Caring for Aging Loved Ones

Jessica L. Cafferata, JD, CFP®, CDFA®, Callan Capital

Transitioning to a senior living arrangement is a considerable undertaking. Determining when, how, and where to transition, ensuring your loved one’s care, ability to age in place, social and hobby opportunities, and affordability are examples of the many decisions to be made. Your Callan Capital team can help you evaluate your options and model fiscal impact.

Transitioning to Senior Living


If your loved one needs reminders, is not able to perform daily tasks on their own, is increasingly isolated, has lost interest in hobbies, is falling or has mobility challenges, neglects their own care or household maintenance, it may be time to consider a senior living arrangement. However, some seniors transition to senior living arrangements before more advanced care is needed. This can be especially helpful for moving to continuing care retirement communities (CCRC) for lifetime care where payment options may include high entrance fees with limited future costs. Expect push back from your loved ones as this is a major life decision and change. It may take one or two months of resistance for your loved one to get comfortable with the decision and make the change. In our experience, many are pleased with the decision once the change has been made. 

Options for Care and Cost

Options for care include in-home care, adult daycare, assisted living, and nursing homes. Most clients prefer to begin with care in their home until more advanced care is needed. There are also continuing care retirement communities where loved ones can age in place (see more detail below). The cost of care since 2020 for assisted living increased 4.65% and 2.41% for semi-private nursing room care costs due to COVID-19, skilled labor shortages, increased demand and supply, and regulatory changes according to Genworth. From 2004-2020, the cost of care rose on average 3.80% annually. Currently, according to the U.S.

Department of Health and Human Services, the median national cost per month for a private nursing home is $9,034, for assisted living $4,500, and for in-home care for a home health aide $5,148. Long-term care insurance, health insurance, chronic illness policies, long-term care riders on life insurance and annuities and Medicaid/Medicaid planning can help towards the cost of care. Veterans may be eligible for long-term care service through the Department of Veterans Affairs. Medicare typically does not pay for nursing home care. Callan Capital can model the impact of a long-term care event on your financial plan. We also collaborate with third-party independent brokers to secure long-term care policies and hybrid policies.

Care in the Home

Most individuals prefer to remain in their home as long as possible.  At first, your loved one may only need care for a few hours a day. For loved ones needing a companion only, companion care is the solution. These aides spend time with your loved one and can also help with transportation. Their care is hands off and agencies charge about $24 per hour with half of the fee being paid to the companion. Care minimums are usually 2-4 hours. Homemaker services may be the perfect solution for those needing help with tasks such as cooking, cleaning, and running errands. The national median hourly rate is $26, and that rate has  grown over the past five years by 5.39% according to Genworth. Homecare agencies usually require 2-4 hours minimum. Home health aide services are another example of care that may be needed for just a few hours a day. This is personal care such as bathing, dressing, grooming, and teaching how to use a cane or walker. The national median hourly rate for these services is $27 and this cost has also increased over the last five years by 5.92% according to Genworth. Daily rates range from $200-$350 per day depending on the type of care needed and your loved one’s location. Costs can vary significantly based on the state. Overnight care is another option, and those rates

To ensure you are hiring the best team for your loved one, we suggest the following:

  • Ask for referrals and proof that the staff is insured and bonded
  • Consider how long the agency has been in service, the qualifications and experience of employees, staff turnover, and what background checks the agency undertakes
  • Ask the agency whether a doctor is on staff to help care workers with treatment plans for your loved one
  • If possible, independently engage in a background check and credit screen for your loved one’s caregivers
  • At a minimum, complete an internet search with caregivers’ names and look for agency complaints

Consider making modifications to your loved one’s home for safety and comfort. For mobility, your loved one may need a wheelchair ramp, grab bars, a stair lift, wider doorways and low pile carpeting or other flooring. Other changes to consider include bed rails, a walk-in shower, a raised toilet, and accessible light switches. If your loved one has long-term care insurance, it may cover equipment and home modifications. Downsizing the home may be an option, too. Consider a one-level condominium in a senior community that may already have the modifications listed above.

