Objective information about retirement, financial planning and investments

Money Conversations – Caring for Aging Parents

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Thanks to Cheryl J. Sherrard, CFP®, NAPFA Registered Advisor and Director of Planning for Clearview Wealth Management in Charlotte, NC for contributing this post.  

This post is a follow-up to my recent post Family Financial Conversations and to the post previously contributed by Cheryl’s colleague Megan Rindskopf Meaningful Family Conversations for the Holidays.

We all know that when we get married, we marry the entire family.  What we may not realize is that each of us comes into a marriage with expectations about how we will interact with and assist our families.  Most couples talk about and come to consensus on topics such as when to visit which set of parents and can usually resolve that by rotating holidays with their respective families.

However, the discussions you may not have had revolve around each of your expectations surrounding caring for aging parents and in-laws.  You may be fortunate if the prior generation has already dealt with planning for any needs that will arise in their later lives, but you and your spouse should consider what you know about their current situation, their preparedness for unexpected issues and your ability and willingness to help and supplement their care if needed. While we can’t control the specific course of events nor the time frame of how our parents age, married couples can and should proactively discuss what their expectations are and how they want to approach caring for aging parents should a need arise.

Stuck in the middle

Consider the following;   a married couple are in their fifties and are busy saving and preparing for their eventual retirement.  They both work outside the home in fulfilling careers and can finally see the end in sight for college tuition payments for their children.  Because they fully paid for their children’s educations, they believe that if they save aggressively over the next ten years, they can reach their retirement goals.   Suddenly, the husband’s mother experiences a stroke and needs extensive rehabilitation, which the husband automatically assumes they will assist with.  He doesn’t want his mom rehabbing in a facility; he wants to move her into their house and care for her there.  

However, because of the demands of his career, care and coordination for his mom would likely fall to his wife and would require her to work part-time or not at all.  The wife never considered moving parents into their home in the event of a need and although she loves her mother-in-law, she isn’t sure it would be good for their marriage or her relationship with her MIL to bring her into their home.  She is happy to coordinate care and assist on occasion, but she isn’t sure how their family can aggressively save for their own retirement if she has to scale back on work in order to provide care to her MIL.

Caring for aging parents takes planning

The example above illustrates a case where an in-depth discussion between husband and wife well in advance of any parental issues may have eliminated some misunderstandings and potential disagreements down the road.  Caring for aging parents can be stressful enough simply because it is difficult to see them struggling.  Combine that with the stressors of parents vs. in-laws, the demands of careers, teen or young adult children, saving for retirement and you have a recipe for stress and strain in a marriage.

What should you be talking about with your significant other, prior to the onset of any parental aging issues?

  • What are the expectations each of you have for how you want to care for your parents if they need your help?
  • Are the relationships (spouse, children, parents, in-laws) strong enough to withstand one of the parents being assisted by you?
  • What are your parent’s expectations for how they would want to handle a long-term care need if it occurred?
  • Do your parents have adequate resources, either assets or appropriate insurance, to cover the cost of paid caregivers?
  • Does your home have adequate space to accommodate the additional person, as well as provide some level of privacy for them and you?
  • Will daily care of a parent further inhibit your ability to adequately save for your own retirement?
  • If you decided to assist, which of you would be the likely caregiver and why? 

These are just a few of the questions that spouses/partners need to discuss, well in advance of any need on the part of a parent.  It is important to know that there is no right answer, as it will vary by the circumstances of each family and extent of the parent’s care needs.  Recognize that even if you do plan, things may change and you will have to be flexible to deal with whatever the situation presents.  However, having the discussion in advance will help to eliminate some of the stress on your relationship by bringing expectations out into the open and working to find common ground for the two of you.

Cheryl J. Sherrard, CFP®, NAPFA Registered Advisor is Director of Planning for Clearview Wealth Management in Charlotte, NC.  Cheryl can be reached at csherrard@cvwmgmt.com and via Twitter.  

Need a second opinion on where you stand financially? Concerned about your retirement readiness or your investments? Check out my Financial Review/Second Opinion for Individuals service.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out the Hire Me tab to learn more about my freelance financial writing and financial consulting services. 

Family Financial Conversations

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Family financial conversations dealing with retirement, estate planning, elder care issues and other important financial matters between parents and adult children can be difficult at best.  A recent article by Fidelity highlighted some of the key issues involved.

According to Fidelity:

“In life and money, timing is often everything. And that’s particularly true when it comes to sensitive family discussions about retirement security, eldercare, and estate planning.

According to Fidelity’s latest Intra-Family Generational Finance study,1 three-fourths of parents and their adult children agree it’s important to have frank conversations on such topics, but almost two-thirds (64%) can’t agree on when. While parents would prefer to wait until after retirement, their children want the conversations to take place well before their parents retire or experience health issues.” 

“These discussions aren’t always easy, but there can be real emotional and financial consequences when they don’t happen or lack sufficient depth,” says John Sweeney, executive vice president of retirement and investing strategies at Fidelity. “It’s absolutely critical that families come together to sort through important matters related to such things as retirement preparedness, caregiving responsibilities, estate planning, and the tax implications of an inheritance.”

Suggestions for successful family financial conversations

 

How to have key family discussions

While these steps suggested in the Fidelity piece are no guarantee of a successful dialog, I think you will agree these steps offer a solid framework for these often difficult conversations.

PREP for family financial conversations

 The Fidelity piece offered this outline (their PREP plan) to break the ice and get these family meetings going: 

Make family meetings on retirement issues easier

While every family and every family’s situation is different, this is a good framework from which to start.

What’s at stake?

These conversations can be difficult because there is a lot at stake.

  • How will your parents provide for their retirement?
  • Where will the money come from in the event of a Long-Term Care situation?
  • Who will take over your parent’s financial affairs in the event they become unable to do so?
  • What are your parent’s wishes in terms of a myriad of issues including disposition of their assets upon their death, burial, staying in their home, etc.? 

Besides these issues a lack of communication and planning can be costly to the family in terms of taxes and other issues in terms of transferring your parent’s wealth to the next generation.  While this might sound like it only pertains to the very wealthy this is not the case.

At the end of the day what is really at stake is the opportunity for parents to communicate their financial wishes to their adult children and for the children to help their parents make these desires come true.

There is nothing easy about discussing these issues and having these family financial conversations.  But any difficulties that might exist will be dwarfed by the potential guilt and regret felt by both parents and children later on if this dialog does not occur.

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Dangerous Myths About Asset Protection

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This is post was written by Ike Devji, a Phoenix, AZ-based asset protection attorney and one of my oldest online friends.  I have spoken with Ike many times for advice on client asset protection issues and had the pleasure of meeting him in person a couple of years ago when he spoke to my financial advisor study group during a meeting we held in Phoenix.  Ike generally advises physicians and high income professionals, but these asset protection tips are relevant to all of us. 

I’ve spent the last eleven years of my practice helping successful Americans at all net worth levels protect and enjoy their hard earned wealth. A good part of that involves re-educating people about their money and their risks.  Below is a summary of the most common asset protection myths and mistakes top legal and financial planners want their clients to be concerned about.

Trumbull County Courthouse, Courthouse Square ...

I can do it later 

Asset Protection it best analogized to “net worth insurance” and like insurance you have the best, most effective and legally supportable options available to you when you implement the planning before a crisis exists. Transfer of assets into plans after you have specific exposures is costly, ineffective and some cases illegal (fraudulent conveyance). The best time to act is always now and every day that passes makes your planning stronger.

I’m not rich enough to worry about asset protection  

This is a sin I see committed on a weekly basis, often by professionals like lawyers, CPAs and financial advisors. These advisors often tell clients that they are not rich enough to do any planning and that that they should have a net worth north of five or even ten million dollars to consider it. Nothing could be further from the truth, especially if you are in the “Fall” of your earning career. Of course high net worth individuals must implement this kind of planning and always have, but all you have is important to you and there are precautions that can be taken at any net worth level. When should you start?

There are many simple ways to analyze this but here is an easy one, answer these questions: 

  • If you lost what you have today, or some significant portion of it, are you at an age, earning level and financial condition that will allow you to maintain your family’s goals and expenses?
  • Do you have assets that would be difficult or impossible to replace given your age, health and economic conditions?
  • Are you financially and legally prepared for a lawsuit that is either not covered by liability insurance or which often produces verdicts above the limit you are carrying?

No one can touch me because I have a “Trust”

Not a week passes when I don’t talk to someone who says, “I’ve got this covered, I think. I have my home, cars, and investments all titled in my Trust.” A little more probing on my part reveals what I expected, that the layperson I am speaking to feels that a transfer of these assets to a vehicle like an estate planning trust, commonly a Revocable Living Trust, is effective protection; it’s not. The first word in the trust is “revocable” and in most cases a judge will simply order you to revoke the trust and tender the assets for a judgment. I’m all in favor of estate planning, the huge new looming estate tax exposure is one of the issues on my client exposure checklist we address every day, but  that is death planning. What has been done about your life planning and the exposures you face every day practicing your profession, driving a car, having children (some driving your car), or having employees…?

I lease all my vehicles through my business and get an awesome tax deduction in addition to asset protection 

Similarly, we often see dangerous articles of personal property like your personal vehicles moved into this structure or others like an LLC or S-Corp that is your primary business, or equally dangerous, into an entity like an FLP that is holding safe and attractive assets like cash, stocks, bonds and other liquid assets. Think about it, if you lease or own your vehicle through your business, you have linked the most dangerous thing you likely do on a daily basis, drive a car, and linked it to either the source of your wealth, your business or in the case of your FLP, the place you keep your wealth. 

I don’t own anything – I gave it all to my wife and kids 

Transferring all of your assets to your spouse and/or children, especially after something has happened, will not protect your assets from a lawsuit. Even if it did protect you from your lawsuits, transferring your assets to your spouse and/or children opens up another Pandora’s Box. Keeping in mind that there are thousands of lawsuits filed daily due to employment grievances, “slip and fall” and auto accidents, consider this scenario:

Let’s suppose that you transfer all of your assets to your 18-year old son who causes an auto accident. Several other cars are involved in the accident and several injuries are incurred. Chances are high that the other parties will come looking for the driver with the deepest pockets. If your son “owns” your house and business, a sympathetic jury will undoubtedly take the possession away from your son in order to teach him a lesson for his reckless driving. The same holds true for spouses, parents and even friends. Also, gifting is limited to about $14K annually, per spouse, per donee. Gifts over that amount must be documented with a gift tax return. Failing to do so will result in you having to answer the question, “Are you lying now re: the date and validity of this transfer or did you cheat the IRS?” A bad place to be in a time of need.

I’m insured and have an umbrella

This is a reasonable and common question we get from clients and advisors alike. In the most egregious cases of arm-chair quarterback misinformation, we actually see uninformed advisors telling their clients that the only Asset Protection they need is a good umbrella policy – THIS IS FLAT OUT WRONG for the kind of successful people we protect. Why? Because they are successful, visible and typically have assets above and beyond just the insurance policy itself, they are good targets from a net-worth perspective.

