When the calendar turns to January, the clock is reset for many estate planning opportunities.
McManus & Associates Founding Principal and AV-rated Attorney John O. McManus recently shared his recommended estate planning checklist for January to maximize the value of your assets, cover your financial bases, take advantage of current exemption levels, and get a head start on deadlines.
Listen to the discussion and see an outline below:
1. Fund your children’s trusts so that the trusts can benefit from a full year of appreciation.
2. Make charitable gifts to your foundation so that it will also benefit from appreciation during the year.
3. Review the grants made by your foundation to confirm that they are qualified 501(c)(3) organizations; start researching new charities to expand your class of grantees (while still maintaining your donative intent).
4. Consider making gifts to 529 plans for your children and or between your grandchildren to take advantage of a full year of appreciation.
5. Meet with McManus & Associates or your accountant as soon as possible to provide critical financial information to begin your tax returns.
6. Make substantial gifts a part of your estate plan, thereby empowering your spouse before Congress reduces the gift tax exemption from $11 million.
7. Consider hiring your children and spouse or other family members for the family business and pay an amount that will fund a Roth IRA.
8. Perform an audit of your life insurance policies, including their cash values and performance, as well as their suitability and sufficiency of coverage.
9. Review your beneficiary designations (which will override any testamentary direction under your will) to make sure they coincide with your intentions (as provided in your will).
10. Review your medical coverage and plan choices; also, review your tax withholdings if you expect your income to change significantly.
11. Schedule a meeting with McManus & Associates to review your fiduciaries and agents named in your estate plan to determine their suitability and continued qualifications.
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.
Before we know it, the calendar will turn to 2019. Today, McManus & Associates Founding Principal John O. McManus held a conference call with clients to impart insight on year-end tax strategies, in light of the new tax laws, to implement by December 31st. McManus also covered annual end-of-year essentials. Listen to a recording of the discussion by clicking below:
1. TAKE ADVANTAGE OF A LIMITED-TIME OPPORTUNITY: Since the estate tax was not repealed at the end of last year and the increased estate tax exemption is temporary, what can high-net worth families do to minimize future estate tax?
2. GET SET TO OFFSET: If you’ve already sold appreciated investments or a business in 2018 and will incur significant capital gains taxes, what can you do to enjoy a deduction and aid in offsetting the gain?
3. PLAN TO SAVE: The drastic limitation on the State and Local Tax (SALT) Deduction for Federal income tax purposes means that those who anticipate selling appreciated investments or a business in the next few years will experience unusually high capital gains taxes—but what can you do so that State capital gains taxes will not be imposed?
4. ADD TO YOUR INCOME TAX TOOLBOX: In spite of the marginal reduction of the Federal income tax rates, now that the Federal deduction on SALT has been significantly constrained, we will all have even more income tax exposure on investments. Can life insurance function as an income tax planning solution?
5. ENSURE YOU’RE UTILIZING INSURANCE: High-net worth families will continue to have State and Federal estate tax exposure, so what must remain an essential component of any well-constructed estate plan?
6. THINK OUTSIDE THE BOX: For those who have Estate Tax vulnerabilities but are elderly or in poor health, the acquisition of a life insurance policy may be uneconomical or impossible for those individuals, but how can life insurance reduce State and Federal Estate Tax while also creating wealth for future generations?
ADDITIONAL YEAR-END ESSENTIALS
THE ABCs OF ESTATE PLANNING PROTECTIONS: Regardless of tax law changes, it’s important to go back to the basics with estate planning on an annual basis. Proper year-end planning should always consider the following:
· Incapacity concerns
· The dangers of passing away without a will
· Probate pitfalls
· Insurance as creditor-protection planning
· Foreign reporting requirements
· U.S. estate tax exposure for non-resident aliens
Unique challenges face us all as we grow older and become “seniors,” but with proper planning, you and your loved ones can be well-prepared to successfully navigate this stage of life.
Today, John O. McManus held an educational conference call with clients to discuss the “Top 10 Dangers and Opportunities for Seniors” – whether it’s you, your parents or your grandparents. Click below to listen to the enrichment call recording, which covers the following topics:
1. Anticipate, Before It’s Too Late: As we age, there is a significantly greater risk of incapacity. It is essential to ensure basic protections are in place so that loved ones can act immediately in the event of an emergency.
2. Spend a Little Time Planning to Save a Lot of Time Doing: The need for the Court to oversee the administration of an estate can be time-consuming, costly, and frustrating. Proper planning will allow for the probate process to be completed with greater expediency.
3. Take Advantage of the Opportunity of a Lifetime (Gift Tax Exemption): Dramatically reduce future potential federal estate tax by utilizing the temporary increase to the lifetime gift exemption.
