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NVIDIA Earnings, Rising Bond Yields & Retail Results · The Financial Exchange Show

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Speaker 1: a donation today. This is the Financial Exchange with Chuck Zada,
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Speaker 1: and Paul Lane.
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Speaker 2: Chuck, Paul and Tucker with you here today, and as
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Speaker 2: we kick things off big store today is we've got
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Speaker 2: Nvidia earnings unlike most of the S and P five
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Speaker 2: hundred that reported over the last not even the last
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Speaker 2: but over the back half of April and first week
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Speaker 2: of May.
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Speaker 3: And Vidia always likes to hang out.
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Speaker 2: A report about two or three weeks after the other
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Speaker 2: heavy hitters.
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Speaker 3: And it's been really interesting.
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Speaker 2: It's a fascinating phenomenon the last few years because we've
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Speaker 2: had a few earning seasons that have come and gone
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Speaker 2: where the S and P has kind of not been
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Speaker 2: looking great, and then Nvidia came in with one of
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Speaker 2: those giant, you know, earnings reports and basically saved the
1:45
Speaker 2: market and we were off new all time highs. The
1:48
Speaker 2: situation here is not quite like that in that, hey,
1:52
Speaker 2: during the earning season that we've seen, the bulk of
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Speaker 2: it stocks actually rallied, you know, four or five percent
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Speaker 2: during the heart of earning season this year, and instead
2:03
Speaker 2: we're on you know, a little two three day pullback.
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Speaker 3: Nothing big.
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Speaker 2: Maybe it's we're two percent off the all time high
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Speaker 2: in the S and P five hundred, So let's not
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Speaker 2: talk about this being a generational dip or anything like that,
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Speaker 2: but in videos here in particular, after semiconductor stocks have
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Speaker 2: gone crazy, with the semiconductor index rallying about seventy percent
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Speaker 2: from its March bottom to its May peak, and I
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Speaker 2: think investors are looking to see what in Vidia tells
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Speaker 2: us about the current state of play since they are
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Speaker 2: still the biggest player in that market.
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Speaker 4: They are definitely still the biggest player. It seems like
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Speaker 4: the anticipation, as much as this piece in Bloomberg that
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Speaker 4: we kick off the show with does have a headline
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Speaker 4: of in Vidia earnings are set to make or break
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Speaker 4: the chip stock rally. I am, you know, not as
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Speaker 4: concerned about that as I perhaps have been in prior quarters,
2:54
Speaker 4: where in VideA seem like the end all be all
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Speaker 4: of just tremendous focus. But like you said, they are
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Speaker 4: the bigges player, so it is certainly worth covering. But
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Speaker 4: a lot of the gains, like you mentioned, have a
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Speaker 4: crew to some of these other semiconductor companies this year, AMD,
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Speaker 4: in Nvidia, Broadcom, and Micron have been some of the
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Speaker 4: just tremendous meteoric risers in terms of what we're looking
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Speaker 4: for for in Nvidia, for their earnings that will come
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Speaker 4: out at the close of bell today. Estimates are for
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Speaker 4: about eighty billion dollars of revenue around the quarter you
3:24
Speaker 4: can see seventy nine in other places, and then for
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Speaker 4: Q two, the one that they're in the midst of
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Speaker 4: at the moment, about ninety billion. And really what the
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Speaker 4: focus is going to continue to be is if in
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Speaker 4: Vidia can continue to beat and raise guidance. Now, the
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Speaker 4: stock trades at a position where it had been trading
3:43
Speaker 4: on average around thirty six times Ford earnings. Over the
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Speaker 4: course of the last decade or so, that multiple has
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Speaker 4: come down quite a bit as they've continued to grow
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Speaker 4: their revenue seventy plus percent year over year. We now
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Speaker 4: sit at around twenty four times Ford revenue. The interesting
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Speaker 4: thing with Nvidia, and Chuck, you and I've spoken about
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Speaker 4: this a little bit before, is there is still this
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Speaker 4: pricing in of seventy two percent revenue growth through twenty
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Speaker 4: twenty seven. However, that does seem to taper off by
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Speaker 4: estimates to about thirty four percent growth of revenue in
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Speaker 4: twenty twenty eight. So that is why you sort of
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Speaker 4: see a a relative discount on the forward price to
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Speaker 4: earnings ratio. Of Nvidia to where it's been in the past,
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Speaker 4: is that they do continue to have this just tremendous growth.
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Speaker 4: I think we probably underscore it a little bit how
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Speaker 4: crazy it is to continue to grow your revenue seventy
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Speaker 4: percent year over year.
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Speaker 2: I mean, Paul, but hold on, Like, let's just tell people,
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Speaker 2: like what we've seen, if you go back to before
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Speaker 2: AI was a thing, would you got to go back
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Speaker 2: to like Q four of twenty two.
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Speaker 3: So they're they're, you know, their January.
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Speaker 2: Of twenty three earnings report, they're trailing twelve month revenue
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Speaker 2: then was twenty six billion dollars. Nothing to sneeze up,
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Speaker 2: but that's that's what it was. Once we clear this
4:57
Speaker 2: report here, they're trailing twelve month revenue going to be
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Speaker 2: around two hundred and thirty two hundred and forty billion dollars.
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Speaker 2: That they have ten exd their revenue in three years.
5:08
Speaker 2: Crazy crazy, It's insane. It's absolutely nutty. So you know,
5:15
Speaker 2: it's not to say that it can't go back down
5:17
Speaker 2: if this all, like you know, plays out badly, but
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Speaker 2: I find it hard to actually know, I quite honestly,
5:23
Speaker 2: if in video revenue goes back down to like twenty
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Speaker 2: six billion dollars like something else has gone horribly wrong. Definitely,
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Speaker 2: because the place that I get to and I continue
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Speaker 2: to get to on this is, look, five ten years
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Speaker 2: from now, the world as a whole is going to
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Speaker 2: be using so much more artificial intelligence than it is today.
