If the Supreme Court rules that the health care reform law is unconstitutional, will the new 3.8% tax on investment income nonetheless take effect next year?
Last month, the Supreme Court heard oral arguments on the constitutionality of the health care reform law’s “individual mandate”, which requires Americans to have health insurance or pay a penalty. The Court is expected to render its verdict in June.
The health care reform law is financed in part by a new tax on investment income scheduled to take effect in 2013. Beginning next year, families whose overall income is above $250,000 (individuals with income over $200,000) will pay an additional tax of 3.8% on taxable investment income such as interest, dividends, capital gains, rents, and royalties.
If the Court strikes down the entire health care reform law, then the 3.8% surtax, which is part of that law, presumably would not take effect. If, however, the Court invalidates only a portion of the law — such as just the individual mandate — then the 3.8% tax will go into effect next year. In that case Congress at some point presumably will have to revisit the law to determine whether the health care reform regime still works. But Congress is unlikely to do so in an election year — and, given the contentious nature of health care reform, may not agree on changes for quite a while afterward.
Of course, it is impossible to predict the outcome with certainty without reviewing the final opinion from the Court.
One of the most important estate planning decisions is that of selecting a trustee or executor. The choice can be a game changer for how your heirs live with and execute your decisions. However, too often the selection is made without the benefit of talking through the potential pitfalls or consequences.
Common pitfalls to avoid
Many families select the oldest adult child as their power of attorney during life and trustee and executor at death. While a strong family bond may exist with first-born children, it doesn’t automatically make them the best fit. It’s important to consider their adult history with regards to decision making. How do they handle their own medical and financial life? How do they behave in business or with family obligations? Do they have a track record of making consistent decisions and being accountable?
What to look for in a trustee
The person should have the affinity, desire and experience to step into the role. They’ll need the capacity or training to understand complex legal, financial and investment situations. Alternatively, they need to be able to discern who to hire for help and when. This includes having a track record of making sound financial decisions and generally being well organized with their own affairs. Ideally, your trustee will have the capacity to think like you and make judgment calls in the manner you would for yourself. They should be aligned with your value system and able to objectively make decisions from your vantage point; as if standing in your shoes.
Sustaining relationships requires eliminating surprises
A family trustee can easily become doused in negativity from other family members. It’s crucial to consider whether the selected person can handle conflict, and truly wants the role. Ideally, it’s best to eliminate the element of surprise for everyone involved by communicating your plans in advance. On the medical side, this involves documenting and communicating your Advanced Directives – specific decision making guidelines to follow should you be unable to make decisions for yourself.
With regards to the role of trustee and executor, all family members should understand not only your choices, but the reason you made the choices. They should understand the context for your estate decisions – hearing it directly from you so they can air their questions and listen to your thinking. The family member(s) chosen for leadership roles should understand why they were selected. Likewise, siblings or other heirs should understand this too. That way, you can set the stage for the selected individual(s) to succeed in their leadership role(s).
Beyond the legalities
Finally, it is important to transition all of your decisions in context of your vision for the use of your wealth. Develop a Family Mission Statement and share it with all heirs. Ensure they understand your philosophy and expectations for the family wealth going forward. Ensure they receive the training they need to be effective stewards of both your vision and your financial resources.
One of the greatest aspects of starting a new year is the opportunity for a clean slate perspective on longstanding opportunities or dynamics in life, family or business. We can choose how we see things and influence the actions that follow. We can choose to leave dormant projects or issues dormant, or we can raise them to the surface of our thinking, behavior and relationships. We can let pressing matters remain at the forefront of daily life or we can choose to tie up loose ends and take a step forward into new territory in a relationship or a business venture.
The New Year seems to offer both permission and bandwidth for contemplation and introspection. For planning and parsing things out. A new year is a clean sheet of paper from which to prioritize our energy, resources and focus.
Out of this clean slate thinking can arise a renewed sense of leadership and gratitude. If our own thinking is clear and more precise, it paves the way to lead others to clarity. It models the very behavior of taking time to assess or reset our priorities. If we take pause to consider, record and communicate what we’re grateful for, it can inspire others to follow suit. And the recipients receive the greatest gift of all: our undivided attention.
