Estate Planning

The Federal Reserve held its annual retreat in Jackson Hole, Wyoming this week and based on Fed Chair Jerome Powell’s comments and market reaction, investors are expecting a rate cut in September.  The question is whether the rate will be reduced by a quarter percentage point or half a percentage point.  Most believe the former will occur, but a growing number of investors are theorizing that a 0.50% interest rate reduction is feasible in September.  If the Fed does cut interest rates in September, it will be the first-rate reduction since March 2020.  Of course, the Fed had to raise rates in 2022 and 2023 in an effort to try and tame the highest inflation in 40 years.  While inflation is still above the Fed’s 2% mandate, it, along with a slowing labor market, has declined clearing the way for a rate cut at the next Fed meeting scheduled for Sept. 17-18.

Existing home sales were up in July for the first time in five months but are still lackluster due to affordability.  Of note, the sales of homes priced above $1 million have risen 26.5% over the past year in contrast to an overall decline of 2.5% for existing home sales.  This phenomenon of seven-figure home sales increasing despite elevated mortgage rates indicates that buyers at the higher end of the housing market have not been swayed from purchasing homes.  I would bet a decent number of these transactions are all-cash purchases thereby nullifying the mortgage rate increases over the past couple of years.

This week marked the 20th anniversary of Google’s initial public offering.  Google, also known as Alphabet, structured its IPO via a Dutch auction, and the stock was initially priced at $85 per share.  Google closed at $100.34 after its first day of trading as a public company and the company’s market value has soared since then.  Those initial investors that have held on to the stock or at least some of it have been richly rewarded.  Dow Jones Market Data estimates that $1,000 invested in Class A shares at the IPO would now be worth roughly $75,000 including dividends.

Over the last several years, vinyl albums have enjoyed a tremendous resurgence, so I was surprised to see that another mode of listening to music – the cassette tape – is back in fashion, at least sort of.  Several popular artists have been releasing new music via cassettes, which were seemingly all but extinct as people gravitated to compact discs in the 1990s.  Streaming services now comprise the bulk of the music industry’s revenue but there is still a healthy market for CDs and vinyl albums.  In 2022, there were approximately 41 million vinyl albums and 33 million CDs that were sold.  To be clear, cassette tape sales are still a fraction of vinyl album and CD sales.  Luminate, a data tracking analytics firm, indicated that 430,000 cassettes were sold in the United States in 2023; however, that figure is five times higher than a decade ago.  So while it doesn’t appear that cassette tapes are going to be replacing streaming, vinyl, or CDs anytime soon, there is a feeling of nostalgia for those of us who grew up listening to cassettes.

Estate planning generally focuses on setting up a will, powers of attorney, minimizing estate taxes, perhaps setting up a trust, and an orderly distribution of financial and physical assets from the decedent to his/her family, friends, charities, etc.  There is now a new trend that more Americans are incorporating into their estate plans, which is leaving assets and caretaking instructions regarding their pets.  Estate planning attorneys have indicated that an increasing amount of the population are now including their pets within their wills including guardianship duties, and, leaving financial assets to their animals.  According to an American Pet Products Association poll, more than 40% of dog and cat owners have or are planning to name a caretaker for their animals upon their demise.  Most will set up what’s known as a pet directive as opposed to a trust because the latter is more expensive and more difficult to administer.  With a trust, the trustee is legally required to carry out the wishes of the decedent while a pet directive does not necessarily legally bind a guardian to properly administer the departed’s instructions.  A rouge caregiver could choose to pocket the money left for the pet under a directive and simply shirk their duties altogether.  I am reminded of the late billionaire Leonna Hemsley, who famously bequeathed $12 million in a trust to her dog.  A court later reduced the dog’s monetary windfall to a mere $2 million. 

Matt Savoti, MBA