Archive for May, 2012

Domestic Asset Protection Trusts: The Next State Trend?

Many states have recently enacted or introduced decanting legislation and several states have recently enacted or introduced directed trust legislation.  As part of continuing efforts for states to stay competitive, domestic asset protection may be the next trend.

Virginia recently enacted asset protection legislation, which will become effective July 1, 2012. Now Ohio becomes the latest state in which asset protection legislation has been introduced.  One of the reasons for the introduction of detailed legislation in Ohio on May 23, 2012 is reportedly to enhance the attractiveness of Ohio as a jurisdiction in which to remain, rather than having residents move to other states to protect their wealth.

Included in the Ohio proposal is the Ohio Legacy Trust Act, which contains detailed asset protection provisions.

Ohio Legacy Trust Act – Domestic Asset Protection Proposal

The proposal allows for the creation of a “legacy trust” by which a ”transferor” is given the ability to make a “qualified disposition” of assets and remain a beneficiary through actions of a “qualified trustee.” The transferor must sign a notarized “qualified affidavit” before or contemporaneously with the qualified disposition and provide that the transferor will not be rendered insolvent, does not intend to defraud creditors, has no pending/threatened court actions and does not contemplate bankruptcy.

Creditors would generally be prohibited from bringing any action against any person who made or received a qualified disposition, against any property held in a legacy trust or against any trustee of a legacy trust.  A creditor can bring an action to avoid a qualified disposition on the grounds that the disposition was made with specific intent to defraud the specific creditor bringing the action.

If the creditor was a creditor before the qualified disposition, the action must be brought by the later of (1) 18 months after the qualified disposition or (2) 6 months after the qualified disposition is or could reasonably have been discovered if the creditor files a suit or makes a written demand for payment within 3 years after the qualified disposition. If the creditor became a creditor after the qualified disposition, the action must be brought within 18 months.  The burden is on the creditor to prove the matter by a preponderance of evidence.  The court must award attorney’s fees and costs to the prevailing party. Protection is provided for trustees and attorneys involved in the creation and administration of a legacy trust.

Any person can serve as an advisor of a legacy trust, except that a transferor can act as an advisor only in connection with investment decisions.  Advisors are considered fiduciaries.

The transferor may retain the right to veto distributions from the trust, remove and appoint advisors or trustees, hold a special testamentary power of appointment and be a discretionary income or principal beneficiary.

The trust must (1) have at least one trustee who resides in Ohio or is an entity authorized to act as trustee in Ohio who materially participates in the administration of the trust, (2) expressly incorporate Ohio law to wholly or partially govern its construction and administration, (3) expressly state it is irrevocable and (4) include a spendthrift provision. The new law would apply to all qualified dispositions made on or after the legislation’s effective date.

In addition to the Legacy Trust Act, other significant changes to Ohio law are proposed, including the following:

Increase in Homestead Exemption

The interest in a residence that is exempt from creditors would increase from $20,200 to $500,000.

529 Plan Exemption

The current exemption for certain payments or rights to assets in accounts, such as IRAs, would be expanded to 529 Plans.

Reimbursement of Income Taxes to Grantors of Intentionally Defective Grantor Trusts

Whether or not the trust contains a spendthrift provision, a trustee’s discretionary authority to pay directly or reimburse the settlor amounts for income taxes payable on trust income will not subject those amounts to the claims of the settlor’s creditors.

As you may recall from previous emails, a similar provision was recently enacted in Virginia (effective as of July 1) and another (modeled on current New York law) is pending in New Jersey, but has not yet passed either house.

Payment of Beneficiary’s Expenses Permitted

Regardless of whether a beneficiary is subject to creditors’ claims, a trustee can pay any expense of a beneficiary permitted by a trust instrument. Even if the payments exhaust the trust funds, the trustee will
not be liable to a beneficiary’s creditors.

Administrative Fiduciaries Have No Other Responsibilities

If a fiduciary is appointed to handle only administrative duties, the fiduciary will have no duties other than administrative duties specifically described and will have no obligation to perform investment reviews or make investment recommendations if there is an investment director.

Source:  Sharon L. Klein, Lazard Wealth Management

Posted by Steven Maimes, The Trust Advisor


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Obama Attack Ads on Bain Capital Are Risky, But Essential

By running ads attacking Mitt Romney’s involvement in equity firm Bain Capital, President Barack Obama may be rolling the dice — making fellow Democratic politicians looking for cash nervous and opening himself to attacks that he has no private-sector business experience.

But political analysts say he has no choice.

“Mitt Romney’s calling card is that he is a businessman who can get this country out of a recession. Obama has to attack that,” said Stephen Hess, an expert on presidential elections at think tank the Brookings Institution.

