Conference Call: Ready to Retire! Top 10 Ideas

John O. McManus, who founded McManus & Associates in 1991, has outlined the most important things that those in retirement, as well as those planning to retire, should carefully consider to protect themselves and their families. During a new conference call — part of a complimentary educational series provided by the firm — John explores the 10 issues below. Click the link to hear the 30-minute discussion.

LISTEN HERE: “Top 10 Considerations for Those in Retirement and Those Planning to Retire”

  1. Re-titling retirement accounts rolled out of a group plan and revisiting your financial plan with your advisor.
  2. Medicaid trusts and the eligibility period for elderly parents.
  3. The value of long-term care insurance and replacement of group term insurance.
  4. Effective gifting to descendants to retain access and/or control in trust.
  5. Moving out of state and the resulting domicile and residency issues.
  6. State estate taxes (a preview of the best states to move to for estate tax purposes and which have the best quality of life).
  7. Creating a family mission statement and all that it entails.
  8. Increased charitable giving (planned gifts, charitable lead trusts, charitable remainder trusts, foundations, and consideration of board memberships).
  9. Issues surrounding part-time consulting work and creating a business entity.
  10. Issues pertaining to real estate investments (ownership in an LLC or trust or sale to children in trust).

We’d love to help you learn more. Please give us a call at (908) 898-0100 or reach out via our Contact page.

McManus & Associates Named Winner of Corporate INTL Magazine Global Award for Asset Protection Law

Corporate INTL Magazine has chosen McManus & Associates, a Tri-State area-based trusts and estates law firm, as the winner of the 2012 Corporate Intl Magazine Global Award for Asset Protection Law, Firm of the Year in New Jersey. The nomination, research and judging process took a full 12 months.

Established in 2005, Corporate INTL is one of the leading monthly titles for business leaders, professional advisers and providers of finance throughout the world. The publication, distributed to over 70,000 readers each month, offers unique business insight with discussion on domestic and international matters from leading experts.

Corporate INTL’s Annual Awards celebrate excellence with recognition of the world’s top advisors and financiers across an array of countries around the globe. The awards honor those who have been active over the past year and who have demonstrated merit not only in expertise, but also in service.

To view all recent honors and recognitions received by McManus & Associates, visit https://mcmanuslegal.com/about-us/honors-and-recognitions/.

We look forward to the opportunity to help protect your assets and family.

Bloomberg: “Romney Tax Returns Show Strategy for Moving Money to Kids”

Sharing his expert knowledge for an article taking a closer look at the estate planning techniques used by GOP nominee Mitt Romney to minimize taxes and build millions of dollars in wealth, McManus & Associates Founding Principal and Attorney John O. McManus recently spoke with Bloomberg Reporter Margaret Collins.

As noted in the piece, in addition to establishing a family trust in 1995, the Romneys set up a charitable remainder unitrust, or a CRUT, in 1996. Within the article, McManus estimates that:

The Romneys also set up a charitable remainder unitrust in 1996, according to state financial disclosure documents. The trust, also known as a CRUT, moves money out of an estate by donating it to charity and has two additional benefits for the creator, said John O. McManus, principal at the law firm McManus & Associates in New Providence, New Jersey, and New York.

The maker of the trust receives some tax deduction for the value that is expected to go to charity and receives payments from the trust for a set period before the assets transfer, McManus said.

With the help of a variety of estate planning strategies, Mitt and Ann Romney have been able to “amass at least $100 million for their family outside of their estate.”

Read the whole story here. The team of lawyers at McManus & Associates would be happy to discuss the techniques used by the Romneys and develop a plan to help you protect and build your family’s wealth.

Conference Call: Top 10 Topics on the $5MM Federal Gift Tax Exemption – Is It All Hype?

There are just a few months left to address what some practitioners are calling the end of the “golden age” in estate planning. During a conference call in August 2012, John O. McManus, trusts and estates planning attorney and founding principal of McManus & Associates, discussed the “Top 10 Topics on the $5MM Federal Gift Tax Exemption” below.

LISTEN HERE: “Top 10 Topics on the $5MM Federal Gift Tax Exemption – Is It All Hype?”

1. The propaganda – why is it called the “golden age”?

  • Gift tax exemption was always $1.0MM, meaning any gift in excess of that amount was subject to gift tax at a rate of up to 55%.
  • The exemption was increased to $5.0MM, dramatically increasing the ability to make tax-free gifts.

