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, they 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, family prosperity is something to be protected and nurtured.

What is the answer? How can monies 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 families no matter the wealth.

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 uncertain; interest rates are low or changing direction; and taxes are unclear. What is the best allocation between stocks and bonds or other asset classes?

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 child's spouse" The 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 from imprudent financial decisions by inexperienced or impetuous 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. Visit our Boomers and Beyond to see the scope of our services. https://gstrustco.com/solutions-services/boomers-beyond/
FAMOUS WILL FOR THE MONTH LEONA HELMSLEY
CLICK THE NAME TO READ
CLICK THE NAME TO READ
Leona M. Helmsley (the "Queen of Mean") was married to Harry Helmsley, a billionaire real estate investor and hotel operator in New York City. Her Will is significant for the $12 million gift in trust for her dog, Trouble.

In the Informational Article Attempted Medicaid Fraud Thwarted read how a Husband removed Wife as beneficiary of his IRA, hoping to qualify her for Medicaid nursing home assistance. A court has held the action to be a fraud on her marital rights. Read the The Million-Dollar Mistake and how Company-owned life insurance proceeds must be counted in determining the estate tax value of a family business, a court has ruled.

With Halloween just around the corner, keep these tips in mind if your children or grandchildren are out on Halloween night:

  • A responsible adult should accompany young children on the neighborhood rounds.
  • If your older children are going alone, plan and review a route acceptable to you.
  • Agree on a specific time children should return home.
  • Teach your children never to enter a stranger's home or car.
  • Instruct children to travel only in familiar, well-lit areas and stick with their friends.
  • Tell your children not to eat any treats until they return home, and take care to avoid any food allergies.
  • Children and adults are reminded to put electronic devices down, keep heads up and walk, don't run, across the street.

Stay safe,
Ira J. Brower, Founder
Attempted Medicaid Fraud Thwarted
Under ERISA spouses acquire rights in their partner's employer-sponsored retirement plans. Nonspouse beneficiaries may not be named without the written consent of the spouse. If an individual joins a retirement plan when single and later marries, the spouse gains those rights regardless of what the old beneficiary designation says.

This rule does not generally apply to IRAs, however. 

Terry Carmack opened his IRA in 2002, naming his wife, Marilyn, as its beneficiary. That status continued until 2016, when Marilyn's health deteriorated and she began to develop dementia. In August 2016 Marilyn was relocated to a long-term care facility. In September, Terry named his siblings as the beneficiaries of his IRA. He then asked Marilyn's daughter to file an application for Medicaid for Marilyn to help with the nursing home expenses. The decision does not reveal what became of that application, but Marilyn returned home to live with Terry.

Terry died in 2018, and Marilyn survived him. His estate then consisted of $94,450 worth of housing, vehicles, and bank accounts, and $386,031 in the IRA. Marilyn filed suit, alleging that the change of IRA beneficiary was a gift in fraud of her marital rights, which reduced her intestate share of Terry's estate. The trial court agreed, and the intermediate court of appeals confirmed that judgment.

Although the state law appears to apply to lifetime transfers, the court held that the fact that the transfer did not happen until death, and that the IRA is a nonprobate asset not part of the estate, was immaterial. Had there been no beneficiary designation at all the IRA would have been part of Terry's estate, subject to Marilyn's marital rights.

The trial court held Terry's "intent was to render [Wife] destitute in an ill-conceived effort to make the state and federal governments pay for his wife's care instead of him or his children." The appellate court agreed, and cited this as further evidence that Terry's change of beneficiary was intended to defeat her marital rights.

(October 2021)
© 2021 M.A. Co. All rights reserved.
The Million Dollar Mistake
Two brothers, Michael and Thomas, owned a roofing and siding company. The company had a stock redemption agreement in place, and owned $3.5 million of life insurance on each brother's life. The insurance proceeds would be used to purchase a deceased brother's interest in the company without having the proceeds themselves subject to federal estate tax.

