Trust me

In the last series of posts I highlighted how feeling "too" safe might be deleterious in the (not so) distant future, if you hit a school bus with your car no insurance company will cover the amount of damages, if the IRS or Italian GdF make a random search (with parameters) they will find your name popping up very easily (international databases are now shared and searchable without request by certain institutions) I also introduced the Trust which have existed since Roman times and have become one of the most important innovations in property law.


So what is a Trust, what are the major benefits and how do you get one?

A Trust is an arrangement whereby a property (of any kind) is held by a nominee for the benefit of another. In the past they were formed by a notary office (they still are but with some additions), and the Trustees would have to be provided by the client which ended up in the formers always being people closely connected with the latter.

Nowadays though, to aid confidentiality, it`s big corporations that act as Trustees (or nominee if you wish), so whereby trustees indicated in the old fashioned way were connected to a single settlor/beneficiary (if your brother is a trustee, the number of people he can be the trustee of is rather limited wouldn`t you agree?), that connection is no longer there nowadays as the same corporation act as trustee for thousands of people.

The client as said before can be both the settlor and beneficiary, but his name will not be on any public record or data base, nor any property that is settled inside the Trust, this way not only you can dispose of things in all privacy, you can also rest assured that no claim can be made against them.

If you lend your car to aunt Betty and she crashes into a school bus, the only things that are liable are the crashed car and poor aunt Betty (supposing she is still alive).

If your ex employee wants 160 million dollars in damages (like Ellen Pao) and the judge rules in his/her favor going after your properties, he will probably have to do with that same crashed car. If some organization does a data base search you won't be in it.

As a Trust is not made public, upon your death, your estate will be distributed in private. A will, on the other hand, is public record and all transactions will be public as well. There will be death/inheritance taxes and probation (none of that with a Trust, your heirs get everything immediately and you can even decide how and when they get it).

You can set a trust in a couple of weeks with the help of a financial adviser.

At this point you must probably be thinking "It sounds all fine and dandy but how much does it cost?"
In certain circumstances it could even be free of charge, and if you want to do it with a major corporation, you could set it up for just GBP 299 (includes Trust Deed, Due Diligence and Formation) and then pay less then a coffee a day to keep it running, what it saves you in the form of tax efficiency (let me know if you want to know more on this) and liabilities avoidance, is worth thousands of times more.

If you don`t have a Trust your actual position is similar to a sitting duck, where the hunters are all the calamities out there aiming at you right now or in the future (you know how lazy hunters are, if your the only sitting duck in their pond guess who are they gonna shoot at...?).

Better put your self in a safer position, no matter who you do it with, you are going to thank me later...

The Friend that outlasted Fido...

Ahh, changes, most people don't like them, a few embraces them and even less prepare themselves for their inevitable coming, the latter out of an ephemeral sensation of security, that seems to be there only to blind us from seeing the bitter reality of things nowadays.

From the day we are born we usually have someone taking care of us, our parents initially (and for quite sometime) but eventually other "figures"play an important role, the teachers at school/university, the company we work for, the state government asking for taxes in return for services (including public order among many things) our loved one, our best friends and yes even our favorite furry mascots.

BUT, in a globalized world where big companies once secure are now on the verge of bankruptcy and being bought by Arabian or Chinese firms, with the whole thing happening under the eyes of indebted governments only looking for ways to recover money in order to pay interests on their debts (with banks helping them out on their quest by whistle blowing your private business to them) can you be sure there is anyone out there really looking out for you?

What about the rest of the things I mentioned above?

Let me tell you about Mark (fictional name, but true story, a real case study if you wish) he married the love of his life, landed a dream job, bought a puppy of his favorite breed of dogs and started saving with the help of a good financial adviser.


Eventually he quit his job and went to business with his best friend Joe.

Life was looking up, plenty of love and money flowing in, what could go wrong? Well in 15 years he divorced his wife, had several fights with his best friend on business quarrels eventually leading to a company split. At least he was able to keep Fido.

You see, that's the great thing about dogs, no matter the circumstances they are always there waiting for you at home with a wagging tail (gotta love'em) their only problem being... they are short lived (18years if you are lucky) but they are worth all the effort and give back more than they receive.

Now then, wouldn't it be great if in addition, there was something else out there with similar characteristics?


