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Changes to Inheritance Tax: The IRS has quietly changed rules around taxes on inheritance, putting Americans at greater tax risk when they try to transfer assets to their children. The agency curbed the tax break on a particular kind of trust often used to minimize estate tax. For the last decade, more families have utilized the ‘irrevocable’ trusts that allow you to protect your assets and avoid a lengthy probate process when a relative passes away. Before the new instruction, it was unclear what the tax policies were around assets passing to beneficiaries through the trust. The Revenue Ruling 2023-2 has confirmed that these trusts will now be subject to capital gains tax, impacting estate planning. This ruling does not mean that irrevocable trusts are no longer a useful tool—it just takes careful planning, which we are happy to help with.

Cracking the Inflation Code: Once a month, the Bureau of Labor Statistics releases its headline Consumer Price Index (CPI), which is supposed to give us an idea of how much or how little consumer prices changed compared to last month and last year. This week’s CPI, for example, shows that May continued to increase year-over-year but at a much slower pace of 4%, down from nearly 9% in June of last year. This makes it seem like the Federal Reserve’s efforts to bring down inflation by hiking rates are working. However, the picture isn’t as rosy if we strip out volatile food and energy prices. The core CPI—which measures everything except food and energy—shows that prices, on average, barely budged from May 2022 to May 2023:

These numbers represent “offline” purchases. The data shows online prices fell 2.3% in May compared to the same month last year. Prices didn’t just slow down; they got cheaper.

Measuring changes in consumer prices is messy and imprecise. Yet, these numbers are typically used in public and private sectors to guide important policy decisions, including cost-of-living adjustments, Social Security, etc. The perhaps most well-known example is how the Fed uses BLS data to inform monetary policy. In June, the central bank elected to leave Fed Funds the same but indicated it might need to raise them at least two more times this year, even though this tightening cycle is already most aggressive since at least the 1987-1988 cycle:

While it may be impossible to create a portfolio immune to the volatile swings in inflation and interest rates, we would enjoy looking through your current financial plan and ensuring that you are in the most advantageous position for your current goals. Please don’t hesitate to reach out today with questions.

Business Briefing 

  • June Jobs Report: An “expectation shattering” June jobs report published Thursday showed that the U.S. labor market remained strong. Companies added almost half a million jobs in June, according to ADP, more than double the projected estimates “despite growing risks of a recession.” (Reuters)
  • Foreign Firms and China: U.S. Treasury Secretary Janet Yellen leveled “a forceful objection” to China’s measures aimed at foreign firms. Yellen is in Beijing on a “high stakes trip” to smooth relations between the U.S. and China, but “tension between the two nations has escalated.” Yellen accused China of taking “punitive” action against American companies. The Chinese recently detained five Chinese nationals working for an American consulting firm and imposed export controls on some critical minerals. (The New York Times)
  • Promising Alzheimer’s Drug: The Food and Drug Administration on Thursday gave full approval to Leqembi, a drug that can slow the progression of Alzheimer’s disease. While other drugs have been approved that target the symptoms of Alzheimer’s, this is the first time the FDA has granted full regulatory approval to one meant to slow cognitive decline. Patients claim that the potential good outweighs the serious side effects, including brain swelling and hemorrhage. (The Wall Street Journal)

Summer Boredom: It’s July, so that means for those of us with school-aged children, we’ve heard nearly a million times the age-old phrase, “I’m bored.” As the saying goes, “Only boring people get bored.” But there is something “normal, natural, and healthy” about kids being bored, says Dr. Westgate, an assistant professor of psychology at the University of Florida. A study from the New York Times showed that modern parenting generally operates under the philosophy that regardless of education, income, or race, parents believe that bored children should be enrolled in extracurricular activities. There is a kind of cultural stigma attached to boredom, particularly in the U.S. Dr. Westgate argues that:

  • Boredom is informative (it tells you that what you are doing is either too easy, too hard, or lacks meaning to you)
  • Boredom can lead to fulfillment (it leaves space for kids to pursue activities that might be interesting to them)
  • ‘Boredom busters’ can break the spell (Legos, Play-Doh, etc.)

Perhaps part of the boredom issue is that with so many parents working from home, the balance of allowing the space for kids to process boredom and continue working can be difficult. Those summer ‘boredom blues’ will soon turn into the frenzy of another academic year. If learning financial principles are on the list of skills you hope to teach your kids, let us remind you of this book that we think is worth checking out. If you have a child or, better yet, a grandchild you’d like to send this to, simply let us know their name and address!