Abel Financial Strategies: April 2015

Thursday, April 30, 2015

Business Owner Succession Planning

Every successful business owner must eventually face the question: What will happen to my business when I become disabled, retire, or die? Sooner or later, you will generally need to identify someone to transfer your ownership interest to - family members, co-owners, key employees, or an outside party. Without a succession plan, the business may need to be liquidated.

Successor Management

One of the first questions that should probably be addressed is: Do you have successor management readily available to run your business? Without it, the business may fail. You might look among co-owners, family members, and key employees for candidates. It may be necessary to train successor management, helping others develop their skills or even bringing in new talent. Of course, if you sell to an outside party, that party may provide their own management. It should be noted that successor management can, but need not be, the same as the successor owners.

Co-Owners

If you have co-owners, you and your co-owners may wish to keep ownership limited to a select group. One way to do this, while providing a market for your interest in the business, is for you and other owners or the business entity to enter into a buy-sell agreement. A buy-sell agreement is a legally binding contract in which the owners of a business set for the terms and conditions of a future sale or buyback of a departing owner's share of the business. Specifically, buy-sells control when owners can sell their interests, who can buy an owner's interest, and at what price.

Family Members

Keeping the business in the family can present many issues that may contribute to the success or failure of the business as it is transferred to the successor generation. Do you wish to sell the business to family members, make gifts or bequests of interests, or perhaps use some combination of these? Do you need income for retirement, for your surviving spouse, or for the payment of final expenses? You may need to provide compensation to family members working in the business and profits to family members retaining an ownership interest, while cashing out some family members or otherwise providing for them.

You can make gifts of up to $14,000 per recipient per year free without filing a gift tax return (or $28,000 for couples). Your yearly annual gifts will be applied to your total lifetime gift exclusion amount, which is currently set at $5.43 million for individuals or $10.86 million for couples. You can often obtain significant valuation discounts by making gifts of interests in a family limited partnership or family limited liability company.

Sales to family members can utilize buy-sell agreements and installment sales. Installment sales allow the family member to make payments over time.

Key Employees

You may have some key employees working for you, who provide some unique skills and value to your business, and who have an interest in owning the business. You may be able to sell the business to them utilizing buy-sell agreements and installment sales. A business can also be sold to an employee stock ownership plan (ESOP), a tax-favored retirement plan for employees.

Outside Party

In some cases, succession is not practical using transfers to co-owners, family members, and key employees. Or it may be that you need to obtain the highest possible price for the sale. In that case, selling to an outside party may be the answer.

Income Tax Consequences

Generally, the sale of your interest in a business will result in capital gain or loss tax treatment. You generally receive a tax basis stepped up (or stepped down) to fair market value for property you own at your death. Therefore, there will generally be no capital gain if your estate sells for your interest shortly after your death. Also, if you sell your interest in an installment sale, capital gains (if any) are generally not taxed until installment payments are received.

Questions About Business Succession Planning?

Business succession planning is an important process that should not be overlooked. If you are ready to take steps towards solidifying a succession plan for your business (or if you have questions about the process) contact Abel Financial Strategies. We are here for you!

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Securities offered through First Heartland Capital®, Inc. Member FINRA/SIPC Advisory Services offered through First Heartland Consultants®, Inc. (Abel Financial Strategies is not affiliated with First Heartland Capital®, Inc.)

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes) and Barron's (S&P 2014 total return); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprices.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment. Securities offered through First Heartland Capital® , Inc. Member FINRA/SIP

Thursday, April 23, 2015

Estate Planning Issues For Unmarried Couples

According to the U.S. Census Bureau, there were 7.7 million unmarried partners living in the same households in 2010. Yet there are several laws that are potentially beneficial to married couples that are not available to unmarried partners, especially when it comes to estate planning. That's why it's important to recognize the risks faced by unmarried partners and some potential ways to help mitigate them.

Wills Or Trusts

All states have probate laws that provide some protections for the surviving spouse, but generally no such protections exist for a surviving domestic partner. Therefore, it's vitally important for live-in partners to prepare estate planning documents including wills and, in some cases, trusts. Through wills and trusts, you can provide for the financial support of your surviving partner after your death.

