The Estate Planning Edge
Plan Early, Plan Well
The Law Office of
Doron M. Tisser
818-226-9125
July 2009
info@tisserlaw.com
In This Issue
Team Tisser Foundation
Did You Know...?
What's Happening
Discounting and Transferring Assets to Your Family
Team Tisser Foundation

Doron winning a race

     Team Tisser Foundation (TTF) is a non-profit corporation founded by Doron M. Tisser and his wife Laurie.  TTF raises money for various charitable purposes and does not focus on any one charity or charitable purpose.  The goal is to raise as much money as possible to "Help Make A Difference" by "Improving Life for Others."  TTF has made donations to Memorial Sloan-Kettering Cancer Center, Leukemia & Lymphoma Society, Chal- lenged Athletes Foundation, as well as charities helping people affected by natural disasters such as Hurricane Katrina and the Tsunamis.  Since 2000, TTF has donated almost $175,000 to over 25 different charities.  Friends and clients generally donate money to TTF to support Doron's participation in triathlons and marathons.  If you would like more information about TTF, please contact Doron at doron@tisserlaw.com, or visit www.teamtisser.org.


Did You Know?

      One of the most important documents in your estate plan is your Durable Power of Attorney for Health Care (DPAHC).  How it has been set up and the authority you have given your named agents will determine whether the document will work as you intend when the time comes.  Look for next month's Newsletter in which we will discuss factors you need to consider in establishing and reviewing your DPAHC. 


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info@tisserlaw.com
 
818-226-9125

The Law Office of
Doron M. Tisser
5425 Farralone Ave
Suite 100
Woodland Hills, CA
91367-6312
  

Doron M. Tisser

     Doron M. Tisser has specialized in estate and gift planning, tax planning, trust and probate administration, charitable giving, buy-sell agreements and related areas for over 25 years.  Mr. Tisser is one of less than 100 attorneys in California who has been designated as both a Certified Specialist in Probate, Estate Planning and Trust Law, and as a Certified Specialist in Taxation Law by the State Bar of California Board of Legal Specialization.  He was chosen by his peers as a 2009 Super Lawyer for Southern California, and enjoys an "a.v." rating by Martindale-Hubbell Law Directory, which is the highest possible rating and is based on ethical considerations and legal skills.  Mr. Tisser has published over 65 articles and chapters in books on various estate and tax planning subjects and is a frequent speaker and lecturer at estate and tax planning seminars.  Mr. Tisser competes in triathlons, including Ironman races, and raises money for charities through Team Tisser Foundation, a non-profit corporation he co-founded with his wife Laurie.
 

        Estate tax planning can include transferring assets to other family members to reduce the size of your estate.  There are different ways of transferring assets, but most of them include the concept of "discounting" the value of the assets being transferred.  In this issue, we will discuss this concept and show you how now may be the perfect time to take advantage of discounting. 
 
        We hope you enjoy the Newsletter.  If you have any suggestions, please do not hesitate to send them to us at info@tisserlaw.com.

        As always, please call us with your questions and remember, "Plan Early, Plan Well".

Sincerely yours,
Doron
What's Happening

  • Doron M. Tisser spoke on the "The Continued Viability of Using Trusts in Light of the Current Estate Tax Laws" to the San Fernando Valley Group, Los Angeles Chapter of the California Society of Certified Public Accountants on July 14, 2009.
  • Doron M. Tisser spoke on "The Basics of Estate Planning" to the Wealth Creator Financial Educational Forum for Women on July 14, 2009.
  • On July 22, 2009, Doron M. Tisser will be speaking at a UCLA Continuing Education Program on Estate and Tax Planning.
  • Doron M. Tisser is raising money for Team Tisser Foundation ("TTF"), a non-profit corporation.  As part of his efforts, Doron will begin racing in triathlons in order to raise money.  Doron's next race will be a half Ironman distance event (1.2 mile swim, 56 mile bike and 13.1 mile run) on October 10, 2009.  If you would like to donate to TTF, please contact Doron at doron@tisserlaw.com.

  • There are many proposals in Congress to change the estate tax laws and how much can be left estate tax free at death.  We are watching the proposals to see which one will become law and how it will affect our clients' estate plans.  We expect significant changes in the estate tax laws this year and will let you know as those changes take place.

