The Ivy Investor

Two days before the historic vote, the Daily Mail backed Brexit, Britain’s EXIT from the European Union. It was not until then did I consider the actual possibility of a vote to leave. The referendum, the question presented to the general population for a vote was, “Should the United Kingdom remain a member of the European Union or leave the European Union?” In my mind, the answer was simply, “Remain.” Until Thursday night, it seemed a majority of Brits had the same answer as I did. When the results poured in, one of us got it wrong.

“It’s not whether you’re right or wrong, but how much money you make when you’re right and how much you lose when you’re wrong.” Stanley Druckenmiller

On the evening of Thursday, June 23, 2016, the world learned the United Kingdom voted, 52%-48%, to leave the European Union. Chaos ensued the next day in the world’s financial markets. The Nikkei 225, the Tokyo Stock Exchange index, ushered in its biggest decline since 2000, dropping almost 8 percent. The DAX, the German stock market index, closely followed with a drop of 7 percent. In the United States, the Dow Jones Industrial Average fell by 600 points (3.39%), its biggest loss in 10 months. In a strange turn of events, the U.K. market over performed, closing up 2%. However, the pound, the U.K.’s currency, fell to a 31 year low, down 10%. The Financial Times reported that the Global markets took a two trillion dollar Brexit hit. In short, the world’s markets tell a compelling story, the U.K. got it wrong and will pay severely.

 

“If you’ve got money, you vote in. If you haven’t got money, you vote out.”

In the days before the vote, The Guardian described Brexit as “a kind of misshapen class war.” Although class disparities and irrational xenophobia were the proximate causes of Brexit; the stage for Brexit was set twenty-four years ago in the Treaty, which created the European Union (“E.U.”).

One of the five aims of the E.U. was to establish “an economic and monetary union” with the ultimate goal of creating a central currency. Not eager to lose the pound, the U.K. conditioned its membership in the E.U. on an “opt-out” provision. This clause enabled the U.K. to participate in the E.U. without being mandated to join the currency. It was not a surprise when the U.K. decided not to opt in. Since the E.U.’s inception, the U.K. has taken an a la carte method to adopting its rules and regulations while still enjoying all of its benefits including increased investment in UK firms and access to a single market of 500 million people.

Look no further than the pocket of an average Brit for another, major contributing factor to the Brexit vote. While the majority of the E.U. member countries use the Euro, the U.K. was the largest non-participating member. Shared currency would have provided an actual identity between the U.K. and other member countries and might have made some voters consider how leaving would seriously affect their pocket. Now the country is headed into a recession. Those who championed Brexit will also bear the brunt of its burden. The average voter did not seem to understand, or appreciate, the implications of leaving the E.U. and now are poorer for it.

Where are the investment opportunities?

Brexit fueled a domino effect sell-off in the world’s financial markets; first Japan, then Germany, and finally in the US. In the second trading day after Brexit, the markets continued to slide as the world’s economic fate was still very uncertain.

Equities (Stock)

   Considering Warren Buffet’s advice, “buy when everyone else is selling,” now is a good time to buy. Regarding what to buy, Bank of America’s Chief Investment Officer, Chris Hyzy, suggested that investors should diversify into “higher-quality investments” and look to long-term investment growth strategies. Investors have been using that strategy as the U.S. market posted losses for the second day as they sold off “risky” holdings. Considering the geopolitical landscape, it seems fitting that U.S. and British banks have posted the biggest losses. For guidance on picking stocks, see my blog post, Three Steps to Picking Your First Stock.

Currency

In times of economic turmoil, many investors flock to “safe” assets such as the Japanese yen and gold. However, a strong yen is problematic for both Japanese companies and the Japanese economy. A strong yen makes it expensive for global companies to do business with Japanese companies making it difficult to spur the Japan’s economic growth. Tony Roth, CIO of Wilmington Trust, observed, “[i]f the yen does not weaken, the Japanese economy is going to get destroyed.” To counteract this, the Bank of Japan will sell off yen to lower the price. On the other hand, the pound will continue its unassisted downward movement as the U.K. heads into a recession. Between the two currencies, I would strongly consider a short position in the Yen.  Primer on the Forex Market.

 

 

 

In celebration of Mother’s Day, this article was posted on The Huffington Post on May 8, 2016.

Today, June 17, 2016, we are celebrating my mother’s FIRST day of retirement from 37 years of Nursing. Mommy, we made it! Ten years ago, my mother didn’t think this day was going to come. Why? A little over ten years ago, my mother was unemployed and bankrupt with $10,000 in her 401(k) account, a little over $370 for every year she worked. She had to cash it out.

Why did she cash out her 401(k)?

Around 2002, Mommy filed for Chapter 13 bankruptcy. My mom, like many others, used it to save her home from foreclosure. In addition to stopping foreclosure, a Chapter 13 bankruptcy plan reorganized her outstanding debts into manageable payments. She was required to make these payments to a trustee who then distributed the payments to her creditors.

Under Chapter 13, if the debtor fails to make their regular mortgage payments after he/she files for protection, the debtor can still lose their home. In 2005, my mom’s unemployment was not enough to cover the trustee payments and her mortgage; she was in danger of losing her home again.

Her retirement savings didn’t mean much if she didn’t have a place to live.

What about taxes and penalties related to an early withdrawal?

Distributions from a 401(k), or any other qualified plan, are taxed at the participant’s ordinary income rate. In addition to ordinary income tax, distributions made prior to age 59 ½ are subject to a 10% early withdrawal penalty. There are several exceptions to the penalty rule. One applied in Mommy’s case. Mommy’s unit closed in 2005, the year that she turned 55. If a 401(k) participant leaves their employer during or after the calendar year in which he/she reached 55, the penalty does not apply. Because she received unemployment compensation for the majority of 2005, she was not subject to a heavy tax burden as a result of her withdrawal.

 West Virginia University College of Law Graduation May 12, 2012

By the end of 2005, Mommy was back to work and caught up on her mortgage. But with zero dollars saved, she was still woefully unprepared for retirement. Her debt was draining her paycheck. Although she cut her personal expenses, she was only able to squeeze 10% of her pay to contribute to her new employer’s 401(k). Even with a small amount coming in, I allocated her 401(k) to maximize her contributions.

My first task was to use her paycheck to eliminate her debt as quickly as possible. I focused on her bankruptcy. In 2006, she received her much-needed bankruptcy discharge. When she received her discharge paperwork, Mommy’s attorney told her with a smile, “Most people don’t finish Chapter 13 payment plans… Let alone early. Congratulations.”

I then turned the payments that Mommy made to the bankruptcy trustee into mortgage principal payments and additional retirement contributions. After a minor skirmish with her mortgage company, she paid off her home in 2012. From 2012 forward, she maxed out her 401(k) contributions, which included “catch-up” contributions for those over 50 years old. We also pushed her social security date back to her 66th birthday. After ten years of focused energy, Mommy’s last day at work happened yesterday, and it’s a good thing.

Retirement isn’t just about maximizing your savings but minimizing your expenses. If you must file for bankruptcy, allow it to be your “ground zero,” not your end. I will never be able to repay mother for what she’s done for me, but I hope that helping her achieve this goal helps

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Yes, you read that correctly. The government has your money. And no, this is not another tax refund. According to the National Association of Unclaimed Property Administrators (NAUPA), state governments are holding approximately $41.7 billion of unclaimed property (unclaimed money). Do you know much of the $41.7 billion belongs to you?

Companies are required to send any money owed a person to his or her last known address. If they are not responsive, the company is required to turn over the funds to the state. State Treasury Departments hold unclaimed property for individuals living in their state at the time the property was “lost.” As a result, you could have money in every state that you lived. States reunite the rightful owner, or their heirs, with their property. The state holds unclaimed property, but there are some notable exceptions, such as retirement accounts and insurance, listed below.

In addition to unclaimed funds held by state governments, a survey by Consumer Reports found that there’s “at least $1 billion in benefits from misplaced or forgotten life-insurance policies.” The average unclaimed insurance benefit is $2,000. At 1 in 600, there’s a better chance that you are a beneficiary of an unclaimed life insurance policy than winning the lottery.

Myth: I haven’t owned any property in any state, so I can’t have unclaimed property.

Truth: Most states define unclaimed property as financial accounts that have been inactive for over a year. These financial accounts include bank accounts, stocks, uncashed payroll checks, and the contents of safe deposit boxes. Most people don’t abandon their money purposely. Moving to a new address, losing a check in the mail, or dying can cause money to go “unclaimed.” I found an old paycheck from college on my state’s site a few years ago.

Myth: I have to pay to locate unclaimed funds

Truth: Most states return unclaimed funds to you at no cost or for a small filing fee, so there’s no need to pay a search firm. However, some businesses conduct unclaimed property searches for a fee. Others will find lost property and charge based on a percentage of located assets. Unfortunately, there are also fraudulent companies which will charge hundreds of dollars up front and return nothing. Check with the state’s Treasury Department if you decide to go with a search firm to ensure they are an approved and legitimate company.

Where can I search for my funds?

Unclaimed property:

Start with your state’s unclaimed property website by googling, “[your state] unclaimed property.” For example, “Pennsylvania Unclaimed Property.” You can also do a free search at MissingMoney.com or Unclaimed.org. The “.ORG” is important because unclaimed.com is a paid site.

Retirement accounts:

Pension benefits – Pension Benefit Guaranty Corp

Old 401(k) accounts – National Registry of Unclaimed Retirement Benefits

Railroad retirement benefits – Railroad Retirement Board

Veterans Administration Benefits – http://www.insurance.va.gov/liability/ufsearch.htm

Bank accounts:

Banks that closed between January 1, 1989, and June 28, 1993 – FDIC – Unclaimed Funds.