4. Don’t Skip Over Generation-Skipping Tax: Understand the tax implications of the transfer of wealth across multiple generations to preserve your legacy for your descendants.
5. Decrease Your Chances of an Increase in Federal Income Taxes: Evaluate strategies to avoid a potential increase in federal income taxes due to limitations on state and local tax deductions.
6. Step Up Your Planning with a Step-Up in Basis: Review the power of a step-up in basis upon death, reducing capital gains tax and delivering income tax savings your loved ones can enjoy.
7. Plan for Long-Term Care in Short Order: The cost of long-term health care could drastically deplete an estate, but strategies may be available to mitigate the attrition of assets.
8. Expect the Best, Plan for the Worst: Protect the inheritance of your heirs and ensure wealth is not diverted, in case a child’s marriage fails.
9. Pay Special Attention to Special Needs: Ensure the inheritance of your children and grandchildren can be used to enhance their quality of life, while preserving their ability to receive governmental benefits.
10. Prepare Your Heirs: Aid your loved ones in the effective deployment of the wealth you pass along by imparting your family mission and values, including the intrinsic benefits of philanthropy.
The political ping-pong commonly seen in the U.S. leads to legislative changes that make it necessary to reevaluate one’s tax strategies every few years. However, there are also important estate planning techniques that are not directly affected by legislation and changes in tax law, but that can still make a big impact on wealth preservation. From regularly updating your will to consistently moving assets off your balance sheet, several estate planning items should be added to your to-do list.
McManus & Associates Founding Principal John O. McManus recently discussed with clients, “5 Estate Planning Action Items that Remain Relevant Regardless of Shifting Political Winds.” Listen to a recording of the call and find details below.
1. Schedule Routine (Estate Planning) Checkups: Regularly update your health care documents and wills
Consider whether the individuals named in one’s documents are still appropriate. Think about positions including power of attorney, health care agent, guardian for minor children, trustees of an irrevocable or testamentary trust, trust protectors and trustee appointers (if any). Ask questions, such as:
Has the relationship with any of the people named changed?
Has the life situation of any of those named changed?
Has the health of any of those named changed? If one’s parents were initially named as guardian for minor children, but the parents are now older and in poor health, for example, alternative guardians who can keep up with kids may need to be named instead.
Are all of the people who have been named still geographically appropriate? For example, if one’s trusted power of attorney moved across the country and cannot now serve in an emergency, a new power of attorney should be named.
Next, one should also consider whether the beneficiaries named are still proper. Ask questions, such as:
Are the amounts left to each beneficiary still appropriate?
Again, how is one’s relationship with each beneficiary? For instance, has there been a falling out with any of them?
Are there new beneficiaries (nieces, nephews, charities, etc) one now wishes to include? Normally, documents drafted by McManus & Associates cover new children and grandchildren automatically.
Are any of the beneficiaries at risk with inheriting assets? Are they the target of a divorce, legal action, or the victim of financial strife or addiction, for example?
Finally, think through whether the current trust provisions make best use of the law for asset protection purposes.
2. “Do it for the Kids”: Set up trusts for your children and grandchildren
While the lifetime exemption amount has changed several times in the last decade, the annual gifting exemption has remained fairly constant. Setting up a trust for your children and grandchildren allows one to tap into this reliable wealth transfer mechanism without the damage of gifting assets to them outright. With this strategy:
Assets will be in a protected vehicle, meaning they can be passed on to the next generation outside of the children’s estates, as well.
A trustee can manage and control the assets while the children are minors.
The spouse should be added as a beneficiary, and the grantor should retain the power to take loans from the trust.
3. Move Assets off Your Balance Sheet: Sell the family business, real estate, life insurance, investment accounts and more into a trust
A family business is typically a long-term investment, so sell it into a trust. This provides an income stream to older individuals who may wish to surrender the day-to-day operations of the business without losing access to the economic security of the asset. It also puts the asset in a protected vehicle that is exempt from estate tax.
Sell business interests when the value is modest so that growth takes place outside of one’s estate. Selling a business interest also allows for valuation discounts, with greater equity going into trust.
Real estate can be sold into trust for a similar purpose as family businesses.
Life insurance can be sold into a trust to avoid the three year look-back. If you gift life insurance into your irrevocable trust and pass away within three years, the IRS will claw that asset back into your estate. The sale prevents this.
4. Make the Switch: Swap low basis assets out of your trust
Assess the income tax benefits of holding assets inside one’s estate versus the estate tax benefits of pushing them outside of one’s estate.
With a critical eye, consider swapping estate assets for the trust’s assets, and vice-versa, to maximize the income tax basis step-up.
A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes. With a step-up in basis, the value of the asset is determined to be the higher market value of the asset at the time of transfer, not the value at which the original party purchased the asset.
