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Is a trade deal done between the US and China? · The Financial Exchange Show

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Speaker 1: and Paul.
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Speaker 2: Lane's Chuck, Paul and Tucker with you here and big
1:15
Speaker 2: news this morning at eight thirty am Eastern Time, was
1:21
Speaker 2: we got the Consumer Price Index data for the month
1:24
Speaker 2: of May. Expectations were for the headline rate to rise
1:28
Speaker 2: point two percent the core rate to rise point three percent. Instead,
1:33
Speaker 2: we get a nice little beat to the downside on
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Speaker 2: both these, with both headline and core coming in at
1:39
Speaker 2: point one percent. And it's not one of these cases
1:41
Speaker 2: where you look at it and you're like, well, maybe
1:44
Speaker 2: they were just rounding things a little bit.
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Speaker 1: No.
1:47
Speaker 2: Instead, the headline number came in right at point one
1:51
Speaker 2: and the core number came in at point one three.
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Speaker 2: So it's not something that is, you know, a rounding
1:57
Speaker 2: issue or anything like that. Legitimately, good numbers there, because
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Speaker 2: we were replacing some good numbers from last May. What
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Speaker 2: we did see is that the year over year headline
2:09
Speaker 2: CPI ticked up a touch from two point three to
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Speaker 2: two point four percent, and the core number improved only
2:16
Speaker 2: very very modestly, from two point seven eight percent down
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Speaker 2: to two point seven to seven so replacing some good
2:22
Speaker 2: readings for the prior year. When we look at this
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Speaker 2: CPI data, Paul, what stands out to you good, bad,
2:32
Speaker 2: or ugly in this one, at least initially as you
2:34
Speaker 2: go through it would seem to be from a price's perspective,
2:37
Speaker 2: there's a lot more good than.
2:39
Speaker 3: Bad in it.
2:40
Speaker 4: To me, the good part of this is that initially
2:42
Speaker 4: when I saw this number come out, I thought it
2:44
Speaker 4: was heavily influenced by the fact by that energy prices
2:47
Speaker 4: have dropped a pretty decent amount over the course of
2:49
Speaker 4: the last couple months. We did see them drop a
2:51
Speaker 4: one percent over the course of the month of May,
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Speaker 4: But looking at that core number, which again for listeners
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Speaker 4: out there, strips out the impact of food and energy prices,
3:01
Speaker 4: which tend to be volatile month to month, it matched
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Speaker 4: exactly what the head nine number did with the point
3:07
Speaker 4: one month over a month increase. So to me that
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Speaker 4: was encouraging that the headline number wasn't heavily influenced by
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Speaker 4: the fact that we saw some decline and energy prices
3:17
Speaker 4: there on a year over year basis, a headline running
3:20
Speaker 4: at two point four percent is relatively close to the
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Speaker 4: two percent target, and the core number, like you mentioned,
3:27
Speaker 4: being about two point eight percent over the last twelve
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Speaker 4: months was positive to me. It seems as if this
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Speaker 4: is a very positive report on all fronts. I mean,
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Speaker 4: that was just my major takeaway, and of course to me,
3:44
Speaker 4: now it puts a little bit more focus on the
3:47
Speaker 4: labor market. I guess you could argue, and maybe this
3:49
Speaker 4: is something that we should talk through, Chuck, is that
3:53
Speaker 4: tariffs were a major concern as to potentially putting some
3:56
Speaker 4: upward pressure on inflation. This reportus no evidence that that
4:01
Speaker 4: is the case. Now you can make the argument to
4:03
Speaker 4: me that hey, perhaps companies are just burning through excess
4:06
Speaker 4: inventory and we're not really seeing any impact on the
4:09
Speaker 4: pricing front, or companies are hesitant to raise prices, and
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Speaker 4: maybe this data that we saw from the month of
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Speaker 4: May isn't really indicative of what's to come in the future.
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Speaker 4: But that is what I sort of turned to next,
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Speaker 4: is you know, have we seen any real impact from
4:27
Speaker 4: these tariffs or companies are they in a wait and
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Speaker 4: see right now?
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Speaker 2: Yeah, And so I think part of this is just
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Speaker 2: looking at the timeline on this. So the April inflation data,
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Speaker 2: I don't think we would have expected to see in
4:39
Speaker 2: that data any signs of tariff simply because the inflation
4:44
Speaker 2: data is typically collected right in the middle of the month.
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Speaker 2: The tariffs that were imposed only went into effect on
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Speaker 2: April ninth, and so you wouldn't have really seen much
4:54
Speaker 2: there by and large when you get out into the
4:59
Speaker 2: May day. And this is you know, by the way,
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Speaker 2: when we actually look at like tariff collections on a
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Speaker 2: monthly basis, we saw that there was almost no uptick
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Speaker 2: in tariff collections this year from twenty twenty four. It
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Speaker 2: just it wasn't you know, something that was there. When
5:14
Speaker 2: we look at the May data in terms of you know,
5:18
Speaker 2: actual tariff collections, the effective tariff ray collected jumped up
5:22
Speaker 2: to I think it was around like six or seven
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Speaker 2: percent based on some of the calculations that I've seen,
5:27
Speaker 2: which is still below kind of that full effective rate
5:30
Speaker 2: that's expected to be somewhere around fifteen to seventeen percent
5:34
Speaker 2: based on you know, the research that's been done by
5:36
Speaker 2: a number of people out there on hey, what what
5:39
Speaker 2: do these tariffs actually mean as far as you know,
5:42
Speaker 2: how much is expected to be paid on a weighted basis,
5:45
Speaker 2: because some of them are ten percent, some are twenty five,
5:47
Speaker 2: some are thirty. It varies, but generally most of the
5:50
Speaker 2: estimates are that, hey, imported stuff is going to be
5:53
Speaker 2: tariffed somewhere between you know, fifteen and seventeen percent on
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Speaker 2: a weighted basis, So we're still not fully there for May.
