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8 14-rj kelly-215pm 8 14-rj kelly-215pm Presentation Transcript

  • “I KNOW I NEED TO THINK ABOUT IT, BUT I AM TRYING TO RUN A BUSINESS HERE!” Presented To: Advisor Network Summit R. J. Kelly Founder & Chief Visionary Officer Wealth Legacy Family of Companies® August 14, 2014 ©2014. RJ Kelly. All rights reserved worldwide
  • “I KNOW I SHOULD THINK ABOUT IT …” • Do you have successful business clients? • Do you want more? • Broaden your approach! ©2014. RJ Kelly. All rights reserved worldwide
  • • Do you have business clients that tell you these things? • Overwhelmed just meeting daily needs at work and/or in the family? • Little to no time to address Covey’s “Impt/Not Urgent” business & personal issues? • Uncertain where and how to get started with “bigger picture” planning? • Not sure whom to trust? • Wish someone had a checklist of things to think about and action steps to follow? Whom Do You Know That …? ©2014. RJ Kelly. All rights reserved worldwide
  • If so … this will be valuable time together ! ©2014. RJ Kelly. All rights reserved worldwide
  • Here to give you my exact approach … ©2014. RJ Kelly. All rights reserved worldwide
  • A roadmap to follow on a number of topics … ©2014. RJ Kelly. All rights reserved worldwide
  • Settle in & relax… and be prepared for some audience participation! ©2014. RJ Kelly. All rights reserved worldwide
  • • A “peek behind the curtain” – successful business family1 • Consider critical estate, family & business planning decisions2 • “Experience” small taste of a “Wealth Legacy Assessment”3 Goals For Today’s Talk: ©2014. RJ Kelly. All rights reserved worldwide
  • GET HELP FROM MY FRIENDS … “PETE & SALLY” ©2014. RJ Kelly. All rights reserved worldwide
  • Pete & Sally Ages 49 & 47 Thirteen years as successful franchise owners 4 children: 2 in business – 2 outside (1 special needs) New Franchisee ©2014. RJ Kelly. All rights reserved worldwide
  • MORE IN A MINUTE … WHAT IS MY BIAS? MY FILTERS?
  • R. J. KELLY & WLG Wealth Legacy Family of Companies® 37 Years … Multi-disciplinary … Fee Based • Business Consulting & Succession Planning • Insurance Services Life/Disability/Health/Long Term Care • Wealth Management: Independent Registered Investment Advisors • Family & Team Counseling • Litigation Support Service ©2014. RJ Kelly. All rights reserved worldwide
  • NOW … LET’S GET STARTED! ©2014. RJ Kelly. All rights reserved worldwide
  • Pete & Sally Ages 49 & 47 Sixty-three employees 4 children: 2 in the business 1 outside business 1 with special needs ©2014. RJ Kelly. All rights reserved worldwide
  • Leadership - “Who’s Who?” Leadership Position Age Pete President 49 Sally Vice Pres, CFO, H/R 47 Brian Technician/Team Leader 32 Key employee Kathy (daughter, married to Dale) Technician/Team Leader 28 Key employee John (son, single) Dispatcher 24 New but learning ©2014. RJ Kelly. All rights reserved worldwide
  • Years EmployeeGrowth 63 Ee’s (2013) 100+ Ee’s (2016) Three Year Ee Growth Plans 78 Ee’s (2014) ©2014. RJ Kelly. All rights reserved worldwide
  • BIGGEST CONCERNS FOR PETE & SALLY: ©2014. RJ Kelly. All rights reserved worldwide
  • FOUR MAJOR AREAS Re Ownership & Transition Of Assets Insurance & Reducing Risk Taxes & Tax Deferral Resolving Conflict In Family & Biz ©2014. RJ Kelly. All rights reserved worldwide
  • OWNERSHIP & TRANSITION OF ASSETS ©2014. RJ Kelly. All rights reserved worldwide
  • ESTATE PLANNING DOCUMENTS WERE “MIA” ©2014. RJ Kelly. All rights reserved worldwide
  • NO DISCUSSION OF INTENTIONS BETWEEN PETE/SALLY & KIDS ©2014. RJ Kelly. All rights reserved worldwide
