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    April 2014
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    Providing For Disabled Children

    Having a disabled child is a both a blessing and a burden and about which most of us have no real idea.  One of the concerns parent share is how to assure enough money for the child beyond their own death.

    In Canada, a recent (2007) initiative is the Registered Disability Savings Plan (RDSP)  This is a program that permits capital to accumulated for a disabled person on  a tax preferred basis and with government grants connected to funding.  It is theoretically possible to acquire $70,000 in grants over a lifetime.  Not shabby!

    When the RDSP is added to the maze of programs and trusts and other arrangements that are in vogue, it is possible that a disabled person could enjoy an adequate lifestyle despite the passing of their parents.

    Ottawa lawyer, Ken Pope, specializes in estate and other planning for people in this situation.  He recently published an article that points out a frailty in the RDSP sytem.  There is no clear way to recover the funds deposited if the child dies before the parents.  You can see more here.

    Caring financially for a disabled child is a complex field of study.  There are many approaches and not all are compatible.  A skilled professional practitioner can provide an efficient approach and that efficiency means you child lives a little better or maybe you can get the answer for a smaller capital input.  Do not overlook second-to-die life insurance.

    This kind of planning is not a do-it-yourself project, it has to work.

    Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

    The MONEY® Network

    Would You Accept a Bar Code Implant?

    In a perfect world, universal implantation of the implantable microchip radio frequency identification device (RFID) is activated by a chip reader.

    It is tamper-proof, practically undetectable and indestructible, and is implanted under the skin. 

    This device as claimed would be used only for legitimate, legal and noble purpose, could make life better for all of us, provide better security and peace of mind for us and our loved ones, and even save lives, and tremendously benefit mankind as a whole. 
    However, this is not a perfect world. 

    Bar codes for human beings?

    But no one wants to be treated like a human bar code by the authorities.
    The most serious threat to liberty could be an all-inclusive database mandated by government–a national identification card with biometric identifiers. Such an ID will increase unsolicited surveillance, will blur the distinction between public and private databases, and will undercut a presumptive right to maintain anonymity. The ID would devolve into a general law enforcement tool having nothing to do with response to terrorism.

    The resulting level of intrusion necessitated by implantation would impinge on our many legal rights. It is plausible that, since the technology has not yet been perfected, we as a society would believe there is no need to address the incipient legal problems until devices are used. Justice Rehnquist adopted this view in a U.S. Supreme Court decision concerning beeper surveillance where the respondent had indicated that if beeper surveillance were constitutional, “twenty-four hour surveillance of any citizen of this country will be possible, without judicial knowledge or supervision. 

    However, because of the very sweeping reductions in personal liberty and privacy that such implantation represents, the legal ramifications need to be explored now. Although the Canadian Charter of Rights and Freedoms and the U.S. Fourth Amendment protects individuals from unreasonable searches and seizures, a national identification system via microchip implants could be achieved in two stages. 

    A system using the technology, although introduced as a voluntary procedure, may be difficult to dislodge despite limitations of individual freedoms because its advantages will be extremely attractive. The positive applications may be said to outweigh the detrimental legal consequences at that time. Therefore, it is not too soon to consider the repercussions that mandatory microchip implantation would have, as a pre-emptive measure. Upon introduction as a voluntary system, the microchip implantation will appear to be palatable. 

    The U.S. Fourth Amendment has been invoked with reference to internal intrusions upon individuals to obtain evidence, which could be used against them. Examples include the withdrawal of blood and bodily searches, which require surgical procedures or other means to extract substances from the body. 

    English Common Law and the U.S. Fifth Amendment provides in principle that no citizen shall be compelled in any criminal case to be a witness against himself, an U.S. Supreme Court justice once noted that “[A] person is compelled to be a witness against himself not only when he is compelled to testify, but also when… incriminating evidence is forcibly taken from him by a contrivance of modern science.”

    To avoid a governmental mandate, citizens may advocate for an outright ban. This drastic measure may also be necessary in a system that is initially voluntary, for it may well be the precursor to a mandate. Short of that, the best way of preventing incipient problems is to protect rights before desensitization.

