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Cyber Liability Risk and Insurance

Posted By Jamie Low CPCU CIC, Low & Johnson, Inc., Wednesday, October 26, 2016
I'm sitting on a panel regarding Cyber Liability this Friday.  It's free at the Burton Barr Library from 10 to 2 pm.  Drinks and snacks provided.  Register at the link below and come on down.

Tags:  business  business owner  Cyber  data breach  entrepreneur  Internet Marketing  Principal Financial Group  small business  social media 

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The Deadly Cost Of Procrastination

Posted By Jason Trujillo, Woodbury Financial, Monday, April 20, 2015

The Deadly Cost Of Procrastination by Steve Parrish.

Article appeared on 4/15/2015 on

Click here to read original article.

I’d procrastinate, if I could just get around to it. In fact, I signed up for Procrastinators Anonymous, but they haven’t set a meeting date yet.  As procrastinators say, “Better late, than never!”

Ok, so enough with the one-liners about putting things off. It’s fun to kid around about how people drag their feet, but procrastination is no laughing matter. So often, we associate delay with mere lost opportunities and increased inconvenience. But in some cases, procrastination can lead to irreversible problems – it can be deadly. And what’s deadly to us personally can wreak havoc with our businesses.  If we are on top of things at work, but drop the ball at home, our personal failures can cost time and treasure; ultimately foiling our business plan.

I noticed this problem with procrastination in three recent legal cases. All three cases deal with a similar issue. A couple gets divorced. One of these individuals has life insurance, but has not yet done anything about changing the beneficiary designation. The insured dies. In all three cases, a court is forced to decide who receives the death proceeds, and in each case, there is a different outcome. Consider how these personal problems might affect a business owner: cost, litigation, bad press. 

The ex-wife wins  

In the 2014 case of West Coast Life Insurance Company v. Glenda Clarke, the divorced spouse received the life insurance proceeds. Jeffrey Clark had purchased insurance on his life when they were still married, and had named his wife the beneficiary. When the parties subsequently divorced, Jeffrey completed paperwork to change the beneficiary to his sister. But the paperwork was not submitted to the insurance company until after Jeffrey died. The court decided that, per the contractual provisions of the life insurance contract, the original beneficiary, the ex-wife, was entitled to receive the policy’s death benefit.

But not always 

In the same year, a different court disinherited an ex-spouse. In Rice v. Webb, Brenda and Dale had dissolved their marriage and, in the property settlement, agreed to relinquish their rights to each other’s life insurance policies. Dale died shortly thereafter. At the time of his death, Dale owned two life insurance policies, with Brenda still listed as the primary beneficiary on both policies. The court interpreted the property settlement agreement to require Brenda to relinquish her claim to the policies.  Even though she was the stated beneficiary, she wasn’t able to collect on the insurance.

Sometimes neither spouse gets the proceeds

A case decided just weeks ago, Evanisa S. Fox v. Lincoln Financial Group and Mary Ellen Scarpone, has a number of twists and turns. The basic timeline is that Michael purchased insurance on his life and named his then-wife, Gail, the beneficiary.  Michael and Gail subsequently divorced, and Michael named his sister, Mary Ellen, the sole beneficiary. In July 2012, Michael married Evanisa, a Brazilian national.  As part of sponsoring Evanisa’s petition for citizenship, Michael agreed to support his wife at a minimum of 125 percent of the poverty level. However, this support obligation expressly terminated upon Michael’s death.

Later that year, Michael died and both his sister and new wife filed for the death proceeds of the life insurance. Michael had never changed the beneficiary from his sister being beneficiary, but Evanisa claimed the proceeds because she was his wife and because he was obligated to support her. The court held that there was no presumptive right for a new spouse to receive benefits from a deceased spouse’s life insurance policy. Further, nothing related to Michael’s sponsorship of her for citizenship left him with a legal obligation to support her after death. The sister, who was the named beneficiary of the policy, prevailed.

We’ll never know what these three men intended regarding the disposition of the death benefits in their life insurance policies. The likelihood, however, is that in all three cases, procrastination was involved. Further, because foot dragging led to ambiguous legal rights, all three cases ended up in litigation. Expensive, time consuming litigation.

The lesson for business owners is that a simple delay, a minor misstep, an unfulfilled detail – any of these can lead to unforeseen consequences. Life doesn’t always allow “do-overs”. Procrastination doesn’t seem so funny now. 

