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Stocks Surge After Democrats Sweep Congress in Midterm Elections · The Financial Exchange Show

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Speaker 1: This is The Financial Exchange with Chuck Zotta and Mark Vandetti.
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Speaker 2: It's Chuck, Mark, and Tucker with you today. And as
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Speaker 2: we kick things off, we've got stocks in positive territory
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Speaker 2: up pretty significantly. And this happening on the back of
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Speaker 2: the only major news item from yesterday was midterm elections.
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Speaker 2: which I think can probably best be described as a
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Speaker 2: blue wave, a drubbing wave, however you want to frame it.
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Speaker 2: It was very clear by about 10 p.m. yesterday that
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Speaker 2: there was going to be a significant shift within Congress,
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Speaker 2: and markets have responded in the hours since then, you know,
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Speaker 2: the last 12 hours or so. As it stands right now,
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Speaker 2: based on the races that have been called, the split
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Speaker 2: in the Senate is currently 54 Democrats and 44 Republicans projected.
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Speaker 2: There are two seats that are still outstanding, one in
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Speaker 2: Alaska and one in Mississippi, that very much could go
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Speaker 2: in either direction. The Mississippi one right now is literally
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Speaker 2: separated by less than a few hundred votes, which is
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Speaker 2: absolutely wild. In the House, Democrats currently have 228 seats
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Speaker 2: that they are expected to hold, Republicans 139, and still
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Speaker 2: somewhere in the ballpark of, let me just do the
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Speaker 2: math quickly, that's like 360. There's about 70 seats still
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Speaker 2: outstanding that need to be sorted out because Takes a
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Speaker 2: while to count all the votes, I guess. We got
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Speaker 2: to get better at that. I think that's one thing
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Speaker 2: that we've talked about at length. So I think what's
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Speaker 2: interesting to me is on our show on Monday, we
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Speaker 2: were talking about midterm elections. And I said, look, like
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Speaker 2: short term, could you see something where the stocks of
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Speaker 2: major Republican donors, you know, get punished because kind of
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Speaker 2: the inverse of what we saw in 2024, where Hey,
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Speaker 2: Elon Musk had donated a bunch of money to Republican
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Speaker 2: candidates and Tesla stock promptly doubled right after the election.
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Speaker 2: It then gave all those gains back within like three months.
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Speaker 2: So it didn't really mean anything in the long run
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Speaker 2: to Tesla stock. Well, lo and behold, if you take
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Speaker 2: a look today, the S & P 500 is up
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Speaker 2: almost 2%. There are 197 more stocks up than down today.
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Speaker 2: So the majority of stocks are up. And despite that,
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Speaker 2: Tesla is down about 3% and SpaceX is down about
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Speaker 2: 2% today. They both were off as much as 5%
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Speaker 2: earlier in the day. So again, kind of a short
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Speaker 2: term thing that you're seeing there. The other thing that
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Speaker 2: I mentioned was, hey, data centers and the hyperscalers, like
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Speaker 2: how could these companies potentially be impacted? Hey, Democrats and
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Speaker 2: to a To a certain extent, like a number of
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Speaker 2: Republicans in recent weeks have campaigned on anti-data center stances.
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Speaker 2: And so at around 10 p.m. last night, if you
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Speaker 2: took a look at NASDAQ futures, they were down like 2%.
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Speaker 2: And so I was looking at that and I'm going, OK,
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Speaker 2: this is interesting. Like, could we end up having a
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Speaker 2: day tomorrow? And again, I don't stay up late. I'm
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Speaker 2: normally in bed by like 830. So staying up till
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Speaker 2: 10 is kind of a big one for me. So
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Speaker 2: I was like, I'm going to put this to bed and,
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Speaker 2: you know, we'll get up and see what things look like.
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Speaker 2: And by 5 a.m. when I woke up, I'm like,
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Speaker 2: oh man, the worm has kind of turned on this.
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Speaker 2: All three indices were positive on their futures markets. And
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Speaker 2: really gave me flashbacks to the 2016 presidential election where,
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Speaker 2: if you remember there, President Trump, once it became clear
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Speaker 2: that he was going to win his first term election,
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Speaker 2: the market sold off. The Dow, I remember, was off
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Speaker 2: like a thousand points immediately after it became clear that.
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Speaker 3: That was going to happen.
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Speaker 2: By the time we woke up the next day, that
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Speaker 2: had been erased and the Dow and all other indices
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Speaker 2: closed up significantly the following day. And so different mechanism
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Speaker 2: here that's afoot in my opinion, but like I really
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Speaker 2: had some deja vu there because I'm like, oh, I've
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Speaker 2: seen this story in markets on an election night before
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Speaker 2: where like, again, right now the NASDAQ's up two and
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Speaker 2: a half percent. It's like a 5% swing from where
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Speaker 2: futures were at 10 p.m. to where they are at
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Speaker 2: the moment right now. And so the question that I
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Speaker 2: think is worth asking in this case is why is
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Speaker 2: that happening? Because in 2016, the clear example that you
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Speaker 2: can point to is, hey, it became apparent that Trump
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Speaker 2: was going to win the presidential election and he was
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Speaker 2: going to have a Republican House and Senate behind him.
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Speaker 2: And as such, you were going to very likely get
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Speaker 2: significant tax reform in 2017, which you did, which boosted
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Speaker 2: after-tax earnings and the rest is history. So, like, there
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Speaker 2: was a clear mechanism there. I don't think anyone looks
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Speaker 2: at this today and is like, well, you've got a
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Speaker 2: Republican president, you're getting a Democrat House and Senate, and
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Speaker 2: so that means you're getting some kind of major reform
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Speaker 2: that's going to boost corporate earnings.
