Feel free to pass on this article to your friends and family members, especially for your friends who do not have estate plans or trusts. .  I have two wonderful trust attorneys I work with that I’m happy to refer you to if you need their contact info just shoot me an email or call me.There are common myths about estate planning and trusts. Many people think that only people with a lot of money, real estate or people in their senior years need to have a trust or estate plan. That is simply not true.  Planning now for later gives you peace of mind that your family is taken care of in the event that something happens to you. Estate Planning covers issues like:    Health Care directives   The manner in which legal title to property be held    How property can be transferred    Fed & State tax payable upon your death    Fed. gift taxes    Fed generation skipping transfer tax 

Pass Your Assets to Loved Ones…Not Uncle Sam.  If you don’t have an estate plan in place, don’t worry–the IRS has one for you.  But you may not like it, so it’s always a good idea to get your finances in order and avoid incurring tax penalties and hefty estate taxes. Knowing the value of your estate and becoming familiar with several exemptions and tax benefits can help you hand your assets over to your loved ones…without handing a portion of your hard earned assets over to Uncle Sam.Some good news—the new Federal estate tax exclusion increased in 2006 to $2 million per person. In the past ten years, that amount has increased over 230 percent, as the figure is up from $600,000 in 1996. Count on this tax exclusion figure to remain in effect until 2009, then the amount is scheduled to increase one more time to $3,500,000 per person. After 2010, it will supposedly be repealed altogether.

So what does all this estate tax stuff mean and how do you know if it applies to you? Estate tax differs from income tax in that income tax is owed every year on any revenue. Estate tax is owed on the net value of your estate at the time of your death if you leave your assets to any beneficiary other than your spouse. To break this down, let’s say you pass away and leave your entire estate to your children. Your estate is made up of everything you own and includes such items as residential property, life insurance proceeds, IRAs, automobiles, jewelry, cash accounts, etc. If you total the amount of all assets and subtract any debts that you may owe against property or automobiles, the remaining value is known as your “net estate value” and that is the “net value” that could be subject to estate tax.

Determining whether or not your estate would be subject to an estate tax is fairly simple. Take your net estate value—and don’t forget to include life insurance policies and the value of your home…it can add up fast—and subtract the estate tax exemption amount of $2,000,000. If the remaining figure is a positive amount, your beneficiaries would be subject to estate tax on the remaining amount. If the remaining amount is zero, or a negative number, your beneficiaries would not be subject to an estate tax. For example, if your net estate value is $3,500,000 and you subtract the $2,000,000 estate tax exemption, the remaining figure of $1,500,000 would be subject to estate taxes. Being that your intention would be to pass along all of your assets to your children, a significant amount of your estate could be handed over to Uncle Sam.

There are, however, a few alternatives that you can implement now to avoid this situation. First consider gifting money each and every year to lower your net estate value. Many baby boomers are taking advantage of gifting funds to their children and grandchildren and these funds are helping baby boomers’ children (also known as echo-boomers) purchase homes and build their own financial portfolios. But gifting is not limited to children and grandchildren, gifts can be given to anyone, including friends, charities, a political organization, or even your spouse. Gifting is typically done at the end of the year, but can be done any time during the year. As of January 2006, you can gift up to $12,000 per individual each year tax free. This amount increased from $11,000 in 2005. Another great way to lower your estate tax is to pay college tuition. You can give a gift of up to five times the standard gift amount, (standard gift being $12,000) to a Qualified Tuition Program (QTP) also known as a 529 Plan in the same year and deduct the entire amount. Here is how it works. If you have a sizeable estate, a large portion of which you want to offload, you can gift to a QTP or 529 plan a maximum of $60,000 per individual. However, it is important to note, if you gift the maximum allowable amount in one year, you cannot take advantage of the college tuition gift deduction in 2006 and 2007 without tax consequences. If you take the maximum deduction, this gift can only be given once every five years. Or consider setting up an “A-B Trust” while both partners are alive…it can double the amount of money you can leave to your beneficiaries free of estate tax. The A-B Trust was specifically devised to reduce estate tax liability, and presently can shelter up to $4,000,000 for both partners. Here’s how it works. Let’s say an estate is worth $4,000,000 and the assets are divided equally between both partners, the “A” portion of the trust would be worth $2,000,000 and the “B” portion of the trust would be worth $2,000,000. If person “A” passes away, the assets transfer to the surviving spouse and the assets are handled no differently than if the assets were not in a trust. Then when surviving spouse “B” passes away, the entire estate can be transferred to the beneficiaries, using the tax exempt credit from both “A” and “B”…resulting in zero estate tax. But if a trust is not specifically created as an A-B Trust, the estate tax could be costly. If a husband and wife set up a revocable trust and the husband passes, all assets will most likely transfer to the wife and become part of her estate. Even though the husband’s assets transferred to the wife tax free, the beneficiaries will be subject to estate tax on the total amount of the estate when the wife passes.

