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6 key elements of a business budget
Every business needs a budget, but not every budget looks the same. Some companies have intricately detailed ones, others rely on simple templates generated with off-the shelf software, and still others forgo formal budgets in favor of a “fly by the seat of your pants” approach. (That last option isn’t recommended.)
Because budgeting is such an essential part of running a business, it’s easy to take for granted. You may fall into a routine that, over time, doesn’t keep up with your company’s evolving needs. To identify areas of improvement, here are six key elements of a business budget and some best practices to consider:
1. Current overview. You may think you’ve created a sound budget, but its usefulness will be limited if it’s based on what your business looked like and how it operated five years ago. Compose an up-to-date description of your business. This should include its strategic goals, sales targets, the state of your industry and market, and impactful economic factors.
2. Budget rationale. Explain in clear language how the budget supports your company’s mission, vision, values, goals and objectives. To be included in the budget, every line item (see below) must support all five of those factors. If one doesn’t, question its merit.
3. Detailed line items. Naturally, the “meat” of every budget is its line items. These typically include:
Revenue, such as sales income and interest income,
Expenses, such as salaries and wages, rent, and utilities,
Capital expenditures, such as equipment purchases and property improvements, and
Contingency funds, such as a cash reserve.
An important question to ask is: Are we including everything the business spends money on? Although maintaining a detailed budget can be tedious, it’s imperative to managing cash flow.
4. Selected performance metrics. Among the primary purposes of a budget is to compare projected spending to actual spending — making adjustments as necessary. As part of the budgeting process, establish precisely which metrics you’ll use to determine whether you’re making, breaking or beating the budget.
5. Supporting appendices. Discuss with your leadership team whether your budget would be more useful with additional information. Commonly attached supporting appendices include historical budget and results analyses, department spending summaries, tables and graphs depicting market and cost trends, organizational charts, and glossaries of terminology.
6. Executive summary. This brief written snapshot, which usually appears at the very top of the budget report, is intended to provide a concise overview of the chief objectives and major sections of the budget. If you’re not already using one, consider it. For you and other internal users, an executive summary can serve as a quick reference and help you set your expectations. Perhaps more important, it can make your budget easier to understand for outside parties such as lenders and investors.
Your current budget may not include all six of these elements — and that’s OK. As mentioned, companies are free to create budgets in whatever format suits their size and needs. But you should approach budgeting with an eye on continuous improvement. And to that end, please contact us. We can assess your budgeting process from start to finish and suggest ways to perform this critical business function more efficiently and effectively.
© 2024
Estate planning for residential real estate with a qualified personal residence trust
Do you own your principal residence? If so, you’re likely aware that you can benefit from the home’s build-up in equity, realize current tax breaks and pocket a sizable tax-exempt gain when you sell it.
And from an estate planning perspective, it may be beneficial to transfer ownership of your home to a qualified personal residence trust (QPRT). Using a QPRT, you can continue to live in the home for the duration of the trust’s term. When the term ends, the remainder interest passes to designated beneficiaries.
A QPRT in action
When you transfer a home to a QPRT, it’s removed from your taxable estate. The transfer of the remainder interest is subject to gift tax, but tax resulting from this future gift is generally reasonable. The IRS uses the Section 7520 rate, which is updated monthly, to calculate the tax. For September 2024, the rate is 4.8%, down from the year’s high thus far of 5.6% in June.
You must appoint a trustee to manage the QPRT. Frequently, the grantor will act as the trustee. Alternatively, it can be another family member, friend or professional advisor.
Typically, the home being transferred to the QPRT is your principal residence. However, a QPRT may also be used for a second home, such as a vacation house.
What happens if you die before the end of the trust’s term? Then the home is included in your taxable estate. Although this defeats the intentions of the trust, your family is no worse off than it was before you created the QPRT.
There’s no definitive period of time for the trust term, but the longer the term, the smaller the value of the remainder interest for tax purposes. Avoid choosing a term longer than your life expectancy. Doing so will reduce the chance that the home will be included in your estate should you die before the end of the term. If you sell the home during the term, you must reinvest the proceeds in another home that will be owned by the QPRT and subject to the same trust provisions.
So long as you live in the residence, you must continue to pay the monthly bills, including property taxes, maintenance and repair costs, and insurance. Because the QPRT is a grantor trust, you’re entitled to deduct qualified expenses on your tax return, within the usual limits.
Potential drawbacks
When a QPRT’s term ends, the trust’s beneficiaries become owners of the home, at which point you’ll need to pay them a fair market rental rate if you want to continue to live there. Despite the fact that it may feel strange to have to pay rent to live in “your” home, at that point, it’s no longer your home. Further, paying rent generally coincides with the objective of shifting more assets to younger loved ones.
Note, also, that a QPRT is an irrevocable trust. In other words, you can’t revise the trust or back out of the deal. The worst that can happen is you pay rent to your beneficiaries if you outlive the trust’s term, or the home reverts to your estate if you don’t. Also, the beneficiaries will owe income tax on any rental income.
Contact us to determine if a QPRT is right for your estate plan.
© 2024
Federal court rejects FTC’s noncompete agreement ban
In April 2024, the Federal Trade Commission (FTC) approved a final rule prohibiting most noncompete agreements with employees. The ban was scheduled to take effect on September 4, 2024, but ran into multiple court challenges. Now the court in one of those cases has knocked down the rule, leaving its future uncertain.
The FTC ban
The FTC’s rule would have prohibited noncompetes nationwide. In addition, existing noncompetes for most workers would no longer be enforceable after it became effective. The rule was expected to affect 30 million workers.
The rule includes an exception for existing noncompete agreements with “senior executives,” defined as workers earning more than $151,164 annually who are in policy-making positions. Policy-making positions include:
A company’s president,
A chief executive officer or equivalent,
Any other officer who has policy-making authority, and
Any other natural person who has policy-making authority similar to an officer with such authority.
Employers couldn’t enter new noncompetes with senior executives under the new rule.
Unlike an earlier proposed rule issued for public comment in January 2023, the final rule didn’t require employers to legally modify existing noncompetes by formally rescinding them. Instead, they were required only to provide notice to workers bound by an existing agreement — other than senior executives — that they wouldn’t enforce such agreements against the workers.