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Speaker 3: Like, no, I don't think that's the story here. Do you, Mark?
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Speaker 4: No, but in 2016, futures were way down at like 10.
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Speaker 3: Yeah, that's what I said. A clock at night.
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Speaker 1: Yeah, right.
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Speaker 4: But they knew his policies then, and that when he
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Speaker 4: became the apparent winner, futures at first dropped.
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Speaker 2: Yes, because they didn't know his– the thing at the time, again,
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Speaker 2: like the conventional wisdom was if President Trump becomes president,
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Speaker 2: this was before he did, it's going to destroy the
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Speaker 2: economy because he's talking about all of this stuff.
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Speaker 3: And then after the election, like immediately after, it.
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Speaker 2: Was like, oh, wait, he's going to have a Republican
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Speaker 2: House and Republican Senate. They can pass tax reform through reconciliation,
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Speaker 2: and stocks immediately rallied the next day then.
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Speaker 4: That was the trigger, you think? 100%. Because we... Oh, okay.
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Speaker 4: I guess the point I was trying... I forgot when
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Speaker 4: the picture about the.
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Speaker 3: It was the next day. About the Congress came in.
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Speaker 3: It was like an 8% intraday reversal on futures markets.
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Speaker 4: Okay, the point I was going to make was... markets
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Speaker 4: decided at some point between 10 p.m.
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Speaker 5: And 7 a.m.
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Speaker 4: That he was going to be good for earnings what
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Speaker 4: made them change their mind and you say it's because.
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Speaker 3: The that's my that's my explanation.
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Speaker 4: Okay because I was going to tie this into your
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Speaker 4: question about does this make any sense given the.
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Speaker 2: No it doesn't it doesn't make any sense given the
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Speaker 2: composition of congress.
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Speaker 4: OK, so I'm sorry. What I was going to say
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Speaker 4: was it never makes it. It always seems like it
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Speaker 4: makes sense in retrospect. You can.
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Speaker 1: No, no.
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Speaker 2: That one made sense at the time. OK, because you
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Speaker 2: like literally you saw like if you were watching social media,
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Speaker 2: it went from this is going to be a disaster
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Speaker 2: to wait a minute. Republicans are going to be able
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Speaker 2: to pass tax reform. In a span of 24, like
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Speaker 2: you saw it evolve on social media.
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Speaker 4: But why didn't the market know that, the market didn't
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Speaker 4: know this at 10 p.m. because it wasn't clear they
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Speaker 4: were going to control the Congress yet? That's what you're saying?
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Speaker 3: No, like markets just, they freaked out because that's what
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Speaker 3: they do sometimes.
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Speaker 4: Yeah, okay.
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Speaker 2: Again, they just freaked, like they thought there was no
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Speaker 2: chance Trump was going to win his first term. And
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Speaker 2: so markets were just like, oh, like there was no plan.
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Speaker 4: I'm sorry, I didn't mean to get bogged down in that.
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Speaker 2: Remember, the projections for Trump's first term were all like,
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Speaker 2: it was like 80 to 90% chance of Hillary winning.
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Speaker 2: So markets hadn't really prepared for a Trump first term.
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Speaker 6: Right, right.
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Speaker 4: I guess, sorry, I didn't mean to get bogged down.
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Speaker 4: The general point I was going to make is the
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Speaker 4: one you just made, which is markets are just.
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Speaker 2: They freaked out for about six to 12 hours, and
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Speaker 2: then were like, oh, wait, there's going to be a
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Speaker 2: Republican Senate, Republican House, and everyone's talking about, great, we're
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Speaker 2: going to get tax reform. So they figured it out
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Speaker 2: in 24 hours. In this case, no one is looking
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Speaker 2: at this market saying.
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Speaker 3: Hey, isn't it great.
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Speaker 2: That there is a Democrat House, Democrat Senate, and Republican president?
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Speaker 3: Look at what we can do. No, there's no policy.
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Speaker 4: I could come up with some explanations.
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Speaker 3: No, you can't. Markets just don't.
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Speaker 4: Okay, I can't.
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Speaker 3: What do you have?
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Speaker 4: Markets don't like tariffs. Markets don't like Fed uncertainty. The
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Speaker 4: Senate Banking Committee will now be in the control of Democrats.
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Speaker 4: This takes a full takeover of the Fed by Trump,
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Speaker 4: which probably would have happened at some point, Eddie. been
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Speaker 4: able to have his way with Congress, a Republican Congress,
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Speaker 4: that takes that off the table. I'm not saying I
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Speaker 4: believe this, but someone will write that markets were buoyed
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Speaker 4: by the prospect of a better insulated Fed against political pressure,
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Speaker 4: that he will not get a board of governor appointee
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Speaker 4: that's going to be a toady like Mirren or someone
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Speaker 4: like that approved by the Senate Banking Committee under its
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Speaker 4: new leadership. I'm not saying I believe that, Chuck.
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Speaker 1: Sure.
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Speaker 4: I'm just saying someone will write that today.
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Speaker 1: Sure.
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Speaker 4: And when you read that, take it with a grain
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Speaker 4: of salt because I just made it up and I
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Speaker 4: didn't think that carefully about it.
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Speaker 3: That's all.
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Speaker 1: Sure.
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Speaker 3: I don't think that's worth 2%.
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Speaker 4: Fed independence to me would be worth, I agree.
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Speaker 3: I'm not saying to you.
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Speaker 4: No, I know. To me it would be worth a
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Speaker 4: 20% rally.
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Speaker 2: Again, we've had a relatively unindependent Fed for the last
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Speaker 2: two years.
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Speaker 1: Totally.
