“The love of money as a possession -as distinguished from the love of money as a means to the enjoyments and realities of life -will be recognized for what it is, a somewhat disgusting morbidity, one of those semicriminal, semipathological propensities which one hands over with a shudder to the specialists in mental disease.”

            This statement is from John Maynard Keynes, 1931, the economist who made the suggestions used by Franklin D. Roosevelt to mitigate the great depression. He was optimistically talking about the fact that the world economy had grown, for the first time in human history, to the point that nobody needed to lack the real essentials.

            I won my spurs as a tax consultant in the 1940s on becoming eligible to pay income taxes. Form 1040 said grandparents could declare grandchildren as dependents if they contributed more than 50% of support, not much money for a babe in arms. I was making $50 a month as a medical resident physician and my wife was a student. So I suggested to my father that he could support his granddaughter 51% and save more then that on his taxes. Initially he didn't like the idea, but in a few days he called back to say, "My accountant says that's inspired", indicating that this gambit was news to at least some accountants. The practice is now widespread.

            Later, I massed my deductions in every other year by prepaying taxes and giving to charity early and late in the year and not at all in the next year. This reduced the pair of years' taxes by the tax on the "empty" standard deduction. Withholding for state income tax makes this much more complicated. More recently, I perceived that withheld taxes are treated as if withheld throughout the year even if they are all withheld in December.  At age 70 1/2, one is compelled to start receiving retirement income or pay a 50% tax penalty on what should have been received. By electing to receive a category of retirement income in a lump sum in December and having all the withholding taken from that, I avoid quarterly estimated taxes. When I called the state income tax people about this, a real live human being replied in an enthusiastic tone, "I never heard of it, but it'll work." And it has worked for six years.

            In the 1940s, there was also a provision in the tax code stating that if your federal tax plus your charitable contributions were 91% of your income, there was no limit on deductability of contributions. Ninety-one percent (91%) was the tax rate on income greater than $300,000 annually. That was real money in those days. I decided to take advantage of that provision "when my ship came in". But the provision was removed from the code long before the ship came. Meanwhile, the politicians wanted revenue enhancement without increasing tax rates so they arranged a very complex method of disappearance of exemptions and deductions that starts at a little over $100,000 and eliminates all deductions even for charity by about $500,000 or so annual income. If more of us "did our own taxes", they wouldn't get by with such stuff. The most obvious way to beat this game is to work pro bono for a non profit organization. When we proposed this, the non profit's attorney said, "They can't do that. It's tax evasion." We prepared a "brief” about Peace Corps service or a Mennonite doing volunteer work in lieu of military duty not representing tax evasion. So we said "Let's try it, and when we're jailed, '60 Minutes' can spring us loose just as quickly as the Mennonite." Working pro bono does not preclude receiving nontaxable fringe benefits and it affords an extra sense of freedom. The income not received is equivalent to a donation to the non profit organization with no need for a tax deduction.            

            Interest free loans to charity have also helped, because the increase on the amount loaned accrues to the charity and does not represent income to the lender. The effect is that one can enhance one’s contributions to more than the 50% of income which is normally deductible as charity all without increasing income. Furthermore, it doesn't show on tax returns. Such loans were briefly subject to imputed interest in the 1980s. At that time, imputed interest was 10% of the loan and had to be declared as income. We had such a loan with the American Friends Service Committee and were informed by them that we could ask for repayment by September 30 or be subject to 10% imputed interest for the entire year. We suggested that they return the money September 30, we would send it back on October 1 and escape three-fourths of the imputed interest. The Friends reply, "Why didn't we think of that?" The next year, the imputed interest was dropped for loans less than $250,000 and separate loans of $250,000 can be made to affiliated organizations. For example, one could lend $250,000 to Planned Parenthood International, their national organization and all 50 state organizations permitting loans of 52 times $250,000. Throw in the Salvation Army and several other national organizations with state affiliates and even a Ted Turner could be accommodated. And such loans result in invitations to sit at the speaker's table at meetings permitting conversations with Richard Dawkins, Amory Lovins or some modern equivalent of Margaret Sanger. Such a loan can be made forgivable on death, reducing probate costs, which introduces estate planning.

            Conventional estate planning rightfully fosters maximum pass through to heirs while limiting estate taxes. Before we got really into estate planning, we had a good friend whose father, a successful manufacturer, had set up trusts for his children to be paid to them at age 35. Our friend was basically sensible, but we noticed that he seemed to be marking time waiting for his trust to mature. His initiative would have been greater if the trust hadn't been "cast in stone" (or if he had not known about it). The manufacturer's estate plan did have the merit of reducing the risk of the assets becoming dissipated by youthful indiscretions and enthusiasms. We all know of some examples both among public figures and personal acquaintances. Our conclusion is that benevolent parents who remain competent can do a better job of doling out family assets than a legal document even with trust officers administering it. The issue of competence can be dealt with by a "springing" power of attorney. This comes into force when two physicians attest  incompetence.

            Our guiding principle is to arrange for our estate to self destruct on the death of the second spouse. Meanwhile, having explained this to our heirs, we dispense some largesse while we are alive, making it obvious that we are worth more alive than dead, so our good health is more cordially hoped for. But how do we avoid poverty if we live as long as we might hope? By charitable remainder trusts and variable annuities. A charitable remainder trust is a donation to charity in return for a life 1ncome. The present value of the trust at life expectancy is available as an immediate charitable deduction. An added benefit is that if the initial donation is in appreciated assets, the capital gains vanish for tax purposes. A variable annuity is invested in equities. Its returns also continue for life and are likely to increase with inflation. Variable annuities came of age with CREF (College Retirement Equities Fund). Prior to CREF, the investing public tended to distrust them because income is not guaranteed. CREF recently became available to the general public. We got on board in 1970, even though we were unpaid, volunteer faculty.

             The interest free loans as mentioned above can also be reclaimed during the lifetime of either spouse. As fixed dollar "investments” these are a balance to equity investments. These resources preserve flexibility to invest in some new venture such as a previously unanticipatable family business or a neglected environmentally friendly technology. Such options, even if not utilized, preserve a sense of involvement in the mainstream of life and help prevent a sense of passivity and confinement to the sidelines, two hazards of aging. I recently showed the quotation from Keynes to a Nigerian immigrant who had been a graduate student at the University of Wisconsin in the 1930s; he  had met Mr. Keynes who was a campus visitor and remembered him well because he talked just like the quote. The practice of medicine is a real ringside seat in life.

            I hope this is helpful in promoting new modes of thinking and action in this important area.

                                                                                    John A. Frantz, M.D. 1999


A Battlefield Commission as Robin Hood


At age eight or ten I liberated some plaster of Paris from a dentist’s trash in our neighborhood.  I was quite confident that I could easily find a higher use for it.  Among other uses I made molds for casting lead objects.  The most successful were buffalo nickels which were good enough to pass—even the mint date was legible.  I didn’t even try to pass them, but I gave a few of them to Kimmie, our long term family maid.  There happened to be a home made, illegal slot machine in near her house.  And it also just happened that my nickels hit the jack pot every times she put one in.  The extra heft of the lead probably mislead the primitive mechanism.  Kimmie was clever enough not to use too many of them, and she split the take with me to keep them coming.

        The amazing part of the story is that when my mother found out about the entire adventure, I became a hero for protecting the poor blacks from exploitation by the greedy (white) merchants.  The title of this item is paraphrased from my mother.  Neither Kimmie nor I received ay sanction from any source and neither of us went on to pursue a life of crime, vindicating my mother’s assessment of events.  All mothers are special, some more than others of course.


John A. Frantz

March 4, 2003