Find Your Lost Funds - Savings Bonds (Detroit Free Press)

October 6, 2011


Susan Tompor: Billions in savings bonds sit uncollected

BY SUSAN TOMPOR
DETROIT FREE PRESS PERSONAL FINANCE COLUMNIST

Who couldn't use an extra $500 or $1,000 or more?

So why is $16.2 billion just sitting there uncollected in the form of U.S. savings bonds?

Maybe an uncle or aunt bought a savings bond for you a long time ago and you never saw it. Maybe someone died.

The federal government doesn't usually send notices informing you that you did not cash a bond that stopped earning interest 20 years ago.

About 45 million U.S. savings bonds do nothing but collect dust. That's if they're shoved aside in a shoe box and haven't been thrown out.

Never think you could lose anything as valuable as a savings bond? You put everything important in a secure spot? Think again.

"In my house, that 'safe' place has changed three or four times in the last 20 years," said Daniel Pederson, who has a Web site called www.bondhelper.com and is author of the book "Savings Bonds: When to Hold, When to Fold."

Pederson, a Monroe-based expert on bonds who has held seminars that help bond owners avoid costly mistakes, says he knows he's missing a few bonds, too.

"I have two I bought for my son. I don't know where I have them right now."

I know what he means. I've been writing about savings bonds for much of my career and was shocked this summer to discover that I lost more than a dozen of them.

What's lost under your mattress?

Hunt for those savings bonds

One tough part about losing your parents is that sometimes you're forced to tie up loose ends. For many families, like mine, that means looking for lost U.S. savings bonds.

My parents, maybe like yours, bought paper savings bonds through payroll deduction and for special occasions.

During parts of the 1980s, savvy savers actually rushed to buy U.S. savings bonds -- I am not kidding -- to lock in high interest rates. My mother nudged me to buy savings bonds back then, too, when I was in my first job.

Since Mom was my go-to gal for advice, I took my checkbook to the bank and bought those bonds. I wasn't the only one.

Somewhere out there, Americans are looking at more than 665 million savings bonds valued at more than $180 billion. Most are still earning interest.

But about 45 million of those bonds worth $16.2 billion are likely missing and no longer earning any interest. They need to be cashed if they can be found.

But Daniel Pederson, a Michigan-based expert who runs www.bondhelper.com, said many people cannot find their bonds. Think of all the people who moved while in the military; switched jobs in their careers; stored stuff in someone else's attic.

Pederson said he thinks he may have lost a few bonds after he took some bonds to talks he gave to groups. After my father died several years ago, I inherited the chore of tracking Mom and Dad's savings bonds. A lifetime of accumulating bonds meant I had figure out which bonds would mature when and drive Mom to the bank to cash some bonds each year. Mom's memory was fading, but her bonds had a life of their own. Sadly, I miss our crazy little trips to the bank.

But after Mom died, we had to ask: Did we have all her bonds?

Everyone should ask that question. "The toughest part is just getting started," Pederson said.

First stop: The Treasury Department Web site: www.treasuryhunt.gov .

You enter your Social Security number and if you've got a bond in the Treasury Hunt database, you'd receive an e-mail alert.

But the e-mail does not tell how many bonds you're missing or what they're worth. You're prompted to submit contact information.

The Bureau of Public Debt said a little over 1% of the 3 million searches conducted online this year resulted in people sending back contact information. Publicity on ABC's "Good Morning America" this summer generated more searches than usual.

Michigan resident Catherine Townsend searched the Treasury Hunt after seeing a segment on TV, but she didn't find a bond for herself. She searched for her husband and found a bond he bought when he first started working at General Motors in the mid-1970s.

"He probably forgot he even had it," she said. "Anybody can go online and try to see what they have."

After filing out the proper paperwork, the couple received a little more than $100.

