Of Faith and Reason

With the passing of Christmas and Chanukah, I thought I’d write about faith. I appreciate how both holidays engender serenity and redemption in the face of brutality, shine light during times of darkness, and bring forth messages of hope. Yet we live in a time when people ridicule those of faith.

Human beings have many faculties at their disposal. We have a brain to process information, emotions that move us, and intuition that guides us. We have our sensory tools of sight, hearing, smell, taste and touch. So where does faith fit in?

Many don’t view faith as a basic human faculty, rather they see it more as the absence of reason. Others are even more cynical, claiming that faith is a sign of weakness, something to resort to when all else fails. In earlier times, cynics say, faith was a necessity because man didn’t have science to help explain the laws of nature, but in the face of reason and all of man’s brilliant accomplishments, we have outgrown our need for faith. Isn’t faith simply a creation of our imagination to deal with issues we can’t comprehend?

We know how to access reason, as we have cultivated it our entire lives — at school, work and elsewhere. We are all born with faith, it’s a natural state. Young people readily accept notions they don’t understand because faith is inherent in all of us.

Faith is not, however, to be confused with childish naiveté, gullibility or laziness. Children tend to lose faith as they grow older in our society, when they experience hypocrisy or have been lied to. The child, to protect himself, begins using reason alone to process ideas, effectively silencing his inner voice telling him that, even though something cannot be grasped with his hand or totally understood with his mind, it may exist.

We all realize that we can’t sense everything, yet know it exists, as two examples — radio waves and electricity. Yet we don’t allow ourselves to contemplate an omnipresent higher being, writing that off as fictional storytelling.

Consider your family dog. He certainly possesses certain human-like qualities, including the ability to express certain emotions. Like us, he has the senses of sight, hearing, smell, taste and touch. Even as smart as he seems to be, he can’t operate a car, contemplate his future, solve a crossword puzzle or be amazed at the artistry of Mozart. His brain has certain limitations.

Like our family pet, isn’t it possible that we also have limitations, albeit at a higher level? Can we not reason that human beings may be limited in some way that hides the Eternal from us? Could this incapability be by design? Is there a spiritual reality beyond that which we can see, feel, hear and touch?

Using reason, we can contemplate the wonders of creation and begin to recognize the breadth of the infinite power responsible for it. Reason also leads us to understand the limit of human knowledge and how much is beyond our scope. Reason, therefore, can lead to faith. Well-developed reason arrives at the obvious conclusion that reality is far greater than that which we can experience with our senses and our intellect. We come to realize that this reality is not a product of our mind, but that our mind is a product of this reality. Reason may lead us to the door of this reality, but we need different tools to enter.

Scientific reason is often used to explain away faith. Science and faith need not be mutually exclusive. Science is used to explain many things. It makes our lives more comfortable and work more efficiently, but does it explain how to make our lives more meaningful? Science may explain the what and may even explain (partly) the how, but it never explains the why. One can therefore say that secular or scientific reason deals with what the universe is, while spiritual wisdom deals with why it is and what it means.

Faith isn’t always easy. As we wrestle with an uneasy past and an uncertain future, it may seem more comforting to cling to the lives we know. But the thirst for redemption is coupled with another trait that all humans share: hope. Hope for health and prosperity. Hope for justice and virtue. Hope for freedom from the darkness.

Make your home a loving environment, make your office a place where generosity and compassion replace selfishness and aggression. Above all, share these ideas with your family and friends.

Merry Christmas and Happy Chanukah.

Note: this column was almost entirely adapted from the book, Toward a Meaningful Life — The Wisdom of Rebbe Menachem Mendel Schneerson by Simon Jacobson.

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

Youth – The Fire of Life

A 20-something nephew of mine is passionate about global climate change. “Your generation,” he said to me, “has ignored this global problem that won’t affect you (presumably meaning /Baby-Boomers) so much as it will affect us (meaning Millennials and Generation Z). We’re sick and tired of inaction!”

I don’t take his tirades personally. After all, except for “going green” as far as I’m reasonably able to, I feel powerless to affect the amount of greenhouse gases spewed into the atmosphere by airplane travel, global manufacturing, cattle ranchers and such. Sure, I can install solar panels on my home and not eat a lot of red meat (which I shouldn’t do anyway), but how much will my small efforts reverse melting glaciers?

At least my nephew channels his youthful fire in a positive direction. Young adulthood is odd by nature, nestled between childhood and maturity. Young people begin to experience the frustrations and yearnings of an adult but may lack the experience and wisdom to deal with them.

And it’s not just climate change. The “cause du jour” could be income inequality, health care, acceptance of LGBTQ individuals, immigration reform, or a variety of other maladies we face.

Young people aren’t looking for comfort, rather they’re searching for a meaningful life. They overflow with a mixture of adrenaline and confidence — “I want to change the way the world works.”

Adults, in contrast, burdened with everyday life pressures, may resign themselves to a belief that the world “is the way it is.” We have the knowledge, experience and wisdom but lack the drive. I’m glad that so many young people take up causes.

But sometimes the “political correctness” gets out of hand, so while their causes may be admirable, the methods become self-defeating. We end up with either energy without direction (youth) or direction without energy (adulthood).

Many adults simply throw up their hands, writing a rebellious period off as one that a person will simply outgrow. Young people, meanwhile, often believe that adults have forgotten how to appreciate the very meaning and thrill of life.

Youths are rebellious, while adults view rebellion as an aberration, a youthful exuberance that will fade over mortgage and preschool tuition payments and crushing work deadlines.
After a few decades of non-stop responsibility, however, even adults question the meaning of life. Is this all there is?

I’ll tell you from my recent mid-life health scare I’ve reassessed things. It’s easy to fall into the trap of nurturing our careers through non-stop work and our physical needs with diet and exercise but forgetting to nurture our souls. What’s our purpose? How shall we carry it out?

Thus, the sound of youthful rebellion is the sound of energy crying out, searching for an audience. For adults, the challenge is to help turn that cry into a strong, sure voice. “Yes,” we must tell our young citizens, “take that energy and do try to change the world for the better. Don’t accept the status quo! Don’t tolerate injustice!”

Can we foster this in our estate plans? Surely we can!

There are several methods available to all, from establishing a private foundation to funding a donor advised fund within an existing public or community foundation. As an example, assume that you have a $1 million IRA account that you’d like your family to use to promote good in the world. You consume the IRA during life but then direct it to the foundation upon your death.

If that IRA were cashed out to your children or grandchildren almost half might be lost to federal and state income taxes depending upon the rate of withdrawal and your beneficiaries’ marginal tax brackets. If instead it was left to a qualified charitable entity where your family could direct charitable distributions, very little or none of it would be lost to taxes.

I wrote last week that the baby boomers will leave an astonishing $68 trillion to their loved ones over the next few decades. Imagine how much good in the world even 1% ($680 billion) could accomplish. It’s staggering. I feel a tremendous sense of pride that as a board certified estate planning attorney, I can help my clients feed the souls of their youthful offspring, and reawaken idealistic yearnings of their middle aged children.

As for my nephew and global warming? While I’m not an advocate for global carbon taxation, mainly because I believe the money would be lost to government corruption, I’m largely optimistic that the scales have tipped. There’s now enough money at stake to encourage entrepreneurs and private enterprise to create solutions we haven’t dreamt of yet.

But I’m glad my nephew is vociferously advocating. I encourage young people to continue to hold adults’ feet to the fire! And I also believe that the money will be there to fund solutions to many world problems so that our generation will leave the world a better place than it was when we were born into it.

How will your estate plan nourish your soul and those of your loved ones?

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

Millennial Millionaires

According to a report by Coldwell Banker, there are 618,000 millennial millionaires (born between 1981-1996)  in the United States, and they’re set to inherit even more wealth from their baby boomer (1946-1964) parents.

This “Great Wealth Transfer” will see an estimated $68 trillion passed down from the boomers over the next 30 years. It’s estimated that by 2030, millennials will be many times richer than they are today.

“While the inheritance component is hard to quantify with the current data available, there are still many millennials who are not considered wealthy today, but will be in the future,” the report stated.

In fact, 66% of millennials think they’ll become wealthy one day, even though they have an average net worth of less than $10,000. Even more alarming, those currently of that age have only seen a $29 income increase when adjusted for inflation over their young adult counterparts in 1974.

Millennials’ income hasn’t kept up with their skyrocketing student debt or with housing and medical costs — which over several decades now greatly outpace inflation.

Even so, Paul Donovan, chief global economist of UBS Wealth Management, believes that millennials will be the wealthiest generation ever. Because the millennial generation is smaller than the boomer generation they’re inheriting from, he said, transferred wealth will be more concentrated. It isn’t uncommon for boomers to have two or three siblings. Many millennials, in contrast, are either the only child or have just one other sibling.

“From a big picture viewpoint, millennials will likely receive the greatest wealth transfer in modern history…however, the reality is that the baby boomers are healthier and living longer than even they planned, so that wealth transfer might not happen for 20-plus years.” Donovan adds.

So what are our takeaways from this data?

Anecdotally from my estate planning practice my clients of the Silent Generation (1928-45) and those who are Baby Boomers don’t necessarily want to wait until they die to leave family wealth down the line. They’d prefer to see their children and grandchildren enjoy benefits now.

But how is this best accomplished? Each family’s goals and desires, including the attributes of the potential recipients, leads to their uniquely right answer. Getting there is a process, however.

I usually begin by asking some pointed questions. “What would you like to see your family wealth accomplish?” As an example, education might be the most important element for those clients adhering to the philosophy of “Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.”

Once it’s decided, the vehicle used to transfer that wealth is considered. This presents additional questions.

Going further with my education example, “How do you accomplish your goal when one grandchild is near university age but another is still in infancy?  Who decides how the resources are invested prior to the transfers? How do you minimize income taxes? Who decides how much each beneficiary is entitled? Contrast, for example, the beneficiary who attends Harvard as opposed to one enrolled at FGCU.”

A successful plan thinks through the answers to these questions and more.

Aside from education, there might be a variety of other reasons to transfer wealth now. But once transferred, “Are we concerned that one of your beneficiaries gets divorced and loses amounts that you earmarked for her?”

Some families hope to provide a retirement safety net for their loved ones, especially since company pensions from lifetime employment are largely relics from the past. “I’d like my children to continue to work and earn their own way,” a client says, “but I want to provide them a comfortable safety net. I want their retirement to include a roof over their heads and adequate health care.”

Here, different strategies are employed. It might involve purchasing long-term care insurance for the adult child beneficiary, or establishing a trust that doesn’t pay income currently, rather it accumulates income until the beneficiary reaches retirement age. When irrevocable trusts accumulate income, however, there is a compressed federal income tax rate schedule that result in higher taxes. Consequently growth rather than income strategies are called for.

Providing written direction to the trustee within the trust document is critical to success.

For those families that might encounter federal or state estate taxes, additional issues arise. While current federal exemption amounts shield more than $11 million, the next election may adversely affect the law. Even without a change in 2020, the current estate tax laws sunset in 2025 absent new legislation.

Families with a potential estate tax problem generally should not transfer assets dollar-for-dollar. In other words, it’s not wise to fund a trust with $500,000 in cash or investments since you’ll use $500,000 of your estate tax exemption. Here you want to employ strategies where you might transfer $2 million of value but only use $500,000 of your estate tax exemption.

By and large, these are good problems to have. I have millennial children who are just starting out to make their way in the world. Some financial struggles aren’t necessarily bad. But assuming enough resources, I would like to build a safety net for them that I never had.

One thing’s for certain. At least as far as my family is concerned, the millennial news articles are right. I won’t inherit anything from my parents, nor my wife from hers. Whatever we leave our children will be more than what we received.

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

Saints or Sages

During the holiday season it’s not just children who put forward their best behavior in hopes that Santa Claus delivers great bounty. The rest of us tend to reflect on our life’s journey. We try to be more considerate, patient and kind, while also being less judgmental of those around us.

We try to be more “saintly” don’t we?

Which got me thinking about what a saint really is. Is it the utmost in morality? I’m not sure that it is when you examine sainthood closely. Sainthood is individual in nature. In most major religions, a saint is a person of extremes. He is defined as loving kindness towards all. He lives in a world of self-denial, in that he doesn’t seek material rewards or outside praise.

A saint’s understanding of moral life is to give everything away to others in need. The saint may give all his money to the poor. But in so doing, what has the saint done to his own family? They suffer because of his extreme self-denial. A saint may refuse to fight in battle. But what about the saint’s country and its defense? A saint may forgive all crimes committed against him, at the expense of law and justice.

Saints are supremely virtuous people, yet you cannot build a society out of saints alone. Indeed, saints aren’t really interested in society. They have chosen a different, lonely self-segregating path.

Contrast this against a “sage” or “prophet”. When watching the news we see all sorts of people who claim to prophesize about our coming destruction. These are today’s moral guardians. Their interest is in society at large as opposed to individual virtue.

We are told that we have lost our moral compass. Our prophets lament inequality, be it racial, religious, ethnic or monetary. Our modern day sages cry that the earth is dying beneath our feet, yet we continue to spew greenhouse gases, eat meat, and throw plastics into the waters such that one day soon we will be able to walk across trash stretching from Japan to California.

A true sage is a different kind of person altogether, different than a saint. She follows the way of moderation and balance.

She avoids the extremes of cowardice on the one hand by speaking out about today’s wrongs and injustices, yet isn’t reckless about it, and thus acquires the virtue of courage. She avoids miserliness in one direction, prodigality in the other, and instead chooses the middle way of generosity.

The sage understands the twin dangers of too much and too little, excess and deficiency. She weighs the conflicting pressures and avoids extremes.

The saint and the sage are not just two types of people but rather two different ways of understanding moral life itself. Is a moral life to achieve personal perfection? Or is it to create gracious relationships and a decent, just and compassionate society? Can one have both?

I recently attended a conference where attorney Stan Miller explained that there will likely be the largest inter-generational transfer of wealth in the next twenty years or so unlike anything previously encountered throughout history. What are we to do with this wealth? Will our estate plans help heed our prophets’ warnings to correct society’s wrongs? Is that not saintly to do so within your estate plan?

What are the causes most important to you? How will your legacy work to promote those issues? Will it be through those you have raised or taught? Or will you leave generous amounts to those willing to raise the flag after your time here is done?

Are you the saint who heeds the prophet’s warning? Or are you the prophet looking for saints to help your cause?

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

Double Whammy

Who we name as our agent under a Durable Power of Attorney (DPOA) document is more than important, it’s vital to our financial, legal and tax well-being. I engage in serious conversations with my clients about who they should name in the important roles of Trustee and Durable Power of Attorney.

Typically, DPOAs are not used unless the person who created it is incapable of conducting her own financial affairs, although the document is legal and valid at the time that it’s signed.

I’ve had several conversations with clients about the importance of selecting the proper person to act. I’m not exaggerating when I tell you that some clients name their eldest son or daughter simply because they are the oldest and would be offended if they’re not named in this important role. Sometimes that same oldest child has no business acting as a DPOA since they’re not responsible with money, not responsive, or for a variety of other reasons.

Most importantly, you never want to give legal authority over your legal and financial affairs to someone who’ll take advantage of you. Most of us trust our children, but a recent case demonstrates what can go wrong.

Mary Ellen Nice, a resident of Louisiana, granted a DPOA to her son, Chip. She did this after her husband of sixty-one years died. A few years after granting Chip the DPOA, Mary Ellen slid into Alzheimer’s, after which time Chip exploited his mother financially, diverting her income (largely from Individual Retirement Account (IRA) distributions) for his own personal use. Chip filed his mother’s tax returns, and paid her income tax from her funds even though the monies he withdrew from the IRAs were not largely used for mother’s care but for his own.

The IRA distributions went into Mary Ellen’s checking account, but because she had Alzheimer’s, Chip controlled that account. He had the authority to sign her checks. Unfortunately, many of those checks were to him or were payments for his benefit and not hers.

Upon discovering Chip’s malfeasance, Mary Ellen’s daughter Julianne filed an action in Louisiana Court to remove Chip. She also filed amended tax returns seeking a refund of over $519,000 on the theory that Mary Ellen didn’t benefit from the IRA distributions, rather her son did.

Julianne relied on a prior case, Roberts v. Commissioner of the IRS, where an ex-spouse stole IRA distributions on similar facts but the taxpayer was found not to have received the income. In Roberts the IRA distributions went into a joint account with the taxpayer controlled by the ex-spouse.

Mary Ellen Nice’s court rejected the argument. While it seems completely unfair to tax someone on funds they arguably never benefited from, the US District Court in Louisiana found the theft of Mary Ellen’s IRA amounts to be irrelevant and the evidence regarding the theft inadmissible at trial. The court reasoned that the IRA distributions were paid to Mary Ellen’s checking account, so what happened thereafter is irrelevant. The decision did not discuss whether a theft loss deduction would be permitted.

Theft losses, incidentally, will not reduce the tax dollar for dollar.

The court differentiated Mary Ellen’s case from Roberts because the monies went into Mary Ellen’s individual account, this despite the fact that she had Alzheimer’s and was at the mercy of her son, Chip. The Court also reasoned that Chip didn’t steal all of the income, as some parts were used for Mary Ellen’s care.

The lesson learned is that sometimes you can’t even trust your own children. Trusts and DPOAs are vehicles used to avoid the expense and time related to court supervision over our personal legal, tax and financial affairs. But because there is no court supervision, fraud is much easier to commit. Be sure that the parties you name to help you when you are most vulnerable will only have your interest at heart, and not their own.

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