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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, May 29, 2014
BY LEE VAN DER VOO
A forest collaboration saves the Rough & Ready Lumber Company.
Thursday, May 29, 2014
BY KIM MOORE
Transportation accounts for the second-largest source of greenhouse gases in the U.S. (28% in 2012), and the use of renewable fuels, such as biodiesel and ethanol, is booming in light of state and national programs to make transportation fuels cleaner.
Thursday, June 19, 2014
BY MONICA ENAND | GUEST CONTRIBUTOR
Nine tips for building habits among employees to respond when needed.
Wednesday, May 28, 2014
Oregon Business magazine's "Green Your Workplace" seminar featured a panel of sustainability experts from small, medium and large organizations. The seminar drew 70 people and took place in the Nines Hotel this morning.
Thursday, May 29, 2014
BY JON BELL
A new generation of outdoor apparel companies targets the young and the urban.
Tuesday, July 01, 2014
BY HANNAH WALLACE | OB BLOGGER
Demand for organic food continues to soar: Last year, sales of organic food rose to $32.3 billion — up 10% from 2012. In Oregon, organic produce wholesaler Organically Grown Co. has been championing organic growing methods for four decades.
Thursday, May 29, 2014
BY JESSICA RIDGWAY
Brad Baker, CEO and co-founder of Works Electric, is a good husband. His wife, an OHSU employee, sought a more efficient way to commute up Marquam “Pill” Hill, so she asked Baker to build a transportation solution.
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Vigilant enters a New Year with a new president.
How George Fox has become one of Oregon's largest private universities.
Forest Grove sees growth in the burgeoning food and beverage scene.
Geffen Mesher is saddened to announce the passing of long-time shareholder, Tom “Mike” Anderson, who died on July 10, 2014, from liver disease diagnosed after recent heart surgery. He was 55 years old.
Fifteen Lane Powell attorneys have been named 2014 “Oregon Super Lawyers,” and another five attorneys have been named as “Oregon Rising Stars” by Super Lawyers magazine.
From its first-ever member forum, to upcoming Board elections, the Oregon-based, non-profit health organization is focused on letting members control their healthcare destiny.