When You Pass On, Don’t Leave the Passwords Behind

Digital assets and passwords - RIPIsn’t it fun keeping track of all the different user names and passwords required in a digital world?  I updated my own list a week ago and I had 52 of them, 3 with Apple alone.  If you think it is tough getting into some websites now, can you imagine what happens when someone dies and their digital information needs to be accessed?  It can be a mess.  Leonard Bernstein died in 1990. His password protected memoir Blue Ink has not been broken into yet.

Online accounts have expanded exponentially.  Digital accounts and property may greatly exceed an individual’s paper records and lists of those records.  We are now at the beginning stages of how to include digital assets in estate planning.

On April 19th, Robert W. “Bobby” Pearce, Jr. of Smith Moore Leatherwood LLP presented “Digital Estate Planning” to the Estate Planning Council of Charleston.  My take away from his excellent presentation is that with the explosion of digital assets, all of us must rethink our estate planning.  Who owns the digital assets? Who can access the assets? In short, Bobby suggested that currently, the “rights of representatives, executors, beneficiaries and others are as clear as mud.”

Digital assets are any online property you own including any file, email, documents, photos, videos and images stored on digital devices including desktops, laptops, tablets, smart phones and other storage devices.  Digital accounts are email accounts, software licenses, bank accounts, social networking accounts, domain names, professional accounts, personal accounts and other online accounts.

Mr. Pearce indicated that the current legal status of online property records is largely dealt with by each online website’s Terms of Service (“TOS”). And TOS’ differ greatly.   For example, for yahoo, the account is nontransferable and will be deleted after 90 days.  Google requires a cumbersome process to obtain access to an account. Ultimately, court orders may be needed in both situations.  Only one state, Oklahoma has passed legislation dealing with digital property.  The question is, does the statute trump the TOS contract?  And what happens in the other 49 states?

There are other issues.  What is the value of your digital property?  Domain names and copyrighted work online may have commercial value.  And what about the personal and emotional value of photos and videos on Flickr, You Tube and other sites?  Who should be in charge of your online accounts, user names and passwords when you die?  What will be your instructions to the person?

At a minimum, you should get the following done now:

  1. Inventory your digital assets of all types and locations
  2. Identify the person to handle them
  3. Provide a list of accounts, user names, passwords, PINs and answers to security questions
  4. Instruct your designated person with how you want these to be managed
  5. Provide authority through a digital asset POA or other means

In short, it’s time to put your digital asset affairs in order.

Simplifying the Tax Code

 

Simplifying the income tax codeMillions of Americans participated this week in the annual ritual of filing income taxes-probably cursing this confusing, complicated process. While many politicians rail about the complexity of the tax system, few are actually willing to support meaningful simplification efforts. The chart above demonstrates the problem.

 

Current individual income tax breaks exceed $1 trillion per year. It may come as a surprise that the largest is the exclusion for employer-provided health insurance coverage. If taxed, Uncle Sam would get an extra $164 billion in annual revenue but employers might drop coverage and get out of the health insurance business for their employees. The mortgage interest deduction costs U.S. coffers $100 billion annually. But repealing that deduction would raise the cost of housing for homeowners and likely cause a further drop in home prices. Eliminating deductions for charitable donations would certainly hurt not-for-profits at a time when many are already struggling from reduced state and federal support.

 

Two years ago, Alan Simpson and Erskine Bowles, co-chairmen of the National Commission on Fiscal Responsibility and Reform put forward a plan to wipe the slate clean and start from scratch. They proposed eliminating all deductions, exclusions and credit and provide three tax brackets; 8%, 14% and 23%. The Simpson-Bowles proposal, which also included huge budget cuts, was finally brought to a vote in the house on March 28. It received only 38 votes. The fact is that the majority of the “tax breaks” are immensely popular and have become imbedded in our economy and society. Americans are not prepared to live without them.

