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Merrill Anderson's overview booklet, Trust and Investment Services for You and Your Family, is revised annually to reflect the changes each year in estate tax rates as well as new developments in wealth transfer planning. For the 2008 edition, we've created this new table, Common Trusts, Uncommon Benefits. Click on the image to make it readable.

To order copies of this new brochure, or to request a PDF proof of the entire booklet, give us a call at 203.377.4996. Please mention that you learned about the booklet from the blog (I'm looking for sales credit here).

Can a Rich Family Stay Rich?

Judging from this item from yesterday's New York Times, not every rich family goes from shirtsleeves to shirtsleeves in three generations:

Herbert Gowen, 52, of Belmont, Mass., is part of a family whose fortune began with a steamship company in the 1800s. Although family members now number more than 90 and are dispersed around the country, the family still wants to retain its hallmark values of “prudent financial conservatism, entrepreneurial creativity and philanthropy,” Mr. Gowen says. He says his siblings and cousins work hard to impart these values to their children, who are nicknamed “generation fivers” because they are of the fifth generation, beginning with the man who started their fortune.

The Gowens must have had some good trust officers over the years. Either that, or they are the last New England clan to remember The Secret of Perpetual Wealth.

Another Tiger, Another Robertson, Another Dispute

Tiger disputes (see preceding post) seem to be proliferating like sequels to Halloween movies.

This one involves Princeton University and raises a vexing question: When universities or other nonprofits receive large sums of money to be used for a specified purpose, can or should they be compelled to honor that specification?

The New York Times explains:

In a legal battle watched nervously by universities around the country, a New Jersey judge yesterday sent to trial a dispute between Princeton University and the heirs of a supermarket fortune and left open the possibility that Princeton could lose a donation that is now worth $880 million.

***

The dispute centers on whether Princeton University has adhered to the Robertsons’ wishes; Mrs. Robertson, an heir to the A.&P. supermarket fortune, gave Princeton $35 million in 1961 for its Woodrow Wilson School of Public and International Affairs. Her children say the money was intended to prepare students for work in federal government, especially in international affairs. They say, though, that few graduates have taken such jobs and that Princeton has used the money for many of its other needs.

For a brief history of the Woodrow Wilson School and the Robertsons' gift, see here.

Was the purpose of the Robertsons' gift specific enough to argue about? At home and abroad, the U.S. government must deal with everything from stolen antiquities to digital piracy, from climate change to threatened pandemics. Is there any course taught at Princeton that might not benefit some member of government at some time?

While we await a judicial answer, one group is sure to keep on benefiting. Lawyers have already billed the Robertson family more than $20 million. Princeton has paid its lawyers a similar amount.

Tiger, Tiger, Who's Got the Tiger?

Hedge fund great Julian Robertson "brought down the curtain" on the funds run by Tiger Management in March, 2000. Can he now prevent Tiger 21, the Ultra High Net Worth investment club, from using the Tiger name?

November 7 and November 16

Those are the two key days for the Alternative Minimum Tax this year. The basic Forms 1040 and 1040A are sent to the printer on November 7, and supplementary forms that also affect the AMT calculation go on November 16, the Washington Post reports. So Congress really must get the AMT patch done by then, or an extra 20 million or so taxpayers will be paying the AMT in 2007.

There's been talk that the patch might be delayed until December, with the IRS posting revised forms at its website for taxpayers to use. That overlooks the fact that IRS needs 12 weeks to reprogram its computers with the final tax rules for 2007, whatever they turn out to be. So refunds might be delayed into March if Congress continues to go slow on this issue.

My feeling, let the expanded AMT hit! It will soon be cheaper to repeal the regular income tax instead!

The Wide, Wide World of Wealth

Number of hectomillionaire households in selected nations

Hectomillionaire* households have investable assets of $100 mllion+. Estimates by Boston Consulting Group, reported here by Businessweek.

U.S. 2,300

Japan 1,300

Britain 810

Germany 620

Italy 530

Spain 330

Switzerland 300

France 260

Brazil 210

Netherlands 200

China 180

Australia 150

*Hectomillionaires are also, erroneously, called centimillionaires. The mistake may be due to American unfamiliarity with the metric system, as a Canadian explains here.

Trust Advertising 50 Years Ago

We've shown you Chase Manhattan's Nest Egg ads before, most recently here.

This one appeared in The New Yorker just fifty years ago, in October, 1957:

In the same issue appeared this from Bank of New York:

Yes, investment-management fees were deductible in those days!

NY Times Looks at Retirement

The New York Times special section on retirement has several articles of interest:

Making a Millionaire Feel Special notes that "ordinary millionaires" are leaving wire-house brokers in search of fiduciary standards and personalized service. They're turning to financial planners or outfits such as Gibraltar Private Bank and Trust.

Picking Annuities advises retirees to deal with top-rated companies and seek professional advice; today's annuity products are far too complicated to be chosen by do-it-yourself investors.

For Love and a Little Money spotlights a noteworthy trend. Retirees "volunteering" for service with non-profits are demanding at least token pay. Some need the money. Others find non-profits don't take their services and ideas seriously unless they are paid employees.

Business Owners: Beware of “Certain Trust Arrangements”

This post on the Wills,Trusts & Estates Prof Blog calls attention to an IRS crackdown on certain trusts being touted to business owners as tax dodges.

From IR-2007-170, Oct. 17, 2007:

The Internal Revenue Service and the Treasury Department cautioned taxpayers about participating in certain trust arrangements being sold to professional corporations and other small businesses as welfare benefit funds and identified some of the arrangements as listed transactions.

There are many legitimate welfare benefit funds that provide benefits, such as health insurance and life insurance, to employees and retirees. However, the arrangements the IRS is cautioning employers about primarily benefit the owners or other key employees of businesses, sometimes in the form of distributions of cash, loans, or life insurance policies.

“The guidance targets specific abuses involving a limited group of arrangements that claim to be welfare benefit funds,” said Donald L. Korb, Chief Counsel for the IRS. “Today’s action sends a strong signal that these abusive schemes must stop.”

Is Real Estate a Millionaire Investment?

This country has a lot of millionaire households. Just how many is a subject of dispute. The What's Offline column in The New York Times indicates one source of the uncertainty: real estate.

There are 9.3 million households in the United States — about one of every 12 — with a net worth of at least $1 million, writes Financial Planning magazine, citing figures compiled by the Phoenix Companies and TNS Financial Services.

Net worth here is defined oddly: It is the value of all assets a household owns, minus debts and the value of the primary residence. (But while the primary residence is not counted, a second home and other real estate is.)

Traditionally, when financial planners talk about high-net-worth individuals, they mean people with at least $1 million in assets to invest. The numbers here are impressive as well.

“Of the 114 million houses in the U.S., roughly 109 million, or 95 percent, have less than $1 million in investable assets,” writes Elizabeth O’Brien. But there are about five million households “with $1 million to $10 million to invest; 200,000 households with $10 million to $25 million to invest” and another 40,000 designated “ultra-high net worth,” who have more than $25 million in investable assets.

Is real estate a valid investment? Sure seemed like a great one a few years ago. Today you might get an argument.

Bubble 2.0 or "Financial Services, Sayonara"?

California's dreaming of new internet riches, Steve Pearlstein reports in this Washington Post article.

Bubble 2.0? Maybe not. Marc Andreessen (remember Netscape's glory days?) says it's different this time:

In the last decade, he notes, the number of people hooked to the Internet has grown from 100 million to 1 billion, with 3 billion expected by the end of the next decade. And because of the increased speed and the growth in the number of things we do using the Internet, the intensity of use is increasing exponentially. Given that potential demand, he says, the industry has only begun to tap the Internet's potential. The profits of entire industries -- telephony, entertainment, news, financial services [emphasis added], retailing -- are now up for grabs.

What's also different this time, adds Andreessen, is that with the introduction of cheap servers, open software and inexpensive programming tools, it's now much less expensive to start a company.

Could most readers of this blog be obsolescent? In a couple of years, will my avatar sit down with an adviser avatar and move my actual wealth into Vanguard's endowment fund?

Astor Estate: Criminal Intent?

Negotiations to settle the dispute over Brooke Astor's estate were close to success but have failed, according to an Associated Press dispatch:

At issue, in general, is which of two wills conveys the true intentions of Astor, the philanthropist who died in August at age 105.

Her son, Anthony Marshall, supports a 2002 will and codicils, or additions, which benefit him at the expense of the charities Astor named.

Others, including Astor's grandson, Philip Marshall, contend a 1997 will was the last one she was competent to sign.

The New York Times reports that settlement talks were suspended "because the Manhattan district attorney’s office is presenting evidence to a grand jury as part of a criminal inquiry into the handling of Mrs. Astor’s fortune and will by her son, Anthony D. Marshall, and others before her death. . . .

"[P]rosecutors are exploring, among other issues, whether Mrs. Astor was subject to undue influence related to millions of dollars in money and property transfers in the last several years that benefited Mr. Marshall, who had his mother’s power of attorney. The prosecutors have also been examining whether those transactions were in the best interest of Mrs. Astor or if they were larcenous.

"They are also seeking to establish whether crimes were committed in the signing of an amendment to her will in March 2004 in which the possibility of forgery has been raised."

Another Black October? It's All in the Mind

October 19th marks the 20th anniversary of the 1987 stock market meltdown , a panic whose causes still puzzle the pundits. Need a good briefing on the horrendous event? See Matthew Rees's article in The American:

For the preceding seven weeks, the stock market had been skidding. Now, on this sunny Monday, it was on the verge of total collapse. When the day was over, the Dow Jones Industrial Average had lost more than 500 points, or 22.6 percent of its value—the equivalent of a drop of about 3000 points today. A half-trillion dollars in wealth disappeared overnight—equivalent at the time to the entire gross domestic product of France. On the heels of the decline, a recession was considered a near certainty and a depression a distinct possibility.

But there was no recession. In a few months stock prices started to recover. It was as if Gilda Radner had returned to the Not Ready For Prime Time Players, thrown a terrifying, tumultuous tantrum, wailed that the world was coming to an end, then smiled . . .

"Never mind."

Psychology drives market panics. That's what makes them so puzzling. You can tell when the herd is starting to feel restless, but nobody knows what might trigger a stampede.

This year the sub-prime mess has bred new fears of recession. Could a slump be prefaced by another Black October? Are today's hedge-fund managers less likely to stampede than all those investment pros who panicked twenty years ago?

Recessions, economist Robert Shiller writes in a NY Times op-ed piece, are also a matter of psychology, not facts and figures:

[S]alient, emotion-arousing narratives — those that capture the popular imagination and damage public confidence — are central to the etiology of recessions. As these stories gain currency, they impel people to curtail their spending, both in business and their personal lives.

Is this happening now? A disturbing narrative began to unfold in the last couple of months. People began talking of failed institutions — of the possibility that savings socked away in a money market account might actually be invested in subprime loans and so be lost. There has been fear of locked credit markets, of possible bank failures and runs on banks.

Some of these tales have faded — bank runs no longer seem a risk. But confidence in the economy remains fragile. More shocks are likely as an era of huge real estate speculation apparently ends, with the possibility of further surges in foreclosures and failures of financial institutions.

The narrative is still unfolding, and the extent of its virulence is not yet known.

Last summer's minor market glitches were enough to disturb many investors. How would they react to a sudden 3,000 drop in the Dow?

Vanguard Seeks to Endow Retirees

Recently Jim Gust noted that Fidelity and Vanguard have each announced new fund-of-funds packages to provide income for retirees.

The two fund companies have chosen strikingly different approaches.

Fidelity's Income Replacement funds will provide annual income (in monthly installments) at rates calculated sort of like the required minimum distributions from IRAs. But the final payment will occur in a year of the investor's choice, independent of his or her presumed life expectancy. The final year's payment depletes the investment.

As this article in The Wall Street Journal (subscription) points out, Vanguard's new funds are something else altogether:

Vanguard's funds are designed more like endowments, and in theory, they could generate a payment stream forever. The payouts will be calculated based on a percentage of your average account balance over a rolling three-year period. That should minimize the impact of any single year; one great year shouldn't trigger a spending spree, and a bad year won't mean TV dinners.

Investors can choose among annual withdrawal rates of 3%, 5%, and 7%, spread over 12 monthly payments. The fund with the smallest payout is designed for those who want their balance to grow. The fund with the biggest payout aims to hold the balance steady.

With these funds, too, payments could vary from year to year. As endowments do, the funds will invest in stocks, bonds, real estate and commodities, and will use derivatives, as well as a market-neutral strategy.

Most of the underlying investments will be Vanguard funds, including the firm's new long-short fund, which is still in registration.

For a company best known for index funds, Vanguard's approach sounds bold and innovative. If a market downturn doesn't nip the venture in the bud, scads of affluent investors might buy in.

Think of it, a retirement investment program with some of the same sophistication one might find at Bessemer or Northern, but costing only about one-third of one percent annually,

Could Vanguard's new venture have a bright future?

Downward Mobility for Multimillionaires

After a business owner accustomed to living on $3 million a year cashes out, how can he adjust to living on investment income of only $1 million a year?

According to the money issue of The New York Times Sunday Magazine, that's the sort of question that comes up at meetings of Tiger 21, the investment club/support group for men (mostly) with investable assets of $10 million or more.

Multimillionaires with angst seem to be in plentiful supply, the NY Times reports. Tiger 21 (the Investment Group for Enhanced Results in the 21st Century) now has "nine circles or groups of 12 members each based in New York, and there is one each in Palm Beach, Miami, Los Angeles, San Diego and the San Francisco Bay Area. Additional groups are being formed in New York, San Francisco, Palm Beach and Dallas."

"Sandals to Sandals in Three Generations"

'Round the world, inherited wealth is hard to preserve, says this article from Intelligent Life, a "lifestyle" quarterly published by The Economist:

The families that preserve their wealth over the generations are rarities. The notion that the first generation makes it, the second husbands it and the third spends it is so widespread that it probably reflects reality. As Peter Leach, a partner at BDO Stoy Hayward, an accountancy firm, and head of its family business centre, points out, "clogs to clogs in three generations"—a northern English saying—has its equivalent in many other languages: Erwerben, Vererben, Verderben (earn it, bequeath it, burn it) in Germany; "from the stables to the stars and back in three generations" in Italy; "from sandals to sandals in three generations" in China.

Giving Well is the Best Revenge?

When one-time luxury possessions turn to bling, what's a newly rich person to do? How do you show you're rich when merely affluent people are Lexused, Cartiered and Guccied to the hilt?

George Will ponders the problem in today's Washington Post.

[B]ecause the merely affluent are diminishing the ability of the very rich to derive pleasure from positional goods, philanthropy might become the final form of positional competition. Perhaps that is why so many colleges and universities . . . are currently conducting multi billion-dollar pledge campaigns. When rising consumption of luxuries produces declining enjoyment of vast wealth, giving it away might be the best revenge.

Question is, how many of new rich can really afford to be generous? "Americans' saving habits are better than they seem," Will notes, "because the very rich, consuming more than their current earnings, have a negative savings rate."

Different Sales Pitch for Women?

Deloitte & Touche consultants believe selling professional services to women requires a different approach. says this Wall Street Journal column (subscription).

For instance:

Don't be frustrated if female clients reevaluate or modify their initial requests; because they discover as they shop, women may be very receptive to suggestions about other services.

Women clients want to know and trust their consultants personally as well as professionally; sharing personal details can help build trust.

Women often prefer business lunches to dinners, because they tend to have more responsibilities at home. And they may be more receptive to evening social invitations if asked with sufficient time to make arrangements at home.

Body language differs by gender. Men tend to stare as they listen and nod to signify they understand. Women may nod when they don't yet understand to encourage the speaker to keep talking. And while consultants often seat themselves beside a male client as their "right hand man," women are more comfortable seated face to face.

Another strategy mentioned by a Deloitte consultant: Before launching into a sales pitch to a prospective female client, listen and ask questions.

Say, mightn't that work with males, too?

Christopher Columbus, Secret Agent?

Christopher Columbus returned to Spain in 1504 with little but poverty to show for his efforts. His will, according to my vague memory, attempted to leave his share of the loot from the lands he had explored to his son and family. But the Admiral of the Indies might as well have left them shares of Enron.

Google didn't find Columbus's will for me. But it did lead me to the theory that Chris was Portugese. Of royal though illegitimate blood! A secret agent of the Portugese crown!

As for the Columbus will, the blurb for a book published in Portugal but not yet available in English says it's a fraud:

"We will show solid proof that the Columbus Last Will and Testament dated 1498 is fraudulent, forged 67 years after Columbus died."

Historians Manuel Rosa and Eric Steele, authors of Unmasking Columbus: Lies, Spies Cover-up and Conspiracy, also suspect Columbus to have been a member of a super-secret organization:

The explorer’s cryptic signature, “XpoFERENS Colon” as we decipher it, indicates that he was a member of the super-secretive Templar Military Order of Christ, which had a stronghold in Portugal at the time leading up to his voyage. As a member, like his father-in-law and brothers-in-law, he was dedicated to ridding the world of Muslims, who had occupied his country several centuries before.

Dan Brown, are you taking notes?

Theories concerning the origins of the great explorer turn out to be almost as plentiful as algorithms for beating the S&P. See this Wikipedia discussion.

Portrait of Columbus by Alejo Fernández

Settling an Estate is No Fun

The online WSJ's Sunday Journal includes this column: The Burden of Being an Executor.

See also the video in which columnist Jeff Opdyke interviews his grandmother about his services as her executor and trustee.

Is Torture Sometimes Justified?

Head slapping, exposure to cold and simulated drowning. Used in combination.

Would you inflict that treatment on a suspected terrorist? If not, how about this former broker?

When a friend, widowed on 9/11, received $2 million in victim compensation, this Metlife broker and an unnamed supervisor closed in. She gave them her money to invest.

By the time the broker was apprehended and indicted, he seems to have stolen about $250,000.

Shall we start with waterboarding, then put him in the fridge?

We Seem to Have Countless Millionaires

According to a Boston Consulting study cited in the WSJ Wealth Report blog, the United States boasts more than four million households with $1 million or more of investable assets.

Other surveys come up with a higher total. TNS estimates the number of U.S. households with $1 million or more, excluding primary residence, at 9.3 million.

In a June 10 column no longer available online, Julie Jason reports on a similar total from a Spectrem study:

Today, 9 million U.S. households have wealth of $1 million or more, according to Spectrem Group, a consulting firm specializing in the affluent and retirement markets. "Wealth" excludes the value of the home. This represents about 8 percent of all U.S. households, according to the U.S. Census Bureau.

Who are the true "millionaires" of today? Probably the ultra-wealthy - the 1 million households that have more than $5 million of wealth excluding their homes, representing less than 1 percent of U.S. households.

The number of ultra-wealthy has jumped over the past 10 years. In 1996, only 250,000 households had net worth over $5 million, according to Spectrem.

In three short years, by the end of 1999, at the height of the stock market, 590,000 ultra-high net worth households were counted by Spectrem. That number dropped to 480,000 in 2002 when the market bottomed.

Since then, the number of households with $5 million or more in wealth steadily increased, to 1.14 million by the end of 2006, according to Spectrem.

Who are the ultra-wealthy? According to Spectrem, 22 percent are senior corporate executives. Fifteen percent are business owners and 11 percent are physicians or dentists.

Their average age is 65. More than half (56 percent) are retired, and 36 percent plan to retire within the next five years.

Whose millionaire-household figures are right? I lean toward the higher number. If somebody with "only" $1 billion can't make this year's Forbes 400, we must have more than four million households with at least $1 million.

* * *

You can probably expect to see more wealth managers among the ultra-wealthy, especially if they're working off shore. Boston Consulting notes that business is booming:

Wealth managers in BCG's benchmarking survey had a median pretax profit margin of 34.7 percent, and fewer than 5 percent of participants reported a loss. The survey uncovered broad patterns of profitability across regions and business models. The median pretax margin of North American brokers, for example, was less than one-third that of European offshore players

ASPIRE to save

Tax Notes Today ($) reports that Democrats are getting behind the idea of tax-favored savings accounts for newborns, called America Saving for Personal Investment, Retirement and Education (ASPIRE). The feds would make an initial $500 deposit into the account for every newborn (how would this happen?). Children from "low income families" would receive federal matching funds as additional deposits are made on their behalf (are we talking about the low income of the child, the child's parents, or the donor?). Apparently anyone could contribute to the accounts.

Rep. Patrick Kennedy, D-R.I., supports the idea.

"Why is it that all of our tax incentives go and accrue to those who have the most money?" asked Kennedy. "It seems to me, with the disparity of wealth and income now, we'd better even out those tables."

He should know.

White Glove Service for “Ordinary Millionaires”?

From the Boston office of Hill, Holliday, Connors, Cosmopulos comes a new ad campaign for Bank of America's wealth management unit, which now includes U.S. Trust.

[T]he new campaign is anchored by two themes: “the new face of wealth” and “wealth management for today’s wealth.” It aims to capitalize on the shifts over the last 15 years that have created not just a class of ultrawealthy investors, with hundreds of millions or billions of dollars, but also a rapidly expanding class of ordinary millionaires.

• • •

The ads, aimed at individuals with at least $3 million to invest, revolve around the idea of self-made money — as opposed to inherited wealth — and are imbued with . . . “the core values of nostalgia for family and friendship.”

Coincidentally, Hill Holliday's New York office produces the "Working Wealth" campaign for the Smith Barney wing of Citigroup. That campaign seems aimed at even more ordinary Boomer millionaires, those with $1 million to $3 million to invest.

Close to three million individual Americans are thought to have at least $1 million in investable assets. There are an estimated nine million "millionaire households."

When a Megayacht's a Necessity, What's a Luxury?

Helicopters, seaplanes and mini-submarines make cool accessories for the ever-bigger megayachts of wealth managers' billionaire clients. See this NY Times dispatch from Monaco.

Check out the slide show, too.

They walk and quack like ducks, but ...

Vanguard will be calling them Managed Payout Funds, not "annuities," and they will be an alternative for retirees to get steady monthly income without worrying about investment management issues. The new mutual funds will reportedly be sold without sales commission or 12b-1 fees.