This brother’s a keeper
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Dear Mr. Berko:
I’m a divorced, 56-year-old, professional male. I have a disabled younger brother (Dave) who is now living with me and requires a full-time caregiver. He received a $4.6 million insurance settlement (not nearly enough), the lawyers took $3.2 million and Dave was left with $1.4 million. And that’s a horror story in itself. Our two sisters and their families agreed to take care of Dave. The interest plus some of the principal from that $1.4 million plus Dave’s Social Security disability was enough to pay for most all of his daily care. Not long ago, I discovered that the original $1.4 million had dwindled to $362,000. I don’t care to disclose the details, but it’s enough to say that my sisters and their husbands took a large amount of that money for their personal use. Here’s where I need your help. Dave’s full-time caregivers cost $36,000 a year. His other expenses (medications, physician appointments, dental, food, transportation, clothes, toiletry articles, Internet, maintenance for his wheelchair and special bed, etc.) I figure will cost about $12,000 a year; I consider that to be my personal responsibility and thank the Lord I can afford it. My two sisters and their husbands have each agreed to send Dave $500 a month but knowing them as I do, I will not count on this agreement. So what would be the best manner to invest Dave’s remaining funds (which cannot be in his name or a trust) to generate more income? I am willing to and can afford some modest risk to maximize the income I need. The best bank certificate of deposit I can find is 4 percent and there are closed-end funds and some stocks with 10 percent yields; however, I prefer less of a return to be assured of a constant and reliable income stream. I will be very much in your debt for your assistance. And I trust you.
D.S., Cleveland
Dear D.S.:
Wow! You are a kind, unselfish, caring and responsible brother – sadly, a rarity in this “give me, get me” American culture. I’ve been writing this column for 30 years, and I have learned a lot from those of you who read it. One of the important things I’ve learned is that family members are the worst people with whom to do business or entrust money.
The worst offenders are sons and daughters, followed by brothers and sisters. As for those lawyers — well, they represent 47 percent of Congress. And there’s not much that can be said about congressmen and lawyers that hasn’t already been said.
Meanwhile, I may have a solution with which you will agree. I’ve selected eight preferred issues, each of which is eligible for the 15 percent tax rate. These eight issues have a combined yield of 8.03 percent, and after taxes your net yield will be 6.8 percent.
Then I’ve selected four master limited partnerships with a combined yield of 8.2 percent. Because most of this MLP income is tax-deferred, your net spendable yield will be 7.5 percent. I’ve selected these MLPs because each owns thousands of miles of oil and gas pipeline systems — easily valued, hard assets that provide a steady, dependable revenue and income stream.
There are 12 issues in total, and I recommend that you invest $30,000 in each, then sit back and deposit the quarterly checks providing a combined after-tax yield of 7 percent. The issues, which I’ve listed below, are too numerous to provide all specific details such as ratings, maturity, call dates, dividend amounts, call prices, specific business information about each company, etc. So I’ve compiled a detailed, descriptive sheet on each issue and mailed them to you.
Each of these preferred issues trades below its call price:
â- Barclays Bank PLC 6.625 percent (BCS-PFD) yielding 7.2 percent.
â- Aegon NV 7.25 percent (AEF) yielding 7.8 percent.
â- ING Groep Perpetual Debt 7.05 percent (IND) yielding 7.5 percent.
â- Merrill Lynch & Co. 6.7 percent (MER-N) yielding 8.3 percent.
â- Citigroup 8.125 percent (C-P) yielding 8.8 percent.
â- National Westminster 7.763 percent (NW-C) yielding 7.8 percent.
â- SLM Corp. 6.97 percent (SLM-A) yielding 8.2 percent.
â- Sovereign Bancorp Inc. 7.3 percent (SOV-C) yielding 8.7 percent.
Investing $240,000 in these preferreds will provide $16,800 of spendable income after paying the 15 percent tax.
Now the following four issues are MLPs. Again, I will only provide cursory data but I have also sent you a complete description of each. Invest $30,000, or $120,000 total, in each of these:
â- NuStar Energy LP (NS) yielding 8 percent.
â- TEPPCO Partners LLP (TPP) yielding 8.2 percent.
â- TC Pipelines LP (TCLP) yielding 8.4 percent.
â- Enbridge Energy Partners LP (EEP) yielding 8.5 percent.
After paying a small tax on those dividends, these MLPs will give you $9,000 in after-tax income. The combined spendable income from these investments will equal $25,800. This money combined with Dave’s Social Security disability insurance will cover the $36,000 for his caregiver. And your kind generosity will cover the remainder of Dave’s living costs.
Readers who want detailed information for these dozen issues must send a self-addressed, stamped envelope plus $1 and we will post a copy to you as soon as possible.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net.
© Copley News Service
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