Reproduced with permission from Tax Management Weekly State Tax Report, 2014 Weekly State Tax Report
3, 7/4/14. Copyright 2014 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
Reproduced with permission from Tax Management Weekly State Tax Report, 2014 Weekly State Tax Report
3, 7/4/14. Copyright 2014 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
New York Times “Wealth Matters” columnist Paul Sullivan recently interviewed John O. McManus, founding principal of NJ-based McManus & Associates and a top AV-rated attorney, about the implications of a recent court case in which he successfully helped a client named Kate contest the will of her late grandmother. John grasped the dynamics at play in Kate’s situation with her family, which was crucial to a successful outcome with the case.
With the column, “When a Will Divides an Estate, and Also Divides a Family,” John’s photo below appeared with the caption: “John O. McManus of McManus Legal [McManus & Associates] says that many cases contesting wills are not clear-cut. “Should the grandkids get their dad’s share? Absolutely,” he said. “Were the grandkids without fault? No, they didn’t visit Grandma enough.”
From the piece:
What Kate’s case shows is both how easy and complicated it is to execute a deathbed disinheritance. John O. McManus, a lawyer in New York who represented Kate and her siblings, said that like many cases contesting wills, this one was not clear-cut. “Should the grandkids get their dad’s share? Absolutely,” he said. “Were the grandkids without fault? No, they didn’t visit Grandma enough.”
And it raised common competing issues in these cases: Grandma may have had diminished capacity or been swayed by her daughters, he said. “But judges work very hard to protect individual rights to dispose of their property as they wish.”
After a year and a half of legal battling, Kate and her siblings ended up with about $100,000 to be split among them. According to McManus & Associates client Kate:
“It’s really unfortunate that this could take place at all,” she said. “There was no conversation with my grandmother about this. There was no letter that she signed saying that this was what she wanted. I wish we had asked my aunts more questions.”
So how did Paul Sullivan sum it up for readers? “…these inheritance disputes come down to the toughest issue in many families: clear communication.”
To read the piece in full, go to page B5 in the “Your Money” section of the June 20, 2014 edition of the New York Times, or click here.
A local expert weighs in on the top 10 considerations
By John McManus, June 2014
American poet and novelist Don Williams, Jr. once said: “Despair is most often the offspring of ill-preparedness.” In the same vein, preparation to handle the problems that commonly challenge high-income families sets apart those who preserve wealth and values for posterity from the 70 percent whose inheritances and family businesses do not survive the second generation.
One of the most important (but sometimes overlooked) aspects of creating an estate plan involves detailing wishes and expectations for the care of children in an emergency or tragedy. Families should also give careful consideration to the sophisticated wealth transfer opportunities now available to create a stream of affluence to the next generation in a tax-efficient manner; but in doing so, parents and grandparents must be aware of the risks and complications that may arise from giving assets to children.
More than ever, families can better protect their kids’ futures by crafting an estate plan that will—to the greatest extent possible—ensure continuity in a child’s upbringing and encourage maturation, as well as foster development into a well-educated, self-sufficient and fulfilled adult. Families that think and plan ahead are far more likely to come out on top when they are confronted with life’s challenges. Following are 10 of the most critical considerations:
1. Health Care Documents for Children
If both parents are unreachable (e.g., because of work, travel, or an accident) and a child requires medical care, hospitals will reject the requisite treatment, unless there is a clear risk of death. Hospitals have been sued for treating minors without the consent of a guardian and now mandate formal written authorization in the form of The Health Care Proxy and Authorization for Release of Protected Health Information if the parents are unavailable.
2. Addressing Guardianship in a Power of Attorney
A Last Will and Testament appoints guardians who will take custody of a child if his or her parents pass away. However, how can their quality of life and values key to their upbringing be maintained if the parents suffer from a long-term incapacity and are unable to holistically care for them? A Power of Attorney should clearly address such circumstances.
3. Documents to Protect College-bound Children
At the time an adolescent turns 18 and becomes a legal adult, parents can no longer automatically make medical decisions on his or her behalf, access his or her medical records, or take any other action without authorization from the child. A young person who has reached this milestone must now consider preparing a Health Care Proxy, Authorization for the Release of Protected Health Information, and Durable Power of Attorney to give parents the authority to act with respect to health, legal and financial affairs if the child is incapacitated or encounters an emergency for which assistance is required.
4. Advisory Group to the Guardians in the Last Will and Testament
Key family members and friends should be identified to counsel selected guardians regarding important decisions that affect a child’s lifestyle path. As a child matures, an emphasis might be placed upon enrolling them in the most appropriate schools and providing the best developmental environment to ensure a fruitful life.