Titling Assets

How your assets are titled can determine their disposition upon your death. For example, if you want your partner to receive your home at your death, you could title it in both names as joint tenants with with rights of survivorship. However, retitling your home in this manner gives your partner ownership rights in the property. Also, depending on the value of the home, there may be gift tax implications, and the home may be exposed to claims of your partner's creditors.

While you could simply leave your home to your partner through a will or trust, you may want other family members to ultimately receive the home after your partner dies. In this case, you could create a life estate for your partner, allowing him or her the right to remain in the home for life, while naming other beneficiaries to receive title to the property at the death of your partner.

Beneficiary Designations

Certain types of assets allow for their transfer at death through beneficiary designations. IRAs, life insurance annuities, and 401(k)s are some examples. However, it's important to remember that generally, the beneficiaries named in these assets will receive them at your death, even if you make other provisions in your will or trust. So be sure your beneficiary designations are current and comply with your wishes.

Power Of Attorney and Healthcare Documents

A durable power of attorney is a legal document that allows you to authorize someone to carry on your financial affairs and protect your property if you are unable to do so during a period of incapacity. Without this type of authorization, the courts may appoint one or more persons to act on your behalf. This proceeding can be expensive and time consuming, and you may not have any control over the person(s) appointed by the court. More importantly, your partner may not have access to needed financial support through your assets.

A healthcare power of attorney or healthcare proxy is a legal document in which you give your appointed agent the right to make certain healthcare decisions on your behalf if you are unable to do so. Without this document, doctors make healthcare decisions for someone who is incapacitated. Often state law does not recognize unmarried couples as family, so if you want your partner to be able to make these decisions on your behalf, you should name your partner as your healthcare agent.

For both the durable power of attorney and the healthcare power of attorney, you should designate a primary agent and a contingent agent to act on your behalf if you become incapacitated. There is always the chance that the person you select as your primary agent is someone you live and regularly travel with, and therefore someone who faces many of the same risks that you do. The contingent agent will act on your behalf if both you and your primary agent are incapacitated.

Domestic Partnership Agreement

Generally, the law does not always spell out the financial rights and responsibilities of domestic partners. To address these issues, live-in partners can use a domestic partnership agreement (if recognized in their state), which is a contract that addresses the sharing of income, expenses, and property.

Unmarried couples face potential estate planning pitfalls. State laws vary, so it's important to consult an attorney or advisor who is familiar with state and federal laws that affect unmarried couples.

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A Certified Financial Planner ® in good standing that believes whole-heartedly in the Standards of the CFP ® program.

Thursday, April 16, 2015

Are You Prepared If A Natural Disaster Strikes?

It seems as though there's always a hurricane, tornado, earthquake, flood, fire, blizzard, or mudslide happening somewhere in the United States. A storm or other natural disaster could destroy your home, business, or workplace and put you in financial straits, but there are things you can do both before and after the event to help you recover quickly. Here are some important suggestions from the team at Abel Financial Strategies.

Pre-Disaster

Create A Financial Emergency Kit. Put together a kit that contains some cash and checks, a list of important contacts (e.g., your insurance agent), and copies of important documents, including identification cards, birth and marriage certificates, insurance policies and inventories, wills, trusts, and deeds. Make sure your kit is stored in a safe, secure place in your home, is easy to reach and carry, and is both waterproof and fireproof. You'll want to stash enough cash (or a credit card) to pay for immediate expenses such as gas, food, and lodging.

Tip: While you're at it, you might also want to keep your most precious items in the kit, such as your special photos or family heirlooms.

Protect Your Assets. Take some commonsense precautions to safeguard your home, business, car, boat, and similar assets against damage from wind, water, fire, or other risks. For example, install an emergency generator and paperless drywall, keep loose objects (e.g., grills and patio furniture) secure, cut down overhanging tree limbs, park your car in a garage, and invest in storm windows, doors, and shutters.

Take Inventory. Create and maintain an inventory of your valuables, including appliances, electronics, furniture, clothing, jewelry, and artwork. Record models and serial numbers, and take pictures or a video of the items. This will help when it comes time to file insurance claims and purchase replacements.

