Expert Article from McManus featured in Trusts & Estates’ New Monthly Newsletter


In February, Trusts & Estates/ launched a new monthly newsletter that caters to financial advisors. The goal of the undertaking? Demystify the world of estate planning and encourage collaboration between attorneys and the more investment-focused professionals.

This month, an article from John O. McManus, founding principal of McManus & Associates and a top AV-rated trusts and estates attorney, was featured in the newsletter and published on here. John’s article, “The New Frontier of Estate Planning,” puts the Generation-Skipping Transfer tax (GST) on the radars of financial advisors, pointing out that estate planning strategies have evolved along with the tax climate and political landscape. As described by John:

“GST is a second-layer tax typically imposed on asset transfers to grandchildren or any other generation beyond one’s children. Unlike the estate and gift tax exemption amounts, the GST exemption is non-portable, even between married couples, so it’s essential to plan for total deployment of the amount through a last will and testament, revocable living trust or with lifetime gifts.”

With simple math, the piece shows how to determine the “applicable rate” of GST—multiply the “inclusion ratio” by the maximum federal estate tax rate—and then goes on to detail the history of GST law. Encouraging that financial advisors can easily help clients maximize their GST exemption, John explains:

“Irrevocable life insurance trusts (ILIT) and annual exclusion gift trusts, both estate planning staples, are examples of common strategies that impact the availability of GST exemption due to the automatic allocation rules. Filing an annual gift tax return and not electing to deploy GST exemption on the transfer for small gifts preserves the exemption for larger lifetime transfers.

“Our advice for accountants filing gift tax returns? Read a copy of the trust agreement and have a discussion with the client’s estate planning firm to understand the intended deployment of the GST exemption. Maintain your clients’ trust by avoiding problems in the first place and preventing the need to fix those problems at a greater cost down the road.”

The piece closes by urging financial advisors and estate planning attorneys to work together in order to best navigate the GST tax when approached about transferring wealth to grandchildren. For an in-depth look at GST, read John’s whole article here. And to find out how McManus & Associates can put the GST exemption to work for you, give us a call at 908-898-0100.

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“Wills, Trusts, and Estates Prof Blog” Points Readers to McManus & Associates

Gerry W. Beyer

Gerry W. Beyer

A treasure chest of information on estate planning, “Wills, Trusts, and Estates Prof Blog” is a member of the Law Professor Blogs Network sponsored by Wolters Kluwer and written by Texas Tech School of Law Professor Gerry Beyer. Via the go-to outlet, Beyer recently highlighted McManus & Associates’ latest educational conference call, “Top 10 Signposts to Guide Planning for Estates under $10MM.” The discussion sheds light on estate planning strategies that should be considered now following recent changes in federal and state law.

In the post, Beyer shares with his readers the 10 questions that should be explored, which structure McManus & Associates’ free but very valuable guidance: money question mark

  1. Following the increased Federal exemption, why must equal emphasis now be given to capital gains tax planning?
  2. After planning is complete, what are the opportunities to achieve a step up in basis?
  3. Can heirs cover the gains tax due if gifted assets have greatly appreciated?
  4. What are the income tax benefits of planning testamentary trusts for the benefit of the surviving spouse as grantor trusts?
  5. Can you use Joint Exempt Step-up Trusts (JESTs) to ensure a full step up in basis for jointly owned property first?
  6. Will those under the federal exemption still owe estate tax to their state government?
  7. When gifting “gap-QTIP” interest income, how can unused exemption amounts be uniquely leveraged?
  8. Which non-tax factors should be considered when estate planning with trusts?
  9. How can someone fulfill the annual requirements for upkeep of their estate plan?
  10. Should digital assets be considered when estate planning?

“For answers to these pertinent questions,” as stated by Beyer, tap into the expertise of John O. McManus on our site here by listening to the conference call recording.

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Conference Call: “Top 10 Signposts to Guide Planning for Estates under $10MM”

The American Taxpayer Relief Act of 2012 (ATRA) delivered transfer tax certainty, large indexed transfer tax exemptions, and portability. Taking into account new norms, McManus & Associates, an estate planning law firm based in the Tri-State Area, today released a new installment in its free Educational Focus Series, “Top 10 Signposts to Guide Planning for Estates under $10MM.” During a conference call for clients, the firm’s Founding Principal and top AV-rated Attorney John O. McManus shed light on estate planning strategies that should be considered today following recent changes to federal and state laws.

LISTEN HERE: “Top 10 Signposts to Guide Planning for Estates under $10MM”

“Trusts may be significantly impacted by permanency and scheduled increases for inflation of the federal exemption amounts for gift tax, estate tax and generation skipping tax; income tax changes; and especially the new 3.8 percent surtax,” explained McManus. “A growing number of Americans with increasing net worths are discovering that their estates may be subject to unexpected taxation once they die.”

McManus added, “For couples that own highly appreciated assets, avoiding taxes can be a matter of paramount importance to be able to leave as much as possible to heirs. Couples that don’t have millions tied up in their home or finances should also be aware of these estate tax rules, because tax laws are subject to frequent changes, and couples could lose the tax shelter they enjoy under the current limit.”

Top 10 Signposts to Guide Planning for Estates under $10MM

1.         The increased Federal exemption has created a new paradigm in estate planning. Why must equal emphasis now be given to capital gains tax planning?

a.         Estate planning has become inextricably intertwined with income tax planning.

b.         Income tax planning can minimize current income taxes and maximize basis step up upon death.

c.         Step up in income tax basis in many instances will have a greater tax benefit than state estate tax savings.

d.         Many clients have greatly appreciated stock, and the gains tax if sold in the trust can be a significant amount. With the higher exemption amount, it might make sense to leave low basis assets in one’s estate to achieve step up.

2.         What are the opportunities to achieve a step up in basis after planning is complete?

a.         Swapping into the trust high basis assets or cash for low basis assets can help to achieve the desired step up in basis at the grantor’s death.

b.         The trust could also hold a note for assets moved back into the grantor’s estate to achieve the same step up in basis.

3.         If gifted assets have greatly appreciated, can heirs cover the gains tax due?

a.         Life insurance can be utilized as a strategy for those who have gifted assets that will not receive a step up in basis to help pay for the capital gains tax or as an alternative to gifting appreciating assets.

b.         Again, this may be time to consider swapping trust assets in order to achieve a step up.

c.         Vacation homes, family retreats, art or other items that will most likely stay in the family ownership for generations may be better assets to keep in trust, since there is less worry about paying any gains tax since a sale is unlikely.

4.         What are the consequences and income tax benefits of planning testamentary trusts for the benefit of the surviving spouse as grantor trusts?

a.         A trust jumps to the highest levels of taxation for gains and income tax at much lower thresholds than for individuals.

b.         A grantor trust can be set up to potentially pay lower rates of taxation with a trust established for a surviving spouse for which distributions are not mandatory.The income earned on the trust will be picked up on the surviving spouse’s personal filing.

5.         Can Joint Exempt Step-up Trusts (JESTs) be used to ensure a full step up in basis for jointly owned property first?

a.         This allows a full step up in basis of all assets in the trust (as opposed to the 50% in normal cases).

b.         A JEST is used in non-community property states. A husband, for example, could create the trust and reserve the power to amend, revoke, or terminate it. The wife could be the beneficiary of the trust, and all trust property is paid to her estate upon death.

c.         There have been two recent private letter rulings in favor of this strategy, but it is in its nascent stages.

6.         Will one under the federal exemption still owe estate tax to his or her state government?

a.         Although married couples are currently allowed a federal exemption of just over $10MM in estate taxes, the exemption amounts at the state level are much lower (e.g., $675,000 in New Jersey, $1MM in New York and $2MM in Connecticut).

b.         Although with the Federal exemption amount a married couple can elect portability to deploy both spouses’ exemption amounts on the passing of the second spouse, there is not such an option for that on the state level.

c.         A credit shelter trust preserves both spouses’ state exemption amounts by funding first the exemption trust with assets up to the limit.

7.         Gifting “gap-QTIP” (or Qualified Terminable Interest Property) interest income – how can unused exemption amounts be uniquely leveraged? Why sprinkle distributions among other beneficiaries?

a.         For the amount of the gap between the state exemption amount and the federal exemption amount, one should consider the gift of a gap-QTIP trust.

b.         Income interest for the QTIP should be given to the trust for the children. This will leverage the first spouse’s Deceased Spousal Unused Exclusion (DSUE) and avoid inclusion in the surviving spouse’s estate.

c.         The surviving spouse should not be named Trustee of the gap QTIP trust but can use the principal, since only the owner of the income interest is considered owner for IRS purposes.

d.         The exercise by the spouse of a general power of appointment will accomplish the same tax results.

8.         Which non-tax factors should be considered for estate planning with trusts?

a.         Be sure to consider trust-planning elements of asset protection, business succession, charitable giving, special needs, foreign property and citizenship when deciding if simple wills will suffice for your estate plan.

b.         If there may be adverse parties as beneficiaries of a trust, consider use of an institutional trustee.

c.         Name an advisor or trusted friend to have administrative power over the investment of assets in trust.

d.         If a family business shares are held in trust and all trust beneficiaries are not involved in running the business, consider life insurance to “square up” with children not involved in the business.