Legal challenges
On the day the FTC announced the new rule, a Texas tax services firm filed a lawsuit challenging the rule in the Northern District of Texas (Ryan, LLC v. Federal Trade Commission). The U.S. Chamber of Commerce and similar industry groups joined the suit in support of the plaintiff. Additional lawsuits were filed in the Eastern District of Pennsylvania (ATS Tree Services, LLC v. Federal Trade Commission) and the Middle District of Florida (Properties of the Villages, Inc. v. Federal Trade Commission).
The Ryan case is the first to reach judgment. On August 20, 2024, the U.S. District Court for the Northern District of Texas held that the FTC exceeded its authority in implementing the rule and that the rule was arbitrary and capricious. It further held that the FTC cannot enforce the ban, a ruling that applies on a nationwide basis.
Notably, in July 2024, the U.S. District Court for the Eastern District of Pennsylvania denied the plaintiff’s request for a preliminary injunction and stay of the rule’s effective date. It found the plaintiff didn’t establish that it was reasonably likely to succeed in its argument against the ban. By contrast, on August 14, 2024, the U.S. District Court for the Middle District of Florida granted the plaintiff a preliminary injunction and stay. That plaintiff requested relief only for itself, though, not nationwide. But the Ryan ruling means the FTC can’t enforce the ban at all unless it prevails on appeal.
An appeal would be before the conservative U.S. Court of Appeals for the Fifth Circuit, which has become a favorite destination for challenges to President Biden’s policies. Although the court often sides with the challengers, it’s also regularly been reversed by the U.S. Supreme Court.
An FTC appeal could face an uphill battle regardless, though, in light of a recent Supreme Court ruling that reversed the longstanding doctrine of “Chevron deference.” Under that precedent, courts gave deference to federal agencies’ interpretations of the laws they administer. According to the new ruling, however, it’s now up to courts to decide “whether the law means what the agency says.”
The bottom line
For now, the FTC’s noncompete ban remains in limbo and won’t take effect on September 4, 2024. But that doesn’t mean noncompetes aren’t still vulnerable to attack. For example, some private parties are using anti-trust laws to challenge such agreements. And an FTC spokesperson has indicated that the Ryan ruling won’t deter the agency “from addressing noncompetes through case-by-case enforcement actions.”
© 2024
Filing a joint tax return for the year of a spouse’s death can be beneficial
Surviving spouses are faced with many financial and tax-related decisions. One critical issue to consider is whether to file a joint or separate tax return for the year of the spouse’s death.
Timing of the final tax return
When a person dies, his or her personal representative (called an executor in some states) is responsible for filing an income tax return for the year of death (as well as any unfiled returns for previous years). For purposes of the final return, the tax year generally begins on January 1 and ends on the date of death. The return is due by April 15 of the following calendar year.
Income that’s included on the final return is determined according to the deceased’s usual tax accounting method. So, for example, if he or she used the cash method, the income tax return will only report income actually or constructively received before death and only deduct expenses paid before death. Income and expenses after death are reported on an estate tax return.
The surviving spouse, together with the personal representative, may file a joint return. And the surviving spouse alone can elect to file a joint return if a personal representative hasn’t yet been appointed by the filing due date. (However, a court-appointed personal representative may later revoke that election.)
Filing a joint tax return
In the year of death, the surviving spouse is generally deemed to be married for the entire calendar year, so he or she can file a joint return with the estate’s cooperation. If a joint return is filed, it’ll include the deceased’s income and deductions from the beginning of the tax year to the date of death, and the surviving spouse’s income and deductions for the entire tax year.
Here are some possible advantages of filing a joint return:
Depending on your income and certain other factors, you may enjoy a lower tax rate.
Certain tax credits are larger on a joint return or are unavailable to married taxpayers filing separately.
IRA contribution limits, as well as the amounts allowed as deductions, may be higher for joint filers.
Bear in mind that there may be disadvantages to filing jointly. For example, higher adjusted gross income (AGI) may reduce the tax benefits of expenses, such as medical bills, that are deductible only to the extent they exceed a certain percentage of AGI.
Turn to us for help
If you’ve lost your spouse recently, before you make a final decision on whether to file a joint return, contact us. We can calculate tax liability based on both a joint and separate return. Other filing options may also be available depending on your circumstances, such as qualifying widow(er) and head of household.
© 2024
Brand audits can help companies in a variety of ways
A strong brand can help boost revenue, while a weaker one may reduce sales opportunities and stifle growth.
Like many business owners, you’ve probably spent considerable time and energy crafting your company’s brand. Doing so has likely involved coming up with a memorable business name and logo, communicating with customers in a distinctive manner, and, above all, building a strong reputation in your market.
So, how’s all that going? Although your bottom line can certainly tell you a thing or two about the current success of your business, brand strength can be a little trickier to put a finger on. That’s why many companies conduct brand audits — essentially, formal reviews of a brand’s efficacy and market standing.
Data to gather
There are many ways to conduct a brand audit. The optimal steps for your business will depend on factors such as your industry, your company size and the popularity of your brand.
But most audits have certain things in common. For starters, they generally rely on information you already have on hand or could easily generate. Examples include:
Sales data. One objective of a brand audit is to identify sales-related key performance indicators and trends that may relate to branding. Essentially, if sales have slumped, is your brand partly to blame? And if so, why?
Website analytics. Brand audits usually investigate whether site traffic is trending upward or downward. They also typically determine how much time visitors spend on your site and on which pages. A strong brand will draw consistent visitors who tend to stick around. A weaker one is often indicated by a large number of accidental visitors who leave quickly.
Social media interactions. Although social media has its challenges and downsides, one enormous benefit is that each of your accounts should provide a wealth of interaction data. Brand audits can analyze this information over time to assess brand strength — and determine whether it’s rising or falling.
Customers and employees
Most brand audits also involve gathering the thoughts and opinions of two major constituencies: customers and employees.