Estate tax can be a very costly expense, so planning in advance is very important to protect your assets. Even if your estate falls short of the Federal estate tax exclusion amount, take the time to discuss your estate with a professional. If the law changes and the amount for the estate tax exclusion decreases, the tax consequences could far exceed the cost of establishing a good plan for your estate. It is highly recommended that you discuss your estate with a qualified professional so feel free to give me a call if you should you need a referral.

From Keri Shepherd’s Mortgage Newsletter
“HEY KIDS, SHAKE IT LOOSE TOGETHER - THE SPOTLIGHT’S HITTING SOMETHING THAT’S BEEN KNOWN TO CHANGE THE WEATHER…” Elton John, “Benny and the Jets” And sure enough, B-B-B-Benny and the Fed held the spotlight last week, as Chairman Bernanke and his team of inflation fighters at the Fed released their latest Interest Rate Decision and Policy Statement. And the tone of the Statement did indeed change the weather for Bonds and home loan rates.As expected, the Fed voted to leave the Fed Funds Rate holding steady at 5.25%. However, it was the tone of the Policy Statement that was not so nice for Bonds or home loan rates, which worsened a bit following the release. Why? Because the market was looking for some loving lyrics from the Fed, particularly in regards to inflation. Recent inflation and wage data has all been friendly, and the economy is slowing a bit as well. So the markets were expecting a nice ballad from the Fed about inflation being under control…but instead, the Fed said their predominant concern is that inflation will “fail to moderate as expected”. While the Fed’s primary mission is to be on guard against inflation, the market was hoping for a little more love on this front, and was a bit displeased with the tone of the Statement.Retail Sales slipped lower in April, bringing the worst reading in seven months. The declines were seen in clothing, restaurants, sporting goods, cars and home products. Possible reasons? The price of gasoline is back up, and this means consumers may be forced to cut back on their buying of other retail products. Additionally, food costs are significantly higher in recent months, due to a variety of factors including crop freezes early in the year, and many corn products being diverted for use as fuel. Because they are so volatile, neither food nor energy costs show up in the important Core inflation numbers - but when it comes to a consumers actual day-to-day spending habits which will always include gas and groceries, these factors will absolutely have an impact on spending. The weak Retail Sales report was good news for Bonds, but not good enough, and home loan rates still ended slightly higher on the week overall.BUT IF YOU’RE THINKING ABOUT SAVING A FEW BUCKS BY WASHING YOUR CAR AT HOME RATHER THAN THE LOCAL CAR WASH…THINK AGAIN, AS IT COULD COST YOU BIG IN THE LONG RUN. READ THIS WEEK’S MORTGAGE MARKET VIEW FOR THE WHOLE SCOOP.

The week ahead brings a blend of news, including a look at inflation and housing, which continue to be hot topics of late. Particularly on the heels of the Fed stating they remain concerned about inflation, Tuesday’s Core Consumer Price Index will certainly garner a great deal of attention. Housing numbers have been mixed of late, but many experts are grudgingly acknowledging that maybe the housing market is not as bad as they originally predicted. Wednesday brings a look at the new construction sector, with Housing Starts and Building Permits.The chart below shows how Bond prices have been “bouncing” up and down in a tight range, causing home loan rates to move higher and lower by about .125% with each “bounce”. As Bond prices move higher, home loan rates move lower, and vice versa. So the chart indicates that Bonds appear poised for a bounce higher, with home loan rates moving lower. But first, Tuesday’s inflation measuring Consumer Price Index will need to prove inflation is tame before another favorable bounce higher and help home loan rates improve.Chances favor a mild inflation number in light if the recent economic reports, and also when compared to last years elevated reading. But if the Report reeks badly of continued consumer inflation, Bonds won’t like it, and may proceed to bash right through the floor and cause home loan rates to worsen. The good news on this front is that the 200-day Moving Average is a very strong floor of support, and it would take some very Bond-unfriendly news to force prices below this floor and cause home loan rates to worsen.Chart: Fannie Mae 5.5%% Mortgage Bond (Friday May 11, 2007)

Source: Kiplinger Personal Finance (05/07)
A recent survey by the District of Columbia government identified the metro areas that take the smallest tax bite. The survey looked at the tax burden for families in the largest city in each of the 50 states and Washington, D.C.

The D.C. government in its survey accounted for local income, sales, real estate, and car/personal property taxes for couples at various income levels. The survey’s rankings provided below from Kiplinger’s Personal Finance Magazine are based on a dual-income couple, with one school-age child and a combined gross income of $75,000 in 2005.

Here are the 10 metro areas that under those circumstances claim the lowest percentage of taxes.

1. Anchorage, Alaska: 4.1 percent
2. Cheyenne, Wyo.: 4.3 percent
3. Jacksonville, Fla.: 4.6 percent
4. Las Vegas, Nev.: 5.4 percent
5. Honolulu, Hawaii.: 5.6 percent
6. Memphis, Tenn.: 6.1 percent
7. Sioux Falls, S.D.: 6.3 percent
8. Fargo, N.D.: 6.3 percent
9. Houston, Texas: 6.3 percent
10. Billings, Mont.: 6.7 percent

Not surprisingly, seven of the top 10 cities above are in states with no income tax.
Source: Kiplinger Personal Finance (05/07)

For those on a fixed income (retirees), Hawaii makes for a great living location.  The state is going to get it’s money one way or another.  The income tax is where they get it from.  The property taxes are some of the lowest in the country and our GE Tax (essentially sales tax) is 4.5%.  Those on fixed incomes save with a low sales tax and low property taxes, and what a better place to live in than in paradise!

The good numbers in the real estate market were echoed in the Honolulu Advertiser article discussing how Home Prices Surged during the last month.

I put a questionmark at the end of the title because I wouldn’t say all is balanced as of yet, as the article in the Honolulu Advertiser indicates.  Yes the market has cooled from it’s rediculous pace of two years ago, but the numbers from this past month look like things are still doing pretty well, and I have seen quite a few multiple offer situations. 

The general rule is that, yes, we have gotten to a balanced position in the market, however, we still will have times during the year where the market is a little more infavor of either buyers or sellers.   This is one of the better articles from the advertiser.

Click Here to read the article.

The general thoughts from some economist on Oahu is the next that the next big real estate push will come from Buyers from Japan and China starting around 2012-2018.  The Japanese Baby Boomers will becoming into their peak spending years, and with the explosive growth of the Chinese economy, if the Chinese can get their tourist visas then we may double in sales price again to $1.2 million for single family homes.  There are a lot of “If’s” here, but the general outlook looks like an increase in buyers from Asia.  There happened to be an article in the Honolulu Advertiser that shows the potential in the tourist market, which can be relayed to the real estate market.  

Why would the Chinese want to invest in Oahu real estate?  Several reasons. 

For one, Hawaii is located midway between Japan and the US and is located in a tropical zone that is one of the most desirable vacation destinations in the world.  It also happens to be apart of the United States, which gives them a stable market and economy for which to invest in, and because of our proximity in the middle of the pacific, it is also a lot less traveling time than trying to go to the mainland US.  If tourist visa restrictions are lifted for entry into the US, we could see a large interest in Chinese wanting to buy second home/vacation home properties in Hawaii.  Click Here to read about the Chinese potential and Click Here to read an older article about the Japanese market.

Most people think that the tourism market on Oahu is the lifeline to the island.  That isn’t exactly correct.  There is no doubt that tourism is very important to Oahu and even more important to the outer islands, but the economy for Oahu in general is much more diverse than it used to be and is, what I would term, much more balanced than many other tourist destinations in the US.  The new article in the Honolulu Advertiser shows hotel occupancy off a little for Hawaii, but still close to record highs, and room revenue remains high as well.  78.1% hotel occupancy is very high for an overall average.  The prediction is our travel idusrty will begin to cool and level off with the rest of the economy and real estate market.  This directly effects short term investment properties, with people looking at cap rates, vacancy rates, potential rental income, etc. when trying to value out investment properties.  If the tourism market looks to be leveling off, then prices for investment properties should level out as well.  Click Here for the full article.

As I had indicated for the last few months, everything indicated that the market had heated up.  I have experienced a few multiple offer situations.  I was waiting to see the numbers come out and now they have.  These are strong numbers considering we are heading into the busiest time of the year (summer).  When I look at the inventory, there hasn’t been a lot on the market lately, so I think we have some people sitting on the sidelines until June to put their properties on the market. If you’re a seller now, being on the market before summer will definitely have it’s advantages. Interest rates are still very low as well, so there is good news in the market place all around. I have heard from a few people that they are waiting to put their properties on the market in the summer.  Since our inventory hasn’t really decreased significantly over the last two or three months, we may have a lot more to choose from this summer.  The question then becomes, how many more buyers will we add to the market for the summer period.  Should be interesting to see what happens. 

Anyway….you can access the previous statistical reports and the stats for the entire first quarter by going to  the Member Login section of my website.  If you do not have a Username and Password already, feel free to sign up for one.  In the Member Login section you can navigate to the Data & Statistics page for all the past stats.  Also, here is an article from the Honolulu Advertiser as well: On page 4 of 20, the number of sales increased for the 4th straight month for SFH’s and condo sales declined slightly. 
On page 6 of 20 the median sales price increased significantly for SFH’s to $665,000.  That is just shy of our record high of $668,300, set in the summer of 2006.  Condos increased as well to $325,000, also just below our record high as well.