Our position on Liability Insurance (as distinct from Life Insurance) is pretty simple: Buy as much liability insurance as you can afford, assume it won’t be adequate and have a plan B. Asset protection planning is about layers, redundancy and backstops.

What about my “umbrella” policy? – It is a great idea to have an umbrella policy, in fact, I insist on it for my clients as one of several layers.  You and your liability carrier have different ideas about what umbrella means. To you it means everything, to your carrier it means specific events in the base policy, covered to specific increased limits, and governed by a specific set of exclusions detailed in the fine print of your policy. Clearly two very different definitions. The lesson here is that there is no real way to insure yourself against a universe of possible exposures and have every single one covered to an unlimited dollar amount, nor is this reasonable to expect of your liability coverage.

Some real examples of the “impossible” that actually happened and resulted in large claims: 

  • Parents away for the weekend return to find that a teenager died at their home during a party their child had from the drugs he brought with him results in multi-million dollar wrongful death lawsuit;
  • Chiropractor adjusts a patient’s hip and the woman dies on table from cardiac arrest-he is sued for wrongful death;
  • Long time, most trusted employee of medical practice molests a minor female patient during treatment;
  • Employees of moving company get drunk and severely beat another employee and lock him in company truck in company yard over weekend;
  • LLC for real estate development is pierced and a passive member is held jointly and severally liable for the actions of the other members;
  • Dentist works on elderly patient who goes home and dies of unrelated heart attack hours later, dentist sued for wrongful death. 

SOLUTION – So how do we help make sure that the coverage is enough? Pretty simple – we buy all the insurance we can reasonably afford, make sure we have the appropriate riders and umbrellas in place then we present a hard, uncollectible target beyond the limits of the policy. Most, if not all, lawsuits are motivated by the potential financial gain to the plaintiff and their attorney. In most cases, plaintiffs and their attorneys don’t chase people beyond the limits of the policy if there is nothing else to take or if there is nothing that they can get their hands on with any reasonable certainty.

This article just scratches the surface of what you need to consider when evaluating your exposures, Asset Protection planning and the countless options available. I encourage you to act today, seek experienced counsel, and remember that information in forums like this is not specific to you, is written in the broadest terms and is never a substitute for consulting with an experienced professional.

Attorney Ike Devji has a decade of practice devoted exclusively to Asset Protection and Wealth Preservation planning. He works with a national client base including 1000’s of physicians and business owners often through their local attorney, CPA or financial advisor. Together, he and his associates protect billions of dollars in personal assets for these clients. Ike also regularly writes, teaches and speaks on these issues to executives, physicians and other professionals nationally. See his work in WORTH, Advisor Today, Physician’s Practice and at www.ProAssetProtection.Com.

As always, the information presented here is general and educational and can never replace the advice of experienced counsel specific to your assets or situation. 

Please check out our Book Store for books on financial planning, retirement, and related topics as well as any Amazon shopping needs you may have (or just click on the link below).  The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra. 

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Financial Advice and Mini Bottles of Liquor

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Regular readers here know that the inspiration for some of my blog posts comes from non-financial sources such as youth soccer fields and the Rolling Stones.  In that spirit the idea for this post popped into my head while waiting in line to pay for an item at a local gas station.

Financial Advice and Small Bottles of Liquor

I noticed the clerk behind the counter restocking the very prominent display case with mini bottles of liquor of the type you would buy on an airplane.  When I asked if they sell a lot of these she indicated that I would be surprised and I was.  This is the last place that I would think of buying mini bottles of liquor.  My hope is that the contents are not being consumed en route from the gas station.

I liken this to some of the places that people seek financial advice.  Are you getting financial advice from someone best positioned to advise you or simply from where it is convenient to obtain it?  Here are a few thoughts on some of the alternative sources available to you when seeking financial advice.

Insurance companies and agents

We have had our auto, homeowner’s, and person umbrella policies with an agent affiliated with a major insurance company for years.  Our agent is great and has provided outstanding service.  His company made a big push into providing personal financial planning largely to tap into their vast customer base to try to sell various financial products to these customers.  When I asked my agent if he was now going to become a financial planner he just kind of grumbled as he wanted no part of this.

My experience is that insurance companies are looking to sell annuities and other insurance-based products as their answer to your financial and retirement planning needs.  Many of these companies also offer their own proprietary families of mutual funds and other investment vehicles.  As with anything you need to understand the motivations and capabilities of the person trying to sell these products to you.  Is this agent qualified to provide you with unbiased financial advice or do all questions lead to a solution that involves the sale of a variable annuity or a related product?

Banks offering financial advice

Many banks offer investment and financial advice across a number of formats.  It’s not uncommon to have a registered rep at the branch selling various financial products.  The bank may even have their own line of mutual funds and their own brokerage operation.

Other banks have in-house or affiliated investment advisory operations which offer investment and perhaps wealth management services for a fee as opposed to the commission-based services mentioned above.

Again banks view this as a way to expand their service offerings and broaden their revenue streams by tapping into their depositor base.  As with any financial services provider you need to understand what your bank offers, how they offer it, any potential conflicts of interest, and most of all if this type of arrangement is right for you. 

CPAs offering financial advice

CPAs have rightly earned a reputation as a trusted advisor, especially for business owners.  The good ones offer a range of tax and financial advice that is invaluable.  Many CPAs have ventured into the business of offering investment and financial advice as well.  They realize that this is an excellent revenue stream, often a better one than they can generate via their core business.

As with other providers of financial advice you want to understand that if your CPA is qualified to provide financial planning and investment advice as this is a different knowledge base than his or her normal world.  A few other considerations:

  • Does the CPA have specific knowledge or training here?  A designation such as the CFP® or the PFS (the CPA equivalent) can be good evidence of training and commitment to this area.
  • What happens during tax season?  Are they available to answer your questions and monitor your situation?
  • Is the advice offered as an RIA (Registered Investment Advisor) or via a Broker-Dealer type arrangement?  In the latter case the CPA is likely engaging in advice via the sale of commissioned financial and insurance products.   

Financial Planners 

The term financial planner can be used by anyone so you will want to understand a few things about how any financial planner operates before determining if this is the right advisor for you.

  • What are the financial planner’s credentials and training?  Does he/she hold a CFP® or some similar designation?
  • How is the financial planner compensated?  Fee-only?  Commissions?  A combination of fees and commissions?  It is important for you to understand if there will be any conflicts of interest involved in the delivery of financial advice.
  • What type of financial advice does the financial planner offer?  Hourly as needed?  Comprehensive financial planning? Investment advice and wealth management?  More importantly is this the type of advice that you need?
  • Who are the financial planner’s typical clients?  If you are 60 and nearing retirement an advisor who specializes in clients in their 20s and 30s is probably not the right advisor for you.
  • Check out NAPFA’s guide to finding an advisor for some tips on choosing the right financial advisor for you.  

I’m often puzzled by the process used by many folks in choosing a financial advisor, but I guess it is no stranger than buying mini bottles of liquor at a gas station.  Choosing the right financial advisor can be very rewarding, choosing the wrong advisor can have a devastating impact on your financial life.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out our resources page as well.

The Chicago Financial Planner is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to Amazon.com.  If you click on my Amazon.com links and buy anything, even something other than the product advertised, I earn a small fee, yet you don’t pay any extra.

  

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7 Questions to Ask Before Buying a Variable Annuity

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Variable annuities are often touted as an ideal retirement investing vehicle, especially by financial advisors who sell them.  Variable annuities can be a useful vehicle for retirement accumulation.  However variable annuities (and other types of annuities) are quite often misunderstood by those who are the targets of these sales pitches.  Is a variable annuity right for you?  Here are 7 questions to ask before buying a variable annuity.

What does a variable annuity do for me that I can’t accomplish outside of a variable annuity? 

This is a great question and if you ask your annuity sales person you will get a variety of answers.  I’m certainly not anti-variable annuity, but they are not the wonder drug that many brokers and registered reps selling them would have us believe.  Make sure that you ask the next person who makes a variable annuity sales pitch this very question (and a few others) and listen to their explanation.  Maybe you will get a cogent, sensible answer maybe not.

Will I eventually annuitize the contract? 

One of the benefits of any form of an annuity is the ability to create a stream of income in retirement.  This is the reason for the mortality and expense charges in every contract, this is the insurance company’s compensation for your option to annuitize the contract in the future.  If this isn’t something that you are likely to do perhaps a variable annuity is not the answer for you.  At the very least find one with reasonable expenses.

Have I maximized my contributions to my 401(k), my IRAs, and other retirement plans? 

In my experience contributing to your 401(k) or similar workplace retirement plan and to your IRAs provide a better retirement savings vehicle than a variable annuity, if for no other reason than they usually have lower expenses and don’t have restrictions like surrender charges.  In fact I often put a variable annuity lower on the list than investing in a taxable account, though this will vary person by person based on each individual’s situation.

What are the expenses? 

As mentioned above many variable annuities are laden with onerous expenses that enrich the insurance company and perhaps the person who sold you the annuity, but likely not you.  There are many lower cost annuity products offered by the likes of Vanguard and others that may be worth checking out if a variable annuity is of interest.  A fee-only advisor will likely go in this direction, but an annuity sales person can’t as there is no compensation in it for them.

What are my investment options? 

Years ago there was an SNL skit that referenced something called “bef” which was almost like beef, but wasn’t.  This is similar to the variable annuity world where the investment options are called sub-accounts.  They look, feel, and smell like mutual funds but they aren’t mutual funds.  They might even have familiar mutual fund sounding names, but they are still different and generally pricier.  Understand the investments as this is the vehicle that will fuel your accumulation in the variable annuity.

Are there restrictions if I want to move my money? 

As they used to say on Rowan and Martin’s Laugh-In (NBC from 1968-1973) “… you bet your sweet Bippy…” there are restrictions on moving your money from a variable annuity in most cases.  While I can understand taxes and perhaps penalties for withdrawing prior to age 59 ½, the surrender charges on many variable annuities serve to hold your money captive for as many as 10 years even if you find a better deal down the road.  Make sure you understand any and all surrender charges and other penalties before buying into a variable annuity and better yet avoid financial products with these charges.

Who stands behind the product? 

Annuities are guaranteed by the “full faith” of the insurance company offering the product.  Be sure to investigate the financial strength of the issuer as they are the ones responsible for making any annuity payments you might opt for.  While annuity defaults are quite rare they do happen and if it does your recourse is likely with a regulator.

Variable annuities are a valid retirement planning tool.  Just make sure that you understand what you are buying, why you are buying it, and ALL of the underlying expenses involved.  Make sure that you buy the product for the right reasons and not because you succumbed to an aggressive sales pitch.

Approaching retirement and want another opinion on where you stand? Is someone pushing you to buy an annuity and you aren’t sure if it is right for you? Check out my Financial Review/Second Opinion for Individuals service.

Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Please check out the Hire Me tab to learn more about my freelance financial writing and financial consulting services. 