  • NO EXIT/TRANSITION PLAN FOR THE BUSINESS • 75 – 83% plan to sell within next 10 years … • Less than 5% have a written plan ©2014. RJ Kelly. All rights reserved worldwide
  • INSURANCE & RISK REDUCTION ©2014. RJ Kelly. All rights reserved worldwide
  • NO ASSET PROTECTION –Rental property (apartments) –Office building (franchise operations) ©2014. RJ Kelly. All rights reserved worldwide
  • NO KEY PERSON INSURANCE • For Death • For Disability –None on Pete or Sally –None on Key Ee’s Brian or Kathy ©2014. RJ Kelly. All rights reserved worldwide
  • LIMITED PERSONAL INSURANCE • Life insurance – Only $500,000 on Pete; – None on Sally • Income replacement for disability – None for either • Long Term Care or Critical Illness coverage – None for either ©2014. RJ Kelly. All rights reserved worldwide
  • HEALTHCARE & WORKER’S COMP • Costly & getting worse – dramatically! • Confusing … • Worse in 2015+ –Other options?? ©2014. RJ Kelly. All rights reserved worldwide
  • TAXES & TAX REDUCTION ©2014. RJ Kelly. All rights reserved worldwide
  • PAYING MORE IN TAXES THAN NECESSARY • Business & Personal • Not aware of add’l business deductions • Lack of “contemporaneous records” for deductions (no vehicle documentation; not taking home office deduction, etc.) ©2014. RJ Kelly. All rights reserved worldwide
  • NO PLANNING FOR RETIREMENT • Missing tax shelter & asset protection • No preparation for retirement – No specific targets, dates, amounts, etc. Need $$$ Help ©2014. RJ Kelly. All rights reserved worldwide
  • OFFICE & FAMILY CONFLICT ©2014. RJ Kelly. All rights reserved worldwide
  • POTENTIAL OFFICE & FAMILY CONFLICT • Roles in office - not clearly defined • Brian & Kathy - tension between them • Son, Don - not working in the business; sense of entitlement • Kathy’s husband, Dale – interested in joining family operation • How to care/provide financially for Rachel? ©2014. RJ Kelly. All rights reserved worldwide
  • RESPONSIBILITIES & EXPECTATIONS WITH LITTLE TRAINING –Much falling on Sally • Human Resources (H/R) • Employee Training • Staff Supervision –Little to no background for role(s) –Not fulfilling or in area(s) of interest ©2014. RJ Kelly. All rights reserved worldwide
  • WEALTH LEGACY ASSESSMENT™ “If you fail to plan, you are planning to fail” Benjamin Franklin ©2014. RJ Kelly. All rights reserved worldwide
  • * WHAT WOULD YOU TELL THEM TO DO? * WHERE SHOULD THEY START? ©2014. RJ Kelly. All rights reserved worldwide
  • BIG PICTURE PERSPECTIVE ©2014. RJ Kelly. All rights reserved worldwide
  • Wealth Legacy Assessment™ ©2014. RJ Kelly. All rights reserved worldwide
  • ITS BEEN SAID … • “You never really know your family until you share an inheritance with them.” • Money brings out the best & worst in people ©2014. RJ Kelly. All rights reserved worldwide
  • MONEY IS JUST A MAGNIFIER … Magnifies –Good or bad character … –Good or bad parenting … ©2014. RJ Kelly. All rights reserved worldwide
  • WHAT DID I RECOMMEND? EP & Asset Protection Risk Conflict Tax ©2014. RJ Kelly. All rights reserved worldwide
  • OWNERSHIP & TRANSITION OF ASSETS ©2014. RJ Kelly. All rights reserved worldwide
  • “GENTLEMEN, THIS IS A FOOTBALL” • Green Bay Packers & John Brockington ©2014. RJ Kelly. All rights reserved worldwide
  • WILLS, “LIVING TRUST”, & OTHER KEY DOCUMENTS ©2014. RJ Kelly. All rights reserved worldwide
  • Key Points To Address … • Will to address specific assets • HIPAA releases: you, spouse, children, parents • Health care & Financial Power’s of Attorney • Living trust – Eliminate A/B Trust? (“Portability” not “Use or lose” anymore) – May need “QTIP” if children from prior marriage – Instead, use “Probate Avoidance Trust” – Consider “Discretionary Trust” ©2014. RJ Kelly. All rights reserved worldwide
