Many Millionaires Are Down on the Stock Market – Should You Be?

Last Friday, Brian O’Connell penned a piece for TheStreet on what millionaires being down on the stock market means for regular investors. Here are thoughts from John O. McManus, founding principal of McManus & Associates:

With the wealthy keeping a tight rein on their dollars, the market remains flat to down. Because millionaires feel poorer, they’re spending less on creature comforts, which can cause the economy to slow. We saw this in the Great Recession – fewer vacations and pricey dinners, less frequently cut lawns and cleaned pools, and fewer wallets opened for cars, high-end fashion, jewelry and more. When millionaires are soured on the market, regular investors should view this as a red flag, because the rich tend to spend the most on guidance from top-notch advisors and can afford to be patient and invest for the long-haul. If millionaires are pulling out of the market or not investing, there’s no reason regular investors should do the opposite. That said, many millionaires may still be invested in the market, because they can afford to take a long view.

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Top 9 Estate Planning Tasks to Complete before Year-End

The holiday season represents a window of opportunity for growing and preserving wealth. McManus & Associates today outlined the “Top 9 Estate Planning Tasks to Complete before Year-End”. As part of the firm’s educational focus series, Founding Principal and top AV-rated Attorney John O. McManus recently discussed time-sensitive recommendations for building your nest egg and reducing your check to Uncle Sam for Tax Year 2014.

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WSJ’s MarketWatch Features Advice from McManus on “How women can make estate planning easier”

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Andrea Coombes

Andrea Coombes

Andrea Coombes writes the “Ways and Means” column for MarketWatch, a media property of the Wall Street Journal that has nearly 9.5 million unique visitors per month. McManus & Associates Founding Principal and top AV-rated Attorney John McManus recently spoke with Coombes about special considerations for women when it comes to estate planning.

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MarketWatch Draws on Advice from McManus for “5 Estate-Plan Strategies for Boomers”

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Andrea Coombes, Ways and Means columnist for Dow Jones, last week published an interesting piece for MarketWatch sharing estate planning strategies for baby boomers. To bring readers closer to achieving their goal of putting together an estate plan, Coombes boils down advice, with the help of McManus & Associates Founding Principal John O. McManus, to offer “5 estate-plan strategies for boomers.”

Here are Coombes’ must-do estate-plan tasks:

1. Create a will or trust

2. Create a power of attorney

3. Create a health-care power of attorney and living will

4. Check the titling of your assets

5. Start with your family

In tackling the first tip “Create a will or trust”, a testamentary trust that goes into action when someone dies is given as an example to prevent unexpected consequences with regard to where your money ends up. Coombes draws from McManus’ comments to illustrate:

“The trust is actually built into the will,” said John McManus, founder of law firm McManus & Associates in New Providence, N.J.

He offered an example of what can happen without such a trust: “Say I die and leave my wife a couple of million bucks. Now it’s her in name. She then remarries, and then she dies two weeks later. Her new spouse will get one-third of those assets — even if we intended that money to go to our kids.”

The precise fraction promised to the surviving spouse will vary by state, but McManus said one-third is common.

Some boomers also may want to create a revocable living trust. There are a variety of reasons for considering such a trust.

Here’s one: If you have property or assets in more than one state — say, you live in New Jersey and own a condo in Florida — this document allows your estate to avoid the costly and time-consuming probate process in each state — with one document. A revocable living trust is portable. It will follow you across state lines, McManus said.

For the fifth tip “Start with your family”, Coombes turns again to McManus, who points out that estate planning isn’t only about you. From the piece:

McManus said boomers’ first estate-planning task is to ensure their elderly parents’ estate-plan documents are in order, and their second task is to focus on the estate-plan documents of their adult and minor children.

Coombes goes on to shed light on a potential pitfall:

Here’s one example of what can go wrong: Often people intend to divide their estate equally among all of their children. Their will may state as much, but if one child is named on a joint account, say, to help with bill-paying, that account will pass to that one child “by operation of law,” McManus said.

“Even though the parents intended that it be divided equally, the assets in joint names with their one child will result in that child being disproportionately favored,” he said. In his experience, he said, adult children in that situation “almost never” square up with the other family members.

To avoid the problem, your parents could adjust the will such that larger portions of other assets are given to the siblings or, rather than making that child a joint account-holder, give him or her power of attorney over the account, McManus said.

To get the full story with more expert advice from McManus, click here. And to discuss what your must-do estate plan items are based on your unique circumstances, give us a call at 908-898-0100. We can help.

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Fox Business: McManus shares advice on how to ensure a trust meets personal, financial needs

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Top-rated Attorney John O. McManus recently spoke with Bankrate Reporter Judy Martel about how to ensure a trust is set up to meet your personal and financial needs. Published today and syndicated by Fox Business, Martel’s piece, “An Irrevocable Trust That Evolves with You,” covers the keys to choosing a trust that “meets your specific needs while building in the maximum amount of flexibility allowed so that, as your needs change and evolve, you retain some power over the trust.”

In the article, Martel shares counsel from McManus:

One of the first important considerations when setting up a trust is its location, says John McManus, founder of McManus & Associates in New Providence, N.J. Some states offer better creditor protection, allow for a trust to exist for a longer period of years before becoming taxable or do not impose state income tax on trust assets. A few states, he says — notably Alaska, Delaware, South Dakota and Nevada — provide additional power to the trust creator while still protecting assets from creditors and maintaining the trust’s tax-beneficial status. Although trusts can be set up in those states regardless of where you live, it is typically more expensive.

She also draws on knowledge shared by McManus, the founding principal of McManus & Associates, to help readers understand the structure of a trust:

At the top of the triangle is the trustee, the person who has legal title to the assets in the trust and the one responsible for managing the trust, making discretionary decisions and carrying out the terms of the trust agreement. The creator can be the trustee, but generally that’s not a good idea in most states because, depending on how the trust is written, the state laws and how much discretionary power the creator has, the trust can lose its tax-beneficial status or be subject to creditors, McManus says.

Beneficiaries, the second point of the triangle, are those who will receive the beneficial interest in the trust. They can be amended, added or dropped if the creator of the trust retains the right of appointment, McManus says. “Let’s say I have two layers of beneficiaries in my trust — first to my wife and sister and then to my children and my sister’s children,” McManus says. “After I create the trust, I want to cut out one of the beneficiaries, or one of them needs more money. I have the right to choose who will receive money and how much,” he says. Even better, he adds, “I don’t have to decide that right away. That allows people to put a lot of assets in that trust when they otherwise might not because who knows how my sister’s children will turn out or how my children will turn out?”

What standards help ensure that the beneficiary’s needs are met within reason and as defined by the trust agreement?

The amount of distribution is also up to the creator of the trust. It can be controlled by the use of ascertainable standards, which restrict the trustee to distributions for the benefit of health, education, maintenance and support, says McManus…They also protect the trust from being taxed if a child beneficiary is also named as trustee, McManus says.

To learn more about how to draft an irrevocable trust properly to save in estate taxes and give you “the comfort of knowing you’ve ensured a financial future for your beneficiaries,” read the whole story here.

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BenefitsPro Relays Estate Planning Guidance from McManus & Associates

Top-rated estate planning attorney and founding principal of McManus & Associates John O. McManus last month chatted with Paula Aven Gladych, writer for BenefitsPro, about why even people who aren’t in the top 1 percent of earnings need to undertake estate planning. Individuals who earn between $250,000 and $1 million won’t have to worry about paying federal estate taxes, since the exemption is $5.25 million, but “they still have to worry about state exemptions, which are all over the map.” As pointed out in Gladych’s article, “Even middle-income earners should have an estate plan.”

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From the piece, which is based on McManus’s interview with Gladych:

“People are not going to give a large amount of their assets away during their lifetime. If a client has $1.5 million during their lifetime, they may need every dollar of that to live from. If they become terminal, a quality financial advisor and attorney will say, ‘let’s move money off the balance sheet now.’ The fact is, by moving it you’ll avoid the imposition of state tax when you pass away. The problem in the past is people are not doing it because they only give away $750,000 to $1 million on the federal level,” McManus said. “The concern is that states will smarten up and impose a gift limitation equal to the death tax limitation.”

Why should middle-income earners consider putting money away in a trust? Read the rest of the story to find out.

More recently, Paula Aven Gladych interviewed McManus again for a piece, titled “Legacy, estate planning as important as retirement.” As captured by Gladych, “planning for the future isn’t just about retirement accounts or what you want to do with all of your free time. According to financial experts, people also need to plan for what comes after their retirement—end-of-life planning.”

McManus’s advice is captured in the story as follows:

Individuals need to make sure their documents are current. They need to review them every so often to make sure that what people think they will receive when they die is what they will actually receive, said John McManus, founding principal at McManus & Associates, an estates and trusts law firm in New York.

That means reviewing documents and walking through their provisions, deciding how they want to dispose of their assets and naming representatives who will make sure their assets are distributed as they intended.

There is a catch 22, however. Many people don’t realize that beneficiary designations on life insurance policies and retirement accounts trump whatever is written in a final will and testament.

Many parents place one of their children on their accounts as a joint account holder so they can help pay bills. What most people don’t realize is that when the parent passes away, no matter what is listed in the will, the person who is listed on the joint account will inherit that money. This can cause many problems among other beneficiaries who believe they are entitled to their share of that money, McManus said.

Each state has its own exemption when it comes to estate taxes. Some states, like New York, will allow individuals to pass down the first $1 million to heirs tax free. Anything above that $1 million will be taxed. McManus counsels his clients to gift that money while they are still alive to avoid hefty taxation later.

Check out more important estate planning tips in the story here.

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Bankrate.com: “Are these tax proposals fair?”

Jennie Phipps, who has been reporting on retirement for six years, recently spoke with McManus & Associates Founding Principal John O. McManus about estate and retirement planning strategies and based an article for Bankrate.com on the conversation.

In her story, titled “Are these tax proposals fair?” Phipps highlights five estate and retirement planning strategies at which the Obama Administration has taken aim, according to McManus. As she notes in her piece:

Some of the people who are using these strategies as they approach retirement have lots of money to manage. But those using these approaches also include small-business owners and farmers eager to pass their enterprises on to their children without burdening them with a huge tax bill, McManus says.

Phipps summarizes what the government proposes to do to collect more taxes from money passed down via estates and tasks readers with deciding whether the proposals are fair. She calls out the following:

  1. Lower the estate tax exemption.
  2. Retool intentionally defective grantor trusts.
  3. Tax grantor retained annuity trusts, or GRAT.
  4. Limiting generation-skipping transfer tax exemptions to 90 years.
  5. Taxing grantor trusts when Dad still manages the money.

Phipps’ article expands on all five; read more here: http://www.bankrate.com/financing/retirement/are-these-tax-proposals-fair/

The story closes with thoughts from John:

McManus says he believes that taxing estates at 45 percent is unfair and counterproductive. “We are proposing to penalize hardworking people who aren’t making millions. Having to pay a punitive amount in taxes takes away the motivation to start up a business.”

Please give our office a call at (908) 898-0100 if we can help with questions.

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NBC News: “Seniors face retirement ‘perfect storm’ in 2013”

John O. McManus, founding principal of McManus & Associates, recently spoke with CNBC Reporter Mark Koba about whether 2013 is a bad year to retire, with the predicted fiscal cliff and, even if it’s resolved, the larger numbers of workers leaving their jobs for retirement. According to Koba, an estimated 7 million Americans will reach the age of 65 by the start of 2013.

John’s thoughts are found throughout Koba’s article:

As it stands now, the top tax rate on capital gains will jump to 23.8 percent from 15 percent and the top tax rate on dividends nearly triples to 43.4 percent from 15 percent. And any fiscal deal will likely include higher tax rates so seniors had better count on that when they plan for their retirement, said John O. McManus, CEO of McManus & Associates, a trust estates law firm.

“Many seniors may want to postpone retirement in 2013 because they just don’t know what their tax rates will be,” McManus said. “If the markets don’t perform well and tax rates go higher, seniors will have a lot less money to spend. There’s a lot of uncertainty about where this will all end.”

But McManus said even planning for tax increases won’t be easy.

“If someone retires in January but a deal isn’t reached until March, will tax rates be re-retroactive? That’s a big risk for someone thinking about retirement,” said McManus.

And after looking at the thoughts of various experts, Koba gets it right: “While 2013 presents unique problems, analysts say that in the end, planning for retirement never comes at an easy time, fiscal cliff or not.”

A quote from John closes out the piece:

“It’s not to say that 2014 will be a better year to retire,” said McManus. “There are always a lot of things people can’t control, like the markets and global issues. I’m just saying that if you think about retiring in 2013 you need to take care and take caution.”

Read the whole article here.

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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.

 

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