    Although use of such a device at first appears farfetched, examination of the existing technology and the potential utility proves that microchip implantation is both possible and, for some purposes, desirable. Beginning with voluntary introduction, Americans and Canadians may be lulled into accepting them. This article thus sounds a warning bell. The time to prevent grievous intrusion into personal privacy by enacting appropriate legislative safeguards is now, rather than when it is too late.

    By: Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mark can be reached at www.mercantilemergersacquisitions.com

    The MONEY® Network

    Using your equity

    Using your equity

    Is it time to renovate that kitchen or put an addition on your home? Or maybe you’re tired of paying those high-interest credit cards. Or you’re considering purchasing an investment property. If you’re self-employed, you might need a cash infusion. So where do you get the money? Well, if you have enough equity in your home you might be able to borrow against it. Your home’s equity is an asset you can use either by borrowing against it with a second mortgage or a home equity line of credit (HELOC) or by refinancing. There are pros and cons to all three options. Let’s take a closer look at the options:

    Refinancing

    This is an entirely new loan on the property and pays out the existing mortgage. You can choose to refinance to take advantage of a lower interest rate or take out cash to pay off debts or to renovate. There has to be sufficient equity since you can only refinance up to 80% loan-to-value (LTV) through conforming lenders. However, if you’re in the first year or two of a fixed-rate mortgage, the penalty to refinance may be onerous.

    Second Mortgage

    A second mortgage is a separate loan on the property, but is still secured by the property. This is a popular way to get much-needed cash quickly — the application process is fast, as is the turnaround time. Second mortgage lenders focus on the property and the equity available. The interest rate will likely be higher because a second mortgage is riskier than a first. For example, in case of default, the first mortgage lender has the first right to proceeds from a sale or power of sale. However, there are situations when a second mortgage can be advantageous, especially if you already have a great mortgage rate on your existing first mortgage.

    Home Equity Loans and Lines of Credit (HELOC)

    A HELOC can be a standalone first mortgage or an all inclusive collateral mortgage. The loan is approved using the same basic criteria as a mortgage loan. The full amount of the money is made available up front, and you can access as much or as little as you want. It’s an installment loan that acts as a revolving line of credit. You access the credit line online, by using a cheque, credit card or by using your debit card. The “credit limit” is determined by the equity, but you’ll only pay interest on the funds you use.

    Whether you choose any of these options depends on your financial needs and situation. For example, if current interest rates are lower than the rate on your existing first mortgage, refinancing may be the best choice. However, if rates are up, taking out a second mortgage might make more sense. Or, depending on what your needs are, selecting a HELOC may be the way to go.

    Together, we can determine the best option that fits your needs. I will work closely with you to ensure you’re achieving your financial goals. To find out which of the three options suits you, call me today.

    CMHC CONSUMER NEWSLETTER

    What is your credit score, and how can you improve it?

    Your credit score is a number that illustrates your financial health at a specific point in time. It is also an indicator of how consistently you pay off your bills and debts. Your credit score is one of the factors lenders consider when qualifying you for a mortgage. A good credit score, for example, can help improve your chances of being approved.

    To find out your credit score, contact Canada’s two credit-reporting agencies: Equifax Canada and TransUnion Canada. These agencies can provide you with an online copy of your credit score as well as a credit report – a detailed summary of your credit history, employment history and personal financial information.

    If you find any errors in your report, notify the credit-reporting agency and the organization responsible for the inaccuracy immediately.

    If you want to improve your credit score,

    • always pay your bills in full and on time;
    • pay off your debts as quickly as possible;
    • never go over the limit on your credit cards;
    • and try to reduce the number of credit card or loan applications you make.

    Once your credit score has improved, work with your mortgage professional to obtain a mortgage that works for you.

    Find Out More

    To find out more about credit scores and reports, visit the Financial Consumer Agency of Canada website and download or request a free copy of their guide, Understanding Your Credit Report and Credit Score. This guide provides practical, straightforward information on how to obtain and understand your credit report and score, as well as how to build and maintain a good credit history.

