Transcript Coogan Accounts What protects child actors and their parents

Coogan Accounts
What protects child actors and their parents
Presented by
financial filosophy
F. John Deyeso, CFP®
www.financialfilosophy.com
[email protected]
917-916-2207
Disclosure
• financial filosophy is a registered investment advisor operating
under the jurisdiction of the State of New York. This presentation is
for informational purposes only and does not constitute a complete
description of our investment services or financial planning advice
or practices. This presentation is speaking informational about
various financial topics and is in no way investment advice or
financial planning. Investment advice or comprehensive financial
planning would require individual work based on individual aspects
and not generalizations. Neither we nor our information providers
shall be liable for any errors or inaccuracies, regardless of cause, or
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FROM ANY INFORMATION PRESENTED. THIS IS ALSO NO WAY LEGAL
ADVICE.
Gary Coleman
• Best known as Arnold from “Different Strokes”
– Sued parents for mis-management of his $8.3
million dollar Trust Fund
– Argued successfully that his parents had
accumulated $770,000 for themselves
– Later filed for Bankruptcy
Jackie Coogan
• Jackie Coogan-famous child star in silent picture
era.
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Best known staring with Chaplin in “The Kid”
At 21, he demanded his earnings from his parents
$4,000,000 in 1935 ($47,617,344.96 in today’s dollars)
They refused, and had only about $200,000 left
Later sued and received slightly more than $100,000
($1,190,433) 2.5% of his earnings
– Under California Law, Jackie had no rights to the
money he earned.
– The law was later changed, trust accounts for child
actors are now called Coogan Accounts
Parents versus Kids
• Parents accused of mismanagement often
claim 2 defenses
– To the child it was “simply playing”
– The financial strain on the family
• Children
– Numerous child actors have acknowledged the
lack of “play” and that they were working
The life lesson
• While the child may have a passion for performing, this is a
business
• The actor is being compensated for “missing out” on
“normal” child activities
• While there may be family sacrifices to allow your child to
follow their passions, this is true for many families and not
specific to acting
• Do you think Tiger Woods paid for his golf lessons as a
child, or travel expenses to golf events? I think not
• DO NOT let money strain your relationship with your child.
• Coogan accounts were designed to protect the child actor
• I think they protect the family as well
California “Coogan Law”
• Enacted in 1939 after the public outrage of the Jackie
Coogan case.
• Requires the production company to directly deposit
15% of income directly into the child’s trust account.
• A parent or guardian will be Trustee of the account.
Withdrawals are not permitted (blocked trust).
• The funds must be turned over at the age of Majority.
In California age 18 (New York 21)
• Residency does not matter, if work originates in
California then a Coogan Account is required
What Coogan information MUST be
provided
• The following two documents MUST be
provided with the work permit
– The Trustee Statement
– The deposit instruction
– Some Banks provide these two forms as one.
– Regardless, remember the Bank is holding the
funds, you are the trustee and in charge of
overseeing that the funds get deposited
Trustee Statement
• The law indicates that the following information
should be on a Trustee Statement:
• Name, Address & Phone # of Financial Institution
• Name of Minor (beneficiary)
• Account Name
• Account Number
• Trustee Name
• Signed under penalty of perjury by trustee
Deposit Instructions
• Usually given to the 2nd AD or whoever is in charge of
payroll
• Contains the following information
• Financial Institution Logo
• Name of Account
• Name of Minor
• Name of Trustee
• Routing Number
• The account number
• Social Security Number
• Financial Institution contact information
Submitting the proper paperwork
• Work Permits, required in New York and
California are valid for 10 days without Coogan
information, will be voided if Coogan
Information is not provided to the production
company
Parental Due Diligence
• Since the Coogan laws only currently apply to
California and New York, not all payment
processors know how to process this payment
– Check the paystub for a withholding equal to 15%
of earnings. Likely mislabeled
– If missing payment, contact the production
company
– If more than 180 days have passed check with the
Actors Fund
New York “Coogan-Like”
• Passed in March of 2004
• Child Performer Education and Trust Act of 2003
• Same 15% deposited directly into an account for
the child.
• Turned over to the Child at the age of Majority
(New York this can be 18 or 21 depending of
account)
• Once account reaches $250,000 a trust company
must be appointed as Custodian.
East Coast versus West Coast
The difference between NY and CA
• California, with the creation of the Coogan
account requires a blocked trust. Meaning that
the money in the account cannot be spent
• New York requires, a California Coogan Account,
A New York UGMA or UTMA
• The problem with UGMA and UTMA accounts,
they can be spent, if the expenses are for the
child. Meaning these type of accounts are not
Blocked Trusts
Why California Coogan Accounts are
best!
• California will not honor a New York “Coogan-like
account” If work originates in California, you will be
required to open a Coogan Account.
• If you already have a NY Coogan-like account, you will
now have two accounts that cannot be combined
unless into the California Coogan.
• More difficult to manage from an investment
standpoint
• Coogan accounts remove the temptation to use the
funds for “acting” expenses
• NY “Coogan-like” accounts later likely be challenged
and changed in the Courts
Investments within Coogan Accounts
• Do not “chase” investments, “hot”
investments
• Understand that at age of majority this is your
child’s money, they earned it, and have a right
to it.
• Your job as a parent is to protect it, by
investing it well
Investing well
• Diversification across asset classes(companies)
– Example
– U.S. domestic equity fund (small, medium large)
– International equity fund
– Global bond fund
• Doing it cost effectively (low expense ratios,
index funds)
• Reduces trading and commissions
• Risk decreases as the child gets closer to the age
of majority
Investing well
• Diversification is NOT owning ALL the OIL
stocks or ALL the TECH stocks
• Two unique problems in investing
– The cash flow into the account is not know
– Achieving diversification without a known future
cash contributions
• A solution- fee-only third party advice,
protects parents and children
Using Coogan Accounts for future
goals
• Many parents will want the money to go
toward a child’s future goals (i.e. College)
• Problematic
– The impact to financial aid
– The child earned the money and little can be done
to prevent them for using it as they want
– At 18, even 21, what they want to use it for and
what you want them to use it for may not agree
– They earned it, they win if there is a disagreement
The best a parent can do
• Place assets in a blocked trust
• Hire outside fee-only Certified Financial Planner
Professional to help with investment
management
• Keep the children involved in the whole process
(involvement increases with age)
• This protects the child’s assets, protects the
parent/child relationship and decreases the
chance that the child will simply blow the cash
• They still may not go to college with that money,
but they still may not blow it
Important websites
• NY Department of Labor
– http://www.labor.state.ny.us/
– Worker protection (top)
– Child Performer (left)
• List of Coogan Banks
– http://www.childreninfilm.com/images/cooganbankb
ook.pdf
• SAG Credit Union
– http://www.aftrasagfcu.org/
• financial filosophy
– www.financialfilosophy.com