“Come on Mr. Treasury man, ARREST ME!”

Friends:

I confess that I have felt somewhat like a hypocrite lately.  It never really occurred to me before, but some of the strategies that I advise be instituted as part of my legal counsel actually conflict with my own belief system and sense of right.

Benjamin Franklin said that the only things that are certain are death and taxes.  Amazingly, many Americans spend an inordinate amount of time trying to defeat the latter.  Whether it’s through creative accounting or considered planning, tax avoidance is a huge motivator; the idea that the government should receive less so that the individual can take home more is a widely-held sentiment.

As such, in my firm’s practice, much of our advice is founded in methods to avoid the payment of estate taxes upon the death of the taxpayer.  For as you are probably aware, estate planning has two potential focuses—one is legacy planning and the other is tax avoidance.

In some of my past postings I have argued that more government funding needs to be earmarked for education and the judicial system.  But where is that funding going to come from???  It isn’t like the government is sending around a collection plate and we are all given the option of making a donation.  I don’t recall watching a Telethon on Channel 13 or seeing Governor Brown offering to wash my car for five dollars.  So where will the money be coming from?

From taxes!  Right!  So on one hand I am arguing that we need more government money for education because too many important school programs are being cut and teachers fired and on the other hand I am being paid to advise taxpayers on how to not pay those taxes. 

I am not an expert on taxes but I can certainly conceptualize the difference between tax and estate taxes because there is a difference.  The idea of paying estate taxes is simply abhorrent to me and I am not too shy to admit it.  Many of the others forms of taxes are understandable—we may not like them but we understand them.  We pay taxes on the money we earn and as money changes hands, the government is there with its hand out.   We pay taxes for the privilege to do business in the country, state, city, neighborhood, and whatever other geographic designation that may lay claim to a right to receive payment.  We pay taxes for the privilege to live in the country and state and to be provided with the opportunity to live and work in this country and state.  So far, so good, I understand it.  But what is the basis for the estate tax again?

Do taxpayers pay for the privilege of dying in the country and state?  I doubt that anyone would consider dying a privilege.  And they still have to pay taxes even if they die in another country or state.  So they pay taxes for dying while owning property and having assets in the country and state, even though they may die on the moon, in a hot-air balloon over the state line, or 20,000 leagues below the sea.  I guess if the country/state had to do anything with the body, provide a burial location, or conducted the funeral… right, that doesn’t happen either.

On top of that, examine what is being taxed.  The assets that the taxpayer owned at his/her death were acquired at some point using moneys that were earned while he/she was alive—but didn’t the taxpayer pay taxes when the money was earned the first time?  And won’t taxes be paid when the real property or investments are sold by the heirs?  It just seems like estate taxes add insult to injury.  You just died and your Uncle Sam wants his portion of the inheritance.  The Uncle Sam who didn’t attend the funeral, didn’t come to visit you in the hospital, and didn’t read your obituary in the newspaper and send a condolence card to your widow.  Yes, THAT Uncle Sam wants his piece of the pie.

I understand that as of today the estate tax is not going to be paid by everyone; only those with more than five million dollars who die this year could potentially pay estate taxes.  But if our government doesn’t do anything dramatic, as of 2013, the number will be reduced and anyone dying with more than One Million Dollars (insert Dr. Evil sneer here) could be subject to estate taxes.  One Million Dollars, in the grand scheme of things, may not be a whole lot, especially for those of us who own real property in Los Angeles.  Factor in the fair market value of our homes and that One Million Dollars is within spitting distance.

And yet—if some of those rich old codgers from Texas who made their money in oil and have far too many zeroes at the end of their balance sheets happen to die, then that money could seriously go to some worthwhile government programs, right?

Ahh, I am conflicted!!!

What about you?

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“Want a Twinkie, Genghis Khan?”

Friends:

Every morning I visit the gas station around the corner from my house for a morning beverage for the car ride in to the office.  It is part of my routine and the clerk who works the convenience store at the gas station knows and recognizes me, we exchange the same pleasantries, and I invariably pay with the exact change of $0.97.  Like clockwork.

