The Trust Industry’s Trillions

Some say the trust industry isn't what it used to be. (Ask an ancient trust officer about the days when the American Bankers Association had a whole division devoted to trust services.) Yet the need for fiduciary organizations has never been greater. From distracted young scholars to high-tech philanthropists to elderly invalids, millions of Americans need investment service and financial guidance they can rely upon. Also, as noted here recently, businesses need a trustworthy, relatively economical source of retirement-plan administration.

If we didn't have a trust industry, we'd have to invent one.

Happily, the industry hasn't exactly withered away. At last count trust institutions administered $2.2 trillion.

Tax rates far above 100%

CNBC reports on a feature of Obamacare that is going to be hard to defend.  Subsidies will be available for some to purchase health insurance.  The subsidy, a fixed dollar amount worth thousands of dollars in many cases, disappears the instant one proceed $1 over the income limit.

I'm no fan of phase-outs, but this seems really harsh.  The stakes for middle class tax planning just went through the roof.  Whatever you do, don't realize investment gains until you know the full consequences of them. Here's an example from the article:

Under a scenario that ValuePenguin.com identified, a couple in Ohio, both age 50, would be eligible for subsidies worth $3,452 to purchase a so-called silver insurance plan—a moderately priced level of benefits under the ACA's scheme—that costs $9,346 annually if they made up to $62,040 per year.

But if they made just $1 more than that, they would lose the subsidy. Wu noted that the couple then would have to earn at least $65,492 to make up for the lost subsidy.

Investment Manias Reconsidered

Were the buyers of tulip bulbs in 17th-century Holland loonier than the 21st-century buyers of synthetic CDOs? Maybe not. (Isn't any investment failure merely "poor risk management"?)

Here's the case for tulips:

Bulldog Bites Plan Sponsors

Mischievous Yale professor Ian Ayres threatens to expose sponsors of needlessly costly 401(k) plans. On Twitter! Follow the links on the Yale blog post for more about Ayres and his latest crusade.

As more light shines on daunting 401(k) costs, banks and trust companies hope for a return to the good old days, when they invested company retirement plans in more economical collective trust funds. Yes, with a few updates, what's old is new again.

Grounds for Disinheritance?

Heirs urge successful investor, 93, to cash in

Put Not Your Trust In Your Clients

Scott Fitzgerald
Princeton University Library

Via Open Culture:

 "F. Scott Fitzgerald was right. The rich really are different from you or me. They’re more likely to behave unethically."

How Would You Spend a Nest Egg?

Two Chase Manhattan nest egg ads from 1958. Both show wealthy gents at leisure.

One feeds his fish. Now that's exciting.

The other drives a Porsche 356 cabriolet around Europe. That's more like it.

Much Ado About Gandolfini’s Will

All the criticism of James Gandolfini's will misses the point, according to Roger Haber, the lawyer who drafted the will: A will is not an estate plan. If Gandolfini's net worth was $70 million, his will controlled no more than a seventh of his total wealth.

“People don’t get it. There is no tax problem here. There is no planning problem here. This [will] is a minor piece of the estate planning.”

Some of the criticism does suggest that estate planners lack contact with the real world. Why would heirs want to delay or renounce their inheritances in order to achieve a theoretically optimum long-term tax result?  Somebody who already has several million may be willing, but few people occupy that wealth bracket.

Nevertheless, as Paul Sullivan's column indicates, nits can be picked.  For instance, inheritance restrictions on foreign real estate and provisions for young heirs might have needed more attention. 

The Family Business Fight That Just Won't Stop

One side of the family wants to keep running the family business. The other wants spendable wealth. Same old story? Yes, but the Demoulas saga is supersized and, seemingly, unending.

Once upon a time, two Demoulas brothers turned their parents' little store into a supermarket chain. When one brother died, the other brother carried on, treating his sibling's widow and family generously while sneaking away with most of their company stock. Result, an historic court battle. The legal shenanigans were worthy of a John Grisham novel.

Now the Demoulas family feud has been rebooted by the next generation. Arthur S. Demoulas and his side of the family seek to oust his cousin, Arthur T. Demoulas, as CEO. The board of directors, thought to be now controlled by Arthur S. (we didn't say this story was easy to follow) votes today.

Arthur T. is beloved by his employees. His defense of their profit-sharing plan seems to been what rekindled the family fight.

The protesting shareholders have been especially outraged by a profit-sharing plan that they believe has enriched rank-and-file employees at the expense of the family. Indeed, Arthur T. Demoulas proudly declares that some employees retire with well over $1 million in their profit-sharing plans. 

In one telling episode, one of the funds in which the profit-sharing money is invested suffered a $46 million quarterly loss during the 2008 financial meltdown. Arthur T. Demoulas says he insisted that the company immediately make up the loss to his employees’ accounts. That enraged his cousins, who maintained that no investment comes without risk.

Demoulas' Market Basket stores are thriving and highly popular. Our local branch sometimes suffers from an overflowing parking lot. For the last several days, employees have asked customers to sign a petition to the board, asking that Arthur T. be retained.

Yes, I signed.

Update: After meeting for thirteen hours, the board adjourned without taking a vote on ousting Arthur T.

Kicking Hedge Funders When They're Down

Ouch! The Hedgies of Greenwich and elsewhere on the Fairfield County Gold Coast must be wincing. BloombergBusinessweek delivered a swift kick to their tender areas, complete with a cover illustration you've surely heard about.

OK, the average hedge fund underperforms the market. Does referring to "average hedge fund"make any more sense than talking about the "average teenager?"

Anyhow, performance isn't everything, as Josh Brown points out in his rebuttal to Sheelah Kolharkar's Businessweek story. Some high-net-worth investors crave status symbols more than alpha.

The BloombergBusinessweek story is timely because hedge funds are gaining the ability to advertise directly to the public. Theoretically, that public is limited to millionaires. (Hedge funds generally aren't supposed to deal with lesser mortals.) Still, over-aggressive marketing could move hedge funds into the financial mainstream at the cost of their "luxury" cachet.

Suppose Money magazine starts featuring "This Month's Five Hottest Hedge Funds." Might wealthy investors decide they'd rather have a Rolex?

James Gandolfini's will

"Tax disaster" says New York Daily News.

"Questionable planning, terrible reporting" responds estate planning attorney Jay Brinker.

I have additional details, but they are behind the Tax Analysts paywall.  Look for a discussion of the Gandolfini will in the next issue of Merrill Anderson's Investment and Trust Newsletter.

I'll give you our punchline now. We wouldn't be posting or writing about Mr. Gandolfini's estate plans if only he'd used a living trust—a point made also by Attorney Brinker.

Astonishing News!

From the WSJ:

Corporate Insiders Shift From 'Buy' to 'Sell' as Bankruptcy Nears

$50,000 Financial Plans

How much is a financial/estate plan from a broker worth? Depends on who you ask.

Millionaires Aren’t What They Used To Be

Reporting on the latest Spectrem survey of millionaires, The Guardian places people with $1 million among the "super-rich." The Telegraph describes them as "mega rich."

Are Americans with investable assets of $1 million really extremely rich? Or, as noted here recently, are they actually too poor to afford a comfortable retirement?

Most truly rich people will tell you that $1 million is small change. To most other people, especially those wrestling with high credit-card balances and student loans, $1 million still sounds like a vast fortune.

For sure, $1 million isn't what it used to be.

To live like a millionaire lived in 1987, you today need $2 million.

To live like a  millionaire lived in 1976, you need $4 million.

To live like the millionaire of 1959, you need $8 million.

To  live like the millionaire of 1945, you need $13 million.

And to live like the millionaire of 1935, you need $17 million.

Ring Them Bells!

Independence Day, wrote John Adams, should be celebrated with "pomp and parade, with shows, games, sports, guns, bells, bonfires, and illuminations….."

This Chase nest egg ad, from exactly half a century ago, chose to feature bells.

Independence Day

Update: From the Paul Mellon collection at the Yale Center for British Art, an early depiction of New York liberated from King George.

The Most Expensive Home In Hedge Fund Country

This Greenwich mansion is the most expensive home for sale in the United States, according to Ocean Home. Asking price: $190 million.

The realtor describes the 50-acre estate as incomparable in Greenwich, where hedge funders go when they become billionaires.

Enjoyed by the noted Lauder Greenway family from their purchase of it in 1904….. This incomparable estate, 40 feet above mean high water, owns two islands and altogether they have a total of almost a mile of shorefront, amazing views, extraordinary walled gardens, unbelievable privacy, a 75 foot pool with a spa, a beach, a grass tennis court, a superb greenhouse, a stone carriage house and a cottage….

Asking $190 million isn't the same as getting it, these days. Before the real estate crash, even the Greenwich sky wasn't the limit. Nina Munk evokes the era in this 2006 essay for Vanity Fair.

Now even one of the Greenwich hedge fund greats, Steven A. Cohen, is besieged by the SEC.

The Image Is Becoming the Message

From this NY Times column:

“This is a watershed time where we are moving away from photography as a way of recording and storing a past moment,” said Robin Kelsey, a professor of photography at Harvard, and we are “turning photography into a communication medium.”

Texting is down (Yeah!) and image "messaging" is up. Successful marketing may depend not only on what you say but on what you show.

Social Security and gay married couples

The excess "marriage penalty taxes" and possible benefit reductions that JLM refers to below will take years to accrue. On the other hand, skyrocketing Social Security payouts go into effect immediately, per this item from Financial Planning:

http://www.financial-planning.com/news/how-gay-marriage-ruling-gave-benefits-to-a-client-2685621-1.html