Bob Howe
Senior Loan Consultant
Residential First Mortgage
(949) 852-0400 ext. 219
bhowe@OrangeCountyLender.com
www.OrangeCountyLender.com

U.S. Treasury Bonds
Maturity Yield Last
Week		 Last
Month
5 Year 4.36 4.43 4.54
10 Year 4.45 4.51 4.60
30 Year 4.65 4.71 4.79

Treasury Market Summary: 

 

The FOMC left policy rates unchanged at the March meeting, as was expected.  They also took another step toward a balanced policy outlook as some refer to the content as a 'tight light' bias.  That is, while they took away the reference to potential 'firming' of policy they noted that the predominant policy concern remained inflation.  The statement and past statements are linked to the table at the bottom of the page.  

The Fed has created some policy flexibility.  The clear tightening bias in January didn't leave an ease as an option without really disturbing the markets.  The entire policy spectrum in now more easily addressed though the predominant risk leaves tightening more likely than an ease.  The increased ability to ease was a necessary option given the increased risks to the economy.

The Fed remains under the pressure of its chief objective -- to contain inflation -- as the core consumer inflation rate remains above the Fed's 'comfort zone'.  The statement noted the somewhat elevated readings on core inflation since the start of the year.  The weaker economy was also alluded to when the Fed noted the 'mixed' indicators and the continuing adjustment in the housing sector.

Overall the outlook is for the economy to continue to expand at a moderate pace as inflation pressures moderate over time.  Like the past policy statements the Fed stated that future policy adjustments will depend on the outlook for inflation and growth implied from incoming information. 

Briefing.com expects the Fed to remain committed to pulling core inflation lower before coming in with any policy easing.  Any evidence of a lessened commitment would have long lasting effects on interest rates and Fed credibility.  A sharp downward adjustment in the growth outlook could push through an earlier ease.  While we expect the next policy adjustment to bring lower rates we are tentatively looking for an ease in Q4 as core PCE inflation falls below 2% yoy.

The federal funds futures market adjusted their expectations with today's statement to include a 25 bp ease in August and another in October to leave the December contract pricing in a 4.74% year end policy rate.  These extended contracts swing off the data and don't provide an accurate read on policy beyond the front contracts. 

 
 

 

Economic Indicators for this week that could impact the mortgage or real estate markets include...

Treasury Budget Apr 11
Export Prices ex-ag. Apr 12
Import Prices ex-oil Apr 12
Initial Claims Apr 12
Core PPI Apr 13
 PPI Apr 13
Trade Balance Apr 13

THE IRA INHERITOR'S TRUST
 
There is an estimated $13 trillion held in Individual Retirement Accounts and other qualified retirement plans in the United States. The owners of these plans are faced with a great challenge: How to best “stretch out” the distributions from these plans in order to minimize income taxation and also how to provide asset protection for their loved ones.

Proper planning can provide staggering results. A large fortune can be amassed by allowing the assets in the plan to grow tax free over the life expectancy of your beneficiaries.

Take the following example: Grandfather dies at age 80 with a $100,000 IRA. Grandfather names his grandson, Charlie (age 5), as the designated beneficiary. If Charlie takes only the required minimum distributions over his lifetime (a “stretch out”), and we assume an 8% rate of return on the IRA, Charlie can expect to receive a total of $7.3 million in annual distributions over his 76 year life expectancy (as taken from the IRS life expectancy tables).

Many parents and their advisors mistakenly believe that such a “stretch out” will occur automatically. They assume that their children will take only the required minimum distributions and will seek professional advice to make the stretch out happen.

Unfortunately, this is not always the case. Often, beneficiaries mistakenly cash out the plan earlier than required. This can happen for two reasons: Lack of financial discipline or simply not understanding the benefits of deferring withdrawals. When an IRA is cashed out too early, a “blow out” occurs (rather than a stretch out) and this can be a huge family disaster.

A better alternative is the IRA Inheritor’s Trust. Instead of your IRA being paid directly to your children, the IRA Inheritor’s Trust is named as the beneficiary. The trustee of the trust can then ensure a proper stretch out by taking only the required minimum distributions.

The IRA Inheritor’s Trust can also provide your children with protection from the loss of the IRA to a spouse in divorce, or to lawsuits and creditors, or even the beneficiary’s poor spending habits.

Until recently, it was not clear that the IRS would allow the use of such a trust as a beneficiary of an IRA. Fortunately, the IRS recently issued a ruling (called PLR 200537044) that approved of the use of a trust as the beneficiary of an IRA. This ruling provides a roadmap that tax professionals can follow in drafting trusts as the beneficiary of an IRA.

In summary, the benefits of the IRA Inheritor’s Trust are two fold: First, the trust allows for the “stretch out” of your IRA distributions, and second, it allows you to provide your loved ones with protection from creditors, divorce or improvidence.

 

One should consult with a qualified estate planning professional prior to implementing any tax planning strategies. If you are an estate planning, insurance, mortgage, real estate or financial planning professional receiving this newsletter, please call our office and introduce yourself to us.  We are always seeking to grow our referral network and expose more service professionals to our client base.