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From the Desk of:

John D. Pivirotto
Calif. Insurance License #0699308

Financial Concepts

Burlingame, CA
(650) 348-1880
(650)348-0255 Fax


Helping Build & Protect Your Future

Investment Advisor Representative
Securities and Advisory Services
offered through
Lincoln Financial Securities Corporation
Member SIPC

Current tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. The information contained in this newsletter is not intended as tax, legal, or financial advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek such advice from your professional advisors. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Written and published by Liberty Publishing, Inc. Copyright © 2009 Liberty Publishing, Inc.
Copyright 2009 Liberty Publish- ing, Inc., Beverly, MA. The opinions and recommendations expressed herein are solely those of Liberty Publishing, Inc., and in no way represent advice, opin ions, or recommendations of the Financial Planning Association, its affiliates or members. CFPTM and CERTIFIED FINANCIAL PLANNERTMare federally registered service marks of the Cer- tified Financial PlannerBoard of Standards (CFP Board). This summary does not constitute legal and/or tax advice and should only be relied upon when coordinated with a qualified legal and/or tax advisor. Febuary, 2009.
Building Financial Security 
with Family Limited Partnerships

Asset protection. Tax savings. Estate planning. High net worth individuals and business owners need to plan for all three, and a family limited partnership (FLP) may help. Given today’s litigious society and your potential tax liabilities, it is important to develop strategies to help protect your hard-earned assets and save money where you can. Let’s take a look at the ways an FLP can help you minimize your liability, maximize your tax savings, and plan your estate. 

Limiting Liability, Protecting Assets
As you know, a partnership is created when two or more people join together to carry on a trade, business, or profession, sharing in the profits and losses. In a general partnership, every partner is presumed to be the authorized agent of the partnership and of all other
partners for all purposes within the scope and objectives of the business. As a result, all general partners have unlimited liability. A limited partnership consists of two or more
persons with one or more general partners and one or more limited partners. A limited partner has no right to participate in the management and operation of the partnership business or to interfere in any manner with its conduct or control. There is no liability for the limited partner in regard to the business beyond his or her capital allocation.

A family limited partnership is an entity formed as a statutory limited liability partnership under state law in which the only partners are family members. It is important to note that
FLPs must have business purposes and a fixed duration of years. Individuals establishing FLPs can act as general partners, hold many of the limited partner interests, and maintain
100% control of assets. Also, because only you and your family will own all FLP interests, the entity can be dissolved relatively easily. For tax purposes, an FLP is considered a “pass
through” entity and, therefore, is nontaxable as a separate entity; the income passes to the owner and will be taxed accordingly as ordinary income, capital gains, etc. In the event of a lawsuit, FLPs provide a measure of protection because the plaintiff cannot lay claim to assets owned by an FLP or pursue a partnership interest. Furthermore, an FLP can generally protect partnership interests from creditors, even if they obtain a “charging order.”

Wealth Preservation
In addition to offering asset and creditor protection, the FLP is also a valuable wealth preservation tool. Income tax savings result when FLP income is shifted to children in lower income tax brackets. The “kiddie tax” makes this a less effective strategy for
younger children. While children will be taxed on their share of the FLP’s income, this income does not have to be distributed to them.
For estate planning purposes, an FLP can be a valuable tool because it allows you to give limited partnership interests to your children, while still retaining control over the entity. Children, as limited partners, cannot transfer their partnership interest without your consent (as the general partner), and they will have no personal liability for partnership debt or obligations.

Gifts of limited partnership interests to your children can generate substantial discounts; they can be made tax free if under the annual exclusion amount ($13,000 for single filers and $26,000 for joint filers in 2009). Furthermore, you may give away up to $1,000,000 during your lifetime tax free, but doing so will reduce the amount you are able to transfer tax free at death. Gifts that qualify for the annual exclusion will not reduce this amount.
These gifted interests are excluded from your estate.

As you can see, FLPs are complex, and proper planning is essential. While there are many benefits, there are also disadvantages, including expenses for establishing and maintaining an FLP; retained partnership interests appreciate in your estate until
transferred; and gifts do not receive a step-up in basis. For specific guidance, consult your tax and legal professionals. $

A Closer Look at the Safe Harbor 401 (k)
The 401(k) is one of the most popular retirement plans, but nondiscrimination
requirements often limit the amount business owners can contribute on their own behalf. If you are saving less for retirement than you’d like, a Safe Harbor 401(k) might work for you. Safe Harbor provisions under the Small Business Job Protection Act of 1996 (SBJPA) will allow you to maximize your own 401(k) contributions while automatically satisfying actual deferral percentage (ADP) and actual contribution percentage (ACP) nondiscrimination testing rules, as long as certain requirements are met.

To satisfy the ADP and ACP testing requirements, you will have to 1) make contributions for your employees, 2) relinquish all vesting requirements placed on those contributions, and 3) formally inform each eligible employee of the transition to a Safe Harbor 401(k).
The employer contribution requirement provides you with two options. With the first option, you must make a matching contribution for each nonhighly compensated employee (NHCE) who elects to contribute to the plan.The basic matching formula is 100% for at least the first 3% of employee compensation and 50% on the employee’s own contributions above 3%, but not to exceed 5% of compensation. Such matching contributions automatically satisfy the ACP test. Alternatively, an enhanced matching formula may be designed as long as the rate is nonincreasing and the aggregate amount of the match at least equals the basic matching formula (e.g., 100% match on deferrals up to 4% of compensation).

