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fall-2019-business-divorce

Business Divorces in Pennsylvania

This year is the 40th anniversary of the release of the Oscar-winning movie Kramer vs. Kramer.  Kramer vs. Kramer which starred Dustin Hoffman and Meryl Streep was one of the first movies to depict the turmoil that ensues when the dissolution of a marriage and the battle for custody of a child makes its way […]

This year is the 40th anniversary of the release of the Oscar-winning movie Kramer vs. Kramer.  Kramer vs. Kramer which starred Dustin Hoffman and Meryl Streep was one of the first movies to depict the turmoil that ensues when the dissolution of a marriage and the battle for custody of a child makes its way into the courtroom.  By now these custody fights are ingrained in our pop culture and can be witnessed on an almost daily basis on television.  There is another type of divorce that can be just as emotional and bitterly fought as the custody fight in Kramer vs. Kramer: that is the business divorce.

Business divorces involve the break-up of a small closely-held business.  Although these cases are at times referred to colloquially as “business divorces” they are more appropriately referred to as shareholder (or member in an LLC) oppression suits or minority shareholder (member) freeze-out cases.  These cases arise because unlike publicly traded corporations, the ability of minority shareholders to sell their shares of a small business is extremely limited.  As such, Pennsylvania law has established procedures to protect minority shareholders which are balanced against a natural reluctance to interfere in the operations of businesses.

Pennsylvania Courts define shareholder oppression as conduct that substantially defeats the reasonable expectations of a minority shareholder.  A freeze-out happens when a minority shareholder is removed from office, or his power or compensation is substantially diminished.  The majority shareholder or member’s conduct is measured against the business judgment rule.  The question that courts require to be answered is whether the majority shareholder had a rationale belief that he was acting in the best interest of the company.  If the majority shareholder is acting in accordance with the business judgment rule, then the owner has nothing to worry about.  If she is not, then the consequences may be significantly more severe than those suffered by Dustin Hoffman in Kramer vs. Kramer.

In Kramer vs. Kramer, Dustin Hoffman’s character ended up in court because he was spending too much time at work and not enough time with his family.  Just like in marital divorce cases, there are certain behaviors that will almost assuredly land a majority owner in court.  The most frequent misbehavior is failing to provide the minority with financial information about the business.  It is remarkable how frequently majority members take the position that it is their company, and the books are not the minority owner’s business.  Not only is that attitude shortsighted, but it is also completely contrary to Pennsylvania law.  Minority owners have a statutory right to see necessary financial information so long as the request for information is legitimate.  If the minority owner offers a legitimate reason to review the records, a court will compel the inspection of the financial records.

Other behaviors that can lead to a finding of minority oppression include:

  • Failing to observe corporate formalities. Refusing to have corporate meetings or not adopting necessary resolutions will be perceived as denying necessary information to the minority shareholder.
  • Terminating the employment of a minority owner. Since most owners of a closely held business also work for the business there is nothing that will get a minority shareholder to a courthouse quicker than the majority owner firing a minority owner.
  • Paying the majority owner excessive compensation or the corollary, paying the minority owner an inadequate salary.
  • Failing to award dividends or distributions. If the business is profitable, minority shareholders have a reasonable expectation that they will reap the benefits.  If too much money is tied to the salary of the majority member, it will engender the type of ill-will that leads to litigation.
  • Diverting corporate assets for the majority’s personal benefit. Just because you are the majority owner does not allow you to use the company credit card for the first-class vacation to Europe.
  • Usurping corporate opportunities. Courts frown when majority owners get involved in competing businesses in their personal capacity, which should have been brought to the corporation for the benefit of the corporation and all of its shareholders to enjoy.

Just like in custody cases where courts have broad authority to fashion an award, courts have a number of tools at their disposal to remedy shareholder oppression.  The most significant and detrimental tool for the majority owner to be aware of is that the court can award both compensatory and potentially punitive damages to the oppressed shareholder.  Courts can also appoint a receiver to run the business on a temporary basis while the parties are litigating their dispute.  Courts can always order the dissolution of a business if the owners are not able to work with each other.  Dissolution is most appropriate when the shares of the company are equally owned, and the owners can no longer run the business together.

The key to avoiding a business divorce is the same as avoiding a marital divorce: communication.  The majority owner has a fiduciary duty both to the corporation and to the minority owners.  Keeping all of the owners informed about day to day decisions will go a long way to keeping the business and its owners away from the turmoil that Dustin Hoffman and Meryl Streep’s characters endured.

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Boy Meets Girl

Once upon a time, “family” meant Husband and Wife, two or so children, a dog, a picket fence, a single income, ’til death do us part, and so many other Rockwellian clichés.  Our society, enamored with that ideal, sculpted our society around the “nuclear” family of the 1950s (1550s?).  Everything around us operates under and […]

Once upon a time, “family” meant Husband and Wife, two or so children, a dog, a picket fence, a single income, ’til death do us part, and so many other Rockwellian clichés.  Our society, enamored with that ideal, sculpted our society around the “nuclear” family of the 1950s (1550s?).  Everything around us operates under and in favor of this construct, and there’s only one small problem: These types of families are, at this point, in the minority.

