Question:   

My wife and I are trying to do estate planning, but we don’t know how Congress is going to change the law.  My wife and I jointly own a small farm, some investments and a life insurance policy – the grand total value equals $1,400,000.  Do you have any idea of what they are going to do?

Answer: 

Unfortunately, the estate tax picture, as well as the general tax picture in Congress, is about as clear as mud right now. As you may know, the federal estate tax expired Dec. 31, 2009, after Congress was unable to reach an agreement on either a permanent or short-term extension. There is no federal tax on estates if you die this year, but then the death tax comes back with a vengeance on Jan. 1, 2011, with only a $1 million exemption and a 55-percent tax on amounts over that level–unless Congress takes action to change the law. As a result, many individuals, even smaller farms and businesses, could end up paying a bucketful of taxes if the person survives until 2010 and beyond.

Several lawmakers have introduced bills to raise the exemption and change the tax rates. But changing the law won’t be easy. The Statutory Pay-As-You-Go Act of 2010, enacted in February 2010, requires that any changes to the estate tax beyond a two-year extension of 2009 law must be fully offset by cuts in programs or revenue raisers.

I recommend that you act now to update your will and estate plan AS IF the estate tax comes back with vengeance on January 1.  In your case, updating your estate plan could save your heirs over $120,000 of Federal Estate Taxes. 

Feel free to contact me if you or someone you know has this type of situation.  Financial Planning advice presented here is general in nature, and individual circumstances make applying these general rules tricky; thus, the above answer cannot be applied to all circumstances because the slightest variation could cause a different outcome.

“Genius is 1% inspiration and 99% perspiration. Accordingly a genius is often merely a talented person who has done all of his or her homework.”

Thomas Edison

1. Detecting Risk of Heart Attacks – Celera Announces Issuance of United States Patent Relating to LPA Gene Variant Associated with Increased Risk for myocardial Infarction. Celera Corporation (ticker: CRA) today announced that the United States Patent and Trademark Office has issued United States Patent 7,781,168 relating to methods of determining heart attack risk by detecting the Ile4399Met genetic polymorphism in the protease-like domain of LPA. Studies have shown this variant of the LPA gene is associated with a two-fold higher risk of major cardiovascular events (myocardial infarction, ischemic stroke and cardiovascular death). The increased risk of cardiovascular events observed in LPA carriers was independent of other well known risk factors associated with cardiovascular events (hypertension, LDL-cholesterol, HDL-Cholesterol, and age) which further supports the conclusion that a LPA gene variant as an independent predictor of risk for myocardial infarction. LPA encodes apolipoprotein (a) which is a protein component of Lp(a) plasma lipoprotein particles and the gene variant results in an amino acid substitution (methionine for isoleucine) in the protease-like domain of apolipoprotein(a). Carriers of the LPA gene variant also had higher plasma Lp(a) levels.
Source: TechnologyReview

2. Scientists Find a Link in Humans Between Nerve Cell Production, Memory – Production of new nerve cells in the human brain is linked to learning and memory, according to a new study from the University of Florida (UF). The research is the first to show such a link in humans. The findings, published online and in an upcoming print issue of the journal Brain, provide clues about processes involved in age- and health-related memory loss and reveal potential cellular targets for drug therapy. The researchers studied how stem cells in the hippocampus (a memory-related region of the brain) proliferate and change into different types of nerve cells. “The findings suggest that if we can increase the regeneration of nerve cells in the hippocampus we can alleviate or prevent memory loss in humans,” said Florian Siebzehnrubl, Ph.D., a postdoctoral researcher in neuroscience in the UF College of Medicine, and co-first author of the study. “This process gives us what pharmacologists call a ‘druggable target.’”
Source: EurerkAlert

The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®. This week, Host Laurie Siebert, CPA, CFP® and her guest Thomas Riddle CPA, CFP will discuss “Market Volatility and How to Handle It.” Laurie will take your calls on this subject and other financial planning topics at 610-758-8810. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton/Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville/Macungie area – or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.

I enjoy appearing as a guest on Your Financial Choices with Laurie Siebert.  She keeps the radio studio set very casual and informal.  I sense she enjoys the experience, too.  This Wednesday, I am appearing as a guest again and discussing the tough subject of market volatility.  I think I can make the broadcast flow smoothly by simply printing several recent issues of The Weekly Commentary and going over their content.  Please tune-in if you are not busy Wednesday at 6PM.