Returning to the story of Mark, poor Fido eventually died of old age and so did Mark`s parents, at that point he would have been left alone at the mercy of demanding divorce lawyers and blood sucking institutions if it wasn't for the fact that at a certain point during the early years, Mark followed his Financial Adviser suggestion to put his holdings inside a Trust (everything except for the liquidity needed for everyday life and later, to run things) enjoying tax free growth on his savings and asset protection (not to mention that thanks to absolute confidentiality he didn't even have to litigate such assets during divorce procedures).

He was able to re-marry, have 2 beautiful baby daughters and get a new puppy. He is still saving into a Trust and in full control of his life.

Whether we like it or not, there are no guarantees that the people currently in our lives will stick till the end, and after our parents, there is really no such a thing as an external institution (or person) that is there in order to really look out for us, I believe we all agree in that we need to build our own safe haven ourselves, a bullet proof stronghold if you wish.
But don't let rosy circumstances blind you from perils up ahead, if your wealth growth is being eaten by taxes, inflation and all kinds of "growth repressing" factors, and what you have is sitting there at the mercy of any claim, caprice or calamity then you really don't have that stronghold in place.

Trusts just like dogs, are always there for you, they keep your wealth from arms way and allow you to rebuild a life not to mention retire in all tranquility (and unlike dogs they actually outlive you giving the chance to your designated heirs to decide how to proceed while also avoiding probation and death taxes).

They are NOT for the super rich only, they are quite cheap and easy to set up nowadays and they serve you as a central base wherever you are in the world, getting rid of hurdles, threats and making sure that what`s yours stays yours.

In the next post I will delve in the technical details about what a trust really is, all the benefits and how easy it really is to get your very own.

3: I used to have...

"...But Things May Change" sung Bob Dylan in one of his songs...

Ahh...bank and credit cards, what a nice thing, if a burglar waltz into your house he won`t find all your belongings and if they stole your wallet/card holder, you can still block the card with a phonecall.
But there are different breeds of burglars these days, they can access anything you have and they might be in your future while you are peacefully sitting there completely unaware...

But let's roll back for a second and let me tell you as story...
I was watching a TV program on Italy's RAI 3 channel years ago, they were showing an RVM shot in Milan, where a line of people was waiting to get a hot meal and a bag containing some food items (a pack of Spaghetti, a brick of milk etc.) I thought to myself "finally they are addressing the problem of homeless people" but there was a catch... Many people in line weren't homeless at all, and one that was, it was for a very particular reason...

Italy: people lining up outside a Caritas Facility

The first group while all ex company workers owning a small apartment in Milan's suburbs, made the mistake on counting on the famous 1+ million lire pension, little did they know that the Lira would turn into Euro and that with the Euro equivalent they could hardly make ends meet.

But the one that sparked my interest even more however was this guy the reporter interviewed, he told his story (with mosaic effect on his face and garbled voice to protect privacy) of when he spent glamorous days in the 80s doing "Aperitivo" dressed in the latest fashion,

From Navigli...to Back alley...

...when all of a sudden his wife divorced him, took the kids, took the house, obtained from the judge ailments for a quite unreasonable monthly sum, and his small business, slowly but surely went down the drain.

So let`s repeat a part of Robert Kiosaki adage here: ""It’s not how much money you make, but how much money you keep, ".

You never know when a law suit may strike you, people nowadays sue for the smallest of reasons, it could be your ex wife, your neighbors, the person leaving below you, hit on the head by a vase or your loosely tighten satellite antenna (an ex employee, a woman you met at a club, the tax office, the list goes on and on, Ellen Pao might cost her company USD 160.000.000 just as an example).
They are gonna aim straight at your jugular and try to get ahold of as much as they can. If they win the law suit the Judge might seize your belongings and leave you with a portion that will be the smaller the larger the claim will be.

So, getting back to the analogy of the plastic bag containing water (where water=money or properties) wouldn't it be good every once in a while to put the water accumulated so far into an indestructible steel barrel?
As to say, "this is what I made up until now, I mark the spot and safe guard it so that at least this part will stay with me no matter what happens in the future".

Would you put all your cash in a wheeled shopping cart and go around town to the happiness of every robber around you? Of course you wouldn't.
Yet if a lawsuit strikes, all your belonging are probably sitting there in the open, ready to be claimed by any judge (to the happiness of ex-wives, neighbors and more).

What if I told you, you could actually obtain both tax deferring capabilities and bulletproofing of your belonging using the very same instrument?