2. The deadlines – what actually happens on January 1, 2013?

  • Exemption retreats back to $1.0MM.
  • It will take an act of Congress to increase the exemption over $1.0MM.

3. Future tax rates – what is the new estate tax rate starting January 1, 2013?

  • There will be a 55% rate for estates in excess of $1.0MM.
  • This is an increase of 20% over the current 35% estate tax rate.

4. Future tax benefits – what about projected appreciation of the gift?

  • Once transferred, it is not just the gift that enjoys the exemption, it is also the growth that is outside the estate.
  • The entire amount is free from both federal and state estate tax.
  • Depreciated real estate and securities enable a gift of underappreciated assets.

5. State Estate Tax – what is the net state tax benefit if the $5.12MM Federal Exemption Amount remains unchanged?

  • NJ: 8-12% on average, with the top rate at 16% for an estate over $10MM.
  • NY: 3.5% to 12.45% for estates from $1.1MM to $15MM.
  • CT: over $2MM a 7.2% rate; up to 12% for estate over $10MM.

6. State gifting limitation – is Connecticut’s $2.0MM gift tax free limitation the beginning of a trend?

  • CT was the first state to reduce its estate tax exemption and is the only state that currently imposes a gift tax.
  • 7.2% rate on gifts over $2MM; up to 12% for estate over $10MM (same as estate tax).
  • Of the states that impose an estate tax, CT was one of the more liberal with respect to estate tax exemptions. There is a concern that states with more confiscatory tax regimes will consider following suit, particularly if the federal estate tax exemption does not retreat back to $1.0MM.

7. Gifts transferred into trust – is there any opportunity to access the gift or to change the beneficiaries?

  • Yes, the grantor can appoint the spouse as trustee and beneficiary, which we recommend.
  • The grantor may retain the option to borrow from the trust.
  • If drafted correctly and with precision, there can be an opportunity for the grantor to receive the assets back after the spouse beneficiary dies and if there has been dramatic reversal in his or her personal finances.
  • For years, we have had clients who wanted to move $1.0MM out of their estate to take advantage of the exemption, but they were concerned about access to the trust assets.  Now that the exemption is increased to $5.0MM, this concern is exacerbated. As a result, we have developed a structure that allows for significantly greater flexibility.
  • We also support procuring an insurance policy on the life of the spouse who is the trustee and beneficiary of the trust. If the spouse dies, there are then meaningful liquid assets available to the grantor to replace the spouse’s access to the trust as trustee and beneficiary.

8. Asset protection – can the gift truly be protected from creditors and plaintiff’s lawyers?

  • Yes, and the spouse can serve as the trustee.
  • We favor institutional trustees to accomplish this aim, and, at a minimum, we must preserve the right to transfer the situs of the trust to another state with stronger asset protection statutes.
  • The trust can protect the assets from attack for those in high-risk professions, such as physicians, or those in second marriages, where the spouse wants to ensure the assets pass to the children of the first marriage.

9. Planning limitations after the gift is made – are there any additional strategies or is it just “one and done”?

  • No, additional gift tax-free funding can take place provided that there is an unused amount of credit available. For example, if the gift tax exemption settles at $3.5MM in 2013, and a $2.0MM gift was made in 2012, there would still be a $1.5MM gifting opportunity.
  • The trust can also purchase certain components of the family wealth which exceed available credits using the assets of the trust as down payments. These more valuable assets may constitute the more aggressive portion of the overall portfolio, so all prospective growth is outside of the estate.

10. What does President Obama say about the exemption? What does Candidate Romney say about the exemption?

  • Mr. Obama wants to return to the 2009 levels. That would mean an estate tax exemption of $3.5MM and a gift-tax exemption of $1.0MM. The proposed top tax rate for both would be 45%.
  • Romney wants to eliminate the estate and gift tax all together. He is taking the Republican party line to broaden his appeal to conservatives, even though he comes from one of the most liberal states in the nation.
  • We have a mounting deficit, which will need, in part, to be bailed out with taxes.

BONUS

11. What assets you use to fund the trust and why now if you wish to gift only $1.0MM?

  • Many of those that we represent who are rushing to get some assets into the trust are using their residence or cash and then determining their approach for investing the money later. The residence can also be sold and the cash used for other investments or to purchase another piece of real estate.
  • Others are using cash to buy large life insurance policies to “supercharge” the trust, and guarantee a significant return or investment after they pass away.
  • Clients who want to give $1.0MM may say that there is no rush, but we always believe in the merit of (i) getting assets off the balance sheet; (ii) having those assets protected in a trust; and (iii) enjoying future growth that avoids federal and state estate tax.

