Tag: retirement

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.

Advice for Seniors from McManus Meets the Big Screen, Thanks to WealthManagement.com

November 2, 2018 - Media Clips

WealthManagement.com/Trusts & Estates published the below byline by John O. McManus as a slideshow! Click here to read John’s advice, accompanied by entertaining movie stills.

Top 10 Dangers Facing Senior Clients

John O. McManus | Oct 29, 2018

1. Anticipate, Before It’s Too Late

As clients age, there’s a significantly greater risk of incapacity. The failure to prepare a healthcare directive and living will, authorization for release of protected health information, and durable general power of attorney means that family members will be compelled to seek court intervention if your client becomes unconscious, has diminished capacity, or experiences some other emergency. This results in unnecessary delay and expense and will be completely inadequate if a client’s loved ones need to make a healthcare decision or act on their relative’s behalf with respect to financial, legal or personal matters. It’s essential to ensure basic protections are in place so that loved ones can act immediately in the event of these issues.

2. Spend a Little Time Planning to Save a Lot of Time Doing

The need for the court to oversee the administration of an estate can be time-consuming, costly and frustrating. Proper planning will allow for the probate process to be completed with greater expediency. This includes the preparation of revocable living trusts, the assets of which will not be subject to court review (even if the property is owned in another state) and updates to the titling and beneficiary designation of your client’s assets to ensure a far more efficient estate administration.

3. Take Advantage of the Opportunity of the Lifetime Gift Exemption

Dramatically reduce a client’s future potential federal estate tax by utilizing the temporary increase to the lifetime gift exemption. The Tax Reform and Jobs Act enacted at the beginning of 2018 significantly raised the federal estate tax exemption, but the current law will expire no later than Dec. 31, 2025. Furthermore, Congress can take action sooner to reduce the increased exemption. Therefore, high-net worth individuals and families must strongly consider leveraging the exemption while it’s available in order to remove appreciating and/or discountable assets from the taxable estate.

4. Don’t Skip Over Generation-Skipping Tax

Help a client understand the tax implications of the transfer of wealth across multiple generations to preserve their legacy for the descendants. The generation-skipping tax and the use of the GST exemption are among the most sophisticated planning concepts, but it’s essential to consider this issue as part of the larger estate plan. Bequests in trust to grandchildren, the design of a dynasty trust and the proper reporting of gifts are all connected to the deployment of the GST exemption and avoids the imposition of additional tax when an inheritance is received by more remote descendants.

5. Decrease Chances of an Increase in Federal Income Taxes

Evaluate strategies to avoid a potential increase in federal income taxes due to limitations on state and local tax deductions. Different types of out-of-state trusts (particularly those based in Delaware and Nevada) provide planning opportunities before the liquidation of an appreciated investment or business. Furthermore, life insurance, Roth IRA conversions and contributions to charitable vehicles (including private foundations and charitable remainder trusts) afford clients opportunities to mitigate state income tax exposure.

6. Step Up Planning With a Step-Up in Basis

Review the power of a step-up in basis upon death, reducing capital gains tax and delivering income tax savings your client’s loved ones can enjoy. Families must consider proper planning in advance of death. Asset transfers to an ailing spouse, community property trusts, asset swaps from existing irrevocable trusts and asset upstream gifting to parents are all options to put the surviving spouse, children and other heirs in the best position to sell an appreciated asset tax-free.

7. Plan for Long-Term Care in Short Order

The cost of long-term health care could drastically deplete an estate, but strategies may be available to mitigate the attrition of assets. In addition to traditional long-term care policies, life insurance policies can be structured with an accelerated death benefit to cover the cost of nursing home care and/or provide wealth replacement if other resources are diminished. Medicaid trusts and supplemental needs trusts also afford the possibility that assets may be preserved for the use of a surviving spouse or provide a meaningful legacy for children without sacrificing the ability to qualify for governmental benefits.

8. Expect the Best, Plan for the Worst

Protect the inheritance of your client’s heirs and ensure wealth is not diverted, in case a child’s marriage fails or there’s some other attack by a plaintiff’s lawyer. A properly structured trust for the benefit of a child or grandchild under a will or revocable trust can serve to secure an inheritance from an estranged spouse. It’s also important to evaluate how these benefits can be enhanced through a prenuptial agreement or other prenuptial planning measures. Such a trust can insulate the assets from attacks resulting from personal or professional liability, creditors and other legal claims.

