Becoming Successful Takes Hard Work—Staying Successful Takes Planning

It used to be if you had a good product and provided solid customer service, you could count on success. While product and service are still critical, other variables—such as increased competition for key employees—can make maintaining and building on that success difficult.

Consider your own business. Your success didn’t happen overnight. It took careful planning, attention to detail and a lot of hard work. And if your business is like most, the contributions of a few key employees is responsible for your business’s success. That’s part of the reason why more business owners are looking for creative ways to reward and retain their key people. Unfortunately, government regulations can make it difficult for businesses to reward one select group of people without doing the same for everyone.

So, how do you build on your success and reward the people who’ve worked hard, year after year, to make that success happen? One answer might be the use of a welfare benefit plan designed to help small business owners provide themselves and select key employees with substantial life insurance protection, medical benefits, or other optional benefits.

Why life insurance? It’s one of the most remarkable financial tools ever developed. Life insurance proceeds can be used to:

• Help families maintain their lifestyle and pursue their objectives following the loss of a major breadwinner.

• Fund the purchase of a co-owner’s share of the business following her or his pre-mature death.

• Pay estate taxes and other expenses, allowing personal and business assets to pass to an individual’s named beneficiary intact.

How can a 419 plan help business owners?

Generally referred to as a “Section 419 Plan” after section 419 of the Internal Revenue Code, the plan is available to owners of C corporations, sub-chapter S corporations, and limited liability corporations, but not sole proprietors. It allows for the purchase of life insurance on owners and selected key employees using company dollars.

The benefits to business owners include:

• Plan contributions (policy premiums) for participants are considered a tax-deductible business expense.

• Policy cash values grow free from current income taxes.

• You can provide yourself and key employees with substantial life insurance benefits that, with proper planning, can pass to named beneficiaries income tax free and possibly estate tax free.

• You can limit participation in the plan to just owners of the business and/or select employees.

• You can accommodate your company’s cash flow needs by choosing from a variety of flexible funding alternatives. Typically, universal life policies are used because of their premium flexibility.

• All plan assets are sheltered from the claims of creditors, whether business or personal.

• Your plan can be integrated into any existing business continuation and estate plans, buy/sell agreements, and/or personal estate plans you or your employees may already have established. 

• The only “cost” to plan participants is the income tax due on a small portion of plan contributions equal to the “economic benefit” of the life insurance protection. Some employers choose to provide employees with a “bonus” equal to this amount of the tax.

The bottom line

You and your key employees are likely the backbone of your past, and current, success. By protecting them, yourself and your business with life insurance, you can help ensure your company’s future success as well.

This information is provided for educational purposes only and should not be construed as tax advice applicable to each individual. Please consult a qualified tax advisor regarding your individual circumstances. All guarantees are based on the claims paying ability of the issuer.

Joseph Pilla is VP – Advanced Strategies at 21st Century Financial. Contact him via email at or via phone at 216-545-1781.

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  • Next up: Check Your Fiscal Fitness
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  • Check Your Fiscal Fitness

    How fiscally fit are you? You may vow to get into shape, lose weight, and eat healthier or take some other measure to improve your overall physical health. While these things will help you to feel better and hopefully live longer, they still require a strong will and self-discipline to meet the goal.

    Just as physical fitness can renew your vitality and increase your energy, fiscal fitness can help to invigorate your financial future. Don’t be fooled, because this too takes discipline.

    The following test will help you measure your fiscal fitness. If you are one of the fortunate people who have everything under control—carry on. If you don’t fall into this category—then it might be time for a check-up.

    Your fiscal fitness test

    Question No. 1: Do you find yourself financially short before each payday?

    Question No. 2: Do you have trouble knowing where your money went?

    Question No. 3: Has a recent change in your job or family status caused increased financial pressure?

    Question No. 4: Are you sure that the life, health and dental insurance that you receive from your employer will be sufficient for your family?

    Question No. 5: Are you saving for your children’s future education?

    Question No. 6: Will you run out of money during your retirement years?

    Question No. 7: Should your current savings be working harder for you?

    Question No. 8: Are your assets positioned properly to pass on to your beneficiary(s)?

    Question No. 9: Do you plan adequately for taxes, or is April 15 disaster time?

    Question No. 10: Lastly, have you established an emergency fund? If so, will it be sufficient for at least three months?

    How did you do? If you’re uncomfortable with your answers, then it might be time to revisit your plans. If you need assistance—don’t put it off—get it now.

