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FAQ: What is a trust and why do I need one?

Exit Insight: Getting to SoldPart of every business owner’s exit strategy should include estate planning. Estate planning often includes a trust, but what is a trust and why do I need one? Synergetic Finance founder and author Joseph M. Maas explains trusts in his book, “Exit Insight: ‘Getting to ‘Sold!’” The following is an excerpt from pages 179-180.


A trust is an arrangement in which property is held by one party for the use of another, and it is formidable in establishing how the property within the trust will be used and maintained. There are a variety of trusts to choose from, each having a specific purpose. Your financial planner will discuss your options with you, and together you can select the trusts that best fit with your strategic plan to maximize your estate and minimize your taxes and costs. Here is an explanation of some of the trusts that are available.

Revocable Living Trust

A revocable trust, also called a revocable living trust, is a trust that can be altered or revoked by the trustor at any time. This allows the person who created the trust to keep complete control of the included property while also removing the property from the probate process. Should death occur, the trust becomes irrevocable and the trust controls the distribution of its included properties, not the decedent’s will. A revocable trust avoids probate, avoids public knowledge of its contents, avoids inclusion if the deceased’s will is contested in court, and provides a course of action in case of incompetence or incapacity.

There are details to know, and your financial planner will safeguard your estate with ongoing diligence as circumstances change. Some properties are best not included, such as certain depreciating assets and S corporation stock, and there are a variety of issues that will be either applicable or irrelevant, such as making gifts from your revocable living trust. Your planner is expert with guiding your path through the many trust considerations available to you. 

Irrevocable Trust

An irrevocable trust is a trust that cannot be changed by the trustor, and can only be modified by the beneficiary of the trust. An irrevocable trust benefits the trustor by removing the property from the trustor’s estate, which eliminates the property from probate and tax liability, as well as any income generated by the assets. Property held in trust can be a business, life insurance policies, cash, investment property like stocks, bonds, and real estate, and more.

Copyright © Joseph M. Maas for Merrell Publishing 2014-2015

In our next post, we’ll talk about other types of trusts.

Want more information about exit planning or estate planning? Buy a copy of “Exit Insight” for online at Merrell Publishing or Amazon. A small investment today will give you great peace of mind later!

FAQ: What is the standard of value? Part 2 of 2

Exit Insight: Getting to Sold!In our last post, we started a discussion of standard of value, giving a brief overview and explaining Fair Market Value. In this post, we’ll cover book value, intrinsic value and investment value. The following is an excerpt from pages 90-93 of “Exit Insight: Getting to ‘Sold!’”

Book value:

The third type of valuation standard is Book Value, which is actually an accounting term. Book Value is not often used in a business valuation because the value as registered in the company’s financial books is not necessarily a true representation of the entity’s value.

Book Value is derived from a business’s balance sheet of assets, liabilities, and the owner’s equity. Here is a formula that represents the relationship of these elements:

Assets = Liabilities + Owners Equity

Continuing this explanation, you’ll see in the formula below that Book Value equals the business’s net assets minus its liabilities as measured by historical costs. (Net assets are assets at historical costs minus accumulated depreciation, amortization and any depletion.)

Book Value = Assets – Liabilities

Yet another way of understanding Book Value is that it is the owner’s equity:

Owner’s Equity = Assets – Liabilities
Book Value = Owner’s Equity

Intrinsic value:

To determine the Intrinsic Value of a business, a valuator will compare the difference between the business’s value as calculated through a valuation with the value of the business being traded in the open market.

Expressing this numerically, if Acme, Inc. is trading in the market at $50.00 per share, but the value of the company is $75.00 per share when analyzed by a valuation professional, then Acme, Inc. has $25.00 of intrinsic value. $75.00 – $50.00 = $25.00.

By this method, the Acme, Inc. stock is evidently undervalued, so an investor who noticed the opportunity this discrepancy provides could purchase the stock at $50.00 with the expectation that the stock will rise toward its true Intrinsic Value as other investors perceive the same opportunity. Of course, there is no guarantee that Acme, Inc. stock will appreciate to its Intrinsic Value, or, if it does, how long the appreciation will take.

