TAKING STOCK: Steer clear of anything bearing the 'Goldman Sachs' imprimatur

Dear Mr. Berko:

We have a large family trust (there are six of us), and we're seeking tax-free income. A local advisor whom we 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're having trouble understanding the estate tax code. A family member passed away 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.

Anonymous, San Antonio, Tex.

Dear Anonymous:

If you folks aren't pulling my leg, then collectively you're either recluses, or you're dumber than dirt, as naive as a flock of sheep or your delivering doctors dropped each of you on your heads when you were born. Frankly, I think it's a possible combination of all four.

First things first: The Goldman Sachs High-Yield Municipal Bond Fund (GHYIX-$8.54) yields 5.7 percent, and its record literally sucks.

In the past five years, the total return on this piece of junk is a -1.55 percent. In other words, for every dollar invested five years ago, you would have gotten back 98.45 cents today, and that negative return "includes" the distributed income during those 60 months.

Frankly, the advisor who gave you this tip needs to go back to advisor school. GHYIX is a poorly managed municipal bond fund owned and operated by Goldman Sachs (GS-$139.72), and I'd 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 that the management of the GHYIX portfolio works for Goldman Sachs--not you.

Knowing how Goldman conducts business - enthusiastically recommending certain bond portfolios and then selling the bonds short - suggests that it's prudent to stay away from a Goldman offering. Anything with the Goldman imprimatur gives me the willies, and so does your advisor.

And my "stay away" recommendation 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 .92 percent; for its Concentrated International Equity, it's 2.38 percent; for its Strategic Growth, it's .20 percent; for its Structured Large Cap, it's .43 percent; Goldman's Large CAP value is 2.4 percent; Goldman's U.S. Equity is at 1.77 percent; and Goldman's Growth and Income is at 3.49. Not very good.

The estate tax lapsed in 2009, and Congress allows the estates of taxpayers who died in 2010 to choose between the 2010 or the 2011 rules. So the question of which tax rule to use depends on 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 determines the capital gains) carries over to the heirs. Meanwhile, there's a $5 million exemption in 2011, a top rate of 35 percent, and heirs are entitled to a stepped-up basis.

So if John Doe passes with assets worth $8 million and a $4 million basis, there's no taxes using the 2010 rules, but the heirs assume the $4 million basis. Using the 2011 rules John Doe'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 mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

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Published: Wed, Aug 31, 2011