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Speaker 3: And markets have ripped.
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Speaker 5: Totally. I know.
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Speaker 4: There are so many counter examples.
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Speaker 2: So really what this is, it's entirely mechanical in my
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Speaker 2: opinion what we're seeing here in that If you look
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Speaker 2: at the, let's take a quick break and then I'll
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Speaker 2: explain kind of what we have. Quick break and then
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Speaker 2: I'll get to, hey, why are we seeing this today?
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Speaker 2: And how long can we expect it to last in markets?
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Speaker 3: Next.
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Speaker 1: Exchange Media Network. All right, so let's get into the
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Speaker 1: bounce that we're seeing in markets right now, because as
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Speaker 1: it stands today.
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Speaker 2: Dow's up 2%, S & P' s up one and three quarters,
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Speaker 2: NASDAQ is up two and a half. So what gives? Like,
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Speaker 2: what's driving this? The worst case outcome yesterday for markets,
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Speaker 2: in my opinion, is not either a big Democrat or
11:48
Speaker 2: a big Republican win.
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Speaker 3: Markets know how to deal with that.
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Speaker 2: They say, okay, here's what the policy is going to be,
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Speaker 2: and we'll figure out the sectors that we like, and
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Speaker 2: maybe we'll be right about this, maybe we'll be wrong.
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Speaker 3: But, like, markets know how to deal with that. They've
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Speaker 3: been doing that forever.
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Speaker 2: The risk to markets yesterday was the hotly contested election
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Speaker 2: where like every swing state is down to like 300
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Speaker 2: votes on either side and no one knows who's going
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Speaker 2: to control the House and the Senate. And it gets
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Speaker 2: tied up in legal challenges and this and that and,
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Speaker 2: you know, threats to like the actual rule of law.
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Speaker 2: And so what you saw heading into yesterday, and again,
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Speaker 2: it was very clear that this was the case, was
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Speaker 2: that you had a rising VIX. And the VIX is
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Speaker 2: often referred to as a fear gauge for markets. But
12:40
Speaker 2: all that the VIX actually is, it's basically a measure
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Speaker 2: of S & P 500 growth. implied volatility on the
12:48
Speaker 2: options that trade for the index over the next 30 days.
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Speaker 3: That's all it is.
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Speaker 2: Now, what was interesting about yesterday when you look at
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Speaker 2: it is that the VIX, the spot reading was rising.
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Speaker 2: But just as with other financial securities that are out,
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Speaker 2: not security because the VIX isn't a security, with other
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Speaker 2: financial instruments that are out there, the VIX has a
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Speaker 2: futures curve.
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Speaker 3: You can buy VIX futures if you want to.
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Speaker 2: And Typically, it slopes upward just like most futures curve,
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Speaker 2: but yesterday it was inverted for the November and December readings.
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Speaker 2: And so this was saying, hey, there's something that the
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Speaker 2: market was saying, I'm pricing in the risk of something
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Speaker 2: bad happening today more than something bad happening in the future.
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Speaker 2: And there are two ways this resolves. Either the bad
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Speaker 2: thing happens and you see markets panic and sell off
13:37
Speaker 2: further because now the whole curve has to rise to
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Speaker 2: price in the thing that is happening today, or it
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Speaker 2: doesn't happen. And VIX falls and the curve goes back
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Speaker 2: to its normal shape. And lo and behold, this is
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Speaker 2: what we're seeing today, is the VIX has gone from
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Speaker 2: almost 21 down to about 17 right now. So it's
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Speaker 2: just burning off all that excess volatility. And you see
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Speaker 2: this a lot with big events. Like the reason why
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Speaker 2: a lot of times the day after the Fed meeting
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Speaker 2: or the day after a CPI or like the day
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Speaker 2: of a jobs report, you get the market rallying is
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Speaker 2: because there's some event volatility that gets bid up during
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Speaker 2: the run up to it in the VIX. And then
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Speaker 2: once the bad outcome doesn't happen, it gets released and
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Speaker 2: the market can rally based on that. This is like
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Speaker 2: really common. It's what we see a lot of times.
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Speaker 2: The magnitude of it's just, you know, fairly significant here.
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Speaker 2: And so that's what's going on right now, which raises
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Speaker 2: the question, like, how long.
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Speaker 3: Can this continue?
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Speaker 2: It's usually, you know, the strongest effect is typically the
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Speaker 2: morning of the morning after whatever that release was or
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Speaker 2: the morning of if it came in the pre-market hours.
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Speaker 2: And so most of it's going to happen today, but
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Speaker 2: there's a chance that you could see markets continue to
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Speaker 2: rise if they remain calm under the surface over the
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Speaker 2: next week to two weeks and things like that. And
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Speaker 2: then a more fundamental picture takes place, takes its spot
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Speaker 2: in terms of, hey, what's going on with the economy
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Speaker 2: and this and that. But mechanically in markets, this is
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Speaker 2: what you're seeing. This is why the big rally is happening.
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Speaker 2: It's not because markets are inherently like, hey, we're cheering
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Speaker 2: this outcome of this group winning this number of seats. No,
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Speaker 2: it's much more the disaster outcome for markets was one
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Speaker 2: where they didn't know the winner for an extended period
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Speaker 2: of time and what that could mean. And since that
15:23
Speaker 2: is off the table, markets are saying, okay, now we
15:25
Speaker 2: can continue on with operations as normal.
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Speaker 4: I bet the big asset managers and investment, formerly known
15:31
Speaker 4: as investment banks, now traditional banks, I guess, but anyway,
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Speaker 4: The sell side on Wall Street, as some people like
15:37
Speaker 4: to refer to, the army of interested parties in a
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Speaker 4: stock market going up. I haven't read the commentary this morning.