    Guy Ward is a Mortgage Broker in Calgary, Alberta with TMG (The Mortgage Group Alberta).

    WWW.GUYTHEMORTGAGEGUY.COM or 403-667-6775

     

    The MONEY® Network

    Regulation Feels Good, But

    The need for regulation of financial advisors arises from an abdication of responsibility by the people who may suffer the greatest cost.  That cannot end well.

    There are two thoughts that matter.

    1. The client is the sole planner, everyone else is a helper.  If the client cannot prepare their own plans, at least in general, they have a duty to learn enough about it to at least make reasonable decisions.  If they do not accept their role, then someone else will “plan them.”  The someone else will not know enough to do a great job of it, and the client who does not understand will fail to follow through.  No one trusts what they do not understand.
    2. The client is the regulator.  There is an old thought in law, “Caveat Emptor” – Let the  buyer beware.  In most jurisdictions it has been replaced with consumer protection legislation.  Which provides better results?  A statute that may not apply because the vendor has found a loophole, or an informed buyer who understands their purchase?  I am going with informed buyer.

    If we rely on an advisor to be the planner and rely on politicians to protect us from each other, then we are doomed.  Each of us has a positive responsibility to learn enough to function in somewhat complicated environments.  We cannot safely avoid that responsibility.

    In respect to financial planning services, who stands to lose?  It is a two person game and the advisor cannot lose.  Maybe win or  breakeven but not lose.  The client could win, breakeven, or lose.  The one who stands to lose should reduce that risk by investing in knowledge, even wisdom.

    A large share of the people hold insufficient knowledge or wisdom to meet their obligations.  What to do?

    There is a four step program.  Eight steps shorter than AA and notice that doing nothing is as addictive as alcohol.

    1. Learn about what people are trying to accomplish when they do a financial plan.
    2. Learn about how debt and investments work
    3. Learn to understand risk and its effects on decision making.
    4. Learn that doing nothing is a choice and has a cost

    The advisor has a positive duty to help the client meet these requirements.  Some see it as a burden, but the highly successful ones do it instinctively.  John Page had many, as in way more than many, binders that outlined his unique financial planning process.  When a client remarked, “I’ll bet you guard those closely.”  John started piling them on the desk with the admonition, “No, take them all; educated clients are the best clients.”  An advisor can learn to do this as part of the service, and be rewarded by loyalty and a growing asset base.

    You can get a little idea of what a comprehensive planning process can be here.

    Clients should expect this level of service.  They cannot be confident of success unless they can both understand and measure their achievement against well understood and reasonable targets.

    Their is a further risk in consumer protection legislation,  called, in economic theory, “Moral Hazard.”

    “Moral hazard arises because an individual or institution does not take the full consequences and responsibilities of its actions, and therefore has a tendency to act less carefully than it otherwise would.”  -Wikipedia

    If clients knew their obligations and worked at getting better, there would be little need for regulation.  Until that day, smart advisors will push their clients onto the path of being active participants in each financial decision.

    For an advisor, nothing is riskier than dealing with a clueless client.

     

    Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

    The MONEY® Network

    Companies Can Mitigate Risk in a Risky Business Environment

    Companies Can Mitigate Risk

    In a Risky Business Environment

    C0mplicating the current credit crunch crisis and worldwide economic downturn is the fact that some 75% of emerging markets have a political risk rating of medium high or extremely high.   This is critical information to North American- and Europe-based business involved in and interested in expanding to new markets in the natural resources and manufacturing sectors, according to London, UK-based Control Risks, an independent, specialist risk consultancy. 

    This red flag should serve as a wakeup call to those expanding companies when engaged in the process of entering these markets to be more aware of these added political risks and seek to alleviate these risks.

    Preston Keat, Director of Research at political risk advisory and consulting firm Eurasia Group. New York City, offers that, in order to moderate these risks,  “… with some mining or extractive companies do is that over a 10- or 15-year period, they offer to give the asset back to the government.   It also helps if you work with local partners that are making profits.”