5. Temporary Custodians
In instances where the named guardians do not live locally, it is essential to identify “temporary” custodians who live nearby. Parents entrust these individuals with the responsibility of physically uniting their children with the proper guardians as soon as possible, if doing so becomes necessary.
6. Taking Advantage of the Annual Gift Exemption
Parents have a gift exemption that they may apply to each of their children every year. In 2014, the gift exemption amount is $14,000. Each of these gifts, plus the growth of these assets, are removed from the parents’ estate and, therefore, will not be subject to estate tax when the parents pass away.
7. Qualified Personal Residence Trusts (QPRTs) for the Family Retreat
Moving the family vacation home into a QPRT will separate the residence (and its future appreciation in value) from the parents’ estate so that it will not be subject to estate tax. The QPRT will also help to ensure that the residence is not sold in order to pay estate tax liability on other assets after the parents pass away so that it may continue to be used and enjoyed as a family gathering place over generations. Finally, the QPRT will provide asset protection advantages so that the residence will not have to be liquidated in the event of attacks on any of the children’s assets from estranged spouses, lawsuits, or other setbacks.
8. Use of the Lifetime Gift Exemption
The next four years provide an extraordinarily unique opportunity in terms of gifting capacity. Currently, the lifetime gift exemption is $5.34 million per person – meaning each parent can give up to this amount to their children and other loved ones without the payment of gift tax – but the exemption could vanish by 2018, according to the Administration’s recently-released Green Book. The ability to move meaningful sums of assets into QPRTs, Family Limited Partnerships, and Trusts for children, has the effect of dramatically reducing estate tax after both parents have passed away and preserving wealth for future generations.
9. Family Mission Statement
A statement of the family mission allows individuals to convey their wisdom, ideals, and principles as a more concrete and undying legacy. The self-reflection that occurs in developing this aspect of an estate plan can be extremely rewarding and can help crystallize beliefs, hopes for future generations, lessons learned, and most importantly, expressions of love.
10. Lifetime Trusts for Children
Whether through gifts or inheritances, without proper planning, many risks arise when wealth is passed from one generation to the next. Assets are vulnerable to attack from unintended beneficiaries, children’s spouses, and lawsuits. Younger beneficiaries who receive substantial sums of money may lose their motivation to pursue an education, begin their careers, and become independent adults. In other unfortunate circumstances, beneficiaries may put assets to inappropriate uses, such as gambling, drugs, alcohol, or other excesses.
Leaving assets in trust for children can alleviate these concerns. When employed properly, trusts protect assets from reversals that the children may encounter, while encouraging them to make their own way in the world and to create their own estate. Worthy family members and friends, or favored institutions, may be appointed as Trustee or co-Trustee to make distributions for a child’s typical needs, such as health care, education, and support. Strategically utilizing the resources of the trust, the Trustee can encourage positive behavior and guide the child to a rich, full, and productive life.
“Shirtsleeves to shirtsleeves in three generations” is how Americans describe the high failure rate of wealth transfer, a phenomenon noted in many cultures. However, don’t be discouraged: With proper planning and a focus on positive family dynamics, you can set your children up for success in all of life’s endeavors.
John O. McManus founded McManus & Associates in 1991 and is in his third decade of representing high-net-worth families in New York, New Jersey and Connecticut with sophisticated trust and estate planning. Mr. McManus is honored with Martindale Hubbell’s highest rating and is named to their Bar Register for Preeminent Lawyers.
This article was first published by New York Family here.
On assignment for CNBC, Jennifer Woods recently penned an article to help readers think through the terms when creating trusts in order to ensure money “lands in the right hands and isn’t squandered.” For expert guidance on the topic, Woods turned to John O. McManus, founding principal of McManus & Associates and a top AV-rated estate planning lawyer.
Mission-critical advice from McManus on the importance of perpetuating a trust was spread far and wide via Woods’ article, “Heir tight: The dos and don’ts of creating rock-solid trusts.” From the story:
“We like the idea of a trust remaining in effect for the child’s lifetime,” said John McManus, founding principal of McManus & Associates, a trusts and estates law firm. This is particularly beneficial when large sums are involved.
As relayed by Woods:
Here’s why: Say you set up a trust that finishes making distributions when your daughter reaches a certain age, by which point she’s married with kids. If she dies, her husband is entitled to the money because it’s now part of her estate. What happens if he remarries and then dies? The new spouse can take one-third of the assets—and can choose to redirect them to her own kids, depriving the true heirs.
Another option, according to McManus, is for the parents to direct that the inheritance pass in trust for the benefit of the daughter. “The trust would provide for her on an as-needed basis during her lifetime and would require that any remaining assets pass to her children only upon her death,” he said.
To avoid the problem of chaining the child to a trustee with a trust that remains in effect over his or her lifetime, John favors making the child the trustee. The trust could include provisions limiting the beneficiary’s access to the trust while allowing distributions to be made for expenses related to health, education, maintenance and support.
But who really needs a trust? They’re “not just for the ultrarich,” Woods points out. Per the report:
For more do’s and don’ts on setting up a trust fund, read Woods’ article in full here. Our team is here to help you skillfully navigate this important process. Give us a call at 908-898-0100 for more information on how to get started.
The Somerset Hills YMCA of New Jersey recently held its 3rd Annual Volunteer Spirit Awards & Annual Campaign Victory Celebration. Members of the community joined together to recognize the far-reaching benefits of volunteerism and the selfless spirit in which it is offered. As such, Spirit Awards were presented to thank Y volunteers who “have made an impact” and inspire “by giving of themselves selflessly to benefit the Y and its members.”
John O. McManus, founder of McManus & Associates, was honored to receive a Spirit Award in the Living Our Cause category on this “Night of Stars,” the theme of the evening. John donated his talents in the volunteer area of Board of Directors/Annual Campaign/Planned Giving to benefit the Somerset Hills YMCA, a big-hearted organization that touches lives throughout the community.
“I am grateful to the YMCA for providing a role in which I can utilize my strengths to serve my neighbors alongside other amazing volunteers,” shared John. “To be called the ‘heart of the Y’ as a volunteer is a tremendous compliment.”
According to the Somerset Hills YMCA, “[Volunteers’] contributions have enriched lives, enhanced the Y, and have made many programs and services available that would not otherwise exist.”
To see other individuals honored with Spirit Awards, as well as photos from this special celebration thanking volunteers for opening their hearts, visit the Y’s website.
Top 9 Considerations in Light of Administration’s Proposals to Change Estate and Gift Tax to Generate Revenue
Award-winning law firm McManus & Associates flags potential modifications to the law that should factor into one’s estate planning
NEW YORK, NY – President Obama and the Treasury Department recently released the Fiscal Year 2015 Budget Proposal and the associated “Green Book,” which details the Administration’s revenue proposals. With future policies that will be pushed now clear, McManus & Associates, a top-rated tax and estate planning law firm based in the Tri-State Area, today released the “Top 9 Considerations in Light of President Obama’s Proposed 2015 Budget.”
“Although not all the items in the Green Book will make it into the final budget, these explanations of revenue proposals reveal policy priorities,” commented McManus. “It shouldn’t be overlooked that the Administration’s recently released proposals for Estate and Gift Tax contain several items that could significantly affect one’s ability to pass assets to loved ones in a tax-efficient manner.”
Top 9 Considerations in Light of President Obama’s Proposed 2015 Budget
1. What is President Obama’s Budget Proposal and Green Book, and how do they relate to your estate plans?
2. Are dynasty trusts still under fire? How might a 90-year limitation on the Generation Skipping Transfer (GST) exemption for trusts change your planning?
3. Do you have your life insurance policies in trust? Tax-free gifts to cover premium payments could be in trouble.
4. Who will choose your executor if you have not named anyone? Maybe the Internal Revenue Service (IRS).
5. What is there to love about the grantor trust and its additional gift of tax coverage? What is the Administration pushing to achieve that could deprive you of the associated opportunity?
6. Why might one opt for Grantor-Retained Annuity Trusts (GRATs) with short terms, overlapping GRATs, and hedging with life insurance?
7. The so-called “permanent” exemptions could vanish in 2018. Why should you give now in trust?
8. How will estates that consist largely of interest in closely-held businesses be affected? What does the Estate tax lien and IRC Section 6166 election mean for you?
9. Is the advantage of making gifts now to take valuation discounts and preserve more of your assets on the chopping block?
To discuss considerations specific to your estate in light of the Administration’s budget proposals, call 908-898-0100. For more information on award-winning McManus & Associates, go to www.mcmanuslegal.com.
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About McManus & Associates
McManus & Associates, a trusts and estates law firm, was formed in 1991 by John O. McManus to provide the high quality experience of the largest firms coupled with the intimacy and efficiency of a specialized boutique firm. Over 20 years later, McManus & Associates continues to earn its reputation for integrity, intellectual ability, efficiency, and enduring relationships.
For more information contact:
Andrea Coombes writes the “Ways and Means” column for MarketWatch, a media property of the Wall Street Journal that has nearly 9.5 million unique visitors per month. McManus & Associates Founding Principal and top AV-rated Attorney John McManus recently spoke with Coombes about special considerations for women when it comes to estate planning.
Coombes’ story, “How women can make estate planning easier,” was today published by the news outlet and includes a large section that reflects thoughts shared by McManus on the topic. From MarketWatch:
Women who remarry or those who come to a marriage with significant assets should think carefully about their estate plan before tying the knot.
“We find that women are hesitant to discuss their net worth going into a new relationship, but that puts them in grave danger,” said John O. McManus, founder of McManus & Associates in New York and New Providence, N.J.
“If they keep the assets on their own balance sheet, the good news is, if they divorce, the new spouse won’t have access to that money,” McManus said. While state laws vary, in some cases the assets one brings to a marriage “are not an asset in divorce.”
The bad news, assuming your wishes are otherwise, is that, if you die first, your husband will get one-third of those assets. “By operation of law, your spouse is entitled to a minimum of one third of your assets. Social policy in the U.S. says you cannot disinherit your spouse,” McManus said.
Even if you write a will in which nothing is left to the surviving spouse, “by law, he’s entitled to one third of the assets,” McManus said.
There are a couple of ways to forestall that issue, though none are ideal, he said.
One tactic is to make sure beneficiary designations on retirement plans and the like are set such that your children or other heirs inherit — but those designations need to be in place before you get married. If they are, such designations “will control and overrule the right of election,” McManus said.
But changing beneficiary designations after you get married may be difficult, because some financial-services firms won’t allow changes that entail disinheriting a spouse without the spouse’s consent.
Another solution is to set up a trust, naming a child or other relative as the recipient, and put assets into it before you get married. You can still borrow from the trust, McManus said, but the husband will not have access to that money if you die.
McManus said he’s seen situations where a spouse changed the beneficiary designation on a retirement account to name her husband, rather than a child, with a verbal agreement that the money would go to the child in the event of the husband’s death. But at that point, there’s no way to be sure that will happen when you’re gone.
“Be clear in your head what you want to leave to your children and to your spouse before you get married,” McManus said.
Coombes’ piece goes on to cover the estate planning basics that women should consider putting in place, no matter their ages or how much money they have. The list from the article:
A financial power of attorney, naming the person who will make money decisions for you if you can’t
A health-care power of attorney, naming the person who will make health-care decisions for you if you can’t
A living will specifying your end-of-life wishes
If you have minor children, a will that names a guardian for them
Make sure the beneficiary designations on retirement accounts and life-insurance policies are up-to-date.
Talk to your bank and representatives of your other financial accounts to make sure the titling of those assets suits your situation.
Coombes’ story includes more valuable information, so don’t miss reading it in full. Make your way over to MarketWatch to check it out.
And to take action on the to-do’s recommended by experts in the article, including our firm’s own founder, give us a call at 908-898-0100.
Gail Liberman—personal finance columnist for Dow Jones Retirement Weekly and the Palm Beach Daily News, contributing editor for Financial Advisor magazine, and best-selling author (her latest book is “Quick Steps to Financial Stability” – Que/Penguin)—recently chatted with John O. McManus, founding principal of McManus & Associates and a top AV-rated tax and estate planning attorney, for her column “Managing Your Fortune.” As part of her regular spot for the Palm Beach Daily News, Liberman’s piece “Need a revocable living trust?” explores the commonly-heard recommendation from financial gurus to implement one of these planning vehicles.
From the column, which also shares the exciting news that McManus & Associates is opening a location in Florida:
John O. McManus, a New York estate planning attorney who is opening an office in Miami, says a revocable living trust avoids headaches for your heirs.
Family disputes over your money, problems with creditors and hassles by financial institutions reluctant to accept a power of attorney are just a few.
A revocable living trust, by avoiding probate, also can protect the privacy of your estate from nosy neighbors or crooks.
In one recent case, McManus notes, a client lost an original will — the only type of will most courts will accept. The already-in-place revocable trust was important in helping convince a judge to go along with the wording contained in the only copy of the will that the heirs were able to produce.
The piece goes on to ask what happens if you fail to title an account in the name of your trust or if, after you die, your estate suddenly inherits a small check, for example. According to Liberman:
Your trustee may need to jump through hoops to get the pesky $50 check back into the revocable living trust. But because fees generally are on a sliding scale, based on the size of the probated estate, McManus says, the added cost should prove minimal.
Head on over to the Palm Beach Daily News to read Liberman’s entire column, which explains that a revocable living trust is not just for saving on estate taxes. To start the process of establishing a revocable living trust of your own, reach out to us at 908-898-0100. McManus & Associates will help make it easy.
In February, Trusts & Estates/Wealthmanagement.com 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 wealthmanagement.com 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.
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.
“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.