June 2015

Earlier this month, I had the pleasure once again to present scholarships to the 2015 graduating class of Manchester Township High School from the C. Edward and Helen Enroth Memorial Scholarship Trust.  I presented over 20 scholarships totaling $80,000.

Before I mention the scholarship trust, let me digress a moment. A couple of weeks ago I attended a 50th reunion gathering of my fraternity, Tau Epsilon Phi, hosted by the President of my alma mater, American International College in Springfield, Massachusetts. I have not seen most of those in attendance for 50 years. What I wanted to share was that recognizing their faces after so many years was, at first, kind of difficult.  But, the more I spoke with them, the more the years seemed to strip off their faces until I was seeing them as I knew them while we were in college.  I thought that in itself was amazing.

Now back to the scholarship trust!  When I met with Mr. and Mrs. Enroth (I am comfortable using their name since the scholarship trust is a public charitable entity), they wanted to discuss their estate plan since they just moved from New York to New Jersey.  They did not have any children and had a charitable intent.  Since C. Edward worked for a NY university, they both were amenable to the concept of establishing a scholarship trust.  One motivating factor was that they did not have children to carry on the family name.  They not only loved the idea that they would be helping to educate children in perpetuity but in addition their names would also be etched in perpetuity.

The scholarship trust was funded when the survivor died in 2007. Since their estates were going to a charitable entity there were no death taxes due saving NJ Estate and Inheritance Taxes, as well as Federal Estate Taxes at that time. Since the scholarship was funded in 2007 C. Edward and Helen have provided almost $750,000 in scholarship to the graduating classes of Manchester Township High School.

As I left the stage, I told the class and those in attendance that I know that Mr. and Mrs. Enroth were smiling knowing how many children they have helped to educate.

Enjoy the summer months!

With best wishes,


Darn That Snow!

 As May closed the Commerce Department revised downward its estimate of the change in the gross domestic product for the first quarter of the year.  The anemic growth of 0.2% proved overly optimistic, as the economy actually contracted by 0.7% in the quarter.  This marks the third quarter of negative economic growth since the end of the recent recession.  In each case, growth fell in the first quarter of the year.  In each case, unusually cold and snowy weather got part of the blame for the bad news. This time the strong dollar also was credited for a drop in exports.  Economic output excluding additions to inventories fell 1.1% in the first quarter, and business investment skidded 2.8%.
Most economists believe that growth has resumed in the second quarter, although at a subdued pace.  Few expect that the economy can grow 3% in 2015.  Unemployment has been falling steadily, although one contributor to that phenomenon is the number of people leaving the labor force entirely, the erosion in labor force participation.  Real estate and home sales have been stable.
Lower gas prices early in the year provided less consumer stimulus than hoped.  Consumer spending grew 4.4% in the last quarter of 2014, but only 1.8% in the first quarter of this year.
There are signs that consumer confidence has weakened recently.  The University of Michigan consumer sentiment index leveled off in May; the assessment of current conditions fell from 107 to 100.8.  According to Gallup’s consumer confidence survey, 53% of Americans now say that the economy is getting worse.  Bloomberg’s Consumer Comfort index fell for seven consecutive weeks, with a particularly sharp drop in the South, in parallel with falling oil prices.
Weakness in the economy may cause the Federal Reserve Board to hold off on raising interest rates.  Such a decision could help to sustain the record stock prices seen through the first half of this year.

Jumbo Gift Tax Exclusions

Every taxpayer has two shields from the federal gift tax: a $14,000 annual exclusion and a $5.43 million lifetime exemption.  Each of these is indexed for inflation.  To the extent the gift tax exemption is used, one’s estate tax exemption is reduced, dollar for dollar.
The purpose of the annual exclusion is to eliminate the necessity of gift tax returns until the total of gifts made to one person exceeds $14,000 in a single year.  Note that the annual exclusion is not per taxpayer, it is per donee. A grandfather with six grandchildren may give each of them $14,000 this year without needing to file a gift tax return to report the gifts to the government.
One couple recently leveraged the gift tax exemption and exclusion to avoid all gift taxes on a transfer of property worth $3.2 million to a trust.  They each claimed $720,000 in gift tax annual exclusions, and their lifetime gift tax exemption covered the rest.
How is that possible?  The trust was a so-called Crummey trust, named for a taxpayer victory many years ago.  That case held that the annual gift tax exclusion must be allowed if a beneficiary has a power, even a temporary power, to withdraw trust assets when they are contributed to the trust.  In the new case, the couple had named 60 different beneficiaries for their trust, each with a Crummey power of withdrawal.
It’s important to note that the withdrawal power must not be illusory.  The beneficiaries must be advised of the power as well as the contributions to the trust, and they must have a reasonable time to exercise the power, typically 30 days. If the power is not exercised, the property remains in the trust for future distribution to the beneficiaries.
The IRS challenged the annual exclusions for the 60-beneficiary trust, but lost in the Tax Court.  The Service did not base its arguments on the large number of beneficiaries, or the practical limitations on satisfying a withdrawal demand when the trust held illiquid assets.  Rather, the IRS focused on a clause in the trust that had the potential to disinherit any beneficiary who objected to a trustee’s distribution decision.  The Tax Court held that the clause in question did not apply to withdrawal demands, which are different from distribution decisions.
The moral of the story is that one can leverage the two gift tax shields considerably. However, excellent legal advice will be a must, because an IRS objection to such arrangements will be likely.


In the search for trustworthy advice, consumers may sometimes look to credentials and designations for clues to an advisor’s expertise.  To be a certified financial planner (CFP) or chartered financial consultant (ChFC) one must have extensive training and experience, for example.  Some of the newer designations are oriented toward helping retirees manage their money.
The retirement income certified professional (RICP) designation is awarded by the American College of Financial Planning in Bryn Mawr, PA.  Three college-level courses are required, taking from 60 to 80 hours each to complete.  Continuing education is required as well.
A certified retirement counselor (CRC) has completed four online courses offered by the International Foundation for Retirement Education.  The focus is on retirement income planning, long-term care planning and tax-efficient withdrawal strategies.
The retirement management analyst (RMA) designation may be obtained via a one-week “boot camp” at Texas Tech University or a five-week online course at Boston University. This program requires 120 hours of study.
A comprehensive guide and listing of professional designations in the financial services industry is maintained by the Financial Industry Regulatory Authority (FINRA) called “Understanding Investment Professional Designations.”  The Web address ishttp://apps.finra.org/DataDirectory/1/prodesignations.aspx. You may enter a designation or browse a list of them. Links are supplied to provide the background on each one.
Investors should also be aware that the Securities and Exchange Commission (SEC) has issued a bulletin advising investors on the use of titles and professional designations by financial professionals. Two key points:
• Financial professional titles are not endorsed by the SEC.  A title is not the same thing as a license, though it might sound similar to the layman.  A license affords certain legal protections to the consumers, while a professional designation or title does not.
• Rather than rely on a nice-sounding professional title, investors should investigate what the title means, what is needed to obtain the title, and who awards it.  According to the SEC, “such titles are generally marketing tools, and are not granted by a regulator.”
When looking for portfolio management help, it is well to remember that in the dictionary, “investigate” comes before “investment.”

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