The headwinds blowing against the economic recovery are getting stronger.

The latest batch of economic data to come down the pike point to an economy that is not merely heading for a double-dip — it suggests that we are already there.  Jobless claims jumped to a nine-month high, the leading indicators flattened and the Philly Fed’s index of regional manufacturing took a header.  The second quarter’s gross domestic product showed a growth rate of 1.6%, compared with a 3.7% clip in the first quarter. This was weaker than it looked, since a lot of it was due to goods that were produced but not sold.  Since this is an annual rate, the actual percentage change was less than 0.4%.  The current quarter does not look much better. Indeed, it might well be even worse, and if just a little worse, then negative growth (the start of the double dip??).

It is not hard to see why the economy is struggling. As anticipated, the push from inventories appears to have faded. So has the stimulus from the housing tax credit and the government’s “cash for clunkers” program.  Washington has laid-off temporary census workers, while many states and local governments are furloughing people as well. For its part, the private sector is creating few new jobs while terminating many.  The U.S. economy appears to be caught in a vicious circle.   People are not spending because they lack home equity and have no jobs or are afraid they will lose the one they have. Business is not hiring because demand is weak, and at the risk of being repetitious, many firms are unwilling to hire because they face more than the usual uncertainties. They may be making good money (and many are sitting on mountains of cash), but they are concerned about the anti-business environment that appears to be developing in Washington.  Talk to business people from all walks of life and they will tell you that there is too much government, too many new rules and regulations — not to mention the higher cost of providing health care for their employees. To top it off, many are expecting their taxes to go up next year — which tilts the cost-benefit equation even further against hiring.  If business does not hire, consumers won’t spend.

And, real estate, the keystone of the vast number of past recoveries is going nowhere (but down). 

Washington could surprise me and take some aggressive steps to right the economic ship through intelligent moves; but, like I said, I would be surprised (Data Source: Irwin Kellner, MarketWatch).

ONE THING SEEMS CLEAR AS THIS fitful season draws to a close: The recently range-bound stock market has the capacity to rally this fall. Whether it will is another matter.

Stocks bounced back Friday from their lowest level in nearly eight weeks after the central bank outlined the weapons in its dwindling arsenal for bolstering our economy. There were no surprises, no specific course of action, yet it was good enough for a 1.7% bounce. There were other signs that a market anticipating the worst is easier to appease: Intel (ticker: INTC) cut its revenue forecast, but a chip sector that has already pulled back 13% over the past month rallied 1.4% Friday. A recalcitrant Boeing (BA) warned of yet another delay in delivering its 787 Dreamliners, but shares rallied anyway.

How much economic woe is already priced in? It seemed we’ve spent much of this summer fretting about Europe’s sovereign debt, China’s tightening credit and our own economic vulnerability, in between sightings of Hindenburg omens and death crosses. Even our central bankers are worried. And “Hands up!” anyone who still believes our politicians can fix this mess (don’t all rush at once). But while stocks aren’t egregiously expensive, they can fall 10% to 20% if the merely stagnant job market worsens anew. Can you blame investors for being blasé, with bulls barely buying and bears barely selling?

American companies have the means to hire more employees and order new equipment this fall. Corporate profits as a percentage of gross domestic product are pushing 40-year highs. Costs have been cut to the bone. Cash vaults are at the fullest in decades. But what companies lack is the gumption. And CEOs can’t pull the trigger on hiring or spending until today’s economic and policy fog lifts.

Will it? Deleveraging and paying down debt is a long, cheerless slog, but some recent red flags may prove temporary. Jobless claims ticked up recently to a vexing nine-month high partly because a new law this July restored unemployment benefits to 2.5 million people—and not all because there were layoffs anew. The financial markets seized up in May as Europe struggled, triggering the hesitation now showing up in economic indicators, but financial conditions have eased fitfully since then. A 27% plunge in sales of existing U.S. homes in July isn’t wholly shocking, since homebuyer tax credits that expired in the spring had pulled forward much of the demand.

As if Washington needs any more hurdles, a short window of just 20 legislative days leaves little time this fall to enact measures that might create jobs, stimulate the economy or reduce our debt. Campaigning and posturing for the midterm elections adds another distraction. But the faltering recovery has increased odds that the Bush tax cuts might get extended.

