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Wednesday, December 10, 2008

Oh, so you own "securities"?

Stocks are undoubtedly an investment. You go to a market, and place an order. At that point, money leaves your bank account to pay for the stock, and also to pay for the broker’s fee. In return, you get “something.” You receive either (1) a piece of paper called a “stock certificate,” or (2) a notation on your monthly statement saying that you bought this “something.” In other words, you get some ink and paper. This is called a security – and most people accept this. Nearly everyone would agree that they just purchased “something,” which is in reality no more than a piece of paper, or notations on a broker statement.

A few months ago, I opened a bank account with an online “bank.” There is no physical bank, and I receive no paper statements. I exchanged my hard earned money for an Internet web page – electronic blips and code on my screen. I’m told that I may withdraw these funds (I haven’t as yet), where I may deposit the funds in my neighborhood bank, and withdraw the funds and purchase something – like a hamburger lunch. I’m told that this “account” with this “bank” is insured by the FDIC. And I accept this, too.

I argue that estate planning is no less an investment. In fact, it is more of an investment. With an estate plan, you are modifying the legal relationship which you have with your assets, including your physical assets such as your real estate, diamonds, and tangibles. You are also modifying your legal relationship to intangibles – such as these online accounts and “securities.” After the stock market decline of the last few months, “securities” seem much less secure than they did previously, don’t they?

However, as a legal device, my living trust did not decline in its effectiveness. The assets my trust controls may have gone down in value (or, maybe later they will increase in value), but that does not affect the value my estate plan has to me, and my purposes: I may have added protection from creditors. My plan is as flexible as before. It is as effective in avoiding probate and in taking advantage of the marital deduction. Therefore, my plan still increases the value of my overall estate because it passes more to my heirs and provides me with lifetime flexibility in management. In that respect it is unaffected by the ups and downs of "securities."

So, if you do not understand estate planning and therefore question the value of looking into it, ask yourself: How many “securities” do I own now?

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