For the week of June 23, 2008
The Federal Reserve meets this week, with many analysts expecting no resulting change in interest
rates. Fed officials have indicated in various speeches the past few weeks that further rate declines are
unlikely as the weak dollar continues. Investors will have plenty of economic data to digest this week,
including reports on April home prices, May durable goods orders, May new and existing home sales
and May personal income and spending. The Dow closed last week down 3.76 percent to 11,842.69.
The S&P fell 3.07 percent to end the week at 1,317.93, and the NASDAQ lost 1.97 percent to finish the
week at 2,406.09.
Source: Morningstar.com. * Past performance is no guarantee of future results. Indexes are unmanaged and
cannot be invested into directly. Three and five-year returns are annualized. The S&P, excluding “1 Week”
returns, is a reflection of return to an investor, by reinvesting dividends after the deduction of withholding tax.
Do The Math – On July 1, the Department of Education will significantly decrease the interest rates on
variable federal Stafford and PLUS Loans issued between July 1, 1998, and July 1, 2006. The rate for
Stafford Loans in repayment status will drop to 4.21 percent from 7.22 percent. The interest rate on
Stafford Loans with a status of in-school, grace or deferment will drop to 3.61 percent from 6.62 percent.
The rate on PLUS loans will drop to 5.01 percent from 8.02 percent. The rates, which are set annually
based on the last three-month Treasury bill auction held in May, will be effective through June 30, 2009.
Fed Openings – The seven-member Federal Reserve board of governors, already short two people
since March 2007, will be losing a third board member at the end of the summer. Frederic Mishkin, who
has been on the job only since September 2006, is returning to his teaching career at Columbia
University. The last time all seven Fed board members were present and voted at a Fed meeting was
March 22, 2005 (Source: Federal Reserve, BTN Research).
Paper Or Email? – Three out of every five tax returns (i.e., Form 1040) are now filed electronically. Out
of the 143 million returns filed this year, more than 86 million were filed electronically (Source: IRS, BTN
On The Rebound – Small-cap stocks should be, by definition, more nimble than large-cap stocks, thus
able to capitalize quicker when a weak U.S. economy improves. In the three years from Sept. 30, 2002,
to Sept. 30, 2005 (note that the start date of this three-year period was nine days before the bottom of
the 2000-02 bear market), the small-cap Russell 2000 beat the large-cap S&P 500 by 7.4 percent per
year (Source: BTN Research).
WEEKLY FOCUS - Dust Off Your Estate Plan
You’ve heard before the importance of reviewing your
estate plan when you have an important life event like
the birth of a child or grandchild, death of a spouse or
child, or divorce. Thanks to the peculiarities of
Congress, you should be reviewing your estate plan
periodically even if you don’t have a big change.
In 2001, Congress passed a bill that phased in a series
of changes in the estate tax law. For 2008, the estate tax
kicks in on estates over $2 million at a rate of 45 percent.
In 2009, the exemption increases to $3.5 million. In the
magical year of 2010, if left unchanged, the law will
completely eliminate the estate tax – but only for that year.
In 2011 it will be back with a vengeance, hitting estates
over just $1 million at a 55 percent rate.
That idiosyncrasy has led to some gallows humor about making sure you die in 2010 so your heirs pay
no estate tax. Congress seemed to be progressing toward total repeal last year but with the power shift
following the election, that seems highly unlikely now. Many financial professionals and estate attorneys
believe Congress will act to avoid the “preferred death year” in 2010, some cynics point to the 2008
elections as a major obstacle.
Your estate attorney can use any number of trust tools to help mitigate the tax burden on your estate.
Trusts can also protect the assets in your estate from creditors, provide structure for managing the
assets and establish some control mechanisms for trust beneficiaries accessing the money. The
complexity of trusts and their impact, particularly on the surviving spouse’s access to assets, make it
important to get help from an experienced professional.
While we’d all just as soon get through the estate planning process and revisit it only when absolutely
necessary, the uncertainties in the tax law make it necessary to do more regular reviews, particularly
after legislation has been passed and the IRS has issued its guidelines for complying. We can work with
you, your attorney and your accountant to help ensure your current estate plans take into consideration
your personal situation and current tax laws. Call our office to schedule an appointment with us and your
* 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. WMCSAI# 281051
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