I'll tell you all about it in the next post...

Reason 2: Unrealized Gains...worth more than you think...

Continuing from the last post, and with the analogy of accumulating wealth as in trying to fill a leaking plastic bag with water (where water=money) here is reason 2 (this one`s a biggie):

Bob and Mary are married, they work all day and have some sort of financial planning in place, with their savings growing slowly but surely.

At the end of the journey, when they finally retire, they immediately notice that what they saved has lost purchasing power (see previous post) but they are still satisfied, in the end they have a roof above their heads and enough money to pay for regular expenses.

I can already see them sitting on the couch in front of a fireplace...

...saying things like "we are lucky, there is people on the streets you know... yeah our neighbors are going on a cruise voyage around the world next week, but they are rich, we did what we could..."

And indeed they did what they could.... in term of working that is, but...can they say the same thing about financial planning?

Here is the scary thought: what if the right financial planning would have allowed them to join their neighbors on the trip?
What if, while they were working hard, their money was slacking and spilling, robbing them of those comforts all the more appreciated, when energy is no longer the same?

Let`s make an example on $100.000,  Bob and Mary paid every year 23% of capital gain tax already "built in" their performance (banks do this automatically), if their performance was 9% a year how much would have they lost? Around 2 % a year? And what about the interests that 2% that disappeared would have gained if it stayed in? and what would the percentage be on that 2%, 6% or 9%?
You guessed it, they could have got 9%, and next year 9% on that previous 9% and so on in an exponential crescendo.

To give you an idea of the power of compounding (see also Einstein`s quote 3 posts back)

• $100.000 for 30 years at 9% per annum using simple (not compounded) intrest: $370,000.
• $100.000 for 30 years at 9% per annum using compounded intrest:              $1,326,767.85

That same thing happens to the money you left out every year at the bank which robbed you of exponential growth during the years, but that is just the tip of the iceberg, the terrifying thing is that the same happens with that 20% you lose due to your bank`s Mirror funds, and all the missed gains because your portfolio wasn`t dynamically managed to take advantage of the market cycles. Add that what you keep is deeply devalued by inflation and no wonder the cruise voyage around the world is going to stay as just a dream.

If while breaking their backs at work their money were instead working as hard for them, with no leaks and maximum efficiency, not only Bob's and Maria's fireplace could look better...

...but the chairs would probably be empty as they would have joined the neighbors by now...

No matter how much you have or add to the pot every year, I can assure you there is always a way to add additional income and move one step up the goals and achievable dreams you can aim in your future.
If you don't want to envy that ever-smiling rich couple and want to "be" that smiling couple yourself, stop the leakage now, pocket everything and feed it to the compound interest machine, your are still in time, but don`t postpone, the more you wait the more water spills out.

The 3 Reasons that hinder your wealth growth.

Years ago, famous Investor and best selling author Robert Kyosaki (his "Poor Dad - Rich Dad" series of books comes to mind) wrote:

"It’s not how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for".

Let's compare your wealth to a plastic bag you are tryng to fill up with water (where water=Money).

You might not have noticed but the plastic bag you are carrying has an unnoticed hole at its bottom leaking water as you walk. Yeah this year the bag is slightly fuller, but that is just because you poured in more water than it leaked out and, after you did, the leaking is still happening. Eventually your capacity of pouring water might diminish but that hole will grow in size. 

What am I talking about in real terms?

3 things basically:

• Erosion of your future wealth by inflation.
• Erosion of your future wealth by unrealized gains.
• Erosion of your wealth by unforeseen "unfriendly events".

In my next 3 posts I will examine all of them starting today with inflation.


Inflation.

Let`s say you have $100.000 and you want to buy a new car, say for $27.000.
You are now left with $73.000 in the bank as you drive through town in your brand new moving machine, feeling a little impoverished but at the same time mighty satisfied.

You check what you can buy with the remaining $73.000,  but decide to keep the money in the bank.
The next day you go out and the car is not there...ever had that sinking feeling when you open the front door in the morning and wonder where you left it? Did you leave it on the road, park it in the garage... or has somebody stolen it? As it happened to a family in the USA, theirs was swallowed by a 30ft sinkhole which opened just below it in their driveway!

real pic of the hole

I'm pretty sure that if that happened to you, you would get pretty mad wouldn't you? And the reason is, such an event would be so evident and in your face that an immediate reaction is granted.

