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INVESTMENT & FINANCIAL INSIGHTS

Q3: 2015

By Stephen Brown

e are pleased to announce contin-ued growth in the Cincinnati /Northern Kentucky region during the 2nd Quarter. On June 22,

2015 we opened our 5th Stock Yards Bank office located at 2635 Alexandria Pike, Highland Heights. This Highland Heights office is located directly across the street from the entrance to Northern Kentucky University (“NKU”). NKU is a rapidly growing educational and economic force in the region with 15,000 students (13,000 undergraduate and 2,000 graduate students) and 2,600 faculty members. While our new office (at 4,000 square feet) is larger than we initially desired, it does provide us with the opportunity to relocate 4 Relation-ship Managers there. In addition to the new office, we are happy to announce that David Pierce has joined our staff. With 30 years of banking experi-ence, David will focus on developing relationships with Commercial and Indus-trial businesses throughout the region. He is one of four Relationship Managers who will relocate to the new Highland Heights office. By placing calling officers in Northern Kentucky, we are able to empha-size our commitment to the region as we work to develop new business throughout the area. We are also pleased to announce two promotions in our Wealth Management Group in the Cincinnati/ Northern Kentucky Group. Joshua Shapiro, JD, was promoted to Director of Trust Services and

Director of Sales. A native of Cincinnati and a graduate of Indiana University School of Law, Josh has 20 years of experience in private practice and working with Trusts. Since joining SYB in 2011 as a Trust Officer, his focus on a “client service culture” has helped grow our Wealth Management Group. In addition, David Brooks was promoted to Director of Investments. David grew up in Louisville, KY and his family has strong ties to SYB. David is a graduate of Miami University, earned his MBA from Xavier University, and has nearly 25 years of financial services experience. David, who joined SYB in 2012, will bring strong discipline to our wealth management clients through his analytical approach to managing portfolios. Please join us as we welcome David Pierce to the SYB team, and congratu-late Josh and David on their well-deserved promotions. It’s hard to believe we are halfway through 2015, but as you can surmise the SYB Cincinnati/Northern Kentucky team is having a great year with many new banking relationships being established. If you are a current SYB customer we sincerely thank you for your business. If you are not a current customer, we are actively calling on businesses in the market and hope to visit you soon to personally introduce you to the Stock Yards Bank way of banking and investing. In the meantime, please do not hesitate to give us a call if we can be of service to you in any way! ♦

Cincinnati / Northern Kentucky Market Update

A N E W S L E T T E R F R O M T H E C I N C I N N A T I / N K Y M A R K E T O F S T O C K Y A R D S B A N K & T R U S T C O M P A N Y

STEPHEN BROWNCincinnati Market Executive

JOSHUA SHAPIRODirector of Trust Services & Director of Sales

W

DAVID BROOKSDirector of Investments

DAVID PIERCECommercial Banking

[2] INVESTMENT & FINANCIAL INSIGHTS Q3: 2015

Economic & Market Outlook: Q3, 2015

nited States financial assets became more volatile in the second

quarter in reaction to a number of perceived economic and political problems. The Stan-dard & Poor 500 managed to eke out a total return during the quarter of 0.28%. Total return for the index in the first six

months is 1.23%. Bond investors experienced a negative return in the quarter with high quality fixed income providing a total return of -.62%. Year to date, the bond market has only gained .82%.Domestic economic data remains mixed. Final revisions for the first quarter gross domestic product indicate that the economy declined 0.2% similar to the negative return experienced during that same time frame in 2014. Economists believe a decline in exports related to the strong dollar and severe weather were the primary contributors to the weak growth. We still believe that the economy this year will mirror the economy in 2014 with better growth in the second half of the year. Consumer spending, housing, and manu-