9. Pay Special Attention to Special Needs

Ensure the inheritance of your client’s children and grandchildren will be used to enhance their standard of living, while preserving their ability to receive Social Security or Medicaid. If a client’s child or grandchild directly receives from the estate or benefits from a conventional trust, it will likely disqualify them for needs-based government benefits, forcing the funds to be used for basic living expenses and health care. Incorporating a supplemental needs trust into the estate plan will prevent the inheritance from being treated as a resource of that child or grandchild, which will allow for the continuation of payments from these programs. The assets of the trust can then be sheltered for uses not covered by the government, including social, cultural, entertainment activities, travel, visitation with family members, educational and vocational programs, and other quality of life considerations.

10. Prepare Your Client’s Heirs

Aid your client’s loved ones in the effective deployment of the wealth they pass along by imparting their family mission and values, including the intrinsic benefits of philanthropy. As a first step, encourage adopting a family mission as part of the estate plan as a means of conveying these wishes and expectations. Recognize the importance of gradually integrating children and grandchildren into the estate plan through periodic family meetings with the family’s professional advisors, which will help them to understand the purpose of the estate plan and the various considerations that go into preserving wealth for the next generation. Finally, those families who adopt charitable giving as a core tenet of the estate plan should include children in the implementation of those activities, including the continued support of causes supported by the family, the identification of new causes that align with donative intent and the development of relationships in the philanthropic community to ensure charitable gifts will have the greatest impact.

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.

Many Millionaires Are Down on the Stock Market – Should You Be?

February 15, 2016 - Guidance

Last Friday, Brian O’Connell penned a piece for TheStreet on what millionaires being down on the stock market means for regular investors. Here are thoughts from John O. McManus, founding principal of McManus & Associates:

With the wealthy keeping a tight rein on their dollars, the market remains flat to down. Because millionaires feel poorer, they’re spending less on creature comforts, which can cause the economy to slow. We saw this in the Great Recession – fewer vacations and pricey dinners, less frequently cut lawns and cleaned pools, and fewer wallets opened for cars, high-end fashion, jewelry and more. When millionaires are soured on the market, regular investors should view this as a red flag, because the rich tend to spend the most on guidance from top-notch advisors and can afford to be patient and invest for the long-haul. If millionaires are pulling out of the market or not investing, there’s no reason regular investors should do the opposite. That said, many millionaires may still be invested in the market, because they can afford to take a long view.

Top 9 Estate Planning Tasks to Complete before Year-End

December 17, 2014 - Conference Call

The holiday season represents a window of opportunity for growing and preserving wealth. McManus & Associates today outlined the “Top 9 Estate Planning Tasks to Complete before Year-End”. As part of the firm’s educational focus series, Founding Principal and top AV-rated Attorney John O. McManus recently discussed time-sensitive recommendations for building your nest egg and reducing your check to Uncle Sam for Tax Year 2014.

WSJ’s MarketWatch Features Advice from McManus on “How women can make estate planning easier”

May 8, 2014 - Media Clips

marketwatch logo

 

 

Andrea Coombes

Andrea Coombes

Andrea Coombes writes the “Ways and Means” column for MarketWatch, a media property of the Wall Street Journal that has nearly 9.5 million unique visitors per month. McManus & Associates Founding Principal and top AV-rated Attorney John McManus recently spoke with Coombes about special considerations for women when it comes to estate planning.

MarketWatch Draws on Advice from McManus for “5 Estate-Plan Strategies for Boomers”

December 3, 2013 - Media Clips

marketwatch logo

Andrea Coombes, Ways and Means columnist for Dow Jones, last week published an interesting piece for MarketWatch sharing estate planning strategies for baby boomers. To bring readers closer to achieving their goal of putting together an estate plan, Coombes boils down advice, with the help of McManus & Associates Founding Principal John O. McManus, to offer “5 estate-plan strategies for boomers.”

Here are Coombes’ must-do estate-plan tasks:

1. Create a will or trust

2. Create a power of attorney

3. Create a health-care power of attorney and living will

4. Check the titling of your assets

5. Start with your family

In tackling the first tip “Create a will or trust”, a testamentary trust that goes into action when someone dies is given as an example to prevent unexpected consequences with regard to where your money ends up. Coombes draws from McManus’ comments to illustrate:

“The trust is actually built into the will,” said John McManus, founder of law firm McManus & Associates in New Providence, N.J.

