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David Stone
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PERSONAL PLANNER
Family Limited Partnerships
A family limited partnership (FLP) is usually created by a husband and wife. It has several purposes. An FLP can save estate taxes and permit transfers to family members. Read MorePersonal Planner
Family Limited Partnerships
A family limited partnership (FLP) is usually created by a husband and wife. It has several purposes. An FLP can save estate taxes and permit transfers to family members. While it is uncertain what the future exemptions and estate tax rates will be, large estates are nearly certain to face major taxes in the future. The FLP is a favored method for reducing estate tax.
Another benefit is protection of assets. The FLP interests can be given to children and other relatives. It is very difficult for any creditor to reach FLP assets. The protection also extends to limiting rights of in-laws if a child or grandchild is married and later divorced.
Parents typically are interested in transferring value but retaining control. With an FLP, they can retain the general partnership interest and control the management of the FLP assets.
There are several considerations with an FLP. First, there are legal and accounting costs to create the FLP. In addition to these costs, property must be transferred. There may be transfer costs or property tax consequences upon the funding of the FLP.
Because the FLP interests are frequently given to family members, there will need to be an appraisal by a person who holds himself or herself out to the public as an appraiser. In addition, the selected appraiser must have appropriate credentials.
Finally, the parents will need to consider succession. At the point they no longer wish to manage the FLP, a child or other person will typically assume the role of general partner.
How the FLP Works
Assume that Bill and Alice have been successful real estate investors. They hold a number of parcels of development land, commercial buildings and apartment buildings. Bill and Alice would like to maintain control of their investment assets, but would like to start transferring equity to children.
An excellent solution is to create the "Jones FLP." Bill and Alice will be 1% general partners and 99% limited partners. In some circumstances, children already have assets and may contribute them in exchange for appropriate percentages of the limited partnership interest. But in the case of Bill and Alice, they transfer all of the assets to the FLP.
Bill and Alice transferred 11 parcels of commercial real property to the partnership. These 11 parcels include development land, commercial buildings with leases and apartment buildings. After transfer of the real estate, they employed a qualified appraiser to value the limited partnership interests.
After the appraisal was completed, Bill and Alice then begin to transfer limited partnership interests to their children and to trusts for grandchildren. The appraiser reduced or discounted the gift values due to the lack of control and for lack of marketability. Because the limited partners only own a small interest in the partnership and cannot force distributions, they do not have a high level of control. The appraiser determined that there is an 18% discount for the lack of control.
Because a limited partnership interest in real estate also makes it very difficult to sell at full value, there is a discount for lack of marketability. The qualified real estate appraiser determined that another 17% discount on total value is appropriate for lack of marketability. The two discounts together add up to a total of 35%.
When Bill and Alice make gifts of limited partnership interests to children and to trusts for grandchildren, they make use of both their present interest annual exclusions and a portion of each person's gift exemption.
Over a period of years, Bill and Alice were able to transfer a substantial portion of the limited partnership interests to family. However, because they still own the general partnership interests, they control and manage the real property. After a majority of the limited partnership interests are transferred to children, the growth in value of the assets will largely benefit their children rather than Bill and Alice.
Through this method, they can reduce future estate taxes and also maintain control. In addition, because it is difficult for the children to transfer the assets or for spouses of the children to acquire control, there is a substantial level of asset protection.
Creditors of the children are very restricted in their ability to gain control of the assets. Generally, under most state law, a creditor can only attach rights to distributions from the partnership. This makes it very difficult for any creditors to acquire a significant right to partnership assets.
Benefits and Disadvantages of Jones FLP
There are several specific FLP benefits that Bill and Alice appreciate. First, they are general partners and they have control. Second, because of the discounts they are able to make much larger gift transfers with little or no gift tax. Third, the assets are quite well protected from any creditors or spouses of the children. Fourth, assets transferred to the trust will be outside the probate process. While federal estate taxes will apply, even those will be greatly reduced. Fifth, the centralized management of the real estate property can be transferred to a successor general partner when they are ready to retire. This will enable the assets to be preserved long-term for the benefit of the family.
There are some disadvantages of Jones FLP. First, there is the cost involved in creating the documents, transferring the assets and maintaining all of the business records. Second, if there is excessive control by Bill and Alice, then the IRS may claim that they in effect have too much control over the assets. In that case the IRS may assess an estate tax based on the full value of the assets in their estate, including the value of the FLP assets.