15:45
Speaker 4: I've not watched CNBC or Bloomberg. But I bet they're
15:48
Speaker 4: saying divided government is good. Divided government means fewer regulations.
15:52
Speaker 4: Divided government means no stupid new tax bills or something,
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Speaker 4: revenue raising. I bet the narrative this morning is.
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Speaker 3: They're coming up with something to justify the price action.
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Speaker 4: Like they did in November 2018 when stocks went up
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Speaker 4: by 2.2%. The reason I remember that is that we
16:10
Speaker 4: talked about it yesterday internally. Same dynamic. Trump was president.
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Speaker 4: Democrats took Congress.
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Speaker 1: Why?
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Speaker 4: The narrative at the time, the story used to justify
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Speaker 4: it ex post was, well, it'll tame his worst instincts
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Speaker 4: and divided government. And it is actually empirically true that
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Speaker 4: when Congress changes hand stocks into a party different from
16:32
Speaker 4: the party in the White House, stocks tend to go
16:34
Speaker 4: up by more than the unqualified, the unconditional average.
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Speaker 3: That's interesting.
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Speaker 4: The best explanation I can come up with, and it's
16:42
Speaker 4: kind of plausible, and I'm sure they're saying it all
16:43
Speaker 4: over the TV this morning. is it's because of gridlock.
16:46
Speaker 4: Markets like that, because at least nothing really bad and
16:50
Speaker 4: dumb is going to come out of Washington if the
16:52
Speaker 4: parties are at logger, if the Congress and the president
16:55
Speaker 4: are at loggerheads, or it'll temper the president's worst instincts
16:58
Speaker 4: or vice versa. That's plausible to me, but nobody, why
17:02
Speaker 4: wasn't anybody saying this yesterday is, I guess, always the
17:05
Speaker 4: question you should ask.
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Speaker 2: So now once we get past like the next couple
17:09
Speaker 2: of weeks, OK, this this all fades and then it
17:11
Speaker 2: becomes the question of, hey, what's actually going to happen
17:14
Speaker 2: then from a policy perspective?
17:16
Speaker 3: And I don't know.
17:17
Speaker 2: I don't know what we are going to see over
17:20
Speaker 2: the next two years. What can be passed by Congress
17:27
Speaker 2: in this format? Again, Democrats can't get things through the
17:32
Speaker 2: Senate without some help from Republican votes. They don't have
17:35
Speaker 2: 60 votes there. They're not going to. So they're going
17:38
Speaker 2: to need some Republican help, and it's unclear that they
17:40
Speaker 2: would get very much. Even if they do, the question is, hey,
17:44
Speaker 2: what legislation would the president sign? Because remember, a veto-proof majority...
17:49
Speaker 2: is larger than simply what you need in order to
17:52
Speaker 2: pass legislation. So it is unclear, again, exactly what would
17:57
Speaker 2: end up being passed in the next couple of years.
18:00
Speaker 2: You do have some things that you're going to need
18:02
Speaker 2: to deal with, or at least ideally deal with. You
18:05
Speaker 2: do have the second round of Trump tax cuts, where
18:07
Speaker 2: there's going to be some provisions that start sunsetting.
18:09
Speaker 3: So those are going to have to be addressed.
18:11
Speaker 2: Senators that were elected yesterday, They are the first ones
18:16
Speaker 2: that are likely going to be on the clock when
18:18
Speaker 2: the Social Security Trust Fund goes belly up in 2032.
18:22
Speaker 2: Are there going to be any serious proposals to deal
18:26
Speaker 2: with it?
18:27
Speaker 3: Probably not.
18:28
Speaker 2: Like, if we're being honest, like, I don't think so
18:31
Speaker 2: because we never deal with these things until the 11th hour.
18:34
Speaker 2: And we're only in, you know, like the seventh hour
18:36
Speaker 2: right now. But these are the things that will actually determine,
18:40
Speaker 2: you know, hey, how does the economy evolve based on
18:44
Speaker 2: public policy going forward? Is there going to be anything
18:47
Speaker 2: done to rein in deficits or things like that? You
18:50
Speaker 2: mentioned in the previous segment, hey, maybe Democrats are able
18:55
Speaker 2: to peel off some Republicans in order to, you know,
18:57
Speaker 2: pass laws limiting the use of tariffs. Well, tariffs, you know, again,
19:01
Speaker 2: like them or hate them, they have brought in some
19:03
Speaker 2: revenue into government coffers in recent years. That would be
19:06
Speaker 2: expanding the deficit. How do you square that circle given
19:09
Speaker 2: where deficits are and things like that? So a lot
19:11
Speaker 2: of questions that are out there. And we're just going
19:14
Speaker 2: to have to see how they're answered in the next
19:16
Speaker 2: couple of years because we don't know right now. Let's
19:20
Speaker 2: take a quick break. When we come back, we got
19:22
Speaker 2: Wall Street Watch. We're joined by Todd Lutzky. Get your
19:24
Speaker 2: estate planning questions ready because Todd's going to answer next.
19:38
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19:46
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19:50
Speaker 1: Wall Street Watch, tracking the stocks, the data, and the
19:53
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19:57
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19:58
Speaker 8: Markets roaring higher in reaction to the midterm blue wave
20:01
Speaker 8: with Democrats won majorities in both the House and Senate.
20:05
Speaker 8: Dollar also fell the most since September, while bond yields
20:08
Speaker 8: also pulled back slightly.
20:09
Speaker 3: Right now, the.
20:10
Speaker 8: Dow is up over 2%, over 1,000 points higher.
20:12
Speaker 3: S & P 500 is up.
