John O. McManus Featured Expert for Next Avenue (PBS)

The following article written by John O. McManus first appeared on Next Avenue (PBS).

Next Avenue logo



5 Ways to Keep Capital Gains Taxes Down

How traditional estate planning is being turned on its head

By John O. McManus

November 23, 2015


The time-honored approach to estate planning is being turned on its head by significant tax law changes that have taken effect in recent years.

Long-term capital gains tax rates now range from 25 percent to 33 percent (when you add together the top federal, state and local rates and Obamacare’s Medicare surtax). So now that the federal estate tax exemption is $5.43 million ($10.86 million for a couple’s combined exemptions), many Americans may no longer be exposed to federal estate taxes, making taxes on income and capital gains more prominent.

In fact, some legal practitioners who spent the first half of their careers zealously transferring assets out of their clients’ estates to avoid estate taxes now expect to spend the second half pushing assets back into their clients’ estates because the estate planning paradigm has changed.

What are the best ways to strategize around capital gains taxes to keep them as low as possible?

Now that the federal estate tax exemption is $5.43 million, taxes on income and capital gains have become more prominent.

Rundown of the Tax Rules for Gifts

To answer that, it helps to first understand the rules about gifts and taxes.

If you give assets to family members or put them into a trust to minimize estate taxes and the assets have appreciated significantly, when they’re sold, the gain (the amount that is taxed) is the difference between your original purchase price and the sale price at the current market value.

That purchase price is known as your “cost basis” (adjusted for any stock splits and dividends). With residential real estate, basis can increase depending on capital improvements to the property; for commercial real estate, basis can be adjusted due to depreciation. Examples of assets with a low basis: Exxon stock your grandfather gave you years ago when he was alive or the Brooklyn brownstone you bought in the 1970s that has appreciated in value by several million dollars.

Without strategic planning, $33,000 in capital gains taxes may be due when an asset is sold with a $100,000 gain, leaving the net proceeds at just $67,000.

When the owner of an asset passes away, the asset’s basis can shift upward, which shrinks the amount of gain that will eventually be taxed upon its sale. The basis then gets reset to the fair market value at the date of death. This is called a “step-up” in basis, and it is essential to many income and gains tax planning strategies. When assets are included in an estate, the Internal Revenue Service (IRS) gives you a capital gains tax break because of the step-up in basis upon death.

5 Capital-Gains Cutting Strategies

Here are five ways you might be able to reduce your capital gains taxes through timely estate planning strategies:

First, consider undoing a trust. Assets that were gifted into trust are not part of an estate, but putting them back into the estate could avoid capital gains taxes.

For example, once a home has been given by a parent to a child and put into trust, the parent can’t live in the home without a lease and scheduled rent payments. But if you decide to live in the home without paying rent, terminate the lease, and create an agreement saying your intention is to undermine the previous trust transfer, the home gets clawed back into the estate.

Second, consider “upstream gifting.” This is a strategy that involves transferring an asset up the generational chain to an older family member (like your parent) or a trust for the benefit of the older family member. This allows the asset to achieve a step-up in basis at the time of the parent’s death (inherited assets receive a step-up upon death but gifts have no step-up). Upon the parent’s passing, he or she would leave the asset back to the child who made the gift or to his or her descendants. The asset could then be sold, with the new high basis at current market value, free of capital gains tax, on the one condition that the parent survived the transfer from the child by at least one year.

Third, if you and your spouse have highly-appreciated assets, you could consider using a special type of trust. It’s a Joint-Exempt Step-Up Trust (JEST) or an Estate Trust or, if you live in Alaska or Tennessee, a Community Property Trust. Each lets the surviving spouse sell an appreciated asset without the imposition of any capital gains tax after the first spouse’s death. In effect, they provide the benefit of a step-up in basis to current market value upon the passing of the first spouse, so the surviving spouse can sell the appreciated asset without owing any capital gains tax.

These are valuable strategies because it is quite common for assets to be jointly owned between spouses, and the typical step-up in basis upon the death of the first spouse would apply to only 50 percent of the asset, rather than its full market value at the time.

Just make certain there is a separate side agreement saying this property is treated as community property.

Fourth, take advantage of the home sale tax exclusion. It lets homeowners exclude up to $250,000 of capital gain ($500,000 for a married couple) when they sell if they’ve owned and lived in the home for at least two out of the past five years before the sale.

Fifth, if you have a real estate investment or artwork you bought as an investment, use a 1031 Exchange. This is a strategy that that lets you delay capital gains taxation by rolling over the sale proceeds from the original asset into a new, similar property or piece of art — known as a “like-kind” investment. The new investment takes the original basis, which is carried over based on the original basis of the asset.

