Family

Improving Financial Awareness and Literacy - Part 1

It starts with getting your estate planning house in order


Key Takeaways:

  • Estate planning is a very important component of everyone's financial plans.

  • Over 120 million Americans (that’s half your family and friends, business associates, and prospects) do not have up-to-date estate plans to protect themselves and their families.

  • You can't just talk about estate planning, because verbal agreements aren't legal.


Estate planning is an essential component of everyone's financial plans. Regardless of how large or modest your
wealth, estate planning is the only way to control what happens to your assets when you become disabled or pass away.

Estate planning is one of the most overlooked areas of personal financial management. An estimated 120 million Americans do not have up-to-date estate plans to protect themselves and their families in the event of sickness, accidents or untimely death. This costs the affluent and middle classes many wasted dollars and hours of emotional hardship each year that can be minimized with proper planning and action.

You can't just talk about estate planning, because verbal agreements aren't legal. You and/or your attorney need to put your wishes in writing and follow the proper formalities, or your documents may not be accepted.

If you are married (with a solid marriage), consider getting your adult kids and even your own parents involved in the process. It can bring your extended family closer and help avoid family friction and resentment down the road.

Here's how to save time and money on legal fees to get your estate planning house in order:

1. Gather personal and financial information

  • List full names and contact information for immediate family members.

  • List current financial advisors.

  • List assets and liabilities at current values.

  • Identify how title is held for each asset.

  • Gather beneficiary statements of your retirement plans.

  • Summarize current cash flow.

  • Gather employment benefits statements, life insurance policies, deeds to real property, partnership and business agreements, the past two years’ income tax returns, any divorce papers, premarital agreements, existing estate plan documents, and any other such documents.

  • Footnote any oddities, questions, concerns and thoughts.

2. Write out personal goals

  • Be sure to identify beneficiaries whom you want to inherit from you when you die. Specify how much, what percentage of assets or which specific assets go to each person or charity. Take note of the special needs of any beneficiary, such as a disability preventing work or an inability to manage money, and identify backup beneficiaries in case the first choices do not survive you.

  • If you don't have strong feelings about individuals, consider having them select a favorite charity or “cause” to be primary or secondary beneficiary.

  • Also consider the timing for distributions to designated recipients. Some beneficiaries can handle a large, lump-sum distribution. Others, such as children, benefit from distributions that are spread out over time.

  • Identify guardians or the person to raise minor children should both you and your spouse die or become incapacitated. Also, select guardians of the property to handle children's inherited assets. Identify backups too.

  • Identify executor(s) and trustee(s) to carry out your wishes after your death. You’ll need an executor to administer your will, and if you have trusts, you need to name a trustee(s) to manage them.

  • For each position, come up with several choices, because you don't know who will be willing and able to serve when the time comes. Consider selecting two or, for larger estates, three trustees as a check-and-balance system.

  • Identify other decision-makers to carry out health and money choices if you become incapacitated.

  • For special needs and concerns, list any sensitive family circumstances or concerns you have that may affect planning, such as prior marriages, ill parents, troubled kids, etc.

  • Note any questions, concerns and ideas you might have. If you are not sure about your plans, talk them over with a professional financial advisor who specializes in estate planning. This could be an AEP®, CPA, CFP/PFS, CFP®, ChFC®, CLU® or a trust officer.

3. Seek out the right attorney


An attorney is the only one who can draft the legal documents necessary to put an estate plan into effect. These are complex, highly important documents. Don’t try to be a do-it-yourselfer here or allow someone who is NOT a qualified estate planning attorney draft the appropriate documents for you. Identify several attorneys who specialize in estate planning by getting referrals from your AEP, CPA, CFP/PFS, CFP, ChFC, CLU, trust officer, banker, financial advisor and/or friends. Call the attorneys and ask how many wills and trusts they prepared this year and in the past 10 years for people with a net worth similar to yours. Ask whether they also handle estate administration after someone dies to see whether they're familiar with issues following a death.

Ask how they charge. Estate planning attorneys are specialists and can charge hourly rates of $100 to $500 or more, while others charge a flat fee for document preparation. Ask whether they will provide an introductory meeting with you and your advisor at no charge.


Conclusion

Above all else, make sure you and your other advisors are comfortable with the attorney, as he or she will be asking thought-provoking questions and discussing your personal affairs and wishes. In Part 2 of this article, we’ll discuss how to make the most out of meetings with estate planners, signing documents, and taking care of title and beneficiary designations.

Be an active participant in one of the most amazing, broad-based, multifaceted campaigns for improving financial awareness and financial literacy. This is an engaging and real winning approach to solving a major social challenge while taking your practice to the next level. The Financial Awareness Foundation has more helpful resources.

 
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Handling Those Difficult Conversations about Business Succession

Summer is one of the most popular times of the year for multi-generational families to get together. If you’re a member of a business family, it’s often when relatives discuss who is going to take over the family business someday. Whether at the lake cottage, the beach house or on a group trip abroad, family members are away from the daily distractions of work and home. They’re in a much better frame of mind to do some collective soul-searching.

Just don’t drop this heavy topic on an unsuspecting family member when they’re lining up a putt, hooking a fish or chasing young toddlers around who may be hungry, cranky or in need of a diaper change. It needs to be a little more deliberate than that.

According to AES Nation, there are four key steps to having a successful family succession planning meeting:

Step 1: Plan the meeting.
If you’re an owner or founder, it’s a good idea to get your thoughts together ahead of the conversation. It’s okay to jot down some notes or talking points, but you don’t need to distribute them to others or type up a formal agenda. Just broach the subject of succession planning as part of a casual conversation with your heirs. To take the edge off, many clans include fun activities around their “family meetings” such as golfing, family softball games or wine-tasting events. Just don’t make the sporting activities too competitive-- emotions may already be running high during these gatherings.

I come from a business family. I still have fond memories of sitting down together to eat blue crabs in my home state of Maryland. These bonding moments are nice on their own, and they also help promote a better meeting.

Step 2: Conduct the meeting.
I recommend holding the family meeting at a resort or a tucked-away family property so you can mitigate day-to-day distractions. It’s also a good idea to bring in an objective outside professional—say the family’s CPA—to serve as both a referee and meeting facilitator to keep the discussion on point and moving along. You can also bring in the family attorney, wealth manager, multi-family office executive, or family business consultant among others. Just make sure that person is impartial.

Step 3: Follow up actions
After the meeting, it’s very important to capture each participant’s next steps and to make sure action items don’t fall through the cracks when they get back to their day-to-day routine. Before the meeting concludes, make sure everyone goes home with a written “to do” list. That way they’re held accountable--the youngest generation can’t expect the elders to do everything for them.

Step 4: Assess the outcomes
Let’s say the topic of umbrella insurance came up at the family meeting, and everyone agreed to disclose how much coverage they had—even if they didn’t have it. To make sure the collective family assets are sufficiently protected, every head of household in the extended family should have it. It may require several follow up calls and emails to each family member to get this done. I’ve found this kind of assignment is a good litmus test for the young adults in the family to see if they’re responsible enough to take over the family business. If they can’t handle a simple task like getting their insurance coverage together, how can you expect them to be responsible enough to run a successful family business? 

My own family business story

My late father founded a successful concrete business. I worked for him every summer, and by the time I was finishing up college, I knew the concrete business wasn’t for me. I got along pretty well with my dad, and it had nothing to do with the physically demanding work or the intense Maryland heat. I just didn’t have the passion for it, and I think my dad recognized that, too. Also, before my dad started his own company, he worked for another concrete company where everyone resented the owner’s son who was brought in to run things. The son wasn’t a good manager, and the other employees didn’t respect him. Dad didn’t want to put me in the same position, and I’m thankful for that.

Research from Northwestern University finds that only one-third (30%) of family businesses make it to the second generation,  and only one in eight (13%) make it to the third generation.

Those stats seem depressing at first, but they shouldn’t surprise you. Most founders start their businesses because they’re deeply interested in their chosen industry, plus they’re very good at it, and they see a niche in the marketplace that isn’t being filled. That’s what got them excited early on—they had a vision and saw an opportunity. However, founders can’t expect their children or grandchildren to have the same skills and passion for that industry. Moreover, even if they do, the window of opportunity might no longer be there 25 to 50 years later.

North Baltimore was booming when my dad launched his business. There was a huge need for concrete. However, now it’s not growing much so it wouldn’t have been the same opportunity for me, and I would have resented being pressured into running the company in the current environment.

After college, dad always told me to work for somebody else for a couple of years and then start my own company. That’s the model he followed, and it’s exactly what I did--just not in his industry. Ultimately, I think he respected that decision. It was the best thing for his business and our family, and he continued to run business ideas past me until he passed away last February.

Four ways to exit your business

I’ve found there are four good ways to transition out of your business when the time comes. Just make sure you are 100-percent ready to exit. More on that in a minute.

