Monthly Econ & Law Update

Legal Developments 

The IRS recently released regulations aimed at curtailing post death actions to reduce estate taxes.  Often expenses associated with the administration of an estate can be paid over many years and often methods are used to finance them through intrafamily loans. The IRS release suggests proposed regulations to quantify those amounts and requires that they be discounted to present value. For example, in what is known as a Graegin loan, the interest paid over many years to related parties (often who are the ones inheriting) could be totaled and deducted on an estate tax return. Under these regulations, the interest payments would be discounted as a result of the time delay to what is known as “present value” (of those future receipts), resulting in a substantial reduction of the amount that can be deducted.

Economic Observations

Yields on 30 year Treasuries recently moved below the rate on 5-year bonds, the latest in a series of inversions that could well herald  recession is here or near.   Rates are experiencing a broad-based flattening of the curve that has sent the gap between 2- and 10-year yields, another widely watched metric, down to levels last seen in 2000. The inversion has been steepened by hotter-than-expected US  inflation readings. This has raised expectations that the Federal Reserve will need to raise its Fed Funds rate, in turn raising  the shorter-end and belly of the  rate curve.