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Jun 01st
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A tax tip that can save you thousands

borosonWarren120312_optBY WARREN BOROSON

The IRS wants people to die with as much in the way of assets as possible. For the simple reason that, the more assets people leave behind, the more taxes the IRS can collect.

That’s the observation of John O. McManus, founding lawyer of McManus & Associates in New Providence and New York City.

Which is why reducing your assets before you buy the farm is usually a wonderful idea.

True, reducing your estate is mainly something for the wealthy, but even paupers like me should think of doing some clever things before the end of the year. Taxes will surely go up, so it’s a good time to consider selling some winners – other things being equal. And it’s a good time to consider turning your traditional IRA in a Roth IRA. You’ll pay taxes on the conversion, but you will wind up with an IRA where the profits will likely escape taxation.

The gift tax exemption will likely be reduced next year, so something that well-to-do people should consider doing, McManus suggests, is setting up a trust to put assets into, to protect those assets from Uncle Sam. These trusts will give you “flexibility, control, and access.”

He goes on: “The gift tax exemption, currently allowing individuals to transfer up to $5,120,000 in assets free of tax, retreats to $1 million at the end of this year, and the gift-tax rate jumps from 35 percent to 55 percent.”

When the battle about the so-called Fiscal Cliff is over, says McManus, possibly sometime next year, gift-tax rates will likely increase significantly, and the tax benefits are scheduled to fall to less than 20 percent of what is available through year-emcmanusJohn120312_optnd.

“It is now critical to hop on this last tax-planning train before this period dissolves to the disadvantage of loved ones,” he says.

“Assets such as business interests, private equity ownership, stock portfolios, cash, and real estate are all suitable for transfer. Employing qualified professionals can assure that this work can be completed in less than 30 days – just enough time to make the deadline.

“Missing this twilight period could prove to be taxing both on your mind and your balance sheet.”

Does the trust have to be irrevocable? Yes, McManus replied.

But can the trust be modified? “In certain instances, assets may be transferred into a new trust; also, the grantor can appoint and remove trustees.

Can you borrow from it, for example? Yes, again.

McManus & Associates, a trusts and estates law firm, was formed in 1991 by McManus to provide the “high quality experience of the largest firms coupled with the intimacy and efficiency of a specialized boutique firm.”

To receive Warren Boroson’s column regularly, drop him a note at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .


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