Tags:  bad press  beneficiary  business owner  death benefit  Evanisa S. Fox v. Lincoln Financial Group and Mary  life insurance  litigation  Principal Financial Group  procrastination  Rice v. Webb  Steve Parrish  West Coast Life Insurance Company v. Glenda Clarke 

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Five Ways To Avoid Tax Foolishness

Posted By Jason Trujillo, Woodbury Financial, Monday, April 6, 2015

Five Ways To Avoid Tax Foolishness by Steve Parrish

Article appeared on April 6th, 2015 on

Click here to read original article.

Between April Fools’ Day and Tax D-Day (April 1 through April 15), taxes are on many people’s minds. With all the April fooling behind us, what better time to start taking tax savings seriously?

The challenge is to avoid foolish tax moves caused by the panic of an impending deadline and bad news from your tax advisor. I talked with a business owner friend who visited his tax advisor last weekend. He commented, “Once I heard that my taxes had gone up, even though my income hadn’t, I stopped listening.”

Ignoring tax planning opportunities? Foolish.

Another acquaintance told me he planned on saving taxes by “setting up some sort of trust.” Until he understands his plan and is certain that this “sort of trust” is founded on good law, his tax strategy has the potential to be foolish as well.

Taxes may be inevitable, but you have some say over how much you pay in taxes and when. Let’s consider five tax strategies, and ponder whether they are an unwitting, belated April Fools’ joke or are a tax relief tactic to consider for next year’s April 15 filing deadline.


Some taxpayers are tempted to delay filing their tax return and, even worse, delay paying their taxes. As long as an extension is filed, a delayed return is not necessarily a problem. Delaying payment is definitely a problem. Both interest and penalties will apply.

In many ways, putting off paying the IRS by April 15 is tantamount to a very expensive payday loan. There are better ways to borrow money for taxes than borrowing from the IRS.


A few years ago, it was considered passé, even foolish to defer income. The thinking was that taxes would go up, so it made sense to pay tax currently while tax rates were low.

The situation has changed. Taxes have already gone up. Accordingly, a legitimate strategy is to defer taxes, particularly as part of a retirement strategy. An advantage to deferring is not only the time value of money saved on the deferred taxes but also the potential to pay future taxes at a lower rate.

Your money may currently be subject to a high marginal tax bracket because of the Alternative Minimum Tax, the Net Investment Income surtax and other high-income-tax regimes. But income you receive during retirement may not be subject to these additional taxes.

You will likely be in a lower income bracket and not subject to those high-tax-bracket regimes. Consider deferring taxes by contributing to your 401(k) or your nonqualified deferred compensation plan. Or, use your after-tax excess income to fund a tax-favored product such as municipal bonds, annuities or cash value life insurance.


It’s hard to argue with taking a legitimate tax deduction.

Incurring the expense simply to generate the deduction? Foolish.

The highest tax rate is still not much more than 50 percent. Why pay $2 for something you don’t need just to save $1? There are instances, though, where you get something for your expense. For example, money put into your qualified retirement plan is money saved for retirement – and you get a tax break besides.

There are other tax-advantaged benefit plans such as health, disability and life insurance programs.


It sounds foolish to say “pay taxes now,” but in many cases this is an opportunistic tax approach. Look for situations where either:

  1. The asset is expected to substantially increase in value in the future.
  2. Or where the product being used has future tax advantages. That way you pay tax on the seed but not on the harvest.

Here’s an example of a future gain idea. In certain situations, the holder of a stock option can elect current taxation in lieu of paying tax when the stock option is actually exercised. It’s commonly called an “83(b) election.” If the anticipated appreciation on the option is high enough, it makes sense to pay tax now, before the appreciation occurs.

For a tax-favored product example, consider a Roth IRA. You use after-tax dollars now but avoid tax on both the gain and the payout in the future.


Tax planning should not be a fourth quarter activity. Now that you know what last year’s tax bill is –and while it’s still the first half of the year – do something about it. Decide to save future taxes by doing something now.

Not deciding is a decision. The decision to go through the same foolishness next year. So stop fooling around, and start saving taxes.


Tags:  after-tax dollars  Alternative Minimum Tax  annuities  April 15th  April Fools  business owner  IRS  life insurance  payday loan  Principal Financial Group  retirement income  Roth IRA  Steve Parrish  tax brackets  tax deduction  tax extension  tax planning  tax rate  tax return  tax strategy  taxes 

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3 Ways To Keep Your Board From Getting Board

Posted By Jason Trujillo, Woodbury Financial, Tuesday, March 31, 2015

3 Ways To Keep Your Board From Getting Board

Article appeared on March 30, 2015 on

Click here to read original article.

I serve as a volunteer on the board of directors of a national non-profit with a multi-million dollar budget. When we get together, the stakes are high, and it’s important to our busy CEO that we make good use of our time.