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Speaker 2: And so I think this is why when you look
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Speaker 2: to the expectations, it was yeah, you're gonna come in,
6:05
Speaker 2: you know, point two percent for headline, point three for core. Okay,
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Speaker 2: that's you know, that's fine. So the question is where
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Speaker 2: is the There are two questions on this. The first
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Speaker 2: is what is driving the miss to the downside in
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Speaker 2: terms of like what areas are our key drivers to
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Speaker 2: the downside? And the second, okay, sorry, there's three questions.
6:27
Speaker 2: What's driving the miss to the downside? Is that being
6:31
Speaker 2: driven by a small segment of items or a broader swath?
6:37
Speaker 2: And is that repeatable in the future? And the last
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Speaker 2: one's gonna be the most important one. But let's let's
6:42
Speaker 2: start from the beginning. What is driving the weaker than
6:46
Speaker 2: expected numbers? Here? Uh, the biggest ones that we are
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Speaker 2: seeing in terms of you know, combination of waiting and magnitude.
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Speaker 2: Gas prices down two point six percent for the month
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Speaker 2: over the in May, and so obviously if you have
7:05
Speaker 2: you know, a component like that that gas prices make
7:07
Speaker 2: it I think about three percent of the overall index. Okay, sure,
7:11
Speaker 2: that's going to help things, you know, to the downside.
7:13
Speaker 2: There another one utility gas piped service. Basically, hey, if
7:19
Speaker 2: you are using that gas for heating or you're stove
7:22
Speaker 2: or whatever, that came in at a minus one for
7:25
Speaker 2: the month as well, and so you say, okay, like
7:30
Speaker 2: that's obviously going to have an impact too. It's almost
7:33
Speaker 2: one percent of CPI, so you get a nice little
7:35
Speaker 2: drag on that side. There other pieces you say, okay,
7:40
Speaker 2: what else is kind of helping to the downside, Both
7:42
Speaker 2: new and used vehicles showing prices declining by point three
7:47
Speaker 2: percent point five percent for the month. That's going to
7:50
Speaker 2: be again a nice big help, just because when you
7:53
Speaker 2: look at how much that makes up as part of CPI,
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Speaker 2: new vehicles are about four and a half percent, used
8:00
Speaker 2: about two and a half, So that's another seven percent
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Speaker 2: that's got a nice little decline that's attached to it.
8:05
Speaker 2: Other pieces that you've got some good data, Transportation services
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Speaker 2: down point two percent. Well what falls into transportation services.
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Speaker 2: Motor vehicle repair and maintenance showed improvement of point one percent.
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Speaker 2: Airfares continued what's now a three month run of declines
8:23
Speaker 2: down another two point seven percent. We still don't know
8:28
Speaker 2: exactly how broad based the downward moves are the helpful
8:33
Speaker 2: moves are in this The Cleveland Fed publishes a number
8:37
Speaker 2: called median CPI and also trimmed mean CPI. Usually that
8:40
Speaker 2: comes out a little bit later in the day today,
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Speaker 2: and so we'll look to see what that shows. And
8:44
Speaker 2: basically it just indicates, hey, how broadly is this happening
8:47
Speaker 2: beyond just you know, the headline categories that I gave
8:50
Speaker 2: you there the third question, then how likely is this
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Speaker 2: to repeat? Well for this week? We kind of you
9:00
Speaker 2: have to go item by item in a few instances,
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Speaker 2: and we got to say, okay, gas prices, are they
9:04
Speaker 2: gonna fall by two point four percent every month going forward?
9:06
Speaker 2: Probably not. If they do, it's usually a sign that
9:10
Speaker 2: something bad's happening in the economy because of a lack
9:12
Speaker 2: of demand. You know, you're not gonna see oil prices,
9:16
Speaker 2: as an example, down at forty a barrel by the
9:18
Speaker 2: end of this year unless something's gone really wrong. New
9:23
Speaker 2: vehicles and used vehicles. This one's kind of interesting to
9:25
Speaker 2: me because we talked about how in March and April
9:27
Speaker 2: we saw this uptick in people wanting to buy cars
9:30
Speaker 2: use vehicle, and the main numbers were bad for new
9:33
Speaker 2: vehicle sales. We dropped back, you know, pretty significantly there.
9:37
Speaker 2: And so this is one that it's kind of a
9:40
Speaker 2: good news bad news situation. On one hand, you say, okay,
9:42
Speaker 2: like even with tariffs on you know, imported vehicles twenty
9:45
Speaker 2: five percent, Hey, new car prices are falling. But the
9:50
Speaker 2: reason new car prices typically fall is because of a
9:52
Speaker 2: lack of demand, which means margin compression, which is not
9:55
Speaker 2: great for automaker's bottom line. So you kind of look
9:58
Speaker 2: at that and you're like, okay, what's you know, what
10:00
Speaker 2: do we how does that resolve itself? Transportation services, We've
10:04
Speaker 2: talked a lot about what we're seeing from airlines. There's
10:07
Speaker 2: some weakness there and it's being reflected in airfares continuing
10:10
Speaker 2: to fall. Good thing for CPI, not a great thing
10:14
Speaker 2: for airlines when they're having to cut capacity and you know,
10:17
Speaker 2: reduce fares and things along those lines. So I think
10:20
Speaker 2: the interesting question that this report raises is not actually
10:23
Speaker 2: about inflation, which continues to be not a problem right now.
