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“I KNOW I NEED TO THINK ABOUT IT, BUT I AM TRYING TO RUN

A BUSINESS HERE!”

Presented To:

Advisor Network Summit

R. J. Kelly

Founder & Chief Visionary Officer

Wealth Legacy Family of Companies®

August 14, 2014

©2014. RJ Kelly. All rights reserved worldwide

“I KNOW I SHOULD THINK ABOUT IT …”

• Do you have successful business clients?

• Do you want more?

• Broaden your approach!


• Do you have business clients that tell you these things?

• Overwhelmed just meeting daily needs at work and/or in the family?

• Little to no time to address Covey’s “Impt/Not Urgent” business & personal issues?

• Uncertain where and how to get started with “bigger picture” planning?

• Not sure whom to trust?

• Wish someone had a checklist of things to think about and action steps to follow?

Whom Do You Know That …?


If so … this will be valuable time together !


Here to give you my exact approach …


A roadmap to follow on a number of topics …


Settle in & relax… and be prepared for some audience participation!


• A “peek behind the curtain” – successful business family 1

• Consider critical estate, family & business planning decisions 2

• “Experience” small taste of a “Wealth Legacy Assessment” 3

Goals For Today’s Talk:


GET HELP FROM MY FRIENDS …

“PETE & SALLY”


Pete & Sally Ages 49 & 47

Thirteen years as successful franchise owners

4 children: 2 in business – 2 outside (1 special needs)

New Franchisee©2014. RJ Kelly. All rights reserved worldwide

MORE IN A MINUTE … WHAT IS MY BIAS? MY FILTERS?

R. J. KELLY & WLG

Wealth Legacy Family of Companies® 37 Years … Multi-disciplinary … Fee Based

• Business Consulting & Succession Planning

• Insurance Services Life/Disability/Health/Long Term Care

• Wealth Management: Independent Registered Investment Advisors

• Family & Team Counseling

• Litigation Support Service


NOW … LET’S GET STARTED!


Pete & Sally

Ages 49 & 47

Sixty-three employees

4 children:

2 in the business

1 outside business

1 with special needs


Leadership - “Who’s Who?”

Leadership Position Age

Pete President 49

Sally Vice Pres, CFO, H/R 47

Brian Technician/Team Leader 32 Key employee

Kathy (daughter, married to Dale)

Technician/Team Leader 28 Key employee

John (son, single) Dispatcher 24 New but learning


Years

Emp

loye

e G

row

th

63 Ee’s (2013)

100+ Ee’s (2016)

Three Year Ee Growth Plans

78 Ee’s (2014)


BIGGEST CONCERNS FOR PETE & SALLY:


FOUR MAJOR AREAS

Re

Ownership & Transition Of Assets

Insurance & Reducing Risk

Taxes & Tax Deferral

Resolving Conflict In Family & Biz


OWNERSHIP & TRANSITION OF ASSETS


ESTATE PLANNING DOCUMENTS WERE “MIA”


NO DISCUSSION OF INTENTIONS BETWEEN PETE/SALLY & KIDS


NO EXIT/TRANSITION PLAN FOR THE BUSINESS

• 75 – 83% plan to sell within next 10 years …

• Less than 5% have a written plan ©2014. RJ Kelly. All rights reserved worldwide

INSURANCE & RISK REDUCTION


NO ASSET PROTECTION

–Rental property (apartments)

–Office building (franchise operations)


NO KEY PERSON INSURANCE

• For Death

• For Disability

– None on Pete or Sally

– None on Key Ee’s Brian or Kathy


LIMITED PERSONAL INSURANCE

• Life insurance – Only $500,000 on Pete;

– None on Sally

• Income replacement for disability – None for either

• Long Term Care or Critical Illness coverage – None for either


HEALTHCARE & WORKER’S COMP

• Costly & getting worse – dramatically!

• Confusing …

• Worse in 2015+

– Other options??


TAXES & TAX REDUCTION


PAYING MORE IN TAXES THAN NECESSARY

• Business & Personal

• Not aware of add’l business deductions

• Lack of “contemporaneous records” for deductions (no vehicle documentation; not taking home office deduction, etc.)


NO PLANNING FOR RETIREMENT

• Missing tax shelter & asset protection

• No preparation for retirement – No specific targets, dates, amounts, etc.

Need $$$ Help


OFFICE & FAMILY CONFLICT


POTENTIAL OFFICE & FAMILY CONFLICT • Roles in office - not clearly defined

• Brian & Kathy - tension between them

• Son, Don - not working in the business; sense of entitlement

• Kathy’s husband, Dale – interested in joining family operation

• How to care/provide financially for Rachel?