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Speaker 2: I don't know like who exactly is going to be
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Speaker 2: profitable and exactly how like everything's going to work.
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Speaker 3: But given in Video's positioning, it's really.
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Speaker 2: Challenging for me to see them not being a major
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Speaker 2: part of that, even if their revenue may, you know,
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Speaker 2: go through some changes over that time period as the
5:59
Speaker 2: end evolves.
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Speaker 4: Yeah, it's not to say that they'll continue to command
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Speaker 4: this what eighty plus percent market share maybe ninety plus
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Speaker 4: percent market share that they have on these leading edge
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Speaker 4: AI chips, But to your point, I can absolutely see
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Speaker 4: that the demand is going to continue to grow over
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Speaker 4: the course the next four or five years. And whether
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Speaker 4: they have forty percent market share fifty who knows how
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Speaker 4: those dynamics play out, But absolutely in agreement with you
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Speaker 4: that they're still going to remain a player in the space.
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Speaker 4: Right now, they are up about eighteen percent year to
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Speaker 4: date heading into this earning support that's above the Nasdaq,
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Speaker 4: and certainly above the broader market of about seven point
6:37
Speaker 4: four percent on the S and P five hundred. What
6:39
Speaker 4: also we'll be looking for is any sort of information
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Speaker 4: on their China sales. There had been some changes made
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Speaker 4: in January that may have allowed for some revenue. They
6:48
Speaker 4: had projected no realized revenue from sales in China, and
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Speaker 4: then they have their new Vera rubin chips. Any information
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Speaker 4: that we get on either of those two areas will
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Speaker 4: be of interest at the close of bell today.
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Speaker 2: The other piece you mentioned, you know, you weren't sure
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Speaker 2: if this really you know that the headline of you know,
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Speaker 2: in Vidia earnings will be a test or in Vidia
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Speaker 2: earnings are set to make or.
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Speaker 3: Break the chip stock rally.
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Speaker 2: The place that we've been seeing the biggest rally in
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Speaker 2: semiconductors for the last I don't know, two three months,
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Speaker 2: it's been in memory chips. It's which look, memory is
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Speaker 2: a component that in Vidia buys for its for its
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Speaker 2: products that it puts, you know, out to its customers.
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Speaker 2: But that is is ultimately where that the biggest gains
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Speaker 2: have been in the last month or two. It's been
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Speaker 2: on the memory side of things because there's this shortage
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Speaker 2: of memory that's caused by how explosively the AI business
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Speaker 2: is growing right now.
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Speaker 3: So I'm not.
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Speaker 2: Entirely sure that in Vidia's sales for this quarter are
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Speaker 2: necessarily going to be you know, relevant to what's going
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Speaker 2: on in memory. That is a a business this where
8:00
Speaker 2: you talk to just about anyone who's plugged in and
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Speaker 2: they tell you, look, there's nothing we can do, Like
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Speaker 2: memory chips are basically sold out through the next couple
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Speaker 2: of years, and that's just how it's.
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Speaker 3: Going to be.
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Speaker 2: The other piece that's interesting when we talk about that, then, Paul,
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Speaker 2: is eventually, if something becomes a bottleneck in a process,
8:21
Speaker 2: companies start to look for ways to just avoid it.
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Speaker 2: And the way that I think about it this way,
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Speaker 2: if you are going through something as like a household,
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Speaker 2: like you're trying to, you know, buy your groceries for
8:37
Speaker 2: the week, I always bring it back to this for you.
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Speaker 3: If you're buying your groceries.
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Speaker 2: For the week and you really want to do burgers,
8:43
Speaker 2: but the cost of beef is through the roof, Eventually
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Speaker 2: you start just saying, look, we're just not gonna buy
8:48
Speaker 2: as much of this. We'll figure it well, we'll do
8:50
Speaker 2: turkey burgers instead. You know, it's the same thing with
8:54
Speaker 2: any business. If there's a part of your business that
8:57
Speaker 2: is denting your profitability because you're having to pay too
8:59
Speaker 2: much for the inputs, you start saying, hey, is there
9:02
Speaker 2: a way that we can structure this so that we
9:04
Speaker 2: don't need as much of that input? And so the
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Speaker 2: concern that I think you do have on the memory
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Speaker 2: side of things is Hey, to this point, this has
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Speaker 2: been the way that things have been done in the
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Speaker 2: AI chip industry. If memory continues to be a bottleneck,
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Speaker 2: eventually the players are going to look at it and say,
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Speaker 2: can we figure out ways to do this with less
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Speaker 2: memory in our setups? Because and this is how innovation happens,
9:30
Speaker 2: by the way, it's it's through stress.
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Speaker 3: When you can buy the stuff.
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Speaker 2: Cheaply, you just keep saying, okay, let's buy as much
9:36
Speaker 2: of it as we can. When it becomes expensive, you say, okay,
9:39
Speaker 2: can we make do with less? And that's how you
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Speaker 2: get more efficiency and productivity. It's a good thing overall,
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Speaker 2: But this is also why every single semiconductor cycle ends
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Speaker 2: up in tears for semiconductor investors, no question.
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Speaker 3: So that's what we've got there. Let's take a quick break.
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Speaker 3: When we come back.
9:57
Speaker 2: Bond yields continuing to move higher over the last couple
9:59
Speaker 2: of days, we'll talk about what's going on there after this.
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10:38
Speaker 3: All right, Paul.
10:38
Speaker 2: One of the things that we've seen in the last
10:41
Speaker 2: month or so has been bond yields tick and higher.