  • Common Mistakes I See … • Trust set up in “unfavorable state” like CA • Trust distributes assets at certain ages … – 1/3 age 25; ½ balance age 30; balance age 35 • Before distribution – asset protection … • After distribution, subject to: – Creditors – Divorcing spouses – Uncle Sam • Other options?©2014. RJ Kelly. All rights reserved worldwide
  • Discretionary Trusts … • Protect against … In-laws – Outlaws - Creditors - Predators • 13 states - repealed laws against perpetuities • NV allows 365 year trusts • CA – “lives in being + 21 years” … 80 yrs? 100? • Include “incentive language” & “disincentive” • Give beneficiaries right to replace trustee • Can put a “kill switch” in trust for next gen ©2014. RJ Kelly. All rights reserved worldwide
  • Key Points … • Just use probate avoidance trust • Can eliminate A/B provisions • Don’t terminate trust for beneficiaries • Create “discretionary trustee” • Set up trust in asset protected state like NV, DE, SD, AK … or international safe havens • At minimum, insert “trust protector language” ©2014. RJ Kelly. All rights reserved worldwide
  • BUSINESS SUCCESSION AND EXIT PLANNING… ©2014. RJ Kelly. All rights reserved worldwide
  • BUSINESS SUCCESSION AND EXIT PLANNING… A written plan should include: – Timeframe – Determine type of transition (sale or transfer?) – Thought through with all involved parties! – Determine business value? How to increase? – Who needs to be on transition team? – Amount of income needed from a sale? – Ways to minimize taxes and costs? (See my handout from Vistage Int’l Conference) ©2014. RJ Kelly. All rights reserved worldwide
  • SPECIAL NOTE ABOUT ESOP’S • Rarely seen them ultimately used • Expensive (~$100k 1st year + annual fees/costs thereafter) • Doesn’t end there … “repurchase liability” • Where it fits … fits well – Tax-free repositioning into publicly traded stocks – Banks receive special rates & pass along ©2014. RJ Kelly. All rights reserved worldwide
  • MAY I HAVE YOUR PERMISSION TO BE DIRECT – IF YOU ARE CONSIDERING SELLING? • Investment bankers or business brokers do not care about how much tax you will pay … • Your CPA will generally tell you to “just pay the tax …” (Client $4M sale last year - $890,000 tax) • Your attorney will not likely get involved • Understand – there are ways to eliminate or defer upwards of 99% of tax upon sale – Split Interest LLC – Deferred Sales Trust – Capital Gains Elimination Trusts ©2014. RJ Kelly. All rights reserved worldwide
  • WHAT IS A “SPLIT-INTEREST LLC?” • Wont’ find it directly in tax code • Split-interest transactions – created in 1969 tax reform legislation • Support the social well-being of America in a way that is good for you, too • Fixed period of years set at outset • Whatever is left in the bucket goes to charity – which could be your own family foundation ©2014. RJ Kelly. All rights reserved worldwide
  • “SPLIT-INTEREST LLC” • Creates tax savings: – Eliminates up to 99% of taxes (from a sale) – Creates current income tax deductions (Present Value of Future Gift) – Undistributed income is up to 99% non-taxable • Asset protection (use DE or NV resident LLC for “wrapper” around asset) ©2014. RJ Kelly. All rights reserved worldwide
  • “SPLIT-INTEREST LLC” • Can “self-direct” account as “Managing Member” – Paid salary as MM – Access to principal of LLC if needed (loans) – Can use to acquire other assets (business, RE, other) – Passes to spouse or child/children if desired ©2014. RJ Kelly. All rights reserved worldwide
