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AI Spending Starts to Strain Big Tech’s Business Case · The Financial Exchange Show

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Speaker 1: Sauta and Mark Fandetti.
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Speaker 2: It's Chuck, Mark and Tucker broadcasting to you from the
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Speaker 2: middle of the haze that is inhabiting New England right now.
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Speaker 2: We uh you know again. Coming in, Tucker was like, man,
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Speaker 2: it looks like Mars out there, and everybody's like, this
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Speaker 2: is fine, this is totally fine. I think it's more
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Speaker 2: venus personally, you know, it's it's not really a red tint.
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Speaker 2: It's more of kind of a yellow wish. Yeah, end
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Speaker 2: of the world type situation. But look, it's every summer
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Speaker 2: now Canada catches on fire and New England has to
1:51
Speaker 2: breathe it in. And I guess that's just what we do.
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Speaker 3: Are we just attributing it to like, you know, like
1:56
Speaker 3: it's a foggy day, Like, oh, it must be the smoke.
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Speaker 2: It's fine, what's good. I gotta be honest. So I'm
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Speaker 2: worried about it. Yesterday, I'm sitting there and it's like
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Speaker 2: eleven forty five and I look at my phone. I'm like, oh,
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Speaker 2: like it was supposed to be like ninety five today.
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Speaker 2: Let me like take a look. And my phone says
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Speaker 2: it's Sonny out and I look outside and I'm like
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Speaker 2: it is not sunny. It is very much what's that
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Speaker 2: basketball in the sky cloudy? And all I know is
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Speaker 2: for whatever reason, like this this thing that that happens here,
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Speaker 2: it it makes the world look a little bit unnatural.
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Speaker 2: And you know, I gotta be honest, if it were
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Speaker 2: you know, like three thousand years ago and you didn't
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Speaker 2: have access to like wee other dot common stuff, I
2:41
Speaker 2: think very much you'd be like, yep, this is it,
2:43
Speaker 2: world's gonna end. Yeah, you know, like just this call
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Speaker 2: it in like we're done here. I guess that's it.
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Speaker 4: Yeah, this is what the dinosaurs saw.
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Speaker 2: I so honestly. The place where I most felt that
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Speaker 2: was two years ago when we had the big eclipse.
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Speaker 2: I went up. I took the family up to Burlington, Vermont.
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Speaker 2: It clips central like right over Lake Champlain like fantastic,
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Speaker 2: but as it's happening, you know, on one level, like
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Speaker 2: it's I gotta be honest, if you've never actually gone
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Speaker 2: and seen like the totality, you have to at some
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Speaker 2: point because it's it's totally different from the partial. Like
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Speaker 2: it literally like all the animals start making their night
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Speaker 2: noises and stuff like it's it's kind of weird and
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Speaker 2: spooky and kind of emotional also because you're like, man,
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Speaker 2: like this is just wild. But then there's there's a
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Speaker 2: part of me that goes through it and is like,
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Speaker 2: I understand why the Mayans thought the world ended every
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Speaker 2: like twenty five hundred years or so or whatever it is,
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Speaker 2: because you see one of these and you're just like, Okay,
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Speaker 2: that's like the end must be near because it just
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Speaker 2: got like pitch black for you know, five minutes and
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Speaker 2: then the sun came up again. What was that? You know, like,
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Speaker 2: I understand why one would think that the world is ending,
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Speaker 2: Which brings us to the stock market, specifically this piece
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Speaker 2: from the Wall Street Journal. Blockbuster stock sales are threatening
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Speaker 2: to overwhelm the bull market. Mark didn't Blockbuster Video go
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Speaker 2: out of business quite a while ago.
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Speaker 4: Funny you should ask me, as one of their last customers.
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Speaker 2: Yeah, you were very pro Blockbuster.
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Speaker 4: I was. I used to like the video rental. I
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Speaker 4: enjoyed it too. Fun I as a kid in a
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Speaker 4: young adult.
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Speaker 2: I understand why we went and stunts the model that
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Speaker 2: we have now. But I loved, you know, spending half
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Speaker 2: an hour on.
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Speaker 4: Kill an hour with the kids just doing that, and.
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Speaker 2: Oh yeah, it was great. You know, like you're having
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Speaker 2: to like figure out, Okay, which one are we going
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Speaker 2: to rent? There's the four hundred copies of Titanic on one wall,
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Speaker 2: and then there's like somewhere hiding in there is you know,
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Speaker 2: like I'm trying to think of, like you know, there's
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Speaker 2: like one copy of Gremlins that's still there that like
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Speaker 2: you know, someone might rent. And then of course you
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Speaker 2: have the part where hey, you've got to bring it
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Speaker 2: up to the person at the and that judge person
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Speaker 2: that the Blockbuster counter is gonna say, oh, you're renting
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Speaker 2: this again, or oh I love this one. But what
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Speaker 2: we're talking about here is not that Blockbuster is taking
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Speaker 2: down the stock market, but rather you've had three hundred
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Speaker 2: and forty four billion dollars of new stock shares issued
5:19
Speaker 2: to investors this year. There's also been you know, there's
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Speaker 2: a huge amount of debt that's being issued as well
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Speaker 2: that looks like we might end up issuing between stocks
5:30
Speaker 2: and bonds this year somewhere around eight hundred billion dollars
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Speaker 2: worth of shares and or debt, and people are getting
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Speaker 2: nervous about like, hey, you know, where's the funding for
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Speaker 2: this gonna actually come from? Like how's this gonna work?
