Financial Planning Foul-Ups

(Continued from page 55 ) ognize that S corporations are "flow through" tax entities and, as such, the taxable portion of profits and or distributions must be allocated on a prorata ownership basis. To protect minority owners from having to pay income taxes on "phantom income," it should be spelled out in the agreements that a minimum percentage of income be distributed to cover a proportionate share of income taxes.

Moto*r 13 freat everyone the same

This is a common misconception with many planners and attorneys. Why? Because it's easier to write documents this way, but it fails to address the majority/minority stockholder issue. In certain situations it may make sense to have a buy/sell agreement that only binds the majority owners.

This works best in the case of multiple owners. For example, two people who started a company now own 357o each of the outstanding stock, and the remaining 30Vo is owned by four other employees. If one of the 35Vo owners leaves the business and each of the remaining five owners purchase their respective shares (or the company were to redeem the shares), the surviving founding member could lose control of the company.

Moto*r 14

Agreements not signed... and beneficiary designations on life insurance contracts not correct.

Even after 20 years as a financial planner, I still cannot believe the number of savvy entrepreneurs who tell me everything is all taken care of with their planning. But when I ask to

Cedor Products

see copies of their will, trust or buy/sell agreement, it isn't signed. They only have a draft copy and they have been making decisions for years in some cases on the basis of what they were "thinking" at the time.

In one recent case I began working on. the owners had a draft of a will that was eight years old, not signed, and they had been making plans on only assumptions. We all watched the news accounts in recent months about Terry Shiavo and what was "speculated" regarding her right to die issues.

In another recent case. we discovered through our document retrieval and planning examination that the beneficiary designation on a large life insurance contract did not match the trust it was supposed to fund, nine years after the policy was written!

Moto*r 15 Insurance polide3 nol regularlv reviewed

When is the last time you had your life insurance policy "fully audited?" I'm not referring to an annual "in force ledger" or a "point in time illustration" that most policyholders do not receive, but a full review to include health table ratings to see if they can be reduced, a review of beneficiary and ownership designations, and to see if the contract will hold up to your current life expectancy.

If you purchased it before 2000, it was underwritten using the 1980 CSO mortality tables and people are living longer today than many older contracts were originally designed.

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