Tuesday, November 8, 2011

Grading the Republican candidates new tax proposals: Cain's 999 plan

Per my earlier promise, lets try and get our minds wrapped around the tax proposals the Republican hopefuls are trying to champion. 

"Our tax code is the 21st century version of slavery" ~ Herman Cain

Good place to start. Lets start with how Cain describes it, per his website.

The basics:

Cain's plan hopes to replace the complex system of the tax code with a 9% rate for corporate tax, income, and sales tax. In addition, he eliminates capital gains, estate tax, and most deductions from the current code. The idea is to get rid of loopholes and kickbacks for certain individuals and businesses, cut taxes for most people, and pave the way for an ultimate transition to the  "fair tax," which is a true, flat, consumption tax. 

Real world analysis:

The tax policy center has taken pen to paper, and the plan would provide tax breaks, as long as your not in the 84% of Americans who would see their taxes increase. This is bad. It is even worse when you are in the $10,000 - $20,000 range, as you will see your taxes increased by, wait for it, 950%. Robin Hood he is not. 

Getting rid of the estate tax is also a tax break for the rich, and would have to be paid for somewhere else. The national sales tax, which he claims is not a pure consumption tax, is a pure consumption tax, and unless I am missing something would hike the prices of goods and services and be a nightmare to coordinate with the various state and national sales taxes already in place. 

The ideas to get rid of taxes on capital gains are positive. Incentives to invest and save are the cornerstones of many tax policies, and these can have staying power. 

Cain's rebuttal:

After the release of this study, Cain has responded with tweaks

Now, Cain says he would exempt those below the poverty line (~$22,00 in income), and have exemptions for "opportunity zones," defined by high unemployment and poverty. 

Color me crazy, but isn't an "opportunity zone," which no doubt will provide breaks for some who don't deserve and take away breaks for those who need them, creating the same disparities and inconsistencies Cain is fighting to remove? Further, even if you exempt the poor from the income tax, the poor spend a higher percentage of their income on goods and services, which under the 999 plan will be more expensive. Doesn't get you there. 

The verdict:

I don't think consumption taxes work. This plan is just that, and what you don't see are the 9% that will hit every piece of a supply chain: there is no way goods and services do not increase in price under this plan, which is not what America needs. The ideas to cut corporate and capital gains are solid, but the rest of the plan only works if you are wealthy. While this plan could have some legs in certain countries under certain economic times, I do not believe it is the answer for America's tax and economic future, due to its previously listed shortcomings. 

The simplicity is great, but our economy is not: I give the 999 plan a D+, passing only because it is simple and cuts taxes on savings and investments. America can do better. 

Thursday, September 29, 2011

Warren Buffet's Secretary

Warren Buffett's secretary just became Joe the Plumber.  (I don't endorse the video or Moveon.org in any way, its just kind of funny.)

Maybe this is a good thing, a positive step for middle class Americans and a rally cry to balance the budget, but in reality, all she really wants is to be left alone.

Either way, Mr. Buffett's op-ed in the New York Times started all this mess, when he claimed he payed less taxes than the others in his office, and the President decided to use it as a talking point.

It does sound bad, in theory, when Warren and his "super rich friends" can pay less tax than their underlings. Buffett clarifies the real issue, which is the "effective tax rate," not the amount of tax actually paid (Buffett claims he paid millions in actual taxes).

The math is pretty clear: if you work for someone, you are probably going to pay more "effective tax", as you are paying into the income tax system that has graduate rates up to 35%, and the payroll tax systems which fund your medicare and social security.

If you make money from trading stocks or other securities, capital investments, rents, and some dividends, you are mostly operating under the capital gains tax regime, which has variable rates starting as low as 15%.

15 < 35, so the bankers beat the wage-earning middle class in effective rates.

Even if you are anti-tax, its hard to argue with Buffett, a billionaire who not only pledges to give away his wealth in the end, but who advocates to pay more taxes NOW.

A balanced budget proposal will likely propose changes to the upper reaches of the income tax and could potentially affect capital gains rates, but a system where capital gains rates change based upon how much you earn would be very difficult to put in place, let alone enforce.

This brings us to the recent GOP presidential hopefuls, who many claim will "throw out the tax code" and offer a consumption tax, flat tax, fair tax, 9/9/9 plan, etc. Some of these ideas could work, others just don't, and others only work in certain environments.

We will analyze these in the coming weeks, but for now, enjoy watching the  AL West champion Texas Rangers attempted run to another improbable spot in the World Series.

Image from Wikipedia

Here is a picture of the real Warren Buffett's secretary: 

One of them, anyway. Turns out Berkshire Hathaway has more than one secretary (there is another named Debbie).


Tuesday, August 30, 2011

Texas declares the "Pole" tax constitutional.

Notice the spelling: P O L E, not P O L L. 

We are not speaking of the POLL tax, or the requirement of a fee to vote in elections, the Jim Crow-era attempts by some states to prevent minority groups from exercising their new 15th Amendment given right, which existed nationwide in federal elections until the 24th Amendment was ratified, and what took the  Harper v. Virginia Board of Elections decision to make the use of such taxes unconstitutional in state elections 1964. 

No, this time its the POLE that is making the news. 

In 2007, the Texas legislature enacted the Sexually Oriented Business Fee Act, of which,  Section 102.052(a) states: “A fee is imposed on a sexually oriented business in an amount equal to $5 for each entry by each customer admitted to the business.”  

 A “sexually oriented business” is specially defined as a nightclub, bar, restaurant, or similar commercial enterprise that:

    1. provides for an audience of two or more individuals live nude entertainment or live nude performances; and
    2. authorizes on-premises consumption of alcoholic beverages, regardless of whether the consumption of alcoholic beverages is under a license or permit issued under the Alcoholic Beverage Code.

It's only $5, right? Where it gets dicey is that the money goes to something called "the sexual assault victims fund", which seemed to imply that strip clubs cause sexual assault, and more specifically, "rape, sexual assault, prostitution, disorderly conduct, and a variety of other crimes and social ills ."

Naturally, strip clubs were up in arms, and claimed their First Amendment freedom of speech rights were being violated. This issue made national news then, but the fight was still up in the air until last week. 

On August 26, the Texas Supreme Court reversed the Court of Appeals and held that the tax was constitutional. Here is what they reasoned, (paraphrased):

    1. We aren't saying you can't dance naked, that would by tyranny, and would limit freedom of expression. Some even call it art. 
    2. If you want to dance naked, don't serve booze: that's not expression or art, its conduct, which we can police. If you do it anyway, we are charging you $5. No big deal. 
    3. Dancing naked isn't what causes sexual assault, dancing naked and booze causes sexual assault, so we really aren't talking about dancing naked, but what happens AFTER dancing naked is combined with booze. Get it?
    4. When you think about it, this isn't politics or religion, its strip clubs. If the law really hurts strip clubs, the intention wasn't too hurt them that bad, just a little. 
    5. It's not a tax, it's a "statutory fee," kind of like going to a state park. 
The full text of the opinion can be seen here.

In purely legal terms, I think the argument is a stretch, and does single out a specific class of people or businesses, and the excuse of a "de minimis" impact on protected speech to further the legitimate state interest of limiting the evils of what happens when there is nude dancing and booze just is not a good enough legal argument. 

In reality, the legislature, like many or legislatures, is trying to find money from anywhere it can as states are broke, roads need paving, jails are overflowing, and schools can't pay teachers. So they decided they could pick on strip clubs, a likely unpopular villain in a conservative state. I don't blame them for this, and I can't really blame the Supreme Court for going along with it. However, that's not the Supreme Court's job. 

Also in the opinion, was that "The Comptroller estimates that there are 169 (strip club/erotic dancing clubs that allow alcoholic beverage) businesses in Texas." I honestly thought there would be more, but its the number they named. The New York times claimed that lawmakers hoped to raise some $44 million from the tax.  

If my math is correct, $44 million / $5 = 8,800,000 prospective strip club attendees per year, in Texas.  Divided out between each establishment, amounts to an average of 171,598 patron's per club per year, or just over 142 patrons per club per day. Including Christmas, and Sundays. Maybe I am in the wrong business. 

Either way, 8.8 million is not a majority of the nearly 26 million Texas residents, so even if every strip club attendee, assuming each person only goes one time per year (which is a terrible logical fallacy, but just for illustration's sake) votes against their current state representative, they are all safe to get re-elected. 

From a policy standpoint, I see motivation behind the "statutory fee." I just don't like the way they legally justified it. Lets hope they get certiorari, I'd love to see what Scalia says on this one. 

What do you think about the law? 

Monday, August 15, 2011

So you were adopted?

Question: I was adopted when I was young. My birth and/or adopted parents are millionaires, and both just died, simultaneously, without a will. I might have some other blood or adopted siblings. What do I do?

Answer: Texas law is actually very favorable to adopted children. Sec. 40 of the Texas Probate Code States in part:

§ 40. INHERITANCE BY AND FROM AN ADOPTED CHILD.  For purposes of inheritance under the laws of descent and distribution, an adopted child shall be regarded as the child of the parent or parents by adoption, such adopted child and its descendants inheriting from and through the parent or parents by adoption and their kin the same as if such child were the natural child of such parent or parents by adoption, and such parent or parents by adoption and their kin inheriting from and through such adopted child the same as if such child were the natural child of such parent or parents by adoption.  The natural parent or parents of such child and their kin shall not inherit from or through said child, but, except as provided by Section 162.507(c), Family Code, the child shall inherit from and through its natural parent or parents.

Nothing herein shall prevent any parent by adoption from
disposing of his property by will according to law.  The presence of this Section specifically relating to the rights of adopted children shall in no way diminish the rights of such children, under the laws of descent and distribution or otherwise, which they acquire by virtue of their inclusion in the definition of "child" which is contained in this Code.

Recap: If there are not any wills, an adopted child inherits from both her natural and adopted parents. The natural parents do not inherit through the child.

The only wrinkle is if the adopted person is an adult, in which case the adopted adult gives up his inheritance rights through his natural birth parents. The relevant Texas family code section states:

§ 162.507. EFFECT OF ADOPTION.  (a) The adopted adult is the son or daughter of the adoptive parents for all purposes.
(b)  The adopted adult is entitled to inherit from and through the adopted adult's adoptive parents as though the adopted adult were the biological child of the adoptive parents.
(c)  The adopted adult may not inherit from or through the adult's biological parent. A biological parent may not inherit from or through an adopted adult.

Takeaway: Adopted kids inherit from their adopted family AND their natural birth parents, assuming there is no will. Adopted adults only inherit through the adopting parents. This makes sense, from a public policy standpoint.  Don't want your kids to inherit anything? Make a will. Are you an adopted child whose parent's passed away without a will? Contact an experienced estate planning attorney before your inheritance goes to someone else. Just because you were adopted, doesn't mean your rights terminate as well.

Friday, August 5, 2011

Congress leaves us hanging, and Tech companies have all the money.

In the days after the crisis of a US default being remedied, the market is still collapsing, and August 4th was one of the worst single days in stock market history. All the hard work Congress put in didn't do much to help the investor or those counting on their retirements to support them in their golden years.

So what do your representatives do, in this time of economic crisis? They go on vacation. Early.

Job numbers are ghastly. When jobs are bad, we try to get more educated. Good luck, seeing as the cost of education has outpaced just about every other comparable sector.

So, in times of crisis, there are no jobs, you can't pay for school, and Congress is on vacation. What to do?

What seems interesting is where the actual money is, and what people are spending it on.
Apple allegedly has more money than the US Government. Or maybe it does not. Either way, tech companies, your Apple/Google/Facebooks of the world have a ton of money, and they take in more than they spend, unlike the U.S. Government. But what, in real terms, are they adding to our economy, except distractions and ipads?

Here is an excerpt from the Founder of Facebook's sister, Randi Zuckerberg, on leaving the most profitable website in history and starting her own new venture:

"My goal is to launch my own innovative programming and work with media companies to develop their programming in new, and more social ways."

What does that even mean? Her brother is one of the world's youngest billionaires, and I have no doubt she is also independently wealthy, and will only become more so as a result of her new venture. But why?

These companies don't make guns or butter. They do not grow corn or pave roads. If your power goes out, your computer crashes, or your internet slows down, they disappear.

However, as much as I despise them, these internet companies and "social media" outlets have become a necessary expenditure for business and commerce. Society now spends the bulk of their waking hours using some form of media. The phone book is becoming obsolete, so now you "google" things or see what sort of review a business has online. If you are invisible in that world, someone else will gladly take what could have been your clients and make them their own (hence why, after years of being anti-website/blog, I made a blog).

Wait, I thought Google and facebook were free? How do you think these companies make money? Advertising, and it isn't cheap.

The story I always heard was the back of the phonebook lawyer gets 80% of the fist calls, the next guy gets 15%, and everybody else picks up the scraps. After reviewing one facet of my own firm's internet advertising, I discovered we were paying about $400 per actual view or click from a potential client, and of those views,  this avenue had generated a grand total of 0 clients since we started using it in 2008.

The takeaway: when thinking of your retirement or how to make your current business grow, there are a slew of new marketing, advertising, and customer feedback mechanism's available. I am very against buying into the hype of Paying a Randi Zuckerberg or the like a king's ransom to develop my company in "new, and more social ways," but maybe that is what is necessary to compete in an internet-driven world. Talk to a professional before you make any decisions, and then talk to a couple more.

Monday, August 1, 2011

Debt ceilings, and taxes. Where will the money come from?

How bad does that chart look? And that is pre-deal.

If you haven't heard what is going on, here is a run down:

The government borrows money to pay for things. It has over-extended itself.  It needs to borrow more just so it can pay for what it has already committed to, as it is not taking in as much tax revenue as it has committed to pay out. However, to borrow more it needs permission.

A partisan (and tea party factioned) Capitol Hill saw this looming crisis as a chance to lobby and push for reforms, budget balances, and tax or no tax agendas.

We have until tomorrow to fix it, else the government won't/can't pay its bills, the markets will likely keep crashing down, our credit rating goes worse, the dollar is further devalued, interest rates spike, social security checks could not come...all bad things and more.

But it was avoidable, and this is why you, the conscientious planner should call and or write your Congressman either way this thing turns out.

Whenever a silly thing like this happens, your retirement gets hit. You could've lost 10% last week, maybe more. What would that have paid for? 2 years of retirement? The boat or RV you have always wanted?

Maybe. Or maybe you hedged and bought gold and silver! What great foresight. But for lots of folks, your golden years took a hit this week, after taking a big hit a couple years ago.  Not to mention the jargon filled "QE1, QE2, and their youngest sibling, QE3" that we have had the pleasure of experiencing, which the government thought that by calling printing more money and further devaluing the dollar "quantitative easing," no one would notice.

Here is the secondary problem:
Even if the Republicans are successful in a "no tax raises" compromise, the revenue has to come from somewhere. Congress is too scared to raise taxes, because they want to stay in office. Way too expensive to not get re-elected. Take a step down, to the states: State reps and senators won't raise taxes, because its way too expensive to not get re-elected.

What's left? Cities and municipalities. How do they raise money? Property taxes. Who sets these? Appraisal districts, who are not elected. No accountability, and very little recourse. Have you tried to protest your property taxes/valuation recently? Good luck. Having a bad day, and want to see people more angry than you are? Walk into a county appraiser's office. Its awful.

So, that house you have finally paid off, that second home,  and that little investment real estate you and a partner bought in the 80's just became a little more expensive to own, out of thin air, even in a depressed real estate market. Make sense? It shouldn't, but tax revenues are going to have to come from somewhere, and they will come from the bottom if Congress doesn't force them at the top.

There is no such thing as not raising taxes in a time when revenue is needed as badly as it is now. 

Saturday, July 23, 2011

Special thanks

A very special thanks to Jen Anderson and GeekGurlDesigns.com for the excellent new layout.

If anyone needs any website or graphic design help, her work is top class.

Saturday, July 2, 2011

Will Contests

Maybe I am a sucker for John Grisham books because I like to believe there is still some romance and adventure in being an attorney. Nevertheless, "The Testament" was and is a good primer on the background of what a will contest can be, and how crazy it can get when things go awry.

For those who haven't read it, here is the quick summary (sorry, spoiler alert):  Troy Phelan, a reclusive billionaire, has a big will signing ceremony where he leaves his estate to his several children from various marriages. He video records it and has prominent doctors adjudicate that he is perfectly sane. Unbeknownst to anyone but he and his personal lawyers, he then executes another will, that only leaves his rotten kids enough to pay off their debts, leaves the rest to an illegitimate long lost daughter Rachel (who happens to be a missionary in remote Amazonia), and jumps off the balcony of his building, to his death.

The rotten kids lawyer up,  fight and squabble, and try to contest this last-second will. Phelan's lawyers send a sympathetic-recovering-alcoholic partner from their high-dollar lawfirm to the jungle to find the missionary daughter, and the chaos plays out.

In the real world, will contests happen everyday, even more so when there are significant dollars involved, but people will fight over anything (dad's ole' straight razor was the subject of tens of thousands of legal fees in one case). Aside from fraud or forgery, the main ways to attack a will are:

Failure of execution: someone didn't properly sign or witness the will. If you are in a different room, signed in the wrong order, etc., you can mess this up and the whole thing will becomes invalid.

Lack of Testamentary Capacity: you can be insane one day, and still have the capacity to sign a will the next. Its a low threshold, but the general requirements are:
  • Know the nature and extent of your property
  • Know who the natural objects of your bounty would be (ie your family/heirs at law)
  • Know that you are making a disposition, and the effect of a will
  • Know how all these things work together to form an orderly plan of disposing of your property when you die.
This one is tough to prove, and depends on who and what the probate judge will believe. There is also a theory of "lucid interval," where the otherwise incapacitated person wakes up for a minute or an hour, decides he wants to change his will and does, then reverts back into his low mental state. This is most common in those suffering from Alzheimers or dementia. Sounds crazy, because it is crazy.  However, the courts presume a validly executed will is just that, valid, so you really have to go above and beyond to prove this.

Undue Influence: This is the sexy one. This is where the little old person falls in love with their nurse or home health assistant, or gets married to a former playmate of the year. Sometimes there will be a new will, sometimes their won't, but these are where the fights get dirty.  The basic elements to look at here are:

  • The presence or existence of a confidential relationship or influential relationship
  • The use of this relationship or influence to overpower the mind or natural desires of the testator/gift giver
  • The existence of a will or other gift that would have existed but for the exertion of such an influential relationship.

From an unbiased level, who should inherit the old man/woman's billions? The 26 year old adult film star, or the children? The answer may seem simple from a "fairness" standpoint, but you never know all the facts. Were the children given "enough" already? Did they not take care of their elderly relative, or did they have a falling out? At the end of the day, it really doesn't matter. This is America, and in America, you can leave your billions to your kids, your mistress, the Tea Party, or your dog, as long as you don't violate one of the above tests.

    Here is some food for thought:

    According to www.theroot.com, the gentleman in the hat, an aptly named "Lord Glennconner" has left his millions to his manservant (seen in the picture) changing his will just seven months before his death, disinheriting his 17 year old grandson and his widow.

    Seem fair?

    Would it change your mind if you knew that Kent Adonai worked for Lord Glennconner for 30 years,  slept at the foot of his bed, walked his pet elephant, cooked and cleaned, and was the one trying to revive Lord Glennconner when he suffered his fatal heart attack?

    The lesson is never judge a will contest by the will itself. You have to dig much deeper.

    If you or a loved one have experienced any of the above situations, please contact an experienced probate litigation specialist to help represent your interests.

    Monday, June 27, 2011

    Legal Zoom around the room

    Photo and real-life inspiration courtesy of Brian F. Murn, Esq. 
    When you show up in Court, you don't expect to see this as the attorney you are up against:

    (if you can't see the wording on the folder, it says "LEGAL ZOOM.COM")

    Lets get one thing straight- Legal Zoom is not a lawyer. Its a website, allegedly run and maintained by lawyers. Its also been sued several times, for the unauthorized practice of law.

    "Wait, but its run by that ROBERT SHAPIRO guy! He defended OJ! So its gotta be good!"

    Yes, Robert Shapiro of the O.J. Simpson defense team, is a spokesperson and founder. Yes, Robert Shapiro also has another online venture, related to the O.J. Simpson trial and its aftermath, the aptly named Shoedazzle.com, where he and one of his late defense team member's "famous" daughters, have teamed up.

    Can it help you start your business? Sure*. Write a will or trust? Yes*.

    (Items with an * should be translated as having the minimum level of competency, and you better hope you don't need any sophisticated planning, advice, or have a complicated family structure. )

    A good example of what LegalZoom canNOT do is given here:                                  

    Top 10 Planning Scenarios Not Covered by LegalZoom
    By: Teresa A. Bush, Esq. (InterActive Legal)

    1. Clients who want to leave property to specific people or charities if spouse/descendants are not living.
    2. Clients who want to ensure property stays in the family line, rather than passing to son-in-law or daughter-in-law if a child dies.
    3. Clients with disabled children/beneficiaries (or who would like to include provisions to apply in case a child develops a disability later in life).
    4. Clients who want to include special provisions for beneficiaries who develop substance abuse problems.
    5. Clients who would like to protect property from creditors and provide management by leaving it in trust for their spouse.
    6. Clients who would like to have property sprinkled out to children at different ages – such as 1/3 at 25, 1/3 at 35, and 1/3 at 45.
    7. Clients who would like to put property in trust for children, but make sure all income is given to the child each year.
    8. Clients with children from prior marriages, where they may want to exclude certain children, or include step-children.
    9. Clients who live in a state where there is state estate taxation.
    10. Clients with specific residency issues, such as community property state residents, resident aliens, or clients with property in several states.

    Still not enough reasons to make you go use a real lawyer? 

    Take a look at this sample legal zoom will, with comments from an established attorney here. Its just not the same thing. Maybe that's why its cheaper?

    Countless attorneys have already written on this, but as long as the internet is around, there are going to be "internet attorneys." Use them at your own peril, and feel confident that the money you saved by not going to a real lawyer on the front end will be spent and multiplied out of your estate in handling the mess that you created. 

    Thursday, June 16, 2011

    So you died without a will...

    Then you probably have bigger things to worry about, but your family might be wondering who gets your baseball card collection (or your house and millions, if you are lucky).
    Here is a good basic chart to show what happens if there is no will:

    CP= community property
    SP=Separate property
    RE= Real Estate.
    (chart credited to www.pv-law.com)

    Wednesday, May 25, 2011

    Insurance, on your life.

    Question:  Do you know what a woman and insurance have in common?
     Answer:  They are both expensive, difficult to understand, and what you get is not guaranteed.

    Lets make a bet. I'll bet you are going to live longer than 82.4 years. If you do, I win. If you don't, you win.

    Don't like the odds? Fine. If you die THIS year, I'll pay you $100k. If you don't, you pay me $100. Seems like a good deal, right? If you live, your alive, so you win! If you die, man, you got a great deal, or at least your loved ones did. 

    This is life insurance in a nutshell: you are paying for the chance to gamble on when you will die. Like a casino, life insurance companies are there to make money, so their goal is to have the odds as much in their favor as possible, and charge you fees on top of that.  As with any gamble, there are winners and losers, but with a little knowledge on your side you can make sure the house odds are not working against you. 

    The basic life insurance products are term and whole life. Term products have a limited life or "term," and you pay based on how old you are now and how much you want to receive if you die. For example, a healthy 20 year old will pay a fairly low premium on a 10 year term policy, as he is not expected to die before 30. If he does, the insurance company loses, and has to pay out big. Think of term as a spin on the roullette wheel: when you are young, you are betting it all on 1 number. As you get a little older, you might be betting on the first 12, and when you are elderly, its picking even or odd, black or red. 

    Whole life is different, as once you are in, you better be in for the long haul. Within whole life there are fixed premium plans and variable (called "universal") plans, and countless combinations in between. The game on whole life it often includes an investment component: you pay the insurance company to take on the risk of you dying early, but they also take some of your money and invest it, usually on the promise that this is your "retirement" plan. 

    Alright, so what do I do when my friend's cousin's in-law has a "party" where they serve us margaritas and try to convince us that we all need to buy into this life insurance deal? 

    Here are the questions to ask, and issues to consider:

    Do you need insurance at all?- On your house and car, yes. On your life? maybe. It all depends on who you are worried about taking care of when you are gone. If you have these worries, read on. 

    Have you ever heard of this company? -Insurance companies are not banks, and are not federally guaranteed (unless you are AIG, but that's an anomaly). Credit ratings reports are available for almost all insurers, and you should seriously examine these: if the company you have been religiously paying for 10 years goes belly-up, you are out of luck. 

    Do you need term, or whole life? - The answer is usually always term, unless you really, really know what you are doing with a whole life policy. This is just like picking a financial advisor, as with many whole life policies, they make all the decisions for you, and you pay a fee for that service with little or no guarantee of return. 

    How much risk are you comfortable with? - There are products that spread the risk across the spectrum, from the insurance company to you and back again. There are products that are based on only time passing, and there are products that are based on the stock market. Get the real facts before you sign up, but know that just like any investment, the lower the risk, the lower the returns. 

    Are you a high net worth individual, who is worried about "death taxes"? - Then you should have passed away in 2010. If you did not, there are a variety of trusts and planning devices using life insurance to transfer money from your estate to your loved ones without Uncle Sam getting his hands on it. These can be a great tool, but only make sense if you have a lot of money. 

    Conclusion: Life insurance can be a great way to provide for your family when and if you happen to pass away, but it is not for everyone. It costs money, now, to provide a benefit later. Make sure you educate yourself on what sort of products are out there, the real cost and benefits, and who it is you are doing business with. There is plenty of cheap health and life insurance that will provide you with all the coverage you will need, as long as you make an informed decision. Always talk to a trust estate planner before making the decision to add life insurance to your portfolio, and of course, best of luck. 

    Cartoon used with permission, courtesy of jasonlove.com .

    Monday, May 2, 2011

    Texas is open for business. On the high seas.

    While most of us were waiting for the weekend, our lawmakers in Austin were cutting more taxes in hopes of keeping business in Texas.

    Next time you purchase a yacht, don't go to Florida, stay right here in the Lone Star state.  Texas lawmakers have matched the sunshine state's limit on taxing a new yacht for only the first $250k of its value.  House ways and means chair  Harvey Hilderbran, R-Kerrville, was quoted as saying "The hearing was pretty convincing that we're losing business to Florida. It's one of those things you have to do," he said.

    Its not official yet, as it has to pass both houses, but at least our friends in Austin are trying to keep business in Texas, right?

    As you might guess, the idea on another tax break for the wealthy, this time for such a luxury item as a yacht, has rubbed some Texans the wrong way. The Houston Chronicle had some exemplary quotes:

    "This is an absurd step in the wrong direction. Instead of digging Texas' budgetary hole even deeper, legislators should be looking for new revenue to pay for the public schools and other critical services. The cuts being contemplated for the public schools threaten educational quality in Texas to the point that, within a few years, fewer and fewer people will qualify for jobs that pay enough for anyone to even think about purchasing a yacht," said Texas State Teachers Association spokesman Clay Robison.

    F. Scott McCown, of the Center for Public Policy Priorities, which advocates for low- and moderate-income Texans, said, "This isn't the time for tax breaks for rich folks with big yachts. A strong economy is built by investing in the education to prepare our children to be tomorrows inventors and entrepreneurs. Our goal should be for our children to get an education so that they can own yachts, not for our children to sacrifice their education to attract rich folks with yachts."

    It is indeed a tough time to get sell struggling Texans on a tax cut for something like yachts, I'd love to see some of the hoped for sales numbers that the cuts should allegedly create.

    If you do, however, hope to purchase a yacht, I know some great yacht salesmen. Email me for information.

    Like it, love it, hate it? Post to comments and let me know what you think.

    Monday, April 4, 2011

    More estate tax confusion.

    We thought it was settled: $5 million exemptions, 35% tax rates. Easy enough. Not so fast.

    Rep. Kevin Brady (from the 8th District of Texas, an area North of Houston) has co-sponsored a bill that again tries to repeal the estate tax. His claim is that repeal of the tax would pour "billions of extra dollars into the economy," siting the reputable source of "conservative economic research," whatever that means.

    I don't think this bill will have any traction, but is Brady correct? I don't think so. Of the less than 1% of Americans that get hit with any estate tax liability, I just can't see a scenario where the money that didn't go to the government would go directly back into the economy. I understand the thought that tax breaks=more spending=economic growth=job growth, but the trickle down theory of Reaganomics has never really panned out.  Granted, I don't trust the government to spend the tax dollars from keeping the estate tax to spur job growth either.

    We have had an estate tax for a long time. Its controversial. Some states have an EXTRA estate tax on top of the federal one, be thankful Texas does not. However, even in those states, its tough to argue that killing the estate tax is always a good thing.

    Do I want an estate tax? No, not really. I don't want to pay it if I am lucky enough to have more than $5 million when I die. I don't want to keep it just because I am an estate planning attorney, and its existence makes me money. However, I just cannot make the policy arguments in favor of completely eliminating it. At least not yet.

    Without the estate tax, would we have the Gates Foundation, the Rockefeller Foundation, and the like? Maybe. Would we have new billionaires, like the founder of facebook, signing off to give away most of their wealth? I doubt it. Sure, they would give some, but with no penalty on keeping most of it, its hard to imagine there would be as much charitable giving.

    But those are billionaires. What does this mean for us normal folk: 

    If you have a family business or significant assets, you need to revisit your estate plan. Have an experienced estate planning attorney go over your will and other documents, or create one if you don't have it already. There are ways that you can limit the tax you might have to pay, or not pay any at all: but it takes some work. With changing times, its never to early to make sure you are prepared. 

    Note: I met the guy in the picture on a sunny day in Washington, D.C. Pretty nice fellow, and makes a decent infomercial.

    Tuesday, March 1, 2011

    Living Trusts and the P-word.

    You might have heard of something called a "Living Trust." You might have even been told that you need one. Why? Mainly to avoid the p-word. That's right, Probate. If you can avoid probate, you should, right?

    Not so fast. Lets start with the basics.

    Probate is a formal, judicial process where a court decides if your will is valid, appoints an executor (person to carry out what the will says), decides who can make claims against your estate. Probate is essential for assets that have a "title," like your house, land, vehicles, etc., so that your heirs can ultimately sell them if they want. You will need a lawyer for this, and you will have to pay him. Sounds like something you should avoid, until you realize...

    All this happens after you are dead. You will never see the lawyer's bill,  you will not have to go to the courthouse, and unless you are taken advantage of, the probate process really is not very costly.

    But, you are convinced, you need a living trust, because your neighbor has one, or you saw it on "legal zoom," or your insurance agent told you to get one.

    This might be a good idea, if:

    You Really are afraid of the P-word: If you know that your trustee (it can be you, but there are dangers in this) will be cost effective, then a "living trust" can save your estate money in the long run. Again, you will be dead and not able to enjoy it, but your children might thank you.

    You want privacy: a will becomes public record. A trust stays private, and no one will know except the trustee, hopefully. But if your mistress is seen living in your vacation home and driving your car, it really doesn't matter, does it?

    You want someone to manage your assets: By placing assets in a trust, you create a vehicle to manage your stocks, bonds, real estate..anything. And should you become injured or incapacitated, you will have the structure for someone else to step in and take over for you.

    You are crazy: Literally. The formalities for creating of a trust are not as stringent as those for a will, meaning they are much less likely to be challenged by that one disinherited child, wife, or whoever.

    Maybe these issues are important enough for you to want a "living trust." Great, more work for me, because you should always have an attorney prepare this document for you. This will cost you money. You will have to transfer assets to the trust, which again, costs you money. There can be state and federal taxes on transfers to revocable trusts (as well as transfer taxes on irrevocable trusts) that will cost you money. All these must be paid in a time that is commonly referred to as NOW, not later, when you die. Even with all this, it just might be cheaper than waiting until you die, so its worth it, right?

    That's up to you. You will need a will either way (see earlier post), and you should have your situation analyzed by a competent estate planning attorney. Then you will have to decide if the cost now will really result in savings later on.

    Wednesday, January 19, 2011

    Who needs a will?

    In short, you do, whoever you are. Of course you can get one when you are older, but that is only if you are 100% sure you know when you are going to leave this life for the next. So in the event you have had difficulty predicting exactly when you meet your demise, this article is for you.

    The scenario that is often painted is the "what if you and your family were in an accident..," which is the easiest to grasp.

    Say you have $100, or $100 million. You and your family have this horrible accident. Who would you want this money (or your house/car/coin collection/family farm...whatever you care about) to go to? The rules are straightforward, but they can lead to unwanted consequences if you are not careful.

    In the above example, all your immediate family passes: if you parents are alive, it goes equally to them. If one of your parents is gone, if goes half to the alive parent, the rest to any siblings you have. No parents? It goes to your siblings. No parents or siblings? It goes to your grandparents, and if they are gone, then to your grandparent's descendants...that's right, your cousins and even more extended relations.

    If any of those situations are not what you want, then you need a will. It gets better. If you don't have any family, at all, when you pass, your money goes to the state. THE STATE. Not your friends or your church or the Boy Scouts, the state gets to decide what you do with your money.

    And that's just a will. What a competent estate planning attorney will also provide you in addition to your will are Powers of Attorney, Advanced Healthcare Directives, a Living Will, and other documents to ensure that if the unthinkable happens, you will have a plan in place so that what you want will actually be done, and the people you trust to make decisions on your behalf will have the power to do so.

    Feel free to wait to make these documents, but lets hope your crystal ball doesn't steer you wrong.