Wednesday, January 28, 2015

So, does Obama read this blog?

Soon after the post below went up, the administration reversed course on taxing 529 plans.

They didn't admit it was a stupid, tone-deaf idea, but rather said they wanted to avoid "distracting" from the rest of proposals. Right.

Tuesday, January 27, 2015

Where's the outrage?

I've been surprised at the passive response to the President's proposal to push 529 plans back into the taxable arena. IBD offers a mild pushback here. I haven't been able to find the fine print on this proposal, but most of the coverage suggests that taxation of earnings would be limited to new contributions only.

That would be a bookkeeping nightmare, wouldn't it?

Somehow, "progressives" are always shocked to discover that, after they push marginal tax rates ever higher, the "rich" get a disproportionate benefit from tax breaks such as 529 plans. I guess that's because math is hard.  But that was the essence of the rationale for this proposal.

Given the catastrophe of student loan debt, isn't it folly to attack the one path that is successfully accumulating capital for higher education?  The effect of the Obama proposal would be to freeze contributions to 529s, so existing accumulations would be drawn down over a generation. Except that some sources suggest that some plans could fall below critical mass long before that time.

Sunday, January 18, 2015

Can President Obama Revive BypassTrusts?

For many a year, the most common trust used in estate tax planning has been the bypass or credit-shelter trust. The goal is to shield assets from tax at the later death of one's spouse. But there's a significant price: loss of stepped-up basis. When you shelter appreciated assets from estate tax, you expose the appreciation to capital gains tax when the assets are sold.

Now President Obama proposes to abolish stepped-up basis. Assets passed directly from parent to child would be subject to the same tax on capital gain as assets sheltered in trust. Curiously, he describes the provision as a trust fund loophole

Seems more like a trust fund plus.

Could bypass trusts make a comeback?  Possibly. Do you believe that a Republican Congress would abolish stepped-up basis?

Thursday, January 15, 2015

How a $150-Million Trust Fund Went Missiing

Wall Street had a terrible year in 1973. Franklin Resources, run by Charles B. Johnson, had gone public two years earlier;  now it was struggling with a major acquisition and running at a loss.

Franklin's underwriter obtained a $100 million loan for Johnson from Anthony Miele, Jr. As a thank you for the help, Johnson gave Miele 4,000 shares of Franklin Resources, then worth about $4 a share. Miele put the shares in a trust for his son, Anthony Miele III.

In 1974 the elder Miele died of a heart attack at age 39. The trust's Franklin Resource shares were voted that year, according to bank records. After that the story, as told by William D. Cohan in the NY Times,  gets murky.

For years the younger Miele knew nothing about the trust. Eventually the shares were deemed abandoned, and Franklin Resources rejected Bank of New York's offer to track down the trust beneficiary. In 2012, a business partner of "the Al Capone of New Jersey" reportedly "signed something" on behalf of Miele.

Anthony Miele III is fighting to reclaim his inheritance, now worth about $150 million, including unpaid dividends.

Update: Antoine Gara's Forbes column offers additional details of the murky story. Not only did the 4,000 shares go missing, Miele Jr.'s $100-million loan was not repaid.

Wednesday, January 07, 2015

Down With Donor-Advised Funds?

They're like charitable foundations for the millionaires next door. Fidelity launched the first donor-advised fund in 1991. The idea proved remarkably popular, prompting other companies to offer DAFs. Today the funds of Fidelity, Schwab and Vanguard rank among the top-ten recipients of tax-deductible dollars.

And there's the rub. With more philanthropic dollars flowing into DAFs, fundraiser Alan Cantor charges, actual charities are losing out:
Jesse Eisinger at DealBook echoes that criticism, noting proposals that would require donor-advised funds to distribute their assets quickly, within five or seven years.

Such a rule would doom DAFs to oblivion. Clearly, many donors like the idea of building mini charitable foundations, funds that can serve as philanthropic training wheels for the next generation. Vanguard pitches the possibilities here.

Whether DAFs, like dynasty trusts in a number of states, should be allowed to last forever is another matter. If family trusts become limited to a term of ninety years, shouldn't DAFs be limited, too?

Charitable foundations have to distribute a portion of their assets each year. DAFs at present do not. Is that difference likely to last?

Tuesday, January 06, 2015

Ask Not For Whom the Bell Tolls

Increasingly, investors see actively managed funds as a sinking ship, according to this WSJ report:
[T]he passive/active divide kept getting wider in 2014. Investors took a net $91.46 billion out of actively managed U.S.-stock funds and invested a net $63.52 billion in passive U.S. funds—preferring low-cost index funds to the skills of stock pickers—according to estimates through November from Morningstar Inc. 
Their lack of faith in managers is understandable. According to preliminary data from Morningstar, 88% of managers of large-cap growth funds underperformed the S&P 500 index in 2014.

Saturday, January 03, 2015

Perfectly Placed Wealth Management Commercial

BNY Mellon's Joe Montana commercial, introduced last summer, fit in beautifully during today's NFL coverage.

On BNY Mellon's web site, the scripted commercial is billed as a "candid interview." Huh?