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Speaker 2: And I get that. What I often say, though, is, look,
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Speaker 2: the things that end up taking down markets aren't the
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Speaker 2: things that everyone knows about. It's the stuff that no
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Speaker 2: one has on their bingo card, that you know, people
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Speaker 2: have wrong. Case in point, last year, the thing that
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Speaker 2: spooped markets last spring that finally kicked off, you know,
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Speaker 2: a sell off that was looming for several months before,
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Speaker 2: was tariff's in the threat of you know, high tariffs
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Speaker 2: being imposed this year. It was hey, like there's a
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Speaker 2: war going on in the Middle East now, and most
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Speaker 2: people didn't think that was gonna happen this year. So
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Speaker 2: I don't really think that this in and of itself
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Speaker 2: is going to be the problem, because we know this
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Speaker 2: is coming. It's it's not something that's going to be
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Speaker 2: the issue. The issue will be, Hey, something tangential that
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Speaker 2: has no relation to this, but ultimately like kicks this
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Speaker 2: into Okay, this is a problem, but we know about
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Speaker 2: it too. This is a problem, and now we can't
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Speaker 2: deal with it. That tangentile thing is going to be
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Speaker 2: the the what kick starts any issue? Not this.
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Speaker 4: Yeah, secondary sales aren't inherently problematic. One of the points
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Speaker 4: made in the article is they've tended to balloon in
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Speaker 4: the late stages of a bullmark. So there's some kind
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Speaker 4: of portent I didn't infer from the way they wrote
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Speaker 4: this cause and effect. It's just a again, sort of
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Speaker 4: a portent, like the eclipse you were talking about. We
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Speaker 4: don't know what to make of it. This might be bad. Oh, look,
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Speaker 4: it's always happened when something it's always preceded something bad happening.
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Speaker 4: So a company going to market could be a good
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Speaker 4: Many companies deciding to do it. Conditions are favorable financial
7:23
Speaker 4: conditions or remain favorable these We have the deepest, most
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Speaker 4: dynamic capital markets in the world. It's a good statement
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Speaker 4: about the dollar strength to know. I always trying to
7:33
Speaker 4: insert this point in there, just to remind people why
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Speaker 4: companies want a list here. We talked about Samsung yesterday,
7:38
Speaker 4: We'll talk about a couple of others today that want
7:40
Speaker 4: to tap American capital markets. It could also be framed
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Speaker 4: as a healthy sign. Could it be a symptom of
7:48
Speaker 4: irrational exuberance? Everybody just wants shares that have any of course,
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Speaker 4: it could be, But inherently I don't think it's not destructive.
7:56
Speaker 4: Maybe I'm missing something.
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Speaker 2: No, it's something where what I see and the thing
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Speaker 2: that I do think is worth watching on some of
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Speaker 2: this stuff, not for the market as a whole, but
8:05
Speaker 2: on you know, some of these companies that are raising capital,
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Speaker 2: especially the ones that are ipoing, Hey, the IPO ones.
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Speaker 2: Once those lockups expire on their shares, you often do
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Speaker 2: see some volatility within a particular issue as a result
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Speaker 2: of it. Does that spill over to the broader market
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Speaker 2: or not, Well, we'll just have to wait and see.
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Speaker 2: But I think this is a well researched phenomenon, which
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Speaker 2: is Hey, when when lockups expire for a lot of
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Speaker 2: these shares and insiders are finally allowed to sell them, yeah,
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Speaker 2: that can have some problems balancing supply and demand in
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Speaker 2: the short term.
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Speaker 4: I guess one concern here is that something's gonna shatter
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Speaker 4: the AI fantasy. I'm calling it a fantasy because it
8:47
Speaker 4: hasn't been realized yet and it's all so it's largely
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Speaker 4: sentiment based. It's it's hope based at this point. It's
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Speaker 4: I'm not saying it's not grounded in a lot of
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Speaker 4: sound findings to to to date. The potential Yeah, but
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Speaker 4: if something changes people's views their emotions about AI. It
9:06
Speaker 4: could be a catalyst for a pullback in stocks.
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Speaker 2: Let's take a quick break because I think there's a
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Speaker 2: nice segue here into what IBM said yesterday and what
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Speaker 2: it means about artificial intelligence in the next year or two.
9:19
Speaker 2: Quick break, and then we'll talk about Big Blue after this.
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10:16
Speaker 2: Yesterday, IBM lost sixty nine billion dollars of market cap
10:20
Speaker 2: in one day. I don't really I don't know why
10:24
Speaker 2: we like to frame like the losses on a day
10:27
Speaker 2: in terms of market cap because I get that, like
10:31
Speaker 2: it sounds impressive, but it's like, oh, like, you know
10:34
Speaker 2: Mark Zuckerberg's networth changed by x today. Well, I don't
10:37
Speaker 2: think he was buying or selling his shares on that
10:39
Speaker 2: particular day, so it doesn't really matter. But here's what
10:44
Speaker 2: I do think is interesting. So IBM reported their earnings
10:47
Speaker 2: and pretty much what they said the CEO was like, look,
10:52
Speaker 2: we thought we were gonna be able to execute this quarter,
10:55
Speaker 2: but it turned out people were prioritizing their CAPEX spending
10:59
Speaker 2: instead of software. So we had a bunch of deals
11:00
Speaker 2: we thought we're going to close this quarter. They didn't close,
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Speaker 2: and hopefully we can get them done next quarter. But
11:08
Speaker 2: this does get it a key idea, and I think
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Speaker 2: the one that all of us should be wrestling with
11:14
Speaker 2: when it comes to AI, which is, look for corporate spending.
