Conference Call Recording: Top 10 Planning Issues for Non-U.S. Citizens Including U.S. Residents With Overseas Assets

John O. McManus, founding principal of McManus & Associates and estate planning lawyer, during a recent client conference call addressed issues pertinent to the growing number of the firm’s non-U.S. citizen clients and clients with property overseas. Surveying the landscape for changes in estate and tax planning, John delivers the newest updates from the Eighth Annual International Estate Planning Institute that took place in New York City, as well as shares guidance based on years of experience providing service to non-U.S. citizen clients.

LISTEN HERE: Top 10 planning issues for non-U.S. citizens including U.S. residents with overseas assets

Some of the topics addressed may be familiar to those planning for non-U.S. citizens, such as protective trusts for the surviving non-U.S. citizen spouse to ensure that a marital deduction can be enjoyed. However, John also introduces the new Report of Foreign Bank and Financial Accounts (FBAR) rules for foreign account holders. Below please find a complete list of the matters that are discussed during this conference call:

  1. Custody and international transport issues for minor children when non-domestic guardians are named
  2. Planning for estate tax exposure for non-U.S. citizen spouses
  3. Planning for estate tax on principal distributions from a qualified domestic (QDOT) Trust
  4. Planning for foreign assets to avoid U.S. estate tax
  5. Planning for non-resident aliens with U.S. property
  6. Inheriting international assets as a U.S. resident
  7. Limitations on lifetime gift transfers between non-U.S. citizen spouses
  8. Tax consequences and planning for green card holders residing in the U.S. for more than eight years
  9. Annual reporting requirements for assets outside of the U.S.
  10. Taxation of foreign trusts

Wall Street Journal: “Medicaid Gets Harder to Tap”

On March 31, an article with the headline “Medicaid Gets Harder to Tap” appeared on page B8 in The Wall Street Journal. For the piece, estate planning lawyer and founding principal of McManus & Associates John O. McManus shared advice on the topic with reporter Kelly Greene. From the write-up:

Fill the gap with insurance. John McManus, an estate-planning attorney in New Providence, N.J., has clients who are buying long-term-care insurance to cover the five-year look-back period. That way, they can use their assets until coverage kicks in, and then transfer what is left to their children.

“It’s a way to hedge their bets without having to buy lifetime long-term-care insurance coverage, which has gotten really expensive,” he says.

To learn more about the challenges and restrictions faced when trying to use Medicaid to help pay for long-term care, check out the full story.

The New York Times: “With Tax Changes Near, ‘You Can’t Wait to Plan’”

Mickey Meece, contributing writer for the The New York Times, recently interviewed McManus & Associates Founding Principal John O. McManus for an article published in the newspaper’s Retirement Section. The story, titled “With Tax Changes Near, ‘You Can’t Wait to Plan,’” showcases the below advice on managing retirement accounts from McManus:

John O. McManus, a trust and estate lawyer in Manhattan, suggested that some people should consider converting their individual retirement accounts to Roth I.R.A.’s to take advantage of the 2012 tax rate. A Roth I.R.A. is funded with after-tax money. Unlike other retirement accounts, Roths have no minimum distribution requirements after age 70 1/2, the accounts compound free of tax and distributions are tax-free. For those reasons, Mr. McManus said he was recommending Roth conversions to his clients.

To read the full write-up by the Times, click here.

Beyond what was included in Meece’s piece, McManus — a top-AV rated attorney — shared additional helpful estate planning tips related to the topic:

Tax rates will increase significantly in 2013 unless legislative action is taken. Roth I.R.A.’s can compound further without the requirement of mandatory distributions for those who find it “unnecessary” to take distributions. If someone lives to age 90, for example, the Roth IRA could experience significant additional growth, since it is not diminished by the mandatory distributions of a typical IRA. Furthermore, after his or her death, the children, who are then required to take distributions from the Roth IRA, will not pay income tax on those distributions. The result is 40 potential years of income-tax-free distributions to the children while tax rates may be higher than they are today. Finally, for those who have an estate that is subject to state estate tax and federal estate tax today, the act of converting to a Roth IRA today and paying the necessary income tax serves to reduce the future estate tax by reducing the amount of assets subject to tax, while ensuring greater income-tax-free compounding for his or her heirs down the road.

Advisors at McManus & Associates are available to discuss further.

 

Conference Call: Top 10 Ideas to Discuss with Your Financial Advisors Now

Hear firm Principal John O. McManus discuss the valuable estate planning-related items that should be reviewed with one’s financial and insurance advisors now. Click below to hear him share the latest developments related to estate planning predictions, strategies, and dangers.

LISTEN: Top 10 Ideas to Discuss with Your Financial Advisors Now

Top 10 Ideas to Discuss with Your Financial Advisors Now

Leading trusts and estates planning firm McManus & Associates identifies 10 estate planning strategies that should be considered early in 2012

Top AV-rated attorney John O. McManus offers free expert guidance via conference call recording

NEW YORK, NY – Americans, particularly high-net-worth individuals, should investigate financial strategies to build and preserve their assets now, with the expectation that the five million dollar gift credit may expire on December 31, 2012. Based on more than two decades of experience working with prosperous and successful clients across generations, John O. McManus – top AV-rated trusts & estates attorney and founding principal of tri-state-area-based McManus & Associates – today released a report, entitled “Top 10 Ideas to Discuss with Your Financial Advisors Now.”

During a recent conference call with clients, McManus shared the latest developments related to estate planning predictions, strategies, and dangers. To hear him discuss the valuable planning-related items that should be reviewed with one’s financial and insurance advisors now, visit https://mcmanuslegal.com/2012/02/conference-call-top-10-ideas-to-discuss-with-your-financial-advisors-now/.

 “Ensuring that the least amount of one’s money goes to Uncle Sam and the most stays in his or her pocket must be a proactive, ongoing process,” said McManus. “Estate planning is a highly strategic practice, and the tools and tactics used to protect individual and family wealth evolve as the legal and tax environment changes. McManus & Associates is excited to share 10 strategies that should be explored with your financial and insurance professionals right away.”

 Top 10 Ideas to Discuss with Your Financial Advisors Now

 1.      Utilizing term life insurance with Qualified Personal Residence Trusts (QPRTs) and Grantor Retained Annuity Trust (GRATs)

  • Life insurance policies purchased by an ILIT for the duration of the Initial Term of a GRAT or QPRT hedge against the mortality risk of those strategies and the inclusion of GRAT or QPRT assets in the estate.

2.      Using whole life insurance and annuity contracts as an alternative asset protection strategy

  • For those who prioritize asset protection (i.e. doctors, business owners, etc.), these financial instruments cannot be accessed by creditors.
  • There is an added benefit of tax-free appreciation.

 3.      Converting to Roth IRAs before income tax rates rise

  • For those who are concerned that the capital gains rate will rise, it is sensible to consider converting from a traditional IRA to a Roth IRA and paying the capital gains tax at the current rates.
  • Future distributions from the Roth IRA are not subject to ordinary income tax.
  • Older individuals also have the ancillary benefit of reducing estate tax exposure by removing assets from the estate to pay the taxes.

4.      Exploring charitable trusts with large IRAs for second marriages

  • Large IRAs can pass into testamentary Charitable Remainder Trusts to enjoy the estate charitable deductions while preserving the tax-deferred benefits of the IRA for beneficiaries.
  • Those in second marriages use Charitable Remainder Trusts to ensure that children (of a first marriage) benefit from the IRA after the spouse passes away.

5.      Re-introducing 2nd-to-die life insurance policies in anticipation of increased state and federal estate taxes

  • Those with taxable estates view 2nd-to-die life insurance purchased by an ILIT as a cost-effective way to defray the depletion of the estate by prospective taxes.

6.      Insurance policies on the lives of young children held by trust

  • Insuring children is a cost-effective way to establish their insurability from an early age. Tthe cash value of a policy may appreciate tax-free and be used for college, down payments on a child’s first home, wedding for children, etc.
  • Use of a trust is recommended so the policy is not included in the parents’ estates if child passes away and so proceeds to pass tax-free to the child’s future children or living siblings.

7.     Reviewing existing life insurance policies owned by trusts

  • Case law in recent years focuses on the role of the Trustee of an Irrevocable Life Insurance Trust and compels them to determine that policies owned by the ILIT are prudent investments.
  • For the Trustees to avoid possible liability, it is important to professionally review policies at least every three years to confirm they are performing efficiently and determine whether it is necessary to purchase different insurance.

8.      Establishing lines of credit as a gifting strategy for low basis or illiquid assets

  • If low basis assets are gifted, original basis carries through to beneficiaries, meaning capital gains tax would be high if assets are sold.
  • If assets are not gifted, they may be subject to estate tax, but they will receive a step-up in basis at the time of death, meaning capital gains tax is effectively minimized.
  • To receive benefit from gifting and maintain a step up in basis on death, an alternative is to consider using low basis asset to secure a line of credit and withdrawing from line of credit to make gifts to beneficiaries.

