THE MARKETS:

Volatility remains the watchword on Wall Street. At least this week the volatility was the kind people like, positive volatility. The Dow was up 3.57% (down 13.33% for the year) and the S & P 500 was up 1.71% ( down 14.14% for the year).

CITIBANK BEATS EXPECTATIONS: Citigroup lost $2.5 billion and still beat analysts’ expectations. This amounted to a loss of 54 cents per share, in the April-June period. Analysts were predicting losses in the mid-60 cents per share.  In the same timeframe last year, the bank earned $6.23 billion, or $1.24 per share.

REVEALING UNEMPLOYMENT NUMBERS:

Is all that money my wife and I are spending on my son’s college education worth it?  The following numbers compiled by The Manhattan Institute say “yes”. The following are comparisons of unemployment numbers for May 2007 (the first number) and May 2008 (the second number)Â for the following levels of education.

Less than high school diploma  8.3 %
High school graduate 4.5 %  5.2 %
Some college 4.3 %
College diploma 2 % 2.3 % 

Another indicator is perhaps a bit more surprising.  Also in May of 2008, men who are married and still living with their spouse are unemployed at a rate of 2.7%.  Men who are divorced or separated are 6.4% unemployed.  Men who have never been married are 10.1% unemployed. The numbers for women are 2.8%, 5.3%, and 9%. 

THE WIDENING YIELD SPREAD: The yield spread on Treasuries (the difference between the yield on 90-day T-bills and 30-year bonds) widened to 3.18% last week, almost triple what it was at the beginning of the year.  That is often a sign of strong future growth in the economy.

CHARITABLE LEAD ANNUITY TRUSTS (CLATs): 

This is a large subject to tackle briefly, but I’ll give it a shot. CLAT is an estate planning tool that can help a charity now and transfer part of your estate to the next generation in a tax-efficient manner. After you create a CLAT, you transfer assets to it. Thereafter, a fixed amount is paid to the charity for a term. The term can be a fixed number of years or for as long as one or more individuals are living. After the term, the charity no longer receives anything, and the remaining trust assets go to named individuals.

The value of the charitable deduction is determined actuarially based upon interest rates published monthly by the IRS (Section 7520 rates). This is a fairly complicated calculation, but planners such as me buy software (updated with monthly IRS rates) that can run these calculations instantly.  The lower the 7520 rates, the more value you can shift to your heirs free of estate and gift tax. These rates are going up currently.

Example:

Husband and Wife (both age 65) create a CLAT next month and contribute $500,000. The CLAT pays Local Christian School (a 501(c)3 charity) $30,000 every year as long as either Husband or Wife is living.  The remainder will go to Husband and Wife’s four children. Approximately $422,000 of this transfer will be deductible, and about $78,000 will be a taxable gift to the children.  If the trust assets earn 7% per year, and Husband and Wife both die in 20 years, then the children will receive approximately $816,000 with no further estate or gift tax (and the taxable gift was only $78,000!). 

The CLAT can be set up so that the donor(s) gets the charitable deduction for the $422,000, but the CLAT will pay income tax each year with no ability to take a tax deduction for the annual charitable payments. In the alternative, the donor(s) can elect to not take the income tax deduction, in which case the CLAT will be able to deduct the annual charity payments from its income taxes.

This information is provided by my good friend and associate Doug MacGray.  Doug is a certified financial planner so if you would like to meet with Doug or ask him any questions, please give me (John Thomas) a call and I can get you in touch with Doug.

If you would like to apply for a Mortgage Loan, you can APPLY ONLINE HERE, you can call John Thomas at 302-703-0727.

John R. Thomas – NMLS 38783

Certified Mortgage Planner – Primary Residential Mortgage, Inc.

302-703-0727 DE Office / 610-906-3109 PA Office / 410-412-3319 MD Office

248 E Chestnut Hill Rd, Newark, DE 19713