9.         How can one fulfill the annual requirements for upkeep of his or her estate plan and monitor issues regularly?

a.         Hold annual review meetings.

i.          Review subscription agreements for limited partners and consider adding new partners to a Family Limited Partnership.

ii.         For those on the cusp of federal taxation, monitor net worth growth.

iii.        Consider annual exclusion gifts, Grantor Retained Annuity Trusts (GRATs), and Lifetime Credit Shelter Trust (LCSTs), too.

iv.        Borrow (i.e. from a line of credit) in order to make gifts when there are few available high basis assets.

v.         Exercise powers of substitution to swap low basis for high basis assets (line of credit may be used in this approach, as well).

vi.        Discuss assets currently owned by the trust(s).

10.       Should one plan for digital assets?

a.         Digital assets have value, sometimes sentimental and sometimes commercial. Consider who will get the digital trading accounts, websites owned and/or registered to the deceased.

b.         Designate beneficiaries online. There are ways companies like Google have to alert them to online silence; they will scan for traces of one’s online footprint. If Google believes you to have passed away, the company can notify one’s beneficiaries named in their servers and provide links for them to can download the photographs, videos, documents or other data left to them.

c.         There are many online services offering safe deposit boxes for safeguarding the passwords to e-mail accounts and other data.

d.         Make a private list of all usernames and passwords for all the accounts in which one has a digital presence, and make sure to update the list if the log-in information changes. Perhaps mail them to one’s estate attorney in a sealed envelope.

“Just like a Rubik’s Cube, estate planning is a combination puzzle,” commented McManus. “McManus & Associates is committed to helping you solve your wealth management challenges that evolve with ever-changing laws at the federal and state levels.”

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McManus & Associates Founding Principal Highlighted by SmartCEO Awards

Fun way to end the week: the entry page for SmartCEO’s New York CPA & ESQ awards is emblazoned with a quote from McManus & Associates Founding Principal John O. McManus. Check out the screenshot below!

The New York CPA & ESQ awards recognize Greater New York’s top accountants and attorneys for privately held companies. We’re honored to be highlighted as part of the effort to recognize business advisors who go above and beyond.

Awards w. John quote

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McManus Makes Back-to-Back Appearances in Two-Day Tax Series from Forbes



alexandra talty

Alexandra Talty

Alexandra Talty, contributor for Forbes who covers personal finance and travel, recently spoke with McManus & Associates Founding Principal John O. McManus for tax tips that she could pass along to her readers. McManus’ thoughts appeared back-to-back in Talty’s two-day series that highlights “some shocking employee deductions as well as hitting some basics for first-time tax filers.”

Talty’s first article, “Surprising Tax Reimbursements for Employees,” addresses the importance of crossing your T’s and dotting your I’s come tax season. As emphasized by McManus in the story:

“Document, document, document with details, details, details. The IRS is looking at it as a smell test,” says John O. McManus, founding principal of McManus & Associates. “The longer you take to respond back to them [if you are audited], the more they think you are contriving or making it up. You have to be very reactive when they are calling on things.  This demonstrates that you are always buttoned up.”

McManus advises, “Every year, presume you will be audited, so keep everything.”

Today’s article, Talty’s second day of tax coverage, focused on those “lucky enough to be self-employed or property owners.” Her piece, “Freelancing Tax Write-Offs You Might Be Missing,” offers interesting tips to bear in mind for tax day, such as how to write off cruises and conferences.

An educational vacation is a great way to kill two birds with one stone – but how can you be sure you’re covered if the IRS comes knocking? From McManus:

 “I do believe it is essential to keep a copy of the agenda,” advises John O. McManus, founding principal of McManus & Associates. “Then the IRS can connect that it makes sense for you to be on the cruise for that purpose or that you needed to attended the seminar.”

Tax write-offs that help you see the world? Just say, “bon voyage,” pack your bags and go!

To read more helpful hints for self-employed Americans, check out Talty’s story in full here. And for tax planning help that transcends April 15th, give McManus & Associates a call at 908-898-0100.

Posted in Media Clips Tagged , , , , , , , , , , Calls on McManus to Find Out if Scheming Relatives Can Steal Life Insurance Money

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Have you ever wondered if scheming relatives can steal your life insurance money? recently sought out the answer to this very question for readers.

scheming relativeTo understand what is often at the heart of inheritance wars – the “mysterious life insurance policy” – Reporter Ed Leefeldt turned to John O. McManus, McManus & Associates’ founding principal and top AV-rated attorney, for help. As recognized by McManus:

“Life insurance is an area where you can get cute, coy and clandestine,” warns John McManus, head of McManus & Associates, a New York City-based firm specializing in trusts and estates.

