McManus’ Insight on Modern Estate Planning Featured in NJBIZ Wealth Issue

Last week, McManus & Associates Founding Principal John O. McManus was featured in NJBIZ‘s Wealth Issue. The piece, “A GUIDING HAND – McManus: Estate planning is increasingly complex,” includes a Q&A with John and highlights his insights on trends in how the ultra-wealthy protect their assets and their families.
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A GUIDING HAND: McManus: Estate planning is increasingly complex

By NJBIZ STAFF, July 7, 2016 at 10:29 AM

John McManus has spent more than 25 years as a guiding hand for high net worth families and individuals, but it was an experience with his own family that helped shape his career.

When his grandfather died in 1974, he left behind the legacy of a moving and shipping business he had built in New York City. His will had been prepared by “a lawyer who was incredibly smart, but not an expert in this area” — and the estate took 20 years to settle.

“I learned from that to say, ‘If I ever get involved in law, I would want to do things where I’m helping people avoid those crises, where the whole family devolves and disintegrates,’” McManus said. “And that, in effect, happened on my grandfather’s level.”

Today he serves as founding principal of McManus & Associates, a New Providence-based law firm specializing in trust and estate planning that serves some of the state’s wealthiest residents.

“We are an estate planning, asset protection and family office firm, where we give advice and consultation to affluent people on how to save on estate tax, on how to — in an organized way — orderly transfer their assets to the next generation and do that in an asset-protected way,” McManus said. “(We also) advise them on philanthropic issues and share with the various families what we’re learning from other families — what good ideas they’re putting together and try to make it a fluid distribution of information.”

NJBIZ spoke with McManus about trends in estate planning and how the wealthy manage and protect their assets.

NJBIZ: The estate tax is one of the hottest issues of the day right now, but you must live and breathe it every day. What should people know about the tax in New Jersey, relative to other states?

John McManus: The issue that happens for people is that they say, ‘If I am not so anchored to New Jersey because I’m spending time in London, I’m spending time in Jackson, Wyoming, I’m spending time in Southern California and I’m spending time in Palm Beach or in Miami, why would I want to choose as my jurisdiction a state that has the highest tax rate? So, we’ve been seeing that.

We haven’t seen people just mass migrate out of this area. (David) Tepper is a large pronouncement of that. Others are saying, ‘My business is here. Even though I’d like to call myself a Florida resident, I can’t avoid the very important contacts and the amount of time I need to be in New Jersey.’

So, it’s much more relevant when people get to the point when they’re either about to sell their business, so they’re moving it, or when they’re close to retiring and they don’t need to put as many hours in, in New Jersey.

NJBIZ: You’ve had your firm for 25 years and you’ve been doing this for even longer than that. What are some of the trends and changes in estate planning that you’ve been seeing?

JM: I would tell you the biggest trend is that in the past, if you had $600,001, you were paying federal estate tax, and that’s just not that long ago. Today, you can have a $5 million net worth and be exempt from federal estate tax, and if you’re not in the New York metropolitan area, you can be exempt from state estate tax as well. So, it leaves a significant portion of the population exempt from paying estate tax. That’s awesome news for that group. Some would argue it’s highly disproportionate and not fair. On the other hand, when we’re dealing with the IRS, if we have just wiped out a large block of people that they would otherwise be going after for estate tax issues, now that leaves a more concentrated sum.

So, we saw the smoke coming down the tracks and we knew this was coming, so we moved our practice to doing more complex stuff and to addressing people that had net worth in excess of the exemption amounts. And that has made all the difference in the world.

So when we could do great work avoiding the estate tax for the ($1 million) to $20 million clients, now we realize that our best work and our most sophisticated work is for the group beyond that.

NJBIZ: Can you give us some examples of how you’re advising clients in estate planning and protecting their wealth?

JM: The best thing that people need to understand and the best example I could give you is that (heading into 2011), we were all afraid that the amount of money that you could give away — or that if you passed away — anything over $1 million, was going to be subject to a (55 percent) tax. So when you add life insurance and when you add your IRA and you add your house, even mom and dad can eclipse all of that. So there was a huge rush to the door to get assets into trust. And we did scores and scores of them at that time. …

(So, in late 2010), President Obama negotiates with the Republicans a deal that clearly was not to his advantage, and the exemption, which was down to $1 million, settled back up at $5 million, and all of these people had put assets into trusts and they were at the golf clubs telling their spouses and telling their friends, ‘We wasted all of our effort doing that.’ And the other people who didn’t get to it were all laughing.

