Should you consider a psychiatric advance directive?

Many people include health care powers of attorney or advance directives in their estate plans so they have some influence over critical medical decisions in the event they’re incapacitated and unable to make decisions themselves. A psychiatric advance directive (PAD) is less well known, but worth considering, especially if your family has a history of mental illness.

Health care directives

To cover all the health care bases, have two documents: an advance health care directive (sometimes referred to as a “living will”) and a health care power of attorney (HCPA). Some states allow you to combine the two in a single document.

An advance directive expresses your preferences for the use of life-sustaining medical procedures and specifies the situations in which these procedures should be used or withheld.

A document prepared in advance can’t account for every scenario or contingency. However, it’s wise to pair an advance directive with an HCPA. This allows you to authorize your spouse or other trusted representative to make medical decisions or consent to medical treatment on your behalf if you’re unable to do so.

Why a PAD?

Many states allow generic HCPAs and advance directives to address mental as well as physical health issues. But some states limit or prohibit mental health treatment decisions by general health care representatives. Around half of the states have PAD statutes, which authorize special advance directives to outline one’s wishes with respect to mental health care and appoint a representative to make decisions regarding that care.

PADs may address a variety of mental health care issues, including:

• Preferred hospitals or other providers,

• Treatment therapies and medications that may be administered,

• Treatment therapies and medications that may not be administered, such as electroconvulsive therapy or experimental drugs,

• A statement of general values, principles or preferences to follow in making mental health care decisions, and

• Appointment of a representative authorized to make decisions and carry out your wishes with respect to mental health care in the event you’re incapacitated.

Although requirements vary from state to state, to be effective, a PAD must be signed by you and your chosen representative, and in some states by two witnesses. Be sure to discuss the terms of the PAD with your family, close friends, physician and any mental health care providers. And to be sure that the PAD is available when needed, give copies to all of the above persons, keep the original in a safe place and let your family know where to find it.

If you’re concerned about the possibility of mental illness and wish to have some say over your treatment in the event you’re incapacitated, contact us to learn more about a PAD.

© 2022

Inbound vs. outbound: Balancing your company’s sales strategies

It might sound like the lingo of air traffic controllers — inbound vs. outbound. But businesses of all types must grapple with these concepts and their associated challenges when developing sales strategies.

Inbound sales originate when someone contacts your company to inquire about buying a product or service, whereas outbound sales arise from members of your sales team reaching out to customers and prospects.

Like many businesses, yours may not have the luxury of choosing one approach over the other. You probably have to find the right balance.

Inbound sales: Marketing your brand

Inbound sales are all about marketing your brand. Customers and prospects need to know who you are and what you offer, otherwise they won’t be in touch.

Thus, you’ll need to invest in a strong brand-based, content-driven marketing strategy that establishes and maintains your reputation as a “destination business” in your industry. Interested parties who encounter your marketing materials should wind up thinking, “I want to go there.”

If you can accomplish that, you’ll need a well-trained, patient inside sales team who are experts on your products or services. The word “patient” is key. One of the downsides to inbound sales is that they can take longer to close than outbound sales. They’re also less targeted. You have to deal with whoever contacts you. Some prospects might show up with unrealistic expectations or turn out to be difficult customers.

On the plus side, inbound sales are typically less labor-intensive and expensive because the buyer is coming to you and your customer base is generally more concentrated. What’s more, inside sales teams may incur less turnover because of lower rejection rates and a greater emphasis on technical know-how over a traditional “make your numbers or else” mindset.

Outbound sales: Lots of work, big potential

Outbound sales are largely based on intensive market research. You need to know the demographics and other key data points of those most likely to buy from you — and then you’ve got to go out and get ’em.

The downside to outbound sales is they tend to entail much more work (cold calls, follow-up, virtual and/or in-person meetings) and typically incur a higher rejection rate. In addition, this approach is often more expensive. You’ll need to cast a much wider net in terms of marketing and advertising. Outside salespeople tend to work longer hours, and they may incur substantial travel expenses and have a higher turnover rate. You might need more of them to cover your sales territories, too.

All that said, under the right circumstances and when properly executed, outbound sales can generate more revenue than inbound sales. You can target a large number of precisely the types of customers who will most likely buy from you, and sales are often quicker and easier to close.