Third, if there are too many limits on sale of the FLP interests by children, the IRS may claim that there is no "present interest" annual exclusion. For transfers that exceed the lifetime gift exemption, the IRS may assess a gift tax. Finally, FLP valuations by the appraiser may be questioned by the IRS. That could lead to an audit and litigation with the IRS.
Jones FLP Do's
There are several actions that should be taken to make certain that the Jones FLP functions as intended.
1. Written Document – The written FLP document must state all of the rights and duties of the general partner and of the limited partners.
2. Business Licenses and Tax ID Numbers – The partnership must be treated like a business entity. There may be state business licenses and it will be necessary to obtain federal and state tax ID numbers for the partnership.
3. Title Transfer – To function properly, the partnership must receive title to Bill and Alice's real property. They will deed the property from themselves as individuals to the partnership. There may be transfer taxes as a result of those deeds. However, it is essential that the title be properly transferred to Jones FLP.
4. Retain Assets – Bill and Alice must retain sufficient assets for their lifestyle. If they transfer all of their assets into the Jones FLP, then the IRS will claim that this is not a business entity but is simply a personal entity. If it is managed as a personal entity, Bill and Alice's estates could face a very large estate tax on the full value of the assets.
5. Avoid Comingling Assets – Jones FLP needs to have a proper business purpose and be conducted like a business. If business assets and personal assets are comingled, then the IRS may claim that this was not treated like a business.
6. State Filing Taxes – There may be state franchise taxes or other taxes that apply to Jones FLP. The FLP should comply with all state requirements.
7. Federal and State Income Taxes – While partnerships pass through income and deductions, it will be necessary to obtain the assistance of a CPA who is knowledgeable about partnership taxes and tax returns.
8. Create FLP While Still Healthy – There have been "deathbed" FLPs created that the IRS contested. It is preferable to create Jones FLP while Bill and Alice are still healthy. It can then function for a number of years to demonstrate the business purpose of maintaining and operating their real estate enterprise.
FLP Don'ts
1. Transfer All Assets – If nearly all assets are transferred to the FLP, especially on the deathbed of the donor, then it appears that this is not a business investment but merely a substitute estate planning strategy. The IRS may contest the FLP discounts and could potentially win a claim for a very large tax deficiency.
2. Transfer Family Home or Vacation Home or Personal Assets – The FLP is a business enterprise and family homes and personal assets should be retained outside the FLP.
3. Unlimited Promise to Parents – If the children promise the parents that they can "take assets whenever needed" from the FLP, then the IRS may deny the discounts on the ground that the children and parents are not treating it like a business entity.
4. Do Not Omit Business Meetings – The appropriate business meetings, minutes and reports should be filed to indicate that the FLP is being operated as a business entity.
FLP-Lead Trusts
If Bill and Alice make currents gift to charity, a very effective way of maximizing the benefits of the FLP is the "double discount" combination of a family limited partnership and a lead trust.
The first discount is due to the transfer of assets into the FLP. Bill and Alice could transfer $4 million in real estate assets into a family limited partnership. While the underlying rent or income from the assets could continue (and it is best if the assets have no debt and therefore no debt payments), there is a substantial discount for lack of marketability and for minority interest. This discount could reduce the FLP value from $4 million to $2.5 million.
If the limited partnership interests in the family limited partnership are then transferred into a lead trust, there is a second deduction. The deduction is based on the present value of the income paid to charity. While Bill and Alice thought about a 6% payment on $4 million in assets or $240,000 per year to charity, this percentage of the discounted $2.6 million value is much higher. Therefore, the gift tax charitable deduction is much more substantial. With a lead trust that lasts for approximately eight years, they are able to obtain sufficient "double discounts" to transfer $4 million in assets. With the use of part of their gift exemption, there is no gift tax.
The benefit of the FLP-lead trust is that Bill and Alice are able to provide a very major inheritance for their family. They are significantly leveraging the use of their gift exemptions. This allows a reasonably short period of time for the payments to charity with a very large inheritance to family members at the end of that time.
Because the assets transferred to family members have a low cost basis to Bill and Alice, the children will receive FLP assets with a low cost basis. However, children could then use a tax-free sale and unitrust strategy to sell the appreciated assets with zero tax.
Bill and Alice are very pleased with this strategy and believe that this is going to be an excellent addition to their FLP plan.