But 2012 was one of the better years in the market. So if you put $5 million into trust in 2011, that $5 million became $6 million by the end of 2012. So now you have $6 million off your balance sheet. The person that did nothing, that $5 million they had is now at $6 million, but they could still only give ($5 million) away. So they missed that delta, that extra million dollars, which was growing inside the trust. The result was that, that strategy alone saved that group of people $500,000 in estate tax.

So, the best part about estate planning is to give assets into trust and let them grow, because then all of the growth is what avoids estate tax.

NJBIZ: We know wealthy people often have international ties and overseas assets to consider. What about that piece of it?

JM: The most important trend — and this has been a trend for several years — right now is that the U.S. government is firing up age-old reporting requirements that they have largely left untouched. And that goes to when you have assets offshore, you have to not only report the income tax on it, you have to report the asset value. So, clients historically had just moved assets offshore to help pay for grandma and grandpa’s thatched roof or dirt floor in their old family place. Or people emigrated here and they want to send money to help. It’s been a basis of this wonderful country for the past 200 years — always sending money. But now we found people taking advantage of growing economies, whether it’s China or it’s India or it’s Brazil, where now it’s not just moving assets offshore to help family members — it’s moving assets offshore to invest in those economies. That’s No. 1.

No. 2 is that sometimes those assets are ill-gotten. They’re in cash businesses, which is not an unreasonable thing for first generations who don’t have significant education, they’re choosing the first way they can to make money and sometimes taxes aren’t always paid on (that cash). So what a neat opportunity to take those assets, load them up in a suitcase and bring them overseas. The U.S. government says, ‘Enough.’ And the U.S. government’s view on this is, ‘If you have assets offshore and you don’t tell us about it, and we find out about it, it’s no longer a civil issue where you’re going to pay penalties and interest — you’re going to go to jail.’ As my father-in-law likes to say — he’s a first-generation immigrant — we can’t catch many of you, but the ones we catch, we cut their head off, put it on a stake in the middle of the town square as a gentle reminder that this is what happens when we catch you.

So the sophisticated people right now are spending a lot of time making sure that, wherever they have assets outside the U.S. perimeter, they are focused on reporting requirements.

NJBIZ: What else is there to consider?

JM: Clients who are receiving assets from their noncitizen, nonresident foreign family members — in the past, if they passed away, they may have left the country home in France or in Asia to their child. The rule has always been the same, but today, if you inherit an asset overseas, no tax, as long as they are noncitizen nonresidents, but you must let the U.S. government know that you’ve received it. Why? Because if your parents have a million-dollar bank account in Lichtenstein, they lived there and they died, that account is now on your balance sheet and the U.S. government wants to know that you’re paying tax. So no tax on the way in on the gift, but once it’s inside your estate, you now have to pay the tax, and the only way they’re going to assure that you do that is you’ve got to report the receipt of that gift.

What we’re doing is helping clients create trusts, not that we can avoid tax, but we can avoid estate tax through having it in a multigenerational vehicle. Clients are also wealthy, first-generation immigrants who are involved in finance, or the children of that, often have roots overseas so they’re making gifts of charity back to the countries of their origin. So we’re helping them maybe set up a side-by-side fund here in the U.S., where if you make the gift to this fund, it’s a charitable donation because it’s a U.S.-based charity and then that charity sends the money overseas.

NJBIZ: Estate planning is complex enough by itself, but we take it that wealthy people have other things to worry about.

JM: If one would ask, ‘What are people concerned about when they’re on that level?’ I would say that they have their own stresses, and life is very, very complicated. There is no downtime for people of the highest level of wealth, because they’re concerned about their families, they’re concerned about taxes, they’re concerned about government intrusion, they’re concerned about kidnapping. They’re concerned about large lawsuits, they’re concerned about an evacuation of assets from their hedge funds. Today, hedge funds, even the most powerful ones, are seeing with these markets that are providing at the current amount lukewarm returns that, very sophisticated investors who are in hedge funds are grumbling. And we’re dealing with some of the smartest investors in the world who are managing these hedge fund interests, but the fear is what happens if partners start to demand their money?

So, it may not be the easiest to say, ‘I feel bad for these people,’ but there are real issues.