He offered an example of what can happen without such a trust: “Say I die and leave my wife a couple of million bucks. Now it’s her in name. She then remarries, and then she dies two weeks later. Her new spouse will get one-third of those assets — even if we intended that money to go to our kids.”

The precise fraction promised to the surviving spouse will vary by state, but McManus said one-third is common.

Some boomers also may want to create a revocable living trust. There are a variety of reasons for considering such a trust.

Here’s one: If you have property or assets in more than one state — say, you live in New Jersey and own a condo in Florida — this document allows your estate to avoid the costly and time-consuming probate process in each state — with one document. A revocable living trust is portable. It will follow you across state lines, McManus said.

For the fifth tip “Start with your family”, Coombes turns again to McManus, who points out that estate planning isn’t only about you. From the piece:

McManus said boomers’ first estate-planning task is to ensure their elderly parents’ estate-plan documents are in order, and their second task is to focus on the estate-plan documents of their adult and minor children.

Coombes goes on to shed light on a potential pitfall:

Here’s one example of what can go wrong: Often people intend to divide their estate equally among all of their children. Their will may state as much, but if one child is named on a joint account, say, to help with bill-paying, that account will pass to that one child “by operation of law,” McManus said.

“Even though the parents intended that it be divided equally, the assets in joint names with their one child will result in that child being disproportionately favored,” he said. In his experience, he said, adult children in that situation “almost never” square up with the other family members.

To avoid the problem, your parents could adjust the will such that larger portions of other assets are given to the siblings or, rather than making that child a joint account-holder, give him or her power of attorney over the account, McManus said.

To get the full story with more expert advice from McManus, click here. And to discuss what your must-do estate plan items are based on your unique circumstances, give us a call at 908-898-0100. We can help.

Fox Business: McManus shares advice on how to ensure a trust meets personal, financial needs

June 17, 2013 - Media Clips

Fox Business logo

 

Top-rated Attorney John O. McManus recently spoke with Bankrate Reporter Judy Martel about how to ensure a trust is set up to meet your personal and financial needs. Published today and syndicated by Fox Business, Martel’s piece, “An Irrevocable Trust That Evolves with You,” covers the keys to choosing a trust that “meets your specific needs while building in the maximum amount of flexibility allowed so that, as your needs change and evolve, you retain some power over the trust.”

In the article, Martel shares counsel from McManus:

One of the first important considerations when setting up a trust is its location, says John McManus, founder of McManus & Associates in New Providence, N.J. Some states offer better creditor protection, allow for a trust to exist for a longer period of years before becoming taxable or do not impose state income tax on trust assets. A few states, he says — notably Alaska, Delaware, South Dakota and Nevada — provide additional power to the trust creator while still protecting assets from creditors and maintaining the trust’s tax-beneficial status. Although trusts can be set up in those states regardless of where you live, it is typically more expensive.

She also draws on knowledge shared by McManus, the founding principal of McManus & Associates, to help readers understand the structure of a trust:

At the top of the triangle is the trustee, the person who has legal title to the assets in the trust and the one responsible for managing the trust, making discretionary decisions and carrying out the terms of the trust agreement. The creator can be the trustee, but generally that’s not a good idea in most states because, depending on how the trust is written, the state laws and how much discretionary power the creator has, the trust can lose its tax-beneficial status or be subject to creditors, McManus says.

Beneficiaries, the second point of the triangle, are those who will receive the beneficial interest in the trust. They can be amended, added or dropped if the creator of the trust retains the right of appointment, McManus says. “Let’s say I have two layers of beneficiaries in my trust — first to my wife and sister and then to my children and my sister’s children,” McManus says. “After I create the trust, I want to cut out one of the beneficiaries, or one of them needs more money. I have the right to choose who will receive money and how much,” he says. Even better, he adds, “I don’t have to decide that right away. That allows people to put a lot of assets in that trust when they otherwise might not because who knows how my sister’s children will turn out or how my children will turn out?”

What standards help ensure that the beneficiary’s needs are met within reason and as defined by the trust agreement?

The amount of distribution is also up to the creator of the trust. It can be controlled by the use of ascertainable standards, which restrict the trustee to distributions for the benefit of health, education, maintenance and support, says McManus…They also protect the trust from being taxed if a child beneficiary is also named as trustee, McManus says.

To learn more about how to draft an irrevocable trust properly to save in estate taxes and give you “the comfort of knowing you’ve ensured a financial future for your beneficiaries,” read the whole story here.

Flickr/aresauburn™

Flickr/aresauburn™

BenefitsPro Relays Estate Planning Guidance from McManus & Associates

March 14, 2013 - Media Clips

Top-rated estate planning attorney and founding principal of McManus & Associates John O. McManus last month chatted with Paula Aven Gladych, writer for BenefitsPro, about why even people who aren’t in the top 1 percent of earnings need to undertake estate planning. Individuals who earn between $250,000 and $1 million won’t have to worry about paying federal estate taxes, since the exemption is $5.25 million, but “they still have to worry about state exemptions, which are all over the map.” As pointed out in Gladych’s article, “Even middle-income earners should have an estate plan.”

Flickr/401 (K) 2013

From the piece, which is based on McManus’s interview with Gladych:

“People are not going to give a large amount of their assets away during their lifetime. If a client has $1.5 million during their lifetime, they may need every dollar of that to live from. If they become terminal, a quality financial advisor and attorney will say, ‘let’s move money off the balance sheet now.’ The fact is, by moving it you’ll avoid the imposition of state tax when you pass away. The problem in the past is people are not doing it because they only give away $750,000 to $1 million on the federal level,” McManus said. “The concern is that states will smarten up and impose a gift limitation equal to the death tax limitation.”

Why should middle-income earners consider putting money away in a trust? Read the rest of the story to find out.

More recently, Paula Aven Gladych interviewed McManus again for a piece, titled “Legacy, estate planning as important as retirement.” As captured by Gladych, “planning for the future isn’t just about retirement accounts or what you want to do with all of your free time. According to financial experts, people also need to plan for what comes after their retirement—end-of-life planning.”

McManus’s advice is captured in the story as follows:

Individuals need to make sure their documents are current. They need to review them every so often to make sure that what people think they will receive when they die is what they will actually receive, said John McManus, founding principal at McManus & Associates, an estates and trusts law firm in New York.

That means reviewing documents and walking through their provisions, deciding how they want to dispose of their assets and naming representatives who will make sure their assets are distributed as they intended.

There is a catch 22, however. Many people don’t realize that beneficiary designations on life insurance policies and retirement accounts trump whatever is written in a final will and testament.

Many parents place one of their children on their accounts as a joint account holder so they can help pay bills. What most people don’t realize is that when the parent passes away, no matter what is listed in the will, the person who is listed on the joint account will inherit that money. This can cause many problems among other beneficiaries who believe they are entitled to their share of that money, McManus said.

Each state has its own exemption when it comes to estate taxes. Some states, like New York, will allow individuals to pass down the first $1 million to heirs tax free. Anything above that $1 million will be taxed. McManus counsels his clients to gift that money while they are still alive to avoid hefty taxation later.

Check out more important estate planning tips in the story here.

Bankrate.com: “Are these tax proposals fair?”

December 19, 2012 - Media Clips

Jennie Phipps, who has been reporting on retirement for six years, recently spoke with McManus & Associates Founding Principal John O. McManus about estate and retirement planning strategies and based an article for Bankrate.com on the conversation.

In her story, titled “Are these tax proposals fair?” Phipps highlights five estate and retirement planning strategies at which the Obama Administration has taken aim, according to McManus. As she notes in her piece:

Some of the people who are using these strategies as they approach retirement have lots of money to manage. But those using these approaches also include small-business owners and farmers eager to pass their enterprises on to their children without burdening them with a huge tax bill, McManus says.

Phipps summarizes what the government proposes to do to collect more taxes from money passed down via estates and tasks readers with deciding whether the proposals are fair. She calls out the following:

  1. Lower the estate tax exemption.
  2. Retool intentionally defective grantor trusts.
  3. Tax grantor retained annuity trusts, or GRAT.
  4. Limiting generation-skipping transfer tax exemptions to 90 years.
  5. Taxing grantor trusts when Dad still manages the money.

Phipps’ article expands on all five; read more here: http://www.bankrate.com/financing/retirement/are-these-tax-proposals-fair/

The story closes with thoughts from John:

McManus says he believes that taxing estates at 45 percent is unfair and counterproductive. “We are proposing to penalize hardworking people who aren’t making millions. Having to pay a punitive amount in taxes takes away the motivation to start up a business.”

Please give our office a call at (908) 898-0100 if we can help with questions.