Mr. Hess said all incumbent presidents must quickly try to demolish the image challengers portray and the Obama campaign is playing by that rulebook. The president’s campaign is running a documentary-style ad in key swing states that blames Mr. Romney, the presumptive Republican presidential nominee, for the closure of the Kansas City plant of GST Steel, which Bain Capital acquired in 1993.

The ad features veteran steelworkers who lost their jobs at the plant. The ad also can be found on, along with a number of other case studies that portray Bain as a firm that buys up companies, squeezes out all the profit and then dumps them. Other companies mentioned so far include Ampad and retailer Stage Stores.

But blasting Mr. Romney for his career at Bain Capital has its risks, said Jennifer Duffy of the Cook Political Report.

“Obama’s early ads on Bain could go either way for Romney,” she said. “If the message is effective, they could pin Romney down early and he could spend every day from now until November defending his record at the expense of his own message on the economy.”

One problem is that the attacks on Mr. Romney aren’t new. They were used against him when he ran for governor of Massachusetts, again four years ago on Mr. Romney’s first try for the White House and most recently during the Republican presidential primaries.

“To most voters, Bain is not a new issue; they at least recognize the name. And, the Romney campaign isn’t surprised by this line of attack and had been thinking about a response,” Ms. Duffy said.

In fact, the Romney campaign quickly responded to the GST ad with its own, featuring current employees of Steel Dynamics thankful for the investments from the likes of Mr. Romney that helped the company grow.

Mr. Hess said Mr. Obama and his Democratic allies, to date, haven’t hammered Mr. Romney as much as former President George W. Bush pummeled Sen. John Kerry. Mr. Bush spent $40 million on advertising the moment Mr. Kerry emerged as the expected Democratic nominee in March of 2004. Mr. Bush’s ads attacked what Mr. Kerry’s campaign considered the challenger’s strengths –his knowledge of foreign affairs — by accusing Mr. Kerry of “flip-flopping” on a defense-spending bill. The strategy worked; Mr. Kerry’s negatives rose substantially.

Mr. Obama’s attacks are likely to intensify as more voters focus on the race in the summer and fall.

Ms. Duffy said that if Mr. Obama’s ads aren’t effective, or if the anti-Bain message is already “baked into the cake” — that is, voters have already heard about Bain and made up their minds about Bain’s track record — “Romney can put the issue to rest early.”

“The Obama campaign will then need to try a different message,” she said.

The Bain strategy is also risky because some Democrats are uncomfortable with attacks on equity firms, which they fear sound like attacks on capitalism.

Mr. Romney’s campaign was quick to capitalize on criticisms by Newark, N.J., Mayor Cory Booker and a fellow Democrat, former Rep. Harold Ford Jr. of Tennessee. The campaign released a video of the Democrats’ defense of equity firms that asks, “Have you had enough of Obama’s attacks on free enterprise? His own supporters have.”

Mr. Romney, meanwhile, has released his first general-election campaign ad, running in battleground states, called “Day One.”

The ad details a rash of things Mr. Romney would do on his first day as president, including the repeal of health-care reform, the approval of the Keystone oil pipeline and the introduction of tax cuts.


Posted by Steven Maimes, The Trust Advisor


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Divorces: What Boomers Need to Know to Protect Their Assets

With retirement just around the corner, many baby boomers are going through another major life change: divorce.

The overall divorce rate in the U.S. sits around 50%, and in 2009, one in four of divorces were among baby boomers–an increase from one in 10 in 1990, according to research conducted by sociologists Susan Brown and I-Fen Lin of Bowling Green State University.

The divorce process can provide financial hardships and paperwork headaches at any age, but the financial issues become more complex when retirement funds play a larger role in proceedings.

“Everyone who gets divorced is worse off financially,” says Randy Kessler, founding partner of Kessler & Solomiany.

Splitting assets with retirement only a few years away can complicate the process, and experts advise boomers work with mediators, lawyers, and financial planners to create a favorable settlement from a tax and retirement perspective.

“Not all assets are created equally, and not everyone in a divorce knows what to ask for,” says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. Understanding what you need and how to divide assets can make this process easier.

“Divorces are hugely expensive, and both of you want to walk out with as much as you can,” says Tracy

Stewart, certified public accountant and personal financial specialist in College Station, Texas.

Create a financial plan

“It’s very important for people going through divorce to not lose sight of the long-term when focusing on the short-term,” says de Baca. These goals need to be addressed simultaneously in a financial plan.

The Great Recession has had a dramatic impact on most people’s assets. “The biggest concern is that, in many cases, they didn’t have enough to make it work with the two of them,” says Scott Halliwell, certified financial planner at USAA. “Splitting it down the middle makes it worse.”

When you make a financial plan, you’ll better understand your retirement assets and when you can retire. This may mean cutting back on expenses, working longer, or changing retirement plans

“You have to think about taking care of yourself now and in the future and making those trade-offs,” says de Baca.

Think Long Term

The divorce process is already emotional, but complicated financials can make it even more dramatic.

“The shock of economic coping fuels some of the fear and anger in a divorce,” says sociologist Pepper Schwartz, sex and relationship expert for AARP. One spouse may have earned more than the other, which can create a challenging situation for the spouse who didn’t earn as much. The spouse without a career may have to work to be able to save for long-term goals and retirement. Depending on your situation, “it’s not a bad time if you haven’t had a career, to go to a [career] counselor, or if you’re going to lose a lot of money, to go to a financial planner,” she says.

Determine your budget

Listing your expenses and the cost to maintain your desired lifestyle as a single person will give you a realistic idea of your new budget. “You really need to think about your daily expenses because you can’t save money for retirement or other long-term goals or keep your savings if you’re spending more than you have coming in,” says Halliwell.

The first step to creating a budget is evaluating your cash situation. “Figure out your sources of income and how divisible these are, including salary and spending habits,” recommends Schwartz. “Try and think of what your partner needs and your fair obligation to them.”

Sometimes, when couples wish to remain friends they work together on their goals. “Couples come up with individual and joint goals but in gray divorces, the goals tend to include financial comfort for each party,” says Stewart. When this happens, one person’s less likely to grab the money and run.

Protect yourself

“Look out for people wiping out accounts or people taking loans against assets,” warns Kessler. “You want to make sure the money’s preserved.” He suggests sending letters to banks and asking for alerts if there are any changes to your accounts, like names removed or large withdrawals. If you hold anything in safety deposit boxes that your spouse can access, store these items elsewhere.

To prevent your spouse from selling your home before the divorce is final, Kessler suggests filing a lis pendens. This notice is filed in your real estate records and informs anyone looking to buy your property that it’s part of a pending divorce settlement.

Know what you’re entitled to

Experts agree that dividing property can be a challenge, but it’s important to think about what you need. “You’re entitled maybe to half of each account or asset, but it may not be in your best interest to take half of each account or asset,” says Stewart. “It may be in your best interest to make tradeoffs.”

If there are retirement accounts and a pension plan with the same value, one solution can be for one spouse to take the cash while the other gets the pension plan depending on each person’s goals. The spouse who works may want to give up savings for other assets as they have more earning and savings potential to replenish these accounts.

People should consider the pros and cons of keeping an asset. “It’s very typical for women to retain the family home in a divorce, but real estate doesn’t always appreciate and there’s a lot of maintenance required,” says de Baca.

Alimony can facilitate an advantageous settlement for both parties, says Stewart. If one spouse is a spendthrift, they’re more likely to live within their means if given a monthly check instead of savings. The spouse paying alimony receives a tax deduction.

For couples married at least 10 years, the ex-spouse is entitled to Social Security retirement or disability benefits and can begin to collect at 62, according to IRS regulations. If the working spouse hasn’t retired yet, then they may be able to receive benefits on the working spouse’s record if the couple has been divorced for at least two years.

Risk management

Experts recommend reviewing documents that may be in both people’s names, like wills and insurance policies for auto, home, life, and disability. “Look at each policy and reevaluate whether it should be joint or put in your own name,” says de Baca. For life insurance policies and savings and retirement accounts, she suggests changing beneficiaries if that’s what you want.

If you are on your spouse’s health insurance policy, experts recommend looking for a policy that provides similar coverage early in the divorce.

“One of the things to remember, unfortunately divorce is more common at all ages but other people are going through it and you don’t have to reinvent the process,” says de Baca. “While you may feel very alone, there are teams of people, professional and in your community that will help you be okay as you go through this process.”


Posted by Steven Maimes, The Trust Advisor


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New Survey Reveals Principals and Staff Disagree on Top Priorities

How would you rate the effectiveness of the internal communications in your multi-family office or advisory firm?  If you wouldn’t give it at least a “B” grade, it may be time to steer to a new course.

Many advisory firms have a focus on improving communications with high-net-worth clients in order to sustain client loyalty and drive referrals.  I suspect that far fewer focus on improving intra-office communications.

Unfortunately, communications issues can multiply as firms scale, so it is better to invest for growth now.

A recent ByAllAccounts survey found a disconnect between principals and operations staff.  Below are two recommendations for navigating sometimes choppy waters.

Align Operational Teams with Business Teams

The ByAllAccounts team’s recent Advisor Trends in Operations and Technology Survey found out that manual data entry is a bigger operational headache than many principals realize.

Source: ByAllAccounts’ Q2 Survey

Only 6.9% of principals said their operations teams spend more than 20 hours per month manually entering data.

In contrast, fully one quarter of operations folks said it took more than 20 hours.

These numbers are consistent with anecdotal information I’ve heard.

So, what’s the solution? You may choose not to use technology to reduce manual entry, but you should be aware of how much time your firm is spending on it.

Schedule a quarterly meeting with the head of operations and several principals to openly discuss ways to invest for growth and scale the firm.  A relatively small problem today with 10-30 accounts could become a much bigger one as the firm grows.

“The day soldiers stop bring you their problems is the day you have stopped leading them.”

— General Colin Powell

[stextbox id=”alert” caption=”You Might Also Be Interested In…”]

Advisor Trends in Operations and Technology Survey (Survey Results)

The Definitive Guide to Streamlining Operational Efficiency (Interactive E-Book)


Create a Clear Business Strategy, Communicate it and Steer to It

Before you can align teams internally and foster communication, it’s key to have a clear vision and strategy for the business.

For instance, firms that have made a decision to be primarily single-custodian shops because they don’t want the complexity of trading on multiple platforms will have different business and operational challenges than multi-custodian firms.

When we asked respondents what their firm’s greatest challenge was overall, 37.5% of principals said the top challenge was client acquisition, whereas most operations staff 18.5%  said the challenge was technology and infrastructure related issues.

Does everyone in your firm share a common vision?  As a marketer, defining the vision, positioning and messaging for a firm is a key component of the role.

Often the focus is communicating this externally.  It needs to be shared internally first.

“You can have brilliant ideas, but if you can’t get them across, your ideas won’t get you anywhere.”

— Lee Iacocca

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Majority of Advisors Want Romney, but Expect Obama Victory

Financial advisors want Mitt Romney to win the 2012 presidential election, yet a majority expect President Barack Obama will be victorious, according to an SEI Quick Poll released today.

Additionally, an overwhelming majority believe the November elections will result in a split government, rather than a clean sweep by either party. When it comes to the economy, advisors are both worried and optimistic. They have concerns about the economic recovery and issues in Washington, yet they predict strong stock-market gains for 2012. The survey was conducted by SEI at its National Strategic Advisor Conference held in May for more than 125 financial advisors.

The group of leading advisors gave mixed signals on sentiments related to the economy. On the one hand, a majority of advisors (77 percent) said that the U.S. economy will recover, but it will “take time.” That said, two-thirds of advisors said the “pessimism bubble” is here to stay. When it comes to what advisors are most worried about, it isn’t gas prices, interest rates, unemployment, or the housing market. Instead, the top concerns for advisors, by a wide margin, are entitlements, log jams in Congress, and tax increases in 2013.

“Regardless of who wins the November election, advisors are keenly aware that what does or does not happen in Washington has a direct impact on the markets and, ultimately, on their clients’ portfolios,” said Steve Onofrio, Managing Director, SEI Advisor Network. “The challenge for advisors is keeping an eye on the shifting global economic and political landscape while still managing every other aspect of their businesses effectively.”

“At this point, I think most people realize that it’s going to take some time for the economy to fully recover,” said Kenneth Klabunde of City Wealth Advisors in Indianapolis, Indiana. “That being said, there are some positive signs and reasons to be optimistic, and advisors need to communicate that to their clients so that the ‘pessimism bubble’ doesn’t continue to hang over them.”

SEI conducted the survey in May 2012 at its National Strategic Advisor Conference for more than 125 advisors that partner with SEI. The advisors, evenly distributed around the country, are industry veterans primarily managing large books of business. Half of the advisors have been in the business more than 20 years and an equal percentage manage more than $150 million in assets.

About The SEI Advisor Network

The SEI Advisor Network provides financial advisors with turnkey wealth management services through outsourced investment strategies, administration and technology platforms, and practice management programs. It is through these services that SEI helps advisors save time, grow revenues, and differentiate themselves in the market. With a history of financial strength, stability, and transparency, the SEI Advisor Network has been serving the independent financial advisor market for more than 16 years, has over 4,900 advisors who work with SEI, and $32.6 billion in advisors’ assets under management (as of March 31, 2012). The SEI Advisor Network is a strategic business unit of SEI. For more information, visit

About SEI

SEI is a leading global provider of investment processing, fund processing, and investment management business outsourcing solutions that help corporations, financial institutions, financial advisors, and ultra-high-net-worth families create and manage wealth. As of March 31, 2012, through its subsidiaries and partnerships in which the company has a significant interest, SEI manages or administers $428 billion in mutual fund and pooled or separately managed assets, including $189 billion in assets under management and $239 billion in client assets under administration. For more information, visit

Source:  Marketwire / SEIC

Posted by Steven Maimes, The Trust Advisor


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An Upcoming IPO That Likely Won’t Flop Like Facebook

By now everyone has accepted the fact that the Facebook (FB) IPO has been a flop and the headline grabbing issues that have followed have been stunning.

  • The ridiculously high P/E assigned at the last possible moment
  • The increased number of shares issued at the very last moment
  • The Nasdaq trading confirmation issues that left both investors and traders in the dark for hours (if not longer)
  • Then over allocation of shares for many brokerage firms which went unknown until the last minute
  • The share price “support” given by the underwriters to delay the inevitable drop in price simply to protect the IPO launch.

I could go on, but the many news reports that have outlined this mess are just about everywhere for everyone to read.

This CNBC article outlines the many stories associated with the Facebook IPO issues:

The Financial Industry Regulatory Authority’s chairman said on Tuesday that regulators plan to review allegations that Morgan Stanley (MS) shared negative news before Facebook’s initial public offering with institutional investors. “The allegations, if true, are a matter of regulatory concern” to FINRA and SEC, Ketchum told Reuters.


Aswath Damodaran:

…(The) inputs yield a value of equity for Facebook of about $70 billion, and a value per share of $29. Assuming a company will grow like Google (GOOG) and have margins like Apple (AAPL) is, by definition, optimistic and this value would be at the upper end of my range. Assuming a more rocky road to scaling up and lower profitability will deliver a value in the $20-$25 range.

As well as this;

Lauren Young:

It’s no surprise to anyone that big investors get preferential treatment on Wall Street. Investors expressed disappointment, skepticism and even shock on Tuesday after learning that an analyst at lead underwriter Morgan Stanley cut his Facebook revenue forecasts in the days before the company’s initial public offering – information that apparently did not reach small investors before the stock went public and subsequently tumbled. The divide between the research and retail arms of big Wall Street firms has always been deep. A former Morgan Stanley broker described the relationship as being “like Venus and Mars,” an allusion to a best-selling book about the inherent differences between men and women.

Read each report at your leisure. In the coming days and weeks who knows what else will surface.

A new IPO which will be forthcoming will more than likely have none of the issues that Facebook had, and could very well be one of the most successful IPOs – but certainly not the largest. Is Already A Success was founded in 1999 (yes, before the turn of the century) and has been a stirring success almost from the start. This BusinessWeek report gives a broad overview of the company’s intentions: expects to raise about $120 million from its initial public offering, the online legal services company said Friday, part of its effort to expand and possibly buy new companies.

The company did not give a date or give a price for the shares. The estimate of $120 million in proceeds could change depending on how much interest there is in the company’s stock.

Personally, I think there will be plenty of interest. I for one am interested myself. The company is making money by offering an actual product (what a unique concept) that consumers actually need. is also quite profitable:

Last year, the company reported $156.1 million in revenue, up from $120.8 million in the prior year period. Inc. reported net income of $4.7 million, or 13 cents per share, compared to a net loss of $8.1 million, or 28 cents per share, during the same period a year before.

It also appears that the general public are not the only ones talking about this IPO, but as noted in this blog the legal community has their eye on

There are strong feeling about this company among practicing lawyers, but the numbers suggest there is place for these kinds of services. LegalZoom said it gets high marks on customer satisfaction surveys.

Seems to me that this IPO can become a stunner.

The blog also noted:

LegalZoom has its eye on the roughly $100 billion in legal services provided to small businesses and consumers. The company said it plans to grow through building out its subscriptions plans and expanding internationally.

That is a huge chunk of the $300 billion dollar legal services business. If it is just 10% successful we are looking at a $10 billion dollar company.

All of the pertinent information is detailed within the S-1 filing with the SEC, and should be reviewed for your consideration.

My Opinion

I am going to make an early call on this new IPO. should be a winner. I want in on this one.

Disclosure: I will try to obtain shares of when available

– By Regarded Solutions (anonymous author)


Posted by Steven Maimes, The Trust Advisor


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Fidelity: 401(k) Balances Grew Average 8 Percent in 1Q

Employee 401(k) accounts grew nearly 8 percent last quarter as a surging stock market boosted investment returns and worker contributions increased.

Fidelity Investments, the nation’s largest 401(k) administrator, said on Tuesday that the average balance among its nearly 12 million accountholders was $74,600 at the end of March. That’s up from $69,100 at the end of 2011.

Fidelity attributed about 80 percent of the increase to investment performance. Stocks rallied nearly 13 percent, the market’s best first-quarter performance since 1998. A broad bond market index rose just 0.3 percent.

The rest of the average 401(k) balance increase was the result of increased savings by workers as well as matching contributions from their employers.

Fidelity’s 401(k) participants set aside an average $5,810 through paycheck deductions for the 12-month period ended March 31, and employers kicked an additional $3,360. Both numbers are slightly higher than they were a year ago.

The average employee contribution has remained steady at around 8 percent of annual pay for the past three years, says Beth McHugh, vice president of market insights at Boston-based Fidelity.

But saving rates are beginning to tick upward. Nearly 10 percent of Fidelity 401(k) participants increased their contribution rate in the first quarter, while roughly 4 percent decreased it.

Investment earnings and contributions can grow tax-free in an employer-sponsored 401(k) account, which is a key reason why they’re a popular way to save for retirement.

The rise in 401(k) account balances comes as a relief after the average remained largely unchanged in 2011. Although worker and employer contributions increased last year, those gains were offset by factors including investment performance, and mutual fund fees. Account balances are now at their highest level since Fidelity began tracking the data in 1998.

And there was plenty of ground to make up. The stock meltdown in 2008 sent the average account balance down to $46,200 by the time the market hit bottom in March 2009. Since then the average balance has risen 10 of 12 quarters, growing a cumulative 61 percent.

Typically, about two-thirds of annual increases in 401(k) account balances are the result of workers’ added contributions and company matches, with the final third resulting from investment returns.

Yet it’s been a tough battle in recent years. Workers who have stayed in the market haven’t been able to rely on investment gains to build up savings. That’s because stocks are nearly 11 percent below their historic peak in October 2007. Instead, workers have had to rely on building their balances largely through ongoing contributions.

Source:  Businessweek

Posted by Steven Maimes, The Trust Advisor



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Crowdfunding May Be Kickstarting Startups Soon

Artists are not renowned for financial savvy, but their success in raising money on the Internet through donations to crowdfunding websites like Kickstarter and Indiegogo could lead the way for a new class of investing. Soon investors will be able to pile money into startups through such sites with the hope of getting more than a lousy t-shirt in return.

Before April 5, U.S. regulators only allowed donation-based crowdfunding projects, which raise money from the general public via the Web.

While businesses have used such sites to get working capital, they have generally taken preorders for yet-to-be-created merchandise instead of selling equity. But new possibilities are opening up because of the Jumpstart Our Business Startups, or JOBS, Act, which President Obama signed into law last month.

The act provides crowdfunded businesses and investors with exemptions to the Securities Act of 1933, which prohibited people with a net worth below $1 million from investing in private companies. For the first time, businesses can advertise for investors without filing the standard disclosures required of companies with more than $1 billion in revenue.

The U.S. Securities and Exchange Commission still has 270 days from the JOBS Act signing to review and make final changes to its regulation, but if the statutes stay in effect as-is, just about anyone will be able to invest in a startup or small company.

“What’s new is being able to offer equity in return,” says Slava Rubin, chief executive officer and co-founder of major crowdfunding site Indiegogo.

“And it’s just the beginning,” said Rubin, whose site has helped fund more than 5,000 projects since he unveiled it at the Sundance Film Festival in January 2008. “We’re talking about a law that hasn’t changed in 79 years.”

So is a crowdfunded investment opportunity any different from pouring cash into junk bonds or penny stocks? It’s impossible to say, since the first crowdfunded investment offerings have not hit cyberspace just yet.

But they will soon enough. Since the beginning of May, at least two new investment-oriented crowdfunding initiatives have been announced — a partnership between and Navocate, and one by the US Crowdfunding Exchange LLC.

Getting fleeced?
Critics of the JOBS Act worry that small investors will get fleeced.

“Institutional investors can make choices based on the information they have,” says James Allen, head of capital markets policy for the CFA Institute, a global nonprofit organization of investment professionals. “It’s the mom-and-pop investors who are the bigger concern in this case, particularly the people on fixed incomes, the retirees.”

Allen says these people are vulnerable because under the JOBS Act, many investor protections (some put into place after the Enron debacle) have been bypassed.

Others, including Brookings Institution senior fellow Robert Pozen, also say the act will open a new avenue for stock scams and the highly speculative investing that gives birth to bubbles. Meanwhile, state regulators fear a Wild West mentality where unscrupulous wheeler-dealers, now able to bypass any disclosure requirements, could siphon millions from naive investors.

But supporters of the JOBS Act say the new legislation creates a sort of social media trading pit where entrepreneurs can now give everyday investors the possibility of getting in on the next Google Inc or Microsoft Corp.

Others who back the new law’s crowdfunding provisions say it will open up investor dollars to creating, as the act’s name suggests, new jobs. Even Allen acknowledges that crowdfunding comes at a time when “banks aren’t lending to small businesses, or much of anything. They don’t have much of an incentive.”

New resource
Members of the National Association for the Self-Employed view crowdfunding as a vital new resource for startups and job creation.

“This will really open the floodgates to a whole new arena of entrepreneurs who are trying to help other entrepreneurs finance their dreams,” says NASE CEO Kristie Arslan. “The great thing about crowdfunding is that it allows people to choose; you’re putting your business idea out there and asking people to invest in you and your idea. The good ideas will hopefully rise to the top.”

At least the money looks good.

Indiegogo now raises “millions of dollars a month” worldwide, Rubin says.

And Kickstarter, a three-year-old major crowdfunding service, went from $1 million pledged per month in March 2009 to $7 million in March 2011. As of May 2012, more than $200 million has been pledged to more than 22,000 successfully funded creative projects, according to Kickstarter spokesman Justin Kazmark.

Among them was “Blue Like Jazz,” which smashed previous film crowdfunding efforts by more than $145,000. The movie adaptation of Donald Miller’s bestselling memoir came out in theaters nationwide last month to glowing reviews. Director Steve Taylor says that last year, the project seemed doomed because a financial backer walked out hours before production was to start.

Then two of Miller’s fans jumped in on Kickstarter and raised $346,000 in a few months. For their trouble, all the funders got thank-you phone calls from Taylor (it took him about a year to call back all 4,500 people), and those who gave at higher levels were offered bigger perks, including a cameo role in the film.

Will Taylor fund his next film in a similar way? He says he would not rule it out. But if he markets it as an investment opportunity, those who fork over cash will want more than a simple “thank you” — unless it’s written on the back of a check.

By Lou Carlozo, Reuters

Source:  MSNBC

Posted by Steven Maimes, The Trust Advisor


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Expatriate Facebook Founder’s “Take the Money and Run” Pre-IPO Scheme is Legal, Experts Say

Eduardo Saverin will probably generate more tax revenue taking his billions to Singapore than he would’ve paid if he’d stayed. Should Mark Zuckerberg be forced to leave too? 

Moral outcry is one thing, but high-powered attorneys tell me the now-infamous Facebook co-founder was well within his rights giving up his U.S. passport late last year.

“What he did was perfectly legal,” says Gideon Rothschild, offshore trust planning guru at New York firm Moses & Singer.

“There’s no question,” he adds. “When someone renounces, they’re finished with the U.S. Good-bye.”

That no-nonsense opinion pours a little cold water on rhetoric from legislators like House Speaker John Boehner, who grandly call Saverin’s decision to renounce his U.S. citizenship “against the law.”

The only “law” that Boehner seems to be referring to doesn’t actually restrict Saverin’s — or anyone’s — financial planning one bit. All it does is authorize the Department of Homeland Security to refuse to let anyone who expatriates for tax purposes back into the country.

Since being signed in 1996, it hasn’t been enforced once.

Otherwise, under current law, as long as the Facebook billionaire paid the “exit tax” on everything he owned when he left the country, the IRS can’t touch him.

A windfall for the IRS

If anything, that exit tax makes the U.S. government one of the relatively few clear-cut winners in the otherwise lackluster Facebook IPO.

When he turned in his passport in September, Saverin had to pay a straight 15% of the market value of all his assets, reportedly valued at roughly $2.1 billion. Call it a $300 million capital gains tax bill, give or take a few million dollars.

As it happens, Facebook shares were trading on the over-the-counter gray market at about $32 to $33 apiece back in September, a little higher than where they are now.

What this means is that by leaving the country, Saverin ended up locking in a slightly bigger tax liability than he would’ve gotten if he’d stayed and sold into the IPO. No win there.

Moreover, paying the exit tax locked him out of longer-term tax minimization strategies. He gave up his right to use gift allowances, estate tax exemption, capital loss credits and everything else when he gave the IRS its cut up front.

That might not seem like a big deal to 30-year-old Saverin, who has no dependents to worry about yet in the United States or anywhere else. He has the rest of his life to amass wealth and responsibilities in Singapore at the island haven’s flat 20% income tax rate.

But for newly married Mark Zuckerberg, who still owns a staggering 503 million Facebook shares, staying in the country actually presents a huge opportunity to keep his money out of IRS hands, says tax lawyer Jim Duggan.

“Someone like Zuckerberg would pay a tremendous amount of tax to the U.S. government if he renounced his U.S. citizenship,” he points out. “Without renunciation, the United States will never collect income tax on Zuckerberg’s entire block of stock.”

Duggan’s suspicion is that Zuckerberg will end up paying “little to no” tax on his Facebook fortune as the money flows into trusts or is divided up among friends and family in small gift-tax-friendly amounts.

As yet, that hasn’t happened. Zuckerberg still owns his shares outright.

Saverin’s situation is harder to figure out, since he’s already sold enough of his stock to drop below the 5% level the company reports on its SEC paperwork.

However, if any of his Facebook stake had moved into a trust, renouncing his citizenship wouldn’t have done him any favors or cost the U.S. government any immediate revenue.

Gideon Rothschild warns future dot-com billionaires to set up their trusts when their companies are still in the incubator.

“Maybe it’s going to be another Google, another Facebook, you don’t want to hold it in your name,” he says. “You want to put in in a trust.”

Hitting future billionaires on the way out

For those who weren’t lucky enough to take Rothschild’s advice early on, expatriation is becoming an increasingly attractive option.

After the IRS started cracking down on U.S. nationals taking advantage of offshore havens in 2009, the number of Americans giving up their citizenship has more than doubled.

While tax planning is probably not the main concern for most of these people, it’s prevalent enough that Congress is looking a little desperate as it tries to close the loopholes.

Rep. Boehner’s grandstanding aside, most of the grousing has come from the Democrats.

Stung by the perception that Eduardo Saverin was effectively defecting, Senators Chuck Schumer of New York and Bob Casey of Pennsylvania have floated what they call an “Ex-PATRIOT” bill that will double the exit tax on future millionaires who leave.

So far, the bill has gotten a lot more buzz in the press than it’s gotten traction on Capitol Hill, where only two other lawmakers have signed on as co-sponsors.

Schumer says it’s “infuriating” that Saverin — who came here from Brazil when he was 11 with his already-rich family to avoid kidnapping threats — took advantage of U.S. security and business-friendly climate, then “defriended” the country.

Saverin says he paid his check on the way out, rather than passing the liability to future generations.

“It might arguably be better for the IRS and the United States if more shareholders were to renounce their citizenship,” Jim Duggan somewhat ruefully sums up.

Scott Martin, senior editor, The Trust Advisor. Steven Maimes contributed to the research.



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High Net Worth Wealth Management Involves Mixed Approach

High net worth wealth management can include a mixed approach involving self-directed, advisor-assisted and advisor-dependent strategies, according to Millionaire Corner research.

High net worth wealth management – the stewardship of investable assets of $5 million to $25 million – typically involves a mixed approach of self-directed, advisor-assisted and advisor-dependent strategies, according to Millionaire Corner research on the attitudes and behaviors of wealthy investors.

Most high net worth investors enjoy investing (60 percent) and like to be actively involved in the day-to-day management of their investments (58 percent), yet at the same time they tend to maintain close, long-standing relationships with financial advisors, according to a Millionaire Corner study completed in the first quarter of 2012.

Theses preferences result in a mixed approach for high net worth wealth management. A Millionaire Corner study completed in the fourth quarter of 2011 shows that the typical high net worth investor turns over 23 percent of his or her investable assets to the complete control of a financial advisor, and retains complete control over 43 percent of assets. For the remaining 34 percent, the investor consults a professional for high net worth wealth management strategies, but makes the final decisions himself.

“Some investors prefer to divide the responsibility for high net worth wealth management, and like to compare their own results with those of their advisors,” said Catherine McBreen, president of Millionaire Corner.

Investors most commonly seek advice for high net worth wealth management strategies concerning the selection of individual stocks and bonds, and diversifying assets away from a concentrated position, according to our research. Two-thirds of high net worth investors report receiving advice on product selection and asset allocation from their advisors, while 61 percent of investors say they have worked with an advisor to establish an investment plan.

Other commonly sought high net worth wealth management advice concerns minimizing the tax consequences of investments, establishing a sufficient cash flow, planning for retirement and creating an overall financial plan. Two-thirds of high net worth investors are comfortable with the fees they pay for these services and the majority prefers to pay a fixed fee for high net worth wealth management advice.

The financial firms most likely to provide high net worth wealth management strategies for these investors are Bank of America-Merrill Lynch, Morgan Stanley Smith Barney and Wells-Fargo-Wachovia, according to our research, which also shows that the primary financial service providers of high net wealth management services are Fidelity, Charles Schwab and Morgan Stanley Smith Barney. High net worth investors are most likely to bank at Bank of America-Merrill Lynch, Wells Fargo-Wachovia and JP Morgan Chase.

Nearly one-fourth (24 percent)of high net worth investors describe themselves as self-directed, making their own high net worth wealth management decisions without any assistance from an investment advisor, according to our research. More than one-fourth (27 percent) describes themselves as event-driven, making most of their own decisions, but using an advisor for specialized high net worth wealth management needs, such as retirement planning, asset allocation or alternative investments.

One-third is advisor-assisted, regularly consulting with an advisor, but making most of the final decisions, while 16 percent describe themselves as advisor-dependent, investors who rely on an advisor to make most or all of their high net worth wealth management decisions.

By Adriana Reyneri

Millionaire Corner is published by Spectrem Group, the premier research and consulting firm in the wealth and retirement industry.

Source:  Millionaire Corner 

Posted by Steven Maimes, The Trust Advisor



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