When an asset is gifted to an individual or trust, there is a carryover of the original basis – meaning there is no step-up. Although the asset is now outside the grantor’s estate for estate tax purposes, upon the sale of the asset, capital gains tax will be due.
When an asset is included in a descendant’s estate, the asset receives a step-up in basis to the date of death value at that time. The asset can be sold to avoid any capital gains tax.
5. Give Precedence to Giving Back: Use foundations and charitable trusts to make philanthropy a focus for your family and to achieve income tax benefits
Family unity can be created through a consistent emphasis on giving back.
Foundations and charitable trusts also both have income tax benefits. The tax rates may change, but income tax is unlikely to go away, so this will always be an important piece of a good planning strategy.
Donations should be reviewed annually to assess portfolio performance, confirm that the foundation is meeting minimum distributions for charity, and verify that the donative patterns are still desirable.
Death represents a significant and vulnerable point in time for both the individual facing it and his or her loved ones. In the medical field, it is even associated with failure; only five out of 125 medical schools (4%) in the country offer a course on death and dying. This negative stigma means that what should be accepted as a natural part of life, often becomes an uncomfortable topic.
However, it is important to talk about death with loved ones. There are emotional benefits to reflecting on a life spent together, and expressing gratitude and admiration. It is also important to ask difficult questions so that this topic receives adequate attention and preparation. While everyone would prefer to focus on life, a significant amount of stress related to death can be reduced by proper planning.
Press play to hear McManus & Associates Founding Principal John O. McManus explain his 10 recommendations below for getting the best end-of-life care:
1. Know your options – What is the difference between hospice and palliative care?
2. Dot your i’s and cross your t’s – Are all the necessary legal documents in order?
3. Broach the subject – Have you had a discussion with your loved one to understand what his or her wishes are?
4. Nail down the timeline – When does your loved one want end-of-life care to begin?
5. Research reputation – Have you discovered all that you can about the potential care facilities that you are considering?
6. Find out who is behind the mask – How well do you know your loved one’s care providers?
7. Do your due diligence – Have you done your own research? Have you asked care providers to tell you what you can do to help? Have you explored all of the factors that could influence your decision?
8. Learn the ins and outs – Is in-patient or out-patient care best for your loved one and family?
9. Prepare Plan B – Do you have a backup plan?
10. Ask for help – Could your loved one and family benefit from counseling?
For guidance on ensuring that your estate plan reflects your wishes for life and death, contact McManus & Associates at 908-898-0100.
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?
Interested in protecting your estate and maximizing the impact of your charitable giving? Then establishing a Private Foundation is worth your consideration.
A Private Foundation provides the ability to retain control over the administration and investment of assets that have been recognized as important for future grant-making. By making gifts from your Foundation to charities in increments over time, you can extend your influence over the ongoing use of your gifts.
While there are many advantages of Private Foundations, there are also often-overlooked pitfalls (see below), which McManus & Associates Founding Principal John O. McManus recently discussed with clients, as part of the firm’s educational focus series. To listen, click here:
1. Using care when compensating family members through the foundation
2. Beware the penalties for self dealing
3. How to address office sharing with family offices
4. Promptly addressing misuse of foundation funds or income
5. Why you should avoid legally binding pledges
6. How to protect the founder’s mission
7. When to seek legal advice
8. How to exercise expenditure responsibly
9. Identifying any benefits from joint investments or co-ownership
10. Using caution with ticketing and fundraising events.
For guidance on the creation or management of a Private Foundation, contact McManus & Associates at 908-898-0100.
Affluenza: “An Ounce of Prevention Is Better than a Pound of Cure”
According to American author Mignon McLaughlin, “There are a handful of people whom money won’t spoil….” Do you think your children are among them? From over 25 years working with wealthy families, we’ve learned that older generations must be intentional to guard against the development of affluenza in children of all ages. As with lottery winners and athletes who often squander significant sums of cash, children who see an influx of assets may mishandle what they have been given without proper preparation.
The term “affluenza”, also known as sudden wealth syndrome, is a portmanteau of the words “affluence” and “influenza.” It is typically characterized by a lack of motivation or a sense of entitlement among those who have inherited large amounts of money.
During a conference call with clients, McManus & Associates Founding Principal John O. McManus recently shared his thoughts on the 10 preventative measures against affluenza below.
1. Discipline Reality Check
2. Better to Give than Receive
3. Money Can’t Buy Happiness
4. Patience Is a Virtue
5. Knowledge Is Power
6. No Substitute for Hard Work
7. Word to the Wise
8. Failing to Plan Is Planning to Fail
9. Know when to Say No
10. Preparation Is the Key to Success
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: