New IRA rules benefit the living, but not so much their survivors. The May 2019 SECURE Act restricts the tax-advantage IRAs that were benefiting spouses, children, and even grandchildren. In a conference call today with McManus & Associates clients, the firm’s Founding Principal John O. McManus educates on the Act’s changes to IRAs and how estate planning strategies should be modified as a result. Listen to the discussion by hitting play, and review an overview of the discussion with the outline below.
1. The SECURE Act is here.
The Setting Up Every Community for Retirement Enhancement (SECURE) Act was introduced to the U.S. House of Representatives by Rep. Richard Neal (D-MA) as H.R. 1994, where it was passed by a 417-3 vote in May, 2019. It was then attached to the Senate’s end-of-year appropriations act, and thereafter signed into law by President Trump right before the end of the year. It has officially taken effect with the start of 2020.
2. The SECURE Act is being pitched as a means of making retirement more attainable for more Americans.
Lawmakers have prominently highlighted the delay of the beginning age for required minimum distributions from 70½ to 72 and the elimination of the prohibition on contributions to an IRA after age 70½.
3. The touted benefits of the SECURE Act are derived from the termination of the “stretch” (at a potential cost to your family).
To offset the budgetary impact of these modifications, the Act ends the “stretch” provision of IRAs and 401(k) plans. This means that, with some exceptions, the distributions of IRAs and other qualified retirement plans must be made to beneficiaries within 10 years of the death of the participant, instead of over the beneficiary’s lifetime.
4. This change now demands a shift in the estate planning best practices.
The benefits of designating grandchildren or significantly younger children as the beneficiaries of retirement accounts, rather than older, financially independent children, are significantly diminished because they will no longer benefit from tax-deferred growth over the course of their (longer) lifetimes.
5. There are now increased concerns about the use of “conduit trusts” under a Will or Revocable Trust.
If you have implemented a conduit trust as part of your estate plan, the lump sum distribution of the retirement account in the tenth year exposes the net proceeds to marital issues, litigation, creditors, and other attacks.
6. Consider an accumulation trust instead.
In most cases, it continues to be advisable to deploy an accumulation trust under a Will or Revocable Trust in order to best secure the proceeds of the retirement account from vulnerabilities.
7. Charitable Remainder Trusts and retirement accounts.
Such trusts can help to reduce the tax consequences of a large income event when the account is required to terminate and, if the estate is subject to estate or inheritance tax, a deduction is available because a charity is the beneficiary when the Trust ends.
8. Life Insurance as a means of mitigating the income tax fallout.
Life insurance can provide liquidity to pay the income tax at the final distribution in the tenth year or, in the case of a Charitable Remainder Trust, help to ensure that a legacy passes down to the grandchildren.
9. Preparing heirs for the inheritance.
Since the SECURE Act so clearly affects your youngest, perhaps least financially independent heirs, these changes may present a teachable moment to better educate them about exposure to wealth they may inherit, issues that can dramatically impact an estate plan, and the importance of developing financial responsibility and other productive habits.
10. Review the benefits of a Roth IRA.
For many, especially those who may not need required minimum distributions for quality of life expenses, it may be worth performing a tax analysis to determine whether conversion to a Roth IRA will have a more meaningful wealth transfer impact for heirs.
Regardless of your personal
political leanings, the 2020 Election results will likely impact estate
planning as we know it today. Certain estate planning strategies will likely evaporate
if there is a Democratic sweep in Congress and the presidency. Take advantage
of current estate planning opportunities and strategies since there is no
certainty that they will be preserved in their present form after the 2020
Election. For example, Bernie Sanders’s proposed For the 99.8 Percent Act (the
“99.8 Percent Act”) that was introduced in the Senate in 2019 includes the
following changes: decreasing the gift
tax annual and lifetime exclusions; decreasing the estate tax exemption;
eliminating valuation discounts; placing restrictions on GRATs; eliminating the
use of grantor trusts; and limiting the duration of dynasty trusts to 50 years.
This proposed Act could be a template for future legislation proposals.
In a conference call with clients this week, John O. McManus, founding principal of McManus & Associates, offered existing wealth preservation and growth strategies and recommendations to consider for immediate action. Listen and review below:
1. Consider making larger gifts now before the annual gift exclusion is lowered
The 99.8% Act would sharply limit
the annual gift exclusion to $10,000 per donee (currently $15,000) and $20,000
per donor; the lifetime gift exclusion would be decreased to $1 million. The
annual exclusion was meant to shield from tax and recordkeeping the usual
giving done around holidays and birthdays. This extremely low limit per donor would
greatly affect planning at all levels and would particularly affect the funding
of irrevocable life insurance trusts and prefunded 529 plans. Gifts over the $20,000 per donor limit would
require you to use the proposed $1 million lifetime gift exclusion. The lifetime gift exemption, which is currently
$11.58 million for 2020, is the amount of assets that can be transferred out of
your estate during your lifetime without having to pay any gift tax. Therefore, in some cases the maximum annual
gifting should be done now before there is a possible reduction of the
exclusion. If you make annual gifts to
ILITs and other trusts, you may want to consider making a larger gift now
utilizing the larger available exclusion to fund the trusts.
2. Utilize the current 2020 $11.58 M estate tax exemption per person, before it is lowered to $3.5M per person
The 99.8 Percent Act seeks to raise
the present estate tax rates to the following:
$3.5 million to $10 million 45%
$10 million to $50 million 50%
valued at $55 million or more 55%
valued at $1 billion or more 77%
Under the 99.8 Percent Act, a
married couple would only get a total combined estate tax exemption of $7
million. If this amount is placed in trusts, the $7 million would double every
12 years and the total assets in the trusts will be only $28 million free of
tax. This is a significantly lower
number than if the current joint exemption of $23.2 million was placed into
trust. Furthermore, with the elimination
of discounting discussed later, the restriction on gifting would be even more
significant. Not only is the growth lower, but there remains a significant
amount of assets in your estate because of the loss of discounting, as well as
less assets being transferred into trust.
Gifting is most efficient when done
as large as possible, since the limits may be lowered and now is the time to do
as much as possible before the paradigm shifts to make this a less useful
option. The assets gifted and their appreciation over your lifetimes are not
subject to federal estate tax at the end of your lifetime.
However, making such large gifts to
utilize the large exemption may require that you have access to the transferred
assets. This access can be achieved by
setting up a credit shelter trust: one spouse creates the trust and the other
spouse is named as a beneficiary so that distributions can be made at any time
for their needs. The spouse who is the beneficiary is also appointed as trustee
and will retain control over the management of the trust assets. In order to provide flexibility to access the
trust assets, the spouse who created the trust reserves the power to remove and
appoint trustees, receive loans from the trust, and reacquire assets from the
trust by substituting assets of equal value into the trust.
Therefore, in order to avoid last-minute
planning should the exemption drop to $3.5 million, you should do your planning
now before any possible changes, especially if you have been waiting to plan
because of the current high exemption.
3. Take advantage of valuation
discounting before the strategy is eliminated
Valuation discounting has been an
area of IRS scrutiny for many years. The proposed 99.8 Percent Act would
eliminate valuation discounts applied to intra-family transfers by gift or
inheritance, which has driven a lot of estate planning strategy.
The current version of the 99.8
Percent Act proposal if adopted would have a major impact on the way assets can
be discounted for estate planning purposes. No discounting would be permitted
if the transferee and family members have control or majority ownership; this
would effectively eliminate the discount strategy.
Therefore, you should consider
creating a family partnership – or making additional transfers of family
partnership interests – since the valuation discounting opportunity may soon
disappear. Currently, since non-managing interests possess limited authority,
the fair market value can be discounted for lack of control and lack of
marketability. For example, with the currently available discounting, a 50%
noncontrolling interest in your real estate investments could be worth $3.25 million
for gift tax purposes instead of their fair market value of $5 million. In
addition, the assets grow outside of your estate in a tax-efficient trust.
4. Utilize short-term and
mid-term Grantor Retained Annuity Trusts (GRATs)
Restrictions outlined in former President
Obama’s annual Greenbook are incorporated into the 99.8 Percent Act and could
be pursued by Congress. One of the significant proposals of the 98.8 Percent
Act is requiring a minimum GRAT term of 10 years and requiring a minimum
remainder interest of not less than an amount equal to the greater of 25% of
the trust value or $500,000. This
effectively eliminates the potential for zeroed out GRATs where the remainder interest
has a zero value. Also, rolling two-year
GRATs would not be possible.
The 99.8% Act would serve to prevent
perceived abuses of GRATs by barring donors from taking assets back from these
trusts just a few years after establishing them to avoid gift taxes (while
earnings on the assets are left to heirs tax-free). This strategy has cost the
Treasury $100 billion since 2000.
the purpose of the GRAT is to make a loan of investment assets to your children
or loved ones. Your loved ones benefit from any growth above the initial
contribution. To be valid, the original contribution must be paid back (with
modest interest) in installments over a fixed period of years.
key? The grantor must outlive the final repayment. If you die before the final
payment, all of the growth that would have been otherwise excluded is now
destroyed and reverts back to being included in your estate. The 99.8 Percent
Act could dissuade taxpayers from taking advantage of GRATs by setting a 10-year
minimum term for the GRAT. This would mean that there would be gift tax
consequences for the first time for an historically gift-tax free strategy.
the ideal GRAT plan chooses investments that will accelerate most rapidly in
value during the GRAT’s term. After the final payment is made, the result is
that all growth over the original amount is out of your estate and excluded for
estate tax purposes and without any gift tax consequences. Any assets remaining in the GRAT (after all
annuities have been paid back) should continue to be held in trust for the
benefit of the grantor’s spouse and children.
established now would be protected by law. Before changes go into effect, we
recommend the creation of two GRATs:
GRAT: Since you must survive the term of the GRAT, a short-term GRAT of two
years will minimize the risk of significant wealth failing to pass tax-free
because the grantor dies prior to its completion.
GRAT: We also suggest a longer term GRAT, between five and seven years, to
avoid the risk that you get caught short if the law changes with only the
option to do 10-year GRATs. Mid-term GRATs would be grandfathered and could
continue without any consequences during the next four years of a Democratic
Congress or presidency.
5. Anticipate the loss of use of
The 99.8% Act would prevent wealthy
families who currently avoid gift tax by paying income taxes on earnings
generated by assets in grantor trusts from doing so. The Act would include in the taxpayer’s
estate any assets in his or her grantor trusts, as well as any distributions
from his or her grantor trust during the lifetime of the grantor. Any assets in
a grantor trust that is converted to a non-grantor trust would also be included
in the grantor’s estate.
If you have been considering establishing
or using a grantor trust, there is urgency to start the process and move assets
into trust now, as it may no longer be an option starting in 2021.
The sooner one starts, the better
the chance of being able to adequately set up a trust that can be grandfathered
in. While this legislation and paradigm shift may not necessarily go into
effect immediately, this option might only be available for the next year or
so. To wait longer is to risk the unknown and to potentially lose the
opportunity to utilize this strategy.
Reach out to McManus & Associates
should you have questions about these opportunities and strategies.
There are several tax and estate planning strategies that high-net-worth individuals (HNWIs) should consider seizing upon before year-end. In a conference call with clients today, John O. McManus, founding principal of McManus & Associates, weighed in on timely topics for the benefit of clients, from legislative initiatives that may impact estate planning to why an estate plan needs to include provisions governing digital assets. Below, listen to the call recording and find an outline of the issues covered during the discussion:
What legislative initiatives and political
current events may impact estate planning? If enacted, the SECURE Act will drastically limit the
ability to “stretch” an IRA for your children and the estate and wealth tax
proposals of the Democratic candidates for President may suggest urgency in
need to complete wealth transfers.
How does being diagnosed with a significant
health problem impact the estate plan? It is best to re-focus on the estate plan and have
difficult conversations with family members and advisors as soon as reasonably
possible because of the elevated concern about incapacity or demise.
Why should major life events cause one to
re-visit the estate plan? Marriages or divorces in the family, the acquisition of new
assets or investments, starting a business can all serve to undermine the
intended estate plan or create a new blind spot or vulnerability.
What are the important principles in planning
for the modern family? Blended
families, same-sex marriages, single-parent families, and domestic partnerships
each raise their own nuanced considerations, which places a greater emphasis on
a specialized and flexible approach.
Why and how should you discuss your estate
plan with your children? Discussing
death, taxes, and asset protection may be uncomfortable, but they are essential
to best prepare your heirs for their inheritance.
What is a family mission and how can it be
integrated into the estate plan? It is important to consider imparting sentiments in
support of the family legacy, such as preserving family traditions and
What are the risks of failing to properly plan
for the disposition of a specific asset, such as a home, personal effects, a
business, or even frequent flyer miles? Items that may have a sentimental value or disproportionately
favor one child over another may cause divisiveness and other
What estate planning lessons can be drawn from
the Financial Independence, Retire Early (FIRE) movement? Prudently structuring discretionary
trusts can avoid an outcome in which children are deprived of their motivation
for self-sufficiency and can also provide opportunities for them to amplify
their personal wealth.
Once an estate plan is completed for the time
being, what are the practical steps that should be taken to protect the
documents and other important information? Current best practices include various options
for physical and electronic storage to ensure these materials are readily
available during an emergency or tragedy.
Why must an estate plan include provisions
governing digital assets, including web-based accounts and cryptocurrencies? Wills, Trusts, and Powers of Attorney
should specifically authorize a fiduciary to have access to all information,
including online and digital passwords to ensure efficient access to accounts.
Having cross-border ties is enriching for families, but also creates unique challenges, from special asset-reporting requirements to obstacles related to the appointment of guardians for your children. John O. McManus, founding principal of McManus & Associates, today shared insight with clients on 10 important considerations for families with multinational interests. Click play below to listen to the call recording:
What are the obstacles when appointing guardians who reside overseas? Since the Court oversees the appointment of guardians for minor children and the participation of other government agencies is required, the process for transitioning a child’s residency from the U.S. to a foreign country is lengthy and costly.
What should you know about income taxes when you begin a career in a new country? U.S. citizens working internationally continue to have U.S. tax obligations (in addition to foreign taxes) and must consider how these different taxes are interrelated.
What is a “covered expatriate” and why should you avoid being classified as one? If you surrender your green card after maintaining it for 8 of the last 15 years, you may have exposure to current and future taxation in the U.S.
What are the U.S. reporting requirements in connection with international assets and the penalties for failing to satisfy them? The failure to notify the IRS about an inheritance received from a non-resident or certain accounts held in a different country can result in significant monetary and criminal penalties.
What are the gift and estate tax concerns when you are married to a non-U.S. citizen? Without proper planning, transfers to a spouse who is a non-U.S. citizen may be unnecessarily subjected to gift and estate tax.
How do gift and estate tax affect Non-Resident Aliens with U.S. assets or U.S. beneficiaries? Non-Resident Aliens only have a $60,000 lifetime gift exemption and estate tax exemption, meaning that Federal taxation of their U.S. assets upon death can be punitive.
Why should Non-Resident Aliens consider life insurance? Life insurance may have a number of uses for a Non-Resident Alien’s heirs and it has the additional benefit of not being taxable in the U.S. as part of the estate.
How can a Wealth Transfer Plan mitigate anticipated estate tax on a Non-Resident Alien? Non-Resident Aliens should strongly consider the use of protected Trusts to hold assets which would otherwise be subject to U.S. estate tax upon death and to keep those assets out of the estates of their U.S. beneficiaries.
What are the estate planning and estate administration implications of owning a property located in a different country? Each nation has its own tax and procedural rules regarding the transfer of wealth during lifetime and after death which must be evaluated to ensure the foreign assets are received by the intended persons as efficiently as possible.
What must you know before making a donation to a foreign charitable organization? Gifts made to charitable organization based overseas may not be deductible for U.S. income tax purposes unless certain requirements are met.
For years, real estate has been in the doldrums following The Great Recession, but this is beginning to change. McManus & Associates Founding Principal John O. McManus today discussed considerations for real estate investors, from basic to sophisticated, during a conference call with clients. Below, press play to listen to the call recording and read about the 10 issues covered during the discussion:
How can landlords solve for concerns regarding liability and mitigate risk pertaining to investment properties? All real estate investors must consider a Limited Liability Company and Umbrella Insurance, which are cost-effective solutions to provide peace of mind and protect personal wealth in the event of litigation in connection with a property.
What is cost segregation and how can it aid in minimizing income taxes? Owners and developers of real estate acquisitions made within the past decade may consider an analysis to understand the benefits of accelerated depreciation and greater tax deductions.
What are the advantages of being characterized as a real estate professional? Investing sufficient time in the management of your properties allows property owners to offset income with rental losses and to avoid net investment income tax of 3.8% on rental income.
What are the benefits of a 1031 exchange and what steps must be followed to implement? This common strategy for the deferral of capital gains requires a particular procedure to be followed in order to have the desired tax result.
What is a monetized installment sale and why might it be preferable to a 1031 exchange? The participation of a third party intermediary can both defer capital gains to be paid in increments over a 30-year period and allow for a step-up in basis when the sale proceeds are deployed into the next real estate acquisition.
What do we know about Opportunity Zone Funds? Uncertainty still surrounds the implementation of the recent Tax Code changes, but sophisticated real estate investors may find these partnerships to be appropriate vehicles for deferring and writing off capital gains.
What are the advantages of using a Family Limited Partnership as a real estate holding company? Family Limited Partnerships are multi-purpose entities which can consolidate management of real estate investments, enhance liability protections, and facilitate wealth transfers to the next generation.
What is a step up in basis and how does it impact the decision to gift real estate? Resetting the basis of a property based on a date of death value provides valuable advantages for loved ones who may continue to hold the investment or who decide to sell; however, gifting a depreciated property during lifetime can sacrifice this benefit.
What is the alternative to gifting a low basis property? Use a depreciated property as leverage to secure financing which can provide liquidity to fund a transfer of wealth, while also allowing an investor to preserve the step-up in basis by holding the property until death.
Why is life insurance an essential planning consideration for real estate investors? Life insurance can be a tax-free tool to provide readily available cash to pay for estate taxes, fund a cross-purchase agreement, or facilitate property acquisitions between family members.
Income tax planning should go hand-in-hand with efforts to preserve and compound your estate. John O. McManus today discussed with clients key opportunities to maximize income tax savings.
Listen to the discussion and review important points below:
Review Your Plan: Given the significant tax law changes on the State and Federal level over the past several years, it is important to review existing Wills and Trusts to ensure that income tax efficiency is maximized.
Evaluate cost basis of assets gifted to irrevocable trusts, which will not receive a step-up in basis.
Determine whether irrevocable trusts have swapping or decanting powers.
Re-visit the use and implementation of Testamentary Credit Shelter Trusts (see below).
Basis and Testamentary Credit Shelter Trusts: It is important to preserve the flexibility to benefit from a step-up in basis upon the surviving spouse’s death.
Credit Shelter Trusts, which utilize State and Federal estate tax exemptions, typically do not allow for assets to receive a step-up in basis upon the surviving spouse’s death.
Since the estate tax exemptions have dramatically increased in the past decade, fewer families are impacted by estate tax.
This means that a Credit Shelter can do more harm than good because:
o the children would not have been subject to estate tax even without a Credit Shelter Trust.
o the children will have to pay capital gains on the assets of the Credit Shelter Trust when they sell them.
If it becomes evident that estate tax is not a concern, a power can be included in the Credit Shelter Trust to cause the assets to be included in the surviving spouse’s estate upon his or her death to achieve the step-up in basis.
Paying Retirement Accounts Forward: If you inherit a qualified retirement account, you should consider disclaiming it to the next generation in order to extend the tax-deferred appreciation of the investments.
If you do not require the use of the retirement account investments inherited from a parent, a disclaimer within 9 months of the date of death can provide a significant tax benefit.
The required minimum distributions of the IRA will be based on your children’s ages, meaning the required minimum distributions will be significantly less and allowing for more assets to remain in the account to appreciate in value income tax-free.
Using Assets as Leverage for Gifting: Using appreciated assets as leverage can provide for a wealth transfer opportunities to minimize estate tax without sacrificing a step-up in basis upon death.
It is common to gift significant assets as part of a wealth transfer plan to minimize future estate tax.
However, in doing so, the assets do not receive a step-up in basis upon the donor’s death.
If the family sells the assets soon after, the estate tax benefits are muted because the capital gains tax must be paid.
As an alternative, explore financing for the asset and gifting the cash to a protected, multi-generational irrevocable Trust.
The cash will then be invested, with any growth taking place outside of the estate and realizing the desired estate tax benefit.
The asset will remain in the estate to gain the step-up in basis and only the value of the equity in the property would be subject to estate tax.
NINGs and DINGs: There may be significant tax-savings opportunities to eliminate the imposition of State income tax on capital gains by establishing a Trust in Delaware or Nevada.
If you anticipate having the opportunity to sell a closely-held business or appreciated stock holding, you will have a significant State income tax (and on your Federal return, you will no longer be able to deduct that tax paid).
By forming a specially-designed Trust in Delaware or Nevada and hiring a trust company located there to administer it, you can then fund the Trust with the asset that will be liquidated.
Since the asset is intangible and is considered to be custodied outside the state of your residence, the State cannot impose income tax on the gain.
The Trust can also be structured so that it will not be subject to State or Federal Estate tax after your death.
Upstream Gifting: The sale of an appreciated asset to a specially-designed Trust for the benefit of a parent can provide post-liquidation tax benefits.
If there is high capital gains tax exposure for an investment that will be sold at some point during your lifetime, you might consider selling the investment to a Trust for the benefit of a parent.
By selling the investment, you do not use any of your estate tax exemption and you would hold a promissory note, the payment of which could be made by income generated by the investment.
The parent would be granted a power that would cause the Trust to be taxed as part of his or her estate.
Therefore, upon the parent’s death the investment would receive a step-up in basis, and it can subsequently be sold with minimum capital gains tax.
199A Qualified Small Business Deduction: The creation of non-grantor trusts for the benefit of separate beneficiaries can be used to expand the amount of Qualified Business Income that is deductible when income limits are exceeded.
Following the enactment of the tax law in 2018, taxpayers are entitled to a 20% deduction on qualified business income (QBI) from partnerships, LLCs, and S-Corporations.
If a single person’s taxable income exceeds $157,500 or a married couple’s taxable income exceeds $315,000, the deduction for QBI is then limited to 50% of the W-2 wages paid by the business or 25% of W-2 wages plus 2.5% basis of depreciable property.
A possible strategy is to establish non-grantor trusts (i.e. trusts specially designed so the creator is not considered to be the income tax owner) and transferring interest in the entity to the trusts.
Since each Trust is a separate taxpayer, all QBI in connection with the trusts’ share of the income would benefit from the full deduction presuming that each Trust’s taxable income does not exceed the $157,500 threshold.
Qualified Small Business Stock: The creation of non-grantor trusts can be used to increase the exclusion on capital gains when Qualified Small Business Stock (QSBS) is sold.
QSBS is a shares in C-Corporation holding less than $50MM in assets and which have been held more than 5 years.
The tax code currently provides an exclusion on capital gains of $10MM or 10 times the cost basis, whichever is greater, when QSBS is sold.
For the sale of QSBS in which capital gains exceeds the thresholds, the transfer of the shares to non-grantor trusts will provide a separate capital gains exclusion for each trust (once again, because each trust is considered to be a separate taxpayer).
Property Tax Deduction: The creation of non-grantor trusts can increase the Federal income tax deduction for property taxes paid.
The Federal income tax deduction for state and local taxes paid (including property tax) is currently capped at $10,000.
As a possible solution, a residence can be transferred to a LLC and then the membership interest in the LLC can be gifted to a separate Trust for the benefit of each child.
Each Trust would have the ability to deduct up to $10,000 in property taxes for Federal income tax purposes.
o This means that if you establish one Trust for each child and retain an equal percentage ownership in the LLC, you would keep your personal $10,000 property tax deduction and get an additional $10,000 property tax deduction for each Trust created.
o This concept could be extended to other beneficiaries, including grandchildren and other family members to further increase the amount of property taxes which would be deductible.
An important consideration is that each Trust should hold investment assets which generate sufficient income for which the property taxes could be used to offset the gain, interest, dividends, etc.
Income Tax Opportunities in Real Estate: Cost segregation and Opportunity-Zone Funds are tools that are becoming more prominent and all real estate investors should develop a familiarity with them.
Cost segregation allows accelerated depreciation for certain components of a property, meaning that taxable income can be offset to a much greater degree.
While the regulations for Opportunity Zone Funds are not completely finalized, these may be a viable investment vehicles to defer capital gains of all types.
o In order to qualify for the deferral of income tax, the amount of capital gains must be invested in a Fund within 180 days of a sale.
o Remaining invested in the Fund for 5-7 years can eliminate up 15% of the original capital gain.
In order to be eligible for the 5 or 7 year basis readjustments, investments in a Fund must be made by the end of 2021 or the end of 2019, respectively.
o Remaining invested for 10 years eliminates capital gains on all of the appreciation after the investment in the Fund.
o The original capital gains that was deferred must ultimately be realized by December 31, 2026 and the tax will then be due.
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.
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.
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.
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.
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.