NJBIZ: What other types of issues?

JM: They’re concerned about cyberattacks, for example. … The typical wisdom right now is that we cannot stop cyberattacks, but what we must be able to do is two important things: As soon as the breach takes place, be able to rally quickly and get assets protected and freeze the attack. No. 2: We have to have a public statement that we can get out to our investors and to the world as to the breach and what we’ve done immediately to address this issue. So that’s a very important piece that I think customers are concerned about.

Another piece that people are concerned about is that wealthy people travel a lot. In the U.S., we don’t have a problem with kidnapping, but when you go to Brazil, there’s problems with kidnapping. When you go to certain places in Africa … there are real risks with kidnapping. So we have clients that are invoking international security groups that are with boots and checking those areas and making sure that, if we can’t necessarily stop the kidnapping, we can do a search for that area. When you and I travel, we may check with the Department of State and find out if a country is on a watch list. These guys are actually sending people to those communities and doing research within that area to find out what’s going on. And then they may have somebody on the perimeter. We have one of our clients right now that’s interviewing that group because he’s got family members that are going to be overseas. And for him, at that level of net worth, why wouldn’t you want to invest in something like that?

NJBIZ: Just to bring it full circle, at least estate planning is something that they can control. Is there anything else we should know about that process?

JM: I think the biggest thing that this group does and that we do the most is creating trusts that are designed to have an organized, disciplined path of wealth transfer through the generations. That’s No. 1. No. 2, it’s helping to avoid the estate tax and, No. 3 is setting a structure in place so that the generations beyond here do not just think they have been blessed with largess, because our clients don’t want their children to feel that they’re entitled, and by putting assets in trust, it says, more that you’re a steward of these assets and your job is to grow them and compound them for the generations beyond you than to just think that you can do nothing.

Warren Buffet said, ‘Enough that you feel that you can do everything, but not so much that you can do nothing.’ And it’s a great quote.

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Bankrate and WealthManagement Highlight McManus’ Guidance on Tax and Estate Planning for Gay and Lesbian Couples

bankrate logoBankrate, which has more than 2.75 million readers, recently published a story based on McManus & Associates’ “Same-sex marriage tax and estate planning tips.” As the story points out, thousands of gay and lesbian couples are celebrating wedding anniversaries this year and, this month, another momentous date. June 26 was the day last year that the Supreme Court declared same-sex marriage legal throughout the United States. From the article:

“The Internal Revenue Service had been accepting jointly filed federal tax returns from same-sex couples married in states that sanctioned their vows since the High Court struck down the Defense of Marriage Act in 2013. The 2015 Supreme Court decision in Obergefell v. Hodges, however, made taxes less of a hassle for gay and lesbian married couples at the state and federal levels regardless of where they live.”

As Bankrate Reporter Kay Bell puts it, “The historic 2015 marriage ruling also opened up a new world of estate planning for same-sex married couples.” She goes on to share insight from John O. McManus:

“Today, there are opportunities and protections within reach for same-sex couples that were unavailable during most of American history,” says John O. McManus, founding principal of the New York/New Jersey-based estate planning law firm McManus & Associates.

As the Supreme Court same-sex marriage ruling anniversary approaches, McManus offers some estate planning tips.

Marital deduction plus portability

Same-sex married couples can now take advantage of the unlimited marital deduction from federal estate tax and gift tax for transfers between spouses. This means that, in most cases, one spouse can leave an unlimited amount to his or her surviving spouse without any federal estate tax ramifications.

In addition, the portability provisions of federal gift and estate tax laws generally allow a surviving spouse regardless of gender to use any portion of his or her deceased spouse’s unused applicable estate and gift exclusion amount. This amount is adjusted annually for inflation. For 2016, the amount that skips these taxes is $5.45 million per spouse.

Greater gift splitting

Same-sex married couples also now can enjoy the benefits of gift splitting, says McManus.

The annual gift exclusion amount currently is $14,000. Now a same-sex husband or wife can, with the consent of his or her husband or wife, give a total as if each spouse contributed half of the amount.

This combining of individual allowances lets married couples increase their total gift tax exemption amount.

Generally, gift splitting requires the filing of a Form 709 Gift Tax Return. However, says McManus, if the split gifts total $28,000 or less to each gift recipient, only the donor spouse is required to file a gift tax return.

