Tuesday, August 12, 2008

Case Study: How to lose customers

As I read the Wall Street Journal yesterday I came across an interesting article on the Opinion section of the paper. Its title: Cigarette Tax Burnout.

Smoking is a big business, whenever I asked a smoker why he/she smokes the answer is "I like it" or "it relaxes me". Anyways, even though I am not a smoker and I personally consider smoking as burning money away (literally), I believe smokers have a right to smoke. Now, they buy a product that is heavily taxed by state governments, the government states the tax on cigarettes funds other projects and many smokers are OK with paying some taxes, however, politicians need to take a business class to teach them the basics of Price and Demand. Politicians think the increase in the tax on cigarettes does not have any effect on the demand, but now they are learning that it does.

This is a perfect example on how you can price yourself out of business... the government increases the tax on cigarettes, smokers buy less cigarettes, cigarette companies report less profit, share holders make less money, employees may work less hours and state governments have less money to balance their budget or fund other projects.

"Politicians in Annapolis are scratching their heads wondering what happened to all those chain smokers who were supposed to help balance Maryland's budget. Last year the legislature doubled the cigarette tax to $2.00 a pack to pay for expanded health-care coverage. Eight months later, cigarette sales have plunged 25% and the state is in fiscal distress again."

Here is the link for the full article.


Monday, August 11, 2008

FDIC Part VI: Employee Benefit Plan Accounts

Employee benefit plan accounts are deposits of a pension plan, profit-sharing plan or other employee benefit plan.
Employee benefit plan deposits are insured up to $100,000 for each participant's non-contingent interest in the plan.

This coverage is known as "pass-through" insurance because the insurance coverage passes through he plan administrator to each participant's interest or share.
Coverage for a plan's deposits is not based on the number of participants, but rather on each participant's share of the plan. Because plan participants normally have different interest in the plan, insurance coverage cannot be determined by simply multiplying the number of participants by $100,000.
To determine the maximum amount a plan can have on deposit in a single bank and remain fully insured, first determine which participant has the largest share of the plan assets, then divide $100,000 by that percentage. For example, if a plan has 20 participants, but one participant has an 80% share of the plan assets the most that can be on deposits and remain fully insured is $125,000 ($100,000 /.80= $125,000).

FDIC Part V: Irrevocable Trust Accounts

Irrevocable trust accounts are deposits held by a trust established by statute or a written trust agreement in which the grantor (the creator of the trust - also referred to as a trustor or settlor) contributes deposits or other property and gives up all power to cancel or change the trust.

An irrevocable trust also may come into existence upon the death of an owner of a revocable trust. The reason is that the owner no longer can revolve or change the terms of the trust. If a trust has multiple owners and one owner passes away, the trust agreement may call for the trust to split owned by the survivor. Because these two trusts are held under different ownership types, the insurance coverage may be very different, even if the beneficiaries have not change.

The interest of a beneficiary in all deposit accounts established by the same grantor and held at the same insured bank under an irrevocable trust are added together and insured up to $100,000, only if all of the following requirements are met:

  • The insured bank's deposit accounts records must disclose the existence of the trust relationship.
  • The beneficiaries and their interests in the trust must be identifiable from the bank's deposit account records or from the trustee's records.
  • True trust must be valid under state law.

FDIC Part IV: Revocable Trust Accounts

Revocable Trust Accounts
A revocable trust account is a deposit owned by one or more people that indicates an intention that the deposits will belong to one or more named beneficiaries upon the death of the owner(s). A revocable trust account can be revoked (or terminated) at the discretion of the owner. The term "owner" means the grantor, settlor, or trustor of the trust.
There are both informal and formal revocable trusts.

Informal revocable trusts, often called "payable on death" (POD), "Totten trust" or "in trust for" (ITF) accounts, are created when the account owner signs an agreement usually part of the bank's signature card stating that the deposits are payable to one or more beneficiaries upon the owner's death.

Formal revocable trusts known as "living" or "family" trusts are written trusts created for estate planning purposes. The owner controls the deposits and other assets in the trust during his or her lifetime. Upon the owner's death, the trust generally becomes irrevocable.

All deposits that an owner has in both informal and formal revocable trusts are added together for insurance purposes, and the insurance limit is applied to the combined total.

Payable on Death (POD) Accounts
The owner of a POD account is insured up to $100,000 for each beneficiary if all of the following requirements are met:
  • The account title must include a commonly accepted term such as "payable on death," "in trust for," "as trustee for" or similar language to indicate the existence of a trust relationship. The term may be abbreviated (for example, "POD," "ITF" or "ATF").
  • The beneficiaries must be identified by name in the deposit account records of the insured bank.
  • The beneficiaries must be the owner's spouse, child, grandchild, parent, or sibling. Adopted and step children, grandchildren, parents, and siblings also qualify. Others including in-laws, cousins, nieces and nephews, friends, organization (including charities) and trusts do not qualify.