But let`s just say you don`t touch the money and keep it in the bank for 10 years, you go check your balance and it still says 100.000 (assuming your bank didn`t detract expenses) but when you see the actual purchasing power, you can buy exactly what you could by 10 years earlier with the remaining $73.000! As a matter of fact with inflation set at 3% in 10 years you lose exactly $27.000 of purchasing power due the ill effects to negative compounding.
Yup, your car just fell in the hole and you didn`t even notice...

"But I heard the problem now is deflation not inflation!", problem is, the inflation rates you hear on the news are grossly misguided, as what you see there is a piloted weighted index inside which enters only what "somebody decides" and where all elements do not have the same weight in the average. As you might have noticed yourself, prices are indeed increasing and you can buy less with your money today, compared to a year ago.

But let`s just say that this is really just the tip of the iceberg...

"Mirror Funds" eating a piece of YOUR cake (without you knowing it).

It is incredibly fun to ride the "bull" out of its barn, right up there to the highest reaches of the new market (all you need is a solid exit strategy, which will be the subject of a future post).
When the market goes up everybody should be in profit, but by analyzing the performances of many portfolios (coming from new clients in need for help) I noticed that an overwhelming amount of people has been receiving very low growth (3% or less per year, and by extension, something on the line of 6% in two years or 9% in 3 years, and so on, ) on their savings.

I know what you may be thinking, 9% is not that bad, but it is in the bright days that performance has to be accumulated to make up for the rainy ones and quite frankly, 9% in 3 years during a Bull market is nothing short of depressing (not to mention dangerous).
If a market correction takes place it will eat out that 9% and get something else for sports, leaving you with a 4 year period at zero growth or (gasp) with losses.

The reasons are varied, but in this post I want to concentrate on the ill effects of Mirror Funds.

So what in the world is a Mirror Fund you may ask? A mirror Fund is a type of Mutual Fund run by an Insurance Company that aims to replicate the performance of established investment funds, and the worst part is, you may be having some (or all as it happens with the portfolio I am examining right now) in your portfolio without knowing anything about it (!).

Aside from the additional administration costs of running a copycat version of a fund (and possible additional charges which stay with the company issuing the copycat) mirror funds generally hold a portion of their value in cash to aid liquidity which leads to severe performance penalties (as the cash element in the mirror fund doesn't produce any growth).

What Kind of difference are we talking about?

Here are a couple of Examples: JP Morgan pacific Securities 3 years performance: 6%
                                            JP Morgan Pacific S. Mirror 3 years performance: 1.89%

                                           Templeton Global Total Return Bond, 1 year performance: 4.97%
                                           Templeton Global Total Return Bond 1year perform. Mirror:   0%

As a part of a varied portfolio where high runners can contribute up to 60% in growth, the two funds above did no harm at all, contributing a modest (for a Bull market) but still solid performance to the overall average, BUT (big but there) imagine a portfolio only made of Mirror funds, and you can see where I'm getting (or better, what unsuspecting investors are getting out of their savings all the time).

What about your portfolio? Are you getting everything you should? Better find out as soon as possible...

The "REAL" Secret of Warren Buffett’s success

Warren Buffett is one of the most famous, and certainly the richest, proponents of raising taxes in USA...what is less often noted however is that he is also a leading proponent of delaying tax payments for as long as possible.

In the latest and largest example, Mr Buffett’s Berkshire Hathaway has been able to defer $61.9bn of corporate taxes, the company revealed in its annual report. 

Albert Einstein was quoted for saying "Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it" and Mr.Buffett seems to understand pretty well what this means for the portion of taxes he deferred for so many years.

In the long term, that portion gained interests, and those interests caught other interests in an exponential crescendo, and thanks to asset swaps the chances of paying a cent to the taxmen aren't materializing any time soon.

Last year, he agreed to exchange he's $4.7bn holding of Procter & Gamble shares, on which it had made a profit of more than $4bn, for the P&G subsidiary Duracell. Tax on the capital gain will not be paid unless and until Berkshire sells Duracell, another $1bn-plus tax liability that may never come due.

Expatriates around the world can take advantage of many similar techniques (plus additional options available only to individuals) to grow their savings, as Einstein defined "TWO" groups of people in his famous quote, having a solid financial strategy in place is what will keep you in the "right one".