Greetings, Clients and Friends!

We hope you and your family are doing well and making the most of the first few months of 2024. Like many of you, our team at Return on Life^® Wealth Partners hit the ground running this year, so we’ve got a lot of news to share with you in this issue of Frank Talk.

First, I’m excited to share that your team at Return on Life^® Wealth Partners was recently recognized as a 2024 Forbes Best-In-State Wealth Management Team. This is a testament to the enduring commitment on the part of each of our team members to deliver on our Return on Life^® philosophy, which focuses on helping clients use their wealth to support what brings the greatest meaning and purpose to their lives. This couldn’t come at a better time as this year marks our 30^th anniversary as a firm. Be sure to read more about this under News & Events below!

Recently, I’ve found myself reflecting on the early days when I first started the firm under the Planned Financial Services name, in 1994. We’ve come a long way from the early days when much of my time was spent stuffing fliers in mailboxes, making cold-calls from the phone book, going door-to-door meeting business owners, and giving away financial plans for referrals. I’m happy to say that many of those early client engagements grew into valued long-term relationships and cherished friendships, with many spanning multiple generations of our clients’ families. Today, as an award-winning ensemble team we’re we referred regularly, and we remain grateful for the trust and confidence you have placed in us to help you and your family find greater meaning and purpose in your life, as we help you pursue the Return on Life^® you desire.

We hope you’ll be able to join us later this year to celebrate this milestone at a special anniversary event scheduled for August 1, 2024, from 5:00-8:00 pm at the Orchard House Winery in Aurora, Ohio. Be sure to save the date and watch for more details in the months ahead! In the meantime, if you’d like to learn more about our first 30 years as a firm, be sure to visit our Getting Frank Blog or take a moment to listen to our podcast where I discuss our evolution as a firm with a long-time client and friend, at Frank Wealth Insights.

The financial markets opened the year with some exciting news of their own, with stocks off to a strong start in January. Let’s hope the saying holds true, “As goes January, so goes the year.” Nearly 75 years of historical data shows that when the S&P 500 has risen in January, the average gain for the remainder of the year has been about 12%. This January, the S&P 500 was up 1.6%. Stocks have also fared historically well after the broad index reached a new all-time high, as the S&P 500 did in January, for the first time in over two years. The average 12-month gain after a new high, with more than a 12-month wait between those highs, has been nearly 12%, with gains 13 out of 14 times.* To learn more about our expectations for the markets and economy, check out our Market & Economic Update.

As always, we encourage you to reach out to your dedicated team whenever you have questions or when circumstances in your life change. If you need additional help or someone you know needs our advice, remember, we’re only a phone call away at 440.740.0130.

What's In It for You?

At-a-glance guide to your 1st Quarter 2024 Frank Talk newsletter:

• News & Events
  • Awards & Recognition
    • Return on Life Wealth Partners named a Forbes Best-In-State Wealth Management Team
    • Cynthia Yang named among Forbes Best-In-State Women Wealth Advisors
  • Upcoming Events
    • Market Noise Live Webinar – April 11, 2024
    • Smart Business: Smart Women Breakfast & Awards – April 25, 2024

• Resources
  • NEW! 2024 Federal Tax Rates Guide
  • 2023-2024 Tax Planning Guide
  • Complimentary Second Opinion Service
  • Visit Our Blog and Podcast and Join Us on Social Media

• Market & Economic Update

News & Events

Awards & Recognition

ROL is Named a Forbes Best-In-State Wealth Management Team
We’re pleased to announce that Return on Life Wealth Partners has been named to the annual Forbes list of Best-In-State Wealth Management Teams for 2024. Return on Life Wealth Partners ranked number 95 out of 167 for the state of Ohio. For 30 years, our team has focused on providing each client with the benefit of their diverse perspectives and experience across multiple financial disciplines, enabling the team to build lasting relationships with the high-net-worth families and business owners in Northeast, Ohio and throughout the United States.

The annual list is compiled by Forbes with insights from SHOOK Research. The Wealth Management Teams ranking is based on in-person, virtual and telephone due diligence meetings and a ranking algorithm that includes: a measure of each team’s best practices, client retention, industry experience, review of compliance records, firm nominations; and quantitative criteria, including: assets under management and revenue generated.

Cynthia Yang is Named Among Forbes' Best-In-State Women Wealth Advisors
Wealth Advisor Cynthia Yang, CFA^®, (CAIA^®), (CIPM) has been recognized for the third consecutive year among Forbes’ Top Women Wealth Advisors Best-In-State. The special report identifies U.S.-based female financial advisors who are leading the way in offering best practices and providing high-quality experiences for their clients, according to Forbes. The annual list is compiled by Forbes with insights from SHOOK Research. Advisors are selected based on quantitative and qualitative data, and are assessed on a variety of criteria, including in-person interviews, years of experience, compliance records and assets under management.

Upcoming Events

Market Noise Live: 2024 Election Year Update – Join Us On April 11th
Plan to join us via Zoom on Thursday, April 11th from 11 am – 12 pm for our Market Noise Live Webinar, An Election Year Market Update.  Your host, Frank Fantozzi, and wealth advisors Cynthia Yang, CFA^®, CAIA^®, CIPM and Chelsea Hussey, CLU^®, ChFC^®, CFP^® will share insights on what they believe may be in store for the financial markets and economy in the months ahead. Learn what this could mean for your business and personal investment planning, and how your Return on Life Wealth Partners team is working to help manage portfolio risk and position client portfolios for long-term success. Watch your email for the invitation with the registration link.

Smart Business: Smart Women Breakfast & Awards – April 25th
For the 8th consecutive year, we will participate as a sponsor of the Smart Business Smart Women Breakfast & Awards, which will take place on April 25, 2024, from 7:30 am – 10:30 am at the Westin Cleveland Downtown. ROL Wealth Advisor, Danielle LeChard, CFP^®, will be an award presenter. The Smart Women Breakfast addresses issues facing women in the workplace. The conference also recognizes the achievements of leading businesswomen, inspiring male advocates, and effective women’s programs through the Smart Women Awards program.

Stay tuned for information on these upcoming events…

Watch for news and information in the months ahead about additional events we will host and/or sponsor in 2024, including:

• Smart Business - Cleveland Dealmakers Conference (June)
• 30th Anniversary Gala Celebration (August)
• The 16th Annual Cleveland Economic Summit (September)
• Smart Business - Family Business Conference & Awards (September)
• Market Noise Live! webinar (October)

Resources

New! 2024 Federal Tax Rates At-a-Glance Guide

• Your guide to 2024 Federal Tax Rates is just a click away! This at-a-glance guide makes it easy to quickly find the information you need from federal income tax brackets and rates to capital gains and qualified dividend rates, contribution limits for retirement plans, annual gift and estate tax exclusion amounts, and more. View or download your complimentary 2024 Federal Tax Rates guide now!

Download Your 2023-24 Comprehensive Tax Planning Guide

• The Return on Life Wealth Partners 2023-2024 Tax Planning Guide is your comprehensive guide to key tax provisions and deadlines that can help you reap the full benefits of collaboration with your qualified tax advisor. The guide also includes helpful information on key changes under the SECURE 2.0 Act that went into effect in January 2024, that will be helpful for your planning. View or download your 2023-2024 Tax Planning Guide now.
  
  

It's Easy to Refer a Friend or Family Member for a No-Obligation Second Opinion

Our Second Opinion Service was designed for friends, family members, and colleagues of our clients and business associates. This service provides the people you care about with an opportunity to benefit from the same expertise and guidance that you have come to expect as a valued client.

In many cases, a second opinion will simply provide confirmation, and the confidence that those you care about are on track to fulfill their values and achieve their goals with their current financial provider or strategy. However, if needed, we are happy to suggest ways in which we can help, including recommending another provider if we are not a good fit for their needs. Either way, following a Discovery Meeting and Investment Plan Meeting with our experienced team, they will receive a Total Client Profile and a Personalized Financial Assessment of their current situation.

Download a full description and learn more about the Return on Life Wealth Partners Second Opinion Service and the benefits it offers to the people you care about most.

Don’t Miss Out on the Topics That Are Important to You: Visit Our Getting Frank Blog and Frank Wealth Insights Podcast

Get a jumpstart on the new year with timely information on the financial planning, business growth and investment topics that are meaningful to you by visiting our Getting Frank Blog and newly launched podcast, Frank Wealth Insights. You can also access our latest blog posts and podcasts by connecting with us on social media at LinkedIn, Facebook, X (formerly Twitter) and YouTube.