Investment value:

Though largely a subjective valuation, Investment Value is determined by the abilities of an investor to perceive an opportunity and take action based on their skills and experience with appraising a situation. An investor calculates the opportunity using knowledge, risk analysis, return characteristics, earnings expectations and a variety of other assessment techniques. Here is an example to explain Investment Value:

The investment being appraised is a 100-unit apartment building offered for sale in a desirable community. Three investors are interested in purchasing this building as an investment for upgrade and resale.

The first investor’s business model is investing and managing apartment buildings, and he values the building at $100,000 per door for a total value of $10,000,000 (100 units x $100,000 = $10,000,000).

The second investor’s business model is buying apartment buildings and converting them to condominiums; he then sells them at a premium. This investor values the property at $150,000 per door for a total value of $15,000,000. (100 units x $150,000 = $15,000,000).

The third investor’s business model is buying properties and redeveloping them to their greatest potential for return. He can afford to pay $200,000 per door for a total of $20,000,000. (100 units x $200,000 = $20,000,000).

Figure 34: Standard of Value Example

Investor Value Perspective Business Intention
Investor 1 $10,000,000 Manage apartments
Investor 2 $15,000,000 Convert to condos/resell
Investor 3 $20,000,000 Development project


Which investor’s perception of the apartment building’s value is the right one? Each investor saw a different opportunity and a different Investment Value based on their perception of a familiar outcome.

All three investors are correct with their individual valuations because each of them perceived a unique value based on their knowledge and abilities. This is Investment Value.

Copyright © Joseph M. Maas for Merrell Publishing 2014-2015

Want more information about exit planning or business valuations? Buy a copy of “Exit Insight” for online at Merrell Publishing or Amazon. A small investment today will give you great peace of mind later!


FAQ: What is the standard of value? Part 1 of 2

Exit Insight: Getting to SoldOne of Synergetic Finance’s services is to provide company valuations to business owners. Because performing a business valuation can be complex, Synergetic Finance founder and author Joseph M. Maas explains how it works and what the standard of value means in his book, “Exit Insight: Getting to ‘Sold!’” The following is an excerpt from pages 87-90.

The Standard of Value

Determining the value of a business is a complicated task because there are different standards of value. Your valuation advisor must be knowledgeable in selecting the value standard that best suits your purpose because the conclusions of one standard will be quite different from the conclusions of another, and the material difference is likely to be substantial.

For example, when appraising the value of a business for the purpose of a third party sale, ‘investment value’ is the appropriate choice. But, if appraising a business by order of a court for litigation purposes, then the standard of value will be defined by statute. In addition, if the wrong standard is applied, the conclusions will invalidate the entire proceeding.

There are five standards of value common in valuation proceedings. This review will provide a more complete understanding of how businesses are valued, affording you a broader knowledge of how your business, or the one you wish to acquire, will be analyzed and judged.

The figure below shows four of these standards and provides only a simple representation of why one or another might be a favored choice given a particular situation.

Types of Value

5 types of value








Fair Market Value (FMV):

The most common definition of value used in the business valuation process is Fair Market Value. Its popularity is based on IRS Revenue Ruling 59-60, which is the basis for all Federal tax decisions, and is used by the IRS and the courts. Because of its governmental favor, valuation professionals gain valuable guidance on performing the valuation. Here is the wording of IRS Revenue Ruling 59-60, defining Fair Market Value:

“The price at which the property would change hands between a willing buyer and a willing seller, when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, bother parties having reasonable knowledge of relevant facts.”

Another worthy definition of FMV is voiced by The International Glossary of Business Valuation Terms:

“The price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.”

Fair value:

Defining Fair Value is a bit more nebulous, as its definition is the cause for debate, and sometimes differs from state to state.

When engaged in a valuation project, valuators will wisely request that the attorney hired specifically to oversee the valuation provide the definition of Fair Value applicable to the statutes of the jurisdiction.”

