Avoid These Estate-Planning Pitfalls

My newsletter, PracticalFinance, includes advice for managing every aspect of your financial life--from setting up a rock-solid portfolio plan to saving on taxes to estate planning. In addition to articles, portfolio makeovers, and investment guidance, PracticalFinance also includes interviews with individuals who are experts in specific areas of financial planningthe Chicago suburbs. In the interview, Susan discussed some of the most common pitfalls of estate planning and how to avoid them, as well as some underutilized estate-planning maneuvers. An excerpt from our interview is below.

Christine Benz: What are the big mistakes you see people making when it comes to estate planning?

Susan Jones: The biggest mistake is a misunderstanding of beneficiary designations. Many assets today are transferred at death through a beneficiary designation. Good examples of these assets are IRA rollovers, Roth IRAs, life insurance policies, annuities, any kind of plan that we call a qualified plan, meaning they're qualified for favorable income-tax treatment, such as a 401(k).

People don't understand that getting those designations right is extremely important. One thing I see, and I'll give this a name, is unintentional disinheritance. It's very typical to see a beneficiary designation that says, "To my spouse if he or she is living, otherwise to my then-living children."

Benz: What's wrong with that?

Jones: If you say, "I give this to my then-living children," and one of your children predeceases you, what happens to the share that would have gone to that predeceased child? If your beneficiary designation reads "to my then-living children," it goes to your true surviving children. The share that would have gone to your grandchildren through your child who is deceased is cut out. You may be disinheriting your grandchildren.

That's probably not what most people want. If I ask them that question, "If a child isn't living, where do you want those assets to go?" they typically say, "Well, I want it to go to that child's children." The Latin term for this is per stirpes, to the descendants. So that would send it down the bloodline to the deceased child's children.

Benz: Say you have a beneficiary designation form for your 401(k) or some other asset and it doesn't allow for this level of detail. What should you do?

Jones: Go to your plan administrator. I've seen documents that specifically allow you to say if you want your assets to be distributed per stirpes, and some of them have a box you have to check. Unfortunately, there's no consistency within the financial-services industry. If the plan administrator doesn't know how to handle it, you need to write your own beneficiary designation that says "to my then-living children in equal shares, except that if a child of mine is not living, the deceased child's share is distributed, per stirpes, to that child's then-living descendants."

Benz: What are the other pitfalls associated with beneficiary designations?

Jones: Something I see among younger people is that they name their spouse the beneficiary of their 401(k) plan, and when they have the first child they change it to read, "And if my spouse isn't living, I give it to little Suzie." But then comes little Johnny, and little SallyâEuro¦ and they don't change that beneficiary designation. So, 20 years down the road, Suzie, the firstborn child, gets the entire account, because you haven't said, "I give to my then-living children per stirpes." You've given it to the person who's in your life at that time. So even if you have only one living child at the time you make a beneficiary designation, you can still write it to encompass future descendants.

And there's something else to be aware of in this situation: You're naming little Suzie, who's two years old, the beneficiary of your assets. That's a big issue in that someone who's two years old legally cannot own assets. The solution if someone who's under 18 inherits assets is to have a court-appointed guardian. But the minute you hear "court-appointed guardian," you should see dollar signs. It's expensive to go to court to get a guardian appointed and then have the court oversee those assets until the child is 18 years old.

Instead of naming your children as beneficiaries if they inherit assets and your spouse isn't living, maybe you would pay it to a trust. And when it's paid to a trust, then the trustee takes over, and there is usually no court accounting. And furthermore, you don't have to give it to children at age 18 under the trust. You might get the kids through college and working a few years before you start to give them money.

Benz: What are some other estate-planning pitfalls?

Jones: One example relates to individuals with special needs or disabilities. One of the worst things you can do is leave an inheritance outright to such an individual. If an individual has his or her own resources, then many public entitlements are either not available to them until they use up their own resources, or if they receive an inheritance and they have been receiving public resources, those governmental agencies have the right to take those assets back for payment of benefits that they have already provided. The solution is that you can draft your documents to set up a special needs trust or supplemental needs trust. In this case the money is left in a trust; it does not go outright to this particular individual. The funds are managed by an independent trustee who can pay for certain things--that's spelled out in the trust agreement. The trust is set up in such a way that they are not considered the assets of the disabled individual.

You can also use a trust in the case of adult children with substance abuse problems. You can leave the assets in the trust that specifies, "I want the child to get the dividends and interest," or "I want to make sure that the child has a place to live, I want you to pay for an apartment, and I want to make sure the child has enough to eat and medical care."

Also, this is a case where I would not name the other siblings as trustees; that creates issues between the siblings. There are probably already hard feelings because mother or dad has bailed this one sibling out time after time. That would be a very appropriate use of a corporate fiduciary. It's a lot easier for someone sitting behind a desk in a corporate office to say, "I'm sorry, that's all your mother said we were permitted to do," than it is for a sibling to say that.

Then there are people who we call spendthrifts, with a history of financial mismanagement. And they may have parents who have given them money during crisis after crisis. And when you die, do you leave them half a million dollars, assuming that suddenly they'll get on their feet? The trust is an appropriate vehicle in this case, and even though the parents think they're being mean to the child, they're really protecting the child.

