President Releases Major Tax Change Proposals

Information provided by:  Thompson Reuters

As outlined in a Fact Sheet released by the White House and a Jan. 17 conference call with reporters by senior administration officials, President Obama has proposed a number of tax increases that would generate revenue of approximately $320 billion over the next decade. He has suggested new and revised tax credits as well as a program to promote retirement savings. Among the President’s tax-related proposals are the following:
. . . an increase in capital gains and dividend tax rates to 28%; for couples, the 28% rate would apply where income is more than $500,000 annually;
. . . a fee of seven basis points on the amount of liabilities of financial institutions with assets greater than $50 billion. The fee on large, highly-leveraged financial institutions would
discourage excessive borrowing;
. . . a new tax credit worth up to $500 for households with two wage earners with combined income of up to $210,000. Families could claim a maximum credit equal to 5% of the first
$10,000 of earnings for the lower-earning spouse in a married couple. The maximum credit would be available to families with incomes up to $120,000, with a partial credit available to
couples with income up to $210,000;
. . . increasing the child tax credit to as much as $3,000 for each child under the age of five.  Families could claim a 50% credit for up to $6,000 of expenses per child under five. The
maximum credit for young children, older children, and elderly or disabled dependents would be available to families with incomes up to $120,000. In addition, enhanced benefits under the credit which are scheduled to expire after 2017 would be made permanent;
. . . making the following changes to the earned income tax credit (EITC) for workers without qualifying children: doubling the amount of the credit, increasing the income level at which the credit phases out, and making it available to workers age 21 and older. In addition, enhanced benefits under the credit which are scheduled to expire after 2017 would be made permanent;
. . . the consolidation of six education-related tax incentives into just two, while improving the American Opportunity Tax Credit (AOTC) to provide students up to $2,500 each year over five years as they work toward a college degree. The refundable portion of the AOTC would be increased to $1,500. Part- time students would be eligible for a $1,250 AOTC (up to $750
refundable). In addition, enhanced benefits under the AOTC credit which are scheduled to expire after 2017 would be made permanent;
. . . requiring employers with more than 10 employees that don’t have a 401(k) retirement plan to automatically enroll full- and part-time employees in an individual retirement account (for which small employers would receive tax credits to cover the costs involved); and

. . . the closing of the so-called “trust fund loophole” by requiring payment of capital gains tax on the increase in value of securities at the time they are inherited; however, for couples, no
tax would be due until the death of the second spouse. In addition, no tax would be due on inherited small, family-owned and operated businesses unless and until the business was
sold, and any closely-held business would have the option to pay tax on gains over 15 years.  Capital gains of up to $200,000 per couple ($100,000 per individual) could be bequeathed free of tax, with this exemption automatically portable between spouses. Couples would have an additional $500,000 exemption for personal residences ($250,000 per individual), with this exemption also automatically portable between spouses. Tangible personal property-other than expensive art and similar collectibles-(e.g. bequests or gifts of clothing, furniture, and small family heirlooms) would be tax-exempt.


How To Get Started

Part 4 of a 4 part series

Provided by Ryan F. Barradas and Tim Younggetting-started

In order for you to confidently move forward with big decisions in a manner you haven’t previously, you need an approach that invites three key dynamics into the room: your entrepreneurial spirit, the relational factors unique to closely-held or family business and the technical aspects of sound planning. You have to get to that point of instinctual clarity about how you’d like your story to play out from here forward.

However, your advisors also have a responsibility to know your story. In order to do this, there must be a process that allows them to take the time and have the respect to hear the full story of all the stakeholders in the planning process before recommending any action. You need to learn how potential planning will affect their lives; how they make decisions and the motivations they bring to their role. Sometimes people just need to be heard. Yet sometimes they have a legitimate issue that will impact the plan. I believe it’s imperative to get all the necessary players into the arena and on the team at the onset. Anything else is inefficient.

So how do you do this? You do it through deep discovery with all key stakeholders – meaning anyone who’s going to be affected by decisions you will make either financially, emotionally or from a business perspective. This can include: spouses, business partners, key employees, active and inactive children, key advisors, bankers, key business relationships and more. It’s the people part where most if not all planning processes get derailed, technical solutions come later.

Once this deep discovery is complete, the findings should be organized and distilled down into a document that outlines ten to twenty of your macro goals. These are goals and objectives that absolutely cannot be violated, period. Regardless of the effectiveness of a strategy, if it violates one or more of the macro goals, it should never be presented for consideration. This will keep you on track and provide you with benchmarks for measuring success.

Next, you must embrace a process that allows advisors to truly collaborate. Some families feel that bringing advisors together for group meetings may increase fees. Ironically, if organized properly the opposite occurs. With communication occurring real-time amongst all parties, better ideas are formulated in less time, often reducing fees, taxes or other expenses. The team arrives at more relevant solutions faster and there’s less chance of one person’s style driving the result.

Last but not least, do not try to do this yourself! It’s hard enough to run your business, but doing it while managing a complex process with so much at stake is nearly impossible. As soon as the process diverts your attention from what makes you money, you’ll table the subject until the “right time” which never comes. Procrastination can cost money and more important, it limits your choices. Hire a professional with a multidisciplinary background. Make sure they have the capacity to understand all the dynamics at play (entrepreneurial, relational and technical), and will hold all the accountable parties accountable.

Ryan Barradas ( and Tim Young ( are co-founders and partners of WealthPoint, LLC in Phoenix, AZ.  WealthPoint is a nationally recognized firm focusing in the areas of succession, exit and wealth transfer planning for entrepreneurial family groups.

Fiscal Cliff Compromise

Happy New Year.  We begin this year as we ended the last – approaching another cliff.  To start the year off right, Andy Friedman appeared yesterday on CNBC to discuss the ramifications of the fiscal cliff compromise.  You may access the segment by clicking here.

How to Choose a Trustee: Why the obvious choice may not be a wise choice

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.

A New Year Offers the Gift of Pause

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.

Incorporation is Key

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.

Steve Jobs & Living Trusts

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:

Why Families Should Ask Their Advisors to Collaborate

As we discussed in the previous article, estate and financial affairs for established families are highly complex. Each of the disciplines – tax, legal, investment, insurance – are inextricably linked. And, planning can actually change after it’s executed, even if the family doesn’t touch it. This is due to the dynamic nature of the tax code, legal stuctures and the financial markets. Ongoing compliance and accuracy must include true collaboration among your various advisors.

The difference between coordination and collaboration
Coordination is often referred to as “quarter-backing”. It may refer to one party posing a specific question to a colleague or informing the colleague of a decision. In contrast, collaboration requires all advisors to participate simultaneously in conversation. The group designs solutions together using the family’s documented vision as a filter for whether an idea is relevant.

The magic of true collaboration
Think of a time when you were involved in a group discussion and everyone in the room had mutual respect, and a commitment to work as a team toward a documented result. The spirit of collaboration causes you to listen more attentively. It quiets your own mind while you’re opening up to others’ contributions. That space in your thinking inherently increases your creativity. Questions and thoughts raised by others challenge or deepen individual and collective ideas. The result is a body of work that no single person, discipline or vantage point could arrive at independently.

Decreased costs and increased efficiency
Some families feel that bringing advisors together for group meetings may increase fees. Ironically, the opposite occurs. With communication occurring real-time amongst all parties, better ideas are formulated in less time, often reducing taxes or other expenses. The team arrives at more relevant solutions faster and there’s less chance of one person’s style driving the result. Also, collaboration reduces the likelihood that an idea from one vantage point will cause costly problems – in a neighboring discipline – that have to later be unraveled.

Getting started: an action checklist

  • Call each of your existing advisors. Explain why you’re interested in creating a collaborative effort. Define what collaboration is, and what it’s not.
  • Bring all your advisors together socially. Allow them to become acquainted in a casual unstructured environment.
  • Schedule your first team meeting. Identify a process or methodology for refining or creating your overall vision for your wealth. The collaborative team will need this documented vision to drive their future idea development. 
  •  Together, create communication ground rules for future meetings. 
  • Create a schedule for future meetings and ask everyone at the table to commit completely to the structure. Many of these meetings may be held with the advisors only. Then you’ll schedule a group meeting at which advisors share ideas with you – only the short list of ideas they all believe are relevant.

Once you’ve begun, make sure the process and ground rules are followed. Keep in touch about what’s working or not working and commit to achieving true collaboration over time.

The Benefits of Bringing in an Advisory Board

It can be a lonely world out there for an entrepreneur. As you make your decisions, you have your family’s livelihood and the livelihood of your employees resting on your shoulders. And even though self-made business owners are some of the best instinctual decision makers in the world – sometimes a second opinion, an outside perspective is necessary to achieve instinctual clarity.  It’s amazing how much leverage there is in continuity, ideas, options, and possibilities when you have a “brain trust” at work. By having an advisory board you have that “master mind group” to help you make sound decisions.

Here is an article you might be interested in for continued reading on the topic of advisory boards:

R.I.P. Steve Jobs – Thank you for all your brilliant inventions!

“Remembering that I’ll be dead soon is the most important tool I’ve ever encountered to help me make the big choices in life.  Because almost everything — all external expectations, all pride, all fear of embarrassment or failure – these things just fall away in the face of death, leaving only what is truly important.

Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose.  You are already naked.  There is no reason not to follow your heart.  Stay hungry.  Stay foolish.”

Steve Jobs

Words to remember, words to live by…more importantly, a reminder to live life.