Recently, however, there have been some changes– the convenience store has changed ownership and is now part of the large franchise known as the “Circle K.”  As Bill and Ted said, “Strange things are a-foot at the Circle K.” 

For one, the shifts have changed and my regular clerk works different hours.  The employees all wear the same uniforms now and there are more of them at the counter in the morning.  There is a supervisor who seems to always be there and a donation cup has replaced the “add a penny, take a penny” container.  There is much less waiting in the morning to be served, the coffee is of a higher quality and the air/water machine is of much better quality.  The changes at the store are noticeable.

All of this got me to thinking:  in order to take a business to a higher level, sometimes significant changes need to be made and a shift in the culture of the firm is necessary.  For my local gas station convenience store, it is clear that the big business of Circle K came in and made radical and significant changes internally.  They didn’t necessarily clean house, so to speak, but they certainly have made it known that Circle K has certain expectations as to the store’s performance, the service it provides and its employees.

You all know that I am huge baseball fan, yet I am reticent to bring my love of baseball to these posts.  It seems appropriate, though, to at least bring baseball into the current discussion, specifically, the Boston Red Sox.

The Red Sox had long been suffering due to the “Curse of the Bambino” and had always played second (or even third, fourth, or fifth) fiddle to the Yankees and their multiple championships.  All of that changed in 2004 with their first world championship in almost 90 years and they quickly established prominence as a baseball powerhouse with their second world championship in 4 years in 2007.  The Red Sox had finally made it to the top of the baseball world and was considered one of the elite. 

All of that came crashing down at the end of the 2011 baseball season with a monumental collapse in the waning weeks of the season, leading to a loss of a playoff spot and an offseason spent on the couch wondering what happened.  It was clear to Red Sox management that a change was needed.  The days of beer and fried chicken in the clubhouse were over and it was back to focusing on only one goal:  winning the World Series.

It started with a new manager, an on-field general who was no-nonsense, who would establish order to a clubhouse in disarray.  The goals were established in Spring Training that there would be no more shenanigans behind the scenes, baseball was the only focus.

As the 2012 season has progressed, it became clear that the changes instituted by Red Sox management were not working.  There were constant reports of disgruntled players, in-fighting and private meetings between players and the executives.  Thus, further changes were necessary.  It was made clear to the players that they either fell in line/towed the company line or else they would be replaced.  It started with a crowd favorite being shipped off to the Chicago White Sox and ended with a virtual implosion of the team with the jettisoning of the All Star pitcher, first baseman and outfielder.  It is clear that the Red Sox are sticking to their new culture and have opted to find players who will play according to those rules.  They are starting from scratch and no player is safe from potential movement to another team.

Every once in a while a business must go through a transition.  It may be planned, as part of a reorganization, merger, or acquisition, or it may be part of a new strategy being employed to take the business to another level, to succeed to a level not yet attained.  In order for the business to get to that level, though, everyone needs to be on board.  Everyone needs to be rowing in the same direction.  Everyone needs to be part of the team that is going to succeed in the goals.  Because a business cannot succeed without everyone pushing and pulling together.  The management must be specific in its goals and must stick to its convictions that its goals can and must be met.  Failure is not an option.  And if the people on the team are not all pulling together and it is clear that progress is being impeded, then changes must be made.

Going back to my Circle K on the corner.  It is clear that Circle K has a firm culture and policies and its managers work diligently to enforce those rules and goals.  Each employee has a duty and is held accountable.  Even from the mere 2 ½ minutes I spend in there every morning, it is clear that Circle K has taken over and that each of the employees is not only a representative of Circle K, but is also expected to perform and will be replaced if they don’t.

“Europe has never been this interesting since Napoleon invaded Russia.”

Friends:

Last week as I was sitting on the couch I happened upon a program on ESPN Classic remembering the 1972 Munich Olympic Games and the tragedy that took place there on that day in September.  The program was interspersed with footage of the news reports from ABC as the events transpired, the look of utter shock and devastation as Peter Jennings and Jim McKay attempted to make sense of events that could not possibly be happening.