FLP-Lead Trust-Unitrust
After attending a weekend conference where they were encouraged to think about the best ways to assist children in "becoming better persons," Bill and Alice think it would be good for the children to stretch out the inheritance. They also believe that income and capital gain taxes for the children will continue to increase. Ideally, they would like to add a method or plan that would stretch out the inheritance and enable the children to reduce their future income and capital gain taxes.
One strategy to do that is to add a 5% charitable remainder trust to the end of the FLP-LT plan. The plan then starts with the Jones FLP interests that are transferred into a lead trust for eight years. At the end of eight years, the $4 million in assets may have grown to a larger amount. Assuming that they have grown to $5 million in value, then the two children of Bill and Alice would each benefit from a distribution of $2.5 million in assets to a 5% unitrust.
The unitrust would last for the life of each child. Each 5% unitrust funded with $2.5 million could produce an additional $125,000 of income for the life of the child. Because the trust may earn more than 5%, there may be inflation protection of this amount for the life of the child.
There are two major tax benefits for the child. When the appreciated assets of $2.5 million with low basis are transferred to the unitrust, they can be diversified tax free. In addition, earnings above the 5% payout compound tax free for life in the trust. Both of these benefits will save tens of thousands of dollars of income tax for each child.
Bill and Alice are delighted with the unitrust addition to their plan. The FLP-LT will leverage their transfers. After eight years, the lead trust principal is transferred to the unitrusts for the children. This will produce a long-term inheritance that they think is very helpful in encouraging the child to be a productive citizen.
In addition, there will be large savings in capital gains tax and future income tax for the children. With the belief of Bill and Alice that capital gain and income taxes will only increase in the future, these savings are a welcome addition to the overall plan.
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SAVVY LIVING
Auto Insurance Discounts for Older Drivers
I've read that many car insurance companies offer a variety of discounts to older drivers when they retire or reach a certain age. What can you tell me about this? Read MoreSavvy Living
Auto Insurance Discounts for Older Drivers
I've read that many car insurance companies offer a variety of discounts to older drivers when they retire or reach a certain age. What can you tell me about this?
Most auto insurance companies offer policyholders a wide variety of discounts, many of which can benefit retirees. Auto insurers love older drivers because they're experienced behind the wheel and they drive less than younger age groups, which makes them a lower risk for accidents and a safer bet for insurance companies.
While discounts will vary by insurer, many of these benefits can reduce your overall premium by 15-20% or more. You are usually allowed to combine discounts to increase your savings, though total discounts are often capped at around 25%.
To find out what discounts may be available to you, contact your auto insurer and inquire about these benefits, and any others that may benefit you.
Age discount: Many auto insurance companies offer a general "senior" discount that will reduce your premium just because you've reached a specific age. The actual name and amount of the discount will vary by insurer.
Allstate, for example, provides a "senior adult discount" of up to 10% to drivers who are at least 55 years old and aren't actively looking for full-time work. Liberty Mutual offers a "newly retired discount" to drivers who reach that employment milestone, regardless of age.
Low mileage discount: Most insurers offer discounts to customers who drive limited miles each year, which is often beneficial to retirees who drive less because they don't commute to work every day. The fewer miles you drive, the lower your odds of getting into an accident.
The parameters of low mileage differ by insurer, but generally about a 10% discount is available for driving less than 5,000 to 8,000 miles each year. Smaller discounts may also be available to seniors who drive more than this but less than 15,000.
Drivers Ed discount: Many states require insurance companies to offer "defensive-driving" discounts to drivers who take a refresher course to brush up on their safety skills. The discounts vary, usually ranging between 5-15%.
Driver safety courses are inexpensive, usually costing around $20 to $30 and can often be taken in a classroom or online. To locate a class contact your local AAA (aaa.com), which operates a Driver Improvement Course for seniors, or AARP (aarp.org/driversafety, 888-227-7669), which offers the Smart Driver Course to members and non-members.
Club member discount: Insurers offer discounts to members of clubs and associations with which they have partnered. These could include professional associations, workers' unions, large employers or membership organizations such as AAA, the National Active and Retired Federal Employees Association, the Seniors Coalition, AARP, etc. You could even qualify for savings based on the college you attended or the fraternity or sorority to which you belonged.
