Forbes Shares Invaluable Advice from McManus and Widow Clients

Founding Principal of McManus & Associates John O. McManus recently spoke with Ashlea Ebeling, who writes about how to build, manage and enjoy your family’s wealth for Forbes, to share his pre and post-mortem planning advice for spouses, based on his experience working with numerous high-net-worth widows over nearly three decades. McManus also connected Ebeling with two of his clients who shared how they navigated the challenges following the passing of their partners, from managing complexities of portfolios that fell on their shoulders, negotiating with lenders and insurance carriers, how long it took before they turned a corner from a grief standpoint, and more.

The article, “A Widow’s Advice to Her Younger Self,” starts with an invaluable piece of advice: don’t let your spouse do all of your family’s financial planning without your involvement; tell him or her, “This is stuff I need to know!” Those words of wisdom came from McManus & Associates client Bridget Wilson, whose husband passed away from cancer.

From the story:

Unfortunately, the Wilsons’ case is one their estate planner, John O. McManus, says happens all too frequently. He’s helping another financially unsophisticated spouse in her 40s sort out the estate of her late husband, a real estate investor, who committed suicide. “Each one was surprised and unprepared,” he says of the widows. “They simply were not ready.”

Here are the pre-mortem key takeaways that McManus, Wilson and McManus & Associates’ other client who participated in the story hope will be helpful to others:

Do a dry run. Wilson’s husband never signed their will, “so McManus had to petition the probate judge to admit it. ‘All of that would have evaporated if the will hadn’t been validated,’ McManus says.”

Talk to your spouse. Don’t sign things no questions asked. McManus & Associates’ client urges, “Don’t be embarrassed. Don’t be ashamed. Just ask for help.”

Plan for liquidity. “Review investment and retirement accounts for potential income streams,” writes Ebeling.

And after the death of a spouse? Here are important to-do’s from the story:

Revisit your estate plan. From the article, “McManus’ first piece of advice to Wilson was to write her own will as well as a financial power of attorney and healthcare proxy. And to sign everything.”

Seek outside experts. “A good estate administrator will know his or her limits and call on experts as needed,” says Ebeling. Citing McManus’ help to the widow who lost her husband to suicide, “On behalf of the other widow, McManus hired a real estate lawyer to stop the house foreclosure, and a real estate agent to rent it out while she downsized. He introduced her to a financial advisor who negotiated with the private school that was going to kick out her kids for being behind on tuition.”

Find your purpose. In short, ask yourself what will give your life new meaning, and go do it!

Read the full Forbes story here.

For help with pre and post-mortem estate planning, reach out to McManus & Associates at 908-898-0100. We look forward to supporting you.

Conference Call: 5 Estate Planning Action Items that Remain Relevant Regardless of Shifting Political Winds

The political ping-pong commonly seen in the U.S. leads to legislative changes that make it necessary to reevaluate one’s tax strategies every few years. However, there are also important estate planning techniques that are not directly affected by legislation and changes in tax law, but that can still make a big impact on wealth preservation. From regularly updating your will to consistently moving assets off your balance sheet, several estate planning items should be added to your to-do list.

McManus & Associates Founding Principal John O. McManus recently discussed with clients, “5 Estate Planning Action Items that Remain Relevant Regardless of Shifting Political Winds.” Listen to a recording of the call and find details below.

 

1. Schedule Routine (Estate Planning) Checkups: Regularly update your health care documents and wills

Consider whether the individuals named in one’s documents are still appropriate. Think about positions including power of attorney, health care agent, guardian for minor children, trustees of an irrevocable or testamentary trust, trust protectors and trustee appointers (if any). Ask questions, such as:

  • Has the relationship with any of the people named changed?
  • Has the life situation of any of those named changed?
  • Has the health of any of those named changed? If one’s parents were initially named as guardian for minor children, but the parents are now older and in poor health, for example, alternative guardians who can keep up with kids may need to be named instead.
  • Are all of the people who have been named still geographically appropriate? For example, if one’s trusted power of attorney moved across the country and cannot now serve in an emergency, a new power of attorney should be named.

