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Exotic flavors IF 1'OC HdV ;; more than a ~ fetv million dollars, or if cour Familv situation is complicated, your lai~~,er , will recommend creatiug ~ as mane as six or a dozen different trtuts . `Y always ~ svarn clients to expect an - awfulhy big stack ofpaper," savs Arthur Andersen cre David Bohl . Here are some of the more unusual tapes : Qualifled terminable interest prope••n-trusts arc all the rage with people in second marriages . These allow vou to leave monev I to your spouse under the ' unlimited marital deduct on ~rhite still controllino I who gets the assets after ~ I he or she dies- The spouse ~ gets the income only while alive ; aftenvards, ~nur other heirs (such as children from the first marriage) get the principal, minus estate taxes . Generation akippi;tr7 trusts are less po%cerful no%~ than years ago, but still fairly common . In the old d-avs a «ealdty couple «'ould lem e money to their gr<strong>and</strong>children rather than to their children, as a way of avoiding estate tax when the children die . Since 1986 such transfers (rare been subject to a "generation skipping" surtax that erases the benefit of skipping a generation . Ho i•ever, even donor gets a S I million e ..- cmDtion liom the surM . Grantor retained annuity trusts <strong>and</strong>,Frautor retainea' inconse trusts al- lo«'rou to gice au'ap ;tssets Example : You own SI «hile retaining a tempo- million of stock, paying rarv interest . If tl :e asset is a 530,000 a cear in divihouse . Vou might retain dcnds . You transfer it to a the rightto li%e in the house defecti~e trust, paying for a certain time ; if the gift tax on [he S I million . asset is a <strong>business</strong>, vou You also cover the annual might retain a fised annu- income tax hill of, say, al payout during y~our li ;e- $12,000 . After ten v_ ears time . Because the ;ifr is vnu hare eAecticely h<strong>and</strong>ed not ofpropern~ outright, but of a remainder interest, the ~aluc used to calculate the gift ras is loa' . A defectire trust is a gih to }our heirs, constructed in such aWae that cou are subject to gift tax immediatelc, vet the income from the assets is tlvoxin back on }our own tax return for as long as cou li% e . Did the trust backtire? Not at all . Your ulterior motive is to make a gih of thc income tax paNmcnts . anotherS120,000to ~ rour heirs, estate tax fiee . YYhy not just leave the . property in a«'ill? Because i then the 513,000 a s'ear in aftertax dis'idends lvould i be piling up in cour estate <strong>and</strong> would eventuall}' get hit mth an estate ta., savs Seattle la~,er itl alcolm Moore . Also, estate tases, because of the vay thin- arc calculated, arc higher than gifr taxes . Given a dtoice, aou would rather pay die latter, -C .T.G . ~ ~ Columbus, Oltio lawver Lanrence Fisher . .Somc adX 'iscrs reconvncnd xx aidne until vou're older to ftmd vour li~ins trust since it can pose some admi nistratiie hassles, especially u'ith mortgaged properry . You can hare a checking aceoun[ in die trust name, but Vou %cili need one in aour own name if t'ou «•ant to use the S 10,000 gift tax exclusion . The uu insists that you pa~the money to }'ourselE diett give it to the bcnefician, . O nce anv trttst is created, vou may need nro other kinds of protcssional sen'ices : money management <strong>and</strong> trusteeship . These can be bought in a bundle or a la carte . Fee-onlt' financial planners arc a\aibable to h<strong>and</strong>le dte investment side of trust work . Typically the\ ~cill park the poitfolio at an insrinnion like Chmies Sclxrab & Co, <strong>and</strong> charge 0 .0% to of assets per ~ear for selecting securities <strong>and</strong> no-load funds . At no additionai fee- Sch«ab makes its mone%7fi-ont commissions-Sch\cab acts as cusmdian <strong>and</strong> u~ill mail out checks to beneticiaties . T«w mutuai fund operators, Fidelity Inrestotents <strong>and</strong> Neuberger & Berman, Itavc gotten into the trust <strong>business</strong> in dte past tn•o pears . Slinimum