10:47
Speaker 2: And this has been kind of interesting to watch because
10:51
Speaker 2: heading into the just before the conflict with Iran began,
10:58
Speaker 2: the US ten yere treasury was at three point nine
11:00
Speaker 2: five percent, and then over the course of March, as
11:03
Speaker 2: oil prices went up, it went up to around four
11:06
Speaker 2: point four to eight, and then kind of just chopped
11:08
Speaker 2: around there for like between four two and four five
11:12
Speaker 2: for about about a month or so, and then the
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Speaker 2: last three or four days has just gone zippitydude, dot
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Speaker 2: to the to the upside. We're now sitting here at
11:20
Speaker 2: you know, four six two seven. We got to four
11:22
Speaker 2: six eight yesterday. And look, it's it's clear to me
11:28
Speaker 2: that this is if you look at both the timing
11:30
Speaker 2: and the composition of the move in the ten year,
11:33
Speaker 2: it is largely driven by inflation expectations moving up while
11:40
Speaker 2: real growth remains consistent. And want I want to be
11:43
Speaker 2: clear on that what we're seeing priced in is not
11:47
Speaker 2: a collapse in real growth and inflation going wild. We
11:52
Speaker 2: are seeing inflation, you know, projections moving up as a
11:55
Speaker 2: result of this.
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Speaker 3: But the reason why.
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Speaker 2: The ten year typically moves up in a situation like
12:04
Speaker 2: this is not just because inflation is moving up, but
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Speaker 2: also because growth is strong enough to support that inflation.
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Speaker 2: And I think that's what we're seeing here, not just
12:12
Speaker 2: in the United States, because this is very much not
12:15
Speaker 2: affecting US bonds alone. This is affecting bonds of all
12:19
Speaker 2: major developed countries, the UK, Germany, Japan, Canada, you go
12:26
Speaker 2: down the list, it's happening to all of them. And
12:29
Speaker 2: by the way, you could look at this as a
12:32
Speaker 2: continuation of what we see and what we've seen in
12:34
Speaker 2: the last five years, which is a rerating of bonds
12:38
Speaker 2: just based on projected inflation and and nominal growth.
12:43
Speaker 4: Yeah, all those countries that you mentioned, they have a
12:46
Speaker 4: twelve month high on their thirty year bonds. The US
12:49
Speaker 4: here domestically, we hit five point one eight percent on
12:53
Speaker 4: the US thirty year treasury, that's the highest since July
12:56
Speaker 4: of two thousand and seven. Mortgages on the thirty year
12:59
Speaker 4: fix we now sit at at six point seventy five
13:01
Speaker 4: that's the highest since julyah last year. So yeah, across
13:04
Speaker 4: the board, rates are coming up. As you mentioned, it's
13:07
Speaker 4: right on the backs of inflation expectations coming up and
13:11
Speaker 4: off of what, to be clear, is a tremendous earning
13:14
Speaker 4: season in terms of the numbers that we've seen. I
13:16
Speaker 4: think ninety one percent of the S and P five
13:18
Speaker 4: hundred had reported as of last week when I was
13:20
Speaker 4: looking at some info, and we had seen about twenty
13:22
Speaker 4: seven percent year over year earnings growth. So these are tremendous,
13:26
Speaker 4: you know, earnings numbers that we're seeing here. This is
13:28
Speaker 4: the best quarter since I think it's Q four of
13:31
Speaker 4: twenty one in terms of the year over year earnings growth.
13:33
Speaker 4: So the growth is there, The demand and everything that
13:36
Speaker 4: we're seeing on the earning side with companies is strong.
13:39
Speaker 4: To your point, you know, combine that with prices that
13:43
Speaker 4: have increased, That's where you kind of get that cocktail
13:45
Speaker 4: of expectations going up for inflation and as a results,
13:49
Speaker 4: rates are running up with it. So interesting to see
13:52
Speaker 4: what impacts this has. You know, the spring housing market
13:55
Speaker 4: is largely behind us, but just on the broader e
13:58
Speaker 4: comedy in general, having these slightly higher rates and the
14:02
Speaker 4: change that we've seen chuck in terms of the shorter
14:05
Speaker 4: end of the curve. The Fed Fund rate projections from
14:08
Speaker 4: this year have significantly deviated where we came into January anticipating,
14:13
Speaker 4: you know, two cuts over the course of this year.
14:16
Speaker 4: Now the most favorable, not most favorable, in the most
14:19
Speaker 4: highly likely situation is perhaps we do see a cut,
14:22
Speaker 4: no a raise, rather for the rest of the year.
14:25
Speaker 2: Paul, let's turned out and talk about a couple of
14:27
Speaker 2: consumer facing companies that reporting earnings this week. We've got
14:31
Speaker 2: Target and Lows. Which one do you want to start with?
14:34
Speaker 4: Let's start with Target, do you want I'll just jump
14:39
Speaker 4: in on it. We saw the biggest sales gain for
14:42
Speaker 4: Target in four years. However, I am seeing the stock
14:45
Speaker 4: as I go in to talk about how this was
14:47
Speaker 4: a good quarter. It's down seven percent. In early trading
14:51
Speaker 4: here in the first hour of the day. But overall,
14:54
Speaker 4: in terms of the numbers that we saw here, again,
14:57
Speaker 4: Target had really been bludgeoned over the course of the
14:59
Speaker 4: last few years. So the stock had just really struggled
15:02
Speaker 4: because post pandemic, Target really hadn't been able to lure
15:07
Speaker 4: customers in in the same way they were kind of
15:09
Speaker 4: getting their lunch taken by Amazon and Walmart and Costco.
15:14
Speaker 4: In terms of the digital sales that plug through those
15:17
Speaker 4: other companies that I just mentioned, and their product mix
15:20
Speaker 4: you know, got weak in stale. But in terms of
15:23
Speaker 4: what we saw in this most recent quarter, like I mentioned,
15:26
Speaker 4: they saw six close to six percent comparable sales growth
15:30
Speaker 4: that was the biggest since the end of twenty twenty one.
