John O. McManus, Founding Principal of McManus & Associates, was featured as one of New York’s Leading Lawyers in a special section of award-winning New York Magazine. Here’s a picture of the plaque celebrating the special recognition. McManus & Associates congratulates you, John, for being chosen as a “Leader in the Law”!
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.
With President Trump having signed the GOP tax bill today, new tax planning opportunities are now available – but you must take advantage of many of them within the next nine days, before 2018. John O. McManus, founder of top-rated estate planning law firm McManus & Associates, makes the following time-sensitive recommendations in light of tax reform and the reduction of income tax rates:
“Trump’s new tax bill creates tax planning opportunities before year-end,” commented McManus. “Find time for last-minute tax planning as soon as you finish your last-minute holiday shopping.”
For trusted advice on tax and estate planning, call McManus & Associates at 908-898-0100. Learn more about the award-winning firm at www.mcmanuslegal.com.
The end of the year means a drastic increase in philanthropic gifting.
If any of your clients are considering charitable gifts this month through a private foundation, here are 10 precautions to advise them about:
1. Use Caution when Compensating Family Members Through the Private Foundation
Certain transactions between a PF and a disqualified person are subject to self-dealing rules. The Internal Revenue Code imposes a 10 percent excise tax on the disqualified person for acts of self-dealing between a PF and the disqualified person. A disqualified person includes:
Be aware of the acts that are considered self-dealing between a PF and a disqualified person to avoid penalties, including:
There are some exceptions to these self-dealing prohibitions: The PF can pay compensation to a disqualified person for personal services that are reasonable and necessary to carry out the PF’s purpose and if the total amount of the compensation is reasonable.
2. Don’t Fall into the Ticketing and Fundraising Event Trap
As a general rule, a disqualified person can’t use a ticket to a charitable event receiving support from the PF. This includes attendance by a guest, such as a spouse, of a trustee of the PF.
A trustee can only attend a charitable event if she has responsibility for evaluating and reviewing the activities of the PF.
3. Follow Guidelines for Sharing Office Space, Equipment and Personnel with a Family Office
Office space. The general rule for office space is that it’s an act of self-dealing for an FO to pay the PF for its portion of the lease (the opposite is also true—renting space to a PF). To solve this problem, the FO must enter into its own separate lease, and the landlord can’t be a disqualified person. The common areas should also be allocated to the FO—not to the PF—because the PF can’t pay for such space and then allow the FO to use it. If separate offices and leases aren’t a viable approach to self-dealing, the FO should sign the lease and allow the PF to utilize the space rent-free. Renting to a PF isn’t self-dealing if the lease is without charge. The lease is still considered to be without charge if the PF pays for its own utilities and other maintenance costs to third parties as they occur.
Equipment and supplies. The FO can purchase and provide the supplies at no cost to the PF, or the FO and the PF can enter into separate contracts with a third party to provide the necessary equipment and supplies. If the technology infrastructure can’t be divided between two entities, the FO must pay the expenses and allow the PF to use it free of charge.
Personnel. It may be difficult to separate the time of a shared employee in a shared space, so the safest and best response is always to have the FO pay for these services and not charge the PF. If the employee’s time can be allocated between the two entities, it’s possible for the FO to employ the individual, with the PF providing reimbursement; however, these services must constitute personal services, which aren’t considered secretarial assistance.
4. Avoid Legally Binding Pledges
A member of the board making a personal pledge for a charitable donation, but wishing to have it fulfilled through the PF, rather than through personal funds, causes an issue. This is an act of self-dealing. If an individual, officer, trustee or president of a PF makes a pledge that isn’t legally binding, the PF can assume the pledge. However, the PF can’t assume a legally binding obligation of one of its disqualified persons.
5. Identify any Benefits from Joint Investments and Co-Ownership
A disqualified individual may assume that she can enter into a business proposition with the assistance of her PF, but the Internal Revenue Service has indicated that joint investments could inappropriately benefit the disqualified person and would be considered self-dealing in many circumstances. Depending on the facts, co-ownership of other types of property by a PF and a disqualified person may or may not be considered an act of self-dealing if the PF’s co-ownership confers a significant benefit to the disqualified person as the other co-owner. For example, in Private Letter Ruling 9651037 (1996), the IRS ruled that co-ownership of property by a PF and disqualified person wasn’t self-dealing because the co-ownership was not a sale, exchange or leasing of property. Further, the PF and the co-owner didn’t acquire an interest in the property from the other party; and the PF received its share of rental payments directly from the unrelated third-party tenants.
6. Promptly Address Misuse of Foundation Income or Assets
When family dynamics come into play, there can be liability for a director, so it’s always important to enlist an outside advisor. When there’s misuse of PF’s income or assets, the board will need to reevaluate policies to prevent the transaction from happening again. An example of misuse is a disqualified person displaying a PF’s artwork in his home or office. When a member of the board of the PF has been using PF funds or assets inappropriately, the board should marshal the evidence and retain legal counsel and a forensic accountant. Investigating utilities, furniture purchases, artwork and credit card statements may be a sufficient form of evidence. Legal counsel can then work with the forensic accountant to prepare a full report including all of the self-dealing transactions. If the PF’s directors and officers policy covers excise tax and self-dealing, it should notify the insurance company for possible reimbursements for legal expenses under the policy.
If any transactions might be considered an act of self-dealing, the PF should seek legal counsel. After full disclosure, if a person relies on written legal advice, indicating that the transaction doesn’t constitute self-dealing, the person won’t be liable for any penalty taxes, even if the transaction is subsequently considered to be self-dealing.
8. Beware the Penalties of Self-Dealing
The PF doesn’t pay self-dealing taxes; it’s the individual who participates in the act who pays the initial tax. The first-tier tax on self-dealing is 10 percent, assessed on the amount that’s involved and will be imposed on the disqualified person. A 5 percent tax is imposed on the PF manager who knowingly and willingly participates in the transaction of self-dealing. A second-tier tax of 200 percent of the amount involved can be imposed on the disqualified person if there’s a failure to correct the self-dealing in a timely manner. According to the IRS, self-dealing taxes can’t be abated for reasonable cause.
9. Exercise Expenditure Responsibility
An excise tax of 20 percent is imposed on a PF for distributions that are classified as a taxable expenditure, which is defined as any amount paid by a PF. If a PF is making a contribution and doesn’t want it treated as a taxable expenditure, it must ensure that it exercises expenditure responsibility. Such responsibility includes:
10. Protect the Founder’s Mission
Many individuals establish their PF with a specific purpose for the use of PF assets through the use of a purpose clause. A charitable trust statement can also be included to provide a stringent interpretation of how funds that are being donated to the PF can be used. Governance structures are also beneficial options. One governance structure is to have outsiders act as individuals or majorities on the board. It can be specified that the PF will terminate in the event that the board tries to make a donation that’s not in line with the original intent. The founder can also sunset the PF to terminate within 10 years after her death so that decades later, the money isn’t at risk of being spent outside of the original intent. A gift document can also be included in the original creation of the PF stating that the gift may only be used for specific, delineated purposes.
http://www.wealthmanagement.com/philanthropy/ten-tips-protecting-private-foundation-benefits
There are a limited number of days left in 2017. McManus & Associates Founding Principal John O. McManus recently discussed imperatives before year-end for the firm’s clients, in light of significant current events, concerns, and considerations, and amidst a changing tax and economic environment. Listen to the call below, as well as review the list of topics that are covered.
1.Tax Reform – How will potential estate tax repeal impact you?
2. Estate Freezes – You have exhausted much of your lifetime gift exemption; how can a GRAT aid in shifting wealth in a tax-effective manner?
3. Low Interest Rates and the Market – How does the continued low-interest rate environment support the transfer of investments to the next generation?
4. Leveraging Existing Trusts – How can you deploy previously gifted assets to participate in other estate tax minimization strategies?
5. Family Limited Partnerships – What actions should you be taking in light of the new Partnership Audit rules?
6. Estate Tax – Can estate tax be eliminated if you have taken full advantage of all wealth transfer opportunities but still have a sizable net worth?
7. Asset Protection – Are you confident in your protections against exposure to personal and professional liability?
8. Life Insurance – How does premium financing of life insurance by a family member or bank shift wealth and minimize tax?
9. Planning with Basis – Can you take advantage of upstream gifting to an older family member to minimize capital gains tax?
10. Compliance – Are you certain that you have met the IRS requirements for reporting gifts that you have made in 2016 and prior to 2016?
Interested in protecting your estate and maximizing the impact of your charitable giving? Then establishing a Private Foundation is worth your consideration.
A Private Foundation provides the ability to retain control over the administration and investment of assets that have been recognized as important for future grant-making. By making gifts from your Foundation to charities in increments over time, you can extend your influence over the ongoing use of your gifts.
While there are many advantages of Private Foundations, there are also often-overlooked pitfalls (see below), which McManus & Associates Founding Principal John O. McManus recently discussed with clients, as part of the firm’s educational focus series. To listen, click here:
1. Using care when compensating family members through the foundation
2. Beware the penalties for self dealing
3. How to address office sharing with family offices
4. Promptly addressing misuse of foundation funds or income
5. Why you should avoid legally binding pledges
6. How to protect the founder’s mission
7. When to seek legal advice
8. How to exercise expenditure responsibly
9. Identifying any benefits from joint investments or co-ownership
10. Using caution with ticketing and fundraising events.
For guidance on the creation or management of a Private Foundation, contact McManus & Associates at 908-898-0100.
As with lottery winners and athletes who are in danger of spending significant portions of their new-found wealth in an instant, children who were raised with wealth must be properly prepared to handle affluence and their inheritance wisely
Older generations must be intentional to guard against the development of affluenza in children of all ages.
Here are 10 tips to help clients accomplish this elusive goal.
1. Reality Check: Preventing affluenza starts with discipline. This includes enforcing consequences when the child breaks rules and giving responsibilities such as chores in early childhood. Each shows that there are real consequences for one’s actions and that life requires hard work and accountability, regardless of status and wealth. Giving children duties creates opportunities for them to feel accomplished when those duties are fulfilled. It also establishes a pattern or habit of personal responsibility. Often it is with these struggles that real personal growth takes place.
2. Better to Give than Receive: Involve children in philanthropic activities and have them volunteer for a charitable organization of their choice. This provides children with a genuine sense of what life is truly like for the majority of the community which is less fortunate. As a result, it develops a profound appreciation for the opportunities they are receiving and, further, what their inheritance can bring in the future if managed properly. Prior to their earning years, children can often better understand the sacrifice of giving time, as they haven’t yet had the privilege to make money or manage their livelihood or lifestyle. Hours in a day, on the other hand, working selflessly for the benefit of others, feel very real to them.
3. The Most Important Things in Life Are Not Things: Informed families derive enjoyment from activities that do not require buying the latest items or spending a significant amount of resources, but stresses the value of relationships and celebrate personal achievement. The amassing a great deal of wealth should not be viewed as an end in itself or essential to achieving happiness. Therefore, involve children in activities that create enjoyment but aren’t driven by the payment of money, and instead require commitment of time and personal effort, such as sports. School activities and undertakings that build relationships in the community are very important.
4. Patience Is a Virtue: Require children to save for things they wish to purchase. This teaches the value of money, self-control and delayed gratification. It also leads to a much deeper appreciation for the items earned. Postponing gratification builds character, discipline and fortitude in children, and it creates strength for managing relationships with others. Meaningful relationships require each of these personal traits.
5. Knowledge Is Power: Enroll children in basic, age-appropriate financial literacy classes. It is a good investment in a child’s future and will help them learn to manage the money they earn and their family inheritance. Spend the time to teach children to protect themselves first from themselves, before protecting themselves from others.
6. No Substitute for Hard Work: Beginning in high school, especially during the summertime, encourage children to secure employment or start their own businesses to earn resources. This imparts the meaning of hard work, the importance of being responsible and accountable and the pride of ownership in dollars earned. In affluent families, travel and other enrichment activities, including participation in sports events, can make it difficult to consistently integrate the weekly responsibilities of a summer job or other activities during the school year, which often are the most enriching lessons of all.
7. Word to the Wise: Identify advisors that can be trusted to guide children once their inheritances are received, but these individuals should be introduced while your children are adolescents. The value of having these advisors in their lives should be covered as well. Concepts can be integrated modestly regarding the management of family assets. It is an iterative process; a 14-year old may not fully appreciate the value of the family advisor in the same way that a 20-year old would. That said, at a very early age, make it clear that a child must come to trust their established and proven professional relationships.
8. Failing to Plan Is Planning to Fail: Develop a plan for significant assets to be passed in a shielded way. Create goals for the orderly process of wealth transfer, and outline what resources should be allocated and what vehicles should receive them. Move assets to be passed to children into protected entities first to safeguard them, and then communicate to the children at a later date that the assets exist—eventually let them know the size of those assets. As we move to guard assets from others, think of it as a gradual process instead of a “wholesale immersion” of the children into the family finances. That said, fearing children will find out too soon is a reason why too often people fail to protect the assets and themselves. As a child learns more about their interest, teach them to be more active in its management and protection rather than spending it.
9. Know When to Say No: Children should always be selective in their choices of friends. It is simply unavoidable that certain friends may be attracted to the lifestyle that a child enjoys rather than the quality of the child’s character. As children grow, part of their decisions regarding their friends might be: “Is this person or group spending time with me because of my family’s affluence? Do they support the values we promote as a family?” An example of a red flag could be if a child is asked or is presumed to pay for common items when they are out with others.
10. Preparation Is the Key to Success: Create or update estate planning documents. The best laid plans are irrevocably undermined if parents pass away before completing the mission of ensuring that their children are ready to accept the inheritance. Delivering a gift in a protective vehicle is as important as delivering the gift itself.
As Warren Buffet once said, “A very rich person should leave his kids enough to do anything but not enough to do nothing.”