Financial Advisors to Follow on Social Media

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For those of you who are regular readers here you know that I publish list posts very infrequently, so two in a row is a real rarity.  However both the nature of the list below and the fact that I am in and out of the office about equally this week convinced me to go this route.

BrightScope, a leading provider of independent financial information and research, just released their first Social Influence Rankings for Financial Advisors.

While I was astonished to be number three on this list, I am flattered to be included on a list that includes a number of people whom I admire and learn from.  This list includes Jim Blankenship, George Papadopoulos, and Russ Thornton who I’ve followed from the onset of my involvement in social media.

Josh Brown, Carolyn McClanahan, Neal Frankle, Jeff Rose, Jason Hull, Jude Boudreaux, Alan Moore, Sheri Cupo, and Tom Brakke are others who I follow on a regular basis.   I plan to become familiar with the rest of this list and learn from them as well.

If you are looking for good information about investing, financial planning, retirement, and related financial topics this list is for you.

BrightScope’s 2013 Top Social Influencers in the United States:

Advisor Pages Profile – Blog – Twitter Handle

1. Josh Brown – The Reformed Broker – @ReformedBroker
2. Barry Ritholtz – The Big Picture – @ritholtz
3. Roger Wohlner – The Chicago Financial Planner – @rwohlner
4. Jason Hull – Hull Financial Planning – @hull_j
5. Michael Kitces – Nerd’s Eye View – @MichaelKitces
6. Russ Thornton – Wealthcare for Women – @RussThornton
7. Charles Sizemore – Sizemore Insights – @CharlesSizemore
8. George Papadopoulos – George Papadopoulos on WSJ – @feeonlyplanner
9. Cullen Roche – Pragmatic Capitalism – @cullenroche
10. Jeff Rose – Good Financial Cents – @jjeffrose
11. Jim Blankenship – Getting Your Financial Ducks In A Row – @BlankenshipFP
12. David Merkel – The Aleph Blog – @AlephBlog
13. David Fabian – Investor Insights Blog – @fabiancapital
14. Ted Jenkin – Your Smart Money Moves – @oXYGenFinancial
15. Meb Faber – Meb Faber Research – @MebFaber
16. Alan Moore – Serenity Financial Consulting Blog – @R_Alan_Moore
17. Kimberly L. Curtis – Wealth Legacy Institute Blog – @KimCurtisLegacy
18. Ric Edelman – Edelman Financial Services Education Center – @ricedelman
19. Tom Brakke – The Research Puzzle – @researchpuzzler
20. Carolyn McClanahan – Carolyn Sue McClanahan on Forbes – @CarolynMcC
21. Tim Maurer – Tim Maurer Blog – @TimMaurer
22. Neal Frankle – Wealth Pilgrim – @NealFrankle
23. Wade Slome – Investing Caffeine – @WadeSlome
24. Sheri Cupo – SageBroadview Blog – @sage_cupo
25. Jude Boudreaux – Upperline Financial Blog – @HJudeBoudreaux

To view the complete list of the Top 100 Social Influencers in the United States, visit the BrightScope Blog.

Approaching retirement and want another opinion on where you stand? Not sure if your investments are right for your situation? Need help getting on track? Check out my Financial Review/Second Opinion for Individuals service for detailed guidance and advice about your situation.

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Please contact me with any thoughts or suggestions about anything you’ve read here at The Chicago Financial Planner. Don’t miss any future posts, please subscribe via email. Check out our resources page for links to some other great sites and some outstanding products that you might find useful.


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Is Your Noncompete Enforceable?

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My thanks to Chicago attorney Daniel N. Janich for contributing this post with his thoughts and suggestions on what you should do if you find yourself dealing with a noncompete agreement from an employer.  While a career management post might seem out of character for this blog, in reality for most of us our earning potential is a key driver in our ability to accumulate assets for financial goals like retirement.

So you decided that a job change is in order and you embark on the adventure of finding your new position. Suddenly you remember that when you were first hired or sometime during your employment you signed an agreement with your current employer that included a noncompete provision prohibiting you from taking employment elsewhere for a specific period of time and within a certain geographic area following your employment termination. Perhaps you realized this when you interviewed at your prospective employer, who mentioned that you would need to sign a declaration that you are not subject to a noncompete should you be offered and accept employment with the company.

Most likely you did not pay close attention—or perhaps none at all—to this provision when you first accepted employment at your current employer or when a separate document entitled “Noncompete” was circulated sometime after you were already hired and working at your current employer. No matter the circumstances of your signing this agreement, you are now worried about its impact on your new job search, your ability to obtain other suitable employment within a reasonable time after you resign or may be let go from your current job, and your own risk tolerance if you’re tempted to simply ignore the language in your noncompete where your current employer threatens you and your new employer with a lawsuit for its violation.

What should you do if you find yourself in this position? How will you know if you have a good reason to worry whether your current employer can enforce the noncompete against you? When is it best for you to consider whether to hire experienced legal counsel to help you ferret out your options, i.e., ignore the restrictions in the provision, beat your current employer to the courthouse and seek a court declaration of unenforceability, contact your current employer to seek a partial or complete waiver of the restriction, or strictly adhere to its terms during the stated relevant period that it is enforceable?

The following discussion is intended to provide you as the employee subject to a noncompete, with a general outline of how to assess whether your noncompete is enforceable and when it might be advisable for you to seek experienced legal counsel to help you minimize your risk before making your move.