RESPONSIBILITIES & EXPECTATIONS WITH LITTLE TRAINING

–Much falling on Sally

• Human Resources (H/R)

• Employee Training

• Staff Supervision

–Little to no background for role(s)

–Not fulfilling or in area(s) of interest


WEALTH LEGACY ASSESSMENT™

“If you fail to plan, you are planning to fail” Benjamin Franklin


* WHAT WOULD YOU TELL THEM TO DO? * WHERE SHOULD

THEY START?


BIG PICTURE PERSPECTIVE


Wealth Legacy Assessment™


ITS BEEN SAID …

• “You never really know your family until you share an inheritance with them.”

• Money brings out the best & worst in people


MONEY IS JUST A MAGNIFIER …

Magnifies

– Good or bad character …

– Good or bad parenting …


WHAT DID I RECOMMEND?

EP & Asset Protection

Risk

Conflict Tax


OWNERSHIP & TRANSITION OF ASSETS


“GENTLEMEN, THIS IS A FOOTBALL”

• Green Bay Packers & John Brockington


WILLS, “LIVING TRUST”,

& OTHER KEY DOCUMENTS


Key Points To Address …

• Will to address specific assets

• HIPAA releases: you, spouse, children, parents

• Health care & Financial Power’s of Attorney

• Living trust – Eliminate A/B Trust? (“Portability” not “Use or

lose” anymore)

– May need “QTIP” if children from prior marriage

– Instead, use “Probate Avoidance Trust”

– Consider “Discretionary Trust”


Common Mistakes I See …

• Trust set up in “unfavorable state” like CA

• Trust distributes assets at certain ages …

– 1/3 age 25; ½ balance age 30; balance age 35

• Before distribution – asset protection …

• After distribution, subject to:

– Creditors

– Divorcing spouses

– Uncle Sam

• Other options?


Discretionary Trusts …

• Protect against …

In-laws – Outlaws - Creditors - Predators

• 13 states - repealed laws against perpetuities

• NV allows 365 year trusts

• CA – “lives in being + 21 years” … 80 yrs? 100?

• Include “incentive language” & “disincentive”

• Give beneficiaries right to replace trustee

• Can put a “kill switch” in trust for next gen


Key Points …

• Just use probate avoidance trust

• Can eliminate A/B provisions

• Don’t terminate trust for beneficiaries

• Create “discretionary trustee”

• Set up trust in asset protected state like NV, DE, SD, AK … or international safe havens

• At minimum, insert “trust protector language”


BUSINESS SUCCESSION AND EXIT PLANNING…


BUSINESS SUCCESSION AND EXIT PLANNING…

A written plan should include:

– Timeframe

– Determine type of transition (sale or transfer?)

– Thought through with all involved parties!

– Determine business value? How to increase?

– Who needs to be on transition team?

– Amount of income needed from a sale?

– Ways to minimize taxes and costs?

(See my handout from Vistage Int’l Conference) ©2014. RJ Kelly. All rights reserved worldwide

SPECIAL NOTE ABOUT ESOP’S

• Rarely seen them ultimately used

• Expensive (~$100k 1st year + annual fees/costs thereafter)

• Doesn’t end there … “repurchase liability”

• Where it fits … fits well

– Tax-free repositioning into publicly traded stocks

– Banks receive special rates & pass along


MAY I HAVE YOUR PERMISSION TO BE DIRECT – IF YOU ARE CONSIDERING SELLING?

• Investment bankers or business brokers do not care about how much tax you will pay …

• Your CPA will generally tell you to “just pay the tax …” (Client $4M sale last year - $890,000 tax)

• Your attorney will not likely get involved

• Understand – there are ways to eliminate or defer upwards of 99% of tax upon sale – Split Interest LLC

– Deferred Sales Trust

– Capital Gains Elimination Trusts


WHAT IS A “SPLIT-INTEREST LLC?”

• Wont’ find it directly in tax code

• Split-interest transactions – created in 1969 tax reform legislation

• Support the social well-being of America in a way that is good for you, too

• Fixed period of years set at outset

• Whatever is left in the bucket goes to charity – which could be your own family foundation


“SPLIT-INTEREST LLC” • Creates tax savings:

– Eliminates up to 99% of taxes (from a sale)

– Creates current income tax deductions (Present Value of Future Gift)

– Undistributed income is up to 99% non-taxable

• Asset protection (use DE or NV resident LLC for “wrapper” around asset)


“SPLIT-INTEREST LLC” • Can “self-direct” account as “Managing

Member”

– Paid salary as MM

– Access to principal of LLC if needed (loans)

– Can use to acquire other assets (business, RE, other)

– Passes to spouse or child/children if desired


CASE EXAMPLE – CLIENT “BILL”

• His share of business - $20M

• Basis – next to nothing

• Sale to private company - future plans for IPO

• $5M in cash – over two years

• RED FLAGS!

– 20% Federal LTCG tax

– 13% CA State (No LTCG treatment. Ordinary income)

– 3.8% Obama Medicare tax


SOLUTIONS?

• Stock “swap” … Section 351 (S. 721 if LLC)

• $0 Tax on $15M of swap – Basis carries over to new stock

• Did “Split Interest LLC” for $5M cash – $23,000 in taxes instead of $2M!

– Control of cash

– Asset protection

– Et al.


FINAL POINT …

• If considering giving stock to key employees …

• Take very cold shower and call me in the morning

• Seldom has lasting appreciation by key EE

• Better to consider “Synthetic Equity”

– Phantom Stock Plan

– Stock Appreciation Rights Plan

– Wage Continuation Agreement

• Death

• Disability

• Retirement – supplemental compensation


INSURANCE & REDUCING RISKS


FIRST … “BUILD” A BETTER STRUCTURE TO OWN THE BUILDINGS


NOT ALL LLC’S BUILT THE SAME

• First defense – adequate liability coverage

• LLC to own real property & perhaps business

• Consider multiple LLC’s – – The “Live Out Of LLC” – 99% Indiv’l; 1% Rainy Day LLC

– The “Rainy Day LLC” - 1% Indiv’l; 99% Domestic APT

• Charging order protection – NV, DE, SD, etc.

• “Sole remedy” states

• Distribution of income – at discretion of “Managing Member”

• Borrow from LLC if needing income


WHAT IS THE LONGEST TIME YOU HAVE BEEN AWAY FROM YOUR BUSINESS?

• Week?

• Two weeks?

• Month?

• Longer?

• What if one day you walk out and don’t walk back in? How will that impact your business?


RECOMMENDED PURCHASE OF: KEY PERSON LIFE & DISABILITY COVERAGE

• On Pete especially & Sally …

• On Brian & Kathy …

• For transition, loss of profits, “Persuasion”$$$

• New rules since 2006

• Must get Key EE to sign disclosures


RECOMMENDED PURCHASE OF: KEY PERSON LIFE & DISABILITY COVERAGE

• CPA must complete Form 8925

• No remedy if didn’t follow rules

• Fully taxable upon death of key EE

• If C Corp, Alternative Min Tax applies to proceeds


ADDITIONAL PERSONAL COVERAGE

• For: – Income continuation to Sally

– Business equalization for son, Don … • Cash instead of business interest

– Fund Special Needs Trust for Rachel

– Replacement income in the event of disability

– Money for “long term care” … • 40% below age 55 will have a long term care event


WHAT TO DO WITH RISING HEALTHCARE & WORKER’S COMP COSTS?


RECOMMENDED HEALTHCARE PLAN REDESIGN …

• A what??


The Company That Solved Health Care – John Torinus

• Companies 100+ ee’s on healthcare plan

o Seeing savings of 20-34% …

o 10-18% savings for plans with 50+ ee’s

• Don’t pay commissions – pay for reduced claims

• Bolt on “drug cop”: 10-40% of costs are pharmacy

• Utilize “Health Care Blue Book”


The Company That Solved Health Care – John Torinus

• Capture claims utilization data

• Claim share of insurance company profit

• Probability of “max claims” – only 2% in given year

• Client in TX - 2014 guaranteed savings $500k+

• ACA only makes this better!


Other Risk Management Concepts?

Consider creation of “Captive Insurance Company”

• Section 831(b) Election

• Up to $1.2M/year in deductions

• Asset protection

• Converts ordinary income into capital gains

• Use as “Velvet Handcuffs” key employees

• Best inter-generational asset transfer technique I know of …


TAXES & TAX REDUCTION


SAVING TAXES – SEMINAR IN ITSELF

Contemporaneous Documentation!


BIGGEST FAILURE I SEE …

LACK OF PROPER DOCUMENTATION!


How Many Of You Claim A Home-Based Office?


Can Have Multiple Offices

• Administrative office can be different than …

• Sales, marketing, dispatch office …

• Write a letter to yourself (if incorporated)

⁺


How Many Of You Know The Details of This?

February 24, 2013

IRS simplifies guidelines for

deducting home office


http://www.spokesman.com/

Primary Objective Is ???

• Eliminate commuting miles or reduce to as little as possible … and increase business miles … which are deductible!


RETIREMENT PLANNING: AMOUNTS NEEDED GROSSLY UNDERESTIMATED & LARGELY UNPREPARED FOR


FOR PETE & SALLY

• Determined income desired & by when?

• Various options for accumulation

• Optimized retirement plan

• Added supplemental plan


MOST AMERICANS CANNOT RETIRE

• Requires 85% of current annual income to maintain lifestyle similar to today, with …

– Occasional Travel

– Hobbies

– Some Volunteering

• Average American (ages 41-54) has savings of only $30,000

• 14% have no savings at all!