1. Family transition

Before handing over the reins to your business, it’s very important to know whether any of your children have the ability--and the desire--to take it over. It’s going to take a serious conversation with your children as they get older since the thought may have never crossed their minds. Even if do seem passionate and interested in taking over, you’ll need to be brutally honest about whether or not they have the managerial skillset to be a good leader, decisionmaker and owner.

Even if all the above boxes are checked, you also need to consider the long-term viability of your business. You don’t want to transition a dying business to your kids or put them in charge of a firm that’s mired in a slow-growth or no-growth industry—like the concrete business in North Baltimore. Performing a SWOT analysis of your Strengths, Weaknesses, Opportunities, and Threats can help you get a better handle on the long-term prospects of your business.

2. Employee Transition

If your kids don’t have the chops (or desire) to own and operate your business, you could be better off transferring it to key employees. A management buyout or other transition to key employees generally involves a sale to those employees, often over time. However, an employee transition only works when you have capable and highly motivated employees interested in owning the business. Just because they’ve been there 20-plus years, doesn’t mean they’re qualified. However, if you do have the right type of successor already on your payroll, this type of transition will provide you with cash over time.

3. Third Party Sale
Selling to an outside third party—perhaps disappointing to the owner and employees--might give you the highest multiple for your business. That’s especially true if your kids or key employees are not interested in (or capable of) taking over the business. You could sell to a competitor, or to a complementary business that might gain synergies from owning your business. That being said, there is going to have to be a transition period in which the clients meet the new owners, and the new owner works with the seller. I have found that third-party sales are by far the most common in our geographic area.

4. Wind up
Winding up the business may be the option of last resort if the business depends too heavily on you for sales or operations. Alternatively, maybe the kids and employees are not practical options for a transition. Maybe you're in a dying industry, or the business is otherwise too hard to sell.

With any option, you'll want to structure the arrangement to minimize tax by using your lifetime capital gains exemption if possible-- $866,912 for 2019. It's important to note that you don't have to claim the exemption all at once - you can carry it forward

It’s never too early to start planning

Regardless of which exit strategy you choose; you need to start planning at least five years in advance.  As mentioned in my previous article, you need to get your financial and operations in order. It’s not a simple process, and it will take time. Please…don’t be a do-it-yourselfer here.

TIP: If you’re part of a family business, don’t ever use the family dinner table as a conference room. One day before my dad passed away; my teenage sons told me they didn’t want to visit their grandparents anymore. When I asked why they told me it was it was boring because all they ever did was sit around the table listening to my dad and I talk about business. Does this sound like your family?

Avoiding common succession mistakes

Here are some other errors you want to avoid when it comes to transitioning the family business:

  1. The owner isn’t ready to give up control.

  2. The owner has no ideas on how they’ll spend their time after leaving the business.

  3. The owner doesn’t agree with the children’s vision for the company.

  4. The owner doesn’t set reasonable expectations and isn’t honest about his or her concerns and fears.

  5. The owner pressures children to take over the business when the kids aren’t passionate about it.

  6. The owner rushes into the exit decision. As mentioned earlier, it takes at least five years of careful planning.

Conclusion

All families that own a business struggle with succession issues. There is no easy solution. You need to start early, feel out the children, see if they’re interested and assess the situation to see if they’re capable of taking over the reins. If they’re not, please review the other transition options outlined in this article. If you or someone close to you is wrestling with family business succession planning, please don’t hesitate to contact me.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Why Couples Should Have a Financial Agenda Before Cohabitating

Make sure you have considered the financial, emotional and legal implications of "officially" moving in together before taking the plunge.


Key Takeaways:

  • The latest U.S. census data show there are now more nontraditional households in America than at any other time in our nation’s history.

  • Financial planning issues have never been more complicated for soon-to-be-joined couples—especially when one or both members of the couple are affluent.

  • Depending on how you and your spouse feel about your financial position, age and health, chances are estate plans, financial plans and other legal documents need updating.

Couples that are planning to move in together—whether young adults or seniors--should have a serious discussion with each other, as well as with their adult children, parents and financial advisors, who may be affected by their decision to cohabitate. They should also make sure they’re in sync with each other when it comes to personal, career, financial and family goals. Couples should also be very open about each other’s health status and any prior financial commitments they may have.

Here are eight key questions that soon-to-be-official couples should discuss before taking the next big step in their relationship:

1. What are each partner’s assets, liabilities and income? Make sure your partner can tell you ALL of the assets and debts they have in their name. They should be able to include everything if needed, along with a copy of the last two years’ income tax returns. Be honest about how much each other earns and about other sources of income (e.g., rental from a property or income from a trust fund).

Discuss debts in detail (how does each partner plan to pay them off?) and credit ratings. Bring up prior financial problems such as an inability to handle debt or a bankruptcy.

2. Does your partner want or need a cohabitation agreement? This may be a delicate topic, but you should address it head-on, especially if one partner has greater assets than the other.

3. How might wills, trusts and/or health care directives and powers of attorney be handled? Will each partner name the other as the primary beneficiary of their assets, life insurance policies and retirement plans? If there are children from a prior marriage, who will be the primary beneficiary? Who should be the one to take care of matters should something happen to either of them? If one partner has a larger estate, marriage may provide some estate-tax savings. Talk it out until you agree on what’s fair.

4. Does your partner have your same view about savings and retirement? Discuss attitudes regarding savings for the short term and the long term. Are they savers or spenders? If still working, when are you each planning to retire? What resources does your partner have for retirement, and how do they want to live those years?

5. How does your partner manage finances? Will he or she keep separate bank and investment accounts? Will you have only joint accounts, or have something in between?

If you use joint bank accounts or hold title to assets in each other’s names, then that can be used as evidence during a breakup that you had an “agreement” to divide all of your respective assets evenly. If your partner is certain that they want joint ownership of some assets, be sure an attorney drafts provisions in a written agreement specifying who owns what and what happens in the event of a breakup. The agreement should also provide guidance about handling money transfers to the other. Be sure the terms of a gift or loan are clearly stated to avoid misunderstandings later if there is a break up.

Who will pay the bills? How will expenses be divided? Will each partner do this equally or will those duties and obligations be based on income. Will one of you handle all of your financial responsibilities related to couple-hood? Will you and your partner invest together or separately?

Make sure to talk about your respective feelings toward debt. Is one you more comfortable than the other when it comes to taking on obligations? Does one of you view debt like the plague? If so, how will this be handled?

Be careful about having both of your names on a credit card. Will each of you be liable for what the other one charges. If so, your respective credit ratings can be at risk. Make sure your partner understands that if they decide to sign a joint credit card application, they should cross out the word “spouse” and substitute “co-applicant,” so you are not being presented to the world as a married couple.

6. What is your partner’s approach to financial risk? Is one of you a risk-taker and the other risk-averse? Can the two live together without driving each other crazy financially? Are you each willing and able to make changes as needed?

7. Does your partner have insurance? Find out how much and what kind of insurance each of you has. Are you both insurable? Can either of you qualify for any additional coverage through an employer?

With homeowner’s insurance, both of your will be on the policy if you co-own your residence. If only one of you is an owner, then the other needs to be named as an additional insured or must have renter’s insurance.

If each of you owns a car, the insurance company will want to issue two separate policies. That will cost you more because you won’t get a multiple car discount. If you decide to co-own each of your cars, determine the potential liability if one partner has a car accident. Find out how well you and your partner are covered if driving someone else’s car (including rental cars). Have an attorney cover the issue of ownership of the cars.

Each of you should have umbrella insurance to provide additional protection beyond the car and homeowner policies.

8. What names will each of you use on official financial and legal documents? Is either taking on the other’s last name? Be careful when one takes on the other’s name. Calling one’s partner a “husband” or “wife” or presenting oneself as a married couple can have serious consequences. Each of these actions may be used to support an argument for a division of assets and support payments if you break up.

Conclusion

An estimated 120 million Americans—including millions of unmarried couples that live together---do not have an up-to-date estate plan to protect themselves and their families. This makes estate planning one of the most overlooked areas of personal financial management. As there are many potential legal and financial traps with cohabitating, this may be an excellent opportunity for you and your partner to discuss your changing situation with a qualified financial advisor. The more you can keep your legal and financial house in order, the more you can enjoy the process of getting to know your partner better in a fulfilling and deeper way.

A number of organizations, including The Financial Awareness Foundation, have excellent resources about estate planning for non-traditional couples.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Eradicating Entitlement

Even families that don’t consider themselves highly affluent can be raising “trustafarians” without realizing it

Key Takeaways:

  • Entitled people, especially children, don’t develop the capacity for self-reliance or independence.

  • Even in families of modest affluence, it’s essential for kids to learn about spending wisely, saving diligently and sharing generously.

  • Warren Buffet said, the perfect amount to leave your kids, is ''enough money so that they would feel they could do anything, but not so much that they could do nothing.'' 

The wordentitlement” has many negative connotations, but it wasn’t always that way. In the past, it was often about having a right, as in “I’m entitled to certain rights.” In reality, it’s a little bit of both. Many times successful parents become concerned about their childrens’ feelings of entitlement stemming from their family’s ritzy neighborhood, their high-end cars, their affluent school district or the expensive sleep away camp they attend.

Your children or grandchildren don’t have to be trust fund recipients (i.e. trustafarians) to exhibit signs of entitlement that can be difficult to shed in adulthood. We all want to do what’s best for our children. But, giving kids too many things at an early age can prevent them from developing self-reliance and independence as they get older.

Another danger of entitlement is that children become so self-absorbed (both personally and materially) that they have no what other people want or need, particularly those who are less fortunate.

As Warren Buffet famously said, the perfect amount to leave to your kids,  is ''enough money so that they would feel they could do anything, but not so much that they could do nothing.''

Real world example

One family I know, in which both parents are first generation Americans, created significant wealth for themselves. Their children enjoyed the fruits of that hard work. Naturally, the parents wanted provide their kids with more than their parents gave them --more experiences, more opportunities.

The parents were well intentioned, but even those good intentions can give the kids unrealistic expectations. For instance, both kids expected to receive a Mercedes upon graduating from high school—which they did--because that’s what many of their affluent peers received in their circles.

Despite their advantages, both kids started to act out, which teens of all backgrounds inevitably do. The boy even got in trouble with the law, but thanks to his family’s wealth, they were able to hire top attorneys to get the boy off the hook. Unfortunately, he was kept entirely out of the legal process so he never learned his lesson. Before long, he got in trouble again. The parents realized too late that their good intentions—to protect their child—preventing the boy from learning valuable life lessons about being accountable for his actions and suffering the consequences. It took him many, many years to get on the right track to responsible adulthood and caused his family significant pain.


Add inherited wealth to the list of addictions

The Latin root of the word addiction mean “is a slave to a master.” When people are addicted to something, say a drug or alcohol, they’re slaves to that master. In the same way, when heirs inherit wealth, they get used to the regular “hits” from their trust distribution “dealer.” They organize their lives around their family’s money flow, rather than forging their own path to adulthood and self-reliance.

So, how do parents prevent this from happening? Start with the process of “naming.” When we name something, we’re calling it out. To name something, we don’t want to clobber it in the head with a baseball bat and call it “entitlement.” Instead, families that succeed and create family harmony, unity and cohesiveness over the generations are ones that have meaningful conversations about what they have. They discuss the potential risks of their wealth also the potential benefits it can provide to themselves and to others. In many ways, wealth and money can be viewed as members of the family—and we always have to respect our relationship with those special family members.


The Thee S’s

In a family of affluence, it’s important for the kids to learn about Spending, Saving and Sharing. This can begin as early as age five or six. I know of a family in which the father gave a dime to his daughter when she was 7 or 8 years old and he said, “We have a lot of these dimes. And so what I want to do is give you this dime, and we’re going to decide how we’ll spend it, how we’ll save it and how we’ll share it.” That was the beginning of the daughter’s wealth and money education.

I often facilitate family meetings around the qualitative or emotional issues that accompany wealthy families. A three-generation family business had multiple liquidity events over a short amount of time. That was very new to them, and subsequently what they decided to do in addition to getting technical advisors to help them, they brought in a family counselor to help them have meaningful and respectful conversations about what they have and what they want do with it.

Conclusion

For children of privilege, wealth can be a tremendous tool for helping others and for achieving a life of fulfillment. It can also be a dangerous and highly addictive drug. It’s never too early to teach your children and grandchildren about the 3 S’s and the responsibility of money. Contact me any time if you have concerns about your gifting or estate planning.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Estate Planning: Don’t Forget Your Pet!  

If you are part of the 68 percent of U.S. households that own a pet[1], you probably think of it as a true member of the family—one you love and cherish. But what would happen to that cherished family member if you were to die suddenly? Have you taken any steps to ensure the family dog, cat, horse or other animal will be well taken care of if it outlives you?

If not, it’s probably time to think about how to make your treasured pet part of your estate plan. Even if you do have a plan, it might make sense to review and revisit it to ensure it’s still on track.

Here are some key steps to take and resources that can help.

Click here to read more:

Estate Planning: Don’t Forget Your Pet!

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Important Conversations for Family Gatherings

How you can help your family unlock its ‘soul capital’

Key Takeaways:

  • A legacy conversation is a frank discussion in which the older and younger generations share their views about what really matters to them.

  • Show and tell is a good technique for getting families to reveal their values in action.

  • Combining “soul capital” with financial capital will help families clarify their core values.


Now is the time of year when many extended families get together for some R&R at a family vacation home. While the bonding and elaborate meals can be great, living in close quarters, even for just a few days, can strain relationships among even the closest of families.


Throughout the course of our work with successful families empathy has been central to our practice. Empathy is about “feeling with” another person.

“Walk a mile in my shoes” is the old adage and listening—is one of the most important ways to do that. We spend so much time texting, tweeting and multi-tasking today, that listening has become almost a lost art. But, when someone listens to you, I mean REALLY listens, there is nothing like it. The rapt attention someone pays to you is a blessing and a gift. To be heard, seen and validated is a true gift.

All family members need empathy. Renowned psychologist Carl Rogers called this “unconditional positive regard.” It is the deepest form of acceptance.

When a family needs to address legacy issues, it’s important to be honest with each other about what really matters. For a family to do this there needs to be empathy.

When I was a kid in school, my favorite activity was show and tell. To bring some special personal object in to share with my classmates was a sheer joy. I also loved hearing about my classmates’ objects and the stories that filled my imagination. Each time, I learned something new, unique and often intimate about my classmates. And of course, when it was my turn, I beamed.

Talking about what really matters


What is a legacy conversation? It is a conversation in which the older and younger generations sit together and talk about what really matters. What really matters is each other; the family relationships and the way the family relates to each other and loves each other.

Money and other family assets are important because they sustain the family into the future. These things can be seen as giving stability or causing instability, depending upon how the family is doing with itself. If the family is good, wealth is good. If the family is not good, wealth can make it worse. So the show-and-tell notion related to legacy conversations has to do with honestly sitting together and talking about who we are, how we are and what we have. The family elders tell the stories about how they got here. They inform the “middlers” and the “youngers” what worked for them and what didn’t.

These conversations become sacred conversations because they contain wisdom. I use the phrase “soul capital.” Wisdom is different from knowledge. Knowledge is information and wisdom is deep and painstakingly won insight.

Wisdom is unique and particular to each family since every family dynamic is different. So when these kinds of conversations are held, they become sacred, as spiritual capital represents something bigger than the self and family—something that guides and protects us.

Legacy conversations are “show and tell” events as well. When grandfather and grandmother are sharing at a family gathering, the stories they tell are often gems from their past. Show and tell is a ritual that reveals a family’s values in action. As this sharing continues, the family begins to show and tell together. Over time, this simple sharing turns into what I believe to be sacred conversations. In these conversations lies true wealth.

Successful families that initiate and maintain conversations about legacy, values and related issues discover deep treasure. Why is it that most families don’t hold conversations like this? In a word: intimacy. When we become intimate with each other, we reveal. Vulnerability is uncomfortable.

Discomfort creates anxiety or pain. The paradox is that when a family is courageous enough to delve into these kinds of conversations, the discomfort passes over time, and what a family and its individual members find is unity. With family unity, anything is possible.

The soul capital of a family


Legacy conversations are sacred because they contain stories from the elders, middlers and newers that carry the “soul” capital of a family. Soul capital married with financial capital clarifies and empowers families to live their core values truly. Sacred conversations lead to true family flourishing.

I use the phrase “sacred conversations” because of the depth that lives in the inner world of family. At the core is love. Love is sacred; it is divine. In essence what lies in waiting for prosperous families is a different kind of wealth—soul capital.

Conclusion


When a family engages in family meetings to address legacy questions, it is good to begin with show and tell. Simple storytelling captures the essence of what brought a family to have a legacy to pass on.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Incentive Trusts

Tips for handling the transfer of funds from one generation to the next

Key Takeaways:

  • An incentive enables parents or grandparents to financially reward heirs for desired behaviors.

  • Make sure your trustee is fully aware of your trust’s intentions and how the funds should be distributed.

  • Incentive trusts allow you to transfer assets to the next generation in stages—rather all at once—pending the beneficiary’s ability to reach certain life milestones.



Sometimes parents want to leave funds to their children, but they are concerned that their kids may not be responsible enough to manage those funds. Other parents or grandparents wish to ensure that inherited funds do not cause the beneficiaries to become lazy, financially reckless, or unproductive citizens.

To address this concern, funds from trusts are often distributed in stages, such as one-third at age 30, one-third at age 35 and one-third at age 40. For other families, in which the children are already somewhat older, but perhaps the parent is not fond of the in-laws, the funds can be distributed at intervals such as 50 percent upon the death of the parent and 50 percent five years later but not exceeding a date later than when the child attains the age of 65.

Parents and grandparents are typically concerned about education, morals and family values, business and vocational choices, and charitable and religious opportunities. In these types of situations, a parent or grandparent may want to establish what is known as an “incentive trust.” An incentive trusts allows the grantor of the trust to reward heirs for desired behaviors. Likewise, incentive trusts can be structured to penalize heirs for engaging in undesirable activities.

Common incentives

Incentive trusts may be used to provide extra support to the heirs who pursue advanced degrees or who focus on family life. For instance, the trust could be designed to provide enough income for an heir’s family so that only one of the two parents needs to work, thus enabling the second parent to stay home with the heir’s children until those children attain a particular age. There also may be a trust designed to provide funds to heirs who are committed to maintaining the family business, and additional financial support may be provided to beneficiaries who choose to work in lower-paying, but highly rewarding professions that help people, such as social service or teaching.

Finally, some family members may wish to encourage certain behavior in their heirs by requiring specific observances such as religious or charitable opportunities. So, if heirs are involved in a particular cause, such as missionary work, the trust fund will provide them with additional support for themselves and their families. And, they won’t have to worry about requesting additional funds from the trustee on a periodic basis.

When setting up an incentive trust, it is very important that the trustee is aware of the intentions of the grantor. Therefore, in addition to the usual provisions (such as having all income distributed with principal at the discretion of the trustee), the trustee should be given specific authority within the trust, and possibly even a letter of intent from the donor, explaining when and how much of the funds are to be distributed at any given time. It is also important to ensure that the trust does not violate any constitutional or public policy law or standard that would cause the trust to be in violation of a statute or regulation.

Conclusion

In short, it is easy to discuss the establishment of an incentive trust, but there are significant and complex legal, tax, and investment issues that also will arise when creating this type of document. Incentive trusts are not for everyone, and they should be used only in situations in which other types of trusts or investment vehicles are not appropriate. Always consult your advisors before setting up a trust. Contact us any time if you, or someone close to you, is interested in the possibility of setting up a trust to benefit future generations or causes you believe in.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

How Children Successfully Join Family Businesses

7 key considerations

Key Takeaways:

  • Have a family business constitution in place before your children join your business.

  • Make sure you allow your child to make and learn from their mistakes.

  • Have your child successfully work outside your business before letting them start work at your company.

  • Have someone besides you supervise and manage your children when they work for your business.

You have worked very hard to build a successful business. The dream has been to have children join you and continue the legacy that the founder started.

But, before you get excited, stop and think.  For many entrepreneurs, having children join their business is a true joy.  For others their children are an albatross. They wonder why they ever thought it was a good idea to have their children work in their business, much less take it over.

If you are thinking about having children join your business, here are some important considerations:

1. Make sure the next generation is competent.

You don’t want to be in a position in which you have to tell your own child that they can’t stay with the business.  Too often parents let their children join the business only to discover that their children add zero value to the enterprise—and sometimes even subtract value.

A business is not a place where you provide social welfare for a child.  Next Gen must be able to add to the value that the business provides to its clients and customers.

2. Make sure the next owners (your children) have experienced life outside of your business.

The best way to ensure that your child is competent is to make sure they’ve worked successfully outside of your company.  You don’t want to have your child join your company as their first “real” job.

One of the most important rules you can adopt in your business is to require your child to earn at least one promotion while working outside the family company.  This way, someone else can handle their early career training and make an objective decision about how competent the child is.

3. Have a real job for your child.

After your child has proven him or herself outside your business, you’re in a better position to have them join your company. But, suppose you don’t have a job that fits their skills and experience?

This is not the time for you to make up a job for them.  Make sure your child holds on to the outside job until you truly have a job that fits their skill set.

When it’s time to bring a child into your business, make sure they’re not joining  at a level higher than the job they had outside your company. You never want to have to tell a child that they aren’t unwelcome in the family business after an unsuccessful debut.

4. Think about your compensation policy for your children well in advance.

Too often I see children overpaid or underpaid. Either way it’s a big mistake. Make sure you have a firm salary policy in place. If you do, it’s important that you pay children comparably to what non-family members earn for similar jobs.

If your children are overpaid, then non-family employees will find out and they’ll resent it.  If your child is underpaid, he or she will find out and resent you for it. You’ll have some uncomfortable family dinners as well.

5. Never have your children report directly to you.

Part of supervising an employee is correcting his or her behavior and work. This is not something you want to do with your child.  Let’s face it; you have a history with your child around discipline and it’s often not a very positive one.

Even though you have policies that work well for non-family members, it’s rare that those policies work for family members when they’re coming from a parent.  When a non-family member supervises your children, you’ll likely avoid hard feelings that result from having to reprimand a child for their workplace behavior or performance.

6. Remember, Next Gen will run your business differently than you did.

I’m hoping that you successfully integrate your child into the business. Now it’s time for you to transfer real responsibility to your child. Just know that your child is going to approach problems and opportunities differently than you do.  This means their approach to solving these issues will also be different, and in many cases, better than how you would do it.

You’re going to want to look at the results your child’s methods produce.  You need to let your child make mistakes and you need to be there to help them learn from those mistakes. 

Think about how you learned on the job.  I bet you made plenty of mistakes along the way.

7. Successful transitions come with a process.

I like to see family businesses develop what I call a “family constitution” for joining the family enterprise.  Your family constitution doesn’t have to be complicated.  In fact, it can be as simple as the bullet point list below:

  • Have your child achieve a certain level of education.

  • Have children work outside the family business for at least two years.

  • Make sure your child has earned at least one promotion from a non-family business before joining yours.

  • Don’t start your child in the family business at a level higher than they had at their last non-family business.

  • Pay your child at the same scale that you would pay a non-family member for a comparable job.

  • Have your child’s direct supervisor be someone who is not in your family, especially you.

  • Have a system in place for accepting and learning from your child’s mistakes.

  • Let your child do things their way once they have proven themselves-- unless their idea will truly put your business at high risk.

Conclusion

I’m hoping that you’ve successfully brought your child into your business.  Years will have passed and you know that it’s time for you to let go and have your child take over. This will be a challenging time for you.  You’re going to need to learn how to let go.  You’re going to need to find a compelling next chapter in your life.  You’re going to have to let your child be his or her own person.

Successfully transitioning your child can be an incredibly satisfying experience.  Have a system and stick with it.  You’ll be glad you did.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

What’s Keeping the Affluent Up at Night? Their Kids

It’s never too early help kids improve the financial literacy of the young people in your life.

Key Takeaways

  • Research shows that high-net-worth individuals care more about the impact of wealth on their heirs than how much (or how little) wealth will be passed on.

  • The average American college student graduates with $37,000 in student loan debt.

  • Two thirds of affluent Americans think the young people in their lives place too much emphasis on material possessions. Over half think they are naïve about the value of money.

  

Does great wealth really bring fulfillment? An ambitious study of the highly affluent by Boston College suggests not. The study found a surprising litany of anxieties: their sense of isolation, their worries about work and love, and most of all, their fears for their children.

Further reinforcing that finding, the biannual U.S. Trust Survey of Affluent Americans asked parents what they worried about most. Their primary worries had nothing to do with tax or wealth-transfer issues. No, their top six concerns were centered on the impact of wealth on their heirs!

  • 65 percent said: “Too much emphasis on material things”

  • 55 percent said: “Naive about the value of money”

  • 52 percent said: “Spend beyond their means”

  • 50 percent said: “Initiative could be ruined by affluence”

  • 49 percent said: “Won’t do as well financially”

  • 42 percent said: “Hard time taking financial responsibility”

Research found that the greatest  fear of affluent successful people is not about making more money, or protecting what they have—it’s about how their wealth will affect their heirs and their heirs’ families. Dr. Bob Kenny, the principal researcher of the Boston Study and also a visiting faculty member at the Institute for Preparing Heirs, stated that philanthropy is an excellent vehicle for discovering meaning and value in the wealth that heirs receive. Philanthropy he once said, “helps teach the giver that money sometimes carries its burden with it and can harm or unsettle a recipient if given without caution.”

Perhaps participating in the act of philanthropy gives an heir a clearer view of some of his or her own personal feelings about inheriting wealth.

You might say the big secret is that the rich consider their greatest treasure to be their children, not their financial assets. To hear that about the rich may alter conventional wisdom at a time when we are facing the largest transfer of wealth in history—almost $1 trillion dollars a year will be passed down to future generations for the next 50 years in the United States alone! Couple that with a historic post-transition loss rate of 70 percent and you have both a tragedy and an opportunity in the making.

Learn how to initiate conversations about the topic of money and its impact on the future generations in your family. It’s the primary concern of the parents (not just the latest tax regulations).

In the future, well-prepared parents and grandparents will help complete the second half of the estate-planning equation—preparing their heirs for the assets. That is the future of estate planning—and good parenting.  

Thanks to The Financial Awareness Foundation, (TFAF) April is officially Financial Literacy Month in the U.S. but there’s never a bad time to focus on financial education of the next generations. A lack of financial preparedness has huge societal costs, and in the coming years as Americans age, these costs will likely increase.