    Mr. Keat suggests that Conoco, which worked with a local partner out-performed Royal Dutch Shell and other, oil majors in the controversial Sakhalin Island oil and gas development project.   In the end, such majors as Royal Dutch Shell who entered the project alone were later forced by the federal Russian government to sell assets.

    Mr. Keat further adds that these extractive companies are always aware of political risk and usually work hard to lessen or avoid the risk.  “They cannot help where natural resource deposits are.  It is not as if they can go to another country.  They are where they are.”

    In another perspective, insurance firm London, UK-based Jardine Lloyd Thompson’s Head of Credit and Political Risk Analysis Dr. Elizabeth Stephens notes that the highest risk foreign firms face is “contract repudiation.”

    She adds that when some companies in the extractive industry sectors are drafting agreements with hosting governments, they should include a more equitable share in order to intercept any attempts by the government to compulsorily re-negotiate terms later.  “If oil prices are low, the host government should get 50%, for example, and if commodity prices are high, the percentage the government gets should reflect that.  The government and the company need to profit in good times.   The more a company understands the different components of risk and managing them positively, it is possible to mitigate them.”

    Usually, extractive companies are aware of political risk as they investigate business possibilities in these types of markets.

    Mr. Keat adds that “… they cannot help where natural resource deposits are.  It is not as if they can go to another country.  They are where they are.”

    However, more and more of the companies outside of the oil and mining sectors must also evaluate the risk involved.  These other companies do usually tend to look at political risk when they first enter an emerging market but then tend to ignore or fail to supervise the risk as the business relationship develops.

    Mr. Keat warns, “Their supply chain is then put in jeopardy.   There is inconsistent monitoring of political and regulatory risks.  But, in a competitive environment, those companies that seriously monitor political risk are more likely to get their products to market.”

    To complement OECD member countries’ own agencies to provide their domestic companies with export credit and political risk insurance, the World Bank also established MIGA (the Investment Guarantee Agency) in 1987 to facilitate these types of trade.

    Neil Henderson, director of political risk and crisis management for reinsurance intermediary Aon Capital, says that the political risk insurance market has approximately US$1.9 billion in product capacity.

    According to Mr. Henderson, research indicates that political risk is among the top five concerns for companies doing business in emerging markets.

    Increasingly, the fast growing ship high jacking involving Somalian pirates may create an intolerable situation where the added costs of insuring the trade in this region may spark the major powers to enact a military solution if such continuing disruption of business threatens their own national security and economic well-being.  

    By: Mark Borkowski is president of Toronto based Mercantile Mergers & Acquisitions Corporation. Mercantile specializes in the sale of privately owned mid market companies. Mark can be contacted at mark@mercantilema.com or www.mercantilemergersacquisitions.com

    The MONEY® Network

    A Cruel Choice

    Why pay attention to convergence?  Maybe because it matters, as in “poorly handled it might kill you.”

    People have known for some time that retirement is life-threatening.  Some professions more than others, but no one is immune.  I once had a client ask if she could collect on newly-retired husband’s life insurance if she killed him.  Seems his skill at manufacturing methods and efficiency did not translate well to managing the house and the grocery purchases.  She went to work and they flourished in their new roles.

    Most people understand the idea of financial convergence.  Better to have the mortgage paid off and the kids educated before retirement.  More subtle, there should be some money around in your retirement fund that is liquid.  GICs that mature two years too late might be an issue.

    Fewer people understand lifestyle and how quickly it changes when you retire.  If five weeks holidays are hard to deal with in a block, how will 52 weeks work-free suit you?  You need to know the answer to that question years before you retire.

    You must have another set of friends and acquaintances.  The downtown ones that you work with, go to the gym with, have lunch with and who share your business interests will be of little use in the ‘burbs after you retire.  You will miss them.

    How crucial is your work to your self-image and well-being.  If you live for your work, you will need intense hobbies and pastimes to make that loss inconsequential.  Again it may take years to develop them.

    For busy people and especially for the ones that like to be busy and working toward a team goal, retirement is life-threatening.  What am I for, what can I still do, with whom can I share common goals, and how do I deal with isolation, are all real and important questions.

