You can read more about the conflicts of interest that most mutual funds have in exploiting fear, greed and volatility in this article published yesterday in the New York Times by the chief investment officer of Yale.

http://www.nytimes.com/2011/08/14/opinion/sunday/the-mutual-fund-merry-go-round.html?scp=4&sq=august%2014,%202011%20opinion&st=cse

1.  The only kind of economy that works is a market economy with a significant government role in managing and regulating it.

2.  A rising level of education is crucial to the social and economic advancement of nations.

3.  The budget deficit will need cuts and tax increases to come under control.

4.  The US spends 75% more on health care than other industrial nations, a terrible waste of resources, without providing better care or even basic care to many.

5.  The planet is getting hotter.  Climate change is real and a real economic threat of catastrophic proportions.

6.  Income inequality is getting worse.  The top 1% has captured the virtually the entire growth of the economic pie in the last 30 years.

To read the full article go here:

http://www.nytimes.com/2011/07/27/business/economy/lessons-from-the-us-economys-malaise.html?_r=1&scp=2&sq=economic%20scene%20leonhardt&st=cse

Of course, the best solution of all is to not take outside money.

This is sage advice, coming from Tom Szaky is the chief executive of TerraCycle, which is based in Trenton, N.J.

For the complete article go to http://boss.blogs.nytimes.com/2011/05/03/six-tips-on-taking-outside-investors/?scp=20&sq=Tom%20SZaky&st=Search

The actual cash needed out of pocket can be 50% greater than the payment after taxes of profits.  Over 5 years to fund the cost of buying just 20% of the business would require  over $687,000 in profit at a tax rate of 35%.  If profit margins are only 5%, this would require new sales of more than $13,700,000.   Life and disability insurance can fund this liability at a reasonable cost.

Click here for a great article:

Life Insurance Selling. A Summit Business Media publication.

New Laws Create Enormous Estate Planning Opportunities For The Wealthy The “Tax Relief, Unemployment Insurance Authorization and Job Creation Act of 2010″ (the “Act”) significantly changes federal tax laws regarding estate taxes, gift taxes and generation-skipping transfer taxes. As a result, there are numerous changes that may be required to your estate plans and your Wills. There are also numerous estate planning opportunities you should consider. This memo highlights the changes and makes important planning suggestions as follows:

1. INDIVIDUALS WHO DIED IN 2010. Executors have the option of :
   1. A $5,000,000 federal estate tax exemption, with a 35% maximum estate tax rate on the assets in excess of $5,000,000 and a full step-up in basis on all assets in the estate as provided under prior law¹ or alternatively,
   2. Elect there be no federal estate tax, under the modified carry-over basis regime. Under the modified carry-over basis regime, the tax cost basis of assets that are inherited is the lesser of the decedent’s adjusted basis in the property or its fair market value on date of death, unless the Executor allocates some of the permissible $1,300,000 basis step-up to that property. (There is an additional $3,000,000 basis step-up for property passing to the surviving spouse).Under the Act, the $5,000,000 exemption is the default provision. Executors will need to ascertain which method is more beneficial. Note that for decedents dying after December 31, 2009 and before December 17, 2010, the estate tax return will be due no earlier than September 19, 2011.

      PLANNING SUGGESTION: Electing into the modified carry-over basis option regime is often advisable for estates significantly in excess of $5,000,000 where there will be a large estate tax at the second death. However, estate tax savings must be carefully weighed against potential capital gains taxes when those assets are ultimately sold.

2. INDIVIDUALS WHO DIE IN 2011 OR 2012. There is now a generous $5,000,000 federal exemption with a 35% maximum estate tax rate on the excess. In addition, for 2011 and 2012 a surviving spouse can use the unused portion of the estate tax exemption of his or her deceased spouse. This is referred to as the “portability” provision. The deceased spouse’s executor must file an estate tax return (even if not otherwise required to do so) and make the appropriate election to carry forward the exemption. Some may think the portability provision makes a “credit shelter trust” obsolete. However, this is not necessarily the case. It depends on the State estate tax. If a “state credit shelter” trust is not created on the death of the first spouse, there may be unnecessary State estate tax payable on the death of the survivor. The use of a “credit shelter trust” will also preserve the generation-skipping transfer tax (“GST tax”) exemption of the first spouse to die, since the GST exemption is not portable.PLANNING SUGGESTION: Meet with your estate planning attorney to determine whether your existing Will needs changing as a result of the new law and if a segregated State Credit Shelter Trust is appropriate.
3. PLANNING FOR 2011 AND 2012. For 2011 and 2012 the gift tax exemption is reunified with the estate tax exemption at $5,000,000. This is a dramatic increase from the $1,000,000 exemption in 2010. The maximum gift tax rate remains at 35%.PLANNING SUGGESTION: This is a great opportunity to make additional gifts if you have already used your $1,000,000 exemption. In addition, there is no New York or New Jersey gift tax, so a true tax-free transfer can be made. Since many states are suffering economically, there is a possibility that some states, including New York and/or New Jersey, may reinstitute their gift taxes. It therefore would be prudent (if you are inclined), to take advantage of the higher gift tax exemption sooner rather than wait and be subject to a potential gift tax as a result of a change in the law after 2012.

   For wealthy clients who have estates significantly in excess of $10,000,000, using the $5,000,000 gift and GST exemptions now can create huge opportunities when selling assets such as commercial real estate or closely held business to an Intentionally Defective Grantor Trust (“IDGT”).

   WARNING: For individuals whose estates are less than $10,000,000 it is critical to review your Will provisions. Many Wills have been drafted to leave the exemption amount directly to children. A provision such as this could result in the surviving spouse being disinherited. Please review your plan to make sure your estate planning documents and asset structure match your objectives.

4. GST EXEMPTION: For 2011 and 2012 the GST tax exemption has also increased to $5,000,000, with a maximum tax rate of 35%.PLANNING SUGGESTION: Careful use of the $5,000,000 GST exemption in 2011 and 2012 can result in passing significant assets to the grandchildren and more remote generations without any federal transfer taxes.
5. NO CHANGES TO GRAT RULES OR VALUATION DISCOUNTS. Significantly, the Act does not contain any provisions requiring a minimum term for grantor retained annuity trusts (“GRATs”). Therefore, short term GRATs continue to be a valuable estate planning tool. In addition, there are no provisions eliminating or curtailing valuation discounts for gift and estate tax purposes, so these continue to be an important component of estate plans.

SUMMARY:

The high gift and GST exemptions present significant estate planning opportunities, especially in the current economic environment where asset values and interest rates are very low. It should be noted that these changes apply only through December 31, 2012, and absent further legislation the law will revert to pre-2001 rates. Once again uncertainty reigns and it is recommended that you take advantage of these tremendous opportunities now.

• Credit Shelter Trusts continue to provide significant benefits.
• Clients with substantial wealth should consider using lifetime gifts to take advantage of the $5,000,000 gift tax exemption before it expires.
• For estates under $5,000,000, credit shelter trusts created under older Wills may unintentionally disinherit the surviving spouse.
• Implementing GRATs and sales to Intentionally Defective Grantor Trusts continue to be great planning techniques and can be enhanced under the new laws.

As required by new U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this post, is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.

The Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) increased the estate tax exempt amount in steps from $675,000 in 2001 to $3.5 million in 2009. Under EGTRRA there is no estate tax in 2010.  The old law returns in 2011 with only a $1 million exempt amount.

While the one-year estate tax holiday has received the most attention, EGTRRA and other tax legislation created several tax planning opportunities for 2010 that do not require that you die to take advantage of them.  There is, of course, the risk that Congress could change the law retroactively.  However, as time goes on, the chances of that diminish.

Gift tax

EGTRRA reduced the top gift tax rate from 55% (with a 60% notch from $10 million to $17,184,000) in 2001 to 45% in 2009.  For 2010 only, the top gift tax rate is 35%.  The old law returns in 2011, with the 55% top gift tax rate (and the 60% notch).

Those who have used up their $1 million gifts before or during 2010, may want to take advantage of the 35% gift tax rate in effect this year.

Generation-skipping transfer tax

Not only is there no estate tax in 2010, but there is also no generation-skipping transfer (“GST”) tax in 2010.  Grandparents may wish to make gifts to grandchildren this year when they can avoid both the GST tax and using any of their GST exemption.

It is, unfortunately, not clear whether, if the gift to a grandchild is in trust rather than outright (which includes a Uniform Transfer to Minors Act account), the trustee’s distribution to the grandchild after 2010 will be subject to GST tax.  To avoid any doubt, grandparents may want to make these gifts outright rather than in trust.

Trustees of existing trusts that are subject to GST tax may also want to consider making distributions to the original donor’s or decedent’s grandchildren (or younger family members) to take advantage of the absence of GST tax in 2010.

Converting to a Roth IRA

Before 2010, a taxpayer could not convert to a Roth IRA if his or her income (without regard to the income from the conversion) was more than $100,000.  Beginning in 2010, this income limitation no longer applies.

In addition to the other benefits of the Roth conversion, there are two particular alternative benefits to converting in 2010.  An IRA owner who converts in 2010 can include the income from the conversion one-half in 2011 and one-half in 2012, thus obtaining some deferral and income splitting.  Alternatively, an IRA owner who converts in 2010 can take advantage of the 2010 income tax rates, which may be lower than the rates scheduled to be effective beginning in 2011.

Grantor Retained Annuity Trusts (GRATs)

If the GRAT’s growth and earnings exceed an IRS prescribed “hurdle” rate (and provided you survive the term), then at the end of the term, the remainder passes to or in trust for your beneficiaries without any gift tax.  The current hurdle rate (in November 2010) is only 2%.

If interest rates increase, the required annuity payments will be greater.  There have also been proposals in Congress to require a minimum 10-year term for GRATs and to eliminate the ability to create a “no taxable gift” GRAT.  Either of those changes would likely reduce the benefit of a GRAT.  Accordingly, you may wish to create GRATs now.

*** IRS CIRCULAR 230 NOTICE ***
Tax advice, if any, included in this communication (including any attachments) is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or by any other governmental tax authority. For more information about Circular 230, click here.

In today’s New York Times, William D. Cohan writes about the development of the casino culture of Wall Street over the last 30 years.  The bankers of Wall Street have become the house and their compensation is based on how much risk they can bamboozle us into taking.  The more we bet at higher stakes, the more they win, since their compensation is tied to revenues and they do not share in the risk, only the reward.  At one time Wall Street Bankers were partners and took only personal liability.  No more.  They are overpaid risk takers who risk investors’ money and that of their own corporate owners.  Cohan’s solution is to force the top 100 bankers at each firm assume personal liability.  Fat chance.

What solution does an individual investor have to minimize both market risk and the casino culture?  One answer is proper allocation to a wide range of asset classes and thousands of equities or bonds within each class.  Our investment solutions are designed to minimize risk by not concentrating it in one company or sector.  We do not try to pick winners and fall prey to the false siren call of finding the latest craze.  We use academically sound methods that allow an individually appropriate percentage of assets to be invested in equities so the temptation to stretch for returns in fixed income is minimized.