Category: Media Clips

McManus Interviewed on Money Sense Radio Show

January 7, 2019 - Media Clips

 

 

 

McManus & Associates Founder John O. McManus was recently interviewed by Karen Ellenbecker, Founder and Senior Wealth Advisor of Ellenbecker Investment Group, for Money Sense radio show on WISN AM 1130. The very important topic? Planning for seniors.

The show aired two weekends in a row. You can listen here or find it on the Money Sense iHeartRADIO page (published January 6, 2019).

For more information on the topic, check out the conference call that John held for clients, “Top 10 Dangers and Opportunities for Seniors.” For help with planning to protect yourself, your parents or your grandparents, call McManus & Associates at 908-898-0100.

See McManus in FORBES: “Why Charitable Trusts Rule Under The New Tax Law”

January 2, 2019 - Media Clips

 

 

McManus & Associates Founding Principal John O. McManus and one of his philanthropically-minded clients were recently interviewed by Forbes Editor & Reporter Ashlea Ebeling about the advantages of setting up a charitable trust. From the article, “Why Charitable Trusts Rule Under The New Tax Law”:

When Terrence Hahn left Honeywell as head of its home and building technologies division this year, he had amassed a lot of company stock over 11 years and was facing a huge capital gains tax bill if he sold. Looking to diversify his portfolio and to formalize his family’s charitable giving, he found a handy solution: A charitable remainder unitrust.

“In today’s jittery markets, clients are more than ever focused on monetizing these concentrated stock positions,” says his tax and estate lawyer, John McManus, of McManus & Associates in New Providence, N.J.

The pitch: If you put appreciated assets into a charitable remainder unitrust (CRUT), you postpone or avoid capital gains tax. The trust pays you a fixed percentage of the principal as revalued each year—for a set number of years or life—and what’s left in the trust at the end goes to charity. In Hahn’s case, the ultimate beneficiary is a family foundation. The CRUT/family foundation is a great combination if you want flexibility and control over how you shape your ultimate charitable legacy, McManus says.

The story goes on to explain why there’s even more reason to consider a charitable remainder unitrust today:

CRUTs have been around for decades. But there’s more than just the old reasons for setting up a CRUT today. The new Trump tax overhaul made changes that favor their formation. First, by increasing the standard deduction and capping the state and local tax deduction, the new tax law dramatically cuts the number of taxpayers who will benefit from itemizing deductions, including deductions for charitable donations. In addition, the new law eliminates the Pease provision that limited deductions for high income taxpayers. Today, by making a big one-time gift upfront to a charitable trust, donors will be able to snag the charitable deduction. And if you donate appreciated assets, there’s the capital gains tax play too. Remember, the top capital gains tax rate is still 23.8%.

Read the full Forbes article, which includes additional insight from John, by clicking here.

To set up a time to discuss giving strategies that should be considered in light of your unique interests and financial situation, call McManus & Associates at 908-898-0100. We would love to help you support causes about which you’re passionate—and in a tax-effective way.

McManus recognized by Bridgewater Courier News/MyCentralJersey.com for Social Responsibility Award

December 12, 2018 - Media Clips

 

 

 

The Bridgewater Courier News/MyCentralJersey.com recognized John O. McManus for receiving the statewide New Jersey YMCA State Alliance and 2018 Social Responsibility Champion Award. Here’s the write-up:

McManus receives award

John O. McManus, founder of trusts and estates firm McManus & Associates, was honored statewide with the New Jersey YMCA State Alliance 2018 Social Responsibility Champion Award on Nov. 30 for his devotion and passionate advocacy to the Y and the community for over 10 years. In 2005, McManus joined Somerset County YMCA’s Board of Directors and currently is the Vice Chair of the Board of Directors and Chair of the Board Governance Committee, as well as serving on the Financial Development Committee and Capital Campaign Leadership Cabinet. Recently, McManus was elected by his peers to be the next Board Chair beginning in January 2019.

Trusts & Estates Unveils Slideshow with McManus’ Ten Tax Planning To-Dos Before Year End

December 10, 2018 - Media Clips

Trusts & Estates Magazine/WealthManagement.com published a slideshow authored by John O. McManus featuring 10 to-dos you should check off your list before the ball drops on New Year’s Eve. Check out the tips below — or view the full slideshow with photos.

 

 

 

Ten Tax Planning To-Dos Before Year End

John O. McManus | Dec 07, 2018

Discuss this checklist with your clients.

With less than a month left in 2018, time’s running out for your clients to finish their wealth management and tax planning to-dos. Many tax opportunities have an annual expiration date of Dec. 31, and this year presents unique possibilities. Here are 10 items your clients can check off their lists before the ball drops on New Year’s Eve.

  1. Freely give to help others live.

Clients should make annual exclusion gifts of up to $15,000 for individuals and $30,000 for married couples, per chosen loved one (per married couple).

Make gifts into trusts for children and grandchildren.

Contribute to an Internal Revenue Code Section 529 plan, which grows free of income tax.

Make unlimited gifts directly to educational institutions and medical facilities.

  1. Reap what you’ve sowed (and take your losses).

Clients should consider harvesting losses to offset capital gains realized in their securities portfolios.

  1. Your health is your wealth.

Advise clients to take advantage of this year’s lower threshold for Medical Expenses. For tax year 2018, the 2017 Tax Cut and Jobs Act reduced the floor (from 10 percent to 7.5 percent of adjusted gross income) that must be exceeded to take a deduction for Medical Expenses on one’s tax return. This is the last year to take advantage of this lower floor; so, if possible, your client should try to accelerate any medical transactions and purchases into the 2018 year.

  1. Use a tax rate in its infancy.

Review your client’s children’s portfolio income for application of the new Kiddie Tax. Prior to 2017, the children’s interest and dividends (unearned income) above $2,100 were taxed at your client’s top marginal tax rate. As a result of the Tax Act, this income will be taxed at the rates that are applicable to trusts. Trust rates are also at the top bracket, but the top rate starts sooner in the earnings curve.

When will your client’s child have to file a separate tax return?

  1. If their earned income, such as wages, exceeds $12,000; or
  2. If their unearned income (interest, dividends, capital gains) exceed $1,050; or

iii.          If the child has both earned and unearned income, the child must file if the total exceeds the larger of: (i) $1,050 or (ii) the earned income plus $350.

  1. Your client should think about giving.

Bunch your client’s charitable deductions into the same year. The deduction for cash donations to public charities has increased to 60 percent of the taxpayer’s adjusted gross income.

Charitable donations should be combined every other year to exceed the new higher standard deduction ($24,000 married; $12,000 single). Otherwise, your client’s charitable gifts won’t enjoy a benefit.

If over aged 70½, your client should make a qualified charitable donation of his required minimum distribution from his individual retirement account; the income will be excluded from the return and taxable income.

Make gifts to charities and family foundations with appreciated assets:

1. Consider gifting low-basis stock (instead of selling the stock to raise cash for gifting that could lead to gains).
2. Determine liquidity needs in the foundation to meet the requirement to pay 5 percent of the value of a foundation’s net investment assets.
3. Fund a charitable remainder trust with concentrated positions in appreciated securities to diversify without adverse tax consequences associated with selling appreciated securities.

  1. Rocket fuel for your client’s investment vehicles.

Establish and fund qualified plan contributions.

Maximize your client’s Section 401k contribution, which would be $18,500 generally and $24,500 for clients over aged 50.

Consider making a gift of up to $5,500 to either a traditional or Roth individual retirement account  for his children or grandchildren who aren’t funding their own IRAs but have enough earned income to report.

  1. Take a break to consider break-ups.

While we always support and encourage harmony and reconciliation, if there must be a decision to legally separate or complete a divorce, your client may want to do so before year end. Otherwise, moving forward, the payer of alimony will no longer get a deduction on their tax return, and the recipient will no longer have to include the alimony as taxable income.

  1. Don’t wait to compensate.

An owner of an S corporation must pay himself a reasonable compensation (what someone in a similar job would be paid). Therefore, make sure your client pays himself a salary before year end.

  1. Be bold and review client’s withholding.

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

  1. Get in the groove to make a move.

Your client should make distributions of income from trust accounts and estate accounts to lower his income tax liability. Estates and trusts are taxed at the highest income tax rate (and a lower threshold at which the 3.8 percent Medicare surtax applies). Therefore, it may make sense for your client to distribute income to the beneficiaries to be taxed at the beneficiary’s lower income tax rate.

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

December 5, 2018 - Media Clips

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.

Advice for Seniors from McManus Meets the Big Screen, Thanks to WealthManagement.com

November 2, 2018 - Media Clips

WealthManagement.com/Trusts & Estates published the below byline by John O. McManus as a slideshow! Click here to read John’s advice, accompanied by entertaining movie stills.

Top 10 Dangers Facing Senior Clients

John O. McManus | Oct 29, 2018

1. Anticipate, Before It’s Too Late

As clients age, there’s a significantly greater risk of incapacity. The failure to prepare a healthcare directive and living will, authorization for release of protected health information, and durable general power of attorney means that family members will be compelled to seek court intervention if your client becomes unconscious, has diminished capacity, or experiences some other emergency. This results in unnecessary delay and expense and will be completely inadequate if a client’s loved ones need to make a healthcare decision or act on their relative’s behalf with respect to financial, legal or personal matters. It’s essential to ensure basic protections are in place so that loved ones can act immediately in the event of these issues.

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. This includes the preparation of revocable living trusts, the assets of which will not be subject to court review (even if the property is owned in another state) and updates to the titling and beneficiary designation of your client’s assets to ensure a far more efficient estate administration.

3. Take Advantage of the Opportunity of the Lifetime Gift Exemption

Dramatically reduce a client’s future potential federal estate tax by utilizing the temporary increase to the lifetime gift exemption. The Tax Reform and Jobs Act enacted at the beginning of 2018 significantly raised the federal estate tax exemption, but the current law will expire no later than Dec. 31, 2025. Furthermore, Congress can take action sooner to reduce the increased exemption. Therefore, high-net worth individuals and families must strongly consider leveraging the exemption while it’s available in order to remove appreciating and/or discountable assets from the taxable estate.

4. Don’t Skip Over Generation-Skipping Tax

Help a client understand the tax implications of the transfer of wealth across multiple generations to preserve their legacy for the descendants. The generation-skipping tax and the use of the GST exemption are among the most sophisticated planning concepts, but it’s essential to consider this issue as part of the larger estate plan. Bequests in trust to grandchildren, the design of a dynasty trust and the proper reporting of gifts are all connected to the deployment of the GST exemption and avoids the imposition of additional tax when an inheritance is received by more remote descendants.

5. Decrease 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. Different types of out-of-state trusts (particularly those based in Delaware and Nevada) provide planning opportunities before the liquidation of an appreciated investment or business. Furthermore, life insurance, Roth IRA conversions and contributions to charitable vehicles (including private foundations and charitable remainder trusts) afford clients opportunities to mitigate state income tax exposure.

6. Step Up 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 client’s loved ones can enjoy. Families must consider proper planning in advance of death. Asset transfers to an ailing spouse, community property trusts, asset swaps from existing irrevocable trusts and asset upstream gifting to parents are all options to put the surviving spouse, children and other heirs in the best position to sell an appreciated asset tax-free.

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. In addition to traditional long-term care policies, life insurance policies can be structured with an accelerated death benefit to cover the cost of nursing home care and/or provide wealth replacement if other resources are diminished. Medicaid trusts and supplemental needs trusts also afford the possibility that assets may be preserved for the use of a surviving spouse or provide a meaningful legacy for children without sacrificing the ability to qualify for governmental benefits.

