How To Avoid the Family Business Wealth Evaporation Trap

Jim Lorenzen, CFP®, AIF®

Family business owners face wealth evaporation daily.  It’s like glaucoma.  You can’t tell it’s happening on a daily basis, but the cumulative results can be costly.

Many years ago – before the internet – I was in the business of publishing weekly newspapers and shopping guides.   It was a business that included advertising sales, ad layouts and graphic design, production and composition, printing and distribution, and (of course) all the financial disciplines of managing cash flow and credit lines.

I mention this simply to point out that I know the challenges the owners of closely-held businesses face… and also to point out that there are some common mistakes many such owners have in common.

It was during this period I remember reading an interview with Jack Nicklaus, who was then at the top of his game and was THE golfer that “moved the needle”, as they even said back then.  It was in that interview he pointed out one of the biggest mistakes he made had to do with his approach to cash management, pointing out just how costly his mistakes were – until he corrected them.

I learned from that article and it made a huge difference in my life.    That article, however, didn’t provide much detail; it was, after all, a golf magazine and didn’t have a financial focus.

Santa Barbara-based business expert George Issac, however, has written an excellent piece, entitled, Avoiding the Family Business Wealth Evaporation Trap.   If you own a family business, you just might find this information highly valuable.

I recommend it highly; and you can get your own copy when you subscribe to my ezine –  If you decide later you don’t want the ezine, you can unsubscribe immediately with a single click.  By the way, IFG never shares your email address with anyone.

I recommend this piece by George Issac.  I think you’ll be happy you read it.
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Enjoy!

Jim


Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a  registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

Tips for Managing an Inheritance

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Receiving an inheritance? 

Not sure how to manage it?

Before you make decision, it’s good to do your homework.  You might find our report on managing inheritance money helpful.  You can access it below.

Get Your Inheritance LifeGuide here!

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Arrange a brief 15-minute introductory phone call with Jim Lorenzen, CFP®, AIF® here.

 

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® in his 21st year of private practice.

The Independent Financial Group is a fee-only registered investment advisor with clients located across the U.S.  He is also licensed for insurance as an independent agent under California license 0C00742. Jim can be reached at 805.265.5416 or (from outside California) at 800.257.6659.

Interested in becoming an IFG client?  Why play phone-tag?  You can easily schedule your 15-minute introductory phone call!

The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

HAVE YOU CALLED A FAMILY MEETING?

6a017c332c5ecb970b019aff2c523c970c-320wiNo?  You’re not alone.

Very few families ever sit down together and talk over important issues.   Too bad; it’s important.   It should be considered an integral component in “the business of living”.

According to an excellent article in the current issue of the Journal of Financial Planning, there are four key areas every family should discuss:

  1. Legal issues:  Who has the durable power?  Who will be executor for the wills?  Do they have trusts?
  2. Health care:  What happens if mom and dad get sick?  Who takes care of them?  Where are they going to live and how are they going to pay for their care?
  3. Financial:  Are the parents financially secure?  Will they need help from the children?  It’s a tough conversation to have, but children need to know this stuff in advance.
  4. Legacy:  More than who gets what; it’s about what you want your children and grandchildren to remember about you.

Ideally, the meeting should have a good facilitator.  Your financial advisor, if s/he’s been at the center of your financial planning – which should be the case – might be the perfect person.  The facilitator doesn’t control or direct; but, can provide an objective and worthwhile service.  In addition, you may want to include your family attorney in the meeting to address legal issues and  provide valuable input.  And, one of the adult children should be the note-taker to follow up on who is to do what and by when.

One meeting isn’t a magic pill, and it won’t correct all past problems; but it’s a start.  After all, it’s about helping parents when they’ll need it most.

Jim

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER® professional and An Accredited Investment Fiduciary® serving private clients since 1991.   Jim is Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located across the U.S.. He is also licensed for insurance as an independent agent under California license 0C00742. The Independent Financial Group does not provide legal or tax advice and nothing contained herein should be construed as securities or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader. The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.

RETHINKING PRIORITIES? SOME THOUGHTS FOR 2016

Time_Is_MoneyJim Lorenzen, CFP®, AIF®

The key to pursuing longer-term financial goals, such as retirement and education funding, is to have a well-thought-out plan that assigns actual dollar amounts to each goal — and a timetable for getting there.

Financial resolutions are only as good as your follow-through. Here are some planning considerations for the three key stages of your financial life — accumulation, preservation, and transfer.

Rethinking your financial priorities?   Here’s some food for thought for all of your goals:

Financial resolutions are only as good as your follow-through. Here are some planning considerations for the three key stages of your financial life — accumulation, preservation, and transfer.

These same resolutions often fall prey to the same procrastination that hinders personal aspirations. Yet current volatility in the financial markets along with other unsettling factors such as the impending presidential election and widespread geopolitical unrest may have led investors to pause, rethink their financial situations, and set new expectations for the future.

Resolutions typically fall into one of three financial “life stages” — accumulation, preservation, or transfer of wealth.  In order to establish action plans for these phases, you need to examine opportunities, identify challenges, and add a dose of reality to your planning efforts.