Customers, of course, represent the richest source of insight into brand strength. Brand audits can involve surveys that posit various questions to customers and prospects about your brand. But such a survey needs to be carefully designed. You’ve got to keep it short, clear and easy to complete. Most are now conducted online.
Employees can also tell you things about your brand that you might not know or haven’t thought about. Your sales staff, for instance, could be getting feedback — positive or negative — from customers and prospects. So, an employee survey focused on brand-related issues can be a useful part of an audit.
More than marketing
Generally, brand audits are conducted for marketing purposes. They can help your marketing department determine how to enhance your brand — or potentially even whether you need to undertake a full-blown rebrand. But regular brand audits can also benefit strategic planning. You may even discover that someone has been using your brand fraudulently!
Precisely who should conduct a brand audit typically depends on business size. Larger companies with sizable internal marketing teams may be able to do it themselves. But many small to midsize businesses turn to marketing consultants or agencies to do the job. Our firm can help you assess the costs of a brand audit, as well as gather and analyze some of the financial data involved.
© 2024
Business owners sometimes need to switch successors
For many business owners, choosing a successor is the most difficult task related to succession planning. Owners of family-owned businesses, who may have multiple children or other relatives to consider, particularly tend to struggle with this tough choice.
What’s worse, many business owners’ initial picks for a successor don’t work out. Over time, the chosen person can prove to be unqualified, incapable or unwilling to fulfill a leadership role. If you find yourself in this situation, don’t panic. There are some measured steps you can take to resolve the matter.
Ask around
Before you dismiss your chosen successor, discuss the situation with several objective parties. These might include professional advisors, such as your CPA and attorney, as well as trusted family members, friends or colleagues with business experience.
Your goal is to determine whether your perception is off the mark. You may think, for instance, that your successor lacks the necessary skills to run your company. But the person might simply have a different leadership style than you do. Talking with others may help you put things in perspective.
Look for ways to help
If you come to believe that, with some work, your successor may still be capable of running the business after all, meet with the person. State your concerns and outline what must change.
And don’t forget to listen. Ask why your successor is having the difficulties you’ve pointed out. Perhaps it’s a lack of formal training in one aspect of the job. In such cases, there may be a class that can help provide the needed education, or maybe more mentoring from you might solve the problem.
It’s also possible your successor is facing personal issues that are getting in the way of work. For example, the person may be having financial problems, battling an addiction, or struggling in a marriage or other personal relationship. By listening, you can find out what the specific issues are and how you may be able to help.
Avoid past mistakes
After talking with others, and perhaps your successor, you may still feel the person needs to be replaced. If you decide to move on to someone else, tell your successor as soon as possible and explain why. Being honest and forthright, though difficult, will help settle the matter efficiently. As part of the conversation, ask whether there’s anything you could’ve done differently to avoid the impasse that developed.
Following that discussion, reconstruct the succession planning process to determine what led you to choose your initial successor. Review personal notes, memos and emails. Speak again with your professional advisors as well as trusted employees, family members, friends and colleagues about picking someone new. Ultimately, you want to develop objective criteria for your new successor and eliminate the impediments that kept your initial choice from working out.
Finally, if your second choice also doesn’t work out, stay open to the possibility that the problem may not lie with your prospective successors. It’s possible that the demands you’re placing on a successor may be somewhat unreasonable, or that you’re inadequately communicating your wishes and expectations.
Prepare for contingencies
Many business owners choose successors, work diligently to mentor them and transition smoothly into retirement with their companies in safe hands. But, as you well know, rarely does everything go exactly as planned in the business world. Preparing for contingencies is key in succession planning. As part of that effort, your FMD advisor can help you integrate savvy tax and financial strategies into your plan.
© 2024
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 your FMD advisor with any questions.
© 2024
Businesses should stay grounded when using cloud computing
For a couple decades or so now, companies have been urged to “get on the cloud” to avail themselves of copious data storage and a wide array of software. But some businesses are learning the hard way that the seemingly sweet deals offered by cloud services providers can turn sour as hoped-for cost savings fail to materialize and dollars left on the table evaporate into thin air.
Unclaimed discounts
One source of the trouble was revealed in a report entitled 2024 Effective Savings Rate Benchmarks and Insights, released earlier this year by cloud solution provider ProsperOps.
After analyzing $1.5 billion worth of Amazon Web Services (AWS) bills submitted to hundreds of organizations over a 12-month period, the report writers found that more than half of those organizations neglected to claim discounts baked into their cloud computing deals. As a result, the organizations paid full on-demand rates for “compute” services, such as data processing and computer memory, resulting in unnecessarily high costs.
The predicament reveals a key risk of cloud computing arrangements — particularly with major providers such as AWS, Microsoft Azure and Google Cloud: They’re complicated. Among the chief advantages of the cloud is that it’s scalable; companies can expand or diminish their computing services as their needs dictate. But with scalability, and other cloud functions, comes intense billing complexity that makes it difficult to control costs.
Best practices
So, what can your business do to ensure high cloud costs don’t rain on your parade? Here are a few best practices:
Know what you’re getting into. Just as you would for any other business contract, be sure you, your leadership team and your professional advisors thoroughly review and approve the terms of a cloud services agreement. Generally, the more predictable the pricing, the better.
Get familiar with your bill. Cloud computing invoices can be just as complex as the contracts, if not more so. Dedicate the time and resources to training yourself and other pertinent staff members to be able to read and understand your bill. If something seems inaccurate or difficult to understand, contact your provider for clarification.
Identify discounts … and claim them! If there’s one clear lesson from the aforementioned report, it’s that discounts matter and you should do everything in your power not to leave them on the table. Customers often have three types of savings “levers” to choose from: commitment-based discounts, volume-based discounts and enterprise discount programs.
Learn as much as you can about those offered by your provider. Then use carefully identified metrics to determine eligibility for discounts and claim them when you qualify. Many cloud computing platforms have built-in dashboards that enable you to visualize various metrics. Or you may be able to access a third-party dashboard via a web browser.
Review overall usage. At least once a year, take a broad look at precisely how you’re using the cloud. You may be able to scale down and save money. Also look for unused resources. If you’re paying for a service or certain type of software that you’re not using, ask your provider to discontinue it.