If your credit union credit union was liquidated – NCUA – Unclaimed Deposits.

Government Bonds:

Forgotten or Lost Savings Bonds – Treasury Hunt.

Mortgage Refunds:

FHA-insured mortgage – https://entp.hud.gov/dsrs/refunds/.

Insurance policies:

There are six companies committed to reuniting beneficiaries with their funds. You must contact them directly for additional information.

AIG: 800-888-2452

Forethought: 800-331-8853

John Hancock

MetLife

Nationwide: 800-848-6331

Prudential: 800-778-2255

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This article was published in The Huffington Post on May 2, 2016.

Just when I thought I could not be any more distraught over the sudden passing of Prince Rodgers Nelson, this happened…

Prince died without a will.

I was overwhelmed. Why was I so shocked? As an Inheritance Tax attorney, I knew there were many individuals, including notable celebrities, who died intestate (without a will). But, Prince dying intestate flew in the face of everything we knew about him. It seemed uncharacteristic. I am not the only person that has searched the internet in vain for free Prince music. Even as I begrudgingly entered my iTunes password to enjoy his masterpieces, I respected and admired his shrewd business practices. I could not fathom that he would not handle his personal affairs in the same manner.

No country for privacy in the land of Probate.

In an interview shortly after his passing, a friend mused, “I am not sure if anyone really knew the real Prince, we all loved him, but I don’t know how much we really knew him.” The probate process is a stark contrast to the privacy Prince enjoyed during life.

The documents filed by his sister, Tyka Nelson, in Carver County gives a glimpse into how public this will be. Although the value of his estate is listed as “unknown,” the Administrator is required to file an inventory of Prince’s assets and value as of his date of death with the court by January 21, 2017. Minn. Stat. § 524.3-706 (2015). The Administrator also has the responsibility to supplement the inventory if he or she learns of any additional property after filing. Minn. Stat. § 524.3-708 (2015).

In contrast, Michael Jackson’s will was filed in Los Angeles County stating that all of his assets went to the Trustees of the “Michael Jackson Family Trust” and he named three co-executors. No additional documents were necessary.

Though fiercely protected in life, Prince’s music is in jeopardy in death.

From a young age, Prince knew the value of control. He demanded that he produce his music. Prince was a fierce protector of his music and artistry. A perfect example of his protection was in 2014 when Prince sued 22 internet users for $22 million for posting live video of his concerts.

During his contract battle with Warner Brothers in the 1990s, Prince changed his name to a symbol to show he couldn’t be controlled. The media responded by calling him, “The Artist Formerly Known as Prince.”

Prince’s protection of his intellectual property during his life could ultimately mean nothing if his Estate is unable to maintain that same level of protection. In an attempt to address this problem, in her Petition For Formal Appointment of Special Administrator, Ms. Nelson stated that Prince “had substantial assets consisting of personal and real property” that required protection and his “owned and controlled business interests” required ongoing supervision and management.

Administering an Estate through the laws of intestacy can be a long process. It is unclear how his business interests are situated, but a search of county records around Minneapolis revealed several properties owned solely in his name totaling over $1,000,000. Although one million dollars is just a small fraction of Prince wealth, it signals some of the thorny legal issues on the horizon.

Under Minnesota law, Prince’s whole blood sister, Tyka Nelson, and five half-siblings have an equal right to his assets. See Minn. Stat. § 524.2-103 (3) and 524.2-107 (2015). It has been almost thirty years since the last Nelson family feud. In 1989, Prince, his father, and brother were engaged in a legal battle with his sister, Lorna, over Prince’s song, “U got the look.” Nelson v. PRN Productions, Inc., 873 F.2d 1141 (8th Cir. Minn. 1989). Family disputes can extend the administration process by years.

Prince’s charitable contributions could stop with his death.

The most profound thing I learned in the days following Prince’s death was the depth and breadth of his philanthropic work. For years, Prince collaborated with philanthropist, Van Jones, on numerous projects, most notably, #yeswecode, which was inspired by Trayvon Martin’s murder. Until 2011, Prince had his own 501(c)(3) charity, Love 4 One Another Charities, credited with donating millions to schools and charities in Los Angeles, Chicago, and New York.

Unfortunately, because there are no provisions of intestacy law which provide for charitable donations, Prince’s work could end with his death.

Even without a will, there’s a possibility that not all of Prince’s assets will go through the Probate process. Two types of assets, joint property with survivorship and assets with beneficiary designations, will not pass through probate. His multitude of business interests could also avoid probate. However, what all of this means for Prince’s estate is still very much uncertain.

 Our takeaway. While most of us don’t have as much money as Prince, we know how, and to whom, we want our assets distributed when we die. Make your wishes known by creating a will.

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