Might As Well Stay Hitched?

Remember Dorothy Parker's advice to the suicidal?

Razors pain you; Rivers are damp;
Acids stain you; And drugs cause cramp.
Guns aren't lawful; Nooses give;
Gas smells awful; You might as well live.

Like living, marriage starts to look like the lesser evil after reading Ron Lieber's Financial Decisions to Make as You Divorce. To the problems he lists you can add one more: the need for new estate planning.

These days, that need may well lead people to seek wills and trusts online. At the WSJ, Jane Hodges conducted a comparative Test of Online Wills. Suse Orman offered the best price, plus an alert about the changing estate tax.

Planned Gift? See a Trust Officer

A generation ago, Mr. and Mrs. Gotrocks might have needed the services of a trust officer at their friendly bank in order to set up a planned gift. A charitable remainder annuity trust, for instance.

In this century, donors find it easy to eliminate the trust-officer middleman and set up planned gifts, including annuities, directly. Easy, but not always safe. See Charity Bankruptcy Leaves Many Donors in Distress.

Banks aren't so friendly anymore (your's excluded, of course!) but maybe prospective donors should get back in the habit of consulting the bank's trust and investment pros.

CDOs Cubed

From Floyd Norris' column in The New York Times:

MBIA is suing Merrill Lynch, which paid MBIA to insure securities backed by extraordinarily complex securities, among them collateralized debt obligations secured by collateralized debt obligations secured by collateralized debt obligations that were secured by mortgage-backed securities. Such a thing is known as a C.D.O. cubed . . . .

No comment necessary.

Art is Money, Money is Art

Andy Warhol did Sotheby's proud. Warhol's "200 One Dollar Bills," expected to be the star of this week's contemporary art auction, sold for more than $43 million.

Over at Christie's, art consigned by Peter Brant did not sell. Star of the sale: Peter Droig's "Reflection (What does your soul look like)," which brought over $10 million.

Offhand, the take-away seems to be (1) collectors really, really like art that looks like money, and (2) hard times have made collectors more receptive to works that would not have offended Monet or Andy Wyeth.

Peter Droig's "Reflection (What does your soul look like)"

Do Charities Need the Death Tax?

If the federal estate tax were repealed, would charitable donations dip by 6% to 12% per year? Would charitable bequests decline by 16% to 28%?

Those estimates by the Congressional Budget Office are cited in this Dow Jones column.

Are charitable donors really so estate-tax sensitive? Aren't they more likely to be influenced by income tax deductions (likely to become more valuable for those with incomes over $500,000) and the ability to take capital gains tax free (via charitable remainder trusts)?

Charitable bequests no doubt would drop off without the estate tax, but probably not by much. Significant bequests usually spring from other motivations. Case in point, the (reportedly) $7.5 million bequest to The Metropolitan Opera left by Mona Webster, the lighthouse keeper's daughter who became in later life the wealthy widow of an investment manager.

Mrs. Webster, who died at age 96, didn't even earn her estate a tax deduction, according to the NYT account.

Another American Success Story

Wealth managers can prosper in up markets, down markets, even mad markets, as long as they have well-heeled clients. Success requires only a steady stream of HNWIs and even UHNWIs.

Where does a wealth manager find these possessors of new money? The answer is constantly fascinating, as illustrated by this individual's story from Sunday's New York Times.

The kid and his family came to this country from Pakistan when he was 11. Dad worked as a machinist, moonlighted at McDonalds. The kid delivered papers, mowed lawns – and happened to get a job watering plants for a florist. One thing led to another, and ere long the kid was running three flower shops. In 1986 he became an American citizen. In 1999 he and his brother conceived the idea of selling arrangements of … fruit!

Today Tariq Farid is CEO of Edible Arrangements, doing business on an international scale, and has founded several related companies.

The first moral of Farid's story is– keep your eyes open. Wealth is generated in this country in more ways, by more people, than we can imagine or foresee.

You can guess the second moral: One American Muslim has betrayed his uniform and his country. Thousands and thousands of American Muslims such as Tariq Farid have done this country proud. All of us, especially those in uniform, should work hard to remember that.

You can read more about Tariq Farid at Wikipedia.

Will Madoff's Victims Be Picower's Heirs?

Ten days before he died in his swimming pool, billionaire Jeffry Picower signed a new will. The "longtime investor in Bernard L. Madoff’s fraud scheme" left $225 million to his wife and daughter and $10 million to his long-time assistant. The reminder of the estate is left to charity.

Or perhaps it will go to the truly needy.

The New York Times reports that Irving Picard, the trustee representing Madoff's victims, has demanded that the Picower estate hand over $7 billion that the Picowers received in payouts from Madoff. The estate argues that the trustee is entitled to no more than $2.4 billion.

All told, trustee Picard estimates that Madoff's victims lost around $21 billion. Additional "losses" were imaginary profits that never existed.

The Year the Stock Market Died

Jim Gust's celebration of his 30 years at Merrill Anderson prompted a browse in The New Yorker's archives. Like to see what ads offering investment services looked like back in 1979?

Sorry. No luck! It was a fool's errand.

As Business Week famously declared that year, in 1979 the stock market was dead – cold and stiff, deceased as that Monty Python parrot.

The only Merrill Lynch ad in view was this one, promoting tax shelters.

Citibank, in the ad below, delivered an early pitch for private banking, with trust and investment-management services buried in the small print.

The malaise of 1979 is almost impossible to grasp today. Inflation was rampant, taxes were high, and anyone lucky enough to make more money fast enough to keep up with inflation ended up in even higher tax brackets.

"Every Investor Has 20-20 Hindsight," to quote the most noted Merrill Anderson ad for U.S. Trust. Looking back we can see that 1979 was about as close to heaven as a long-term investor is likely to get in her lifetime. In November of that year the Dow Jones Industrial Average stood a bit above 800. Ten years later – over 2,600!

In 1979 runaway inflation pushed long-term Treasury yields into double digits, and yields continued rising. Anyone who bought 30-year bonds in 1979-81 and kept them must feel like crying as the issues mature. No more golden eggs.

There are those who feel like we're reliving the 1970's. Not quite. We certainly haven't arrived at the equivalent of 1979. Investors would need to suffer much, much more to reach the same depth of despair. Let's hope we muddle through less painfully.

But if we don't, the youngest Boomers and the Generation X'ers will have awesome wealth-building opportunities before the next stock market boom.

“Stimulus” From Wall Street Bonuses?

On The Wealth Report, Robert Frank wonders whether Wall Street bonuses are fueling a yacht binge.

Perhaps Wall Street's shaking of the money tree can help the real estate market, too. Greenwich, for instance, has plenty of genuinely impressive estates for sale.

Topping the list: Dunellen Hall, now offered at $60 million, less than half the original asking price.

Estate Tax: Up, Down or Out?

Uncertainty over the fate of the federal estate tax is complicating the role of financial advisers, Dow Jones reports. Two ideas in the news:

Exempt family farms, and businesses worth no more than $8 million, from tax as long as they stay in the family.

Raise the estate exemption to $5 million over ten years and cut the tax rate to 35%.

What will the federal estate tax actually look like in 2011? Any guesses?

He Wrote His Will on the Wall

Newspapers are struggling in the internet era. They have lost their role as "news aggregators." The good, grey New York Times used to play that role in surprisingly lively fashion, judging from front pages of a century ago that Kellogg's is reprinting. (Corn Flakes have been around for more than 100 years!)

The front page of The New York Times of Thursday, November 4, 1909 was a veritable fountain of information. Tammany Hall was in trouble, the NYC criminal court building was falling down, and – according to a dispatch from London – the Montagu who ran away with Lady Crofton was not the Lord Montagu of Beaulieu. And alas, the "aristocrat" Miss Ada Durlacher just married in Paris was not a marquis.

Better yet are the collection of news tidbits that fill out the page, including the one shown below.

Peter Leist, who claimed a dozen trades and professions, but who was a hermit, was found dead at his home near Savannah to-day …. He was seated in a chair apparently staring at the wall of his room, on which he had written his will, leaving his property, which is considerable, to his son …."

30 years of service

To celebrate my 30 years of employment at The Merrill Anderson Company, the staff and I had a luncheon at the Shell Station.

I received a gold star for my years of service and creative contributions.

Lifestyle of the Still Pretty Rich but Divorced

The fall art auctions (see post below) are said to rely on the three D's: death, divorce and debt. Divorce is the presumed motivator for Peter Brant to dispose of this six-panel painting by Basquet, "Brother Sausage." Christie's hopes it will sell for at least $9 million.


According to the Connecticut Post, Brant, who made his money in newsprint, is also closing down the polo team he supports on his Greenwich, CT "working farm." Yet the average ultra-high-net-worth individual wouldn't mind settling for Brant's somewhat diminished lifestyle.

Data from the Post article:

Brant's assets: $490 million.
His income, monthly: $1.552 million
Court-ordered alimony and child support, monthly: $370,000
Running expenses for farm, monthly: $500,000

Most trust and investment management groups serve folks who have a few million and, with luck, an occasional rich family with $20-30 million. That's far from the top of the heap, as stories like Brant's illustrate.

Dollars: the Downside and the Upside

Could America Go Broke? Robert Samuelson's Washington Post column reminds us that a lot depends on confidence. When confidence vanishes, you get a run on the bank … or, in this case, a run on the country.

On the upside, the dollar looks strong in the art market. In other words, expected sales prices at upcoming auctions look like relative bargains.

Appropriately, one of the works expected to sell for the largest number of dollars is Andy Warhol's “200 One Dollar Bills.” In 1986 the estate of pop-art collector Robert Scull sold this early Warhol silk-screen painting at auction for $385,000. Now it's back on the auction block at Sotheby's, expected to sell for $8 million or more.

Revenge of the Small Banks

Small Banks Move In as Giants Falter, reports The New York Times. Some have banded together to launch more powerful marketing campaigns.

Should community bank trust departments consider similar moves?

Different Regulators for Different RIAs?

Unlike brokers, Registered Investment Advisers are held to a fiduciary standard. Generally, they're regulated by the SEC. Congressman Bachus of Alabama has a different idea, Investment News reports. He's added an amendment to a bill being marked up in the Financial Services Committee that would shift regulation of Registered Investment Advisers associated with broker-dealers to FINRA.

Is it a good idea to take regulation of some advisers away from the SEC? No, was my snap judgment. Then I remembered who was supposed to be regulating Madoff.

Trusts from The Times

On closer reading, trusts popped up in a couple of places in the NYT Wealth and Personal Finance section (see post below). Buried deep in Running Scared is this trust note:

Delaware asset protection trusts […] allow people to shield money from creditors after the assets have been in the trust for four years.

When these trusts were created in 1997, doctors, lawyers and accountants were drawn to them because they feared their liability insurance would not cover them fully. Today, people starting hedge funds and private equity firms are interested, said Dan Lindley, president of the Northern Trust Company of Delaware. “They say, ‘I want to put some of my assets into this trust and have that be my rainy day fund if the fund performs badly and investors turn on me,’ ” he said.

This may be hiding money from creditors, but Delaware law permits it so long as the person was unaware of any claims against him when he set up the trust.

A full-page ad from the US Trust brand at BofA offers a pdf of Not Your Grandfather's Trust. Behind the booklet's cryptic title lurks a brisk discussion of two-year GRATs and how multiple Grantor Retained Annuity Trusts may be designed, sequenced and invested.

“In Terrorem” in the Times

The Wealth and Personal Finance section in today's NYT includes Clauses Aimed at Keeping the Heirs Quiet.

Get Rich Dead?

Forbes estimates that Michael Jackson has made $90 million in gross earnings since his death.

Wanted: Performance!

What a difference a decade makes! In 1959 (see preceding post) investors faced the unfamiliar notion that stocks could yield less than bonds. Equities were to be viewed as … growth stocks!

By the mid-1960s the Dow had soared to 1000. Then the ride got bumpy. But by 1969 the Go-Go Years promised instant gratification, supplied by "gunslinger" fund managers who bought first, researched later.

The name of the game was performance. In this October, 1969 ad, Manny Hanny gamely tried to play along:

Wanted: Will Appointments

By the 1960s, staid old trust institutions were actively seeking immediate-fee business. In October, 1059, however, these two companies still thought their services as executor or trustee were worth advertising:

More on H.R. 3905

There's a press release today from the sponsors of the just-introduced estate tax reform bill, Tax Notes reports. I've read the bill, which is very short and to the point. It does not include portability of the estate tax exemption, but it does have one surprise.

In the last century, the feds and state government shared death tax revenue through a mechanism called "the credit for state death taxes." To mitigate the loss of federal revenue with the 2001 estate tax reform, the credit was phased out, replaced by a deduction for state death taxes. This had the effect, intended or not, of eliminating death taxes in those states with regimes keyed to the federal credit.

H.R. 3905 would complete this cycle by phasing out the deduction for state death taxes over ten years, as it reduces the tax rate to 35%.

If this passes, it will greatly increase the pressure on those states who have been hanging on to their estate or inheritance taxes. Their wealthy residents will have a fairly easy solution for avoiding the states' death tax designs.

Three e's for the Ways and Means Committee

Ron Aucutt reports in Leimberg Information Systems ($) that the Ways and Means Committee is poised to turn its attention to the economy, the extenders and the estate tax. Conventional wisdom has been that Congress might settle for an estate tax patch, extending the 2009 exemption and rates for one year only. But Aucutt says that there support for a permanent solution is emerging. He mentions a new bipartisan bill:

On the same day, Ways and Means Committee members Shelley Berkley (D-NV), Kevin Brady (R-TX), Artur Davis (D-AL), and Devin Nunes (R-CA) introduced H.R. 3905, called the “Estate Tax Relief Act of 2009.” Under H.R. 3905, in each of the ten years from 2010 through 2019, the estate tax applicable exclusion amount would increase by $150,000 and the top rate would decrease by 1 percent. Thus, by 2019 the exemption and rate would be $5 million and 35 percent.

Is there time to get this done before Thanksgiving?

Could Suspending the Estate Tax Soak the Rich?

If the federal estate tax vanishes next year as scheduled, revenue from taxing capital gain could help take up the slack. Reason: the return of carry-over basis. But as a corrected WSJ article explains, only the heirs of high-net-worth decedents would suffer:

[T]he 2010 law as written gives each taxpayer $1.3 million worth of "free" step-up at death, but this is a far cry from the unlimited basis step-up under current law. Married couples get an additional $3 million at the death of the first spouse, heavily favoring them over individuals.

Congress is expected to extend the current estate tax for another year. What if Congress is too distracted to act until next year? That could get tricky:

Under Congressional bookkeeping, any extension of the current system into next year counts as raising revenue because the tax is currently slated to lapse in 2010.

In 2011, however, the exemption is supposed return to $1 million. So extending the $3.5 million exemption beyond 2010 will count a revenue loser at a time when deficit-cutting pressures will be intense.

Maybe it was a mistake to let the inmates run the asylum.

Photo from Wikimedia Commons

Ten Trillion Here, Ten Trillion There . . .

At Scripophily.com they're giving away these ten trillion dollar bills with orders over $200.

The Ultimate Halloween Costume?

With the passage of time, workaday necessities sometimes morph into expensive status symbols – blatantly ostentatious objects worn mainly for show. Wristwatches with five-figure price tags, for modern example.

In Japan in centuries past, Samurai guys appear to have made fashion statements with their armor. This suit from the 18th century would make a killer Halloween costume.

The New York Times offers a slide show here of items from The Metropolitan Museum of Art's current exhibition of Samurai armor. (Bet you didn't know Darth Vader was Japanese!)

From "Scoop of the 20th Century" to Abused Elder

Clare Hollingworth went to work for The Daily Telegraph in 1939. Her career took off almost instantly:

She had been in the business for only a week in 1939 when she noticed, travelling towards the Polish border from Germany, that huge screens of hessian had been erected along the roadside, concealing the valley behind from passing traffic.

As she looked, the wind caught a loose piece of tarpaulin, revealing large numbers of troops, hundreds of tanks, armoured cars and field guns, lined up, battle ready - and facing Poland. She had stumbled across the beginning of World War Two.

Miss Hollingworth went on to cover wars in Algeria and Vietnam. Now 98 and living in Hong Kong. she has been unfortunate enough, the Telegraph reports, to attract one of those creatures who believe the elderly and their money should live apart:

Sadly Miss Hollingworth, whose hearing and eyesight are not what they once were, has been subject to a mercurial acquaintance, who separated her from her money and has failed to repay it, even following a court case at the end of which he agreed to do so.

Fun facts on the first-time homebuyer's tax credit

From NYTimes.com:

$10 billion -- gross value of credits claimed to date
1.4 million -- number of claimants
400,000 -- number of sales that would not have happened without the credit
1 million -- therefore, the number of buyers who simply got a windfall
107,000 -- IRS audits of questionable credit claims
167 -- criminal schemes to exploit the credit
4 -- age of the youngest credit claimant
60% -- percentage of claimants with income below $50,000 -- how could they afford to buy a house?

I wonder what other responsibilities we could have the Feds shoulder?

How Uncle Sam Rewards Savers

If artificially low interest rates encourage borrowing and spending, what do they discourage?

Saving.

The plight of retirees and other fixed-income investors receives surprisingly little coverage. This column from Allan Sloan is a happy exception.

Life Spans and Estate Plans

In Making the Most of Your Estate, Milo Watts, Earl MacNeill's typical salaried man of the Nifty Fifties, is 43; Mary, his wife, is 38. Mac tells us three of their four parents are dead. Only Milo's mom survives at age 68. That's how it was in those days. At least that's how it had been. Hard-driving businessmen were expected to keel over with fatal heart attacks in their fifties, and many did so.

Yet life spans were already lengthening, and estate planning began to adapt. Planning inheritances for minor children lost prominence. Planning trusts for the grandkids took over. Some years later, at Merrill Anderson, Mac urged men to review their old wills with this warning: Your Heirline is Receding!

As life spans kept stretching, estate planning expanded to include living trusts for financial protection in old age … durable powers of attorney … living wills. Not to mention "Medicaid planning."

Durable powers of attorney were seen as a growing necessity, but not without danger. Wish I could remember Mac's views. Certainly he made me aware that a traditional power of attorney relied on the supervision of the individual granting it. If Mr. Gotrocks gave me his power of attorney while he sailed around the world, I could be in big trouble if he didn't like what he found when he got home.

The exercise of durable powers usually cannot be supervised by the individuals who grant them. Since the Brooke Astor case, concern regarding that hazard seems to be growing.

Are Roth IRA conversions a tough sell?

Investment News reports that Advisers find Roth IRA conversion opportunity a tough sell.

SHH warned us about this--few people really want to accelerate their tax liabilities, especially when the benefit seems vague and in the future.

However, there are two more facets that I had not considered. First, the fact that asset values are down means the taxable cost of the conversion is at what could be a historic low. I thought that made the conversion attractive, but apparently it's having the opposite effect. Traditional IRA owners feel like they already lost a ton of money in their accounts, and they don't want to make it worse with an optional tax bill.

Second, they don't trust their government.

Some particularly conservative clients are so mistrustful of the government that they are worried that Congress might decide down the road that Roth IRA withdrawals are taxable and thus they will end up paying taxes twice, Mr. Neuschwander said.

This is what happened with Social Security, he said. “Some clients have asked me, ‘What happens if Congress changes the rules and we have to pay taxes again,’” he said. “To be completely honest, that’s an unknown.”

Wow. They have a point. An item in the NY Times six or so months ago mentioned the possibility of having something like an "excess accumulations" tax on overly large Roth IRAs. Or, perhaps less insidiously, they could start counting Roth distributions in figuring the tax on Social Security benefits.

Planning for the Fringes

Twelve years after Earl MacNeill's Making the Most of Your Estate, this 1969 ad from Chase still found it timely to focus on the salaried man's employee benefits:

"If you're a corporate executive, the sum total of your fringe benefits may actually constitute the bulk of your estate."

What should a 401(k) restatement cost?

Our new 401(k) recordkeeper is doing the required EGTRRA restatement of its prototype plan, which we adopted. With essentially no explanation, they have said that our share of this restatement cost will be $1,000. I think this is outrageous (do they even go to the trouble of putting our name on a form?), but then again, I haven't priced these services recently.

What is the normal fee out there for a restatement from a prototype plan?

Anne Melican Loses

Harvey Strother died in 2004, leaving an estate valued at $37 million. Was his mistress entitled to $7,900 a month for life, plus real estate, under amendments Strother made to his will in 2000 and 2003? No, rules the Georgia Supreme Court in a 7-0 decision.

Who’s Your Digital Executor?

Prepared for your digital afterlife? Don't forget your digital online will.