documentation needed to support the stepped-up cost basis that heirs use to minimize capital gains taxes when they later sell inherited property. This is one of the most important tax benefits of the federal tax system for heirs of any estate, not just those subject to estate tax. When a person inherits property, their cost basis in that property — the value used to calculate capital gain when the property is later sold — is stepped up to the fair market value of the property at the decedent’s date of death. If an heir inherits a piece of real estate worth $500,000 at the date of death and sells it the following year for $520,000, only the $20,000 of appreciation after death is subject to capital gains tax — the gain that occurred during the decedent’s lifetime is permanently excluded from capital gains taxation for the heir.
Louisiana’s intestate succession laws interact with federal estate tax planning because the intestate distribution of assets to non-spouse heirs — rather than to the surviving spouse — may reduce the marital deduction and increase the taxable estate. When a Louisiana decedent dies without a will, the intestate distribution rules determine who receives what — and those rules may direct property to children or other heirs rather than to the surviving spouse. Any property that passes to heirs other than the surviving spouse does not qualify for the unlimited marital deduction and is therefore included in the taxable estate (above the exemption amount). For large estates in states with community property and intestate succession rules that divide property among the surviving spouse and children, this interaction can produce unexpected federal estate tax liability that a properly drafted will could have prevented entirely.
Estate Planning Strategies to Minimize Tax Exposure in Louisiana
The annual gift tax exclusion allows individuals to give up to $18,000 per recipient per year (as of 2024) completely free of gift tax and without reducing their lifetime estate and gift tax exemption. For a married couple who split their gifts, the combined annual exclusion is $36,000 per recipient per year. Over time, a systematic annual gifting program can transfer substantial wealth out of the taxable estate without triggering any gift tax liability. A couple with five adult children and ten grandchildren, for example, could transfer up to $540,000 per year to those fifteen family members through annual exclusion gifts, accumulating to over $5 million in tax-free transfers over a decade. Annual gifting requires planning and consistency, but it is one of the simplest and most effective estate tax reduction tools available to families at every wealth level.
Irrevocable trusts serve as the primary planning tool for removing assets from the taxable estate when the goal is to transfer wealth that has already exceeded the gift tax annual exclusion. An Irrevocable Life Insurance Trust (ILIT) holds a life insurance policy outside of the taxable estate, so that the policy’s death benefit passes to the trust beneficiaries free of estate tax — a particularly valuable structure for large policies whose death benefit would otherwise push the estate over the exemption threshold. A Spousal Lifetime Access Trust (SLAT) allows one spouse to make a taxable gift to an irrevocable trust for the other spouse’s benefit, removing the gifted assets from both spouses’ taxable estates while still allowing the beneficiary spouse indirect access to the trust assets during their lifetime. These structures require careful legal drafting and must be implemented while the grantor is alive and mentally competent.
Charitable giving strategies provide an opportunity to reduce the taxable estate while also accomplishing philanthropic goals that many Louisiana families find personally meaningful. Outright bequests to qualifying charitable organizations are fully deductible for federal estate tax purposes — every dollar left to charity reduces the taxable estate by one dollar, with no limit. Charitable remainder trusts (CRTs) allow a donor to transfer appreciated assets to a trust, receive an income stream for life or a term of years, and then have the remaining trust assets pass to charity at the end of the trust term, with an immediate charitable deduction at the time of the transfer based on the present value of the charitable remainder. Charitable lead trusts (CLTs) work in the reverse manner, providing income to charity first and ultimately distributing the remaining assets to family members, with gift or estate tax savings based on the present value of the charitable payments.
The scheduled sunset of the Tax Cuts and Jobs Act at the end of 2025 makes 2025 and early 2026 a critical window for estate tax planning for families whose wealth approaches or exceeds the anticipated post-sunset exemption level of approximately seven million dollars per person. When the TCJA expires, the federal estate and gift tax exemption is scheduled to drop from its current $13.61 million to approximately half that amount — meaning families that currently have no federal estate tax exposure may find themselves with a potentially significant federal estate tax liability after the sunset. Gifts made before the sunset lock in the current higher exemption amount and are not “clawed back” into the taxable estate even if the exemption decreases after the gift is made (under current IRS guidance). For families with wealth in the seven to fourteen million dollar range, acting before the sunset occurs is a particularly high-priority planning objective.
Louisiana’s community property system offers a unique basis planning opportunity that is not available in common-law property states: the full step-up in basis at the death of either spouse for community property assets. In a common-law state, only the deceased spouse’s half of jointly owned property receives a step-up in basis at death. In Louisiana, because both spouses’ halves of community property receive a step-up in basis at the death of either spouse, the surviving spouse benefits from a stepped-up basis on the entire community property asset — not just the decedent’s half. This rule, which reflects Louisiana’s treatment of community property as a unified marital estate rather than two separate halves, can produce significant capital gains tax savings when the surviving spouse later sells appreciated community property that was held for decades. Additionally, a revocable living trust, while not itself a tax-reduction tool during the grantor’s lifetime, can be structured to optimize the estate tax outcome at death by incorporating disclaimer provisions, credit shelter sub-trusts, or QTIP elections — giving the family maximum flexibility to adapt to the tax law environment at the time of death rather than being locked into a fixed structure that may no longer be optimal.