    Many people like their work.  They have reached the “It isn’t the work I don’t like, it is the having to work, I don’t like.” phase of their life.  How do you plan to replace that loss?

    It is hard enough to retire on your own terms.  Being “retired” at the wrong time can be devastating, even if the finances work.  No time to adjust.  Begin as soon as possible to build up the psychological resources you will need.  Today, no one can be sure they will be allowed to work until normal retirement age.  Have a plan B just in case.  Early forced retirement is seldom a good thing.

    All of this has been studied in some detail.  One such is here.  The University of Michigan has followed 26,000 people over 50, every two years since 1992.  The general result,  retirement is not healthy for most people.  In a similar study, Susan Rohwedder at the Rand Corporation found that cognitive ability diminished.  Another researcher, economist Michael Insler, found that in respect to some serious illnesses, that retirement was good for you.  Obviously the knowledge is still developing.

    Seriously though, we will all decide for ourselves.  If you are prone to physical disease like cancer or heart disease, it might be good for you.  If mental issues like loneliness, feelings of worthlessness, or physical ones like hypertension or arthritis trouble you, then maybe not choose retirement.

    When preparing for retirement prepare all aspects of it not just financial pieces.  As with many things in life, there is no definitive answer for any one of us.  There remains one truth however.

    Life has a cruel choice for us,  “Work or day-time television.”

     

    Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

    The MONEY® Network

    Do Zombies Need Estate Planning?

    You might be a zombie…if you mindlessly expect:

    • the government to provide for your family when you die
    • your family will respect and understand your final wishes
    • you don’t know why you need a will and powers of attorney

    Don’t walk around like the walking dead. Instead, use this checklist to assess your risk of being a Zombie.

    Zombie Risk Checklist

    Your loved ones are at risk because you have no estate plan. Use this checklist to find out if your loved ones are protected.
    1. My loved ones know where my up-to-date will is stored.
    Yes/No

    2. I have backup executors or guardians named for minor children in my will.
    Yes/No

    3. I have legally appointed someone to handle decisions for me if I can’t.
    Yes/No

    4. I have a strategy in place to save probate and income taxes.
    Yes/No

    5. I have provided for loved ones with special needs.
    Yes/No

    6. I have a plan to deal with my business if I die.
    Yes/No

    7. I regularly review my estate plan to achieve my goals.
    Yes/No

    8. My RSPs and TFSAs are properly designated to avoid overpaying income taxes.
    Yes/No

    9. Life insurance has been arranged to pay for my children’s need.
    Yes/No

    If you have not answered “Yes” to all the questions, you need to take action.

    Do Estate Planning for Those You Love

    Zombies don’t have feelings. Zombies don’t need an estate plan.

    Do you care about the people in your life? Then find the time to make a plan.

    Imagine your estate as another word for your loved ones. If so, you’ll realize that taking simple estate planning steps will protect those you love.

    Planning can avoid problems like an unnecessary estate sale. This can jeopardize everyone close to you. Let me explain this danger and how you can avoid it.

    Estate Sales Are Dangerous

    “Estate Sale” – what do you think of when you see these words? Most people expect a bargain. Families must sell assets to pay bills, taxes or to support themselves.

    If you plan now, your loved ones can avoid an estate sale. I know you can avoid much pain and expense with a little planning. You can create your own estate plan for those you love. Start by asking yourself these questions:

    • Where can I get information?
    - local law society or bar association referral services
    - EstateTherapy.com
    - MrWills.com

    • What decisions must I make?
    - Who gets everything? (beneficiaries)
    - Who should be in charge? (attorneys and executors)
    - Who should act as my backups? (back up beneficiaries, attorneys and executors)

    • What action do I need to take?
    - Find an estate lawyer
    - Book a consultation
    - Sign your will and powers of attorney

    Read my FREE 7 keys to estate planning success.

    Estate to the Heart by Edward Olkovich EstateTherapy dot com - Copyright 2014

     

    You can find more answers by downloading a copy of Estate to the Heart. I wrote this easy-to-read guide to plan wills and estates for your loved ones. It is filled with practical checklists to avoid Zombie estate planning.

