One Family’s Finances
Frank Dellastatious detests debt, but family outgo exceeded income by $2,000 last year. Three financial planners forgive him his deficit but pinpoint other problems.
His movements are quick, precise. He lets the jib sheet out, thrusts the tiller starboard, and the 38-foot yawl comes about as nicely as a Hinckley should. It is late summer, hot, and the winds are slight. But trained eyes spot puffs of wind that give the old but cared-for wooden craft the power to tack back to port.
At 52, Franklin A. Dellastatious is a precise, practiced man — sure of himself. He has the kind of spunk, wit and independence that would befit a stereotypical Chesapeake Bay waterman, New England farmer or western ranch foreman. His are the rugged good looks that in an earlier era provided one of the few fringe benefits for men who worked hard years outdoors.
Like the stereotypes, Dellastatious is his own boss. Unlike them, he makes good money. As a master plumber with his own firm in Springfield, Virginia, he earned $32,400 in 1971. This year business is better — he may clear over $40,000, but it’s too soon to say. His income can dip (and has dipped) to $20,000 one year or top $60,000 another. It’s that kind of business.
A Fairfax County construction inspector comes loping down the sunbaked yellow clay hill toward the building site. Beads of sweat fall from his face. Somewhat ominously, he huffs his way over to Dellastatious.
Dellastatious: What’s this about the cement not being up to county standards?
Inspector: Now I don’t know that. I just know it’s not been approved.
Dellastatious: There wasn’t any problem with this brand during the cement
David Nelson is a managing editor of the Pioneer Press group
of newspapers in suburban Chicago.
strike. It’s been approved by the State Highway Department. It’s first-class material, consistently tests at 25% above specified strength. Hell, if I thought there was anything wrong with it, you know I wouldn’t use it.
Inspector: This here cee-ment has not been approved by the county.
Dellastatious: Well, I’m going to pour it. If you want to stick around and watch, that’s fine with me. But if you want to stop me, you’d better get a warrant or an injunction.
The inspector notices a Money photographer circling the site, snapping pictures, and breaks off to ask what the picture taking is all about. “That’s my business,” says Dellastatious. The inspector sets out in pursuit of the photographer to ask the same question. When he gets no satisfaction, he disappears. Next day a friendlier inspector shows up, makes no mention of the cement, and work proceeds.
That’s Dellastatious: uncompromising when he knows he’s right, fast thinking enough to take advantage of the coincidence of the photographer’s presence to stave off unnecessary trouble. The name (pronounced Dell- uh-stay-shus) has French Huguenot origins, but Dellastatious is twelfth-generation American, with all the hard- work, no-nonsense independence the term implies. He believes in honest dealings and hates debt — although last year his family spent $2,060.84 more than it earned.
Dellastatious founded the Springfield Plumbing & Heating Co. in 1951 with $5,000 saved while selling fuel oil and coal in Tacoma, Wash. A native Virginian, he ventured West straight out of the Navy after marrying Jane Williams, a Wellesley girl who grew up in northern New Jersey. They had two children in the Northwest — Richmond (Richie, now 26) and Deidre (Dee, 22) — and decided to return to the East sometime in 1950.
They chose Springfield, then a sleepy country community with a population of 600, because they fell in love with a house they could afford: a two- bedroom white frame colonial with a pond and four acres of trees, flowers and hills. Dellastatious decided to set up shop in Springfield, too. “Things were starting to break,” he says, “and I got in on the ground floor.”
What was happening in Springfield was taking place throughout Fairfax County, a bedroom suburb of the District of Columbia where population nearly tripled between 1950 and 1960 and then doubled again to 455,000 in 1970. The Springfield Plumbing & Heating Co. grew with the county: from one employee to 35 and, at peak seasons, 50; from one-house jobs to construction contracts of $200,000; from one car to a collection of 30 trucks and earth-moving machines. In an average year the firm does between $500,000 and $1 million worth of business.
The first years were not all that easy. Profits were relentlessly poured back into the company to provide for more men, more equipment, more contracts — and, eventually, more profits. When their third child, Perry, arrived in September 1952, the Dellastatiouses were still living in their home’s four original rooms. The television set and sewing machine were bought on time. Educational expenses were high. “The schools were lousy then,” Dellastatious says, “so I had to send my children to private schools.”