  • CASE EXAMPLE – CLIENT “BILL” • His share of business - $20M • Basis – next to nothing • Sale to private company - future plans for IPO • $5M in cash – over two years • RED FLAGS! – 20% Federal LTCG tax – 13% CA State (No LTCG treatment. Ordinary income) – 3.8% Obama Medicare tax ©2014. RJ Kelly. All rights reserved worldwide
  • SOLUTIONS? • Stock “swap” … Section 351 (S. 721 if LLC) • $0 Tax on $15M of swap – Basis carries over to new stock • Did “Split Interest LLC” for $5M cash – $23,000 in taxes instead of $2M! – Control of cash – Asset protection – Et al. ©2014. RJ Kelly. All rights reserved worldwide
  • FINAL POINT … • If considering giving stock to key employees … • Take very cold shower and call me in the morning • Seldom has lasting appreciation by key EE • Better to consider “Synthetic Equity” – Phantom Stock Plan – Stock Appreciation Rights Plan – Wage Continuation Agreement • Death • Disability • Retirement – supplemental compensation ©2014. RJ Kelly. All rights reserved worldwide
  • INSURANCE & REDUCING RISKS ©2014. RJ Kelly. All rights reserved worldwide
  • FIRST … “BUILD” A BETTER STRUCTURE TO OWN THE BUILDINGS ©2014. RJ Kelly. All rights reserved worldwide
  • NOT ALL LLC’S BUILT THE SAME • First defense – adequate liability coverage • LLC to own real property & perhaps business • Consider multiple LLC’s – – The “Live Out Of LLC” – 99% Indiv’l; 1% Rainy Day LLC – The “Rainy Day LLC” - 1% Indiv’l; 99% Domestic APT • Charging order protection – NV, DE, SD, etc. • “Sole remedy” states • Distribution of income – at discretion of “Managing Member” • Borrow from LLC if needing income ©2014. RJ Kelly. All rights reserved worldwide
  • WHAT IS THE LONGEST TIME YOU HAVE BEEN AWAY FROM YOUR BUSINESS? • Week? • Two weeks? • Month? • Longer? • What if one day you walk out and don’t walk back in? How will that impact your business? ©2014. RJ Kelly. All rights reserved worldwide
  • RECOMMENDED PURCHASE OF: KEY PERSON LIFE & DISABILITY COVERAGE • On Pete especially & Sally … • On Brian & Kathy … • For transition, loss of profits, “Persuasion”$$$ • New rules since 2006 • Must get Key EE to sign disclosures ©2014. RJ Kelly. All rights reserved worldwide
  • RECOMMENDED PURCHASE OF: KEY PERSON LIFE & DISABILITY COVERAGE • CPA must complete Form 8925 • No remedy if didn’t follow rules • Fully taxable upon death of key EE • If C Corp, Alternative Min Tax applies to proceeds ©2014. RJ Kelly. All rights reserved worldwide
  • ADDITIONAL PERSONAL COVERAGE • For: – Income continuation to Sally – Business equalization for son, Don … • Cash instead of business interest – Fund Special Needs Trust for Rachel – Replacement income in the event of disability – Money for “long term care” … • 40% below age 55 will have a long term care event ©2014. RJ Kelly. All rights reserved worldwide
  • WHAT TO DO WITH RISING HEALTHCARE & WORKER’S COMP COSTS? ©2014. RJ Kelly. All rights reserved worldwide
  • RECOMMENDED HEALTHCARE PLAN REDESIGN … • A what?? ©2014. RJ Kelly. All rights reserved worldwide
  • The Company That Solved Health Care – John Torinus • Companies 100+ ee’s on healthcare plan o Seeing savings of 20-34% … o 10-18% savings for plans with 50+ ee’s • Don’t pay commissions – pay for reduced claims • Bolt on “drug cop”: 10-40% of costs are pharmacy • Utilize “Health Care Blue Book” ©2014. RJ Kelly. All rights reserved worldwide
  • The Company That Solved Health Care – John Torinus • Capture claims utilization data • Claim share of insurance company profit • Probability of “max claims” – only 2% in given year • Client in TX - 2014 guaranteed savings $500k+ • ACA only makes this better! ©2014. RJ Kelly. All rights reserved worldwide
