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Businesses have Options for Technology Leadership Positions
To say that technology continues to affect how businesses operate and interact with customers and prospects would be an understatement. According to the Business Software Market Size report issued by market researchers Mordor Intelligence, the global market size for commercial software is projected to reach $650 million this year and $1.10 trillion by 2029.
And that’s just software. Companies must also contend with technological issues such as hardware, skilled labor, strategy and cybersecurity. Just one of the resulting demands that this pressure is putting on businesses is a keen need for tech leadership.
If your company has grown to the point where it could use an executive-level employee with specialized knowledge of and laser focus on technology issues, you have plenty of options.
Positions to consider
Here are some of the most widely used position titles for technology executives:
Chief Information Officer (CIO). This person is typically responsible for managing a company’s internal IT infrastructure and operations. In fact, an easy way to remember the purpose of this position is to replace the word “Information” with “Internal.” A CIO’s job is to oversee the purchase, implementation and proper use of technological systems and products that will maximize the efficiency and productivity of the business.
Chief Technology Officer (CTO). In contrast to a CIO, a CTO focuses on external processes — specifically with customers and vendors. This person usually oversees the development and eventual production of technological products or services that will meet customer needs and increase revenue. The position demands the ability to live on the cutting edge by doing constant research into tech trends while also being highly collaborative with employees and vendors.
Chief Digital Officer (CDO). For some companies, the CIO and/or CTO are so busy with their respective job duties that they’re unable to look very far ahead. This is where a CDO typically comes into play. The primary purpose of this position is to spot new markets, channels or even business models that the company can target, explore and perhaps eventually profit from. So, while a CIO looks internally and a CTO looks externally, a CDO’s gaze is set on a more distant horizon.
Chief Artificial Intelligence Officer (CAIO). Did you really think you were going to make it through a technology article without reading about AI? Yes, more and more businesses are taking on executives whose primary responsibility is to create the company’s overall AI strategy and ensure it:
Aligns with the business’s overall strategic goals, and
Enhances the company’s digital transformation, which many businesses are continuing to undergo as they adapt to new technologies.
CAIOs are also typically responsible for understanding the global and national regulatory environments regarding AI, as well as ensuring the business uses AI ethically.
Big decision
Adding an executive-level position to your company is clearly a big decision. Along with making a sizable outlay for compensation and benefits, you’ll likely spend considerable time and resources on the search and onboarding processes. So be sure to discuss the matter thoroughly with your existing leadership team and professional advisors. FMD can help you identify and project all the costs involved.
Single and Child-Free? Here’s Why Estate Planning is Still Crucial
Even if you’re single and have no children, having an estate plan helps ensure your final wishes are clearly documented and respected. Estate planning isn’t solely about passing assets on to direct descendants; it’s about taking control of your future.
Without a formal estate plan, state laws will determine how your assets are distributed, and those default decisions might not align with your values or desires. Whether they’re your financial investments or personal assets, a comprehensive estate plan allows you to specify exactly who should receive what, be they close friends, extended family or even charitable organizations.
Without a will, who’ll receive your assets?
It’s critical for single people to execute a will that specifies how and to whom their assets should be distributed when they die. Although certain types of assets can pass to your intended recipient(s) through beneficiary designations, absent a will, many types of assets will pass through the laws of intestate succession.
Those laws vary from state to state but generally provide for assets to go to the deceased person’s spouse or children. For example, the law might provide that if someone dies intestate, half of the estate goes to his or her spouse and half goes to the children. However, if you’re single with no children, these laws set out rules for distributing your assets to your closest relatives, such as your parents or siblings. Or, if you have no living relatives, your assets may go to the state.
By preparing a will, you can ensure your assets are distributed according to your wishes, whether that’s to family, friends or charitable organizations.
Who’ll handle your finances if you become incapacitated?
Consider signing a durable power of attorney that appoints someone you trust to manage your investments, pay bills, file tax returns and otherwise make financial decisions should you become incapacitated. Although the law varies from state to state, typically, without a power of attorney, a court will appoint someone to make those decisions on your behalf. Not only will you have no say in who the court appoints, but the process can be costly and time consuming.
Who’ll make medical decisions on your behalf?
You should prepare a living will, a health care directive (also known as a medical power of attorney) or both. This will ensure your wishes regarding medical care — particularly resuscitation and other lifesaving measures — will be carried out in the event you’re incapacitated. These documents can also appoint someone you trust to make medical decisions that aren’t expressly addressed.
Without such instructions, the laws in some states allow a spouse, children or other “surrogates” to make those decisions. In the absence of a suitable surrogate, or in states without such a law, medical decisions are generally left to the judgment of health care professionals or court-appointed guardians.
What strategies should you use to reduce gift and estate taxes?
When it comes to taxes, married couples have some big advantages. For example, they can use both of their federal gift and estate tax exemptions (currently, $13.99 million per person) to transfer assets to their loved ones tax-free. Also, the marital deduction allows spouses to transfer an unlimited amount of property to each other — either during life or at death — without triggering immediate gift or estate tax liabilities.
For single people with substantial estates, it’s important to consider employing trusts and other estate planning techniques to avoid, or at least defer, gift and estate taxes.
Form your plan
Finally, planning ahead can help avoid potential complications in the future. Unexpected events can lead to family disputes if there’s no clear guidance on how your affairs should be handled.
With an estate plan, your personal wishes are followed precisely, ensuring that your legacy — whether it includes contributions to a cause you believe in or support for a family member — is preserved exactly as you intend. Contact FMD if you’re single, without children and have no estate plan. We can help draft one that’s best suited for you.
Business Owner? A Buy-Sell Agreement Should be Part of Your Estate Plan
If you hold an interest in a business that’s closely held or family owned, a buy-sell agreement should be a component of your estate plan. The agreement provides for the orderly disposition of each owner’s interest after a “triggering event,” such as death, disability, divorce, termination of employment or withdrawal from the business.
A buy-sell agreement accomplishes this by permitting or requiring the company or the remaining owners to purchase the departing owner’s interest. Often, life insurance is used to fund the buyout. And because circumstances frequently change, reviewing your buy-sell agreement periodically is important to ensure that it continues to meet your needs.
Valuation provision must be current
It’s essential to revisit the agreement’s valuation provision — the mechanism for setting the purchase price for an owner’s interest — to ensure that it reflects the business’s current value. A pressing reason to do this sooner rather than later is because, absent congressional action, the federal gift and estate tax exemption is scheduled to be halved beginning in 2026.
As you review your agreement, pay close attention to the valuation provision. Generally, a valuation provision follows one of three approaches when a triggering event occurs:
Independent appraisal by one or more business valuation experts,
Formulas, such as book value or a multiple of earnings or revenues as of a specified date, or
Negotiated price.
Independent appraisals almost always produce the most accurate valuations. Formulas tend to become less reliable over time as circumstances change and may lead to over- or underpayments if earnings have fluctuated substantially since the valuation date.