McManus & Associates would welcome further discussion as you consider taking advantage of the “golden age” by December 31, 2012.

Conference Call Recording: “Preserving the Family Retreat: Top 10 Planning Strategies”

This year presents a wonderful opportunity to take advantage of the $5MM exemption (combined $10MM between husband and wife) to move businesses, private equity ownership, stock portfolios, or cash out of your name and into trust for the benefit of loved ones. The chance to transfer real estate into trust is a very popular choice, as well.

For years, there have been numerous strategies available to transfer real estate in a tax-efficient manner, but this year there is increased flexibility. The advantages and disadvantages to choosing one’s second residence as a funding source for the $5MM exemption should be considered. For many, a second residence serves as a place of rich memories, a place for the family to still gather, and a place you hope your children and grandchildren will continue to enjoy. By putting this asset into trust, you will have created greater assurances that this home or a successor home will remain in the family for many years.

Strictly from a financial standpoint, is real estate the best asset to transfer? The answer may be that in some instances we are not able to get the best discounted value. On the other hand, since real estate is naturally discounted due to current market forces, it may present the best financial and emotional option.

McManus & Associates invites you to investigate these and other relevant planning issues for second residences.

LISTEN HERE: “Preserving the Family Retreat: Top 10 Planning Strategies”
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The following are the topics that are covered during the discussion:

1. Joint tenants with rights of survivorship (the typical ownership between husband and wife) – what protections does it afford?

2. Planning with LLCs – what are the strategies for anonymity and tax planning?

3. Revocable Living Trusts – is it just about avoiding probate for out-of-state summer homes?

4. Qualified Personal Residence Trusts – allow for great discounts, but is it an appropriate strategy to use with the $5M exemption?

5. Lifetime Credit Shelter Trusts – don’t allow discounts other than market discounts, but is the flexibility with the trust worth the loss of discounts?

6. Funding a trust with life insurance or other assets to provide liquidity – who pays the bills to fund the expenses for the residence and how does this affect the family dynamics?

7. Lifetime trusts for children after parents pass away – is the asset protection for children in their marriages and the exemption from general skipping transfer tax worth the effort?

8. Use of the trust as a vehicle to hold properties located in New York by owners who work in, but live outside of New York – are there strategies to avoid the income tax on non-New York residents using a trust?

9. The family mission for seasonal/vacation residences – does having the family home preserved in trust for generations lead to more stress and divisiveness for your children or does it achieve your goal of creating generations of happy family members at the retreat?

10. Important, but often overlooked, clean-up paperwork related to real estate transfers – how critical is it to confirm that all deeds have been retitled, all tax forms filed, and lease agreements executed?

McManus & Associates would love to help you determine the best way for you and your family to take advantage of the $5MM exemption.

Star-Ledger: McManus Named One of NJ’s Top-Rated Lawyers

We are excited to share that McManus & Associates Founding Principal John O. McManus has been named one of New Jersey’s Top Rated Lawyers by Inside Jersey: The Star-Ledger Magazine’s “Best of NJ” issue for August. The honor also appeared within The New Jersey Law Journal.

We invite you to check out the feature in print on page 21 of Inside Jersey. A preview of the section on recommended law firms and attorneys in New Jersey can be found online here: http://www.law.com/jsp/law/ads.jsp?p=newjersey_reprints.

As mentioned in the piece, the McManus & Associates family is honored to help protect your family wealth and values.

July 12, 2012 editions of Inside Jersey and the Star-Ledger

McManus Awarded Membership in International Society of Trust and Estate Practitioners

McManus & Associates is excited to announce that the firm’s founding principal and estate attorney John O. McManus has been awarded membership in the Society of Trust and Estate Practitioners (STEP), which is the leading worldwide professional body for practitioners in the fields of trusts, estates and related issues. The firm is honored by this professional qualification recognized by the industry.

According to STEP, “full members are the most experienced and senior practitioners in the field of trusts and estates” and “advise clients on the broad business of the management of personal finance.” A perfect fit for membership, McManus & Associates helps “families plan their long-term financial future, facilitating good stewardship and financial planning across future generations.” STEP members also “help families comply with the often complex tax rules surrounding trusts, estates and inheritance.”