With the second option, you must make a flat, nonelective contribution for each NHCE who is eligible to participate in the plan, even if the employee opts not to contribute. The nonelective contribution must equal 3% of the employee’s compensation for the year.
With either employer contribution option, you can make similar contributions for highly compensated employees (HCEs), including yourself, as long as the matching percent for
any HCE is no greater than the matching percent for any NHCE at the same rate of deferral. Thus, with the implementation of the Safe Harbor 401(k), you can make the maximum voluntary contribution permitted under the plan without being limited to the
ADP test and receive the matching contribution or nonelective contribution provided under the plan.
Another requirement of the Safe Harbor 401(k) plan is that any employer contribution, either matching or nonelective, is fully vested to the employee for whom the employer contribution was made. Thus, employer contributions under a Safe Harbor 401(k) may lose some attraction as a way of retaining employees.

Finally, the Internal Revenue Service (IRS) stipulates that you must provide written notice to employees of the intent to implement a Safe Harbor 401(k) plan. The notice must be sent out at least 30 days, and not more than 90 days, prior to the beginning of the plan year. In addition, specific information must be included in the notice as stipulated by
the IRS.
If you are contemplating the Safe Harbor 401(k), you will need to carefully analyze the potential increase in expenses attributable to the employer contribution requirement. In
some instances, your desire to make a full contribution may outweigh the increase in expenses. However, this will likely depend on such factors as the overall plan participation, the size of your company, and whether or not you are already making any matching contributions or nonelective contributions under an existing plan. $

Maintaining a Successful Banking Relationship
Your bank constantly evaluates you and your business. They examine your financial
statements, of course, but they also notice subtle things, such as your current financial health and general well being. Remember, the nature of the banking business is to evaluate risk. As a business owner, your bank needs to know that all is financially well in your personal and business life. If you provide them with information or signals that
indicate financial difficulty—and you do nothing to make them think otherwise— you might as well ask them to turn down your next loan request, raise your interest rate, or
call your loan.

Appearances Matter
Obviously, your bank wants to continue a positive relationship, and they look to you to provide assurance for doing so. While you or your business may be prospering, you may
be sending them information to the contrary. The following are some troubling signals:
Making the Daily Review Lists. Most bankers review daily lists of checks drawn on uncollected funds, overdraft accounts, and large transactions. If your account regularly appears on one of these lists, they may wonder if you are out of cash or otherwise headed
for trouble.
They also review daily lists of past-due loans, loans with incomplete collateral documentation, and late financial statements. You may not consider late statements
significant, but bankers do. They’ve learned that people are seldom late when they have good news. If you are slow to pay, they may assume the worst.
Experiencing Cash Flow Problems. When you frequently request small loans to cover incidental expenses, banks may begin to assume that your personal or business situation
isn’t generating enough cash. Or, if you maintain high balances on your bank credit cards, a banker may wonder why you’re willing to pay 18% for money rather than pay off the balances. When your financial statement shows a large net worth and a small amount of cash, they may worry that your debt is exceeding your cash flow.

Changing Your Proposal.
When you change your mind often in your dealings with a bank, you may leave the impression that you are out of control. One fairly common situation that bankers encounter is a customer requesting a specific loan amount. The banker gets it approved,
and the customer then says more money is needed. It may be embarrassing for the loan officer to take a “whoops” proposal back to the loan committee.

Looking Rough around the Edges. When bankers evaluate the risk of a loan, they take a long, hard look at the borrower’s current condition. In loan committee meetings, it is
important to send the proper message. If loan officers notice a drastic change in your appearance or behavior, they may justifiably wonder what is wrong.
In addition, if the physical condition of your company looks run-down, chances are someone from the bank will notice. To the bank, it may look like you are not paying attention to the details of running your business or like you don’t have the money for basic

Reflect, Then Act  
If any of these scenarios sound familiar, consider implementing changes now. Maintaining a good relationship with your bank is crucial to executing your business’s financial plan. 

The Value of a Mentoring Program
For many companies, mentors can be an invaluable asset for learning and growth. They
educate new hires about company culture and policies, enhance lines of communication,
and work to fulfill the firm’s goals. New employees gain personalized training and have the
opportunity to learn from the mentor’s experience. In particular, recent college graduates often lack practical experience and need guidance to learn the daily routines and demands of a business. If you are considering a mentoring program, keep these points in mind: Mentoring and supervising are different. While a supervisor manages an employee’s work, a mentor plays a more personal role—helping a new hire to learn the ropes with ongoing support and guidance.
• Part of learning is making mistakes. The encouragement from a mentor can help an
inexperienced employee to tackle and overcome the inevitable challenges ahead.
• Developing young talent takes time. Take an organized approach by setting goals and reviewing progress. Checking in regularly can bolster morale and help dispel any feelings of discouragement.
• A little empathy goes a long way. A mentor’s positive influence and support can be a major factor in your company’s ability to retain top performers and achieve success.
Attracting and retaining valuable employees challenges every company, but a solid mentoring program can help give your business an advantage. 
Planning Strategies
*Disclosure – Securities and Advisory services offered through representatives of Lincoln Financial Securities Corporation, member FINRA & SIPC. FINRA Branch Office: 233 Bloomfield Road, Burlingame, CA 94010. 
This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in California, Oregon and Colorado only. Advisory Services are offered to residents of the state of California only. Lincoln Financial Securities Corporation is not affiliated with Financial Concepts. Financial Concepts offer insurance & financial services to residents in California and Oregon. Variable & Group insurance products offered through LFS Marketing and Insurance Sales Corporation; fixed insurance products offered through Financial Concepts Insurance & Financial Services.
John Pivirotto’s California Insurance License #: 0699308
Financial Concepts’ California Insurance License #: 0786047