    There are a number of planning tools available that can help you feel more in control of your financial well-being. It might also be beneficial for you to discuss your needs with financial professionals who can help by recommending an appropriate strategy designed specifically for you.

    It all boils down to this

    Regardless of your method, getting started is the key to helping you secure not only your fiscal fitness, but also your financial future.

    Joseph Pilla is V.P. Advanced Strategies & Business Advisory Services for XXI 21st Century Financial 216-545-1781. Custom designed strategies for both individual & businesses through uses of; Business Valuations, Premium Financing, Business Succession/ Asset Protection/ Insurance/ Wealth Transfer/ Investment/ & Retirement Planning.

    This content was prepared by Penn Mutual.

    ©2018 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172


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  • Next up: COSE Member Capital Advisors, Ltd. Awarded 2016 Best Practices Award by InvestmentNews
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  • COSE Member Capital Advisors, Ltd. Awarded 2016 Best Practices Award by InvestmentNews

    InvestmentNews named COSE member Capital Advisors, Ltd.  as one of 12 winners of the 2016 Best Practices Awards, an important initiative that recognizes the top-performing and most innovative firms in the financial advice industry.  The 12 winners of the InvestmentNews Best Practices Awards were identified through their participation in the 2016 Financial Performance Study of Advisory Firms, and recognized at The Best Practices Award and Workshop at the New York Athletic Club in New York City, on October 18th. 

    InvestmentNews named COSE member Capital Advisors, Ltd.  as one of 12 winners of the 2016 Best Practices Awards, an important initiative that recognizes the top-performing and most innovative firms in the financial advice industry.  The 12 winners of the InvestmentNews Best Practices Awards were identified through their participation in the 2016 Financial Performance Study of Advisory Firms, and recognized at The Best Practices Award and Workshop at the New York Athletic Club in New York City, on October 18th.

    To identify the 2016 Best Practices Award winners, InvestmentNews Research created composite scores that examined the rate of growth, profitability and productivity levels for all the participants in the 2016 InvestmentNews Financial Performance Study. The firms classified as having “Best Practices” were those who ranked among the top-quartile of all participants; however, a number were selected for extensive qualitative interviews conducted by the InvestmentNews Best Practices Committee, in order to select the 12 winners.

    “We are honored to be considered amongst some of the finest wealth management firms in the country,” says Neil Waxman, Managing Director, Capital Advisors, Ltd.  “To my mind, recognition of best practice is some of the highest praise we can attain because it confirms what our team works so diligently to achieve: commitment to excellence, prudence, and consistency in bringing to bear a superior level of service to our clients.”

    This is the fourth consecutive year that InvestmentNews has recognized the industry’s top-performing firms as part of the Best Practices program. All of the firms honored have participated in InvestmentNews’ primary benchmarking studies: The Advisers Compensation & Staffing Study, The Financial Performance Study of Advisory Firms and The Adviser Technology Study.

    “The firms that have seen the most growth are those that have been the most strategically managed,” says Mark Bruno, Associate Publisher of InvestmentNews. “Capital Advisors is one of those firms, and its leaders executed on their strategic plans more effectively than most firms in the industry. They are an excellent example of how—and why—professionally run wealth management firms are out-performing and well-positioned for long-term success.”

    InvestmentNews honors Capital Advisors, Ltd. with a 2016 Best Practices Award. 

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  • Next up: Deferred Compensation—Understanding the Options
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  • Deferred Compensation—Understanding the Options

    As American business enters the 21st century, old methods of doing business are quickly being replaced with the new – new technologies, new approaches, and new ideas about attracting, rewarding, and motivating high quality employees. Nowhere is this more evident than in the matter of key employee and business owner compensation, and specifically in the area of Deferred Compensation Planning.

    A Deferred Compensation Plan (DC Plan) is exactly what its name implies – it’s a plan that allows an individual to defer a portion of his or her current income, and the taxes due on that income, until a future point in time – usually retirement.

    Because it is a non-qualified plan, employers may select whomever they want to participate from their executive or management team. There are no contribution limits and no significant filing or reporting requirements. On the negative side, contributions are not tax deductible until benefits are paid out to participants and, under the doctrine of constructive receipt, benefits may be taxable to participants when they have the right to receive them – not necessarily when they are actually paid. (Establishing a vesting schedule can help address this issue) 

    DC Plans come in many shapes and sizes. They can be Defined Contribution or Defined Benefit; Salary Reduction or Salary Continuation Plans; and they can be structured to provide disability and life insurance benefits. Choosing the right plan arrangement depends upon a company’s specific goals (e.g. retaining key employees) and upon the goals of the selected participants (e.g. supplemental retirement income, current tax reduction).

    To help you get a better understanding of the variety and flexibility of the DC Plans, let’s briefly consider each of the above structures:

    Salary Reduction or Salary Continuation?

    DC Plans generally fall into one of two categories – “Salary Reduction” or “Salary Continuation.” Under a Salary Reduction Plan, participants agree to defer a portion of their current salary (or bonus) to a future point in time – usually retirement – allowing them to postpone paying taxes on that income until they are likely to be in a lower tax bracket.

    Under a Salary Continuation Plan, the employer agrees to provide participants with additional compensation over and above their regular salary, but it defers payment of that additional compensation until a later date – in most cases retirement. Salary Continuation Plans are often called Supplemental Executive Retirement Plans (SERPs). 

    Defined Contribution or Defined Benefit?

    When an employer chooses a salary continuation plan, another consideration is whether the plan should be a Defined Contribution Plan, where the amount contributed each year on behalf of participants is established (“defined”) under the plan agreement, or a Defined Benefit Plan, which specifies the amount each participant will collect at retirement. Under a Defined Contribution Plan, retirement benefits could vary depending upon the performance of the plan’s underlying funding vehicle(s). Under a Defined Benefit Plan, the amount payable at retirement is guaranteed under the agreement, but annual contributions may vary – making it difficult for an employer to work plan contributions into its annual budget. Again, this potential variation is governed largely by how the plan is funded.

    Contributions to certain DC Plans can be made by both the employer and the covered participants. In such cases, contributions by participants are generally “matched” by the employer in much the same way as a traditional 401(k) Plan. These kinds of DC Plans are often referred to as 401(k) Overlay or 401(k) Mirror Plans, and they can be used in conjunction with, or in place of, a traditional 401(k) Plan. When used in conjunction with a 401(k), these types of plans can help “equalize” retirement benefits for highly compensated key employees who, because of government regulated funding limitations, would otherwise receive a lower percentage of wages at retirement than their lower paid counterparts.

    Once the determination has been made as to which type of DC Plan will best meet the needs and objectives of the employer and participants – defined contribution, defined benefit, salary reduction, or salary continuation – the big question becomes how to fund it.

    Funding alternatives

    As one might expect, there are numerous funding alternatives. Some employers choose simply to pay the agreed upon benefits out of company cash flow and hope that their cash flow will be adequate when benefits come due. (Of course, whether such an un-funded plan would be enough to motivate and retain a much-needed key employee is certainly open to debate!) Other employers use securities such as stocks, bonds, and other investment options to finance their plan. Unfortunately, unforeseeable market fluctuations can leave these types of plans seriously underfunded just when benefit payments are scheduled to begin. Another disadvantage to this method is that investment gains are taxable when realized, which can further burden an employer’s bottom line.

    To address these issues, many employers turn to Company Owned Life Insurance (COLI) to fund their DC Plans. Under a COLI arrangement, the employer purchases a cash value life insurance policy on each participant, and is the owner, premium payer, and beneficiary of each of the policies. Salary deferrals (contributions) and/or company contributions are used to pay the premiums on the policies. Policy cash values grow income tax-deferred and, at retirement, can be accessed via loans or withdrawals to pay plan benefits.    Withdrawals and outstanding loans will reduce the policy’s cash value and death benefit.  However, if a participant dies prior to retirement, the plan can provide for a death benefit to be paid to his or her beneficiary, essentially self-completing the plan. As well, policy riders can be added to provide disability benefits should the plan include disability as one of the benefit triggers.  It is this flexibility that makes COLI such a popular funding method. 

    But the benefits of funding a DC Plan with COLI don’t end there. Using life insurance as a funding vehicle can allow an employer to recover the cost of the plan – either in part or in full – through the receipt of death proceeds, and contractually guaranteed cash values can ensure that the funds required to pay plan benefits will be there when they are needed. Under a COLI arrangement, the employer can change who is insured under the COLI contracts; it can pay benefits from either policy death benefits or policy cash values; premium, interest, and expense guarantees allow the employer to develop a long-term financing plan; and buying as a “group” often allows for favorable underwriting considerations. This can be especially helpful if an owner or key employee has health or medical issues that might otherwise make purchasing life insurance costly or difficult. All guarantees are based upon the claims-paying ability of the issuer.

    How do Deferred Compensation Plans work?

    There are essentially four steps to establishing a DC Plan. The first step is choosing the employees (participants) who will be included in the plan, the benefits which will be paid out under the plan (retirement income, disability income, death benefits, etc.), and the “triggers” (termination of employment, retirement, disability, death, etc.) which will initiate the payment of benefits. Step two is deciding where the salary deferrals will come from – will they be taken from current salary (Salary Reduction) or paid in addition to current salary, but deferred until a later date (Salary Continuation)? Step three is the selection of a funding vehicle – and if life insurance, the purchase of a cash value life insurance policy on each participant. Step four is the payment of benefits following a “trigger” event – usually retirement, disability, or death. 

    DC Plan benefit payments become a tax deduction to the employer and are taxed as ordinary income to the participant (or his or her beneficiary). If properly structured, at the participant’s death, a portion of the life insurance proceeds can be used to reimburse the employer for premiums and/or benefits paid. It’s that simple.

    Could a DC Plan be right for you?

    If you’re looking for ways to reduce current income taxes and supplement future retirement income – or if you’re looking for a way to attract, motivate, and retain high quality employees – then a Deferred Compensation Plan may be just what you need to meet your personal, business, retirement, and tax reduction goals. Ask your financial advisor for more information.

    The content was prepared by The Penn Mutual Life Insurance Company and is intended to offer a general understanding of Deferred Compensation strategies.  Actual strategies may vary based on the products and benefits chosen, the issuer and state.  Any reference to the taxation of insurance products is based on Penn Mutual’s understanding of current tax laws. Clients should consult a qualified advisor regarding their personal situation.

    Joseph Pilla is V.P. Advanced Strategies & Business Advisory Services for XXI 21st Century Financial 216-545-1781. Custom designed strategies for both individual & businesses through uses of; Business Valuations, Premium Financing, Business Succession/ Asset Protection/ Insurance/ Wealth Transfer/ Investment/ & Retirement Planning.

    © 2018 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172

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  • Next up: Estate Planning Tips
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  • Estate Planning Tips

    Planning. It’s an important part of nearly everything we do in life. And if we’re smart, it will be a part of what we do before we die.

    Planning for your eventual death means finding answers to such questions as:

    • How can you reduce your estate tax liability and avoid the costs, delays and publicity of probate?
    • How can you help ensure that your assets will be distributed according to your wishes?
    • Who should make financial and medical decisions in the event you become incapacitated?

    Answering these kinds of questions beforehand is more than just being considerate—it’s also important to the people who depend on you: your family, your employees and your customers.

    By making plans before you die, you can help ensure that your business, your assets, and the people who are important to you, are protected. And isn’t that how it should be?

    Wills and Trusts

    Wills and trusts are two of the most popular estate planning tools. Both allow you to spell out how and to whom you want your property distributed, but both can also go well beyond that.

    A properly drawn will can allow you to determine how your property will be distributed, and can give you the opportunity to select an individual who will oversee that your wishes are carried out—your executor. Through your will, you can also name a guardian for your minor children. If you die without a valid will, or if you fail to make such designations through your will, the decision will probably be left to the courts. Bear in mind that property distributed through your will is subject to probate, which can be costly and time-consuming. What’s more, probate is public process. That means anyone, even if they aren’t related to you, can see how and to whom you left your estate.

    Trusts differ from wills in that they are actual, legal entities. Like wills, trusts spell out how you want your property distributed. But trusts go a bit farther, letting you decide not just how, but when and in what form, your estate is distributed. Trusts also give you the added advantages of professional property management and avoidance of probate.

    Wills and trusts are not mutually exclusive. While not everyone with a will needs a trust, individuals with a trust should almost always have a will.

    Durable Power of Attorney

    Incapacity brought on by sickness or age can pose as big a threat to your financial well being as death. Fortunately, there are tools that can help you deal with this threat.

    A durable power of attorney is a legal agreement that enables you to designate who will make any legal and/or financial decisions affecting your finances should you become incapacitated. Unlike a standard power of attorney, a durable power of attorney remains valid even if you become incapacitated.

    Health Care Proxies and Living Wills

    Similar to a durable power of attorney, a health care proxy is a document that can allow you to designate someone who is authorized to make health care decisions on your behalf, again, should you become incapacitated. The person you designate can generally make decisions regarding medical facilities, medical treatments, surgery, and a variety of other health care issues. Much like a durable power of attorney, a health care proxy involves some important decision making. Take the utmost care when choosing someone to give this kind of authorization.

    A related document, a living will, spells out the kinds of life-sustaining treatment you will (or as important, will not) permit in the event of your incapacity. The decision for or against life support is one that only you can make. That decision alone makes the living will a valuable estate planning tool. And you may use a living will in conjunction with a durable health care power of attorney.

    Final Thoughts

    Without proper planning, estate taxes and medical expenses could consume a substantial portion of everything you own. If you’ve been putting off this important planning until “time permits”, consider making the time now. You, and everyone who depends upon you, will be glad you did.

    Estate Planning Tips

    Keep all of your important financial and legal information in a central file for your executor. Be sure to include:

    • Letters of last instruction
    • Medical records
    • Bank/brokerage statements
    • Income and gift tax returns
    • Insurance policies
    • Titles and deeds
    • Wills and trust documents

    Laws will vary from state to state. Please consult your tax advisor or financial advisor regarding your particular situation.

    This information is for educational purposes and should not be considered specific financial, tax or legal advice. Always consult with a qualified advisor regarding your individual circumstances.

    Joseph Pilla is V.P. Advanced Strategies & Business Advisory Services for XXI 21st Century Financial 216-545-1781. Custom designed strategies for both individual & businesses through uses of; Business Valuations, Premium Financing, Business Succession/ Asset Protection/ Insurance/ Wealth Transfer/ Investment/ & Retirement Planning.

    Content prepared by Penn Mutual.


    ©2018 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172

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  • Next up: Few Things in Life are Perfect—And That Goes for Investments, Too
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  • Few Things in Life are Perfect—And That Goes for Investments, Too

    While an investment that sounds perfect is most likely too good to be true, there are ways to ensure you are making the wisest choices possible when it comes to your money.

    Have you noticed how the word “perfect” has crept into our lexicon? Someone asks you a question and when you reply, the reply back to you is “perfect.” And that seems a little much—given that most replies are not perfectly exact. Answers may be “great” or “wonderful” or “excellent,” but perfect? Hardly ever.

    A “perfect” game pitched in baseball—27 up and 27 down—now that is perfect! A hole-in-one in golf—also perfect! A presentation to the board? Maybe it was really good. But no doubt there was at least some slight imperfection.

    Which brings us to the perfect investment. Invariably, not a week goes by that someone does not call me seeking the perfect investment. I think I am an outstanding financial professional, but I have yet to find any client or prospect the perfect investment. And for one simple reason—it does not exist.

    Here is a list of what a perfect investment might look like:

    • No risk—not any part of the investment could ever be lost due to market activity or any other reason.
    • High rate of return—a yield that outperforms inflation and taxes while still giving you a solid return.
    • No income taxes—never any income taxes due on the investment growth with the client keeping all that it earns.
    • Always available—100% liquidity with complete access to redeem all or part of the investment at any time without penalty.
    • Easy as pie—an investment anyone could manage at any time without having any special financial knowledge or training.

    The age-old advice for someone who comes across an “investment” with all of these attributes: If it sounds too good to be true—it is!

    However—and be glad there is a however when doing due diligence—asking certain questions will help you to focus in on the alternatives and aid in making the wisest investment choice given specific financial needs. For example:

    • What is the purpose of the investment? This is the most important question to ask and the answer should be as specific as possible.
    • What is your risk tolerance? Will you be able to sleep whenever the markets suffer a hiccup, or do you have the ability to ride out short-term ups and downs in exchange for potential long-term growth?
    • When will you need the income you expect the investment to generate? Simple, right? A short-term investment to meet long-term goals, and vice versa, is a recipe for disaster.
    • What amount do you have to invest? Your financial professional can recommend various options based on the sum you have to invest.
    • Are income taxes a concern? Different investments offer different tax treatments. Your tax bracket plays a part in this question as well.
    • In what state is the economy? This is last on the list because the economy’s current (and future) condition is out of your control. But it must be taken into account and is another topic to be considered when meeting with your financial adviser.

    So there you have it—attributes to seek and questions to ask. Unfortunately, you won’t find the perfect investment. But asking the right questions about your financial needs and building a financial foundation that includes the proper mix of investments and insurance—including life, health, disability income and long term care—will help you meet many of life’s financial needs.

    Even without the “perfect” investment.

    Joseph Pilla is V.P. Advanced Strategies & Business Advisory Services for XXI 21st Century Financial 216-545-1781. Custom designed strategies for both individual & businesses through uses of; Business Valuations, Premium Financing, Business Succession/ Asset Protection/ Insurance/ Wealth Transfer/ Investment/ & Retirement Planning.

    ©2018 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172


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