These Trust Officers Are The Cat's Meow

Georgia Lee Dvorak died last December,. Her will instructs her executor to put to death any of her cats who survive her. Bad news for Boots, who did.

Happily, the executor is a bank, The trust officers "got a Cook County probate court to set aside that part of the 1988 document because they found a shelter to take the 11-year-old cat."

See Executors of will save cat.

Fifth Third has got to be one of the best-named banks in the country. Not surprising that it has cool trust officers.

Beware of Dark Pools

Investors need the kind of help a fiduciary provides because it's a jungle out there. The Wall Street Journal (subscription) examines the hazards created by high-frequency traders who lurk in Dark Pools. 

Less than half of securities now trade on exchanges with readily available price information, market analysts say. Many investors remain unaware of the strategies technologically savvy firms use to gain a trading edge, and even large investment firms often can have little assurance someone isn't gaming their orders.

Time for a Love-Feast?

From Ancient, Curious and Famous Wills:

In 1691, John Hall left to the Weavers' Company a dwelling-house, with instructions to pay 10s. per annum to the churchwardens of St. Clement, Eastcheap, to provide on the Thursday night before Easter two turkeys for the parishioners, on the occasion of their annual reconciling or love-feast (settlement of quarrels or disputes).

This Easter, don't you wish somebody would give a couple of turkeys to Congress?

A Cure for Intestacy?

In Britain, The Telegraph reports, only 40% of the Queen's subjects have made wills. On our side of the pond the stat is even worse: only 35% of Americans have made a will.

Why such a transatlantic lack of will-making? Most will-less men and women simply never get a round toit.

The Income Tax: Tragedy or Farce?

1913

Number of pages in the Internal Revenue Code:

27

2011

Number of pages in the Internal Revenue Code:

5,296

For more discouraging words and numbers, see What's the Easiest Way to Cheat on Your Taxes? by the gang at NPR's "Planet Money."

Slightly Eccentric Gifts and Bequests

At Mental Floss Ethan Trex recalls more than a dozen quirky gifts or bequests. Like the 1930's bequests to four Ivy League Schools for the purpose of combating feminism. And the mysterious 2009 gifts, totaling $70 million, to colleges that had little in common except a woman president.

More Advertising to Mad Men

This Bache ad is prosaic, but the firm was a major wire house in Mad Men days. One Bache broker you may have heard of: Suze Orman.

This small ad from the Thundering Herd is one of Merrill Lynch's most memorable – a blithe admission that  some of their stock picks were duds. If one of the Mad Men crew has to choose a broker, bet they choose Merrill Lynch.

By Mad Men standards we dress like slobs. Two nest egg ads from Chase Manhattan depict proper 1966 attire for gardening or grandparenting.

How to Build a $100-Million IRA

If Mitt Romney may have done it, perhaps you can, too. (Hint: working for a private-equity firm helps a lot.) WSJ subscribers can read the story here.

And don't feel too jealous. Remember, in a classic IRA capital gain is taxed as ordinary income.

Update: Courtesy of Politico, here's the WSJ story.

Brooke Astor's Other Beneficiaries

Brooke Astor's 87-year-old son, Anthony Marshall. gets $14.5 million under the will settlement announced today. One major charitable beneficiary, The Metropolitan Museum of Art, gets $20 million or so, presumably including $3 million in token compensation for the Childe Hassam flag painting, sold by Marshall, that the museum expected to receive.

Not yet tallied, the immense sums the dispute has generated over the years for lawyers – lawyers for the estate, lawyers for family members, lawyers for assorted charitable beneficiaries, even lawyers for lawyers.

JPMorgan Chase and Howard Levine, the estate's administrators, won't do badly either. The Court instructed them to split one administrator's fee, not to exceed $5 million.

Want all the details? The New York Daily News has posted the court papers here.

Settlement for the Astor estate

Charities win, son loses.

Millionaires Aren't What They Used to Be

As reported on The Wealth Report, the latest Spectrem survey shows the number of U.S. millionaire households edged up to 8.6 million, close to the 9.2 million recorded before the Great Recession. But that's before accounting for inflation.

To make the threshold for the $1-million-and-up roster back in 1997, a household would need about $1,400,000 in today's dollars. (And those who believe the CPI has been understating inflation would say that estimate is low.)

Moral: The current crop of "millionaire households" aren't necessarily rich  Many need all the wealth-managment assistance they can get.

Mega-Roths and Young-Guy GRATs

Once you create a self-directed Roth IRA (probably by converting your old regular IRA) your goal should be to invest for as much growth as possible. In Forbes Deborah Jacobs tells how Silicon Valley entrepreneurs, using shares of their own companies, are parlaying this strategy into mammoth tax-free capital gains. She also notes an interesting trend for young tycoons to set up GRATs even before they've started a family.

Should the use of Roth IRAs to shelter unlimited wealth be curtailed, as Jacobs proposes?

States continue to drop the death tax

From the weekend Wall Street Journal, (subscription may be needed), Ohio has joined the majority of states in abolishing its death tax.  Indiana is phasing them out over the next 8 years. The reason is that state death taxes don't collect much revenue, but they do drive residents to go die in another state without the tax.  The article has the statistics.

Tennessee still has both an estate and gift tax (as does Connecticut).  This caught my eye:

Because wealthy people avoiding the estate tax take their businesses and spending with them, the study concludes that "had Tennessee eliminated its gift and estate tax 10 years ago, Tennessee's economy would have been over 14% larger in 2010." They also find the estate tax cost Tennessee state and local governments over $7 billion in tax collections. Could there be a more self-defeating tax?

 No, there couldn't.  The elimination of state death taxes is the consequence of converting from a federal credit for state taxes to a deduction.

Advertising to Mad Men

As Mad Men opens its fifth season, we present a few ads from The New Yorker archives to get you in a mid-1960s mood.

Solid state. In the 1960's the transistor invented decades earlier at Bell Labs led to technological marvels. Sony sold radios so small you could hold them in your hand. KLH, the second of the companies Henry Kloss helped launch, produced a stereo like no other: big, impressive sound from a stylish, compact system. Most every Ivy Leaguer either owned a Model Twenty or wanted to. Today the last of the Kloss companies, Tivoli, sells radios designed to pay homage to KLH.

Up, up and away. A Mad Man could hail a cab to the airport, run through a shiny terminal and be jetting off to Chicago or Detroit ten or fifteen minutes later.  (Really! Air travel wasn't always a drag.) And so could Wall Streeters trying to keep up with technological change. Shearson's ad highlights the advantages of their analysts' field work. And, yes, they were all men. If Peggy Olson, the copywriter who typed her way up on Mad Men, had chosen Wall Street instead of Madison Avenue, she would have remained a secretary.

Trusts for Travelers. Why take your kid fishing in Long Island Sound when you can fly to Acapulco? In the new jet age, well-heeled men and women were vacationing in Hawaii, weekending in London, skiing in the Alps…and neglecting their investment chores. Like Chase Manhattan, the ancestor of Citibank wanted potential clients to know it was willing and able to help.

Profiting from Trust and Investment Services

Jim Herbert, Chairman and CEO of First Republic Bank, made this presentation last fall. The bank, formerly a unit of Merrill Lynch, makes good use of assorted media, including print ads and newsletters. The primary marketing tool, however, is customer service. That leads to happy customers. The happy customers, in turn, lead First Republic to many more customers through referrals.

"We spend our life taking clients away from other banks," says Herbert, "that’s what we do for a living."

Apparently it's a good living. According to Herbert, First Republic's private wealth management – brokerage, investment management and trust – is "profitable, it’s becoming more profitable and if you add in … the value of the deposits it’s generating it’s very profitable."

 If client-friendly private banking and wealth management can be delivered at a profit and leads to profitable referrals, why have other institutions chosen a different path – different as in "We laid off half our relationship managers and gave our customers an 800 number"?

In The New Yorker James Suroweicki  tackles the question in the context of retailing.

If investing in employees yields such big dividends, why don’t more retailers do it? Partly, it’s a matter of incentives: store managers are typically evaluated on their payroll costs. Moreover, the benefits of keeping payroll costs low are immediate and easy to see, whereas the benefits of hiring more people are long-term and harder to track.

When did so many in the world of business start to believe that only short-term greed is good?

Wealth Is Not A Number

"If you can count your money," J. Paul Getty observed, "you don't have a billion dollars."

Even so, Bloomberg's new Billionaires Index is a guilty pleasure. Look at Bill Gates make $319 million in a day! See an unfortunate Brazilian lose $213 million! Watch Warren Buffett grow $86 million richer before sundown!

It's fun. And, of course, pointless. Warren Buffett almost certainly doesn't fall asleep trying to compute his daily net worth. More likely he dozes off by inventorying Berkshire-Hathaway's holdings: Geico…reinsurance…furniture…Lubrizol…thirteen percent of American Express…almost nine percent of Coca Cola…more than five percent of IBM….

Mr. Buffett must sleep very well.

Just as the market value of billionaire wealth can be expected to fluctuate by tens or hundreds of millions of dollars daily, modest wealth fluctuates by thousands or tens of thousands of dollars a day. For non-billionaires, that's scary. For two reasons.

First, merely affluent investors don't have an extra billion tucked away for emergencies. Second, financial planners have taught them that financial independence is measured by a specific number. Very specific, in the case of ING ads. Make your number and you're OK. Fall short and you'll never retire.

Say Jake's number is $1,247,543. He hits his number and retires. Then his wealth dips to $947,865. Must Jake go back to work? Can he stop working again when he rebounds to $1,147,543?

IF he rebounds.

During the Great Recession many investors were terrified by market volatility. Terrified enough to act against their own best interests. Brett Arends has tried to estimate how much investors lost by ill-timed selling over the last five years. His ballpark figure: over $100 billion.

Over $100 billion! That's enough to get even Warren Buffett's attention. And enough to make you wonder. Does trying to motivate investors by giving them a precise wealth number to strive for do more harm than good.? Even if they reach their number, it's likely to be here today, gone tomorrow…and may or may not be back next year.

In the ING commercial, the bad example is a dolt who "has no plan." The poor soul just keeps investing and hopes he hits a gadzillion. If that approach allows him to weather market downturns, maybe he's not so dumb.

Is there a better way to encourage people to save and invest, a better way to help them understand what they'll need for financial independence? Come up with a good answer and you're practically guaranteed a place in the Financial Marketing Hall of Fame.

Don't Mess With the Muppets

Could overuse of a silly bit of City of London slang bring down a major investment bank? See A Muppet Manifesto. 

Miss Piggy is reported to be especially irked. (Wall Street, after all, is the place where pigs get you know what.)


Photo: Wikimedia Commons

What Does It Mean To Be A Client?

At ft.com Frank Partnoy sheds light on the point Jim Gust raised about Goldman Sachs' attitude toward its clients. (We should probably note that Greg Smith was an "executive director," not a board member or managing director, at Goldman.)

There are clients and there are clients, Partnoy writes:

Both Mr Smith and Goldman stretch the word to cover not only true client relationships in which the bank owes a fiduciary duty as an adviser but also pseudo client relationships in which the company is a market maker, trading with counterparties at arm’s length. Goldman’s “muppets” are pseudo clients at most – fellow gamblers around a poker table. Goldman will ensure that the rules of the game are accurately described – the financial equivalent of checking to be sure there are 52 cards in the deck. But it is not obliged to act in a disadvantaged counterparty’s best interests…. 

Muppets are the suckers at the poker table. For them Felix Salmon quotes this warning from Andrew Clavell:

If you claim you do know where the fees are, banks want you as a customer. You  don’t know. Really, you don’t. Hang on, I hear you shouting that you’re actually smarter than that, so you do know. Read carefully: Listen. Buster. You. Don’t. Know.

Why would a Goldman Sachs director resign?

Because Goldman lost its culture. It no longer puts the customers' interests first.

Perhaps that's why they fight so hard against the expansion of fiduciary duty rules?

What $4,400,000 Looks Like

At Gooding's Amelia Island auction this 1973 Porsche, said to be the most powerful road-racing car ever built, sold for $4.4 million. Maybe the economy really is reviving.

Trusts Not Just For The Rich

These aren't the best of times for high-end estate planning, what with the unknown future of federal estate taxation. Everyday estate planning is another story. How best to provide for an aged parent? Stepchildren? Children from a prior marriage? Individuals with disabilities? Spendthrifts? The list goes on….

As this column from the Sunday paper suggests, trusts are basic estate planning tools. And isn't it nice to see a plug for corporate trustees?

Beware the Wealth Bashers

Huffington Post: A new study says rich people are more likely to engage in unethical behaviour than their poorer counterparts — like cutting off motorists, lying in a negotiation and cheating to win a prize.

Before you take this Wealth and Ethics Study seriously, note how they identified "upper-class" motorists. The three criteria were "age, vehicle make and appearance."

Obviously, the researchers were unfamiliar with Thomas Stanley's The Millionaire Next Door. 

Most often, Stanley found, people driving expensive cars weren't rich. They merely liked to drive expensive cars.

Gold Is A Dumb Investment

Warren Buffett, in his letter to Berkshire-Hathaway shareholders:

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce – gold’s price as I write this – its value would be $9.6 trillion. Call this cube pile A. 

Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

But . . .
The cost of a year at Yale College – tuition, room and board – is roughly the same as it was a century ago when measured in gold.

Interesting, though the chart doesn't disprove Buffett's point. If you had put your year-at-Yale money into farmland and Standard Oil a century ago, you could probably fund an entire Ivy League education today.

•

Update: Christopher Goolgasian of State Street, speaking up on behalf of SPDR Gold Trust, says the Oracle of Omaha is wrong about gold's investment value.

"While he won’t own gold, he also never owned Apple (up around 1,500% since January of 2000) or Google (up 530% since August of 2004),” Goolgasian said of Buffett.

(Nothing gladdens the hearts of those of us who bought Apple cheap more than reminders of those who didn't.)

Trustee Companies "Awarded"

With a nod to the Oscars and malice aforethought, Trust and Trust Professionals – Asia offered its own awards ceremony. Even when translated into U.S. dollars, the Hong Kong divorce case is impressive. The wife's take amounts to more than $90 million.

The Decline of Life Insurance

Percentage of U.S. adults 

who owned individual life insurance in 1960:

59%

Percentage who owned individual life insurance in 2010:

36%

Those figures come from Prudential's The Life Insurance Coverage Gap. Today's two-income couples may carry insurance if they have dependents. Otherwise, apparently … not so much.

In addition, Prudential acknowledges, the mind-boggling complexity of many life insurance products scares people. Agents may stand a better chance of gaining traction if they lower their sights and sell simple term policies. 

Surely that's not what an insurance company would have suggested back in 1960!

Why Doctors Die Differently

If you subscribe to The Wall Street Journal online, Why Doctors Die Differently is fascinating, as are the 500+ comments to the article.

Two Secrets of Successful Investors

A Finnish study (in Finland all males are tested for intelligence) suggests that high I.Q.'s may lead to better investing. Finns with high I.Q'.s were more diversified, more likely to invest in stocks. See What High I.Q. Investors Do Differently.

An earlier study from The Netherlands spotlights the social intelligence needed to find trustworthy investment advisers. Some investors are not merely scared of investing in stocks – they're afraid they'll wind up with an adviser who rips them off. "Knowing whom to trust, and relying on those who are trustworthy, is itself an aspect of intelligence. [The Netherlander economists] cited research that suggested that investment decisions relied significantly on a part of the brain called the Brodmann area 10. This region of the frontal cortex is believed to be associated with our ability to make inferences about others’ preferences and beliefs based on their actions."

The study found that those with a high level of trust were more likely to invest in stocks and more likely to have diversified their stockholdings.

Think Snow!

Been like Spring here on the Northeast coast, but there's snow up in the ski areas, with more arriving as we write. New England wealth managers, give the ski economy a boost! Head for the slopes this weekend.

As this Chase Manhattan ad from fifty winters ago suggests, you might meet somebody with a nest egg.

What's This Rauschenberg Worth?

Zero, said the estate of art dealer Ileana Sonnabend on her estate tax return. As Forbes reports, Robert Rauschenberg's collage, "Canyon," features a stuffed bald eagle. Under U.S. law bald eagles cannot be possessed, much less legally sold.

$65 million, says the IRS. The work has "illicit market value." Some Chinese billionaire might figure out a way to buy the work and spirit it away to his remote mountain hideout.

Shouldn't our National Bird be tax exempt?

The Chinese Are Coming, The Chinese Are Coming!

As U.S. wealth mangers seek business on the far side of the Pacific, wealthy Chinese are heading in our direction, reports The Wall Street Journal:

A survey published in November found that 60% of about 960,000 Chinese people with assets over 10 million yuan ($1.6 million) were either thinking about emigrating or taking steps to do so. The U.S. was the top destination, followed by Canada, Singapore and Europe….

Want to find Chinese millionaires newly arrived on our shores? Check the expensive seats at Knicks games. You know the Ka-Chings will be eager to see Jeremy Lin.

Can Bankers and Brokers Be Friends?

Like the farmer and the cowboy, bankers and wealth-managing brokers aren't best buddies by nature. Felix Salmon calls attention to the example of Merrill Lynch and its banking parent, BofA. Others in the financial press also took note of John Carney's interview with ex-Merrill-Lyncher Lyle LaMothe.

In days of old, when Merrill Lynch maintained its own line of proprietary mutual funds, some of its brokers chafed under the pressure to sell the generally undistinguished products. Recent pressure to sell BofA products apparently hasn't been welcome, either.

Cross selling has always been attractive in theory, difficult in practice. From the client point of view, buying another product or service from the same vendor makes sense only if that product or service is outstanding in its own right.

Then cross selling becomes easy. Prime example: the success of the formerly small company known as Apple.

Alarm Bells For Estate Planners?

Cut the $5.12 million federal estate tax exemption back to $3.5 million. Collect estate tax on funds sheltered in grantor trusts. End the trend to dynasty trusts by limiting the exemption from generation-skipping tax to 90 years.

Those and other taxing ideas in the President's new budget proposal are summarized by Forbes writer Deborah Jacobs: Obama Declares War On Rich Folks And Wealth Advisers.

The budget proposal is widely regarded as a campaign document rather than an action plan. Still ….

The Trust Officer As Greek God

If the fiduciary business had a Greek god, who would it be? This 1956 Fiduciary Trust ad nominated Hermes, god of commerce. Some say Hermes was associated with prudence. The ancient Greeks thought he brought good luck. We'll ignore his reputation for thievery and for going all the way with Aphrodite.

Although the illustrator of the ad neglected to give him a shirt, Hermes does have the standard equipment for trust officers of the time – a pipe and an ashtray. Exercising discretion must have been easier with pipe in hand.

Before Hermes took up office work, he helped found the United States of America. You can admire him in the rotunda of the U. S. capitol. The fresco The Apotheosis of Washington shows Hermes handing wealth generated by colonial commerce to Robert Morris, financier of the Revolution.

Related question: Where is Hermes when the modern Greek government needs him?

Lawyers 2, Copywriters 0

The legal boilerplate in this U.S. Trust ad from last fall is longer and more prominent than the body copy. How amusing.

Now comes this HSBC ad in the current New Yorker – with an even heavier overload of boilerplate. No longer so amusing.

The boilerplate warnings seem both unnecessary and misleading. Sure, timberland and shares in foreign companies can lose their value. So did shares in the old GM. No matter how one invests, it can be a cruel, cruel world.

Maybe the regulators should give the ad-making back to the copywriters.

How Long Can a Perpetual Trust Last?

How many descendants of your great-great-great-grandparents do you know? Half? A handful? A few? (Personally, I've never met most of my first cousins.)

As more states ease or discard the rule against perpetuities, family trusts are being set up to last for a thousand years or even "forever." Doesn't that stretch the definition of family to the breaking point?

Yes, according to Lawrence W. Waggoner of the University of Michigan Law School.

"Trusts intended to operate for as many as a thousand years or even in perpetuity, typically for the benefit of the settlor’s descendants living from time to time, now and in the future, are all the rage in banking and some estate planning circles," Waggoner writes. In From Here to Eternity, the Folly of Perpetual Trusts, he does the math showing the absurd consequences.

 He shouldn't worry. As life beneficiaries of a "perpetual" trust proliferate from generation to generation, the value of what each beneficiary receives will dwindle, eventually prompting the trust to distribute the few crumbs remaining and terminate. Centuries ago this inevitability was explained by Oliver Wendell Holmes: A great fortune will split "into four handsome properties; each of these into four good inheritances; these, again, into scanty competences…."

Perpetual trusts cannot generate perpetual wealth for heirs whose number multiplies with each generation. In Holmes' day New Englanders knew as much. The secret of perpetual wealth is that each generation must rebuild that wealth.