While at our most recent quarterly board meeting, I watched our CEO gracefully maximizing the effectiveness of the group. This is an important time for our organization with a major strategic plan in the works. When the CEO presented ideas for programs to add, programs to keep and, most controversially, programs to scrap, some board members began a line-item discussion of each program.

Before we got far, the CEO calmly commented, “Today, I won’t waste your time going over each idea.”

His signal was clear, and the board noticed.

“What I hear our CEO telling us is that some tough decisions will need to be made soon,” one board member said. “He is asking for our buy-in and support as he navigates these decisions.”

Our CEO got the backing he sought.

A board of directors can be a boon or a bane for CEOs. Whether it’s a large corporation with outside directors or a small business with family members on the board, a CEO can easily be caught off guard by the actions of the board. Plans can be scuttled, compensation slashed and direction diverted. Because it’s as simple as an up or down vote on a proposal, the board of directors can destroy a year’s worth of work in a less than a day.

In most cases, CEOs prevent board meeting disasters from happening by practicing preventative planning. As long as the board remains informed during the year, and the board materials that are sent out for the meeting are clear, the meeting will typically run smoothly. Sometimes, however, events at the actual meeting can derail a carefully crafted presentation strategy.

In one horror story I read a while back, a dismissed staff member hacked into the CEO’s Powerpoint presentation to the board and projected the image of a naked woman on the 64-inch screen.

The meeting did not go well.

In less dramatic situations, the culprits for failed meetings are everyday issues such as bad travel arrangements or technology glitches.

In addition to advanced planning, there are steps a CEO can take on-site to assure that a board of directors meeting runs smoothly.

Get the technology right

Board members, especially if they are outside directors, view the CEO as their primary point of contact and the person who speaks for the company. If, at the meeting, your slide show won’t run, it’s more than a tech hiccup – its evidence that the company isn’t running smoothly. And a flawed presentation may lead to a “no” vote once the balloting starts.

What some CEOs do to avoid this scenario is make the physical part of the presentation – the room, the computer, the slides – an accountability for a trusted, on-site staff member. To assure success, I suggest the CEO perform a test run of the presentation on location.

Enforce the board’s mission

When I joined my first board, I was given a copy of the book, “POLICY vs. Paper clips.” The message from this book could not be any clearer. Board members are tasked to create the organization’s strategy. They are not supposed to direct its operations.

So, when last week the CEO told our board he didn’t want to “waste our time” by reviewing each continued or discontinued program, he was reminding us of our mission. It may seem intimidating to tell the board its business, especially since these are the people who decide your pay, but a CEO has to repeatedly remind board members that they need to stay on course. Focus on the policy and let the staff count the paper clips.

Invite disagreement

I’ve attended board meetings where the agenda is so tightly controlled that the gathering is just a series of presentations with pro-forma rubber stamping by the directors. This invites trouble.

Directors do not want to travel to a meeting simply to be well-fed and watch a slide show. Your board will just be bored. In creating and submitting the agenda, it’s important for the CEO to allow time for discussion and even disagreement. By doing so, the CEO gets buy-in from the board.

The 1,000-pound gorillas are dealt with, and the final vote converts dissonance and disagreement into acquiescence and solidarity. Think of it this way. If you’re unsure whether the board will buy into your ideas, maybe your ideas need a second look. If, instead, you believe your ideas are spot on, discussion at the board level will help solidify your position.

Make Robert’s Rules of Order your friend

Many formalities in the corporate world have gone the way of the typewriter. Perhaps there’s no longer a need for congratulatory plaques for retiring board members, and maybe a simple buffet will suffice over a formal dinner.

One formality should, however, be preserved – adherence to the rules of order. The final arbiter of an organization’s strategy is the board of directors, and board meetings are where they conduct their business. A CEO needs someone in the room who is charged with maintaining the conduct and the process that drives an orderly meeting.

When all is going well, there is a natural tendency to let the rules slide. If everyone agrees, why bother with a motion, a second and then a vote? The problem is that things can go from good to bad with the mere change to a new agenda topic. A board culture where there is adherence to the rules of order is the CEO’s best way to maintain control and set the meeting up for success.

Before you attend your next board of directors meeting, take a page from other successful CEOs’ playbooks. Set the stage, sweat the details and keep the process running smoothly.


Tags:  board culture  board meeting  board of directors  buy-in  CEO  corporate world  family business  non-profit  POLICY vs Paper clips  Powerpoint  preventative planning  Principal Financial Group  Robert's Rules of Order  small business  Steve Parrish  strategic planning  technology 

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The RMD Choice: Take A 50% Tax Penalty Or Leave A Family Legacy

Posted By Jason Trujillo, Woodbury Financial, Thursday, March 26, 2015

The RMD Choice: Take A 50% Tax Penalty Or Leave A Family Legacy by Steve Parrish

Article appeared on March 23, 2015 on

Click here to read original article.

