Last week, we provided a general overview of how businesses can plan for the unexpected; this week, we begin taking a closer look at each step business owners should take when creating their individual preparedness plans.

Step 1: Identify Your Risks

Source: creately.com

Each business’s identity is unique, and so are its risks. However, while we can’t foresee each and every unexpected event, we can winnow our plans down to the most likely threats. Consider your location, your industry, and the individual factors of your business situation.

Narrow your list down to your three largest assessed threats.

Now, drill down on those three threats – how might each of them impact your business?

Is it likely to:

  • Shut your office or facility down? If so, does the risk arise via physical damage to your premises or via health concerns?
  • Damage the reputation of either your business or yourself?
  • Lead to a potentially hazardous misuse of your product(s)?
  • Lead to a loss of business leadership (should the disaster cause your death or result in your leaving the firm)?
  • Create customer dissatisfaction with your product(s) or service(s)?
  • Lead to employee grievances?
  • Make your product(s) or service(s) obsolete (via technological or social changes)?
  • Interrupt supply chains for key materials and/or vendors?
  • Drive your revenue down?
  • Create a drastic increase in demand for your product(s) or service(s), which you will not be able to meet?
  • Increase your operating expenses to address the challenges you face?
  • Cause your technology to fail?
  • Cause an extended power outage?


Once you’ve identified the likeliest avenues of risk to your business, you can develop a response strategy, listing the best steps you can take in advance to militate against those risks.

We’ve created a worksheet you can use for this purpose – more on this next week.

Whatever your individual business risks, we recommend the following as general steps to take to prepare your business for the unexpected:

  • Make sure your technology and data storage resources are secured and that backup systems are in place.<
  • Set your team up for remote work to the extent possible.
  • Review your Business Interruption insurance to ensure it provides sufficient coverage. If you don’t have such coverage, get it.
  • Ensure you have a business continuity plan in place in case of an unexpected change in company leadership.
  • Keep your business premises in good repair; this will at least mitigate physical damages. And make sure your insurance coverage is up to date!
  • Ensure your contacts are kept current.
  • Make certain you have all insurance policies kept safely and accessible to you electronically as well as physically.


The good news: 14 months into the COVID-19 pandemic, you and your business are almost certainly much better prepared for the unexpected than you were at the start of 2020. Think about all the ways you have had to adapt in order to cope with the barrage of mandates, directives, and regulations. And that’s assuming you’ve had no other significant disruptions to your business operations, and that neither you nor your team members have had to deal with contracting the virus itself, both of which have further challenged businesses during this global crisis.

What specific challenges has your business faced as a result of the pandemic? What strategies did you use to meet those challenges?

And can you see ways in which those strategies can be employed to meet challenges posed by other unexpected events?

Please click here to email me directly – I’d love to hear how you’ve dealt with your pandemic obstacles!

Until next Wednesday –

Peace,

Eric

With a potential tax increase coming for higher earners, it’s essential to know what you can do to make sure that you and your business are in the best position to navigate it successfully. There are a number of different components involved in a potential tax increase, but whether it affects you positively or negatively depends on what you do now to prepare for it. 

Due to the pandemic, and the government’s relief efforts, the nation’s debt is growing. In an attempt to help reshape the nation’s economy with the American Families Plan and the American Jobs Act, the Biden Administration has plans to increase income taxes for people with incomes over $400.000. 

This whitepaper will explore what the tax increases are likely to represent and whom they will affect. It will also discuss strategies to help you and your business position yourself for any potential increase.

What Is the Tax Increase For?

There are several tax increases in the two prominent plans,  the American Families Plan (AFP) and the American Jobs Act. The AFP has been created to fund child care and education while making it harder for high-earning people to evade taxes. The plan will cost roughly $1.5 trillion and includes universal pre-kindergarten; a federal paid leave program, efforts to make child care more affordable, free community college for all, and tax credits meant to fight poverty. The American Jobs Act will also benefit from this tax increase and this act was created to better infrastructure, and address climate change and racial inequalities. By addressing these issues the Biden Administration hopes to create jobs that will fix these problems, grow jobs, and better American’s quality of life.

If you or your business is a high earner, you will, most likely, see a tax increase. If these plans are introduced under a budget reconciliation process, the tax increases will not be permanent. Of course, this is not the first time the American country has seen a significant tax increase. After World War II and in the 1970s taxes increased, and people saw tax rates higher than what Biden proposes (although with significantly more deductions than are available at present).  

Who Will the Tax Increase Affect?

Biden’s Administration plans to increase taxes for households earning more than $400k yearly. If these bills pass, then they will have funding mechanisms to provide additional funding to the IRS so they can audit more high-end businesses. The top individual tax bracket would be increased from 37% to 39.6%. There would also be an increase in the long-term capital gains tax rate from 23.8% to approximately 48.4% for those earning greater than $1 million annually. 