It would be disingenuous for me even to attempt to describe the “typical” family of the twenty-first century, for the simple reason that it doesn’t exist.  Family can only be defined by its makeup, and its makeup defies such restrictive boundaries as a definition.

It causes a problem for the courts, who have, traditionally, been heavily involved in the family, from the issuance of a marriage license to the end of probate, and, to be certain, every step in between.  Courts prefer the “typical” situation: Boy Meets Girl, Boy marries Girl.  Boy and Girl are fruitful and multiply.  Boy and Girl acquire wealth and assets.  Boy and Girl disagree, divorce, distribute their marital estate, and reveal the worst of themselves in a fight over where the kids sleep.  Boy and Girl die, and bitter kids fight over their stuff.

This isn’t really “typical” anymore.

Today it can be Boy meets Boy, Boy marries Boy, Boys start a family using alternative reproductive technology.  The law of Boy-Meets-Girl says that only one can be Dad because the fundamental rights of the anonymous biological donor (and possibly the uninterested surrogate mother) cannot be compromised by something as droll as an intact family unit.  And it seems like so much to do over nothing when these two fathers just want to enjoy their newborn child together.  But when Boy disagrees with Boy, one of them runs the risk of being fully excluded.

Today it can be a grandfather who lived up to that erstwhile family ideal: worked hard, met Girl, raised a family, and—by no fault on his part—watched as that family destroyed itself at the expense of their own children.  Now, septuagenarian Grandad must (re-)assume the role of Dad, Mom, and Power of Attorney instead of enjoying his golden years…so long as he can convince a court that he is a better option than his deadbeat kids.

Today it can be Boy meets Girl, Girl meets another Boy, Girl has a baby, and 10 years later Boy and Girl and Boy are left to determine if “Dad” means the one who raised, loved, and supported the child, or the one who shares a 99.999% probability of biological parenthood.

It can be Boy meets Girl, but Boy and Girl see no worth in the institution of marriage and can have the kids, and the dog and the picket fence, and everything is just fine until they part ways and realize there are no protections for their mutual property rights.

Today it can be Boy Meets Girl, Boy rapes Girl, Girl forced to tolerate as Boy exercises custody anyway.

The law that was written is the Law of Boy-Meets-Girl.  As that law slowly adapts to meet the needs of an ever-changing nucleus, most of the above situations require creativity, common sense, and the pure gall necessary to ask for something that Boy-Meets-Girl failed to contemplate.

“Family” can no longer be limited to the Boy-Meets-Girl standard.  We have a few useful touchstones that allow us to work within the confines of Boy-Meets-Girl: lofty, esoteric phrases like “the best interests of the child” and “fundamental rights of a parent.” For the increasing list of situations that can’t be pigeonholed into Boy-Meets-Girl, however, we must innovate.  In order to make family-inclusive, we must continue to expand the law to accommodate every family, regardless of their makeup.   Knowing that there’s no limit to what constitutes a Family, we must never limit ourselves.

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Is Your Estate Plan Digitally Vigilant?

Given the prominence of our use of computers, the cloud, and online technology in our professional financial, and personal lives, it is indisputable that a good estate plan—including your Will, Power of Attorney, and any applicable trusts—must clearly address your wishes as to your intended beneficiaries of your digital assets and the person or persons […]

Given the prominence of our use of computers, the cloud, and online technology in our professional financial, and personal lives, it is indisputable that a good estate plan—including your Will, Power of Attorney, and any applicable trusts—must clearly address your wishes as to your intended beneficiaries of your digital assets and the person or persons you wish to control and gain access to these assets upon your incapacity or death. But there is more that you need to know.

What are “Digital Assets? These assets can include the following, to name only a few: 1. Emails. 2. Files stored on the hard drive of your computer or other drives, including, for example, your saved passwords to banking and investment accounts. 3. Photographs, documents, music, and videos stored in the cloud or posted to social media sites. 4. Blogs written by you. 5. Cryptocurrency. 6. Popular digital storefronts such as eBay© pages, and valuable web domains.

The State of the Law in Pennsylvania Regarding Access to Digital Assets is… “None Yet”. As of the writing of this article, all but 7 states have passed legislation that, at a minimum, confers power on personal representatives of estates (executors or administrators) to access and manage the digital assets of the deceased. Many of those states’ laws also confer similar powers on those appointed as agents under Power of Attorney and as legally appointed guardians. In 2015, the Uniform Law Commission developed a Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA) for consideration and possible adoption by the legislature of each state. Despite prior bills introduced in the Pennsylvania legislature, Pennsylvania has yet to enact any form of RUFADAA, although legislation currently awaits action by the Pennsylvania Senate.

