Business Advice Daily

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by David Purcell

Owners are proud of their family owned businesses. To be successful, owners must plan thoroughly and work hard to carry out the plan. Successful business owners should be proud of their accomplishments.

Yet planning and hard work are frequently lacking in efforts to establish a viable blueprint for leaving the business behind. Reluctance to pursue proper succession planning is common. Combining family and business concerns is difficult.

If a proper estate plan is not in place, estate taxes must be paid within nine months of death. This does not give heirs a great deal of time to maneuver. Irreparable harm could result. Part or all of the business may have to be sold in order to pay estate taxes.

In a recent article by Diane E. Picard on the Financial Planning Interactive website, Gary Pittsford, a CFP in Indianapolis, recommends having a plan in place five years before the owner plans to exit the business. However, Martin M. Shenkman, an attorney and CPA, recommends creating a succession plan as soon as a business is started. Shenkman’s position considers that a false step into the path of an oncoming bus could rapidly accelerate the need for a succession plan. He has a point.

In fact, the best succession plan is basically an exit plan, and should be an integral part of a business plan. It should cover all possible eventualities of the business if it had to be turned over to someone else. This exit strategy should address retirement, death, disability, sale of the business, and any other possibilities that might impact the situation.

The succession plan should include life and disability insurance to ensure business operation if the owner dies or becomes disabled. Other strategies, such as an Employee Stock Ownership Plan (ESOP) or business alliances, could provide operating capital or management in extreme circumstances. The details of how the business should be sold or liquidated, if that becomes necessary, should be included.

According to Shenkman, the liquidation or selling option is frequently overlooked. Parent-owners often fail to consider that the children might prefer capital to pursue their own ambitions, rather than the mantle of family business manager.

Dealing with family succession can be more difficult than creating a business plan. Emotions come into play. Problems in family relationships impact planning. Reluctance to confront these problems openly is common.

Children might not want to take over a parent’s business. Siblings may disagree over who should run the business.

In her article, Picard quotes Roy Ballantine, a financial planner in New Hampshire, who stresses that business goals, values and objectives should be the controlling factors in business decisions, not kinship.

Owners are often reluctant to consider liquidation or sale of the business, even if the children are not interested in taking over. But sale or liquidation may be the best choice.

Some useful questions when considering a succession plan are:

* How many children have shown the desire to run the business?

* How many children actually are capable of running the business?

* Which child should be in charge if more than one is willing and able?

* What family problems might arise should the choice for leader actually succeed to that position?

* If only some of the children are interested and capable in managing the company, how will the other children be compensated in the estate plan?

* Should in-laws be considered in the succession mix?

* How should the transition take place while the owner remains capable and active?

* Are there other choices, such as a temporary or “bridge” manager, a current employee, a non-relative, or another entire business that might become the business manager?

* What is the best alternative and the priority for all alternatives in case of an unexpected disability or death of the owner?

Financial and estate planners underscore the need for open communication and family meetings in succession planning. Strategies, such as generation skipping and gifting, should be considered. Finance, corporate, tax and estate planning laws are all part of the succession equation.

Answering the basic questions, reviewing the alternatives and their impact, and a continuing dialogue among family members are crucial components in a plan for succession. With appropriate guidance, a business owner can create an effective succession plan to keep the family together and maximize the probability of continued business success.

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by Matt Berkley

As if Identity Theft hasn’t become a big enough problem for business owners, FACTA—the new Fair and Accurate Credit Transactions Act—a provision that went into effect in June 2005, states that an employer could be liable for actual and punitive damages along with state and federal fines when an employee’s identity is breached and the breach is traced to employment records.

Identity Theft has emerged as a serious concern for business owners. It’s currently the fastest growing crime in the nation, effecting bank accounts, lines of credit, customer/employee information and more.

“Identity theft seems to be more of a problem for businesses as they have access to millions of consumers’ personal information as well as credit information. If a business is not protected, it could mean the death of a person’s business,” says Corey Spector independent associate with Pre-Paid Legal Services, Inc.

Accordingly, Pre-Paid Legal offers their clients services to safeguard their businesses from the threat of Identity Theft, both before and after the fact.

Michael Greenblat, president and owner of United Fulfillment Solutions, a local packaging/shipping company, describes the peace of mind he has as a Pre-Paid client. “Most of the time when your identity is taken, all of a sudden you say to yourself ‘Who do I start calling? Who do I go to?’ If you have someone you can go to quickly that can help you, then you’re going to reduce your exposure a lot faster. To me that’s the most powerful thing about Prepaid,” he says.

