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Should You Use A Donor-Advised Fund?
To help you figure out the best way for you to donate to the organizations you care about, we provide this resource.
By Senior Advisor Andrew Schaetzke, CFP®.
With the growth in global investment markets in recent years, many investors are donating more to their communities and the causes they care about than ever before.[1] Based on Giving USA’s 2021 Annual Report, U.S. charities received a record $471.44 billion in donations in 2020, with more than two-thirds of these donations coming from individuals and families.[1]
Figuring out the best way for you to donate can be complex. There are a lot of different options on how to donate, including:
Creating a donor-advised fund
Creating a charitable trust
Creating a private foundation
Each option has its own benefits and tradeoffs regarding taxes, costs, and flexibility. By understanding your options and creating the charitable strategy most appropriate for your situation, you can increase the chances that the organizations you most care about will receive the money that you intend for them.
To help you figure out the best way for you to donate to the organizations you care about, we provide the below resource. As always, we are here to help you as you begin your charitable journey. We can provide resources, experience and strategies that may be valuable to you. Please feel free to reach out to us if you have any questions.
Important Disclosure Information & Sources:
[1] “2021 Annual Report“. Giving USA, 2021, givingusa.org.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Phantom Stock Plans
Business owners are looking for compelling ways to attract and retain talent. One approach to achieve this goal is through implementing a phantom stock plan.
By Founder & CEO Scott Savage.
Today more than ever, business owners are looking for compelling ways to attract and retain talent in a highly competitive labor market. One approach to achieve this goal used by some business owners is through implementing a phantom stock plan. This type of plan affords business owners a way to reward key employees for past service and to align their interest with that of the company going forward.[1]
What Is A Phantom Stock Plan?
A phantom stock plan qualifies as a type of deferred compensation plan, contractually tying monetary compensation directly to the value of the business if certain conditions are met.
The idea of phantom stock is that it simulates ownership, providing the means for an employer to offer employees the potential benefit of company growth while avoiding the complications of transferring actual ownership. In practice, when the phantom shares are earned by the employee, a valuation date is set. Then, a formula is used to imitate the actual stock value, and the payout is based on the value of those shares.[2]
Note: Working with tax and legal professionals to set up this type of plan is important for proper execution.
Why Choose A Phantom Stock Plan?
A phantom stock plan can potentially succeed because it provides mutual benefits and protections for both the employer and employee.
For the employer, along with avoiding ownership dilution, it affords flexibility in selecting who is eligible for participation. Compared with employer-sponsored (ERISA) plans, which require benefits to be available to each employee, a phantom stock plan allows for the employer to offer participation to key employees and adjust values on an individual basis.[1] Additionally, this type of plan can help lead to less employee turnover, through both vesting period requirements and, in some cases, non-compete agreements.[3]
For the employee, participating in this plan is a bonus for their dedication to the company, and can endure into the future. Specifically, it can provide a predictable stream of cash flow after leaving the company or into retirement. In addition, if the company is sold, the plan typically vests immediately, offering protection in case ownership changes.
Final Thoughts
As you, a business owner, consider options to motivate your employees, a phantom stock plan is a valuable tool to build a mutually beneficial agreement with key employees within your organization. We believe this type of plan is a great way to potentially help propel the growth of your business, while giving you the ability to reward the people who help make it possible.
Important Disclosure Information & Sources:
[1] “Phantom Stock Plan“. Adam Hayes, 22-May-2022, investopedia.com.
[2] “An Introduction To Phantom Stock And Stock Appreciation Rights“. Gary Pattengale, 22-Feb-2022, bdfllc.com.
[3] “Phantom Stock Plan“. Corporate Finance Institute, 10-Mar-2021, corporatefinanceinstitute.com.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Buy-Sell Agreements for Business Owners: Why You Should Have One
This article explores how a buy-sell agreement works, why we strongly recommend one for our business owner clients who share company ownership, and how we can help with implementation.
By Founder & CEO Scott Savage.
Business ownership, especially starting a business, can be overwhelming. Over the years, we have seen business owners make two types of mistakes:
Errors of commission, or an incorrect decision, which include paying too much for real estate, hiring the wrong people, or buying the wrong inventory.
Errors of omission, or missed opportunities, which include not having a board of advisors, not hiring a tax expert to help with structuring the business, or not creating a buy-sell agreement.
Although mistakes are inevitable, it is possible to take steps to avoid errors of omission. This article explores how a buy-sell agreement works, why we strongly recommend one for our business owner clients who share company ownership, and how we can help with implementation.