To read Bell’s full article for Bankrate, click here.

trusts and estates logo also featured a byline slideshow by John O. McManus on same-sex planning in its Morning Memo on Monday. The newsletter links to “Top 10 Tax and Estate Planning Considerations for Same-Sex Couples” on the publication Trusts & Estates’ website. Click through the slideshow for a quick download on key opportunities now available to gay and lesbian couples in light of the historic U.S. Supreme Court decision in Obergefell v. Hodges.

Morning Memo - Same-sex

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Conference Call: Tax and Estate Planning Considerations for Same-Sex Couples

Nearly a year ago, on June 26, 2015, the U.S. Supreme Court ruled in Obergefell v. Hodges, delivering a historic decision in favor of State recognition for same-sex marriage. Exactly two years prior to this decision, in United States v. Windsor, the U.S. Supreme Court struck down the constitutionality of Section 3 of the Defense of Marriage Act (DOMA), which defined marriage for federal purposes as existing only between one man and one woman.

“In its most basic terms, recognition of same-sex marriage equates to the simple fact that a spouse is now a spouse, irrespective of gender, in the eyes of the law,” commented McManus. “Today, there are opportunities and protections within reach for same-sex couples that were unavailable during most of American history.”

Recently, during a conference call with clients, McManus & Associates Founding Principal John O. McManus shed light on the far-reaching effects of these Supreme Court decisions.

LISTEN HERE for details: “Top 10 Tax and Estate Planning Considerations for Same-Sex Couples”

Top 10 Tax and Estate Planning Considerations for Same-Sex Couples

  1. Gender-blind: First and foremost, when discussing the changes born of the recognition of same-sex marriage, the overarching theme is that there is no need to draft estate planning documents any differently for same-sex couples. In the eyes of the federal and state governments, same-sex and opposite-sex married couples are afforded the same tax benefits.  Whether a Will was executed before the date of Obergefell (6/26/15) makes no difference. The law that applies is the law at the date of the Testator’s death. Pursuant to Obergefell, states MUST recognize same-sex marriage.
  2. Unlimited Marital Deduction:  Same-sex couples that marry are eligible to take advantage of the unlimited marital deduction for federal estate and gift tax. Prior to Obergefell, same-sex couples had to rely on their applicable exclusion amount with regard to providing for the surviving spouse. It is important for same-sex couples to review with their wealth planning and tax advisors any existing estate planning in order to best utilize the tax-saving vehicles available to them.
  3. Portability:  In addition to the unlimited marital deduction, the surviving spouse is entitled to the portability provision under federal estate and gift tax law. Pursuant to the portability provision, a surviving spouse may preserve, and thereafter utilize, any portion of the deceased spouse’s unused applicable exclusion amount. One benefit of portability is to allow the surviving spouse to make tax-free gifts in order to reduce the estate tax owed upon the survivor’s death. For more information on portability, please see an in-depth discussion of the top 10 possibilities of portability:
  4. Gift Splitting: Each individual is given the right to make gifts on a tax-free basis for federal gift and generation skipping transfer tax. The annual exclusion amount is currently $14,000. Now same-sex couples can enjoy the benefits of gift splitting, whereby one spouse can gift from their own assets, with the consent of the other spouse, in order to utilize both of their annual exclusion amounts (currently $28,000 maximum to any individual) resulting in the gifting spouse’s applicable lifetime gift tax exemption amount remaining intact. Generally, gift splitting requires the filing of a Form 709 Gift Tax Return; however, if the split gifts total $28,000 or less to each donee, only the donor spouse is required to file a gift tax return.
  5. Beneficiary Designation of Retirement Benefits:
    1. Retirement account assets of a deceased same-sex spouse can now be “rolled over” into the surviving spouse’s account without the requirement of a mandatory minimum distribution or lump sum distribution. This is a positive development because prior to the recognition of same-sex marriage this roll-over was not possible.
    2. With regard to an ERISA covered plan, the Windsor decision made it possible for the same-sex spouse of a participant in the plan to automatically be the beneficiary. The participant is now required to obtain consent from his or her spouse if that spouse is not the desired beneficiary of the plan.
    3. All state-level employment benefits should be reviewed and updated with the same-sex spouse information in order to take advantage of the rights and benefits available to the same-sex spouse. Review employer’s benefits policies – spousal benefits granted to same sex couples.
    4.         Also review prenuptials and other marital agreements.
  6. Insurance:  Insurance planning may have been part of same-sex planning prior to the Obergefell decision. All policies, along with beneficiary designations, should be reviewed in conjunction with the new planning concepts for a streamlined flow of assets upon both the first death and the death of the surviving spouse.
  7. Review previously filed federal tax returns:  Same-sex spouses may amend previously filed federal estate, gift, and income tax returns from single to married status, subject to the statutory limitations period of three years from when the tax return was originally due or filed (if on extension) or two years from the date the tax was paid, whichever is later. Married couples living in states that did not recognize same-sex marriages prior to Obergefell may be able to amend filed state income tax returns for the years 2012, 2013, or 2014, depending on the law of the state.
  8. Natural Born and Adopted Children: A child, whether born or adopted into the same-sex union, needs to be specifically identified throughout the estate planning documents. The relationship of the child to the adoptive parent or parents or birth parent in a same-sex married couple can be cause for contest at the death of the legal parent if not planned for ahead of time.
    1. If a child is born to one spouse, the other spouse should strongly consider adoption of the child to legalize the relationship. If there is no legal relationship between the child and the spouse of the natural parent, a relative of the natural parent could fight for custody if the natural parent dies or fails to care for the child.
    2. The same issue applies to a child who is only adopted by one spouse. Same-sex couples may consider co-parent adoption to ensure that both parents have rights regarding child custody and guardianship.
    3. If a partner has a child and the other partner plans to adopt that child, he or she is eligible to receive an adoption tax credit. This credit is not available for a spouse adopting his or her spouse’s child. If a couple is planning to marry and an adoption is part of the big picture, it may be more advantageous for the adoption to take place before the couple marries.
  9. Non-Citizen Spouse May Consider Becoming a Citizen:  Non-citizen same-sex spouses are afforded the opportunity to become U.S. citizens on the basis of their marriage to a spouse of the same sex who is a U.S. citizen. This eligibility should be considered carefully, taking all ramifications into account. For example, as a U.S. citizen the individual would be taxed by the U.S. on their worldwide income.