These two bills, if enacted, will also affect businesses. The plan is to raise corporate taxes from 21% to 28%, a big jump, but lower than the 35% rate which prevailed until the enactment of the “Tax Cuts and Jobs Act” (TCJA) was enacted in December of 2017.  Additionally, there would be a 15% corporate minimum tax, meaning that even if the company has several tax deductions and tax credits, it will still have to pay taxes on  15% of its earnings. The 15% minimum tax could affect 33 out of the United States’ 100 most prominent companies. If the tax plan is enacted, those 33 companies could pay an extra $20 billion in tax. 

While an official plan has not yet been proposed, much less enacted, it’s essential to know what could be coming. In addition to preparing yourself for a potential tax increase, you should also create a succession plan. Succession planning is often something individuals and businesses put off thinking about, but a succession plan can help you avoid many issues down the road. 

Continue reading to learn more about how you can help yourself and your business stay ahead of this potential tax increase. 

Top Strategies to Prepare for Tax Increase

Defer Deductions

While taking deductions sooner rather than later is the usual strategy, in this case, deferring deductions might help you. If you were to take all of your deductions now, you’d have nothing left to deduct when the tax rate rises. By deferring deductions, you’ll end up paying less in taxes. If you often donate to charities, you can donate less, for the time being, then increase your donations when the tax rate increases. It is, however, worth noting that this strategy will only work if there is not a 28% cap on deductions, which is under consideration.

Convert Your Traditional IRAs Into Roth IRAs

When you convert your traditional IRAs to Roth IRAs, it allows you to pay taxes on your retirement funds now at your current tax rate, and your retirement distributions will be tax-free. Many people often use Traditional IRAs or 401(k)s to defer their taxes, planning to take distributions when they are in a lower tax bracket. Unfortunately, this does not always work, especially if tax rates increase. You may end up in a higher tax bracket after retirement, especially if you’ve saved a significant amount of money. If you choose to go this route to prepare for the tax increase, it’s best to consider a conversion in 2021 rather than 2022. The tax increase may not be retroactive so it’s better to start sooner rather than later. 

Municipal Bonds

Municipal bonds come with many tax advantages. Many are exempt from federal taxes, and some are also exempt from state and local taxes. People who earn high amounts of money can take advantage of this opportunity to lower their taxes. Some municipal bonds are also exempt from the Alternative Minimum Tax. The AMT applies explicitly to those with a high income.

Be Prepared with Rigby Financial Group

Rigby Financial Group can help you prepare for the potential tax increase. We’re a team full of experienced experts, and we’ll create a specifically tailored plan for you and/or your business. There aren’t many other financial groups that provide the amount of care and concern we do here at Rigby.

Rigby is happy and excited to help you take steps to best prepare you for these potential tax increases, based on your individual situation. We can also help you with many other financial planning services which could benefit you and/or your business. 

Contact us today to get started, and we’ll help prepare you for the potential tax increase. 

To Our Valued Clients and Friends:

Are chief executives prescient? In a PriceWaterhouseCoopers’ annual survey of executives, 73% of them anticipated facing a crisis for their businesses within the next two to three years. As we navigate our second year of COVID-19, it makes us wonder whether any of them could have anticipated a global pandemic such as we have been experiencing, a crisis of such epic proportions. However, they were certainly right to anticipate a crisis of some sort.

We can’t ever know what the future holds, but one thing we can know – something unexpected will happen. We don’t know when, we don’t know what, and we don’t know what the impact will be or how long it will last. But it’s a good idea to anticipate and prepare for contingencies and emergencies to the extent we can – and it might surprise us to find out just how much planning can mitigate the effects of an unexpected crisis.

This email is Part I of a series on how businesses can plan for unexpected events; this week, we will offer a general overview of areas to consider when planning. As we move through the series, we will go into greater detail on each specific area of planning for the unexpected.

We’re all suffering through COVID-19; according to Score’s September 2020 report, the pandemic has affected just about every U.S. business, but closely-held businesses have been especially hard hit.

None of us can plan for each and every possibility; it’s counterproductive and too expensive to try. But it is possible to develop a mindset of overall readiness, to institute flexible disaster-response policies and procedures which will help keep your business running in any crisis. You should continuously re-evaluate these policies and practices to improve their effectiveness, and you should maintain and update a business continuity agreement in order to ensure your business stays afloat in a storm.

Key elements of planning your businesses’ preparedness:

    • First and foremost, know your risks. Identify the most likely disruptions to your business, and focus on preparing for those.
    • Make sure your technology and data storage resources are secured, backup systems in place.
    • Set your team up for remote work.
    • Review your Business Interruption insurance to ensure it provides sufficient coverage. If you don’t have such coverage, get it.
    • Have a written disaster-preparedness plan; make sure it is disseminated and discussed with your team, so everyone knows what’s expected of them. Make sure you review this plan once or twice annually and revisit the discussion every time you make an update.
    • Test your plan periodically, to see whether it works in practice for your business, yourself, and your team.
    • Make sure you have a business succession plan in place, as well as a business continuity agreement.