A negotiated price can be a good approach in theory, but expecting owners to reach an agreement under stressful, potentially adversarial conditions is asking a lot. One potential solution is to use a negotiated price but provide for an independent appraisal in the event the parties fail to agree on a price within a specified period.
“Redemption” vs. “cross-purchase” agreement
The type of buy-sell agreement you use can have significant tax and estate planning implications. Generally, the choices are structured either as “redemption” or “cross-purchase” agreements. A redemption agreement permits or requires the company to purchase a departing owner’s interest, while a cross-purchase agreement permits or requires the remaining owners to make the purchase.
A disadvantage of cross-purchase agreements is that they can be cumbersome, especially if there are many owners. For example, if life insurance is used to fund the purchase of a departing owner’s shares, each owner will have to purchase an insurance policy on the lives of each of the other owners. Note that redemption agreements may trigger a variety of unwelcome tax consequences.
A versatile document
A buy-sell agreement can provide several significant benefits, including keeping ownership and control within your family, creating a market for otherwise unmarketable interests, and providing liquidity to pay estate tax and other expenses. In some cases, a buy-sell agreement can even establish the value of an ownership interest for estate tax purposes. FMD can work with you to design a buy-sell agreement that helps preserve the value of your business for your family.
5 Steps to Creating a Pay Transparency Strategy
Today’s job seekers and employees have grown accustomed to having an incredible amount of information at their fingertips. As a result, many businesses find that failing to adequately disclose certain things negatively impacts their relationships with these parties.
Take pay transparency, for example. This is the practice, or lack thereof, of a company openly sharing its compensation philosophy, policies and procedures with job candidates, employees and even the public. It typically means disclosing pay ranges or rates for specific positions, as well as clearly explaining how raises, bonuses and commissions are determined.
You’re not alone if your business has yet to formalize or articulate its pay transparency strategy. In its 2024 Global Pay Transparency Report, released in January of this year, global consultancy Mercer reported that only 19% of U.S. companies have a pay transparency strategy. Here are five general steps to creating one:
1. Conduct a payroll audit. Over time, your company may have developed a relatively complex compensation structure and payroll system. By meticulously evaluating and identifying all related expenditures under a formal audit, you can determine what information you need to share and which data points should remain confidential.
You may also catch inconsistencies and disparities that need to be addressed. Ultimately, an audit can provide the raw data you need to understand whether and how your company’s compensation aligns with the roles and responsibilities of each position.
2. Define or refine compensation criteria. To be transparent about pay, your business needs clear and consistent criteria for how it arrived — and will arrive — at compensation-related decisions. If such criteria are already in place, you may need to refine the language used to describe them. Again, your objective is to clearly explain to job candidates and employees how your company makes pay decisions so you can reduce or eliminate any perception of bias or unfairness.
3. Develop a communications “substrategy.” Under your broader pay transparency strategy, your company must have a comprehensive substrategy for communicating about compensation with job candidates, employees and, if you so choose, the public. There are many ways to go about this, and the details will depend on your company’s size, industry, mission and other factors. However, common aspects of a communications substrategy include:
Providing written guidelines explaining your compensation philosophy and structure,
Supplementing those guidelines with an internal FAQs document,
Holding companywide or department-specific Q&A sessions, and
Using digital platforms to share updates and issue reminders.
4. Train and rely on supervisors. Your people managers must be the frontline champions and communicators of your pay transparency strategy. Unfortunately, many companies struggle with this. In the aforementioned Mercer report, 37% of U.S. companies identified managers’ inability to explain compensation programs as their biggest challenge in this area.
Naturally, it all begins with training. Once you’ve defined or refined your compensation criteria and developed a communications substrategy, invest the time and resources into educating supervisors (and higher-level managers) about them. These individuals need to become experts who can discuss your business’s compensation philosophy, policies, procedures and decisions. And it’s critical that their messaging be accurate and consistent to prevent misunderstandings and misinformation.
5. Get input from professional advisors. Before you roll out a formal pay transparency strategy, ask for input from external parties. Doing so is especially important for small businesses that may have only a few voices involved in the planning process.
For example, a qualified employment attorney can help ensure your strategy is legally compliant and limit your potential exposure to lawsuits. And don’t forget FMD — we’d be happy to assist you in conducting a payroll audit, identifying all compensation-related expenses and aligning your strategy with your business objectives.
A Power of Appointment Can Provide Estate Planning Flexibility
A difficult aspect of planning your estate is taking into account your family members’ needs after your death. Indeed, after you’re gone, events may transpire that you hadn’t anticipated or couldn’t have reasonably foreseen.
While there’s no way to predict the future, you can supplement your estate plan with a trust provision that provides a designated beneficiary a power of appointment over some or all of the trust’s property. This trusted person will have the discretion to change distributions from the trust or even add or subtract beneficiaries.
Adding flexibility
Assuming the holder of your power of appointment fulfills the duties properly, he or she can make informed decisions when all the facts are known. This can create more flexibility within your estate plan.
Typically, the trust will designate a surviving spouse or an adult child as the holder of the power of appointment. After you die, the holder has authority to make changes consistent with the language contained in the power of appointment clause. This may include the ability to revise beneficiaries. For instance, if you give your spouse this power, he or she can later decide if your grandchildren are capable of managing property on their own or if the property should be transferred to a trust managed by a professional trustee.
Detailing types of powers
If you take this approach, there are two types of powers of appointment:
“General” power of appointment. This allows the holder of the power to appoint the property for the benefit of anyone, including him- or herself, his or her estate or the estate’s creditors. The property is usually included in a trust but may be given to the holder outright. Also, this power of appointment can be transferred to another person.
“Limited” or “special” power of appointment. Here, the person holding the power of appointment can give the property to a select group of people who’ve specifically been identified by the deceased. For example, it might provide that a surviving spouse can give property to surviving children, as he or she chooses, but not to anyone else. Thus, this power is more restrictive than a general power of appointment.
Whether you should use a general or limited power of appointment depends on your circumstances and expectations.
Understanding the tax impact
The resulting tax impact may also affect the decision to use a general or limited power of appointment. The rules are complicated, but property subject to a general power of appointment is typically included in the taxable estate of the designated holder of the power. However, property included in the deceased’s estate receives a step-up in basis to fair market value on the date of death. Therefore, your heirs can sell property that was covered by a general power of appointment with little or no income tax consequences.
In contrast, property covered by a limited power isn’t included in the holder’s estate. However, the new heirs inherit the property with a carryover basis and no step-up in basis. So, if the heirs sell appreciated property, they face a potentially high capital gains tax.
Your final decision requires an in-depth analysis of your tax and financial situation by your estate tax advisor. Contact FMD with any questions.
Do You Have the Right Amount of Life Insurance Coverage?
Life insurance plays a vital role in your estate plan because its proceeds can provide for your family in the event of your untimely death. And for wealthier families, life insurance proceeds can cover any estate tax liability not covered by the current $13.99 million federal gift and estate tax exemption.