     

     

     

    About Ed

    Edward Olkovich (BA, LLB, TEP, and C.S.) is an Ontario lawyer, nationally recognized author and estate expert. He is a Toronto based Certified Specialist in Estates and Trusts. Ed’s law firm website is MrWills.com © 2014

    The MONEY® Network

    Google stock split

    As you may have heard
    Google stock will be splitting next week. Thanks to some corporate maneuvering, shareholders will be getting a new class of stock that may occupy a different line on their portfolios.
    Google is technically initiating a stock dividend, which will issue a new class of shares, C shares, to current holders of A shares (what’s publicly available) and B shares (held by company insiders). So in that sense, this is a 2-for-1 stock split that will not change the overall valuation of the company or the value of your investment.
    After the dividend is issued, you will notice that you own twice as many shares — split evenly between two different classes — at roughly half the previous price. You will also notice a change in Google’s stock ticker. Existing A-class shares will trade under the new ticker “GOOGL,” while the new C-class shares will use the familiar “GOOG.”
    The stock dividend will be paid out after market close on April 2. The new shares will begin trading on April 3.
    Why the hassle? The newly issued C shares carry no voting rights, so this move will allow Google insiders to consolidate their control over the company (through their super-voting, non-trading B shares). While this split is not a shareholder-friendly move, I have come to trust Google’s management over the years and still believe they will continue to run the company prudently.
    2. What should you do?
    Nothing, if you already own Google; if you don’t now could be a good time to buy. The stock split will have only minor effects on Google’s business operations. So if you already have shares DON’T SELL because if you have capital gains on your position in Google, trading could trigger a tax bill.
    To update your scorecard, simply:
    1. Edit your GOOGL position, and divide the price per share in half.
    2. Add a new GOOG position at the current price with the same number of shares as your GOOGL
    position.
    I expect the prices of the two classes to drift apart slightly once C shares begin trading (because of the difference in voting rights), but it’s complicated and I’m not sure how it will play out

    The MONEY® Network

    Business Owner Succession Planning—Don’t Put It Off Any Longer.

    jerry-jones-1024x856Canadians are aging and Canadian entrepreneurs are aging even faster. According to the Canadian Venture Capital and Private Equity Association, over the next 12 years, more than half of the country’s medium sized business owners are expected to retire. In Southern Ontario, it is expected that more than 64% will need to retire in less than 8 years.

    An estimated trillion and a half dollars in business assets are expected to change hands over the next decade, representing the largest turnover of economic control in generations.

    Most owner-operators feel that it is too early to plan for business succession.  Many family business owners are underestimating the challenging issues they will have to address, the time it will take to address them, and the emotional decisions they might have to make. The majority of business owners have not even started to discuss their exit plans with their family members or business partners.

    Those statistics are unfortunate, and the apparent lack of preparation could backfire on some business owners. “Succession planning should be a deliberate process and not a one-time event. Business owners should realize that the best time to plan is when you can afford the time to properly evaluate alternatives and seek input from professional advisors.  Owners ideally never want to be forced to accelerate their succession planning.”

    Business succession planning is an investment in the future of their company for the owners, employees and customers. Planning is the key to future success for everyone whose efforts have helped the business to grow. The existence of a succession plan emphasizes commitment to a company’s long-term growth, and creates confidence among shareholders, lenders, employees and suppliers.

    So have you been putting off succession planning for your business?  There is no time like the present to explore your options. This process will involve asking some tough questions and exploring scenarios that may not please all family members, shareholders, managers or employees.

    Do you want to sell the entire company in due course? Do you want to sell some now and complete the rest of your liquidity later? Is it important to you that ownership remain with family members or managers? Do you want them to have control or just minority equity participation alongside a new owner?

    Owners have various alternative options. The first step should be to have a professional business valuation firm prepare an assessment of the value of your company. It is important for the business owner to be realistic with respect to valuation expectations, or a lot of time will be wasted. Accountants and lawyers should be involved in estate planning and tax matters.

