The Market

The S&P broke through 1,100 on Friday for the first time in a month, propelled by General Electric’s announcement that it would raise its dividend by 20 percent. According to Morningstar, as of the end of last week, the NASDAQ has erased its losses for the calendar year, while the S&P stands just below flat and the Dow has gained 1.47 percent since Jan. 1. For the week, the Dow gained 3.27 percent to close at 10,424.62. The S&P climbed 3.57 percent to finish at 1,102.66, and the NASDAQ increased 4.15 percent to end the week at 2,269.47.

Who Would Have Thought? – In the July 6, 2009, issue of Barron’s (i.e., just over one year ago), the magazine asked 10 leading Wall Street economists to predict where interest rates would be as of June 30, 2010. Eight of the 10 forecasted that the yield on the 10-year Treasury note would be at least 3.85 percent. Only two individuals believed that the yield on the 10-year note would be at or below 3 percent. The actual yield as of June 30, 2010, was 2.94 percent (Source: Barron’s, BTN Research).  

Can’t Retire – Forty-seven percent of Americans currently between the ages of 56-62 would run out of the funds necessary to pay for basic retirement expenditures if they retire at age 65 (Source: Employee Benefit Research Institute, BTN Research). 

Half and Half – There are 154 million Americans in the civilian labor force (i.e., either currently working or seeking work). An estimated 156 million Americans are either too young to work or are retired (Source: Department of Labor, BTN Research). 

WEEKLY FOCUS – Lose a Tax, Gain a Tax 

Last week, we looked at the impact the lapsed estate tax potentially has on the estate of George Steinbrenner – and the loss of revenue it represents to the government. But rarely does the tax law giveth without also taking away. The temporary repeal also took away a law that actually reduced red tape for heirs.  

A provision called “step up basis” allowed heirs to calculate capital gains tax on the appreciation of the asset based on its value at the time of the benefactor’s death, rather than on the value at the time of the original purchase. For example, if your parent paid $50,000 in 1975 for a house that is today worth $200,000, the capital gains you pay when you sell the house is based on today’s value rather than the original value. So in five years, if the house sold for $250,000, you would pay capital gains on the $50,000 gain from the date your parent died, rather than on the $200,000 gain from the original date of purchase. (This example is incredibly simplified – there are any number of other factors that can affect the amount of capital gains tax.) 

The current law does allow the executor to increase the basis for certain property by $1.3 million, and property passing to a surviving spouse can be increased by another $3 million. Certain property cannot be increased, including retirement plans, IRAs, annuities, U.S. savings bonds, deferred compensation plans and uncollected installment sale payments. A number of other special rules apply, and executors who are also heirs may face unforeseen challenges in allocating the basis increase to specific assets. One of the biggest headaches, though, will be establishing the original cost basis on assets purchased decades ago. Your parent likely still has the papers on the purchase of the house, but does he or she still have statements or confirmations for the 500 shares of IBM? 

These issues may or may not warrant changes to a person’s will or estate plan, although if you expect to inherit assets before the end of the year, you may face some unexpected tax consequences. We can meet jointly with your accountant and estate attorney to determine how best to mitigate any unforeseen liabilities you may encounter. Please call our office at any time for assistance or to schedule a meeting. 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and

Pacific

Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of

U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities

America. SAI# 305936

  

The Market

A decline in the number of new unemployment applications for the third week in the past month could not offset a lower-than-expected consumer sentiment reading and a decline in the consumer price index. The Labor Department reported Thursday that new unemployment claims for the week ending July 10 dropped to their lowest level since August 2008. The Thomson Reuters/University of

Michigan consumer survey fell far more than expected to 66.5, from a revised June reading of 76.0. The Consumer Price Index fell 0.1 percent in June, a weaker reading than economists’ prediction of no change, according to Reuters. For the week, the Dow lost 0.95 percent to close at 10,097.90. The S&P fell 1.20 percent to finish at 1,064.88, and the NASDAQ declined 0.79 percent to end the week at 2,179.05.

Cut In Half – The average interest rate nationwide on a 30-year fixed rate mortgage was 4.57 percent on July 8, 2010, half of the nationwide average of 9.15 percent from January 1995 or 15½ years ago. (Source: Freddie Mac, BTN Research).   

Not A Baby Anymore – “Baby Boomers” are traditionally defined as the 78 million Americans born between 1946 and 1964. The oldest “boomers” will turn 65 years old in 2011 (Source: BTN Research).  