MARK HOLLOWAYChief Investment Officer

Ufacturing gains will offset the negative first quarter numbers. Economic growth will remain close to the slow 2.5% average we have experienced over the six years of this recovery.Financial assets worldwide have become more volatile in response to a number of investor concerns. Domestically, the Federal Reserve has been the focus of attention. When, by how much, and how fast the Fed increases short term interest rates will have an impact on our stock and bond markets. Stocks and bonds have reacted negatively to the initial short term rate increases in the past. Positive returns are more the norm over the entire rising short term interest rate cycle. This is primarily due to the increase in economic activity and the resulting increase in corporate profits that need to be present before any rate increase is initiated by the Federal Reserve.Greece and the Eurozone debt drama have also been in the news and added to investor uncertainty. The very real possibility of a Greek default on their sovereign debt and exit from the European Union has highlighted the problems associated with countries that have high levels of debt. Declining economic activity and lower standards of living have long been associated with unsustainable borrowing. Investors fear another banking crisis, the breakup of the Euro-pean Union, and a possible recession in Europe caused by a default by Greece or other European

LOUIS VALKERWealth Advisor

There are many di�erent types of trusts that can help alleviate the e�ects of gift and estate tax and direct the �ow of your wealth transfer. By designing a well-planned trust strategy, you can transfer your wealth in the most e�cient way possible.

GRANTOR RETAINED ANNUITY TRUSTS (GRATS) AND GRANTOR RETAINED UNIT TRUSTS (GRUTS)A GRAT is a type of trust that makes annuity payments back to its grantor over a number of years and then transfers any remaining value to a bene�ciary. When a GRAT is created, the IRS uses a set growth rate to estimate the trust’s future value. It then subtracts the annuity payments

from the future value to determine the remainder—the only portion taxed as a gift. Because GRATs are taxed upfront, any excess will not be subject to gift taxes.

GRUTs are almost identical to GRATs; however, GRUT annuities are a percentage of the trust’s value that year. That means that the income distributions will be less stable and may be higher one year, but lower the next.THINGS TO KEEP IN MIND WHEN CONSIDERING GRATS/GRUTS:

ARE STILL SUBJECT TO INCOME TAXES

ARE IRREVOCABLE—THEY CANNOT BE CHANGED OR TERMINATED

ARE LEGALLY REQUIRED TO PAY ANNUITIES, REGARDLESS OF GROWTH

IRREVOCABLE LIFE INSURANCE TRUSTS (ILITS) ILITs are trusts designed to hold the life insurance policy of their creator. An ILIT essentially removes your life insurance policy from your o�cial

Trust Options

[3] INVESTMENT & FINANCIAL INSIGHTS Q3: 2015

“By designing a well-planned trust strategy, you can transfer your wealth in the most efficient way possible.”

countries. The more likely outcome of European Union and International Monetary Fund negotiations over the Greek debt situation will be the acceptance of some austerity concessions by the Greeks in exchange for maturity extensions and new loans. A short term fix of this nature virtually guarantees that the Greek economy will continue to be a problem. Greece’s economy is too small to cause the European Union to dissolve. However, the threat of default and the impact on the European economy adds another dimension of uncertainty for investors to cope with.The roller coaster ride that has been the Chinese stock market this year has also shaken investor confidence. After leading world stock market returns in the first five months of 2015, the Shanghai and Shenzhen exchanges suffered a dramatic reversal in mid-June, dropping by nearly a third. The Chinese government and business interests in China have made efforts to prop up the market and ultimately closed the exchanges briefly in an attempt to restore order. High valuations, deteriorating economic fundamentals, and a lack of liquidity have investors worried about a bubble in Chinese financial assets that will translate into higher volatility in world financial markets.Somewhat overshadowed in the news was the risk of default by the commonwealth of Puerto Rico. The gover-nor announced that a total of $72 billion in outstanding debt obligations would not be payable. The debt problem in Puerto Rico reminded investors of the problems in the

municipal bond market here in the United States. Unfund-ed pension liabilities have placed credit ratings at risk on the municipal debt of a number of cities and states. Puerto Rican bondholders will be forced to accept deferred payments and restructuring. Final resolution of this crisis may take years and will undermine confidence in the muni markets.Why mention all of these negative developments? Primari-ly, to prepare investors for increased financial asset volatili-ty. There may also be a silver lining to the many financial and economic dilemmas we are experiencing. Problems in Europe and with the Chinese stock market may cause our Federal Reserve to delay increasing interest rates. Any delay in the increase in short term interest rates would be positive for domestic stocks near term. Overseas fears may also result in increased capital flows to safe haven coun-tries like the United States where political stability, a strong currency, and economic growth are the norm. These capital flows would support our bond and stock markets. Finally, financial markets sometimes climb a wall of worry and investor pessimism. Positive stock market returns often occur when investors are the most apprehensive about the outlook.Please contact your wealth management advisor for more information regarding the details of the investment themes that are guiding our asset allocation and security selection decisions. ♦

