Dear Mr. Berko: We have a large family — six of us — trust that is seeking tax-free income, and a local adviser whom we might employ speaks highly of the Goldman Sachs High Yield Municipal Fund.
He intends to use other Goldman funds for growth. Please give us your opinion of this tax-free investment.
Finally, we are having trouble understanding the estate tax code. A family member passed away very late last year and we would appreciate your explanation or understanding on how the taxes, if there are any, are figured under the new tax code.
Please omit our names if you elect to publish this letter. –XYZ, San Antonio
Dear XYZ: If you folks are not pulling my leg, then, collectively, you’re either recluses, dumber than dirt, naive as a flock of sheep or the delivering doctor dropped each of you on your heads when you were born.
Frankly, I think it’s a weird combination of all four.
First things first. The Goldman Sucks (I mean Sachs) High Yield Municipal Bond Fund (GHYIX, $8.35 as of June 10) yields 5.7 percent, and its record literally sucks. In the past five years, the total return on this piece of junk is a minus 0.5 percent. In other words, for every dollar invested five years ago, you would have gotten back 95 cents today, and that negative return includes the distributed income during those 60 months.
Your family trust must really be huge, because GHYIX’s minimum investment is $10 million. Frankly, the adviser who gave you this advice needs to go back to adviser school.
GHYIX is an institutional municipal bond fund run and owned by Goldman Sachs (GS, 52-week high of $175.34 as of Jan. 18), and I sooner trust a pedophile or a member of Congress than those evil Goldman people. A major concern is the quality of the issues in the GHYIX portfolio, some of which may be leftover junk from earlier Goldman Sachs underwritings or inventory that couldn’t be sold to the public.
A second concern is the management of the GHYIX portfolio works for Goldman Sachs, not you. Knowing how GS conducts business (enthusiastically recommending certain bond portfolios, then selling the bonds short) suggests that it’s prudent to stay away from everything GS recommends. Anything with the Goldman imprimatur gives me the willies and so does your adviser. And that includes Goldman’s equity mutual funds, which, considering the perceived skills, have had embarrassing performances.
The 10-year record for Goldman’s capital growth is 0.92 percent. Its concentrated international equity is 2.38 percent. Its strategic growth is 0.20 percent, structured large cap 0.43 percent, large cap value 2.40 percent, U.S. equity 1.77 percent and growth and income 3.49 percent. Not very good, that.
The estate tax lapsed in 2009, and Congress allows the estates of taxpayers who passed in 2010 to choose between the 2010 or 2011 rules. So the question of which tax rule to use depends upon the size of the estate and how much the estate’s assets have appreciated.
The 2010 tax rules impose zero tax, but the cost basis of the assets, which determine the capital gains, carries over to the heirs. Meanwhile, there’s a $5 million exemption in 2011 and a top rate of 35 percent, and heirs are entitled to a stepped-up basis. So if Peter passes with assets worth $8 million and a $4 million basis, there are no taxes using the 2010 rules, but the heirs assume the $4 million basis. Using the 2011 rules, Peter’s estate owes taxes ($8 million less $5 million) on $3 million at 35 percent, and the heirs assume at the stepped-up basis. Now you decide which is most favorable.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at firstname.lastname@example.org