UPDATE: Focus on Finance

September 3, 2004
Yvonne Chilik Wollenberg
Yvonne Chilik Wollenberg

Contributing Writer

Tax warning; stock wedding gifts

Jump to:Choose article section...Tax warning: Doctors might get burned Taking some of the mystery out of hedge funds Wedding gifts from Wendy's? Gifts: A new estate-planning perk College tuition continues to rise—but so does aid

Tax warning: Doctors might get burned

Thousands of physicians who bought into tax shelters offered by Xelan could not only lose their investments, but also face civil tax penalties. The California-based company filed for bankruptcy protection on June 30, in the midst of an IRS investigation into allegations that the tax shelters illegally avoid federal income taxes. One of the schemes, a disability insurance trust program, allegedly allows participants to send premiums of up to 100 percent of their net practice income to an offshore account, and then deduct the amounts from their corporate tax returns.

John R. Patton, an attorney representing the disability insurer, maintains that the insurance company has done nothing wrong, is solvent, and is not owned or controlled by Xelan nor is it a participant in Xelan’s bankruptcy.

Xelan, which was founded in 1971, restricts its membership to medical doctors and dentists and claims it offers financial services to more than 70,000 in 33 states.

Taking some of the mystery out of hedge funds

Hedge fund advisers will now be required to register with the SEC under a proposed rule that would bring the murky assortment of private investment pools under tighter federal scrutiny. The rule allows the SEC to collect basic information about hedge funds and improve financial disclosures to prospective and current investors.

A growing number of pension funds and ordinary individual investors are buying into hedge funds, which traditionally catered to wealthy, financially sophisticated investors. Investment minimums for many hedge funds have fallen to $25,000, exposing more investors to the risky financial strategies they use. Estimates suggest that the number of hedge funds has grown five-fold since 1993 to close to 8,000 funds, with more than $850 billion of assets under management (a fifteen-fold increase). But the SEC doesn't know exactly how many funds are operating, who manages them, or how much money they control.

The SEC is accepting comments on the proposed rule until Sept. 15.

Wedding gifts from Wendy's?

Brides and grooms who don't want another toaster can register for stocks at Giftsofstock.com. The registry can also be handy for folks who need gifts for other occasions, like birthdays or graduations. The registry lists 58 stocks of familiar companies, including Anheuser-Busch, Black & Decker, Coca-Cola, Harley-Davidson, Johnson & Johnson, and Wendy's International. It also suggests several types of miniportfolios of six stocks each. Gift-givers can purchase one share of up to 18 companies per recipient, which includes enrollment in each company's dividend reinvestment plan and a sample stock certificate. The service isn't cheap, however. Total costs include a $30 fee per company on top of the share prices.

Gifts: A new estate-planning perk

The IRS has issued a new ruling on "irrevocable grantor trusts," which are widely used by wealthy families seeking to leave as much money as possible to their offspring. It allows you, as the grantor, to pay income taxes on trust income without having to worry that the Feds will later consider your tax payments to be a taxable gift to your children. (The income is reported on your personal income tax return but isn't considered part of your taxable estate.) But first check with your financial adviser, accountant, or both to make sure your trust is worded correctly to take advantage of the new ruling.

College tuition continues to rise—but so does aid

The average tuition bill for private colleges and universities will jump 6 percent this school year, to about $18,000, says the National Association of Independent Colleges and Universities. But a recent 15-percent rise in student aid means that families might actually pay less this year than last year. In fact, 86 percent of undergraduate students at private colleges receive some type of financial aid and pay less than the published tuition price.

 

Yvonne Wollenberg. UPDATE: Focus on Finance. Medical Economics Sep. 3, 2004;81:10.