California Revocable Living Trust Forms by fyy17127


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									                                                                            June 2010

                                                         percent in 2010.
   A New Approach to Investment Risk                             Next, slides were shown that compared
                                                         the S&P 500 to 12 different key economic
           By William Parmenter, editor                  factors. The tracking period was almost 20
                                                         years, January, 1990 to April, 2009.
        David T. Fractor, Ph.D. and G. Michael                   The key factors the S&P 500 was
Phillips, Ph.D. spoke on A New Approach to               compared to were: gold, agricultural exports,
Measuring and Managing Investment Risk at the            FTSE 100, Tokyo Stock Exchange Index,
June 19, AAII Los Angeles chapter meeting at the         housing starts, monetary base, M2 money
Skirball Cultural Center.                                supply, corporate cash flow, auto sales, durable
        Factor has almost 30 years experience            goods, energy price index, and the
teaching economics, banking and labor history.           unemployment rate.
Phillips is an econometrician and professor of                   The U.S. economy has become more
finance, real estate and insurance. Both are             integrated with the rest of the world and as
professors at Cal State University, Northridge.          financial and credit interconnections have
        They jointly gave a talk on managing             become more complicated it is now clear that
investment risk that included information on: the        when it comes to investment the economy
state of the economy, a new approach to                  matters.
measuring and managing investment risk, and                      Academic researchers have made
investment tips.                                         numerous breakthroughs during the past 25
        The talk started with comment that               years relating economic fluctuations to specific
Modern Portfolio Theory is beautiful, elegant and        asset risk. Some of the resulting tools can be
unrealistic. It assumes away all the firm specific       used by investors.
risk (by assuming it averages out). The world is                 A new risk measure for stocks, mutual
more complicated than often presented.                   funds, indexes and portfolios has been
        In the 1960s, President Kennedy‟s chair of       developed based on their responses to 18 key
Council of Economic Advisors announced that the          economic variables. These are called the Eta
fundamental problems of macroeconomics and               Macro Risk Factors.
economic instability had been solved.                            There are 18 factors in Eta. They
        It did not prove to be true. Since 1950          include such things as: gold index, consumer
there have been 10 recessions. Since 1950 the
one-year Treasury constant maturity rate (GS1)
has fluctuated between zero and 16 percent.                            Table of Contents
                                                          Investment Risk……………Fractor and Phillips..……p.1
        The civilian unemployment rate since              Wills and Trusts……………Steve Hornstein………....p.4
1950 has fluctuated from 2.5 percent in 1953 to           Investor Education…………Dr. Don Gimpel...………p.6
11 percent in 1981 to 4 percent in 2000 to 10-plus
price index, bond yields, various stock exchange                    Portfolios of investments with both
indexes, agricultural exports, housing starts, the          positive alpha and with betas less than one often
unemployment rate, durable goods sales, energy              provide superior returns to portfolios
prices and money supply.                                    constructed using just one of the measures.
         In the second part of their talk a new                     The speakers showed a comparison of a
approach to measuring and managing investment               Modern Portfolio Theory optimized portfolio
risk that allows for better measurement of the              (maximized Sharpe Ratio) to an equally
economy‟s impact on investments was presented.              weighted portfolio with alpha greater than zero
         There was a discussion of Beta, Alpha, Eta         and beta less than one. The total returns
(how a stock responds to economic changes) and              between April 15, 2008 and June 15, 2010 were:
CMRI (Composite MacroRisk Index).                           S&P 500, -18.2%; Maximum Sharpe (MPT
         Beta is a measure of a measure of                  portfolio), -18.84 %; and alpha greater than
volatility. It measures how a particular stock‟s            zero, beta less than one portfolio, -6.13%.
price moves relative to the market as a whole.                      The speakers discussed the Eta profile.
There are individual stock betas and industry               It is a graphical tool that helps investors
betas.                                                      understand how 18 key macrorisk factors impact
         The standard investment advice is that for
relative safety pick a stock with a beta less than
one.                                                          Los Angeles County Meeting Schedule
         One problem with beta is that in tests high
beta stocks lost more value than low beta stocks,            Westside Computer Group – Don Gimpel, 310/276-9875
                                                    Veterans of Foreign Wars Memorial Bldg.
but the “safe stocks” did only 100 basis points              Culver Blvd. & Overland Avenue, Culver City, at 10:30 a.m.
better than the “risky stocks.” Another problem              Saturday, Aug. 7, topic TBA
with beta is that reported values of beta are often          Pasadena Group – Meets at 7 p.m., at Lamanda Library, 140 S.
reported inconsistently by different sources.                Altadena Drive, Pasadena. (Meets third Tues. of the month,
                                                             except for August and December.) Topic TBA
         For example when looking at General
Motors‟ beta from six different reporting sources,           Mutual Fund Group – Gunter Hagen 310/457-7404,
                                                    Topic and date TBA, at Fairview Library,
everyone was different, and the range was from               2101 Ocean Park Blvd., Santa Monica. The meeting is free to
1.2 (etrade) to 1.6 (yahoo).                                 the public
         Another concern is that betas are not               Stock Selection Group—Norm Langhout, 310/391-6430,
symmetric across market conditions. Stocks do       Fourth Wednesday of the month at 7
                                                             p.m. Using IBD, CANSLIM stock selection method at Fairview
not go up with the market and down with the                  Library, 2101 Ocean Park Blvd., Santa Monica. Topic TBA
market at the same pace.
                                                             San Fernando Valley Group – Mid Valley Library Community
         Another statistic is the Alpha, which is the        Room, 16244 Nordhoff St. North Hills, Date and topic, TBA
average return expected in excess of money
market rates, regardless of the overall market               Los Angeles Chapter Skirball Center at 9 a.m, Sat. July 17,
return. When estimated using annual data, this               2010, Roger Shaar, ―Combining Financial and Real Assets to
                                                             Achiee Surperior Diversification and Profits; and Fred Horn and
can be a proxy for stock momentum.                           Scott Mickelson, ―Using Physical Gold to Manage Risk.‖
         Like betas, alphas are not symmetrical in
                                                             Desert (Palm Springs area) Group Usually meets from 10 a.m. to
their movement.         If a stock behaves very              noon, second Saturday of the month at Sunset View Club House,
differently in       up-market and down-market               Sun City, Palm Desert. For more information contack Patricia
conditions, it is even possible for the overall alpha
to be positive while both directional alphas are             Option Special Interest Group, meets Saturday, 9 a.m. to noon at
                                                             Westside Pavilion, Community Room A, 10800 W. Pico Blvd.
negative.                                                    (corner of Westwood Blvd.) Time and topic TBA by leader Robert
         For safety, consider selecting investments          Morgan,
with an alpha greater than zero.
investments.      The 18 Eta macrorisk factors                      The Alpha, Beta and CMRI filters can be
statistically explain a substantial part of most            combined to create “statistically safer”
stock, fund, and index prices. The red bars in the          portfolios. On average the odds are improved
chart indicate factors which are outside the normal         by reducing the likely negative outcomes.
range and therefore are having extra impact on                      The talk was concluded with a summary
some assets.                                                of investment tips that incorporated the stock
         The macro risk status indicates the current        screens, as follows:
“standardized value” of each of the 18 factors.                     Consider both Alpha and Beta
This describes the overall economy at a point in                    Consider both up-market and down-
time.                                                       market values.
         The Eta profile is unique for each asset or                Don‟t assume that two stocks in different
portfolio. It shows the relative impact of a change         industries provide diversification; examine their
in each macrorisk factor on the asset price.                Eta profiles.
         To illustrate how the Eta profiles worked,                 Use CMRI as a measure of economic
the speakers compared Microsoft and EcoLab (a               risk.
cleaning products and janitorial firm). The two                     When expected holding periods are
corporations had similar Eta profiles and price             longer than a year, try to obtain the lowest
patterns                                                    CMRI portfolio from your buy list. That applies
         In further illustrations of Eta profiles,          to ETFs and Mutual Funds, too.
Microsoft was compared with Lorillard (a                            For shorter term holdings, use the Alpha,
cigarette manufacturing company), with Tyson                Beta, CMRI and Economic Climate ratings.
Foods, and Compass Minerals.                                        Ten stock screens each of NYSE, ETFs
         Investment tips concerning Eta profiles            and NASDAQ stocks were shown. For each
included: when Eta profiles are similar, stocks             stock the CMRI, the economic climate rating,
tend to move up and down together; when they                the economy‟s influence (R squared) and
are opposite shaped, they tend to move up and               various Alpha and Beta measures were given.
down inversely.                                                     These screens illustrated how the factors
         When diversification is the goal, search for       to control risk were applied to individual stocks.
investments with opposite Eta profiles to smooth            These screens, and all the over 80 slides of the
out the resulting portfolio profile.                        power point presentation , can be studied on the
         When an investment is identified that              chapter‟s website at:
should do well in the current economy,                              Further information about the author‟s
purchasing other investments with similar Eta               proprietary stock risk evaluation factors may be
profiles can diversify firm specific effects while          obtained at and by
maintaining the same economic exposure.                     calling 888-893-8548.
         The CMRI (Composite MacroRisk Index)                       In the question and answer session, the
is computed by adding the absolute values of Eta            speaker said he expects a double dip recession,
measures, which are statistically important (the t          citing the factors of the impact of the BP oil
statistic is greater or equals one). The CMRI               spill on transportation and the economy, and
value changes from asset to asset and may change            the high unemployment.
over time.                                                          The speaker expressed a greater fear of
         The CMRI forecasts future volatility. For          deflation, than of inflation, citing a downward
the most part CMRIs range from 0 to 1,000. The              push on prices.
speaker showed a chart with CMRI values for                         Concerning his own portfolio, he said he
eight sample stocks, including Goldfield Corp,              was invested in real estate outside California,
(GV) and Walt Disney Co (DIS).                              cash, and only 25 percent in four or five-star
(using his own rating system) stocks.                     court provides a will, based on the law.
                                                                  California law requires that your estate
                                                          goes through probate if your house is worth
   I Have a Will, Why Do I Need A Trust?                  more than $20,000, or if everything else you
                                                          own is worth more than $100,000.
            By William Parmenter, editor                          It is important to let your family
                                                          members know where your legal documents are
        Steve Hornstein, of the Hornstein Law             before you die, so that your property does not
Offices, gave an informative presentation on wills        inadvertently revert to the state.
and trusts at the June 19, 2010 meeting of the Los                A will is valid if it is in your handwriting
Angeles chapter of AAII at Skirball Cultural              and witnessed by two people. The probate
Center.                                                   judge will decide if the will is proper, and
        Hornstein, a lawyer, CPA and CFP, has             instructs the executor on how to distribute the
worked in estate planning since 1996. He helps            property, hopefully in accordance with the
individuals prepare revocable living trusts, so           instructions in the will.
people can avoid probate. Since 2002 he has                       The public has to be notified, with at
operated his own law, accounting, estate planning         least four months notice in a newspaper ad, of
and wealth management firm.                               the date of the probate hearing. That way all
        During his talk he explained why a trust is       creditors and interested parties can attend the
necessary, how people can avoid expensive                 hearing.
probate fees and how to construct a trust.                        Even with a properly drafted will the
        His presentation was easy to follow, as he        probate judge controls the disposition of the
explained basic terms, and stopped to answer              property. Nothing can be given to the heirs
questions from the audience.                              without the judge‟s permission.
        The major reason for estate planning is                   In the case of a son, who was hit with
that you cannot take your estate with you when            inflated hospital bills after his mother died, with
you die. Your estate is defined as everything you         only a will he would be powerless to negotiate
have accumulated during your life: your property,         with the hospital. With a trust, he could
money, stocks, bonds and so forth.                        negotiate to reduce the bills.
        Estate planning is arranging to have your                 The state of California sets the fees of
estate pass to your heirs as easily and                   probate. The charges are four percent of the
inexpensively, as possible, with the fewest legal         first $100,000; three percent of the next
and bureaucratic delays.                                  $100,000; two percent of the next $800,000; and
        A will is a legal document that tells your        declining thereafter for estates of $1 million.
family and beneficiaries what you want done with                  Other fees include court filing fees, the
your possessions. It can also specify who will be         cost of the newspaper ad, and a bond fee, if the
the guardian of your minor children.                      court requires it.
        In your will you appoint someone to carry                 Probate can be expensive. Take the case
out your wishes. This person is called an                 of a $1 million home with a $900,000 mortgage.
executor, and is usually a family member or               The probate fees are based on the $1 million
friend.                                                   gross value, not the $100,000 net value. In this
        After death the court may oversee the             case the costs would be huge, around $48,000.
distribution of your assets by the executor in a                  The best way to avoid the costs, time
process called probate.                                   and bureaucracy of probate is to make a
        If you do not have a will your assets are         revocable living trust.
distributed by the laws of intestacy. It is called                Compared to probate, the advantages of
intestacy when there is no will. Then the probate
a revocable living trust are that it is less                  beneficiary (the person who gets the money).
expensive, faster and private. With a revocable                        While you are alive you do everything
living trust you do not have to go through the                the same, except, and this is very important, you
probate process, and no newspaper ad is required.             re-title all your assets (home, rental property,
         A basic revocable living trust for a couple          bank accounts, brokerage and mutual fund
at Hornstein‟s Law Office costs about $2,150,                 accounts) into the trust. But, you do not re-title
plus another $250 for notary and recording fees,              your retirement accounts—this gets complicated
totaling $2,400. The cost for a single person is              and needs to be carefully reviewed.
$2,000.                                                                The trust is a see-through entity for the
         The Hornstein estate plan includes: a                owner, an extension of the owner, and liability
revocable living trust, pour over will, durable               stays with him.
power of attorney, advanced medical directive,                         After you die, the trustee‟s job is to
deeds to fund the trust with your real property and           distribute your assets to your beneficiaries in
more.                                                         accordance with the instructions of your trust. It
         A pour over will pours over into the trust.          is very important who you choose as a trustee,
A durable power of attorney avoids conservator                as they will be carrying out the wishes of the
ship. There are two kinds of durable power of                 trust.
attorney: the first handles financial affairs, and the                 There are two types of trusts: a
second handles medical affairs (the advanced                  revocable trust and an irrevocable trust.
medical directive).                                                    A revocable trust can be changed or
         In response to a question Hornstein said             revoked at any time. Assets may be added or
his estate plans are offered at market prices,                removed at will. The settler (owner, i.e. you)
although he mentioned estate plans are available              pay taxes on the trust‟s earnings, just as you do
for a cheap as $400. But his, he said, are “totally           on assets not in a trust.
complete and the best.”                                                An irrevocable trust cannot be changed
         Comparison price shopping never hurt. A              or revoked. Assets placed in it are permanently
Goggle search topic of “Cost of a California                  transferred to the trust and removed from the
Revocable Living Trust” turned up 63,200 results              settlor‟s (owner‟s) estate. The trust then pays
in a fraction of a second.                                    taxes on its own, separate from your personal
         A random result, for an attorney in Long             estate.
Beach, provided the following comparative price                        Which type of trust best replaces a will?
information.       (Name withheld to avoid the                         A revocable living trust generally is the
apparent impropriety of favoring one vendor over              best substitute for a will. It can be changed
another. The reader can easily do his own Google              easily as your circumstances change. Assets can
search.)                                                      be added or removed quickly and easily. Your
         An estate plan for a couple was $995,                assets go directly to your beneficiaries after
including a pour over will, a revocable living                your death, according to your instructions.
trust, an advanced health care directive and fees.                     Some advantages of the revocable living
For a single person the cost was $850. Legal                  trust are: your instructions are private; it is much
services were billed at $300 per hour. Cheaper                less expensive; and there are no delays while the
options include do-it yourself, with the aid of a             judge decides if everything is in order.
paralegal, and a workbook of legal forms.                              Setting up a revocable living trust is not
         What is a trust and what does it do? A               difficult. You need to complete a questionnaire.
trust is the legal entity to hold your property.              Consult with the lawyer about what instructions
         The parties to the trust are: the settler (the       you want to put in your trust.
owner), the trustee (the manager) and the                              Things to consider:
         Who will be the trustee (after you)?                            Education Nuggets
         How will your assets be distributed?
         How will you provide for special needs                       By William Parmenter, editor
and circumstances? (for example, a child).
         How will you transfer your assets to your                   Dr. Don Gimpel talked about gold
trust?                                                      during his five minutes of investor education at
         Another consideration, what happens if             the June 19 meeting of the Los Angeles chapter
you do not put all your assets into your trust              of the AAII at the Skirball Cultural Center.
during your lifetime? If you do not put all your                     Geld macht alles, a German saying that
assets into your trust during your life, it will cost       roughly translates as, „gold does it all‟ may be
more in attorney fees to transfer it later, and it          the theme of the gold bugs. But, in today‟s
may require a judge‟s approval (i.e. go through             market climate the question is, should the
probate).                                                   investor buy gold?
         Do you give up control of your assets by                    What drives the price of gold? Gold is
putting them into your trust? No. In a revocable            inversely related to the value of the dollar, with
living trust you decide what to put in the trust,           a .6 or .7 cross-correlation.
who manages those assets and who benefits from                       The value of gold is driven by worker
their earnings and use.                                     productivity. Worker productivity information
         You also decide who gets each asset after          can be found at the Bureau of Labor Statistics
your death. In addition, you decide who will be             at:
your successor trustee (the person who will carry                    Worker output per hour gives a hint as to
out your instructions).                                     the equilibrium price of gold. Go to the site and
         How do you choose a successor trustee?             find the news release and look in the third
         You can choose anyone you want to be               column at output per hour. If output per hour
your successor trustee. The successor trustee               goes up the price of gold goes down.
manages your assets, but does not own them.                          Should gold be in your portfolio? Gold
         If you are chosen to be a successor trustee,       is negatively correlated at -,3 with the S&P 500.
you may seek help from an estate attorney in                That reduces portfolio risk, and can make a
discharging your three primary responsibilities.            substantial difference. Between five and ten
They are: gather all the assets; pay the outstanding        percent of one‟s portfolio should be invested in
bills; and distribute assets in accordance with the         gold, say brokers.
trust‟s instructions.                                                Can you time the gold market? Yes, by
         Does a successor trustee get paid?                 using the Ultra FS CKG open source gold
Generally a trust will allow for a trustee fee of           trading system. Over 20 years the total gain was
about 1.5 percent of the total value of the trust.          4,573.6 percent, and the cumulative average
However, the successor trustee is free to waive the         annual return was 21.2 percent. (Gimpel does
fee.                                                        not trade in gold, as other trading systems
         In conclusion, and to repeat, a trust: gives       worked better for him.)
you more control over your assets; costs much                        On CNN it said that gold outperformed
less to implement; and is private.                          the market for the last ten years. Yes, it did, but
         For answers to further questions Steve             sometimes the market outperformed gold.
Hornstein may be contacted at (818) 887-9401                         Interest in gold is propelled by economic
(law office); (818) 280-8100 (toll-free, law                and market bad news.
office);, and at                                  Orange County AAII Announcements
                                                                 For more information about the Orange

County chapter of AAII and their meetings, go to            status of the economic recovery, or some other                          financial issue, you will have a chance to appear
                                                            in print and inform Pro Forma readers.
       Note to Pro Forma Contributors:                              Book reviews are welcome. Mail disks
                                                            to: 319 Walnut Ave., Apt. 2, Long Beach, CA.
        Please have your copy emailed to the                90802, or use email to send copy to the editor at
editor by the fifth of the month. Letters and     
comments are welcome. If you want to email an                       My home phone is (562) 437-2412.
article about the fragile financial system, the

                                                Pro Forma

                           Pro Forma Editor                           William Parmenter
                           Pro Forma Editor, Emeritus                   Orvis Adams

                                            SIG GROUP CHAIRMEN

                           IBD Meet-up/ AAII CANSLIM               Norman Langhout
                           Mutual Fund Group                           Gunter Hagen
                           Options Group                              Robert Morgan
                           Pasadena Group                                 Ivan Wong
                           Palm Springs Group                         Patti Gammino
                           San Fernando Valley Group                      Evan Press
                           Westside Computer Group                      Don Gimpel

       Pro Forma is offered free of charge exclusively via email and is also available for downloading from the
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   for the purpose of assisting individuals in becoming effective managers of their own assets through
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      Pro Forma is published for advising members of the groups' activities and for sharing information. All
  material compiled without verification of accuracy to a specific task or computer system. All material provided
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