Accumulating AssetsiStock_000003860264-FemaleLeader

The key to pursuing longer-term financial goals, such as retirement and education funding, is to have a well-thought-out plan that assigns actual dollar amounts to each goal — and a timetable for getting there. On this score, many investors are falling well short of the mark.

For instance, research compiled by the Employee Benefit Research Institute (EBRI) indicates that a sizeable percentage of workers say they have virtually no money in savings and investments.*  Specifically, among workers who provided this type of information, 57% reported that the total value of their household’s savings and investments, excluding the value of their primary home and any defined benefit plans, is less than $25,000. This includes 28% who say they have less than $1,000 in savings.*

If you find yourself behind in your accumulation efforts for major life expenses, such as retirement, don’t despair. There are many opportunities to jump-start your savings campaign.

  • Make the most of employer-sponsored plans. For participants in 401(k)s, 403(b)s, and 457 plans, the contribution limit stands at $18,000 for 2016 with an additional $6,000 in catch-up contributions allowed for those who are 50 or older.
  • Maximize IRA contributions. In 2016, you can contribute up to $5,500 to a traditional or Roth IRA (or split that amount between the two types of accounts). Add another $1,000 to that total if you are making catch-up contributions.
iStock Images

iStock Images

Preserving Assets      

Holding on to your assets requires a disciplined, long-term view. Most people plan for a retirement to span 25-plus years, but evaluate their portfolios’ performance over the last quarter. Particularly in volatile market environments, investors tend to move in and out of positions too quickly, potentially causing them to sell low, buy high, and abandon asset allocation fundamentals.

Short-term declines are inevitable and may tempt the most grounded investor to make impulsive investment choices. That is why maintaining an investment policy statement that reflects your long-term horizon is essential. Such a statement should reflect your current investment expectations as well as address the tax consequences of your portfolio.

For instance, many investors tend to hold on to a stock because of a low basis without evaluating what it may be costing them in missed opportunities (i.e., building a more diversified portfolio).  Alternatively, investors need to be mindful of the tax cost associated with buying and selling securities. Tax efficiency is important in asset preservation, so speak to your tax advisor now about your 2016 strategy, particularly if you plan to rebalance your portfolio.

Transferring Assets

Fotilla Images

Fotilla Images

To leave the legacy that you envision requires significant advance planning. Questions regarding how much you want to leave to loved ones, how long your bequest will last, and how much will be eroded by taxes are difficult to address. But planning converts uncertainty into real opportunities to make a difference.

When crafting your estate plan, be sure that documents are written to be flexible and easily adapted to changing circumstances. For instance, if balances on investment accounts decline, you may need to rethink — and restate — your intentions, perhaps even change beneficiary designations to reflect changing market dynamics.

IFG Notes:

Not everyone agrees with conventional wisdom regarding the 401(k).   There might be other options, particularly for those who are concerned about future tax hikes and still have more than ten years before they begin drawing retirement income.

Don’t let procrastination get the better of your best-laid plans. Make 2016 the year you get serious about saving.  Are you on track?

You can find some tools on the IFG Resources website, which is different from The IFG main site, which you can find   here.  You might check-out the Home Page, too, for even more resources.

Jim Lorenzen, CFP®, AIF®

Jim Lorenzen, CFP®, AIF®

Let me know if I can be of help!

Jim

 
*Employee Benefit Research Institute, 2015 Retirement Confidence Survey, April 2015.2Asset allocation does not assure a profit or protect against a loss.

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber’s or others’ use of the content. © 2016 Wealth Management Systems Inc. All rights reserved.

 

 

Did You Think Trusts Were Only for the Wealthy?

Jim Lorenzen, CFP®, AIF®

6a017c332c5ecb970b01a5116fb332970c-320wiWhen most people think about estate planning, they think about protecting assets from estate taxation.  But, most people aren’t worried about that liability.

You may be surprised to learn that the upper middle class, defined as clients with between $500,000 and $5 million in investable assets can also benefit from estate planning.    There are other issues, many never think about.

If you are concerned with any of the issues on this checklist below you may need an estate plan:

See if any of these are of concern to you:

  •        Do you have concerns about family members or beneficiaries that cannot manage their financial affairs?  In this case the estate plan can contain a trust to prevent these beneficiaries from squandering their inheritance, protect them from creditors, predators, lawsuits, and divorces.
  •        Are you recently divorced, or your spouse has recently died?
  •        Are you in a second (or later) marriage and/or have a blended family?
  •        Do you have a disabled child or beneficiary?  In this case the plan needs to be carefully structured to be sure that your disabled child or beneficiary continues to receive their crucial governmental benefits, because even a modest inheritance can cause loss of important benefits such as health care and housing.
  •        Do you have  a family or closely held business or hold  an interest in such a business?
  •        Do you want  to minimize the costs of administration of your estate (financial affairs) if you should become disabled or pass away unexpectedly?
  •        Do you want to leave money and things of value to people you care about?
  •        Are you looking to benefit charities or causes that matter to you?

It is possible to create an estate plan using trusts affordable for middle class families dealing with the issues mentioned above.  If these issues are of interest and you don’t have a written plan in place, I may be able to provide you some guidance and assistance.  Just call my office at 802-265-5416, extension #1.