Estate Tax

Did the New Tax Law Change Roth IRA Contribution Limits for 2018?

Published on: May 17, 2018 | By McCulloch & Miller, PLLC

If you are 50 or older, you can put $6,500 into your Roth IRA: that includes a “catch up” contribution of $1,000. Typical Roth IRA contributions are still limited to $5,500 a year. There are income limits, which you’ll need to be careful about.

One good thing about the new tax law: it raised income limits to qualify for the maximum contribution to a Roth IRA. However, the maximum contribution to a Roth IRA in 2018 is the same as 2017.

Kiplinger’s recent article on this topic asks “How Much Can You Contribute to a Roth IRA for 2018?” In its answer, the article explains that the maximum amount you can contribute to a Roth IRA for 2018 is $5,500, if you're younger than 50. Those age 50 and older can add an extra $1,000 per year in "catch-up" contributions. That is $6,500, which is the maximum contribution amount and the same as 2017.

Best Time to Start on a Succession Plan? The Day You Start Your Business

Published on: November 15, 2017 | By McCulloch & Miller, PLLC

It may sound whimsical, but the moment you open a business is also the time to start thinking about how you’ll exit the business, whether you intend to sell to a partner, leave the entire business to a family member or sell as soon as you come up with the next big idea.

One of the biggest mistakes made by entrepreneurs is failing to create a written plan for their long-term exit strategy. What they don’t understand is that by creating a succession plan, which includes ways to boost the value of the business years before you want to sell or retire, they’ll have a created a road map for a more successful business.

Springfield (MO) Business Journal’s recent article, “Starting a business? Plan your exit now,” advises that you begin with creating a culture of success with your employees, especially the key people. That means fostering an ownership mentality, so they see their critical role in the company’s long-term success and their role in helping that to continue in the future, long and short term.

How Are Homes Taxed When Inherited?

Published on: July 19, 2017 | By McCulloch & Miller, PLLC

If you plan on leaving the family home to your heirs when you die, be aware of the tax liabilities that are associated with inheriting a house.

This is the type of estate planning decision that requires a closer look with an estate planning attorney to evaluate the pros and cons, as well as the short and long-term consequences. First, you’ll need to know the value of the house, which will be based on its fair market value on the date of the owner’s death, according to a recent article from NJ.com, “Complex inheritance taxes on a home.”

If you have a home valued at over $1 million, it may sell for close to that amount. Let’s say that you’re single and are 80 years old. You live with your widowed sister. Your will instructs that your sister should have life ownership when you pass and then it is left in trust for nieces and nephews. What would their tax bill be?

Leaving a Vacation Home to the Next Generation

Published on: June 21, 2017 | By McCulloch & Miller, PLLC

Unintended consequences can occur when dividing up real property, which is often harder to distribute than investment accounts or savings accounts. Planning for real property division must take into account the different circumstances of your heirs.

You may have envisioned a time in the future, when your children and grandchildren enjoy the same lakeside home as you have for years after you’re gone, and are pleased with the idea of leaving the family vacation home to the next generation. But think again, says a recent article in Financial Planning, “Save clients from tax pitfalls, family strife when passing on that lake cabin,” because your vision may not translate into reality.

Some of the kids may be attached to the family vacation home and want to keep it. If possible, the best solution is a buyout among the siblings. That’s not as simple if finances don’t allow it, and the sentimental siblings are forced to sell, resulting in hard feelings. Another option is to put the vacation home in an irrevocable trust to remove it from the estate.

You May Miss the Estate Tax, but Your State May Have Its Own Death Taxes

Published on: May 19, 2017 | By McCulloch & Miller, PLLC

Some states are cheaper to die in than others, that is, when it comes to death taxes.

The average American doesn’t have to worry too much about paying a federal estate tax, as the current federal estate tax exemption is a generous $5.49 million for 2017 and twice that if you are married. But that’s not the only death tax you and your heirs may encounter, depending on where you live or, more accurately, where you die.

MarketWatch’s article, “Here are the 20 most expensive places in America to die,” reminds us that about 20 states and DC have their own estate or inheritance taxes, or both. Some have exemption thresholds below the federal amount. Therefore, if you live in one of these states, you may be exempt from the federal estate tax, but still exposed to a significant state death tax bill.

Strong Trust Planning is Important When One Spouse is Not a U.S. Citizen

Published on: May 17, 2017 | By McCulloch & Miller, PLLC

With many tech companies, universities and businesses, North Carolina has become home to many resident aliens who contribute greatly to the state’s growth. Estate planning requires special knowledge of non-citizen tax rules.