Check Your Insurance Coverage. Make sure your insurance policies (e.g., homeowners, auto) include all the coverage you need, and understand that damage caused by natural disasters may not be covered under general types of policies. You may need to consider buying separate coverages for hurricanes, floods, earthquakes, tornadoes, or other disasters. Consult your insurance agent to determine whether you have adequate coverage given the likelihood of such events occurring in your area.

Post-Disaster

In The Immediate Aftermath, Proceed With Caution. While the disaster may have passed, health and safety hazards may still exist. Be aware that any building you're in, including your home, may not be structurally sound, so carefully look for any apparent damage. Also, report contamination from spills of oil, gas, chemicals, or any hazardous substance.

Assess Your Property For Damage. Take pictures of damaged areas both inside and outside your home, including trees, landscaping, and yard structures such as sheds.

File Insurance Claims Immediately. Contact your insurance agent and file claims as soon as possible. The quicker you do, the sooner you can get back on your feet.

Protect Your Income. If you end up out of work, take advantage of any employee assistance programs that your employer may offer. Seek unemployment compensation from your state and ask about special job considerations for disaster victims. Find out if special unemployment benefits are available through the Department of Labor.

Get Help From Emergency Sources. If you need immediate financial help, disaster relief funds and special programs (for example, housing assistance) may be available through the Federal Emergency Management Agency (FEMA) or your state and local governments, as well as the American Red Cross, United Way, Salvation Army, social services, and local churches.

Consider Available Tax Breaks. Tax law allows taxpayers to deduct certain unreimbursed casualty losses in the year in which they incurred, subject to certain limitations. In certain presidentially declared disaster areas, individuals can claim the loss (again, subject certain limitations) in the prior tax year by filing an amended return. Moreover, special relief (for example, bonus deprecation for business property) may be granted in the case of specific disaster events. Be sure to consult your tax professional about any tax relief that may be available to you.

Get Legal Help, If Necessary. If you experience legal difficulties, you may want to consider hiring an attorney who specializes in the complex area of natural disaster law.

Don't Ignore The Stress. Surviving a natural disaster can be a very stressful. Don't hesitate to ask for help from family and friends. If you have young children, they may be upset about damage to their home and belongings. Be patient and try to explain what's happened and how you're going to try to get back to normal as soon as possible.

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A Certified Financial Planner ® in good standing that believes whole-heartedly in the Standards of the CFP ® program.

Thursday, April 9, 2015

What Can Baseball Teach You About Financial Planning?

Spring training is a tradition that baseball teams and baseball fans look forward to every year. No matter how they did last year, teams in spring training are full of hope that a new season will bring a fresh start. As this year's baseball season gets underway, here are a few lessons from America's pastime that might help you reevaluate your finances.

Sometimes You Need To Proceed One Base At A Time

There's nothing like seeing a home run light up the scoreboard, but games are often won by singles and doubles that get runners in scoring position through a series of base hits. The one base at a time approach takes discipline - something that you can apply to your finances by putting together a financial plan. What are your financial goals? Do you know how much money comes in, and how much goes out? Are you regularly saving for your retirement or for a child's college education? A financial plan will help you understand where you are now and help you decide where you want to go.

It's A Good Idea To Cover Your Bases

Baseball players minimize the odds that a runner will safely reach a base by standing close to the base to protect it. What can you do to help protect your financial future? Try to prepare for life's "what-ifs." For example, buy the insurance coverage you need to make sure you and your family are protected - this could be life, health, disability, long-term care, or property and casualty insurance. It is also a good idea to set up an emergency account that you can tap instead of dipping into your retirement funds or using a credit card when an unexpected expense arises.

You Can Strike Out Looking, Or Strike Out Swinging

Fans may have trouble seeing strikeouts in a positive light, but every baseball player knows that striking out is part of the game. In fact, striking out is much more common than getting hits. The record for the highest career batting average record is .366, held by Ty Cobb. Or, as Ted Williams once said, "Baseball is the only field of endeavor where a man can succeed three times out of ten and be considered a good performer."