Find the savings
For many types of businesses, cloud computing has become a mission-critical resource. Whether this describes your company or you’re just using the cloud for efficiency and convenience, it likely represents a significant expense that you should manage carefully. Our firm can help you assess the costs — and identify the potential savings — of your current cloud computing arrangement or a prospective one.
© 2024
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 effect in 2025, 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 would 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.
© 2024
Beware these 5 estate planning pitfalls
If you’re taking your first steps on your estate planning journey, congratulations! No one likes to contemplate his or her mortality, but having a plan in place can provide you and your loved ones peace of mind should you unexpectedly become incapacitated or die. Here are five basic pitfalls you’ll want to avoid:
Pitfall #1: not coordinating different plan aspects. Typically, there are several moving parts to an estate plan, including a will, a power of attorney, trusts, retirement plan accounts and life insurance policies. Don’t look at each one in a vacuum. Even though they have different objectives, consider them to be components that should be coordinated within your overall plan. For instance, you may want to arrange to take distributions from investments — including securities, qualified retirement plans, and traditional and Roth IRAs — in a way that preserves more wealth.
Pitfall #2: failing to update beneficiary forms. Your will spells out who gets what, where, when and how, but it’s often superseded by other documents such as beneficiary forms for retirement plans, annuities, life insurance policies and other accounts. Therefore, like your will, you must also keep these forms up to date. For example, despite your intentions, retirement plan assets could go to a sibling or parent — or even worse, an ex-spouse — instead of your children or grandchildren. Review beneficiary forms periodically and make any necessary adjustments.
Pitfall #3: not properly funding trusts. Frequently, an estate plan will include one or more trusts, including a revocable living trust. The main benefit of a living trust is that assets transferred to the trust don’t have to be probated, which will expose them to public inspection and subject them to delays. It’s generally recommended that such a trust be used only as a complement to a will, not as a replacement.
However, the trust must be funded with assets, meaning that legal ownership of the assets must be transferred to the trust. For example, if real estate is being transferred, the deed must be changed to reflect this. If you’re transferring securities or bank accounts, you should follow the directions provided by the financial institutions. Otherwise, the assets must be probated.
Pitfall #4: mistitling assets. Both inside and outside of trusts, the manner in which you own assets can make a big difference. For instance, if you own property as joint tenants with rights of survivorship, the assets will go directly to the other named person, such as your spouse, on your death.
Not only is titling assets critical, you should review these designations periodically. Major changes in your personal circumstances or the prevailing laws could dictate a change in the ownership method.
Pitfall #5: not reviewing your plan on a regular basis. It’s critical to consider an estate plan as a “living” entity that must be nourished and sustained. Don’t allow it to gather dust in a safe deposit box or file cabinet. Consider the impact of major life events such as births, deaths, marriages, divorces, and job changes or relocations, just to name a few.
To help ensure that your estate plan succeeds at reaching your goals and avoids these pitfalls, turn to us. We can help ensure that you’ve covered all the estate planning bases.
© 2024
Could a 412(e)(3) retirement plan suit your business?
When companies reach the point where they’re ready to sponsor a qualified retirement plan, the first one that may come to mind is the 401(k). But there are other, lesser-used options that could suit the distinctive needs of some business owners. Case in point: the 412(e)(3) plan.
Nuts and bolts
Unlike 401(k)s, which are defined contribution plans, 412(e)(3) plans are defined benefit plans. This means they provide fixed benefits under a formula based on factors such as each participant’s compensation, age and years of service.
For 2024, the annual benefit provided by 412(e)(3)s can’t exceed the lesser of 100% of a participant’s highest three-year average compensation or $275,000. As with other defined benefit plans, 412(e)(3)s are funded only by employers. They don’t accept participant contributions.
But unlike other defined benefit plans, which are funded through a variety of investments, 412(e)(3)s are funded with annuity contracts and insurance. In fact, the IRS refers to them as “fully insured” plans. The name “412(e)(3)” refers to Section 412(e)(3) of the Internal Revenue Code, which authorizes the plan type’s qualified status.
Under Sec. 412(e)(3), defined benefit plans funded with annuity contracts and insurance aren’t subject to minimum funding requirements — so long as certain conditions are met. Companies sponsoring these plans don’t have to make annual actuarial calculations or mandatory contributions. However, they risk penalties if a plan’s insurer doesn’t satisfy certain obligations. In other words, the plan needs to be safely insured.
Potential benefits
Some experts advise relatively older business owners who want to maximize retirement savings in a short period to consider 412(e)(3)s because of the way defined benefit plans differ from defined contribution plans. That is, business owners who sponsor and participate in defined benefit plans can take a bigger share of the pie — particularly if they have few, if any, highly compensated employees. Meanwhile, they can also enjoy substantial tax deductions for plan contributions.
In addition, 412(e)(3)s may be more attractive than other defined benefit plans for some small business owners. Although they tend to sacrifice potentially higher investment returns, these plans offer greater flexibility by using potentially lower-risk and easy-to-administer annuity contracts and insurance. They might also appeal to closely held business owners who want to maximize tax-deductible contributions to a retirement plan in the early years of ownership.
As is the case with all defined benefit plans, however, sponsors must have the financial stability to support their plans indefinitely. So, 412(e)(3)s usually aren’t appropriate for start-ups.
Administrative requirements
Tax-favored treatment for 412(e)(3)s isn’t automatic. These plans must meet various requirements as spelled out in the tax code.
For example, as mentioned, 412(e)(3)s must be funded exclusively by the purchase of annuity contracts or a combination of annuity contracts and insurance. Sponsors must buy the contracts and/or insurance from insurers licensed by at least one of the 50 states or the District of Columbia.
Also, the contracts must provide for level annual (or more frequent) premium payments starting on the date each participant joins the plan. Premium payments need to end no later than the normal retirement age of a participant — or by the date the individual ceases participation in the plan, if earlier.
These are just a couple examples of the rules involved. It’s critical to fully understand all the requirements before sponsoring a plan.
An intriguing possibility
A 412(e)(3) plan may be an under-the-radar choice for some businesses under the right circumstances. For help choosing the best plan for your company, contact us.