Market & Economic Update

Super Six Drive Solid Earnings Season

As we enter March, fourth quarter 2023 earnings season is winding down with only about a dozen companies in the S&P 500 left to report. After a slow start mired by messy bank results early on, corporate America picked up the pace and ended up delivering results well ahead of expectations. The “Super Six” was part of the story — the Magnificent Seven minus Tesla (TSLA) — but resilient profit margins are also noteworthy. Here we review fourth quarter earnings season and share some thoughts on the earnings outlook for 2024.

Solid Results After a Slow Start

As we previously reported in January, the bar was lowered heading into earnings reporting season, setting corporate America up for some solid upside. Specifically, fourth quarter earnings estimates for the S&P 500 were cut by 6.8% from September 30, 2023, through January 12, 2024. We also highlighted the U.S. dollar weakness and healthy Korean export activity as indicators of the potential upside. At the same time, however, mixed economic data, commodity price weakness, and challenges in the healthcare sector suggested the upside might be capped. In the end, with just a handful of companies left to report, the S&P 500 delivered the 5% earnings growth and about five points of upside that we predicted. Strong results for mega cap technology and resilient profit margins helped offset the drag of special bank charges to replenish the FDIC deposit insurance fund.

Resilient Margins – A Key Component of the Upside

Part of our premise for the upside to earnings expectations was that the analysts’ consensus was factoring in too much margin compression. When December year-end reporters started posting results, the consensus net margin estimate was calling for 110 basis points of compression. Instead, it looks like we’re going to get less than half that amount. Some of that upside in margins came from the revenue upside — the S&P 500 has reported 4.2% sales growth, a full percent above initial estimates. Some of the resilience reflects companies managing expectations, i.e., setting the bar low. Some was reflected in consumer inflation outpacing producer inflation, which is generally good for profit margins. But some of it also reflects companies’ ability to control costs and maintain pricing power in a disinflationary environment. Consumers may increasingly push back on price increases in the quarters ahead, but for now, corporate America is doing an excellent job preserving margins, while demand from consumers and businesses has been strong enough to generate respectable sales gains.

Super Six Played a Big Role

We also wrote about the mega cap technology companies (usually referred to as the Magnificent Seven) in our earnings season preview in January, pointing out that results for this group would be a key factor in determining whether S&P 500 companies could deliver attractive earnings upside. Well, that comment proved prescient because this group delivered on lofty expectations and then some.

The numbers speak for themselves. Removing Tesla, which experienced a drop in earnings in the fourth quarter, the Super Six drove more than nine percentage points of earnings contribution for the S&P 500. More specifically, S&P 500 earnings per share would have declined 4.5% in the quarter if not for these six companies. Add them in and that decline becomes a 4.8% increase. If that wasn’t impressive enough, expectations for 2024 results for this group were lifted significantly. While Apple’s and Microsoft’s consensus EPS estimates for this year increased modestly, the top four saw increases of between 17.5% and 46.2%. And these aren’t small companies, with S&P 500 weightings of 3.7% (NVDA), 3.4% (GOOG/L), 3.3% (AMZN), and 2.2% (META). So not only did this group grow earnings significantly last quarter, but their already very strong outlooks were strengthened further by a healthy dose of management optimism.

What to Do With 2024 Forecasts

The strong earnings season and resilience of estimates increase the chances that our forecast for S&P 500 earnings-per-share (EPS) in 2024 at $235 is too low. Also consider we increased our forecast for U.S. economic growth this year, from 1% to 1.4% (based on gross domestic product). Moreover, artificial intelligence tailwinds remain firmly in place, last year’s healthcare and natural resources earnings declines are poised to reverse, cost pressures continue to ease, and companies have maintained a fair amount of pricing power.

On the flip side, the U.S. economy is poised to slow some this year. Our outlook for European economic growth is lackluster, and China’s economy faces significant headwinds and may not, in reality, even come close to the Bloomberg consensus GDP growth forecast of 4.6% for 2024. Add to that, we don’t have a lot of conviction in a weak U.S. dollar view, a wildcard for earnings, and it’s only early March. Bottom line, we’ll hold our estimate where it is for now while acknowledging both greater confidence that $235 can be achieved and an upward bias.

