Market Musings Blog

Americans are pretty charitable, and we’re not just talking about the rich. Generally, Americans give away between 3% and 4% of adjusted gross income per year, across all income levels, though giving tends to be a little higher at the lowest end of the income spectrum. Interestingly, isolating giving to just donors, instead of the entire population, totals are about one percentage point higher. So in the population of “donors only”, at the $100,000 income level, donations run about $4200. For all taxpayers at that level, donations are around $3700. Further, amounts given as a percent of adjusted gross income have remained very stable over the years.

Keep in mind that if you stray much higher than these figures, or outside the realm of any ‘norms’ tax-wise, you essentially flag yourself as an audit candidate. That’s not a reason to be stingy, but it is a reason to keep meticulous records if you have large charitable contributions.

What if you are asset-rich but don’t have much income? Maybe you own real estate or a large portfolio of lower yielding stocks and municipal bonds that don’t generate a high taxable income. It’s harder to find figures that correspond to how much is normal or even appropriate to give away where assets are high but income is low. However, we found an old study that investigated lifetime giving as a percentage of total wealth, using later-filed estate tax returns. Turns out that people give away about 0.4% to 0.5% of wealth per year, then upon death, charitable giving via estate planning spikes. People clearly have a preference for retaining wealth while alive, even when it cannot be consumed; then being generous at death.

Finally, a note on the new tax bill: the bill hikes the amount of AGI that a person can give away and still deduct to 60% from 50%. It’s hard to imagine giving away that much income, of course.

The new tax bill is just about 1100 pages long, and many of its provisions are very particular to certain situations, such as residents of high tax states, those subject to AMT, and so forth. For specific questions about your tax situation and the bill’s new provisions, be sure to talk to your accountant. That said, here are some little known provisions that will affect investors:

1. The exemption from AMT taxation was hiked, to take account for the fact that inflation has caused more folks to fall into the AMT trap.
2. Estates can now be nearly twice as large before paying tax, up to $10 million, with another hike due to inflation to over $11 million expected in 2018.
3. Phase out of the subsidy for purchasing an electric car. This one is complicated. It is geared to each manufacturer’s production. Once a car maker has constructed its 200,000th electric car, the $7500 subsidy associated with buying that maker’s EVs begins to decline. So Tesla’s subsidies will run out relatively quickly, while makers who have barely made one car will take months if not years to run out their subsidies.
4. No more deduction for home equity line of credit interest.
5. Private purpose municipal bonds, earlier on the chopping block, were preserved, so these can still be offered to muni investors. That is important for maintaining supply in this market.
6. Section 529 college savings plans can now be used for elementary and secondary school education, not just for college. This vastly improves these accounts’ usability.

Per above, any questions about the bill and its effect on your particular tax situation, we suggest a quick call to your accountant.

What do you do with financial accounts when a loved one is diagnosed with Alzheimer’s? This question is becoming more pertinent by the day as we live longer.

The issue of protecting assets that had heretofore been shared is a delicate one to be sure. We have seen any manner of difficulties arise as investors become less capable, including spending addictions; or the opposite -giving away joint assets; inappropriate trades, or simply misplacing or misunderstanding accounts (annuities are particularly tricky); forgetting passwords; incurring debts or forgetting to pay bills, etc.

A plan for Alzheimer’s ideally begins before anyone is affected. An easy way to start is with how assets are titled, allowing more than one person to have a measure of control over accounts. However, if you have an estate plan, be aware that you can defeat that plan if you change titling that your attorney has recommended. Another approach might be to grant another party power of attorney in some form. POA’s come in different strengths and should also synch with your estate plan. In extreme cases, and where you can gain cooperation with the affected patient, a conservatorship or trust may be in order.

Keeping an eye on transactions and accounts on a daily or at the very least a weekly basis is another possibility. This scrutiny has the added benefit of allowing you to watch for hacking fraud as well. Often you can sign up for email or other alerts as transactions process in credit card, bank, and investment accounts. Just be sure that the device you use to accept these alerts is itself well protected from theft. Don’t forget to watch for Social Security payments to arrive too. Those of us who do not receive SS yet aren’t tuned up to watching for it!

Credit card limits can be lowered, to help prevent overspending; and someone should monitor bills and billpaying activity so items do not go into arrears. Automatic bill paying from a checking account can be employed in some cases, but even this should be monitored as amounts can change, resulting in overdrafts.