Continuing Care Retirement Communities

For others, moving to a continuing care retirement community to age in place may be the better choice. Buying into a CCRC is a significant financial and lifestyle commitment.

Usually, your loved one must be 62 or older and healthy enough to live independently because CCRCs are designed for aging in place.  Generally, higher entrance fees and monthly fees equate to more health care costs covered by those fees. Entrance fees are usually between $100K – $1MM (depending on the cost of real estate) with the average entrance fee at $350K.

The fee covers your living arrangements, meals, possibly some care costs, and may also be used towards facility costs, and may or may not be refundable. Additionally, there is a monthly fee (3-4% indexing typically) and the fee varies depending on the facility, level of care, and whether the resident buys or rents their home within the community. This fee is not fixed and can be adjusted for falling facility occupancy rates or even if the facility experiences financial difficulty. Qualifying for a CCRC requires a robust financial vetting as the CCRC wants to ensure that not only the up-front fee is paid but also the monthly fees which will continue to rise. Successful applicants often have total assets of twice the entrance fee and monthly income of twice the monthly fee.

There are three contract options. 1) High Entrance Fees/Lower Future Costs – Entrance fees are high with more limited future cost increases because residents prepaid for more advanced care. 2)  Lower Entrance Fees/Higher Future Costs – Entrance fees are lower and offer initially limited assisted living or nursing care and residents’ costs increase in later years. 3)  Fee-for-Service contracts – With fee-for-service contracts, entrance fees are lower, but residents pay for care at market rate.

Fees may be negotiable and new  CCRCs or those with larger vacancies are typically more open to negotiation. Review the contract carefully as there may be opportunity to reduce rent inflation rate assumptions, medication administration fees, and other service fees. There are third-party intermediaries that can be hired but negotiation is hindered by their one-month rent commission.

Finally, if you itemize deductions on your federal return, you can currently deduct medical expenses that exceed 10% of your adjusted gross income.

CCRC Checklist

Before signing the CCRC contract, consider the following due diligence:

  • Tour the assisted living and skilled nursing facilities
  • Make sure you schedule a standing date for visits and encourage your loved ones to visit during mealtime as well
  • See if the facility allows your loved one to sleep  over
  • Ask about staff turnover, historical occupancy rate, how the CCRC plans to meet its future obligation, and future expansion of the CCRC
  • Search the internet for bad press, bankruptcies, or other red flags
  • Callan Capital can help you negotiate the upfront fee
  • Request the CCRC disclosure statement, including audited financial statements and a sample contract for review by your accountant, lawyer, and Callan Capital
  • Understand the consequences if you cannot afford the monthly fees (i.e., is Medicaid accepted, would the CCRC draw down the refundable entrance fee, is there a benevolent fund that would subsidize your stay, would you have to leave)
  • Request the historical monthly fees and understand vacancy rates
  • Understand the consequences if you cannot afford the monthly fees (i.e., is Medicaid accepted, would the CCRC draw down the refundable entrance fee, is there a benevolent fund that would subsidize your stay, would you have to leave)
  • Request the historical monthly fees and understand vacancy rate

Contact Us:

Callan Capital is committed to bringing clarity, direction, and peace of mind to financial choices. Contact your Callan Capital team today for help evaluating your loved one’s senior living options and the monetary impact of that decision.

Sources
https://pro.genworth.com/riiproweb/productinfo/pdf/131168.pdf
https://www.genworth.com/aging-and-you/finances/cost-of-care.html
https://aging.com/in-home-care-costs-breakdown
https://www.homecare.org/the-cost-of-24-7-in-home-care/
Disclaimer: Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. Callan Capital outsources to lending and financial institutions that directly provide our clients with, securities-based financing, residential and commercial financing and cash management services. For more information, please refer to our most recent Form ADV Part 2A which may be found at www.adviserinfo.sec.gov. 

What We’ve Been Up To

Recently, Callan Capital was a sponsor and speaker at the Karmel Capital Annual Meeting in San Diego, CA.  The event featured presentations on the most pressing topics surrounding technology investments.  