 

Recently, Professor Michael Graetz of Columbia Law School came up with another possible solution. He would abolish the income tax for most Americans and replace the revenue with a 12.5% value-added-tax. Prof. Graetz would give each family a $100,000 tax exemption, which would eliminate income tax for 90% of those currently filing. For those with income above $100,000, top tax rates would be 20-25% on taxable income. Mr. Graetz outlined the details in his 2007 book “100 Million Unnecessary Returns.” His basic concept is that if the current tax breaks are so much a fabric of our society that their elimination is unlikely, then make them irrelevant to most Americans by instilling a large exemption and a new VAT tax.

Very interesting.

Gentlemen Prefer Bunds (German Bonds)

On March 10th, U.S. stocks declined for a fifth day.  The reason most often given was concern over Europe. Bond prices on most European bonds have declined, producing higher yields. Investors have flocked to safe havens, such as U.S. and German bonds, pushing those prices up and those yields sharply lower.

Spain’s ten year bonds are now yielding 5.8%. Spain is entering its second recession in three years, unemployment is at 23% and the government expects the economy to contract about 1.7% in 2012. The Spanish stock market is the lowest since March 2009. The concern is that austerity measures could have the effect of further depressing growth and creating a vicious cycle in which more budget cuts are needed to balance the books. Italy’s ten year bonds are not far behind, yielding 5.5%.

French business confidence has stagnated and factory output has dropped. Manufacturing production fell 1.2% in February and the Bank of France said its surveys suggest that GDP didn’t expand in the first quarter. On March 31st the Economist characterized France, Europe’s second largest economy, as “A Country in Denial.” Comparing them with Greece, the Economist indicated that “the Greeks know that free-spending and tax-dodging are over. But (France) has yet to face up to its changed circumstances.” Upcoming French elections demonstrate the reluctance to change. Front-runner Socialist Francois Hollande has promised to rollback most of the recent pension-age reforms and install a 75% tax rate on the wealthy. None of the candidates are offering radical reforms or austerity programs seen in other European elections recently. Yields on France ten-year bonds are currently 2.93%. But that could move up quickly and significantly right after the elections.

Germany is the one major bright spot. German ten year bonds are yielding 1.8% (as compared to ten year US treasuries yielding 2.04%.) Germany’s exports are up and its trade surplus surged in February. The above chart tells it all. German productivity has far outpaced the rest of Europe in the last eight years. Nominal unit labor costs have stayed almost level in Germany, while growing in Italy, Ireland, Spain, Greece and France. During this period, only Ireland has seen their costs drop, starting in 2008, as their labor accepted pay cuts and productivity increased. To get on par with Germany, all five countries would need a 30% pay cut to become competitive. It’s unlikely we can expect that to happen any time soon.

Preventing the Next Financial Overdose

Financial overdoseNew drugs are vetted by the Food and Drug Administration before they reach market. Should the same process be considered for new financial instruments?

Two professors at the University of Chicago, Eric Posner and E. Glen Weyl, think so. In February they published a paper arguing that regulators should approach financial products the way the FDA approaches new drugs. They suggest that the potential dangers of financial instruments “seem at least as extreme as the dangers of medicines.”

Their idea is that there would be a federal agency, designed along the lines of the FDA, which would test new financial products for social utility. In their analysis, products that serve only to increase speculation would be rejected. Products that help people hedge risks would be approved. The goal would be to deter financial speculation, or gambling, which contributes to systemic risk.

Certainly, their proposal has gotten pushback from those who believe that financial innovation is always good and regulation is always bad. Yet, given the fact that exotic instruments contributed to the credit crisis, it is valuable to review their proposal in a more detail.

Professors Posner and Weyl would distinguish between financial markets-where institutions lend money, trade securities and make investments and the real economy, where people trade goods and services. They believe that the real economy should be largely unregulated but the financial markets need regulation.

Furthermore, they don’t believe that disclosure alone is enough for financial instruments. “In pharmaceuticals, we could allow a company to sell whatever it wants as long as it tells the people the product might work but also might cause your head to fall off,” said Professor Posner. But, “we don’t do that because people will ignore the information, so we draw the line and say, ‘You can’t buy the product’.“ The same logic, they say, should be applied to financial instruments that could be harmful.

