The Lange Report – November 2018

Table of Contents

EBikes: Cheating or Loads of Fun…Both!
by James Lange, CPA/Attorney

Photo: An Ebike, a pedal assist alternative bicycle.


My vision of ebike riding was zipping up and down low traffic roads on mountainous terrain without running out of steam. My vision is confirmed. Today I was charging up hills at 20 mph when I would usually be slogging up hills at about 5 to 8 miles per hour and would be beat at the top. It was a blast.What I didn’t know is that it is a blast on trails too.

On the other hand, it is cheating, and I know and admit it. The advocates for ebikes have all kinds of rationalizations to justify the position that riding a powered bicycle isn’t cheating. I didn’t really believe the rationalizations before I bought my ebike. I still don’t. I ride to have fun and exercise. I don’t ride to commute, but one argument frequently made in favor of ebikes is that they allow you to ride to work and not arrive at the office drenched in sweat. I am actually considering that, but I would guess for me only on limited days. I suppose some people with ebikes use them for many trips that they would otherwise be using a car for, but, particularly since I don’t plan to start using my ebike for local errands, that justification doesn’t nullify the fact that using an ebike is cheating.

The rides I’ve taken on my ebike so far have all consisted of significantly less exercise than my normal rides. The best exercise I’ve gotten during my ebike rides is when I swapped bikes with my friends who all wanted to try the ebike and so far, everyone loved it. One of my relatively frugal buddies who had never considered purchasing an ebike now wants one for himself.

One argument is that riders will stay on an ebike longer and get the extra exercise because of hours on the bicycle. I don’t buy that one. Perhaps other riders do spend more time riding if they have to exert less effort, but I typically take all day rides if I have the time. When I spend all day riding on hilly terrain, I am totally beat by the end of the ride.

I think ebikes are great solutions for aging riders who want to have more fun and go on longer rides. Though I climbed Mount Lemmon last year (7,200 feet of elevation change) on a regular bicycle, I still really like my ebike and recommend them highly. You can, and probably should, keep your existing traditional bike and on days when you are more serious about exercise or want to bike with friends of roughly equal riding ability, you can take it out.

Personally, I am a slow rider and can’t keep up with a lot of friends or bicycle groups I would like to ride with. Now I can.

One excellent objection to ebikes is that they are much heavier than regular bicycles, and one woman I spoke to pictured it being too difficult to lift on to the bicycle rack. She is right, but that is solvable and I will address than when I get into my detailed recommendations.

I just got back from a three-day conference for financial advisors in San Francisco.  I arrived early and stayed in Carmel right on 17 Mile Drive.  (That is a famous beautiful hilly ride that has a lot of ocean frontage and you bike past Pebble Beach Golf Course). I have actually bicycled that drive with a regular bicycle, and found it doable, but tough.  With the ebike, it could not have been more pleasant.

I also rode it on trails, and both of my friends who tried it really liked it even on the trails. You do have to be more careful because you can easily hit 27 mph and cyclists and pedestrians on trails aren’t used to cyclists going that fast. Also, if you do fall, there is a better chance of getting hurt worse. I don’t have statistics on that, but I know people riding motorized scooters are incurring injuries.

My inclination is to ride at a small assist or no assist speed if the trail is crowded. Sometimes the extra power will get you home faster. The day I took delivery I stayed out too long riding on the trails and had to ride back at dusk. But I was very happy to be able to zip along with speed assist so I could make it back to my car before dark.

So, here are a few recommendations I’d like to share after having done some research myself and consulting with my friend, Lee Sisselsky. Lee is a math guru, a bicycling nut who is on a bicycle safety council, and a meticulous engineer who spent many hours researching ebikes.

First, Lee and others think you shouldn’t get a dedicated or stock ebike. That is a bicycle with the battery and motor built into the bike. I tried two of them and didn’t like them. They were really heavy and I think will be dated in a few years. Since the battery and motor come built into the bike, you would have to just go out and buy a brand new one if you wanted an update. I found it very hard to ride a dedicated ebike unless I had the assist on.  I would like to have the option of riding normally, using a small assist, or a lot of assistance depending upon what I want to do in the moment. With designated ebikes you also don’t have many choices in sizes, and it may be very hard to fit a dedicated ebike to you.

Lee says installing the right kit on an inexpensive donor bike (a regular bike that you attach the kit to) will get you the most performance for the money. Rather than buying a dedicated ebike, purchase a bicycle fitted to your specifications and install the motor and battery kit on that bike. That is what I did, and I am satisfied with mine. It is possible that you might be able to have a kit installed on your existing bicycle, but in most cases, it probably makes sense to have at least one “manual” bicycle and a donor bike purchased with the idea that you will install the kit to make it an ebike. There are a variety of batteries, motors, and kits. I got a battery with an 80-mile range which I estimate would go 120 miles or more on the flats if I assist in pedaling. You can also get smaller and cheaper battery kits.

