Friday, January 29, 2010

Salinger's Estate: a Tax Quandary?

Will the estate of J. D. Salinger, reclusive author of "Catcher in the Rye," escape federal estate tax? If the now-suspended tax is imposed retroactively, how will the estate be valued? Suppose Salinger left publishable manuscripts but also left instructions that they not be published? Could the manuscripts nevertheless have a taxable "fair market value"?

Estate planner Richard A. Behrendt prompts such questions in this blog post.

Yale and Harvard: Keeping Up Appearances

Belts may be pulled tighter in New Haven and Cambridge, but Yale and Harvard – and other top-tier universities – found enough cash in their downsized endowments to hobnob at the World Economic Summit. At Davos, blogs David Ignatius, "some of the biggest party-givers are America’s top universities."

Photo via Wikimedia Commons

The real danger of "global warming"

I'm skeptical about the whether global warming is real, and if it is real, whether CO2 has anything to do with it. I've been skeptical from the beginning, and Climategate certainly confirmed my doubts.

So the real danger in global warming isn't from the climate, it's from misguided policies forced upon an unsuspecting public by the government bureaucrats who have "drunk the Kool-Aid" of global warmism. Cap and trade is one potential danger, but that one now appears to be in limbo.

The Wall Street Journal has identified another one. This isn't The Onion, it's real.

The agency that spent more than a decade ignoring evidence of Bernard Madoff's $50 billion fraud; the agency that spent even longer constructing a credit-ratings oligopoly that still threatens investors; the agency that in 2004 encouraged Wall Street firms to increase leverage and then failed to monitor them—this agency now has spare time to meditate on climate science.

Read the whole thing. I don't know, I just don't know.

Thursday, January 28, 2010

The Lawyer Who Wrote Novels in Court

Like J. D. Salinger, wills and estates lawyer Louis Auchincloss lived ninety years and more. Unlike the reclusive Salinger, Auchincloss, who died Tuesday night, never stopped writing – novels, stories, biography and more – even as he continued to wrestle with trusts and codicils. “I think my secret is to use bits and fractions of time. I trained myself to do that. Anybody can do it. I could write sitting in surrogate’s court …."

In his novels Auchincloss sketched a vanishing world of privilege, a world of prep schools, town houses and the use and misuse of wealth.

Except, he said, that world did not vanish after all:
“I grew up in the 1920s and 1930s in a nouveau riche world, where money was spent wildly, and I’m still living in one!,” [Auchincloss] told The Financial Times in 2007. “The private schools are all jammed with long waiting lists; the clubs — all the old clubs — are jammed with long waiting lists today; the harbors are clogged with yachts; there has never been a more material society than the one we live in today.”

The Art of the Steal

We haven't referred to films much on this blog, but a new film is on the horizon that is all about the post mortem effectiveness of a will.  From the blurb:
In 1922, Dr. Albert C. Barnes formed a remarkable educational institution around his priceless collection of art, located just five miles outside of Philadelphia. Now, more than 50 years after Barnes’ death, a powerful group of moneyed interests have gone to court for control of the art, and intend to bring it to a new museum in Philadelphia. Standing in their way is a group of Barnes’ former students and his will, which contains strict instructions stating the Foundation should always be an educational institution, and that the paintings may never be removed. Will they succeed, or will a man’s will be broken and one of America’s greatest cultural monuments be destroyed?
Trailer for The Art of the Steal is here.  The filmmakers do not appear to be sympathetic to the notion of moving the art collection.  More background, including noteworthy Barnes Foundation holdings, at Wikipedia here.

Endowments: Small is Beautiful

University endowments lost, on average, almost 19 percent in the fiscal year ending last June. But Harvard, Yale and other biggies fared worse, as shown in the NY Times graphic below. Reason: Alternative investments:
Institutions with endowments greater than a billion dollars had 61 percent of their investments in such alternatives last year, compared with 52 percent the previous year. In contrast, universities with endowments under $25 million had only 13 percent of their assets in such investments, up from 11 percent the previous year.

Wednesday, January 27, 2010

Enron, the Play

Enron's board of directors are mice; it's accounting firm consists of a ventriloquist and his dummy. Enron, the Play opened in London's West End after an out-of-town run and should reach Broadway this spring.

Sounds like the perfect play for our times.

Tuesday, January 26, 2010

Where Jobs Really Come From

Seems Jim Gust and I chose jokes about jobs as the subject of the day (see preceding posts). "Great minds . . . " and all that.

Much as I admire Gary Trudeau, he's no match for the professional jokers in Congress.

If Congress wants to stop joking, a good start would be to read this recent Robert Samuelson column. (Boldface added)
All net job creation from 1980 to 2005 came from firms that were five years old or less, according to a study by economists John Haltiwanger of the University of Maryland and Ron Jarmin and Javier Miranda of the Census Bureau. In any one year, that may not be true; but over time, mature firms lose more jobs than they create. "It's not small firms but young firms that count," says economist Robert Litan of the Kauffman Foundation, which sponsored the study.

Is this a joke? I'm not laughing

Senators Charles Schumer and Orrin Hatch take to the op-ed pages of the New York Times today with their "bold proposal" to spur job creation. It is a short-term payroll tax holiday for new hires, but only if the new hire spent 60 days unemployed.

I guess I should be pleased that, more than two years into the Great Recession, finally some politicians have a proposal that is related to incentives for private sector jobs. This could have been a bit useful a year ago, but the economy is much, much worse off now.

Let's say that I'm an employer with new projects and I need staff. Most employers are using free lancers these days—will the payroll tax holiday be enough to encourage a full-time hire instead? Obviously not. The existence of this trivial program would have zero effect on staffing decisions.

Now let's say that I've decided I do need to add an employee. I've interviewed two great candidates. One is underemployed, the other unemployed. Does the existence of the payroll tax holiday affect my choice between the candidates? Should it? Why?

Remember the stimulus bill last year, the one that would hold unemployment below 8%? That one cost $787 billion. The Schumer-Hatch proposal costs $7.6 billion. I am not kidding, it's less than 1% of the effort made last year, obviously very weak tea.

The phrase I see more and more on the internet seems apt: "The country is in the very best of hands."

Bad News and Good News

The bad news: a real estate train wreck. Prime example, the catastrophic collapse of a deal to convert NYC's rent-controlled Stuyvesant Town and Peter Cooper Village into profitable apartments. Institutions likely to lose their entire investment include California pension plans, the government of Singapore and the Church of England:
“It’s the poster child for the entire housing bubble,” said Daniel Alpert, managing partner of Westwood Capital. “There’ll be some other spectacular blowups, but this will be at the top of the pecking order.”
The good news: There's a cure for all the economy's ailments: Jobs!

Mere fiduciaries and investment advisers can't hope to emulate the ability of Steve Jobs and Apple to generate unbelievable amounts of free publicity. Even Doonesbury! All you can do is admire the master marketer.

Monday, January 25, 2010

The Cardinal Second-Marriage Rule

Peter Brant broke "the cardinal second-marriage rule in the multimillionaire’s handbook," writes David Segal in The Times. "He wed without a prenuptial agreement."

Donald Trump finds his childhood buddy's error puzzling:
“Being the king of prenups, I’m pretty good at that stuff. You have to have it. You’re dealing with huge finances and you need some certainty in your life and a prenup will hold up 100 percent if it’s properly drawn."

***“I’m surprised at Peter. But women can do things to men that are very unusual."
Just how much wealth is at stake is uncertain. Brant's fortune was build upon the newsprint company co-founded by his father, and the business is privately held. But bad times for newspapers clearly have meant bad times for newsprint. Segal reports that several of Brant's competitors have filed for bankruptcy.

When other Ultra High Net Worth consumers shop for Trophy Spouses, their advisers no doubt will cite Brant's predicament and urge them to do the prudent thing. Think it will help?

Sunday, January 24, 2010

Reverse Mortgages and Irrevocable Life Insurance Trusts

Can someone be needy enough to take out a reverse mortgage but rich enough to take a heavy hit from the federal estate tax at death?

Apparently so. But the sales strategy of using proceeds from a reverse mortgage to fund an irrevocable life insurance trust may be on the way out, says Jim Veale in this column:
Today ILITs are not as popular as an estate planning vehicle as they were in the first half of the last decade. The situation could change depending on the action Congress takes this calendar year. Until proprietary reverse mortgages return and provide substantial proceeds, using reverse mortgages as a means of funding ILITs will be little more than an interesting curiosity of the last decade.

Friday, January 22, 2010

Fierce Fiduciaries of the Cook Islands

Rarotonga beach, Cook Islands. Photo via Wikimedia Commons.

Think fast! The SEC is after you. Where do you stash the loot?

The Cook Islands, a four-hour flight from New Zealand. The islands' population may be small – about 20,000 – but their zeal for protecting trust funds is unrivaled, as Floyd Norris explains in his Times column:
Under Cook Islands law, foreign court orders are generally disregarded, which is helpful for someone trying to keep assets away from creditors.

In fact, getting an American court order can make it harder to get money out of the Cook Islands. If someone who stashed funds in a Cook Islands trust asks for the money back because a court ordered him to do so, Cook Islands law says that person is acting under duress, and the local trustee can refuse to return the money.

Over the years, a number of less-than-upstanding Americans have found the islands attractive for that reason, among them former corporate raiders, penny stock promoters and telemarketers who defrauded customers.

The latest to use that tactic is the wife of Jamie L. Solow, a former broker in Florida who evidently has a silver tongue and certainly has a lot of angry former customers. In one year, he earned more than $3 million in commissions selling a form of collateralized debt obligations known as “inverse floaters” to individual investors who claim he never warned them of the risks.

Thursday, January 21, 2010

What's next for the estate tax?

The Republican gain of a Senate seat, and with it the power to filibuster, will affect the debate over the estate tax. I suspect that it makes a deal to the Senate's liking more probable. That would mean a $3.5 million exemption rising to $5 million over the next ten years. It might also include portability of the exemption for married couples.

I also think that retroactivity becomes less likely, and the longer they wait the worse the retroactivity problem becomes.

The U.S. Supreme Court has said that taxpayers have no right to rely on the tax code, a position that I find preposterous.

Let us say that Mr. Got Lotsarocks dies today with an estate of $10 million. He didn't plan for a date of death in reliance on no estate tax in 2010, so perhaps we don't feel too badly if the estate tax is retroactively applied to his estate. But now let's say that the entire fortune passes to his wife (so there was never any danger of estate taxation anyway). Her advisors tell her to disclaim most of the inheritance so that it passes tax free to their children. If she does, she really is relying on the absence of the estate tax, and if it is applied retroactively the family fortune will be hammered.

I don't think this situation is preposterous. I also think that estate planners could be in some jeopardy if they guess wrong about what Congress does.

Tuesday, January 19, 2010

How Long Should a Dead Celebrity Live?

. . . especially if that celebrity, if you believe scoundrels not fit to join the Baker Street Irregulars, was not alive to begin with?

Although Arthur Conan Doyle's Sherlock Holmes stories have passed into the public domain in the U.K, copyright protection lives on in the U.S. Could it be that this country has gone too far?

Heirs and estate administrators certainly don't mind the long stream of revenue Holmes has generated. And lawyers must be grateful for the work Holmes has posthumously sent their way. As the Times reports, For the Heirs to Holmes, a Tangled Web.

"Watson, we may need a lawyer."

Illustration: Wikimedia Commons

Friday, January 15, 2010

When the ’Fifties Went Fiduciary

Late Spring, 1956: G.I.'s returning from two years in Korea board a troop train in Seattle. The train, heading east, pauses for a rest stop in Butte. A few of the soldiers wander into a luncheonette, where two burly women in jeans sit at the counter. Montana girls sure ain't dainty, the G.I.'s think as they move toward a table. They turn to take a closer look. Yikes! Those two women are not women. They are men – men who have let their hair grow girly-girl long!
That memory – my first encounter with the Age of Aquarius –popped into mind when I reread Merrill Anderson's 1954 history of trust advertising. Even the most contemporary of the ads shown (sample at right) looked primitive compared with the trust ads that appeared only a couple of years later. We tend to forget how fast American life and culture was changing in the 1950s. Yes, the Greatest Generation moved to the suburbs and quietly prospered. But the 1950s also was the decade that began with Doris Day and rushed ahead to Elvis. In '56 I came home with a Japanese cover recording of "Rock Around the Clock"!

The October 13, 1956 issue of The New Yorker contained three examples of the new wave of trust ads. Take a look . . .

Bank of New York usually tended toward the traditional in its advertising, as befitted an institution that traced its roots to Alexander Hamilton. In this ad, they clearly decided to liven up.

This U.S. Trust ad created by Merrill Anderson is unusual on two counts. First, while most ads in the campaign pitched investment management, this one featured the breadth of personal services offered by top trust companies of that era. Today we'd call it "wealth management." Second, the logo lists a temporary address. Wonder what displaced U.S. Trust from 45 Wall?

This nestegg ad must have been one of the earlier Chase efforts. (We showed you another early example here.) In later ads Chase's Mad men wisely depicted the idle rich doing something, rather than just idling.

Tuesday, January 12, 2010

Where There's a Will There's Sometimes an Error

From that admirable blog, News from 1930 – which now, of course, has moved on to 1931:
Much trouble is caused at the start of every year by legal documents inadvertently dated with the old year. Even wills are sometimes wrongly dated, causing endless trouble at the maker's decease.

Modern wisdom

Stanley Fish teases out the differences between The True Answer and the Right Answer.

Monday, January 11, 2010

Waiting for the Rebirth of the Death Tax

From the nation's richest state (where Merrill Anderson is headquartered), Mara Lee of the Hartford Courant reports on what various estate planners and wealthholders in Connecticut have to say as they wait for the banished federal estate tax to reappear.

Sunday, January 10, 2010

Bernie Madoff and the Bank Custodian

What is the sound of one hand clapping?

If custody accounts contain shares of "Madoff funds," what's in the accounts?

You're on your own answering the first question. The second concerns Westport National Bank. In The New York Times, Floyd Norris explains that the bank funneled money from small pension plans and IRAs to Madoff. The bank served as custodian for the "shares" purchased by the retirement plans. Messy legal snarls have resulted.

Related post:
Show Me the Certificates!

Friday, January 08, 2010

“I‘m Tired of Thinking – Advise Me!”

If you're an investment adviser and you get an especially skeptical look from a a client, perhaps the client just read this SmartMoney article: The Lulling Effect of Expert Financial Advice.

Elvis Left the Building, But Not the Business

Photo: Library of Congress via Wikipedia

Elvis Presley was born 75 years ago today. "He made more money than any other dead celebrity in 2008 ($49 million)," The Washington Post notes, " although he dropped to No. 3 last year (behind Yves Saint Laurent and Michael Jackson)."

Here's his Last Will and Testament.

“Consumers?” Watch Your Language!

OK, I consume razor blades, Pinot Noir and paper towels. Stretch the definition of "consumer" a bit – almost everybody does – and you might say I consume certain services: lawn-mowing … oil changes … online banking and brokerage.

But we have to draw the line somewhere. "Consumers" is not an exact synonym for "Americans" or "citizens" or "people." And the hapless soul who wrote this blurb for the WSJ web site should know that it's sure as expletive-deleted not a synonym for "taxpayers."

Wednesday, January 06, 2010

Trust advertising through the years

Over the years I have notice a tendency on the part of men of enterprise to believe that very little happened in their line of business until about the time they entered it.  Sharing as I did this illusion, I found it revealing to leaf through the pages of the first volume of Trust Companies, as Trusts and Estates was originally called.

So begins Merrill Anderson's review of trust advertising, published in the March 1954 issue of Trusts and Estates.  Merrill called the reader's attention to a number of historic trust advertisements, and the article is punctuated by several contemporary ads by bank and trust companies as well.

Merrill would not recognize today's financial services market, but many of his observations still resonate.  In particular, he stressed the presentation of trust benefits, without jargon, and with the use of news pegs when possible and appropriate.

According to Merrill, trust advertising first appeared on the radio in 1922, and on television in 1950. He was an advocate for "the periodical as a means of trust advertising—featuring news of tax, trust and estate matters—education replacing to a large extent the need for it in salesmanship."  Also, in 1954, Merrill identified "the growing importance of women as prospects for trust advertising."

I was struck by the following:

You may sigh, at this point, for the good old days.  As an advertising man, I give them to you.

Yes, those are the words of the deeply optimistic man who founded an ad agency specializing in banks during the Great Depression.

If you would like a PDF of the article, drop me a note at

Our Founder

Merrill Anderson, in a photo that accompanied his 1954 article in Trusts and Estates.

Tuesday, January 05, 2010

Could This be the Trusts and Estates Decade?

Phone service via the internet will be the decade's fastest-growing industry, according to this IBISWorld survey, followed by "retirement planning." Other industries expected to more than double include biotech, e-commerce, video games and –yes! – trusts and estates.

Monday, January 04, 2010

Why Family-Business Owners Hate the Estate Tax

Opponents of the federal estate tax claim it destroys family businesses. Evidence is sparse. Nevertheless, many owners of such businesses do have reason to hate the tax. Federal estate tax doesn't simply deliver a staggering blow once a generation; in practice the cost of the tax turns into an extra, added annual drain on business income. Curtis Dubay, a senior tax policy analyst at The Heritage Foundation, recently offered two examples.

One family business, a Maryland contractor, spent ten years paying off estate tax incurred by the older generation. The other, a wine and spirits shop in New York's Grand Central Station, annually pays premiums on insurance to cover the estate tax when the current generation dies.

Neither business has been killed by the estate tax. Judging from their web sites, both Reliable Contracting and Grand Harvest Wines are doing OK. Rather, their circumstances illustrate how the "death tax" imposes added costs that many family businesses have to live with, year after year after year.

Saturday, January 02, 2010

Good Bye to “The Best of Good Buys”

When Sam Heitzman joined The Merrill Anderson Company, I soon realized his mind worked quicker than mine. Only once did I find him slow on the uptake.

Why, Sam wondered, was Paul Kangas on Nightly Business Report so fond of farewells? Why all those "good byes?"

"Not 'good byes,' Sam. Good buys. It's an investment program. He's wishing investors 'good buys.'"

Paul Kangas retired from Nightly Business Report, a program he co-hosted for 30 years, on New Year's Eve. If you missed the show, with Paul in his tuxedo, there's a link here.

All of us interested in marketing services to investors owe thanks to public television. Together with the late Wall Street Week, Nightly Business Report has helped make a generation of viewers more knowledgeable about investing and financial planning.

Over the next year, Nightly Business Report intends to reinvent itself for an age in which no one has to turn on the TV to find out how the market closed. We'll be interested to see what they come up with.

Jan. 1: A Good Day to Die

Reports the TaxProf Blog. Proof that the wealthy are paying attention.