Tag: charity

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

January 2, 2019 - Media Clips

 

 

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

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

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

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

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

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

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

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

John O. McManus Honored with New Jersey YMCA State Alliance 2018 Social Responsibility Champion Award

November 29, 2018 - Firm News

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 for his devotion and passionate advocacy to the Y and the community for over 10 years. In 2005, John joined Somerset County YMCA’s (SCYMCA) 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, John was elected by his peers to be the next Board Chair beginning in January 2019.

See the YMCA’s release on McManus being named the New Jersey YMCA State Alliance 2018 Social Responsibility Champion Award by clicking here.

According to Somerset County YMCA Board Chair Mark Irwin:

While John has effectively raised funds throughout his service to the Y, his increased enthusiasm over the past six years has been remarkable.

From 2013 through 2018, John personally raised $279,440 for SCYMCA, which helped to surpass the campaign goal each year. In 2012, overall gifts to the Annual Campaign equaled $185,668, and in 2018 SCYMCA raised a total of $1,003,526 – a 540% increase.

Irwin continued:

Through his tenure as a volunteer, John has grown as a respected, cause-driven leader. His dedication to the Y has resulted in vital funds that help the Y to provide financial assistance and mission-based programs, which enhance quality of life and make a meaningful difference.

John strengthens community by bringing the Y’s mission to life and ensuring that everyone in the community has the opportunity to learn, grow and thrive.

John consistently demonstrates a passion for giving back to advance the Y’s mission and to address challenging community needs.

Click here to read Irwin’s full speech on McManus’ unique and outstanding contributions to the Y.

In his speech at the award ceremony, McManus shared the secret behind his success:

For my wife and me, fundraising has become second nature. It starts with a story that we believe in that must be communicated well to a group that is passionate about helping others and delivered to a consistently-engaged, ever expanding-group of patrons.

Click here to read McManus’ full speech, including the five lessons he learned while growing up in the Bronx that fashioned, as described by Irwin and others, his “gift” as a fundraiser.

For help achieving outstanding philanthropic results consistent with your values, call McManus & Associates at 908-898-0100.

Reuters Turns to McManus for Guidance on Giving

October 31, 2018 - Media Clips

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



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

Oct 30 2018 Richard Satran, Regulatory Intelligence

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

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

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

Hundreds of thousands of accounts

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

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

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

“Mass affluent” become most philanthropic

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

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

“Fuse is lit” at end of year

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

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

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

Funds get “gift that keeps on giving”

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

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

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

Single missed payment

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

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

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

Firms need conversation with clients

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

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

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

(By Richard Satran of Thomson Reuters Regulatory Intelligence.)

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

McManus WealthManagement.com Byline on Protecting Private Foundation Benefits

December 19, 2017 - Bylines, Guidance

 

 

 

Ten Tips for Protecting Private Foundation Benefits

Discuss these with your clients who are considering charitable gifts.

John McManus | Dec 12, 2017

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:

  • Officers and members of the PF board
  • Substantial contributors to the PF
  • Managers of the PF
  • Family members of any of the individuals described above

Be aware of the acts that are considered self-dealing between a PF and a disqualified person to avoid penalties, including:

  • Sale or exchange of property, or leasing of property, even though the terms are favorable to the PF
  • Lending money or other extensions of credit, except on an interest-free basis
  • Providing goods, services or facilities
  • Paying compensation or reimbursing expenses to a disqualified person
  • Transferring PF income or assets to, or for the use or benefit of, a disqualified person

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.

  • Personal services include PF management and administrative support, real estate management services, investment management services and legal and accounting services, but doesn’t include secretarial services.
  • Specific services that a disqualified person can provide include contract and lease negotiation, debt management and budgeting, accounting, supervision of property, operations and inspection, rent collection and supervision of personnel.

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:

  • Obtaining a written agreement from the grantee
  • Ensuring that the grant is spent solely for its intended purpose
  • Obtaining reports from the grantee on how the funds were expended
  • Recovering the funds if they haven’t been used for the intended purpose
  • Reporting such expenditures to the IRS on its Form 990 PF

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

The New York Times Highlights John O. McManus as Trusted Philanthropic Advisor

November 10, 2017 - Media Clips

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:

  • In times of need, please think beyond your typical charitable beneficiaries. From The New York Times article:

Mr. McManus said the focus of his clients’ charitable giving includes organizations affiliated with the nursing profession and those that serve older people.

  • Take time to research these gift initiatives to ensure that your new charitable investments provide the “hoped for” yield. Also from the story:

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.

Conference Call: 9 Year-End Charitable Tips for 2016 and Philanthropic Strategies for 2017 and Beyond

December 14, 2016 - Conference Call, Guidance

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.

LISTEN HERE: “9 Year-End Charitable Tips for 2016 and Philanthropic Strategies for 2017 and Beyond”

“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.”

Founder of McManus & Associates Honored by YMCA with Spirit Award for Outstanding Volunteer Service

May 15, 2014 - Firm News, News

The Somerset Hills YMCA of New Jersey recently held its 3rd Annual Volunteer Spirit Awards & Annual Campaign Victory Celebration. Members of the community joined together to recognize the far-reaching benefits of volunteerism and the selfless spirit in which it is offered. As such, Spirit Awards were presented to thank Y volunteers who “have made an impact” and inspire “by giving of themselves selflessly to benefit the Y and its members.”

John O. McManus, founder of McManus & Associates, was honored to receive a Spirit Award in the Living Our Cause category on this “Night of Stars,” the theme of the evening. John donated his talents in the volunteer area of Board of Directors/Annual Campaign/Planned Giving to benefit the Somerset Hills YMCA, a big-hearted organization that touches lives throughout the community.

“Wills, Trusts, and Estates Prof Blog” Highlights Latest Advice from McManus & Associates

December 6, 2013 - Media Clips

Gerry W. Beyer

Gerry W. Beyer

Gerry Beyer, Professor of Law at Texas Tech Univ. School of Law, recently shared on his blog financial tactics and maintenance items related to estate planning to apply before 2014. “Wills, Trusts, and Estates Prof Blog” is a member of the Law Professor Blogs Network sponsored by Wolters Kluwer, and the list of tactics and maintenance items originally came from McManus & Associates. Here are the 10 estate planning questions to ask yourself before 2013:

  1. Should I change my estate plan before laws change in 2014?Jigsawquestion
  2. Is your partnership validly maintained?
  3. If making gifts to loved ones, are you exceeding your exemption amount?
  4. Are you employing the most current estate planning strategies?
  5. Are you making the most of income tax deductions?
  6. Do the fiduciaries named in your estate planning documents still reflect your wishes?
  7. Are you using the best strategies when making year-end charitable gifts?
  8. Are your cash donations from an IRA to charity being properly made?
  9. Should you consider using a GRAT or a QPRT?
  10. How should you harvest capital gains and time long-term losses?

Don’t miss our next free educational conference call, which will be held this month! Contact us for details at 908-898-0100.