Safe driving discount: Many insurance providers now offer discounts based on how and when you use your car. To do this, they place a diagnostic device in your car that transmits wireless data on how you drive (including how fast you're going and how hard you're braking), when you drive and how much you drive. Drivers are rewarded for safe driving, low mileage and for not driving late at night.
In addition, many insurance providers also offer discounts to drivers who do not have any violations or accidents for three or more years.
Savvy Living is written by Jim Miller, a regular contributor to the NBC Today Show and author of "The Savvy Living” book. Any links in this article are offered as a service and there is no endorsement of any product. These articles are offered as a helpful and informative service to our friends and may not always reflect this organization’s official position on some topics. Jim invites you to send your senior questions to: Savvy Living, P.O. Box 5443, Norman, OK 73070.
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YOUR PLAN
Providing for Our Children's Future
Joe and Kathy worked for years building their nest egg for retirement. They also want to provide for their children. Read More Providing for Our Children's Future
Joe and Kathy worked for many years building up their nest egg for retirement. While they felt their savings and investments would cover their own needs, they wanted to make sure that their three children were provided for in the future. One afternoon, a gift planner met with them to thank them for their faithful gifts each year. The conversation turned to the couple's long-term planning goals.
Kathy: We wanted to continue making annual gifts to charity. Yet at the same time, I was concerned about sacrificing our children's inheritance.
Joe: Our stock portfolio had appreciated significantly over the years. I wanted to pass these gains on to my family without paying a lot in gift or estate tax.
The gift planner told them about a way in which they could achieve their personal and charitable goals through a charitable lead trust. The trust would pay income to the charity for a number of years. Then the full trust value, plus any growth, would go to their children. The plan would allow them to pass on substantial wealth to their family at little or no gift tax at all. It would also reduce the size of their estate in addition to helping the charity further its work.
Kathy: I could see how this plan would be very helpful if the trust was funded with our stock. Each of our children would receive one-third of the trust assets in the future. At the same time, we would continue to make gifts to charity each year.
Joe: I also thought the plan was a good one. It would give our children time to learn how to save and invest their future inheritance. So we set-up a charitable lead trust plan that would begin paying our favorite charity income each year. The prospect of helping our children succeed in the future while providing for our favorite charitable cause made us pleased with our decision.
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WASHINGTON NEWS
Five Million Returns on April 18
In IR 2016-63 the IRS reports that it has already received over 107 million tax returns. By the end of the filing season, it expects another 43 million returns, with 5 million taxpayers filing on the April 18 final day (April 19 in Maine and... Read More Washington News
Five Million Returns on April 18
In IR 2016-63 the IRS reports that it has already has received over 107 million tax returns. By the end of the filing season, it expects another 43 million returns, with 5 million taxpayers filing on the April 18 final day (April 19 in Maine and Massachusetts).
Over 13 million taxpayers will not finish their returns by the filing date. They must file IRS Form 4868 for an automatic six-month extension. Their taxes must be paid by the filing date, but they will be permitted to file their tax returns on or before October 17, 2016.
There are three categories of taxpayers who will receive an automatic extension. Those who live abroad may pay their taxes on April 18, but are permitted to file by June 15. Military personnel serving in Afganistan or any war zone are permitted to defer their filing until 180 days after departing the combat zone. They also may make payment for taxes at that time.
Finally, there are various specific extensions that are granted to victims of natural disasters by an act of Congress.
By April 8, 2016, the IRS had processed over 82 million refunds. The average refund was $2,798. Over 80% of refunds are made through direct deposit to the taxpayer’s bank account.
The refund also may be split between different accounts. Some taxpayers will choose to have part of the refund transferred to their bank account, with the balance to an IRA account or used to purchase U.S. Series I Savings Bonds.
IRS Commissioner John Koskinen repeated his warning about April 18 tax scams. He noted, “As the tax deadline nears, these criminals may try and trick honest taxpayers over the phone or via email, and people should remain vigilant. After the tax deadline, watch out for these scammers promising a refund or threatening you with an unexpected tax bill.”
Koskinen reminded taxpayers that the IRS will not demand an immediate cash payment. If you are contacted by someone who may be impersonating the IRS, you may call 800-366-4484 and report it to the Treasury Inspector General for Tax Administration (TIGTA). On www.IRS.gov, there is an “IRS Impersonation Scam Reporting” section that also may be used if you have been contacted by a tax scammer.
Koskinen Pledges Better Security
At an April 14 appearance before the House Science, Space and Technology Committee’s Research and Technology Subcommittee, IRS Commissioner Koskinen explained efforts to improve taxpayer account security.
Earlier this year, the IRS permitted taxpayers to use a www.IRS.gov application called “IRS Get Transcript.” Due to security concerns about unauthorized access, the electronic downloads of transcripts were halted. Since that time, the IRS software engineers have been rebuilding the application with better security.
National Taxpayer Advocate Nina Olson acknowledged a need for better security but is concerned that many taxpayers will not be able to complete the new questions. In her view, the “Get Transcript” application is not of great value if it is not usable.
Koskinen acknowleged that there would be challenges for many taxpayers. He recognized that perhaps 50% of taxpayers would be able to use the initial system when it is released. Koskinen continued, “As we get our systems more sophisticated and improved, we think over time more users will be able to complete the process. It depends a lot on our ability to have more information, such as telephone numbers and email addresses, for taxpayers.”
The new “IRS Get Transcript” application is being tested internally by Treasury. There are three basic steps in the process.
1. Taxpayer – He or she must complete a series of knowledge-based questions.
2. IRS Computers – They will use information from a national database to confirm the answers to specific questions.
3. Tax Transcript – If the IRS computers show that the taxpayer has correctly answered the various questions, then the tax transcript will be released.
Koskinen noted, “One of the goals is to try to make it as easy as possible for taxpayers to work through what will be a somewhat more complicated process. But thus far, the pilot is going well in that regard.”
Editor’s Note: This is the classic challenge for all banks and financial institutions. They are increasing their security by requiring customers to enter answers to two, three or four security questions. Their goal is to make the system user-friendly but still very secure. This is a challenge for the IRS because they must provide this level of security for all American taxpayers.
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FINANCES
Stocks - JPMorgan Chase Beats Expectations But Drops in Profit Read MoreJPMorgan Chase Beats Expectations But Drops in Profit
JPMorgan Chase (JPM) released its first quarter earnings on Wednesday, April 14. While the nation's largest bank surpassed analysts' expectations, profit fell due in large part to decreased investment banking revenue and increased costs to cover loans to struggling oil companies.
JPMorgan reported first quarter revenue fell to $24.08 billion, down from last year's first quarter revenue of $24.88 billion. Despite the drop, this figure surpassed the average analyst estimate of $23.04 billion.
"We delivered solid results this quarter with strong underlying drivers. The consumer businesses continue to grow loans and deposits impressively, attracting deposits faster than the industry," said JPMorgan President and CEO Jamie Dimon. "While challenging markets impacted the industry, we maintained our leadership positions and market share in the Corporate & Investment Bank and Asset Management, reflecting the strength of our platform."
JPMorgan reported earnings of $1.35 per share, down 7% from last year's first quarter earnings of $1.45 per share. Analysts expected JPMorgan to report earnings of $1.26 per share.
JPMorgan was hit by the slide in commodity and oil prices. The bank reported that it almost doubled its credit loss reserves. The increase included $529 million in oil and gas loans and $162 million in metals and mining loans. However, outside the energy sector, overall loan growth reflects last year's gains and is more stable across consumer and commercial lending.
JPMorgan Chase (JPM) shares ended the week at $61.87, up 6.4% for the week.
Delta's Earnings Soar Past Turbulence
Delta Air Lines (DAL) announced its first quarter earnings on Thursday, April 14. Despite the impact from the Brussels attacks in March and slightly lower revenue, the airline company exceeded expectations and reported a boost in earnings.
The airline's first quarter revenue decreased 1.5% to $9.25 billion from $9.35 billion in the same quarter a year ago. Delta attributed the loss to foreign currency pressures and a $5 million impact from the Brussels attacks.
"We have started 2016 with tremendous momentum, generating over $1.5 billion in adjusted pre-tax income, delivering industry-leading operations including 49 days of perfect mainline completion factor for our customers, and reaching our goal of becoming an investment grade company," said Ed Bastian, Delta's incoming CEO. "We will continue to be disciplined with our business in the face of volatile fuel prices, strengthen our foundation, and prove our position as the airline that consistently delivers top results for our employees, our owners and the customers and communities we serve."
Delta reported that its net income jumped to $946 million, up from $746 million in the same period last year. Earnings per share in the first quarter were $1.21, compared to $0.90 in the first quarter last year.
