June 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

Doron M. Tisser has started training for a marathon to be run later this year. Doron trains for and runs these races to raise money for charities through Team Tisser Foundation (TTF), a non-profit corporation co-founded by Doron and his wife Laurie. TTF has given over $250,000 in grants to various charities over the last 10 years. If you would like to donate money to TTF, please visit TTF’s web-site at www.teamtisser.org.

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.

TRUSTS AS BENEFICIARES OF IRAS

The preferred way to leave IRAs or other retirement accounts to children is by setting up a trust as the beneficiary of those accounts. For purposes of this article, we will refer to IRAs and other retirement accounts as “IRAs”. A trust set up as the beneficiary of an IRA is known as a “Designated Beneficiary Trust (DBT)”.

By having a DBT as the beneficiary of the IRAs and naming the children as beneficiaries of the DBT, the monies from the IRAs do not have to be distributed to the children right away. Instead, the monies can be distributed to the children from the DBT at specified ages under the terms of the trust. This allows the monies from the IRAs to be protected in case the child is a minor, is not mature enough to receive the money, is in a lawsuit, or is getting a divorce. In addition, if the child dies during the term of the DBT, the DBT can continue for the child’s children, i.e., the grandchildren.

The key to having a DBT as the beneficiary of an IRA is to make sure the DBT complies with all the requirements of the Internal Revenue Code to be a qualified beneficiary. If the requirements are not met, there will be adverse tax consequences. Private Letter Ruling 201203033 illustrates the issues that can arise when a typical trust is named as the beneficiary of an IRA.

The general rule for distribution of monies from an inherited IRA is that the beneficiary must take out all the money from the IRA within five years of the participant’s death (i.e., the death of the owner of the IRA) and pay all the income taxes.

If the beneficiary qualifies and follows the rules, the beneficiary of the IRA does not have to take all the money out of the IRA within five years. Instead, the beneficiary can withdraw the monies from the IRA over the beneficiary’s life expectancy under life expectancy tables issued by the IRS.

Stretching out the required distributions and delaying the payment of income taxes may allow the assets to grow faster than they are distributed, leaving more wealth to your children and grandchildren.

When establishing a DBT to be the beneficiary of an IRA, therefore, it is essential that the DBT qualifies as a designated beneficiary in order to withdraw the monies from the IRA over the DBT beneficiary’s lifetime and maximize the economic and tax benefits to the DBT and the beneficiary.

There are many requirements for a trust to be considered a qualified designated beneficiary, not all of which will be discussed here. Please see your advisor to determine whether a trust qualifies.

This article will cover the most common reason that a DBT does not qualify as designated beneficiary for purposes of the stretch provisions discussed above: namely, that the Regulations require that all of the beneficiaries of a DBT be individuals who are identifiable.

This means that, generally, a charity cannot be a beneficiary, either currently or in the future. If a charity is named as a possible beneficiary, then the lifetime withdrawal rules do not apply and all the income taxes are due within five years of the participant’s death.

There are two general ways that a charity can become a beneficiary. The first is if the trust says that if a child and grandchildren are not living, the monies go to a charity. The second way is if the child is given the right to change who the beneficiaries will be after the child’s death and that right includes naming a charity as a beneficiary. In this case, whether or not the power to change the beneficiaries is exercised, the mere right to name a charity means that the beneficiaries are not individuals who are identifiable, which disallows the use of the lifetime withdrawal.

Another issue to be aware of is that if the named beneficiary of the IRA is the DBT and the DBT will be divided among several children, the age of the oldest child will be used to determine how distributions are taken form the IRA. A younger child who could take distributions over a longer life expectancy than an older child will be required to withdraw the money from the IRA over the older sibling’s life expectancy.

If there is a 10 year difference between the oldest and the youngest beneficiaries, the younger beneficiary could lose a lot of economic benefit by not being allowed to use his or her own life expectancy for withdrawals.

This issue of whose life expectancy to use for withdrawals from a DBT can be solved by not having the IRA name one trust as beneficiary, but by instead naming each individual beneficiary’s separate trust in the IRA beneficiary designation statement. Those separate trusts may all be established under one document.

If you have named a trust as beneficiary of an IRA or intend to do so, make sure that it qualifies as a designated beneficiary to ensure that the income taxes are not due within five years of the participant’s death and that each beneficiary is allowed to use his or her own life expectancy for withdrawals from the IRA to the DBT.

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. Director
amber@tisserlaw.com – Amber McBride, Practice Coordinator
heather@tisserlaw.com – Heather Lanet, Admin. Assistant
zion@tisserlaw.com – Zion Dungo, Admin. Assistant
jesus@tisserlaw.com – Jesus Esteves, 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.