  • Other Risk Management Concepts? Consider creation of “Captive Insurance Company” • Section 831(b) Election • Up to $1.2M/year in deductions • Asset protection • Converts ordinary income into capital gains • Use as “Velvet Handcuffs” key employees • Best inter-generational asset transfer technique I know of … ©2014. RJ Kelly. All rights reserved worldwide
  • TAXES & TAX REDUCTION ©2014. RJ Kelly. All rights reserved worldwide
  • SAVING TAXES – SEMINAR IN ITSELF Contemporaneous Documentation! ©2014. RJ Kelly. All rights reserved worldwide
  • BIGGEST FAILURE I SEE … LACK OF PROPER DOCUMENTATION! ©2014. RJ Kelly. All rights reserved worldwide
  • How Many Of You Claim A Home-Based Office? ©2014. RJ Kelly. All rights reserved worldwide
  • Can Have Multiple Offices • Administrative office can be different than … • Sales, marketing, dispatch office … • Write a letter to yourself (if incorporated) ⁺ ©2014. RJ Kelly. All rights reserved worldwide
  • How Many Of You Know The Details of This? February 24, 2013 IRS simplifies guidelines for deducting home office ©2014. RJ Kelly. All rights reserved worldwide
  • Primary Objective Is ??? • Eliminate commuting miles or reduce to as little as possible … and increase business miles … which are deductible! ©2014. RJ Kelly. All rights reserved worldwide
  • RETIREMENT PLANNING: AMOUNTS NEEDED GROSSLY UNDERESTIMATED & LARGELY UNPREPARED FOR ©2014. RJ Kelly. All rights reserved worldwide
  • FOR PETE & SALLY • Determined income desired & by when? • Various options for accumulation • Optimized retirement plan • Added supplemental plan ©2014. RJ Kelly. All rights reserved worldwide
  • MOST AMERICANS CANNOT RETIRE • Requires 85% of current annual income to maintain lifestyle similar to today, with … – Occasional Travel – Hobbies – Some Volunteering • Average American (ages 41-54) has savings of only $30,000 • 14% have no savings at all! ©2014. RJ Kelly. All rights reserved worldwide
  • DEALING WITH OFFICE & FAMILY CONFLICT ©2014. RJ Kelly. All rights reserved worldwide
  • WHAT ARE THE POTENTIAL POINTS OF CONFLICT? ©2014. RJ Kelly. All rights reserved worldwide
  • Potential Conflicts? Rachel Sally Don Kathy Dale In-Laws in the Biz Entitlement Undefined care Responsibilities w/o training Brian ©2014. RJ Kelly. All rights reserved worldwide
  • #1: IDENTIFY, DEFINE AND COMMUNICATE CORE VALUES – PETE & SALLY ©2014. RJ Kelly. All rights reserved worldwide
  • #2: DETERMINE TEAM’S EMOTIONAL DNA ©2014. RJ Kelly. All rights reserved worldwide
  • 3 Unique Factors Iceberg Behavioral DNA What Other People See! (20% of our uniqueness) Perception…………………………………………………………………………………………………………………………………….. Waterline Decision-Making DNA Partially Visible Patterns (20% of our uniqueness) Motivation DNA Mostly Hidden Motives (60% of our uniqueness) Virtually Hidden………………………………………………………………………………………………………………………………………….. INTERPLAY DNA Profile ©2014. RJ Kelly. All rights reserved worldwide
  • • Behavioral DNA – How does each team member tend to behave and why? – What stresses them out and why? ©2014. RJ Kelly. All rights reserved worldwide
  • • Decision-Making DNA – How does each team member typically make their decisions? – What changes when they get stressed? ©2014. RJ Kelly. All rights reserved worldwide
  • • Motivational DNA – What are each members motivational “trigger points?” ©2014. RJ Kelly. All rights reserved worldwide
  • DELIBERATE TASK PEOPLE FAST PACED PARTICIPATOR TASKMASTERANALYZER ENERGIZER 1) INTERPLAY Behavioral DNA FLEXIBLE ©2014. RJ Kelly. All rights reserved worldwide