Trevor Callan and James Brailean, Ph.D. discussing Market Insights

Tim and Trevor Callan with their families and PEERS at the Torrey Pines Gliderport.  Learn how PEERS gives back to the community.

The PEERS Network was established in 2009 and brings entrepreneurs and executives from across a variety of industries together with a common goal: to give back.   For more information, please visit For more information, please visit https://www.peersnetwork.org/

2021: MARKET OUTLOOK

In the past 12 months, the global economy ground to a halt and markets experienced their sharpest drawdown in history but ended with the S&P 500 up ~17% for the year. Markets once again proved resilient, buoyed by extraordinary measures taken by monetary and fiscal authorities across the globe.

We see 2021 being a year of recovery in the economy as it plays catch-up with financial markets. With the following themes paving the way:

  1. Global output and demand are likely to rebound strongly in 2021
  2. We believe investors should expect returns to moderate over the next full market cycle (5-7 years) as the financial markets have, to an extent, priced in an economic recovery
  3. Change in market leadership
  4. Opportunities in private markets

Economic Rebound:

After conquering the daunting task of developing a vaccine in record time and then getting off to a rocky start with distribution, we are seeing signs of logistical improvement with appointment availability opening and the average rate of administered vaccinations reaching nearly 1.5mm Americans per day according to CDC data.

With mortality rates around 80%, the most vulnerable cohort—individuals over 65—are expected to continue falling as the group is largely vaccinated by the end of the first quarter of the year.

While the vaccine effort progresses, Central Banks around the world are keeping interest rates lower for longer and federal governments are providing significant stimulus for main street.  This also tends to push up asset prices which benefits investors.

A change in leadership at the Federal government level implies strong support for main street stimulus, as well as an expectation of easing global trade tensions exemplified by the United States rejoining the Paris Climate Agreement. Moreover, with Brexit largely behind us we see favorable conditions for international trade moving forward.

Cautious Outlook:

We believe the swift recovery in public equity and credit markets last year indicated that the market has, to an extent, priced in an economic recovery. The large amount of liquidity in the market has investors looking towards less traditional investments. Special Purpose Acquisition Companies (SPACs) bringing non-revenue generating early-stage companies public is an area we are keeping a close eye on for signs of excess. As a result, we see this as a time for careful portfolio positioning while looking towards areas of the market with more attractive valuations.

Change in Market Leadership:

Rather than growth and technology stocks leading the charge, as they have in the last 12 months, we expect the rest of the market to start improving with more cyclical and value stocks pulling ahead with strong earnings growth as the economy reopens. Travel and leisure, in particular, stand to benefit from the economy’s reopening as vaccines become more widely available.

Recent data shows indices like the S&P 500 are heavily skewed towards technology stocks creating a sector imbalance. Currently, the top 10 holdings in the S&P 500 account for almost 29% of the total index, which is historically more than their fair share. Simply put, the names that got us through the COVID-19 recession are unlikely to lead us through the next phase of the cycle.

The current monetary & fiscal landscape gives reason to believe that the US dollar will face continued downward pressure as interest rates remain lower for longer. Generally, a weaker dollar creates a favorable environment for international equities, which also happen to be cheaper in comparison to their US-based peers currently. Both the weaker dollar and relative cheapness of international securities make international stocks an attractive investment. These circumstances inform our view that small companies, international stocks and cyclical equities could perform well on a relative basis through the next phase of this investment cycle.

Private Markets:

Private market assets could play a role to lower volatility and provide higher returns than traditional fixed income. With yields in bonds expected to remain lower for longer, we believe strategic private market assets are an interesting place to look. There may be opportunities in private equity, credit, real estate, and infrastructure that can offer a higher yield with relatively lower volatility than public equity markets.

One of the most crucial trade-offs between public and private assets is liquidity. Meaning it is far easier to buy and sell a stock or ETF through an online broker than it is conducting a transaction in private markets.  However, lower liquidity could be a reasonable tradeoff for certain investors.