    One last note – some emergencies stem from the unexpected result of a project or change initiative. It’s a good idea to plan out potential scenarios before putting the final touch on your project or change, preferably with input from those who will be most affected.

    What preparations have you instituted to prepare your business for the unexpected?

    Please click here to email me directly – I’d love to hear your strategies!

    Until next Wednesday –

    Peace,

    Eric

To Our Valued Clients and Friends:

On August 26, 2005, the Friday before Katrina struck, I was on the 21st floor of an office tower across from the Superdome, wrapping up a project for an important client. As I looked out the window on that dreary, rainy day, I began to hear reports of oil and gas rigs being evacuated due to the oncoming storm.

When the dust of my own evacuation settled, I found myself, a 40+-year-old man living with my wife, Jennifer, and our five-year-old daughter, Meghan, in a spare bedroom of my parents’ Baton Rouge home. I didn’t know whether we had a home to return to. I didn’t know whether I’d have an office to return to – at the time, our firm was on Poydras Street across from the Superdome, as noted, which had suffered significant damage.

I didn’t know whether I had a functioning business left. I did know I had a substantial number of insurance claims to file. My entire future looked and felt very uncertain; this created enormous anxiety for me, and I could do little, at that point, to relieve it. Any action I could take was welcome.

A buddy of mine, also sheltering near Baton Rouge, called me. “Look. I’m going in.” He and his wife had tragically lost their 5-year-old daughter the previous Thanksgiving, and in their rush to safety, had left many of her baby pictures in New Orleans.

As the father of a little girl myself, my heart went out to him, and all of me went with him on his journey.

Well, it was certainly an adventure, I’m here to tell you. We drove down to New Orleans, my friend got us a pass from the State Police so that we could get into the city, and we boarded a flatboat near the Southern Yacht Club on Lake Pontchartrain to navigate down Canal Boulevard.  

The sight still resonates in my mind – I can see it anytime I close my eyes. As we motored down Canal Boulevard, we had to be very careful, because the water was even with the power lines, which were 14 or 15 feet above street level.

But after a painstaking, cautious navigation down what was then a waterway in Lakeview, we finally reached my buddy’s house; the front door was partly opened but jammed in its frame. Together we kicked it down. The dining room table was upside down, chairs were upended all over the place – and that was the least of it. The house had flooded badly, we could see to where the water had risen by the lines of mud on the walls, about 4 feet above floor level. It remains one of the most devastating sights I have ever witnessed in my life.

But none of that mattered – we were on one single mission – get those baby pictures.

And we got them! 

Helping my dear friend in his and his wife’s need was one of the proudest days of my life. 

Katrina was life-changing, and perspective-changing as well, for many of us in the Gulf region. 

What events have shaped your life in a similar way? 

Please click here to email me directly – I’d love to hear from you.

Until next Wednesday – 

Peace,

Eric

When you invest a significant amount of time, energy, and money into your business, you want to make sure that the values you created will be upheld when you’re gone. Many people don’t want to think about succession planning, but this is not the route you should take. By doing succession planning for your business, you ensure that it’s in the right hands when you retire, sell it, or pass away. 

Starting the process can be daunting, but you’ll be grateful once you have a plan in place. Succession planning may seem like a process you can avoid, but it will sneak up on you before you know it. If you are a business owner, you should start succession planning.  

Succession Planning For Businesses

Many business owners don’t have a succession plan. A study conducted by Wilmington Trust found that 58% of small business owners said they had no succession plan in place. There is no “right time” and it’s never too late to start succession planning. However, the earlier you start, the less you’ll have to worry about at a later date. 

When creating a business succession plan, deciding what you want to do with your business when you’re no longer around to run things is the first step. You have a few options when developing your business succession plan. You could choose to:

  • Transfer your business to a family member, spouse, or business partner
  • Sell to a business partner or partners
  • Sell to an outside purchaser
  • Close and liquidate your business

What you plan to do with your business determines the next steps in your business succession plan. Unless you choose to liquidate and close your business, you will need to select a successor and set up a buy-sell agreement if you are not passing the company to a family member.

Choosing a Successor 

Choosing who will run your business can be challenging to decide. Some people may feel entitled to the position, while others are more deserving. Who will run your business is an important question to ask when succession planning, especially if you do not plan to sell your business. 

If you plan to pass the business down to a family member, you should have a conversation with them beforehand. When transferring a business between family members, much financial planning is needed. If you’re retiring, you’ll need to talk about the income amount you’ll need to maintain the standard of living you desire. 