Assess your position

Has your company been running on autopilot when it comes to balancing inbound vs. outbound sales? Now’s a good time to address the issue as we head into the new year.

If, for example, you’re waiting around for inbound sales that aren’t showing up, maybe it’s time to pivot to an outbound sales strategy. On the other hand, if you’ve emerged as a major player in your market, perhaps you can cut back on the outreach, beef up your brand and rely more on inbound sales. Contact us for help evaluating your sales numbers, as well as identifying the costs and forecasting the potential revenue of both approaches.

© 2022

In your own words: A letter of instruction complements a will

A smart estate plan should leave no doubt as to your intentions. Writing a letter of instruction can go a long way toward clearly communicating all of your thoughts and wishes. Even though the letter, unlike a valid will, isn’t legally binding, it can be valuable to your surviving family members.

The devil is in the details

Although the content can vary from person to person, one of the main purposes of a letter of instruction is to provide details on final wishes that haven’t been conveyed in the will. Think of the letter as a way to fill in some of the “gaps” or resolve matters that may be left open to interpretation.

For example, your letter can detail vital financial information that was omitted or glossed over in your will. Typically, this can include an inventory of real estate holdings, investment accounts, bank accounts, retirement plan accounts and IRAs, life insurance policies, and other financial assets.

Along with the account numbers, list the locations of the documents, such as a safe deposit box or file cabinet. And don’t forget to provide the contact information for your estate planning team. Typically, this will include your attorney, CPA, investment advisor and life insurance agent. These professionals can assist your family during the aftermath.

Many people also use a letter to lay out their wishes for personal possessions. Keep in mind that without spelling out your intentions, bitter disputes may erupt over items that have more sentimental value than monetary worth, including furniture, photographs, jewelry and artwork.

Content is up to you

There are no hard-and-fast rules for writing a letter of instruction. The basic elements are outlined above, but the choices are ultimately up to you. Remember that the letter isn’t legally binding, so there is no obligation to include any particular item. Conversely, you can say pretty much whatever else you want to say.

Rewrite if necessary

Completing your letter of instruction shouldn’t be the end of the story. You may have to revisit it for rewrites or edits you didn’t accommodate before. For example, you may have neglected to specify certain accomplishments you want to be mentioned in an obituary.

In addition, it’s likely that some of your personal information will change over time, such as bank account numbers and passwords. Update the letter when warranted. Think of it as an ongoing process.

Finally, make sure that the letter is secured in a safe place. Any printed version should accompany your will or be located somewhere else that’s accessible to trusted family members. At the same time, you must be able to update the letter whenever you need to.

Clarity counts

If you haven’t done so already, draft a letter of instruction and, most important, make sure that your family knows where to locate it. We can help fill in the blanks if you need help.

© 2022

Timing is everything when it comes to accounting software upgrades

“Well, it still works, and everyone knows how to use it, but….”

Do these words sound familiar? Many businesses stick with their accounting software far too long for these very reasons. What’s important to find out and consider is everything that comes after the word “but.”

Managers and employees often struggle with systems that don’t provide all the functionality they need, such as being able to generate certain types of reports that could help the company better analyze its financials. Older software might constantly freeze up or crash. In some cases, the product may even be so old that support is no longer provided.

When it comes to accounting software upgrades, timing is everything. You don’t want to spend money unnecessarily if your system is fully functional and secure. But you also don’t want to wait too long and risk losing a competitive edge, suffering data loss or corruption, or incurring a security breach.

Building a knowledge base

The first question to ask yourself is: When was the last time we meaningfully upgraded our accounting software?

Many more products may have hit the market since you bought yours — including some that were developed specifically for your industry. Although most accounting software has the same essential features, it’s these specialized functions that hold the most potential value for certain types of companies.

To make an educated choice, business owners and their leadership teams need to gain a detailed understanding of their specific needs and the technological savvy of their employees. You can go about this knowledge-building effort in various ways, including conducting a user survey and putting together a comprehensive, detailed comparison of three or four accounting software products that appear best suited to your business.

If it appears highly likely that a new accounting system would markedly improve your financial tracking and reporting, you’ll be able to make a confident and well-advised purchasing decision.

