Tag: estate tax

InvestmentNews Publishes Slideshow Based on McManus’s Year-End Tax Advice

6 tax strategies for year-end planning

New U.S. tax laws should inspire some Americans to pursue year-end tax strategies that will seek to maximize their wealth, according to John McManus, founding principal of McManus & Associates. He said these strategies make sense given the new tax framework, as well as estate planning recommendations. Click through the different strategies and listen to Mr. McManus discuss these strategies here.

Give it away sooner rather than later

Given that the increased estate tax exemption is temporary, high-net-worth clients worried about future estate taxes should make $15,000 (or $30,000 for a married couple) annual exclusion gifts to children and grandchildren into flexible irrevocable trusts before Dec. 31. Right after Jan. 1, give the gift again.

Offsetting gains due to growth

If a client sold appreciated investments or a business in 2018, that will spark capital gains taxes, so offset those by donating to a family-controlled charitable vehicle like a private foundation or charitable remainder trust before Dec. 31.

Think before you sell

Given the new limitation on the state and local tax (SALT) deduction for federal income taxes, clients should think before they sell appreciated investments or a business in the next few years because those sales will lead to unusually high capital gains taxes. But if they establish a non-grantor trust in Delaware or Nevada to store assets prior to a liquidity event, they can avoid state capital gains tax.

Investment diversification with insurance?

With the SALT deduction now constrained, think more about income tax exposure on investments. Consider whole life insurance, which continues to appreciate in value without resulting in income taxes due, and represents an efficient component of a diversified portfolio.

Tax benefits of insurance

High-net-worth families who will still have state and federal estate tax exposure should be thinking about how to utilize insurance. Permanent insurance coverage owned by an irrevocable life insurance trust should be a component of smart estate plans.

Creative solutions

Here’s a three-generation plan: A grandparent could loan significant funds to their child to acquire a life insurance policy for their grandchild. That loan can be structured to be dramatically discounted upon the grandparent’s death, thus cutting state and federal estate taxes. This arrangement allows the insurance policy to be free of taxes all the way down to the grandchild.

See the InvestmentNews slideshow with photos here.

Conference Call: 10 Tax Planning To-Dos to Check Off Your List before the End of 2018

With only one month left in 2018, time is running out to finish your wealth management to-dos. We’ve made your list, but it’s time to check it twice.

Today, McManus & Associates held a call with clients to provide guidance on the items below. Click to hear the half-hour discussion led by the firm’s Founding Principal John O. McManus:

 

1.  FREELY GIVE: Make annual exclusion gifts up to $15,000 for individuals and $30,000 for married couples, per chosen loved one.

2.  REAP (LOSSES TO OFFSET) WHAT YOU’VE SOWED: Harvest losses to offset capital gains in your securities portfolio.

3.  MIND YOUR HEALTH: Take advantage of this year’s lower threshold for Medical Expenses.

4.  USE A TAX RATE IN ITS INFANCY: Review your children’s portfolio income for application of the revised Kiddie Tax.

5. GIVE THOUGHT TO GIVING: Bunch your charitable deductions in the same year. The deduction for cash donations to public charities has increased to 60% of the taxpayer’s adjusted gross income.

6.   FUEL INVESTMENT VEHICLES: Establish and fund qualified plan contributions.

7.  TAKE A BREAK TO RECONSIDER BREAK-UPS: If planning to execute a divorce or separation agreement, you may want to do so before year-end. Otherwise, moving forward, the payer of alimony will no longer get a deduction on his or her tax return, and the recipient will no longer have to include the alimony as taxable income.

8.  DON’T WAIT TO COMPENSATE (YOURSELF):

An owner of an S Corp must pay themselves a reasonable compensation (what someone in a similar job would be paid). Therefore, make sure you pay yourself a salary before year- end.

9.  RESERVE TIME TO REVIEW YOUR WITHHOLDING:

The 2017 Tax Act lowered the tax rates and changed the tax bracket income ranges. Therefore, now is the time to do a “check-up” to see if your current tax withholding will be sufficient for next year’s income.

10.  MAKE A MOVE: Make distributions of income from trust accounts and estate accounts to lower their income tax liability.

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?

McManus Featured in Financial Advisor magazine’s “Fidgety About Tax Reform? Here Are 10 Things Estate Planners Can Do Now”

Karen DeMasters of Financial Advisor magazine recently spoke with John O. McManus for a slideshow article that offers “tips for what estate planners can do while the world waits for ‘U.S. tax reform’ to take shape.” The feature, titled “Fidgety About Tax Reform? Here Are 10 Things Estate Planners Can Do Now,” starts by flipping a common adage on its head – from the piece:

The only thing certain used to be death and taxes, but now the taxes are coming into question.