11:17
Speaker 2: There's only so many dollars to go around. If you
11:20
Speaker 2: have a company that has a billion dollar expense budget
11:25
Speaker 2: overall and you say, great, we're going to allocate you know,
11:30
Speaker 2: one hundred million of that to spending on AI this year, Well,
11:34
Speaker 2: that spending's got to come from somewhere if you haven't
11:37
Speaker 2: otherwise increased that budget and This is kind of how
11:40
Speaker 2: it works for most companies because unless you are a
11:44
Speaker 2: memory chip maker, your revenue is not you know, going
11:48
Speaker 2: sky high this year. It might be on you know,
11:50
Speaker 2: the same steady increase it's been on for the last
11:52
Speaker 2: couple of years, or this and that or whatever. But
11:55
Speaker 2: there are only so many dollars to go around. And
11:58
Speaker 2: this gets at the crux of the problem them for
12:02
Speaker 2: how AI is going to actually be net accreative to
12:07
Speaker 2: the bottom lines of these hyperscalers. Where look, do the
12:11
Speaker 2: math out and say, let's say that hyperscalers as a
12:14
Speaker 2: whole are doing four trillion dollars of capex over you know,
12:18
Speaker 2: a four year period. Okay, the revenue that you need
12:22
Speaker 2: to make at fifty percent margins to cover that is
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Speaker 2: eight trillion dollars effectively, like when you look at just
12:29
Speaker 2: like the basic math, but it's got to be amortized,
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Speaker 2: you know, over you know, the depreciation for when that
12:35
Speaker 2: actually hits. And so you're looking at this and you're going, okay,
12:38
Speaker 2: over a seven to eight year period of time, where
12:41
Speaker 2: am I gonna find like eight trillion dollars in new revenue?
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Speaker 2: And the only way that you get there in my
12:47
Speaker 2: opinion is by companies being able to replace their employees
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Speaker 2: with AI, not simply empower their employees with AI, because otherwise,
12:55
Speaker 2: if all you're doing is saying, yeah, we're going to
12:57
Speaker 2: empower our employees with AI, well you still got this
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Speaker 2: huge employee expense. There's nothing else big enough to offset
13:04
Speaker 2: all that other cost. And this is where the math
13:07
Speaker 2: has always broken down for me, and I've struggled with it.
13:11
Speaker 2: Is it's the question you're trying to get to is
13:14
Speaker 2: pretty much, can we get the AI good enough to
13:17
Speaker 2: replace employees before the costs start hitting our income statement.
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Speaker 4: Well the other way is, of course issue more stock,
13:22
Speaker 4: which we talked about.
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Speaker 2: But you can only do that for so long. No, no,
13:28
Speaker 2: it's for now.
13:29
Speaker 4: Investors seem not to have a diminished seem to not
13:32
Speaker 4: be taking that into account.
13:33
Speaker 2: Well, so I think it's interesting in that I think
13:38
Speaker 2: this one's interesting. Actually if we look at where the
13:41
Speaker 2: spending is coming from UH for the hyperscalers, like specifically
13:47
Speaker 2: the companies it's magnificent seven like that is it's mag
13:50
Speaker 2: seven minus UH in video because in video is on
13:53
Speaker 2: the other side there. So when when we look at
13:58
Speaker 2: those companies and we look at how the Magnificent seven
14:01
Speaker 2: have performed this year. The interesting thing that I don't
14:05
Speaker 2: think people might realize is that mag seven are basically
14:07
Speaker 2: flat year to date as a group. They're like two
14:10
Speaker 2: percent year to date. And so like you go through
14:14
Speaker 2: and you look at them and you say, okay, Microsoft.
14:18
Speaker 2: Microsoft opened the year at you know, four hundred and
14:21
Speaker 2: ninety dollars a share. It's at three ninety six right now,
14:24
Speaker 2: it's down twenty percent. Amazon open the year at It's
14:30
Speaker 2: finally made a little run in the last little bit.
14:33
Speaker 2: Amazon's up ten percent this year now after the last
14:35
Speaker 2: two weeks, but prior to that it was it was
14:37
Speaker 2: flat for the year.
14:39
Speaker 5: Uh.
14:39
Speaker 2: Google has been the one that's you know, kind of
14:41
Speaker 2: knocked the cover off the ball more than anyone else.
14:44
Speaker 2: Google still is only up like fifteen percent this year. Uh.
14:48
Speaker 2: You will get Meta, who's just gotten absolutely punished until
14:51
Speaker 2: the last again week or two. But Meta before that
14:54
Speaker 2: was down like twenty five percent for the year as well.
14:58
Speaker 2: And so you look at this and you're like, okay, Like, yeah,
15:01
Speaker 2: they've been able to issue more stock in debt, but
15:03
Speaker 2: it's not like the stock they've had has you know,
15:06
Speaker 2: performed particularly well. It's not like, investors have been excited
15:09
Speaker 2: about these companies this year despite their earnings as a
15:12
Speaker 2: whole growing by you know, twenty five percent approximately, you know,
15:17
Speaker 2: on an annualized basis. And so I think the place
15:20
Speaker 2: that I end up on this is investors are starting
15:26
Speaker 2: to ask, Okay, if you're a hyperscaler, can you prove
15:30
Speaker 2: that this is going to actually work out for you
15:34
Speaker 2: on the stock side. The debt side makes sense, and
15:36
Speaker 2: that aside from Oracle, you can make the math work
15:42
Speaker 2: for any of these hyperscalers being able to pay for
15:44
Speaker 2: the debt that they're issuing. They don't have any If
15:47
Speaker 2: they just stop building data centers the way they're building them,
15:50
Speaker 2: they can cover the cost of all this debt issue,
15:52
Speaker 2: And so like, why wouldn't you, Like, I can understand
15:55
Speaker 2: the logic of Okay, I don't know where Microsoft's stock
15:58
Speaker 2: is going to be, but if Microsoft issue a ten
16:00
Speaker 2: year bond, yeah, I bet sat you can figure out
16:03
Speaker 2: how to get me paid over those ten years.
16:05
Speaker 4: That there's no spread over treasuries for that, right.
16:07
Speaker 2: Right, Like that that makes sense to me, But it
16:10
Speaker 2: also makes sense and that hey, if you're issuing more
16:13
Speaker 2: debt and more equity and this is a little uncertain. Well, yeah,
16:17
Speaker 2: I'm not sure. I want to own your equity. And
16:20
Speaker 2: so that's why Max seven is a whole of underperformed
16:23
Speaker 2: the US market this year. Like that, those ideas I
16:26
Speaker 2: think makes sense when you hold them that way. But
16:29
Speaker 2: ultimately the question is, Okay, what is going to be
16:33
Speaker 2: the way this breaks. Are we gonna get to the
16:35
Speaker 2: point where companies say, yep, we can start laying people
16:38
Speaker 2: off and mass because of AI, and then the data
16:41
Speaker 2: center investment makes sense or do we not get there?
16:44
Speaker 2: And the first move is companies saying it's time to
16:48
Speaker 2: start canceling data center investment. It's gonna be one of
16:51
Speaker 2: those two things, because I don't think.
16:52
Speaker 4: It is increased revenue. Factor in to.
16:55
Speaker 2: That increased revenue for what from It's gonna be a
16:59
Speaker 2: cop start laying people off and taking payroll and moving
17:03
Speaker 2: it towards AI spending. If Caterpillar says we can lay
17:07
Speaker 2: people off and start spending on AI.
17:10
Speaker 4: Oh, I'm sorry, I was thinking a hyperscaler spending.
17:13
Speaker 2: I'm sorry, Well, hyperscalers need revenue from everyone else.
17:16
Speaker 4: Ye, there aren't enough codes. Sorry, point that there aren't enough.
17:20
Speaker 2: Coders in the world to pay for four trillion dollars
17:23
Speaker 2: of data center. There's just not that doesn't exist. What
17:28
Speaker 2: you need is for every law firm, every bank, every
17:33
Speaker 2: ad agency to say, yep, we can lay our people
17:37
Speaker 2: off and start using AI for these roles and not
17:41
Speaker 2: just like a couple, but a lot. Maybe that's where
17:46
Speaker 2: we go. Maybe it's no, we can't get there. I
17:49
Speaker 2: don't know, but there's there's only so much spending to
17:52
Speaker 2: go around from companies and if you don't have if
17:56
Speaker 2: you can't cut payroll, you're not going to find enough
17:59
Speaker 2: to pay for four trillion dollars in data center.
18:01
Speaker 4: So coming back to IBM, yes, most of your revenues
18:04
Speaker 4: or profits I forget, which come from software or consulting,
18:08
Speaker 4: and there's only so much Companies only have so much
18:10
Speaker 4: money to spend on these things. If you group that
18:13
Speaker 4: in with AI spending, whether it's software, thus their disappointing.
18:20
Speaker 2: Performance maybe in the short term, but in the short term. Yeah,
18:23
Speaker 2: But it's the question of Okay, is this what companies
18:26
Speaker 2: are doing this year or is this what companies are
18:28
Speaker 2: going to do every year for the next fifteen And
18:31
Speaker 2: I think the jury is very much out on that
18:34
Speaker 2: question right now. And we're getting to the point where
18:37
Speaker 2: it's going to have to resolve in the next year
18:39
Speaker 2: or two. So that's I think where things are going.
18:43
Speaker 2: On the other side of this, ASML, the company that
18:46
Speaker 2: makes the lithography machines that etch the circuits into the
18:50
Speaker 2: silicon wafers and everything, they are continuing to raise their
18:53
Speaker 2: outlook because they say, yep, we got all kinds of
18:55
Speaker 2: demand for these because everyone wants more chips right now,
18:59
Speaker 2: and we're the only ones who can make the machines
19:01
Speaker 2: that make the chips.
19:02
Speaker 4: Yeah, no surprise, they're right.
19:03
Speaker 2: No again. The first domino to fall will be the
19:07
Speaker 2: hyperscaler saying we're cutting spending on Capex and then everything
19:12
Speaker 2: else falls into place from there like that. That's the
19:15
Speaker 2: sign the party's over. We're not seeing that yet. What
19:18
Speaker 2: we're seeing right now is okay, Meta and SpaceX saying well,
19:22
Speaker 2: we're gonna lease out this excess capacity once. If they
19:26
Speaker 2: can't realize those leases, if they can't lease it out,
19:29
Speaker 2: that's when you start to see the move. Let's take
19:32
Speaker 2: a quick break Wall Street watch and ask Todd or next.
19:39
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19:42
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19:46
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19:51
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19:54
Speaker 1: headlines driving markets so far today right here on the
19:57
Speaker 1: Financial Exchange Radio.