Preparing for the transition

Bear in mind that buying the software will be the easy part. Transitioning to the new system will probably be much more challenging. When changing or significantly upgrading their accounting software, companies have to walk a fine line between:

• Rushing the timeline, potentially mishandling setup issues and not providing sufficient training, and

• Dragging their feet, potentially falling behind on financial reporting.

You might need to engage an IT consultant to help oversee the data transfer from the old system to the new, catch and clean up errors, and ensure strong cybersecurity measures are in place.

It’s a big decision

Moving onward and upward from a long-used accounting system is a big decision. Let us help you determine what software features would be most beneficial to your business, identify which current products would best fulfill your needs, and develop a sensible budget for the purchase.

© 2022

What’s the difference between a springing and a nonspringing power of attorney?

Estate planning typically focuses on what happens to your children and your assets when you die. But it’s equally important (some might say even more important) to have a plan for making critical financial and medical decisions if you’re unable to make those decisions yourself.

A crucial component of this plan is the power of attorney (POA). A POA appoints a trusted representative to make medical or financial decisions on your behalf in the event an accident or illness renders you unconscious or mentally incapacitated. Without it, your loved ones would have to petition a court for guardianship or conservatorship, a costly process that can delay urgent decisions.

A question that people often struggle with is whether a POA should be springing, that is, effective when certain conditions are met or nonspringing, that is, effective immediately.

A POA defined

A POA is a document under which you, as “principal,” authorize a representative to be your “agent” or “attorney-in-fact,” to act on your behalf. Typically, separate POAs are executed for health care and property.

A POA for health care authorizes your agent — often, a spouse, an adult child or other family member — to make medical decisions on your behalf or consent to or discontinue medical treatment if you’re unable to do so. Depending on the state you live in, the document may also be known as a medical power of attorney or health care proxy.

A POA for property appoints an agent to manage your investments, pay your bills, file tax returns, continue making any annual charitable and family gifts, and otherwise handle your finances, subject to limitations you establish.

To spring or not to spring

Typically, springing powers take effect when the principal becomes mentally incapacitated, comatose, or otherwise unable to act for himself or herself.

Nonspringing POAs offer a few advantages over springing POAs:

• Because they’re effective immediately, nonspringing POAs allow your agent to act on your behalf for your convenience, not just when you’re incapacitated.

• They avoid the need for a determination that you’ve become incapacitated, which can result in delays, disputes or even litigation. This allows your agent to act quickly in an emergency, making critical medical decisions or handling urgent financial matters without having to wait, for example, for one or more treating physicians to examine you and certify that you’re incapacitated.

A potential disadvantage to a nonspringing POA — and the main reason some people opt for a springing POA — is the concern that your agent may be tempted to abuse his or her authority or commit fraud. But consider this: If you don’t trust your agent enough to give him or her a POA that takes effect immediately, how does delaying its effect until you’re deemed incapacitated solve the problem?

Given the advantages of a nonspringing POA, and the potential delays associated with a springing POA, it’s usually preferable to use a nonspringing POA and to make sure the person you name as agent is someone you trust unconditionally. If you’re still uncomfortable handing over a POA that takes effect immediately, consider signing a nonspringing POA but have your attorney or other trusted advisor hold it and deliver it to your agent when needed.

Contact us if you have additional questions regarding a springing or nonspringing POA.

© 2022

Don’t overlook foreign assets when planning your estate

You’d be surprised how often people fail to disclose foreign assets to their estate planning advisors. They assume that these assets aren’t relevant to their “U.S.” estate plans, so they’re not worth mentioning. But if you own real estate or other assets outside the United States, it’s critical to address these assets in your estate plan.

Watch out for double taxation

If you’re a U.S. citizen, you’re subject to federal gift and estate tax on all of your worldwide assets, regardless of where you live or where the assets are located. So, if you own assets in other countries, there’s a risk of double taxation if the assets are subject to estate, inheritance or other death taxes in those countries.

You may be entitled to a foreign death tax credit against your U.S. gift or estate tax liability — particularly in countries that have tax treaties with the United States. But in some cases, those credits aren’t available.