Three Factors Courts Generally Consider 

At the outset it is important to emphasize that the laws governing the enforceability of noncompete provisions—whether embodied in a statute or developed by case law or perhaps from both–are not uniform. One court’s decision about enforceability may be entirely at odds with that of another court—even among courts located within the same state—and even involving identical noncompete provisions. Some states are known to strictly uphold these provisions while others—notably California—and Massachusetts may soon join California— by statute prohibit their enforcement all together. Confusing? Perhaps. Notwithstanding this apparent confusion, there is a common set of factors that courts typically will look for and apply in their analysis of the specific facts involved.  These factors are outlined below:

In general, courts address the enforceability of a noncompete provision using a 3-prong test that examines whether:

  • the employer involved has a legitimate business interest that needs to be protected;
  • enforcement of the noncompete as written will create an undue hardship on the employee; and
  • the geographic and time period restrictions are reasonable.

Each of these factors is examined in the specific factual context of the employee and employer involved in the matter. Thus, there is no “magic language” that all employers may use which would establish the enforceability of the noncompete in all factual circumstances. However, in general, courts have suggested that the absence of one or more of these factors may be enough to render the noncompete unenforceable.

#1.  Does the Employer Have Protectable Business Interest?  Whether the employer has a protectable business interest is determined by assessing whether the employee (you) gained “confidential” information through your employment such as trade secrets, customer lists, financial information that would otherwise not be available to the public and if disclosed to a competitor would endanger the employer’s business position. In cases involving customer lists, Illinois courts have also examined whether the employer’s relationships with its customers are nearly permanent.  An employer who cannot affirmatively establish these criteria quite likely would have a difficult time proving that it has a legitimate business interest that needs to be protected by a noncompete.

#2.  Will the Noncompete Pose an Undue Hardship for the Employee?  Even assuming a legitimate business interest, if the noncompete will virtually preclude the employee from earning a living through using his or her primary skills and experience in the workplace with other potential employers (all competitors), it is likely that most courts would find that the noncompete creates an undue hardship on the employee. In such a case, the noncompete would be considered unenforceable. 

#3.  Is the Scope of the Noncompete Reasonable?  This relates to the geographic reach and duration of the noncompete. What is acceptable in one industry may not be acceptable in another. Illinois courts, for example, have found 12 months to be a reasonable duration in many industries. However, in the tech industry 12 months may be a “lifetime” due to its fast paced nature of development, and thus such duration may be unenforceable. The geographic limits must also bear some semblance to where your current employer operates or is expected to operate in the foreseeable future.  If your noncompete covers all of Illinois, for example, you should ask: Does the company do business throughout Illinois? Is it expected to establish business operations in other parts of the state sometime in the next few years? If not, the geographic limit used may be inappropriate and therefore overly inclusive thus rendering the noncompete unenforceable. 

Employees May Be Able to Take Advantage of a Poorly Drafted Provision 

An unclear or vague noncompete provision may also be unenforceable. A noncompete is unclear or vague when the employer is unable to specifically identify: 1) which particular interest is being protected; and/or 2) who the competitors are from an industry wide viewpoint. In such cases courts are inclined to find that the employee should not be bound by the noncompete because the employer who drafted it in the first place did not give the employee sufficient information as to what his/her obligations were under the contract. 

Employers Must Provide Adequate Consideration for an “At Will” Employee to Sign a Noncompete

Courts are increasingly scrutinizing the enforceability of noncompete provisions in new hire situations where the employee is “at will.,” i.e., can be fired at any time. Specifically, courts are questioning whether it is fair to jeopardize an employee’s future employment opportunities as soon as s/he is hired by virtue of the noncompete if the employer reserves the right to terminate that employee at any time, including the right to terminate the worker’s employment immediately after signing the noncompete.

Non-competes Appear in Other Employment Related Agreements 

Often noncompete provisions will find their way into other employment related documents where additional benefits are being provided, such as a grant of employer stock or stock options. In such cases, courts have generally upheld these agreements as enforceable without engaging in the same scrutiny as when an employee’s continued livelihood is at stake because the violation of a noncompete in such cases simply results in a forfeiture of the employee’s vested interest in the stock or stock options. Generally, as an employee you must be mindful of all agreements that you are subject to that contain a noncompete provision and be aware of the consequences of violating it.  In cases where you have to forfeit benefits because you accept employment with a competitor, you want to negotiate a harder bargain with your new employer to make up for the anticipated loss involved in forfeiting appreciated stock grants.

In sum always be aware and wary of anything an employer may want you to sign as there are always consequences in doing so.

Daniel N. Janich is a Partner in the Employee Benefits and Executive Compensation Practice Group at Greensfelder, Hemker & Gale, P.C. in Chicago.  He has extensive experience representing clients in a broad range of benefits and compensation matters, including the drafting, negotiation and litigation of employment agreements and separation packages.  He can be reached at dnj@greensfelder.com or 312-558-1070.  Check out Dan’s profile on LinkedIn as well. Dan is an excellent resource should you find yourself in this position.  Also check out Dan’s prior contribution to this blog YOU RECEIVED A PINK SLIP AND SEPARATION AGREEMENT – NOW WHAT?

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Please contact me at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services. 

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Meaningful Family Conversations for the Holidays

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This post was written by fellow NAPFA-Registered fee-only financial advisor Megan Rindskopf.

With Christmas less than a week away and the streets abuzz with holiday spirit, it is easy to get consumed by the busyness of the holidays. We encourage you this season, amidst the shopping shuffle and the corporate holiday parties, to pause. Take time this year to reflect on the people and the relationships that are most important to you.

Every family is different and there is no one-size-fits-all solution to a family’s situation – whether family members are estranged or everyone is “thick as thieves,” take the opportunity this year to have meaningful conversations with your loved ones. Reflect on memories – appreciate the tough moments that have made your relationships stronger and be grateful for the memories that make you laugh. Most importantly though, share your thoughts and feelings with the ones you love, because we never know how short life might be.

