Saturday, March 29, 2014

"Traust!" Or As We Say Today, "Trust"

Photo: Alex Lentati
In 1014 Vikings ruled England. The British Museum marks the anniversary with a blockbuster exhibition, Vikings: Life and Legend, featuring the remains of a 121-foot Viking ship (imagine a low-slung superyacht with lots of oars).

One of the most reassuring words the English could hear from a Viking invader was "traust." It indicated the giant on one's doorstep did not have rape and pillage on his to-do list. He was offering protection and support.

"Traust" passed into English as "trust." By the early 1400s it gained a legal meaning: "confidence placed in one who holds or enjoys the use of property entrusted to him by its legal owner."

Trust Acronyms. Enough Already?

In his Wealth Matters column Paul Sullivan delves into the mysterious world of trust acronyms and trips only once, referring to CRATs as CLATs.

What do you say, tax planners? Time for less argot, more clarity?

3/31 Update: Sent Sullivan an email pointing out he hadn't quite made it unscathed through the thickets of trust acronyms. This morning he thanked me for my note, which may have been the friendliest he got.

 "As you may recall from your years of writing about trusts, get one thing wrong and a swarm of t&e attorneys attacks you like a hive of angry bees."

Friday, March 28, 2014

Paul Krugman Wants to Tax Estates

Theodore Roosevelt, 1915
What this country needs is a good old estate tax, like Teddy Roosevelt advocated. So writes Paul Krugman in his New York Times column.

 We already have such an estate tax, on paper. Actually, when compared with the estate tax imposed on decedents who got ridiculously rich in the Gilded Age, today's estate tax looks like a heavy hitter.

In 1924, when the top estate tax rate first reached today's level of 40%, that rate applied only to estates over $10 million, equal to about $137 million today.

Our current estate tax takes 40% of everything over $5.34 million.

But not really. As estate planners have claimed for generations, paying estate tax is largely optional. Taxable values often can be sheltered or discounted. Truly wealthy individuals may transfer billions tax free during their lifetimes. Closing loopholes created by stratagems such as GRATs, defective grantor trusts and perpetual dynasty trusts might net the U.S. Treasury more than lowering the estate-tax exemption or raising the rates.

But let's not knock "inherited wealth." If the Mars candy enterprise had not remained in family hands, for example, Snickers and Milky Ways would no longer be worth buying.

Photo via Wikimedia Commons.

Thursday, March 27, 2014

Can You Spot a Trust Company?

As they liked to say back in the age of print, you can't judge a book by its cover.

Optima Bank and Trust, despite its name, offers no trustee or investment services.

Glenmede, despite its ad logo, is of course a trust company.

Takeaway: Use "trust" in your name if you wish your personal banking services to sound upscale. Eschew "trust" if you want to be seen as a forward-looking wealth manager.

Hey, we don't make the marketing rules. We just report them.

Sunday, March 23, 2014

Money Makes the World Go 'Round

As investing grows more global, so does the flow of money. International migrants sent $529 billion in remittances back to their home countries in 2012, according to the World Bank.

Pew Research has turned the World Bank data into an interactive world map. The clip below shows where remittances flow from the U.S.

Friday, March 21, 2014

How Can Bankers to the Rich Earn Their Fees?

Top banks and trust companies charge real money for wealth management these days, according to the WSJ.
Annual fee for managing $5 million: $46,500
For managing $20 $30 million: $201,000
To earn such generous compensation, says the Journal, a wealth manager needs to do more than allocate assets. No surprise there. More than three decades ago, when Daniel Davison ran US Trust, the bank depicted the breadth of its services by commissioning Winston Churchill's granddaughter to create a sculpture of a trust officer walking a client's dog.

Though wire houses and banks still dominate the high net worth market, the WSJ graphic shows independent advisers are nibbling voraciously at their business.


Corrected 3/26

Thursday, March 20, 2014

Has Investing Reached a Fork in the Road?

Within living memory, investing has evolved in three stages:

 SS
 Stock selection was the key after World War II. Fifty years ago Shearson boasted of its stock-picking
task force: "Last year they traveled more than 350,000 miles, studied more than 10,400 annual reports and held more than 5,400 interviews with company executives."

Then efficient market theory came along. All that analytical work, it seemed, was pointless. On average, stock pickers produced only average results. And that was before commissions.

AA
Asset Allocation reflected the finding that investment returns depended mainly on how funds were deployed among different asset classes. Selection of  specific securities was secondary. Thanks to index funds, followed by similar ETFs, asset allocation became simple, efficient … and deadly dull.

Efforts to spice up AA by creating dozens of asset sub-classes ("I'm tweaking my Chinese midcaps and dumping Irish micros.") didn't help much.

II 
Irregular Investments – less alliteratively, alternative investments – avoid the shortcomings of both SS and AA. Markets are less efficient in the II world, and private equity deals appeal to investors who want to feel they've entered the big leagues.

"Hedge funds, private equity, and private debt are being extolled as some of the best ideas for wealthy investors' portfolios in 2014," according to this Barron's cover story. (I gained access; results for other nonsubscribers may vary.) As shown here, Goldman Sachs is putting 14% of clients' money into private equity. GenSpring puts a full quarter of client assets into hedge funds.
 
As an investment method for the 1%, irregular or alternative assets are winners. Clients feel special. Wealth managers harvest hefty fees. But for lesser investors, a competing approach is gaining ground.

CC
Cost Control. Even if most funds and portfolios typically produce more or less average returns, investors can gain a sure-fire edge by lowering their costs. Jack Bogle, of Vanguard fame, has proselytized for cost control for years. His latest salvo: The Arithmetic of “All-In” Investment Expenses.

Even one-percenters can be tightwads when confronted by today's investment fees. Stuart Lucas, for example, believes investors should focus on what they net after expenses and taxes.
Stuart E. Lucas, chairman of Wealth Strategist Partners, which manages about $1 billion for a small number of wealthy families, analyzed state and federal taxes along with management fees to argue that if 50 percent of your return went to someone else, then you should reconsider the investment.
Index funds and most mutual funds are under the 50 percent line. Hedge funds are always above it for a taxpaying individual. Private equity investments are on the line.
 Will pricey Irregular Investments prevail as hedge funds seek to expand their customer base beyond the 1%?  Or will the 1% decide hedge funds are so yesterday and boost their returns by cutting expenses? We'll be watching.

Monday, March 17, 2014

Can You Make a Valid Will When You're All Thumbs?

You probably can, especially if you're texting in a state that's adopted The Uniform Probate Code.

Texting Your Will.

Saturday, March 15, 2014

Your Wealth Is Your Health

The old saying, "your health is your wealth," needs rearranging. And Star Trekkers should learn  to say,"Prosper and live long."

Where Incomes Are Higher, Life Spans Are Longer.

How will longevity reshape wealth management and estate planning?

Thursday, March 13, 2014

Boomer Inheritance Boom Fizzles, But Wait Until 2031!

Some wealthy parents of Boomers are still around, and those that aren't seem to have favored philanthropy – or dynasty trusts – rather than outright transfers of wealth to the next generation. See The New York Times: 
The top 1 percent of households owns about 35 percent of American wealth, more than the entire bottom 90 percent does. But at least at the moment, growing inequality has not resulted in a big boom in inheritances. Since the 1980s, the value of inherited wealth has only drifted upward slightly. In fact, wealth transfers as a proportion of net worth have fallen, to 19 percent in 2007 from 29 percent in 1989.
Maybe the Boomers' heirs, the Gen X and Gen Y crowd, will be luckier. Starting in 2013, the consulting firm Accenture forecasts, "10 percent of the country’s total wealth will change hands every five years through inheritances, estates, gifts and the like."

What do you think? Will Boomers conserve and pass along the family wealth? Or will they joyfully spend the kids' inheritances?

Friday, March 07, 2014

Ads From the Growth Stock Era

"Stocks yield more than bonds because stocks are riskier." That folk wisdom prevailed for the first half of the twentieth century, wavering only in 1929. You know what happened then.

By 1964, however,  the new era of Growth Stocks had kept stock yields lower than bond yields for half a decade. Chase Manhattan's nest egg ads responded. No more beating around the bush with loss leaders like custody. This March 1964 ad makes a simple pitch for investment advisory service.

Personal note: The old pumper is from my old home town.


Also from March 1964, this ad from a Greenwich, Connecticut trust company. Putnam was a classy wealth manager in its day. Bank of New York Mellon acquired Putnam in the late 1990s.


In 1964, the Putnam ad tells us,  the most expensive residential property in Greenwich was priced at $450,000. Today the most expensive is the waterfront estate we showed you here. Then offered at $190 million, the 50-acre waterfront property is now available for $130 million.

A bonus March 1664 ad: This Irving Trust message didn't enable Irving to succeed as a major commercial bank, but it sure looked good.

Wednesday, March 05, 2014

Could GRATs Lose Their Tax Magic?

Estimated wealth Sheldon Edelson has given his heirs using more than 30 GRATs
Estimated federal gift tax Edelson has saved by using GRATs
Grantor Retained Annuity Trusts have certainly drawn Bloomberg's attention. (Check out the video.) And GRATs again receive attention in the President's budget proposal, as Deborah Jacobs reports. Unlike the pro forma call for a return to harsher estate taxation, the proposed crackdown on GRATs, Crummey trusts and dynasty trusts shouldn't be dismissed, Jacobs believes.
Don’t expect thoughtful estate tax reform — we’re talking congressional horsetrading, perhaps done incrementally. (Heads up: watch those transportation funding bills.)
Richard Covey, the father of high-speed GRATs, estimates his brainchild has saved donors more than $100 billion in taxes since 2000. Could the end be nigh?

Monday, March 03, 2014

Undue Influence in Paradise

Be sure to click through to the Daily Mail article Gerry Beyer spotlights here. You'll probably see the fictionalized version on Season Seven of Downton Abbey.