Benz: When are the other times to set up a trust?

Jones: Certainly when you have minor children. You don't want a court to decide. And you know yourself when they should inherit assets. Think about when you were comfortable managing assets, when you felt that you were really making good financial decisions. Chances are, that's the age at which you should start giving your children money. The other thing you could do through a trust is parcel out the assets over a period of time. Say you give the child half the assets at 25, but leave the other half in trust until they're 35. If they make some mistakes at 25, then at least it's not their entire inheritance, it's only a part of their inheritance.

Benz: What are some underutilized estate-planning maneuvers?

Jones: One thing that's easy to do, provided you have the cash, is to gift. Every taxpayer can give $12,000 per year to as many individuals as we want. So if you have three children, you can give each of those children $12,000 in 2008--so that's $36,000 out of your estate.

It's also an opportunity to see how your children would do with money they didn't have to work for. You do this a couple of years and you see some vacations and new carsâEuro¦it's kind of a good way to test the waters of fiscal responsibility.

Another provision in the gift tax law states that, in addition to making these $12,000 annual gifts, we can all write checks directly for medical and/or education and there is no limit. So when your grandchild is headed off to college, the first semester's tuition is $30,000, grandpa can write a check to the treasurer of the college. Such gifts would be free of gift tax.

Another technique that I think is underutilized is using IRA rollover accounts, 401(k) accounts, any so-called qualified retirement account, as the device to make charitable gifts.

The IRA is the one account where you've not paid income tax. So at some point, you're going to have to pay tax when you start taking money out, or your beneficiaries are going to have to start paying income taxes when they take it out. But charities don't pay income tax. So leave to your family those assets that you've already paid income tax on, and use your qualified retirement accounts for charitable gifts.

Avoid These Estate-Planning Pitfalls

My newsletter, PracticalFinance, includes advice for managing every aspect of your financial life--from setting up a rock-solid portfolio plan to saving on taxes to estate planning. In addition to articles, portfolio makeovers, and investment guidance, PracticalFinance also includes interviews with individuals who are experts in specific areas of financial planningthe Chicago suburbs. In the interview, Susan discussed some of the most common pitfalls of estate planning and how to avoid them, as well as some underutilized estate-planning maneuvers. An excerpt from our interview is below.

Christine Benz: What are the big mistakes you see people making when it comes to estate planning?

Susan Jones: The biggest mistake is a misunderstanding of beneficiary designations. Many assets today are transferred at death through a beneficiary designation. Good examples of these assets are IRA rollovers, Roth IRAs, life insurance policies, annuities, any kind of plan that we call a qualified plan, meaning they're qualified for favorable income-tax treatment, such as a 401(k).

People don't understand that getting those designations right is extremely important. One thing I see, and I'll give this a name, is unintentional disinheritance. It's very typical to see a beneficiary designation that says, "To my spouse if he or she is living, otherwise to my then-living children."

Benz: What's wrong with that?

Jones: If you say, "I give this to my then-living children," and one of your children predeceases you, what happens to the share that would have gone to that predeceased child? If your beneficiary designation reads "to my then-living children," it goes to your true surviving children. The share that would have gone to your grandchildren through your child who is deceased is cut out. You may be disinheriting your grandchildren.

That's probably not what most people want. If I ask them that question, "If a child isn't living, where do you want those assets to go?" they typically say, "Well, I want it to go to that child's children." The Latin term for this is per stirpes, to the descendants. So that would send it down the bloodline to the deceased child's children.

Benz: Say you have a beneficiary designation form for your 401(k) or some other asset and it doesn't allow for this level of detail. What should you do?

Jones: Go to your plan administrator. I've seen documents that specifically allow you to say if you want your assets to be distributed per stirpes, and some of them have a box you have to check. Unfortunately, there's no consistency within the financial-services industry. If the plan administrator doesn't know how to handle it, you need to write your own beneficiary designation that says "to my then-living children in equal shares, except that if a child of mine is not living, the deceased child's share is distributed, per stirpes, to that child's then-living descendants."

Benz: What are the other pitfalls associated with beneficiary designations?

Jones: Something I see among younger people is that they name their spouse the beneficiary of their 401(k) plan, and when they have the first child they change it to read, "And if my spouse isn't living, I give it to little Suzie." But then comes little Johnny, and little SallyâEuro¦ and they don't change that beneficiary designation. So, 20 years down the road, Suzie, the firstborn child, gets the entire account, because you haven't said, "I give to my then-living children per stirpes." You've given it to the person who's in your life at that time. So even if you have only one living child at the time you make a beneficiary designation, you can still write it to encompass future descendants.

And there's something else to be aware of in this situation: You're naming little Suzie, who's two years old, the beneficiary of your assets. That's a big issue in that someone who's two years old legally cannot own assets. The solution if someone who's under 18 inherits assets is to have a court-appointed guardian. But the minute you hear "court-appointed guardian," you should see dollar signs. It's expensive to go to court to get a guardian appointed and then have the court oversee those assets until the child is 18 years old.

Instead of naming your children as beneficiaries if they inherit assets and your spouse isn't living, maybe you would pay it to a trust. And when it's paid to a trust, then the trustee takes over, and there is usually no court accounting. And furthermore, you don't have to give it to children at age 18 under the trust. You might get the kids through college and working a few years before you start to give them money.

Benz: What are some other estate-planning pitfalls?

Jones: One example relates to individuals with special needs or disabilities. One of the worst things you can do is leave an inheritance outright to such an individual. If an individual has his or her own resources, then many public entitlements are either not available to them until they use up their own resources, or if they receive an inheritance and they have been receiving public resources, those governmental agencies have the right to take those assets back for payment of benefits that they have already provided. The solution is that you can draft your documents to set up a special needs trust or supplemental needs trust. In this case the money is left in a trust; it does not go outright to this particular individual. The funds are managed by an independent trustee who can pay for certain things--that's spelled out in the trust agreement. The trust is set up in such a way that they are not considered the assets of the disabled individual.

You can also use a trust in the case of adult children with substance abuse problems. You can leave the assets in the trust that specifies, "I want the child to get the dividends and interest," or "I want to make sure that the child has a place to live, I want you to pay for an apartment, and I want to make sure the child has enough to eat and medical care."

Also, this is a case where I would not name the other siblings as trustees; that creates issues between the siblings. There are probably already hard feelings because mother or dad has bailed this one sibling out time after time. That would be a very appropriate use of a corporate fiduciary. It's a lot easier for someone sitting behind a desk in a corporate office to say, "I'm sorry, that's all your mother said we were permitted to do," than it is for a sibling to say that.

Then there are people who we call spendthrifts, with a history of financial mismanagement. And they may have parents who have given them money during crisis after crisis. And when you die, do you leave them half a million dollars, assuming that suddenly they'll get on their feet? The trust is an appropriate vehicle in this case, and even though the parents think they're being mean to the child, they're really protecting the child.

Benz: When are the other times to set up a trust?

Jones: Certainly when you have minor children. You don't want a court to decide. And you know yourself when they should inherit assets. Think about when you were comfortable managing assets, when you felt that you were really making good financial decisions. Chances are, that's the age at which you should start giving your children money. The other thing you could do through a trust is parcel out the assets over a period of time. Say you give the child half the assets at 25, but leave the other half in trust until they're 35. If they make some mistakes at 25, then at least it's not their entire inheritance, it's only a part of their inheritance.

Benz: What are some underutilized estate-planning maneuvers?

Jones: One thing that's easy to do, provided you have the cash, is to gift. Every taxpayer can give $12,000 per year to as many individuals as we want. So if you have three children, you can give each of those children $12,000 in 2008--so that's $36,000 out of your estate.

It's also an opportunity to see how your children would do with money they didn't have to work for. You do this a couple of years and you see some vacations and new carsâEuro¦it's kind of a good way to test the waters of fiscal responsibility.

Another provision in the gift tax law states that, in addition to making these $12,000 annual gifts, we can all write checks directly for medical and/or education and there is no limit. So when your grandchild is headed off to college, the first semester's tuition is $30,000, grandpa can write a check to the treasurer of the college. Such gifts would be free of gift tax.

Another technique that I think is underutilized is using IRA rollover accounts, 401(k) accounts, any so-called qualified retirement account, as the device to make charitable gifts.

The IRA is the one account where you've not paid income tax. So at some point, you're going to have to pay tax when you start taking money out, or your beneficiaries are going to have to start paying income taxes when they take it out. But charities don't pay income tax. So leave to your family those assets that you've already paid income tax on, and use your qualified retirement accounts for charitable gifts.

My newsletter, PracticalFinance, includes advice for managing every aspect of your financial life--from setting up a rock-solid portfolio plan to saving on taxes to estate planning. In addition to articles, portfolio makeovers, and investment guidance, PracticalFinance also includes interviews with individuals who are experts in specific areas of financial planningthe Chicago suburbs. In the interview, Susan discussed some of the most common pitfalls of estate planning and how to avoid them, as well as some underutilized estate-planning maneuvers. An excerpt from our interview is below.

Christine Benz: What are the big mistakes you see people making when it comes to estate planning?

Susan Jones: The biggest mistake is a misunderstanding of beneficiary designations. Many assets today are transferred at death through a beneficiary designation. Good examples of these assets are IRA rollovers, Roth IRAs, life insurance policies, annuities, any kind of plan that we call a qualified plan, meaning they're qualified for favorable income-tax treatment, such as a 401(k).

People don't understand that getting those designations right is extremely important. One thing I see, and I'll give this a name, is unintentional disinheritance. It's very typical to see a beneficiary designation that says, "To my spouse if he or she is living, otherwise to my then-living children."

Benz: What's wrong with that?

Jones: If you say, "I give this to my then-living children," and one of your children predeceases you, what happens to the share that would have gone to that predeceased child? If your beneficiary designation reads "to my then-living children," it goes to your true surviving children. The share that would have gone to your grandchildren through your child who is deceased is cut out. You may be disinheriting your grandchildren.

That's probably not what most people want. If I ask them that question, "If a child isn't living, where do you want those assets to go?" they typically say, "Well, I want it to go to that child's children." The Latin term for this is per stirpes, to the descendants. So that would send it down the bloodline to the deceased child's children.

Benz: Say you have a beneficiary designation form for your 401(k) or some other asset and it doesn't allow for this level of detail. What should you do?

Jones: Go to your plan administrator. I've seen documents that specifically allow you to say if you want your assets to be distributed per stirpes, and some of them have a box you have to check. Unfortunately, there's no consistency within the financial-services industry. If the plan administrator doesn't know how to handle it, you need to write your own beneficiary designation that says "to my then-living children in equal shares, except that if a child of mine is not living, the deceased child's share is distributed, per stirpes, to that child's then-living descendants."

Benz: What are the other pitfalls associated with beneficiary designations?

Jones: Something I see among younger people is that they name their spouse the beneficiary of their 401(k) plan, and when they have the first child they change it to read, "And if my spouse isn't living, I give it to little Suzie." But then comes little Johnny, and little SallyâEuro¦ and they don't change that beneficiary designation. So, 20 years down the road, Suzie, the firstborn child, gets the entire account, because you haven't said, "I give to my then-living children per stirpes." You've given it to the person who's in your life at that time. So even if you have only one living child at the time you make a beneficiary designation, you can still write it to encompass future descendants.

And there's something else to be aware of in this situation: You're naming little Suzie, who's two years old, the beneficiary of your assets. That's a big issue in that someone who's two years old legally cannot own assets. The solution if someone who's under 18 inherits assets is to have a court-appointed guardian. But the minute you hear "court-appointed guardian," you should see dollar signs. It's expensive to go to court to get a guardian appointed and then have the court oversee those assets until the child is 18 years old.

Instead of naming your children as beneficiaries if they inherit assets and your spouse isn't living, maybe you would pay it to a trust. And when it's paid to a trust, then the trustee takes over, and there is usually no court accounting. And furthermore, you don't have to give it to children at age 18 under the trust. You might get the kids through college and working a few years before you start to give them money.

Benz: What are some other estate-planning pitfalls?

Jones: One example relates to individuals with special needs or disabilities. One of the worst things you can do is leave an inheritance outright to such an individual. If an individual has his or her own resources, then many public entitlements are either not available to them until they use up their own resources, or if they receive an inheritance and they have been receiving public resources, those governmental agencies have the right to take those assets back for payment of benefits that they have already provided. The solution is that you can draft your documents to set up a special needs trust or supplemental needs trust. In this case the money is left in a trust; it does not go outright to this particular individual. The funds are managed by an independent trustee who can pay for certain things--that's spelled out in the trust agreement. The trust is set up in such a way that they are not considered the assets of the disabled individual.

You can also use a trust in the case of adult children with substance abuse problems. You can leave the assets in the trust that specifies, "I want the child to get the dividends and interest," or "I want to make sure that the child has a place to live, I want you to pay for an apartment, and I want to make sure the child has enough to eat and medical care."

Also, this is a case where I would not name the other siblings as trustees; that creates issues between the siblings. There are probably already hard feelings because mother or dad has bailed this one sibling out time after time. That would be a very appropriate use of a corporate fiduciary. It's a lot easier for someone sitting behind a desk in a corporate office to say, "I'm sorry, that's all your mother said we were permitted to do," than it is for a sibling to say that.

Then there are people who we call spendthrifts, with a history of financial mismanagement. And they may have parents who have given them money during crisis after crisis. And when you die, do you leave them half a million dollars, assuming that suddenly they'll get on their feet? The trust is an appropriate vehicle in this case, and even though the parents think they're being mean to the child, they're really protecting the child.

Benz: When are the other times to set up a trust?

Jones: Certainly when you have minor children. You don't want a court to decide. And you know yourself when they should inherit assets. Think about when you were comfortable managing assets, when you felt that you were really making good financial decisions. Chances are, that's the age at which you should start giving your children money. The other thing you could do through a trust is parcel out the assets over a period of time. Say you give the child half the assets at 25, but leave the other half in trust until they're 35. If they make some mistakes at 25, then at least it's not their entire inheritance, it's only a part of their inheritance.

Benz: What are some underutilized estate-planning maneuvers?

Jones: One thing that's easy to do, provided you have the cash, is to gift. Every taxpayer can give $12,000 per year to as many individuals as we want. So if you have three children, you can give each of those children $12,000 in 2008--so that's $36,000 out of your estate.

It's also an opportunity to see how your children would do with money they didn't have to work for. You do this a couple of years and you see some vacations and new carsâEuro¦it's kind of a good way to test the waters of fiscal responsibility.

Another provision in the gift tax law states that, in addition to making these $12,000 annual gifts, we can all write checks directly for medical and/or education and there is no limit. So when your grandchild is headed off to college, the first semester's tuition is $30,000, grandpa can write a check to the treasurer of the college. Such gifts would be free of gift tax.

Another technique that I think is underutilized is using IRA rollover accounts, 401(k) accounts, any so-called qualified retirement account, as the device to make charitable gifts.

The IRA is the one account where you've not paid income tax. So at some point, you're going to have to pay tax when you start taking money out, or your beneficiaries are going to have to start paying income taxes when they take it out. But charities don't pay income tax. So leave to your family those assets that you've already paid income tax on, and use your qualified retirement accounts for charitable gifts.