Leefeldt explains that assets such as homes, cars and furniture may be listed in a will, but others may not. Says McManus, “Life insurance, IRAs and joint bank accounts don’t show up as part of the estate because they’ve already been distributed,” says McManus. From the story:

Money from the life insurance policy is paid directly to the beneficiary, so other family members may not even be aware of a payout. The deceased also could have tucked away a life insurance policy in a trust that no one else knows about, McManus warns.

When it comes to contesting a life insurance beneficiary, the article notes that “it’s tough to prove that mom was bonkers when she signed the policy, especially if an insurance agent was present.” According to McManus:

“Even if the deceased walked around in pajamas talking to Elvis, they may still have had the capacity to understand what they signed,” says McManus. Hiring a psychiatrist could also prove futile, unless the doctor actually knew the patient.

The piece goes on to discuss the lengths to which insurers will go in order to find beneficiaries and why you don’t need to worry about the wrong person being paid. To read expert tips on how to avert family fights over intentions for the payout, check out the full story here.

For questions about how best to utilize life insurance to transfer wealth to loved ones, call us at 908-898-0100 or drop us an email at

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ICYMI: Bloomberg BNA Publishes Item in Weekly Round-Up Highlighting McManus Guest Article

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In case you missed it, Bloomberg BNA in its Weekly Round-Up has a recap of John McManus’ recent article for the publication’s Weekly State Tax Report  that provides an in-depth look at several of the estate and gift tax regimes cropping up across states. The story, “Weekly Round-Up: Will More States Climb Aboard the Gift Tax Bandwagon?” conveys that states are exploring strategies to create new revenue by expanding the footprint of taxation. Pointing to advice from McManus, the importance of staying informed about wealth transfer taxes is emphasized.

Previewing McManus’ 2,500-word expert article, the piece briefly outlines the trend with states’ enactment of gift taxes, including Connecticut and Minnesota. Connecticut was the first state to impose a state gift tax on lifetime gifts made to others in 2005 and, in 2011, the state’s governor signed into law a new budget that “dramatically curtailed the ability to make tax-free gifts by reducing the state’s lifetime gift exemption to $2 million and taxing up to 12 percent on aggregate lifetime gifts exceeding that amount.” Effective as of July 1, 2013, Minnesota passed a law that established its own state gift tax with a gifting exemption that is limited to $1 million, in addition to adopting rules subjecting certain nonresidents to estate taxation.

What should be of concern to readers? From the story:

It is a significant concern that other cash-strapped states may follow the lead of Connecticut and Minnesota, McManus says. Those states that do charge an estate or inheritance tax experience diminishing returns when the property and assets that their residents gift during their lifetimes are not a part of the estate upon death. Many politicians view the imposition of a gift tax as a safer revenue-generating innovation, because most of their constituents would be unaffected by such a levy, McManus said.

To read BNA’s Weekly Round Up item, click here. And dig into McManus’ full guest article for the Weekly State Tax Report here.

Posted in Media Clips Tagged , , , , , , , , calls on McManus for advice on life insurance trusts for child beneficiaries

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Navigating the terrain with life insurance trusts for child beneficiaries can be difficult, particularly when dealing with a special needs trusts for children that will likely never be on their own. recently called upon McManus & Associates Founding Principal John O. McManus for guidance on trusts, “inherently complicated instruments” according to the story’s reporter Ed Leefeldt.

childThe article, straightforwardly titled “Life insurance trusts for child beneficiaries,” explains that life insurance companies often won’t pay the death benefit of a life insurance policy to a minor until he or she turns 18 unless a trustee or guardian has been named. Additionally, children may even face “estate taxes after a death, while the assets could be tied up in probate court” – trusts, however, ensure that life insurance money is “distributed according to your wishes, without delay.”

Trusts are also a useful tool for another reason. According to McManus:

A trust can also “protect children from themselves,” says John McManus, founder of an estate-planning law firm based in New York City. “If, at 18, a child gets it all, that could be a massively destructive injection of money,” he warns. Instead, the money can be earmarked for health, education or — with the help of a trustee — a lifetime trust.

The article suggests a revocable trust for those of average wealth, “which can be changed and/or revoked if necessary.” Of note: Sometimes you can simply write the name of the trustee on the beneficiary line of your life insurance policy, but always check with your life insurance company to make sure. For the wealthy, an irrevocable trust may be the best choice.