But when was the last time you reviewed your policy? The amount of life insurance that’s right for you depends on your circumstances, so it’s critical to regularly review your life insurance policy.
Reevaluating your policy
Life insurance isn’t a one-size-fits-all solution. Milestones such as marriage, having children, buying a home or starting a business bring new financial responsibilities. A policy purchased years ago may no longer protect your loved ones adequately.
Conversely, you may be over-insured, paying for coverage you no longer need. For example, if your children are financially independent or you’ve paid off significant debts, your coverage requirements might decrease.
The right amount of insurance depends on your family’s current and expected future income and expenses, as well as the amount of income your family would lose in the event of your untimely death.
On the other hand, health care expenses for you and your spouse may increase. When you retire, you’ll no longer have a salary, but you may have new sources of income, such as retirement plans and Social Security. You may or may not have paid off your mortgage, student loans or other debts. And you may or may not have accumulated sufficient wealth to provide for your family.
When you sit down to reevaluate your life insurance policy, consider the:
Coverage amount. Is your policy sufficient to cover current expenses, future obligations and debts?
Policy type. Term life insurance can be cost-effective for temporary needs, while whole life or universal policies may offer long-term benefits such as cash value accumulation.
Beneficiaries. Ensure your policy lists the correct beneficiaries, especially after a major life event such as marriage, divorce or the birth of a child.
Premiums. Are you paying a competitive rate? Shopping around or converting an old policy could save money.
While reviewing your policy, keep in mind your broader financial plan. How does your policy currently fit within your overall strategy, including tax implications, estate planning and business succession planning?
Turn to us for help
Taking the time to reassess your life insurance needs is an investment in your family’s financial security. Contact FMD to ensure your coverage aligns with your current and future estate planning goals.
5 Questions Single Parents Should Ask About their Estate Plans
In many respects, estate planning for single parents is similar to that of families with two parents. Parents want to provide for their children’s care and financial needs after they’re gone. However, when only one parent is involved, certain aspects of an estate plan demand special attention. If you’re a single parent, here are five questions you should ask your advisor:
1. Are my will and other estate planning documents up to date? If you haven’t reviewed your estate plan recently, talk with your advisor to be sure it reflects your current circumstances. The last thing you want is a probate court to decide your children’s future.
2. Have I selected an appropriate guardian? Does your estate plan designate a suitable, willing guardian to care for your children if the other parent is unavailable to take custody of them in the event you become incapacitated or die suddenly? Will the guardian need financial assistance to raise your kids and provide for their education? If not, you might want to preserve your wealth in a trust until your children are grown.
3. Have I established a trust for my children? Trust planning is one of the most effective ways to provide for your children. Trust assets are managed by a trusted individual or corporate trustee, and you specify when and under what circumstances funds should be distributed to your kids. A trust is critical if you have minor children. Without one, your assets may come under the control of your former spouse or a court-appointed administrator.
4. What if I become incapacitated? As a single parent, it’s important for your estate plan to include a living will, advance directive or health care power of attorney to specify your health care preferences if you become incapacitated and to designate someone to make medical decisions on your behalf. You should also have a revocable living trust or durable power of attorney that provides for the management of your finances in the event you’re unable to do so.
5. Can the other parent help? If your spouse (or ex-spouse) is alive, is he or she willing to help care for your children or provide financial resources? If your spouse (or ex-spouse) is deceased, does his or her estate plan provide any financial assistance for your children?
If you’ve recently become a single parent, contact FMD. We’d be happy to help review and, if necessary, revise your estate plan.
Are Your Employees Suffering from Retirement Plan Leakage?
Today’s small to midsize businesses are often urged to help employees improve their financial wellness. And for good reason: Financially struggling workers tend to have higher stress and anxiety levels. They may be less productive and more prone to errors. Some might even decide to commit fraud.
One hallmark of an employee facing serious financial trouble is “retirement plan leakage.” This term refers to the withdrawal of account funds before retirement age for reasons other than retirement. If your company sponsors a qualified plan, such as a 401(k), be sure you’re at least aware of this risk — and strongly consider taking steps to address it.
Potential dangers
Some business owners might say, “If my plan participants want to blow their retirement savings, that’s not my problem.” And there’s no denying that your employees are free to manage their finances any way they choose.
However, retirement plan leakage does raise potential dangers for your company. For starters, it may lead to higher plan expenses. Fees are often determined on a per-account or per-participant basis. When a plan loses funds to leakage, total assets and individual account sizes shrink, which hurts administrative efficiency and raises costs.
More broadly, as mentioned, employees taking pre-retirement withdrawals generally indicates they’re facing unusual financial challenges. This can lead to all the negative consequences we mentioned above — and others.
For example, workers who raid their accounts may be unable to retire when they reach retirement age. So, they might stick around longer but be less engaged, helpful and collaborative. Employees not near retirement age may take on second jobs or “side gigs” that distract them from their duties. And it’s unfortunately worth repeating: Motivation to commit fraud likely increases.
Mitigation measures
Perhaps the most important thing business owners can do to limit leakage is educate and remind employees about how pre-retirement withdrawals diminish their accounts and can delay their anticipated retirement dates. While you’re at it, provide broader financial education to help workers better manage living expenses, amass savings, and minimize or avoid the need for early withdrawals.
In addition, one recent and relevant development to keep in mind is the introduction of “pension-linked” emergency savings accounts (PLESAs) under the SECURE 2.0 law. Employers that sponsor certain defined contribution plans, including 401(k)s, can offer these accounts to employees who aren’t highly compensated per the IRS definition. Additional rules and limits apply, but PLESAs can serve as “firewalls” to protect participants from having to raid their retirement accounts when crises happen.
Some companies launch their own emergency loan programs, with funds repayable through payroll deductions. Others have revised their plan designs to reduce the number of situations in which participants can take out hardship withdrawals or loans.
Pernicious problem
It’s probably impossible to eliminate leakage from every one of your participants’ accounts. However, awareness — both on your part and those participants’ — is critical to limiting the damage that this pernicious problem can cause. FMD can help you identify and evaluate all the costs associated with your qualified retirement plan, as well as other fringe benefits you sponsor.
President Trump’s tax plan: What proposals are being discussed in Washington?
President Trump and the Republican Congress plan to act swiftly to make broad changes to the United States — including its federal tax system. Congress is already working on legislation that would extend and expand provisions of the sweeping Tax Cuts and Jobs Act (TCJA), as well as incorporate some of Trump’s tax-related campaign promises.
To that end, GOP lawmakers in the U.S. House of Representatives have compiled a 50-page document that identifies potential avenues they may take, as well as how much these tax and other fiscal changes would cost or save. Here’s a preview of potential changes that might be on the horizon.