20:16
Speaker 8: Over 1.5% or 119 points up. NASDAQ rallying over 2%
20:21
Speaker 8: or 531 points higher. Russell 2000 is up 1.25%. Ten-year
20:26
Speaker 8: treasury yield is flat at the moment at 4.946%. Crude
20:30
Speaker 8: oil down 2%, trading at $ 93 a barrel, while Brent
20:34
Speaker 8: also down 2% at $ 101 a barrel. Defense stocks among
20:37
Speaker 8: the biggest losers on the day in reaction to the
20:40
Speaker 8: Democrat sweep. RTX, Northrop Grumman, and Lockheed Martin are down 2%.
20:45
Speaker 8: between 3 and 5%. Tesla and SpaceX also seeing losses
20:49
Speaker 8: in reaction to the results as many of the newly
20:52
Speaker 8: elected candidates had positions against rapid data center buildouts. Shares
20:56
Speaker 8: in both Tesla and SpaceX down by 2%. McDonald's posted
21:00
Speaker 8: third quarter results where its earnings beat expectations but revenue
21:03
Speaker 8: came up short. The fast food giant reported a slight
21:05
Speaker 8: decline in same store sales. However, shares are up by
21:09
Speaker 8: 4% and Uber reported better than expected revenue for the
21:13
Speaker 8: third quarter but said its Mobility business was challenged overseas
21:17
Speaker 8: by rising fuel costs and lower driver availability. However, Uber
21:22
Speaker 8: stock is jumping over 7% higher. I'm Tucker Silva and
21:27
Speaker 8: that is Wall Street Watch.
21:29
Speaker 1: This is Ask Todd on the Financial Exchange Radio Network.
21:33
Speaker 1: If you have an existing estate plan or are in
21:35
Speaker 1: the market for one, Todd Lutzke is here to answer
21:37
Speaker 1: your questions and help you plan for later life. Ask
21:40
Speaker 1: Todd is presented by Cushing and Dolan. Serving Massachusetts and
21:43
Speaker 1: New England for more than 35 years. Helping families with
21:47
Speaker 1: estate and tax planning, Medicaid planning, and probate law. Visit CushingDolan.com. Now,
21:53
Speaker 1: here's Todd Lutzke.
21:56
Speaker 2: And as promised, we're now joined by the one and only.
22:02
Speaker 3: Good thing there's only one of them. We don't want more.
22:04
Speaker 3: One's enough.
22:04
Speaker 2: But we're joined by Todd Lutzke from the law firm
22:07
Speaker 2: of Cushing and Dolan. For Ask Todd, this is your
22:10
Speaker 2: chance to ask Todd your estate planning questions live on air.
22:14
Speaker 2: Phone lines are wide open for you. So get calling
22:17
Speaker 2: at 888-205-2263. That's the number to call to ask Todd
22:23
Speaker 2: your estate planning questions. Whether you have an estate plan,
22:26
Speaker 2: don't have one, this is your opportunity. Again, that phone
22:30
Speaker 2: number is 888-205-2263. We can usually only get to two
22:32
Speaker 2: or three of you. So make sure you get calling
22:38
Speaker 2: early to make sure we get to you.
22:40
Speaker 3: Again, 888-205-2263.
22:41
Speaker 4: Mr.
22:42
Speaker 3: Lutzky, how are you doing today?
22:45
Speaker 6: I am never better. How are you doing?
22:47
Speaker 3: I'm good.
22:48
Speaker 1: Yeah?
22:50
Speaker 3: What's worse than a box full of snakes?
22:54
Speaker 6: Than a box full of snakes?
22:55
Speaker 1: Yeah.
22:56
Speaker 6: I don't know.
22:56
Speaker 3: A box that was supposed to be full of snakes.
22:59
Speaker 1: Yeah.
23:00
Speaker 6: Yeah. That would be worse.
23:01
Speaker 2: Yeah, that's problematic. Todd, let's talk a little bit about trusts. Specifically,
23:08
Speaker 2: I want to talk about revocable trusts today.
23:10
Speaker 6: Okay.
23:12
Speaker 2: What does a revocable trust actually do above and beyond
23:17
Speaker 2: what a simple will or basic estate plan does?
23:22
Speaker 6: So a revocable trust, and I know our guide is
23:26
Speaker 6: specifically talking about a joint revocable trust, which I definitely
23:29
Speaker 6: want to spend some time on, but let's just, you know,
23:32
Speaker 6: compare and contrast. I think the question's a great one.
23:36
Speaker 6: You know, People who come to us, and you've probably
23:40
Speaker 6: even heard it, Chuck, where your clients come in and
23:43
Speaker 6: they say, I got my estate plan all done. You say, okay, great.
23:46
Speaker 6: What do you have? Well, I did my will. And
23:49
Speaker 6: they think that's it.
23:50
Speaker 1: Sure.
23:50
Speaker 6: They think they're done. Well, the problem with that is
23:54
Speaker 6: that I like to call a will a won't because
23:58
Speaker 6: it won't do a lot of things that I think
24:02
Speaker 6: you want done when you think you have your estate
24:05
Speaker 6: plan done by doing only a will. Example, if you
24:10
Speaker 6: own your assets jointly, everything avoids probate, goes to the
24:14
Speaker 6: surviving spouse. Okay, the will really didn't do anything. You
24:18
Speaker 6: avoided probate because of how you owned it. It certainly
24:21
Speaker 6: didn't help you reduce estate taxes because you left everything
24:26
Speaker 6: to the surviving spouse. And so it won't help you
24:31
Speaker 6: avoid estate taxes. But if you just have a will
24:34
Speaker 6: and you don't have things that are jointly owned or
24:38
Speaker 6: with a designated beneficiary on them, well, then when you die,
24:42
Speaker 6: it won't help you avoid probate.