19:59
Speaker 3: Network, markets are modestly in positive territory, with tech building
20:04
Speaker 3: on yesterday's gains. Wall Streets also continue to monitor oil
20:08
Speaker 3: prices amid new attacks from the US on Iran. Right now,
20:12
Speaker 3: the Dow is up about a half a percent, SMP
20:14
Speaker 3: five hundred up over a third of a percent, NASDAC
20:17
Speaker 3: up half of a percent, RUSS two thousand up over
20:21
Speaker 3: half a percent as well. Tenure Treasure reeled down three
20:24
Speaker 3: basis points at four point five to five percent, and
20:27
Speaker 3: Oil up about a third of a percent, trading it's
20:29
Speaker 3: seventy nine dollars a barrel shares an ASML and mostly
20:33
Speaker 3: flat after beating second quarter expectations and lifting its annual
20:37
Speaker 3: sales guidance for the second time. The company also said
20:40
Speaker 3: it would increase output of its machines in the coming years. Meanwhile,
20:44
Speaker 3: PayPal stock surging nearly seventeen percent and is on pace
20:48
Speaker 3: for its best day ever after Reuters reported that payments
20:51
Speaker 3: processor stripe in private equity firm Advent offered to buy
20:55
Speaker 3: it for sixty dollars and fifty cents a share, which
20:58
Speaker 3: would value PayPal at more than fifty three billion dollars.
21:03
Speaker 3: Elsewhere more bank earnings. Blackrock shares a rising seven percent
21:07
Speaker 3: after the firm's assets serge SIR record fifteen point three
21:11
Speaker 3: trillion dollars in the previous quarter. Morgan Stanley up by
21:14
Speaker 3: one percent after it posted record quarterly revenues and profits
21:18
Speaker 3: and after its twenty five percent plunge yesterday. IBM shares
21:22
Speaker 3: are flat today. Tuesday session marked IBM's worst trading day
21:26
Speaker 3: on record after its preliminary second quarter results disappointed. I'm
21:32
Speaker 3: Tucker Silva and that is Wall Street Watch.
21:35
Speaker 1: This is Asked Todd on the Financial Exchange Radio Network.
21:39
Speaker 1: If you have an existing estate plan or in the
21:41
Speaker 1: market for one, Todd Letsky is here to answer your
21:44
Speaker 1: questions and help you plan for later life. Ask Todd
21:47
Speaker 1: is presented by Cushing and Dolan, serving Massachusetts and New
21:50
Speaker 1: England for more than thirty five years, helping families with
21:53
Speaker 1: the state and tax planning, Medicaid planning, and probate law.
21:56
Speaker 1: Visit Cushingdolan dot com now here. Todd, Budsky.
22:03
Speaker 2: And as U promised We're now joined by the one
22:07
Speaker 2: and only Todd Lutsky from the law firm of Cushing
22:09
Speaker 2: and Dolan, and he's here to answer your estate planning
22:13
Speaker 2: questions live on air. Phone lines wide open at the
22:18
Speaker 2: moment at eight eight eight to zero five two two
22:22
Speaker 2: six three. Again. That number is eight eight eight to
22:25
Speaker 2: zero five two two sixty three. That's the number to
22:28
Speaker 2: call to ask Todd your estate planning questions live on air,
22:32
Speaker 2: and we can usually get through two or three year calls,
22:35
Speaker 2: and so get calling early, get calling often to make
22:38
Speaker 2: sure Todd can answer your question. That number again is
22:43
Speaker 2: eight eight eight to zero five two two six three
22:47
Speaker 2: Again eight eight eight to zero five two two six three.
22:51
Speaker 2: Mister Lutsky, how are you doing today?
22:54
Speaker 6: I am never better? How are you doing good?
22:56
Speaker 2: I uh, I've really been enjoying the World Cup over
23:00
Speaker 2: the last month or so.
23:01
Speaker 6: It's been fantastics. Come I enjoy too.
23:03
Speaker 2: I actually met a uh, a boy the other day
23:07
Speaker 2: who was half French and half Scottish. Yeah, he's a
23:11
Speaker 2: wee lad. That's good. Yeah, it's been it's been great. Todd.
23:16
Speaker 2: Want to talk to you a little bit about medicaid
23:20
Speaker 2: uh and specifically, let's say that someone is going into
23:25
Speaker 2: a nursing home, yeah, and is trying to have Medicaid
23:30
Speaker 2: cover the cost of said nursing home.
23:32
Speaker 6: Yes.
23:33
Speaker 2: What does a medicaid application actually look like? Is it
23:36
Speaker 2: like a form you fill out at the DMV? Is
23:39
Speaker 2: it like taking the s A T is like? What
23:41
Speaker 2: what is the Medicaid application like? How does it work?
23:45
Speaker 4: Yeah?
23:46
Speaker 6: You know that's important. We talk so much about planning,
23:48
Speaker 6: Scott and ours.
23:50
Speaker 2: I'm sorry, Scott, I appreciate that. I appreciate that, Mike. Thanks, Rick.
23:55
Speaker 6: Yeah, that's so Chuck. The the uh, we spend so
24:01
Speaker 6: much time, you know, spending talking about how to save
24:04
Speaker 6: assets from the nursing home with the irrevocable trusts and whatnot.
24:07
Speaker 6: But inevitably, and I think you're right to bring it up, Chuck,
24:10
Speaker 6: that there's gonna be assets that are either not in
24:16
Speaker 6: the irrevocable trust when you know you've done your planning
24:20
Speaker 6: because you can't put everything in there, or you've not
24:24
Speaker 6: done your planning and there's a whole lot of assets
24:27
Speaker 6: that are at risk. So either way, we have to
24:30
Speaker 6: face that when we're going through the Medicaid application process,
24:34
Speaker 6: and it's important to know that some assets are accountable.
