The Vancouver Sun: “Taxes create cross-border issues”

Derek Sankey, reporter for The Calgary Herald, has put together an interesting article titled “Taxes create cross-border issues” that was today published by The Vancouver Sun.

In the piece, Sankey points out that labor demand is projected to create the need for a total of 600,000 workers by 2021 in Alberta, Canada, saying that there could be “some nasty tax surprises for unwitting workers and their Canadian employers.”

Highlighting McManus & Associates’ recent report “Top 10 Planning Issues for Non-U.S. Citizens Including U.S. Residents With Overseas Assets,” Sankey writes:

Non-U.S. citizens and Americans with property overseas are also faced with another set of challenges when it comes to the changing estate and tax planning environment, according to New York based John McManus, of McManus and Associates.

His firm released a report this month highlighting the implications. “Protecting your wealth and your family as an immigrant is a unique, complex process that requires consistent surveying of the landscape for changes in estate and tax planning,” McManus says.

To read the full story, click here. For help with your cross-border tax and estate planning issues, call our New York office at (212) 753-9000 or our New Jersey office at (908) 898-0100.

 

Conference Call Recording: Top 10 Estate Planning Issues for Divorcing and Remarrying Individuals

John O. McManus, trusts and estates planning lawyer and founder of McManus & Associates, today held a conference call with clients, during which he discussed the Top 10 Estate Planning Issues for Divorcing and Remarrying Individuals — please see below.

You are invited to hear John’s expert guidance, based on more than two decades in the field. Click on the audio player below to listen.

LISTEN HERE: Top 10 Estate Planning Issues for Divorcing and Remarrying Individuals

We welcome the opportunity to help you and your loved ones with our 10-Step Wealth and Family Values Protection Process™. Please give us a call at 908-898-0100 or 212-753-9000.

Top 10 Estate Planning Issues for Couples Exiting a Relationship and Prior to Remarrying

1.            Addressing guardianship for minor children after death

  • In instances where a separation or divorce is not amicable, one of the most significant risks is that the parents will choose different guardians for their minor children.
  • This results in a predicament where only the survivor’s wishes will be honored and may cause additional, unnecessary rancor between the families.
  • It is best to address this concern in advance of the divorce during the mediation and settlement process so that both spouses agree on a unified plan for the care of their children if they both pass away and subsequently to have both parties reflect the arrangement in their Wills.

2.            Separation and the spousal elective share

  • During the period when a married couple is separated, one of the key problems is that each spouse continues to be named as the primary beneficiary under the Will and will receive the entire estate.
  • In most cases, this is an unsatisfactory outcome and it is critical to revise the Will in order to limit the spouse to the statutory elective share (typically about 1/3 of the estate) so that as many assets as possible pass directly to the children or other loved ones at death.
  • The amount that passes as part of the elective share can be held in trust for the benefit of the estranged spouse.

3.            Incapacity planning during separation

  • A related issue is that during the period of separation, the spouse is empowered to act with respect to the most sensitive and important health, financial, legal, and personal matters through the Health Care Proxy and Power of Attorney.
  • In a time of estrangement, it is not appropriate for the spouse to possess these authorities to act for such matters because they may not act with the appropriate judgment or best intentions.  In more extreme circumstances, the estranged spouse may use these in an intentionally detrimental fashion.

4.            Life insurance and divorce settlements

  • One of the most common errors during the divorce settlement period is the insufficient attention paid to estate tax planning, especially with respect to obligations for former spouses to maintain life insurance.
  • During this process, it is essential for the spouses’ attorneys to consider whether the life insurance should be held in an Irrevocable Life Insurance Trust (ILIT).
  • The purpose of the ILIT is to protect the proceeds from attack or diversion from a new spouse and to avoid estate taxes before the children from the first marriage receive it.

5.            Asset titling and beneficiary designation

  • Once a divorce is completed, it is critical that the assets retained by either spouse after the divorce remove the former spouse as a beneficiary and that the former spouse is no longer named on any deed or any account that was previously owned jointly.
  • While a court may enforce the separation agreement or divorce settlement, it is essential to note that if the former spouse is still named long after the divorce is complete, it may be interpreted that this was an intentional decision to keep the former spouse as a beneficiary.

6.            Prenuptial agreements for high net worth families

  • For those possessing material wealth or who may expect to inherit material wealth during their lives, a prenuptial agreement that addresses post-death distributions is a mandatory consideration.  It is also a particularly relevant issue for those who remarry and have children from the first marriage.
  • Without a prenuptial agreement, the spouse is, by law, entitled to a substantial portion of the estate (the elective share) which would divert assets to the second spouse and away from the intended beneficiaries.
  • Therefore, the prenuptial agreement must be established to clearly define the expectations for distributions when an individual passes away to protect the interests of the recipients.  These provisions must then be captured in the Last Will and Testament.
  • In many instances, individuals do not wish to sign a prenuptial agreement since they find it inelegant or unromantic or simply do not wish to disclose their total financial assets to their new spouse.

7.            Trusts for a spouse after remarriage

  • As is typical after remarriage, individuals desire to provide for their new spouse if they pass away.
  • It is strongly recommended that these transfers be made in trust or there will be no way to ensure that the new spouse leave those assets to children from the first marriage.

8.            Incorporating a new spouse into incapacity planning

  • Once an individual remarries it is important to appoint the new spouse as an agent to participate in medical, financial, legal, and personal matters so that they do not have to go to court in order to assist in the event of incapacity.
  • However, if there are children from a previous marriage, it may be important to include certain safeguards, especially in the Durable Power of Attorney, to assure that a new spouse does not transfer financial assets into his or her name to the disadvantage of the children from the first marriage.

9.            Life insurance preservation and wealth transfer via gifts prior to and after marriage

  • The purchase of new life insurance policies in an ILIT can be a cost-effective solution to provide sufficient assets for both a new spouse and other beneficiaries without additional exposure to estate taxes.
  • Efficient gift planning can also be implemented so that other beneficiaries, such as children, may be provided for adequately through transfers that utilize the lifetime gift exemption or tax-free strategies, such as GRATs and annual exclusion gifts of $13,000 per year.

10.         Benefits of a self-settled trust

  • Mindful that prenuptial agreements are not always executed, for those who wish to shelter assets prior to or after a remarriage to avoid the right of election by the second spouse or potential future divorce, there are alternatives by creating a self-settled trust.  The self-settled trust enables an individual to maintain the flexibility to access the assets.
  • A self-settled trust is one in which the individual transfers assets to a trust where he or she is a beneficiary.  Such trust must be located in a state with asset protection statutes, for example Delaware, Alaska, and South Dakota.
  • This strategy permits many additional and meaningful estate planning benefits, such as:
    • allowing the individual to receive distributions from the trust as a beneficiary;
    • removing the assets from the estate for tax purposes;
    • preserving generation-skipping tax credits; and a higher degree of asset protection against liabil

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.

 # # #

 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.