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I’ve been appointed the executor for my mother’s estate, who died recently.  What do I do about the things in her house? NEWBIE IN ESTATE SETTLEMENT


There may be a number of people who have access to the property. These people may think they are entitled to some particular asset and take it without consulting the executor, and that is wrong.  Immediate family members (and sometimes in-laws, other remote family members and occasionally neighbors) may start taking things out of the home long before there has been an appraisal or even an understanding of what assets are in the home. The explanation is sometimes: When I was ten, your dad said I could have his shotgun.” Often there is no evidence of such intent. In most cases any oral declarations are also legally unenforceable.

We have seen situations in which children from prior marriages held keys to their deceased parent’s residence. They have gone into the house without talking to the surviving spouse or looking at the dispositive documents because “I know mom wanted me to have all of her jewelry,” or some similar justification. These takings can constitute criminal theft.

When we are named executor of an estate, we immediately change the locks on any residence or other location holding personal property so that we are in control of the property.  If there is a security system, the company is notified and all codes changed as soon as possible. That should be your first step, and then take an inventory of the contents of the home.  You will need it for the probate court.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

Predictions are hard

When Congress is debating changes in the tax law, the effect of each change is evaluated by a bipartisan committee.  Typically, any new tax break needs to be offset by a tax increase somewhere else, so as to not worsen the federal budget deficit.

For example, in August 2022 the Joint Committee on Taxation scored the Inflation Reduction Act as increasing federal revenue by $90.7 billion from 2022 through 2031, the ten-year budget window.  The projected cost of “green energy” energy incentives in the legislation was $205.2 billion during the same period.  These would be offset by a variety of tax increases, including a new corporate minimum tax ($222 billion) and a new excise tax on repurchases of corporate stock ($73 billion).

Given the uncertainty of so many variables, including how taxpayers may respond to the changes in the tax law, such predictions are inevitably too high or too low.  However, in April, only eight months after the JCT evaluation, the Congressional Budget Office released a new score on the cost of the energy provisions of the Inflation Reduction Act: $569.5 billion over ten years.  It is unusual for projected costs to more than double in less than a year.  What’s more, the new score means that the Inflation Reduction Act actually will increase the federal deficit substantially, rather than reduce it.

Republicans were upset by the news, but Senate Democrats were cheered by it.  “I think it’s a positive thing,” said Senate Finance Committee member Sheldon Whitehouse of Rhode Island. “More credits means more investment means more jobs means smoother transition: It’s all good.”

No explanation was forthcoming as to why the JCT underestimated the costs of the energy credits so badly.  The new information casts a cloud over the revenue projections that accompany debate over increasing the debt ceiling.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

To turn an IRA into a small pension

Over the years, more and more employers have dropped their pension plans, which pay a monthly retirement benefit for life, in favor of plans that allow for employee contributions to a tax-deferred retirement account, such as a 401(k) or 403(b) plan.  There are a variety of reasons behind the shift.  In general, employees seem to appreciate and value the individual account plans more, even though the costs to the employer are less.  They can see the build-up of the retirement nest egg, which may be accelerated if there is an employer matching contribution.  The employee gains control over the investment decisions for the account. The account is portable, in that the employee may roll the assets into an IRA when changing jobs.  Finally, the employer is “off the hook” for financial market downturns, as investment risks and rewards are shifted to the employee.

However, when the retirement moment, many people prefer the security of the lifetime monthly payments from a pension plan.  Recent legislation, the SECURE Act 2.0, provided a path in this direction.

A Qualified Longevity Annuity Contracts (QLAC) is a mechanism for turning a portion of an IRA or 401(k) balance into something resembling a pension benefit, while also reducing the size of future Required Minimum Distributions (RMDs) when the account owner reaches age 73.  The QLAC may be for the account owner’s life, or the joint lives of the owner and a designated beneficiary. The QLAC starting date for payouts must be no later than the first day of the month following the account owner’s 85th birthday.  The RMD rules will not apply to the QLAC, but will continue to apply to any balance remaining in the IRA or 401(k).

Effective this year, the amount that may be moved from an IRA or 401(k) to a QLAC is increased from $145,000 to $200,000.  Earlier law also included a cap on the investment, no more than 25% of the account balance could be invested in a QLAC.  That meant that only an individual with an account balance of $580,000 or more could get the full benefit of the pension.  The cap of 25% of the account balance for a QLAC investment was eliminated by SECURE 2.0.

A variety of additional restrictions apply to QLACs, including that the annuity contract is not variable or indexed, but a cost-of-living adjustment is allowed.  A QLAC may also provide for a return of premium feature.  One expects that the total payouts from the QLAC will be larger than the premium paid for it.  In the event of an early death, to the extent that the total annuity payments are less than the premium paid, the difference may be paid to the estate or a beneficiary.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

“It’s a better world than it has ever been”

Those are the words of Warren Buffett, answering a question during the 2023 Berkshire Hathaway shareholders meeting in May.  Buffett has always been an optimist, so that observation is not surprising.  Technology has made consumer goods available that the richest tycoons of 100 years ago could not imagine, let alone have. On the other hand, in the short term there could be some economic pain ahead.  “The majority of our businesses will report lower earnings this year than last year,” Buffett said, and his partner Charlie Munger added, “Get used to making less. Inflation has been pushing up costs for many businesses, including labor costs, and not all of these increases can be passed along to consumers in final pricing.

Although Buffett has an enviable record of investment success, he readily admits that most of his decisions have been average.  In his annual shareholder letter this year, he said that he’s made about 12 really good decisions over the past 60 years, that is, about one every five years.  These 12 investments, including early purchases of Coca Cola and American Express, account for the bulk of the market beating returns of Berkshire Hathaway.

One of questions put to Buffett and Munger was whether they were concerned that Berkshire’s stock portfolio was now over 30% in Apple, due to price increases since the shares were purchased.  The questioner pointed out that some prominent advisers suggest that no more than 20% of a portfolio should be invested in a single company.  Mr. Munger’s pungent reply: “I think he’s out of his mind.”

Mr. Buffett patiently explained that the “portfolio” includes all the businesses that are 100% owned by Berkshire Hathaway, not only those where they only own shares.  Viewed in this light, Apple would be far less than 30% of the value of firm.  What’s more, observed Buffett, Apple “just happens to be a better business than any we own.” He believes that people would rather give up having a second car than give up their iPhone, making it an extraordinary consumer brand.

During the meeting, Berkshire reported that net income for the first quarter was $35.5 billion, up from $5.58 billion a year earlier.  However, net income includes unrealized capital gains and losses, which neither Buffet nor Munger believe to be helpful financial information for short-term evaluations.  Buffett points instead to operating earnings, which rose to $8.07 billion from $7.04 billion.  Berkshire ended the quarter with some $130 billion in cash.


Article ©2022 M.A. Co. All rights reserved. Used with permission. 

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