24:39
Speaker 6: Some assets are not. You have to figure out what
24:40
Speaker 6: to do. Don't apply on your own. But the application
24:43
Speaker 6: process itself is so time consuming. Like one, you're gonna
24:48
Speaker 6: need five years worth of every bank statement, five years
24:51
Speaker 6: worth of every investment statement, IRA statement, four oh one
24:56
Speaker 6: K statement. You're gonna need three years of tax returns.
24:59
Speaker 6: You're gonna need your birth certificate, your Social Security number,
25:03
Speaker 6: You're gonna need your driver's license, You're gonna need Medicare card.
25:06
Speaker 6: I mean, on and on. You need to go a
25:08
Speaker 6: deed to your house. You're gonna you're gonna need to
25:10
Speaker 6: show everything because they're looking. They're looking to see if
25:16
Speaker 6: you made any transfers in the last five years. That's
25:21
Speaker 6: why I came up with the five years amount of
25:23
Speaker 6: bank statements and whatnot. They're looking to see if you've
25:26
Speaker 6: done anything to create a reason to deny you medicaid benefits. Right,
25:33
Speaker 6: And so once you fill out all that and you
25:36
Speaker 6: put all that information on the application, you have to
25:39
Speaker 6: support everything on that application with all this information, and
25:43
Speaker 6: then you send it in and then they're gonna sniff
25:46
Speaker 6: it over and almost inevitably, no matter what you send in,
25:51
Speaker 6: they're gonna come back to you in about thirty days
25:53
Speaker 6: and say here's what else we're looking for, and then
25:58
Speaker 6: you're gonna have thirty days to reply to that, and
26:03
Speaker 6: you can only then hope that you've got everything in order,
26:06
Speaker 6: you've met the financial eligibility requirements, you got the assets
26:10
Speaker 6: spent down the way you're supposed to. Then thirty days
26:13
Speaker 6: after that, so ninety days on a good day, you
26:17
Speaker 6: could probably get an approval if you're in order, or
26:21
Speaker 6: at least an answer back saying you're approved or denied.
26:25
Speaker 6: And now the key here is is those thirty day windows.
26:28
Speaker 6: And this is why you don't want to apply on
26:30
Speaker 6: your own. First of all, you're not going to know
26:32
Speaker 6: how to save assets last minute if you do this,
26:34
Speaker 6: but if you don't have a lawyer. But more importantly,
26:38
Speaker 6: if you missed that thirty day deadline, you've lost an
26:41
Speaker 6: entire month, okay, And so that could cost you fifteen, sixteen,
26:45
Speaker 6: seventeen thousand dollars because your ability to go back up
26:50
Speaker 6: to three months as you go through the application process
26:54
Speaker 6: would be lost. And so now you can only go back.
26:56
Speaker 6: You know, you've wasted a month, so now you have
26:58
Speaker 6: to go pay Lee for that month. So folks, a
27:02
Speaker 6: lot involved. Good question, Uh, Chuck or Zach or whoever
27:07
Speaker 6: you are today.
27:08
Speaker 2: On that Thanks Steve.
27:10
Speaker 5: Uh.
27:10
Speaker 2: Talking with Todd Lutsky from the law firm of Cushing
27:13
Speaker 2: and Dolan. This is your chance to ask Todd your
27:16
Speaker 2: estate planning questions live on air right now, phone number
27:21
Speaker 2: eight eight eight to zero five two two six three. Again.
27:26
Speaker 2: We usually have time for a couple of questions here.
27:28
Speaker 2: Still have some room there, So eight eight eight to
27:31
Speaker 2: zero five two two sixty three is the number for
27:34
Speaker 2: you to call. We're gonna take a quick break, but
27:36
Speaker 2: when we return we are going to get to your
27:39
Speaker 2: questions with Todd. That phone number is eight eight eight
27:42
Speaker 2: to zero five two two six three. Again it is
27:47
Speaker 2: eight eight eight to zero five two two six three.
27:52
Speaker 1: Ask Todd with Todd Letsky every Wednesday at ten thirty
27:55
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
28:01
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
28:05
Speaker 1: Radio Network.
28:19
Speaker 2: Still room on the phone lines at eight eight eight
28:21
Speaker 2: two zero five two two sixty three. If you've got
28:23
Speaker 2: a question for Todd Lutsky, let's go first to Phil
28:26
Speaker 2: in Worcester. Phil, what's your question for Todd?
28:30
Speaker 5: Hi?
28:30
Speaker 7: Todd. I was left thirty thousand dollars in a will.
28:35
Speaker 7: It's in a trust. Right now, I'm on Social Security.
28:40
Speaker 5: I get.
28:42
Speaker 7: Disability social Security as well among food stamps. I don't
28:47
Speaker 7: if I take that money out of the trust, is
28:50
Speaker 7: anything going to be triggered?
28:52
Speaker 6: Yeah, So that's a great question. You said two things.
28:55
Speaker 6: Once you said it's in a will. Secondly you said
28:58
Speaker 6: it's in a trust. So did you get it through
29:00
Speaker 6: the will or did you get it in a trust?
29:02
Speaker 7: My father died and it was left in a will,
29:05
Speaker 7: but that money was put into a trust, So how.
29:08
Speaker 6: Did it get from the will to the trust. The
29:10
Speaker 6: will either said I leave it to Phil or the
29:12
Speaker 6: will said I leave it to a trust.
29:15
Speaker 7: Now, like I said, it was my father, it was
29:19
Speaker 7: left to me. But whoever wrote up the will, you
29:26
Speaker 7: know his asset's the will put it into a trust.