Not Enough Tenants – The national vacancy rate for apartments was 7.8 percent as of June 30, 2010, down from 8 percent as of March 31, 2010. The first quarter vacancy rate was the highest level achieved in the past 30 years (Source: Reis Inc., BTN Research).   

WEEKLY FOCUS – Reason to Rally a Retroactive Estate Tax? 

With the potential loss of an estimated $500 million in taxes on the estate of George Steinbrenner, the New York Yankees baseball owner who died on July 13, the Senate may be wishing it had worked a little harder to pass a bill last year that would have extended the 2009 rates rather than letting the tax expire in 2010. 

In fact, two days after Steinbrenner’s death, two senators introduced a proposal to permanently set the estate tax rate at 35 percent, with a $5 million exemption indexed for inflation and phased in over 10 years. The bill would also provide a “stepped-up basis” for inherited assets, meaning capital gains on future sales would be taxed on the value of the assets at the time of the owner’s death not the original value when the owner purchased them. 

If Congress takes no action, the federal estate tax in 2011 will be 55 percent and a $1 million exemption. The 2009 rate was 45 percent with a per-person exemption of $3.5 million. Applying 2009 rates to Steinbrenner’s $1.1 billion estate (as estimated by Forbes magazine), his heirs may have forfeited almost $500 million in taxes. Even without a current estate tax, Steinbrenner’s heirs must pay capital gains tax when they sell their inherited assets. Using the current top capital gains rate of 15 percent, if his heirs sold the assets immediately, they would pay about $165 million (depending on how much the assets have appreciated since Steinbrenner bought them). 

That’s a difference in tax of about $328 million – or, as the Associated Press put it, about 10 times Alex Rodriguez’s salary of $32 million.  With so much about uncertainty around the estate tax, many Americans are finding it difficult to plan their legacy. We welcome the opportunity to help you analyze your current situation in conjunction with your estate attorney and tax professional. Please call our office to schedule a joint appointment. 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe,

Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and

Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of

U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities

America. SAI# 305838

Market CommentaryFor the week of July 12, 2010 

The Market

The markets shook off the pessimism of the end of the second quarter with their highest weekly gains in almost a year last week. The Dow and S&P had their best weeks since July 13, 2009, while the NASDAQ had its biggest gain since Oct. 5, 2009, according to the Associated Press. Earnings reports begin Monday, with Thomson Reuters expecting an increase in second-quarter profits of 27 percent over last year. During the shortened trading week (markets were closed Monday, July 5, for Independence Day), no further negative news came from Europe, while

China decided to renew Google’s license to do business there. For the week, the Dow gained 5.35 percent to close at 10,198.03. The S&P rose 5.47 percent to finish at 1,077.96, and the NASDAQ increased 5.00 percent to end the week at 2,196.45.

 

Who Is Buying What – Foreigners bought a net $223.5 billion of U.S. stocks and bonds in March and April 2010 (i.e., the difference between the amount that foreigners bought in American securities vs. the amount that Americans bought in foreign securities), the second largest back-to-back monthly total ever recorded. This record amount may suggest confidence in the

U.S. economy by foreign investors. The government has tracked this data since May 1978 (Source: Treasury Department, BTN Research).     

Better Than Expected – The

U.S. government had anticipated that it would be able to borrow money through the sale of 10-year Treasury notes during the 2010 calendar year at an average yield of 3.90 percent. The yield on the 10-year Treasury note ended 2009 at 3.84 percent but had fallen to 3.10 percent by June 25, 2010 (Source: Office of Management and Budget, BTN Research).   

Billions – Using the Treasury Department’s projection of $3.72 trillion of spending, the

U.S. government is anticipating spending of $10.2 billion every day during fiscal year 2010 (i.e., the 12 months ending Sept. 30, 2010). There are 371 Americans (out of our total population of 310 million) that are worth at least $1 billion. One billion seconds is equal to 31 years, 8½ months (Source: Treasury Department, Forbes, BTN Research).     

 

WEEKLY FOCUS – Who Needs Your Social Security Number? 

Because Social Security numbers (SSN) are unique to each individual, many businesses have made them the method of choice for establishing identity on customer accounts. That’s why having your SSN makes it so easy for an identity thief to set up bogus accounts in your name – and why you should push back on businesses who demand it from you. 