© 2024
A self-directed IRA can benefit your estate plan — but know the risks
Traditional and Roth IRAs can be powerful estate planning tools. With a “self-directed” IRA, you may be able to amp up the benefits of these tools by enabling them to hold alternative investments that offer potentially greater returns.
However, self-directed IRAs may present pitfalls that can lead to unfavorable tax consequences. Therefore, you need to handle these vehicles with care.
Alternative investments
Unlike traditional IRAs, which typically offer a limited menu of stocks, bonds and mutual funds, self-directed IRAs can hold a variety of alternative investments that may offer the potential to earn higher returns. The investments can include real estate, closely held business interests, commodities and precious metals. Bear in mind that they can’t hold certain assets, including S corporation stock, insurance contracts and collectibles (such as art or coin collections).
From an estate planning perspective, self-directed IRAs have considerable appeal. Imagine transferring real estate or closely held stock with substantial earnings potential to a traditional or Roth IRA and allowing it to grow on a tax-deferred or tax-free basis for the benefit of your heirs.
Risks and tax traps
Before taking action, it’s critical to understand the significant risks and tax traps involved with self-directed IRAs. For example:
The prohibited transaction rules restrict dealings between an IRA and disqualified persons, including you, close family members, businesses that you control and your advisors. This makes it difficult, if not impossible, for you or your family to manage, work for, or have financial dealings with business or real estate interests held by the IRA without undoing the IRA’s tax benefits and triggering penalties.
IRAs that invest in operating companies may generate unrelated business income taxes, which are payable currently out of an IRA’s funds.
IRAs that invest in debt-financed property may generate unrelated debt-financed income, creating a current tax liability.
Proceed with caution
If you’re considering a self-directed IRA, determine the types of assets in which you’d like to invest and carefully weigh the potential benefits against the risks. Contact us with any questions.
© 2024
SECURE 2.0: Which provisions went into effect in 2024?
The Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act was signed into law in December 2022, bringing more than 90 changes to retirement plan and tax laws. Many of its provisions are little known and were written to roll out over several years rather than immediately taking effect.
Here are several important changes that went into effect in 2024:
Pension-Linked Emergency Savings Accounts (PLESAs). More than half of U.S. adults would turn to borrowing when confronted by an emergency expense of $1,000 or more, according to a Bankrate survey — a figure that has held steady for years. In response, SECURE 2.0 contains provisions related to emergency access to retirement savings, including PLESAs. PLESAs are defined contribution plans designed to encourage workers to save for financial emergencies.
Beginning this year, employers can offer PLESAs linked to employees’ retirement accounts, with the PLESA treated as a Roth, or after-tax, account. Non-highly-compensated employees can be automatically enrolled with a deferral of up to 3% of compensation but no more than $2,500 annually (indexed for inflation) — or less if the employer chooses. Employees can make qualified withdrawals tax- and penalty-free. Employers must allow at least one withdrawal per month, with no fee for the first four per year.
Starter 401(k) plans. SECURE 2.0 creates a new kind of retirement plan for employers not already sponsoring a qualified retirement plan, called a starter 401(k). Employers must automatically enroll all employees at a deferral rate of at least 3% of compensation but no more than 15%. The maximum annual deferral is $6,000 (indexed for inflation), plus the annual IRA catch-up contribution of $1,000 for those age 50 or older. No actual deferral percentage (ADP) or top-heavy testing of the plan is required, reducing the compliance and cost burden for employers.
Employers can impose age and service eligibility requirements, and employees may elect out. They also can choose to contribute at a different level. Employer contributions aren’t allowed, so less record keeping is required.
Top-heavy rules. Defined contribution plans that are considered “top-heavy” must make nonelective minimum contributions equal to 3% of a participant’s compensation. This can represent a significant expense for small employers. Top-heavy plans are those where the aggregate of accounts for key employees exceeds 60% of the aggregate accounts for non-key employees.
Starting in 2024, employers can perform the top-heavy test separately on excludable employees (those who are under age 21 and have less than a year of service) and non-excludable employees. The goal is to eliminate the incentive for employers to exclude employees from the plan to avoid the minimum contribution obligation.
SIMPLE IRAs. SECURE 2.0 boosts the annual Savings Incentive Match Plans for Employees (SIMPLE) IRA and SIMPLE 401(k) deferral limit and the catch-up limit to 110% of the 2024 contribution limits (indexed for inflation) for employers with 25 or fewer employees. Employers with 26 to 100 employees can offer the higher deferral limits if they provide a 4% matching contribution or a 3% employer contribution.
Employers now can make additional contributions to each employee in the plan, as well. Additional contributions must be made in a uniform manner and can’t exceed the lesser of up to 10% of compensation or $5,000 (indexed for inflation) per employee.
Early withdrawal exceptions. SECURE 2.0 allows penalty-free early withdrawals from qualified retirement plans for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.” Employees have three years to repay such withdrawals; no additional emergency withdrawals are permitted during the three-year repayment period, except to the extent that any previous withdrawals within that period have been repaid. The withdrawals are otherwise limited to once per year.
Victims of domestic abuse by a spouse or partner also are exempt from early withdrawal penalties for the lesser of $10,000 (indexed for inflation) or 50% of their vested account balances. The law’s detailed definition of domestic abuse includes abuse of a participant’s child or another family member living in the same household. Withdrawals can be repaid over a three-year period, and participants can recover income taxes paid on repaid distributions.
Note: An early withdrawal penalty exception for terminally ill individuals took effect in 2023.
Employer-provided student loan relief. Younger employees with large amounts of student debt have sometimes missed out on their employer’s matching contributions to retirement plans. SECURE 2.0 tackles this catch-22 by allowing these employees to receive matching contributions based on their qualified student loan payments. Employers can make matching contributions to 401(k) plans or SIMPLE IRAs. Note that contributions based on student loan payments must be made available to all match-eligible employees.
Section 529 plan rollovers. Beginning this year, owners of certain 529 plans can transfer unused funds intended for qualified education expenses directly to the plan beneficiary’s Roth IRA without incurring any federal tax or the 10% penalty for nonqualified withdrawals.
