Even for children who have newly become legal adults, parents need to be empowered to make decisions to help protect them in times of need. Laying out important considerations for families to discuss before and after children turn 18, McManus & Associates – top-rated, Tri-State-Area-based trusts and estates law firm – today released the newest edition of its educational focus series. The discussion, “Top 10 Ways to Protect Children Under 18 and Over 18, Stateside and Abroad,” identifies questions parents should evaluate, from who should be named as local representatives on a health care proxy for minors to whether a prenuptial agreement is appropriate if an adult child is soon getting married.
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.
Navigating the terrain with life insurance trusts for child beneficiaries can be difficult, particularly when dealing with a special needs trusts for children that will likely never be on their own. Insure.com recently called upon McManus & Associates Founding Principal John O. McManus for guidance on trusts, “inherently complicated instruments” according to the story’s reporter Ed Leefeldt.
The article, straightforwardly titled “Life insurance trusts for child beneficiaries,” explains that life insurance companies often won’t pay the death benefit of a life insurance policy to a minor until he or she turns 18 unless a trustee or guardian has been named. Additionally, children may even face “estate taxes after a death, while the assets could be tied up in probate court” – trusts, however, ensure that life insurance money is “distributed according to your wishes, without delay.”
Trusts are also a useful tool for another reason. According to McManus:
A trust can also “protect children from themselves,” says John McManus, founder of an estate-planning law firm based in New York City. “If, at 18, a child gets it all, that could be a massively destructive injection of money,” he warns. Instead, the money can be earmarked for health, education or — with the help of a trustee — a lifetime trust.
The article suggests a revocable trust for those of average wealth, “which can be changed and/or revoked if necessary.” Of note: Sometimes you can simply write the name of the trustee on the beneficiary line of your life insurance policy, but always check with your life insurance company to make sure. For the wealthy, an irrevocable trust may be the best choice.
From the article:
This type of trust takes a bunch of assets, often including a life insurance policy, and “tosses them over the compound wall,” says attorney McManus. In effect, you create a separate corporation to manage them.
As explained by Leefeldt, an irrevocable trust needs a lawyer’s support; assets put in this trust can’t be taken out, regardless of how much one’s situation changes.
To learn how you can allow for changes in status when you create the original trust document (e.g., more kids, divorce, or a special needs child), check out the article in full. And to get help with the ins and outs of life insurance trusts for children and other loved ones, call 908-898-0100 to talk to the McManus & Associates team. Answers are a phone call away.
Reporter Melody Warnick recently turned to McManus & Associates to get a better understanding of financial challenges faced by emancipated minors — few and far between, but common for child actors, young professional athletes and teen pop stars, for example. In her CreditCards.com story, “Emancipated minors may get freedom, but don’t count on credit,” Warnick explains that emancipation is a legal proceeding that grants adult status to a teen and frees her to make her own medical decisions, sign contracts and otherwise manage her life — and finances — independently.
A quote from John O. McManus, top-rated lawyer and founding principal of McManus & Associates, helps kick off the piece:
“There are instances when there’s a child actor or someone like an Olympic athlete, and the parents are managing their assets, and there’s a concern that they’re not acting in their best interest,” explains John McManus, an attorney and owner of McManus Legal, based in New York City. “The child also has to show that, despite their chronological age, ‘I am deemed to be independent and ready to make decisions on my own.'”
Based on over two decades of experience as a practicing attorney, John goes on to point out that:
“Emancipation is very, very unusual,” says McManus. “[The bar] has very little experience in the mechanics of it, because it’s just a very infrequent thing to see.” In some states, there aren’t even set procedures for allowing minors to petition for independence, let alone sufficient case history to establish guidelines for independence.
But there are things that minors, emancipated or not, can do to build credit and establish a solid financial footing for themselves, says Warnick:
1. Become an authorized user.
2. Sign a contract.
3. Get a debit card.
4. Talk to your financial aid adviser.
5. Get help.
Check out Warnick’s full story for an explanation of each item on this list. And to learn more, listen to a recent client conference call held by the firm on the “Top 10 Planning Issues for Recently Emancipated Children (over 18) and Minors.”
The New York Times today published an article with the headline “Growing Up With A Trust,” written by well-known “Wealth Matters” columnist Paul Sullivan. The story appeared online and in print, as well, on page F9 of the publication’s New York edition.
McManus & Associates worked hand-in-hand with Sullivan on this story, both in facilitating a conversation with one of our clients who shared insight on an anonymous basis and in providing expertise on preparing heirs for inheritance. From the article:
Steve, whose wealth was earned in financial services rather than inherited, is still working out a plan with his wife for telling their three sons about their inheritances. He asked that his name be withheld because he did not want his neighbors in the New York area to know about his money.
In his 40s and retired for more than a decade, he appears to be a model client for any trust and estate planner: he has already put more than $10 million in various trusts. “He’s a thoughtful, meaningful guy, and he has more time than our normal client,” said John O. McManus, his lawyer at McManus & Associates.
He is proud of the provisions written into the trusts for his children, which will keep them from having full access to the money until they are 35. Yet, though he has not done so, talking to his sons about his wealth is also important, even though all three are not yet 10.
Top AV-rated Attorney John O. McManus was happy to weigh in on this important topic, because the firm is committed to helping its clients transfer not only assets, but also family values. As discussed in the piece, conversations with beneficiaries about wealth are part of an ongoing process, not just a one-time event. Through the creation of a Family Mission Statement, McManus & Associates can help you initiate these critical discussions and best prepare your heirs for a productive life filled with success that positively impacts society.
McManus & Associates is ready to talk you through this challenging, yet important process. Give our office a call at (908) 898-0100 to get started.
Reporting for Next Avenue, which provides news and discussion of issues relevant to Americans over 50 including topics related to money and security, Richard Eisenberg writes that the smartest moves you can make now are ones that ignore the what-ifs since no one knows how the tax rules will change.
His piece, “Year-End Tax Planning in the Age of the Fiscal Cliff,” provides 8 Year-End Tax Moves to Consider:
1. Rough out your 2012 taxes to see whether you’re likely to owe the IRS money or get a refund.
2. If you have a flexible spending account, or FSA, for health expenses at work, use every penny of it before January.
3. Load up on charitable contributions by Dec. 31 if you expect to itemize deductions on your 2012 return.
4. Try to put more money in your 401(k) plan before year’s end.
5. If you’re self-employed, look into opening a tax-deductible Solo 401(k) plan before Jan. 1.
6. Consider converting your traditional IRA to a Roth IRA if you’re confident your tax rate will rise after 2012.
7. See whether you’ll save on taxes by paying for some discretionary medical expenses this year.
8. Make year-end gifts to your children or grandchildren.
Eisenberg’s article also sources guidance from McManus & Associates’ founding attorney John O. McManus:
Next year, the estate tax exemption is scheduled to fall to $1 million and assets over that amount would be taxed at a 55 percent rate. President Barack Obama has proposed setting the estate tax exemption at $3.5 million and the estate tax rate at 45 percent. That’s more likely to happen than Congress extending the current estate tax rules, according to John O. McManus, an estate lawyer with McManus & Associates in New Providence, N.J.
But no one can say for sure what the outcome of the fiscal cliff negotiations will be. So estate planners recommend taking advantage of the estate and gift tax laws on the books this year. Making gifts to your kids or grandkids in December might not only save you taxes, it could help brighten their financial futures, too.
To read additional info from Eisenberg on his 8 Year-End Tax Moves to Consider, go to http://www.nextavenue.org/blog/year-end-tax-planning-age-fiscal-cliff.
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.