8. Expect the Best, Plan for the Worst

Protect the inheritance of your client’s heirs and ensure wealth is not diverted, in case a child’s marriage fails or there’s some other attack by a plaintiff’s lawyer. A properly structured trust for the benefit of a child or grandchild under a will or revocable trust can serve to secure an inheritance from an estranged spouse. It’s also important to evaluate how these benefits can be enhanced through a prenuptial agreement or other prenuptial planning measures. Such a trust can insulate the assets from attacks resulting from personal or professional liability, creditors and other legal claims.

9. Pay Special Attention to Special Needs

Ensure the inheritance of your client’s children and grandchildren will be used to enhance their standard of living, while preserving their ability to receive Social Security or Medicaid. If a client’s child or grandchild directly receives from the estate or benefits from a conventional trust, it will likely disqualify them for needs-based government benefits, forcing the funds to be used for basic living expenses and health care. Incorporating a supplemental needs trust into the estate plan will prevent the inheritance from being treated as a resource of that child or grandchild, which will allow for the continuation of payments from these programs. The assets of the trust can then be sheltered for uses not covered by the government, including social, cultural, entertainment activities, travel, visitation with family members, educational and vocational programs, and other quality of life considerations.

10. Prepare Your Client’s Heirs

Aid your client’s loved ones in the effective deployment of the wealth they pass along by imparting their family mission and values, including the intrinsic benefits of philanthropy. As a first step, encourage adopting a family mission as part of the estate plan as a means of conveying these wishes and expectations. Recognize the importance of gradually integrating children and grandchildren into the estate plan through periodic family meetings with the family’s professional advisors, which will help them to understand the purpose of the estate plan and the various considerations that go into preserving wealth for the next generation. Finally, those families who adopt charitable giving as a core tenet of the estate plan should include children in the implementation of those activities, including the continued support of causes supported by the family, the identification of new causes that align with donative intent and the development of relationships in the philanthropic community to ensure charitable gifts will have the greatest impact.

Reuters Turns to McManus for Guidance on Giving

October 31, 2018 - Media Clips

The article below, for which John O. McManus was interviewed as an expert source, was published by Thomson Reuters Regulatory Intelligence:



INSIGHT: New red flags for investment firms as charitable season meets donor fund boom

Oct 30 2018 Richard Satran, Regulatory Intelligence

The end of the year is high season for charitable donations — and with investment firms assuming a leading role in philanthropic giving, they face red flags and challenges. Compliance risk is rising for wealth managers trying to match the philanthropic clout of Fidelity, Vanguard, Goldman Sachs and others that have created charitable funds.

The vehicle of choice is the donor-advised funds that have boomed in recent years by offering investors a simplified one-step vehicle for tax-advantaged philanthropy. Some investment professionals have run into problems by assuming that a lack of rules hard rules for giving away money makes it easy: Specialists, however, warn that philanthropic giving is a complex venture that poses risks for investment professionals crafting their own tax-advantaged vehicles for clients.

Securities regulators have taken an increasing number of disciplinary actions against a more than a dozen investment professionals over the past year in an enforcement arena that had largely been the domain of state regulators and the Internal Revenue Service.

Hundreds of thousands of accounts

Enforcement cases have ranged from violations of marketing and sales practice rules of the Financial Industry Regulatory Authority to a Securities and Exchange Commission $9 million investment adviser’s fund diversion scheme last December using a charitable foundation as as vehicles for fraud.

Compliance teams at brokerage firms and investment advisories are seeing a flood of new clients seeking advice on philanthropies and private foundations. With 10,000 Americans reaching age 65 each day, new controls will be needed as clients shift gears from accumulating assets to managing and passing on wealth. Investment firms are looking for ways to remain relevant as trillions of dollars in assets hit the transition point.

“There is a large group of financial advisers who have begun to feel their business is a commodity, and to solve for the commoditization they feel a need to become more involved in ancillary issues,” said John O. McManus, attorney for the estate planning law firm, McManus & Associates. “We see a lot of mistakes and mismanagement and firms needing help fixing issues.”

“Mass affluent” become most philanthropic

Problems arise when investment professionals overstep their expertise in offering services that involve far more complex legal and accounting requirements than transactions and retirement planning. Some are misled by the fact philanthropic ventures are relatively free of regulatory oversight. But there is deceptive complexity in managing charitable activities for clients, and increasing scrutiny on investment and advisory professionals dealing with senior investors making difficult choices.

Setting up private foundations has been the routine for high net-worth individuals with the money to hire professionals in accounting, law and finance. The industry is being hit with a growing wave of middle-income or “mass affluent” who are increasing their giving while wealthier, tax-conscious individuals have slowed their charitable contributions, which have been made less attractive by tax cuts and revisions.

“Fuse is lit” at end of year

The end of the year brings the scramble for clients and firms to decide contributions. The “fuse is lit at the end of the year,” as they race against a deadline to put funds to work to take advantage of tax breaks for the next year’s taxes. The initial setup work for a private foundation may be relatively simple and quick, but follow-up reporting can place an continuing burden that can be onerous for firms and perilous for clients. Privately-funded charities, for example, must report every transaction separately, unlike retirement accounts. Private foundations require board meetings and minutes carefully documented.

“There are ever-changing laws and operations need to be updated to meet them,” said Tamara Surratt, president and chief executive officer of Legacy Family Office. “People think that there are all kinds of rules on who you can give to. It’s true, you have to be careful about giving to a apolitical organization or campaign, or for anything that gives you a personal benefit. But that is not the biggest concern.”

The boom in donor-advised funds offered by most large brokers and fund companies has provided a way for individuals to avoid the complication and cost of a private foundation, and hundreds of thousands have used the alternative. Fidelity’s donor fund has become the largest charitable foundation, surpassing United Way two years ago. The assets of the donor advised funds are expected to top $100 million this year after quadrupling over the past five years.

Funds get “gift that keeps on giving”

The funds themselves have found a comfortable niche, although the philanthropic community has viewed them anxiously and criticized the fund sponsors for being lured by “the gift that keeps on giving” — since firms collect fees on funds they can hold and manage for years without any requirement to give them to away. They are not bound, as non-profit foundations are, to put 5 percent of their assets into the hands of beneficiaries. They have on average paid out about 20 percent, but there is no legal obligation to do so.

“The donor advised funds are really offering a service to their clients. The fees are low, and it’s not a big profit center for them. It’s a perfect choice for smaller charitable contributions, ” said McManus, although individuals with over $500,000 to contribute to tax-advantaged charities can justify the accounting and legal professionals costs required of a private foundation.

“I would hope the UBSs and Merrill Lynchs of the world would educate their advisers on the pitfalls that could befall managing a foundation,” said Surratt. “It should be flagged and there should be resources allocated to that individual. There are a whole host of things to be considered. The average investment professional is schooled in managing investments, or gathering assets. Not running a private foundation.”

Single missed payment

Wealth managers often look for ways to partner with accountants and law firms to manage the wealthy client who sets up private funds. The agreements are ripe for problems if the reporting responsibilities are not made clear from the start, said McManus. A single missed disclosure or missed payment can jeopardize the foundation’s status, he added. But the private fund route allows the wealth manager and client more control over the process and allows for “an enduring charity, with a family ethos, with participation that keeps families together.”

The donor advised funds give control to the firm managing the account and take care of compliance issues on the fund level, providing a practical way for small investors to do tax-advantaged contributions. Charitable gift annuities are another way that small investors can make donations directly to a qualified charity. Tax law changes have made possible qualified charitable distributions from individual retirement accounts, which are a simple way to covert required minimum distributions into a tax-advantaged contribution without itemizing deductions.

The increasing popularity of such investments will place demands on compliance to make certain clients interests are being served at a time when retail protection of seniors is a top priority for securities regulators.

Firms need conversation with clients

“It is one of the biggest issues facing the industry and it is important to understand the implications of the huge wealth transfer coming over the next 10 to 20 years,” said Surratt. ”It’s incumbent on advisers to be thoughtful and think of what is the best interest of clients and to think long term about what legacy they wish to leave.”

Firms need to make certain that brokers are having conversations with clients to make certain the right choices are being made and that they understand the complex transactions involved.

“These are really important conversations to have,” said Surratt “It will be difficult at firms where brokers are managing large books of clients, but it is absolutely those are really important conversations on a regular basis and for firms’ leadership to set the culture to make it possible.”

(By Richard Satran of Thomson Reuters Regulatory Intelligence.)

Richard Satran is a financial journalist covering daily and emerging issues for Thomson Reuters Regulatory Intelligence.

Real Daily Relays Insight from McManus on Self-Directed IRAs

August 9, 2018 - Media Clips

 

Real Daily, which seeks to enrich, enlighten and empower readers to make informed choices that will positively impact their financial lives, recently published the article, “5 Reasons You Need a Self-Directed IRA.” The piece, which cites insight from McManus & Associates Founding Principal John O. McManus, begins with an overview:

·           Self-directed retirement accounts, known as a self-directed individual retirement arrangement (IRA), were created in 1999 by an act of Congress after intensive lobbying of small business owners and associations.

·           The beauty of a self-directed IRA is it allows you to invest up to $6,500 into a tax-deferred account where you control the investments. Many of those investments include alternative vehicles not available in a traditional IRA.

·           These alternative investments include real estate, private mortgages, private company stock, oil and gas limited partnerships, precious metals, horses, and intellectual property.

The first reason why one should consider opening a self-directed IRA is higher returns. Per the article, “The number one reason investors use self-directed IRA accounts is the ability to pursue much higher returns compared to stocks and bonds. If you make a 25% return on a real estate investment and are able to build on that profit cumulatively for 10, 30, or 30 years it can be life-changing.” The story goes on to quote McManus:

“If you understand investments, particularly in certain segments, you can take advantage of higher yields and maybe less volatility,” John O. McManus of the estate-planning firm McManus & Associates in New York and New Providence, New Jersey told NerdWallet.

McManus has invested in real estate and other assets through a self-directed IRA for about 15 years, he says.

A self-directed IRA also lets McManus invest in companies that aren’t publicly traded, which “a mutual fund will not allow you to do,” he says. But, he warns, “this is not a game for the unsophisticated.”

The following four reasons to consider a self-directed IRA include:

·       Better diversification

·       Investing in private equity

·       Putting assets to work

·       Investing in cryptocurrencies

Click here to read the full article, including more information about the five arguments in favor of a self-directed IRA, as well as the risks of self-directed IRAs.

To discuss your investment strategy as it relates to your wealth management plan, call McManus & Associates at 908-898-0100.

Trust & Estates Publishes Article by McManus on Evergreen Estate Planning Techniques

July 19, 2018 - Bylines, Media Clips

The below article written by John O. McManus was published in Trust & Estates‘ newsletter “The Estate Planner” and on wealthmanagement.com.

 

 

 

Five Estate Planning Tips that Remain Relevant Regardless of Shifting Political Winds

Add them to your clients’ to-do lists.

By John O. McManus | Jul 18, 2018

There are important estate planning techniques that aren’t directly affected by legislation and changes in tax law, but that can still make a big impact on wealth preservation. From regularly updating a will to consistently moving assets off a balance sheet, here are five estate planning items that should be added to your client’s to-do list.

Schedule Routine (Estate Planning) Checkups

Make sure clients regularly update their health care documents and wills.