15:32
Speaker 4: They raised their revenue guidance to about four percent this
15:35
Speaker 4: year from what was previously two percent, and did see
15:39
Speaker 4: some growth on their digital sales of about nine percent.
15:43
Speaker 3: That's Cory we talk about the digital piece.
15:45
Speaker 4: Yeah, that's largely off of the same day delivery program
15:48
Speaker 4: that they've built. Another crazy, uh, Target Circle three sixty
15:52
Speaker 4: is their Walmart Plus so good, that's their Remember and Fun,
15:56
Speaker 4: that's their little brand. So I got to be honest,
16:00
Speaker 4: and look, the market kind of agrees with me. After
16:02
Speaker 4: originally being up like two and a half percent pre
16:04
Speaker 4: market on these earnings, it's now down seven.
16:07
Speaker 3: Right.
16:08
Speaker 2: It's because that nine percent online sales growth. It really
16:14
Speaker 2: kind of sucks, Like, is the nice way to put it, Paul.
16:19
Speaker 2: Do you know how rapidly Amazon's online retail sales moved
16:23
Speaker 2: in the last quarter.
16:26
Speaker 4: I know Walmart is closer to fifty. I'm gonna go
16:29
Speaker 4: with twenty percent for.
16:30
Speaker 3: Thirteen, okay thirteen?
16:32
Speaker 2: And and Amazon is as entrenched as you can be
16:34
Speaker 2: an online retail Oh yeah. If you are target and
16:39
Speaker 2: you have an online business that is a just a
16:42
Speaker 2: fraction of Amazon size and be a fraction of your
16:46
Speaker 2: total sales revenue, and the best you can manage is
16:48
Speaker 2: nine percent sales growth. You're doing something wrong, Like that's
16:54
Speaker 2: it's not a good thing. It's like nine percent sales
16:57
Speaker 2: like online sales growth. You look at that and you're like, no,
17:00
Speaker 2: that should be higher, Like you got to get that
17:01
Speaker 2: in the twenties at a minimum.
17:04
Speaker 3: If Amazon's doing.
17:05
Speaker 4: Thirteen, Walmart's at twenty seven. I want to correct myself there, Yes.
17:08
Speaker 2: Walmart's at twenty seven. Fine, split the difference. You've got
17:11
Speaker 2: to get to twenty, right. You can't do nine. You know,
17:15
Speaker 2: I'm not saying I could do nine, like if you
17:17
Speaker 2: add like you know, Chuck's retailer, like, we would do worse.
17:20
Speaker 2: But that's also like, thank you, I appreciate that.
17:23
Speaker 3: Dean.
17:24
Speaker 2: No, that's not Dean Warmer, that's that's Animal House. What's
17:27
Speaker 2: what's what's the dean's name in there's a principal's name
17:29
Speaker 2: in that movie. I'll Dean Warmer's Animal House. In any case,
17:36
Speaker 2: it's something.
17:37
Speaker 3: Where nine Runey Rooney, there we go.
17:42
Speaker 2: It's uh, it's just something where if you do a
17:44
Speaker 2: nine percent online sales growth, it's not good enough for targeting.
17:48
Speaker 2: And so this is the problem that they continue to
17:50
Speaker 2: have is they're just they are a middling company as
17:55
Speaker 2: far as execution, Like they just can't really get out
17:58
Speaker 2: of their way. Well, it was anything interesting there.
18:00
Speaker 3: For you, Paul.
18:01
Speaker 4: Similar trends that we saw with Home Depot. They had
18:04
Speaker 4: pretty disappointing sales growth, only about a you know, half
18:08
Speaker 4: percent growth on comparable sales, and they continue to try
18:12
Speaker 4: and build out that pro side of things there as well.
18:15
Speaker 4: A similar strategy that's been deployed by Home Depot. Right now,
18:18
Speaker 4: Home Depot gets about fifty percent of their revenue from
18:21
Speaker 4: pro contractors, a little bit more resilient business than the regular,
18:25
Speaker 4: you know, mom and pop sort of customer coming in
18:28
Speaker 4: on a weekend basis for their needs. LOWS is more
18:31
Speaker 4: like twenty five thirty percent on that pro side of things.
18:34
Speaker 4: So that's been the dynamics, and a week housing backdrop
18:37
Speaker 4: has been really what's plagued both LOWS and Home Depot.
18:41
Speaker 4: So none of them are showing, you know, tremendously different
18:44
Speaker 4: results here. Lows were down as much as you know,
18:47
Speaker 4: nine and a half percent this year through Tuesday's close,
18:50
Speaker 4: and then I believe they were off again this morning
18:53
Speaker 4: on some of the news that we saw from this
18:55
Speaker 4: most recent earnings report. Let's see what they're at. Yeah,
18:59
Speaker 4: off about today?
19:01
Speaker 2: Yeah, I think again, the data that we're getting from
19:05
Speaker 2: a lot of retailers is things are fine, they're not
19:09
Speaker 2: falling apart, but they're not seeing a huge acceleration. Like
19:11
Speaker 2: retail is not what's driving the American economy right now. No, No,
19:15
Speaker 2: it is very much AI and retail's final like it
19:19
Speaker 2: doesn't have to be in the driver's seat. It was
19:21
Speaker 2: for you know, two three years, and it doesn't have
19:24
Speaker 2: to be right now. That's that's okay, as long as
19:26
Speaker 2: it doesn't fall apart, which is not quick break. We've
19:29
Speaker 2: got Wall Street Watch, and Todd Lutsky joins us for
19:32
Speaker 2: Ask Todd Next.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:43
Speaker 1: DFE show. Breaking business news is always first right here
19:48
Speaker 1: on the Financial Exchange Radio Network. Time now for Wall
19:53
Speaker 1: Street Watch, tracking the stocks, the data, and the headlines
19:56
Speaker 1: driving markets so far today, right here on the Financial
19:59
Speaker 1: ext Change Radio Network.