When passing the business to family members, you should discuss who will take over or if multiple people will take over. This discussion is integral to the buy-sell agreement. 

If you have business partners and plan to pass the business on to them, succession planning may look slightly different. If you plan on selling your business, you’ll need to have a buy-sell agreement in place. A buy and sell agreement is a legally binding agreement that outlines how a partner’s shares will be reassigned in the case of death or if they leave the business.  

Buy-Sell Agreement 

When succession planning for your business, you should evaluate how much it’s worth, especially if you plan to sell. To get an appraisal for your business, you’ll need a CPA. This kind of financial planning service is available with the Rigby Financial Group. Knowing what your business is worth will help you along in the succession planning process. Getting a precise quote minimizes the chance that your business will be sold undervalue if something happens unexpectedly and ensures a smooth transition. 

After a CPA evaluates what your business is worth, life insurance will need to be taken out on all parties with ownership of the company. A life insurance policy provides the funding necessary to buy out the deceased owner’s share of the business. Without a policy,  business partners may be forced to liquidate if heirs are not interested in running the business. The primary insurance policy that funds buy-sell agreements is Whole life insurance. If premiums are paid on time, the policy will grow at the correct pace to fulfill the agreement. 

If you don’t clearly outline who will be taking over in the buy-sell agreement, family members may unintentionally become the owners of your business. 

How a CPA Can Help You With Succession Planning

There are several financial aspects to succession planning that can be hard to understand and navigate alone. Though it is never too late to start succession planning, a CPA can help guide you into the process earlier. A CPA can help you understand the economic implications of your succession plan. 

Suppose you choose to liquidate your business after you retire, or in the case of an untimely event, there are many things to consider. When determining the need for liquidity, the business owner needs to consider other non-cash benefits that their business receives, such as health insurance and company cars. A CPA can help you with this and help you minimize taxes when the time comes to transfer. 

It’s important to note that every situation is different, and no one can have a cookie-cutter business succession plan. 

Business Succession Planning with Rigby Financial Group

There is great importance in succession planning. If you believe that it’s unnecessary to have a succession plan, consider the businesses you see in the news when the CEO dies. For example, the singer-songwriter Prince died without a will and many people emerged claiming to be his sibling, a long-lost child, and even his wife. Months of legal drama ensued before his siblings were declared the heirs to his estate. With a succession plan, you can avoid unnecessary confrontations between business partners or family members. 

Rigby Financial Group offers you the support you need to build a successful business succession plan. We will help you create a plan so that you can pass down your business with ease. It’s never too late to start your succession planning, but the earlier you begin, the more well-off your business will be. When you choose to work with the Rigby Financial Group, you’ll get a carefully crafted plan catered to your business. In addition to a business succession plan, you should also set up a succession plan for yourself. Individual succession planning is just as crucial as business succession planning, and Rigby can help you with this as well. 

Are you looking to start your succession planning today? Contact us, and we can help you get started. 

To Our Valued Clients and Friends:

Welcome to Part II of our updates on Paycheck Protection Program (PPP) loan forgiveness.

Last week, we discussed changes made to which expenses were designated “eligible covered expenses,” both for businesses generally and for self-employed business proprietors who file Schedule C with their individual income tax returns.

This week, we will discuss the PPP Loan Forgiveness process.

The Process

You have until ten months following the expiration of your 8-week or 24-week coverage period beginning with the date of distribution of your PPP loan proceeds to apply for loan forgiveness from your bank, who will forward your application to the SBA for approval. We strongly recommend that you do not wait until the last minute to apply for forgiveness. Currently, your lender may take up to 60 days to review your application, after which they will either request additional information or begin processing the application. Then the SBA has 90 days to review your application, and either approve or deny it, or request further information from you.

The SBA has communicated that all PPP loans of over $2 million will be closely analyzed, if not subject to a full audit.

In addition, self-employed individuals who file Schedule C with their individual income tax returns – newly eligible to base PPP loan amounts on gross income – are not deemed to have an automatic “Safe Harbor” if the gross income on which the loan calculations are based is over $150,000.

For other PPP borrowers with loans of $150,000 or less, no supporting documentation is required to be submitted in order to apply for loan forgiveness. However, the SBA may request supporting documentation, which all PPP borrowers are required to maintain.

Many lenders, if not all, have specific portals for uploading documents for PPP Loan Forgiveness; some have an online application form of their own, which borrowers must complete.

Some of these lenders’ portals, however, may not yet be accepting PPP Loan Forgiveness applications, as they have been extremely busy processing applications for PPP Round 2 Loans; we suggest you maintain regular contact with your banker if this is true in your case, in order to be sure you get your PPP Loan Forgiveness application submitted timely.

