by Rob Clarfeld

It never fails to amaze me that so many otherwise savvy individuals, many of whom have their financial lives otherwise buttoned-up, use poor judgment (or no judgment) when it comes to their estate planning.  The list of major estate omissions and poor choices is almost infinite.  Here are some of the mistakes that are frequently made.

1. Not having a plan

In a sense, everyone does have an estate plan; state law makes this point a certainty.  It simply may not be the plan that you had in mind, or that your family would have preferred.  Not having a will means that at your death the distribution of your assets will be dictated by the inheritance laws of the state where you were domiciled when you died.  These “intestacy laws” vary from state to state but, typically, leave percentages of your assets to various family members.  There is always a remote chance that these laws will accomplish what you would have intended – but not likely. It is highly improbable that, by chance, your dispositive intentions as to who gets what, when and in what form will be fulfilled.  This is true even if your estate is below the tax threshold.  Your will applies to the disposition of your “probate assets” – those assets NOT otherwise following a beneficiary designation or the titling of the asset. Non-probate assets will pass by operation of law or contract. For example, whoever the beneficiary designation may have been when you originally began your 401(k) or IRA at the start of your work life will override either your will or the laws of intestacy.  Even a simple plan that is well thought out and results from the identification of your personal objectives will be much more successful than nothing at all.

2. Online or DIY rather than professionals

There has been a noticeable uptick in the number of people who will look to the Internet to prepare their own wills and trusts. There are dozens upon dozens of websites that will profess to offer you just the right discounted estate planning documents.  Even wealthy clients who stand to benefit the most from expert planning advice have been impacted. Unfortunately, relying on web-based, do it yourself solutions is a recipe for disaster (see my previous column:  “Do It Yourself Estate Planning–A Uniquely Bad Idea!”).

To continue reading go to 7 Major Errors In Estate Planning

by Jeff Klientop

NEW YORK (TheStreet) — The 2012 elections hold major consequences; one of them is tax policy. While there is much that we could present regarding the potential changes, we will constrain our comments to how tax changes may directly affect investors in the stock and bond markets.

Already written into law for 2013 are big changes including the expiration of the Bush tax cuts and the payroll tax cut and the new Medicare tax on investment income, not to mention the impact of the increasingly costly annual fix to the alternative minimum tax. However, this default option may instead be replaced by something else.

President Obama has devoted a lot of his recent campaigning to highlighting his preference for the so-called “Buffet rule,” which places a top minimum tax rate on capital gains of 30% and, combined with other changes, produces a top rate of 43.4% on dividends and interest income.
Alternatively, included in the Mitt Romney supported House Republicans’ proposal is a cut to the top income tax rate that would apply to interest income to 25% and maintain the 15% rate on dividends and capital gains.
The outcome is likely to be somewhere in the middle of the wide range between these two proposals. Given the scale of the changes, it may be surprising to note that we do not expect major direct impacts of tax changes on the stock or bond market. The far bigger impact is an indirect one determined by the magnitude and direction of overall fiscal policy taken (or not taken) in 2013 to put the United States back on a path to financial stability.

For the rest of the article, go to A taxing issue for investors

The shaky economy has caused many Americans to rethink their retirement plans. Some say they’ll put off retiring and try to save more money. Others say they don’t expect to retire, either because they don’t want to or they can’t afford to.

by Jim Parker Vice President Dimensional Funds Advisors

Investors are being flooded by a wave of securities known as “hybrids.” These instruments combine the qualities of debt and equity, and offer an additional return over plain cash. So far, so good; but what are the risks?

Hybrids have been around a long time, but there are particular influences on both the supply and demand fronts that are driving a renewed interest in these securities.

From a demand perspective, the volatility in equity markets and a lack of substantial capital gains in recent years have heightened the appetite among many investors, particularly the elderly, for what they see as steady, reliable income.

From the supply side, regulators have responded to the global financial crisis by imposing tougher requirements on the bonds that banks can count toward their regulatory capital. That is leading to an explosion of new types of hybrids in which investors carry greater risk than in the past.

In Australia alone in the space of a few days recently, hybrids totaling around $2 billion were announced by major financial firms, including Westpac, Colonial First State, and ANZ Banking Group. Also pushing out hybrids in recent months have been household names outside the banks like retailer Woolworths and gaming group Tabcorp.

In Asia, the Financial Times¹ reports a surge in issuance of so-called contingent convertible bonds or “CoCos” by European banks. These are complex instruments that convert into shares when capital drops below a pre-defined level.

Now, hybrid securities are a perfectly legitimate way for companies to borrow money from investors. They combine features of debt and shares and often are able to be traded on a secondary market. They are also a legitimate source of returns for investors—provided they are aware of the risks they are taking.

The problem is that the complexity of hybrids is growing at a time when investors are seeking and valuing greater transparency, a point made by Australia’s corporate regulator in a recent warning to investors.²

The Australian Securities and Investments Commission (ASIC) advised those retail investors contemplating hybrids and unsecured notes to compare offers, read and understand prospectuses, and pay particular attention to the risks.

“Retail investors may be attracted by the interest rates offered by household name companies and trusted brands, but hybrid securities should not be confused with government bonds or ‘vanilla’ corporate debt,” ASIC chairman Greg Medcraft said. “In some cases, investors are taking on equity-like risks but only receiving bond-like returns.”

In particular, Medcraft said, investors need to pay attention to terms and conditions that allow the issuer to exit the deal or suspend interest payments. As well, the regulator warned that in some cases hybrids are offering long-term maturity dates of several decades that may expire after the individual investor has died.

While vanilla corporate bonds have set maturity dates, hybrids can have “call” dates—meaning repayment is at the issuer’s discretion. Many hybrid investors are still feeling the pain of that discovery after the events of 2008–09, when banks declined to redeem issues because they needed the capital to bolster their balance sheets.

So, ultimately, investors can find themselves with equity-like risk and bond-like returns. For those aware of those risks and clear about the conditions involved, that may still be OK. But for those who place a high priority on steady, predictable returns and/or capital security, hybrids can be a poor choice.

“The retail market buys the yield and doesn’t always have the ability to fully understand the risk,” one analyst told Bloomberg recently.³

Interest rate offers of 7 or 8%—as we are seeing in Australia now—may look attractive. As always, though, investors would do better to keep their focus on cash flow rather than income. Making the latter requirement the key in choosing one asset over another means they can end up taking on more risk than they bargained for.

It’s an old story, but a familiar one.

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

By LAUREN FOSTER | Barrons

It’s easy for trustees to botch their roles. Here’s how to avoid the common pitfalls.

Trust and estate planning often comes down to three questions: Who gets what? How do you minimize taxes? And, once a trust has been set up, who is in control? Unfortunately, it’s easy for a family to bungle any one of the three. That’s especially so if you don’t have a professional on board as a trustee. Here are the five most common mistakes of do-it-yourselfers, and tips on how to avoid them.

FAULTY RECORDS: Most states require trustees to provide regular accountings to the beneficiaries— not only the income beneficiaries, but also what are known as remaindermen, the family members down the line who will receive the principal once the trust has been dissolved. This means keeping comprehensive records of income, as- sets and distributions—and many trustees fall short of the mark. “This is probably the most mundane, and at the same time, the most troubling task for individual trustees,” says David A. Baker, a partner in law firm McDermott Will & Emery. The price of failure could be a big lawsuit later on by a beneficiary or remainderman.

Tip: Assemble a reliable outside team with a money manager, a trust lawyer and a tax pro.

Tax-loss harvesting can be used as an opportunistic value-add within a well-diversified portfolio.

Over the years, I’ve represented a lot of clients before the IRS. I’ve listened to hours and hours of IRS hold music. And I’ve had a lot of conversations with IRS reps and agents. But last week something happened that truly shocked me: the IRS hung up on me. On purpose.

The details aren’t all that important. Basically, I called the IRS to discuss a client’s tax matter. While it’s my job to zealously protect the rights of my clients, I am very aware that the person on the end of the line is also doing their job, and as such, I am professional when I speak to the IRS. On this day, I did exactly that. I didn’t raise my voice. I wasn’t nasty. I merely tried to explain that there appeared to have been a cross in communications when the agent cut in abruptly with a brusque “This is how we do it” and then, Click.

I was actually rendered speechless. If you’ve met me, you’ll understand that’s quite the feat.

I called back, only to find that there is no way to speak to a supervisor without putting in a special request. I did exactly that – and I’m still waiting.

It was the first of a number of incidents that I would have previously considered to be out of character for IRS. Shocked by what appeared to be a change of direction from the “kinder, gentler IRS” in the 90s, I asked my colleagues on twitter whether they had noticed a difference in the IRS treatment of taxpayers:

The answer was…to continue reading click on IRS Gone Bad