Also, expatriating from the U.S., renouncing your U.S. citizenship, and returning to your native country can be an expensive proposition. To expatriate, you generally must prove five years of U.S. tax compliance. If you have a net worth greater than $2 million or average annual net income tax for the five previous years of $160,000 or more, you must pay an exit tax. It is a capital gain tax as if you sold your property when you left. In addition, the U.S. State Department has raised the fee for renouncing U.S. citizenship from $450 to $2,350.

  1. Review current estate plan:
    1. Due to the tax-saving venues opened to same-sex couples, it is beneficial for the couple to review all existing plans in order to maximize federal and state estate, gift, and income tax planning.
    2. Beneficiary designations for insurance and retirement benefits should be reviewed in order to align the designations accordingly.
    3. Re-title any property with joint ownership to ownership by the couple as tenancy by the entirety. In community property states, the couple may want to convert separately-owned property to community property in order to receive a step up in basis upon the death of the survivor of the spouses.
    4. Confirm that definitions in the estate planning documents correctly reflect relationships, for example “spouse,” “husband,” “wife,” and/or “children,” whether naturally born or adopted.
    5. Determine if there is a necessity for a “no contest” clause to be incorporated in the event family members disapprove of the same-sex couple’s lifestyle or decisions regarding the estate plan.
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McManus Teams Up with Forbes to Shed Light on Elder Financial Abuse

forbes-logo-pngForbes Writer Ashlea Ebeling recently brought a very important topic to light with the help of John O. McManus and one of his clients: elder financial abuse. In her new article “Inside A Lottery Scam,” Ebeling tells the harrowing story of a McManus & Associates client, who – in her 90’s – was targeted strategically and relentlessly by unscrupulous phone fraud. From the piece:

“There was a man who was very friendly, very charming.” So begins the tale of a socialite widow from New Jersey horse country who lost nearly $1 million in a lottery scam. Call her Penny. She’s ashamed. “I can’t believe I was so ignorant; nobody can condemn me more than I do myself,” she told me on the line with her lawyer, John O. McManus of New Providence, N.J. “What’s funny is I’m a penny picker-upper; when I think of the amount of money that I gave away to an unknown person, it’s unbelievable,” she says.

How did the scammer convince Penny to part with a lot more than just pennies? “If she sent money, the caller said, she would have a chance to win big.” She started sending checks in hopes of hitting the sweepstakes jackpot, which would give her more money to make a big impact on the community by setting up a charitable foundation to honor her husband and carry on their family tradition of giving.

McManus & Associates was handling the administration of Penny’s late husband’s estate when a representative from Peapack-Gladstone Bank called to say there were suspicious transfers going from Penny to someone in North Carolina for various large amounts. From the story:

When McManus, her accountant, and a representative from the bank questioned Penny, she was tight-lipped. The other banks—worried that she would take her money elsewhere–wouldn’t take a stand. She had threatened to close the accounts…Only when the police came to Penny’s house and told her they confirmed that someone was committing fraud, did she tell the caller to stop.

Elder financial abuse is a widespread problem, with fraudsters stealing billions of dollars from seniors every year. However, planning can protect you and your family, the way that Penny is now protected with the help of McManus & Associates. From the Forbes write-up:

The solution in her case: McManus helped her set up a revocable trust, with Penny and his firm as co-trustees, and her accountant as a backstop. The idea is that the banks now have an excuse to reach out to McManus and not feel they’re in a compromised position of betraying their customer. “We as a firm have become far more paternalistic,” he says.

A revocable trust can be set up at any time, and you can name a trusted relative or friend as co-trustee. A simpler option is to authorize someone you trust as an emergency contact on your financial accounts should something seem amiss. And consider granting that someone you trust “view-only access” to your accounts.

McManus teamed up with Ebeling and Forbes to help others avoid Penny’s pain:

“What we’re trying to do is send a cautionary tale to your mom, my mom, Penny’s friends and their children,” McManus says, adding, “Here is an extreme example to warn those who think it just can’t happen to their family.”

To read more details on the financial elder abuse case in which Penny was a target, read Ebeling’s full Forbes story here. For help setting up a revocable trust to protect your loved ones, contact McManus & Associates at 908-898-0100.

Posted in Media Clips

McManus Pens Letter to the Editor Responding to New York Times Story on Privilege

New York Times graphic

Recently, the New York Times ran a story by Nelson D. Schwartz, titled “In an Age of Privilege, Not Everyone Is in the Same Boat (A1, April 24).” John O. McManus – McManus & Associates’ founding principal who grew up in the Bronx but has worked with high net worth families for 25 years – penned the Letter to the Editor below in response:

To the Editor:

Marketers see countless opportunities embodied by those striving to scale our country’s caste system of privilege – but their target audience is mistaken about from where happiness springs eternal. For many years, I was the poster child for this market: making every effort to rise to the top, circling that zip code of privilege. Starting life in the Bronx, there was nothing more coveted than a future exodus and the concomitant elbow-rubbing with the financial elite. For the past 25 years, I have represented high net worth families as an estate planning lawyer. The journey has been deeply rewarding, but – unlike what I had imagined as a kid – I’ve discovered that the richness of life is not universal among, nor exclusive to, this financially homogeneous group. Rather than exerting unending effort to be included in the newest club of privilege, I’m learning that sharing the wealth with the less advantaged may be the greater source of enduring satisfaction.

To read Schwartz’s full article for the New York Times, click here.

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Bankrate Relays Investment Ideas from McManus in Feature Slideshow

bankrate logoBankrate, which has more than 2.75 million readers, recently turned to McManus & Associates Founding Principal John O. McManus for advice on investments and IRAs. His thoughts are included in the publication’s feature slideshow, “Traditional or Roth IRA: Find out which IRA is better-suited for high-return investments.” From the slideshow:

Pay upfront, watch Roth explode later

Do you benefit from having an extra-long time horizon? Then going full throttle in the Roth IRA is apropos, says John O. McManus, founding principal of McManus & Associates in New York City.

“If you can take a long-term view, opt for a Roth IRA and take an aggressive approach with asset allocation and investing,” he says.

“Roth IRAs buy you a lot more time to allow the market to recover, absent the mandatory distributions of traditional IRAs. Create a self-directed Roth IRA and pour significant capital in it to build horsepower. Then smartly pursue alternative investments to generate the biggest returns,” he says.

“Private equity and real estate are the 2 best areas where real leverage can be achieved with a Roth IRA. The idea is to pay your taxes up front, then really watch returns from your investments explode.”

To view the full slideshow, click here. And to discuss your investment strategy with McManus & Associates, give us a call at 908-898-0100.

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3 Last-Minute Income Tax Strategies

Photo credit: Lendingmemo

Photo credit: Lendingmemo

Scrambling as we approach April 18th? Here are three last-minute tax strategies to harness for proper management of the deadline.

If you need additional time to file your personal income tax return, file an extension:

The deadline to file your tax return is April 18, 2016 (April 19, 2016, if you live in Maine or Massachusetts).

If you cannot file your return on time, apply by the due date of the return for an extension.  You can receive an automatic six-month extension for your personal income tax return if you file Form 4868 by the tax filing deadline.  (If you are mailing the extension, you should mail it certified with a return receipt, so that you have proof of the mailing date.) The extension gives you until October 17, 2016 to file your 2015 return.

This extension is for filing only and does not allow you more time, without penalty, to pay your tax liability for 2015.  Although the extension will be allowed without payment, you will be subject to interest charges and possible late payment penalties on 2015 taxes not paid by April 18th (or April 19th in Maine or Massachusetts).

If the amount paid with Form 4868, plus withholding and estimated tax payments for 2015, are less than 90% of the amount due, you will be subject to a late payment penalty (one-half of 1% of the unpaid tax per month).

If you are out of the country on the tax filing due date:

You do not get an automatic extension for filing your tax return due to being out of the country on the filing due date.

The only exceptions are for US citizens and US residents who live and have their main place of business outside of the US, and for military personnel stationed outside the US.  If you qualify, you will be allowed an automatic, two-month extension until June 15, 2016, without the need to request it.  However, interest will be payable from the original April 18th/19th due date on any unpaid taxes.  If you cannot file within this two-month period, you should get an additional four-month extension by filing form 4868 by June 15, 2016.  Also, a late payment penalty may be imposed on any tax liability not paid by June 15, 2016.

Extension of time to file returns other than personal income tax returns:

An estate or trust, which has a due date of April 18th/April 19th, can apply for an automatic five-month extension, using Form 7004 (until September 15, 2016).

A private foundation has a filing due date of May 15, 2016 and can apply for an automatic three-month extension, using Form 8868 (until August 15, 2016). It can also file for an additional three-month extension if it provides an adequate explanation why the return cannot be filed by the extended due date.  The IRS will evaluate the application based on the organization’s efforts to fulfill the filing requirements, rather than on the convenience of their tax professional.  The IRS instructions provide that, if the foundation’s tax professional is unable to complete the return by the due date for reasons beyond its control, such as the financial statements or books and records require further review and analysis, the IRS will generally grant the additional three-month extension.

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McManus Weighs in on “Ways the Rich Waste Their Money” for GOBankingRates

GoBankingRates logoToday GOBankingRates, which has nearly 350,000 readers, launched an interesting slideshow, “21 Ways the Rich Waste Their Money.” For #6 and #7 on the list, journalist Lia Sestric shared two examples of wasteful spending flagged by John O. McManus, founding principal of McManus & Associates. From the slideshow intro:

When you’re rich, you have more money than you know what to do with. But unfortunately, sometimes having too much money can lead to waste.

From the slideshow, here are two ways some rich people waste their money, compliments of McManus:

  1. Buying Ridiculously Expensive Cars for Kids

Estate planning attorney, John McManus of McManus & Associates, said there’s no reason to buy outrageously expensive, exotic vehicles for teenagers and young adults — especially those who have a record of making bad judgment calls. “A 21-year-old is still developing the frontal lobe of the brain where all the judgment and discerning ability lies,” he said.

Although certain luxury cars might become classics, some might not be worth the hefty price tag in the end thanks to depreciation. “The disproportionate majority of exotic cars more typically depreciate instantly when they roll off the lot,” said McManus. “Even if they don’t, the slightest accident can impact value permanently, sometimes to pennies on the dollar.”

  1. Trying to Launch Their Kids’ Sports Careers

All parents want the very best for their children, and rich people have the money to make it happen. And those who want their kids to launch a career in sports are willing to pay the big bucks to make their dreams a reality.

“Club team dues alone can be $3,000 to $5,000 a year, plus tournaments, private training and out-of-state travel, including flights across the country,” said McManus. But spending thousands of dollars on club teams and sports for a young child can be a total waste of money if the child doesn’t even want to be an athlete.