Conclusion:

It is important to keep in mind that financial markets are forward-looking while data from the economy tends to be retrospective. While we are constructive on prospects of recovery in the economy, we remain cautiously optimistic about market returns in the next phase of this market cycle.  More balanced diversification across the market sectors is our basis for a prudent long-term investing approach.

DISCLAIMER

The information in the presentation is not intended to provide and should not be relied upon for accounting, legal and tax advice or investment recommendations. Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Investors should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. Callan Capital outsources to lending and financial institutions that directly provide investors with, securities based financing, residential and commercial financing and cash management services. For more information, please refer to our most recent Form ADV Part 2A which may be found at www.adviserinfo.sec.gov.

Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be suitable for all investors. The views contained herein are not to be taken as an advice or recommendation to buy or sell any investment in any jurisdiction. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without previous notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect to any error or omission is accepted. This information should not be relied upon by you in evaluating the merits of investing in any securities or products mentioned herein

PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS and does not guarantee future positive returns

The S&P 500 Index is widely regarded as the best single gauge of the U.S. equities market. This world-renowned index includes a representative sample of 500 leading companies in leading industries of the U.S. economy.  Although the S&P 500 Index focuses on the large-cap segment of the market, with approximately 75% coverage of U.S. equities, it is also an ideal proxy for the total market. An investor cannot invest directly in an index.

Raising Financially Responsible Kids

Research shows that kids as young as 3 years old can grasp the ideas of saving and spending. The sooner parents start  teaching and talking to their kids about money, the more comfortable kids will be with these concepts. Creating financially aware children entails teaching them that wealth is not only tied to money, but also resources they  develop over time. For example, material resources such as homes, cars and computers and non-material resources  such as skills, health and knowledge all contribute to a full, rich and happy life. Below are money lessons and tips for activities that can be taught to kids of every age.

MAKING SPENDING DECISIONS: AGES 3-5

Teachable Moment: You may have to wait to buy something you want.  This is a difficult concept for people of all ages to learn! In our current culture of “instant gratification,” where kids are  bombarded with hundreds of advertisements per day, it is important for kids to learn that for most purchases that are  not necessities, they have to save money first in order to buy the item.

Tactical Tip: Create three jars – each labeled “Saving,” “Spending” or “Sharing.” Every time your child receives money, divide the  money equally among the jars. Have them use the spending jar for small purchases, like candy or stickers. Money in the sharing jar can go to someone you know who needs it or be used to donate to a friend’s cause. The saving jar should be for more expensive items. In addition, have your child set a goal, such as buying a toy. Make sure it’s not so pricey that they won’t be able to afford it, since you want to ensure their success. If your child has an expensive goal, come up with a matching program to help them reach it in a reasonable time frame. Help them proactively allocate money to their savings jar in order to buy the item.

CREATING SPENDING PLANS: AGES 6-10

Teachable Moment: You need to make choices about how to spend money. At this age, it’s important that kids know that money is finite and that once you spend everything, you don’t have any more to spend.

Tactical Tip: Include your child in some financial decisions. At the grocery store for example, tell them that you choose to buy  generic peanut butter rather than the brand name because it costs 50 cents less and tastes the same. Or, discuss savings, such as buying everyday staples like paper towels in bulk to get a cheaper per-item price. Consider giving your child $5 in the grocery store and have her make choices about what vegetables to buy, within the  parameters of what you need, to give them the experience of making choices with money.  Make a shopping list and sticking to it, not buying anything in addition to the items on the list. Also, try speaking aloud  about how you’re making your financial decisions as a grown-up, asking questions like, “Is this something we really,  really need? Can we go to discount store and get two of these instead of one?” During this age range, talk with kids about philanthropy, giving back and donating their money. Kids love to feel like  they are helping, as it is energizing and exciting to them. Whether they choose to donate some of their allowance to  a charity, or volunteer time doing some sort of community service, these opportunities makes kids feel useful and are great teaching moments. When they are a little older, you could consider bringing them into a conversation with your  financial advisor regarding a Donor Advised Fund to highlight the process of how and where the funds are distributed.