The tragedy in Munich took place four years before I was born and in all honesty I cannot recall learning too much about it.  As it is, I still know very little about the kidnapping, the senseless murders or the politics of the monsters involved.  And yet, these Munich events are a part of my history, just like the pogroms in Russia, the Holocaust in Europe, and the Spanish Inquisition.

But as I was watching the footage, I was struck by a wave of nausea as a realization dawned on me:  I was there. 

It was the summer of 1998, I had just completed my first year of law school and for the summer I had enrolled in the semester abroad program through my school.  Six weeks in London “studying” followed by a two week backpacking jaunt through Europe with two of my closest friends.  From London, our first stop was Munich.

I had been to Europe a few times previously but never to Germany.  The closest I came to Germany was a bus trip from Holland to Italy which required passage through Germany.  I think I slept through most of it and never even got off the bus.  So this trip to Munich was the first real trip to Germany and needless to say I was not looking forward to it. 

In planning our two-week trip, my friends and I figured that Munich was as good a place as any to start.  It was centrally located and provided short enough train rides to destinations in Italy.  We opted to make it our initial stop but to spend as little time as necessary there.  Al I want to do there was see the concentration camp, so we decided to fly to Munich in the morning, visit Dachau, spend the night and leave early the next morning by train.

The concentration camp was a moving experience, although one that was somewhat tempered by a realization that significant “whitewashing” had been done to minimize the horrific nature of the camp.  Structures were removed, trees and flowers planted and many of the more terrifying accoutrements were conveniently missing or “destroyed.”  Nevertheless, the magnitude of a place like that cannot be ignored.  What made Dachau so much more powerful was its close proximity to Munich proper.  The city was only a short bus ride away and all around the camp were neighborhoods with modern homes and cars, kids on bikes and family-life taking place.  It seemed so divergent from the horrors of the tragedies that took place there on a daily basis.

After our visit to the camp, it was clear we needed a rescue from the sadness and gloom of the camp.  So into the center of town we went, with its cobblestone streets and glockenspiel in the Marienplatz.  Yet again, an anachronism compared with the concentration camp mere miles away.  A city founded centuries before so close in proximity to a modern instrument of death and torture.

After a nice dinner of traditional German fare (I believe we had pizza), we explored the area a little further and somehow or other we ended up at the Olympic Park.  It was later in the evening but not yet fully dark yet, the sun going down later in the day during the summer.  The air was calm and the temperature perfect; there was a peacefulness to the area.  It felt like a college campus on a summer evening.  A few scattered people around, mostly young, a freedom to explore a campus of buildings and arenas and grassy areas.  Like when you go to sleep-away camp and you wake up early in the morning to take a jog around the grounds.  Everything was calm and peaceful and… safe.  As we walked around the park, it never occurred to me that such horrifying events had happened so close by.  In fact, I doubt that it even registered at the time that the murders in 1972 took place possibly right where I was standing.

As I watched the replay of the news coverage this past week, I immediately got weak in the knees and felt a growing pit in the bottom of my stomach.  Whereas I was expecting to feel uncomfortable about being in Dachau, there was a comfort to the areas of the Marienplatz and the Olympic Park.  Those areas were separated from the atrocities of the Holocaust by time, the architecture of the areas so obviously different from the camp that it was easy to forget how close to the tragedies we actually were.

But looking back on it now, I am struck by how naïve I really was.  At the time, it had been only 25 years since the Olympic Games.  Not quite ancient history, that is for sure.  But it was truly unsettling to come to the awareness that an act of terrorism took place right where I was and I didn’t even know it. 

And me, a history major!

I guess there is no real point to this week’s post, other than to share with you an event that didn’t actually have a dramatic impact on my life until 14 years afterwards.  But now, whenever I think of that summer and the European vacation of 1998, I will think of standing in the Olympic Park, utterly and completely clueless as to the world around me.