20:01
Speaker 5: Markets in positive territory is Wall Street eagerly awaits a
20:04
Speaker 5: significant earnings report from AI and Chip tried and Nvidia
20:08
Speaker 5: do out after today's closing bell. Right now, the Dow
20:11
Speaker 5: is up seven tens of a percent. SMP five hundred
20:14
Speaker 5: also up about seven cents of a percent, NASDAK up
20:18
Speaker 5: nearly one percent higher, Russell two thousand up one point
20:21
Speaker 5: four percent. Ten Your Treasure reeled down four basis points
20:24
Speaker 5: at four point six two percent. Dan Oil down about
20:28
Speaker 5: three and a half percent, trading at one hundred dollars
20:31
Speaker 5: a barrel. Target beat first quarter Street forecast, where the
20:34
Speaker 5: retailer's net sales grew more than six percent year over
20:37
Speaker 5: year in its turnaround effort. Target. Same store sales also
20:40
Speaker 5: climbed five point six percent, its first positive same store
20:44
Speaker 5: sales number in five quarters. However, shares are down by
20:48
Speaker 5: nearly seven percent. Another retailer, and Lows, also beat earnings expectations,
20:52
Speaker 5: driven by a strong spring execution online sales, and strength
20:56
Speaker 5: and appliances in home services. Low CEO did, however, acknowledge
21:00
Speaker 5: a challenging housing environment. Shares are down by about two percent,
21:04
Speaker 5: and Facebook parent Meta began laying off thousands of employees
21:08
Speaker 5: this morning and reassigning thousands others to AI focus roles.
21:13
Speaker 5: Last month, the company informed its staff that layoffs would
21:15
Speaker 5: impact about eight thousand employees, or about ten percent of
21:20
Speaker 5: its workforce. Meta shares are down modestly. I'm Tucker Silva
21:25
Speaker 5: and that is Wall Street Watch.
21:29
Speaker 1: This is Asked Todd on the Financial Exchange Radio Network.
21:33
Speaker 1: If you have an existing estate plan or in the
21:35
Speaker 1: market for one, Todd Lutsky is here to answer your
21:38
Speaker 1: questions and help you plan for a later life. Ask
21:40
Speaker 1: Todd is presented by Cushing and Dolan, serving Massachusetts and
21:44
Speaker 1: New England for more than thirty five years, helping families
21:47
Speaker 1: with a state and tax planning, Medicaid planning, and probate law.
21:50
Speaker 1: Visit Cushingdolan dot com. Now here's Todd Lutsky.
21:56
Speaker 3: A promised.
21:58
Speaker 2: We're now joined by the one in all, Todd Lutsky
22:01
Speaker 2: from the law firm of Cushing and Dolan. This is
22:03
Speaker 2: your opportunity to ask Todd your estate planning questions live
22:07
Speaker 2: on air right now. Phone lines are wide open at
22:11
Speaker 2: eight eight eight to zero five two two six three.
22:15
Speaker 2: We can usually get through two to three calls, So
22:17
Speaker 2: get calling early to get in line, because well, if
22:21
Speaker 2: you're the fourth caller, it's gonna be, you know, kind
22:23
Speaker 2: of a toss up as to whether or not we
22:25
Speaker 2: get to you again. Eight eight eight to zero five
22:29
Speaker 2: two two sixty three is the number, and that's what
22:32
Speaker 2: you call to ask Todd your questions live on air
22:35
Speaker 2: right now about your estate plan or black thereof again
22:39
Speaker 2: eight eight eight to zero five.
22:42
Speaker 3: Two two sixty three. Mister Lutsky, How are you doing today?
22:45
Speaker 6: I am never better?
22:46
Speaker 3: How are you? Uh? Okay? Yeah, I was the victim
22:50
Speaker 3: of a robbery yesterday.
22:52
Speaker 6: Well it does happen.
22:53
Speaker 3: Guy stole my camo jacket and flip flops. Oh yeah,
22:57
Speaker 3: he can hide but he can't run. That's true, So
23:00
Speaker 3: we'll see how it goes.
23:01
Speaker 2: Todd, I want to talk about naming a trustee on trusts.
23:07
Speaker 2: This is something you have to do this correct, Like,
23:09
Speaker 2: you can't have a trust with no trustee.
23:12
Speaker 6: That's true. Yeah, absolutely need a trustee.
23:15
Speaker 2: What kinds of situations have you seen arise where someone's
23:19
Speaker 2: choice of trustee turns out to have been the wrong choice.
23:25
Speaker 6: Yeah, it definitely happens.
23:28
Speaker 7: I think we need to think about it in terms
23:29
Speaker 7: of two trusts, right, because there's a big spectrum here.
23:33
Speaker 7: If we're talking about a revocable trust, I don't think
23:36
Speaker 7: you have to worry so much, at least not while
23:38
Speaker 7: you're living. So I think your question comes in two flavors. One,
23:41
Speaker 7: what kind of trust do we have? And two is
23:44
Speaker 7: the donor of the trust still living or not? Because
23:46
Speaker 7: then it really matters, right. Yeah, So if you're living
23:51
Speaker 7: and we're doing a revocable trust, while you're alive, you're
23:54
Speaker 7: the trustee and you don't have to worry because you
23:56
Speaker 7: trust yourself. When you die it, you know, you could
24:01
Speaker 7: have another trustee serving that you're not around to really
24:04
Speaker 7: fix that problem. And and it's it can be complicated.
24:08
Speaker 7: So what we what we put in there? If you
24:09
Speaker 7: pick the if the wrong trustee is their is we
24:11
Speaker 7: usually have language in that allows the beneficiary of the
24:16
Speaker 7: trust shares to remove and replace, you know, a trustee
24:22
Speaker 7: of their share. Sometimes it's one that's not appointed by
24:25
Speaker 7: the donor. Other times it can just be complete removal
24:28
Speaker 7: and replacement. So it's a drafting issue. If you can
24:30
Speaker 7: put that language in, you can provide the beneficiary the
24:33
Speaker 7: power to remove and replace the the you know, trustee
24:37
Speaker 7: over that trustee share if it turns out to be
24:39
Speaker 7: a you know, a bad trustee. If you are living
24:44
Speaker 7: and you have an irrevocable let's say, irrevocable medicaid trust,
24:47
Speaker 7: and and quite frankly, sometimes even in an irrevocable gifting trust,
24:53
Speaker 7: if it's an irrevocable medicaid trust, you might not be trustee,
24:57
Speaker 7: but you're alive. You're the donor, okay, the power to
25:01
Speaker 7: remove and replace that trustee. So if while you're living
25:03
Speaker 7: you want you see things aren't getting done the way
25:06
Speaker 7: they should be, the trust isn't being followed, or you're
25:09
Speaker 7: not happy with the trustee, no, you can remove them
25:13
Speaker 7: and don't need to ask permission you just send a
25:16
Speaker 7: letter in, they're out and you put in another trustee.
25:20
Speaker 6: So nice control there.
25:22
Speaker 7: Same issue though, when you pass, you're going to have
25:24
Speaker 7: to have that language in there for you know, we're
25:27
Speaker 7: removing and replacing those trustees. And perhaps finally, if you
25:32
Speaker 7: have an irrevocable gifting type trust where you're alive and
25:35
Speaker 7: you're just doling out money into this trust to sort of,
25:38
Speaker 7: you know, get it out of your estate, a great
25:40
Speaker 7: way of giving assets to children and grandchildren while you're
25:44
Speaker 7: alive without actually giving it to them. In other words,
25:47
Speaker 7: you're the donor but not the trustee, because if these
25:52
Speaker 7: assets are meant to be out of your estate, then
25:54
Speaker 7: you can't be the trustee. Otherwise you would be retaining
25:57
Speaker 7: the power to control the beneficial enjoyment be included. So
26:01
Speaker 7: you put someone else on as a trustee, but you
26:03
Speaker 7: also can retain the power to remove and replace that trustee,
26:07
Speaker 7: with the limitation being it can't be someone related or
26:10
Speaker 7: subordinate to you. But at least you have the power
26:12
Speaker 7: to fix that decision as to who you put on
26:16
Speaker 7: as trustee if you find out that they don't work.
26:18
Speaker 7: That's a really complex question, but a great question. I
26:21
Speaker 7: think A lot of people need to know that.
26:24
Speaker 2: Talking with Todd Lotski from the law firm of Cushing
26:26
Speaker 2: and Dolan, We've got room on the phone lines for
26:29
Speaker 2: your estate planning questions at eight eight eight to zero
26:33
Speaker 2: five two two sixty three. That number again is eight
26:37
Speaker 2: eight eight to zero five two two six three. We're
26:42
Speaker 2: gonna take a quick break now, but when we return,
26:46
Speaker 2: we're gonna get right to those questions for Todd.
26:49
Speaker 3: Again.
26:50
Speaker 2: That phone number is eight eight eight to zero five
26:53
Speaker 2: two two sixty three. Quick break your questions with Todd.
26:57
Speaker 1: Next, Ask Todd with Todd let every Wednesday at ten
27:01
Speaker 1: thirty only here on the Financial Exchange Radio Network. You're
27:07
Speaker 1: listening to Ask Todd with Todd Lunsky on the Financial
27:10
Speaker 1: Exchange Radio Network.
27:20
Speaker 2: Talking with Todd Lutsky from the law firm of Cushing
27:22
Speaker 2: and Dolan. We are room with the phone lines at
27:25
Speaker 2: eight eight eight two zero five two two sixty three
27:28
Speaker 2: for your estate planning questions.
27:31
Speaker 3: Again. That is eight eight eight two zero five two
27:36
Speaker 3: two six three. Todd.
27:37
Speaker 2: Last segment, I had asked you a question about, Hey,
27:40
Speaker 2: what what happens if I.
27:41
Speaker 3: You pick the wrong trustee and then you walk through that?
27:44
Speaker 2: Yeah, what about Uh, what if something happens that causes
27:48
Speaker 2: you to need to update beneficiaries? What tools are available
27:52
Speaker 2: for that when it comes to a trust.
27:54
Speaker 6: So those also are available.
27:56
Speaker 7: So if you've got like a revocable trust, certainly it's
27:59
Speaker 7: changeable any way you want. Right, so if you're alive,
28:03
Speaker 7: you can change it six ways to Sunday. There really
28:05
Speaker 7: is no limitation for you on a revocable trust. And
28:10
Speaker 7: I say that because when you switch gears and you say,
28:12
Speaker 7: what if I've done like a medicaid irrevocable trust instead,
28:16
Speaker 7: which many people do that, do they still have the
28:20
Speaker 7: beneficiary or the ability to excuse me to change beneficiaries. Well,
28:24
Speaker 7: they do, but it's a little more complicated, so it's
28:29
Speaker 7: generally going to have a limitation. So instead of having
28:32
Speaker 7: something like a general power of appointment, which is the
28:35
Speaker 7: revocable trust, change it anyway you want, they've got a
28:38
Speaker 7: limited power of appointment, which means they can change who
28:42
Speaker 7: gets the assets, but they can only do it from
28:46
Speaker 7: the perspective of a defined class that is usually set
28:51
Speaker 7: up when the trust is set up. So it'll say,
28:54
Speaker 7: you know, if I can change it amongst my children,
28:58
Speaker 7: let's say of all generations so that would include grandchildren,
29:01
Speaker 7: afterborn grandchildren, et cetera. You know, you can't you can't
29:04
Speaker 7: add cousin Vinnie to the mix after it's it's set up.