A long time ago, I helped my dad set up his IRA account. Years later, after he had turned 70, I received an angry call from him.

His tax person was telling him he was forced to take a distribution he didn’t want and, even worse, pay taxes on that unwanted income. More pointedly, he wanted to know why I put him into such a bad deal. He was, of course, referring to the fact that he had to take required minimum distributions (RMDs) from his IRA account, or face a 50 percent tax penalty.

He was rightfully upset because he:

  • Didn’t want to figure out how much to take each year
  • Didn’t need the money
  • Definitely didn’t want to be forced to pay taxes he hadn’t expected

RMDs have been a planning challenge since the law that created the requirement was passed 33 years ago. Objections revolve around two aspects of the law. First, people don’t like being told when they have to take – and pay taxes on – their money. Second, the rules are so complicated they almost invite noncompliance. For example, the first RMD must be taken “April 1 of the year following the calendar year in which you reach age 70½.” Huh?

Yet the law continues with few dents in its armor. In 2009 the RMD rules were suspended for one year. That was back when, because of the Great Recession, investment values were so deeply depressed that forcing a distribution was tantamount to forcing a loss. And, in the last few years, Congress has annually granted a last-minute reprieve for taxpayers who want to avoid taxes by directing their RMD payments directly to a charity.

Other than that, taxpayers remain stuck with the RMD rules.

Getting it to the next generation

Many business owners are “financially full” when they retire. In other words, they have other sources of revenue and simply don’t need or want the income from their IRAs. The RMD rules, however, require that they take a minimum annual payment that is equal to their account divided by their life expectancy.

The challenge is the RMD is subject to federal income tax in the year it is taken. Further, if the individual is sufficiently wealthy to be subject to the federal estate tax, the IRA is a taxable asset of the estate. This can result in the business owner’s heirs receiving a fraction of the actual IRA account. For a high-bracket taxpayer, income and estate taxes can conceivably erode more than half of the account.

Bottom line, if you hope to live off other income during retirement and thereby preserve qualified plan assets as a legacy for your family, the RMD rules make the IRS an unwanted partner. Your future legacy is lessened by current taxes.

A solution

Here’s an idea that could work well if you want to turn your IRA into a legacy. Say you don’t need the IRA income, and you would like to leave more after tax wealth to your heirs. The basic concept is to start annually withdrawing IRA assets to fund a life insurance policy on your life. This can start as soon after 59 1/2 as you’re comfortable with your retirement strategy, and there’s no set maximum or minimum size.

You can either own the policy personally, or if you’re concerned about estate taxes, you can have the policy owned by an irrevocable trust. Each withdrawal from your IRA is taxable, but the proceeds are used to pay the premiums on a tax-free life insurance benefit. At your death, your heirs receive a death benefit from the life insurance plus whatever’s left of your IRA. On an after-tax basis, this may well increase the legacy your family receives.

Using this approach you would have a revised, and lower, schedule of RMDs. More of your IRA account would be used to fund a tax-free life insurance policy. Less would be coming out in taxable RMDs. Particularly if you die prematurely, your heirs will receive a substantially higher after-tax inheritance using life insurance than if you had just taken your RMDs, paid tax on them and reinvested the proceeds. If, however, you live past your life expectancy, the difference between the two will lessen.

The numbers are, of course, dependent on your age and health status. That’s the nature of purchasing life insurance. But if you’re looking for a way to leverage your IRAs rather than curse your RMDs, this legacy approach to planning may work for you. I wish I had suggested this idea to my dad!



Tags:  70 1/2  after-tax inheritance  business owner  death benefit  estate planning  estate taxes  family legacy  federal income tax  financial planning  IRA  irrevocable trust  life insurance  Principal Financial Group  qualified plan assets  required minimum distributions  retirement  RMD  Steve Parrish 

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Outside Investors Key In On Key Employees

Posted By Jason Trujillo, Woodbury Financial, Monday, March 16, 2015

Outside Investors Key In On Key Employees by Steve Parrish

Article appeared on on March 16, 2015.

Click here to read original article.

An advisor was telling me about his business client’s successful private placement of stock. The company acquired several million in equity funding without having to take the company public. In fact, the two founders continue to have majority control.

The advisor asked an interesting question. “What do you think should be a top-of-mind concern for these owners now that they have this round of financing in pocket?”

One issue that may be overlooked is the firm’s key employees. Now that the company has new capital, what does it need to do to retain its talent base? And what’s the company’s contingency plan if it loses a key person?

The importance of key employees typically increases when an equity partner is added to the capital structure of the business. For the outside equity investor, the goal is presumably financial gain. So, issues such as the legacy of the family business, the standing of the owners in the community, and the good works of the company must all take a second seat to profit. And it’s the key employees who generate the profit that translates into a tangible payout for the investor.

Think of it this way. An investor in a privately-held business only realizes a return when the business’s profits manifest themselves in the form of a payout. There’s no public exchange to trade the stock of a privately-held business. For the investor, the payday is either when the company pays out or is bought out.

The key employee is the juggernaut that drives the profit that leads to a payout. Both the founders and the investors should be concerned with how to keep the company’s key talent and how to indemnify the company if a key employee is lost.


Some events are outside the owner’s control. What happens if a key employee dies or becomes disabled? The company obviously loses the growth potential reflected by that employee’s services.

Additionally, there are likely expenses associated with the loss of that employee. Debt may be called, customers lost and replacement expenses incurred. At a minimum, the company would want to recover some of these sunken costs.

There’s a difference when outside investors become involved in the business.

Whereas previously the company might have tried to weather these key person costs internally, outside investors want assurances that this risk is being actively managed. They want to see a disaster recovery plan for loss of top talent. Keep in mind that the founders are likely part of that group of key employees, and so the plans must account for these owners as well.

Securing life insurance and disability income insurance on the key employees could assure indemnification for losses. It not only helps in the cash flow needs of the company. It also protects the outside financier’s investment.


Key employees can be lost to events other than just death and disability. A significant risk is that they can be recruited away. In our current environment, key talent is both highly sought after and highly mobile.

It’s not enough for the company to reward talent. It must also retain talent. An outside investor needs assurance that this cadre of key employees will stay put. No golden handcuffs on the top performers, no payout of gold to the investor.

A complicating factor when outside equity investors are involved is that key employees probably can’t be retained through the use of stock rewards. The investor will not want the value of its investment diluted by grants of stock options and restricted stock to key employees. Rather, the company will need to look to other retention strategies.

Synthetic equity, such as phantom stock and stock appreciation rights, might help. However, considering the nature of a closely-held business, it may be better to look at retention plans that are not directly tied to stock value. Particularly with flow-through companies like S Corps, key employees may question the legitimacy of the stock’s valuation.

Fortunately, many deferred compensation, split dollar and bonus plans can be designed as tax-advantaged, golden-handcuff plans. Key employee benefits can be created that both provide incentives and retain essential personnel without necessarily tying the reward to the company’s stock.

A cash infusion from outside investors is a great time to examine how key employees are being treated. If they helped get the company where it is today, investors will want to know that there are plans for that staff in the future. There must be strategies in place to retain key employees as well as plans to deal with the inevitable loss of some of those employees. The investors not only invested in your company. They invested in your people.


Tags:  advisor  bonus plans  business owner  deferred compensation  disability income insurance  equity funding  equity partner  golden handcuffs  key employees  life insurance  outside investors  Principal Financial Group  retain talent  reward talent  S Corps  split dollar  Steve Parrish  stock 

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A Better Business Than Buffett's?

Posted By Jason Trujillo, Woodbury Financial, Monday, March 9, 2015

A Better Business Than Buffett's by Steve Parrish

Article originally appeared on on March 9, 2015.

To read original article, click here.

I just finished reading Warren Buffett’s 50th Annual Letter to Berkshire Hathaway shareholders. His honesty and humility are nothing new to the business community. But these yearly missives remind us of the challenges we face. Buffett is not afraid to reveal mistakes and follies in his operations, and he admits to various missteps. For all his success, his advice is often cautious and conservative.

Do we learn from his restrained approach, or do we sometimes act as if we do it better than the Oracle of Omaha does it? Let’s take a tongue-in-cheek look at some of Buffett’s “shortcomings” in business.

Warren Buffett doesn’t seem to focus. It’s hard to tell if Berkshire Hathaway is into insurance, jewelry, or carbonated drinks. You could call it diversification, but you could also call it distraction. Some business owners know to grab onto one idea, and run it hard.

And yet he won’t let go. Avoiding the wonderful opportunities of technical investing, Buffett seems to be enamored with the timeworn concept of buy-and-hold. Think how many business cycle profits he’s missed by holding onto the same companies.

How can you grow without staff? This year’s letter brags that his company “included no gain at headquarters (where 25 people work).” Where’s the growth potential in that?

He doesn’t embrace what’s modern. In his 2002 annual letter, Buffett stated, “I view derivatives as time bombs, both for the parties that deal in them, and the economic system.” Didn’t he understand how great CMOs, CDOs and CDSs were as financial tools? And fast forward to today. Warren Buffett has been out investing in something as archaic as railroads. What’s so important about hauling commodities from North Dakota? Wouldn’t it be better to invest in electric cars and rocket engines?