accounr. S400,000 . For a S400,000 trust where Fidelitv acts as trustee <strong>and</strong> investment manager, the fee is 0 .75% per qear . At Neubergcr & Bernian the fee is 52,500 or whidie% er is greatcr, if a trust's assets are invested entirch• in house funds . With eithrt' conipam', you also incur the expense ratios on tiie fimds . Both shun illiquid ussets like real cstate . Thcn there are tull-senice brokerage firms . Merrill Lvnch <strong>and</strong> PaineS~'ebber take uvsts as smail as S 100,000 . The annual fee for a 5200,000 trust imcsted in Merrill Ltnclt funds is 1 .5°k,, escluding fund tccs . Merrill also h<strong>and</strong>les Iife insurance trusts . :lnodler option is to name relatices or friends as trustees or cotrustees to nr,tke dif}icult decisions . You could also hire a law tirm at an hourlc rare . Or, if vou haVe enough monek',l ou could appoint a bank ora trustcompanp . Bank trust departments tvpiealhha~c higher minintums than Fidel'tn~, burtheirfees are competitice, tltey accept unusu,il assets, <strong>and</strong> thea are tcil!iug to do much more h<strong>and</strong>holding . Mellon accepts n-uste ordt at least S 1 million . Besides the usual stocks <strong>and</strong> bonds, the bank has managed such assets as talc mine rorulties <strong>and</strong> apartment houses . Annual fee fbr a S1 million account : S 10 .000 . Bessemer Trust Co . has a S5 million minimun :, for which the fee ~tould be 550,000 . It h<strong>and</strong>les secu ;ities, real estate, oil <strong>and</strong> gas partnerships <strong>and</strong> prirate companies . The fee geuerallv coNers moncv management, distributions <strong>and</strong> custoda, but other tasks (like filing M retnrns <strong>and</strong> writing oat-roll checks for Vour nucse ) will be billed srparately . One caveat, if Mu uame ;.1t institution as trustee~ Make sure rour heirs ifdiec are uuhappe, can fire the institution in faNnr of u suituble replacement . Anorltcr caveat'. Get good tas adeicc. For example, the preceding proriso should, for t .t .x reasons ssc tron't go into, be made subject to m'ersig':u ba disinterested cotrustee . Here's another ue subden' cou h-aeV to think about : A fat esacutor's tce could make cour heirs bettetotl: That motild be trtte if one of Vour heirs is %\ Ting to be ul executor, <strong>and</strong> has a cornbincd income <strong>and</strong> i\Icdiaare taa : brackct lower than your estate tax bracket . If vou haNc more than a fcumillion dollars or a complicated tmancial life, ask t'our ad~is'er to look into die more esotic u2tsrs listed in die box abo%n . But don't wait. Trusts todae are a middlc-dass necessit~. Mi Purbas 0 Augast 14, 1995 20461 5 7-3429 173 http://legacy.library.ucsf.edu/tid/agf97d00/pdf
1111111A, Ll~ I ;IIl :~ìI AA THE MONEY MEN Looking beyond the valle Y Bill Ehrman thinks we're at the end of a market cycle but expects the next cycle will be a winner, too, <strong>and</strong> soon . By Thomas Jaffe Wtt[ .tAs[ EHastaN dates his contempt for ~VaIJ Street to his first job out ot colle ge, as a research anah sr at Chernical Bank . He was told to prcoare a report on the rubber indusuv a[ the time when long-lived radial tires \\cre hitting the market . He conc .'uded people would need fevver repiacement tires, Mhich would slow earnings growth for ilte tire mmpanics . He recommended selling tire stocks . Rentembers the Hewlert, N .Y .-born Ehrman, stocky but still cherubiclooking at 46 : "~Vhen I presented ithe report], none of ahe investmcnt committee had read it . All thev did, around the rable, was open up a chart book ." Clearl\ the committee members didn't vvant to bother their heads about fundamentals. Rubber companies looked good ou the charts <strong>and</strong> that was enough fbr them . "To this dav', <strong>and</strong> I've been in the <strong>business</strong> 25 years," Ehrman says, °I have never looked at a chart book. Never go out to dumb ~Vall Street lunches . All I uy to do is logically think through «hat's hnppening . I'm a fundamentalist, A to Z,°_ Passing up all those charts <strong>and</strong> luncheons dear- Iy hasn't hurt Bill Eltrman . lM1 th three partners, Frcd- Ketchc, he runs a 5250 million hedge fund, rGs Partners, L .P ., in Manhattan . Over tour eears EUs has siioun compounded annual recurns after fees of 18%, h<strong>and</strong>ihv beating the averages . This is the more impresske vvhen rou consider that EGS took a 24% hit last cear, vchich it has just about made up this year . ÌVh'at Fuatdamental ciem is Bill Eltr- Nlilliarn Ehrman oi EGS Parfners eric Greenberg, Jonas No chart books, no dumb Wall Street lunches . Gerstl <strong>and</strong> Frederick ~ mar acrng on right now? BullishnessThough he expects the economv, to slovvsomc~vitnt, his fund is positioned partiallvin cvdical stocks <strong>and</strong> partially in sncci~al situations that haze nothing to do vcith thc economv~ . To underst<strong>and</strong> Eivman's bullishness you need to know something .tbout his vrav of thinking . He worked for master spcculator George Soros in the 1980s <strong>and</strong> considers Soros a kind ot model . Ehrman describes Soros as a °fbrnard thinker ." Essend'allv, it's an abilinto look over ralley,s to the hills beyond . While others fret about the descent into the v-allev, the Soros-typc anticipates the nice elimb up . It works both vrays, of course, since Ehrman's a hedge fund man : Sometimes you Look o\ er a hill <strong>and</strong> see a ca\ •ning hole on the other side . Ehrman cites his 1991 heavy cornmitmentin ivierck as an example of this kind of thutking: "Mhen \-lerck bought Medco Containmrtt, it took a vear-<strong>and</strong>-a-Italf's dilution to earnings . Dming that pcriod earnings plateaued <strong>and</strong> the stock vrent from the mid-30s to the 20s . That vvas the intlection point ." .Y1anv traders knew Merck \4as going to go through a period of carnings dilution <strong>and</strong> sold the stock, but Ehrman bou,ht . He \vas looking becond the vallev while others ~~ere starting dotVn into it . "Atter Merck ate through the dilution, earnings growth, Mtich had gone from 17% to zero, began to turn back up <strong>and</strong> so did the stock, vchich is now 50 . "what I've ahvavs done is look ft>r companies going through change, positive <strong>and</strong> ncgative," Ehrman gocs on . "The positive could be a managerial or a structural change . Or like ir;, where cou teel the value vtill be unlocked by managcment ." Right now he <strong>and</strong> his parrners like warner-Lambert (84), which he expects to be restructured or taken o\er . "I\vantstocksIcan make monea on in more than one ~ C tr7 ~ 174 ~ Forbcs E August 14, 1995- ~ -_ - . http://legacy.library.ucsf.edu/tid/agf97d00/pdf . --__ __ . - ..-_ . ._.,, . . .___ . . . . . . . . - , . . ~
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" " r . . ~ .), rr r-My++r• . -ma
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The "FlieQerchronogjaph" from IWC .
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ForbesS GUBUST 14. 1995 • VOLUME
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M1i How Many Peopl
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t~a +\ ir,f ressi,e\~ f~er, . Your
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Sarah knows a lot about diabetes .
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`Surprise me . Give me more power t
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1; ,iile "downsizing" rnaiv not be
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Bangkok . . . The beet of both worl
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The disaster cane as no ereat surpr
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Mazda presents a new take on the ol
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"With ail thy getting get underst<s
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ery fifty-6ce minutes Old Faithful
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Other Comments Waffling Away the Ti
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There's a lot than you pro VISION.
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Commentary on events at home <stron
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One of the largest teams at the Oly
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I "'I ~ 1 1~ 11111J r iiiil ;l~~~ i
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ie niercern.visenr SL-Class . For m
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_ THE STOCK MARKET WILL CRASH ,500
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Rogers and Cronk d
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ket . They're reluctant but hase li
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~ear, cellular operators, dri%en bv
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Remember your first time driving al
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I Toshiba Multimedia /100, 0 sA1
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I ~ , I SOUNDS SO REAL, PEOPLE WILL
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Using phony invoices, importers are
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ADVERTISEMENT 2 THE SKYTEL U .S . C
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ADVERTISEMENT 4 The Golf Club of Ge
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under par, matched a $3,000 first-p
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Riviera Country Club, Pacijc Palisa
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I ADVERTISEME*+'C 10 I o~¢t~G0LPr9
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ADb'ER'TISESiEVf 12 T H E S O U T H
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ADVERTISEMENT 14 The other Pilgrim'
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Wvnstone Golf Club, North Barringto
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ADVERTISEMENT 18 and</stron
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ADVERTISEMENT 20 The Creek Club . L
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ADVERTISEMENT 22 I where they recor
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WE CAN GIVE YOU VIRTUALLY EVERYTHIN
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204G6"13338 BUSINESS REPLY MAIL FIR
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One of the great success stories of
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ADVERTISEiv1E:VT I he son of a free
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i 1_ Comdisco I 9 1 ~ !ohn Vos :cky
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Innkeeper Henry Silverman has hundr
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i i i Patel, Inc. Patel), whose com
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Mylan Laboratories Making tablets i
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OUR FINANCIAL SIDLLS HELPED ONE COL
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IN voVATWE PROJECT FiNANciNG FOR A
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"With the Optra line, Lexmark has e
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Our pilots have to fly over a milli
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A D V E R T- S E M c- N T B HYu N D
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A D v- R T I S E M E N . 8 THE I,G
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A D V E R T I g E M E N T C DAEWOO
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The relationship between father <st
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Daewoo Sells Solutions 11 r(,o o& E
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Forbes Special Offer r Bill me . -1
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A D V E R T I S E M E N T KORE A N
Page 119 and 120: A DV c R T I S E M E N T 2 0 ASIANA
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Page 123 and 124: The supreme irony of World War II-<
Page 125 and 126: World War II U,S . arfi`lery, 1938
Page 127 and 128: _ World War II Humiliafion Forthese
Page 129 and 130: Lies, , damned lies and</st
Page 131 and 132: Hcalth scare I Expect more such non
Page 133 and 134: I ∎ Health scare share a lot of t
Page 135 and 136: , I , ,I I ,, i I L Unbundling nati
Page 137 and 138: gSS6-wi'rirurun~mraqe('Y66r ~ http:
Page 139 and 140: Uncle Tobia, who cooked for a pope,
Page 141 and 142: TRW Today In 1994, 7RW's sales <str
Page 143 and 144: sessed with eiboscing his wasiato t
Page 145 and 146: SPECIAL ADYERTiS1NG SUPPLEMENT a 0
Page 147 and 148: . SPECIAL ADVERTISING SUPPLEMENT P
Page 149 and 150: Oil is an essential component in ec
Page 151 and 152: RECEIVE FREE INFORMATION FROM ADVER
Page 153 and 154: ∎ (canrir.nrd frou: p . 23) dav.
Page 155 and 156: Now that's what we call multi-funct
Page 157 and 158: In the success of new electronic ga
Page 159 and 160: tl Fred Gibbons beat Bill Gates to
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Page 163 and 164: ~ ia y i LU g[gim I James Weber, pr
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Page 175 and 176: ~ . ~- ~~. . O ..~. 18 ta .+s! f ff
Page 177 and 178: KnWit-Ridder-CRB spot indexes RnWRi
Page 179 and 180: I I STREETWALKER A Salomon bull Is
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Page 183 and 184: U i NO POSTAGE NECESSARY IF MAILED
Page 185 and 186: Ul N 1 1 4 E'7 ~ 1 111 ~ì i i , 11
Page 187 and 188: UYL7.7J Li L FINANCIAL STRATEGY ja
Page 189 and 190: ' 1' I 'lJ! 111' Ticket consolidato
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Page 193 and 194: l i COLLECTORS "Pay the $2" A resal
Page 195 and 196: FORBES MARKET C0 L* A* S* S * F# I
Page 197 and 198: °Tne more thirgs change . . ." 70
Page 199 and 200: Prevention magazine chose LeSabre f
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