On page 7 of 20 the median number of Days-On-Market decreased significantly for SFH’s.  Down from 65 days to only 45 days now.  Condos D-O-M decreased slightly to 38 days. (2 months ago it was 59 days)

On page 14 of 20, the inventory of active listings remained roughly the same for SFH & increased slightly for condos. Not too much movement here.

On page 18 of 20 the months of inventory remaining (meaning if we didn’t bring anymore properties on the market, how long before we sold all of the inventory) decreased for SFH’s to 5.2 months, and to 4.3 months for condos.  The reference I always make with this, is the National Association or Realtors considers a balanced market to be 6 to 7 months of inventory remaining. 

On page 19 of 20, it breaks down the months of inventory, based on the type of property (SFH or Condo), area of the island, and price range.  For SFH’s under $1.0 million, the market is very active and moving. Esp. in the $400,000 - $1.0 million properties.  Even the $1.0 million plus SFH’s decreased their inventory from 16 months to 11 months.  In Florida, for that price range along the Gulf Coast, there is 3 years worth of inventory.  The condo market is even warmer under the $500,000 price range and the over $500,000 range is still doing very well at 6.7 months of inventory (balanced between a buyers and sellers market).  Not bad at all.

If there are any questions, feel free to contact me at scott@kahalaassociates.com

Are you thinking about purchasing a vacation rental on Oahu? Maybe something you will rent out as a vacation rental and come over an use ever once in a while? Make sure you purchase the correct property to allow for this. Resort zoned property, a condo tower with a hotel check-in desk in the lobby(waikiki), and a B & B with a transient vacation license are the three allowed…..

Many people look to purchase that home near the beach in Kailua or Hawaii Kai, or the condo on the marina in Hawaii Kai and rent it out short term. Not only is it a violation of the Condo or Association By-Laws, but the City and County of Honolulu may come after you.

There was a great article in the Honolulu Advertiser that made frontpage news regarding this. Click Here for the full article and what the County is doing adn should be doing to help this situation.

ANYTHING THAT BEGINS WITH ‘I DON’T KNOW HOW TO TELL YOU THIS’ IS NEVER GOOD NEWS” Ruth Gordon. But after a trend of gradually worsening over the past month, Bond prices and home loan rates finally got the good news they’d been waiting for…

that pesky inflation rate finally appears to be moving lower. Early last week, the Consumer Price Index (CPI) showed core consumer price inflation as better than anticipated, falling to a year-over-year 2.5% rate, down from 2.7% reported last month. While lower prices on goods and services are certainly good news for all of us, the consumers; it was especially welcome for inflation-hating Bonds and home loan rates. Following the news, home loan rates improved by .125%, and appeared destined to improve even more.

But this wasn’t to be - what happened? Bond prices were feeling the love, home loan rates were improving - but right in the middle of the party, Bonds ran dead into a tough ceiling of technical resistance, stopping them cold and turning them back, causing them to lose some of the nice ground they’d made in the first part of the week. The path of least resistance ahead appears to be that Bond prices and home loan rates may worsen before they get better…but it all depends on the flavor of the news ahead.

FOR MOST AMERICANS, TAX SEASON IS OVER…BUT MORE PEOPLE THAN EVER ARE HEARING THEIR CPA SAY, “I DON’T KNOW HOW TO TELL YOU THIS…BUT YOU’RE GOING TO HAVE TO PAY ALTERNATIVE MINIMUM TAX THIS YEAR”. NOT GOOD NEWS. WHAT’S THE STORY? THIS WEEK’S MORTGAGE MARKET VIEW EXPLAINS.

Forecast for the Week

The week’s economic calendar contains mostly mid-level reports, but will provide an always-interesting look at the housing market, with Existing Home Sales on Tuesday and New Home Sales on Wednesday.

Unless any of the news and releases this week prove to be surprises, Bond prices and home loan rates are likely to respond to technical factors. Bond prices made a strong move higher this week, helping home loan rates improve - but now appear to be trapped beneath a tough layer of overhead resistance. What does this mean? That it will take some very “Bond-friendly” news to help Bonds muster up the strength to mount a successful attack against that ceiling of resistance, and help home loan rates improve.

Bottom line: If the news this week tends to be economically weak or negative, or otherwise helps reduce the fears of inflation - Bonds would make another run at the ceiling. But if the news is economically positive - or even moderate - Bonds will likely follow the path of least resistance they are on presently, moving lower and causing home loan rates to rise.

Chart: Fannie Mae 5.5%% Mortgage Bond (Friday Apr 20, 2007)