Millionaires: Endangered species?

There are a lot fewer than there used to be.

Stock Market Volatility = Gift Tax Saving

Stock market gyrations may be causing you gastric distress, but volatility does have an estate planning upside. The Wall Street Journal points out that higher than normal volatility may justify a steeper than normal discount when gifting shares in a privately-held business.

(Clients will be able to transfer publicly traded shares pretty cheap, too, if the market keeps plunging.)

How to increase federal revenue by $50 billion per year.

End the dumb tax policy that encourages companies to park their cash abroad.  Most amazingly, this link goes to the New York Times!

Stop the Mutual Fund Merry-Go-Round?

Photo: Wikimedia Commons

Once upon a time, a Merrill Lynch broker made a pitch for the company 401(k) plan. Could we see the prospectuses for the proprietary funds he proposed to use? Of course, he said.

Did we ever see a prospectus? Of course not.

In theory, regulations required that an investor receive a prospectus before purchasing fund shares. In practice, brokers selling high-expense, low-performing funds could not comply. They were schooled to use Plan B: Make the sale first, deliver the prospectus later.

That memory cropped up as I read David Swensen's tirade against The Mutual Fund Merry-Go-Round.  Yes, "investors should take control of their financial destinies, educate themselves, avoid sales pitches and invest in a well-diversified portfolio of low-cost index funds." But asking fund salespeople to hand out more informative prospectuses, offer index-fund alternatives and generally act like fiduciaries? I fear that's still not practical.

Warren Buffett Wants Multimillionaires to Pay More Tax

From Buffett's op-ed in today's NY Times:

I would leave rates for 99.7 percent of taxpayers unchanged and continue the current 2-percentage-point reduction in the employee contribution to the payroll tax. This cut helps the poor and the middle class, who need every break they can get.

But for those making more than $1 million — there were 236,883 such households in 2009 — I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more — there were 8,274 in 2009 — I would suggest an additional increase in rate.

My friends and I have been coddled long enough by a billionaire-friendly Congress.

 Back in the day, the federal government sometimes imposed a surtax when the going got rough. Wouldn't a 10% surtax on millionaires and a 20% surtax on decamillionaires be the simplest way to tax the richest?

“We Want to Hold Your Hand . . .”

Investment firms have learned they must communicate with clients in a time of crisis. (Even a small T. Rowe Price investor like this blogger recently received two e-mailed advisories.) Most clients don't expect advisers to offer solutions; they simply want reassurance that their adviser is paying attention.

Check out Deal Journal, which has used Wordle to convert various firms' 'don't panic" letters into something like art.

“Family Offices” For the Rest of Us

George Soros intends to turn his hedge fund into a family office managing billions and billions. Lesser wealth, in the hundreds of millions, also may justify setting up a free-standing family financial services firm. For the rest of us, Bloomberg reports, multifamily offices now seek clients with as little as $5 million.

Good Grief, They're Slashing EVERTHING!

Here's how my new issue of The New Yorker arrived in the mail today. Wall Street's tremors must be shaking the whole city.

Four Hundred Years of Bubbles

From SmartMoney, a crash course on financial crashes. There were more bubbles where these came from, notably the stock market bubble, fueled by buying on margin, that burst in 1929.

The Great (Delete Recession) Contraction

Anyone turning to The Times business section this morning – "On Wall Street, traders and strategists trekked to their offices on Sunday in scenes reminiscent of the fateful weekend before Lehman Brothers collapsed in 2008" – knew this wasn't going to be a good day.

 Double-dip recession ahead? No. Don't call it a recession. What we have, as Ezra Klein in The Washington Post illustrates with a chart, is something special. Economist Kenneth Rogoff, co-author of "This Time is Different,"  calls it the second Great Contraction.

A lot of deleveraging remains to be done before we put the second Great Contraction behind us. As for the stock market, the next saros cycle isn't expected to start for another seven years or so. (Well, maybe a bit sooner, if you believe Warren Buffet's guesstimate). Meanwhile, the hordes of Boomers hoping to retire towards the end of the decade may have several years to load up their portfolios with bargain stocks.

The challenge for investment pros? How to convince their Boomer clients that Wall Street's bad news is their good luck.

I watched President Obama on MSNBC today . . .

. . . and it appeared to me that the Dow broke through the 11,000 barrier while he was talking.

I did not get a sense that any new ideas are on the horizon.

Form 8939 was released on Friday

Here is the announcement.

This is the Form for opting out of the 2010 estate tax, choosing the carryover basis instead, and telling IRS what the asset values are in the estate.  Only the very largest estates need be concerned--I'm looking at you, executor for George Steinbrenner.

The due date is November 15, 2011, and extension opportunities will be limited.  That's because, even though it's a short filing window, it's an overly long window since the date of death for all affected estates.

The budget deal

Robert Samuelson offers a spin-free review.

A Reverse Mortgage By Any Other Name . . .

View from Malaga villa

Danske Bank sales pitch to Scot living in Malaga, Spain: Borrow against your house with our equity release plan. You'll get income for life, and your daughters will pay less Spanish inheritance tax when you die.

Reality: Bad idea.

How bad is this recession?

Derek Thompson at The Atlantic highlights four shocking graphs. We are far, far from real recovery.

How to Sell Performance

As the stock market surged in the 1980s, even the staid house of Morgan joined the ranks of banks and trusts that launched ad campaigns. This Morgan ad from 1986 offers a classic definition of "performance." (Note that a quarter century ago, a mere $2 million made one wealthy enough to gain Morgan's attention.)

Does the dashing gent in the photo look familiar? James Goodfellow now serves as chairman of Fiduciary Trust International.

Related post: A Classic Ad from 1985

Recession must be over . . .

. . . when kids are taking private planes to camp.

The Great Communicator

At the risk of repeating myself, here is what President Ronald Reagan wrote in his diary on Tuesday, November 1, 1983:

Last night the Repub. Sen. very irresponsibly refused to pass an increase in the debt ceiling which is necessary if we're to borrow & keep the govt. running. *** I sounded off & told them I'd veto every d--n thing they sent down unless they gave us a clean debt ceiling bill. That ended the meeting.

The Nifty Fifties: People's Capitalism

The Advertising Council seems to have invented "People's Capitalism" in the early 1950's, seeking to encourage widespread stock investing. G. Keith Funston of The New York Stock Exchange picked up the ball and ran with it, and in 1956 General Electric jumped on the bandwagon with this ad.

 In 1952 only 6 percent of Americans owned stocks. How is People's Capitalism doing these days? Pretty good, though somewhat slowed by the Great Recession. The exact answer depends on how you define stock investing.

In 2005, according to a Census Bureau estimate, only a third of white Americans, and less than 10 percent of blacks or Hispanics, owned stocks directly on through mutual funds.

From the PBS archives comes a brighter picture. By the end of the 20th century the average American was indeed a capitalist:

Recently Gallup found that 54 percent of Americans own "individual stock, a stock mutual fund or in a self-directed 401(k) or IRA." That's down from 65 percent in 2007, but still a majority. Slightly fewer Americans pay federal income tax.

Who's most likely to own stocks? Gallup found that 87 percent of Americans making over $75,000 own shares. Also, Republicans, men and postgraduates are much more likely to hold stocks or mutual funds than Democrats, women and less-educated people.

Could the Loose Cannons Push America Into Default?

Smash the Ceiling, advises James Surowieki in The New Yorker. Suroweiki sees Congressional votes on increasing the national debt as useless.

One argument you hear for having a debt ceiling is that it’s useful as what the political theorist Jon Elster calls a “precommitment device”—a way of keeping ourselves from acting recklessly in the future, like Ulysses protecting himself from the Sirens by having himself bound to the mast. As precommitment devices go, however, the debt limit is both too weak and too strong. It’s too weak because Congress can simply vote to lift it, as it has done more than seventy times in the past fifty years. But it’s too strong because its negative consequences (default, higher interest rates, financial turmoil) are disastrously out of proportion to the behavior it’s trying to regulate. For the U.S. to default now, when investors are happily lending it money at exceedingly reasonable rates, would be akin to shooting yourself in the head for failing to follow your diet. 

The danger, Surowieki concedes, is that when push comes to shove,  cooler heads don't necessarily prevail. "As the economist Thomas Schelling showed many years ago, 'It does not always help to be, or to be believed to be, fully rational, coolheaded, and in control of oneself' when it comes to brinksmanship."

Trusts In the News

Not every Sunday does our local paper offer two articles featuring trusts:

Feds want home, say owner hid millions in trust. The IRS wants $1 million in back taxes from a man who changed his name and transferred $4 million to a "Massachusetts special needs trust." Think the ploy will work?

Can you protect assets from in-laws? Elaine Morgillo discusses trusts as a way to protect a child's inheritance from improvident or impermanent spouses. The subject is getting increased attention, especially now that New York has joined the states permitting same-sex marriage. For privacy reasons, Morgillo points out, such trusts are better created via revocable living trust rather than by will: one child need not know that a sibling's inheritance is structured differently.

“Greed Is Good” But “Pigs Get Slaughtered”

Lenny Dykstra, the former ballplayer with the Mets and Phillies, reportedly liked to quote from Oliver Stone's "Wall Street." After retiring from baseball he headed up businesses, sold stock picks on Jim Cramer's The Street, launched a magazine and bought an $18.5 million mansion.

Now, after defrauding investors, friends and family, he cannot make bail. The NY Times tells the sad story: The Fall of Lenny Dykstra.

Flight to Quality

Banks zero in on the ultra-rich, those with more than than $1 million in investments. Normally we'd knock that impoverished journalist's conception of "ultra-rich," but the article is better than its headline::

"Every board of directors of every bank in the world wants to focus on wealth management now."

 "We think there are a lot of people who want the convenience of consolidating their affairs in one place."

"One thing the last several years has proven is that a lot of people who want their assets managed want a strong financial institution with…staying power…"

More Inheritances For Saudi Women

Not only is Saudi Arabia the only country in the world where women are forbidden to drive, it is a country where many women lose inheritances to the males in the family. The Saudi Justice Ministry has launched an inheritance program to combat the problem. (Women are already handicapped by Sharia Law, which limits a female child's inheritance to half that of a male child.)

Farrah Fawcett's Living Trust

As Jim Gust and I have written countless times, revocable living trusts have their pros and cons.

One pro: Because living trusts avoid probate, they don't go on public record like a will. The terms of the trust usually remain confidential.

One con: Revocable trusts must be funded. Countless revocable trusts prove worthless because they are empty; the trustors never retitled their securities and other assets.

Neither truism seems to apply to Farrah Fawcett's living trust, last amended two years before her death. The trust terms did not remain confidential. You can read them here. And the "Schedule A" that might be expected to detail the assets placed in trust merely says, in effect, "everything." All Fawcett's personal effects, including artworks. All stocks, bonds and mutual funds. All business interests. All real estate.

Is this how revocable trusts work in California? What about other States?

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Fawcett's estate planning draws attention because she left her art collection to the University of Texas. That university is now suing Ryan O'Neal,  claiming ownership of both the silk-screen portraits of Fawcett created by Andy Warhol. O'Neal contends that his friend Warhol created one of the portraits for Farrah and the other – which hangs in his bedroom – for him. 

The Auction Houses Were Circling

H/T to Art Market Monitor for calling attention to observations by Alistair Sooke concerning expensive paintings and the people who buy them. He includes this glimpse of auction-house competition from Kate Ganz, the daughter of art collectors Sally and Victor Ganz:

“Right after my mother died – she died second – we were inundated by teams of people from Sotheby’s and Christie’s descending on the house,” Ganz recalls. “That was fairly uncomfortable, but that’s their job. Now it’s all computerised – they have on their computers the 50 most important collectors in the world, how old they are, when they’re going to die, and who’s going to inherit what. As my mother used to say: ‘The vultures are circling’.”

Oops!

$22 Billion Housing Tax Credit Program Utterly Failed as Economic Policy

In Praise of the Corporate Executor

From Canada's Financial Post: Choosing an executor is more than an honour.

Corporate executors can help the family cope with complex decisions and details reducing the potential for conflict. They could help reduce the liability that an executor may face for wrong decision, and provide access to a dedicated team of professionals for the efficient settlement of the estate, maximizing value for the beneficiaries – which in the end, is what you want most, isn’t it?

Thought For the Day

Robert Bridges, A Home Is a Lousy Investment:

The sanctity of mortgage obligations has become the rough moral equivalent of the 55-mile-per-hour speed limit.

Defining the 21st-Century Broker

Merrill Lynch's brokers aren't fiduciaries, but they should push fee-based accounts. Also, they should concentrate on affluent clients, excel at client retention, and cross sell like crazy.

So reports Jennifer Cummings at the Financial Adviser blog.

How to get around campaign finance laws

Pay a gift tax and a generation-skipping transfer tax on excess contributions. That's what Bunny Mellon did after she gave John Edwards $725,000 so that the press would stop harping on the price of his haircuts.  The WSJournal quotes an expert estimate of the combined tax burden at $799,000. 

According to the reports, the fact that Mellon reported the gift and paid the taxes on it may save Edwards in his upcoming trial on campaign finance law violations.  (She had to pay the GST because she's more than 37.5 years older than Edwards.)

Unearthing Buried Treasure

Dream of digging up Blackbeard's loot? Or gold left behind by a forgetful conquistador? If they exist, those treasures were buried a mere handful of centuries ago.

On the other side of the pond, Brits can hope for much older finds. This Telegraph slide show depicts some ancient wonders that have been unearthed, including the Roman silver plate below.

Buried treasure is an evocative metaphor. Back in the 20th century, Earl MacNeill wrote one of Merrill Anderson's best-selling booklets on estate-tax planning: "How to Find the Treasure Buried in Your Estate."

Who’s Stealthier?

Who disrespects the public more? The private sector or the politicians?

Private sector: Years ago an online brokerage operation promised me free trades for life. Cool! Despite mergers and management changes, I'm still getting commission-free trades. But I began to notice that each trade was costing me a $2 "fee" for processing or whatever. By last year the fee had doubled, to $4 per trade. This year? Six dollars.

Politicians. This morning's news tells us the Democrats still seek to phase out itemized deductions. Republicans will agree to this, the theory goes, because voters won't  notice that the phase-out increases some people's income taxes. The Wall Street Journal terms it A Stealth Tax Hike.

Can we trust anybody these days?

Unemployment is worse than we thought

Details here.

When did being a regulator become so profitable?

8 of the top 10 FINRA execs were paid more than $1 million last year, according to InvestmentNews.