24:45
Speaker 1: Why?
24:45
Speaker 6: Because the will is the one item, the one, I guess,
24:49
Speaker 6: tool in your toolbox that goes to probate. Got to
24:53
Speaker 6: file it. So it doesn't really help you avoid probate. Oh,
24:57
Speaker 6: and depending on, you know, where you are in the
25:01
Speaker 6: planning world and your age, you know, it's, it's possible
25:05
Speaker 6: that you're, you're considering doing, you know, nursing home planning.
25:09
Speaker 6: Maybe I want to protect my assets from the nursing home.
25:12
Speaker 6: So then I would need an irrevocable trust and the
25:16
Speaker 6: will won't protect your assets from the nursing home. So,
25:20
Speaker 6: you know, I say it won't avoid probate. It won't
25:23
Speaker 6: reduce your estate taxes. It won't help you avoid, uh,
25:26
Speaker 6: protect assets from the nursing home. And you think, well,
25:29
Speaker 6: then why does anybody do it? Well, partly I agree,
25:32
Speaker 6: but it's also better than nothing. At least if you
25:35
Speaker 6: have a will, it will direct where your assets go.
25:39
Speaker 6: Because if you don't have a will, then it's more
25:43
Speaker 6: of a problem than you think, especially if it's a
25:45
Speaker 6: second marriage. because it doesn't always go the way you
25:48
Speaker 6: think it's going to go.
25:49
Speaker 2: Talking with Todd Lutzky from the law firm of Cushing
25:52
Speaker 2: and Dolan. Still rooming the phone lines at 888-205-2263. That's
25:57
Speaker 2: the number to call to ask Todd your estate planning
25:59
Speaker 2: questions live right now. Again, 888-205-2263. Let's take a quick break,
26:07
Speaker 2: and when we come back, we're getting right to your
26:09
Speaker 2: questions with Todd.
26:10
Speaker 3: Again, 888-205-2263.
26:16
Speaker 1: Ask Todd with Todd Lutzke, every Wednesday at 10.30, only
26:20
Speaker 1: here on the Financial Exchange Radio Network. You're listening to
26:26
Speaker 1: Ask Todd with Todd Lutzke on the Financial Exchange Radio Network.
26:39
Speaker 2: We still got room on the phone lines for your
26:41
Speaker 2: calls with Todd Lutzky at 888-205-2263. That's the number to
26:46
Speaker 2: call to ask your estate planning questions right now.
26:49
Speaker 3: Again, 888-205-2263. Let's go first to Rick in Falmouth. Rick,
26:55
Speaker 3: what is your question for Todd?
26:58
Speaker 5: Hey, good morning, Todd. How are you? Good morning. Todd,
27:02
Speaker 5: a couple of years ago, you had set up an
27:04
Speaker 5: irrevocable trust for my wife and I.
27:07
Speaker 6: Okay.
27:08
Speaker 5: And I have a couple of questions because I forgot
27:10
Speaker 5: what you told me.
27:11
Speaker 6: Was it just one trust or one for both of you?
27:15
Speaker 5: It was for both of us.
27:17
Speaker 6: Okay, got it.
27:18
Speaker 5: So what I did was we moved the house, we
27:22
Speaker 5: changed the deed and everything.
27:24
Speaker 1: Good.
27:25
Speaker 5: And then, you know, I haven't put my savings account
27:29
Speaker 5: into that trust. I'm in the process of doing it now.
27:32
Speaker 5: And I think, you know, I had gotten a federal
27:35
Speaker 5: ID number from you, but I never got one. I
27:38
Speaker 5: didn't ask for you to get one for my wife.
27:41
Speaker 5: So I'm in the process of getting that federal ID
27:43
Speaker 5: now for her.
27:44
Speaker 6: Well, wait a minute, wait a minute. You just said
27:46
Speaker 6: earlier that there was only one trust. There wasn't a
27:48
Speaker 6: husband trust and a wife trust. So if there's only
27:51
Speaker 6: one trust, you would only need one ID number for
27:53
Speaker 6: the trust.
27:54
Speaker 5: Oh, even though the account is in both our names?
27:58
Speaker 6: No, no. So if there's only, like if I have
28:02
Speaker 6: the Lutzky family irrevocable trust, let's say, That's one trust
28:06
Speaker 6: for both me and my wife.
28:08
Speaker 5: Right.
28:09
Speaker 6: And so when you, when you start moving assets into
28:13
Speaker 6: the trust, you only need one ID number for that trust.
28:19
Speaker 6: The one we got you. Okay. That's the ID number.
28:22
Speaker 6: So I hope you didn't get another one because that
28:25
Speaker 6: would screw up. The IRS would not know what what's
28:28
Speaker 6: going on.
28:29
Speaker 5: Right.
28:29
Speaker 6: There's only one.
28:30
Speaker 5: Okay.
28:31
Speaker 6: And, and so, The fact that you and your wife
28:34
Speaker 6: might have a joint account that you're going to transfer
28:37
Speaker 6: into the trust, you don't need ID numbers for the
28:40
Speaker 6: people doing the transferring. You need ID numbers for where
28:44
Speaker 6: the item is going to land.
28:47
Speaker 5: Okay. Now, I think you said when I do that,
28:52
Speaker 5: we're going to have to file a separate tax return.
28:56
Speaker 5: for the trust.
28:56
Speaker 6: So going forward, yes, my advice would be if you really,
29:00
Speaker 6: I mean, I don't know how long you want to wait,
29:02
Speaker 6: but you know, we're only, we're closing in on the
29:04
Speaker 6: end of the year. Maybe you don't want to be
29:06
Speaker 6: bothered filing a part year tax return for 2026, right?
