Tag: estate planning

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

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

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

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

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

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

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?

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

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.

Conference Call: 10 Ways to Prevent Affluenza

Affluenza: “An Ounce of Prevention Is Better than a Pound of Cure”

According to American author Mignon McLaughlin, “There are a handful of people whom money won’t spoil….” Do you think your children are among them? From over 25 years working with wealthy families, we’ve learned that older generations must be intentional to guard against the development of affluenza in children of all ages. As with lottery winners and athletes who often squander significant sums of cash, children who see an influx of assets may mishandle what they have been given without proper preparation.

The term “affluenza”, also known as sudden wealth syndrome, is a portmanteau of the words “affluence” and “influenza.” It is typically characterized by a lack of motivation or a sense of entitlement among those who have inherited large amounts of money.

During a conference call with clients, McManus & Associates Founding Principal John O. McManus recently shared his thoughts on the 10 preventative measures against affluenza below.

LISTEN HERE for details: “10 Ways to Prevent Affluenza”

    1. Discipline Reality Check
    2. Better to Give than Receive
    3. Money Can’t Buy Happiness
    4. Patience Is a Virtue
    5. Knowledge Is Power
    6. No Substitute for Hard Work
    7. Word to the Wise
    8. Failing to Plan Is Planning to Fail
    9. Know when to Say No
    10. Preparation Is the Key to Success

McManus Helps Uncover HSA Pitfalls for MarketWatch Column

Andrea Coombes, Ways & Means columnist for MarketWatch, recently took on the task of identifying “hidden pitfalls” of Health Savings Accounts, which are medical savings accounts with tax advantages. For her piece, she spoke with John O. McManus to learn what happens to HSAs when the accountholder passes away.

The fourth item on Coombes’ list of 10 pitfalls:

Your entire HSA account becomes taxable when you die, unless you’ve named your spouse as beneficiary, in which case your account becomes your spouse’s HSA. So, from an estate planning perspective, what’s the best way to handle these accounts, assuming you’re older and have a hefty sum stashed? “Our view is postpone withdrawals from accounts that are compounding tax-free,” John O. McManus, founder of McManus & Associates, a trusts and estates law firm in New York and New Providence, N.J. Once you’re over 65, you can withdraw money without the 20% penalty faced by those under 65. (If you spend on non-medical costs, you’ll owe income tax, which is the same as withdrawing from a traditional IRA, but health accounts don’t have required minimum distributions, so you have more control.) Letting the money grow is valuable, McManus says, given that people are living into their 90s and nursing-home costs can run “$100,000 just for living quarters and medical assistance.” If you bequeath the account to a non-spouse beneficiary, he or she will owe income tax on its fair market value.

To read Coombes’ full column, “10 hidden pitfalls of health savings accounts,” click here. For guidance on utilization of investment and savings vehicles as part of your estate plan, give McManus & Associates a call at 908-898-0100.