From the article:

This type of trust takes a bunch of assets, often including a life insurance policy, and “tosses them over the compound wall,” says attorney McManus. In effect, you create a separate corporation to manage them.

As explained by Leefeldt, an irrevocable trust needs a lawyer’s support; assets put in this trust can’t be taken out, regardless of how much one’s situation changes.

To learn how you can allow for changes in status when you create the original trust document (e.g., more kids, divorce, or a special needs child), check out the article in full. And to get help with the ins and outs of life insurance trusts for children and other loved ones, call 908-898-0100 to talk to the McManus & Associates team. Answers are a phone call away.

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“Wills, Trusts, and Estates Prof Blog” Highlights Latest Advice from McManus & Associates

Gerry W. Beyer

Gerry W. Beyer

Gerry Beyer, Professor of Law at Texas Tech Univ. School of Law, recently shared on his blog financial tactics and maintenance items related to estate planning to apply before 2014. “Wills, Trusts, and Estates Prof Blog” is a member of the Law Professor Blogs Network sponsored by Wolters Kluwer, and the list of tactics and maintenance items originally came from McManus & Associates. Here are the 10 estate planning questions to ask yourself before 2013:

  1. Should I change my estate plan before laws change in 2014?Jigsawquestion
  2. Is your partnership validly maintained?
  3. If making gifts to loved ones, are you exceeding your exemption amount?
  4. Are you employing the most current estate planning strategies?
  5. Are you making the most of income tax deductions?
  6. Do the fiduciaries named in your estate planning documents still reflect your wishes?
  7. Are you using the best strategies when making year-end charitable gifts?
  8. Are your cash donations from an IRA to charity being properly made?
  9. Should you consider using a GRAT or a QPRT?
  10. How should you harvest capital gains and time long-term losses?

Don’t miss our next free educational conference call, which will be held this month! Contact us for details at 908-898-0100.

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MarketWatch Draws on Advice from McManus for “5 Estate-Plan Strategies for Boomers”

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Andrea Coombes, Ways and Means columnist for Dow Jones, last week published an interesting piece for MarketWatch sharing estate planning strategies for baby boomers. To bring readers closer to achieving their goal of putting together an estate plan, Coombes boils down advice, with the help of McManus & Associates Founding Principal John O. McManus, to offer “5 estate-plan strategies for boomers.”

Here are Coombes’ must-do estate-plan tasks:

1. Create a will or trust

2. Create a power of attorney

3. Create a health-care power of attorney and living will

4. Check the titling of your assets

5. Start with your family

In tackling the first tip “Create a will or trust”, a testamentary trust that goes into action when someone dies is given as an example to prevent unexpected consequences with regard to where your money ends up. Coombes draws from McManus’ comments to illustrate:

“The trust is actually built into the will,” said John McManus, founder of law firm McManus & Associates in New Providence, N.J.

He offered an example of what can happen without such a trust: “Say I die and leave my wife a couple of million bucks. Now it’s her in name. She then remarries, and then she dies two weeks later. Her new spouse will get one-third of those assets — even if we intended that money to go to our kids.”

The precise fraction promised to the surviving spouse will vary by state, but McManus said one-third is common.

Some boomers also may want to create a revocable living trust. There are a variety of reasons for considering such a trust.

Here’s one: If you have property or assets in more than one state — say, you live in New Jersey and own a condo in Florida — this document allows your estate to avoid the costly and time-consuming probate process in each state — with one document. A revocable living trust is portable. It will follow you across state lines, McManus said.

For the fifth tip “Start with your family”, Coombes turns again to McManus, who points out that estate planning isn’t only about you. From the piece:

McManus said boomers’ first estate-planning task is to ensure their elderly parents’ estate-plan documents are in order, and their second task is to focus on the estate-plan documents of their adult and minor children.

Coombes goes on to shed light on a potential pitfall:

Here’s one example of what can go wrong: Often people intend to divide their estate equally among all of their children. Their will may state as much, but if one child is named on a joint account, say, to help with bill-paying, that account will pass to that one child “by operation of law,” McManus said.

“Even though the parents intended that it be divided equally, the assets in joint names with their one child will result in that child being disproportionately favored,” he said. In his experience, he said, adult children in that situation “almost never” square up with the other family members.

To avoid the problem, your parents could adjust the will such that larger portions of other assets are given to the siblings or, rather than making that child a joint account-holder, give him or her power of attorney over the account, McManus said.

To get the full story with more expert advice from McManus, click here. And to discuss what your must-do estate plan items are based on your unique circumstances, give us a call at 908-898-0100. We can help.

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