Big plans
The TCJA is the signature tax legislation from Trump’s first term in office, and it cut income tax rates for many taxpayers. Some provisions — including the majority affecting individuals — are slated to expire at the end of 2025. The nonpartisan Congressional Budget Office estimates that extending the temporary TCJA provisions would cost $4.6 trillion over 10 years. For context, the federal debt currently rings in at more than $35 trillion, and the budget deficit is $711 billion.
In addition to supporting the continuation of the TCJA, the president has pushed to reduce the 21% corporate tax rate to 20% or 15%, with the goal of generating growth. He also supports eliminating the 15% corporate alternative minimum tax imposed by the Inflation Reduction Act (IRA), signed into law during the previous administration. It applies only to the largest C corporations.
Regarding tax cuts for individuals beyond TCJA extensions, Trump has expressed that he’s in favor of:
Eliminating the estate tax (which currently applies only to estates worth more than $13.99 million),
Repealing or raising the $10,000 cap on the deduction for state and local taxes,
Creating a deduction for auto loan interest, and
Eliminating income taxes on tips, overtime, and Social Security benefits.
Finally, he wants to cut IRS funding, which would reduce expenditures but also reduce revenues. Without offsets, these plans would drive up the deficit significantly.
Possible offsets
The House GOP document outlines numerous possibilities beyond just spending reductions to pay for these tax cuts. For example, tariffs — a major plank in Trump’s campaign platform — may play a role.
The GOP document suggests a 10% across-the-board import tariff. Trump, however, has discussed and imposed various tariff amounts, depending on the exporting country. The 25% tariffs on Canadian and Mexican products, which were imposed earlier, have been paused until March 4. An additional 10% tariff on Chinese imports took effect on February 4.
In addition, Trump said tariffs on goods from other countries, including the 27-member European Union, could happen soon. While he maintains that those countries will pay the tariffs, it’s generally the U.S. importer of record that’s responsible for paying tariffs. Economists generally agree that at least part of the cost would then be passed on to consumers.
The House GOP document also examines generating savings through changes to various tax breaks. Here are some of the options:
The mortgage interest deduction. Suggestions include eliminating the deduction or lowering the current $750,000 limit to $500,000.
Head of household status. The document looks at eliminating this status, which provides a higher standard deduction and certain other tax benefits to unmarried taxpayers with children compared to single filers.
The child and dependent care tax credit. The document considers eliminating the credit for qualified child and dependent care expenses.
Renewable energy tax credits. The IRA created or expanded various tax credits encouraging renewable energy use, including tax credits for electric vehicles and residential clean energy improvements, such as solar panels and heat pumps. The GOP has proposed changes ranging from a full repeal of the IRA to more limited deductions.
Employer-provided benefits. Revenue could be raised by eliminating taxable income exclusions for transportation benefits and on-site gyms.
Health insurance subsidies. Premium tax credits are currently available for households with income above 400% of the federal poverty line (the amounts phase out as income increases). Revenue could be raised by limiting such subsidies to the “most needy Americans.”
Education-related breaks are also being assessed. The House GOP document looks at how much revenue could be generated by eliminating credits for qualified education expenses, the deduction for student loan interest, and federal income-driven repayment plans. The GOP is also weighing the elimination of interest subsidies for federal loans while borrowers are still in school and imposing taxes on scholarships and fellowships, which currently are exempt.
The hurdles
Republican lawmakers plan on passing tax legislation using the reconciliation process, which requires only a simple majority in both houses of Congress. However, the GOP holds the majority in the House by only three votes.
That gives potential holdouts within their own caucus a lot of leverage. For example, deficit hawks might oppose certain proposals, while centrist members may prove reluctant to eliminate popular tax breaks and programs.
Republican representatives of all stripes are likely to oppose moves that would hurt industries in their districts, such as the reduction or elimination of certain clean energy incentives. And, of course, lobbyists will make their voices heard.
Stay tuned
The GOP hopes to enact tax legislation within President Trump’s first 100 days in office, but that may be challenging. We’ll keep you apprised of important developments.
A Revocable Trust Can be a Versatile Tool in Your Estate Plan
A revocable trust (sometimes referred to as a “living trust”) is a popular estate planning tool that allows you to manage your assets during your lifetime and ensure a smooth transfer of those assets to your family after your death. Plus, trust assets bypass the probate process, which can save time, reduce costs and maintain privacy. However, like any legal instrument, a revocable trust has certain disadvantages.
A revocable trust in action
A revocable trust’s premise is relatively simple. You establish the trust, transfer assets to it (essentially funding it), and name a trustee to handle administrative matters. You can name yourself as trustee or choose a professional to handle the job. Regardless of who you choose, name a successor trustee who can take over the reins if required.
If you designate yourself as the trust’s initial beneficiary, you’re entitled to receive income from the trust for your lifetime. You should also designate secondary beneficiaries, such as your spouse and children, who are entitled to receive the remaining assets after the trust terminates.
Added flexibility
One of the primary benefits of a revocable trust is its flexibility. As the grantor, you retain control over the trust and can change its terms, add or remove assets, or even dissolve it at any time during your life. This control makes it a flexible tool for adapting to changing life circumstances, such as new family members, changes in financial status, or shifts in your estate planning goals.
For many people, the main reason for using a revocable trust — and sometimes the only one that really matters — is that the trust’s assets avoid probate. Probate is the process of settling an estate and passing the legal title of ownership of assets to heirs specified in a will. Depending on applicable state law, probate can be costly and time-consuming. The process is also open to the public, which can be a major detriment if you treasure your privacy.
Assets passing through a revocable trust aren’t subject to probate. This gives you control to decide who in the family gets what without all the trappings of a will. Along with the flexibility, it keeps your personal arrangements away from prying eyes.
Potential drawbacks
One of the most notable drawbacks of a revocable trust is the upfront cost and effort involved in setting one up. Drafting a revocable trust requires the assistance of an attorney. You’ll also need to retitle your assets under the name of the trust, which can be time-consuming and may incur fees.
Another limitation is that a revocable trust doesn’t provide asset protection from creditors or lawsuits during your lifetime. Because the trust is revocable, its assets are still considered your property and are thus subject to claims against you.
Finally, despite a common misconception, revocable living trusts don’t provide direct tax benefits. The assets are included in your taxable estate and dispositions of trust property can result in tax liability. You must report the income tax that’s due, including capital gains on sales of assets, on your personal tax return.
Right for you?
For many individuals, a revocable trust can be an invaluable part of their estate plans, offering flexibility, privacy, and efficiency. However, it’s not a one-size-fits-all solution. Before deciding, weigh the benefits and drawbacks in the context of your unique financial situation and estate planning goals. Contact the FMD team with questions regarding a revocable trust. Be sure to consult with an estate planning attorney to draft your revocable trust.
Have You Prepared an Advance Health Care Directive?
An advance health care directive allows you to communicate your preferences, in advance, for medical care in the event you become incapacitated. Often part of a comprehensive estate plan, these directives sometimes go by different legal names depending on your jurisdiction. Let’s take a closer look at a few healthcare directives you should consider including in your estate plan.
