Issue #19:  July 2009

In This Issue...

• Detailed Exit Planning In A Tough Economy
• Even When A Spouse Dies, Debt Lives On

“The nicest thing about not planning is that failure comes as a complete surprise rather than by being preceded by a period of worry and depression.”  —Sir John Henry James

Detailed Exit Planning In A Tough Economy

As you read in our April and May newsletters, exit plans are essential in companies large and small, and not strictly for the purpose of letting the owner and founder retire. These plans allow the owner to get their money out of the business at a time of their choosing, but exit plans also incorporate succession and other strategic decisions to ensure a bright future in family hands or in the hands of a new owner.

An exit plan isn’t made in a day however; it is usually wise to for business owners to start an exit plan within at least 3-5 years of the date they’d like to exit. Ideally, it will be a process that begins as soon as the business is bought or taken over: If you purchased a business, what makes a business attractive to you…and what would be a cause for a discount? A Bull & Bear Capital Advisors CERTIFIED FINANCIAL PLANNER™ professional with specific business expertise works with other key professionals, such as attorneys, accountants, and business intermediaries, to help you as an owner find answers to big or small issues in any exit plan. A great start to this type of collaboration is engaging the services of a multi-disciplinary firm, like Bull & Bear, that has tax, legal and financial planning at its core, to help manage these complexities. Your team is one that is ideally put together early and is as cohesive as possible; everyone must be on board with the plan and headed in the same direction.

It’s important early in this process, just as in your personal financial plan, to give serious thought to the details of what’s important to you, your business and your family, not just businesses in general:

• The family’s business legacy – Should a business be passed on to family or employees, or should it be sold or closed? The plan may be very different depending on whether or not you want to use it as a long term source of income or a potential shorter term capital gain.

• The company’s overall creation of wealth – The legacy options need not be mutually exclusive. A plan should be flexible enough to support short-term and long-term goals to create wealth that can be invested wisely, both inside and outside the business, to support family and personal goals. A flexible plan allows a business to adjust to shifting economic winds.

• The business as part of a retirement strategy – Actions that you take now will allow you to do everything you’ve planned after you leave the business. This includes making sure that the business is structured in a manner that allows continuity in the event of economic or legal difficulties.

Once a plan outline is in place, more specific questions should be addressed in due course. It is not enough to know where you’d like to go without also knowing the best route to get there:

• How many more years do you want to run the business before pressing GO on the plan? Choosing an exit date most often works better than having one chosen for you.

• What’s the value of the business now, and what can be done to make it more valuable to potential buyers or for transition to the next generation? What if you got an offer out of the blue tomorrow?

• What’s the optimal way to transfer the business? Are you well situated from a personal and business tax standpoint? If the plan that results in the highest sales price and/or lowest tax burden isn’t your plan for personal reasons, what else can be done to ensure sufficient value is there for current and future ownership?

• If the company is being transferred or sold to family members, is there a growth plan in place that they have contributed to and are therefore likely to follow? Are they well prepared to run the business when the time comes?

• How should the plan be shared with spouses, children and other family members with a stake in the business? What about employees, clients and customers? How will they react to a change in ownership?

These concerns are far from all-inclusive, but rather serve as a basis for further, detailed discussion.

Your exit strategy is similar to that of a war plan, which remains intact only until the first contact with the enemy. A well thought out business plan will require regular attention and reevaluation to ensure that it remains relevant.

Keeping up with these changes is not easy, especially as you’re focused on running your business, but the details matter. As many have seen within the last year, a plan that isn’t flexible or hasn’t been adapted to changes in the tax, legal and business environments might not be a plan at all...and that can be a very unpleasant surprise.

This column is written by Bull & Bear Capital Advisor Gregory M. Pritchard, CFP®.
© Bull Bear Capital Advisors 2009 All Rights Reserved

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Even When A Spouse Dies, Debt Lives On

The death of a loved one is a paralyzing event. Many survivors find it difficult if not impossible to start dealing with the financial afterlife of a spouse, even if they’ve planned extraordinarily well.

Consider, then, the one single element that can turn this difficult process into a lengthy nightmare and potential financial disaster for a surviving spouse – the deceased’s outstanding debt.

Married couples—particularly those who hold credit cards jointly and keep month-to-month balances on them—really need to pay attention. And we’re not simply talking about elderly spouses. A spouse can die at any time.

The earlier a married couple focuses on the joint issues of credit management and estate planning, the better. A Bull & Bear Capital Advisors CERTIFIED FINANCIAL PLANNER™ professional can integrate the necessary elements of estate, retirement and debt planning together.

While the following information can be a guide for individuals who have lost a spouse, it’s a much better guide for couples in good health who want to alleviate major financial problems for their survivors later on.

Just remember: The worst time to deal with joint or separate credit issues is after the funeral. Some key points to consider:

Joint credit in moderation…or not at all: If spouses have separate credit, then their rating won’t be affected by the spouse’s bad credit behavior (late payments, charge-offs, bankruptcies, etc.). Joint credit leaves the surviving spouse with a total obligation for any debt remaining on a car loan, credit card, mortgage or any other kind of debt.

Watch those “additional card” offers: Again, it might seem like a great idea for both spouses to carry credit cards on the same account, but in death, outstanding balances are often treated the same way as joint account is. It’s not unusual for an issuer to come after the holder of the additional card for that outstanding debt.

They will find you: You’ve never met Big Brother until you’ve tussled with today’s toughened-up lenders. Particularly as problem credit has grown to epidemic proportions, credit card companies in particular have gotten a lot better about determining whether customers have died so they can make a claim against the deceased’s assets. Most states have specific laws that put a timetable on a lender’s ability to make claims against an estate, and executors may have certain responsibilities under those laws to inform those creditors. A Bull & Bear Capital advisor can help you go over those requirements in your home state as you’re addressing your estate, retirement and debt issues.

Keep in mind that keeping separate credit won’t protect the estate’s assets: Granted, a deceased partner’s bad credit may not affect your ratings on your separate accounts, but creditors will go after the assets of your shared estate to settle up. So what’s the message here? Keep debt under control at all times.

If the worst happens, what’s the process? It’s important to contact all lenders swiftly to let them know your spouse has died for several reasons. First, identity thieves are getting more sophisticated about checking death notices and tracing that information to their credit accounts. Dealing with a deceased spouse’s debt is one problem. Dealing with an identity theft calamity based on your spouse’s accounts is even worse. Also, if you do have joint accounts, ask the issuer if it will issue the card in your name only, and keep in mind that you will still need to maintain payments on those balances to preserve your credit rating as a single person. Lastly, lenders tend to look askance at customers who fail to make disclosure of a spouse’s death. So matter how tough things are, you need to make these calls.

What about the last joint accounts? For joint accounts, removing the deceased’s name from the account should have no impact on the survivor’s credit score, but the survivor should think twice before he or she closes the account, because it cuts back the amount of credit available to the survivor.

Just get rid of the debt: Debt-free is the best way to go through any crisis. Couples should strive to be debt-free not only for the good times, but for the awful ones as well.

July 2009 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Bull & Bear Capital Advisor Bob Liggero, MBA, CFP®, a local member of FPA.

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