In Conclusion

Fourth quarter earnings season delivered as we had hoped. Not only did corporate America deliver solid upside to estimates, overcoming some big bank charges, but guidance was strong enough to keep estimates from falling much at all. That raises the 2023 base and shores up confidence for 2024. Our estimate calls for about 7.5% earnings growth from the S&P 500 this year, slightly below the long-term average despite relatively easy comparisons following lackluster earnings growth of about 2% during a challenging 2023. Strong results were needed to help justify rich valuations, and corporate America came through.

If companies can deliver near-consensus earnings estimates in 2024, buoyed by big tech, and the Federal Reserve can engineer a soft landing as inflation continues to gradually ease, then we believe stocks stand a good chance of not only adding to year-to-date gains through year- end, but also keeping the price-to-earnings ratio (P/E) around 20, which we view as fair based on our macroeconomic outlook.

Closing Remarks

As these and other conditions evolve in the weeks and months ahead, you can rely on your Return on Life Wealth Partners team to continue to monitor and adjust our portfolios and keep you up to date on market and economic developments. Please know that you’re always welcome to contact your dedicated team if you have questions or if you’d like to schedule a time to meet with us at our office. For those who prefer to meet virtually, we continue to use Zoom for virtual meetings, and are always available via phone. Just let us know how you prefer to meet, and we’ll make it happen!

We’re also honored to help our clients’ friends and business associates take greater control of their future with guidance from your team. We welcome and are grateful for the many introductions our clients continue to provide. If you, or someone you know, has questions or concerns about your personal investment strategy or business finances, please don’t hesitate to share information about our no-obligation Second Opinion Service and reach out to us at 440.740.0130.

Real People. Real Answers.

Health, Happiness, and Good Fortune,

Frank Fantozzi
CPA, MST, PFS, CDFA, AIF^®, CEPA
President & Founder
Frank@ReturnOnLifeWealth.com

IMPORTANT DISCLOSURES

Planned Financial Services, LLC dba Return on Life® Wealth Partners is registered with the U.S. Securities and Exchange Commission (“SEC”) as a registered investment adviser. We offer discretionary and non-discretionary investment advisory services to retail investors including financial planning. In our discretionary programs, we select investments for you. In our non-discretionary programs, we provide investment advice but you decide what investments to select. To learn more about our advisory services please see our Customer Relationship Summary by visiting https://adviserinfo.sec.gov/firm/summary/112879.

Source: https://www.lpl.com/newsroom/read/weekly-market-commentary-super-six-stocks-drive-solid-earnings-season.html

*A portion of this research material was provided by LPL Financial, LLC, March 2024. All information is believed to be from reliable sources; however, neither Return on Life Wealth Partners or LPL Financial make any representation as to its completeness or accuracy.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

For a list of descriptions of the indexes and economic terms referenced in this publication, please visit lplresearch.com/definitions.

All index and market data from FactSet and MarketWatch.

Unless otherwise stated, Return on Life Wealth Partners/Planned Financial Services and the third-party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific issues with a qualified tax advisor.

Investment advice offered through Planned Financial Services, LLC, a Registered Investment Advisor.

Data provided by SHOOK ® Research, LLC – Data as of 3/31/23. Forbes Best-in-State Wealth Management Teams ranking was developed by SHOOK Research and is based on in-person, virtual and telephone due diligence meetings and a ranking algorithm that includes: a measure of each team’s best practices, client retention, industry experience, review of compliance records, firm nominations; and quantitative criteria, including: assets under management and revenue generated for their firms. Investment performance is not a criterion because client objectives and risk tolerances vary, and advisors rarely have audited performance reports. SHOOK’s research and rankings provide opinions intended to help investors choose the right financial advisor and team, and are not indicative of future performance or representative of any one client’s experience. Past performance is not an indication of future results. Neither Forbes nor SHOOK Research receive compensation in exchange for placement on the ranking. For more information, please see www.SHOOKresearch.com. SHOOK is a registered trademark of SHOOK Research, LLC.

The Forbes ranking of America’s Top Women Wealth Advisors Best-in-State, developed by SHOOK Research, is based on an algorithm of qualitative and quantitative data, rating thousands of wealth advisors with a minimum of seven years of experience and weighing factors like revenue trends, assets under management, compliance records, industry experience and best practices learned through telephone and in-person interviews. Portfolio performance is not a criterion due to varying client objectives and lack of audited data. Neither Forbes nor SHOOK receives a fee in exchange for rankings.