property, thereby protecting it from estate taxes. This type of trust also provides the surviving bene�ciaries with funds while not passing into their estates, which helps avoid estate taxes as well. ILITs can help grantors feel secure because they guarantee that no matter how much a grantor spends in their lifetime; their bene�ciaries will still receive an income after their death from their life insurance policy.When considering ILITs, keep in mind the following:

CONSIDERED OUTSIDE GRANTOR’S ESTATE THREE YEARS AFTER CREATION

ALLOWS BENEFICIARIES TO TAKE SMALL GIFTS ANNUALLY FROM THE TRUST FOR A BRIEF PERIOD OF TIME (USUALLY 30 DAYS) TO AVOID GIFT TAXES

INTENTIONALLY DEFECTIVE GRANTOR TRUSTS (IDGTS) IDGTs are trusts that make the grantor the owner of the trust for income tax purposes but not for estate tax purposes. Using a trust with the word “defective” in its name may seem counterintuitive, but this simply refers to the

fact that the grantor is taxed on the income the trust receives. The “intentional” part of the trust hints at the fact that this type of taxation allows the trust itself to remain untouched, leaving more money for the grantor’s future heirs. This type of trust essentially freezes assets for estate tax purposes by allowing them to grow outside of their estate without income tax reductions.

Choosing a trust to aid your wealth transfer plan can be tricky, so it’s important to work with legal and �nancial professionals to do so. You should consider the unique aspects of each trust and whether or not they �t with your wealth transfer plan and your family’s needs. ♦

Cover – first paragraph, second sentence….. remove , KY 41076 Louis article – After first paragraph – “Grantor Retained Annuity Trusts (GRATS)”…etc – should be a subtitle. Same article – top paragraph – right column – add comma after “however, GRUT”

101 W. Fourth StreetCincinnati, OH 45202

Taking Off In Northern Kentucky!

HIGHLAND HEIGHTS OFFICE | 2635 Alexandria Pike | Highland Heights, KY 41076

FLORENCE OFFICE | 4790 Houston Rd. | Florence, KY 41042

NOT FDIC INSUREDMAY LOSE VALUENO BANK GUARANTEE

Wealth Management & Trust Services

DOWNTOWN, 101 W. Fourth Street – Cincinnati, OH 45202MADERIA, 7124 Miami Av – Cincinnati, OH 45243HYDE PARK, 3880-A Paxton Ave – Hyde Park, OH 45209

STEPHEN BROWN, Cincinnati Market Executive, (513) 824-6104

JOHN POSEY, Wealth Management Director/Cincinnati, (513) 824-6127

ERIN ARNOLD, Wealth Advisor/Trust & Estate Planning, (513) 824-6128

DAVID BROOKS, Wealth Advisor/Investment Management, (513) 824-6146

JOSH SHAPIRO, Wealth Advisor/Trust & Estate Planning, (513) 824-6142

LOUIS VALKER, Wealth Advisor/Trust & Estate Planning, (513) 824-6102

DOWNTOWN OFFICEHYDE PARK OFFICEMADEIRA OFFICE

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We provide the information in this newsletter for general guidance

only. It does not constitute the provision of legal advice, tax advice,

accounting services, investment advice, or professional consulting

of any kind. The information provided herein should not be used

as a substitute for consultation with professional tax, accounting,

investment, legal, or other competent advisers. Before making any

decision or taking any action, you should consult a professional

adviser who has been provided with all pertinent facts relevant to

your particular situation. The information is provided “as is,” with

no assurance or guarantee of completeness, accuracy, or timeliness

of the information, and without warranty of any kind, expressed or

implied, including but not limited to warranties of performance,

merchantability, and �tness for a particular purpose.