We need to educate all young Americans about the importance of starting early. For example, young workers will need to save close to $1,000 per month to remain in the middle class; $925 per month for 30 years at 8 percent grows to $1.26 million, but that amount saved for 20 years only grows to about $508,000. Young people are often surprised to learn that the few hundred dollars they’re saving each month may not be enough to retire into a middle-class lifestyle.

According to TFAF, too many young people and their families are burdened with excessive education debt and other forms of debt. Student loan debt exceeds $1.3 trillion and is the second largest class of consumer debt after mortgages. For instance, the college class of 2016 graduated with an average of $37,000 in student loan debt.

We need early financial education in the home, mainstream financial literacy programs starting at a young age, and government funding for a public awareness campaign much like those on public health and safety issues. It should be incorporated into school curricula, media campaigns, corporate wellness programs, and, most importantly, ongoing parental discussions.

The next step is for you to take action. Encourage the young people in your life to educate themselves about financial freedom. They can start by reading some articles, using a mobile budgeting app, or signing up for a personal finance class at a community college. Encourage them to try to live on less than they earn each month and automatically save the difference. While they may be able to save only a little, it is OK to start small and grow into a larger savings plan over time. The key is to start now!

Conclusion

By doing so, you and your heirs will have more financial freedom and personal choice—two worthwhile things that money can help buy.  Don’t hesitate to reach out to us for assistance with short-term or long-term financial goals you may have for yourself or your young adult children. We’re here to help.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

This Powerful New Tax Strategy Is a TRIP

Key Takeaways

  • Total Return Pooled Income Funds (TRPIFs) can be powerful tools for gifting, estate planning and minimizing taxes.

  • TRPIFs allow you to make gifts of cash, publicly traded stock, closely held C Corps, unleveraged real estate, tangible personal property like art, cars, antiques and even LLC interests.

  • TRPIFs have many similarities to charitable remainder trusts, but it’s important to understand the differences. Always consult with your financial advisors before signing on the dotted line.

Now that your tax returns are hopefully completed I thought I’d share with you one of the best kept secrets in estate planning and tax mitigation. It’s been around since 1969, but most successful taxpayers and their advisors still don’t know about it.

How about a strategy that completely eliminates capital gains tax, provides a gigantic income tax deduction, distributes all its income (maybe for three generations) and is completely legal? Sounds too good to be true. Well it’s not. Here’s why:

The Pooled Income Fund (PIF), created in code section §642(c)(5) in 1969, and long the red headed step child of planned giving tools, has gone “beast mode.” Thanks to a perfect storm of low interest rates, technology and charities now understanding the need to be responsive to CPAs and other professional advisors (and donors) has ushered in a new type of PIF called the Total Return Pooled Income Fund (TRPIF). This vehicle is one of the most flexible, powerful and thought-provoking planning tools you can deploy.

Yet not many advisors and philanthropically-minded individuals know about them.

With a TRPIF, you may make gifts of cash, publicly traded stock, closely held C Corps, unleveraged real estate, tangible personal property like art, cars, antiques and even LLC interests. Income can be paid for one, two or three generations of income beneficiaries if they’re alive at the time of the gift. Competitive TRPIFs pay out all rents, royalties, dividends and interest as well as all short-term gains and up to 50 percent of post-gift realized long term gains.

Charitable beneficiaries are decided on by the donor, not by the TRPIF trustee. That means the donation goes to any charities the family feels are worthy.

If you know a little bit about CRTs you’ll find that TRPIFs are similar. However, you and your advisor should be aware of some important differences. For instance, a donor can’t be the trustee of his or TRPIF as they can with their CRT. That may be a drawback. However, young donors (couples in their 40s), for instance, can’t even qualify for a CRT as they won’t meet the 10 percent remainder test. With a TRPIF, there is no such test. That means an income beneficiary can be any age. The charitable income tax deductions of a TRPIF can be greater than a CRT’s by a magnitude of four or five times. The methodology by which a new TRPIF (less than three years old) calculates its income tax deduction is governed by a complicated formula based on the ages of the beneficiaries and the assigned discount rate (1.4% for 2018). This is what produces the large deductions.

Conclusion

From a planning standpoint, TRPIFs can allow you much more planning flexibility than many other trusts. When selling a low basis security, for instance, it may be possible to leave more shares in the seller’s hands and still pay no tax because of the larger income tax deduction. And, low-basis assets are only one of the many opportunities that you may applicable to the TRPIF strategy. There are only a small handful of charities offering this new, competitive, Pooled Income Fund. Therefore, it’s important that you ask a lot of pointed questions to the charity.

 

DISCLAIMER: The views expressed in this article do not necessarily express the views of our firm and should not be construed as professional tax advice.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

 

 

Am I Eligible for Social Security if I’m Divorced?

Social Security has a spousal benefit which is intended to provide payment for the spouse in a household in which there is only one income earner.  This is essential for couples who have one stay-at-home spouse, as it allows them to still collect some amount of Social Security.  Often times, divorcees are surprised to hear that they still may be eligible for Social Security benefits based on their ex-spouse’s earnings.  Read on to see if you qualify for Social Security benefits from a previous spouse.

Is your ex-spouse alive?

If you answered “yes”, move on to the next question.  If your ex-spouse is deceased, you may still be eligible for survivor benefits.  See the “Am I Eligible for Social Security Benefits as a Surviving Spouse?” flowchart here.

Were you married to your ex-spouse for at least 10 years?

If you answered “yes”, move on the next question.  If your marriage lasted less than 10 years, you will not be able to collect spousal benefits.

Did you have more than one marriage that lasted more than 10 years?

If you answered “yes”, you will be able to pick the ex-spouse that provides the greatest benefit.  If not, your benefits will be based off the ex-spouse you were married to for longer than 10 years.  Either way, move on to the next question.

Did the divorce occur at least two years ago?

If your divorce was less than two years ago and your ex-spouse has not filed for benefits, you will have to wait until they file for Social Security before you are eligible for benefits.  If the divorce was greater than two years ago and you do not have plans to remarry (remember you must not remarry to be eligible for ex-spouse benefits), then you can claim benefits if you are at least 62 years of age.

Collecting Social Security benefits from an ex-spouse is complicated, and there are a lot of different requirements.  Check out this flowchart to learn more.

If you would like to schedule a call to talk about the best strategies for Social Security, please give us a call at 303-440-2906 or click here to schedule a time to speak with us.

 

 Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

Saving for College

There are a myriad of factors to consider, but one thing’s for sure--the earlier you start saving the better. Just don’t neglect your own retirement savings

By Robert J. Pyle, CFP®, CFA, AEP®

This is the time of year when high school seniors and their families are sweating out college acceptance letters. Study after study shows that a college degree is still worth it despite the skyrocketing costs. For starters, the pay gap between those with a four-year degree and those with a high school degree is at a record high according to the Bureau of Labor Statistics. Not only are college grads significantly less likely to be unemployed, but on average, they out-earn those without degrees by about $1 million in lifetime wages.

So, while a college education remains the American dream, it is becoming less and less affordable. An Edward Jones study found that only one in six Americans (17%) feel they can afford the cost of a college education for themselves or a family member. In fact, only one in three respondents who earned six-figure incomes felt they could afford the cost of college today.

College tuition at public universities has nearly quadrupled over the past 35 years. The reasons are too complex discuss in detail in this article. Among the leading reasons:

  • High increase in public subsidies for higher education

  • Sharp rise in percentage of Americans who go to college

  • Enormous expansion of the federal Pell grant program

  • Expansion of University administration. Large growth rate in administrative positions – 60% increase between 1993 and 2009.

Suffice it to say, attending college is a lot more expensive than it used to be in both real and inflation-adjusted terms. That’s why we build a 6-percent annual tuition increase into our clients’ college savings plan-- i.e. about 3% MORE than the historical rate of inflation.

The average cost of public four-year university is about $25,000 for in-state tuition, $41,000 for out of state tuition and $51,000 for a private university.

SCENARIO 1: If you earn an average of 5% per year on your college savings plan and college costs increase by 3%, you need to save the following annually:

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SCENARIO 2: If you earn an average of 5% per year on your college savings plan and college costs increase by 6%, you need to save the following annually:

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SCENARIO 3: If you earn an average of 5% per year and college costs increase by 5%, you need to save the following annually:

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Also, many students and families neglect to account for all the “hidden fees” of college beyond tuition, room and board. These can include: Fraternity/sorority dues, clubs, trips, meals outside the cafeteria, and travel to and from school, especially if airfare is required.

How to close the saving gap

Most experts say a 529 plan is the best option for saving for a child’s or grandchild’s education.
The earnings generated in a 529 plan are not subject to federal income taxes, allowing the investments to grow without being depleted annually by taxes. Additionally, when the money is used for qualified education expenses, the distributions from the 529 plan are not subject to federal or state income taxes. Here are seven more key benefits of 529 plans.