As you enjoy the company of family and friends during the holidays, pause for a moment to consider the following: 

If something happens to me, will my loved ones be taken care of?

While this thought may seem a bit morbid around the holidays, in reality, what better time than when we are surrounded by family and friends to remind us to have the appropriate insurance coverage in place to protect the ones we care about most.

If you or your spouse become disabled, do you have the right coverage(s) in place to make sure you can still support your family? Retirement, college and other savings goals become much more difficult to accomplish when your income stream is greatly reduced or eliminated entirely.  Proper disability insurance can help supplement the loss of income associated with a long term disability. My colleague Cheryl Sherrard was recently quoted in Financial Planning Magazine regarding group disability insurance. Click here to read the article (free registration may be required).

If you or your spouse become ill and needs skilled nursing care, do you have Long Term Care insurance or adequate additional resources in place to cover in-home care or a skilled nursing facility?  Equally as important – have you had those conversations with your family members so they know what type of care you desire in the event a long term care need arises? It is important to have these discussions before an issue arises.

If you or your spouse passes away unexpectedly, do you have the right life insurance in place to support your family? Depending on your family and financial situation, you may or may not need life insurance coverage. It is important to understand both the amount and type of life insurance you need, in order to assess whether any adjustment is necessary. Work with a financial professional who knows you and thoroughly understands your needs and your goals when assessing your family’s needs.

Do I have current estate planning documents and have I communicated my wishes to my family?

It is imperative to have the essential legal documents in place to protect against the unexpected. In order to avoid family turmoil once you are no longer living, it is also helpful if you have discussed your wishes with the friends and family members involved. While these conversations can be difficult to initiate, they can bring clarity to a situation and help reduce family conflict once you are gone. If the conversations are too difficult to have, a hand-written letter or video can accompany the Last Will and Testament explaining your decisions.

If you are unsure if your documents are still adequate, consult your estate planning attorney to see if you need to establish new estate documents or update your existing documents.

The holidays present opportunities for family members to spend quality time together and create lasting memories. Show your gratitude this season by making sure your loved ones are properly protected financially and by having open, honest conversations with your family members before issues arise. Being proactive for the benefit of those you love is the best gift you can give this season.

Megan Rindskopf is a Financial Advisor for Clearview Wealth Management in Charlotte, NC. As a NAPFA-Registered Financial Advisor and CERTIFIED FINANCIAL PLANNER™ professional, Megan helps individuals and families reach their goals through a holistic and customized approach to financial planning. Much of her time is spent helping young, high earning professionals prioritize competing demands so that they may successfully achieve financial clarity and independence, along with a healthy work-life balance for the long term. Clearview Wealth Management is an independent, fee-only Registered Investment Advisor firm that cares deeply about each relationship and is committed to lifelong partnerships with clients and their successive generations. Megan can be reached at mrindskopf@cvwmgmt.com, or connect with her on LinkedIn. If you would like to learn more about Clearview Wealth Management and the people they work with, check out their website at www.clearviewwealthmgmt.com 

Thanks to Megan and her firm for these excellent thoughts and tips for addressing these difficult issues.

As always please feel free to contact me  at 847-506-9827 for a complimentary 30-minute consultation to discuss all of your investing and financial planning questions. Check out our Financial Planning and Investment Advice for Individuals page to learn more about our services.  

Photo credit:  Flickr

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YOU RECEIVED A PINK SLIP AND SEPARATION AGREEMENT – NOW WHAT?

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The end of the year is a time to celebrate the holidays with family and friends.  Sadly it is often the time of year when many employers look to reduce employee headcount.  My thanks to Chicago attorney Daniel N. Janich for contributing this guest post with his thoughts and suggestions on what you should do if you find yourself being let go by your employer now or at some point in the future. 

Okay. So you have just been notified that your employment has been terminated. Perhaps you just came back from a meeting with the boss, or you received an email or other written notice from the HR department simply informing you to clean out your desk.

Lady Justice

 

Overcoming the initial shock

After overcoming the initial shock of this news, you soon realize that you were handed some papers from your employer to sign. Among them is a proposed separation agreement with the terms of your severance package.  Upon your brief initial review of the agreement you learn that you will receive your severance only if you agree to sign a release.

What are the issues that you should watch out for before putting pen to paper? Should you sign the severance agreement “as is” or do you believe you have any leverage to negotiate for a better deal and perhaps modify some of its terms?  What should you do before signing a separation agreement?

First, before doing anything else, thoroughly read through the entire separation agreement.  Make notes if necessary of provisions which may be of concern or which you do not understand or you think you might want to modify or even delete. You should also review any other employment or compensation related agreements that you may have signed with your former employer in the past as well as your Employee Handbook. The purpose of this review is to ensure that all the terms in your separation agreement are consistent with those in other documents. If they are not, your separation agreement will most likely expressly provide that its terms supersede those of any earlier agreement or understanding, thus effectively nullifying these earlier agreements if and when you sign the separation agreement.  In such case you need to be keenly aware of exactly just what it is that you are giving up by signing the separation agreement.

If you are at all uncomfortable with any of the provisions in the separation agreement, and there is a big enough severance amount involved in your deal, you will likely benefit by hiring an experienced attorney to review the agreement for you and provide you with an analysis and recommendations. You may also want the attorney to negotiate with your former employer on your behalf. The fees involved may be money well spent because you will be made aware of potential problems with the agreement that you did not spot on your own, and you will be provided with practical solutions that will not only preserve your severance benefits but might also provide you with more favorable terms for your agreement. Additionally, the attorney may also uncover claims against your former employer you may not even been aware you had.