More than $1 billion in annual foreign direct investment gives North Carolina’s private sector employment a huge boost, as reported in Trust Advisor’s recent article, “Foreign Spouses Need Strong Trust Planning.” That includes hundreds of thousands of workers, individuals who are not U.S. citizens but who establish residence here.

They’re known as “resident aliens” under U.S. tax law. There are also nonresident, non-U.S. citizens (“nonresident aliens”) who will invest in real and personal property situated in the state. This can include a wide variety of real and personal property, from vacation homes to ownership interests in a holding or operating company.

Minus Michael, the Jackson Estate is All Business

Published on: April 26, 2017 | By McCulloch & Miller, PLLC

Without the spending habits of Michael Jackson and the involvement of members of his inner circle, the Jackson estate has been transformed into an efficient multi-million dollar empire.

As it stands now, the only factors that might keep the Michael Jackson money machine from moon-walking into eternity are his heirs.

The estate recently severed ties to Jackson’s publicist and former management team, after a multi-year courtroom battle. The losers said they stood by the star at a really low point in his life. In return, they claimed, he promised them 15% of his business. Trust Advisor’s recent article, “Michael Jackson Estate Reveals Mr. Hyde Side: Dead Star Now Fighting His Friends,” explained that since the estate wanted all of the cash, whatever Michael really wanted is of little consequence without legal documentation. Since a judge has dismissed the claim, the estate can continue consolidating its hold over every aspect of the Michael Jackson brand. All the old relationships that he once had with partners and advisors are gone.

Will You Need a Will in Texas if the Estate Tax is Eliminated?

Published on: October 28, 2016 | By McCulloch & Miller, PLLC

Regardless of which candidate becomes president and what changes are made in coming years, there will still be a need for estate planning in Texas, and that includes regular folks as well as the ultra-wealthy.

If the U.S. federal estate tax were to be eliminated, there will still be plenty for single family offices and estate planning attorneys to do, according to a Forbes article, “If the U.S. Federal Estate Tax Goes Away, What Will Single-Family Offices Likely Do?” Wills are still going to be needed to provide direction as to how assets are to be distributed, and all estate plans will likely need to be reviewed and revised in light of changes to the law. For the single family office, there will still be much to do.

Life insurance purchased to pay estate taxes will also need to be reviewed. One way to do this is to convert permanent policies with meaningful cash values into private placement life insurance policies (PPLI).

How a Taxable Investment Account Can Be Good for Your Retirement

Published on: October 24, 2016 | By McCulloch & Miller, PLLC

We’ve been so inundated with the idea of tax-free investment accounts that the taxable investment account’s role in retirement planning is underutilized and overlooked.

If you’re like most Americans, you’ve got at least one and maybe a few retirement accounts. You like the tax benefits that come from having IRA's, 401k's, 403b's, 457b's and defined benefit plans. You know you’ll have to pay income taxes when you start taking distributions from them, except for the Roth accounts, but seeing those accounts grow makes you feel good. And if you have a Roth, you like knowing that even if you aren’t getting a deduction now, distributions will be tax free. But there are other kinds of investment accounts for retirement planning.

As Physician’s Money Digest says in “10 Reasons You Need a Taxable Investment Account,” taxable retirement accounts are ignored because we’re so focused on IRS-approved retirement accounts. But you might think about supplementing your savings with a taxable retirement account. This can be a regular, old-school investment portfolio that’s not linked to any government regulations and that you’re building for retirement.

Trusts: Not Always the Best Option

Published on: August 31, 2016 | By McCulloch & Miller, PLLC

Trusts are not right for everyone, so they need to be fully explored before being created.

If someone says you need a trust as part of your estate plan, you should speak with an experienced estate planning attorney before moving forward. A recent post from NJ 101.5, “The disadvantages to trusts,” notes that there are situations when a trust is not the right planning tool.

Trusts can save on estate taxes but are typically subject to higher income tax rates than those of an individual taxpayer once the “grantor” (i.e., trustmaker) dies. Trusts have to pay income taxes on the income they generate by the assets they hold. Such irrevocable trusts hit the top bracket at a very low income threshold: $12,400 of taxable income in 2016. The top income tax bracket for an individual doesn’t happen until his or her income exceeds $415,050. Also, the additional 3.8% net investment income tax applies at low thresholds.