I have a friend who bought a dedicated ebike and when we bike together, I have no doubt he will be eating my dust even though we are roughly equal in terms of riding ability and strength. (Sorry, a little machismo there).

Lee also figured out a way to customize the assist levels and throttle operation so the ebike he constructed has more intermediate speeds which I found very useful. He describes it as tailoring the “feel” of the e-bike to his liking by modifying various parameters used by the motor controller firmware. The kit, as delivered, offered way too much assist at Level 1 and by Level 3, you’re holding on for dear life. So Lee reconfigured things and now has 4 levels below what used to be Level 1 while Level 9 is still full Hot Rod. The increments he implemented ensure that each of the 9 levels has a useful purpose.

Lee taught his modification technique to Alan Orlansky, a local bicycle guy who has a business of installing the kits onto regular bicycles. Alan works at BikeTek in Squirrel Hill so, as a matter of convenience, I bought my bicycle there. Alan was a pleasure to do business with. He explained how to use it and gave me other valuable tips. If you want to get an ebike kit and don’t want to be a do it yourself, I would call or text Alan at (412)680-8950.

I also bought a donor bicycle specifically with the idea of using it as the base bicycle and then having Alan add the kit. I wasn’t worried about having a high-end light weight frame or components because the motor would take care of the extra weight easily. I outfitted the bike with a rack and a big pack so I have a lot of carrying capacity. I bought thick tires so I can ride trails or road and am not worried about the loss of efficiency on roads or paved trails. (My traditional road bicycle has skinny tires and is fairly light).

My only regret so far is I don’t like the bicycle rack that I just bought. The ebike didn’t fit on my existing rack so I bought the one they had at the store. It is not easy to get ebike on the rack. The bicycle weighs more than fifty pounds and, though I can lift it, I know it would a limitation for others. I also don’t think it is nearly as secure as I would like it to be.

For people who can’t or don’t want to lift a heavy bike, they have racks with inclines that you can roll the bicycle onto from the ground. I don’t want to recommend a rack I have never tried. I am hoping that the owner of Bike Tec will see this newsletter and add a better rack with an incline to his inventory of racks. Alan did provide me with a recommendation for a rack that includes a detachable ramp that you can use to slide the bicycle up onto the rack. It’s the Thule EasyFold XT 2 Electric Bike Platform Rack which retails for around $750.

The other problem with buying a custom ebike is that it is a slower process than just going to the bicycle store and riding away that day. It took me about six weeks, several trips to the bike store and one trip to Alan’s garage before I was totally outfitted and ready to roll.

For me, I paid roughly $1,200 for the bicycle, $1,500 for the kit, $300 for kit installation, $400 for the rack, and about another $200 for an extra set of tools, lights, tubes, tire irons, etc. So, figure around $3,500, and you could easily spend more or less. Alan pointed out that if you already have a bike that fits your needs, the cost of the bike can be removed from the equation, bringing the initial cost of the kit and installation down to under $2,000.

One area in which I relied upon Alan’s advice was my choice of brakes. Alan recommends an all hydraulic brake over cable actuated brakes. Since I picture the brakes being important coming downhill with a heavy bicycle, I wanted to have the most powerful brakes. Hydraulic brakes are very reliable, like car brakes, and they self-adjust. I think some riders who opt for cable actuated brakes do so because they prefer to choose parts that they can fix on the road if something goes awry. Personally, if I have a problem with my brakes on the road, unless it is an easy fix, my ride is over.

Anyway, I hope this article motivates some readers to go out and buy an ebike or, more accurately, to buy a kit and have it installed on a regular bike. I usually say “don’t buy things, buy experiences.” But, this is a rare situation where simply buying a thing can truly improve the quality of your experiences! If you buy one, please let me know.

The Importance of Personal Umbrella Policies

Jim Lange’s Introduction to The Importance of Personal Umbrella Policies (Copyright 2018 by AES Nation, LLC).

(Please note that Jim Lange’s commentary throughout article will be in bold). 

In today’s litigious world, it is always a good idea take reasonable measures to protect your assets from lawsuits. On the other hand, it doesn’t make sense to spend more time and money than you need to protect yourself and your family. 

Unfortunately, there is no advice or even insurance policy that is appropriate for everyone. For example, if most of your family wealth is in your IRA or other qualified retirement plan, that money has better protection than money outside an IRA. If you are married, it might make sense to transfer after-tax dollars to joint property that would provide better creditor protection than having that property in only your name. On the other hand, there might be excellent reasons you would prefer keeping your money in your name rather than transferring it to a jointly-owned account with you and your spouse.

The typical types of revocable trusts, including the type our office drafts, do not offer additional creditor protection. In some situations, it might make sense to draft a trust that does have creditor protection, but that type of trust is likely to have so many restrictions that giving up your financial autonomy is not worth the additional creditor protection. 

