Permanent tax relief

For many years, Congress has had to address “tax extenders” each year, sometimes every two years. The “extenders” were a grab bag of tax breaks that were considered “too generous” to taxpayers to be made permanent, but too important in the short term to be allowed to expire. Whenever it came time to renew the “extenders” the tax-writing committees would have to find other tax “loopholes” to close to raise the revenue to “pay for” another extension of the “extenders.”

That all changed in December 2015.

As part of the final budget deal, Congress enacted the Protecting Americans from Tax Hikes Act of 2015 (the PATH Act).  Many of the temporary provisions were made permanent, and this was done without offsetting tax hikes.

For individual taxpayers, perhaps the most important extender is the “Charitable IRA Rollover.” Beginning in 2006, taxpayers who are age 70 ½ or older (in other words, those who must take required minimum distributions from their IRAs) have been permitted to direct transfers of up to $100,000 per year from their IRAs to a qualified charity. Such distributions satisfy the distribution requirement, but they are not included in the taxpayer’s income, so they do not increase the taxpayer’s adjusted gross income. That’s even better than the usual charitable deduction.

This tax provision was temporary, and it repeatedly expired. Congress never failed to renew this provision, sometimes retroactively, but sometimes that renewal came very late in the year, giving taxpayers very little time to take advantage of it. Now it is permanent.

Other permanent provisions of the new law of interest to individuals include:

  • deduction for state and local sales taxes;
  • American Opportunity Tax Credit for college students;
  • an enhanced child tax credit; and
  • the above-the-line deduction for schoolteacher expenses.

The following provisions were extended only through 2016:

  • exclusion from income of discharged mortgage debt on a qualified principal residence;
  • deductibility of mortgage insurance premiums as residence interest; and
  • above-the-line deduction for qualified tuition and fees.

Two changes were included that are not related to raising revenue. First, distributions from Section 529 education funding plans may be used to purchase computer equipment and related expenses on a tax-free basis. Second, the residency requirement for the new 529 ABLE accounts for special needs beneficiaries has been dropped.

With the passage of this law, the annual ritual of debating the “tax extenders” may finally be over.

(January 2016)

© 2016 M.A. Co. All rights reserved.

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Trustworthy advice: Look no farther

As a corporate fiduciary, we are dedicated to providing our clients with trustworthy asset management. Of course, we also provide traditional trust services, such as administering estates and managing trust funds for young or inexperienced beneficiaries. Our primary function, however, is helping people turn financial success into financial security. We would like to take this opportunity to introduce you to what we do and how we do it.

Technically, we serve our asset-management clients as investment agent or as trustee under a revocable trust agreement. In practice, however, each of our clients is “special.” We fit our services to the needs of the client. For example, you might need little more than a reliable source of investment bookkeeping today, but you might wish a much broader array of asset-management services when you retire and have new money to invest.

Essentially, the varied tasks that we perform for clients fall into four categories:

  • Asset management. Clients look to us for help in developing investment strategies that fit their current income needs, their goals for the future and their tolerance for market risks. We’re also equipped to implement these strategies for them. Some ask us to submit specific investment recommendations for their approval. Others—including those who travel a lot or have especially demanding careers—authorize us to make investment decisions on their behalf.

Granting one’s investment advisor full discretion is not something one does lightly these days. Because we charge moderate annual fees for our work, rather than relying on sales commissions, our clients know that they can count on us to act in their best interests.

When we talk about “trustworthy asset management,” we mean that each and every member of our staff observes two rules: 1. The client’s interests always come first. 2. In case of exceptions, see Rule 1.

  • Good financial housekeeping. We handle all details related to purchases and sales of securities. We provide safekeeping. We disburse or reinvest investment income promptly. We keep accurate, comprehensive investment records and submit periodic statements to our clients. We watch for bond calls and handle redemptions promptly. We . . . but you get the idea. Our tradition of trusteeship makes us near-fanatics when it comes to attending to the detail work of investing. Some clients who first came to us merely to receive these relatively routine services now draw upon our asset-management capabilities as well.
  • Special services. Many of our clients look to us for a variety of special services when and as they need them: Payment of household bills. Payment of quarterly estimated taxes. Arranging for preparation of annual tax returns. Older clients often authorize us to step in and provide full personal financial management in the event that they should become mentally or physically incapacitated. Even when this alternative to a court-ordered conservatorship is not needed, it contributes to the client’s financial peace of mind.
  • Traditional trust and estate services. Finally, our clients can draw upon our traditional trust and estate services. No other type of asset-management firm can offer this kind of continuity from generation to generation. Only a trust institution such as ours can help you preserve personal financial security for life, then administer your estate and look after funds that you leave in trust for others in the family, or for charitable purposes.

When billionaires become billionaires, often they create and staff their own family financial offices. That’s fine, but only if you possess the megawealth to justify the high cost. Perhaps the best way to visualize our approach to personalized asset management is to picture us as a similar office—one that serves many individuals and families and so can provide its services at quite moderate cost.

