Do I Need a Trust?
Not everybody needs a trust but if you’re concerned about how all your assets are going to be distributed after you die, or how much tax your heirs will have to pay, you might want to look into opening one.
A trust is a legal entity that lets you put conditions on how certain assets are distributed upon your death. Trusts also can help minimize gift and estate taxes.
There are two basic types of trusts: living trusts and testamentary trusts. A living trust or an “inter-vivos” trust is set up during the person’s lifetime. A Testamentary trust is set up in a will and established only after the person’s death when the will goes into effect.
Living trusts can be either “revocable” or “irrevocable.”
Revocable trusts allow you to retain control of all the assets in the trust, and you are free to revoke or change the terms of the trust at any time.
With irrevocable trusts, the assets in it are no longer yours, and typically you can’t make changes without the beneficiary’s consent. But the appreciated assets in the trust aren’t subject to estate taxes.
There are many more complicated types of trusts, too, that apply to specific situations.
You don’t have to be a Rockefeller to need a trust. A trust can be a useful estate-planning tool for lots of people. But given the expenses associated with opening one, it’s probably not worth it unless you have a certain amount of assets.
If you have a net worth of at least $100,000 and have a substantial amount of assets in real estate, or have very specific instructions on how and when you want your estate to be distributed among your heirs after you die, then a trust could be for you. Trusts are also great for minimizing estate taxes or protecting your estate from lawsuits and creditors.
Trusts are flexible, varied and complex. Each type has advantages and disadvantages, which you should discuss thoroughly with your estate-planning attorney before setting one up.
But please note, assets you want protected by the trust must be retitled in the name of the trust. Anything that is not titled to the trust when you die will have to go through probate.
Consult an estate attorney if you want to set up a trust. With so many state and federal laws to take into account, it’s important to enlist the advice and services of an expert. A lawyer can guide you through the various types of trusts and help you decide what best suits your assets and goals – while helping make sure it’s legally sound.
— Nikki Earley
Hurricane Harvey Exposes the Key Role of the U.S. Oil Industry in World Markets
World energy markets, from butane in Asia to diesel in Europe and gasoline in Latin America, are feeling the ripple effect of deadly hurricane Harvey’s devastation in southeastern Texas, highlighting the growing role of the U.S. in the global oil industry. When Hurricane Katrina hit in 2005, the U.S. exported just 800,000 barrels a day of mostly refined products. Today it ships more than 6 million barrels a day of crude and fuels, an increase driven by a boom in shale production, the end of a ban on crude exports, and the expansion of several refineries. “The global implications of a stormy season in the U.S. Gulf of Mexico have mounted as the U.S. has emerged as a global energy hub,” said Ed Morse, head of commodities research at Citigroup Inc. in New York.
The effect of hurricane Harvey on oil markets is opening an almost unprecedented opportunity for traders to make money, shifting around crude and refined products by ship. They are already amassing an armada of tankers to send European gasoline to the U.S. and Latin America, while Asian countries are snapping up cargoes of liquefied petroleum gases—mostly butane and propane—to replace the loss of exports from Texas. “The concentration and connectivity of the most important energy region in the world is going to test global energy security,” said Jamie Webster, a fellow at the Center on Global Energy Policy at Columbia University.
After hurricanes Katrina and Rita hit the U.S. 12 years ago, the International Energy Agency (IEA) released emergency petroleum reserves. This time around, there is no need as global inventories remain high, according to the IEA, though the agency “stands ready to act,” it said August 28. The U.S. Department of Energy released a small amount of crude from strategic reserves August 30, meeting a request from a single refinery for extra barrels.
The country’s oil system remains severely handicapped after Harvey made a second landfall between Texas and Louisiana on August 29. Flooding and power failures have reduced U.S. fuel-making capacity by about 4.25 million barrels a day—a quarter of the country’s total and equivalent to the refining capacity of France and Germany combined. The drop in output cuts supplies to the major Colonial pipeline, which takes gasoline from Texas and Louisiana to the U.S. East Coast. Its operator shut its main diesel line and plans to halt its gasoline link.
The move drove up U.S. gasoline wholesale prices above $2 a gallon for the first time since July 2015. As traders scrambled to cover their positions, they sent the price spread between the most immediate futures contract and subsequent deliveries sharply higher. While fuel prices rally, crude markets are stumbling. With refineries across Texas closed—including the largest U.S. plant—oil demand has dropped, putting pressure on prices on every grade of crude from West Texas Intermediate to Brent.
Harvey’s full impact will only be known once refiners assess the damage to their flooded plants. Unlike during Katrina and Rita, most were able to carry out a controlled shutdown ahead of the storm, reducing the chance of long-lasting equipment problems. Still, a short-term supply squeeze will have far-reaching effects. Latin America relies on imports from Texas and Louisiana. Mexico buys half its gasoline from the U.S., while Argentina, Chile, Colombia, Venezuela, and several Central American nations also buy significant quantities of U.S. fuels. Brazil purchases about 400,000 barrels a day of U.S. petroleum products, up from just 15,000 a day in 2005.
Europe will also feel a crunch if the refinery shutdowns continue because the region imports U.S. diesel. European gasoil rose above $500 a ton, heading for its highest close since February. “The amount of oil lost to Harvey by the rest of the world will quickly accumulate,” said Olivier Jakob, founder of energy consultants Petromatrix GmbH in Zug, Switzerland. “This will accelerate stock-draws in the rest of the world.”