 9.      Transferring large cash value whole life insurance policies into trust with retained access for the insured

  • Current $5.0MM lifetime gift exemption, which expires January 1, 2013, affords individuals the opportunity to gift policies with large cash values into an ILIT to avoid estate tax.
  • The ILIT can be designed with provisions to allow the Trustee to borrow against the cash value and then to make a loan to the Grantor if needed.

10.  Decanting trusts to enable the gift tax-efficient purchase of additional life insurance

  • In New York, it is possible to decant the ILIT by statute to allow for the transfer of policies to a new ILIT with additional Crummey beneficiaries if it becomes desirable to consider a trust with different provisions.
  • Other uses for decanting are changing the timing of the distributions of the insurance proceeds to beneficiaries, revising Trustees, amending remote beneficiaries, etc.

For more information on McManus & Associates, visit 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:

Lauren DuBois

(917) 573-2485

communications@mcmanuslegal.com

Bloomberg: “Taxpayers Channel Inner Romney by Using Donor-Advised Funds to Gift Stocks”

Principal of McManus & Associates and estate planning Attorney John McManus recently worked with Bloomberg’s Margaret Collins to help identify tax and estate planning strategies employed by Republican presidential candidate Mitt Romney, who last week publicly released his tax return. Examination by McManus and his team revealed that Romney utilized smart tactics to maximize his charitable deductions and save on taxes. McManus draws from his expert knowledge to help explain one smart move identified in the public documents.

From the article:

Giving appreciated stock directly is better than writing a check because individuals generally receive a larger charitable deduction and make the donation with pretax dollars, said John O. McManus, principal of the law firm McManus & Associates in New Providence, New Jersey, and Manhattan, whose clients include those in the hedge-fund and private-equity industries.

If someone bought a share of stock for $1 and it’s now valued at $100, they would have a $99 gain when selling, McManus said. That means they may pay about $20 in state and federal capital-gains levies and if they donated the after-tax proceeds, that leaves them with an $80 charitable deduction. If they gave the share worth $100 directly, it may generate a $100 deduction and the foundation or donor-advised fund could liquidate the position without paying tax, thus keeping more assets to spend on its charitable endeavors, he said.

To read on for more of Romney’s strategies that can be replicated, click here.

Forbes: “Delayed Nuptials Cost Couple $214,000 In State Death Tax”

This month, Forbes Editor Ashlea Ebeling turned to John O. McManus for insight on the court case of Peter Muscle and Linda Jackson. Ebeling’s article begins:

Here’s a heartbreak story that might make you decide to get married, move to Florida or hire a trusts & estates lawyer—or all three. A woman who dated her beau for 44 years and was on the verge of finally marrying him lost a case recently in New Jersey tax court that cost her beau’s estate $214,000 in state taxes. That’s money that would have otherwise gone to her and the man’s niece and nephew.

The piece goes on to cite the thoughts of McManus:

Making lifetime gifts to reduce the impact of state estate taxes still can work. “This case should not stop people from making lifetime gifts,” says John McManus, an estate lawyer in New Providence, N.J., adding the general warning: “Just take care to be mindful of issues with states.” Many wealthy folks are taking advantage of a bumped-up $5 million lifetime federal gift tax exemption, to transfer assets to loved ones (it’s in place through year-end 2012; it reverts to $1 million on Jan. 1, 2013). But it’s key that you consult a trusts & estates lawyer in your state (Jackson and Muscle had consulted with a Medicaid planning lawyer).

Find out about options with “gifting” by reading the full story.

The Street: “Heir of the Dog: Provide for Pets in Perpetuity”

John O. McManus recently spoke with reporter for TheStreet.com Joe Mont about common financial and legal moves to ensure beloved pets are taken care of once an owner passes away.

From the article:

It isn’t just the rich and famous who make financial and legal moves to make sure Rover, Fluffy and Snowball are cared for after they pass on.

John O. McManus, founding principal of McManus & Associates, a trusts and estates law firm in New York and New Jersey, says he often sees large sums reserved for grooming, health care and food choices “to ensure that the structure of high-quality care is in place for the pet.”

The first step for someone making such plans, even before money issues are discussed, is to establish a point person for carrying out post-death pet care requests.

