Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST Thursday, April 27, 2006: If
my wife and I die on December 31, 2010, my children won't pay any estate taxes.
Not one nickel. If I die a day later it will cost my kids 55% of my assets.
The IRS wants its money -- in cash -- 9 months and a day later. If my assets
are tied up in a business, a private equity fund, real estate, or sundry other
illiquid "investments," the IRS will still insist on its cash. Which
means my assets will be put up for a fire sale and the penalty of dying could
be much higher -- perhaps over 100%. In which case the only "inheritance"
my kids will get will be a whopping tax bill.
The name of the game is get one's assets away from the IRS now. That
will save the taxes now on the principal and the appreciation between now and
when you die. Figure you have a $10 million net worth now. Die today, you could
get zapped with taxes of $4.4 million -- that's after the $2 million deduction.
But die in ten years, when even with our miserable stock picking we've doubled
our estate, our heirs are now looking at a $9.9 million tax bill.
easiest way to reduce the value of your estate is to spend all your money or
give it all to charities or do both.
second "easiest" way is to put your money into various "trusts."
They have quaint names:
+ Revocable trust
+ Credit maximizing trust
+ Life insurance trust
+ Charitable remainder trust.
+ Profit sharing sub-trust
+ Living trusts
+ Dynasty trust
+ Personal resident trust
third "easiest" way is is to buy sufficient life insurance. In effect,
your insurance company will pay your estate tax bills.
If you screw up in your planning and paperwork , there are huge penalties:
+ Your life insurance payment might itself be taxable.
+ You'll die "asset rich, cash poor."
+ Some of the trusts are irrevocable. That means you can't change the beneficiaries,
even though you have a falling out with your idiot daughter-in-law.
+ Your estate might end up in Probate Court, with everybody and their uncle
arguing endlessly about who gets your money. Think divorce: The arguments will
only stop when the legal fees equal the value estate. This becomes really expensive
if you happen to have assets in several states. You'll need lawyers there. And
their fees are outrageous.
There are plenty of "gotchas," along the way, too. If you die, and
your wife, age 90, remarries without a pre-nuptial agreement (even at
90), your kids could get handsomely screwed. Congress might also change
the law -- like kill estate (aka death) taxes altogether, though I doubt it.
A nice man called
Ira Kessler placed an ad in The New York Times, offering a free seminar
on Estate Planning. I went to yesterday's. That's where I learned the above.
The seminar accomplished its purpose. It scared the pants off me. I've met with
other estate planners. I'm trying to get a handle on all this. Check out my
column of March 1. Click
There are several problems:
1. No one seems to have a simple step-by-step plan to take you from today to
tomorrow painlessly. Everybody is different.
2. You need an estate planner (like Ira) to do your planning. You need to find
one who's not a life insurance salesman in disguise.
3. You need a talented lawyer who can draw up all the necessary IRS-bullet-proof
paperwork. Finding one who's got time for you is probably impossible today.
4. The IRS code is clear on some things. For example, your trust's goals have
to be "health, maintenance, education and support." Any other words
and you're screwed.
5. The IRS is not clear on most things. You can understand that. Its job is
to collect money. It's not going to tell you how to plan your death so you can
screw the IRS.
But I'm floundering down this path. I have a will, but it's old. I have too
many assets in joint Susan-Harry names, so I'm changing that. And I'm even looking
at insurance. And maybe I'll find a lawyer who isn't busy. And I'm meeting with
IRA for a one-hour "planning" meeting next week.
is another alternative. Namely, spend all the money now. Die poor. Susan's latest
mantra is "fly first class or our children will." 98% of us
never pay estate taxes. That's because the 98% of us die with estates under
love reading annual reports: You have to beg
your broker to send you paper annual reports through snail mail. Most investors
don't get them. But there's nothing -- absolutely nothing -- as worthwhile as
reading the words, seeing the layout, seeing the pictures, all in your hot little
hand. My favorite quote from this year's annual reports came in Radio Shack's.
Remember, I don't make this stuff up. It This quote took up a whole page:
Bank of America is brilliant: You close your checking
account down. You take all your money out. Then they send your non-existent "account"
to a collection agency, who threaten if you don't pay them $35.07.
Corpopration remains a healthy business despite the fact that our 2005
financial performance was not consistent with our goals or the expectations
of our shareholders.
pray tell, what is the $35.07 for? Why, it's for the cost of collecting $35.07
from you. Check this excerpt from the dunning letter which I scanned last night.
the best part. There's also the five months and many phone calls that it takes
to actually close your Bank of America account down (even though there's no
money any longer in your account). Meantime, because there is no money in the
account, they charge you banking fees. And you have to argue against those.
wouldn't anyone sane have an account with the Bank of America? Of course, I
never had one. I'm not that stupid. My charming little Fleet Bank got taken
over by BofA.
I knew things were bad from Day One when all the banking charges went through
the roof -- like sending and receiving wires, etc. Things got even worse Day
Two when Bank of America fired 90% of the branch's employees. Day Three, one
of them asked me for a job.
sure these tactics make the bank money -- short-term.
by the way, if I recommend Bank of America's checking to one of my friends,
I get $25. So please get a check account and let me know. I love Bank of America's
slogan -- "Higher Standards." I think they really mean "higher
fees." I don't make this stuff up.
is a great search engine for your PC: Want to find something on your
PC? Windows has a terrible search engine. I was hoping the new Windows -- called
Vista -- would be out soon. But it's delayed. So, I'm spending $199 today to
buy the world's best searching tool -- dtSearch. Don't believe me? Go here www.dtsearch.com/download.html.
Download a free 30-evaluation copy. You'll marvel at suddenly how fast you can
find things on your hard disk. dtSearch searches inside your work. I
put in the words "estate planner" and it instantly (less than a second)
found my March 1 column. Think of dtSearch as Google for your desktop.
concrete truck's short fuse: Zillions of these things arrive every
day for the humungous building going up two blocks away.
building, when complete.
want to know:
Q: How long does the driver have for the delivery?
A: 1 1/2 hours. Any longer and the load is rejected by the building.
Q. How does the building know the driver isn't fibbing?
A: The building has inspectors at the concrete plant. Each truck carries a slip
certifying when it left the plant.
Q: What happens
when the concrete is late?
A: It gets radically weaker. The building could fall down.
Q: How do you
get concrete into Manhattan and emptied in under 90 minutes?
A: Beats me.
and Cheaper Clean Coal Technology: As the price of
oil stays high, so it encourages the search for the perfect alternative energy.
I found this piece in the lastest issue of MIT's Technology Review:
in which coal is converted to a gaseous fuel, is the front-runner as next-generation
technology for cleaner coal-fired power plants. Already, a number of utilities,
including American Electric Power in the United States and RWE in Germany,
are engineering large-scale gasification plants that would capture their carbon
dioxide. But one major utility, Stockholm-based Vattenfall AB, is bucking
the gasification trend. Last month, it finalized plans for a 40 million euro
($50 million) test of a simpler and potentially cheaper technology called
technology modifies a conventional coal plant, by burning the fuel in pure
oxygen instead of air (which is mostly nitrogen). Conventional coal plants
generate a flu-gas mixture of mostly nitrogen with some carbon dioxide and
water; capturing the carbon dioxide is expensive because it takes a lot of
energy to separate the carbon dioxide gas from the nitrogen gas. In oxyfuels
technology, the flu gas is mostly carbon dioxide and water, the latter being
easily condensed and removed -- yielding pure carbon dioxide, which can be
Vattenfall revealed that it has ordered the first components for a 30-megawatt
oxyfuel pilot plant -- by far the largest test of oxyfuels technology to date.
Lars Strömberg, the company's strategic director and oxyfuels project
manager, says gasification is not ready to be a source of clean coal power.
He cites mechanical difficulties that have plagued the gasification demo power
plants built to date. "There are only four gasification power plants
and none has performed well," says Strömberg. He thinks gasification's
capacity to produce both power and hydrogen is similarly oversold, given the
slow development of fuel cells. "Frankly, we don't believe at all in
the hydrogen society," he says.
in the large-scale effort to rebuild eastern Germany's power industry after
reunification; in the 1990s, the effort produced some of the world's most
advanced coal-fired power plants. These plants operate at up to 600 degrees
Centigrade, and in doing so extract as much as 45 percent of coal's energy,
compared with efficiencies below 40 percent for earlier-generation plants.
The oxyfuels approach is an extension of those developments. "We don't
need to create a new power-producing process," Strömberg says.
pilot plant will test that prediction. The plant will operate next to the
company's 2000 megawatt power-and-heat plant at Schwarze Pumpe (a two-hour
drive south of Berlin along the Polish border). Steam produced in the plant
will be piped to the larger plant's turbines to produce power.
A key component
in the pilot plant will be its furnace and steam generator, where pulverized
coal will be combusted with oxygen from an integrated cryogenic oxygen plant.
In conventional coal furnaces, nitrogen in the combustion air dilutes the
oxygen, limiting the intensity of the flame and the resulting combustion temperatures.
In the oxyfuels technology, flu gases will be recirculated into the furnace
to limit the oxygen concentration, thereby simulating the same effect.
head of research and technology in Stuttgart, Germany, for Alstom Power Boiler,
the engineering firm building the pilot plant's furnace, says it will be more
than 30 times larger than previous oxyfuel furnace tests, providing a more
realistic view of how the components respond to the new conditions. Kluger
also says that, unlike some earlier tests, the pilot will be designed to run
on either air or oxygen, enabling side-by-side tests that will provide critical
data to tune the design software used to engineer commercial plants. "By
seeing what [factors] change in the pilot plant, you can imagine how it will
look at full scale," says Kluger.
plan is to crank up the pilot program in spring 2008, and begin planning for
a 600-megawatt oxyfuels plant before the end of that year. Strömberg
says the hold-up in moving to full scale is more likely to be political than
technical. Specifically, the biggest hurdle, he suggests, will be getting
permission to store the carbon dioxide -- including the pilot plant's.
The most likely
destination for Vattenfall's carbon dioxide is underground storage in deep
aquifers and spent oil wells, which are currently under investigation in Europe,
including a saline aquifer just west of Berlin. The problem is that, while
carbon dioxide released up a stack is exempt from waste rules, putting it
into the ground requires a permit. And with some environmentalists bitterly
opposed to the idea of extending the use of coal through gasification -- not
to mention the risk of the carbon dioxide escaping -- those permits may be
hard to get. Greenpeace Germany, for one, is opposed to the concept.
You can read more.
Reverend Ike: I messed up his philosophy yesterday. It should read,
"The best thing you can for the poor is not
to be one of them."
Moishe Joke - 1
A story is told of a Jewish man who was riding on the subway reading an Arab
newspaper. A friend of his, who happened to be riding in the same subway car,
noticed this strange phenomenon. Very upset, he approached the newspaper reader.
you lost your mind? Why are you reading an Arab newspaper?"
"I used to read the Jewish newspaper, but what did I find? Jews being persecuted;
Israel being attacked; Jews disappearing through intermarriage; Jews living
in abject poverty. So I switched to the Arab newspaper. Now what do I find?
Jews own all the banks; Jews control the media; Jews are all rich and powerful;
Jews rule the world. The news is so much better!"
Moishe Joke - 2
is on his death bed.
"Is my wife here?" he asks.
"Yes, I'm here," she answers.
"Are my children here?" he asks.
"Yes, all your children are here."
"And my grandchildren?"
"Everyone is here. Rest."
Moishe lifts himself a little from his bed and asks, "So why is the kitchen
This column is about my personal search for the perfect
investment. I don't give investment advice. For that you have to be registered
with regulatory authorities, which I am not. I am a reporter and an investor.
I make my daily column -- Monday through Friday -- freely available for three
reasons: Writing is good for sorting things out in my brain. Second, the column
is research for a book I'm writing called "In Search of the Perfect
Investment." Third, I encourage my readers to send me their ideas,
concerns and experiences. That way we can all learn together. My email address
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