President Donald Trump and the Republican-dominated Congress are expected to revamp taxes and maybe change gift and estate tax rules, but no one knows what that will entail or when it might happen

According to McManus:

There is much uncertainty about particular aspects of the Republican tax proposal—including a replacement tax on the wealthy—and there is already concern about the likely impermanence of any new legislation. These factors highlight the importance of flexibility in preparing an estate plan and proceeding with wealth transfers suited to the current political and economic circumstances.

Even if tax legislation passes, it’s likely that the rules of the game will continue to change, perhaps frequently, going forward. It’s essential to stay in the know regarding the potential impact of new laws, in addition to tools currently available to protect your wealth.

As pointed out by DeMasters, “McManus says the following strategies are good for the long or short term, and most can be used advantageously by mass affluent as well as the ultra-wealthy.”

  1. Annual Exclusion Gifts
  2. Lifetime Exemption Gifts
  3. Short-Term And Mid-Term Grantor Retained Annuity Trusts (GRATs)
  4. Estate Freeze Installment Sales
  5. Family Limited Partnerships
  6. Upstream Gifting
  7. Community Property Trusts
  8. Charitable Remainder Trusts (CRTs)
  9. Drafting Flexibility in Core Planning Documents
  10. Philanthropic Planning

Check out the full article for more details on McManus’ list of “10 Must-Do Estate Planning Strategies” that advisors can use while waiting for decisive legislative action. 

Trusts & Estates (WealthManagement.com) Publishes Byline by John O. McManus

Ten Estate Planning Strategies While Waiting for Tax Reform

How to proceed until Congress takes action.

John McManus | May 12, 2017

The election of Donald J. Trump to the presidency and Republican control of both houses of Congress make estate tax reform extremely probable in the next two years. However, given the new administration’s other proclaimed priorities, including the repeal of Obamacare, minimization of illegal immigration, increases in defense spending and infrastructure improvements, there are likely several months before Congress turns its attention to a tax system overhaul.

Conference Call: 10 “Must Do” Estate Planning Strategies While We Wait for Congress to Act

The election of Donald Trump to the presidency and Republican control of both houses of Congress make estate tax reform extremely likely in the next two years.  However, given the incoming administration’s other proclaimed priorities, including the repeal of Obamacare, minimization of illegal immigration, increases in defense spending and infrastructure improvements, there are already questions about the feasibility of adopting all of the proposed tax initiatives. Furthermore, there is much uncertainty about particular aspects of the Republican tax proposal (including a replacement tax on the wealthy), and there is already concern about the likely impermanence of any new legislation. These factors highlight the importance of flexibility in preparing an estate plan and proceeding with wealth transfers suited to the current political and economic circumstances.

In a recent conference call with clients, McManus & Associates Founding Principal John O. McManus highlighted the current appealing strategies and opportunities available as part of an estate plan. Click below to hear him discuss the following list:

LISTEN HERE for details: “10 ‘Must Do’ Estate Planning Strategies While We Wait for Congress to Act”

  1. Annual exclusion gifts
  2. Lifetime exemption gifts
  3. Short-term and mid-term Grantor Retained Annuity Trusts (GRATs)
  4. Estate Freeze Installment Sales
  5. Family Limited Partnerships
  6. Upstream Gifting
  7. Community Property Trusts
  8. Charitable Remainder Trusts (CRT)
  9. Drafting Flexibility in Core Planning Documents
  10. Philanthropic Planning

McManus Quoted in Investment News on Estate Tax Changes with Trump Presidency

Investment NewsIf Republicans were to win a repeal of the so-called death tax, contentious Treasury regulations on business valuation discounts would also disappear, according to Investment News Reporter Greg Iacurci. In a new story, “Estate tax repeal no ‘slam dunk’ under Trump and Republican-held Congress,” Iacurci examines how president-elect Donald Trump will govern and what policies he may or may not be able to push through upon taking office. He writes:

Mr. Trump articulated several tax proposals as a candidate on the Republican ticket, focusing on a repeal of the estate tax, consolidation of income tax rates and lowering the top tax brackets, and standardization of tax rates across businesses.

But even if the death tax is repealed, McManus & Associates Founding Principal John O. McManus brings the estate tax victory into perspective. From the article:

Financial planners and tax payers should keep in mind that the laws around estate taxes come and go, said John O. McManus, founding principal of McManus & Associates.

“Even if the federal estate tax evaporates under Trump, that is never permanent,” he said, pointing out that in 2010 the estate tax exemption was reduced to zero, only to have it set at $1 million for the following year.

Head over to Investment News to read the full story. For trusted advice on tax and estate planning strategies in light of Trump’s intended policies, call McManus & Associates at 908-898-0100.

Forbes Discusses Death Taxes with John O. McManus

forbes-logo-pngEarly this year, bills A1281 and S1311 were introduced in New Jersey to “eliminate transfer inheritance tax and increase the filing threshold and applicable exclusion amounts under New Jersey estate tax in accordance with provisions of federal tax law.” NJ A397 was also introduced and, if passed, would repeal the New Jersey estate tax.

CPA Practice Advisor: “Estate planning after the fiscal cliff: Top 10 Steps”

CPA Practice Advisor today published an article utilizing the guidance that McManus & Associates recently offered to clients via a conference call on next steps in light of the fiscal cliff deal. A quote from the firm’s founding Principal John O. McManus in the piece, titled “Estate planning after the fiscal cliff: Top 10 Steps”:

Many Americans will experience significant income tax increases as a result of the ‘fiscal cliff’ deal, but there is good news with respect to the estate tax. The newly established permanent estate tax gives wealth planners certainty that has been lacking for more than a decade – but what if Connecticut’s law encourages other states to also create a gift tax even lower than the federal exemption amount? The fact that they could do it retroactively is a real concern.

The story goes on to say:

The firm has offered the following tips:

Post-Fiscal Cliff Estate Planning: Top 10 Questions Answered in Light of the Deal

1.  The new tax rates and exemption amounts are set. What can you expect to pay for estates over $5.25MM?

a. Federal estate tax rate moves up from 35% to 40% with the exemption amount now at $5.25MM, which will be adjusted annually for inflation.
b. The Lifetime Gift Exemption amount (the total that can be given during one’s lifetime, separate from the much smaller Annual Exemption gifts) has been unified with the Estate Tax Exemption amount at $5.25MM.
c. For income tax purposes, individuals earning in excess of $400K and couples filing jointly earning in excess of $450K will be taxed at 39.6%, which does not include the new 3.8% tax on investment income, capital gains and dividends that was enacted to fund Obamacare.
d. Anyone earning less than $400K will continue at the ‘Bush era’ tax rates. However, the payroll tax for Social Security has been restored from 4% to 6% so paychecks will be smaller.
e. Two limits on tax exemptions and deductions will be reinstated: Personal Exemption Phase-out will be set at $250K, and the Itemized Deduction Limitation kicks in at $300K.

2. What are the estate-tax “traps” to be wary of?

a. The exemption amounts for state estate taxes are much lower than the federal exemption amount. While no federal estate tax will be paid on an estate up to $5.25MM, a large state estate tax liability could be due in certain states.
b. For anyone owning Real Property in a state that is outside of one’s primary residence, one’s heirs will have to endure the arduous and often expensive process of out of state probate, or ancillary probate in addition to probate in one’s state of primary residence. Employing a Revocable Living Trust can eliminate the need to undertake probate in multiple states.

3. Lifetime gifts in excess of $2MM in CT are subject to tax; is this a warning for similar gift limitations in other states?

a. When the federal lifetime gift exemption amount jumped to $5MM, the state of Connecticut passed legislation to tax any gifts made over $2MM.
b. With the precedent set and with states looking for additional income, it is possible that others states will follow. Additionally, such laws can be made retroactive.

4. With the new permanency in the estate tax exemption, which taxpayers should make gifts over $5.25MM and pay gift tax (a strategy widely used for many prior generations)?

a. With some certainty that estate tax will not evaporate and the $5.25MM exemption amount will remain unchanged, individuals will now employ taxable gifts again.
b. Taxpayers whose net worth continues to grow in excess of $5.25MM will look to transfer assets and pay the gift tax.
c. Gifts made during one’s lifetime will enjoy a more favorable tax treatment, will suffer less shrinkage due to taxes, will avoid state estate taxes and will enjoy future growth free of any state and gift tax.

5. For estates below $5.25MM, who should employ trusts in their wills?

a. Trusts provide a greater level of asset protection, so one can be assured that, in the event of reversals in life including divorce (the single largest creditor attack on wealthy families), trust assets will be protected and can continue to grow tax-free and provide for heirs.
b. Flexibility in trusts even allows access to trust assets via a power to appoint and to remove trustees. Trusts protect the value and future growth of any discounted assets and can employ generation skipping tax free.
c. Trusts also allow for the minimization of state estate taxes.

6. What is meant by “spousal portability” and “unification” of the exemption amounts? Does this eliminate the need for certain planning?

a. Portability allows the surviving spouse to utilize any remaining portion of their deceased spouse’s Federal Estate Tax exemption amount. To elect portability, the executor handling the estate of the spouse who died must file an estate tax return (Internal Revenue Service Form 706), even if no tax is due. This return is due nine months after death.
b. Unification: The federal exemption amount for estate tax and lifetime gifting has been unified. That means both exemption amounts will be set at $5.25MM this year and adjust annually for inflation.
c. For tax efficiency purposes, married couples now enjoy the ability to pass to loved ones $10.5MM free of estate tax.

7. The Generation Skipping Tax Exemption amount is also set at $5.25MM; who should take advantage of it?

a. Assets in trust not used by loved ones can skip to the next generation tax-free. Such a skip would normally constitute a generation-skipping tax event, which imposes a 40% tax.
b. The GST exemption employed in trust can avoid taxes for transferees for 100 years or more, including all the growth in the portfolio.
c. The most widespread use of the GST exemption is for wealthy individuals whose children already enjoy enough assets, will be earning enough assets, or will inherit enough assets to assure the greatest likelihood the trust assets will not be spent during the children’s lifetimes.

8. Looking forward to March 2013 and the “debt ceiling” debates, what detrimental effect could such negotiations have on state estate taxes?

a. Regarding revenue to individual states, the high federal estate tax exemption amount will ultimately reduce the states’ future estate tax revenue due to lifetime gifts.
b. Previously, there was a state “pick-up” estate tax that allowed states to collect estate tax from the federal government without additionally charging the estate of the decedent. This was accomplished by giving taxpayers a dollar-for-dollar credit for any state estate taxes paid. The credit expired, which caused most pick-up taxes to automatically expire.
c.  It is possible that states will construct new methods to make up for budget shortfalls, particularly if the debt ceiling debates carry on.

9. What are the trust and non-trust estate planning strategies that married and single persons should undertake in 2013?

a. Foundations: With increased taxes, gifts to charity have a greater tax-deductible value. Gifts to foundations allow full deduction in the year of the gift, whereas transfers out of foundation can be as small as 5% on an annual basis, allowing assets in the foundation to continue to grow.
b. Charitable trust: These enable one to make gifts to charity and receive immediate deductions. One can continue to receive income from the charitable gift for a period of time. Gifts can also be made where the charity gets a distribution each year and the loved ones receive the remainder.
c. Family mission planning: The family mission and preparing heirs for inheritances will be a critical to ensure that conflict is minimized and harmony maximized, to ensure motivation to grow the assets and to support charitable endeavors.

10. What critical gift tax consequences must be avoided for gifts made in 2012? When does the statute of limitations clock begin?

a. The final step to ensure the completion of any gift you have made to a trust is the timely filing of a gift tax return. Avoid professionals who do not have expertise in making significant gifts into trust.
b. Filing of a complete return starts the 3-year clock with the federal government. Once the statute of limitations has run, the IRS can no longer audit the return.
c. If a return is prepared but does not meet the specific adequate disclosure requirement, the statute of limitation does not begin to run.

To listen to the full recording of the conference call upon which the CPA Practice Advisor article is based click here.

The piece closes with another quote from McManus:

Several valuable opportunities emerged as part of the ‘fiscal cliff’ negotiations that pleasantly surprised the estate planning community, but we’re not completely out of the woods – the ‘debt ceiling’ debates, for example, are just around the corner. Keeping track of how the ever-evolving legal landscape impacts wealth preservation is a full-time job, but one that we’re here to help with.

Bloomberg BNA: Two New Stories Cite Firm’s Founding Principal

 

 

McManus & Associates Founding Principal and top-AV rated Attorney John O. McManus recently spoke with Diane Freda, reporter for Bloomberg BNA’s Daily Tax Report®. The publication is a leading source of legal, regulatory, and business information for professionals covering issues in taxation, pensions, and accounting.

BNAFreda’s December 27th story “IRS Shuts Down Online EIN Applications, Complicating Year-End Gift Transactions” cites John’s thoughts on the IRS’s “planned outage” of online applications for employer identification numbers, from December 27th through January 2nd. It was the publication’s most-read article of the day.

Her second piece, “Fiscal Cliff Unified Estate, Gift Tax Exemptions Seen as Windfall by Advisers,” was published on January 2nd and includes John’s reaction to the passage of provisions in fiscal cliff legislation ensuring estate and gift tax exemptions remain at $5 million for the upcoming year and near future.

To learn more about fiscal cliff unified estate and gift tax exemptions, give our office a call at (908) 898-0100.

Reproduced with permission from Daily Tax Report, 248 DTR G-4 (Dec. 28, 2012). Copyright 2012 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com

Reproduced with permission from Daily Tax Report, 02 DTR G-8 (Jan. 3, 2013). Copyright 2013 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com