10:29
Speaker 2: As far as the rate of inflation, I know that
10:31
Speaker 2: prices are still high, and I'm sure that you know
10:35
Speaker 2: plenty of us out there like, hey, how could that
10:37
Speaker 2: gas prices be down one percent for the month. I
10:40
Speaker 2: just got a notice from my utility saying prices are
10:42
Speaker 2: going up like thirteen or fifteen percent or whatever it is.
10:46
Speaker 2: I know, I'm not saying it's you know that this
10:49
Speaker 2: is perfect, but the inflation data continues to be really
10:53
Speaker 2: good for the last four months now February March April,
10:55
Speaker 2: and may have been really good to quite honest outstanding
11:01
Speaker 2: on the inflation side of things. But I think the
11:04
Speaker 2: question that the May one starts to raise is, hey,
11:06
Speaker 2: if you do have some of these costs that are
11:08
Speaker 2: going up, but it's not showing up in CPI, where
11:12
Speaker 2: does it show up? Because it has to show up somewhere.
11:14
Speaker 2: And the place that I get to is margins, which
11:17
Speaker 2: is again just something that we're gonna have to monitor
11:20
Speaker 2: and see what we get. You know, as we get
11:22
Speaker 2: to future earnings reports and stuff. It's not the sky's
11:25
Speaker 2: falling or the world's ending, but it is, Hey, if
11:29
Speaker 2: companies do have additional costs that are coming through, but
11:31
Speaker 2: it's not showing up in CPI, where is it gonna
11:36
Speaker 2: show up? Because it's you're not gonna have the immaculate
11:39
Speaker 2: tariff that just doesn't show up anywhere.
11:41
Speaker 4: No, but I think you made a good point laying
11:43
Speaker 4: out the timeline earlier in terms of April to May's data.
11:47
Speaker 4: It's it is still early and the argument of burning
11:49
Speaker 4: through excess inventory is a reasonable one me. You know,
11:52
Speaker 4: I like, I want to jump and almost see as
11:55
Speaker 4: if the tariffs are fully impacted here. But it's been
11:58
Speaker 4: a short time and it goes back to what we
11:59
Speaker 4: can tealy say is that we need to build on
12:02
Speaker 4: this and continue to see more months of data because
12:05
Speaker 4: perhaps June or July paints a different picture than May,
12:08
Speaker 4: which is probably too early in the game to really
12:11
Speaker 4: glean too much on the tariff side of things, if
12:13
Speaker 4: I think about it from a timing perspective.
12:15
Speaker 2: So with that, let's take a quick break when we
12:18
Speaker 2: come back. Late yesterday, we got a little bit of
12:20
Speaker 2: an update on US China, and so we'll discuss what's
12:24
Speaker 2: going on there when we return.
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13:28
Speaker 2: All right, so yesterday, I forget exactly when this broke.
13:33
Speaker 2: I think it was it was after the close yesterday,
13:38
Speaker 2: maybe like six thirty or seven thirty, and we got
13:43
Speaker 2: news that the US and China. This is according to
13:47
Speaker 2: the original release by I don't know if it was
13:49
Speaker 2: the Treasury Secretary of the Secretary of Commerce basically said, hey,
13:53
Speaker 2: we've agreed to a framework that you know, solidifies the
13:58
Speaker 2: agreement that we made in Geneva back in May the
14:02
Speaker 2: Geneva agreement was the one that reduced tariffs on China
14:05
Speaker 2: from one hundred and forty five percent down to thirty
14:08
Speaker 2: and Chinese tariffs on the US from one hundred and
14:12
Speaker 2: fifteen percent or whatever was back down to ten percent
14:15
Speaker 2: or one hundred and twenty five down to ten percent,
14:18
Speaker 2: whatever it was at previously. It went down to ten. Yes,
14:21
Speaker 2: a lot too, A little is the best way to
14:23
Speaker 2: describe it. So this morning we received a post to
14:30
Speaker 2: truth social from President Trump, and I think I'll quote
14:36
Speaker 2: it just because I think it kind of sums up
14:39
Speaker 2: what we know at this point, which is not a
14:43
Speaker 2: ton really in that. Again, I'll just quote it because
14:49
Speaker 2: it's the best way to do it.
14:52
Speaker 6: Quote.
14:52
Speaker 2: Our deal with China is done, subject to final approval
14:55
Speaker 2: with President g and me. Full magnets and any necessary
14:58
Speaker 2: rare earths will be supplied upfront by China. Likewise, we
15:01
Speaker 2: will provide to China what was agreed to, including Chinese
15:04
Speaker 2: students using our colleges and universities, which has always been
15:07
Speaker 2: good with me. We are getting a total of fifty
15:09
Speaker 2: five percent tariffs, China is getting ten. Relationship is excellent.