Who really needs your SSN? Your employer and your bank or financial service company may require it to comply with federal law, and if you use Medicare or Medcaid, your doctor’s office will need your SSN to file claims for those charges. Beyond that, few others actually need your SSN. What they do need is some form of identification. A driver’s license, state-issued identification or passport is usually preferred, and some companies will ask for a second piece of ID to confirm your license. This can often take the form of a birth certificate, credit card bill, bank statement, pay stub or company security badge. Just make sure none of those documents contain your SSN. 

Be prepared to offer these forms of identification when you decline to give your SSN. You may be told that you cannot conduct business with the company without divulging your SSN. Ask for a supervisor – and keep asking, on up the chain of command until you find someone who understands the importance of guarding your SSN and agrees to accept other forms of identification. If that doesn’t work, consider paying cash rather than establishing credit or billing account – or find another company to do business with. 

On average, victims of identity theft spend 60 hours and $1,180 cleaning up the damage, according to the Federal Trade Commission. Take the first step in protecting yourself by giving your SSN only to those who truly – by law – need that

information. If you have questions about how we use and protect your SSN or when a requirement to provide your SSN is legitimate, please feel free to contact our office at any time. 

 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe,

Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and

Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of

U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities

America. SAI# 305716

The Market

The Dow continued its decline through this past Friday, its longest losing streak since October 2008. According to the Associated Press, employers added 83,000 jobs last month while analysts had forecasted 112,000. For the week, the Dow lost 4.47 percent to close at 9,686.48. The S&P declined 4.99 percent to finish at 1,022.58, and the NASDAQ dipped 5.92 percent to end the week at 2,091.79.

Get a Job – Thirty-nine percent of CEOs of large

U.S. companies say they plan to increase payrolls in the second half of 2010, according to a survey by the Business Roundtable. That’s the highest percentage since the second quarter of 2007. The recession that began in the fourth quarter of 2007 has cost the nation’s economy about 8 million jobs, with unemployment peaking at 10.1 percent in October 2009, according to the Associated Press. 

Stay Home, Save Money – A recent study by Genworth Financial found that the cost of in-home care is rising at a slower rate than the cost of care in a nursing or assisted living facility. Home care costs have risen just 1.7 percent in the past five years, while assisted living has increased 6.7 percent and private room nursing home care has increased 4.5 percent. In an earlier Genworth survey, 78 percent of respondents said they would prefer to receive care in their own home. 

Public Speaking, Outliving Savings and Death – The old saw about most adults fearing public speaking more than death may have a new twist. According to a recent survey by Allianz Life Insurance Co. of North America, two-thirds of boomers fear outliving their savings more than they fear dying. Unfortunately, that doesn’t seem to be motivating them to plan ahead. Thirty-one percent aren’t sure how much their retirement expenses will be and 36 percent said they have “no idea” how long their retirement income will last.  

 

WEEKLY FOCUS – Passing On Your Vacation Home 

The U.S. Census, currently underway, was intended as the basis for allotting congressional representatives in each state (and subsequently, representation for city, state and other government entities). In its current form, the census gathers much more information. For example, the last census in 2000 found Americans own more than 3.5 million vacation homes, often passed from parents to children. 

If your estate plan includes gifting or bequeathing a second home to your children, you may not be doing them a favor. Your heirs will be responsible for paying for maintenance, insurance and property taxes on a gift they may not use often enough to justify the ongoing expense. If you have multiple children sharing in the property, the decision to keep or sell can be contentious, especially if one child can afford the expenses and another cannot. 

Some parents may have the wherewithal to fund a trust specifically to cover the ongoing expenses of the home. Others, especially those already pressed to pay the mortgage on the second home, may want to consider a life insurance policy whose settlement can be used for property expenses. Another option is to specify in the will that the second home must be sold and the proceeds divided among the heirs. 

Some heirs may not want fixed assets or real estate of any kind, viewing it as not only a financial burden, but an emotional one. An adult child may cherish the memories of family time spent at a vacation home, but the realities of his life today may make it unfeasible to continue that tradition with his own children. Guilt ensues over paying upkeep on a property he cannot use or selling the vacation home his parents valued so highly. 

Before including a vacation home or other real estate in your estate plan, you should consult with your children about their willingness and ability to handle the ongoing financial responsibility. Our office can work with your estate attorney to help you examine your options and broach the often difficult subject of money with your heirs. Call us for a family appointment. As always, we are happy to include your accountant or attorney. 

 

* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe,

Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and

Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of

U.S. investment-grade, fixed-rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities

America. SAI# 305603