You wonder if he trusts his children. Warren Buffett famously wrote, “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing.” Some business owners feel perfectly comfortable leaving the family business by will to the kids. The kids can figure it out, just like Mom and Dad did.

He keeps changing his exit strategy. Buffett’s annual letters to shareholders often address his succession plans. But it seems like he’s always tinkering with his plan. Other business owners don’t get so distracted. They have their attorney write up a buy-sell agreement and be done with it.

What’s wrong with using corporate stock as an incentive?Last year, in commenting on the executive benefit package at the Coca-Cola Company, Buffett called stock options “free lottery tickets”. In this year’s letter, he advised, “Be careful handing out shares as deal capital.” What’s the problem with using corporate stock? It’s not like its real money … it’s just paper.

He’s missing the opportunity with private equity. In this year’s letter, Buffett is particularly harsh on private equity financing. He states, “In truth, ‘equity’ is a dirty word for many private-equity buyers; what they love is debt.” Doesn’t he understand that debt is the fuel that drives a business’s growth?

OK, I’m just having some fun with the aura that surrounds Warren Buffett. His wit and wisdom is so compelling that we almost ignore it because of its counterintuitive brilliance. Considering all the cautions he has taken in his career, it is a reminder that we, too, can benefit from humility and challenge some of our deepest held assumptions.

Tags:  Berkshire Hathaway  business owners  buy-and-hold  buy-sell agreement  Coca-Cola Company  commodities  derivatives  executive benefit package  exit strategy  Oracle of Omaha  Principal Financial Group  private equity  shareholders  Steve Parrish  stock options  succession plans  Warren Buffett 

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Don't Give Your Business Away, Sell It

Posted By Jason Trujillo, Woodbury Financial, Tuesday, March 3, 2015

Don't Give Your Business Away, Sell It by Steve Parrish

Article originally appeared on on March 2, 2015.

To read original article, click here.

I often address business groups, and many of the attendees own family-operated businesses. I challenge these individuals with this question: “Do you want your kids to be heirs or successor owners?”

Here’s the difference. A successor owner is one who takes the legacy of the business you built and moves it to the next level. An heir is a loafer who sits around waiting for you to die.

To encourage children to act like successors, you need to get them thinking like business owners sooner. And the best way to do that is to make them owners now – but for a price.

There simply has never been a better time to facilitate the transfer of some of the family business to the kids.

The primary economic driver for these positive conditions is incredibly low interest rates. This makes the transaction workable from a cash flow standpoint. Second, the tax environment is also favorable in that owners can still legitimately discount privately owned business interests for valuation purposes.

But both of these conditions can change. Interest rates are likely to increase, and tax law writers may ultimately succeed in limiting what discounts can be used in valuation of a family-owned business.

How a transfer works

Assume you own a family business, and your daughter wants to succeed you in ownership of the business. Rather than gifting her stock or, worse yet, having her wait for you to die to inherit the stock, sell her part of your business now.

Here’s the process:

  1. Value your business. You may know your business, but that doesn’t mean you know what an outside party – or the IRS – will attach for a value.
  2. If control is an issue for you, recapitalize or restructure your business. C or S Corporations can issue non-voting stock. A partnership can be changed to a limited partnership. An LLC can have members as well as managers. You don’t have to hand over the keys to your business in order to have your daughter become an owner.
  3. Sell a portion of your business to your daughter. She would buy an equity stake for a contractually agreed, IRS-defensible value. She can either sign a long-term installment note or an interest-only note with a balloon payment far into the future. Your daughter now owns a part of your business, has established a tax basis in her stake, and can start thinking like an owner.

Why now?

Your daughter is not wealthy. How can she possibly afford to buy into the business?

It’s all about the terms of the loan. The IRS is required to use tables known as the Applicable Federal Rate (AFR) to determine the minimum interest rate to charge so as to avoid the loan being treated as a gift.

The March 2015 annual, long-term AFR is an incredibly low 2.19 percent. Ten years ago it was 4.52 percent. Fifteen years ago it was 6.75 percent. Think of these current low AFR rates as a tax and cash flow gift to business owners.

You can set up a long-term agreement with your daughter to sell an interest in your business and be able to lock in a rate of only 2.19 percent. This rate will not increase during the period of the loan, even though interest rates are likely to increase in the future.

Consider how this could work. If you sell your daughter a stake in your business worth $1 million, the annual interest charge on that stake would be $21,900.

