May 2012      

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, Challenged 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

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About
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 30 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 Super Lawyer for 2009, 2010, 2011, and 2012 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.

What’s Happening

On May 14, 2012, Doron M. Tisser spoke on selected estate planning issues to the West San Gabriel Valley (Pasadena) Discussion Group, Los Angeles Chapter, California Society of CPAs (CALCPA).

The next meeting of the San Fernando Valley Networking Group for graduates of Southwestern Law School will be held May 24, 2012. If you or someone you know is a graduate of Southwestern Law School, works or lives in the San Fernando Valley and wants to attend the meeting, contact Laura Stein at laura@tisserlaw.com or call Laura at (818)226-9125. We have also established a listserv for members to stay in touch with each other.

On a personal note, Doron M. Tisser is proud to announce that his son, Jeremy N. Tisser has graduated with honors from USC’s graduate program on Scoring for Motion Pictures and Television on May 11, 2012.

If you would like Doron M. Tisser to speak to your group or organization about the new estate tax laws, trust administration or other estate planning subjects, please contact Laura Stein at laura@tisserlaw.com or call Laura at (818)226-9125.

PUTTING MONEY AWAY FOR CHILDREN AND GRANDCHILDREN

Many parents and grandparents are putting money away for their children and grandchildren's futures, oftentimes to pay for a college education.

Historically, these monies have been put into custodianship accounts, which will be discussed below. In recent years, however many parents and grandparents have come to realize that using a custodianship account may not be such a good idea.

This article will discuss some of the ways money can be put aside for a child or grandchild. Remember, this article only discusses the basics of these techniques; more specific facts would need to be known to properly plan for a specific situation. For simplicity, the beneficiary of the money will be referred to as a child, even though these accounts can be set up for grandchildren or other persons.

Custodian Accounts

Custodian accounts have been one of the most commonly-used accounts for transferring money to a child. In California, these transfers are governed by the Uniform Transfers to Minors Act.

Setting up a custodianship account is simple: You go to a bank or institution and fill out a form naming the custodian for the account, with the account being in the name of the child. The custodian is often the person putting the money in the account, or the parent of the child, if a grandparent is putting the money into the account.

The most common misunderstanding about these accounts is that upon the child reaching age 18, control of the money must be given to the child. It is irrelevant whether the child is financially responsible or not; they are entitled to the money at that age.

It is possible to extend the age at which the child will receive the money to age 21. In order to do this, this age needs to be put into the form when the account is opened. If the gift is made to a minor as a result of a person’s death, the age at which the child will receive the money can be extended to age 25.

Many custodianship accounts are now coming due as the beneficiaries are reaching adulthood. At the same time, many parents are concerned that their children do not have the maturity to handle the money, yet the parents have no option but to turn it over to them at age 18. This can lead to a child wasting his or her money on things other than education or proper investment.

Using an Irrevocable Trust

If you do not want the child to receive the money at age 18 or 21, another alternative is to set up an irrevocable trust to hold the money for the child until the ages specified in the trust. Any ages can be used and the monies can be distributed to the child at various times. For example, the trust may provide that one third of the money will be distributed to the child at age 25, another third at age 30 and the remainder at age 35.

As with a custodianship account, somebody will need to be in charge of the assets in the trust. This person is called the trustee.

The drawback of using a trust instead of a custodian account is the additional costs, which include (1) having an attorney establish the trust, (2) filing annual tax returns for the trust, and (3) the annual income taxes the trust must pay.

If significant monies are not put into the trust, the cost of setting up the trust and preparing annual tax returns may not be worth the expense.

Using a Grantor Trust

An alternative to using a standard irrevocable trust is to use a grantor trust. The grantor trust differs from a standard irrevocable trust in that the trust itself does not have to file an annual income tax return or pay income taxes.

The grantor trust’s income is reported on the tax return of the person establishing the trust (the grantor) and that person pays the income tax.

Using a grantor trust allows flexibility in selecting the ages at which the child will receive the money, while avoiding the necessity of filing tax returns or paying income taxes by the trust.

Using a grantor trust only works if the grantor is willing to pay the income taxes on the monies earned by the trust. From a gift tax point of view, this is a good strategy because the amount of the income taxes paid by the grantor to the IRS is, essentially, a tax-free gift to the trust, since the trust gets to keep the monies that it would otherwise have paid to the IRS for income taxes.

529 Plans

If the money being set aside is to be used for the child's college education, a 529 Plan may be beneficial.

A 529 Plan account is a specific type of account opened at an institution in which the monies can be invested in specified funds.

The benefits of using a 529 Plan are:

  1. Income earned by the account are not subject to income tax if the monies are ultimately used for the child's college education.

  2. The distributions made for the college expenses are tax-free.

  3. If the child does not go to college, the beneficiary of the 529 Plan can be changed to another person who could then use the money for college.
The downside to using a 529 Plan is that if it is ultimately determined the child will not be going to college and the money is distributed out of the account, income tax is immediately due on all of the income earned through the years on the account in addition to a 10% penalty.

Conclusion

There are many ways to set aside money for a child for use in the future. It is very important to look at all the factors to determine when the money should be made available to the child and when the monies must be distributed to the child. If there are concerns about the possible financial immaturity of the child in the future, the use of a custodianship account may not be the best choice for saving money for him or her.
Tisser Law Group | 5425 Farralone Ave, Suite 100 | Woodland Hills | CA | 91367

doron@tisserlaw.com – Doron M. Tisser, Esq.
brian@tisserlaw.com – Brian H. Standing, Esq.
armine@tisserlaw.com – Armine Bazikyan, Esq.
judy@tisserlaw.com – Judy Schwarz, Legal Assistant

erica@tisserlaw.com – Erica May, Legal Assistant
laura@tisserlaw.com – Laura Stein, Admin. Assistant
heather@tisserlaw.com – Heather Lanet, Admin. Assistant
amber@tisserlaw.comm – Amber McBride, Admin. Assistant
This Newsletter is intended to provide legal information only; legal information is not legal advice and you should consult with qualified legal counsel prior to implementing any estate planning. The transmission or receipt of information to or from this Newsletter is not intended to create, and does not create or constitute, an attorney-client relationship. No portion of this Newsletter may be reproduced or used in any manner other than for the private information of the reader without the express written consent of Tisser Law Group. The testimonials throughout this Newsletter were provided by actual clients. To maintain their privacy their names may have been abbreviated. Please note that testimonials do not warrant, guarantee or predict your particular results. Copyright Tisser Law Group 2010. All Rights Reserved.