Here are expanded thoughts from McManus:

[6.] Wealthy individuals buying outrageously expensive exotic vehicles for still-developing young adults is one of the single greatest abuses often tied to the privilege of affluence—one that I hope to see infrequently in my practice. There is no sufficient reason to lavish a $250,000 Aston Martin on an 18-year-old or even a 22-year-old college graduate. The suitor for this 3,500 pound missile should not be a 21-year-old still developing the frontal lobe of the brain where all the judgement and discerning ability lies. Further, while certain exotics such as the DB11 may become an instant classic, the disproportionate majority of exotic cars more typically depreciate instantly when they roll off the lot; even if they don’t, the slightest accident can impact value permanently, sometimes to pennies on the dollar.

For the 21 year old who demonstrates advanced capacity to drive within the speed limit—a rare occurrence since the slightest touch of the gas rockets the vehicle to 65 MPH—this only ameliorates part of the risk: these exotics have very low clearance and their undercarriage can be torn apart pulling off the street heading up an inclined driveway or approaching a speed bump without aplomb and great caution or the inexact science of delicately approaching the curb in favor of scraping the nose underneath by getting too close. Further, law enforcement, not to mention new acquaintances, attracted to glitter and bling, develop the “mistaken” impression that one’s child is spoiled, flush with cash, and, of course, above the law not inoculated from affluenza. Red vehicles, often the color of the exotics, are pulled over more than any other color. These realities should paint the picture of a stop sign in parents’ minds. It’s not arbitrary that auto insurance companies charge male drivers under the age of 25 more for insurance; statistically speaking, they’re involved in more car accidents. Teens and 20-Somethings think it’s cool to drive fast; the rich should not strap their kids to a 3,000-pound rocket and expect to protect their investment and, even more so, their child.

[7.] While some rich folks feel like they have plenty to burn, spending gobs of money on a child’s club or academy sports career, frequently starting in early elementary and continuing into early adulthood, is an extravagance, more times than not. Club team dues alone can be $3,000 to $5,000 a year, plus tournaments, private training and out-of-state travel including flights across the country. Clubs justify that it is necessary for greater visibility of your child for their future careers, but more frequently the top motive is to get greater visibility for the club, to increase membership, and garner more fees. It’s a rare event that challenging and diverse competition can’t be had within just a few hours of travel. From traveling teams to high-dollar private coaches, clinics and tournaments, many wealthy families wrap up their dollars and time away from family and siblings in athletic development for years, only to be met with a career-ending injury, a burned-out teen, or the reality that playing professional or getting recruited just isn’t in the cards. One brilliant and thoughtful coach said, “If you want to see your child a success in life, get them a tutor for their studies and worry less about this team sport” – that is rarely professed.

Certainly, playing sports offers an invaluable learning experience for young people and can contribute to a well-rounded adolescence, but parents should do a gut check every year to ensure they’re not throwing dollars or family time (with the whole family) down the drain to live vicariously through their children. Vacations are missed, resentment is bred and thousands of dollars may be irretrievable.

To see Sestric’s full slideshow for GOBankingRates, click here.

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Many Millionaires Are Down on the Stock Market – Should You Be?

Last Friday, Brian O’Connell penned a piece for TheStreet on what millionaires being down on the stock market means for regular investors. Here are thoughts from John O. McManus, founding principal of McManus & Associates:

With the wealthy keeping a tight rein on their dollars, the market remains flat to down. Because millionaires feel poorer, they’re spending less on creature comforts, which can cause the economy to slow. We saw this in the Great Recession – fewer vacations and pricey dinners, less frequently cut lawns and cleaned pools, and fewer wallets opened for cars, high-end fashion, jewelry and more. When millionaires are soured on the market, regular investors should view this as a red flag, because the rich tend to spend the most on guidance from top-notch advisors and can afford to be patient and invest for the long-haul. If millionaires are pulling out of the market or not investing, there’s no reason regular investors should do the opposite. That said, many millionaires may still be invested in the market, because they can afford to take a long view.

Click here to read O’Connell’s story, “Why So Many Millionaires Are Down on the Stock Market And What That Means to Main Street Retirees.”

How should your investment strategy shift in light of a shaky stock market? Set up a time for a discussion with McManus & Associates by giving us a call at 908-898-0100.

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