Can Legg Mason Value Revisit Its Glory Days?

From first to worst--that summarizes Legg Mason Value's (NASDAQ:LMVTX - News) performance over the past decade. The fund has lagged the S&P by 23 percentage points for the 12 months ended July 28, 2008. As a result, investors who bought the fund even a decade ago have now experienced performance over that span that lands near the large-blend category's worst quartile and lags the S&P 500 Index, too. That's right--the fund that famously beat the index in each of the 15 calendar years from 1990 through 2005 has seen its once-superb record greatly tarnished by the severity of its recent underperformance.

ADVERTISEMENT

Investors have subsequently fled the fund in droves. But while the fund's poor performance has been painful, we think it's time for investors to consider buying more shares.

What Went Wrong
The fund's troubles have been well-documented, most recently in a column by my colleague Russ Kinnel, Morningstar's director of mutual fund research. In a nutshell, portfolio manager Bill Miller and company have made significant mistakes. One, they underestimated the extent to which their financial holdings were exposed to shaky borrowers. ( Freddie Mac (NYSE:FRE - News) is a painful example of this.) And two, they didn't recognize the extent of the bubble in the housing industry. Miller bought into builders after they initially dipped in late 2005, only to see the stocks fall much further. Another factor that hurt performance was the fund's avoidance of high-flying energy stocks--an area that Miller and company have largely ignored over the fund's lifetime. Amplifying the effects of problems in specific stocks is the fact that the portfolio is (and always has been) highly concentrated. When a top holding goes into free-fall here, it hurts. When four or five or six do, it's excruciating.

Baltimore Bound
As longtime readers know, we've always liked Miller's eclectic value style and we recognized that his bold, focused approach would mean bouts of short-term underperformance from time to time. We didn't anticipate underperformance as severe as this, however. So, we've kept in regular contact with Miller, and we also headed to Baltimore last week to ask some tough questions. Are they changing their approach? If they're sticking with many of the same bets, what's the case for them now? Do recent departures on the analyst team bode ill for performance? And can the fund make up the vast amount of ground it's lost to the index? Finally, what have they learned from their mistakes that can help them avoid repeating them down the road?

We spent a full day at the offices of Legg Mason Capital Management. We interviewed Miller and the other senior members of the investment team: portfolio managers Robert Hagstrom of Legg Mason Growth (NASDAQ:LMGTX - News), David Nelson of Legg Mason American Leading Companies (NASDAQ:LMALX - News), Jay Leopold of Legg Mason Partners All Cap (NASDAQ:SPAAX - News), and Sam Peters of Legg Mason Special Investment (NASDAQ:LMASX - News), as well as investment strategist Michael Mauboussin and research director Randy Befumo. We came away confident and impressed.

Reasons For Optimism
Not everyone at the firm thinks exactly as Miller does, but the investment professionals share a common investing philosophy. Each of the five portfolio managers, for example, runs a concentrated portfolio, employs a long-term approach, and currently believes that financial stocks are undervalued and energy stocks too pricey after their lengthy rally. The managers point out that the valuations of commodities versus financial stocks are now at a 50-year high. Another shared belief is that the market is assuming much larger future write-offs due to bad loans and derivatives than Miller and company foresee. Those disparities represent reasons why Miller continues to stick with beaten-down financials such as American International Group (NYSE:AIG - News) and Citigroup (NYSE:C - News). They also help explain why Miller is betting bigger now than he has in years--he recently pared back the number of holdings at Legg Mason Value to 30 from 48, in part so that he can focus on what he believes are the very best opportunities out there. (Redemptions from the fund also drove the elimination of some of the smaller positions.)

We also like the thoughtful way that the team is responding to this rough stretch. They're not panicking and veering from their successful long-term strategy, as demonstrated by their continued (and in some cases, increasing) commitment to financials with relatively good balance sheets. But they are trying to learn from their mistakes and are considering new information and potential tweaks that could help the fund avoid a repeat of its recent problems. Just after our visit, for example, the firm held a summit on the future of energy, bringing in outside experts from the industry, debating whether the current surge in energy prices is sustainable, and examining alternative energy's effect on prices. Miller and his team admit that shareholders would have been better off if the firm had gotten its arms around energy years ago, but we're still glad to see this display of open-mindedness. Similarly, Miller showed us a quantitative study undertaken by one of the analysts that looks at correlations between sectors and different types of business models, which could be used to tweak portfolio construction and potentially keep the fund from suffering so many blowups at the same time.

And then there's Miller himself. We like the fact that he isn't backing down from his time-tested investment philosophy, which gives Legg Mason Value a better chance to rebound strongly. The aforementioned valuation disparity between financials and commodities helps make the fundamental case for his current stance. One of the companies in that sector that Miller believes is dramatically undervalued is AIG. He argues that the firm still possesses a dominant franchise across the globe and that investors have greatly overreacted to the one area where it has significant issues: the lending portfolio of its life insurance business. The other portions of the company are performing well, he says, and he believes that new CEO Robert Willumstad will successfully reimplement the expense controls that former longtime head Hank Greenberg employed to bolster the company's profits. He thinks that the company is trading at 5 to 6 times what it will earn per share next year, which is less than half its historical average.

Miller's willingness to stand by his picks could result in significant outperformance if he's right. Indeed, when banks rebounded in late July and energy stocks tanked, the fund made up ground quickly--it won back 4 percentage points versus the S&P 500 in about a week, demonstrating its upside potential.

A Small Concern
During our visit, we discussed one unsettling fact: The firm has lost eight analysts in the past couple of years, including co-director of research Ira Malis. According to Befumo, many of those who left were part of a hiring surge between 2003 and 2005. At least some of those analysts left because, although their fundamental analysis was sound, they couldn't handle that the stocks they covered were declining so sharply. We also got the impression that the firm got away from its traditional practice of hiring younger analysts who don't have MBAs. Befumo says it's more difficult to train MBAs, because they're already practicing an approach that differs greatly from the firm's own, distinctive investing strategy approach. That change in hiring practices may have contributed to the poor performance.

Still, there is reason for optimism on the research front. With 10 securities analysts, the fund still has far more backing it than it did throughout the 1990s, when the fund thrived--and those who have remained are generally more experienced. The managers are also supported by lower-level investment professionals, including six research analysts (who tackle special projects, assisting in areas where research needs are greatest) and seven members of the market intelligence group, which collects and summarizes market and macroeconomic data and outside research.

We'll carefully monitor the analyst situation, but for now, we're comfortable.

Conclusion
Like most, we're disappointed in just how poorly the fund has performed over the past couple of years. It also reflects the fact that the fund, while historically one of the most volatile offerings in the large-blend category, has grown more turbulent in recent years (as Russ Kinnel pointed out in his column). However, the organization and research behind the fund are still fundamentally sound, and Miller's stock-picking remains thoughtful and diligent.

We'd also note that prominent managers whom we have supported in the past through difficult times have often come roaring back. For example, Longleaf Partners (NASDAQ:LLPFX - News) struggled mightily in the late 1990s when its deep-value philosophy clashed with the mania over tech stocks (and the disregard for so-called "Old Economy" stocks), but the fund went on to post superb returns after the market's early 2000 peak.

We continue to think that Legg Mason Value is appropriate as a core holding only for investors with high risk tolerances and long time horizons. Furthermore, the expense structure of the Primary shares (the most widely available share class) means that investors who get quality financial advice in exchange for paying those shares' 1% 12b-1 fee will be best served here. But we think that the long-term rewards for owning this fund will be great--and we wouldn't be surprised to see the fund go from worst to first again.

Greg Carlson does not own shares in any of the securities mentioned above.

Laura Rowley Money & Happiness, Four Habits of Financially Peaceful People,by e-view-e-view

Last week, I reported on the results of a new survey by Yahoo! Finance and Decipher, which found many Americans struggling with anxiety in their financial lives. This week, I'll take a look at some people who have found financial peace -- and the habits they share.

1. They know exactly where their money goes.

Danny Kofke, 32, has been a special education teacher in suburban Atlanta for a decade. He wrote the book "How to Survive (and Perhaps Thrive) on a Teacher's Salary" based on his experience supporting a family of four on $37,000 a year.

"The number-one reason people are so far into debt is they don't know where the money is going," says Kofke, who is married with two daughters, ages four and one. "When we got married, we walked around with a pad for a month and wrote down everything we spent. After that we used a cash system -- we pulled $200 a week out of the ATM and left it in jar in our apartment. It's so much harder to spend the green stuff than swiping a piece of plastic through a machine."

When friends ask for advice, Kofke shows them how their money evaporates in drips and drops. "It's not the huge purchases, it's everyday occurrences they don't think twice about -- eating lunch out every day, going to the movies every week, or getting overdraft charges because they don't balance their checkbooks," he says.

Keep it simple: Write down every penny you spend for one or two months, examining those numbers and setting priorities. I use online software called Mvelopes to track my spending electronically; other people like Quicken or Microsoft Money. Find the method that works for you and stick with it.

2. They know what they want their money to do.

Financially peaceful people focus on two or three big goals they value, set a timeline, and then break the goal into smaller steps. They automate their savings through a weekly or monthly electronic transfer to a savings account, or by participating in a 401(k) plan. Meanwhile, focusing intensely on your own goals helps you avoid competing with the Joneses.

"I had a plan to retire," says Nicholas Fiduccia, a former computer hardware designer in Silicon Valley who recently left the workforce at age 50 and now lives in Oregon. "Sometime around 2000, I decided it was time to think about hanging up my career. I made plans by reading investment books, talking to money-wise friends and professionals, and attending retirement classes. Today, my philosophy is pretty simple: low-cost, diversified index funds, rebalanced every two years."

Similarly, several years before they had children, Kofke and his wife decided she would quit teaching and stay home with them full time. "We worked four years on one salary and put as much of her salary away as we could," he says. "We never got used to that second salary, so the loss of her income doesn't affect us as much."

3. They either don't carry revolving debt, or have a specific plan to pay it down.

"Plan your work and work your plan," says Mary Lena Anderegg, 65, a retired teacher who lives in Georgia with her spouse of 33 years. "Our first goal was to own a home outright in fifteen years, and in seven years we did. You have a lot more freedom to stamp your foot and say, 'This is how it shall be' if you own the land you're stamping your foot on."

Anderegg's husband was a homebuilder, and together they bought and flipped real estate back in the '80s, moving five times. That enabled her to get a Ph.D. with no debt. They lived on 30 to 40 percent of their income -- growing vegetables, hosting kids' clothing swaps, cutting utility bills, buying and maintaining used cars, and doing part-time or consulting work, putting the extra toward long-term goals.

In 1992, Anderegg's husband had a heart attack that left him unable to work -- and $40,000 in medical bills their health insurance didn't cover. "We wiped our savings clean because didn't want to incur debt," she recalls. Because they lived on less than half their earnings, they were able to make it on her salary -- and pay off the medical bills in just three years.

In 2000, they retired; they bought and fixed up a home near the ocean, and have traveled to Europe and Japan -- all with no debt. "Our rule is ‘If you want it badly enough to save for it, it's probably worth having,'" she says.

Small changes make a huge difference in banishing debt. If you put $1,000 on a credit card at 18 percent and make just minimum payments, it will take 12 years to pay off and cost $1,100 in interest. Put $20 more a month toward that card and it would be paid off in two years and a few months, with only $226 in interest. (Check out this calculator to see how an extra payment affects your payoff time.)

4. They invest in their job skills, and don't expand their lifestyles as fast as their salaries.

Rodger Oren was laid off in 2000 from an information technology position with a large manufacturing firm. "With my wife working, we had structured our expenses to live on the lesser of the two salaries," he says. "I could have bought a bigger house and better car, but I didn't. As a result, we didn't lose our house, auto, or incur debt from the ordeal."

Oren says he has always lived below his means thanks to the inspiration of his parents, who endured the Depression, and by watching manufacturing jobs disappear in his native Pennsylvania.

"I remember guys who were fifty-five years old coming out of McDonalds at shift changes" because it was the only job they could find after the steel mills closed, he recalls. "You can't live paycheck to paycheck -- you can't do that to yourself. I don't have as much as I would like, but I do sleep well at night regarding finances."

Oren banked his severance pay and jumped almost immediately into a college teaching job. By consulting on the side, he made 60 to 80 percent of his old salary, and kept hunting for IT positions. "I probably sent out thousands of resumes; I lost count," he says.

Ultimately, maintaining his career did require a temporary adjustment: He lives in Tennessee; his wife and two sons -- one starting medical school, the other in high school -- live in Georgia. "I'm ex-military, and sometimes you have to make sacrifices," says Oren, who served four years in the U.S. Air Force. "It's no different than if I was deployed somewhere." In the meantime, they visit back and forth on weekends and plan to reunite in two years, when his younger son graduates.

Oren shifted from manufacturing to the health-care sector and is working on his doctorate at night. When the IT security officer left last year, Oren volunteered to take on his duties for the learning opportunity.

"It increased my marketability; you always have to keep contemporary skills, look at the marketplace, and know where the trends are moving," he says. "With globalization, we have no idea what's going to happen -- you have to be fleet of foot, nimble, and adaptable."

For more habits of financially peaceful people, see my blog.

Facts You MUST Understand if You Are Ever Going to Lose Your Belly Fat & Get Six Pack Abs

1. Many so-called "health foods" are actually cleverly disguised junk foods that actually stimulate you to gain more belly fat... yet the diet food marketing industry continues to lie to you so they can maximize their profits.

2. Ab exercises like crunches, sit-ups, and ab machines are the LEAST effective method of getting flat six pack abs. We'll explore what types of exercises REALLY work in a minute.

3. Boring repetitive cardio exercise routines are NOT the best way to lose body fat and uncover those six pack abs. I'll show you the exact types of unique workouts that produce 10x better results below.

4. You DON'T need to waste your money on expensive "extreme fat burner" pills (that don't work) or other bogus supplements. A special class of natural foods is much more effective. I'll tell you about these natural foods and their powers below.

5. Ab belts, ab-rockers, ab-loungers, and other infomercial ab-gimmicks... they're all a complete waste of your time and money. Despite the misleading infomercials, the perfectly chiseled fitness models in the commercials did NOT get their perfect body by using that "ab contraption"... they got their perfect body through REAL workouts and REAL nutrition strategies. Again, you'll learn some of their secrets and what really works below.

Low Oil prices slip to seven-week

US sweet, light crude fell $2.23 to settle at $123.26 a barrel - more than $20 off their peak earlier in July, when prices reached a record $147.27.

Brent crude in London also fell, dropping $1.92 to $124.52.

The oil market has been volatile as traders assess whether there will be enough supply to meet demand, with some predicting further price falls.

Analysts at Lehman Brothers predict oil prices could drop below $100 by the end of the first quarter of 2009.

But others are sceptical.

"Nothing in the fundamental drivers has changed," said Harry Tchilinguirian, an oil analyst at BNP Paribas.

pregnant soldier

In
A North Carolina man has been charged with murdering a pregnant Fort Bragg soldier, police said Tuesday.

Spc. Megan Lynn Touma, 23, was found dead in a hotel near her Army base.

Fayetteville detectives arrested Edgar Patino, a fellow soldier, at his home in Hope Mills, North Carolina, about 15 miles south of Fort Bragg, North Carolina.

He is accused of killing Spc. Megan Lynn Touma, 23, found dead on June 21 in a hotel near Fort Bragg.

She was seven-months pregnant at the time of her death, authorities said.

Touma, a five-year veteran of the Army, had served with the U.S. Army Dental Activity Clinic in Bamberg, Germany, and in Fort Drum, New York, before her stint at .

Two of Touma's friends told CNN that Touma and Patino had been stationed together in Germany and dated in the past.

Touma's friends said Patino proposed to her in Germany before Touma learned, on her return to North Carolina, that Patino was still married.

Noah's Ark - Scale Model

We have commissioned a scale model of Noah's ark which is eight feet long. This fabulous display looks as the Biblical Ark might have appeared, complete with a trail of 300 scaled to size animals. It's a must see for kids of all ages.

More and More...

Many people are crying for food. No body asked him , What are doing? This is world! We are always find our own happy but i hope it is not a real life. Man help man. It's a universal truth.

Queen Rania takes on stereotypes

Queen Rania of Jordan is seated behind an enormous desk in her office in Amman with three cameras trained on her.

Two of them are ours, the third belongs to her staff, who are about to film the latest edition for her personalised channel - or V-log - on the video-sharing website YouTube.

It is the seventh video she will have posted since she made her online debut in March. Speaking in English, she asks people to suggest stereotypes they have heard about the Arab world so she could "break them down one by one".

King Abdullah's wife may not be the only public figure tapping into the popularity of YouTube - politicians and monarchs worldwide have created sites.

Trans-fats banned in California

California has become the first US state to ban restaurants and food retailers from using trans-fats, which are linked to coronary heart disease.

Governor Arnold Schwarzenegger said the new legislation, which will take effect in 2010, represented a "strong step toward creating a healthier future".

Violations will incur fines of between $25 (£13) and $1,000 (£502).

Trans-fats are chemically altered vegetable oils, used to give processed foods a longer shelf-life.

Some cities, like New York City, Philadelphia and Seattle, have already banned the fats. Many food makers and restaurant chains have also been experimenting with replacements for oils and foods that contain them.

Helping The Assistant

Sometimes it doesn't seem like the smartest business strategy to help one's assistant to grow into a bigger job. After all, they will then leave, and no position is harder to fill than one where the person has to engage pleasantly in fairly uninteresting tasks. But when we encourage others to grow and achieve their dreams, we make lifelong allies. We never know how small acts of kindness and encouragement will benefit us later, but we all know the pleasure of watching someone succeed through our help. Your goal as a boss is for your assistant to leave you.

Your new JOB- Helping other...

The literature of 12-step recovery programs has a lot to say about work. To paraphrase, the literature states that until we look at our jobs as opportunities to be of service to other people, rather than just a way to make money, we will never be content in our work. Instead, we will continue to face more anxiety as we attempt to hold onto what we have already achieved while craving ever more money to maintain our level of happiness and self-esteem.

We have all seen rich, powerful executives who don't seem to get much pleasure from their careers. Since many folks are just trying to pay the bills, a discussion of helping others at work might seem esoteric. But the fact is that most of us work, whether we want to or we have to, and any possibilities for making work more enjoyable and rewarding are worth considering.

First of all, what does it mean to be "of service?" This term, as it is applied in 12-step recovery, means helping another person without any expectation of reward or hidden motives. Therefore, being of service at work doesn't mean helping out the boss in hopes of a promotion, or taking care of your assistant to get him or her to work weekends. The kind of help we are talking about here, the kind that provides an incredible payback of self-esteem, is about the pleasure of the act itself.

Brag All About Pets!

You love to brag about your pets and we love to show your pet photos to the rest of the planet! Check out our pet brag books featuring YOUR pet photos! Plus, learn how to submit your pet photos too. Make sure you bookmark this page and check back often as we continue to add new pet photo brag books.

Hello from.............?

Every body like a good life. But it is some time impossible because he/she have no chance to live good. I hope it's main cause job.

A Cat -e

I must admit I wasn’t always a cat person. Don’t laugh, but I used to turn my nose up at cats in favor of miniature poodles. But when Nelson clawed his way into my life, my world was turned upside-down. A very unlikely catalyst (get it?) into the feline world, Nelson was a crotchety, three-legged, beast of a cat who enjoyed knocking down our Christmas tree and drooling on my shoulder in his spare time. It was love at first sight! Crazy cat lady—check.

Now, don’t get defensive. For those of you who proudly embrace your status as a “crazy cat lady”, you are keenly aware that one of your healthiest relationships is with your furry companion.

E3 brings more sequels,upgrades...

One word sums up the announcements made by the Big Three gaming companies at E3 this week: more. During their flashy press conferences, Microsoft, Nintendo and Sony all announced plans for more games, more sequels, more exclusives, more connectivity and more ways for gamers to use their systems for stuff other than gaming.

An Islamic history of urope..

East and West appear set on an inevitable collision course, with Christianity, Judaism and Islam locked in permanent confrontation. But on this revealing journey through Europe, Rageh Omaar proves that this is not how it has always been.