Tag: estate planning

Conference Call: Five Estate Planning Additions to Your New Year’s Resolutions

December 13, 2019 - Conference Call

Regardless of your personal political leanings, the 2020 Election results will likely impact estate planning as we know it today. Certain estate planning strategies will likely evaporate if there is a Democratic sweep in Congress and the presidency. Take advantage of current estate planning opportunities and strategies since there is no certainty that they will be preserved in their present form after the 2020 Election. For example, Bernie Sanders’s proposed For the 99.8 Percent Act (the “99.8 Percent Act”) that was introduced in the Senate in 2019 includes the following changes:  decreasing the gift tax annual and lifetime exclusions; decreasing the estate tax exemption; eliminating valuation discounts; placing restrictions on GRATs; eliminating the use of grantor trusts; and limiting the duration of dynasty trusts to 50 years. This proposed Act could be a template for future legislation proposals.

In a conference call with clients this week, John O. McManus, founding principal of McManus & Associates, offered existing wealth preservation and growth strategies and recommendations to consider for immediate action. Listen and review below:

1. Consider making larger gifts now before the annual gift exclusion is lowered

The 99.8% Act would sharply limit the annual gift exclusion to $10,000 per donee (currently $15,000) and $20,000 per donor; the lifetime gift exclusion would be decreased to $1 million. The annual exclusion was meant to shield from tax and recordkeeping the usual giving done around holidays and birthdays.  This extremely low limit per donor would greatly affect planning at all levels and would particularly affect the funding of irrevocable life insurance trusts and prefunded 529 plans.  Gifts over the $20,000 per donor limit would require you to use the proposed $1 million lifetime gift exclusion.  The lifetime gift exemption, which is currently $11.58 million for 2020, is the amount of assets that can be transferred out of your estate during your lifetime without having to pay any gift tax.  Therefore, in some cases the maximum annual gifting should be done now before there is a possible reduction of the exclusion.  If you make annual gifts to ILITs and other trusts, you may want to consider making a larger gift now utilizing the larger available exclusion to fund the trusts.

2. Utilize the current 2020 $11.58 M estate tax exemption per person, before it is lowered to $3.5M per person

The 99.8 Percent Act seeks to raise the present estate tax rates to the following:

          Estates $3.5 million to $10 million             45%

          Estates $10 million to $50 million              50%

          Estates valued at $55 million or more         55%

          Estates valued at $1 billion or more            77%

Under the 99.8 Percent Act, a married couple would only get a total combined estate tax exemption of $7 million. If this amount is placed in trusts, the $7 million would double every 12 years and the total assets in the trusts will be only $28 million free of tax.  This is a significantly lower number than if the current joint exemption of $23.2 million was placed into trust.  Furthermore, with the elimination of discounting discussed later, the restriction on gifting would be even more significant. Not only is the growth lower, but there remains a significant amount of assets in your estate because of the loss of discounting, as well as less assets being transferred into trust. 

Gifting is most efficient when done as large as possible, since the limits may be lowered and now is the time to do as much as possible before the paradigm shifts to make this a less useful option. The assets gifted and their appreciation over your lifetimes are not subject to federal estate tax at the end of your lifetime.

However, making such large gifts to utilize the large exemption may require that you have access to the transferred assets.  This access can be achieved by setting up a credit shelter trust: one spouse creates the trust and the other spouse is named as a beneficiary so that distributions can be made at any time for their needs. The spouse who is the beneficiary is also appointed as trustee and will retain control over the management of the trust assets.  In order to provide flexibility to access the trust assets, the spouse who created the trust reserves the power to remove and appoint trustees, receive loans from the trust, and reacquire assets from the trust by substituting assets of equal value into the trust.

Therefore, in order to avoid last-minute planning should the exemption drop to $3.5 million, you should do your planning now before any possible changes, especially if you have been waiting to plan because of the current high exemption.

3. Take advantage of valuation discounting before the strategy is eliminated

Valuation discounting has been an area of IRS scrutiny for many years. The proposed 99.8 Percent Act would eliminate valuation discounts applied to intra-family transfers by gift or inheritance, which has driven a lot of estate planning strategy. 

The current version of the 99.8 Percent Act proposal if adopted would have a major impact on the way assets can be discounted for estate planning purposes. No discounting would be permitted if the transferee and family members have control or majority ownership; this would effectively eliminate the discount strategy. 