The lowest fuel prices in more than a decade helped Delta overcome turbulence overseas. During the first quarter, Delta paid an average of $1.33 per gallon for fuel in the first quarter, compared to $2.93 per gallon during the first quarter last year. Delta boasted its best-to-date operational performance during the first quarter with an on-time arrival rate of 86.5% and a 99.4% completion factor. However, the airline is still looking to increase its passenger profit, as total passenger revenues dropped 2% and total passenger unit revenues fell 4.6% in the first quarter.
Delta Air Lines (DAL) shares ended the week at $47.50, up 1.3% for the week.
Bank of America Hit By Oil Industry Pains
Bank of America (BAC) reported first quarter earnings on Thursday, April 14. The nation's second leading bank by assets reported a quarterly profit decrease of 18%, as suffering energy loans dampened already struggling trading markets.
Bank of America's first quarter revenue missed expectations and fell to $19.5 billion. Last year at this time, the bank reported revenue of $20.9 billion.
"Despite volatile markets, our Global Markets business produced solid earnings," said Bank of America CEO Brian Moynihan. "As always, we are focused on loan and deposit growth and managing expenses. By doing that, we continue to improve on what we do best: helping consumers live their financial lives and helping businesses grow and employ more people."
Net earnings for the first quarter were $2.7 billion, or $0.21 per share. This was a drop from earnings of $3.1 billion, or $0.25 per share during the first quarter last year.
The tough oil climate is hitting banks hard. All three leading U.S. banks—JPMorgan Chase, Bank of America and Wells Fargo—released their quarterly earnings this week and revealed that credit quality in the energy segment continues to decline and negatively impact their earnings. Analysts note that energy loans make up only a small portion of big banks' portfolios but that there are other issues weighing on profits—such as the unwaveringly low federal interest rates, which effectively limit the amount of money that banks are able to earn through their lending programs. Other factors hurting the banking industry include weak trading markets and the volatile global economy.
Bank of America (BAC) shares ended the week at $14.00, up 7.7% for the week.
The Dow started the week of 4/11 at 17,586 and closed at 17,897 on 4/15. The S&P 500 started the week at 2,050 and closed at 2,081. The NASDAQ started the week at 4,873 and closed at 4,938. ---------------------
JPMorgan Chase (JPM) released its first quarter earnings on Wednesday, April 14. While the nation's largest bank surpassed analysts' expectations, profit fell due in large part to decreased investment banking revenue and increased costs to cover loans to struggling oil companies.
JPMorgan reported first quarter revenue fell to $24.08 billion, down from last year's first quarter revenue of $24.88 billion. Despite the drop, this figure surpassed the average analyst estimate of $23.04 billion.
"We delivered solid results this quarter with strong underlying drivers. The consumer businesses continue to grow loans and deposits impressively, attracting deposits faster than the industry," said JPMorgan President and CEO Jamie Dimon. "While challenging markets impacted the industry, we maintained our leadership positions and market share in the Corporate & Investment Bank and Asset Management, reflecting the strength of our platform."
JPMorgan reported earnings of $1.35 per share, down 7% from last year's first quarter earnings of $1.45 per share. Analysts expected JPMorgan to report earnings of $1.26 per share.
JPMorgan was hit by the slide in commodity and oil prices. The bank reported that it almost doubled its credit loss reserves. The increase included $529 million in oil and gas loans and $162 million in metals and mining loans. However, outside the energy sector, overall loan growth reflects last year's gains and is more stable across consumer and commercial lending.
JPMorgan Chase (JPM) shares ended the week at $61.87, up 6.4% for the week.
Delta's Earnings Soar Past Turbulence
Delta Air Lines (DAL) announced its first quarter earnings on Thursday, April 14. Despite the impact from the Brussels attacks in March and slightly lower revenue, the airline company exceeded expectations and reported a boost in earnings.
The airline's first quarter revenue decreased 1.5% to $9.25 billion from $9.35 billion in the same quarter a year ago. Delta attributed the loss to foreign currency pressures and a $5 million impact from the Brussels attacks.
"We have started 2016 with tremendous momentum, generating over $1.5 billion in adjusted pre-tax income, delivering industry-leading operations including 49 days of perfect mainline completion factor for our customers, and reaching our goal of becoming an investment grade company," said Ed Bastian, Delta's incoming CEO. "We will continue to be disciplined with our business in the face of volatile fuel prices, strengthen our foundation, and prove our position as the airline that consistently delivers top results for our employees, our owners and the customers and communities we serve."
Delta reported that its net income jumped to $946 million, up from $746 million in the same period last year. Earnings per share in the first quarter were $1.21, compared to $0.90 in the first quarter last year.
The lowest fuel prices in more than a decade helped Delta overcome turbulence overseas. During the first quarter, Delta paid an average of $1.33 per gallon for fuel in the first quarter, compared to $2.93 per gallon during the first quarter last year. Delta boasted its best-to-date operational performance during the first quarter with an on-time arrival rate of 86.5% and a 99.4% completion factor. However, the airline is still looking to increase its passenger profit, as total passenger revenues dropped 2% and total passenger unit revenues fell 4.6% in the first quarter.
Delta Air Lines (DAL) shares ended the week at $47.50, up 1.3% for the week.
Bank of America Hit By Oil Industry Pains
Bank of America (BAC) reported first quarter earnings on Thursday, April 14. The nation's second leading bank by assets reported a quarterly profit decrease of 18%, as suffering energy loans dampened already struggling trading markets.
Bank of America's first quarter revenue missed expectations and fell to $19.5 billion. Last year at this time, the bank reported revenue of $20.9 billion.
"Despite volatile markets, our Global Markets business produced solid earnings," said Bank of America CEO Brian Moynihan. "As always, we are focused on loan and deposit growth and managing expenses. By doing that, we continue to improve on what we do best: helping consumers live their financial lives and helping businesses grow and employ more people."
Net earnings for the first quarter were $2.7 billion, or $0.21 per share. This was a drop from earnings of $3.1 billion, or $0.25 per share during the first quarter last year.
The tough oil climate is hitting banks hard. All three leading U.S. banks—JPMorgan Chase, Bank of America and Wells Fargo—released their quarterly earnings this week and revealed that credit quality in the energy segment continues to decline and negatively impact their earnings. Analysts note that energy loans make up only a small portion of big banks' portfolios but that there are other issues weighing on profits—such as the unwaveringly low federal interest rates, which effectively limit the amount of money that banks are able to earn through their lending programs. Other factors hurting the banking industry include weak trading markets and the volatile global economy.
Bank of America (BAC) shares ended the week at $14.00, up 7.7% for the week.
The Dow started the week of 4/11 at 17,586 and closed at 17,897 on 4/15. The S&P 500 started the week at 2,050 and closed at 2,081. The NASDAQ started the week at 4,873 and closed at 4,938. ---------------------
Bonds - Drop in Industrial Production Pushes Yields Downward Read More
Drop in Industrial Production Pushes Yields Downward
Treasury yields hit April highs on Thursday but fell on Friday following the release of reports revealing a drop in industrial production and a decline in consumer confidence. The news prompted investors to move toward safe-haven treasury bonds, causing prices to increase and yields to fall.
On Friday, the Federal Reserve announced that industrial production for the month of March dropped 0.6%. This marks the sixth decline over the past seven months and was worse than the 0.2% fall predicted by analysts. Tumbling oil prices, turmoil in overseas markets and a strong dollar contributed to the decline in production.
"It is likely that the inventory correction and stronger dollar continued to weigh on the output data," said JPMorgan Chase & Co. economist Daniel Silver. "We remain hopeful that the worst of the drags from these factors have passed and that activity will pick up shortly."
The current market environment and weakening dollar are causing many investors to speculate about June rate hikes. The dollar index, which fell 0.25% on Friday, could negatively impact the global market and drive foreign investors to seek out less-risky U.S. government bonds.
"Even though we see some good here locally, there's more worry internationally," said Justin Hoogendoorn, head of fixed income strategy at Piper Jaffray in Chicago."You have more [overseas investors] who come to U.S. and trade with a risk-off mentality."
A separate report released by the University of Michigan on Friday indicated that consumer confidence has fallen in to its lowest point since September of last year. The report revealed that despite employment gains, U.S. workers have not seen significant increases in pay. Additionally, one-fifth of those surveyed expect the upcoming presidential election to negatively impact the economy.
"The data have been consistently weak," said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc. "It doesn't surprise me that we're going to lower yields."