In a society where busyness and doing are celebrated over the simplicity of sitting still and doing nothing, the New Year is a chance to assess the direction and focus of our thinking and our activities. It’s a chance to be highly intentional as we step into a full calendar year of promise for family, career and business. A chance to choose outcomes and notice opportunities. To brush away cob webs that need clearing out and shine a light on people and projects that might warrant our focus.
Certainly every day that we wake up and step into the world is likewise an opportunity for this kind of reflection and assessment. Yet a brand new year offers momentum – a powerful point of pause.
Successful people are inherently great planners. They’re typically highly strategic. Looking ahead is embedded in their thinking. Intentionality is infused in their DNA. If you’re reading this article, that likely applies to you. Yet there’s always something left to evaluate. Something latent or pressing that needs a breath of fresh perspective or the opportunity for added focus.
If this resonates with you, consider setting aside some focus time to consider three relationships, issues or opportunities on which you’d like to focus. Perhaps it involves something you’d like to fix, pursue or communicate. Then make a game plan for following through. As you do so, celebrate the gift of pause that 2012 has bestowed upon all of us.
It does not matter where in the world a family business is located, according to Deniel Banks of DW Banks Company, Inc, one thing all family business leaders have in common is that they want easy-to-use tools to help with succession planning.
As a result of seeing this trend around the world, Banks developed a checklist as a meaningful way to stimulate business leaders thinking and starting important conversations with family members. He says the checklist has an international perspective integrated in.
“Ten Principles for Family-Owned Business”
Make dreams a reality – What are your own dreams? Your family’s dreams? You customer’s dreams? Answer these questions and align these dreams with business and family strategies.
State principles and goals clearly and allow your children to develop their own goals for personal happiness and success regardless of whether they end up in the family business or not.
Distribute leadership, empower others, and offer mentoring and coaching when necessary.
Follow criticism with encouragement. Be ready to apologize.
Lead the family by example. Apply some of what you do best at the office while at home.
Know yourself. Be clear on your leadership strengths, your beliefs, and your values.
Encourage your next generation family members to take action and do what’s right. Be persistent in communicating ideas and listening to theirs.
Respect and honor differences. Learn from other cultures and create an environment the embraces the diversity in people and ideas.
Collaborate by moving from “position power” and hierarchy to building “relationship power” locally and globally.
Foster a broad perspective and give something back.
Banks said he likes to ask his clients to circle three of the ten items that they want to focus on most in their own business to move towards 21st century leadership and a global perspective.
Corporate structure is an important conversation to have when creating your succession objectives. The type of corporation has a major impact on your transition. Are you going to sell to a public company? Are you going to go public? Who are your potential owners or future owners? Are you going to keep your company in the family? How many owners are there going to possibly be? The answer to all these questions would encourage one corporate form over the other.
In 80% of our consulting cases, some change of corporate structure occurs. Usually we see a corporation set up at inception with little thought to the long term objectives. As a result, a change often occurs as the business becomes significant. So what are the key differences? And which of those factors is most important to you and your company? Follow the link below for a very basic overview of C-Corps vs. S-Corps vs. LLCs.
For most owners of a closely held business, building the business is a labor of love. It provides a major reason for living, however because we don’t live forever, one day that business asset will have to transfer to a partner or family members or a third party.
That transition will require significant planning to realize the business owners goals for themselves and their family. And with any good plan, you’ll first need to know where you want to go. As the Cheshire Cat observed, “If you don’t know where you’re going, any road will take you there.”
The following article addresses some of the questions that business owners need to consider to determine, “Where are you driving?”
I think the reason most companies fail to create and execute strategic planning is because when everything is going well our attitudes tend to be that of “If it isn’t broke, why fix it?” or even “Don’t rock the boat.” But in today’s rapidly changing marketplace, entrepreneurs should have strategic plans solidified and ready for implementation so they don’t get caught by surprise if the business wanes.