Therefore, you should consider creating a family partnership – or making additional transfers of family partnership interests – since the valuation discounting opportunity may soon disappear. Currently, since non-managing interests possess limited authority, the fair market value can be discounted for lack of control and lack of marketability. For example, with the currently available discounting, a 50% noncontrolling interest in your real estate investments could be worth $3.25 million for gift tax purposes instead of their fair market value of $5 million. In addition, the assets grow outside of your estate in a tax-efficient trust.

4. Utilize short-term and mid-term Grantor Retained Annuity Trusts (GRATs)

Restrictions outlined in former President Obama’s annual Greenbook are incorporated into the 99.8 Percent Act and could be pursued by Congress. One of the significant proposals of the 98.8 Percent Act is requiring a minimum GRAT term of 10 years and requiring a minimum remainder interest of not less than an amount equal to the greater of 25% of the trust value or $500,000.  This effectively eliminates the potential for zeroed out GRATs where the remainder interest has a zero value.  Also, rolling two-year GRATs would not be possible.

The 99.8% Act would serve to prevent perceived abuses of GRATs by barring donors from taking assets back from these trusts just a few years after establishing them to avoid gift taxes (while earnings on the assets are left to heirs tax-free). This strategy has cost the Treasury $100 billion since 2000.

•         Effectively, the purpose of the GRAT is to make a loan of investment assets to your children or loved ones. Your loved ones benefit from any growth above the initial contribution. To be valid, the original contribution must be paid back (with modest interest) in installments over a fixed period of years.

•         The key? The grantor must outlive the final repayment. If you die before the final payment, all of the growth that would have been otherwise excluded is now destroyed and reverts back to being included in your estate. The 99.8 Percent Act could dissuade taxpayers from taking advantage of GRATs by setting a 10-year minimum term for the GRAT. This would mean that there would be gift tax consequences for the first time for an historically gift-tax free strategy. 

•         Currently, the ideal GRAT plan chooses investments that will accelerate most rapidly in value during the GRAT’s term. After the final payment is made, the result is that all growth over the original amount is out of your estate and excluded for estate tax purposes and without any gift tax consequences.  Any assets remaining in the GRAT (after all annuities have been paid back) should continue to be held in trust for the benefit of the grantor’s spouse and children.

•         GRATs established now would be protected by law. Before changes go into effect, we recommend the creation of two GRATs:

          Short-term GRAT: Since you must survive the term of the GRAT, a short-term GRAT of two years will minimize the risk of significant wealth failing to pass tax-free because the grantor dies prior to its completion.

          Mid-term GRAT: We also suggest a longer term GRAT, between five and seven years, to avoid the risk that you get caught short if the law changes with only the option to do 10-year GRATs. Mid-term GRATs would be grandfathered and could continue without any consequences during the next four years of a Democratic Congress or presidency.

5. Anticipate the loss of use of Grantor Trusts

The 99.8% Act would prevent wealthy families who currently avoid gift tax by paying income taxes on earnings generated by assets in grantor trusts from doing so.  The Act would include in the taxpayer’s estate any assets in his or her grantor trusts, as well as any distributions from his or her grantor trust during the lifetime of the grantor. Any assets in a grantor trust that is converted to a non-grantor trust would also be included in the grantor’s estate.

If you have been considering establishing or using a grantor trust, there is urgency to start the process and move assets into trust now, as it may no longer be an option starting in 2021.

The sooner one starts, the better the chance of being able to adequately set up a trust that can be grandfathered in. While this legislation and paradigm shift may not necessarily go into effect immediately, this option might only be available for the next year or so. To wait longer is to risk the unknown and to potentially lose the opportunity to utilize this strategy.

Reach out to McManus & Associates should you have questions about these opportunities and strategies.

Conference Call: 11 Financial Tasks to Kickstart Your Wealth Building in 2019

January 24, 2019 - Conference Call

When the calendar turns to January, the clock is reset for many estate planning opportunities.

McManus & Associates Founding Principal and AV-rated Attorney John O. McManus recently shared his recommended estate planning checklist for January to maximize the value of your assets, cover your financial bases, take advantage of current exemption levels, and get a head start on deadlines.

Listen to the discussion and see an outline below:

 

1.       Fund your children’s trusts so that the trusts can benefit from a full year of appreciation.
2.       Make charitable gifts to your foundation so that it will also benefit from appreciation during the year.
3.       Review the grants made by your foundation to confirm that they are qualified 501(c)(3) organizations; start researching new charities to expand your class of grantees (while still maintaining your donative intent).
4.       Consider making gifts to 529 plans for your children and or between your grandchildren to take advantage of a full year of appreciation.
5.       Meet with McManus & Associates or your accountant as soon as possible to provide critical financial information to begin your tax returns.
6.       Make substantial gifts a part of your estate plan, thereby empowering your spouse before Congress reduces the gift tax exemption from $11 million.
7.       Consider hiring your children and spouse or other family members for the family business and pay an amount that will fund a Roth IRA.
8.       Perform an audit of your life insurance policies, including their cash values and performance, as well as their suitability and sufficiency of coverage.
9.       Review your beneficiary designations (which will override any testamentary direction under your will) to make sure they coincide with your intentions (as provided in your will).
10.     Review your medical coverage and plan choices; also, review your tax withholdings if you expect your income to change significantly.
11.     Schedule a meeting with McManus & Associates to review your fiduciaries and agents named in your estate plan to determine their suitability and continued qualifications.

InvestmentNews Publishes Slideshow Based on McManus’s Year-End Tax Advice

December 5, 2018 - Media Clips

6 tax strategies for year-end planning

New U.S. tax laws should inspire some Americans to pursue year-end tax strategies that will seek to maximize their wealth, according to John McManus, founding principal of McManus & Associates. He said these strategies make sense given the new tax framework, as well as estate planning recommendations. Click through the different strategies and listen to Mr. McManus discuss these strategies here.

Give it away sooner rather than later

Given that the increased estate tax exemption is temporary, high-net-worth clients worried about future estate taxes should make $15,000 (or $30,000 for a married couple) annual exclusion gifts to children and grandchildren into flexible irrevocable trusts before Dec. 31. Right after Jan. 1, give the gift again.

Offsetting gains due to growth

If a client sold appreciated investments or a business in 2018, that will spark capital gains taxes, so offset those by donating to a family-controlled charitable vehicle like a private foundation or charitable remainder trust before Dec. 31.

Think before you sell

Given the new limitation on the state and local tax (SALT) deduction for federal income taxes, clients should think before they sell appreciated investments or a business in the next few years because those sales will lead to unusually high capital gains taxes. But if they establish a non-grantor trust in Delaware or Nevada to store assets prior to a liquidity event, they can avoid state capital gains tax.

Investment diversification with insurance?

With the SALT deduction now constrained, think more about income tax exposure on investments. Consider whole life insurance, which continues to appreciate in value without resulting in income taxes due, and represents an efficient component of a diversified portfolio.

Tax benefits of insurance

High-net-worth families who will still have state and federal estate tax exposure should be thinking about how to utilize insurance. Permanent insurance coverage owned by an irrevocable life insurance trust should be a component of smart estate plans.

Creative solutions

Here’s a three-generation plan: A grandparent could loan significant funds to their child to acquire a life insurance policy for their grandchild. That loan can be structured to be dramatically discounted upon the grandparent’s death, thus cutting state and federal estate taxes. This arrangement allows the insurance policy to be free of taxes all the way down to the grandchild.

See the InvestmentNews slideshow with photos here.

Conference Call: 10 Tax Planning To-Dos to Check Off Your List before the End of 2018

November 27, 2018 - Conference Call

With only one month left in 2018, time is running out to finish your wealth management to-dos. We’ve made your list, but it’s time to check it twice.

Today, McManus & Associates held a call with clients to provide guidance on the items below. Click to hear the half-hour discussion led by the firm’s Founding Principal John O. McManus:

 

1.  FREELY GIVE: Make annual exclusion gifts up to $15,000 for individuals and $30,000 for married couples, per chosen loved one.

2.  REAP (LOSSES TO OFFSET) WHAT YOU’VE SOWED: Harvest losses to offset capital gains in your securities portfolio.

3.  MIND YOUR HEALTH: Take advantage of this year’s lower threshold for Medical Expenses.

4.  USE A TAX RATE IN ITS INFANCY: Review your children’s portfolio income for application of the revised Kiddie Tax.

5. GIVE THOUGHT TO GIVING: Bunch your charitable deductions in the same year. The deduction for cash donations to public charities has increased to 60% of the taxpayer’s adjusted gross income.

6.   FUEL INVESTMENT VEHICLES: Establish and fund qualified plan contributions.

7.  TAKE A BREAK TO RECONSIDER BREAK-UPS: If planning to execute a divorce or separation agreement, you may want to do so before year-end. Otherwise, moving forward, the payer of alimony will no longer get a deduction on his or her tax return, and the recipient will no longer have to include the alimony as taxable income.

8.  DON’T WAIT TO COMPENSATE (YOURSELF):

An owner of an S Corp must pay themselves a reasonable compensation (what someone in a similar job would be paid). Therefore, make sure you pay yourself a salary before year- end.

9.  RESERVE TIME TO REVIEW YOUR WITHHOLDING:

The 2017 Tax Act lowered the tax rates and changed the tax bracket income ranges. Therefore, now is the time to do a “check-up” to see if your current tax withholding will be sufficient for next year’s income.

10.  MAKE A MOVE: Make distributions of income from trust accounts and estate accounts to lower their income tax liability.

Conference Call: 6 Strategies for Smart Year-End Planning under New Tax Laws

October 25, 2018 - Conference Call

Before we know it, the calendar will turn to 2019. Today, McManus & Associates Founding Principal John O. McManus held a conference call with clients to impart insight on year-end tax strategies, in light of the new tax laws, to implement by December 31st. McManus also covered annual end-of-year essentials. Listen to a recording of the discussion by clicking below:

 

 

1.    TAKE ADVANTAGE OF A LIMITED-TIME OPPORTUNITY: Since the estate tax was not repealed at the end of last year and the increased estate tax exemption is temporary, what can high-net worth families do to minimize future estate tax?
2.    GET SET TO OFFSET: If you’ve already sold appreciated investments or a business in 2018 and will incur significant capital gains taxes, what can you do to enjoy a deduction and aid in offsetting the gain?
3.    PLAN TO SAVE: The drastic limitation on the State and Local Tax (SALT) Deduction for Federal income tax purposes means that those who anticipate selling appreciated investments or a business in the next few years will experience unusually high capital gains taxes—but what can you do so that State capital gains taxes will not be imposed?
4.    ADD TO YOUR INCOME TAX TOOLBOX: In spite of the marginal reduction of the Federal income tax rates, now that the Federal deduction on SALT has been significantly constrained, we will all have even more income tax exposure on investments. Can life insurance function as an income tax planning solution?
5.    ENSURE YOU’RE UTILIZING INSURANCE: High-net worth families will continue to have State and Federal estate tax exposure, so what must remain an essential component of any well-constructed estate plan?
6.    THINK OUTSIDE THE BOX: For those who have Estate Tax vulnerabilities but are elderly or in poor health, the acquisition of a life insurance policy may be uneconomical or impossible for those individuals, but how can life insurance reduce State and Federal Estate Tax while also creating wealth for future generations?

 

ADDITIONAL YEAR-END ESSENTIALS

 

THE ABCs OF ESTATE PLANNING PROTECTIONS: Regardless of tax law changes, it’s important to go back to the basics with estate planning on an annual basis. Proper year-end planning should always consider the following:
·     Incapacity concerns
·     The dangers of passing away without a will
·     Probate pitfalls
·     Insurance as creditor-protection planning
·     Foreign reporting requirements
·     U.S. estate tax exposure for non-resident aliens
·     Business succession issues

Conference Call: 5 Estate Planning Action Items that Remain Relevant Regardless of Shifting Political Winds

May 24, 2018 - Conference Call

The political ping-pong commonly seen in the U.S. leads to legislative changes that make it necessary to reevaluate one’s tax strategies every few years. However, there are also important estate planning techniques that are not directly affected by legislation and changes in tax law, but that can still make a big impact on wealth preservation. From regularly updating your will to consistently moving assets off your balance sheet, several estate planning items should be added to your to-do list.

McManus & Associates Founding Principal John O. McManus recently discussed with clients, “5 Estate Planning Action Items that Remain Relevant Regardless of Shifting Political Winds.” Listen to a recording of the call and find details below.

