Prince dying without a will should be a wakeup call


Matt Kent | WireImage | Getty Images

I was shock that Prince who worked so hard to have complete control of his name and music, died without a will. Some estimates place the value of his estate at 300 million, not including his vault full of unpunished work. More than 50% of his estate will go to paying taxes. Millions will go to pay lawyer fees just to settle his estate.

I am by no means an expert in estate planning but leaving 50% of your life’s work to the IRS is just plain dumb. That money, for example, could have been transferred tax free into a charitable foundation supporting young musicians, song writers or music students.

“A survey from, a legal services web site, back in March 2012 found that 50% of Americans with children do not have a will. Even more alarming, 41% of baby boomers (age 55-64) don’t have one. The top three reasons cited by survey respondents for not having a will: procrastination, a belief that they don’t need one and cost.”

Without a will, your estate will be divided according to where you live

  • In Ohio, if you are married and you have a child from a previous relationship and you die without a will, your spouse inherits the first $20,000 of your intestate property, plus one-half of the balance of the estate. The child gets the other half.
  • In Georgia, a spouse and descendants equally share the intestate property, but the spouse’s share may not be less than one-third.
  • In Florida, if you are legally married, your spouse inherits all the assets with none going to the children (or descendants).
  • In Tennessee, when one spouse dies without a will, the surviving spouse is entitled to at least one third of the estate, and the surviving children split the rest.
  • In Texas if you are unmarried and have children, all your property will pass to them, even if you are living with someone.

Now, deciding who will get your things after you die is one of life’s more uncomfortable tasks. I have to admit that I never had a will until my wife and I had children. The main incentive in getting a will was to name guardians for our two young children in case we both died. As teenagers, it used to freak them out, when we traveled without them and said “the will is in the safe”. The saying turned out to be our good luck charm since we always came back in one piece.

The cost of getting a will is cheap compared to the fees that governments charge a family member to be appointed the administrator of your estate. For example, where I live, the current government fee is $2,500 including having to doing a lot of paperwork. Letting the government decide who should to appointed guardians of your children is also scary. 

Last year was an exceptional bad year for going to funerals of family and friends. It was very sad that five out of six were under the age of 60! I know of at least one who died without a will, leaving a big mess for the grieving family to clean up. Do your family a favour, make a will, don’t leave them a bill to clean up your financial affairs.



Oil prices up despite lack of production freeze


Crude oil prices are rallying despite the fact that storage tanks around the world are filled to the brim with unsold oil. The oil markets remain over supplied, between 1 and 2 million barrels of crude are being pumped out of the ground every day in excess of demand. You would think that the failure of the world’s largest oil exporters to reach an agreement in Doha on Sunday to freeze output to January levels, would cause a selloff in crude.

Cushioning the blow from the failure to reach a deal was a short strike by oil workers in Kuwait to protest cuts to benefits and wages. There has been a significant amount of disrupted oil that came off the market in the last month from Colombia, Iraq and Nigeria. Iran’s ability to increase production quickly is also being questioned. Plus U.S. oil production has fallen below 9 million barrels a day for the first time since Oct. 2014 which is attracting some fast money into oil market.

One of the biggest factors effecting the price of oil is a weaker U.S. dollar which has fallen around 5% over the past seven weeks. The Fed’s dovish comments on future rate hikes has helped increased the price of all commodities. Plus there is a rumor that Saudi Arabia and Russia have agreed to freeze production. (Saudi Arabia pumped 10.2 million barrels per day for a third straight month)

“While this recent rally has the potential to run further to the upside … we believe that it is not yet driven by a sustainable shift in fundamentals,” Goldman Sachs said in a note to clients. Goldman said it was “premature to embrace these green shoots”, maintaining its view that a sustainable balancing of the market, driven by declines in U.S. shale oil production, would take place in the third quarter of 2016.

Oil analysts and market watchers have noted that Saudi Arabia’s strategy has appeared to pay off, with data showing that shale oil producers are closing down rigs every week and oil output is dropping. Major oil companies trying to preserve their cash flows are still cutting their capital spending budgets ensuring that new oil production will be years away. Although Saudi’s strategy has damaged the government revenues, it has enabled the so-called cartel to retain its market share of just under 40 percent.

Could Saudi boost output?

I believe that relations between Saudi Arabia and Iran hit another low following the failure of the Doha talks, there are reports now that Saudi Arabia, Iran and non-OPEC producer Russia could all be ready to ramp up production, rather than restrict it.

Mohammed Bin Salman told Bloomberg that the kingdom could increase output by around 10 percent a day if it wanted to, saying “If there is anyone that decides to raise their production, then we will not reject any opportunity that knocks on our door.”

Could Mohammed Bin Salman’s aim be to discourage oil companies from investing in new output in Iran? It sounds like a threat to me that Saudi Arabia may indeed decide to boost output to protect its market share and cause the supply/demand imbalance to continue.

There are a lot of moving parts in the oil market. The fast money traders are betting that the U.S production of crude oil will continue to decrease and the summer driving season will push up demand. Even without a production freeze, many believe that the supply / demand imbalance will correct itself sometime in 2016.  Just remember that markets are forward-looking!

Earnings releases in the oil patch next week.

  • Mon – Halliburton, Pioneer
  • Tues – BP
  • Wed – Total, Baker Hughes
  • Thurs – Conoco Phillips
  • Fri – Exxon, Chevron, Phillips 66

It is impossible to predict how bad investors will punish companies that don’t beat the lower earnings estimates. It could offer a good buying opportunity.


Panama Papers: Tax Avoidance and Tax Evasion


The recently leaked “Panama Papers” exposed the existence of thousands off shore bank accounts including some high and mighty political figures. The super-rich have been taking advantage of tax havens since World War I, paying tax lawyers to find loop holes in tax rules to avoid paying taxes isn’t something new.

Key differences between Tax Avoidance and Tax Evasion

Definition of Tax Avoidance

An arrangement made to beat the intent of the law by taking advantage of the shortcomings in the tax rules. It refers to finding out new methods or tools to avoid the payment of taxes which are within the limits of the law. The only purpose behind tax avoidance is to postpone or shift or eliminate the tax liability. This can be done investing in government schemes and offers of tax credits, tax privileges, deductions, exemptions, etc., which will result in the reduction in the tax liability without breaching any laws.

Definition of Tax Evasion

An illegal act, made to escape from paying taxes. Such illegal practices can be deliberate concealment of income, manipulation in accounts, disclosure of unreal expenses for deductions, showing personal expenditure as business expenses, overstatement of tax credits or exemptions. Tax evasion is a criminal activity and is subject to punishment under the law.

trust fund baby

A trust fund baby is the perfect example of tax avoidance by the rich. A trust fund is a legal entity that allows the rich to establishment an investment account for their children, grandchildren, nieces and nephews. The income earned in the account and the release of the funds to the beneficiaries are under specified conditions. (The U.S. Secretary of State, John Kerry married Teresa Heinz who has a trust fund valued around 500 million dollars).

I am not a tax expert but many tax filers will pay more in taxes this year than they should. It is a simple case of missing available deductions and tax credits. The problem is understanding the tax rules, knowing what is available and whether you qualify.

Some unclaimed deductions & credits for U.S. citizens

  • Tax Preparation Fees
  • Child and Dependent Care Credit- summer camps fees are eligible
  • American Opportunity Tax Credit
  • Lifetime Learning Credit
  • Energy Credits
  • Savers Credit – for people with low to moderate income who make contributions to an eligible retirement plan
  • Mortgage Points – to lower an interest rate on a home loan
  • Moving expenses

Some unclaimed deductions & credits for Canadians

  • Equivalent-To-Spouse Credit – single mothers
  • Medical expenses – any 12 month period , combine with spouse and children under 18
  • Charitable donations – spouses can pool them together to get a bigger deduction
  • Childcare Expenses – include hockey schools and summer camp fees
  • Pension Income Credit RIF payments qualify
  • Moving expenses

Tax planning in order to defer taxes, to maximize deductions & credits and divide income among family members is something that all tax payers should consider doing.

Just remember that both Tax Avoidance and Tax Evasion are meant to ultimately reduce tax liability but in the eyes of the law, avoidance is legal and evasion is not.

Negative interest rates; do you want risk, now or later?


Today there are more than 7 trillion dollars of government bonds world-wide with yields below zero. That means investors buying bonds and holding them to maturity won’t get all their money back (scary). There is some speculation that Canada and even the U.S. may be forced to follow the rest of the world and go down the negative interest rate road.

Now, a lot has changed during the past fifteen years since I wrote my final exam to become a financial advisor. A moderate –risk retirement portfolio back then recommended holding 60% stocks and 40% bonds. A client saving for retirement, had the ability to earn money on their cash at an above 5% yield on their risk-free Treasury bond portfolio.

This opportunity no longer exists and it may take another decade or more for interest rates to get back to normal.  It seems appropriate to wonder whether the 60/40 rule remains a prudent strategy. This is a really big problem for seniors, who don’t want to outlive their retirement savings someday. Life expectancy is rising in an environment where interest rates are falling. For example, my wife and I are retired and in our early sixties. There is a 50% chance that one of us will make it into our 90’s.

The great recession of 2008-09, taught me that volatility is not the true risk for investors saving for retirement or for seniors who are retired. It only took three years for stock prices to recover from their 2009 lows. The true risks are the permanent loss of capital and the possibility of running out of money.