The key is taking the next step. "Some people don't follow up," said Lateefah Thompson, public affairs specialist for the Bureau of Public Debt. What can be confusing is that Treasury Hunt will not find every bond. You need to do more work to find really old bonds -- or some relatively newer ones.

The online system finds Series E bonds issued in 1974 and after. It only identifies bonds in that group that are not earning interest. The best way to find out about all possible lost or stolen bonds is to contact the Treasury, Thompson said, and submit Form PD F 1048, a six-page form with instructions. Of course, sometimes tearing up your house works, too. Remember those bonds Mom urged me to buy in the mid-1980s?

I thought I had them all -- they won't stop earning interest until 2015 and 2016. But somehow, my sister found a stack of my bonds in my parents' cedar chest when she looked for other paperwork.

I moved a bit in the '80s. Did I give the bonds to my parents for safekeeping?

By filing the form 1048, we discovered an unredeemed 1952 bond that we had no clue about. That bond cost $18.75 originally and is now worth $170.66. It stopped paying interest in 1992. Maybe, my parents lost that bond when they moved from my grandmother's house to their first and only home?

In all, the Treasury search found a dozen bonds that belong to my sister, other family members and me. Three unredeemed bonds bought in the 1970s stopped earning interest in 2005 and 2007. Overall, the dozen discovered bonds are worth about $10,000 before taxes. Now, we've got more paperwork. Many are still earning interest, so all would not have been found with just Treasury Hunt.

The young man at the Bureau of Public Debt who is looking at this mess called me one day and told me three times that I should not be intimidated by all the forms he would send me. He sent a very detailed letter on what to do next. I begged my husband to look at the forms -- and this guy's roadmap.

One "lost" bond in the mix is a Series I inflation-indexed savings bond I had bought my son when he was little.

My son, with an eye on high school and college, said: "Well, you better find that bond."

Contact Susan Tompor: 313-222-8876 or stompor@freepress.com

Insurance Companies Sued for Knowingly Stiffing Heirs ( from LifeHealthPro )

Prudential, MetLife Sued over Death Master File

By Arthur D. Postal

February 1, 2012

State efforts to collect on unclaimed property held by insurers has mushroomed into private action lawsuits filed in Illinois, Ohio and New York against Prudential and MetLife.

The lawsuits are coming to light against the background of a hearing Thursday on inaccuracies related to the Death Master File mainted by the Social Security Administration.

The DMF is the primary research tool being used to allege that insurers did not follow applicable state law on unclaimed property, either by not being aggressive enough in seeking to find beneficiaries of life insurance policies, or, in the alternative, turn the money over to the state.

In a suit filed in Chicago, Total Asset Recovery Services, based in Auburn Hills, Mich., alleges it discovered a "massive fraud" by Metropolitan Life Insurance and Prudential Financial.

The suit alleges that the two firms kept more than $524 million in unclaimed life insurance money that should have been turned over to Illinois.

And, a class action suit alleging securities fraud was filed in Manhattan Jan. 12 against Metlife by the City of Westland Police and Fire Retirement System, Westland, Mich.

The suit alleges MetLife made “false and misleading statements” regarding its financial statements because it took a charge in the third quarter of 2011 related to a determination that it owed money by either not paying off policies to proper beneficiaries or turned the money over to the appropriate states under escheat laws.

And, an Ohio state court based in Cleveland Tuesday dismissed a complaint against Nationwide Insurance Company in which a life insurance policyholder who is 71 years-old filed suit.

The plaintiff said he filed suit out of concern that his death is imminent and he is fearful that because Nationwide allegedly “has failed and continue to fail to make reasonable attempts to determine when the beneficiaries of a life insurance policy are entitled to death benefits.”

The plaintiffs fear … “that as their deaths are impending they fear that that their life insurance policies will not be honored.”

The suit asked that Nationwide be required to make at least annual DMF searches for insureds with more than a 70% chance of having died.

The court dismissed the suit, on the grounds that (a) plaintiffs lacked standing because their alleged injury was too speculative and (b) the duty plaintiffs sought to impose was foreclosed by the terms of their policies.

The plaintiffs have appealed to the Ohio Court of Appeals.

The Illinois case was filed almost a year ago but only unsealed earlier this month.

It is a so-called “qui tam,” or whistleblower complaint in Cook County Court.

The suit said MetLife and Prudential "filed false records omitting these unclaimed funds."

It says the insurers should be fined more than $1.5 billion under the Illinois False Claims Whistleblower Reward and Protection Act.

Tom Prescott, equity-owner and spokesperson for Total Asset Recovery Services LLC, said that with regard to the suit, the Illinois attorney-general’s office has said that it will soon submit for the court's consideration a motion to intervene and simultaneously dismiss the suit because it is negotiating a settlement with MetLife and Pru.

Prescott complained that it is likely that Illinois will settle “for pennies on the dollar.”

He said that, “We think this is incredulous and unfair to the citizens of Illinois compared with what they should receive given the companies' documented fraudulent activities in this area) after having utilized our data findings and supporting documentation to extract the relevant monetary and policy concessions.”

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Learn from Mitt Romney's Tax Return (WSJ)

WEEKEND INVESTOR
JANUARY 28, 2012.

What You Can Learn From Mitt's Tax Return

By LAURA SAUNDERS
There are some very clear lessons for taxpayers that can be gleaned from Mitt Romney's most recent tax returns that the candidate released recently. WSJ's Laura Saunders spells out the details on Mean Street. How did they do it?

That is the question many Americans are asking of Mitt and Ann Romney's 2010 tax bill, disclosed on Monday evening. While the couple paid almost $3 million in taxes, that amounted to less than 14% of their $21.6 million income.

The Romneys' rate was far lower than the average of 24% paid by the top 1% of U.S. earners, according to the nonpartisan Tax Policy Center.

The couple's 2010 filing presents a rare glimpse into how the ultrawealthy can use the tax code to their benefit, and offers important lessons for others.

The biggest: the powerful tax benefits of capital gains, which are taxed at a top rate of just 15% if the underlying investment is held for more than a year.


GOP presidential candidate Mitt Romney paid a 14% effective income tax rate in 2010 after making $3 million in tax-deductible charitable donations and drawing most of his income from investments. Mitt Romney is working hard to make voters dislike Newt Gingrich and President Obama. But Mr. Romney has yet to crack a tougher nut: persuading voters to like him. Neil King has details on Lunch Break.
."There's a saying in Texas: If you don't have an oil well, get one," says Janet Hagy , a certified public accountant practicing in Austin, Texas. "I tell my clients, 'If you don't have capital gains, get some.'"

Another lesson: Get good tax help. The Romneys' 1040 return is 203 pages long, with different "schedules" and 20 different forms attached, some of them multiple times—not the sort of work typically done by a neighborhood Joe.

Says David Kautter of the Kogod Tax Center at American University in Washington: "The only schedules missing [from the Romneys' return] are the ones for fishermen, farmers and the elderly. Maybe Mitt should get some cows so he can have a 'full house' of schedules."

Some have suggested that, despite their low tax rate, the Romneys might have paid a few thousand extra dollars in tax. Among other things, they take no mortgage-interest deduction—a write-off claimed by 80% of taxpayers who itemize—or deductions for a home office, a car or travel expenses.

But given the complexity of their filings and the public scrutiny they were sure to endure, overpayments were far preferable to underpayments, experts say. The Romneys must file several separate returns for the "blind" trusts the couple set up to manage their investments, any of which could present snags. (The wealthy often do this when they are running for office, in order to avoid the appearance of conflicts of interest.)

Experts who have parsed the returns say the Romneys' advisers have been tax-smart without crossing legal lines. "The trustee has clearly gotten good advice and managed to reduce the Romneys' taxes in many perfectly legal ways," says Tom Ochsenschlager, a former official at the American Institute of CPAs who now teaches at American University.

Former IRS Commissioner Fred T. Goldberg, who examined the filings for the Romney campaign, characterized them differently: "This return reflects a trustee who spent a lot of care and time finding investment opportunities with the potential for substantial appreciation. By their very nature, these investments generate capital gains."

The returns don't disclose everything about the Romneys' finances. The couple isn't required to report their underlying wealth, investment returns or fees as a percentage of invested assets, for example.

But the filings do lift the veil on how the wealthy can use the tax code to their advantage. Here are some lessons the experts have gleaned.

A. Avoid salary, wages and tips to the extent possible. The Romneys reported no such compensation, which is taxable at rates up to 35%. In addition, these types of pay are subject to payroll taxes: a 6.2% Social Security tax (lowered to 4.2% in 2011) and 1.45% in Medicare tax, both of which the employer matches. While the Social Security tax is capped each year at a certain income level ($110,100 for 2012), the Medicare tax isn't.

Some experts believe "carried interest," or profits such as those from investments that Mr. Romney received as a partner at Bain Capital, should be taxed as compensation at rates up to 35%. Currently, those profits usually count as capital gains and are taxed at a top rate of 15%.

B. Muni-bond interest isn't the be-all and end-all. Many wealthy people turn to municipal bonds for tax-free income, but the Romneys reported only $557 of tax-free interest in 2010—and $3.3 million of taxable interest.

Kenneth Brier, an attorney at Brier & Geurden in Needham, Mass., notes that Massachusetts has a flat tax of 5.3%, making munis less attractive there than in high-tax states with graduated rates such as New York or California. And because the Romneys' overall tax rate is so low, the after-tax difference between munis and taxable bonds might not be large enough to justify investing in munis, Mr. Ochsenschlager says.

Some of the taxable interest on the Romney's 2010 return came from U.S. Treasurys; such interest isn't subject to state taxes.

C.Strive for "qualified" dividends. The Romneys' 2010 return reports $3.3 million of qualified dividends, which are taxed at a top rate of 15%. (There is another $1.6 million of nonqualified dividends, taxed like interest income.)

What makes a dividend "qualified"? In general, the dividend must be from a stock held at least two months and paid by any domestic corporation or most foreign corporations. The dividend can't come from a stock that a brokerage firm has lent as part of a short sale, says Robert Willens, an independent tax expert in New York.

D. If you have a "Schedule C" business, think twice before claiming a home-office deduction.The Romneys didn't take one on either of two Schedule C forms, which are for business results reported on personal returns. The Romneys used their Schedule C forms for director's fees and speaking fees.

Not only do home-office deductions raise red flags at the IRS, but they can come back to haunt taxpayers when the home is sold: Part of the gain on the home's sale may not be eligible for the $250,000 or $500,000 tax exclusion because taxpayers who took depreciation deductions in prior years have to reduce the exclusion by that amount.

In addition to raising taxes in many cases, this poses a record-keeping problem, Mr. Ochsenschlager says.

E. Generate income from long-term capital gains. The biggest factor in the Romneys' super-low tax rate is their outsize income from capital gains: $12.6 million in 2010. Most of that consisted of long-term gains, which, like qualified dividends, are taxed at a top rate of 15%.

The benefits don't end there. While the tax code gives wage earners almost no flexibility as to timing, the capital-gains rules offer unparalleled flexibility. Investors can often time when they take a gain or loss, and losses may be used to offset gains so that no tax is due. There are few restrictions: For example, a loss on land held as an investment can offset the gain from a stock.

Net capital losses can shelter up to $3,000 a year of ordinary income from tax, and losses can be carried forward indefinitely to shelter future gains. Canny investors or their advisers often "harvest" losses during market downturns, reacquire the investment after 30 days and use those losses to offset future gains, Mr. Willens says.

On Schedule D of their 2010 return, the Romneys' original long-term capital gain of $16.8 million was reduced by $4.8 million of carried-over long-term capital losses.