15:12
Speaker 2: Thank you for your attention to this matter. So a
15:15
Speaker 2: couple things, because when this came out, a bunch of
15:16
Speaker 2: people looked at that fifty five percent tariff number and
15:19
Speaker 2: we're like, where the heck did this come from? And
15:21
Speaker 2: what this is is in Trump's first term, there was
15:26
Speaker 2: a twenty five percent terrifying a small subset of Chinese
15:30
Speaker 2: imports that was applied. So that fifty five percent the
15:34
Speaker 2: White House did clarify is the thirty percent that was
15:38
Speaker 2: agreed to in May, plus that twenty five on that
15:41
Speaker 2: small subset that's still there. So it's not tariffs going
15:44
Speaker 2: you know, up further or shifting. It's rather, hey, this
15:48
Speaker 2: is where they were after the agreement in May. The US,
15:53
Speaker 2: it does seem is going to again with China. You're
15:57
Speaker 2: never entirely sure, but it seems like the US is
15:59
Speaker 2: going to have the access to the rare earth materials
16:03
Speaker 2: that we've talked about for the last couple of weeks
16:05
Speaker 2: that have been heavily restricted. And the place where it
16:10
Speaker 2: gets murky is we don't really know everything that the
16:13
Speaker 2: US agreed to give up at this point, because it
16:16
Speaker 2: says we will provide China what was agreed to, including
16:20
Speaker 2: Chinese students using our colleges and universities, but it doesn't
16:22
Speaker 2: sound like that's all that's there, so we don't really
16:26
Speaker 2: know what the US gave up in order to get this.
16:29
Speaker 4: It seemed like in some news publications that I had read,
16:32
Speaker 4: and this is not official, that perhaps the US would
16:36
Speaker 4: roll back some of the restrictions on advanced technology going
16:39
Speaker 4: to China. There's been an extreme amount of restrictions in
16:42
Speaker 4: place on semiconductors being shipped over to China, the most
16:46
Speaker 4: sophisticated versions of those chips. To be clear, none of
16:50
Speaker 4: that has become publicly public knowledge that this is part
16:53
Speaker 4: of the deal. But basically, if you look at the
16:56
Speaker 4: negotiating table, Chuck, China was in a place where the
16:59
Speaker 4: rare earth minerals were the leverage that they had over
17:03
Speaker 4: the US and Europe in terms of the necessity for them,
17:07
Speaker 4: and fighter jets and electric vehicles and just regular automotive
17:10
Speaker 4: vehicles as well. Where the US on their leverage was
17:15
Speaker 4: first of all, our consumption in terms of what we
17:17
Speaker 4: export from China, and then secondly it's this advanced technology
17:21
Speaker 4: on the semiconductor side of things. So it seemed like
17:23
Speaker 4: those would be the framework for the deal. You'd focus
17:26
Speaker 4: most on the two points of strongest leverage for each
17:30
Speaker 4: or one for each side between the China and the
17:34
Speaker 4: US here. So it'll be interesting to see what type
17:36
Speaker 4: of rollback, if any, you know, we see on the
17:39
Speaker 4: semiconductor side of things.
17:41
Speaker 2: Yeah, so we'll have to see what these specifics are.
17:44
Speaker 2: And quite honestly, I don't know what we're going to
17:47
Speaker 2: see in print. It sounds like most of what was
17:51
Speaker 2: agreed to is kind of a handshake deal and we're
17:53
Speaker 2: gonna keep talking.
17:54
Speaker 4: That's a really good point to make too. This might
17:56
Speaker 4: not close, you know, this is still pending improve on
17:58
Speaker 4: both sides, So that's important to notice.
18:00
Speaker 2: We thought a month ago, okay, like we're just you know,
18:03
Speaker 2: we're going down to these tariff rates and everything else
18:05
Speaker 2: is back to normal. And then you obviously saw China,
18:09
Speaker 2: you know, starting to restrict rare earth exports. The US
18:12
Speaker 2: responded with a couple things. So we'll see how things
18:16
Speaker 2: develop over the next three to four weeks, because it
18:18
Speaker 2: kind of feels like we were already here a month
18:20
Speaker 2: ago and now just trying to sort out, okay, where
18:23
Speaker 2: where do things go? But if this is indeed true,
18:27
Speaker 2: the rare earth supply to the US is a big
18:30
Speaker 2: one we've talked about how you can't really make much
18:35
Speaker 2: of anything heavy machinery wise without at least some supply
18:38
Speaker 2: of this. This is not just you know, hey, you
18:41
Speaker 2: needed for electric vehicle motors. This is no, your windshield
18:44
Speaker 2: wipers in your car don't work without you know a
18:48
Speaker 2: little bit. Again, I don't know like the exact you know,
18:51
Speaker 2: amount in the exact component in this and that, but
18:54
Speaker 2: like we've talked to people who have basically said, yeah,
18:57
Speaker 2: any kind of electric motor that's in a vehicle, whether
18:59
Speaker 2: it's powering your wind shield wipers, you know, even you know,
19:02
Speaker 2: basically anything that moves that's not directly attached to the engine,
19:07
Speaker 2: you need some of these components in there in terms
19:09
Speaker 2: of magnets and things like that in order to get
19:12
Speaker 2: them to work. And if you don't have those, you
19:15
Speaker 2: don't have a working vehicle. This is before you even
19:18
Speaker 2: get to the national law security concerns, because apparently the
19:23
Speaker 2: one that I loved learning about was samarium, which apparently
19:27
Speaker 2: is used in like something for F thirty five fighters. Yes,
19:31
Speaker 2: and it seems like you would kind of need those
19:35
Speaker 2: things here and there. Quick break, we got Wall Street
19:38
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19:56
Speaker 1: a complete look at what's moving markets so far today
19:59
Speaker 1: right here on the Financial Exchange Radio Network.
20:02
Speaker 5: Casey Dan Wall Street with a new reading on inflation,
20:05
Speaker 5: where the Consumer Price Index showed consumer prices climbed two
20:08
Speaker 5: point four percent year over year, in line with estimates. Additionally,
20:13
Speaker 5: President Trump said the US deal with China to revive
20:15
Speaker 5: their trade truce was done subject to final approval from
20:20
Speaker 5: him and Chinese President g At the moment, the Dow
20:24
Speaker 5: is up by three tenths of one percent, SMP five
20:27
Speaker 5: hundred is up by three tenths of one percent as well,
20:31
Speaker 5: and the Nasdaq is up by four tenths of one percent,
20:33
Speaker 5: or eighty one points higher. Russell two thousand is up
20:36
Speaker 5: six tenths of one percent. Ten year treasure Reeled is
20:39
Speaker 5: off by two basis points now four point four to
20:42
Speaker 5: four percent, and crude oil up two point three percent higher.
20:46
Speaker 5: Trading at sixty six dollars and fifty two cents a barrel,
20:50
Speaker 5: Tesla shares up over two percent after CEO elon Musk
20:53
Speaker 5: posted that his recent attacks on President Trump went too far. Furthermore,
20:58
Speaker 5: the ev makers said it tenantively it tentatively expects to
21:01
Speaker 5: launch a long anticipated robotax service on June twenty second. Meanwhile,
21:07
Speaker 5: steel companies Cleveland Cliffs, and New Core garnering attention following
21:11
Speaker 5: a report that the Trump administration in Mexico were nearing
21:15
Speaker 5: a deal that would remove fifty percent terraff on imports
21:19
Speaker 5: up to a certain volume. Cleveland Cliffs down by eight percent,
21:22
Speaker 5: while New Core shares are off by five percent. Elsewhere,
21:25
Speaker 5: Get Labs sinking by seven percent after the online software
21:28
Speaker 5: developer platform issued a disappointing revenue forecast. Game Stop down
21:33
Speaker 5: by nearly five percent after the company swung to a
21:36
Speaker 5: quarterly profit despite falling sales, and General Motors announced it
21:40
Speaker 5: will spend four billion dollars to produce more vehicles in
21:43
Speaker 5: the US, which will give the automaker the ability to
21:46
Speaker 5: assemble more than two million vehicles in the US each year.
21:51
Speaker 5: Gmstock is up by three percent on that news. I'm
21:55
Speaker 5: Tucker Silvan, that's Wall Street Watch.
21:58
Speaker 1: This is aske Tod the Financial Exchange Radio Network. If
22:02
Speaker 1: you have an existing estate plan or in the market
22:04
Speaker 1: for one. Todd Lutsky is here to answer your questions
22:07
Speaker 1: and help you plan for a later life. Ask Todd
22:10
Speaker 1: is presented by Cushing and Dolan, serving Massachusetts and New
22:13
Speaker 1: England for more than thirty five years, helping families with
22:16
Speaker 1: a state and tax planning, medicaid planning, and probate law.
22:19
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:26
Speaker 2: And we are now joined by Todd Lutsky from Cushing
22:28
Speaker 2: and Dolan. We got the phone lines open at eight
22:31
Speaker 2: eight eight to zero five two two sixty three. That
22:35
Speaker 2: is the number to call to ask Todd your questions
22:37
Speaker 2: live on air today again. Eight eight eight to zero
22:42
Speaker 2: five two two sixty three is the number Tod. I'll
22:45
Speaker 2: answer your questions live on air about your state plan,
22:48
Speaker 2: your lack of estate plan, friends of state plan, family,
22:53
Speaker 2: members of state plan, you name it again eight eight
22:55
Speaker 2: eight to zero five two two six three. We usually
22:59
Speaker 2: get through a couple of calls, so get calling early
23:01
Speaker 2: and often if you want to make sure we get
23:03
Speaker 2: to you. And that number one more time is eight
23:05
Speaker 2: eight eight two zero five two two six three. Mister Lutsky,
23:10
Speaker 2: how are you?
23:11
Speaker 3: I am doing great? You doing pretty well.
23:13
Speaker 2: I was thinking the other night about the state of Oklahoma.
23:17
Speaker 3: Oklahoma.
23:19
Speaker 2: I was thinking about its abbreviation and whether I like
23:21
Speaker 2: it or not, and I just decided, it's okay.
23:23
Speaker 1: That's good.
23:24
Speaker 3: It is okay, yeah, yeah, it's just okay, it's fine.
23:27
Speaker 2: Let's talk a little bit about irrevocable trust, specifically irrevocable
23:32
Speaker 2: trust that protect assets against long term care costs. Okay,
23:38
Speaker 2: when you look at establishing one of those trusts, who
23:42
Speaker 2: can be the trustee of that trust? Can it be yourself?
23:46
Speaker 2: Does it have to be someone else? How is that structured?
23:49
Speaker 3: So that has evolved over time? Right? So irrevocable trusts?
23:54
Speaker 1: Uh?
23:55
Speaker 3: You know, can you serve as trustee of your own
23:59
Speaker 3: irrevocable t trust? Well, the answer is you can. And
24:03
Speaker 3: we've won the battles when it comes to that challenge
24:08
Speaker 3: as to whether you can or can't be. But it's
24:12
Speaker 3: something over time that I've just decided, you know, we
24:15
Speaker 3: don't do. I don't really see any benefit in, you know,
24:20
Speaker 3: serving as trustee when you can just put a child
24:23
Speaker 3: on as trustee, avoid any of these potential issues, and
24:28
Speaker 3: most importantly, keep the power to remove and replace the
24:34
Speaker 3: trustee by the donor or any time. If you have
24:39
Speaker 3: that power, then really you're the one directing the show anyway.
24:45
Speaker 3: So and you have avoided any potential issues, what.
24:48
Speaker 2: Are the responsibilities of that trustee? Then what do they
24:52
Speaker 2: have to do on a day in, day out basis?
24:55
Speaker 3: Is it a lot of work for them? Is it
24:56
Speaker 3: a small amount?
24:57
Speaker 1: Like what what do they actually have to do?
24:59
Speaker 3: Yeah, And a lot of times parents will say, well, jeez,
25:01
Speaker 3: I don't want to burden my child with all these headaches. Well,
25:03
Speaker 3: it really depends on what you're putting in the trust.
25:06
Speaker 3: I mean, if you stop and think about it for
25:07
Speaker 3: a minute and the only thing you're putting in the
25:09
Speaker 3: trust is your home or let's say your home and
25:12
Speaker 3: your vacation home, none of which are being rented and
25:15
Speaker 3: therefore generating zero income, I'm I'm going to tell you
25:18
Speaker 3: that there is absolutely nothing for the trustee to do. Nothing,
25:24
Speaker 3: no tax returns, no headaches, no nothing. It's only if
25:28
Speaker 3: you were to get into having investment type money portfolios
25:32
Speaker 3: and things inside the trust that maybe once a year
25:35
Speaker 3: you got to file an income tax return and sign
25:37
Speaker 3: your name. But even then there's not a lot to
25:40
Speaker 3: do day to day because the don or the moms
25:44
Speaker 3: and dads of the world are really doing almost everything.
25:49
Speaker 2: Talking with Todd Lutsky from the law firm of Kushinggan
25:51
Speaker 2: Dolan's still room on the phone lines at eight eight
25:54
Speaker 2: eight two zero five two two sixty three. That's the
25:58
Speaker 2: number to call to ask Todd your is state planning questions. Again,
26:01
Speaker 2: We do still have a little bit of room on
26:04
Speaker 2: those phone lines at eight eight eight to zero five
26:09
Speaker 2: two two six three. We're gonna take a quick break here,
26:12
Speaker 2: but when we come back it is going to be
26:15
Speaker 2: right to your phone calls again. That number is eight
26:18
Speaker 2: eight eight to zero five two two sixty three.
26:22
Speaker 1: Ask Todd with Todd Lutsky every Wednesday at ten thirty
26:26
Speaker 1: only here on the Financial Exchange Radio Network. You're listening
26:32
Speaker 1: to Ask Todd with Todd Lutsky on the Financial Exchange
26:36
Speaker 1: Radio Network.
26:44
Speaker 2: Alrighty, let's get right to your questions for Todd Lutsky.
26:47
Speaker 2: First up, we got John in Arlington. John, what's your
26:52
Speaker 2: question for Todd?
26:54
Speaker 7: Yes, thank you for taking my call. The reason why
26:56
Speaker 7: I'm calling is my wife and I are in the
26:57
Speaker 7: beginning stages of getting this plentnying documents drafted, and we've
27:02
Speaker 7: talked to some friends about what they have done. And
27:04
Speaker 7: we've seen instances where one spouse had a trust drafted,
27:10
Speaker 7: the other spouse had a trust drafted, and they were
27:12
Speaker 7: both co trustees of both trust. But then there were
27:16
Speaker 7: some other situations where the attorney just drafted one trust
27:19
Speaker 7: for the household where both spouses were trustees, and I
27:22
Speaker 7: was just curious what would be the benefits or disadvantages
27:26
Speaker 7: of one versus the other.
27:28
Speaker 3: So I guess how old are you, guys?
27:32
Speaker 7: Of fifties? Fifties?
27:34
Speaker 3: And so the other issue is the size of the
27:37
Speaker 3: estate might matter. Are you under let's call it fourteen million? Yes, okay, well, wow,
27:43
Speaker 3: it just makes it different. So are you are you
27:45
Speaker 3: over four million combined?
27:48
Speaker 7: Yes?
27:49
Speaker 3: Okay, So you're in that area where a state planning
27:52
Speaker 3: makes a lot of sense for Massachusetts because right there's
27:55
Speaker 3: a two million dollar exemption, and we want to make
27:58
Speaker 3: sure we shelter as much as we possibly can on
28:01
Speaker 3: the first death. So people that are that are doing
28:05
Speaker 3: and I assume you're you're looking into a revocable trust, correct, correct, yes, yeah,
28:10
Speaker 3: and so and that makes a lot of sense. But
28:13
Speaker 3: I can tell you for people that are under that,
28:16
Speaker 3: and let's just call it fourteen million. I don't really
28:18
Speaker 3: have a hard and fast rule for this. I just
28:21
Speaker 3: try to think about the estate tax exemptions that are
28:24
Speaker 3: in effect federally when defining what I call a moderate estate.
28:29
Speaker 3: So for smaller estates, that way under fourteen million, give
28:33
Speaker 3: or take one, trust is absolutely the best way to go.
28:38
Speaker 3: There is no reason to be dividing assets between two trusts.