The Good News Is . . .
• The U.S. economy grew faster than initially thought in the second quarter, notching its quickest pace in more than two years. Gross domestic product increased at a 3.0% annual rate in the April-June period, the Commerce Department said in its second estimate. The upward revision from the 2.6% pace reported last month reflected robust consumer spending as well as strong business investment. Retail sales and business spending data so far suggest the economy maintained its momentum early into the third quarter.
• Analog Devices, Inc., a leading global producer of high-performance devices that sense, measure, and interpret analog data, reported earnings of $1.26 per share, an increase of 53.7% over year-earlier earnings of $0.82 per share. The firm’s earnings topped the consensus estimate of analysts by $0.12. The company reported revenues of $1.46 billion, an increase of 67.7%. Management attributed the results to strength in its industrial business segment and contributions from the recent acquisition of Linear Technology.
• The drug-maker Gilead Sciences said that it would buy Kite Pharma for about $11.9 billion to bolster its aging portfolio with an emerging cancer treatment. With the deal, Gilead would acquire Kite’s new cancer-fighting method, which harnesses the body’s immune system to attack malignant cells. Kite’s most promising treatment, which targets non-Hodgkin lymphoma, is expected to receive government approval within the next year. The acquisition of Kite will help establish Gilead as a leader in cellular therapy and provides a foundation for it to develop more products to treat advanced cancers. Under the terms of the agreement, Gilead will pay $180 a share in cash.
Guide to Understanding Flood Insurance
Homebuyers usually have to purchase homeowners’ insurance if they plan on taking out a mortgage on their property. However, standard homeowners’ insurance does not cover flooding, so homeowners at risk must purchase flood insurance coverage. Buyers should do their homework on flood insurance, since there are several myths and misconceptions about this product. Below are some of the common misconceptions about flood insurance. If you are considering flood insurance, be sure to consult with your financial or insurance advisor.
Consumers Must Purchase Private Flood Insurance – One common misconception about flood insurance is that consumers must purchase the insurance from a private insurance carrier. In fact, a federally regulated program, called the National Flood Insurance Program (NFIP), offers the most common flood insurance policies. A prospective policyholder can purchase two types of coverage—one that insures the value of a home up to $250,000 and another type that covers personal property up to $100,000. Buyers who require more than $250,000 of coverage on their homes must purchase excess flood insurance through a private carrier. Some private insurance carriers offer a purely private policy, but these policies cost more than NFIP policies and often only insure properties worth more than $1 million. Furthermore, many mortgage companies will not accept private flood insurance, since it carries greater risks than the federal program.
Consumers Pay One Flat Rate – Another myth about flood insurance cost is that all buyers pay the same flat rate. Although the average one-year premium for flood insurance is $600, buyers should consult an insurance agent for an actual quote. Factors such as the amount of coverage, the deductible, the flood risk of the area and the condition and age of the building, impact the cost of coverage.
Flood Insurance Covers All Damages – What does flood insurance cover? One myth about flood insurance is that a flood policy covers all types of damage. Buyers of flood insurance should understand what exactly flood insurance covers in the event of an incident. A property policy from the NFIP covers the foundation of the home, electrical and plumbing, air conditioners, water heaters, furnaces, kitchen appliances, permanent carpeting, permanent wallboard and paneling, permanent cabinets and bookcases, window blinds, detached garages (limited to 10% of the home policy) and debris removal. An NFIP personal property policy covers clothing, furniture, electronic equipment, curtains, window air conditioning units, portable microwaves and dishwashers, carpets not covered by the property policy, washers, dryers, freezers, frozen food and up to $2,500 in valuables, such as furs or jewelry. NFIP policies do not cover precious metals, stock certificates, bearer bonds and cash. They also do not cover trees, plants, wells, septic systems, walkways, decks, patios, fences, hot tubs, swimming pools, boathouses, retaining walls, storm shelters, temporary housing, loss of income, cars or mold damage.
Only Flood-Zone Residents Need Coverage – Another misconception about flood insurance is that only people in high-risk flood areas need coverage. In fact, residents outside of high-flood areas receive one-third of disaster relief for flooding and over 20% of flood insurance claims. Flooding is the most common type of natural disaster in the country, and all 50 states face risks. Buyers in high-risk zones, known as special hazard flood areas, must purchase flood insurance in order to qualify for a mortgage. However, buyers outside of those areas may also wish to purchase a policy. Homebuyers should consult the Federal Emergency Management Agency (FEMA) website to find out if their property is in an area that participates in the NFIP program. Since flooding impacts every state, almost all areas are eligible for coverage. Buyers outside of special hazard flood areas must assess their ability to withstand the financial loss from flooding. One resource that they can consult is the FloodSmart website (http://www.floodsmart.gov/). Homeowners can enter their address and receive estimates of their risk and their premiums, and a list of agents who serve their area.
All Excess Water Constitutes Flooding – Many people mistakenly believe that all excess water on a property constitutes a flood. In fact, water must either cover at least two acres of normally dry land or damage at least two or more properties in order to constitute a flood. In addition, the water must come from overflowing inland or tidal waters, rapid accumulation or runoff of surface waters, mudflows or shore front land collapses. Flood insurance does not cover water and seepage from sewer or drain backups.