How can she afford the interest payment? The earnings she receives from her equity stake in the business can provide her with the working capital needed to pay you the interest on the loan and perhaps some of the principal. And this doesn’t necessarily mean a loss of cash flow for you. What you give up in earnings from the sold stock will be recovered in whole or in part by the loan payments your daughter makes to you.

For estate planning purposes, you’ll probably want your daughter to pay off the loan no later than the date when you die (hopefully a long way down the road). A common planning technique is to have her use some of the earnings from her equity share to purchase life insurance on your life. That way she’ll pay off the loan at your death. She’ll own her stake in the business free and clear, and your estate will have liquidity for other estate planning needs.

The benefit

The bottom line is that your daughter will now start thinking about your bottom line. She’ll think like an owner because she will be an owner.

For example, if your company makes additional profit because of her contribution to the business’s success, she will share in the financial rewards through her stock ownership. Conversely, she’ll feel the cash flow pinch when times are bad.

This will set her up for eventually taking over the legacy you’ve created and becoming a successor owner.

This favorable alignment of the stars will not last forever. Both interest rate and tax changes are looming. If you want your children to be your successor owners, now is the time to act.


Tags:  Applicable Federal Rate  business loan  business valuation  cash flow  equity stake  estate planning  family business  family-operated business  heir  installment note  interest rate  IRS  legacy  life insurance  Principal Financial Group  Steve Parrish  stock ownership  successor owner  tax basis 

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Rebranding Your Customer Service Department

Posted By Jason Trujillo, Woodbury Financial, Monday, February 23, 2015

Rebranding Your Customer Service Department by Steve Parrish

Article originally appeared on on February 23, 2015.

Click here to read original article.

Do you ever feel like the concept of “customer service” needs a makeover? Sometimes when I hear this term bandied about I think of my local bank teller who always asks me in a robo-voice, “How’s your day going so far?” She then invariably mispronounces my name (the computer has her convinced my name is Stefan).

In all fairness, she handles my requests fine, but I just have this feeling someone has forced her to read a script instead of actually interacting with customers.

Perhaps a way to reenergize the customer service experience is to rebrand the department that handles this essential function. Here are some suggestions that may awaken and motivate service providers and their trainers.

The just-say-no department

OK, this is a tongue-in-cheek idea, but I think it’s a key tenet of customer service to be able to deliver a “no” to a customer.

Back when I taught employees how to work with life insurance agents, I told them I had a cardinal rule. Never say “maybe.” Agents love to hear “yes,” but can also handle a “no.” They are used to rejection, and though they may ask two or three times before giving up, they truly can accept a clear “no.”

A “maybe”, however, costs them time and takes money out of their wallet. I told these service providers that requests are either doable, not doable or something that can be checked out and responded to within a specified time frame. Which leads to my next idea.

The we’re-good-for-the-date-we-give-you department

In a recent sizeable transaction with my bank, I was upset with the number of days they planned to put a hold on a check I deposited. I protested, and they relented, assuring me they would release the funds several days earlier.

They didn’t.

After 24 years with the same bank, I moved my money to a competitor.

Was it their hold-on-deposit policy that caused the change? No. I could live with that decision. It was the fact that they gave me a date in order to mollify me and then failed to make that date. Customer service is best when it makes a promise and sticks with it. And hey, if they get it done even sooner, it’s a bonus!

The technology-that-serves-the-customer department

I hear people complain about how customer service has been relegated to computers, and I’m mystified with their frustration. I believe technology has radically improved the consumer experience. It’s simply a matter of focus.

Companies should concentrate on using technology to help the customer and let the cost savings be a byproduct. Two positive examples come to mind. Amazon is known for its world-class, computer-based service. I actually look forward to interacting with them because I can easily find what I’m looking for and get an answer … all on my schedule.

I’ve done hundreds of transactions with them – actually – with their computers. On the one occasion when I really needed the help of a human, their customer service area answered my call and handled my question within seconds.

In other cases, the experience starts with a computer but is bounced to a human and then back to a computer again to wrap up.

I recently needed help from an insurance company with a billing change. When I called their customer service department, the call tree quickly got me to the person who could help. She captured the needed information, flooded a form with the required data, and emailed it to me within seconds. My needs were met, and I suspect it was cost-effective for them.

The we-make-it-right department

A TV ad for a rental company has a service rep stating, “But if there is ever a problem, we all have the power to make it right. I don’t have to find a manager. I don’t have to make a phone call.”

This truly embodies the ideal customer service experience. It’s not enough to just rebrand customer service. It’s even more important to empower customer service. Give representatives clear parameters of what they can do, and then let them do their job – serving the customer.