“Most of the victims are individuals,” says Faye Whobrey, another local independent associate and director of marketing with Pre-Paid. “However, many businesses have had their accounts used by IDT (identity theft) thieves. For the individuals, it is not uncommon for large databases to be accessed—either as employees or customers—and hundreds of thousands of individuals are being put at risk simultaneously.”

According to Whobrey, the Federal Trade Commission urges IDT victims to immediately obtain legal counsel. For clients of Pre-Paid, an Identity Theft plan can be coupled with regular legal coverage for a nominal fee.

“Pre-Paid offers a coverage that not only does the upfront credit reports—so you can see what’s on your record and how to clean up old stuff—and continuously monitors both the member’s and spouse’s social security numbers. It also supports the “restoration” of the victim’s identity. The client is assigned an investigator: a person who holds his or her hand and does most of the effort required. The victim still has to expend some effort, but the bulk is done by the experienced investigator.”

As an employer, Whobrey suggests the best course of action is to include coverage in your employee benefit package. “By providing our family legal memberships and Identity Theft coverage as an employee benefit, not only is the business providing a much needed benefit to its employees, but it is mitigating its risk in case of a breach.”

8 Tips To Identity Theft-Proof Your Business

* Physically secure/lock up all paper records.

* Encrypt your data.

* Only collect necessary info from customers.

* Establish a timeline to shred sensitive materials.

* Properly screen and train your employees.

* Limit access to sensitive data.

* Secure online sales.

* Terminate network access when an employee leaves.

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by Andrew H. Hogenson

What is estate planning?

Broadly speaking, estate planning is a process through which a person plans for the management and distribution of the person’s assets after death, as well as for the management of the person’s health care and financial affairs while the person is alive but unable to handle his or her affairs.

An estate plan provides detailed directions and expressions of desire for loved ones regarding the person’s health and assets, and for the appointment of individuals who the person believes will be most capable of effectuating the directions and desires. Among other benefits, this can help eliminate, or at least alleviate, some of the stress and intense emotional issues associated with a person’s death or incompetence.

While every person should have an estate plan, some individuals have unique issues that should be addressed in a comprehensive estate plan. These individuals include business owners, high net worth individuals, individuals who have children with special needs, and individuals in second marriages who have children from a prior marriage.

What are some basic estate planning documents?

Revocable Living Trust

A revocable living trust is a legal arrangement by which a person, called a “grantor” or “settler,” creates a separate legal entity called a “trust” and then transfers property, such as real estate or a brokerage account, to the trust. The trust becomes the owner of the transferred property.

A revocable living trust is created during the grantor’s life, and the grantor is free to amend or terminate the trust at any time. The grantor is also free to take assets out of the trust and to otherwise use the trust assets as he or she chooses. Income generated from the trust assets are treated as income to the grantor for income tax purposes as if the grantor owned them personally.

The trust is controlled and managed by a “trustee.” The grantor is typically the initial trustee of the trust. The grantor will usually name at least one successor trustee to succeed the grantor. The trustee typically has broad powers over the trust assets. Upon the death of the grantor, the assets will be administered and distributed to or for the beneficiaries of the trust as the grantor provides and, in this sense, the trust serves as a replacement for a will.

One of the advantages of a trust is that the trust can provide a procedure to determine if the grantor is incompetent, and how the trust assets will be managed for the grantor if that occurs, without the involvement of the probate court and without the appointment of a guardian or conservator for the grantor.

Will

Most people associate estate planning with the creation of a will. A will is a written document that sets forth how the property of a person, called the “testator,” is to be distributed after the testator’s death. In a will, the testator can set forth the beneficiaries of the testator’s property, how much each beneficiary will receive, and when they will receive it. A will can provide for the creation of a trust or trusts upon the testator’s death. A will can also appoint a guardian for the person’s minor children, although this “appointment” is not binding upon the court.

A personal representative is appointed in the will to handle the administration of the estate after the testator’s death. Among other things, a personal representative provides any necessary notices to heirs and creditors, files an inventory of the probate property, manages the probate property, pays creditors, distributes assets to the beneficiaries and prepares a final accounting.