McManus & Associates looks forward to taking advantage of the education, training, representation and networking provided by the Society of Trust and Estate Practitioners.

Forbes: “Farm Like A Billionaire–Harvest Tax Breaks” and the 2012 Investment Guide

Forbes magazine’s June 25, 2012 Investment Guide issue has been posted online, and several stories of interest are included from Ashlea Ebeling, who writes about how to build, manage and enjoy your family’s wealth.

Ashlea Ebeling

Founding Principal of McManus & Associates John O. McManus, a trusts and estates attorney, spoke with Ashlea about the requirements tied to reaping tax benefits from farm-assessed property for her article “Farm Like A Billionaire–Harvest Tax Breaks.” The piece shares examples of high-net-worth individuals (HNWIs) planting lavender, establishing honey hives and declaring wildlife preserves to “harvest real estate tax breaks” and income tax savings.

Based on her conversation with John, who practices law in New York, New Jersey, Connecticut and more, Ashlea writes:

New Jersey allows you to snag a farm break with just 5 acres of land “devoted to agricultural and/or horticultural use” (not including the immediate area around your residence) and $500 in annual farm sales—a threshold neighbors can meet by buying each other’s products. “Everybody talks about what their products are at cocktail parties,” reports John McManus, an estate lawyer in New Providence, N.J. Pumpkins, Christmas trees and alpaca wool are popular.

Check out “How To Farm For Love And Profit–And Save The Farm” for important information on conservation easements and farmland preservationists successes and struggles in Pennsylvania. You can also see beautiful photos of the lavender farm — used for a Lands’ End catalog shoot — featured in the piece for which John was interviewed  here.

And finally, another story from the Investment Guide that relays smart investment strategies that help both you and your family is “Become A Family VC: How To Capitalize On Your Kid’s Or Cousin’s Business.”

The 2012 Forbes Investment Guide is definitely worth the read.

The Vancouver Sun: “Taxes create cross-border issues”

Derek Sankey, reporter for The Calgary Herald, has put together an interesting article titled “Taxes create cross-border issues” that was today published by The Vancouver Sun.

In the piece, Sankey points out that labor demand is projected to create the need for a total of 600,000 workers by 2021 in Alberta, Canada, saying that there could be “some nasty tax surprises for unwitting workers and their Canadian employers.”

Highlighting McManus & Associates’ recent report “Top 10 Planning Issues for Non-U.S. Citizens Including U.S. Residents With Overseas Assets,” Sankey writes:

Non-U.S. citizens and Americans with property overseas are also faced with another set of challenges when it comes to the changing estate and tax planning environment, according to New York based John McManus, of McManus and Associates.

His firm released a report this month highlighting the implications. “Protecting your wealth and your family as an immigrant is a unique, complex process that requires consistent surveying of the landscape for changes in estate and tax planning,” McManus says.

To read the full story, click here. For help with your cross-border tax and estate planning issues, call our New York office at (212) 753-9000 or our New Jersey office at (908) 898-0100.

 

Conference Call Recording: Top 10 Estate Planning Issues for Divorcing and Remarrying Individuals

John O. McManus, trusts and estates planning lawyer and founder of McManus & Associates, today held a conference call with clients, during which he discussed the Top 10 Estate Planning Issues for Divorcing and Remarrying Individuals — please see below.

You are invited to hear John’s expert guidance, based on more than two decades in the field. Click on the audio player below to listen.

LISTEN HERE: Top 10 Estate Planning Issues for Divorcing and Remarrying Individuals

We welcome the opportunity to help you and your loved ones with our 10-Step Wealth and Family Values Protection Process™. Please give us a call at 908-898-0100 or 212-753-9000.

Top 10 Estate Planning Issues for Couples Exiting a Relationship and Prior to Remarrying

1.            Addressing guardianship for minor children after death

  • In instances where a separation or divorce is not amicable, one of the most significant risks is that the parents will choose different guardians for their minor children.
  • This results in a predicament where only the survivor’s wishes will be honored and may cause additional, unnecessary rancor between the families.
  • It is best to address this concern in advance of the divorce during the mediation and settlement process so that both spouses agree on a unified plan for the care of their children if they both pass away and subsequently to have both parties reflect the arrangement in their Wills.