When it comes to your estate plan, it may be time to say “out with old and in with the new.”


Posted in Media Clips Tagged , , , ,

McManus Speaks to Year-End Tax Planning Strategies for Investment News

Investment News


Reporter Greg Iacurci tackled year-end tax planning strategies in a recent piece for Investment News. To help identify where the focus of advisers should be, Iacurci spoke with John O. McManus, estate planning attorney and founder of McManus & Associates.

The Investment News story, “Year-end tax planning strategies advisers should be considering,” encourages exploration of end-of-year tax considerations now, with just two months left in 2015. As Iacurci points out, “tax rules are largely unchanged,” so “tactics employed last year will more than likely still be relevant.”

Two important considerations? Tax-loss harvesting and moving assets into trust to avoid gains tax. From the article:

Financial markets haven’t been particularly strong this year, which provides an opportunity for advisers to do tax-loss harvesting, according to John McManus, founder of McManus & Associates.

Tax-loss harvesting involves selling assets that have incurred losses in taxable accounts to offset taxes due to gains elsewhere in the portfolio. It’s a strategy advisers especially turned to following recent bouts of market volatility.

“Given the markets have been flat, for sure you should be picking through your portfolio to find the pieces that have losses and harvest those,” Mr. McManus said.

Through Oct. 29, the S&P 500 index was up 1.5% for the year.

Market performance this year also creates a tax opportunity from an estate-planning standpoint, Mr. McManus added.

For example, there’s a federal tax exemption for assets up to $5.43 million, and anywhere from $675,000 to $5 million at the state level, when transferred upon death. For assets beyond these thresholds, tax rates are 40% and roughly 10%, respectively, Mr. McManus said.

However, clients can essentially accelerate the exemption by establishing a trust during their lifetime, forfeiting the exemption they would have gotten at death.

“This year, since the markets are flat, we’re poised to probably see some [market] growth going forward, so give the assets [to the trust] before the growth takes place,” Mr. McManus said. That way, there wouldn’t be any estate taxes on gains in the trust.

For more important strategies that should be examined to help minimize your tax burden going into the last two months of the year, read the full Investment News story here.

To take advantage of asset preservation opportunities before they expire with the New Year, contact McManus & Associates at 908-898-0100.

Posted in Media Clips Tagged , , , , , , ,

McManus Raises Concern about Reverse Mortgages in Investment News Article

investmentnewslogoGreg Iacurci, reporter for Investment News, recently explored reverse mortgages, a type of home equity loan for borrowers age 62 and older that allow homeowners to access part of their home equity in cash. For his story, “Advisers like reverse mortgages, but only in unique circumstances,” Iacurci interviewed John O. McManus, founding principal of McManus & Associates, who shared some words of caution.

While reverse mortgages may be an ok option for clients who plan to stay in their home indefinitely and who could use some supplemental income, McManus warned against draining one of your most valuable assets to pass down to children or other loved ones. From the article:

Further, for those looking to leave an inheritance for children, borrowers should expect not to be able to bequeath the home, John McManus, founding principal of McManus & Associates, said.

“It’s particularly destructive if you need to transfer assets down to your children, and they need the money,” Mr. McManus said, giving the examples of an indigent or special needs child, or a child living at home.

What is a reverse mortgage? Iacurci explains:

Reverse mortgages are a type of home equity loan for borrowers age 62 and older that allow homeowners to access part of their home equity in cash. The loan amount depends on home value (capped at $625,500), interest rate and age of the borrower. Unlike with traditional loans, there’s no monthly payment — rather, the principal and accrued interest come due when a borrower dies or moves.

Money can be accessed through a line of credit, monthly installments, a combination of those options, or a lump sum. Fixed interest rates are only available via a lump sum.

Advisers say that reverse mortgages can be a useful financial planning strategy, but one that should only be used in very specific circumstances. According to Iacurci, “Consensus thinking on reverse mortgages is that it’s a strategy mainly for clients who know they’ll stay in their home for the remainder of their lives.”

To read more about the pros and cons of reverse mortgages, read Iacurci’s article here.

Posted in Media Clips Tagged , , , ,

McManus Interviewed by The Washington Post on Money Milestones

washington post logo

Washington Post Reporter Jonnelle Marte recently interviewed McManus & Associates Founding Principal John O. McManus on financial goals that people should aim to achieve in their 40s. Jonnelle’s piece, “5 Money Milestones to Hit While You’re in Your 40s,” was published last week and re-published by Tulsa World on Sunday.

McManus’ insight informs two milestones from the article: one related to wills & estate planning and the other life insurance. From the story, here’s Milestone #4:

4. Update your will and estate plan: A few things may have changed since you last reviewed your will. You might have had another child, gotten divorced or been newly married. These changes would make it time to update your will to make sure your home, savings and other assets will go to the appropriate people after you die, Turner says. “If your ex-spouse is the beneficiary for your retirement plan you want to change that,” Turner says, adding that people should double check the beneficiaries for your 401(k) and life insurance policies.

The rules for how a person’s estate will be broken up after death vary from state to state, says Peter Creedon, a financial adviser in Mount Sinai, N.Y. For instance, some states may pass assets on to a domestic partner while other states will not, Creedon says, making the will the best method for explaining who should inherit assets. Talk to a lawyer or financial adviser about getting the documents in order. People with simple situations may get by using online services such as LegalZoom, which will create a will for prices starting at $69.

Parents should name guardians and put together a plan for what should happen to their children if they died, says John O. McManus, a trusts and estates lawyer in New York City. Those instructions can include guidelines for medical treatment and preferences on what type of school they would like their child to attend, he says. Parents who have amassed a sizeable amount of savings — think millions — may want to create a trust that would help them pass the money on to their children in a tax efficient way, he says.

And here’s Milestone #5:

5. Review your life insurance: At this age, buying life insurance can be about more than just protecting your children and your spouse. Business owners — especially those who have had some success — may want to buy a life insurance policy to help protect their businesses, McManus says. A spouse or a child inheriting a business worth more than $5 million may need to pay taxes on that transfer and the bill may be due in less than a year, he says. If they don’t have the cash on hand to cover the tax bill, they may be forced to liquidate the company to cover the tax bill, he says.

A life insurance policy could provide the funds to cover that tax bill and allow the family to keep the business intact, McManus says. Single people with small businesses may not have to worry about this, he adds, since smaller estates may not be subject to federal taxes.

If you don’t own a business, a life insurance policy is still good for protecting your family and your assets. If one spouse dies, the coverage could help the other spouse financially when it comes to paying the mortgage and supporting the children. And it isn’t just the working spouse who needs to be covered, advisers say. A life insurance policy can help pay for child care and other costs if a stay-at-home parent dies.

Head on over to The Washington Post to read Marte’s full article. For help with updating your will, reviewing your life insurance policy and other money milestones throughout your life, reach out to McManus & Associates at 908-898-0100.

Posted in Media Clips Tagged , , , ,

McManus Weighs In on Critical Healthcare Issue during NPR Episode

The Leonard Lopate Show covers issues of interest to New Yorkers, from contemporary art to current events. It’s in the NPR family and is produced by WNYC.

Yesterday, the radio show explored the extremely important topic “How to Access the Best Healthcare” with guest Leslie Michelson, author of The Patient’s Playbook: How to Save Your Life and the Lives of Those You Love. The episode, which focused on how to be a smarter health care consumer, was introduced with the fact that 400,000 Americans die every year from preventable medical errors. And many others “receive less than optimal care, even though it’s readily available to them and their insurance will cover it.” With priceless advice on how to avoid being a victim of this crisis, Michelson discussed how to choose the right doctor, coordinate the best care, and make good medical decisions.

John O. McManus, who has decades of experience ensuring that families are prepared and protected when faced with dire medical situations, called in during the show to add a key observation: It’s critical to name people who will step in and act on your behalf, if you are ever incapacitated. Without choosing representatives to serve as our advocates, we’re left at the mercy of the medical community.

In response to John’s point, Leslie said, “I couldn’t agree with you more…the best [health]care in the world doesn’t go to the wealthiest people; it goes to the people who are the savviest healthcare consumers.”

Listen to the full episode for more detailed advice from Leslie Michelson.

Call McManus & Associates at 908-898-0100 to discuss legally appointing healthcare representatives for you and your family members. Only advance planning will enable these advocates to help when it’s needed most.

Posted in Media Clips, News Tagged , , , , , ,

McManus Guidance on How Parents Can Help Protect Young-Adult Children Featured in College Series

Colleen Moriarty, a seasoned health and lifestyle writer and a staff writer for, recently tapped McManus & Associates for advice on important legal documents that should be put in place for children who are already 18 or will soon be of legal age before they head off to school. Her article, “Help Your Child Stay Safe at College”, is part of a series called Off to College 2015: The First Six Weeks.

Moriarty’s article opens by shedding light on the importance of planning ahead to protect college-bound children, because, as McManus points out:

“If an accident, emergency, mental health crisis or trouble with substance abuse should arise after your son or daughter’s 18th birthday, you have little or no legal right to step in without legal documents that explicitly give you that authority.”

Before adult children become big men and women on campus, which legal documents should they strongly consider completing to provide parents with the authority to act with respect to their medical, legal and financial needs if they get sick or hurt, or are otherwise unable to handle their own affairs? A helpful graphic from the story:

graphic for college series blogAccording to McManus, “without these executed documents, colleges, clinics and hospitals will not release a student’s medical records — even to parents — if the student is over the age of 18…Without a back-up decision maker in place [meaning a parent or other designated adult], there is a risk of inadequate, inappropriate or insufficient medical care if your child is incapacitated.”

Of note, these legal documents cannot be signed until the age of 18, and they can be revoked at any time.

So how should a parent discuss the need for such legal documents with their newly adult child? McManus shared personal experience to convey his thoughts:

“Being the child of an attorney, my daughter pored through these documents to find out exactly what powers she was giving. She signed because she realized that they could keep her safe if she got into an accident or had a medical emergency while at college. The piece that I emphasized with her was that her mother and I would only step in if she was in danger – and that’s danger with a capital ‘D’.”

To see the list of DOs and DON’Ts for parents when it comes to working with a child to get these documents in place, find the full article here.

To ensure that the correct documents (forms vary by state) are properly executed to adequately protect your adult child, call McManus & Associates at 908-898-0100 or send an email to

Posted in Media Clips Tagged , , , , , , , , , ,

The Money Coach® Taps McManus for “3 financial lessons that could protect your heirs”

Get Rich Slowly



Lynnette Khalfani-Cox is known as The Money Coach®; she’s a personal finance expert, television and radio personality, and the author of 12 books, including a New York Times bestseller. She recently reached out to John McManus for guidance on how to avoid a quandary like the one her family faced when three loved ones passed away in short order.

Writing for Get Rich Slowly, a personal finance publication with over 750,000 regular readers, The Money Coach® shares her heartbreaking story, which includes a nightmare custody proceeding after her sister passed away.

Continue reading

Posted in Media Clips Tagged , , , , , , ,

McManus & Associates Client Featured in New York Times Column on Family Business Succession

Paul Sullivan writes the “Wealth Matters” column for the New York Times, which shares insights on the mindset and strategies of the affluent. Recently, McManus & Associates Founding Principal John O. McManus chatted with Sullivan about the decisions that adult children who are expected to take over a family business face and connected Paul with his client Sharon Madison, a remarkable woman who successfully navigated the challenge of family business succession.

Sullivan’s article leads with Madison’s dedication that kept United Building Maintenance, the business that her father started, on its successful path after he became ill.

Continue reading

Posted in Media Clips Tagged , , , , , ,

McManus Cited in “College Financing Q&A” from the Wall Street Journal

wsj logo

In February, Andrea Coombes wrote an article, titled “The Tax-Smart Way to Draw ‘529’ Funds”, about education tax benefits for the Wall Street Journal’s Investing in Funds report. The piece generated a number of follow-up questions from readers. Here’s one that came across Coombes’ desk:

“Before he died, my father contributed to a 529 on behalf of my daughter [his granddaughter]. Need anything be done now to ensure that my daughter is able to use these funds for tuition?”

To help answer this question, Coombes turned to John O. McManus, top-rated tax and estate planning lawyer who founded McManus & Associates. The firm offers income tax planning among its services.

Continue reading

Posted in Media Clips Tagged , , , ,

Trusts & Estates, Publishes Guest Article from McManus on Coordination of Income Tax and Estate Planning

trusts and estates logo


Combine Income Tax Preparation and Estate Planning

Coordination is key

Apr 1, 2015 John McManus Trusts & Estates

When tackling a jigsaw puzzle, you’ve likely taken the “divide and conquer” approach, separating the larger puzzle into more manageable sections. Eventually, you bring the different areas of focus together to put the finishing touches on the full image.

Wealth management is the same. Estate planning emphasizes an array of complex matters spanning death taxes, asset protection, incapacity, guardianship and family missions. Compartmentalizing can be helpful, but advisors must remember to bring the pieces of the puzzle back together in the end. It’s critical that strategies to maximize the value of your clients’ estates are coordinated with their retirement, financial and income tax planning.

Continue reading

Posted in Media Clips Tagged , , , , , , , ,