What to look for in a 529 plan

For starters, you want low cost and good diversification options. The Colorado 529 Plan has Conservative Age Based, Moderate Age Based and Aggressive Age Based.  For example, age 0-4 it’s 100% stocks in Aggressive vs. 87.5% stocks the Moderate and 62.5% stocks in the Conservative. Each portfolio becomes increasingly more conservative as the child/beneficiary gets older:

Also look at:

  • Past state performance

  • Investment options

  • Asset protection

  • Relative investment fees

  • Any “in-state” advantages of establishing a 529 in your state of residency

You are free to invest in the 529 plan of any state, but the Colorado plan, checks off the boxes for most Colorado families. What’s more, in many states including Colorado, you will also get a state income tax deduction for contributions made to your in-state 529 plan.  If you don’t get a deduction for investing in your own state’s plan, then we recommend the Utah Educational Savings Plan to many of our clients. Here is a helpful chart outlining state tax deductions by plan.

Why a 529 is better than UTMA

I sometimes get asked if The Uniform Trust to Minors Act (UTMA) is better than a 529 plan. There’s really no reason to go with an UTMA since it counts against your financial aid chances five times more than your 529 plan savings do.  Since an UTMA is counted as an asset of the student, then 20% of the money is expected to be used versus 2.6% to 5.6% of the parent’s assets (including 529 plans owned by the parents). One way circumvent this rule is to transfer the UTMA assets to a 529 plan owned by the student and the asset is reported as a parental asset

Here’s another drawback to UTMA: Once a child is no longer a minor (age 21 in Colorado) he or she will take ownership of the account and can spend the money on anything they want, not necessarily for college. By contrast, a 529 account remains with the adult who set up the account and only withdrawals used for education purposes remain tax-free.

Should we start taking risk off the table as my son or daughter gets closer to college age?

In most cases yes, and the “glide path” for college savings is similar to the glide path you would follow for your retirement plan.  As mentioned earlier, you want to maximize the account’s appreciation when your child is young and get increasingly conservative as you get closer to withdrawing from the account for college costs. Most plans allow you to do the reallocations yourself, but I recommend letting the plans do it for you—they’re the pros and they do this all day long.

Should we continue to fund a 529 plan after our student begins college?

Generally, I recommend that clients keep contributing to a 529 plan after their child has enrolled in college as long as they’re in a plan that provides a state tax deduction—in Colorado, it’s 4.625% of what you contribute each year. Plus, you will still earn some appreciation on your principal over the four-plus years that your child is enrolled.

Changing asset allocation based on market conditions

If the markets are going crazy when your child is young—i.e. when your account is likely to have a higher exposure to the stock market—it’s tempting to move into the safer fixed income options your plan may offer. I don’t recommend this approach. Essentially, you’re trying to be a “market timer” and it’s very difficult to know when to “get back in” to the higher growth options your fund offers. Not only do you risk missing out on significant market upside, but many 529 plans have strict limits on the number times you can make asset allocation changes each year. That being said, if the market takes a big drop, it might be a good time to add more money to your 529 plan. Why? Because you’re buying units at relatively low cost.

Asking grandparents for help


Many grandparents are at a point in life when they can make generous gifts to grandchildren, especially if the money is to be used for something as worthwhile as college tuition vs. just buying junior a new car. Just make sure the grandparents’ gift is put in the name of the student/beneficiary’s parents—not the grandparents. That’s because funds in the grandparents’ name are more likely to count against you if your child is applying for financial aid. A withdrawal from a 529 plan owned by a grandparent or other third party is required to be “added back” when reporting income on the FAFSA financial aid form. The amount of the distribution will reduce eligibility for need-based aid by as much as 50% of the amount of the distribution. It counts as untaxed income to the beneficiary.

Don’t count on athletic scholarships

According to this CBS Moneyline report, the odds of getting a scholarship is less than 2 percent and the average scholarship is less than $11,000. Playing high level college sports can still be fun, but just know that if your child or grandchild is among the lucky few to land an athletic scholarship, make sure they absolutely love their chosen sport. It will be at least a 40-hour per week commitment and competition for playing time is extremely fierce since nearly everyone on the roster was captain of their high school team and earned All-League/County/State, etc. honors.  Not to be a dream dasher here, but think about all that money you are putting into your kids’ travel sports teams and private coaching. Suppose instead you invested those thousands of dollars a year in a 529 plan where it could compound for 10 to 15 years?

Retirement savings vs. college savings

One of the toughest challenges many of our clients face is finding the right balance between saving for their childrens’ education and saving for their retirement. If you have two children, the numbers can be overwhelming. If you are thinking about a private four-year college, the amount you need to save for two children is more than maxing out a 401(k) contribution for one person (($30,422 for two kids vs. $19,000 for a 401(k) under 50 or $25,000 over 50.))

There are no quick and easy answers, but we have tools to help our clients model many different scenarios. For instance: “If I save $X for retirement and $Y for my child’s education, is this going to get me to my goals for both?” Then we can look at alternative scenarios in which you save twice as much for your child and look at how much longer you would have to work. Is that acceptable to you and your spouse? That’s a tough balance for most people and requires careful consideration of your timeline, your goals and your aspirations for your children.


Conclusion

In a future article, I’ll discuss the importance of choosing employable majors, additional savings tactics, what to do with unused 529 after your children complete college and whether or not the cost of elite private schools is worth it.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Life Never Stops Changing

Neither do your giving and financial decisions


Key Takeaways

  • The most impactful gifts are often the result of personal tragedy or triumph.

  • We spend so much of our lives in the wealth accumulation phase that it’s easy to forget the positive impact that our money can have on others.

  • An astute advisor not only helps you optimize your investments, cash flow and wealth protection, but your legacy as well.

Meetings with your financial advisors bring to mind thoughts of balance sheets, net worth statements, stock options, investments, insurance policies and employee benefits. While these documents tell your various advisors what you have, they don’t tell them who you are, what you want or what truly motivates you.

I’ve learned over the years that after gaining a client’s trust, and after carefully opening the door to their personal side, we find out what truly makes them tick and what shapes the lens from which they see the world.

Often we come across tremendous stories of tragedy and triumph (or both). These are pivotal moments in an individual’s background – typically turning into a focus for future action. And sometimes that action is philanthropic – one that highlights the triumph or attempts to solve the problem that caused the tragedy.

For instance, a daughter’s death at the hands of a drunk driver left a family with such a need for a voice that Mothers Against Drunk Driving (M.A.D.D.) was brought into existence. Today, M.A.D.D. is the largest advocacy group in the country focused on preventing individuals from driving while intoxicated – its existence motivated by a heartbreaking loss.

Everyone deals and reacts to adversity in their own way – we must understand and accept that.

While tragedy is one side of the equation, there are also triumphs to celebrate – easier to discuss and just as big a motivation. Many years ago I worked with an extremely wealthy individual who kept telling me that he wasn’t charitable and that he didn’t really care about much of anything. He went on at length about how he was “self-made” and had come from nothing.

It wasn’t until when he revealed that he’d been raised in an orphanage that I realized how critical the orphanage had been to his upbringing and success. Today, that orphanage is endowed by a large gift by my client. It not only represents his personal victory, but an acknowledgment to the people who helped him triumph over his circumstances.

For some, it may be a coach, teacher or program that launches a successful athletic or academic career. It may be the person who helped you discover that you were good at math or the person who took the time to elicit your musical genius when no one else could see it. By doing so, we may discover a desire to make a gift, to return the favor, to pay it forward.

Life Never Stops Changing

Change is an inevitable part of life. We start new jobs, we send kids off to college, we lose a parent or gain a grandchild. Change can be daunting – but viewed through a different lens, it presents opportunity to raise the important questions about philanthropy.

In many circumstances, philanthropy can be the best solution to the change that’s taking place – if only we think to ask our advisors how.

Let’s look at some major life changes and see where you and your advisor might discuss gift opportunities at the appropriate time.

Suppose you are approaching retirement. Let’s assume you are the major breadwinner of your household and you are also hoping to downsize. As ordinary income (your paycheck) ceases, the desire to convert dormant or low yielding assets into supplemental income normally increases. This may be an opportunity to reposition low-basis assets into a pooled income fund (PIF), a charitable remainder trust (CRT) or even a gift annuity. Furthermore, the downsizing might free up additional capital with which to consider similar split interest gifts.

The birth of a grandchild may inspire a fund for college education. You can go the traditional 529 route or consider certain types of CRTs that turn into income in 18 years.

Widowhood is another significant life change that triggers emotional and financial upheaval, and often changes to family dynamics. If your late spouse was the main financial decision maker in your relationship, you may feel lost and frightened about the future. Perhaps the best solution is simplification and consolidation – taking multiple accounts and creating one large gift annuity, charitable trust or pooled income fund that delivers quarterly income. You should also examine gifts such as life estate agreements – which relieve the children of dealing with a house they usually don’t want anyway.

A serious illness is another major life change that brings a host of emotional and financial worries. But as you and your family delve into researching your loved one’s illness and treatment options, it can also motivate giving to support further research into curing or ameliorating that illness or disease.

Change is everywhere and change is constant. While some changes go unnoticed, others represent a prime turning point in our lives. We spend so much of our lives in the wealth accumulation phase that we sometimes forget the power our wealth can have to make lives better for others.

Conclusion

Just as an astute advisor can help you optimize your investments, cash flow and wealth protection strategies, he or she can also help you optimize the power of your giving.

All you have to do is email us or give us a call.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

 

Health Care Decisions Factor into Comprehensive Wealth Planning

What you need to know about advanced medical directives, guardianships and durable powers of attorney


Key Takeaways:

  • Age, accidents or illness can prevent even the most well-organized and financially astute people from handling their own finances or health care decisions.

  • Thanks to advances in medicine, health and longevity, many people are living 30 to 40 years after their prime wealth accumulation years have ended.

  • Advanced medical directives deal with personal care and medical issues, including surgery, placement, medication, assisted living, full skilled-care living and end-of-life decisions.

  • If you don’t have the necessary documents in place, unfortunately these decisions will have to be made under a court-supervised process. 

Many people are diligent about planning for and protecting themselves against personal, legal, tax and financial problems. But health care, or the ability to make important decisions about long-term care, often gets overlooked.

Life insurance statistics show that a 50-year-old now has at least a 50/50 chance of living to 110. That’s right a century, PLUS another decade!

With an average U.S. retirement age between ages 60 and 65, you could realistically expect to live for 30 to 40 years after your prime wealth accumulation years have ended. In estate planning, we often talk about preserving wealth and passing it on to the next generation. But given the demographics of aging, inflation, health care needs, etc., it is quite possible that your wealth will run out before you do.

That’s why it’s so critical to appropriate estate planning documents in place, including wills, trusts, appropriate beneficiary designations and designations of guardians.

Unfortunately, because of age, accident or illness, many people may face the prospect of being unable to take care of their own finances or to make their own health care decisions. Therefore, proper documents need to be put in place to allow someone else to make appropriate decisions on your behalf.

Long-term health care costs
Because of health and aging, everyone faces the prospect of financing long-term health care needs, including the possibility of assisted living and full skilled-care living. If these costs are not planned for, they can be financially devastating.

We can’t fight the aging process or prevent unexpected events that impact our quality of life. However, proper planning and documentation can go a long way toward creating peace of mind. It’s very comforting to know we have put in place appropriate planning to eliminate, to the extent possible, financial, legal, tax, health care and other problems that, one way or the other, are bound to occur during our lifetime.

Appropriate lifetime powers of attorney
Regardless of age, health, assets and income, everyone needs to have in place a well-drafted “financial durable power of attorney” and appropriate advanced medical directives.

An advanced health care (or medical) directive is a set of written instructions that people use to specify the actions they want to be taken for their health in the event they are no longer able to make their own decisions due to illness or incapacity. The instructions appoint someone (an “agent”) make such decisions on the person’s behalf.

Advanced medical directives normally include health care powers of attorney, living wills and more. If you are unable to attend to your financial, personal care, or health care matters because of age, accident or illness, no one can make these decisions for you unless the decision-making authority has been specifically designated in writing.

Financial durable powers of attorney concern assets, income, other financial matters and dealings with government agencies. Advanced medical directives deal with personal care and medical issues, including surgery, placement, medication, assisted living, full skilled-care living and end-of-life decisions. If you do not have these documents in place, unfortunately these decisions will have to be made under a court-supervised process known as a “guardian of the person” (for personal care and medical issue decisions) or a “guardian of the estate” (for financial matters). Guardianships are expensive, personally intrusive and perhaps the worst way to manage any of the decision-making processes.

The proceedings can be very traumatic and expensive. Guardianships of the estate or person are easy to avoid if the appropriate documents are put in place. A final word of caution: Be careful about using simple forms! Simple forms often ignore many of the decisions that will have to be made throughout the course of a lifetime; the decisions that may be critically important to the family need to be specifically addressed in the documents.

Conclusion
You have six major types of estate planning needs—health care is one and avoiding guardianships another. We’ll discuss the other four in a future article. You need to be aware of these issues and of the significant dangers caused by insufficient planning. Nobody enjoys discussing the possibility of one’s demise or deterioration. But, the sooner you do, the sooner you can get on with the business of enjoying all that life has to offer, especially with those closest to you.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

Teaching Kids and Young Adults about the Power of Giving; Part 2

Teaching Kids and Young Adults about the Power of Giving

You can have this discussion any time of year. Second in a series

 

Key Takeaways

  • Philanthropy can help smooth family friction is there is a common cause they all support.

  • Empower the next generation by letting them make charitable decisions on their own. It’s a very effective way of helping kids and young adults mature.

  • Even families that don’t get along well can find ways to get everyone involved in the giving process.

In Part 1, we discussed the importance of introducing children to giving and re-introducing young adults in your life to philanthropy as well. Giving not only supports worthy causes, but empowers young people to make financial decisions and helps sustain family values.

But, not all families are in sync about many things (big surprise), including the causes they support. Does that mean they shouldn’t give? Of course not.

Even if there is significant disharmony in an extended family, most will rally behind a cause with only a few outliers not participating. In those situations, it’s important to find something that is a passion for the ones who are out of the center--or who at least feel like they’re out of the center. If we can find an alternative cause while maintaining the family’s primary values and goals, it brings the family together and helps many deserving people in the process.

That’s because the children who always felt like they were on the outside, suddenly feel like they’re on the inside, and it’s helping everybody. What families should NOT do is say: “We’re just going to take a vote and the majority rules.”

When that happens, the person on the outside, or the little kids [who] are on the outside, will feel even more disenfranchised. But if somehow we can focus on something that they’re really interested in, you can bring harmony back into the family.

Three things are really important when a family rallies around philanthropy:

1.      Philanthropy, in and of itself, can help the family communicate and heal some of the old stuff that they haven’t been able to heal before.

2.      It’s okay if a family has a main philanthropic mission that not everybody agrees with.

3.      If you allow the next generation the freedom to select things that they’re interested in on their own, you’re empowering them. By letting them know that you believe in their ability to make a good decision. It’s a very effective way of helping young adults mature.

Sometimes as you get more into the “for what purpose” questions—why is it that you’re really into this?—you’ll find that they have some of the same basic targets even though they’re doing it different ways.

I was at a professional conference recently and one of the speakers was a young woman whose great-grandfather owned the patent for barbed wire? Her family had a large foundation, and each generation received a certain amount of money to give away. As you can imagine, the kids were giving a lot of money to a very liberal think tank organization and grandma was giving a lot of money to a very conservative think tank organization. That was causing friction because grandma was just negating them. But, as they started talking about their conflicting goals, both generations came to understand more about the other generation’s goals and values and why they supported the organizations they did.

Long story short, the liberal and conservative sides of the family still have their differences, but now the family foundation sponsors a debate between the two think tank organizations they support. Sometimes if you get deeper into what is behind the passion, there may be some synergy that we didn’t realize existed.

A lot of times we don’t take the time to really understand the other person’s reason, and when we understand the reason, we find it’s a similar reason that we have except the way the other person is approaching the problem is different from our approach.

Conclusion

Whether a young person in your family feels like they’re in the mainstream, or an outlier, the more you can empower them to make their own giving decisions, the more likely they are to instill those values into their own children and the generation that follows.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

 

The Forest for the Trees

To enjoy the holidays, leave the family business at work


Key Takeaways:

  • Talking too much about the business during family celebrations can alienate relatives who are not actively involved in the family business.

  • Your family’s values are often the core culture of your family’s business.

  • Seek innovative ways to celebrate that are inclusive and family-oriented.

 

The music of the holiday season fills our lives. Images of chestnuts roasting on an open fire and family gatherings around the hearth dance through our heads like sugarplum fairies—or at least that is the popular mythology we think about for the holidays.

But for members of family-owned businesses, the holidays can be a very different story.

When families that have a business together gather for the holidays, they sometimes have another place at the table set for discussing their business. This scene shares similarities with one of my favorite holiday films.

For me, preparing for the holidays means viewing some of my favorite movies. At the top of my list is “The Bishop’s Wife,” a 1947 film (remade with Denzel Washington) that originally starred Loretta Young, Cary Grant and David Niven.

The film is a metaphor for an entrepreneur and family-owned businesses. The story is about a bishop (David Niven) and his wife (Loretta Young), who are involved in parish life. The bishop is driven to raise money for a new cathedral at the expense of everything else in his parish, including his family. In the midst of the holiday season and beleaguered by his responsibilities, the bishop asks God for relief from the pressure. God sends him an angel (Cary Grant) who, through a series of tricks, helps the bishop realize that his real mission in life is not to build a cathedral, but to serve the needs of his parishioners.

In family businesses, the entrepreneur often becomes so focused on building a cathedral (the business) that family relationships suffer. During holidays, it’s not unusual for business discussions to dominate family gatherings. As a result, family members who are not active in the business may feel left out of the family—as if the business were the family.

In the film, the bishop not only focuses on building the cathedral, but in the process ignores his wife at the expense of their marital relationship. The angel becomes smitten with the bishop’s wife, which creates a competition between the bishop and angel for the wife’s affections.

Just as the fictional bishop realizes his real mission—to serve parishioners—entrepreneurs should realize their mission is not only to serve the business, but to steward family traditions and rituals along with their spouses. These family and holiday rituals are what bind families together and create the richness in families that makes holidays so lasting and special. These rituals also contribute ultimately to the well-being of the business.

Whatever your tradition, the holiday season is a wonderful opportunity to set aside the stress and strains of the business and celebrate all the special rituals that bind families together. For me, the family is what makes the holidays special. As our family celebrates the holidays, we build the emotional value of our family. This strengthens our family and continues to inspire, strengthen and infuse family values into the company.

The family’s values are the core culture of the family’s business. However, by talking too much about the business during family celebrations, you could inadvertently alienate family members who are not actively involved in the business. So, keep normal business discussions in the boardroom and out of the holiday gatherings.

During this holiday season, seek new and innovative ways to celebrate that are inclusive and family-oriented. You can form a “family holiday committee” to evaluate whether your family holiday celebration is working. If so, keep doing it; if not, create a new approach. Put the family in charge first and keep it there.

Here are some ways to strengthen your holiday celebration:

1.    Be clear with each other about your expectations for the holidays. Spend time talking with each other before the holidays arrive to make sure you all understand what you want to get out of the holiday season.

2.    Do your best to focus your time and energy on activities that celebrate family traditions and the blessings of the holiday season. In those instances where you’ve outgrown family traditions or the family has become too large to reasonably continue the traditions, create new ones that allow you to experience the joy and love of your family.

3.    Do your best to limit business discussions or save them for the boardroom or for a regularly scheduled family meeting. Sitting around the table on Christmas Eve is not the appropriate forum for airing business activities, successes and problems.

4.    Most of all, go out of your way to have fun.  It’s important to have fun with each other and connect or reconnect with those family members you often don’t see. In the event you see your family regularly at work, go out of your way to renew, rekindle and enjoy a side of your relatives you would otherwise not see. Here are some suggested family icebreakers to be discussed in a group:

  • What’s your favorite holiday memory?

  • What’s the most exciting thing that’s happened this past year?

  • What is your biggest dream for the new year?

Here are some other ideas:

  • Take a multigenerational family photograph.

  • Learn about each other’s kids—your nieces and nephews.

  • Hide a special small toy or prize in the holiday pudding; the winner receives a special gift.

  • Have a holiday cookie “bake off” with your grandsons and granddaughters.

  • Do your best to focus your time and energy on activities that celebrate family traditions and the blessings of the season.

The holiday season provides great opportunities to emphasize those family values that are the bedrock of your family. As you plan family activities, understand that less is more. Consider what you can do to create balance and harmony and to enjoy the family and life you’ve created.

Blessings to you and your family. Have a happy holiday season!

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

’Tis the Season… For Accidents, Burglaries and Other Mishaps

How to manage holiday-related risk

Key Takeaways:

  • Insurance claim experience has shown that increased social activities and travel throughout the holiday season lead to a corresponding rise in accidents and property damage.

  • You can lessen your exposure by anticipating the frequent causes of mishaps and taking proactive steps to mitigate them.

  • The holiday season also is an ideal time to revisit the insurance coverage that is currently in place, to make sure that protection will be adequate in the unfortunate event of a claim.



The holidays are a time for family gatherings, entertaining friends, gift-giving and travel. It’s also a time when homeowners and their guests have increased exposure to accidents, property damage and theft.

Following is an overview of the most prevalent incidents as well as practical tips that can help you employ to maximize their protection at home and on the road.

1. Home entertaining

Common risks:

  • Hosting events at home increases the potential for accidents that can lead to personal liability lawsuits. Examples include guests slipping on a wet floor or an icy walkway, a car accident caused by an “over-served” attendee, sickness due to spoiled food, dog bites and more.

  • Possessions inside the home are subject to breakage or theft as a result of increased foot traffic. In addition, fires can stem from overloaded electrical outlets, neglected candles, unsecured decorations and cooking mishaps.

  • If outside help is hired, such as a catering company or a valet parking service, any actions or injuries sustained on the premises can be blamed on you, the homeowner.

What you can do:

  • Consider the weather conditions and how they will impact traffic inside and outside your home. Take precautions to address wet, slippery walkways or foyers. Notify guests to take extra care around areas that are particularly crowded or that you know to be potentially unsafe.

  • Be mindful of holiday décor. Could items on upper levels fall? Are there any obstructed areas that could pose a safety concern?

  • Move high-value items (particularly artwork, breakables and sculptures) away from high-traffic areas whenever possible.

  • Keep jewelry and other smaller valuables out of sight and locked in safes whenever possible. If you have a wine cellar inside your home, lock the entrance.

  • Have contact information handy for local taxi services in case guests cannot drive home safely.

  • Do not leave candles burning in unoccupied rooms. Unplug interior decorations before going to sleep, and unplug appliances not in use. Avoid using old plugs that don’t fit snugly into the outlet. In addition, replace devices or décor that has frayed wires.

  • If an outside vendor is helping with the party, request a certificate of liability insurance and proof of workers’ compensation insurance to ensure that their insurance will respond if there is an incident.

2. Leaving the house unoccupied

Common risks:

  • Weather events increase the chance of property damage. Freezing temperatures can lead to burst pipes; heavy rains, wind and ice can cause power outages and flooding.

  • A vacant home is a target for burglars.

  • Announcing vacation plans via online social networks can also increase your risk of being burglarized.

What you can do:

  • Occupancy is the best prevention. If you aren’t in a position to hire a caretaker, you can have a friend or neighbor check the property periodically—with their car clearly visible in the driveway if possible.

  • Look to technology. Low-temperature sensors and water shutoff devices can help identify problems before they get out of control. Set lights to turn on/off throughout the day—not just at night.

  • Conduct a professional security assessment to ensure that the existing alarm system provides optimal protection against burglary, fire and low temperatures.

  • Also consider behavior patterns that can elevate the risk of burglary. For example, if your family travels at the exact same time each year, it’s easier for a criminal to target the home.

  • Advise family members to use social media wisely. Don’t announce to a broad (and often unknown) audience that your home will be vacant.

3. Travel

Common risks:

  • Liability laws may vary from country to country, as does the climate for litigation.

  • Gifts and other items purchased abroad are often lost or damaged before making it home.

  • Valuables are left accidentally in hotel rooms or on planes.

  • If a family member gets sick or injured, nonrefundable tickets may be canceled or trips cut short. In a remote destination, top-quality medical care may not be within reach.

What you can do:

  • Consult with an insurance professional prior to your trip to gain a better understanding of local laws and their coverage, particularly if you are renting a car or recreational vehicle. When possible, choose an excess liability (umbrella) insurance policy that offers worldwide coverage.

  • Leave high-value jewelry at home, in a safe or safety deposit box. If you must travel with jewelry, keep it with you at all times; do not place it in checked luggage.

  • If larger or fragile items purchased on vacation (such as artwork or cases of wine) cannot travel home with you, then consult a specialized shipping company for assistance. Notify your insurance agent of any substantial new purchases to ensure coverage as soon as you become the owner of those items.

  • A homeowners’ policy may not be sufficient for jewelry, art and other high-value collectibles. A separate private collections policy offers more appropriate coverage.

  • Obtain travel insurance, which can provide coverage for medical evacuation as well as trip cancellation.

  • If a family member has a pre-existing medical condition, prior to departure identify local emergency contacts at their destination.

Conclusion

Insurance claims can be disruptive on many fronts. In addition to taking proactive steps to minimize your likelihood of damage, it is crucial to have adequate coverage limits in place if an incident cannot be avoided. You can benefit from annual reviews of your property and liability coverage needs. Consulting an independent insurance agent or broker who specializes in the high-net-worth niche is the best way to access the broadest range of product and service solutions designed for your lifestyle.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Why You Need a ‘Business Plan’ for Your Family

When business owners start a new venture or seek out funding, they always create a detailed business plan first. But chances are, most parents have never once thought about creating a similar type of plan for their most important asset: their families.

 

Your family may not be a business, but clearly it can be a good idea to foster it like good business owners do with their companies. By taking steps to formally identify your family’s values and goals, as well as to assess the quality of the relationships you have with each other, you can start to strengthen existing bonds—and repair any bridges that are in bad shape. By actively working together toward family goals, you can instill greater resiliency, competency and life skills in your children.

 

Here’s why it’s so important to create family plans along the lines of highly successful business plans—along with actionable advice for creating these plans in your own life.

Click Here to Read More:

Why You Need a ‘Business Plan’ for Your Family

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.