Health care power of attorney
Comparable to a durable power of attorney that gives an “agent” authority to handle your financial affairs if you’re incapacitated, a health care power of attorney (or medical power of attorney) enables another person to make health care decisions for you. In some states, this is called a healthcare proxy.
Choosing your agent is critical. You can’t anticipate every situation that might arise in which it’s likely that someone will have to make decisions concerning your health. Therefore, the agent should be a person who knows you well and understands your general outlook. Frequently, this is a family member, close friend, or trusted professional. Remember to designate an alternate agent in the event your first choice can’t do the job.
Living will
A living will is a legal document that establishes criteria for prolonging or ending medical treatment. It indicates the types of medical treatment you want — or don’t want — in the event you suffer from a terminal illness or are incapacitated.
This document doesn’t take effect unless you’re incapacitated. Typically, a physician must certify that you’re suffering from a terminal illness or that you’re permanently unconscious. Address common end-of-life decisions in your living will. This may require consultations with a physician.
The requirements for a living will vary from state to state. Have an attorney experienced in these matters prepare your living will based on your state’s prevailing laws.
DNR and DNI orders
Despite the common perception, it’s not a legal requirement for you to have an advance health care directive or living will on file to implement a “do not resuscitate” (DNR) or “do not intubate” (DNI) order. To establish a DNR or DNI order, discuss your preferences with your physician and have him or her prepare the paperwork. The order is then placed in your medical file.
Even if your living will spells out your preferences regarding resuscitation and intubation, it’s still a good idea to create DNR or DNI orders when you’re admitted to a new hospital or healthcare facility. This can avoid confusion during an emotionally charged time.
Put your directive into action
Advance health care directives must be put in writing. Each state has different forms and requirements for creating these legal documents. Depending on where you live, you may need certain forms signed by a witness or notarized. Contact an attorney for assistance if you’re unsure of the requirements or the process.
Finally, be aware that health care directives aren’t written in stone. You can revise them at any time. Just be sure to follow your state’s requirements for revisions
Should a married couple use a joint trust or separate trusts?
There are many benefits of including a revocable trust in your estate plan. This trust type allows you to minimize probate expenses, keep your financial affairs private, and provide for the management of your assets in the event you become incapacitated. Importantly, they offer flexibility: You’re free to amend the terms of the trust or even revoke it altogether at any time.
If you’re married, you and your spouse must decide whether to use a joint trust or separate trusts. The right choice depends on your financial and family circumstances, applicable state law, and other factors.
Maintaining a joint trust is simpler
If you’re comfortable with your spouse inheriting your combined assets (and vice versa), a joint trust can be less complex to set up and administer than separate trusts. Funding the trust is a simple matter of transferring assets into it and avoids the need to divide assets between two separate trusts.
In addition, during your lifetimes, you and your spouse have equal control over the trust’s assets, which can make it easier to manage and conduct transactions involving the assets. On the other hand, separate trusts may be the way to go for spouses who aren’t comfortable sharing control of their combined assets.
Separate trusts may provide greater asset protection
If shielding assets from creditors is a concern, separate trusts usually offer greater protection. With a joint trust, if a creditor obtains a judgment against one spouse, all trust assets may be at risk. A spouse’s trust is generally protected from the other spouse’s creditors.
Also, when one spouse dies, his or her trust becomes irrevocable, making it more difficult for creditors of either spouse to reach the trust assets. Keep in mind that the degree of asset protection a trust provides depends on the type of debt involved, applicable state law, and the existence of a prenuptial agreement.
Factor in taxes
For most couples today, federal gift and estate taxes aren’t a concern. This is because they enjoy a combined gift and estate tax exemption of more than $27 million in 2024 and 2025.
However, if a couple’s wealth exceeds the exemption amount, or if they live in a state where an estate or inheritance tax kicks in at lower asset levels, separate trusts offer greater opportunities to avoid or minimize these taxes. For example, some states have exemption amounts as low as $1 million or $2 million. In these states, separate trusts can be used to make the most of each spouse’s exemption amount and minimize exposure to death taxes.
It’s also important to consider income tax. As previously mentioned, when one spouse dies, his or her trust becomes irrevocable. That means filing tax returns for the trust each year and, to the extent trust income is accumulated in the trust, paying tax at significantly higher trust tax rates.
A joint trust remains revocable after the first spouse’s death (it doesn’t become irrevocable until both spouses have passed). In this case, income is taxed to the surviving spouse at his or her individual tax rate.
Review the pros and cons
Joint and separate trusts each have advantages and disadvantages. Contact FMD to determine which is right for you. We’d be pleased to review your circumstances and help you make a final decision.
How businesses can better retain their salespeople
The U.S. job market has largely stabilized since the historic disruption of the pandemic and the unusual fluctuations that followed. But the fact remains that employee retention is mission-critical for businesses. Retaining employees is still generally less expensive than finding and hiring new ones. And strong retention is one of the hallmarks of a healthy employer brand.
One role that’s been historically challenging to retain is salesperson. In many industries, sales departments have higher turnover rates than other departments. If this has been the case at your company, don’t give up hope. There are ways to address the challenge.
Lay out the welcome mat
For starters, don’t focus retention efforts only on current salespeople. Begin during hiring and ramp up with onboarding. A rushed, confusing, or cold approach to hiring can get things off on the wrong foot. In such cases, new hires tend to enter the workplace cautiously or skeptically, with their eyes on the exit sign rather than the “upper floors” of a company.
Onboarding is also immensely important. Many salespeople tell horror stories of being shown to a cubicle with nothing but a telephone on the desk and told to “Get to it.” With so many people still working remotely, a new sales hire might not even get that much attention. Welcome new employees warmly, provide ample training, and perhaps give them a mentor to help them get comfortable with your business and its culture.
Incentivize your team
Even when hiring and onboarding go well, most employees will still consider a competitor’s job offer if the pay is right. So, to improve your chances of retaining top sales producers and their customers, consider financial incentives.
Offering retention bonuses and rewards for maintaining or increasing sales — in addition to existing compensation plans — can help. Make such incentives easy to understand and clearly achievable. Although interim bonus programs might be expensive in the near term, they can stabilize sales and prevent sharp declines.
When successful, a bonus program will help you generate more long-term revenue to offset the immediate costs. That said, financial incentives need to be carefully designed so they don’t adversely affect cash flow or leave your business vulnerable to fraud.
Give them a voice
Salespeople interact with customers and prospects in ways many other employees don’t. As a result, they may have some great ideas for capitalizing on your company’s strengths and shoring up its weaknesses.
Look into forming a sales leadership team to help evaluate the potential benefits and risks of goals proposed during strategic planning. The team should include two to four top sellers who are given some relief from their regular responsibilities so they can offer feedback and contribute ideas from their distinctive perspectives. The sales leadership team can also:
Serve as a clearinghouse for customer concerns and competitor strategies,
Collaborate with the marketing department to improve messaging about current or upcoming product or service offerings, and
Participate in developing new products or services based on customer feedback and demand.