29:09
Speaker 7: But you could still come back and say, you know what,
29:11
Speaker 7: one of my kids has really taking care of me,
29:13
Speaker 7: the other ones sort of either falling out with or
29:16
Speaker 7: I want to leave more to a grandchild than than
29:18
Speaker 7: to a child. Hey still, certainly, okay, you could come
29:22
Speaker 7: in exercise the power of appointment and change the beneficiaries
29:26
Speaker 7: to to be you know, the way you want it,
29:29
Speaker 7: and even and all that without resetting you know, the
29:32
Speaker 7: five year the five year clock on a waiting period,
29:35
Speaker 7: so you still have great flexibility. The only downside with
29:38
Speaker 7: that is oftentimes you're going to have to do it
29:40
Speaker 7: through your will and then you know, from there we
29:43
Speaker 7: will you have to go to probate. But just for
29:45
Speaker 7: the will, you don't have to put any of the
29:46
Speaker 7: assets through. You just have to file the will to
29:49
Speaker 7: execute the uh, the the change.
29:52
Speaker 6: And the trust.
29:53
Speaker 7: So so that's how how you can change those. And
29:56
Speaker 7: you know what, folks, these questions are great because they're
30:00
Speaker 7: they're asking me questions about that in my eyes, are
30:04
Speaker 7: early potholes that you could run into when you're doing
30:06
Speaker 7: your estate plan right, what if you've got the wrong beneficiary?
30:08
Speaker 6: What if you got the wrong trustee? You know what?
30:11
Speaker 7: More than that, what if you haven't done your planning
30:13
Speaker 7: and you think you want to you know, not plan.
30:17
Speaker 6: Why I have a will? Not a good idea.
30:19
Speaker 7: You know, I've got all my assets in a nominee
30:21
Speaker 7: realty trust. I don't need to do planning. Eh, not
30:24
Speaker 7: a good idea. It's kind of a pothole. Well, I
30:26
Speaker 7: own stuff jointly. No, probably not not good planning, right,
30:30
Speaker 7: So think about these potholes that could exist when I
30:34
Speaker 7: haven't done my planning yet. Right, these are what some
30:37
Speaker 7: of the potholes?
30:37
Speaker 1: Right?
30:38
Speaker 6: How do I leave my assets to my kids?
30:39
Speaker 3: You know?
30:40
Speaker 7: Do I leave it outright? Do I not leave it
30:42
Speaker 7: out right? So those are some assets. And again, what
30:45
Speaker 7: if you're already did your planning and you're saying, jeez, you,
30:47
Speaker 7: m I's spend ten fifteen years. I should probably look
30:49
Speaker 7: at it. That's a pothole. Right, I'm relocating to another state. Well,
30:53
Speaker 7: does that affect my trust? I just lost my spouse
30:57
Speaker 7: and now I need to know what to do with
30:58
Speaker 7: my spouse's trust.
30:59
Speaker 6: Do I empty it all in my trust?
31:01
Speaker 3: No?
31:01
Speaker 7: How do I pay the taxes on my now to
31:05
Speaker 7: see spouse's trust? You know what if I'm getting divorced?
31:07
Speaker 7: Is that a red flag? Do I need to update
31:09
Speaker 7: my plans? Folks? So many things to think about. Whether
31:13
Speaker 7: you've done your planning. This guide is for you to
31:16
Speaker 7: fix what might need to be fixed, or if you
31:18
Speaker 7: haven't done your planning, it'll really get you off on
31:19
Speaker 7: the right foot. Call and get the guide State Planning
31:22
Speaker 7: Potholes to Avoid eight six six eight four eight five
31:26
Speaker 7: six nine nine or Legal Exchange Show dot com again
31:30
Speaker 7: eight six six eight four eight five six nine nine
31:34
Speaker 7: or Legal Exchange Show dot com. And you can always
31:38
Speaker 7: go to Cushing DOLINPC our Instagram page for even more information.
31:43
Speaker 2: Todd, when when you talk about some of those potholes
31:46
Speaker 2: that people run into with estate planning specifically, we've been
31:50
Speaker 2: talking about trusts and you know, beneficiaries and trustees, anything
31:54
Speaker 2: else that tends to be a really common one even
31:57
Speaker 2: through the use of trust as somebody you know tries
31:59
Speaker 2: to work through their estate using and what other trust
32:01
Speaker 2: related problems do you see quite often?
32:04
Speaker 7: Well, again, I think one of the bigger problems I
32:06
Speaker 7: see is even if they've already got their trust. This
32:09
Speaker 7: sounds like a question for people who have already set
32:12
Speaker 7: it up. If they've already think they've done their estate
32:16
Speaker 7: planning and they've never you know, funded it, right, I
32:18
Speaker 7: never put any of my assets in the trust, Well
32:20
Speaker 7: that's a that's a really big problem. So you want
32:23
Speaker 7: to make sure that you actually retitle your assets to
32:26
Speaker 7: the trust so that the trust can do you know what,
32:29
Speaker 7: it's what it's designed, you know to do. But I
32:33
Speaker 7: think I think some of the other problems I do
32:35
Speaker 7: see a lot is especially for people who have done
32:38
Speaker 7: their planning right, you know what if what if one
32:43
Speaker 7: spouse dies? I think that is a really big one
32:45
Speaker 7: because I can't stress enough. And I tell all my clients,
32:49
Speaker 7: when you've got your plan in place, you got it
32:51
Speaker 7: all funded, it's doing exactly what we wanted to do.