Next, one should also consider whether the beneficiaries named are still proper. Ask questions, such as:

  • Are the amounts left to each beneficiary still appropriate?
  • Again, how is one’s relationship with each beneficiary? For instance, has there been a falling out with any of them?
  • Are there new beneficiaries (nieces, nephews, charities, etc) one now wishes to include? Normally, documents drafted by McManus & Associates cover new children and grandchildren automatically.
  • Are any of the beneficiaries at risk with inheriting assets? Are they the target of a divorce, legal action, or the victim of financial strife or addiction, for example?

Finally, think through whether the current trust provisions make best use of the law for asset protection purposes.

2. “Do it for the Kids”: Set up trusts for your children and grandchildren

While the lifetime exemption amount has changed several times in the last decade, the annual gifting exemption has remained fairly constant. Setting up a trust for your children and grandchildren allows one to tap into this reliable wealth transfer mechanism without the damage of gifting assets to them outright. With this strategy:

  • Assets will be in a protected vehicle, meaning they can be passed on to the next generation outside of the children’s estates, as well.
  • A trustee can manage and control the assets while the children are minors.
  • The spouse should be added as a beneficiary, and the grantor should retain the power to take loans from the trust.

3. Move Assets off Your Balance Sheet: Sell the family business, real estate, life insurance, investment accounts and more into a trust

  • A family business is typically a long-term investment, so sell it into a trust. This provides an income stream to older individuals who may wish to surrender the day-to-day operations of the business without losing access to the economic security of the asset. It also puts the asset in a protected vehicle that is exempt from estate tax.
  • Sell business interests when the value is modest so that growth takes place outside of one’s estate. Selling a business interest also allows for valuation discounts, with greater equity going into trust.
  • Real estate can be sold into trust for a similar purpose as family businesses.
  • Life insurance can be sold into a trust to avoid the three year look-back. If you gift life insurance into your irrevocable trust and pass away within three years, the IRS will claw that asset back into your estate. The sale prevents this.

4. Make the Switch: Swap low basis assets out of your trust

  • Assess the income tax benefits of holding assets inside one’s estate versus the estate tax benefits of pushing them outside of one’s estate.
  • With a critical eye, consider swapping estate assets for the trust’s assets, and vice-versa, to maximize the income tax basis step-up.
  • A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes. With a step-up in basis, the value of the asset is determined to be the higher market value of the asset at the time of transfer, not the value at which the original party purchased the asset.
    • When an asset is gifted to an individual or trust, there is a carryover of the original basis – meaning there is no step-up. Although the asset is now outside the grantor’s estate for estate tax purposes, upon the sale of the asset, capital gains tax will be due.
    • When an asset is included in a descendant’s estate, the asset receives a step-up in basis to the date of death value at that time. The asset can be sold to avoid any capital gains tax.

5. Give Precedence to Giving Back: Use foundations and charitable trusts to make philanthropy a focus for your family and to achieve income tax benefits

  • Family unity can be created through a consistent emphasis on giving back.
  • Foundations and charitable trusts also both have income tax benefits. The tax rates may change, but income tax is unlikely to go away, so this will always be an important piece of a good planning strategy.
  • Donations should be reviewed annually to assess portfolio performance, confirm that the foundation is meeting minimum distributions for charity, and verify that the donative patterns are still desirable.

 

McManus Featured as Expert Speaker on “Estate Freeze Due Diligence”

An estate freeze is a power strategy for wealth management. Practitioners must be diligent in utilizing this estate planning tool, however, because even the most basic estate freeze can create a minefield of potentially negative estate, income tax, and family problems.

McManus & Associates Founding Principal John O. McManus was recently an expert speaker for the Lorman Education Services webinar, “Estate Freeze Due Diligence,” during which he outlined practical applications of estate freeze techniques and their benefits (which should be weighed in light of one’s expectations and business, financial, and personal goals). The presentation also provides an understanding of the common implementation challenges and pitfalls that can accompany an estate freeze strategy and, just as important, ways in which those dangers can be avoided and addressed.

See and listen to John’s presentation on the topic by clicking below. For more questions or more detailed guidance, call McManus & Associates at 908-898-0100.