Above all, giving your salespeople a voice in the strategic direction of the company can help them feel more invested in the success of the business and motivated to stay put.
Assume nothing
Business owners and their leadership teams should never assume they can’t solve the dilemma of high turnover in the sales department. The answer often lies in proactively investigating the problem and then taking appropriate steps to help salespeople feel more welcomed and appreciated. FMD can help your company calculate turnover rate, identify and track its hiring and employment costs, and assess the feasibility of financial incentives.
Achieve Multiple Estate Planning Goals With One Trust: A CRT
For many people, two common estate planning goals are contributing to a favorite charity and leaving significant assets to your family under favorable tax terms. A charitable remainder trust (CRT) can help you achieve both goals.
ABCs of CRTs
Typically, you set up one of two CRT types (described below) and fund it with assets such as cash and securities. The trust then pays out income to the designated beneficiary or beneficiaries — perhaps yourself or your spouse — for life or a term of 20 years or less. The CRT then distributes the remaining assets to one or more charities.
When using a CRT, you may be eligible for a current tax deduction based on several factors. They include the value of the assets at the time of the transfer, the ages of the income beneficiaries, and the government’s Section 7520 rate. Generally, the greater the payout to you (and consequently, the lower the amount that ultimately goes to charity), the lower the deduction.
2 flavors of CRTs
There are two types of CRTs, each with its own pros and cons:
A charitable remainder annuity trust (CRAT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s initial value and doesn’t allow additional contributions once it’s funded.
A charitable remainder unitrust (CRUT) pays out a fixed percentage (ranging from 5% to 50%) of the trust’s value, recalculated annually, and allows additional contributions.
CRATs offer the advantage of uniform payouts, regardless of fluctuations in the trust’s value. CRUTs, on the other hand, allow payouts to keep pace with inflation because they increase as the trust’s value increases. And, as noted, CRUTs allow you to make additional contributions. One potential disadvantage of a CRUT is that payouts shrink if the trust’s value declines.
Who to choose as a trustee?
When setting up a CRT, appoint a trustee to manage the trust’s assets. The trustee should be someone with the requisite financial knowledge and a familiarity with your personal situation. Thus, it could be a professional or an entity, a family member, or a close friend.
Because of the potentially significant dollars at stake, many trust creators opt for a professional who specializes in managing trust assets. If you’re leaning in this direction, interview several candidates and choose the best one for your situation, considering factors such as experience, investment performance and the level of services provided.
Know that a trustee must adhere to the terms of the trust and follow your instructions. Thus, you still maintain some control if someone else handles these duties. For instance, you may retain the right to change the trustee if you become dissatisfied or designate a different charity to receive the remainder assets.
Finally, be aware that a CRT is irrevocable. In other words, you can’t undo it once it’s executed. So, you must be fully committed to this approach before taking the plunge. Contact FMD to learn whether a CRT might be a good fit to achieve your estate planning goals.
3 Areas of Focus for Companies Looking to Control Costs
Controlling costs is fundamental for every business. But where and how to address this challenge can change over time based on various economic and logistical factors.
Earlier this year, global consultancy Boston Consulting Group published a report entitled The CEO’s Guide to Costs and Growth. Within it were the results of a survey of 600 C-suite executives that found, among other things, cost management was a top priority for respondents heading into 2024. According to the survey, three of the top categories for cost-cutting initiatives were:
1. Supply chain / manufacturing. Not every company incurs manufacturing costs, but most have a supply chain. Costs and delays in this area soared during the pandemic because of global disruptions and backups. Since then, some sense of normalcy has returned, though that doesn’t mean managing supply chain costs has become easy.
Many companies find that most of their spending is done with just a few vendors. By identifying these vendors and consolidating spending with them, you may be able to put yourself in a stronger position to negotiate volume discounts. Consolidating your supplier base also tends to streamline the administrative work associated with purchasing.
It also pays to really know your suppliers. One way to gather an abundance of relevant information is to conduct a supplier audit. This is a formal process for collecting key data regarding each supplier’s performance to manage quality control and ensure you’re getting an acceptable return on investment.
2. Labor/nonlabor overhead. Controlling labor costs is tricky in today’s environment. Many industries are facing skilled labor shortages, meaning businesses would love to spend more on labor if they could find people to fill those positions. Nevertheless, with payroll being such a dominant expense category for most companies, it’s critical to monitor these costs and prevent overspending.
A logical first step in managing labor costs is to know how much you’re spending. And the answer isn’t as simple as looking at the total gross wages you pay out every month or year. You need to know the actual and total amount of these costs. Fortunately, there’s a metric for that. Labor burden rate reflects the additional costs that companies incur beyond gross wages. These generally include expenses such as payroll taxes, workers’ compensation insurance, and fringe benefits. Knowing your labor burden rate can enable you to truly “right-size” your workforce.
Beyond that, outsourcing remains an option for mitigating labor costs — especially given the vast pool of independent contractors now available. Although you’ll obviously incur costs when outsourcing, the time and labor cost that it saves you could end up a net gain. Carefully chosen and implemented technology upgrades can provide similar results.
3. Marketing/sales. Much like labor, strong marketing, and sales are critical to most businesses operating today. So, skimping on their related costs typically isn’t going to pay off. But, of course, you also need to ensure a strong return on investment.
Again, choosing and monitoring the right metrics can prove useful here. The optimal ones tend to vary by industry and company type, but some of the most widely used for marketing purposes include lead conversion rate, click-through rate for online ads, and cost per lead. Popular sales metrics include total revenue, year-over-year growth, and average customer lifetime value.
Whether it’s sales metrics, labor burden rate, or supply chain management, getting objective, professional advice can help you and your leadership team obtain an accurate picture of what’s going on with your costs and target feasible solutions. Please consider the FMD team for assistance.
Does Your Company Have an EAP? If so, be Mindful of Compliance
Many businesses have established employee assistance programs (EAPs) to help their workforces deal with the mental health, substance abuse, and financial challenges that have become so widely recognized in modern society.
EAPs are voluntary and confidential work-based intervention programs designed to help employees and their dependents deal with issues that may be affecting their mental health and job performance. These may include workplace stress, grief, depression, marriage/family problems, psychological disorders, financial troubles, and alcohol and drug dependency.
Whether your company is considering an EAP or already offers one, among the most important factors to keep in mind is compliance.
Start with ERISA
Several different federal laws may come into play with EAPs. A good place to start when studying your compliance risks is the Employee Retirement Income Security Act (ERISA). The law’s provisions address critical compliance matters such as creating a plan document and Summary Plan Description, performing fiduciary duties, following claims procedures, and filing IRS Form 5500, “Annual Return/Report of Employee Benefit Plan.”