A beneficiary’s rollover amount is limited to a lifetime maximum of $35,000, and rollovers are subject to the applicable Roth IRA annual contribution limit. Rollover amounts can’t include contributions made to the plan in the previous five years, and the 529 account must have been maintained for at least 15 years.
Required minimum distributions (RMDs). Designated Roth 401(k) and 403(b) plans provided by employers have been subject to annual RMDs in the same way that traditional 401(k)s are. As of 2024, though, the plans aren’t subject to RMDs until the death of the owner.
Act now
Many employers need to amend their plans due to changes related to SECURE 2.0. Fortunately, they generally have until the end of 2025 to make these amendments as long as they comply by the law’s deadlines. Contact us for additional details.
© 2024
Undue influence claims may upend your estate plan
One of the goals in creating a comprehensive estate plan is to maintain family harmony after your death. Typically, with an estate plan in place, you have the peace of mind that your declarations will be carried out, as required by law. However, if someone is found to have exerted “undue influence” over your final decisions, a family member may challenge your will.
Defining “undue influence”
Undue influence is an act of persuasion that overcomes the free will and judgment of another person. It’s important to recognize that a certain level of influence is permissible, so long as it doesn’t rise to the level of “undue” influence. For example, there’s nothing inherently wrong with a son who encourages his father to leave him the family vacation home. But if the father was in a vulnerable position — perhaps he was ill or frail and the son was his caregiver — a court might find that he was susceptible to undue influence and that the son improperly influenced him to change his will.
To help avoid undue influence claims and ensure that your wishes are carried out:
Use a revocable trust. Rather than relying on a will alone, create a revocable, or “living,” trust. These trusts don’t go through probate, so they’re more difficult and costly to challenge.
Establish competency. Claims of undue influence often go hand in hand with challenges on grounds of lack of testamentary capacity. Be sure to create your estate plan while you’re in good mental and physical health. Have a physician examine you at or near the time you execute your will and other estate planning documents to ascertain that you’re mentally competent. Establishing that you are “of sound mind and body” when you sign your will can go a long way toward combating an undue influence claim.
Avoid the appearance of undue influence. If you reward someone who’s in a position to influence you, take steps to avoid the appearance of undue influence. Suppose, for example, that you plan to leave a substantial sum to a close friend who acts as your primary caregiver. To avoid a challenge, prepare your will independently — that is, under conditions that are free from interference by all beneficiaries. People who’ll benefit under your estate plan, including family members, shouldn’t be present when you meet with your attorney. Nor should they serve as witnesses — or even be present — when you sign your will and other estate planning documents.
Talk with your family. If you plan to disinherit certain family members, give them reduced shares or give substantial sums to nonfamily members, meet with your family to explain your reasoning. If that’s not possible, state the reasons in your will or include a separate letter expressing your wishes. Family members are less likely to challenge your plan if they understand the rationale behind it.
To deter challenges to your plan, consider including a no-contest clause, which provides that, if a beneficiary challenges your will or trust unsuccessfully, he or she will receive nothing. Keep in mind, however, that you should generally leave something to people who are likely to challenge your plan; otherwise, they have nothing to lose by contesting it.
Fortifying your estate plan
If you have questions regarding undue influence, contact us. We’d be pleased to review your circumstances and help determine if revisions to your estate plan are needed.
© 2024
How family businesses can solve the compensation puzzle
Every type of company needs to devise a philosophy, strategy and various policies regarding compensation. Family businesses, however, face additional challenges — largely because they employ both family and non-family staff.
If your company is family-owned, you’ve probably encountered some puzzling difficulties in this area. The good news is solutions can be found.
Perspectives to consider
Compensation issues in family businesses are often two-pronged because they can arise both 1) within the family and 2) between family and nonfamily employees. Salary inequities among siblings, for example, can breed resentment and fighting. However, simply paying them all the same salary can also create problems if one works harder and contributes more than the others.
Second, family business owners may feel it’s their prerogative to pay working family members more than their nonfamily counterparts — even if they’re performing the same job. Although owners naturally have the best interests of their loved ones at heart, these decisions may inadvertently lower morale among essential nonfamily employees and risk losing them.
Nonfamily staff may tolerate some preferential treatment for family employees, but they could become disgruntled over untenable differences. For instance, nonfamily employees often reach a breaking point when they feel working family members are underperforming and getting away with it, or when they believe family employees are behaving counterproductively or unethically.
Ideas to ponder
Effectively addressing compensation in a family business calls for a clear, objective understanding of the company’s distinctive traits, culture and strategic goals. A healthy dash of creativity helps, too. There’s no one right way of handling the matter. But there are some commonly used strategies that may be helpful in determining compensation for the two major groups involved.
When it comes to family employees, think beyond salary. Many family businesses intentionally keep salaries for these individuals low and make up the difference in equity. Because working family members are generally in the company for the long haul, they’ll receive increasing benefits as their equity shares grow in value. But you also must ensure their compensation is adequate to meet their lifestyle needs and keep up with inflation.
Incentives are usually a key motivator for family employees. You might consider a combination of short-term rewards paid annually to encourage ongoing accomplishments and long-term rewards to keep them driving the business forward.
On the other hand, nonfamily employees typically recognize that their opportunities for advancement and ownership are generally more limited in a family business. So, higher salaries and a strong benefits package can be important to attracting and retaining top talent.
Another way to keep key nonfamily staff satisfied is by giving them significant financial benefits for staying with the company long term. There are various arrangements to consider, including phantom stock or nonqualified deferred compensation plans.
You can do it
If your family business has been operating for a while, overhauling its approach to compensation may seem overwhelming. Just know that there are ways to tackle the challenges objectively and analytically to arrive at an overall strategy that’s reasonable and equitable for everyone. Our firm can help you identify and quantify all the factors involved.
© 2024
An HSA can be a healthy supplement to your wealth-building regimen
Health Savings Accounts (HSAs) allow eligible individuals to lower their out-of-pocket health care costs and federal tax bills. Since most of us would like to take advantage of every available tax break, now might be a good time to consider an HSA, if you’re eligible.
Not only can an HSA be a powerful tool for financing health care expenses, it can also supplement your other retirement savings vehicles. Plus, it offers estate planning benefits to boot.
HSAs by the numbers
Similar to a traditional IRA or 401(k) plan, an HSA is a tax-advantaged savings account funded with pretax dollars. Funds can be withdrawn tax-free to pay for a wide range of qualified medical expenses. (Withdrawals for nonqualified expenses are taxable and, if you’re under 65, subject to a penalty.)
An HSA must be coupled with a high-deductible health plan (HDHP). For 2024, an HDHP is a plan with a minimum deductible of $1,600 ($3,200 for family coverage) and maximum out-of-pocket expenses of $8,050 ($16,100 for family coverage).
Be aware that, to contribute to an HSA, you must not be enrolled in Medicare or covered by any non-HDHP insurance (a spouse’s plan, for example). For 2024, the annual contribution limit for HSAs is $4,150 for individuals with self-only coverage and $8,300 for individuals with family coverage.
If you’re 55 or older, you can add another $1,000 annually. Typically, contributions are made by individuals, but some employers contribute to employees’ accounts.
Cost-saving benefits
HSAs can lower health care costs in two ways: 1) by reducing your insurance expense (HDHP premiums are substantially lower than those of other plans) and 2) allowing you to pay qualified expenses with pretax dollars.
In addition, any funds remaining in an HSA may be carried over from year to year and invested, growing on a tax-deferred basis indefinitely. This is a huge advantage over health care Flexible Spending Accounts, where the funds must be spent or forfeited (although some employers permit employees to carry over up to $500 per year). When you turn 65, you can withdraw funds penalty-free for any purpose (although funds that aren’t used for qualified medical expenses are taxable).
To the extent that HSA funds aren’t used to pay for qualified medical expenses, they’re treated much like those in an IRA or a 401(k) plan.
Estate planning benefits
Unlike traditional IRA and 401(k) plan accounts, with HSAs you don’t need to take required minimum distributions once you reach age 73. Besides funds used to pay qualified medical expenses, the account balance continues to grow on a tax-deferred basis indefinitely, providing additional assets for your heirs. The tax implications of inheriting an HSA differ substantially depending on who receives it, so it’s important to consider your beneficiary designation.
If you name your spouse as beneficiary, the inherited HSA will be treated as his or her own HSA. That means your spouse can allow the account to continue growing and withdraw funds tax-free for his or her own qualified medical expenses.
If you name your child or someone else other than your spouse as beneficiary, the HSA terminates and your beneficiary is taxed on the account’s fair market value. It’s possible to designate your estate as beneficiary, but in most cases that’s not the best choice. A non-spouse beneficiary other than your estate can avoid taxes on any qualified medical expenses that you incurred prior to death, paid with HSA funds within one year after death.
Contact us for more information regarding HSAs.
© 2024
Could conversational marketing speak to your business?
Businesses have long been advised to engage in active dialogues with their customers and prospects. The problem was, historically, these interactions tended to take a long time. Maybe you sent out a customer survey and waited weeks or months to gather the data. Or perhaps you launched a product or service and then waited anxiously for the online reviews to start popping up.
There’s now a much faster way of dialoguing with customers and prospects called “conversational marketing.” Although the approach isn’t something to undertake lightly, it could help you raise awareness of your brand and drive sales.
Concept and goal
The basic concept behind conversational marketing is to strike up real-time discussions with customers and prospects as soon as they contact you. You’re not looking to give them canned sales pitches. Instead, you want to establish authentic social connections — whether with individuals or with representatives of other organizations in a business-to-business context.
The overriding goal of conversational marketing is to accelerate and enhance engagement. Your aim is to interact with customers and prospects in a deeper, more meaningful way than, say, simply giving them a price list or rattling off the specifications of products or services.
In accomplishing this goal, you’ll increase the likelihood of gaining loyal customers who will generate steady or, better yet, increasing revenue for your business.
Commonly used channels
The nuts and bolts of conversational marketing lies in technology. If you decide to implement it, you’ll need to choose tech-based channels where your customers and prospects most actively contact you. Generally, these tend to be:
Your website. The two basic options you might deploy here are chatbots and live chat. Chatbots are computer programs, driven by artificial intelligence (AI), that can simulate conversations with visitors. They can either appear immediately or pop up after someone has spent a certain amount of time on a webpage. Today’s chatbots can answer simple questions, gather information about customers and prospects, and even qualify leads.
With live chat, you set up an instant messaging system staffed by actual humans. These reps need to be thoroughly trained on the principles and best practices of conversational marketing. Their initial goal isn’t necessarily to sell. They should first focus on getting to know visitors, learning about their interests and needs, and recommending suitable products or services.
Social media. More and more businesses are actively engaging followers in comments and direct messages on popular platforms such as Facebook, Instagram and Tik Tok. This can be a tricky approach because you want responses to be as natural and appropriately casual as possible. You don’t want to sound like a robot or give anyone the “hard sell.” Authenticity is key. You’ll need to carefully choose the platforms on which to be active and train employees to monitor those accounts, respond quickly and behave properly.
Text and email. If you allow customers and prospects to opt-in to texts and emails from your company, current AI technology can auto-respond to these messages to answer simple questions and get the conversation rolling. From there, staff can follow up with more personalized interactions.
A wider audience
Like many businesses, yours may have already been engaging in conversational marketing for years simply by establishing and building customer relationships. It’s just that today’s technology enables you to formalize this approach and reach a much wider audience. For help determining whether conversational marketing would be cost-effective for your company, contact us.
© 2024
Assets with sentimental value may require more thoughtful planning than those with greater monetary value
As a formal estate planning term, “tangible personal property” likely won’t elicit much emotion from you or your loved ones. However, the items that make up tangible personal property, such as jewelry, antiques, photographs and collectibles, may be the most difficult to plan for because of their significant sentimental value.
Without special planning on your part, squabbling among your family members over these items may lead to emotionally charged disputes and even litigation. Let’s look at a few steps you can take to ease any tensions surrounding these specific assets.
