Spanish Banker's Taxing Inheritance

When a former IT specialist at HSBC revealed a list of undeclared Swiss bank accounts, he shook a lot of money trees. Among those now under investigation for tax evasion, the NY Times reports, is Spain's most prominent banker, Emilio Botin of Banco Santander.

Botin and his family apparently inherited their tax problems from accounts that date back to the days of For Whom the Bell Tolls.

Mr. Botín’s father, Emilio, opened an account in Switzerland after the start of the Spanish Civil War when he left Spain for London. The elder Mr. Botín died in 1993 … his son and other heirs were told only last year by the Spanish authorities of the money kept in Switzerland.

"Switzerland is a small, steep country," Hemingway once wrote, "much more up and down than sideways, and is all stuck over with large brown hotels…." Far as I know, he didn't mention the banks.

Best Investment Move? Take the Summer Off

A few months ago things seemed to be looking up. What happened? According to a new CNN/Opinion Research poll, roughly five out of ten respondents expect 25% unemployment within a year. Widespread bank failures. Millions of Americans without food or shelter. In short, another Great Depression!

Given the public mood, maybe "Sell in May and go away" was this spring's best investment idea. Long-term investors don't even need to sell. Just grab their nest eggs and go cruise for the summer. The world and its worries will still be here when they return in the fall.

Chase Manhattan ad, 1961

Just Enough Rich People

Spelling mansion

Robert Frank wonders, Does America Have Too Many Rich People? Not according to a Gallup poll on wealth. As Frank notes, only about 1% of Americans are millionaires, and mere millionaires are a long way from rich.

Millionaires are more prevalent in Congress. Among the 87 new Republican members, The Washington Post reports, at least 24 are millionaires.

Even so, have-nots outnumber haves: "At least 30 had liabilities [other than home mortgage debt] totaling $50,000 or more in 2010."

The U.S. probably does have enough rich people. But I wish many more Boomers were going to retire as millionaires.

No Estate Tax Repeal, Exemption Stays At $5 Million?

Just noticed this item from The New York Post:

Senate eyes compromise on estate tax.

A Dark View of Estate Planning

Where Have All the Estate Planning Lawyers Gone? Stephen Dunn believes they've turned to protecting doctors' assets or sunk to fleecing old folks: "… I would say that planning to qualify clients for Medicaid coverage of nursing home care has surpassed estate tax avoidance as an objective of estate planning."

He's wrong, I hope. Isn't he?

Update. For her hopeful heirs, any old Medicaid nursing home sounds fine for Grandma. The reality? See Gerry Beyer's post: Nursing Home Statistics. (The statistics don't take deficit-reducing cuts in Medicaid into account. Sorry, Grandma.)

Video plugs “Inheritance Trusts”

Check out this video from SmartMoney. Almost sprightly, compared to most primers on trusts. Includes a plug for a bank as co-trustee.

Does Taxing Inheritance Harm Growth?

The Atlantic's Megan McArdle pondered the question, Why Not End Inheritance? Her colleague Daniel Indiviglio discusses the alternative, Tim Pawlenty's proposal for ending the estate tax.

How Individual Trustees Botch Things Up

Barron's generously let me read this article for free. Maybe they'll do the same for you. See The Five Biggest Ways To Bungle a Trust.

The five ways?

Three failures:
   …to keep records
   …to diversify
   …to treat current beneficiaries and remaindermen fairly

And two unreasonable expectations::
   The family won't mind if I take a fee
   Nobody will sue me

Marketing trustee services for a bank or trust company? Add this article to your tool kit.

If You’d Like Another Good Scare . . .

Don't let catastrophic floods be your only worry. The troubled housing market could be much, much sicker than we've been allowed to believe:

Consumer borrowing is so rampant in America that most people who took out a mortgage last year to buy a home ended up spending more than a third of their income to pay that loan and other debts.

“Stop Me Before I Trade Again!”

Many men (and some women) with millions to invest are too flighty. If they're not switiching advisers on a whim, they're trading too often for their own good.

A Barclays Wealth study spotlights this "trading paradox." Some wealthy investors feel compelled to keep buying and selling even though they know their wealth suffers as a consequence.

“This trading paradox exists, to one degree or another, everywhere in the world,” Greg B. Davies, the head of behavioral and quantitative finance at Barclays Wealth, said.…. “Not everyone is prone to frequent trading, but among those who feel that they must trade frequently to do well, there is a substantial proportion who are troubled by their behavior.” 

A U.S. News column notes that two groups of wealthy investors tend to behave more rationally:

For older investors and retirees, the report found substantial improvement in investment decisions as people aged. Compared with younger investors, older investors were much less likely to trade too often, to try to time the market, or base investments on short-term considerations. They were also more satisfied with their financial situation.

… women are better long-term investors than men. Men tend to take more risks and are more likely to favor frequent trading and efforts to time the market. "Women tend to have lower composure and a greater desire for financial self-control, which is associated with a desire to use self-control strategies," the report said. "Women are also more likely to believe that these strategies are effective." As a consequence, women tended to trade less and earn higher returns over time.

Could that be why the clients of prudent trust institutions so often turn out to be retirees and/or female?

Related post: What Investors Need vs. What Investors Want

If you'd like a good scare . . .

. . . read this post on the chances of massive flooding of the Mississippi.

When I saw the reference to "spring flooding" I had to recheck the dates, because I assumed spring flooding was long over this year.  Apparently not so for parts of Montana that feed into the Missouri river.

The domino effect of bursting dams makes Hollywood apocalypse movies seem tame by comparison.  It would make Katrina seem like a mild summer storm.

Let's hope that this is hype.

Churn

According to a new Spectrem study, released in late May, "10% of ultra-wealthy respondents changed advisors [in 2010], compared with the 6% who did so in 2009. Also, 15% changed their primary financial institution."   So, client retention is more important than ever.

At the same time, the wealthy have grown somewhat weary of playing the market.  In 2009, 69% of those with more than $1 million to invest wanted to be involved in portfolio management on a daily basis.  That fell to 65% in 2010, then to 47% in 2011.

Give the job to the professionals!

“Buy Republican! More Fat Cats, Less Taxes!”

Among GOP, anti-tax orthodoxy runs deep, reports The Washington Post:

[T}oday’s GOP adheres to a “no new taxes” orthodoxy that has proved far more powerful than the desire to balance the budget. *** This orthodoxy is now woven so deeply into the party’s identity that all but 13 of 288 GOP lawmakers in Congress have signed a formal pledge not to raise taxes. The strategist who invented the pledge, Grover G. Norquist, compares it to a brand, like Coca-Cola, built on “quality control” so that Republican voters know they will get “the same thing every time.”

 My heart loves the brand's unique selling proposition: "Things Go Better With Coke Low Taxes." My head knows effective tax rates will be hiked anyway, perhaps via "tax reform." Reason: The U.S. Treasury needs the money. And the money would start to flow immediately, as taxpayers hurry to accelerate bonuses and realize gains before low rates vanish.

Why Not End Inheritance?

When estate planners have nightmares, do they dream that estates – inheritable chunks of wealth – have ceased to exist?
Or do they dream that estate tax – the great estate-planning motivator – has been repealed?

In the wide-awake world, the first option appears alive and well for liberal thinkers. See Kevin Drum: Why Not Let the Dead Pay for Medicare?

Drum's post prompted The Atlantic's Megan McArdle to wonder, Why Do We Allow Inheritance At All? 

Happily, estate planners need not toss and turn in their beds. After considering the obvious exceptions a 100-percent estate tax would require, not to mention the inevitable loopholes, McArdle ran into Chesterton's Fence.

The Solution that Became the Problem

Why did this 1971 brokerage ad deal with such dull subjects as error-reduction and bookkeeping? Because all heck had broken loose at brokerage firms in the late 1960s. As "gunslinger" fund managers snapped up hot stocks at unprecedented rates, antiquated back offices collapsed under mountains of paper.

"Wall street in 1968," wrote John Brooks in The Go-Go Years,  "…cut its own throat through its complacency, greed, and lack of foresight."

Can't have been pretty in 1971, either. Some formerly hot stocks plunged 40 percent or more as the gunslingers ran for the exit.

Computers eventually solved the problem. A 20-million-share day may have shook Wall Street back then. Now a one-billion-share day is routine.

But the 20th-century solution has bred a 21st-century hazard. Wall Street finds itself under attack by program traders wielding metaphorical death rays rather than Colt revolvers. This week's 60 Minutes devoted a segment to How speed traders are changing Wall Street.

Most people don't know it, but the majority of the stock trades in the United States are no longer being made by human beings. They're being made by robot computers, capable of buying and selling thousands of different securities in the time it takes you to blink an eye.

 Should computers telling other computers to execute zillions of instant trades worry you? Yes, according to a current and a former senator. See Preventing the Next Flash Crash.

The marketing question is, does program trading worry investors? Do they feel threatened by the prospect of a major flash crash?

Should Everybody Pay Income Tax?

Most Americans can vote to raise income taxes at no cost to themselves. That's because most Americans don't pay income tax.

Bad situation, blogs Scott Adams. "My recommendation for putting a safeguard on the state of the union is that every adult citizen should pay federal income taxes, even if it is just one dollar per year."

Do you agree?

 I'm proud to pay taxes in the United States;

the only thing is, I could be just as proud for half the money.

– Arthur Godfrey

Why Private Investors Need Fiduciary-Quality Advice

Wall Street's investment research still leaves a lot to be desired. See Jesse Eisinger's column on ex-BofA analyst David Maris:  For Whistle-Blowers, No Good Deed Goes Unpunished.

(Jesse Eisinger and Jake Bernstein won a 2011 Pulitzer for their Wall Street reporting.)

* * *

CLSA, where Maris now works, created this cool salute to The Year of the Rabbit. Click on thumbnail for larger version.

Car Dealer's Mistress Ain't Down Yet

Remember when it looked like Anne Melican, mistress of Georgia car dealer Harvey Strother, might receive $6 million or more from his estate? The Georgia Supreme Court dashed that hope in 2009. Undaunted, Melican kept fighting. The Georgia court now rules she's entitled to $1.36 million, the proceeds from the sale of a condo Strother devised to her.

Can You Pronounce “Kosciuszko”?

A few years ago we called your attention to A Friend of Liberty and His Unfaithful Executor. Tadeusz Kosciuszko would be remembered as fondly as Lafayette, we suggested, if only Americans could spell his name.

Or pronounce it.

On this score, a NY Times article offers help. There's a Kosciuszko Bridge in New York – a modest span, due to be replaced with something grander. To pronounce Kosciuszko more or less properly, you simply sneeze: “Ka-SHOO-sko.”

Harsh Truths About Banking

The New York Times recently moved Joe Nocera from business news analysis to op-ed. In today's column  he salutes Robert G. Wilmers, head of M&T Bank. Read the column and you'll wish you had enough spare change to buy M&T shares.

Nocera includes a link to Wilmers' message to shareholders. It's worth reading. Sample:

In 1980, those with engineering degrees were paid 15 to 25 percent more than finance professionals with comparable education. By 2005, finance professionals with advanced degrees earned 30 to 40 percent more than engineers. It is no surprise then that nearly 25 percent of new employment-seeking graduates of the Massachusetts Institute of Technology and the California Institute of Technology (MIT and Caltech) chose jobs in the financial sector during 2004-2009. When those with engineering and scientific acumen at the highest levels are drawn, instead, to the capital markets, one fears that innovations — and, indeed, new industries — may be stillborn, as a result.

 This month M&T completed its purchase of venerable but troubled Wilmington Trust.

They Didn't Trust Madoff

Bernie Madoff didn't fool everybody. Today's NY Times spotlights two notable examples:

Laura Blank. When she and her husband divorced five years ago, he opted to keep money with Madoff. Laura demanded cash. (Her ex-husband has sued to redo the divorce settlement, an effort that reportedly threatens to shake contract law to its roots.)

Martin Sass. Mr. Sass is not lucky. He started his investment business in 1972, just before the Dow plunged from near its all-time highs. Not lucky, just smart:

Mr. Sass first turned down a chance to get into the Madoff funds in the 1980s when Mr. Madoff, through a representative, refused to tell him how he made his returns. Again, in 2008, the Brooklyn College investment committee considered an investment with Mr. Madoff. Mr. Sass, who was chairman of the investment committee, fought fiercely against the investment and won. 

"Mr. Sass," the Times points out,  "is just not a believer in get-rich-quick deals." Apparently, neither is Laura Blank.

Off For the Weekend!

The illustration is from a Pierce-Arrow ad. Like the Buick ad we showed you, it's from 1931, when the stock market seemed to be recovering and the privileged class did not yet realize they were living in the Great Depression.

Does 1931 seem like ancient history? Try imagining that the back-seat passenger is a young woman in her twenties. Her name could be Huguette Clark.

Here's the full Pierce Arrow ad, complete with a testimonial from Joseph Widener.

Trust Company As Status Symbol

The year, 1931. Buick wants to advertise to the high-net-worth market. How can the illustrator show that a couple still has money after the '29 Crash? Easy. He positions them in front of the bronze doors of a trust company.

Huguette Clark, Reclusive to the End

Heiress Huguette Clark has been interred without funeral or family in attendance, the Daily Mail reports.

Not yet known: how Clark disposed of her $500 million estate. She is thought to have made a new will a few years ago..

Simplicity ➜ Disruption ➜ Hanky-Panky

Personalized search results? Just give me the standard ones. Serendipity will guide me from there. The other day it led from simplicity to disruption to hanky-panky.

To start with, American Banker reported that Betterment, a site offering investment simplicity, had signed up 4000 customers. Never heard of it.

Betterment launched a year ago at TechCrunch Disrupt with seed money from Bessemer and other angel investors. The start-up hopes to make an investment account as natural an offshoot of a bank account as money market funds became for an earlier generation.. The founders have worked hard to deliver their message clearly and simply. Take a look.

TechCrunch Disrupt? Never heard of it, either. With a couple of clicks I learned that this year's gathering ended yesterday. TechCrunch Disrupt draws developers of apps, web sites and other digital startups, all with visions of IPOs dancing in their heads. Several ideas involve personal finance. ( If brick-and-mortar banks are headed for extinction, can credit cards be far behind? See the NY Times: Payment Method Bypasses the Wallet.)

A TechCrunch link led me to Business Insider, Henry Blodget's news-and-gossip site. BI's banker hanky-panky currently features Sir Fred Goodwin, ex-CEO of Royal Bank of Scotland.. Goodwin obtained a superinjunction barring the media from revealing his alleged affair with an RBS staffer. Like the French, the British like to keep such indiscretions quiet. Except in Parliament. There, members can talk about anything. And once they say it, the press can write about it.

The U.K. is the land of No Sex Please, We're British.What really disturbs them is the financing. How could Sir Fred, head of a bank that required a major government bailout, squander funds on promotions for his paramour?

Bankers below CEO level also should consider the financing of their hanky-panky. According to a survey, male bankers spend an average of $500-$600 per sexual rendezvous.

Try Safari if FireFox is acting up

The blog's header appears scrambled in FireFox, for some reason, but it looks and works fine in Safari.  Might be related to the fact that I've not updated the template, despite Google's entreaties.

Another heiress of the Gilded Age dies

Huguette Clark.

Interesting, the different paths these fortunes took.  No bankers involved in managing this one, just an attorney and an accountant, apparently.

“Obama Wants a Top Tax Rate of 44.8%”

Props to Representative Paul Ryan for pointing out that the effective top tax rate on income could climb significantly higher than 39.6%. Ryans's inclusion of payroll taxes in his calculations can be questioned, but you can't argue with the rate-raising effect of phasing out exemptions and deductions.

He's earned Glenn Kessler's Rare Geppetto.

Wellington Burt’s Trustee: Maladroit or Maligned?

Remember Wellington R. Burt's trust that skipped generations for 92 years? Saginaw County's chief probate judge has ordered full distribution.

It wasn't easy. Some 20 lawyers were involved in negotiating a distribution that sounds sort of per stirpes. "It gives larger amounts to those farther up the family tree who have fewer siblings."

Burt's curious desire to favor heirs he would never know over those he did has attracted considerable comment. Some question locking up an estate for so long. Others wonder why an estate valued at $40 million or more in 1919 is now worth only $100 million. Had Burt's fortune merely kept pace with inflation, it should be worth more like half a billion.

Was the bank trustee asleep at the switch? Or did the trust consist largely of business interests that crashed in the Great Depression? In the latter case the trustee may have conducted a heroic salvage job.

Billions and Trillions Illustrated

As of May 21, no need to worry about debt ceilings, government spending and tax revenue shortfalls.

But what if we won't get off that easy? Just in case the world keeps turning, refresh your understanding of the vast sums that billions and trillions of dollars represent:

How to Tell a Billion From a Million.

How to Tell a Trillion from a Billion.

Trusts (New Hampshire) vs. Insurance (Vermont)

New Hampshire vs. Vermont: People in Vermont wear funny sandals and talk about world peace. New Hampshire residents sell liquor at toll booths and drive without seat belts. The one thing they agree on is their dislike of Massachusetts. 

Now the two states are battling with financial services as weapons: trusts for New Hampshire, insurance for Vermont.

One Vermonter sees no risk in lightly capitalized "captive" insurance companies. Other commentators aren't convinced.

Astonishing Thought for the Day

From The Christian Science Monitor:

By 2022, those living in poverty will be a minority for the first time, as the global middle class – particularly from BRIC nations – surges.

The high-net-worth minority is growing, too. Hence the boom in global private banking.

Should the Prudent Investor Always Follow the Crowd?

Child: The other kids are doing it, why can't I?

Parent: Just because everybody's doing it, doesn't make it right.

Ron Lieber wants those overseeing 401(k) plans to think like the parent. See Why 401(k)'s Should Offer Index Funds.

Most plans – over 60 percent – don't yet offer a basic menu of low-expense index funds. Lieber offers a hypothetical example showing how that lack might cost an employee $100,000 or more over a working lifetime.

According to Erisa, 401(k) plans should be investing with the “care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims.”

As long as most company plans don't offer a basic menu of index funds, do the people overseeing Galactic Gidgets' plan have a fiduciary duty to offer their employees an index funds option? If  not, would that duty automatically kick in once a bare majority of other plans do offer such an option?

The Top 400 Taxpayer: Now You See Him . . .

The media often treat the highest-income taxpayers as members of an exclusive club. Some club! Most members get thrown out after a single year.

The Internal Revenue Service has now published data on the top 400 taxpayers for 17 years. Over that period, according to the latest report, all but 27 percent of the highest-income taxpayers have been one-year wonders. Most of their income is capital gain, usually from the sale of a business.

Robert Frank's Wealth Report cites that rapid turnover as evidence that the ranks of the rich change rapidly. Not necessarily. The taxpayer who sells a business for $500 million or Lake Shore high rises for $300 million is already rich. After the sale – and a one-year membership in the Top 400 Club – the taxpayer is only slightly less rich and much more liquid.

And a much better prospect for investment services.

Will Hedge Funds Go Psychic?

With the conviction of Raj Rajaratnam, the Greenwich hedge fund billionaire, trading on inside information has become a definite no-no. What alternative strategy can hedge funds adopt?  Here's a clue: On the hedgies' home turf of Greenwich and neighboring Connecticut towns, fortune telling in in such demand that a psychic turf war has developed.

There's no law against trading on future information, is there?