Although most people associate ERISA with qualified health care and retirement plans, the law can be applicable to EAPs depending on how a particular program is structured and what benefits it provides. Generally, a fringe benefit is considered an ERISA welfare benefit plan if it’s a plan, fund, or program established or maintained by an employer to provide ERISA-listed benefits, which include medical services.
The category of ERISA-listed benefits most likely to be provided by an EAP is medical care or benefits. Mental health counseling — whether for substance abuse, stress, or other issues — is considered medical care. Accordingly, an EAP providing mental health counseling will probably be subject to ERISA. On the other hand, an EAP that provides only referrals and general information, and isn’t staffed by trained counselors, likely isn’t an ERISA plan.
Bear in mind that EAPs that primarily use referrals could still be considered to provide medical benefits if the individuals handling initial phone consultations and making the referrals are trained in an applicable field, such as psychology or social work. If an EAP provides any benefit subject to ERISA, then the entire program must comply with the law — even if it also provides non-ERISA benefits.
Check up on other laws
EAPs considered to be group health plans are also typically subject to the Consolidated Omnibus Budget Reconciliation Act (commonly known as “COBRA”) and certain other group health plan mandates, including mental health parity.
Also, keep in mind that EAPs that receive medical information from participants — even if the programs only make referrals and don’t provide medical care — must comply with privacy and security rules under the Health Insurance Portability and Accountability Act (HIPAA).
In addition, EAPs providing medical care or treatment could trigger certain provisions of the Affordable Care Act (ACA). EAPs meeting specified criteria, however, can be defined as an “excepted benefit” not subject to HIPAA portability or certain ACA requirements.
Cover all bases
Given the rising awareness and acceptance of mental health care alone, EAPs could become as common as health insurance and retirement plans in many companies’ employee benefit packages.
Whether you’re thinking about one or already have an EAP up and running, it’s a good idea to consult an attorney regarding your company’s compliance risks. Meanwhile, please FMD for help identifying and tracking the costs involved, as well as understanding the tax impact.
IRS Issues Final Regulations on Inherited IRAs
The IRS has published new regulations relevant to taxpayers subject to the “10-year rule” for required minimum distributions (RMDs) from inherited IRAs or other defined contribution plans. The final regs, which take this year, require many beneficiaries to take annual RMDs in the 10 years following the deceased’s death.
SECURE Act ended stretch IRAs
The genesis of the new regs dates back to the 2019 enactment of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. One of the many changes in that tax law was the elimination of so-called “stretch IRAs.”
Previously, all beneficiaries of inherited IRAs could stretch RMDs over their entire life expectancies. Younger heirs in particular benefited by taking smaller distributions for decades, deferring taxes while the accounts grew. These heirs also could pass on the IRAs to later generations, deferring the taxes even longer.
The SECURE Act created limitations on which heirs can stretch IRAs. These limits are intended to force beneficiaries to take distributions and expedite the collection of taxes. Specifically, for IRA owners or defined contribution plan participants who died in 2020 or later, only “eligible designated beneficiaries” (EDB) are permitted to stretch out payments over their life expectancies. The following heirs are considered eligible for this favorable treatment:
Surviving spouses,
Children younger than “the age of majority,”
Individuals with disabilities,
Chronically ill individuals, and
Individuals who are no more than 10 years younger than the account owner.
All other heirs (known as designated beneficiaries) are required to take the entire balance of the account within 10 years of the death, regardless of whether the deceased died before, on, or after the required beginning date (RBD) of his or her RMDs.
Note: In 2023, under another law, the age at which account owners must begin taking RMDs increased from 72 to 73, pushing the RBD date to April 1 of the year after the account owner turns 73. The age is slated to jump to 75 in 2033.
Proposed regs muddied the waters
In February 2022, the IRS issued proposed regs addressing the 10-year rule — and they brought some bad news for many affected heirs. The proposed regs provided that, if the deceased dies on or after the RBD, designated beneficiaries must take their taxable RMDs in years one through nine after death (based on their life expectancies), receiving the balance in the tenth year. A lump-sum distribution at the end of 10 years wouldn’t be allowed.
The IRS soon heard from confused taxpayers who had recently inherited IRAs or defined contribution plans and didn’t know when they were required to start taking RMDs. Beneficiaries could have been hit with a penalty based on the amounts that should have been distributed but weren’t. This penalty was 50% before 2023 but was lowered to 25% starting in 2023 (or 10% if a corrective distribution was made in a timely manner). The plans themselves could have been disqualified for failing to make RMDs.
As a result, the IRS issued a series of waivers on enforcement of the 10-year rule. With the release of the final regulations, the waivers will come to an end after 2024.
Final regs settle the matter
The IRS reviewed comments on the proposed regs suggesting that if the deceased began taking RMDs before death, the designated beneficiaries shouldn’t be required to continue the annual distributions as long as the remaining account balance is fully distributed within 10 years of death. The final regs instead require these beneficiaries to continue receiving annual distributions.
If the deceased hadn’t begun taking his or her RMDs, though, the 10-year rule is somewhat different. While the account has to be fully liquidated under the same timeline, no annual distributions are required. That gives beneficiaries more opportunity for tax planning.
To illustrate, let’s say that a designated beneficiary inherited an IRA in 2021 from a family member who had begun to take RMDs. Under the waivers, the beneficiary needn’t take RMDs for 2022 through 2024. The beneficiary must, however, take annual RMDs for 2025 through 2030, with the account fully distributed by the end of 2031. Had the deceased not started taking RMDs however, the beneficiary would have the flexibility to not take any distributions in 2025 through 2030. So long as the account was fully liquidated by the end of 2031, the beneficiary would be in compliance.
Additional proposed regs
The IRS released another set of proposed regs regarding other RMD-related changes made by SECURE 2.0, including the age when individuals born in 1959 must begin taking RMDs. Under the proposed regs, the “applicable age” for them would be 73 years.
They also include rules addressing:
The purchase of an annuity with part of an employee’s defined contribution plan account,
Distributions from designated Roth accounts,
Corrective distributions,
Spousal elections after a participant’s death,
Divorce after the purchase of a qualifying longevity annuity contract, and
Outright distributions to a trust beneficiary.
The proposed regs take effect in 2025.
Timing matters
It’s important to realize that even though RMDs from an inherited IRA aren’t yet required, that doesn’t mean a beneficiary shouldn’t take distributions. If you’ve inherited an IRA or a defined contribution plan and are unsure of whether you should be taking RMDs, contact us. We’d be pleased to help you determine the best course of action for your tax situation.
The Ins and Outs of Relocating Your Trust to a Tax-Friendlier State
It’s not uncommon for people who live in states with high-income taxes to relocate to states with more favorable tax climates. Did you know that you can use a similar strategy for certain trusts? Indeed, if a trust is subject to high state income tax, you may be able to change its residence — or “situs” — to a state with low or no income taxes.
How different trust types are taxed
The taxation of a trust depends on the trust type. Revocable trusts and irrevocable “grantor” trusts — those over which the grantor retains enough control to be considered the owner for tax purposes — aren’t taxed at the trust level. Instead, trust income is included on the grantor’s tax return and taxed at the grantor’s personal income tax rate.