Source URL: http://www.wealthmanagement.com/high-net-worth/ten-ways-prevent-affluenza
This week, The New York Times published the story, “Want to Help? Do Your Research Before You Donate,” which highlights John O. McManus as a trusted philanthropic advisor. As noted by the article, John recently challenged the firm’s foundation clients to think beyond the borders of their typical charitable intent and to consider a new initiative: the needs of those suffering in the most recent natural disasters. From the article:
Dr. Granowitz was on a business trip when the hurricane struck. He watched on television the images of devastation. The day he returned home, he got a call from John O. McManus, a lawyer who advises Dr. Granowitz on philanthropic giving through his family foundation.
“He said, ‘What are you doing about charity relief in Puerto Rico?’” said Dr. Granowitz, who is chief medical officer for a major pharmaceutical corporation. “I said, ‘Frankly, John, nothing yet.’ He said, ‘Well, get off the stick and do something!’”
This client worked with McManus & Associates to combine his own philanthropic mission with the immediate need of the people of Puerto Rico. In the story, The Times follows the charitable gift from its source to the distribution warehouse in San Juan.
Two key pieces:
Mr. McManus said the focus of his clients’ charitable giving includes organizations affiliated with the nursing profession and those that serve older people.
Communicating directly with donors, showing the effect their dollars have had, is more than just a way to verify that the recipients have used the money. “We’ve found that people want to meet someone with the organization, and they want to hear the stories, the so-called ‘mission moments’ which give examples of their work,” Mr. McManus said.
McManus & Associates would love to help you think through your family foundation’s strategy, or if you are now ready to establish a family foundation, we are here to guide you through its creation.
Most importantly, if we can assist you to refine your own relief effort in the recently devastated areas of Houston, Puerto Rico, Northern California, Mexico City, or the tragedies in Las Vegas, New York City, or the First Baptist Church in Texas, please contact McManus & Associates at 908-898-0100; we’re happy to make the process easier.
If you are one of the 143 million American consumers whose names, Social Security numbers, birth dates, addresses, driver’s license numbers, credit card numbers and other personal identifying information was exposed in the data breach at Equifax, which stretched from mid-May through July of this year, here are seven immediate steps to stop the hackers from further victimizing you:
1. Determine whether your information may have been exposed. Using a secure computer and an encrypted network connection, go to https://www.equifaxsecurity2017.com/potential-impact/ and enter your last name and the last six digits of your Social Security number. Doing so will reveal whether you are among those affected by the breach.
2. Sign up for a year of free credit monitoring from TrustedID Premier, which will be offered by the above site after completing step one. All U.S. consumers – whether their information was obtained or not – can enroll. The deadline is November 21, 2017.
3. Systematically review your existing bank, credit card and insurance accounts for fraudulent transactions. If any unrecognized charges appear, contact your bank, credit card company or insurance provider immediately to report the issue.
4. Visit annualcreditreport.com to check your credit reports from Equifax, Experian, and TransUnion for free. If you see any accounts or activity that you don’t recognize, identify theft could be the culprit, and you should go to IdentityTheft.gov to learn more about what to do.
5. Consider placing a security freeze or a credit freeze on your report, which locks down your credit. According to the Federal Trade Commission, this “lets you restrict access to your credit report, which in turn makes it more difficult for identity thieves to open new accounts in your name.” Note: Scammers can still make changes to your existing accounts, despite a security freeze.
6. Alternatively, consider creating a fraud alert to flag creditors that you may be a victim of identity theft, and they should verify that anyone seeking credit in your name is really you. Creditors will still be able to get a copy of your credit report as long as they take steps to verify your identity. This may prevent a scammer from opening new accounts in your name, but this alert is not likely to stop abuse of your existing accounts.
7. File your taxes as soon as possible to avoid tax identity theft, which is when someone uses your Social Security number to steal your tax refund or to get a job. Being proactive and filing first (before a fraudster) eliminates this vulnerability.
For additional guidance related to management of your wealth, visit www.mcmanuslegal.com or call 908-898-0100.
Andrea Coombes, whose stories on retirement, investing, taxes and other topics have appeared in the Wall Street Journal, MarketWatch, San Francisco Chronicle and other outlets, recently wrote an article on an investing strategy for the bold-hearted. Her piece, “Self-Directed IRAs: An Option for Expert Investors,” sheds light on the benefits and risks of self-directed IRAs.
Coombes spoke with McManus & Associated Founding Principal John O. McManus for his take. From the story:
The two main reasons investors take on the risks of self-directed IRAs are higher expected returns and the opportunity for diversification.
“If you understand investments, particularly in certain segments, you can take advantage of higher yields and maybe less volatility,” says John O. McManus, who has invested in real estate and other assets through a self-directed IRA for about 15 years. McManus founded the estate-planning firm McManus & Associates in New York and New Providence, New Jersey.
His 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.”
Head over to NerdWallet to learn more about the advantages and drawbacks of self-directed IRAs. For guidance on your overall wealth management strategy, contact McManus & Associates at 908-898-0100.
All content Copyright ©2017 McManus & Associates. All rights reserved.
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