Advice from 85-year-old billionaire, Warren Buffett

“It is true that owning equities for a day or a week or a year is far riskier than leaving funds in cash-equivalents. For the great majority of investors, however, who can and should invest with a multi-decade horizon, price declines are unimportant. For them, a diversified equity portfolio, bought over time, will prove far less risk than dollar – based securities.”

Are you afraid to take on more equity risk?

How about a hybrid equity called convertible bonds or convertible debentures. It’s a bond that pays interest but has a stock option hidden inside. It’s the best of two worlds, you get your money back plus interest and a chance to make a capital gain. Here is an example of a Canadian convertible debenture: Artis Reit 6% series F 2020 (AX.DB.F).

It was issued on June 30, 2010 at $100 paying 6% interest and the holder can convert into common stock at $15.50 any time before June 30 2020. The common stock was trading around $11.00 when this 10 year debenture was issued. The price of the common stock hit $17.00 by April 1, 2013 which if you converted at $15.50 would have generated a capital gain plus paid interest for three years.

A word of caution, the price of convertible debentures or bonds will trade above the $100 issue price if the common stock price is trading near or above the conversion price. There is a small quantity of the Artis series F still available but the current ask is $104.28 and the common stock price is $12.70 with only 4 years left. (Not a good buy today unless you are happy with the yield to maturity)

I have to admit that my tolerance for risk is much higher than the average senior. Plus I broke some investing rules, looking after my mothers portfolio. My 84-year-old mother is quite happy today that I invested 80% of her retirement account ($76,000) back in 2001 into equities. Over the past 15 years, my mother withdrew an average of $5,500 per year and she still has $67,000 today. There is no doubt that her retirement account would have run out of money using the old 60/40 rule or her annual income would have been seriously reduced.

Ask yourself or your advisor this simple question, “When should I take some risk, now or later?”

APRIL FOOL! Fed rate talk was just a bad joke


The Federal Reserve was never hiking rates four times this year. The stock market didn’t believe it, and now Fed Chair Janet Yellen has all but explicitly acknowledged it. Indeed, Yellen’s blockbuster speech Tuesday assuring that the central bank would go slowly on future adjustments to monetary policy only caught some of the market by surprise.

Yellen, speaking to the Economic Club of New York, noted that the Federal Reserve should proceed with caution in adjusting policy. Recent readings on the strength of the U.S. economy since the beginning of the year have been mixed and less favorable.

On the policy front, Yellen said research suggests that, with a funds rate at near zero and increased uncertainty, the best policy is greater gradualism. “Still, the Fed can hike if the economy grows faster”, she said. But if the economy falters, she added, the Fed can “provide only a modest degree of additional stimulus.”

The Fed chair has been facing a Mimi-revolt as other officials, including Philadelphia Fed President Patrick Harker and the Atlanta Fed’s Dennis Lockhart, have said in recent weeks that the Fed should consider an April hike. Federal Reserve projections from earlier this month showed that a majority of officials (9 of 17) expected only two hikes in 2016.

Yellen’s comments reflected a variety of fears, much of them centered on the global landscape. The remarks came amid a deteriorating economic picture, though a U.S. recession still is considered unlikely by most economists. The Atlanta Fed now expects gross domestic product to gain just 0.6 percent in the first quarter, down from about 2.7 percent in early February. The Atlanta Fed’s GDP-based recession indicator shows just a 10 percent chance of recession, though that has not been updated since Feb. 4.

As David Rosenberg, chief economist and strategist at Gluskin Sheff, pointed out, she used the word “global” 11 times, which was seven more than her speech to Congress in February, and “uncertainty” 10 times, up from three in the last speech.

There was a point recently where markets were beginning to buy a rate-hiking Fed, with expectations of a move around mid year and, possibly, a second in December.

No more, after Yellen’s speech, the market believes the only likely increase will come in November or December. According to CME Group data, there is a better than 50 percent chance of a rate hike in November and only a 49 percent chance of a September hike.

“Whenever a central banker is uncertain, rest assured that the only certainty is that he or she does nothing,” Rosenberg said in his daily report for clients. “That was the message from Yellen’s speech. Rate risk is off the table, but the reason for it, a lack of growth visibility.

Ultra-accommodative monetary policy is showing its limits in other countries and  Yellen’s dovish tone is being inspired by global weakness. The Fed, with its seven years of zero rates and $3.7 trillion worth of money printing, has faced criticism for being too market sensitive.

I have to admit that I was completely fooled by Janet Yellen and her hawkish committee members. Like most investors, I didn’t think that four rate hikes were in the cards for 2016. However, I really thought that the U.S. economy was strong enough to justify two rate increases.

In my humble opinion, the Fed is suffering from analysis paralysis, the state of over-analyzing a situation so that a decision or action is never taken, in effect paralyzing the outcome. What could be next, currency wars!