Irrevocable, nongrantor trusts generally are subject to federal and state tax at the trust level on any undistributed ordinary income or capital gains, often at higher rates than personal income taxes. Income distributed to beneficiaries is deductible by the trust and taxable to beneficiaries.
Therefore, relocating a trust may offer a tax advantage if the trust:
Is an irrevocable, nongrantor trust,
Accumulates (rather than distributes) substantial amounts of ordinary income or capital gains, and
Can be moved to a state with low or no taxes on accumulated trust income.
There may be other advantages to moving a trust. For example, the laws in some states allow you or the trustee to obtain greater protection against creditor claims, reduce the trust’s administrative expenses, or create a “dynasty” trust that lasts for decades or even centuries.
Determining if the trust is movable
For an irrevocable trust, the ability to change its situs depends on several factors, including the language of the trust document (does it authorize a change in situs?) and the laws of the current and destination states. In determining a trust’s state of “residence” for tax purposes, states generally consider one or more of the following factors:
The trust creator’s state of residence or domicile,
The state in which the trust is administered (for example, the state where the trustees reside or where the trust’s records are maintained), and
The state or states in which the trust’s beneficiaries reside.
Some states apply a formula based on these factors to tax a portion of the trust’s income. Also, some states tax all income derived from sources within their borders — such as businesses, real estate, or other assets located in the state — even if a trust in another state owns those assets.
Depending on state law and the language of the trust document, moving a trust may involve appointing a replacement trustee in the new state and moving the trust’s assets and records to that state. In some cases, it may be necessary to amend the trust document or to transfer the trust’s assets to a new trust in the destination state. A situs change may also require the consent of the trust’s beneficiaries or court approval.
For tax purposes, a final return should be filed in the current jurisdiction. The return should explain the reasons why the trust is no longer taxable in that state. Before taking action, discuss with us the pros and cons of moving your trust. FMD can help you determine whether it’s worth your while.
3 Ways Businesses Can Get More Bang for Their Marketing Bucks
Most small to midsize businesses today operate in tough, competitive environments. That means it’s imperative to identify and reach the right customers and prospects.
However, unlike large companies, your business probably doesn’t have a massive marketing department with seemingly limitless resources. You’ve got to pursue savvy campaigns while also controlling costs. Here are three fundamental ways to get more bang for your marketing bucks.
1. Set a budget, rinse, repeat
Many companies, particularly start-ups and small businesses, engage in “marketing by desperation.” That is, they throw money at the problem haphazardly and hope for good results. A better strategy is to take a step back and set a realistic marketing budget based on factors such as:
Projected annual revenue (one rule of thumb is to allocate 5% to 10% of annual gross revenue to marketing, but this may not always be applicable),
Industry benchmarks (such as what similar-sized businesses in your industry spend on marketing), and
Growth goals (more aggressive growth may call for more dollars allocated).
Unfortunately, you can’t take a “set-it-and-forget-it” approach to your marketing budget. Every quarter, or at least at year end, compare your “marketing spend” to return on investment (ROI) using clear, verifiable financial metrics. Look for both 1) wasteful spending that you can eliminate or reallocate to other parts of the business, and 2) successful spending strategies that you can use for future campaigns. Regular budgetary reviews and adjustments will help your company adapt to industry and market changes without over- or underfunding marketing efforts.
2. Use metrics and technology to assess campaigns
One of the great things about marketing today is that many different metrics can help fine-tune your efforts. Examples include number of leads generated, lead conversion rate, and customer acquisition cost. An analytics-driven approach allows you to precisely measure the performance of your marketing campaigns.
Calculating these and other metrics shouldn’t involve pen and paper! You can use various technology tools to gather data, generate reports, and track progress. For example, if you use Google Business, it offers Google Analytics. This tool helps businesses track and analyze website traffic and visitor behavior. Other platforms, including most social media apps, offer similar functionality.
To take things to the next level, assuming you haven’t already, consider investing in customer relationship management software. Carefully selected and implemented, one of these solutions can allow you to input, gather, track, and analyze massive amounts of data to support marketing campaigns.
3. Avoid common mistakes
As you look to increase marketing ROI, watch out for common mistakes. First, don’t ignore the importance of meticulously defining your target audience. Although casting a wide net may seem like a good idea, doing so often leads to inconsistent results and wasted spending.
Second, don’t go overboard on paid ads. There are many forms of these online — including ads associated with search engines, websites, social media platforms, and video channels. On the plus side, they may yield quick results. However, they can also drain your marketing budget if you don’t manage them diligently. A best practice is to start with a small number of paid ads (even just one), test different ways to use them, and scale up based on positive results.
Last, never lose sight of the power of referrals. Word of mouth remains perhaps the most cost-effective way to market your business. Encourage satisfied customers to leave positive reviews on your website and social media channels. Consider offering discounts or freebies for referrals or online shout-outs.
Maximize positive impact
At the end of the day, getting a solid ROI from marketing is much more than simply cutting costs. You have to maximize the positive impact of your spending. Contact your FMD advisor for help creating and maintaining marketing budgets that align with your strategic goals and integrate well with your company’s other operational areas.
Leaving specific assets to specific heirs may lead to unintentional outcomes
Does your estate plan leave specific assets to specific family members? If so, you may want to reconsider your plan. While it may be tempting to say, leave your son your classic car and give your daughter a family heirloom, doing so risks inadvertently disinheriting other family members, even if you’ve gone out of your way to ensure that they’re treated equally.
Let’s consider an example. Dan has three children, Susan, Peter, and Emma. At the time he prepares his estate plan, Dan has three primary assets: company stock valued at $1 million, a mutual fund with a $1 million balance, and a $1 million life insurance policy. His estate plan calls for Susan to acquire the stock, Peter to gain the mutual fund, and Emma to become the life insurance policy’s beneficiary.
When Dan dies 15 years later, the values of the three assets have changed considerably. The stock’s value has dropped to $500,000, the mutual fund has grown to $2.5 million and he inadvertently allowed the life insurance policy to lapse.
The result: Although Dan intended to treat his children equally, Peter ended up with the bulk of his estate, Susan’s inheritance was significantly smaller than expected and Emma was disinherited altogether. To avoid unintended results like this, consider distributing your wealth among your heirs based on percentages or dollar values rather than providing for specific assets to go to specific people.
However, if it’s important to you that certain heirs receive certain assets, there may be planning strategies you can use to ensure your heirs are treated fairly. Returning to the example, Dan could’ve provided for his wealth to be divided equally among his children, with Susan receiving the stock (valued at fair market value) as part of her share. That way, Susan would have received the stock plus $500,000 of the mutual fund, and Peter and Emma would each have received $1 million of the mutual fund.
Contact FMD if you have questions regarding how your estate plan currently distributes your assets among family members. We can help determine if all your heirs will be treated equally.