Wednesday, January 29, 2014

Should the Probate of Harold Simmons' Will Be Secret?

Harold Simmons, remembered as a corporate raider, major philanthropist and the swift-boater of John Kerry, was familiar with trusts – two he established for his daughters led to a bitter legal dispute. If Simmons had wanted the estate privacy afforded by a revocable trust, presumably he would have used one in his estate planning. He didn't, but his widow seems to wish he had. She has asked that his will and probate records be sealed.

Wills go on public record for good reason, as explained here. In today's hearing, the probate judge seemed willing to redact some details but indicated that Simmons' will would be made public.

Sunday, January 26, 2014

The New Wealth Wants More Than One

Sometimes one is not enough.

Here's a Rolls spokesman describing the typical buyer of the Wraith, the most powerful Rolls Royce ever crafted:
“It’s no longer the Wall Street or real estate guys buying these in the U.S.,” said James Warren, the company’s communications manager for Britain and Scandinavia. “It’s the sickeningly clever and very wealthy, and really cool, pioneering dot-com guys, blokes in their late 20s and early 30s." 
Rolls Royce Wraith
Mr. Warren said that some of these early buyers were already talking about buying a second Rolls in the form of the more traditional limo-style Phantom or Ghost models. “They just love jumping into the Wraith at the house in Malibu for a weekend blast,” he said. “But they wouldn’t mind sitting in the Ghost during the week and tapping away at the laptop.”
Coincidentally, another Sunday Times story reports that the room required next to the kitchen in the latest superhomes may be…a second kitchen.

The trend is good wealth management news: Folks with a second Rolls or a second kitchen should welcome a second investment adviser.

Saturday, January 25, 2014

Homes of the Infamous Formerly Rich

In my Connecticut days, Round Hill Road in Greenwich was an admirable address. Today, according to one Greenwich realtor, not so much.
One of the gaudy estates is owned by a hedge fund kingpin now residing in prison; others belong to a real estate investor just coming out of prison and an investment adviser who steered his clients and their billions to Bernard L. Madoff. Then, to cap it off, a guy in an 8,000-square-foot mansion is charged with crushing his wife’s skull in with a baseball bat.

This is “Rogues Hill Road,” or so Mr. Fountain has called this 3.5-mile stretch of asphalt. “All these aspirational schnooks came out here thinking that they had really made it,” said Mr. Fountain, a real estate broker, blogger and lifelong Greenwich resident. “But then the tide went out and what you are left with is a bunch of crooks.”
More than 40 Greenwich homes are on the market for at least $10 million. Make an unreasonable offer.

Friday, January 24, 2014

A Mysterious Chase Nest Egg Ad

Watching Rafa trounce Federer at the Australian Open reminded me of this 1963 Chase Manhattan ad, one that I've been puzzling over since last summer.

"Saturday afternoon with the young fry" is the photo caption. A young boy stands on what appears to be a private tennis court.  He is poised to volley at net. But we see no net, no other players, no tennis instructor. Just the boy, alone on a tennis court without a net.

No wonder Dad isn't paying attention. His chair is turned slightly away, next to a small table on which sits a pitcher. Is he sharing the contents (fruity and perhaps rum based?) with someone to the right of the picture frame? Who? The boy's mother? The tennis instructor? A girl friend? We have no clue.

What do you think is going on?

Tuesday, January 21, 2014

Coming Clean on Bypass Trusts

Over the years your humble blogger wrote enough newsletter articles on bypass trusts to fill a dumpster. Don't waste your federal estate tax exemption! Prevent unnecessary estate tax at the later death of your spouse!

Rarely did clients encourage us to mention the income-tax downside: Although assets left outright receive a stepped-up basis at death. assets left in trust do not. If Grandpa dies when his Apple shares, purchased at $10 each, are worth $550, Grandma can sell at that price or less without realizing taxable gain. Only additional growth would be taxable. If the shares pass in trust, everything over $10 a share will be taxable gain.

When the Bush tax cuts lowered the top tax rate on capital gain to 15%, the income tax drawback of bypass trusts seemed less important. But this year the top federal income tax rate on capital gain is back up, approaching 25%. (And, of course, the effective tax rate on gain often exceeds the listed rate.)

Fortunately, new estate tax rules allow Grandma to make use of Grandpa's unused estate-tax exemption. Bypass trusts have become unnecessary. Or have they?

According to Deborah Jacob's dispatch from "the Super Bowl of estate planning," drafters of wills and trusts have faced up to the potential income-tax cost of bypass trusts. Nevertheless, for a variety of reasons they think the trusts still have a future.
Caution: Don't take the title of Jacob's column, "Estate Planning for the 99%," literally. Candidates for bypass trusts are the 1% (the 1% threshold is around six to eight million, depending on who you ask) or at worst the top 2%. Remember, only 5% of U.S. households have a net worth of at least $1 million.

Federal estate tax is no longer an issue in most estate planning. But estate beneficiaries still need protection from creditors and divorce lawyers. Trusts will continue to be useful.

Wednesday, January 15, 2014

Should Capital Gain Be Taxed As Income?

On the question of taxing capital gain as income, the U.S. Supreme Court has spoken, writes Bruce Bartlett. Whether you think profit realized from the sale of investments should be taxed never, sometimes or always, at one time or another the Court has delivered a decision supporting your view.

If capital gain were truly income, in theory both realized and unrealized gain should be taxed annually. For obvious reasons that theory has never been put into practice.

Read Bartlett's informative column and see if you agree with those who "believe that only by adopting a pure consumption tax, and eliminating the taxation of incomes entirely, can we fully escape the problems inherent in capital gains taxation."

Monday, January 13, 2014

Private Banking Reinvented

In the wake of the Great Recession, obtaining loans from one's banker has become more and more difficult and time-consuming. The wealthy set is turning to a quicker, easier alternative, Paul Sullivan reports: high-end pawnbrokers.

Hock shops for asset-rich but liquidity-restrained borrowers are springing up both online and in bricks and mortar. Suttons & Robertsons, an English firm founded in 1770 and catering to the "blue chip, wealthy crowd," opens a New York store this month.

Objects pawned aren't limited to Rolexes, jewelry and the family silver. One borrower parted with
one of his two Bentley GTs. (Your humble blogger probably will never realize his dream of a Bentley convertible. But if he does, he promises not to pawn it. Never!)

Marketers of investment services learn to follow the money. High-end pawn shops could offer promising opportunities. If a need for funds arises from divorce, for instance, one man's liquidity problem should lead to one woman's liquidity event.

Wednesday, January 08, 2014

You Can't Make This Stuff Up

From ‘Nigerian’ Inheritance Scam Leads to Lawyer’s Suspension:
Early last month an attorney whose name I’ll spare you was suspended from practice for 12 months by his state’s lawyer disciplinary panel. Someone the lawyer had represented in a criminal case presented documentation indicating that he (the client) was the beneficiary of a large bequest. From a long-lost cousin. In Nigeria. 
You read that correctly. Believing, or hoping, that the paperwork was legit, the lawyer agreed to help his client secure the inheritance. For a 10 percent contingency fee – $1.8 million. Over the course of the next several days, the lawyer communicated with people he believed worked for the “Central Bank of Nigeria,” the “African Union” and the President of Nigeria.

Quick Tax Quiz

Q. What do Americans do for 1,718,345.hours a year?

A. Fill out federal gift tax returns.

“Watson, Find Me Some Alpha!”

Watson, IBM's eager-to-learn computer, was a winner playing "Jeopardy." Making big money in the business world is proving more difficult, reports the WSJ. Watson's possible career paths include health care and wealth management:
IBM is developing versions of Watson that can match cancer patients to clinical drug trials or recommend an investment strategy after reviewing a customer's portfolio.*** 
Citigroup Inc. has been collaborating with IBM since March 2012 to develop a version of Watson that can recommend financial products to consumers. It hasn't been launched yet.
IBM hopes Watson can earn $1 billion a year. That's a lot of Alpha.

Monday, January 06, 2014

Do Investors Want To Be Conned?

JPMorgan Chase must have noticed that Bernie Madoff's magical brokerage accounts exuded the aroma of dead fish. Based on that conclusion, the Feds are expected to impose a penalty of $2 billion. The bank's total financial punishment for recent transgressions, including the London Whale disaster,  amount to $20 billion. {A billion here, a billion there . . . .)

Before you knock JPMorgan and its formerly esteemed CEO, read James Surowiecki's New Yorker column:
[T]he fundamental difference between entrepreneurs and con artists is that con artists ultimately know that the fantasies they’re selling are lies. Steve Jobs, often enough, could make those fantasies come true. Still, that unquantifiable mélange of risk, hope, and hype provides both the capitalist’s formula for transforming the world and the con artist’s stratagem for turning your money into his money. Maybe there’s a reason we talk about the American Dream.
From JPMorgan's perspective, blowing the whistle on Madoff may have seemed like dissing Santa Claus.

Update: If JPMorgan Chase gets penalized for letting Madoff do his thing, what about the SEC? The agency was warned about Madoff but – as the WSJ points out – "allowed him to continue stealing from victims until the fraud collapsed in 2008."

Related post: Was Madoff a "Well-Known" Fraud?

Saturday, January 04, 2014

How UK Banks Garner Executorships

Banks in Britain can offer will-writing services. Good way to pick up executorships? You bet.

Maybe too good.

George Goodman, 1930-2014. R.I.P.

Investors and TV viewers knew Goodman as Adam Smith. He was a founder of Institutional Investor, and Bernstein and Sondheim played at his wedding.

“As my Texas friends say, ‘Money ain’t everything, but everything won’t go out with you unless you’ve got it.’ ”
– George Goodman

Related posts: 

Thursday, January 02, 2014

Acronyms of Offshore Banking

FATCA = Foreign Account Tax Compliance Act, which takes effect this year.

FBAR = ROFBAFA = Report of Foreign Bank and Financial Accounts.