We suggest that, if your PPP loan is greater than $150,000, you consult your CPA for assistance in completing the complex calculations required for payroll costs, ensuring that:

  • At least 60% of PPP loan proceeds were spent on eligible covered payroll-related expenses
  • The less-than-25% wage reduction requirement has been met
  • Full-time equivalency levels have been maintained


Remember that, if all these levels have not been met/maintained, then at least part of your loan might not be forgiven. Your CPA can also help clarify what supporting documentation is required, and prepare your PPP Loan Forgiveness application for you.

When you are confident in your completed application and have amassed all your supporting documentation, submit your prepared PPP Loan Forgiveness application to your lender, either via electronic means or as otherwise directed by your lender. As of April 1, 2021, the SBA had already forgiven $209.1 billion in PPP loans.

Note that the SBA can always require more information from you or audit your loan – be prepared, and if you are unsure about any aspect of the PPP Loan Forgiveness Application form, the calculations, or the process, consult your CPA.

Forgiveness application forms:

Form 3508

Initially, the U.S. Small Business Administration (SBA) issued a one-size-fits-all application for the forgiveness of PPP loans – Form 3508 (the form has since been amended, most recently as of January 19, 2021). This form, still applicable for those ineligible to use either of the simplified forms below, as amended, requires substantial calculations on the part of the applicant, as well as thorough supporting documentation.

Form 3508EZ

Under pressure from Congress and industry to reduce the burden of the forgiveness process for borrowers of smaller amounts and smaller businesses, in June of 2020  the SBA added Form 3508EZ (also amended as of January 19, 2021). This form could be used by certain PPP borrowers who certified that they fulfilled any one of three criteria concerning employees’ retention and hours paid (see our blog post here for more detail).

As amended on January 19, 2021, Form 3508EZ now has two acceptable criteria for eligibility, rather than three, and requires “show your work” calculations on page 1, as well as supporting documentation.

Form 3508S 

As of January 19, 2021, the PPP loan ceiling to use Form 3508S has been increased to $150,000, rather than $50,000, and no supporting documentation is required for submission to the SBA (lenders may have their own requirements).

There will almost certainly be more updates on the PPP to come – stay tuned!

If you have questions regarding applying for forgiveness of your PPP loan, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

 

To Our Valued Clients and Friends:

Over the past year, we’ve talked a lot about loans from the U.S. Small Business Administration (SBA) under the Paycheck Protection Program (PPP), enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES), signed into law on March 26, 2020.

These loans have been and are being issued to small businesses to help offset losses due to the pandemic and, most importantly, to help employers keep employees on their payrolls.

PPP loans are forgivable to the extent that the loan proceeds are spent on eligible covered expenses within either the 8- or the 24-week period (covered period) immediately following the disbursement of the loan.

PPP borrowers have until 10 months from the last day of their elected covered period to apply for forgiveness of their loans.

Initially, eligible covered expenses were limited to:

A. Payroll and related costs, consisting of:

  • Gross wages, including paid leave for vacations, sick time, parental, family, or medical leave
  • Health insurance costs paid by the employer (employee-paid premiums are not deductible)
  • Employer contributions to retirement and/or profit-sharing plans, such as 401(k)s, etc.


B. Lease/rental payments, so long as the lease or mortgage was in force before February 15, 2020

C. Mortgage interest payments provided the mortgage was entered into prior to February 15, 2020

D. Utilities (later guidance specified that businesses’ internet expenses were eligible as ‘utilities’), provided service began before February 15, 2020

Expansion of eligible covered expenses:

Since that time, SBA New Interim Final Rules (IFRs) and legislative activity via the Consolidated Appropriations Act (CAA), signed into law on December 27, 2020, and the American Rescue Plan Act (ARPA), signed into law on March 11, 2021, has expanded the definition of ‘covered expenses’ to include:

  • Essential supplier costs
  • Personal protective equipment
  • Other expenses incurred in compliance with state-issued safety regulations
  • Property damage from vandalism unreimbursed by insurance


Initially, payroll-related costs had to amount to 75% of PPP loan expenditures; however, this was later modified to 60%.

Changes for self-employed Schedule C filers: 

Initially, self-employed business owners who file Schedule C along with their individual tax returns were permitted only to apply for loan amounts based upon the total of:

  • Payroll-related costs, if the business had employees in addition to the owner, and
  • Net profit, representing “owner compensation.”


However, on March 3, 2021, the SBA issued a New Interim Final Rule (IFR), which provided that self-employed Schedule C filers can now base their PPP Loan amounts on gross income, rather than net profit. This is, at least in part, to allow loan coverage for business operational costs which had previously been permitted for those PPP borrowers who file business tax returns but not to the self-employed business owner.

These newly eligible covered expenses include:

  • Mortgage interest payments
  • Business rent payments
  • Business utility payments, if these are deductible on Schedule C
  • Covered operations expenditures, to the extent they are deductible on Schedule C
  • Covered property damage costs deductible on Schedule C
  • Covered supplier costs deductible on Schedule C
  • Covered worker protection expenses deductible on Schedule C


Unfortunately for those who had already applied for a PPP Round I or Round II Loan, these changes are not retroactive. They are applicable to PPP Loans applied for after the issuance of the IFR only.

Other changes of note:

The IRS ruled in 2020 that, while forgiven PPP loan amounts were not taxable as income, eligible expenses paid with forgiven PPP loan proceeds would not be tax-deductible. Despite pushback from legislators and business leaders, the IRS maintained this position until the enactment of the CAA, which specifically mandated the tax deductibility of such expenses.

An additional change made via the CAA was that previously if a business received both a PPP loan and an Economic Injury Disaster Loan (EIDL), any advance made on the EIDL had to be deducted from the forgivable amount of the PPP loan. Per the CAA, this requirement was rescinded.

These represent the most current changes to the requirements governing forgiveness of PPP loans – if you’ve been reading our emails, you know there have been quite a few SBA New IFRs we’ve reported on.

Next week, we’ll discuss the actual ins and outs of the forgiveness process as it stands at present and revisions to the forgiveness application forms and required documentation.

Stay tuned!

If you have questions on the PPP regarding applying either for a new loan or for forgiveness of an existing loan, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

For most people, succession planning can represent a significant obstacle. You might be organized in your professional life, but when it comes to financial and succession planning, you may find yourself wondering, “Am I doing enough?” 

According to our CEO, Eric Rigby, the most challenging part of succession planning is getting started, and as Benjamin Franklin expertly said, “If you fail to plan, you are planning to fail.” 

It is never too late to get started on your succession planning, and Rigby Financial Group is here to help. 

Succession Planning For Individuals

The truth is there is no perfect time to begin the journey of succession planning. Many people find it easy to delay answering the uncomfortable question of, “What happens to my assets and my loved ones when I die?” Individual succession planning is so highly avoided that roughly half of Americans don’t have a will or an estate plan. It is never too late to evaluate your assets and begin this process. Ultimately, everyone’s succession plan will be different depending on your unique circumstances and how you want what you leave behind to be distributed. 

For those individuals who may feel stressed by the idea of preparing for their death, the best tactic is to break down the task into smaller and more manageable pieces while considering your marital status, the estate size, privacy concerns, and philanthropic goals. 

Marital Status in Succession Planning

An important aspect to review when building a succession plan is your marital status and what your death means for your partner. Every state has different provisions regarding what your spouse is entitled to, so it is imperative to understand the specific laws and provisions of the law that applies to your state of residence. For example, Louisiana is one of 7 states with community properties, meaning that the state, along with Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico, and Wisconsin rules that all assets acquired during a marriage are “community property.” The remaining 43 states are common law property states, which provides that property acquired by one member of a married couple is owned entirely and solely by that person. 

Common Law Property States

In a common law property state, when one spouse passes away, their separate property is distributed according to the will or according to probate in the absence of a will. If they own property in “joint tenancy with the right of survivorship” or “tenancy by the entirety,” the property goes to the surviving spouse. If the property was owned as “tenancy in common,” then the property can go to someone other than the surviving spouse. 

Community Property States

The community property states, also known as marital property, rule that all earnings, property bought with those earnings, and debts accrued during the marriage are shared equally by both spouses absent a separate property regime. Any assets acquired before the marriage are considered separate property and are owned only by that original owner. However, a spouse can transfer the title of any of their separate property to their spouse or the community. When it comes to community property, a spouse may not transfer, alter or eliminate any whole piece of community property without the other spouse’s permission, but they can manage their half. Upon death in a community property state, 50% of your assets will go to your surviving spouse, and the remaining 50% will go to your children under the age of 23. If you do not have children under that age, you are entitled to leave your half of the community property to whomever you wish. If you choose to leave your assets to someone other than your spouse, you will need them to sign off on this request. 

In community states Arizona, Nevada, Texas, and Wisconsin, you can add the “right of survivorship” to your community property so that when one spouse dies, the other automatically owns 100%, which avoids probate. While in California and New Mexico, couples can qualify for simplified procedures for transferring property to avoid probate. In Louisiana, however, the community property must go through probate. 

If you die without having an executed will in force, your assets will be subject to intestate succession. If you die intestate while single, the court will identify your closest legal relative(s), who will then inherit your assets—minus the court and executor expenses associated with administering an unbequeathed estate. Most likely, if you are unmarried, this will be your children, or your parents, or your siblings, respectively.  

