Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Bonds’

Life Settlements—Savior of Municipal Finance?

Posted by William Byrnes on September 5, 2011


Life settlements provide a unique source of revenue because their returns are not contingent on the market’s success.

But are they still lucrative in comparison to other municipal finance? Rancho Mirage California City Councilman Scott Hines thinks so.

Under Hines’ plan, the city would issue bonds, with most of the issue proceeds being used to finance city projects. The remaining funds would be invested in life settlements with an aggregate face value equal to the face value of the bond issue. Payouts on the life settlements would then be used to pay back bond principal.

Instead of the typical municipal bond financing arrangement, where tax dollars utilized to pay back both principal and interest on an issue, Hines’ plan would leave taxpayers with only a bill for interest payments.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

For previous coverage of life settlements in Advisor’s Journal, see Life Settlement Provider Accused of Falsifying Life Span Reports (CC 11-23).

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Change in Muni Bond Market Could Help Producers

Posted by William Byrnes on February 19, 2011


The Wall Street Journal has recently noted that significant withdrawal of funds from municipal bonds throughout the country totaled over $4 billion in a one week period. [1] According to some estimates, the withdrawal accounts for only one tenth of one percent of the overall muni bond market.  [2] Yet, the numbers are record breaking.  The withdrawal is the largest from the muni bond market since last November, reports the Wall Street Journal.

However, the trouble seems to have started well before Meredith Whitney appeared on “60 Minutes”  in late December of last year when she call for the future “collapse” of the muni bond market.  In her opinion, the state and local governments will be forced to default on obligations made to bond holders because the governmental entities are quickly running out of liquidity.  Nevertheless, the muni bond numbers reflect the ”10th straight week of outflows, which total roughly $20.6 billion.” [3]

Whitney though may have created in the muni bond market what is now known as Gladwell’s “Tipping Point”.  Read the full analysis at AdvisorFYI

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Tax-Exempt State and Local Municipal Bonds

Posted by William Byrnes on October 18, 2010


Why is this Topic Important to Wealth Managers?   Discuses one alternative investment wealth managers are continuing to explore in consideration of uncertain tax law changes.  Provides general background as well as analysis and comparison to show the benefits available through the purchase of tax-exempt bonds.     

Interest received from bonds is generally taxed at ordinary income rates.  This includes both government and corporate bonds unless otherwise excluded by the tax code.  Dividends though are taxed at capital gains rates, which for the meanwhile can provide significant tax benefits.  See our previous AdvisorFYI blogticle of September 13th Bush Tax Cuts Set to Expire. 

However, some state and local municipal bonds often called “muni” bonds, produce tax—exempt interest income under Internal Revenue Code § 103. The general obligation interest on state or local bonds fall into this category as distinguished from private activity bonds.  

A detailed discussion of private activity bonds in comparison to general obligation bonds can be found at AdvisorFX Tax Facts: Q 1123. Is interest on obligations issued by state and local governments taxable? (sign up for a free trial subscription if you are not a subscriber). 

To read the remainder of this blogticle that deals with general obligation bonds, and offers a comparison between tax-exempt and taxable income bonds with illustrated rates of return, please see AdvisorFYI

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