Review the agreement

Second, regardless of whether you hire an attorney, determine if the agreement presents issues that either need to be resolved or clarified before you are ready to sign it. Here is a list in no particular order of importance—and by no means exhaustive—of the typical provisions in a separation agreement which might cause problems for employees, and therefore, which you should review very carefully:

  • Termination date.  Your termination will end your participation in the company’s benefit plans.  When will you be required to transition your health coverage under COBRA?   Under COBRA the entire cost of your health insurance premiums under the company’s group coverage will generally be paid out of your own pocket. (See COBRA discussion below).
  •  Severance amount.  Is your severance consistent with the company’s severance policy and practice? Are you being downsized and perhaps entitled to participate in a company sponsored severance plan?  Is the severance amount that is being offered sufficient to justify you signing a release?
  • Method and manner severance is to be paid.  For how long will you be receiving severance payments?  Does the structure of your severance payouts comply with Internal Revenue Code Section 409A’s deferred compensation rules? (Ask the company’s HR department or your lawyer about this issue as the penalties for non-compliance could be great.) When will severance payments begin and under what circumstances might they end before you receive the entire amount?
  • Scope and duration of the noncompete. A noncompete provision in your separation agreement means that you might be prevented from seeking other viable job opportunities in your field within your former employer’s industry for a certain period of time and within a designated geographic area after signing the separation agreement. What is the duration of your noncompete? How big is the geographic area?  You should ascertain whether you could obtain a waiver of these restrictions if necessary.
  • Nondisparagement.  Will you be prevented from saying anything negative, even if it is truthful, to anyone either orally, in writing or through social media regarding your former employer or the products and services provided by your former employer?  Is this provision mutual, which would prevent your former employer from saying negative things to others about your character or job performance? Should you negotiate receiving a letter of recommendation from your former employer or a positive recommendation if a prospective employer should contact your former one?
  • COBRA coverage.  When will your COBRA coverage begin? Have you received your COBRA notice and election form? When is your election form due?  When is your first premium payment due? You might be able to negotiate that a portion of your COBRA premiums be subsidized by your former employer.  Are there any circumstances that might extend your COBRA coverage, if necessary, beyond the initial 18 months following your employment termination?
  • Continuing Cooperation.  Are you required under the separation agreement to be available to your former employer if needed as a witness or to participate in a legal investigation on behalf of the company?  If so, how will you be compensated for your time and your out-of-pocket expenses?  Is there flexibility in the amount of time you are required to provide and when you must make yourself available to your former employer?
  • Scope of general release.  Is the general release that you are required to sign prepared broadly to cover any possible claim of any kind and at any time in the past, present or future, in connection with your former employer?  Or does it address only claims relating to your employment relationship and its termination?  When must you sign and return the release? Is this at the same time as the date your separation agreement must be signed and returned?

Some additional pointers

If the provisions of your separation agreement require negotiation of its terms, then you should seek at the outset a written extension of time to sign and return the separation agreement and release.  In fact, it is a good idea to obtain a written  extension as soon as the need for it is apparent to give you sufficient time to resolve issues of concern in the agreement or release without undue pressure to accept terms you might not otherwise agree upon simply to avoid forfeiting the severance amount that was offered to you.

Prior to signing any release you should consider and discuss with your attorney whether you have any potential claims—which would most likely be employment or benefit related—that you would be giving up by signing the release.  Your attorney should confirm with you after reviewing your employment related documents, including your written employment agreement if any, and copies of any retirement or welfare plan documents, as to whether the severance payout under the separation agreement is a sum that justifies your signing the waiver of claims under the release.  To this end, any compensation and benefits that you already earned prior to the termination of your employment should not be counted as part of your severance amount.

If you are participating in various stock-based compensation plans and programs, you should assess prior to signing your separation agreement whether you are “leaving money on the table” in the form of appreciated but unvested shares, options or units as of your effective termination date.  If so, you may consider whether some or all of your unvested interests can be vested as of your termination date, or whether you can receive an extra amount of cash to compensate you for this forfeited benefit.

Your qualified and non-qualified retirement benefits are generally governed by plan documents other than your separation agreement. Again you will need to assess whether and how your employment termination will affect your vested interest in these retirement plans. Although not of immediate concern, you should also eventually determine whether it might be best to rollover any retirement benefits from your 401(k) plan into an IRA or another 401(k) of your next employer.

Before signing the release you should understand exactly what it is you are signing.  Once the release has been signed, you will have permanently given up your rights in exchange for the severance payment agreed upon in the separation agreement.  There cannot be any lingering doubts or other second thoughts about whether you should have signed the separation package and release.  Once it is done there is no looking back.

This blog post is certainly not intended to be a complete discussion of all potential concerns and issues that may arise in connection with your decision whether to sign the proposed separation agreement.  In fact, your circumstance may call for your separation agreement to be dealt with differently from the way your co-worker deals with an identical separation agreement.  That is why when your livelihood and rights are at stake, consulting with an experienced attorney may, in the long run, be the right decision for your career.

Daniel N. Janich is a Partner at Holifield – Janich and works in the firm’s Chicago office.  He has extensive experience representing clients in a broad range of benefits and compensation matters, including the drafting, negotiation and litigation of employment agreements and separation packages.  He can be reached at djanich@hapc-law.com  or 312-22-4222.  Check out Dan’s profile on LinkedIn as well. Dan is an excellent resource should you find yourself in this position.

Photo credit:  Flickr

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