32:55
Speaker 7: But when you lose a spouse, that's when you really
32:58
Speaker 7: need to talk to your estate planning attorney, right, because
33:01
Speaker 7: don't make the mistake of thinking, oh, yeah, I remember
33:04
Speaker 7: now my spouse died, and all my spouse's trust assets
33:07
Speaker 7: just come to me because they they hear that they
33:10
Speaker 7: think that but that's not what happens now if first
33:14
Speaker 7: of all, the trust doesn't even allow for that, But
33:18
Speaker 7: but people do it. They go in, they just take
33:20
Speaker 7: out all the assets and then they put them in
33:22
Speaker 7: all into their own trust. Well, folks, that would completely
33:26
Speaker 7: blow the estate plan right, because the goal of the
33:30
Speaker 7: trust on the death of the first spouse is to
33:34
Speaker 7: shelter those assets from being taxed again when the surviving
33:38
Speaker 7: spouse dies. So you know, by taking them all over there,
33:43
Speaker 7: not only have you violated the terms of the trust,
33:45
Speaker 7: but but you've put them all back in the survivor's estate.
33:49
Speaker 7: So it's going to be you know, just increased and
33:53
Speaker 7: causing probably more estate taxes do on the second death
33:56
Speaker 7: than would otherwise be the case. And one last thing
33:59
Speaker 7: to think about when you lose a spouse is not
34:01
Speaker 7: only do you need to update your own estate plan
34:03
Speaker 7: a little bit as a single person, but the trust
34:06
Speaker 7: that exists as long as you haven't emptied it, you know,
34:08
Speaker 7: you've got to figure out how do I file income
34:10
Speaker 7: tax returns for this trust now? Because if it was
34:14
Speaker 7: revocable when the spouse was alive, it's now irrevocable and
34:19
Speaker 7: it's gonna have buckets in it, You're gonna have to
34:20
Speaker 7: figure out get id numbers and figure out, you know,
34:23
Speaker 7: what kind of income tax returns need to be filed
34:25
Speaker 7: for those trusts every year.
34:27
Speaker 6: So so those are.
34:28
Speaker 7: The some really could be some really big potholes or
34:31
Speaker 7: problems that you could run into.
34:33
Speaker 2: How complicated is that process of, you know, of getting
34:38
Speaker 2: those new trusts set up that are irrevocable after a
34:42
Speaker 2: spouse dies. What what does that actually look like in terms
34:44
Speaker 2: of like the blocking and tackling that someone needs to
34:46
Speaker 2: do there.
34:48
Speaker 7: So by the time you hiring the lawyers, probably have
34:51
Speaker 7: the battle. Just go back to your state planning attorney
34:53
Speaker 7: and they'll walk you through it. It's a lot of paperwork,
34:55
Speaker 7: is what it comes down to. Is like, you know,
34:57
Speaker 7: we would then say, okay, so let's say bouse dies
35:01
Speaker 7: and there is now a remainder share and a marital share,
35:05
Speaker 7: so it be like the you know, the Lutsky Family
35:08
Speaker 7: Trust FBO, remainder share, Lutsky Family Trust FBO, you know,
35:14
Speaker 7: special marital share or q tip share. So that would
35:18
Speaker 7: be the new language on let's say a brokerage account
35:21
Speaker 7: or a bank account. Right, you'll retitle those that were
35:26
Speaker 7: in what was before called the Lutsky Family Trust to
35:29
Speaker 7: now say Lutsky Family Trust, you know, remainder Share, Letsky
35:33
Speaker 7: Family Trust, Special marital Share, and it's simple. That's just
35:37
Speaker 7: a retitling of the asset. Then got to go get
35:42
Speaker 7: ID numbers. So they're gonna need tax ID numbers for
35:46
Speaker 7: those buckets because when it was a revocable trust, you
35:51
Speaker 7: weren't even filing an income tax return.
35:53
Speaker 6: You just just set it and forget it.
35:55
Speaker 7: Live your life very uninstructed, unaffected by the trust, if
36:00
Speaker 7: you will. So now you need to file tax returns. Now,
36:04
Speaker 7: the good news is they're probably going to be simple
36:08
Speaker 7: trust tax returns. I use the word simple not because
36:10
Speaker 7: they're simple to prepare, but because that's the kind of
36:13
Speaker 7: trust it is. The language in these buckets might say
36:17
Speaker 7: something like the trustee shall pay the income.
36:21
Speaker 6: To the spouse.
36:22
Speaker 7: If it says that, then it's a simple trust because
36:26
Speaker 7: it's required to pay the income. But from an income
36:29
Speaker 7: tax filing standpoint, when you file the ten forty one,
36:33
Speaker 7: even if you don't distribute out the money, which is
36:36
Speaker 7: important because a lot of times clients just say, look,
36:39
Speaker 7: I'm just going to be leaving it there.
36:40
Speaker 6: I don't want to change my life. I'm just going
36:41
Speaker 6: to let it invest and grow.
36:44
Speaker 7: And so even if they don't physically distribute the money out,
36:47
Speaker 7: the language shall pay means that it's going to be
36:51
Speaker 7: picked up on your personal income tax return anyway. Good
36:55
Speaker 7: and it does not cause you, you know, any income
36:58
Speaker 7: tax problems because it's in one of these irrevocable trusts,
37:02
Speaker 7: so lots.
37:03
Speaker 6: To think about. That's why you need the guide.
37:05
Speaker 3: Mister Lutsky, thanks so much for joining us today.
37:07
Speaker 6: Always a pleasure. Thank you.
37:09
Speaker 1: This has been Asked Odd on the Financial Exchange Radio network.
37:13
Speaker 1: Ask Todd with Todd. Lutsky has been presented by Cushing
37:16
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 and three
37:24
Speaker 1: ninety three four thousand and one or visit Cushingdolan dot com.
37:28
Speaker 1: The views expressed in this segment are solely those of
37:30
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
37:35
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Speaker 1: each other and are not affiliated,