He discovered what debt was all about, and he didn’t like it. “The hell with it,” Dellastatious says. “I’ve been there, and I swore that when things got better, never again.” When a major purchase looms, Dellastatious would much rather sacrifice savings than borrow.
In the early days, Jane Dellastatious’ principal responsibilities were the children and the house. The results of her efforts are in full bloom today: three children who have matured, or are maturing, into responsible adults much in the mold of their parents. In the house, Virginia antiques provide a Williamsburg feeling that Jane personalizes with her own touches. She spends a considerable amount of money on interior decoration, but she feels comfortable about it because she earns part of the family income. Her job as administrative assistant to an Episcopal bishop earned her $5,200 last year.
The house, surrounded by huge oak trees and dogwoods, has a market value today in excess of $100,000 — several times the initial investment, plus improvements. Their second home, on the Chesapeake side of the Delmarva (Delaware, Maryland, Virginia) Peninsula near Easton, Maryland, is pleasantly rustic — an eight-room, single-story shingle structure that sits on a point in a small cove, with a 200° waterfront view.
Dellastatious bought the house and 30 acres in 1967 for approximately $80,000. Jane says the “farm retreat,” as they call it, serves three functions: “It gives us a place to relax and be together on weekends. Also, we’re testing that area to see if we’d like to live there when we retire. And, of course, it’s just an excellent investment.” The house and land now have an estimated market value of $250,000. Dellastatious purchased the farm through cash installments spread over five years, with the last payment this past spring. He now owns both houses outright.
His two boats — the yawl, Miss Dee Too, and a 30-foot power launch, Corsair, which once served as starboard tender for J. P. Morgan Jr.’s 304-foot Corsair III — have a combined value in the neighborhood of $32,500. Dellastatious owns $3,000 of what he terms “junk stocks and bonds — mostly debentures” and three family vehicles — two Toyota station wagons and one Toyota pickup—worth maybe $6,400 total. The purchase of the farm retreat, along with the 1971 deficit, has pretty well wiped out their savings.
The Dellastatious home, bought in 1950, is worth $100,000 today. Frank and Jane (at right, below) own three Toyotas; daughter Deidre is sitting in her brother Richie’s Datsun 240Z.
Dellastatious’ principal asset, of course, is his business. What’s that worth? “What anybody will pay for it,” he says. What anybody would pay for it without its proprietor is hard to calculate, but he figures “it’s worth half a million dollars to me.” So Dellastatious puts his total worth at a little over $890,000.
Since he is about ten years from retirement, his principal concern is to rearrange his business structure to provide a smooth transition, with maximum benefit to himself. He plans to place control gradually in the hands of at least one of his sons. Richie, who is just out of the service, now heads the firm’s sitework department. Perry is still in college. Tom Kreutzer, a college classmate of Richie’s, is in charge of the new construction department.
Says the master plumber: “They’re coming around nicely, Richie and Tom. Arrangements are being made with them — if they progress and show interest — to enable them to continue with it. There are many ways to do this — a purchase plan, for instance, under which I’d get paid so much a month.”
Dellastatious takes a broad view of his long-range objectives:
- A safe, secure retirement. A decent retirement income, Dellastatious says, would be about $3,000 a month.
- Travel. “We want to see the rest of the world,” he says. Jane has toured Europe several times; he saw the South Pacific in 1971 on his way to and from the Rotary International Convention in Australia; they’ve recently been to Hawaii and London together, and plan a trip to Mexico later this year.
At Money’s invitation, three leading financial advisers from the Washington area met recently at the Dellastatious home in Springfield for an informal counseling session. The experts, who had previously studied the family’s financial records, were Charles E. Lewis, vice president of Washington’s American Security & Trust Co.; Edward J. Myerson, a broker in the Washington office of Loeb, Rhoades & Co.; and Marguerite Rawalt, an independent tax attorney formerly with the Internal Revenue Service.
Dellastatious began the session with a brief history of his business, which uncovered one new fact. The main reason that he got around to incorporating his company in the early 1960s was the existence of a federal labor law requiring construction companies doing more than $350,000 worth of business to pay time and a half for overtime. Since Dellastatious was over the limit, he simply split himself into two companies, each grossing less than $350,000, and legalized the split by incorporating one of the companies. “But,” he added, “they disallowed that later on, and we were penalized because of it.”