    Answering the questions posed above can be time consuming and should not be rushed. Most owners and in fact most businesses are not ready for the sale process to begin immediately. The valuation conclusion and business review process often indicates that some issues of management depth, capital structure and profitability should be addressed before proceeding not only to support valuation expectations, but also to have a more saleable business.

    That is why many owners find a gradual exit less alarming than an immediate one, “If you can prudently diversify the family net worth by taking some chips off the table now, you can better plan for the sale of the rest of the company, and probably at an improved valuation. This also generally leads to a smoother transition, and gives the owner a better chance to evaluate next generation managers, to transfer business relationships and responsibilities, and to identify and manage risks that a strategic buyer will consider down the road.”

    Most family business owners dont build their businesses with selling them as a top priority, but more should. This involves drafting a written strategic plan for the future priorities and direction of their business, and putting in place next generation management so the business can grow and prosper without them.

    Following these steps, and starting succession planning early, will ensure an effective process, with due consideration given to the range of issues and emotions that family business owners usually face.

    Mark Borkowski is president of Mercantile Mergers & Acquisitions Corporation. Mercantile is a mid market M&A brokerage firm. He can be contacted at mark@mercantilema.com or www.mercantilemergersacquisitions.com

     

    The MONEY® Network

    Options Work Wonders

    Options are one of my favorite income-generating strategies, and I’ve found a lot of success in aiming for a controlled, specific target. Maybe it’s the easy math, and maybe it’s the allure of big, round numbers, but either way, I like using $1,000 as a benchmark for each set of trades.

    handholdingmoney185 3 Covered Calls for a Cool Grand in Income This week I’m going to look at covered calls to generate income off of various stocks.

    Covered calls can work for investors in a few ways. But for our purposes, if you hold a long position, and simply feel the stock isn’t going to move much in the near-term, you might consider selling covered calls to generate income off of some or all of the position.

    Here’s a look at a few covered calls to consider:

    Covered Calls on Men’s Wearhouse (MW)
    menswearhouse185 3 Covered Calls for a Cool Grand in Income First up is Men’s Wearhouse (MW). The stock has shown some volatility lately because of its buyout of Jos. A. Bank Clothiers (JOSB). In fact, because the latter repeatedly spurned offers from the former, there has been a lot of volatility in both stocks.

    Now, the buyout has been accepted, yet some believe shareholders will vote it down while others believe a competing bid might show up.

    MW stock trades at $52.74 as of this writing. The April 55 calls are going for $1.15. So if it gets called away, you make $2.26 on the difference between the current price and the strike, plus another $1.15, for $3.41 total (minus transactions). If not called away, you still pick up the $1.15. So sell four of these for $460 in guaranteed premium.

    Covered Calls on Walt Disney (DIS)
    Disney 3 Covered Calls for a Cool Grand in Income Walt Disney (DIS) has had quite a run over the past few years, and I think it might be a bit overpriced right now.

    However, I still would hold this stock for the long term, because it has fantastic potential given all the amazing franchises it has purchased in recent years (Marvel, Pixar, Star Wars, Indiana Jones), so I’d only sell calls against half your position.

    DIS stock trades at $81.39. The April 82 calls (April 25 weekly series) go for $2 — a nice 2.5% premium. Sell two of these for another $400 in total premium. Now you’re up to $860.

    Covered Calls on Berkshire Hathaway (BRK.B)
    Berkshire Hathaway 3 Covered Calls for a Cool Grand in Income For the last selection, I suggest Berkshire Hathaway (BRK.B) B-class shares. I think this is a classic long-term hold. You want Warren Buffett in your portfolio. However, BRK.B stock has been in a long-term trading range. That’s the perfect time to sell calls against it. Even if it does get called away, there’s a decent chance the stock will fall back to its previous level so you can repurchase it.

    BRK.B trades at $123.36. The April 125 Calls go for $1.40. If you sell just one, you hit the $1,000 threshold for covered call income.

    And, if your B-class shares get called away, you also pick up another $1.64 in price appreciation, for a total return on the BRKB option trade of about 2.5%.

    The MONEY® Network