2.            Separation and the spousal elective share

  • During the period when a married couple is separated, one of the key problems is that each spouse continues to be named as the primary beneficiary under the Will and will receive the entire estate.
  • In most cases, this is an unsatisfactory outcome and it is critical to revise the Will in order to limit the spouse to the statutory elective share (typically about 1/3 of the estate) so that as many assets as possible pass directly to the children or other loved ones at death.
  • The amount that passes as part of the elective share can be held in trust for the benefit of the estranged spouse.

3.            Incapacity planning during separation

  • A related issue is that during the period of separation, the spouse is empowered to act with respect to the most sensitive and important health, financial, legal, and personal matters through the Health Care Proxy and Power of Attorney.
  • In a time of estrangement, it is not appropriate for the spouse to possess these authorities to act for such matters because they may not act with the appropriate judgment or best intentions.  In more extreme circumstances, the estranged spouse may use these in an intentionally detrimental fashion.

4.            Life insurance and divorce settlements

  • One of the most common errors during the divorce settlement period is the insufficient attention paid to estate tax planning, especially with respect to obligations for former spouses to maintain life insurance.
  • During this process, it is essential for the spouses’ attorneys to consider whether the life insurance should be held in an Irrevocable Life Insurance Trust (ILIT).
  • The purpose of the ILIT is to protect the proceeds from attack or diversion from a new spouse and to avoid estate taxes before the children from the first marriage receive it.

5.            Asset titling and beneficiary designation

  • Once a divorce is completed, it is critical that the assets retained by either spouse after the divorce remove the former spouse as a beneficiary and that the former spouse is no longer named on any deed or any account that was previously owned jointly.
  • While a court may enforce the separation agreement or divorce settlement, it is essential to note that if the former spouse is still named long after the divorce is complete, it may be interpreted that this was an intentional decision to keep the former spouse as a beneficiary.

6.            Prenuptial agreements for high net worth families

  • For those possessing material wealth or who may expect to inherit material wealth during their lives, a prenuptial agreement that addresses post-death distributions is a mandatory consideration.  It is also a particularly relevant issue for those who remarry and have children from the first marriage.
  • Without a prenuptial agreement, the spouse is, by law, entitled to a substantial portion of the estate (the elective share) which would divert assets to the second spouse and away from the intended beneficiaries.
  • Therefore, the prenuptial agreement must be established to clearly define the expectations for distributions when an individual passes away to protect the interests of the recipients.  These provisions must then be captured in the Last Will and Testament.
  • In many instances, individuals do not wish to sign a prenuptial agreement since they find it inelegant or unromantic or simply do not wish to disclose their total financial assets to their new spouse.

7.            Trusts for a spouse after remarriage

  • As is typical after remarriage, individuals desire to provide for their new spouse if they pass away.
  • It is strongly recommended that these transfers be made in trust or there will be no way to ensure that the new spouse leave those assets to children from the first marriage.

8.            Incorporating a new spouse into incapacity planning

  • Once an individual remarries it is important to appoint the new spouse as an agent to participate in medical, financial, legal, and personal matters so that they do not have to go to court in order to assist in the event of incapacity.
  • However, if there are children from a previous marriage, it may be important to include certain safeguards, especially in the Durable Power of Attorney, to assure that a new spouse does not transfer financial assets into his or her name to the disadvantage of the children from the first marriage.

9.            Life insurance preservation and wealth transfer via gifts prior to and after marriage

  • The purchase of new life insurance policies in an ILIT can be a cost-effective solution to provide sufficient assets for both a new spouse and other beneficiaries without additional exposure to estate taxes.
  • Efficient gift planning can also be implemented so that other beneficiaries, such as children, may be provided for adequately through transfers that utilize the lifetime gift exemption or tax-free strategies, such as GRATs and annual exclusion gifts of $13,000 per year.

10.         Benefits of a self-settled trust

  • Mindful that prenuptial agreements are not always executed, for those who wish to shelter assets prior to or after a remarriage to avoid the right of election by the second spouse or potential future divorce, there are alternatives by creating a self-settled trust.  The self-settled trust enables an individual to maintain the flexibility to access the assets.
  • A self-settled trust is one in which the individual transfers assets to a trust where he or she is a beneficiary.  Such trust must be located in a state with asset protection statutes, for example Delaware, Alaska, and South Dakota.
  • This strategy permits many additional and meaningful estate planning benefits, such as:
    • allowing the individual to receive distributions from the trust as a beneficiary;
    • removing the assets from the estate for tax purposes;
    • preserving generation-skipping tax credits; and a higher degree of asset protection against liabil