LETTING MONEY GROW: AGES 11-13

Teachable Moment: The sooner you save, the faster your money can grow from compound interest. Introducing long-term vs. short-term goals at this age will help kids start to think about the future and any action they need to take now.

Tactical Tip: Describe compound interest using specific numbers, since this is more effective than describing it in the abstract.  Explain, “If you set aside $100 every year starting at age 14, you’d have $23,000 by age 65, but if you start at age 35,  you’ll only have $7,000 by age 65.” Consider doing some compound interest calculations with your child on Investor. gov. Here, they can see how much money they’ll earn if they invest a certain amount and it grows by a certain interest  rate. Have your child set a longer-term goal for something more expensive than the toys they may have been saving for.  Start introducing the concept of opportunity costs and trade-offs and long-term savings goals. In addition, consider sharing the family budget, or expenditures vs. income on a weekly, monthly or yearly basis. By showing your kids the cost of living for your family, you are setting a good financial example of one way to maintain  control and responsibility of your money.

DISCUSSING THE COST OF COLLEGE (AGES 13-18)

Teachable Moment: Bring your child into the college cost conversation and share plans for payment and affordability.

Tactical Tip:  Discuss how much you can contribute to your child’s college education each year. Share with your child in early high  school years what your plans are for payment so that it is tangible in your child’s mind. If full payment from parents  is not an option, consider looking into with your child which private schools are generous with financial aid and how  much in loans your child would potentially have to pay back.

DEBT (AGES 18+)

Tactical Tip: Together, look for a credit card that offers a low interest rate and no annual fee using sites like Bankrate or Creditcards. com. Consider placing your child on your credit card to help build their credit and monitor their purchasing and  payment behavior. Explain that it’s important not to charge everyday items so that way if you have an emergency expense that you can’t  cover with savings, you can charge that. Teach them that saving at least three months’ worth of living expenses in  emergency saving is prudent, though six to nine months’ worth is ideal. As mentioned, essential topics in personal finance are not learned in high school or college, so it is essential that parents act as teachers in this area and have money conversations early and often with their kids.

Though bringing your child into a meeting with your financial advisor is a personal decision, in our experience at  Callan Capital we have seen that it is invaluable for teaching your child financial responsibility and planning for the  future. Have your child sit in on the next advisory meeting without revealing account balances. The financial advisor  can give an overview of simple investment concepts such as asset allocation and diversification. As the child gets  older and more comfortable, and perhaps has an investment account of their own, you can start to reveal more details  about your personal financial circumstance with the help of your advisor. We have seen that those families who place  importance on involving children in wealth discussions have greater sustained wealth and a richer family legacy that  those who do not.

Important Disclaimer

Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. Callan Capital outsources to lending and financial institutions that directly provide our clients with, securities based financing, residential and commercial financing and cash management services. For more information, please refer to our most recent Form ADV Part 2A which may be found at http://www.adviserinfo.sec.gov.

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Callan Capital Participates in Junior Achievement’s 2019 Stock Market Challenge

Callan Capital was pleased to sponsor and participate in Junior Achievement’s 2019 Stock Market Challenge in San Diego. More than 150 students from local San Diego high schools got a taste of the fast-paced, high-stakes stock market through the competition. Callan Capital also participated in the corporate, adult event at night, taking the first-place spot in the competition. Using state-of-the-art technology in a simulated trading environment, each team began with $500,000 in fictitious funds and interacted with on-site traders to buy and sell shares in 26 companies with the goal of building the highest-net worth portfolio by the end of the trading period.

The event was designed to connect teens to the future world of business and to raise funds for Junior Achievement’s financial literacy programs. The stock market challenge raised over $41,000. For more information on Junior Achievement, please visit https://www.jasandiego.org.

Rob Mikulski Elected as 2019 JA YES Board Co-Chair

Callan Capital is proud to announce that Rob Mikulski has recently been elected as 2019 Co-Chair for the Junior Achievement of San Diego County Young Executive Society (JA YES). JA YES is a dynamic group of young professionals from various industries and corporations in San Diego, who raise awareness and act as ambassadors on behalf of Junior Achievement, offering support through fund raising, “friend-raising”, special projects and expansion of JA programs and initiatives.

For more information, please visit http://www.jasandiego.org/about/ja-yes

Pre-Transaction Considerations

In any industry, preparing for a liquidity event requires a great deal of strategic vision and technical expertise. The earlier you start mapping out your vision for what you want to achieve financially and understanding your resources, the more flexibility and leverage you have in shaping the outcome. For those that are in the pre-transaction phase, or have secured first or second round funding, there are specific items to consider:

 

Work Optional Lifestyle

Determine your “numbers” and think about where you want your wealth to go: work to articulate your desired lifestyle post-liquidity event and then determine the amount of wealth needed to achieve that vision. Whatever your goals— retiring early, buying a vacation home, spending more time traveling, or funding your children’s college education— you need to quantify the cost of those goals and then determine the present value of the assets needed to fund this lifestyle. Essentially, all of your wealth will end up in one of four buckets: funding your lifestyle, transferring wealth to your children and other loved ones, supporting charities or paying taxes.

 

What if Scenarios

Test your assumptions (scenario planning): perhaps the biggest variable in planning for a liquidity event is the valuation of your equity. To help you understand the range of potential outcomes, we recommend that you have your advisors run calculations to show how much after-tax wealth you would receive under best-case, base-case, and worst-case valuations.

 

Compensation Packages

Understand your executive compensation package: technology entrepreneurs and executives often receive multiple forms of compensation, including traditional equity, stock options, restricted stock, employee stock purchase plans, deferred compensation, and life insurance. Each of these forms of compensation has a unique set of tax consequences, downside risk and upside potential when it comes to generating liquidity.

 

Gifting

Take advantage of valuation discounts: one of the most powerful pre-transaction planning strategies has to do with the fact that your equity likely will have a lower valuation before the transaction than the valuation used for the transaction. By transferring equity to children or other loved ones before the transaction valuation has been determined, the subsequent appreciation occurs outside of your estate, increasing the amount that you can transfer to loved ones without incurring estate tax. Many business owners choose to make these transfers through a grantor retained annuity trust (GRAT). Transferring shares to take advantage of the valuation discount, however, isn’t without risk. If the transaction valuation ends up being higher than you anticipated, then you may end up transferring more wealth than you intended. Conversely, if the transaction valuation ends up being significantly lower than you anticipated, this may mean that you didn’t retain enough wealth to fund your lifestyle goals.

 

Health Coverage

When selling a business or going through a certain liquidity event, you may lose health insurance coverage. Finding coverage on your own can be stressful, but there are considerations to be aware of such as where to find a plan, what to look for in a plan and costs and coverage associated with each plan. For a good summary of considerations, you can read our health care whitepaper here.

 

 

Important Disclaimer:

Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. Callan Capital outsources to lending and financial institutions that directly provide our clients with, securities based financing, residential and commercial financing and cash management services. For more information, please refer to our most recent Form ADV Part 2A which may be found at http://www.adviserinfo.sec.gov.

PEERS Annual Gala Benefiting Rady Children’s Hospital

Callan Capital partners participated in the PEERS Network annual gala, A Night in Mykonos.  The Bohemian-themed gala raised over $100,000 for the PEERS endowment and Rady Children’s Hospital Neonatal Intensive Care Unit

The PEERS Network is a professional non-profit 501 (c) (3) group funded by local entrepreneurs whose aim is to give back to the San Diego Community. For more information, please visit https://www.peersnetwork.org/.

10b5-1 Planning for Corporate Executives

Along with running a successful company and answering to shareholders, corporate executives of public companies have something else to worry about — their significant equity positions in their own companies, and generally complex compensation packages. Used properly, a 10b5-1 plan is a tool that can help executives strategically plan and execute concentrated equity position sales.

 

What It Is and Why You Need It

Rule 10b5-1 was established by the Securities Exchange Commission (SEC) for insiders of publicly traded corporations to sell their stock at predetermined dates and prices. If properly designed and implemented, a 10b5-1 trading plan can provide a corporate executive with an affirmative defense against insider trading as well as an opportunity to sell their stock during periods they would normally be restricted (blackout periods). These plans, available from the custodian where the stock is housed, can provide a great way for executives to diversify their holdings in a flexible manner consistent with their financial objectives.

Though 10b5-1 plans are flexible for the executive — they can be cancelled at any time — the plans can only be initiated while the executive is in an open window and is not in possession of non-public, i.e. inside, information. The plans must specify the amount, prices, and date of the shares to be sold.

 

Important Plan Elements

There are important elements and dates that need to be outlined in a plan:

  • Plans should be in place at least one year after adoption date and should not exceed two years. These plans can be cancelled at any time but canceling and replacing a plan should be avoided if possible.
  • The adoption date is the date the executive and the issuer sign the plan. New 10b5-1 plans need to be adopted while the executive is in an open window and is not in possession of nonpublic information.
  • The effective date is the date the first trade is initiated.
  • The termination date is typically no longer than 2 years from the adoption date. Insider trading restrictions set forth by both the SEC and individual companies have become more stringent and arduous for executives that receive a significant portion of their compensation in the form of restricted stock or stock options.

 

Trends

We’ve noticed the following trends that savvy companies and executives institute:

  • Cooling periods mandate a length of time during which trading is prohibited after a plan is adopted. Plans typically have a cooling period between the adoption date and the effective date. A normal cooling period is 30-90 days for a new plan. If an executive is cancelling and replacing a plan, this generally involves waiting at least 90 days from the date of cancellation, and generally involves a new cooling period after adoption. This could lead to 6 months of blocked trading.
  • Although executives can sell in an open window, it is preferable to only use the 10b5-1 plan for officers and directors to sell stock. It should also be the exclusive defense against insider trading.
  • Some companies establish plans concurrent with their initial public offering (IPO), when all information is publicly disclosed. This provides the executive with extra protection against insider trading because the cooling period needs to exceed the underwriter lock up (greater than 6 months). The longer the cooling period, the less likely it is for shareholders to make the claim that an executive has acted on inside information

Establishing a plan concurrent with an IPO is particularly important for companies with constantly evolving non-public information, such as certain life science companies involved in drug trials. In situations like this, executives might have limited windows for selling stock absent of a 10b5-1 plan.

It is important to ensure that the brokerage account registration that the stock will go into matches the title stock being sold. For instance, individual accounts need to be established for shares resulting from RSUs and options because they are in individual form when issued. This also ensures that the form 4 and 144 will match.

Because of more rigid insider trading policies, 10b5-1 plans have become a common practice for corporate executives who work with an advisory firm. 10b5-1 planning, under the umbrella of financial planning, has emerged as a way to help executives be more strategic in their planning, protect themselves against insider trading and diversify their wealth. Since the plans can be complex, most executives receive guidance from the investment advisory firm with which they work.

 

Important Disclaimers

This blog is powered by Callan Capital, LLC. The information contained in this blog is provided for general informational purposes, and should not be construed as investment advice. Any links provided to other server sites are offered as a matter of convenience and are not intended to imply that Callan Capital, LLC endorses, sponsors, promotes and/or is affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.

Callan Capital, LLC may from time to time publish content in this blog and/or on this site that has been created by affiliated or unaffiliated contributors. These contributors may include Callan Capital, LLC employees, other financial advisors, third-party authors, or other parties. Unless otherwise noted, the content of such posts does not necessarily represent the actual views or opinions of Callan Capital, LLC or any of its officers, directors, or employees. The opinions expressed by guest bloggers and/or blog interviewees are strictly their own and do not necessarily represent those of Callan Capital, LLC.

Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors. Callan Capital does not provide individual tax or legal advice, nor does it provide financing services. Clients should review planned financial transactions and wealth transfer strategies with their own tax and legal advisors.  For more information, please refer to our most recent Form ADV Part 2A which may be found at http://www.adviserinfo.sec.gov.