Michael died in 2013, and Thomas served as his executor. He did not strictly follow the terms of the stock redemption agreement, but instead reached an agreement with Michael's heirs that the company was worth $3 million, and used that number for the redemption. He reported the transaction on Michael's estate tax return.

Not so fast, said the IRS. What about that $3.5 million in insurance proceeds that the company received at Michael's death? A willing buyer would take that into account, making the company worth $6.5 million. An additional $1 million in estate taxes was assessed.

The U.S. District Court agreed with the IRS. Because the stock redemption agreement was not strictly followed, it does not control the value of the shares in Michael's estate. The estate argued that the insurance proceeds the company received were offset by an obligation to redeem Michael's holding, but the Court rejected that position. A buyer of the entire company would be buying all the shares, and the redemption obligation would be something it owed to itself. As such, it does not affect the value for estate tax purposes. 

Tax commentators have suggested that using a cross purchase agreement between the brothers might have been a better solution than having the company redeem the shares. Each brother would own insurance on the other's life, avoiding the indirect ownership through the company. Failing that, the stock redemption agreement should have been followed to the letter, including annual agreements as to value, and a formal appraisal of the company immediately after Michael's death. Here, the informal approach taken by Thomas cost the estate about $1 million.

(October 2021)
© 2021 M.A. Co. All rights reserved.
Who Is Paying the Income Tax?
There's been much discussion in political circles about getting "the rich" to pay their "fair share" of taxes. It all depends upon one's definition of "rich" and "fair," of course.

The Tax Foundation provided an analysis of the share of taxes paid by each segment of those paying income taxes. Those with the highest incomes are probably not the richest--many of the wealthiest entrepreneurs pay themselves a nominal salary, and much of their wealth is tied up in unrealized capital gains. Nevertheless, this is the data we have.

The top 1% of taxpayers based upon reported income provided the IRS with 40% of its income tax revenue, according to the analysis, which is derived from the IRS' own Statistics of Income. The top 10% paid over 70% of the income tax, while the bottom 50% paid just 2.9%. The table below shows the shares and the cumulative shares of the revenue. 
To be fair, this analysis is incomplete; it only covers the income tax. The bottom 50% of taxpayers pay a much larger share of FICA tax revenues, as the covered wage base is $142,800. What's more, in an economic sense, the employer's share of FICA taxes also may be considered to be at the expense of taxpayers on whose behalf it is paid. But again to be fair, this analysis also omits the federal estate and gift taxes, which only fall upon cumulative lifetime transfers in excess of $11.7 million in 2021.

Speaking of the role of the employer, according to the same Tax Foundation report, businesses in the USA are responsible for 93% of the total tax payments, when one includes the payment of withholding taxes and sales taxes. The figures are based upon a 2017 study by OECD economist Anna Milanez. The tax obligations of businesses themselves came to $1.3 trillion, while taxes remitted by businesses for others came to $2.89 trillion. Just $308 billion of taxes did not pass through a business on the way to the tax man.

Without American businesses acting as primary tax collector, the IRS would have a much more difficult job to do. 

(October 2021)
© 2021 M.A. Co. All rights reserved.
Articles of Interest
While menus might include a pricey steak or risotto, ultimately the high price tag comes from the fact that they're serving up a culinary experience. Read More


The number of billionaires on Forbes' 35th annual list of the world's wealthiest exploded to an unprecedented 2,755 -- 660 more than a year ago. Read More


Great public golf can be found in every corner of the United States. Read More
WALL - MAIN OFFICE
732-255-5000

CHERRY HILL REGIONAL OFFICE
856-251-1300
LEBANON REGIONAL OFFICE
908-287-7188

LINWOOD REGIONAL OFFICE 
888-323-5535
Garden State Trust Company | gstrustco.com
Because of the rapidly changing nature of tax, legal or accounting rules and our reliance on outside sources, Garden State Trust Company makes no warranty or guarantee of the accuracy or reliability of information contained herein nor do we take responsibility for any decision made or action taken by you in reliance upon information provided here or at other sites to which we link. ©2021. All rights reserved.