“They need to choose someone who is going to serve in that position, someone they know is a pet lover and will treat their pet as though it were their own,” he says of his clients. “It is not dramatically dissimilar to when someone goes away on vacation for a week. With whom did they leave the pet?”

For more of John’s advice on planning for your pet’s well-being, check out the full story here.

Investment News: “Don’t Die in New Jersey”

Investment News Reporter Liz Skinner has published an article comparing state estate taxes. Skinner’s recent  interview with McManus & Associates Founding Principal John O. McManus revealed that New Jersey has one of the highest estate tax rates in the country, leading to the title of the piece, “Don’t Die in New Jersey.” From the story:

“New Jersey typically rises to among the highest levels of the least favorable places to pass away,” said John McManus, a tax attorney and founder of McManus & Associates. “And New York is not great.”

New Jersey begins taxing estates at $675,000 and has a maximum rate of 16%, in addition to a maximum 16% inheritance tax on beneficiaries who are not spouses or parents, or children or other lineal descendants. New York has a $1 million exemption for its estate tax, which also tops out at 16%.

To read how New Jersey stacks up against other states, check out the full article.

Investment News: “Key death tax exclusion hinges on speedy filing”

John O. McManus was recently interviewed by Investment News Reporter Liz Skinner for a story about the need for surviving spouses to swiftly file estate tax returns to guarantee ‘portability’ of unused exclusions. John is quoted throughout the piece.

From the article:

…the estate of someone who died Jan. 1, 2011, should have filed the estate tax return Form 706 by Oct. 3. Another form can be filed for an automatic six-month extension, the IRS said in its notice late last month.

Clients need to be informed of this hitch. The reason? Many don’t file an estate tax return if they don’t owe any taxes (thanks to the exemption on the estate tax), said John McManus, a tax attorney and founder of McManus & Associates. The value of the surviving spouse’s estate could surge before their death, however, and then it would be too late to claim the unused portion of the first spouse’s exemption.

“We just think it is prudent to file the return and seek portability for the surviving spouse,” Mr. McManus said.

Read the full write-up for more important advice on this issue.

The Bernardsville News: Letter to The Editor

To the Editor:

One of the upsides of the strife from Hurricane Irene is watching people band together and extend a hand to those in need. Ten years after 9/11, we still clearly remember hardened New Yorkers pitching in to help their brothers and sisters in a time of extreme need.

However remarkable this effort, in the face of tragedy, we often question why we do not always act for the benefit of our community. For many of us, the answer is straightforward: we are committed to serving our families and loved ones first. Events such as 9/11 and recent natural disasters remind us how fortunate we are and inspire us to serve others in their time of need.

Following Hurricane Irene, sharing refrigerators, showers, and washing machines became the norm for those possessing electric power and running water. One of my dear friends, on a moment’s notice, hauled a generator to my house to assist and, when power was received, we passed along his kindness to our friends by making available power, water, and accommodations for the next seven days.

While the outpouring of assistance is commendable in a time of crisis, there are those who make it their life’s mission, in more ordinary times, to help others in their day-to-day struggles. One institution that stands out as a hallmark for serving others, at all times is the Somerset Hills YMCA.

Throughout the power loss the Y was a welcomed retreat for those without power or water. Yes, to take it a step further, on Labor Day, when the Y is typically closed, employees and volunteers joined together so that anyone in the community would still have the privilege of a warm shower, and electric power. Some may view this as exceptional, but those more intimately affiliated with the Y know that these behaviors are typical even in normal periods. Yes, the Y is a venue to socialize and to be physically active, but that is merely an ancillary benefit of its highest mission.

The Y is first and foremost a charitable institution serving the community irrespective of its need.  The elderly, the poor and the financially strapped young families who need assistance receive services from the Y.  The YMCA gives nearly to $1 million in free services each year, to those in need in the Somerset Hills community.

This element of charity, which attracts so many of us to our churches, temples, and to the Y, is also the reason why my wife and I have committed ourselves to aiding the works of the Y. The Y is the one institution in our community that transcends all cultural and religious boundaries, and its Board of Directors is comprised of individuals from all walks of life. Everyone feels at home at the “Y.”

The Y reminds us that there is goodness in focusing on the needs of the community, certainly in times of extreme strife, but also in times when people’s needs are a private matter particularly in this ostensibly unceasing economic crisis. While each of us are busy with our daily routines and obligations, there are always people “just around the corner” in need… they can find a welcoming home at the Y.

John O. McManus

(Mr. McManus is a Board Member of the Somerset Hills YMCA)