Communicate clearly
There’s no reason to guess which personal items mean the most to your children and other family members. Create a dialogue to find out who wants what and to express your feelings about how you’d like to share your prized possessions.
Having these conversations can help you identify potential conflicts. After learning of any disputes, work out acceptable compromises during your lifetime.
Bequeath assets to specific beneficiaries
Some people have their beneficiaries choose the items they want or authorize their executors to distribute personal property as they see fit. For some families, these approaches may work. But more often than not, they invite conflict.
Generally, the most effective strategy for avoiding costly disputes and litigation over personal property is to make specific bequests — in your will or revocable trust — to specific beneficiaries. For example, your will might leave your art collection to your son and your jewelry to your daughter.
Specific bequests are particularly important if you wish to leave personal property to a nonfamily member, such as a caregiver. The best way to avoid a challenge from family members on grounds of undue influence or lack of testamentary capacity is to express your wishes in a valid will executed when you’re “of sound mind.”
If you use a revocable trust (sometimes referred to as a “living” trust), you must transfer ownership of personal property to the trust to ensure that the property is distributed according to the trust’s terms. The trust controls only the property you put into it. It’s also a good idea to have a “pour-over” will, which provides that any property you own at your death is transferred to your trust. Keep in mind, however, that property that passes through your will and pours into your trust generally must go through probate.
Create a personal property memorandum
Spelling out every gift of personal property in your will or trust can be cumbersome. If you wish to make many small gifts to several different relatives, your will or trust can get long in a hurry.
Plus, anytime you change your mind or decide to add another gift, you’ll have to amend your documents. Often, a more convenient solution is to prepare a personal property memorandum to provide instructions on the distribution of tangible personal property not listed in your will or trust.
In many states, a personal property memorandum is legally binding, provided it’s specifically referred to in your will and meets certain other requirements. You can change it or add to it at any time without the need to formally amend your will. Alternatively, you may want to give items to your loved ones while you’re still alive.
Plan for all your assets
Your major assets, such as real estate and business interests, are top of mind as you prepare your estate plan. But don’t forget to also plan for your tangible personal property. These lower-monetary-value assets may be more difficult to deal with, and more likely to cause disputes, than big-ticket items.
© 2024
Making will revisions by hand is rarely a good idea
The laws regarding the execution of a valid will vary from state to state, but typically they require certain formalities. These may include signing the will in the presence of witnesses and a notary public.
But what happens if, after your will and other estate planning documents are completed, you need to make a change? Perhaps you’ve welcomed a new grandchild to the family or need to change the way your assets are distributed.
To avoid the time and expense associated with formally updating your will, it may be tempting to simply make the change by hand and initial it. But this is almost always a bad idea. For one thing, handwritten changes are highly susceptible to a challenge, which may result in a protracted probate court battle. So much for saving time and money. Even worse, depending on the law in your state, handwritten changes may not be binding.
Many states permit so-called “holographic wills.” These handwritten wills are valid if they meet certain requirements. Typically, the maker of the will must write the will by hand and sign and date it. Some states permit handwritten changes to a typewritten will if the changes meet all the requirements of a holographic will. That means each change must be handwritten, signed and dated. In other states, handwritten changes must satisfy the same formalities (such as witnesses and notarization) as for typewritten wills.
To ensure that your estate planning goals are carried out, discuss your needs with your attorney and avoid the temptation to make handwritten changes.
© 2024
Businesses must face the reality of cyberattacks and continue fighting back
With each passing year, as networked technology becomes more and more integral to how companies do business, a simple yet grim reality comes further into focus: The cyberattacks will continue.
In fact, many experts are now urging business owners and their leadership teams to view malicious cyber activity as more of a certainty than a possibility. Why? Because it seems to be happening to just about every company in one way or another.
A 2023 study by U.K.-based software and hardware company Sophos found that, of 3,000 business leaders surveyed across 14 countries (including 500 in the United States), a whopping 94% reported experiencing a cyberattack within the preceding year.
Creating a comprehensive strategy
What can your small-to-midsize business do to protect itself? First and foremost, you need a comprehensive cybersecurity strategy that accounts for not only your technology, but also your people, processes and as many known external threats as possible. Some of the primary elements of a comprehensive cybersecurity strategy are:
Clearly written and widely distributed cybersecurity policies,
A cybersecurity program framework that lays out how your company: 1) identifies risks, 2) implements safeguards, 3) monitors its systems to detect incidents, 4) responds to incidents, and 5) recovers data and restores operations after incidents,
Employee training, upskilling, testing and regular reminders about cybersecurity,
Cyber insurance suited to your company’s size, operations and risk level, and
A business continuity plan that addresses what you’ll do if you’re hit by a major cyberattack.
That last point should include deciding, in consultation with an attorney, how you’ll communicate with customers and vendors about incidents.
Getting help
All of that may sound a bit overwhelming if you’re starting from scratch or working off a largely improvised set of cybersecurity practices developed over time. The good news is there’s plenty of help available.
For businesses looking for cost-effective starting points, cybersecurity policy templates are available from organizations such as the SANS Institute. Meanwhile, there are established, widely accessible cybersecurity program frameworks such as the:
National Institute of Standards and Technology’s Cybersecurity Framework,
Center for Internet Security’s Critical Security Controls, and
Information Systems Audit and Control Association’s Control Objectives for Information and Related Technologies.
Plug any of those terms into your favorite search engine and you should be able to get started.
Of course, free help will only get you so far. For customized assistance, businesses always have the option of engaging a cybersecurity consultant for an assessment and help implementing any elements of a comprehensive cybersecurity strategy. Naturally, you’ll need to vet providers carefully, set a feasible budget, and be prepared to dedicate the time and resources to get the most out of the relationship.
Investing in safety
If your business decides to invest further in cybersecurity, you won’t be alone. Tech researcher Gartner has projected global spending on cybersecurity and risk management to reach $210 billion this year, a 13% increase from last year. It may be a competitive necessity to allocate more dollars to keeping your company safe. For help organizing, analyzing and budgeting for all your technology costs, including for cybersecurity, contact us.
© 2024