Compounding the hazards of the absence of current state law regarding digital access, a common continuing practice of certain social media sites and email accounts such as Gmail is to rely on their stated “terms of service” and “privacy policy” language to dictate what will happen to those accounts or assets at the death of the account holder. Google, for example, has an “active account manager” designation (https://myaccount.google.com/Inactive) that is useful only if one arranges his or her digital affairs before death. Facebook provides for your appointment of a “Legal Contact.” Without proper powers and directives in your estate planning documents, those persons you appoint to administer your assets during your incapacity or after your death might find themselves “locked out” of your accounts and barred from protecting and directing your valuable digital information and other digital assets.

How to Protect Your Digital Assets in the Absence of State Law. Because Pennsylvania has not yet adopted the RUFADAA or any similar access to digital asset law, it is important that you do the following:

  1. Clearly include appropriate authorization in your Power of Attorney, Will, and any trust you create that will empower your Agent, Executor, and Trustee to gain access to and manage your digital assets. Be as specific as possible as to your wishes and the consent and directions you intend those fiduciaries to have.
  2. Provide clear and detailed direction in your Will and any trusts as to who will receive or inherit these digital assets upon your death. In addition, specifically identify in those documents any digital accounts, such as social media accounts, or other private or confidential information or files that you wish to be deleted upon your death.
  3. Prepare — and update as necessary — as a separate, private document a complete inventory of your digital assets, online accounts, and their corresponding passwords. Keep a copy of the inventory with your secured personal documents and provide an up to date copy to your Estate Planning Attorney for your confidential file. (Many of my most technologically vigilant clients, for example) provide me with a sealed envelope containing this updated information on January 1 of each year.) Consider storing such passwords through corresponding websites or applications (for instance, the stored password options associated with your online bank or brokerage accounts). If you use a password management application, be sure to include that information in your inventory.

An experienced and adept Estate Planning Attorney will work with you to plan effectively for the proper disposition and management of these valuable—and too often overlooked— assets.

An Allentown native, Judith A. Harris, Esquire, LL.M (Taxation) is an Equity Member of the law firm of Norris McLaughlin, P.A., a full service business law firm (including Immigration Law, and a member of the MeritasTM Law Firms Worldwide network) with offices in Allentown, PA, Pennsburg, PA, Bridgewater, NJ, and New York City, and Co-Chair of the Firm’s Estate, Trust and Individual Tax Practice Group.

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How Do You Do it All?

How do you do it all? – A question posed to many busy people and one I am often asked. I believe that what people are really asking is – How do you manage your time? For years I wasn’t sure. Like many others I spent most days in survival mode, unsystematically crossing items off […]

How do you do it all? – A question posed to many busy people and one I am often asked. I believe that what people are really asking is – How do you manage your time? For years I wasn’t sure. Like many others I spent most days in survival mode, unsystematically crossing items off a list only to find even more added… eventually leading to exhaustion and frustration.

Faced with shifting professional objectives and kids who are growing faster than I care to admit, I’ve devised some tricks that help me use my time wisely; they may lead to less chaos in your life as well:

Say no sometimes – Carve out time for what’s important to you, your family, and your job or business. Are you a “yes” person like me? Ask yourself a few questions before immediately agreeing to every request:

  • Do I truly want to participate/attend? What is the benefit to the community, my business, or me? Is this request in line with my priorities or goals?
  • Is my personal attendance at a meeting essential, or may I call in? Who else on my team can pinch-hit?

A habit of taking a few moments to reflect should steer you clear of the autoreply/ future regret syndrome and lead to what’s best for you and your time.

Think ahead – To maximize your attention and get things done, schedule blocks of time, and travel that make sense. For example, if I have a committee commitment in Allentown at 8 AM, I will try to schedule a downtown client meeting at 9:30, lunch in Bethlehem at 11 and a team meeting or filming at my office from 1 – 5 PM. Travel time is smartly used for calls anytime I plan to be in the car for 20 minutes or longer.

Make a plan – My week begins on Sunday evening with a fifteen-minute review of my schedule. This mentally prepares me for what’s ahead, offers a bird’s eye view of my time and commitments, gives me the option to tweak what doesn’t work, and uncovers where there is room for last-minute requests or activities. The exercise also points me back to what’s most important and ensures that there is plenty of time for family dinners, time together, and time to take care of myself.

Rely on a routine – My mother-in-law always served chicken on Sunday, meatloaf on Monday, pasta on Tuesday… you get the idea. While we may poke fun at the lack of imagination, there was a method to her madness. Sticking to a routine helps balance the inevitable unpredictability of everyone’s life. Doing laundry on Sundays and Thursdays allows me to forget about it the other days of the week. Paying bills every other Monday gives me the freedom to let the mail pile up and ignore it the other 28 days of the month. And, hey, perhaps following the same shopping list every week perfectly fits your lifestyle!

Don’t waste time – Our world is overloaded with “time sucks.” Scanning Facebook, instead of working out at 6 AM, can throw off the entire day. Schedule blocks for self-care, get plenty of sleep, and wake up early, so you’re ready to tackle the day. If Instagram is important (and it is for most of us) scroll to your heart’s delight for 30-minutes at the beginning and end of each day and use a timer.

Ask for help – “It will get done quicker if I do it.” We often rely on ourselves to tackle drudgery while surrounded by willing and able people, at home and work. The time used teaching another how to complete a task you’ve mastered is time well spent. Empower your kids to do more meaningful chores, ask an employee or intern to manage a piece of an assignment, and focus on what you do best…not just quickest. And if there is no one in your life to help control many of the little things or even some big ones, hire someone and train them. It’s ok to ask for help, and everyone will benefit from your well-honed, fastest way.

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Fallacy: We Hire People That Know How to Sell

If your organization is struggling with achieving revenue targets, it’s possible you’ve sat in meetings to discuss topics such as account targeting, product lifecycle, new product development, and market needs. Hopefully, those discussions have also included the topic of salesforce skills.  The truth is that in my experience (even with my Fortune 500 clients), too […]

If your organization is struggling with achieving revenue targets, it’s possible you’ve sat in meetings to discuss topics such as account targeting, product lifecycle, new product development, and market needs. Hopefully, those discussions have also included the topic of salesforce skills.  The truth is that in my experience (even with my Fortune 500 clients), too many companies are remiss in discussing and evaluating just that – how well prepared, or not, is our sales team to actually sell? At the end of the day, you can have the best product in the market, but without a team with the skills necessary to sell in today’s complex business environment, you are facing an uphill battle.

There was a time when the key to being a good salesperson hinged primarily on the ability to build and maintain relationships and an understanding of the products? How things have changed…

For today’s sales professionals, the bar for success is much higher. First and foremost is the need to understand that salespeople, and the sales function, is a profession. Defining what it means to be a professional is something that comes up in many of the courses I teach. In the end, the simplest and probably most accurate definition of a professional is someone that is consistently developing themselves and their craft. Essentially, someone that is always ‘working on their game.’

The degree to which a salesperson has to work on their game today is significantly greater than in generations past. It cannot be achieved by the sometimes-inherent ability to build relationships and basic product/service knowledge and expertise. While additional skills such as understanding the market and customers may also come to mind, these are things we started realizing back in the 1980s and ’90s. Today, sales professionals must understand multi-decision maker selling, individual and organizational purchasing behaviors, buyer motivations, etc. These elements require a level of knowledge and skill development which cannot be achieved solely through on-the-job experience. To be competitive and to meet organizational revenue goals, sales teams need formal training.

Formal sales training lacks overall across the majority of industries, and one of the greatest mistakes I encounter when working with organizations is the belief, “We are hiring successful salespeople, so they know how to sell.” Trust me, over the past 25+ years I have spent working in, leading, evaluating, and advising sales organizations, I can tell you this ranks number one on the list of false beliefs.

Research over the past 20 years has significantly advanced what we know about how and why people and organizations buy. This is not simple survey data; it is based on the study of the human brain and decision making. Harvard Business Review recently devoted an entire edition of its magazine solely to the topic of the research on neuroscience, and its association to marketing and selling. Organizations must invest in the development of their sales teams to understand and apply what we now know to be competitive.

Take for example, the topic of individual and organizational purchasing behaviors. While experience may provide the sales professional with knowledge, they too often don’t know what it means or what to do with it. Knowing how to take that knowledge, and apply it against what science has now revealed, can create a competitive advantage for the organization.

Even more apparent is the application of what we know about the neuroscience of individual buying behaviors. Fascinating research by individuals such as Dr. Robert Cooper and Antonio Damasio, among others, have revealed things about human decision making that fly in the face of conventional wisdom which we, in sales, have operated under for decades.

So, when you are asking yourself and your organization if your sales team needs sales training, understand that it requires everyone to dispense with the old beliefs that sales training should be focused on simply uncovering needs and product knowledge. Today’s sales professionals need their organizations to advance their skills based on, and aligned to, the new science. Without it, organizations are doomed to come up short in attempting to achieve their revenue goals.

 

Bio
Pat D’Amico has more than 30 years of management and leadership experience, including combat tours in the US Army, and an extensive background in training. He has spent the last 25 years in the life sciences (medical device and pharmaceutical) in functional leadership roles including sales, marketing, recruiting, commercial operations, national accounts, and training. He holds a BA in World Politics and a Master’s in Education. He can be reached at pat@aboutfacedev.com.

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Why Best Practices – Aren’t

My thesis is a simple one; don’t copy – create. Don’t benchmark against others – benchmark against a unique and better version of you. Don’t compete against how others do things, compete against your own thinking. More than 20 years ago I coined the term “next” practices in an effort to focus people forward in their thinking. I’ve […]

My thesis is a simple one; don’t copy – create. Don’t benchmark against others – benchmark against a unique and better version of you. Don’t compete against how others do things, compete against your own thinking. More than 20 years ago I coined the term next” practices in an effort to focus people forward in their thinking. I’ve always wondered why any business would want to adopt the same practices their competitors utilize? Don’t embrace the practices of your peers, but rather innovate around them and improve upon them to unlock hidden value and create advantage in the market. Put simply; don’t copy – create. Be disruptive in your approach and don’t fall into the trap of doing something in a particular fashion just because others do it that way – think “next” practices not best practices. Here’s the thing – best practices maintain the status quo and next practices shatter it.

There is substantial downside risk to anything labeled “best” practices. I have actually come to cringe every time I hear someone use the phrase in an authoritarian manner as a justification for the position they happen to be evangelizing. One of the most common reasons for pursuing best practices in a given area is to avoid having to “reinvent the wheel.” Think about it like this – if nobody ever reinvented the wheel, they’d still be made from stone. One of the most difficult areas for executives to wrap their mind around is how to unlearn legacy based thinking. Maintenance doesn’t lead you forward – creation does. In the text that follows I’ll ask you to consider my arguments for disregarding the myth of best practices.

Let me begin with a bold statement that I’m sure will unleash the wrath of many: “There is no such thing as best practices.” The reality is best practices are nothing more than disparate groups of methodologies, processes, rules, concepts and theories that attained a level of success in certain areas, and because of those successes, have been deemed as universal truths able to be applied anywhere and everywhere. Just because someone says something doesn’t mean it’s true. Moreover, just because “Company A” had success with a certain initiative doesn’t mean that “Company B” can plug-and-play the same process and expect the same outcome. There is always room for new thinking and innovation, or at least there should be.

Let’s use an example of a common problem that most businesses face at some point in their lifecycle (if not at multiple points), which is needing to implement a certain application or toolset to automate an existing manual process. Okay, my question is this: What constitutes best practices in this situation? Does the company purchase an off-the-shelf solution, utilize a SaaS, ASP or cloud-based solution, or embark upon developing a custom application? Moreover, if they decide to develop the application should this be done internally with existing staff, or outsourced? And if outsourced, will it be done domestically or offshore, and who will manage the process? Oh, and what about development methodology? I could go on ad-nauseam with this line of thinking, but I’m sure you get the point by now. The reality is you can find someone who will tell you any of the options mentioned above constitutes best practices – so who is right and who is wrong?

To be clear, I’m not recommending a blatant disregard for existing methodologies, but rather a very critical eye as to whether or not they are appropriate beyond the fact they’re already in use. I’m a firm believer challenging the status quo (especially the status quo surrounding best practices) usually leads to very fertile ground. It has been my experience whenever methodologies become productized, objectivity is removed from the equation. Whenever you are being pitched a product as a solution, I suggest you exercise caution. Business is fluid, dynamic, and ever-evolving, which means static advice is at best short lived, but more often is simply incongruous with the very nature of business itself. Don’t allow someone to cram your needs into their canned sets of rules and processes, rather find someone who will create the right solution in response to meeting your specific needs.

My experience has been consistent over the years – whenever a common aspect of business turns into a “practice area” trouble is on the horizon. Before you know it the herd mentality of the legions of politically correct consultants and advisers use said practice area as a platform to be evangelized. When this happens, the necessity of common sense and the reality of what actually works often times gets thrown out the window as a trade-off for promotional gain. It is precisely the dispensing of one-size fits all advice that has allowed the ranks of consultants to swell to historical proportions. After all, if you can apply someone else’s theory in a vacuum it lowers the barrier to entry doesn’t it? Labeling something as “best” practices is not a substitute for wisdom, discernment, discretion, subject matter expertise, intellect, creativity or any of the other qualities I value in an advisor.

Popular business axioms and management theories are thrown around in such cavalier fashion these days they can actually result in flawed decisioning. It is for precisely this reason that I believe too much common management wisdom is not wise at all, but instead flawed knowledge based on a misunderstanding or misapplication of “best practices” that often constitutes poor, incomplete or outright obsolete thinking.

Bottom line – just because a professor says it’s so, a consultant recommends it, a book has been written on it, or a product has been developed for it, doesn’t mean that whatever “it” is constitutes the right option for you. On occasions to numerous to count, I have personally witnessed companies that embarked upon an enterprise-wide initiative because they were sold on “best practices” and after two years into a multi-million dollar implementation without any meaningful benefit realized purchasing a product as a solution absolutely did not constitute best practices. Smart leaders don’t play catch-up – they play get ahead and stay ahead.

mike_myatt head shot

Mike Myatt is a leadership advisor to Fortune 500 CEOs and their Board of Directors.  Widely regarded as America’s Top CEO Coach, he is recognized by Thinkers50 as a global authority on leadership.  He is the bestselling author of Hacking Leadership and Leadership Matters, and a Forbes leadership columnist.