It’s unlikely that their proposals will become reality anytime soon. However, their comments may someday help to limit financial overdoses in the future.

Investment Behavior- Do Your Genes Control You?

Economists assume people act rationally. Bad assumption. Investors often don’t act the way they should. There is a long list of investment biases and many people are born with them. Five of the major follies of investing are 1) the reluctance to realize losses, 2) chasing performance, 3) insufficient diversification, 4) excessive trading, and 5) non-objective evaluation of risk and reward.

The recent report, “Why Do Individuals Exhibit Investment Biases?” researched and written by Henrik Cronqvist and Stephan Siegel illustrates how genes impact investment decisions.

Investment Behavior- Do Your Genes Control You?Economists assume people act rationally. Bad assumption. Investors often don’t act the way they should. There is a long list of investment biases and many people are born with them. Five of the major follies of investing are 1) the reluctance to realize losses, 2) chasing performance, 3) insufficient diversification, 4) excessive trading, and 5) non-objective evaluation of risk and reward.

The recent report, “Why Do Individuals Exhibit Investment Biases?” researched and written by Henrik Cronqvist and Stephan Siegel illustrates how genes impact investment decisions.

Their research was based on analysis of investment decisions made by identical twins in Sweden. They selected Sweden for two reasons. First, the Swedish Twin Registry (“STR”) is the world’s largest twin registry. Swedish twins are registered at birth and STR collects additional data through in-depth interviews. In particular, Cronqvist and Siegel wanted to focus on identical twins with identical genes rather than include fraternal twins, who share only 50% of their genes. Furthermore, until 2007 taxpayers in Sweden were subject to a wealth tax based on investment assets. Information about individual portfolios including holdings and sales was required to be filed with the Swedish Tax Authorities annually from 1999 to 2007.

Cronqvist and Siegel selected 15,208 pairs of identical twins and tracked their investment behavior using the wealth tax data. Controlling for various factors, they found that identical twins were more similar in their investment behavior than fraternal twins.

They also found that twins who had a “home” bias in investing also had a home basis in other ways. A home bias in investing typically would means that the individual would rather own stock in Swedish companies rather than stocks of foreign companies. Hence, this portfolio probably had insufficient diversification. Twins showing this bias also showed a preference for living closer to their place of birth and for marrying a spouse from their region of the country.

The researchers concluded that genes explain up to half the variation in investment behavior. They also looked into other factors. In particular, they reviewed education as a possible influence in investment behavior. Earlier research has shown that education reduces expressions of genetic predispositions to poor health. A baby born with bad health genes can overcome this deficiency with education and discipline. This is not the case with investment behavior. Cronqvist and Siegel found that education was not a significant moderator of genetic investment biases.

So, there you have it. Some lousy investors now have a new excuse. Their genes “made them do it.” Fortunately, financial advisors like DWM are here for many reasons; one of which is to help individuals make rational investment decisions regardless of their genes.

Will you be able to celebrate your century mark?

Lester Detterbeck of Detterbeck Wealth ManagementFrom the Charleston Mercury today:

“You’re invited to my 100th birthday party, so mark it down: Nov. 20, 2047 – only 35 years from now. This isn’t a joke. Recent studies show that Americans are living longer. It’s likely I will reach 100. Will you? And, if you do, will your savings last that long too? “

 Click here to read my latest contribution to the Charleston Mercury.

 

Email and website announcement

As of today, our emails are changing. As you know, DWM has been busy in the last year. DWM Financial Group was formerly the parent company for two divisions: DWM Investment Management and Detterbeck Wealth Management. In 2011 we divested DWM Investment Management, our third party money management division, so we could focus solely on clients and prospects of Detterbeck Wealth Management.

In conjunction with this change, we recently overhauled our website at www.dwmgmt.com. We’re very proud of it and if you haven’t seen it yet, we invite you to take a look.