29:12
Speaker 6: If you just wait to fund this on January one
29:16
Speaker 6: or anytime right after it, then this year for 2026,
29:20
Speaker 6: you won't have to be bothered filing any, any income
29:24
Speaker 6: tax return for the trust. Assuming the trust has no
29:29
Speaker 6: income producing assets in it, meaning right now it just
29:32
Speaker 6: has a house. That's correct. begin on the day you
29:41
Speaker 6: transfer it in. I don't think giving up two months
29:44
Speaker 6: on a five-year waiting period is going to be a
29:46
Speaker 6: big deal at the end of the day. So you
29:50
Speaker 6: might want to consider that. And then again, only one
29:52
Speaker 6: ID number, transfer it in. But please don't transfer your
29:58
Speaker 6: bank account in that receives your direct deposit, Social Security
30:02
Speaker 6: and pension, that must stay outside the trust. You could
30:07
Speaker 6: take the money out of that account and put it
30:09
Speaker 6: into the new trust account. That's okay, but leave the
30:13
Speaker 6: account open outside the trust for the deposits.
30:18
Speaker 5: Yep, that I can remember you telling me. Good, good, good.
30:22
Speaker 5: So what I just need to do, Todd, and I'm
30:24
Speaker 5: going to wait until the first of the year, is
30:26
Speaker 5: notify the bank. savings account that i want to move
30:29
Speaker 5: into the trust yep just notify them and give them
30:32
Speaker 5: my federal id number yep and they're going to.
30:34
Speaker 6: Fill out a form and they'll open up the account
30:36
Speaker 6: for you so good you're off and running hope that
30:39
Speaker 6: helps and uh folks well that this is a very
30:43
Speaker 6: good call because he has a joint irrevocable trust which
30:47
Speaker 6: is very different than the guide that i'm giving away
30:50
Speaker 6: this month which is brand new right the simplicity of
30:53
Speaker 6: joint revocable trust this is for people who don't need
30:56
Speaker 6: nursing home planning. But I got to tell you, over
30:59
Speaker 6: the years, I'm still shocked at how many practitioners aren't
31:03
Speaker 6: aware of joint revocable trusts, right? They are probably, if
31:08
Speaker 6: you're under 15 million, this is probably for you, if
31:11
Speaker 6: you're not doing irrevocable trust planning, right? It's simpler, easier
31:16
Speaker 6: to fund. It allows you to cram down more assets
31:19
Speaker 6: on the first death. It allows you to get a
31:22
Speaker 6: bigger step up in basis on the first death, which
31:25
Speaker 6: allows you to gift away assets to save Massachusetts estate
31:28
Speaker 6: tax if that's a concern because you'd be giving away
31:31
Speaker 6: assets flush with basis, not trapping any capital gains assets.
31:37
Speaker 6: It allows you to deal with a large IRA situation
31:40
Speaker 6: way better than you can with two trusts. Folks, call
31:44
Speaker 6: and get the guide. There's an example in there with
31:46
Speaker 6: a fact pattern that you could put your own fact
31:49
Speaker 6: pattern into and see how it works. Probate avoidance, it
31:53
Speaker 6: gives you a tax calculation. See if this guide is right,
31:57
Speaker 6: this trust, excuse me, is right for you. 866-848-5699 or LegalExchangeShow.com. Again,
32:03
Speaker 6: 866-848-5699 or LegalExchangeShow.com and you can download it right there.
32:14
Speaker 6: or go to Cushing Dolan PC, our Instagram page, for more.
32:18
Speaker 2: Todd, I've got another one here for you. Let's go
32:19
Speaker 2: to Ed in Newberry. Ed, you are on with Todd Lutzky.
32:22
Speaker 7: Hi there.
32:24
Speaker 5: Hi, Ed.
32:26
Speaker 7: Hi. Just my simple question. We are thinking of gifting $ 100, 000
32:33
Speaker 7: before we go into deed two, as the death, to
32:38
Speaker 7: each of our children. And I know that I'm going
32:42
Speaker 7: to pay a tax when I pull that money out
32:44
Speaker 7: of the account. Why?
32:46
Speaker 6: Are you planning on taking the money out of an IRA?
32:49
Speaker 7: It'll probably come out of my regular stock account.
32:52
Speaker 6: Okay. But not an IRA.
32:54
Speaker 3: Good.
32:54
Speaker 6: So far, so good.
32:56
Speaker 5: No.
32:57
Speaker 7: Just out of the regular stock account.
32:58
Speaker 6: And how many kids do you have?
33:00
Speaker 7: Five.
33:01
Speaker 1: Okay.
33:02
Speaker 6: Go ahead.
33:03
Speaker 7: So I understand that there's something about this $ 15 million
33:06
Speaker 7: thing that I can pull out X amount or up
33:11
Speaker 7: to that amount without them paying a tax. I don't
33:14
Speaker 7: understand how that works.
33:16
Speaker 1: Okay.
33:17
Speaker 6: So your question is, what are the tax— I' m just going
33:20
Speaker 6: to try and rephrase it for all the listeners. Is
33:23
Speaker 6: your question simply, what are the tax ramifications of me
33:27
Speaker 6: giving $ 500, 000 to my children, $ 100, 000 each?
33:29
Speaker 3: Right.
33:29
Speaker 6: Correct?
33:30
Speaker 7: Yes.
33:30
Speaker 5: Okay.
33:31
Speaker 1: Yes.