During the credits of the long-running NPR comedy call-in show “Car Talk,” they include a litany of play-on-words names for their staff. Their customer service representative? Haywood J. Bussoff. Get it? We associate a business and its brand with the customer service it provides. So, rather than teach customer service representatives cute greetings, let’s teach these key employees to understand just how far they can go to meet customer needs, leverage the technology provided them and serve as the proud, public faces of the company.

Tags:  amazon  billing change  brand  Car Talk  consumer experience  customer service  customer service experience  customer service representative  Haywood J. Bussoff  insurance company  life insurance agents  NPR  Principal Financial Group  rebrand customer service  Steve Parrish  technology 

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Another Family Sports Team Failure, Another Lesson Learned

Posted By Jason Trujillo, Woodbury Financial, Monday, February 16, 2015

Another Family Sports Team Failure, Another Lesson Learned by Steve Parrish

Article originally appeared on on February 16, 2015.

Click here to read original article.

Stop me if you’ve heard this one before. The owner of a major sports franchise could lose his $1.7 billion empire in a family feud. He reportedly pushed aside a daughter and grandchildren in favor of his third wife.

Family members claim he’s mentally incompetent, and a court has ruled the owner must undergo evaluations by three different doctors.

This isn’t the story of Donald Sterling, the now former owner of the NBA’s L.A. Clippers. It’s fresh news this week that Tom Benson, owner of the NFL’s New Orleans Saints, and his family are in a similar conundrum.

After Sterling stirred up serious trouble for his racist rant, a judge ultimately allowed Sterling’s wife Shelly and the Sterling Family Trust to sell the Clippers. And competency isn’t the only family issue that has caused the loss of a professional sports team. Frank and Jamie McCourt’s bitter divorce battle contributed to the takeover of the L.A. Dodgers by Major League Baseball in 2012.

Is this some kind of 21st century curse? Sadly, no. It’s not even a recent phenomenon, and it goes beyond matters of legal competency or spousal feuds.

Back in the 1970s, Phillip and Helen Wrigley, of chewing gum and baseball fame, died within two months of each other. They had not done adequate estate planning and ended up with an estate tax estimated at $40-50 million. The family was forced to sell ownership in the Chicago Cubs and Wrigley Field, which it had owned since the early 1900s, to pay the tax bill. Further legal wrangling, spousal disputes and family fights ultimately led to the sale of Wm. Wrigley Jr. Co. in 2008.

Another failed family sports team dynasty was lost more to poor planning than family feuds.

Joe Robbie was the founder and owner of the incredibly successful Miami Dolphins professional football franchise – the team that scored a perfect season in 1972. Despite his business talent, his estate planning failed. When he died in 1990, both his beloved team and Joe Robbie Stadium – that he had just completed in 1987 – had to be sold by his family to pay federal estate taxes.

What lessons can we learn?

The point in recounting these sad stories is not to suggest we should avoid family ownership of businesses. Rather, these tales remind us that even the most successful businesses need to plan for the day when the owner is no longer around:

  1. Many family-owned businesses fail because of poor planning outside of the business itself. Divorce, competency disputes and family infighting cause distractions that spill over into ownership of the business. And inadequate estate planning can generate liquidity issues that force unwanted sales of business assets to settle the estate.
  2. With adequate planning, family-owned businesses can thrive. Granted, the above stories demonstrate high-profile failures. But look at the high-profile dynasties that continue to thrive. For example, consider the connection between the Steinbrenner family name and the New York Yankees. The team is owned by Yankee Global Enterprises, an LLC controlled by the family of George Steinbrenner, who purchased the team in 1973. Similarly, the Pittsburgh Steelers have remained within the Rooney family since the team’s founding by Art Rooney in 1933.
  3. Bad things can happen no matter how much planning is done. Family members can lose competency and make disastrous decisions. Couples can let their personal animosities unwind the family fortune. The trick is not to change the nature of families but rather to contain the damage. Routine legal and financial moves can help avoid the loss of family dynasties. Pre-nuptial arrangements, buy-sell agreements and similar plans can stem legal challenges. Life insurance, sinking funds and other financial strategies can avoid liquidity problems.

While some might think family-owned sports teams are more plagued than Boston was by the 86-year “Curse of the Bambino,” I encourage you to look past curses to investigate causes. Identify potential estate and financial planning challenges your business might face, and deal with them. You’ll have better odds your family ends up on the winning side.

Tags:  Chicago Cubs  Donald Sterling  estate planning  estate taxes  family-owned businesses  Frank and Jamie McCourt  George Steinbrenner  Joe Robbie  L.A. Clippers  L.A. Dodgers  Miami Dolphins  New Orleans Saints  New York Yankees  Principal Financial Group  Steve Parrish  Tom Benson  Wrigley Field 

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