by Scott Martin, Senior Editor, The Trust Advisor

Mere weeks after winning nine-year probate case against her own stepmother, glamour queen’s shock death and controversial financial shape raise the odds of much bigger courtroom battles ahead.

Whitney Houston’s management had barely squelched rumors that the 48-year-old diva and recovering cocaine addict had run out of cash before they had to confirm reports that she was dead.

The latest news is that she fell asleep in the bathtub and drowned after mixing prescription painkillers with alcohol.

Now, it’s the disposition of Houston’s remaining wealth that is becoming the object of public scrutiny — and giving advisors plenty to mull where their own clients are concerned.

If Houston’s lawyers were smart, they ironed out her estate plan a decade ago, the gurus tell me.

Back in 2001, she had just signed the biggest record deal in history — six albums, $100 million in guaranteed royalties — and the signs of her drug use were getting harder to hide.

That combination of massive incoming wealth and rising litigation and mortality risks should have been all the incentive her advisors needed to set up long-term trusts and iron out her will.

Unfortunately, that was also the moment at which her career and personal life started to unravel, so they might have missed their opportunity — and as details come out, we might see the grim results.

A very complicated decade

Part of the problem is that Houston’s last decade was extremely complicated, so the lawyers had less time than we might think to keep her affairs orderly.

When she signed that $100 million contract, she was already carrying her long-time husband, Bobby Brown, and a young daughter.

Her father, who had managed her career up to that point, was slowly dying of heart disease and seems to have been perpetually hurting for cash.

In 2002, he sued her for a round $100 million, claiming he was owed that much for helping her beat marijuana possession charges and negotiate her big record deal.

That suit dragged on well after his death before being dismissed in 2004, robbing Houston’s lawyers of vital time to move that money into an asset protection trust.

As long as the lawsuit was pending, those record company millions were simply too hot to hide — any judge would have considered such a move a blatant attempt to defraud an existing creditor.

Two years of relative quiet followed, but Houston spent a lot of that time in and out of rehab, so any claims she was in “sound mind and body” to sign any estate documents may not hold up without challenge.

Her divorce from Bobby Brown dragged on through most of 2007. Her lawyers were on the ball here: she had a prenuptial agreement cutting him out of her money and any legitimate claim to spousal support.

After that, she drifted out of the limelight. And now she’s gone.

Fighting her father’s example

Given the haphazard way the Houston musical dynasty used sophisticated planning techniques to manage its millions, we might expect to see Whitney’s estate reflect a mix of good and bad advice.

On the positive side, Bobby has no claim on her money, and now that daughter Bobbi Christina is legally an adult — and out of the hospital herself — he can’t try to get custody and the money that goes with that.

And Houston’s father earmarked a $1 million life insurance policy to cover the mortgage on his house, so someone over the years was on the ball there.

Unfortunately, if Whitney and her father used the same lawyers, we can expect fireworks ahead.

John Houston appears to have died without clearly stating whether the life insurance money was meant to go to Whitney — who loaned him the money for the house in the first place — or to pay off his debt to his daughter.

He left behind letters talking about how Whitney made an oral agreement to apply the $1 million toward the loan, but her lawyers successfully noted that nothing like that was spelled out in his actual will.

In November — a full eight years after John Houston died — the case finally wrapped up in Whitney’s favor.

Had the lawyers set up a trust to accept the life insurance proceeds and use them to pay off the loan, his wishes would have been clear and none of the ensuing legal in-fighting would have been necessary.

As the judge noted, it’s impossible to legally determine what the deceased would have wanted, beyond what’s spelled out in the documents.

How much was Whitney worth?

The big question is how much of Whitney’s money the lawyers managed to save.

She died owing Arista three records, so a big chunk of that $100 million from the 2001 contract could be forfeited right away.

Her 10-acre New Jersey property was once appraised as worth $6 million but more recently listed for well under $2 million — barely what she owes in taxes and mortgage payments.

While rumor has it she was calling friends to borrow $100 a few weeks ago, her people insist that she wasn’t hurting for cash.

She’d just wrapped her first movie in 15 years, and as her staff says, she didn’t work for free.

“People get paid to make movies,” they point out.

And estate planners get paid to make sure the movie money lasts. Let’s hope Whitney’s lawyers earned their fees.

Permalink: http://thetrustadvisor.com/news/whitney

NASAA recently released its list of the top scams con artists use to trap unwary, or merely desperate, investors during these volatile economic times

Advisors and investors beware: Even though Bernie Madoff is gone, economic uncertainty and volatile stock markets still breed con artists itching to trap the unwary or merely desperate.

During turbulent economic times like we’re currently facing, “con artists follow the news and seek ways to exploit the headlines to their advantage while leaving investors holding an empty bag,” says David Massey, president of the North American Securities Administrators Association (NASAA) and North Carolina deputy securities administrator.

To help advisors alert their clients of the latest scams, NASAA recently released its listing of the Top 10 financial products and practices: five of each.

“Promoters often offer investors an opportunity to get in on the ‘ground floor’ of new technology or ideas to help others and make a great economic return,” says Massey. “Unsuspecting investors can be lured into these schemes, especially if they sound familiar. These offerings require careful research and a strong reminder that if it sounds too good to be true, it probably is not true, nor will it be profitable to anyone but the promoter.”

Read on for more details about these scams du jour.  Top 10 Financial Scams: Products and Practices

To help protect investors from such potential “golden cons,” the Financial Industry Regulatory Authority today issued an investor alert, “Gold” Stocks–Some Investments Mine Your Pocketbook, ostensibly to warn investors about investment scams that promote gold stocks.

The Finra alert also provides information on how to invest in legitimate gold investments.

With the price of gold bullion at record levels, there has been a proliferation of blogs, Web sites, YouTube videos and Tweets centered on investing in gold. And while legitimate gold investments are discussed online, Finra officials are concerned that some investors may fall prey to gold-related investment scams.

“Con artists are using the run-up in the price of gold as a hook to part investors from their money,” said Gerri Walsh, vice president for investor education for Finra. “Investors should think twice before investing in any gold investment promising exponential returns, or any company that claims it is a buyout target for other mining companies.”

Finra officials say such gold scams may center on inflated claims regarding the stocks of gold mining companies whose stock value is often based on gold reserves that are difficult to estimate, much less verify.

To wit: The Securities and Exchange Commission took legal action against a mining company based in Florida for false press releases claiming that a mining project in Ecuador contained gold reserves worth more than $1 billion.

To continue reading, go to FINRA WARNS INVESTORS OF GOLD STOCK SCAMS

WASHINGTON –– Hiding income in offshore accounts, identity theft, return preparer fraud, and filing false or misleading tax forms top the annual list of “dirty dozen” tax scams in 2011, the Internal Revenue Service announced today.

“The Dirty Dozen represents the worst of the worst tax scams,” IRS Commissioner Doug Shulman said. “Don’t fall prey to these tax scams. They may look tempting, but these fraudulent deals end up hurting people who participate in them.”

The IRS works with the Justice Department to pursue and shut down perpetrators of these and other illegal scams. Promoters frequently end up facing heavy fines and imprisonment. Meanwhile, taxpayers who wittingly or unwittingly get involved with these schemes must repay all taxes due plus interest and penalties.

Following is the Dirty Dozen for 2011:

To continue reading go to Don’t Fall Prey to the 2011 Dirty Dozen Tax Scams

Where do I go? Where do I look? What do I ask?

Finding qualified, independent financial advice should not be difficult. But it is for many hard-working Americans. With so many people claiming to be  financial planners, financial advisors, financial counselors, wealth managers, how do you know when you’ve found someone who can really help you? The National Association of Personal Financial Advisors (NAPFA), the country’s leading professional association of Fee-Only financial planners, is pleased to provide you with this field guide to assist you in your pursuit for a qualified, independent financial advisor.

The Pursuit of a Financial Advisor Field Guide is set up to help you with every aspect of your quest, including:
• Preparation for the Pursuit
• Equipping Yourself – Knowing What To Ask!
• Selecting Where To Look
• Evaluating Potential Advisors
• Engagement
• Evaluating Your Advisor
• Additional Tools and Resources

Go here to get your copy of Pursuit of a Financial Advisor Field Guide.

Happy hunting for your financial advisor.

Best

Worst

Take a Good Look

Brian Harris, Senior Editor, Dimensional Fund Advisors

US Monetary Policy since 2000

Source: Federal Reserve Board

Nevertheless, investors may be growing anxious in response to media coverage of the Fed’s continuing expansionary policy. For those who are certain QE2 will be inflationary, perhaps the recent example of Sweden’s monetary base run-up will offer some reassurance.
In the 1990s, Sweden’s central bank, the Riksbank, more than doubled the country’s monetary base during the Nordic banking crisis, but inflation remained moderate during and after the expansionary period. The graph below documents that even as the monetary base jumped from 1994 to late 1996, inflation did not follow suit, and in fact, remained flat before falling in 1996.

Swedish Monetary Policy in the 1990s

Source: Sveriges Riksbank

Sweden’s monetary base expansion is one of several international examples of quantitative easing over the past two decades. These case studies, which include past expansionary periods in the UK, Switzerland, Japan, Australia, New Zealand, and Iceland, are discussed in a recent Federal Reserve Bank of St. Louis review.³ The researchers concluded that doubling or tripling a country’s monetary base does not lead to high inflation if the public views the increase as temporary and expects the central bank to maintain a low-inflation policy.
Of course, many factors may come into play, and we cannot know whether the US will share the same fortune. But at least we know that quantitative easing has occurred without triggering high inflation.

___________________________________

1. Monetary base is the total amount of the liquid currencies circulating in the hands of the public, deposits in financial institutions, and the deposits of the commercial banks in the central bank of the respective country.
2. One indicator of expected future inflation is the difference in rates between US Treasury bonds and Treasury Inflation Protected Securities (TIPS), also known as the TIPS spread. As of December 16, the 10-year zero-coupon TIPS spread was 2.35% (http://www.federalreserve.gov/econresdata/researchdata.htm). Consider, however, that the spread also includes an inflation risk premium, so the spread is not an exact measure of the market’s inflation expectations.
3. Richard G. Anderson, Charles S. Cascon, and Yang Liu, “Doubling Your Monetary Base and Surviving: Some International Experience,” Federal Reserve Bank of St. Louis Review 92, no. 6 (November/December 2010): 481-505.

Staff – Journal of Accountancy

Congress adjourned its year-end lame-duck session on Wednesday after passing legislative fixes for several pending tax issues, including the estate tax, the expiration of the 2001 and 2003 tax cuts, an alternative minimum tax (AMT) patch, and extensions of many expired provisions. However, it failed to repeal the expanded Form 1099 reporting requirements that were enacted as part of this spring’s health care reform legislation.
The tax changes made during the lame-duck session were enacted as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (Tax Relief Act of 2010, PL 111-312), which Congress passed on Dec. 16, and President Barack Obama signed into law the next day.

Expanded 1099 Requirements

One major tax issue Congress did not resolve was the expanded Form 1099 reporting requirement. Currently, payments to corporations are excepted from the Form 1099 information-reporting requirements. But starting for payments after Dec. 31, 2011, businesses will be required to file an information return for all payments aggregating $600 or more in a calendar year to a single payee, including corporations (other than a payee that is a tax-exempt corporation). This change was made by the Patient Protection and Affordable Care Act (PL 111-148), enacted in March 2010. In addition, in a change made by the Small Business Jobs Act (PL 111-240), taxpayers who receive rental income from property will be required to issue Forms 1099 to service providers for payments of $600 or more during the year, effective for payments made after Dec. 31, 2010.
The Tax Relief Act of 2010 does not include a provision to repeal any of the expanded Form 1099 reporting rules; two votes to repeal the expanded Form 1099 requirement rules with regard to corporations failed to pass the Senate on Nov. 29. In December, Senate Finance Committee Chairman Max Baucus, D-Mont., introduced a separate bill to repeal the new 1099 rules with regard to corporations (not landlords), but he was unable to obtain the unanimous consent needed to advance the legislation.
According to Peter Kravitz, AICPA director–Congressional & Political Affairs, Congress is likely to revisit this issue early in 2011. However, as of Jan. 1, 2011, taxpayers who receive income from rental property should start keeping adequate records of payments, so they will be prepared to issue correct 1099s in 2012. They will also need to obtain the name, address and taxpayer identification number of the service provider, using Form W-9 or a similar form.

For updates on the Estate Tax, GST tax and several extensions, go to the Journal of Accountancy article.

Dealing With US Debt

If you want to watch something alarming, look at the U.S. Debt Clock (http://www.usdebtclock.org/), which calculates, second-by-second, America’s rising debt (approaching $14 trillion), federal spending (nearly $3.5 trillion a year) and budget deficit (roughly $1.3 trillion).  Second-by-second the numbers increase, and you can also watch (more slowly) the inexorable rise in the average debt per U.S. citizen — currently more than $44,000 — perhaps more by the time you read this and check for yourself.

The Debt Clock also lists the largest budget items and THEIR growth, and you can quickly see that they are not where most of the politicians have focused their attention and public statements.  While incoming Congressional leaders talk about ending earmarks and cutting foreign aid, the back-breaking line items on the federal budget are Medicare/Medicaid, Social Security, Defense and war expenditures.  At the bottom of the Debt Clock screen are some truly frightening statistics: add up all the future unfunded liabilities for Social Security, the federal prescription drug program and Medicare liability, and you get a future cost of $111.5 trillion.  That’s a little over $1 million per taxpayer.

Painful Debt Choices

Like any debtor who gets in over his head, the U.S. Congress faces painful choices.  They can either make very difficult decisions now — and possibly alienate voters — or kick the can further down the road and leave a bankrupt country or crushing debt for our children or grandchildren to pay.  The problem is great enough that a coalition of the very rich, including Bill Gates and Warren Buffet, are doing something unheard of: they are publicly arguing that Congress should end the tax cuts for them and others of the wealthiest Americans.

Is there a way to get both political parties talking about the hard choices?  On December 1, a bipartisan National Commission on Fiscal Responsibility and Reform, made up of 18 prominent Republican and Democratic leaders, released “The Moment of Truth,” a set of recommendations that would, if enacted, achieve a $4 trillion reduction in government debt.  The group includes the chairmen and ranking members of the Senate and House Budget committees, the chairman of the Senate Finance Committee, a former White House budget director and a vice chairman of the Federal reserve board.  To achieve their deficit reduction goals, the commissioners put everything on the table — Social Security, Medicare, tax rates, government spending, even the elimination of popular tax deductions.

The Moment of Truth

You can read the full 49-page report here: The Moment of Truth.  The report lists, on page 10, some of the considerations that went into the decisions, which you may or may not agree with: “We all have a patriotic duty to make America better off tomorrow than it is today;” “Don’t disrupt the fragile economic recovery;” “Cut spending we cannot afford — no exceptions;” “Demand productivity and effectiveness from Washington;” “Don’t make promises we can’t keep;” “Keep America sound over the long run.”

The plan would cut government discretionary spending and impose spending caps, including annual limits on war spending, impose 15% reductions in Congressional and White House budgets, a three-year freeze on annual Congressional pay raises, and eliminate all Congressional earmarks (9,000 in FY 2010, costing close to $16 billion).

The commission also recommends lowering tax rates and eliminating many deductions.  There are actually several alternatives in the final proposal (pages 25-27), depending on which deductions are eliminated.  One possible plan is to bring us down to three tax brackets of 12%, 22% and 28% — replacing five brackets ranging from 15% to 39.6% that is due to take effect in 2011.  Corporations would pay at a flat rate somewhere between 23% and 28%, and lose most of their special subsidies and tax loopholes.

To get there, the Commission proposes that Congress eliminate all itemized deductions (everybody would take the standard deduction) and replace today’s mortgage interest deduction with a 12% tax credit for mortgage loans up to $500,000.  Capital gains and dividends would be taxed at ordinary income rates (rather than the preferential rates under current law) and the dreaded AMT would be eliminated altogether.

More controversially, charitable donations, which are currently deductible for itemizers, would only qualify for a 12% tax credit, and only then to the extent that the gift exceeded 2% of a taxpayer’s adjusted gross income.  The Commission also proposed replacing the current melange of retirement plans (Roths, IRAs, 401(k)s, 403(b)s, defined benefit plans etc.) with one type of tax-favored retirement account for everybody; the maximum tax-preferred contribution would be $20,000 or 20% of income, whichever is lower.

The commission proposes to raise the age at which you could receive full Social Security benefits by indexing it to life expectancy.  The Normal Retirement Age, which reaches 67 in 2027, would go up to age 68 by the year 2050, and 69 by 2075.  The Early Retirement Ages, when people could opt for lower annual benefits, would go up to age 63 by 2050 and 64 by 2075.  The taxable maximum wage cap on Social Security taxes, currently $106,800, would grow more rapidly than it has in the past, reaching $190,000 in 2020, versus roughly $168,000 under current law.

Finally, the current federal gas tax would be increased by 15 cents per gallon, a figure which is still significantly lower than most European countries.  Among a variety of Medicare reforms, the Medicare physician payment formula would be changed to reward quality of care and outcomes, rather than the quantity of visits or procedures.  And the government’s civilian workforce would gradually be cut by ten percent.

The Vote

If 14 of the 18 members of the Commission had voted to endorse the recommendations, then the full report would have been sent to Congress for a vote.  As it is, only 11 endorsed their own recommendations.

Endorsing: Senate Majority Whip Richard Durbin (D-IL); Senate Budget Committee Chairman Kent Conrad (D-ND); House Budget Committee Chairman John Spratt (D-SC); former Federal Reserve Board vice chairwoman Alice Rivlin, Republican Senators Tom Coburn (OK); Mike Crapo (ID) and Judd Gregg (NH), plus Ann Fudge of Young & Rubicam, and Dave Cote of Honeywell International.  Co-chairs Erskine Bowles (former Clinton White House Chief of Staff) and former Republican Senator Alan Simpson also voted for the proposal.

Opposed: Senate Finance Committee chair Max Baucus (D-MT); Rep. Xavier Beccera (D-CA); Rep. Jan Schakowski (D-IL); Rep. Dave Camp (R-MI); Rep. Paul Ryan (R-WI), Rep Jeb Hensarling (R-TX) and Andy Stern of the Service Employees International Union.

Nevertheless, even the dissenting members of the Committee believe it will change the debate in Washington, and focus Congressional attention on the hard choices rather than the easy sound bites.  Let’s hope so for the sake of our children and grandchildren.

Sources:

Market News: http://imarketnews.com/?q=node/23235

Associated Press: Deficit Reduction Committee Issues

Wall Street Journal: http://online.wsj.com/article/SB10001424052748704594804575648503541856136.html

Tax us more: http://abcnews.go.com/ThisWeek/billionaires-buffett-gates-tax-us/story?id=12259003

Votes pro and con: http://www.miamiherald.com/2010/12/03/1955486/debt-commission-majority-endorses.html

This fall has been especially frightening. There have been the little monsters at our doors on Halloween, the monstrous politicians invading our homes through the television, and there has been that property tax bill in the mail box.

Fortunately, as a direct result of Proposition 13, which limits increases in a property’s assessed value to two percent annually, most property owners have a good idea what their tax bill will be even before opening the envelope. Still, every year at this time, the Howard Jarvis Taxpayers Association reminds taxpayers to carefully examine their latest property tax bill. Although not common, assessors do make mistakes.

Taxpayers should understand the various charges and make certain that they are not being dunned for more than they are legally obligated to pay. The best way to check a tax bill is to have your previous year’s bill handy for reference.

Checking the bill is especially important for those who bought their homes within the last six years at the height of the market. If the current home value is actually lower than the assessed value shown on the tax bill, the owner is entitled to file for a reduction in taxes.

Typically, the property tax bill will show three categories of charges. They are the General Tax Levy, Voted Indebtedness, and Direct Assessments.

General Tax Levy Under Proposition 13

The General Tax Levy is what most people think of when talking about property taxes. It is based on the assessed value of land, improvements and fixtures. This charge usually makes up the largest part of the tax bill and it is the amount that is limited by Proposition 13.

Proposition 13, passed overwhelmingly by voters in 1978, established a statewide uniform tax rate of one percent of assessed value at the time of purchase and limited annual increases in assessed value to no more than two percent. From a practical standpoint, this means that once the base year value of your property is established, the General Tax Levy cannot be increased more than two percent each year. This allows all property owners to predict their property tax bills into the future and budget accordingly.

The best way to check to make sure that your current General Levy of Assessment is correct is to compare it with the previous year’s bill. The increase should be no more than two percent unless there have been improvements to the property like adding a room to a house.

This bears repeating: Because of the current decline in property values in California, many recent homebuyers are entitled to a reduction in their property tax bill to an amount even lower than their home’s Proposition 13 adjusted base value. Although the reduction is temporary — taxes will go up again when the property regains value — the savings are permanent.

If in doubt about the current value of your property, check sales of comparable homes in your neighborhood. If homes like yours are selling for less than the valuation on your latest bill, contact your county assessor and ask that the value and resulting tax be adjusted to reflect true current value.

Voted Indebtedness

Voted Indebtedness is made up of those bonds and per parcel taxes approved by the voters.

Local general obligation bonds for libraries, parks, police and fire facilities and other capital improvements are repaid exclusively by property owners. Because a minority of the population is required to pay the entire amount, the California Constitution of 1879 established the two-thirds vote for approval of these bonds. This assures a strong community consensus before obligating property owners to repay debt for 20 or 30 years.

Until the year 2000, local school bonds also required a two-thirds vote, but the passage of Proposition 39 — backed by a small group of wealthy Silicon Valley businessmen — lowered the vote to 55 percent. Because the 55 percent requirement guarantees that most school bonds will pass, regardless of merit, many homeowners are seeing a significant increase in the Voted Indebtedness column on their tax bills.

Less common than bonds are per parcel taxes. These are taxes on property ownership, not on property value. Under Proposition 13, they require a two-thirds vote and are also listed either under “Voted Indebtedness” if they are being imposed to repay bonds or under “Other Levies” if they are for operational expenses of a local government entity.

Direct Assessments

Ironically, under the system in place for over a century, property taxes go into the general fund and are used for local services unrelated to property. For services to property, such as sidewalks and sewers, we pay extra. These charges are known as direct assessments.

Because of Proposition 218 — the Right to Vote on Taxes Act, placed on the ballot by the Howard Jarvis Taxpayers Association in 1996 — property owners must be given a meaningful say in approving new assessments. Before an assessment can be imposed, or increased, property owners must be informed in writing and be given the opportunity to cast a protest vote on the new assessment or assessment increase.

If you have a question about your property tax bill you should contact the office of your county assessor. It’s your money and you have a right to be certain that your bill is correct.

_____________________________________________

Jon Coupal is president of the Howard Jarvis Taxpayers Association -– California’s largest grass-roots taxpayer organization dedicated to the protection of Proposition 13 and the advancement of taxpayers’ rights.

To find this column on the HJTA website, click here.