This award does not evaluate the quality of services provided to clients and is not indicative of this advisor’s future performance. Neither Return on Life Wealth Partners or its advisors pay a fee to Forbes in exchange for inclusion in the Top Women Wealth Advisors list.   Copyright © 2024 Planned Financial Services. All Rights Reserved.

Have you considered converting your traditional IRA into a Roth IRA? This strategy may offer several benefits, and it’s available regardless of income level. However, a Roth IRA conversion isn’t a no-brainer. Whether you’d be better off with a Roth IRA or a traditional IRA depends on your circumstances.

Tax now or tax later

Traditional IRA contributions can be deductible, but withdrawals of contributions and earnings are then taxable. Conversely, Roth IRA contributions are nondeductible, but qualified withdrawals of contributions and earnings are tax-free. As a general rule, deciding between the two depends on whether you’re better off paying taxes now (Roth) or later (traditional).

When you convert a traditional IRA into a Roth IRA, you’re immediately subject to income tax on the amount you convert that’s attributable to deductible contributions and earnings. In other words, doing a conversion means paying tax now rather than later.

When it makes sense

A conversion might be the right choice if:

• You expect your taxes to be higher when you withdraw funds from the IRA in retirement because, for example, you believe your income will go up or Congress will increase tax rates.
  
  
• Your income in the current year has fallen into a lower tax bracket, providing an opportunity to do a Roth conversion at a lower tax rate.
  
  
• You have a tax situation — such as a large net operating loss or charitable deduction — that would offset taxable income created by a conversion.
  
  
• Asset values in your IRA are depressed — perhaps due to market volatility — reducing the tax cost of a current conversion.

Tax rates aside, there may be other reasons to pursue a Roth IRA conversion. For example, Roth IRAs aren’t currently subject to required minimum distributions (RMDs). So a conversion would give you the flexibility to allow funds to continue growing tax-free indefinitely. And from an estate planning perspective, a conversion would allow you to pay the tax now, preserving the entire account balance for your beneficiaries.

Role of QCDs

On the other hand, a traditional IRA may be preferable if you plan to make significant charitable donations. Starting at age 70½, you can make qualified charitable distributions (QCDs) of up to $100,000 per year from a traditional IRA. QCDs can be applied toward your RMDs and they’re excluded from your gross income. So, they may be more valuable than ordinary charitable income tax deductions. Ultimately, the choice will hinge on your specific circumstances. ©2024

Investment advice offered through Planned Financial Services, LLC, a Registered Investment Advisor.

This information is not intended to be a substitute for specific individualized tax or financial planning advice. We suggest that you discuss your specific situation with your qualified advisors.

The generation-skipping transfer (GST) tax was designed to ensure that wealth is taxed at each generational level, and it’s one of the most complex taxes in the tax code. So, if you hope to leave wealth to grandchildren — even great-grandchildren and beyond — it’s critical to consult with experienced estate planning advisors. But you also should understand some basics about how the GST tax works.

Skip persons and other rules

To ensure that wealth is taxed at each generational level, the GST tax applies at a flat, 40% rate — in addition to otherwise applicable gift and estate taxes — to transfers that skip a generation. The tax applies to transfers to “skip persons,” including your grandchildren, other relatives who are more than one generation below you and unrelated people who are more than 37½ years younger than you. But there’s an exception for a grandchild whose parent (your child) predeceases you. In that case, the grandchild moves up a generation and is no longer considered a skip person.

Three types of transfers may trigger GST tax:

• “Direct skips,” which are transfers directly to a skip person that are subject to federal gift and estate tax,
  
  
• Taxable distributions, or distributions from a trust to a skip person, and
  
  
• Taxable terminations.

In this last case, if you establish a trust for your children, a taxable termination occurs when the last child beneficiary dies and the trust assets pass to your grandchildren.

Exemptions and allocations

The GST tax doesn’t apply to transfers to which you allocate your GST tax exemption (up to $13.61 million for 2024). In addition, the GST tax annual exclusion allows you to transfer up to $18,000 in 2024 to any number of skip persons without triggering GST tax or using up any of your GST tax exemption. However, the GST tax exemption must be allocated to a transfer to shelter it from tax.