 

1. Schedule Routine (Estate Planning) Checkups: Regularly update your health care documents and wills

Consider whether the individuals named in one’s documents are still appropriate. Think about positions including power of attorney, health care agent, guardian for minor children, trustees of an irrevocable or testamentary trust, trust protectors and trustee appointers (if any). Ask questions, such as:

  • Has the relationship with any of the people named changed?
  • Has the life situation of any of those named changed?
  • Has the health of any of those named changed? If one’s parents were initially named as guardian for minor children, but the parents are now older and in poor health, for example, alternative guardians who can keep up with kids may need to be named instead.
  • Are all of the people who have been named still geographically appropriate? For example, if one’s trusted power of attorney moved across the country and cannot now serve in an emergency, a new power of attorney should be named.

Next, one should also consider whether the beneficiaries named are still proper. Ask questions, such as:

  • Are the amounts left to each beneficiary still appropriate?
  • Again, how is one’s relationship with each beneficiary? For instance, has there been a falling out with any of them?
  • Are there new beneficiaries (nieces, nephews, charities, etc) one now wishes to include? Normally, documents drafted by McManus & Associates cover new children and grandchildren automatically.
  • Are any of the beneficiaries at risk with inheriting assets? Are they the target of a divorce, legal action, or the victim of financial strife or addiction, for example?

Finally, think through whether the current trust provisions make best use of the law for asset protection purposes.

2. “Do it for the Kids”: Set up trusts for your children and grandchildren

While the lifetime exemption amount has changed several times in the last decade, the annual gifting exemption has remained fairly constant. Setting up a trust for your children and grandchildren allows one to tap into this reliable wealth transfer mechanism without the damage of gifting assets to them outright. With this strategy:

  • Assets will be in a protected vehicle, meaning they can be passed on to the next generation outside of the children’s estates, as well.
  • A trustee can manage and control the assets while the children are minors.
  • The spouse should be added as a beneficiary, and the grantor should retain the power to take loans from the trust.

3. Move Assets off Your Balance Sheet: Sell the family business, real estate, life insurance, investment accounts and more into a trust

  • A family business is typically a long-term investment, so sell it into a trust. This provides an income stream to older individuals who may wish to surrender the day-to-day operations of the business without losing access to the economic security of the asset. It also puts the asset in a protected vehicle that is exempt from estate tax.
  • Sell business interests when the value is modest so that growth takes place outside of one’s estate. Selling a business interest also allows for valuation discounts, with greater equity going into trust.
  • Real estate can be sold into trust for a similar purpose as family businesses.
  • Life insurance can be sold into a trust to avoid the three year look-back. If you gift life insurance into your irrevocable trust and pass away within three years, the IRS will claw that asset back into your estate. The sale prevents this.

4. Make the Switch: Swap low basis assets out of your trust

  • Assess the income tax benefits of holding assets inside one’s estate versus the estate tax benefits of pushing them outside of one’s estate.
  • With a critical eye, consider swapping estate assets for the trust’s assets, and vice-versa, to maximize the income tax basis step-up.
  • A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes. With a step-up in basis, the value of the asset is determined to be the higher market value of the asset at the time of transfer, not the value at which the original party purchased the asset.
    • When an asset is gifted to an individual or trust, there is a carryover of the original basis – meaning there is no step-up. Although the asset is now outside the grantor’s estate for estate tax purposes, upon the sale of the asset, capital gains tax will be due.
    • When an asset is included in a descendant’s estate, the asset receives a step-up in basis to the date of death value at that time. The asset can be sold to avoid any capital gains tax.

5. Give Precedence to Giving Back: Use foundations and charitable trusts to make philanthropy a focus for your family and to achieve income tax benefits

  • Family unity can be created through a consistent emphasis on giving back.
  • Foundations and charitable trusts also both have income tax benefits. The tax rates may change, but income tax is unlikely to go away, so this will always be an important piece of a good planning strategy.
  • Donations should be reviewed annually to assess portfolio performance, confirm that the foundation is meeting minimum distributions for charity, and verify that the donative patterns are still desirable.

 

Trump Tax Bill Passes – Act Now: Top 10 Year-End Tax Planning Strategies

December 22, 2017 - Guidance

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:

  1. Accelerate your income tax deductions. Certain itemized deductions, i.e. income tax and real estate tax deductions, will be capped at $10,000. Pay your January estimated taxes in December; make your January mortgage payment in December; deduct any unreimbursed medical expenses; make your 2018 charitable donations in 2017. Some commentators suggest prepaying property taxes that have been assessed, such as the 2/1/18 and 5/1/18 installments – but it depends on the state. Also, the American Institute of Certified Public Accountants has opined that CPAs should advise clients that payments in 2017 of state tax liabilities projected for 2018 are not deductible on their 2017 federal income tax returns. You should be mindful of the fact that these additional payments could cause you to be subject to the alternative minimum tax, which results in you losing the benefits of these state and local taxes.
  2. Prepay in 2017 any business entertainment expenses, such as sports tickets or green fees, and membership dues for clubs organized for business. The final tax reform bill disallows these expenses; it will continue to allow the deduction of 50% for food and beverages associated with a trade or business.
  3. Postpone/defer receipt of income until 2018 to take advantage of the lower tax rates.
  4. Review your potential capital expenditures. Under the final tax reform bill, until January 1, 2023, a business will be able to expense 100% of the cost of the non-real estate property as first-year additional depreciation (bonus depreciation). (There is the possibility that 100% expensing may be available for property placed into service after September 27, 2017). Starting in 2023, the allowance of 100% is phased out by 20% each year.
  5. While rates are higher in 2017, make gifts to charities and family foundations with appreciated assets. Because of the lower limitation of 20% of AGI for appreciated stock to a foundation, you should split your gift between this year and next.
  6. Consider gifting low-basis stock instead of selling to raise cash for gifting that could lead to gains.
  7. Fund a charitable remainder trust with concentrated positions in appreciated securities in order to diversify without adverse tax consequences associated with selling appreciated securities.
  8. Harvest your losses to offset capital gains.
  9. Establish and fund qualified plans. Consider making a gift of up to $5,500 to either a traditional or Roth IRA for your children or grandchildren who are not funding their own IRAs, but have enough earned income to report.
  10. Contribute up to $28,000 gift-tax free per married couple ($30,000 for gifts made in 2018) to a 529 Plan, which grows free of income tax. The final tax reform bill will allow withdrawals for private, elementary and secondary school expenses up to $10,000 per year.
  11. Make annual exclusion gifts to chosen loved ones of $28,000 per married couple ($30,000 for gifts made in 2018).
  12. Make gifts into trusts for children/grandchildren.
  13. Make unlimited gifts directly to educational institutions and medical facilities.
  14. Make distributions of income from trust accounts and estate accounts to lower the income tax liability. Estates and trusts are taxed at the highest income tax rate (and a lower threshold at which the 3.8% Medicare surtax applies). Therefore, it may make sense to distribute income to the beneficiaries to be taxed at the beneficiaries’ lower 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.

Conference Call: Year-End Boot Camp

December 18, 2017 - Conference Call

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?

WealthManagement.com Publishes Byline by John O. McManus on Avoiding Raising Kids with Affluenza

November 15, 2017 - Bylines, Media Clips

Wealth Management

Ten Ways to Prevent Affluenza

An ounce of prevention is better than a pound of cure.

John McManus | Nov 14, 2017

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.

  1. Include requirements to pay off any debt, calculate income and living expenses, and create a realistic budget.
  2. Encourage the child to invest and track assets received. Portfolios must compound to outperform inflation, key to avoiding dissipation of the protected assets. The assets must also be diversified to avoid concentration in just a few positions, which can lead to dramatic losses if the concentrated bet fails.
  3. Consider putting a temporary freeze on making significant decisions regarding the assets; this can allow time for the child to think through their situation and avoid making monumental mistakes due to impatience or panicky decisions with their inheritance.

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.

  1. Not only create trusts and protective partnerships, but be prepared to amend your Will to reflect any new situation that, if otherwise ignored, could affect your child’s growth and progress within the family. If there is a demonstrated weakness with social or financial matters, for example, this will require further maturation.
  2. Setting up a trust for a child offers him an opportunity to exercise the wisdom you have provided from a very early age with the protection against wrongful, unanticipated attacks. Have a co-trustee serve with the child well into adulthood. The trustee’s job is not to give the child a fish, but rather to teach him to fish.

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

McManus & Associates Named Boutique Firm of the Year Finalist for Society of Trust and Estate Practitioners Awards

August 1, 2017 - Firm News

McManus & Associates, a top-rated estate planning law firm celebrating 25 years of success, today announced that it has been named a Boutique Firm of the Year Finalist by the international Society of Trust and Estate Practitioners (STEP) for the organization’s 2017/18 Private Client Awards. STEP is a prestigious, invitation-only worldwide organization of estate planners who advise international families on their global interests.