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May we provide you and your family with more information about how we can help you create and maintain a long-term strategy for financial security? We would be glad to schedule an appointment at your earliest convenience.

© 2015 M.A. Co. All rights reserved.

Any developments occurring after January 1, 2015, are not reflected in this article.

Values-based estate planning

DEAR GARDEN STATE TRUST COMPANY:

My religion is very important to me, and I have tried to instill that faith in my children and grandchildren. However, in today’s secular world that is no easy matter, and I worry that I haven’t succeeded. My will creates a trust for my grandchildren. Would it be possible to include a clause providing an inheritance only for those who marry within our religion? —KEEPER OF THE FAITH

DEAR KEEPER:  You are in tricky territory with such a bequest. As a rule, the courts will not enforce bequests that interfere with marriage. For example, say that you hated one particular son-in-law. You might have good reasons; he might be a real louse. But if your will conditioned a bequest upon divorcing him, that condition would most likely be unenforceable. You could, however, take steps to see that he never has a chance to inherit your money. For example, instead of leaving a bequest to your daughter, you could make her the beneficiary of a trust, as you have done for your grandchildren. The trust could permit distributions only to her, not to the lousy son-in-law.

On the other hand, in a 2009 Illinois case, a trust stipulated that in order to inherit, the grandchildren would either have to marry within the grandparents’ faith, or the spouse would have to convert within one year of the marriage.  One grandchild met the condition; four others did not. That clause was upheld.

However, the long and bitter legal fight may have left permanent emotional scars on the family. One wonders whether this was truly the outcome that the grandparents wanted

Sincerely,
Garden State Trust Company

 

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com.

 

Inheritance Protection Plans

How to protect my inheritance?Those who have built wealth during a lifetime of hard work are rightfully concerned about how best to use that wealth for family financial security. As has been noted often, the wealthy want their heirs to have enough to be able to do anything, but not so much that they don’t have to do something. Now more than ever, a family fortune is something to be protected and nurtured.

What is the answer? How can wealth be conserved and deployed on a long-term basis for the benefit of heirs?  Trusts could be the answer, for many families.

Trust planning comes immediately to mind when planning for a surviving spouse or an heir who is a minor. With a trust one gets professional investment management guided by fiduciary principles. But what about when the children are fully grown, established in their careers and financially mature, in their 30s or even 40s? Even then, trust-based planning will be an excellent idea for many affluent families.

Trust advantages

Among the key benefits that can be built into a trust-based wealth management plan:

Professional investment management. A significant securities portfolio is a wonderful thing to have, but it requires serious care and attention, especially when economic growth is weak; interest rates are low; and taxes are uncertain. How can adequate income be provided to beneficiaries without putting capital at risk? What is the best balance between stocks and bonds?

Creditor protection. One of the most frequent questions that we hear is, “How can I keep my money and property out of the hands of my son-in-law (or, sometimes, my daughter-in-law)?” answer: Use a trust to own and manage the property, and give your heir the beneficial interest in the trust instead of the property.  A carefully designed trust plan can protect assets in divorce proceedings, as well as protect from improvident financial decisions by inexperienced beneficiaries.

Future flexibility. Parents typically have a fuzzy definition for treating their children “equally.” As each child is unique, his or her needs may need financial support that is out of proportion to that of siblings.  By utilizing a trust for wealth management, one may give a trustee a similar level of discretion, permitting “equal treatment” on something other than gross dollar terms. The trust document may identify the goals of the trust and provide standards for measuring how well the goals are being met for each of the beneficiaries.

We specialize in trusteeship and estate settlement. We are advocates for trust-based wealth management planning.  If you would like a “second opinion” about your estate planning, if you have questions about how trusts work and whether a trust might be right for you, we’re the ones you should turn to. We’ll be happy to tell you more.

Trusts for children

Support trust For an adult child who needs a permanent source of financial support, with the trust principal protected from the claims of creditors, a support trust may provide a solution.  The beneficiary’s interest is limited to just so much of the income as is needed for his or her support, education and maintenance.
Discretionary trust The trustee has sole discretion over what to do with the income and principal, just as the grantor does before the trust is created.  The beneficiary has no interest in the trust that can be pledged or transferred.  When there are multiple beneficiaries, the trustee may weigh the needs of each in deciding how much trust income to distribute or reinvest, when to make principal distributions, and who should receive them.  The trust document often will include guidelines on such matters.
Gift-to-minors trust. For young children, contributions of up to $14,000 per year to this sort of trust will avoid gift taxes. Assets may be used for any purpose, including education funding, and will be counted as the child’s assets for financial aid purposes.  The assets of a gifts-to-minors trust must be made fully available to the child when he or she reaches age 21.  However, the child may be given the option of leaving the assets in further trust.

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© 2015 M.A. Co. All rights reserved.