It’s a lot to ask our politicians to get their act together, but a little resolution and clarity could go a long way. Policy uncertainty and collective breath-holding explain why the market typically muddles along before midterm elections, rising just an average 1.2% all year leading up to Election Day, notes Bespoke Investment Group. But once that’s over, stocks gain an average 3.2% for the rest of the year. Over the last 16 mid-term years, the market has never made a new low post Election Day, but it has climbed to new highs on seven occasions.

Friday’s bounce couldn’t save the Dow Jones Industrial Average from its third straight weekly loss, and the blue chips ended the week down 63, or 0.6%, to 10,151. The Standard Poor’s 500 has lost 5.1% over three weeks. The Nasdaq Composite Index lost 26, or 1.2%, to 2154, but the Russell 2000 added 6, or 1%, to 617 for its second weekly gain.

AS THE THREAT OF DEFLATION INCREASES, so will the government’s efforts to fight it. The Fed has always had the tool–printing presses–to stoke inflation, one reason why a dollar from 1913, the year the Fed was created, is worth just four cents today after adjusting for inflation. Should we worry now that the Fed has a motive?

“If deflation risk increases, we think more unconventional pro-inflation policy will come,” notes Morgan Stanley strategist Gerard Minack. No government wants runaway prices, but a policy error cannot be ruled out. “It’s certainly possible to create inflation,” says Minack. But “we doubt policy makers’ ability to create just the right amount.”

With paper currencies not worth much in the bank, where they earn almost no interest today, and depreciating even under our Tempur-Pedics, it’s no wonder hard assets continue to draw investors. Despite the specter of deflation, prices are up 23% this year for cotton, 18% for cattle, 43% for wheat, 18% for nickel, 10% for silver, 9% for gold and 6% for copper.

Inflation isn’t an immediate threat, but inflationary policies make the uncertain market riskier. “The strategies that would succeed as deflation fears increase are almost exactly the ones that would not succeed if the market suddenly focused on an inflation end-game,” Minack notes. Even a mild uptick in inflation expectations could rattle debt markets at today’s yields. Not surprisingly, gold, which has coped with both deflationary and inflationary regimes, is flitting near its all-time high.

Meanwhile, crude oil has pulled back 15%, and energy stocks are the worst performers in the S&P 500, down 11.5% so far this year. With the Select Energy SPDR (XLE) slumping well below its 200-day and 50-day averages, even a momentary easing of deflation fears could help the energy sector close the performance gap – at least short-term (Source: Barrons Online).

U.S. Stocks, Foreign Stocks and Bonds all decreased this week.  During the last 12 months, BONDS have substantially outperformed stocks.

Source: Morningstar Workstation. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  Three, five and ten year returns are annualized.  Assumes dividends are not reinvested.

THE U.S. ECONOMY’S REARVIEW mirror darkened last week. Real growth of gross domestic product in the second quarter, previously reported at an annual rate of 2.4%, will likely be halved to just 1.2% when the next estimate is released Aug. 27

The main reason: Imports soared in the second quarter by much more than originally anticipated, led by that well-known powerhouse, China.

To say this is not to imply, as some have, that imports are a drag on American prosperity. But since the “D” in GDP stands for “domestic,” we are tracking only what is produced in the U.S.

 Imports, by definition, are produced abroad. And there are no data that directly track domestic production. So one strategy used by the Bureau of Economic Analysis, the Commerce Department agency in charge of these numbers, is to subtract imports from figures on domestic sales in order to get at domestic production indirectly.

What in effect happened, then, is that a large portion of sold products that were thought to have been produced here were actually imported. Hence the hit to GDP growth (Source: Barrons Online).

Ten years ago, one of America’s leading economists delivered a stinging critique of the Bank of Japan, Japan’s equivalent of the Federal Reserve, titled “Japanese Monetary Policy: A Case of Self-Induced Paralysis?” With only a few changes in wording, the critique applies to the Fed today.

At the time, the Bank of Japan faced a situation broadly similar to that facing the Fed now. The economy was deeply depressed and showed few signs of improvement, and one might have expected the bank to take forceful action. But short-term interest rates — the usual tool of monetary policy — were near zero and could go no lower. And the Bank of Japan used that fact as an excuse to do no more.

That was malfeasance, declared the eminent U.S. economist: “Far from being powerless, the Bank of Japan could achieve a great deal if it were willing to abandon its excessive caution and its defensive response to criticism.” He rebuked officials hiding “behind minor institutional or technical difficulties in order to avoid taking action.”

Who was that tough-talking economist? Ben Bernanke …

(Source:  Paul Krugman)