In baseball, there's more than one way to strike out. A batter can strike out looking by not swinging at a pitch, or strike out swinging by attempting, but failing, to hit a pitch. In both cases, the batter likely waited for the right pitch, which is sometimes the best course of action, even if it means striking out occasionally.

So how does this apply to your finances? First, accept the fact that you're going to have hits and misses, but that doesn't mean you should stop looking for financial opportunities. For example, when investing, you have no control over how the market is going to perform, but you can decide what to invest in and when to buy and sell, according to your investment goals and tolerance for risk.

Warren Buffett, who is a big fan of Ted Williams, strongly believes in waiting for the right pitch. "What's nice about investing is you don't have to swing at pitches," Buffett said. "You can watch pitches come in one inch above or one inch below your navel, and you don't have to swing. No umpire is going to call you out. You can wait for the pitch you want."

Note: All investing involves risk, including the possible loss of principle.

Every Day Is A Brand-New Ball Game

When the trailing team ties the score (often unexpectedly) the announcer shouts "It's a whole new ball game!" Or, as Yogi Berra famously put it, "It ain't over 'til it's over." Whether your investments haven't performed as expected, or you've spent too much money, or you haven't saved enough, there's always hope if you're willing to learn both from what you've done right and what you've done wrong. Pitcher and hall-of-famer Bob Feller may have said it best. "Every day is a new opportunity. You can build on yesterday's success or put its failures behind you and start over again. That's the way life is, with a new game every day, and that's the way baseball is.

In Order To Play, You Have To First Get On The Field

Ready to get in the game of financial planning? Take your first step by setting up an initial consultation at Abel Investment Strategies. We can help you achieve your financial planning goals!

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A Certified Financial Planner ® in good standing that believes whole-heartedly in the Standards of the CFP ® program.

Thursday, April 2, 2015

How Much Do You Know About Social Security?

You're probably covered under Social Security -- according to the Social Security Administration, an estimated 165 million workers are (statistic from Social Security Basic Facts, 2014) -- but how much do you know about this program? Test your knowledge by answering the following questions.

QUESTIONS

1. If you decide to collect your retirement benefit starting at age 62, your benefit will be how much less than if you wait until your full retirement age?
a. 5% to 10% less
b. 15% to 20% less
c. 25% to 30% less
d. 35% to 40% less

2. Your spouse and children may be eligible for benefits if something happens to you.
a. True
b. False

3. The Social Security taxes that are collected from your paycheck are called:
a. FUTA taxes
b. FETA taxes
c. FICA taxes

4. Once you reach full retirement age, you can work and earn as much as you want without reducing your Social Security benefit.
a. True
b. False

5. Once you begin receiving your retirement benefit, it will never increase.
a. True
b. False

ANSWERS

1. c. If you were born in 1943 or later, you'll see a 25% to 30% reduction in your retirement benefit if you claim Social Security benefits at age 62, rather than waiting until your full retirement age (which is 66 or 67, depending on your year of birth). This reduction is permanent.

2. a. Social Security isn't just for retirees. Your spouse and dependent children may be able to receive survivors or disability benefits based on your earnings record if certain eligibility requirements are met.

3. c. Social Security payroll taxes are called FICA taxes because they are collected under the authority of the Federal Insurance Contributions Act. FICA includes two separate taxes: Social Security and Medicare. The Social Security portion is withheld from your pay at a rate of 6.2% (matched by your employer), but only on earnings up to the maximum earnings limit for the year ($117,000 in 2014).

4. a. Before you reach full retirement age, your benefit will be reduced if your earnings exceed certain limits, but these earnings limits no longer apply once you reach your full retirement age.

5. b. There are several reasons why your benefit might increase after you begin receiving it. First, you'll generally receive annual cost-of-living adjustments (COLA). Second, the Social Security Administration recalculates your benefit every year to account for new earnings, so your benefit might increase as a result. Your benefit might also be adjusted if you qualify for a higher benefit based on your spouse's earnings once he or she files for Social Security.

For more information, visit the Social Security Administration's website: www.ssa.gov.

If you would like to talk about other retirement plans to prepare for your future, contact Abel Financial Strategies. We are committed to working with you today to help you plan for a better tomorrow.

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