Ordinarily, to allocate GST tax exemptions, you must affirmatively elect to do so on a timely filed gift tax return. Transfers to a trust qualify for the annual GST tax exclusion only if the trust:

1. Is established for a single beneficiary who’s a grandchild or other skip person,
   
   
2. Provides that no portion of its income or principal may be distributed to (or for the benefit of) anyone other than that beneficiary, and
   
   
3. Doesn’t terminate before the beneficiary dies.

However, if you neglect to file gift tax returns, you may be saved by the automatic allocation rules, which are designed to prevent you from inadvertently losing the exemption. These rules automatically allocate the exemptions to direct skips as well as to transfers to “GST trusts.” The definition of a GST trust is complicated, but essentially, it’s one that meets certain criteria that create a strong possibility that the trust will benefit your grandchildren or other skip persons down the road.

Often, automatic allocation rules ensure that GST tax exemptions go where they’ll be beneficial.

But in some cases, they may work against you. For example, the exemption isn’t automatically allocated to transfers that may trigger costly GST tax. Or an exemption may be automatically allocated to transfers that are unlikely to need its protection, thus wasting those exemption amounts.

Review your options

To help ensure you use your GST tax exemption to the greatest advantage, examine all options closely. This is particularly critical if you want to make substantial gifts to skip persons or if transfers to a trust don’t qualify for the annual exclusion (because, for example, they have multiple beneficiaries). Estate planning advisors can introduce you to tax-minimization strategies based on your unique needs and concerns. © 2024

Investment advice offered through Planned Financial Services, LLC, a Registered Investment Advisor.

This information is not intended to be a substitute for specific financial, legal or tax advice. We suggest that you discuss your specific situation with your qualified advisors.

From time to time, nearly everyone finds themselves short on cash to pay expenses, whether it’s a mortgage payment, college tuition, medical bills, or unexpected home or car repairs. If you own permanent life insurance — such as whole or universal life — one option for covering these expenses is to borrow against your policy’s cash value.

Most permanent life insurance policies allow you to take out loans, often in amounts as high as 90% or more of your policy’s cash value. These loans generally are attractive because they’re usually cheaper and faster than traditional bank loans or lines of credit. But they also come with risks, so it’s important to understand what you’re getting into.

Notable advantages

Insurance policy loans offer several important advantages. For starters, they’re fast. So long as you have enough cash value and you meet any eligibility requirements, you can take out a policy loan simply by completing a form. There are no detailed applications, credit checks or income verifications, and you usually receive the money within a few days. And life insurance loans don’t appear on your credit report or affect your credit in any way.

Another big advantage is cost. Interest rates for insurance policy loans are usually lower than those for traditional personal loans. Plus, these loans can offer flexible repayment terms. You repay the loan according to your own schedule — you may even elect not to repay it at all (although that’s rarely a good idea).

You may have heard that one of the advantages of borrowing against an insurance policy is that it’s essentially “borrowing from yourself.” There may be some truth to that statement with respect to retirement plan loans, but it’s not true of insurance policy loans. The funds for these loans don’t come out of your policy. Instead, they’re advanced by the insurance company or its affiliate, using your policy’s cash value as collateral, and the interest you pay goes to the insurer or its affiliate. This may actually be an advantage, though, because your cash value will continue to grow through investment earnings or interest even if you have an outstanding loan.

Potential risks

Borrowing against an insurance policy also presents some serious risks, including reduced benefits. If you don’t repay the loan during your lifetime — because you die before it’s paid off or you choose not to repay it — then the death benefit payable to your beneficiaries will be reduced by the loan’s outstanding principal and any accrued interest.

Also, if you borrow a significant portion of your policy’s cash value and repay it over a long period of time, there’s a risk that the amount you owe will exceed the policy’s cash value. In extreme circumstances, this could cause the policy to lapse. If that happens, not only will you deprive your loved ones of their expected death benefits, but you may also find yourself with an unexpected tax liability. There are ways to minimize such risks — for example, by avoiding maxing out policy loans and having a plan for repaying any loan relatively quickly.

Handle with care

If you’re faced with unexpected expenses, borrowing against a life insurance policy’s cash value can be a viable option. But before taking out a loan, consult your financial advisors to make sure you understand the risks and determine whether there aren’t other, better options. © 2024

Investment advice offered through Planned Financial Services, LLC, a Registered Investment Advisor.

This information is not intended to be a substitute for specific individualized advice. We suggest that you discuss your specific situation with your qualified advisors.