  • ANALYZER “Plan ahead!” Data Driven Probabilties Product Quality Maximize Information Minimize Risk Spock “Aim, Aim, Aim” PARTICIPATOR “Reach out & touch someone” Relationship Driven Sociabilities Equity/Fairness Openness Build Trust & Chemistry Mother Theresa “Ready, Ready, Ready” TASKMASTER “Just do it!” Results Driven Accountabilities Product Volume Personal Control Bottom Line General George Patton “Fire, Fire, Fire” ENERGIZER “Dream the impossible dream” Change Driven Possibilities Selling and Promoting Minimize Hard Data Be Creative Bill Clinton “Ready, Fire, Aim” Deliberate Task Fast Paced People Behavioral DNA Languages FLEXIBLE/ADAPTER “It Depends!” Situation Driven Keep Options Open Weigh Alternatives Chameleon Wait Until Last Minute Frank Abagnale, Jr “Whatever” ©2014. RJ Kelly. All rights reserved worldwide
  • TEAMMATCH™ @ WEALTH LEGACY GROUP ©2014. RJ Kelly. All rights reserved worldwide
  • ©2014. RJ Kelly. All rights reserved worldwide
  • ©2014. RJ Kelly. All rights reserved worldwide
  • SALLY’S FEEDBACK “Oh MY GOODNESS ... Who told them? It is as if someone crawled inside of myself! I was laughing and nodding and in a state of ‘How did they do that?’ as I reviewed it. Thank you for these insights. It will be great fun to do something with this once Pete and the kids are finished as well.” ©2014. RJ Kelly. All rights reserved worldwide
  • #3: BUILD TEAM UNITY AT WORK • Use InterPlay™ profiles to outline team strengths and improve communication • Draft clear job descriptions, define roles • Team building projects and exercises? • Create shared philanthropic goals? ©2014. RJ Kelly. All rights reserved worldwide
  • #4: IDENTIFY, DEFINE AND COMMUNICATE CORE VALUES - FAMILY • Family acrostic – (“L.A.S.T.S.” for the Kelly/Noy family) • Family Council – Use a facilitator to “direct traffic” – Use InterPlay™ profiles to outline family strengths and to improve communication – Include Don and Rachel (as possible) – Include Dale and other future spouses • Create shared family goals • Draft family mission statement? ©2014. RJ Kelly. All rights reserved worldwide
  • #5: GAIN OUTSIDE PERSPECTIVES FOR COMPANY • Create Board or “Virtual” Board –Leverage from others wisdom/experiences –Build succession “shock absorbers” • Use professional facilitator –Local –Virtual ©2014. RJ Kelly. All rights reserved worldwide
  • • Met “Pete & Sally”, successful Vistage entrepreneurs1 • Explored issues facing them (did a few apply to you, too?)2 • Condensed version of our Wealth Legacy Assessment™3 Recap On Today’s Session: ©2014. RJ Kelly. All rights reserved worldwide
  • IF YOU WANT TO TALK SPECIFICALLY … • 60 minute complimentary consultation to Advisor Network attendees: – Believe in a team approach … – “No one has a corner on all the good ideas” – Good place to start is … • Complimentary review of client’s estate planning documents • Brainstorm their succession plans … • Review tax planning & asset protection needs ©2014. RJ Kelly. All rights reserved worldwide
  • Last Few Thoughts & Takeaways … • QuoteActions: No charge or follow up … • “’You cannot live a perfect day without doing something for someone who will never be able to repay you.’ John Wooden, Legendary Basketball Coach. • Your action for today is to make an anonymous donation or do something nice for someone without them finding out you did it.” ©2014. RJ Kelly. All rights reserved worldwide
  • HOW ABOUT SOME QUESTIONS? ©2014. RJ Kelly. All rights reserved worldwide
  • THANK YOU FOR YOUR KIND ATTENTION! Here’s To Living A Life Of Intention