Although it sounds self serving, an investment manager who is tuned in to the aging investor can cast a watchful eye on the situation frequently (we watch every account every day) and make suggestions as needed. If you bank at a branch where the personnel are stable and you know them, sometimes a banker can be drafted to duty, alerting a co-owner of suspicious activity. Be aware that no one will talk to you about accounts on which you have no authority – that’s where joint titling comes in handy.

In yet another blow to corporate America, Equifax has belatedly let us all know – and by ‘all’ I mean nearly every adult in America – that our information has been stolen. Since these credit reporting agencies are repositories for virtually every number that is important to you – bank account numbers, credit card numbers, your SS number – this is completely alarming. (Also alarming is the fact that company executives claim they ‘didn’t know’ about the hack while they sold millions of dollars worth of Equifax stock.)

You can fight back by either placing a fraud alert at each of the credit reporting agencies (Transunion, Experia, and Equifax), or you can place a ‘security freeze’ on your accounts at these entities. You must place the freeze at every agency, or you risk leaving a hole to be exploited nefariously. You will receive a PIN either online or in the mail – keep that, or unwinding the freeze will be very time consuming. I decided to be a guinea pig for this exercise and visited each agency. Though all the agencies offer online forms to effect a freeze, none of these forms worked for me. I used the phone instead. Before you groan, I experienced no waiting on hold, as the systems are automated. In Oregon, there is a $10 fee for placing the freeze, with each agency.

The security freeze will not allow access to your credit report. It’s not appropriate for everyone – certainly you do not want to use it if you are in the middle of buying a home for instance – but the idea is it will not allow anyone to use your information to open a new account – including you. You can temporarily ‘unfreeze’ your report if you need to, but that will require the same process that signing up for it in the first place did.

All told, I managed to place security freezes at all three agencies in about 35 minutes. Not bad. We’ll see if I start receiving calls from entities that are accessing my credit report! For further information, visit https://www.howtogeek.com/209396/how-to-prevent-identity-thieves-from-opening-accounts-in-your-name/

The debate over health insurance in the US continues to rage. No one likes any of the solutions proposed by anyone very much. But it’s not the solutions that are the problem; it’s the nature of the debate. When did we become obsessed with health insurance, versus health care? This reminds me of the basis of most magic tricks: distraction.

The very nature of this debate proves that market forces are long gone from the health care industry. We don’t even think of health care in terms of market forces any longer. But here is one that should enter the debate: the supply of health care. Heretofore, we have only spoken of the demand for health care; nary a soul brings up the supply. Yet, the laws of supply and demand cannot be repealed. If legislation increases the demand for healthcare, and the supply of it does not change, then the price will rise.

Take nursing. The supply of nurses is restricted in the US because of aging faculty, aging teaching facilities, just plain not enough teaching facilities, and retirements of practicing nurses. The shortfall that’s been brewing here is about to become a crisis, as aging baby boomers further stress a system that isn’t working very well. Some 80,000 qualified nursing school applicants were turned away in 2012 due to facilities shortages; this is the latest number I could find, but that’s up from under 70,000 a few years earlier, so it’s a good bet the number is far higher now.

What about hospitals? Well, the number of hospitals in the US has been sliding for decades. In 1975, there were 7156 registered hospitals in the US. In 1995, there were 6291. Now there are 5564. Not good from a supply perspective.

And the US graduates close to 18,000 doctors every year, year in and year out, with very little change for decades. With retirements looming for this cohort too, the number of physicians may well decline in years to come, not increase.

Aside from the miserable supply/demand statistics – which should cause us to demand some different policies from our legislators – there is zero price transparency in the medical field. Consumers cannot order a ‘menu’ of services showing prices, as everyone expects for, say, a restaurant. Why not? One reason is that there’s no incentive to shop or even understand prices if the buyer is not paying for the service. In fact, with mandated insurance, there’s actually an incentive to purchase more services, to make the insurance ‘pay for itself’. Furthermore, since insurers can only adjust prices for age and tobacco use, there is also nearly zero incentive to stay healthy and fit.

These things need to change before we have cost effective health care in the US. Unfortunately, I see no probability on the horizon that we’re going to have an all-inclusive debate on this topic. Future generations will be stuck with ever increasing bills for health services. In turn, when your family is paying through the nose for health care, you can’t buy much else, and the economy cannot grow as fast. Not a good outcome, for sure.