“Carve-out” planning seems to be the next generation of planning to help small business owners create plans to skew the contribution amounts to key employees. 

A “carve-out” plan is fairly easy to understand. 

Defined benefits (D plans are unique qualified retirement plans that allow owner/employees to put away significantly more money into a retirement plan than a 401(k) profit sharing plans. However, because there requirements to fund the plan for employees in a non-discriminatory manner, the required contributions to a DB plan to fund for the employee can be prohibitively expensive.

That’s where a “carve-out” plan might come in handy. All you do to make the plan more economically viable is place the older more highly compensated non-owner employees in a 401(k)/profit sharing plan (where required contributions for the employees will be low) and the owner and the younger less compensated employees in the DB plan. 

The name “carve-out” make sense because you are carving out the older higher compensated employees from the DB plan and moving them into the 401(k)/profit sharing plan. 

If you are interested in putting the maximum away for yourself as a business owner and the minimum amount away for your staff, you should consider using a “carve-out” plan to accomplish this goal. To learn more, call 1 (805) 376-8070 or sign up for a free consultation or write your questions, and we’ll get back to you soon.

Do you have liquid assets worth $500,000 or more?

(If not, you may want to consider the wealth growing strategies covered in C.A.L.M. Level 3.)

You should be very aware that Offshore Asset Protection aims to protect your assets. We want to make this very clear.

You should not go offshore if you think you will save on U.S. federal income tax.

Any advisor who tells you to move assets offshore in order to AVOID taxes is not just dangerous to your wealth, but dangerous to your freedom.

The basic principle behind offshore asset protection is to get assets out of your control and put them in a place where the U. S. government has no legal jurisdiction. An order from a U. S. Court is not binding on assets placed in a foreign jurisdiction.

In general, a U.S. court has jurisdiction only over people or property located within the U.S. With offshore asset protection, your assets are owned by an offshore trust. Because the assets are owned by a foreign entity you remove your property from U.S. control.

But there’s an interesting twist that you may not be aware of.

And that is, using the C.A.L.M. 4 Level Offshore Asset Protection Strategies, your assets stay in a domestic LLC or FLP and only move offshore if you have a claim, if someone is coming for your assets - such as might occur in a lawsuit. Unless that happens, your assets remain in the United States.

If a claim is filed, your assets move to the foreign jurisdiction. In order for the creditor to pursue their claim, they now have to chase your assets to the foreign jurisdiction they have been moved to.

That requires finding the assets, finding a lawyer in the new jurisdiction, and bringing suit in the foreign court. All of this costs time and money - on top of the money already spent to get the judgment against you in the United States. And there’s no guarantee that the suit in the foreign country will be successful. It will cost the creditor so much time, effort and expense for an uncertain result, the creditor will simply give up and leave you - and your assets - alone.

Additional protection is provided in many offshore trust documents. If litigation is filed in the foreign jurisdiction, the language requires the trustee of the foreign trust to immediately move the assets from that jurisdiction to yet another foreign jurisdiction. A creditor could spend $25,000 pursuing you in a foreign jurisdiction, get a judgment there, and then discover that the assets are now located in still yet another foreign jurisdiction. (This would be in compliance with the first foreign jurisdiction’s laws and the trust documents.) Think they want to be out of pocket another $25,000 - with the possibility that the assets would again be transferred to another jurisdiction (again, in compliance with the second foreign jurisdiction’s laws and the trust documents)?

Not too likely.

In order to provide you with the highest level of protection for your liquid assets, our Comprehensive Asset and Liability Management (C.A.L.M.) Plan must provide you with offshore planning solutions

C.A.L.M. plan members get discounts of up to 20% off the usual and customary price of an offshore asset protection trust. An offshore asset protection trust plan can range in price from $20,000-$50,000 (less a 20% discount), depending on the complexities.

Our recommendation is that if you have liquid wealth worth protecting, you should have an offshore asset-protection trust.