DEALING WITH OFFICE & FAMILY

CONFLICT


WHAT ARE THE POTENTIAL POINTS OF CONFLICT?


Potential Conflicts?

Rachel

Sally

Don

Kathy

Dale

In-Laws in the Biz

Entitlement

Undefined care

Responsibilities w/o training

Brian


#1: IDENTIFY, DEFINE AND COMMUNICATE CORE VALUES – PETE & SALLY


#2: DETERMINE TEAM’S EMOTIONAL DNA


3 Unique Factors Iceberg

Behavioral DNA

What Other People See!

(20% of our uniqueness)

Perception……………………………………………………………………………………………………………………………………..

Waterline

Decision-Making DNA Partially Visible Patterns


Motivation DNA

Mostly Hidden Motives


Virtually

Hidden…………………………………………………………………………………………………………………………………………..

INTERPLAY DNA Profile


• Behavioral DNA

– How does each team member tend to behave and why?

– What stresses them out and why?


• Decision-Making DNA

– How does each team member typically make their decisions?

– What changes when they get stressed?


• Motivational DNA

– What are each members motivational “trigger points?”


DELIBERATE

TASK

PEOPLE

FAST PACED

PARTICIPATOR

TASKMASTER ANALYZER

ENERGIZER

1) INTERPLAY Behavioral DNA

FLEXIBLE


ANALYZER

“Plan ahead!”

Data Driven

Probabilties

Product Quality

Maximize Information

Minimize Risk

Spock

“Aim, Aim, Aim”

PARTICIPATOR

“Reach out & touch someone”

Relationship Driven

Sociabilities

Equity/Fairness

Openness

Build Trust & Chemistry

Mother Theresa

“Ready, Ready, Ready”

TASKMASTER “Just do it!”

Results Driven

Accountabilities

Product Volume

Personal Control

Bottom Line

General George Patton

“Fire, Fire, Fire”

ENERGIZER

“Dream the impossible dream”

Change Driven

Possibilities

Selling and Promoting

Minimize Hard Data

Be Creative

Bill Clinton

“Ready, Fire, Aim”

Deliberate

Task

Fast Paced

People

Behavioral DNA Languages

FLEXIBLE/ADAPTER

“It Depends!”

Situation Driven

Keep Options Open

Weigh Alternatives

Chameleon

Wait Until Last Minute

Frank Abagnale, Jr

“Whatever”


TEAMMATCH™ @ WEALTH LEGACY GROUP




SALLY’S FEEDBACK “Oh MY GOODNESS ... Who told them? It is as if someone crawled inside of myself!

I was laughing and nodding and in a state of ‘How did they do that?’ as I reviewed it.

Thank you for these insights. It will be great fun to do something with this once Pete and the kids are finished as well.”


#3: BUILD TEAM UNITY AT WORK

• Use InterPlay™ profiles to outline team strengths and improve communication

• Draft clear job descriptions, define roles

• Team building projects and exercises?

• Create shared philanthropic goals?


#4: IDENTIFY, DEFINE AND COMMUNICATE CORE VALUES - FAMILY

• Family acrostic – (“L.A.S.T.S.” for the Kelly/Noy family)

• Family Council – Use a facilitator to “direct traffic”

– Use InterPlay™ profiles to outline family strengths and to improve communication

– Include Don and Rachel (as possible)

– Include Dale and other future spouses

• Create shared family goals

• Draft family mission statement? ©2014. RJ Kelly. All rights reserved worldwide

#5: GAIN OUTSIDE PERSPECTIVES FOR COMPANY

• Create Board or “Virtual” Board

– Leverage from others wisdom/experiences

– Build succession “shock absorbers”

• Use professional facilitator

– Local

– Virtual


• Met “Pete & Sally”, successful Vistage entrepreneurs 1

• Explored issues facing them (did a few apply to you, too?) 2

• Condensed version of our Wealth Legacy Assessment™ 3

Recap On Today’s Session:


IF YOU WANT TO TALK SPECIFICALLY …

• 60 minute complimentary consultation to Advisor Network attendees:

– Believe in a team approach …

– “No one has a corner on all the good ideas”

– Good place to start is …

• Complimentary review of client’s estate planning documents

• Brainstorm their succession plans …

• Review tax planning & asset protection needs


Last Few Thoughts & Takeaways …

• QuoteActions: No charge or follow up …

• “’You cannot live a perfect day without doing something for someone who will never be able to repay you.’ John Wooden, Legendary Basketball Coach.

• Your action for today is to make an anonymous donation or do something nice for someone without them finding out you did it.”


HOW ABOUT SOME

QUESTIONS?


THANK YOU FOR YOUR KIND ATTENTION!

Here’s To Living A Life

Of Intention

Documents

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