Thursday, April 30, 2009

Trust-Based Estate Plans Threatened?

Want to know what's in my will? No way! Long as I'm alive and kicking, the terms of my will are private. Also, I can rewrite my will as often as I want and various beneficiaries won't know if they're in or out of the current version. (Brooke Astor changed her will more than 30 times, according to the Daily News.)

But my will doesn't matter much, does it? Mine is a modern estate plan, based on a living trust agreement. Are the terms of the trust agreement as private as the provisions of my will? Apparently not, at least not if I live in Kentucky:
[M]any laypersons who create revocable living trusts as will substitutes might be shocked to learn that a trustee has a duty to inform contingent beneficiaries of their potential interests, given the understanding of many settlors that so long as they are living and competent the trust assets remain essentially under their control and that they may freely change their mind about beneficiaries' interests . But if our trust statutes are out of touch with modern policy or with the expectations of today's community, it is the legislature's task to amend the statutes, not this Court's role to re-write them.
Hat tip to The Wills, Trusts and Estates Prof for spotlighting this case.

Wednesday, April 29, 2009

$3.5 million estate tax exemption

According to the Senate release, the compromise budget goes with the President's $3.5 million estate tax exemption, rather that the $5 million that earlier passed in the Senate. Not clear whether portability or inflation protection will be included in the final legislation.

Tuesday, April 28, 2009

This is true

My father's stock broker jumped ship, leaving Smith Barney for Merrill Lynch. Dad liked the guy, had worked with him for a long time, but he wasn't eager to move his account. When the broker called, my father met with him and a junior guy who would handle my father's account if he went to Merrill Lynch. Dad said he'd think about it.

The supervisor at Smith Barney then called, telling Dad his account had been reassigned. Dad agreed to meet with his new account rep, but they didn't quite see eye-to-eye. I don't know what the problem was, but this guy was a no-go.

The next thing Dad knows, this new guy had also jumped ship for Merrill Lynch, and was telling them he could bring Dad's account along with him! That must be a bigger account that I realized.

So the Smith Barney supervisor calls again, apologizes, asks Dad to come meet with a team of three people they want to assign to his account now. He agrees to the meeting, which goes a little better, but he's still not nearly as happy as before this all started.

Next thing he knows, this team of three has left Smith Barney for UBS, and they solicit his business from their new perch!

Apparently, because Morgan Stanley has acquired Smith Barney, all the Smith Barney brokers are very nervous. Dad says a lot of them are jumping to Merrill Lynch, which surprises me. Maybe there's something funny in the Minneapolis water.

What's the best way to boost french fry purchases?

According to new academic research, add a salad to the menu. The control group was shown picture menus with only junk food, setting a baseline for the amount of fries ordered. Then a side salad was added to the menu.

Some people ordered the salad, but many more now ordered the fries, though they had passed on them earlier! It's almost as if, have considered and rejected the salad, they now felt it would be okay to indulge in their favorite.

What are the implications of this research for investment advisors, and what they present to their clients?

Depressingly, the conclusion of the researchers in this study is that expanding choice is bad, given that the "wrong" food then gets chosen more.

Schools and other establishments concerned with promoting healthy behaviors may need to take an extreme approach and eliminate all unhealthy food, Fitzsimons said. "It sounds quite drastic, but because the effect of mixing healthy and unhealthy choices is so powerful, we would suggest that the safest way to get children to eat well is to take the pizza, fries and other junk foods completely out of schools, and replace them with healthy foods."
Just what we need, more government nannyism.

Moral Hazards of Managing Money

John Bogle's recent op-ed on the need for fiduciary money managers drew interesting comments in letters to The Wall Street Journal.

Monday, April 27, 2009

The Case of the Pretermitted Astor

Back in 1959, The New York Times recalls, there was another fight over the Astor estate. Vincent Astor had died leaving everything to Brooke. John Jacob Astor VI, Vincent's half brother, tried to horn in on the money.

John Jacob VI had some reason to feel he had been cheated of wealth. Madeleine Astor, his mother, was five months pregnant when her husband put her in one of Titanic's lifeboats. She was rescued eight hours after her husband went down with the ship. As a result, John Jacob VI was left out of his father's will, a pretermitted heir. And as Wikipedia notes, his mother inherited little from her new husband but real estate and the income from a trust.

Update: The baby was not entirely disinherited, as explained here. Trouble is, he remained poor compared to his wealthy half brother.

Sunday, April 26, 2009

Yes, Cindy, There Is a Lobster Claus!

[Planned to file this under "business succession planning gone awry" but had to move it to "storybook endings."]

Some weeks ago, Alphonse D'Amico and his wife, two hungry tourists from Massachusetts, pulled up to a seafood restaurant they hadn't visited before – Cap'n Simeon's Galley on the shore of Kittery Point, Maine. They found the restaurant closed. Not merely closed, the D'Amicos learned, but bankrupt. Both Cap'n Simeon's and the adjoining Frisbee's Market, run by the Frisbee family for 180 years, had finally kicked the financial bucket.

Cindy Frisbee and her brother were the sixth generation in the business. After buying out their parents, Frank and Evelyn Frisbee, in 2001, Cindy took over Cap'n Simeons; her brother ran Frisbee's Market.

Misfortunes ensued, including the brother's illness and eventual death. Debts mounted, and with the credit crunch, Cindy could not find new financing. Last Thursday, April 23, Cap'n Simeon's and Frisbee's Market were sold at bankruptcy auction for just over $1 million.

The buyer? That's where Lobster Claus makes his appearance, in the guise of Alphonse D'Amico, the hungry tourist:
Moments after D’Amico was declared the high bidder at an auction in the U.S. bankruptcy court in Portland, Cindy started crying, dad Frank beamed through glistening eyes and D’Amico, a Saugus, Mass., businessman, declared he was “too choked up” to talk.

D’Amico said later he has purchased Frisbee’s Market and Cap’n
Simeon’s Galley restaurant with the intent of allowing Cindy and Frank to continue to run the two businesses until such time as they can get back on their feet and buy them back.
Cindy plans to have Cap'n Simeon's open by Mother's Day.
Some miles down the Maine coast from Cap'n Simeon's stands famed Nubble Light. Each midsummer, tourists flock to The Nubble for a festival known as Christmas in July. The Frisbees of Kittery Point might start celebrating Christmas in April.

Friday, April 24, 2009

Possible source of the financial crisis

Came across this amusing NYTimes item from last October today while looking for something else. Like most everyone, I've been following the Case-Shiller index of real estate prices around the country, an index that was begun in about 2000. What I learned from the Times is that the index itself played a crucial role in laying the foundation of the current financial crisis.
My finance buddies tell me that carving up mortgages did not really begin in earnest until the Case-Shiller housing price index was introduced. Before this, financial analysts did not trust the price numbers, but this changed with the Case-Shiller data. They concluded from the data at the time that the correlation among housing prices across regions was low, so they could bundle and lessen risk.

Some knowledge turns out to not be knowledge at all, just a manufactured illusion.

Noble Trust Founder Pleads Guilty

Before it was shut down because of $15 million in hidden investment losses,, New Hampshire's Noble Trust Company promised customers 12% a year. Colin Lindsey, Noble's founder, has pleaded guilty to two counts of mail fraud. He could face up to six years in prison.

In addition to trying to keep Noble afloat by paying old customers with cash from new ones, Lindsey may have diverted premiums from the sale of insurance policies.

Lindsey earlier directed a quasi-trust company known as the Children's Community Foundation, "a collection of so-called charitable remainder trusts" marketed to farmers.

Seems like old home week here on the blog. First Sam Israel's Bayou funds, then Leona Helmsley's will (see two preceding posts) and now Noble Trust.

Thursday, April 23, 2009

Should Court Have Honored Helmsley Will?

The Humane Society of the United States is upset. Seems the trustees of the Harry and Leona Helmsley Charitable Foundation doled out $136 million of grants. How much did "dog-related organizations" get? Just $1 million.
Thwarting the intentions of those who leave their estates to benefit animal protection has a sad and deplorable history, including in the cases of Helen V. Brach, Geraldine R. Dodge, and Doris Duke, who like Mrs. Helmsley bequeathed their great wealth for the benefit of animals. The foundations these women left behind may be operating in their names, but their wishes are not being honored.
"There is a larger principle at stake…," says the HSUS, "one of protecting the decisions of people who leave their money for the care of animals, a wholly legitimate philanthropic purpose."

[Before you snicker, ask yourself this: If the Great Recession turns into another Great Depression, would you want to see Bo Obama wandering, homeless and hungry, through the streets of Washington, D. C.?]

Wednesday, April 22, 2009

Cost of Not Spotting Bayou Funds Fraud? $800,000

Hennessee Group LLC and principal Charles Gradante have agreed to pay more than $800,000 to settle charges stemming from the Bayou hedge funds fraud, reports Marketwatch.

Around 40 clients invested (and lost) in Sam Israel's hedge funds on Hennessee's recommendation.

When Trust Services Included Immortality

From an April 1959 issue of The New Yorker:

Tuesday, April 21, 2009

This Week's Real Estate Steal

Good news, house hunters! The Helmsleys' storied Dunnellen Hall, originally offered at $125 million, an asking price later lowered to $95 million, may now be yours for $75 million. So reports The Huffington Post.

Why Bank Stocks Tanked

When clients ask why financials tumbled 11% yesterday, you need only refer them to Bank Profits Appear Out Of Thin Air.

"This is starting to feel like amateur hour for aspiring magicians," writes Andrew Ross Sorkin. "Another day, another attempt by a Wall Street bank to pull a bunny out of the hat, showing off an earnings report that it hopes will elicit oohs and aahs from the market."

Saturday, April 18, 2009

Family + Mistress = Endless Will Dispute

Almost forgot about Harvey Strother, the wealthy alcoholic, and Anne Melican, his mistress and (maybe) significant heir. H/T to Wills, Trusts & Estates Prof for calling attention to a renewal of the court battle.

Maybe Small Isn't Better

Conventional wisdom says universal banks are dinosaurs headed for extinction. The future of wealth management will belong to small firms: two or three guys or gals who start their own investment-management business, delivering big-firm products and services because they can outsource the operational aspects of their business, including trust service.

But dealing with small firms isn't risk free, as Ron Lieber of The New York Times just learned.

Any investment adviser in any business setting might defraud his or her clients. Happily, most don't. But wouldn't clients feel safer dealing with a trust-and-investment adviser employed by an old-fashioned, financially responsible bank?

Making Investment Advisers Sound Friendly

Bankers were expected to be stuffy half a century ago. Especially trust bankers (see Auntie Mame). The remarkable feature of Chase Manhattan's nest egg ads was copy carefully crafted to sound casual and friendly. This example appeared 50 years ago this month:

Cornwall's covered bridge still stands, by the way. Check it out if you're passing through western Connecticut.

Merrill Lynch probably set the pace for chatty, informal ads at the time. Columns like this one appeared on the last page of The New Yorker weekly.

Friday, April 17, 2009

HSBC's Angry Investment Client

Stephen Montalvo had a $1.2 billion investment account at HSBC. After it shrank by more than half in the recent unpleasantness, he threatened to come to the bank with a gun and get his money back.

Fortunately for Montalvo, folks who work at big banks aren't too popular these days. In court, the former millionaire got off with time served plus four months' home confinement.

The thirst for financial counsel

The Wall Street Journal reports that Money Magazine Bets on a Redesign. There will be fewer of the mind-numbing comparison tables of mutual fund stats and "breezier, more inviting pages." The three personal finance magazines are suffering from lost advertising, as one would expect, but there's been no falloff in circulation.
Ad pages in this year's first four issues of Money were down one-quarter from a year earlier, according to trade publication MediaWeek. Over the same period, the decline was 22% at SmartMoney and 39% at Kiplinger's. Money's rate base of 1.9 million copies -- the circulation guaranteed to advertisers -- is more than twice that of SmartMoney and Kiplinger's.

The circulation of all three magazines has remained steady, a sign consumers remain hungry for their counsel.

Thursday, April 16, 2009

It Pays To Advertise. Here's Proof

For breakfast this morning, my wife asked for Rice Crispies, not Post Toasties.

See Hanging Tough by James Surowlecki in The New Yorker to learn why that fact has significance for business today, including the wealth-management business.

Wednesday, April 15, 2009

A modest correction

In this post about prospects for estate tax reform I speculated that the estate tax may have killed a family-owned newspaper in Seattle. That was wrong. The Seattle Post-Intelligencer has gone to an online-only format. The Seattle Times, owned by the Blethen family, is doing okay, and may do even better now that it is the only paper in town. Frank Blethen was the guy who testified before Congress about how the estate tax cripples family-owned enterprises. He continues to be an advocate for estate tax repeal.

Here's a video of Blethen discussing how the Seattle Times will weather the current financial storm.

Here's background from five years ago on how the Blethen family is trying to bring the next generation into active participation at the newspaper, to keep it in the family.

Here's an implicit call by Democrats to use the estate tax as a means to divest the family of its ownership of the newspaper. They obviously resent multi-generational participation in successful businesses. Blethen's a Democrat, but not lefty enough, apparently.

Here's part of the explanation for Democratic support of the Senate move to increase the exemption to $5 million and decrease the rate to 35%.

Life and Taxes

Thoughts for April 15th:

Most hated tax. The estate tax is the most hated federal tax, according to the Tax Foundation's latest survey of attitudes on taxes. Two thirds of those polled favor repeal.

Everybody into the pool! Two thirds of those polled believe everybody should pay at least a little income tax.

Live taxable or die. This article in Science Times suggests taxes may be requisite for human survival:
[G]iving up a portion of one’s income for the sake of the tribe is such a ubiquitous feature of the human race that some researchers see it as crucial to our species’ success. Without ritualized taxation, there would be precious little hominid representation.

Update. For meatier thoughts on taxes, see Tom Herman's last Tax Report column for The Wall Street Journal. Herman joined the Journal after graduating from college in 1968 and began covering taxes for the paper in 1983. Back then, Herman writes, the Internal Revenue Code was a mess. Today? A "nightmare."

Monday, April 13, 2009

The Devil in the Tax Details

Jim gust's recent post, What will happen to the estate tax? prompted me to google the topic. Two gleanings:

Be careful what you wish for. Art Laffer offers a ringing endorsement of repealing the estate tax. He also calls for carry-over basis, so that heirs' capital gains are taxed based on the original purchase price. With repeal plus carry-over basis, Laffer notes, wealthy families would pay an estimated $12 billion more in the 2011-2015 period.

"Small businesses" aren't that small. Representive Eric Cantor of the Ways and Means Committee, in an op-ed in suppport of recent Republican tax proposals, indicates that "small businesses" often are not mom-and pop ventures but those with several hundred employees.

I can think offhand of three family-owned businesses fitting that description in my neck of the woods: two groups of family-owned auto dealerships and a fuel company. The CEOs of all three live in splendid, ocean-view homes, so I guess all have done well. Looking ahead, the auto dealers face problems more pressing than estate taxes. In the case of the fuel company, I would argue that it should be able to continue for another generation if it can. The family should not be forced to merge or go public just to create estate liquidity.

A good word on GRATs

Following up on its coverage of intentionally defective grantor trusts, The Wall Street Journal puts in a good word for Grantor Retained Annuity Trusts in A Time for Giving.

Bernie Madoff, Pantless

Even if much of the estimated $65 billion lost by Bernie Madoff's investors never existed in the first place, Bernie has made operators of ordinary Ponzi schemes look insignificant. That's not exactly new news, but check out The New York Times article if only to enjoy the illustration of Bernie naked, (Remember what happens, according to Warren Buffet, when the tide goes out?)

Coincidentally, the Times also reports on Bernie's lost trousers, a $2,000 pair of worsted spun cashmere pants. Tailor made but unclaimed, they were recently for sale at Trillion, a Palm Beach store founded when overspending was in fashion.

Saturday, April 11, 2009

What will happen to the estate tax?

Fate of Death Tax Imperils Obama’s Ambitions is the overwrought headline in Apparently, with a 45% estate tax rate and a $3.5 million exemption, we can afford universal health care, but with a 35% rate and a $5 million exemption we can't. What facile nonense.

Senator Harry Reid is bitter that 10 Democrats joined Senate Republicans in voting for the modest increase in the exempt amount. Here's what he said:
“This isn’t for the wealthy, this is for the super-wealthy,” complained Senator Harry Reid, the Nevada Democrat and majority leader, as the Senate took up the estate tax issue during its budget deliberations. “Even in the best of times, there is no question that we could find a better use for an extra $100 billion.”
There's no question that Harry Reid already believes other people's wealth is his own, and that they can keep it for themselves only if he doesn't have another use for it. What arrogance!

The Times tries once again to justify the estate tax with the allegedly low number of affected estates. Supposedly only 100 farms or small business would be hit by the estate tax under the Obama plan. Going uncounted are the thousands of businesses and farms that are sold by the owners before death because the cost of keeping such assets in the family is just too high.

The Times generally favors the idea of smaller scale, local agriculture. But the fact is that the giant agribusinesses love the estate tax, because it gives them the opportunity to scoop up farmland at distress prices. It's part of what helped to make them huge. The Times once again prefers to ignore the reality of the effect of death taxes.

A few years ago a Seattle newspaper owner testified before Congress that the expenses of planning for and funding death taxes was killing jobs and driving family-owned newspapers out of business, into the arms of a few national chains. I think he's out of business now.

Friday, April 10, 2009

The Gadfly Gene

Jack Bogle, profiled in Business Week, is still crusading on behalf of not-yet-rich investors, urging lower fees and simpler investment programs. Bogle's yen for low investment expenses may be inherited:
If there's a gadfly gene, it runs in Bogle's family. Way back in 1868, his great-grandfather, Philander Banister Armstrong, needled his fellow insurance executives. "Gentlemen, lower your costs!" he challenged in a speech. In 1917, Armstrong, whom Bogle calls his "spiritual progenitor," published a 258-page diatribe called A License to Steal: How the Life Insurance Industry Robs Our Own People of Billions.
For Good Friday, Business Week offers a quote worth pondering from a speech Bogle made in Washington, D.C.:
Once a profession in which business was subservient, the field of money management has largely become a business in which the profession is subservient.
Arise, fiduciaries! You have little to lose but your chains.

Thursday, April 09, 2009

Bailout Funds: Will They Fly?

The first celebrity I ever saw was Mary Martin, before she starred in South Pacific. Standing on a bunting-bedecked platform in New Canaan, Connecticut, she urged the gathered crowd to buy War Bonds.

Will Kelli O’Hara soon be coaxing us to buy Bailout Bonds?

Turns out BNY Mellon's Ronald O'Hanley wasn't just running an idea up the flag pole.

The New York Times reports that BNY Mellon, BlackRock, Pimco and Legg Mason seriously contemplate selling "bailout funds" to the mass affluent:

The idea is that these investments, akin to mutual funds that buy stocks and bonds, would give ordinary Americans a chance to profit from the bailouts that are being financed by their tax dollars. But there is another, deeply political motivation as well: to quiet accusations that all of these giant bailouts will benefit only Wall Street plutocrats.

The potential risks— politically for the administration, and financially for would-be investors — are considerable.

Good idea? Or is the investment industry headed for another Madoff Moment?

Wednesday, April 08, 2009

Rebalance? No Way!

For the first time since Hewitt Associates began tracking 401(k) accounts in 1997, American workers in February held less than half of their 401(k) money in stocks, The New York Times reports.

Workers aren't necessarily selling their stocks. They're just not buying:
By not routinely rebalancing their portfolios — resetting them back to a desired mix of stocks and bonds at least once a year — investors are setting themselves up for failure, [Mike Scarborough, president of Scarborough Capital Management], said.

Tuesday, April 07, 2009

A Sexy Trust?

"It may seem hard to come up with a financial product with a name as unattractive as an 'intentionally defective grantor trust,'" says The Wall Street Journal. "Yet these days, in the world of estate planning, those words denote one sexy vehicle."

Monday, April 06, 2009

Hidden Treasure, 21st-Century Style

Remember when "hidden treasure" resided in chests buried by pirates? Today's precious assets may be invisible to the naked eye until retrieved from a hard drive.

Case in point, "Pirate Latitudes," an adventure yarn set in Jamaica in the 1600s, found in computer files left by author Michael Crichton.

Although Crichton is best remembered for "Jurassic Park" and other technothrillers, in 1975 he wrote another historical adventure, "The Great Train Robbery." HarperCollins will publish "Pirate Latitudes" in November, reportedly with a print run of one million copies in the U.S.

Crichton died last fall. Five times married, he left a pre-nup, a living trust … and a potential estate melodrama. See Trusts & Estates (subscription required):
In this drama, a famous, wealthy man dies and, four and half months later, his fifth wife gives birth to a son. But this child isn't mentioned in dad's will. So the child's mother gears up to battle a host of beneficiaries to secure the posthumous son's inheritance.
Author's royalties aren't pieces of eight, but they can still add up to treasure worth seeking.

Saturday, April 04, 2009

The Economist Reports on the Rich

Brother, can you spare $10 trillion?

In the Wealth Report, Robert Frank headlines the estimated $10 trillion that the world's rich have lost in the credit crisis, according to The Economist's Special Report on the Rich.

Happily, as the chart shows, there are plenty more trillions for wealth managers to fight over.

In Servicing the Rich, The Economist's Philip Coggan cites anecdotal evidence that most of today's rich either don't use private wealth managers or don't trust them.

Investment performance? That's a hard sell. Coggan explains why with the very same excuses I was stringing together for Merrill Anderson's clients decades ago:
Ask for performance figures, and the best you will get is the record of some model portfolio; clients are all different, managers say, and have different attitudes to risk. Besides, they argue, looking after a client is not just about performance, it is also about tax management, family structures and all manner of other things. Some clients have strong opinions and will want a say in how the portfolio is run; others will have long-standing positions in particular businesses or properties that they may be unwilling or unable to sell.
The carrots many wealth managers dangled before their prospective clients in the boom years were "alternative investments." Some turned out to be not such a good idea:
An important development in recent years has been the use of so-called structured products. Like the toxic versions that were undone by the collapse in the American housing market, these products involve the use of derivatives. That makes them a tempting sales opportunity for investment banks with derivative expertise. An enthusiast would say that these products often have tax advantages and can be used to manage an investor’s risk profile; a cynic would say that the structures can disguise a lot of fees and charges.…

But the bigger problem has been investment losses. During the boom years some Asian private-banking clients were sold a toxic product known as an accumulator. The structure sounded simple. If shares in a company, say General Electric, stayed above a given level, investors received a high yield; if the shares dropped below that level, they ended up owning the stock. In effect, the clients had written a put option on the share price. That was fine in rising markets but proved to be a disaster in 2008 when clients ended up owning shares that were falling rapidly.
Wealth managers will share some of their clients' pain, says Coggan: "Downward pressure on fees seems inevitable."

Can Ordinary Investors Profit From the Bailout?

If banks are still willing to sell their toxic financial assets, now that mark-to-market rules have been eased, should individual investors have a chance to buy them?

Ronald O'Hanley, head of BNY Mellon Asset Management, thinks so. The question, he writes in a NY Times op-ed piece, is how to do it:
What we need is a not-yet-invented investment vehicle that would enable ordinary citizens to own a piece of the distressed American financial system. The new vehicle would be open to small investors able to commit to a long-term investment. Perhaps the United States savings bond is a useful model, since it compels people to invest for the long-term without a complicated prospectus or offering memorandum. The Treasury auction process is another helpful model, since it enables small investors to buy Treasury bills and bonds at a price set by large investors. Even the Russian voucher system of the 1990s may contain clues, since it allowed individuals to acquire ownership in what had been state-owned enterprises. ***

During World War II the United States sold war bonds to individuals. Today, we are in the midst of a major financial crisis. What we need for this fight are not war bonds but special equities — what we might call “recovery participation equities” representing an ownership interest in a huge pool of troubled assets.

Friday, April 03, 2009

"What's Your Estate Plan?"

When is estate planning be a factor in jury selection? When the jurors will serve in the trial of Brooke Astor's son. Queries from the questionnaire for potential jurors include:

Do you have a will?

What percentage of your assets have you left to your children, to charity?

Have you inherited money?

Do you personally know people who you consider to be extremely wealthy?

Speaking of Business

The online archives of American Heritage, spanning half a century, are a welcome resource. Check out this collection of quotations regarding business and money compiled by Hugh Rawson and Margaret Miner.

They include this thought from Peter Cooper that wealth managers might share with their clients:
Cooper, whose many business accomplishments included building the first steam locomotive in America and introducing the Bessemer blast furnace in this country, is remembered best for founding the Cooper Union school in New York City. He used to say that his life fell into three parts: 30 years to get started, 30 years to gain a fortune, and 30 years to dispose of it wisely.
American Heritage magazine has had its share of near-death experiences but still attempts to limp along, at least online. See John Steele Gordon's new column, Wall Street’s 10 Most Notorious Rogues.

Estate tax notes

The Administration has proposed freezing the federal estate tax exemption and tax rate at the 2009 levels, and the House budget bill is in accord. However, Tax Notes ($) reports that the Senate is taking a slightly different approach:
The Senate passed, 51-48, an amendment, from Senate taxwriters Blanche L. Lincoln, D-Ark., and Jon Kyl, R-Ariz., that authorizes a modification of the estate tax, setting the exemption level at $5 million and the maximum rate at 35 percent. The underlying Senate budget resolution would index the current $3.5 million exemption level to inflation and maintain the maximum estate tax rate at 45 percent.

In response to the passage of the Lincoln-Kyl amendment, Senate majority leader Dick Durbin, D-Ill., offered an amendment to condition any further cut to the estate tax on middle-income earners getting an equal tax break. The amendment passed 56 to 43.

Senate Finance Committee Chair Max Baucus, D-Mont., who has introduced a bill that would extend the estate tax at its 2009 level, voted for the amendment.

Thursday, April 02, 2009

Good Bears and Bad Bears

In this May 2007 post, we worried that the roaring bull market was making investors complacent, and hence disinclined to seek professional advice. "A moderate bear market should be good for the wealth management business," we predicted. "A crash of 1973-74 proportions is another story."

Turns out we got "another story" and then some. Perhaps the Dow's brief burst above 8,000 today means we're past the market bottom. Even so, if the experience of bank investment pros and other fee-only managers after 1973-74 is any guide, many formerly HNW investors will be gun-shy for years to come.

Take another look at that earlier post, and follow the link to John Steele Gordon's guide to past market crashes from the American Heritage archives.

After Madoff, Funds of Funds Aren't Fun

Recently we quoted Yale's David Swensen:

"If an investor can't make an intelligent decision about picking [hedge fund] managers, how can he make an intelligent decision about picking a fund-of-funds manager who will be selecting hedge funds?"

Investors, institutional or private, who paid the Fairfield Greenwich group handsomely to invest their money with Madoff probably didn't make an intelligent decision. But as the NY Times reports, some Madoff victims are suing.

Thanks to its Madoff conncection, says The Wall Street Journal, Fairfield Greenwich collected hundreds of millions of dollars in fees.

P.S. Yes, I realize that, officially, Madoff's imaginary brokerage accounts weren't a hedge fund. But if you quack like a duck . . .

Wednesday, April 01, 2009

Who's More Foolish?

Who are the bigger fools? Economists who try to predict the future? Or us for listening to them?

That April 1 query is prompted by Jim Gust's recent post, which mentions Lawrence Summers' prediction of the latest boom and bust. He was right about the bust, just more than half a generation off on the timing.

After the sky did not fall in 1991, Summers must have had some explaining to do. "It’s painful now to read a lecture that Mr. Summers gave in early 2000," writes Paul Krugman in the NY Times. Summers implied the U.S. escaped the crisis of the 1990s because, unlike other countries, we had the benefit of reliable corporate accounting and “well-capitalized and supervised banks.”

Want to celebrate April Fools Day right? Take an economist to lunch!