28:41
Speaker 3: It's more complicated, requires more effort, and shelters less assets
28:48
Speaker 3: for estate tax purposes. Right. Example, Let's say we were
28:52
Speaker 3: worth you know, four million, but you know two million
28:58
Speaker 3: of it is in an IRA. Well, I can't put
29:01
Speaker 3: the IRA in the trust, but I can put everything
29:04
Speaker 3: else in the trust. Okay. So I take my two
29:07
Speaker 3: million dollars of non IRA assets and I divide them
29:10
Speaker 3: between a husband trust and a wife trust. And then
29:13
Speaker 3: husband dies, Well, how much is in the trust? A million? Okay? Well,
29:17
Speaker 3: then I'm able to shelter a million dollars from a
29:19
Speaker 3: state taxes. Unfortunately, in Massachusetts we have a two million
29:23
Speaker 3: dollar exemption. Well, I wasted a million dollars of my
29:27
Speaker 3: exemption when I died because I only had a million
29:30
Speaker 3: dollars in my trust. However, if you draft a joint
29:33
Speaker 3: trust correctly on the first death, with use of a
29:38
Speaker 3: general power of appointment, you will be able to include
29:41
Speaker 3: the full two million dollars in the estate of the
29:46
Speaker 3: first to die. And therefore now I'm sheltering two million
29:50
Speaker 3: dollars on the first death, wasting none of my exemption.
29:54
Speaker 3: So when the surviving spouse dies, they might only be
29:58
Speaker 3: worth the two million, which would be the I asset,
30:01
Speaker 3: and thereby eliminating, not just reducing, at least the Massachusetts
30:06
Speaker 3: estate tax. Remember federally it's way higher than that. Anyway,
30:10
Speaker 3: problem you run into is you might not find lawyers
30:13
Speaker 3: that understand how to do the joint trust. So joint
30:18
Speaker 3: trust is my answer. That's the way to go, folks.
30:21
Speaker 3: That's just one kind of trust that's out there. There
30:24
Speaker 3: are many, And the one we're talking about in the
30:26
Speaker 3: guide today, not that one is right or wrong, but
30:30
Speaker 3: the one we're talking about in the guide today is
30:32
Speaker 3: the irrevocable Medicaid trust. It is quite frankly, one of
30:36
Speaker 3: my favorite because it just lists all answer it's a
30:40
Speaker 3: question answer format. Over the last thirty years, I've put
30:45
Speaker 3: together the most frequently asked questions I get on these trusts.
30:48
Speaker 3: All the dues, all the don'ts. What can I put in?
30:51
Speaker 3: How do the taxes work? How much control do I have?
30:54
Speaker 3: Can I collect rent? I mean one after another, folks.
30:57
Speaker 3: So if you've never done an irrevocable trust, but you're
31:00
Speaker 3: thinking it might be for you, or if you've ever
31:03
Speaker 3: been afraid of them, call and get the guide and
31:06
Speaker 3: learn how they really work. Eight six six eight four
31:10
Speaker 3: eight five six ninety nine or Legal Exchange Show dot com.
31:14
Speaker 3: One more time eight six six eight four eight five
31:18
Speaker 3: six nine nine or Legal Exchange Show dot com talk.
31:22
Speaker 2: I got one more for you here. Let's go to
31:24
Speaker 2: Kathy in Tingsboro. Kathy, you are on with Todd Lotsky.
31:30
Speaker 6: He is, good morning, and thank you Todd for taking
31:32
Speaker 6: my call. I've been listening to your show for a while.
31:36
Speaker 6: I do have questions. Okay, my husband they currently they
31:40
Speaker 6: have family trust with property that hasn't been sold yet.
31:46
Speaker 3: This is you and your husband.
31:49
Speaker 6: It's his family, Oh, his family, my husband's family. Okay,
31:54
Speaker 6: But then my question is I inherited money from my
31:59
Speaker 6: dad and I have my own retirement money and beneficiaries
32:04
Speaker 6: have been set up for all of this. Do you
32:08
Speaker 6: advise a trust?
32:09
Speaker 3: Well, I think there's a lot more I need to know.
32:11
Speaker 3: So you and your husband, so you're married, correct?
32:15
Speaker 6: Correct?
32:16
Speaker 3: And you have kids?
32:18
Speaker 5: Yeah?
32:18
Speaker 3: And is this a first marriage or a second marriage?
32:22
Speaker 7: First marriage?
32:23
Speaker 3: Okay? So I would suspect that the fact that you
32:26
Speaker 3: inherited money is probably not an issue. I would tell
32:30
Speaker 3: you to add up all of your assets, including the
32:34
Speaker 3: inherited assets, add up all of the assets that your
32:37
Speaker 3: husband have, put them together, and give me a number.
32:39
Speaker 3: Is it bigger than four million? Or less than four million?
32:43
Speaker 6: Real estate money rite less than four million.
32:47
Speaker 3: Less than two?
32:51
Speaker 6: Maybe two or three?
32:53
Speaker 1: Good?
32:53
Speaker 3: So perfect, So we're say we're in that three million
32:56
Speaker 3: dollar range, it would seem to me. And one last question,
32:59
Speaker 3: how old are you? So it would seem to me
33:04
Speaker 3: that in that range and that age, I would be
33:08
Speaker 3: suggesting the following to you and your spouse. I would say,
33:12
Speaker 3: you know, do you guys want to avoid probate? Probably?
33:15
Speaker 3: Do you want to not pay Massachusetts death tax since
33:18
Speaker 3: you're north of two million but south of four million? Probably?
33:24
Speaker 1: Yes?
33:26
Speaker 3: You know, do you want to provide a bloodline plan
33:29
Speaker 3: to your family? And again, that's how do these assets
33:31
Speaker 3: get where I want them to go? And when? And why?
33:35
Speaker 3: And all of that. And then lastly, I would ask you,
33:38
Speaker 3: if you want to protect assets from the nursing home,
33:40
Speaker 3: would that be on your list as well? It would yes,
33:44
Speaker 3: So all four of those things is going to require
33:47
Speaker 3: a lot more than just naming designated beneficiaries on IRAS.
33:51
Speaker 3: I would suggest, excuse me, exactly the kind of trust
33:55
Speaker 3: I'm giving away this week this month in the guide
33:59
Speaker 3: that irrevocable Medicaid trust, and in your case there probably
34:03
Speaker 3: needs to be two, one for wife, one for husband.
34:07
Speaker 3: This is very different than the prior caller who is
34:09
Speaker 3: doing a revocable trust, which is why I indicated one
34:13
Speaker 3: trust was better for them. But revocable trust provide no
34:17
Speaker 3: protection from the nursing home. They do a lot of
34:19
Speaker 3: other things, but not that. So for you, I would
34:22
Speaker 3: recommend the two irrevocable trusts sit with the lawyer, learn
34:25
Speaker 3: how they work, get the guide, learn how they work,
34:29
Speaker 3: and then if it's right for you, get it implemented.
34:32
Speaker 3: Hope that helps a little.
34:34
Speaker 2: Todd, when we're talking about I want to go back
34:37
Speaker 2: to talking a little bit about irrevocable trusts here and
34:41
Speaker 2: you know specifically how they function. We talked about what
34:45
Speaker 2: a trustee has to do. What does the grand tour
34:48
Speaker 2: of that trust have to do? Is there any responsibility
34:51
Speaker 2: for them related to the trust specifically? How does it
34:54
Speaker 2: work on their taxes and stuff like that. Is there
34:57
Speaker 2: anything that goes on either annually or monthly that they
34:59
Speaker 2: need to do.
35:00
Speaker 3: So what I'll do is I'll take Kathy's call and
35:02
Speaker 3: pretend that they are the donors, just to make them
35:05
Speaker 3: feel like the husband and wife. And the good news
35:07
Speaker 3: is that there is going to be very little to
35:09
Speaker 3: do and you're going to have a lot of control. So,
35:11
Speaker 3: you know, Kathy, if you're listening still, and this is
35:13
Speaker 3: a concern of yours, how do these trusts work? You know,
35:15
Speaker 3: you would probably put your house in and you know,
35:17
Speaker 3: maybe some of your investment non IRA money in there,
35:21
Speaker 3: and then you know, at that point we would we
35:24
Speaker 3: would be able to say, uh, you could live in
35:27
Speaker 3: your house, you could collect the income. You know, maybe
35:30
Speaker 3: there's a tax return that has to be filed once
35:33
Speaker 3: a year. You're going to pay your normal bills like
35:35
Speaker 3: you always pay. So I don't really see that being
35:41
Speaker 3: a lot of effort, right, And I think what I'd
35:44
Speaker 3: like to have clients take away from this is, you know,
35:48
Speaker 3: what's the you know, what's the worst case scenario. What
35:52
Speaker 3: is it that I'm really doing day to day. It's
35:55
Speaker 3: really going to be very little. It's not going to
35:57
Speaker 3: disrupt your life much at all. So I think people
36:01
Speaker 3: need to take that sort of away from this.
36:05
Speaker 2: What if you want to sell a property that's in
36:08
Speaker 2: that irrevocable trust, what do you do versus what does
36:11
Speaker 2: the trustee do in that situation?
36:14
Speaker 3: So if you want to sell, and you're right, that
36:16
Speaker 3: would be again something that's not infrequent. I mean, I
36:18
Speaker 3: mean it is infrequent rather so, so you're not running
36:21
Speaker 3: around doing this. This is not a problem.
36:23
Speaker 2: You're not selling a house.
36:23
Speaker 3: Every day every day. So when you are doing it,
36:26
Speaker 3: you simply direct. Remember you direct, so the husband, wife,
36:30
Speaker 3: the donors of the world direct the trustee put the
36:33
Speaker 3: house on the market. Trustee doesn't listen. You remove and
36:36
Speaker 3: replace the trustee, so you're really in charge of the
36:40
Speaker 3: sale and you get it sold just same paperwork, no
36:44
Speaker 3: additional paperwork. And as long as it's a grant or
36:47
Speaker 3: trust for income tax purposes, it is income tax neutral
36:52
Speaker 3: in terms of the taxation. They will pay the exact
36:55
Speaker 3: same tax they would have paid had they not sold.
36:59
Speaker 3: The trust not sold the house via a trust. So
37:02
Speaker 3: folks a couple of questions, but hopefully the answers show
37:06
Speaker 3: you the flexibility you have with these trusts.
37:08
Speaker 2: Todd, thanks for joining us.
37:09
Speaker 3: Always a pleasure.
37:11
Speaker 1: This has been asked Todd on the Financial Exchange Radio network.
37:15
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:18
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:20
Speaker 1: thirty years, helping families with the state and tax planning,
37:23
Speaker 1: Medicaid planning, and probate law. Call eight hundred and three
37:26
Speaker 1: nine three four thousand and one or visit Cushingdolan dot com.
37:30
Speaker 1: The views expressed in this segment are solely those of
37:32
Speaker 1: Cushing and Dolan. Armstrong advisor. He does not provide any
37:34
Speaker 1: legal or tax advice. Please consult with your legal or
37:36
Speaker 1: tax advisor on such matters. Cushing and Armstrong do not
37:39
Speaker 1: endorse each other and are not affiliated