F. Know the score on itemized deductions. One way the Romneys resemble many other taxpayers is that they didn't get a medical-expenses deduction. Only expenses above 7.5% of adjusted gross income are deductible; for the Romneys, that hurdle amounted to $1.6 million, while they reported medical expenses of just $14,176.

The Romneys did make tax-wise charitable contributions. They gave away nearly $3 million, almost 14% of their adjusted gross income, about half in cash and half in other forms.

All of their contributions were fully deductible, whereas the biggest givers are subject to limits. Billionaire Warren Buffett, for example, gives away such vast sums each year that much of it can't be deducted from his income tax (though the gifts will be out of his estate).

Making noncash gifts—such as appreciated stock or other assets—often is a smart move for people like the Romneys because they can skip paying capital-gains tax on any appreciation, while getting a full deduction.

For example, say a higher-bracket taxpayer has 100 shares of stock bought years ago for $30 a share that is worth $80 when he donates it. If he sold the stock, paid tax and gave the remaining cash to charity, it would receive $7,250 and he would have a deduction of the same amount. If he gives the stock directly to the charity, it would receive $8,000, and he could deduct the full $8,000. (Some restrictions apply.)

G. Capital gains and dividends can help trigger the AMT. Long-term capital gains and qualified dividends are taxed at 15% and aren't subject to the alternative minimum tax.

The AMT takes away the value of deductions, such as the one for state taxes, when taxpayers are deemed to have too many write-offs. But a large percentage of capital gains and dividends in a taxpayer's overall income mix can cause a taxpayer to owe AMT.

The reason: With capital gains and dividends off limits, deductions loom large relative to other income, and that triggers AMT. The Romneys paid $232,989 in AMT in 2010 and lost the value of their state tax and other deductions, according to Jay Starkman, a CPA in Atlanta. "Without that, their tax rate would have been even lower," he says.

H. Beware of small benefits requiring large tax-prep efforts. The oddest line on the Romneys' 2010 return is a tax credit for $1 of "General Business Credit." Don Williamson of American University's Kogod Tax Center says the credit could be for hiring a disadvantaged youth or qualified veteran and it flowed through from an investment partnership.

But likely it cost far more than $1 just to fill out the three-page Form 8300 for the return. Mr. Williamson says he sees this problem all the time. Often tax-prep fees are disproportionate to an investment's tax benefit or the income it produces, he says—especially with larger investment partnerships.

One other lesson: For the wealthy, offshore investments can save onshore taxes. Robert Gordon, head of Twenty-First Securities in New York, a firm specializing in tax strategies, points out that the Romneys' 2010 return has 17 different filings of IRS Form 8621. Each indicates an investment, perhaps a hedge or private-equity fund, held in an offshore corporation.

These are legal arrangements, Mr. Gordon stresses. They can have significant tax advantages for the wealthy who live in high-tax states—especially Massachusetts, because its flat tax allows no deductions.

Investments held offshore in what is known as a "blocker corporation" can allow U.S. taxpayers to pay less tax than if the same investment were made through an onshore entity, Mr. Gordon says.

He offers an example. Say a partnership based in the U.S. invests $100, $80 of which is borrowed. It earns $5 of profits and has $4 in interest expense, for $1 of net pretax profit. In Massachusetts there isn't an interest deduction, so the entire $5 would be taxable.

If the investment were held in a fund based in the Cayman Islands, however, only $1 would be taxable in Massachusetts. Federal deductions subject to limits would also be preserved, Mr. Gordon says.

Write to Laura Saunders at laura.saunders@wsj.com.

Corrections & Amplifications
Part of the gain on a home sale might not be eligible for an income-tax exclusion of $250,000 or $500,000 if the taxpayer with a Schedule C business has taken depreciation deductions for a home office. An earlier version of this article said the percentage of the sales price attributable to the home office wouldn't be eligible for the exclusion