Volume 7 Number 2

From The Corner Office By Mitchell Freedman, CPA/PFS

September 11, 2001: it seems so long ago, and yet it also seems like yesterday. No single event in my lifetime has had such a profound affect on the lives of civilized people throughout the world. I was about 3 months old when the Japanese attacked Pearl Harbor, and that is the only comparison that anyone can come close to offering as a world shaking event. And what has been going on since has caused more frustration and fear to our citizens. How does one understand it? How does one cope with it? How does one come to grips with the fact that life as we have known it will never be the same? How do we incorporate the tragic consequences of this singular attack on our citizens, our land and property, and our free spirit into our day-to-day existence? And, what about the subsequent threats, both real and conjectured, that we face each day? How will they affect the lives of our children and grandchildren? So many thoughts to ponder, particularly when there are no clear answers to these and other questions.

Citizens throughout the world share the anger and frustration and yet they feel helpless. Our government leaders are doing the best that they can, but we are fighting a war against these terrorists that knows no boundaries. Hopefully, both the overt and covert actions taken by our government and its allies will provide us with protection. But we must know that the battle will go on for years, that there will be other attacks in various forms, and we will be angered, shocked, and dismayed when they come.

How will I personally deal with these matters? I have decided that I will not permit the acts of terrorists to affect my day-to-day life. As I write this editorial column I am on a United Airlines flight from New Orleans back home to Los Angeles. This is the eighth flight on which I have traveled since that tragic day. It’s business as usual for me. As an analogy I use the plight of the British during World War II, when the “buzz-bombs” were causing havoc over London. They came over from Germany and nobody, including the Germans, knew when they would run out of fuel and explode into the metropolis. Yet the British went to their bomb shelters until the all clear sounded and then went back to “business as usual.” It wasn’t easy! There were innocent casualties! But the indomitable spirit of the British caused them to go on. We must do the same!

WHAT OTHER CHOICE DO WE HAVE?

Tips and Alerts Emergency Preparedness By Kathleen Huse

Have emergency plans for home, workplace and school; discuss them with your family. Here are some basic steps to take before an emergency to protect you and your family:

• Have two emergency meeting places: a place near your house, and a place outside the neighborhood in case you cannot return home.
• In the event family members become separated, have one out-of-state and one local contact person.
• Show family members how to turn off the water, gas, and electricity at mains.
• Make or purchase a disaster supply kit. You can use a backpack or duffle bag containing:
• At least three days supply of water. Plan on one gallon of water per person per day. Date the containers and replace them every six months.
• A supply of non-perishable food (don't forget the manual can opener).
• A flashlight and battery powered radio, with extra batteries. Replace the batteries periodically.
• A blanket, a change of clothing and an extra pair of glasses.
• A first aid kit with extra prescription medications. Make sure the prescriptions do not become outdated.
• Any special items for infants, elderly, or disabled family members that may be appropriate.
• Remember to include extra supplies for your pets!

Further information and checklists are available at www.fema.gov and www.redcross.org.

Tax Notes IRS Says "Don't Get Taken For a Ride" By Tom Trent, EA

The Internal Revenue Service (IRS), in cooperation with the National Association of Charity Officials, recently issued a consumer alert to help taxpayers avoid potential pitfalls when donating cars to charity. Donors should verify that the donee organization is qualified; if it is not an eligible organization, the donation will not be deductible. Also, some car donation program operators have mistakenly claimed that donors can take the "full Blue Book Value" of the car as a deduction, but the IRS only allows a deduction for the fair market value, which may be substantially lower. I further caution donors that if the value is above $5,000, a formal qualified third-party appraisal is required.

The End of the Innocence By Mitchell Freedman, CPA/PFS, Tom Trent, EA, and Karen Cho

On September 11th we saw our world change forever. Our society has lived safe, secure, and at peace for so long that we've forgotten or never experienced the challenges we now face. Hopefully, we will never face the world with that same naivete.

Out of the events of that day came stories of heroism and valor. And as a shattered nation banded together, we became more civil towards one another and crime decreased. Perhaps that won't last, but it shows that our society is capable of being at its best when things are at their worst. We also gained a new appreciation for the people who "risk-it-all" to protect us: the police, fire departments, other governmental agencies, and the military.

This article will discuss some matters you might want to consider to prepare for a future disaster, whether man-made or natural. It will also explore some financial issues with which you will have to deal during a time of crisis.

Along with the items in this issue's Tips and Alerts column, here are some ideas for your personal planning purposes. In fact some of these tips have already been recommended for earthquake preparedness.

You should always have a supply of emergency cash in case banks are closed or ATMs are not functioning. For the first time in our memory, we saw that for a week some financial services companies were unable to execute transactions in money market funds.

Establish a plan to protect your personal and financial records. Keep duplicate copies of all your family's vital records in a bank vault. These items could include birth certificates, life, accident, disability, and property and casualty insurance policies. Lists of your credit card names and numbers will also be helpful. House files, including the deed and closing statements should be stored there too. Keeping copies of important medical records may also come in handy.

Our economy was already weak before the terrorist attacks. With massive layoffs, business declines and negative consumer sentiment it is now clear that we have been and are still in a recession. Prior to September 11th we were already in the midst of the longest bear stock market in more than a generation. After the attacks, when the U.S. stock markets reopened, there were further sharp declines. As of this writing, we have since experienced a U.S. stock market recovery that has brought us back above the levels of September 11th. This kind of recovery is fairly common in the short-run after a crisis and only time will tell if those lows will be tested. It would be unwise to draw any conclusions about the current state of the economy or where it will go in the short-term.

So what should you do regarding your investment portfolio? Diversification is still the key to long-term success. You should make certain your portfolio is allocated into different assetclasses, varied industries and market capitalizations, and different investment styles. Don't forget fixed income (bonds) investments either. Furthermore, despite their recent poor performance, you should include international equities. Gold and precious metals can be considered if you are concerned about the ugly spector of inflation. Real estate can also be included. Remember your portfolio needs to be structured to take into account both your risk tolerance and your time horizon. Don't expect your portfolio to make you rich in the short-term, but it should be constructed to make sure that it doesn't make you poor!

If you haven't already done so, develop an estate plan. You have seen that innocent people can lose their lives in an instant and in unexpected ways. Without being morbid, you should make sure your wishes are properly recorded. Once you start on this process, make certain that you do not procrastinate. Implement your estate plan. If you already have an estate plan, revisit it, making any alterations you feel are needed.

What about insurance and risk management? Take a look at your property and casualty insurance policies and ascertain if you are adequately covering the perils you wish to insure. Also assess your life and disability insurance coverages to determine if you need any modifications in this important area. You might consider long term care insurance. Medi-gap insurance should be evaluated if you are covered by Medicare.

Welcome to the new world. You have reason and opportunity to plan for those things that are important to you. Take proactive steps to plan prior to a crisis.

Heard in the Hall

We are pleased to announce the formation of a new corporate entity, MFAC Financial Advisors, Inc. (FA). This new entity has been established to provide fee-only financial planning and investment advisory services to our clients. Clients who are affected will be contacted and those who are interested in having such services provided should inform Mitch Freedman, or their primary contact at Mitchell Freedman Accountancy Corporation (MFAC).

On July 13 and 14, 2001 Mitch attended an AICPA/CICA ElderCare Task Force meeting in Toronto. He also attended the CalCPA Council meeting in Seattle on July 20 and 21, 2001. Mitch attended meetings of the CalCPA Communications Advisory Committee and State Personal Financial Planning Committee on August 20, and September 28, 2001, respectively.