The 10-year Treasury note yield finished the week of 4/11 at 1.75% while the 30-year Treasury note yield was 2.56%.
Treasury yields hit April highs on Thursday but fell on Friday following the release of reports revealing a drop in industrial production and a decline in consumer confidence. The news prompted investors to move toward safe-haven treasury bonds, causing prices to increase and yields to fall.
On Friday, the Federal Reserve announced that industrial production for the month of March dropped 0.6%. This marks the sixth decline over the past seven months and was worse than the 0.2% fall predicted by analysts. Tumbling oil prices, turmoil in overseas markets and a strong dollar contributed to the decline in production.
"It is likely that the inventory correction and stronger dollar continued to weigh on the output data," said JPMorgan Chase & Co. economist Daniel Silver. "We remain hopeful that the worst of the drags from these factors have passed and that activity will pick up shortly."
The current market environment and weakening dollar are causing many investors to speculate about June rate hikes. The dollar index, which fell 0.25% on Friday, could negatively impact the global market and drive foreign investors to seek out less-risky U.S. government bonds.
"Even though we see some good here locally, there's more worry internationally," said Justin Hoogendoorn, head of fixed income strategy at Piper Jaffray in Chicago."You have more [overseas investors] who come to U.S. and trade with a risk-off mentality."
A separate report released by the University of Michigan on Friday indicated that consumer confidence has fallen in to its lowest point since September of last year. The report revealed that despite employment gains, U.S. workers have not seen significant increases in pay. Additionally, one-fifth of those surveyed expect the upcoming presidential election to negatively impact the economy.
"The data have been consistently weak," said Ray Remy, head of fixed income in New York at Daiwa Capital Markets America Inc. "It doesn't surprise me that we're going to lower yields."
The 10-year Treasury note yield finished the week of 4/11 at 1.75% while the 30-year Treasury note yield was 2.56%.
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CDs and Mortgages - Interest Rates Hit Another 2016 Low Read More Interest Rates Hit Another 2016 Low
Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, April 14. The report revealed interest rates hit their lowest point so far this year, surpassing the low point reached last week.
The 30-year fixed rate mortgage averaged 3.58% this week. This represents a decrease from last week when it averaged 3.59%. Last year at this time, the 30-year fixed rate mortgage averaged 3.67%.
This week, the 15-year fixed rate mortgage averaged 2.86%. This was down from last week when it averaged 2.88%. The 15-year fixed rate mortgage averaged 2.94% one year ago.
"Demand for Treasuries remained high this week, driving yields to their lowest point since February," said Sean Becketti, Chief Economist at Freddie Mac. "In response, the 30-year mortgage rate fell 1 basis point to 3.58%. This rate represents yet another low for 2016 and the lowest mark since May 2013."
The money market fund finished the week of 4/11 at 0.3%. The 1-year CD finished at 0.6%.
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Thank you for your interest in planned giving. To access any of our resources, please go to our website.
Your Brother in Yeshua (Jesus),
David Stone
Jews for Jesus
Our mailing address is:
Jews for Jesus
60 Haight Street
CDs and Mortgages - Interest Rates Hit Another 2016 Low Read More Interest Rates Hit Another 2016 Low
Freddie Mac released its latest Primary Mortgage Market Survey (PMMS) on Thursday, April 14. The report revealed interest rates hit their lowest point so far this year, surpassing the low point reached last week.
The 30-year fixed rate mortgage averaged 3.58% this week. This represents a decrease from last week when it averaged 3.59%. Last year at this time, the 30-year fixed rate mortgage averaged 3.67%.
This week, the 15-year fixed rate mortgage averaged 2.86%. This was down from last week when it averaged 2.88%. The 15-year fixed rate mortgage averaged 2.94% one year ago.
"Demand for Treasuries remained high this week, driving yields to their lowest point since February," said Sean Becketti, Chief Economist at Freddie Mac. "In response, the 30-year mortgage rate fell 1 basis point to 3.58%. This rate represents yet another low for 2016 and the lowest mark since May 2013."
The money market fund finished the week of 4/11 at 0.3%. The 1-year CD finished at 0.6%.
---------------------
Thank you for your interest in planned giving. To access any of our resources, please go to our website.
Your Brother in Yeshua (Jesus),
David Stone
Jews for Jesus
Our mailing address is:
Jews for Jesus
60 Haight Street
San Francisco, California 94102, United States
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