by Archie M. Richards, Jr.
August 28, 2006

A while ago, a woman wrote me about an investment called a "Universal Lease." She said a friend was considering buying it. The investment was sold only by "Resort Holdings," of South Bend, Indiana. The "products," were in Cancun, Mexico, and the investment offered a "return" of 9 percent.

The woman said she wanted a sound investment paying income higher than that offered by bonds and savings accounts.

I searched on the web for "Universal Lease, South Bend." The very first response explained that the Arizona securities regulator was charging an Indiana man and three international companies with securities fraud in connections with the Universal Lease resort timeshare program.

That was easy. A sound investment it certainly wasn't.

You can do this, too. Before buying an unusual investment, check it out - especially when the investment is recommended by a friend.

Note that, according to the woman's letter, the investment's sponsor said that the (SET ITAL) return (END ITAL) would be 9 percent. The woman probably took this to mean that her (SET ITAL) income (END ITAL) would be 9 percent.

Return and income are not the same: "Return" is the total annualized gain, including the appreciation resulting from increases in price. "Income" is the cash received periodically. If the woman invested $10,000 and took in $900 in a year, the rate of income would be 9 percent.

Since the above investment was fraudulent, it was unlikely to pay a return or income.

Not many reasonably safe investments pay income as high as 9 percent. Some oil investments do, and real estate investment trusts occasionally do as well (although not now). But even in those cases, some of the income represents a return of the investor's capital.

When a stock pays 9 percent, it is usually because the company's misfortunes have driven the stock price down. The chances are, the dividend will soon be reduced or perhaps omitted.

The same goes for a high-yielding bond; it may be defaulted.

Return and income: It's important to keep the two straight. Also, check investments carefully, especially the ones recommended by friends.

Augie, a California resident, asks how a certain investment account can be inherited by a particular beneficiary. He is thinking about adopting a living trust.

If the beneficiary is made joint owner of the account, Augie, he will inherit at your death no matter what your will or your living trust may say. Joint ownership takes precedence.

But there's a hooker: If the joint tenant is declared legally incompetent because of an accident or infirmity, you cannot buy or sell any securities in the account until the probate court appoints a guardian to represent the incompetent's interests - a cumbersome procedure.

You're better off keeping the account in your name alone. Set up a living trust and specify in the trust who is to inherit.

But remember that the trust will have no effect unless the account is made part of the trust property. Change the ownership to, for example, "The Augie Smith Living Trust dated 9/1/06."

And not just that account: Change the ownership of everything you own to the trust name, including your business, your investments, your house, your other real estate, your tangible property, and your car. Owning nothing in your name avoids the cost, delays, and publicity of the probate process. With everything in the trust, you'll have no probate estate at all.

Avoiding probate is one advantage of a living trust. Here's another: A living trust is the most effective way for your affairs to be managed after you become incompetent. The person or institution you've named in the trust as successor trustee then replaces you as trustee and manages the trust property for your benefit.

Discuss all this with an attorney who specializes in estate planning. Inheritances in California and certain other states are subject to community property laws, which are troublesome. Make sure the attorney is familiar with them.

A living trust benefits you while you're still here. It also cares for your loved ones after you've gone.