John O. McManus – PowerPoint Presentation, “Estate Freeze Due Diligence” (PPT)

Conference Call: 10 Questions to Consider When Preparing for the Passing of a Loved One

Death represents a significant and vulnerable point in time for both the individual facing it and his or her loved ones. In the medical field, it is even associated with failure; only five out of 125 medical schools (4%) in the country offer a course on death and dying. This negative stigma means that what should be accepted as a natural part of life, often becomes an uncomfortable topic.

However, it is important to talk about death with loved ones. There are emotional benefits to reflecting on a life spent together, and expressing gratitude and admiration. It is also important to ask difficult questions so that this topic receives adequate attention and preparation. While everyone would prefer to focus on life, a significant amount of stress related to death can be reduced by proper planning.

Press play to hear McManus & Associates Founding Principal John O. McManus explain his 10 recommendations below for getting the best end-of-life care:

 

1. Know your options – What is the difference between hospice and palliative care?

2. Dot your i’s and cross your t’s – Are all the necessary legal documents in order?

3. Broach the subject – Have you had a discussion with your loved one to understand what his or her wishes are?

4. Nail down the timeline – When does your loved one want end-of-life care to begin?

5. Research reputation – Have you discovered all that you can about the potential care facilities that you are considering?

6. Find out who is behind the mask – How well do you know your loved one’s care providers?

7. Do your due diligence – Have you done your own research? Have you asked care providers to tell you what you can do to help? Have you explored all of the factors that could influence your decision?

8. Learn the ins and outs – Is in-patient or out-patient care best for your loved one and family?

9. Prepare Plan B – Do you have a backup plan?

10. Ask for help – Could your loved one and family benefit from counseling?

For guidance on ensuring that your estate plan reflects your wishes for life and death, contact McManus & Associates at 908-898-0100.

McManus Featured as One of New York’s Leading Lawyers in New York Mag

John O. McManus, Founding Principal of McManus & Associates, was featured as one of New York’s Leading Lawyers in a special section of award-winning New York Magazine. Here’s a picture of the plaque celebrating the special recognition. McManus & Associates congratulates you, John, for being chosen as a “Leader in the Law”!

Trump Tax Bill Passes – Act Now: Top 10 Year-End Tax Planning Strategies

With President Trump having signed the GOP tax bill today, new tax planning opportunities are now available – but you must take advantage of many of them within the next nine days, before 2018. John O. McManus, founder of top-rated estate planning law firm McManus & Associates, makes the following time-sensitive recommendations in light of tax reform and the reduction of income tax rates:

  1. Accelerate your income tax deductions. Certain itemized deductions, i.e. income tax and real estate tax deductions, will be capped at $10,000. Pay your January estimated taxes in December; make your January mortgage payment in December; deduct any unreimbursed medical expenses; make your 2018 charitable donations in 2017. Some commentators suggest prepaying property taxes that have been assessed, such as the 2/1/18 and 5/1/18 installments – but it depends on the state. Also, the American Institute of Certified Public Accountants has opined that CPAs should advise clients that payments in 2017 of state tax liabilities projected for 2018 are not deductible on their 2017 federal income tax returns. You should be mindful of the fact that these additional payments could cause you to be subject to the alternative minimum tax, which results in you losing the benefits of these state and local taxes.
  2. Prepay in 2017 any business entertainment expenses, such as sports tickets or green fees, and membership dues for clubs organized for business. The final tax reform bill disallows these expenses; it will continue to allow the deduction of 50% for food and beverages associated with a trade or business.
  3. Postpone/defer receipt of income until 2018 to take advantage of the lower tax rates.
  4. Review your potential capital expenditures. Under the final tax reform bill, until January 1, 2023, a business will be able to expense 100% of the cost of the non-real estate property as first-year additional depreciation (bonus depreciation). (There is the possibility that 100% expensing may be available for property placed into service after September 27, 2017). Starting in 2023, the allowance of 100% is phased out by 20% each year.
  5. While rates are higher in 2017, make gifts to charities and family foundations with appreciated assets. Because of the lower limitation of 20% of AGI for appreciated stock to a foundation, you should split your gift between this year and next.
  6. Consider gifting low-basis stock instead of selling to raise cash for gifting that could lead to gains.
  7. Fund a charitable remainder trust with concentrated positions in appreciated securities in order to diversify without adverse tax consequences associated with selling appreciated securities.
  8. Harvest your losses to offset capital gains.
  9. Establish and fund qualified plans. Consider making a gift of up to $5,500 to either a traditional or Roth IRA for your children or grandchildren who are not funding their own IRAs, but have enough earned income to report.
  10. Contribute up to $28,000 gift-tax free per married couple ($30,000 for gifts made in 2018) to a 529 Plan, which grows free of income tax. The final tax reform bill will allow withdrawals for private, elementary and secondary school expenses up to $10,000 per year.
  11. Make annual exclusion gifts to chosen loved ones of $28,000 per married couple ($30,000 for gifts made in 2018).
  12. Make gifts into trusts for children/grandchildren.
  13. Make unlimited gifts directly to educational institutions and medical facilities.
  14. Make distributions of income from trust accounts and estate accounts to lower the income tax liability. Estates and trusts are taxed at the highest income tax rate (and a lower threshold at which the 3.8% Medicare surtax applies). Therefore, it may make sense to distribute income to the beneficiaries to be taxed at the beneficiaries’ lower income tax rates.

“Trump’s new tax bill creates tax planning opportunities before year-end,” commented McManus. “Find time for last-minute tax planning as soon as you finish your last-minute holiday shopping.”

For trusted advice on tax and estate planning, call McManus & Associates at 908-898-0100. Learn more about the award-winning firm at www.mcmanuslegal.com.

Conference Call: Year-End Boot Camp

There are a limited number of days left in 2017. McManus & Associates Founding Principal John O. McManus recently discussed imperatives before year-end for the firm’s clients, in light of significant current events, concerns, and considerations, and amidst a changing tax and economic environment. Listen to the call below, as well as review the list of topics that are covered. 

 

1.Tax Reform –  How will potential estate tax repeal impact you?

2. Estate Freezes – You have exhausted much of your lifetime gift exemption; how can a GRAT aid in shifting wealth in a tax-effective manner?

3. Low Interest Rates and the Market – How does the continued low-interest rate environment support the transfer of investments to the next generation?

4. Leveraging Existing Trusts – How can you deploy previously gifted assets to participate in other estate tax minimization strategies?

5. Family Limited Partnerships – What actions should you be taking in light of the new Partnership Audit rules?

6. Estate Tax – Can estate tax be eliminated if you have taken full advantage of all wealth transfer opportunities but still have a sizable net worth?

7. Asset Protection – Are you confident in your protections against exposure to personal and professional liability?

8. Life Insurance – How does premium financing of life insurance by a family member or bank shift wealth and minimize tax?

9. Planning with Basis – Can you take advantage of upstream gifting to an older family member to minimize capital gains tax?

10. Compliance – Are you certain that you have met the IRS requirements for reporting gifts that you have made in 2016 and prior to 2016?

Conference Call: 10 Precautions for Protecting the Benefits of Your Private Foundation

Interested in protecting your estate and maximizing the impact of your charitable giving? Then establishing a Private Foundation is worth your consideration.

A Private Foundation provides the ability to retain control over the administration and investment of assets that have been recognized as important for future grant-making. By making gifts from your Foundation to charities in increments over time, you can extend your influence over the ongoing use of your gifts.

While there are many advantages of Private Foundations, there are also often-overlooked pitfalls (see below), which McManus & Associates Founding Principal John O. McManus recently discussed with clients, as part of the firm’s educational focus series. To listen, click here:

 

1. Using care when compensating family members through the foundation
2. Beware the penalties for self dealing
3. How to address office sharing with family offices
4. Promptly addressing misuse of foundation funds or income
5. Why you should avoid legally binding pledges
6. How to protect the founder’s mission
7. When to seek legal advice
8. How to exercise expenditure responsibly
9. Identifying any benefits from joint investments or co-ownership
10. Using caution with ticketing and fundraising events.

For guidance on the creation or management of a Private Foundation, contact McManus & Associates at 908-898-0100.