29:32
Speaker 6: So I don't want to beg the question. But again,
29:35
Speaker 6: if that will said your dad's will said I leave
29:39
Speaker 6: thirty thousand dollars to Phil, then Phil you would have
29:43
Speaker 6: got it. There would have been no way for you
29:44
Speaker 6: to not get it other than to disclaim it. If
29:48
Speaker 6: the will itself said I leave these thirty thousand dollars
29:51
Speaker 6: to a trust for the benefit of PHIL, then that's
29:54
Speaker 6: a different story, okay, And so I think you just
29:58
Speaker 6: need to get to the bottom of that. And I'm
29:59
Speaker 6: going to to go with you saying that you agree
30:02
Speaker 6: that it's in a trust, so I'm going to say
30:04
Speaker 6: that the will must have directed it to a trust.
30:08
Speaker 6: So what you need to do now is read the
30:10
Speaker 6: terms of the trust. And if the trust says I
30:13
Speaker 6: hold it in trust for the benefit of PHIL, then
30:17
Speaker 6: it's not going to disturb your governmental benefits in any
30:20
Speaker 6: way because you don't own it yet. But if you
30:24
Speaker 6: took it all out at one time, it could impact
30:28
Speaker 6: your governmental benefits if your asset based and I don't
30:32
Speaker 6: even know understand exactly what benefits you're getting, but if
30:34
Speaker 6: your asset based benefits, meaning if you have more than
30:38
Speaker 6: two thousand dollars, it might be considered accountable asset and
30:41
Speaker 6: could cause you a problem. My advice is read the
30:44
Speaker 6: will or read the trust, and maybe take it out
30:47
Speaker 6: slowly as needed to take care of your expenses or
30:51
Speaker 6: make your life better in some way, but not all
30:53
Speaker 6: at once, so as not to cause a problem with
30:55
Speaker 6: your governmental benefits. Hope that helps a little folks. But
31:00
Speaker 6: I want to talk to you about the guide we're
31:02
Speaker 6: given away as well this month, as we're getting closer
31:05
Speaker 6: and closer to the end of the month unlocking the
31:09
Speaker 6: power of irrevocable Medicaid trusts. We talked about the Medicaid
31:14
Speaker 6: application process, but you know what, it's a good idea
31:17
Speaker 6: to just get assets and here so they're protected. It
31:20
Speaker 6: explains in a very question and answer format that I
31:23
Speaker 6: keep adding new questions that I get from folks like
31:26
Speaker 6: you all the time as to how it works. You know,
31:30
Speaker 6: can I put money in? Can I take money out?
31:32
Speaker 6: How do I invest? It is that they're an income
31:35
Speaker 6: tax problem? Can I live in my house? Can I
31:37
Speaker 6: sell my house? Is there an income tax problem? If
31:40
Speaker 6: I sell my house? Can I buy another one? Can
31:42
Speaker 6: I put rental property in? Folks, everybody wants to know
31:45
Speaker 6: how they work. If you've never knew whether these trusts
31:49
Speaker 6: are right for you, but you wanted to know, get
31:52
Speaker 6: the guide. When you're done reading it, I think you're
31:54
Speaker 6: going to have an answer one way or another. Eight
31:56
Speaker 6: six six eight four eight five six nine nine or
32:01
Speaker 6: Legal exchange show dot com. You can download it there again.
32:04
Speaker 6: Eight six six eight four eight five six nine nine
32:08
Speaker 6: or Legal Exchange show dot com. You can download it
32:12
Speaker 6: right there and go to Cushing Dolan PC our instagram
32:15
Speaker 6: page for more information.
32:17
Speaker 2: Todd got another one here for you. Let's go to
32:19
Speaker 2: Sean in New Hampshire. Sean, what is your question for
32:23
Speaker 2: Tom Lutsky?
32:25
Speaker 5: Yes, thanks for taking my call. My wife has full
32:30
Speaker 5: blown dementia. We have two pieces of property that are
32:35
Speaker 5: in a trust, family trust, and all the other accounts
32:40
Speaker 5: are you know, if I pass, everything goes to her
32:45
Speaker 5: joint and by sa verasa yeah, joint, and then then
32:49
Speaker 5: after my wife passes, everything goes to the kids. Yep,
32:52
Speaker 5: you know equally. So what should I do to kind
32:56
Speaker 5: of change that? Because she wouldn't be able to I pass,
33:02
Speaker 5: everything goes to her, but she's not capable of handling.
33:05
Speaker 6: So I think the bigger question is twofold one. Are
33:11
Speaker 6: you worried about her if she goes to a nursing home?
33:14
Speaker 6: Are you covered to cover the cost of the nursing home?
33:16
Speaker 6: Or do you want to know what happens if she.
33:19
Speaker 5: No, No, that's no problem, that's good. I just wanted
33:25
Speaker 5: to know how to handle if I pass.
33:30
Speaker 6: First, I would say, if you've got a family trust
33:32
Speaker 6: in place what it's said you did. I would make
33:35
Speaker 6: sure not only the properties are in there, but as
33:37
Speaker 6: many bank accounts and investment accounts that are non IRA accounts,
33:41
Speaker 6: those can't go in. I would make the owner of
33:45
Speaker 6: those accounts the trust and get rid of the joint. Okay,
33:48
Speaker 6: because this family trust you have likely will have a trustee.