What is a Buy-Sell Agreement?
“The beginning of wisdom is the definition of terms.” —Socrates
Stated simply, a buy-sell agreement is a legal document made between two or more shareholders of a privately held corporation or entity. The agreement helps the business streamline the transition between owners after a triggering event, such as death, disability, divorce, or disagreement.
The agreement works by establishing a valuation method for the business. There are various ways to determine the value of a business, including:
Fixed Price Approach: Setting a fixed price of the business, typically on an annual basis.
Formula Approach: Agreeing on a formula that utilizes components such as cash flow or assets to determine the price.
Finally, the buy-sell agreement will include a funding strategy. It can be funded or unfunded, but typically people will fund buy-sell arrangements with insurance, which is what we generally recommend.
Why Have a Buy-Sell Agreement?
A buy-sell agreement can greatly simplify a transition between business owners. Without an agreement in place, you can anticipate holdups, delays, and potentially, litigation in transferring ownership to the other shareholders. A buy-sell agreement aids in bypassing these issues, helping the business to move forward during times of change.
Some business owners think such an agreement is useful once their company gains in value, not at the outset. But we encourage anyone who is starting a company with someone else to get a buy-sell agreement in place. You never know what will happen, and this agreement can prevent a lot of trouble and heartache.
How SJS Can Help
Depending on the needs and company structure, we can help advise on the proper approach to a buy-sell agreement. We are able to coordinate the process with attorneys and tax professionals to help you create an agreement that is effective and valuable.
This is part of the ongoing service we provide and one that isn’t simply drafted and put on the shelf. Buy-sell agreements become part of a dynamic, ongoing conversation with our business owner clients. We can monitor the company’s growth and indicate if our client should fund or update the agreement given the company’s increase in value.
Schedule a complimentary discovery meeting today to discuss what’s on your mind and how we may be able to help.
Important Disclosure Information & Sources:
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
Selling Your Business To Employees
All business exits have pros and cons. Recently, I was introduced to a business owner who had just completed selling his company to a long-time loyal employee.
By Founder & CEO Scott Savage.
Recently, I was introduced to a business owner who had just completed selling his company to a long-time loyal employee. He described to me that despite higher offers from private equity-backed buyers, he chose to sell it at a lower price to a key employee who has the respect of other employees and the business' customers.
The business owner felt strongly that had an outsider purchased his small business, then before too long his key employees would be looking for another job. Additionally, he reasoned that his loyal customer base would be better served - after all, they are the reason he was going to be able to exit on his terms.
The buyer came up with a down payment. Rather than using a bank to finance the balance of the purchase price, the business owner took a seller’s (promissory) note, so the new owner can pay off the balance over time with profits from the business.
All business exits have pros and cons, but I am convinced that the sentiments shared with me and the actions taken by this benevolent business seller increase the likelihood that the business he started nearly 30 years ago will survive and thrive!
Important Disclosure Information & Sources:
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.
Suggested Reading
What's Next? Life After Selling Your Business
In my experience, a successful business exit requires honesty, especially with the person in the mirror. Acknowledging your dependence on the success of the business is worthy of contemplation and soul-searching.
By Founder & CEO Scott Savage.
Many business owners I have had the honor to advise over the years share a common experience: Their identity is linked to that of their business. One client told me he was terrified to sell his business because he couldn’t imagine a life post-sale.
As I wrote in my ebook, a common experience for most business owners immediately after the sale is an emotional let-down, and in some instances regretting their decision. One client told me that knowing what he knows now, he would never have sold his business at the price he did. That was 5 years after the sale!
In my experience, a successful business exit requires honesty, especially with the person in the mirror. Acknowledging your dependence on the success of the business is worthy of contemplation and soul-searching before you assemble your team of advisors, get a valuation of your company, decide on strategic buyers or private equity buyers, and launching a sales process.
One client of mine was at the closing table after a year-long sale process, and just could not close for fear of becoming “irrelevant”.
In most instances, this emotion letdown - “seller’s remorse” - is quickly replaced with new opportunities, overdue time spent with loved ones, volunteering time and talents with a beloved not-for-profit, or finally having the time to focus on physical and mental health & wellness.
My Dad always said, “We’re all replaceable.” Even as I write this, I wonder how much of my identity is linked to my business.
Important Disclosure Information & Sources:
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice. This material has been prepared for informational purposes only.
Hyperlinks to third-party information are provided as a convenience and we disclaim any responsibility for information, services or products found on websites or other information linked hereto.