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What about Mom?

Ever worry like crazy about something, but don’t want to talk about it?  The topic of aging and long-term care seems to fall into this category. We’re all suffering from a terminal disease, and that disease is called time. Rarely does a week go by that someone doesn’t mention to me about how worried they […]

Ever worry like crazy about something, but don’t want to talk about it?  The topic of aging and long-term care seems to fall into this category. We’re all suffering from a terminal disease, and that disease is called time. Rarely does a week go by that someone doesn’t mention to me about how worried they are about their parents, grandparents or themselves. What’s going to happen when they are no longer able to care for themselves? Who will care for them? Where will they be cared for? How will they be able to pay for care?

These are important and difficult questions.  I realized that my clients had nowhere to go to get these answers, so I decided to better educate myself on the topic. I wasn’t looking forward to it, because I thought it was going depress me. I have good news!!  I feel much better now.

This is not your parents’ long-term care.  Options in this area have made significant progress since my parents were in this situation. Ten thousand Baby Boomers turn 65 each day.  Baby Boomers have changed the world as they’ve gone through each phase of their lives. Now they’re working on improving what retirement and aging look like. As with everything else – they want options!  So now, we’re beginning to have great options for aging and long-term care. “Nursing homes” are moving to the back, while an array of better options are moving forward.

What are the options?

  • Aging in place – there’s no place like home. This is a good option for people who are generally in good health. A major consideration is the current floor plan, and if it needs to be changed. Check out universal design for suggestions on preparing the home. There has also been a large increase in the types of services available to come to your home, including meals, transportation, and nursing care.
  • 55+ independent living communities – best suited for active, healthy, 55+ adults looking for a hassle-free lifestyle. There are options for every budget. They usually provide limited health services.
  • Continuing Care Retirement Communities (CCRCs) – this is a combination of living accommodations and a continuum of health care services for life. Independent living, Assisted living, and Skilled nursing is usually in one location. There are a wide variety of price ranges. Most provide a wide range of activities for active, healthy adults. They will help you when/if you become ill, but that is not the vast majority of residents.
  • Assisted living facilities – this is for individuals who need help with some activities of daily living, such as bathing or dressing. Many have individual apartments and activities, including things like a movie theatre.
  • Skilled nursing facilities – this is the closest to what we think of as a nursing home. They provide 24-hour skilled nursing services for the seriously ill or advanced dementia.

 

What do they cost?

The costs are vastly different based on the option, and even within each category. The good news is that there are options for most budgets. You will want to take your time and get a clear understanding of what services are included and what are extra.  A few questions to ask:

  • Is there a down payment? Is it refundable?
  • What does the monthly fee include? Food? Utilities? Transportation? Activities? Health care services?
  • Do the monthly fees increase each year? Do they increase with additional care?
  • What if I run out of money? Is there a benevolence fund? Do they take Medicaid?
  • Private pay – maybe use the value of your home?

 

How do you pay for them?

I suggest you talk to your financial advisor/planner. You can use your home, your investment assets and your retirement assets. You can also use a long-term care policy as additional care is needed. There are many more long-term care insurance options today. Your advisor should be able to educate you on all of these options.  Many policies now allow for a death benefit, or for you to change your mind and get all or most of your money back.

The bottom line: Options, options and options – from the type of places, to the services offered, to the cost and the availability of insurance.  At some point, we will all have to face this for ourselves or a loved one.  Start educating yourself today!

Any opinions are those of Mary Evans and not necessarily those of Raymond James.  Expressions of opinion are as of September 6, 2019, and are subject to change without notice.  There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct.  Investing involves risk, and you may incur a profit or loss regardless of strategy selected.

Mary Evans, CERTIFIED FINANCIAL PLANNERTM, 1134 Pennsylvania Avenue, Emmaus, PA 18049.  610-421-8664

Securities offered through Raymond James Financial Services, Inc.  Member FINRA/SIPC.  Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.  Evans Wealth Strategies is not a registered broker-dealer and is independent of Raymond James Financial Services.

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Important Real Estate Investing Considerations and the Need to Plan

Many people have decided that real estate is a powerful tool to accumulate wealth.  Some believe it’s the only tool.  Many of those investors have been successful at it.  Like all markets, the Real Estate market goes up and down.  So, what is so special about owning real estate? When talking with investors and professionals […]

Many people have decided that real estate is a powerful tool to accumulate wealth.  Some believe it’s the only tool.  Many of those investors have been successful at it.  Like all markets, the Real Estate market goes up and down.  So, what is so special about owning real estate?

When talking with investors and professionals who work with them, a few consistent themes emerge as to why they’ve decided on real estate investing:

  1. Substantial tax benefits. There are many sections of the tax code of which real estate investors regularly take advantage.  They can defer (and sometimes avoid) capital gains tax on appreciated property.  Any losses incurred can offset future capital gains, and those who are designated Qualified Real Estate Professionals can avoid the loss carryforward rules that often limit or delay the benefits of a substantial tax loss.  They can use depreciation and other expensing techniques such as cost segregation to limit their exposure to income tax.  As with most sophisticated tax planning techniques, this should be completed with the guidance of a skilled tax professional in order to properly execute without running afoul of the IRS.
  1. The power of leverage. Investors who use debt to finance their deals, utilize someone else’s money to acquire their properties.  Once acquired and occupied, the rents received provide the money to service and retire the debt.  Properly structured, real estate investors can acquire large assets using a relatively small amount of their own capital.
  1. Potential for long term appreciation. While rents are covering debt services and providing income, the long-term growth in the value of real estate assets can add substantial value to an investor’s balance sheet.
  1. Passive cash flow. Properly structured real estate investments can generate income streams independent of an investor’s daily effort.  With enough properly designed assets in place, consistent cash flow can be generated by the investor.
  1. Inflation protection. Every financial plan must address inflation.  Real estate values tend to rise with inflation.  Investors can include rent elevators in their contracts to ensure their income streams keep pace with inflation.   This can offset the impact of inflation.  Successful investors must understand if a particular market has inflated over time, and whether it is likely to do so over time.

 

  1. It’s Tangible. After living through decades of boom and bust stock and bond market cycles, many concluded that they wanted tangible investments.  Real Estate investors can touch their investments – be it a house, apartment complex, warehouse, or office building.

 

 

This list is not comprehensive, but the themes are quite common.  It should be noted, that real estate is not a silver bullet that helps achieve all financial planning objectives.

In fact, for many of the concepts above, there are risks against which these strategies must be measured.  For example, using leverage as described adds potential risk to an investment.  Without the means to handle higher than anticipate vacancy rates or carrying costs, new investors might suffer financial harm.  While real estate tends to appreciate over time, market bubbles do occur.  Real estate tends to be illiquid, so investors may not have access to their capital for some time.  It is important to understand how these risks may impact an investor’s long-term plan.

Like all people, real estate investors arrive at financial crossroads in their life.  At points such as those, they would benefit from a comprehensive understanding of their finances.  Investors may come to a point where they are financially independent and want to plan for their family’s legacy.  They face issues of protecting their assets from avoidable taxation, while also protecting their family from the pit-falls of inherited wealth.

Others may be less interested in leaving a legacy but want to unburden themselves from the management of their portfolio.  While the IRS has provided a great advantage in accumulating these assets, the bill comes due when it’s time to sell.

Many mid-career professionals embark upon real estate investing to free themselves from their 9 to 5 job.  It’s important to have clarity about the cash flow and return expectations they need to meet to replace their paycheck, which assets to deploy, and what risks they deem prudent in this endeavor.

When determining the best direction at these stages in life, investors are well served by seeking competent counsel from Financial Planning Professionals, as well as Attorneys, and Accountants who understand the unique opportunities and challenges real estate investors face.

 

David Ellowitch, CFP ® is the Managing Member of Ellowitch 3, LLC, a Financial Services Firm with offices in Allentown, PA and Paramus, NJ.  He is a registered representative of Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Ellowitch 3, LLC is not an affiliate of Lincoln Financial Advisors Corp.  CRN-2699557-082319

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How Well Do You Know Your Financial Advisor?

First, let’s define the title of Financial Advisor. The title itself is often lumped into the Advisor category, which could be someone who specializes in taxes, mortgages, finances, real estate, law, etc. What makes a Financial Advisor different is that they have passed certain licensing examinations which allow them to provide financial advice as well […]

First, let’s define the title of Financial Advisor. The title itself is often lumped into the Advisor category, which could be someone who specializes in taxes, mortgages, finances, real estate, law, etc. What makes a Financial Advisor different is that they have passed certain licensing examinations which allow them to provide financial advice as well as manage investments and portfolios. On the one hand, you may work with someone who strictly does investment management and another who offers insurance products. Some Financial Advisors do a combination of both, amongst other services. Do you know what your Financial Advisor specializes in? Do you know what professional licenses and designations they hold? Most importantly, are you aware of a history of client complaints, lawsuits, or criminal charges? If you are unsure of any of these questions, now would be a great time to look at your Financial Advisor’s FINRA BrokerCheck. https://brokercheck.finra.org/

BrokerCheck is a web-based tool created by the Financial Industry Regulatory Authority (FINRA) to provide full transparency to clients on all Registered Representatives. To clarify, Registered Representatives are different from Financial Advisors in that they mainly are limited to buying and selling securities, not providing financial advice nor managing investments. Financial Advisors are often Registered Representatives; too, however many Registered Representatives are not Financial Advisors. In just a few clicks, you’ll have a full detailed report of any Financial Advisor or Registered Representative. This report will help you make informed decisions about working with that financial professional. BrokerCheck tells you instantly whether a person is registered, as required by law, to sell investments or offer investment advice. The report will also give detailed employment history, regulatory actions, licensing information, lawsuits & client complaints. These are vital pieces of information when deciding who you are going to trust with your family’s, your business’s and/or your own personal assets. You want to ensure they are fully licensed to offer unbiased advice and have a limited number of client complaints.

Some red flags to watch out for:

  • Frequent Changes in Firms
  • History of Fines
  • Criminal Charges (DUI’s, Traffic Violations, Theft, Etc.)
  • Unable to Locate Your Advisor on the Site

Choosing the right financial professional is a huge decision. The intention is to work with a Financial Advisor up to and through retirement. A Financial Advisor who looks at your overall financial situation, provides an objective analysis, and works with you over time to create a concrete yet flexible plan will help put you on a path to success. Always make sure to do your due diligence to ensure they have your best interested in mind as well as sufficient knowledge and experience. If you are not comfortable with something you see on BrokerCheck, you are certainly entitled to ask your Financial Advisor for more information. So, let’s revisit the questions again: How well do you know your Financial Advisor?


 

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 1767 Sentry Parkway West Suite 200, Blue Bell, PA 19422 (267-468-0822). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian.  Independence Planning Group is not an affiliate or subsidiary of PAS or Guardian.

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Today vs. Tomorrow How Lifestyle Creep Could be Jeopardizing Your Financial Future

As I think about the 155th meeting of Lafayette and Lehigh’s football teams on November 23rd, I find it difficult not to reminisce about the good ole’ days at Lafayette. During my college years, the hit HBO series The Sopranos was in its prime, guiding much of my Sunday night social calendar. Each week, my […]

As I think about the 155th meeting of Lafayette and Lehigh’s football teams on November 23rd, I find it difficult not to reminisce about the good ole’ days at Lafayette.

During my college years, the hit HBO series The Sopranos was in its prime, guiding much of my Sunday night social calendar. Each week, my friends and I would pool together funds for a pre-Soprano’s meal consisting of pasta, butter, and some frozen garlic bread. Looking back, that meal was far from luxurious and not something I’ve since served dinner guests. After all, being in a better financial position should mean better meals, right?

The habit of upgrading spending habits alongside increasing income has a name: lifestyle creep. While it’s natural to enhance your lifestyle as earnings grow, folks would be well-served to focus on the pace of both. Young professionals right up to retirees often fall victim to inflating their lifestyle at a faster rate than their earnings. When this happens, the sacrificial lamb is almost always long-term savings.

It’s easy to see why this happens. Present bias is a technical term for a sentiment many of us understand and experience — it’s far more enjoyable to use the money now than it is to save it for the future. This is especially the case when the notional future is retirement, which could still be decades away. This bias compounds lifestyle creep, and it seems to transcend age, influencing those in their early professional years right up until the golden years.

Young professionals seem to be the poster child for lifestyle creep. Many professionals in their 20s and early 30s are shackled with student loans and maintain little in the way of emergency reserves. Yet at the same time, many sport luxury apparel, buy new technologies and maintain a buzzing social life.

The next phase for many is the life building stage: marriage, mortgage, and maybe children. Between kids’ activities, making your house a home, and the occasional date night, lifestyle creep is never-ending for this category. While some life builders may have started saving into their retirement plan years ago, many failed to escalate those savings rates, spending more on happiness today.

As people move beyond this stage of life and become more well-established, bigger ticket items tend to sneak into the picture. Many find themselves sandwiched between aging parents and adulthood-seeking children.  Both may require significant financial support.

While lifestyle creep can come in many different forms and cross many different life stages, the point is that it distracts and derails people from reaching longer-term financial goals. Over the last ten years, an extended bull market has masked many savings shortfalls. However, forward-looking capital market assumptions suggest a reversion to historical averages. Equity returns over the next ten years may not be as high as they have been in the past, and the impact of poor savings habits may become more pronounced, especially for those who assume market returns can make up for an underfunded retirement.

While returns may be outside the control of market participants, there are factors well within their control. Chief among them, and perhaps the largest driver of future wealth, is one’s savings rate. Using technology to automate savings, regularly monitoring your financial goals, and evaluating the lifestyle creep you may be experiencing is a combination that will pay long term dividends. Finding the balance of happiness now versus happiness later is an imperfect pursuit, but one worth considering no matter where you are in life.

Securities offered through M Holdings Securities, Inc., a Registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services offered through Cornerstone Advisors Asset Management, LLC, which is independently owned and operated. #2715889.1

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