33:52
Speaker 6: Now if she's not competent to service trustee, and she
33:55
Speaker 6: obviously won't be, then you'll have an alternate trustee, which
33:59
Speaker 6: is likely one of your children, and then the child
34:02
Speaker 6: will be The trust will be designed to take care
34:05
Speaker 6: of hold the assets and take care of your spouse
34:08
Speaker 6: with those assets through the trustee, so the trustee can
34:12
Speaker 6: help you accommodate that, and of course it helps you
34:15
Speaker 6: avoid probate. It reduces the state taxes better the more
34:18
Speaker 6: assets you have in there, so make sure you get
34:22
Speaker 6: that tucked away first and then you don't have a problem.
34:24
Speaker 6: And lastly, change the designated beneficiaries on your IRA, maybe
34:29
Speaker 6: not to go directly to your spouse but instead into
34:32
Speaker 6: the trust, and then that'll be protected and used for
34:35
Speaker 6: your wife as well. So hope that helps.
34:37
Speaker 2: Todd, got one more for you here, Let's go to
34:39
Speaker 2: Joe in Fitchburg. Joe, you're on with Todd Lutski.
34:44
Speaker 8: Hi, Todd, thank you for taking my call. Thinking about
34:48
Speaker 8: selling a business? Okay, So how would I go about
34:52
Speaker 8: doing that?
34:53
Speaker 6: Is the trust revocable? I?
34:57
Speaker 4: Oh?
34:57
Speaker 6: Okay, so we need to really know that, number one.
35:00
Speaker 6: So if it's irrevocable, who who are the trust? Who
35:03
Speaker 6: are the shareholders of the business the trust?
35:09
Speaker 8: Myself, I own the business out.
35:11
Speaker 6: Right, So when you say you own the business, you
35:13
Speaker 6: own the stock in the business.
35:15
Speaker 8: Yes.
35:16
Speaker 6: Is it an S corp or a C corp.
35:18
Speaker 8: It's not a corporation. It's an individual business.
35:22
Speaker 6: Oh so there's no stock. It's just a doing doing
35:24
Speaker 6: business ass kind of thing, sole proprietorship exactly. Okay, So
35:29
Speaker 6: then it probably is not owned in an irrevocable trust,
35:32
Speaker 6: right It can't really can't be because you're the you're
35:35
Speaker 6: the owner.
35:35
Speaker 2: You said, yes, exactly, all right.
35:37
Speaker 6: So it's not in a trust. So I think we
35:38
Speaker 6: got past that question already. And so now you're just
35:42
Speaker 6: basically selling your business whatever it whatever it is, it's
35:45
Speaker 6: either going to be an asset sale or it's going
35:48
Speaker 6: to be a stock sale, right, So we're going to
35:50
Speaker 6: have to figure out what's the best income tax way
35:53
Speaker 6: to sell this. I mean, do you have account receivables,
35:57
Speaker 6: do you have customer list, do you have goodwill on
35:59
Speaker 6: the name you know? Or do I have a bunch
36:02
Speaker 6: of equipment that I want to sell so it's more
36:04
Speaker 6: of an asset sale. These are all things that you
36:07
Speaker 6: might imagine. This is going to be a little more
36:09
Speaker 6: complicated than you can answer in a few minutes on
36:11
Speaker 6: the radio. But the bottom line is, get yourself and
36:15
Speaker 6: you know a good tax lawyer, because how you structure
36:18
Speaker 6: the sale from a tax standpoint is going to make
36:22
Speaker 6: all the difference to you. In other words, can we
36:24
Speaker 6: allocate more of the sale proceeds to capital gain and
36:31
Speaker 6: less to what is ordinary income? That would make a
36:34
Speaker 6: big difference just in the rate structure. And that's gonna
36:37
Speaker 6: be a function of what kind of sale is it again,
36:39
Speaker 6: asset sale or stock sale? So I think there's a
36:44
Speaker 6: lot of information you're going to have to provide to
36:46
Speaker 6: me or to whoever the lawyer is that you use
36:50
Speaker 6: about the sale. But you're right, you're spot on. You
36:54
Speaker 6: ought to You ought to definitely seek out counsel to
36:57
Speaker 6: get help on selling a business.
37:00
Speaker 2: Mister Lutsky, Thank you so much for joining us today.
37:02
Speaker 6: Yeah, always a pleasure. Thank you.
37:04
Speaker 1: This has been Asked Todd on the Financial Exchange Radio network.
37:08
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:11
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:13
Speaker 1: thirty years, helping families with the state and tax planning,
37:16
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:19
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:23
Speaker 1: The views expressed in this segment are solely those of
37:25
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:27
Speaker 1: or tax advice. Please consult with your illegal or tax
37:30
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:32
Speaker 1: each other and are not affiliated.
37:34
Speaker 2: Still a bunch to come As we head towards the
37:36
Speaker 2: second hour of the show, we'll be talking about what
37:38
Speaker 2: we're seeing in oil prices as the new block had
37:42
Speaker 2: kicks off in the strait of Horn moves. Also a
37:46
Speaker 2: little bit of chatter about the housing market, and then
37:49
Speaker 2: we'll talk about whether it's fair or not that people
37:52
Speaker 2: get to leave their inheritances to their kids. I don't
37:55
Speaker 2: know why this is like a contentious thing. But there's
37:58
Speaker 2: a whole piece in Bloomberg about it, and so we'll
38:02
Speaker 2: discuss that in the next hour. Also a little bit
38:05
Speaker 2: of chatter about credit card delinquencies. Haven't talked about it
38:08
Speaker 2: in a few months. We'll give you an update on
38:10
Speaker 2: what's going on there, and a whole lot more coming up.