Looter of Family Office Pleads Guilty

On the first day of his trial on charges of looting the Ayer family office of more than $20 million, John Doorly pleaded guilty. He faces up to 20 years in prison – about one year per million.

Christmas Price Index

If you got it, flaunt it! For decades PNC has had fun tallying the prices of the gifts mentioned in The Twelve Days of Christmas. This year PNC Wealth Management shows marketing initiative by creating a multimedia web page.

After rising 8 percent in 2008, the Christmas Price Index rose less than 2 percent this year. Swans and partridge are a bargain. Gold rings have gone through the roof.

More on Taxing Business-Owning Estates

Ray Madoff's idea of taxing estates heavily but exempting estates of business owners generated several letters to The New York Times. Here's an observation from an accountant:

In my experience, the family business fails upon the death of the patriarch or matriarch because of the family. Spouses from a second marriage do not get along with the children. Children do not get along with one another. And when nobody plans for the inevitable, the business suffers from a lack of unified management and is often split into pieces.

Exempting family businesses from estate tax would encourage keeping a business in the family when it might do better if sold to employees or outsiders. The sponsor of this blog could probably serve as an illustration. If the founder had sought to keep his small advertising and marketing firm in the family, The Merrill Anderson Company probably would not around 75 years after its founding.

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Take a moment to appreciate Jason Logan's illustration that accompanies the letters to The Times. That's not a rock and a hard place between which we're stuck – it's Death and Taxes!

The Great Depression at Yale

Yale's highly-touted investment whiz, David Swensen, recorded worse-than-average losses for the university's endowment last year. Too much messing with hedge funds and alternative assets? Maybe. But during the Great Depression, a conservative investment stance didn't keep Yale's endowment out of trouble.

Here's a snippet from Gaddis Smith's feature story on Yale during the Great Depression in the Yale Alumni Magazine:

Although the university had avoided common stocks and kept most of the Yale endowment in bonds, income from the endowment declined by 21 percent. Gifts to the alumni fund, which had exceeded $1 million for the first time in 1926-27, dropped 85 percent to $142,732 in 1934-35. Not until 1950-51 would gifts be above $1 million again.

Smith's article is worth reading for the feel one gets of the divide between the haves and the have nots during the Depression. The dislike – nay, hatred – that a good number of the haves harbored for FDR can hardly be overstated. According to my memories from toddler days, it easily equalled the venom that "birthers" and others direct at our current President.

How to Keep Peace in the Family

In U.S. News and World Report, Philip Moeller notes an increase in family estate squabbles and will contests. He presents eight estate-planning tips. Can't argue with this one:

Pick the right executor and trustees. Anticipate family friction, and make sure you don't appoint to key positions relatives who can't get along. "If you are concerned about conflict among your heirs," [estate attorney Adam] Gaslowitz says, "it is usually best to appoint a professional fiduciary like a bank to manage your affairs after you are gone."

Don't Forget to Relax

Thanksgiving kicks off the annual round of holiday travel, family feasting, shopping, gifting and making small talk with all those people you haven't seen since last year.

Don't forget to relax a little. As this Chase nest-egg ad from 1959 reminds us, the chance to enjoy a little peace and quiet is a luxury beyond price.

Are the World's Smartest Investors Norwegian?

An item in Wealth Bulletin wonders why one finds so few private banks in the world's second richest country.

Well, Norway's population isn't large, and the relatively small number of rich people may send their money to Switzerland.

But there might be a more legitimate reason why many wealth managers steer clear of Norway – and is to be found in the performance of the country’s sovereign wealth fund.

Last week, that fund, one of the biggest in the world with more than €300bn under management, said it returned a very impressive 13.5% in local currency terms in the third quarter of the year.

The fund is run by external managers, but with a great deal of input from local experts. Most wealth managers would have been hard pressed to deliver these returns during the same period.

So maybe Norwegians feel they simply can't afford to entrust their fortunes to "world class" investment management.

NORTHERN NORWAY
Photo via Wikimedia Commons

No Death Tax for Family Farms and Businesses?

What if you stiffened the federal estate tax –say, a $1 million exemption and a 50% tax rate – but granted a generous special exemption – say, $5 million or $10 million – for a family business? To qualify for the exemption, family heirs would have to keep themselves on the payroll and not sell the business.

Could something along those lines, as envisioned by Ray D. Madoff of Boston College School of Law, actually work? Or would estate planners have a field day constructing "businesslike" tax shelters?

What a Good Year to Retire. Really!

Nice to see Jonathan Clements back in The Wall Street Journal, even as a guest columnist. Investment advisers and financial planners can glean useful thoughts from his Case for Retiring in a Bear Market. A sampling:

The total value of your nest egg is not as important as you think it is. What really counts is the level of income that your savings can support.

If you plan to generate a chunk of this income through dividends and interest, as many investors do, it doesn't much matter that the Dow Jones Industrial Average has soared some 60% over the past eight months or that bond prices have been climbing. The dollar value of the dividends and interest you're receiving likely hasn't changed too drastically.

Today, with the stock market yielding less than 2½% and 10-year Treasury notes paying below 3½%, very few retirees could cover the bills solely with dividends and interest. Instead, seniors might need to create their own dividends—by occasionally unloading some of their investments.

True, you want to sell only when your stocks and bonds are up handsomely. But at the same time, you don't want to retire with a false sense of security because the value of your portfolio has been puffed up by a rip-roaring bull market. *** That's why bear markets aren't such a bad time to retire: If stock prices are already off 20%, 30% or more, a lot of the exuberance has likely been squeezed out of the market and you can have a little more confidence that you aren't looking at bubble prices.

Retiring in bad times doesn't guarantee dazzling results in the years ahead. Still, everything else being equal, if the stock market has been knocked lower, future returns ought to be higher—and thus every $1 saved should be able to support a higher level of retirement income.

Rewrite the Internal Revenue Code in 2010?

From a CQ dispatch:

During a meeting Wednesday morning, committee Democrats agreed to back a one-year extension [of current estate tax levels] and tie it to a broader overhaul of the tax code in 2010.

Tax reform in 2010? Great idea! It's an election year for Congress. We all know how thoughtful and statesmanlike members of Congress become in election years.

When Revocable Trusts Invaded New York

New York State still resisted the idea of living trusts as will substitutes when Earl MacNeill wrote "Making the Most of Your Estate," published in 1957. Perhaps the State had mellowed two years later, when Chemical ran this living trust ad.


Scripophily.com hosts a detailed listing of the births, matings and disappearances of New York banks. (Some national history, too.) Turns out 1959 was the year Chemical acquired New York Trust. Ten years later the NY Trust name vanished. Eventually Chemical acquired Chase and assumed the Chase name. Today, the widow's grandchildren would be receiving their trust distributions from JPMorgan.

November 30 target for estate tax reform

Tax Notes Today ($) reports this morning that the House hopes to take up estate tax reform the week of November 30. Sounds like a permanent extension of the $3.5 million exemption and 45% tax rate are not controversial, at least among Democrats, but they want to consider new jobs-related tax credits first.

Meanwhile, the Senate remains consumed by the health care debate.

I don't understand the advantage to any side of leaving this in limbo for so long.

How to Raise Revenue Without Raising Taxes

“We are talking about billions of dollars coming into the U.S. Treasury," says the IRS Commissioner. Almost 15,000 Americans with offshore accounts, many but not all of them UBS clients, have 'fessed up and sought amnesty. Last August, UBS agreed to turn over the names of about 4,450 suspected tax evaders. Apparently, thousands more turned themselves in because they feared they might show up on the list.

The expected billions in new tax revenue won't solve Uncle Sam's trillion-dollar deficit problems, but the windfall should help a little.

So will next year's expansion of Roth IRA conversion privileges, if wealth managers pitch in. By convincing your upper-income clients to convert, you flood the U.S. Treasury with tax dollars that otherwise would trickle in over the lifetimes of your clients and their beneficiaries.

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What's that? You want to know how the Treasury will replace that future flow of revenue? Best not to think about it.

Roth IRA Desperados?

Maybe Jim Gust is right about Roth IRA conversions. So I thought when I saw this item from Investment News, citing evidence that investors are "desperate" for information on the subject.

Well, maybe not. The evidence turns out to be a tripling in the number of people searching via Google for "Roth IRA conversion" recently, compared with last January. Seems more likely that virtually nobody was googling the topic when the year began.

While interest among upper-income people about the opportunity to covert traditional IRAs to Roths may not be red hot, it is heating up. T. Rowe Price is among the fund families that has responded with good doses of detailed analysis, as I found when I downloaded the Fall T. Rowe Price Report here.

For a well-heeled IRA holder who can afford to move a sizable sum into a Roth IRA and leave it untouched for an heir, the results could be dramatic, according to this T. Rowe Price table:

Will we go the way of Japan?

That's the question posed on the The Becker-Posner Blog, warning of the consequences continued unrestrained deficits. Apparently the Japanese economy is experiencing even more distress than the U.S. economy.

In terms of the ratio of national debt to GDP, we are about where Japan was in 1995.

Becker argues that the answer is more economic growth, which requires lower taxes and less regulation.

In effect, the desirable policies to stimulate growth involve a retreat from the anti-business rhetoric that pervades Congressional Democrats and some of the top players in the executive offices, and a more pro-consumer and pro-business mentality. It is necessary to maintain the minimalist anti-trust policy that developed during the 1980s and 1990s under Democratic as well as Republican administrations, to retreat from the policy that banks and other businesses, such as GM, cannot be allowed to fail when they are mismanaged.

Makes sense to me.

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 Doig'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 Doig'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?