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November, 2019 | The Sheppard Law Firm

Inequality or Unequality?

A great deal of current political discussion talks about inequality. It usually revolves around perceived injustices associated with “income inequality” and “wealth inequality.”

Democratic presidential candidate Senator Elizabeth Warren proposes an annual federal wealth tax, a balance sheet tax similar to the federal estate tax, which itself is a one-time balance sheet tax imposed at death. Taxpayers whose net worth exceeds $50 million would, under her platform proposal, pay an annual wealth tax.

Aside from a question whether a Warren Wealth Tax is unconstitutional (see Article One, Section 9), and the very tricky issues surrounding hard-to-value assets such as income producing real estate, closely held business interests, and intellectual property, it’s remarkable to consider the emotion and thought process behind the proposal’s attractiveness.

The language we use is powerful. Take a moment to compare “unequal” to “inequal,” which I acknowledge isn’t really a word but bear with me for a moment.  If you Google “unequal” you’ll find references to “inequality.” Dan Sullivan of the Strategic Coach program, however, posits that the two words lead to two very different outcomes.

Except in the case of commodities, no two things are equal. In New York City, for example, the Empire State Building is unequal to the Freedom Tower. Yes, they have similarities in that they’re both very tall buildings located in Manhattan, yet they’re uniquely different and unequal.

Audi and Mercedes are not equal. Which is better?  The answer is subjective, isn’t it? Einstein and Gershwin both used their exceptional intellect in completely different ways. They were unequal save the fact that they were both raised in the Jewish faith.

The thing about “unequality,” is that it’s an observation that has a neutral emotional outcome.  Sullivan points out that we don’t expect things to be equal. If we constantly compare two things, we don’t appreciate their uniqueness.  Uniqueness can lead to innovation.  Uniqueness leads to a world of abundance.

“Inequality”, on the other hand, is rooted in envy and jealousy, which are synonyms that come from different angles. “Envy” typically can be defined as not wanting someone to have something that they currently possess, while the definition of “jealousy” is to want something someone else has.

When I was working my way through college and law school, I was jealous of my friends whose parents could take care of tuition payments and furnish them with reliable transportation.  I didn’t begrudge my friends their family’s money, I simply wished that I had enough to get by without working two jobs while taking a full-time academic course load.

I wasn’t, however, envious. I didn’t want someone to take away their wealth and transfer it to me. When Bernie Sanders speaks of free college education, that’s what he proposes.

A free university education would be laudable if everyone wanted and needed a four-year degree. Some, however, aren’t academically inclined and would rather pursue a vocation. While college educations could be broadly defined to include vocational training, not all vocations require classrooms and instructors.

Is it fair to provide a secondary education to those that want it while not providing economic assistance of some kind to the young waiter, delivery driver or grounds maintenance worker? Would a “free” education entice those who simply want to goof around for a few years to take up classroom space?

Those, like Warren, who cry foul over America’s inequality speak of taking wealth away from the “haves” to give it to the “have nots.” The proposed solution to inequality could, if enacted in the wrong way, stifle the very uniqueness and innovation that economically sets our country apart.

The counter argument is worth considering as well. A recent New York Times opinion piece illustrated how the wealthiest few Americans have more than the bottom fifty percent combined.

This problem manifests itself most strikingly with health care. Most would agree that health care should be a basic right and not a privilege.

We feel so strongly about this at my firm that we continue to pay for each of our employees’ health coverage even though those costs have outpaced inflation at an alarming rate year after year, taking significant amounts away from our bottom line.

The well-being of those who put in a hard day’s work each and every day for us and for our clients outweighs the cost. But every small business will buckle at some point.

Returning to “inequality” and “unequality” let’s be mindful of the power of those words, and the solutions to which each leads. Inequality presumes a world of scarcity, meaning that our economic resources are a fixed pie for everyone to fight over. “Unequality,” on the other hand, presumes that we’re all uniquely capable to expand that pie. America is abundant, with a bright future.

The key question I therefore pose is whether there’s a different way to solve our big problems. Which services are truly necessary for our society to continue to thrive, and given those needs, how should our society view its unique talents and resources to provide those services?

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.

Trust and Love

My favorite definition of love is “giving someone the power to destroy us and trusting they won’t use it.” It’s not a coincidence that the word trust also refers to a legal document created to hold and distribute one’s assets, and that the “trustee” is the one who holds all the trust powers.

When considering who should be a successor trustee to your revocable living trust, if you should become incapacitated for example, you are giving someone the power to destroy you financially. Your trustee has the power to invest the trust assets as he or she sees fit and has the power to make trust distributions.

While the trustee is supposed to follow the terms of the trust, no court of law, no judge, no government regulatory authority monitors your trustee’s actions. If the trustee should make a distribution that is outside of the scope of his or her authority, the trust beneficiary’s recourse is to bring a lawsuit. They can’t stop him so much as they try to recover damages that he caused.

Therefore the selection of the successor trustee is so important.

During client conferences when discussing who should serve as trustee, I often have conversations that go something like this:

“If both you and your spouse should both be unable or unwilling to serve as your own trustee to your trust, who do you want to serve?”

“I want my oldest son, Robert,” client answers.

“Tell me about Robert,” I ask.

“Oh he’s not the most responsible one in the family. He’s been through several divorces and even had to declare bankruptcy a couple of years ago. He’s always behind in his alimony and financial support so he’s hauled into court by his ex-wife frequently.”

My eyes open wide, “Really?! This is who you want to entrust with your financial security?”

“Yes,” client says, “if we don’t name Robert, he’ll be offended as he is our oldest son. He should be the one named to act for us. Besides, he’ll take direction from Jim, our financial planner.”

“What if Robert fires Jim and decides to invest your trust funds as an online day trader?” I ask.

Clients look at each other with surprise registering on their faces, “He can’t do that can he?”

“You bet he can!” I answer. “He’s the trustee, so his decisions as to the investments inside of your trust, and which firm he uses to get financial advice is up to him.”

“Well, if he loses all our money could we recover against the online internet trading company?”

“No, they didn’t do anything wrong. You would have a legal action against your son for failing to act as a prudent investor, which he has a duty to under the law. My guess is that you probably wouldn’t bring a lawsuit against your own son, and if you did he likely doesn’t have any assets against which you could recover. If he was acting as your trustee, you would likely be incapacitated anyway or you’d be serving as your own trustee. So if Robert did all these terrible things you wouldn’t even likely realize what was happening.”

Perhaps now you can see how important the word trust is inside of a revocable living trust and naming a trustee.  There are many options to avoid potential disasters. The best option is to select a hyper-responsible individual who is responsive to your legal, tax and financial advisors and would never put their own interests above yours.

Another good idea is to name a bank, trust company or financial firm as a trustee or as a co-trustee. This way, you have built in money-management, as well as an independent authority to act as a check and balance against anything that the individual trustee does. The corporate trustee has a fiduciary duty to follow the trust directions and has malpractice insurance that you or your beneficiaries may recover against should the corporate trustee act wrongly.

There’s a lot to consider when putting your trust in someone else’s hands. (For more information, visit estateprograms.com/selectingyourtrustee for a free guide!) While the ones you love always have the power to destroy you emotionally, when you give them the power to also destroy you financially you better be sure that they won’t use that power either.

© 2019 Craig R. Hersch. Originally published in the Sanibel Island Sun.