Past success is not always indicative of future growth – and business owners need to be prepared to adapt when necessary. The following link touches on 10 pitfalls business owners should be aware of as they move forward in the planning process. We hope you enjoy the material:
Bruce Werner, currently managing director of Kona Advisors LLC, spent 12 years at the family busniess, Werner Holding Co., in a variety of senior positions before the family made the decision to sell. Werner gave tips and insights from his own personal experience into how he survived the business sale and life afterward in an interview with Lauren Wolven, J.D., a partner at Horwood Marcus & Berk Chtd in Chicago, featured in the Estate Panning Journal.
Werner had eight main tips to offer:
Be honest about priorities and values.
Develop a personal strategic plan.
Invest in friendships.
Understand that wealth works in step functions.
Realize how the family business experience situates oneself in the job market.
If early retirement is chosen, consider the impact on family members.
Get used to the everyday inconveniences.
Enjoy the ride.
Werner said the decision of his family to sell the business evolved over three years and was not as difficult as it can be for some families because, although the company was private, in many aspects it was run like a public company. After the sale, eight of the ten insiders, Werner included, continued to work for the company. He said before they even got into sales negotiations, the insiders had discussed what would change about their positions and perks after the sale and had already come to agreements, making this part of the transition much easier as well. He feels it is important for people to understand things will change if they stay with the company after the sale.
Werner’s first tip during a transition is to be honest about your own values and priorities. He explained that it is important to really consider for yourself and your family that the trade-offs that come with a sale are made in the pursuit of happiness, family harmony, money, or whatever your priorities may be. He said it is also crucial to have a long term plan personally after the business is sold. Werner advised others to ask questions like: Do you really want to run another business? Would you rather pursue a hobby or charity? If you are entering young retirement, will it be fulfilling? Make sure you have an idea of what to do now that you no longer have the business.
Werner said he feels cultivating outside friendships is important during a transition period like this because you need someone to help guide you and talk things through. Also, work relationships are lost in a job transition, and other relationships can fill a void.
Finally, Werner also addressed the issue of what it is like to deal with a new liquid wealth and going back to work. He said the initial step-up in lifestyle is easy, but for him there was never a question of whether he would go back to work. Even during his time of sabbatical, he had an office outside the house so his children would have an example of good work ethic. The family business experience proved to be an advantage and a disadvantage it certain situations. Werner said some employers stay away from former business owners for fear that they will be too independent or difficult to manage. In the end, Werner said he needed to figure out how his unique skills can apply in a different, changed market. He recommended the help a career counselor to aid with this process and decision.
Privacy? This is a very important question for families that have wealth, a family owned business, or even families that have unique family dynamics. This article is not especially technical, but really reinforces the importance of proper estate planning:
Last week I was introduced to a family owned business owner by his estate attorney. They were interested in learning more about succession and exit planning. The business owner described his reluctance to begin planning for succession because he still had 20 years to go before retirement. Though dedicated to his large family, he loved his work and was extremely proud of the organization he had built and the team of 100 employees he had assembled over the last 3 decades. Yes, the last 30 years. The gentleman is over 70 years old. Yet, ironically he doesn’t see the immediate need to address the issue of “What is the future of the company should he not be there to continue to lead the day to day operations?”
Resistance by business owners to begin their planning for the inevitable transition is common. The reasons vary from “I’ve got plenty of time.” to “I love my work, I’m never leaving.” The truth of the matter is that many times we are not in control of the date we exit our businesses. Life events might dictate our decision. We might get an offer we can’t refuse or information from any of a myriad of sources that will change our previous thinking. Even if the business owner plans on staying at the job forever, someday they will not be reporting to work. Isn’t that a good reason to plan on the possibility you might want to realize the value of your life’s work for you and your family? It is an important issue and the effect of your decisions will be felt by many families; yours, your employees, your clients, and your vendors. Many times this business represents a disproportionately amount of the business owners net worth and the source of their largest income stream. Are there any guarantees that its value will be realized? The following article from Forbes discusses this very issue:
