Tag: investment

Conference Call: What you need to know about the SECURE Act

February 7, 2020 - Conference Call

New IRA rules benefit the living, but not so much their survivors. The May 2019 SECURE Act restricts the tax-advantage IRAs that were benefiting spouses, children, and even grandchildren. In a conference call today with McManus & Associates clients, the firm’s Founding Principal John O. McManus educates on the Act’s changes to IRAs and how estate planning strategies should be modified as a result. Listen to the discussion by hitting play, and review an overview of the discussion with the outline below.

1.    The SECURE Act is here.

The Setting Up Every Community for Retirement Enhancement (SECURE) Act was introduced to the U.S. House of Representatives by Rep. Richard Neal (D-MA) as H.R. 1994, where it was passed by a 417-3 vote in May, 2019. It was then attached to the Senate’s end-of-year appropriations act, and thereafter signed into law by President Trump right before the end of the year. It has officially taken effect with the start of 2020.

2.    The SECURE Act is being pitched as a means of making retirement more attainable for more Americans.

Lawmakers have prominently highlighted the delay of the beginning age for required minimum distributions from 70½ to 72 and the elimination of the prohibition on contributions to an IRA after age 70½.

3.    The touted benefits of the SECURE Act are derived from the termination of the “stretch” (at a potential cost to your family).

To offset the budgetary impact of these modifications, the Act ends the “stretch” provision of IRAs and 401(k) plans. This means that, with some exceptions, the distributions of IRAs and other qualified retirement plans must be made to beneficiaries within 10 years of the death of the participant, instead of over the beneficiary’s lifetime.

4.    This change now demands a shift in the estate planning best practices.

The benefits of designating grandchildren or significantly younger children as the beneficiaries of retirement accounts, rather than older, financially independent children, are significantly diminished because they will no longer benefit from tax-deferred growth over the course of their (longer) lifetimes.

5.    There are now increased concerns about the use of “conduit trusts” under a Will or Revocable Trust.

If you have implemented a conduit trust as part of your estate plan, the lump sum distribution of the retirement account in the tenth year exposes the net proceeds to marital issues, litigation, creditors, and other attacks.

6.    Consider an accumulation trust instead.

In most cases, it continues to be advisable to deploy an accumulation trust under a Will or Revocable Trust in order to best secure the proceeds of the retirement account from vulnerabilities.

7.    Charitable Remainder Trusts and retirement accounts.

Such trusts can help to reduce the tax consequences of a large income event when the account is required to terminate and, if the estate is subject to estate or inheritance tax, a deduction is available because a charity is the beneficiary when the Trust ends.

8.    Life Insurance as a means of mitigating the income tax fallout.

Life insurance can provide liquidity to pay the income tax at the final distribution in the tenth year or, in the case of a Charitable Remainder Trust, help to ensure that a legacy passes down to the grandchildren.

9.    Preparing heirs for the inheritance.

Since the SECURE Act so clearly affects your youngest, perhaps least financially independent heirs, these changes may present a teachable moment to better educate them about exposure to wealth they may inherit, issues that can dramatically impact an estate plan, and the importance of developing financial responsibility and other productive habits.

10. Review the benefits of a Roth IRA.

For many, especially those who may not need required minimum distributions for quality of life expenses, it may be worth performing a tax analysis to determine whether conversion to a Roth IRA will have a more meaningful wealth transfer impact for heirs.

Real Daily Relays Insight from McManus on Self-Directed IRAs

August 9, 2018 - Media Clips

 

Real Daily, which seeks to enrich, enlighten and empower readers to make informed choices that will positively impact their financial lives, recently published the article, “5 Reasons You Need a Self-Directed IRA.” The piece, which cites insight from McManus & Associates Founding Principal John O. McManus, begins with an overview:

·           Self-directed retirement accounts, known as a self-directed individual retirement arrangement (IRA), were created in 1999 by an act of Congress after intensive lobbying of small business owners and associations.

·           The beauty of a self-directed IRA is it allows you to invest up to $6,500 into a tax-deferred account where you control the investments. Many of those investments include alternative vehicles not available in a traditional IRA.

·           These alternative investments include real estate, private mortgages, private company stock, oil and gas limited partnerships, precious metals, horses, and intellectual property.

The first reason why one should consider opening a self-directed IRA is higher returns. Per the article, “The number one reason investors use self-directed IRA accounts is the ability to pursue much higher returns compared to stocks and bonds. If you make a 25% return on a real estate investment and are able to build on that profit cumulatively for 10, 30, or 30 years it can be life-changing.” The story goes on to quote McManus:

“If you understand investments, particularly in certain segments, you can take advantage of higher yields and maybe less volatility,” John O. McManus of the estate-planning firm McManus & Associates in New York and New Providence, New Jersey told NerdWallet.

McManus has invested in real estate and other assets through a self-directed IRA for about 15 years, he says.

A self-directed IRA also lets McManus invest in companies that aren’t publicly traded, which “a mutual fund will not allow you to do,” he says. But, he warns, “this is not a game for the unsophisticated.”

The following four reasons to consider a self-directed IRA include:

·       Better diversification

·       Investing in private equity

·       Putting assets to work

·       Investing in cryptocurrencies

Click here to read the full article, including more information about the five arguments in favor of a self-directed IRA, as well as the risks of self-directed IRAs.

To discuss your investment strategy as it relates to your wealth management plan, call McManus & Associates at 908-898-0100.

McManus Helps Uncover HSA Pitfalls for MarketWatch Column

June 15, 2017 - Media Clips

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.

Bankrate Relays Investment Ideas from McManus in Feature Slideshow

May 3, 2016 - Media Clips

bankrate logoBankrate, which has more than 2.75 million readers, recently turned to McManus & Associates Founding Principal John O. McManus for advice on investments and IRAs. His thoughts are included in the publication’s feature slideshow, “Traditional or Roth IRA: Find out which IRA is better-suited for high-return investments.” From the slideshow:

Pay upfront, watch Roth explode later

Do you benefit from having an extra-long time horizon? Then going full throttle in the Roth IRA is apropos, says John O. McManus, founding principal of McManus & Associates in New York City.

“If you can take a long-term view, opt for a Roth IRA and take an aggressive approach with asset allocation and investing,” he says. “Roth IRAs buy you a lot more time to allow the market to recover, absent the mandatory distributions of traditional IRAs. Create a self-directed Roth IRA and pour significant capital in it to build horsepower. Then smartly pursue alternative investments to generate the biggest returns,” he says.

“Private equity and real estate are the 2 best areas where real leverage can be achieved with a Roth IRA. The idea is to pay your taxes up front, then really watch returns from your investments explode.”

The Art of Gifting: Top 10 Issues with Owning and Gifting Artwork

August 10, 2015 - Conference Call

Owning artwork is not only a cultural indulgence, but the sophisticated (and the lucky) possess artwork as an investment that can provide a handsome return. Auction houses, most recently Christie’s, have seen record-setting bids as fine art wrestles to take its position as an asset class equal to equities, commodities, and other hard assets. In light of the increase in capital gains tax combined with the collector’s desire to reduce the imposition of income tax and estate tax, the field is ripe for sophisticated planning.

As part of it Educational Conference Call series, John O. McManus this month discussed strategies to addresses the hard and soft issues surrounding the ownership and transfer of art. We invite you to listen to the recording to find detailed information on the Top 10 issues with owning and gifting artwork that follows, whether you’re an artist, dealer, investor or collector.

LISTEN HERE: “Top 10 Issues with Owning and Gifting Artwork”

New Jersey Law Journal Features Article by McManus in Special Supplement on “Wealth Management”

August 2, 2014 - Media Clips

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On July 28th, New Jersey Law Journal published a special supplement on “Wealth Management.” The featured section includes a co-authored guest article from McManus & Associates Founding Principal John O. McManus and Mark Cortazzo, senior partner at MACRO Consulting Group. The piece, titled “How Estate Planning Can Unintentionally Wreck a Retirement Plan,” outlines steps that can be taken to protect clients when complex investment vehicles like variable annuities are involved in the estate planning process.

Wall Street Journal Taps McManus for Advice: “Separate Assets, Joint Problems”

November 12, 2013 - Media Clips

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Andrea Coombes, reporter for the Wall Street Journal, recently spoke with McManus & Associates founding Principal John O. McManus for a story looking at married couples who keep their investment accounts separate and sometimes even their house, too, with only one spouse on the title. For these duos, their tax-deferred retirement accounts are typically owned singly, as well. A top AV-rated attorney, McManus helped Coombes examine some of the potential problems that can arise when a couple keeps assets separate, in addition to solutions to those problems.

On Sunday, Coombes’ story, “Separate Assets, Joint Problems,” was published and problems that can arise for couples who don’t merge their accounts revealed. Here are the top four problems identified in the article:

1. Those assets aren’t necessarily separate under the law.

2. Separate accounts may foster a failure to communicate.

3. Separately owned property may be at greater risk in a bankruptcy or lawsuit.

4. Separate accounts can lead to administrative difficulties.

For the third item, Coombes points out that “joint ownership can protect your nonfinancial assets if you file for bankruptcy or a lawsuit is filed against you, because creditors and plaintiffs tend to steer clear of property in which they’ll end up owning a half interest.” Property owned separately, however, isn’t automatically protected in that way, but Coombes cites advice from McManus on how to shield individually owned assets in such situations. From the article:

Joint ownership is a “very good way to serve as a deterrent for people going after some of your primary assets,” like a house, says John McManus, founder of law firm McManus & Associates in New Providence, N.J. “They don’t want that asset in a plaintiff’s action against me because they cannot easily force my wife to sell,” he says. “And now they’re stuck with a one-half interest in this property.”

However, for estate-planning reasons, Mr. McManus prefers that his clients hold assets in separate names so they can be placed in individual trusts, which can make it easier to direct where those assets end up after you’re gone. (Separate may mean each spouse owns various assets outright, or that they share ownership through a “tenants in common” designation—a form of co-ownership where each owns his or her share independently.)

For example, he says, a trust could be set up this way: “If my wife dies, she leaves me as trustee. I can spend it, I can use it as I need to, but when I die, the only place that that’s going is to our children and not to my new spouse.”

Meanwhile, the assets are protected against creditors or litigants. Mr. McManus uses his house as an example: “I’ll put my half interest in trust today,” he says, so his interest goes to his wife when he dies. “And if I’m sued, I’ve already surrendered my interest in the house, so I’m protected.”

What McManus is referring to is a completed gift of a 50% interest in the residence to an irrevocable trust. A creditor could attack the interest in a revocable trust, but a properly drafted irrevocable trust agreement with spendthrift provisions is generally not accessible to a creditor.

To get details on the other three items on Coombes’ list, check out the full story here.

McManus & Associates can help you determine whether it’s best for you and your spouse to keep assets separate (and, if so, which ones). Give us a call at 908.898.0100 to discuss.

Investment News: “A flightplan for snowbirds”

March 6, 2013 - Media Clips

Investment News has created a helpful, interesting slideshow that anyone attempting to escape cold northern winters (or really anyone who spends a good deal of time in a state that is no longer their primary residence) should check out to avoid issues of residency and, therefore, being taxed in more than one state. Investment News bases the nine tips on guidance from McManus & Associates founding principal John O. McManus. From the slideshow intro:

There’s nothing like a cold, northern winter or a chilly tax environment to inspire American retirees to head south. But if you plan to pack your bags for good, it may be easier to shed your overcoat than your status as resident of your former home state, warns John McManus, the founding principal of the New York area trust and estate planning firm McManus & Associates. He offered the following tips on how to enjoy hot weather without ending up in hot water with tax collectors in your previous domicile.

The feature shares important but sometimes overlooked suggestions like change your gym membership right after you move and use cash when visiting your previous state of residence, if possible. To learn about more steps you can take to shed the double layers and the double tax payments, click through the full slideshow “A flightplan for snowbirds” here.

Forbes: “Farm Like A Billionaire–Harvest Tax Breaks” and the 2012 Investment Guide

June 8, 2012 - Uncategorized

Forbes magazine’s June 25, 2012 Investment Guide issue has been posted online, and several stories of interest are included from Ashlea Ebeling, who writes about how to build, manage and enjoy your family’s wealth.

Ashlea Ebeling

Founding Principal of McManus & Associates John O. McManus, a trusts and estates attorney, spoke with Ashlea about the requirements tied to reaping tax benefits from farm-assessed property for her article “Farm Like A Billionaire–Harvest Tax Breaks.” The piece shares examples of high-net-worth individuals (HNWIs) planting lavender, establishing honey hives and declaring wildlife preserves to “harvest real estate tax breaks” and income tax savings.

Based on her conversation with John, who practices law in New York, New Jersey, Connecticut and more, Ashlea writes:

New Jersey allows you to snag a farm break with just 5 acres of land “devoted to agricultural and/or horticultural use” (not including the immediate area around your residence) and $500 in annual farm sales—a threshold neighbors can meet by buying each other’s products. “Everybody talks about what their products are at cocktail parties,” reports John McManus, an estate lawyer in New Providence, N.J. Pumpkins, Christmas trees and alpaca wool are popular.

Check out “How To Farm For Love And Profit–And Save The Farm” for important information on conservation easements and farmland preservationists successes and struggles in Pennsylvania. You can also see beautiful photos of the lavender farm — used for a Lands’ End catalog shoot — featured in the piece for which John was interviewed  here.

And finally, another story from the Investment Guide that relays smart investment strategies that help both you and your family is “Become A Family VC: How To Capitalize On Your Kid’s Or Cousin’s Business.”

The 2012 Forbes Investment Guide is definitely worth the read.