33:34
Speaker 6: So it's, it's a great question. And I think people
33:37
Speaker 6: do confuse this a lot because more often than not,
33:40
Speaker 6: I get these questions all the time that say, well,
33:42
Speaker 6: wait a minute, Todd, I thought you could give away
33:44
Speaker 6: like $ 19, 000 without paying a gift tax.
33:47
Speaker 3: Well, that's true.
33:49
Speaker 6: So first and foremost, there's this present interest exclusion. The
33:53
Speaker 6: present interest exclusion allows you and Ed, are you married?
33:58
Speaker 1: Yes.
33:58
Speaker 5: Okay.
33:59
Speaker 6: And so you and your wife are, are allowed to
34:02
Speaker 6: give away $ 19, 000 per year, per person. And you do
34:10
Speaker 6: not need to file a single form or report any
34:15
Speaker 6: money to anybody. It's a complete freebie. So that's 38
34:21
Speaker 6: grand of the 100 that you're giving away per kid
34:26
Speaker 6: that you don't even.
34:27
Speaker 3: Have to deal with.
34:28
Speaker 6: Okay, that's just free. Okay, so if you're thinking about it,
34:32
Speaker 6: and you're giving away 100 and you don't want to file,
34:34
Speaker 6: and here we are in November, right? Maybe you go
34:39
Speaker 6: 38 now and 38 in January 1, and that's a
34:45
Speaker 6: pretty good step in the right direction. You don't have
34:47
Speaker 6: to file a darn thing. But if they need the
34:51
Speaker 6: 100 right now, you still get to back out your 38,
34:54
Speaker 6: but the amount over the 38 is considered what we
34:57
Speaker 6: call a taxable gift, okay?
35:00
Speaker 3: Okay?
35:01
Speaker 6: So the amount north of the present interest exclusion is taxable.
35:05
Speaker 6: You would then need to file a Form 709 gift
35:08
Speaker 6: tax return. Now, you mentioned the kids wouldn't have to pay. Remember, folks,
35:15
Speaker 6: the recipient of the gift never pays the tax, right?
35:21
Speaker 6: I know, no good deed goes unpunished, right? Who pays
35:24
Speaker 6: the tax? The giver, right? So the giver is the
35:27
Speaker 6: one that has to pay the tax. That would be you.
35:30
Speaker 6: So two things to think about. One, it's never an
35:33
Speaker 6: income tax problem for anybody. Gifts are not income taxable. Okay,
35:40
Speaker 6: so that goes away. Gifts are gift taxable to the
35:44
Speaker 6: extent they exceed that present interest exclusion that I just mentioned.
35:49
Speaker 6: So in your case, you're going to have a taxable gift,
35:51
Speaker 6: file the gift tax return, but you won't have to
35:54
Speaker 6: pay any gift tax.
35:57
Speaker 5: Why?
35:57
Speaker 6: Because when you file the gift tax return, you will
35:59
Speaker 6: simply take a credit against the gift tax because you
36:04
Speaker 6: have a $ 15 million once in a lifetime gift tax exemption.
36:11
Speaker 6: So instead of you paying, so let's just forget the 38.
36:13
Speaker 6: If you gave away $ 500, 000, you would take your million dollars,
36:16
Speaker 6: your $ 15 million exemption, reduce it by 500,000. You'd pay
36:18
Speaker 6: no gift tax on the 709 and you would have
36:19
Speaker 6: a $ 14 million $ 500, 000 exemption left. And there's also no
36:35
Speaker 6: state gift tax. You don't have to worry about paying
36:39
Speaker 6: gift tax in mass. In fact, no states have it except,
36:41
Speaker 6: I think, Connecticut. So very important that you understand that
36:45
Speaker 6: distinction when you're making gifts. And quite frankly, if it
36:49
Speaker 6: were me in this case, Ed, I might just do
36:51
Speaker 6: the 38 and 38 back-to-back here in a couple months
36:54
Speaker 6: and be done and not file a return.
36:57
Speaker 5: Mr.
36:57
Speaker 3: Lutzky, thank you so much for joining us today. We
36:59
Speaker 3: appreciate it.
37:00
Speaker 6: Well, thank you. It's always a pleasure.
37:02
Speaker 1: This has been Ask Todd on the Financial Exchange Radio Network.
37:06
Speaker 1: Ask Todd with Todd Lutzke has been presented by Cushing
37:09
Speaker 1: & Dolan, serving Massachusetts and New England for more than
37:11
Speaker 1: 30 years, helping families with estate and tax planning, Medicaid planning,
37:15
Speaker 1: and probate law. Call 800-393-4001 or visit CushingDolan.com. The views
37:21
Speaker 1: expressed in this segment are solely those of Cushing & Dolan.
37:24
Speaker 1: Armstrong Advisory does not provide any legal or tax advice.
37:26
Speaker 1: Please consult with your legal or tax advisor on such matters.
37:29
Speaker 1: Cushing & Armstrong do not endorse each other and are
37:31
Speaker 1: not affiliated.
37:32
Speaker 3: Still a bunch to come as we head towards hour two.
37:34
Speaker 2: We'll be taking a look at some new inflation data
37:37
Speaker 2: that Bloomberg's been putting together over the last year or so. Also,
37:41
Speaker 2: what's going on in housing with mortgage rates. And, hey,
37:44
Speaker 2: what are we seeing in terms of how the AI
37:47
Speaker 2: boom may be evolving as we go through the fall?
37:52
Speaker 2: We're also going to talk a little bit about Social
37:54
Speaker 2: Security and then CVS with a big announcement this morning
37:58
Speaker 2: that makes us wonder, hey... Why does anyone do anything?
38:02
Speaker 2: Let's take a quick break. When we return, we'll get
38:07
Speaker 2: to all that and more.