If you own a business, it’s probably your most significant asset, so you’ll want to take steps to maximize its value when preparing for your eventual departure. There are many possible business exit strategies, including selling your business to a third party, selling it to your management team or transferring it to family members. Regardless of which strategy you choose, enhancing and preserving the value of the business will increase your chances of success. It’s also important to consider the tax implications of a sale.

What’s it worth now?

The first step is to determine the value of your business today, ideally with the help of a qualified business valuation professional. Avoid the temptation to rely on industry rules of thumb, such as multiples of sales or earnings. These formulas can provide a rough indication of value, but they’re no substitute for a company-specific analysis by an experienced advisor. Prospective buyers usually evaluate businesses based on more sophisticated discounted cash flow or market comparison analyses, so it’s a good idea to use similar techniques as a starting point.

Make sure your forecasts or projections of your business’s future financial performance are solid and the underlying assumptions and calculations are accurate and well-documented. Consider obtaining a quality of earnings report to assess the accuracy and sustainability of reported earnings and the achievability of forecasted results. These reports, for example, distinguish earnings that are sustainable in the future from those that are attributable to factors such as nonrecurring revenues or below-market owner compensation.

How can you enhance value?

Conducting a valuation does more than provide an indication of what your business might sell for. It can also help you understand the factors that drive your business’s value and identify weaknesses that can diminish it. Armed with this information, you have an opportunity to make changes that can increase value — and your business’s selling price.

For example, a valuation professional might identify risks that reduce the value of your business in the eyes of prospective buyers or investors. Perhaps your management bench is thin or relies too heavily on your talents and ability. Maybe your information technology systems are outdated or your equipment is becoming obsolete. Or perhaps business is concentrated in a few large customers. With enough lead time, you may be able to mitigate these risks by bringing in new management talent, modernizing your technology and equipment, or diversifying your customer base.

What are the tax implications?

A complete discussion of the tax implications of a business sale are beyond the scope of this article, but there are a few things you should start thinking about. For one, if your business is organized as a corporation, selling stock is usually preferable from a tax perspective because stock sales are taxed at more favorable capital gains rates. An asset sale, on the other hand, may produce a combination of ordinary income and capital gain.

Plus, if your business owns a significant amount of depreciated equipment, an asset sale can result in depreciation recapture at ordinary income tax rates. With C corporations, asset sales can trigger double taxation, first at the corporate level and again when proceeds are distributed to shareholders. Keep in mind, however, that most buyers strongly prefer to acquire assets, since doing so generates larger depreciation deductions and makes it possible to avoid assuming the seller’s liabilities. Similar considerations apply to businesses structured as LLCs or partnerships, although the tax rules can be complex.

Purchase price allocation is another issue to consider. In an asset sale, buyers and sellers have some leeway to specify how the purchase price is allocated. As a seller, it’s preferable to allocate as much as possible, within reason, to assets that produce capital gains, such as goodwill and certain other intangible assets. (Note that buyers may have conflicting interests.)

To support your allocation, be sure to document the value of goodwill and other intangibles. If your business is a C corporation, you may be able to avoid some double taxation by demonstrating that a portion of the business’s value is attributable to its owners’ personal goodwill. Personal goodwill can be transferred directly from owners, bypassing the corporation.

Start early

To enhance the value of your business and ease the tax burden on an eventual sale, start the planning process early. These strategies can take time to implement. Talk to financial advisors with experience in mergers and acquisitions.

Sidebar: Consider an ESOP

If you’re an owner of a corporation, one exit option worth considering is an employee stock ownership plan (ESOP). This is generally a qualified retirement plan that invests in your company’s stock. An ESOP can allow owners to:

• Start cashing out while still maintaining control over the business,
  
  
• Defer capital gains on the sale of stock to the ESOP, and
  
  
• Generate valuable tax benefits for the business.

For example, a company can deduct ESOP contributions used to buy stock. And if your company is an S corporation, income passed through to stock held by an ESOP avoids federal (and often state) taxes. Just be aware that ESOPs can involve significant expense, including annual valuations of the company’s stock. ©2024

Investment advice offered through Planned Financial Services, LLC, a Registered Investment Advisor.

This information is not intended to be a substitute for specific individualized advice. We suggest that you discuss your specific situation with your qualified advisors.