Other offshore asset-protection tools are captive insurance companies and LLCs. If you buy the C.A.L.M. plan, a number of available asset protection tools, domestic and offshore, will be reviewed in light of your particular situation.

Whether you have the liquid wealth to justify offshore asset protection or not, we can help you get there through asset protection and strategies to grow your wealth safely. Why not call us today at (269) 216-9978 for a no-obligation free consultation. Call today!

With C.A.L.M 1, you’ve built a foundation.

C.A.L.M 2 protects your “house of wealth” with walls and a roof to keep the vicious elements of potential lawsuits, actual taxes, and more from attacking and subtracting your wealth.

C.A.L.M. 3 is like putting in the interior decoration, the fancy new kitchen, the awesome entertainment center and the beautiful landscaping. C.A.L.M. 3 uses the fruits of your labor to grow your assets so that you can reach critical capital mass — meaning, you can retire when you want and in the style you want.

C.A.L.M. 3 builds a comprehensive program — a 30-50 page “comprehensive” and “coordinated” estate, financial and tax plan. It’s as if you sat your CPA, your accountant, your attorney, and your financial planner down in one room for several hours to create a golden path to your retirement and beyond.

Building on C.A.L.M 1, which reviewed your asset and estate plan for appropriate protection, C.A.L.M. 3 tracks your wealth and shows you how to get to that golden path.

Have your CPA, accountant, attorney, and financial planner sat down in one room for several hours to put together for you a “comprehensive” and “coordinated” estate, financial and tax plan?

Here are a list of valuable wealth-growing tools that should be at least considered in a complete and comprehensive financial and estate plan:

• Wealth Builder Annuity = With this, you could be deferring up to $50,000-$300,000 or more a year without having to make contributions for staff.

• Freeze Partnerships - You could get up to a 90% discount on a Family Limited Partnership (FLP) when used for estate planning.

• Private Annuity Trusts - Defer, and maybe even avoid, capital gains on the sale of real estate or stock.

• The Maximizer- Nearly double the return of the S&P 500 while principally protecting 90% of your invested assets each year.

• Carve-Out Planning - Implement a qualified plan in the most discriminatory manner possible.

• Leveraged Bonus Plans - Defer compensation for key executives.

• Qualified Pension Insurance Partnership - Mitigate the double taxation via a qualified plan or IRA.

• 412(i) Defined Benefit Plans - Contribute - in some cases - in excess of $200,000 to a “qualified retirement plan”.

• VEBAs - Purchase life insurance for estate planning or buy/sell agreements in a tax-deductible manner The death benefit can then pass free of both income taxes and estate taxes.

• Life settlements - Sell a life insurance policy that has lived out it usefulness for much more than its cash-surrender value.

• Indexed annuities - Protect your money - 100% - from downturns in the market The upside growth is then pegged to the S&P 500. A deferred investment tool.

If the professionals advising you in wealth matters have not been covering these important topics, you’re a candidate for C.A.L.M. 3.

And those are not the only considerations.

Other aspects a comprehensive plan include such items as:
 

• Durable powers of attorney - both medical and legal. These make sure that your family won’t have to go to court to obtain legal powers to act for you if you become incapacitated.

• Living Trusts to avoid probate and minimize estate taxes.

• An irrevocable life insurance trust to make sure the death benefit from your life insurance policy passes income AND estate tax free.

• A traditional Family Limited Partnership/FLP - to discount the value of your estate for estate tax purposes.

Through the C.A.L.M. program, your CWPP™ advisor has access to nationally recognized advisors who are experienced and certified specialists in their field.

Through a collaborative effort, the team will put together for you a complete program ready for implementation.

If you were to go outside of the C.A.L.M. Program, it would cost, typically, between $10,000-$20,000. And those plans won’t have the comprehensive plan from our “roundtable of advisors”. Most clients would get a run-of-the-mill plan hardly worth the money - and most clients would not know better.

Through the C.A.L.M. program you can receive this comprehensive plan for just $7,500. Your plan will be ready for implementation when you say the word.

C.A.L.M. Level 3 protection grows your wealth so you can have a fulfilling retirement and make sure that you have a legacy of to leave your family, or whomever you wish to leave it. Few things can be as satisfying as that.

Call us, at 1 (805) 376-8070 today for a free, no obligation, no pressure consultation on how C.A.L.M. 3 can have you enjoying the benefits of “critical capital mass” sooner than you think.

Many people who have assets have heard of setting up Limited Liability Corporations (”LLC”) — but usually, just for their business.

And many more people will tell them how having your business under an LLC won’t be as much protection as they might think.

And understandably so.

There’s a lot of mis-information out there - rumors and myths - and even a few facts get mixed in to make the information seem legitimate.

There are so many different aspects of setting up an LLC that we can’t go into all of them here.

But here are just a few aspects:

• The actual type of legal entity.
• The jurisdiction it’s set up in
• What assets should be owned by the LLC

Don’t get us wrong - we believe that anyone with any assets should protect them by use of an LLC. Note: in some places, they are called “Family Limited Partnerships” (”FLP”).

Introducing C.A.L.M. Level 2 Protection:

Level two of the C.A.L.M. program makes sure you and your assets are protected.

If your asset protection plan is wanting, C.A.L.M. 2 will get you protected using a Family Limited Partnership. In some cases, you may need more than one.

An FLP forms the foundation of any domestic asset protection plan. You can, with this inexpensive tool, start protecting yourself and your assets from business creditors and personal creditors.

Warning: As foundational and as useful an FLP is, it is not a cure-all. We highly recommend it as the cornerstone of nearly all domestic asset protection plans. But it is not a cure-all. We mention a situation below where they are not appropriate.

Who Needs C.A.L.M. 2 Protection? Let’s look at who is at risk… If you are a professional, if you hold a professional license of any kind - you are at risk:

That means:

• physicians,
• attorneys,
• CPAs/accountants,
• insurance agents,
• financial planners,
• stock brokers,
• mortgage brokers,
• real estate brokers/agents,
• architects and
• engineers

…to name but a few.

Not a licensed professional? If you own any of the following assets - you are also at risk:

• Personal Residence
• A brokerage account
• bank account
• CDs
• Rental property
• Vacation condo
• IRA (depending on the state)
• A boat, plane, waverunner, snow mobile
• Anything else of value

(Note that it doesn’t matter if you own them in your own name, or in a revocable living trust, or in a C- or S-Corporation, or Partnership.)

In other words, if you have a pulse and breath and are of age, you undoubtedly need protection.

Licensed professionals mostly know, all too well, that they need asset protection. If they didn’t learn it in school, they learn it from professional seminars, colleagues and hopefully not from their own personal experience.

But if you’re not, let’s take a few examples of the kinds of risks you face:

Homeowners:

Teenage Children:

Vacation rental:

“The Right Jurisdiction”: What You Need To Know About Where Your LLC Or FLP Gets Formed

C.A.L.M. Level 2 Protection involves using properly set up LLCs and FLPs. Part of setting them up properly is having them set up in the correct jurisdiction.

We’ve already covered the danger you and your assets could be in from the risk of a lawsuit.

In order to explain why the right jurisdiction is important, let’s assume someone has sued you successfully for $2 Million dollars. This is more than your umbrella liability policy of $1 Million dollars - or, if you are a physician, assume it’s more than the $1 Million dollar malpractice insurance covers.

If your assets are in your name, or under incorrect or improperly set up legal and business entities, the plaintiff is coming after your assets.

With an FLP, will your assets be safe? Let’s look…

With a properly set up FLP, your assets remain in the FLP.

The judge cannot:

• transfer the interest in the FLP to the creditor or force the debtor to sell his/her interest and turn over the sale proceeds to the creditor.
• force the FLP to sell assets.
• force an FLP to distribute income.

What can a judge do, then?

He can give the creditor a “charging order.”

What does the creditor get with a “charging order”? Not much.

They still can’t

• get the interest in the FLP transferred to them, or force the debtor to sell his/her interest and turn over the sale proceeds to them.
• force the FLP to sell assets.
• force an FLP to distribute income.

What does the creditor get? The creditor gets the right to pay income taxes on income generated in the LLC but NOT distributed.

Let’s say you were successfully sued, you have your assets in an FLP, and the judge issued a charging order. You have a brokerage account owned by the FLP that earns $1000. Even though the FLP retains the $1000, the creditor gets to pay taxes on it. They get what is called a K-1 for the income.

That’s right. Even though the creditor has seen no money in their bank account from you, the debtor - they still have to pay income tax on any income. Every year. Even though the assets of the FLP are not distributed.

Collecting nothing but paying income taxes to the government, a charging order is hardly attractive to the plaintiff — or the plaintiff’s attorney.

But this only works well in about 6 states. In only 6 states are the charging orders statutes strong enough to withstand a challenge by a creditor. In the rest of the 50 states the FLP statutes are weak.

As a C.A.L.M. plan member, you will want to have your FLP set up in a state with strong FLP statutes, with strong charging-order language in it. If you do not live in a state with strong FLP statutes, as a C.A.L.M. plan member, you will be provided with lawyers to set up your FLP(s) in a state that is geographically distant from your home and office.

An example:

You are a California C.A.L.M. plan member. You set up a Nevada FLP, since Nevada has strong FLP charging-order language in their FLP and LLC statutes.

If you are sued, do you think a California attorney representing a California creditor would want to incur the time, expense and risk to hire a Nevada attorney to ask a Nevada judge to issue a charging order? Not too likely. And, as a CALM plan member in California, you will have access to Nevada attorneys. These C.A.L.M. plan attorneys specialize in drafting FLPs and are able to represent you in Court, should you need a Nevada attorney to help you protect your Nevada FLP assets.

You Need C.A.L.M. Level 2 Protection!

Over 99% of our clients have inadequate asset protection.

You may have C.A.L.M. Level 2 protection already.

Not sure?

We invite you to call us to find out more.

The C.A.L.M. Plan provides the best protection in multiple states and jurisdictions.

With C.A.L.M. Level 1 you get a comprehensive asset protection Review. Perhaps the most important part of this Review is the Action Plan that you can start implementing, to protect you and your assets.

The Action Plan will generally cover C.A.L.M. Level 2 Protection as a first step. This provides core domestic asset protection through the forme doneation of a Family Limited Partnership (FLP). Normally, it would cost $3,000-$5,000 when done by an asset protection attorney. Through your C.A.L.M. membership you can get one set up for the reduced price of $2,500. Since Level 1 costs $495, your cost savings for Level 2 pay for your C.A.L.M. Level 1 membership.

But it’s better than just the cost savings. (And there are more potential cost savings. If you should need additional FLPs and LLCs, for instance, you will get those at a discounted rate as well.)

The design and implementation of this core level of protection will be performed by a collaborative team of professionals with special training in Wealth Preservation Strategies. A key member of this team will be your Certified Wealth Preservation Planner (CWPP™). You can contact your CWPP™ Advisor right now for more information and a free, no pressure, no obligation consultation about how we can get you started today.

The C.A.L.M — Comprehensive Asset & Liability Management — consists of a membership with a follow-on set of protection levels. C.A.L.M. Level 1 is the basic membership level, the start, for building a foundation on which to protect and grow your assets. (If you would like an overview of the C.A.L.M. Program, click here.)

C.A.L.M. Level 1 builds the foundation through the following features:

The overall goal of the C.A.L.M. program - which has 4 levels - is to provide you with:

• a proper estate plan
• methods to minimize estate, income and capital gains taxes,.
• means to avoid probate and
• guaranteed lifetime income for retirement.

The C.A.L.M. Level 1 then is the “gateway” into the full program. It will give you the multi-page evaulation report, written by your CWPP Advisor and reviewed by attorney Roccy DeFrancesco, JD, CWPP™, CAPP™. This plan will provide a blueprint for engaging subsequent levels of C.A.L.M. Protection by describing:

• the problems with the current asset protection plan and identification of possible planning deficiencies.
• the problems with the current estate plan.
• the suggested options for what could be done to mitigate income taxes, estate taxes and capital gains taxes.

The C.A.L.M. Plan Level 1 dwarfs any other plan out there, in that it offers the following…

• Gives you access to professionals who provide you with the tools and instruments to give you higher levels of protection (as outlined in the subsequent C.A.L.M. levels) to meet your wealth protection and growth goals at a greatly reduced rate These rates, by themselves, more than make up for the relatively small cost of C.A.L.M. 1.
• Provides access to professionals who are coordinated and build upon the unique Wealth Preservation Institute strategies.
• Enables you have a level of comfort and safety in case of a malpractice or liability suit through specially-designed automation technology. Through this technology, the appropriate professionals are informed, updated and coordinated, giving you extra protection — since less time is spent on duplicated effort — and for less money.
• Furnishes you and your business with the forms and documents that will help to keep you and your business out of court. These forms provide arbitration and mediation agreements.

It offers all of the above along with the evaluation of your Asset and Wealth Protection Plan. Such a review would cost you at least $1500 if purchased from an attorney/CPA/account/financial planner - and would not cover as many topics, nor in as much depth.

If you have ever considered getting a comprehensive review of your financial standing, along with specific tactics for protecting and growing your wealth, you will not find a better value at the unbelievably low price of $495.

You can get started by calling our office now at (269) 216-9978 — or you can call even if you just have a few questions.

We offer a free consultation so you can get to know us, and we can get to know you, before getting into a deeper relationship.

Caveat: Just to be clear — access to professionals to build your asset protection structures and grow your wealth will require additional professional consultations. But rather than running to this professional and that, you will have coordinated wealth care. It is because of the coordination that we can provide you with such an affordable option — and discounted fees when working with these professionals.

Want to know a bit more about each step before calling?

Here’s a bit more detail:

1. Asset Protection and Estate Plan Review.

As mentioned above, there is an initial and an annual Asset Protection and Estate Plan Review.

Approximately 99% of all clients who purchase C.A.L.M. 1 are poorly protected and many are leaving hundreds and thousands of dollars on the table — as well as being at significant risk of loss.

This Review is performed by your CWPP™ advisor and reviewed by leading wealth protection attorney Roccy DeFrancesco, JD, CWPP™, CAPP™. MMB™.

The initial Review will comprehensively outline the strengths and weaknesses of your current plan. In addition the Review gives you an Action Plan to plug up any gaps. This Action Plan shows you what to do next to protect and grow your wealth.

During the year, you will undoubtedly be fortifying your plan. Between the changes you make following the Review Action Plan, any changes in your life (such as buying property, getting married, having a child), and changes in the laws — an annual review is advised. And that’s just what you get with C.A.L.M.1.

2. Regular, timely education and updates.

Wealth protection and growth, to be most effective, require some knowledge and education on your part.

Now, we don’t expect you to become an attorney or a financial planner — so we aren’t going to steep you in the arcana that we have to know in order to deal with the vast array of situations we come across.

Think of it as “financial first aid” education. This education helps you to know when things are humming along - or when you need to contact a professional.

In short, it helps you make a better assessment of when you need to use your resources to get additional help.

Along with some basics, which will further familiarize you with our strategies, we keep you updated on any changes in the law, any legal precedents, that may affect you and your wealth.

This education comes to you in a variety of forms:

• your monthly e-newsletter
• quarterly webinars
• a private, C.A.L.M. website
• in-person seminars (that may qualify for professional continuing education credit).

3. Quickly resolve liability and/or malpractice claims.

Our specially-designed technology automates the process and reduces the “cost of conflict.”

Because of the proprietary nature, and because this is only invoked on an “as-needed” basis, more details are covered through our education and updates.

If you have a professional license, this may save your livelihood.

4. Discount fees on uniquely qualified professionals.

Since we know that 99% of the clients who get their C.A.L.M. 1 Asset Review are under-protected, sometimes frighteningly so, you will most likely want to follow the Review Action Plan. If you do, you may need to hire a C.A.L.M. team member to do the needed legal work to put your plan in order.

You will, as a C.A.L.M. plan member, be able to hire C.A.L.M. team members for less than a non-C.A.L.M. plan member would be able to hire them for. Additionally, because of the automation of the process, the overall process will be less costly and more efficient. Frequently, various business entities will need to be set up (such as a Limited Liability Corporation, or “LLC”). You get a flat-fee discount when setting these up — and should you need to set up multiple LLCs, you get additional discounts on the additonal LLCs.

For example, if your brokerage account is set up in your name - it’s not asset protected from creditors. To protect it using our domestic asset protection strategies, you would most likely need an LLC, maybe a Family Limited Partnership (”FLP”) — formed in the proper legal jurisdiction. If you go to an asset protection attorney expect to drop $3,000-$5,000. As a C.A.L.M. member, you can have your first LLC set up for $2,500. That pays for your first year in C.A.L.M.!

5. Forms

you need to hand to your clients or patients (for physicians) when they come in the door.

Savvy professionals have learned that effective use of mediation and arbitration can drastically reduce the “cost of conflict”.

As a C.A.L.M. member, you receive the proper forms to require clients or patients (for physicians) to mediate and arbitrate any future liability suit that might arise from rendered professional services.

But having the forms is not enough! You must know how to use them, and use them properly. As a C.A.L.M. member, you get the instructions for the proper “care and feeding” of these so-important forms.

Mediation saves on costs. Signficantly. Statistics show mediation-resolved malpractice cases resolve, on average for less than 30% of the indemnity payment and less than 50% of the expense payment than cases that get filed and worked up for a jury trial.

Arbitration gives you the assurance that if you are involved in a case - the worst possibility is that the case will be resolved within your policy limits. What a relief! But it may not even need to go that far. Arbitration agreements contract the disputing parties to resolve the conflict via private arbitration - instead of the court system. If mediation doesn’t produce a final resolution, it can end up with a “high-low” agreement. The “high-low” agreement not only reduces costs, but makes sure the case is covered completely by your policy, and you won’t have to pay more.

Worried that your clients or patients won’t sign a mediation or arbitration form? By offering your client or patient a Consumer Legal Plan (CLP), they can discuss the benefits of mediation and arbitration with a network of knowledgeable attorneys. Seeing the benefits, clients and patients more readily sign mediation and arbitration agreements.

You can discover even more advantages of becoming a C.A.L.M. 1 member by calling

1 (805) 376-8070

for a no-pressure, no-obligation, FREE consultation. After you see how a C.A.L.M. membership can benefit you, we think you’ll be delighted. Call us today!

A Long Life Can Be Dangerous To Your Wealth!

Question: What’s the downside of living a longer life?

Answer: The increased probability that you or your spouse will require care in a long term care facility.

It’s true. Nearly 50% of the people will require long-term care.

At the toweringly-high costs of long term care — the only way to protect your wealth from the devastating effects of long term care costs is LTCI - long term care insurance.

How high? Well, in some areas of the country, the cost of nursing home care or quality around-the-clock in-home care may be $250 per day ($91,250 per year). In addition, the U.S. Health Care Administration reports that costs are increasing 5.8% per year and are expected to more than triple in the next 20 years.

Another reason for buying LTCI is so you can ensure you have quality care — not just the care funded through Medicaid.

The good news is that the federal government allows businesses to deduct the premiums for LTCI. The premiums are treated like health insurance premiums. That means if you are an owner of a C-Corporation, S-Corporation, P.C., or LLC you can now take a tax deduction for 100% of the LTCI.  (The deduction is limited for owner/employees in non-C-Corps).

In addition, it’s possible that you can use certain types of life insurance riders where you can actually get your LTCI for free.

Tax-free or completely free, we have the tax savvy to find how to save you substantial amounts of money on your taxes, grow your wealth, and still have your wealth protected against what could otherwise be catastrophic occurrences.

What a relief, and a aid to healing, should you or a loved one need long term health care. Not only can you get LTCI tax deductibly, but your worries about the devastating effects on your estate can be erased.

Call our office today at 1 (805) 376-8070, or sign up now for a free consultation, to find out how you can easily afford this extraordinary protection for your wealth.

Health Savings Accounts are just one of several powerful health care deductions you can choose from.  To find out about these and ways to save on your health care plan costs, check out this powerpoint on HSAs and HRAs.

Plus, did you know that you can set up your Health Savings Account so you can control what it is invested in? That’s another handy way to build wealth for retirement — and long term care insurance can be paid for by an HSA — with pre-tax dollars.

Read more on self-directed accounts, and then call us at 1 (805) 376-8070 or sign up for a free consultation, and we’ll get you on the right track.

It’s called an “Employee Stock Ownership Plan” (ESOP) — often well-known as a widely sought after benefit by employees working for successful public companies.

Yet, if you are a departing or retiring owner, major-shareholder, and/or founder of a closely held company, it can provide for the means of business continuity. If the ESOP holds 30% or more of the company’s stock, and certain other requirements are met, the owners can defer tax on the gain they have made from sale to an ESOP. In addition to the tax deferment, the purchase can also be more attractive to the purchasing corporation, because the corporation can purchase the stock using pre-tax corporate dollars.

Between use as an employee benefit and being used to buy the stock of a retiring company, as mentioned in the previous paragraph, these two uses probably account for over two-thirds of all ESOPs. Since you are most likely interested in this as a business owner, we’ll briefly discuss here the latter use — that of buying out a retiring owner.

The fact is, many closely held companies have no plans, or incomplete plans, for business continuity after the departure or retirement of the founder or major shareholder. If this is you, or you hope for it to be you one day, you may want to pay close attention!

As a retiring owner, you may think that business continuity is not a possibility, and that when you retire, the jobs of your loyal, hard-working employees will disappear. But several unique options exist that benefit not only you, but your employees as well. Under the right conditions, when you retire, you can sell your stock to an ESOP and incur no taxable gain. This is done to encourage you as an owner of a closely-held company to create new owners through the ESOP purchase.

ESOPs can purchase the ownership shares through one of two ways: either through a leveraged ESOP, or through a non-leveraged ESOP.

While the details of how the ownership shares are actually purchased are beyond this short article, it’s useful to look at how each of these types of ESOPs is created.

First, let’s look at a non-leveraged ESOP. In a non-leveraged ESOP, an employer sponsor funds it by contributing cash or stock. These corporate contributions become “newly issued shares.” By doing so, the corporation gains a tax-deduction for the appraised fair market value at the date of contribution. Since the company gains tax deductions, it helps to improve the cash flow that can then promote the growth of the company.

A leveraged ESOP occurs when the company borrows money to create the ESOP. It seems crazy that a company would do this simply to enable their employees to acquire stock. But two tax incentives make borrowing through an ESOP extremely attractive to companies.

Since the ESOP contributions are tax deductible, a corporation which repays an ESOP loan, in effect, gets to deduct principal in addition to deducting the interest from taxes. Needless to say, this can cut the company’s cost of financing significantly, by as much as a 34% reduction in the number of pre-tax dollars needed to repay the principal.

Another option, if your company would not want to take out a loan to finance the ESOP, would be to ask you, as the retiring owner, to finance the sale. As the owner of the company, instead of being paid with borrowed money (see leveraged ESOPs), you would take a note payable from the ESOP as payment for the purchased stock.

Are you an owner of a company and haven’t considered your “exit” strategy? Remember, under the right conditions, you could end up selling your stock to an ESOP and have no taxable gain. Talk with us about how structuring your company and ESOPs can create considerable tax advantages for both you and your company.

Why not call us today at 1 (805) 376-8070? Or sign up for a free consultation where you can write in your questions, and we’ll get back to you with answers right away.

Executive Deferred Compensation: The Challenge

Providing for deferred compensation (or retirement) income for key executives has always been a challenge for companies. The amount desired by these executives — and the amount that makes sense — goes well beyond what can be provided in typical qualified deferred compensation vehicles such as 401(k) plans and individual retirement accounts (IRAs).

To meet this need, non-qualified deferred compensation (“NQDC”) arrangements have become a staple at most public companies, as well as many privately held businesses. Over the last 20 years, NQDC has become a significant portion of the participants’ expected future retirement cash flow.

That was, until October 22, 2004.

On that date, the American Jobs Creation Act of 1994 (the “Act”) was signed into law. This has resulted in dramatic and fundamental changes in the NQDC arrangements offered by all companies. The Act increases the complexity and cost of providing a NQDC plan for employers and introduces a new set of significant limitations for both the employer and employee.

Mounting scrutiny and complexity have reached a tipping point for many employers, pushing them to explore alternative arrangements designed to provide competitive retirement benefits to key executives.

Enter the Leveraged Bonus Plan — To The Rescue

Two alternate arrangements are the §162 Double Bonus Plan and the §162 Leveraged Bonus Plan (”LBP”). Both provide current deductions, simplicity and minimal administrative expense. Moreover, these alternatives provide the retirement benefits key executives demand without the challenges presented by the Act and related regulations.

In the case of the §162 Leveraged Bonus Plan, by using the funds of a third-party lender, a company can provide competitive benefits at a substantial savings over other alternatives.

LBP is essentially an individually-owned executive benefit program that is funded with universal life insurance. A portion of the premium is funded through a loan made by a third party finance company. Employers like LBP over traditional NQDC because LBP is not subject to deferred compensation-related regulation or the Act. Consequently, LBP allows an employer to maintain a flexible and selective fringe benefit for key executives without the administrative burden and long-term liability.

While simple bonus plans are not new, the long-awaited introduction of non-recourse financing to the purchase of these plans recently arrived. Leveraged bonus programs represent an exciting new option to significantly reduce the employer’s cost while providing a robust retirement benefit to the executive.

If this seems like an avenue you’d like to explore, contact our office at 1 (805) 376-8070 today! Or sign up for a free consultation, give us your questions, and we’ll call you.

The theory behind a 79 plan is simple-buy inexpensive term insurance on the employee (which is deductible) and a cash-building policy for the key employee(s) or owner(s) — in other words, you — which can be used for supplemental retirement income.

The plan, as devised before the recent proposed 412(i) regulations, was more tax favorable, but even now in its current form the plan it may be just what you need, if it fits your situation.

Who is a candidate for a Section 79 Plan?

You may be if

• you are the owner or a key employee of a company with fewer than five owners and 40 employees. (If your company has more than 40 employees (unless every owner wants to take part in the plan), the term costs of insurance for the staff make this less cost-effective.)
• You are looking for a way to purchase life insurance in a partially deductible manner for an estate plan.
• You are looking for a plan that does not have upper-end funding limits. There is no maximum amount of money the key employee/owner can deduct from the company for the purchase of life insurance.

Caution

You may hear of Section 79 Plans in the marketplace that are much more tax favorable than we might recommend. But we have reviewed those plans and find them too aggressive from a tax standpoint and are not plans we can recommend.

If you are being pitched a Section 79 Plan, contact us to review the plan and make sure is in compliance with all applicable laws.

You can contact us at 1 (805) 376-8070, or sign up for a free consultation and give us your questions, and we’ll get back to you with answers.