Intra-family loans can provide tax benefits to both lenders and borrowers if properly structured.
JOHN O. McMANUS
JOHN O. McMANUS is a top AV-rated estate planning attorney and the founding principal of TriState Area-based McManus & Associates (www.mcmanuslegal.com).
When it comes to wealth management, sometimes the gray area is the sweet spot. There are often legitimate opportunities for growing and preserving assets beyond the welldefined, black-and-white tax rules. Identifying these legal loopholes can greatly benefit a client and his or her loved ones, without breaking any laws.
Gifting as a loan, or intra-family loans, is an estate planning technique which, under rules set forth in the Code, allows a significant amount of money to be transferred to a family member with a customized repayment plan—sans the gift tax implications. Also, there are no concrete limitations on the family members who can be borrowers or the trusts for their benefit. With carefully structured lending— through a promissory note, for example—the borrower is able to take advantage of interest rates below those charged by commercial lenders, as the government allows relatives to pay a very low, “safe harbor” interest rate. In a parent-child relationship, the child then pays back the loan over time.
Karen DeMasters of Financial Advisor magazine recently spoke with John O. McManus for a slideshow article that offers “tips for what estate planners can do while the world waits for ‘U.S. tax reform’ to take shape.” The feature, titled “Fidgety About Tax Reform? Here Are 10 Things Estate Planners Can Do Now,” starts by flipping a common adage on its head – from the piece:
The only thing certain used to be death and taxes, but now the taxes are coming into question.
President Donald Trump and the Republican-dominated Congress are expected to revamp taxes and maybe change gift and estate tax rules, but no one knows what that will entail or when it might happen
According to McManus:
There is much uncertainty about particular aspects of the Republican tax proposal—including a replacement tax on the wealthy—and there is already concern about the likely impermanence of any new legislation. These factors highlight the importance of flexibility in preparing an estate plan and proceeding with wealth transfers suited to the current political and economic circumstances.
Even if tax legislation passes, it’s likely that the rules of the game will continue to change, perhaps frequently, going forward. It’s essential to stay in the know regarding the potential impact of new laws, in addition to tools currently available to protect your wealth.
As pointed out by DeMasters, “McManus says the following strategies are good for the long or short term, and most can be used advantageously by mass affluent as well as the ultra-wealthy.”
Annual Exclusion Gifts
Lifetime Exemption Gifts
Short-Term And Mid-Term Grantor Retained Annuity Trusts (GRATs)
Estate Freeze Installment Sales
Family Limited Partnerships
Community Property Trusts
Charitable Remainder Trusts (CRTs)
Drafting Flexibility in Core Planning Documents
Check out the full article for more details on McManus’ list of “10 Must-Do Estate Planning Strategies” that advisors can use while waiting for decisive legislative action.
The election of Donald J. Trump to the presidency and Republican control of both houses of Congress make estate tax reform extremely probable in the next two years. However, given the new administration’s other proclaimed priorities, including the repeal of Obamacare, minimization of illegal immigration, increases in defense spending and infrastructure improvements, there are likely several months before Congress turns its attention to a tax system overhaul.
The election of Donald Trump to the presidency and Republican control of both houses of Congress make estate tax reform extremely likely in the next two years. However, given the incoming administration’s other proclaimed priorities, including the repeal of Obamacare, minimization of illegal immigration, increases in defense spending and infrastructure improvements, there are already questions about the feasibility of adopting all of the proposed tax initiatives. Furthermore, there is much uncertainty about particular aspects of the Republican tax proposal (including a replacement tax on the wealthy), and there is already concern about the likely impermanence of any new legislation. These factors highlight the importance of flexibility in preparing an estate plan and proceeding with wealth transfers suited to the current political and economic circumstances.
In a recent conference call with clients, McManus & Associates Founding Principal John O. McManus highlighted the current appealing strategies and opportunities available as part of an estate plan. Click below to hear him discuss the following list:
In the Wall Street Journal’s newest “Watching Your Wealth” podcast, Veronica Dagher interviews McManus & Associates Founding Principal John O. McManus on red flags that warn you your adult kids are using you for your money and/or are trying to get a bigger share of your estate. In the episode, Veronica does a “fun estate planning quiz” with John, as well, and asks him to share the best and worst estate planning advice he’s ever heard, what an estate can and can’t buy, and what he would do with $1M after tax if he inherited it.
Execute and shelve is not an effective approach to estate planning. McManus & Associates, a top-rated estate planning law firm celebrating 25 years of success, today revealed the “Top 10 Ways to Solidify an Estate Plan Post-Execution,” a recent installment in its Educational Focus Series. During a conference call with clients, the firm’s Founding Principal and AV-rated Attorney John O. McManus shared tips on how to build a solid and complete Estate Plan to protect and nurture your family today and for generations to come.
“To make your estate plan solid, there are numerous issues to consider and actions to be taken that extend far beyond drafting documents,” commented McManus. “Building a foundation through strategic planning and establishing the framework for one’s legacy are important steps, but until all the core elements of the structure are in place, there’s more work to do.
“Today, in the Trump Era, with all the uncertainty about where the estate tax and income tax regimes converge and diverge, it is critical to ensure that core protection work is completed as we batten down the hatches, protecting for the storm of changes most certainly on the horizon. To ignore fully completing this core work as we await changes to more complex tax issues is not the most conservative approach. In fact, some have said that to neglect core planning is tantamount to being reckless with one’s loved ones.
McManus added, “As family dynamics and the legal environment evolve, it’s particularly important after the core work is completed to revisit and revise that portion of one’s estate plan, as needed.”
The election of Donald Trump, in addition to Republican control of the House and Senate, bodes well for significant tax reform during early 2017. For some people, this can present major opportunities for reducing taxes for 2016 by making some key year-end tax planning moves.
Year-end giving allows you to positively impact the greater good by helping charities in need, while reducing your 2016 tax liability. During a new conference call with clients, John O. McManus shares important advice on how to give now to capture the greatest income tax deductions, and he identifies tax-efficient estate planning vehicles to consider for your ongoing philanthropic mission.
“The result of this year’s election makes taking advantage of deductions in 2016 even more urgent and more important,” explained McManus. “Income tax rates will likely go down in 2017, reducing the value of deductions. Because tax deductions are more impactful when tax rates are higher, consider making your charitable gifts for 2017 before the end of 2016.”
McManus & Associates recently reviewed the “Top 10 Year-End Tax Planning Tasks” in light of President-Elect Trump’s pre-election tax platform with clients. Soon after, he had a lengthy conversation with Investment News reporter Greg Iacurci on the topic. Iacurci then put together an informative, engaging slideshow based on the discussion, “8 tax moves to make this year ahead of Trump’s presidency.” From the intro:
President-elect Donald Trump and the Republican-controlled Congress have said tax reform is a high priority next year. Mr. Trump’s agenda includes items such as repealing the estate tax, consolidating income tax rates and lowering the top income tax brackets.
Although there’s no certainty of any concrete reforms occurring next year, financial advisers are betting on legislation next year and telling clients to make certain moves by year-end.
John McManus, estate-planning attorney and founding principal of McManus & Associates, offers some actions to take this year based on Mr. Trump’s current proposals.
In light of Donald Trump’s election and his pre-election platform to reduce marginal income tax rates, there are several planning strategies that should be considered as part of your year-end planning. Today, McManus & Associates Founding Principal John O. McManus held a conference call with clients to discuss the 10 items listed below.