Many types of trusts that we draft that are funded at death do have creditor protection. Our spendthrift type trusts, special needs trusts, and our famous “I don’t want my no-good son-in-law to inherit one red cent of my money trust” all provide significant, but not necessarily perfect creditor protection. On the other hand, these types of trusts that do provide significantly increased creditor protection for your heirs come at a price. They require a special tax return and a K-1 that complicates the beneficiary’s tax return and a specially appointed trustee who usually has significant authority. In most cases, we feel the aggravation of setting up and maintaining the trust is not worth the added creditor protection, especially if the beneficiary is responsible, has a long-term stable marriage and would prefer unrestricted use of the money he or she were to inherit. 

One relative bargain in terms of significant creditor protection per dollar that most readers have but should consider increasing is an umbrella policy. I subscribe to a service that allows me to reprint their articles and one of the articles that I thought was relevant for you regarding umbrella policies follows. I think the article is useful, but I don’t agree with their “rule of thumb” in determining the amount of the umbrella needed. I think like most everything else in the financial/legal/tax/insurance world, that everyone is a snowflake and you must take your specific facts and circumstances, goals, etc. into account. That said, I do often recommend increasing your umbrella coverage, and I thought the article that follows does contain helpful information.

The Importance of Personal Umbrella Policies

What would happen if you or your child caused a car accident that resulted in serious injuries or the deaths of others?

How would you pay for the treatment and damages of someone who was hurt in your home and claimed negligence? What happens when they claim to have suffered greatly because of the injury?

What if your dog was attacked by a stranger on your property and bit the person in self-defense—but you were still sued?

These are questions that anyone could face. However, one component of a wealth protection plan that is often overlooked or underused—even by the affluent—is the umbrella policy.

Here’s why an umbrella policy can make sense if you have significant assets.

The Benefits of Umbrellas

You have insurance policies on your house and vehicles. You might also insure other types of property you own (boats, airplanes, etc.). But do you have enough coverage, considering your personal wealth?

If you’re financially successful, the answer may be a resounding no.

The reason is that most insurance policies top out at around $500,000 of liability coverage. That may not be enough if you find yourself involved in a serious accident. For example, people who get hurt on your property may seek much more than $500,000 in damages.

That’s where an umbrella policy (also called an excess liability policy) can make a big difference. An umbrella policy kicks in when your other liability policies (such as your car insurance) hit their limit. For instance, let’s say you are involved in an accident and are being sued for $1 million, but your car insurance covers only $300,000. In that case, your umbrella policy could cover the difference so you don’t have to use personal assets.

Clearly, then, an umbrella policy can be useful in helping to protect your assets from larger claims and lawsuits.

To have an umbrella policy, you need to have the other insurance policies, such as car or homeowner’s insurance, already in place.

Make sure there isn’t a gap between your other policies and your umbrella policy. Where your car insurance ends, for example, the umbrella should take over—otherwise, you’re on the hook for that gap. And if the underlying car insurance policy is not addressing certain risks, then the umbrella policy can also miss covering these risks.

A Big Enough Umbrella?

We find that most wealthy individuals and families don’t have large enough umbrella policies to adequately protect their assets. If a legal judgment is greater than your liability coverage, you are going to have to come up with the difference—which may mean selling assets, possibly at fire-sale prices because of the bind you’re in.

A general rule of thumb is that if your net worth is $20 million or less, make sure your umbrella policy covers what you’re worth. Jim Lange here with a slight modification to the recommendations this article is making; this general rule of thumb is only a starting point and many readers, particularly those with significant IRAs and retirement plans where there is already some creditor protection, should not necessarily follow this rule of thumb. If you are worth more than $20 million, it becomes a question of how much risk you’re comfortable taking on. Jim Lange here again letting you know that I think the question of how much risk you are comfortable taking on also applies to people worth less than $20 million.

Many ultra-wealthy individuals, for instance, will get as large and comprehensive an umbrella policy as possible. While the odds of having to use it are in their favor and it’s even more unlikely that they will reach the limits of the policy, the possible financial downside from a serious accident and substantial lawsuit is something they prefer not to even consider. As one person with a $10 million umbrella policy told us, “It costs less than putting an attorney on retainer to defend you in the event of a suit.”

The Cost of Coverage

How much will a hefty umbrella policy set you back? A number of factors determine the cost of coverage, including:

  • Number of homes and where they are located
  • Number of cars and the number of people being covered (including their driving histories)
  • Number of boats and planes
  • Amount of existing liability coverage you have before adding the umbrella policy

The good news is that umbrella policies tend to be relatively inexpensive, because the severe occurrences that trigger them are uncommon.

The upshot? If you don’t have an umbrella policy, run—don’t walk—and get one. If you do have an umbrella policy, make sure you’re sufficiently covered—and boost that coverage amount if you’re not. If you are interested in increasing your coverage, the most logical next step is to contact the agent with whom you already have coverage. If you don’t have a policy now and/or you want to get a competitive quote, please call our office and we will refer you to an appropriate company for your situation. 

ACKNOWLEDGMENT: This article was published by the BSW Inner Circle, a global financial concierge group working with affluent individuals and families and is distributed with its permission. Copyright 2018 by AES Nation, LLC.

This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing.