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Will Trump's tariffs help American automakers? · The Financial Exchange Show

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Speaker 1: Chuck Zada and Paul Lane.
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Speaker 2: Chuck, Paul, and soccer with you here, and as we
1:13
Speaker 2: kick off our Wednesday show, we got some more tariff
1:19
Speaker 2: talk here. So, speaking yesterday at mar A Lago, President
1:24
Speaker 2: Trump indicated that he was considering tariffs of twenty five
1:28
Speaker 2: percent or more on automobiles, semiconductors, and pharmaceutical products. This
1:34
Speaker 2: is something that I think is very much still kind
1:37
Speaker 2: of on the drawing board, just because he said that
1:39
Speaker 2: the tariffs will be quote in the neighborhood of twenty
1:41
Speaker 2: five percent. So it doesn't even sound like a rate
1:44
Speaker 2: has been squared away here, let alone, Hey, when would
1:48
Speaker 2: these be implemented and what would the specifics be. I
1:52
Speaker 2: think the big thing is they have guided that this
1:55
Speaker 2: would be after the completion of their Trade Policy review,
1:59
Speaker 2: which is scheduled for April first, and so potentially coming
2:03
Speaker 2: sometime this spring, but you know, unclear date and unclear timing,
2:07
Speaker 2: and so this throws another wrench into the plans of
2:12
Speaker 2: companies that are trying to figure out, Hey, what should
2:14
Speaker 2: we be doing at this point. I think I think
2:17
Speaker 2: the challenge Paul that I keep coming back to is,
2:19
Speaker 2: let's say that I'm a US automaker, I am Chuck
2:23
Speaker 2: Industries and I see this being floated.
2:27
Speaker 3: On one hand, part of me.
2:29
Speaker 2: Says, okay, do I figure out ways to try to
2:32
Speaker 2: scale up domestic production right now?
2:36
Speaker 3: I could do that.
2:36
Speaker 2: But let's say that this turns out to just be
2:39
Speaker 2: a negotiating tool. Then I've wasted a lot of time
2:42
Speaker 2: and money trying to build up domestic production when in
2:46
Speaker 2: fact this is not going to be implemented. On the
2:49
Speaker 2: other hand, if I believe this is going to just
2:51
Speaker 2: be a negotiating tool, and I say, nope, I'm going
2:54
Speaker 2: to keep my factories in Canada, Mexico, and South Korea
2:59
Speaker 2: because my business has stuff there. If I were to
3:03
Speaker 2: say that, hey, this is just a negotiating tool, I'm
3:05
Speaker 2: going to look through this and not really do anything.
3:08
Speaker 2: And then this turns out to be real, now I'm
3:10
Speaker 2: at a disadvantage to those who may have moved faster.
3:13
Speaker 2: And so what I think this ends up doing for
3:17
Speaker 2: automakers or anyone potentially you know being impacted by these
3:21
Speaker 2: is it kind of paralyzes your business a little bit
3:25
Speaker 2: in that you don't want to spend a whole bunch
3:27
Speaker 2: of money trying to ramp up production in the US,
3:30
Speaker 2: right now, because what if we have a repeat of
3:33
Speaker 2: what we saw three weeks ago with Mexico and Canada,
3:36
Speaker 2: where hey, these tariffs were set to be imposed and
3:38
Speaker 2: then hey there's a one month delay and they're not
3:40
Speaker 2: going into effect yet. Right now, I've spent a bunch
3:43
Speaker 2: of money, you know, spooling up US production, and if
3:46
Speaker 2: my competitors didn't, they've got cheaper production coming from overseas,
3:50
Speaker 2: and I'm out a bunch of money and I'm sitting
3:52
Speaker 2: there going what do I do? So I think that
3:55
Speaker 2: where I struggle with these in terms of their impact
3:58
Speaker 2: on the US economy right now, even though they're not
4:00
Speaker 2: in place, is if you're a business in one of
4:03
Speaker 2: the industries that is potentially you know, being studied here
4:07
Speaker 2: for tariff implementation, I don't know that you have any
4:10
Speaker 2: conclusive way to figure out what you should be doing,
4:14
Speaker 2: and it potentially sucks investment out of both the US
4:17
Speaker 2: and the rest of the globe right now, because companies
4:19
Speaker 2: will just say, Okay, we're just gonna bide our time
4:22
Speaker 2: and wait to see what happens because we don't want
4:25
Speaker 2: to make a conclusive move yet.
4:27
Speaker 4: No, there's nothing you can do other than writing out
4:29
Speaker 4: you know contingency playing come up with your plans internally,
4:32
Speaker 4: but I just you just have to write them out.
4:35
Speaker 4: You shouldn't take any action behind them necessarily, because that
4:38
Speaker 4: could leave you flat footed or just in a difficult
4:40
Speaker 4: position if you allocate a significant amount of capital as
4:44
Speaker 4: something that's ultimately not going to be either implemented or
4:47
Speaker 4: long lasting. I think is the other piece there that
4:49
Speaker 4: they could go into effect March first and perhaps they
4:52
Speaker 4: only run for a series of three months or six months,
4:56
Speaker 4: You know, is it even it's financially it's not worth
5:00
Speaker 4: taking all these significant measures to reroute production and to
5:05
Speaker 4: mess with assembly lines if something is only going to
5:07
Speaker 4: be in place for a matter of months. But it's
5:10
Speaker 4: hard to say as an auto manufacturer whether or not
5:15
Speaker 4: they'll go in and how long they will go in
5:17
Speaker 4: for so tremendous amount of uncertainty when it comes to these,
5:21
Speaker 4: not only for us as you know co hosts trying
5:24
Speaker 4: to talk about them, but also as an auto manufacturer
5:27
Speaker 4: or any of these businesses implemented here are implicated here.
5:31
Speaker 4: The chips companies and pharmac schools, the same thing applies
5:33
Speaker 4: for them as well.
5:34
Speaker 2: In terms of global vehicle production, just because again this
5:38
Speaker 2: is kind of getting like a lot of the chatter
5:40
Speaker 2: is the automotive piece of this more than chips are
5:43
Speaker 2: pharmaceuticals right now, in terms of motor vehicle production, the
5:47
Speaker 2: country that produces the most cars in the world. This
5:49
Speaker 2: is data from twenty twenty three, just because it's the
5:51
Speaker 2: last full year that I have data. Four, I don't
5:53
Speaker 2: have it for you know, every country for the last
5:55
Speaker 2: year yet trying to produce the most vehicles.
5:58
Speaker 3: In the world with million of them.
6:01
Speaker 2: The world, by the way, produced about ninety three million
6:04
Speaker 2: cars in twenty twenty three. That is actually down from
6:08
Speaker 2: the peak. The most cars ever produced in a single
6:11
Speaker 2: year was in twenty seventeen, when the world produced ninety
6:14
Speaker 2: seven million vehicles, and China produced about twenty nine million
6:17
Speaker 2: of those. So it's a similar amount overall, and so
6:22
Speaker 2: China again far and away the largest auto manufacturer, but
6:26
Speaker 2: doesn't really send any of those at the moment to
6:29
Speaker 2: the United States. It's mostly domestic consumption and other parts
6:33
Speaker 2: of Asia, Africa, and a little bit to Europe. At
6:36
Speaker 2: this point, the US is the next biggest auto producer.
6:39
Speaker 2: We did about ten point six million in that year,
6:43
Speaker 2: followed by Japan at eight point nine, India at five
6:46
Speaker 2: point eight, South Korea at four point two, Germany at
6:49
Speaker 2: four point one, Mexico at four million, Spain at two
6:52
Speaker 2: point four, Brazil at two point three, in Thailand at
6:54
Speaker 2: one point eight. So I think, if I'm trying just
6:59
Speaker 2: to figure out, hey, how could this actually move and
7:02
Speaker 2: what's the impact. Remember that the US actually buys US
7:06
Speaker 2: buyers buy between depending on the last few years, anywhere
7:10
Speaker 2: between about fourteen and seventeen.
7:12
Speaker 3: Million vehicles on an annual basis.
7:15
Speaker 2: So you sit there and you say, okay, in theory, like, look,
7:18
Speaker 2: some US vehicles are being exported.
7:20
Speaker 3: I don't know what.
7:20
Speaker 2: Percentage there, but you say, where are the places where
7:24
Speaker 2: you could conceivably see some resharing happening? And it's a
7:29
Speaker 2: fairly small list quite honestly. Like the Chinese production isn't
7:33
Speaker 2: going to the US to begin with, So companies that
7:37
Speaker 2: are making vehicles in China aren't going to move that
7:39
Speaker 2: stuff to China anyways, because they're not you're not paying
7:42
Speaker 2: a terrify on importing vehicles from China. Japan's one area
7:46
Speaker 2: that you do have significant vehicle imports. Toyota has large
7:50
Speaker 2: plants throughout the southeast. SODA's Honda, but I don't believe
7:55
Speaker 2: subru does any production in the United States. I could
7:58
Speaker 2: be wrong about that, but having bought re suber Rus
8:01
Speaker 2: and having to you know, have waited for one for
8:03
Speaker 2: six weeks. While it comes from Japan, I'm pretty sure
8:06
Speaker 2: the vast majority of super production is not domestic. So
8:10
Speaker 2: you'll get that and you say, Okay, there's there's a
8:11
Speaker 2: little bit that could come from Japan. But Japan's not
8:14
Speaker 2: exporting eight million vehicles to the US, so you could
8:17
Speaker 2: pick up a little bit there.
8:18
Speaker 3: India.
8:19
Speaker 2: Uh, do have either of you seen lots of Tata
8:23
Speaker 2: Motors vehicles driving around the United States? Yea, No, the
8:26
Speaker 2: five million, six million vehicles that India is making, they're
8:29
Speaker 2: not sending them to the US, so that production is
8:31
Speaker 2: not coming here either. South Korea four point two million,
8:35
Speaker 2: A lot of Hyndai's in Kias that are made there,
8:37
Speaker 2: even though Hyundai and Kia have ramped up their domestic
8:40
Speaker 2: production in the United States. But maybe you have a
8:43
Speaker 2: little bit of production that can come from there. Germany
8:46
Speaker 2: and Mexico, certainly some of that is being sent to
8:48
Speaker 2: the US. Mexico in particular, a lot of US automakers
8:52
Speaker 2: have set up facilities there in order to you know,
8:54
Speaker 2: potentially find cheaper labor. And Germany you still have a
8:58
Speaker 2: lot of you know, Vida W, Mercedes, and BMW production
9:02
Speaker 2: that goes on there, even though again all of those
9:05
Speaker 2: manufacturers do have significant facilities in the United States as well. Spain, Brazil,
9:11
Speaker 2: and Thailand. Honestly don't know what cars they're making there,
9:15
Speaker 2: No idea, no way I can you know, look at
9:18
Speaker 2: that and figure out what's going on. But really you're
9:20
Speaker 2: talking about basically four countries that potentially can have production
9:26
Speaker 2: moved back to the US for US vehicles if this
9:30
Speaker 2: were to happen, Japan, South Korea, Germany and Mexico. The
9:34
Speaker 2: rest like Canada, makes one point five million vehicles that
9:38
Speaker 2: it's not gonna They're not sending.
9:40
Speaker 3: Those all to the US to begin with.
9:43
Speaker 4: Isn't more of the scrutiny though on the US production
9:47
Speaker 4: of vehicles because of how often they go back and
9:51
Speaker 4: forth between the borders. That doesn't really and yet accounted
9:54
Speaker 4: for in that data. It's more like reshifting how the
9:57
Speaker 4: ten million are actually manufactured.
9:59
Speaker 2: Right, And this is the problem is there's huge costs
10:01
Speaker 2: associated with that, and that's why no automaker is going
10:04
Speaker 2: to do anything out until they know what the certainty
10:06
Speaker 2: is going to be. Because if you jumped, thinking February
10:09
Speaker 2: one is the date for Canada, while you're sitting there
10:12
Speaker 2: now and going, I spent all this money and why
10:15
Speaker 2: And if you didn't jump, then maybe three weeks from
10:18
Speaker 2: now when that one month or two weeks from now,
10:20
Speaker 2: when that one month is up, and if Canada tariffs
10:23
Speaker 2: go into effect, you're like, why didn't I move? So again,
10:26
Speaker 2: it's kind of in a position to put companies in
10:29
Speaker 2: a position where they don't really know what to do
10:30
Speaker 2: in the short term, and eventually that uncertainty will pass.
10:34
Speaker 2: It's not gonna last forever, but while it is there,
10:37
Speaker 2: it's something where if you're running an automaker, you're sitting
10:40
Speaker 2: there going, I don't know.
10:42
Speaker 3: What to do right now.
10:44
Speaker 4: If you were from a strategic perspective, from the political
10:47
Speaker 4: policy moves here of these tariffs, how what percentage do
10:50
Speaker 4: you think they actually feel this will lead to increased
10:53
Speaker 4: manufacturing in the United States?
10:55
Speaker 3: Because I don't just don't.
10:58
Speaker 4: I don't know how they could sit there and say.
10:59
Speaker 2: That, So listen, I'm not saying it's right or wrong,
11:03
Speaker 2: but I read I didn't read it. I listened to
11:07
Speaker 2: and going to and from work, I listened to Robert
11:10
Speaker 2: Leittheuser's book. Robert Leittheiser was Trump's previous US trade representative,
11:14
Speaker 2: his protege Bradley or Brad something or other. I can't
11:18
Speaker 2: remember his name off the top of my head. Is
11:20
Speaker 2: his trade representative this time around, and it very much
11:24
Speaker 2: is the idea that hey, we can get reshoring of
11:28
Speaker 2: these manufacturing jobs through the implementation of tariffs. I'll be honest,
11:32
Speaker 2: I don't know whether it's going to work or not,
11:35
Speaker 2: but I'm much more looking at it and saying, hey,
11:37
Speaker 2: if you guys believe this, like implemented, because the challenge
11:42
Speaker 2: that I see right now is businesses aren't sure what
11:44
Speaker 2: the policy is going to be, and that leads to
11:47
Speaker 2: issues in the short term. So I would rather say, hey,
11:51
Speaker 2: you guys have been studying this for your entire careers.
11:53
Speaker 2: Like Lightheiser's no dummy, Like he's a smart dude, And
11:57
Speaker 2: while I might not agree with him on everything, I
11:59
Speaker 2: think he brings up some some valid points and I'm
12:02
Speaker 2: kind of like, Okay, if this is what you guys believe, like,
12:04
Speaker 2: go do it and let's see what what happens, because
12:07
Speaker 2: if we're just going to always have teriffs be six
12:11
Speaker 2: weeks away, companies are going to get paralyzed by them.
12:13
Speaker 2: And that's a real problem. If it lingers, you know,
12:17
Speaker 2: beyond the next four to six weeks, already it's presenting
12:21
Speaker 2: some challenges. But if it's always, hey, this might happen
12:25
Speaker 2: in a month, it's hard to run a business that way.
12:28
Speaker 2: To take a quick break, when we return, let's talk
12:32
Speaker 2: a little bit about what we are seeing in the
12:34
Speaker 2: housing industry as it relates to tariffs, as well.
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Speaker 2: So the National Association of home Builders or as I
13:52
Speaker 2: like to refer to them KNOB. They have a housing
13:57
Speaker 2: Market Index that they put out once a month, and
14:00
Speaker 2: basically what they do is they go out and they interview,
14:03
Speaker 2: you know, members of their association home builders, and they
14:07
Speaker 2: asked them three different basically questions on three different components.
14:11
Speaker 2: How do you feel current sales conditions? Look, what are
14:13
Speaker 2: you seeing in terms of buyer traffic? And what are
14:15
Speaker 2: your sales expectations for the next six months? And as
14:19
Speaker 2: a result of the survey, for the month of February,
14:23
Speaker 2: the NAHB home Builders Index fell from a reading of
14:26
Speaker 2: forty seven down to forty two. Anything below fifty is
14:29
Speaker 2: generally considered to be negative sentiment. And the big things
14:33
Speaker 2: that they saw current sales conditions fell four points to
14:36
Speaker 2: forty six, buyer traffic fell three points to twenty nine,
14:40
Speaker 2: But the big dip was in sales expectations over the
14:42
Speaker 2: next six months, dropping from fifty nine all the way
14:46
Speaker 2: down to forty six, so a thirteen point drop there.
14:49
Speaker 2: That's the lowest reading on that component since December of
14:52
Speaker 2: twenty twenty three. And you know, through these interviews, basically
14:57
Speaker 2: the NAHB is like, Hey, our builders are nervous about
15:00
Speaker 2: tariffs because they import significant amounts of lumber and other
15:04
Speaker 2: building materials from other countries, and if those costs go up,
15:09
Speaker 2: they don't think they're going to be able to build
15:11
Speaker 2: profitably given where Americans' budgets currently are for properties. So
15:18
Speaker 2: that that's kind of what we're seeing on home builders.
15:22
Speaker 2: And look, if if you can actually build the property
15:26
Speaker 2: before any tariff implementation, that's great. But I don't know
15:30
Speaker 2: a ton about building a house, Paul. But I don't
15:32
Speaker 2: think you can build a house in like the nine
15:34
Speaker 2: weeks three weeks, and so you've got this uncertainty about
15:37
Speaker 2: these Canadian and Mexican tariffs that may go into effect.
15:40
Speaker 2: There was a what a one month reprieve that may
15:43
Speaker 2: go into effect in early March, and so if you're
15:47
Speaker 2: sitting there saying, gee, like do I pull the perimeter?
15:51
Speaker 2: Do I, you know, start construction, not knowing what my
15:53
Speaker 2: construction costs are going to be, it becomes a little challenging.
15:57
Speaker 2: What I've heard anecdotally from a few people is that
16:03
Speaker 2: you are seeing more builders now that are building contingencies
16:06
Speaker 2: into the contracts that they're having people sign, where it's, hey,
16:10
Speaker 2: I'm going to deliver this house at X price, but
16:13
Speaker 2: if you know tariffs are implemented, I may have to
16:17
Speaker 2: raise it by five percent in order to cover the cost.
16:21
Speaker 2: Because remember it's not every material is imported, and you
16:24
Speaker 2: know it's mostly the lumber, but also things like you know,
16:28
Speaker 2: PVC piping and stuff like that can be So I
16:31
Speaker 2: think this is another area where you're seeing a little
16:34
Speaker 2: bit of trepidation amongst home builders just because they're not
16:38
Speaker 2: quite sure what the landscape is going to look like.
16:41
Speaker 2: For them, and they're already facing challenges and higher costs,
16:44
Speaker 2: largely due to what we're seeing in the home insurance
16:47
Speaker 2: market where premiums have been skyrocketing in the last couple
16:50
Speaker 2: of years.
16:51
Speaker 4: It comes back to what we were talking about in the
16:53
Speaker 4: segment before. You as a business just want some sort
16:56
Speaker 4: of certainty in terms of what the landscape's going to
16:58
Speaker 4: look like at some point in time. The band it
17:01
Speaker 4: has to be ripped off, and businesses need to be
17:03
Speaker 4: able to make strategic decisions as to how they're going
17:06
Speaker 4: to either have to deal with these tariffs going forward,
17:09
Speaker 4: or perhaps they are not an issue, But it was
17:11
Speaker 4: interesting to see this data reflects sort of that that
17:14
Speaker 4: uncertainty that looms out there we talked about with the
17:17
Speaker 4: automn manufacturers. The same thing applies with the home builder
17:20
Speaker 4: sentiment piece here in these numbers because there is a
17:24
Speaker 4: reliance upon Canada for lumber and other material resources. So
17:28
Speaker 4: it'll be interesting to see how this sentiment changes over
17:32
Speaker 4: the course of the next couple months as some of
17:33
Speaker 4: these policies may or may not get implemented.
17:36
Speaker 2: And if you want to know just how pricing and
17:38
Speaker 2: everything is moving around right now, Mike Simonson, who we've
17:42
Speaker 2: had on a pretty regular basis. I think we talked
17:45
Speaker 2: him maybe three or four times a year. He works
17:48
Speaker 2: for Housing Wire. His company was acquired by them a
17:51
Speaker 2: couple of years ago. But home prices nationally are up
17:54
Speaker 2: two percent versus last year. This is, you know, basically
17:59
Speaker 2: week to weak data, so it's a little bit more
18:00
Speaker 2: current than what you get from case Shill or Home
18:03
Speaker 2: Price Index and stuff. But the pending contracts are now
18:06
Speaker 2: up two percent year over year. When you look at inventory,
18:10
Speaker 2: inventory Mike has as up one percent from a week
18:13
Speaker 2: ago to six hundred and thirty eight thousand single family homes.
18:16
Speaker 2: That's twenty nine percent more inventory than last year, but
18:21
Speaker 2: still about fifteen to twenty percent below inventory from this
18:25
Speaker 2: time of year. But that gap is narrowing in terms
18:28
Speaker 2: of pre pandemic to where we are today. Other things
18:32
Speaker 2: that we're seeing new listings are up eight percent year
18:35
Speaker 2: over year on a weekly basis, but home sales are
18:40
Speaker 2: basically flat right now, and pending contracts out there are
18:45
Speaker 2: three percent fewer than a year ago, and so as
18:48
Speaker 2: a result, what you're seeing price reductions. And again this
18:51
Speaker 2: is national data, but there are thirty three percent of
18:54
Speaker 2: single family listings that have taken a price cut. That
18:56
Speaker 2: is the highest percentage of properties with a price cut
18:59
Speaker 2: in February in the last decade.
19:03
Speaker 3: So this is what I really think.
19:05
Speaker 6: It's.
19:06
Speaker 2: The insurance piece is just those premiums are so high
19:08
Speaker 2: right now, and they're rising so quickly in parts of
19:12
Speaker 2: the country that you can't sell properties for the prices
19:16
Speaker 2: that you could a couple of years ago because those
19:17
Speaker 2: insurance premiums have gone up by so much. And that's
19:22
Speaker 2: just kind of the nature of the beast right now.
19:24
Speaker 2: Quick break here when we return, we got Wall Street
19:27
Speaker 2: Watch and we're joined by Todd Latsky from Cushinggan Dolan.
19:40
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: TFE show. Breaking business news is always first right here
19:47
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch, a complete look at what's moving markets so
19:56
Speaker 1: far today right here on the Financial Exchange Radio Network.
20:00
Speaker 5: The markets are narrowly in negative territories. Investors assess new
20:03
Speaker 5: comments from President Trump, who's considering imposing a twenty five
20:07
Speaker 5: percent tariff on imported autos, chips, and pharmaceuticals. Wall Street's
20:11
Speaker 5: also readying for FED meeting minutes due up this afternoon.
20:15
Speaker 5: Right now, Dow is down by about a third of
20:17
Speaker 5: a percent, or one hundred and forty points. S and
20:20
Speaker 5: P five hundred is down by only ten points, and
20:23
Speaker 5: the Nasdaq is off by a third of a percent
20:25
Speaker 5: as well. RUSS two thousand is off by about a
20:28
Speaker 5: half a percent. Ten year Treasure Feled is flat at
20:31
Speaker 5: four point five four percent, and crude oil is up
20:35
Speaker 5: about a one in a third of a percent, trading
20:37
Speaker 5: just below seventy three dollars a barrel. Nicola has officially
20:41
Speaker 5: filed for bankruptcy protection after the auto startup failed to
20:44
Speaker 5: secure a buyer or raise additional funds to maintain operations.
20:49
Speaker 5: The company said this morning it plans to pursue an
20:52
Speaker 5: auction and sale process of assets, pending court approval. Meanwhile,
20:57
Speaker 5: online dating company Bumble posted a week seek earnings outlook
21:01
Speaker 5: for the current quarter, sending that stock plunging by twenty
21:05
Speaker 5: eight percent. Elsewhere, shares and Told Brothers down by about
21:08
Speaker 5: six percent after the home builder posted fiscal first quarter
21:12
Speaker 5: results that missed the mark. Home deliveries also fell short
21:15
Speaker 5: of street forecasts. Sharesan Howard Hughes down by six percent
21:20
Speaker 5: after Pershing Square made a new nine hundred million dollar
21:23
Speaker 5: offer to boost its stake in the real estate company
21:26
Speaker 5: install Bill Ackman as chief executive. Chemicals and plastics maker
21:31
Speaker 5: Solani's swung a quarterly loss with weak demand across global
21:35
Speaker 5: automotive paints and industrial areas that Stocked down by twenty
21:39
Speaker 5: percent and Etsy down by about ten percent after the
21:42
Speaker 5: e commerce company missed fourth quarter revenue expectations. However, its
21:47
Speaker 5: earnings did beat I'm Tucker Silvan. That's Wall Street Watch.
21:53
Speaker 1: This is Asked Odd on the Financial Exchange Radio network.
21:57
Speaker 1: If you have an existing estate plan or in the
21:59
Speaker 1: market for one, Todd Letsky is here to answer your
22:01
Speaker 1: questions and help you plan for a later life. Ask
22:04
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
22:07
Speaker 1: New England for more than thirty five years, helping families
22:10
Speaker 1: with a state and tax planning, Medicaid planning, and probate law.
22:14
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
22:20
Speaker 2: As promised, We're now joined by Todd Lutsky from the
22:22
Speaker 2: law firm of Cushing and Dolan. The segment is Asked Todd,
22:25
Speaker 2: and we've got the phone lines open so you can
22:27
Speaker 2: ask Todd your estate planning questions. Eight eight eight to
22:32
Speaker 2: zero five two two sixty three. That is the number
22:35
Speaker 2: to call to ask Todd your state planning questions live
22:38
Speaker 2: on air. Usually we can only get through about two
22:40
Speaker 2: to three of these, so get calling early to make
22:44
Speaker 2: sure you get a chance to ask Todd your estate
22:46
Speaker 2: planning questions. That number again is eight eight eight to
22:50
Speaker 2: zero five two two six three. We got plenty room
22:53
Speaker 2: on the phone lines right now, but they do fill up,
22:55
Speaker 2: so again eight eight eight to zero five two two
22:59
Speaker 2: sixty three is number to call to ask Todd your
23:02
Speaker 2: estate planning questions. Mister Latsky, how are you doing today?
23:06
Speaker 6: I am doing great in yourself.
23:09
Speaker 3: Uh, I'm okay.
23:09
Speaker 2: My wife asked me the other night why I didn't
23:12
Speaker 2: buy her flowers for Valentine's Day.
23:15
Speaker 6: Well, yeah, that's a fair question.
23:16
Speaker 3: I mean in Valentine's Day and all I didn't know
23:18
Speaker 3: she was selling flowers.
23:19
Speaker 6: Oh see, that.
23:23
Speaker 3: Kind of a problem for me.
23:24
Speaker 2: Anyways, Todd, I want to talk a little bit about
23:27
Speaker 2: the idea of estate planning beyond the grave, and you
23:33
Speaker 2: know what types of tools are available to someone who
23:36
Speaker 2: might have concerns about a child's spending habits or a child.
23:44
Speaker 2: Maybe they're concerned about one of their child's marriages and
23:47
Speaker 2: want to make sure assets are protected for you know,
23:49
Speaker 2: their grandkids, specifically, what kinds of tools are available if
23:54
Speaker 2: someone has these kinds of concerns.
23:56
Speaker 7: Yeah, and this is funny because I tell clients this
23:59
Speaker 7: a lot when we're doing wing estate planning. I mentioned
24:01
Speaker 7: to them, you know that, you know, here's what the
24:03
Speaker 7: trust is going to do while you're alive. But oftentimes
24:07
Speaker 7: I think, as you're pointing out, Chuck, that that they
24:10
Speaker 7: can do a lot more for you even after you're gone.
24:13
Speaker 7: In fact, sometimes more than they do while you're living.
24:16
Speaker 7: So if you think about it, you know, a revocable trust,
24:18
Speaker 7: you pretty much set it and forget it, put your
24:20
Speaker 7: assets in, go about your life, and it really doesn't
24:23
Speaker 7: disrupt your life at all. Yet it provides all these
24:26
Speaker 7: planning opportunities and tax savings and probate savings. When you
24:30
Speaker 7: die just happens. Well, when you're gone, the trust doesn't
24:34
Speaker 7: have to end. And this is your point, Chuck, they
24:37
Speaker 7: can go on for these family members, and oftentimes they'll
24:40
Speaker 7: say just that, you know, these kids aren't too good
24:42
Speaker 7: with money. They're you know, they I don't want them
24:44
Speaker 7: to blow through everything I get give them right away.
24:47
Speaker 6: I want them to work hard.
24:49
Speaker 7: I want them to become, you know, productive members of society,
24:52
Speaker 7: but use the money to better their lives. Things like that.
24:56
Speaker 7: Absolutely all that can be drafted into the document. And
24:58
Speaker 7: and sometimes it's not even just you know, just that.
25:03
Speaker 7: It's not just about being bad spenders. It's about future creditors.
25:09
Speaker 7: Whether it's a spouse's creditor that you had nothing to
25:11
Speaker 7: do with your family, but that's a problem if you're married.
25:14
Speaker 7: What if it's a divorce that could befall them. Well,
25:19
Speaker 7: they don't want to have to lose half of what
25:21
Speaker 7: you gave them. So these documents are designed to make
25:25
Speaker 7: sure that they're available for the children, perhaps even controlled
25:32
Speaker 7: and invested in managed by the children, but not owned
25:38
Speaker 7: by the children. Therefore, if they don't own them, they're
25:41
Speaker 7: not available to the credit or the divorce. It's not
25:45
Speaker 7: a marital asset when they get into that situation, why because.
25:49
Speaker 6: They don't own it. It's really all about ownership.
25:51
Speaker 7: Yeah, there's language in the trust about discretionary distributions, but
25:54
Speaker 7: it's really all about ownership. And Folks, even if you're
25:58
Speaker 7: not worried about the divorce. Right, everything's going to be fine,
26:02
Speaker 7: but you love your grandkids. I think, as you mentioned, Chuck,
26:05
Speaker 7: well if this trust goes on and the children just
26:10
Speaker 7: take it as they need it, well, then it could
26:13
Speaker 7: grow over their lifetime and when they die because the
26:18
Speaker 7: parent had already died long ago, and an allocation of
26:22
Speaker 7: generation skipping tax exemption had been made to the trust,
26:26
Speaker 7: the growth and all these assets. When the child dies,
26:30
Speaker 7: if they haven't taken it, they don't own it, and
26:35
Speaker 7: therefore the government is not taxing it, and so we're
26:39
Speaker 7: able to skip a whole generation of taxation and get
26:43
Speaker 7: it to the grandkids tax free.
26:44
Speaker 6: So, folks, that piece.
26:46
Speaker 7: Of it is staggering when you think about what the
26:49
Speaker 7: savings might be.
26:50
Speaker 6: In fact, you can't even really calculate it.
26:52
Speaker 2: Talking with Todd Lotski from the law firm of Kushingan Dolan,
26:55
Speaker 2: still some room on the phone lines here at eight
26:57
Speaker 2: eight eight two zero five two two sixty three, So
27:01
Speaker 2: get your calls in so that you can speak with
27:03
Speaker 2: Todd about your estate planning questions. That number is eight
27:07
Speaker 2: eight eight to zero five two two six three. We're
27:11
Speaker 2: gonna take a quick break here, but when we return
27:15
Speaker 2: it's gonna be right to your calls with Todd. That
27:18
Speaker 2: number is eight eight eight to zero five two two
27:22
Speaker 2: six three. One more time eight eight eight to zero
27:25
Speaker 2: five two two sixty three your calls with Todd when
27:28
Speaker 2: we return Ask Todd.
27:30
Speaker 1: With Todd Lutsky every Wednesday at ten thirty only here
27:34
Speaker 1: on the Financial Exchange Radio Network. You're listening to Ask
27:40
Speaker 1: Todd with Todd Lutsky on the Financial Exchange Radio Network.
27:54
Speaker 2: Got a little bit more room for calls, so call
27:56
Speaker 2: eight eight eight to zero five two two six three
27:58
Speaker 2: if you got a question four Todd Lutsky again. That
28:02
Speaker 2: number is eight eight eight two zero five two two
28:06
Speaker 2: sixty three to ask your question to Todd Lotsky about
28:09
Speaker 2: your estate plan. Let's go to Chris in Maine, who
28:12
Speaker 2: has a question for Todd. Chris, you are on with
28:14
Speaker 2: Todd Lotski.
28:16
Speaker 6: Hi dog, Hey Chris.
28:19
Speaker 8: So, my mother's about eighty four. She owns two properties outright.
28:24
Speaker 8: They're both worth about half a million. She also has
28:27
Speaker 8: somewhere around six hundred thousand savings. She has two surviving sons,
28:32
Speaker 8: which we inherit everything right now. She has everything basically
28:38
Speaker 8: a simple fifty to fifty and we sort it out
28:43
Speaker 8: with the two properties being of equal value, is there
28:46
Speaker 8: any point to her leaving one property to myself and
28:51
Speaker 8: one property to my other brother or do we just
28:54
Speaker 8: leave it as fifty fifty. The other question is she
28:58
Speaker 8: would like to give some money to the grand kids,
29:00
Speaker 8: not a large amount. I guess let's stay five to
29:05
Speaker 8: ten thousand each. Should she do that now or should
29:09
Speaker 8: that be in the will?
29:10
Speaker 7: Well, so there's a lot of questions, and so let's
29:13
Speaker 7: just start with the very last one. I'll come back
29:15
Speaker 7: to the real estate in a minute. Because the smaller
29:19
Speaker 7: item is the grandkid's item only because it's dollar amount smaller.
29:23
Speaker 6: I think she.
29:24
Speaker 7: Needs to first of all, all these questions make it
29:27
Speaker 7: sound like, you know, I don't want it to be
29:29
Speaker 7: your wish. It needs to be what she wants to do.
29:32
Speaker 7: So if she wants to leave money to grandkids, then
29:36
Speaker 7: the question is how old are the grandkids, how responsible
29:39
Speaker 7: are they? And do we want them when we pass,
29:42
Speaker 7: to get it right away or do we want to
29:44
Speaker 7: hold it in trust for them so that you kids,
29:47
Speaker 7: perhaps as trustee, can you know, make distributions out of
29:52
Speaker 7: the trust for them on a need based situation, like
29:56
Speaker 7: you know, for health education, welfare and support right. So
30:00
Speaker 7: and again, if it's only ten grand and that's probably
30:02
Speaker 7: not going to change their life, not worried about them
30:04
Speaker 7: blowing it, and they're old enough, well, then the trust
30:08
Speaker 7: can just say, you know, upon death, allocate ten thousand
30:11
Speaker 7: dollars to each of them paid out. Again, I think
30:13
Speaker 7: a trust is needed way more than a will here
30:16
Speaker 7: based on these things that you're talking about.
30:18
Speaker 3: Now.
30:19
Speaker 7: Sticking with the grandkids, it might be that she says,
30:22
Speaker 7: you know what, for that kind of money, I want
30:24
Speaker 7: to be able to see them enjoy the money. Give
30:28
Speaker 7: it to them now. That way she can actually see
30:30
Speaker 7: them enjoy the money. And so this is really a
30:34
Speaker 7: question for her more so than for anyone else. And
30:39
Speaker 7: for that amount of money, there would also not be
30:42
Speaker 7: any gift tax concerns if she were to say, yes,
30:46
Speaker 7: I want them to see it now and enjoy it now.
30:49
Speaker 7: So again, under nineteen thousand dollars per person per year,
30:55
Speaker 7: she doesn't even need to file a seven h nine
30:59
Speaker 7: gift tax return. It's simply ignored. So I hope that
31:03
Speaker 7: answers that part. Now, the bigger part is the real estate.
31:08
Speaker 7: Couple of things. One certainly very happy to hear she
31:12
Speaker 7: hasn't given them away yet, whether it's one to you
31:15
Speaker 7: or one to your sibling, giving it away during life
31:20
Speaker 7: is not a good idea. Unlike the small cash gifts,
31:24
Speaker 7: I'm okay with those, but real estate that I'm guessing
31:29
Speaker 7: she bought a long time ago and could have a
31:32
Speaker 7: large built in gain. Right, if you give away that
31:36
Speaker 7: property to either of the kids while they're living, then
31:38
Speaker 7: you're sticking them with this built in gain because they're
31:42
Speaker 7: going to get something called a carryover cost basis. So
31:47
Speaker 7: when they go to sell it you, for that matter,
31:49
Speaker 7: Chris would go to sell it, you would be stuck
31:52
Speaker 7: with that capital gain. Whereas if she dies owning it,
31:55
Speaker 7: we throw it into one of these trusts. Now for her,
31:57
Speaker 7: I'd put it into an irrevocable trust. Sounds like there's
31:59
Speaker 7: no a real big estate tax concern here. She's under
32:03
Speaker 7: two million dollars based on the numbers you gave me,
32:05
Speaker 7: and I'm assuming she's a mass resident. We want to
32:09
Speaker 7: just make sure that they're protected from the cost of
32:11
Speaker 7: long term care in the event she would, you know,
32:14
Speaker 7: get sick prior to passing, So so one, don't give
32:17
Speaker 7: them away. Two set up an irrevocable trust. Throw them
32:20
Speaker 7: in there now. Once they're in this irrevocable medicaid trust
32:25
Speaker 7: up to her again in terms of what that trust
32:28
Speaker 7: says when she dies, do we want it to have
32:31
Speaker 7: a payout? Oh, divide equally to the kids, pay it out. Well,
32:36
Speaker 7: if we did that, there would be if when we
32:38
Speaker 7: do it at Cushing it doll And there's language in
32:40
Speaker 7: the trust that says, listen, we're going to sell these
32:43
Speaker 7: properties unless you both want them. See now it's up
32:46
Speaker 7: to you kids, right whose head is where? Who wants what?
32:49
Speaker 7: When you never know geographically where a child's going to
32:52
Speaker 7: be and so then what, Well, then you guys can
32:55
Speaker 7: decide no, we don't want it to sell, it'split the
32:57
Speaker 7: money or oh wait I want this one and I don't.
33:02
Speaker 7: When the other sibling doesn't, well, then the one who
33:04
Speaker 7: wants it can buy out the one who doesn't at
33:06
Speaker 7: fair market value. So again, everybody's getting the building that
33:09
Speaker 7: they want anyway, or as you guys said, you can
33:12
Speaker 7: always just work it out and say, you know, I'll
33:15
Speaker 7: give you this building, you take this building and go
33:17
Speaker 7: on your way. I'd like to leave language in there
33:19
Speaker 7: to allow the kids to not be stuck with real
33:22
Speaker 7: estate if they don't want it, so put that language
33:25
Speaker 7: in there. All that said, that's the way I would
33:27
Speaker 7: probably pitch it to the client, but I would still
33:30
Speaker 7: want to do what the client wants. If the client
33:32
Speaker 7: comes back and says, nope, I want property X to
33:34
Speaker 7: go to you and property why to go to your sibling,
33:37
Speaker 7: so be it.
33:38
Speaker 6: We'll put that language in there.
33:39
Speaker 7: So hopefully that helps a little sorry, long winded answer,
33:42
Speaker 7: I know, but a lot actually going on in that question.
33:46
Speaker 7: And folks, there's a lot going on in your estate
33:48
Speaker 7: plan as well, and that's why you need to get
33:51
Speaker 7: the guide back to the basics. If you've never done
33:53
Speaker 7: your planning. This is basically an engagement letter that I
33:58
Speaker 7: drafted a recommendation to a made up client with kids
34:03
Speaker 7: and assets.
34:05
Speaker 6: Everything is laid out.
34:06
Speaker 7: It goes on to explain all the basic documents from
34:10
Speaker 7: powers of attorneys to healthcare proxies to.
34:12
Speaker 6: Your will and in detail, and then it.
34:15
Speaker 7: Goes on and explains the plan itself, which is in
34:18
Speaker 7: this case, the client wanted an irrevocable trust, so it
34:21
Speaker 7: explains how the irrevocable trust works, from state gift taxes,
34:26
Speaker 7: nursing home protection, accessibility.
34:28
Speaker 6: Bloodline planning. It really gives you who knows.
34:32
Speaker 7: It might be if you put your family dynamics into
34:34
Speaker 7: this situation, you might say this is the plan for me.
34:37
Speaker 6: Who knows.
34:38
Speaker 7: Either way, it's gonna give you the information you need
34:42
Speaker 7: to begin your estate plan what to think about prior
34:45
Speaker 7: to going to your attorney to start the planning. So
34:50
Speaker 7: get the guide back to the Basics eight six six
34:53
Speaker 7: eight four eight five six ninety nine or Legal Exchange
34:57
Speaker 7: Show dot com again eight six six eight four eight
35:01
Speaker 7: five six nine to nine or Legal Exchange Show dot
35:05
Speaker 7: Com tug.
35:07
Speaker 2: One other thing that I just want to touch on
35:10
Speaker 2: we talked earlier about, you know, kind of planning beyond
35:12
Speaker 2: the grave. What if someone is in a second or
35:16
Speaker 2: third marriage and they have children from prior marriages, how
35:19
Speaker 2: can trusts help to navigate who gets what after both
35:23
Speaker 2: spouses pass?
35:24
Speaker 7: Yeah, great question because again think about Chris's call right
35:27
Speaker 7: when when he was asking you know, who should get
35:29
Speaker 7: what what assets? Right, And that's just for a first
35:31
Speaker 7: marriage and look that we went through, right, So but
35:35
Speaker 7: remember the trust can be designed to accommodate that. So
35:40
Speaker 7: at the end of the day, if you can accommodate
35:43
Speaker 7: a first marriage, you can certainly accommodate a second marriage.
35:47
Speaker 7: And again there you're really gonna need to talk to
35:49
Speaker 7: the client say, hey, do you have kids from a
35:51
Speaker 7: prior marriage? And do you have kids from a prior marriage?
35:54
Speaker 7: And you know, are you close to all of them?
35:56
Speaker 7: Are you both close to all of them? Or are
35:58
Speaker 7: you only close to your own? You know, these are
36:01
Speaker 7: the kind of questions that need to be sort of,
36:03
Speaker 7: you know, ferreted out when you're when you're drafting it.
36:05
Speaker 7: And and if the case is yeah, we are close
36:09
Speaker 7: to all of them and we'd like to, you know,
36:10
Speaker 7: treat them equally, well, then it's easy. And then you say, okay,
36:13
Speaker 7: equally to all the kids. But you need to define
36:16
Speaker 7: in the document that the children the word child children
36:21
Speaker 7: and issue shall mean children of a you know, regardless
36:26
Speaker 7: of parentage. In there, it's going to be considered their child.
36:30
Speaker 7: So the child of one is the child of the other.
36:32
Speaker 7: So you got to make sure you define that, and
36:34
Speaker 7: then you can do it that way. Some people say,
36:37
Speaker 7: you know what, I came into this marriage with extremely
36:41
Speaker 7: different amounts of assets, and so maybe I brought seventy
36:43
Speaker 7: percent in and the spouse brought thirty percent in. Well
36:47
Speaker 7: that might be a way of splitting it right, go,
36:49
Speaker 7: I'm going to allocate seventy percent of the assets equally
36:52
Speaker 7: to my kids and thirty percent equally to the children
36:56
Speaker 7: from the other marriage. So there's many ways to think
36:59
Speaker 7: about it. I think think the message here is simply
37:02
Speaker 7: get your planning done and learn how to do it.
37:05
Speaker 3: Mister Watski, thank you for joining us today.
37:07
Speaker 6: Always a pleasure.
37:09
Speaker 1: This has been asked Todd on the Financial Exchange Radio network.
37:13
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:15
Speaker 1: and Dolan, serving Massachusetts and New England for more than
37:18
Speaker 1: thirty years, helping families with the state and tax planning,
37:21
Speaker 1: Medicaid planning, and probate law. Call eight hundred three nine
37:24
Speaker 1: three four thousand and one or visit Cushingdolan dot com.
37:27
Speaker 1: The views expressed in this segment are solely those of
37:29
Speaker 1: Cushing and Dolan. Armstrong Advisory does not provide any legal
37:32
Speaker 1: or tax advice. Please consult with your illegal or tax
37:34
Speaker 1: advisor on such matters. Cushing and Armstrong do not endorse
37:37
Speaker 1: each other and are not affiliated