Ask clients to consider whether the individuals named in their documents are still appropriate. Think about positions including power of attorney (POA), health care agent, guardian for minor children, trustees of an irrevocable or testamentary trust, trust protectors and trustee appointers (if any).

Ask the client questions, such as:

Has the client’s relationship with any of the people named changed?
Has the client’s life situation of any of those named changed?
Has the health of any of those named changed? If a client’s parents were initially named as guardians 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 a client’s trusted POA moved across the country and can’t now serve in an emergency, a new POA should be named.

Next, clients should also consider whether the beneficiaries named are still proper. Ask the client questions, such as:

Are the amounts left to each beneficiary still appropriate?
Again, how’s the client’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.) the client now wishes to include? Or have the client’s documents been drafted 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.

“Do it for the Kids”

Set up trusts for your clients’ 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 a client’s children and grandchildren allows him to tap into this reliable wealth transfer mechanism without the damage of gifting assets to them outright. With this strategy:

Assets will be held 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 client’s spouse should be added as a beneficiary, and the grantor should retain the power to take loans from the trust.

Move Assets off Your Clients’ Balance Sheets

Have the client 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 have the client 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’s exempt from estate tax.
Have the client sell business interests when the value is modest so that growth takes place outside of his 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 3-year look-back. If a client gifts life insurance into his irrevocable trust and passes away within three years, the Internal Revenue Service will claw that asset back into his estate. The sale prevents this.

Make the Switch

Swap low basis assets out of your client’s trust.

Assess the income tax benefits of holding assets inside a client’s estate versus the estate tax benefits of pushing them outside of his 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’s a carryover of the original basis – meaning there’s no step-up. Although the asset is now outside the grantor’s estate for estate tax purposes, on 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.

The opportunity to achieve the step-up is available now and should be seized. It’s highly likely that the strategy will be advantageous to undertake at any time in the near future, with minimal downside risk.

Give Precedence to Giving Back

Use foundations and charitable trusts to make philanthropy a focus for your client’s family and to help him 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.

NYT Selects McManus’ Comments on End-of-Life Op-Ed as “Times’ Pick”

January 8, 2018 - Bylines, Guidance, Media Clips

Karen Brown, a reporter at New England Public Radio, contributed a heartbreaking op-ed to The New York Times that was published over the weekend. In the piece, “This Was Not the Good Death We Were Promised,” Karen shares the story of her father’s death…and how his final time on earth fell short of what he (and she) wanted – from the article:

But at the very end, confronted by a sudden deterioration in my father’s condition, hospice did not fulfill its promise to my family — not for lack of good intentions but for lack of staff and foresight.

John O. McManus, founding principal of McManus & Associates, was moved by the piece and wanted to reach out to Karen. Below is the comment that John submitted in response to the article, which was selected as one of only 16 “Times’ Picks” out of more than 750 reader comments and has already been recommended over 120 times.

Dear Karen,

I too, am saddened by your loss. What an elegant job you do outlining the issues, and an evolution in hospice care will come.

Running an estate planning law firm, I see our team confronted with the passing of loved ones more frequently than we would ever wish.

What strikes me most was how wonderfully you and (ostensibly) your siblings were there with your father “curled up with him” as he undoubtedly curled up with you in your youth, a heartwarming demonstration of the cycle of life and family.

Indeed your father was not in an enviable position in his final hours, but your father has so much for which to be thankful in his final months as you all comforted and tended to him. The stories of each of you, your father’s children, making your daily sacrifices, no doubt skipping work, time with your own children and social commitments, never cease to significantly move me showing the power of humanity to comfort loved ones and the strength and commitment to the family bond.

Despite those final hours, I submit that your father was — and if you believe in an afterlife — your father is happier than you might ever give yourself credit to appreciate. Your work sends a great message to your children.

McManus & Associates is here to provide guidance to you and your family on the creation of a plan that will do everything possible to help avoid heartbreaking situations like Karen’s. Reach out to us at 908-898-0100.