Hence we’re changing our emails from @dwmfnclgroup.com to @dwmgmt.com. To avoid possible issues with your spam filter, please be sure to update your contact records to assure further communication from DWM!

Sincerely,
Detterbeck Wealth Management
Les@dwmgmt.com
Brett@dwmgmt.com
Amy@dwmgmt.com
Jenny@dwmgmt.com

NAPFA Press Release

Local Financial Advisor Joins Leading Association of Fee-Only Financial Planners: Brett M. Detterbeck of Detterbeck Wealth Management accepted for membership in the National Association of Personal Financial Advisors (NAPFA)

ARLINGTON HEIGHTS, IL- Brett M. Detterbeck of Detterbeck Wealth Management in Palatine, IL has been accepted for membership in the NATIONAL ASSOCIATION OF PERSONAL FINANCIAL ADVISORS (NAPFA). With membership, Detterbeck becomes affiliated with an organization of more than 1,500 of the most­ qualified financial advisors in the nation, as well as 900 other allied professionals.

Membership in NAPFA and the NAPFA-Registered Financial Advisor designation are only available to Fee­ Only advisors who meet NAPFA’s stringent qualifications. Those standards prohibit the acceptance of commissions and sales related compensation, require advisors to act in clients’ best interests at all times, and to offer comprehensive planning services. NAPFA is also known for having the industry’s most rigorous education and training requirements. Candidates for NAPFA-Registered Financial Advisor status are required to submit a comprehensive financial plan for a peer review.

To read more, please click here.

 

Ben Bernanke’s Latest Report to Congress

Ben Bernanke reportOn February 29th, Federal Reserve Chairman Ben Bernanke gave his biannual “Humphrey-Hawkins” report on monetary policy to Congress. In short, Mr. Bernanke testified that the “recovery of the U.S. economy continues, but the pace of expansion has been uneven and modest by historical standards.”

Mr. Bernanke noted recent “positive developments in the labor market” but said that the job market remains “far from normal.” He indicated very little worry about inflation even with the recent rise in energy prices. He pointed to advanced household spending in 2011, even though “the fundamentals that support spending continue to be weak: real household income and wealth were flat in 2011 and access to credit remained restricted for many potential borrowers.”

In the housing sector, he testified that affordability has increased, however many potential buyers lack the down payment and credit history to qualify for loans and others are reluctant to buy due to their concerns about “their income, employment prospects and the future path of home prices.” Mr. Bernanke outlined increases in manufacturing production and capital expenditures, yet indicated that the consensus of the Federal Open Market Committee is that GDP will increase overall by only 2.5% in 2012. 

Mr. Bernanke indicated that the target range for the federal funds rate remains at 0-1/4% and is expected to stay near that until the end of 2014. If so, mortgage rates should stay low and C.D. rates will be just slightly above zero for the next three years. He left the door open to a new program of mortgage-bond purchases to drive long-term rates even lower.

The Fed Chairman testified that a number of “constructive policy actions have been taken of late in Europe”. He continued, “We are in frequent contact with our counterparts in Europe and will continue to follow the situation closely.” One day after Mr. Bernanke’s testimony, the Euro-zone finance ministers said they were ready to give Greece the money it needs provided a bond swap that will cut the debt Greece owes it private creditors goes according to plan this week. At the same time, European economic data released on March 1st was grim. Overall unemployment hit a 15 year high, while inflation unexpectedly accelerated.

Zanny Minton Beddoes, of the Economist speaking on NPR’s Morning Edition last week, put the potential impact of the European problems on the America recovery this way: “In the past few months, the Europeans have successfully covered their festering sore with a massive, great Band-Aid. And, now the acute crisis has turned into a chronic one. With that, we can take off the table the risk of a financial catastrophe in Europe.” Let’s hope so. We’d like to keep the momentum going on our current U.S. recovery.

For more information: http://www.telegraph.co.uk/finance/economics/9113704/Ben-Bernankes-monetary-policy-report-to-Congress.html