Durable Power Of Attorney For Property

A durable power of attorney for property allows a person, called a “principal,” to designate another person, called an “attorney-in-fact,” to handle the principal’s financial affairs in the event the principal is unable to do so. Common powers include the right to pay bills and expenses and to maintain and invest assets. The attorney-in-fact can also be given special powers such as the power to create, amend or terminate trusts and to make gifts for the principal.

Durable Health Care Power Of Attorney

A health care power of attorney is a document that allows a person, called an “attorney-in-fact” or “agent,” to make medical decisions on behalf of a principal, if the principal cannot make them for himself or herself. The powers of an agent may include the power to consent to a physician giving or withholding treatment, including life-sustaining procedures. The principal may also limit the scope of the agent’s powers.

Living Will

A living will sets forth a person’s desire not to be kept alive on machines or other life‑sustaining procedures if the person’s condition is incurable or irreversible.

What is the difference between “probate” and “non-probate” property?

Probate is a court action in which the court decides who will receive the “probate property” owned by a person at death. Probate property is the property that a person owns that does not, by virtue of the way it is owned or titled, provide survivorship rights or for an immediate transfer on death to another person. Examples of probate property include a residence or vehicle owned by the person solely and individually. Probate property is distributed at death according to a person’s will. If the person died without a will, then the property is distributed pursuant to the Missouri intestacy laws.

Not all property a person owns is probate property. As discussed earlier, property owned by a revocable living trust is “non-probate property.” Jointly owned property is often non-probate property. Property with a beneficiary designation associated with it (e.g., IRA accounts and annuities), is non-probate property, unless the estate is the beneficiary due to a failure of the beneficiary designation or for some other reason.

Many assume that, upon death, the distribution of all property in which a person owned an interest will be governed by a will or revocable living trust. Often this is not the case. This is because, in many instances, at least some property is jointly owned with another person or has a beneficiary designation. Generally, it is the joint ownership or beneficiary designation that controls who gets the deceased person’s interest, and not the will or trust.

It may make sense in some instances to create a beneficiary designation for property that does not have one. For example, Missouri allows for the creation of a “beneficiary deed.” A beneficiary deed may be used to transfer real estate to a person upon the death of the owner. The beneficiary deed is recorded; however, it is not effective until the owner’s death, and can be revoked prior to death. Upon the owner’s death, title to the real estate passes to the named beneficiary.

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by Don V. Kelly

Thanks to the ever-growing problem of identity theft, businesses now have increased duties with respect to the disposal of “consumer information.” Fair and Accurate Credit Transaction Act (“FACTA”), FACTA appears as an amendment to the Fair Credit Reporting Act. One provision of FACTA required certain federal agencies to develop rules regarding how businesses dispose of consumer information. This past July the Federal Trade Commission’s rules implementing this provision went into effect. The rules require that any person that maintains or otherwise possesses consumer information for a business purpose, properly dispose of that information.

Note the following key points about the law.

* The law only applies when a business disposes of consumer information. The law does not require businesses to maintain or to dispose of such information.

* The law applies to all businesses regardless of size. Lending institutions are clearly the primary target of the new law. Again, however, the law applies to all businesses. Also significantly affected will be mortgage brokers, automobile dealers, landlords, employers, insurers and waste disposal companies.

* “Consumer information” is any information that is, or derived from, a consumer report, i.e., any personal information obtained to evaluate credit or insurance worthiness. Even if your business did not obtain such information directly, your business must comply with the law.

* Information that does not identify individuals, such as aggregate information and blind data, is not deemed “consumer information.”

* No disposal methods are specified. Instead, the rule requires “reasonable measures to protect against unauthorized access to or use of the information.” For large companies, this will no doubt require the establishment of formal disposal policies and procedures, as well appropriate employee training.

* In the case of computer embedded information, the FTC has indicated that smashing or wiping the computer hard drive may be required. (Note: Before smashing any hard drive, care should be taken so that occupational and environmental considerations are taken care of. Computer components are notorious for being filled with toxic materials.) In the case of documentary information, such materials will need to be shredded or destroyed.

* “Disposing” or “disposal” is defined as the discarding or abandonment of consumer information. “Disposal” also means the “sale, donation, or transfer of any medium, including computer equipment, upon which consumer information is stored.” Accordingly, any business seeking to donate computer equipment must abide the new law.

* If you use a disposal service to dispose of consumer information, the disposal service will also be subject to the law’s requirements. Additionally, you will need to ensure the disposal service is using reasonable disposal measures.

* Thankfully, the new law does not impose any specific reporting, record keeping or disclosure requirements.