Keep in mind that you’re considered a U.S. citizen if 1) you were born here, even if your parents have never been U.S. citizens and regardless of where you currently reside (unless you’ve renounced your citizenship), or 2) you were born outside the United States but at least one of your parents was a U.S. citizen at the time.

Even if you’re not a U.S. citizen, you may be subject to U.S. gift and estate tax on your worldwide assets if you’re domiciled in the United States. Domicile is a somewhat subjective concept — essentially it means you reside in a place with an intent to stay indefinitely and to always return when you’re away. Once the United States becomes your domicile, its gift and estate taxes apply to your assets outside the United States, even if you leave the country, unless you take steps to change your domicile.

One will may not be enough

To ensure that your foreign assets are distributed according to your wishes, your will must be drafted and executed in a manner that will be accepted in the United States as well as in the country or countries where the assets are located. Often, it’s possible to prepare a single will that meets the requirements of each jurisdiction, but it may be preferable to have separate wills for foreign assets. One advantage of doing so is that separate wills, written in the foreign country’s language (if not English) can help streamline the probate process.

If you prepare two or more wills, work with local counsel in each foreign jurisdiction to ensure that they meet each country’s requirements. And it’s critical for your U.S. and foreign advisors to coordinate their efforts to ensure that one will doesn’t nullify the others.

Trust issues

Your U.S. estate plan may use one or more trusts for a variety of purposes, including tax planning, asset management and asset protection. And your U.S. will may provide for all assets to be transferred to a trust.

Be aware, however, that many countries don’t recognize trusts. So, if your estate plan transfers foreign assets to a trust, there could be unwelcome consequences, including higher foreign taxes or even obstacles to transferring the assets as intended.

If you own foreign assets, talk to us about steps you can take to ensure that those assets are distributed in accordance with your wishes and in the most tax-efficient manner possible.

© 2022

Take a look at stock options as a recruitment tool

According to the U.S. Bureau of Labor Statistics, the U.S. unemployment rate rose slightly to 3.7% in October. Seeing as how that’s still a relatively low number, your business may be struggling to fill its open positions.

Offering equity-based compensation to job candidates is one recruitment strategy to consider. Many companies have used stock options to attract, retain and motivate executives and other key employees.

The finer points of ISOs

Stock options confer the right to buy a certain number of shares at a fixed price for a specified time. Typically, they’re subject to a vesting schedule. This requires recipients to stay with the company for a certain amount of time or meet stated performance goals.

Incentive stock options (ISOs) offer attractive tax advantages for employees. Unlike nonqualified stock options (NQSOs), which we’ll discuss below, ISOs don’t generate taxable compensation when they’re exercised. The employee isn’t taxed until the shares are sold. And if the sale is a “qualifying disposition,” 100% of the stock’s appreciation is treated as capital gain and is free from payroll taxes.

To qualify, ISOs must meet certain requirements:

• They must be granted under a written plan that’s approved by shareholders within one year before or after adoption,

• The exercise price must be at least the stock’s fair market value (FMV) on the grant date (110% of FMV for more-than-10% shareholders), and

• The term can’t exceed 10 years (five years for more-than-10% shareholders).

Additionally, the options can’t be granted to nonemployees. What’s more, employees can’t sell the shares sooner than one year after the options are exercised or two years after they’re granted.

And the total FMV of stock options that first become exercisable by an employee in a calendar year can’t exceed $100,000.

How NQSOs differ

NQSOs are stock options that don’t qualify as ISOs. Typically, the exercise price is at least the stock’s FMV on the grant date. (Various tax complications may ensue, which we won’t get into here.) The NQSO itself generally isn’t considered taxable compensation because there’s no taxable event until exercise. At that time, the spread between the stock’s FMV and the exercise price is treated as compensation.

Although NQSOs are taxed as ordinary income upon exercise, they have several advantages over ISOs. First, they’re not subject to the ISO requirements listed above, so they’re more flexible. For example, they can be granted to independent contractors, outside directors or other nonemployees. Second, they generate tax deductions for the employer and don’t expose recipients to liability for the alternative minimum tax.

Look before you leap

If you’re considering equity-based compensation, it’s important to review the pros, cons and tax implications before offering either type of stock option. Contact us for help evaluating the cost vs. benefit impact of this or any other recruitment strategy you’re considering.

© 2022