Why You Need a Will

Forbes lists a will as the number one document you should have in your estate planning arsenal. Despite the advice that a will is a necessary document, 6 out of 10 people do not have one. Taking the time to create a will gives you and your family a plan when dealing with death and allows you to have control over your belongings and what you want to happen to them when you are gone. The will removes the guesswork of who will inherit what aspects of your estate and allows your family to grieve rather than figure out how to handle what you’ve left behind. Additionally, a will keeps your family out of probate court. If you die without a will, which is referred to as dying intestate, the court will settle your estate for you. Like marital status, each state has its own intestacy laws; most courts will give half your belongings to your spouse and half to your children. But, if you are not married or have children from a previous marriage, things become more complicated. If you are single and childless, the court will divide everything evenly between your parents and siblings. A will also protects your children. If you die intestate and have children under 18, you will have no say as to where the children end up. A will is the only way to leave a plan for the care of your children. 

Legal Aspects of Succession Planning

Succession planning requires a lot of documentation, such as a will, a medical power of attorney, and a financial power of attorney. Getting all of these documents in place is crucial, and we recommend seeking the advice of retaining professionals such as an attorney and a CPA to ensure that you are well-informed and that the process is handled efficiently and correctly. 

Durable Power of Attorney

Regardless of your economic situation, succession should be at the forefront when you plan your future. 

Suppose you cannot make decisions for yourself. In that case, you will need a durable power of attorney (POA), which legally authorizes someone else to handle certain matters, such as finances or healthcare, on your behalf. If the power of attorney is durable, it remains in effect if you become incapacitated due to illness or an accident. Durable powers of attorney also help plan for medical emergencies and declines of mental functions to ensure that your finances are taken care of. Some of the things that the durable power of attorney can do on your behalf are as follows: 

The POA documents, similar to a will, eliminate confusion and uncertainty when family members are faced with difficult decisions. Unlike ordinary powers of attorney, a durable POA will not expire if you are no longer capable of making decisions. You can revoke your power of attorney at any time, as long as you’re mentally competent. 

Medical Power of Attorney

Oftentimes, individuals prefer to have separate powers of attorney for their financial and medical affairs. The person appointed as your medical or health POA will be granted the authority to handle all the medical decisions on your behalf. This individual will operate in accordance with your wishes to execute your care and end-of-life arrangements. This appointment can be used in conjunction with a living will or may contain living will directives. If you are in a vegetative state or unable to communicate your wishes, you will need a medical power of attorney to allow your loved ones to decide on your care. Upon appointing a medical POA, it is advisable to consider nominating an alternate agent in case your first choice is unable or unwilling to make a healthcare decision. 

When appointing a medical POA, you must be a mentally competent adult. If you should ever choose to cancel your designated individual’s status as POA, you must be of sound mind and notify your doctor and the appointed individual. 

Benefits of Bringing in a CPA During Individual Succession Planning

Beyond your marital status, POAs, and your will, there are numerous areas to consider when implementing a succession plan. While most people know they should hire a good attorney to help ensure the legal requirements are met professionally and thoroughly, not many people understand the value of a CPA in the process. When it comes to nuances of succession planning, a CPA is beneficial in the following ways: 

  • Helps reduce taxes: a CPA can advise you on reducing the chances of owing estate taxes, and the impact of what various choices mean for your heirs. 
  • Aids in trust planning: while an attorney can help you set up a trust, a CPA will help ensure you follow tax rules, understand the tax filing forms, and are using the correct type of trust. 
  • Advises early actions: not all estate and succession planning happens in a will or trust, so a CPA can help you make decisions ahead of time, such as using the gift tax exclusion or diversifying ownership in your business. 
  • Helps your executor: a CPA can develop a relationship with the executor of your estate to aid in various aspects, including filing final tax returns, estate Forms 1041, or Schedules K-1. 
  • The Rigby Financial Group can put together a statement of net worth, liabilities, passwords, and other financial information to keep you organized.  

Succession Planning with Rigby Financial Group

When you want to begin the succession planning process, choose Rigby Financial Group. At Rigby Financial Group, we ensure that you have a plan that best fits your individual needs and the long-term goals you have for your family. Although succession planning is often an uncomfortable subject, leaving your loved ones without a plan in place will place an unyielding burden on them that is dealt with while they process their grief. 

Rigby Financial Group welcomes the opportunity to take that first step with you to get your succession planning process rolling. Our knowledgeable CPAs and financial advisors are ready to offer the support you need regarding succession planning and establishing financial security and growth. 

Contact us today to find out how the Rigby Financial Group team can help you!

To Our Valued Clients and Friends:

One significant change for all of us this past year has been the explosion of remote work. Some of you may have already been doing this, even if just part-time, but I’d bet many of us have done a great deal more during the pandemic. And I think that, when the dust settles, we will find that remote work will be part of the “new normal” for a lot more people than it was before COVID-19 hit us.

For my team and me, this has been a relatively easy transition. Every one of us had already worked remotely at some time. We’ve been set up for that potential need since Katrina’s aftermath, and some of my team members, whom I’ll probably never meet in person, live in other states.

The flexibility of remote work is an excellent benefit, of course – and I’ve taken advantage of that. Having been through a bout of COVID-19 myself, I am leery of the city – let’s face it, most people don’t visit New Orleans to behave sensibly.

So, I have spent a lot of the past year working from one of my favorite vacation destinations, Park City, Utah. The scenery is glorious and gives my heart a sense of peace, and I’m an avid skier and mountain biker as well. The wildlife is an inspiration – I “shot” – with my camera, of course! – several deer and other animals while there. 

And I’ve packed up my family with me. My wife, Jennifer, can work remotely and our daughter, Meghan, is taking virtual Junior year courses at Centre College in Danville, Kentucky.

Of course, I love being there. The quiet helps me focus on my work away from the usual distractions and noise. Plus, getting the chance to quarantine with my beloved family has made the challenging time more rewarding. 

But Park City – and working remotely – have their own distractions.  There is something to be said for being a present part of my bustling team. That confidence and busy atmosphere can get lost, a little, when I’m a thousand miles away and I’ve found myself missing being in the office.

Then, when I return home, I miss Park City, it’s quiet and peaceful. The human paradox – we miss what we don’t have at the moment.

The option to work remotely had, of course, been picking up steam before the pandemic hit, but COVID-19 has jet-fueled it. Remote work or WFH,  in some form, either part-time or full-time, is likely here to stay – reduced driving reduces air pollution and of course commute time, and many employees love the flexibility. 

However, it’s necessary to have the proper remote work protocols in place to ensure the workflow doesn’t get disrupted. When all one’s team is working remotely, it becomes more difficult to ensure scheduled tasks are covered when an emergency arises for one or another of the team.

What are your thoughts on remote work over this past year and generally? What peaks and pitfalls have you encountered? And how do you maximize the one and minimize the other?

Please click here to email me directly – I’d love to know your experiences.

Feel free to share this email via the buttons below. 

Until next Wednesday – 

Peace,

Eric

To Our Valued Clients and Friends:

On Wednesday, March 3, 2021, the United States Small Business Administration (SBA) released a new Interim Final Rule (IFR) governing Paycheck Protection Program (PPP) loans for self-employed persons who file a  Schedule C with their individual income tax returns. Such self-employed individuals now may use gross income, from either their 2019 or 2020 Schedule C, rather than net profit, to calculate the loan amount they are eligible for.

Previous guidance held that for individuals filing Schedule C, loans were to cover payroll costs only, defined as the total of employee compensation if the Schedule C business has employees besides the owner, and net profit, representing self-employment earnings. 

The new IFR acknowledges that the prior definition failed to consider fixed and other necessary business expenses, which ought to be considered.

If a self-employed PPP loan applicant has no employees, s/he can calculate the loan amount based on either gross or net income (for most, the former will be more beneficial, naturally!).

If the applicant has additional employees, s/he can calculate the loan amount based upon:

  • Payroll costs (gross wages, employee benefit programs such as employer-paid health insurance, and retirement plans), and
  • Proprietor’s expenses (formerly ‘owner compensation’), based either upon 1) net income, or 2) gross income minus costs reported on lines 14 (employee benefit programs), 19 (pension and profit-sharing plans), and 26 (wages).

Schedule C expenses newly eligible for loan calculations and forgiveness:

  • Mortgage interest payments
  • Business rent payments
  • Business utility payments, if these are deductible on Schedule C
  • Covered operations expenditures, to the extent they are deductible on Schedule C
  • Covered property damage costs deductible on Schedule C
  • Covered supplier costs deductible on Schedule C
  • Covered worker protection expenses deductible on Schedule C

 

However, if using gross income for loan calculations results in a loan amount greater than $150,000, then the borrower will not automatically be deemed to have made the required good-faith certification and may be subject to review by the SBA.

The safe-harbor limit for non-self-employed borrowers to be deemed to have certified their need in good-faith is $2 million. The SBA considers that the self-employed may be more likely than others to have issues with liquidity.

Also, the new IFR allows businesses whose owners have non-fraud felony convictions within the past year to apply for PPP loans – for which they were previously ineligible.

The new guidance applies to both First and Second Round PPP loans – as long as the application is dated after the issuance of this IFR.


New and updated forms:

  • Updated PPP Round I Form 2483.
  • Updated PPP Round II Form 2483-SD.
  • New PPP Round I Form 2483-C for Schedule C applicants.
  • New PPP Round II Form 2483-SD-C for Schedule C applicants.


While the window to apply for PPP Round I or Round II loans is set to expire on March 31, 2021, on March 16, the U.S. House of Representatives passed a bill to extend this window through May 31, 2021. The Senate passed the measure on March 27, 2021; President Biden is expected to sign the legislation.

Stay tuned – we will continue to monitor the PPP and the SBA’s ever-changing guidance.

If you have questions on whether you should apply for a PPP loan, either Round I or Round II, and how to best navigate the process, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

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