Ed Myerson plunged into discussion of what he considered to be the primary shortcoming of the Dellastatious financial plan, one that was to receive much attention that evening. Since the corporation existed, he said, had Dellastatious ever considered using it to defer some of his earnings, invest them and shelter them from taxes?
“Yes, every once in a while,” said Dellastatious. “But we don’t make so much money that we have to defer anything.”
That wasn’t the point, said the experts. They explained that even a modest amount of compensation, set aside in a retirement or profit-sharing program and invested, would be likely to grow much faster than any investment Dellastatious could make on his own. The difference is in the taxes. “In your tax bracket,” said Myerson, “if you invested $1,000 of your own money tomorrow: Number One, you would have to earn maybe $1,500 to have the $1,000 to invest. Number Two, if the $1,000 were to earn 10%, you’d wind up giving Uncle Sam 3% of the 10%.” Money in a
Dellastatious hopes that Richie, who now supervises the company’s construction-site work, will eventually take over the business.
pension plan or profit-sharing program, on the other hand, can grow unmolested by taxes until a participant is ready to draw it out — usually in installments, and usually at a time when other income has diminished enough to put him in a lower tax bracket.
The experts—Ed Myerson (at left) and Marguerite Rawalt and Charles Lewis (at right)-felt that Frank (gesturing) should take advantage of a retirement plan that would defer part of his income and shelter his investments from income taxes.
Dellastatious seemed skeptical and began asking questions that made it apparent that he knew a little more about the subject than the experts suspected. “There are other ground rules on that deferred compensation law,” he said. “I’d have to include other people.”
“Yes,” said Myerson, “but the very nature of the program is geared to the top man. These things can be designed so that literally 92 cents out of every dollar go to a 100% stockholder who runs his own business.”
As the experts well knew, Dellastatious owns 100% of his company’s stock. What’s more, as they soon found out, he had attended a four-day crash course on profit-sharing and pension plans sponsored by an insurance company in Washington. To him, the hitch was that all the plans he had heard about involved buying insurance. “I’ve been into this thing at least three times,” he said, “and the honest truth is that I haven’t done it because the people who were trying to sell it to me scared me away from it.”
“That’s because you went to insurance people,” said Myerson. “I say, approach it through a firm that provides purely statistical services. They’re not in the selling game. Because your business profit picture can vary rather sharply, it would seem that a very modest pension plan or profit-sharing plan could really do wonders for you on an after tax basis.”
The two other experts, Lewis and Miss Rawalt, agreed, adding that a statistical evaluation would cost around $200 but should give him the information and options he would need to reinforce his retirement plans with a tax- sheltered investment program.
As discussion of deferred income plans wound down, Myerson casually totted up the Dellastatious income-outgo figures for 1971 — and discovered for the first time that they were out of balance by more than $2,000. Following the immemorial practice of advisers, he resorted to euphemism: “The numbers that you gave us . . . uh, if you add them up and compare them with disposable income, it sounds to some degree like the way I live—very close to the line. However, unlike yours, my investments are very liquid, so that if anything happens I can get cash very quickly. Do you feel uncomfortable about this at all?”
“No, I don’t,” Dellastatious said. “I have some uneasy times, of course, but the nature of my business is gambling. So, that’s me. That’s the way I live and operate.”
What’s more, he said, “our position as far as liquidity is concerned has not always been like this. It’s only been this way since we made our last real estate purchase.” The final payment on the farm retreat, a heavy one this past spring, pretty well wiped out the Dellastatious cash reserve. “We still have a bit of cash,” he added. “Not a lot.”
“We do?” asked Jane, in surprise. The room filled with laughter. “This is an eye-opener.”
With Frank’s explanation, the experts accepted the 1971 deficit for what it was: the temporary result of a slow business year with relatively low income. Since he had come through the year and the first eight months of 1972 without having to mortgage any property or use credit, they assumed he would have little trouble rebuilding the reserves that had tided him over.
As for liquidity, said Lewis, “in a sense it’s there. Should you have a long-term cash need, you might have to go the route of mortgage, line of credit or possible sale. But it’s there if you need it. Do you have big expenditure plans for the future?”
Dellastatious: My personal objective, as far as investments are concerned, is to accumulate some more money and buy some more real estate.
Lewis: Income-producing real estate, or acreage?
Dellastatious: Either one.
Miss Rawalt: You really believe in land, don’t you?
Dellastatious: Yes, ma’am.
Myerson: Well, they have stopped manufacturing it. . .
Talk of land introduced Dellastatious’ next problem. Owners of the empty property across the street from his Springfield house had been granted a zoning variance, he said, and it looked as if they were going to build multi-unit dwellings, most likely a condominium. “Now, what will that do to us?” he asked.
The immediate impact — increased traffic, a less rural atmosphere — would probably lower the market value of the Dellastatious house and land, said the advisers. But in the long run, provided he could get zoning variances of his own, Dellastatious would probably do all right by converting his property to some sort of commercial use.
Dellastatious wasn’t at all sure he wanted to wait out the long run. Suppose he sold out now; what could he do about the capital-gains tax problem?
Throughout most of the evening, Miss Rawalt served as a point of legal reference; as the banker and the broker pursued points, she provided confirmation or dissent with “yes” or “no” gestures of the head. At this point she burst in with a staccato series of suggestions. “Of course, one option would be to set up an installment purchase plan. Spread it out; don’t let them pay you all at once.” This way, she suggested, the tax could also be spread out over several years. “Or,” she added, “there is the ‘home-to- home’ provision,” which allows the seller of a house to pay no tax at all if all the money is used to buy an existing house within a year. “And if you want to build somewhere else within 18 months of the sale,” she said, “that would eliminate the capital-gains tax entirely too.”
Myerson wondered whether the Dellastatiouses were interested in building a retirement home on their farm retreat acreage.
“No, I don’t think we could,” Frank replied. “We’re not going to go over there and build a $100,000 house.”
“We’re not?” Jane asked mischievously.
“No. You better believe it.”
The experts turned their attention to Frank’s future, and beyond. Is his $60,000 in life insurance enough? If he died, would the family be able to maintain its life style?
Lewis’ answer was a qualified yes. “The security is in the business, not in life insurance,” he said. But the business would not be completely secure unless “a normal succession took place, and a son took over, and it continued to do well.” He asked whether the company carried a “key man” life insurance policy on Dellastatious.
Lewis: A number of companies do have such policies, particularly when it’s a one-man organization or operation.
Myerson: What is the business worth without you, Frank?
Dellastatious: It’s not a business without me.
Myerson: Well, if the business had a massive amount of money, could a replacement be hired for you?
Dellastatious: No, because it couldn’t buy a master plumber’s license.
Myerson: But couldn’t it buy someone who has one?
Dellastatious: That’s possible, yes. Doesn’t happen very often, though. I’ve never seen a master plumber work for anyone else. He’s always part owner.
The experts were concerned about the rest of Dellastatious’ estate, which is willed directly to Jane. Dellastatious said that his attorneys had advised him to consider a trust arrangement, which would enable him to provide for Jane and the children without a massive tax bite, but he had done nothing about it. If Dellastatious wanted to be absolutely sure of paying no taxes, said Miss Rawalt, he should consider setting up an irrevocable trust while he was still alive.
Ed Myerson asked whether the Dellastatious real estate was jointly owned by Frank and Jane. The answer was yes.
“Well, that’s something you might want to set in order, too,” said Myerson. “If you die before Jane, it might be very difficult for her to prove that she actually paid for her half of the property.” The result could be that she would have to pay taxes on all of it. Myerson suggested that Dellastatious might consider making specific gifts of equity in the property to Jane to create legal proof that at least a certain number of dollars’ worth of real estate was hers. “The law provides that you can make a single tax free gift of $30,000, plus additional gifts of $3,000 a year. That’s one way to approach this problem, but there are all kinds of arrangements. Really, you need legal counsel to get into the nitty-gritty — and you should get into it.” Dellastatious: In other words, give it away before I die?
Lewis: Not give it away, exactly. But set it aside.
The two-hour session concluded with short statements by each of the financial experts, summarizing key points. They restressed two items:
- Dellastatious should hire a statistical service or accounting firm to explore the benefits of deferring income for retirement years through a pension or profit-sharing plan.
- Even though Dellastatious is in trim good health (he voluntarily gave up smoking and drinking about four years ago), he should soon get his estate in order. Because of his sizable assets, it’s too important an item to put off.
As the experts rode toward Washington along the winding, up-and-down blacktop road leading from the Dellastatious home, they fell into small talk about the family they had just left. “I really admire that man,” said Myerson, “particularly his philosophy about debt.”
Added Lewis: “He deserves credit. He’s a rare bird — a throwback to the original American spirit.”