Copyright © Joseph M. Maas for Merrell Publishing 2014-2015

In our next post, we’ll discuss three other standards of value: book value, intrinsic value and investment value.

Want more information about exit planning or business valuations? Buy a copy of “Exit Insight” for online at Merrell Publishing or Amazon. A small investment today will give you great peace of mind later!


Exit Insight: sale proceeds from your business

The following is an excerpt from “Exit Insight: Getting to Sold!” (pp. 157-158) available on and Merrell Publishing:

Exit Insight: Getting to Sold!The third element contributing substantially to your retirement lifestyle is the money you receive from the sale of your business. Most business owners do not know the true value of their business, heavily overestimating its worth as we have mentioned repeatedly. This is a huge detriment because if you do not know its value, you are unable to calculate whether or not you are due for a dear or a dire retirement.

The after-tax proceeds from the sale of your business are critical to your retirement comfort. Most business owners assume a happy ending, foolishly confident that a buyer will be ready and waiting to purchase the business at the asking price when the day comes. Yet the chances of that happening are remote without preparation and planning.

Just as you would dress up your home for curb appeal, fix the leaks, mow the backyard and put flowers on the dining room table, your business may require several years of carefully considered adjustments to prepare it for sale, so it stands out from the flood of other businesses begging to be bought.

Consulting with a master financial planner trained in understanding a variety of ways to strategically synthesize the fiscal tools available to you for reducing taxes, improving your business’s appeal, increasing your portfolio’s value, and providing the most funds for your retirement lifestyle is the most lucrative and sensible investment you can make.

Whether your financial accordion’s bellows need some steady pushing, the tone chamber requires an adjustment, or the reeds have to be replaced with new ones, your master financial planner will make the accordion sing and the hall dance to the tune of your retirement success.

Do you wonder if the proceeds from the sale of your business will be enough? Don’t wonder any more. Contact the experts at Synergetic Finance now to find out how much your business is worth today, so you can plan for tomorrow.

States with no income tax

Washington state does not have a state income tax.Did you know there are six other states besides Washington that don’t charge income tax? Here they are, in alphabetical order:

Alaska: The state of Alaska relies heavily on petroleum revenue to cover the state budget.

Florida: Sales tax and property taxes cover government costs in Florida.

Nevada: Gambling-related taxes and fees raise almost a billion dollars for Nevada each year.

South Dakota: This western state gets its revenue from a variety of taxes, including “sin taxes” on cigarettes and alcohol.

Texas: The state of Texas sustains itself through a state sales tax, local sales taxes and property taxes.

Washington: The Evergreen State supports itself through a variety of taxes. Our state sales tax ranges from 6.5% to 9.5% in King County.

Wyoming: This state does not have a personal state income tax or a corporate income tax.

While it may seem appealing to live in a “no income tax” state, these states still pass along their operating costs to residents through other taxes and fees. As the saying goes, there is no free lunch.



401(k) plans: review, monitor and adjust

When you choose Synergy 401(k) to set up your 401(k) plan, you get more than just an objective financial advisor. You get a team of 401(k) experts that will help you grow and nurture your plan from Day 1 to ensure it meets your needs as the business owner, as well as the needs of your employees. Part of that process is reviewing, monitoring and adjusting your plan and its investments.

To help you and your 401(k) plan participants stay on course, we review your goals and objectives with you annually. Does this plan still meet your needs? If not, we’ll recommend adjustments. We will hold quarterly investment review meetings to help you and your plan participants understand your investment choices and the results of those investments in our five-step process.

SFM 401k Monitoring






We are also available any time you or a plan participant has a question about the plan. We can explain everything from salary deferrals and contribution limits to investment performance and hardship withdrawals.

To learn more about how a 401(k) plan can benefit your business, visit our site, give us a call at 206-386-5455 or send us an email. We enjoy sharing our expertise and helping business owners create healthy retirement plans that meet everyone’s needs.