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|Thursday, July 03, 2014|
BY TED AUSTIN & MIKE BAELE | GUEST CONTRIBUTORS
Like the rest of the country, Oregon has enjoyed a revival of economic activity and growth over the past several years. Fortunately, the state was spared from the harsh winter conditions that affected much of the U.S. this past year. The Office of Economic Analysis announced that Oregon is currently enjoying the strongest job growth since 2006. Recently, economic indicators have approached the levels seen in 2008, according to the Oregon Index of Leading Indicators. While this resurgence has been welcome, the lingering effects of the 2008 “Great Recession” continues to affect Oregon businesses especially with regard to estate planning and business succession.
During the past 20 years the nature of businesses in Oregon has transformed. The state now relies less heavily on a resource-based economy (timber, fishing, agriculture), and more on a combination of mixed manufacturing, marketing and technology. These changes, along with the recent recession, led to an environment where some once-thriving businesses have declined, closed their doors or have seen only modest revenue growth during the past five years. This has affected company balance sheets and altered company valuations along with the financial stability of the owners and their families. Estate planning issues were compounded with the financial crisis and long-term nature of the recovery. With one-third of small business owners over the age of 55, the financial crisis may have also had a substantial impact on their personal long term planning processes. There are two trends that rise to the top for business owners post-recession.
The potential benefit of life insurance
When company valuations are low, paying taxes on a business can be stressful, thus making an estate plan vital. In Oregon, federal estate taxes are at 40 percent on estates greater than $5.34 million and Oregon estate taxes are as much as 16 percent on assets over $1 million. Many Oregon business owners find that the majority of their net worth is tied up in the company with little personal liquidity.
In the event of the death of the business owner, cash needed for the estate tax bill and other estate expenses may cause other owners, families and beneficiaries think that the only option is to liquidate the company or its assets. Liquidating can be a suitable option, and it is important to work with a wealth management professional, attorney, and a tax professional to help ensure you are creating a purchase agreement that allows the business to sell in a manner that minimizes the tax liability and avoids the liquidity trap.
With short-term interest rates at historic lows, the use of life insurance can provide much needed liquidity for estate tax liabilities, as well as other business succession plans. Paying the premiums on insurance policies of this size may be challenging for those who have most of their capital in their business. There is an increased interest in premium-finance loans, where business owners can borrow the funds to pay life insurance premiums. Rather than outlay capital for the premiums, business owners can pay the interest on the funds borrowed to pay the premiums.
Varying your approach to investing capital
While growing their business, many continue to invest capital back into their company. Another option may be to invest available capital into mutual funds for simplicity and diversification. Mutual funds are generally the appropriate tool for these reasons, however, some larger investors, with assets of $5 million or more are seeking alternatives to mutual funds.
Larger investors who seek capital-gains control or who don’t want to be subjected to the possibility for frenetic inflows and outflows or the potential for high tax liabilities or market timing may find that mutual funds generally won’t give them the desired outcome.
A wealth management professional can guide business owners through the process of creating a business succession plan and a unique investment plan with a variety of investment types while providing more control over tax consequences. It is important for business owners to seek specialized guidance to help ensure they are thoroughly planning for their business, personal life and their family’s future after surviving the financial crisis.
Ted Austin is the Oregon market leader and Mike Baele is managing director, senior portfolio manager for The Private Client Reserve of U.S. Bank in Portland.
Thursday, September 25, 2014
BY JON BELL
Powell's stays relevant in the digital age.
Thursday, September 25, 2014
BY KIM MOORE
University and college tuition fees have been rising for more than a decade, while state funds for higher education have steadily declined.
Wednesday, August 27, 2014
BY KLINT FINLEY
Treehouse CEO Ryan Carson builds a 21st-century trade school.
Monday, September 29, 2014
BY LINDA BAKER | OB EDITOR
Wehby disappears, Kitzhaber fails to disclose and Seattle gets bike share before Portland.
Monday, August 18, 2014
Portland is in the middle of another construction boom, with residential and office projects springing up downtown, in the Pearl and Old Town. OB Web Editor Jessica Ridgway documents the new wave.
Friday, September 26, 2014
BY JASON NORRIS | GUEST BLOGGER
This post focuses on the recent release of the new Apple iPhone as well as Alibaba's IPO, the largest U.S. IPO in history.
Thursday, September 25, 2014
BY LORI TOBIAS
Business has been good to Laura Anderson, leading some to suggest she must be awfully lucky to find such success in a business notorious for failure. But luck’s had little to do with it.
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Is your business ready to join us in the call for action? This opening panel includes Oregon businesses who will discuss why they signed the Oregon Climate Declaration, the investments they are making to reduce carbon emissions, and how their actions are affecting their companies.
Get ready for two days of special events produced with the EPA, Portland Timbers and ISOS before and after the GoGreen Conference on October 16.
Bank of America partners with nonprofits to create opportunities for women and drive economic growth.
How one Portland startup tracks devices around the world, making the Internet a safer place for businesses and consumers.
First Call Resolution targets employee well-being and client satisfaction.
The Oregon Entrepreneurs Network (OEN) is pleased to announce 12 finalists—from a record number of 67 nominees—for the 2014 OEN Tom Holce Entrepreneurship Awards
The Oregon Entrepreneurs Network (OEN) is pleased to announce three finalists for the inaugural OEN Game Changer Award.