Discounting and Transferring Assets to Your Family
 

          When you die, an estate tax may be owed based on your net worth in excess of the amount you can leave estate tax free at death, which is currently $3.5 Million.  If your net estate is $5 Million, there will be, in general, an estate tax on the excess $1.5 Million.
 
        If you transfer assets to your family, the future appreciation in those assets should not be subject to estate taxes when you die.  For example, if you own real estate that has a value of $100,000 and you expect its value to grow to $550,000 by the time you die, and you properly transfer the real estate to your family, the $450,000 increase in value should not be subject to estate taxes when you die.
 
         When looking at how much you are worth, for estate tax purposes, you need to include not just your real estate holdings, businesses, bank accounts, brokerage accounts and similar assets, but you also have to include retirement accounts, IRAs and life insurance on your life that your own or control.  By adding the value of these assets, you are probably worth more than you think for estate tax purposes.
 
          It is important to understand that you should not transfer assets to family unless you are certain you will not need those assets in the future.  If you think you may need the asset being transferred in order to provide income to you at a later date, you may not want to give up ownership in that asset.
 
            If you do want to transfer something, e.g., real estate, to your family, it is important to understand how discounting works.  Let's assume you own a piece of real estate worth $600,000 and you want to transfer it to your son.  If you transfer the entire real estate at one time, you will have made a gift to your son of $600,000 (ignoring for the moment the $13,000 you can give your son each year without reporting the gift).  This gift will reduce the amount you can leave your family estate tax free when you die from $3.5 Million to $2.9 Million because the amount you gifted to your son reduces what you can leave estate tax free when you die.
 
The Concept of "Discounting"

       The concept of "discounting" allows you to artificially reduce the value of the gift so that for tax purposes you have given away less value and thereby have retained more that can be left estate tax free when you die.
 
        Discounting is based on certain factors related to the asset being gifted.  For example, if you transfer 100% of the real estate to your son, he has full control over selling that property, and he has full control over management of the property. 
 
        If on the other hand, you only transfer 40% of the property to your son, his interest in the property is not easily marketable because very few people would be willing to buy a 40% interest in real estate.  In addition, owning 40% does not give him full control over the property because you continue to own 60% of the property.  Each of these factors should result in a discount in the value of the portion of the real estate being transferred to your son. 
 
        If the value of 100% of the property is $600,000, the value of the 40% you transfer would be $240,000.  However, if the lack of marketability and lack of control factors result in a 25% discount in the value of the interest you are transferring, the value of the 40% interest would be $180,000 (i.e., $240,000 less the 25% discount of $60,000) for tax purposes.  In effect, this results in your transferring $60,000 of value in the real estate without any tax effect and leaves you more to transfer at death because you haven't used up as much of your $3.5 Million as you would have if you had not taken a discount.
 
        In order to take advantage of greater discounts, we will sometimes set up a limited liability company or a limited partnership and transfer the real estate into the entity.  You would then gift an interest in the entity to your son (rather than a direct interest in the property), which would result in an even greater discount in value because discounts are greater when transferring a non-managing interest in an entity.

If the Discount Is Not Properly Done, the IRS Will Disallow It

        Discounts are a wonderful tool to use in transferring assets to family members and should be considered in every taxable estate.  However, you must be careful in how the transaction is set up and the type of discount you get.  If the transaction is not property structured and maintained, or the discount is not properly done, the IRS will disallow the discount, which can cause unexpected and unwanted tax consequences.
 
        One further note about discounting is that there is at least one proposal in Congress at this time which would, in general, disallow discounting on transfers of assets between family members.  If this becomes law, the ability to discount the value of assets would no longer be available.  Therefore, if you are thinking of gifting assets and taking discounts, and you are concerned that the proposal disallowing discounts may become law, you should look into making the gift as soon as possible.
 
        Please let us know if you would like to discuss this matter and how it relates to your estate plan.

This communication published by the Law Office of Doron M. Tisser is intended as general information and may not be relied upon as legal advice, which can only be given by a lawyer based upon all the relevant facts and circumstances of a particular situation.

Copyright Doron M. Tisser, Esq. 2009.  All Rights Reserved.